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[96-2 USTC ¶50,536] United States of America , Plaintiff-Appellee v. Herbert Daniel Fleschner, Defendant-Appellant United States of America , Plaintiff-Appellee v. Rob ert Barnwell Clarkson, Defendant-Appellant United States of America , Plaintiff-Appellee v. Vernon Rubel, Defendant-Appellant

(CA-4), U.S. Court of Appeals, 4th Circuit, 94-5929, 94-5933, 95-5063, 10/11/96, 98 F3d 155, Affirming an unreported District Court decision

[Code Sec. 7201 ]

Defraud U.S. of income tax: Convictions: Jury instructions: First Amendment: Verdict: Constitutionality.--Three individuals who were convicted of conspiracy to defraud the U.S. of income tax revenue were not entitled to a jury instruction on a First Amendment defense because their words and acts were not remote from the commission of the criminal acts. They held meetings and collected money from attendees whom they instructed and advised to claim unlawful exemptions and not to file returns or pay tax on wages. Further, the attendees followed the taxpayers' instruction and advice, their unlawful actions were solicited by the taxpayers, and the taxpayers were aware that the attendees were following their instructions and advice. Moreover, the purpose of the meetings was to convince attendees that it was legal to claim false exemptions, to hide income and to refuse to file returns or pay income tax. The trial court did not err when it failed to grant a verdict in favor of the taxpayers on the basis that the Constitutional foundation for federal income tax is uncertain and that their prosecution violated due process.

[Code Sec. 7201 ]

Defraud U.S. of income tax: Convictions: Conspiracy: Jury instructions.--Jury instructions on conspiracy given at a trial of three individuals who were convicted of conspiracy to defraud the U.S. of income tax were not misleading and contained an adequate statement of the elements necessary to convict the individuals of conspiracy.

[Code Sec. 7201 ]

Defraud U.S. of income tax: Conspiracy: Convictions: Sentencing.--The trial court properly sentenced an individual who was convicted of conspiracy to defraud the U.S. of income tax in accordance with the United States Sentencing Guidelines. His base level for sentencing was based on the tax loss, which included the loss from all acts and omissions occurring as part of the same course or common scheme or plan. Since conduct in furtherance of a conspiracy is not defined by, or confined to, just those occasions in which the individual and his co-conspirators were physically together or acted in unison, the calculated tax loss was based on the individual's conduct during the relevant time period in which he operated his business. In his business, he compensated his workers in such a way as to avoid withholding taxes and issuance of Forms W-2, which evaded and camouflaged income.

[Code Sec. 7201 ]

Defraud U.S. of income tax: Conspiracy: Convictions: Cross-examination.--Three individuals who were convicted of conspiracy to defraud the U.S. of income tax were not entitled to cross-examine government witnesses after the government's redirect examination because there was no new matters introduced on re-direct examination. Also, in one instance, the matter covered on re-direct examination had been raised on cross-examination.

Lowell Harrison Becraft, Jr., 209 Lincoln St. , Huntsville , Ala. , for Herbert Daniel Fleschner, Vernon Rubel. Harold Johnson Bender, 200 No. McDowell St. , Charlotte , N.C. 28204 , for Rob ert Barnwell Clarkson. Mark T. Calloway, United States Attorney, Charolette, N.C. 28802, Loretta C. Argrett, Assistant Attorney General, Michael Emile Karam, Rob ert E. Lindsay, Alan Hechtkopf, Department of Justice, Washington, D.C. 20530, for U.S.

Before: WIDENER, ERVIN, and LUTTIG, Circuit Judges.

OPINION

WIDENER, Circuit Judge:

Defendants Herbert D. Fleschner, Rob ert B. Clarkson, and Vernon Rubel appeal their convictions for conspiracy to defraud the United States of income tax revenue in violation of 18 U.S.C. §371 . We affirm.

I

Fleschner opened a chiropractic office in Hickory , N.C. in 1978 and Rubel became one of his patients. Rubel was an enrolled agent authorized to represent people before the IRS in tax matters. In March 1986, Rubel and Fleschner began a study of income tax law. Based on their interpretation of case law and various literature, they concluded that they were not liable for federal income tax. The third defendant, Clarkson, was a South Carolina attorney. He was one of the organizers in 1979 of a club that met once a month in Hickory , N.C. known as the Carolina Patriots. In the fall of 1989, Rubel and Clarkson renewed a prior friendship and thereafter the three defendants conducted the Hickory Carolina Patriot meetings together. The evidence shows that attendees at these meetings made what are called donations to join, in the range of $100 to $200. One witness described Clarkson's role as an instructor and founder of the group. Fleschner was described as a speaker, leader and an instructor although a little less knowledgeable than Clarkson. Rubel was described as a consultant who was not a speaker, but who would do research or legwork to provide additional information. There was testimony that they were instructed by the defendants to claim nine allowances on W-4 forms to prevent withholding from their paychecks, that they were led to believe that the allowances were legitimate, and that they followed the instructions. One witness, a certain Sluss, testified that when he received a letter from the Internal Revenue Service because of the claimed allowances, Fleschner and Rubel told him "not to worry about it, that it would be taken care of," and Rubel provided Sluss with a letter to send to the Internal Revenue Service. When the Internal Revenue Service penalized Sluss $500 and garnished his wages, Sluss again discussed the situation with Fleschner who told him that "they were working on it". Some attendees also testified that they were informed and advised by Clarkson and Fleschner to not file income tax returns and that based on this information and advice received, they did not file income tax returns. Another witness, one Mrs. Penley, testified that attendees were told they did not have to pay taxes they did not owe, that their wages were not income and therefore not taxable. Mrs. Penley was summoned for failure to file an income tax return for the years 1991 and 1992 and her husband was arrested. Some attendees were advised to hide income by removing themselves from the banking system and dealing in cash.

In April 1994, Fleschner, Clarkson, and Rubel were indicted for unlawfully conspiring to impede, impair, obstruct and defeat the functions of the Internal Revenue Service of ascertaining, computing, assessing and collecting income taxes in violation of 18 U.S.C. §371 . ¹ Following a jury trial, all three were convicted and sentenced to prison terms. This appeal followed.

II

The first claim of the defendants on appeal is that the trial court did not permit the cross-examination of government witnesses after the government's re-direct examination.

In the first place, the objection on its face is not well taken. Absent the introduction of any new matter on re-direct examination, the rule is that recross-examination is not required. Without something new, a party has the last word with his own witness. Wharton's Criminal Evidence, 14th Ed., 1986, Vol. 2, p. 698.

The defendants have correctly quoted the applicable rules from United States v. Riggi, 951 F.2d 1368, 1375 (3rd Cir. 1991), and United States v. Caudle, 606 F.2d 451, 458 (4th Cir. 1979). "It is well settled that if a new subject is raised in redirect examination, the district court must allow the new matter to be subject to recross-examination." 951 F.2d at 1375. "To deny recross examination on matter first drawn out on redirect is to deny the defendant the right of any cross-examination as to that new matter." 606 F.2d at 458.

The defendants then claim that in four instances the government's witnesses testified to new matter on re-direct examination, but recross-examination was not permitted. That testimony is a part of the witnesses Cofer, Holstein , Penley and Whiteside. As to the witnesses Cofer, Holstein and Penley, the testimony on re-direct examination was not on new matter, but on subjects which had been the subject of the direct examination of the witnesses. In the case of Whiteside, the matter covered on re-direct examination had been raised in the cross-examination of Whiteside to the effect that Clarkson had at one point been subjected to a mental examination. On re-direct examination, the government merely showed that Clarkson had passed that mental examination, and nothing more. Even if a further examination by the defendants' attorney not in the form of cross-examination would have been permissible, cross-examination was not, and in all events the denial of any further questioning was not an abuse of discretion. ²

III

The defendants assert that the district court erred in refusing to give requested jury instructions. We review the trial court's denial of the requested jury instructions in view of the record and instructions as a whole and in the context of the trial, reversing only for prejudicial error. United States v. Park, 421 U.S. 658, 674-675 (1975); Wellington v. Daniels, 717 F.2d 932, 938 (4th Cir. 1983).

Defendants claim that the most they did was openly advocate violation of the tax laws and that they were entitled to requested instructions on a First Amendment defense. ³ Having made a timely request, the defendants would have been entitled to an instruction on a First Amendment defense if there were evidence sufficient for a reasonable jury to find in their favor on that account. Mathews v. United States , 485 U.S. 58, 63 (1988). A First Amendment defense is warranted if there is evidence that the speaker's purpose or words are mere abstract teaching of the moral propriety of opposition to the income tax law. See Brandenburg v. Ohio , 395 U.S. 444, 447-48 (1969). "The cloak of the First Amendment envelops critical, but abstract, discussions of existing laws, but lends no protection to speech which urges the listener to commit violations of current law." United States v. Kelley [85-2 USTC ¶9592 ], 769 F.2d 215, 217 (4th Cir. 1985) (construing Brandenburg ).

The evidence in this case, however, does not support a First Amendment defense. The defendants' words and acts were not remote from the commission of the criminal acts. The evidence shows that the defendants held meetings and collected money from attendees whom they instructed and advised to claim unlawful exemptions and not to file income tax returns or pay tax on wages in violation of the United States Tax Code. The evidence shows that the attendees followed the instruction and advice of the defendants, that the attendees' unlawful actions were solicited by the defendants, and that the defendants were aware that the attendees were following their instructions and advice. The evidence discloses that a purpose of the meetings was to encourage people to unlawful actions by convincing them that it was legal to claim false exemptions, to hide income, and to refuse to file income tax returns or pay income tax. The facts in this case are similar to those in United States v. Kelly [85-2 USTC ¶9592 ], 769 F.2d 215 (4th Cir. 1985), in which this court held that Kelly's First Amendment claim was frivolous, and to those in United States v. Buttorff [78-1 USTC ¶9265 ], 572 F.2d 619 (8th Cir. 1978), cert. denied, 437 U.S. 906, in which the court held there was no First Amendment protection. We conclude that no reasonable juror could conclude that the defendants' words and actions were merely advocating opposition to the income tax laws.

We think the defendants' reliance on United States v. Freeman [85-1 USTC ¶9421 ], 761 F.2d 549 (9th Cir. 1985), is misplaced. That case held that a First Amendment defense was applicable to twelve counts of a fourteen count indictment but was not applicable to two counts. In Freeman, with respect to the counts to which the First Amendment was held to apply, the court held that the defendant ". . . directed his comments at the unfairness of the tax laws generally, without soliciting or counselling a violation of the law in an immediate sense." Freeman [85-1 USTC ¶9421 ], at 551-552. In our case, however, the Freeman reasoning does not apply, and the words of this court in Kelley do. As in Kelley, "[i]t was no theoretical discussion of noncompliance with law; action was urged; the advice was heeded and false forms were filed." Kelley [85-2 USTC ¶9592 ], at p. 217.

The defendants' assignment of error regarding requested jury instructions #34 and #35 regarding evidence required to prove a conspiracy likewise has no merit. ⁴ The district court instructed the jury as follows:

What the evidence in the case must show beyond a reasonable doubt the following four elements: First, that two or more persons in some way or manner, positively or tacitly, came to a mutual understanding to try to accomplish a common and unlawful plan, as charged in the indictment.

Second, that the defendant you're considering willfully became a member of such conspiracy. Third, that one of the conspirators during the existence of the conspiracy knowingly committed at least one of the means or methods or overt acts described in the indictment. Fourth, that such overt act was knowingly committed at or about the time alleged in an effort to effect or accomplish some object or purpose of the conspiracy.

An overt act is any transaction or event, even one which may be entirely innocent when considered alone, but which is knowingly committed by a conspirator in an effort to accomplish some object of the conspiracy.

One may become a member of a conspiracy without full knowledge of all of the details of the unlawful scheme or the names and identities of all of the other alleged conspirators. So, if a defendant, with an understanding of the unlawful character of a plan, knowingly and willfully joins in an unlawful scheme on one occasion, that is sufficient to convict him for a conspiracy even though he had not participated at earlier stages in the scheme and even though he played only a minor part in the conspiracy.

Of course, mere presence at the scene of an alleged transaction or event, or mere similarity of conduct among various persons and the fact that they may have associated with each other, and may have assembled together and discussed common aims and interests, does not necessarily establish proof of the existence of a conspiracy. Also, a person who has no knowledge of a conspiracy, but who happens to act in a way which advances some object or purpose of a conspiracy, does not thereby become a conspirator.

The court's instructions to the jury on conspiracy, read as a whole, were not misleading and contained an adequate statement of the elements necessary to convict the defendants of conspiracy. Additionally, both refused instructions amount to little, if anything more than comments on the weight of the evidence, which, although permissible, are not required. The district court did not err in refusing instructions 34 and 35.

The defendants' assignment of error with respect to refusing requested instructions 48 and 49 is without merit. Even if applicable, and called for in any case, the record does not support giving them here. ⁵

IV

The defendants' next assignment of error is as follows: The trial court erred in not granting a verdict in favor of the defendants on the basis that the Constitutional foundation for the federal income tax is uncertain and that prosecution of defendants violated due process.

We are of opinion this assignment of error is without merit.

