Petition for a Writ of Certiorari — Bell v. United States

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- Supreme Ceert, #. §

FILED

DEC 8 1959

In THE

vs.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FOURTH CIRCUIT AND SUPPORTING BRIEF

G. C. A. ANDERSON,

GeorceE L. Harr,

ANDERSON AND BARNES,

Attorneys for Petitioner,

Maryland Trust Building,

Calvert and Redwood Streets,

Baltimore, Maryland.

The Daily Record Co., Baltimore 3, Md.

‘ TAPP Sher, eS Rests

DARK PAGE BLEED TRPRU

Lt 8 PEL AITO PT SETS

eich

ran

INDEX

PETITION

TABLE OF CONTENTS

PAGE

RCRD ice Seer ek Cee rh a ee 2

ee cee oc SIS ICME ERTL ERR PIE AS APR te fect et 2

el ee em ie oer 2

QUESTIONS PRESENTED 22000020. oococcccocececcccececececececce. 2

CC” MMARY AND SHORT STATEMENT... 4+

. --ASONS RELIED ON FOR ALLOWANCE OF WRIT... .__. 12

RDS ARR OAL ea PN NRisig Tn one ele el a 13

BRIEF

TABLE OF CONTENTS

ARGUMENT:

I. The Decision of the United States Court of Ap-

peals for the Fourth Circuit in this case of Ben-

jamin Bell v. United States is in direct conflict

with the Decision of the United States Court

of Appeals for the Fifth Circuit in the case of

Bryan v. United States, 175 F. (2) 223 (1949),

and the Decision of the United States Court of

Appeals for the Seventh Circuit in the case of

United States v. Fenwick, 177 F. (2) 488 (1949) 15

There were no Cases cuntrary to the Bryan

case and the Fenwick case until the Bell

RO ee prema ere ie eile ee wits SO ee 18

Alleged extra-judicial Admissions by the

Defendant are not proof to sustain a con-

GRD cet e ne 20

CRE OO Ee ete

BEST COPY AVAILABLE

pressions

IEABS RD LE

IE TSS RPS NOLIN Uae Nal ALAM A ET i ii sat Web P ES k

The Government’s case shifts the burden

of proof from the Government to the De-

I ae eter ee tie oS.

The Government’s case is predicated upon

an inference on an inference on an infer-

RS Waleed CaO ceo aod ae Oa

The Bryan case ,supra, and the Fenwick

case, supra, are supported by the Supreme

Court in U. S. v. Johnson, 319 U. S. 503,

8 aE eee

SEE ERD aa ER a Ne

II. A Naked Net Worth Statement with its base

year not clearly and accurately established by

competent evidence, and with each year re-

plete with errors is not sufficient to sustain a

conviction of alleged tax evasion without the

government offering a scintilla of direct evi-

dence of unreported income |...

The Net Worth Statement for the base year

1942 was not clearly and accurately estab-

lished by competent evidence, but was ad-

mittedly inaccurate and replete with er-

RST REPECIS LOREEN asd So ees las a

The Net Worth Statement is Replete with

Errors for the tax years 1943, 1944 and

PN Bieldside ipponaioadio bck cltsacssorn.siceaivs,

The Net Worth Statement shows on its face

Tas deena en

The Government did not offer a scintilla of

evidence showing any unreported income

The Corporate Books |....0000.00.0000.00.00.0ccc

Discussion — Invoices ..................................

PAGE

ili

PAGE

III. This case calls for the exercise of this Court’s

power of supervision because the rulings of the

United States Court of Appeals for the Fourth

Circuit in sanctioning certain rulings of the

District Court of the United States for the Dis-

trict of Maryland, at Baltimore, has departed

from the Usual and Accepted Course of judi-

a NORTE RELATE CU Ra ile i ee 44

ee a te cag ac RPE NSE NSA Aes GE eet RRL AOE Fe tie BE 53

EEE AeA Aas CeO ne Ri a air oa 55

TABLE OF CITATIONS

Cases

Alford v. United States, 282 U. S. 687, 75 L. Ed. 624 46

Arnold v. United States, 94 F. (2) 499; 10th Cir., Jan.

5 Bitar eae 46

Barcott v. United States, 169 F. (2) 929; 9th Cir. 1948;

Cert. dem. 33 L. Ed 1078 ............................. 19, 51

Brodella v. United States, CCH 1950—2 USTC, par.

ee 19, 27, 32

Bryan v. United States, 175 F. (2) 223; 5th Cir. 1949;

Aff. 338 U. S. 552, 94 L. Ed. 287... 2, 12, 15, 16, 18,

23, 26, 28, 29, 32, 41, 44

Capone v. United States, 51 F. (2) 609; 7th Cir. 1931;

Cert. den. 284 U. S. 669—76 L. Ed. 567... 20

Chadwick v. United States, 77 F. (2) 961; 3rd Cir.

RRB Se SSelTis Sa SA Rd allied ga nm taaen ySalintiNey aman 19

Coffin v. United States, 156 U.S. 432; 39 L. Ed. 481—

GE a LEASE eg PO Ele NOE A Nia ge 23

Cossack v. United States, 63 F. (2) 511; 9th Cir. 1933 46, 49

Dows, et al v. National Exchange Bank of Milwau-

kee, 01 U. S. 618, 23 L. Ed. 214918... its 44

Gleckman v. United States, 80 F. (2) 394; 8th Cir.,

Cert. den. 297 U.S. 709, 80 L. Ed. 996. 19, 20, 51

Ft ATER RE RS a ee ale alae

PAGE

Greis v. Fidelity and Casualty Co. of N. Y., 19 F.

SVE Oe toes oo ime rye ree ee AN POR 43

Guzik v. United States, 54 F. (2) 618, 7th Cir. 1931;

Cert. den. 285 U. S. 545—76 L. Ed. 937 0.0.0.0... 19

Heard v. United States, 255 F. 829; 8th Cir., Jan. 23,

ERE E TORI A CS SU eA Se OE eR NSC REN 46, 49

Ameed Jacob & Anna Jacob, Petitioner v. Commis-

sioner of Internal Revenue, Respondent, Tax

Court of U. S., Docket No. 19630, decided May 23,

Oe aaa eae ae 36, 42

Jelaza v. United States, 197 F. (2) 202; 4th Cir. 1950 19

Kitrell v. United States, 79 F. (2) 259—10th Cir. 1935 19

Lindsay v. United States, U. S. App. Ct., D. C., 133

i. I Whe WI oso ess ecient etoriceenses 46

Malone v. United States, 94 F. (2) 281; 7th Cir. 1938;

Cert. den. 304 U. S. 562—82 L. Ed. 1529 ................ 19, 51

Nicola v. United States, 72 F. (2) 780; 3rd Cir. 1934 19

Oliver v. United States, 54 F. (2) 48; 7th Cir. 1931—

Cert. den. 285 U. S. 543—76 L. Ed. 935 ................ 19

Paschen v. United States, 70 F. (2) 490; 7th Cir. 1934 19

Reilly v. Pinkus, L. Ed. Adv. Sheets, Vol. 94, p. 82 .... 45

Schuermann v. United States, 174 F. (2) 397; 8th

Cir., 1948; Cert. den. 338 U. S. 831—94 L. Ed. 46 19

In re: Scheinman, 14 F. (2) 323; D. Ct. E. D. Pa., July

RRR te Cae erent way Raed eee 37, 42

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

Rae OEE STATES ARTE ES Beene ED LORE 23

Stinnett v. United States, 173 F. (2) 129; 4th Cir.

ES NR SSF eta pee, ER INUAIE Sao Pte CM rr RRC R TR 19

United States v. Berman, 75 F. (S) 789; D. Ct. N. D.

AOU I I hg ooo Fearevcadsattooeecs ndrcere 38, 42

United States v. Chapman, 168 F. (2) 997; 7th Cir.

1948; Cert. den. 93 L. Ed. 401 ...0...0.0.n.. 19, 21, 28

United States v. Cole, 90 F. (S) 147; D. Ct. S. D. Cal.,

SE IP red haiycakicen pcscucca ic cunncaemaisias: 22, 23

PACE

United States v. Fenwick, 177 F. (2) 488; 7th Cir.

