Advice of Counsel Page1

---

[ Back ] [ Next ]

   

7203: Willful Failure to File Return, Supply Information, or Pay Tax: Defenses: Advice of Counsel

 

[90-2 USTC ¶50,566] United States of America , Plaintiff-Appellee v. Elbert L. Hatchett, Defendant-Appellant

(CA-6), U.S. Court of Appeals, 6th Circuit, 89-1679, 11/7/90, 918 F2d 631, Affirming an unreported District Court decision

[Code Sec. 7203 ]

Willful failure to pay tax: Jury selection: Evidence: Sentencing.--An individual's conviction and subsequent sentencing on four misdemeanor counts of willful failure to pay federal income tax was proper; the defendant prevailed on none of the following eight errors he claimed were made by the trial court. (1) The fact that the government used its peremptory challenge to exclude a black potential juror from the jury did not render the jury selection process discriminatory inasmuch as the potential juror was excluded for valid nondiscriminatory reasons and the final jury consisted of three black members out of 12. (2) The trial court's exclusion of the defendant's (prior) attorney's testimony concerning the defendant's tax situation did not render the defendant's "advice of counsel" defense a nullity; the excluded testimony was hearsay and the defendant adequately presented the same evidence in other ways. (3) The trial court did not err in preventing that attorney from testifying as to the legal authority for the advice he gave counsel; he did testify that he had done research and further testimony would have confused the jury as to the applicable law. (4) The trial court did not err in allowing the government to impeach the testimony of the defendant's witness and law partner by raising the witness's failure to file tax returns because such information was clearly probative of his bias against the government and, therefore, his credibility. (5) The exclusion of a videotaped segment from a television broadcast that focused on the collection techniques of a local IRS office was proper because it was not relevant to the case and was hearsay. (6) The trial court did not err in sentencing the defendant on the basis of erroneous information in his presentence report inasmuch as as the court stated at the time of sentencing that it would not consider the erroneous information. (7) It was not error for the trial court to sentence the defendant without regard to national sentencing guidelines; it was not necessary to obtain a specific finding from the jury as to the completion date of the offenses because there was no question that the crimes were prosecutable before the effective date of the guidelines. (8) The trial court did not abuse its discretion in requiring the defendant to pay all back taxes as a condition of probation even though the order included taxes owed for a year not covered by the convictions. Although "restitution" is restricted in this way, an order to pay a legal obligation is not a restitution order.

Kathleen Moro Nesi, Assistant United States Attorney, Detroit , Mich. 48226 , for plaintiff-appellee. William T. Coleman III, Phyllis Golden Morey, Pepper, Hamilton & Scheetz, 100 Renaissance Center, Detroit, Mich. 48243-1157, for defendant-appellant.

Before JONES and BOGGS, Circuit Judges, and GIBBONS, ^* District Judge.

BOGGS, Circuit Judge:

Elbert L. Hatchett appeals his conviction on four misdemeanor counts of willful failure to pay federal income taxes for tax years 1982, 1983, 1984, and 1986, in violation of 26 U.S.C. §7203 . On October 20, 1988, Hatchett was charged in an eight-count indictment with one count of tax evasion, in violation of 26 U.S.C. §7201 ; one count of obstruction of tax collection, in violation of 26 U.S.C. §7212(a) ; one count of concealment of property subject to levy, in violation of 26 U.S.C. §7206(4) ; and five counts of willful failure to pay income taxes. After a month-long jury trial in February and March 1989, Hatchett was acquitted on the three felony counts and one misdemeanor count (failure to pay tax for 1985). The jury returned a guilty verdict on the other four counts, for which the court sentenced Hatchett to three consecutive one-year sentences. Hatchett also received one suspended sentence and was placed on five years' probation. Hatchett was also fined $100,000 ($25,000 on each count) and ordered to pay "all back taxes" as a condition of probation.

I

Hatchett is an attorney in the Detroit area who concededly began to fall behind in his tax payments in the 1970s. Audits conducted in the late 1970s by the Internal Revenue Service (IRS) revealed that Hatchett owed back taxes for tax years 1973-1977 in the amount of $107,454.14. On August 23, 1978, he entered into an installment agreement with the IRS, whereby he would pay the government $750 per week--$500 for his 1978 estimated tax payments and $250 for his delinquent taxes. From 1979 through 1986 (with the exception of tax year 1985), Hatchett submitted tax returns without any accompanying payment at all; he also failed to make any estimated tax payments during those years.

Hatchett claims that he consulted with an attorney, Frank Gettleson, on several occasions in 1979 and 1980 in order to consider different ways of handling his tax problems. He claims that Gettleson advised him to file returns that were then overdue but to withhold payment until he was able to negotiate with the IRS a consolidated payment schedule for all taxes. Hatchett thereafter filed a timely return for tax year 1979 on April 14, 1980, but without accompanying payment. He filed a late return for tax year 1980 on April 14, 1982, the same day he filed his 1981 return. Neither the 1980 nor the 1981 return included payment.

On August 26, 1980, Hatchett wrote to the IRS to inform it that he wished to make a lump-sum settlement or, alternatively, to pay $1000 per month until his liability was liquidated. Hatchett claims that the IRS did not respond to his letter, but he nevertheless began sending $1000 monthly payments. He stopped making these payments when, on January 21, 1981, the IRS seized and sold certain real property owned by Hatchett. In March 1983, Hatchett again wrote to the IRS to request an installment payment plan; he claims that he received no response. The government, however, claims that Hatchett received a written reply in April 1984, informing Hatchett that he owed a total of $847,780.46 ($827,791.96 in income taxes, interest, and penalties, and $19,988.50 in business taxes).

The government introduced evidence that during the period covered in the indictment, Hatchett was earning large sums of money from his cases. He settled one case that resulted in $900,000 in legal fees. The government claims that Hatchett converted these monies so as to make it impossible for the IRS to levy on them. He typically exchanged his clients' checks for a series of cashiers' checks; when the IRS levied on his bank accounts, it discovered that no funds were available to satisfy the levies. He also used the money to purchase goods in other people's names. In March 1983, Hatchett paid $28,447.12 in cash for a Porsche 911 for his son. He contemporaneously spent large sums on the construction of a boxer training camp for his son in Otter Lake , Michigan . In May 1983, Hatchett bought $113,744.20 worth of car washing equipment for a business called Sparkle Car Wash, which he held in the name of his elderly father. In 1985, Hatchett purchased a foster care home in his wife's name for $100,000 cash.

In April 1984, Internal Revenue Agent Christine Gibson, newly assigned to Hatchett's case, reviewed his assets and a list of court cases in which he was involved, so that the IRS might attach any attorney's fees due him. Gibson then prepared a list of over 300 levies to be served on Hatchett's clients, opposing counsel, and insurance companies, directing that any monies owed to Hatchett be paid to the IRS.

On June 11, 1984, Agent Gibson met with Hatchett to discuss whether he was prepared to make payment on his taxes owed. When Hatchett was unwilling to disclose any financial information, Gibson served Hatchett with a summons to produce all documents regarding his assets. Gibson testified that Hatchett told her at the June 11 meeting that "he wanted to pay and he always planned to pay his taxes." Gibson also testified that her notes of a June 22, 1984 follow-up telephone conversation with Hatchett indicated that she believed he was "making moves to pay."

On July 13, 1984, Hatchett met with Gibson to review the documents requested by the summons. At this meeting, however, Gibson never looked at any of the documents Hatchett provided. At this meeting, Gibson and Hatchett discussed a number of possible payment plans that could assist Hatchett in discharging his tax liability. After this meeting, not having reached an agreement with Hatchett about a payment plan, Gibson began serving the 300 levies she had prepared. See United States v. Var-Ken, Inc., No. 88-1251 (6th Cir. May 1, 1989) (unpublished per curiam) (reversing a summary judgment against the government in an action to enforce a levy and foreclose on funds assertedly owned by Hatchett).

Throughout 1985, Hatchett made several payments toward his tax debt totalling $80,000. He discontinued his $5000 weekly payments on September 23, 1985, when the IRS seized his Rolls Royce.

Hatchett reported adjusted gross income for 1982 of $329,940 and a tax due of $98,789. He filed this return, without payment, on March 7, 1984, nearly one year late. Hatchett reported adjusted gross income for 1983 of $755,977 and a tax due of $336,799. He filed this return, without payment, a year late on April 15, 1985.

Hatchett reported adjusted gross income for 1984 of $307,410 and a tax due of $132,145. He filed this return, without payment, on April 15, 1985.

Hatchett reported adjusted gross income for 1985 of $400,788 and a tax due of $158,360. He filed this return, without payment, on April 15, 1987. On an amended return, he reported an adjusted gross income for 1985 of $571,437 and a tax due of $244,183. He filed this return, with a total payment of $100,000, on April 7, 1988, two years late.

Hatchett reported adjusted gross income of $445,535 for 1986 and a tax due of $195,699. He filed this return on April 8, 1988, one year late and without payment.

Hatchett raises eight assignments of error: one concerning the jury selection process, four concerning evidentiary rulings, and three concerning his sentencing. We consider them in that order.

II

Hatchett's first claim is that the government exercised its peremptory challenges during jury selection in a racially discriminatory manner. We find no merit in this claim.

The jury consisted of three Blacks and nine whites. The record indices that the jury venire consisted of 70 people. Fifty-five identified themselves as white, 14 as Black or Negro, and one as Asian. The prosecution was given six peremptory challenges, while the defense had ten. Each side had one additional peremptory challenge that could be exercised only against an alternate juror. The district court ruled that if a party chose to pass on the exercise of a peremptory challenge, then that peremptory was lost.

Hatchett claims that the procedure by which the government exercised--or waived--its peremptories was racially motivated and discriminatory. The original jury panel drawn contained eleven whites and one Black. The government used its first peremptory to strike the only Black juror. That juror has a son who had been criminally charged in June 1988; she also had recently been audited. After the government excused the Black juror, she was replaced by a white juror.

The government then waived each of its peremptories against remaining white jurors. Hatchett claims that the government had stronger cause to excuse several of the white jurors than it did to excuse the lone Black juror. During voir dire, for example, it came out that several of the eleven original white jurors had encounters with the government that were allegedly more unpleasant than the Black juror's. One was audited in 1980, and he admitted to the court that he wasn't "thrilled about paying [his] taxes." Another had fallen behind in his taxes five years before the trial and had to make payments over a three-year or four-year period. A third had been arrested for drunken driving in October 1985. One of the alternate jurors, a white woman, had been audited in January 1989, one month before the trial began. Hatchett claims that the reason the government did not excuse any of these white jurors was because it did not want to risk impaneling a Black replacement juror from the venire.

While the government waived each of its first four peremptories against the remaining jurors, the defense exercised each of its first four peremptories to excuse a white juror. Each was replaced by a white juror. After the government waived its fourth peremptory, the defense requested a conference outside the presence of the jurors. Hatchett, whom the court had permitted to participate in the presentation of his case, made the following appeal to the court:

It seems the impact of what the Government is doing, although she has a perfect right to do it, is negate our potential of having a certain number of black people on the jury to try me and my wife. We are entitled to a fair selection of people to sit in judgment of us, a part and parcel would be a group of people who have a peculiar identity with me. The fact that the Government has chosen to pass peremptorily on challenges means that it reduces the prospect of it reducing any of those persons by 50 percent. The only peremptory she has offered has been a challenge to disqualify a black juror, that's the only time she's exercised her prerogative to summarily remove a juror, that juror is black. You have held us tightly with respect to how many challenges we can have. . . . [T]he Court should mitigate the harm to me and my wife by giving us more challenges. We have ten black people left on the jury panel and we have none seated except an alternate and, judge, we are not going to have any representatives of the black race on this jury if the prosecution is permitted to persist in her exercise of her prerogative of not peremptorily challenging anybody.

The government offered to have an in camera hearing with the court to explain the reasoning behind its jury selection procedure. The defense had no objection. ¹ In chambers, the assistant United States attorney explained to the court her reason for excusing the Black juror and no other: only the Black juror had recently had an experience in criminal court and been audited. The other jurors' experiences were considerably more remote, and thus they were less likely to harbor resentment against the IRS. The court was satisfied by the prosecutor's explanation, and found that the government's juror selection process was not tainted by racial discrimination. The jury selection process then continued, and the government exercised no other peremptory challenges. ² After the defense exercised its peremptories and several other jurors were excused for cause, additional jurors were impaneled and the final jury consisted of three Blacks and nine whites. ³

Hatchett argues that it was pure fortuity that three Blacks were impaneled on the final jury, and that this end result does not render moot the constitutional issue of the government's allegedly discriminatory selection process. Hatchett claims that the withholding of peremptory challenges violated his fourteenth amendment right to be free from discriminatory jury selection procedures, as stated in Batson v. Kentucky, 476 U.S. 79, 89 (1986): "the Equal Protection Clause forbids the prosecutor to challenge potential jurors solely on account of their race or on the assumption that black jurors as a group will be unable impartially to consider the State's case against a black defendant." ⁴

The Batson Court enumerated three elements of a prima facie case of purposeful discrimination. First, the defendant must show that he is a member of a cognizable racial group and that the prosecutor has exercised peremptory challenges to remove from the venire members of the defendant's race. Second, the defendant is entitled to rely on the fact "that peremptory challenges constitute a jury selection practice that permits 'those to discriminate who are of a mind to discriminate.' " Third, the defendant must show that "these facts and any other relevant circumstances raise an inference that the prosecutor used that practice to exclude the venire-men from the petit jury on account of their race." 476 U.S. at 96 (quoting Avery v. Georgia, 345 U.S. 559, 562 (1953)). Once the defendant has made out a prima facie case, the burden shifts to the government to come forward with a neutral explanation for challenging Black jurors. Ibid. Hatchett argues that he has made out a prima facie case of discrimination and that the prosecutor's apparently neutral explanation is invalid.

Hatchett claims that the prosecutor's reasons for striking the Black juror were equally applicable to similarly situated white jurors, and thus the prosecutor's explanation was pre-textual. In such a case, the prosecutor's explanation does not withstand scrutiny. Garrett v. Morris, 815 F.2d 509, 513-14 (8th Cir.), cert. denied, 484 U.S. 898 (1987).

We see no clear error in the court's determination that the circumstances of the white jurors who were not challenged differed from those of the two Blacks who were excused. ⁵ The only white juror who had been audited was audited in 1968. This remoteness of his audit was an important distinction. Another white juror had fallen behind in his tax payments five years earlier, but there was no evidence that he had been audited or had had a bad experience with the IRS. The government exercised its one peremptory challenge reserved for the alternate jurors against the Black alternate rather than against the white alternate because the Black alternate had been a client of Hatchett. Although the white alternate had been audited one month before trial, there was no indication that her audit did not proceed favorably; the government saw the Black alternate as a greater risk to impartiality, for reasons apart from her race.

Furthermore, we find that Hatchett did not establish a prima facie case under Batson. All of the attendant circumstances do not raise an inference that the prosecutor excluded Blacks from the jury on account of their race. In United States v. Sangineto-Miranda, 859 F.2d 1501, 1521-22 (6th Cir. 1988), we reasoned:

If, after the jury selection process has ended, the final jury sworn has a percentage of minority members that is significantly less than the percentage in the group originally drawn for the jury (or in the whole jury pool or in the district), then that would be a factor pointing toward an inference of discrimination. If, on the other hand, the percentage of minority members in the ultimate jury is the same or greater, that would be a factor tending to negate the inference of discrimination.

In this case, the jury pool of 70 contained 14 Blacks (20%). The final jury consisted of three Blacks and nine whites (25% Black).