V

Clarkson challenges his sentence, claiming that the district court incorrectly calculated the amount of tax loss attributable to him and erred in refusing to give him a downward departure of two levels for acceptance of responsibility. Clarkson's base level for sentencing is based on the tax loss which includes the loss from all acts and omissions occurring as part of the same course of conduct or common scheme or plan. U.S.S.G. §2T1.9(a)(1), §1B1.3(a)(2). The government asked the district court to find a tax loss of $330,093.26, but the district court adopted the recommendation of the probation officer in the presentence report, that the amount of tax loss attributable to Clarkson was $295,817.62. Clarkson objects to this amount claiming that it includes calculations for loss involving conduct that was not part of the same course of conduct or common scheme of the conspiracy for which he was convicted.

Clarkson's argument is unpersuasive. Clarkson's conduct in furtherance of the conspiracy is not defined by or confined to just those occasions in which the three defendants were physically together or acted in unison at the Patriot meetings. $219,051.62 of the calculated tax loss was based on conduct by Clarkson occurring during the relevant time period in which Clarkson operated a business known as D-G Labor Services, Inc., which provided individuals for employment to other businesses. Clarkson compensated his D-G Labor Services workers in such a way as to avoid withholding taxes and issuance of IRS W-2 forms. This was a method consistent with and related to that proved at trial of evading or camouflaging income. See Guideline 2T1.1, Application Note 2. The district court was not clearly erroneous in finding that these actions by Clarkson although not necessarily associated with people connected with the Patriot meetings were consistent with the course of conduct and common scheme of the conspiracy.

We have also considered Clarkson's claim that the district court erred in denying a downward departure for acceptance of responsibility and conclude that it has no merit.

The judgment of the district court is accordingly

AFFIRMED.

¹ 18 U.S.C. §371 states:

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years or both.

² The government persuasively argues that the defendants' brief does not identify except by page number the testimony complained of. We do not rely on this for our decision, however.

³ Defendants requested the following instructions on a First Amendment defense:

#46. The first amendment to the Constitution protects a speaker's words and expressions unless both the intent of the speaker and the tendency of the speaker's words was likely to produce or incite an imminent lawless act, one likely to occur.

The first amendment protects speech that merely advocates non-compliance with the law. If you determine that a speaker's purpose, or the tendency of the speaker's words, was directed to ideas or results remote from the purposes or objective of the alleged conspiracy, then that speech is protected. However, if the intent of the speaker and the tendency of the speaker's words was to produce or incite an imminent lawless act, then the speech is not protected by the first amendment.

#38. A "conspiracy to defraud the United States " is not proven by the mere open defiance of a governmental purpose to enforce a law by urging persons subject to it to disobey it.

⁴ Defendants requested the following:

34. To prove a conspiracy to defraud the United States , there must be proof or evidence submitted which shows something more than completely external interference with the workings of a governmental program, functions or disregard for federal laws.

35. A conspiracy to defraud the United States is not proven by simply showing that parties, including the Defendants, failed to file tax returns and disclose income.

⁵ 48. Reliance upon a decision of the United States Supreme Court is a defense to the element of wilfulness. If you find that the Defendant relied, in good faith, upon a Supreme Court decision, then you must find him not guilty.

49. An American citizen such as the Defendant has a right the [sic] rely upon representations and statements made by the government and appearing in official publications.

[2002-1 USTC ¶50,419] United States of America v. Richard Pedroni, Appellant

(CA-3), U.S. Court of Appeals, 3rd Circuit, 99-5182, 4/18/2002, 2002 U.S. App. LEXIS 9022. Affirming an unreported District Court decision

[Code Sec. 7201 ]

Penalties, criminal: Tax evasion: Excise taxes: Jury instructions: Sufficiency of evidence.--The president of an oil corporation was properly convicted of tax evasion for his participation in a daisy chain scheme to evade excise taxes on the sale of fuel. The individual challenged the sufficiency of the evidence presented during trial, claiming that he had neither knowledge of the illegal objective of the conspiracy nor the requisite intent. However, the appellate court was satisfied that a rational finder of fact could conclude beyond a reasonable doubt that the government met its burden of proof. A jury could rationally conclude that the individual had actual knowledge of the conspiracy, and that he intended that excise taxes would not be paid on the fuel he provided to the daisy chain.

Christopher J. Christie, Office of the United States Attorney, Newark, N.J., Rob ert E. Lindsay, Alan Hechtkopf, Karen Quesnel, Department of Justice, Washington, D.C. 20530, for U.S. James A. Plaisted, Walder, Sondak & Brogan, Roseland, N.J., for appellant.

Before: SCIRICA and COWEN, Circuit Judges, and RESTANI, ^* U.S. Court of Intl. Trade Judge.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

COWEN, Circuit Judge:

Richard Pedroni was found guilty of violating 18 U.S.C. §371 by conspiring to defraud the United States , and to commit tax evasion (in violation of 26 U.S.C. §7201), wire fraud on the State of New Jersey (in violation of 18 U.S.C. §1343), and money laundering (in violation of 18 U.S.C. §1957). He was acquitted on all other counts. The District Court sentenced Pedroni to 37 months and ordered him to pay $500,000 in restitution. He challenges the sufficiency of the evidence to support his conviction, some of the evidentiary rulings and jury instructions, as well as his sentence. We will affirm.

I.

Pedroni and his coconspirators participated in a "daisy chain" scheme to evade excise taxes on the sale of certain kinds of fuel. The elements of such schemes have been detailed sufficiently elsewhere. See, e.g., United States v. Morelli, 169 F.3d 798, 801 (3d Cir. 1999), cert. denied, 528 U.S. 820, 120 S.Ct. 63, 145 L.Ed.2d 54 (1999) (citations omitted). From 1989 until at least 1993, Pedroni operated as the president of Pedroni Fuels, a fuel supply company operating at the top of the daisy chain. We will add further factual detail below as it becomes necessary to the legal discussion.

II.

A. Sufficiency of the Evidence

Pedroni first challenges the sufficiency of the evidence to support his conviction. When reviewing the sufficiency of the evidence to sustain a conviction, we must ask whether any rational jury could have found the essential elements of the offense beyond a reasonable doubt, viewing the evidence in the light most favorable to the government. See United States v. Veksler, 62 F.3d 544, 551 (3d Cir. 1995) (citations omitted). Count One of the Superseding Indictment charged the conspirators with a multiple-object conspiracy to defraud the United States and to commit tax evasion, wire fraud on the State of New Jersey , and money laundering. The Government was required to prove three elements: "(1) the existence of an agreement, (2) an overt act by one of the conspirators in furtherance of the objectives, and (3) an intent on the part of the conspirators to agree, as well as to defraud the United States" or to commit an underlying offense. United States v. Shoup, 608 F.2d 950, 955-56 (3d Cir. 1979). Pedroni challenges the sufficiency of the first and third elements, arguing that he had no actual knowledge of the illegal objective of the conspiracy nor the requisite intent required.

We are satisfied that a rational finder of fact could conclude beyond a reasonable doubt that the Government met its burden of proof. A jury could rationally infer that Pedroni had actual knowledge of the conspiracy, and that he intended that excise taxes would not be paid on the fuel Pedroni supplied to the daisy chain. For example, Pedroni stock-transferred fuel into Petro Plus' account at the terminal despite invoicing the fuel to a middle company in the chain. He called Kings to determine which company to invoice for the fuel, and it was Kings (and not Petro Plus) that paid Pedroni for the fuel before Pedroni even sent invoices for the middle companies to Kings. When documents and certification were lacking, Pedroni called personnel at Kings, instead of calling the actual purchaser, to give that particular purchasing company an opportunity to provide correct documentation. It did not matter that Pedroni sold to middle companies in the daisy chain that had 637 Licenses (making the initial transactions tax-exempt) because Pedroni clearly knew that he was in effect selling to Petro Plus and that taxes were not being paid along the chain. The record reflects numerous examples of similar deceptions. It is apparent from the record that the trial provided sufficient evidence from which a rational jury could find the essential elements of the offense beyond a reasonable doubt.

B. Jury Instructions

Pedroni argues that the District Court erred when it did not deliver a charge which included instructions on good-faith defense, willfulness, multiple conspiracy, missing witness, and unity of purpose instructions. Additional error is alleged because the District Court did not instruct the jury that each element must be found unanimously and advised the jury to disregard the evidence that Pedroni lacked a stake in the venture. "We will reverse the District Court's denial to charge a specific jury instruction only when the requested instruction was correct, not substantially covered by the instructions given, and was so consequential that the refusal to give the instruction was prejudicial to the defendant." United States v. Phillips, 959 F.2d 1187, 1191 (3d Cir. 1992). In determining whether the District Court stated the appropriate legal standards in its charge, our review is plenary. United States v. Johnstone, 107 F.3d 200, 204 (3d Cir. 1997). The jury charge must clearly articulate the legal standards at issue and be structured to avoid confusion, we examine the charge in its entirety. Id.

We have previously made clear that a District Court's failure to give a good-faith defense instruction does not constitute an abuse of discretion, so long as the charge included detailed instructions on the elements of the crime. Gross, 961 F.2d at 1103 ("[A] jury finding of good faith is inconsistent with a finding that the defendant acted knowingly and willfully."). Consistent with our practice to review the entire jury charge as a whole, the record is clear that the District Court adequately charged the jury on willfulness. It was not in error to refuse to charge the defense of good faith.

As to the failure to charge on multiple conspiracies, the District Court did instruct the jury that the "first element for you to determine is whether the conspiracy charged in Count One existed" and that "in order to find a defendant guilty of conspiring to defraud the United States, you must find that he was a participant in the scheme to defraud the United States set forth in the Indictment, and not some other scheme." App. at 627, 630. The District Court further instructed the jury that it could not consider whether a defendant was a member of the conspiracy unless it found that "the evidence shows that the conspiracy charged in Count One existed." App. at 633. The charge, viewed in its entirety, substantially covered the instruction Pedroni argues should have been included. See, e.g., Phillips, 959 F.2d at 1191.

Pedroni argues that the District Court should have given a missing witness instruction because the government chose not to call three of its cooperating witnesses. It is clearly established precedent in this Circuit that a missing witness instruction is not appropriate when the witness is available to both the defense and the prosecution. United States v. Busic, 587 F.2d 577, 586 (3d Cir. 1978), rev'd on other grounds, 446 U.S. 398, 100 S.Ct. 1747, 64 L.Ed.2d 381 (1980). Pedroni does not assert that these three witnesses were not available to him.

Pedroni's argument that the District Court erred by failing to charge the jury with a unity of purpose likewise fails. The District Court instructed the jury that it had to find " 'a unity of purpose' or a 'common design' to do something that the law forbids." App. at 631. This more than substantially covered Pedroni's proffered additional (and therefore unnecessary) instruction.

Pedroni argues that the District Court failed to inform the jury that each element of the offenses had to be found unanimously. Again, reviewing the jury charge in its entirety, the District Court adequately charged the jury. The District Court instructed that the jury "must be unanimous as to which one of the objects of the conspiracy the defendant agreed to pursue," App. at 627-28, and that the jury "verdict must be unanimous." App. at 659. The jury was properly charged.

Pedroni also takes issue with the instructions to the jury that it should disregard evidence that Pedroni lacked a stake in the venture. We have previously held that the government need not prove "that each conspirator expected to benefit from the conspiracy" in order to support a conspiracy conviction. United States v. Shoup, 608 F.2d 950, 957 (3d Cir. 1979). The instruction was correct.

C. Undercover Operation

Pedroni argues that the Government's payment of cash "bribes" to Pedroni's broker, Rob ert Recek, induced Pedroni to sell fuel to the Government's undercover business. The record reveals that in May of 1991, the Government established an undercover business. Pedroni became the undercover business' first supplier. The undercover agent initially secured supplies from Pedroni through Pedroni's broker, Recek. In addition to the normal broker's fee, the undercover business paid Recek an additional .5 [cents] per gallon for every gallon of fuel secured from Pedroni.

Whether the Government's conduct in running the undercover operation was so outrageous as to violate Pedroni's due process rights is a legal question over which our standard of review is plenary. United States v. Driscoll, 852 F.2d 84, 85 (3d Cir. 1988). We have expressed the view that, "to the extent a government misconduct defense distinct from entrapment is available, it 'must be predicated on intolerable government conduct which goes beyond that necessary to sustain an entrapment defense.' " Id. at 86 (citing United States v. Jannotti, 673 F.2d 578, 606 (3d Cir. 1982) (en banc), cert. denied, 457 U.S. 1106, 102 S.Ct. 2906, 73 L.Ed.2d 1315 (1982)). We reject Pedroni's contention that the undercover government business and agent, with the help of Recek, rose to a level that violated Pedroni's due process rights. The Government did not initiate the criminal activity and Pedroni actively and willingly participated in it. See, e.g., United States v. Twigg, 588 F.2d 373 (3d Cir. 1978) (government approached defendant and supplied all essential material and equipment for methamphetamine production); United States v. West, 511 F.2d 1083 (3d Cir. 1975) (government suggested narcotics sale and provided source of the supply for the sale and arranged the sale to another undercover agent).

