Unpublished Disposition, 925 F.2d 1471 (9th Cir. 1982)

MEMORANDUM^* 

Michael Joseph Bravo appeals his conviction for tax evasion in violation of 26 U.S.C. § 7201. He challenges the cash on hand and unreported income figures for tax years 1983 and 1984 upon which his conviction rested. We affirm.

BACKGROUND

Bravo attended college from 1976 through the winter of 1983. He obtained one student loan which he repaid. His parents did not pay any of his school or living expenses from 1980 through 1984 with the exception of a $1,000 loan in October 1980. He allegedly did various odd jobs and ultimately started a construction and real estate business to support himself.

On December 29, 1982, California state authorities found 53 grams of cocaine and 3.2 ounces of marijuana, as well as drug paraphernalia, in Bravo's car and apartment. In state court, after a jury failed to reach a unanimous verdict on the charged offense of cocaine possession, Bravo pled nolo contendere to a misdemeanor charge.

Bravo did not file an individual tax return for the tax years 1979 through 1983. He did file a return for 1984. In 1989, Bravo was charged with failure to file his 1982 individual tax return and tax evasion for tax years 1983 and 1984. The grand jury determined his taxable income to be $31,129,41, with $6,094.46 owing in taxes for 1983. In 1984, he filed a return paying $1,217.00 in taxes on $10,856.00 reported income. The grand jury found him to owe $26,039.72 based on taxable income of $76,002.34. After a bench trial, he was acquitted on the failure to file charge but convicted of the tax evasion counts. He now appeals. We have jurisdiction pursuant to 28 U.S.C. § 1291.

DISCUSSION

The sole issue on appeal is whether the evidence, when viewed in the light most favorable to the government, was sufficient to support Bravo's conviction for tax evasion. United States v. Hamilton, 620 F.2d 712, 715 (9th Cir. 1980). Elements of tax evasion are: (1) a tax deficiency; (2) a willfulness in evading taxes; and, (3) an affirmative act of evasion or attempted evasion. Id. at 714. Bravo does not challenge the government's proof of the second and third elements. He challenges the proof as it relates to the tax deficiency element. In proving a tax deficiency by the net worth method used here, the government must: "(1) accurately establish the defendant's opening net worth, (2) identify a likely source of taxable income from which it may be inferred that the defendant's increase in net worth arose, and (3) conduct a reasonable investigation of any leads that suggest that defendant properly reported his income." Id.

Bravo argues the opening net worth and unreported taxable income figures for 1983 and 1984, upon which his conviction rested, were erroneous. He asserts that his net worth at the beginning of 1983 was more than $200,000, an amount sufficient to negate any inference of taxable income for the years 1983 and 1984. This alleged cash hoard resulted from drug sales prior to his arrest at the end of 1982. He argues that the government presented no evidence of ongoing drug sales generating illegal, albeit taxable, income in 1983 and 1984. Finally, he asserts the government did not adequately investigate exculpatory leads provided by his attorney.

Opening Net Worth

To establish Bravo's opening net worth, an IRS agent scrutinized Bravo's financial records and interviewed witnesses and concluded that he had no more than $400 cash on hand at the beginning of tax years 1983 and 1984. Bravo, however, claimed he had a cash hoard of more than $200,000.

In addition to the lack of evidence supporting Bravo's asserted cash hoard, he stipulated that a friend loaned him a total of $800 in 1982 and that he always paid his friend back in cash within four or five days. He further stipulated that the most money the friend had seen him with was $200 "during party-type occasions." The trial court could draw two inferences from this evidence. First, Bravo had to borrow money to pay his expenses. If he had had a cash hoard, he would not have needed to rely on loans from friends. Thus, Bravo had no cash hoard. See Holland v. United States, 348 U.S. 121, 133 (1954) (taxpayers would not have lost possession of their cafe and furniture and accumulated unpaid debts if they had had a cash hoard of $104,000). Second, Bravo came into possession of large amounts of cash rather quickly which he used to repay his creditors. Drug dealers also come into quick possession of cash. Thus, Bravo was selling drugs. The first inference goes to support the government's low opening net worth figure while the second inference suggests a likely source of taxable income, see infra.