Furthermore, the district court credited the prosecutor's explanation for her pattern of striking or not striking certain jurors. The Supreme Court has ruled that findings of no intentional discrimination turn largely on an evaluation of credibility, which we as a reviewing court should accord great deference. Batson, 476 U.S. at 98 n.21.

Contrary to Hatchett's implication, he is not entitled to a jury composed largely of members of his race. In Batson, the Court ruled "that a defendant has no right to a 'petit jury composed in whole or in part of persons of his own race.' " 476 U.S. at 85 (quoting Strauder v. West Virginia, 100 U.S. 303, 305 (1880)). Rather, the defendant has a right "to be tried by a jury whose members are selected pursuant to nondiscriminatory criteria." Ibid. Because Hatchett was tried before a fairly selected jury, we deny his claim of racial discrimination.

III

A

Hatchett next assigns as error the exclusion, during direct examination of Frank Gettleson, of testimony by Gettleson about statements allegedly made by Hatchett to Gettleson about his tax troubles. The defense called Gettleson to testify about the tax advice he gave Hatchett in 1979 and 1980. When Hatchett's trial counsel asked Gettleson to explain to the jury the content of a conversation Hatchett had with him in 1980, the government objected that the answer would be hearsay and would be irrelevant. The district court sustained the objection, apparently on the ground of hearsay, and precluded Gettleson from testifying about any disclosures Hatchett made to him. ⁶ Hatchett now claims that the district court improperly excluded Gettleson's testimony, which was crucial to Hatchett's defense that he relied on the advice of counsel in withholding tax payments. He argues that the court's ruling improperly made proof of the "advice of counsel" defense difficult.

Hatchett argues on appeal that the testimony Gettleson would have provided would not have constituted hearsay because it would not have been offered for the truth of the matter asserted. ⁷ F.R.E. 801(c). The statements would have concerned disclosures that Hatchett made to Gettleson about his tax liabilities as of 1980. Hatchett claims that this testimony was offered not to prove the truth of the content of Hatchett's statements about his tax situation, but rather to prove that Hatchett made a full disclosure of all pertinent facts to Gettleson. Hatchett claims that the court prevented the jury from accepting Hatchett's advice of counsel defense, by disabling it from determining whether Hatchett made a complete disclosure to Gettleson. Hatchett argues that the testimony was not offered to prove its truth, but rather so that Hatchett could comply with the full disclosure requirement of his defense. See United States v. Eisenstein, 731 F.2d 1540, 1545 (11th Cir. 1984).

Hatchett declined to testify. Gettleson's testimony, therefore, was allegedly the only vehicle for getting Hatchett's advice of counsel defense before the jury. ⁸ Hatchett thus contends that the exclusion of this testimony completely deprived Hatchett of his right to make out a defense.

We hold that the district court did not abuse its discretion in refusing to admit Gettleson's proffered testimony regarding Hatchett's disclosures to him. The district court, in denying Hatchett's motion for bond pending appeal, ⁹ noted that

[a]lthough attorney Gettleson's testimony may have been admissible for the limited purpose of showing defendant made a disclosure, it was not admissible to prove the facts constituting the disclosure. The advise [sic] of counsel defense requires not only evidence of disclosure, but also evidence that the facts disclosed are relevant. . . . The relevance of the facts disclosed could only have been determined had the jury considered as truthful the out-of-court statements which attorney Gettleson was asked to recite.

Had defense counsel represented to the Court the evidence of the factual basis underlying the disclosure would be tied in through a different witness, or asked that the statements be admitted for the limited purpose of showing disclosure and with a cautionary instruction to the jury, this Court's ruling may have been different. However, no such request or representation was made.

(Emphasis supplied.) Having determined that Gettleson's testimony was offered to prove the truth of Hatchett's out-of-court disclosures, and in the absence of a proffer by Hatchett's counsel of other evidence that could prove the truth of the disclosures, the court properly ruled that Hatchett's declarations came within the definition of hearsay and were inadmissible.

We find that the court's ruling could not have undermined the jury's ability to determine the strength of the advice of counsel defense. The defense managed to get the substance of Hatchett's statements to Gettleson before the jury by other means. Although the court sustained the government's objection to the question asking Gettleson directly what Hatchett told him, Gettleson nevertheless testified to several disclosures by Hatchett:

--Hatchett "tried to pay the tax and apparently met with some opposition in that regard;"

--"he couldn't pay it all at one time and it was a fair amount of money at that time and he was going to try and make some orderly payments;"

--Hatchett owed "probably one hundred seventy-five to two hundred thousand, something in that area;"

--"I knew he had been audited incessantly prior to that time;"

--"I knew he had made payments, he had made some payments along the way;"

--"he was concerned if there would be any other ramifications, such as criminal ramifications, that may befall him."

On cross examination, Gettleson admitted that:

--he did not know exactly when Hatchett had been on an installment payment program;

--he did not know that the installment payment program was stopped at the end of 1978 because Hatchett was bouncing checks;

--he did not know that Hatchett had failed to make estimated tax payments for the 1979 tax year;

--they "didn't really discuss" whether Hatchett would make current estimated tax payments in 1980;

--Hatchett never told him whether the IRS had required Hatchett, as a condition of the installment payment program, to remain current with his estimated tax payments.

This testimony was sufficient for the jury to determine whether Hatchett had made a full disclosure to Gettleson of all pertinent facts.

Furthermore, nothing said in closing arguments could have confused the jury as to Hatchett's advice of counsel defense. The government did not claim that Hatchett's defense must fail because there was no proof of full disclosure (proof, Hatchett would argue, that was impermissibly kept from the jury). The government simply argued, in its initial closing and in its rebuttal closing, that the advice of counsel defense should not protect Hatchett prospectively, because Gettleson never explicitly advised Hatchett not to pay taxes from 1981 to 1986. Hatchett in turn argued in his closing that "[Gettleson did not] have to tell me not to pay in '81, '82, '83, he already told me that when I sat down and talked to him." At no point was the jury misled either as to the elements of an advice of counsel defense or as to the quantum of proof necessary to find "willfulness" in Hatchett's failure to pay. Under these circumstances, we find no abuse of discretion in preventing Gettleson from testifying directly as to the truth of Hatchett's disclosures.

B

Hatchett next contends that the district court abused its discretion by precluding attorney Gettleson from explaining the legal authority for the advice he gave Hatchett. The government objected to the proffered testimony on the ground that the witness would be testifying to the jury about legal issues. The court limited Gettleson's testimony to statements about the general legal authority on which he relied in advising Hatchett, "without going into any specifics."

Hatchett asserts that the testimony would have proved that Gettleson conducted specific research on the issue of withholding payment from the IRS in good faith. If Hatchett could have shown the jury that the legal principles underlying the advice upon which he relied were well established in the case law, he claims that he could have made out his advice of counsel defense. Moreover, Hatchett insists that Gettleson's testimony would not have invaded the court's province to instruct the jury on the applicable law. Gettleson's proffered testimony allegedly bore only on his competence in correctly advising Hatchett on the law, while the court retained the ultimate authority to instruct on the law.

We find no abuse of discretion in limiting Gettleson's testimony to statements about the general legal authority on which his advice rested. Testimony about the specific results of Gettleson's legal research was properly excluded. Before the government objected, Gettleson was able to testify that:

I did some research back at that time and I was confident in the research that I did, based upon the statute and based upon the case law that I found as a result of that research, that the position he had taken was a sound position and I told him as much. And I based it in part on the case of--

The court then sustained the government's objection that any further statements would constitute legal argument in front of the jury. The court did not, however, prevent Hatchett from proving that Gettleson was competent to give him sound advice. The court merely restricted the means by which Hatchett could present his argument, so as to limit jury confusion.

In United States v. Curtis [86-1 USTC ¶9195 ], 782 F.2d 593, 599 (6th Cir. 1986), we noted that witnesses "do not testify about the law because the judge's special legal knowledge is presumed to be sufficient, and it is the judge's duty to inform the jury about the law that is relevant to their deliberations." This rule is necessary to prevent the potential confusion that can arise if the law as presented by the witness conflicts with the law as instructed by the court. Id. at 600. Given the soundness of this rule, the district court did not abuse its discretion by excluding references to specific case law under the circumstances presented here.

C

Hatchett also complains about the government's cross examination of one of Hatchett's law partners, Marvin Smith, who became an associate in Hatchett, Dewalt, Hatchett, Mitchell, Morgan & Hall in 1981 and a partner in Hatchett, Dewalt, Hatchett & Hall (of which Hatchett is managing partner) in 1983, testified at trial as to the nature of the law partnership. He further testified about Hatchett's efforts to obtain loans from the partnership in order to pay his taxes. On cross examination, the district court permitted the government to attempt to impeach Smith's credibility by questioning whether he himself had filed any income tax returns for tax years 1981-1986. Smith responded that he had not filed any such returns.

The defense objected to this cross examination on the ground of relevance. The prosecution argued that the questioning was relevant because it concerned the witness's bias. There had been extensive testimony about the partnership's dealings with the IRS, and this line of questioning was designed to illuminate the partners' general failure to cooperate with the IRS. The court was persuaded that the prosecution should be permitted to pursue this questioning, especially on cross examination.

Mr. Smith's cross examination was then continued to the next day. That next morning, before the jury entered the courtroom, the court entertained the defense's motion for a mistrial based on the previous day's cross examination of Smith. Although Hatchett had, on the previous day, objected to the prosecution's line of questioning only on the basis of Fed. R. Evid. 609 (Impeachment by Evidence of Conviction of Crime), the memorandum in support of the motion for a mistrial rested primarily on Fed. R. Evid. 608 (Evidence of Character and Conduct of Witness). Rule 608(b) states in pertinent part:

Specific instances of the conduct of a witness, for the purpose of attacking or supporting the witness' credibility, other than conviction of crime as provided in rule 609, may not be proved by extrinsic evidence. They may, however, in the discretion of the court, if probative of truthfulness or untruthfulness, be inquired into on cross-examination of the witness (1) concerning the witness' character for truthfulness or untruthfulness, or (2) concerning the character for truthfulness or untruthfulness of another witness as to which character the witness being cross-examined has testified.

Rule 609 allows for impeachment only through evidence of a felony conviction. Hatchett argues that Rule 609 did not apply to Smith, and Rule 608 was inapposite because Smith's failure to file timely returns did not relate to his character for truthfulness or untruthfulness. Thus, Hatchett contends, cross examination based on Smith's failure to file or to pay his taxes was inadmissible to attack his credibility. The defense requested that if the court was unwilling to grant a mistrial, it should at least give a curative instruction to the Jury.

The court ruled:

I'm going to give them an instruction that the only purpose is to attack his credibility and that his tax problem or his failure to pay taxes is not an issue in this case. I'm not granting a motion for mistrial.

Hatchett's counsel and the court then engaged in this exchange:

[DEFENSE COUNSEL]: I would like to know whether the Court is making a specific finding that the activity elicited relates to [Smith's character for truthfulness or untruthfulness].

THE COURT: I'm saying the questions and the answers tend to bring out any interest or bias that this witness may have and that this bears upon his credibility and I believe that's fair cross-examination.

Hatchett's argument rests on the notion that the testimony permitted on cross examination was inadmissible because it was not relevant to Smith's character for truthfulness or untruthfulness. Hatchett claims that the court, in finding that Smith had "a motive to be untruthful," merely found that it would have been advantageous to Smith to give false testimony; the court did not, and could not, find that Smith had a reputation for being untruthful. The specific acts of not filing tax returns provided Smith a motive to lie, but did not shed light on his character for truthfulness. Hatchet insists that failure to file tax returns and pay taxes is unrelated to character for truthfulness or untruthfulness.

We agree with the district court that Smith's failure to pay taxes was clearly probative of his credibility. Hatchett does not disagree that the government's cross examination of Smith was intended to show bias; he merely contends that evidence of bias is not an attack on credibility. However, a showing of bias is designed to attack a witness's credibility. See, e.g., Davis v. Alaska, 415 U.S. 308, 316 (1974) ("A more particular attack on the witness' credibility is effected by means of cross-examination directed toward revealing possible biases, prejudices, or ulterior motives of the witness"). This rule is sound because evidence of bias allows jurors to draw appropriate inferences about the reliability of the witness. See United States v. Smith, 831 F.2d 657, 662 (6th Cir. 1987) (quoting Delaware v. Van Arsdall, 475 U.S. 673, 680 (1986) (quoting Davis, 415 U.S. at 318)), cert. denied, 484 U.S. 1072 (1988). An attack on a witness's credibility by demonstrating bias is permissible under Fed. R. Evid. 608(b)(1) precisely because it goes to the witness's character for truthfulness.

The impeachment testimony in fact confirmed Smith's bias by revealing a common pattern of activity with Hatchett: flouting the tax laws by not filing returns or paying taxes when they were due. Smith's behavior was directly relevant to his credibility, and his testimony was admissible.

D

Hatchett's next claim is that the district court abused its discretion by excluding from evidence a videotaped segment from a "60 Minutes" television broadcast that focused on the collection techniques of a local IRS office. During his cross examination of IRS agent Rob ert Bednarczyk, Hatchett attempted to show the videotape in order to convince the jury that IRS agents used oppressive collection tactics. The government objected on relevance grounds, noting that the television show was broadcast in 1981 and made reference to matters not in evidence, and on hearsay grounds. The court ordered defense counsel to proceed to another topic of examination until the court had viewed the tape and ruled on its admissibility. Two days later, the court issued a ruling denying Hatchett's request to show the videotape.

The court found that the tape was "classic hearsay." It did not "know how the Government can possibly cross-examine anything on this film. In addition . . . [t]he incidents in this case involve actions subsequent to 1981. I find it first of all hearsay and, second of all, not relevant."

Hatchett claims that the court's ruling deprived him of his right effectively to cross examine a government witness. He contends that the tape was not hearsay because it was not offered for the truth of its contents, but only to test the witness's conclusion that Hatchett's failure to file a joint return for him and his wife was unusual. Hatchett intended to show that it would have been reasonable for a person to forego the financial benefits of a joint return (as compared to separate returns) in exchange for security from the reputedly unreasonable actions of the local IRS division. Hatchett also disputes the finding that the tape was irrelevant. Although the tape referred to IRS collection procedures in 1981, the government's expert was able to testify on direct examination about tax years 1979-1982. The 1981 broadcast, by comparison, was not too remote to be relevant.

We again find that the court did not abuse its discretion by making this evidentiary ruling. Despite Hatchett's assertion that he did not intend to offer the videotape for the truth of its contents, there were no other facts in evidence by which to judge its truthfulness. No independent evidence had been admitted to prove the truth of the allegations made in the "60 Minutes" segment. In cross examining the government's witness on his opinion that Hatchett's not filing a joint return was unusual, Hatchett needed a basis for his explanation that he was attempting to avoid the alleged pressure tactics of the IRS. This basis lay only in the videotape; its truthfulness would have to have been assumed by the jury in order for Hatchett's proffered explanation to have had any validity. Furthermore, there was no way for the government to detect whether the tape had been altered, and the government would have been unable to challenge the accuracy of the broadcast. Under these circumstances, the court did not abuse its discretion in excluding this evidence.

IV

A

Hatchett contends that the court violated Fed. R. Crim. P. 32(c)(3)(D) by not adequately addressing his allegation that the presentence report contained a factual inaccuracy. He argues that the court neither made a finding as to the truth of the allegation, as required by Rule 32(c)(3)(D)(i), nor made a determination that no such finding was necessary because the matter would not be taken into account in sentencing, as required by Rule 32(c)(3)(D)(ii). Hatchett insists that the court's failure to comply strictly with the rule requires us to remand for resentencing.