D. Expert Witnesses at Trial

Pedroni asserts that the District Court erroneously permitted three Government witnesses to offer expert opinions that Pedroni was a part of the criminal conspiracy. A decision to admit expert testimony is reviewed for abuse of discretion. United States v. Gibbs, 190 F.3d 188, 211 (3d Cir. 1999), cert. denied, 528 U.S. 1131, 120 S.Ct. 969, 145 L.Ed.2d 840 (2001) (citation omitted). The trial judge is given "broad discretion" to admit or exclude such testimony, based upon whether it is helpful to the trier of fact. Id. (citing Fed. R. Evid. 702).

The three witnesses are Malcolm Fox, Paul Malloy, and Steven Bursey. As an initial matter, the Government did not offer Fox as an expert witness and the District Court did not allow Fox to testify as an expert. As a lay witness, Fox was allowed to testify to opinions and inferences if they were "(a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702." Fed. R. Evid. 701. A review of the record reveals that Fox's testimony fell within the permissible parameters of Rule 701. We find no abuse of discretion concerning the Fox testimony.

Malloy, an IRS agent, testified about tax returns and financial transactions, the taxing structure as it pertained to motor fuel excise tax, and taxes and the methods of evasion or tax fraud (as elicited on the record by Pedroni's counsel after the Government presented evidence concerning Malloy's qualifications). Bursey, a former FBI Special Agent, testified about his experiences as an undercover agent operating the undercover business to which Pedroni sold fuel on several occasions.

Our review of the record has failed to uncover any evidence where these two witnesses explicitly opened about Pedroni's part in the conspiracy. Gibbs, 190 F.3d at 212 ("Where an expert in a criminal case has not explicitly testified about a defendant's intent, courts [are] reluctant to exclude the expert's testimony under Rule 704(b)." (emphasis added)). Many of the passages from the transcript challenged by Pedroni are statements made by the witnesses in response to questions posed on cross-examination. The District Court did not abuse its discretion in allowing these witnesses to testify.

E. Evidence of Other Conspiracies and Other Charges

Count 38 of the Superseding Indictment charged one of Pedroni's coconspirators, Daniel Enright, with a conspiracy to extort money from two other coconspirators. Pedroni argues that this Count, along with other charges in the Indictment, had nothing to do with him and that he was prejudiced by the District Court's decision to deny his motion for severance. The "other charges" in the Indictment include: Count 39 which charged Enright and Wasserstrom with committing a currency reporting violation; evidence concerning Enright's personal returns for 1990 through 1993; evidence of excise tax evasion occurring after Pedroni stopped providing fuel to the daisy chain; evidence of wire fraud and money laundering charges involving payments to different suppliers; and evidence that Enright received millions of dollars of income from his participation in the conspiracy.

Rule 14 of the Federal Rules of Criminal Procedure states:

If it appears that a defendant or the government is prejudiced by a joinder of offenses or other defendants in an indictment or information or by such joinder for trial together, the court may order an election or separate trials of counts, grant a severance of defendants or provide whatever other relief justice requires.

The burden of showing prejudice lies on Pedroni. United States v. Eufrasio, 935 F.2d 553, 568 (3d Cir. 1991). Our review of the District Court's denial of the severance motion requires that we "first determine from the record as it was when the severance motions were made, what trial developments were then reasonably foreseeable, and in that light decide whether the court abused its discretion denying severance." Id. If we determine that the District Court abused its discretion, then we must determine whether the denial caused trial prejudice, asking "whether the jury could have been reasonably expected to compartmentalize the allegedly prejudicial evidence in light of the quantity and limited admissibility of the evidence." Id.

We hold that the District Court did not abuse its discretion in denying Pedroni's Rule 14 severance motion. Severing Pedroni's trial was not required, even if some potential for prejudice might be associated with evidence of the Enright extortion conspiracy and other charges in the Indictment unrelated to Pedroni. "Prejudice should not be found in a joint trial just because all evidence adduced is not germane to all counts against each defendant." Id. In addition, the District Court instructed the jury to "carefully weigh the evidence relating to each defendant and each charge," which it clearly did when we observe it convicted Pedroni on only one count and acquitted him on all remaining counts. We see no abuse of discretion.

F. Other Allegedly Prejudicial Evidence

Pedroni raises a number of challenges to the order of the District Court's to admit evidence on and concerning tapes made by undercover agents relating to the undercover business. Pedroni argues that the evidence should have been excluded under Rule 404(b) of the Federal Rules of Evidence.

Federal Rule of Evidence 404(b) is a "codification of the common law prohibition against the admission of evidence of prior crimes, wrongs, or other acts relevant solely to prove the defendant's 'general criminal predisposition to do wrong.' " United States v. Scarfo, 850 F.2d 1015, 1019 (3d Cir. 1988) (citation omitted) (emphasis added). The rule prohibits the admission into evidence of extrinsic acts intended to prove a defendant's propensity for crime or to suggest to the jury unfavorable inferences reflecting on his character. But evidence that bears on a relevant issue in a case, though possessing the potential to damage the defendant's cause, "is not inadmissible for that reason alone." Id. at 1018-19. If the evidence is offered for another proper reason, "the same evidence of other crimes or acts is subject only to the ordinary limitations under Rules 402 and 403," which include undue prejudice Id. at 1019. Intended as a "rule of inclusion," the possible uses of other crimes evidence has been used to prove such things as: motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, background information, parties familiarity with one another, concert of action, parties continuing relationship, and to assist jurors in understanding defendant's role in the scheme. Id. (citations omitted). Before admitting evidence of other acts under Rule 404(b), the District Court must ask, "Whether that evidence is probative of a material issue other than character." United States v. Huddleston, 485 U.S. 681, 685, 108 S.Ct. 1496, 1499, 99 L.Ed.2d 771 (1988). Under Rule 403, the District Court must "appraise the genuine need for the challenged evidence and balance that necessity against the risk that the information will influence the jury to convict on improper grounds." Scarfo, 850 F.2d at 1019. Our review of a District Court's decision to admit or exclude evidence is for abuse of discretion, "and such discretion is construed especially broadly in the context of Rule 403." United States v. Mathis, 264 F.3d 321, 326-27 (3d Cir. 2001).

As the record clearly reveals, the District Court performed the balancing test mandated under Rule 403 and admitted those portions of the tapes which it found were not unduly prejudicial to Pedroni. Despite Pedroni's challenges to the contrary, the District Court gave proper and timely limiting instructions with regard to the challenged evidence which it admitted. The District Court also conducted a careful review of the tapes, and excluded those portions of the tapes which it found excludable under Rule 403. We find no abuse of discretion.

G. Restitution

Pedroni argues that the District Court improperly ordered him to pay $500,000 in restitution. We review the appropriateness of a District Court's award of restitution for abuse of discretion. United States v. Simmonds, 43 V.I. 305, 235 F.3d 826, 829 (3d Cir. 2000).

As the Government aptly points out, the District Court could have ordered up to $74 million dollars in restitution, given that the total loss was estimated at $132 million and the loss associated with the charges for which Pedroni was acquitted totaled almost $58 million. In such a light, we find no abuse of discretion in the District Court's (rather generous) restitution order.

III.

We have thoroughly reviewed all the arguments presented by Pedroni in his submissions to this Court, and those presented at oral argument, and find no basis to disturb the conviction or the sentence imposed by the District Court. The judgment of the District Court entered on March 8, 1999, will be affirmed.

^* Honorable Jane A. Restani, Judge , United States Court of International Trade, sitting by designation.

 

 

[2002-1 USTC ¶50,394] United States of America v. Daniel Enright, Appellant

(CA-3), U.S. Court of Appeals, 3rd Circuit, 99-5144, 4/18/2002, 2002 U.S. App. LEXIS 7218. Affirming an unreported District Court decision

[Code Sec. 7201 ]

Penalties, criminal: Tax evasion: Excise taxes.--The president of an oil corporation was properly convicted of tax evasion for his participation in a daisy chain scheme to evade excise taxes on the sale of fuel. The individual contended that, because his corporation was not a federal or state ( New Jersey ) excise taxpayer, the evasion counts should have been dismissed. However, the appellate court was satisfied that a rational finder of fact could conclude beyond a reasonable doubt that the government met its burden of proof. A jury could rationally conclude that the corporation was responsible for the unpaid federal and state excise taxes.

[Code Sec. 7201 ]

Penalties, criminal: Tax evasion: Jury instructions: Willfulness: Sufficiency of evidence.--An oil company president's claim that the trial court improperly charged the jury on the terms "knowingly" and "willfully" in convicting him of tax evasion was dismissed due to his failure to cite any legal authority in support of his position. His claim that there was insufficient evidence to prove that he acted willfully was also rejected. The record indicated that the individual knew the taxes had not been paid and that he and other co-conspirators falsified books and records and covered up sources of income in order to conceal assets.

[Code Sec. 7201 ]

Penalties, criminal: Tax evasion: Sentencing guidelines.--An individual's objections to his sentence for his conviction for tax evasion were rejected. In particular, the trial court did not err in using 1998 sentencing guidelines to calculate the sentence, grouping its decision for sentencing purposes or refusing to grant the individual a downward departure for acceptance of responsibility.

Christopher J. Christie, United States Attorney, Newark, N.J. 07102, Rob ert E. Lindsay, Alan Hechtkopf, Karen Quesnel, John Hinton III, Department of Justice, Washington, D.C. 20530, for U.S. John J.E. Markham, Markham & Read, Boston, Mass., for appellant.

Before: SCIRICA and COWEN, Circuit Judges, and RESTANI ^*, United States Court of International Trade Judge.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

OPINION

COWEN, Circuit Judge:

Daniel Enright was found guilty of violating 18 U.S.C. §371 by conspiring to defraud the United States , to commit tax evasion (in violation of 26 U.S.C. §7201), commit wire fraud on the State of New Jersey (in violation of 18 U.S.C. §1343), and to commit money laundering (in violation of 18 U.S.C. §1957). He was also convicted of fourteen counts of attempting to evade excise taxes (in violation of 26 U.S.C. §7201), eleven counts of wire fraud (in violation of 18 U.S.C. §1343), eleven counts of money laundering (in violation of 18 U.S.C. §1957), and one count of evading currency reporting requirements (in violation of 31 U.S.C. §5316, 5322). Enright was sentenced to 200 months, and ordered to pay $1,000,000 in restitution. He challenges the sufficiency of the evidence to support his conviction, some of the District Court's evidentiary rulings and jury instructions, as well as his sentence. He also asserts that the District Court improperly allowed an amendment to or variance from the terms of the indictment. We will affirm.

I.

Enright and his coconspirators participated in a "daisy chain" scheme to evade excise taxes on the sale of certain kinds of fuel. The elements of such schemes have been detailed sufficiently elsewhere. See, e.g., United States v. Morelli, 169 F.3d 798, 801 (3d Cir. 1999), cert. denied, 528 U.S. 820, 120 S.Ct. 63, 145 L.Ed.2d 54 (1999) (citations omitted). During the prosecution period, Enright operated as the president of Petro Plus Oil ("PetroPlus"), a company that bought and sold fuel at the bottom of the chain. We will add further factual detail below as it becomes necessary to the legal discussion.

Enright was convicted of a multiple-object conspiracy contained in Count One of the Superseding Indictment, along with multiple counts of tax evasion, wire fraud, money laundering, and evading currency reporting requirements.

II.

A. Sufficiency of the Evidence PetroPlus Was The Taxpayer

Enright argues that because PetroPlus was not the federal or New Jersey state excise taxpayer, the evasion counts should have been dismissed. When reviewing the sufficiency of the evidence to sustain a conviction, we must ask whether any rational jury could have found the essential elements of the offense beyond a reasonable doubt, viewing the evidence in the light most favorable to the government. See United States v. Veksler, 62 F.3d 544, 551 (3d Cir. 1995) (citations omitted).

We are satisfied that a rational finder of fact could conclude beyond a reasonable doubt that the government met its burden of proof. A jury could rationally conclude that PetroPlus was responsible for the unpaid federal and New Jersey State excise taxes. The record is replete with evidence of an agreement between Enright and his coconspirators whereby Kings would purchase number 2 oil from a major fuel supplier in a tax-free transaction to be delivered to PetroPlus in subsequent transactions without the taxes ever being paid. This involved an elaborate and complex daisy chain involving fictitious paper sales of the fuel to make it appear that a sham company above PetroPlus in the chain had actually incurred and paid the taxes on the sale of the number 2 oil, when in fact the taxes had not been payed [sic]. The record also reflects that PetroPlus then sold the oil at prices that purported to include the federal and New Jersey state excise taxes, when in reality as well known to Enright the taxes had never been payed [sic]. The record reflects numerous other examples from the paper trail of the daisy chain.

The jury considered and rejected Enright's claim that PetroPlus did not incur the tax liability. The District Court specifically instructed the jury that, in determining whether the government had proven the attempted evasion of tax charged in the indictment beyond a reasonable doubt, the "first question for you to determine is whether a tax was due and owing from PetroPlus to the United States." App. at 614. It is apparent from the voluminous record that the trial provided overwhelming evidence from which a rational jury could find beyond a reasonable doubt that PetroPlus incurred the taxes.

B. Jury Instructions

Enright argues that the District Court improperly charged the jury on knowingly and willfully. He cites no legal authority in his two-paragraph analysis on this issue. "We will reverse the District Court's denial to charge a specific jury instruction only when the requested instruction was correct, not substantially covered by the instructions given, and was so consequential that the refusal to give the instruction was prejudicial to the defendant." United States v. Phillips, 959 F.2d 1187, 1191 (3d Cir. 1992). Our review of whether the District Court stated the appropriate legal standards in its charge is plenary. United States v. Johnstone, 107 F.3d 200, 204 (3d Cir. 1997). The jury charge must clearly articulate the legal standards at issue and be structured to avoid confusion, and we examine the charge in its entirety. Id.

