7203 - Exclusion of Oral Testimony

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Fraud Statutes 

Additional Information:

 

7203 - Accountant-Client Privilege
7203 - Accrual Basis
7203 - Admissibility 1 p1
7203 - Admissibility 1 p2
7203 - Admissibility 1 p3
7203 - Admissibility 1 p4
7203 - Admissibility 1 p5
7203 - Admissibility 1 p6
7203 - Admissibility 2 p1
7203 - Admissibility 2 p2
7203 - Admissibility 2 p3
7203 - Admissibility 2 p4
7203 - Admissibility 2 p5
7203 - Admissibility 3 p1
7203 - Admissibility 3 p2
7203 - Admissibility 3 p3
7203 - Admissibility 3 p4
7203 - Admissibility 3 p5
7203 - Admissibility 4 p1
7203 - Admissibility 4 p2
7203 - Admissions p1
7203 - Admissions p2
7203 - Advice of Counsel p1
7203 - Advice of Counsel p2
7203 - Amendment
7203 - Appeal Right to
7203 - Appeal Timeliness
7203 - Appeal Waiver
7203 - Appeal without merit
7203 - Arrest
7203 - Fraudulent Return
7203 - Defeat & Evade Income Taxes p1
7203 - Defeat & Evade Income Taxes p2
7203 - Defeat & Evade Income Taxes p3
7203 - Defeat &  Evade Income Taxes p4
7203 - Attorney Disqualified
7203 - Attorney's Testimony p1
7203 - Attorney's Testimony p2
7203 - Attorney's Testimony p3
7203 - Attorney's Testimony p4
7203 - Bail
7203 - Bank Records &  Net Worth Increases 1 p1
7203 - Bank Records &  Net Worth Increases 1 p2
7203 - Bank Records &  Net Worth Increases 1 p3
7203 - Bank Records &  Net Worth Increases 1 p4
7203 - Bank Records &  Net Worth Increases 1 p5
7203 - Bank Records &  Net Worth Increases 1 p6
7203 - Bank Records &  Net Worth Increases 2 p1
7203 - Bank Records &  Net Worth Increases 2 p2
7203 - Bank Records &  Net Worth Increases 2 p3
7203 - Bank Records &  Net Worth Increases 2 p4
7203 - Bank Records &  Net Worth Increases 2 p5
7203 - Bank Records &  Net Worth Increases 3 p1
7203 - Bank Records &  Net Worth Increases 3 p2
7203 - Bank Records &  Net Worth Increases 3 p3
7203 - Bank Records &  Net Worth Increases 3 p4
7203 - Bank Records &  Net Worth Increases 3 p5
7203 - Bank Records &  Net Worth Increases 4 p1
7203 - Bank Records &  Net Worth Increases 4 p2
7203 - Bank Records &  Net Worth Increases 4 p3
7203 - Bank Records &  Net Worth Increases 4 p4
7203 - Bank Records &  Net Worth Increases 4 p5
7203 - Bank Records &  Net Worth Increases 5 p1
7203 - Bank Records & Net Worth Increases 5 p2
7203 - Bank Records & Net Worth Increases 5 p3
7203 - Bank Records & Net Worth Increases 5 p4
7203 - Bank Records & Net Worth Increases 5 p5
7203 - Base Sentence p1
7203 - Base Sentence p2
7203 - Base Sentence p3
7203 - Base Sentence p4
I7203 - Bill of Particluar Conspiracy
7203 - Bill of Particulars
7203 - Books and Records
7203 - Burden of going forward with evidence
7203 - Burden of Proof
7203 - Carryback Offset
7203 - Changing Plea
7203 - Character witness p1
7203 - Character witness p2
7203 - Circumstanial Evidence p1
7203 - Circumstanial Evidence p2
7203 - Circumstanial Evidence p3
7203 - Circumstanial Evidence p4
7203 - Collateral Estoppel
7203 - Collection
7203 - Commitment by U.S. Commissioner
7203 - Communication to Jury
7203 - Compromise
7203 - Consolidation
7203 - Conspiracy p1
7203 - Conspiracy p2
7203 - Conspiracy 1 p1
7203 - Conspiracy 1 p2
7203 - Conspiracy 1 p3
7203 - Conspiracy 1 p4
7203 - Conspiracy 1 p5
7203 - Conspiracy 1 p6
7203 - Conspiracy 1 p7
7203 - Conspiracy 1 p8
7203 - Conspiracy 2 p1
7203 - Conspiracy 2 p2
7203 - Conspiracy 2 p3
7203 - Constitutional Grounds 1 p1
7203 - Constitutional Grounds 1 p2
7203 - Constitutional Grounds 1 p3
7203 - Constitutional Grounds 1 p4
