author: MERRILL, Circuit Judge: WALLACE, Circuit Judge

text:
    Ralph E. PURVIS, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
    No. 72-2001.
    United States Court of Appeals, Ninth Circuit.
    July 18, 1974.
    Ralph E. Purvis, in pro per.
    David E. Carmack, Atty., Dept, of Justice (argued), Washington, D. C., for defendant-appellee.

      Before MERRILL and WALLACE, Circuit Judges,, and BURNS, District Judge.

       Honorable James M. Burns, United States District Judge for the District of Oregon, sitting by designation.

   OPINION

MERRILL, Circuit Judge:

Plaintiff seeks to recover taxes paid by him under the Interest Equalization Tax Act of 1964. His claim is that imposition of the tax upon the transactions involved constituted a violation of due process, in that the application of the tax to those transactions was retroactive. In the district court, following trial, judgment for the United States was entered. Purvis v. United States, 344 F.Supp. 785 (W.D.Wash.1972). This appeal was taken by the taxpayer.

On July 18, 1963, President Kennedy in a message to Congress proposed a series of coordinated actions to alleviate a serious balance of payments deficit. Included was an “interest equalization tax” to be levied on purchases by Americans of foreign securities, the purpose being to restrict long term capital outflow from the United States by making it more expensive to borrow in the American market. The President in his message made it clear that if the tax was to achieve its purpose, it was essential that legislation creating the tax be made effective as of the date of the presidential message — July 18, 1963. Otherwise a rush by investors to beat the deadline would serve to aggravate the problem and render the proposal self-defeating.

The President’s message was well publicized in the newspapers and financial journals. The market in foreign securities was promptly affected. On the day of the message the Treasury Department issued documents giving details of the proposed tax. A “Notice of Proposed Effective Date” with a description of the proposed Act was published in the Federal Register on August 16, 1963. The Act in substantially the form proposed by the President was signed into law September 2, 1964, with an effective date of July 18, 1963.

Plaintiff taxpayer, a resident of the State of Washington, had for many years invested in Canadian securities and maintained a margin brokerage account in the Victoria, British Columbia, office of a Canadian brokerage firm. Between July 18, 1963, and August 2, 1964, he purchased various Canadian stocks. The purchases were made through his Canadian account, to which no United States dollars were transferred during the period in question. Thus, although taxpayer purchased foreign securities during the period between the effective date and enactment —the period of retroactive application —he did not, during that period, contribute to outflow of capital from the United States.

In engaging in the stock purchases in question taxpayer knew of the President’s message and of his desire for retroactive application, and the reason for that desire. He knew of nothing in the proposals that would exempt his transactions. He knew that the tax as proposed would cover foreign security purchases paid for with foreign funds of Americans. He joined with other investors in unsuccessful efforts to have the tax modified by Congress to exclude transactions not involving “outflow.”

Taxpayer recognizes that modifications of income taxes have regularly been imposed retroactively, as discussed in Welch v. Henry, 305 U.S. 134, 59 S.Ct. 121, 83 L.Ed. 87 (1938). He insists, however, that the law is otherwise as to new and novel taxes upon transactions theretofore free from taxation. He relies upon decisions holding unconstitutional retroactive application of estate and gift taxes: Coolidge v. Long, 282 U.S. 582, 51 S.Ct. 306, 75 L.Ed. 562 (1931); Untermyer v. Anderson, 276 U.S. 440, 48 S.Ct. 353, 72 L.Ed. 645 (1928); Blodgett v. Holden, 275 U.S. 142, 48 S.Ct. 105, 72 L.Ed. 206 (1927); Nichols v. Coolidge, 274 U.S. 531, 47 S.Ct. 710, 71 L.Ed. 1184 (1927). Taxpayer concludes from these authorities and from the Court’s discussion of the problem in Welch v. Henry, supra, that retroactivity can be sanctioned only if the tax is not imposed upon a voluntary act, or if the taxpayer is forewarned of retro-activity by the statute books themselves or by previous practices of Congress.

These contentions, with respect to this same tax, were advanced by a taxpayer and rejected by the Court of Claims in First National Bank in Dallas v. United States, 420 F.2d 725, 190 Ct.Cl. 400, cert. denied, 398 U.S. 950, 90 S.Ct. 1868, 26 L.Ed.2d 289 (1970). The court there stated that it could “perceive no such rigid standard of constitutionality m the decided cases.” It further stated:

“We are guided, rather, by the more flexible criteria delineated by the Supreme Court in Welch v. Henry, supra, 305 U.S. at page 147, 59 S.Ct. at 126:
-x- * jn each case it is necessary to consider the nature of the tax and the circumstances in which it is laid before it can be said that its retroactive application is so harsh and oppressive as to transgress the constitutional limitation. [Emphasis supplied (by the Court of Claims).]
Accordingly, it is our view that where there is reasonable cause to believe or expect that a tax will be imposed upon a presently nontaxable transaction, the restrospective application of such tax does not constitute a denial of due process.”