The District Court charged the jury as follows:

The word "willfully," as used in section 7201, means a voluntary, intentional violation of a known legal duty. Under section 7201, a defendant has a legal duty not to act to evade a tax obligation. Thus, to find a defendant guilty, you must find that the Government has proven that he or she acted voluntarily and intentionally and with the specific intent to keep from the Government a tax imposed by the tax laws that a defendant knew there was a legal duty to pay. An act is done "knowingly" only if it is done purposely and deliberately and not because of mistake, accident, negligence, or other innocent reason.

Although, as I previously instructed, you must find beyond a reasonable doubt that PetroPlus owed unpaid taxes, it is not required that you find a particular defendant knew who was the proper taxpayer.

However, you must find beyond a reasonable doubt that a defendant acted voluntarily and intentionally and with the specific intent to keep from the Government a tax imposed by law that a defendant knew there was a legal duty to pay.

App. at 617. Enright is incorrect in his assertion that the government had to prove that Enright knew that PetroPlus owed the taxes at issue. See United States v. Voigt [96-2 USTC ¶50,633], 89 F.3d 1050, 1089-90 (3d Cir. 1996); United States v. Wisenbaker, 14 F.3d 1022, 1024-25 (5th Cir. 1994). Among other things, what the government had to prove was that PetroPlus was the taxpayer, not that Enright knew that PetroPlus was the taxpayer. Read in its entirety, the District Court properly charged the jury.

Enright also argues that the following instruction was tantamount to a directed verdict:

If, in good faith, a defendant believed that he or she was not violating the Internal Revenue laws, then such defendant cannot be guilty of tax evasion.

. . .

The test is whether a defendant personally believed in good faith that all properly reportable excise taxes due under the Internal Revenue Code had been reported and paid.

App. at 620-21. Reviewing the charge in its entirety, we find no error with the instruction. As discussed above, the government did not need to prove that Enright (or any of his coconspirators) knew the identity of the taxpayer in order to establish willfulness. The belief that someone other than PetroPlus owed the taxes did not constitute a defense to the crimes charged in the superseding indictment.

Enright also challenges the District Court's instruction on sham transactions. The District Court gave the following instruction on sham transactions:

It is not lawful for parties to conduct transactions which, rather than having any business purpose or economic substance, are conducted solely for the purpose of evading taxes. Therefore, where a transaction is found to have been conducted for the sole purpose of evading tax liability, the Internal Revenue Service is permitted to ignore or reject the form of that transaction, and look instead at its economic reality for purposes of imposing the proper tax on the appropriate party or parties.

App. at 623. Having read the charge to the jury in its entirety, we find no error with the instruction. See United States v. Wexler [94-2 USTC ¶50,361], 31 F.3d 117, 122 (3d Cir. 1994).

C. Sufficiency of the Evidence Enright Acted Willfully

Enright challenges the sufficiency of the evidence adduced at trial that he acted willfully. We must ask whether any rational jury could have found the essential elements of the offense beyond a reasonable doubt, viewing the evidence in the light most favorable to the government. See Veksler, 62 F.3d at 551 (citations omitted).

Enright asserts that to show willfulness, the government had to prove that he knew PetroPlus owed the taxes due on the fuel sales at issue. We disagree with such a theory of the case. Willfulness may be inferred. See Voigt [96-2 USTC ¶50,633], 89 F.3d at 1090. There is ample evidence in the record from which a reasonable jury could infer that Enright acted willfully to evade the taxes. Whether he knew who the ultimate taxpayer should have been is irrelevant. Enright testified that he knew the taxes had not been payed [sic]. App. at 621. To further and conceal the tax evasion, Enright and his coconspirators made false entries and alterations in the books and records of the companies involved in the daisy chain, created false invoices and documents, destroyed relevant records, concealed assets, and covered up sources of income. See, e.g., Spies v. United States [43-1 USTC ¶9243], 317 U.S. 492, 499, 63 S.Ct. 364, 368, 87 L.Ed. 418 (1943); United States v. Ashfield [84-2 USTC ¶9530], 735 F.2d 101, 105 (3d Cir. 1984). Numerous deceptions exist in the record, along with evidence of Enright's vast experience and tenure in the oil business. We will not disturb the jury's finding of willfulness.

D. Constructive Amendment and Variance Issues

Enright argues that the District Court should have acquitted him on the conspiracy and evasion counts because the District Court permitted the government to constructively amend the indictment during trial, a per se reversible error. Stirone v. United States , 361 U.S. 212, 215-17, 80 S.Ct. 270, 272-73, 4 L.Ed.2d 252 (1960). In the alternative he argues that the proof adduced at trial varied from the allegations in the superseding indictment such that it would constitute a reversible error. A variance constitutes reversible error only if Enright were prejudiced by the variance. See United States v. Perez, 280 F.3d 318, 346 (3d Cir. 2002). We reject both of Enright's theories because they are based on the same misreading of the superseding indictment.

Enright takes issue with wording found in the superseding indictment in the conspiracy count and all of the evasion counts: "knowingly, willfully, and unlawfully evaded and defeated the federal excise taxes due and owing from PetroPlus to the United States ." (Counts 1, 24-37) (emphasis added). Enright contends that the superseding indictment charged him only with owing taxes due and owing from PetroPlus, and that at trial there was no proof that the transactions above PetroPlus in the daisy chain were sham transactions or that PetroPlus was responsible for the taxes. In other words, the government failed to meet its burden of proof that PetroPlus (as opposed to other companies involved in earlier transactions in the daisy chain) owed the taxes. According to Enright, this constituted a constructive amendment or variance. We do not agree with Enright's restrictive reading of the superseding indictment.

In United States v. Wisenbaker, the Fifth Circuit was confronted with an almost identical fact pattern. 14 F.3d 1022 (5th Cir. 1994). The defendant alleged that the indictment charged only him with tax evasion, but that the proof adduced at trial that he had assisted others, namely his customers, in evading their taxes constituted an amendment or variance. Id. at 1026. The indictment at issue in Wisenbaker read:

The defendant Houston M. Wisenbaker, Jr., did knowingly, willfully, and unlawfully attempt to evade and defeat federal excise taxes . . . by making and causing to be made false invoices; by using numerous entities to conceal the purchase of tax-free diesel fuel; by dealing in currency and cashier's checks; by failing to make a Quarterly Excise Tax Return, Form 720, . . . as required by law, with any proper officer of the Internal Revenue Service; and by other means.

Id. The Court of Appeals for the Fifth Circuit did "not find the language of the indictment susceptible to the restrictive reading [the defendant] wished to impose on [the Court]." Id. at 1027. As the Court explained, "the indictment contains no terms restricting it to an allegation that Wisenbaker failed to pay his own taxes. It fairly encompasses the government's theory that Wisenbaker also violated I.R.C. §7201 by evading any taxes his customers owed but did not pay because of Wisenbaker's false assurances that he had already paid the taxes." Id. (emphasis added).

As in Wisenbaker, each of the counts at issue (1 and 24-37) in the superseding indictment contains the phrase, ". . . the defendants . . . and others . . . did knowingly, willfully, and unlawfully attempt to evade and defeat and aided, abetted, counseled, commanded, induced and procured and caused the evasion and defeat of federal excise taxes . . . due and owing from PetroPlus, Inc." App. at 248, 300, 302, 304, 306, 308, 310, 312-21, 323, 325, 327. What Enright fails to consider is that each count, read as a whole, "fairly encompasses" the government's theory that PetroPlus was the taxpayer, and the government did not have to prove that Enright knew that PetroPlus owed the taxes. Wisenbaker, 14 F.3d at 1027.

The superseding indictment is 98 pages long. App. at 236-334. It devotes 37 paragraphs to the general terms of the daisy chain scheme and all of the individuals involved. App. at 236-45. The Introduction is incorporated into the first paragraph of every count. The conspiracy count contained in Count One of the superseding indictment consists of 32 pages (143 paragraphs), detailing the acts and individuals. App. at 246-78. The tax-evasion counts span 28 pages, and are likewise filled with detailed descriptions of the individuals and their acts. App. at 300-28. Reviewed in its entirety, we can say with confidence that the superseding indictment "fairly encompasses" the government's theory that PetroPlus was the taxpayer, and Enright was properly and fairly put on notice of this allegation. All of the same arguments can be made with regard to PetroPlus as the "State of New Jersey " taxpayer, as well. As discussed above, the government did not have to prove that Enright knew that PetroPlus owed the state taxes. The indictment sufficiently informed Enright of the charges against him so as to put him on notice to prepare his defense. The evidence adduced at trial constituted neither a variance from nor an amendment of the terms of the superseding indictment.

E. Sentencing

Enright raises several sentencing errors. We review a District Court's factual determinations underlying the application of the sentencing guidelines for clear error and exercise plenary review over legal questions involving the proper interpretation and application of the sentencing guidelines. United States v. Helbling, 209 F.3d 226, 242-43 (3d Cir. 2000), cert. denied, 531 U.S. 1100, 121 S.Ct. 833, 148 L.Ed.2d 715 (2001); 18 U.S.C. §3742(e).

Enright adopts the argument of his co-Appellant, Erlikh, that the state misdemeanor conduct involved in this case did not fall near the heartland of the conduct covered by the laundering statutes. He argues that the conduct fell outside the "heartland" of money laundering, and, therefore, the District Court erred by using the money laundering guideline in calculating his sentence. Enright asserts that the District Court should have used the tax evasion guideline instead of the money laundering guideline. We do not agree. The record demonstrates that Enright was involved in an elaborate, systematic scheme to defraud. Money derived from the scheme was used to keep the daisy chain going and the links in the chain were established to avoid detection by authorities. See generally Morelli, 169 F.3d at 805-809. This amounted to a crime of significant duration and marked severity. The total loss to the State of New Jersey on account of the daisy chain scheme was over 11 million dollars. The daisy chain constitutes serious criminal activity and is the conduct Congress sought to prevent when it proscribed money laundering. There was nothing "atypical" about Enright's conduct that would justify the District Court not using the money laundering guidelines. See United States v. Chilingirian, 280 F.3d 704, 713-14 (6th Cir. 2002).

Enright challenges the District Court's use of the 1998 Sentencing Guidelines to calculate his sentence. His argument, which consists of one paragraph in his brief and cites no authority, see Fed. R. App. P. 28(a)(9)(A) (explaining that Appellant's brief must contain the legal authorities and citations to the record upon which Appellant relies), is that the 1993 version of the Guidelines should have been used because the last tax evasion charge took place in June of 1993. The Guidelines themselves state that a court should use the "Guidelines Manual in effect on the date that the defendant is sentenced" unless there is an ex post facto concern. U.S.S.G. §1B1.11(a), 1B1.11(b)(1). The Guidelines also state that "if the defendant is convicted of two offenses, the first committed before, and the second after, a revised edition of the Guidelines Manual became effective, the revised edition of the Guidelines Manual is to be applied to both offenses." U.S.S.G. §1B1.11(3). Enright alleges no ex post facto concern, and despite his assertions to the contrary, the record reveals that Enright's tax offenses were not completed until after the effective date of the November 1993 revisions to the Guidelines. We find no error.

Enright contends that his sentence "double counts" because the District Court improperly treated the federal tax evasion scheme as a separate group from the wire-fraud and money laundering activity. By grouping the offenses into these two groups, the District Court was able to add another two levels to the total offense level. Enright argues that the District Court should have grouped the tax evasion with his wire fraud and money laundering offenses, and then should have sentenced him under the tax evasion guidelines.

The District Court did not err in its grouping decision. Under U.S.S.G. §1B1.1(a), the District Court had to first determine the base offense level for each count. Because multiple counts were involved, the District Court had to group "closely related" counts together to determine a single offense level. U.S.S.G. §1B1.1(d). In the case of a multiple-object conspiracy, each object offense is treated as a count of conviction. U.S.S.G. §§§1B1.2(d), 3D1.2, comment. (n. 8). In grouping "closely related" counts, the District Court must group those counts together that involve "substantially the same harm," meaning "when the offense level is determined largely on the basis of the total amount of harm or loss . . . or some other measure of aggregate harm, or if the offense behavior is ongoing or continuous in nature and the offense guideline is written to cover such behavior." U.S.S.G. §3D1.2 (d). The tax evasion guideline bases the offense level on the amount of money involved, while the guideline for money laundering does not. See, e.g., United States v. Napoli, 179 F.3d 1, 10 (2d Cir. 1999), cert. denied, 528 U.S. 1162, 120 S.Ct. 1176, 145 L.Ed.2d 1084 (2000); United States v. Johnson, 971 F.2d 562, 576 (10th Cir. 1992). As for wire fraud, it has been found to be a crime that is "distinct from [its] underlying predicate acts and purposes and involves additional harms." See United States v. Helmsley [91-2 USTC ¶50,455], 941 F.2d 71, 101 (2d Cir. 1991). Another difference to note is the ongoing and continuous nature of the money laundering and wire fraud offenses. More distinctions exist that we need not enumerate. The District Court did not err when it determined that the tax evasion offenses did not involve substantially the same harm as the money laundering and wire fraud convictions.

