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7203: Willful Failure to File Return, Supply Information, or Pay Tax: Evidence: Admissibility

 

Part 1

 

 

[2005-2 USTC ¶50,549] United States of America , Plaintiff-Appellee v. Abel Habib Iskander, Defendant-Appellant.

U.S. Court of Appeals, 4th Circuit; 04-4188, May 9, 2005.

Affirming in part, vacating in part, and remanding an unreported DC Md. decision.

[ Code Sec. 7201]

District court: Failure to pax tax: Evidence: Sentencing. --

Evidence was properly admitted at trial and was sufficient to convict an individual of willful failure to pay tax, but the wrong sentence was imposed. The exclusion of the individual's expert testimony was not arbitrary or irrational as the testimony's probative value was outweighed by the potential for confusion. The jury also had the opportunity to consider the individual's evidence of good faith error. However, the individual's sentence was reversed and the case was remanded to the district court for resentencing. The the trial court relied upon mandatory sentencing guidelines that were found to be unconstitutional and declared to be only advisory by the Supreme Court.

Jonathan Mark Mastrangelo, Jennifer C. Smith, Assistant United States Attorneys, for plaintiff-appellee. Rhonda Anne Anderson, for defendant-appellant.

Before: Wilkinson and Gregory, Circuit Judges, and Stamp, Jr., ^* District Judge.

OPINION

GREGORY, Circuit Judge: This case arises out of an investigation of Adel Habib Iskander ("defendant" or "Iskander"). The United States ("government") alleges he systematically skimmed cash receipts and corporate checks received by two hotels he owned and operated, while simultaneously paying no federal corporate or individual income tax. Iskander was indicted, and after a three week trial, a jury found him guilty of three counts of tax evasion and one count of structuring financial transactions to evade reporting. The district court subsequently sentenced Iskander to a term of imprisonment of forty-one months and ordered him to pay a $800,000 fine. On appeal, Iskander challenges the district court's evidentiary rulings, the sufficiency of the evidence, and his sentence. We find, after careful review, no reversible error in the district court's evidentiary rulings, and that the evidence in this case was sufficient to support the convictions. However, in following United States v. Hughes, 401 F.3d 540 (4th Cir. 2005), our recently published opinion giving guidance to the application of United States v. Booker, 125 S.Ct. 738 (2005), we find plain error in Iskander's sentencing, exercise our discretion to notice the error, vacate the sentence, and remand to the district court for resentencing. Thus, we affirm in part, vacate, and remand in part.

I.

Defendant was originally charged in a fifteen-count indictment with conspiracy, tax evasion, and structuring currency transactions, in violation of 18 U.S.C. §371, 26 U.S.C. §7201, and 31 U.S.C. §5324(a)(3), respectively. A superseding indictment was filed one month before trial, charging defendant and his wife, Cynthia Lafon Iskander, with one count of conspiracy to structure transactions so as to evade reporting requirements in violation of 31 U.S.C. §5324(a)(3), and eleven counts of structuring financial transactions to evade reporting requirements in violation of 31 U.S.C. §5313(a)(3). The superseding indictment also charged Iskander individually with three counts of tax evasion in violation of 26 U.S.C. §7201. All the foregoing conduct allegedly occurred in 1994, 1995, and 1996.

During the relevant time period, Iskander controlled two corporations, Ocean Properties, Inc., and Fenwick Properties, Inc. ("Ocean Properties" and "Fenwick Properties"), each of which operated a hotel. For most times relevant to the indictment Iskander was the sole shareholder of both companies. At trial the government alleged that between 1993 and 1996 defendant deposited approximately $780,000 in currency into personal accounts under his control for his benefit and the benefit of his family. The government provided evidence that defendant and his wife at various times deposited approximately $935,000 worth of corporate checks into personal investment accounts they held with Merrill Lynch and T. Rowe Price. In furtherance of the scheme, the government demonstrated, through bank records, that Iskander systematically structured cash deposits to banks to be under $10,000 to avoid the respective financial institutions' federal currency transaction reporting requirements. During this time, defendant reported no taxable income for either of the corporations, or for himself individually --thus, zero tax was paid to the federal government.

The government alleged that Iskander's tax evasion scheme involved skimming cash and credit card proceeds from both hotel properties and under-reporting the gross receipts actually earned by the two hotels --allowing him to conceal the diversion of funds. On his corporate tax returns, defendant claimed that the two hotels were losing money. In fact, he personally "wrote off" alleged loans he made to one of the hotels based on an assertion that the investment represented a "bad" ( i.e., uncollectible) debt. At trial, the government presented evidence showing that the gross receipts of the hotels exceeded the amounts stated on defendant's corporate tax returns by hundreds of thousands of dollars --thus, showing that the hotels were likely profitable and capable of repaying the alleged loans.

The government also provided evidence that Iskander attempted to establish an explanation for the skimming and for hiding his tax evasion scheme, by placing shareholder loan balances on the corporate tax returns. Doing that allowed him to characterize the skimmed receipts as non-taxable repayments of loans. According to the government, these stated loan balances were patently false and the diverted funds were taxable income.

The government contended that Iskander was trained in business and accounting in his native Egypt and taught business classes in Egypt before emigrating to the United States. The government called one of Iskander's former hotel desk clerks, Sam Soliman ("Soliman"), who testified that Iskander had told him that he had been trained as an accountant. Iskander's accountant, John Vardavas ("Vardavas"), also testified that defendant rescinded a statement he had previously made to Vardavas averring that defendant had been a CPA in Egypt. The government also presented documentary evidence, in the form of a Dun & Bradstreet report and an affidavit, listing defendant's employment history as an accountant and as a controller. The report was admitted over defendant's hearsay objections. In rebuttal, defendant put forth testimony from Vardavas, who stated that defendant's record keeping skills were poor and that the records seized upon execution of the search warrant were incomplete and disorganized.

After a three week trial, a jury found Iskander guilty of three counts of tax evasion and one count of structuring financial transactions to evade reporting. Mrs. Iskander was acquitted. ¹ Iskander timely filed this appeal.

II.

We review the district court's decision as to admissibility of evidence for abuse of discretion, and we will not find an abuse unless a decision was "arbitrary and irrational." United States v. Weaver, 282 F.3d 302, 313 (4th Cir. 2002) (discussing abuse of discretion standard in context of "decisions as to admissibility of evidence").

To prevail on a sufficiency of the evidence claim, Iskander must show that when evidence is viewed in the light most favorable to the government, see United States v. Stewart, 256 F.2d 231, 251 (4th Cir. 2001), no "rational trier of fact could have found" beyond a reasonable doubt, that he acted willfully, see Jackson v. Virginia, 443 U.S. 307, 319 (1979).

In light of the new sentencing scheme announced in Booker, we state in Hughes that we will review Sixth Amendment sentencing challenges, raised for the first time on appeal, under plain error analysis. 401 F.3d at 547.

III.

Iskander challenges two evidentiary rulings made by the district court and the sufficiency of the evidence. First, he argues that the district court erred in excluding defendant's evidence supporting his defense, ² specifically by refusing to allow defendant's expert to testify about unclaimed depreciation deductions he alleges were available to his hotels; defendant asserts that such testimony would have rebutted both the government's tax witness, who testified that the "bad-debt" deductions taken on defendant's personal tax returns were improper and therefore taxable income, as well as the government's evidence that the appellant was a sophisticated accountant, and therefore "willfully" violated 26 U.S.C. §7201 and 31 U.S.C. §5324(a)(3). Second, Iskander argues that the district court erred by admitting a Dun & Bradstreet report that contained information regarding the defendant's educational background and employment history. ³ Third, defendant contends that the government's evidence was insufficient to support the three tax evasion convictions.

In addition, Iskander makes two related challenges to his sentence. First, he alleges that the district court did not make the required factual findings necessary to support the $800,000 fine imposed at sentencing. Second, defendant asserts that under Blakely v. Washington, 124 S.Ct. 2531 (2004) and Booker, the district court's sentence violated his right to a jury trial insofar as it rested on factual findings made by the judge at the sentencing hearing. We address each of defendant's arguments in turn.

A.

Defendant contends that the district court abused its discretion in excluding evidence that supported his defense. In an effort to rebut the government's expert, defendant retained an accounting expert, Ivan B. Mehler ("Mehler"). The defense proffered, fourteen days into trial, that Mehler's testimony would show that Iskander had failed to use the depreciation schedules to which he was entitled and "as a result, utilizing any accounting or reconstruction method the government preferred, no tax was owed." Appellant's Br. at 23. According to defendant, Mehler's testimony would have shown that contrary to the government's assertions, "defendant was not cheating the IRS; [he] was not a sophisticated accountant, and that any inaccuracies in his tax returns had worked to his disadvantage more so than to the IRS[']." Id. at 24. Additionally, defendant contends that Mehler would have testified and used summaries of the depreciation schedules to show that the government overstated the income from the corporations and would have demonstrated that "repayments of the principal on loans or return of capital contributions are not, as the Government's theory alleged, taxable income that must be reported on a tax return." Id.

The government objected to Mehler's summaries, on grounds of hearsay, relevance, and timeliness, and moved to exclude five of them. The summaries were based on specific valuations of furnishings and other property at the hotel. The district court found that portions of the defendant's expert testimony relating to the specific summaries and details regarding the depreciation schedules were irrelevant and that the probative value of the challenged evidence was therefore outweighed by its potential to cause jury confusion. ⁴ Specifically, the court stated:

This whole question of depreciation it seems to me truly is a red herring in this case.

....

I fail to see the connection between depreciation that was not taken on the corporate tax returns and the failure of the defendant, if it was a failure, to declare on the tax returns that were filed income taken from the corporations.

J.A. 1302, 1304. Thus, the district court excluded the depreciation schedules, summaries, and Mehler's testimony regarding them.

Trial courts have considerable discretion to determine whether to admit expert testimony. See Hamling v. United States, 418 U.S. 87, 108 (1974); see also United States v. Jones, 913 F.2d 174, 177 (4th Cir. 1990) ("A reviewing court should not disturb a trial court determination to admit evidence unless the trial court has acted 'arbitrarily or irrationally.'") (quotation and citation omitted). Rule 403 states that:

Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence.

Fed. R. Evid. 403.

The excluded portion of Mehler's testimony relating to the detailed summaries and depreciation schedules may have shown that Iskander's corporations were entitled to take additional corporate paper deductions. Such a showing might have been relevant if the defendant was charged with corporate tax evasion. However, the grand jury charged Iskander with evading personal income tax by skimming receipts from his businesses and then converting those receipts to his own use without reporting any income on his personal tax returns. The government referred to the corporate returns to prove that Iskander under-reported the gross receipts from his hotels, because that fact supports their skimming theory and relates to their argument that the bad-debt deductions, taken on his personal tax returns, were wilfully false. The availability of the depreciation deductions does not affect the gross receipts of the corporations. Neither does the existence of those deductions undermine the government's "bad-debt" theory. Fenwick Properties was profitable based on the actual gross receipts presented by the government to the jury. Therefore, the government used the corporate tax returns solely to show the defendant's claimed bad-debt deduction on his personal tax return was wilfully false, because he falsely asserted, as demonstrated on his corporate tax returns, that Fenwick Properties was losing money, a necessary predicate to claiming the bad-debt deduction. Consequently, the presentation of detailed valuation summaries and depreciation schedules for the corporations was irrelevant and potentially confusing to the jury.

Importantly, the court's exclusion of parts of Mehler's testimony did not impact defendant's ability to argue that his failure to claim all depreciation deductions available to the corporations showed his lack of sophistication in tax and financial matters. During the cross examination of Vardavas, defense counsel had already elicited testimony that Vardavas believed that Iskander had understated the corporate depreciation those businesses were entitled to take. Furthermore, Mehler was allowed to testify to the general fact that, in his opinion, Iskander had not taken all the depreciation to which the hotels were entitled.

The district court also ruled that Iskander failed to present to the government, in a timely fashion, the name of the expert and the evidence on which the expert planned to rely. The depreciation deduction testimony was based in significant part on Mehler's expert opinion concerning property valuations and depreciations. The government requested notice of the defendant's intent to offer expert opinion evidence at trial and Iskander failed to provide timely notice of his intent to introduce expert testimony on the matters of property valuations and depreciations or the basis of his expert's opinions. ⁵ Rule 16 of the Federal Rules of Criminal Procedure required Iskander to do both. The rule provides that:

(C) Expert witnesses. The defendant must, at the government's request, give to the government a written summary of any testimony that the defendant intends to use under Rules 702, 703, or 705 of the Federal Rules of Evidence as evidence at trial, if --

(i) the defendant requests disclosure under subdivision (a)(1)(G) and the government complies; or

(ii) the defendant has given notice under Rule 12.2(b) of an intent to present expert testimony on the defendant's mental condition.

This summary must describe the witness's opinions, the bases and reasons for those opinions, and the witness's qualifications

Fed. R. Crim. P. 16.

Iskander does not deny that he failed to fully comply with the rules concerning expert discovery. Instead he argues that within the context of the government's "late" superseding indictment, timeliness should not be an issue for the government and that the government did not need time to prepare for Mehler's testimony. The district court did not agree. ⁶ Based on an abuse of discretion standard of review and the facts related above, we cannot find that the court's decision to exclude a portion of defendant's expert witness' testimony was arbitrary and irrational. See Fed. R. Crim. P. 16(d)(2)(C). ("Failure to Comply. If a party fails to comply with this rule, the court may: ... prohibit that party from introducing the undisclosed evidence; or enter any other order that is just under the circumstances.").

B.

Next, Iskander argues that the district court's ruling, admitting a Dun & Bradstreet report as a business record, was error. The report supported the government's assertion that Iskander's educational background in Egypt and work experience involved accounting. Defendant avers that the "Dunn [sic] & Bradstreet Affidavit contains uncorroborated, hearsay information from an unknown source." Appellant's Br. at 34. Defendant contends that the affidavit was inadmissable hearsay, which should have been excluded, because it was used "as a basis to show an essential element of the offenses: an accused's willful intent to commit a tax evasion offense or structuring." Id. at 36.

During trial, Iskander made a Confrontation Clause type objection, asserting that the Dun & Bradstreet report was improperly admitted because he did not have the opportunity for cross-examination. The Supreme Court held in Crawford v. Washington, "[w]here testimonial statements are at issue, the only indicium of reliability sufficient to satisfy constitutional demands is the one the Constitution actually prescribes: confrontation." 541 U.S. 36, 68-69 (2004). The Court in Crawford divided out-of-court statements into two categories, those that are testimonial in nature and those that are not, asserting that testimonial hearsay is the "primary," if not the only, object of the Confrontation Clause. See id. at 53. It then held that the testimonial statement of a person who does not appear as a witness at the trial may not be admitted against the accused to prove the truth of the statement unless the declarant is unavailable to appear as a witness and the accused had a prior opportunity for cross-examination. Id.

We find that we need not reach the issues of whether the Dun & Bradstreet report qualifies as a business record or whether the admission of the report violates the Confrontation Clause, as set out in Crawford, because the Dun & Bradstreet report was merely cumulative of other testimony establishing that Iskander had accounting and business experience. We articulated in Cooper v. Taylor, 103 F.3d 366, 370 (4th Cir. 1996), the standard to determine if a trial court error is harmless. We stated that:

In order for an error to have a substantial and injurious effect or influence, it must have affected the verdict. Because juries have a limited number of responses to give in a criminal trial --guilty, innocent, or cannot decide --an error is harmless when the error did not substantially sway or substantially influence the response.

Thus, if the evidence is not merely sufficient, but so powerful, overwhelming, or cumulative that the error simply could not reasonably be said to have substantially swayed the jury's judgment, then the error is not harmful. On the other hand, if the federal court is in grave doubt about whether the trial error had a substantial and injurious effect or influence on the verdict and therefore finds itself in virtual equipoise about the issue, the error is not harmless.

Id. at 370 (citations and internal quotation marks omitted).

The government presented testimony by Soliman and Vardavas establishing that Iskander had knowledge of accounting practices and was a sophisticated businessman. Further, the government presented evidence to show that he acted with the requisite willful intent through evidence exposing the evasion scheme itself. The government provided both documentary and testimonial evidence showing that Iskander deliberately under-reported his corporate receipts and then took affirmative steps to conceal the diversion of those funds --funds he used to his own benefit. Thus, we find that any error caused by the admission of the Dun & Bradstreet report was cumulative and therefore harmless.

C.

Iskander contends, in his third argument, that the evidence presented at trial was insufficient to prove willful tax evasion. Iskander focuses on the evidence the government introduced to show that he was aware of accounting principles to support its assertion that he acted willfully. Defendant describes that evidence as insubstantial, hearsay, and conjecture. Thus, in essence, Iskander asserts that the government failed to carry its burden.

As discussed supra, the government presented testimonial evidence during the trial to support its assertion that Iskander was familiar with principles of accounting and business. In addition, the government introduced evidence regarding Iskander's knowledge that the monies he was taking from the hotels did not represent repayments of shareholder loans and that the then-claimed bad-debt deductions on his personal tax returns were based on false representations that Fenwick Properties was unprofitable. ⁷ This evidence is substantial and would allow a rational trier of fact to find that defendant deliberately evaded his personal income tax.

In the alternative, Iskander avers that he had a good faith belief, although it may have been unreasonable, that he was complying with the tax laws. Defendant cites Cheek v. United States [ 91-1 USTC ¶50,012], 498 U.S. 192, 201 (1991), for the proposition that a belief, in good faith, that one has complied with the tax laws negates willfulness and is therefore a defense, even if the belief is unreasonable. The Court in Cheek did find that the courts below were wrong to hold that "a good-faith misunderstanding of the law or a good-faith belief that one is not violating the law, if it is to negate willfulness, must be objectively reasonable." Id. However, the taxpayer's subjective beliefs regarding his "ignorance of the law" or his "misunderstanding of the law" is a question for the jury. Id. at 203.

In the case at bar, Iskander had the opportunity to present evidence regarding his good faith belief or ignorance of the tax laws. Nevertheless, the jury found him guilty on Counts Two, Three, and Ten which state that the defendant "did willfully attempt to evade and defeat a large part of the income tax due." J.A. 32, 33, 35. In other words, the jury found beyond a reasonable doubt that Iskander did not have a subjective belief, irrational or otherwise, that he was not violating the law when he took cash from the hotel properties and did not declare those monies as income and when he subsequently wrote the loans off as an uncollectible bad-debt on his personal tax returns. Defendant does not assert that the district court did not properly instruct the jury on the good faith defense or on the government's burden of proof. Therefore, we find that viewed in a light most favorable to the government, there was sufficient evidence to support the jury's verdict.

D.

Finally, Iskander challenges his sentence. His most persuasive argument is that because the district court enhanced his sentence based on its finding that he used sophisticated means to commit tax evasion, and not the jury's verdict, his sentence violates the Sixth Amendment.

