Improper Comment PART 3

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7203: Willful Failure to File Return, Supply Information, or Pay Tax: Trial: Improper Comment

 

[95-1 USTC ¶50,162] United States of America , Plaintiff-Appellee v. Jack P. Kallin, Defendant-Appellant

(CA-9), U.S. Court of Appeals, 9th Circuit, 93-10765, 3/17/95, 50 F3d 689, Reversing and remanding an unreported District Court decision

[Code Secs. 7201 and 7206 ]

Attempt to evade or defeat tax: Instructions to jury: Communication to jury: Cross-examination: Improper comment: Improper question: Right to counsel: Fraud and false statements.--The conviction of an owner of a hobby store for attempted tax evasion and subscribing to false tax returns was not permitted to stand because the government's extensive references to the exercise of his rights to remain silent and to retain counsel were prejudicial error. During cross-examination of the individual and during closing argument, the government made numerous references to the individual's lack of denial of guilt and his failure to present an explanation of his innocence until trial. The government's references were not inadvertent. They were calculated and stressed to the jury an inappropriate inference of guilt from his silence. Although the lower court instructed the jury to disregard the line of questioning, the instruction was not contemporaneous with the error. The instruction was given the following day. The failure of the jury to convict the individual on all counts did not indicate that the jury was able to disregard the inappropriate comments. The government did not prove beyond a reasonable doubt that the error did not influence the jury's decision in the case. In addition, the lower court did not err in admitting corporate returns from years that were barred by the statute of limitations because those returns were inextricably intertwined with the individual's personal income taxes for the years in question.

Stephen G. Winerip, Assistant United States Attorney, Phoenix , Ariz. 85025 , for plaintiff-appellee. Michelle R. Hamilton, Phoenix , Ariz. , for defendant-appellant.

Before: GOODWIN and SCHROEDER, Circuit Judges, and TASHIMA, District Judge. ^*

OPINION

TASHIMA, District Judge:

Defendant-appellant Jack P. Kallin ("Kallin") appeals his conviction for attempted tax evasion and subscribing to a false tax return. His primary contention is that the government's extensive questioning and comments regarding his exercise of his rights to remain silent and to retain counsel constituted prejudicial error. He also contends that the district court improperly admitted copies of corporate tax returns from years in which he was not charged with tax evasion in violation of Fed. R. Evid. 404(b). Finally, Kallin contends that the district court erred in allowing a government witness to testify that he does not like Mexicans. We reverse the conviction.

FACTS

Kallin owned and operated three Desert Hobbies stores in Phoenix and Tempe , Arizona . Desert Hobbies was incorporated in 1982 as Kallin Enterprises, Inc., with Kallin as president, but continued to operate as Desert Hobbies. Kallin did not report personal income of more than $6,000 for any year from 1982 through 1986. He and his wife reported a joint income of $800 for 1985, and in 1986 they did not file a return. To qualify for a home mortgage, however, Kallin submitted to the lender copies of 1982 and 1983 tax returns reporting earnings of more than $50,000 per year. He purchased a $150,000 home in 1985, purchased a Cadillac in 1985, and owned an airplane as early as 1983. For the years 1985 through 1987, Kallin signed corporate tax returns indicating net operating losses for Kallin Enterprises.

Kallin separated from his wife in 1986 and his daughter Sharla initially remained with him. Sharla eventually left to live with her mother, taking Kallin's business records with her. The district court permitted Sharla to testify that Kallin dislikes Mexicans and told her to leave the house when he discovered that she had a Mexican boyfriend. In March, 1988, Sharla furnished the Desert Hobbies business records to the Internal Revenue Service ("IRS"). These records included a spiral notebook indicating receipts in excess of those reported on the corporate tax returns. Kallin claims that Sharla sought to extort $30,000 from him and delivered the records to the IRS after he refused to pay her extortionate demand.

The IRS initiated a criminal investigation and contacted Kallin concerning the business records. Before asking any questions, IRS agents advised Kallin of his non-custodial rights, including his right to remain silent and his right to retain counsel. Kallin exercised those rights by not answering any questions and seeking the advice of an attorney. The government obtained an indictment on November 27, 1991, charging Kallin and his accountant with eight counts of attempted tax evasion under 26 U.S.C. §7201 . ¹ Kallin was arrested by IRS agents on December 5, 1991 , and given a Miranda warning. He indicated at that time his desire to consult an attorney. On March 31, 1993, a superseding indictment was returned, adding a ninth count of subscribing to a false fiscal year 1987 corporate tax return, under 26 U.S.C. §7206(1) . ²

At trial, the government presented evidence that the Desert Hobbies stores had two cash registers and the receipts of each were recorded separately. An expert witness testified that none of the receipts from the second registers were reported to the IRS, resulting in an under-reporting of approximately $1 million. Kallin testified that the records the government attributed to the second register were actually records of total receipts and the government was double-counting the receipts from the second register. The government rebutted this assertion with testimony that the records Kallin had identified as total receipts corresponded to the tapes from the first register. During cross-examination of Kallin and during its closing argument, the government repeatedly commented on Kallin's retention of counsel and his failure to come forward with his explanation of the two sets of records until trial. ³ Defense counsel moved for a mistrial based on this line of questioning. The district court denied the motion the following day and instructed the jury to disregard the previous day's testimony concerning Kallin's silence and retention of counsel. ⁴

In closing argument, the government urged that the jury not believe Kallin:

Five years after the investigation began, Mr. Kallin came up with this story for the first time. And then he didn't wait--he waited until one week after the trial began, till the last moment of the trial. The idea, I submit to you, was to concoct a story and reveal, at the last moment, when the Government could do the least to respond to him. He's tried to fool you.

Defense counsel's timely objection to this statement was overruled.

Kallin was convicted on counts four and five (covering personal returns for 1985 and 1986) and counts seven, eight and nine (covering corporate returns for fiscal years 1986 and 1987). He was acquitted of the remaining counts. Kallin then moved for a new trial. The court denied the motion, stating, "I believe that the evidence against Mr. Kallin is overwhelming. To be honest, I really don't understand how the jury could have acquitted him of any of the counts. And I think that my instruction to the jury was pretty emphatic. . . ."

STANDARDS OF REVIEW

Whether improper references to a defendant's silence and retention of counsel are harmless is reviewed under a "harmless-beyond-a-reasonable-doubt" standard. Brecht v. Abrahamson, 113 S.Ct. 1710, 1717 (1993).

"[T]he issue of whether the evidence falls within the scope of Rule 404(b) is reviewed de novo." United States v. Arambula-Ruiz, 987 F.2d 599, 602 (9th Cir. 1993); United States v. Mundi, 892 F.2d 817, 820 (9th Cir. 1989), cert. denied, 498 U.S. 1119 (1991). A trial court's decision to admit evidence of other crimes pursuant to Fed. R. Evid. 404(b) is reviewed for abuse of discretion. Id. ; United States v. Hill, 953 F.2d 452, 455 (9th Cir. 1991). "We review the district court's decisions balancing the probative value of evidence against its prejudicial effect for abuse of discretion." United States v. Kessi, 868 F.2d 1097, 1107 (9th Cir. 1989). "The district judge is given wide latitude in determining the admissibility of evidence under this standard." United States v. Kinslow, 860 F.2d 963, 968 (9th Cir. 1988), cert. denied, 493 U.S. 829 (1989). The district court's determination of whether or not evidence is relevant under Rule 402 is also reviewed for abuse of discretion. United States v. Schaff, 948 F.2d 501, 505 (9th Cir. 1991).

Under the abuse of discretion standard, a reviewing court cannot reverse unless it has a definite and firm conviction that the district court committed a clear error of judgment in reaching its conclusion or based its decision on an erroneous conclusion of law. United States v. Plainbull, 957 F.2d 724, 725 (9th Cir. 1992); Nilsson, Rob bins, Dalgarn, Berliner, Carson & Wurst v. Louisiana Hydrolec, 854 F.2d 1538, 1546 (9th Cir. 1988).

DISCUSSION

I. Prosecutorial Comment on Kallin's Silence and Retention of Counsel

The government admits that it violated Kallin's due process rights by repeated references to his retention of counsel and failure to come forward earlier with his explanation of innocence, but argues that the error was harmless."[I]t does not comport with due process to permit the prosecution during trial to call attention to [the defendant's] silence. . . ." Doyle v. Ohio , 426 U.S. 610, 619 (1976); United States v. Foster, 985 F.2d 466 (9th Cir. 1993). The reasoning of Doyle extends to comments on a defendant's decision to retain counsel. United States v. Daoud, 741 F.2d 478, 480-81 (1st Cir. 1984); United States v. McDonald, 620 F.2d 559, 562-63 (5th Cir. 1980). "The right to counsel is included in the Miranda warnings, and as such is covered by the implicit assurance that invocation of the right will carry no penalty." ⁵ Daoud, 741 F.2d at 480.

The government bears the burden of proving that the admitted errors pass muster under the harmless-beyond-a-reasonable-doubt standard. Brecht, 113 S.Ct. at 1717. The court must determine "whether the prosecutor's conduct was harmless by 'considering the extent of comments made by the witness, whether an inference of guilt from silence was stressed to the jury, and the extent of other evidence suggesting defendant's guilt.' " Foster, 985 F.2d at 468 (quoting United States v. Newman, 943 F.2d 1155, 1158 (9th Cir. 1991)).

The mandate of Doyle is that the prosecution not call attention to a defendant's silence. Where one impermissible question about a defendant's silence was asked and an immediate objection was sustained before the question was answered, the court did not find a violation of Doyle because, through this minor slip, the prosecutor had not been allowed to impeach the defendant or call attention to his silence. Greer v. Miller, 483 U.S. 756, 764 (1987). This Circuit has found that three improper questions and answers required reversal, despite a strong jury instruction to disregard the questions. Newman, 943 F.2d at 1158. Seven questions about a defendant's silence, answered after an objection was overruled, followed by a comment during closing argument, were sufficiently harmful to require reversal. Foster, 985 F.2d at 468-69. Only five impermissible questions and a comment in closing argument formed the error in Doyle itself. 426 U.S. at 613-14.

The extent of error in the case at bench far exceeds these examples. The prosecutor's line of questioning and closing remarks were not inadvertent but were calculated so that an inappropriate "inference of guilt from silence was stressed to the jury. . . ." Foster, 985 F.2d at 468 (citing Newman, 943 F.2d at 1158). An impermissible implication again was permitted, without any curative instruction, when the prosecutor argued in closing that "Mr. Kallin came up with this story for the first time" at trial.

At the hearing on Kallin's motion for a mistrial, the prosecutor stated:

Obviously what I'm trying to do is show that it's mighty late in the day to be coming up with a story that you're innocent, if in fact you're innocent. . . . [T]here's certainly an implication that can be drawn . . . that if you don't go to the government and tell them that you're innocent, then perhaps you're lying at trial when you say for the first time that you're innocent.

This is precisely the inference that Doyle forbids. ⁶ "Notwithstanding the instructions from the trial judge, the effect of those statements, . . . was to suggest to the jury that [the defendant] must have been guilty because an innocent person would not have remained silent." Newman, 943 F.2d at 1158. In this case, the government did not simply bring Kallin's silence and retention of counsel to the attention of the jury, but actively encouraged the jury to draw an inference of guilt.

Although the government admits that the error was "extensive," it argues that the error was harmless in the overall context of the trial, including the district court's curative instruction and definitive evidence of guilt.

A. The Curative Instruction

The district court instructed the jury to disregard Kallin's testimony that Kallin "had never denied anything before this trial, and he hired a lawyer." The instruction was not contemporaneous with the error and was not given until the day following the improper line of questioning, long after the impermissible inference was implanted in the minds of the jury. In giving his instruction to the jury, the judge reiterated the impermissible content of the testimony, again calling attention to defendant's silence.

The court "normally presume[s] that a jury will follow an instruction to disregard inadmissible evidence inadvertently presented to it, unless there is an 'overwhelming probability' that the jury will be unable to follow the court's instructions. . . ." Greer, 483 U.S. at 766 n.8 (citing Richardson v. Marsh, 481 U.S. 200, 208 (1987)). This presumption, however, is "rooted less in the absolute certitude that the presumption is true than in the belief that it represents a reasonable practical accommodation. . . ." Richardson, 481 U.S. at 211. With regard to "an explicit statement the only issue is, plain and simply, whether the jury can possibly be expected to forget it in assessing the defendant's guilt." Id. at 208.

The government argues that the jury's ability to follow the court's instruction is evidenced by its failure to convict on all counts. ⁷ In support of drawing such an inference from the split verdict, the government cites cases dealing with a jury's ability to compartmentalize information in multiple defendant cases. United States v. Unruh, 855 F.2d 1363, 1374 (9th Cir. 1987) ("The best evidence of the jury's ability to compartmentalize the evidence is its failure to convict all defendants on all counts."), cert. denied, 488 U.S. 974 (1988); United States v. Baker, 10 F.3d 1374, 1390 (9th Cir. 1993), cert. denied, 115 S. Ct. 330 (1994).

