Exclusion of Oral
Willful Failure to File Return, Supply Information, or Pay Tax:
Evidence: Exclusion of Oral Testimony
United States of America
, Plaintiff-Appellee v. David G. Pflum, Defendant-Appellant.
Court of Appeals, 10th Circuit; 04-3508, October 7, 2005.
Unpublished opinion affirming unreported DC Kan. decision.
Secs. 7202 and 7203]
Penalties, criminal: Failure to file: Failure to pay employment tax:
Jury instructions: Testimony. --
instructions were proper in an individual's trial for failure to file a
return and pay employment taxes and an objection to evidence offered by
the government was not timely. The jury was adequately instructed as to
the willfulness components of Code
Secs. 7202 and 7203.
The instructions specified that the government was required to prove
beyond a reasonable doubt that the individual was aware of duties that
the law imposed on him and that he intentionally violated those duties.
The individual's objection to the testimony of two IRS officials was not
timely made. The individual first objected to the testimony after four
further witnesses had been called and the government had rested its
case. The objection should have been made when the testimony was
Before: Henry, McKay and Hartz, Circuit Judges.
¬ Caution: The
court has designated this opinion as NOT FOR PUBLICATION. Consult the
Rules of the Court before citing this case.®
AND JUDGMENT *
HARTZ, Circuit Judge: Benjamin Franklin famously quipped that "in
this world nothing can be said to be certain, except death and
taxes." Letter from Benjamin Franklin to Jean-Baptiste Le Roy (Nov.
13, 1789), in 10 The Writings of Benjamin Franklin 69 (A. Smyth
ed. 1907). While not contesting the inevitability of the former (as far
as we know), David G. Pflum believed he had found a loophole to escape
the latter. After an extensive study that included reading books such as
"The Great Income Tax Hoax" and "How Anyone Can Stop
Paying Income Taxes," he stopped paying taxes. 1
was more prescient than Mr. Pflum realized. He was indicted on eight
counts of failure to pay quarterly employment taxes, in violation of 26
and three counts of failure to file a federal income tax return, in
violation of 26 U.S.C. §7203.
By his own testimony he conceded that from 1997 to 1999 he failed to
file federal income tax returns, and in 1998 and 1999 he failed to
withhold federal employment taxes. The jury found him guilty on all 11
counts. Because the trial was held after Blakely v. Washington,
524 U.S. 296 (2004), but before United States v. Booker, 125
S.Ct. 738 (2005), when the constitutionality of the Federal Sentencing
Guidelines was uncertain, the trial judge, recognizing that the amount
of tax loss to the government would be a major factor at sentencing,
decided to submit the issue to the jury. It found the tax loss to be
$573,900.00, resulting in an offense level of 18 and a sentencing range
of 27-33 months. Mr. Pflum was sentenced to 30 months in prison. On
appeal he asserts that the district court erred in two respects: (1) in
refusing to give the jury a proposed instruction on
"willfulness," and (2) in denying a motion to strike the
testimony of two IRS agents. We affirm the conviction and sentence.
I. WILLFULNESS INSTRUCTION
Mr. Pflum argues that the district court erred in refusing to give a
proposed instruction relating to the "willfulness" of his
acts. We review the district court's refusal to give a requested jury
instruction for an abuse of discretion.
v. Starnes, 109 F.3d 648, 650-51 (10th Cir. 1997). "A
district court does not abuse its discretion so long as the charge as a
whole adequately states the law."
at 651 (internal quotation marks omitted).
The crimes with which Mr. Pflum was charged required the jury to find
beyond a reasonable doubt that he acted "willfully." 26 U.S.C.
The court not only instructed the jury that it must find that Mr. Pflum
acted willfully, but it also gave the following instructions:
earlier, the third element for the §7202
offenses charged in Counts One through Eight of the Second Superseding
Indictment and the third element for the §7203
offenses charged in Counts Nine through Eleven of the Second Superseding
Indictment are the same insofar as the government must prove that the
defendant acted willfully.
acted "willfully" if the law imposed a duty on him, he knew of
the duty, and he voluntarily and intentionally violated the duty. A
defendant's conduct is not "willful" if it resulted from
negligence, inadvertence, accident, mistake or reckless disregard for
the requirements of the law, or resulted from a good faith
misunderstanding that he was not violating a duty that the law imposed
on him. If you have a reasonable doubt as to whether the defendant acted
willfully, you must acquit the defendant.
R. at 45.
asserts he did not act willfully as charged in the indictment, because
he did not believe that the law imposed a duty on him.
does not act "willfully" if he believes in good faith that he
is acting within the law or that his actions comply with the law, even
though the belief turns out to be incorrect or wrong. Having the burden
to prove the defendant acted willfully as charged, the government must
prove the defendant did not believe in good faith that his actions were
lawful. The burden of proving good faith does not rest with the
defendant because a defendant does not have an obligation to prove
anything in this case. Therefore, if you find that the defendant
actually believed what he was doing was in accord with tax laws,
then you must conclude that the defendant did not act willfully.
In making this
determination about the defendant's good faith, you must keep the
following in mind. A defendant's good-faith belief or misunderstanding
of the law need not be rational or even reasonable, as long as he
actually held the belief in good faith. A defendant's good faith
misunderstanding of the law must be distinguished from a defendant who
understands the duty imposed on him by law but disagrees with that law
or views the law as unconstitutional. There is no defense of good faith
belief or misunderstanding when a defendant knows his duty under the tax
laws but believes, sincerely or not, that the tax laws are
unconstitutional or invalid. A defendant's belief that the tax laws
violate his constitutional rights does not constitute a good faith
misunderstanding of the requirements of the law. Furthermore, a
defendant's disagreement with the government's tax collection system and
policies does not constitute a good faith misunderstanding of the law.
You shall disregard any asserted good faith claims that the tax laws are
unconstitutional or invalid or that the tax collection system and
policies are wrong.
whether the defendant actually held the belief or misunderstanding in
good faith, you must consider all the evidence in the case including the
defendant's effort to research and understand the relevant tax laws and
other authoritative judicial decisions and materials, the reasonableness
of the defendant's beliefs, and all of his actions taken before and
after the events in question that bear on the sincerity of the
defendant's state beliefs.
In proving that
an act is done willfully, the government must show that the defendant
knew of his legal duty and violated it, voluntarily and intentionally,
and not because of mistake or inadvertence or other innocent reason. The
knowledge that a person possesses at any given time may not ordinarily
be proved directly because there is no way of directly scrutinizing the
workings of the human mind. Knowledge may be proved by a person's words,
acts or omissions, along with all the other evidence, in deciding
whether a person acted knowingly, that is voluntarily and intentionally.
whether a person has knowledge, you also may consider inferences drawn
from proof that a person deliberately closed his eyes to what would
otherwise have been obvious to him. If you are convinced beyond a
reasonable doubt that a person was aware of the high probability of the
existence of a fact and that he deliberately avoided learning the truth,
then you may infer knowledge of the existence of this fact, but you may
still find that the personal actually believed the fact does not exist.
It is entirely up to you as to whether you find a person deliberately
closes his eyes to the obvious and as to what inferences should be drawn
from such evidence. You may not conclude that a person has knowledge,
however, from proof of mistake, negligence, carelessness, or a belief in
an inaccurate proposition.
Not satisfied with the instructions, Mr. Pflum proposed additional
language: "In this case, the Defendant is not presumed to know the
at 11 The district court decided that the substance of the proposed
instruction was adequately expressed in other instructions. We agree.
To be sure, to establish willfulness the government had to prove beyond
a reasonable doubt that Mr. Pflum had knowledge of the law. United
States v. Ambort [ 2005-2
USTC ¶50,453], 405 F.3d 1109, 1114 (10th Cir. 2005). But the
instructions given established the government's burden without the
additional language proposed by Mr. Pflum. The jury was instructed that
the government must prove each element of the offense beyond a
reasonable doubt, including willfulness. Instruction 18 defined
willfulness: "The defendant acted 'willfully' if the law imposed a
duty on him, he knew of that duty, and he voluntarily and
intentionally violated the duty." R. at 45 (emphasis added).
Instruction 21 is even more clear: "In proving that an act is done
willfully, the government must show that the defendant knew of his legal
duty and violated it, voluntarily and intentionally, and not because of
mistake or inadvertence or other innocent reason."
at 50. The jury was also given a lengthy "good faith"
instruction, which stated that an act is not done willfully if the
person "believes in good faith that he is acting within the
law" and that the defendant's "good-faith belief or
misunderstanding of the law need not be rational or even reasonable
at 46-47. This instruction also reiterated that the burden was on the
government to prove that the defendant acted willfully and that the
defendant "does not have an obligation to prove anything in this
The jury was more than adequately instructed that the government had to
prove beyond a reasonable doubt that Mr. Pflum was aware of the duties
the law imposed upon him and that he intentionally violated those
duties. Accordingly, we cannot say that the district court abused its
discretion in refusing to give the proposed instruction.
II. MOTION TO STRIKE TESTIMONY
Mr. Pflum's second issue on appeal is whether the district court erred
in refusing to strike the testimony of two government witnesses. On
cross-examination IRS Special Agent Henry Herron testified that the rate
of income tax withholding was 28%, a figure that he said was in the
federal Sentencing Guidelines, but could be found in the United States
Code as well. Agent Abbe Stewart later testified on cross-examination
that wage withholding is governed by IRS publication Circular E. On
redirect she testified that the 28% figure could be found in 26 C.F.R.
§31.3402(g)(1). After the government rested, Mr. Pflum moved to strike
the testimony. His counsel argued that the regulation cited by Agent
Stewart related only to supplemental wages and did not mention a 28%
figure. He also argued that Circular E had no legal effect because it
was not published in the regulations. The district court denied the
motion, but gave Mr. Pflum leave to raise it again. The motion was
renewed at the close of evidence and denied again without comment by the
Before addressing Mr. Pflum's argument, we make two observations
regarding the procedural context of the issue. First, although Mr. Pflum
originally argued that the challenged testimony affected both his
conviction and sentence, he now concedes that the testimony affected
only his sentence calculation. The jury did not need to find a specific
amount of tax loss to convict Mr. Pflum on any of the counts. The amount
of tax loss was submitted to the jury solely to prevent any potential
sentencing problems that might arise in light of Blakely.
Second, Mr. Pflum has not objected to the mandatory application of the
Sentencing Guidelines to this case. Had he done so, we would be
confronted with nonconstitutional Booker error because the
sentence was calculated solely on facts found by the jury. See
v. Gonzalez-Huerta, 403 F.3d 727, 731-32 (10th Cir. 2005). But
because Mr. Pflum has not raised this issue, we need not address it. See
United States v. Sandia, 188 F.3d 1215, 1218 n.2 (10th Cir. 1999).
For purposes of this case we will treat the guidelines in a pre- Booker
"We review the district court's admission of evidence for an abuse
of discretion, not disturbing the court's decision unless we have a
definite and firm conviction that the trial court made a clear error of
judgment or exceeded the bounds of permissible choice in the
circumstances." Richardson v. Mo. Pac. R.R. Co., 186 F.3d
1273, 1276 (10th Cir. 1999) (internal quotation marks and brackets
omitted). We may affirm on any ground supported by the record. United
States v. Sandoval, 29 F.3d 537, 542 n.6 (10th Cir. 1994).
We affirm because Mr. Pflum's objection to the challenged testimony was
not timely. See generally 1 Jack B. Weinstein & Margaret A.
Berger, Weinstein's Federal Evidence, §103.11 (Joseph M.
McLaughlin, ed., Matthew Bender 2d ed. 1997) ("An objection to the
admission of evidence must be 'timely' or else any error in admission
may not be asserted on appeal. An objection is 'timely' if it is made as
soon as the opponent knows, or should know, that the objection is
applicable." (footnotes omitted)). The basis for the objection
--that the 28% figure used to calculate the tax loss is not in the
United States Code or the regulations --was known to Mr. Pflum, or
should have been known, long before the objection was made.
Specifically, even before Agent Herron took the stand Mr. Pflum had
stipulated to the admission of Government Exhibits 6 and 7, which
consisted of spreadsheets showing the names of Mr. Pflum's employees,
the wages they were paid, and the amount of taxes that should have been
withheld. The exhibits relied on the 28% figure in calculating the
required withholding. The cross-examination of Agent Herron also
demonstrates that Mr. Pflum's counsel was aware of the 28% figure before
Agent Herron took the stand. Indeed, Mr. Pflum's counsel questioned
Agent Herron extensively about the 28% figure, and even suggested that
the figure was from the Sentencing Guidelines, and not the Tax Code. At
one point Mr. Pflum's counsel asked Agent Herron: "Is it not true
that that 28 percent that you are using is not something that's dictated
or required by the federal income tax laws, the 28 percent figure comes
from another set of laws. Is that correct?" Aplee. Supp. App. at
The cross-examination of Agent Stewart also reveals that Mr. Pflum was
aware of the basis for his objection long before the government rested
its case. Agent Stewart did not testify on direct examination about the
tax loss or the 28% figure. Her testimony was limited to describing a
W-4 form and the difference between employees and independent
contractors. On cross-examination Mr. Pflum's counsel questioned Agent
Stewart about the withholding rate for federal income taxes and how that
rate would be calculated. Agent Stewart responded: "You would have
to look at the payroll tax tables that the Internal Revenue Service puts
out each year ...."
Q. Now, this
table, is that circular E?
A. That would
be circular E.
Q. Okay. Good
enough. That's what I want. So you're familiar with the fact that under Section
3402 of --just the section itself says withholding shall be
done according to some table, right?
A. That's one
of the ways, yes.
Q. And the
typical way to withhold would be you'd look at the regulations and it
would say consult circular E, correct?
A. Give or
Q. And so you'd
have to dig out circular E ... to determine how much is to be withheld?
Q. And the only
way you could determine that would be by looking at circular E?
Under Fed. R. Evid. 103 evidentiary objections generally must be made at
the time the evidence is offered. See Sorensen v. City of Aurora,
984 F.2d 349, 355 (10th Cir. 1993); see also Vallejos v. C.E. Glass
Co., 583 F.2d 507, 511 (10th Cir. 1978) (motion to exclude raised as
part of motion for directed verdict was not timely; "the proper
time to object to the admission of evidence ... was at the time it was
offered"). In this case Mr. Pflum did not object until after four
additional witnesses had been called and the government had rested its
case. United States v. Gibbs, 739 F.2d 838, 849 (3d Cir. 1984)
(en banc) (objection untimely when made "not when the
evidence was offered, but during a motion to strike made after
the government had rested"); United States v. Kanovsky, 618
F.2d 229, 231 (2d Cir. 1980) ("[T]he record reveals that
appellant's objection below was not timely since it was not made until
after the witness was excused and the jury dismissed from the
courtroom."). The belated objection deprived the government of the
opportunity to cure any potential defects in the testimony. Because the
objection was untimely, it was properly overruled.
We AFFIRM Mr. Pflum's conviction and sentence.
order and judgment is not binding precedent, except under the doctrines
of law of the case, res judicata, and collateral estoppel. The
court generally disfavors the citation of orders and judgments;
nevertheless, an order and judgment may be cited under the terms and
conditions of 10th Cir. R. 36.3.
1 We note
that the author of these books, Irwin Schiff, has maintained for more
than 30 years that income taxes are voluntary, but, not surprisingly,
"he has never been successful with that theory in court." Nov.
13, 1789, United States v. Schiff, 379 F.3d 621, 623 (9th Cir.
2004) (citing cases in which Schiff's arguments have been rejected); Newman
v. Schiff, 778 F.2d 460, 467 (8th Cir. 1985) (referring to the
"blatant nonsense" promoted by Schiff).
United States of America
, Plaintiff-Appellee v. Donald W. Streck, Defendant-Appellant
Court of Appeals, 6th Circuit, 91-3395, 3/3/92, 958 F2d 141. Affirming
an unreported District Court decision
District court: Appeals from decisions of: Findings.--The
government did not rely upon immunized testimony in obtaining an
indictment against a taxpayer for tax evasion. Despite the taxpayer's
earlier grand jury testimony that he diverted money from certain
entities into a bank account held by a corporation owned by him and then
into his personal account, the district court properly concluded that
the government had met its burden of showing that the evidence presented
to the grand jury was derived independently of any immunized testimony.
Furthermore, the district court did not clearly err in concluding that
the IRS agent discovered, or inevitably would have independently
discovered, the evidence presented to the grand jury to indict the
taxpayer for tax evasion absent the agent's exposure to a letter in
which the taxpayer represented that, if called to testify, he would
admit to having secretly diverted money. Finally, the agent would
inevitably have discovered that the disputed funds were not loans,
regardless of his exposure to the letter.
KENNEDY and JONES, Circuit Judges, and PECK, Senior Circuit Judge.
Donald W. Streck appeals the district court's order, entered on remand
from this court, finding that the government did not rely upon immunized
testimony in obtaining an indictment against Streck for tax evasion.
Upon review, we affirm.
1983 to 1985, Streck was an independent contractor in the trucking
industry. Among his clients were a number of entities owned by Frank
Walsh. In 1983, Streck began diverting funds from various Walsh entities
into a bank account held by American Carriers, Inc. ("ACI"), a
corporation owned and controlled by Streck and his wife. Streck forged
endorsements on checks to and from Walsh entities, then second endorsed
the checks to ACI, which in turn transferred the funds into Streck's
personal account. Streck reported only a fraction of this amount as
personal income on his federal income tax returns.
April 1985, IRS agent Mary Kifer began a civil audit of Streck's 1983
personal income tax return, followed by an audit of his 1984 and 1985
returns in October 1986. After obtaining certain financial records from
Nick Mancini, Streck's accountant and authorized representative, Kifer
concluded that Streck's unreported income came from ACI. Kifer then
audited ACI's corporate returns and found that the bulk of this income
ultimately derived from Walsh entities. Kifer also uncovered sizable
discrepancies between Streck's expenditures and income and concluded
that Streck had an unreported source of income related to the
unexplained deposits coming from ACI. In December 1985, Mancini admitted
to Kifer that $91,000 in unreported income initially deposited to ACI's
account should have been reported on Streck's 1983 personal return. By
November 1986, Kifer had received documentation indicating that this
$91,000 in unreported income was drawn on an account of the Walsh
entities made payable to Deutsche Credit Corporation and second-endorsed
to ACI. Streck later also conceded that he should have reported a
deposit to ACI's account of $156,000 and a deposit to his personal
account of $40,946. Kifer also suspected that $336,000 in 1984 and over
a million dollars in 1985, although represented by Mancini to be loans,
were also unreported income. Kifer requested documentation from Mancini
confirming that these amounts were indeed loans, but Mancini never
supplied the requested documents.
