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[80-2 USTC ¶9680] United States of America , Plaintiff-Appellee v. William J. Pry, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 79-5330, 625 F2d 689, 9-12-80 , Affirming unreported District Court decision

[Code Sec. 7203]

Crimes: Failure to file return: Employer's quarterly return: Willfulness: Good faith: Prior wrongs.--Although testimony relating to prior, knowing failures to file employer's quarterly tax returns may have been harmful to the taxpayer, it was relevant to his defense of a good-faith belief that such filing was unnecessay during the years in issue. Therefore, the testimony was admissible as evidence of his willfulness in failing to comply with requirements of the tax law.

[Code Sec. 7203]

Crimes: Failure to file return: Trial: Change of venue.--Claims of financial incapacity to travel to the site of his trial and of prejudice against him within the ares in which the government's suit was brought were insufficient to merit a change in venue. The trial court properly exercised its discretion in denying the taxpayer's motion since the cause of action arose and all witnesses were present in the district from which he sought removal.

[Code Sec. 7203]

Crimes: Failure to file return: Thial: Sentencing: Conditions of sentence: Parole.--A motion attacking the legality of the sentence imposed by the trial court was denied. The court acted properly in requiring that the taxpayer be treated as a parolee after serving ten months of a one-year sentence, even though the applicable statute provided for such treatment upon release after service of one-third of the sentence. It was within the court's discretion to set the terms of the sentence.

Jamie C. Boyd, United States Attorney, Le Roy Morgan Jahn, Assistant United States Attorney, San Antonio, Texas, for plaintiff-appellee. Lucien B. Campbell, P. Joseph Brake, 727 East Durango Blvd. , San Antonio , Texas , for defendant-appellant.

Before THORNBERRY, GEE and REAVLEY, Circuit Judges.

PER CURIAM:

Appellant William J. Pry was convicted by a jury of failure to file employer's quarterly tax returns in violation of 26 U. S. C. §7203. Pry claims the district court erred in denying his motion for a change of venue, in admitting certain evidence of his prior acts and in ordering that he be released from prison as if on parole only after he serves 10 months of his one-year sentence. We reject Pry's challenges and affirm.

Change of Venue

During all times relevant to the offenses charged in the indictment, Pry lived and worked in Austin , which is in the Western District of Texas. He also was required at all relevant times to file his federal tax forms with the Internal Revenue Service (IRS) office in Austin .

Pry was indicted in the Western District and was tried in Austin . His counsel was a member of the Federal Public Defender's office stationed in San Antonio , which is also in the Western District approximately 70 miles from Austin .

Sometime prior to trial, Pry moved from Austin to Houston , which is in the Southern District of Texas. Houston is approximately 130 miles from Austin and approximately 170 miles from San Antonio .

All nine of the government's witnesses were from the Austin area.

A few weeks before trial, Pry moved under Fed. R. Crim. P. 21(a) and (b) ¹ to have the proceedings transferred to the Houston division of the Southern District. In support of the motion, he claimed he was financially ill-equipped to travel to Austin for the trial or to travel to San Antonio to consult with his lawyer and that, because of the "great number of government employees including the Internal Revenue Service in Austin," he could not receive a fair trial in that city. ² In opposition, the government pointed out that its witnesses lived near Austin and that the public defender had access to travel funds. The district court denied the motion.

Because the tax forms Pry failed to file should have been filed in Austin , the Western District of Texas was a proper venue for his trial. See United States v. Calhoun [78-1 USTC ¶9203], 566 F. 2d 969, 973 (5th Cir. 1978). We may reverse the denial of the motion for a change of venue only upon a showing that the district court abused its discretion, United States v. Juarez, 573 F. 2d 267, 280 (5th Cir. 1978); United States v. Walker, 559 F. 2d 365, 372 (5th Cir. 1977). Pry has made no such showing. Under Rule 21(b), the district court is to consider the convenience of the witnesses as well as the convenience of the parties. The district court in this case apparently considered the inconvenience that would have been suffered by the Austin-area witnesses had the case been transferred to Houston . The denial of the motion was within the court's range of discretion.

Prior Acts

During all times relevant to the offenses alleged in the indictment, Pry owned and operated Capital Specialty Blasting Company, which performed dynamite-blasting operations for construction and road-building companies. Pry had several employees who were paid hourly wages. The indictment alleged that Pry was "an employer of labor and a person required under the provisions of the Internal Revenue Code to make a return of federal income taxes withheld from wages and Federal Insurance Contributions Act taxes" and that, in violation of 26 U. S. C. §7203, ³ he had filed no employer's quarterly tax return for any of the tax quarters of 1974 or for the first tax quarter of 1975.