In the context of this case, where the information to be disregarded applied equally to all counts, the split verdict is ambiguous; it could just as well indicate that the jury was predisposed to acquit on all counts but was influenced to partially convict by the Doyle violation. The partial acquittal indicates that the government's case was not definitive and that the jury's consideration of the impermissible inference may have been a factor resulting in conviction on some counts. This court cannot conclude that the jury's split verdict provides any evidence of its ability to follow the district court's curative instruction. Given the extent of the error and the delay in the curative instruction, we do not believe that the jury could "possibly be expected to forget it in assessing the defendant's guilt. . . ." Richardson, 481 U.S. at 208.

B. Extent of Other Evidence

The government argues that the error was harmless because, as the district court stated, the evidence of Kallin's guilt was overwhelming. The evidence included the personal income and business losses that Kallin reported in contrast to his substantial purchases during the same time period, the alternate tax returns that Kallin produced to qualify for a mortgage, testimony of Kallin's family and employees, and Kallin's business records.

The government admits that Kallin presented an alternative version of the facts and that "if defendant's account were true, as he insisted, the business receipts reported on the Desert Hobbies returns were not false at all." However, it claims its rebuttal case demonstrated that Kallin's version could not be true. Still, the government's admission concerning the importance of the jury's credibility assessment "only serves to underscore the critical nature of [defendant's] own testimony and the prejudicial effect of the government's use of the post-arrest silence." Foster, 985 F.2d at 469. The inference of guilt based on Kallin's silence was firmly planted in the minds of the jurors and undoubtably contributed to the government's undermining of Kallin's credibility.

The error in this case infected the jury on the crucial issue of credibility and the government has not proven beyond a reasonable doubt that the error did not influence the outcome of the case. We have noted our concern "that appropriate steps be taken to assure a high level of professional advocacy for prosecutors. . . . We perceive no valid excuse for this violation of [Kallin's] rights and reverse [his] conviction because of it." Id. The prosecutorial misconduct in the instant case was similarly inexcusable and a conviction based on such egregious error cannot be allowed to stand. We reverse and remand for a new trial.

II. Admission of Tax Returns and Statement of Racial Bias

Because the same issues will likely arise on remand, we find it necessary to rule on Kallin's remaining assignments of error.

A. Admission of Tax Returns

Kallin argues that the district court erred in admitting into evidence the Kallin Enterprises corporate tax returns for the fiscal years 1982 through 1984. The statute of limitations prevented prosecution based on Kallin Enterprises taxes for fiscal years 1982 through 1984, but Kallin was indicted concerning his personal income taxes for this period. Kallin contends that the challenged returns were utilized at trial to establish defendant's propensity to file false corporate returns in violation of Fed. R. Evid. 404(b).

The government contends that Kallin's under-reporting of income on corporate returns was integral to his scheme to evade his personal income taxes and "[e]vidence should not be treated as 'other crimes' evidence when 'the evidence concerning the [other] act and the evidence concerning the crime charged are inextricably intertwined.' " Mundi, 892 F.2d at 820 (quoting United States v. Aleman, 592 F.2d 881, 885 (5th Cir. 1979)).

The 1982 through 1984 corporate returns showed corporate losses and reported no salary paid to Kallin, so that the government had to establish that these returns were false before it could establish Desert Hobbies as a source of Kallin's alleged unreported personal income. Kallin asserts that the government never linked the challenged returns to Kallin's personal returns. Despite alleged inconsistencies in the government's actual use of the returns at trial, Kallin's personal and corporate returns were prepared by the same accountant throughout the period in question and the government contention that the various returns were linked is persuasive. Because the challenged returns are inextricably intertwined in the larger scheme, they are not 404(b) evidence and the district court did not err in admitting them.

B. Admission of Statement Concerning Racial Bias

Kallin argues that the district court erred in allowing Sharla to testify that he dislikes Mexicans. The government contends that the statement was relevant to Sharla's credibility because it explained why she left Kallin's home and took his business records. However, Sharla's credibility was not in issue. Her only part in the case was to supply certain of Kallin's business records to the IRS. The authenticity of these records was never questioned. Thus, the reason Sharla left Kallin was not probative of any matter at issue in the case. The challenged testimony was not relevant. Fed. R. Evid. 401 (relevant evidence is evidence that "has a tendency to make the existence of any material fact more . . . or less probable" (emphasis added)). The district court abused its discretion in admitting it. Schaff, 948 F.2d at 505. Even if the evidence had some slight probative value, its prejudicial effect far outweighed any probative value and it should not have been admitted under Fed. R. Evid. 403. ⁸

REVERSED and REMANDED.

^* Hon. A. Wallace Tashima, United States District Judge for the Central District of California, sitting by designation.

¹ Five of these counts related to Kallin's personal income taxes for 1982 through 1986 and three related to Kallin Enterprises' corporate taxes for fiscal years 1985 through 1987.

² The long delay before trial was caused by the withdrawal of Kallin's counsel due to a conflict of interest and proceedings to determine Kallin's competency to stand trial.

³ The district court overruled timely objections by defense counsel to the following line of questioning:

"Q. Mr. Kallin, you didn't tell the IRS at that time [of initial contact with the IRS in 1988] that you were innocent, did you? . . .

"A. Oh. No, sir, I didn't tell them I was innocent. . . .

"Q. And you hired an attorney, a Mr. Silver. Isn't that correct? . . .

"Q. And he was a criminal defense attorney? . . .

"A. I don't know what Mr. Silver's credentials are. . . . He's an attorney. . .

"Q. And you retained him for more than a year. Isn't that correct? . . .

"A. Yeah. I'm going to say yes. I don't know.

"Q. And over that year, or thereabouts, you never approached the IRS, with or without the advice of counsel, to tell them that you were innocent. Isn't that correct? . . .

"A. Okay. I'm not sure, you know. Then fine, we'll go that route. You know, that sounds to me like good advice, I guess. That's from an attorney, so it must be good advice, to keep my mouth shut . . .

"Q. At that time [of arrest], you didn't tell anybody that you were innocent and ask to be heard on that matter? . . .

"A. I didn't say a thing to Mr. Shupnik [the arresting officer]. I think he thought I was the most dangerous person--

"Q. Well, you didn't say anything to Mr. Shupnik, right?

"A. No, sir, I didn't. . . . I was told to keep my mouth shut, in fact. . . .

"Q. And . . . in that time did you come forward to say that you were not guilty in this matter?

"A. I don't remember doing that, no.

"Q. Okay. In five or six years since its been brought--first suggested by the government, after Sharla took your records, this is the first time that you have told an entire story explaining how and why it is that you're innocent. Isn't that correct?

"A. Well, if I can say something. At the time I was arrested, okay, I was told--I was read my rights. . . .

"Q. But in all the time since this matter was undertaken, this is the first time you've told a comprehensive story indicating that you are innocent. Isn't that right?

"A. Yes, sir."

⁴ The judge instructed the jury:

Ladies and gentlemen, you remember yesterday, during the cross-examination of Mr. Kallin, Mr. Winerip [the prosecutor] was--went into the fact that he had never denied anything before this trial, and he hired a lawyer. I want to instruct you to disregard that testimony. He doesn't have to talk to the Internal Revenue Service. He doesn't--if he knows that the Internal Revenue Service is checking him, he has--certainly has the right to seek the advice of a lawyer as to what to do.

And he was asked yesterday, "even in the past two years you haven't denied it." Well, he did deny it. He pleaded not guilty to the charge, and that's why we're here to decide it. But the fact that he has not denied it to the Internal Revenue, the fact that he's hired a lawyer, really has nothing to do with this case.

⁵ The government concedes error as to impeachment based on both post-Miranda warning silence and pre-Miranda warning silence because the IRS admin istered a non-custodial warning at the outset which advised Kallin of his right to remain silent and his right to counsel. The IRS warnings, like Miranda warnings, contain an implicit assurance that the assertion of the right will carry no penalty. Doyle, 426 U.S. at 618.

⁶ Given the prosecutor's explanation of his motive, the government's argument that the errors were unintentional is dubious, except to the extent the experienced prosecutor did not know that his clear intentions were erroneous. In any event, the subjective intent of a prosecutor does not undo error where reasonable jurors could have drawn adverse inferences in violation of Doyle. United States v. Baker, 999 F.2d 412, 416 (9th Cir. 1993) United States v. Negrete-Gonzalez, 966 F.2d 1277, 1281 (9th Cir. 1992).

⁷ The district court agreed with this reasoning and noted that the "fact that the jury acquitted him of three or four counts suggest[s] to me that they followed my instructions. In other words, they did not let his silence affect them."

⁸ At least one member of the jury has a Hispanic surname, but that is not the point.

It does not take much imagination to understand how such grossly biased comments would be viewed by the jury. We need not know the racial composition of the jury, for nearly all citizens find themselves repelled by such blatantly racist remarks and resentful of the person claimed to have uttered them.

United States v. Ebens, 800 F.2d 1422, 1434 (6th Cir. 1986). The only purpose this evidence could serve would be to prejudice the jury against Kallin.

 

 

[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 ¶9268] United States of America , Plaintiff-Appellee v. Jim C. Bergman, Defendant-Appellant

(CA-9), U.S. Court of Appeals, 9th Circuit, 86-1102, 3/31/87, 813 F2d 1027, Affirming an unreported decision of the District Court

[Code Sec. 7203 --Result unchanged by the Tax Reform Act of 1984 ]

Crimes: Failure to file return: Evidence: Admissibility: Withholding forms: Continuance: Improper comment.--An electrician who filed income tax forms containing only his name, address and signature and a notation at the bottom of each page stating that he did not understand the return, the income tax laws did not apply to him and that he objected to answering the questions based upon the 1st, 4th, 5th, 7th, 8th, 9th, 10th, 13th, 14th and 16th amendments to the Constitution was properly convicted of failure to file tax returns. The district court did not err in allowing the IRS to repeatedly refer to the individual as a "tax protestor" since the term accurately characterized his activities. His W-2 forms were properly admitted into evidence because the forms contained information necessary to establish that he was required to file income tax returns. In addition, his W-4 forms were properly admitted, even though they amounted to evidence of crimes other than the one for which he was charged, as they were highly probative of the taxpayer's intent to evade taxes. Further, the district court did not err in refusing to acknowledge the taxpayer's pro se filing since he was represented by counsel at the time. Finally, there was no abuse of discretion in denying the taxpayer's request for a continuance where there was no showing that such a denial prejudiced his case.

Rob ert E. Linday, Donald W. Searles, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. Alan R. Harter, 530 S. 4th St. , Las Vegas , Nev. , for defendant-appellant.

Before HUG, JR., SCHROEDER and NORRIS, Circuit Judges.

OPINION

HUG, Circuit Judge:

Jim Bergman appeals a jury conviction for willful failure to file federal income tax returns in violation of 26 U.S.C. §7203 (1982). Bergman contends that the district court erred by: (1) allowing the Government to refer to him as a tax protester; (2) admitting his wage and tax statements (W-2 and W-4 forms); (3) excluding some of his exhibits; (4) striking his pro se filings when he was represented by counsel; and (5) refusing to grant a continuance. We disagree and affirm. ¹

FACTS

Bergman worked as an electrician earning $37,834.97 in 1979, $39,701.39 in 1980, and $46,702.07 in 1981. During this period Bergman filed federal tax returns containing no information other than his name, address, and signature. He completed the returns by inserting asterisks corresponding to a notation on the bottom of the return stating that he did not understand the return or the laws which may apply to him, and objecting on the basis of the 1st, 4th, 5th, 7th, 8th, 9th, 10th, 13th, 14th, and 16th amendments. Bergman attached to his returns affidavits and letters challenging the federal taxation filing system. Bergman also filed W-4 forms claiming that he was exempt from withholding.

The Internal Revenue Service ("IRS") notified Bergman that his returns were unacceptable and requested that he file proper returns. Bergman did not do so.

Bergman subsequently was indicted for failing to file income tax returns. The court appointed a public defender to represent Bergman. Shortly before trial, Bergman discharged the public defender and retained his own attorney. Although Bergman filed two motions on his own behalf, he was represented by counsel throughout the proceedings.

DISCUSSION

I. "Tax Protester"

Bergman contends that he was prejudiced at trial because the Government continuously referred to him as a "tax protester." He argues that the references were prejudicial because they associated him with a conspiratorial group of lawbreakers and deprived him of presenting a willfulness defense. We disagree.

The term "tax protester" accurately characterizes Bergman's activities. His objections to filing tax returns, based principally on the Fifth Amendment, have been rejected repeatedly by this court. United States v. Malquist [86-2 USTC ¶9484 ], 791 F.2d 1399, 1402 (9th Cir.), cert. denied, 107 S.Ct. 445 (1986); United States v. Smith [84-2 USTC ¶9686 ], 735 F.2d 1196, 1197 (9th Cir.), cert. denied, 469 U.S. 1076 (1984); United States v. Carlson [80-1 USTC ¶9299 ], 617 F.2d 518, 522-23 (9th Cir.), cert. denied, 449 U.S. 1010 (1980). References to Bergman's "tax protest" activities were also probative of his willfulness in violating the tax laws. Carlson, 617 F.2d at 523-24; see also United States v. Booher [81-1 USTC ¶9304 ], 641 F.2d 218, 221 (5th Cir. 1981). Consequently, we agree with other courts that have found the term "tax protester" a permissible shorthand reference to such activities. See, e.g., United States v. Turano [86-2 USTC ¶9714 ], 802 F.2d 10, 12 (1st Cir. 1986).

