Carter v. Campbell

¶4CAMERON, Circuit Judge.

¶5This appeal involves the fifty per cent civil fraud penalty in the amount of $11,-924.60 added to the taxpayer’s (appellant here, plaintiff below) federal income tax for the year 1946 and paid by him. The district court, after hearing the evidence, entered its judgment dismissing the complaint. The questions presented upon the appeal are: (1) whether this Court has jurisdiction of the appeal in view of the taxpayer’s failure, according to the contention of appellee, to file notice of appeal from the judgment by the district court (the facts related to this question will be set forth infra); and (2) whether the district court, having imposed upon the Government the burden of pioving fraud by clear and convincing evidence, correctly found and held upon the entire record that the taxpayer’s return was false and fraudulent with intent to evade tax, and that part of the deficiency was due to fraud with intent to evade tax, within the meaning of § 293(b) of the Internal Revenue Code of 1939.1

¶6Taxpayer’s 1946 income tax return showed a tax due of $2,852.29, which he paid. A subsequent audit of this return by the Internal Revenue Service revealed that the taxpayer had understated his net income for 1946 in the amount of $82,127.81, and the Commissioner determined that the understatement was at least partially the result of fraudulent concealment of income. The taxpayer paid an asserted deficiency of $23,849.21 and a civil fraud penalty of $11,924.60. He filed a claim for refund, which was denied, whereupon he brought this action.

¶7At the first trial of the case before a judge other than the one sitting in the case which is now before us, the court found that the taxpayer was not entitled to a refund of the deficient taxes or the fraud penalty. The taxpayer appealed only from that part of the decision which upheld the fraud penalty. The existence of the deficiency itself is, therefore, judicially acknowledged. This Court reversed the judgment of the district court with respect to the fraud penalty, and ordered that the case be retried on that issue. Carter v. Campbell, 1959, 264 F.2d 930. Again, the district court has determined that the taxpayer was not entitled to a refund of the fraud penalty. Its written opinion, a portion of which is copied in the margin,2 is reported in 179 F.Supp. 359-362.

¶8*70The handling by appellant of these two checks convinced the trial court that, because they were handled in a way other than the usual way in banking and commercial practice and even in the practice of the taxpayer, fraud was to be imputed. It reasoned further that the course pursued by appellant in handling these two items showed that he was “thinking to a purpose something out ahead,” and that he was “thereby placing another link in a possible chain of concealment and making it more difficult for his accountant to include the income in his return even had he been instructed to look up such transactions.” [Emphasis added]; that the failure of taxpayer to follow the “ordinary course” by which he would have “had a record which he might have used not only in tax matters but which would also have served as a business record;” and that, thereby, “He obliterated the record by having the check applied directly against the bank loan without running it through his bank account.”

¶9The conclusion of the court below from the taxpayer’s outlined actions was thus stated:

¶10“We cannot read the mind and intent of a person but we may determine his intention from his acts and doings. Was the conduct of the taxpayer such as to show by the preponderance of all the facts and circumstances that he was seeking to conceal from the Government certain elements of his income in order to evade the tax thereon. We think the record is sufficient to show such an intent and that he was knowingly and willfully concealing his income.”

¶11The Jurisdictional Question.

¶12The “suggestion” by appellee — buttressed by extensive argument — that this Court is without jurisdiction, because there was not a timely filing of the notice of appeal should be dealt with at this point inasmuch as it lies at the threshold of the case. The contention is that appellant gave his notice of appeal on the assumption that the written opinion of the trial court was in fact its judgment; and he did not file an additional notice of appeal after the entry of the formal judgment whose form both parties approved. A brief additional statement of facts, relating to the jurisdiction question is necessary.

¶13October 26, 1959, the court below filed with the clerk and served on the respective counsel its written opinion, which concluded with these words: 3

¶14“We feel that the Government has discharged its burden to show these elements by clear and convincing evidence and therefore we hold that the fraud penalty was properly assessed and collected, and that the taxpayer is not entitled to a refund of the amount paid.” Nothing was there said about the preparation or entry of a judgment, and the clerk noted on his docket merely that the opinion had been filed and that notice had been given to the attorneys.

¶15December 14, 1959, no judgment having been entered by the clerk or presented for entry by the attorneys for appellee, the appellant filed and served his notice of appeal to this Court “from the final judgment entered herein on the 26th day of October, 1959,” paying the clerk, at the same time, the filing fee required.

¶16December 23, 1959, fifty-eight days after the trial judge had signed the opinion, the appellee presented to the court a judgment, bearing the approval of appellant’s attorney as to form, in which it was “Ordered, that the defendant have *71judgment dismissing the complaint with costs to be assessed against the plaintiff.” Within the sixty day period allowed for appeal and subsequent to the entry of this order of December 23rd, the following actions were taken:

¶17January 8, 1960, appellant’s attorney served on appellee’s attorney an application for an extension of fifty days for filing and docketing the record on appeal in this Court, and, on January 13th, the court below signed and entered an order so providing.