The government's evidence showed not only that Pry had failed to file the required forms but also that he had withheld money from his employees' wages purportedly to be turned over to the IRS and that he had kept the money. During its case-in-chief, the government offered the testimony of Marcus Erfurt, who was Pry's business partner until December, 1973, when he left Pry to establish his own dynamite-blasting business. Erfurt testified that after taking over Capital's bookkeeping chores from Pry during 1973, he found two employer's quarterly tax return forms that Pry had filled out for the first two quarters of 1973 but that he had not sent to the IRS. Erfurt mailed them in.

A defendant's good faith belief that he need not file an employer's quarterly tax return is a defense to a charge brought under §7203 of "willfully" failing to file the return, see United States v. Pinner [77-2 USTC ¶9706], 561 F. 2d 1203, 1206 (5th Cir. 1977); United States v. Douglass, 476 F. 2d 260, 263 (5th Cir. 1973).

Pry claims that Erfurt 's testimony should have been excluded under Fed. R. Evid. 402, 403 and 404(b). If it may be said that the unmailed 1973 quarterly reports proved a prior wrong and that this was harmful to Pry, it is nevertheless relevant and admissible as evidence of Pry's knowledge and intent. In 1973 Pry apparently knew the proper means of complying with the law. See United States v. Beechum, 582 F. 2d 898 (5th Cir. 1978).

Sentence

Pry was convicted on all five counts under which he was indicted. The district court sentenced him to one year of imprisonment on Count One and ordered that he be "released as if on parole after serving TEN (10) MONTHS, pursuant to Title 18, United Sates Code, Section 4205(f) . . ." The court also sentenced Pry to one year of imprisonment on each of Counts Two through Five but ordered that those sentences be suspended and that Pry be placed on probation for three years on each of those counts. The sentences for the latter four counts were to run concurrently with each other but consecutively with the sentence imposed under Count One.

Pry claims that the sentence imposed under Count One is illegal. He argues that 18 U. S. C. §4205(f), the statute under which the district court imposed a portion of the sentence, authorizes a district court to order a defendant released as if on parole only if the defendant is to be released immediately upon having served one-third of the prison term to which he was sentenced. The district court, as noted above, ordered that Pry be released only after he serves 10 months of the one year sentence.

18 U. S. C. §4205(f) provides in pertinent part:

Any prisoner sentenced to imprisonment for a term or terms of not less than six months but not more than one year shall be released at the expiration of such sentence less good time deductions provided by law, unless the court which imposed sentence, shall, at the time of sentencing, provide for the prisoner's release as if one parole after service of one-third of such term or terms . . ..

Section 4205(f) was enacted in 1976 as part of the Parole Commission and Reorganization Act, 18 U. S. C. §§ 4201 et seq. Its legislative history is not enlightening. There is a dearth of dispositive jurisprudence. Section 4205(f) is the only provision in the body of federal law authorizing the district courts to order, at the time of sentencing, that a defendant be released as if on parole and after service of a portion of his sentence. The subsection applies only to defendants sentenced to prison terms of between six months and one year, inclusive.

Another provision of the Act, §4205(b), grants the district courts the discretion to determine, at the time of sentencing, when a prisoner imprisoned for more than a year shall become eligible for parole. Section 4205(b) permits the district courts to set that time at any point during the first third of the prison sentence. If the district court does not exercise that power, the prisoner will become eligible for parole, pursuant to §4205(a), after service of one-third of his prison sentence.

The government argues that the portion of §4205(f) indicating that release shall be after service of one-third of the prison term sets the threshold and the district court may order a prisoner released at any time after his service of at least that one-third. We find this persuasive and consistent with the broad discretion allowed in sentencing. To accept Pry's argument would result in holding that the district court could sentence Pry to several years imprisonment and suspend all or any of it but he could not sentence him to a year and provide for his release after 10 months. We reject that overly legalistic reading of 18 U. S. C. §4205(f).

We find merit in the government's further argument that adoption of Pry's interpretation of §4205(f) would adversely affect the authority granted by 18 U. S. C. §3651 ⁴ for the imposition of split sentences.