II. Wage and Tax Statements

Bergman argues that the district court erred by admitting as evidence his W-2 and W-4 forms. He argues that these forms were unduly prejudicial and irrelevant because he was willing to stipulate to the information contained in those forms. We review the district court's decision for an abuse of discretion. Malquist, 791 F.2d at 1402.

The court's decision to admit the W-2 forms did not amount to an abuse of discretion. Information regarding Bergman's earnings was necessary to show that he was required to file a tax return. 26 U.S.C. §6012(a) (1982); United States v. Buras [81-1 USTC ¶9126 ], 633 F.2d 1356, 1358 (9th Cir. 1980). Even though Bergman was willing to stipulate to the amount of his income, the forms were still relevant to show willfulness--an issue which Bergman clearly contested. See, e.g., United States v. Green [85-1 USTC ¶9178 ], 757 F.2d 116, 119-20 (7th Cir. 1985). Finally, irrespective of the relevance of the W-2 forms, Bergman has shown no prejudice resulting from their admission.

Bergman objects to the W-4 forms as impermissible evidence of other crimes. See Fed. R. Evid. 404(b). Since the filing of a false W-4 form could provide the basis for prosecution under 26 U.S.C. §7205 (1982), we agree that it is evidence of "other crimes" under Rule 404(b). Nevertheless, evidence of other crimes may be admissible to show intent, knowledge, motive, etc., if: (1) the prior crime is similar and close enough in time to be relevant; (2) the evidence of the prior crime is clear and convincing; and (3) the crime is an element of the charged offense that is a material issue in the case. United States v. Bailleaux, 685 F.2d 1105, 1109-10 (9th Cir. 1982). The probative value of the evidence must also outweigh any unfair prejudice. Id.; Fed. R. Evid. 403.

Here, the W-4 forms were similar and close in time to the section 7203 violations--they were filed during the same years. The forms showed that Bergman was claiming "exempt" status even though there was clear evidence that he had incurred income tax liability in the previous years and had failed to file proper tax returns. And finally, the forms were highly probative of Bergman's willful scheme of evading federal income tax laws. See Carlson, 617 F.2d at 519, 523-24; see also United States v. Verkuilen [82-2 USTC ¶9618 ], 690 F.2d 648, 656 (7th Cir. 1982).

III. Excluded Evidence

Bergman objects to the district court's exclusion of certain documents he relied on in deciding not to file income tax returns. These documents included a copy of the Constitution and Declaration of Independence, transcripts of "winning cases" against the IRS, and the entire Internal Revenue Code. The district court excluded the documents on the basis of relevancy but allowed Bergman to testify that he relied on the documents in forming his belief that he was not required to file an income tax return. In Malquist, 791 F.2d at 1402, we considered the precise claim that Bergman raises here. We held that the district court was not obliged to admit legal materials as evidence and did not abuse its discretion. Id. We reach the same conclusion here.

IV. Pro Se Filings

We find no error in the district court's refusal to acknowledge Bergman's pro se filings. A criminal defendant does not have an absolute right to both self-representation and the assistance of counsel. United States v. Halbert, 640 F.2d 1000, 1009 (9th Cir. 1981). The decision to allow such hybrid representation is within the sound discretion of the judge. Id. Bergman has shown no abuse of discretion here.

V. Continuance

Bergman challenges the district court's denial of his request for continuance. We will not overturn the denial absent a clear abuse of discretion. United States v. Lane, 765 F.2d 1376, 1379 (9th Cir. 1985). "To demonstrate reversible error, the defendant must show that the denial resulted in actual prejudice to his defense." Id. In this case, Bergman claims that he was not allowed adequately to research, brief, and prepare motions challenging the use of the term "tax protester," the admission of his W-2 and W-4 forms and other "highly prejudicial" information, and the exclusion of his proffered documents. We have discussed each of these objections above and concluded that the district court committed no errors. Consequently, Bergman has failed to show that the denial of a continuance prejudiced his defense.

AFFIRMED.

¹ Bergman, acting on his own behalf, also challenges various jury instructions in his "Supplement to Defendant/Appellant's Opening Brief." He has not sought permission of this court to act on his own behalf and the document was filed outside the time provided by our order of September 9, 1986 . Nevertheless, we find no merits to the arguments raised.

 

 

[86-1 USTC ¶9113] United States of America , Plaintiff-Appellee v. Johnson C.S. Chu , Defendant-Appellant

(CA-7), U.S. Court of Appeals, 7th Circuit, No. 84-2623, 12/9/85 , 779 F2d 356, Affirming unreported District Court decision

[Code Sec. 7201 ]

Crimes: Willful attempt to evade tax: Net worth method of reconstructing income: Constitutional defenses.--The conviction of a doctor for willful tax evasion was affirmed. Although unsubstantiated indications of additional assets remained, the doctor's opening net worth was determined with reasonable certainty. The determination of his cash on hand was also reasonably established through reliance on the informed representations by the doctor and his wife of their cash on hand. Also, sufficient evidence was presented to permit the jury to conclude that the government had negated all possible sources of non-taxable income and had established that unreported sales of unaccounted-for Phendimetrazine tablets provided a likely source of unreported taxable income. In addition, statements made by the doctor to IRS agents without counsel present were properly admitted because the doctor was not under indictment for tax evasion at the time of the statements and made them voluntarily. Also, comments by the U.S. Attorney in his closing argument concerning the missing Phendimetrazine were material and proper and did not claim that the doctor was engaged in uncharged criminal conduct.

R. Lawrence Steele, Jr., United States Attorney, Jerome Frese, Assistant United States Attorney, South Bend, Ind. 46601, for plaintiff-appellee. Charles A. Asher, 508 J.M.S. Bldg., South Bend , Ind. 46601 , for defendant-appellant.

Before COFFEY, FLAUM, Circuit Judges, and GIBSON, Senior Circuit Judge. ^*

COFFEY, Circuit Judge

EI: The defendant, Johnson C.S. Chu, appeals his convictions on two counts of income tax evasion for the years 1977 and 1978 in violation of 26 U.S.C. §7201 . We affirm.

I.

Dr. Johnson C.S. Chu, M.D. (" Chu ") and Dr. Sylvia Cheng Chu, M.D. ("Cheng"), his wife, immigrated to the United States from mainland China in 1948. Following their arrival, Chu and Cheng both engaged in the practice of medicine, doing psychiatric work in state hospitals, initially in West Virginia , and since 1956, at Logansport State Hospital in Logansport , Indiana . In addition to their psychiatric practice at the state hospitals, Chu and Cheng also engaged in the general practice of medicine at their own clinic, the Southeastern Medical Center in Walton , Indiana . In September 1978, agents from the Drug Enforcement Administration (DEA) obtained a search warrant and searched a cottage on the Logansport State Hospital grounds used by Chu and Cheng, "looking for records related to distribution and receipt of controlled substances." As a result of the search, DEA Compliance Inspector Joel Fries discovered $21,873 in cash found in three sealed envelopes in a safe on the premises and seized the envelopes and cash along with records of controlled substance purchases. In September or October 1978, the DEA informed in Internal Revenue Service (IRS) of the seizure of the currency. The IRS believed the information received from the DEA warranted a criminal investigation and initially assigned agent James P. Hinkle to investigate Drs. Chu and Cheng. Before commencing his investigation, Hinkle ascertained whether the DEA was intending to seek an indictment of the Doctors on the controlled substance charges pursuant to a Department of Justice policy to avoid "dual prosecution" of individuals. In early 1979 a federal grand jury in the Northern District of Indiana indicted Chu and Cheng on five counts of improper distribution of controlled substances and improper record keeping in violation of 21 U.S.C. §§841(a)(1), 843(a)(4) and 18 U.S.C. §2 . In July 1979, the United States District Court for the Northern District of Indiana dismissed without prejudice all counts of the indictment against Chu and Cheng as being "vague and ambiguous [and suffering] from duplicity." Shortly thereafter, DEA Inspector Fries informed Agent Hinkle of the IRS that "the charges had been dropped."

Hinkle activated the IRS investigation of Chu and Cheng, telephoned Chu , and arranged to meet Chu and his wife at the Southeastern Medical Center in Walton , Indiana , on September 12, 1979 . On that date Agent Hinkle and IRS Agent Stephen Platt met with Chu and Cheng. Hinkle identifed himself as "a Special Agent for the [IRS] assigned to the Criminal Investigation Division," and informed Chu and Cheng that he "had been assigned the investigation of their federal tax liability." Before asking any questions, Hinkle recited the following statement from a card given by the IRS to its agents:

"As a Special Agent one of my functions is to investigate the possibility of criminal violations of the Internal Revenue laws and related offenses. In connection with my investigation of tax liability I would like to ask you some questions. However, first I advise you that under the Fifth Amendment to the Constitution of the United States I cannot compel you to answer any questions or to submit any information if such answers or information might tend to incriminate you in any manner. I also advise you anything which you say and any documents you submit may be used against you in any criminal proceeding which may be undertaken. I advise you further that you may, if you wish, seek the assistance of an attorney before responding."

Hinkle then asked Chu and Cheng individually if they understood their rights; both answered, "Yes." Hinkle then asked each of them individually whether they wished to continue the interview, and after Chu and Cheng discussed among themselves in Hinkle's presence the advisability of obtaining a lawyer, they told Hinkle they wished to continue with the interview without the presence of a lawyer.

Hinkle began questioning Chu and Cheng about their financial affairs. The defendants advised Hinkle that none of the loans they previously made to friends or relatives were currently outstanding, that they had not borrowed any money against life insurance policies, that they had not borrowed any money from individuals, and that any loans they received were reflected on their tax returns. The defendants discussed their purchases of stocks and bonds, gave Hinkle the name of their stockbroker in Indianapolis , and disclosed their real estate purchases, including the location and purchase price. Hinkle then asked the defendants about their "cash on hand", explaining that by that term he meant "currency and coins which they had on their person or at any other location or being held by anyone for them. . . . I expressly told them I was not referring to bank accounts." The defendants told Hinkle that "they had never had a practice of accumulating large sums of currency except for some money which had been obtained from them by the [DEA]." According to the defendants, the $21,000 seized by the DEA "represented money which they had received from loans and also from the sale of a house in China ." Chu estimated that the most cash he had on hand at the end of the years 1975 through 1978 was between $150 and $200, and Cheng estimated that she had between $200 and $300 cash on hand at the end of the same four years.

On at least eight subsequent occasions through August 1980, Agent Hinkle, and later IRS Agent William Schroer, the agent to whom the investigation was later reassigned, met with the defendants and discussed their financial affairs. The agents examined and inventoried the contents of the defendants' safety deposit boxes, microfilmed documents, made a list of the defendants' savings bonds, collected records regarding the patients' accounts at the Southeastern Medical Center , and obtained their bank records.

The defendants eventually retained counsel, and on July 29, 1982 the defendants' attorneys provided Agents Hinkle and Schroer with letters written in Chinese, dated in 1979, 1980 and 1981, allegedly referring to the existence of loan transactions between the defendants and other family members. Agent Hinkle requested that the defendants provide the originals of the letters in order that a lab analysis might be conducted to determine the authenticity of the letters. The originals were never delivered. The IRS translated the copies of the letters, and inquired of the State Department whether any information in the letters could be investigated in mainland China . Agent Hinkle testified that after his superiors contacted the State Department, they informed him that the leads in the letters could not be investigated in mainland China and further that the IRS was unable to obtain any other pertinent information on the leads. The government requested production of the original letters, as well as any documentation the defendants might have in support of their purported family loan transactions. Neither the original letters nor any documentation has been produced.

After the thorough investigation of Agents Hinkle and Schroer, Chu and Cheng were indicted and tried in the Northern District of Indiana on two counts of evading federal income taxes in violation of 21 U.S.C. §7201 . ¹ At the conclusion of the defendants' joint trial, the jury returned guilty verdicts against each of the defendants on both counts. The court sentenced each of the defendents to two years of imprisonment, suspended their sentences, placed each one of them on probation, and fined them $20,000 individually. The defendants appealed. On appeal, Chu ² contends: 1) that the evidence was insufficient to prove him guilty of willful tax evasion; 2) that the trial court erred in admitting certain statements made by the defendants to IRS agents; and 3) that he was denied a fair trial by the suggestion in the government's closing argument that the defendants engaged in uncharged criminal conduct.

II.

In reviewing Chu 's claims regarding the sufficiency of the evidence supporting his conviction, we must determine "whether, after reviewing the evidence in the light most favorable to the government, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis in original); United States v. Welsh, 721 F.2d 1142, 1145 (7th Cir. 1983); United States v. Moya, 721 F.2d 606, 610 (7th Cir. 1983), cert. denied, 104 S.Ct. 1312 (1984). In the case before us, the government prosecuted the defendants employing the net worth method of proving willful tax evasion.

"In a typical net worth prosecution, the Government, having concluded that the taxpayer's records are inadequate as a basis for determining income tax liability, attempts to establish an 'opening net worth' or total net value of the taxpayer's assets at the beginning of a given year. It then proves increases in the taxpayer's net worth for each succeeding year during the period under examination and calculates the difference between the adjusted net values of the taxpayer's assets at the beginning and end of each of the years involved. The taxpayer's nondeductable expenditures, including living expenses, are added to these increases, and if the resulting figure for any year is substantially greater than the taxable income reported by the taxpayer for that year, the government claims the excess represents unreported taxable income."

