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UNITED STATES AMERICA (02/07/86)

February 7, 1986

UNITED STATES OF AMERICA, APPELLEE, V., IRA PAUL CITRON, DEFENDANT-APPELLANT


Appeal from a judgment of the Eastern District of New York, entered after a jury trial before Judge Leonard D. Wexler, convicting appellant of one count of income tax evasion, 26 U.S.C. § 7201, acquitting him on other income tax evasion counts, and convicting him of the filing of false income tax returns, 26 U.S.C. § 7206(1). The convictions for violation of 26 U.S.C. § 7206(1) are vacated. The conviction for violation of 26 U.S.C. § 7201 is reversed and remanded for a new trial.

Author: Mansfield

Before: MANSFIELD, MESKILL and CARDAMONE, Circuit Judges.

MANSFIELD, Circuit Judge:

Ira Paul Citron appeals a judgment, entered in the Eastern District of New York after a jury trial before Judge Leonard D. Wexler, convicting him of income tax evasion and filing false income tax returns. The jury found Citron guilty of one count of income tax evasion, 26 U.S.C. § 7201,*fn1 for the year 1978 (Count 2), and two counts of filing false income tax returns, 26 U.S.C. § 7206(1),*fn2 for the years 1977 and 1979 (Counts 4 and 6). It acquitted him of two income tax evasion counts relating to his 1977 and 1979 returns (Counts 1 and 3), and three counts of aiding and assisting the preparation of false returns filed by his parents during the period from 1977 through 1979, 26 U.S.C. § 7206(2) (Counts 7 through 9).*fn3

We vacate the convictions for violation of § 7206(1) and remand with directions to dismiss because, as submitted to the jury, the factual elements of the § 7201 counts were substantially identical to those of the lesser included § 7206(1) counts and no rational basis existed for acquitting Citron on the § 7201 counts while convicting him on the § 7206(1) charges. The § 7201 conviction is reversed and remanded for a new trial because the district court erred in admitting into evidence a summary chart containing figures not demonstrably supported by the evidence.

Citron (sometimes referred to herein as "Ira" to distinguish him from his rather "Joseph"), a stock broker at E.F. Hutton & Co., allegedly underreported his income and tax due during the years 1977-79 in the following amounts:

Income Tax Due

Shown Shown on Alleged Alleged

on Return Income Tax Due

Return

1977 $21,220 $2,209 $32,556.08 $5,460

1978 $24,134 $3,169 $113,605.054 $36,851.99

1979 $42,332 $9,508.76 $83,584.96 $29,274.63

The government sought to prove unreported income by using the "cash expenditures" method. See United States v. Mastropieri, 685 F.2d 776, 778 n.2 (2d Cir.), cert. denied, 459 U.S. 945, 103 S. Ct. 260, 74 L. Ed. 2d 203 (1982); United States v. Gay, 567 F.2d 1206 (2d Cir. 1978); United States v. Bianco, 534 F.2d 501 (2d Cir.), cert. denied, 429 U.S. 822, 97 S. Ct. 73, 50 L. Ed. 2d 84 (1976); United States v. Fisher, 518 F.2d 836 (2d Cir.), cert. denied, 423 U.S. 1033, 96 S. Ct. 565, 46 L. Ed. 2d 407 (1975); Taglianetti v. United States, 398 F.2d 558, 562 (1st Cir. 1968), aff'd, 394 U.S. 316, 22 L. Ed. 2d 302, 89 S. Ct. 1099 (1969). This method is a variant of the "net worth" method, which was sanctioned by the Supreme Court in Holland v. United States, 348 U.S. 121, 124-25, 99 L. Ed. 150, 75 S. Ct. 127 (1954), where the Court recognized that the special problems faced in proving income tax violations justify methods of indirect proof, subject to close judicial scrutiny. Under the "cash expenditures" method, after taking into account the amount of resources the taxpayer had on hand at the beginning of a period, the income received by the taxpayer for the same period is compared with his expenditures that are not attributable to his resources on hand or non-taxable receipts during the period. A substantial excess of expenditures over the combination of reported income, non-taxable receipts, and cash on hand may establish the existence of unreported income.*fn4

As a first step in preparing the present case the government conducted an investigation and analysis, undertaken by Internal Revenue Service (I.R.S.) Special Agent Levy and Revenue Agent Perrotta, of Ira's apparent sources of income and expenditures. The government calculated that Citron began 1977 with $24,412.27. Its analysis showed that Ira spent $78,928.59 in 1977, § 127,262.38 in 1978 and $143,627.81 in 1979.

In arriving at these figures Agent Levy checked bank accounts, insurance coverage, tax returns, wage records, doctor's records, possible loan sources and safe deposit box holdings. Levy also searched real estate records to determine if Citron bought or sold real estate during or prior to the three-year period. Similar research was undertaken relating to the finances of Ira's parents, Joseph and Rose Citron.

The district court admitted into evidence a summary chart, prepared by Agent Perrotta, based on Agent Levy's research. The chart lists various items of expense and income and sets forth the amounts which the government maintained were received and spent by Ira. Next to each item on the chart Agent Perrotta noted the exhibits relied upon in arriving at the figures.

The government also offered underlying evidence regarding the sources of Ira's unreported income and his system of concealing earnings. Three witnesses testified that Ira managed a bookmaking operation. From the fall of 1976 through 1978 Charles Stockley and several friends incurred $20,000-$30,000 in gambling losses which were paid by check or cashier's check sent to Ira at his E.F. Hutton address. Fred Willey placed bets on football games for three or four months in 1978, losing approximately $2,000 to Citron. Finally, Alphonse Bottino placed bets in 1979 and 1980 and also paid his losses to Ira at E.F. Hutton. Ira's name appeared on the checks for winnings that Bottino received.

Albert Weiss, a stationery store employee, made weekly payments of $75 to Ira to repay a 1975 loan of $2,500. Checks made out by Weiss to cash or Ira Citron totalled ...


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