The district court, in computing Iskander's offense level, relied on the 1995 Sentencing Guidelines, ⁸ which allow for the grouping of the offenses ⁹ when the offense level is largely determined by the total amount of harm or loss. See U.S.S.G. §3D1.2(d). The guideline range for violation of 26 U.S.C. §7201 is found in U.S.S.G. §2T1.1(a)(1), and calls for a base offense level of 17 based on a tax loss of $363,859. ¹⁰ Because the court determined that sophisticated means were used to impede discovery of the existence or extent of the offense, two levels were added, pursuant to U.S.S.G. §2T1.1(b)(2), bringing the offense level to 19. In computing Iskander's criminal history, the PSR notes that defendant had a previous conviction of child endangerment and was on probation at the time the instant offense was committed, resulting in a total of three criminal history points. According to the Sentencing Guidelines' Table, three criminal history points constitute a criminal history category of II. Consequently, the district court sentenced defendant within the Sentencing Guidelines' range of 33 to 41 months of imprisonment, when it imposed the sentence of 41 months. Absent the two point enhancement, Iskander's guideline range would have been 27-33 months.

In Booker, the Supreme Court held that the mandatory manner in which the federal Sentencing Guidelines required courts to impose sentencing enhancements based on facts found by the court, by a preponderance of the evidence, violated the Sixth Amendment. See Booker, 125 S. Ct. at 756-57. The Court remedied the constitutional violation by severing two statutory provisions, thereby making the Sentencing Guidelines advisory. Id. at 764. Thus, we recognized in Hughes, that "there are two potential errors in a sentence imposed pursuant to the pre-Booker mandatory guidelines regime: a Sixth Amendment error, ... and an error in failing to treat the guidelines as advisory." 401 F.3d at 552. Because these issues were not clearly raised during the sentencing hearing, we review the district court's sentence for plain error. Id. at 547 ("Because issue was not advanced in the district court, we review the district court decision for plain error.").

The district court clearly made a two point enhancement, when it found that Iskander had used sophisticated means. This finding was based on a preponderance of the evidence standard and lay outside of the jury's verdict. Therefore, under Booker, the court erred in imposing a sentence on Iskander based on the two point enhancement, ¹¹ because his sentence then exceeded the maximum sentence authorized by the facts found by the jury alone. Id. at 547-48. ¹² Following this court's reasoning in Hughes, we find that the district court's error was plain and prejudicial, and we vacate Iskander's sentence and remand for resentencing "consistent with the remedial scheme set forth in Justice Breyer's opinion for the Court in Booker." Id. at 544.

IV.

Based on the foregoing, we affirm Iskander's convictions, vacate his sentence, and remand to the district court for resentencing, in accordance with this opinion.

AFFIRMED IN PART, VACATED IN PART, AND REMANDED.

^* United States District Judge for the Northern District of West Virginia, sitting by designation.

¹ At the close of the government's case in chief, the trial court granted Mrs. Iskander's Motion for Judgment of Acquittal as to Count One of the superseding indictment. As there were no unknown coconspirators alleged, the trial court then granted defendant judgment of acquittal as to the same conspiracy count. After deliberating, the jury acquitted Mrs. Iskander on Counts 4, 5, 7, 9, and 10, and was unable to reach a verdict on Counts 6, 8, 11, 12, and 13.

² Iskander argues that:

The trial court's ruling "gutted" the Appellant's case, stripping him of the ability to confront the additional tax returns beyond those charged in the indictment that the Government entered into evidence in an effort to show that the Appellant acted "willfully." As a result the trial court's ruling was an abuse of discretion because it failed to liberally interpret relevance, or permit the Appellant to rebut that his under-reporting and/or improper bad debt deductions were done willfully, in bad faith or with evil intent.

Appellant's Br. at 34.

³ Relying on an affidavit provided by a Dun & Bradstreet custodian of records, the district court allowed the government to introduce the report as a business record pursuant to Fed. R. Evid. 803(6) and 902(11).

⁴ The court stated that:

the evidence is excluded both because it is irrelevant, and, to the extent that it is marginally relevant under Rule 403, the waste of time and judicial resources and the confusion of the issues that would be attended to try to make sense of all this retrospective redoing of the corporate tax returns seriously undermines the Court's legitimate interest in getting this case concluded in an orderly fashion.

J.A. 1304.

⁵ The government did not offer its federal tax accountant as an expert.

⁶ The court stated: "I credit the government's assertion that to meet the schedules depicted in Defense Exhibits 21 and 21A, would indeed, require considerable expertise. We are essentially talking a depreciation schedule going back to 1985. The government does not have access to these records." J.A. 1303.

⁷ The government presented testimony from Vardavas and Soliman to show that Iskander kept a second set of records reflecting the "actual" income of his two hotels versus the under-reported gross receipts he gave to his accountant. There was also evidence regarding a loan application prepared by defendant in September 1995 --two days before the date on which he filed the Ocean Properties tax return for 1994 --in which he made representations concerning the gross receipts for the hotel. In the loan application he submitted information showing that the hotel grossed approximately one million dollars, but in his tax return he alleged the hotel made $700,000. The government also submitted evidence showing that Iskander made almost $800,000 in structured currency deposits --deposits all under the $10,000 threshold that triggers notification to the IRS. During this time, Iskander filed tax returns reporting zero taxable income.

⁸ Guideline section 1B1.11 instructs the court to use the Sentencing Guidelines in effect on the date of sentencing unless that manual would violate the ex post facto clause of the United States Constitution. The probation officer found in the Presentence Report ( "PSR") that the 2003 manual violated the ex post facto clause, therefore, the officer recommended, and the court appropriately used, the 1995 Sentencing Guidelines because they were in effect during the time when the offenses of conviction were committed and it benefitted defendant.

⁹ When counts are grouped under §3D1.2(d), the offense level applicable to a Group is the offense level for the most serious of the counts comprising the Group, i.e., the highest offense level of the counts in the group. In this case, that was Counts Two or Three, in violation of 26 U.S.C. §7201 --tax evasion.

¹⁰ The district court adopted the PSR which states that the tax loss for the purpose of computing Iskander's guideline range was $363,859 based on what the government established at trial through its tax witness. The tax loss calculation included only unreported income from the diversion of corporate checks to personal investment accounts held by the Iskanders and the tax loss from the fraudulent bad-debt deductions.

¹¹ We of course offer no criticism of the district judge, who followed the law and procedure in effect at the time of Iskander's sentencing.

¹² This court states in United States v. Gray that --

Although the Sentencing Guidelines are no longer mandatory, Booker makes clear that a sentencing court must still "consult [the] Guidelines and take them into account when sentencing." 125 S. Ct. at 767. On remand, the district court should first determine the appropriate sentencing range under the Guidelines, Hughes, 2005 WL 628224, at *4. The court should consider this sentencing range along with the other factors described in 18 U.S.C. §3553(a), and then impose a sentence. Id. If that sentence falls outside the Guidelines range, the court should explain its reasons for the departure, as required by 18 U.S.C. §3553(c)(2). Id. The sentence must be "within the statutorily prescribed range and ... reasonable." Id.

No. 02-4990, 2005 U.S. App. LEXIS 7439, at *42 (4th Cir. Apr. 29, 2005).

 

 

 

[2005-2 USTC ¶50,507] United States of America, Plaintiff-Appellee v. Richard Michael Simkanin, Defendant-Appellant.

U.S. Court of Appeals, 5th Circuit; 04-10531, August 5, 2005.

Affirming an unreported DC Texas decision.

[ Code Secs. 7202 and 7203]

Criminal procedure: Jury instructions: Good faith defense: Admissibility of evidence: Sentencing: Upward departure. --

A individual's conviction for willfully failing to collect and pay over employment taxes, knowingly making and presenting false claims for refund of employment taxes, and failing to file income tax returns was upheld, as was the enhanced sentence imposed by the district court. On appeal, the individual challenged the jury instructions on the good faith defense and the judge's response to a question from the jury, certain evidentiary rulings and the enhancement to the guideline sentence. All of these challenges were rejected.

Before: King, Chief Judge and Davis, Circuit Judge, and Rosenthal ^* , District Judge.

KING, Chief Judge: Defendant-Appellant Richard Michael Simkanin appeals his conviction for ten counts of willfully failing to collect and pay over employment taxes in violation of 26 U.S.C. §7202, fifteen counts of knowingly making and presenting false claims for refund of employment taxes in violation of 28 U.S.C. §§287 and 2, and four counts of failing to file federal income tax returns in violation of 26 U.S.C. §7203. He also appeals his sentence of eighty-four months imprisonment. For the following reasons, we AFFIRM Simkanin's conviction and sentence.

I. BACKGROUND

Defendant-Appellant Richard Simkanin owned Arrow Custom Plastics, Inc. ("Arrow") since its incorporation in 1982. In 1993, Simkanin met with an accountant, Jim Kelly, who advised him that he would need to change Arrow's accounting method and that this change would result in an increase in Arrow's corporate income tax. Simkanin thereafter began to question the federal tax system's applicability to him and its validity in general. On his 1994 and 1995 individual income tax returns, he made notations ( i.e., "UCC 1-207") apparently in an attempt to indicate that the returns were filed under protest. He did not file individual tax returns for the years 1996-2001.

With respect to the 1996 and 1997 returns, Simkanin told Kelly that he was not required to file returns because he did not receive any income but rather lived entirely off of his savings. However, this statement was false --Simkanin did in fact receive a salary from Arrow during these years, and his salary was sufficiently high such that Simkanin owed federal income taxes. On Arrow's books, Simkanin's salary was initially identified as "officer salary" and then later as "remuneration," without any reference to Simkanin being the recipient of the funds. During these years, Simkanin also received payment from Arrow for his personal expenses, which were booked as "repair and maintenance."

In 1996, Simkanin surrendered his Texas driver's license, and when stopped by the police while driving, he showed a card styled "British West Indies International Motor Vehicle Qualification Card," which he had acquired from a mail order business in Connecticut. He also mailed to the U.S. Treasury Secretary a statement that he had expatriated himself from the United States and repatriated to the Republic of Texas. He posted the same statement on Arrow's internet website, where he also vowed to ignore the laws of the United States.

In 1997, Simkanin removed his name from Arrow's checking and credit card accounts, replacing his name with the name of Arrow's bookkeeper Dianne Clemonds. Simkanin told Clemonds that he did not want his name to appear on documents requiring his social security number. Simkanin then listed Clemonds as Arrow's president on various legal documents, although he retained complete de facto responsibility for the company's affairs and continued to make all of the decisions regarding finances and taxes.

By May 1999, Simkanin had become involved with an organization called We The People Foundation for Constitutional Education ("WTP"), which promotes the view that, despite common misconceptions, there is actually no law that requires most Americans to pay income taxes or most companies to withhold taxes from employees' paychecks. WTP also espouses the view that the Sixteenth Amendment was fraudulently declared to have been ratified. In accordance with these views, Simkanin told accountant Kelly and others that he was not required to pay taxes and that filing returns was purely voluntary. Kelly advised Simkanin that filing returns was not voluntary and that Simkanin could get into trouble if he did not file. Simkanin rejected this advice, and he began to pressure Arrow's employees to attend seminars sponsored by WTP.

In November 1999, Simkanin told Kelly that Arrow would no longer withhold employment taxes from employees' paychecks. Kelly counseled against this course of action. In response to Simkanin's stated intentions, Clemonds consulted with an attorney. She was advised that she could be personally liable if she went along with Simkanin's plan to stop collecting and paying over taxes. Clemonds therefore resigned from her position at Arrow, and Simkanin returned his name to the Arrow bank accounts as sole signatory. He then stopped Arrow's withholding of federal taxes from the wages paid to its employees.

In January 2000, Simakanin filed with the IRS fifteen claims for tax refunds. He claimed he was owed refunds for taxes paid by Arrow in 1997-99 and also for the taxes collected from, and paid by, Arrow's employees. The IRS denied all of these claims, and Simkanin did not seek further review.

In March 2000, Kelly and Fred Taylor, a named partner in Kelly's accounting firm, went to Simkanin's office to discuss his refusal to withhold and pay federal taxes or file returns. Simkanin reiterated that he had no intention of paying taxes. Taylor advised Simkanin that he could be criminally prosecuted for his actions and, by letter dated March 28, 2000, terminated Simkanin and Arrow as clients.

On March 2, 2001, a full page advertisement by WTP appeared in USA Today. The ad prominently displayed the photographs of five men, including Simkanin. The advertisement stated, inter alia, that Simkanin and the other men pictured had stopped withholding taxes from their workers' paychecks and that they were part of a "growing number of people" who believe that:

1. There is no law that requires workers, as U.S. citizens earning their money from domestic companies, to pay income or employment taxes; nor to have those taxes withheld;

 

2. The 16th Amendment (the "Income Tax Amendment") was fraudulently declared to be ratified by the Secretary of State in 1913.

The ad concluded with a request for "donations" to WTP.

On March 14, 2001, Simkanin was advised that he was the target of a criminal investigation regarding his failure to file individual income taxes since 1995 and his failure to collect and pay over employment taxes since January 2000. In July 2001, Simkanin was served with a grand jury subpoena that sought the corporate records of "Arrow Custom Plastics, Inc." In response to the subpoena, Simkanin dissolved the corporation and operated Arrow as a sole proprietorship. Despite Simkanin's refusal to produce Arrow's corporate records, the government was able to obtain information about the amount of wages paid to Arrow's employees from the Texas state agency that collected unemployment taxes from Arrow.

On June 19, 2003, an indictment was returned, charging Simkanin with twelve counts of willfully failing to collect and pay over federal income taxes and Federal Insurance Contribution ("FICA") taxes from the total taxable wages of Arrow employees in violation of 26 U.S.C. §7202, ¹ and fifteen counts of filing false claims for tax refunds in violation of 18 U.S.C. §287. On August 13, 2003, a superceding indictment was returned, charging Simkanin with the same substantive crimes but stating the applicable law more fully.

On September 3, 2003, the parties filed a plea agreement and a factual resume in which Simkanin pled guilty to four counts of the superceding indictment. However, the plea agreement misstated the maximum penalty to be lower than the actual maximum of five years imprisonment and three years supervised release. The government notified the court that Simkanin had not actually agreed to plead to a count with the maximum penalty of five years incarceration. The court ultimately ordered a deadline for completing a plea agreement, and when the government and Simkanin had not agreed to a new plea agreement by that date, the case went to trial.

Simkanin's first trial began on November 25, 2003. A number of Simkanin's supporters were present outside the courthouse handing out pamphlets on jury nullification. The jury was unable to reach a unanimous verdict, and the district court declared a mistrial. One of the jurors subsequently contacted the court's staff and expressed concern about the behavior of Simkanin's supporters and one of the members of the jury. It was later revealed that some of the jurors had been contacted by Simkanin's supporters.

On December 17, 2003, a second superceding indictment was returned, charging Simkanin with the same offenses in the first superceding indictment plus four additional counts of failure to file individual income tax returns. Counts One through Twelve charged Simkanin with willfully failing to collect and pay over federal income taxes and FICA taxes from the total taxable wages of Arrow employees in violation of 26 U.S.C. §7202 (with each count pertaining to a different tax quarter). Counts Thirteen through Twenty-Seven charged Simkanin with knowingly making and presenting fifteen false claims for the payment of refunds of the employer's share of FICA taxes paid by Arrow and of the employees' share of FICA taxes and income taxes collected from Arrow's employees in violation of 28 U.S.C. §§287 and 2. Finally, Counts Twenty-Eight through Thirty-One charged Simkanin with failing to file federal income tax returns in violation of 26 U.S.C. §7203.

The second trial began on January 5, 2004. ¹ Simkanin primarily attempted to establish that he did not willfully violate the tax laws because he held a good-faith belief that he was not obligated to pay individual income taxes or to withhold employment taxes from the wages paid to Arrow's employees. Simkanin took the stand and testified that, inter alia, according to his own research: (1) the Constitution provides for two types of taxes --a direct tax and an indirect tax; (2) the income tax is an indirect tax; (3) a man's labor is his own property and cannot be subject to an indirect tax; and (4) the wages that a person receives for his labor are not subject to the income tax. Simkanin further testified that he stopped paying his income taxes and stopped withholding employment taxes from the wages of Arrow's employees because he "could not find out what the tax was on."

To support his defense, a number of other witnesses testified that they had informed Simkanin that the federal income tax laws, as written, did not require Simkanin to pay taxes and that the income tax was constitutionally invalid. Joseph Banister, a supporter of WTP, testified that he met Simkanin at a conference entitled "Citizens' Summit to End the Unlawful Operations of the Internal Revenue Service," at which Banister was a speaker. Rob ert Schultz, founder and CEO of WTP, testified that he advised Simkanin that his research showed that the Sixteenth Amendment had been fraudulently declared to have been ratified and that the constitutional definition of the word "income" is different than the common understanding of income. Larken Rose testified that, through phone conversations with and emails to Simkanin, he explained that the income of the average American is not subject to the federal income tax and that the law merely applies to people engaged in certain types of international trade. Banister, Schultz, and Rose all testified that they did not advise Simkanin to stop withholding taxes or to stop filing tax returns. Eduardo Rivera, an attorney from California, testified that he had consulted with Simkanin in 1999, that Simkanin had paid him over $10,000, and that he told Simkanin that his employees had no legal duty to pay a tax and that Simkanin only had a duty to send money on their behalf to the government if he contracted with them to do so. ²

A government witness, a district director for Congressman Joe Barton, testified that Simkanin had corresponded with Barton's office regarding taxes and the IRS. Barton's office had received, and forwarded to the IRS, letters written by Simkanin expressing his view that he was not required to withhold taxes from his workers' paychecks and that wages are not a source of income subject to federal taxation. The district director testified that Barton's office responded with a letter stating that Simkanin's stated opinions were based on a flawed interpretation of the Internal Revenue Code (the "IRC"), that wages are indeed taxable under federal laws and regulations, and that Simkanin's interpretation had been rejected by the courts.

The jury began its deliberations on January 6, 2004, and on January 7, it returned a verdict of guilty as to Counts Three through Thirty-One. The jury was unable to reach a verdict as to Counts One and Two, and the government moved to dismiss those counts, which the district court did.

At sentencing, the district court applied the 2003 version of the United States Sentencing Guidelines, and it determined Simkanin's criminal history category to be I and his offense level to be Twenty-Two, with a corresponding sentencing range of forty-one to fifty-five months imprisonment. The court decided to depart upwardly from that range, concluding that a range of eighty-four to 105 months more appropriately reflected the likelihood that Simkanin would re-offend. The court then imposed a sentence of eighty-four months. Simkanin appeals both his conviction and his sentence.

II. DISCUSSION

A. The District Court's Response to the Jury Note

Simkanin argues that the district court, when providing a supplemental jury instruction in response to a note from the jury, directed a verdict in favor of the prosecution with respect to one or more essential elements of the offense. We review de novo whether a jury instruction directed a verdict on an element of the offense. See United States v. Bass [ 86-1 USTC ¶9313], 784 F.2d 1282, 1284 (5th Cir. 1986). In light of the particular circumstances involved in this case, we conclude that the district court did not direct a verdict for the government on an element of the offense.

