Defeat and Evade Income
Taxes Page1
7203:
Willful Failure to File Return, Supply Information, or Pay Tax:
Sufficiency of Indictment or Information: Attempt to Defeat and Evade
Income Taxes
[2005-1 USTC ¶50,198.]
United States of America
v. Harold Molaison, David Loeb.
U.S.
District Court, East.
Dist.
La.
; 04-223,
February 11, 2005
.
[ Code
Sec. 6531]
Criminal procedure: Statute of limitations: Criminal conspiracy: Tax
evasion: Timeliness of indictment. --
An
indictment on conspiracy and tax evasion charges arising from the
reporting of ordinary income as gain from an involuntary conversion was
timely. The taxpayers represented landowners whose property had been
declared to be protected wetlands in suits to obtain compensation for
the deprivation of use of their property resulting from the declaration.
The filing of returns reporting the purchase of replacement property
with proceeds received from an involuntary conversion were acts in
furtherance of the conspiracy, not merely subsidiary acts of
concealment, and so restarted the limitations period for the conspiracy
charge. Similarly, the same filing constituted affirmative acts of
evasion restarting the limitations period for the evasion charge.
[ Code
Sec. 7203]
Criminal procedure: Motion to dismiss indictment: Criminal
conspiracy: Tax evasion: Sufficiency of indictment: Willfulness. --
An
indictment on conspiracy and tax evasion charges arising from the
reporting of ordinary income as gain from an involuntary conversion was
sufficient under Federal Rule of Criminal Procedure 12(b)(3) since it
alleged the necessary elements of the charged offenses. The defendants'
alternative claims that they had an ownership interest in the subject
property sufficient to support the involuntary conversion treatment, or
that the underlying state law regarding their interest in the property
was sufficiently unclear as to negate the possibility that their actions
were willfully criminal were not appropriate for resolution on a motion
to dismiss the indictment.
ORDER
AND REASONS
DUVAL, JR., District Court Judge: Before the Court are a Motion to
Dismiss Indictment as Time Barred (Doc. 14) and a Motion to Dismiss
Indictment --Ownership Interest by Operation of Law (Doc. 18). These
motions came for hearing on
November 16, 2004
. Having heard the argument of counsel and having reviewed the
pleadings, memoranda and the relevant law, the Court finds the motions
to be without merit.
Background
Harold E. Molaison ("Molaison") and David C. Loeb
("Loeb") have been indicted for conspiracy to defraud the
United States
in contravention of 18 U.S.C. §371 and tax evasion in contravention of
26 U.S.C. §7201.
The facts of the case as alleged in the indictment are that in or about
1985, the Environmental Protection Agency ("EPA") declared
approximately 3000 acres in six contiguous tracts of land in Jefferson
Parish,
Louisiana
to be wetlands. (Indictment, ¶4). The tracts came to be known as the
Bayou Aux Carpes Property.
In 1991 the Bayou Aux Carpes landowners filed several lawsuits against
the federal government in the Unites States Court of Federal Claims. The
suits claimed that the EPA's regulations deprived the landowners of the
commercial and economic use of their property and as such had been taken
by the federal government without just compensation in violation of the
Fifth Amendment to the United States Constitution. The landowners sought
to be paid for the taking. The suits were eventually consolidated into
one action. (Indictment ¶5).
In or about 1991 and 1992, defendants Molaison and Loeb entered into
contracts for legal services with the Bayou Aux Carpes landowners to
pursue the landowners' claim against the
United States of America
and any Departments or Agencies thereof, for the regulation of the Bayou
Aux Carpes Property. (Indictment ¶6). Defendants agreed to represent
the landowners on a contingency or percentage basis as authorized and
permitted by La. Rev. Stat. 37:218. Written contracts were executed, all
allegedly containing the following provision:
In
consideration of the services rendered or to be rendered, I hereby
assign, transfer and deliver to attorneys as fee an undivided 25% in and
to any recovery I/we may have in this matter, whether such
recovery is obtained by settlement, compromise or judgment over and
beyond in any residual wet land value in said property, all
according to the provisions of La. R.S. 37:218.
