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UNITED STATES v. PARENTI

March 31, 1971

UNITED STATES of America
v.
John C. PARENTI


Troutman, District Judge.


The opinion of the court was delivered by: TROUTMAN

Following an extended trial by jury, the defendant was found guilty of attempting to evade and defeat the payment of his 1961, 1962 and 1963 income taxes in violation of 26 U.S.C. § 7201. The defendant now seeks a judgment of acquittal or, in the alternative, a new trial. In support of his motion, the defendant has submitted an extended brief raising multiple points not all of which are wholly consistent and some of which are partially duplicitous. We shall treat each point seriatim:

 I.

 The defendant first contends that the Court erred in denying the defendant's motion for inspection and disclosure by the Government of all exculpatory material, information and evidence. Relying heavily upon Brady v. Maryland, 373 U.S. 83, 83 S. Ct. 1194, 10 L. Ed. 2d 215 (1963), the defendant contends that the Court erred "in not requiring that the Government go through its file, and produce any and all exculpatory matter that may exist therein, and give same to the defendant as was requested". *fn1" He otherwise contends that "* * * a defendant is entitled, as a constitutional right, to have any and all exculpatory material made known to him where such material or witnesses are known to the Government". *fn2" In another instance the defendant contends that it was the duty of the Court to require the Government "to expose its entire file" to the Court, "and it was then the duty of the Court to see if there was contained therein any material which could possibly be beneficial to the defendant, and * * * to require that the Government turn over all af this material to the defendant". *fn3"

 Apparently, the defendant neither suspects nor knows of the existence of any such "exculpatory material" in the possession of the Government either now or at the time of trial. On the contrary, the Government represented and presently represents that it had and has no exculpatory material or evidence in its possession or control. *fn4"

  The defendant contends that the law relating to deliberate or bad faith suppression of evidence by the Government, of which there is no evidence, or its refusal to honor a proper request to produce, of which there is no evidence, somehow obligates the Government to expose its entire file to the defendant or at least to the Court for inspection and possible delivery to the defendant. The cases do not so hold. Certainly Brady, which involved a charge of murder and, the extra-judicial confession of an accomplice, did not suggest exposure of the Government's entire file. United States ex rel. Thompson v. Dye, 3 Cir., 221 F.2d 763 (1955), likewise a murder charge, involved the suppression of evidence regarding the defendant's state of intoxication. United States ex rel. Butler v. Maroney, 3 Cir., 319 F.2d 622 (1963) involved a statement given by the defendant to the police regarding a struggle between the defendant and the victim at the time of the shooting. While the Brady doctrine has been refined in subsequent decisions, no case suggests that the defendant has the right, or the Court the obligation, to peruse, the Government's file to determine whether exculpatory material or evidence is contained therein. United States v. Keogh, 2 Cir., 391 F.2d 138 (1968); United States v. Miller, 2 Cir., 411 F.2d 825 (1969); Barbee v. Warden, 4 Cir., 331 F.2d 842 (1964); United States v. Manhattan Brush Company, D.C., 38 F.R.D. 4. The interests of justice would not be served by allowing the defendant unlimited access to and perusal of the Government's entire file, especially where, as here, the defendant knows of no exculpatory evidence which has been suppressed and the Government affirmatively represents that it has none.

 II.

 Using the so-called "net worth method", the Government procured from the defendant's accountant, to whom the Government agents were directed and referred by the defendant, a net worth statement, cash flow sheets, summary sheets and statement. (G-231, 232, 235, 236, 238, 239, 240 and 243.) To the use and admission of these documents, and particularly the net worth statement (G-243) the defendant objects, contending that when the investigation became criminally oriented and focused upon the defendant, he was entitled to the Miranda warnings. Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966). Defendant concedes *fn5" that the present state of the law does not require the Miranda warnings where, as here, there was no "custodial" interrogation. However, he argues that the rationale of Miranda and related cases suggests that the Government owes to an individual who is suspected of income tax evasion some type of warning advice or notice albeit something less than the Miranda warnings. However, all cases relied upon by the defendant involve either active deception by Government officers (or agents) or custodial interrogation. The defendant's contentions have been overwhelmingly rejected by a great majority of the Courts. The basis for such rejection is best stated in the case of United States v. Squeri, 2 Cir., 398 F.2d 785 (1968), where at page 790 the Court said as follows:

 
"Thus, we reject the view * * * that I. R. S. agents must give the Miranda warnings even though there is no custodial interrogation, if the investigation has reached the accusatory stage * * *. The Fifth Amendment privilege prohibits the government from compelling a person to incriminate himself. It was the compulsive aspect of custodial interrogation, and not the strength or extent of the government's suspicions at the time the questioning was conducted, which led the court to impose the Miranda requirements with regard to custodial questioning. We believe that the presence or absence of compelling pressures, rather than the stage to which the government's investigation has developed, determines whether the Miranda requirements apply to any particular instance of questioning." (Emphasis ours.)