Pry would have this court change his sentence so that he will be eligible for release as if on parole after service of one-third of his one year prison term. We decline to do that. It is apparent that the district court intended Pry to serve at least 10 months in prison. We defer to the broad discretion given to trial courts in matters of sentencing.

Pry's conviction and sentence are AFFIRMED.

¹ Fed. R. Crim. P. 21(a) and (b) provides:

(a) For Prejudice in the District. The court upon motion of the defendant shall transfer the proceeding as to him to another district whether or not such district is specified in the defendant's motion if the court is satisfied that there exists in the district where the prosecution is pending so great a prejudice against the defendant that he cannot obtain a fair and impartial trial at any place fixed by law for holding court in that district.

(b) Transfer in Other Cases. For the convenience of parties and witnesses, and in the interest of justice, the court upon motion of the defendant may transfer the proceeding as to him or any one or more of the counts thereof to another district.

² On appeal, Pry has abandoned the claim that he was entitled to a change of venue under Fed. R. Crim. P. 21(a), dealing with prejudice in the district in which the trial is to be held. His brief addresses only the claim that he was entitled to a change of venue under Fed. R. Crim. P. 21(b).

³ 26 U. S. C. §7203 provides:

Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return (other than a return required under authority of section 6015 or section 6016), keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution.

⁴ 18 U. S. C. §3651 provides in pertinent part: Upon entering a judgment of conviction of any offense not punishable by death or life imprisonment, if the maximum punishment provided for such offense is more than six months, any court having jurisdiction to try offenses against the United States, when satisfied that the ends of justice and the best interest of the public as well as the defendant will be served thereby, may impose a sentence in excess of six months and provide that the defendand be confined in a jail-type institution or a treatment institution for a period not exceeding six months and that the execution of the remainder of the sentence be suspended and the defendant placed on probation for such period and upon such terms and condition as the court deems best.

 

 

[80-2 USTC ¶9783] United States of America , Appellee v. Eileen Eldorado Johnson, Appellant

(CA-4), U. S. Court of Appeals, 4th Circuit, No. 79-5272, 634 F2d 735, 11/12/80 , Affirming an unreported District Court decision

[Insert A at 7401]

Crimes: False returns: Evidence: Medicare billing by taxpayer-doctor.--In a taxpayer-doctor's trial for income tax evasion, evidence was introduced that she had overstated Medicaid billings, and government counsel referred to the taxpayer's "fraudulent" submission of Medicaid forms. The Court of Appeals affirmed the taxpayer's conviction on the grounds that no prejudice resulted to the taxpayer from the admission of the evidence relating to the submission of Medicaid forms, or from the government characterization of the forms as "fraudulent". The evidence was properly admitted because the taxpayer's defense to the income tax evasion charge was that she was completely absorbed in her medical practice and inadvertently understated her income. According to the court, the introduction of evidence relating to a fraudulent act committed by the taxpayer was a proper means of refuting the taxpayer's assertion that she did not have the requisite criminal intent to evade taxes. Further, the government counsel's reference to the submission of "fraudulent" forms was cured by the trial judge in his instructions to the jury, so that no prejudice resulted.

John S. Edwards, Faye S. Ehrenstamm, Assistant United States Attorneys, for appellee. S. W. Tucker, Hill, Tucker & Marsh, J. Hugo Madison for appellant.

Before RUSSELL, WIDENER and PHILLIPS, Circuit Judges.

PHILLIPS, Circuit Judge:

Convicted by a jury of federal income tax evasion under 26 U. S. C. A. §7201, Eileen Eldorado Johnson unsuccessfully moved in the district court for a new trial, on the grounds that evidence of her overstated Medicaid billings was improperly admitted and that government counsel's reference to her "fraudulent" Medicaid forms unduly prejudiced the jury. We affirm, holding that the extrinsic acts evidence was properly admitted under Fed. R. Evid. 404(b) and that no prejudice resulted from the "fraudulent" reference in view of the trial court's corrective action.

I Johnson is a medical doctor, who inherited her practice from her deceased brother. She filed tax returns for 1972, 1973, and 1974, which understated her income by approximately $120,000.00 and her tax liability by approximately $31,000.00. Her defense at trial was inadvertence: she had had nothing to do with preparing her tax returns because she cared nothing for money and chose, instead, to devote her time to the demanding personal needs of her patients. To support this defense she produced seven local witnesses--three physicians, a school board member, a public school teacher, a mortician, and a minister--who testified to her truthfulness, honesty, and compassion, and to the busy nature of her practice.