¶18February 12, 1960, appellant procured an order to be signed by the court below providing that the original exhibits in the trial before it be transmitted to this Court.

¶19February 17, 1960, this Court acting through the Chief Judge, upon a motion and affidavit filed by appellant,4 entered an order granting leave to the appellant to prosecute his appeal to this Court upon the original record.

¶20 On the assumption that appellant’s notice of appeal filed December 14, 1959 was a nullity and that the time for appeal began to run only when the formal judgment was entered December 23rd, we think that the actions taken within sixty days from December 23rd are sufficient to constitute timely notice of appeal. In Des Isles v. Evans, 5 Cir., 1955, 225 F.2d 235, 236, we held that appellant’s application for authority to appeal in forma pawperis was sufficient to constitute notice of appeal under Rule 73(a), F.R.Civ.P., 28 U.S.C.A., stating:

“The rules have for their primary purpose the securing of speedy and inexpensive justice in a uniform and well ordered manner; they were not adopted to set traps and pitfalls by way of technicalities for unwary litigants … Therefore, substantial compliance with the rule is sufficient, and appellant’s petition for leave to appeal in forma pawperis adequately met the requirements of Rule 73(a).

¶21“The motion to dismiss the appeal is overruled.”

¶22We followed that case in Roth v. Bird, 5 Cir., 1956, 239 F.2d 257, 259, holding again that the petition for leave to appeal in forma pauperis adequately met the requirements of this rule. In Tillman v. United States, 5 Cir., 1959, 268 F.2d 422, 423, the appellant gave his notice of appeal after the expiration of the time provided under the Federal Rules of Criminal Procedure, 18 U.S.C.A.; but we extended the protection of the above holding to him and ruled that his application within the time limit for leave to appeal in forma pawperis rescued him from forfeiture of his right to appeal. In that decision, we referred tó a number of additional authorities, including our ease of O’Neal v. United States, 5 Cir., 1959, 264 F.2d 809, and the authorities collected in the majority and dissenting opinions.

¶23In United States v. Stromberg, 5 Cir., 1955, 227 F.2d 903, 904-905, we declined to follow the strict rule obtaining in some circuits, but held that technical irregularity would not destroy the right *72to appeal where the parties had proceeded on the assumption that the appeal had been taken properly, saying: “This Circuit is committed to the more liberal rule that, where it is obvious that the overriding intent was effectively to appeal, we are justified in treating the appeal as from the final judgment.” [Citing cases.]

¶24In our opinion, appellant’s application to this Court for leave to proceed upon the original record and our order granting such leave constitute adequate notice of appeal. Especially is this so when, as here, they are supplemented by the order of the court below, rendered upon notice, extending the time for filing and docketing the record on appeal; and by the further order of the court below that the original exhibits before that court be transmitted to us in connection with the appeal.5 Even, therefore, if the notice of appeal filed December 14, 1959 be ignored entirely, the foregoing actions taken within the time limit for appeals and subsequent to the entry of final judgment constitute substantial compliance with the rules. And having noticed the point suggested and urged by the appellee, we hold that the case is properly before us.6

¶39*73On the Merits.

¶40It will be seen that the court below, as it did in the former trial, based its findings of fraud largely on admitted facts concerning the handling of these two items as they were developed by the evidence before the court on each of the trials. We pointed out before that, as a farmer, taxpayer was not required to keep books, and that he did not in fact keep books. Yet the appellee contends, and convinced the court below, that fraud should be assumed because appellant’s records, which he was not required to keep, were incomplete and did not in themselves tell a full story of each of the transactions involved. Without any attempt to set forth or analyze taxpayer’s extensive operations in 1946 showing gross income from cattle sales of $99,-555.83, gross income from all operations of $131,480.26, monies borrowed by taxpayer of over $120,000 from the First State Bank of Stratford, the appellee picks out these two items alone as indicative of fraud because of the manner in which they were handled by appellant through the bank.

¶41In our opinion on the first appeal,7 we posed the question presented by the appeal thus:

“* -» * ¿id Taxpayer purposefully conceal these grain items so that they would not be reported as income upon which a tax would be payable, or was the omission by Russell due to mere neglect or error, either because Taxpayer failed to inform his attorney-accountant of the facts or because of error in the receipt, consideration and use of the Taxpayer’s information by Russell’s office?”

¶42The question remains the same here, and the court below, on this trial and on essentially the same testimony, reached the same conclusion. The court referred to “another link in a possible chain of concealment.” In thus revealing what was in its mind, the court indicated that possibilities were playing a part in its reasoning towards the end result reached by it in this case that appellant “obliterated the record” made by the bank in connection with the two transactions which form the base of the fraud penalty involved. We do not think that either transaction, or both of them together, fastened upon appellant the just charge that he obliterated anything.