 The so-called "focus" test seems to have originated in Escobedo v. State of Illinois, 378 U.S. 478, 84 S. Ct. 1758, 12 L. Ed. 2d 977 (1963), and was rejected by the Miranda Court which reasoned as follows, 384 U.S. at page 444 (Fn. 4), 86 S. Ct. at page 1612:

 
"* * * questioning initiated by law enforcement officers after a person has been taken into custody or otherwise deprived of his freedom of action in any significant way * * *
 
* * *
 
"* * * is what we meant in Escobedo when we spoke of an investigation which was focused on an accused * * *". (Emphasis ours.)

 In United States v. Jaskiewicz, 3 Cir., 433 F.2d 415 (1970), also an income tax evasion case, the Third Circuit more recently rejected the "focus" test. In Mathis v. United States, 391 U.S. 1, 88 S. Ct. 1503, 20 L. Ed. 2d 381 (1968), the taxpayer was in custody on an unrelated charge and the Government sought to apply the "focus" test in determining whether the defendant was entitled to the Miranda warnings. The Court rejected the Government's argument and applied the "custody" test. Likewise, see Orozco v. Texas, 394 U.S. 324, 89 S. Ct. 1095, 22 L. Ed. 2d 311 (1969); Kohatsu v. United States, 9 Cir., 351 F.2d 898 (1965), cert. denied 384 U.S. 1011, 86 S. Ct. 1915, 16 L. Ed. 2d 1017 (1966), rehearing denied 385 U.S. 891, 87 S. Ct. 15, 17 L. Ed. 2d 122 (1966). To hold otherwise would violate the clear language of the Miranda court, 384 U.S. at page 477, 86 S. Ct. at page 1629:

 
"* * * Our decision is not intended to hamper the traditional function of police officers in investigating crime * * * seek(ing) out evidence in the field * * *. Such investigations may include inquiry of persons not under restraint * * *. In such situations the compelling atmosphere inherent in the process of in-custody interrogation is not necessarily present * * *".

 The defendant in the instant case, having completed an eighth grade education, was engaged in several businesses and had retained the services of a qualified, able and reputable accountant with whom the Government agents dealt at the direction and request of the defendant. The defendant may safely be designated an "ordinary taxpayer". Therefore, the following language used by the Court in United States v. Sclafani, 2 Cir., 265 F.2d 408, 414, 415 (1959) becomes particularly pertinent:

 
"A 'routine' tax investigation openly commenced as such is devoid of stealth or deceit because the ordinary taxpayer surely knows that there is inherent in it a warning that the government's agents will pursue evidence of misreporting without regard to the shadowy line between avoidance and evasions, mistake and willful omission.
 
"Moreover, it is unrealistic to suggest that the government could or should keep a taxpayer advised as to the direction in which its necessarily fluctuating investigations lead. The burden on the government would be impossible to discharge in fact, and would serve no useful purpose."

 In United States v. Prudden, 5 Cir., 424 F.2d 1021, at page 1033 (1970), the Court said:

 
"* * * We conclude that mere failure of a revenue agent (be he regular or special) to warn the taxpayer that the investigation may result in criminal charges, absent any acts by the agent which materially misrepresent the nature of the inquiry, do not constitute fraud, deceit and trickery * * *". (Emphasis ours.)

 There is no evidence that the nature of the inquiry was misrepresented and no evidence of fraud, trickery or deceit. Absent such acts no obligation was imposed upon the agents to warn the defendant of the possible outcome of the investigation. In Spahr v. United States, 9 Cir., 409 F.2d 1303, at page 1306, the Court said as follows:

 
"* * * If the agents procured their invitation through guile or fraud, the * * * examination would constitute an unreasonable search * *. We find no deception. Agent Byerly identified himself as a special agent from the Intelligence Division * *".

 Likewise, see United States v. Frank, 245 F.2d 284 (1957) and United States v. Wheeler, 256 F.2d 745, *fn6" where at page 746 the Court stated:

 
"The investigation thus concluded with exactly what is a foreseeable result of any income tax return audit, should the audit develop evidence of fraud".

