Opposition Brief — Pollock v. United States

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INDEX

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CITATIONS

Cases:

Alerander v. United States, 138 U. S. 353__-__.------- 5 13

Chinois. Peeves, BF Ml Fee. 665 ss accede eax 13

Coa. ©. Ct I: Be Os Benbow ecke nce eccc ee 13

Cult WU, Ges Oe a ern eb cadence canes 10

remus Wc Cmte tes, Dee Uo 78. eee a ee 13

Hirabayashi v. United States, 320 U. S. 81_..._.--------- 12,15

McKinney v. United States, 199 Fed. 25._...-._.---_---- 10

Pinkerton v. United States, 328 U.S. 640__~ = oe) a. 33, 25

United States v. DeVasto, 52 F. 2d 26, certiorari denied,

mee Us GIG. 2.2.22. aa Bes ‘ eae a 13

United States v. Vehicular Parking, 52 F. Supp. 751- - - - -- 13

Statute:

Internal Revenue Code:

pee. 46 GSU. 8: C: 1066 e0:, Bee: 46) — 2 11

Sec. 145 (26 U. 8. C. 1946 ed., See. 145) ._.......... 2

Sec. 188 (26 U. S. C. 1946 ed., Sec. 188)__._------- 7

(TI)

ate Wn a ihn A? he AO ECS te LNT

Inthe Supreme Court of the Hnited States

OcroBER TERM, 1952

No. 754

Lovis POLLOCK, PETITIONER

LB

Unirep States oF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FIFTH

CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinion of the Court of Appeals (R. 515-

523) is reported at 202 F. 2d 281.

JURISDICTION

The judgment of the Court of Appeals was en-

tered February 27, 1953 (R. 523), and the peti-

tion for rehearing was denied March 30, 1953

(R. 529). The petition for a writ of certiorari

was filed April 28, 1953. The jurisdiction of

this Court is invoked under 28 U. S. C., Section

1254 (1). See also Rules 37 (b) (2) and 45 (a),

Federal Rules of Criminal Procedure.

(1)

2

QUESTIONS PRESENTED

1. Whether there was a variance between the

indictment, which alleged an understatement of

income computed on the calendar year basis, and

the proof adduced by the Government.

2. Whether the evidence was sufficient to sup-

port the verdict.

3. Whether the trial court erred in requiring

petitioner’s attorney to produce certain papers

over a claim of privilege.

4. Whether the trial court erred in refusing

certain instructions.

STATUTE INVOLVED

Internal Revenue Code:

Src. 145. PENALTIES.

* * * * *

(b) Failure to Collect and Pay Over

Tax, or Attempt to Defeat or E vade Tax.—

Any person required under this chapter to

collect, account for, and pay over any tax

imposed by this chapter, who willfully fails

to collect or truthfully account for and pay

over such tax, and any person who willfully

attempts in any manner to evade or defeat

any tax imposed by this chapter or the

payment thereof, shall, in addition to other

penalties provided by law, be guilty of a

felony and, upon conviction thereof, be

fined not more than $10,000, or imprisoned

3

for not more than five years, or both, to-

gether with the costs of prosecution.

* * ¥* * *

(26 U.S. C. 1946 ed., See. 145.)

STATEMENT

On April 13, 1951, an indictment in two counts

was filed against petitioner in the United States

District Court for the Northern District of Ala-

bama. Count One charged petitioner with at-

tempting, in violation of Section 145 (b) of the

Internal Revenue Code, to evade a large part of

the income tax owed by himself and his wife

for the calendar year 1944 by filing a false return

on March 15, 1945, in which he stated that their

net income for the calendar year 1944 was $19,-

503.49 on which a tax of $6,267.35 was due,

whereas he knew that their net income was

$32,983.92 and that the tax due was $14,490.05.

