Opposition Brief — Bender v. United States

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CITATIONS

Cases:

Barrow v. United States, 171 F. 2d 286________-

Clark v. United States, 211 F. 2d 100, certiorari

So Le eee

Holland v. United States, 348 U.S. 121_______-_-

Rossi v. United States, 289 U.S. 89.__.._.__---

United States v. Calderon, 348 U.S. 160______--

United States v. Fleischman, 339 U.S. 349

United States v. Hornstein, 176 F. 2d 217

United States v. Link, 202 F. 2d 592__________-

United States v. Stayback, 212 F. 2d 313, certiorari

oe ee S| ee eer

Wolcher v. United States, 218 F. 2d 505

Statute:

Internal Revenue Code of 1939:

Sec. 22 (26 U. S. C. 1952 ed., Sec. 22)___-

Sec. 145 (26 U.S. C. 1952 ed., Sec. 145) ___-

(1)

339320—55——-1

NS Ses yiet:

Guthe Supreme Court of the Anited States

OcToBER TERM, 1954

No. 658

ABE BENDER, PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinion of the Court of Appeals (Pet. la-

10a) is reported at 218 F. 2d 869.

JURISDICTION

The judgment of the Court of Appeals was

entered on January 12, 1955," and the petition for

rehearing was denied on February 15, 1955. The

petition for a writ of certiorari was filed March

17, 1955. The jurisdiction of this Court is in-

voked under 28 U. 8. C., Section 1254 (1).

‘The proceedings in the Court of Appeals are included

after page 448 of the Record but have not been independ-

ently numbered.

(1)

é

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2

QUESTIONS PRESENTED

1. Whether the trial court improperly curtailed

petitioner’s argument to the jury.

2. Whether there was plain error in the trial

court’s instructions on:

(a) circumstantial evidence ;

(b) the determination of tax liability;

(ec) petitioner’s knowledge of the contents of

his return.

3. Whether the evidence was sufficient to sus-

tain the conviction.

STATUTE INVOLVED

Internal Revenue Code of 1939:

Sec. 145. PENALTIES.

7 * * * *

(b) Failure to Collect and Pay Over

Taz, or Attempt to Defeat or Evade Tar—

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 pay-

ment 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

a

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

gether with the costs of prosecution.

3

* ¥ * * *

(26 U.S. C. 1952 ed., See. 145.)

STATEMENT

On March 12, 1953, a one-count indictment was

returned against petitioner in the United States

District Court for the Northern District of Tli-

nois, Eastern Divison, charging him with having

wilfully attempted to evade and defeat a large

part of his individual income tax for the calendar

year 1946 (R. 2-3). Specifically, the indictment

charged the following deficiencies:

| Reported | Reported | Corrected Corrected

income | tax | ineome tax

| | |

1946__ Oh hae AOR we oe $20, 304.71 | $6,708.68 | $6,718.38 | $29, 927. 37

After a jury trial lasting approximately seven

: days, petitioner was found guilty as charged (R.

: 434), and on April 22, 1954, he was sentenced to

two years imprisonment and a $5,000 fine (R.

438-439). The Court of Appeals affirmed the

conviction (Pet. la—10a).

During 1946, petitioner was a partner with his

brother, Ben Bender, in a cooperage business,

Bender Brothers Cooperage Company (R. 46,

404-405). He was not charged with having failed

to report income received from this partnership

venture or with having evaded any tax attaching

thereto (R. 46). The tax allegedly evaded arose

4

out of an entirely independent income-producing

activity, that of selling a syrup ingredient to recti-

fiers of liquor (R. 47, 82-83, 107-108, 125, 182,

184). Petitioner conducted this business solely

for his own account and without maintaining any

bookkeeping records incident to it (R. 325, 404-

405). His records consisted only of an assortment

of bills and cancelled checks (R. 325).