SN aie tee Nae ee ae eee 2, 12, 15, 17, 18, 21,

25, 26, 27, 32, 41, 44

United States v. Johnson, 319 U. S. 508; 87 L. Ed. 1547;

rehearing denied 320 U. S. 808—1943 .............. 20, 26

United States v. Miro, 60 F. (2) 58; 2nd Cir. 1932 ...... 19

United States v. Phelan, 252 F. 891; D. Ct. S. D. Cal.,

ASR cee ean ae ote em SN SIN ce 49

United States v. Potson, 171 F. (2) 495; 7th Cir. 1948 19

United States v. Schuermann, 79 F. (S) 247; 8th Cir.

SE Ss xistronneceek sone cdintia Cinkceisboeiiots shone ecco oe 19

United States v. Skidmore, 123 F. (2) 604; 7th Cir.

1941; Cert. den. 315 U. S. 800—86 L. Ed. 1201; Re-

hearing den. 315 U. S. 800—86 L. Ed. 1201 ...... 19, 28

United States v. Wexler, 79 F. (2) 526, 2nd Cir., Cert.

den. 297 U. S. 703—80 L. Ed. 991 2.000.000.0000... _ 19, 20

Miscellaneous

20 Am. Jur. p. 481—Evidence, Sec. 568 2.000.000.0000... 47

58 Am. Jur. pp. 369-370, Sec. 676 2.0.0.0... 49

58 Am. Jur. pp. 423-425, Sec. 773 .................ccee 49

31 C. J.S. 1065, Evidence, Sec. 297B ........................... : 48

70 C. J. p. 1075, Witnesses, Sec. 12738 ...................... a 49

Jones on Evidence, 4th Ed., Sec. 826 ....000000000000......... 49

New York Institute on Fed. Taxation, 8th Annual

ER ERE TEP EINE est VIO, MA EN AM cde Nem Te Fee 38

Reg. III, Sec. 29.54—CCH par. 480 2.0.0.0. 43

Underhill Criminal Evidence, 4th Ed., Sec. 400 ............ 46

Webster, New International Dictionary—2nd Ed. .... 43

Wharton, Criminal Evidence, 10th Ed., Sec. 482 ..... 49

Wigmore on Evidence, Vol. 1, Sec. 656 ................... 50

Wigmore on Evidence, Vol. 3, Sec. 1042 Px 48

Wigmore on Evidence, Vol. 3, Sec. 1073 .................... 48

Statute

PAGE

Revenue Act of (Feb. 26) 1936 and (May 28) 1938,

now embodied in general form in par. 145(b) of

the Internal Revenue Code, 53 Stat. 63; Title 26

U.S.C. A., Sec. 145(b); 6 F. A. C., Title 26 par.

145(b)

OcToBER TERM, 1950

BENJAMIN BELL,

Petitioner,

VS.

IN THE

Supreme Court of the United States

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI

(Figures in ( ) refer to Record).

To THE HONORABLE CHIEF JUSTICE AND ASSOCIATE JUSTICES

OF THE SUPREME COURT OF THE UNITED STATES:

The Petitioner Benjamin Bell prays that a writ of cer-

tiorari be issued to review the judgment of the United

States Court of Appeals for the Fourth Circuit rendered

on November 8th, 1950, affirming the judgment of the Dis-

trict Court of the United States for the District of Mary-

land at Baltimore on May 17th, 1950, adjudging the Peti-

tioner guilty of wilfully and knowingly attempting to

evade payment of income taxes for the years 1943, 1944 and

1945. The Petitioner was sentenced to imprisonment for

a period of six months and fined the sum of $17,500. The

Petitioner was released on bail.

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Fourth Circuit appears at page 258 of the Record.

There was no opinion in the District Court of the United

States for the District of Maryland, at Baltimore.

JURISDICTION

Jurisdiction is invoked under Section 1254 (1) of the

Judicial Code, 28 U. S. C. A. Sec. 1254 (1).

STATUTE INVOLVED

The Revenue Acts of (Feb. 26) 1936 and (May 28) 1938,

now embodied in general form in Par. 145 (b) of the In-

ternal Revenue Code 53 Stat. 53; Title 26 U. S. C. A. Sec.

145 (b); 6 F. A. C. Title 26 Par. 145 (b).

QUESTIONS PRESENTED

1. The ruling of the United States Court of Appeals for

the Fourth Circuit in this case of Benjamin Bell v. United

States is in direct conflict with the ruling in the United

States Court of Appeals for the Fifth Circuit in the case

of Bryan v. United States, 175 F. (2) 223 (1949), and the

ruling of the United States Court of Appeals for the

Seventh Circuit in the case of United States v. Fenwick,

177 F. (2) 488 (1949).

2. The ruling of the United States Court of Appeals for

the Fourth Circuit in this case of Benjamin Bell v. United

States decided:

That a naked net worth statement with its base year

not clearly and accurately established by competent

evidence, and with each year replete with errors, is

sufficient evidence to convict a citizen of alleged tax

evasion, without the Government offering a scintilla

of direct evidence showing any unreported source of

income.

This decision has determined an important question of

Federal Law which should be settled by the Court.

3. The ruling of the United States Court of Appeals for

the Fourth Circuit has so far departed from the accepted

and usual course of judicial procedure, and has so far sanc-

tioned such a departure by the District Court of the United

States for the District of Marylend at Baltimore as to call

for the exercise of this Court’s power of supervision. The

departure from the accepted and usual course of judicial

procedure was the action of the District Court in limiting

the scope of cross examination so that the defendant was

not even allowed to cross examine within the scope of the

Government’s direct examination.

(a) By refusing to allow the defendant to cross examine

the Special Agent in order to ascertain what the

Agent found in the Defendant’s safe deposit box.

(b) By refusing to allow the defendant to cross examine

the Special Agent in order to ascertain what the

defendant’s check book, check stubs and bank books

showed relative to the Defendant’s income and re-

lated matters;

the Special Agent with reference to a bank book of

the Defendant showing the Defendant’s rentals;

By refusing to allow the Defendant to cross examine

the Special Agent about his failure to answer a letter

directed by special delivery to the Agent by the

Attorney for the Defendant, in which letter were

statements in direct conflict with the Agent’s testi-

mony on the stand;

(e) By refusing to allow the Defendant to cross examine

the Special Agent with regard to whether the Agent

ae ee Ea ee

had not in the net worth statement charged the De-

fendant with income in 1943 which was in fact in-

come in 1942, and on which the Defendant had paid

a tax for the year 1942.

(f) By refusing to allow the Defendant on cross examina-

tion to ascertain what schedules and other informa-

tion were furnished, and what other persons were

used by the Government in preparing the ret worth

statement;

(g) By refusing to allow the Defendant to cross examine

the Special Agent about three checks which show

on their face that they were deposited in the De

fendant’s bank account, and which checks constituted

an item of $15,000 for which the Agent charged the

Defendant twice in 1944 as income.

Conclusion

The action of the District Court and the Circuit Court

in this case has deprived the defendant of his liberty with-

out due process of law.

SUMMARY AND SHORT STATEMENT

The Defendant is Benjamin Bell who, since 1933, has

been the owner of the Washington Art Galleries and Auction

Rooms, Inc., a body corporate, located at 722 Thirteenth

Street, Washington, D. C. (7).

To prove the Defendant guilty of tax evasion, the Gov-

ernment offered in evidence a consolidated net worth state-

ment of the Defendant and his wife, prepared by a Special

Agent — one Knight — in conjunction with others. The

Government did not offer a scintilla of direct evidence of

unreported income. The Special Agent admitted he found

no unreported source of income. The Government’s case

was a naked net worth case predicated on the consolidated

net worth statement. This net worth statement purported

to show consolidated assets and liabilities for the years

1942, 1943, 1944 and 1945. This net worth statement was

replete with errors. The base year for this statement was

1942. It was against this base year (showing alleged con-

solidated net worth in 1942) that all alleged increases in

earned income were measured. The base year must be

accurate if subsequent alleged increases in net income are

to be accurate. The accuracy of this base year, and sub-

sequent years, can be judged from the following:

(a) The Net Worth Statement omitted in its computa-

tion two calendar months or one-sixth of the Defendant’s

business operations for the base year of 1942 as well as

each subsequent year.