Enright argues that the District Court erred by not awarding him a downward departure for acceptance of responsibility. Section 3E1.1(a) permits a district court to reduce a defendant's offense level by two points if the district court finds that "the defendant clearly demonstrates acceptance of responsibility for his offense." U.S.S.G. §3E1.1(a). Application Note 2 provides that the adjustment is not intended to "apply to a defendant who puts the government to its burden of proof at trial by denying the essential factual elements of guilt, is convicted, and only then admits guilt and expresses remorse." U.S.S.G. §3E1.1, comment. (n. 2). The record is clear that Enright did not demonstrate acceptance of responsibility. The trial lasted nine and a half months, and put the government to its burden. Enright never admitted his guilt, denied any knowledge of the inner workings of the daisy scheme, and continues to deny his criminal intent to this day. The District Court gave Enright an enhancement for obstruction of justice, which according to the guidelines themselves is an indication that a defendant has not accepted responsibility for his criminal conduct. U.S.S.G. §3E1.1 comment. (n. 4). Such events led the District Court to characterize Enright's behavior as "the dead opposite of acceptance of responsibility. It is the nonacceptance of responsibility." App. at 2647. We find no error in the District Court's refusal to grant Enright a reduction for acceptance of responsibility.

Enright also challenges the District Court's enhancement for obstruction of justice. A District Court should enhance a defendant's offense level by two if "the defendant willfully obstructed or impeded, or attempted to obstruct or impede, the admin istration of justice during the course of the investigation, prosecution, or sentencing of the instant offense." U.S.S.G. §3C1.1. The record is clear Enright used offshore accounts to conceal funds and information from the I.R.S., and that Enright knew of the federal investigation into the daisy chain scheme while he used the offshore accounts. Other examples of Enright's efforts to avoid detection exist in the record as well. Enright has no authority for his proposition that the District Court was wrong to base its obstruction of justice enhancement on the overseas account because conduct cannot be both part of the offense charged and the basis of an enhancement. Enright is also without authority for his argument that because the District Court imposed a two-point increase for a sophisticated act of concealment, it was in error for the District Court to also give an enhancement for obstruction of justice. We find no error with the District Court's enhancement for obstruction of justice.

Enright contends that the District Court impermissibly exceeded the 6-12 month sentence that would result from U.S.S.G. §2S1.3 when it imposed a sentence of 100 months for Count 39 of the superseding indictment. Enright cites no authority in his one-paragraph argument on this issue, and we fail to see the point of his argument. The District Court calculated Enright's combined offense level at 36, and determined that his criminal history category was I. The Guideline range was 188-235, and the District Court determined that the appropriate total term of imprisonment was 200 months. In accordance with §5G1.2(d), the District Court distributed the 200-month sentence over the multiple convictions, several of which (including Count 39) authorized confinement for up to 120 months. See 31 U.S.C. §5316(a), 5322(b). We find no error.

III.

We have thoroughly reviewed all the arguments presented by Defendant in his submissions to this Court, and those presented at oral argument, and find no basis to disturb the multiple convictions or the sentence imposed by the District Court. The judgment of conviction entered February 16, 1999 will hereby be affirmed.

^* Honorable Jane A. Restani, Judge , United States Court of International Trade, sitting by designation.

 

 

[2002-1 USTC ¶50,207] United States of America , Appellee v. Charles A. Willis, Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 01-2912, 1/24/2002, 277 F3d 1026

277 F3d 1026

2002 U.S. App. LEXIS 931. Affirming an unreported District Court decision.

[Code Sec. 7203 ]

Criminal penalties: Tax evasion: Affirmative act of evasion: Jury instructions: Good faith.--The government presented sufficient evidence for a jury to conclude that a pro se individual who attempted to conceal his whereabouts from the IRS affirmatively attempted to evade his tax obligations for two tax years. The district court did not err in failing to instruct the jury that a conviction for tax evasion required the finding of an affirmative act of evasion, nor did it abuse its discretion in issuing a "willful blindness" instruction regarding the taxpayer's purported belief that he was not required to pay taxes. In addition, its instruction properly defined good faith as a belief honestly held and an absence of malice or ill.

[Code Sec. 7203 ]

Criminal penalties: Tax evasion: Evidentiary hearing: Jury misconduct, not proven.--The district court did not abuse its discretion by not holding an evidentiary hearing regarding alleged jury misconduct during a pro se individual's trial for tax evasion. Although the foreman worked for a competitor of a firm previously owned by the taxpayer, the taxpayer did not challenge the foreman's jury service. In addition, the district court was not required to provide the taxpayer with non-exculpatory documents concerning a tax protest organization that allegedly influenced his belief that he was not obligated to pay taxes.

[Code Sec. 7203 ]

Criminal penalties: Tax evasion: Sentencing guidelines: Tax loss.--The district court's finding on the amount of tax loss determining a pro se taxpayer's sentencing guidelines for tax evasion relating to two tax years was not clearly erroneous. The court based its determination on evidence presented to a jury by IRS agents.

Lizabeth A. McKibben, United States Attorney's Office, Minneapolis , Minn. , for appellee. Charles A. Willis, Plymouth, Minn., pro se. John William Lundquist, Steven Zane Kaplan, Dulce J. Foster, Fredrikson & Byron, Minneapolis, Minn., for appellant.

Before: MCMILLIAN and MURPHY, Circuit Judges, and BATTEY, District Judge. ¹

MURPHY, Circuit Judge:

After Charles A. Willis was convicted by a jury on two counts of tax evasion, he moved for a new trial based on alleged insufficiency of evidence, errors in the instructions and evidentiary rulings, and juror misconduct. A second retrial motion alleged violations of his rights under Brady v. Maryland, 373 U.S. 83, 10 L.Ed.2d 215, 83 S.Ct. 1194 (1963). The district court ² denied both motions and sentenced him to 27 months. Willis appeals the denial of the motions and his sentence. We affirm.

I.

In the tax years 1995 through 1997, Charles Willis worked as a shareholder and officer of Connectivity Systems, Inc., a business founded by his father, where he earned taxable income of nearly $1.5 million. ³ Willis testified at trial that in 1996, as a result of a conversation with a Connectivity employee, he began to believe that payment of federal income taxes was not compulsory. ⁴ He purchased books on the subject and spoke with lawyers and accountants. Most of those with whom he spoke told him that payment was compulsory, and even those materials which encouraged his belief told him that it was contrary to the view of the Internal Revenue Service (IRS) and the courts. Willis also researched the issue in statutes and casebooks, despite having no legal training.

Willis rejected a return prepared by an accountant for his 1995 tax year because of his view that payment was voluntary. He instead prepared his own return which showed deductions equal to his 1995 income and requested a refund of the amount previously withheld by Connectivity, approximately $170,000. The IRS rejected this return as frivolous and began an investigation. In the course of the investigation, Willis told IRS agents that he was unable to find any legal authority requiring him to file tax returns. An IRS agent testified that she offered to send Willis a brochure explaining his obligation to pay, with citations to cases and statutes. She reported that Willis declined her offer, instead demanding that she "cite the law off the top of [her] head." She eventually mailed the brochure to Willis, who claims that he did not receive it.

Willis failed to file a return for the 1996 and 1997 tax years. In 1996 he drafted and filed a "substitute W-4" form stating that he was "excluded" from withholding. After receiving the form Willis had drafted, Connectivity continued to report his income to the IRS but no longer withheld taxes from his earnings.

In March 2000 Willis was charged with three counts of tax evasion in violation of 26 U.S.C. §7201: ⁵ for the years 1995, 1996, and 1997. The case was tried before a jury which convicted him on the counts relating to 1996 and 1997 but deadlocked on the one for 1995. His motions for a new trial were denied by the district court which then sentenced him to 27 months in prison.

Willis appeals from the denial of his motions for a new trial on the grounds that the evidence presented at trial was insufficient to convict him and that the court improperly excluded evidence and erred in its instructions to the jury. He also alleges that he is entitled to a new trial because of alleged juror misconduct and because of the government's failure to disclose evidence under Brady v. Maryland, 373 U.S. 83, 87, 10 L.Ed.2d 215, 83 S.Ct. 1194 (1963). Finally, ⁶ he argues that the district court did not use the correct base offense level in its sentencing calculation under the guidelines.

II.

The government must prove three elements in order to obtain a conviction under §7201: a tax deficiency, willfulness, and an affirmative act of evasion or attempted evasion of the tax. United States v. Brooks, 174 F.3d 950, 954 (8th Cir. 1999). Willis does not now dispute that he owed taxes for income earned in 1996 and 1997, and we consider in turn each of his points on appeal.

A.

Willis argues that the evidence presented by the government was insufficient to convict him. A motion for a new trial should be granted if there is insufficient evidence to support the verdict. Larson v. Farmers Coop. Elevator of Buffalo Ctr., 211 F.3d 1089, 1095 (8th Cir. 2000). A question regarding the sufficiency of the evidence is reviewed de novo, considering the evidence in the light most favorable to the government. Brooks, 174 F.3d at 954.

Willis contends that the government presented insufficient evidence of one element for conviction under §7201: an affirmative act of evasion or attempted evasion of the tax. This element is satisfied by proof of any affirmative conduct which has the likely effect to mislead or conceal. Id. at 956. Willis contends that the failure to file is not itself an affirmative act and that his conduct was neither evasive nor misleading. He openly communicated to IRS agents and others that he did not believe he was required to pay taxes.

The government presented evidence sufficient for the jury to conclude that Willis affirmatively attempted to evade his obligation to pay taxes. There was also evidence that Willis attempted to conceal his whereabouts by selling his home and permitting himself to be contacted by cell phone only. The evidence was sufficient to prove attempted evasion of the tax.

B.

Willis raises several issues with respect to the court's instructions to the jury. A court's instructions are generally reviewed for abuse of discretion. United States v. Beckman, 222 F.3d 512, 520 (8th Cir. 2000). A judgment will be reversed on the basis of instructional error only if the error affected the substantive rights of the parties. White v. Honeywell, Inc., 141 F.3d 1270, 1278 (8th Cir. 1998). The question is whether the instructions "taken as a whole and viewed in the light of the evidence and applicable law, fairly and adequately submitted the issues in the case to the jury." Id. (quoting Kim v. Nash Finch Co., 123 F.3d 1046, 1057 (8th Cir. 1997)).

First, Willis contends that the court erred in failing to instruct that a conviction under §7201 requires the finding of an affirmative act of evasion. The court instructed the jury that it could convict only upon a finding that Willis had attempted to evade and defeat the tax which he owed, an element involving both "an intent to evade or defeat the tax [and] some act willfully done in furtherance of such intent." According to the instruction, this element is satisfied if the defendant "willfully failed to report" income which he knew he must report or attempted to evade or defeat the tax in some other manner. The jury was instructed further that to evade or defeat a tax means "to escape paying [it] by means other than lawful avoidance." Willis charges that this instruction permitted the jury to convict him even if it did not find an affirmative act of evasion. Because he failed to object on this basis at trial, our review is for plain error which is error that affected his "substantial rights." United States v. Pinque, 234 F.3d 374, 378 (8th Cir. 2000), cert. denied, 149 L.Ed.2d 1013, 121 S.Ct. 2012 (2001) (quoting United States v. Jorgensen, 144 F.3d 550, 560 (8th Cir. 1998)); Fed. R. Crim. P. 30. No such error is present here. The instruction clearly prohibited the jury from convicting Willis unless it found some act "willfully done" in furtherance of an intent to evade or defeat the tax he owed.

Next, Willis contends that the court erred in issuing a willful blindness instruction. The court instructed the jury that the necessary element of knowledge could be inferred

if the defendant deliberately closed his eyes to what otherwise would have been obvious to him. You may not find the defendant acted knowingly, however, if you find that the defendant actually believed he had no duty to pay taxes. A showing of negligence, mistake or carelessness is not sufficient to support a finding of knowledge.

A willful blindness or deliberate indifference instruction is appropriate when there is evidence to "support the inference that the defendant was aware of a high probability of the existence of the fact in question and purposely contrived to avoid learning all of the facts in order to have a defense" against subsequent prosecution. United States v. Barnhart, 979 F.2d 647, 652 (8th Cir. 1992).

Willis argues that the evidence shows that he actively sought to learn his obligations under the law by consulting accountants and lawyers and by reading materials on the subject; the willful blindness instruction should therefore not have been given. Willis objected to this instruction at trial and so we review the court's decision to give it for abuse of discretion. Beckman, 222 F.3d at 520 (8th Cir. 2000). The government presented evidence sufficient to support the deliberate indifference instruction here. Testimony from the lawyers and accountants Willis approached, as well as IRS agents, indicate that he was eager to convince them that payment of taxes was voluntary and was unwilling to hear any contrary view. The very documents upon which Willis says he relied in forming his belief expressly warned that the IRS and the courts did not agree. A jury could reasonably conclude from this evidence that Willis was aware of a high likelihood that he was required to pay taxes and attempted to avoid learning the truth. The willful blindness instruction was therefore appropriate.