Holland v. United States , 348 U.S. 121, 125 (1954).

A. Opening Net Worth. "[A]n essential condition in cases of this type is the establishment, with reasonable certainty, of an opening net worth, to serve as a starting point from which to calculate future increases in the taxpayer's assets." Holland , 348 U.S. at 132. Chu asserts that the government "totally failed to prove a reasonably certain opening net worth" in two respects. Initially, Chu states that there was no evidence introduced to establish that the assets listed in the government's summary for December 31, 1976 were a complete listing of all of the defendants' assets. According to Chu , the only evidence regarding opening net worth presented by the government was the testimony of the government's summary witness, IRS Agent Rob in Zeldin. ³ Chu contends that Zeldin's testimony revealed that the government's opening net worth statement did not include all of the assets in their (defendants') possession on December 31, 1976 :

"Q. Now, Mr. Zeldin, you have a figure for Series E savings bonds listed here on your assets computation. Isn't it, in fact, true there are more Series E savings bonds than you listed here? . . . Isn't true that they had considerably more savings bonds than [$43,875]?

A. Based upon what is in evidence that is the amount that they have [sic].

Q. Yes, but don't you for a fact show they had more savings bonds than that?

A. There are indications that they have [sic]."

On the basis of this testimony, Chu suggests the government has failed in its burden of establishing the taxpayer's opening net worth.

Chu relies on Merritt v. United States [64-1 USTC ¶9226 ], 327 F.2d 820 (5th Cir. 1964), where the court held that "the failure to include in the opening net worth all assets known by the government to have been held by the taxpayer during the period in question was error." Id. at 823. In Merritt, the government's summary witness testified as follows:

"Q. . . . As a matter of fact don't you know that as a matter of fact this taxpayer owned assets and had assets that you didn't even take into account in this case? . . .

A. He has some other assets, yes, sir.

Q. And this doesn't include all those assets does it?

A. No sir. . . . I know there are other assets of the taxpayer."

327 F.2d at 821. In addition, the taxpayer in Merritt testified and confirmed the agent's testimony regarding the existence of other assets. 327 F.2d at 823. In the case at bar, the summary witness, Rob in Zeldin, testified that "there are indications that they have [more savings bonds]." Thus, Zeldin, unlike the summary witness in Merritt, was not certain of the fact that the defendants had additional assets which were not included in the government's summary. The record fails to disclose any evidence as to what the "indications" of other assets were. The defendants did introduce evidence of certain stock splits, which had the effect of increasing their opening net worth, and the government's summary witness considered the additional $759 from the stock splits and revised and increased the amount of the defendants' opening net worth. From our examination of the record, we have been unable to discover any evidence to substantiate the defendants' inference that they possessed any additional savings bonds that were not included in the government's summary of assets. In contrast with Merritt, where there was clear corroborative evidence of additional assets not included in the defendant's opening net worth, in the case at bar the record contains only unsubstantiated inferences of additional assets.

Second, Chu argues that the government failed to establish the defendants' opening cash on hand with reasonable certainty. According to Chu , the government failed to advise the defendants of the net worth prosecution, and thus the defendants did not have notice of the need to disclose a full itemization of their assets. Further, Chu argues that the government knew of the defendants' tendency to keep cash on hand because of the $21,000 seized from the cottage at the Logansport State Hospital and the government was well aware of the fact that Chu's statement that he never had a practice of keeping "much cash on hand" except at the time of the DEA seizure was inaccurate. Chu submits that the government accepted the defendants' low estimate of cash on hand without corroborating the amount of cash on hand on December 31, 1976 , and without clarifying the taxpayers' confusion regarding the term "cash on hand." With respect to his "confusion", Chu makes much of the fact that he is an immigrant, "speaking a language wholly unrelated to English," and consequently did not understand the term "cash on hand." The government convincingly established to the contrary that "cash on hand" was adequately explained to Chu, that he understood the term, and that the government did not rely only on Chu's own statements, but also established the defendants' habit of putting money to work rather than allowing cash to sit idle without earning interest.

"Cash on hand in a net worth calculation is only one of several and varied financial assets and is of no greater significance, aside from its liquidity, than other assets." United States v. Goldstein [82-2 USTC ¶9507 ], 685 F.2d 179, 181 (7th Cir. 1982). "While the source and existence of cash-on-hand need not be proved with mathematical exactitude, the amount must be established with reasonable certainty." United States v. Terrell [85-1 USTC ¶9249 ], 754 F.2d 1139, 1146 (5th Cir.), cert. denied, 105 S.Ct. 3505 (1985).

In the case at bar, Agent Hinkle testified:

"I explained to them by [cash on hand] I meant currency and coins they had on their person or at any other location or being held by anyone for them. And I expressly told them I was not referring to bank accounts. [The defendants] then told me they never had a practice of accumulating large sums of currency except for some money which had been obtained from them by the [DEA]. Mr. Chu estimated that the most cash on hand that he would have had at the end of the years 1975, 1976, 1977, 1978 was between $150 and $200. [Cheng] said the maximum amount that she would have had . . . at the end of the same four years was between $200 and $300."

Agent Hinkle, while reading from his investigative reports, recited his perception of the defendants' answers to his questions regarding "cash on hand":

"Mr. Chu stated that his amount of cash on hand never substantially changed and that he never accumulated any large amount. . . . Mrs. Chu stated that her amount of cash on hand never substantially changed and that she never accumulated any large amount except for the money seized by the [DEA]. . . . Mr. Chu stated that they have a safety deposit box at the National Bank in Logansport . Mrs. Chu stated that only stocks, deeds, and other documents have been kept in that safety deposit box. Both Mr. and Mrs. Chu stated that currency had never been kept in that safety deposit box. . . . Both Mr. and Mrs. Chu stated that during the year 1975-1978 currency was not kept any place other than on his/her person."

The testimony at trial further revealed that Chu and Cheng had been practicing medicine in the United States since 1948, some thirty years at the time of the IRS investigation, and their medical practice demanded that they be able to consult, confer with, and understand their patients, in particular those patients who had mental or emotional problems. The defendants' son testified that English was the primary language spoken in their home and Agent Hinkle testified that the defendants conversed with him in English and failed to express any difficulty in understanding his questions and their replies to his questions gave no indication of any problem. The defendants' presence in the United States for thirty years at the time of the investigation, the requirement of their medical practice that they be able to understand and communicate effectively with their patients, the use of English in their home, and their conversations with Agent Hinkle in English demonstrate that the defendants could clearly understand and communicate in the English language. In addition, Chu and Cheng had significant investments in stocks and bonds, jewelry, foreign investments, real estate, and in a medical partnership. The extent and variety of the defendants' investments combined with their obvious understanding of the English language suggests that the defendants had more than sufficient knowledge of both the English language as well as of financial affairs so that they would not be confused by the term "cash on hand." The defendants failed to offer any evidence other than their own self-serving argument that they had any difficulty conversing in or understanding the same English language they had used for some 30 years. Thus, the record displays ample evidence in support of the conclusion that when Hinkle asked the defendants how much "cash on hand" they possessed, they knew precisely what Hinkle was referring to.

United States v. Meriwether [71-1 USTC ¶9390 ], 440 F.2d 753 (5th Cir. 1971), cert. denied, 417 U.S. 948 (1974), which Chu cites for the proposition that the defendants' admission concerning cash on hand must be corroborated with independent evidence, is contradicted by two later cases also from the Fifth Circuit. For example, in United States v. Normile [79-1 USTC ¶9151 ], 587 F.2d 784 (5th Cir. 1979), the court stated:

"With respect to cash on hand in currency the government had no way of determining this save by interrogating the taxpayer. He freely and voluntarily told Agent Black that he kept no more than $100 in cash because he did not feel safe having larger amounts around. It was not necessary for the government to seek to corroborate the taxpayer's statement; indeed the inherent secrecy of the cash horde makes it impossible for any but the keeper to know even of its existence, let alone the amount."

Id. at 786. In United States v. Terrell [85-1 USTC ¶9249 ], 754 F.2d 1139 (5th Cir. 1985), the court reaffirmed Normile, stating "The corroboration requirement does not necessarily extend to admissions relating to cash on hand." Id. at 1147.

In spite of the fact that the government was not required to corroborate with independent evidence the defendants' admission regarding the amount of cash on hand during the given period, it established the same with a presentation of evidence of the defendants' investment program. The record reflects that the defendants were very knowledgeable in the field of investments, with Agent Schroer testifying that the defendants had a pattern of investing in banks, stocks and bonds, jewelry, real estate, and a medical partnership, convincingly establishing that the defendants knew when, where, and how to invest to their own benefit rather than allow cash to sit idle. See United States v. Scott, 660 F.2d 1145 [81-2 USTC ¶9663 ], 1160 (7th Cir. 1981), cert. denied, 455 U.S. 907 (1982) (From the evidence of the defendant's pattern of investing, the court concluded, "it is obvious that Scott seldom let such funds remain idle, without earning any interest."). The defendants acknowledged the one known accumulation of cash, the $21,000 seized by the DEA, and explained it as being money received from a loan and the sale of a house in mainland China. Testimony revealed that the reason the defendants were still in possession of the cash was that Chu and Cheng could not agree on what to do with the cash: Chu wanted to apply the $21,000 to reduce their outstanding mortgate, while Cheng wanted to invest in gold. Other than this $21,000, the record is silent of any evidence of any significant cash on hand on December 31, 1976 or at any time during 1977 or 1978 that was not included in the government's opening net worth calculation. Thus, the defendants' statements that they had a maximum of $500.00 cash on hand on December 31, 1976 and that they "never had a practice of accumulating large sums of currency," except for the $21,000.00 seized by the DEA, together with the evidence of the defendants' pattern of investing available money, when viewed in a light most favorable to the government, provides sufficient evidence for a reasonable trier of fact to conclude that the government did establish the defendants' opening "cash on hand" with reasonable certainty.

B. Failure To Investigate Leads Provided By The Taxpayer. Chu next argues that the government failed to investigate or follow up leads provided by the defendants which might have led to non-taxable sources of income, and this failure of the government to investigate the leads renders the government's case insufficient to go to the jury under the decisions of Holland, supra, Scott, supra, and United States v. Keller [75-2 USTC ¶9729 ], 523 F.2d 1009 (9th Cir. 1975). Chu focuses on the government's failure to investigate suggestions that members of the defendants' extended family, including relatives residing in mainland China , allegedly loaned and entrusted the defendants with significant sums of money to "buy a house and create a safe sanctuary for members of the extended family." The government contends that the trial court properly instructed the jury that "they have to find from the evidence that the government had met its burden of investigating any lead or explanation supplied by the taxpayer and that Holland only requires the government to investigate leads 'reasonably susceptible of being checked.' " The government contends that it investigated every lead reasonably susceptible of being checked brought to its attention. Further, the government notes that during the trial it revised the defendants' opening net worth figures upward to take into account nontaxable sources of income supplied by the taxpayers.

In Holland , the United States Supreme Court stated that "When the government fails to show an investigation into the validity of such leads, the trial judge may consider them as true and the government's case insufficient to go to the jury." 348 U.S. at 136. But the Holland court also stated that the government need not investigate all leads. The court in Holland limited the scope of the government's required investigation to "relevant leads furnished by the taxpayer--leads reasonably susceptible of being checked, which, if true, would establish the taxpayer's innocence." Id. at 135-36. Thus, the issue is not whether the government fully investigated each and every lead furnished by the defendants, but whether the government failed to investigate any "relevant leads . . . reasonably susceptible of being checked." Agent William Schroer testified that the government investigated all leads concerning certain bank accounts and other records of the defendants and where appropriate, increased its net worth calculation in favor of the defendants. Our attention, then, focuses on whether the government adequately investigated the proffered leads suggesting that additional non-taxable income may have been realized from certain loan transactions within the defendants' extended family.

In 1982, the defendants provided the government with letters written in Chinese dated in 1979, 1980 and 1981, allegedly from family members in China , and allegedly discussing loans given to the defendants in previous years. Agent Hinkle testified that he had the letters translated, requesting the originals of the letters to have a lab verify their authenticity and also requested supporting documentation for the purported loans. The defendants have failed to provide either the original letters much less any supporting documentation for the purported loans. In United States v. Goldstein, 685 F.2d 179 (7th Cir. 1982), the defendant in a net worth tax prosecution argued that his increase in net worth was attributable to a non-taxable cash inheritance that he received. In holding that the evidence was sufficient to support the jury's guilty verdict, this court stated, "There was not a probated will or other record of any inheritance, and the testimony of the inheritance came from [the defendant's] relatives. The jury was under no duty to accord face value to this self-serving, undocumented testimony." Id. at 182. Similarly in the present case, there is no documentation or record of any loans to the defendants other than the copies of alleged letters from the defendants' relatives, and the jury was under no duty to accord face value to the defendants' self-serving claim of having received loans from family members.