In attempted rebuttal of this portrait of Johnson as an altruistic healer of the sick, whose concerns lay elsewhere than attending to her financial interests and resulting legal responsibilities, the government called Robert Pemberton, an auditor for the U. S. Department of Health, Education & Welfare. Pemberton testified at length about his investigation of Johnson's billings for Medicaid services for 1976-78. His study showed that Johnson reported four times as many services per patient as other Virginia doctors. Johnson did not object to the general course of Pemberton's testimony. In fact, the following day Johnson again took the stand in order to testify that she had not signed the Medicaid billings upon which Pemberton had based his investigation. During cross-examination, government counsel asked Johnson, "Who would have received the benefit of all the fraudulent forms for Medicaid that were filed?" Johnson's counsel objected and moved for a mistrial because use of the term, "fraudulent," unduly prejudiced the jury. The trial judge overruled the motion, directed government counsel to rephrase the question, and gave the jury a cautionary instruction.

II We hold that Pemberton's testimony was admissible under Fed. R. Evid. 404(b), which provides:

Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show that he acted in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident.

The first sentence of Rule 404(b) brings forward the traditional rule that extrinsic acts evidence is inadmissible solely to prove that defendant is a bad character and, therefore, likely to have committed the crime charged. See, e.g. Michelson v. United States , 335 U. S. 469 (1948); United States v. Woods, 484 F. 2d 127 (4th Cir. 1973); Lovely v. United States , 169 F. 2d 386 (4th Cir. 1948); Advisory Committee Notes to Fed. R. Evid. 404(b); McCormick, Evidence §190, at 447 (2d ed. 1972). Extrinsic acts evidence, however, may be admissible for other purposes including those listed in Rule 404(b). The Rule's list is merely illustrative, not exclusive, Wright & Graham, Federal Practice and Procedure: Evidence §5240, at 469 (1978).

Rule 404(b) of course commits to trial judge discretion the determination whether extrinsic act evidence shall be admitted under its second sentence. In exercising that discretion the judge first must determine if the proffered evidence is relevant to an issue other than the accused's character. If so, then the trial judge must balance the evidence's probative value against the dangers of undue prejudice aroused by this form of evidence. This may concededly pose particularly difficult problems. The Advisory Committee Notes to Rule 404(b) state:

No mechanical solution is offered. The determination must be made whether the danger of undue prejudice outweighs the probative value of the availability of other means of proof and other factors appropriate for making decisions of this kind under Rule 403 [confusion of issues, misleading the jury, undue delay, waste of time, and needless presentation of cumulative evidence].

Within this general guideline for the exercise of trial court discretion, we think the evidence here challenged was properly admitted. The general prohibition contained in the first sentence of Rule 404(b) is designed to prevent prosecutorial overreaching by a means whose obvious effectiveness has made it an inescapable temptation for advocates over the years. The second sentence however reflects the perception that evidence of "other . . . acts" may sometimes be critical to proof on a dispositive issue related to a defendant's state of mind. The ambivalence reflected in the Rule but serves to emphasize the particular delicacy of the discretionary rulings its administration may require. There is no gainsaying that the ruling here posed just such a problem for the trial judge, but we think he properly resolved it.

Particularly where, as here, a defendant in a criminal case by her own testimony and that of others has deliberately sought as the primary means of defense to depict herself as one whose essential philosophy and habitual conduct in life is completely at odds with the possession of a state of mind requisite to guilt of the offense charged, that defendant may be considered in effect to have forfeited any protection that the first sentence of the Rule might otherwise have provided against the type of "other act" evidence here challenged. See Walder v. United States , 347 U. S. 62 (1954). In such circumstances, testimony such as that of Pemberton may well be the only effective way to rebut evidence designed generally to plant in the jury's mind a reasonable doubt that such a person could have possessed the culpability of mind requisite to convict of the crime charged. Balancing the probative value of the challenged evidence against its potential for unfairly prejudicing the defendant, and on the latter point taking into account that the defendant deliberately chose to base her defense upon evidence not otherwise effectively rebuttable, we conclude that the district judge's admission of Pemberton's evidence lay well within the bounds of the discretion reposed in him.

III We think that government counsel's unfortunate reference to "fraudulent" medicaid forms was sufficiently corrected by the trial judge's cautionary actions so that the risk of prejudice was adequately removed.