March 2, 1987, Kifer closed her audit of Streck's 1983 return with a
total finding of $275,000 in unreported income. On May 20 of that year,
Kifer referred the 1984 and 1985 tax returns for criminal investigation
and, on August 7, referred the 1983 return for criminal investigation as
on February 9 and 10, 1987, Streck testified before a grand jury in
investigating criminal charges against Frank Walsh. Streck testified
that he had diverted money from Walsh entities as commissions he
believed Walsh owed him for services rendered. Streck was granted use
and derivative use immunity for his testimony.
March 23, 1987, Assistant United States Attorney Larry Leigh wrote a
letter to Walsh's defense counsel about Streck's diversion of funds (the
"Leigh letter"). The Leigh letter represented that, if called
to testify, Streck would admit having secretly diverted over $1,000,000
from Walsh during 1983 to 1986. The Leigh letter later became part of
the record in the bankruptcy proceedings of certain Walsh entities in
the District of New Jersey.
response to Kifer's referrals, IRS agent James Kuntz began a criminal
investigation of Streck's 1984 and 1985 tax returns in August 1987.
Kuntz received the spread sheets from Kifer's audits itemizing the dates
and amounts of deposits that she had identified as likely sources of
Streck's unreported income. Upon review of Kifer's report, Kuntz
concluded that, in order to determine whether the disputed funds were
loans, as Streck maintained, or were in fact taxable income that Streck
had failed to report, he would need to obtain copies of the deposited
checks and to interview the payors and payees of the checks in question.
Accordingly, Kuntz subpoenaed the records of Streck's banks and those of
Mancini. On November 17 and 18, 1987, Kuntz also asked the FBI if he
could review subpoenaed bank records of Streck and ACI in the FBI's
this point, Kuntz was informed by other IRS agents that Assistant United
States Attorney Maria Beardell in the District of New Jersey suspected
that the unreported income was derived from Walsh entities. 1 Kuntz then
decided to compare Streck's and ACI's deposit records with Walsh records
but found no corresponding Walsh checks in its records. Kuntz did,
however, find copies of the checks that made up these deposits in ACI's
bank records. These checks were payable from Walsh entities to various
payees, but had been second endorsed to ACI and deposited to its
account. Kuntz also discovered five checks payable to Walsh but second
endorsed to ACI.
November 18, 1987, Novalyn Winfield, Assistant United States Trustee for
the Bankruptcy Court in
, advised Kuntz of a letter dated May 18, 1987, by an attorney for
Walsh, concerning a criminal complaint by a Walsh company against Streck
for embezzlement. This letter apparently referred to the Leigh letter,
and was therefore tainted. On December 17, 1987, Winfield sent Kuntz a
copy of the Leigh letter. Kuntz proceeded with his investigation and
uncovered more checks made payable to Walsh but second endorsed to ACI.
Kuntz also contacted payees of the checks and discovered that the
signatures had been forged. In early 1988, Kuntz interviewed Marc
Zoldessy, general counsel for one of the Walsh entities, who told Kuntz
he had independently uncovered misappropriations by Streck between
September 1985 and June 1986.
November 3, 1988, Streck was indicted on five counts. Counts one through
three charged Streck with attempt to evade federal income tax in 1983,
1984, and 1985, respectively, in violation of 26 U.S.C. §7201
(1988). Counts four and five charged Streck with concealing
an asset in bankruptcy and making a false statement in a bankruptcy
proceeding, respectively, both in violation of 18 U.S.C. §152
(1988). Streck filed a pre-trial motion to dismiss or, in the
alternative, for a hearing, asserting that evidence presented to the
grand jury was derived from his earlier compelled testimony before the
grand jury in
and before the New Jersey State Investigation Commission, for which
Streck had also been given use and derivative use immunity. The court
held a hearing on March 6 and 7, 1989, at which two IRS agents testified
and supporting documents were presented. On March 21, 1989, the district
court concluded that the United States had met its burden of showing
that the evidence presented to the grand jury was derived independently
of any immunized testimony, in satisfaction of Kastigar v. United
States, 406 U.S. 441 (1972), and accordingly denied Streck's motion
jury trial commenced on June 27, 1989. On July 14, the jury returned a
verdict of guilty on the tax evasion charges and not guilty on the
bankruptcy charges. Streck was sentenced to thirty months of
imprisonment and six months probation.
appeal to this court, United States v. Streck, No. 89-4055, slip
op. (6th Cir. Sept. 26, 1990) (per curiam) [hereinafter Streck I
], the panel noted that "the district court made no specific
findings of fact for us to determine whether its findings as to the
independent sources of the government's evidence were clearly erroneous
at 2. The panel therefore remanded for the district court to make
specific findings as to the independent sources of the grand jury
remand, the district court made numerous findings of fact and concluded
that the government had satisfied its burden of showing that its grand
jury evidence was untainted. Streck then filed this appeal.
alleging the use of immunized testimony to secure a conviction are
governed by the seminal case of Kastigar v. United States, 406
U.S. 441 (1972), and its progeny. Kastigar, interpreting 18
U.S.C. §6002 (1988), 2 held that
the "use and derivative use" immunity provided by that statute
"bar[s] the use of compelled testimony as an 'investigatory lead,'
and also bar[s] the use of any evidence obtained by focusing
investigation on a witness as a result of his compelled
at 460 (footnote omitted). Thus, "[o]ne raising a claim under this
statute need only show that he testified under a grant of immunity in
order to shift to the government the heavy burden of proving that all of
the evidence it proposes to use was derived from legitimate independent
at 461-62. We review a district court's determination that the
government has satisfied its burden under Kastigar for clear
error. United States v. Overmyer, 899 F.2d 457, 463 (6th Cir.), cert.
denied, 111 S. Ct. 344 (1990). A finding is clearly erroneous when,
despite evidence to support it, the reviewing court on the entire
evidence harbors a definite and firm conviction that a mistake has been
made. Archer v. Macomb County Bank, 853 F.2d 497, 499 (6th Cir.
court has read Kastigar to hold that the government must show
that "its evidence against the witness is neither directly nor
indirectly traceable to the immunized testimony." United States
v. Pennell, 737 F.2d 521, 528 (6th Cir. 1984), cert. denied,
1158 (1985). In Streck I, we also quoted with approval United
States v. North, 910 F.2d 843 (D.C. Cir. 1990), modified, 920
F.2d 940 (D.C. Cir. 1990), cert. denied, 111 S. Ct. 2235 (1991),
where the Circuit Court for the District of Columbia noted that a
district court " 'must make specific findings on the independent
nature of this proposed [allegedly tainted] evidence.' Because the
burden is upon the government, the appellate court 'may not infer
findings favorable to it on these questions.' " Id. at
854-55 (alteration in original) (citation omitted) (quoting United
States v. Rinaldi, 808 F.2d 1579, 1584, 1583 (D.C. Cir. 1987)).
government concedes that by mid-November, Kuntz was indirectly exposed
to the Leigh letter and that on December 17, 1987, he saw a copy of the
Leigh letter for the first time. The sole issue in the present appeal,
then, is whether the district court clearly erred in concluding that
Kuntz did discover or inevitably would have independently discovered the
evidence presented to the grand jury to indict Streck for tax evasion
absent his exposure to the Leigh letter. We hold that it did not.
does not dispute that agent Kifer, who conducted the civil audit of
Streck's 1983 through 1985 tax returns, was never exposed to Streck's
immunized testimony. In the course of her audit, Kifer found that
Streck's 1983 unreported income ultimately derived from Walsh checks,
payable to third parties, that had been second endorsed to ACI. Kifer
inferred, therefore, that Streck's unreported income in 1984 and 1985
also came from Walsh. Although Streck had alleged that the funds were
non-taxable loans, he never responded to Kifer's request to supply
documentation supporting this claim. Thus, when Kifer closed her civil
audit of Streck's returns for 1983 through 1985 and referred them to
agent Kuntz for criminal investigation, Kuntz needed only (1) to verify
whether the unreported funds came from Walsh entities, (2) to interview
the payors and payees of the second endorsed checks to see if the second
endorsements were valid, and (3) to ascertain whether the unreported
funds were loans from Walsh, as Streck maintained, or whether they were
taxable income. Although Streck argues that Kuntz would not have
discovered that the unreported funds were not loans without benefit of
the Leigh letter, he offers no plausible grounds for this claim. That
Kuntz had not discovered the precise source of the unreported funds when
first exposed to the Leigh letter is irrelevant: Kuntz needed only to
determine whether the funds were loans. Although the Leigh letter
undoubtedly supported Kuntz's suspicions that they were not, there is no
reason to believe that Kuntz would have been led to believe that the
funds were loans had the Leigh letter never existed.
addition, Streck's failure to produce documentation supporting his
characterization of the funds as loans, all long before Kuntz was
exposed to the Leigh letter, arguably gave the United States probable
cause to believe that Streck had committed each of the elements of tax
evasion: willfulness, attempt to evade, and tax deficiency. See United
States v. Curtis [86-1 USTC ¶9195 ],
782 F.2d 593, 595 (6th Cir. 1986). As summarized by the district court
There is no
evidence that Internal Revenue Service agent Kifer learned of immunized
testimony given by defendant at any point during her investigation.
Kifer discovered through her sole efforts that defendant had unreported
income for the years 1983, 1984, and 1985; that at least some of the
income had come from the Frank Walsh entities; and that the money was
deposited to ACI's account.
Revenue Agent Kuntz began his investigation with the spread sheet of
dates and amounts of deposited items compiled by Kifer. Kuntz obtained
copies of the items listed by Kifer. By examining those items and
interviewing the payees, Kuntz was able to ascertain that the unreported
income was not loans. Although it is undisputed that during the course
of his investigation Kuntz came upon information that had been generated
from the grand jury proceedings in San Francisco, he independently
obtained documents and information which showed that defendant's
unreported income was not loans.
J.A. at 1702-03. We agree with the
district court's conclusion that Kuntz would inevitably have discovered
that the disputed funds were not loans regardless of his exposure to the
raises a number of objections. First, he claims that the district court
erroneously stated, at the pretrial Kastigar hearing, that
documents in the public domain lose their immunity and, therefore, that
Kuntz's exposure to the Leigh letter while reviewing Walsh bankruptcy
documents was irrelevant. Although conceding that the court's
observation was incorrect, the government correctly notes that the
district court did not base its finding that the government had met its Kastigar
burden on this conclusion. Moreover, because we find the district
court's judgment proper, we would affirm the court's order even if it
were based on an incorrect application of law. See Pilarowski v.
Macomb County Health Dept., 841 F.2d 1281, 1285 (6th Cir.), cert.
denied, 488 U.S. 850 (1988).
also contends that, prior to their exposure to the Leigh letter,
representatives for the Walsh entities were unconcerned about Streck's
diversion of funds, and points out that he remained employed for some
time after Walsh's independent discovery of the diversions. Streck also
notes that Walsh's representatives only became aware of the criminal
nature of Streck's embezzlement after being exposed to the Leigh
letter. Streck therefore concludes that their testimony to Kuntz during
his investigation was necessarily tainted. This argument fails to
recognize that the precise nature of the funds was simply inapposite to
Kuntz's inquiry. Kuntz's sole responsibility was to determine whether
the funds were nontaxable loans or (taxable) something else. Whether the
funds were embezzled, as was ultimately found to be the case, or whether
the funds were proper compensation, as Walsh representatives presumably
would have testified prior to their exposure to the Leigh letter, was
wholly irrelevant to whether Streck should have reported the funds as
income. There are simply no grounds for believing that, prior to their
exposure to the Leigh letter, Walsh representatives would have
mistakenly told Kuntz that the disputed funds were loans rather than
something else. Accordingly, we find it beyond dispute that Kuntz would
have discovered that the funds were not loans even if the Leigh letter
had never existed.
remaining objections are without merit. Although Streck chastises the
district court for not having permitted greater discovery, none of the
issues upon which the court based its opinion are in dispute, nor does
Streck challenge the factual basis of the court's assertions.
the foregoing reasons, we AFFIRM the judgment of the district
While it is somewhat unclear from the record whether Beardell's
information was based upon Streck's immunized testimony and, therefore,
tainted, we find resolution of this factual issue irrelevant to our
analysis. See infra Part III.
18 U.S.C. §6002 authorizes a federal grand jury to grant use and
derivative use immunity to witnesses before it and gives rise to a
remedy for the witness should evidence directly or indirectly derived
from the immunized testimony be used by the government in a subsequent
prosecution of the witness.
¶50,402] United States of America, Appellee v. Charles L. Bussey, Jr.,
(CA-8), U.S. Court of Appeals, 8th
Circuit, 90-2112EM, 8/20/91, Affirming an unreported District Court
7203 and 7206 and 18 USC §1001 ]
Crimes: Failure to file returns: Filing false returns: Evidence:
Exclusion of oral testimony: Instructions to jury: Prosecutorial
misconduct.--An attorney's convictions for failing to file income
tax returns, filing false income tax returns and filing false statements
with the Department of Housing and Urban Development were upheld. The
trial court did not err in giving a "willful blindness"
instruction because the evidence introduced could have supported a
finding that he had deliberately avoided knowledge of the facts that
made his conduct illegal. This instruction did not taint his conviction
for filing a false statement with HUD because other instructions made it
clear that actual intent to violate the law was required to support a
conviction. In addition, the court did not abuse its discretion in
excluding the testimony of one of the taxpayer's impeachment witnesses
because calling such a witness would have been inappropriate. Further,
statements made at trial by the government did not justify setting the
convictions aside because they did not rise to the level of
prosecutorial misconduct. Finally, the evidence introduced was
sufficient to support the verdict.
E. Holtshouser, Assistant United States Attorney, Stephen B. Higgins,
St. Louis, Mo. 63101, for appellee. Charles L. Bussey, Jr., pro se,
Carl W. Bussey, Lloyd J. Jordan, St. Louis, Mo., for appellant.
MCMILLIAN and MAGILL, Circuit Judges, and WOODS, * District
L. Bussey, Jr., appeals his convictions for filing false tax returns for
the years 1981, 1983 and 1984, in violation of 26 U.S.C. §7206(1) ; failing to file
a tax return for 1982, in violation of 26 U.S.C. §7203 ; and filing a false
statement with the Department of Housing and Urban Development, in
violation of 18 U.S.C. §1001 . Bussey argues that
the district court 1 erred in
giving a "willful blindness" instruction because such an
instruction was not warranted by the evidence; in failing to grant his
motion for acquittal on the ground that the evidence was insufficient to
convict him; in excluding certain testimony under Fed.R.Evid. 608(b);
and in refusing to grant him a new trial on the ground of prosecutorial
misconduct. We affirm.
1977, Bussey's father, Charles Bussey, Sr. (Bussey Sr.), who resided in
Little Rock, Arkansas, contacted his St. Louis-based son about a
potential real estate development project in Little Rock. Because Bussey
did not have much experience in such matters, he in turn contacted his
friend and former employer, William A. Thomas, an experienced real
estate appraiser, developer, and consultant, for assistance. In 1978,
Thomas suggested that Bussey, a practicing lawyer, form Eastview
Development Company, Inc., to build an apartment complex on the Little
Rock property. Bussey Sr. and two of his friends were the sole
shareholders and officers of the corporation.
finance the project, Thomas and Bussey sought a Department of Housing
and Urban Development (HUD)-insured mortgage in 1980. That same year
Bussey Sr. was elected to the Little Rock city council. After the
election, there was some question as to whether Bussey Sr.'s involvement
with the Eastview project while serving in an elected position was
improper. As a result, Bussey Sr. withdrew from the development company
and was replaced by his son. Work continued on the project, with Bussey
and Thomas eventually obtaining an option to purchase the Little Rock
receiving the HUD mortgage insurance commitment, Thomas found an outside
investor for the Eastview project, J&B Management Company (J&B).
On April 1, 1981, Bussey, Thomas and J&B formed the Eastview Terrace
Limited Partnership (Partnership), whose purpose was to build and
develop the apartment complex. Supp. App. 9, at 2. Bussey and Thomas
were the Partnership's sole general partners; each had a one and a half
percent interest in the Partnership's capital. J&B was a limited
partner. Executed simultaneously with the partnership agreement was a
Development Agreement (DA) between Bussey, Thomas, the Partnership, and
J&B. See Supp. App. 10, at 1. The DA provided that the Partnership
would pay the general partners a developer's fee for their services. Id.
at 15. This sum was to be paid in four annual installments (the
guaranteed payments). 2 Tr. at 60. Each installment payment was split in
two parts for tax purposes. Id. at 65.
connection with the partnership agreement, Bussey and Thomas verbally
agreed that any revenue the Partnership received would go to Bussey and
that Thomas would receive only a consulting fee and traveling expenses.
These totaled approximately $41,500 for the entire project. 2 Tr. at 49.
Bussey and his father agreed that Bussey would pass on part of the
payments to Bussey Sr. 8 Tr. at 86-88.
the initial closing in 1981, J&B gave the Partnership a check for
$174,084. The check was deposited in a Little Rock bank account for
which Thomas and Bussey were the signatories. Pursuant to the DA, Bussey
wrote two checks to himself and Thomas, one for $90,000 and one for
$84,084, representing the guaranteed payment. Both men endorsed the
checks and Bussey redeposited them in the Little Rock account.
Toca, a Florida accountant, prepared the Partnership's tax return for
1981. In conjunction with the information return Form 1065, he filled
out Schedule K-1s for the partners, which listed each partner's share of
the Partnership's income, credits, and deductions. 2 The K-1s for
Bussey and Thomas listed the guaranteed payment as income, attributing
$87,042 (half of the total payment) to each. Under 11 U.S.C. §707(c)
, such guaranteed payments were gross income to Bussey and
Thomas and were to be reported on Schedule E of their Form 1040 income
tax returns. When Thomas received the K-1, he noticed it was incorrect,
because he had agreed to be paid only his consultant fee and expenses.
