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United States v. Schipani

decided: June 29, 1966.


Waterman, Moore and Anderson, Circuit Judges.

Author: Anderson

ANDERSON, Circuit Judge:

The defendant-appellant was convicted on all five counts of an indictment charging him with violations of Title 26 U.S.C. ยง 7201*fn1 for willfully evading the payment of personal income taxes due from him for the five calendar years 1956 through 1960. He was fined $2500 and sentenced to three years imprisonment on each count, to be served concurrently, but with the proviso that he should not be released from confinement until the fines had been fully paid.

The case was tried on the "net worth" theory, in support of which the Government offered evidence to prove that Schipani had a certain net worth at the beginning of 1956 and an increase in net worth at the end of that year and at the end of each succeeding calendar year during the indictment period. The proof was entirely circumstantial because Schipani kept no records, did not file any income tax return at all for any of the years covered by the indictment, and did not furnish the Government with any leads with regard to any cash reserve, income or expenses.

An essential element of a case of this kind is proof of the opening net worth of the accused as it was at the beginning of the indictment period. Holland v. United States, 348 U.S. 121, 132, 75 S. Ct. 127, 99 L. Ed. 150 (1954). The Government offered as a basis or starting point for this phase of its case a statement made by the defendant in 1943 concerning his cash resources at that time, thirteen years before the indictment. In that year Schipani had been convicted of an offense and commenced serving one and a half years of a two year term of imprisonment. On February 10, 1943, in the course of a routine interrogation by the prison authorities relating to Schipani's personal history and circumstances at the time he was admitted to the prison, he stated that the only cash he then had was $1350 which he had left with his wife. The trial court found this to be true; and it also found, from evidence of Schipani's financial dealings and affairs from that time to and including December 31, 1955, that Schipani had assets on January 1, 1956 of $18,908.89 and liabilities of $1300 from which it computed a net worth of $17,608.89 at the beginning of the indictment period. The trial court further found that, at the end of the calendar year 1956, the defendant had an increase in his net worth of $7,307.35, and in each of the four subsequent indictment years there was likewise an increase in the defendant's net worth.*fn2

The findings state, and the evidence clearly showed, that the Government made an exhaustive investigation into virtually every possible source of information concerning Schipani's economic circumstances from January, 1943 through December, 1960. The leads obtained from checking over one hundred central and branch bank offices in areas in which Schipani lived and which he frequented, finance companies and credit bureaus, various insurance, retail and brokerage firms, records of Kings County and the New York Surrogate Courts and the Estate and Gift Tax Office of the United States were followed through by investigators. The Government also sought out and questioned friends and relatives of the appellant for further leads which were then pursued. The information thus obtained furnished the proof presented in the Government's case.

The cash on hand at the end of one year and the beginning of the next, however, was only one of the items entering into the total of the assets at that time. The unadjusted net worth was simply the result of subtracting the total liabilities at the time from the total assets. The court below found that the initial cash of $1350 in 1943 had been consumed; and it was assumed, on the basis of the presumption of innocence, that, because Schipani filed no income tax returns for the years 1943 through 1955, he never (except for a very small amount in 1945) in any of those years had a yearly gross income in excess of the amount which would have required him to file a return. His expenditures, however, were greatly in excess of such amounts of income.*fn3 It was, therefore, found that the cash on hand at the beginning of the indictment period, January 1, 1956, was zero.*fn4

The other items of assets, which on that date were found to total $18,908.89,*fn5 consisted of two savings accounts in the Flatbush Savings Bank, an investment in United States Savings Bonds, real estate, and a 1955 Ford automobile. From this amount was subtracted a loan and a mortgage note totaling $1300. In the subsequent indictment years, 1957 through 1960, the total asset figures reflect purchases of stock, furniture, and a boat as well as increases in the existing savings bank accounts and the opening of two additional small savings bank accounts. The liability total, which was deducted from the total value of the assets in each of the years, also reflected additional increases in liabilities, most of which were associated with major asset purchases during the same years.*fn6