(Motion to Dismiss Indictment --Ownership Interest at 5) (emphasis
added). In entering these contracts, Molaison and Loeb also agreed to
advance all costs and expenses necessary to prosecute the claims with
reimbursement to the attorneys out of any funds received in the
litigation. (Indictment ¶6).
Around March 1996, Molaison and Loeb negotiated a settlement between the
federal government and the landowners. Under the terms of the
settlement, the landowners allegedly agreed to transfer their respective
ownership interests in the Bayou Aux Carpes Property to the federal
government in exchange for $8,250,000.00. In April 1996, Agreements to
Settle Claims were executed between Molaison and Loeb and the
landowners. The Government alleges that the landowners agreed to pay
Molaison and Loeb $2,000,000.00 in attorneys' fees. (Indictment ¶7).
As stated in the Indictment, when a piece of property is sold, federal
income tax must be paid on the gain of the sale --the gain being the
difference between the landowners' original purchase price and the sales
price. Under 26 U.S.C. §1033,
however, a property owner who receives money from the sale of property
that is involuntarily converted, may defer paying capital gains tax by
purchasing similar property to the extent that the purchase price of the
replacement property exceeds the gain. 26 U.S.C. §1033(a)(2)(A).
The property owner must purchase the replacement property within two
years of the close of the taxable year in which the involuntary
conversion took place. 26 U.S.C. §1033(a)(2)(B).
If the property is not replaced in a timely manner, tax liability for
the year of the sale must be recomputed by amended return and the
taxpayer is liable for interest from the due date of payment for the tax
year in which the conversion occurred. 1
Likewise, upon replacement, the proper returns must be filed with the
Internal Revenue Service ("IRS"). Thus, the horizon on the
completion of "replacement property election" is at most two
years from the time of the election. Either the replacement property is
purchased, which purchase must be reported, or there is a failure to
purchase timely, and the capital gains must be assessed for tax purposes
as well as interest thereon.
The Government contends that on September 4, 1996, the defendants
allegedly represented to their accountants and tax attorney that (1) it
was the original intent of the landowners to give the defendants a
property interest in the Bayou Aux Carpes Property when they entered
into the contracts for legal services in or about 1991 and 1992
(Indictment ¶15); that (2) the Government had required them to be
property owners in order to represent the landowner in the litigation
(Indictment ¶16); and that (3) that it was necessary to take an
ownership interest in the property in order to enforce their contingency
fee agreements in the Court of Federal Claims. (Indictment ¶17). The
Government further contends that the defendants in addition prepared,
executed and caused to be executed "false and fraudulent Acts of
Correction" stating that the landowners intended to give defendants
a 25% ownership interest in the Bayou Aux Carpes Property when the
landowners signed the contracts for legal services. (Indictment ¶18).
The Government further contends that Loeb filed a fraudulent tax return
on October 17, 1997, reporting the receipt of $995,839 as proceeds from
an involuntary conversion of land under 26 U.S.C. §1033
rather than reporting that sum as income derived as attorneys' fees.
(Indictment ¶19), and that Molaison filed a fraudulent tax return on
October 20, 1997, reporting the receipt of $791,503 as proceeds from an
involuntary conversion of land under 26 U.S.C. §1033
rather than reporting that sum as income derived as attorneys' fees.