The alleged error in the presentence report relates to the applicability of parole guidelines. (Hatchett was not sentenced under the Sentencing Guidelines, since the court determined that the criminal activity charged in the indictment was completed before the effective date of the guidelines.) The probation officer estimated, according to the Parole Commission's guidelines, the amount of time that Hatchett would serve in prison before being released on parole. Hatchett claims that the parole guidelines computation was inaccurate, and that the court relied on this erroneous presentence report. ¹⁰

The parole calculations are not a part of the sentence imposed by the court. Parole release is an admin istrative determination, separate from the imposition of a term of imprisonment. Furthermore, the parole guideline worksheet states that it is an estimate and that it has no binding effect, either on the sentencing judge or on the Parole Commission. The district court adequately responded to Hatchett's argument at the sentencing hearing:

THE COURT: What are you asking me to do with the guidelines? They're the guidelines of the parole commission, not this Court.

[DEFENSE COUNSEL]: However, they have been made a part of the probation officer's report. We believe they are inappropriate because they do not apply to misdemeanor offenses. We would ask the Court to disregard completely the parole guidelines assessment because we don't believe they apply.

THE COURT: Okay.

The court agreed it would disregard the contested information. No due process violation resulted, since the court ignored the alleged error in the report. In addition, Rule 32(c)(3)(D) was not violated by the absence of a written record. The rule only concerns factual inaccuracies, not calculations explicitly labelled "estimates" that are irrelevant to sentencing.

B

Hatchett's next contention regarding his sentencing is that the court should have required the jury to specify in its verdict whether his offenses were completed prior to November 1, 1987, the date the Sentencing Guidelines became effective. If the offenses that underlay the jury's guilty verdict were not completed before November 1, 1987, then Hatchett contends that he should have been sentenced under the guidelines, not under the statute, relying on United States v. Sams [89-1 USTC ¶9136 ], 865 F.2d 713, 715 (6th Cir. 1988), cert. denied, 109 S.Ct. 3187 (1989). Hatchett claims that it was plain error for the court to fail to secure a specific finding from the jury as to the completion date of the offenses.

Hatchett alleges that confusion was caused by the government's introduction of evidence that extended into 1987. There was evidence of Hatchett's expenditures on such luxury items as furs and automobiles as late as 1987. There was evidence of substantial legal fees earned by Hatchett as late as December 1987. Hatchett claims that if the jury found that his willful act of non-payment extended beyond November 1, 1987, then the court erred by not sentencing him under the guidelines.

We note that United States v. Sams does not support the proposition Hatchett suggests. The issue in Sams was not whether the crime had been completed before November 1, 1987 for guidelines purposes, but rather whether the crime had extended into the time prosecution was statutorily permitted. In Sams, we concluded that the failure to instruct the jury to specify the date on which the defendant's failure to pay his taxes became willful was not plain error, since the jury could have concluded that every element of the crime occurred within the time prosecution was permitted. [89-1 USTC ¶9136 ], 865 F.2d at 716.

Hatchett's claim is foreclosed in any event because he did not object to the absence in the jury instructions of a request for a specific finding as to the date on which the crimes were completed. As we held in Sams:

Sams did not object at trial to the jury instructions given by the district court. Thus, the issue of whether the court should have instructed the jury to specify the date on which Sams's failure to pay taxes became willful is not before us. Fed. R. Crim. P. 30.

[89-1 USTC ¶9136 ], 865 F.2d at 716 (emphasis in original). Where a party fails to object at trial, reversal is required only in those exceptional circumstances where necessary to avoid a miscarriage of justice. United States v. Hook [86-1 USTC ¶9179 ], 781 F.2d 1166, 1172 (6th Cir.) (citations omitted), cert. denied, 479 U.S. 882 (1986). As this is not such an exceptional case, we decline to overturn the sentence.

C

Hatchett's final contention is that the district court erred by conditioning probation on the payment of "all back taxes" during the period of probation. He argues that this condition demands restitution based on counts in the indictment of which he was acquitted.

Hatchett notes that 18 U.S.C. §3651 permits a court to order restitution as a condition of probation, but only for those counts on which a defendant has been convicted. Hatchett was convicted only on the misdemeanor counts of failure to pay taxes in 1982, 1983, 1984, and 1986. He was acquitted on the tax evasion counts and for failure to pay taxes for 1985. Hatchett argues that the court was limited to ordering restitution for amounts included in the four misdemeanor counts on which he was convicted. He therefore demands resentencing.

We find no abuse of discretion in the district court's order. The district court did no more than insist that Hatchett comply with the law as a condition of probation. The order should be interpreted as being limited to obligations that either have gone to judgment or are otherwise legally owed. The order cannot be taken to require the payment of tax debts that are legitimately in contest.

The order need not be limited to amounts owed for the years for which Hatchett was convicted. The payment of tax debts for other years that have been reduced to judgment or are due under 26 U.S.C. §6151 is an appropriate condition of probation, since such debts represent definite legal obligations. ¹¹ See United States v. Taylor [62-2 USTC ¶9590 ], 305 F.2d 183, 188 (4th Cir.), cert. denied, 371 U.S. 894 (1962) (the court may require, "as a condition of probation, the payment of all taxes and penalties lawfully determined to be due and collectible"). See also United States v. McMichael, 699 F.2d 193, 195 (4th Cir. 1983) (the court may order the defendant to repay taxes "whenever the amount . . . is legally determined"); United States v. Vaughn [80-2 USTC ¶9785 ], 636 F.2d 921 (4th Cir. 1980) (recognizing that conditioning probation on the payment of "all taxes, interest, and penalties presently owed to the Internal Revenue Service" is proper, but vacating the order that probation be further conditioned on reimbursing the government for the expenses of investigating the offense).

Contrary to Hatchett's contention, the district court's order was not one for restitution under 18 U.S.C. §3651. Therefore, conditioning probation on the payment of "all back taxes" was not an abuse of discretion. As in Taylor, the court could properly require "payment of those taxes reported . . . since such liability is admitted." Id. at 187. In addition to those taxes "shown by the defendant's returns to be due," the court may condition probation on the payment of those taxes found by the jury to have been willfully not paid. Id. at 188. Nothing in the probation conditions should be interpreted to prevent Hatchett from contesting, in good faith, any proposed assessment.

For the foregoing reasons, the conviction is AFFIRMED.

^* The Honorable Julia Smith Gibbons, United States District Judge for the Western District of Tennessee, sitting by designation.

¹ After the court announced the result of the in camera meeting, however, the defense did object to the court's holding a hearing in camera.

² The government did use its one available peremptory challenge for alternates to strike a Black alternate juror, who was replaced by the Asian juror.

³ Although Hatchett claims in his brief that the jury consisted of ten whites and two Blacks, all other indications are that the jury consisted of three Blacks, and Hatchett's attorney so agreed at trial. (The defense had questioned whether one juror was Black or Asian-American, but she listed herself as Black on her jury questionnaire.)

⁴ Since this was a federal trial, the fourteenth amendment, to which Hatchett appeals, is not implicated. Rather, Hatchett should be pursuing his claim under the fifth amendment. See United States v. Sangineto-Miranda, 859 F.2d 1501, 1519 (6th Cir. 1988).

⁵ The other Black who was excused was an alternate. The prosecutor tried to convince the court to strike the alternate for cause because she was one of Hatchett's former clients. When the court refused, the government exercised against her its one peremptory challenge reserved for alternatives.

⁶ The court found that the testimony was offered to prove the truth of the matter asserted.

⁷ Upon the government's objection, Hatchett's counsel initially conceded that the testimony she was trying to elicit would be hearsay.

⁸ This argument collapses under the weight of its own logic, however, because the fact that Gettleson, not Hatchett, was the vehicle for getting the statements before the jury is what distinguishes Eisenstein. In Eisenstein, the court admitted the lawyer's testimony because it was not offered to prove the truth of the matter asserted. A codefendant had already related the matters disclosed, and the lawyer's recounting of the disclosures was not needed to prove their truth. By contrast, the jury in this case would have been induced to accept the truth of the matters disclosed by Hatchett when Gettleson testified to them.

⁹ On June 15, 1989, a panel of this court reversed the order denying bond pending appeal.

¹⁰ The court actually stated: "I've had an opportunity to review this file, I've had an opportunity to review my notes, I've had an opportunity to preside over this case and I've had an opportunity to review the presentence report . . . ."

¹¹ Section 6151 provides: "When a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, . . . pay such at the time and place fixed for filing the return. . . ." (Emphasis supplied.)

Dissenting Opinion

JONES, Circuit Judge, dissenting from Parts III(A) and IV(C).

I.

In Part III(A) of its opinion the majority holds that evidence offered by Frank Gettleson, Hatchett's former tax attorney, as to disclosures made by Hatchett when he sought legal advice for his tax difficulties was properly excluded as hearsay. As this testimony was vital for establishing the essential disclosure element of Hatchett's advice of counsel defense and the trial judge's improper exclusion of this evidence made proof of the advice of counsel defense substantially more difficult, I would reverse and remand.

Hatchett contends that the testimony was not offered for its truth, but instead to prove that certain disclosures were in fact made. Hatchett cites in support of his position United States v. Eisenstein, 731 F.2d 1540, 1545 (11th Cir. 1984), which in circumstances very similar to this case holds that testimony of defendant's lawyer relating to disclosure by defendant was improperly excluded as hearsay because it was offered to demonstrate the lawyer's knowledge and that defendant disclosed.

The majority holds that Gettleson's testimony as to Hatchett's disclosure was properly excluded by the trial judge as hearsay offered for the truth of the matter asserted. In reaching this conclusion, the majority has conflated two issues: first, whether the evidence was offered to demonstrate that defendant disclosed his tax situation to his attorney; and secondly, whether the content of that disclosure was true.

In answer to the first issue, there is no requirement that a litigant supply corroborating testimony in order to demonstrate that he is putting on evidence to show that certain statements were in fact made. It would be perfectly legitimate for Gettleson to testify to the fact that certain statements were made to him. The jury would then decide whether Gettleson told the truth as to the fact that the statements were made. Whether or not the statements themselves were true or not raises a wholly separate inquiry. Presumably, if Gettleson testified to Hatchett's disclosure, Hatchett would still need to produce evidence that he disclosed accurate and truthful information to Gettleson. But he need not do so with the same witness. Whether or not Hatchett ultimately put on enough evidence for the jury to infer that he had made out his advice of counsel defense has no bearing on the propriety of the trial judge's ruling on the admission of Gettleson's testimony. The appropriate procedure would have been for the trial judge to admit the testimony and give proper limiting instructions at the close of trial if they seemed appropriate.

The majority seems to place great weight on the fact that Hatchett did not testify to the matters disclosed and therefore assert their truth. The majority suggests that if Hatchett had testified, or put on other evidence that went to the truth of the disclosure he made to Gettleson, then Gettleson's statements that disclosure was made would only go to the fact of disclosure. But this argument is circular. Presumably, if the defense put on Hatchett to testify as to his conversations with Gettleson, this testimony would have been objected to as hearsay on the same grounds as Gettleson's. The defense would then have been required to corroborate Hatchett's testimony with other evidence as to the truth of his disclosure statements. The logical witness to corroborate Hatchett would be Gettleson. But then, that is where we started.

The fact of the matter is that the trial judge precluded Hatchett from putting on evidence which was essential to his only defense: advice of counsel. It was for the jury to decide whether the facts disclosed were accurate based upon a comparison of the record to the alleged disclosures to Gettleson. In order to put on Gettleson's testimony as to disclosure statements made to him by Hatchett, the defendant was not required to offer support for the truth of the disclosures independent of the facts in the record concerning the amount of his tax liability, the filing of returns, the audit, etc. The trial court and the majority are in error in ruling that independent confirmation of the truth of a statement is required when that statement is not offered for its truth.

As the exclusion of this testimony went to the heart of Hatchett's defense and therefore, to the heart of the fairness of his trial, I would reverse.

II.

I also disagree with the court's analysis and conclusions in Part IV(C) of its opinion. In that section, the majority holds that the trial court did not abuse its discretion when it made Hatchett's payment of "all back taxes" (not only those owed on indictments for which he was convicted), a condition for Hatchett's probation. The majority reasons that it was legitimate for the trial judge to include in his conditions for Hatchett's probation that Hatchett pay back taxes even on those counts for which he was acquitted because these debts represented "definite legal obligations."

The majority's reasoning here seems to me to be faulty. The fact that defendant has outstanding legal obligations unrelated to those offenses for which he was convicted should have no bearing on defendant's probation relating to his convictions. For example, it certainly would not be appropriate for the trial court to condition probation from a criminal offense on the defendant's paying his rent or his credit card debts. The absurdity and inherent danger of allowing trial courts to condition probation on the payment of debts unrelated to a defendant's convictions merely because they represent "definite legal obligations" seems clear.

In United States v. Green, 735 F.2d 1203, 1205 (9th Cir. 1984), the district court sentenced Green to three years probation for failure to file returns for the years 1975-77, on the condition that Green pay all back taxes due and owing. The Ninth Circuit ruled that the district court had overreached its authority stating that, "In criminal tax cases, the court may order restitution only of back taxes for the years involved in the conviction." Id. I agree with the Ninth Circuit's conclusion and would reverse in this case as the district court only had the authority to order restitution for the tax years in which Hatchett was convicted of a tax crime.

Such a rule makes sense not only out of basic fairness to the defendant, but also because an order to pay "all back taxes" may place an obligation on the defendant which exceeds the term of the probation and hence the court's jurisdiction over the case.

'Normal' criminal restitution remains within the equitable power of the judge who orders it; he can modify his order (or at least refuse to revoke probation for failure to comply) if the circumstances of the defendant change. When the court purports to order a particular schedule of payment extending beyond the period of the court's jurisdiction, however, the opportunity for equitable adjustment ceases.

United States v. Bruchey, 810 F.2d 456, 460 (4th Cir. 1987). Applying this reasoning in interpreting the Victim and Witness Protection Act, 18 U.S.C. §§3579 and 3580, the Bruchey court reversed the district court's conditioning defendant's 5 year probation on signing a promissory note for payment of restitution of embezzled funds over a 21 year period. While the Victim Act is not at issue here, the rationale seems apposite: the court may not order restitution which exceeds the term of probation. While the district court in the case at bar made no findings as to Hatchett's ability to pay the "restitution" ordered, it would appear given Hatchett's tenuous financial circumstances and the prior payment arrangements he negotiated with the Internal Revenue Service, that the court's order to pay "all back taxes" will involve payments beyond the 5 year probation. Thus, in addition to exceeding its authority by conditioning Hatchett's probation on the payment of debts unrelated to the convictions, the district court exceeded its authority by ordering restitution which will in all likelihood extend beyond the probation period.

I recognize that the government has an interest in recovering back taxes but it may not do so by tacking on debts unrelated to a criminal defendant's conviction by making their payment a condition of probation for offenses for which the defendant was convicted. A defendant's sentence must relate only to the crimes for which he was convicted. By allowing the government to include payment for acquitted offenses in a sentence for convicted ones, the court today unsettles this time-honored principle.

III.

For the foregoing reasons I respectfully dissent.