7203 - Constitutional Grounds 1 p5
7203 - Constitutional Grounds 2 p1
7203 - Constitutional Grounds 2 p2
7203 - Constitutional Grounds 2 p3
7203 - Constitutional Grounds 2 p4
7203 - Constitutional Grounds 2 p5
7203 - Constitutional Grounds 3 p1
7203 - Constitutional Grounds 3 p2
7203 - Constitutional Grounds 3 p3
7203 - Constitutional Grounds 3 p4
7203 - Constitutional Grounds 3 p5
7203 - Constitutional Grounds 4 p1
7203 - Constitutional Grounds 4 p2
7203 - Constitutional Grounds 4 p3
7203 - Constitutional Grounds 4 p4
7203 - Constitutional Grounds 5 p1
7203 - Constitutional Grounds 5 p2
7203 - Constitutional Grounds 5 p3
7203 - Constitutional Grounds 5 p4
7203 - Constitutional Grounds 5 p5
7203 - Constitutional Grounds 6
7203 - Contempt Finding Ag. Defendant's Counsel
7203 - Continuance p1
7203 - Continuance p2
7203 - Continuance p3
7203 - Conviction Required
7203 - Copies of Records p1
7203 - Copies of Records p2
7203 - Corporation Officer
7203 - Costs
7203 - Credit for Time Served
7203 - Criminal Contempt
7203 - Cross-Examination PART 1 p1
7203 - Cross-Examination PART 1 p2
7203 - Cross-Examination PART 1 p3
7203 - Cross-Examination PART 1 p4
7203 - Cross-Examination PART 1 p5
7203 - Cross-Examination PART 2
7203 - DefendantHaving Facts Available p1
7203 - DefendantHaving Facts Available p2
7203 - DefendantHaving Facts Available p3
7203 - Degree of Proof p1
7203 - Degree of Proof p2
7203 - Depositions
7203 - Different Statute Cited
7203 - Discovery, Scope Of
7203 - Documentary Evidence in Jury Room
7203 - Double Jeopardy 1 p1
7203 - Double Jeopardy 1 p2
7203 - Double Jeopardy 1 p3
7203 - Double Jeopardy 1 p4
7203 - Double Jeopardy 1 p5
7203 - Double Jeopardy 2 p1
7203 - Double Jeopardy 2 p2
7203 - Double Jeopardy 2 p3
7203 - Double Jeopardy 2 p4
7203 - Enhanced Sentence Sophisticated Means p1
7203 - Enhanced Sentence Sophisticated Means p2
7203 - Enhanced Sentence p1
7203 - Enhanced Sentence p2
7203 - Entrapment
7203 - Erroneous calculation of tax
7203 - Exclusion of Oral Testimony
7203 - Exercise Privilege-Exclusion from Courtroom
7203 - Expert Witness p1
7203 - Expert Witness p2
7203 - Expert Witness p3
7203 - Expert Witness p4
7203 - Extenuating Circumstances
7203 - Fact Finding p1
7203 - Fact Finding p2
7203 - Fact Finding p3
7203 - Fact Finding p4
7203 - Fact Finding p5
7203 - Failure of IRS to File Return
7203 - Failure to Assess Tax
7203 - Failure to Prosecute p1
7203 - Failure to Prosecute p2
7203 - Failure to Prosecute p3
7203 - Failure to Prosecute p4
7203 - Failure to Prosecute p5
7203 - Failure to Report Income 1 p1
7203 - Failure to Report Income 1 p2
7203 - Failure to Report Income 1 p3
7203 - Failure to Report Income 1 p4
7203 - Failure to Report Income 1 p5
7203 - Failure to Report Income 1 p6
7203 - Failure to Report Income 2 p1
7203 - Failure to Report Income 2 p2
7203 - Failure to Supply Information
7203 - False Return
7203 - Fictitious names
7203 - Fraud Case Procedures p1
7203 - Fraud Case Procedures p2
7203 - Fraud Case Procedures p3
7203 - Fraud Case Procedures p4
7203 - General Exception
7203 - Good Faith p1
7203 - Good Faith p2
7203 - Good Faith p3
7203 - Good Faith p4
7203 - Government Agent Prosecuting Claim
7203 - Grand Jury 1 p1
7203 - Grand Jury 1 p2
7203 - Grand Jury 1 p3
7203 - Grand Jury 1 p4
7203 - Grand Jury 1 p5
7203 - Grand Jury 2 p1
7203 - Grand Jury 2 p2
7203 - Hearsay Evidence p1
7203 - Hearsay Evidence p2
7203 - Hearsay Evidence p3
7203 - Hearsay Evidence p4
7203 - Hearsay Evidence p5
7203 - Hostility of the Court p1
