United States of America v. Rudolph R. Bregman, Appellant, Andmilton H. L. Schwartz, 306 F.2d 653 (3d Cir. 1962)

Following a jury trial, defendant-appellant Rudolph R. Bregman was found guilty^*  of violation of Section 7206(4) of the Internal Revenue Code of 1954¹  which, inter alia, makes removal or concealment of property upon which a levy is authorized by Section 6331²  of the Code a felony.

Bregman prosecutes this appeal from the District Court's judgment of sentence, entered following denial of his motion for judgment of acquittal.

Two questions are presented:

(1) Does Section 7206(4) make criminal a book entry which falsely reflects a change in the right to possession of property;

(2) Was there a fatal variance between the indictment and proof?

The one-count indictment charged the defendants as follows:

"That on or about October 30, 1954, at Philadelphia, in the Eastern District of Pennsylvania, Rudolph R. Bregman and Milton H. L. Schwartz, with intent to evade and defeat the collection of taxes assessed against Rudolph Motor Service, Inc., did knowingly and unlawfully remove and conceal eighteen (18) Strick Trailers, property of Rudolph Motor Service, Inc., upon which a levy was authorized by Section 6331 of the Internal Revenue Code of 1954,

"In violation of 26 U.S.C. Section 7206(4)."

Viewing the evidence in the light most favorable to the government, as the jury's verdict required, the critical facts may be stated as follows:

Bregman was president of Rudolph Motor Service, Inc. ("Rudolph"); his co-defendant Schwartz was its counsel. In the fall of 1953 Rudolph owed various federal taxes and revenue agents demanded their payment. Rudolph then had possession of, and record title to, the 18 Strick trailers referred to in the indictment. At that time, acting for Rudolph, Bregman and Schwartz promised the government agents to pay the taxes in arrears and urged them not to file tax liens against Rudolph's property, including the 18 trailers. The promise to pay was not fulfilled. On October 30, 1954 Bregman made false entries in the corporate records of Rudolph indicating that the 18 trailers had been "repossessed" as of that date.

Bregman here concedes that "there was sufficient evidence presented from which a jury could find that an entry was made on the books of Rudolph Motor Service, Inc. changing the right to possession" of the 18 Strick trailers, but he says, (1) making a false book entry which changes right to possession does not violate Section 7206(4), and, (2) if it does, he was only charged in the indictment with removal and concealment of "18 Strick Trailers, property of Rudolph Motor Service, Inc.", and not with making a false book entry with respect to the trailers.

The thrust of Bregman's argument with respect to his first contention is that Section 7206(4) relates only to the physical removal or concealment of property and the courts, he says, have uniformly so held in construing its predecessor statute, Section 3321(a)³  of the Internal Revenue Code of 1939, which was in turn derived from R.S. § 3450, as amended by the Act of June 26, 1936. He further urges that the fact that Section 7206(4) extended the provisions of Section 3321(a) to include offenses committed in order to avoid levy does not extend the sweep of the section to "rights to property", dealt with in Section 6331 of the 1954 Code, relating to levies.

Bregman has cited to us decisions in prosecutions under predecessor sections of Section 7206(4) which he says held it was necessary for the government to prove a physical removal, concealment or transfer from one place to another in order to constitute their violation.

We have considered these decisions,⁴  and hold them to be totally inapposite on their facts to the situation in the instant case. Moreover, in none of these decisions was there even an obiter expression which would support Bregman's contention, in substance, that it was necessary to have physical concealment of the trailers here in order to constitute violation of Section 7206(4).

Bregman's next contention is that while Rudolph had the right of possession with respect to the trailers it did not have the unrestricted right to "dispose" of them and thus they were not its "property" under the common law concept of property as "the right of any person to possess, use, enjoy and dispose of a thing." (emphasis supplied)

The short answer to this contention is that under the provisions of the Pennsylvania Uniform Commercial Code, 12A P.S. § 9-311, Rudolph had the right to dispose of the trailers, and moreover, the trailers " [could] be reached by attachment, levy, garnishment or other appropriate judicial process."

It is settled that State law controls in determining the nature of the legal interest which the taxpayer has in property and both federal and state courts must look to the state law to ascertain whether and to what extent the taxpayer had "property". Aquilino v. United States, 363 U.S. 509, 512, 513, 80 S. Ct. 1277, 4 L. Ed. 2d 1365 (1960); United States v. Bess, 357 U.S. 51, 55, 78 S. Ct. 1054, 2 L. Ed. 2d 1135 (1958); Morgan v. Commissioner, 309 U.S. 78, 82, 626, 60 S. Ct. 424, 84 L. Ed. 585, 1035 (1940).

Since under Pennsylvania law the government could have levied upon the trailers for taxes due it we are of the opinion that the false entries made by Bregman on Rudolph's corporate records with respect to the trailers constituted a violation of Section 7206(4).

We see no merit to Bregman's second point — that there was a fatal variance between the indictment and the proof because the indictment charged concealment of "eighteen (18) Strick Trailers, property of Rudolph Motor Service, Inc." and the government's proof only established a false entry with respect to possession of the trailers.

When Bregman falsified Rudolph's corporate records to show that the trailers had been "repossessed" the effect of that falsification was to "conceal" Rudolph's possession of the trailers. What was said by Judge Goodrich, speaking for this Court, in United States v. Schireson, 116 F.2d 881 (1941), at page 884, on the score of the offense of concealment, is dispositive of Bregman's fatal variance contention:

"In connection with the problem of analyzing what is involved in this offense [concealment as proscribed by Bankruptcy Act, 11 U.S.C.A. § 52] it must be borne in mind that the word `conceal' does not mean merely to secrete or hide away. It means, also, `to prevent the discovery of or to withhold knowledge of'. If a bankrupt owned land with an office building on it, it is hardly conceivable that he could physically hide it away. Yet there could be no doubt that he would be concealing this asset from the trustee * * * by failing to disclose his ownership. * * * So, here, if the bankrupt falsified his schedule of assets in Philadelphia he `withheld knowledge of' them from the trustee and thereby concealed them no matter where the goods were located." (Emphasis supplied.)

The government's proof that Bregman falsified the records pertaining to the trailers — property of Rudolph — to show that they had been "repossessed" was foursquare with the charge of "concealment" in the indictment and not by any stretch of the imagination at variance with it.

United States v. Raysor and Mosley, 294 F.2d 563 (3 Cir. 1961) and United States v. Carabasi, 292 F.2d 362 (3 Cir. 1961) cited by Bregman are inapposite on their facts to the situation here. The same is true with respect to United States v. Lippi, 190 F. Supp. 604 (D. Del. 1961).

For the reasons stated the judgment of sentence of the District Court will be affirmed.

Judge GOODRICH participated in the consideration of this case but died prior to the filing of this opinion.