In Cheek v. United States [ 91-1 USTC ¶50,012], 498 U.S. 192, 201-03 (1991), the Supreme Court defined "willfulness" for prosecutions under the IRC as requiring a "voluntary, intentional violation of a known legal duty." The Court reasoned that because of the complexity of the tax laws, willful criminal tax offenses must be treated as an exception to the general rule that ignorance of the law or a mistake of law is no defense to criminal prosecution. Id. Moreover, the Court found that a defendant's good-faith belief that he was not violating the law need not be objectively reasonable to negate willfulness. Id. However, the Court distinguished a defense based on the defendant's good-faith belief that he was acting within the law from a defense based on the defendant's views that the tax laws are unconstitutional or otherwise invalid. Id. at 204-06. The Court held that the latter belief, regardless of how genuinely held by the defendant, does not negate the willfulness element. Thus, the Court concluded that evidence pertaining to a defendant's beliefs that the tax laws are invalid is irrelevant to establishing a legitimate good-faith defense. Id.; see also FIFTH CIRCUIT PATTERN JURY INSTRUCTIONS: CRIMINAL §1.38 (West 2001).

The availability of the good-faith defense, while undeniably sound, ³ creates a number of complications and challenges for a district court beyond those arising in the usual criminal trial, in which the defendant's beliefs about what the law requires are not at issue. The defendant in a criminal tax trial, unlike most other defendants, must be permitted to present evidence to show what he purportedly believed the law to be at the time of his allegedly criminal conduct. At the same time, however, the district court must be permitted to prevent the defendant's alleged view of the law from confusing the jury as to the actual state of the law, especially when the defendant has constructed an elaborate, but incorrect, view of the law based on a misinterpretation of numerous IRC provisions taken out of proper context. See, e.g., United States v. Barnett [ 91-2 USTC ¶50,519], 945 F.2d 1296, 1300 (5th Cir. 1991) (stating that "[t]he jury must know the law as it actually is respecting a taxpayer's duty to file before it can determine the guilt or innocence of the accused for failing to file as required"). The district court in this case, like other courts in similar cases, struggled to balance these two competing concerns when it answered the jury's confusion as to the correct interpretation of the law, which unsurprisingly resulted from Simkanin's testimony about his own erroneous beliefs about the law. Thus, it is with this set of circumstances in mind that we consider Simkanin's arguments on appeal.

In its initial instructions, the district instructed the jury that, in order to convict Simkanin on Counts One through Twelve (willfully failing to collect and pay over federal taxes from the total taxable wages of Arrow employees in violation of 26 U.S.C. §7202), the jury must find beyond a reasonable doubt that: (1) Arrow was an employer that paid wages to its employees; (2) Simkanin was an official of Arrow who had responsibility for its decisions regarding the withholding from its employees' wages of Medicare, social security, and federal income taxes, the accounting for such taxes, and the payment of such taxes over to the IRS; (3) Simkanin caused Arrow not to withhold and not to account truthfully for and pay over such taxes; and (4) Simkanin's conduct in causing Arrow not to withhold, account for, and pay over such taxes was willful. The court further instructed the jury that:

Within the meaning of [26 U.S.C. §7202], during the years 2000, 2001, and 2002, [Arrow], through its responsible officials, had a legal duty to collect, by withholding from the wages of its employees, the employees' share of social security taxes, Medicare taxes, and federal income taxes, and to account for those taxes and to pay withheld amounts to the United States of America.

Simkanin did not object to these instructions at the time they were given.

At trial, Simkanin testified that one reason behind his decision not to withhold taxes from Arrow's employees was his belief that the IRC, which is over 7,000 pages long, contains an extensive (and exclusive) list of industries and activities. Simkanin stated that because Arrow did not operate in any of the listed industries or perform any of the listed activities, he concluded that Arrow's workers were not employees under the IRC and that he therefore was not required by law to withhold taxes. He further stated that he believed that the definition of an "employee" under the IRC was limited only to persons who worked for a governmental entity including the state or a political subdivision thereof. ⁴

During its deliberations, the jury sent a note to the district judge asking the following question:

Since no proof has been made that the defendant and his employees are in an occupation listed in those 7,000 [pages], are we to conclude that they are, in fact, not in that 7,000, or do we need to read all 7,000 to see what the defendant was referring to, and in fact, wasn't listed in the 7,000[?]

The court responded to the jury's question by stating:

Now, in answer to your note: You are instructed that you do not need to concern yourself with whether defendant's employees are in an occupation "listed in those 7,000." The Court has made a legal determination that within the meaning of Title 26, United States Code, Section 7202, during the years 1997, 1998, 1999, 2000, 2001, and 2002, [Arrow], through its responsible officials, had a legal duty to collect, by withholding from the wages of its employees, the employees' share of the social security taxes, Medicare taxes, and federal income taxes, and to account for those taxes and pay the withheld amounts to the United States of America. You are to follow that legal instruction without being concerned whether there are certain employers who are not required to collect and withhold taxes from the wages of their employees.

 

Of course, you will bear in mind in your deliberations all other instructions the Court has given you concerning the law applicable to this case.

Defense counsel objected to the court's response on the ground that, inter alia, the response "amount[ed] to an instructed verdict of guilty by instructing [the jury] on that point since that is the disputed issue and the basis for his defense." ⁵

The trial transcript, as well as Simkanin's initial brief, make perfectly clear that the disputed issue at trial was whether Simkanin willfully violated the federal tax laws. The basis for his defense was that he did not willfully fail to collect and pay over taxes in violation of §7202 (and that he did not knowingly present false claims for refund) because he believed in good faith that he was not required by law to withhold such taxes.

Simkanin argues on appeal that the district court's response to the jury note constituted a directed verdict on an essential element of the offense, and therefore reversible error, for two reasons. First, Simkanin argues that the court's response erroneously instructed the jury to disregard Simkanin's good-faith defense. Second, he asserts that the court directed a verdict for the prosecution on the first element of the §7202 offense --that Arrow was an employer that paid wages to its employees. He contends that the district court's error in this regard warrants the vacatur of his conviction as to Counts 3-12 (willful failure to withhold) and Counts 13-27 (false claims of refund for taxes withheld).

As we stated in United States v. Cantu, 185 F.3d 298, 305-06 (5th Cir. 1999):

The district court enjoys wide latitude in deciding how to respond to questions from a jury .... Overall, we seek to determine whether the court's answer was reasonably responsive to the jury's questions and whether the original and supplemental instructions as a whole allowed the jury to understand the issue presented to it.

(internal citation and quotation marks omitted). "It is well established that the instruction may not be judged in artificial isolation, but must be considered in the context of the instructions as a whole and the trial record." Estelle v. McGuire, 502 U.S. 62, 72 (1991) (internal quotation marks omitted).

In arguing that the district court's response directed the jury to disregard his good-faith defense, Simkanin relies on United States v. Burton [ 84-2 USTC ¶9689], 737 F.2d 439 (5th Cir. 1984), a case involving a defendant's failure to file income tax returns. In Burton, the district court instructed the jury that "[t]he court has ruled as a matter of law that a good faith belief that wages are not income is not a defense to the charges in this case." [ 84-2 USTC ¶9689], 737 F.2d at 440. We reversed, holding that a defendant's good-faith belief that the tax laws did not require him to file returns (as opposed to a belief that the tax laws are invalid or unconstitutional) would have negated the willful element of the charged offense and therefore constituted a valid defense. ⁶ Id. at 441-42. Burton is easily distinguishable, however, because unlike the district court in Burton, the district court in the present case did not explicitly instruct the jury to disregard the defendant's beliefs about the applicability of the tax laws. Rather, the court instructed the jury that the defendant's purported view of the law --that the fact that the IRC did not list his business activities alleviated him from a legal duty to withhold taxes --was incorrect. Thus, the district court acted properly under the circumstances. See Barnett [ 91-2 USTC ¶50,519], 945 F.2d at 1300. We see nothing in the district court's instruction that would have led the jury to believe that it must disregard Simkanin's good-faith defense on the willfulness element, especially because the court specifically instructed the jury to keep in mind the other instructions, which included its instruction on willfulness. ⁷ Thus, the jury remained free to decide the contested issue in the trial, i.e., whether Simkanin's violations of the tax laws were willful as that term was properly defined in the jury instructions.

Second, in a clever reconstruction of the district court's response to the jury note, Simkanin argues that the court's response constituted a directed verdict on another element of the offense, which was uncontested at trial --namely, the requirement that Arrow was an employer that paid wages to its employees. Counsel contends that, after the court informed the jury of its legal determination that Arrow had a legal duty to withhold, the jury logically could no longer find that Arrow was not an employer that paid wages to its employees --for if the jury found that Arrow was not an employer that paid wages to its employees, then it would mean that Arrow, in effect, did not have a legal duty to withhold taxes. This reading of the court's response, while plausible in a literal sense, is entirely divorced from a reading of the instructions as a whole, as well as from the context in which the jury asked its question and the court responded.

Simkanin relies heavily on this court's decision in Bass [ 86-1 USTC ¶9313], 784 F.2d at 1282. In Bass, the defendant was charged with willfully submitting false or fraudulent income tax withholding exemption statements to employers in violation of 26 U.S.C. §7205. [ 86-1 USTC ¶9313], 784 F.2d at 1283. The defendant asserted as one of his defenses that he could not be held criminally liable under §7205 because he was not an "employee" for the purpose of supplying withholding information on a W-4 to his employer. Despite this defense, the district in Bass instructed the jury that "as a matter of law the defendant ... was an employee of" the company in question. Id. at 1284. We found this instruction to be constitutionally erroneous because, "by instructing the jury that Bass was an employee, the district court relieved the prosecution of its duty of proving, beyond a reasonable doubt, Bass's guilt of every element of the offense charged." Id. at 1284-85.

Unlike in Bass, however, the district court in the present case did not explicitly direct a verdict on an essential element of the offense. At most, the court's response, when viewed in isolation, could be interpreted as implicitly requiring the jury to find that Arrow was an employer that paid wages to its employees, lest the jury's finding on that element logically conflict with the district court's instruction. However, the district court also expressly instructed the jury at least twice that, in order to convict Simkanin under §7202, it must determine beyond a reasonable doubt that Arrow was an employer that paid wages to its employees. Furthermore, when the court answered the jury's question, it reminded the jury to consider all the other instructions that had been given. Thus, when viewed in the context of the entire jury charge, the district court's response merely instructed the jury that Simkanin's belief that he was not required to withhold taxes because Arrow's activities were not listed in the 7,000 pages of the IRC was an incorrect view of the law, and that, if the jury found that Arrow was an employer that paid wages to its employees, Simkanin had a legal duty to withhold despite his professed belief to the contrary. ⁸ Hence, the district court's answer was reasonably responsive to the jury's question and was a correct statement of the law --it instructed the jury that whether or not Arrow's business activity appears on a list in the IRC is irrelevant to whether Simkanin had a legal duty to withhold. See Cantu, 185 F.3d at 305-06. The original and supplemental instructions as a whole allowed the jury to understand the issue presented to it and required the jury to decide whether the government had proven each essential element beyond a reasonable doubt. See id. Accordingly, we conclude that, when the district court's response is viewed in the context of the instructions in their entirety, there was not a reasonable likelihood that the jury applied the instruction as if it were a directed verdict on that element of the offense. See United States v. Phipps, 319 F.3d 177, 189-90 (5th Cir. 2003) ("The question is ... whether this single misstatement makes the instruction defective as a whole. ... [T]he proper inquiry is not whether the instruction could have been applied in an unconstitutional manner, but whether there is a reasonable likelihood that the jury did so apply it." (internal citation and quotation marks omitted)); United States v. Musgrave, 483 F.2d 327, 335 (5th Cir. 1973). Accordingly, we find no error in the district court's response to the jury note.

Moreover, even if we were to conclude that the district court's response to the jury note was erroneous, which we do not, we still would not reverse on this ground. In this case, both parties agree that we should affirm if the government proves that the alleged error was harmless beyond a reasonable doubt. ⁹ See Neder v. United States, 527 U.S. 1 (1999); Chapman v. California, 386 U.S. 18, 23 (1967). Therefore, we would proceed under that assumption, and we would conclude that the government has met its burden to establish that any error here was harmless. In Bass [ 86-1 USTC ¶9313], 784 F.2d at 1285, we stated that we could not deem the court's explicit directed verdict on the "employee" element harmless "[b]ecause one of Bass's defenses was that he was not an 'employee[]' ...." Here, however, one of Simkanin's defenses was not that Arrow was not an employer that paid wages to its employees under the IRC (although one of his defenses was that he did not willfully violate the law because he erroneously believed that Arrow was not an employer that paid wages to its employees under the IRC). During the course of the trial, defense counsel introduced no evidence that Arrow was not an employer that paid wages to its employees, and defense counsel did not argue or otherwise suggest during the trial that the prosecution had not established this element beyond a reasonable doubt. On appeal, Simkanin does not point to any evidence introduced supporting the notion (or any conceivable basis upon which a rational juror could conclude) that Arrow was not an employer that paid wages to its employees under a legally accurate interpretation of the relevant sections of the IRC. Rather, Simkanin falls back on the argument that it is possible that the jury could have decided that the government's evidence, although uncontradicted, did not establish that element beyond a reasonable doubt. However, we believe that it would have been irrational for the jury to do so, and Simkanin's argument does not suffice to raise a reasonable doubt in our minds that the jury might have concluded that Arrow was not an employer that paid wages to its employees. This is an instance in which the relevant element was "supported by uncontroverted evidence" and in which the "defendant did not, and apparently could not, bring forth facts contesting the omitted element." Neder, 527 U.S. at 18-19. Accordingly, applying the harmless-error standard agreed upon by the parties, we would find any error here to be harmless beyond a reasonable doubt.

B. Instruction on Good-Faith

Simkanin next argues that the district court erred by refusing to include a specific jury instruction on his good-faith defense. As noted above, the district court's instructions with respect to Counts 1-12 (failure to withhold) stated that the jury must find beyond a reasonable doubt that Simkanin's conduct in causing Arrow not to withhold and not to account truthfully for and pay over such taxes was willful. In elaborating on the meaning of the term "willful," the court instructed the jury that:

To act willfully means to act voluntarily and deliberately and intending to violate a known legal duty. For the government to establish willfulness as to Counts 1-12 of the indictment, it must prove beyond a reasonable doubt as to the count in consideration that defendant knew of the requirements of federal law that [Arrow] collect, by withholding from its employees' wages, Medicare taxes, social security taxes, and federal income taxes, and to account for such taxes and pay them over to the [IRS], and that he voluntarily and intentionally caused [Arrow] to fail to comply with these requirements.

With respect to Counts 13-27 (false or fraudulent refund claims), the court instructed that the government must prove beyond a reasonable doubt that: (1) Simkanin "knowingly presented to an agency of the United States a false or fraudulent claim against the United States;" (2) Simkanin "knew that the claim was false or fraudulent;" and (3) the false or fraudulent claim was material. The court instructed that "knowingly, as that term has been used in these instructions, means that the act was done voluntarily and intentionally, not because of a mistake or accident."

Finally, with respect to Counts 28-31 (failure to file returns), the court instructed the jury that it must find beyond a reasonable doubt that: (1) Simkanin received gross income in the amounts stated in the indictment for the year in question (this element was satisfied by a stipulation); (2) Simkanin failed to file an income tax return, as required, by the date stated in the indictment; (3) Simkanin knew he was required to file a return; and (4) Simkanin's failure to file was willful. The court then reminded the jury "that to act willfully means to act voluntarily and deliberately and intending to violate a known legal duty." The court further stated that "[f]or the government to establish willfulness as to Counts 28-31 of the indictment, it must prove beyond a reasonable doubt as to the count under consideration that the defendant knew of the requirement of federal law that he file an income tax return, and that he voluntarily and intentionally failed to do so."

Defense counsel objected to these instructions on the ground that they did not include a specific instruction on good faith under Cheek [ 91-1 USTC ¶50,012], 498 U.S. at 192. Counsel argued that, for this reason, the district court failed to instruct the jury on the defense's theory of the case. Defense counsel also objected to the use of the phrase "known legal duty," rather than "known to the defendant." The district court overruled these objections.

This court reviews a district court's refusal to include a defendant's proposed jury instruction in the charge under an abuse of discretion standard. United States v. Rochester, 898 F.2d 971, 978 (5th Cir. 1990). The district court abuses its discretion by refusing to include a requested instruction only if that instruction: (1) is substantively correct; (2) is not substantially covered in the charge given to the jury; and (3) concerns an important point in the trial so that the failure to give it seriously impairs the defendant's ability to present effectively a particular defense. United States v. St. Gelais, 952 F.2d 90, 93 (5th Cir. 1992). Under this test, this court will not find an abuse of discretion where the instructions actually given fairly and adequately cover the issues presented by the case. ¹⁰ Rochester, 898 F.2d at 978.

As we discussed above, in Cheek [ 91-1 USTC ¶50,012], 498 U.S. at 201-04, the Supreme Court defined "willfulness" for prosecutions under the IRC as requiring a "voluntary, intentional violation of a known legal duty." The Court further found that, because of the complexity of the federal tax laws, criminal tax offenses with willfulness as an element must be treated as an exception to the general rule that a mistake of law is not a valid defense. Id. Thus, a defendant's good-faith belief that he is acting within the law negates the willfulness element. On the other hand, a defendant's good-faith belief that the tax laws are unconstitutional or otherwise invalid does not negate the willfulness requirement, and such evidence is therefore irrelevant to a good-faith defense. Id.; see also FIFTH CIRCUIT PATTERN JURY INSTRUCTIONS: CRIMINAL §1.38.

The Supreme Court in Cheek derived its definition of willfulness from United States v. Pomponio [ 76-2 USTC ¶9695], 429 U.S. 10 (1976) ( per curiam). In Pomponio, a case involving criminal charges of falsifying tax returns, the district court instructed the jury that a willful act meant "one done voluntarily and intentionally and with the specific intent to do something which the law forbids, that is to say with [the] bad purpose either to disobey or to disregard the law." [ 76-2 USTC ¶9695], 429 U.S. at 11 (internal quotation marks omitted) (alterations in original). The district court also instructed the jury that "'[g]ood motive alone is never a defense where the act done or omitted is a crime,' and that consequently motive was irrelevant except as it bore on intent." Id. (alteration in original). The court of appeals held that the final instruction was improper because the relevant statute required a finding of bad purpose or evil motive. Id. The Supreme Court reversed, noting that the court of appeals incorrectly assumed that the reference to "evil motive" in an earlier Supreme Court case meant something more than specific intent to violate the law. Id. The Court stated that "willful," as the term is used in the tax statutes, means "a voluntary, intentional violation of a known legal duty." Id. The Court determined that because the district court had instructed the jury as to that definition, the jury had been adequately instructed on willfulness, and an additional instruction on good faith was thus unnecessary. Id.

Accordingly, the district court in the present case was not required to include a specific instruction on good-faith because it adequately instructed the jury on the meaning of willfulness under Cheek and Pomponio. In other words, Simkanin's requested instruction was "substantially covered in the charge given to the jury" regarding willfulness. See St. Gelais, 952 F.2d at 93. In addition, taken together, the trial, charge, and closing argument laid the theory of the defense squarely before the jury, and the lack of the requested instruction did not seriously impair Simkanin's ability to present effectively his good-faith defense. ¹¹ Id.; United States v. Proctor, No. 03-20309, 118 Fed. Appx. 862, 863 (5th Cir. Dec. 30, 2004) ( per curiam) (unpublished) (quoting United States v. Gray, 751 F.2d 733, 735-36 (5th Cir. 1985)).