Count Two charged him with attempting to evade

a large part of the tax for the calendar year

1945 by filing a false return on March 11, 1946,

indicating a joint net income for the calendar

year 1945 of $15,871.83 with a tax due in the

amount of $4,436.04, whereas he knew that their

net income was $38,208.87 and that the tax due

was $17,987.55. (R. 1-3.) After a jury trial

petitioner was found guilty as charged (R. 10),

and on May 22, 1952, the District Court imposed

a eee

Say

4

a general sentence of imprisonment for eighteen

months and a fine of $1,000 (R. 10-12). The

Court of Appeals affirmed (R. 515-523).

The evidence for the Government may briefly

be summarized as follows:

On August 26, 1943, petitioner bought a jewelry

store in Dothan, Alabama, which he operated as

sole proprietor for the period involved in this

ease. (R. 191, 272, 284, 415.) His wife assisted

in the management and he employed a staff of

three to five salesladies. (R. 106, 233, 240.)

The store handled a rather expensive line of

jewelry and silver, the value of the diamonds

running as high as $1,100. (R. 108, 235, 289.)

The sales force was instructed to ring up small

sales on the cash register, but when a sale was

made for a price in excess of $150 it was not to

be rung up and the proceeds were to be taken

directly to petitioner or his wife.’ Petitioner or

his wife would usuaily take over these larger

sales, complete the negotiations, and collect the

proceeds. (R. 105-116, 233-235, 242-245, 247.)

The bookkeeper, in making up her daily sales

record, got her information from the cash regis-

ter tally alone. (R. 249-253, 254-257.)

The accountants who made out petitioner’s in-

come tax returns for 1944 and 1945 used the books

1The Government introduced evidence of several specific

unrecorded sales in large amounts. (R. 106-108,:114-115,

145, 148, 149, 151, 153, 234, 345-350.)

5

and the cash register tally to compute the gross

income from the business. For 1944 the account-

ant was told to add $2,500 for unrecorded sales,

and for 1945 he was told to add a similar item of

$4,000. In neither instance was the accountant

shown any records to substantiate the figure he

was given. (R. 39-45, 53, 56-60, 183, 222, 223.)

In the absence of records for these sales the

internal revenue agents began to check petition-

er’s income for the period involved by computing

the annual increases in his net worth. (R. 268-

289, 294-295, 298-299, 345, 434-435.) During the

course of the investigation petitioner’s accountant

submitted a statement to the agents showing that,

as of January 1, 1942, his net worth was $44,-

830.88, and that by December 31, 1945, it had in-

creased to $112,073.23. To this increase in net

worth ($67,242.35) the accountant added petition-

er’s living expenses, insurance premiums and

income taxes paid, and computed petitioner’s total

net income for the calendar years 1942 to 1945,

inclusive, to be $93,345.75. (R. 157-167, 177-

180.) For the calendar year 1945 the account-

ant’s computation showed petitioner’s net income

at $37,044.14. The accountant testified for the

Government at the trial and stated that, as a

result of certain large real estate transactions in

Florida of which he had no notice at the time

he prepared the statement, the 1945 income would

have to be increased in his computation to

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6

$57,044.14. (R. 168-177, 184-186, 226-227.)

Petitioner’s income tax returns for the years

covered by the accountant’s computation reported

the following net income (R. 21, 23, 167-168) :

ee a Te ee £0. 00

ESE 8, 035. 00

| SRS Saline 19, 503. 49

ee 15, 871. 83

BR Satie ae $43, 410. 32

Petitioner prepared his income tax return for

1942 on a calendar year basis, and he continued

to file them on this basis through all the period

involved in this case. (R. 26, 30-31, 34, 188,

191-199.) However, the accountant who pre-

pared the return for 1944 was under the

impression that the jewelry business was a part-

nership between petitioner and his son. He,

therefore, computed petitioner’s income from the

business on a fiseal year basis, beginning August 26,

1943, the date the store was purchased, and end-

ing July 31, 1944.2 All other income he com-

puted on the basis of the calendar year 1944.

