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United States v. Dawson

decided: August 12, 1968.


Waterman, Friendly and Kaufman, Circuit Judges.

Author: Waterman

WATERMAN, Circuit Judge:

On April 30, 1965, William J. Dawson, then chairman of the Democratic Committee of the city of Cohoes, New York, was charged in a three-count indictment with having violted Section 7201 of the Internal Revenue Code of 1954, 26 U.S.C. § 7201,*fn1 in that he had wilfully attempted to evade and defeat the income tax owed by him for the years 1959, 1960, and 1961, by filing false and fraudulent joint income tax returns for him and his wife. In May 1966, after a suppression hearing had resulted in no evidence being suppressed, trial commenced in the United States District Court for the Northern District of New York, before Port, J., and a jury; appellant and over one hundred other witnesses testified, and a trial record of more than 2300 pages of transcript was built. The jury found Dawson guilty on counts 1 and 3 (1959 and 1961) and not guilty on count 2 (1960). He was sentenced to two years imprisonment on count 1 -- on count 3 an imprisonment sentence was suspended and three years probation was imposed upon condition that appellant pay any tax arrears for 1959 and 1961. Upon this appeal, appellant makes no less than thirteen distinct assignments of error which range from allegations that the trial court made erroneous evidentiary rulings to a claim that the sentence imposed on count 1 is so excessive that it is cruel and unusual punishment violative of the Eighth Amendment. We hold that no error was committed which was prejudicial to appellant, we affirm the judgment of conviction, and find that the sentence was not unconstitutionally imposed.

Under count 1, the Government sought to prove that there were two specific items of income which appellant did not report on his 1959 return. First, the Government attempted to show that appellant had received $1,750 in cash from a business partnership operating under the name Mazra Homes with the result that, a few days after the cash had changed hands, the City of Cohoes began to install water and sewerage facilities for the partnership's real estate development. Both of the partners testified that they gave the money to appellant because they had been told that appellant "ran things" in Cohoes. One partner, Michalik, testified that he went to see appellant, whom he did not know personally, and placed an envelope containing the $1,750 on appellant's desk. The other partner, Rosonoff, testified that he had previously cashed a business check for $1,750 and had given the cash to Michalik to be passed on to appellant. The Government corroborated this testimony by placing in evidence, over appellant's objection, the canceled check for $1,750 made out to "cash" and the portion of the Mazra Homes books and records which disclosed a cash disbursement of $1,750 on the day in question, noted in the records as "Cohoes for water."

Second, the Government put in evidence that appellant had made a profit of $1,300 on a sale of land in 1959 and had not reported this on his 1959 return. Joseph Simonek testified that he paid appellant $1,500 in cash for a piece of land and later received back $150 because of a defect in the title. Appellant had bought the land six years earlier from the City of Cohoes for $50. One half of this $1,300 long-term capital gain, $650, was taxable. Appellant conceded that he had not included this item in his 1959 return but claimed that property taxes and other expenses he incurred while he owned the property wiped out any profit he may have made on the sale. However, property taxes would have no effect on the amount of capital gain reportable on the sale of appellant's property, and appellant proved no specific items of expense which would have had the effect of increasing the cost basis of the property while it was in his hands.