420 F.2d at 730.

We agree with that view.

Taxpayer here seeks to distinguish First National Bank in Dallas in that in that case there had been an outflow of funds to Canada caused by the purchases of the taxpayer, while in this case there was none. Taxpayer asserts that while he did indeed have notice that Congress contemplated applying the tax to such eases (purchases made with funds already located abroad), he had no notice that the tax would be retroactively applied to such transactions. He protests that such notice as was given of the retroactive application of the Act was coupled with notice of the need for such application — to prevent frustration of the tax’s purpose by massive outflow of funds in response to a desire to beat the deadline. While he acknowledges, arguendo, the validity of Congress’ justification for extending the tax to include foreign transactions with foreign funds (see note 4, supra), he insists that there was no need whatsoever to apply the tax retroactively to such transactions. Since the funds were already out of the country there obviously could be no need to rush to get them out of the country to beat any deadline and as to those funds there was therefore no need for retroactive application of the tax.

We may accept that there was no need. We cannot agree, however, that lack of need was the same as lack of notice that the tax would be so applied. From the outset the public was on notice that the tax as defined was (by presidential exhortation, at least) to be retroactively imposed across the board. Never was there any reliable suggestion that it would become effective on different dates for different transactions depending upon the source of funds.

We conclude, as did the Court of Claims, that with the widespread notice given to the investing public it cannot be said that retroactive application of this tax was oppressive or harsh or confiscatory. With the undeniable need for retroactive application in general if the purpose of the tax was to be realized, it cannot be said that retroactive application of the tax was arbitrary or capricious. Since general retroactive application cannot be said to violate due process, we are satisfied that taxpayer had no constitutional right to have certain transactions carved out to be subjected to prospective application only.

Taxpayer makes a further argument which we feel warrants discussion. Notice, he insists, in order to suffice under Welch v. Henry, supra, must have been by the statute books themselves or by the practice of Congress. He points to language in Untermeyer v. Anderson, supra:

“The taxpayer may justly demand to know when and how he becomes liable for taxes' — he cannot foresee and ought not to be required to guess the outcome of pending measures. The future of every bill while before Congress is necessarily uncertain. The will of the lawmakers is not definitely expressed until final action thereon has been taken.”

276 U.S. at 445-446, 48 S.Ct. at 354.

Taxpayer contends that to give the President’s request for retroactive application the effect of legislative notice is to put the investor on the horns of a dilemma since he cannot foresee whether Congress will grant the request or not. Further, he contends, to give such effect to the President’s request is to countenance a violation of the principle of separation of powers.

However, it was not the act of the President that gave retroactive application to the tax measure. It was the action of Congress that did so. In United States v. Heinszen & Co., 206 U.S. 370, 27 S.Ct. 742, 51 L.Ed. 1098 (1907), and Mattingly v. District of Columbia, 97 U.S. 687, 24 L.Ed. 1098 (1878), the Court early recognized the power of Congress to ratify unauthorized Executive action taken in the area reserved to Congress, and thus retroactively to validate such action. We feel we can confidently leave to Congress, as a purely political matter, the control of such instances of interaction between the departments. If at any time the Congress feels the President to be overreaching in seeking to create legislative consequences from Executive proclamation or request, it can reject the request for retroactive application.

It is true that this uncertainty as to outcome — as to whether certain transactions are to be taxed, and, if so, whether retroactively — can create difficulties for an affected citizen attempting to order his life, business or property. Here again, however, we feel that the proper due process test is that stated in Welch: “the nature of the tax and the circumstances in which it is laid” are to be taken into balance in determining whether the uncertainty imposed upon the investor is “so harsh and oppressive as to transgress the constitutional limitation.” We do not find that to be the case here.

Judgment affirmed.

WALLACE, Circuit Judge

(dissenting) :

I respectfully dissent.

