# Petition for a Writ of Certiorari — Bell v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386417_0476%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for a Writ of Certiorari - **Published:** January 1, 1951 - **Citation:** 340 U.S. 930 ## Text - 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. f ‘ TAPP Sher, eS Rests DARK PAGE BLEED TRPRU oe Lt 8 PEL AITO PT SETS eich Se 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 ii 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 23 21 26 26 27 28 Re er 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 iv 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 vi 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. 3 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; (c) By refusing to allow the Defendant to cross examine the Special Agent with reference to a bank book of the Defendant showing the Defendant’s rentals; (d a 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 7 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. (c) The consolidated net worth statement did not ac- 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 8 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 53 a 9 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) 10 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. 11 (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 12 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. 13 (c) The Defendant was so limited in cross examination 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. TOR SS AR ph MS et Ba Ba Das aes Me sca nosey a Se SEPA es * SERN RSE RNS Bia aa ay - AAI aaa DE Rk ik NNR ONG PUI ALLO G A TTRRN S ART gE 15 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 I. 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 16 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 17 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 18 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- 19 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 20 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). 21 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 . Sl aime | otc toes afta RS Sobsel ager Ba woe De. =< SRA REE A he 22 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 — : ; ee 23 “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): 25 (a) Life insurance (b) Annuities (c) Gifts, bequests and devises (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 : 5 4 4 ‘ { 26 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 eZ Pre NS | 27 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 28 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 29 (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 (c) the agent never asked whether Mrs. Bell had any 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. ‘5 or FAK MOEN Sh a BA ADAMI A LRM IE LEN ANOEEES. ew a mtr) 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 30 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”. sl 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 32 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. 4 3 8 4 33 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. ee eee ee ihe a iA ae ee AMS NaS ASAE: UO ARDNN TALES ARR SAEPON SGA RGN AO SUE a DY IIMA Sip I SRA AUT OLN BN AAI HE ae Seas te ae i RL 34 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 oo “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 36 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 37 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. See also: In re: Scheiman, 14 F. (2) 322. The Government admits that the inventory figure of $8,650. is correct. The Government does not attack the gross sales shown in the Mt. Vernon account; the Govern- ment never by intimation or otherwise suggests that the Defendant had any other business, or business income, except that shown on his records; the Government makes no attempt to ascertain gross purchases during this period, or show that gross purchases are far in excess of gross sales reported, either by the Galleries, or by the Defendant; the Government blandly takes the position that because the books do not correspond with its inaccurate net worth statement, the books must be wrong. This is not an infer- ence on an inference—this is just an assumption of guilt. The Government refuses to give credence to (a) the De- fendant’s statements or (b) that the increase in net worth may represent past accumulated income or non-taxable eS _ Nar ne DRS AEH ER date Srl ES Laat, eat ORS ROM ae 38 income. The agent cannot assume figures which suit the agent’s fancy and place the burden of disproving this as- sumption on the Defendant, as stated in U. S. v. Berman, 75 F. (S) 789 at 790: “The Government took the position that all items on these accounts were properly charged to income where defendant could not give a satisfactory explanation. In other words, placing the burden upon the defendant of proving that they were not income although in a criminal case