Therefore, he directed his accountant to contact Toca and make the
necessary correction. 3 Bussey's K-1
was sent to Bussey Sr.'s Little Rock address, which Bussey had used in
the partnership documents. Bussey nevertheless received the K-1, which
he did not read, but merely placed in the box in which he kept his
financial records. 7 Tr. at 230.
never reported the 1981 guaranteed payment as income. In 1984, when
Bussey had his 1981 personal income tax return prepared, Bussey told the
preparer, Irl Steiner, that the Partnership's 1981 K-1, which Steiner
had found in Bussey's box, was incorrect because the $87,042 attributed
to him had actually gone to the Eastview Development Company, Inc. 3 Tr.
at 185. 4 Steiner
informed Bussey that if that was the case, the Partnership's return and
the K-1s would have to be amended to agree with Bussey's return. Steiner
also told Bussey that if the K-1 was not corrected, Bussey would have to
pay additional taxes. Id. at 188. Bussey's K-1 from the
Partnership also indicated a loss from the Partnership. This loss,
unlike the guaranteed payment, was included in Bussey's return.
B. 1982 Return
traveled to Dallas in 1982 to pick up the second $174,084 installment
payment from J&B's lawyer. This payment was deposited in the
Partnership's account. Bussey then drafted two checks in the amount of
$90,000 and $84,084, endorsed them, signing Thomas' name as well as his
own, and redeposited them in the Partnership's account. 2 Tr. at 124.
1982 Bussey also worked for Maxxam Consulting Group, managing a minority
business development agency contract for Maxxam in St. Louis. For his
management services, Maxxam paid Bussey $18,000 that year. 3 Tr. at 260.
never filed an income tax return for 1982.
C. 1983 and 1984 Returns
1983, Bussey again traveled to Dallas to pick up the $174,084 payment.
Bussey gave this check to his father, who deposited it in Bussey Sr.'s
personal checking account. Of these funds, $33,000 was used to pay off
Bussey's loans. 6 Tr. at 160. The final payment, for $131,292, was sent
to Thomas in 1984. Thomas gave it to Bussey, who deposited the check in
the Partnership's account, and then wrote two checks on the account, one
to his father for $75,000 and one to Eastview's builder for $55,000.
also omitted any reference to the guaranteed payments in his 1983 and
1984 returns. His tax preparer for those years, Angela Evans, had given
Bussey tax organizers to facilitate the preparation of the returns.
These organizers specifically requested any information concerning
partnerships. Bussey did not mention the guaranteed payments in the
organizers. He also did not show Evans the Partnership's K-1s and did
not inform her of any tax consequences related to the Partnership. 3 Tr.
D. False Statement to HUD
was a beneficiary of the federal government's program to assist low and
moderate income families in the purchase of a house. Bussey applied for
a HUD subsidy in 1982. The program he applied to required that to be
eligible for the subsidy, an applicant had to sell any real estate she
or he owned, report all sources of income, and list all assets. 5 Tr. at
158. On his application he listed his employment as the manager of a
food service company, Midwest Host, Inc., in which he held an interest.
He listed his salary as $22,000 a year. He listed no other sources of
income. 5 Tr. at 180. The only bank account he listed was his personal
account. Bussey also listed a house as an asset, with the notation that
the house was to be sold. Bussey did not list among his assets his
interest in the Partnership, his ownership interest in a number of small
businesses, his partnership interest in a law firm he had founded in
1981, Bussey & Jordan, or his ownership of a 1982 Datsun 280Z car.
As regards sources of income, Bussey did not list the guaranteed
payments from the Partnership or his income from Bussey & Jordan.
Based on the information he provided, HUD found that Bussey qualified
for the subsidy.
October 1983, Bussey sought to get his subsidy recertified. In his
recertification papers, Bussey indicated that his current income was
$22,800, see 5 Tr. at 210, but he failed to report to HUD the $174,084
guaranteed payment from the Partnership or income he received from
E. Procedural History
April 1990, Bussey was charged with filing false income tax returns for
the years 1981, 1983 and 1984, in violation of 26 U.S.C. §7206(1)
failing to file an income tax return for 1982 and 1985, in violation of
26 U.S.C. §7203 6; and with
making a false statement to HUD, in violation of 18 U.S.C. §1001 . 7 Following a
two-week jury trial, Bussey was convicted on all counts except the
failure to file a return in 1985. The district court sentenced Bussey to
three years' imprisonment on each income tax count and one year on the
false statement count, with all sentences to run concurrently. The
district court also ordered Bussey to repay the $7,883 housing subsidy
he received as a result of his false statement to HUD, and to pay a $150
assessment as well as the costs of the prosecution. Bussey now appeals
his convictions to this court.
A. The Willful Blindness Instruction
primary argument on appeal is that the district court erred in giving a
willful blindness instruction. The instruction permitted the jury to
find that Bussey had the requisite intent to commit the crimes if it
determined that he had deliberately avoided knowledge of the facts that
made his conduct illegal. The instruction read:
element of knowledge may be satisfied by inferences drawn from proof
that a defendant deliberately closed his eyes to what would otherwise
have been obvious to him. A finding beyond reasonable doubt of a
conscious purpose to avoid enlightenment would permit an inference of
knowledge. Stated another way, a defendant's knowledge of a fact may be
inferred from willful blindness to the existence of the fact.
is entirely up to you as to whether you find any deliberate closing of
the eyes, and the inferences to be drawn form [sic] any such evidence. A
showing of negligence or mistake is not sufficient to support a finding
of willfulness or knowledge.
Instruction 37, App. 1. Bussey
argues that the willful blindness instruction, also known as the Jewell,
see United States v. Jewell, 532 F.2d 697 (9th Cir.) (en
banc), cert. denied, 426 U.S. 951 (1976), or "ostrich"
instruction, see United States v. Ramsey, 785 F.2d 184, 189 (7th
Cir.), cert. denied sub nom. McCreary v. United States, 476 U.S.
1186 (1986), was not justified because there was no evidence that he
purposely sought to avoid any knowledge. 8
court has specifically approved the use of the willful blindness
instruction in tax fraud cases. See United States v. Zimmerman [88-2 USTC ¶9393 ],
832 F.2d 454, 458 (8th Cir. 1987) (per curiam). As we observed in United
States v. Hiland, 909 F.2d 1114 (8th Cir. 1990), the willful
blindness instruction "allows the jury to impute knowledge to [the
defendant] of what should be obvious to him, if it found, beyond a
reasonable doubt, a conscious purpose to avoid enlightenment." Id.
at 1130 (quotation omitted). See also United States v. Mattingly
USTC ¶50,068 ], 924 F.2d 785, 792 (8th Cir. 1991)
("[T]he element of knowledge may be inferred from deliberate acts
amounting to willful blindness to the existence of fact or acts
constituting conscious purpose to avoid enlightenment."). In
reviewing a district court's decision to give a willful blindness
instruction, we must review the evidence and any reasonable inference
from that evidence in the light most favorable to the government. Hiland,
909 F.2d at 1131.
1. The §7206 Convictions
jury found Bussey guilty of willfully filing false income tax returns
for the years 1981, 1983 and 1984. Viewing the evidence in the light
most favorable to the government, we believe the district court did not
err in submitting a willful blindness instruction to the jury on these
charges. Although there is a great deal of evidence supporting the
submission of the instruction, we will focus on only one transaction,
the guaranteed payments Bussey received in connection with the Eastview
project. As an initial matter, we note that Bussey testified at trial
that he never read the partnership contract or the DA, or his tax
returns for that matter: "Q. And among the documents you did not
read include all of these Eastview closing documents, your own tax
returns, did not read those. Is that what you're telling the jury? A.
Yes, it is." 8 Tr. at 219.
regards his 1981 tax return, Bussey did not report the Eastview
guaranteed payment, even though he knew he had earned and received it:
Q. At that
point in time , with your understanding with Mr. Thomas he was
only to receive $41,500 out of those monies, at that point in time, the
rest of the money was yours. It was received by you, and it was earned
by you at that point in time, wasn't it?
8 Tr. at 92. Even though Bussey
knew he had received the guaranteed payment, in 1984 he told Steiner
that it was not his income because it had been paid to the development
corporation that had preceded the Partnership:
Q. And you told
[Steiner] that all the money had been paid to the corporation?
A. Well, based
on the conversation that he said to me, yes, I did say that.
Q. And, in fact
all of the money had not been paid to the corporation, had it? The money
had been paid to Charles Bussey, Jr. and William A. Thomas, hadn't it?
raising a very technical--yes, yes.
Q. Is that
where the money was paid?
A. Yes, yes.
8 Tr. at 160. At trial, Bussey was
asked about his belief that the Partnership was transferring funds to
the development company:
Q. Now, it's
your understanding that there was still a development company in
operation, and also a partnership?
Q. Did you make
any distinction between the two of them?
A. Well, what I
thought was happening, because W.A. Thomas was taking care of the
accounting, I thought W.A. Thomas was taking care of the accounting.
. . .
Q. Were you
involved in any way with the books and records for [the Partnership]?
A. No. I
thought Bill Thomas was taking care of it. He had selected [an
accountant]. I thought [the accountant] was taking care of all of those
things. . . .
7 Tr. at 233-34. On
cross-examination, the government asked Bussey why he believed that
Thomas was taking care of everything:
Q. Mr. Bussey,
in 1981, what was your rational basis for believing that Mr. Thomas had
these bank records from which he could conduct these analyses that you
were depending on him to do?
A. I don't know
how to answer the question.
Q. You didn't
have one did you?
A. I don't know
how to answer the question.
8 Tr. at 111.
evidence also showed that Steiner, after receiving the 1981 K-1, told
Bussey that he should contact the Partnership and that the Partnership's
1065 return and the K-1s should be amended to reflect that the
guaranteed payments were going to a corporation. 3 Tr. at 187. 9 Bussey never
did this. Nor did Bussey ever inform Steiner that he had an agreement
with his father to pass on the guaranteed payments. 8 Tr. at 160.
Furthermore, Bussey never asked Steiner or Toca about how to treat the
partnership income, even though he did not know what a K-1 was or what
it meant, 7 Tr. at 230, and he did not understand anything about
partnership taxation. 8 Tr. at 25. Bussey's testimony at trial is
Q. Did you
believe . . . that you could make money as a general partner, and pass
it on to someone else, and not have to report it yourself?
A. . . . I
didn't think about the question.
Q. Didn't look
into it either?
A. I did not.
8 Tr. at 95. Although Bussey was
under no legal duty to contact any accountant or tax expert, his
decision not to do so constitutes at least some evidence of deliberate
ignorance. See Hiland, 909 F.2d at 1131.
respect to the 1983 and 1984 returns, Bussey again failed to report the
guaranteed payments as income. His tax preparer for those years, Angela
Evans, provided Bussey with tax organizers to facilitate her preparation
of his returns. The organizers expressly requested the taxpayer to
provide information about any partnerships. Bussey provided none. 3 Tr.
at 324, 330. Neither did he tell Evans anything about the Partnership or
show her a K-1 for those years. Id. at 325, 330-31. 10 Evans
testified at trial that had she seen the K-1, she would have asked
Bussey about the guaranteed payment and the Partnership. Id.
United States v. Graham [84-2
USTC ¶9742 ], 739 F.2d 351 (8th Cir. 1984) (per curiam), we
affirmed a §7206(1) conviction based
on a willful blindness instruction where the evidence showed that the
taxpayer failed to give his accountant all the information relating to
the taxpayer's sources of income. The taxpayer defended the failure by
contending that the accountant already knew the information. Id.
at 352. The taxpayer argued that although he may have been negligent
because he did not read his tax returns before he signed them, his
actions were not willful. Id. This court disagreed, and approved
the district court's submission of the willful blindness instruction,
justification for the rule is that deliberate ignorance and positive
knowledge are equally culpable. The textual justification is that in
common understanding one "knows" facts of which he is less
than absolutely certain. To act "knowingly," therefore, is not
necessarily to act only with positive knowledge, but also to act with an
awareness of the high probability of the existence of the fact in
question. When such awareness is present, "positive" knowledge
is not required.
Id. at 353 (quoting United
States v. Jewell, 532 F.2d 697, 700 (9th Cir.) (en banc), cert.
denied, 426 U.S. 951 (1976)). 11 What is
apparent in this case is that Bussey knew the guaranteed payments had
income tax consequences but deliberately sought to avoid learning
anything about the specifics of those consequences. Bussey directed
Steiner away from the payment in 1981 by telling the accountant the
payment went somewhere else. In 1983 and 1984, he did not tell Evans
anything at all. Bussey asked no questions, sought no guidance, did no
research, all despite his claimed unfamiliarity with partnership
taxation. Nor did he read his returns or the contracts he signed. From
these actions, or lack thereof, a jury could reasonably infer that
Bussey consciously avoided any opportunity to learn what the tax
consequences were, and could then infer the requisite willfulness
required by the statute. Therefore, based on the evidence adduced at
trial, we conclude that the district court properly included an
instruction on willful blindness for the §7206
2. The §7203 Conviction
was also convicted of willfully failing to file an income tax return for
the year 1982. We are not sure of the nature of his appeal of this
conviction. In the summary of his brief, Bussey claims that the willful
blindness instruction, combined with prosecutorial misconduct,
"tainted the misdemeanor verdict." Bussey's Brief at 10.
However, in his discussion of the willful blindness instruction,
Bussey's rather confused brief contains no mention of the misdemeanor
conviction. Whatever the nature of Bussey's argument, we do not believe
that the jury convicted Bussey based on the willful blindness
instruction, for there was ample evidence that he willfully failed to
file the 1982 return. In Cheek v. United States [91-1
USTC ¶50,012 ], 111 S. Ct. 604 (1991), the Supreme Court
stated: "Willfulness, as construed by our prior decisions in
criminal tax cases, requires the Government to prove that the law
imposed a duty on the defendant, that the defendant knew of this duty,
and that he voluntarily and intentionally violated that duty." Id.
at 610. In this case, the government proved that Bussey had a duty to
file a 1982 income tax return. It also proved that Bussey knew of this
duty, based on his own testimony that in 1984 he had given his financial
records for 1982 to Steiner, who was to prepare Bussey's 1982 return. 12 Bussey's
knowledge of this duty was also proved by the testimony of an Internal
Revenue Service agent who interviewed Bussey in May 1987. During the
course of the interview the agent asked Bussey about the status of the
1982 return, and Bussey replied that it had not been filed yet because
he had had trouble getting the documents together, and because he was
very busy and had not had the time. 6 Tr. at 96.
regards the final requirement, there was evidence at trial from which
the jury could infer that Bussey voluntarily and intentionally violated
his duty to file a 1982 return. This evidence includes Bussey's
testimony that in 1984 Steiner had refused to accept his 1982 financial
records until Bussey had organized them, that he had left the records in
his car, and that vandals then broke into the car, poured gasoline on
the driver's seat, and set the car on fire. 7 Tr. at 271. Bussey's 1982
records were destroyed in this fire. Id. At the May 1987
interview, Bussey admitted not having filed a 1982 return, but mentioned
nothing about his records having been destroyed. 6 Tr. at 95. Moreover,
in his October 15, 1983, recertification application for the HUD
subsidy, Bussey represented that he had filed his 1982 return in August
1983. 13 See App. 5,
at 3. From this conflicting evidence, a jury could reasonably infer that
Bussey intentionally failed to file a 1982 return and then sought to
cover up his act. Therefore, because there was evidence from which a
jury could conclude that Bussey willfully failed to file a 1982 return,
the willful blindness instruction did not improperly taint the
misdemeanor conviction. Cf. Mattingly [91-1
USTC ¶50,068 ], 924 F.2d at 792 ("Furthermore, we
believe that even if the jury was mistaken about the role of willful
blindness, the record indicates that the jury was presented with
sufficient evidence of actual knowledge to find appellant liable, thus
making any error harmless.").
also argues that two recent cases, Cheek v. United States [91-1
USTC ¶50,012 ], 111 S. Ct. 604 (1991), and Mattingly v.
United States [91-1
USTC ¶50,068 ], 924 F.2d 785 (8th Cir. 1991), support his
argument that the district court erred in giving a willful blindness
instruction. Bussey's reliance on both cases is seriously misplaced. In Cheek,
the Supreme Court reversed the Seventh Circuit's ruling that "a
good-faith misunderstanding of the law or a good-faith belief that one
is not violating the law, if it is to negate willfulness, must be
objectively reasonable." [91-1
USTC ¶50,012 ], 111 S. Ct. at 610. Cheek did not
involve a willful blindness instruction and is therefore irrelevant to
Bussey's willful blindness issue on appeal. Also of little help to
Bussey is Mattingly, wherein this court stated that in tax fraud
cases under 26 U.S.C. §6701 , which requires
that a defendant who helps a taxpayer prepare a return "know"
that the return understates the taxpayer's liability in order to be
convicted, a willful blindness instruction would be error if it allowed
the jury to use willful blindness as a substitute for knowledge. [91-1
USTC ¶50,068 ], 924 F.2d at 791-92. Our observation in Mattingly
was based on the language and legislative history of §6701 , id. at 791,
neither of which are at issue in this case.
argues that like §6701 in Mattingly,
§§7206 and 7203 require
actual knowledge. The plain language of the statutes refutes this
contention, as did the court in Mattingly in discussing the
appropriateness of the willful blindness instruction: "Section 7206(2) . . .
requires willful assistance in the commission of direct tax
fraud. In that context evidence of willfulness and a jury instruction on
willfulness is properly before the jury. In contrast, §6701 at issue in the
present case does not contain the willful language . . . but
instead contains the term 'knows.'" Id. at 791 (emphasis
added). We recognized in Mattingly that Congress chose to use
"knows" in some criminal tax provisions and the less stringent
"willful" in others. Id. Apparently Bussey has missed
this distinction. Therefore, Mattingly does not stand for the
proposition that the willful blindness instruction is improper in §§7206 and 7203 prosecutions, and
Bussey's argument is unavailing.
4. 18 U.S.C. §1001 Conviction
jury also convicted Bussey of knowingly and willfully making a false
statement to HUD. In his brief on this issue, Bussey makes a conclusory
statement that the willful blindness instruction tainted his conviction,
see Bussey's Brief at 19, but he again fails to discuss how the
instruction specifically affected the §1001 charge. We note,
however, that the court in Mattingly did observe that where a
statute requires a defendant to have known a fact, a willful blindness
instruction would be improper if it "allowed willful blindness to
go beyond an inference of, and act as a substitute for, knowledge."
USTC ¶50,068 ], 924 F.2d at 792. Because §1001 requires knowledge
as well as willfulness, we examine the instructions and the evidence to
determine whether the jury in this case could have substituted willful
blindness for knowledge.
instructions on this charge required the jury to find that Bussey acted
knowingly and willfully, and defined willfully as something "done
voluntarily and intentionally, and with the specific intent to do
something the law forbids." Instruction 19, 24. Because these
instructions clearly emphasized the importance of finding specific
intent to violate the law, they did not authorize the substitution of
willful blindness for knowledge. See Mattingly [91-1
USTC ¶50,068 ], 924 F.2d at 792.