The majority threads a delicate course in discussing case authority as it upholds the retroactive application of the Interest Equalization Tax Act of 1964. In doing so, it brushes aside too lightly the obvious distinctions between the present case and the prior cases it cites which upheld retroactive taxation. The majority rejects the taxpayer’s argument “that retroactivity can be sanctioned only if the tax is not imposed upon a voluntary act, or if the taxpayer is forewarned of retroactivity by the statute books themselves or by previous practices of Congress.” The majority draws comfort from the Court of Claims which, when faced with the same issue as we have before us found that the Supreme Court in Welch v. Henry, 305 U.S. 134, 59 S.Ct. 121, 83 L.Ed. 87 (1938), had not established such a “rigid standard of constitutionality” and upheld the tax. First Nat’l Bank v. United States, 420 F.2d 725, 730, 190 Ct.Cl. 400, cert. denied, 398 US. 950, 90 S.Ct. 1868, 26 L.Ed.2d 289 (1970). The correct test as established by the Supreme Court, the majority asserts, is “to consider the nature of the tax and the circumstances in which it is laid” before determining its constitutionality. The majority and the Court of Claims both ignore the fact that in Welch, the Court reaffirmed its prior holding declaring retroactive taxes unconstitutional where the taxpayer might well have refrained from the conduct creating the tax liability, “had anticipated the tax . . . .” 305 U.S. at 147, 59 S.Ct. 121. In addition, the Welch Court distinguished Coolidge v. Long, 282 U.S. 582, 51 S.Ct. 306, 75 L.Ed. 562 (1931); Untermyer v. Anderson, 276 U.S. 440, 48 S.Ct. 353, 72 L.Ed. 645 (1928), and Nichols v. Coolidge, 274 U.S. 531, 47 S.Ct. 710, 71 L.Ed. 1184 (1927), which held retroactive taxes unconstitutional, from the case before it on the ground that it could not assume that the taxpayer would have refused to receive the income even if he had known that it “would later be subject to a new tax or to the increase of an old one.” 305 U.S. at 148, 59 S.Ct. at 126. The tax upheld in Welch was an income tax on corporate dividends. Prior to the enactment of the tax this source of income had essentially been free from taxation. The law became effective in 1935 but imposed a tax upon income earned in 1933 and 1934. The law specifically declared “that the levy was an emergency tax to provide revenue for relief purposes . . . .” 305 U.S. at 142, 59 S.Ct. at 123.

By comparison, the interest equalization tax is primarily regulatory. As the majority states, its purpose was “to restrict long term capital outflow from the United States by , making it more expensive to borrow in the American market.” The raising of revenue was only an incidental benefit. Given this statement of purpose, the retroactive application of the tax cannot be justified on the ground that the taxpayer would have conducted his affairs exactly the same even if he had absolute knowledge the tax would be retroactively applied. From a realistic point of view, if the taxpayer were sure of taxation, he may well have not continued to invest in the foreign market since the tax was so substantial as practically to eliminate the likelihood of a profit. Because of this, the retroactive application of the tax can be upheld only if the taxpayer had sufficient notice that his conduct would be subject to a regulatory tax.

The majority concludes that the taxpayer had ample notice because the President’s request for the tax was well publicized and known generally among investors. In addition, the President had specifically requested that the tax be retroactive. Nevertheless, the majority slides over the fact that many Presidents have requested a great deal of legislation which has never seen the light of day; to do so, it rationalizes that Congress, ratified the executive action when it made the tax retroactive, citing United States v. Heinszen & Co., 206 U.S. 370, 27 S.Ct. 742, 51 L.Ed. 1098 (1907), and Mattingly v. District of Columbia, 97 U.S. 687, 24 L.Ed. 1098 (1878).

Ratification, however, is not involved in this case and the majority’s authority is, therefore, of no assistance on the issue of adequate notice. In Heinszen, the Supreme Court articulated the principle of ratification as follows:

That where an agent, without precedent authority, has exercised, in the name of a principal, a power which the principal had the capacity to bestow, the principal may ratify and affirm the unauthorized act, and thus retroactively give it validity when rights of third persons have not intervened, is so elementary as to need but statement. That the power of ratification as to matters within their authority may be exercised by Congress, state governments, or municipal corporations, is also elementary.

206 U.S. at 382, 27 S.Ct. at 745. The Heinszen Court held that Congress had the power to ratify a system of tariff duties imposed by the President upon goods coming into the Philippine Islands. The Court stated that the President had imposed and collected the tariffs without authority but concluded that the action was valid because of the subsequent ratification by Congress. Similarly in Mattingly, the Court upheld assessments laid, without authority, by a board of public works where Congress subsequently ratified the action.

These cases would be persuasive authority in the present case if the President had actually levied and collected the interest equalization tax. But he did not take such drastic action; he merely requested Congress to enact the tax. This distinction is significant because of the effect the two different courses of conduct have upon the manner in which a taxpayer conducts his business affairs. Where the President takes action, even without authority, the effect is immediate and certain. The taxpayer is required either to alter his course of conduct or to pay the tax. If the President’s action is subsequently ratified, the taxpayer has at least had the benefit of certainty in arranging his affairs. If the action is held tó be illegal he can recover the tax he has paid.