Finally, Simkanin complains that the phrase "known legal duty" in the instructions did not make it clear that the legal duty must have been known to the defendant. This claim ignores the next sentence of the instructions, which stated: "For the government to establish willfulness as to Counts 1-12 of the indictment, it must prove beyond a reasonable doubt as to the count in consideration that defendant knew of the requirements of federal law ... and that he voluntarily and intentionally caused [Arrow] to fail to comply with these requirements." Similarly, Simkanin ignores the actual language of the district court's instructions when, citing FIFTH CIRCUIT PATTERN JURY INSTRUCTIONS: CRIMINAL §1.37, he asserts that the district court did not instruct the jury that a defendant did not "knowingly" commit a tax offense if he acted by mistake. In fact, as noted above, the district court explicitly instructed the jury that "knowingly, as that term has been used in these instructions, means that the act was done voluntarily and intentionally, not because of a mistake or accident." Thus, Simkanin's argument fails.

C. Evidentiary Rulings

Simkanin's last argument with respect to his conviction is that the district court unfairly and arbitrarily excluded defense evidence and restricted the scope of cross-examination, thus hampering the presentation of his good-faith defense. We review a district court's rulings on the admission or exclusion of evidence for an abuse of discretion. United States v. Flitcraft [ 86-2 USTC ¶9778], 803 F.2d 184, 186 (5th Cir. 1986).

Simkanin argues that the district court erred because it allowed him only briefly to say what he knew, believed, and understood, but that it did not allow him to corroborate his sincerity in these assertions because it excluded from evidence certain documents on which Simkanin allegedly relied for his beliefs about the tax laws. ¹² The district court, however, explained that it did so because the documents would tend only to confuse the jury about the relevant issues in the case and were cumulative of Simkanin's testimony about what the documents said and how he relied upon them in forming his beliefs about what the tax laws required of him. Rule 403 of the Federal Rules of Evidence states that "[a]lthough relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence." In this instance, the district court did not abuse its discretion in concluding that the probative value of this evidence was far outweighed by its tendency to confuse the jury as to the correct state of the law and by its cumulative nature.

In Flitcraft [ 86-2 USTC ¶9778], 803 F.2d at 185-86, we addressed the defendants' claim that the district court had erred in excluding the documents upon which they allegedly relied in forming their beliefs about the tax laws; the defendants argued that such documents would increase the likelihood that the jury would credit the sincerity of the defendants' purported beliefs. This court held that the district court did not abuse its discretion in excluding the evidence under FED. R. EVID. 403 because the documents had little probative value, as they were largely cumulative of the defendants' testimony as to their contents and the defendants' reliance on them. Flitcraft [ 86-2 USTC ¶9778], 803 F.2d at 186. Furthermore, we stated that "the documents presented a danger of confusing the jury by suggesting that the law is unsettled and that it should resolve such doubtful questions of law." Id.

In Barnett [ 91-2 USTC ¶50,519], 945 F.2d at 1301, we once again addressed the problem confronting a district court called upon to engage in "the delicate balancing required by Rule 403" when determining the admissibility of evidence to support a defendant's good-faith beliefs in a tax evasion case. We noted "the need to allow the defendant to establish his beliefs through reference to tax law sources and the need to avoid unnecessarily confusing the jury as to the actual state of the law." Barnett [ 91-2 USTC ¶50,519], 945 F.2d at 1301. Relying on Flitcraft, we determined that the district court did not abuse its discretion in excluding documentary evidence because the district court had allowed the defendant to explain his understanding of the documents while excluding the documents themselves to avoid unnecessarily confusing the jury. Id. Thus, as in Flitcraft and Barnett, we conclude that the district court in the present case did not abuse its discretion in making the evidentiary rulings of which Simkanin complains. ¹³

With respect to the more specific evidentiary errors alleged by Simkanin, we similarly conclude that the district court did not abuse its discretion. Simkanin claims that the district court erred by admitting a document entitled "Proclamation of Warning," which Simkanin had posted on his website. In summary, the document declared that Simkanin is a servant of God and that public officials should be warned not to harm him or his household, lest they wish to enter "into a state of war against Almighty God" and to suffer "the fury of a fire which will consume [them]." The government responds that Simkanin opened the door to this evidence when defense counsel questioned Simkanin about how his religious beliefs told him not to withhold taxes from the paychecks of his employees. When defense counsel requested that he be able to question Simkanin on his religious beliefs, the government replied that it would open the door to the admission of the Proclamation. The district court acknowledged that it probably would, but it allowed defense counsel the option to proceed with the testimony on Simkanin's religious views. Simkanin testified that the Bible told him that God is entitled to the first fruits of a person's labor and that if he withheld taxes from his employees, then he was stealing the first fruits of their labor. It is not clear why defense counsel introduced Simkanin's own testimony on this issue because his statements that the tax laws contradicted his religious views were irrelevant to his good-faith defense under Cheek. It is perhaps less clear what probative value the Proclamation had on the relevant issues, but defense counsel was warned that testimony concerning Simkanin's religious views about the tax laws might open the door to other evidence concerning his religious views. In any event, even if the district court did abuse its discretion in admitting the Proclamation, we are convinced that it was harmless in the overall scheme of the trial. At most, the Proclamation showed that Simkanin held certain beliefs, which would tend to support his good-faith defense rather than refute it.

Next, Simkanin complains that the district court erred by admitting IRS press releases warning taxpayers about various "scams" and "schemes" (including employers who claim that they need not withhold taxes). However, we do not agree that the potentially prejudicial nature of the documents outweighed the probative value of these documents, which showed that Simkanin had been explicitly warned about the illegality of his activities. Thus, the district court did not abuse its discretion.

Simkanin also argues that, in an in limine ruling, the district court unfairly restrained defense counsel from introducing any documentary evidence without first approaching the bench. The government responds that the district court's ruling was justified by the nature of the documents on the defense exhibit list, which included the Communist Manifesto, multiple versions of the Bible, and various publications translating Greek and Hebrew. We agree with the government that the district court did not abuse its discretion given this exhibit list. Moreover, the documents actually excluded on the basis of the in limine ruling would have been properly excluded under Rule 403 for the reasons stated above ( i.e., they were cumulative and potentially confusing).

Next, Simkanin claims that the district court unfairly restricted the cross-examination of government witnesses, such as IRS agents Cooper and Eastman. The district court prohibited certain questions by defense counsel because the questions were beyond the scope of direct and because, in the court's opinion, the questions attempted to show that the IRS agent's views of the law were incorrect and that Simkanin's views were actually correct. Simkanin argues that defense counsel's questions merely attempted to demonstrate the reasonableness of Simkanin's beliefs. Citing Olden v. Kentucky, 488 U.S. 227 (1988) ( per curiam), Simkanin claims that these rulings violated the Confrontation Clause of the Sixth Amendment. However, the district court did not abuse its discretion in determining that the questions were beyond the scope of direct, see FED. R. CIV. P. 611(b), and Simkanin was free to recall the witnesses during his presentation of evidence, although he did not attempt to do so. Thus, his Confrontation Clause rights were not implicated. Moreover, the district court did not abuse its discretion because Simkanin was permitted to testify (and present the testimony of other witnesses) about his beliefs and because this line of questioning may have served to confuse the jury unnecessarily.

D. Upward Departure

With respect to his sentence, Simkanin argues that the district court erred by upwardly departing from the sentencing range established by the Guidelines. Prior to the upward departure, the sentencing range established by the Guidelines was forty-one to fifty-one months imprisonment (for a criminal history category of I and an offense level of Twenty-Two). Simkanin does not contend that the district court erred in calculating this range. However, the district court decided to depart upwardly, and it imposed a sentence of eighty-four months imprisonment. At the sentencing hearing, the district court stated that U.S.S.G. §5K2.0(a)(2)(B) ¹⁴ justified an upward departure because: (1) Simkanin "has displayed contempt and disrespect for the laws of the United States of America, the State of Texas, and the city of Bedford," and he has further confirmed that contempt in his conduct since his bail was revoked; (2) he and those who share his views have a cult-like belief that the laws of the United States do not apply to them; (3) Simkanin has entrenched himself in anti-government groups and is part of a movement whose members question the power of the federal government and its instrumentalities, including the federal courts, to exercise jurisdiction and authority over them; (4) his beliefs have led him to act in a manner inconsistent with the laws of the United States (ranging from giving up his driver's license, threatening to kill federal judges, ¹⁵ and failure to comply with the federal tax laws); and (5) the court was satisfied that Simkanin would continue to act on those beliefs in the future. In addition, the district court stated that U.S.S.G. §4A1.3(a)(1) ¹⁶ further justified the departure because, despite Simkanin's lack of a prior criminal record, "based on defendant's radical beliefs relative to the laws of the United States, it is likely that he will commit future tax-related crimes."

The district court explained that in determining the extent of the departure in accordance with U.S.S.G. §4A1.3(a)(4), ¹⁷ the court used "as a reference, the criminal history category applicable to defendants whose likelihood to recidivate most closely resembles that of the defendant's." The court concluded that, for the reasons already discussed, Simkanin's likelihood to recidivate most closely resembles that of defendants whose criminal history category is VI. This produced a total offense level of Twenty-Two and a criminal history category of VI, resulting in a sentencing range of 84-105 months. The district court then sentenced at the bottom of that range and imposed an eighty-four month sentence.

Simkanin argues that the district court erred in imposing an upward departure on the grounds articulated at the sentencing hearing because: (1) it did not include a written statement of reasons in the judgment as required by 18 U.S.C. §3553(c)(2); ¹⁸ (2) the district court impermissibly based its departure on grounds involving Simkanin's associations and beliefs, in violation of the First Amendment; and (3) the district court's belief that Simkanin posed a danger of recidivism was not supported by evidence.

We recently discussed the appropriate standard of review to employ when reviewing a district court's decision to depart upwardly from the sentencing range established by the Guidelines. See United States v. Smith, --F.3d --, 2005 WL 1663784, *4-6 (5th Cir. July 18, 2005). There, we explained that the Supreme Court's decision in United States v. Booker, 125 S.Ct. 738 (2005), directed us to return essentially to the abuse-of-discretion standard employed prior to 2003:

Prior to 2003, our review of departure decisions was for abuse of discretion, pursuant to §3742(e). In April 2003, Congress amended §3742(e), altering our standard of review with respect to the departure decision to de novo. Under this scheme, while the decision to depart was reviewed de novo, the degree of departure was still reviewed for abuse of discretion. Then, in January 2005, the Supreme Court in Booker excised §3742(e), leaving the appellate courts to review sentences for reasonableness. The Court explained that it was essentially returning to the standard of review provided by the pre-2003 text, which directs us to determine whether the sentence is unreasonable with regard to §3553(a). Section 3553(a) remains in effect, and its factors guide us in determining whether a sentence is unreasonable.

Smith, 2005 WL 1663784 at *4 (footnotes and internal quotation marks omitted); ¹⁹ see also id. at *4 n.24; United States v. Harris, 293 F.3d 863, 871 (5th Cir. 2002). ²⁰ Applying this standard, we conclude that Simkanin is not entitled to resentencing.

First, Simkanin argues that the district court did not include its written statement of reasons in its judgment of conviction and sentence as required by 18 U.S.C. §3553(c)(2). We disagree. The judgment clearly states that the Statement of Reasons and personal information about the defendant are set forth in an attachment to the judgment. Although Simkanin argued in his principal brief that the district court never drafted a written statement of reasons, he concedes in his reply brief that the court did so and that the written statement is virtually identical to the oral reasons given by the district court at sentencing. He also concedes that, after he filed his initial brief, he received a copy of the written statement, which was in the sealed part of the appellate record, as is the common practice in this circuit, and was available to defense counsel. Thus, Simkanin's argument that the district court did not author and include in the record a written statement of reasons is wrong. Furthermore, we find no merit in Simkanin's unsupported argument in his supplemental brief that he is entitled to resentencing simply because the written reasons were attached to the judgment and referenced after the judge's signature, as opposed to appearing before the judge's signature.

Second, Simkanin argues that the district court erred because it upwardly departed on an impermissible basis --namely, because of his associations and beliefs. Given the particular facts of this case, however, his argument fails. In Dawson v. Delaware, 503 U.S. 159 (1992), the Supreme Court held that it was constitutional error to admit a stipulation of the defendant's membership in a racist prison gang, The Aryan Brotherhood, as an aggravating factor for consideration in sentencing. Dawson, 503 U.S. at 164-67. The Court reasoned that the defendant's membership had no relevance whatsoever to the crime in question, which was not racially motivated or otherwise connected to the beliefs of the gang, and it noted that the prosecution had introduced (via a stipulation) evidence establishing only that defendant was a member and that the gang held white supremacist views, not any evidence showing the gang's violent and unlawful tendencies. Id. The Court explicitly recognized, however, that consideration of a defendant's beliefs and associations might be appropriate in some instances in making sentencing decisions about the likelihood that the defendant will engage in future criminal activity. Id. at 165-66. The Court stated that "the Constitution does not erect a per se barrier to the admission of evidence concerning one's beliefs and associations at sentencing simply because those beliefs and associations are protected by the First Amendment." Id. at 165. Moreover, the Court explained that "[i]n many cases, for example, associational evidence might serve a legitimate purpose in showing that a defendant represents a future danger to society[;] [a] defendant's membership in an organization that endorses the killing of any identifiable group, for example, might be relevant to a jury's inquiry into whether the defendant will be dangerous in the future." Id. at 166.

Simkanin's beliefs and associations may be considered if they were "sufficiently related to the issues at sentencing." Boyle v. Johnson, 93 F.3d 180, 183-85 (5th Cir. 1996). Here, Simkanin's sentence was not increased merely because of his abstract beliefs or associations. Rather, Simkanin's specific beliefs that the tax laws are invalid and do not require him to withhold taxes or file returns (and his association with an organization that endorses the view that free persons are not required to pay income taxes on their wages) are directly related to the crimes in question and demonstrate a likelihood of recidivism. ²¹ Thus, the district court did not constitutionally err in considering these factors. See id. at 183-85; see also Fuller v. Johnson, 114 F.3d 491, 497-98 (5th Cir. 1997) (finding that the defendant's membership in a racist gang was properly considered in sentencing because it went to future dangerousness in light of the evidence showing the gang's violent tendencies). ²²

Simkanin also briefly argues that the district court's finding that he held "contempt and disrespect for the law" was not a proper basis for upward departure. Relying solely on United States v. Andrews, 390 F.3d 840, 847-48 (5th Cir. 2004), he claims that the appropriate action for the district court to take in response to such contempt is the denial of a downward adjustment for acceptance of responsibility. However, Andrews involved a district court's upward departure expressly based in part on the defendant's failure to take responsibility ( i.e., his lack of paid restitution, attempts to blame others for his behavior, and insincerity in his proffered words of remorse). The district court in the present case did not base its upward departure on the defendant's lack of acceptance of responsibility, but rather on the likelihood that he would recidivate. Andrews, therefore, is inapposite. ²³

At oral argument, defense counsel contended that the district court erred because it departed upwardly on the basis of Simkanin's firmly held beliefs and that this reasoning contradicted the government's position, and the jury's finding, that Simkanin did not hold good-faith belief that he was not obligated to file income returns or withhold taxes from the paychecks of Arrow's employees. However, as the government correctly responded, the district court's decision to depart upwardly did not contradict the jury's finding that Simkanin did not have a valid good-faith defense under Cheek. As discussed above, Simkanin's avowed position was that he would not comply with the tax laws, and the reason for his position was that the tax laws were both inapplicable to him and invalid for a number of reasons beyond the boundaries of a legitimate good-faith defense under Cheek. At sentencing, Simkanin made clear to the district court that he continued to hold these beliefs when he stated that he still "firmly believed" that the Bible, the Constitution, and the Declaration of Independence all agree that "the wages of a laborer are withheld through fraud." Thus, the district court was convinced that Simkanin's likelihood to recidivate was not adequately reflected by the Guidelines range, and it did not abuse its discretion in upwardly departing from that range.

Finally, Simkanin contends that the extent of the upward departure was unreasonable. The district court upwardly departed from a range of forty-one to fifty-one months imprisonment to impose a sentence of eighty-four months. Simkanin argues that the district court failed to articulate the reasons "why a sentence commensurate with a bypassed criminal history category was not selected." United States v. Lambert, 984 F.2d 658, 663 (5th Cir. 1993) ( en banc). Simkanin is correct that the district court did not specifically state why it rejected each of the preceding criminal history categories. However, as the government correctly notes, this court does "not require the district court to go through a 'ritualistic exercise' where ... it is evident from the stated grounds for departure why the bypassed criminal history categories were inadequate." United States v. Asburn, 38 F.3d 803, 809 (5th Cir. 1994) ( en banc) (quoting Lambert, 984 F.2d at 663). Simkanin correctly notes that it was clearer in Asburn why the district court had decided that defendant's criminal history category did not adequately reflect his prior history --the district court in Asburn noted that the defendant had committed a series of robberies for which he was never convicted. Id. However, the district court in the present case explained that it was convinced that Simkanin's membership in a group with radical views rejecting the laws of the United States and his professed beliefs that he is not required to abide by the tax laws would lead him to commit other tax-related crimes. Moreover, the mere fact that the upward departure nearly doubled the Guidelines range does not render it unreasonable. See United States v. Daughenbaugh, 49 F.3d 171, 174-75 (5th Cir. 1995) (upholding departure from Guidelines range of fifty-seven to seventy-one months to a sentence of 240 months); Ashburn, 38 F.3d at 809 (upholding departure from range of sixty-three to seventy-eight months to sentence of 180 months). Therefore, we are persuaded, guided by the factors in §3553(a), that the sentence imposed was reasonable for the reasons given by the district court.


E. Booker Error

Simkanin argues that he is entitled to resentencing under Booker. He concedes that he did not object on relevant grounds in the district court and that our review is therefore for plain error. See United States v. Mares, 402 F.3d 511, 520 (5th Cir. 2005). The basis of Simkanin's Booker argument is that the district court erred by enhancing his sentence based on facts not admitted by the defendant nor found by the jury. He claims that this court should focus solely on this alleged enhancement error without considering the effect of the Guidelines' mandatory nature at the time that he was sentenced. This argument fails under Mares because the proper inquiry for Booker error under the plain-error test is whether "the result would have likely been different had the judge been sentencing under the Booker advisory regime rather than the pre- Booker mandatory regime." ²⁴ Mares, 402 F.3d at 522. Simkanin clearly has not met his burden because he has pointed to nothing in the record suggesting that he would have received a lower sentence had he been sentenced under the post- Booker advisory Guidelines. His assertion that other defendants with similar records who have committed similar offenses have received shorter sentences does nothing to show that he was prejudiced by the district court's assumption that the Guidelines were mandatory. Furthermore, Simkanin's suggestion that we should simply disregard the Supreme Court's remedial majority in Booker, including its explicit instruction to apply its remedial interpretation of the Guidelines to all cases pending on direct appeal, is obviously unconvincing. See, e.g., Booker, 125 S. Ct. at 769; cf. United States v. Scroggins, 411 F.3d 572, 576-77 (5th Cir. 2005). Finally, because we conclude that Simkanin is not entitled to resentencing, we need not address his argument that the district court's sentencing options would be limited on remand.