1983 HUD recertification form requests that the applicant provide
information about his or her income as follows:
(1) How much
did each person make last year, broken down by where the money came
from? (2) How much does each person make right now? (3) How much does
each person expect to make in the next 12 months, including raises,
overtime, part-time jobs, etc.? You must show all money received, no
matter where it comes from.
U.S. Department of Housing and
Urban Development, Recertification of Family Income and Composition,
Section 235(b) Form, reprinted in App. 5, at 3. Because the form
was filled out in 1983, Bussey's income in 1982 was to be included. The
only income he reported was $22,800 from his law firm. There was
evidence at trial, however, that Bussey received substantial income from
other sources that year, including $18,000 from Maxxam and the 1982
guaranteed payment of $174,084.
argues that the Maxxam payment was not income to him because it was
actually a reimbursement for his contribution to the start-up of his law
firm. 14 In 1981,
Bussey had joined with two others in forming the law partnership of
Bussey & Jordan. At trial, Bussey's law partner, Lloyd Jordan,
testified that they had agreed that the Maxxam funds were income to the
firm, and that the funds would be used to reimburse Bussey's $10,000
outlay for the firm's start-up costs. 7 Tr. at 41. The firm did not
treat the monies as income, however. Rather, Maxxam sent the checks
directly to Bussey, who deposited them into his personal account. 8 Tr.
at 156. The firm had no record of the checks, see 8 Tr. at 91, and
Jordan had no idea how much Bussey was receiving from Maxxam. See 8 Tr.
at 86-87. Neither the firm nor Bussey reported the $18,000 as income.
Both Jordan and Bussey testified that Bussey was never involved in
financial affairs of the firm and that he let Jordan take care of
everything. 7 Tr. at 67, 261. Bussey testified that he believed the
$18,000 was firm money. 8 Tr. at 41. But he also testified that he did
not perform legal services for Maxxam and that the firm had no claim to
the money Maxxam paid him. 8 Tr. at 156.
brief, the evidence shows that Bussey received $18,000 from Maxxam for
non-legal services, that Bussey got Jordan to agree that these were
partnership funds that would be used to reimburse Bussey's $10,000
contribution to the law firm, and that the funds were never reported as
income to the firm or to Bussey, but were deposited into Bussey's
personal account. From this evidence, and the guaranteed payment
evidence discussed above, a jury could reasonably infer that Bussey
deliberately never checked to see how the law firm was treating the
Maxxam money or how he should treat the guaranteed payments. This
inference in turn supports the inference that Bussey knew the $18,000
Maxxam payment was income to him, as was the guaranteed payment
discussed above. Therefore, we conclude that the jury did not substitute
willful blindness for knowledge in this case, but rather used it
appropriately to infer knowledge.
sum, the district court properly submitted a willful blindness
instruction to the jury in this case. Bussey strenuously argues against
the propriety of the instruction, contending that he was convicted
merely for being negligent and for relying on the advice of his
accountants. Bussey misses the point of a willful blindness instruction.
As the First Circuit has observed: "The purpose of the willful
blindness theory is to impose criminal liability on people who,
recognizing the likelihood of wrongdoing, nonetheless consciously refuse
to take basic investigatory steps." United States v. Rothrock
[87-1 USTC ¶9111 ],
806 F.2d 318, 323 (1st Cir. 1986). By consciously avoiding discovery of
the financial consequences of the guaranteed payments and the Maxxam
income, Bussey was able to file false tax returns and a false
recertification form, and yet now can argue lack of knowledge. We also
note that Bussey defends his activities, or lack thereof, with respect
to the guaranteed payments on the grounds that he believed Thomas was
taking care of the accounting, that none of the Partnership's
accountants contacted him about how the guaranteed payments should be
treated, and that Steiner committed accounting malpractice and lied at
trial to cover it up. These arguments, however, are irrelevant to the
question of whether the evidence supported the district court's
submission of the willful blindness instruction. Furthermore, they are
simply more evidence of Bussey's general penchant for avoidance. His
entire defense on the issue of the guaranteed payments was premised on
the failures of others to tell him things or do things for him,
specifically Thomas, Steiner and the Partnership's accountants. The jury
determined, however, that the responsibility for Bussey's current
predicament rests squarely on his own shoulders. We agree.
B. Sufficiency of the Evidence
next argues that the evidence at trial was insufficient to allow the
jury to find him guilty beyond a reasonable doubt. In evaluating the
sufficiency of the evidence supporting a guilty verdict, we review the
evidence in the light most favorable to the government and we give the
government the benefit of all reasonable inferences. See, e.g.,
United States v. Kouba [87-2 USTC ¶9396 ],
822 F.2d 768, 773 (8th Cir. 1987). We believe the evidence and
inferences discussed in the foregoing section refute Bussey's
specific focus of Bussey's argument appears to be that the government
did not prove that he took an affirmative act in furtherance of the
crimes with which he was charged and thus that the government failed to
prove willfulness. 15 It is
hornbook law that two of the essential elements of a crime are conduct
and intent. See generally 1 W. LaFave & A. Scott, Substantive
Criminal Law §3.1 (1986) (discussing the premises of criminal law).
Bussey seems to have conflated the two separate elements. The conduct
for which he was convicted was filing false income tax returns, failing
to file a return, and making a false statement to a government agency.
The government clearly proved this conduct. As discussed in Part II.A.,
the government also proved the intent necessary for the various charges,
i.e., willfulness (for the §§7206
and 7203 charges) and
willfulness and knowledge (for the §1001
charge). Therefore, Bussey's sufficiency argument fails.
C. Bussey's "Expert"
next argues that the district court erred in preventing one of his
witnesses from testifying. 16 The
district court, under Fed. R. Evid. 608(b), excluded the testimony on
the ground that Bussey was seeking to impeach the testimony of Irl
Steiner, Bussey's 1981 tax preparer and a government witness. 17 We review
evidentiary rulings only for abuse of discretion. See United States
v. Shyres, 898 F.2d 647, 656 (8th Cir.), cert. denied, 111
S.Ct. 69 (1990).
trial, Steiner testified on direct examination that Bussey gave him the
Partnership's 1981 K-1; that Bussey told Steiner that the income from
the K-1 was not his, but had gone to the corporation; and that Steiner
told Bussey that the Partnership's return and the K-1 should be amended
and that if the K-1 was not changed, Bussey would have to pay additional
taxes. 3 Tr. at 185-88. On cross-examination, Bussey asked Steiner about
a checklist prepared by the accountant who reviewed Steiner's 1981 work.
Steiner testified that the checklist includes things that still need to
be done for the taxpayer. A completed item is initialed or checked off.
One of the items on the list for Bussey's return was: "If no
amended form 1065 with K-1s was filed for Eastview Terrace we should
suggest this to avoid a problem with guaranteed payments." 3 Tr. at
220. Steiner conceded on cross-examination that that item was never
checked off. Id. He maintained, however, that he had nonetheless
discussed the necessary changes with Bussey. Id. at 226.
sought to introduce the testimony of Steven Conway, an accounting
expert, making the following offer of proof:
to the offer of proof, it's my understanding that if Mr. Conway were
called concerning the testimony of Mr. Steiner, he would, in fact, tell
the jury that there is [sic] standard accounting procedures, which are
generally known as clearing the points, which if the procedure were
followed in this case by [Steiner's firm] was to have [sic] second
person review the accounting notes, the tax return Mr. Steiner prepared
for Mr. Bussey, and then prepare a bunch of checklist points.
points are generally listed on one side of the paper, and with room left
on the other side of the paper to check off those points.
was very clear that Mr. Steiner's testimony that they went through, I
think it was six points.
checked off five out of those six points, and left one totally blank,
which deals directly with the issue of whether Mr. Bussey was told to
get an amended K-1.
note of Mr. Weber's was, in effect, that we should suggest to the client
that an amended K-1 be received from Eastview Terrace Limited
was no connotation that that was ever done or checked off by anyone.
Mr. Conway would testify that that is against accounting procedures and
[sic] clear indication that, in fact, such statements as to clearing
that point were never done.
8 Tr. at 240-41.
makes numerous arguments attempting to convince us why the district
court erred in excluding Conway's testimony but all fail in light of the
straightforward dictates of Rule 608(b). 18 Bussey's
offer of proof at trial unquestionably shows that Conway's testimony was
intended to show that Steiner did not tell Bussey to get the K-1
amended. By addressing this specific instance of Steiner's conduct,
Bussey obviously sought to use Conway to attack Steiner's credibility.
Rule 608(b)'s plain language prohibits the use of extrinsic evidence for
is apparent that Bussey had every opportunity to impeach Steiner on
cross-examination, and that the jury had to be aware of the conflicting
testimony as to whether Steiner told Bussey to get the K-1s amended. The
jury apparently resolved that credibility issue against Bussey, however,
so he now asks this court to revisit it in the garb of an evidentiary
issue on appeal. This we will not do, for the simple reason that the
district court properly excluded the testimony based on Bussey's offer
D. Prosecutorial Misconduct
Bussey advances a hodgepodge of arguments in support of the proposition
that the district court erred in not granting him a new trial on the
basis of prosecutorial misconduct. The grounds for the alleged
misconduct include the government's reference to Bussey's transferring
the guaranteed payments to his father as a "kickback," the
government's misstatement of certain dates, and the government's
"vigorous advocacy for a denial of opportunity for Appellant's
witness to testify regarding accounting errors made by the Government's
witness Irl Steiner and the prosecutor's misdirection of the court on
the rules of evidence surrounding the proposed testimony." Bussey's
Brief at 42-54. Although the nature of these grounds varies, they all
share one feature--none of them constitutes prosecutorial misconduct.
prove prosecutorial misconduct, an appellant must show that: "(1)
the prosecutor's remarks or conduct [were] improper, and (2) such
remarks or conduct . . . prejudicially affected the defendant's
substantial rights so as to deprive him of a fair trial." United
States v. Pierce, 792 F.2d 740, 742 (8th Cir. 1986). None of the
grounds Bussey has alleged satisfy both of these requirements. For
example, the prosecution's "vigorous advocacy" that Conway's
testimony should be excluded under Fed. R. Evid. 608(b) was obviously
not improper. Neither was the limited reference to "kickback,"
in that Bussey headed a development project originally begun by his
father and then passed monies from the development to his father. The
government's misstatement of certain dates, while improper, appears to
have been innocent. Moreover, because of the overwhelming evidence of
Bussey's guilt, the misstatements did not deprive Bussey of a fair
trial. We do not discuss Bussey's other grounds for the alleged
misconduct because they are similarly unavailing.
we affirm Bussey's convictions.
THE HONORABLE HENRY WOODS, United States District Judge for the Eastern
District of Arkansas, sitting by designation.
The Honorable Stephen N. Limbaugh, United States District Judge for the
Eastern District of Missouri.
Generally, partnerships do not pay income tax. Rather, the individual
partners are liable for tax on their shares of the partnership income.
Therefore, a partnership files a return, Form 1065, only for information
purposes. Form 1065 states the partnership's gross income, credits,
deductions, and the like, for the taxable year. Schedule K to Form 1065
is a summary schedule that lists all of the partners' shares of the
partnership's income, credits, and deductions. Schedule K-1 shows each
partner's individual share. A partnership must include copies of all
K-1s with its 1065 return, as well as provide each partner with a copy
of his or her K-1.
Thomas received no more K-1s from the Partnership.
The development company, however, had ceased to exist in the summer of
26 U.S.C. §7206(1)
person who] [w]illfully makes and subscribes any return, statement, or
other document, which contains or is verified by a written declaration
that it is made under the penalties of perjury, and which he does not
believe to be true and correct as to every material matter . . . shall
be guilty of a felony and, upon conviction thereof, shall be fined not
more than $100,000 . . . or imprisoned not more than three years, or
both, together with the costs of prosecution.
26 U.S.C. §7203 provides:
person . . . required by this title or by regulations made under
authority thereof to make a return . . . who willfully fails to . . .
make such return . . . at the time or times required by law or
regulations, shall, in addition to other penalties provided by law, be
guilty of a misdemeanor and, upon conviction thereof, shall be fined not
more than $25,000 . . . or imprisoned not more than 1 year, or both,
together with the costs of prosecution.
18 U.S.C. §1001 provides:
in any matter within the jurisdiction of any department or agency of the
United States knowingly and willfully . . . makes any false, fictitious
or fraudulent statements or representations . . . shall be fined not
more than $10,000 or imprisoned not more than five years, or both.
Bussey also argues that the instruction permitted the jury to find him
guilty based on simple negligence. See Bussey's Brief at 19. Because the
instruction expressly informed the jury that negligence or mistake did
not constitute willfulness or knowledge, this contention is without
Bussey vehemently contests this point. However, based on our standard of
review, we must view this issue in the government's favor.
Bussey claims that he never received a K-1 for the years 1982-84. The
Partnership's 1065 returns indicate that he was sent the K-1s. Based on
our standard of review, we resolve this conflict in favor of the
We also approved the willful blindness instruction in Graham on
the basis that the instructions viewed as a whole required the jury to
find that the defendant acted voluntarily and intentionally, and not
because of an accident, mistake or other innocent reason. 739 F.2d at
353. In this case, the jury was similarly instructed: "The word
'willful' as used in [§§7203 and 7206 ] means the
deliberate, voluntary and intentional violation of a known legal duty,
as distinguished from careless, inadvertent or negligent action."
Steiner disputed Bussey's claim, testifying that Bussey never gave him
any records for 1982.
It appears that Bussey's law firm filed its 1982 partnership tax return
in August 1983. The HUD form, however, clearly requests the applicant to
provide information concerning the applicant's previous year's tax
return. Therefore, Bussey cannot convincingly argue that he believed the
partnership return was sufficient.
Bussey makes this argument in his cursory statement of the facts of this
case. See Bussey's Brief at 7.
Bussey's argument on this issue is as follows:
Appellant maintains that Government did not prove an "affirmative
act" of willful conduct. As a result Government failed to prove the
essential element of willfulness as a matter of law. The
"Jewell" instruction combined with prosecution's failure to
prove affirmative willful act conduct allowed the jury to convict the
Appellant based on a negligence or reckless standard which is
inconsistent with requirements of the law.
Brief at 20.
The district court did permit the witness to testify on other issues,
but Bussey chose not to call him.
Federal Rule of Evidence 608(b) provides: "Specific instances of
the conduct of a witness, for the purpose of attacking or supporting the
witness' credibility . . . 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. . . ."
We note that in his brief on this issue, Bussey raises arguments for the
admission of Conway's testimony that he did not make in his offer of
proof, e.g., "The issue herein was not the truthfulness or
untruthfulness of Irl Steiner. It was the reasonableness of the
Appellant's reliance on the accountant's advice." See Bussey's
Brief at 34. Not only do we question the accuracy of Bussey's
characterization of the issue, but because these arguments were not
raised in the offer of proof, we will not consider them here.
¶9351] United States of America, Plaintiff-Appellee v. Lawrence Dubé,
(CA-7), U.S. Court of Appeals, 7th
Circuit, 86-1449, 6/28/87, 820 F2d 886, Affirming an unreported District
7201 , 7203 and 7205 --Result unchanged by
the Tax Reform Act of 1986 ]
Evidence: Admissibility: Oral testimony: Juries: Instructions to.--A
former commercial airline pilot who participated in various religious
schemes to avoid paying income taxes was properly convicted of
attempting to evade taxes, failing to file tax returns and submitting
false withholding statements. The testimony of a minister concerning
conversations held with the taxpayer was not protected under the
priest-penitent privilege. The minister testified only to conversations
involving the taxpayer's efforts to relieve himself from paying taxes
and not about his spiritual confidences. The IRS's admission of a civil
case that involved a tax protestor church in order to refute the
taxpayer's contention that certain tax questions he raised were
unresolved did not constitute prejudicial error. Although there was no
evidence that the taxpayer was actually aware of the holding in the
case, in view of all of the other evidence, its admission was
inconsequential. As to the instruction on the issue of willfulness, the
court rejected the taxpayer's claim of error on the ground that the jury
was not permitted to consider his misunderstanding defense under an
objectively reasonable standard. The court reiterated its position
stated in T.J. Koliboski, CA-7, 85-1 USTC ¶9251 ,
that wages are income and a tax protestor's good faith belief otherwise
would not act to negate willfulness.
T. Scudder, Ruff, Weidenarr & Reidy, One N. LaSalle St., Chicago,
Ill. 60602, for plaintiff-appellee. Anton R. Valukas, United States
Attorney, Deborah A. Devaney, Assistant United States Attorney, 219 S.
Dearborn St., Chicago, Ill., for defendant-appellant.
BAUER, Chief Judge, WOOD, JR., and POSNER, Circuit Judges.
JR., Circuit Judge:
appeal involves a former commercial airline pilot who sought to satisfy
his opposition to paying income taxes by belatedly getting
"religion." However, that only got him indicted and convicted
of willfully attempting to evade and defeat his income tax for the year
1981, a felony, 1 of failing
to file tax returns for the years 1981, 1982, and 1983, 2 and of
submitting during the latter part of 1982 3 three false
Employee's Withholding Allowance Certificates (Form W-4) to his
employer, these latter charges being misdemeanors. The defendant was
acquitted on six charges relating to the prior years of 1978-1980.
defendant-appellant Dubé raises three issues: first, whether the
defendant's tax-related conversations with a minister were privileged,
second, whether the district court properly admitted evidence of a
particular civil tax case to which defendant was not a party, and third,
whether the jury was properly instructed on the issue of willfulness. 4
I. FACTUAL BACKGROUND
defendant, Larry Dubé, learned to fly for the United States Air Force
in 1954 and served in the military for about ten years. 5 He was then
hired by United Airlines and flew for United for twenty years. In April
1978 he was promoted to first officer on a Boeing 747 and in July was
promoted to captain, with substantial increases in salary for both
promotions. For the year 1981 his total wages were $91,538.18.
defendant had married three times, being twice divorced. Dubé had one
natural child from his second marriage. This child was dyslexic. He also
adopted his second wife's two daughters from a prior marriage. Dubé and
his third wife were married in 1972 and had three children. During the
early years of his third marriage the defendant paid his income taxes.
He considered himself to be a nominal church member.
defendant describes his religious conversion as beginning when his
sixteen-year-old dyslexic son was sent to a psychiatric facility. About
this time, January or February of 1978, he bought a book in a drugstore
entitled What the World is Coming To, by Pastor Chuck Smith,
which, the defendant says, impacted on his religious outlook. His two
large pay raises came shortly after that in April and July of 1978.