On the other hand, where the President merely requests Congress to take action, regardless of how well publicized the request is, the effect is postponed and uncertain. The Congress may reject the request altogether or may modify it to the extent that it only faintly resembles the President’s original proposal. It would be harsh and arbitrary to expect a person to arrange his affairs on the basis of such a request. If he declines to invest because of a Presidential request for legislation which is not forthcoming, he has no conceivable remedy for the loss he may have suffered.

The present case is almost identical to Untermyer v. Anderson, 276 U.S. 440, 48 S.Ct. 353, 72 L.Ed. 645 (1928). The Revenue Act of 1924, 43 Stat. 313, imposed a tax on all 'gifts made any time during the calendar year of 1924, but did not become effective until June 2, 1924. Prior to its decision in Unter-myer, the Court held the tax unconstitutional as applied to a gift made in January, 1924, on the ground that it was so arbitrary as to be a denial of due process. Blodgett v. Holden, 275 U.S. 142, 48 S.Ct. 105, 72 L.Ed. 206 (1927). In that case, the Court stated that “[i]t seems wholly unreasonable that one who, in entire good faith and without the slightest premonition of such consequence, made absolute disposition of his property by gifts should thereafter be required to pay a charge for so doing.” 275 U.S. at 147, 48 S.Ct. at 106. In Un-termyer, the Court considered the constitutionality of the same tax as applied to a gift made on May 23, 1924, just 12 days before the Act was approved by the President. The government argued that as retroactively applied to this gift the tax was not unconstitutional because the taxpayer had ample notice of the proposed tax and, in all likelihood, had made the gift at that particular time to avoid tax liability. The government pointed out that the gift was made three months after the proposed tax had been presented and while the conference report was still pending. The Court rejected the argument, holding the retroactive application of the tax unconstitutional. The Court stated:

The mere fact that a gift was made while the bill containing the questioned provisions was in the last stage of progress through Congress we think is not enough to differentiate this cause from the former one and to relieve the legislation of the arbitrary character there ascribed to it. To accept the contrary view would produce insuperable difficulties touching interpretation and practical application of the statute, and render impossible proper understanding of the burden intended to be imposed. The taxpayer may justly demand to know when and how he becomes liable for taxes — -he cannot foresee and ought not to be required to guess the outcome of pending measures. The future of every bill while before Congress is necessarily uncertain. The will of the lawmakers is not definitely expressed until final action thereon has been taken.

276 U.S. at 445-446, 48 S.Ct. at 354.

The taxpayer in the present case, like the taxpayer in Untermyer, may have had ample notice of the proposed tax. But as the Court stated, he should not be required to guess on what the legislative outcome would be. This holding seems particularly appropriate in the present case because the taxpayer was required to guess the legislative outcome of the tax through the entire legislative procese, whereas in Untermyer the tax had already passed both houses of Congress and awaited only the conference report, final congressional approval and the signature of the President.

I would hold the tax as applied to the transactions involved in this case unconstitutional.

      . Pub.L.No.88-563, § 2(a), 78 Stat. 809, adding Chapter 41 to Subtitle D, Internal Revenue Code of 1954 (codified at 26 U.S.C. §§ 4911 et seq.).
      26 U.S.C. § 4911 provides in relevant part: “Imposition of tax

      (a) In general. — There is hereby imposed, on each acquisition by a United States person * * * of stock of a foreign issuer, or of a debt obligation of a foreign obligor * * *, a tax determined under subsection (b).
      (b) Amount of tax.—
      (1) Rates of tax. — * * *
      (A) Stock. — Tbe tax imposed by subsection (a) on the acquisition of stock shall be equal to 15 percent of the actual value of tbe stock.”
      Section 2(c) of Pub.L.No.88-563 provided in part:

        “Effective Date.—
      (1) General Rule. — * * * [T]he amendments made by this section shall apply with respect to acquisitions of stock and debt obligations made after July 18, 1963.”

      . H.R.Doc.No.141, 88th Cong., 1st Sess. ;■ 109 Cong.Reg. 12806 (Senate), 12940 (House) (1963).

      . 109 Cong.Rec. at 12809,12943.

      . Congress rejected such modifications for a variety of reasons: that such exemptions would enlarge the pool of foreign securities which United States persons could trade free of tax among themselves; that they would give undue advantage to United States persons who had previously acquired foreign funds over those who had not; that they woultl encourage United States persons with foreign funds to invest in foreign securities rather than United States securities; that they would create administrative difficulties in enforcing the tax; that they could create multiple exchange rates; that there would be a loss of revenue.

      . We note, however, that at least one of the considerations which led Congress to decline ' to exempt such “no outflow” transactions from the tax generally (see note 4, supra), namely, the avoidance of administrative difficulties, also militated strongly against exempting such transactions from the retroactive feature.

