author: WINTER, Circuit Judge: DONALD RUSSELL, Circuit Judge

text:
    MUTUAL ASSURANCE SOCIETY OF VIRGINIA CORPORATION, Appellee, v. COMMISSIONER OF INTERNAL REVENUE, Appellant.
    No. 74-1133.
    United States Court of Appeals, Fourth Circuit.
    Argued June 5, 1974.
    Decided Oct. 18, 1974.
    Robert G. Burt, Atty., Tax Div., U. S. Dept, of Justice (Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks and Bennet H. Hollander, Attys., Tax Div., U. S. Dept, of Justice, on brief), for appellant.

      Frank W. Hardy, Richmond, Va. (Williams, Mullen & Christian, Richmond, Va., on brief), for appellee.
    Before WINTER, CRAVEN and RUSSELL, Circuit Judges.
   WINTER, Circuit Judge:

In this appeal we must decide whether, where a net operating loss has been carried back and used in computing taxable income as a step in determining a taxpayer’s tax for an earlier year under the alternative method of taxing capital gains, the excess of the net operating loss deduction over ordinary income for the earlier year may be carried forward to a succeeding year. The Tax Court held that it could. Its holding is in accord with the views of the First, Eighth and Ninth Circuits; but from our analysis of the applicable statutes and their legislative history, we are constrained to disagree. We reverse the decision from which the appeal is taken.

I.

Mutual Assurance Society of Virginia Corporation (Taxpayer) is a Virginia insurance corporation which incurred a “net operating loss,” as defined by I.R. C. § 172(c), in the amount of $83,059.-04 for its 1969 tax year. Under § 172(b) (1) (A) (i), such loss is a “net operating loss carryback” to each of the three taxable years preceding 1969. Section 172(a) allows a deduction for the taxable year of the amount of the net operating loss carrybacks to such year. **Taxpayer’s returns for the three tax years preceding 1969 reflect the following income figures, without taking into account the carryback generated by the 1969 net operating loss:

Excess of Net Long
Term Capital Gain
Net Over Net Short Term
Year Ordinary Income Capital Loss Taxable Income
1966 _________ ________ ($ 34,818.68)
1967 $72,575.10 $209,253.60 $281,828.70
1968 $55,626.69 $582,230.04 $637,856.73

A net operating loss must be carried to the earliest possible year to which it may be carried — in this case, 1966 — and any excess of such loss over the taxable income for such year — computed without regard to the carryback deduction — is available as a deduction in the next succeeding tax year. This process may be repeated until the loss is exhausted or until the fifth tax year succeeding the loss year, whichever comes first. I.R.C. § 172(b)(2). Since Taxpayer had no taxable income for 1966, the full amount of the 1969 net operating loss is available as a deduction in 1967. The Commissioner has refunded to Taxpayer the amount by which its 1967 income tax liability — computed under the alternative tax provision of § 1201(a) — was reduced by the allowance of a carryback deduction in respect of the 1969 net operating loss. The present dispute concerns whether any of the 1969 net operating loss is available for a deduction in 1968.

The dispute between the Commissioner and Taxpayer concerning the extent to which the 1969 net operating loss was, figuratively speaking, “absorbed” in 1967, arises out of two circumstances: (1) the net operating loss in 1969 was greater than Taxpayer’s net ordinary income for 1967; and (2) the tax on Taxpayer’s recomputed income for 1967 was determined under the alternative tax provision of § 1201(a). In explanation of the latter, it must be stated that § 1201(a) provides that, for any year in which a corporation has a “net section 1201 gain,” i. e., a capital gain, the alternative tax set forth in that section is imposed in lieu of the tax imposed on the income of corporations by § 11 if, and only if, such alternative tax is less than the § 11 tax. By the terms of § 1201(a), the alternative tax is computed by a two-step computation. The first step is to reduce taxable income — gross income (including capital gains) less deductions — by the amount of the taxpayer’s capital gains. The result is the taxpayer’s ordinary income. A partial tax calculated under § 11 is then imposed on this figure. In the second step, a flat percentage rate is imposed upon the entire amount of the taxpayer’s capital gains. The alternative tax is the sum of the partial taxes computed under steps one and two.

In a case where a taxpayer’s deductions exceed the amount of his ordinary income, such excess does not reduce the amount of the taxpayer’s capital gains that is subject to step two of the alternative tax. Weil v. Comm’r., 229 F.2d 593 (6 Cir. 1956), aff’g 23 T.C. 424 (1954); Rev.Rul. 56-247, 1956-1 Cum. Bull. 383. This rule has been applied to the situation in which the allowance of a net operating loss carryback or carryover deduction causes a taxpayer’s total deductions to exceed his ordinary income. Chartier Real Estate Co., 52 T.C. 346, 350-356 (1969), aff’d per curiam, 428 F.2d 474 (1 Cir. 1970); Horace Drew, 41 P-H Memo T.C. ¶ 72,040 (Feb. 17, 1972). As a result of these rules, the excess of Taxpayer’s 1969 net operating loss over its net ordinary income for 1967 had no impact upon the calculation of Taxpayer’s liability for 1967 under the alternative tax provisions.

The method of computing the alternative tax and the limitations on use of the carryback deduction can be illustrated by running through the computation of Taxpayer’s 1967 tax liability, taking into account the loss carryback deduction:

Regular Method (§11)
Taxable income ------------------------------------ $281,828.70
Less: carryback deduction resulting from 1969 net
operating loss -------------------------------------- 83,059.04
Recomputed taxable income-------------------------- $198,769.66
§ 11 tax on recomputed
taxable income-------------------------------------- $ 88,909.44
Alternative Method (§ 1201(a))
Net ordinary income-------------------- $ 72,575.10
Capital gains -------------------------- 209,253.60
Taxable income ------------------------------------ $281,828.70
Less: carryback deduction resulting from 1969 net
operating loss -------------------------------------- 83,059.04
Recomputed taxable income ------------------------ $198,769.66
(Step 1)
Less: capital gains -------------------------------- $209,253.60
Balance --------------------------------------------($10,483.94)
Partial tax at § 11 rates
on balance ----------------------------------------- -0-
(Step 2)
Capital gain---------------------------------------- $209,253.60
25% tax on capital gain---------------------------- 52,313.40
Total alternative tax-------------------------------- $ 52,313.40

In the illustration, the alternative tax under § 1201(a) applies since it is lower than the § 11 tax. It will be seen that the net operating loss carryback from 1969 — $83,059.04—affected the computation of the partial tax under Step 1 only to the extent of eliminating $72,575.10 of net ordinary income. The excess of such loss over net ordinary income— $10,483.94 — had no impact on the calculation of Step 2 of the alternative tax since, under the rule in Weil, such excess is not permitted to be applied to reduce the amount of capital gain subject to the 25% rate.

In the instant appeal, Taxpayer contends that $10,483.94 of its 1969 net operating loss carryback was not used up in the computation of its tax liability for 1967 and, therefore, the excess should be available as a deduction in determining its 1968 tax liability. The Commissioner takes the view that, when a net operating loss carryback or carryover is allowed as a deduction in a particular tax year, only the excess of such loss over the taxable income for such year, as defined by § 63(a) — gross income (including capital gains) less deductions — is available as a deduction in succeeding tax years.

As has been stated, the Tax Court, in a memorandum decision, decided in favor of Taxpayer on review of the deficiency assessment against it. The Tax Court’s decision rested solely on the authority of its prior decision in Chartier Real Estate Co., 52 T.C. 346, 356-358 (1969), aff’d per curiam, 428 F.2d 474 (1 Cir. 1970). The Commissioner concedes that the Tax Court’s decision of the second issue in Chartier Real Estate cannot be distinguished from the instant case. On this appeal the Commissioner contends that Chartier Real Estate was wrongly decided and, hence, should not be adopted as the rule in this circuit. We treat the Commissioner’s argument as extending to subsequent cases which have followed Chartier Real Estate and those in accord with its holding.

II.

The amount of a net operating loss carryback or carryover to any tax year is determined under § 172(b)(2):

Except as provided in subsections (i) and (j) [inapplicable here], the entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the “loss year”) shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried, to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried,. (Emphasis added.)

The italicized sentence of § 172(b)(2) clearly governs the problem before the court. It plainly says that, when a net operating loss carryback is allowed as a deduction in any tax year, the amount of such loss available as a deduction in succeeding tax years is the excess of such loss over the “taxable income” (emphasis added) for the tax year in which the deduction is allowed. Section 172 does not contain any definition of the term “taxable income,” but a general definition of such term is found in § 63(a):

. for purposes of this subtitle the term “taxable income” means gross income, minus the deductions allowed by this chapter ....