 

 

[81-1 USTC ¶9220]United States of America, Plaintiff-Appellee v. Carroll Samara, Defendant-Appellant

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 79-1989, 643 F2d 701, 3/4/81

[Code Secs. 6531, 7201 and 7206]

Crimes: Filing false returns: Evasion of tax: Periods of limitation: Miscellaneous allegations of error.--The court affirmed the conviction of the defendant, an attorney, on two counts of filing false returns and two counts of tax evasion. The court held that the prosecution was not barred by the six-year period of limitations of §6531 because the limitation period ran from the date of filing of an amended return, not from the date of filing of the original return. An amended return is any return or other document within the language of §7206 and the defendant was properly prosecuted for filing an amended return. Certain expert testimony as to his gross receipts offered by the defendant was properly excluded by the District Court and the defense claims of judicial and prosecutorial misconduct were without merit. The court found that substantial evidence supported the jury's verdict, that the false statements were made willfully and the attempt to evade was willful. The defendant's contention that his actions were not willful because he relied on the advice of his lawyer and accountant was rejected because such reliance does not negate willfulness unless a complete disclosure of all pertinent facts was made and the defendant here concealed his cash receipts book from his advisors. The defendant failed to establish his claim of selective prosecution or his claim that his privilege against self-incrimination was violated.

Larry D. Patton, United States Attorney, William S. Price, Assistant United States Attorney, Oklahoma City, Okla. 73102, for plaintiff-appellee. Rob ert W. Pittman, 2250 Northwest 39th Street, Oklahoma City, Okla. 73112, John C. Moran, Moran & Moran, 5400-A Independence, Oklahoma City, Okla., James W. Bill Berry, Berry, Baron & Berry, 2500 City Nat'l Bank Tower, Oklahoma City, Okla. 73102, for defendant-appellant.

Before SETH, BREITENSTEIN and SEYMOUR, Circuit Judges.

BREITENSTEIN, Circuit Judge:

A jury found defendant-appellant Carroll Samara guilty on all four counts of an indictment charging income tax violations arising from returns for the years 1971 and 1972. Counts I and III charged the filing of false returns in violation of 26 U. S. C. §7206(1) and Counts II and IV charged the evasion of tax in violation of 26 U. S. C. §7201. Defendant was sentenced to three year concurrent prison terms on each count. Fines totalling $15,000 were imposed. He appeals and we affirm.

Defendant, a practicing lawyer in Oklahoma City, Oklahoma, filed joint returns with his wife who was not indicted. The Internal Revenue Service, IRS, had audited defendant's returns for several years before those for the years in question. The returns were prepared by lawyers and a certified public accountant in an Oklahoma firm. Defendant furnished the information on which the returns were based. The filing and bookkeeping in defendant's office were primitive and haphazard. A substantial portion of his receipts were in cash or in checks which were converted to cash and not deposited in his bank account. Some business expenses were paid by check and some by cash.

Receipt records being unavailable, the return preparers added the expense items to an estimated sum for living expenses to arrive at gross income. The amended return for 1971 showed a tax due of $585.00, Gov't Ex. 5, and for 1972 of $11,314.26, Gov't Ex. 6. The government evidence showed an additional tax of $1,155.38 for 1971 and $3,613.64 for 1972 (see Gov't Ex. 198 as corrected by witness Bonifield, Tr. 1767-1769).

The government relies on "specific items" of unreported income. In a jury trial covering about three weeks, the government presented over 200 witnesses and 200 exhibits. Oklahoma state court records showed the appearance of defendant as attorney for various litigants. Some of these, about 200, testified to the payment of fees to the defendant. The government summary of the evidence, Gov't Ex. 194, showed additional unreported gross receipts from these sources of $30,154.37 for 1971 and of $36,200.19 for 1972. Detailing the evidence would serve no good purpose. A few examples will suffice.

Mrs. Leo Feurborn testified that in 1971 she paid defendant checks totalling $555.00 for representing her son in a criminal case. Only one check for $105.00 was deposited to defendant's bank account. Tr. 531-536. Lynn Bailey said that she gave defendant a $650.00 check for legal services in a criminal case. The check was endorsed by defendant but no claim is made that it was deposited in his bank account. Tr. 406-410 and Gov't Ex. 73. Lyle Fair gave defendant a check for $750.00 in part payment of legal services of defendant in representing the witness' son in a criminal prosecution. The cancelled check bears defendant's endorsement and no claim is made that it was deposited in defendant's bank account. See Tr. 638-642 and Gov't Ex. 101.

Several character witnesses testified for the defense. Several lawyers related their professional relationships with the defendant. Three former secretaries testified as to the routine and procedures in defendant's office. All said that they were paid in cash. (Tr. 1586, 1611, and 1668). Former secretary Hanson said that defendant did not have a filing system; that his bookkeeping system was almost as bad as his filing system; that he kept no accounts receivable; and that he did not keep a set of books. (Tr. 1619-1620). An elevator operator in the building where defendant had an office testified to his work habits and generosity with children. An accountant, testifying as an expert, presented a summary of the trial evidence. The summary was not received in evidence, but accepted for the record as an offer of proof. The defendant did not testify.

On this appeal, defendant makes no attack on the court's instructions to the jury.

Defendant argues that the evidence is insufficient to sustain the jury verdicts. Counts I and III charge violations of 26 U. S. C. §7206(1). "The gist of the offense is a false statement, willfully made, of a material matter." United States v. Brown, 10 Cir., 446 F. 2d 1119, 1122. Counts II and IV charge violations of 26 U. S. C. §7201. Its elements are willfulness, existence of a tax deficiency, and an affirmative act constituting an evasion or attempted evasion of the tax. Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343, 351; and United States v. Swallow [75-1 USTC ¶9267], 10 Cir., 511 F. 2d 514, 519. Defendant signed the returns which declared that they were made under the penalties of perjury. The government evidence showed that the returns were false in a material matter, the income was understated, and a substantial tax deficiency resulted.

Defendant claims that his actions were not willful. His former secretary, Arvilla Richardson, testified for the government that defendant kept a receipt book showing cash received. Tr. 1390-1391. Defendant did not provide to the firm of Dunlap and Fitzgerald, which prepared his returns, any cash receipt books. Tr. 305. The tax preparers had no knowledge of the checks which defendant cashed rather than deposited. Tr. 309-310. Defendant's reliance on the advice of his lawyer and accountant does not negate willfulness unless defendant made a complete disclosure of all pertinent facts. United States v. Jett [65-2 USTC ¶9706], 6 Cir., 352 F. 2d 179, 182, and United States v. Baldwin [62-2 USTC ¶9644], 2 Cir., 307 F. 2d 577, 579. Defendant concealed, rather than disclosed, his cash receipts. Bank Teller Herrin said that at a minimum of once a week during 1971 and 1972, defendant cashed, without depositing in his account, checks totalling $500 to $1,000 for each transaction. Tr. 1367. Teller Rogers gave similar testimony and said that the cash was given to defendant in $50 and $100 bills. Tr. 1384-1385. Bank Teller Strawn testified that during the same period she cashed checks amounting to $500 to $1,500 three or four times a month and paid defendant in $50 bills. Tr. 1386-1387. Witness Herrin identified from the bank records the checks which were cashed rather than deposited. Tr. 1368-1376.

Government witness Richardson, secretary for defendant, reported to defendant that IRS had made contact with her. She identified as Gov't. Ex. 164 a written July 29, 1974, message to her from defendant. Tr. 1410-1411. Among other things the letter said:

"Do not even mention the Criminal work. Also, you might tell them, if you tell them anything, that I did all of my own banking and saw practically all of my clients at night and that so far as you know I did not take in very much cash money."

In answer to a question of what portion of defendant's practice was in criminal cases, Richardson said, Tr. 1411, "probably the majority of it."

Willfulness to defeat or evade federal income taxes may be inferred from "concealment of asserts or covering up sources of information, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or conceal." Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 499. Substantial evidence establishes that the false statements were made wilfully and that the attempt to evade was willful.

We do not weigh the evidence or determine the credibility of witnesses. "The verdict of a jury must be sustained if there is substantial evidence, taking the view most favorable to the Government, to support it." Glasser v. United States, 315 U. S. 60, 80. See also United States v. Downen, 10 Cir., 496 F. 2d 314, 319. It is enough to say that the evidence supports and justifies the verdicts of the jury.

Defendant contends that prosecution under Counts I and II is barred by the six-year period of limitations provided in 26 U. S. C. §6531(2) and (5). Each of the questioned counts is based on an amended return filed with IRS on February 14, 1973. Gov't. Ex. 5. The indictment was returned on January 4, 1979.

The question is whether the limitation period runs from the date of the filing of the original return, September 15, 1972, or the filing of the amended return on February 14, 1973. Defendant argues that the original return governs because the amended return merely revised a depreciation schedule.

Section 7206(1) applies to "any return, statement, or other document" not believed "to be true and correct as to every material matter." Section 7201 applies to a person who attempts to defeat or evade a tax "in any manner." In holding that the statute was no bar, the district court cited United States v. Habig, 390 U. S. 222. That decision holds that the §6531 limitation period runs from the date of the actual filing and not from the original due date of the return. In the instant case the original due date had been extended and the original return filed within the extension period.

IRS filed the amended return and recognized the increased depreciation claim. Norwitt v. United States [52-1 USTC ¶9252], 9 Cir., 195 F. 2d 127, 134, and Levy v. United States, 3 Cir., 271 Fed. 942, 943, hold that a person may be prosecuted for filing an amended return. We agree. An amended return is "any return, or other document" within the purview of §7206(1) and may constitute an attempt to defeat or evade a tax "in any manner" within the proscription of §7201. Accordingly, the statute is no bar. In the circumstances we have no reason to consider the government's alternative argument that the concurrent sentence doctrine should be applied.

Error is alleged in receipt in evidence of state court civil and criminal dockets of cases in which defendant was the attorney of record. The dockets showed the extent and nature of defendant's law practice during the tax years. They supplied information leading the government to the many "specific items" witnesses. They disclosed the extent of the defendant's criminal law practice and corroborated the testimony of the witness Richardson in that regard. They were relevant evidence as that term is defined in Rule 401, Federal Rules of Evidence. Defendant argues that the introduction of the dockets was an effort by the government to force him to testify. In his opening statement to the jury defense counsel said that the defendant would testify and outlined the scope of his expected testimony in some detail. Tr. 1501-1505. Later, defendant elected not to testify. Tr. 1690. Although evidence tended to implicate the defendant in the commission to the offense charged, "[t]he mere massing of evidence against a defendant cannot be regarded as a violation of his privilege against self-incrimination." Barnes v. United States, 412 U. S. 837, 847.

The last defense witness was an accountant who qualified as an expert. He prepared, and the defense offered as their Exhibit 513, a summary purporting to show that certain items should be deleted from the government's showing of gross receipts. The reasons given for item rejection was witness credibility because of felony convictions and lack of documentation. The court excluded the exhibit and its related testimony on the ground that credibility was for determination by the jury, not by a defense witness. Exhibit 513 was received as a defense offer of proof.

Ordinarily the admission of expert testimony is within the discretion of the court, Wolford v. United States, 10 Cir., 401 F. 2d 331, 332, and its rulings will be disturbed only for clear abuse of discretion, United States v. Carranco, 10 Cir., 551 F. 2d 1197, 1199-1200.

The defense expert did more than summarize the evidence. He gave reasons why specific items should be excluded. The "specific items" witnesses were subject to defense cross-examination. An expert "may not go so far as to usurp the exclusive function of the jury to weigh the evidence and determine credibility." United States v. Ward, 3 Cir., 169 F. 2d 460, 462; see also United States v. Brown, 10 Cir., 540 F. 2d 1048, 1054, cert. denied, 429 U. S. 1100. The offer of proof was properly rejected.

Defendant claims that he was a target defendant because IRS was emphasizing the prosecution of lawyers and accountants. He directs attention to various news items. We considered a claim of selective prosecution in United States v. Rickman, 10 Cir., -- F. 2d --, and nothing more need be added. Defendant showed none of the elements needed to establish unconstitutional selectivity. See Barton v. Malley, 10 Cir., 626 F. 2d 151, 155.

The defense claims of judicial and prosecutorial misconduct border on frivolity and merit no discussion. The experienced trial judge presided over this difficult trial with patience and impartiality. The defendant must suffer the consequence of his own actions.

Affirmed.

 

 

[82-1 USTC ¶9289]United States of America, Appellee v. Kenneth D. Barney, Appellant

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 81-1989, 674 F2d 729, 4/1/82, Affirming unreported District Court decision

[Code Sec. 7203]

Crimes: Failure to file returns: Protest returns: Civil summons procedure: Advice of counsel.--The conviction of a taxpayer who filed returns which contained no information from which the Internal Revenue Service could compute a tax was affirmed. The returns challenged the federal tax collection system and the Internal Revenue Service had the authority to utilize the civil summons procedure to investigate the taxpayer's liability. The trial court did not err in refusing to instruct the jury that wilfulness could be negated by a reasonable, good faith assertion of the fifth amendment or that good faith reliance on the advice of counsel was a defense. Moreover, the taxpayer's challenges to the district court's denial of his pretrial motions were frivolous.

Philip N. Hogen, United States Attorney, Jeffrey L. Viken, Special Assistant United States Attorney, Rapid City, South Dakota, for appellee. Kenneth D. Barney, Star Route Box 68C, Hill City, South Dakota, pro se, John K. Konenkamp, Whiting, Hagg & Konenkamp, P. O. Box 8008, Rapid City, South Dakota 57701, for appellant.

Before Ross, Circuit Judge, GIBSON, Senior Circuit Judge, and HENLEY, Circuit Judge.

PER CURIAM:

Kenneth D. Barney appeals his conviction for four counts of willful failure to file income tax returns for the tax years 1975, 1976, 1977, and 1978, in violation of 26 U. S. C. §7203. Appellant was sentenced to one year on each of Counts III and IV, to run consecutively. He was sentenced to six-month terms of imprisonment on each of Counts I and II to run concurrently, but the execution of the sentences on Counts I and II was suspended. As additional terms of his sentence, after Barney serves the prison terms imposed on Counts III and IV he is to be placed on two years' probation, the terms of which are to include the filing of returns for tax years 1979, 1980, and any other years which come due during the period of probation. Barney was also ordered to pay the costs of his prosecution, which amount to approximately $18,000. We affirm.

For at least thirty years, until 1976, Barney accurately compiled his relevant income information, filed proper federal income tax returns, and paid the tax due. However, for tax year 1975, instead of filing a federal income tax return, Barney mailed to the Internal Revenue Service (IRS) a document which contained no information from which the service could compute a tax. Barney contends that he was prompted to take this course of action by a William Drexler, who Barney believed to be an attorney.

Barney claims that in early 1976 he attended a seminar which he had seen advertised on television. The seminar was to deal with income tax law and the Constitution. William Drexler was one of the speakers at the seminar. Barney contends that he did not know that, at the time, Drexler had been disbarred. Later, Barney attended another seminar in Casper, Wyoming, at which Drexler also spoke.

Barney contends that he approached his income tax responsibilities for 1975 in reliance on the advice given by Drexler and the other speakers at the seminars. Though Barney understood that the document he thereby sent to the IRS contained no information from which the IRS could compute a tax, Barney voluntarily signed the document and submitted it in lieu of a legitimate return.

In August 1976, Barney received a letter from the Director of the IRS Center at Odgen, Utah. The letter informed Barney that he had not submitted a legal return for 1975 and it instructed him on the proper procedure for filing. Barney still did not file a proper return for 1975, nor did he seek advice from a licensed attorney.

In November 1976, Barney was approached by two IRS special agents who identified themselves and told Barney that they were investigating his tax status for 1975. Barney still did not seek competent legal advice.

The agents thereafter issued several IRS civil summonses, pursuant to 26 U. S. C. §7602, et seq., to various financial institutions and individuals in order to collect income information about Barney's tax year 1975. Barney wrote the banks and many of his former real estate clients demanding that they refuse to comply with the IRS summonses unless they received a court order.

For tax years 1976 and 1977, Barney submitted to the IRS documents very similar to the 1975 document he had been warned about. The accompanying material contained challenges to the legality of federal currency, attacks on the IRS, and denunciations of the federal tax collection system. The documents contained no information from which the IRS could compute a tax for the years in question. Barney neither filed any return nor submitted any documents for the tax year 1978.