      . The tax imposed range from 15% to 22.5% of the value of the foreign stocks acquired. The relevant language of the statute reads:
      (a) In general. — There is hereby imposed, on each acquisition by a United States person ... of stock of a foreign issuer ... a tax determined under subsection (b).
      (b) Amount of tax.—
      (1) Rates of tax. — Except as provided in paragraphs (2) and (3)—
      (A) Stock. — The tax imposed by subsection (a) on the acquisition of stock shall be equal to 15 percent of the actual value of the stock.
      (3) Rates during interim period. — In the ease of acquisitions of stock made after January 25, 1967, and before the thirtieth day after the date of the enactment of this paragraph, the tax imposed by subsection (a) shall be 22.5 percent in the case of acquisition of stock
      26 U.S.C. § 4911.


source: Caselaw Access Project

author: SWYGERT, Chief Judge.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Steven Hyman OSTKOWSKY et al., Defendants-Appellants.
    Nos. 73-1430 to 73-1433.
    United States Court of Appeals, Seventh Circuit.
    Argued Dec. 4, 1973.
    Decided Aug. 5, 1974.
    Anna R. Lavin, Chicago, 111., Gerald Alch, Boston, Mass., Edward J. Calihan, Jr., Edward M. Genson, Chicago, 111., for defendants-appellants.
    James R. Thompson, U. S. Atty., Glyn-na W. Freeman, Asst. U. S. Atty., Chicago, 111., for plaintiff-appellee.

      Before SWYGERT, Chief Judge, KIL-EY, Senior Circuit Judge, and POOS, Senior District Judge.

       Senior District Judge Omer Poos of tlie Southern District of Illinois is sitting by designation.

   SWYGERT, Chief Judge.

Defendants-appellants Steven Os-trowsky, Joseph Marek, William E. Dauber, and Jack Schnadenberg appeal from their conviction for violating the Dyer Act, 18 U.S.C. § 2313, and for conspiracy to violate the Dyer Act. They were charged with the concealing, storing, and disposing of a 1972 Cadillac automobile which they knew to be stolen and which was driven from Indiana to Illinois.

Defendants raise numerous issues on appeal, the most important relating to the admission of evidence pertaining to the murder of the possessor of the stolen automobile. In denying defendants’ motion to exclude, the trial judge stated:

In the case at bar the issue is whether the court should permit evidence of an alleged murder, the more serious offense, to prove the conspiracy to sell or receive stolen vehicles, the less important offense.
I conclude that there is no question from listening to the voir dire examination of the two witnesses for the government who have testified here that the murder was closely blended or intermixed with the interstate transportation of the vehicle. Thus the question becomes whether or not the probative value of the evidence of the prior crime is so relevant to an issue of material fact that it far outweighs the possible prejudice to the defendants upon admission of this evidence before the jury.

Although we think that under the unusual circumstances of this case the Government was entitled to present the jury a minimal amount of evidence with respect to the alleged foul play visited upon the possessor of the automobile, the evidence elicited at oar overstepped the bounds of necessity and served only to unduly prejudice the defendants. Accordingly, we reverse and remand for a neyv trial.

I

The possessor of the 1972 Cadillac, Roger Croach, together with the defendants and two unindicted co-conspirators, Donald Boyer and Alexander Jaroszews-ki, were members of a car theft ring operating in Indiana and Illinois. The circumstances surrounding the murder of Croach and the disposition of the car were testified to by Boyer and Jaro-szewski on behalf of the Government. Their testimony indicated that the pertinent events began on September 2, 1972, the Saturday of Labor Day weekend. In the morning of that day Boyer met Croach at the Courtesy Auto Brokers car lot in South Bend, Indiana to make arrangements for the delivery of a stolen car to Courtesy (operated by Croach). During the noon hour, while eating lunch at a nearby restaurant, Croach and Boyer learned of a state police raid on Courtesy. Although Croach wanted to drive past the car lot to observe the activities of the police, he was hesitant to drive his own car, fearing that the police might recognize his car and arrest him. So as to drive by the lot without detection, Croach decided to rent a car. While he was engaged in renting a car at a rental agency Boyer waited in Croach’s Cadillac. Boyer noticed Dauber and one Richie Ferraro pass by in Dauber’s automobile. Boyer stopped them and explained that Croach was renting an automobile. Boyer gave the reason for renting a car, to which Dauber replied, “He doesn’t need that car to go looking. We just come by there and there’s more than one police car there. Go get him.” Boyer informed Croach that Dauber did not want him to rent a car whereupon all three left the car rental agency.