“Gross income” is, in turn, defined by § 61(a)(3) to include “gains derived from dealings in property.” If “taxable income,” as used in the second sentence of § 172(b)(2), means “taxable income” as defined in § 63(a), then the Commissioner’s position is obviously correct.

Because we think the Tax Court erroneously decided Chartier Real Estate in the holding which concerns us, we must discuss its decision in some detail. In its analysis of the problem, the Tax Court began from what it divined to be the purpose of the net operating loss carryback and carryover provisions:

Provisions for applying net losses from one taxable year to other taxable years have been a part of the tax law since 1918. See sec. 204, Revenue Act of 1918. The purpose of such provisions is obviously to ameliorate somewhat the arbitrary nature of the annual accounting period, especially in the case of businesses with great fluctuations in income from year to year. Thus, section 172 is clearly designed to allow taxpayers, within the limits of the periods specified, to offset profits from one year with losses from other years in computing their tax liabilities. 52 T.C. at 357.

The Tax Court then concluded that it was in keeping with this purpose to permit the excess of a net operating loss over the net ordinary income for a year to which such loss is carried to be deducted in succeeding years, if such excess does not affect the computation of the tax actually imposed for the year to which the loss is carried because of the applicability of the alternative tax under § 1201(a)

Turning then to the language of § 172(b)(2), the Tax Court found nothing therein that stood in the way of the result that it felt was dictated by the policy underlying § 172. First, it concluded that the phrase “to which such loss may be carried” in the second sentence of § 172(b)(2) modified the term “taxable income” as well as the phrase “each of the prior taxable years.” It then concluded that the term “taxable income” (as so modified) meant “taxable income to which the loss is actually applied in computing actual tax liability.” 52 T.C. at 358. The First Circuit affirmed the Tax Court’s resolution of this issue in a brief per curiam opinion which dismissed the issue as “unimportant and seldom occurring.” 428 F.2d at 475.

Courts that have subsequently dealt with this issue have uniformly followed the Tax Court’s decision in Chartier Real Estate. Olympic Foundry Co. v. U. S., 72-1 USTC ¶ 9299 (W.D.Wash.l972), aff’d per curiam, 493 F.2d 1247 (9 Cir. 1974); Sidney Axelrod, 32 TCM 885 (1973) appeal pending (6 Cir.); Naegele v. United States, 383 F.Supp. 1041 (D.Minn.1973) appeal pending (8 Cir.); Continental Equities, Inc., P-H Memo TC ¶ 74,189 (July 25, 1974); Foster Lumber Co., Inc. v. United States, 500 F.2d 1230 (8 Cir. 1974). With the exception of Foster Lumber Co., these cases apply the rule in Chartier Real Estate with little discussion of the soundness of that decision. Occasionally one finds the remark that the phrase “to which such loss may be carried” would be surplusage unless “taxable income” is construed in the manner indicated by the Tax Court. Olympic Foundry. The district court in Naegele, in addition to adopting the reasoning in Chartier Real Estate, rejected a somewhat cryptically described argument advanced by the government in an attempt to establish certain untoward consequences flowing from the rule in Chartier Real Estate.

The Eighth Circuit’s recent opinion in Foster Lumber Co. contains the most lengthy discussion of this issue of all the cases that follow Chartier Real Estate. Its conclusion concerning the natural import of the statutory language of § 172(b)(2) is somewhat less ambitious than the Tax Court’s. It took the view that both the Commissioner’s and the Tax Court’s interpretation of the last sentence of that section were equally plausible. It concurred with the Tax Court's view that the interpretation favorable to the taxpayer was in accord with the basic purposes of § 172; and it stated that the contrary interpretation would, in a manner left unspecified by the court, “frequently subject otherwise similarly situated taxpayers to significantly different treatment solely on the basis of arbitrary timing; precisely the reverse of section 172’s original purpose.” 500 F.2d at 1232. Finally, the Eighth Circuit alluded to certain unspecified “divisiveness and administrative confusion that a contrary conclusion at this point might foster” as a ground for its decision. 500 F.2d at 1233.

III.

We find the Tax Court’s reasoning in Chartier Real Estate and the Eighth Circuit’s reaffirmation of that reasoning in Foster Lumber Co. unpersuasive. Unlike the Tax Court, we turn first to the language of the statute. The precise question is whether the term “taxable income,” as used in the second sentence of § 172(b)(2), means “taxable income,” as defined by § 63(a) of the Code, or whether it means “net ordinary income in cases where the alternative tax is used to determine the tax liability upon the recomputed taxable income.”

The Tax Court’s analysis of the syntax of the second sentence of § 172(b)(2) is unconvincing. Under any natural reading of that sentence, the clause “to which such loss may be carried” modifies only the immediately preceding term “each of the prior taxable years.” It is not necessary to suppose that the clause modifies the unlikely referent — “taxable income” — in order to prevent such clause from being “meaningless and superfluous.” Its function in the sentence is plain: to identify those years whose taxable incomes must be taken into account to 'determine whether any excess of a loss carryover or carryback remains available as a deduction in any given year. If the clause were eliminated, the reader would be left wondering which taxable years were being referred to. Perhaps he might be able to infer from the overall structure of § 172 that the earliest year to which the loss could be carried and the subsequent intervening years were meant. But a clause which expressly resolves a matter which might have been left to implication is hardly “meaningless and superfluous”; it is just good draftsmanship.

Even if the clause were read to modify “taxable income,” we are not persuaded that “taxable income ... to which such loss may be carried” means “taxable income to which the loss is actually applied in computing actual tax liability.” If Congress had intended to enact the rule in Chartier Real Estate, it certainly chose an obscure verbal formula to convey this meaning. We think that the Tax Court has simply failed to point to any evidence in the statutory language indicating that “taxable income” means something other than “taxable income” as defined by § 63(a) of the Code for the purposes of the entire income tax subtitle.

Our own examination of the statutory language of § 172 convinces us that there is positive evidence, on the face of the statute, that “taxable income” as used in the second sentence of § 172(b)(2) means “taxable income” as defined by § 63(a) regardless of whether the regular or the alternative tax applies in computing liability for the tax year to which the loss is carried. The third sentence of § 172(b)(2) provides that:

For purposes of the preceding sentence, the taxable income for any such prior taxable year shall be computed—
(A) with the modifications specified in subsection (d) other than paragraphs (1), (4), and (6) thereof; ... .

One of the modifications required to be made to “taxable income” by the above provision is that set forth in § 172(d)(2)(B):

In the case of a taxpayer other than a corporation—

(B) the deduction for long-term capital gains provided by section 1202 shall not be allowed.

Thus, the statute expressly provides that, in computing a noncorporate taxpayer’s taxable income in the year to which a loss is carried in order to determine the excess available for subsequent years, the deduction for long-term capital gains is not to be allowed. Such deduction is only allowed in the first place if taxable income is determined in the manner set forth in § 63 (a)' — gross income (including capital gains) minus deductions. In any case in which a non-corporate taxpayer’s liability for the year to which a loss is carried is determined under the alternative tax provision, he will have deducted fifty percent of his long-term capital gains in computing his taxable income, but the statute directs him to add this deduction back into taxable income before computing the excess of a net operating loss carryover or carryback that remains available for deduction in subsequent years.

Little sense can be made out of this addback provision in the case of a non-corporate taxpayer unless “taxable income” means “section 63(a) taxable income.” If, as the Tax Court holds, “taxable income” means net ordinary income in cases where the alternative tax is applicable, then § 172(d)(2)(B) would require disallowance of a deduction that was not actually used in computing “taxable income.” It is difficult to conclude that § 172(d)(2)(B) was intended to be meaningless and hence we think that with regard to noncorporate taxpayers it is statutory evidence that “taxable income” means “taxable income” as defined in § 63(a).

Of course § 172(d)(2)(B) does not apply to a corporate taxpayer. Nevertheless, the inference that we have drawn from that provision concerning the meaning of “taxable income,” as used in § 172(b)(2), is applicable in the case of a corporate taxpayer. There is nothing in the language of the statute to indicate that Congress intended to have two concepts of “taxable income” for the purpose of determining how much of a net operating loss carryback is available for further deduction after it is allowed in a particular year: one for corporate and one for noncorporate taxpayers. Moreover, no occasion for an addback provision like § 172(d)(2)(B) arises in the case of a corporate taxpayer, since the full amount of its capital gains for the year is included in a corporation’s taxable income. It is given no deduction corresponding to § 1202 for its long-term capital gains. Despite the conclusions we draw, we recognize that the Tax Court applies the rule in Chartier Real Estate indiscriminately between corporate and noncorporate taxpayers.