the Government is required to prove beyond a reasonable doubt that they constituted tax- able income and that the failure to return same was wilful.” Mr. Meyer Rothwacks, Assistant Chief, Criminal Sec- tion of the Tax Division, Department of Justice, scarcely a critic of the Government or a friend of the Defendant, in the New York Institute of Federal Taxation, 8th Annual Institute, in an article headed “Criminal Tax Prosecutions” at p. 261 stated: “The increase, if any, in net worth is presumed to be net income, if certain conditions obtain. These con- ditions apply equally to an expenditure case. They are: (1) that there is evidence of a possible source or sources of income to account for the expenditure or the increases in net worth; and (2) evidence of a ‘starting point’, that is, a date contemporaneous with the beginning of the first prosecution year or prior to it, at which time the taxpayer’s financial condition can be established with some definiteness, this to exclude the hypothesis that the expenditures or net worth in- creases can be explained in terms of prior accumulated assets or funds. A substantial amount of case law has already been developed in the net worth-expenditure field. Most of the decisions are recent. They all emphasize the requirements concerning a source of income and satis- factory exclusory evidence.” OAD ah at chee ERENT EIN YS Re 9, we ARS Ae EUR Site 4 39 The Government case fails to meet the above require- ments; it is not only predicated upon inference on infer- ence; but the net worth statement itself proves its own falsity by its own figures. The Government Did Not Offer a Scintilla of Evidence Showing Any Unreported Income The Defendant’s sources of income fall into two general divisions—These divisions are: (a) Galleries income; (b) non-Galleries income being rents, some dividends and a few capital gains. In accounting for the above sources of income, the Gov- ernment admits the following: 5 (a) (b) (c) Rentals—The corporate books had a rental account showing rent due the defendant by the corporation, covering its place of business, 722 Thirteenth Street (114). The Defendant had a personal bank book showing other rentals collected by the Defendant (116). The agent found no rentals other than those reported. The Government does not allege that rentals were collected by the Defendant which do not show on the Defendant’s books and records. Some few dividends—income from dividends was negligible. The Government makes no claim of un- accounted for dividends. Long Term Capital Gains—Settlement sheets dis- close all real estate transactions although settlement sheets were not requested by the Agent (117). The tax returns themselves disclosed all long term capital gains (125). The Government makes no claim that long term capital gains were not reported. 4 EEE EERO REL LA LIE NIE ND IE MAIER I OCIA TTR ANE SI FOR nace 40 In the light of the above, it follows that the Govern- ment’s sole complaint is directed at the corporate books. This complaint is: Because the net worth statement differs with the cor- porate books, the corporate books, and not the net worth statement, must be wrong. To sustain this self-serving in- ference, the Government does not allege that the books do not accurately show the transactions set forth in the books, but categorically assumes that there must be trans- actions not set forth in the books. There is not one single scintilla of direct proof of this categorical assumption. Not a single witness was produced to show unreported sales, unaccounted for inventories, unexplained purchases, unlisted sales, failure to properly list all daily sales in Daily Cash Book, or any other proof that the books were false. The Corporate Books The corporate books showing the Defendant’s Gallery income consist of the following: ~ (a) A journal showing cash receipts and disbursements listing all checks, showing allocation of amounts of sales, various expenses and closing and journal en- tries (10). This also contains a ledger for exchange or accommodations items. (Volumes 2, 13-14). (b) A ledger showing expenses, mixed accounts, from which profit and loss statements are prepared (10), ledger sheets showing the individual accounts of individual customers (10). (ec) A daily cash book showing date of sale, amount of sale, and to whom sold (10). The daily cash book shows the name of purchaser, opposite which is the ai ees. TE ETE fs Se coeiaenhhitioctend a 41 amount of the purchase. The daily totals are entered in the journal and in turn can be checked against bank deposits (122). (Volume 2, 15-22). Periodically, at the end of each fiscal year from the cash books, checks and other data, entries were made in the ledger and journal (13). The ledger index would list the corporate purchases indicating the ledger sheets show- ing customers’ accounts (15). In addition, the ledger also shows the Defendant’s rental account, loan account, per- sonal account and storage account (16). The Rental