Petitioner’s 1946 return was prepared by a

public accountant, Kraus (R. 310). The portion

of the return concerning petitioner’s syrup deal-

ings was based entirely on the sum of such income

and expense data as he personally supplied Kraus

(R. 305-307). Petitioner’s only interest in the

content of the return centered on the profit re-

ported on syrup transactions, and Kraus advised

him, before execution of the return, that the profit

was $3,734.61 (R. 318-319).

The return reflected syrup sales of $84,587.94

(R. 357). At the trial, the Government intro-

duced documentary evidence, consisting of peti-

tioner’s invoices and customer’s cancelled checks,

establishing additional and wholly unreported

syrup sales aggregating $23,179.30 (R. 358-360).

This total represented ten sales during 1946 to

two separate vendees. Eight of the sales, com-

prising $21,169, were to Sunset, Incorporated, a

rectifier and wholesaler of alcoholic liquors lo-

eated in Chicago (R. 124-125, 359). Sidney S.

Waller, Sunset’s vice president and treasurer,

5

testified that he had negotiated all of Sunset’s

1946 syrup purchases from petitioner with the

latter personally. (R. 126, 165, 168.)

There being no indication during the investi-

gation (R. 306-307, 326-327) and no evidence at

the trial that petitioner’s ‘‘Cost of Goods Sold”’

was greater than the sum of $80,849.33 claimed as

such on the return prepared from information

that he had furnished Kraus (R. 305-307, 331),

his failure to declare the additional income de-

rived from the ten unreported sales resulted in

the evasion of $13,910.34 in tax (R. 370-372).

Petitioner did not testify and introduced no

evidence in his own behalf (R. 376).

ARGUMENT

1, At the trial, Waller, the officer of Sunset,

testified that on one occasion in his dealings with

petitioner the latter, on October 14, 1946, had

refunded $6,800 to Sunset because of its inability

to use a certain quantity of syrup that he had

previously sold the concern (R. 124-125, 171,

175). The evidence showed that petitioner had

claimed the $6,800 refunded to Sunset as a part

of his ‘Cost of Goods Sold’’ on his 1946 return

(R. 331-332, 361-363).

In his closing argument, petitioner attempted

to persuade the jury that the syrup involved in

the refund to Sunset was ‘‘unsalable,”’ ‘‘spoiled’’

(R. 396), and ‘‘no good’? (R. 402). Government

counsel objected to this line of argument on the

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ground that there had been no evidence as to the

condition of the syrup. The court sustained the

objection, stating that it did not recall any evi-

dence of the fact that the goods were not ‘‘satis-

factory’’ (R. 402). Petitioner now characterizes

the court’s adverse ruling on this objection as the

‘erroneous contradiction of crucial evidence in

the record’’ resulting in denial of his right to

trial by jury (Pet. 2).

Although there was evidence that the syrup was

‘‘unsatisfactory”’ to Sunset (R. 175), there was

no evidence to support petitioner’s argument that

the syrup returned by Sunset was ‘‘no good”’ and

therefore subject to a loss deduction as worthless

stock in trade.

Other than Waller’s reference to Sunset’s “in-

ability * * * to use’’ the syrup in question (R.

171) and his further statement that “it was a

return of merchandise which we had purchased

that we found unsatisfactory’’ (R. 175), there was

no indication of the basis for Sunset’s rejection

of it and no evidence at all as to the syrup’s

actual quality or condition as distinguished from

Sunset’s particular ability to use it.

Of equal importance, in this connection, is the

fact that complete concession of petitioner’s

argument would leave unreported income of ap-

proximately $17,000 for 1946. United States v.

Calderon, 348 U. 8. 160, 168. Petitioner’s recog-

nition of this fatal weakness in his argument is

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manifest from his persistent efforts to infuse

significance, amount-wise, into the Sunset refund

item of October 1946, by attempting to associate

it with three entirely distinct and unrelated syrup

transactions that occurred in January 1946 (Pet.

8-10, 14). Petitioner assigns no error relative to

these transactions. The trial court permitted him

complete latitude of argument in respect to them

and his complaint now is concerned only with the

jury’s apparent rejection of that argument. This

affords no basis for using isolated January sales

to invigorate the single October refund item.