Finding no merit in the defendant's other contentions, we affirm.

AFFIRMED.

Dissenting Opinion

WIDENER, Circuit Judge, dissenting:

I respectfully dissent and would grant a new trial.

Assuming that the evidence of other acts is admissible for one purpose or another, and I think, after United States v. Woods, 484 F. 2d 127 (4th Cir. 1973), even taking into consideration the later advent of the new rules, the admissibility of such evidence is pretty well entrusted in this circuit to the almost uncontrolled discretion of the trial judge, Pemberton's most damning testimony is not considered by the majority in its opinion.

Pemberton testified that Dr. Johnson had billed for specific services not rendered, and he ascertained that fact by asking the patients involved. Thus, the false billing he concluded Dr. Johnson had done was proved by statements other than those made by the declarant while testifying at a trial or hearing and offered in evidence to prove the truth of the matter asserted. This is hearsay pure and simple under FRE 801(c) and inadmissible under FRE 802, for it is not subject to any exception as to which I am advised.

An example follows:

"THE COURT:

Q. And then you checked with some of the patients?

A. Yes, sir.

Q. And found out that the services were not rendered?

A. In talking with the recipients, they stated that they had not received certain services which were billed by Dr. Johnson."

Specific instances of conduct, whether offered to rebut a defense to the merits, as the majority treats it, or whether offered to rebut a defense of good character, I think may no more be proved by hearsay than by any other essential fact in the case.

The testimony I have quoted is only a part of that introduced; other evidence is equally as inadmissible. It may only be considered highly prejudicial, and its admission should warrant a new trial.

 

 

[80-2 USTC ¶9580] United States of America , Appellee v. Michael O. Farber, Appellant

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 79-1815, 630 F2d 569, 7/10/80

[Code Sec. 7203]

Conviction for willful failure to file return: Defenses: Improper jury instructions claimed: Reliance on counsel: Fifth amendment privilege asserted: No abuse of district court discretion: No reversible error.--The Court of Appeals upheld the taxpayer's conviction for willful failure to file a return and held that the jury instructions defining the elements of willfulness were proper and expressly recognized the fifth amendment argument presented by the taxpayer in defense. Additionally, the court held that the admission into evidence of documents relating to the tax paying conduct (as a tax protestor) of the taxpayer for subsequent years was relevant to the issue of intent or willfulness in a prior year, and that the District Court's failure to include an instruction relating to the reliance on counsel defense for filing a tax protestor return was justified because the taxpayer did not demonstrate that he sought competent legal advice.

Roxanne Barton Conlin, United States Attorney, Amanda M. Dorr, Assistant United States Attorney, Des Moines, Ia. 50309, for appellee. Mark W. Bennett, Allen, Babich & Bennett, 5835 Grand Ave. , Des Moines , Ia. 50312 , Michael O. Farber, 1206 Fairview Ave. , Spencer , Ia. 51301 , pro se.

Before HENLEY and MCMILLIAN, Circuit Judges, and ROY, District Judge. ^*

HENLEY, Circuit Judge:

Michael O. Farber appeals from the judgment and sentence of the district court ¹ convicting him of willful failure to file an income tax return for tax year 1974, in violation of 26 U. S. C. §7203. Appellant was sentenced to one year imprisonment with provision for release after service of one-third of this term. We affirm.

During 1974 Farber was employed as a salesman for the IMC Mint Corporation (IMC) of Salt Lake City , Utah . His employment with this corporation began in spring of 1973 and terminated when the organization was placed in receivership on June 21, 1974. According to uncontested evidence at trial, Farber received a total of $24,060.07 in commission paychecks from IMC in 1974. However, due to the confused state of the corporation's records, he apparently did not receive a Form 1099 from either IMC or the receiver indicating his total commissions for 1974.

Appellant submitted a Form 1040 return for 1974, but allegedly because he lacked a Form 1099 from which to ascertain his income, he answered key entries with assertion of the fifth amendment. ²

On appeal, both appellant pro se and retained counsel have submitted briefs. Our affirmance is based on careful review of each.

Farber contends first that the district court abused its discretion in admitting into evidence voluminous tax documents which could fairly be characterized as tax protester materials for years subsequent to 1974.

It is settled that evidence of other crimes or acts is admissible under Fed. R. Evid. 404(b) to show intent, plan, or absence of mistake, so lang as four additional prerequisites are met, i. e., (1) a material issue has been raised; (