account shows rents due the Defendant by the corporation (16), the Personal Account shows salaries paid to the Defendant and the money paid for his account (17), the Commission account shows commisions due the Defendant on account of sales (17), and the Loan account showed any loans due and owing between the corporation and the Defendant (17). The agent admitted he could find no inaccuracies in the books, but assumed that he could not ascertain the De- fendant’s income from the books because there were no invoices or cash register tape to substantiate the books, and, because the corporation was on a fiscal year basis as dis- tinct from a calendar year basis (19). This claim by the agent is ridiculous since (a) the cash book contains more information than a cash register tape, (b) a fiscal year closing or a calendar year closing has nothing to do with the accuracy of the books, and (c) the individual cash sales were traced daily into the ledger and from the ledger could be checked against bank bal- ances. The books in this case were obviously more detailed than those in the Fenwick and Bryan cases, supra. CESSES TS RY RR a A Ee . SRN CN ANS AG LER LM kd te SORE AOS SCARE BAMA SAN LA MAS Sg Wy Rabin een te 8S Ba Ra ~ aac The only way the books could be inaccurate was to have each clerk, who worked in the Defendant’s store, be in an active conspiracy with the Defendant so that each clerk would deliberately refuse to register the name, date, and amount of sale in the daily cash book. There is not a scintilla of evidence to this effect. Not only would all the clerks be required to be in this conspiracy, but the Defendant’s auditor would be required to be in the conspiracy. For an auditor to assemble all the data as shown by the books without finding discrepan- cies, when the alleged discrepancies in one year are $60,- 000., would have been literally impossible. There is not a scintilla of evidence to this effect. Had the books in fact been false, many witnesses would have been available to the Government to show the books were false, e. g., clerks, the Defendant’s auditor, purchasers, consignors, sellers and many people whose names are disclosed in the books themselves. Not a scintilla of such evidence was produced. The sales entered in the daily cash book (Exhibit 7) could be checked against the journal, and journal totals checked against deposits in the bank. It is assumed that such a check was made by the agent, and it is assumed that the cash book was found to be accurate, or there would be evidence to the contrary. It is not within the province of the agent to refuse to accept the taxpayer’s books when he can find no inac- curacies in the books, and no other sources of income of the taxpayer, and thereby shift the burden of proof to the taxpayer to prove the accuracy of books in which the agent himself could find no inaccuracies. In re: Scheiman, 14 F. (2) 323 at 325; U. S. v. Berman, 75 F. (S) 789; Jacob v. Com. of Internal Rev., Tax Court Docket 19630. Tk AMP RMET AT. RACY PATO FOI FT paar ‘ —- 43 There is no requirement that an individual taxpayer keep formal books. It is only required that where a tax- payer’s gross income does not consist solely of wages or salary, that he keep such permanent books of account or records as are sufficient to establish his gross income, see Reg. III, Sec. 29.54-1 CCH par. 480. While the Defendant did not keep formal books of his income other than for the corporation, he did keep bank deposit books, written memoranda, check stubs and checks, brokers statements and title settlement sheets, all of which are permanent records sufficient to establish his gross income. Discussion — Invoices The United States Court of Appeals for the Fourth Circuit belabors the fact that there were only fifty or sixty invoices furnished the agent. This raises the question — What is an invoice? Webster New International Dictionary, Second Edition, Unabridged, defines an invoice in its commercial sense as “(1) a written account or itemized statement of merchan- dise shipped or sent to a purchaser, consignee, factor, etc., with a quantity, value or prices and charges annexed. (2) The lot or set of goods as shipped or received; as, the mer- chant receives a large invoice of goods.” It is common business knowledge that an invoice is only applicable where goods are shipped or sent by a seller or consignor and on which charges are due. An invoice is a commercial document applicable to a “shipment” or “con- signment”, not to a “sale”. As stated by the Court in Greis v. Fidelity and Casualty Co. of New York, 19 F. Supp. 480 at 481: “An invoice ‘is merely another term for bill ren- dered,’ ‘a list of goods sold and the prices charged for mee ‘ pode ne Din A PY i AOR PNT BN IA i ta ORs NEL Me EGE NS READER TAM ATT Gn Cent ev HERERO lie: Cat Sa | Ray OE Re te te a eee, ae | them’; it ‘is neither a bill of sale, nor evidence of a sale, and, standing alone, furnishes no proof of title’. 