(Indictment ¶20)
On
August 19, 1998
, the Government contends that Loeb filed another false and faudulent
1997 tax return when he reported that purchase of replacement property
with the proceeds received from an involuntary conversion. (Indictment
¶21) Likewise, the Government contends that on
August 31, 1998
, Molaison filed a false and fraudulent income tax return when he
reported the purchase of replacement property. (Indictment ¶22)
The Government also alleges that on January 14, 2000, David Loeb caused
his accountant and tax attorney to make false statements concerning this
conspiracy during an IRS audit of Loeb's and his wife's 1996 Individual
Income Tax Return. (Indictment ¶23) Furthermore, the Government
contends that Molaison did the same on May 25, 2000. (Indictment ¶24)
All of the foregoing are in the Government's allegations of overt acts
in furtherance of the conspiracy to defraud the United States by
Molaison and Loeb, in 1996,by impeding the IRS in collecting revenue,
that is revenue derived from Molaison's and Loeb's income and self
employment taxes for 1996. (Indictment ¶9). The Government maintains
that the defendants did this by making false statements to their
accountants and tax attorney (Indictment ¶10), by causing the Acts of
Correction to be signed (Indictment ¶11), by causing to be filed the
1996 U.S. Individual Income Tax Returns with the IRS reporting the Bayou
Aux Carpes legal fees as proceed from an involuntary conversion of
property, (Indictment ¶12), by filing the 1997 reports of the purchase
of the replacement property (Indictment ¶13) and causing false
statements to be made during the audits of the defendants' 1996 U.S.
Individual Income Tax Returns, Forms 1040. These actions constitute the
allegations contained in Count One of the Indictment.
In Count Two, the Government states its tax evasion count against
Molaison. It alleges that Molaison, having received $791,503 in legal
fees, attempted to evade and defeat income and self employment taxes due
for 1996 because he stated he had $9,507 taxable income and owed $1,429
in income tax and no self-employment tax whereas the Government contends
that his taxable income was $757,058 rendering due income tax and self
employment tax of approximately $296,727, and that he further filed on
August 31, 1998, a false and fraudulent 1997 Income Tax Return when he
reported that purchase of the replacement property and on May 25, 2000
caused false statements to be made during his audit.
In Count Three, the Government states its tax evasion count against
Loeb. It alleges that Loeb, having received $1,056,000 in legal fees,
attempted to evade and defeat income and self employment taxes due for
1996 because he stated he had $2,021 taxable income and owed $302 in
income tax and $9,124 in self-employment tax whereas the Government
contends that his taxable income was $1,022,195 rendering due income tax
and self employment tax of $415,963, and that he further filed on August
18, 1998, a false and fraudulent 1997 Income Tax Return when he reported
that purchase of the replacement property and on January 14, 2000 caused
false statements to be made during his audit. The subject indictment was
handed down on
July 29, 2004
.
Defendants maintain their innocence and contend that the subject
contracts for legal services that were executed in 1991 and 1992 indeed
gave to them a sufficient possessory interest in the property that they
were entitled to make a §1033
election in their respective tax returns. As support for this
contention, they note that in August of 1996 when the actual settlement
papers were confected the theory that the defendants had an ownership
interest was acknowledged by both the Department of Justice and the
Court of Federal Claims in Washington, D.C. because they were listed as
landowners in the final settlement agreement drafted by the federal
government attorneys. (Motion to Dismiss Indictment as Time Barred at
3). Thus, as sellers in
October 6, 1996
, sale of the involuntarily converted property to the government, they
had the option to defer gains taxes thereon. In the alternative, they
maintain that the issue as to whether they had a sufficient interest in
the property from the inception of the contract with the landowners was
so unsettled that they could not have had the requisite intent to
violate the tax law. In addition, they maintain that the Acts of
Correction were not illegal but were done to memorialize what had indeed
occurred.
Motion
to Dismiss Indictment as Time Barred
Defendants have filed the subject Motion to Dismiss Indictment as Time
Barred. Defendants reason that because the indictment was filed in July
of 2004, this criminal prosecution would be time barred unless there is
alleged an overt act in furtherance of the conspiracy that occurred six
years prior to the indictment issuing --that is after July of 1998. Grunewald
v. United States [ 57-1
USTC ¶9693], 353 U.S. 391, 396-97 (1957); Fiswick v.