Overall, we are persuaded that the language and structure of § 172 points decidedly in the direction that “taxable income” in § 172(b)(2) has its ordinary Code meaning as defined in § 63(a).

We are constrained to disagree with the Eighth Circuit’s view that the language of § 172(b)(2) is equally susceptible to both the Commissioner’s and the Tax Court’s interpretation. The Eighth Circuit accepted without discussion the assumption that the phrase “to which such loss may be carried,” insofar as it may be taken to modify “taxable income,” must mean “whose reduction by the application of such loss actually reduces the amount of tax liability thereon.” For the reasons we have set forth, we are unable to accept that assumption. We note also that the Eighth Circuit apparently did not have before it the significance of § 172(d)(2)(B) when it concluded that it was unable to find any plain meaning in the statutory provision under consideration. Had the Eighth Circuit been directed to this provision, it may well have been able to discern on the face of the statute a definite indication that “taxable income” as used in § 172(b)(2) has its ordinary Code meaning.

IV.

We turn then to the legislative history of the net operating loss provisions to see if there is support for the Tax Court’s special judicial definition of “taxable income” in order to further the obvious purpose of the statute. See, Haggar Co. v. Helvering, 308 U.S. 389, 394, 60 S.Ct. 337, 84 L.Ed. 340 (1940).

The history of net loss carryover deductions in the federal income tax law unfolds in two distinct and disjointed phases. The first enactment of a provision permitting the excess of expenses incurred in one tax year over gross income for such year to be deducted in another tax year came in the Revenue Act of 1918. Section 204(b) of that Act permitted a “net loss” to be deducted from gross income in the year immediately preceding the loss year. Any excess of such loss over “net income” for the year immediately preceding the loss was allowed as a deduction in the year immediately succeeding the loss. The question presented by this case could not arise in 1919, because, at that time, special treatment was not accorded to gains derived from the sale or exchange of capital assets. An alternative tax for noncorporate taxpayers having capital gains was first enacted in the Revenue Act of 1921. This provision was structurally identical to the alternative tax presently in effect. It was the sum of two partial taxes: (1) the normal rate of taxes upon the “ordinary net income”; plus (2) a certain percentage of the “capital net gain.” The term “capital net gain” was defined in such a way that any excess of ordinary deductions over ordinary income would not reduce the amount of capital gains subject to the second step of the alternative tax. Thus, when juxtaposed with the net loss provision, § 204(b), which provided that only the excess of net loss deduction over net income would be available as a deduction in a succeeding year, the alternative tax provision of 1921 contained the same features upon which Taxpayer’s contentions here are founded.

However, the Revenue Act of 1924 amended the alternative tax provision in such a way as to foreclose the possibility that the present dispute could have arisen under the 1924 Code. “Capital net gain” was redefined to provide that any excess of deductions over ordinary income would reduce the amount of capital gains subject to the second step of the alternative tax. Thus, to the extent that a net loss carryback exceeded net ordinary income for the year in which it was allowed as a deduction, it reduced the amount of capital gains subject to step two of the alternative tax, so that it was not possible to argue that such excess had no impact on the actual computation of the tax.

For the next nine years the statute contained the above-described provisions which, it should be noted, provide for a result directly contrary to the rule in the Weil case. In 1933, the National Industrial Recovery Act abolished all net loss carryovers and carrybacks. In 1934, the alternative tax method of dealing with capital gains was discarded in favor of a percentage exclusion from net taxable income approach.

In the Revenue Act of 1938, an alternative tax provision was superimposed upon the' then-existing percentage exclusion approach to noncorporate taxpayers having capital gains. The definition of the item subject to step two of the alternative tax — “net long term capital gain” — contained no provision calling for the reduction of such amount by the excess of ordinary deductions over ordinary income. This sharp contrast with the alternative tax provision prevailing between 1924 and 1934 — a contrast which persists to the present — led to the decision in Weil that the amount by which ordinary deductions exceeded ordinary income could not be used to reduce the amount of capital gains subject to step two of the alternative tax. 23 T.C. at 429-30.

In 1939, a net operating loss carryover provision was reintroduced. It provided that a net operating loss could be carried forward to the two years succeeding the year in which the loss was incurred. The amount of the loss available for deduction in the second year succeeding the loss was provided for in the following terms:

The term ‘net operating loss carryover’ means in the case of any taxable year the sum of:
(1) [the loss for the first preceding year];
(2) The amount of the net operating loss, if any, for the second preceding taxable year reduced by the excess, if any, of the net income . for the first preceding taxable year over the net operating loss for the third preceding taxable year.

This provision is the predecessor of the present § 172. Its basic purpose is described in the House Committee report:

As a result of the elimination of this carryover [referring to the abolition of carryovers by the NIRA in 1933], a business with alternating profit and loss is required to pay higher taxes over a period of years than a business with stable profits, although the average income of the two firms is equal. New enterprises and the capital goods industries are especially subject to wide fluctuations in earnings. It is, therefore, believed that the allowance of a net operating business loss carryover will greatly aid business and stimulate new enterprises An example will show the necessity for such a provision:
Suppose a corporation, over the 3-year period 1939-41, shows the following:
Net operating loss for 1939 ........ $2,000,000
Normal-tax net Income for 1940 .... $1,000,000
Normal-tax net Income for 1941 .... $1,000,000
Looking at this 3-year period, it will be seen that the corporation has not made any profit. However, assuming a flat rate of 18 percent, it would be required to pay a tax of $360,000 if there were no provision for a net loss carryover. H.Rept. No. 855, 67th Cong., 1st Sess.; 1939-2 Cum.Bull. at 510-11.

Thus, the Tax Court, in Chattier Real Estate, accurately characterized the purpose of the net operating loss provisions as an attempt “to ameliorate somewhat the arbitrary nature of the annual accounting period, especially in the case of businesses with great fluctuations in income from year to year.” 52 T.C. at 357.

We think that the legislative history lends support to our disposition to follow the literal thrust of the language and structure of § 172. The construction we place on the statute permits corporations with stable earnings and those with fluctuating earnings and losses to receive substantially equal tax treatment. Nothing in the legislative history requires that they receive precisely equal tax treatment. Every dollar of loss need not have an impact on the calculation of the alternative tax which is imposed solely because it is less than the regular tax which absorbed every dollar of loss.

More importantly, if there is an anomaly in permitting a portion of a net operating loss to be offset without any actual impact on the calculation of the alternative tax, Congress has heretofore demonstrated its abilty to deal expressly with the problem. Between 1924 and 1934, Congress fashioned the alternative tax and net operating loss provisions in such a way that the full amount of net operating losses always affected the computation of the alternative tax. Such clear Congressional action in the past raises a negative inference from Congress’ failure to enact similar provisions at a later date. This is particularly so where the court-fashioned remedy is more drastic than even that chosen by Congress on the prior occasion. Between 1924 and 1934, if a net operating loss exceeded net ordinary income for the year in which a deduction was allowed, the excess offset capital gains for such year, which were taxed at favorable rates. The Tax Court’s remedy is a ruling that such excess will be available in the future to offset ordinary income. Thus, the Tax Court has extended a greater benefit to the taxpayer than Congress did when it expressly addressed itself to this problem on a prior occasion, and we think incorrectly so.

V.

Since our reading of the statute and our analysis of the legislative history coincide, we hold that Taxpayer’s net operating loss carryback was fully consumed in 1967 and there was no excess to apply to 1968. The contrary judgment of the Tax Court is

Reversed.

DONALD RUSSELL, Circuit Judge

(dissenting):

The result reached in the majority opinion is contrary to what I regard as the clear Congressional intent in enacting the “loss carry-back” and “loss carry-forward” tax statutes. I am convinced that the correct construction of such statutes was reached in Chartier Real Estate Co. v. Commissioner, 52 T.C. 346 (1969), aff’d, per curiam 428 F.2d 474 (1 Cir. 1970); Foster Lumber Co. v. United States, 500 F.2d 1230 (8 Cir. 1974); Olympic Foundry Co. v. United States, 493 F.2d 1247 (9 Cir. 1974).

I may add that the very acquiescence of the Congress in the construction of these statutes, as set forth in Chartier and followed consistently in all subsequent cases prior to this decision, is a persuasive testimonial that those decisions set forth the proper construction of the statutes and that the judgment of the Tax Court should be affirmed.

      . Mutual Assurance Society of Virginia, 15)73 P-II Memo T.C. IT 73,177 (Aug. 8, 1973).