Finally, Willis argues that the court erred in its instruction on good faith. The jury was instructed that

[a] defendant's good faith is recognized as a defense to the charge of tax evasion, because good faith on the part of a defendant is simply inconsistent with the willful intent to violate the law with which he's charged. [Good faith] encompasses, among other things, a belief or opinion honestly held, and an absence . . . of malice or ill will. A person who acts on an honestly held belief or opinion is not punishable under the law merely because the opinion or belief turns out to be inaccurate, incorrect, or wrong. An honest mistake in judgment or an honest error does not rise to the level of criminal conduct.

Willis objected at trial and argues now that this instruction erroneously led the jury to believe that he could be acquitted only if his beliefs were reasonable. He suggests that the court should have expressly instructed the jury to acquit him if he sincerely believed his actions were lawful, even if that belief was unreasonable. The instruction clearly told the jury to determine whether his belief was sincere and honest rather than whether it was reasonable, and the court did not abuse its discretion in declining to add the language suggested by Willis.

Willis also contends that this instruction was erroneous because under it the jury could not find both good faith and malice or ill will toward the IRS. As he points out, the absence of malice or ill will is not required for a good faith defense under §7201. See Brooks , 174 F.3d at 955. See also Cheek v. United States [91-1 USTC ¶50,012], 498 U.S. 192, 202-03, 112 L.Ed.2d 617, 111 S.Ct. 604 (1991); Eighth Circuit Criminal Jury Instructions §9.08 (2000). Willis presented considerable evidence of his anger toward the IRS over the Connectivity payroll tax embezzlement, and he now argues that this evidence of ill will could have led the jury to discredit his good faith defense. Willis did not object on this basis at trial and so our review is limited to a determination of whether the trial court committed plain error in violation of his substantial rights. Pinque, 234 F.3d at 378. Plain error will be found "only where necessary to prevent a miscarriage of justice." United States v. Neumann, 887 F.2d 880, 882 (8th Cir. 1989) (en banc). No such error is present here. Although a lack of malice is not itself a requirement for the good faith defense, a finding of malice could lead the jury to find that Willis' beliefs were not honestly held. The government presented considerable evidence to support the jury's finding that a defense of good faith did not apply. The court's instruction did not violate Willis' substantial rights.

C.

At trial Willis sought to introduce materials upon which he allegedly relied in forming a belief that he was not required to pay taxes. These materials included statutes and judicial opinions, as well as three boxes of documents from groups supporting his view. Willis argued that these materials were probative evidence of his honest understanding that he was not required to pay taxes. The court permitted Willis to introduce several of these documents, and it allowed Willis to testify about the remaining material which was excluded as cumulative and prejudicial.

Willis contends that the excluded evidence was relevant and that the court erred by not admitting it. Cf. United States v. Gaumer [92-2 USTC ¶50,444], 972 F.2d 723, 725 (6th Cir. 1992) (error to exclude all documents contributing to belief that defendant was not required to pay taxes). Willis has not shown how the excluded documents would have added new insight into the formation of his beliefs beyond the materials that were permitted into evidence. These documents were cumulative, Fed.R.Evid. 403, and so the court did not abuse its discretion in excluding them. Cf. United States v. Nash, 175 F.3d 429, 434-36 (6th Cir. 1999) (permissible to exclude some materials contributing to belief that payment of taxes is not required). Moreover, introduction of the statutes and judicial opinions would have had a high potential to confuse the jury and conflict with the court's responsibility to instruct on the law. Willis had been permitted to explain the source of his beliefs and to introduce other exhibits on which he relied, and the district court did not err in excluding the additional documents. Fed.R.Evid. 403.

D.

In connection with his motions for a new trial, Willis presented evidence from a friend of his father about alleged juror misconduct. That individual stated he had had a conversation with the employer of the jury foreperson. The friend of Willis's father said that the employer had told him that the foreperson had spoken with him the night before the verdict and said that "it didn't look good for Willis." The father's friend also stated that the foreperson and his employer had discussed the fact that their company was a competitor of a firm previously owned by Willis. After Willis made this allegation, an IRS agent was sent to interview the foreperson who said that he had told his employer only the name of Willis' case, the name of the firm previously owned by Willis, and the length of his expected absence from work.

Willis contends that the court should have held an evidentiary hearing before concluding that there had been no juror misconduct. See United States v. Behler, 14 F.3d 1264, 1268 (8th Cir. 1994) (citing Remmer v. United States [54-1 USTC ¶9274], 347 U.S. 227, 230, 98 L.Ed. 654, 74 S.Ct. 450 (1954)). The trial court has broad discretion in handling allegations of juror misconduct. United States v. Williams, 77 F.3d 1098, 1100 (8th Cir. 1996). Any contact with a juror during trial about the case before the juror is presumptively prejudicial, Behler, 14 F.3d at 1268, but this presumption can be rebutted if "the proper reaction of the court establishes that the defendant has not been prejudiced." Id. (quoting United States v. Rowley, 975 F.2d 1357, 1363 (8th Cir. 1992)). The foreperson had revealed at voir dire that he worked for a competitor of Willis' previous company, but Willis made no challenge to his jury service then or during trial. We conclude that the court did not abuse its discretion by not holding an evidentiary hearing or in finding that these allegations based on multiple hearsay were "nearly spurious."

E.

Willis made a Brady motion before trial requesting any exculpatory evidence, specifically including any documents in the possession of the government concerning a program known as "De-Taxing America." Willis testified at trial that he had relied on materials from De-Taxing America in forming his belief that he was not obligated to pay taxes. The government responded that it possessed no such evidence.

After trial Willis discovered that the founders of De-Taxing America had been investigated by the IRS and permanently enjoined from marketing the program. See United States v. Raymond, 78 F.Supp.2d 856 (E.D. Wis. 1999), aff'd [2000-2 USTC ¶50,750], 228 F.3d 804 (7th Cir. 2000), cert. denied, 150 L.Ed.2d 230, 121 S.Ct. 2242 (2001). Willis contends that evidence that others had been misled by the De-Taxing America materials would have supported his claim that he had honestly believed that he was not obligated to pay taxes. He argues that the government should have provided him with information regarding the case against De-Taxing America, including deposition transcripts, affidavits, notes, and correspondence.

To establish a Brady violation, the defendant must show that the prosecution suppressed material evidence favorable to him. United States v. Keltner, 147 F.3d 662, 673 (8th Cir. 1998). Evidence is material only if there is a reasonable probability that the result of the trial would have been different if it had been disclosed. Id. The De-Taxing America material does not meet this standard. The injunction against the De-Taxing America program was a matter of public record at the time of trial. As the district court observed, the information Willis sought was available by merely entering the phrase "De-Taxing America" into a search engine on a legal database such as Westlaw or Lexis. Willis claims that research conducted by his attorney before trial failed to uncover any government action against De-Taxing America, but the district and appellate court opinions in Raymond were filed in July 1999 and September 2000, and the existence of an injunction against the De-Taxing America program was publicly available knowledge at the time trial began in December 2000. Publicly available information which the defendant could have discovered through reasonable diligence cannot be the basis for a Brady violation. United States v. Jones, 160 F.3d 473, 479 (8th Cir. 1998). Moreover, the office prosecuting Willis was not in charge of the Raymond prosecution and was not in possession of non public materials from that case. Most significantly, this material was not materially exculpatory. Government witnesses testified before the jury that they had received materials drafted by De-Taxing America from many individuals, not just from Willis. Additional evidence that others had followed that program would not have created a reasonable probability of a different result at trial. We conclude there was no Brady violation.

F.

Finally, Willis challenges his sentence. He claims the court erred in its finding on the amount of tax loss which led to a base offense level of 16 instead of 15.

The court found that the government had suffered a tax loss in an amount between $200,000 and $325,000, which corresponds to a base offense level of 16 under the United States Sentencing Guidelines. See United States Sentencing Commission, Guidelines Manual §2T4.1 (Nov. 2000). This base offense level and a criminal history category of I resulted in a sentencing range of 21 to 27 months. The court sentenced Willis to 27 months, the upper point of that range. Willis contends that the loss should have been less than $200,000, based on amended returns he filed just before trial. That loss amount would have given him a base offense level of 15 and a guidelines range of 18 to 24 months.

The district court's factual findings regarding the amount of tax loss will be upheld unless clearly erroneous. United States v. Oseby, 148 F.3d 1016, 1025 (8th Cir. 1998). In this case, the court based its determination of the amount of tax loss on evidence presented at trial by IRS agents. Willis argues that the district court improperly relied on the Presentence Investigation Report rather than making its own independent findings of fact, see United States v. Olbres [96-2 USTC ¶50,670], 99 F.3d 28, 30-32 (1st Cir. 1996), but the court expressly relied on testimony "proven at trial [and] shown before a jury." It commented that Willis did not "seriously challenge" this testimony. Instead, Willis relied on tax forms filed in September 2000 after he was indicted. The court chose to disregard Willis' own calculation in favor of trial evidence. Its factual finding of the amount of loss was not clearly erroneous.

III.

After studying the record, we conclude that Willis is not entitled to either a new trial or to resentencing, and we affirm the judgment of the district court.

¹ The Honorable Richard H. Battey , United States District Judge for the District of South Dakota, sitting by designation.

² The Honorable James M. Rosenbaum, Chief Judge , United States District Court for the District of Minnesota.

³ The parties do not dispute that Willis paid income taxes on his earnings prior to 1995. For the 1994 tax year the taxes paid amounted to approximately $134,000.

⁴ Another explanation for Willis' attitude towards the tax system emerged at trial. In 1996 Connectivity discovered that a contract payroll company working for it had embezzled payroll tax funds rather than remitting them to the IRS. See United States v. Ervasti [2000-1 USTC ¶50,173], 201 F.3d 1029 (8th Cir. 2000). Connectivity was then required to remit to the IRS additional funds beyond those already provided to the payroll company for payment of its taxes. Willis testified that he felt that the IRS was at least partly responsible for Connectivity's lost funds.

⁵ 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 $100,000 . . . or imprisoned not more than 5 years, or both, together with the costs of prosecution.

26 U.S.C. §7201.

⁶ Willis also charges that the court consistently made rulings prejudicial to him, but he cites only one example--the allegedly inconsistent treatment of two letters. One letter had been mailed by an IRS agent to Willis, and he had sent the other to the IRS. His letter was excluded for lack of foundation, but the IRS letter was admitted despite what he says was weaker foundation. Willis has not shown an abuse of the court's discretion in ruling on the admissibility of evidence, by this example or otherwise. See United States v. Jackson, 914 F.2d 1050, 1053 (8th Cir. 1990) (standard of review).

Willis further alleges that the court made "embarrassing and gratuitous criticisms" of his counsel throughout the trial, but a review of the record finds this charge baseless.

[2001-2 USTC ¶50,762] United States of America , Plaintiff-Appellee v. George Meredith Bishop III, Defendant-Appellant

(CA-5), U.S. Court of Appeals, 5th Circuit, 00-20282, 8/29/2001

264 F3d 535

2001 U.S. App. LEXIS 19266. Affirming an unreported District Court decision.

[Code Secs. 7203 and 7206 ]

Crimes: Tax evasion, elements of: Willful or intentional affirmative acts: Willful failure to file a tax return: Sufficiency of indictment.--Two counts in an indictment against a law firm sole proprietor who was convicted of tax evasion were not defective on the ground they omitted the tax deficiency and knowledge elements of tax evasion. Both counts explicitly charged that a deficiency existed, that his acts were willful and that he committed affirmative acts constituting evasion or attempted evasion. A third count was not deficient on the ground it contained no allegation that he acted willfully in filing a false return. Not only did the indictment track the language of the statute but it also explicitly stated that the taxpayer knew the return was false but decided to file it anyway. Additionally, the indictment was not defective on the ground that it failed to acknowledge that certain items would offset his deficiency. Accordingly, the indictment was legally sufficient.

[Code Secs. 7203 and 7206 ]

Crimes: Tax evasion: Evidence presented: Harmless error: Hearsay rules.--Summary evidence presented during the trial of a law firm sole proprietor who was convicted of tax evasion and filing a false return was not inadmissible. The IRS agent who testified as a summary witness spoke only of evidence already in the record and, on direct and cross examination, expressed the limited basis of his testimony, creating no error or abuse of discretion. Allowing the use of summary charts that were based on testimony and documentary evidence presented in the case and allowing those charts to be taken to the jury room was not an abuse of discretion. However, the trial court should not have admitted the IRS agents' notes regarding meetings with the taxpayer because the notes were hearsay. Nevertheless, the error was harmless because the content of the notes had been thoroughly discussed during the direct and cross-examinations, adding little to the weight of the evidence in the case.

[Code Sec. 7203 ]

Crimes: Tax evasion, elements of: Jury instructions.--Jury instructions on the elements of tax evasion that were presented in the trial of a law firm sole proprietor were adequate. The jury could take into account payments made in previous years in determining the amount of tax actually owed. In addition, the trial court repeatedly and thoroughly informed the jury that proof of knowledge on the part of the taxpayer was required. Moreover, the jury instruction that covered both the summary testimony and charts admitted into evidence was sufficient since it advised the jurors that the information underlying the summaries, not the summaries themselves, was evidence.

[Code Sec. 7203 ]

Crimes: Tax evasion: Evidence presented: Hearsay rules.--Statements made by a law firm sole proprietor who was convicted of tax evasion and his former bookkeeper did not fall within exceptions to the hearsay rule as "statements of the declarant's then existing state of mind, emotion, sensation or physical condition." The statements were properly excluded during the trial because they were a recitation of the bookkeeper's memories of earlier events or were self-serving assertions by the taxpayer intending to prove the truth of their content.