Appellant's first assignment of error relating to count 1 is that the canceled check and the portion of the books and records of Mazra Homes dealing with the $1,750 transaction were improperly admitted into evidence. He claims the books and records were inadmissible because Michalik, the witness whose testimony supposedly laid the foundation for the receipt of these items, was not the person who kept the books and records and that his acquaintance with those items was limited to knowledge that the books had been kept by an accountant in New York City who was not a witness. However, Michalik testified that he knew the books and records were kept in the regular course of business of Mazra Homes and that it was in the regular course of the partnership business to keep such records. This testimony was sufficient to make the relevant portions of the books and records admissible under the Federal Business Records Act, 28 U.S.C. § 1732(a),*fn2 for the person who actually keeps the books and records and makes the entries need not testify if a person does testify who is in a position to attest to the authenticity of the records. See, e. g., United States v. New York Foreign Trade Zone Operators, Inc., 304 F.2d 792, 796 (2 Cir. 1962); Bridger v. Union Railway Co., 355 F.2d 382, 391- 392 (6 Cir. 1966); Wheeler v. United States, 93 U.S. App. D.C. 159, 211 F.2d 19, 22-23 (1953), cert. denied, 347 U.S. 1019, 74 S. Ct. 876, 98 L. Ed. 1140 (1954). The fact that the records offered were essentially self-serving is no bar to their admissibility under 28 U.S.C. § 1732. Compare Lind v. Schenley Industries, Inc., 278 F.2d 79, 88 (3 Cir. in banc), cert. denied, 364 U.S. 835, 81 S. Ct. 58, 5 L. Ed. 2d 60 (1960). Moreover, canceled checks are clearly admissible to prove that money was drawn from an account. In any event, no prejudice to appellant can have resulted from the admission of the check and records, for that evidence was purely cumulative to the oral testimony of the parties. Compare United States v. Schabert, 362 F.2d 369, 371-372 (2 Cir.), cert. denied, 385 U.S. 919, 87 S. Ct. 230, 17 L. Ed. 2d 143 (1966).

Appellant also contends that, on the basis of 26 U.S.C. § 7605(b)*fn3 which statute provides that a second examination of a taxpayer's books and records must be preceded either by the taxpayer's consent to the examination or by a written notification from the Secretary or his delegate, the lower court should have suppressed all government evidence regarding the year 1959 obtained by Internal Revenue Agents' having audited appellant's 1959 returns. There is no merit to this contention for even if one assumes that appellant's records had once been inspected prior to the investigation which resulted in appellant's prosecution, an assumption not conceded by the Government, and even assuming further that the results of a second, unlawful inspection would be excludable,*fn4 we would hold that the lower court did not err in refusing to suppress. Here there was sufficient credible evidence introduced at the suppression hearing to show that, prior to appellant's very first conference with government agents regarding the charges involved in the case, a Section 7605(b) letter was sent to him. What appellant appears to be complaining about is the extensive government investigation into his affairs through interviews with third parties and the checking of public records, bank accounts, and the detail disclosed by the 1959 tax return itself. Such an investigation is not within the ambit of Section 7605(b); the section applies only to a successive inspection of the taxpayer's private books of account. See Geurkink v. United States, 354 F.2d 629, 631 (7 Cir. 1965); De Masters v. Arend, 313 F.2d 79, 86 (9 Cir.), cert. dismissed, 375 U.S. 936, 84 S. Ct. 341, 11 L. Ed. 2d 269 (1963); compare Application of Magnus, 299 F.2d 335 (2 Cir. 1962). Indeed, a preliminary investigation of the type made here is expressly contemplated in the statute: "* * * or unless the Secretary or his delegate, after investigation, notifies the taxpayer * * *." 26 U.S.C. § 7605(b) (emphasis supplied); see De Masters v. Arend, supra 313 F.2d at 86. Moreover, the evidence in the present case indicates that appellant never permitted the agents to examine his books and records and this fact provides an alternate basis for supporting the trial court's determination; it could have found that there was nothing to suppress because there was no second examination in violation of 26 U.S.C. § 7605(b).

Appellant also contends that witness Michalik's testimony that $1,750 graft was paid to appellant is incredible as a matter of law. There is no merit to this claim, for although there were minor inconsistencies in Michalik's testimony and it was brought out that Michalik neither knew appellant personally nor knew appellant's occupation, it was also brought out that Michalik knew appellant "ran things" in Cohoes. Too, Rosonoff corroborated Michalik. Obviously it was for the jury to decide whether the $1,750 was paid. Appellant apparently overlooks the fact that even if we were to accept all of appellant's contentions regarding the evidence unfavorable to him on count 1, we would still be required to uphold the conviction on that count, for he advances no assignment of error in the reception of the Government's proof that he failed to report his capital gain from the sale of land to Simonek.