      . Chartier Real Estate Co. v. Commissioner, 52 T.C. 346 (1969), aff’d per curiam, 428 F.2d 474 (1 Cir. 1970); Foster Lumber Co. v. United States, 500 F.2d 1230 (8 Cir. 1974); Olympic Foundry Co. v. United States, 493 F.2d 1247 (9 Cir. 1974).

      . All references contained herein are to the Internal Revenue Code of 1954 (26 U.S.C.) unless otherwise indicated. The text of § 172(c) is:
      For purposes of this section, the term “net operating loss” means (for any taxable year ending after December 31, 1953) the excess of the deductions allowed by this chapter over the gross income. Such excess shall be computed witli the modifications specified in subsection (d).

      . Section 172(b)(1)(A) provides:
      Except as provided in clause (ii) and in subparagraph (D), a net operating loss for any taxable year ending after December 31, 1957, shall be a net operating loss carry-back to each of the 3 taxable years preceding the taxable year of sucli loss.

      . Section 172(a) reads:
      There shall be allowed as a deduction for tlie taxable year an amount equal to the aggregate of (1) the net operating loss carryovers to such year, plus (2) the net operating loss carrybacks to such year. For purposes of this subtitle, the term “net operating loss deduction” means the deduction allowed by this subsection.

      . The proceedings before the Commissioner have been stated in the text in a simplified form in order to avoid distraction by extraneous details. Taxpayer had originally claimed a net operating loss of $94,008.35 for 1969. The Commissioner originally made a refund of 1968 taxes on the basis of a carry-back deduction of $21,433.05 — the difference between $94,008.15 and Taxpayer’s net ordinary income for 1967. In a subsequent audit, Taxpayer agreed to a reduction in the total amount of the 1969 loss to $83,059.04. Consequently Taxpayer agreed to the dis-allowance of the loss carryback deduction for 1968 to the extent of $10,949.11 — the difference between $94,008.15 and $83,059.04 — and paid a resulting deficiency of $5,736.14. Thus, Taxpayer is now only contesting the dis-allowance of a deduction in 1968 of the amount by which its 1969 net operating loss —recomputed by agreement — exceeds its net ordinary income for 1967.

      . Section 1201(a) provides:
      If for any taxable year the net long-term capital gain of any corporation exceeds the net short-term capital loss, then, in lieu of the tax imposed by sections 11, 511, 821(a) or (c), and 831(a), there is hereby imposed a tax (if such tax is less than the tax imposed by such sections) which shall consist of the sum of—
      (1) a partial tax computed on the taxable income reduced by the amount of such excess, at the rates and in the manner as if this subsection had not been enacted, and
      (2) an amount equal to 25 percent of such excess, or, in the case of a taxable year beginning before April 1, 1954, an amount equal to 26 percent of such excess.

      . In Lone Manor Farms, Inc., 61 T.C. No. 48 (Jan. 3, 1974), the Tax Court declined to extend the rule in Chartier Real Estate to a case where the carryback was ineffective to alter the tax in the year to which it must be carried because the tax in that year was not in issue.

      . What this ai'gument may have been, and its bearing on the issue now before the court will be discussed, infra.

      . The phrase “to which such loss may be carried” did not appear in the post-1939 predecessors of § 172 until the enactment of the 1954 Code. No mention of the significance of this phrase — which the Tax Court parsed in an unusual manner to reach the result in Chartier Real Estate — can be found in the legislative history of the 1954 Code. This circumstance lends support to our belief that tlie phrase was used merely for identification purposes as a substitute for the phrase “intervening years” which liad appeared in prior versions. Act of September 23, 1950, 81st Cong., 2d Sess., Ch. 994 § 215, 04 Stat. 937. If that phrase liad a more ambitious object, the committee reports ordinarily would be expected to have elucidated it.

      . Section 1201(b), the alternative tax for noncorporate taxpayers, works in the same manner as § 1201(a), and has the same capacity to produce the situation presently under consideration, given the right combination of capital gains and ordinary income in the year to which a loss is carried. See, Sidney Axelrod, supra. Since fifty percent of the long-term capital gains of the noncorporate taxpayer have already been deducted in computing taxable income, only fifty percent of long-term capital gains are subtracted from taxable income in computing the amount upon which the jiartial tax under step 1 is imposed.

      . See, Sidney Axelrod, 32 TCM 885 (1973), appeal pending (6 Cir.). It is obvious from the Tax Court's opinion in Sidney Axelrod that the significance of § 172(d)(2)(B) was not put in issue by the Commissioner. A reading of the facts of the case indicates that, had the addback provision of § 172(d)(2)(B) been applied to the individual taxpayer before the court, the decision would have gone for the Commissioner.

      . Act of February 24, 1919, 65th Cong., 3d Sess., Ch. 18, § 204, 40 Stat. 1060.

      . Act of November 23, 1921, 67th Cong., 1st Sess., Ch. 136, § 206, 42 Stat. 232. Favorable treatment of long-term capital gains was not extended to corporate taxpayers until 1942. Act of October 21, 1942, 77th Cong., 2d Sess., Ch. 619, § 150(c), 56 Stat. 843.

      . Act of June 2, 1924, 68th Cong., 1st Sess., Ch. 234, § 208(a) (5), 43 Stat. 262.

      . The net loss provisions were also amended to make clear that the net loss would first offset net ordinary income for the year to which it carried, then capital gains. If any excess remained after both of these elements of net income were eliminated, such excess would be available for deduction in subsequent years in the same manner. § 206(e) & (d), 43 Stat. 261.

      . Act of June 16, 1933, 73d Cong., 1st Sess., Ch. 90, § 218(a), 48 Stat. 209.

      . Act of May 10, 1934, 73 Cong., 2d Sess., Ch. 277, § 117, 48 Stat. 714.

      . Act of May 28, 193S, 75th Cong., 3d Sess., Ch. 289, § 117(c), 52 Stat. 501.

      . Act of June 29, 1939, 76th Cong., 1st Sess., Ch. 247, § 211, 53 Stat. 867.

      . Our dissenting brother argues that Congressional acquiescence in the construction placed on the statutes in Chartier Real Estate and its progeny is a strong indication that they were correctly decided. The suggestion warrants scrutiny. Chartier Real Estate was decided in 1909; the remaining Courts of Appeals cases were both decided in 1974. AVith respect to the latter, it. strains the usual canons of construction to read significance into Congressional inaction, because so little time has elapsed. Even Ghartier Real Estate would not likely have prodded a prompt Congressional response if Congress thought that the statutes were interpreted wrongly. It was a decision by a single Court of Appeals which characterized the question presented as “unimportant” and “seldom occurring.” 428 F.2d at 475. Only lately has it been recognized, as represented to us in the government’s oral argument, that some 99 cases involving approximately $20,000,-000 in taxes have arisen. Moreover, Treasury Regulations on Income Tax (1954 Code) § 1.172 — 4(a) (3), directly contrary to Chartier Real Estate, has been in existence since, as well as before, Chartier Real Estate. Congressional inaction may thus be as well interpreted as Congressional approval of the regulation and Congressional treatment of Ghartier Real Estate as a single, nonrecurring aberrant decision.

      . AVhile the Eighth Circuit in Foster arrived at the same result, its opinion shows an unawareness of the character of the alternative tax between 1924 and 1934. Had this history been known, this may have been another reason why the Eighth Circuit may have reached a different result.


source: Caselaw Access Project

author: CLARK, Associate Justice.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Clarence E. BRAASCH et al., Defendants-Appellants.
    Nos. 74-1000 thru 74-1017 and 74-1105.
    United States Court of Appeals, Seventh Circuit.
    Argued June 5, 1974.
    Decided Oct. 23, 1974.

      George J. Cotsirilos, David P. Sehip-pers, R. Eugene Pineham, Patrick A. Tuite, Harry J. Busch, Gerald M. Werksman, Eugene T. Noonan, William J. Nellis, Chicago, 111., for defendants-appellants.
    James R. Thompson, U. S. Atty., Gary L. Starkman, Dan K. Webb and James F. Holderman, Asst. U. S. Attys., Chicago, III, for plaintiff-appellee.
    Before CLARK, Associate Justice,  and FAIRCHILD and STEVENS, Circuit Judges.

       Honorable Tom 0. Clark, Associate Justice (Retired) of the Supreme Court of the United States, is sitting by designation.

        , As appellants themselves point out, “the modern trend of the federal courts is to hold that bribery and extortion as used in the IXobbs Acts are not mutually exclusive. United States v. Kahn, 472 F.2d 272, 278 (2d Cir. 1973), cert. den., 411 U.S. 982, 93 S.Ct. 2270 [36 L.Ed.2d 958].”