Later that day Boyer and Croach, in Croaeh’s Cadillac, and Dauber and Ferraro, in Dauber’s automobile, met at the Burger Chef restaurant in South Bend. As they talked between the open windows of their respective cars, the four discussed the police raid at Courtesy. Boyer interrupted the discussion to remind Dauber that he, Boyer, had a 4:00 o’clock appointment at the Holiday Inn in South Bend. Dauber told Boyer to use Croach’s Cadillac to keep his appointment and requested that Croach go with Dauber and Ferraro. Thereupon Croach got out of his car and entered Dauber’s car and Boyer, with instructions from Dauber to meet them later in the evening at defendant Schnadenberg’s home, drove to his appointment in Croach’s car.

Later, in the early evening, Boyer, driving Croach’s Cadillac, came to defendant Schnadenberg’s home in Chesterton, Indiana. Shortly thereafter, Dauber took Boyer into the backyard to talk. Dauber in the sole presence of Boyer related that he “had to whack Roger Croach,” and that he had “blown his brains all over the car.” After this conversation, Schnadenberg joined Boyer and Dauber in the backyard. In Schna-denberg’s presence, Dauber gave Boyer $100 and told Boyer to meet him the next morning, Sunday, at 8:00 A.M. Boyer inquired as to what automobile he should drive to which Dauber replied: “Drive Roger’s car. He won’t be needing it.” Prior to Boyer’s departure, the three searched the trunk of Croach’s car and found various items. They divided these items among themselves and were instructed by Dauber: “Whatever you got there, throw them in the river” or “the creek.”

The next morning upon arrival at Dauber’s- house in Valpariso, Indiana, Boyer was told that he was to have picked up Schnadenberg. Pursuant to Dauber’s request Boyer drove Croach’s car to Schnadenberg’s house in Chesterton where he found Schnadenberg waiting for him. Together they returned to Valpariso. On arrival at Dauber’s house, Dauber took the wheel of Croach’s car and drove the three to the residence of Dauber’s sister in Blue Island, Illinois. Dauber then requested that Schnadenberg drive the car to a business establishment in Crestwood, Illinois where arrangements had been made to temporarily store the car. Later the car was removed to a garage in a private home in Riverdale, Illinois. Once it was secured there, Dauber, Boyer, and Schnadenberg returned to Indiana.

Two days later, on September 5, 1972, defendants Ostrowsky and Marek accompanied by Dauber met Alexander Jaro-szewski, an unindicted co-conspirator, at the Holiday Inn in Lansing, Illinois. The four talked in the parking lot. Os-trowsky stated that Dauber had “stashed away a car” that had belonged to a man named Croach whom Dauber had “knocked off” during the previous weekend. Ostrowsky directed Jaro-szewski to go with Dauber to pick up Croach’s Cadillac and to take it to a 'garage in Chicago. In addition, Ostrows-ky, apprehensive that Croach’s car would be on the police department “hot sheet,” suggested that they stop at his house to pick up a set of license plates to replace those on Croach’s car. Upon receiving Ostrowsky’s instructions, Dauber, Ma-rek, and Jaroszewski left for Ostrows-ky’s home where they picked up a set of Illinois license plates. They then went in Marek’s car to the garage where Croach’s Cadillac was stored. Upon arrival Jaroszewski removed the Indiana license plates on Croach’s car and replaced them with the Illinois plates. Dauber took the Indiana plates, saying that he would destroy them. As they left, Dauber admonished Jaroszewski to exercise care in driving the car to a garage in Chicago, a so-called “chop shop.” This garage was operated for the purpose of dismantling stolen automobiles for the sale of parts. Pursuant to Os-trowsky’s orders, Jaroszewski dismantled Croach’s car and disposed of various parts, some of which he sold.

In addition to the foregoing evidence, the Government elicited testimony from Jaroszewski which attributed statements to Ostrowsky that Dauber had “knocked off” Croach because Dauber thought that “Croach couldn’t handle the heat.” Jaroszewski also testified that Ostrows-ky made remarks to the effect that they should move Croach’s body since it was located where 'it could easily be found. Likewise, the Government adduced additional evidence regarding Ostrowsky’s instructions to Jaroszewski to burn the tires on the automobile which was used to dump Croach’s body in a field. The final murder evidence produced by the Government pertained to proof of the corpus delicti of the murder. To that end the Government presented the testimony of the Indiana State Police Officer who found Croach’s body; the coroner of LaPorte County, Indiana who testified to the cause of death as being two gunshot wounds in the head; and dental records and testimony by a dentist establishing that the body found with gunshot wounds in the head was that of Roger Croach. The defendants timely objected to the admission of any evidence relative to the murder of Roger Croach.