4 Words and Phrases, First Series, p. 3761; 33 C. J. 811.” In Dows, et al. v. National Exchange Bank of Milwaukee, 91 U. S. 618, 630, 23 L. Ed. 214 at 218, the Court said: | “An invoice is not a bill of sale, nor is it evidence of | a sale. It is a mere detailed statement of the nature, quantity, and cost or price of the thing invoiced, and it | is as appropriate to a bailment as it is to a sale.” | Nowhere is there any evidence that the corporation or de- fendant shipped or received goods under conditions where an invoice would normally be used and where none was available. An invoice, by its nature, is not needed to sub- stantiate a sale, nor does the law consider that an invoice does substantiate a sale. In concluding this phase of the case, it is submitted that not only is this Bell case in direct conflict with the Fenwick case, and the Bryan case, but the net worth statement which was offered in evidence in this Bell case is utterly inaccurate and fails to establish either the base year or any other year accurately, and with competent evidence. Il. z THIS CASE CALLS FOR THE EXERCISE OF THIS COURT’S POWER i 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 DISTRICT OF MARYLAND, AT BALTIMORE HAS i DEPARTED FROM THE USUAL AND ACCEPTED COURSE OF i JUDICIAL PROCEDURE. The departure from the usual and accepted course of judicial procedure were the Rulings of the Lower Court in refusing to allow the Defendant to cross examine the Special Agent with reference to matters that were relevant to the case, and within the scope of direct examination. | i UL uae re We. Co vee Wea Sw PLE DNR. 2 45 (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 (108-109). The Agent insisted upon entering the Defendant’s safe deposit box immediately after the first interview with the Defendant on March 28, 1946. The Agent obviously expected to find cash; had the agent found cash, the Court, as in past cases, would have admitted this in evidence. The Agent made an inventory of the contents of the box. The Defendant has a right to bring out before the jury the contents of this inventory. The Defendant had the right to cross examine the agent as to whether this inventory con- tained information which would assist an accountant in determining the Defendant’s income. The Agent was al- lowed to assert the Defendant’s books and records were in- adequate, while the Defendant could not ascertain all of the books and records which were examined by the Agent. The Agent’s examination of the safe deposit box, and the inventory of the contents of the box was a part of his in- vestigation, and was included in the Agent’s direct examina- tion. In Reilly v. Pinkus, L. Ed. Advanced Sheets, Vol. 94, p. 82, this Court held that even in an administrative pro- ceeding where great latitude is allowed the presiding officer, it was error to limit unnecessarily or arbitrarily the right to cross examine, stating at p. 84: “But in this kind of case as in others, one against whom serious charges of fraud are made must be given a reasonable opportunity to cross examine witnesses on the vital issue of his purpose to deceive.” A full cross examination of a witness upon the subjects of his examination in chief is the absolute right, not the mere - GIB et ret tn Witenes Sid 46 privilege, of the party against whom he is called, and a denial of this right is a prejudicial and fatal error. Alferd v. United States, 282 U. S. 687, 75 L. Ed. 624; Lindsay v. United States, 133 F. (2) 368; Heard v. U. S., 255 F. 829; Cossack v. U. S., 63 F. (2) 511; Arnold v. U. S., 94 F. (2) 499, 506; Underhill’s Criminal Evidence (4th Edition), Sec. 400. (b) By refusing to allow the defendant to cross examine the Special Agent in order to ascertain what the defendant’s bank book, check stubs and deposit books showed relative to the Defendant’s income and related matters (114-115). The Government charges that the Defendant maintained inadequate books and records. Cancelled checks, check stubs, and personal bank books are records of income and hence go to show the adequacy of the defendant’s books and records. The net worth statement itself contains two items headed “Living expenses paid by check” and “Mis- cellaneous expenses paid by check” (Vol. 2, Exhibit 28). The agent was allowed to testify with respect to these mat- ters predicating his testimony on checks of the Defendant. The Defendant was not allowed to go into the question of checks, check stubs and personal bank books. The cross examination was directly within the scope of the direct examination and went to a vital issue in the case, and there- fore should have been admitted in the evidence. (c) 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 testimony on the stand (127-132). 