[Code Sec. 7203 ]

Crimes: Tax evasion, elements of: Willful or intentional acts: Evidence presented: Directed verdict.--A law firm sole proprietor convicted of tax evasion was not entitled to a directed verdict because the government provided sufficient evidence that there was a tax deficiency and that he willfully engaged in attempts to evade income tax due. The evidence of his actions adequately supported the jury's verdict. Further, he admitted that he signed a return, the falsity of which was virtually undisputed and the amount of unreported income was material.

[Code Sec. 7203 ]

Crimes: Harmless error: Prejudice: Bias: Statutory disqualification of a juror.--A law firm sole proprietor convicted of tax evasion was not entitled to a new trial on the ground that one of the jurors who convicted him had been dishonest about her criminal history of embezzlement and was on community supervision and making restitution payments. He was required to prove that the juror, who should have been disqualified for cause, was biased and that her bias harmed his case. Because the juror had a reasonable explanation for not divulging her criminal conviction, her failure to provide the information did not indicate presumed bias and he failed to provide factual proof of actual bias.

James Lee Turner, Assistant United States Attorney, United States Attorney's Office, Houston, Tex., Alan L. Hechtkopf, Rob ert E. Lindsay, Karen Marie Quesnel, Gregory Victor Davis, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. George M. Bishop, III, FPC Beaumont, Beaumont, Tex., pro se. Randall W. Wilson, Susman Godfrey, Jeffrey R. Vaughan, Houston, Tex., for defendant-appellant.

Before: HIGGINBOTHAM and BENAVIDES, Circuit Judges, and LITTLE, District Judge. ^*

LITTLE, District Judge:

Today we consider George M. Bishop III's appeal of three convictions centered upon income tax and reporting violations. The first and third counts involve attempted tax evasion, ¹ in the 1991 and 1994 tax years, respectively. The second count relates to knowingly filing a false income tax return, under penalty of perjury, for 1991. ² Finding no reversible error, we affirm each conviction.

I.

The operative facts are not in serious dispute. During all times material to counts one, two and three, Bishop was the sole proprietor of George M. Bishop and Associates (GMBA), a law firm in Houston , Texas . In 1994, the Internal Revenue Service (IRS) initiated an audit of Bishop's account, because he did not file federal income tax returns for the years 1989, 1990, and 1991. Bishop explained the delay was caused by tensions in his marriage, leading to his divorce in 1991. Under the pressure of the audit and with the assistance of his accountants, Bishop filed the missing returns in August 1994, September 1994, and December 1994, respectively.

The audit continued because IRS employees suspected Bishop understated his income. In September 1995, Mark E. Locus, the IRS agent in charge of the case, received an anonymous letter suggesting that Bishop omitted a substantial fee he received in April 1991 from Harold Scharold, a client in a breach of contract suit. A review of Bishop's records showed that, on 5 April 1991, Scharold paid a $933,333.33 legal fee. The check was payable to GMBA, but was deposited in Bishop's personal account at Dean Witter. Joye Wilson, Bishop's bookkeeper, initially recorded the amount as fee income in the GMBA general ledger, in accordance with the normal office procedure. At Bishop's instruction, Wilson reversed the first ledger entry by debiting the account. GMBA's monthly profit and loss statements therefore did not reflect receipt of the fee.

Bishop did not report the fee either. His 1991 tax return stated that his gross income from the practice of law was $988,599.00. IRS agent Kay Campbell, Locus' successor, determined that at most, Bishop reported $352,945.81 out of the $933,333.33 fee he received from Scharold. The $352,945.81 included $140,000 which is the sum Bishop paid to his ex-wife and advised his accountant to add to his reported income, and $212,945.89 that Campbell could not attribute to other sources. Campbell also found that Bishop may have failed to report other income of $150,344.77, the total of amounts added to the GMBA general ledger during the last four months of the year but not included on Bishop's return.

Additionally, in August 1991, Bishop received a $183,666.67 fee plus $28,513.42 in litigation expenses, for representing the Cash children in a legal malpractice suit. Both sums were paid into Bishop's trust account. Bishop should have reported the $183,666.67 as income. During the week after receiving the money, however, he withdrew $111,120.59 from the trust account and deposited it in two personal accounts. He did not report any portion of this money as income. Accordingly, his total unreported income for 1991 was at least $841,822.80. Campbell recalculated Bishop's taxes for the year, making appropriate adjustments in Bishop's favor as well as adding the unreported income. Bishop's return reported a tax of $107,973.00, but according to Campbell , he actually owed $358,002.00. There was an underpayment in excess of $250,000. ³

Campbell also reviewed Bishop's return and records for 1994. Bishop filed his 1994 return in April 1995, reporting gross income from the practice of law of $676,262. In a matter settled during the year, Bishop received a $575,000 fee. One of the opposing lawyers paid Bishop a $400,000 portion of the fee. Bishop requested that the lawyer wire transfer the money to Bishop's personal account at Chappell Hill Bank. The lawyer refused to wire transfer the money, but did send the check directly to Chappell Hill Bank. Consequently, the payment was not recorded in the GMBA general ledger. Upon receipt of a Form 1099 regarding the $400,000 payment, Pat Schulmeier, Bishop's new bookkeeper, informed Bishop's accountant of receipt of only $196,006.74 out of the $400,000, for reasons that remain unclear. ⁴ A $10,000 check, which was a part of the $575,000 fee but from a different source, also was deposited at Chappell Hill Bank and omitted from Bishop's return. As a result, Bishop failed to report $179,532.41 to $213,993.26 of fee income received in 1994. ⁵

In October 1996, Bishop amended his 1994 return in an attempt to correct the problem, increasing his gross income from the practice of law by $400,000, resulting in a total of $1,076,262. He also adjusted his deductions, and paid appropriate additional taxes. Later, Bishop discovered that $196,006.74 of the $400,000 had in fact been included in the initial return and filed a second amended return in July 1998. Now Bishop's reported gross income from the practice of law was $890,255. ⁶

In light of Campbell 's findings, and Bishop's efforts to conceal his income and spending habits from IRS agents and his own accountants, a fraud investigation and criminal prosecution began. On 24 March 1999, a grand jury returned a three count indictment against Bishop. After a seventeen day trial, the jury convicted Bishop on all three counts. Subsequently, Bishop discovered that one of the jurors, Jodi Tharp, had been less than candid concerning her prior experiences with the law. Specifically, Tharp was charged with third degree felony embezzlement in 1997. Over the course of eight months, Tharp stole $42,250 from the bank where she worked. She pled guilty in Texas state court, and adjudication of the matter was deferred for ten years. At the time of Bishop's trial, she was paying a fine and restitution in installments, and was under community supervision, which is equivalent to probation.

On a juror questionnaire, Tharp responded "no" to the questions "Have you ever been convicted of a state or federal crime punishable by imprisonment for more than one year?" and "Have you ever been charged criminally other than with a traffic ticket?" During voir dire, she did not raise her hand in response to several questions as to whether she had ever been involved in a criminal matter, as an accused, witness, or victim. Nor did she respond when the judge gave the jurors an opportunity to raise their hands if they had anything to add regarding the previous questions.

After Tharp's criminal history was revealed, Bishop moved for a new trial. The district court held an evidentiary hearing and determined that Tharp was statutorily disqualified from serving on a jury, but denied Bishop's motion because he failed to demonstrate that Tharp was biased and that he suffered as a result of that bias. Bishop appeals this ruling and asserts that the district court made several other reversible errors before, during, and after the trial. We address each point raised, some in more detail than others.

II.

Bishop contends that counts one and three of the indictment are defective because they omit the tax deficiency and knowledge elements of tax evasion, and that count two contains no allegation he acted willfully in filing a false return. An indictment must allege each element of the charged offense, in order to insure that the grand jury finds probable cause that the defendant committed each element, to prevent double jeopardy, and to provide notice to the accused. See United States v. Cabrera-Teran, 168 F.3d 141, 143 (5th Cir. 1999). We consider the sufficiency of the indictment de novo. See id. at 143.

A.

The crime of tax evasion as defined in 26 U.S.C. §7201 has three essential elements: (1) the existence of a tax deficiency; (2) willfulness; and (3) an affirmative act constituting evasion or attempted evasion of the tax. See United States v. Townsend, 31 F.3d 262, 266 (5th Cir. 1994) (citing Sansone v. United States [65-1 USTC ¶9307], 380 U.S. 343, 351, 85 S.Ct. 1004, 1010, 13 L.Ed.2d 882, 888 (1965)).

After describing the results of the audit in detail, count one of the indictment boldly alleges the following:

[Bishop] did knowingly and willfully attempt to evade and defeat a substantial income tax due and owing by him . . . by: failing to timely file an income tax return on or about October 15, 1992 , causing false and misleading books and records to be created, providing incomplete or misleading information to his tax preparer, concealing information likely to alert the IRS Revenue Agents to unreported income, and other affirmative acts of evasion.

Count three describes the misreporting of the fees deposited at the Chappell Hill Bank and states that Bishop "did willfully attempt to evade and defeat a substantial income tax due and owing by him . . . by preparing and causing to be prepared, and by signing and causing to be signed, a false and fraudulent United States Individual Income Tax Return-Form 1040."

Both count one and count three explicitly charge that a tax deficiency existed, that Bishop's acts were willful, and that he committed affirmative acts constituting evasion or attempted evasion. All elements were presented to the grand jury. Bishop argues that the indictment fails to acknowledge certain items that would offset any deficiency. This argument has no merit. The non-existence of credits, refunds, and other payments may affect the extent of any deficiency, but is not a specific element of tax evasion. There is no need to list each potentially offsetting item in the indictment. Counts one and three thoroughly describe the omission of large fees received in 1991 and 1994, respectively, the filing of the returns, and the related investigation. There is no question as to the nature of the charges. Counts one and three are legally sufficient.

B.

A person commits the felony of filing a false tax return in violation of 26 U.S.C. §7206(1) when he "willfully 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." 26 U.S.C. §7206(1). Count two of the indictment reads as follows:

[Bishop] did willfully make and subscribe a United States Individual Income Tax Return-Form 1040, which was verified by a written declaration that it was made under the penalties of perjury and was filed with a Revenue Agent . . . which 1991 income tax return [Bishop] did not believe to be true and correct as to every material matter in that the said federal income tax return reported Schedule C Gross Receipts of $988,599.00, whereas, [Bishop] then and there well knew and believed, that [Bishop's] 1991 Schedule C Gross Receipts were false, that is, that the Schedule C Gross Receipts were actually in excess of $1.5 million during 1991.

Bishop was charged with "willfully" filing a tax return that he "believed" to be "false." The indictment not only tracked the language of the statute, but also explicitly stated that Bishop knew the return was false but nonetheless chose to file it. Count two specifies that Bishop's Schedule C gross receipts for 1991 were understated, and additional discussion of the 1991 return appears in other portions of the indictment. No element of the crime was omitted. Count two of the indictment is also legally sufficient.

III.

Bishop challenges several of the district court's evidentiary rulings. We review these for abuse of discretion but affirm so long as any error is harmless. See United States v. Taylor , 210 F.3d 311, 314 (5th Cir. 2000); United States v. Skipper, 74 F.3d 608, 612 (5th Cir. 1996). In order to obtain a reversal, the complaining party must demonstrate that the district court's ruling caused him substantial prejudice. See United States v. Izydore, 167 F.3d 213, 218 (5th Cir. 1999).

A.

Both the government and the defendant introduced summary evidence. Bishop argues that Rob ert Simpson, an IRS agent who acted solely as the government's summary witness and not as an expert, testified to matters of which he had no personal knowledge, testified to the contents of letters that were hearsay, and gave his opinion on a variety of issues. Bishop also contends that the district court should not have admitted charts summarizing and clarifying the government witnesses' analysis, because the documents were misleading and confusing, and were not tempered by appropriate jury instructions.

The use of summary testimony and documents is governed by Rule 1006 of the Federal Rules of Evidence, which is broadly interpreted. See Taylor , 210 F.3d at 315; United States v. Winn, 948 F.2d 145, 158 (5th Cir. 1991). Rule 1006 allows admission of summaries when (1) the evidence previously admitted is voluminous, and (2) review by the jury would be inconvenient. See Taylor , 210 F.3d at 315; United States v. Stephens, 779 F.2d 232, 239 (5th Cir. 1985). A summary may include only evidence favoring one party, so long as the witness does not represent to the jury that he is summarizing all the evidence in the case. See Flemister v. United States [58-2 USTC ¶9904], 260 F.2d 513, 517 (5th Cir. 1958).

Summary evidence must have an adequate foundation in evidence that is already admitted, and should be accompanied by a cautionary jury instruction. See United States v. Means, 695 F.2d 811, 817 (5th Cir. 1983). Full cross-examination and admonitions to the jury minimize the risk of prejudice. See United States v. Castillo, 77 F.3d 1480, 1500 (5th Cir. 1996); United States v. Jennings , 724 F.2d 436, 442 (5th Cir. 1984). We previously approved a cautionary instruction that "summaries do not, of themselves, constitute evidence in the case but only purport to summarize the documented and detailed evidence already submitted," and an instruction that a witness's summary "is not the evidence, the evidence is the documents themselves that he has been referring to." United States v. Lavergne, 805 F.2d 517, 521-22 (5th Cir. 1986) (quoting United States v. Diez [75-2 USTC ¶9656], 515 F.2d 892, 905 (5th Cir. 1975)).