7203 - Hostility of the Court p2
7203 - Hostility of the Court p3
7203 - Hypnosis
7203 - Identification
7203 - Ignorance of Law
7203 - Immunity p1
7203 - Immunity p2
7203 - Immunity p3
7203 - Impeachment p1
7203 - Impeachment p2
7203 - Improper Comment PART 1 p1
7203 - Improper Comment PART 1 p2
7203 - Improper Comment PART 1 p3
7203 - Improper Comment PART 1 p4
7203 - Improper Comment PART 1 p5
7203 - Improper Comment PART 2 p1
7203 - Improper Comment PART 2 p2
7203 - Improper Comment PART 2 p3
7203 - Improper Comment PART 2 p4
7203 - Improper Comment PART 2 p5
7203 - Improper Comment PART 3
7203 - Improper Question
7203 - Incrimination 1 p1
7203 - Incrimination 1 p2
7203 - Incrimination 1 p3
7203 - Incrimination 1 p4
7203 - Incrimination 1 p5
7203 - Incrimination 2 p1
7203 - Incrimination 2 p2
7203 - Incrimination 2 p3
7203 - Incrimination 2 p4
7203 - Incrimination 2 p5
7203 - Incriminaton Before Grand Jury p1
7203 - Incriminaton Before Grand Jury p2
7203 - Instructions to Jury 1 p1
7203 - Instructions to Jury 1 p2
7203 - Instructions to Jury 1 p3
7203 - Instructions to Jury 1 p4
7203 - Instructions to Jury 1 p5
7203 - Instructions to Jury 2 p1
7203 - Instructions to Jury 2 p2
7203 - Instructions to Jury 2 p3
7203 - Instructions to Jury 2 p4
7203 - Instructions to Jury 2 p5
7203 - Instructions to Jury 3 p1
7203 - Instructions to Jury 3 p2
7203 - Instructions to Jury 3 p3
7203 - Instructions to Jury 3 p4
7203 - Instructions to Jury 3 p5
7203 - Instructions to Jury 4 p1
7203 - Instructions to Jury 4 p2
7203 - Instructions to Jury 4 p3
7203 - Instructions to Jury 4 p4
7203 - Instructions to Jury 4 p5
7203 - Instructions to Jury 5 p1
7203 - Instructions to Jury 5 p2
7203 - Instructions to Jury 5 p3
7203 - Instructions to Jury 5 p4
7203 - Instructions to Jury 5 p5
7203 - Instructions to Jury 6 p1
7203 - Instructions to Jury 6 p2
7203 - Instructions to Jury 6 p3
7203 - Instructions to Jury 6 p4
7203 - Instructions to Jury 6 p5
7203 - Instructions to Jury 7 p1
7203 - Instructions to Jury 7 p2
7203 - Instructions to Jury 7 p3
7203 - Instructions to Jury 7 p4
7203 - Instructions to Jury 7 p5
7205 Convictions p1
7205 Convictions p2
7205 Convictions p3
7205 Convictions p4
7205 Convictions p5
7205 Double Jeopardy
7205 Exemption Certificates
7205 Hostility of the Court
7205 Indictment
7205 Information
7205 Intent to Deceive Lacking
7205 Right to Counsel
7205 Trial, Timeliness
7205 Variance
7205 Venue
7205 Willfulness
7206 False Returns 1 p1
7206 False Returns 1 p2
7206 False Returns 1 p3
7206 False Returns 1 p4
7206 False Returns 1 p5
7206 False Returns 2 p1
7206 False Returns 2 p2
7206 False Returns 2 p3
7206 False Returns 2 p4
7206 False Returns 2 p5
7206 False Returns 3 p1
7206 False Returns 3 p2
7206 False Returns 3 p3
7206 False Returns 3 p4
7206 Basis for Allegation of Fraud
7206 Concealment of Assets p1
7206 Concealment of Assets p2
7206 Conspiracy 1 p1
7206 Conspiracy 1 p2
7206 Conspiracy 1 p3
7206 Conspiracy 1 p4
7206 Conspiracy 2 p1
7206 Conspiracy 2 p2
7206 Constitutionality p1
7206 Constitutionality p2
7206 Constitutionality p3
7206 Costs
7206 Disclosure of Returns
7206 Estoppel p1
7206 Estoppel p2
7206 Estoppel p3
7206 Evidence 1 p1
7206 Evidence 1 p2
7206 Evidence 1 p3
7206 Evidence 1 p4
7206 Evidence 1 p5
7206 Evidence 2 p1
7206 Evidence 2 p2
7206 Evidence 2 p3
7206 Evidence 2 p4
7206 Evidence 2 p5
7206 Evidence 3 p1
7206 Evidence 3 p2
7206 Evidence 3 p3
7206 Evidence 3 p4
7206 Evidence 3 p5
7206 Evidence 4 p1
7206 Evidence 4 p2
7206 Evidence 4 p3
7206 False Claims Against U.S.