The trial court’s curb on petitioner’s argument

concerning the worthlessness of the syrup re-

tured by Sunset was not error because the evi-

dence did not support such an argument.

Moreover, had the jury accepted the argument

the proved deficiency remained substantial im

amount,

2, The trial court carefully imstructed the jury

that they could not convict unless satisfied of peti-

tioner’s guilt beyond a reasonable doubt... Hol-

*“Now, this is a criminal case. The Jaw in such cases is

that a defendant comes into court presumed to be innocent,

and that presumption protects him until such time, if such

time shall come, when the jury shall believe from the evidence

in the case, beyond a reasonable doubt, that the defendant is

guilty as charged in the indictment, which will go to the

jury room with you. You will have an opportunity to read

the indictment.

“The guilty [sic] of an accused is not to be inferred be-

cause the facts proven are consistent with his guilt, but on

339820 5h 2

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8

land v. United States, 348 U. S. 121, 139-140.

The court also defined circumstantial evidence and

in connection therewith emphasized the quantum

of such evidence necessary to the return of a

verdict of guilty. Petitioner isolates the final

the contrary, before there can be a verdict of guilty, you must

believe from all the evidence, and beyond a reasonable doubt,

that the facts proven are inconsistent with his innocence. If

two conclusions can reasonably be drawn from the evidence,

one of innocence and one of guilt, you should adopt the

former, that is to say, the one of innocence.

“The defendant on trial has pleaded not guilty. The law

does not require any defendant to prove his innocence. The

burden of proving the charges in the indictment rests upon

the Government, and you cannot find the defendant guilty

unless, from all the evidence, you believe him guilty of the

offenses charged in the indictment beyond a_ reasonable

doubt.

“Now, a reasonable doubt which you have heard so much

about in this case, is what the term implies, a doubt founded

onreason. It does not mean every conceivable kind of doubt.

Tt does not mean a doubt that may be purely imaginary or

fanciful, or one that is merely captious or speculative. It

means, simply, an honest doubt that appeals to reason and is

founded upon reason. If, after considering all the evidence

in the case, you have such a doubt in your mind as would

cause you, or any other reasonably prudent person to pause

or hesitate before acting in a grave transaction of your life,

then you have such a doubt as the law contemplates as a

reasonable doubt.” (R. 416-417.)

* “Now, the Government must prove the defendant guilty

beyond a reasonable doubt. This need not be done by direct

and positive testimony but may be done by what is termed

circumstantial evidence which T shall distinguish from the

other kind of evidence which is direct evidence.

“Members of the jury, as I just stated, there are two kinds

of evidence—direct and circumstantial. Direct evidence is

that sort of evidence by which a fact is proved directly and

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paragraph of this phase of the court’s instructions

and characterizes it as plain error and “argu-

mentative of guilt’’ (Pet. 20).

In its detailed instructions on circumstantial

evidence immediately preceding the paragraph

excepted to, the court had expressed the test for

sufficieney in terms of reasonable doubt. In

charging that circumstantial evidence, to be suffi-

cient, must exclude every reasonable hypothesis

without inference from other facts and is usually given by

witnesses who saw, heard, or otherwise observed some par-

ticular fact or occurrence. Circumstantial evidence is that

sort of evidence by which an inference of an unknown fact

is drawn from the existence of known facts.

“For example, if, when you went to bed at night—this

is a classic illustration given often in the courts—if, when

you went to bed at night, you saw the ground was bare of

snow, and in the morning when you awakened you saw the

ground covered with snow, while you had not seen the snow

fall, nevertheless you can infer from the evidence you see

that it had snowed during the night. That is an illustration

of what circumstantial evidence is.

“Circumstantial evidence in criminal cases is the proof of

such facts and circumstances connected with or surrounding

the crime charged as attempt to show the guilt or innocence

of the party charged. If the facts and circumstances shown

by the evidence in this case are sufficient to convince the

jury of the guilt of the defendant beyond a reasonable doubt,

then such evidence is sufficient to authorize the jury to find

the defendant guilty.

