458 F. 2d 1017 - United States v. R Engle

John R. Engle has appealed from the judgment of conviction finding him guilty under a three-count indictment of violating Sec. 7206(1) Internal Revenue Code.1

Five contentions of error are presented and relied upon for a reversal. The first claim, which we regard as the central issue, is an indirect, if not a head-on, challenge of the sufficiency of the evidence to warrant submission of the case to the jury. In appellant's language, the point is thus phrased:

"Defendant was charged with a failure to report certain income, undiminished by deductions, on Line 9, Page 1 of Form 1040 for the three years in question. The Government failed to prove defendant guilty of such a violation and the court failed to properly instruct on the law and evidence as adduced under the indictment."

Before proceeding to the merits of this ingenious argument, a review of the facts, concerning which there is slight disagreement, will serve to place appellant's position in proper perspective.

During the subject years appellant was president of Steak'N Shake, a corporation which operated a chain of approximately 75 drive-in restaurants, about 20 being in the metropolitan St. Louis area. For a number of years prior to 1965, including the taxable years in question, the American Cigarette Vending Company had been authorized to and had placed cigarette vending machines in Steak'N Shake restaurants in the St. Louis area. Under an arrangement between appellant and one of the partners of the vending company, the latter agreed to and did pay appellant one and one-half cents on every package of cigarettes sold by the vending company in the St. Louis area restaurants. The evidence conclusively showed that for 1965, 1966, and 1967, the unreported income derived from this source was $3,897.48, $4,400.09, and $2,119.00, respectively.

It is obvious from the evidence that it was intended from the outset to carry out the plan in a clandestine manner to prevent other officers of the two involved corporations, American Vending and Steak'N Shake, from gaining knowledge of the transaction. Knowledge of the payments made to appellant apparently was limited to one Jack O'Shea, an original partner in the vending company, a Mrs. Cronin, who succeeded O'Shea upon his death, and appellant.

According to the undisputed evidence, Mrs. Cronin, who ascertained the amount due appellant on each month's sale of cigarettes, would draw a check on the vending company account payable to that company, would place the check in the cash register, withdraw currency equivalent to the amount of the check, place the currency in an envelope and deliver it to appellant, who regularly called at the office of the vending company for the purpose of taking possession of the amount of his "take." Appellant's income tax returns were prepared by Mr. Roark, secretary-treasurer of Steak'N Shake, on the basis of information forwarded him by appellant. Concededly, the amount paid to appellant on the basis of one and one-half cents for each package of cigarettes was not disclosed to Roark because, in appellant's words, "I didn't think it was any of his business."2

It should also be stated that the failure of appellant to report the amounts received from the vending company on his 1965, 1966, and 1967 returns was not an issue in the trial. That fact was conceded. The thrust of the defense was that the sum of the payments received over the years did not constitute income in the sense that it was taxable. Appellant vociferously advocated throughout the trial that the total of the payments received by him was spent for entertainment of employees of Steak'N Shake and other persons, for the avowed purpose of promoting the business and good will of the Steak'N Shake Company. He regarded his take as "stash money . . . It was like liquor to me, I stuck it in my pocket and spent it." Thus, stripped of all non-essentials, the heart of the controversy turned on the questions (1) whether appellant was legally relieved from reporting the cigarette payments because he derived no personal gain therefrom, and (2) whether he willfully and knowingly filed a return which was false as to a material matter.

The foregoing recitation of the facts should suffice to completely dissipate any doubt as to the sufficiency of the evidence to sustain the conviction. Contrary to appellant's submission of error above delineated, the indictment was not couched in language charging appellant with failure to report certain income "on Line 9, page 1 of Form 1040," and successful prosecution was not confined to such a narrow and unrealistic theory. As pointed out above in the margin, appellant was charged with filing a return believing it not to be true and correct, and that charge was sufficiently proven.

The unique contention here espoused by appellant is closely akin to that advanced by the defendant in Siravo v. United States, 377 F.2d 469 (1st Cir. 1967). In ruling on the question the court observed:

"In our view it is unnecessary to resolve this dispute in semantics, for we hold that a return that omits material items necessary to the computation of income is not 'true and correct' within the meaning of section 7206. If an affirmative false statement be required, it is supplied by the taxpayer's declaration that the return is true and correct, when he knows it is not. Therefore, the government has made out a violation of the section, whether it be labelled 'a perjury statute,' or 'similar in nature'."

377 F.2d at 472 (citations omitted).

We dealt with Sec. 7206(1) in United States v. Lodwick, 410 F.2d 1202 (8th Cir.), cert. denied, 396 U.S. 841, 90 S.Ct. 105, 24 L.Ed.2d 92 (1969). In discussing the statute, Judge Van Oosterhout quoted at some length from Gaunt v. United States, 184 F.2d 284 (1950), cert. denied, 340 U.S. 917, 71 S.Ct. 350, 95 L.Ed. 662 (1951), where the First Circuit stated:

"It seems to us clear that the latter subsection [Section 145(c), the forerunner of Section 7206(1)] makes it a felony merely to make and subscribe a tax return without believing it to be true and correct as to every material matter, whether or not the purpose in so doing was to evade or defeat the payment of taxes. That is to say, it seems to us that the subsection's purpose is to impose the penalties for perjury upon those who wilfully falsify their returns regardless of the tax consequences of the falsehood."