7206 False Documents p1
7206 False Documents p2
7206 False Statements in Return 1 p1
7206 False Statements in Return 1 p2
7206 False Statements in Return 1 p3
7206 False Statements in Return 1 p4
7206 False Statements in Return 1 p5
7206 False Statements in Return 2 p1
7206 False Statements in Return 2 p2
7206 False Statements in Return 2 p3
7206 False Statements in Return 2 p4
7206 False Statements in Return 3 p1
7206 False Statements in Return 3 p2
7206 False Statements in Return 3 p3
7206 False Statements in Return 3 p4
7206 False Statements in Return 3 p5
7206 False Statements in Return 4 p1
7206 False Statements in Return 4 p2
7206 False Statements in Return 4 p3
7206 False Statements in Return 4 p4
7206 False Statements in Return 4 p5
7206 False Statements in Return 5 p1
7206 False Statements in Return 5 p2
7206 False Statements in Return 5 p3
7206 False Statements in Return 5 p4
7206 False Statements to IRS Agents p1
7206 False Statements to IRS Agents p2
7206 False Statements to IRS Agents p3
7206 Forgery
7206 Grand Jury
7206 Guilty Plea p1
7206 Guilty Plea p2
7206 Immunity
7206 Indictment 1 p1
7206 Indictment 1 p2
7206 Indictment 1 p3
7206 Indictment 1 p4
7206 Indictment 1 p5
7206 Indictment 2 p1
7206 Indictment 2 p2
7206 Instructions to Jury 1 p1
7206 Instructions to Jury 1 p2
7206 Instructions to Jury 1 p3
7206 Instructions to Jury 1 p4
7206 Instructions to Jury 1 p5
7206 Instructions to Jury 2 p1
7206 Instructions to Jury 2 p2
7206 Instructions to Jury 2 p3
7206 Instructions to Jury 2 p4
7206 Instructions to Jury 2 p5
7206 Instructions to Jury 3 p1
7206 Instructions to Jury 3 p2
7206 Instructions to Jury 3 p3
7206 Instructions to Jury 3 p4
7206 Instructions to Jury 3 p5
7206 Jury Verdict Disregarded
7206 Jury p1
7206 Jury p2
7206 Jury p3
7206 Lesser Included Offense p1
7206 Lesser Included Offense p2
7206 Motion For Continuance
7206 Motion to Sever
7206 Motion to Transfer
7206 Motion to Vacate Sentence
7206 Net Worth Statement
7206 Offer in Compromise
7206 Perjury
7206 False or Fraudulent Returns p1
7206 False or Fraudulent Returns p2
7206 False or Fraudulent Returns p3
7206 False or Fraudulent Returns p4
7206 False or Fraudulent Returns p5
7206 Prior Convictions
7206 Prior Law
7206 Probation
7206 Prosecutor's Comment p1
7206 Prosecutor's Comment p2
7206 Restitution
7206 Right to Counsel p1
7206 Right to Counsel p2
7206 Sentence p1
7206 Sentence p2
7206 Sentence p3
7206 Sentence p4
7206 Sentencing Guidelines 1 p1
7206 Sentencing Guidelines 1 p2
7206 Sentencing Guidelines 1 p3
7206 Sentencing Guidelines 1 p4
7206 Sentencing Guidelines 1 p5
7206 Sentencing Guidelines 2 p1
7206 Sentencing Guidelines 2 p2
7206 Sentencing Guidelines 2 p3
7206 Statute of Limitations p1
7206 Statute of Limitations p2
7206 Venue
7206 Willfulness Defined p1
7206 Willfulness Defined p2
7206 Willfulness Defined p3
7206 Willfulness Defined p4
7207 Conviction
7207 Defenses
7207 Motion to Dismiss
7207 Sentencing
7207 Willfully Defined
7210 Willful Failure to Obey Summons
7212 Assault
7212 Bribery
7212 Constiutionality
7212 Indictment
7212 Interference p1
7212 Interference p2
7212 Interference p3
7212 Interference p4
7212 Jury Instructions
7212 Rescue of Seized, Levied Property p1
7212 Rescue of Seized, Levied Property p2
7212 Sentence p1
7212 Sentence p2
7212 Statute of Limitations
7212 Suppresion of Evidence
7215 Constitutionality
7215 Conviction
7215 Corporation
7215 Defenses
7215 Evidence
7215 Intent
7215 Speedy Trial
7216 Consent
7216 Preparer Defined
7216 Scope of Statute
7217 IRS Employees