Bravo also made certain loan applications in 1983 and 1984. Although it is true, as Bravo argues, that the applications did not specifically provide a blank to fill in one's "cash on hand," there were blanks for "other income," "assets," and "other assets." If a person was eager to get a loan, obviously he would provide as much favorable financial information as possible, including information regarding large amounts of cash on hand.

Bravo argues he put on four witnesses who testified to seeing his cash hoard. For example, his girlfriend testified that he was always withdrawing money from the safe. The district judge, however, found Bravo's witnesses incredible and correspondingly disbelieved the existence of his asserted cash hoard. Thus, there was sufficient evidence to establish Bravo's opening net worth, and to rebut his claim of a cash hoard.

Likely Source of Taxable Income

The government asserted the likely source of Bravo's 1983 and 1984 income was from cocaine trafficking. Evidence of cocaine trafficking included the fact that Bravo sought help for his cocaine addiction in 1981. Additionally, the fifty-three grams and the pay and owe sheets found in his possession in 1982 support the inference that Bravo sold drugs. (The trial court did not believe Bravo's "fishy" explanation that the notations represented the number of roe counted for his senior project).

Bravo argues that the government's reliance on the 1982 drug possession proves his point, i.e., that he was hoarding the money made from prior sales. The government's use of the 1982 possession, however, was to prove that he continued to possess and sell drugs as the mode of earning the taxable income, not that he was accumulating a large cash hoard. Admittedly different inferences may be drawn from this evidence, but on appeal from a finding of guilt, we are required to view the evidence, including reasonable inferences therefrom, in the light most favorable to the government. Hamilton, 620 F.2d at 715.

Moreover, Bravo told inconsistent and rather evasive tales about how he was earning his money. For example, he told his girlfriend that he began his construction business with investors' money but he did not tell her how much money or who the investors were. The government did not uncover evidence of any investors. Indeed, the only evidence of legitimate work uncovered by the government was a $100 repair job done by Bravo for a friend. Additionally, in August of 1984, he sold a piece of property he had bought the year before (presumably with drug money).

If he did not continue to sell drugs after the 1982 arrest, it is difficult to imagine how he obtained the money to enter into various transactions. Part and parcel to establishing a likely source of income is establishing that Bravo indeed had income in 1983 and 1984. Bravo stipulated to spending more than $6,300 for a boat, more than $600 a month in rent, $10,000 for a piece of property in Morro Bay, $22,560 for a piece of property in Santa Margarita, more than $3,000 on the down-payment of a new truck, $1,500 in legal fees in 1983, $1,101 for AT & T stock options, more than $1,000 for credit card bills, $65,000 for a building lot, $35,500 for a piece of property in San Luis Obispo, and the list goes on. Furthermore, he stipulated to loaning a friend $3,500 in 1983. Thus, there was sufficient evidence supporting an inference that Bravo had taxable income in 1983 and 1984.

Leads

Finally, Bravo asserts his attorney met with government attorneys and informed them that Bravo had been in possession of two safes on December 29, 1982, one at his apartment and one at a friend's apartment. The government searched the former safe and found no money in it; as to the latter one, the friend never saw what was in it but he said that Bravo had an indifferent attitude toward it.

Bravo also stipulated that he had a safety deposit box that he used on August 24, 1981, and September 28, 1981. If he did not open the safety deposit box at all in 1983 and 1984, it obviously was not the source of his cash hoard. The government therefore adequately investigated these leads.

CONCLUSION

Bravo spent large amounts of cash in 1983 and 1984, but there was no evidence requiring the trial court to find that he had a cash hoard of more than $200,000. Thus, viewing the evidence in the light most favorable to the government, we find there was sufficient evidence to find Bravo guilty beyond a reasonable doubt of tax evasion. The judgment of conviction is AFFIRMED.