United States, 329 U.S. 211 (1946). Defendants maintain that based
on Sansone v. United States, 380 U.S. 343 (1965), the alleged
crime was completed upon the filing of the 1997 tax return. As such,
they contend that the "conspiracy" was ended, and subsidiary
acts of concealment do not extend the offense where the main criminal
purpose of the conspiracy has been completed. United States v. Davis,
533 F.2d 921, 928 (5 th Cir. 1976) citing Grunwald [ 57-1
USTC ¶9693], 353
U.S.
at 399, 401-02. Indeed, the scope of the conspiratorial agreement
alleged in the indictment determines both the duration of the conspiracy
and whether an act relied on as an overt act may properly be regarded as
in furtherance of the conspiracy.
Id.
Defendants maintain the Government's allegations that in August of 1998
defendants each filed their respective tax returns for 1997 in which the
purchase of the replacement property was reported and that the
defendants caused their tax attorneys and accountants to make false
statements while conducting an audit in 2000, do not constitute
"overt acts in furtherance of the conspiracy;" rather theses
actions would be efforts to conceal and as such, would not breath life
into a prescribed crime. The Government rejects this contention and
maintains that the scope of the conspiracy was such that these acts
indeed were in furtherance of the conspiracy and that the indictment is
not time-barred.
Section
6531 of Title 26 of the United States Code provides that
"[n]o persons shall be prosecuted ... for any offenses arising
under the internal revenue laws... unless the indictment is found ...
within [6] years next after the commission of the offense... for
offenses involving defrauding or attempting to defraud the United States
or any agency thereof, whether by conspiracy or not, and in any
manner." 26 U.S.C. §6531(1).
Thus, the issue becomes whether the filing of the tax returns reporting
the purchase of the replacement property and/or alleged inducement of
having attorneys and accountants conceal information in the audits would
constitute an overt act in furtherance of the conspiracy. Grunewald
requires that the Government adduce direct evidence that the particular
acts of concealment relied on to extend the statute of limitations were
fully embraced within the original aims of the conspiracy.
United States
v. Gabriel, 920 F.Supp. 498 (S.D. N.Y. 1996).
Here, unlike the conspiracy in
Davis
, the conspiracy alleged is:
to
defraud the United States for the purpose of impeding, impairing,
obstructing, and defeating the lawful government functions of the
Internal Revenue Service of the Treasury Department in the
ascertainment, computation, assessment, and collection of the revenue:
to wit, defendants HAROLD E. MOLAISON'S and DAVID C. LOEB'S 1996 income
and self employment taxes.
(Indictment ¶9). This conspiracy is broader than the conspiracy to make
false statements to a government agency which was alleged in
Davis
. As noted in United States v. Girard, 744 F. 2d 1170 (5 th
Cir. 1984), a conspiracy continues until the conspirators realize the
full anticipated economic benefits of that conspiracy.
Id.
at 1172. As such, considering the procedures necessary for the §1033
election, the filing in 1998 was a necessary and anticipated act in
furtherance of the alleged conspiracy. Had there been no purchase of
replacement property and no reporting thereof, then defendants would
have not been able to take advantage of the replacement property claim.
They would have been liable for another tax, that being capital gains
and interest thereon. Without the filing of that 1998 return, the
defendants would not have realized the full economic gain they sought.
It was integral to the scheme. Thus, pretermitting whether the actions
taken in 2000 with respect to the audit might be more in line with
"concealment" rather than acts in furtherance of the
conspiracy, the filing in 1998 of the 1997 tax returns wherein each
reported the purchase of replacement property with the proceeds received
from an involuntary conversion the 1997 were acts in furtherance of the
conspiracy. This count is not time barred.
With respect to Counts Two and Three, the crime of tax evasion, 26
U.S.C. §7201,
has three essential elements: (1) the existence of a tax deficiency; (2)
willfulness; and (3) an affirmative act constituting evasion or
attempted evasion of the tax. United States v. Bishop [ 2001-2
USTC ¶50,762], 264 F.3d 535, 545 (5 th Cir.
2001). While the Fifth Circuit has not directly addressed this issue, a
number of circuit courts have held that it is the date of the latest act
of evasion, not the due date of the taxes that triggers the statute of
limitations. This peg is considered proper in a tax evasion offense
because §7201
criminalizes not just the failure to file a return or the filing of a
false return, but the willful attempt to evade taxes in any manner.