III. CONCLUSION

For the foregoing reasons, we AFFIRM Simkanin's conviction and sentence.

^* District Judge of the Southern District of Texas, sitting by designation.

¹ Section 7202 provides:

Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.

¹ Simkanin's supporters were again outside the courthouse and inside the courtroom. However, security measures were taken to prevent the supporters from contacting members of the jury pool or the selected jurors.

² Rivera admitted on cross-examination that in 2003 a permanent injunction had been entered against him, barring him from making such statements.

³ See, e.g., United States v. Burton [ 84-2 USTC ¶9689], 737 F.2d 439, 441 (5th Cir. 1984) (noting "the pervasive intent of Congress to construct penalties that separate the purposeful tax violator from the well-meaning, but easily confused, mass of taxpayers." (internal quotation marks omitted)).

⁴ Simkanin's position, as defense counsel concedes, was based on an incorrect view of the law. See, e.g., 26 U.S.C. §§3121(a)-(d), 3306(a)-(c), 3401(a)-(d); 26 C.F.R. §§31.3121(a)-(d), 31.3306(a)-(c), 31.3401(a)-(d); Breaux & Daigle, Inc. v. United States [ 90-2 USTC ¶50,491], 900 F.2d 49, 51-53 (5th Cir. 1990); see also Otte v. United States [ 74-2 USTC ¶9822], 419 U.S. 43, 50-51 (1974). This fact is undisputed on appeal, and it is abundantly clear that Simkanin's testimony on his views regarding the definition of an "employer" and "employees" was elicited to support his defense of a good-faith belief, not to show that Arrow was not an employer under the IRC.

⁵ We assume, without deciding, that Simkanin's objection to the district court's response to the jury note preserved the alleged error, even though he did not object to the district court's original instruction containing the same language. Thus, we do not review the alleged error under the considerably less defendant-friendly plain-error standard under FED. R. CRIM. P. 52(b).

⁶ Similarly, Simkanin cites Cheek [ 91-1 USTC ¶50,012], 498 U.S. at 192, for the proposition that a district court errs when it instructs a jury to disregard the defendant's evidence of a good-faith misunderstanding of the tax laws.

⁷ As we discuss below, the district court adequately instructed the jury on the willfulness element to allow Simkanin to advance his good-faith defense.

⁸ Moreover, it is of no event that the district court used the term "employees" in its response because the jury's own question referred to Arrow's "employees."

⁹ Although at oral argument Simkanin's defense counsel argued that the type of error alleged here is not subject to harmless-error review, defense counsel, in supplemental briefing submitted after oral argument, reverted to the position taken in its initial briefs --i.e., that if the district court's response directed a verdict on an essential element of the offense, the error is subject to harmless-error analysis and that we may affirm only if the government establishes that the error was harmless beyond a reasonable doubt.

¹⁰ Relying on language from United States v. Mathews, 485 U.S. 58, 63 (1988), Simkanin argues that he was entitled to an instruction on any defense supported by the evidence. However, Mathews addresses whether a defendant can simultaneously raise contradictory defenses, and the broader language from Mathews has no bearing on the issue presented here because the district court did not deny Simkanin's requested instruction on the basis that it was not supported by sufficient evidence. See Mathews, 485 U.S. at 63.

¹¹ As discussed more fully below, Simkanin argues that the district court restricted his ability to present his good-faith defense at trial. However, we address here Simkanin's argument concerning closing argument. Simkanin notes that the district court limited defense counsel to only fifteen minutes for closing argument. However, he concedes that he did not object below on this basis, and he explicitly states that he does not challenge on appeal the district court's limitation of closing argument. At the same time, however, Simkanin argues that the limitation on closing argument should shade our analysis of the issues that he actually raises on appeal. In light of the particular circumstances of this case, we do not agree that the limitation on closing argument somehow rendered the instruction on willfulness erroneous. Defense counsel was entirely free to argue, and did in fact argue, the good-faith defense to the jury during the allotted time period, and, as discussed below, the district court did not unfairly restrict Simkanin's presentation of evidence to establish that defense. The restriction on closing was applied evenhandedly to both the defense and the prosecution. The trial lasted only two days and involved relatively few witnesses. It involved a single theory of the defense, which was based on Simkanin's beliefs about the requirements of the federal tax laws (not the validity of those laws, which are irrelevant to willfulness under Cheek). Thus, we are not persuaded that the limitation on closing unfairly curtailed defense counsel's ability to present Simkanin's good-faith defense.

¹² Simkanin does not specifically identify all of the evidentiary rulings that he claims were erroneous; rather, he advances a broader contention that the district court's evidentiary rulings as a whole prejudiced his ability to assert his defense.

¹³ Simkanin avers that the district court's evidentiary rulings were not evenhanded because it permitted the government to introduce §3402 as proof that Simkanin had been shown, and therefore actually was aware of, the correct law concerning withholding. However, we do not find this disparity dispositive because the admission of §3402 did not raise the possibility of confusing the jury in the same manner as the defense exhibits.

¹⁴ U.S.S.G. §5K2.0(a)(2)(B) (2003) provides:

(a) Upward Departures in General and Downward Departures in Criminal Cases Other Than Child Crimes and Sexual Offenses. ...

(2) Departures Based on Circumstances of a Kind not Adequately Taken into Consideration. ...

(B) Unidentified Circumstances. --A departure may be warranted in the exceptional case in which there is present a circumstance that the Commission has not identified in the guidelines but that nevertheless is relevant to determining the appropriate sentence.

¹⁵ A person present at a meeting at Simkanin's place of business reported that Simkanin stated "I think we need to knock off a couple of federal judges. That will get their attention."

¹⁶ U.S.S.G. §4A1.3(a)(1) provides:

(a) Upward Departures. --

(1) Standard for Upward Departure. --If reliable information indicates that the defendant's criminal history category substantially under-represents the seriousness of the defendant's criminal history or the likelihood that the defendant will commit other crimes, an upward departure may be warranted.

¹⁷ U.S.S.G. §4A1.3(a)(4) provides:

(4) Determination of Extent of Upward Departure. --

(A) In General. --Except as provided in subdivision (B), the court shall determine the extent of a departure under this subsection by using, as a reference, the criminal history category applicable to defendants whose criminal history or likelihood to recidivate most closely resembles that of the defendant's.

¹⁸ Section 3553(c) provides:

(c) Statement of reasons for imposing a sentence. --The court, at the time of sentencing, shall state in open court the reasons for its imposition of the particular sentence, and, if the sentence --

(2) is not of the kind, or is outside the range, described in subsection (a)(4), the specific reason for the imposition of a sentence different from that described, which reasons must also be stated with specificity in the written order of judgment and commitment ....

¹⁹ As the Smith court noted, 18 U.S.C. 3553(a) states:

(a) Factors to be considered in imposing a sentence. --The court shall impose a sentence sufficient, but not greater than necessary, to comply with the purposes set forth in paragraph (2) of this subsection. The court, in determining the particular sentence to be imposed, shall consider --

(1) the nature and circumstances of the offense and the history and characteristics of the defendant;

(2) the need for the sentence imposed --

(A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense;

(B) to afford adequate deterrence to criminal conduct;

(C) to protect the public from further crimes of the defendant; and

(D) to provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner;

(3) the kinds of sentences available;

(4) the kinds of sentence and the sentencing range established for ... the applicable category of offense committed by the applicable category of defendant as set forth in the guidelines ...;

(5) any pertinent [sentencing guidelines] policy statement ... [;]

(6) the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct; and

(7) the need to provide restitution to any victims of the offense.

²⁰ In Harris, 293 F.3d at 871, the court stated:

We review a district court's departure from the range established by the Guidelines for abuse of discretion. The district court's decision is accorded substantial deference because it is a fact intensive assessment and the district court's findings of fact are reviewed for clear error. However, the district court's interpretation of the Guidelines is a question of law, reviewed de novo; a district court abuses its discretion by definition when it makes an error of law. Determining whether a factor is permissible to take into account when considering a departure is one of these questions of law. A district court abuses its discretion if it departs on the basis of legally unacceptable reasons or if the degree of the departure is unreasonable.

(internal citations omitted).

²¹ This court reached a similar conclusion in an unpublished opinion, United States v. Tampico, 297 F.3d 396 (2002) ( per curiam) (unpublished), a child pornography case in which the court upheld an upward departure that was based in part on the defendant's membership in the North American Man Boy Love Association, which advocates sexual relationships between men and underage boys. The court concluded that the defendant's membership in the organization was relevant to sentencing because it may indicate the increased likelihood of recidivism. Tampico, 297 F.3d at 402-03. As Simkanin correctly points out, Tampico is not binding precedent. Nonetheless, its reasoning is persuasive in light of Dawson and Boyle.

²² The other Supreme Court cases cited by Simkanin on the constitutional question are inapposite. See Wisconsin v. Mitchell, 508 U.S. 476, 485 (1993) (upholding a statute that increases punishment for crimes committed with a racially motivated intent); McDonald v. Smith, 472 U.S. 479 (1985) (holding that the First Amendment right to petition is no shield against liability for libel); Watts v. United States, 394 U.S.705 (1969) ( per curiam) (holding that a statute prohibiting threats against the President did not constitutionally apply to criminalize the defendant's conditional and hyperbolic political comment); Noto v. United States, 367 U.S. 290, 297-98, 299-300 (1961) (addressing a conviction under the membership clause of the Smith Act and finding evidence insufficient to show a present advocacy of overthrow); R.A.V. v. Minnesota, 505 U.S. 377 (1992) (holding unconstitutional on First Amendment grounds a law criminalizing conduct such as placing a burning cross or Nazi swastika, which one knows to arouse anger, alarm, or resentment on the basis of race, religion, etc.).

²³ Simkanin also challenges the district court's ability to predict the likelihood of recidivism, stating that even trained scientists cannot accurately make such predictions. The Guidelines, however, clearly permit a district court to depart upwardly if it believes that reliable information suggests that the defendant's likelihood to recidivate is not adequately represented by the range established. See U.S.S.G. §4A1.3(a)(1). Obviously, nothing in the Guidelines or our case law suggests that the district court must be able to predict recidivism with scientific certainty.

²⁴ Indeed, Simkanin explicitly recognizes that his position is foreclosed by Mares, and it is therefore unavailing. See Hogue v. Johnson, 131 F.3d 466, 491 (5th Cir. 1997) (noting that one panel of this circuit may not overturn another panel absent an intervening decision to the contrary by the Supreme Court or this court en banc).

 

[2000-1 USTC ¶50,389] United States of America, Plaintiff-Appellee v. John E. Codner, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 98-4078, 4/12/2000, 2000 U.S. App. LEXIS 6718. Affirming an unreported District Court decision

[Code Secs. 7203 and 7206 ]

Crimes: Filing false returns: Tax evasion: False deductions: Concealed income: Willfulness: Elements of crime: Tax deficiency.--The owner of a printing business who claimed false deductions for unreimbursed employee expenses and who transferred assets into sham trusts was properly convicted of filing false returns and attempted tax evasion. His actions were willful because his accountant told him that the deductions were improper, he admitted to associates that he transferred his assets in order to conceal his income from the IRS, and his accountant and stockbroker both warned him against pursuing his questionable tax practices. Moreover, his claim that he had no deficiency for one of the tax years at issue was irrelevant to his conviction for filing false returns; an outstanding tax liability is not an element of that crime, as it is for tax evasion.

[Code Sec. 7206 ]

Crimes: Filing false returns: Statute of limitations: Tolling: Motion to quash third-party summonses.--A printer's prosecution for filing false returns was not barred by the statute of limitations. Although he was indicted more than six years after he claimed deductions for false unreimbursed employee expenses, the limitations period was tolled during the entire pendency of his intervening suit to quash third-party summonses issued by the IRS during its investigation of his tax liability.

[Code Secs. 7203 and 7206 ]

U.S. Sentencing Commission Guidelines: Base offense: Tax loss: Subsequent tax years: Continuing course of conduct: Fifth Amendment: Self-incrimination: Voluntary disclosures.--In calculating the tax loss caused by a printer's filing of false returns and attempted tax evasion, the trial court properly included losses arising from his failure to file timely returns for several tax years after he committed his crimes. Since his refusal to file also violated the tax code, it constituted part of a continuing course of conduct with his criminal activities. Further, his Fifth Amendment rights against self-incrimination were not violated by the calculation of the tax loss based on information from untimely returns that he voluntarily filed during his presentence investigation.

[Code Sec. 7203 ]

Crimes: Filing false returns: Tax evasion: False deductions: Concealed income: Evidence: Admissibility: Materiality.--The owner of a printing business who was convicted of filing false returns and attempted tax evasion was not entitled to submit evidence regarding the IRS investigation of his tax liability and the events surrounding his arrest. The evidence would not change the decision in his case.

Meghan S. Skelton, Kevin M. Kelcourse, Melissa E. Schraibam, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. Paul J. Young, Henderson, Nev., for defendant-appellant.

Before: TACHA, MCKAY and MURPHY, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

ORDER AND JUDGMENT ^*

MCKAY, Circuit Judge:

This case was originally scheduled for oral argument on May 14, 1999, but before argument the parties agreed to submit the case on the briefs. This panel has examined the briefs and the appellate record and determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a)(2); 10th Cir. R. 34.1(A)(2). The case is therefore ordered submitted without oral argument.

Defendant-Appellant John E. Codner appeals the judgment of the United States District Court for the District of Utah convicting him of willfully subscribing to false tax returns under penalties of perjury and attempting to evade federal income tax in violation of 26 U.S.C. §§7206(1) and 7201, respectively.

Defendant has owned and operated a small printing business in Provo, Utah, since 1979. It appears he and his business filed accurate tax returns and paid all tax obligations through 1987. Between 1988 and 1996, however, Defendant entered into a few relationships with self-proclaimed tax experts who dispensed erroneous tax, accounting, and legal advice. Defendant acted on that advice, against the counsel of his long-time accountant, and on his 1988 and 1989 individual tax returns he claimed false deductions for unreimbursed employee expenses for overtime hours he spent working at his business. The false deductions would have reduced the amount of Defendant's tax liability to zero. Between 1990 and 1996, Defendant simply did not file tax returns. In 1990 and 1991, acting again on the advice of his newfound tax advisors, Defendant transferred all of his assets into eight different trusts to avoid paying taxes and to conceal his income from the Internal Revenue Service. He also opened five bank accounts under the names of trustees who were acquaintances or former business associates and who, in fact, conducted no business on behalf of the trusts.

A grand jury indicted Defendant on November 14, 1996, of two counts of filing a false tax return and two counts of tax evasion. On January 13, 1998, a jury found Defendant guilty on all counts. The district court then sentenced Defendant to fifteen months of incarceration and a fine of $4,000.

Defendant appeals his conviction and sentence arguing (1) that the evidence was insufficient to establish that he violated §§7206(1) and 7201, (2) that a statute of limitations barred prosecution on the two counts of filing a false tax return, and (3) that the district court erred in its determination of his offense level under the United States Sentencing Guidelines. ¹ We exercise jurisdiction pursuant to 28 U.S.C. §1291 and 18 U.S.C. §3742.

I.

In arguing that the evidence was insufficient to support his convictions, Defendant contends that the evidence did not establish (1) that he acted willfully, a necessary element for all counts of filing a false tax return and tax evasion, and (2) that he owed a substantial tax liability for 1989, a component of the second count of filing a false tax return. To review an argument alleging insufficient evidence, we " 'must review the record de novo and ask only whether taking the evidence--both direct and circumstantial, together with the reasonable inferences to be drawn therefrom--in the light most favorable to the government, a reasonable jury could find the defendant guilty beyond a reasonable doubt.' " United States v. Hanzlicek, 187 F.3d 1228, 1239 (10th Cir. 1999) (quoting United States v. Voss, 82 F.3d 1521, 1524-25 (10th Cir. 1996)). We consider each of Defendant's two arguments in turn.

A.

The standard for willfulness in the context of criminal tax statutes "requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Cheek v. United States [91-1 USTC ¶50,012], 498 U.S. 192, 201, 112 L.Ed.2d 617, 111 S.Ct. 604 (1991). Defendant asserts that he acted with a good faith belief that he was complying with tax laws. His only error, he claims, was to trust a number of unscrupulous individuals who dispensed erroneous tax, legal, and accounting advice. Defendant apparently wishes that we would not take into consideration the ample evidence and testimony presented at trial demonstrating the accurate advice he received but disregarded.

In 1988 and 1989, Defendant's long-time accountant counseled Defendant that the unreimbursed employee expense deduction he claimed on his returns was not justified. To punctuate his advice after Defendant insisted upon claiming the deduction, the accountant refused to sign those returns. A jury could reasonably infer from the accountant's testimony that Defendant understood his duties to comply with the tax laws and knew that the deductions he claimed for unreimbursed employee expenses were improper. With regard to the tax evasion charges under §7201, a former business partner testified at trial that Defendant acknowledged to him that his purpose in transferring assets into trusts was to conceal his income from the IRS. One of Defendant's employees testified that he heard Defendant explaining to others at his business that he was setting up the trusts to avoid paying taxes. That same employee also heard Defendant's stock broker and accountant warn Defendant against setting up the trusts and getting involved in questionable tax practices. On the basis of this testimony, we conclude that a rational trier of fact could have found beyond a reasonable doubt that Defendant knowingly and intentionally violated his legal duty to comply with the laws that prohibit tax evasion and the filing of false tax returns. Cf. United States v. Huebner [95-1 USTC ¶50,008], 48 F.3d 376, 380 (9th Cir. 1994) (holding that the concealment of assets to avoid tax collection, as opposed to a simple delay of payment that would be "consistent with an intent ultimately to make payment," supports a finding of willfulness in tax evasion under §7201).

B.

In the second part of Defendant's insufficiency of the evidence argument, he argues that the evidence was not sufficient to establish a tax liability for 1989. He claims that a tax deficiency is a necessary component of the offense of willfully subscribing to a false tax return in violation of 26 U.S.C. §7206(1). ² Under the law of this circuit, however,

to sustain a conviction under Section 7206(1), the government must prove (1) that the Appellant made and subscribed to a tax return containing a written declaration, (2) that it was made under the penalties of perjury, (3) that he did not believe the return to be true and correct as to every material matter and (4) that he acted willfully.

United States v. Owen [94-1 USTC ¶50,281], 15 F.3d 1528, 1532 (10th Cir. 1994) (citing United States v. Kaiser [90-2 USTC ¶50,338], 893 F.2d 1300, 1305 (11th Cir. 1990)). Nothing in this standard requires proof of a tax deficiency. Accord United States v. Marashi [90-2 USTC ¶50,482], 913 F.2d 724, 736 (9th Cir. 1990) ("Section 7206(1) is a perjury statute; it is irrelevant whether there was an actual tax deficiency."). We therefore hold that the existence of a tax deficiency is not an element of §7206(1).