47 The agent requested the Defendant to sign a certain state- ment purporting to contain the questions and answers taken at a conference between the Agent and Defendant on Octo- ber 11, 1946. The Defendant refused to sign the same claim- ing the statement contained inaccuracies. The Defendant called his attorney, Mr. Hart, who advised the Defendant not to sign the statement because of its inaccuracies. This was on Thursday, November 21, 1946 (129). The Defen- dant’s attorney arranged to meet with the Agent, the Defen- dant, and a court stenographer on the following Monday, November 25, 1946. On the preceding Saturday, the Agent called the Defendant and broke the engagement (130). The Defendant’s attorney learned of this on Monday, No- vember 25, and immediately wrote the Agent by registered mail with respect to this matter which letter was received by the Agent, but the Agent made no reply. The Agent from time to time referred to the alleged inaccurate state- ment, and gave his understanding of what was to be done at the subsequent conference. The Defendant was not allowed to check this evidence against statements made in the letter, to which no reply was made. A failure to deny is ordinarily an admission that the facts asserted are true. In this case there was a complete failure to deny, hence, at least, the Defendant should have been allowed to question the Agent with respect to whatever allegations were con- ’ tained in the letter. It is a general rule that where two parties have carried on correspondence in reference to a particular matter, and the one writes the other making statements relative to the subject matter of the correspondence, which statements the recipient would naturally deny if not true, then if the re- cipient fails to answer, his omission is evidence to show that the statements in the letter are true. 20 Am. Jur. page 481, Evidence, Sec. 568. PATE Ha hat 8 tie FSi PSS hie Nd Rae 24 ‘te SPS ak DI ae Se en 2 ee Bates: PaaS Seamer. ee 48 In Wigmore on Evidence (1st Edition), Section 1073, it is said: “The written statements of a third person may be so dealt with by the party that his assent to the correct- ness of the statements may be inferred, and thus they wouid by adoption become his own statements. What sort of dealing with the document will suffice for this purpose has in several respects been a mooted question. * * * the different situations may be grouped under four heads: (1) Documents seen; * * ok * * os (4) Documents made use of. (1) In some circumstances, the party’s mere sight or perusal of a third person’s docu- ment, without responsive protest of denial or explanation, may indicate an admission of correctness.” While the foregoing is said with regard to a “party” Wigmore at Section 1042 in dealing with silence as consti- tuting the impeaching statement for a witness indicates the principles involved are the same whether a witness or a party is concerned. In 31 C. J. Secundum, page 1065, Evidence, Section 297b, it is said: “The test of admissibility of letters as admissions is found in whether circumstances are such that in ordi- nary practice the party receiving the letter would have answered it if he did not acquiesce in the statements contained therein.” In the instant case, and with the background of the situa- tion, if the agent did not agree with the statements con- tained in Mr. Hart’s letter of November 25, 1946, he would USERID RIES eRe Desa aie ia Tr Ap RY » SAA) Mae RET CTH bo, 49 have immediately answered the letter, stating that Mr. Hart did not correctly represent the situation. There is the background of a conference on November 21 at which a serious disagreement arose between the agent representing the Government, the Defendant and his coun- sel. There is an appointment made for November 25 for a specific purpose. This appointment is broken by the Agent. Mr. Hart, who is one of the parties to the confer- ence of November 21, immediately wrote to the Agent. The letter was sent by Mr. Hart by registered mail, return receipt requested. Surely this puts the Agent on notice that the letter, and the contents thereof, were considered of the utmost importance by the taxpayer and his counsel, and should have invited a reply. This put the Agent on notice that the Defendant’s counsel was trying to estab- lish in the only way open to him, a record of the actual disagreements between the parties at the meeting on No- vember 21, and was a studied and stated effort to bind both parties as to exactly what occurred at that meeting. The Agent’s silence constitutes the adoption by him of the statements in the letter. In order to attack the credibility of a witness, it is proper to cross examine him as to statements or admissions made out of court which are inconsistent with his testimony at the trial. Jones on Evidence (4th Edition) Section 826; Wharton’s Criminal Evidence (10th Edition) Section 482; 70 C. J. 1075, Witnesses, Section 1273; Cossack v. United States, 63 F. (2) 511; Heard v. United States, 255 F. 829, 832; United States v. Phelan, 252 F. 891, 892; 58 Am. Jur., pages 369-370, Section 676, pages 423-425; Section 773, page 423. i PRR Har OR ARRAS ee? FEO at REL E Sil fe eRR OTUR yt Neier en PREP UTS Hab 5 saindieenitinameian " . i” RSA bad