“The law demands a conviction where there is sufficient

legal evidence to show a defendant’s guilt beyond a reason-

able doubt, and circumstantial evidence is legal evidence.

“I should like to add that circumstantial evidence is proof

of such facts and circumstances surrounding the acts and

conduct of the party charged as to exclude every reasonable

hypothesis except guilt” (R. 418-419).

DTP ENP RE S

10

but that of guilt, the court did no more than aug-

ment the test for sufficiency that it had previ-

ously given. Petitioner did not except to this

instruction (R. 425-428). He should not be

heard to complain now since its effect, if any, on

the jury was to heighten the evidentiary barrier

to conviction.

Although superfluous under the circumstances,

the court’s instruction on the “reasonable hy-

pothesis” test for the sufficiency of circumstantial

evidence by no means constituted plain error.

Petitioner’s assertion that the trial court com-

mitted plain error in its instructions on deter-

mination of tax liability is attributable entirely to

his misreading of those instructions. He contends

that the trial judge instructed that deductions

from gross income were not pertinent to this case

(Pet. 20). The following is the challenged in-

struction, appearing at page 421 of the record:

The first step in arriving at the income

of an individual upon which the tax is im-

~ posed is a determination of the gross in-

come of the individual. Gross income

is generally all gains or profits, and income

derived from any source whatever, whether

from salaries or wages, from professions,

trades, and businesses; from sales, from

dividends, from interest, or from the trans-

actions of any business carried on for gain

or profit, except that from such gains

and profits there must be excluded, under

the provisions of the Revenue Act, certain

items which would properly be a part of

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the gross income if the statute did not re-

quire their exclusion. These items are not

pertinent in this case. [Emphasis sup-

plied. }

The court, in fact, instructed that exclusions

from gross income, not deductions, were not per-

tinent to this case. Certainly petitioner does not

contend that there was any evidence in this case

making pertinent the statutory exclusions pro-

vided under Section 22 (b) of the Internal Reve-

nue Code of 1939.

Moreover, contrary to petitioner’s contention,

the trial court did instruct adequately on deduc-

tions from gross income.‘ In substance, the in-

*“After determining the gross income of an individual,

the next step provided by the statute for arriving at the

income upon which the tax is computed is to deduct from

the so-called gross income such deductions as the statutes

permit; that is, an individual is permitted to deduct from

gross income all the ordinary and necessary expenses paid

or incurred during the taxable year in carrying on any

trade, or business, including a reasonable allowance for

salaries or other compensation for personal service actually

rendered such individual; also rentals for the use of or

possession of property connected with and used in a trade

or business; also taxes paid by the individual in the tax-

able year; also losses sustained during the year for which

the individual is not reimbursed by insurance, if such

losses are incurred in the trade or business; other losses

sustained during the year from which the individual is

not reimbursed by insurance if net losses are incurred in

any transaction entered into for profit, although not con-

nected with any trade or business, and other deductions.

“After such of these deductions from gross income as

the individual is entitled to are made, the amount remain-

ing is net income” (R. 421-422).

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struction given touched on all deductions from

gross income provided by law. At no time did

the court suggest that such deductions were not

pertinent to this case.

Finally, on the issue of instructions, petitioner

asserts that the trial court erroneously applied

the doctrine of respondeat superior to this case

in giving the following charge (Pet. 21-22, R.

422):

You may find from the facts that when

Abe Bender signed his individual income

tax return for the year 1946 that he had

knowledge of the contents of that return.

This instruction withdrew no issue from the

jury. It merely informed the jury that the evi-

dence would permit a finding that petitioner knew

the contents of his return. There was such evi-

dence. For example, the accountant who pre-

pared the return testified that when he presented

it to petitioner for signature the latter was in-

terested in knowing his realized profit on syrup

sales. The accountant thereupon advised peti-

tioner of the profit figure (R. 318). Petitioner

says (Pet. 22) ‘‘Under the evidence in the case

it was a question for the Jury as to whether

Bender, the petitioner, had knowledge of the

contents of the return.’’ With this we agree, as

did the trial court in instructing (R. 423)—

* * * it is for you to determine from all

the evidence whether the defendant had

knowledge of the falsity of his return, if

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13

you find that the return was in fact false,

beyond a reasonable doubt.