Having reviewed the record on appeal, we also conclude that the evidence was sufficient to establish a violation of §7206(1), even if the prosecution did not establish that Defendant owed any tax for 1989. In sum, the evidence presented to the jury on the two counts of filing fraudulent tax returns and the two counts of tax evasion was sufficient to support a verdict of guilty beyond a reasonable doubt.

II.

Defendant asserts that his prosecution on the two counts of filing a false tax return should have been barred by a statute of limitations. We review this question of law de novo. See Industrial Constructors Corp. v. United States Bureau of Reclamation, 15 F.3d 963, 967 (10th Cir. 1994).

The limitations period for violations of 26 U.S.C. §7206(1) is six years. See 26 U.S.C. §6531(5). The period on count one of Defendant's indictment began to run on October 15, 1989, when he subscribed to his 1988 return under penalties of perjury, and the limitations period for count two began on April 16, 1990, when he signed and filed his 1989 return. Under ordinary circumstances, then, the limitations periods would have expired on October 15, 1995, for the first count and April 16, 1996, for the second. The statute of limitations seemingly would bar the prosecution of the two counts of willfully subscribing to a false tax return for which Defendant was indicted on November 14, 1996.

The Internal Revenue Code, however, provides for the tolling of the statute of limitations period if an individual seeks to quash a summons issued to a third party for financial information relevant to the individual's tax liability. See 26 U.S.C. §7609(e). The Code provides that

if any person . . . [moves to quash a summons to a third party] and such person is the person with respect to whose tax liability the summons is issued . . ., then the running of any period of limitations . . . under section 6531 (relating to criminal prosecutions) with respect to such person shall be suspended for the period during which a proceeding, and appeals therein, with respect to the enforcement of such summons is pending.

Id. §7609(e)(1). Federal regulations mandate that the limitations period is tolled for the entire time during which the summons is litigated, including the pendency of an appeal and the time in which a petition for rehearing may be made. See 26 C.F.R. §301.7609-5(b).

In response to the government's investigation of him, Defendant filed a petition on February 17, 1993, to quash summonses to third parties relating to his tax liability in 1988 and 1989. After the district court denied his petition and granted the government's petition to enforce the summonses, this court affirmed the district court's order on February 28, 1994. See Codner v. United States [94-1 USTC ¶50,248], 17 F.3d 1331 (10th Cir. 1994). Defendant then had a period of forty-five days to petition this court for rehearing, pursuant to Federal Rules of Appellate Procedure Rule 40(a). This period expired on April 14, 1994. Under 26 C.F.R. §301.7609-5(b), the statute of limitations for Defendant's false tax return violations was tolled for 421 days, from February 17, 1993, to April 14, 1994. After taking the tolling period into account, we conclude that the limitations period on the first count of filing a false tax return did not expire until December 9, 1996, and the limitations period on the second count did not expire until June 10, 1997. Since Defendant was indicted on November 14, 1996, we hold that the indictment and prosecution were not barred by the statute of limitations.

III.

We turn to Defendant's arguments that the district court erred in determining his offense level under the Sentencing Guidelines. We review a district court's legal interpretation of the Sentencing Guidelines de novo. See United States v. Henry, 164 F.3d 1304, 1310 (10th Cir.), cert. denied, U.S., 119 S.Ct. 2381 (1999). We review factual findings supporting a base offense level calculation for clear error. See United States v. McClelland, 141 F.3d 967, 973 (10th Cir. 1998).

Defendant argues that the district court should not have been permitted to use the tax loss from the years 1992 through 1996 in addition to the tax loss from 1988 through 1991 for the purpose of calculating the total tax loss attributable to Defendant's base offense level. He further asserts that the district court's use of the 1992-1996 tax loss violated his Fifth Amendment right against self-incrimination and was contrary to the intent of Congress because the district court obtained the amount of tax loss for those years from the income tax returns submitted by Defendant to the probation officer during the presentence investigation.

A.

We consider first whether the district court erred in including the tax loss from 1992 through 1996 in its determination of the total tax loss attributable to Defendant. ³ The base offense levels for violations of 26 U.S.C. §§7201 and 7206(1) are based on the tax loss attributable to the defendant's conduct. Section 2T1.1 of the Sentencing Guidelines defines "tax loss" as "the greater of: (A) the total amount of tax that the taxpayer evaded or attempted to evade; and (B) the 'tax loss' defined in §2T1.3." U.S.S.G. §2T1.1. For a noncorporate taxpayer, §2T1.3 defines "tax loss" as "28 percent of the amount by which the greater of gross income and taxable income was understated, plus 100 percent of the total amount of any false credits claimed against the tax." Id. §2T1.3. In determining the tax loss for an offense, the sentencing court may consider not only the offense of conviction but also all relevant conduct that is part of the same course of conduct or common scheme or plan. See id. §2T1.1 comment. (n.3); §1B1.3(a)(2). "All conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated." Id. §2T1.1 comment. (n.3); §2T1.3 comment. (n.3). We have held that "even uncharged tax losses constitute relevant conduct which a sentencing court may consider in determining the basic offense level tax loss." United States v. Higgins, 2 F.3d 1094, 1097-98 (10th Cir. 1993) (citing United States v. Meek [93-2 USTC ¶50,409], 998 F.2d 776, 781 (10th Cir. 1993)).

The district court included in its tax loss calculations the amount attributable to Defendant for not filing income tax returns for the years 1992 through 1996. At sentencing, the government proved indirectly that this conduct was part of the same course of conduct by establishing simply that by not filing income tax returns from 1992 through 1996 Defendant violated the tax code. See Meek [93-2 USTC ¶50,409], 998 F.2d at 782 (noting that "the government may prove that the defendant's non-charged conduct was part of the same course of conduct as the offense of conviction . . . indirectly, by establishing simply that all the conduct to be aggregated constituted violations of the tax code"). Despite the fact that the presentence investigative report provided ample notice of the conduct that would be considered at sentencing, Defendant failed to rebut the presumption accorded the government's proof "by coming forward with evidence that his non-charged conduct was clearly unrelated to his conviction." Id. In fact, up through the time of trial Defendant failed to file income tax returns at the times required by law and persisted in concealing his assets in trusts. We hold that the district court did not clearly err in determining that the tax loss from the years 1992 through 1996 was part of the same course or pattern of falsifying tax returns and evading taxes that Defendant began in 1989. Accordingly, the district court did not err in its calculation of tax loss and relevant conduct under the sentencing guidelines.

B.

Turning now to the constitutional claim, we note that the district court was able to arrive at the amounts of tax loss attributable for the years 1992 through 1996 because Defendant submitted tax returns for those years during the presentence investigation. Defendant complains that the district court's use of these returns submitted during the presentence investigation as part of his "good faith attempt to reconcile with the system by paying up years of taxes" violates his Fifth Amendment rights against self-incrimination and congressional intent to encourage compliance with tax laws. Appellant's Br. at 29. These arguments are unavailing.

The Fifth Amendment protects against the use of compelled testimony; it does not prohibit the use of evidence that a defendant voluntarily turns over to the government. "Voluntary statements of any kind are not barred by the Fifth Amendment. . . ." Miranda v. Arizona, 384 U.S. 436, 478, 16 L.Ed.2d 694, 86 S.Ct. 1602 (1966). Therefore, "the government may use voluntarily filed tax returns against a defendant without violating the Fifth Amendment." United States v. Hammes, 3 F.3d 1081, 1083 (7th Cir. 1993) (citing Garner v. United States [76-1 USTC ¶9301], 424 U.S. 648, 665, 47 L.Ed.2d 370, 96 S.Ct. 1178 (1976)); see also United States v. Brown [79-1 USTC ¶9322], 600 F.2d 248, 252 (10th Cir. 1979) (indicating that Fifth Amendment does not protect defendant against the disclosure of income in tax returns). Because Defendant voluntarily submitted the returns for 1992 through 1996 which disclosed his income, the district court did not err in using the amounts reported in those returns at sentencing.

Defendant also argues that the district court's use of the returns he filed during the presentence investigation is inconsistent with congressional intent to promote compliance with the tax laws. His argument ignores the fact that the Internal Revenue Code was designed "to induce prompt and forthright fulfillment of every duty under the income tax law." Spies v. United States [43-1 USTC ¶9243], 317 U.S. 492, 497, 87 L.Ed. 418, 63 S.Ct. 364 (1943) (emphasis added). The government furthers the objective of inducing prompt compliance with tax laws when it places taxpayers on notice that, as here, a sentence for charged offenses will be longer when a defendant has committed additional violations of the law. Defendant filed his tax returns for the years 1992 through 1996 in an attempt to set things straight only after he had been prosecuted and found guilty of willfully subscribing to false tax returns and tax evasion. The district court's use of his 1992-1996 tax returns to calculate his sentence was not inconsistent with congressional intent to promote prompt and exacting compliance with federal tax law.

IV.

Finally, on September 27, 1999, and January 4, 2000, Defendant filed three motions with our court pursuant to Rule 27 of the Federal Rules of Appellate Procedure and the Tenth Circuit Rules making several requests. In his first motion filed September 27, 1999, Defendant requested an extension of time to supplement the record. In his second motion filed September 27, 1999, Defendant provided a lengthy recount of the circumstances surrounding his arrest and investigation and requested leave to file a brief in lieu of oral argument. In the third motion filed January 4, 2000, Defendant repeated his version of the factual scenario surrounding his arrest and investigation claiming that he continues to suffer harassment at the hands of IRS officials, reiterated his request to supplement the record with further affidavit and memorandum, and appeared to request an order for injunctive relief requiring the IRS to refrain from assessing taxes for the periods of time which are the subject of this appeal.

We are not persuaded that anything in the content of Defendant's motions would change the outcome of our decision in this case. The district court ruled at trial that evidence of the events surrounding Defendant's arrest and investigation by the IRS was inadmissable. We see no reason to question the district court's ruling on the matter. For this reason and because we are satisfied that Defendant has failed in every other attempt to present a cogent legal argument of error in the judgment and sentence imposed by the district court, we deny his motions and affirm Defendant's convictions and sentence.

DENIED and AFFIRMED.

^* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

¹ Defendant also makes three other cursory allegations of error by the district court: (1) the government mischaracterized the testimony of Defendant's accountant during closing arguments and therefore misled the jury; (2) an ex parte meeting in which the prosecution asserted that Defendant was associating with known tax protestors prejudiced him before the judge; and (3) the district court erred in not allowing Defendant to present evidence of the circumstances of his arrest. See Appellant's Br. at 3-5, 16; Appellee's Br. at 22. However, because Defendant's brief fails to support these three issues with pertinent authority, record citations, or reasoned arguments, we will treat them as waived. See United States v. Callwood, 66 F.3d 1110, 1115 n.6 (10th Cir. 1995) ("A litigant who mentions a point in passing but fails to press it 'by supporting it with pertinent authority . . . forfeits the point.' " (quoting Pelfresne v. Village of Williams Bay, 917 F.2d 1017, 1023 (7th Cir. 1990)); United States v. Evans, 970 F.2d 663, 671 n.11 (10th Cir. 1992); see also United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990) ("It is not enough merely to mention a possible argument in the most skeletal way, leaving the court to do counsel's work, create the ossature for the argument, and put flesh on its bones.").

² Defendant also claims that a tax deficiency is a necessary component of charges of tax evasion under §7201. See Appellant's Br. at 18. He is correct on that point. However, the count for the year 1989 was willfully subscribing to a false tax return in violation of §7206(1). Defendant was charged with only two counts of tax evasion, more specifically for the years 1990 and 1991, for which the government established the existence of a tax deficiency.

³ Defendant was sentenced under the November 1, 1991 edition of the United States Sentencing Guidelines. All references to the Guidelines in this opinion are to that edition.

 

 

[96-2 USTC ¶50,630] United States of America, Appellee v. Michael P. Oshatz and Leonard A. Messinger, Defendants-Appellants

(CA-2), U.S. Court of Appeals, 2nd Circuit, 89-1228, 89-1375, 3/19/90, 912 F2d 534, 912 F2d 534. Affirming a District Court decision, 89-2 USTC ¶9591 , 704 F.Supp 511

[Code Sec. 7203 ]

Crimes: Cross-examination: Character witnesses: Non-expert: Harmless error.--A government attorney who successfully prosecuted two attorneys for conspiracy to defraud the U.S., filing false tax returns for various partnerships, and knowingly and willfully filing false personal income tax returns improperly cross-examined the attorneys' non-expert character witnesses by asking questions based on an assumption that the attorneys were guilty of the offenses charged. After the jury repeatedly heard the government attorney assure the trial court that he had a good-faith basis for asking permitted hypothetical questions, the jury could have inferred that the government attorney had evidence of guilt beyond a reasonable doubt. However, the improper cross-examination created no substantial risk of prejudice. The trial judge gave the jury prompt and sufficient cautionary instructions and reminded the jurors of their ultimate responsibility to determine guilt and innocence.

[Code Sec. 7602 ]

Crimes: Evidence: Admissibility: Similar acts.--In the trial of two attorneys who were convicted of conspiracy to defraud the U.S., filing false tax returns for various partnerships, and knowingly and willfully filing false personal income tax returns, the trial court properly admitted in evidence as similar acts the attorneys' involvement in several other fraudulent tax schemes not charged in the indictment. The evidence presented by the government sufficed to permit the inference that the attorneys knowingly participated in each of the alleged similar acts. Further, the trial court did not exceed its discretion in determining that the probative value of the evidence outweighed its prejudicial effect.

[Code Sec. 7602 ]

Crimes: Evidence: Admissibility: Witness: Attack on credibility.--In the trial of two attorneys who were convicted of conspiracy to defraud the U.S., filing false tax returns for various partnerships, and knowingly and willfully filing false personal income tax returns, the trial court properly excluded certain documents offered by one of the attorneys during his cross-examination of the head trader of partnerships that the attorneys had assisted in forming. The trial court acted within its discretion to reject the attorney's claim that the evidence was offered to establish that the trader had a motive to testify falsely on behalf of the government. The attorneys did not suffer any prejudice from the admission of a government chart that listed gross losses generated by the attorneys' activities and the annual losses suffered by each entity involved in their tax scheme, even though the government failed to produce the computer program that generated the chart prior to trial.

Before: NEWMAN and PRATT, Circuit Judges, and MUKASEY, District Judge. ^* Judge MUKASEY concurs with a separate opinion.

NEWMAN, Circuit Judge:

The primary issue on this appeal is whether the prosecution may cross-examine a defendant's character witness by asking questions based on an assumption that the defendant is guilty of the offense charged. This issue arises on an appeal by Michael P. Oshatz and Leonard A. Messinger from their judgments of conviction entered, respectively, on July 14 and May 5, 1989, in the District Court for the Southern District of New York ( Rob ert W. Sweet, Judge) after an eleven-week jury trial on charges arising out of their involvement in a series of fraudulent tax schemes. We reaffirm this Circuit's view that such cross-examination is impermissible, but nonetheless affirm the convictions because our prior pronouncement on this issue was understandably misinterpreted by the District Court and the resulting error was harmless in the circumstances of this case.

Background

Between 1979 and 1983, Oshatz, a tax attorney, assisted in the formation of a number of affiliated partnerships known as the "Monetary Group." The offering memoranda for the Monetary Group reported that the partnerships would invest in various financial instruments to secure economic gain, that these investments would involve substantial market risk, and that any losses generated by these transactions would be available as tax deductions. Oshatz and Messinger, his law partner, also formed a number of other partnerships, in which they held an interest, for the purpose of purchasing tax shelter investments from the Monetary Group.

The Monetary Group partnerships engaged primarily in two types of securities transactions on behalf of their limited partner investors. Initially, the partnerships entered into "straddle" transactions in which "short" and "long" positions are simultaneously established in a commodity or a security. At the end of the year, the side of the transaction with a loss is closed out, generating a tax deduction. At the beginning of the next year, the other "leg" of the transaction is closed out, generating a taxable gain. After Congress passed legislation curtailing the use of straddle transactions, see Economic Recovery Tax Act of 1981, Pub. L. No. 97-34, 95 Stat. 172, 323-26, the partnerships entered into repurchase ("repo") agreements as investment vehicles. This type of arrangement involves the purchase of a security with borrowed money, with the security serving as collateral for the loan. In "open" repurchase agreements, the interest charge on the loan fluctuates with the prevailing market rate, entitling the investor to an interest expense deduction since a profit or loss may be realized on the transaction. Open repurchase agreements function much like straddle transactions since the interest on the loan may be deducted immediately, while the gain from the underlying security, generally a Treasury bill, is not realized until the next taxable year.

The Government offered convincing proof that the tax losses reported by the partnerships from these transactions were not the product of legitimate trading. Edward Markowitz, the head trader for the Monetary Group, testified that he falsified trade documents to reflect straddle transactions that never occurred. The partnerships also removed the risks associated with repurchase agreements by fixing the interest rate of the loan to coincide with the interest rate of the securities that collaterized the loan. Though this type of arrangement, known as a "repo to maturity" repurchase agreement, is legal, it provides no basis for claiming an interest expense deduction since no profit or loss can be realized in connection with the interest charges. To generate the desired tax losses, the partnerships financed repurchase agreements by using fixed "repo to maturity" rates but fraudulently documented the transactions as "open" repurchase agreements. Cf. United States v. Atkins [89-1 USTC ¶9195 ], 869 F.2d 135, 138 (2d Cir.), cert. denied, 493 U.S. 818, 110 S. Ct. 72, 107 L. Ed. 2d 39 (1989).

The Government brought a sixteen-count indictment against Oshatz and Messinger for their roles in the trading activities of these partnerships. Count One charged both defendants with a conspiracy to defraud the United States, in violation of 18 U.S.C. §371 (1988), by engaging in fraudulent securities transactions for the purpose of generating tax losses. The remaining counts alleged that one or both of the defendants aided in the filing of false tax returns for various partnerships, in violation of 26 U.S.C. §7206(2) (1988), and that both defendants knowingly and willfully filed false personal income tax returns, in violation of 26 U.S.C. §7206(1) (1988). The jury returned guilty verdicts against Oshatz and Messinger on each of the counts in which they were charged. The District Court sentenced Oshatz to forty months' imprisonment and three years' probation. Messinger was sentenced to twenty-eight months' imprisonment and three years' probation.

Discussion

Appellants challenge the cross-examination of character witnesses, the admission of similar acts evidence, the exclusion of evidence claimed to impeach the credibility of a prosecution witness, and the admission of a summary chart.

