Advice of
Counsel Page1
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.