RETIN ZS Bi ET ea Tos yh 4 50 The above ruling was not only in error but highly preju- dicial error. (Note)—The Court refused to permit defendant to even mark Mr. Hart’s letter for identification (150), hence it could not be included in the record on appeal. Counsel brings this letter before the court in ihe only way open to them by attaching a copy of it to the brief as Exhibit A). (d) By refusing to allow the defendant to show that he paid income tax on income received in 1942 on which in- come the Government in its net worth statement charged the defendant in 1943 (137). The indictment specifically charged the Defendant with the failure to pay a certain amount of tax which the indictment alleged was due and ow- ing the Government. While it is true that the Government is not required to show the exact amount of tax due and owing by the Defendant, any question going to that issue is relevant in the case. The Defendant certainly has the right to attack the statement of tax as set up in the indict- ment and the net worth statement, and this was a direct at- tack on both. (e) By refusing to Allow the Defendant on cross ex- amination to find out what schedules, made up by what person other than the Agent, were used by the Agent to make the Net Worth Statement (144). It is an ele- mentary principle of law that testimony is not admissible unless the person giving the evidence can testify from his own knowledge, and if it later appears that the testimony is not based on his own knowledge, it must be stricken. Wigmore on Evidence, (1st Edition), Vol. I, Sec. 656 and 657. The uncontradicted evidence shows that one McDer- mott made up certain schedules (139), and one Cun- ningham, an agent, made up certain schedules (96). It obviously became important to ascertain if any other 51 schedules were made up by other persons, and what these schedules were. This question went to the very heart of the authenticity of the net worth statement. If such cross i examination is not permitted then net worth statements : may be indiscriminately placed in evidence, irrespective of : how prepared. : (f) By refusing to allow the Defendant to show that the i deposit of $39,850.00 was most unusual and by far the largest deposit to be found in cash receipts from 1943 through 1945 (147). The cases make the point that regular deposits of a nature consistent with business in- come, and unaccounted for, tend to prove evasion. Many of the cases are predicated upon a regularity of deposits consistent with a business income which income was not reported, but all the cases hold that an unusual, single large deposit does not prove earned income. Gleckman v. U. S., 80 F. (2) 394 at 399; Malone v. U. S., 94 F. (2) 281 at 287; Barcott v. U. S., 169 F. (2) 929 at 931. It was therefore proper cross examination and most im- portant for the Defendant to show that this deposit was a most unusual deposit, the largest deposit ever made in the account. By this ruling the Court not only violated the well recognized principle that the full cross examination of a witness upon the subjects of his examination in chief is the absolute right of the party against whom he is called, but the Court greatly prejudiced the Defendant’s case. (g) By refusing to allow the Defendant to cross-examine the Agent about three checks, which show on their face that they were deposited in the Defendant’s bank account, and which checks constitute an item of $15,000 for which the Agent charged the Defendant twice in 1944. One phase of this question has been previously discussed at page 33 of this brief wherein inaccuracies of the net worth statement Oh MRA a ae ene 52 were discussed. It is necessary to further discuss this mat- ter here, in connection with the Court rulings on evidence, since the Court refused to allow the Defendant to cross- examine the Agent with respect to this matter. In considering this ruling, it must be remembered that certain factors in this case are admitted. These factors are: (a) a deposit of three checks in the amount of $5,000 each in the Defendant’s bank account for the year 1944 adds $15,000 to the Defendant’s net worth; (b) by adding this $15,000 to the Defendant’s net worth in 1944, the Gov- this $15,000 upon signing a contract to sell the real estate. For the Court to rule this cross examination inadmissible because the agent didn’t recognize the checks is to: allow the agent to quarantine himself against cross examination about checks which show on their face that they are Pay- able to the Defendant and deposited in his bank account. The agent testified that all the Defendant’s checks went into the net worth statement; the Court ruled the agent about “Cash” which is an item of the net worth statement. It is submitted that this ruling alone was reversible error. - 7 53 CONCLUSION Counsel for Petitioner well recognize that the number of cases which this Honorable Court can hear and consider are limited, and that many broad social questions, ques- tions