Furthermore, Agent Schroer testified that if the alleged family loans that Chu contends were received before January 1, 1977 (the first tax year under examination) were invested prior to January 1, 1977 and were reflected as assets in the defendants' opening net worth statement, the existence of the loans would have no bearing on the defendants' net worth computation. According to Schroer, the existence of the family loans would benefit the defendants' net worth computation only if the alleged loans were held as cash on January 1, 1977 and were converted into assets during 1977 and 1978. Since, as noted above, the record discloses that the defendants engaged in a pattern of investing available funds and the record is silent of any evidence of any significant cash on hand on December 31, 1976 not included in the government's calculation of the defendants' opening net worth, the jury had ample evidence to conclude that if the defendants in fact received loans from various family members, the funds were invested prior to January 1, 1977 and thus had no bearing on the defendants' net worth during 1977 and 1978.

The diligence of the government in investigating all of the leads which were reasonably verifiable, the lack of the defendants' cooperation in failing to provide originals of letters, the defendants' failure to provide any loan documentation combined with Agent Schroer's testimony that the defendants' net worth would not be affected by any loans invested prior to January 1, 1977 provides sufficient evidence from which a reasonable person would conclude that the government investigated "all leads reasonably susceptible of being checked, which if true, would establish the taxpayer's innocence." Chu's argument that the IRS should follow leads to mainland China is as ridiculous as suggesting that the IRS must follow like leads into the Soviet Union, Poland, Afghanistan, Iran, Iraq, Africa, or other similar, troubled, and/or distant countries. A lead that requires world-wide investigation to be verified can hardly be characterized as "reasonably susceptible of being checked."

C. Likely Source of Unreported Income. Chu contends that the government not only failed to establish a reasonably certain opening net worth and failed to negate all possible sources of non-taxable income, but also failed to provide a likely source for additional unreported income. Chu believes the government failed in this regard because: (1) the government offered no evidence of the number of Phendimetrazine ⁴ actually dispensed rather than stolen, not included in records, or discarded due to damage; (2) the government offered no evidence showing the percentage of Phendimetrazine dispensed for money as opposed to dispensed without charge; and (3) even if each of the 700,000 allegedly missing Phendimetrazine had been dispensed at $.07 a piece, the total income of $49,000 was more than accounted for in the earnings reported by the Southeastern Medical Center for the two years in question.

In net worth tax prosecution, the government must establish "[e]ither a 'likely source' of the illegally unreported income represented by the calculated increase in net worth plus non-deductible expenditures in the year in question . . . or all possible sources of non-taxable income must be negated." United States v. Grasso [80-2 USTC ¶9593 ], 629 F.2d 805, 808 (2nd Cir. 1980). See also United States v. Massei [58-1 USTC ¶9326 ], 355 U.S. 595, 595 (1958). "The government could win its case without even introducing evidence of a likely source of income. . . . Proving a likely source of income is merely one of the ways that the Government can prove that the increased net worth resulted from taxable sources." United States v. Goldstein [82-2 USTC ¶9507 ], 685 F.2d 179, 183 (7th Cir. 1982). Thus, contrary to Chu 's contention, the government need not both prove a likely source and negate all possible sources of non-taxable income. In the present case, the government presented evidence from which a reasonable jury could find that the government had established "a reasonably certain" opening net worth and that the government investigated all "relevant leads . . . reasonably susceptible of being checked," thus negating possible sources of non-taxable income.

In addition to negating sources of non-taxable income, DEA Compliance Inspector Joel Fries testified that his review of the defendants' dispensing records of controlled substances, their account book and their purchases of Phendimetrazine revealed a total of over 698,000 Phendimetrazine units unaccounted for during the years 1977 and 1978, and the defense introduced testimony that the Phendimetrazine tablets were generally dispensed at a cost of $.07 per unit. Thus, the record contained sufficient evidence to allow a reasonable juror to conclude that unrecorded sales of the Phendimetrazine constituted a likely source of unreported taxable income. Chu relies on United States v. Grasso, supra, and United States v. Bethea, 537 F.2d 1187 (4th Cir. 1976), both of which are clearly distinguishable from the present case. In Grasso, the government investigation yielded "no factual basis for identifying a 'likely source' ", 629 F.2d at 808, and in Bethea "not one shred of evidence was introduced at trial to show [the defendant] had any dealings in narcotics or was in partnership with his brother [who dealt in narcotics]." 537 F.2d at 1191. In contrast, the jury in the instant case had sufficient evidence before it to conclude that the government negated all possible sources of non-taxable income and also established that unrecorded sales of the unaccounted-for Phendimetrazine provided a likely source of unreported taxable income.

III.

We turn now to Chu's contention that the trial court erred in admitting the statements made by the defendants to IRS agents into evidence as the agents contacted and interviewed the defendants without the presence of their counsel in violation of Massiah v. United States, 377 U.S. 201 (1964), requiring that indicted individuals be questioned concerning the charges pending in the indictment only in the presence of counsel, and because the defendants did not waive their constitutional rights intelligently, knowingly, and voluntarily. The government argues that the defendants had no right to counsel under Massiah since the indictment charging a violation of the controlled substance statutes had been dismissed before the IRS ever contacted the defendants, and the defendants obviously had not been indicted before the investigation for the income tax evasion was completed. Further, the government contends that the defendants did, in fact, waive any constitutional rights that they retained when they were interviewed by the IRS agents.

In Massiah, the Supreme Court held that an accused "was denied the basic protections of the [Sixth Amendment] [when the government introduced the defendant's own statement against him] which federal agents had deliberately elicited from him after he had been indicted and in the absence of his counsel." Id. at 206. Thus, if in fact Chu had been indicted on the income tax evasion charges at the time of his interview with IRS agents Hinkle or Schroer, any statements made by Chu without the presence of legal counsel would have been inadmissible against him on the tax evasion charges as Massiah prohibits the admission of statements against a defendant when "deliberately elicited from him after he had been indicted and in the absence of counsel." During the period Hinkle and/or Schroer interviewed Chu , the controlled substance indictment had been dismissed and was no longer pending, and he was a free man, not as yet having been indicted on the tax evasion charges. Consequently, Chu 's counsel in a novel but not too clever way seeks to expand upon the protection Massiah affords one under indictment to cover statements made after the dismissal of that indictment. Neither Chu nor his counsel have provided any authority to support this position, but contend in another novel argument that the DEA investigation and the IRS investigation should be considered as one investigation since the DEA was the source of information concerning the defendants, and also argues that the dismissal of the DEA indictment did not terminate the defendants' Massiah rights.

We need not discuss whether the defendants' Massiah rights terminated with the dismissal of the DEA indictment as Chu 's argument fails because the subsequent indictment and conviction involved an entirely different offense--income tax invasion.

"Massiah offers no immunity from liability for uncounseled, and post-indictment statements that involve different criminal acts. Such statements, even though deliberately elicited by government agents after indictment and in the absence of counsel, may form the basis for a separate indictment and may be offered to prove such additional charges. . . . Massiah is limited to holding that incriminating statements made by indicted defendants out of the presence of counsel may not be admitted at trial to prove the charge in the pending indictment."

United States v. Grego, 724 F.2d 701, 703 (8th Cir. 1984) (emphasis added). In Grego, a conversation between two defendants in the absence of counsel was recorded after the defendants had been indicated by a federal grand jury in Georgia on a charge of importation of marijuana. The defendants were subsequently indicted by a federal grand jury in Arkansas for conspiracy to possess marijuana and the trial court admitted evidence of the conversation recorded after the return of Georgia indictment. The court concluded:

"Although both indictments involve marijuana, the acts on which they were based were separate and distinct and did not amount to a single criminal offense. . . .

When the tape of the conversation was made [the defendants] had not been indicted on any offense for which the tape was later used against them; therefore, we affirm the district court's refusal to apply Massiah to exclude the tape."

Grego, 724 F.2d at 703.

The court in United States v. Lisenby, 716 F.2d 1355 (11th Cir. 1983) (en banc) (per curiam), was presented with a similar fact situation and reached a similar conclusion. In Lisenby the defendant had been arrested and charged with possession of marijuana. The government recorded conversations involving the defendant after he had been released (while the possession charge was still pending) and subsequently indicted the defendant for conspiraccy and possession with intent to distribute marijuana. The trial court admitted the taped conversation into evidence at the trial for conspiracy and possession with intent to distribute marijuana. The Eleventh Circuit upheld the admission of the recorded conversation, reasoning that, "The Sixth Amendment right to counsel attaches once adversary proceedings have been commenced, but it attaches as to those adversary proceedings and not other offenses. . . . The admission of statements made after the initial arrest in the trial for a subsequently charged offense is not contrary to Massiah." 716 F.2d at 1359 (emphasis in original) (citation omitted).

The defendants in the case at bar were initially indicted on drug-related charges. Only after the drug-related charges were dismissed and the defendants were free of any criminal charges did the IRS elicit the statements from the defendants that were subsequently introduced at their income tax evasion trial. The income tax evasion charge was completely separate and distinct from the charge of improper record keeping and improper distribution of a controlled substance recited in the prior indictment. Following the reasoning of Grego and Lisenby, the defendants' statements are admissible since at the time the statements were made, the defendants "had not been indicted on any offense for which the [statements were] later used against them." Grego, 724 F.2d at 703. Furthermore, Chu 's argument for suppressing the statements to the IRS agents in this case is even weaker than that rejected by the Eighth and Eleventh Circuits in Grego and Lisenby respectively since at the time of the defendants' statement to the IRS agents in the instant case, no indictment was pending against them. Thus, we hold that the trial court properly admitted the statements the defendants made to IRS agents prior to their indictment for income tax evasion.

Chu also contends that he and Cheng did not waive their constitutional rights when they made statements to the IRS agents. Chu fails to delineate or explain what, if any, constitutional rights the defendants had not waived, much less which of their constitutional rights they did not understand. As we have just concluded, Massiah does not apply to the statements the defendants made to the IRS agents since, at the time of the defendants' statements, they had not as of that date been indicted for income tax evasion. Since the defendants were not in custody at the time of other statements to IRS agents, Miranda v. Arizona , 384 U.S. 436 (1966), does not require that the defendants be admonished of their rights before questioning. Beckwith v. United States [76-1 USTC ¶9352 ], 425 U.S. 341, 347 (1976); United States v. Mapp [77-2 USTC ¶9607 ], 561 F.2d 685, 688 (7th Cir. 1977); United States v. Fitzgerald [76-2 USTC ¶9756 ], 545 F.2d 578, 581 (7th Cir. 1976). Chu contends that because he and Cheng did not understand that the IRS was conducting a criminal investigation, they did not intelligently, knowingly, and voluntarily consent to make statements to the IRS.

The Supreme Court recognized in Beckwith that "noncustodial interrogation might possibly in some situations, by virtue of some special circumstances, be characterized as one where 'the behavior of . . . law enforcement officials was such as to overbear the petitioner's will to resist and bring about confessions not freely self-determined. . . .' " 425 U.S. at 347-48. In the case before us, Hinkle testified that before asking the defendants any questions, he read aloud to the defendants from an IRS warning card:

"[O]ne of my functions is to investigate the possibility of criminal violations of the Internal Revenue laws. . . . Under the Fifth Amendment to the Constitution of the United States I cannot compel you to answer any questions or to submit any information. . . . [A]nything which you say may be used against you in any criminal proceeding which may be undertaken, [and] you may, if you wish, seek the assitance of an attorney before responding."

Chu testified at the suppression hearing held before trial that he is a naturalized citizen of the United States, that he began to learn the English language in his grade school years in China, that he took post-graduate courses at New York University in English after his arrival in the United States, and that he had been practicing psychiatry in this country for more than 20 years. Chu also conceded it was of the utmost importance for him in the practice of medicine, and particularly psychiatry, to understand a patient in order that he might make a proper diagnosis. Further, it seems obvious that the State of Indiana would require that medical doctors be able to fully understand and converse in the English language before granting a license to practice medicine in Indiana . The record also reveals that the defendants were knowledgeable in the field of financial affairs, with sophisticated investments in stocks, real estate, and a medical partnership. Chu acknowledged that he understood the language Hinkle used when explaining the defendants' rights, and after Hinkle recited the standard IRS statement advising the defendants of their rights, the defendants both responded "Yes" to Hinkle's question whether they understood their rights. Before going further with the interview, the defendants discussed whether it was advisable for them to obtain an attorney at this juncture in the investigation. Thus, there is ample evidence in the record supporting the conclusion that the defendants clearly, knowingly and intelligently understood the elements of the warnings read to them by Hinkle, the nature of the investigation, the nature of their rights, and thus that no "special circumstances"existed which would make defendants' statements anything but voluntary. We hold it was not error for the trial court to admit the statements the defendants made to the IRS agents.

IV.

Finally, Chu contends that he was denied a fair trial due to the Assistant United States Attorney's imputation of uncharged, unsupported criminal misconduct on the part of the defendants in closing argument in spite of the government's pledge not to offer evidence of uncharged criminal activity. During its closing argument, the government stated:

"Well, you have heard about the results of that [DEA] audit. You heard that they purchased during that period of January 1, '77 through February 23 of '78, before any returns were filed, that they had purchased 830,000, thousand capsules of--831,000 capsules in Logansport , or wherever they lived. Why? I didn't know there were that many people in Logansport or the other town that were so overweight that needed that kind of weight reduction. You heard they were mild uppers. These speckled birds, these robins eggs, what happened to the 698,000 pills that are missing? You think they don't have a value? You think they don't produce money? You would use your common sense and you can use you experience in life, and you can ask that question."