 

Exclusion of Oral Testimony

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7203: Willful Failure to File Return, Supply Information, or Pay Tax: Evidence: Exclusion of Oral Testimony

 

 

 

[2005-2 USTC ¶50,603] United States of America , Plaintiff-Appellee v. David G. Pflum, Defendant-Appellant.

U.S. Court of Appeals, 10th Circuit; 04-3508, October 7, 2005.

Unpublished opinion affirming unreported DC Kan. decision.

[ Code Secs. 7202 and 7203]

Penalties, criminal: Failure to file: Failure to pay employment tax: Jury instructions: Testimony. --

Jury 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 offered.


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.®

ORDER 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

But Franklin was more prescient than Mr. Pflum realized. He was indicted on eight counts of failure to pay quarterly employment taxes, in violation of 26 U.S.C. §7202, 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. United States 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." Id. 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. §§7202, 7203. The court not only instructed the jury that it must find that Mr. Pflum acted willfully, but it also gave the following instructions:


INSTRUCTION NO. 18

 

As mentioned 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.

The defendant 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.

INSTRUCTION NO. 19

The defendant asserts he did not act willfully as charged in the indictment, because he did not believe that the law imposed a duty on him.

 

A defendant 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.

 

In determining 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.


Id. at 46-47.

INSTRUCTION NO. 21

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.

In deciding 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.

Id. at 50-51.

Not satisfied with the instructions, Mr. Pflum proposed additional language: "In this case, the Defendant is not presumed to know the law." Id. 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." Id. 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 ...." Id. 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 case." Id. at 46.

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 court.

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 United States 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 fashion.

"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 161.

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 ...." Id. at 194.

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 take, yeah.

Q. And so you'd have to dig out circular E ... to determine how much is to be withheld?

A. That's correct.

....

Q. And the only way you could determine that would be by looking at circular E?

A. That's correct.

Id. at 194-195.

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.

* This 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).

 

[92-1 USTC ¶50,259] United States of America , Plaintiff-Appellee v. Donald W. Streck, Defendant-Appellant

(CA-6), U.S. Court of Appeals, 6th Circuit, 91-3395, 3/3/92, 958 F2d 141. Affirming an unreported District Court decision

[Code Sec. 7402 ]

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.

Before: KENNEDY and JONES, Circuit Judges, and PECK, Senior Circuit Judge.

JONES, Circuit Judge:

Defendant 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.

I

From 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.

In 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.

On 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 well.

Meanwhile, on February 9 and 10, 1987, Streck testified before a grand jury in San Francisco 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.

On 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.

In 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 possession.

At 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.

On November 18, 1987, Novalyn Winfield, Assistant United States Trustee for the Bankruptcy Court in New Jersey , 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.

On 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 San Francisco 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 to dismiss.

A 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.

On 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 or not." Id. at 2. The panel therefore remanded for the district court to make specific findings as to the independent sources of the grand jury evidence. Id.

On 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.