The Washington Art Galleries and Auction Rooms, Inc.,

was owned by the defendant, and was the primary source

of the Defendant’s income. This Corporation kept its books

and paid its taxes on a fiscal year basis from October 31st

of one year to October 31st of the following year. The De-

fendant paid his taxes on a calendar year basis. Notwith-

standing this fact, Special Agent Knight, in computing

the Defendant’s net worth at the close of the calendar years

1942, 1943, 1944 and 1945, included in the Defendant’s

net worth his assets and liabilities, with the computation

as of October 31st of each of said years, and did not adjust

said assets and liabilities as of December 31st of said years.

These items include balance of salary owed the Defendant,

balance of rent owed the Defendant, balance owed De-

fendant on his trading account under the name of Mount

Vernon Galleries, and any other amounts owed the De-

fendant by the Corporation, as well as any amounts owed

to the corporation by the Defendant (43-46); for example,

WDSc cae nd SCANNER ANE eae aS RIOD ATOR eh aie TALL

in determining loans receivable by the Defendant from

the corporation, Special Agent Knight took the figure of

$27,072.43 from the books of the corporation as of October

31, 1942, not as of December 31, 1942 (139), alleging as

a reason that the final statement for the corporation was

not made up until the year had passed (139-140), although

at the time he made up the net worth statement the years

1942, 1943 and 1944 had passed and he had the information

(140), since the statement was made up some time after he

first saw the Defendant in 1946.

(b) The Consolidated Net Worth Statement did not

show any cash accumulations in the base year 1942 since it

did not accurately measure or determine either the amount

of accumulated cash of the Defendant, or the amount of

accumulated cash of his wife.

This is clearly shown by the following:

“Q. (Mr. Anderson) March 28th, 1946, did you ask

Mr. Bell if he had any currency on hand in 1942? A.

I don’t recall that I did, no sir.

Q. Did you ask him whether he had any currency

on hand in 1943? A. No, sir, I don’t recall that I did.

Q. Or in 1944? A. I believe—may I retract that.

I believe that I did, Your Honor, and it was stated he

would get the small amounts which were not sufficient

before making deposits, and that would not be in the

statement, but that is something oral” (101).

Special Agent Knight had taken a question and answer

statement from the Defendant (101) to which he added a

page, in longhand (102) in his own handwriting (102), and

while the matter of cash on hand was important (103) he

left it out of this report (103). (Italics supplied).

The net worth statement was a consolidated statement

of the Defendant and his wife, but Special Agent Knight

never asked Mrs. Bell whether she had any cash on hand

in 1942, 1943, 1944 and 1945, or whether she had any ac-

cumulated cash in 1942.

curately measure or determine what was due and owing

by the defendant or by his wife in the base year 1942.

This is clearly shown by the following:

“Q. And at that time did you ask whether Mr. Ben

Bell, who was under investigation, owed any money?

A. May I refer to that question and answer statement

which I took that day?

Q. You have no independent recollection without

referring to the question and answer statement? A.

Yes, there is a question there I asked him it. I believe

it is on the second page.

Q. The top question? A. Yes.

Q. (Mr. Anderson) This is the question isn’t it:

‘Did you have any loans due from other persons out-

standing since January 1936’? A. The answer is no.

Q. That is correct. It is not whether you owed any-

body, but it is loans due from anybody; is that cor-

rect? Is that what it says: Did you have any loans due

from anybody? A. That is correct” (103-104).

The Special Agent never questioned Mrs. Bell about

anything, and hence never questioned her about any debts

which might be due and owing by her.

(d) Other Errors and Mistakes in the Net Worth State-

ment for the Base Year 1942. The Defendant’s 1942 return

shows that in 1942 the Defendant received a certain liqui-

dating dividend in the matter of Morton H. Goldberg in

the amount of $4,635.61, of which 80% or $3,708.09 be

longed to the Defendant and the balance to someone else.

The Defendant paid income tax on the $3,708.09 in 1942

(132-133) but Special Agent Knight did not include this

anit Aste AG DREADS AT PETA AAI IRI

it aR te ci eS

as an asset in the Defendant’s net worth statement (133)

for 1942 (133) but added it, instead, to the 1943 net

worth statement (134), to form a bart of ‘ncreased net

worth in 1943 over the base year 1942. The net worth state-

ment was a consolidated Statement, but Special Agent

Knight did not include as an asset in 1942 a saving account

of $360. of Mrs. Bell in the National Metropolitan Bank

(136), nor did he give the Defendant credit as a cash

asset for salary in the amount of $6,000 earned in 1942

(136-137) paid by the Galleries to the Defendant and shown

on the Galleries books as salary earned in 1942 (Exhibit

6), nor did he include Government bond in the amount

of $1200. in the name of Mrs. Bell (137), nor did he give

the Mullen Manufacturing stock a value (138); nor did he

give the Defendant credit for $3,021.72 money due from

Orvis Bros. (138).

(e) The accuracy of the Net Worth Statement for the

years 1943, 1944 and 1945 can be judged from the following:

In these years, Special Agent Knight did not give the

Defendant credit for 100 shares of Jones and McLaughlin

stock in the amount of $2,852.70 (140) but he charged

the Defendant with 500 shares of Pittston Company stock

which stock he did not have (144). He charged the

Defendant with gross insurance premiums, not gross prem-

iums minus dividends, as was actually paid (147-148) al-

though he had the Defendant’s checks and had analyzed

them.

In the net worth statement he placed a $1,000 bond in

the wrong year (153-154). At the end of 1944 he charged

the Defendant with $45,000 the full value of certain real

property in Atlantic City, without giving him an offset of

$16,825. paid in 1944 as a deposit on a contract to sell this

property (153-160), which the settlement sheet showed

WsenshbO LES LAGNA ATON TOW ied: CORA WE UR ese rian Eg

was paid on account of the sale (160), and which the

witness presumed was deposited in the Defendant’s bank

account (154), and the bank account itself shows a de-

posit of $15,000 shortly after this time. Special Agent

Knight just took the Defendant’s bank balance for Decem-

ber 31, 1945, at the wrong figure (55-56). The balance was

actually $1,303.59, but the Agent had it as $2,482.14, and

in 1945 he did not credit the Defendant in the Marcus mat-

ter with $333 and $463.65 which had been paid the De-

fendant by two other persons in connection with this mat-

ter (160).

(f) Books and Records of the Defendant—The Defend-

ant’s source of income are: commissions from the Galleries,

rentals, some dividends, a few long term capital gains, plus

salary from the Galleries (110-111). The Defendant’s rec-

ords and books showing this income are as follows:

Corporate Books—The corporate books consist of

(a) a Journal (Exhibit 5) showing cash receipts (9)

expenses and mixed accounts from which profit and

loss statements are prepared (10); a daily cash book

(Exhibit 7) showing individual daily sales; the amount

of each sale and to whom each sale was made (11-13);

and (c) a general ledger (Exhibit 6) which contains

a personal account of the Defendant showing what, if

anything, the corporation owed the Defendant (16);

a rental account, showing rental charges for the place

of business occupied by the corporation (16); a

storage account, and the Defendant’s trading account,

labelled “Mt. Vernon Galleries (17); (Note: The

government witness constantly confused the journal

(Exhibit 5) with the ledger (Exhibit 6) (9-14).

Personal Books and Records—Personal books and

records were: a personal bank book showing rentals

(cther than gallery rental shown on corporate books)

salary, exchanges and so on (116); cancelled checks

and check stubs; personal income, tax returns, show-

ing all capital gains or losses. Special Agent Knight

never asked the Defendant for his settlement sheets

on his real estate transactions (117). Special Agent

Knight stated that in his opinion the corporate books

plus the personal books were inadequate because “the

corporation was on a fiscal year basis whereas Mr. Bell

is on a calendar year basis”, and because “there was

no invoice or tape which substantiated the books of

the corporation” (19). He admitted that the daily

cash book (Exhibit 7) details each day’s individual

sales; the individual amount of each sale, and the

name of the purchaser (122); the day’s total is en-

tered in the Journal (121-122) and can be checked

against bank deposits and bank statements (123).