On appeal, both Barney pro se and appointed counsel have submitted briefs. We have reviewed both in affirming the district court. ¹ We find none of Barney's contentions of error to have merit.

Briefly stated, Barney contends that the court erred in (1) denying his motion to suppress the evidence obtained by the IRS through the use of civil summonses, (2) refusing to instruct the jury that willfulness is negated if there is a showing of good-faith reliance on the fifth amendment, (3) refusing to instruct the jury on Barney's claim that he relied in good faith on the advice of counsel and limiting the testimony regarding this issue, and (4) denying Barney's various pro se pretrial motions.

Barney contends that the IRS did not have the authority to utilize the summons procedure provided for in 26 U. S. C. §7602 to investigate his tax year 1975. Under United States v. La Salle National Bank [78-2 USTC ¶9501], 437 U. S. 298 (1978), an Internal Revenue Service summons may be issued in aid of an investigation if it is issued in good-faith pursuit of civil tax determination or collection and prior to a recommendation to the Department of Justice for criminal prosecution. 437 U. S., at 311-18. We find nothing in the instant case which should have precluded the use of the IRS summonses here. The district court was correct in refusing to suppress the evidence obtained thereby.

Barney alleges that the court should have given his proposed jury instruction to the effect that willfulness may be negated by a reasonable and good-faith assertion of the fifth amendment. We find that the omission of the instruction in this case does not constitute reversible error. The court fully instructed the jury on the issue of willfulness. The jury apparently believed that Barney voluntarily and intentionally violated a known legal duty. In addition, Barney's returns for 1975, 1976, and 1977 contained no information from which the IRS could compute a tax. They were the same as no returns at all. Barney submitted nothing to the IRS for tax year 1978. Under the circumstances, Barney's assertion of the fifth amendment could not be deemed "reasonable." It was obvious that Barney fully intended to pay no income tax, leaving to other citizens his share of the admittedly heavy tax burden.

Barney next urges reversal on the basis of the court's refusal to instruct the jury on his claim that he relied in good faith on the advice of counsel, namely William Drexler. Drexler had been disbarred long before Barney first heard him speak, although Barney claims that he was not aware of Drexler's true status. We found in United States v. Farber [80-2 USTC ¶9580], 630 F. 2d 569 (8th Cir. 1980), that a reliance defense is available only where the defendant attempts to obtain competent legal counsel. 630 F. 2d, at 572. In this case, there is no evidence that Barney ever personally met with Drexler, nor was Drexler a competent tax counsel. We see no evidence that Barney attempted in good faith to seek competent legal advice from any attorney. The court did not err in refusing to give Barney's proposed instruction on this issue.

Lastly, Barney contends in his pro se brief that the court erred in denying several of his pretrial motions. We have reviewed the district court's rulings on these matters and find Barney's challenges to them to be frivolous.

For the foregoing reasons, the judgment below is affirmed.

¹ The Honorable Donald J. Porter, United States District Judge, District of South Dakota.

 

 

[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; (2) the proffered evidence is relevant to that issue; (3) the evidence of other crimes is clear and convincing; and (4) the evidence relates to wrongdoing similar in kind and reasonably close in time to the charge at trial. United States v. Frederickson, 601 F. 2d 1358, 1365 (8th Cir.), cert. denied, -- U. S. --, 100 S. Ct. 281 (1979) (and cases cited).

In the present case, the contested evidence was offered to show Farber's intent and willfulness in failing to file for tax year 1974. The evidence was clearly admissible under the first three prerequisites described above, and we cannot agree with appellant's contention that the materials fail to meet the fourth prerequisite in that they were dissimilar in kind and far removed in time from the crime charged. Although one of the documents (Form 1040 for 1975) was accepted as a return by the IRS, it was nevertheless similar to Farber's 1974 return in containing expressions of Farber's studied dissatisfaction with the income tax system. All of the contested documents were prepared and filed within three and one-half years of the return date for 1974. We have held that subsequent tax paying conduct is relevant to the issue of intent or willfulness in a prior year. United States v. Luttrell [80-1 USTC ¶9150], 612 F. 2d 396 (8th Cir. 1980); United States v. Bowman [79-2 USTC ¶9497], 602 F. 2d 160 (8th Cir. 1979).

Appellant next alleges that his failure to file was not willful in that he offered to refile for tax year 1974 if the government granted him immunity from prosecution. We know of no relevant authority for the proposition that a taxpayer's failure to file is not willful when he asserts a willingness to refile contingent upon a grant of immunity.

The remaining and closer issues on appeal involve the trial court's jury instructions, which we consider under the plain error rule, Fed. R. Crim. P. 52(b), since appellant failed at trial to comply with the procedural mandates of Fed. R. Crim. P. 30 for objection to the court's instructions.

Appellant contends first that he relied in good faith on the advice of counsel and that the jury should have been instructed on this defense. Farber testified at trial that prior to filing his 1974 return, he consulted attorney William Drexler, whom he had heard speak at a tax protest seminar. Allegedly, it was Mr. Drexler who advised appellant to handle the problem of unascertainable income by filing a 259-page return.

At least one court has recognized in a tax exasion context that reliance on counsel is a defense to prosecution and that a defendant is entitled to an instruction on this defense. Bursten v. United States [68-1 USTC ¶9400], 395 F. 2d 976, 981-82 (5th Cir. 1968); accord, United States v. Mitchell [74-1 USTC ¶9414], 495 F. 2d 285, 288 (4th Cir. 1974) (prosecution under 26 U. S. C. §7206 for false tax return). On the other hand, the Fifth Circuit has explained the limited scope of its ruling in Bursten by noting that a reliance defense is available where the defendant relied on "competent tax counsel" (emphasis in Fifth Circuit opinion) and that the defense may not be available in every case. United States v. Anderson [78-2 USTC ¶9678], 577 F. 2d 258, 260 (5th Cir. 1978), citing Bursten v. United States, supra.

Here, we are not convinced that appellant attempted to obtain competent legal advice. We note that Farber first became acquainted with Drexler at a tax protest seminar. According to his testimony, an unidentified person sitting next to him in the audience referred to Drexler as an attorney, and Farber thereafter assumed without further inquiry that Drexler was in fact licensed to practice law. Counsel at oral argument informed us that Drexler was disbarred prior to 1974. Nevertheless, when appellant encountered difficulty with his 1974 return, he decided to telephone Drexler in California rather than seek local legal counsel. It is apparent that appellant sought out Drexler because he agreed with Drexler's antitax sentiments, not because he sought competent legal advice. In these circumstances, we decline to find plain error in the trial court's failure to instruct the jury on a reliance defense.

Farber's final and somewhat troublesome contention is that the trial court failed in its instructions to recognize his strongest defense, i. e., that he was unable to ascertain his income, that he consequently feared perjuring ³ himself, and that he claimed the fifth amendment on his Form 1040 in good faith. As appellant reminds us, a defendant cannot properly be convicted for an erroneous claim of fifth amendment privilege asserted in good faith, Garner v. United States [76-1 USTC ¶9301], 424 U. S. 648, 663 and 663 n. 18 (1976); United States v. Schiff, 612 F. 2d 73, 78 n. 6 (2d Cir. 1979); United States v. Edelson [79-2 USTC ¶9564], 604 F. 2d 232, 234-36 (3d Cir. 1979); United States v. Johnson [78-2 USTC ¶9642], 577 F. 2d 1304, 1310-11 (5th Cir. 1978); Cooley v. United States [74-2 USTC ¶9718], 501 F. 2d 1249, 1253 n. 4 (9th Cir. 1974), cert. denied, 419 U. S. 1123 (1975), insofar as an assertion of this constitutional privilege may negate the element of willfulness required for conviction under 26 U. S. C. §7203. ⁴ United States v. Edelson, supra, 604 F. 2d at 235-36.

In addressing Farber's contention, we note at the outset that the allegedly objectionable jury instructions set out correct statements of the law. The court instructed that disagreement with the law is not a defense to prosecution under 26 U. S. C. §7203, United States v. Pohlman [75-2 USTC ¶9677], 522 F. 2d 974, 976 (8th Cir. 1975) (en banc), cert. denied, 423 U. S. 1049 (1976), and that a good faith belief in the unconstitutionality of the tax laws is not a defense. ⁵ Hayward v. Day [80-1 USTC ¶9296], No. 79-2055, slip op. at 2 (8th Cir. March 13, 1980); United States v. Ware [79-2 USTC ¶9608], 608 F. 2d 400, 405 (10th Cir. 1979).

The court further instructed that a finding of willful failure to file was required for conviction, defining "willful" in lauguage identical to that suggested in this court's en banc opinion in United States v. Pohlman, as a "voluntary, intentional violation of a known legal duty" (emphasis added). United States v. Pohlman. supra, 522 F. 2d at 977, cited with approval in United States v. Pomponio [76-2 USTC ¶9695], 429 U. S. 10, 12-13 (1976). Implicitly, this instruction permitted conviction only if the jury believed that Farber knew of his duty to report income despite the difficulty he had encountered in ascertaining income figures. The jury apparently and with reason did not credit Farber's purported fear of perjury after hearing his cross-examination testimony that he did not attempt to straighten out his checkbook, he did not attempt to obtain records of his bank deposits, he did not attach an affidavit to his Form 1040 explaining his problem, and he did not comply with the IRS's suggestion that he pay half the estimated tax due.

We note also that the court's instructions expressly recognized appellant's fifth amendment argument. The jury was correctly informed that "under the fifth amendment . . . a person has a right to refuse to answer a question if his truthful answer to the question would tend to expose him to criminal prosecution." United States v. Johnson, supra, 577 F. 2d at 1310-1311 (5th Cir. 1978); United States v. Karsky, supra, 610 F. 2d at 550 and 550 n. 5 (8th Cir. 1979).

Appellant nevertheless contends that the benefit of this instruction was diluted by the further instruction that the fifth amendment privilege "does not permit a person to completely refuse to disclose on his income tax return any information relating to his income, and filing a 1040 form with a fifth amendment objection to income questions constitutes a failure to file the return." We find that this instruction on failure to file was reasonable where the taxpayer provided the IRS with insufficient information to calculate tax liability; see note 2, supra; United States v. Johnson, supra, 577 F. 2d at 1311; United States v. Irwin [77-2 USTC ¶9627], 561 F. 2d 198, 201 (10th Cir. 1977), cert. denied, 434 U. S. 1012 (1978); United States v. Daly [73-2 USTC ¶9574], 481 F. 2d 28, 29 (8th Cir.), cert. denied, 414 U. S. 1064 (1973), and where the instruction on failure to file did not predetermine the separate, hotly contested issue of whether Farber's failure to file was willful. As indicated, the district court instructed accurately on the element of willfulness, giving this matter over to the jury for its consideration.

It is perhaps true that in its jury instructions the court could have more precisely spelled out the relationship between willfulness as an element of the offense and assertion of a fifth amendment defense, with an instruction that willfulness may be negated by a reasonable though erroneous assertion of the fifth amendment in good faith. See, e.g., United States v. Edelson, supra, 604 F. 2d at 235. However, the courts' failure to give such an instruction was not, in our opinion, plain error, and we conclude that a new trial is not necessary to prevent a miscarriage of justice. Fed. R. Crim. P. 52(b); Tanner v. United States, 401 F. 2d 281 (8th Cir. 1968), cert. denied, 393 U. S. 1109 (1969); Cross v. United States, 347 F. 2d 327, 330 (8th Cir. 1965).

For the foregoing reasons, the judgment and sentence of the district court are affirmed.

^* The Honorable Elsijane Trimble Roy, United States District Judge, Eastern and Western Districts of Arkansas, sitting by designation.

¹ The Honorable Harold D. Vietor, United States District Judge for the Southern District of Iowa.

² Farber's 1974 Form 1040 reported $95.00 in income, as indicated on the form 1099 from a previous employer. It contained no other financial information relating to income or deductions. On the line requesting information regarding income from sources other than wages, dividends and interest, appellant wrote "object. Fifth Amendment." The 259 page return included such information as the Unlted States Constitution, a copy of the Declaration of Independence, photocopies of newspaper articles, and numerous other items. It was not accepted by the Internal Revenue Service because it lacked sufficient information for a determination of income tax liability.

Appellant subsequently, in 1977 and 1978, filed two Forms 1040X attempting to amend the 1974 return, but these forms again contained numerous references to appellant's fifth amendments rights and were not accepted by the IRS.

³ Form 1040 requires the the taxpayer declare under penalty of perjury that the return is true, correct and complete to the best of his knowledge and belief.

⁴ 26 U. S. C. §7203 provides in pertinent part:

Any person required under this title to pay any estimated tax or tax, or required . . . to make a return . . . who willfully fails to pay such estimated tax or tax, [or] make such return . . . shall . . . be guilty of a misdemeanor.

⁵ We recognize that a more limited assertion of erroneous constitutional belief may be a defense. Specifically, a taxpayer's good faith but mistaken belief that the fifth amendment permits him to refuse to answer inquiries on a tax form may be a defense in a §7203 prosecution. Garner v. United States, supra, 424 U. S. at 663 and 663 n. 18; United States v. Schiff, supra, 612 F. 2d at 78 n. 6; United States v. Edelson, supra, 604 F. 2d at 234-36; United States v. Johnson, supra, 577 F. 2d at 1310-1311; United, States v. Pohlman, supra, 522 F. 2d at 977 n. 2; Cooley v. United States, supra, 501 F. 2d at 1253 n. 4.

As the trial court instructed, good faith misunderstanding of the requirements of the law, as distinct from disagreement with it, may also be a defense insofar as misunderstanding can negate the element of willfulness required for conviction. 26 U. S. C. §7203; United States v. Karsky, 610 F. 2d 548, 550 n. 4 (8th Cir. 1979), cert. denied, 100 S. Ct. 1058 (1980); United States v. Pohlman, supra, 522 F. 2d at 976.

 

 

[80-1 USTC ¶9417]United States of America, Plaintiff-Appellee v. Joseph Conforte and Sally Conforte, Defendants-Appellants

(CA-9), U. S. Court of Appeals, 9th Circuit, Nos. 77-3956, 78-3310, 624 F2d 869, 4-29-80, Affirming unreported District Court decision

[Code Sec. 7201].

Crimes: Attempt to evade taxes: Willfulness: Trial judge's prejudice.--The taxpayers' conviction for willful failure to file employment tax returns, failure to withhold income taxes and failure to pay employment taxes was affirmed. Income received by certain auxiliary personnel at the legal house of prostitution operated by the taxpayers was determined to be wages, not tips, so that the taxpayers were not relieved of their employment tax obligations with respect to those employees. Nonpayment of taxes was not reasonably justified by the taxpayers' reliance on continuing negotiations between their attorney and the IRS during the period in which the violations occurred because the tax liability for the prostitutes and not for the auxiliary personnel was the topic of the negotiations. The bookkeeping method employed at the brothel, which included destruction of key records, indicated that the tax evasion was willful. An argument raised for the first time after trial that the presiding trial judge was prejudiced against the taxpayers was not timely since the issue of the propriety of the judge trying the case was first brought up prior to trial and no new evidence on that issue was discovered during or after the trial.

Leland E. Lutfy, Assistant United States Attorney, Reno, Nov., for plaintiff-appellee. Harry Claiborne, Oscar B. Goodman, Bruce I. Hockman, Hockman, Salkin & Deroy, 9100 Wilshire Blvd., Beverly Hills, Calif. 90212, for defendants-appellants.

Before: KENNEDY and TANG, Circuit Judges, and PALMIERI, ^* District Judge.