Under the instructions given, the question of

petitioner’s knowledge of the contents of his re-

turn was unreservedly left to the jury. His

contention to the contrary is simply not supported

by the record.

3. Petitioner questions the sufficiency of the

evidence in support of the conviction. (Pet. 2.)

Specifically, he contends that since the Govern-

ment failed to prove affirmatively that he did not

have greater deductible expenses than the amounts

claimed as such on his return, his conviction was

secured by improperly shifting the burden of

proof to him.

We agree with petitioner that proof of an addi-

tional tax owing is essential to a conviction on

charges of income tax evasion. (Pet. 24.) When

the Government has established a prima facie

ease, however, the defendant thereafter remains

quiet at his peril. Holland v. United States,

supra, pp. 138-139.

Petitioner’s return, insofar as it concerned

income and expense incidental to the syrup trans-

actions that he personally conducted, was based

exclusively on information that he supplied

(supra, p. 4). The return reflected gross income

from syrup sales of $84,583.94 (R. 360), a “Cost

of Goods Sold’’ deduction. therefrom of $80,849.33

(R. 350-331) and a resulting profit of $3,734.61

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14

(R. 314). During the investigation, neither peti-

tioner nor his authorized tax representative, Pos

(R. 276), indicated to the revenue officers that he

had ineurred deductible expenses not claimed as

such on his 1946 return (supra, p. 5).

The Government introduced documentary evi-

dence showing that petitioner had failed to report

1946 syrup sales totaling $23,179.30 (supra, p. 4).

This evidence is undisputed (Pet. 7) and with it

the Government established a prima facie ease.

Wolcher v. United States, 218 F. 2d 505, 508

(C. A. 9th).

Since the circumstances fairly indicated that

there were no deductible costs to offset the proved

unreported sales, it was not incumbent on the

Government to adduce further positive evidence

to support this negative proposition. United

States v. Fleischman, 339 U. S. 349, 360-364;

Rossi v. United States, 289 U.S. 89, 91-92. This

was not a ease in which petitioner himself was

the only person who could testify in contradiction

of the Government’s evidence. If he actually had

offsetting expenses for syrup purchases, his sup-

pliers were certainly available to him as witnesses.

Where the Government, as here, has established

unreported gross income in substantial amount

and has allowed all deductions that the taxpayer

claimed on his return, a reasonable jury may, in

the absence of evidence showing additional and

unclaimed deductions, conclude beyond a reason-

_— LOLS RRR L LINE SORE AOI i ONE RE A

15

able doubt that there were no additional deduc-

tions and that, therefore, additional taxes were

due and owing. See United States v. Link, 202

F. 2d 592, 593-594( C. A. 3d); United States v.

Hornstein, 176 F. 2d 217, 220 (C. A. 7th); Bar-

row v. United States, 171 F. 2d 286, 287 (C. A.

5th); Clark v. United States, 211 F. 2d 100, 103

(C. A. 8th), certiorari denied, 348 U. 8. 911; and

United States v. Stayback, 212 F. 2d 313, 317

(C. A. 3d), certiorari denied, 348 U. 8. 911.

CONCLUSION

For the reasons stated, it is respectfully sub-

mitted that the petition for a writ of certiorari

should be denied.

Srmon E. Sospe.orr,

Solicitor General.

H. Brian Ho.ianp,

‘Assistant Attorney General.

Eis N. SLACK,

JoHN H. MITCHELL,

JosEPH M. HowArp,

GEORGE WILLI,

Special Assistants to the Attorney General.

APRIL, 1955.

YU S. GOVERMMENT PRINTING OFFICE. 1958