   CLARK, Associate Justice.

This prosecution, brought under the extortion statute, 18 U.S.C. § 1951, depicts a betrayal of public trust of the most alarming type to a free society: the corruption of the entire vice squad of the 18th Police District of Chicago over a period of many years.

The indictment covers the period from 1966 to 1970 during the tenure of Captain Clarence E. Braasch as Commander of the 18th Police District and names as coconspirators more than two dozen police officers who were attached to the 18th District during all or part of that period, including Braasch and three vice coordinators, Sergeants Fischer, Barry and Geraghty. The facts are “stranger than fiction”, revealing a brazen extortion scheme involving a shakedown of some 53 bars, taverns and other business establishments serving alcoholic beverages and located within the District. Initially, four police officers on the vice squad — two during daylight hours and two at night — collected $100 to $150 per month from each of such establishments and divided this money, known as the “package”, among the members of the vice squad. The quid pro quo on the part of the police officers'was that they would “protect” the victims of the scheme — known as the “vice club” or “little club” — from enforcement of various regulatory laws and from loss of business revocation of licenses and other disturbances, some of which were caused by manufactured police harassment.

In the regular operation of the “little club”, a vice coordinator would obtain from the police officers of the vice squad a monthly list of the establishments that might be included in the club’s collections and present this list to Captain Braasch who would then strike from it the names of those establishments that he decided should be excluded for various reasons. The resulting list contained the names of the club “members” until the next month’s list was approved.

From the testimony, it appears that a similar “club” existed in the district at least as far back as 1961, but abruptly ceased operations in the middle of 1966 when Captain James Holzman was appointed District Commander. The rapid change of command from Holzman to Captain Braasch in August 1966 marked the beginning of the conspiracy at bar.

Braasch brought with him Sergeant Robert Fischer to be his new Vice Coordinator. Soon after Braasch and Fischer began their new assignments, one Bill Gold, representing certain nightclub and gambling interests in the 18th Police District, telephoned Fischer that he wanted to see him about some business that might be of interest to him and his boss, Captain Braasch, and left his telephone number. Fischer reported the call to Braasch, who told him to see Gold. At lunch the next day, Gold told Fischer that he would pay Captain Braasch $3,600 per month to protect gambling operations in the 18th District from police harassments and arrests, and, in addition, he would pay $1,500 per month for Braasch to protect ten specific night spots also in the 18th District.

Fischer reported to Braasch, who promptly accepted the offer. This arrangement, known as the “big ten” or the “big club”, started in operation in October, 1966, and continued at least during Braaseh’s tenure as Commander of the 18th District which ended in 1970. For some 27 months during the operation, Fischer acted as “bagman” for Braasch. The money was collected first from Gold and, after his death, from one Glitta, and ran as high as $6,810 a month. Initially, some of the money was passed on to key police officers, ^uch as Braasch’s friend, Barry, a group of Captains and Lieutenants, and two vice squad officers, Cello and Rif-kin. The latter two were included because as Fischer testified, “the only two vice men ... we would have to worry about would be Rifkin and Cello because they were assigned to work gambling on day . . . . ” Fischer was succeeded by Barry as “bagman” for the “big club”, but the record does not show the take during that period.

In November of 1966, some of the members of the Vice Squad approached Fischer with regard to their resumption of the pre-Holzman practice of collecting monies from retail liquor establishments in the District. The word about the “big club” had gone the rounds of the Vice Squad and its members were anxious to share in the proceeds. When Fischer made it clear that Braasch would not be sharing the payoffs from the “big club”; it was suggested that the Vice Squad police officers organize their own “club” among the remaining bars and taverns in the District. Fischer then took this matter up with Braasch who agreed to the proposal. According to Fischer’s testimony, when Braasch was apprised of the proposed “club”, he commented: “I guess it is not a bad idea if these guys want to make a buck for themselves. We got our own thing going, haven’t we?” Braasch’s primary concern was that he have a veto power over which establishments would be included.

Braasch was interested not only in making sure that none of the nightclubs in his own “big ten” were being shaken down by the Vice Squad, but also in keeping off the list any “trouble spots” —establishments that catered to prostitutes, operated after hours, or served minors — which might prove embarrassing if the public insisted on police action. Pragmatically, Braasch and Fischer decided not to share in the proceeds of the “little club” for reasons related by Fischer in his testimony. According to Fischer, he told Braasch, when they were privately discussing the “little club” arrangement:

[I]f there is any complaints on these places and there has to be an arrest made, why, if we weren’t taking money from it, why we could tell them to go out and make the arrest. But if we were taking money from the thing, we would be in kind of an awkward situation. * * * So, I suggested that we don’t participate, partake in any money in this and besides, “We got our own thing going and let’s not get hungry.”

Braasch agreed.

The original collectors for the “little club” were Cello, Rifkin, Mascolino and Napier, all of whom were Vice Squad officers, and who subsequently testified as witnesses for the Government. Toward the end of 1966 or early 1967, the members of the 18th District Vice Squad held a meeting in the 18th District station house to discuss the functioning of the extortion “club”. At that meeting, the officers discussed the procedures to be followed in protecting their “club” members; they discussed the amount of money that would be paid to each vice officer as more bars were recruited; and they discussed which officers would be responsible for collecting the money on each shift.

While Fischer and Barry were Vice Coordinators, Officers Cello, Rifkin, Mascolino, and Napier distributed the money they collected from the bars among the members of the Vice Squad. Cello, Mascolino, Rifkin, and Napier each received approximately $300 and later $500 per month; the other vice men received $150 and later $250 per month as their share of the “package”.

Witness Cello testified in the Government’s case-in-chief that the conditions for membership were as follows:

The conditions were that they would pay $100 a month to the vice officer that would be collecting. In return, there would be no harassment by members of the vice squad. Under harassment, it would be classified as premise cheeks, I.D. cheeks of individuals in the bars. If it was a gay bar, you would not go in there with flashlights and harass the patrons of the bar. You would assist them in any trouble that they have. If you were assigned to make a followup report, in your followup report you would try to make it or slant it in any way or form that would help the tavern owners.
If you received knowledge that there was — any knowledge or any information that VCD was going to come into the district to make a raid on these taverns, you would forewarn them. Also that none of the vice— there would be no individual shakedowns by any individual vice officer on these taverns if a check had to be made on a tavern, it would be checked out first with one of us.

As the years from 1966 to 1970 went on, other Vice Squad officers assisted in the collection tasks for the “little club”. In February, 1967, Fischer was promoted and transferred to other duties outside the 18th District, and Barry succeeded him as Vice-Coordinator. Barry took over the duties of intermediary between the “little club” and Braasch, but he received no money from the “little club” operation, his take being the $1,000 heretofore mentioned from the “big club”. As indicated above, however, Fischer continued as “bagman” for the “big club” through January, 1969. In 1970, Sergeant Geraghty succeeded Barry as Vice-Coordinator and continued to perform the same services as the latter, except that Geraghty assumed the monthly responsibility of personally receiving the “package” collected from the “little club” and distributing it among the members of the Vice Squad.

A. The Indictment and Trial:

On December 29, 1972, a sixteen-count indictment was returned against twenty-four Chicago police officers, charging in the first count that they participated in a conspiracy to commit extortion in violation of 18 U.S.C. § 1951 by extracting money under color of official right from the proprietors of the fifty-three liquor establishments comprising the “little club”. The remaining fifteen counts of the indictment charged separate violations of 18 U.S.C. § 1623. Each count separately charged one of those named in Count One with making false material declarations to the Grand Jury by appearing before the Grand Jury and falsely denying his participation in the “little club” extortion scheme.

At the trial before Judge William J. Bauer which began on August 13, 1973, the Government presented the testimony of seven police officers who had formerly been assigned to the 18th Police District. Five of them — Fischer, Cello, Rif-kin, Mascolino and DuShane — testified under immunity granted pursuant to 18 U.S.C. § 6002; the sixth, Anthony Cor-sentino, testified without immunity; and the seventh, Lowell Napier, one of those originally indicted, pled guilty before trial and testified. These officers testified to their own complicity in the “little club” and to the involvement of those on trial. In addition, 48 witnesses were produced by the Government who were owners or employees of the liquor establishments in the “little club”; who testified under a blanket immunity grant, and who asserted that they had personally made payments to the police officers who were collecting extortion money for the Vice Squad. The trial was concluded on October 3rd, and the jury found nineteen defendants involved in the instant appeal guilty, and found four others — Demke, Lazar, Pierson and Troche — not guilty on all charges.