United States v. Anderson [ 2003-1
USTC ¶50,237], 319 F.3D 1218, 1220 (5 th Cir.
2003) (emphasis added) citing
United States
v. Ferris [ 86-2
USTC ¶9844], 807 F.2d 269, 271 (1 st Cir. 1986). See
United States v. Dandy [ 93-2
USTC ¶50,638], 998 F.2d 1344, 1355 (6 th Cir.
1993) (to hold otherwise would only reward a defendant for successfully
evading discovery of his tax fraud for a period of six years subsequent
to the date the returns were filed). As the filing in 1998 of the 1997
return constituted an affirmative act, likewise, these two counts of the
indictment are likewise not time barred. Accordingly,
IT IS ORDERED that the Motion to Dismiss the Indictment as
Time-Barred is DENIED.
Motion
to Dismiss Indictment --Ownership Interest by Operation of Law
Defendants move the Court pursuant to Fed. R. Crim. Pro. 12(b)(3) to
dismiss the indictment based on their contention that it does not state
an offense, that a defense can be determined without the trial of the
general issue, and that defendants cannot be lawfully convicted of the
charges in the indictment. The thrust of this motion is that the
defendants as attorneys under a written contingency fee contract
obtained a "possessory interest" in the Bayou Aux Carpes tract
by operation of Louisiana law and the United States Court of Appeals for
the Fifth Circuit sufficient for §1033
exchange treatment. In the alternative, defendants argue that they had a
good-faith belief that the law so provided. Finally, they contend, that
at a minimum, the law was so conflicting, unsettled or uncertain that
there could be no criminal intent to violate the law. Thus, the gravamen
of this motion is that defendants ask the Court to find as a matter of
law that because of the condition of the law, there cannot be the
requisite willfulness to constitute the commission of the crimes
charged.
Rule 12(b)(3) of the Federal Rules of Criminal Procedure provides a list
of motions that must be raised before trial. Subsection (B) provides
"a motion alleging a defect in the indictment or information --but
at any time while the case is pending, the court may hear a claim that
the indictment or information fails to invoke the court's jurisdiction
or to state an offense." While defendants do not specifically
provide the Court with the procedural basis for the instant motion, the
Court construes it as one based on a failure to state an offense.
As stated in United States v. Kay, 359 F.3d 738 (5 th
Cir. 2004):
As
a motion to dismiss an indictment for failure to state an offense is a
challenge to the sufficiency of the indictment, we are required to
"take the allegations of the indictment as true and to determine
whether an offense has been stated."
"[I]t
is well settled that an indictment must set forth the offense with
sufficient clarity and certainty to apprise the accused of the crime
with which he is charged. The test for sufficiency is "not whether
the indictment could have been framed in a more satisfactory manner, but
whether it conforms to minimum constitutional standards"; namely,
that it "[(1)] contain [ ] the elements of the offense charged and
fairly inform [ ] a defendant of the charge against which he must
defend, and [(2)], enable[ ] him to plead an acquittal or conviction in
bar of future prosecutions for the same offense."
Id.
at 742.
Certainly, taking all the allegations as true, the Government has
alleged the necessary elements for conspiracy to defraud the
United States
in contravention of 18 U.S.C. §371 and tax evasion in contravention of
26 U.S.C. §7201.
"A §371
conspiracy requires an agreement between two or more persons to commit a
crime and an overt act by at least one in furtherance of the
agreement."
United States
v. Bordelon, 871 F.2d 491, 493 (5 th Cir. 1989). The
crime must be one against the
United States
. Here, as noted above, the Government has alleged that the defendants
conspired "to defraud the United States by impeding, impairing,
obstructing, and defeating the lawful government functions of the
Internal Revenue Service of the Treasury Department in the
ascertainment, computation, assessment, and collection of the revenue:
to wit, defendants Harold E. Molaison's and David C. Loeb's 1996 income
and self employment taxes." (Indictment ¶9). Furthermore, as
previously stated, there is alleged at least one overt act done within
the six-year statute of limitations. Thus, the indictment is sufficient
with regard to Count One.
