Before SWAN, FRANK and MEDINA, Circuit Judges.
Appellants Fred Herskovitz and Elias Berger, together with co-defendant Doris Sobel, were indicted in 10 counts for wilfully aiding, assisting in and counseling, procuring and advising the preparation of false and fraudulent income tax returns, on or about the 15th day of March, 1950, in violation of Title 26, United States Code, § 3793(b). Each of the three defendants was named in three substantive counts, and the 10th count of the indictment charged the same defendants with conspiracy.
On June 18, 1953, after trial in the United States District Court for the Southern District of New York, defendant Herskovitz was convicted on three counts, defendant Berger on two counts, and defendant Sobel acquitted on all counts in which she was named, the conspiracy count as to all the defendants having been dismissed by the trial court at the conclusion of the government's case. The Court sentenced Herskovitz to concurrent terms of 3 years on each of the 3 counts, and imposed a committed fine of $5,000 on each count; Berger was sentenced to concurrent terms of 1 year and 1 day on the 2 counts. From these judgments of conviction Herskovitz and Berger appeal.
The facts in the case are substantially these. From 1948 to 1950, appellant Herskovitz was a certified public accountant and appellant Berger was a public accountant. They had adjoining offices in suite 903 at 1457 Broadway, New York City. Herskovitz was Berger's father-in-law and while each apparently had his own "regular clients," the two were partners in the "business of making income tax returns" for "transient" taxpayers. During the "tax season" between the months of January and April, "transient" taxpayers would request assistance in the preparation of Federal and State income tax returns at the suite of offices just described. The scheme practiced by appellants to defraud the United States consisted of padding deductions on these returns so that every return, when filed, requested a refund from the government.
To carry out this scheme, appellants conducted what can best be described as a "refund factory." The modus operandi was this: Upon the arrival of a taxpayer, the receptionist would request the individual's statement of moneys withheld (W-2 Form) and would then inquire whether during the prior years, returns were filled out at the same office. If such was the case, the prior year's file was obtained, and the taxpayer instructed to wait until an office was available for an interview. Ten taxpayers and one government agent testified about their interviews in appellants' offices. Although Herskovitz would not admit how many taxpayers he interviewed, other than that it was less than 5,000 in 1950, taxpayers called as witnesses by the government testified that they endured long waiting periods before being interviewed, and that, when occasion demanded, they were given numbers to determine their turn. The evidence indicates that the "factory" did a thriving business.
When his turn was reached, the taxpayer was ushered into the inner offices for the interview. These interviews were conducted in the main by the appellants, the defendant Doris Sobel, Herskovitz's daughter, one Silverman, another of Herskovitz's sons-in-law, and Allan Shoopak, an employee. When business improved, a basement office was also rented to interview taxpayers, and, to further accommodate these "transients," the appellant Herskovitz during the tax season of 1950 had temporary offices at the Hotel Dixie and in Yonkers. These offices were staffed by the same personnel, augmented by temporary employees.
A mimeographed worksheet, listing every possible deduction that could be taken for a taxpayer, was used by the interviewer. The interview lasted no more than 10 or 15 minutes, and at its conclusion the tax was computed on the worksheet and the taxpayer advised of the amount of refund that he would receive. The taxpayers testified that the names of organizations listed under contributions, the deductions taken for charitable contributions, and the deductions taken for New York City Sales Tax, Miscellaneous Tax, doctors and dentists, medications, work-clothes, worktools, depreciation on car, repairs on car and travelling expenses were not given by them to the appellants, although this information appears on the worksheets. The taxpayers signed the worksheets, but did not go over the figures which were written there by the appellants.
The taxpayer was also requested to sign a blank Federal Income Tax form (Form 1040) at the conclusion of the interview, and was charged a fee of $10. The worksheet was attached to the taxpayer's file, together with the blank but signed Form 1040, and the prior year's return. It is significant that Form 1040's (the "long forms") were used so that deductions could be itemized even though the majority of these "transient" taxpayers earned less than $5,000 a year.
After the interview had been concluded, the information which appeared on the worksheets was copied in pencil on a Form 1040, and the pencilled figures were then copied in ink on the Form 1040 which had been previously signed by the taxpayer. Shoopak, Davis, Reid and Greenberg, all employees of the appellants, testifying as government witnesses, stated that despite the requirement on the returns that the accountant's name be affixed thereto, they were given no instructions to put their names or appellants' names on the face of the return as the accountant who prepared it nor did such names appear on any of the returns.
The returns were then mailed, or delivered in person, according to Herskovitz's instructions, to the mail room of the Bureau of Internal Revenue. All the returns filled out in appellants' offices were filed with the Collector of Internal Revenue at 110 East 45th Street, New York City, irrespective of where the taxpayers lived or worked. In February or March, 1950, Shoopak was instructed by Herskovitz to take the tax returns to the fourth floor mail room and ask for "Mike." He was further instructed to mention the name "Joe Grill" when he gave "Mike" the returns. Shoopak was also given a note by Herskovitz, which was received in evidence without objection. Written in Herskovitz's handwriting, the note contained the following words: "Mike, 5th floor mail room. Jos. Grill, 110 E. 45." When Shoopak arrived at the mail room he handed the returns to "Mike." Reid also delivered returns to the Collector's offices at 110 East 45th Street, according to Herskovitz's instructions. He was told by Herskovitz to deliver them to the mail room and to give them to "Mike." On one occasion, Herskovitz sent Reid to the Collector's office to see "Joe Grill." There was also evidence that a Joe Grill was a deputy collector and auditor of the Third Collection District; and Herskovitz admitted that he was acquainted with said Joe Grill and knew of his connection with the Third Collection District as deputy collector and auditor, although Herskovitz denied knowledge that Joe Grill worked in the mail room there.
There were received in evidence 21 personal income tax returns that had been prepared by appellants as a result of interviews with taxpayers. In every return received in evidence, a refund was requested. But the government audit of 17 of these returns, allowing only legitimate deductions, required a tax liability to be assessed in each case.
All of the taxpayers' worksheets, which were attached to appellants' files, were received in evidence as defense exhibits. An examination of them discloses that not one worksheet has the name of any charitable organization written on it, except possibly the name of the church which a taxpayer attended. The names and amounts on the worksheets were not copied to the Form 1040 until some time after the interview took place, yet every return had at least several names of charitable organizations, as well as a breakdown of the lump sum amount for contributions which appeared on the worksheets. Many names and figures on the return were copied from previous year's returns of the taxpayer.
The fraud practised by appellants is established beyond cavil. The income tax returns disclose excessive deductions for contributions, union dues, medical expenses, taxes, travelling expenses, workclothes, worktools, depreciation on automobiles and losses. Even dependency claims are falsified. These deductions amounted to from 20% to 50% of gross income. In some cases the amounts deducted for sales taxes were so excessive as to show expenditures greater than the entire gross income of the taxpayer for the year. Travelling expenses were taken as a deduction for a switchboard operator, a tailor, a shipping clerk and a baker. ...