The Government in its proof and the trial court in its findings, in arriving at the opening net worth and in calculating the net increase in net worth for each of the indictment years, also made certain adjustments. The findings show that additions to the unadjusted figure included non-capital expenditures*fn7 and the non-deductible losses on the sale of personal property. The latter were included in arriving at the 1956 net worth and the 1960 net worth. The loss for each of these years was treated as the equivalent of an expenditure, which explains the differences between "total expenditures" and "additions to net worth" for each of those years, whereas those items in the other three years (1957-1959, inclusive) are exactly the same. The deductions made from the unadjusted net worth, reflect the dividends-received exclusion in each of the indictment years, the proceeds of a paid up life insurance policy in 1959, and refunds from the receiver of taxes and a realty company.*fn8

The defense offered no evidence and the principal issue at the trial was the sufficiency of the Government's case. The trial court concluded that the Government had proven beyond a reasonable doubt that Schipani had a gross income in each of the indictment years considerably in excess of the amount which required him to file an income tax return, that income taxes were due for each of those years and that the defendant willfully sought to evade the payment of the taxes by filing no return for any of the years in question. We affirm.

The appellant has presented a number of points on appeal, most of which attack the proof of "opening net worth" as insufficient to establish a prima facie case and which also attack, as inadequate for proof beyond a reasonable doubt, the evidence offered to show the increases in net worth, particularly as they were allocated to each separate tax year.

The only issue raised on the admissibility of evidence concerns the denial of the defendant's pre-trial motion and the overruling at the trial of his objection to the prison record of what Schipani said to the prison official in February of 1943 that he had only $1350 in cash which he had left with his wife. The appellant argues here, as he did below, that this violated his Fourth Amendment right because the report was the product of an unreasonable search and seizure and his Fifth Amendment right because it was an involuntary and incriminating statement. We agree with the trial judge, however, that as far as the Fourth Amendment is concerned, this routine taking down of relevant information as part of the regular prison procedure in setting up the personal record of an inmate, unrelated to any pending investigation of a criminal offense, is not an unreasonable search or seizure of appellant's "person, house, papers and effects." Schipani made a voluntary response to a question asked him under circumstances which bore no conceivable relationship to the procuring of an inculpatory statement by police or prosecuting officials in connection with any criminal activity, particularly to the present case which was not thought of or initiated until many years later. It, therefore, furnishes no basis for a claim of lack of due process under the Fifth Amendment.

With regard to the Government's proof that there was virtually no cash in the defendant's hands as part of his assets as that bore upon the opening net worth of Schipani on January 1, 1956, we are of the opinion that under the circumstances of this case, the Government would have shown a more consistent approach if, in the pre-indictment period, 1943-1955, inclusive, it had assumed, as it did for the years covered by the indictment, 1956-1960, inclusive, that proof of expenditures in a particular calendar year showed a commensurate income for that year. Where, as here, there was so complete and thorough an exhaustion of non-taxable sources for cash, it seems unnecessary to invoke Schipani's presumption of innocence to sanctify the proposition that he earned, during the pre-indictment years, no more than the maximum gross income ($499.99 or $599.99) which a person may receive without being required to file a tax return. His expenditures, as shown by the Government, for the 1943-1955 period did not include living expenses for himself and family, except for rent. It is more than likely that such living expenses consumed the $1350 in the year and a half of his imprisonment. At any rate, it must have been expended by the end of the 13 year period. Even if it were not, and it remained as a cash resource on January 1, 1956, there would still have been a substantial increase in net worth in 1956. The total of Schipani's expenditures in the pre-indictment years must have reflected money which he had first received in income. The court in effect so found, and also determined that Schipani had no surplus of earnings over expenditures during that period.

The appellant does not otherwise attack the findings because of a lack of or infirmity in, the evidential bases on which they rest, but rather contests what he describes as the court's "factual theory of the proofs" and the sufficiency of the evidence to establish his guilt on each of the counts beyond a reasonable doubt. Conviction in a net worth case necessarily rests upon inferences reasonably drawn from circumstantial evidence. It is within the province of the trier to draw those inferences and, so long as they are reasonably and logically supported by the evidence they must stand. The trial judge made detailed findings, with annotations of references to pertinent evidence in the record, covering opening net worth and the annual increase in net worth for each separate calendar and tax year for the ...

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