income tax return. Mrs. Zadylak was aware of this. She knew that some of these personal expenditures were non-deductible.
This systematic and consistent pattern of making false entries then was evidence of wilfulness under both Spies, supra, and Holland, supra, even if we would not have had the judicial admissions of Mrs. Zadylak that she knew these personal expenditures were not deductible and as both defendants knew they were not properly to be included in the partnership return, since, aside from any technical consideration of their deductibility for tax purposes, they were simply not partnership expenses. If there was no other evidence than this there would have been sufficient evidence of wilfulness to submit to the jury.
But there was more. There was evidence bearing on Fronek's knowledge that he was making more money as profit than his returns showed:
(1) While he was reporting in 1956 ordinary income of $ 941.43 from the Whistle Bottling Company, the checking account for that company (which the evidence showed was essentially Martin J. Fronek) during that year increased by $ 17,916.35 (Tr. pgs. 372-374). While he was reporting in 1957 net profit from Whistle Bottling Company of $ 1,654.42, the checking account for that company during that year increased by $ 28,024.56 (Tr. pgs. 373-374).
In United States v. Cindrich, C.A.3, 1957, 241 F.2d 54, at page 56, the Court stated:
'While net worth was not the government's position, there was the interesting fact that after filing loss returns for 1946 through 1950, the defendant began construction of a $ 60,000 home in 1951.'
Of course, Fronek did not have a loss return, but he was not far from it, and the $ 46,000 increase in his checking account was not at all consistent with his reported income. All of this was evidence from which the jury could have properly inferred knowledge of understatement on his part, and therefore, wilfulness.
(2) Fronek testified that he was recording secretary for a social club in 1956 and 1957, and that he would devote from five to fifteen hours a month to this job. He testified that in 1956 he received $ 515 for this part-time work, which he admitted was in a sense a pastime. In that same year he reported as income from the business to which he devoted six days a week and from eight to fourteen hours each day, from the business in which he risked his capital, $ 941.43. This was competent evidence from which the jury could infer knowledge, intent and wilfulness.
(3) Fronek testified that he received the Canada Dry franchise in 1952, but that the first year that he could notice a substantial increase in his business was 1956. Yet in 1953, Fronek paid taxes of $ 146.57; in 1954, $ 54.77; in 1955, $ 53.60; in 1956 he paid $ 66.69, but a dependency credit was disallowed and he then paid an additional $ 120. In 1957, he paid $ 171.91. So that despite his own admission that his business was substantially better in 1956 and 1957 than ever before, he was still reporting substantially the same tax due (Tr. pgs. 419-420). The jury could properly infer knowledge of a fraudulent return from this evidence.
(4) A substantial overstatement of expenses of the Whistle Bottling Company on the partnership returns for 1956 and 1957 with a correspondingly substantial understatement of net profits in those years resulted when Fronek duplicated certain expenses on the returns. These amounted to $ 19,370.00 in 1956, and $ 24,766.16 in 1957. This constituted the conduct the likely effect of which would be to mislead or to conceal spoken of in Spies, supra, 317 U.S. page 499, 63 S. Ct. page 368.
The defendants seeks to discount this and the other evidence of false expenditure deductions as innocent mistakes. However, that was a question for the jury as to whether this was wilfully and knowingly or innocently done. The amounts involved, the fact that it was done two years in succession, the fact that there mistakes inured to the benefit of Fronek, considered with the other evidence, presented contradiction against the innocent mistake theory sufficient for a determination of wilfulness by the jury to support its verdicts of guilt.
As stated by our Court of Appeals in Cindrich, supra, 241 F.2d at page 56, 'The jury may well have been substantially impressed by the fact that all the alleged blameless errors were for the benefit of the defendant and against the interest of the government.'
The defendants complain that the admission into evidence of the Fronek income tax payments for the years 1953, 1954 and 1955 and of the bank balances for the years 1956 and 1957 were not only erroneous but were also prejudicial to them. They argue that the admission of the income tax payments for these past three years was contrary to the holding in Greenberg v. United States, C.A.1, 1960, 280 F.2d 472. There the trial court admitted into evidence the payment of income tax in the sum of $ 17.81 for the year 1943. The tax charges revolved about the years 1952 and 1953. The harm there consisted not only of the evidence of admitting the amount of the income tax payment for the year 1943, but in the attack as made by the United States Attorney to the jury in accusing the defendant of a lack of patriotism in not helping to support the Government during the war. That case is totally and factually different from the instant case.
The defendants also misdirect the reason for admission into evidence of these income tax payments for the prior years and the bank balances for the tax chargeable years. The defendants argue that these amounts for the prior years could only be introduced if there were violations in those years which would have shown a pattern by which intent and wilfulness might have been presented to the jury. They misinterpret the reason for introducing these matters. It was not to attack anything done by the defendants in the prior years, but rather to show, by the defendants' own admissions, that these past years were proper ones, and the similarity between these past proper years and 1956 and 1957. The Canada Dry distributorship expanded Fronek's business in 1956 and 1957. But the income tax returns for these two years were not dissimilar to the prior years. The evidence thus shows a glaring discrepancy which the defendants could not have failed to overlook if it was, as they claim, an honest mistake. This was proper evidence for submission to the jury. The jury did not think it was an honest mistake.
This was the evidence presenting a pattern of action by the defendants which the Government presented to the jury. Any other pattern by the defendants, as now argued, exists nowhere in the record especially insofar as they relate to payments of income taxes in prior years. The evidence of pattern as submitted by the Government in its case in chief presented sufficient basis for the jury's determination. The denial by the defendants of such a pattern does not convert the character of the Government's testimony. The fact that Mrs. Zadylak did not know what else to do with the non-deductible items of expenditures than what she did with them was not convincing to the jury. Fronek's protestations of ignorance of what Mrs. Zadylak did because he did not tell Mrs. Zadylak what to do with these amounts or that he didn't know anything about bookkeeping was evidently not accepted by the jury as against the evidence submitted by the Government in the case as a whole. Fronek's bank balances were there for him to see and to know that he was doing much more business than in the previous years.
Since all the matters were properly before the jury and it considered and determined these upon the evidence with proper instructions from the trial judge, the defendants' motion lacks merit and must be denied.
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