COLLET, Circuit Judge.
This is an appeal from a conviction and sentence under a charge of violating Section 145(b) of the Internal Revenue Code, 26 U.S.C.A. § 145(b).
The sufficiency of the indictment and the evidence is challenged on the ground that the indictment did not charge and the proof did not show that defendant committed any act other than to wilfully file a false and fraudulent return reporting a lesser tax than he actually owed, and that such allegation and proof is insufficient to constitute a felony under Section 145(b). It is argued that the wilful filing of a false or fraudulent return with intent to defeat or evade taxes constitutes a misdemeanor under Section 3616(a) of the Internal Revenue Code, 26 U.S.C.A. § 3616(a), and hence that transgression may not constitute a felonious attempt to evade or defeat the payment of taxes under Section 145(b). Section 3616(a) reads: "Whenever any person * * * delivers or discloses to the collector * * * any false or fraudulent * * * return * * * with intent to defeat or evade the * * * assessment intended to be made * * *, he shall be fined not exceeding $1,000, or be imprisoned not exceeding one year, or both * * *."
As to that part of the charge and proof relating to the report in his return of less tax than was due, defendant says that such a dereliction is defined as a misdemeanor by Section 145(a)
The defendant earnestly insists and forcefully argues that the Government did not prove that he received income upon which the tax was not paid, and that the assumption of that fact in a hypothetical question was error. As heretofore noted, defendant owned a tavern. A checking account was maintained in the name of the tavern. The tavern was operated in 1944 by a manager named Thomas Hanlon. It was located in an industrial district in Waterloo. Many of its customers were employees of industries located in the near-by vicinity. On pay days at the industries a large amount of checks were cashed by the tavern for the employees of the industries. In order to have sufficient cash on hand at the tavern with which to cash these checks, before pay days Hanlon generally got it from defendant who got it from his deposit box where he kept a considerable amount of cash. Sometimes Hanlon would get it from the bank from the tavern's checking account. When the checks were cashed ordinarily they would be endorsed by the tavern and taken to the bank with the receipts from the tavern business and cashed. If it was convenient to do so, defendant was repaid then in cash or with checks for his advances. If it was not convenient to do that, all of the proceeds of the checks were deposited in the tavern's checking account or a portion taken "in change" for use at the tavern. If more cash was obtained in advance of a pay day for the purpose of cashing checks than was needed therefor, the excess was handled in the same manner. The deposit of the proceeds of these checks to the tavern account was frequent and in comparatively large amounts. Hanlon estimated the amount of the checks cashed at from $2,000 to $3,500 each week. The expenses of operating the tavern and expenditures for supplies were paid in cash. Each such expenditure was noted on a slip of paper and put in the cash register. At the end of each week a tax accountant regularly employed for that purpose came by the tavern and picked up these records of expenditures and the tape from the cash register showing income receipts
At the trial Mr. LeCocq, testifying as a Government witness, stated that he "endeavored to identify the deposits made in each of these accounts", but being unable to do so, "we have included them as income because they have not been identified". He further stated, "These unidentified deposits represent income to me for the purpose of conducting an audit of income." He stated that he had been told that "a lot of labor checks" had been cashed at the tavern but that he made no investigation to find out whether or not that was true. He said: "We had no way of determining whether or not part of the deposits were income and the rest was for money cashing checks, and have charged up the entire bank account as income." As an illustration, he testified that, "If Kirsch went to his safety deposit box and took out $2,000.00 and turned it over to Mr. Hanlon, who was working at the tavern to cash checks and then deposited $2,400.00, we would include the entire $2,400.00 as income. We included everything that went into those deposits."
Mr. Darland, an employee of the bank, testifying as a Government witness, stated that he frequently waited upon defendant at the bank and that on an average of about three or four times a month defendant cashed "payroll checks" and tavern checks and on some occasions, after cashing the
Mrs. Seger, another employee of the bank and another Government witness, testified that both defendant and Hanlon brought checks issued by various manufacturing industries in Waterloo [to the bank] which they had apparently taken in at their tavern and brought to the bank for conversion into cash. She said: "I can't remember what he or they did with them. Sometimes they were deposited and sometimes he would take the cash. Don't recall how often he did either. Maybe once a week he took the cash and other times he would deposit the payroll checks into the account of the Park Avenue Tavern." She further stated that she estimated that she waited on Mr. Kirsch more than two or three times a week and on Mr. Hanlon "several times a week".
It is readily obvious from the foregoing facts that the Government was fully cognizant of the fact prior to the trial that a large part of the deposits made to the credit of the tavern account did not represent income. At the trial, the senior Internal Revenue Agent for that District was called as an expert witness to testify to the tax owed by defendant for each of the years covered by the indictment. To him was propounded the following question: "Mr. Ogden, assuming that a resident of Iowa who during the calendar year 1944 and on December 31st of that year was a widower with no dependents and whose residence and principal place of business was at Waterloo, Iowa, whose regular annual accounting period was on the basis of the calendar year, and assuming that such person derived and received a gross income during the calendar year 1944 as follows: Gross rent from store building, Des Moines, Iowa $450.00, dwellings Des Moines, Iowa $220.00, Park Avenue building Waterloo, Iowa $900.00, Ankeny Street dwelling $150.00, and Peverill Apartments, Waterloo, Iowa, $766.70, and corn-hog AAA check $100.00, and profits from real estate sales $600.00, and unidentified deposits in his personal account of $11,378.49, and unidentified deposits in the Park Avenue Tavern account $54,880.57, and assume further that such was entitled to and allowed by the provisions of the Revenue Acts of the United States the following deductions: Taxes $884.90, Insurance $135.00, Travel expense $150.00, Attorneys and abstract fees $110.00, depreciation $580.00, sales tax $19.76, gas tax $5.76, auto license $31.00, and Iowa income tax $.86, or a total of $1917.28. What would be the amount of the income tax of that person?"