Opinion

KENNEDY, Circuit Judge:

This is an appeal from a judgment of conviction in a tax evasion case. The appellants, Joseph and Sally Conforte, are the operators of an establishment called "Mustang Ranch," described in the record as a legalized house of prostitution located in Nevada. The Confortes were convicted on four separate violations of 26 U. S. C. §7201 for willful acts taken to evade or defeat federal employment taxes for the last quarter of 1974 and the first three quarters of 1975. The Government's case was that the appellants willfully failed to file employment tax returns, to withhold income taxes, or to pay employment taxes for certain employees who worked at the Mustang Ranch establishment. The employees in question were not prostitutes but were so-called auxiliary personnel such as maids, bartenders, security guards, and cashiers. The district court tried the case without a jury. We agree with the trial court that the Government established that appellants' failure to file employment tax returns for these auxiliary personnel was flagrant, and part of a willful scheme to evade federal taxes on a substantial scale. We therefore affirm the convictions.

I. Conviction for Tax Evasion.--Conviction under section 7201 requires proof beyond a reasonable doubt of each of the following elements: (1) the existence of a tax deficiency; (2) willfulness; and (3) an affirmative act constituting an evasion or attempted evasion of the tax. Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343, 351 (1965); Lawn v. United States [58-1 USTC ¶9189], 355 U. S. 339 (1958); Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954); Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492 (1943). Appellants contend that the employers had no obligation to withhold income taxes or pay Social Security taxes since the auxiliary personnel received no salary, but only tips from the prostitutes. They argue, moreover, that even if the compensation is classified in law as a wage, the appellants believed it to be tips, so the failure to file was not willful. As part of the defense that there was no willful criminal conduct, the appellants claim that they were relying upon their tax counsel's negotiations with the Internal Revenue Service, negotiations which continued during the quarterly tax periods in which the violations occurred. We reject these contentions and conclude that the Government has met its burden of proof on each element.

A. Tax Deficiencies. As even the Confortes' counsel conceded from the outset of trial, the auxiliary personnel in question were employees, not independent contractors. The argument that withholding was not required thus turns upon whether the employees received wages, as distinct from tips. An examination of the compensation procedures used at the brothel leaves us with doubt that the term "tip" is entirely inaccurate to describe the compensation paid to the auxiliary employees. The compensation paid to the auxiliary employees would be defined as a wage by lay people and tax experts alike.

The system used to pay the Mustang Ranch employees during the four tax quarters in question was this: An employee designated as a cashier took all the monies earned by the prostitutes. The cashier returned to them one-half of their earnings for each shift, less ten percent. If the prostitute earned less than $50.00, no money was deducted from her half share. No money was taken from that portion of the prostitute's earnings in excess of $100.00. The ten percent deduction was designated a "board fee," and the total board fees so retained were denominated by the Confortes as a "tip fund." At the end of each day or night shift the cashier paid both the prostitutes and the auxiliary employees, the cashier herself being included in this latter category. The cash payments to the auxiliary employees were said to be taken from the "tip fund." Apparently, there was no physical separation of the cash in the drawer, the "tip fund" constituting simply an accounting designation. The compensation to auxiliary employees from the "tip fund" was a fixed payment per shift, such as $30.00 for a maid and $35.00 for a security guard. If the "tip fund" was insufficient for payment, Joseph Conforte would put more cash in the drawer. Any funds remaining in the drawer after these payments were, of course, retained by the Confortes. The prostitutes kept track of their earnings, typically on index cards, and the cashier made certain summaries on binder paper or lined yellow paper. These records were routinely burned, as discussed further below.

The Conforte's argument that the employees received tips and not wages is so far removed from the economic facts of the case that the term "tip fund" used by the Confortes is itself a factor tending to show a willful attempt to evade taxes. The trial judge expressly so found, and we agree. The funds paid the auxiliaries were wages as that term is defined in 26 U. S. C. §§ 3121, 3401. See United States v. Fleming, 293 F. 2d 953 (5th Cir. 1961).

To begin with, the employers were the Confortes, not the prostitutes. The Confortes supervised the employees and exercised authority over hiring and firing. The employees who testified said they considered the Confortes to be their bosses. The Confortes set the rates of compensation. A necessary inference from the record is that the "tip fund" was sometimes in excess of the amounts required for the auxiliary personnel and that sometimes it was insufficient. It was in the latter instances that Joseph Conforte put additional funds in the cash drawer. There is no evidence whatever that the prostitutes set the auxiliaries' pay, or even that they knew the amount. There is no evidence they had any control over the auxiliaries. The Confortes, in short, had complete control over the auxiliaries, their rate of pay, hours, working conditions, and term of employment. For a set hourly period, the auxiliaries were paid fixed sums, which had a direct relationship to the value of the services they performed. These sums were paid from the Confortes' gross revenue and from funds which the Confortes put in the cash drawer. These sums were wages paid by the employers, and the employers were the Confortes. See United States v. Silk, 331 U. S. 704, 716-19 (1947); McCormick v. United States [76-1 USTC ¶9319], 531 F. 2d 554 (Ct. Cl. 1976); N. L. R. B. v. Nello Pistoresi & Son, 550 F. 2d 399, 400 (9th Cir. 1974); Humble Pipe Line Co. v. United States [71-1 USTC ¶9403], 442 F. 2d 1353, 1356 (Ct. Cl. 1971); McGuire v. United States [65-2 USTC §9616], 349 F. 2d 644 (9th Cir. 1965); Fahs v. Tree-Gold Co-Op Growers of Florida, 166 F. 2d 40 (5th Cir. 1948).

While there are some cases in which the distinction between tips and wages must be defined with some precision, a rudimentary requirement is that a tip is a payment made by a person who has received a personal service. Rob erts v. Commissioner [49-2 USTC ¶9330], 176 F. 2d 221, 225 (9th Cir. 1949); Olk v. United States [75-1 USTC ¶9248], 388 F. Supp. 1108, 1111 (D. Nev. 1975), rev'd on other grounds [76-2 USTC ¶9484], 536 F. 2d 876 (9th Cir.), cert. denied, 429 U. S. 920 (1976). Since the Confortes, not the prostitutes, set the fee, made the payments and received the services, that element is absent here. A second essential element is that the tip be a voluntary payment in an amount, and to a person, designated by the customer. Restaurants and Patisseries Long-champs, Inc. v. Pedrick, 52 F. Supp. 174, 174-75 (S. D. N. Y. 1943); 8A J. Mertins, The Law of Federal Income Taxation §47A.04 (1978). This element is also absent; contributions from the prostitutes were mandatory. The auxiliary services were rendered to the establishment as an enterprise, not to the prostitutes individually. The scope of duties performed by the auxiliary personnel were sufficiently broad so that a base rate of pay from the establishment, not tips, is the normal method of compensation, and that was the compensation plan adopted by the Confortes. This holding is consistent with rulings issued by the Treasury Department in characterizing income as wages rather than tips where services are rendered to the enterprise as a whole, and not to individuals who allegedly receive the service. See Rev. Rul. 69-28, 1969-1, C. B. 270-71; Rev. Rul. 145, 1937-1 C. B. 443; Rev. Rul. 301, 1938-1 C. B. 455; Rev. Rul. 69-28, 1969-1 C. B. 270; Rev. Rul. 75-400, 1975-2 C. B. 464; Rev. Rul. 76-231, 1976-1 C. B. 378.

The record contains a further refutation of the argument that the base compensation paid to the employees consisted of tips, in that occasionally auxiliary employees would do personal errands for the prostitutes and would receive true gratuities for those services. These sums were tips, and since contradistinct from the employees' base pay, the difference in the two sums is clearly revealed. A final factor to establish that the base amounts paid to the auxiliary personnel from the board fund were wages, rather than tips, is that various of the service personnel were paid their salary from the "tip fund" while on vacation, notwithstanding their absence from work. Such vacation allowances constitute wages, not tips. See 26 C. F. R. §31.3306(b)-1(g). We conclude that the Government has established beyond a reasonable doubt that employment taxes were due and that withholding was required for the quarters in question.

B. Willfulness: Willfulness requires a showing of specific wrongful intent to avoid a known legal duty. United States v. Pomponio [76-2 USTC ¶9695], 429 U. S. 10, 12 (1976); United States v. Bishop [73-1 USTC ¶9459], 412 U. S. 46 (1973); United States v. Hawk [74-1 USTC ¶9465], 497 F. 2d 365, 366-69 (9th Cir.), cert. denied, 419 U. S. 838 (1974). It is a state of mind of the taxpayer wherein he is fully aware of the existence of a tax obligation to the Government which he seeks to avoid. United States v. Martel [52-2 USTC ¶9541], 199 F. 2d 670, 672 (3rd Cir. 1952). This element was proven beyond a reasonable doubt.

The Confortes argue that the failure to report wages, even if a violation of the Revenue Code, was not willful because the distinction between tips and wages is a difficult one to make. We have already indicated that complexities or the necessity for fine distinctions are not required to be made in this case. See United States v. Buckner, No. 78-1319 (9th Cir. Dec. 28, 1979). The Confortes were not strangers to federal tax requirements for employers. During the tax periods here in question, Sally Conforte filed employment tax returns for a restaurant of which she and Joseph Conforte were the proprietors. There were, moreover, numerous other acts shown from which it is proper to infer a willful plan to defraud the Government.

Direct proof of a taxpayer's intent to evade taxes is rarely available. Willfulness may be inferred, however, by the trier of fact from all the facts and circumstances of the attempted understatement of tax. In Spies v. United States [43-1 USTC ¶4243], 317 U. S. 492 (1943), the Supreme Court listed some circumstances from which willfulness may be inferred:

keeping a double set of books, making false entries or alterations, or false invoices or documents, destruction of books and records, concealment of assets or covering sources of income, handling one's affairs to avoid making the records used in transactions of the kind, and any conduct the likely effect of which would be to mislead or conceal.

Id. at 499. See also Smith v. United States [54-2 USTC ¶9715], 348 U. S. 147, 159 (1954) (extensive use of currency and cashier's checks to satisfy obligations); Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954) (pattern of understatement of income in successive years); United States v. Murdock [3 USTC ¶1194], 290 U. S. 389, 395 (1933) (use of memory, surmise, estimates, or a careless disregard in making of tax returns); United States v. Fahey, 510 F. 2d 302 (2d Cir. 1974) (taxpayer's effort not to learn what his tax obligations are); Warring v. United States [55-1 USTC ¶9473], 222 F. 2d 906, 909 (4th Cir.), cert. denied, 350 U. S. 861 (1955) (presence of large sums of money in cash not deposited in a bank highly suspicious).

The Confortes conducted an operation at the Mustang Ranch that is consistent with almost no other inference but an intent to defraud the Government of its taxes. The receipts and payments for virtually all of the expenses for the Mustang Ranch operation were handled in cash. Some idea of the size and sophistication of the operation may be gathered from the fact that the license fee for the brothel (paid to the sheriff in cash) was initially $25,000 per year, later increased to $30,000 per year. The employees were paid daily in cash. There was evidence, expressly credited by the district court, that the employees were told by the Confortes not to report their wages. More than twenty employees testified, and of these only two apparently reported their wages to the Government. Using assumptions that would state the employment taxes due for the quarters here in question at a minimum, the Government's expert witness testified that there was a failure to withhold over $54,000 in federal employment taxes.

It was a regular practice, testified to by five witnesses who were themselves responsible for carrying it out, for appellants to burn the records showing what the prostitutes earned and the summary sheets showing what was paid to the auxiliary employees. Testimony indicated that Joseph Conforte himself had delivered records to the security men to be burned. This was so even though other refuse was hauled away from the premises. These acts of burning are affirmative acts constituting an attempted evasion of the tax. Appellants argue that the records were burned openly on the premises; but even assuming, contrary to the evidence, that the precise nature of the burning operation was widely observed and understood, the act would be as consistent with knowing destruction of records as it was with innocence, and the trial judge found, properly in our view, that it was the former.

C. Reliance on Advice of Counsel: Our cases establish that reliance on advice of counsel in tax evasion cases is not a complete defense, but only a circumstance indicating good faith which the trier of fact is allowed to consider on the issue of willfulness. United States v. Crum [76-1 USTC ¶9214], 529 F. 2d 1380, 1383 (9th Cir. 1976); see Bisno v. United States, 299 F. 2d 711, 719 (9th Cir. 1961).

The indicia of willfulness set forth above are sufficient in themselves to demonstrate that the appellants' allegation of reliance on advice of counsel or on representations made by the IRS, is not a claim made in good faith, but because counsel contend vigorously on appeal that the Confortes and their tax attorney were misled we address that argument separately.

In October and November, 1972 the Internal Revenue Service sent a determination letter to about twenty-five brothel operators in the State of Nevada. Such a letter was sent to the Confortes on November 9, 1972. The letter stated in part:

The Internal Revenue Service has recently completed an examination of the organized houses of prostitution throughout the State of Nevada. It has been determined that you are an employer, as defined in the Internal Revenue Code, Section 3401(d) and Treasury Regulations Section 31.3306(i)-1(b)-1(d) and, therefore, subject to the laws and regulations pertaining to Withholding Tax and Federal Insurance Contribution Act taxes.

. . . .

Consequently, beginning with the fourth quarter 1972, you will be required to file Form 941, "Employer's Quarterly Federal Tax Return", including Withholding and Social Security taxes on all prostitutes, maids, bartenders, and any other persons working in your establishment.

. . . .

Your attention is particularly directed to the depositing requirements and the fact that severe civil or criminal penalties may be imposed for failing to comply timely with the regulations, both as to depositing withheld taxes and filing returns.

Mr. Clyde Maxwell, an experienced attorney specializing in tax matters, had represented the Confortes previously. After the determination letter had been mailed to the brothel owners, the Confortes and twenty-four or so operators of similar establishments retained Maxwell to represent them in connection with the determination letter. The Confortes executed powers of attorney in Maxwell's favor.

Maxwell met with the Internal Revenue Service in Washington, and after discussions with them wrote a letter to each brothel owner, including the Confortes. The letter, dated January 30, 1973 stated, in part:

In the meantime, I have assurance that no action will be taken against my clients until this matter has been completely resolved.

This letter, Exhibit 61 at trial, was proffered by the Confortes and their counsel to establish that the Confortes' continued failure to file employment tax returns was not willful.

Maxwell's discussions with the Internal Revenue Service continued until 1976. All of the discussions concerned the issue of whether or not brothel operators should withold earnings for the prostitutes. There was no discussion as to the auxiliary personnel. (Maxwell said it was "mentioned in passing" but three revenue agents testified the question did not come up at all). Maxwell explains this by stating that the issue of the prostitutes constituted a significantly greater liability for tax assessments than in the case of the auxiliary personnel, so that it occupied the center of his attention. At Maxwell's request, the Internal Revenue Service issued a technical ruling on the prostitute issue in January of 1974. It was adverse. In 1975 Maxwell and the Internal Revenue Service arranged for two test cases on the issue of withholding income for prostitutes. Employment taxes would be paid for two such persons, to be followed by a refund claim which the IRS would deny promptly so district court refund actions could proceed. The Confortes were indicted in August, 1977. Maxwell testified that the first he knew of any criminal investigation was a day before the indictment was issued. Aside from the overwhelming evidence of willfulnes disclosed above, we think there is ample support in the record for the district court to reject the appellants' professed claim of good faith reliance on counsel or on Internal Revenue Service assurances.

While it is clear to us now what compensation procedures and employment arrangements prevailed at the Mustang Ranch in 1974 and 1975, these details were not known with such specificity to the Internal Revenue Service. Agent Zuver of the Nevada district testified that the nature and extent of the failure to withhold for auxiliary employees came to his attention in early 1975 when the omission of any Mustang Ranch personnel was noted in a routine audit of the form 941 filed by Sally Conforte for the restaurant operation.