(g) Preparation of Net Worth Statement — Special

Agent Knight stated that after making up the net worth

statement the original work sheets were no longer of any

use (95-96) and he did not have them (95). He “presumed

they were” in his handwriting “if he made them they were”

(96). Mr. Cunningham, Certified Public Accountant at-

tached to the Bureau worked with Special Agent Knight,

and some of the work sheets were in Mr. Cunningham’s

handwriting (96), so that some of the work sheets and

figures from which the final account was made, were in

Mr. Cunningham’s handwriting and some were in Special

Agent Knight’s handwriting (96); that the net worth state-

ment represents their joint work (96). Mr. Cunningham

made up the item of the net worth statement headed “Less

non-taxable portion long-term capital loan” (73), and

Special Agent Knight could not explain it without referr-

ing to Mr. Cunningham’s report. Mr. Cunningham did not

testify in the case.

(h) The Unsigned Statement—On or about November

21, 1946 (126), Mr. Bell was presented at his place of

business with a statement by Special Agent Knight and an-

other agent, purporting to set forth an interview with Mr.

Bell on October 11. Mr. Bell refused to sign this state-

ment because of alleged errors in the same (127) call-

ing his lawyer, Mr. Hart, who shortly came to the place

of business and advised against signing because of the

errors (128). Mr. Hart arranged for a subsequent con-

ference on the following Monday (130) at which time

a Court Stenographer was to be present (129). This

appointment was later broken by Special Agent Knight

(130) following which Mr. Hart immediately wrote Special

Agent Knight with reference to this matter (130). This

letter was never answered. On objection by the Govern-

ment, the Defendant was not allowed to cross-examine

Special Agent Knight with respect to this letter (130-132),

or even mark the letter for identification. (The letter is at-

tached to the Brief as Appendix A).

(1) Further Errors of the Special Agent—Special Agent

Knight stated concerning his first interview with the De-

fendant — “At this time I learned that he owned real

estate”, mentioning four properties. On cross examination

it developed that at this time Special Agent Knight had the

Defendant’s return for the years 1942, 1943 and 1944,

which returns showed on their face the Defendant’s real

estate holdings and the income therefrom; that he had been

investigating this case since 1946 and that immediately

upon being given the Defendant’s 1945 return, he turned

it over to see that it showed a certain real estate trans-

action which it did.

Special Agent Knight stated that he charged the De

fendant’s wife’s real estate at 9707 Georgtown Road, valued

at some $16,000., to the Defendant because the Defendant

IP ear wissen ries tere ree nearer trade Dehn Gk RP NES AE AR ARORA IIRL ER AT SB Ca, RTDs OI ae i OEE 2 ans: “te BM ud

said he furnished the money deposited in his wife’s bank

account, and the property had been paid for out of this

bank account. When asked to show that the $16,000 paid

by Mrs. Bell for her real estate had cleared through her

bank account he was totally unable to do so, although he

had before this referred to all her bank statements (150-

152).

It is with a net worth statement replete with the above

errors, and with an inventory of only $8,650.00 (145)

that the Government charges the Defendant with a net

income in 1943 of $63,836.00, in 1944 of $41,115.00 and 1945

of $25,203.00.

REASONS RELIED ON FOR ALLOWANCE

OF THE WRIT

The reasons relied upon are:

(a) The decision of the United States Court of Appeals

for the Fourth Circuit in this case of Bell v. United States

is directly in conflict with the decision of the United States

Court of Appeals for the Fifth Circuit in the case of Bryan

v. United States, 175 F. (2) 223 (1949) and the decision

of the United States Court of Appeals for the Seventh

Circuit in the case of United States v. Fenwick, 177 F. (2)

488 (1949).

(b) The United States Court of Appeals for the Fourth

Circuit has decided that:

A naked net worth statement with its base year not

clearly and accurately established by competent evi-

dence, and with each year replete with errors, and

without a scintilla of direct evidence showing any un-

reported source of income is sufficient evidence to sus-

tain a conviction of alleged tax evasion.

4 This decision has determined an important question of Fed-

eral law which should be finally decided by this Court.

in a criminal case that this Court should intervene in the

exercise of its supervisory powers.

(d) The action of the District Court and the Circuit

Court by the above rulings has deprived the Defendant of

his liberty without due process of law.

CONCLUSION

Wuenrerore for the reasons stated in the petition and in

the annexed brief, it is respectfully submitted that the Writ

of Certiorari to review the judgment of the United States

Court of Appeals for the Fourth Circuit herein prayed

should be granted.

Respectfully submitted,

G. C. A. ANDERSON,

Maryland Trust Building,

Baltimore 2, Maryland,

Georce L. Hart,

Munsey Building,

Washington 4, D. C.,

ANDERSON AND BARNES,

Maryland Trust Building,

Baltimore 2, Maryland,

Counsel for Petitioner.

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In THE

Supreme Court of the United States

OcTOBER TERM, 1950

BR icine

BENJAMIN BELL,

Petitioner,

Vs.

UNITED STATES OF AMERICA,

Respondent.

BRIEF IN SUPPORT OF PETITION FOR WRIT

OF CERTIORARI

To THE HONORABLE CHIEF JUSTICE AND ASSOCIATE JUSTICES

OF THE SUPREME COURT OF THE UNITED STATES:

ARGUMENT

THE DECISION OF THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT IN THIS CASE OF BENJAMIN BELL V.

UNITED STATES IS IN DIRECT CONFLICT WITH THE DECISION

OF THE UNITED STATES COURT OF APPEALS FOR THE FIFTH

CIRCUIT IN THE CASE OF BRYAN V. UNITED STATES, 175 F. (2)

223 (1949), AND THE DECISION OF THE UNITED STATES COURT

OF APPEALS FOR THE SEVENTH CIRCUIT IN THE CASE OF

UNITED STATES V. FENWICK, 177 F. (2) 488 (1949).

The issue herein raised is a vital issue. It is — Is a mere

increase in net worth in a given year proof that the increase

NOSE cat CRORES es TR CRB Bin ye oY, COO Re Ceres y parece

in net worth was earned income in that year? In both the

Bryan case, supra, and the Fenwick case, supra, it was

specifically held that a mere increase in net worth did not

prove that this increase was earned income. The follow-

ing is a comparison of Bryan v. United States, 175 F. (2) 223

(Sth Cir. 1949), and the Bell case now under consideration:

Bryan Case Bell Case

1. Years for which indicted — 1. Years for which indicted —

1942-1943-1944, 1943-1944-1945.

2. Evidence clearly showed that 2. Exactly the same evidence.

the defendant spent more

money during indictment

years than reported in his

gross income.

3. Defendant’s capital assets in- 3. Exactly the same evidence.

creased in proportion to ex-

penditures in excess of gross

receipts.

4. Defendant contends that in 4. Exactly the same contention.

spite of this fact the Govern-

ment’s case failed to show

that the expenditures in ex-

cess of gross income came out

of current assets.

5. The Auditor for the Bureau 5. Exactly the same evidence.

computed net worth trom

records of conveyances, sales,

mortgages, bank deposits, re-

turns, and such other infor-

mation as he could find and

which he considered reliable.

6. Auditor’s statements were to 6. Exactly the same evidence.

the effect that the net worth

statement contained all the

Defendant’s assets which he,

an auditor of much experi-

ence could find.

In the Bryan case, the Defendant was found guilty in the

lower Court which finding was reversed on appeal, the

ow Pc a SR nih BE A OE OME SP AS OM NGN LOS Fils KIRN AOI, TR AY ZRTNATA A eS Tt

United States Court of Appeals for the Fifth Circuit hold-

ing at page 227:

“The evidence, being circumstantial, must exclude

every reasonable hypothesis other than the guilt of the

defendant * * * The case should not have been sub-

mitted to the jury since it did not exclude the hypothe-

sis that the funds used in making some of the expendi-

tures might have been from sources other than current

business income.”

The case of U. S. v. Fenwick, 177 F. (2) 488 (7th Cir.