II

In analyzing the admissibility of evidence of a prior crime to prove an element of the crime charged three considerations must be kept in mind: (1) recognizing the general rule that prohibits admission of evidence of other crimes to prove the commission of the crime charged, it must be demonstrated that the evidence is of a type that fits within one of the exceptions to the general rule of inadmissibility; (2) even though evidence of a prior crime is relevant, the court must engage in a balancing process to decide whether the probative value of the evidence of other criminal activity outweighs the possible prejudice to defendants occasioned by such evidence; and (3) the evidence of the other crime must be clear and convincing.

With respect to the first consideration, the evidence relating to Croach’s murder arguably falls within two exceptions to the general rule of inadmissibility. The evidence can be viewed as coming within the exception established in United States v. Wall, 225 F.2d 905, 907 (7th Cir. 1955), cert. denied, 350 U.S. 935, 76 S.Ct. 307, 100 L.Ed. 816 (1956) where we said:

“Thus, evidence of other criminal acts has been held admissible by this court when they are so blended or connected with the one on trial as that proof of one incidentally involves the other; or explains the circumstances thereof; or tends logically to prove any element of the crime charged.”

The murder evidence was probative, albeit tangentially, in establishing an “element of the crime charged,” that Croach’s automobile was stolen.

In addition it is an established exception to the general rule of inadmissibility that proof of other criminal activity is admissible to establish knowledge when knowledge is a necessary element of the crime charged. United States v. Turner, 423 F.2d 481, 484 (7th Cir. 1970).. With respect to defendants Ostrowsky and Marek, it is arguable that knowledge of Croach’s murder was probative on the question of whether these defendants knew that Croach’s car had been stolen.

Addressing ourselves to the second test of admissibility, it must be shown that on balance the probative value of the murder evidence regardless of its coming within an exception of the general rule outweighs its prejudicial impact. We discuss first the probative value of the murder evidence. On that score it is axiomatic that the evidence must be probative of a material element of the charge against the defendants. The elements of proof required for conviction under 18 U.S.C. § 2313 are:

“To obtain a conviction under § 2313, the government must prove that: (1) the motor vehicle involved was stolen; (2) the defendant knew that the motor vehicle had been stolen; (3) the defendant concealed the motor vehicle; (4) the motor vehicle involved was moving as or was a part of interstate traffic at the time of the defendant’s activities.” United States v. Brady, 425 F.2d 309, 311 (8th Cir. 1970).

As to the first element, proof that Croach’s automobile was stolen, the circumstances of this case present an unusual question as to whether the car was in fact stolen from Croach. The possessor of the automobile was no longer alive at the time of the trial to testify that he did not give permission to anyone to drive his Cadillac to Chicago and subsequently destroy it. Moreover, we are confronted with a situation where the possessor initially consented to at least a limited use of his automobile by Boyer. Without engaging in a technical analysis of whether Croach’s murder nullified any consent he might have given for the continued use and disposition of the car, we are of the opinion that the murder evidence could arguably go to the issue of consent and refute any notion that Croach agreed to the disposition and dismantling of an automobile of which he was in possession,'albeit most likely a stolen one which he himself knew to have been stolen. With respect to the element of knowledge needed for a Dyer Act conviction, it can also be argued with some persuasion that the murder evidence had probative value.

Turning to the question of prejudice to the defendants by the admission of the murder evidence, little demonstration is needed to conclude that such evidence could materially detract the jury’s attention from the real issue in the case, and that its introduction imposed an extraneous burden upon the defendants to defend themselves. Johnson v. United States, 356 F.2d 680 (8th Cir. 1966). The defendants contend that the prejudicial impact of any of the evidence pertaining to Croach’s murder outweighed the probative value of that evidence. We do not agree. Absent minimal evidence of the murder there would be a chronological and conceptual void in the events surrounding the defendants’ acquisition and disposition of the automobile possessed by Croach with the result that the other evidence would appear detached and not in context with all the existing facts. Defendants contend that the Government need not have submitted the murder evidence at all in view of our decisions in United States v. Meek, 388 F.2d 936 (7th Cir. 1968) and United States v. Baker, 429 F.2d 1344 (7th Cir. 1970). These cases are distinguishable. They involved Dyer Act convictions for stealing rent-a-cars and were much more compelling on their facts than the ease before us. Unlike the situation here, the use of the car was governed by an express leasing agreement. Here there was no express limitation on the use and disposition of Croach’s car.' Moreover in view of the evidence that Croach consented to Boyer’s driving his car to meet an appointment and that Croach was afraid that the state police might recognize his car and arrest him, any contention by defendants that Croach agreed to the transportation of the ear to Chicago for dismantling might not be readily overcome absent some evidence of the murder.