I. Cross-Examination of Character Witnesses

Defense counsel questioned Gail Logan as to the reputation of Oshatz for truthfulness and honesty and as to her opinion of his truthfulness and honesty, eliciting testimony favorable to the defense. Logan, who had been an associate in defendants' law firm, had originally been called as a Government witness and became a character witness for Oshatz during cross-examination. For convenience, we will consider the defense questioning that elicited her character testimony to be direct examination and the prosecution's questioning that challenged her character testimony to be cross-examination. On cross-examination, the prosecutor asked, "If I were to show you that Mr. Oshatz knew that the Markowitz transactions were backdated, would that affect your opinion?" Objection was made and overruled. Logan answered, "Yes." Similar questions were asked and similarly answered with respect to other aspects of the wrongdoing alleged to constitute the offenses for which Oshatz was on trial. After the witness was excused, counsel for both defendants challenged the Government's right to cross-examine a character witness with hypothetical questions based on an assumption of guilt as to the pending charges. The next day defense counsel called Judge Sweet's attention to several opinions that appeared to proscribe the challenged cross-examination, including this Circuit's decision in United States v. Morgan, 554 F.2d 31 (2d Cir.), cert. denied, 434 U.S. 965, 54 L. Ed. 2d 450, 98 S. Ct. 504 (1977). In that decision we had said that "insofar as non-expert character witnesses are concerned," a hypothetical question that assumes the guilt of the defendant "should not be asked." Id. at 34.

Before the end of the trial, Judge Sweet filed an opinion rejecting the defendants' objection to the cross-examination. ¹ United States v. Oshatz [89-2 USTC ¶9591 ], 704 F. Supp. 511 (S.D.N.Y. 1989). He observed that under Federal Rule of Evidence 405(a) character witnesses may be cross-examined as to their knowledge of specific instances of a defendant's misconduct in order to help the jury determine how much weight to accord the character testimony, id. at 514; see United States v. Birney, 686 F.2d 102, 108 (2d Cir. 1982), and that cross-examining about the misconduct at issue in the trial presented "nothing new to the jury," United States v. Oshatz [89-2 USTC ¶9591 ], 704 F. Supp. at 514. Noting Morgan, he said that its distinction between expert and non-expert character witnesses does not appear in Fed. R. Evid. 405(a). He also rejected Morgan 's view that the challenged cross-examination involved hypothetical questions, contending that "the fact that a defendant has yet to be convicted for an unlawful act does not make a question regarding that act 'hypothetical.' " ² Id.

Armed with Judge Sweet's ruling and undeterred either by Morgan or by the risk that disregarding it would imperil any conviction that might be obtained, the prosecutor cross-examined Messinger's character witnesses who had testified as to both his reputation for honesty and truthfulness and their own opinion of these character traits. The form of the cross-examination was even more pointed than with Logan. To one witness the prosecutor asked, "If you found that Mr. Messinger knowingly participated in setting up a phony tax shelter that generated over half a million dollars worth of business for his law firm, would that affect your opinion?" When objection to the form "If you found" was sustained, the question was rephrased, "So let's leave the facts aside and assume that it is found that Mr. Messinger knowingly participated in setting up a phony tax shelter that generated over half a million dollars worth of business for his law firm, would that affect your opinion?" The witness said it would not. Judge Sweet instructed the jury that the question involved a Government contention, that it was allowed as bearing only on the witness's credibility, and that its allowance did not alter the jury's responsibility. Another witness was similarly cross-examined with the question beginning "If the government were to establish that...." With another witness, the prosecutor reverted to the form, "Assume that it were found"; when the witness inquired, "Found by the jury?" and was answered by the prosecutor, "Or found as a fact, correct," the witness replied, "They could be wrong."

We consider whether Morgan proscribes the challenged cross-examination, whether Morgan should have been followed in this case, and whether the failure to follow Morgan warrants reversal.

1. What does Morgan mean? Morgan began its discussion of the scope of cross-examination of character witnesses by noting that the cases cited by appellant for the proposition that questions based on an assumption of guilt on the pending charges are improper involved testimony about the defendant's reputation in the community. Judge Van Graafeiland then pointed out that Rule 405(a) had broadened the prior law to permit a witness to give an opinion as to a trait of character that is in issue. He then noted that opinion testimony of "expert witnesses has traditionally been given in response to hypothetical questions based upon the evidence in the case ... and this form of questioning may properly be used on cross-examination as well as direct." 554 F.2d at 33 (emphasis added) (citations omitted). "Time and again," he continued, " experts are asked hypothetical questions which assume the very facts upon which the defendant's guilt is predicated." Id. (emphasis added). He concluded that the hypothetical question asked in Morgan "was not prejudiciously improper so as to mandate reversal." Id.

Judge Van Graafeiland then added the following:

It does not follow from this holding that we approve of the question which was asked. Because it is too early in the history of Rule 405 to predict how much use ingenious counsel will make of opinion testimony from witnesses who may qualify as experts on traits of character, we are reluctant to prescribe an evidentiary rule which will inhibit full cross-examination of any such expert. Insofar as non-expert character witnesses are concerned, however, we believe that the probative value of a hypothetical question such as the one at issue herein is negligible and that it should not be asked. The jury is in as good a position as the non-expert witness to draw proper inferences concerning the defendant's character from its own resolution of the issue. Cf. Wigmore [on Evidence] §679 [1940].

Id. at 34.

Judge Mansfield joined the panel opinion and added a concurring opinion to underscore his view of the vice of putting to a character witness questions that "asked the jury to assume the defendant to be guilty of the very charge on trial." Id. (Mansfield, J., concurring).

There is arguably an ambiguity as to the meaning of Morgan, arising from its discussion of expert and non-expert witnesses. Without categorizing the witness in Morgan as either expert or non-expert, the Court acknowledged the latitude to be accorded district judges in permitting cross-examination of expert witnesses with hypothetical questions based on facts on which the defendant's guilt is predicated, yet condemned that very type of question, which was asked of the witness in Morgan. Possibly that ambiguity led Judge Sweet to conclude that Morgan does not bar hypothetical questions, based on an assumption of guilt, asked of a witness who offers an opinion about the defendant's character. We note that the District of Columbia Circuit, though ruling that such hypothetical questions may not be asked of a character witness testifying only as to the defendant's reputation, has cited Morgan for the proposition that such hypothetical questions may be asked of a character witness offering an opinion as to the defendant's character. See United States v. White, 281 U.S. App. D.C. 39, 887 F.2d 267, 274-75 (D.C. Cir. 1989).

We think Morgan is quite clear in its condemnation of guilt-assuming hypothetical questions asked of lay character witnesses like friends or neighbors, whether testifying about a defendant's reputation for a character trait or expressing an opinion about such a trait. As to such non-expert character witnesses, Morgan is emphatic that a hypothetical question based on an assumption of guilt "should not be asked." 554 F.2d at 34. We note that three circuits have correctly read Morgan as prohibiting use of guilt-assuming hypothetical questions in cross-examination of non-expert character witnesses. See United States v. McGuire, 744 F.2d 1197, 1204-05 (6th Cir. 1984), cert. denied, 471 U.S. 1004, 85 L. Ed. 2d 159, 105 S. Ct. 1866 (1985); United States v. Williams, 738 F.2d 172, 177 (7th Cir. 1984); United States v. Polsinelli, 649 F.2d 793, 796-97 (10th Cir. 1981).

What Morgan left open is the possibility that under Rule 405(a), a trial judge might permit an expert witness, for example a psychiatrist, to offer an opinion on a character trait such as truthfulness. If Rule 405(a) might one day be read that broadly, ³ see United States v. Pacelli, 521 F.2d 135, 140-41 (2d Cir. 1975) (no abuse of discretion to exclude psychiatrist's testimony offered to impeach credibility of witness), cert. denied, 424 U.S. 911, 47 L. Ed. 2d 314, 96 S. Ct. 1106 (1976), the panel did not wish to foreclose the possibility that guilt-assuming hypothetical questions may be asked of the expert character witness, just as other expert witnesses, such as Internal Revenue Service agents in a tax fraud case, may be asked hypothetical questions based on facts offered to establish the defendant's guilt. United States v. Morgan, 554 F.2d at 33.

We do not doubt that to some extent a guilt-assuming hypothetical question might be probative of the credibility of testimony given by a non-expert character witness. Steadfast adherence to a favorable opinion by a witness asked to assume the defendant's guilt might provide some basis for concluding that the witness is simply supporting the defendant, rather than providing credible testimony about his character. But we share the view of all members of the Morgan panel that such cross-examination is nevertheless to be prohibited because it creates too great a risk of impairing the presumption of innocence. Moreover, after a jury has repeatedly heard a prosecutor assure a trial judge that he has a good-faith basis for asking permitted hypothetical questions, the jury might infer from the judge's permission to ask a guilt-based hypothetical question that the prosecutor has evidence of guilt beyond the evidence in the record.

In reaffirming Morgan, we note that every circuit to have considered the issue, except the District of Columbia Circuit, ⁴ see United States v. White, supra, has agreed that guilt-assuming hypothetical questions should not be asked of character witnesses: Fourth Circuit, United States v. Siers, 873 F.2d 747, 749-50 (4th Cir. 1989) (opinion and reputation testimony); Fifth Circuit, United States v. Palmere, 578 F.2d 105, 107 (5th Cir.) (per curiam) (same), cert. denied, 439 U.S. 1118, 59 L. Ed. 2d 77, 99 S. Ct. 1026 (1978); Sixth Circuit, United States v. McGuire, 744 F.2d at 1204-05 (same); Seventh Circuit, United States v. Williams, 738 F.2d at 176-77 (same); Eighth Circuit, United States v. Barta, 888 F.2d 1220, 1224-25 (8th Cir. 1989) (reputation testimony); Tenth Circuit, United States v. Page, 808 F.2d 723, 731-32 (10th Cir.) (same), cert. denied, 482 U.S. 918, 107 S. Ct. 3195, 96 L. Ed. 2d 683 (1987). In some cases, use of such questions on cross-examination has resulted in reversal of a conviction. See United States v. Polsinelli, supra (reputation testimony); United States v. Candelaria-Gonzalez, 547 F.2d 291 (5th Cir. 1977) (same).

2. Should Morgan have been followed in this case? Having concluded that Morgan disapproves of cross-examination of non-expert character witnesses with questions that assume the guilt of the defendant, we next consider whether Morgan should have been followed in this case. Initially, we note that there is some question whether the views of the Morgan panel and the supplemental concurring views of Judge Mansfield are dicta. The structure of the opinion suggests that they are. Judge Van Graafeiland's opinion for the Court first announces that asking the hypothetical question "was not prejudiciously improper so as to mandate reversal," 554 F.2d at 33, then observes that "it does not follow from this holding that we approve of the question," id. at 34, and concludes that "it should not be asked," id. Comments following a holding are often dicta. On the other hand, the opinion can be read to "hold" that the question was improper and to make the further holding that the error in permitting the question did not warrant reversal because the question was "not prejudiciously improper."

Even if the panel's disapproval is regarded as dictum, we think it important to make clear that this is dictum that should have been followed in this case and in subsequent cases. We acknowledge that not every observation contained in an opinion of this Court deserves to be regarded as the law of this Circuit. Opinion authors frequently express thoughts peripheral to the holding of a case, and these thoughts do not bind the Circuit, nor even the concurring judges on the panel. If every phrase in an opinion were accorded binding effect, there would be a tendency either to refine language with such meticulous care as to imperil the prompt disposition of the Court's work or to reduce opinions to bare pronouncements of holdings. The latter course might be welcomed by some members of the bench and bar, but it would be inconsistent with the time-honored tradition of crafting opinions that seek not only to pronounce results but also to explain reasoning, to stimulate informed commentary, and, on occasion, to provoke future consideration of emerging issues.

Nevertheless, in some contexts expressions of views by an appellate court must be regarded as the law of the circuit, even though not an announcement of a holding or even of a necessary step in the reasoning leading to a holding. See United States v. Bell, 524 F.2d 202, 205-06 (2d Cir. 1975). One such context is the clear statement of an approved or disapproved aspect of trial court procedure. The orderly admin istration of justice requires certainty as to many details of trial procedure, yet it would be subversive of such admin istration to order a reversal every time a disapproved procedure was used. In some cases we tolerate a disregard of clear prohibitions, recognizing that not every opinion of ours is etched in the memory of the trial bench or the trial bar, that unforeseen matters often arise in the courtroom so quickly and require such prompt disposition as to preclude even hurried research, and that a procedural misstep often does not impair "substantial rights," see Fed. R. Crim. P. 52(a); Fed. R. Civ. P. 61. But harmless error rules are not a license to disregard procedural constraints announced by an appellate court.

Morgan illustrates the type of appellate guidance that, even if dictum, is not to be disregarded. The guidance concerns an aspect of trial procedure, one likely to recur with frequency. Moreover, the guidance is not a tentative expression of views, but a forceful declaration: "a hypothetical question such as the one at issue herein . . . should not be asked." 554 F.2d. at 34. Though it has been said that the only word in a judicial opinion that prosecutors understand is "reversed," we urge them, unless they wish to see this word more often, to add to their lexicon the words "should not."

3. Does Disregard of Morgan Require Reversal? What we have just said might be expected to lead to a reversal in this case, but we conclude that a reversal is not warranted. Looking first at traditional harmless error considerations, we are satisfied that the improper cross-examination created no substantial risk of prejudice. Judge Sweet gave the jury prompt and sufficient cautionary instructions, pointing out the limited purpose for which the questioning was permitted and reminding the jurors of their ultimate responsibility to determine guilt or innocence. Moreover, the evidence of guilt was so substantial as to preclude any reasonable likelihood that the improper cross-examination contributed to the verdicts.

Nevertheless, we are troubled by the disregard of Morgan, especially by the Government's urging the District Court to permit what Morgan condemns, even after that decision was called to the Court's attention by defense counsel. Our readiness to reverse in such circumstances is diminished in this case, however, by our acknowledgement that, though we believe that Morgan is clear, the opinion is susceptible to misinterpretation. Indeed, the District of Columbia Circuit in White has interpreted Morgan to support the very cross-examination that we believe it condemns. Under the circumstances, the Government was entitled to urge an interpretation of Morgan favorable to its position, and the District Judge cannot be faulted for misreading Morgan as he did. A reversal would not be a justified response to what occurred in the trial court. We trust, however, that the matter has now been sufficiently clarified to deny the Government any reason to think that a subsequent disregard of Morgan's admonition will be overlooked.

II. Similar Acts Evidence

Oshatz and Messinger challenge the District Court's decision to admit evidence of their involvement in several other fraudulent tax schemes not charged in the indictment. The defendants contend that the Government failed to show that they participated in these uncharged acts with the knowledge and intent to defraud, and that under cases such as United States v. Afjehei, 869 F.2d 670 (2d Cir. 1989), and United States v. Peterson, 808 F.2d 969 (2d Cir. 1987), such acts are not to be considered "similar" to the charged crimes absent a demonstration of criminal intent. Alternatively, the appellants contend that even if the evidence was admissible under Rule 404(b) of the Federal Rules of Evidence, it was precluded by Rule 403 because its prejudicial effect outweighed its probative value.

We are satisfied that the evidence sufficed to permit the inference that the defendants knowingly participated in each of the alleged similar acts. The first similar act concerned Joseph Bachman, a stock options trader who claimed to have engaged in a separate tax fraud with Oshatz and Messinger. Bachman testified that in 1980 and 1981 the defendants helped form several limited partnerships, known collectively as the Yardley entities, for the sole purpose of providing tax deductions to investors. Bachman alleged that he had informed the defendants that the Yardley entities would engage in "fully hedged" transactions. The defendants maintain that this disclosure does not establish their knowledge of the fraud, observing that not all hedged transactions are illegal and that nothing else Bachman told them should have alerted them to the fraudulent nature of the trades. This argument, however, ignores Bachman's testimony that at a meeting with the defendants he had clarified that the transactions would involve "no risk of capital." In view of the efforts of Messinger in preparing offering memoranda for the Yardley entities and of Oshatz in soliciting investors, the evidence was sufficient for a jury to conclude that the defendants knowingly participated in a fraudulent trading scheme.

The second similar act stemmed from the defendants' relationship with David Lamb, a London commodities broker. In late 1982 Oshatz and Messinger hired Lamb to replace Markowitz as the trader for Trend Capital Associates, a partnership in which both defendants held an interest. Peter Stefanou, the accountant for Trend Capital, testified that though Lamb was not hired until sometime after September 1982, trading statements indicated that he had made substantial trades on behalf of the partnership as early as July of that year. The Government contends that these trades were fabricated and that the defendants knew of the fraudulent nature of the tax losses generated by Trend Capital. The Government established that the bulk of a half million dollars purportedly forwarded to Lamb as a margin payment had been placed in a joint bank account controlled by Oshatz and Messinger. This evidence sufficed to permit the inference that the defendants knew that these trades, for which little or no margin was posted, were fraudulently backdated.

The third similar act concerned Laurel Capital Associates, a limited partnership formed by Oshatz in December 1983. The Government introduced evidence that Oshatz did not make his allotted $ 51,000 capital contribution to the partnership in 1983, but that Messinger, along with several others, belatedly made this capital contribution in return for Oshatz's share of the partnership's losses. The defendants do not dispute the illegality of purchasing tax losses after they have occurred. Rather, they argue that this proof does not demonstrate that they knew the Laurel Capital trades were spurious, rendering evidence of their involvement in the Laurel Capital partnership insufficiently similar to the crimes charged in the indictment. We disagree. The appellants' knowledge may be inferred from the improbability of their repeated claims of innocent involvement in the purchase of fraudulent tax losses. See United States v. Kahan, 572 F.2d 923, 933 (2d Cir.), cert. denied, 439 U.S. 833, 58 L. Ed. 2d 128, 99 S. Ct. 112 (1978); 22 C. Wright & K. Graham, Federal Practice and Procedure §5245, at 507 (1978).

The cases cited by the appellants do not require a contrary result. In United States v. Afjehei, supra, the defendant was arrested entering the United States with a suitcase full of heroin. At trial the Government offered evidence of several prior trips that the defendant had taken. This Court reversed the defendant's conviction on the ground that this other act evidence should not have been admitted since the prior trips were "not shown to be other than innocent." 869 F.2d at 675. In United States v. Peterson, supra, the defendant was charged with possessing a stolen check made out to a third party. After the defendant denied knowledge that the check was stolen, the Government introduced evidence that the defendant had endorsed a second check that was made out to a third party. We reversed on the ground that since the Government failed to demonstrate that the defendant received the proceeds from the second check or knew that it was stolen, there was no evidence that the defendant's possession of the second check was wrongful. Unlike Afjehei and Peterson, where nothing indicated that the other acts were criminal, in this case there was ample proof that the Laurel Capital transactions lacked economic substance. No margin money was ever posted for the Laurel Capital trades, even though the partnership engaged in transactions generating close to $ 1 million in tax losses. This evidence, coupled with the proof of the defendants' knowing participation in the other similar acts as well as in the crimes charged in the indictment, permitted the inference that they also knew the Laurel Capital losses were fraudulently generated. See Huddleston v. United States, 485 U.S. 681, 691, 99 L. Ed. 2d 771, 108 S. Ct. 1496 (1988). Having ruled that this evidence was admissible under Rule 404(b), we reject the defendants' contention that the District Court exceeded its discretion in determining that the probative value of this evidence outweighed its prejudicial effect.