1949) can be compared with the Bell case just as the Bryan ;

case was compared with the Bell case. The comparison will

be exactly the same except that in the Fenwick case there

were extra-judicial admissions tending to show defendant

guilty of evasion, whereas in the Bell case the only extra-

judicial statements of Defendant were to the effect that he

had not evaded tax, and explained his increase in net worth.

Hence the evidence in the Fenwick case was stronger by far

than the evidence in the Bell case.

In the Fenwick case, the United States Court of Appeals

for the Seventh Circuit carefully framed the issue—177 Fed.

(2) 488 at 489—as follows:

“The government insists that it has proved that de-

fendant wilfully evaded payment of tax in each year

by evidence that in each year defendant’s net worth

increased to an amount g:eater than his reported in-

come and by evidence of expenditures in excess, as it

says, of defendant’s disclosed incomes.”

POA

Having raised this specific issue the Court conclusively

answers the same 177 F. (2) 488 at 488-490:

“In such a situation we must keep in mind that the

conviction can not stand unless there is proof of the

corpus delicti, existence of which cannot be presumed

or established by an extrajudicial admission. The

Su ath Sasa eames BEINN ah A IONS AD AS BCD

government must, by competent evidence, prove be-

yond reasonable doubt that the crime charged has ac-

tually been committed. Pines v. United States, 8th Cir.

123 F. 2d 825, 829; Forte v. United States, 68 App. D. C.

111, 94 F. 2d 236, 243, 127 A. L. R. 1120; Gardinier v.

United States, 9th Cir. 261 F. 910, 912; United States v.

Chapman, 7 Cir. 168 F. 2d 997 at page 1001. In the

latter case we said: ‘Appellant contends that, “In a ‘net

worth case’, the starting point must be based upon a

solid foundation and a Revenue Agent’s statement of

the defendant’s oral admission or confession when un-

corroborated is not sufficient to convict.” We fully

agree with his statement of the law.’ In other words to

justify the conviction, there must be proof beyond

reasonable doubt and exclusive of any express or im-

plied extrajudicial admission by defendant, that defen-

dant evaded some income tax.”

After quoting with approval from the Bryan case, supra,

the Court held that the Government had failed to prove its

case.

These two cases are in direct conflict with the Bell case.

This conflict between the Courts of the Fifth, Seventh and

Fourth Circuits is a serious conflict since it involves a

criminal statute and hence the liberties of individual tax-

payers. In the Fifth and Seventh Circuits the Defendant

would be free; in the Fourth Circuit the Defendant is sen-

tenced to the Federal Penitentiary.

There Were No Cases Contrary to the Bryan Case and

Fenwick Case Until the Bell Case

In every net worth case to date (with the exception of the

Bell case) in a Court of final resort, a mere increase in net

worth has been held insufficient to sustain a conviction un-

less, in addition to the net worth statement, there was evi-

dence of one or more of the following factors, which factors

prove or tend to prove tax evasion.

A—Proof that the Defendant has been paid or re-

ceived some specific money which he has failed to

report:

Oliver v. U. S.,54F. (2) 48;

Nicola v. U. S., 72 F. (2) 780;

U. S. v. Chapman, 168 F. (2) 997;

Brodella v. U. S., CCH Advance Sheets, 1950 2

USTC Par. 9477, p. 13,280.

B—Proof of unexplained regular day by day; month

by month bank deposits of a nature consistent

with business income:

U.S. v. Miro, 60 F. (2) 58;

Gleckman v. U. S., 80 F. (2) 394;

Barcott v. U. S., 169 F. (2) 929;

Jelaza v. U. S.,179 F. (2) 202.

C—Proof of specific undisclosed sources of income,

showing that defendant was engaged in some

| business (usually illegal) other than the busi-

ness disclosed in defendant’s income tax return.

Chadwick v. U. S., 77 F. (2) 961;

U.S. v. Wexler, 79 F. (2) 526;

Paschen v. U. S., 70 F. (2) 490;

Malone v. U. S., 94 F. (2) 281;

U. S. v. Skidmore, 123 F. (2) 604;

U. S. v. Potson, 171 F. (2) 495.

D—Proof of specific acts of Defendants showing at-

tempts to evade income tax by destruction of

books of account, keeping of two sets of books,

failure to keep any books or records, attempt to

bribe agent, etc.

Guzik v. U. S., 54 F. (2) 618;

Kitrell & U. S., 79 F. (2) 259;

Stinnett v. U. S., 173 F. (2) 129;

U.S. v. Schuermann, 79 F. (S) 247;

Schuermann v. U. S., 174 F. (2) 397.

we eth ete

Ne eT Mow)

el SERA WRK SR Us Gates

The rationale of all these cases is that an increase in

net worth standing alone, is not proof of earned income

to sustain a conviction. Running through these cases will

often be found the following quotations from the Gleck-

man case supra at 399, quoted with approval in many of

the above cases.

“It may be conceded also that the bare fact stand-

ing alone that a man has deposited a sum of money

in a bank would not prove that he owed income tax on

the amount; nor would the bare fact that he received

and cashed a check for a large amount, in and of itself,

suffice to establish that income tax was due on the

amount of it.”

In many of the above cases, net worth, was only inci-

dental to the main case which was essentially a criminal

prosecution against gangsters and racketeers. Net worth

only tended to reinforce what positive evidence had

proved.

Capone v. U. S., 51 F. (2) 609;

U. S. v. Wexler, 79 F. (2) 526;

U. S. v. Johnson, 319 U. S. 503; 87 L. Ed. 1547.

Alleged Extrajudicial Admissions By a Defendant Are

Not Proof to Sustain a Conviction

The agent testified to certain alleged admissions of De-

fendant to the Agent at two interviews, one on March 28,

1946, and one on October 11, 1946. It is of interest to note

that although the interview of March 28, 1946, was re-

duced to writing and signed by Defendant (105), it was

never offered in evidence by the Government, and in fact

the Government even objected to the Defendant’s having

it marked for identification (105). The interview of Octo-

ber 11, 1946, was taken down stenographically but Defen-

dant refused to sign the transcript because of errors con-

tained therein (127-132).

The so-called admissions were actually statements of

fact showing the source of income, which statements the

Government did not choose to believe, but which state-

ments were never in any way denied. These statements

were not admissions of evasion but specifically denied

evasion. Thus in this case there are no harmful admissions,

but even if there were harmful admissions, the evidence

would not be sufficient to sustain a conviction.

The effect of extrajudicial admissions in connection with

net worth cases was specifically passed upon in United

States v. Fenwick, 177 F. (2) 488, wherein the Court at

490 said:

“In other words, to justify the conviction there must

be proof beyond reasonable doubt and exclusive of

any express or implied extrajudicial admission by the

Defendant that the Defendant evaded some income

tax. Gleckman v. U. S., 8th Cir. 80 F. (2) 394, 399;

United States v. Miro, 2nd Cir. 60 F. (2) 56, 60; O’Brien

v. United States, 7th Cir. 51 F. (2) 193-196.”

The above doctrine was cited with approval in the earlier

tax case of U. S. v. Chapman, 168 F. (2) 997 at 1001. This

is in direct conflict with the action of the Fourth Circuit

in the Bell case at pages 10 and 11 where the Court uses

alleged admissions (statements of fact never disproved )

to justify the admission in evidence of the net worth state-

ment.

The Government’s Case is Predicated Upon an Inference

on an Inference on an Inference

These inferences are: (a) That the increase in net worth

is earned income; (b) That it is earned income in the years

1943, 1944 and 1945; (c) That it is not an accumulated or

non-taxable increase; (d) that the Defendant’s books, in

which no errors were found, must be wrong; (e) that there

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SRA REE A he

must be some unreported income not shown on the books;

(f) that there was a wilful attempt to evade. There is not

a scintilla of direct proof of any of these factors.