This latter observation leads into appellant's final contention regarding count 1, that the sentence imposed thereunder (two years imprisonment), considering the relatively minor tax evasions proved by the Government was harsh to the point of constituting cruel and unusual punishment in violation of U.S. Const. amend. VIII. The count 1 conviction was under 26 U.S.C. § 7201, which provides for a maximum sentence of five years imprisonment or a $10,000 fine or both. It is well settled that a sentence imposed within the limits of a statute cannot amount to cruel and unusual punishment, and that when a statute provides for punishment thought to be violative of the amendment the constitutionality of the statute itself must be attacked. See, e. g., United States v. Rosenberg, 195 F.2d 583, 607-609 (2 Cir.), cert. denied, 344 U.S. 838, 73 S. Ct. 20, 97 L. Ed. 652 rehearing denied with mem. opinion, 344 U.S. 889, 73 S. Ct. 134, 97 L. Ed. 687 (1952); Martin v. United States, 317 F.2d 753, 755 (9 Cir. 1963); Pependrea v. United States, 275 F.2d 325, 329-330 (9 Cir. 1960). No attack is made on the validity of the statute here. Moreover, it is clear that an appellate court has no power to modify or reduce the sentence, United States v. Rosenberg, supra, 344 U.S. at 890, 73 S. Ct. 134, and 195 F.2d at 604-607; Pependrea v. United States, supra at 329-330. Appellant must seek his relief by filing a motion in the district court for reduction of sentence within the time prescribed by Fed. R. Crim. P. 35.

While the Government used evidence of specific unreported items of income to prove appellant evaded his 1959 tax liability, it sought to prove evasion of liability for 1960 and 1961 by the net worth plus non-deductible expenditures method.*fn5 The Government alleged unreported taxable income of $29,588.87 for 1960 based upon a comparison of appellant's reported taxable income for that year with appellant's non-deductible expenditures for 1960 plus the difference between his net worth at the end of 1960 and his net worth at the beginning of 1960. It alleged unreported taxable income of $69,369.77 for 1961 based upon a similar comparison for that year. The amounts of allegedly unreported taxable income for the years 1960 and 1961 corresponded roughly with amounts the Government claimed were invested in those years by appellant for his personal benefit in a closely held publishing corporation, Cohoes Publishing Corporation, in a real estate holding corporation, Cohoes Holding Corporation, and in a Lincoln Continental automobile.*fn6 As "a 'likely source, from which the jury could reasonably find that the net worth increases sprang,'" United States v. Costello, 221 F.2d 668, 671 (2 Cir. 1955), aff'd, 350 U.S. 359, 76 S. Ct. 406, 100 L. Ed. 397 (1956) the Government suggested that appellant had been diverting (embezzling) funds from the Democratic City Committee of which he was chairman. The controversy at trial centered around two intermingling points: (1) whether funds obtained from party coffers had been used for appellant's personal benefit or for the benefit of the political party, appellant using his own name in order to cover up the involvement of the political party, and (2) whether appellant had a personal pre-existing source of funds not received as taxable income in 1960 or 1961, being a large amount of inherited money cached in his home, that was available for these investments.