According to Chu, this argument "addressed no material issue in this tax case, was without evidentiary support, and violated repeated prosecutorial pledges on which the defendant relied," and the denial of the defendant's motion for mistrial on the basis of this argument was reversible error under Berger v. United States, 295 U.S. 78 (1935), and United States v. Meeker [77-2 USTC ¶9604 ], 558 F.2d 387 (7th Cir. 1977).

"Although inflammatory argument may be grounds for reversal, the government should not be restricted to a sterile recitation of uncontroverted facts." United States v. Scott [81-2 USTC ¶9663 ], 660 F.2d 1145, 1177 (7th Cir. 1981) (citing United States v. Falk [79-2 USTC ¶9597 ], 605 F.2d 1005 (7th Cir. 1979), cert. denied, 445 U.S. 903 (1980)). Further we note that "we are to consider the prosecutor's conduct not in isolation, but in the context of the trial as a whole, to determine if such conduct was 'so inflammatory and prejudicial to the defendant . . . as to deprive him of a fair trial. . . .' " United States v. Chaimson, 760 F.2d 798, 807 (7th Cir. 1985) (quoting United States v. Zylstra, 713 F.2d 1332, 1339 (7th Cir.), cert. denied, 464 U.S. 965 (1983)); see also United States v. Young, 105 S.Ct. 1038, 1045 (1985); Jentges v. Milwaukee County Circuit Court, 733 F.2d 1238, 1242 (7th Cir. 1984). It is unquestioned that the prosecutor "may prosecute with earnestness and vigor--indeed, he should do so. But, while he may strike hard blows, he is not at liberty to strike foul ones." Berger v. United States, 295 U.S. 78, 88 (1935); see also United States v. Young, 105 S.Ct. at 1042; United States v. Chaimson, 760 F.2d at 809.

The prosecutor's statement concerning the missing Phendimetrazine clearly was material and proper to provide a possible source for additional taxable income as discussed in Section II.C. above. DEA Compliance Officer Joel Fries testified without objection that approximately 698,000 capsules of Phendimetrazine, known on the street as "speckled birds" or "robins eggs," were unaccounted for in the defendants' records, thus providing evidentiary support for the government's argument. Contrary to Chu 's contention, the quoted passage of the prosecutor's argument does not claim that the defendants engaged in any criminal misconduct other than the tax evasion charges they were convicted of. Rather, the prosecutor merely noted that nearly 700,000 Phendimetrazine tablets were unaccounted for and suggested that they had value and could produce income; the prosecutor never even inferred, much less stated that unrecorded sales of Phendimetrazine might be illegal. Viewed in the context of the trial as a whole, we conclude that the quoted passage of the prosecutor's argument was not "so inflammatory and prejudicial to the defendant . . . as to deprive him of a fair trial." Chaimson, 760 F.2d at 809. While the prosecutor may have struck a "hard blow," in the context of the trial it was not a "foul blow." Accordingly, we hold that the prosecutor's closing argument was proper, and the district court's denial of the defendants' motion for a mistrial was not error.

V.

The judgment of the district court is AFFIRMED.

^* The Honorable Floyd R. Gibson, Senior Circuit Judge of the United States Court of Appeals for the Eighth Circuit, is sitting by designation.

¹ The evidence introduced at trial revealed that Chu and Cheng evaded $11,141 in federal income tax for tax year 1977 and $29,933 for tax year 1978.

² After the filing of this appeal defendant Dr. Sylvia Cheng Chu, M.D., died, and the district court set aside and deemed abated defendant Cheng's convictions.

³ Rob in Zeldin analyzed the defendants' net worth for the tax years 1977 and 1978 based on the exhibits received into evidence and the testimony offered at trial. Zeldin prepared charts which summarized the evidence and his analysis of the defendants' financial affairs for 1977 and 1978.

⁴ Phendimetrazine is included on Schedule III of the federal government's list of controlled substances. 21 C.F.R. §1308.13 (1985).

 

 

[84-2 USTC ¶9710] United States of America , Appellee v. John A. Ellsworth, Appellant United States of America , Appellee v. Mary A. Ellsworth, Appellant.

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 83-2279, 7/6/84, No. 83-2336, 7/6/84, Affirming unreported District Court decision

[Code Sec. 7203]

Crimes: Failure to File Return: Trial.--The taxpayer's conviction for willful failure to file tax returns was upheld. Prosecution by information, rather than by indictment, was sufficient since the maximum length of imprisonment was less than one year, with no possibility of hard labor. The taxpayer's contention that two prospective jurors were biased was without merit, especially in light of the fact that those jurors were not on the panel chosen to try the case. The testimony of the taxpayer's psychiatrist, consisting only of the conclusion that the taxpayer believed income tax was voluntary, was properly disallowed as this was not an appropriate subject for expert testimony and would not have assisted the jury. IRS analogies to stealing in its closing statement were not improper since they did not result in any actual prejudice.

Ronald D. Lahners, United States Attorney, Omaha, Nebraska 68101, Paul D. Boeshart, Assistant United States Attorney, Lincoln, Nebraska 68508, for appellee. Vincent M. Powers, 134 S. 13th Street , Lincoln , Nebraska 68508 , for appellant.

Before BRIGHT, Circuit Judge, SWYGERT, Senior Circuit Judge, ^* and BOWMAN, Circuit Judge.

BOWMAN, Circuit Judge:

John and Mary Ellsworth, husband and wife, were charged by information with willful failure to file federal income tax returns for the years 1977, 1978, and 1979 in violation of 26 U. S. C. §7203. The jury returned a verdict of guilty for the years 1978 and 1979. ¹ Both of the Ellsworths appeal their convictions. We affirm.

John alleges a number of errors, including prosecution by information rather than by indictment, failure to strike two jurors for cause, failure to allow a phychiatrist to testify, ineffective assistance of counsel, and prejudicial remarks by the prosecutor during closing argument. Mary alleges error only on the latter two grounds.

John contends that because he could have been sentenced to hard labor he should have been prosecuted by indictment, rather than by information. See Fed. R. Crim. P. 7(a). Rule 7(a) requires prosecution by indictment when the offense can be punished by death, by imprisonment for more than one year, or at hard labor. This rule is consistent with the Fifth Amendment's requirement of grand jury indictment for "capital or otherwise infamous" crimes and with decisions which define "infamous crime." See United States v. Moss [79-2 USTC ¶9580], 604 F. 2d 569, 572 (8th Cir. 1979), cert. denied, 444 U. S. 1071 (1980).

There is no merit to John's argument. The statute under which he was prosecuted provides that the crime is a misdemeanor and that upon conviction a person "shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution." ² 26 U. S. C. §7203. The statute does not authorize the punishment of hard labor. Therefore, John was properly charged by information.

John also contends that the District Court abused its discretion, see United States v. Young, 553 F. 2d 1132, 1136 (8th Cir.), cert. denied, 431 U. S. 959 (1977) (rulings on juror qualifications reviewed under abuse of discretion standard), by failing to strike two prospective jurors for cause. Juror McElroy, according to John, should have been struck because she would not affirmatively state that she could be impartial. Juror Berck demonstrated actual bias, according to John, by stating that he "would be more apt to go the other way," than to say "bully for someone who might choose intentionally to violate [the tax laws]." Trial Transcript (Tr.) at 434 (defense counsel questioning; juror Berck's response). There is no merit to John's arguments. Juror Berck later stated he could listen with an "open mind" and serve "impartially." Tr. at 440, 443. Neither prospective juror demonstrated a closed mind; rather, they demonstrated a conscientious attempt to be open and frank with counsel on both sides. The attitudes expressed were appropriately left for consideration by counsel in exercising peremptory strikes. We note that neither juror McElroy nor juror Berck was on the panel chosen to try the case and there is no showing that the empaneled jury was not impartial. See United States v. Young, 553 F. 2d at 1136.

John also argues that a psychiatrist, Dr. Eli Chesen, should have been allowed to testify at trial. Following the close of the government's case, the defendants informed the District Court and counsel for the government that Dr. Chesen would be called to testify. The District Court granted the government's motion to exclude the testimony under Rule 12.2(d) on the ground that no notice had been given to the government pursuant to Rule 12.2(b) of the Federal Rules of Criminal Procedure. John concedes that he did not give notice; but he contends that Dr. Chesen's opinion was outside the scope of Rule 12.2(b) because it addressed John's good faith belief that the income tax is a voluntary process and not John's mental state. The government's position is that Dr. Chesen's testimony was related to whether John had the mental state required for the offense.

Rule 12.2(b) requires a defendant to give notice "[i]f [the] defendant intends to introduce expert testimony relating to a mental disease, defect, or other condition bearing upon the issue of whether he had the mental state required for the offense charged . . .." ³ Courts have disagreed over the scope of expert testimony covered by Rule 12.2(b). See, e.g., United States v. Hill, 655 F. 2d 512, 517-18 (3rd Cir. 1981) (general discussion of applicability of rule in entrapment cases); United States v. Webb, 625 F. 2d 709, 710-11 (5th Cir. 1980) (rule not applicable to testimony offered to show defendant lacked the propensity to commit a violent act where it was offered to show defendant did not commit the offense charged); United States v. Busic, 592 F. 2d 13, 20 (2nd Cir. 1978) (testimony that defendant committed offense out of "psychological necessity" was properly excluded on grounds other than the rule); United States v. Olson [78-1 USTC ¶9439], 576 F. 2d 1267, 1273 (8th Cir.) (rule applicable to testimony regarding defendant's alcoholism), cert. denied, 439 U. S. 896 (1978); United States v. Staggs, 553 F. 2d 1073 (7th Cir. 1977) (rule applied to testimony that defendant was more likely to hurt himself than others); United States v. Edwards, 90 F. R. D. 391, 393 (E. D. Va. 1981) (rule applied to testimony regarding defendant's intellectual capacity).

Although Rule 12.2(b) has been applied in a wide variety of circumstances, we do not believe it can be extended to cover the testimony of Dr. Chesen. We can find no support in the record for the government's assertion that his testimony related to a "condition." Cases which apply the rule can be distinguished on the ground that the expert testimony concerned a complaint, an affliction, or a psychological characteristic susceptible to clinical verification and diagnosis. In contrast, the testimony of Dr. Chesen, as offered by defendants, consisted only of the bare conclusion that John had a good faith belief that the income tax was voluntary. He repeatedly opined that John had a good faith belief, a conscientious belief, a genuine belief, and a true belief. But there was no evidence of an underlying psychological basis for this conclusion. Therefore, we conclude that Rule 12.2(b) did not apply in these circumstances.

Although we disagree with the District Court's reason for excluding Dr. Chesen's testimony, we support the result, for we believe that Dr. Chesen's conclusory statement was not an appropriate subject for expert testimony. ⁴ The critical question is whether such testimony "will assist the trier of fact to understand the evidence or to determine a fact in issue." Fed. R. Evid. 702. Nothing in the record suggests that Dr. Chesen's testimony would have assisted the jury in this case.

Dr. Chesen's opinion does not appear to be based upon a "sound factual foundation," nor does his opinion appear to be based upon "an explicable and reliable system of analysis." See State v. Kim, 64 Hawaii 598, 645 P. 2d 1330, 1336 (1982); see also United States v. Fosher, 590 F. 2d 381, 382-83 (1st Cir. 1979). Dr. Chesen briefly met with John and Mary on three occasions, but the offer of proof reveals none of the factual underpinnings of Dr. Chesen's conclusions. The method used by Dr. Chesen also is left unexplained. Cf. United States v. Vik, 655 F. 2d 878, 880 (8th Cir. 1981) (no abuse of discretion in refusal to allow psychiatrist to testify about personality types of victims in Mann Act case). Finally, we have no basis upon which to conclude that the subject was beyond the common understanding of the jurors or that Dr. Chesen could offer information that would ordinarily not be available to them. See United States v. West, 670 F. 2d 675, 682 (7th Cir.), cert. denied, 457 U. S. 1124, 1139 (1982) (no error in rejecting psychiatrist's testimony that because of his limited intelligence defendant was less likely than a person of average intelligence to realize he had been given a bribe; jury able to assess his intelligence when he testified and did not need expert testimony); United States v. Webb, 625 F. 2d 709, 711 (5th Cir. 1980) (testimony that defendant lacked propensity to commit a violent act was excludable on ground that it was not necessary to assist trier of fact); State v. Kim, 645 P. 2d at 1337. The District Court properly excluded the testimony of Dr. Chesen. ⁵

After the District Court ruled that Dr. Chesen's testimony was inadmissible because of failure to give notice pursuant to Rules 12.2(b) and (d), the defendants sought to introduce it as lay testimony. We find no abuse of discretion by the District Court in refusing to permit Dr. Chesen to testify as a lay witness. Defense counsel had informed the jury that Dr. Chesen would testify as an expert. Had he been allowed to testify, his aura of expertise almost certainly would have remained with him in the eyes of the jury. Moreover, the defendants called a number of lay witnesses who testified to John's good faith belief that wages were not taxable income; Dr. Chesen's testimony as a lay witness would have been cumulative.