II

Challenges 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 disclosures." Id. 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 sources." Id. 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. 1988).

This 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, 469 U.S. 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)).

The 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.

III

Streck 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.

In 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 on remand:

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.

Internal 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 Leigh letter.

Streck 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).

Streck 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.

Streck's 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.

IV

For the foregoing reasons, we AFFIRM the judgment of the district court.

1 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.

2 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.

 

 

[91-2 USTC ¶50,402] United States of America, Appellee v. Charles L. Bussey, Jr., Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 90-2112EM, 8/20/91, Affirming an unreported District Court decision

[Code Secs. 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.

Steven 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.

Before MCMILLIAN and MAGILL, Circuit Judges, and WOODS, * District Judge.

MAGILL, Circuit Judge:

Charles 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.

I.

A. Background

In 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.

To 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 property.

After 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.

In 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.

After 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.

Mario 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.

Bussey 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

Bussey 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.

In 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.

Bussey never filed an income tax return for 1982.

C. 1983 and 1984 Returns

In 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.

Bussey 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. at 325.

D. False Statement to HUD

Bussey 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.

In 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 Maxxam.

E. Procedural History

In 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) 5; with 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.

II.

A. The Willful Blindness Instruction

Bussey's 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:

The 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.

It 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

This 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 [91-1 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

The 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.

As 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 [1981], 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?

A. Yes.

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?

A. You're 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?

A. Yes.

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.

The 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 illuminating:

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.

With 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.

In 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, explaining:

The substantive 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 charges.

2. The §7203 Conviction

Bussey 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.

As 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.").

Bussey 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.

Bussey 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

The 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." [91-1 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.

The 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.

The 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.

Bussey 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.

In 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.

In 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

Bussey 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 contention.

The 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" Testimony

Bussey 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).

At 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.

Bussey sought to introduce the testimony of Steven Conway, an accounting expert, making the following offer of proof:

As 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.

These 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.

It was very clear that Mr. Steiner's testimony that they went through, I think it was six points.

Having 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.

That 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 Partnership.

There was no connotation that that was ever done or checked off by anyone.

And 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.

Bussey 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 such purposes.

It 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 of proof.

D. Prosecutorial Misconduct

Finally, 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.

To 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.

III.

Accordingly, we affirm Bussey's convictions.

* THE HONORABLE HENRY WOODS, United States District Judge for the Eastern District of Arkansas, sitting by designation.

1 The Honorable Stephen N. Limbaugh, United States District Judge for the Eastern District of Missouri.

2 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.

3 Thomas received no more K-1s from the Partnership.

4 The development company, however, had ceased to exist in the summer of 1981.

5 26 U.S.C. §7206(1) provides:

[Any 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.

6 26 U.S.C. §7203 provides:

Any 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.

7 18 U.S.C. §1001 provides:

Whoever, 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.

8 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 merit.

9 Bussey vehemently contests this point. However, based on our standard of review, we must view this issue in the government's favor.

10 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 government.

11 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." Instruction 50.

12 Steiner disputed Bussey's claim, testifying that Bussey never gave him any records for 1982.

13 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.

14 Bussey makes this argument in his cursory statement of the facts of this case. See Bussey's Brief at 7.

15 Bussey's argument on this issue is as follows:

The 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.

Bussey's Brief at 20.

16 The district court did permit the witness to testify on other issues, but Bussey chose not to call him.

17 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. . . ."

18 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.

 

 

[87-1 USTC ¶9351] United States of America, Plaintiff-Appellee v. Lawrence Dubé, Defendant-Appellant

(CA-7), U.S. Court of Appeals, 7th Circuit, 86-1449, 6/28/87, 820 F2d 886, Affirming an unreported District Court decision

[Code Secs. 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.

Theodore 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.

Before BAUER, Chief Judge, WOOD, JR., and POSNER, Circuit Judges.

WOOD, JR., Circuit Judge:

This 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.

The 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

The 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.

The 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.

The 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.

The 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.

About 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.

Later 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 "Reverend."

In 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 policies.

In 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.

The 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 investigation.

II. DISCUSSION

A. The Claim of Privilege

The 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

Referring 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.

In 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.

Ciociola 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.

The 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.

The 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 this country.

B. Civil Revenue Ruling

Over 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.

McGahen 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.

We 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.

C. Instructions

In 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.

The 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 "poverty."

The 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.

The 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).

We find no reversible error.

