III. Cash-Hoard Defense

In the indirect methods of proof, the government must prove one of two things: either (1) an increase in net worth or (2) that deposits made by the defendant into his bank account were not reported as income. The most common defense to these indirect methods is that the defendant had substantial quantities of cash at the beginning of the period under investigation. This defense is known as the cash hoard defense.

A typical cash hoard defense asserts that the defendant in earlier years received gifts or an inheritance from family and/or friends, which he then spent during the prosecution period. The Supreme Court of the United States described the cash hoard defense as follows:

Among the defenses often asserted is the taxpayer’s claim that the net worth increase shown by the government’s statement is in reality not an increase at all because of the existence of substantial cash on hand at the starting point. This favorite defense asserts that the cache is made up of many years’ savings which for various reasons were not expended until the prosecution period. Obviously, the government has great difficulty in refuting such a contention.

[Holland v. United States, 348 U.S. 121, 127 (1954).]

As emphasized by the Court in Holland, proving a negative – here, that the defendant did not have cash – is no easy feat. According to the CTM, “one way to defeat such a claim is to show that the family member or friend alleged to be the source of the cash did not have sufficient resources to give the defendant the amount claimed.” CTM 31.06[1]. Even if the government can make such a showing, the fact remains that it must still establish – with “reasonable certainty” – the amount of cash that the defendant had at the beginning of the tax period. United States v. Wilson, 647 F.2d 534, 536 n. 1 (5th Cir. 1981).

An allegation of cash on hand at the beginning of the prosecution period presents a factual issue that must be decided by the jury. Once the government establishes that a thorough investigation has failed to uncover evidence of cash on hand, the burden then shifts to the defendant to come forward with evidence of cash, and he remains silent at his peril.

As long as there is evidence from which a jury can conclude that the amount of cash on hand has been established with a reasonable certainty, the defendant is not entitled to a judgment of acquittal on this issue. See United States v. Blandina, 895 F.2d 293, 302 (7th Cir. 1989).

Next:  IV. Fifth Amendment Defense

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