John and Mary also contend that reversal is required because the attorney for the government made improper remarks in his closing argument. The government attorney used an analogy to explain the difference between a good faith misunderstanding of the law and a good faith disagreement with the law. ⁶ Defendants argue that by using this analogy the government attorney insinuated that they were thieves.

No objection was made by either defendant at the time of the argument; therefore, we review the remarks for plain error. See United States v. Boykin, 679 F. 2d 1240, 1245 (8th Cir. 1982). In our view, the remarks were not so prejudicial that they "affected substantial rights resulting in a miscarriage of justice." Id. (quoting United States v. Splain, 545 F. 2d 1131, 1136 (8th Cir. 1976)). Although the prosecutor's use of stealing as the basis of the analogy may have transgressed the limits of propriety, we do not believe the remarks were sufficiently prejudicial to require reversal. The purpose of the analogy was to explain the meaning of willful failure to file income tax returns, not to label the Ellsworths as thieves. In addition, the District Court properly instructed the jury as to what the government had to prove in regard to the element of willfulness. There is no basis upon which to conclude that use of stealing in the analogy inflamed or misled the jury or otherwise resulted in any actual prejudice.

Finding no merit to the appellants' claims, we affirm their convictions.

^* The Honorable Luther M. Swygert, United States Senior Circuit Judge for the Seventh Circuit, sitting by designation.

¹ The case was heard before the Honorable Warren K. Urbom, United States District Judge for the District of Nebraska.

² This statute was amended in 1982 to raise the limit of the fine to $25,000; the amendment applies to offenses committed after September 3, 1982 and is not applicable here.

³ Rule 12.2(b) was amended in 1983. The effective date of the amendment occurred subsequent to the trial in this case.

⁴ We do not hold that Dr. Chesen's testimony was properly excluded because it addresses an "ultimate issue of fact" in the case; such testimony is permitted by Rule 704 of the Federal Rules of Evidence. Rather, we hold that it was properly excluded because of the lack of a foundation for Dr. Chesen's opinion.

⁵ Both John and Mary argue that they received ineffective assistance of counsel because their respective attorneys failed to give notice pursuant to Rule 12.2(b) of the intent to introduce two experts to testify. Dr. Chesen would have testified as to John's and Mary's good faith beliefs; Dr. Marty Klein would have testified as to Mary's good faith belief. Our careful examination of the record reveals that the representation provided by counsel for each defendant easily met the standard of a reasonably competent attorney. Moreover, our discussion of the admissibility of Dr. Chesen's testimony clearly shows that the defendants were not prejudiced by the alleged error of failing to give notice. See generally Strickland v. Washington, 104 S. Ct. 2052, 2064-69 (1984) (test for an ineffective assistance claim consists of two components: a performance component and a prejudice component).

⁶ In closing argument, the attorney for the government stated:

Let me give you an example of a person who can misunderstand the law and a person who would disagree with the law. There is a little person called Billy, and he's raised by his mother. He happens to have a very bad mother, and Billy's mother, from the time he's a little boy says, "Billy, steal. It's a good thing for you to steal." She teaches him now to be real deceptive. I told you she was a terrible mother. And, at a very young age he's in the store and goes by the candy counter and she says, "Billy, take a candy bar," and he says, "Okay." So he takes a candy bar and he gets this terrible--he believes it's okay to steal. And eventually--I'll spare you the whole details, but eventually he becomes an adult and he walks into his favorite jewelry store, and there is a diamond ring, and he thinks, "Oh, a diamond; I've always wanted one." And he picks it up and he goes on trial. You know, did he misunderstand the law? Contrast that with the second example. Billy in the second case is raised by a very good mother, and she always tells him, from the time he's very little, "You shouldn't steal; it's wrong to steal; don't steal." He goes to school. He learns it's wrong to steal. There is no inconsistency about it, and he knows that it's wrong to steal, but he gets to thinking one day, "I feel like a free spirit; I really think I should be able to steal." And, at about the same time, he listens to somebody saying, "Well, it's still against the law to steal, but if you take things, that's okay." And Billy thinks, "Ah, that's perfect." And so Billy says, "Well, I know it's wrong to steal, but I can take things." So to the jewelry store he goes and he takes the diamond ring. Now, is Billy going to be acquitted because he didn't know it was wrong to steal? Ladies and gentlemen, that's simple example, but similar to what we have with John and Mary Ellsworth. Are John and Mary Ellsworth two individuals who didn't understand that it was wrong to not file federal income tax returns on their wages? Or are they two individuals who decided that they wanted to disagree with the tax laws as they are constituted, and perhaps to disagree very sincerely, but who said, "I'm not going to do it anymore, and I'm going to say wages aren't income. I'm going to say that that just solves it."?

Tr. at 398-99.

 

[81-2 USTC ¶9607] United States of America , Plaintiff-Appellee v. Edward Chamless Fogg, III, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, Unit B, No. 80-5900, 652 F2d 551, 8/6/81, Affirming an unreported District Court opinion

[Code Sec. 7201]

Criminal penalties: Attempt to evade tax: Kickback scheme: Trial.--The IRS carried its burden of proving that the taxpayer received income from a kickback scheme that he did not report in a willful attempt to evade taxes. Comments made by the attorney representing the IRS were not comments on the taxpayer's failure to testify, and remarks made at the sentencing hearing were not prejudicial. The court did not err when it permitted an IRS agent to testify.

Atlee W. Wampler, III, United States Attorney, Kevin M. Moore, Stephen B. Gillman, Assistant United States Attorneys, Miami, Fla. 33130, for plaintiff-appellee. C. Harris Dittmar, 1500 Barnett Bank Building , Jacksonville , Fla. 32202 , for defendant-appellant.

Before HILL and VANCE, Circuit Judges, and LYNNE, ^* District Judge.

LYNNE, District Judge:

This appeal concerns the amazing attempt of appellant, the corporate president of a thriving food store chain, to skim approximately $80,000 per year off the wholesale price that his company paid for orange juice and pour it, tax-free, into his own pocket. On March 30, 1980 , a grand jury, sitting in the Southern District of Florida, indicted appellant on ten counts of income tax evasion. Appellant's jury trial began on June 11, 1980 . At the close of the government's case, the trial judge granted appellant's motion for judgment of acquittal on those counts charging that appellant had assisted in presenting fraudulent corporate tax returns for the years 1973-77. ¹ The jury convicted appellant of personal income tax evasion in violation of 26 U. S. C. §7201 ² for the years 1973-77. On November 6, 1980 , the district judge fined appellant $50,000 and sentenced him to prison for a total of thirty months.

[Background]

Reduced to its simplest terms, the government's case against appellant consisted of evidence that he received "kickbacks" from the Florida Orange Juice Company (FOJC) which supplied his food store chain with orange juice. Appellant did not report these "kickbacks" as personal or corporate income. The controller for FOJC, Aron Kelton, testified that he drew disbursement checks to Farm Stores (appellant's business) on a regular basis. ³ The amount of each check equalled the number of units of orange juice sold to Farm Stores since the last check, times an allowance or reimbursement figure. ⁴ Kelton personally delivered checks to Farm Stores' offices on two occasions when Frank Knight, the regular courier and the general manager of FOJC, was out of town. The checks were enclosed in envelopes marked "Farm Stores, attention Mr. Ed Fogg." Kelton further testified that the reimbursements sent to Farm Stores were labeled as "promotion" on FOJC's books. FOJC did not have this sort of arrangement with any of its other customers.

Frank Knight worked for FOJC from approximately 1951 until 1977. He explained the reimbursements as the result of appellant's apparent desire "to have more money to spend." Appellant asked Knight in the early 1970's if he could pay extra for orange juice and receive a refund from FOJC at the end of each month. Knight agreed. Knight always delivered the checks to appellant by hand. At appellant's request, each check was made payable to Farm Stores Processing, a division of Farm Stores.

John Rife, an accountant with Farm Stores, also testified for the government. Rife was specifically employed by Dairy Management Service, a partnership consisting of appellant and his brother. Rife testified that appellant gave him the first FOJC check, told him to give him cash for it, and stated that he planned "to use the money for legitimate business purposes." Thereafter, as he received FOJC checks from appellant, Rife deposited them to a bank account entitled Farm Stores, Inc., Milk Processing Division. He testified that he sometimes handled the checks through an exchange or general ledger account by debiting the bank account and crediting the exchange account or petty cash. He would then have a check written to cash, disguising the entire transaction by making the opposite entries in each account. One of Rife's assistants cashed each check. Rife personally transferred the cash to appellant and kept only informal notes on the receipt of each check. He never recorded the amounts as business income to Farm Stores, admitting on the stand that he "used poor judgment in handling it that way." ⁵

The government presented several other witnesses including the agent who had conducted the audit of Farm Stores' 1975 and 1976 tax returns. In the course of that audit, the agent received documents indicating that appellant, because of his education and experience, was an expert accountant. Appellant's defense consisted of testimony by numerous character witnesses. ⁶ He did not testify in his own behalf.

[Prima Facie Case]

Appellant contends that the government failed to construct a prima facie case of personal income tax evasion because it did not prove what Fogg did with the money after he received it from Rife. In his testimony, Rife stated that Fogg told him the money was to be used for "legitimate business expenses." The government's failure to contradict this heresay statement, so the argument runs, indicates that the jury based its verdict of guilty on mere conjecture. The government argues that it presented substantial evidence of appellant's guilt, more than meeting its burden under 26 U. S. C. §7201 and the pertinent case law. We agree with the government and affirm the lower court's refusal to grant appellant's motion for judgment of acquittal.

In United States v. Heitt [78-2 USTC ¶9754], 581 F. 2d 1199, 1200 (5th Cir. 1978) we cataloged and commented upon the elements of a Section 7201 violation:

To establish a §7201 violation, the government must prove (1) the existence of a tax deficiency, (2) an affirmative act constituting an evasion or attempted evasion of the tax due, and (2) willfulness. . . . To establish a tax deficiency, the government must show first that the taxpayer had unreported income, and second, that the income was taxable. (Citations omitted).

As did the appellant in Hiett, Mr. Fogg contends that the money he undisputably received from FOJC was not taxable income. Hiett maintained that the government failed to prove the existence of a taxable source ⁷ or the nonexistence of any nontaxable source ⁸ for his unreported income. In allowing the government to present testimony of an Internal Revenue agent that his extensive investigations revealed no possible nontaxable source for Hiett's extra income, ⁹ we noted that Section 7201 does not require the government "to prove a cosmic negative." Id. at 1201. To require the government in the instant case to disprove Fogg's accountant's meager recollection of Fogg's purported use of the money would be absured. The government met its burden under the statute by demonstrating Fogg's receipt of unreported income and the existence of its taxable source.

Hiett also examines another issue raised by Fogg relating to the government's burden of proof. In Hiett, we affirmed the lower court's placement of the burden of proof on the defense to show that Hiett's expenditures were for business, not personal, purposes. Id. at 1202. It stated clearly that the burden of proving deductions is on the defendant. If Fogg contends that he used the money from FOJC for legitimate business expenses, he must prove it. He chose to remain silent at trial and allow the jury to draw inferences from the evidence without the benefit of his version of the facts.

Appellant goes to great lengths in his brief to distinguish the cases of United States v. Lawhon [74-2 USTC ¶9634], 499 F. 2d 352 (5th Cir. 1974), and McClanahan v. United States [61-2 USTC ¶9550], 292 F. 2d 630 (5th Cir. 1961). These cases are similar to Hiett because in each we refused to place the burden of proving the legitimacy of deductions upon the government. Fogg claims that his situation differs from that of Lawhon because he does not assert his right to off-setting deductions; rather, he refused to characterize the money he received as income. The government's point in this regard is well taken. It contends that there is no real distinction between the basic arguments of Fogg and Lawhon. Neither appellant denied receiving money. Each offered a reason why he should not pay taxes on the funds. When the government in the instant case presented evidence indicating that the money received by Fogg was income to him, the court below properly submitted that question to the jury.

[Agent's Testimony]

Internal Revenue Agent Tepper testified for the government as an expert IRS auditor and accountant. The prosecutor asked Agent Tepper to give his opinion of the tax treatment of the transactions in evidence. Agent Tepper stated that the payments to Fogg would be characterized as constructive dividends from the Farm Stores Corporation. ¹⁰ Without documentation, the Internal Revenue Code would not recognize expenditures a business expense deductions. Appellant emphasizes the impropriety of Agent Tepper's testimony because it was prejudicial and because it stated legal conclusions.

In United States v. Bass [70-1 USTC ¶9311], 425 F. 2d 161 (7th Cir. 1970), the court remanded the case for several reasons, the least of which was the government's attempt to prove the existence of income through the testimony of an Internal Revenue agent. The agent stated that certain corporate expenses of the appellant's corporation were improper and would be charged as income to appellant. Bass is easily distinguishable from the instant case because the government did not rely solely on Agent Tepper's testimony or upon lack of documentation to establish receipt of income by Fogg. Fogg's counsel cross-examined Rife and elicited the statement that Fogg told him the money was for business purposes. The government took the opportunity to rebut this exculpatory evidence with the agent's testimony.