¶43As to the larger item, the $14,352.69 check applied by the bank to taxpayer’s note, under the undisputed facts in the record before us, the answer here must be the same as that we made in Eagle v. Commissioner, 5 Cir., 1957, 242 F.2d 635, 638. Eagle never made out any deposit slips, but relied upon his friends, the officers of his bank, to apply monies delivered by him to the bank to his checking account or to the payment of indebtedness as to them seemed best. Large amounts of income were, therefore, omitted from his tax returns over a period of years, but we held that such a showing did not convict Eagle of fraud. Exactly the same situation existed here, except that Price, the bank president with whom appellant did business, was not only appellant’s close friend and business adviser, but was personally lending appellant money and was engaged in joint ventures with appellant in his farming and ranching operations. Insofar as the conclusion of the court below as to this item is based upon the way the $14,352.69 item was handled, the case is controlled by the Eagle case.

¶44We think also that the reasoning of Eagle controls the records evidence as it relates to the smaller item of $6,400. Not required to keep any records, the appellant, by his course of handling both items, made a complete and easily discoverable record, which could be traced by anyone caring to do so. Not only was this true, but the books of the grain company and its cancelled checks furnished an easy clue to the amount of money which appellant was paid by the grain company, and the records of the bank showed clearly what was done with the money. Without examining the author*74ities or analyzing the facts further, we hold that, under Eagle and the reasoning employed and the authorities therein discussed, the records obtained from the books of the grain company, and of the bank, and of the handling of these items by appellant, do not make out a case of fraud.

¶45The appellee contends that the bare records themselves and the way the two transactions were handled by appellant are invested with weight,and significance by testimony given by Russell, the accountant-lawyer who was recommended to taxpayer by the bank president Price (who was not living at the time of the trials) and Russell’s employees. In its written opinion, the trial court made reference to this testimony at one or more places.8 It is difficult to perceive how appellant’s omissions over a number of years compared with those of Russell’s other clients would be relevant or probative in this case. The appellee does not so argue. On the question of the credibility and probative value of the testimony of Russell and his employees referred to in the second paragraph of Note 8 supra, the appellee recognizes that these conclusions from the opinion of the court were based upon inferences drawn by these witnesses, rather than from statements of fact made by Russell and his employees.9

¶46From these quotations from appellee’s brief it is clear that the positive testimony of appellee, cf. Smith v. Dunn, 5 Cir., 1955, 224 F.2d 353, and cases there cited, was not contradicted by probative evidence of Russell or his employees. All they could do was to formulate the inference that, although they did not recall whether appellee gave them information concerning the two items, if *75he did so, memoranda would have been made and the items would have been reflected in their file. As definitely discounting the dependability of this type of testimony, we pointed out, when the ease was before us in 1959 (264 F.2d 934), that a deposit slip covering cattle sales amounting to nearly $7,000, which appellant had admittedly furnished Russell and which was found in the latter’s files, had not been reflected in appellant’s income tax return for that year.

¶47The stress put upon Russell’s testimony in appellee’s argument and the extent to which the trial court relied upon it warrant a brief look into another litigated case growing out of the same facts as those involved here and based, in large part, upon the same testimony. Prior to the beginning of the litigation before us, appellant moved, in a criminal proceeding brought against him, that he be allowed to withdraw the plea of guilty which had formerly been entered by him. The motion came on for hearing before the same judge who entered the judgment attacked on this appeal. The evidence and entire record in that trial is before us, and for brevity we quote a portion of the opinion of the trial court as summarizing the important portions, of that trial which have relevance in the present case,10

¶48*76Based in part upon the facts and conclusions set forth in the footnote, the judge denied the motion to withdraw the plea of guilty to the information, which, incidentally, involved other years besides the one here involved. The basis of the judge’s decision was mainly that Carter had waited too long to bring the matter up; but he based it also upon his conclusion that both Carter and Russell “equally understood everything they had done and that was being done.”

¶49In a per curiam opinion this Court affirmed11 the judgment denying Carter the right to withdraw his plea of guilty and the Supreme Court granted certiorari and by a per curiam order vacated and remanded that judgment to the district court12 From the quotation from appellee’s brief supra, it appears that one of the reasons behind the Supreme Court’s action was doubt as to whether Carter was represented by a disinterested attorney.

¶50Among the exhibits before us is certified copy of an order entered by the district court on March 1, 1956 ordering that Carter be permitted to withdraw his plea of guilty and that the clerk repay to him the $10,000 fine he had theretofore paid. These undisputed facts reflect the estimate placed upon Russell’s actions by the Supreme Court of the United States and by the district court. His testimony as a witness is so discounted, therefore, as to render it a very doubtful basis for adjudging fraud against the appellant under all of the facts appearing in this record.13

¶51For these reasons, after having studied and considered the entire evidence, we are left with the definite and firm conviction that a mistake has been committed. United States v. United States Gypsum Co., 1948, 333 U.S. 364, 365, 68 S.Ct. 525, 92 L.Ed. 746.14 The judgment *77of the lower court is, therefore, reversed and the cause is remanded for the entry by the district court of a judgment in favor of appellant B. B. Carter for the amount paid by him as a fraud penalty, together with legal interest.

¶52Reversed and Remanded with directions.