We have i’ead the 6,836-page record and find that it reveals a carefully organized and skillfully operated extortion machine of massive proportions in both membership as well as monetary “take”; which operated over several years and corrupted the entire Vice Squad of the 18th Police District, including its top officials. The testimony of the 48 proprietors and employees of the participating “little club” members established that the extortion payments were made. The testimony of the bagmen Cello, Rifkin, Mascolino and Napier confirmed that they had received the payments and disbursed them to police officers of the Vice Squad as well as to themselves. The testimony of DuShane, who was the police officer assigned to clerical work in the Vice Squad, detailed fiscal arrangements. And the testimony of Fischer explained the organization of the “little club”; why certain officers, such as Cello and Rifkin, were included in the payoff of both the “little” and “big” clubs; and the intimate conversations that he had with Braasch that tied the latter inextricably to the “little club” conspiracy and revealed the depths of venality to which Braasch would stoop to protect his “own thing” — the “big club”.

B. The Issues Tendered Here:

The appellants raise the following issues, some sixteen in number:

(1) Were the statutory requirements of 18 U.S.C. § 6001 et seq. met in granting immunity to various Government witnesses;
(2) Was it proper for the trial court to have suppressed the orders granting such immunity;
(3) Was the grand jury process abused by calling certain prospéctive Government witnesses before the grand jury after the indictment was returned;
(4) Did the re-assignment of the case to another judge several weeks before trial but after completion of pre-trial motions violate appellants’ constitutional protections;
(5) Did the conspiracy “affect commerce” within the meaning of 18 U.S. C.§ 1951;
(6) Was knowledge and intent sufficiently proven;
(7) Was the evidence sufficient to prove Braasch’s participation in the conspiracy;
(8) Was the evidence sufficient to prove that Grana’s declarations before the Grand Jury were false;
(9) Was the admission of the evidence as to the “big club” improper as to Braasch and Barry and so highly prejudicial to the other appellants as to have denied them a fair trial;
(10) Were the twenty-four defendants and sixteen counts properly joined in the indictment;
(11) Does a police officer’s abuse of the power of his official position in order to obtain payments from merchants come within the meaning of 18 U.S.C. § 1951’s ban on extortion “under color of official right;”
(12) Was it proper to admit evidence of a similar extortion scheme within the 18th District antedating the conspiracy at bar;
(13) Was it proper to admit evidence showing the state of mind of the extortion victims;
(14) Did other evidentiary rulings result in prejudice to the appellants;
(15) Did the prosecutor’s closing argument constitute reversible error because of his references to the evidence tying appellant Grana to the conspiracy; and
(16) Was there an abuse of discretion in the sentences imposed.

The bulk of these issues are either frivolous or controlled by previous decisions and do not merit extended discussion. We will deal with them in the order above outlined.

C. Disposition of the Issues:

I.

Appellants claim that the Government failed to comply with 18 U.S.C. § 6002 which, they argue, requires that a witness actually refuse to testify before being granted immunity. Unfortunately for the success of their claim, 18 U.S.C. § 6003(b)(2) specifically authorizes the Government to seek such a grant where the witness “has refused or is likely to refuse to testify or provide other information on the basis of his . privilege against self-incrimination.” (Emphasis supplied) Appellants also claim that the trial court’s immunity orders were too broad, prohibiting-the use of the immunized testimony against bar owner-witnesses not only in criminal trials but also in subsequent state administrative proceedings, such as liquor license revocation hearings. However, we need not pass on this difficult question since appellants have no standing to raise the question. United States v. Lewis, 456 F.2d 404, 410 (3d Cir. 1972); United States ex rel. Berberian v. Cliff, 300 F.Supp. 8, 14 (E.D.Pa.1969). Cf. Lopez v. Burke, 413 F.2d 992, 994 (7th Cir. 1969).

II.

Appellants further claim that suppression of the orders granting immunity to several dozen bar owners violated their Sixth Amendment right to the effective assistance of counsel by being denied important information. The suppression orders were entered by Chief Judge Edwin A. Robson in March of 1973, “[i]n order to encourage further disclosures and in order to protect the personal safety and security of the informers and potential witnesses by concealing their identity.” Since, as we have said, a defendant has no standing to contest the propriety of a grant of immunity, it follows that appellants had no right to be present at the immunity hearings nor any right to obtain the identity of Government witnesses by or through being furnished copies of the orders granting immunity. Chief Judge Robson denied appellants’ motions to lift the suppression order and we agree with his conclusion on the matter. It also follows that defense counsel had no right to be at the immunity hearings. Cf. United States v. Bennett, 409 F.2d 888, 899 (2d Cir.), cert. den. sub. nom. Haywood v. United States, 396 U.S. 852, 90 S.Ct. 113, 24 L.Ed.2d 101 (1969), holding that defense counsel’s presence is not required when a prosecutor interrogates a prospective witness in preparation for trial. Moreover, no possible prejudice could have arisen since a copy of the immunity orders was provided the defense with the Section 3500 material at the conclusion of the direct examination of the first immunized witness and was used by appellants’ counsel in cross-examination.

III.

Appellants next complain that the Government abused the grand jury process by calling prospective witnesses before the Grand Jury for the purpose of preparing an already pending indictment for trial. The short answer is that the Government has every right to interrogate witnesses on subjects relevant to a continuing grand jury investigation even when the evidence received may also relate to a pending indictment. Beverly v. United States, 468 F.2d 732, 742 (5th Cir. 1972). Appellants have shown no prejudice from these occurrences and their contention must fail. United States v. Star, 470 F.2d 1214, 1217 (9th Cir. 1972).

IV.

Appellants next claim that their constitutional protections were violated because of the transfer of the ease to another judge. This is frivolous. A litigant does not have a right to have his case heard by a particular judge. United States v. Dichiarinte, 385 F.2d 333, 337 (7th Cir. 1967), cert. den., Mastro v. United States, 390 U.S. 945, 88 S.Ct. 1029, 19 L.Ed.2d 1133 (1968); United States v. Stone, 411 F.2d 597, 598-599 (5th Cir. 1969). The fact that the original judge decided pretrial motions is of no consequence. In central calendar courts that is done every day. United States v. Marachowsky, 213 F.2d 235, 244 (7th Cir. 1954), clearly approves the action of one judge sitting for another to make any order necessary to preserve the-rights of the parties.

V.

Appellants also challenge the technical sufficiency of the Government’s proof that their conduct “affects commerce” within the meaning of 18 U. S.C. § 1951. At the outset .we note that there were no objections to the trial court’s instructions as to what constitutes effect on commerce. Section 1951 proscribes extortion which “in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce . ” As this Circuit held in United States v. De Met, 486 F.2d 816 (7th Cir. 1973), cert. denied, 416 U.S. 969, 94 S.Ct. 1991, 40 L.Ed.2d 558 (1974):

Because Congress has seen fit to exercise its full power under the commerce clause, extortionate conduct having an arguably de minimis effect on commerce may nevertheless be punished. [486 F.2d at 821, 822]

The record indicates that representatives of eleven Chicago area wholesale distributors of beer and liquor testified as to their purchases of alcoholic beverages from numerous locations outside the state and six other wholesale distributors were included by stipulation. Voluminous sales and purchase records of the establishments in the “little club” were admitted into evidence. The dependence of the Chicago retail liquor establishments upon interstate commerce for a supply of alcoholic beverages was fully covered by the testimony of the Chief of Technical Services Branch of the Office of the Regional Director of the Mid West Region of the Alcohol, Tobacco and Firearms Bureau. It revealed a limited number of distilleries and wine manufacturers located in the State of Illinois during the period covered by the conspiracy. This proof shows that the impact on interstate commerce was substantial rather than de minimis Nor is there merit to the further contention that the warehousing of the alcoholic beverages prior to sale severs the interstate nexus. See United States v. Gill, 490 F.2d 233, 236 (7th Cir. 1973).

VI.