Likewise, as set forth above, the elements of the crime of tax evasion
are (1) the existence of a tax deficiency; (2) willfulness; and (3) an
affirmative act constituting evasion or attempted evasion of the tax. United
States v. Bishop [ 2001-2
USTC ¶50,762], 264 F.3d 535, 545 (5 th Cir.
2001). Considering the difference alleged in the indictment between the
income declared by the defendants for 1996 and the income alleged by the
government and the tax liability based thereon, clearly the Government
has alleged a tax deficiency on the part of both defendants. Likewise,
the allegations concerning the filing in 1998 of the income tax form
reporting the purchase of the replacement property in 1997 as well as
the allegations of fraud in 2000, if taken as true, would constitute
evasion or attempted evasion of the tax. As to the second element
--willfulness --if the allegations are taken as true, which is required
in the context of a motion to dismiss for failure to state an offense,
it is clear that the indictment alleges this element as well with
respect to both defendants.
The gravamen of defendants' motion, however, asks the Court to eschew
the requirement to take the allegations as true --defendants contend
that objectively the Court should find that they had a possessory
interest sufficient to trigger their right to claim a §1103
election. The Court is unwilling to do so. The language of the contract
states clearly that the defendants were "to receive an undivided
25% in and to any recovery I/we may have in this matter, whether
such recovery is obtained by settlement, compromise or judgment over and
beyond in any residual wet land value in said property, all
according to the provisions of La. R.S. 37:218." This provision
does not state that defendants were granted 25% of the property;
they were to receive 25% of any recovery whether by settlement,
compromise or judgment beyond the residual wetland value, which had been
assessed as $500 an acre. While defendants' argument that the taking by
the Government had resulted in the landowners' deprivation of the usus
and fructus of the land, leaving the only value in the abusus is a valid
description of the legal effect of the declaration of the property as
wetlands by the Government, it does not provide the basis for the
argument that there was a transfer in that facet of ownership by virtue
of the language of the contract.
Furthermore, pursuant to
La.
Rev. Stat. 37:218, the
Louisiana
statute concerning contingency fee contracts, defendants were precluded
from obtaining the land itself. As stated by Judge Wisdom in Deshotels
v. United States [ 71-2
USTC ¶9718], 450 F.2d 961 (5 th Cir. 1971) cert.
denied 406 U.S. 920 (1972), a contingent fee coupled with an
interest is "language indicative of special agency relationship and
not transfer of present possessory interest."
Id.
at 966. In Deshotel, the Court described the effect of La. Rev.
Stat. 37:218:
The
effect of the statute was two-fold: first to legitimize the contingency
fee contract, allowing the attorney to sue for his fee after
successfully litigating his client's claim; second, to allow the parties
to agree that the client cannot unilaterally end the litigation. In
adjudicating contracts under this statute the
Louisiana
courts have held that contractual language to the effect that the
attorney has a vested right in a portion of the expect recovery does not
in fact presently vest anything. See Tennant v. Russell, 1949,
214
La.
1046, 39 So.2d 726. As the Court said in Succession of Vlaho, La.App.
1962, 140 So.2d 226,
...the
attorney has no vested interest in the client's suit or claim and
obtains no vested interest therein even where the contract in express
terms grants such an interest to him.
Id.
at 965-66. Furthermore, the "unequivocal conveyance" that was
found in McClung v. Atlas Oil Co., 1921, 148
La.
674, 87 So. 515 is not present in the language of this contract of
employment.
Nonetheless, the Court does not by this ruling intend to eviscerate the
defendants' defense with respect to "willfulness" in any
respect. It has broached this subject only as a result of the
defendants' argument seeking the dismissal based on this legal premise.