As a result the return reported business income

2 The accountant’s statement further showed that peti-

tioner’s net worth had increased to $140,826.59, as of Decem-

ber 31, 1946, and that his net income for the calendar year

1946 was $37,646.70. Petitioner’s return for 1946 showed

an income of only $11,575.68. (R. 215-216.)

3No income from the Dothan store had been included in

petitioner’s 1943 return. (R. 49, 374, 412.)

_ =a hab sR tale Cea ADIT Di Btn Tn a et cae RD

on a fiscal year basis and other income on a

calendar year basis... The same procedure was

followed in 1945. (R. 41-42, 46-47, 50, 61-63,

156-157, 187-188.) By the time the 1946 return

was filed the error had been discovered as the

result of the revenue agent’s investigation, and

in that return both business income ind other

income were computed on the basis of the calen-

dar year. (R. 198-201.)

In view of this confusion in petitioner’s re-

turns the Government furnished three different

computations of his net income for the years 1944

and 1945:

1. Using petitioner’s own basis of computation,

fiscal year for the business and calendar year for

all other sources, the Government computed his

net income as follows:

1944__ $24,205.98 (R. 325-332, 351-

392)

1945__ 50,194.82 (R. 352-343)

2. On a strictly calendar year basis for both

the jewelry business and all other income (R. 387,

392, 422), the Government computed petitioner’s

net income as follows:

ee $20, 518.55 (R. 426-428)

| 48,709.91 (R. 428-429)

* This would have been proper if the business had been in

fact a partnership. Internal Revenue Code, sec. 188 (26

U.S. C. 1946 ed., sec. 188).

256678—53—— 2

S

3. On a strictly fiscal basis for both the busi-

ness and other income the Government computed

the net income as follows:

1944... $32, 983.92 (R. 432)

1906... 38, 208. 87 (R. 482-433)

Petitioner did not take the stand and offered

no witnesses in his own behalf. (R. 451.)

In his charge to the jury the trial judge ex-

plained the essential elements of the offense al-

leged in the indictment (R. 459-461), explained

the method of proving understatement of income

by showing annual increases in net worth (R. 461-

463), and then specifically charged the jury that

they must find that the Government had proven

a willful understatement of income for the calen-

dar years 1944 and 1945. This last portion of

the instruction is as follows (R. 463-464):

I further charge you, gentlemen of the

jury, that while | have permitted the Gov-

ernment much latitude in an effort to estab-

lish the Defendant’s net worth as of the

beginning period, nevertheless, I specifi-

eally charge you that the Defendant is

not on trial for any income tax violations

for any years except 1944 and 1945, and

if from the evidence, and the evidence

alone, you are satisfied beyond a reason-

able doubt that the Defendant did willfully

and knowingly attempt to defeat and evade

the income tax due and owing by him to

the United States for the calendar years

1944 or 1945 by filing and causing to be

9

filed with the Collector of Internal Rev-

enue a false and fraudulent income tax re-

turn, then it would be your duty to bring

in a verdict of guilty. And even should

you be so reasonably satisfied that he had

violated said law for any years other than

1944 and 1945, I state to you he is not

being tried for any such Violation, and

his guilt or innocence must be determined

from his taxable earnings and the reports

filed thereon for the years 1944 or 1945,

and not years prior nor subsequent thereto.

ARGUMENT

1. Petitioner contends (Pet. 1, 6-7, 11-12,

14-22) that the indictment, which alleged an un-

derstatement of income computed on a calendar

year basis, is invalid because it appears from the

evidence that the books of his business were kept

on a fiscal year basis. The contention appears to

be, in substance, that there is a varianee between

the indictment and the proof.