The United States Court of Appeals for the Fourth Cir-

cuit is placed in the unique position of rejecting positive

evidence by indulging in an inference, which inference

has no foundation by intimation or imagination in the

record. At page 9 of the Court’s opinion, in attempting to

answer the Defendant’s contention with respect to alleged

net earnings of the Defendant in the amount of $60,000. on

an inventory of $8,650., the Court says:

“There is no substance to the defendant’s contention

that the net worth statement is so incredible as to be

inadmissible because it discloses profits that could not

possibly have been earned upon the small inventory

of $8,650. shown on the corporation’s books. The profits

on an auction business are made for the most part on

tie sale of goods of other persons and not upon the

profit to the auctioneer.” (Italics supplied. )

There is not a scintilla of evidence in this record about

“profits on an auction business are made for the most part

on sales of goods of other persons and not upon the profit to

the auctioneer.” Thus the Court not only imported out of

its collective imagination some unknown profits by way of

inferences, but further inferred the amount of these profits.

It is the use of an inference not only to supply a missing

factor in a case, but the use of an inference on an inference

to contradict positive factual evidence to the contrary.

In U.S. v. Cole, 90 F. (S) 147 (a case involving alleged

income and estate tax evasion) the Court in granting the

Defendant’s motion for acquittal specifically discussed this

question. It compared the inferences to be drawn in that

case to inferences drawn in a narcotic case, stating at pp.

156-157 as follows:

me —

;

“The Government had sought to prove unlawful

prescription of narcotics from mere possession. The

Court said that from the possession of narcotics, it

would have to infer illegal possession, and from that

illegal possession, it would have to infer an intention

to violate the law in giving prescriptions when sound

medical practice did not warrant it. They quoted from

one of their own prior opinions: Such double infer-

ences are too remote to constitute evidence. As was

said by the Supreme Court in United States v. Ross,

92 U. S. 281, 283, 23 L. Ed. 707; ‘There are inferences

from inferences; presumptions resting on the basis of

another presumption. Such a mode of arriving at a

conclusion of fact is generally, if not universally in-

admissible.”

By allowing an inference to be predicated on an infer-

ence, the conviction violated an elemental principle of

criminal law in the Federal Courts. This principle has been

repeated many times in the same words so lately repeated

in Bryan v. U. S., 175 F. (2) 223 at 227:

“The evidence being circumstantial must exclude

every reasonable hypothesis other than the guilt of

the defendant.”

The Government’s Case Shifts the Burden of Proof

from the Government to the Defendant

If an increase in net worth is sufficient evidence to sus-

tain a conviction of tax evasion, then instructions with

respect to “burden of proof” and “reasonable doubt” as set

forth in the older cases, such as Coffin v. U. S., 157 U. S.

432 at 453, 39 L. Ed. 481 at 492 recently repeated in sub-

stance in Spies v. U. S., 317 U. S. 492, 87 L. Ed. 418, are

nothing but lip service to a judicial mirage. In Coffin v.

U. S., 157 U. S. 432 at 453, 39 L. Ed. 481 at 492, Mr. Justice

White speaking for the Court said:

“The principle that there is a presumption of in-

nocence in favor of the accused is the undoubted law,

24 y

axiomatic and elementary, and its enforcement lies

at the foundation of the administration of our criminal

law. |

It is stated as unquestioned in the textbooks, and

has been referred to as a matter of course in the de-

cisions of this court and in the courts of several states. f

* * * * * *

Ammianus Marcellinus related an anecdote of the

Emperor Julian which illustrates the enforcement of

this principle in the Roman law. Numerius, the gov-

ernor of Narbonensis, was on trial before the Emperor,

and, contrary to the usage in criminal cases, the trial

was public. Numerius contented himself with deny-

ing his guilt, and there was not sufficient proof against

him. His adversary, Delphidius, ‘a Passionate man’,

seeing that the failure of the accusation was inevitable,

could not restrain himself, and exclaimed, ‘Oh, illus-

trious Caesar! if it is sufficient to deny, what hereafter

will become of the guilty’? to which Julian replied, ‘If

it suffices to accuse, what will become of the innocent’?”

If increased net worth is sufficient to sustain a convic-

tion, then the burden of proof has shifted from the Govern-

ment to the Defendant. The burden is then on the De-

fendant to prove that the increase is not earned income,

instead of being on the Government to prove that the in-

crease was earned income. The burden of proof is then

shifted to the defendant to prove that the income came

from non-taxable sources, such as

(1) Cash assets accumulated prior to January 1, 1943.

There is no proof that the property admittedly owned

by the Defendants at the beginning of 1943 consti-

tuted all the assets they had at that date.

(2) From the following sources (see Revenue Act of

1938 as amended, Part II, Section 22(b) relating to

exclusions from gross income):

(a) Life insurance

(b) Annuities

(d) Tax free interest

(e) Compensation for injuries or sickness (and

other miscellaneous exceptions set forth in the

above section).

The opinion in the Bell case (in spite of protestation to

the contrary) graphically shows how the Court has shifted

the burden of proof. The Special Agent found no errors in

the Defendant’s books, and no evidence of unreported in-

come, but the Court shifts the burden to the Defendant to

prove that the books are correct. The burden is shifted

from the Government to prove the Defendant’s records are

wrong, to the Defendant to prove that the Defendant’s

records are right.

A most flagrant example is found on pages 10 and 11 of

the opinion in the Bell case. The Court here first speaks

of Defendant’s admissions; a few lines further these ad-

missions become a confession, and then the confession is

used to make the net worth statement admissible. Actually

the record shows there was no confession or admissions.

The Defendant made certain statements about gifts and

loans. These statements the Court disbelieved. The Gov-

ernment produced no positive evidence to disprove these

statements although it had ample opportunity to try to do

so. However, under the doctrine of the Bell case, the bur-

den is on the Defendant to prove these statements true,

since they will be assumed to be false until proved true by

the Defendant. If such be the law, then the entire concept

of “due process of law” no longer exists. Moreover, as set

forth in the Fenwick case, supra, they cannot add anything

to a net worth case.

essere OORT Rice RE - : 7 :

4 4

‘ {

The Bryan Case and the Fenwick Case are Supported

By the Supreme Court in U. S. v. Johnson,

319 U. S. 503, 87 L. Ed. 1547

In U. S. v. Johnson, 123 F. (2) 111, reversed 319 U. S.

503, 87 L. Ed. 1547, the Defendant was a big time gambler.

He was charged with an attempt to evade income taxes.

The Government’s case was predicated on two grounds:

a. The aggregate income from certain gambling houses

for the years involved, was traceable to him; and

b. Expenditure methods (a form of net worth).

He was found guilty in the District Court. On appeal the

Circuit Court found that the Government had not proven

(a) but did prove (b), but reversed the conviction on other

grounds relating to the indictment.

The Supreme Court made the exactly opposite finding.

The Supreme Court found that the Government had proved

(a) and that (b) merely “reinforced” (a). While “the devil

himself knows not the mind of a man” the Supreme Court

carefully refrained from a holding that increased net worth

alone proved guilt of evasion, and hence confined the case

A to the usual and typical tax evasion cases. The Supreme

Court did exactly the reverse, holding that illegally traced

income was the essential element in the case, and that net

worth was merely incidental thereto. (The case was re-

versed on other ground).

3 Conclusion

There is a direct conflict in the Circuits. As hereinbefore

set forth, the facts of the Bryan case, supra, the Fenwick

case, supra, and the Bell case, supra, are identical. In the

Fifth and Seventh Circuits, the Defendant goes free on

identical facts, and in the Fourth Circuit, the Defendant

goes to jail. The Fenwick case specifically held that extra-

Re SE RS, SEEM TT e G SS Flog

Pre NS

judicial statements, even though damaging, when coupled

with a net worth statement, will not be sufficient evidence

to sustain a conviction. To the exact contra, the United

States Court of Appeals for the Fourth Circuit in this Bell

case admits these extra-judicial statements into the evi-

dence, and even though these statements are denials of

evasion, couples these statements with the net worth state-

! ment, to sustain a conviction.

WHEREFORE it is submitted that this Court should exer-

cise its jurisdiction in order to settle this conflict.

Il.

A NAKED NET WORTH STATEMENT WITH ITS BASE YEAR NOT

CLEARLY AND ACCURATELY ESTABLISHED BY COMPETENT EVI-

DENCE, AND WITH EACH YEAR REPLETE WITH ERRORS IS NOT

SUFFICIENT TO SUSTAIN A CONVICTION OF ALLEGED TAX

EVASION WITHOUT THE GOVERNMENT OFFERING A SCINTILLA

OF DIRECT EVIDENCE OF UNREPORTED INCOME.