To that question the following objection was made: "Mr. Maley: Just a minute. The objection interposed to that question, and the form of the question, your Honor, is that it is incompetent in form, and the witness is incompetent to answer in the form addressed to the witness, because there is no proper foundation laid for the various items that are included in the question. It assumes items which are not included by proof in the record. It does not distinguish nor attempt to distinguish the items of taxable income or refer to any proof or failure of proof regarding said items, and upon the whole permits the witness to characterize in the form of a conclusion and characterize his testimony in the same method in a way that invades the ultimate conclusion and judgment of the jury in this case."
The following then occurred:
"The Court: Well, are you assuming that the unidentified deposits were income?
"Mr. Sheridan: Yes, sir.
"The Court: Well, you have got to put that in. Assuming that they were actually income, why then what would be the return.
"Mr. Sheridan: I thought I had that in, your Honor.
"The Court: You had it the unidentified deposits were income, but you have to assume they are income.
"Mr. Sheridan: Assuming the unidentified deposits were income?
"The Court: Maybe the jury will find those are not income, and then of course his answer would have no effect, but assuming they were income, then make your return.
"Mr. Maley: What was that amount, please?
`Mr. Maley: For the purpose of the record may I suggest, your Honor, you forgot to make a ruling on the last objection.
"The Court: I beg your pardon. Yes. Overruled, on the objection, with that amendment of the Court's there. I think the jury understands that what counsel is asking here, he is putting in these unidentified deposits as being income. Now, he is assuming that that is income, and he is giving his answer on that assumption, so that if you find that it is not income and the amount isn't the same on those unidentified deposits, why then, of course, this computation wouldn't be correct and you shouldn't consider it.
"Mr. Maley: Thank you."
It is proper to permit an expert witness to testify to what income taxes would be upon a hypothetical state of facts which have been proven by competent evidence. United States v. Johnson, 319 U.S. 503, loc. cit. 519, 63 S.Ct. 1233, 87 L.Ed. 1546. And that competent evidence may consist entirely of circumstantial evidence. Gleckman v. United States, 8 Cir., 80 F.2d 394. Nor is it necessary in a prosecution under Section 145(b) that the Government prove the exact amount of the tax attempted to be evaded. Cave v. United States, 8 Cir., 159 F.2d 464. But the question of whether the fact that a defendant had unreported taxable income may be established by the circumstance alone that his checking account at his bank totaled more than the gross income reported by him need not be determined. It may be conceded here, as it was in the Gleckman case, 80 F.2d loc. cit. 399, "that the bare fact, standing alone, that a man has deposited a sum of money in a bank would not prove that he owed income tax on the amount". The foregoing question need not now be determined because there was other circumstantial evidence, heretofore noted, of income in excess of that reported. And in addition, there was the admitted income in 1944 from illicit liquor sales which was not reported that year.
But none of the foregoing considerations will justify the unqualified assumption of a fact as true that is known to be false. The hypothetical question assumed without qualification that all of the deposits in the tavern account and in defendant's personal account constituted income for tax computation purposes. That assumption of fact was not only without evidentiary support even from permissible inference from proven facts, but was definitely disproved by the Government's own evidence. It is one thing for a party to say in effect, as was done in the Gleckman case, that he had exercised all of the means he reasonably could to determine how much of a bank account was income, had eliminated all that he could determine was not income, and was therefore assuming for the purpose of calculating taxes due that the remainder was income, and quite another and different thing to say in effect, as was done in this case — My evidence shows that all of these deposits were not income, but I do not know how much was not, I have made no effort to find out. So I am assuming that all are income and am casting the burden on the defendant to show, if he can, how much is not, or suffer the consequences. The latter procedure cannot be approved. It should never be necessary for the Government to negative a defendant's defense in a hypothetical question such as this. But it should always be necessary that the facts and circumstances put in evidence by the Government justify, by reasonable inference at least, the truth of the assumed fact. What constitutes a reasonable effort to establish the truth of the fact assumed, and what facts or circumstances will constitute a proper foundation for the assumption and permit a reasonable assumption of the truth of the fact assumed in the hypothetical question may not be narrowly circumscribed, but must be left to a considerable extent to the discretion of the trial court. But in this instance, there was no foundation for the assumption that all of the deposits constituted income.
The trial court, sensing the innate impropriety of the question, went far to eliminate its error and injurious effect by informing the jury that the truth of the fact that the "unidentified" deposits was income was for it to determine. But in doing so there was an inevitable invitation to the jury to assume that there was evidence
The situation is the same here as it was in Winebrenner v. United States, 8 Cir., 147 F.2d 322, loc. cit. 329, when this court in condemning an improper admonition given a jury, the effect of which was impossible of ascertainment, said: "The effect of the admonition given in this case is, of course, impossible of ascertainment, but as it violates the principle that an accused is entitled to be heard before he is condemned, and the essentials to a fair trial, the judgments appealed from must be reversed."
In view of our decision on the foregoing question, it is deemed unnecessary to consider other contentions of defendant as the alleged errors complained of are not likely to occur on a retrial of the case.
The judgment appealed from is reversed and the cause remanded to the District Court with directions to grant defendant a new trial.