Obviously, the defendants are entitled to argue to a jury as fact finder
whether they had the requisite intent to commit the crimes alleged based
on this contract. Accordingly
IT IS ORDERED that the Motion to Dismiss Indictment --Ownership
Interest by Operation of Law (Doc. 18) is DENIED.
1
Suffness v.
United States
[ 92-1
USTC ¶50,149], 788 F.Supp. 304 (N.D. Tex. 1992), aff'd [ 92-2
USTC ¶50,513], 974 F.2d 608 (5 th Cir. 1992).
[2000-1
USTC ¶50,438] United States of America, Plaintiff-Appellee v. Franklin
Y. Wright, Jr., Annette Ryan Wright, also known as Annette S. Wright,
also known as Annette Kaufman Wright,
Rob
ert E. Barger, Defendants-Appellants
(CA-5),
U.S.
Court of Appeals, 5th Circuit, 98-50554, 4/27/2000
211 F3d 233
2000
U.S.
App. LEXIS 8192. Affirming an unreported District Court decision.
[Code
Secs. 6211 and 7203
]
Penalties, criminal: Attempt to evade or defeat tax: Tax liability,
definition of.--A married couple and their tax attorney were
properly convicted of tax evasion despite their claim that the husband's
underlying tax deficiency had been eliminated. His voluntary payments
and the proceeds from the sale of his seized property did not eliminate
his original tax liability and the IRS was not required to apply the
seized amounts in the same manner as he requested for his voluntary
payments. The IRS applied the seizure proceeds to his total tax,
interest and penalties for the earliest year owed; thus, there continued
to be a deficiency even thought the husband's total payments exceeded
the amount of tax that he originally owed. Moreover, the evidence
against the parties was sufficient to support their convictions.
[Code
Sec. 7203 ]
Penalties, criminal: Tax evasion: Conspiracy to defraud government.--A
married couple and their tax attorney were properly convicted of tax
evasion and conspiracy to defraud the government; the attorney was also
properly convicted of making false statements to the IRS. By indirectly
purchasing a new home in the name of a co-conspirator, the couple tried
to hide assets from the IRS in order to avoid paying the husband's tax
liability. Although the attorney was not intimately involved in the
scheme, he submitted an offer in compromise on behalf of the husband
that omitted any mention of the new home and claimed that the old home
was sold because the taxpayer could not afford it.
[Code
Sec. 7203 ]
Penalties, criminal: Conspiracy: Attempt to evade or defeat tax:
False statements: Motion for new trial, denied: Testimony:
Co-conspirator.--A married couple and their tax attorney who were
convicted of tax evasion, conspiracy to defraud the government, and
making false statements to the IRS were denied a new trial based on a
co-conspirator's post-trial claim that she was pressured into pleading
guilty. The co-conspirator did not deny the truthfulness of her
testimony against the couple or attorney. Thus, her assertion of
innocence was irrelevant to the their convictions.
[Code
Sec. 7203 ]
Penalties, criminal: False statements: Sentencing guidelines,
application of: Enhancement: Sophisticated means: Tax attorney: Downward
departure: Sentencing discrepancies: Remand.--Although a tax
attorney's sentence for making false statements to the IRS was properly
enhanced for special skills, his case was remanded because the trial
court erroneously concluded that discrepancies between his sentence and
the sentences of other persons involved a same tax evasion scheme were
an inadequate basis for downward departure under the U.S. Sentencing
Guidelines.
[Code
Sec. 7203 ]
Penalties, criminal: Indictment: Conspiracy: Attempt to evade or
defeat tax.--The IRS was not required to charge a couple and their
tax attorney with the more specific offense of concealing income or
assets instead of indicting them for defrauding the government. Their
conduct was not a single incident or mere technical violation of the tax
code and the allegations against them were sufficiently set forth in the
indictment to apprise them of the crimes charged. Distinguishing B.
Minarik (CA-6), 90-1
USTC ¶50,085 .
Before:
GARZA, HIGGINBOTHAM and BENAVIDES, Circuit Judges.