It is axiomatic that the base year of a net worth statement

must be accurate. On the base year is predicated all subse-

quent calculations. If this base year is inaccurate all subse-

quent calculations are inaccurate. As stated in U. S. v. Fen-

wick, 177 F. (2d) 488, at 490:

“Of course, before the increased net worth method

of proof is effective, the net worth of the taxpayer at

the beginning of the tax year must be clearly and ac-

curately established by competent evidence.”

The reason for this basic rule is graphically set forth in

Brodella v. U. S., Advanced Sheets CCH 1950 2-USTC, p.

13,280 at 13,281, where it is stated:

“This is true because if the reported net worth of the

taxpayer at the beginning of the taxable year does not

include all of the taxpayer’s assets or property, the in-

crease in net worth in subsequent years could come

out of the prior existing assets not so included.”

igus TUAW 8 I DL! be ORT ARE ADEN LINN ALAC fe oe DIENER SAGE LORE LAD.” ERR LBS ‘ sf “ |

tein Raisins ROR aT a

See also U. S. v. Chapman, 168 F. (2) 997 at 1001; U.S. v.

Skidmore, 123 F. (2) 604 at 608, and Bryan v. U. S., 175 F.

(2) 223 at 225.

The Net Worth Statement for the Base Year 1942 Was Not

Clearly and Accurately Established by Competent Evidence

But Was Admittedly Inaccurate and Replete With Errors

The net worth statement for the year 1942 was not clearly

and accurately established by competent evidence, but was

inaccurate and replete with errors as evidenced by the

following:

A—It did not pretend to accurately take into considera-

tion cash accumulations by the Defendant and his wife —

The statement was a consolidated net worth statement of

the Defendant and his wife. Cash accumulation was a mat-

ter of little interest to the agent who made up the state-

ment as is clearly evidenced by the testimony of the Agent

himself.

Q. (Mr. Anderson) March 28th, 1946, did you ask Mr.

Bell if he had any currency on hand in 1942? A. I don’t

recall that I did, no sir.

Q. Did you ask him whether he had any currency on

hand in 1943? A. No, sir, I don’t recall that I did.

Q. Or in 1944? A. I believe — may I retract that I

believe that I did, Your Honor, and it was stated he

would get the small amounts which were not sufficient

before making deposits, and that would not be in the

statement, but that is something oral” (101). (Italics

supplied).

The agent admitted he never asked whether defendant’s

wife had cash accumulations in 1942, 1943, 1944 or 1945

(103). The situation is as follows:

(a) The agent isn’t sure whether he asked about cash

accumulations or not (although cash accumulations

are of vital importance in cases of this kind) ;

: wigs

e ot

(b) if he did ask about this vital factor, he cared so little

about it that he neglected to put it in his statement,

as he said “that would not be in the statement”, in

spite of the fact that part of the statement was writ-

ten out by him in longhand; and

cash or not. He stated that the Defendant said that

any money his wife had she obtained from the Defen-

dant. The agent made no attempt to ascertain what

she might have accumulated in this way from the

Defendant; when she may have accumulated the

same; whether she had an accumulation prior to 1942;

nor did he ever ask her about any independent in-

come, — in fact he never talked to her.

The situation is far worse than in the Bryan case, supra,

wherein the Court states at p. 226:

“The substance of his (the agent’s) statement was

that it contained all the assets which he, an auditor of

much experience could find.”

In the Bryan case, a diligent effort was made to ascertain

cash accumulations. In this case no such effort was made,

even though the agent was put on notice of accumulations

through gifts. The issue resolves itself into this simple

question: Can an agent (a) ignore cash accumulations in

net worth cases; (b) fail to make any investigation with

respect to such accumulations after notice of alleged ac-

cumulations; (c) offer the net worth statement; (d) which

statement will sustain a conviction? If such be the law,

then “due process of law”, as originally understood in

Anglo-American Jurisprudence, is a delusion.

B—It omits from its calculations, two calendar months or

one-sixth of the defendant’s business operations for the base

year.

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Rene WV w CMa ata Tote herr oe ek ee i kite 2 ER TN EAM. oe rag

| deeitonl Pie R NES Un hd eng ae

The net worth statement for the year 1942 carries the

item “Loans Receivable $27,072.43”. This item shows money

owed to the Defendant by the corporation $27,072.43. This

figure is admittedly not a correct or remotely correct figure.

The agent admitted this figure represents the account be-

tween the parties as of October 31, 1942, not as of December

31, 1942 (139). The Record does not show what the account

was as of December 31, 1942. This figure was a large and

important figure but an utterly inaccurate figure. The cor-

poration was on a fiscal year from October 31 to October 31;

the Defendant was on a calendar year, from December 31

to December 31 (140). As of December 31, 1942, the end

of the Defendant's calendar year this figure could have been

zero, or many times the amount set forth in the net worth

statement. The agent obtained the books in March, 1946,

and the correct figure was on the books, (139-140) but the

agent saw no necessity to use the correct figure.

C—The Net Worth Statement was made by the Agent

without even asking the Defendant’s Wife if she owed any-

body any money, and without even accurately ascertaining

what money the Defendant owed.

The agent never questioned Mrs. Bell about money which

she might owe. When asked whether he asked the Defen-

dant if the Defendant owed any money the agent answered

(104):

“Yes, there is a question there I asked him it. I be-

lieve it is on the second page.

Q. (Mr. Anderson) This is the question, isn’t it:

‘Don’t you have any loans due from other persons out-

standing since January 1936’? (Italics supplied.) A.

The answer is no.

Q. That is correct. It is not whether you owed any-

body, but it is loans due from anybody; is that correct:

Is that what it says: Did you have any loans due from

anybody? A. That is correct.”

ZS fbb a Ae Seite aol

‘]

The accuracy of the agent’s report is shown by the above

transposition of “owe” into “own” and “own” into “owe”.

D—tThe statement does not credit the Defendant with

$3,708.49 paid the Defendant in 1942, and shown on the De-

fendant’s tax return for the year 1942.

The Defendant’s tax return for 1942 shows in detail on

its face, a liquidating dividend which had been paid the

Defendant in 1942 in the matter of Morton H. Goldberg

in the sum of $3,708.49 (133). (The actual payment was

$4,635.61 of which 80% or $3,708.49 belonged to Mr. Bell and

the balance to someone else.) This sum was not included

| by the agent in the net worth statement for 1942 (133), but

instead was added to the Defendant’s income in 1943. Thus

income (sale of a capital asset) received in 1942, accounted

for in 1942; on which tax was paid in 1942, was charged by

the agent as earned income in 1943. By this bit of arithmetic

the base year 1942 was reduced by the sum of $3,700, but the

next year, 1943, was swollen by some $3,700. This was done

even though the 1942 return shows the entire transaction.

E—The account does not credit the Defendant in 1942

with $3,021.72 due him by Orvis Bros. & Co.

Orvis Bros. & Co. are stockbrokers. On December 31, 1942,

there was due to the Defendant for stock sold $3,021.72.

The agent did not give the Defendant credit for this asset

in 1942 (138-139), but as in the previous case, the base year

is reduced by some $3,000, and the net year is swollen by

some $3,000. The approach of the agent with respect to this

matter is best set forth in the agent’s own words (140):

“(The Witness) I would like to clarify, your Honor,

what Mr. Anderson asked me that I had shown as ac-

counts receivable on the stock from Orvis Brothers.

On second thought I didn’t show that as accounts re-

ccivable but I probably showed some stock that he had

Dawei terete Sei oe 0

soid as an asset, which would make no difference at all

unless it is just a different amount that he got from

what he paid for it for what he sold it for.” (mirabile

dictu! )

In each of the above cases it is the sale of a capital asset

in the base year 1942 which is carried by the agent as earned

income in the year 1943; in each of the above cases a tax

is paid on this income in 1942 and in each of the above cases

the tax paid income is carried into 1943 and set up as a part

of alleged evaded income in 1943.