Appellants also claim that they did not know of either the extortionate nature of the conspiracy, the source of the money they received, or the interstate impact of their involvement. It may well be that each of the appellants did not know of the minute details of the operation of the “little club”, but once the conspiracy was established — the evidence of which was overwhelming— slight evidence is sufficient to connect a particular participant. See United States v. Robinson, 470 F.2d 121, 123 (7th Cir. 1972); United States v. Marrapese, 486 F.2d 918, 921 (2d Cir. 1973); United States v. Nunez, 483 F.2d 453, 460 (9th Cir. 1973). Each of the appellants were Chicago police officers assigned to the vice squad, except Braasch who was their boss; each received money every month from the “little club” operation, except Braasch, Fischer and Barry; they knew the money was not due them or their office by reason of their official position; the record directly connects most of the officers with the fact that the money came from the liquor establishments since four of them were collectors of it and others were present when money was collected: Armstrong, Batastini, Catalano, Eshoo, Finn, Flagg, Grana, Russell, Salvesen and Seno; the operation of the club was freely discussed among the vice officers; Barry was told all about it when he first became Vice-Coordinator; a meeting of the Vice Squad members was held in the 18th District Police Station for the purpose of discussing the “little club”; and Officer DuShane testified that he had conversations about the “little club” with every vice officer assigned to the District during the time in question. Moreover, during the entire relevant period — 3% years — only three arrests were made by the Vice Squad officers at the 53 bars that were in on the “little club”, and after March, 1967, not a single arrest was made by any member of the Vice Squad. In our view the evidence was overwhelming.

VII.

In arguing the insufficiency of the evidence to support his conviction, Braasch specifically attacks the credibility of Fischer. That, of course, was a matter the jury decided against Braasch, and we have no power 1o set aside their determination on the point. Besides, Fischer was corroborated in large part by Cello, Rifkin, and Napier.

VIII.

Grana claims that the Government failed to prove beyond a reasonable doubt that he made false declarations to the Grand Jury as alleged in Count Seven, relying on Bronston v. United States, 409 U.S. 352, 93 S.Ct. 595, 34 L.Ed.2d 568 (1972). But that case is not apposite, since it involved an ambiguous question and a true but unresponsive answer. The questions put to Grana were not ambiguous nor were his answers unresponsive. Indeed, the latter were unequivocal negative responses to questions probing his knowledge of and participation in the extortion scheme.

IX.

As we have indicated in our factual resume, the Government introduced evidence concerning a “big club” payoff that was not alleged in the indictment. It was introduced solely for the purpose of establishing intent and motive as to Braasch and Barry’s participation in the “little club” conspiracy and the trial court so advised the jury with carefully worded instructions. Braasch and Barry, who received none of the proceeds from the “little club”, assert that the jury was so inflamed by this evidence that it convicted them for that crime rather than the one charged in the indictment. The remaining appellants also claim prejudice and assert that the jury was confused by the introduction of this separate and uncharged conspiracy into the case. In response, the Government asserts that Fischer’s role as Braasch’s “bagman” for the “big club” payoffs — a role later undertaken by Barry — was absolutely necessary to paint the whole picture of the “little club” operation and to explain the motive of Braasch, Fischer, and Barry in approving its organization. Since Braasch and his Vice Coordinators had their “own thing going”,' it was necessary to protect that operation, i. e., the “big club”. By examining the monthly lists of establishments in the “little club” which were submitted for his approval, Braasch' was able to make certain that there would be no conflict between the two operations. Moreover, the record shows that word of the “big club” had gone the rounds of the Vice Squad and there was dissatisfaction because the Vice Squad was not in on the take. It is a reasonable inference that Braasch concluded that unless he took steps to satisfy the Vice Squad, this dissatisfaction would increase as time passed and disclosure of the “big club” would inevitably result.

It is well-established that proof of motive is one of the exceptions to the general rule that evidence of “other crimes” not charged in the indictment is inadmissible in the prosecution’s case-in-ehief. See United States ex rel. Durso v. Pate, 426 F.2d 1083, 1086 (7th Cir. 1970), cert. denied, 400 U.S. 995, 91 S.Ct. 469, 27 L.Ed.2d 445 (1971). As in most questions regarding the admissibility of evidence, trial judges are given wide discretion to balance the proffered item’s probative value against its prejudicial effect. See United States v. Gaus, 471 F.2d 495, 499 (7th Cir.), cert. denied, 412 U.S. 938, 93 S.Ct. 2772, 37 L.Ed.2d 397 (1973). We can see no abuse of discretion here.

True it is that detailed evidence as to a similar, contemporaneous conspiracy has a potentially prejudicial effect. but here that effect was outweighed by the importance of this motive evidence as well as the District Court’s cautious and thorough limiting’ instructions which were delivered to the jury not only at the conclusion of witness Fischer’s direct examination but again after witnesses Cello and Murphy testified briefly as to their involvement in the “big club”, and for a third time in the final charge to the jury. These instructions specified that the “big club” evidence was not to be used against any other of the defendants besides Braasch and Barry, and as to them it was only to be considered as it relates to their motive and intent to participate in the “little club” conspiracy charged in the indictment. We have no reason to doubt the effectiveness of these carefully drawn instructions. See United States v. Pauldino, 443 F.2d 1108, 1114 (10th Cir.), cert. denied, Bridwell v. United States, 404 U.S. 882, 92 S.Ct. 204, 30 L.Ed.2d 163 (1971). The jury verdict — in .which four of the twenty three defendants were acquitted — itself supports this conclusion.

Appellant Braasch additionally claims that his constitutional right to be informed of the nature and cause of the accusation against him, guaranteed by the Sixth Amendment, was infringed by the omission of any mention of the “big club” in the indictment. The right to be informed of the accusation is a central right in our constitutional system, but it does not place a limitation on the evidentiary rule which allows the introduction of “other crimes” evidence in the proper circumstances. Cf. McConkey v. United States, 444 F.2d 788, 789 (8th Cir.), cert. denied, 404 U.S. 885, 92 S.Ct. 223, 30 L.Ed.2d 168 (1971). Here the Government notified counsel for Braasch on August 27th, some two weeks before Fischer testified — and weeks before it closed its case' — that it would introduce just such evidence pertaining to his involvement in uncharged criminal conduct in order to prove his motive for participating in the “little club”. United States v. Baum, 482 F.2d 1325 (2d Cir. 1973), on which appellant Braasch relies, is therefore distinguishable since appellant had both notice and opportunity to meet the Government’s proof of concurrent criminal conduct.

X.

Appellants argue that it was prejudicial under Fed.R.Crim.P. 14 to join the conspiracy count which names all of the 24 conspirators, with the 15 separate perjury counts, each of which named a single conspirator. They rely on the panel opinion in United States v. Pacente, 490 F.2d 661 (7th Cir. 1973), which reversed the convictions of a Chicago police officer on a similar indictment charging both extortion and perjury. Since the time that briefs were submitted in the present case, however, an en banc reconsideration of the Pacente opinion has resulted in its reversal, United States v. Pacente, 503 F.2d 543 (7th Cir. 1974), so that such a joinder has now been given full approval by this circuit. Moreover in the instant case, the trial judge in his charge specifically instructed the jury to give separate consideration to each count and to render separate verdicts on each defendant. The charge admonished the jury further that each defendant was entitled to have his guilt or innocence determined from his own conduct and from the evidence as applied to him as if he were being tried alone and that the guilt or innocence of any one defendant should not influence the jury’s verdict respecting the others. Further, with regard to the perjury counts, the charge instructed that testimony introduced as to them was to be considered only as evidence of the false material declaration charge and that the jury should not consider that testimony as evidence of any defendant’s guilt as to Count One of the indictment. The fact that the jury found four of the defendants not guilty on both the conspiracy and the respective perjury counts showed that they not only knew what they were doing but did what they intended. See United States v. Gill, 490 F.2d 233, 239 (7th Cir. 1973). We add that the massive duplication of effort entailed in separate trials is not justified absent a more specific claim of prejudice than the one now urged by appellants. Cf. United States v. Haim, 218 F.Supp. 922, 932 (S.D.N.Y.1963); United States v. Verra, 203 F.Supp. 87, 90 (S.D.N.Y.1962).

Some of the appellants contend that the joinder of so many defendants in a single indictment deprived them of the privilege of calling a co-conspirator to the stand to testify in their behalf. None of the appellants, save Braasch, attempted to make any positive showing of either the utility or the availability of such testimony. As this circuit has held again and again “[t]he unsupported possibility that such testimony might be forthcoming does not make the denial of a motion for severance erroneous”. United States v. Kahn, 381 F.2d 824, 841 (7th Cir.), cert. den., 389 U.S. 1015, 88 S.Ct. 591, 19 L.Ed.2d 661 (1967). Braasch claims that his co-defendant Barry could have testified that Fischer (the Government’s star witness against Braasch) told Barry that he (Fischer) had denied to the Government any involvement in any extortion scheme, stating to Barry further: “They [the prosecutors] want Braasch and the only way I could give them Braasch is to lie”. However, when the trial judge held an in-chambers voir dire on the matter, Barry invoked the Fifth Amendment and refused to answer all questions, including whether he would testify on behalf of Braasch in a separate trial if severance was granted. The facts here are, therefore, a far cry from the leading case of United States v. Echeles, 352 F.2d 892 (7th Cir. 1965), where a co-defendant repeatedly offered to give obviously exculpatory testimony. Barry’s refusal to give such assurance left Braasch without that one element which was essential to his motion for severance. See United States v. Johnson, 426 F.2d 1112, 1116 (7th Cir. 1970); United States v. Caci, 401 F.2d 664, 672 (2d Cir. 1968).