OPINION
HIGGINBOTHAM,
Circuit Judge:
This
appeal presents various challenges to the tax evasion-related
convictions of Franklin Wright, his wife Annette Wright, and
Franklin
's attorney and tax preparer,
Rob
ert Barger. Barger also appeals his sentence. We reject the defendants'
legal challenges to the convictions and find that the evidence was
sufficient to support each of the verdicts. Because it appears that the
district court believed it could not downward depart under the
Sentencing Guidelines based on a discrepancy in sentences among the
co-defendants, we remand for the re-sentencing of Barger.
I
The
charges against all of the defendants stem from tax deficiencies owed by
Franklin Wright for 1986, 1987 and 1988. Collection proceedings began in
1988, and the Internal Revenue Service ("IRS") and
Franklin
began a long period of negotiation.
In
August 1992, Barger submitted an Offer in Compromise to the IRS and set
up a $5,000-a-month payment plan for
Franklin
, which
Franklin
followed until December 1994. Although the offer was substantial, the
IRS eventually rejected it because
Franklin
failed to provide required additional information. Through seizures and
voluntary payments, however,
Franklin
eventually paid about $490,000 toward his tax liability of $419,000, not
including penalties and interest.
Franklin
and Annette married in 1989, after
Franklin
accumulated his deficiency. The government charged Annette with
assisting
Franklin
in hiding assets from the IRS. In August 1992, while the Offer in
Compromise was pending, Annette decided to sell the home she had owned
before her marriage to
Franklin
and buy a new house. Annette claims that she was unable to secure
financing for the home because of
Franklin
's tax problems. She asked a friend, Caroline Haggard, to buy the home
in Haggard's name and stated that she would assume the mortgage once the
tax issues had been resolved. Haggard agreed to this arrangement.
Franklin
and Annette brought her almost $150,000 for the house in a bag
containing $100 bills.
Franklin
told Haggard that the cash was money from his law practice. Haggard
testified at trial that the Wrights assured her that the taxes had been
paid on the money but warned that she should avoid depositing the funds
in the bank to avoid problems with the IRS.
Haggard
decided to deposit the money anyway, resulting in a report to the IRS.
She called Barger for advice, and Barger asked her why she had deposited
the money when she had been told not to. Barger also participated in the
home purchase in other ways: he assisted Haggard in gathering financial
records in order to qualify for the mortgage; drew up papers
transferring the mortgage to Annette; and loaned
Franklin
$64,000 for the remainder of the down payment. In April 1993, Barger
submitted an amendment to the Offer in Compromise stating that the
Wrights had sold their house because they could no longer make mortgage
payments and were now renting. The form did not list the new home as
potential community property.
The
government indicted the Wrights, Barger and Haggard for conspiracy to
defraud, Franklin for tax evasion, and Barger for making false
statements. Haggard, also facing prosecution on unrelated Medicaid fraud
charges, plead guilty to all charges and testified on behalf of the
government. A jury found all three of the others guilty. 1
The district court sentenced
Franklin
to concurrent 12-month terms. Annette received five years' probation so
that she could care for the couple's small children. Barger received
concurrent 18-month terms; his sentence included a two-point enhancement
for use of a special skill. Haggard attempted to withdraw her plea after
the trial, claiming that she was innocent of the tax charges; her appeal
proceeded separately and was rejected by a panel of this court. At issue
today are the appeals of the other three defendants.
II
All
three defendants raise several legal challenges to the convictions.
First, they claim that the convictions are improper because
Franklin
had no underlying tax deficiency.
Franklin
contends that he owed only interest and penalties and could not be
prosecuted for evasion if no tax was owed.
The
Supreme Court has held that the elements of Internal Revenue Code
("I.R.C.") §7201, the provision criminalizing the evasion of
taxes, include the existence of a "tax deficiency." 2
While §7201 does not describe "tax deficiency," it is defined
elsewhere in the IRC as the amount by which the tax exceeds the tax
reported on the return plus the amounts previously assessed as a tax
deficiency. 3
The IRC specifically excludes interest from being treated as tax for
purposes of deficiency procedures.