There can be no question as to the validity of

the indictment itself. It clearly and unambigu-

ously charges attempts to evade income taxes for

the calendar years 1944 and 1945 by filing false

returns understating net income for those calen-

dar years. (R. 1-3.) Perhaps petitioner means

to argue that there was no evidence before the

grand jury sufficient to justify such an indictment

since one of the computations presented by the

revenue agent was made upon a combined fiscal

EELS TRAN ROI AED

10

and calendar year basis. (Pet. 14-16.) But, as

has been pointed out above (supra, p. 7), the

agent also computed petitioner’s net income upon

a calendar year basis alone, and there is nothing

in the record to indicate that evidence of this

nature was not before the grand jury. It is well

settled that the validity of an indictment is not

affected by the insufficiency or impropriety of

evidence before the grand jury, except in extreme

instances to prevent clear injustice or abuse of

judicial process. Cox v. Vaught, 52 F. 2d 562

(C. A. 10th); McKinney v. United States, 199

Fed. 25, 27-28 (C. A. 8th). Apparently peti-

tioner’s real argument is that there is a variance

between the indictment, which charges evasion of

income taxes on a calendar year basis, and the

proof, which includes the computation upon a

combined calendar and fiscal basis and which

shows that the books of the jewelry business were

kept on a purely fiscal basis. Petitioner seems to

argue that he was justified in his mistaken method

of keeping his books and filing his returns because

he followed the advice of his accountants.

The simple answer is that the Government

proved, as it alleged in the indictment, that there

was a gross understatement of net income upon a

strictly calendar year basis (R. 387, 392, 420,

426-432), and it was left to the jury under proper

instructions (R. 459-466) to determine whether

this understatement was a wilful and intentional

attempt to evade payment of income taxes for

aenee Sa ieeatien BD th CR EN i Se RRIRE RR.

Baden atest ASE RT So Be all Sat A

11

the calendar years 1944 and 1945. Petitioner

could not legally report his income on a fiscal

basis, since the jewelry business was a sole pro-

prietorship and not a partnership, and since his

returns in 1942 and 1943 had been made upon a

calendar year basis and he had not obtained the

approval of the Commissioner of Internal Rev-

enue to make a change.’ (R. 50, 394.) Whether

this was an honest mistake, and whether it led

to an unintentional understatement of net income,

were questions to be determined by the ju-y.

However, since the 1944 and 1945 returns were

actually filed on a combined fiscal and calendar year

basis,® it was proper for the Government, in prov-

ing willful intent to evade, to show that even on the

improper basis adopted in those returns there was

a very large understatement of net income.

2. It is contended (Pet. 5, 9-10, 12, 28-31) that

the Government's evidence of understatement of

net income was insufficient to take the case to

the jury. Petitioner’s returns reported net in-

come of $19,503.49 for 1944, and $15,871.83 for

1945. His accountant, McDaniel, computing in-

5 Internal Revenue Code, Sec. 46 (26 U. S. C. 1946 ed., Sec.

46). In the cases cited by petitioner (Pet. 17-20) the tax-

payers were properly keeping their books on a fiscal year

basis.

"The present petition gives the impression that petitioner

reported all his income on a fiscal year basis. (Pet. 14.)

But, while the returns for 1944 and 1945 included fiscal in-

come from the jewelry business, other income was computed

on the basis of the calendar year. (R. 61-63.)

=

12

come for the calendar years by determining in-

creases in net worth and adding non-deductible

expenditures, testified that petitioner’s net income

was only $10,983.48 in 1944 (R. 169-170), but that

it was $57,044.14 for 1945 (R. 170-177). The

revenue agent, Martin, submitted three compu-

tations. He testified that computed on a strictly

calendar year basis petitioner’s net income was

$20,518.55 in 1944, and $48,709.91 in 1945 (supra,

p. 7). Petitioner’s argument, which discusses

only one-half of McDaniel’s computation, and

_ only one-third of Martin’s, is patently frivolous.

Any doubt as to the substantiality of the evidence

for 1944 is of no moment, in view of the fact

that a general sentence was imposed which is well

within the maximum permissible under the 1945

count. Pinkerton v. United States, 328 U. S.