During this period Dubé's conversion occurred. About a month after his
first promotion he sent for literature about the Life Science Church, a
church which claimed to bestow certain tax advantages. In May of 1978 he
decided to join, sent in $500, and by mail soon received his
"credentials" which ordained Dubé a minister and a doctor of
divinity, and granted a charter for a church. Included was a form
entitled "Vow of Poverty" which the defendant signed. For
another $100 Dubé's wife also became a minister. He designated part of
his home as a Life Science Church.
head of Life Science, William Drexler, was a lawyer, but he referred to
himself as a Bishop and Chief of Order of Almighty God. Much of the
material the defendant received from the Bishop, however, was concerned
with taxes and not with religion. The Bishop's theory was that the
church was tax exempt and that if the defendant, under his "vow of
poverty," continued his flying as a minister of the church and
donated his entire income to the church he established, then whatever he
drew back from the church for his own personal purposes was exempt from
all taxation. The type of "poverty" Dubé achieved by signing
the "vow of poverty" is likely to cause wonderment among
certain recognized religious orders. 6 Over time
the defendant, in addition to what he withdrew for his own use, however,
did make contributions to various recipients, such as family members,
churches, and others, some of which were recognized as charitable.
a week after receiving his credentials the defendant began to take
advantage of his new divinity status by sending to United Airlines his
W-4 claiming eighty-five withholding allowances. This action was
intended to stop all federal tax withholding, as the defendant explained
in an accompanying letter to United Airlines. The IRS began to show some
interest as the defendant received notice that his 1976 tax return was
to be audited. 7 He
immediately directed his bank not to honor any IRS summonses.
in 1978 Dubé began corresponding with United Airlines about his tax
status. United advised the defendant that he was not exempt. He
complained in a letter to a member of another Life Science Church,
Bishop Sumption, that United Airlines had refused to recognize his
position. He stated that the IRS was confiscating his property against
his will to support socialistic programs to which he was religiously and
morally opposed. He began to sign his correspondence as
1979, after reading in a national news magazine that Life Science Church
was a sham church with tax-protester members, the defendant changed his
church's name and became affiliated with the Basic Bible Church, as
Bishop Sumption had also decided to do. This new church, however, had
similar tax policies, and, incidentially, included other commercial
pilots as members. For $600 the defendant received a new set of
credentials and thereby became not only a minister and doctor of
divinity, but also a bishop and an apostle. He continued his same tax
1980 Bishop Sumption led Dubé to yet another church. This time it was
called the Community Church of Truth, and the price was increasing: it
was now $750. Within about two months the IRS first directly contacted
the defendant. The defendant tried to contact the Bishop of the Basic
Bible Church, but got no response. 8 Dubé,
apparently feeling the need for even more religion, then sought to join
the Christian Assembly of God Church in Zion, Illinois, a recognized
church, not a tax church. His relationship with the pastor of that
church, Michael Ciociola, and their conversations, are the basis of the
claimed privilege which the defendant says was breached by the admission
at trial of the pastor's testimony.
defendant at this time received an inquiry from IRS as to why he had
failed to file his 1978 return. Dubé's unsatisfactory tax payment
situation was not cleared up, so in 1982 the IRS directed United
Airlines to overwithhold from the defendant's wages. As a result no
taxes were due from the defendant for 1982 or 1983. In the fall of 1982
Dubé filed three W-4's with United Airlines in which he again claimed
to be exempt. The IRS investigation turned into a criminal
The Claim of Privilege
defendant claims that Reverend Ciociola's testimony should have been
excluded under what he labels a "believer-clergyman"
privilege, and the government denies that what it calls the
"priest-penitent" privilege was applicable to the particular
conversations between Reverend Ciociola and the defendant. To use the
term "priest" as the government does, although a common
practice, see, e.g., Trammel v. United States, 445 U.S. 40, 45,
51 (1980), might suggest application only to a particular religion not
involved in this case; we will therefore refer to it simply as the
clergy-penitent privilege. 9
to another type of claimed privilege, Learned Hand, in McMann v. SEC,
87 F.2d 377, 378, cert. denied, 301 U.S. 684 (1937) commented
that, "[t]he suppression of truth is a grievous necessity at
best." Because testimonial privileges contravene the fundamental
principle that the public has a right to every person's evidence,
privileges must be strictly construed so as to be applied only to the
very limited extent that "excluding relevant evidence has a public
good transcending the normally predominant principle of utilizing all
rational means for ascertaining truth." Trammel, 445 U.S. at
50 (citing Elkins v. United States, 364 U.S. 206, 234 (1960)
(Frankfurter, J., dissenting)). The Court in Trammel explained in
dicta that the clergy-penitent privilege is limited to private
communications rooted in confidence and trust. The privilege
"recognizes the human need to disclose to a spiritual counselor, in
total and absolute confidence, what are believed to be flawed acts or
thoughts and to receive priestly consolation and guidance in
return." 445 U.S. at 51. If, however, one seeks out the clergy only
for income tax avoidance, we see no more need for a protective privilege
than if the taxpayer had consulted his butcher or barber. The taxpayer
is not a penitent seeking spiritual relief from his sins, only a citizen
seeking relief from his obligation to pay taxes.
1980, in the same month that Dubé applied to join the Community Church
of Truth, he and his wife also joined the Christian Assembly of God
Church where Ciociola was pastor. Before he became a member, the
defendant told Ciociola that he, Dubé, was tax exempt because he was a
minister. Ciociola merely responded with "Oh." Ciociola
testified to three or four more tax conversations with the defendant
over the next two-and-a-half years which generally occurred in a public
restaurant. Ciociola testified that the defendant "mentioned on
[one] occasion that the vow of poverty entailed one's ability to take
all his resources and use them for the church. In using those resources
for the church, you were thereby tax-exempt because you could do things
with that money that normally you couldn't do." Ciociola, in their
conversations, explained to the defendant that the teaching he had
received about taxes was that pastors of even small struggling churches
had to pay income taxes on wages they received from the church, as well
as on income from any additional outside employment. Ciociola checked
further with the legal counsel for his church who reaffirmed the tax
opinion which Ciociola had explained to Dubé. Ciociola passed this
correct income tax information to the defendant. Dubé, Ciociola
believed, was relying on the tax information Dubé had received with his
mail-order credentials when he joined the Life Science Church and the
Basic Bible Church. Ciociola advised the defendant that he should seek
tax advice outside those churches because of the complications that had
arisen with the IRS.
in his testimony revealed nothing from any conversations he may have had
with the defendant which related in any way to defendant's spiritual
confidences. Ciociola's testimony related only to Dubé's efforts to
relieve himself from the necessity of paying income taxes. The mere fact
that Ciociola was a legitimate pastor did not cast a privilege around
all or whatever Ciociola and Dubé happened to talk about. In this case,
their conversations were only about the defendant's efforts to avoid
paying his taxes. This was a subject that the defendant continually
argued with United Airlines, the IRS, the leaders of his various
mail-order churches, and even with a United States Senator and a
Congressman. There was nothing confidential about Dubé's tax views.
defendant's other arguments can be quickly dismissed. Dubé argues that
Ciociola never knew that a clergy-penitent privilege existed, and that
the government therefore was able to take advantage of Ciociola, causing
Ciociola to violate the privilege. This argument is groundless as there
was nothing in Dubé and Ciociola's tax conversations which the
privilege could protect. Defendant argues that he and Ciociola also
discussed intimate moral and spiritual matters. We do not know whether
that is true or not because Ciociola was not asked to testify as to
anything of that nature. The defendant also argues that Ciociola's
testimony was erroneously admitted to show the willfulness of
defendant's tax maneuvers. There was evidence enough of willfulness
without any of Ciociola's testimony, but, in any event, the tax debates
between Ciociola and the defendant do not amount to disclosure to a
spiritual counselor in absolute confidence about what are believed to be
"flawed acts or thoughts" for the purpose of receiving the
benefit of "priestly consolation and guidance" in return. Trammel,
445 U.S. at 51.
defendant persistently sought someone to tell him he was tax exempt, but
he could find no one who would do so except his mail-order churches, a
number of whose leaders and members also went to the penitentiary. If by
merely joining one of the tax churches a person could avoid all taxes
and yet have the full use of his earned income, there would likely be an
overnight overabundance of mail-order bishops. That sudden proliferation
of bishops, however, would hardly indicate a great religious revival in
Civil Revenue Ruling
defendant's objection an IRS witness testified about a 1981 tax court
case, McGahen v. Commissioner [CCH
Dec. 37,781 ], 76 T.C. 468 (1981), which was admitted into
evidence. McGahen disposed of the same Basic Bible Church
contentions here raised by the defendant. There was, however, no showing
that the defendant was actually aware of the holding in the case. The
case was admitted for the limited purpose of showing that specific,
reliable tax information was available to the defendant, in order to
rebut the defendant's claim that the tax questions he raised with
ministers, congressmen, and others had no definitive answers. The
defendant was relying on a defense of "good faith
misunderstanding" of the law, but the jury was instructed that it
could consider whether the defendant intentionally avoided discovering
what he did not want to learn about being required to pay his taxes. The
information the defendant did not want to have about his tax liabilities
was easily available to him whether he chose to acknowledge it or not.
was a civil case. It contained no finding of "guilt" in like
circumstances, but it revealed what should have been abundantly clear
even without the decision. The Basic Bible Church was nothing more than
a tax protest church. Some members of the Basic Bible Church were
indicted in 1981. The defendant knew about that and moved to another
church, but he showed his willfulness by continuing to violate the tax
laws even though he could have, and should have, known better.
do not see the McGahen decision as making much difference one way
or the other in view of all the other evidence. Although the decision
had been admitted for a limited purpose over the defendant's objection,
the defendant sought no limiting instruction. We find no prejudice and
no error in its admission in these particular circumstances.
light of the evidence presented, there was little question about what
the defendant had or had not done about his taxes. The pivotal issue was
Dubé's willfulness. He claims error on the grounds that the jury was
not permitted to consider his misunderstanding defense under an
"objectively reasonable standard," and that a
"strict" instruction was erroneously given.
defendant submitted his own intent instruction which would have placed
on the government the burden of proving that the defendant acted with a
"bad purpose" to disobey or disregard the law. The defendant
claims that in United States v. Pomponio [76-2
USTC ¶9695 ], 429 U.S. 10 (1976), the Supreme Court adopted
the subjective standard in determining willfulness in tax prosecutions,
that is, the defendant should be found not guilty if he actually
believed in his erroneous belief. We have already read Pomponio
differently in United States v. Koliboski [85-1 USTC ¶9251 ],
732 F.2d 1328, 1329 n.1 (7th Cir. 1984). In capital letters we delared
that "WAGES ARE INCOME" and warned would-be tax protestors
that no "good faith" belief otherwise would change the law. We
recently reiterated the position in United States v.Ferguson [86-1 USTC ¶9475 ],
793 F.2d 828, 831 (7th Cir.), cert. denied, 107 S. Ct. 406
(1986). Even if the law were as defendant argues his guilt nevertheless
was plain. What the tax laws required of defendant was simple, plain,
and known to him, but he chose to pretend otherwise while living well in
government submitted separate instructions on intent, good faith,
misunderstanding, and knowledge. As to misunderstanding the government
proposed an instruction that "a good faith misunderstanding of the
law based on reasonable grounds may negate willfulness." This
instruction has been approved in this circuit. United States v.
Bressler [85-2 USTC ¶9646 ],
772 F.2d 287, 291 (7th Cir. 1985), cert. denied, 106 S. Ct. 852
(1986). In an effort to satisfy both parties, the trial judge prepared
his own instruction on willfulness, expressing his view that this
circuit would move away from an objective standard and use
reasonableness merely as one factor in determining subjective good
faith. That may come to pass, 10 but there
is no need to reconsider the current rule in this case because the trial
judge gave his own instruction rather than this circuit's standard
instruction. The defendant, however, even under the more favorable
instruction that the trial court gave, allowing the jury to consider Dubé's
honest beliefs, was not able to prevail with the jury. He therefore has
no meritorious complaint in that regard.
court gave the government's "ostrich" instruction relating to
intentional avoidance. Although the defendant objected to the
instruction, and raises the objection on appeal, Dubé's complaint is to
no avail. The circuit has approved the instruction as given, although it
has been suggested that the instruction could and should be improved.United
States v. Ramsey, 785 F.2d 184, 189-91 (7th Cir.) (collecting cases
in this and other circuits and criticizing wording of instruction), cert.
denied, 106 S. Ct. 2924 (1986); United States v. Josefik, 753
F.2d 585, 589 (7th Cir.), cert. denied, 471 U.S. 1055 (1985).
find no reversible error.
Count IV alleged a violation of 26 U.S.C. §7201 , in that the
defendant had gross income of approximately $91,706 and taxable income
of $65,254 upon which he owed a tax of approximately $22,515.
Counts VIII, IX and X alleged violations of 26 U.S.C. §7203 .
Counts XI, XII and XIII alleged violations of 26 U.S.C. §7205 .
The defendant was sentenced to three months imprisonment on Count IV,
which has been served, and three years probation on the remaining
The defendant, who served overseas although not in combat situations,
was recommended for several decorations for accomplishing a difficult
"dead-stick" landing of an F-104, but the decorations were not
Later, other similarly poverty-stricken commercial pilots who owned
pleasure boats, condominiums, and private planes were convicted for tax
This civil audit culminated with the defendant paying an additional sum
of $300 to the IRS.
In 1981 the Bishop and other members of the Basic Bible Church were
indicted for tax fraud; the Bishop and a group of Braniff pilots were
later convicted. In a letter to a "minister" acknowledging
these indictments the defendant wrote, "We either regain our
freedom in this country or I'll see you in the internment camp!"
This privilege, of course, would apply in other cases to ordained
ministers, rabbis, Christian Science practitioners, as well as priests.
The Seventh Circuit, as of March, 1987, had not yet moved away from the
objective standard: "A bona fide misunderstanding of the duty to
file . . . might be framed as a 'mistake of law' defense which,
according to this Court, succeeds or fails on the standard of objective
reasonableness." United States v. Sato [87-1
USTC ¶9226 ], 814 F.2d 449, 451 (7th Cir. 1987).
¶9257]United States of America, Plaintiff-Appellee v. Ernest E. Bayne,
(CA-5), U. S. Court of Appeals,
5th Circuit, No. 79-5365, Summary Calendar *, 612 F2d
952, 2/28/80, Affirming unreported District Court decision
[Code Sec. 7201]
Crimes: Attempt to evade tax: Evidence: Failure to admit.--The
refusal of the district court to permit the defendant to give a detailed
account of his father's bootlegging activities or to permit a witness to
testify that the father was a bootlegger was not error. The testimony
was only indirectly relevant to the accused's defense, which was that
the income he failed to report was a gift from his mother.
Crimes: Attempt to evade tax: Evidence: Failure to permit defendant
to withdraw.--It was not error for the district court to refuse to
allow the defendant to withdraw copies of his income tax returns for the
years 1958 through 1976 from evidence. The fact that the testimony of
defendant's witness, a former IRS agent whom he hoped would testify that
defendant's tax returns were accurate, proved to be inadmissible did not
preclude the defendant himself from testifying about the significance of
L. Rampey, Jr., United States Attorney, M. Carr Ferguson, Assistant
Attorney General, Gilbert E. Andrews, Robert E. Lindsay, George L.
Hastings, Department of Justice, Washington, D. C. 20530, for
plaintiff-appellee. John E. James, Tommy Day Wilcox, James, Shipp and
Wilcox, 2034 Vineville Ave., Macon, Ga. 31208, for defendant-appellant.
HILL, GARZA and THOMAS A. CLARK, Circuit Judges.
Bayne appeals from his conviction on charges of attempting to evade
income taxes. The errors asserted in the appeal all pertain to decisions
made by the district court on evidentiary matters. Finding no abuse of
discretion in any of the court's rulings, we affirm.
was charged with attempting to evade income taxes for the years 1972
through 1975 by failing to report all of his taxable income. His primary
defense was that the money which he deposited in his business account
and failed to report in his returns was a gift given to him by his
mother just prior to her death. Some doubt was cast on his story by the
fact that this money was deposited to his account over a period of
several years rather than in a lump sum at his mother's death. Bayne
sought to explain this by testifying that he believed that the money was
the fruit of his father's bootlegging business. Believing that the money
was "illegal money," Bayne was fearful of calling attention to
himself by depositing it all at one time. Defense counsel was told by
the district court that Bayne would not be allowed to give an in-depth
account of his father's criminal activity and would not be allowed to
testify as to matters of which he had no first hand knowledge. Bayne now
contends that the district court overstepped its authority in so
limiting his testimony.
have carefully reviewed the transcript of the trial, and find that Bayne
was given an adequate opportunity to testify about his father's
business. The record shows that he did in fact testify that he believed
the money to have come from his father and that his father was in the
bootlegging business. He also testified as to one occasion on which he
had helped his father by delivering sugar to a customer. All of this
testimony and the excluded testimony bore only indirectly on Bayne's
defense. The essence of Bayne's defense was that the money discovered by
the IRS was received by him as a gift from his mother. His belief that
the money was obtained illegally was relevant only to his explanation of
why he deposited the money over such a long period of time. Thus, the
details of his father's business were at best collateral to the real
issue. We think the district court was correct in not allowing Bayne to
conduct a full-scale inquiry into his father's business dealings.
Questions of admissibility of evidence are left to the sound discretion
of the trial judge. Wallace v. Ener, 521 F. 2d 215, 222 (5th Cir.
1975). The record shows that Bayne was in part permitted to testify
about his father's illegal dealings. Thus, the trial judge's decision to
exclude testimony that would have amounted to nothing more than
cumulative evidence on a collateral matter was not an abuse of
district court also refused to permit Bayne to call Lonnie Gilmore as a
witness. Gilmore worked for Bayne's father and his testimony allegedly
would have supported Bayne's contention that his father was a
bootlegger. For the same reasons that we find no error in limiting
Bayne's testimony, we hold that there was no error in the court's
refusing to allow the jury to hear testimony from Gilmore.
appellant contends that the district court erred in refusing to allow
him to withdraw from evidence copies of tax returns from the years 1958
through 1976. The returns previously had been admitted into evidence at
the request of defense counsel. Appellant hoped to call a former IRS
agent who would testify that, based on his evaluation of Bayne's
bookkeeping methods, the returns were accurate. The agent was not
permitted to so testify because his conclusions would have been based on
unfounded assumptions concerning inventory, prices, and sales at Bayne's
place of business. Appellant does not challenge the exclusion of the
agent's testimony, but argues that the returns should only have gone to
the jury if their relevance were first explained by the agent.
the returns were admitted, appellant did not have an absolute right to
withdraw them. The fact that the testimony of appellant's witness turned
out to be inadmissible did not preclude appellant himself from
testifying as to the significance of the returns. Once again, we
conclude that the trial judge did not abuse his discretion.