The accuracy of the base year may be summarized as

follows: (a) cash accumulations of the wife in the base year

1942 were not even investigated; (b) the amount of cash

accumulated by the defendant in the base year 1942 was in-

accurat-ly, if at all, investigated; (c) two calendar months

of the defendant’s tax year was omitted from the base year;

(d) amounts due and owing the wife in the base year were

never ascertained; (e) the amount due and owing by the

defendant in the base year was confused; (f) amount paid

the defendant in the base year, on which amounts a tax was

paid, is placed in the next year’s net worth. In this connec-

tion, Brodella v. U. S., Advanced Sheets CCH 1950 2-USTC

p. 13,280 at 13,281, affirmed the ruling of the Bryan case

and the Fenwick case, stating:

“Convictions were reversed in both the Fenwick

(49-2 USTC, par. 9448) and Bryan (49-1 USTC, par.

9322) cases, because in the opinion of the Court the

Government’s evidence did not accurately establish the

basic net worth of the taxpayer at the start of the tax-

able year in question. We agree with the general prin-

ciple of law as stated by those cases.”

It is submitted that the defendant’s net worth in the base

year does not even pretend to meet the standard of proof

as set forth in the Bryan case, the Fenwick case, and the

Brodella case.

The Net Worth Statement is Replete With Errors for

the Tax Years 1943, 1944 and 1945

A—The Net Worth Statement contains a double charge

of $15,000 against the Defendant in 1944.

In 1943, 1944 and 1945, the Defendant was the owner of

a certain piece of real estate in Atlantic City. The agent

charged the Defendant with this property at its cost price

of $45,039.63 in 1943 and 1944 in the net worth statement

(154). (Schedule to Exhibit 28). In 1944 the Defendant

entered into a contract to sell said property receiving, as

shown on the settlement sheets (Exhibits 17 and 18), the

sum of $16,875. by way of deposit when the contract of sale

was signed. Of this $16,875., the sum of $15,000 was a de-

posit given the Defendant on signing the contract. The

Defendant offered on cross-examination to trace $15,000 of

this $16,875. through the Defendant’s bank account, and to

show that this $15,000 was still in the Defendant’s ac-

count on December 31, 1944. The Court erroneously re-

fused to allow the Defendant to fully develop this (154)

and the Record must speak for itself in this connection. The

fact remains that $15,000 was paid by way of deposit in

November, 1944, the month when the contract was signed.

The net worth statement was not adjusted to show this

payment on account, but it was simply added to the Defen-

dant’s cash in bank without reducing the $45,000 by the

$15,000. It was a double charge of $15,000. It is perfectly

apparent that a deposit on the sale of real estate is not in-

come until the deposit is forfeited or the sale consummated.

This sale was consummated in 1945 (62) but the $15,000

deposit was charged by the agent as income to the Defen-

dant in 1944.

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B—The net worth statement fails to give the Defendant

credit for 100 shares of stock owned by the Defendant worth

$2,852.70.

C—The net worth statement carried certain stock as an

asset of the Defendant after it had been sold.

D—The net worth statement contained the following

further errors.

1—In the years 1943, 1944 and 1945 the agent based his net

worth statement as of December 31 on figures that were cor-

rect only as of October 31 of the respective-years. The

books of the Washington Art Galleries had several accounts

showing what the corporation owed the Defendant at any

given time. There was his salary account, his rental ac-

count representing rent owed by the corporation for oc-

cupancy of the building owned by the Defendant, and

there was the Defendant’s trading account under the name

of the Mount Vernon Galleries (46; 114). These accounts

would vary from week to week and from month to month.

Despite this fact, and simply because the corporation was

on fiscal year ending October 31, the agent for each year

in question took the October 31 balance on these several

accounts and charged them to the Defendant as of De-

cember 31 balances. He did not question the accuracy of

these figures; he accepted their accuracy, but copied the

October 31 figures instead of the December 31 figures.

(Emphasis supplied).

2—Although the Defendant filed a separate return in

1943, 1944 and 1945, the agent made a consolidated net worth

3 statement for the Defendant and his wife, and thus held

3 the Defendant liable for any increase in his wife’s net worth.

The agent’s justification for this is best explained in his own

& language (28):

__ — . ee neem

“Q. (Mr. Ramsey) Would you tell us why the net

worth statement of Benjamin Bell contained an ac-

count in the name of Josephine T. Bell being the Per-

petual Building Association? A. Josephine T. Bell,

Mr. Bell’s wife, as stated in the interview with Mr.

Bell related that all accounts, monies, shown in Mrs.

Bell’s name was money transferred from his bank ac-

count into her bank account, and that was why it was

included, and because it was assumed he had taken

money out of the bank account, and had placed it in his

wife’s name in another account.”

In 1943 Mrs. Bell purchased in her own name the prem-

ises 9707 Old Georgetown Road for some $16,000. On cross

examination, the agent was unable to show that this $16,000

had come through Mrs. Bell’s bank account, hence the De-

fendant’s alleged statement that all monies in her account

were deposited by him failed to connect the property to the

Defendant, but, unabashed, the agent admitted he included

this property in the Defendant’s net worth statement (150),

because he “assumed that he (Bell) had given her money,

or money had been advanced by him to purchase this prop-

erty” (152). (Emphasis supplied).

3—The agent failed to credit Mrs. Bell with $360. in a

savings account (136).

4—The agent failed to credit the Defendant with $1,200.

in Government bonds (137).

5—The agent simply read a bank statement wrong. The

Defendant’s bank balance as of December 31, 1945 was $1,-

303.59, but the agent read it $2,482.14 and thus through ad-

mitted carelessness, erroneously charged the Defendant

with evading $1,179. in taxes in 1945 (55-56).

If a statement containing the above errors was submitted

to a bank, a commercial institution, a government agency,

FEB tein ton

or was offered in evidence in a civil case, it would be sum-

marily rejected. While valueless to borrow a few dollars,

it is not valueless to jail citizens.

The Net Worth Statement Shows on Its Face

That It Is False

In this instance the net worth statement proves its own

falsehood. The Government charges the Defendant with

net income in 1943 of $69,836; in 1944 with $41,115; and in

1945 with $25,203. The net worth statement shows an in-

ventory of $8,650. To earn net income, that is, a net profit of

$69,836 in one year on the sale of goods with an $8,650. in-

ventory is too ridiculous to need comment.

The Defendant’s trading account (Mt. Vernon Galleries)

shows sales in the approximate amount of $20,000 in 1943.

On such sales a net profit of $69,000 is also too ridiculous to

need comment.

The situation is exactly the same as in the case of Ameed

Jacob and Anna Jacob, Petitioners v. Commissioner of In-

ternal Revenue, Respondent, in the Tax Court of the United

States, Docket +19630, decided May 23, 1950. In this

case an Agent of the Bureau of Internal Revenue rejected

the Defendant’s books because the petitioner “did not keep

adding machine tapes and no records to sustain the gross

receipts”. The agent computed the taxpayer’s income by

the net worth method. The Court in considering this entire

matter at pp. 8 and 9 said:

“Respondent has rejected these records on the ground

that no cash register tape or other records were kept to

show that these records of cash receipts were correct.

* * * Respondent, rejecting the correctness of petition-

er’s income and deductions, has used the ‘increase in

net worth method’ with the result given in our findings

of fact. It is manifest that respondent’s method cannot

be accepted as correct in view of all the evidence which

we have in the record. For example, by the use of the

‘increase in net worth method’ respondent has arrived

at a figure of $7,650.55 net income for 1942, $7,068.05 net

income for 1943 and $19,499.25 net income for 1944.

Manifestly the later figure of $19,499.25 net income is

beyond all reasonable probability. Petitioners were

conducting a small retail liquor and restaurant busi-

ness in the City of Cleveland with only three people,

including petitioners, employed therein and it does not

seem that by any stretch of the imagination they could

have had any such income in 1944 as respondent has

determined.”

The above case was a civil case, where the burden of

proof was on the taxpayer. The above reasoning would

seem to conclude the present case where the burden is on

the Government to prove guilt beyond a reasonable doubt.