184 F.2d at 288, quoted in 410 F.2d at 1205-1206.

To summarize, we hold that the evidence sustained the charge as laid in all three counts. The statute mandates that appellant should have reported the amounts he received on his returns. If in fact he expended this income for legitimate deductible purposes, he could have claimed such deductions. He chose not to pursue that course, but rather to completely ignore the income in making his returns.

Appellant next complains because the court denied his motion for a mistrial when a witness for the Government, in response to a question on direct examination, referred to the payments received by appellant as "kickbacks." The court, upon motion, ordered the question and answer stricken and admonished the jury to disregard both. However, appellant's motion for a mistrial was denied. We are satisfied the incident did not require a mistrial. Indeed, we suspect the agent's use of the term "kickbacks" was warranted. In any event, no prejudice resulted.

Neither did the court err in refusing to admit into evidence a handwritten exhibit, apparently prepared by appellant. The exhibit appears to be a summary of amounts expended by appellant for entertainment, such as bowling, baseball and football games, and refreshments. The summary was admittedly only an estimate of the expenditures; it was not relevant to the basic issue, i.e., whether appellant had willfully filed a false statement within the meaning of the statute and, finally, the information contained on the exhibit was cumulative. Appellant and other witnesses for him testified to appellant's proclivity for being a free spender.

Appellant's attack upon the court's instructions is also lacking in substance. The essential elements of the offense were carefully delineated. A verdict of guilty was authorized only upon a finding beyond a reasonable doubt that appellant had not only failed to report the payments, but that such failures were made willfully, deliberately, and knowingly, as distinguished from carelessly, inadvertently, or negligently. The instructions, considered as a whole as they must be, constituted an appropriate submission.

Finally, we are confronted with the contention that the court erred in denying appellant's motion to suppress certain statements made by him to the Internal Revenue Agents during the course of their investigation. This contention rests on the claimed failure of the agents to inform appellant fully of his constitutional rights to remain silent.

In this connection, the record reveals that on or about September 24, 1968, Internal Revenue Agent Sorth, accompanied by Special Agent Lewis, interviewed appellant at his home. After entering appellant's home at appellant's invitation, Lewis, who was introduced as a Special Agent, informed appellant that his function was to investigate the possibility of criminal tax fraud. Some time during the course of the interview appellant served the agents coffee and they exchanged pleasantries. During the course of the questioning, appellant was advised of certain rights, but it is conceded that full Miranda warnings were not given. Appellant did not testify at the hearing on the motion to suppress.

After a plenary hearing, in which appellant's skilled counsel fully developed what occurred, Judge Meredith denied the motion to suppress. In his memorandum opinion, he observed that the motion turned on the credibility of the witnesses. Judge Meredith's opinion reflects that he examined the written reports made by the agents based on the interviews of appellant on September 24 and two subsequent dates. He made a finding that the written interview contained an accurate report of what transpired and that the warnings given were adequate.

On October 3, 1967, the Internal Revenue Service issued News Release No. 897 relating to procedures for protecting the constitutional rights of persons suspected of criminal tax fraud. Under the announced procedures, "On initial contact with a taxpayer, IRS Special Agents are instructed to produce their credentials and state: 'As a Special Agent I have the function of investigating the possibility of criminal tax fraud'." Additional and comprehensive warnings are not mandated unless further investigation becomes necessary. The facts before us bring this case squarely within the quoted portion of the procedures. It stands uncontradicted that Special Agent Lewis imparted this information to appellant. "I showed Mr. Engle my identification, and when we were seated in the breakfast nook, I stated that as a Special Agent I had the function of investigating the possibility of criminal tax fraud."

The courts have with consistency declined to extend the Miranda rule "beyond its stated limits." Spahr v. United States, 409 F.2d 1303, 1305 (9th Cir.), cert. denied, 396 U.S. 840, 90 S.Ct. 102, 24 L.Ed.2d 91 (1969). See also, Simon v. United States, 421 F.2d 667, 668 (9th Cir.), cert. denied, 398 U.S. 904, 90 S.Ct. 1691, 26 L.Ed.2d 62 (1970); United States v. Jernigan, 411 F.2d 471, 472 (5th Cir.), cert. denied, 396 U.S. 927, 90 S.Ct. 262, 24 L.Ed.2d 225 (1969); Ping v. United States, 407 F.2d 157, 159 (8th Cir.), cert. denied, 395 U.S. 926, 89 S.Ct. 1784, 23 L.Ed.2d 244 (1969); Cohen v. United States, 405 F.2d 34 (8th Cir.), cert. denied, 394 U.S. 943, 89 S.Ct. 1274, 22 L.Ed.2d 478 (1968). Cf. United States v. Leahey, 434 F.2d 7 (1st Cir. 1970). In all of these cases the courts were presented with the identical question now before us, i.e., whether as a prerequisite to use of information obtained in a non-custodial interview with a taxpayer the full Miranda warnings are essential. In all but Leahey, the court held against the defendant. Leahey is clearly distinguishable because, unlike our situation, the Special Agent failed to follow the procedures promulgated by the Service above set out.

Here, if ever, we have a non-custodial interrogation. As we have seen, the interview took place in the home of appellant. Nothing was said or done by either the Special Agent or the other agent to indicate that appellant was being detained or deprived in any significant way of his liberty. He fully understood the mission of the agents and cooperated with them voluntarily. Moreover, no information was obtained which proved prejudicial. The information imparted by appellant in the interview squared precisely with his own testimony during the trial. In summary, we hold that the district court was on sound ground in denying appellant's motion to suppress.

The judgment is affirmed.