Fed. R. App. Proc. 34(a), 5th Cir. Local R. 18.
¶9500]United States of America, Appellee v. Daniel J. Driscoll,
(CA-2), U. S. Court of Appeals,
2nd Circuit, Docket No. 31946, 399 F2d 135, 7/30/68, Rev'g and rem'g
unreported District Court decision
[1954 Code Sec. 7203]
Crimes: Failure to file tax returns: Evidence: Statements made to
psychiatrist: Fairness.--It was unfair to use statements made by the
defendant to a psychiatrist at a psychiatric examination held under
court order to determine his competency to stand trial at his trial on
the issue of whether he knowingly and willfully failed to file tax
returns for the taxable years, 1960, 1961 and 1962, without first giving
the defendant adequate notice of this possibility before the
M. Morgenthau, United States Attorney, John H. Doyle, III, Douglas S.
Liebhafsky, Assistant United States Attorneys, New York, N. Y., for
appellee. Maurice N. Nessen, Robert E. Kushner, Kramer, Nessen &
Hochman, 500 Fifth Ave., New York, N. Y., for defendant-appellant.
HAYS, ANDERSON and FEINBERG, Circuit Judges.
Daniel J. Driscoll appeals from a judgment of conviction entered after a
six-day trial by jury in the United States District Court for the
Southern District of New York, Edward C. McLean, J., presiding.
Appellant was found guilty on three counts of willfully and knowingly
failing to file income tax returns for the years 1960, 1961 and 1962. 26
U. S. C. §7203. The district court sentenced Driscoll to six months on
each count, to be served concurrently, and admitted him to bail pending
appeal. For the reasons stated below, we reverse.
well-briefed and argued appeal is from Driscoll's second trial; the
first ended in a hung jury in December 1966. The principal issues before
us involve a psychiatric examination of appellant made in November 1966,
prior to the start of the first trial before Judge Inzer B. Wyatt. At
that time, the court treated a suggestion of defense counsel as a motion
under 18 U. S. C. §4244 to determine defendant's ability to stand
trial. 1 To examine
defendant, the judge appointed Dr. David Abrahamsen, a psychiatrist, who
reported that Driscoll was able to understand the proceedings against
him and to assist in his own defense. Accordingly, the case went to
trial, ending when the jury was unable to reach a verdict. At that
trial, Dr. Abrahamsen testified for the Government concerning
defendant's mental condition in 1960, 1961, 1962, and 1963. Before the
second trial, defendant moved, inter alia, to suppress such
testimony on various grounds. Judge McLean denied the motion in all
respects, without prejudice to an objection at trial on the grounds of
the second trial only two issues were contested: Did the defendant act
"willfully" in failing to file his returns, and was he
mentally responsible for his actions? The Government introduced evidence
to show Driscoll's ability to handle his affairs--e.g., his
successful law practice and major responsibilities, his profitable
investments and his active social life--but presented no psychiatric
evidence in its case-in-chief. For the defendant, Dr. Lawrence I.
Kaplan, a psychiatrist, testified that at the time the tax returns were
due Driscoll suffered from a "character neurosis with [a] marked
difficulty in complying with his responsibilities because of fear of
failure." The doctor concluded from his examination that:
my opinion he did have the type of disorder which would cause him to
lack the substantial capacity to confirm his behavior to the
requirements [of law] and to appreciate the nature of what he was doing.
The defense offered other proof to
show appellant's mental deterioration: He procrastinated endlessly when
faced with a decision in either business or personal affairs; his desk
was a clutter of pending problems and unopened mail; others often had to
take over his work to avoid embarrassment to the firm; he was served
with seventeen separate dispossess notices for failure to pay rent on
the two-room apartment in which he lived alone; his car, accumulating
monthly charges of $50, sat unused in a garage from 1963 to 1967.
rebuttal, the Government put Dr. Abrahamsen on the stand over a renewal
of defendant's pre-trial objections. Relying solely on the two
interviews he had conducted under Judge Wyatt's section 4244 order, the
doctor testified that while the defendant was "somewhat depressed
and rather uncommunicative," he was suffering from no more than a
"situational depression." Such depressions, the doctor
explained, are brought on by external events, and they are not mental
defects. As a basis for this conclusion, the doctor repeated a number of
statements made by the defendant during the interviews. These statements
concerned defendant's family, his education, his lack of friends, his
eating, sleeping and smoking habits, his prior psychiatric treatment,
his rising income and his inability to concentrate on his work.
this court, appellant claims that admission of this testimony deprived
him of various constitutional rights, violated protective provisions of
section 4244, and offended notions of fairness. Because we agree with
this last contention, in our supervisory capacity we reverse the
conviction; we do not deal with the first two arguments.
facts on the manner and scope of Dr. Abrahamsen's appointment are as
follows: At a pre-trial conference on October 31, 1966, defense counsel
presented letters from a psychiatrist and a psychologist suggesting
postponement of the trial because of defendant's psychological problems.
When the Government objected, defense counsel requested that the court
appoint a psychiatrist to examine defendant to determine his competency
to stand trial. Judge Wyatt issued an order which was clearly limited in
scope; it specified that Dr. Abrahamsen, whose name had been suggested
by the Government:
examination and observations of the defendant, DANIEL J. DRISCOLL, as is
necessary to determine such defendant's mental competency to understand
the proceedings against him and properly to assist in his own defense .
It is apparent that nothing in the
proceedings up to this point concerned defendant's sanity when he failed
to file his 1960, 1961 and 1962 tax returns. The two interviews which
constituted the physchiatric examination were held in early November
1966, without the presence of counsel.
circumstances lend strong support to the argument that it was unfair to
allow Dr. Abrahamsen to examine and to testify on the issue of
Driscoll's criminal responsibility years before the trial. The fact that
the doctor apparently construed the order of appointment as so
authorizing him does not resolve the problem of Driscoll's reasonable
expectations. The use made of the doctor's testimony clearly went beyond
the terms of his appointment, which limited him to a determination of
Driscoll's competence to stand trial in late 1966. It is true that Judge
Wyatt later allowed the doctor to testify in the first trial on
Driscoll's sanity in the early 1960's, thereby perhaps intending a nunc
pro tunc amendment of his order. However, the issue transcends
technicality. We do not believe that a defendant can be told that he is
to be examined for one purpose and, once his cooperation has been
obtained, be advised of another.
Government argues that Driscoll "must be held to have been
award" that the examination under section 4244 might be used not
only to prove competence in 1966, but also sanity in the prior years,
because of various decisions in the District of Columbia allowing such
dual use. E.g., Ashton v. United States, 324 F. 2d 399, 401 (D.
C. Cir. 1963); Edmonds v. United States, 273 F. 2d 108, 114 (D.
C. Cir. 1959), cert. denied, 362 U. S. 977 (1960); Edmonds v. United
States, 260 F. 2d 474, 476-78 (D. C. Cir. 1958) (opinion of Bazelon,
J.). The clarity of such presumed "notice" is questionable;
the District of Columbia circuit court has itself emphasized that the
order appointing the doctor should make clear the proposed dual purpose
for the examination, see Winn v. United States, 270 F. 2d 326 (D.
C. Cir. 1959), cert. denied, 365 U. S. 848 (1961), although the failure
to do so will not necessarily render the psychiatrist's testimony
inadmissible at trial. See Jones v. United States, 284 F. 2d 245,
248-49 (D. C. Cir. 1960), cert. denied, 365 U. S. 851 (1961). The reason
given in Winn for clarity in the order, 270 F. 2d at 328, was
is a vast difference between that mental state which permits an accused
to be tried and that which permits him to be held responsible for a
crime. . . . "[E]xaminations, made for the purpose of determining
his competency to stand trial * * * require less than examinations
designed to determine sanity for the purpose of criminal
responsibility." [Citations omitted.]
The point is, of course, valid,
and the need both for proper direction of the examining physician and a
thorough examination, when the issue is responsibility for the crime,
has been emphasized in other contexts. See Johnson v. United States,
344 F. 2d 401, 403-09 (5th Cir. 1965); United States v. Rollerson,
343 F. 2d 269, 271-76 (D. C. Cir. 1964). In any event, we do not feel
that defendant can fairly be held to have received "notice" of
a proposed dual use of his examination in the face of a specific order
allowing only one.
addition, there are other compelling considerations in defendant's
favor: Had Driscoll known that the examination might be used at his
trial, he might have asked for--and perhaps received, with or without
government consent--certain procedural safeguards under appropriate
conditions, e.g., if feasible, having his own representative present at,
2 or requiring
a transcript or video tape of, the examination. 3 More
important, defendant was entitled to notice so that he could consult
with counsel beforehand and thereafter fully and intelligently respond
to the doctor's questions. The Government asserts that what defendant
seeks is "a constitutional right to slant his answers." The
argument proves too much. The possibility of a "slanted"
answer, or silence, exists whenever a defendant is given notice of his
rights prior to a statement. But the right to notice does not therefore
disappear. See, e.g., Miranda v. Arizona, 384 U. S. 436, 480-81
(1966). Moreover, while it is true that a defendant may give different
answers if he is told the potential use of his statement and allowed to
consult his lawyer about the significance of his words, we will not
assume that the answers will for that reason be dishonest. In this case,
they might well have been fuller, had defendant himself focussed on his
state of mind five years before. 4 In any
event, for all of the reasons set forth above we hold that it was unfair
to use Dr. Abrahamsen's testimony against defendant at his trial without
giving him adequate notice of this possibility before the examination.
Accordingly, the conviction must be reversed.
this disposition of the case, it is not necessary to deal now with the
other issues growing out of Dr. Abrahamsen's examination. We realize
that some of them have far-reaching implications. Thus, relying on
specific language in 18 U. S. C. §4244, 5 appellant
argues that a psychiatrist appointed under that section to examine a
defendant may not testify at trial concerning any statements made to him
by the defendant. Cf. Otney v. United States, 340 F. 2d 696, 702
(10th Cir. 1965). The Government responds that the statutory prohibition
against admission of such statements "in evidence against the
accused on the issue of guilt in any criminal proceeding" does not
bar testimony as to criminal responsibility. In other words, relying on
the District of Columbia cases noted earlier, 6 the
Government argues that "the issue of guilt" does not include
the issue of criminal responsibility. The question is by no means
simple, but this and similar problems in this case may well be worked
out by sensible accommodation before retrial as to the scope of a new
examination and the use thereof. If that does not occur, the district
court should consider whether, on the issue of criminal responsibility
alone, it has the power apart from 18 U. S. C. §4244 to order a
separate psychiatric examination at this stage of the proceedings.
Certainly, a strong case can be made for the existence of such power,
see Alexander v. United States, 380 F. 2d 33, 39 (8th Cir. 1967)
("It would violate judicial common sense to permit a defendant to
invoke the defense of insanity and foreclose the Government from the
benefit of a mental examination to meet this issue."). Accord, United
States v. Albright, 388 F. 2d 719 (4th Cir. 1968); Pope v. United
States, 372 F. 2d 710, 717-21 (8th Cir. 1967) (in banc),
rev'd on other grounds, 36 U. S. L. W. 3481 (U. S. June 18, 1968); cf.
Hughes v. United States, 306 F. 2d 287 (D. C. Cir. 1962). The
Government has obviously been adequately notified of defendant's
intention to plead the defense of insanity. After a psychiatric
examination under such general authority, it might still be argued that,
even on the issue of criminal responsibility, an examining psychiatrist
could not testify as to any "statement made by the accused."
However, since the limitation in section 4244 would not by its terms
apply, we would not then regard as persuasive an argument based on that
statute. Of course, the applicability of defendant's constitutional
right against self-incrimination would remain to be determined. As the
cases just cited indicate, difficult problems will arise as to the
waiver, if any, of such right and the extent thereof, the testimonial
nature of an examining doctor's testimony, and its allowable scope and
detail. But, "how best to accommodate a defendant's privilege
against self-incrimination to meaningful medical opinion and
testimony" will be best decided in the particular context of trial
testimony at a retrial. See United States v. Albright, supra, 388
F. 2d at 725-26 & n. 9.
remaining points need little discussion. Thus, he complains of the
charge on willfulness, but on the facts of this case we do not find it
erroneous. Whether it is necessary to explain to the jury the
significance of lack of delusions or hallucinations we leave to the
sound discretion of the trial judge. Finally, the contention that
appellant was entitled to Miranda-type warnings when he was
questioned in his own office by two agents of the Intelligence Division
of the Internal Revenue Service must be rejected under our recent ruling
in United States v. Mackiewicz, slip op. 3055 [68-2 USTC ¶9461]
(2d Cir. July 10, 1968).
of conviction reversed; the case is remanded for further proceedings
consistent with this opinion.
In pertinent part, that section provides:
after arrest and prior to the imposition of sentence . . . the United
States Attorney has reasonable cause to believe that a person charged
with an offense against the United States may be presently insane or
otherwise so mentally incompetent as to be unable to understand the
proceedings against him or properly to assist in his own defense, he
shall file a motion for a judicial determination of such mental
competency of the accused, setting forth the ground for such belief with
the trial court in which proceedings are pending. Upon such a motion or
upon a similar motion in behalf of the accused, or upon its own motion,
the court shall cause the accused . . . to be examined as to his mental
condition by at least one qualified psychiatrist, who shall report to
the court. . . . If the report of the psychiatrist indicates a state of
present insanity or such mental incompetency in the accused, the court
shall hold a hearing, upon due notice, at which evidence as to the
mental condition of the accused may be submitted, including that of the
reporting psychiatrist, and make a finding with respect thereto. No
statement made by the accused in the course of any examination into his
sanity or mental competency provided for by this section, whether the
examination shall be with or without the consent of the accused, shall
be admitted in evidence against the accused on the issue of guilt in any
criminal proceeding. . . . [Emphasis added.]
Appellant argues that under United States v. Wade, 388 U. S. 218
(1967), he was constitutionally entitled to have his lawyer present when
Dr. Abrahamsen examined him. We do not pass upon that contention.
Cf. United States v. Albright, 388 F. 2d 719, 727 n. 11 (4th Cir.
1968); Pope v. United States, 372 U. S. 710, 720-21 (8th Cir.
1967) (in banc), rev'd on other grounds, 36 U. S. L. W. 3481 (U.
S. June 18, 1968); State v. Whitlow, 210 A. 2d 763, 775-76 (N. J.
Dr. Abrahamsen testified that defendant was "reluctant, reluctant,
in giving information about himself . . .."
See the emphasized language in note 1, supra.
The Government also cites United States v. Freeman, 357 F. 2d
606, 611 (2d Cir. 1966), and Birdsell v. United States, 346 F. 2d
775, 780-81 (5th Cir.) (by Friendly, J., sitting by designation),
cert. denied, 382 U. S. 963 (1965). However, construction of section
4244 was not raised as an issue either in Freeman or in Birdsell.
Circuit Judge (dissenting):
dissent. While I agree that it is preferable that the Government, when
it is seeking to have its own psychiatrist examine an accused who has
pleaded insanity as a defense, make a motion to the court for specific
leave to do so, it is not necessarily unfair or damaging to a defendant,
or reversible error per se, if the Government, instead, calls a
psychiatrist who has previously examined an accused under §4244,
provided, as in this case, the alienist can, because of the completeness
of his original examination, qualify to give an opinion on the mental
competency of the accused at the time the offense was committed. Jones
v. United States, 284 F. 2d 245, 249 (D. C. Cir. 1960). Actually a
thorough examination under §4244 of one awaiting trial almost
inevitably includes the disclosure of sufficient information and
material out of his recent past to warrant the expert's conclusion as to
the accused's sanity at the time the offense was committed. See Birdsell
v. United States, 346 F. 2d 775, 780 (5 Cir.) (by Friendly, J.,
sitting by designation), cert. denied 382 U. S. 963 (1965).
limiting §4244 to the special purpose for which it was designed and
requiring the Government to make a separate motion for an examination as
to the accused's mental condition at the time of the offense is a more
orderly procedure and has the added advantage of affording the trial
court an opportunity to make provisions concerning the time and place of
the examination and other attendant circumstances, which in particular
cases may appear necessary. The court should have wide discretion in
this area and should fashion such protection for the parties as the
varying circumstances may require.
is perhaps, therefore, inadvisable for the Government to take the risk
that some rights of the defendant may be impaired and that he may have
suffered prejudice as a result, but in the present case I can see no
damage or likelihood of prejudice to Driscoll from the Government's use
of Dr. Abrahamsen or from any of his testimony. The appellant points to
the Doctor's disclosure of Driscoll's statements to him regarding his
family, education, lack of friends, eating, sleeping and smoking habits,
etc. These are certainly answers to routine questions and have nothing
to do with the elements of the offense charged. He also argues that Dr.
Abrahamsen's testimony that at the examination Driscoll "was very
alert and was able to answer this question very well," was, in
effect, telling the jury that the accused intended to perform the
unlawful acts and did so wilfully. But this is not so. Psychiatric
examinations are not at all concerned with the question of whether or
not the accused performed the criminal act or acts charged but whether
he had sufficient mental capacity to be held responsible for his acts
under the measure adopted by this court in United States v. Freeman,
357 F. 2d 606 (2 Cir. 1966). Of the elements of the offense those of
intent and wilfulness have the closest relationship to mental capacity,
but even there the psychiatrist is concerned, not with the factual issue
of whether or not the accused intended to perform the act or did it
wilfully, but whether or not he had the mental capacity to form the
majority opinion is based entirely on the unfairness of the use by the
Government of Dr. Abrahamsen's thorough examination of Driscoll without
notice to the defense. It assumes that the defendant was disadvantaged
by the lack of such notice and suggests that he might have been provided
in advance with procedural safeguards such as having his own
representative at the examination or an order assuring him that he would
be provided with a transcript of the examination or preliminary coaching
by his counsel for constitutional protection purposes or for other
reasons. But the appellant has been unable to point out anything about
Dr. Abrahamsen's examination which violated the limitations imposed by
§4244 or actually prejudiced Driscoll in the slightest. There is no
statement by counsel of what he might have instructed Driscoll to say or
do which would have changed anything that was said or done. It is also
my opinion that an accused has no right to have defense counsel or his
own expert present while the court appointed psychiatrist is making his
examination nor is the defense entitled to a transcript of the
examination, though the court might require an exchange of the reports
of the experts representing each of the parties. United States v.