The jury found appellant not guilty on count 2 and guilty on count 3. That the verdict returned for 1960 was "not guilty" and the verdict returned for 1961 was "guilty" can be explained, arguably, by the fact that when the trial judge charged the jury he pointed out the applicability to their deliberations of the holding in James v. United States, 366 U.S. 213, 81 S. Ct. 1052, 6 L. Ed. 2d 246 (1961). In James, decided on May 15, 1961, the Supreme Court overruled Commissioner of Internal Revenue v. Wilcox, 327 U.S. 404, 66 S. Ct. 546, 90 L. Ed. 752, 166 A.L.R. 884 (1946), where it had been held that embezzled funds are not includable by an embezzler in his reportable gross income, and ruled that embezzled funds were so includable in the return for the year of the embezzlement. James, an embezzler, had not included such funds as part of his gross income. He was prosecuted for income tax evasion and was convicted. On appeal, the United States Supreme Court, though overruling Wilcox, the case James relied upon, nevertheless reversed James's conviction on the ground that when he omitted to report the embezzled funds in his return he was entitled to rely on Wilcox and so could not be found wilfully to have filed a false return. 366 U.S. 213, 221-222, 81 S. Ct. 1052. Therefore, here, Judge Port charged the jury that, if they found that the only unreported income of appellant in 1960 resulted from his diversion of political contributions during that year, as a matter of law the element of wilfulness which is a necessary element of a violation of 26 U.S.C. § 7201 was not established, and appellant must be acquitted on count 2.*fn7 No such charge was given for count 3.

Appellant urges that the court should have charged that James not only precluded a finding of wilfulness with respect to any failure to report funds diverted in 1960 but the James ruling was also applicable to the failure to report diverted funds in the 1961 return. He maintains that whether diverted funds are reportable income must be determined at the time of the diversion; therefore, he urges, he was entitled to rely upon the then-in-force Wilcox rule as to any funds diverted before May 15, 1961, the date of the James decision, and that, at least with respect to that much of the funds diverted in 1961, he was entitled to a charge that wilfulness could not be found as a matter of law. However, the crucial date, the date of the commission of the crime, is not when the embezzlement takes place, but when the tax return is filed, for the crime of income tax evasion occurs when the return is filed. See Nordstrom v. United States, 360 F.2d 734 (8 Cir.), cert. denied, 385 U.S. 826, 87 S. Ct. 59, 17 L. Ed. 2d 63 (1966) (embezzlement May 12, 1961, return filed March, 1962). Appellant filed his return for 1961 well after the James decision was handed down and well after he could fairly claim that the rule in that case was a surprise. The trial court's jury instructions relative to count 3 were correct.

Upon his direct examination appellant testified that he kept diaries of those who contributed funds to the party, recording their names in English and the amounts of their contributions in Japanese. Appellant attempted to have his diaries for 1959 to 1961 received in evidence as business records, but the trial court refused to admit them. However, appellant used these diaries to refresh his memory and he orally testified as to their contents. Appellant contends that the exclusion of these records was reversible trial error. Assuming, arguendo, that it was indeed error not to admit these records under the Federal Business Records Act, 28 U.S.C. § 1732, we believe that error was not prejudicial to appellant, for the detail in the diaries was not the core of the controversy. The Government contested neither the fact that appellant received political contributions nor the validity or accuracy of the amounts the appellant testified the Japanese symbols disclosed were contributed; the controversy was over whether any of the political contributions so received by appellant had been converted by him to his own use. Appellant testified as to the sums he received that he had recorded in Japanese. Because appellant was permitted to use the records to refresh his recollection, the jury was certainly aware that he kept records of contributions, and we perceive no further benefit that appellant could have obtained if the jury had been permitted to inspect the records from which appellant testified, especially as it does not appear that any juror could read Japanese. If error there were, it was surely not prejudicial error. Compare United States v. De Sisto, 289 F.2d 833, 834 (2 Cir. 1961).

At the conclusion of its case the Government was permitted to introduce into evidence summaries of the taxable income it claimed appellant received in each of the years in question: the summary for 1959 was computed by the specific item method and those for 1960 and 1961 by the net worth plus non-deductible expenditures method. However, when appellant attempted during his direct examination to introduce his own summary of the income he claimed to have received during each of those years, a summary similar in format to those of the Government, the offer of his summary was rejected. The trial judge indicated in the colloquy prior to his exclusionary ruling that he had doubts about the admissibility of a summary absent expert testimony but he only sustained the Government's objection to the summary on the ground that the order of appellant's proof was improper and that he must first give his testimony relative to the facts upon which the summary was based.*fn8 Appellant thereafter testified at length, but the summary was never offered again. Without determining ...

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