1 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.

2 Counts VIII, IX and X alleged violations of 26 U.S.C. §7203 .

3 Counts XI, XII and XIII alleged violations of 26 U.S.C. §7205 .

4 The defendant was sentenced to three months imprisonment on Count IV, which has been served, and three years probation on the remaining counts.

5 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 awarded.

6 Later, other similarly poverty-stricken commercial pilots who owned pleasure boats, condominiums, and private planes were convicted for tax fraud.

7 This civil audit culminated with the defendant paying an additional sum of $300 to the IRS.

8 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!"

9 This privilege, of course, would apply in other cases to ordained ministers, rabbis, Christian Science practitioners, as well as priests.

10 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).

 

 

[80-1 USTC ¶9257]United States of America, Plaintiff-Appellee v. Ernest E. Bayne, Defendant-Appellant

(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 the documents.

D. 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.

Before HILL, GARZA and THOMAS A. CLARK, Circuit Judges.

HILL, Circuit Judge:

Ernest 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.

Bayne 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.

We 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 discretion.

The 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.

Finally, 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.

Once 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.

AFFIRMED.

* Fed. R. App. Proc. 34(a), 5th Cir. Local R. 18.

 

 

[68-2 USTC ¶9500]United States of America, Appellee v. Daniel J. Driscoll, Defendant-Appellant

(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 examination.

One dissent.

Robert 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.

Before HAYS, ANDERSON and FEINBERG, Circuit Judges.

FEINBERG, Circuit Judge:

Defendant 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.

This 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 relevance.

During 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:

In 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.

In 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.

In 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.

The 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:

[M]ake such 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.

These 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.

The 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 that:

There 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.

In 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.

On 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.

Appellant's 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).

Judgment of conviction reversed; the case is remanded for further proceedings consistent with this opinion.

1 In pertinent part, that section provides:

Whenever 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.]

2 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.

3 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. 1965).

4 Dr. Abrahamsen testified that defendant was "reluctant, reluctant, in giving information about himself . . .."

5 See the emphasized language in note 1, supra.

6 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.

[Dissenting Opinion]

ANDERSON, Circuit Judge (dissenting):

I 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).

But 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.

It 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 requisite intent.

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 stage."

The 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 responsibility.

I 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.

The remaining points raised by the appellant have no merit and call for no discussion. The judgment below should be affirmed.

 

 

[65-2 USTC ¶9707]Thomas Wheeler, Defendant, Appellant v. United States of America, Appellee

(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.

John 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.

Before ALDRICH, Chief Judge, WATERMAN, Circuit Judge, * and GIGNOUX, District Judge.

Opinion of the Court

WATERMAN, Circuit Judge:

The 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 contentions.

The 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.

[Cross-Examination]

Unquestionably 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.

It 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).

It 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.

The 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.

 

 

[45-2 USTC ¶9372]William C. Heindel, Appellant, v. United States of America, Appellee Mary E. Rogers, Appellant, v. United States of America, Appellee

(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.

Robert 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.

Before SIMONS, HAMILTON, and MARTIN, Circuit Judges.

SIMONS, Circuit Judge:

While 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.

[The Facts]

It 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.

In 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.

On 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 liability.

The 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.

[Issue]

Upon 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.

[Erroneous Instruction]

The 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.

Had 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]

We 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 jury.

While 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]

Since 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.

Reversed and remanded for new trial.

1 "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?"

[Dissenting Opinion]

MARTIN, Circuit Judge, dissenting:

I 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.

While 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?"

It 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.

Nor 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.

 

 

[60-1 USTC ¶9163]United States of America, Plaintiff-Appellee v. Raymond A. O'Connor, Defendant-Appellant

(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.

Neil 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.

Before CLARK, Chief Judge, MOORE, Circuit Judge, and SMITH, District Judge.

SMITH, District Judge:

Defendant, 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.

[Second Trial]

This 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].

[Issues]

The 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.

The indictment alleged an understatement of income for

1946 of ....         $112,297.24
1947 .......           27,935.47
1948 .......           54,608.90
1949 .......           35,072.56

 

On 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]

In 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.

[Investigative Reports]

While 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].

If 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 Payable]

So 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, 940.

[Lack of Fair Trial]

The 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]

Since 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 criminal trial.

[Demand to Produce]

The 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]

The 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.

The judgment is reversed and the case remanded for a new trial.

 

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