XI.

The appellants assert that the crime, if any, charged and proven here is not cognizable under the provisions of the Hobbs Act utilized in the indictment, i. e., extortion “under color of official right”. Extortion “under color of official right” as used in the Act, they say, means either the acceptance of money by a public official to perform an act that he was already under a legal duty to perform or, alternatively, the taking of money under a claim by the officer that he had an official right to the money by virtue of his office. Here, they urge, the proof showed only that the appellants took money to refrain from performing their duties and thus their conduct could not be included in the statutory phrase “under color of official right”, but instead “constitutes classic bribery”, citing People v. Dioguardi, 8 N.Y.2d 260, 203 N.Y.S.2d 870, 168 N.E.2d 683 (1960), and other New York eases. Pursuing this line of argument, appellants contend that there was a fatal variance between indictment and proof since the conduct proved did not fall within the “official right” extortion charged and the Government failed to charge them with the other type of extortion covered by the first clause of 18 U.S.C. § 1951(b)(2) — extortion by the wrongful use of actual or threatened force, violence or fear.

Appellants, however, overlook the fact that the evidence shows that the conspirators used the power and authority vested in them by reason of their office to obtain money not due them or due the office. The use of office to obtain payments is the crux of the statutory requirement of “under col- or of official right”, and appellants’ wrongful use of official power was obviously the basis of this extortion. See United States v. Staszcuk, 502 F.2d 875 (7th Cir. 1974). It matters not whether the public official induces payments to perform his duties or not to perform his duties, or even, as here, to perform or not to perform acts unrelated to his duties which can only be undertaken because of his official position. So long as the motivation for the payment focuses on the recipient’s office, the conduct falls within the ambit of 18 U.S.C. § 1951. That such conduct may also constitute “classic bribery” is not a relevant consideration.

The police officers of the vice squad harassed bars, taverns and liquor establishments through their official position by making unusually frequent premise checks (four times a day) and identification examinations of patrons; they inspected bars catering to homosexuals with flashlights and harassed the patrons; they individually “shook down” proprietors often; they set-up under-aged drinkers in bars in order to frame a violation of law; and they sent liquor licensing authorities false reports about bars resulting in cancellations. In short, a set of roving police officers preyed upon the vulnerable position of the bars in the 18th District for their own profit. The proprietors wished to stop this sort of harassment, and the payment of “protection” money appeared to be the only answer. It may be that some of the payments were made from fear of economic harm which does come within the type of coercive extortion prohibited by the first clause of 18 U.S.C. § 1951(b)(2) and not by the clause relating to extortion “under color of official right”. Nevertheless, it was appellants’ misuse of the power of their office that triggered the harm as well as the payments in this case and made it the type of extortion charged in the indictment. We must, therefore, reject their contention.

CONCLUSION

We have carefully considered the remaining issues raised by appellants regarding admissibility of background, state of mind and other evidence, the prosecutor’s closing argument, and the trial judge’s sentencing of appellants. We find these claims without merit and therefore affirm the judgment.

Affirmed.

      . 18 U.S.C. § 1951:
      (a) Whoever in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by * * * extortion or attempts or conspires so to do, * * * shall be fined not more than $10,000 or imprisoned not more than twenty years, or both.
      (b) As used in this section — * * *
      (2) The term “extortion” means the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.
      (3) The term “commerce” means * * * all commerce between any point in a State, Territory, Possession, or the District of Columbia and any point outside thereof * * *.

      . Byron, Don Juan, Canto XIV, St.101.

      . After these payments Braasch and Fischer split the balance equally between themselves, except $100 which was given by Gold and Glitta to Fischer as a “tip”. During the period that Fischer acted as “bagman”, the total payoffs amounted to some $185,000. Braasch received in total about $85,000, and Fisclier about $25,000. Barry first received $100 a month as a favor from Braasch, but later $1000 a month when he became yice-Coordinator; the Captains as a group received $500 a month; the Lieutenants $600 a month; and Cello and Rifkin $200 each per month.

      . 18 U.S.C. § 1623 in relevant part provides: (a) Whoever under oath in any proceeding before or ancillary to any court or grand jury of the United States knowingly makes any false material declaration or makes or uses any other information, including any book, paper, document, record, recording, or other material, knowing the same to contain any false material declaration, shall be fined not, more than $10,000 or imprisoned not more than five years, or both.
      * * * * *
      (c) An indictment or information for violation of this section alleging that, in any proceedings before or ancillary to any court or grand jury of the United States, the defendant under oath has knowingly made two or more declarations, which are inconsistent to the degree that one of them is necessarily false, need not specify which declaration is false if—
      (1) each declaration was material to the point in question, and
      (2) each declaration was made within the period of the statute of limitations for the offense charged under this section.
      In any prosecution under this section, the falsity of a declaration set forth in tire indictment or information símil be established sufficient for conviction by proof that the defendant while under oath made irreconcilably contradictory declarations material to the point in question in any-proceeding before or ancillary to any court or grand jury. Tt shall be a defense to an indictment or information made pursuant to the first sentence of this subsection that the defendant at the time he made each declaration believed the declaration was true.

      . Of the twenty-three defendants who went on trial, eight were charged only in Count One (conspiracy) ; Police Sergeant Barry, Police Officers Cale, Catalano, Finn, McGee, Salveson, Seno, and Zakoian. The remaining fifteen were charged in Count One and in one of the fifteen individual counts of false declarations to the Grand Jury: Police Captain Braasch, Police Sergeant Geraghty, Police Officers Armstrong, Batastini, Demke, Eslioo, Flagg, Grana, Lazar, Pierson, Russell, Schillinger, Swallow, Troche, and West.

      . Exclusive of tlie “big club” evidence pertaining to the motivation of Captain Braasch and his various vice coordinators, a number of factors connect each of the remaining appellants to the conspiracy. First, most of them received a monthly share of the “package” after joining the District Vice Squad; second, many participated in the actual collecting of money from the victim bars; third, some participated in the distribution of the “package”; fourth, some names appeared on 'a list indicating that they received a share for one month in early 1967; and, fifth, some officers attended the Vice Squad meeting in late 1966 or early 1967 at which the “club” and the “package” were discussed at length. The evidence at trial from the representatives of the bars and taverns as well as that from Fischer, Rifkin, Cello, and the other officers who testified for the Government tied each of the appellants to one or more of these factors.

      . It may be true that duress is an essential element of a. case prosecuted under the provision of the Hobbs Act relating to “wrongful use of actual or threatened force, violence, or fear”, but coercive extortion is not the only type outlawed by the Act. The other is inducing payoffs “under color of official right”; and that offense does not require proof of coercion. Few cases have dealt with the distinction between these offenses, but several are relevant. See United States v. Kenny, 462 F.2d 1205 (3d Cir.), cert. den., Murphy v. United States, 409 U.S. 914, 93 S.Ct. 233, 34 L.Ed.2d 176 (1972). See also United States v. Nardello, 393 U.S. 286, 89 S.Ct. 534, 21 L.Ed.2d 487 (1969), (Warren, C. J.) (discussing labels and classification of extortion offenses by the states); Bianchi v. United States, 219 F.2d 182, 193 (8th Cir.), cert. den., 349 U.S. 915, 75 S.Ct. 604, 99 L.Ed. 1249 (1955); United States v. Sutter, 160 F.2d 754, 756 (7th Cir. 1947) ; United States v. Hyde, 448 F.2d 815, 832-834 (5th Cir. 1971), cert. den. 404 U.S. 1058, 92 S.Ct. 736, 30 L.Ed.2d 745 (1972); United States v. Pranno, 385 F.2d 387, 390 (7th Cir. 1967), cert. den., 390 U.S. 944, 88 S.Ct. 1028, 19 L.Ed.2d 1132 (1968); United States v. De Met, 486 F.2d 816, 823 (7th Cir. 1973), (Swygert, C. J., concurring). Here, the Congress intended to and did exercise all of its power under the Constitution, and the Act is to be construed broadly. United States v. Pranno, 385 F.2d at 389. See also Stern, “Prosecutions of Local Political Corruption Under the Hobbs Act: The Unnecessary Distinction Between Bribery and Extortion” ; 3 Seton Hall L.Rev. 1 (1971).