Essential to the claim of reliance on counsel is a showing that the reliance be in good faith and that the advice be obtained after full disclosure of all of the facts to which the advice pertains. See United States v. Mitchell [74-1 USTC ¶9414], 495 F. 2d 285, 287 (4th Cir. 1974); United States v. Stone, [70-2 USTC ¶9630], 431 F. 2d 1286, 1289 (5th Cir. 1970), cert. denied, 401 U. S. 912 (1971); Bursten v. United States [68-1 USTC ¶9400], 395 F. 2d 976, 982 (5th Cir. 1968); Bisno v. United States, 299 F. 2d 711, 719-20 (9th Cir. 1961). The defendant must also show that he actually relied on the advice, believing it to be correct. Id. None of the requisites was met in the instant case. From Maxwell's testimony it appears that the first time he discussed the auxiliary employees in detail with the Confortes was after the quarters during which the violations in question occurred. Maxwell did not testify that he had any conversations with the Confortes before that time regarding the necessity of paying employment taxes for the support personnel. Indeed, the record permits the rather clear inference that Mr. Maxwell did not want to know too much about how the auxiliary employees were paid. There is simply no evidence that Maxwell knew of the subterfuge adopted at the Mustang Ranch, and, moreover, there is no evidence that the IRS knew of it either.

The one sentence statement in Exhibit 61 cannot be construed as advice from the IRS or from Maxwell that the Confortes were free to adopt the course of conduct they did in the relevant financial quarter of 1974 and 1975. All of Maxwell's written communications to his clients concerned the prostitute issue. And in August, 1973, he wrote all of them, including the Confortes, asking them to "[a]dvise if you or anyone you know is being audited." Even if some assurances had been given to Maxwell with respect to a stay of proceedings against the Confortes on the issue of witholding for auxiliary employees (and we emphasize the record does not permit this inference) the IRS would not be bound by it if the assurance was obtained after the facts showing a clear scheme to defraud were deliberately withheld from revenue officials. Moreover, the record is barren of any evidence which would indicate that the Confortes in any way relied on the IRS determination letter or on Maxwell's communications in structuring their method of compensating the auxiliary personnel.

The defense of reliance on advice of counsel, and the related claim made here of reliance on statements purportedly made to counsel by the Government, fail not only because there was an insufficient disclosure of the factual predicate for such advice, but also because there is no testimony that such advice was ever given. There was no testimony that Maxwell had advised the Confortes that they had a right not to pay employment taxes for the auxiliary personnel. Such advice would have been most unlikely because, on these facts, it would have been professionally irresponsible to give it. Our conclusion that Maxwell never gave such advice is buttressed by the fact that some twenty-three of the other brothel operators that he was representing did, during the periods in question, withhold income and file employment tax returns for auxiliary personnel.

In short, none of the necessary premises for a reliance on counsel defense were established. When essential background facts are not furnished by the client to the attorney, when there is no testimony that advice from counsel as to a specific course of conduct was solicited, and when it is highly unlikely that, if solicited, advice constituting a defense to a willful violation would have been given in any event, then no foundation exists at all for the claim of good faith reliance on counsel, and the trier of fact is well within its province to reject it.

We should make one additional point regarding the sufficiency of the evidence to sustain the conviction of Sally Conforte. Counsel argue that it was not shown that she engaged in any willful evasion of the tax laws. We think there is adequate evidence to support the conviction as to Mrs. Conforte. She was the one who filed the returns for the restaurant operation; she took an active role in supervising employees at the Mustang Ranch; correspondence from Maxwell was directed specifically to her. From this evidence it was proper for the trial judge to infer that she was guilty on all four counts.

II. Alleged Bias and Prejudice.--Appellants contend that even if the evidence was sufficient to sustain the convictions for tax evasion, the case should be remanded for a new trial because newly discovered evidence indicates that Judge Bruce R. Thompson had been biased and prejudiced against them at trial. The motion for a new trial on this ground was heard by Judge Warren J. Ferguson, who denied it after making careful findings and writing an extensive and thoughtful opinion. 457 F. Supp. 641 (D. Nev. 1978). We affirm Judge Ferguson's ruling.

The facts were set out extensively below, and we need restate them only briefly here. In 1972 Joseph Conforte submitted an application to the American Contract Bridge League's Reno Unit, of which Judge Thompson was President. The unit decided to reject Conforte's application because of his prior felony convictions and his proprietorship of a house of prostitution. Acting at the request of the Reno unit, Judge Thompson wrote, on court stationery, to the National Headquarters of the Bridge League to inquire whether the unit was permitted to reject Conforte's application. The National Headquarters responded that rejection was proper and Judge Thompson wrote a letter of rejection to Conforte on court stationery.

In 1973 Judge Thompson attended a cocktail party after a University of Nevada football game. The topic of raising funds for the team was discussed, and Joseph Conforte was mentioned as a possible contributor. Judge Thompson advised against accepting a contribution from him because Conforte ran a house of prostitution. He also stated that the only problem with one member of the athletic staff was that he was a good friend of Conforte. The judge also said Conforte was "not good for Reno."

A threshold issue we address is the timeliness of appellants' motion for new trial, to the extent it rests on the bridge club incident. When newly discovered evidence is the basis for a new trial motion, it is necessary to show that the evidence could not have been discovered with due diligence at a time early enough to form the basis for a timely motion at or before trial. United States v. Cervantes, 542 F. 2d 773, 779 (9th Cir. 1976); see United States v. Beasley, 582 F. 2d 337 (5th Cir. 1978); United States v. Brashier, 548 F. 2d 1315, 1327 (9th Cir.), cert. denied, 429 U. S. 1111 (1977). Ashowing of due diligence was not made here. Mr. Conforte testified that he destroyed Judge Thompson's letter of rejection upon receiving it and told no one about it. The rejection letter put Conforte on notice that Judge Thompson had had at least some involvement with the decision to reject his application to the American Contract Bridge League, although concededly Conforte did not know the tenor of the correspondence. Conforte neither informed his attorneys of the letter nor conducted even a minimal investigation of the incident prior to trial. In view of this, the district court acted well within its discretion in concluding that appellants failed to meet their burden of establishing that they could have discovered with diligence the evidence in time to make an appropriate motion at or before trial. United States v. Schwartzbaum, 527 F. 2d 249, 254 (2d Cir. 1975), cert. denied, 424 U. S. 942 (1976). Because the motion on this ground is not timely, we do not consider it, although by so doing we do not intimate that the conduct in question would have been grounds for finding bias or prejudice in any event.

In view of recent discussions in this circuit and in others of the requirement of timeliness for disqualification motions under 28 U. S. C. §455, and in order to address further arguments made by the appellants, we are required to examine whether the rules of disqualification of judges are such that the argument Mr. Conforte makes can be raised for the first time on appeal notwithstanding the above rules pertaining to newly discovered evidence generally. This was a question left open in United States v. Sibla, No. 78-1724. (9th Cir. March 3, 1980, as amended April 28, 1980.) In that case the disqualification objection had been raised under 28 U. S. C. §144, and we held the objection was specific enough to bring it to the attention of the trial judge in a timely manner under 28 U. S. C. §455.

There were no factors here to excuse failure to raise the claim in the trial court, or to permit raising the issue on appeal. The defendant had received a letter which was notice to him of the grounds now urged for disqualification, and he failed to remind the judge of the matter even when the question of the judge's qualification to sit was expressly discussed before trial. In these circumstances the grounds for recusal of the trial judge under section 455 may not be raised for the first time on appeal. The Second Circuit has held that the requirements of timeliness under section 144 are applicable as well to a section 455 motion. In re International Business Machines Corp., No. 79-3070, slip op. at 1428-29 (2d Cir. Feb. 25, 1980). The Seventh Circuit has adopted language which, broadly interpreted, may indicate that timeliness is not a requirement for raising an objection under section 455. SCA Services, Inc. v. Morgan, 557 F. 2d 110, 117 (7th Cir. 1977). If so construed, the statement in SCA Services would be a dictum, since there is an objection to qualification was made in the district court before trial on the merits. We conclude timeliness cannot be disregarded in all cases involving the delicate matter of disqualification under section 455, although, as we did in Sibla, we leave open here the question whether timeliness may be disregarded in exceptional circumstances.

We do find it necessary to address the question of the remarks made concerning Mr. Conforte at the university function. Appellants contend they should be granted a new trial because these remarks indicate grounds for disqualification under 28 U. S. C. §455(a) & (b). The statute, as amended in 1974, provides:

(a) Any justice, Judge, magistrate, or referee in bankruptcy of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.

(b) He shall also disqualify himself in the following circumstances:

(1) Where he has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding;

. . . .

(e) No justice, judge, magistrate, or referee in bankruptcy shall accept from the parties to the proceeding a waiver of any ground for disqualification enumerated in subsection (b). Where the ground for disqualification arises only under subsection (a), waiver may be accepted provided it is preceded by a full disclosure on the record of the basis for disqualification.

The statute imposes a self-enforcing duty on the judge, but its provisions may be asserted also by a party to the action. Davis v. Board of School Comm'rs, 517 F. 2d 1044, 1051 (5th Cir. 1975), cert. denied, 425 U. S. 944 (1976).

Recusal whenever a judge has a "personal bias or prejudice concerning a party" is required also by 28 U. S. C. §144. We examined the relation between the two statutes in United States v. Olander, 584 F. 2d 876 (9th Cir. 1978), and held that the decisions interpreting section 144 are also controlling in the interpretation of the bias and prejudice language in section 455(b)(1). Id. at 882; see In re International Business Machines Corp., No. 79-3070 (2nd Cir. Feb. 25, 1980); United States v. Haldeman, 559 F. 2d 31, 132 (D. C. Cir. 1976), cert. denied, 431 U. S. 933 (1977); United States v. Hall, 424 F. Supp. 508, 533 (N. D. Okl. 1975), aff'd, 536 F. 2d 313 (10th Cir. 1976); 13 C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure §3542, at 345-46 (1975). A second point we made in Olander concerned the distinction between two subsections of section 455. We stated: "It would be incorrect as a matter of statutory construction to interpret section 455(a) as setting up a different test for disqualification for bias or prejudice from that in section 455(b)(1)." 584 F. 2d at 882.

We interpret this to mean that the standard for determining the appearance or fact of the particular grounds for disqualification is the same, but not that the reach of the two sections is in all cases coextensive. The standard for measuring the grounds of disqualification is similar, but the sections reach different factual contexts. Olander does not undercut the recognition that there may be cases within subsection (a) that are not within subsection (b); and we think this must be so or subsection (e), which allows waiver of disqualification under the former subsection but not the latter, would be without meaning. We need not examine for purposes of this case the comparative reach of the two sections, other than to suggest that subsection (a) is designed to cover contingencies not foreseen by the draftsmen, who set out specific grounds for disqualification under subsection (b). This interpretation is consistent with the legislative history, which describes subsection (a) as a "general, or catch-all, provision." H. Rep. No. 93-1453, 93rd Cong., 2d Sess., reprinted in [1974] U. S. Code Cong. & Ad. News 6351, 6354. Subsection (a) was described as establishing an objective standard which required disqualification "if there is a reasonable factual basis for doubting the judge's impartiality." Id. at 6355. Subsection (b), on the other hand, was addressed to specific instances "which are in addition to the general standards set up in section (a)." Id. When these specific instances are present, the inquiry must proceed under subsection (b), rather than subsection (a), and waivers may not be accepted.

There may also be room in subsection (a) for somewhat greater operation of the principle that a ground of disqualification may be the appearance of partiality. We recognize, as indeed is apparent from subsection (b), that many cases exist where the mere appearance of partiality suffices for nonwaivable disqualification. It is a general rule that the appearance of partiality is as dangerous as the fact of it. Potashnick v. Port City Construction Co., No. 76-2373, 78-2386 (5th Cir. Jan. 15, 1980); United States v. McDonald, 576 F. 2d 1350 (9th Cir.), cert. denied, 439 U. S. 830 (1978); Note, Disqualification of Judges and Justices in the Federal Courts, 86 Harv. L. Rev. 736, 745 (1973). Certain instances may arise under subsection (a), however, wherein a seeming ground of disqualification can be adequately explained and then waived.

Returning to the instant case, the specific ground alleged for disqualification is bias or prejudice, and we think the test under either subsection (a) or (b) is the same, namely, whether or not given all the facts of the case there are reasonable grounds for finding that the judge could not try the case fairly, either because of the appearance or the fact of bias or prejudice. We find no reasonable grounds for questioning the judge's impartiality because of bias or prejudice. While bias or prejudice may spring from many sources, often extrajudicial in their origin, the negative bias or prejudice of the kind alleged here will disqualify only if it is an attitude or state of mind that belies an aversion or hostility of a kind or degree that a fair-minded person could not entirely set aside when judging certain persons or causes. It is an animus more active and deep rooted than an attitude of disapproval toward certain persons because of their known conduct, see Mims v. Shapp, 541 F. 2d 415 (3rd Cir. 1976), unless the attitude is somehow related also to a suspect or invidious motive such as racial bias or a dangerous link such as a financial interest, and only the slightest indication of the appearance or fact of bias or prejudice arising from these sources would be sufficient to disqualify. Judged by these standards, nothing in Judge Thompson's remarks indicates a disqualification to hear the case.

It is not surprising that Judge Thompson would know of Conforte's activities and that he would have a less than high opinion of them. The record discloses that Joseph Conforte does not keep a low profile in Reno and its surrounding areas. He not only owns and operates a house of prostitution in Storey County, but also invites publicity for his activities. Judge Thompson also knew, from his official capacity, that Conforte was a twice-convicted felon. The fact that Judge Thompson advised against soliciting contributions from Conforte, given all of the circumstances of this case, does not provide a basis for questioning his impartiality in trying the case. It is reasonable to expect a judge to advise against involving educational institutions with brothel owners or felons, and we would not think that because of this advice the judge was unable to give the defendant a fair trial.

Appellants contend that their waiver of a jury trial was invalid because Judge Thompson did not disclose his part in the bridge club and cocktail party incidents. We disagree. Appellants and their attorneys discussed the possible waiver of a jury trial for days preceding the waiver. Joseph Conforte took an active role in these discussions. Judge Thompson explained to appellants the differences between a bench and jury trial before accepting the waiver. The specific requirements of Fed. R. Crim. P. 23(a) were complied with. Appellants were sufficiently informed of the basis for Judge Thompson's negative views about Joseph Conforte when the judge informed them of his knowledge of Joseph Conforte's criminal record and that a prospective juror could be disqualified for such knowledge. Appellants' waiver of a jury trial was knowing and intelligent and was therefore valid. Schneckloth v. Bustamonte, 412 U. S. 218, 237-38 (1973); Patton v. United States, 281 U. S. 276, 312 (1930).

Finally, appellants contend that Judge Thompson's statements regarding their Sullivan-Garner income tax returns ¹ and the severity of the sentences imposed require recusal. These arguments are without merit. A judge's views on legal issues may not serve as the basis for motions to disqualify. United States v. Azhocar, 581 F. 2d 735, 738 (9th Cir. 1978), cert. denied, 440 U. S. 907 (1979); United States v. Haldeman, supra, 559 F. 2d at 136. Although we conclude in section III that part of the sentences must be vacated, the record makes clear that the sentences were imposed to test appellants' right to file Sullivan-Garner returns and not because of any personal bias against them.

III. Sentencing.--While we affirm the judgments of conviction, we do find certain errors in the sentencing process, and we vacate portions of the sentences imposed upon the appellants. We discuss first the sentence imposed on Joseph Conforte.