640, 641-642; ef. Hirabayashi v. United States,

320 U. S. 81, 85, 105.

3. During the trial, Milton Weiss, an attorney

who had represented appellant in some real

estate transactions in Florida, testified for the

Government and, over objection, produced copies

of two receipts in which he acknowledged that

petitioner had delivered to him $11,500 and

$10,000 in currency. (R. 124-127.) Petitioner

contends (Pet. 5-6, 10-11, 12, 31-33) that this

was a violation of a privileged communication

between attorney and client. The argument is

without merit.

13

Tt is clear from the record (R. 117-139) that

these large sums of currency were being delivered

to the attorney simply to enable him to make

payments on real estate purchased by petitioner.

It is clear also that the jury might well have

considered these large cash transactions as eVi-

dence of a scheme by petitioner to evade the pay-

ment of his income tax. The privilege accorded

to the attorney-client relationship applies only

where the attorney is consulted in his profes-

sional capacity for the purpose of obtaining legal

advice. Where the attorney is a mere scrivener,

simply acting as would a banker or broker in

an ordinary business transaction, the communica-

tion is not privileged. Grant v. United States,

227 U.S. 74; United States v. DeVasto, 52 F. 2d

26 (C. A. 2d), certiorari denied, 284 U. S. 678;

United States v. Vehicular Parking, 52 F. Supp.

751 (D. Del.) ; Chapman v. Peebles, 84 Ala. 283.

Furthermore, a communication made in further-

ance of the offense for which the defendant is

being tried is not privileged. Clark v. United

States, 289 U. S. 1, 15; Alexander v. United

States, 138 U.S. 353, 360; United States v. DeVasto,

supra.

4, Petitioner contends (Pet. 4-5, 8-9, 12, 22-28)

that the trial court erred in refusing to give three

specific requested instructions. Two of these di-

rected the jury to acquit petitioner if they found

that the Government had included in its computa-

7 De OI ATR RRS OE eee eee eee ey ee ee a

14

tion of taxable income for one calendar year

income which had actually been paid to him in

another calendar year. The other instructed

them that the Government was without authority

to compute his income tax on a calendar year

basis, if he regularly kept his books on a fiscal

year basis though filing calendar year returns.

The impropriety of these requested instruc-

tions has already been demonstrated. As to the

first two, the Government had shown upon a

strictly calendar year computation that there had

been a large understatement of net income (supra,

p- 7), and the jury were clearly instructed that

petitioner’s guilt must be determined upon the

basis of his taxable earnings for the calendar

years alone (supra, p. 8). It was not requested

that the jury be instructed to limit their con-

sideration of the Government’s other computation

on the combined calendar-fiseal basis to the issue

of wilfulness alone. As to the third, there is no

basis in the record for such an instruction. Peti-

tioner had always filed his returns on a calendar

year basis and had not obtained the approval of

the Commissioner to file fiscal returns. Moreover,

the fiscal operation of the jewelry business was a

mistake, since there was no partnership between

petitioner and his son as the accountants had

originally been given to believe. Under any

theory of the evidence the proper method of com-

putation of petitioner’s taxable income was on

the basis of the calendar year.

~—

The proposed instructions were improper in the

light of the record, and the charge as given cor-

rectly states the applicable law."

CONCLUSION

The decision below is clearly correct, and pre-

sents no question calling for review. The petition

for a writ of certiorari should be denied.

Respectfully submitted.

Ropsert L. STERN,

Acting Solicitor General.

H. Brian HOLianp,

Assistant Attorney General.

Enis N. SLACK,

Meyer RoTHWACKS,

JosEPH M. Howarp,

Special Assistants to the Attorney General.

JUNE 1953.

7 It is unnecessary to consider petitioner’s contention (Pet.

6, 11, 12, 33-43) that the 1944 count was barred by the statute

of limitations since the general sentence imposed was within

the maximum allowable under the 1945 count. Pinkerton

v. United States, supra; Hirabayashi v. United States, supra.

U. S. GOVERNMENT PRINTING OFFICE: 1953