We would rule therefore that under those circumstances the probative value of a minimal amount of evidence per-taming to Croach’s murder would outweigh its prejudicial effect. We are of the view, however, that the Government adduced a great amount of evidence pertaining to the murder that was unnecessary. By transgressing the bounds of necessity the Government went beyond the minimal amount of murder evidence we deem admissible. All that was needed to satisfy the clear and convincing standard was the admission by Dauber to Boyer that he had killed Croaeh. It was unnecessary for the Government to present Ostrowsky’s reasons for killing Croaeh. Likewise, Ostrowsky’s statements with respect to moving Croach’s body and his instructions to Jaroszewski to burn the tires on the automobile used to dispose of Croach’s body were not probative of any element of the Dyer Act violation and could serve only to prejudice and inflame the jury. Moreover, the evidence with respect to proof of the corpus delicti of the murder was unnecessary and functioned at best to further unduly prejudice the defendants. The evidence of the other crime need only be clear and convincing; it need not, indeed should not, involve a trial within a trial. In the unusual circumstances of this case it was sufficient that the Government establish to the satisfaction of the judge out of the presence of the jury the existence of the corpus delicti of the murder. If in fact a dispute developed as to that fact, it would be time enough for the Government to present such evidence to the jury; otherwise, the jury should be shielded from the evidence.

Where a different crime is blended with the alleged offense and evidence of that crime is offered. by the Government, the ruling on admissibility of the evidence is within the district court’s discretion. The discretion, however, is limited by the necessity of the evidence in proving the alleged offense. The court in each instance must balance the probative value of the evidence of the crime against the prejudicial effect upon the defendant in the light of a fair trial. But having decided to admit the evidence the court must also limit the evidence to the quantity that is necessary to the purpose for which it is admitted.

In the case before us the evidence of the Croaeh murder was relevant to prove that defendants stole from Croaeh the 1972 Cadillac which was in his possession and which he permitted Boyer to drive to the Holiday Inn. Had Croaeh not been killed, he may have objected to the interstate transportation of the Cadillac. Accordingly, evidence that Dauber killed him was relevant to show that defendants deprived him of possession, converted the Cadillac to their own use, exercised dominion over it, and unlawfully transported it interstate with clear knowledge that they had stolen it from him. To that extent, and only that far, was evidence of Croach’s murder necessary to prove the Dyer Act violation.

Since the rule of necessity limited the district court’s discretion, the court abused its discretion in permitting proof of the gruesome and unnecessary details of Croach’s murder. By presenting all the gruesome evidence of the murder the judge allowed the Government to submit evidence to the jury that was at best cumulative. It was not probative of a Dyer Act violation. Moreover, the probable effect of the ruling was to divert the attention of the jury to the murder and away from the unlawful interstate transportation of the Cadillac with knowledge that it was stolen from Croaeh. Having breached the limits of a balance that must be invoked on the question of admissible evidence of another crime to establish the one charged, the defendants suffered undue prejudice in their trial.

A review of the record persuades us that much — indeed, too much — of the trial was devoted to the murder of Croaeh, thereby detracting materially from focusing on the only legitimate issue: the transportation by the defendants of the Cadillac across -state lines knowing it was stolen. The heavy stress on the murder could serve only to creating prejudice among the jurors by subjecting them to a preoccupation with the defendants’ involvement in a vicious act of violence.

Although we attribute no bad faith on the part of the prosecutor, a trial for murder was actually conducted under the guise of a Dyer Act violation. We are forced by the prosecutor’s tactics and the trial judge’s permissiveness to reverse a verdict of guilty that in all likelihood would have been returned absent the gratuitous but highly prejudicial evidence. Our course is clear. A fair trial is required for every defendant, regardless of his apparent guilt or the magnitude of the crimes he may have committed.

The judgments of conviction are reversed and the case is remanded for a new trial under the provisions of Circuit Rule 23.

      . Defendants raise issues with respect to: the identity and possession of the automobile in question; the sufficiency of the evidence; denial of right to fair trial due to restrictions on defendants’ cross-examination of Government witnesses, and denial of the opportunity to present witnesses; failure to prove the charges of the indictment; error in granting and refusing certain instructions; the Government’s attempt to impeach defense witnesses through allegedly unconstitutional means; and the propriety of certain remarks by the Government during closing arguments. We have reviewed these contentions and find each to be without merit.

      . 18 U.S.C. § 2313 provides:
      Whoever receives, conceals, stores, barters, sells, or disposes of any motor vehicle or aircraft, moving as, or which is a part of, or which constitutes interstate or foreign commerce, knowing the same to have been stolen, shall be fined not more than $5,000 or imprisoned not more than five years, or both.