On count VII of the indictment the trial court sentenced Joseph Conforte to a term of imprisonment for five years, and in addition a $10,000 fine. This is the maximum penalty for violation of the statute, 26 U. S. C. §7201. The trial court expressly stated that in imposing the maximum sentence on Mr. Conforte it was taking into account his two previous felony convictions. This sentence was within the discretion of the court, and it was insulated from the sentences imposed on the three remaining counts, and the reasons for those sentences. We therefore affirm the sentence on count VII.

We cannot sustain the sentence imposed on Mr. Conforte for the three remaining counts. The district court noted in the sentencing proceedings its concern with the income tax returns that had previously been filed by the Confortes. The Confortes had filed Sullivan-Garner income tax returns in which they claimed a fifth amendment privilege against disclosing the sources of their income. Judge Thompson asked Mr. Conforte's trial counsel whether or not tax counsel agreed with the position that Confortes had a constitutional right to file returns "in which they just arbitrarily set forth a figure which they concede they owe the Government, without any supporting data to show how the computation was made." Counsel responded that this was the position of the Confortes and their tax counsel. The court responded that it thought "that position is 100% wrong. . . . The only possible incrimination they could incur, as I see it, or the basic possible incrimination would be incrimination for filing false and fraudulent tax returns . . ." The court then stated that it proposed to test Joseph Conforte's right to claim a fifth amendment privilege for tax related offenses. The court sentenced Mr. Conforte to consecutive five-year terms on each of the three remaining terms, plus a $10,000 fine on each count. The court declared that its "sole and only reason" for adding the fifteen years to Conforte's sentence on count VIII was because of its view that "this defendant has no constitutional right to file the type of income tax returns which he files."

There are two fundamental problems with these additional sentences. First, we have serious doubts that the trial court acted properly in invoking the sentencing process for the principal purpose of securing a ruling from the Court of Appeals on an unsettled question of law. However interesting the question may be, it is entirely unrelated to the defendant's prognosis for reform, and, given the intent of the court in imposing the sentence, it appears only tangentially related to the bearing of defendants' character and past conduct, factors which might otherwise be legitimate considerations in the sentencing process. ²

The sentencing process is too intertwined with the fundamental rights of the defendant and turns too closely upon a complicated interplay of the judge's own perceptions of the case and the defendant's fears, anxieties, the future intentions, that it should be used as a vehicle to secure an opinion from an appellate court. It is true that we must and do encourage judges to be candid and explicit in stating their reasons for imposing a sentence. We need not, however, set forth here with precision the line of demarcation between impermissible and permissible sentencing premises, for in this case there was a further error which is itself grounds for vacating the additional sentence. The error was that the trial judge based the sentence upon a legal and factual conclusion for which there was no support.

The trial judge imposed the sentence based on an assumption that defendants filed Sullivan-Garner returns solely to avoid possible incrimination under the tax laws. That assumption has no support. It is just as reasonable to assume, and indeed we think it may well have been the case, that the defendants filed Sullivan-Garner tax returns to avoid possible incrimination under laws unrelated to revenue collection. These laws would include statutes such as the Mann Act, 18 U. S. C. §2421, or the Racketeer Influence and Corrupt Organizations Revision of the Organized Crime Control Act of 1970, 18 U. S. C. §1962(a)-(d). The court held no hearing to inquire into the basis for the defendants' invocation of the privilege. The possibilities we suggest are probable grounds for assertion of the right, and we cannot characterize the privilege as resting upon the narrow gounds hypothesized by the trial court. Since the conclusion that the appellants had no reason to claim the privilege other than to avoid tax prosecution is without any factual support, it cannot be the basis for imposition of a sentence.

Although our role in reviewing sentences within statutory prescribed bounds is a limited one, see Dorzynski v. United States, 418 U. S. 424 (1974); United States v. Stevenson [79-1 USTC ¶13,285], 573 F. 2d 1105 (9th Cir. 1978); United States v. Lustig, 555 F. 2d 737, 751 (9th Cir.), cert. denied, 434 U. S. 926 (1977), we have held that a sentence must be vacated on appeal if the district court uses information which is "(1) false or unreliable, and (2) demonstrably made the basis for the sentence." Farrow v. United States, 580 F. 2d 1339, 1359 (9th Cir. 1978) (en banc); see Brown v. United States, No. 76-3673 (9th Cir. Jan. 3, 1980); Gelfuso v. Bell, 570 F. 2d 754 (9th Cir. 1978); United States v. Weston, 448 F. 2d 626 (9th Cir. 1971), cert. denied, 404 U. S. 1061 (1972). Such was the case here. Joseph Conforte's sentences and the fines imposed on the three counts in addition to count VII are therefore vacated and are remanded for further sentencing.

In the case of Sally Conforte, probation was made conditional upon future nonfiling of Sullivan-Garner returns. The court imposed this condition solely to test her right to file Sullivan-Garner income tax returns. We have held that "when fundamental rights are curbed [in imposing conditions on probation] it must be done sensitively and with a keen appreciation that the infringement must serve the broad purposes of the Probation Act." United States v. Consuelo-Gonzalez, 521 F. 2d 259 (9th Cir. 1975) (en banc); see Decanay v. Mendoza, 573 F. 2d 1075 (9th Cir. 1978). A sentencing judge must formulate conditions of probation to avoid the risk of compelled self-incrimination. United States v. Pierce, 561 F. 2d 735, 740 (9th Cir. 1977), cert. denied, 435 U. S. 923 (1978). As we stated in Pierce:

[W]e must evaluate whether the condition imposed involves a proper accommodation between the need for information and those Fifth Amendment rights which [the probationer] retains . . . That analysis requires consideration of the condition of probation on its face and then as the condition is applied.

Id. at 740. The same reason that requires us to vacate the additional fifteen years added to Joseph Conforte's sentence requires us to vacate the special conditions on Sally Conforte's probation. The district court could not properly assume that the condition on its face did not require self-incrimination for nontax offenses. See id. at 741. We also vacate the consecutive $10,000 fines imposed on counts VIII through X.

IV. Conclusion.--The convictions are affirmed. The denial of the motion for new trial is affirmed. The sentence and fine of Joseph Conforte on count VII is affirmed and the sentences and fines on the remaining counts vacated and remanded for further proceedings consistent with this opinion. The special conditions on Sally Conforte's probation and the fines for counts VIII through X are vacated.

^* Honorable Edmund L. Palmieri, United States District Judge for the Southern District of New York, sitting by designation.

¹ See United States v. Sullivan [1 USTC ¶236], 274 U. S. 59 (1927); United States v. Garner [76-1 USTC ¶9301], 424 U. S. 648 (1976).

² In our recent opinion in United States v. Carlson, No. 79-1277 (9th Cir. Feb. 28, 1980), we addressed the question of whether a person may claim a fifth amendment privilege on his tax returns to avoid incriminating himself for tax-related matters.

 

 

[66-2 USTC ¶9730]Black v. United States

Supreme Court of the United States, No. 1029, 385 US 26, 87 SCt 190, 11/7/66, Vacating and remanding CA-D. C., 65-2 USTC ¶9727, 353 F. 2d 885

On Petition for Rehearing.

[1954 Code Sec. 6531]

Crimes: Tax evasion: Conviction vacated: Inadmissible evidence.--The taxpayer's conviction for tax evasion was vacated and the cause was remanded for a new trial due to the fact that the Federal Bureau of Investigation in an unrelated criminal investigation had monitored conversations between the taxpayer and his attorneys while the case was being investigated and had turned such evidence over to the Tax Division attorneys. Although the Solicitor General advised that the Tax Division attorneys had found nothing in the FBI reports which they considered relevant to the taxpayer's case and that the trial attorneys did not know that the conversations between the taxpayer and his counsel had been included in the transcriptions, the Supreme Court ruled that the new trial would remove all doubt as to whether the taxpayer had received a fair trial. Two Justices dissented.

Bert B. Rand, Hans A. Nathan, Warren E. Magee, 1730-KST., N. W., Washington, D. C. for petitioner. Thurgood Marshall, Solicitor General, Department of Justice, Washington, D. C. 20530, for respondent.

[Monitored Conversations]

PER CURIAM:

In Davis v. United States, No. 245, October Term, 1966, we today denied the petition for certiorari. The sole question raised there (but not passed upon by the Court of Appeals because not necessary to its disposition) involved petitioners' claim that conferences between petitioners and their counsel were surreptitiously overheard and intercepted by law enforcement officials through concealed monitorial devices built into the jail where petitioners were being held for federal authorities. The Solicitor General did not deny the existence of the devices but said that there were no recordings of the conversations in question. He pointed out that since the case has been remanded by the Court of Appeals for a new trial on other grounds, a full exploration of this question could be made on retrial. In the light of these representations we denied the petition for certiorari so that the question might be fully explored at the new trial, as suggested by the Solicitor General.

In the instant case, Black v. United States, the petition for rehearing now raises a similar question and while Davis v. United States, supra, is not controlling, its relation is obvious. In Black the Solicitor General advised the Court voluntarily on May 24, 1966, after the petition for certiorari had been denied, 384 U. S. 923, but before an application for rehearing had been filed, that agents of the Federal Bureau of Investigation, in a matter unrelated to this case, on February 7, 1963, installed a listening device in petitioner's hotel suite in Washington, D. C. The device monitored and taped conversations held in the hotel suite during the period the offense was being investigated and beginning some two months before and continuing until about one month after the evidence in this case was presented to the Grand Jury. During that period, "the monitoring agents," the Solicitor General advised, "overheard, among other conversations, exchanges between petitioner and the attorney who was then representing him [Black]" in this case. In a supplemental memorandum filed July 13, 1966, the Solicitor General, in response to an inquiry by the Court, stated that the recordings of such interceptions had been erased from the tapes but that notes summarizing and sometimes quoting the conversations intercepted were available, and that reports and memoranda concerning the same had been made. "Neither the reports nor the memoranda," he reported, "were seen by attorneys of the Tax Division responsible for the prosecution of" this case until January 1964, when in preparing for trial they were included in material transmitted to them; that the reports and memoranda of the intercepted conversations were examined by the Tax Division attorneys and retained by them until April 15, 1964, when petitioner's trial began; and that the attorneys never realized until April 21, 1966, that any conversations between Black and his attorney had been overheard and included in the transcriptions.

[New Trial]

The Solicitor General advised further that the "Tax Division attorneys found nothing in the F. B. I. reports or memoranda which they considered relevant to the tax evasion case." He suggests that the judgment be vacated and remanded to the District Court in which the "relevant materials would be produced and the court would determine, upon an adversary hearing, whether petitioner's conviction should stand." We have sometimes used this technique in federal criminal cases, United States v. Shotwell Mfg. Co. [58-1 USTC ¶9124], 355 U. S. 233. However, its use has never been automatic. Indeed, in Remmer v. United States [54-1 USTC ¶9274], 347 U. S. 227, we found it necessary, despite the hearing in the District Court, to subsequently order a new trial on the merits, [56-1 USTC ¶9320] 350 U. S. 377. There are other complicating factors here that were not present in Remmer. There the judge had been informed of the alleged jury tampering, but here neither the judge, the petitioner nor his counsel knew of the action of the federal agents. Moreover, the Solicitor General advises that the Tax Division attorneys did not know at the time of the trial that conversations between Black and his attorney were included in the transcriptions. In view of these facts it it appears that justice requires that a new trial be held so as to afford the petitioner an opportunity to protect himself from the use of evidence that might be otherwise inadmissible.

This Court has never been disposed to vacate convictions without adequate justification, but, under the circumstances presented by the Solicitor General in this case we believe that a new trial must be held. This will give the parties an opportunity to present the relevant evidence and permit the trial judge to decide the questions involved. It will also permit the removal of any doubt as to Black's receiving a fair trial with full consideration being given to the new evidence reported to us by the Solicitor General.

The petitioner for rehearing is therefore granted, the order denying certiorari vacated, certiorari granted, the judgment of the Court of Appeals vacated and the cause remanded to the District Court for a new trial.

MR. JUSTICE WHITE and MR. JUSTICE FORTAS took no part in the consideration or decision of this case.

Dissenting Opinion

MR. JUSTICE HARLAN, whom MR. JUSTICE STEWART joins, dissenting.

The denial of certiorari in No. 245, Davis v. United States--where the Court of Appeals for the Fifth Circuit has already ordered a new trial on grounds wholly unrelated to alleged eavesdropping and at which trial petitioners will have a full opportunity to explore their contentions that the Government interfered with their constitutionally protected right to counsel--bears no solid relation to, still less furnishes justification for, what the Court has done in the present case. A brief statement of the circumstances of the Black disposition will reveal that in summarily vacating this final conviction and ordering a completely new trial the Court has acted prematurely.

In 1964, petitioner Black was convicted in the District Court of federal income tax violations. His conviction was affirmed by the Court of Appeals for the District of Columbia Circuit on November 10, 1965. [65-2 USTC ¶9727] 122 U. S. App. D. C. 347, 353 F. 2d 885. Certiorari was denied by this Court on May 2, 1966. 384 U. S. 927. Before Black's petition for rehearing was filed here, the Solicitor General filed a memorandum bringing to the Court's attention the fact that in the course of an unrelated criminal investigation Black's hotel suite had been "bugged" by the Federal Bureau of Investigation and conversations between Black and his attorney electronically recorded. The Solicitor General further stated that in consequence of an investigation, instituted by him following his discovery of this occurrence, he was able to represent to the Court that none of the information so procured had been utilized in Black's aforesaid prosecution. In a further memorandum filed in compliance with a request from this Court, the Solicitor General has represented that it was not until late August 1965 that the Criminal Division of the Department of Justice learned that a listening device had been installed in Black's hotel suite and not until April 21, 1966, that attorneys in the Tax Division, responsible for the prosecution, learned that any conversations between Black and his counsel had been overheard.

The Solicitor General recognizes that Black is entitled to a full exploration of the matter, and to that end suggests that the case be remanded to the District Court for a hearing and findings on the episode in question as it may bear on the validity of Black's conviction. Black responds that this course is inadequate and contends that this Court should, without more, forthwith order dismissal of the indictment in this income tax prosecution.

Without anything more before it than the representations made by both sides, the Court today orders a totally new trial in spite of the fact that the disclosures commendably made by the Solicitor General reveal no use of "bugged" material in Black's prosecution, and no knowledge by prosecuting attorneys that material may have been improperly obtained. I agree, of course, that petitioner is entitled to a full-scale development of the facts, but I can see no valid reason why this unimpeached conviction should be vacated at this stage. In Davis, supra, exploration of the alleged eavesdropping episode is appropriate upon the retrial of the case since the original conviction has already fallen on other grounds. In the Black case, however, a new trial is not an appropriate vehicle for sorting out the eavesdropping issue because until it is determined that such occurrence vitiated the original conviction no basis for a retrial exists. The Court's action puts the cart before the horse. The orderly procedure is to remand the case to the District Court for a hearing and findings on the issues in question. See United States v. Shotwell Mfg. Co. [58-1 USTC ¶9124], 355 U. S. 233. See also Remmer v. United States [54-1 USTC ¶9274], 347 U. S. 227, 350 U. S. 377. Unless and until the facts on this issue have been resolved and their legal effect assessed favorably to petitioner, this conviction should remain undisturbed.

The only basis I can think of for justifying this decision is that any governmental activity of the kind here in question automatically vitiates so as at least to require a new trial any conviction occurring during the span of such activity. But I cannot believe that the Court, without even briefing or argument, intends to make any such sweeping innovation in the federal criminal law by today's peremptory disposition of this case.