Wade, 388 U. S. 218 (1967), is not in point because the psychiatric
examination is not concerned with the question of whether or not the
accused was guilty or innocent of certain criminal activity and the
examination can in no sense be considered a "critical prosecutive
cases cited by the majority do not support the proposition that the
defendant is entitled to notice of the dual purpose of the examination. Winn
v. United States, 270 F. 2d 326 (D. C. Cir. 1959) holds only that
because the issue of mental incompetence to stand trial differs from the
issue of criminal responsibility, in the absence of a showing that the
examination was sufficiently thorough to form a basis for an opinion
regarding responsibility, the psychiatrist should not testify on that
issue. There is nothing in that opinion, or in Johnson v. United
States, 344 F. 2d 401, 403-409 (5 Cir. 1965) and United States v.
Rollerson, 343 F. 2d 269, 271-276 (D. C. Cir. 1964), to suggest that
the reason the order should clearly specify the scope of the examination
is in order to provide the defendant with notice. In Winn,
although there was a likelihood that the accused's mental state at the
commission of the crime would be a critical issue at the trial, the
district court's order was restricted to a competency examination. On
appeal the court expressed disapproval of the narrow order only because
the more extensive responsibility examination "is required not only
to protect the rights of the accused, but also to protect 'society's
great interest' in hospitalizing the accused, if his violent act sprang
from mental disorder. . . ." 270 F. 2d at 327. In Johnson
and Rollerson, the courts indicated that the scope of the
examination and the issues involved should be clearly and fully
identified to the examining psychiatrist only so that he may adequately
perform his job and so that his incomplete examination will not
inconvenience the court or prejudice the accused's rights by serving as
an insubstantial basis for the psychiatrist's testimony on
see no merit in the appellant's claim that an examination by the
Government's psychiatrist of the accused's mental condition as of the
time of the offense charged would imperil his Fifth Amendment protection
against self-incrimination. The authority to permit the Government to
examine the accused, when he has or will raise the insanity defense,
stems from the inherent power of the courts, United States v.
Albright, 388 F. 2d 719 (4 Cir. 1968); Alexander v. United
States, 380 F. 2d 33 (8 Cir. 1967); Pope v. United States,
372 F. 2d 710, 719 (8 Cir. 1967); Winn v. United States, supra,
and in exercising it, the court should limit the Government's right to
the use of the evidence by borrowing and applying the safeguard provided
in §4244 which is: "No statement made by the accused in the course
of any examination into his sanity or mental competency provided for by
this [order] . . . shall be admitted in evidence against the accused on
the issue of guilt in any criminal proceeding." See United
States v. Albright, supra.
remaining points raised by the appellant have no merit and call for no
discussion. The judgment below should be affirmed.
¶9707]Thomas Wheeler, Defendant, Appellant v. United States of America,
(CA-1), U. S. Court of Appeals,
1st Circuit, No. 6366, 351 F2d 946, 10/26/65, Reversing an unreported
District Court decision
[1954 Code Sec. 7203]
Crimes: Evasion of taxes: Cross-examination: Reward.--A
conviction for wilful evasion of taxes was reversed because the trial
court excluded testimony relating to the question of whether the
Government's chief witness, a former employee of the defendant, intended
to collect an informant's reward.
M. Doukas, Maloney, Williams, Baer & Doukas, 80 Federal St., Boston,
Mass., for appellant. W. Arthur Garrity, Jr., United States Attorney,
William J. Koen, Melvin B. Miller, Assistant United States Attorneys,
Boston, Mass., for appellee.
ALDRICH, Chief Judge, WATERMAN, Circuit Judge, * and GIGNOUX,
Opinion of the Court
appellant was convicted on four counts charging him with wilful evasion
of the payment of federal income taxes. On appeal he assigns as error
numerous rulings made by the trial court below. We regard one such
assignment as dispositive, reverse the judgment of conviction, remand
the cause for a new trial, and do not pass upon any of appellant's other
first and principal witness for the Government was Raymond L. White, who
had been employed by the appellant and by various corporations with
which the appellant was connected. White's testimony, if believed, was
sufficient to convict the appellant on each count. During the
cross-examination of White by appellant's counsel White was asked
whether he had claimed or would claim an "informer's reward"
in connection with this case. The Government objected to the question,
the objection was sustained, and White never made answer. To perfect his
position counsel for appellant offered to prove that if White had been
allowed to answer, the answer would have been "Yes," but the
trial court persisted in excluding the question. On appeal to this court
the appellant contends that this ruling improperly infringed upon his
right of cross-examination, and that, as a consequence, the conviction
must be reversed.
appellant's case was weakened by the court's ruling if we assume, as we
should, that appellant made a supportable offer of proof. White's direct
testimony was central to the Government's case, and if the jury knew
that White had supplied the Internal Revenue Service with information
that had brought about the prosecution of appellant, and knew that, in
the event of conviction, he planned to claim a reward, the probative
value of White's testimony would be weakened. White would then appear to
the jury as a witness with a financial stake in having Wheeler convicted
rather than as a citizen duty-bound to give incriminating testimony
against a former employer. We do not understand the Government to argue
that appellant could not lawfully adduce evidence tending to prove that
White had a financial interest in having Wheeler convicted, but it does
argue that here the trial court properly excluded appellant's question.
In support of this position the Government points out that the limits
permissible in the cross-examination of a witness are determinable by
the trial judge in his sound judicial discretion and that here the trial
court cannot be said to have abused this discretion because no proper
foundation was laid for the question. We disagree with the Government.
is clear that when a court denies cross-examination of a witness upon a
proper subject for cross-examination it is ground for reversal if the
denial appears to have been harmful. See Alford v. United States,
282 U. S. 687 (1931); District of Columbia v. Clawans, 300 U. S.
617, 632 (1937); see also Pointer v. Texas, 380 U. S. 400 (1965).
is equally clear that inquiry into the possible financial stake of a
witness in a particular outcome of a case in which the witness is
testifying is a proper subject for cross-examination. One of the useful
functions of cross-examination is to assist the fact-finder in
appraising the credibility of a witness and a witness's financial stake
in a particular outcome is relevant to the issue of his credibility. See
McCormick, Evidence §40 (1954). Although this type of inquiry is
useful it also, of course, may involve the countervailing dangers of
time-wasting and undue prejudice, and therefore the extent of a
cross-examination rests in the sound judicial discretion and control of
the trial judge. But this rule limiting the extent of a
cross-examiantion as to a witness's credibility may be invoked to
sustain a trial court's decision restricting cross-examination only
after a party has had a chance to exercise his right to cross-examine
within the areas where the witness's interest is suspect. Here the trial
court prevented any cross-examination relative to White's financial
interest in the outcome of the case. The issue is thus narrowed to
whether the trial court erred in excluding the question concerning
White's financial interest on the ground that no foundation for the
question had been laid. We are acquainted with no statute or decision
imposing such a requirement, but, in any event, evidence was before the
jury that White had been a trusted employee of the defendant in
connection with his business enterprises, and, as White was a government
witness against his former employer, what more foundation would one need
to justify an attack upon his credibility? In the interest of saving
time many courts do require that, before such a financial interest can
be shown by extrinsic evidence, a foundation must be laid by asking the
witness under attack whether such a financial interest exists.
McCormick, Evidence §40, at 85 (1954). This is the very question
that was here excluded.
trial court erred in excluding the question designed to show that White
had a financial interest in obtaining Wheeler's conviction, and, as it
is patent that this error harmed appellant in conducting his defense,
the judgment of conviction below must be reversed, the verdict set aside
and the case remanded for a new trial.
Sitting by designation.
¶9372]William C. Heindel, Appellant, v. United States of America,
Appellee Mary E. Rogers, Appellant, v. United States of America,
(CA-6), United States Circuit
Court of Appeals, Sixth Circuit, Nos. 9809, 9810, 150 F2d 493, Decided
July 16, 1945
Appeal from the District Court of the United States for the Sourthern
District of Ohio, Western Division.
Penalties: False returns: Effect of erroneous instruction to the
jury: Admissibility of evidence.--An instruction by the trial court
that "by the filing of the amended return the defendants have
admitted that the original return was false and untrue" was held to
be reversible error in a case where certain officers and employees were
found guilty by a jury of attempting to defeat and evade income and
excess profits taxes of a corporation. The tax laws permit the filing of
amended returns to correct errors whether discovered by the taxpayer or
the taxing authority, and no hazard should be attached to doing so. The
exclusion of oral testimony that the additional tax shown by the amended
return was promptly paid was also error. One dissent. Reversing a
decision of the U. S. District Court, Southern District of Ohio.
S. Marx, Cincinnati, Ohio, (Francis A. Hoover, Nichols Wood, Marx and
Ginter, Harry Kasfir, Cincinnati, Ohio, with him on brief) for
appellants. Ernest R. Mortenson, Washington, D. C., (Samuel O. Clark,
Jr., Sewall Key, J. Louis Monarch, Walter M. Campbell, Jr., Washington,
D. C., Byron Harlan, Robert E. Marshall, Cincinnati, Ohio, with him on
brief) for United States.
SIMONS, HAMILTON, and MARTIN, Circuit Judges.
there were two appeals the appellants were jointly indicted and, in a
single trial, convicted and sentenced for attempting to defeat and evade
income and excess profits taxes of the Cincinnati Lathe and Tool
Company, a corporation, of which they were officers and employees, by
swearing to and filing a false return of the net income of that
corporation for the calendar year 1940. They were also charged,
convicted, and sentenced for conspiring in an attempt to defeat and
evade such taxes.
is disclosed by the evidence that the Cincinnati Lathe and Tool Company
was incorporated in 1906, that appellant Heindel owned 248 of its 250
shares and appellant Rogers one share, the remaining share being held by
a party not here involved. The company was small and had very little
business from the date of its incorporation up to 1939. Its office force
consisted of Heindel, Miss Rogers, a stenographer and typist by the name
of Lucille Burdick, and a telephone operator. In November, 1939,
however, the company received substantial orders from the French
Purchasing Commission and the Selson Machine Tool Company of London,
England, for the production of lathes. Practically all of its business
during 1940 and part of 1941 consisted of the production of machine
tools in pursuance of such contracts. The French Commission advanced the
company the sum of $54,000, being an amount equal to 25% of the contract
price on standard machines and 100% on special equipment. This sum was
deposited by the company to its own credit in a special account with the
First National Bank of Cincinnati, Ohio. Similarly, a 10% advance
payment was made to the company by the Selson Machine Tool Company. This
was in the amount of $29,384, and was likewise deposited in a special
account to the credit of the company with the Central Trust Company of
Cincinnati. An additional 10% advance, after three months, was also
deposited in this special account. When the first four shipments were
made on account of the French order, invoices were in the gross amount
with credit for advances, and checks were drawn on the special deposits
at the First National Bank for the proportion of the advance payment,
applicable to each order, and credited to the company's regular account
at the Brighton bank. A similar course was followed with respect to the
earlier shipments on the British order. On subsequent shipments,
however, the proper cross-entries were not made bringing over the amount
of the advance payments after the orders were shipped. Invoices were
drawn for the net balance due and drafts for that amount were presented
and paid by the purchasing commissions. It resulted, therefore, that the
books erroneously failed to reflect the full amount of the sales.
the preparation of the company's 1940 income and excess profits return
the appellants, on behalf of the corporation, employed a public
accountant and tax consultant by the name of Horner, who was shown a
trial balance sheet furnished him by Heindel but which had been prepared
by Miss Rogers. Finding this sheet out of balance he examined the
general ledger and certain sheets of the loose-leaf cash journal
pertaining to the closing entries for the year, and after directing some
corrections, prepared the return. There is some conflict in the evidence
as to whether Horner was employed to make a general audit of the
corporation's books or merely to make the closing entries and prepare
the return. His bills would seem to show that he made an audit, but the
fee charged and paid would not so indicate. In any event, he accepted
the sales figure of $366,084.19 as given him, without any attempt at
verification. He did not see the invoice ledger, had no knowledge of the
existence of the special accounts at the First National Bank or Central
Trust Company, and was not shown either the French or British contract.
The return as prepared by him was signed and sworn to by the appellants,
filed with the collector, and the tax shown to be due thereon was paid.
December 29, 1941, a government agent was assigned to audit the books of
the corporation, and very soon discovered from record references
therein, the existence of the special accounts. Upon calling the
attention of the appellants to what he had found, Heindel immediately
employed another certified public accountant to go over the books and
prepare an amended return. This showed the corporation's gross sales for
the tax year to have been $461,279.09 and also revealed that an
additional sum of $30,255.59 was due in taxes for that year. The amended
return having been introduced in evidence, the appellants offered to
show that the additional taxes were promptly paid, but this evidence was
upon objection to it as immaterial, excluded. Two years later the
appellants were indicted for attempted evasion of the corporation's tax
correctness of the amended return is not disputed. It is thereby
established that the corporation's gross sales in the tax year were in
the original return understated by $95,194.90. The defense was that this
was due to poor bookkeeping and not to any wilful or felonious intent to
deprive the government of revenue. Heindel was 68 years of age, a
resident of Cincinnati during his entire lifetime with an unquestioned
reputation for honesty and integrity. For 8 years he had been in the
employ of the Cincinnati Milling Machine Company with 4 years of that
time in the shop and 4 years in the office. He was not a trained
bookkeeper, although he had had some little experience with books. After
founding the Cincinnati Lathe and Tool Company in 1906 most of his time
was given to the manufacture of machine tools made by that corporation.
Miss Rogers was 52 years of age and had come to the corporation as a
stenographer in 1914. She had never studied bookkeeping, but when the
company did not have enough work to employ a regular bookkeeper she
looked after the books. Lucille Burdick was first employed by the
company in 1928 as a stenographer-typist and in general office work. She
took care of the correspondence, entered orders as received and made out
invoices. It is pointed out that there was no concealment of the special
deposits and that the earlier invoices reflected the credits due to each
purchasing commission by reason of its advances Miss Burdick testified
that the reason for not showing such credits on later was a request from
the French Purchasing invoices was a request from the French Purchasing
the net amount in order to correspond with the amount shown to be due on
the draft. The invoice amount was then carried into the journal and the
ledger account, and the corporation did not, at any time, withdraw any
part of the advance payment applicable to the shipment. The same
practice was thereafter followed with respect to shipments on the
British contract. When Horner prepared the original income tax return,
the appellants assumed that it correctly reflected the income of the
company. He had found substantial errors in the trial balance sheets and
had directed corrections to be made upon the books. One such correction
revealed an overstatement of cash on hand of approximately $18,000. If
he had then checked the journal to ascertain the exact amount, it would
have revealed to him the special accounts and the fact that those
special accounts, through error, had not been reflected in the company's
records. In any event, Horner rendered bills for services during January
for an "audit of journal entries and trial balance preparatory to
closing books and setting up adjustments for end of year closing,"
and again in February "for services rendered, 'closing books and
preparing corporation income tax and excess profits tax returns'."
The return as prepared by Horner, however, showed gross sales in the
amount of $366,084.19, which was the amount shown by the ledger and did
not reflect the advance payments which were in the company's account but
had not been transferred from its special accounts into its regular
account. The appellants signed the return without examining it.
this evidence an issue was framed for submission to the jury as to
whether the appellants had knowingly and wilfully understated the
corporation's net income with an intent to evade a substantial portion
of its taxes, and whether the appellants had conspired, each with the
other, to attempt to do so. The evidence, while circumstantial, is
undoubtedly sufficient to sustain the verdict, and we may dismiss,
without argument, the contention that the evidence fails to prove beyond
a reasonable doubt that the appellants were guilty of a felonious and
wilful intent to evade taxes or conspiring to do so. It is not our
function to invade the province of the jury and decide issues of fact.
substantial claim of error made in the briefs and argued to us at the
hearing, has given us great concern. It relates to an instruction given
to the jury that "by the filing of the amended return the
defendants have admitted that the original return was false and
untrue." The full paragraph in which this instruction appears is
set forth in the margin. 1 Concededly
it is necessary, in order to determine its possible effect, to consider
the entire charge. Much of it is a correct statement of the law, clearly
phrased. The jury is instructed that it must take the law from the
court, but that it is the sole judge of the evidence. It is instructed
"that any person who wilfully attempts in any manner to evade or
defeat any tax" is punishable under §145(b) of the Internal
Revenue Code, but that the gist of the offense is the wilful attempt on
the part of the defendants to evade or defeat a part of the income and
declared value excess profits taxes alleged to be due to the United
States; that among the various means that might be used in such an
attempt is the filing of a false return with the intent, by so doing, to
defeat the tax or a part thereof. It is instructed that the attempt must
be wilful and intentionally and designedly made, with a purpose to do
wrong; that even though the jury should believe from the evidence that
the return was incorrect but that the defendants acted in good faith in
making it, believing that it truly reflected the corporation's income,
they are not guilty of the offense charged, and further, that mere
negligence or carelessness unaccompanied by bad faith cannot render them
guilty. The offense of conspiracy is also correctly defined and
distinguished from the substantive offense.
the court stopped there it is clear that no objection could reasonably
have been made to its instructions upon the law. The court then
proceeds, however, to announce that the law permits it to comment upon
the evidence, and in such comment appears the statement above recited,
made and repeated. It is quite true that it is followed by language that
narrows the issue to an inquiry, "whether or not the defendants
knowingly and wilfully filed that return knowing it to be false and
fraudulent," concluding with the rhetorical question "Did they
intend to defraud the government?" The term "false,"
however, both in legal significance and common parlance, denotes an
intentional, deliberate, and wilful untruth, something beyond mere
inaccuracy. Third Nat'l Bank v. Schatten, 81 Fed. (2d) 538 (C. C.
A. 6); Fouts v. State, 113 Ohio St. 450; Ratterman v. Ingalls,
48 Ohio St. 468; State v. Brady, 100 Iowa 191. Standing alone and
divorced from its context, the challenged statement is, beyond question,
erroneous and so prejudicial as to require remand for new trial. So much
the government appears to concede. It argues, however, that the
objectionable language was so immediately followed by instructions
submitting the issue of intent and wilfulness to the jury that it was
"shorn of any possible prejudicial overtones."
