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United States v. Burdick.

decided: July 1, 1954.


Author: Kalodner

Before GOODRICH, KALODNER and HASTIE, Circuit Judges.

KALODNER, Circuit Judge.

This is an appeal from a conviction for income tax evasion under Section 145(b) of the Internal Revenue Code, 26 U.S.C. ยง 145(b).*fn1

The appeal is premised on (1) alleged insufficiency of the government's evidence; (2) denial by the trial judge of defendant's motion to suppress as evidence his statements, oral and written, and certain records given by him to government agents in the course of their investigation of his tax returns; and (3) alleged prejudicial conduct of government counsel.

A brief statement of the factual background is in order.

The defendant, Lester H. Burdick was tried on a five-count indictment charging him with filing false and fraudulent income tax returns for the years 1946 to 1950, inclusive.*fn2 He was found guilty on all five counts and sentenced to jail for a year and a day on each of them, the sentences to run concurrently.

The evidence at the trial established that during the period involved the defendant was employed as an executive clerk of the New Jersey State Senate when it was in session and also did public relations work and sold radio advertising time. The latter activities were conducted from his home.

Defendant kept no books or records; he had only his cancelled checks and bank statements. During the course of an investigation by revenue agents prior to his indictment, defendant gave them a statement of his assets and liabilities as of January 1, 1946, and December 31, 1950, the opening and close of the taxable years here involved.

In computing defendant's alleged tax deficiency the government used what has come to be known as the net worth-expenditures method.*fn3 It based its case on the data obtained from the defendant and independent evidence of his personal expenditures; his receipt of substantial sums of money which he had not reported as income in his returns, because he treated them as non-taxable gifts; his various securities and real estate transactions.

The government presented a detailed analysis of defendant's bank records, brokerage accounts, real estate transactions, expenditures, unreported receipts and his own net worth statement previously referred to.

Revenue Agent Blackman, a government witness, submitted a calculation of defendant's net worth at the beginning of 1946 and for each of the taxable years involved. He testified that the defendant's expenditures for the five years under review were almost three times his reported net income for the period - $44,056.83 expenditures to $15,503.17 net income.*fn4

At the trial the crux of the defense was that the government had placed an excessive valuation on listed assets, and moreover had erroneously included in such assets property which belonged to his wife; that it had not given effect to cash which he and his wife had kept on hand at home;*fn5 that his personal expenditures were less than those asserted by the government,*fn6 and that he had properly and in good faith treated unreported income as gifts. On the latter score it must be noted that defendant did not deny his receipt of the unreported sums which he treated as "gifts".

The trial judge in his charge correctly instructed the jury with respect to the issues presented by the testimony. He specifically charged the jury that there should be included in its determination of the defendant's net worth only such assets as belonged to him and that it was its function to determine the ownership of the various items of securities and real estate involved in the controversy. He further charged the jury it was its duty to fix a valuation of such assets as belonged to the defendant in the light of the testimony on that score and that it was for it to determine whether there had been any increase in defendant's net worth during the taxable years under review. He explicitly charged the jury on the issue of the defendant's expenditures. On the score of the unreported sums received by the defendant, the jury was charged it had to make a finding as to whether they were "gifts" or "taxable income", under stated applicable legal principles;*fn7 that in the event it found them to be taxable income, they must be eliminated from consideration in determining the guilt of the defendant "if his failure to report these items was due to an honest, even though mistaken opinion that these items were not subject to tax."

On review of the record we are of the opinion that the evidence amply sustained the jury's factual determination with respect to the issues of ownership of the controverted assets, their valuation, the increase in the defendant's net worth and the scope of his expenditures. The same is true with respect to the jury's finding that the unreported receipts were not "gifts" but income; that the defendant's failure to report them as income was not due "to an honest though mistaken ...

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