Moreover, the court below, in denying appellant's motion for a new trial, made several observations about Bass. First, the testimony of the agent was only a superfluous reason for remand. The court remanded the case mainly because of erroneous jury instructions. Second, we had not accepted Bass's teachings concerning expert testimony. Third, as of October 10, 1980 , no court in any jurisdiction had cited Bass for the proposition urged by Fogg.

In contrast to Bass, it is well settled that `such expert testimony [that of an agent] is permissible in a tax evasion case, provided . . . that the expert testifies on the basis of facts in evidence.'" United States v. Schafer [78-2 USTC ¶9717], 580 F. 2d 774, 778 (5th Cir. 1978), quoting, United States v. Johnson [43-1 USTC ¶9470], 319 U. S. 503, 519-20, 63 S. Ct. 1233, 1241, 87 L. Ed. 1546 (1943). ¹¹

Fogg also objects to Agent Tepper's testimony because in it he stated legal conclusions. Fogg specifically objects to the following statement: "Without any other evidence those monies [from FOJC] would be considered constructive dividend [sic] to the taxpayer." It appears to this Court that Agent Tepper merely stated his opinion as an accountant, and did not attempt to assume the role of the court. Since the court below instructed the jury about the weight to be afforded expert testimony, Agent Tepper's statements were placed in the proper perspective. In United States v. Milton, 555 F. 2d 1198, 1204 (5th Cir. 1977), a prosecution for conducting an illegal gambling business, we affirmed the lower court's admission of expert testimony although it appeared to be a legal conclusion. In reaching the decision to affirm, we considered the testimony in its context, the complexity of the case, and the correctness of the witness' statement. We also emphasized "the trial court's admonitions to the jury to accord no unusual deference to expert testimony and to take the court's instructions as the sole source of applicable law . . .." Id.

When one compares Agent Tepper's testimony with that of the customs agent in Huff v. United States, 273 F. 2d 56 (5th Cir. 1959), the correctness of the trial court's decision is apparent. The district court in Huff allowed the customs agent to state his interpretation of the customs laws, and apply it to the ultimate issue in the case. Id. at 61. We predicated our decision to reverse on numerous grounds other than the admission of prejudicial expert testimony. Moreover, Huff was decided before the liberalization of the Federal Rules of Evidence. Rule 704 now allows experts to state their opinions on the ultimate issue. Most important in comparing Huff with the instant case is the fact that Agent Tepper never couched his testimony as judicial instructions to the jury. He simply stated his opinion as an accountant. In this day and age, any accountant who lacks adequate knowledge of the tax laws is risking liability for malpractice.

[Improper Comment]

Comments by a prosecutor upon the failure of a criminal defendant to testify in his own defense violate the defendant's fifth amendment rights and necessitate reversal. ¹² We recently clarified this general rule in United States v. Bright, 630 F. 2d 804 (5th Cir. 1980):

To reverse for improper comment by the prosecutor, we must find one of two things: that "the prosecutor's manifest intention was to comment upon the accused's failure to testify" or that the remark was "of such a character that the jury would naturally and necessarily take it to be a comment on the failure of the accused to testify."

Id. at 825, quoting, United States v. Rochan, 563 F. 2d 1246, 1249 (5th Cir. 1977) (citations omitted).

The court, however, drew a distinction between a comment concerning "the failure of the defense, as opposed to the defendant, to counter or explain the evidence." 630 F. 2d at 825 (citations omitted). A comment about the former did not violate the defendant's fifth amendment rights.

In his closing argument, appellant's counsel pleaded with the jury as follows:

Now, my job is almost done. I have a very important job, too. I am in this courtroom to defend a man who has lived over sixty years as an outstanding man in his community, whose whole life is in jeopardy by reason of this criminal charge. I feel the awesome burden that I have. Suppose I don't do something that I should do and this innocent man is convicted. That's why throughout I have tried to the best of my ability, with the assistance of my partner, to do everything I could do to make sure that only fair, straightforward evidence got to you.

In rebuttal to this appeal for sympathy, the prosecutor stated:

Now, he says that somebody has put this man's life in jeopardy. A criminal case, Ladies and Gentlemen, this case is here for one reason and one reason only. It was this defendant who committed the acts that are uncontroverted. They have not been controverted by anything that Mr. Dittmar has brought out in his closing argument. It was the defendant that put himself into question, put his own liberty in jeopardy because there is no legitimate explanation. You didn't hear one legitimate explanation for that type of conduct.

It appears to this Court that the prosecutor merely commented upon the complete failure of the defense to rebut the government's case. Indeed, the trial court wrote in its order denying Fogg a new trial: "[T]he comments in question here neither show the required manifest intent, nor would they naturally and necessarily be taken to be a comment on the defendant's failure to take the stand." It is also obvious that appellant was not the only person who could have controverted the government's case against him.

As a final assault, appellant collects under the topic "Prosecutorial Misconduct" a myriad of offenses allegedly perpetrated against him. First, he complains that the prosecutor deprived him of the "shield of the grand jury" by failing to present live witnesses. The prosecutor read portions of the transcripts of the testimony of witnesses before other grand juries. ¹³ to the grand jury returning the original and the superseding indictments. ¹⁴ This is a bogus contention since the district court allowed the disclosure of the testimony taken before the other grand juries. This procedure was approved by this Court in United States v. Malatesta, 583 F. 2d 748, 752-54 (5th Cir. 1978), aff'd on other grounds en banc, 590 F. 2d 1379 (5th Cir. 1979). In his reply brief, appellant claims that the grand jury did not hear portions of Rife's testimony that might have altered the indictment returned against him. The government claims that it read "verbatim and without summary" the testimony of those witnesses "essential to the establishment of probable cause." After a thorough review of the record, we agree with the government. It would have served no purpose for the government to read testimony about appellant's alleged participation in a wiretapping operation to the grand juries investigating his alleged tax evasion. ¹⁵

Appellant also claims that the prosecution sought a superseding indictment on the counts alleging violation of 26 U. S. C. §7606(2) even though it knew it lacked sufficient evidence to support these counts. The prosecution allegedly used these counts as a vehicle to present irrelevant and prejudicial evidence to the jury. This argument fails because, as the court below noted in its order denying appellant's motion for a new trial, the evidence of the kickback scheme was not only relevant but crucial to the charges of personal income tax evasion.

Appellant next claims that the government violated the teachings of Brady v. Maryland, 373 U. S. 83, 83 S. Ct. 1194, 10 L. Ed. 2d 215 (1963). In Brady, the Supreme Court reversed a state criminal conviction because the prosecution had withheld evidence which was favorable and material to the defense. Appellant in the instant case emphasizes the lower court's order that all Brady material be delivered to appellant by March 6, 1980 . The government failed to supply some material until the day of trial. Brady only requires that the defense receive the materials prior to trial. Appellant specifically claims that he did not know of certain statements made before the grand jury by Knight and Rife. As noted by the government and by this Court in United States v. Brown, 628 F. 2d 471, 473 (5th Cir. 1980):

Regardless of whether the request was specific or general, and regardless of whether the evidence was material or even exculpatory, when information is fully available to a defendant at the time of trial and his only reason for not obtaining and presenting the evidence to the Court is his lack of reasonable diligence, the defendant has no Brady claim . . .. In no way can information known and available to the defendant be said to have been suppressed by the Government. [Footnotes omitted.]

Given appellant's close relationship with both Rife and Knight, his counsel could easily have obtained their statements.

Appellant objects to the prosecutor's use of the term "kickback scheme" to characterize appellant's transactions with FOJC. The prosecutor employed this term in his closing argument only. ¹⁶ At a time when the jury was absent from the courtroom, he asked the trial court's permission to use the term. In view of this Court's definition of "kickback" in United States v. Porter, 591 F. 2d 1048 (5th Cir. 1979), ¹⁷ the use of the term in this context seems particularly apt.

Finally, appellant labels as prosecutorial misconduct certain comments made by the government in its sentencing memorandum and at Fogg's sentencing hearing. In the memorandum, the prosecutor stated that "for almost five years every person in this community who bought juice from the defendant's company was systematically overcharged." The government claims that this was merely a reasonable and permissible inference from the evidence. Appellant also objects to the mention of the wiretap investigation of Farm Stores as an attempt to link Fogg with that illegal activity. The government never mentioned the wiretapping until appellant brought it out during the cross-examination of Rife in an effort to show that he was harassed. The government claims that mentioning the wiretapping was relevant because at the time the wiretap investigation began, the kickback scheme stopped. Even if these statements were improper, the prosecutor made them to the judge and not to the jury. After listening to what the court below termed "the overwhelming evidence" of guilt in Fogg's case, it is doubtful that the prosecutor's written and spoken remarks at sentencing made any difference in the severity of the sentence imposed.

AFFIRMED.

^* Hon. Seybourn H. Lynne, Senior District Judge of the Northern District of Alabama, sitting by designation.

¹ The government alleged violations of 26 U. S. C. §7206(2).

² Section 7201 reads in pertinent part:

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than #10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.

³ Frank Knight, the general manager of FOJC testified that he paid the "refunds" three times a month instead of once so that FOJC's bank account would not be hit with a huge expenditure at one time.

⁴ The reimbursement figure varied from 1¢ to 2.5¢ per unit.

⁵ Mildred Elkins, Rife's assistant, testified that she handled the FOJC checks in the manner described above when Rife was out of town. She cashed the checks and either gave the money to appellant or placed it in the cash box.

⁶ These included the Mayor of Dade County, Florida, the President of the University of Miami , and the retired Bishop of the Episcopal Diocese of Southern Florida.

⁷ See Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 138, 75 S. Ct. 127, 136-37, 99 L. Ed. 150 (1954).

⁸ See United States v. Massei [58-1 USTC ¶9326], 355 U. S. 595, 78 S. Ct. 495, 2 L. Ed. 2d 517 (1958).

⁹ See United States v. Dwoskin [81-2 USTC ¶9416], 644 F. 2d 418 (5th Cir. 1981).

¹⁰ Q. [By Mr. M oore] Mr. Tepper, with respect to the checks to cash that were cashed and the proceeds given to the defendant in the same approximate amount of the Florida Juice checks that were put in and deposited to the Milk Processing account under generally accepted accounting principles, how would these amounts be reported on the taxpayer's individual return?

* * * [Objection]

THE COURT: The agent heard the testimony concerning this. If you can answer that question, I will let you go ahead.

THE WITNESS: Without any other evidence these monies would be considered constructive dividend [sic] to the taxpayer.

Q. [By Mr. M oore] And as a constructive dividend how would they be reported?

A. As dividend income.

Q. In your examination of the returns of the taxpayer Fogg, did you ever determine the amount of checks to petty cash [that] were reported as constructive dividend [sic] on the return of the defendant?

A. These monies weren't reported on the return of the defendant.

Q. Mr. Tepper, assume the monies paid to the corporate officer were used for legitimate business expenses, how would they be treated on the books and records of the corporation?

A. That would depend on whose business expenses they are for.

Q. Assume further that they were for in this case the Farm Stores Corporation, how would they be treated?

A. Either as a deductible or nondeductible business expense.

Q. And if they were for a deductible business expense, how would they be treated?

A. They would have been charged to whatever expense it was for.

Transcript at 457-59.

* * *

Q. Mr. Tepper, finally based on the testimony that you have heard and the books and records that you have examined, were you able to make a determination of whether these amounts that were being claimed as legitimate business expenses whether they were in fact reported as legitimate business expenses?

A. They weren't reported as legitimate business expenses.

Transcript at 462-63.

¹¹ See United States v. Grote [81-1 USTC ¶9109], 632 F. 2d 387, 390 (5th Cir. 1980); United States v. Milton, 555 F. 2d 1198, 1203-04 (5th Cir. 1977).

¹² Griffin v. California , 380 U. S. 609, 85 S. Ct. 1229, 14 L. Ed. 2d 106 (1965); United States v. Chandler , 586 F. 2d 593, 603 (5th Cir. 1978); United States v. Edwards, 576 F. 2d 1152, 1154 (5th Cir. 1978).

¹³ Farm Stores was previously investigated for wiretapping the telephone conversations of its employees. The results of these investigations were presented to grand juries. The prosecution read the testimony of certain witnesses at the wiretap hearings to the grand juries that indicted Fogg for tax evasion.

¹⁴ The trial court dismissed the counts of the original indictment alleging that Fogg aided in the preparation of fraudulent corporate tax returns for lack of specificity. The prosecution, not wishing to try Fogg on only the counts charging preparation of fraudulent personal tax returns, obtained a superseding indictment from another grand jury.

¹⁵ See United States v. Ciambrone, 601 F. 2d 616, 623 (2d Cir. 1979) (prosecutor may exercise some discretion in choosing evidence to bring before grand jury as long as he does not mislead it); United States v. Eucker, 532 F. 2d 249, 256 (2d Cir. 1976) (government not compelled to present all available witnesses to grand jury). See also United States v. Cruz, 478 F. 2d 408, 412 (5th Cir. 1973) (appellate courts may not review sufficiency of evidence supporting indictment).

¹⁶ Appellant also objected to the prosecutor's calling of a juror by name during the closing argument. Because the judge quickly gave a curative instruction, this is not grounds for reversal.

¹⁷ "In ordinary parlance, a kickback is the secret return to an earlier possessor of part of a sum received." 591 F. 2d at 1054.