[Amended Returns Encouraged]
do not lend an attentive ear to insignificant claims of error in a
court's instructions to the jury that perhaps prevailed in an earlier
day when every slip was fatal, and are reluctant now to reverse upon an
erroneous instruction in a charge otherwise so commendable. It is
impossible, however, by approval to stigmatize the many thousands of
taxpayers who file amended returns as persons admitting, by such filing,
that their original returns were "false and untrue." While the
effect of an observation may not adequately be appraised when torn from
its context, nevertheless it is the very tendency to do so that is to be
guarded against. The tax laws permit the filing of amended returns to
correct errors whether discovered by the taxpayer or the taxing
authority. There should be no discouragement to the filing of an amended
return, and no hazard in doing so. The present error becomes more
glaring upon repetition, particularly when coupled with an instruction
which appears to assume that the defendants "conspired and worked
out this scheme to falsify the books so that they failed to show the
true sales," as though it were a scheme that, beyond peradventure,
had been established and not merely alleged and controverted. In any
event, the issue being a close one, we are unable to say that the
attention of the jury was not so focused upon an admission of guilt
pointed to by the court, as an established fact, that the court's more
formal statements of law would serve to remove the erroneous impression
that such fact would tend to implant into the collective mind of the
the case is much closer than Brink v. U. S., 148 Fed. (2d) 325
(C. C. A. 6), yet the principle there applied must here prevail. We have
recently been told that "Lines are not the worse for being narrow
if they are drawn on rational considerations." 10 East 40th St.
Building, Inc., v. Callus et al., 325 U. S. 578, 65 S. Ct. 1227. We
find such -- rational considerations to be here controlling.
[Admissibility of Evidence]
the case must be retried it is necessary to add that the court should
have admitted evidence of the prompt payment of the additional tax shown
by the amended return The issue framed was in respect to the good faith
of the defendants in the payment of taxes. There were circumstances
which bore both on their honest purpose and upon their lack of it. Final
determination rested with the jury and the defendants were entitled to
whatever inference might reasonably be drawn from the fact that as soon
as the error was discovered and confirmed they paid their taxes. This is
not a case where, by payment, it is sought to vitiate a crime. Hancey
v. U. S., 108 Fed. (2d) 835; Weinhandler v. U. S., 20 Fed.
(2d) 359. There was no persistent denial of the error as in Emmich v.
U. S., 298 Fed. 5 [1924 CCH ¶3481]. The defendants were entitled to
show anything that might have a tendency to demonstrate, however slight
such demonstration might be, that they were honest and not dishonest
persons in their dealings with the government. It is to be noted that at
the time the additional tax was paid the appellants were not under
compulsion, attributable to an assertion of deficiency, distraint, or
threat of prosecution. Indeed, the government did not seek indictment
until approximately two years after discovery of the error. The
government urges that the fact of payment was already in evidence by the
Cashier's stamp upon the amended return, and so the exclusion was
without prejudice. It is not disclosed, however, that this stamp was
called to the attention of the jury, and the government's argument on
this score but brings into bold relief the error in excluding oral
evidence of payment.
and remanded for new trial.
"Now, the law permits the Court to comment on the evidence. As I
have stated before, the defendants here are charged in two counts. The
first count is, that they evaded income taxes and the second count
charges them with a conspiracy in attempting to evade those taxes. By
the filing of the amended return, the defendants have admitted that the
original return was false and untrue. In the original return filed, the
gross sales were listed at $366,084.19. After the government had
investigated the return of the defendants, the defendants filed an
amended return, showing the gross sales were $461,279.09, which was an
understatement of sales of $95,194.90. So that, the defendants have
admitted filing a false return in the first instance. So, the issue
there narrows itself as to whether or not the defendants knowingly and
wilfully filed that return knowing it to be false and fraudulent. That's
the issue in this case as to the first count. The issue in the second
count is, as to whether or not these two defendants, William C. Heindel
and Mary E. Rogers, conspired and worked out this scheme to falsify the
books so that they failed to show the true sales, or, falsified the
books to the extent that the sales were understated on the books to the
extent of $95,194.90. That's the issue in this case as to the second
count. Did they intend to defraud the government?"
Circuit Judge, dissenting:
think the evidence in this criminal case abundantly supports the verdict
of the jury that the defendants are guilty of the offense charged. To my
thinking, moreover, the verdict was responsive to a clear and correct
charge that, to justify conviction, the jury must find from the evidence
beyond a reasonable doubt that the defendants designedly and with the
purpose of wrongdoing willfully attempted to evade payment of
lawful taxes by purposely failing to report in the return all income
which they knew the corporation had received during the calendar year
involved. The necessity that the Government prove a wilful attempt to
evade was stressed over and over again in the charge.
it might have been more euphonious had the district judge said that the
defendants had admitted that the original return was
"incorrect," rather than "false and untrue," he was
nonetheless, as I view it, correct in his statement. These words in some
settings carry sinister significance; wherein consider, "as false
as Cressid," "false as dicers' oaths." In other contexts
the words carry no such evil connotation; as, for instance, "a
false premise" in logic. The word "false" may mean merely
"erroneous, incorrect," as well as "deceptive." See
Fowler's American Oxford Dictionary, p. 294. Cf. The New Century
Dictionary, Vol. I., p. 547; The Shorter Oxford English Dictionary, 1939
Reprint, Vol. I., p. 672. Some current periodicals have even made
popular the indoor game of underscoring answers to assertions of this
sort: "Thomas Jefferson was the author of the Declaration of
American Independence. True? False?" "After eating Welsh
rarebits, a giraffe talks in his sleep. True? False?"
seems to me unreasonable to infer from the entire context of the charge
that the jury could possibly have misunderstood the sense in which the
district judge used the words "false and untrue" in the
paragraph of the charge upon which reversal is based.
do I think that reversible error inheres in the rejection of the
proferred evidence of prompt payment of the additional tax shown by the
amended return. In my judgment, the failure to admit this evidence was,
at most, mere harmless error; but inasmuch as the case must be retried,
I join my colleagues in the thought that it would be fairer to the
defendants to receive it upon the second trial of the case. Yet, prompt
payment of the correct tax, after the amended return was filed as a
result of the Government's investigation, would not exculpate the
defendants from the charge laid in the indictment.
¶9163]United States of America, Plaintiff-Appellee v. Raymond A.
(CA-2), U. S. Court of Appeals,
2nd Circuit, Docket No. 25615, 273 F2d 358, 12/21/59, Unreported
District Court decision on second trial followed earlier reversal by
CA-2 in, 56-2 USTC ¶9956, 237 F. 2d 466
[1939 Code Sec. 145--similar to 1954 Code Sec. 7201]
Crimes: Income tax evasion: Necessity for production of government
agents' investigative reports.--Judgment of conviction of income tax
evasion was reversed because of the trial court's refusal to order the
production of investigative reports of government agents, for the
purpose of impeachment on cross-examination, despite the fact that
investigative reports as such are proscribed by statute, where
(1) the government based its case on the testimony of the agents as to
the results of their investigation, and (2) such reports, relating to
the income and expenditure position of the government, were necessary to
determine whether any statements of fact were inconsistent with the
testimony of the agents and to test their expertness in the making of
charts and computations.
[1939 Code Sec. 145--similar to 1954 Code Sec. 7201]
Crimes: Income tax evasion: Net worth cases: Evidence of accounts
receivable and accounts payable: Consistency in treatment.--Judgment
of conviction of income tax evasion reversed because the trial court
sustained rejection by government witnesses of accounts receivable as
opening assets, and accounts payable as closing liabilities, since, in a
net worth case, the important consideration is consistency in treatment
of such accounts.
[1939 Code Sec. 145--similar to 1954 Code Sec. 7201]
Crimes: Income tax evasion: Exclusion of oral testimony at trial:
Applicability of "dead man" rule in criminal prosecution.--Judgment
of conviction of income tax evasion was reversed because the trial court
refused to permit oral testimony by the defendant as to (1) opening net
worth and (2) transactions and conversations with others since deceased.
Since the defendant's credibility was for the jury to determine, there
could be no objection to testimony by him as to transactions within his
personal knowledge, regardless of the availability of documentary
support. By the same token, there was no apparent basis for imposing a
"dead man" rule in a criminal case.
[1939 Code Sec. 145--similar to 1954 Code Sec. 7203]
Crimes: Income tax evasion: Agents' Tax Court Reports: Charts used at
first trial: Right to cross-examine and impeach.--Judgment of
conviction of income tax evasion was reversed because of the trial
court's refusal to allow the use of government agents' prior Tax Court
reports and schedules, and charts used by them at first trial to impeach
charts used at the second trial. It was up to the trial court to
determine whether a particular report, chart, entry, etc., was in fact
relevant to any testimony of the maker on the trial and admissible for
purposes of his impeachment, and whether computation and expert opinion
relating to civil liability had any relevancy in the criminal trial.
[1939 Code Sec. 145--similar to 1954 Code Sec. 7201]
Crimes: Income tax evasion: Charge to the jury on net worth theory:
Relevancy of instructions to jury.--Judgment of conviction of income
tax evasion was reversed because the charge did not sufficiently relate
the theory of net worth prosecution to the disputed questions. The
instruction to the jury that if it would take all the exhibits and
compare those of the prosecution with those concerning the same subject
matter introduced by the defense, either directly or indirectly, it
could then arrive at a conclusion on the whole case demonstrated the
generality and inadequacy of the case.
R. Farmelo, First Assistant United States Attorney, Western District of
New York, Buffalo, N. Y. (John O. Henderson, United States Attorney,
Western District of New York, on brief), for plaintiff-appellee. Charles
J. McDonough, Buffalo, N. Y., for defendant-appellant.
CLARK, Chief Judge, MOORE, Circuit Judge, and SMITH, District Judge.
Raymond A. O'Connor, appeals from a judgment entered June 10, 1957 upon
a jury verdict finding him guilty on all four counts of an indictment
filed February 24, 1953 charging him with wilfully attempting to evade
and defeat his income taxes for the years 1946, 1947, 1948 and 1949, by
filing for each of those years an income tax return understating the
amount of his taxable income. Judge Morgan imposed a sentence of five
years on each of the four counts (the sentences on Counts 1, 3 and 4 to
be served concurrently), and a fine of $5,000 on each of the four
counts. Execution of the sentence of imprisonment on Count Two was
suspended and defendant placed on probation for five years after
completion of the sentence to be served on Count One.
was the second trial of this defendant on this indictment, an earlier
judgment of conviction on February 1, 1954 having been reversed by this
court October 18, 1956 and a new trial ordered. United States v.
O'Connor, 237 F. 2d 466 [56-2 USTC ¶9956].
errors claimed are as follows: (1) the court's refusal to order the
production of the reports of government witnesses, Agents Montz and
Wetzel, (2) the court's refusal to allow the use of the agents' prior
Tax Court reports and schedule for the purpose of impeachment on
cross-examination, (3) inadequacy of the charge, (4) impossibility of a
fair trial due to the government's loss of some of defendant's records
in the period between the first and second trials, (5) refusal of the
court to permit oral testimony by defendant as to opening net worth
without the support of documentary evidence, (6) exclusion of
defendant's oral testimony as to transactions and conversations with
others since deceased, (7) restriction of proof as to defendant's
opening net worth investment in Burt Cold Storage Co., (8) rejection by
government witnesses of accounts receivable as opening assets, and
accounts payable as closing liabilities, (9) the court's refusal to
allow use of charts used by the government at the first trial to impeach
charts used at the second trial, (10) government notices to produce
served on the defense at trial as violative of the Fifth Amendment.
indictment alleged an understatement of income for
1946 of .... $112,297.24
1947 ....... 27,935.47
1948 ....... 54,608.90
1949 ....... 35,072.56
the second trial, the government claimed defendant's opening net worth
on December 31, 1945 was $361,077.86, defendant, that it was
$526,204.61. Defendant was a certified public accountant with a large
accounting practice, and many outside business interests, including two
farms and a canning plant, interests in real estate, a cold storage
business and a theatre company. The government's case was built mainly
on the testimony of the agents and their computations to establish the
net worth changes, although there was substantial evidence of attempts
to conceal underlying records by defendant, and testimony by the
defendant as to a claimed currency hoard which strains credulity.
[Examination of Agents' Reports]
this setting, it is quite plain that the agents' reports relating to
O'Connor's asset, income and expenditure position during the entire tax
period in question, whether prepared for criminal or civil tax purposes,
were necessary to defendant's preparation and conduct of his defense in
two respects, to determine whether any statements of fact therein were
inconsistent with or contradictory to testimony on the stand of the
makers of the reports, and to test their expertness in preparation of
the charts and computations used by them respectively on the stand.
Point one, as to production, so far as it concerns the agents' reports,
is well taken under the Jencks rule, Jencks v. United States, 353
U. S. 657, decided after the rulings before and in the trial of the
instant case, but before the ruling on the motion for new trial. The
so-called Jencks statute, Pub. L. 85-269, Sept. 2, 1957, 71 Stat. 595,
18 U. S. C. 3500, would now require their production on trial in the
circumstances of this case. 18 U. S. C. Sec. 3500(b) provides:
"After a witness called by the United States has testified on
direct examination, the court shall, on motion of the defendant, order
the United States to produce any statement (as hereinafter defined) of
the witness in the possession of the United States which relates to the
subject matter as to which the witness has testified." Since
statement is defined by subsection (e) to include "a written
statement made by said witness," the reports herein involved would
clearly seem to fall within the plain language of the statute.
the government correctly asserts that the statute was intended to
proscribe production of investigative reports as such (italics
added), here the government has chosen to base its case on the testimony
of the agents as to the results of their investigations. Where such
agents have testified, it would seem clear that their reports relating
to the same investigation may be obtained by the defendant. See United
States v. Prince, 3 Cir., 264 F. 2d 850; United States v. De
Lucia, 7 Cir., 262 F. 2d 610 [59-1 USTC ¶9161].
the government chooses to depend on the expertise of a witness for proof
of the essentials of a criminal charge, it cannot insulate him from a
thorough cross-examination by any claim of a sovereign right to secrecy
of reports or methods of computation.
[Accounts Receivable and
far as the treatment of accounts receivable as opening assets, and the
treatment of accounts payable as closing liabilities are concerned, the
important consideration is consistency in treatment, so that the result
arrived at does not reflect apparent increases not fairly ascribable to
undeclared taxable income. The net worth theory is actually not based on
net worth in the usual accounting sense, but on a comparison of proven
total assets at cost at the beginning and end of a year, to determine
whether there has been an increase of assets greater than can be
accounted for by reported net income plus receipts other than taxable
income. This involves proof of how much reportable income has been spent
for nonexempt purposes, and so is unavailable to add to assets, and
proof negating receipts during the period which are not taxable, such as
gifts, loan repayments, withdrawal of capital, etc., as to which leads
have been furnished, which could account for the increase in assets from
sources other than unreported net income. Holland v. United States,
348 U. S. 121 [54-2 USTC ¶9714]; United States v. Costello, 2
Cir., 221 F. 2d 668; United States v. O'Connor, supra. See
Comment: The Defense of a Criminal Net Worth Tax Case in the Light of
Recent Supreme Court Decisions, 41 Cornell L. Q. 106, 108. Comment:
Proving Tax Evasion by the Net Worth Method, 34 Texas L. R. 606, 607.
The Net Worth Approach in Determining Income, 41 Virginia L. R. 927,
[Lack of Fair Trial]
claim of lack of fair trial because of loss by the government of
defendant's records, prior to the second trial, is inadequately
supported because of failure of proof in the record that the government
was responsible for the loss and by failure to demonstrate that the loss
did in fact materially handicap defendant.
[Exclusion of Oral Testimony]
the charge is inadequate, as noted below, and the reports of the expert
witnesses should have been produced under the Jencks statute, perhaps
detailed discussion of the rulings on evidence is unnecessary. We may
assume that many of the questions will not arise in a third trial.
However, it may do no harm to indicate that we see no apparent basis for
exclusion of oral testimony by defendant to transactions within his
personal knowledge, regardless of the availability of documentary
support. His credibility is for the jury. Nor is there any apparent
basis for imposing a "dead man" rule in a criminal
prosecution. Points two and nine, complaining of the restriction on the
use in cross-examination of similar materials prepared by the agents for
use in O'Connor's case in the Tax Court and the first criminal trial,
may also be well taken. Whether a particular chart, entry or report is
in fact relevant to any testimony of the maker thereof on the trial and
admissible for purposes of his impeachment is of course for
determination by the trial judge. So also it is for the trial judge to
determine the extent to which computations and expert opinions with
relation to civil tax liability for Tax Court use may be relevant to the
computations and opinions as to which the agents may testify in the
[Demand to Produce]
demand made during the government's case in chief before the jury for
the defendant to produce papers is a dangerous practice and may be
prejudicial. See McKnight v. United States, 6 Cir., 115 Fed. 972;
People v. Gibson, 218 N. Y. 70. There was no waiver by defendant
up to this point in the trial, so far as appears. In the Brown, Gates
and Ziegler cases relied on by the government, there were prior
waivers. Brown v. United States, 356 U. S. 148, rehearing denied
356 U. S. 948; United States v. Gates, 2 Cir., 176 F. 2d 78; Ziegler
v. United States, 9 Cir., 174 F. 2d 439, cert. denied 338 U. S. 822.
[Adequacy of Charge to Jury]
court on the earlier appeal in this case laid down a general outline of
the points to be covered in a charge in a net worth case. The charge
here did not sufficiently relate the theory of a net worth prosecution
to the disputed questions in this long and involved trial. While perhaps
the court was justified in not making a detailed recitation of all the
variances between the contentions of the government and of the defense,
the major contentions should have been covered more fully and more
clearly related to the legal theories and the proof involved. The case
took some two months to try and the proof included hundreds of exhibits.
An instruction that if the jury would take all the exhibits and compare
those of the prosecution with those concerning the same subject matter
introduced by the defense, either directly or indirectly, it should be
able to arrive at a conclusion on the whole case demonstrates the
generality of the charge. The charge refers to the fact that there were
many weeks of testimony concerning the defendant, his wife, his four
children, his accounting partnership, Burt Cold Storage, Burt Packing
and Warehouse, Inc., Falls Mortgage Corporation, and various real estate
and security holdings, bank balances and cash, but fails sufficiently to
relate the testimony as to these persons, entities and things to the
elements of the crimes charged and the defenses on the four counts. The
charge is manifestly inadequate to a complete understanding of the
issues involved, even when the instructions during the course of the
trial are taken into consideration.
judgment is reversed and the case remanded for a new trial.