involving civil liberties, questions involving racial, religious and political minorities are presented to this Court which claim its consideration and which are almost insatisable in their demands on the time of this Court. With all due humility and with the utmost respect, coun- sel urge upon this Honorable Court the view that when a citizen is unjustly jailed and deprived of his liberty, an in- justice has been done which merits the consideration of this Court. In Matthew, 10, verses 29 to 31, it is said: “Are not two sparrows sold for a farthing, and one of them shall not fall on the ground without your Father.” “But the very hairs of your head are numbered.” “Fear ye not therefore, ye are of more value than many sparrows.” We pray, therefore, that this Court take notice of the in- justice done to one who is of more value than many spar- rows and that the petition prayed herein be granted. Respectfully submitted, G. C. A. ANDERSON, Georcr L. Harr, ANDERSON AND BARNES, Attorneys for Petitioner, Maryland Trust Building, Calvert and Redwood Streets, Baltimore, Maryland. —— Se. : = . e IL NELLIE LEA MOLES © NERO IRR S aetem se | | | | ee Si 55 EXHIBIT A (Letter from Mr. Hart to Special Agent) Sent Special Delivery Registered Mail, Return Receipt Requested Mailed at Main Post Office, 13th and Pa. Ave., by Bell at 1.45 P. M. November 25, 1946. Bureau of Internal Revenue Intelligence Division 310 Sixth Street, N. W. Washington, D. C. Attention: Charles Knight Dear Mr. Knight: In view of the fact that you called Mr. Beil on Saturday afternoon, November 23, 1946 and canceled the appoint- ment which you had made with Mr. Bell and me for ten o’clock this morning, I wish to confirm our conversation at 722 Thirteenth Street on November 21, 1946 in the pres- ence of Mr. Benjamin S. Bell and Mr. Cunningham relating to the statement prepared by your office for Mr. Bell’s sig- nature. I should also like to make clear our position about this statement to insure against any misunderstanding. Mr. Bell, upon reading the statement you presented to him, which you said had been prepared from the notes taken by your stenographer at a meeting in your office on October 11, 1946, noted a number of inaccuracies and omissions in it and called these to your attention. There were also inaccuracies in the questions propounded, which you conceded. Naturally under these circumstances, I could not permit Mr. Bell to sign the statement unless corrections were made. We were willing to make the necessary corrections on the paper presented and initial the same but this was not agreeable to you. You insisted that you wanted Mr. Bell to sign the statement just as it was. After some discussion, you suggested that Mr. Bell and I meet you at your office at ten o’clock on Monday a PAA eS le ET: OP Bs CORE AREER. ik VAP a BORE ANB ale ABO Nee Nb i ES a Sa ACY Dae Phe dct Seite WP mee ee ty 56 morning and you would have the stenographer read back her notes and check them with the Statement. We agreed to this and I asked you if we might have a court reporter present to report the conference, and you expressed your- self as agreeable to this. Before you left Mr. Bell’s place I asked you if we might have a copy of the statement which you had prepared in order that we might compare it with the notes made by Mr. Emil Smith at the conference on October 11, 1946, he being present at the time as Mr. Bell’s accountant. You replied that we could not have a copy of the statement unless Mr. Bell first signed it. I want to make clear that I have no objection to Mr. Bell signing and he has no objection to signing a statement which accurately represents the questions put by you to Mr. Bell on October 11, 1946 and his responses thereto. Very truly yours, GEORGE L. HART, JR. GLH: jmw Form 3806-S, 177849 Postmaster per Rogers Receipt for Registered Article No. 177849 POSTMARK Fee paid 20 cents, Class postage 1, Washington, D. C. Declared value No Surcharge paid, $.... Noy. 25, 16 Return Receipt fee 4 Spl. Del'y fee 13. Benjamin Franklin Sta. Delivery restricted to addressee : in person .......... oP OPRGEP oo ckkc ss Lt Accepting employee will place his initials in space indicating restricted delivery, c7—16—19433—2 1P0 The sender should write the name of the addressee on back hereof as an identification. Preserve and submit this receipt in case of inquiry or application for indemnity. Registry Fees and Indemnity.—Domestic registry fees range from 20 cents for indemnity not exceeding $5 up to $1.35 for indemnity not exceed- ing $1,000. The fee on domestic registered matter without intrinsie value and for which indemnity is not paid is 20 cents, Consult postmaster as to the specific domestic registry fees and surcharges and as to the registry fees chargeable on registered parcel-post packages for foreign countries, Fees on domestic registered C. O. D. mail range from 25 cents to $1.20, Indemnity claims must be filed within 1 year (C. O. D. 6 months) from date of mailing. 7 on .