 Also see the more recent case of United States v. Jaskiewicz, supra.

 Guile, trickery, fraud and deceit are simply not in this case. They exist where an agent either affirmatively misleads the taxpayer or his agent, or where he misrepresents something or fails to disclose something which he has a duty to disclose. The extent of the investigation need not be disclosed. United States v. Jaskiewicz, supra. Here, the Government agents, at defendant's request, dealt with the defendant's accountant, who acted as defendant's attorney in fact. The defendant knew, as did his accountant, that if an audit of records disclosed evidence of fraud the Government would act accordingly. This is a "foreseeable result of any income tax return audit". United States v. Wheeler, supra. The defendant, seeking to establish guile, fraud, deceit and trickery, points, for example, to the agents' request that the accountant submit to the defendant, for his approval and signature, the net worth statement (G-243). This was not trickery or deceit. Had such statement not been submitted to the defendant and had the Government proceeded without determining whether the defendant was satisfied with or approved its contents, the defendant might more logically allege fraud or deceit. It is evident that the Government took the only course which was fair to the defendant and to those representing him.

 Additionally, the defendant contends that he was misled or deceived because on a prior occasion (a prior year) a civil settlement was made by the Government after audit and that the defendant, therefore, had no reason to suspect that a criminal prosecution would follow the audit here involved. The defendant's experience or lack of experience with prior prosecutions cannot be either the basis for a charge of fraud and deceit, or the basis for the Miranda warnings.

 Neither is there any basis for the defendant's contention that the accountant should have received the Miranda warnings or that he was "deceived and misled into believing that the matter could be resolved on a civil basis and that the Government did nothing to dispel that belief". *fn7" The accountant's state of mind can hardly be the basis for an allegation of fraud and deceit. In like circumstances, any accountant, and his client, would hope that the matter could be and subsequently would be resolved on a civil basis. Indeed, the Government might well hope for the same result. That the results were otherwise cannot be the basis for a broadside charge of fraud, deceit, trickery and misrepresentation. We find these and similar contentions advanced by the defendant to be without merit. Fraud, deceit, trickery and misrepresentation are not and never were in this case. Moreover, the Miranda warnings, as already stated, are not required in the absence of a custodial interrogation or absent "any form of restraint upon his freedom of action". See the case of United States v. Jaskiewicz, 433 F.2d 415, 420 (3rd Cir. 1970) which was likewise an income tax evasion case, and where the defendant advanced contentions similar, if not identical, with the contentions here advanced. There, as here, information was obtained from the defendant's accountant. There, as here, the Government followed routine investigative procedures, involving the usual audit of the defendant's records followed by a reference to a Special Agent of the Intelligence Division when fraud was suspected or discovered. There, as here, the defendant contended he was entitled to the Miranda warnings. The Court squarely rejected the defendant's contentions and affirmed the conviction. Therefore, the defendant's contentions are without merit.

 III.

 The defendant contends that it was error to have allowed the Government to introduce evidence as to pre-prosecution years' income and expenditures by the taxpayer. Consideration of this and other issues requires a careful study of Holland v. United States, 348 U.S. 121, 75 S. Ct. 127, 99 L. Ed. 150. That and subsequent cases dealing with the net worth method of proof have prescribed certain principles designed to protect the defendant taxpayer and to assure that the innocent will not be improperly convicted on the basis of circumstantial evidence. Among others they are:

 (a) the establishment with reasonable certainty of an opening net worth to serve as a starting point from which to calculate future increases in the taxpayer's assets;

 (b) the Government's investigation of leads furnished by the taxpayer as to the possible source of his assets; the negation of reasonable explanations by the taxpayer inconsistent with guilt. When the Government fails to show an investigation into the validity of such leads they may be considered as true and the Government's case held insufficient. This aids in forestalling unjust prosecutions and relieves the defendant of the dilemma of having to come forward with such proofs at the risk of an adverse verdict. This is consistent with the Government's duty to see that justice is done at the possible expense of a conviction;

 (c) the production of evidence to support the inference that the defendant's net worth increases are attributable to currently taxable income. Increases in net worth, standing alone, cannot be assumed to be attributable to currently taxable income. But, proof of a likely source, from which the jury could reasonably find that the net worth increases sprang, is sufficient;

 (d) the burden of proof remains upon the Government. The practical disadvantages to the taxpayer are lessened by the pressures on the Government to check and negate relevant leads. Likewise see Friedberg v. United ...


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