III. Exclusion of Cross-Examination Documents

Oshatz contends that the District Court improperly excluded certain documents offered during his cross-examination of Markowitz. On direct examination Markowitz testified that he had forfeited to the Government all of his possessions, including whatever money he had acquired through his affiliation with the Monetary Group. Oshatz cross-examined Markowitz about several transfers of substantial sums of money he allegedly had made to members of his family or to family-controlled businesses. When Markowitz could not recall the transfers, Oshatz sought to introduce a number of checks Markowitz had drawn on the account of the Monetary Services Corporation, an entity owned by Markowitz and his sister. In concluding that Rule 608(b) barred the admission of this extrinsic impeaching evidence, Judge Sweet rejected Oshatz's claim that the evidence was offered not to attack Markowitz's credibility but to establish that he had a motive to testify falsely on behalf of the Government--namely, to hide assets the Government would otherwise require him to forfeit.

On appeal, Oshatz argues that Judge Sweet excluded this evidence in the mistaken belief that he had no discretion to admit it. He claims that this ruling should be reviewed not under an abuse of discretion standard but under the plenary review appropriate for the application of an erroneous legal standard. A fair review of the record, however, reveals that Judge Sweet understood, as he said, that this issue was "committed to the discretion of the trial court." In light of the wide latitude permitted Oshatz in cross-examining Markowitz and the speculative nature of the "motive" theory, Judge Sweet acted within his discretion in excluding the proffered evidence.

IV. Admission of Summary Chart

Oshatz also contests the admission of a summary chart prepared by the Government. This chart listed both the gross losses generated by the defendants' activities and the annual losses suffered by each entity involved in the scheme. Oshatz challenges both the Government's failure to produce, prior to trial, the computer program on which the chart was based and the District Court's conditional decision to admit the chart before ascertaining its accuracy. We have previously acknowledged the "great desirability" of making computer programs used in the preparation of a summary chart available to the defense a reasonable time before trial, see United States v. Dioguardi, 428 F.2d 1033, 1038 (2d Cir.), cert. denied, 400 U.S. 825, 27 L. Ed. 2d 54, 91 S. Ct. 50 (1970), and have stressed that the Court should independently determine whether the summary chart "fairly represent[s] and summarize[s] the evidence upon which [it] is based," see United States v. Citron [86-1 USTC ¶9228 ], 783 F.2d 307, 316 (2d Cir. 1986), modified [88-2 USTC ¶9552 ], 853 F.2d 1055 (2d Cir. 1988). In this case, though the Government did not produce the computer program before trial, Oshatz had ample time during trial to check the validity of the program and to cross-examine the Government's witness concerning errors in his calculations. And though the Court conditionally admitted the summary chart prior to determining the accuracy of its underlying figures, the Court permitted the Government to amend any incorrect figures in the chart before ultimately admitting the exhibit. Consequently, we do not believe Oshatz suffered any prejudice from the admission of the chart.

Conclusion

We have carefully considered the other claims of error and have concluded that they are without merit. The judgments of conviction are affirmed.

CASE RESOLUTION

Ruling disapproved. Convictions affirmed.

^* The Honorable Michael B. Mukasey of the District Court for the Southern District of New York, sitting by designation.

¹ In support of his ruling, Judge Sweet cited Lopez v. Smith, 515 F. Supp. 753, 756 (S.D.N.Y. 1981), and United States v. Senak, 527 F.2d 129, 145-46 (7th Cir. 1975), cert. denied, 425 U.S. 907, 47 L. Ed. 2d 758, 96 S. Ct. 1500 (1976). Lopez, though citing Morgan with a "cf." signal, ruled only that the cross-examination of a character witness was no basis for finding a constitutional error that would entitle a state court defendant to habeas corpus relief. In Senak, the witness was asked only if he knew of the allegations made by trial witnesses; the Seventh Circuit pointed out that the witness was not asked whether his opinion would be different if he knew that the allegations were true, 527 F.2d at 146.

² Though we agree that a question about misconduct not yet the subject of a conviction is not necessarily hypothetical, the questions asked in this case of Logan and subsequent character witnesses were hypothetical in two respects. The witnesses were asked whether their opinions would be affected if the defendant had done the acts of which he was accused and if the witness knew of such misconduct.

³ We regard this only as a possibility and express no view on it.

⁴ In ruling that a character witness who gives an opinion about the defendant's character, as distinguished from testimony about the defendant's reputation, may be cross-examined with guilt-assuming hypothetical questions, the District of Columbia Circuit relied not only on our Morgan decision but also on United States v. Polsinelli, supra, and United States v. Palmere, 578 F.2d 105 (5th Cir. 1978) (per curiam), cert. denied, 439 U.S. 1118, 59 L. Ed. 2d 77, 99 S. Ct. 1026 (1979). See United States v. White, 887 F.2d at 275. We do not believe that any of these decisions supports the proposition for which it was cited.

[Concurring Opinion]

IN AGREEMENT

MUKASEY, District Judge

I concur in parts II, III and IV of the majority opinion, and in the judgment. However, I believe respectfully that in part I the majority imposes a rule that excludes relevant evidence, in order to avoid only in part a danger that is in any event illusory, and does so on highly debatable authority. For those and other reasons set forth below, I write separately.

I.

A short discussion of basic principles is necessary to an appreciation of what the majority has withdrawn from a jury's consideration. After the effective date of the Federal Rules of Evidence in July 1975, ¹ it became permissible in federal courts under Fed. R. Evid. 405(a) to offer evidence of a person's character by testimony not only as to reputation among others than the witness, but also as to the witness' own opinion. ² Particularly as applied to evidence of good character offered by a criminal defendant, the ultimate point of both kinds of testimony is the same: to suggest to the jury that because the defendant is a person of good character--as shown either by a generally held opinion that he is, or by the witness' own opinion that he is--he would not have committed a crime, and therefore did not commit the crime charged in the indictment. See, 1A Wigmore, Evidence, §52 (Chadbourn Re v. 1974) (hereinafter "Wigmore"); 5 Wigmore §1608. The character judgment here thus has to do at its essence with whether a defendant adheres to a moral and ethical standard, and how likely it is that his behavior has conformed to that standard.

A jury evaluating the testimony of a reputation witness for the defendant in a criminal case must determine how accurately the witness has reported what others think, presumably as evidenced by what they say. Accordingly, such a witness may be cross-examined about well-founded rumors circulating in the community concerning events having nothing to do with the crime on trial in order to determine whether the witness has reported accurately a community consensus. 3A Wigmore, §988 . Because rumors of the crime on trial would prove nothing about how likely it is that the defendant committed that crime, which is the ultimate point of character testimony, a reputation witness may not be cross-examined about such rumors. 5 Wigmore, §1618.

A jury evaluating the testimony of an opinion witness, however, has a different focus. That jury must determine two things: how well the witness knows the defendant, and by what standard the witness judges the defendant. Both are essential in order for the jury to weigh the testimony. If the witness does not know the defendant well, it is unlikely the witness will have seen enough of the defendant's behavior to judge his character. If the witness' judgment is distorted either by such partisanship that the witness would think highly of the defendant despite misbehavior, or by a warped ethical standard, the witness' opinion may be correspondingly discounted. A strong enough partisan would swear truthfully that the defendant is a person of good character even if he has committed the crime on trial; a witness who thinks the crime on trial is not inconsistent with good character would do the same. The question at issue in this case probes both the witness' bias and the witness' own standards by asking whether the witness would retain a favorable opinion of the defendant even if the evidence at trial proved guilt. In either eventuality--bias or distorted ethics--the excluded testimony would be bound to alter the value the jury sets on the opinion. Thus the testimony the majority withdraws from the jury is valuable and relevant in determining by what standard the witness has judged the defendant.

The majority concedes that its rule excludes relevant testimony, slip op. 11-12, but invokes the specter of greater evils--prejudice to the defendant from two ideas that might infect the jury: first, that the presumption of innocence is attenuated or inapplicable; and second, that the prosecutor has undisclosed evidence of the defendant's guilt. Id. at 12.

The first is utterly illogical. There is no chain of reasoning by which a rational jury could conclude that a question calling for a witness to indulge the same assumption when weighing the evidence of which that opinion is a part. Moreover, consider the setting in which the jury would succumb to this hypothesized illogic. As part of their orientation in this Court House, an orientation that is not unique either among or to federal courts, jurors are shown a film designed to impress upon them the importance of their duties. That film includes reference to the presumption of innocence in criminal cases. Also, it is a routine part of the voir dire in criminal cases to explain this presumption to jurors, to tell them they are obligated to apply it, and to exclude for cause those who cannot promise upon oath that they will apply it. Further, and most important in my view, a trial judge would instruct the jury specifically, as did the trial judge here, that the question is limited to testing the witness' views and does not bear on guilt or innocence, which is for the jury to decide. Finally, the presumption of innocence is a central and mandatory feature of the jury charge, Taylor v. Kentucky, 436 U.S. 478, 486, 56 L. Ed. 2d 468, 98 S. Ct. 1930 n. 13 (1978), and one often alluded to by defense counsel in their summations even before the charge is delivered. To fear that a jury so oriented, so sworn and repeatedly so instructed would be impelled by the hypothetical question at issue here to the illogical conclusion suggested by the majority is to fear a phantasm.

Next, the majority urges that "after a jury has repeatedly heard a prosecutor assure a trial judge that he has a good-faith basis for asking permitted hypothetical questions, the jury might infer from the judge's permission to ask a guilt-based hypothetical question that the prosecutor has evidence of guilt beyond the evidence in the record." Slip op. at 12. Although no explicit reference is provided, the majority seems to be talking about questions of the "Have-you-heard" variety posed to a reputation character witness, which the court should be assured have some factual basis before the court allows them. 3A Wigmore, §988 . See, Michelson v. United States, 335 U.S. 469, 481, 93 L. Ed. 168, 69 S. Ct. 213 and n. 18 (1948); United States v. Birney, 686 F.2d 102, 108 (2d Cir. 1982). However, the jury in this case never heard any such assurance from the prosecutor to the trial judge; nor would a jury in any other case hear it, because no capable trial judge would permit such assurances to be given in the jury's presence. Michelson, 335 U.S. at 481 and n. 18. Again, we are dealing with a phantasm.

But even giving the majority the benefit of all the arguendos, its rule does not apply to a category of witness it believes was recognized in United States v. Morgan, 554 F.2d 31 (2d Cir. 1977)--expert character witnesses. The Morgan panel, as the majority reads the opinion, "did not wish to foreclose the possibility that guilt-assuming hypothetical questions may be asked of the expert character witness, just as other expert witnesses, such as Internal Revenue Service agents in a tax fraud case, may be asked hypothetical questions based on facts offered to establish the defendant's guilt." Slip op. at 11. Yet if the danger to be avoided is a virus of illogic in the jury box, what is the difference to the jury whether the question is asked of an expert or a lay witness? There is no difference, and so the proposed solution does not cure thoroughly even the imaginary problem the majority fears.

II.

The other prop supporting the majority captionposition--authority--is not much stronger than the policy arguments discussed above. The main authority, of course, is Morgan, and the majority expends considerable energy decrying the alleged disregard of that case--a decision the majority describes in the same sentence as both "clear" and "susceptible to misinterpretation." Slip op. at 16 As set forth below, Morgan is not without ambiguity and there is another possible answer to the majority's question, "What does Morgan mean?" Slip op. at 8. It bears mention, however, that even if Morgan means exactly what the majority says it means, Morgan itself contemplated at least the possibility of change in light of experience under the Federal Rules of Evidence, which were brand new when Morgan was decided. Morgan, 554 F.2d at 34. Although the reexamination suggested in Morgan was in the direction of greater restriction, there is no reason to put a one-way ratchet on experience, and every reason to reexamine the logical basis for Morgan--if Morgan is to be read as the majority reads it.

But again, that reading is not the only one possible. The character witness in Morgan testified, as Fed. R. Evid. 405(a) permits, as to both the defendant's reputation and the witness' own opinion of the defendant's honesty, integrity and truthfulness. Opinion testimony was an innovation introduced by the Rule; prior practice had permitted only reputation testimony. On cross-examination, the witness was asked if his opinion (as distinguished from the defendant's reputation) would change if he knew that facts specified in the prosecutor's questions, comprising all or part of the crime charged, were true. 554 F.2d at 32. On appeal, the defendant argued that the questions were improper inter alia because they asked the jury to assume guilt. The panel majority in Morgan first distinguished cases involving reputation character testimony from the case then at hand, which dealt with opinion character testimony:

"Here, the matter being pursued was the opinion of the witness concerning the defendant's character. When a witness is permitted to state his own opinion on a matter in issue, as he is now under Rule 405 of the Federal Rules of Evidence, some latitude in cross-examination must be allowed."

554 F.2d at 33. In order to measure how much latitude is appropriate, the Morgan majority then examined the pre-Federal Rules of Evidence practice with respect to experts, who are asked all the time to give opinions and answer hypothetical questions, on both direct and cross-examination, and concluded as follows:

"We conclude, therefore, that the asking of the hypothetical question at issue herein, based as it was upon testimony already offered, was not prejudiciously improper so as to mandate reversal. It introduced nothing into the case which was not already before the jury."

Id. However, the opinion went on to say that because the Rule was new insofar as it permitted opinion testimony, the Court was reluctant to impose an evidentiary rule "which will inhibit full cross-examination of any such expert." 554 F.2d at 34. It was during this discussion that the panel majority first introduced the concept of "witnesses who may qualify as experts on traits of character." As I read the case, that does not necessarily refer literally to experts, whose testimony is governed in any event by the rules in Fed. R. Evid. Article VII, but rather to those who testify in the manner of experts--i.e., by expressing an opinion after they have been qualified to do so by evidence of their acquaintance with the defendant, something only experts had been permitted to do before Fed. R. Evid. 405(a). Indeed, nothing in the facts of Morgan makes any other reference to experts necessary or relevant; Morgan did not involve expert testimony as that term is commonly understood and as the majority appears to use it here. Thus the statement in Morgan that a guilt-assuming question "should not be asked" of "non-expert character witnesses," 554 F.2d at 34, can be read to mean that the question should not be asked of reputation witnesses, as distinct from opinion witnesses.

Lest this reading of Morgan be dismissed as entirely idiosyncratic, I hasten to add that one of the circuit court decisions cited by the majority here in support of its position, United States v. Polsinelli, 649 F.2d 793 (10th Cir. 1981), reads Morgan precisely that way, to draw a distinction between witnesses who testify in the manner of experts to personal opinion, and those who testify as non-experts to reputation, as follows:

"Stated differently, we are not here concerned with the situation faced by the Second Circuit in United States v. Morgan, discussed supra, namely cross-examination of a so-called 'expert' character witness who has testified, on direct examination, as to his personal opinion of the defendant's character. In our case the so-called 'non-expert' character witnesses only testified as to Polsinelli's community reputation. We have now held that the Government's cross-examination of these 'non-expert' character witnesses was improper and, under the circumstances, prejudicial. In thus holding, we do not intend to imply that such cross-examination would have been proper had the character witnesses expressed their personal opinion of Polsinelli's character. Resolution of that particular matter must await a different fact situation."

Polsinelli, 649 F.2d at 799. To be sure, the panel in Polsinelli, while conceding that the issue was not before it, then went on--in dictum--to express opposition to such a question posed to an opinion witness.

It bears mention also that in Lopez v. Smith, 515 F. Supp. 753, 756 (S.D.N.Y. 1981), Judge Weinfeld wrote that when a character witness testified to opinion, "it was not error to allow the attempt to impeach his opinion" with a guilt-assuming hypothetical question; his authority for that proposition was a "cf." citation to Morgan. Id. n. 13.

Of the three cases the majority cites as having "correctly" read Morgan to prohibit the question at issue here when addressed to a "non-expert," slip op. 11, two fail to live up to that billing: Polsinelli, as set forth above, did not read Morgan to bar the question at issue when asked of an opinion character witness; United States v. McGuire, 744 F.2d 1197, 1204-05 (6th Cir. 1984), cert. denied, 471 U.S. 1004, 85 L. Ed. 2d 159, 105 S. Ct. 1866 (1985), cited Morgan and Polsinelli for the general proposition that questions to character witnesses which assume guilt of the charge on trial were improper, while pointing out that the question at issue in that case was of a different sort. Only United States v. Williams, 738 F.2d 172, 177 (7th Cir. 1984) focused on the distinction between reputation and opinion witnesses and found "no reason to treat reputation and opinion witnesses differently in this regard." 738 F.2d at 177. Notably, Williams did not rely on Morgan in reaching that conclusion, but described Morgan simply as follows: "(allowing conclusory cross-examination of expert character witness, but, in dictum, disapproving similar questioning of a non-expert character witness)." The majority tells us that "every circuit to have considered the issue, except the District of Columbia Circuit ... has agreed that guilt-assuming hypothetical questions should not be asked of character witnesses." Slip op. at 12. That is literally true, but the impression it creates--of widespread support for the majority's position as to opinion witnesses--seems extravagant in view of what those cases actually considered. Of the six cases cited, each from a different circuit, only Williams supports the rule the majority would impose.

The majority dispatches in a footnote United States v. White, 281 U.S. App. D.C. 39, 887 F.2d 267, 274-75 (D.C. Cir. 1989), which holds that a question of the sort at issue here to an opinion character witness is entirely permissible. That decision, we are told, relied on cases that do not support the proposition for which they are cited, slip op. 12, n. 3; but that conclusion is itself questionable for two reasons. First, White cited three cases: Polsinelli, supra, which read Morgan as I do to suggest a distinction between opinion ("expert") and reputation ("non-expert") character witnesses; United States v. Palmere, 578 F.2d 105 (5th Cir. 1978) (per curiam), cert. denied, 439 U.S. 1118, 59 L. Ed. 2d 77, 99 S. Ct. 1026 (1979), which reiterated the holding in United States v. Candelaria-Gonzalez, 547 F.2d 291 (5th Cir. 1977) that guilt-assuming questions to reputation witnesses are impermissible; and Morgan itself. For the reasons set forth above, it is not unreasonable to read those cases as supporting a distinction between opinion and reputation character witnesses, such that the question challenged here would be permissible for the one and not for the other. Second, the majority's dismisal of White seems too casual also because that case does not simply cite authority; it is authority.

III. A.

Anyone who reads Morgan literally to distinguish between lay and expert character witnesses must then consider who would qualify as an expert on the character of his fellow beings--a topic ripe with possibilities, none of them attractive. The majority seems to suggest, hesitantly but assumptively, the candidacy of psychiatrists as experts on character. Slip op. at 11. The assumption seems characteristic of the faith our age reposes in science in general and psychiatry in particular; the hesitation is entirely warranted. To assume that psychiatrists, because they understand more than most people about certain forces that govern human behavior, are therefore experts in human character, is sublimely logical, but quite wrong--rather like assuming that because Albert Einstein understood more than Ted Williams about the laws of physics that govern the path of a moving sphere, he must also have been a better hitter. Psychiatrists, as psychiatrists should be the first to concede, are experts in pathology, not in morality. They are limited by their discipline to recognized patterns of mental illness. See, e.g., American Psychiatric Association, Diagnostic and Statistical Manual of Mental Disorders (Third Edition--Revised), p. xxix (1987 ed.) (hereinafter "DSM-III-R"). ³ Yet we have all seen criminals who are glowing portraits of mental health, and saints who bristle with neuroses.