The opinion of the court was delivered by: MARSH
The defendant was convicted of two counts of income tax evasion for the years 1950 and 1951 under § 145(b) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 145(b). Decision was reserved upon a motion for judgment of acquittal. After review of the record and exhibits, in the court's opinion the evidence was insufficient to sustain the conviction and the motion should have been granted.
In 1944 the partnership purchased the building in which 'Emil's' was located, and in 1943 and 1946 defendant, or defendant and his wife, bought four properties in or near Pittsburgh. One of the latter was sold prior to 1950,
but the defendant continued to own the others through 1951.
Defendant derived income from the restaurant and rentals from some of the real estate.
Other than a check book, he kept no personal books or records of his income.
There was evidence that his expenditures in the two indictment years, after deducting allowances, depreciation and non-income items, exceeded his reported income.
For 1950 his net income, arrived at be adding expenditures and giving credit for all possible allowances, was stipulated at $ 8,151.57; his reported income was $ 6,361.40; the deficiency was $ 1,790.17.
The critical issue is whether the inference, which arose prima facie from the evidence, that the deficiency was taxable income received by defendant in 1950
was not overcome by the government's own proofs.
A check dated December 29, 1949, in the sum of $ 2,000, signed by Kinderman and drawn on the partnership bank account, payable to and endorsed by defendant, was received in evidence as defendant's Exhibit 1. Kinderman, testifying for the government, said this check probably represented defendant's share in the partnership profits paid at the end of that year. The check was negotiated to the Mt. Lebanon Federal Savings and Loan Association and paid by the bank on January 23, 1950. Defendant owed the Association money due on a mortgage, and $ 1,500 was credited to his account on January 19, 1950.
The government included this $ 2,000 in defendant's share of partnership income for 1949, and it vigorously argues that the jury could find that he cashed and spent the proceeds in 1949
Defendant just as vigorously contends that this evidence demonstrates that the $ 2,000 was available for 1950 expenditures and, in fact, $ 1,500 of the proceeds was actually used to make a mortgage payment on January 19, 1950.
The circumstance on which the government relies to prove that this money was spent in 1949 is of such slight probative value as to amount to a mere scintilla in view of its proof that the check was negotiated in 1950 to a creditor of defendant. Under the government's own evidence, this $ 2,000 was probably available for defendant's use in 1950. If it was, defendant had sufficient money available to cover the alleged understatement of $ 1,790 in net income for that year. The evidence to the contrary merely made it possible that the money was spent in 1949, -- it raised a mere conjecture or surmise. In the court's opinion that conjecture or surmise in the face of a contrary probability appearing in the government's case is insufficient to sustain the verdict of guilt on the first count.
It was suggested that defendant probably received in late December, 1950, a distribution of profits which he may not have spent until 1951, thus tending to counter-balance the $ 2,000 -- 1949 check. This likewise is a conjecture which in absence of supporting proofs can be of no help to the prosecution.
Mindful that expenditures in excess of reported income, standing alone, might not of themselves suffice to support a conviction of tax evasion
without evidence indicating a lack of available funds from which these expenditures might have come, the revenue agents, prior tot trial, undertook an elaborate investigation in order that the government might prove, insofar as it was possible, that defendant did not have any ...