Summary charts in particular are admissible when (1) they are based on competent evidence already before the jury, (2) the primary evidence used to construct the charts is available to the other side for comparison so that the correctness of the summary may be tested, (3) the chart preparer is available for cross-examination, and (4) the jury is properly instructed concerning use of the charts. See United States v. Goodwin, 470 F.2d 893, 899 (5th Cir. 1972); McDaniel v. United States , 343 F.2d 785, 789 (5th Cir. 1965). Summaries may accompany the jury to the jury room. See Winn, 948 F.2d at 158-59.

We first note that it was appropriate to use summary evidence in this case. The trial consumed seventeen days of technical testimony and scores of exhibits were presented. Bishop argues that Simpson, a summary witness, testified to matters beyond the scope of a summary, but the government correctly explains that the bulk of Simpson's testimony was a recitation of facts already in the record. An exception is Simpson's expression of the opinion that several people harbored ill will toward Bishop, but this comment was a response to Bishop's lawyer's question as to whether Simpson concurred in Locus' belief that the tip about the undisclosed Scharold fee came from Bishop's ex-wife. The only other opinion that Simpson expressed was that the government's case was correct, but this was acceptable because he summarized only the evidence favorable to the government. Simpson spoke only of evidence already in the record, and, on direct and cross examination, he fully expressed the limited basis of his testimony. We see no error in allowing Simpson to speak.

Campbell and Simpson based their summary charts on testimony and documentary evidence presented to the jury and available to the defense before trial. Both witnesses underwent extensive cross-examination. ⁷ Bishop argues that the charts should have been excluded because they did not include evidence elicited from government witnesses during cross-examination. This contention fails for the reason given above, that is, that a summary need not address all of the evidence. Bishop also protests that the charts were flawed because they did not list various items that arguably reduced his tax liability. Whether offsets were available was disputed at trial, and therefore, evidence regarding them was in the record and available to the jury, regardless of whether it appeared on the charts. Summaries admitted under Rule 1006 may go to the jury room. There was no abuse of discretion in admitting the summary testimony and exhibits.

The jury instructions regarding the summary evidence were sufficient:

Charts and summaries were shown to you in order to make the other evidence more meaningful and to aid you in considering the evidence. They are no better than the testimony and the documents upon which they are based, and are not themselves independent evidence. Therefore, you are to give no greater consideration of these schedules and summaries than you would give to the evidence upon which they are based.

It is for you to determine the accuracy of the summary charts. You are entitled to consider the charts, schedules, and summaries if you find that they are of assistance to you in analyzing the evidence and understanding the evidence.

This instruction covered both the summary testimony and charts, and properly advises the jury that the information underlying the summaries, not the summaries themselves, is evidence, although the summaries may be a useful aid. The instruction was correct and submission to the jury was not an abuse of discretion.

B.

The district court should not have admitted IRS agents Campbell and Locus' notes regarding meetings they had with Bishop. Personal notes made by an investigator such as an IRS agent are not ordinarily admissible because they are hearsay. See Fed. R. Evid. 801(c), 803(8)(B). Rule 801(d)(1)(B) provides an exception when the notes are offered to "rebut an express or implied charge against the declaring of recent fabrication or improper influence or motive." United States v. Pena, 949 F.2d 751, 757 (5th Cir. 1991) (quoting Fed. R. Evid. 801(d)(1)(B)).

Bishop's lawyers implied that Locus made mistakes or lied while testifying, but it does not appear that his supposed fabrications were recent or made with an improper motive. The cross examination of Campbell was an attempt to refresh her recollection rather than an effort to imply that her earlier testimony was false. Rule 801(d)(1)(B) cannot be construed to allow the admission of what would otherwise be hearsay every time a law enforcement officer's credibility or memory is challenged; otherwise, cross-examination would always transform hearsay notes into admissible evidence. The error, however, was harmless, as the content of the notes was thoroughly discussed on both direct and cross examination. Admitting the notes themselves added little to the weight of the evidence in the case.

C.

Bishop submits that the district court erred when it excluded testimony regarding statements made by the defendant's former bookkeeper, Pat Schulmeier, and by the defendant himself. Actually, the statements were hearsay and were not admissible. "'Hearsay' is a statement other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Fed. R. Evid. 801(c). Hearsay is not admissible unless an exception applies as provided by the Federal Rules of Evidence, other rules adopted by the Supreme Court, or statute. See Fed. R. Evid. 802. Bishop argues that Schulmeier's statements, and his own, may be admitted as "statements of the declarant's then existing state of mind, emotion, sensation, or physical condition (such as intent, plan, motive, design, mental feeling, pain, and bodily health), but not including a statement of memory or belief to prove the fact remembered or believed." Fed. R. Evid. 803(3).

Schulmeier was Bishop's bookkeeper from 1991 to 1997. She died in February 1998. At trial, Bishop sought to introduce testimony that during 1996, Schulmeier met with Marc Grossberg, Bishop's tax lawyer, and Terri Raybourne, Bishop's legal assistant. The testimony proffered through Grossberg was that Schulmeier said she knew Bishop received a $400,000 fee in 1994, that it was her fault it was omitted from the books used to prepare his tax returns, and that she did not know why she failed to record the fee.

Bishop offered Schulmeier's statements in order to prove the truth of their content, that is, to show it was not his fault that all or a portion of the $400,000 fee was not reported to the IRS. Schulmeier's tendered statement was not an explanation of her current state of mind, but rather was a recitation of her memories of what she did and thought at an earlier date. The district court properly excluded the testimony regarding her statements.

Bishop asserts that his own statements to Grossberg are subject to the same exception to the hearsay exclusion. Grossberg testified that Bishop hired him in 1996 to assist with a 1996 civil audit, but was not allowed to say that Bishop said he did not expect the scope of the matter to be any greater, that is, he did not expect he would face criminal charges. The district court properly excluded this testimony. Bishop's statements to Grossberg did not reflect his then current feelings or plans, but rather were self-serving assertions that he did not have the requisite intent for the crime now charged.

IV.

Bishop moved for a directed verdict at the close of the government's case in chief and again prior to submission of the matter to the jury. He also sought post conviction relief. As to counts one and three, he continues to assert there was not sufficient evidence that a tax deficiency existed, that he acted willfully, or that he committed an affirmative act of evasion. He also argues that there was not sufficient evidence of willfulness in support of count two.

We review the evidence in a light most favorable to the government and make all reasonable inferences and credibility choices in support of the jury's verdict. See United States v. Moreno, 185 F.3d 465, 471 (5th Cir. 1999); United States v. Chesson [92-1 USTC ¶50,230], 933 F.2d 298, 303 (5th Cir. 1991); United States v. Kim [89-2 USTC ¶9555], 884 F.2d 189, 192 (5th Cir. 1989). If any rational trier of fact could have found proof of the essential elements of the crime beyond a reasonable doubt, the verdict will stand. See Kim [89-2 USTC ¶9555], 884 F.2d at 192. "The evidence need not exclude every reasonable hypothesis of innocence or be wholly inconsistent with every conclusion except that of guilt, and the jury is free to choose among reasonable constructions of the evidence." United States v. Bermea, 30 F.3d 1539, 1551 (5th Cir. 1994).

A.

To support a conviction for attempted tax evasion, as alleged in counts one and three, the government must prove beyond a reasonable doubt that there was a tax deficiency, an affirmative act constituting an attempt to evade or defeat the tax, and willfulness. See Sansone [65-1 USTC ¶9307], 380 U.S. at 351, 85 S.Ct. at 1010, 13 L.Ed.2d at 888. A deficiency is the amount by which the tax imposed by statute exceeds the sum of (1) the amount of tax shown on the return, (2) plus the amount of any previously assessed deficiency, (3) minus any rebate previously received. See 26 U.S.C. §6211; United States v. Wright [2000-1 USTC ¶50,438], 211 F.3d 233, 236 (5th Cir. 2000); Chesson [92-1 USTC ¶50,730], 933 F.2d at 303-04. ⁸ The government must demonstrate the existence of a deficiency beyond a reasonable doubt, but need not prove the extent of the deficiency with mathematical certainty. See Chesson [92-1 USTC ¶50,230], 933 F.2d at 304. There is no deficiency in the absence of a showing that the government is actually due a tax in excess of that reported. See Willingham v. United States [61-1 USTC ¶9401], 289 F.2d 283, 285 (5th Cir. 1961). Therefore, undeclared deductions, credits, losses carried over from prior years, and so on, should be considered when calculating the deficiency. See Sansone [65-1 USTC ¶9307], 380 U.S. at 353, 85 S.Ct. at 1011, 13 L.Ed.2d at 888; Wright [2000-1 USTC ¶50,438], 211 F.3d at 236-37; United States v. Fogg [81-2 USTC ¶9607], 652 F.2d 551, 555 (5th Cir. 1981); Willingham [61-1 USTC ¶9401], 289 F.2d at 285.

Under 26 U.S.C. §7201, willfulness is "a voluntary, intentional violation of a known legal duty." Kim [89-2 USTC ¶9555], 884 F.2d at 192. Evidence is usually circumstantial as direct proof is rarely available. See id. A wide range of conduct can support a finding of willful attempt to evade taxation, for instance: keeping a double set of books, making false entries or alterations, creating false invoices or documents, destroying books or records, concealing assets or covering up sources of income, handling one's affairs to avoid making the records normally accompanying transactions of a particular kind, any conduct likely to mislead or conceal, holding assets in others' names, providing false explanations, giving inconsistent statements to government agents, failing to report a substantial amount of income, a consistent pattern of underreporting large amounts of income, or spending large amounts of cash that cannot be reconciled with the amount of reported income. See Chesson [92-1 USTC ¶50,230], 933 F.2d at 304; Kim [89-2 USTC ¶9555], 884 F.2d at 192; United States v. Calles [73-2 USTC ¶9544], 482 F.2d 1155, 1159-60 (5th Cir. 1973).

1.

At trial it was established that Bishop owed a tax for 1991, even giving due regard for all appropriate credits. Bishop identifies five items he asserts offset any underpayment attributable to his failure to report the fees he received in 1991. He first explains he made a "payment of $75,000 to the IRS in 1988 when he had a net loss that has not been shown as a credit elsewhere." This was a payment of employment taxes, he received an appropriate deduction, and the payment has no further role in his income tax liability. ⁹ Second, Bishop asserts he made a $38,360 overpayment in 1989, and that this payment was not applied to his 1990 estimated tax, as he requested. Third, Bishop says his 1989 income was overstated because his return was prepared using the status "married filing joint return." Bishop later changed his status to "married filing separate return" but made no other adjustments. At trial, he presented testimony that under Texas community property law, his wife should have reported half the income. The net effect of this error, however, was not specified at trial and remains doubtful because other errors in the return may have displaced any positive effect of the error in filing status. ¹⁰ Next, half of a $50,000 payment Bishop made to the IRS in April 1991 should have been applied to 1990. The IRS treated the entire amount as an estimated tax payment for 1991 instead, ignoring the instructions accompanying the check. Finally, Bishop indicates the IRS never refunded $43,171 attributable to excessive estimated tax payments made during 1991. Bishop clearly underreported his income that year and there is no reason to believe he should receive this refund.

Accordingly, Bishop was not entitled to credit for the first and fifth items, and the amount of the third is an indeterminate amount. The four items of known quantity total $181,531. A substantial deficiency therefore remained if one accepts Campbell 's virtually uncontested testimony that Bishop underpaid by at least $250,000.00. ¹¹ Of course, the exact amount of the deficiency cannot be determined. The point is first, that the evidence does not show that Bishop was entitled to credit for all five items he identifies, and second, that a substantial discrepancy still exists when credit is given. Accordingly, Bishop's argument that there was not sufficient evidence of deficiency is without merit.

There also was ample evidence that Bishop willfully engaged in attempts to evade income tax due for 1991. The evidence established that Bishop, as proprietor of GMBA, kept track of the firm's finances. He obviously knew when substantial fees were received. He directly caused the reversal of the initial GMBA ledger entry regarding the $933,333.33 Scharold fee. He deposited that fee and a substantial portion of the $183,666.67 Cash fee in his personal accounts, circumventing his firm's normal record keeping process. Responsibility for accounting for the fees shifted to Bishop himself, but he did not fulfill his responsibility.

Instead, he provided incomplete and inaccurate information to his return preparer, Elwyn Shaw, and to Joel Reed, who replaced Shaw and completed the 1991 return. When Shaw asked about the two entries regarding the Scharold fee, Bishop declined to explain them. Bishop did not let Reed see the ledger at all, and told him that income received during the last quarter of 1991 and recorded in GMBA's general ledger would appear on a corporate return, which was not true. Although Locus and Campbell generally found Bishop to be cooperative, he concealed or declined to provide information regarding receipt of non-reported income, depositing business checks in personal accounts, and purchases of expensive assets including real estate and jewelry for his then-fiancee. Bishop acknowledged reviewing the 1991 return. He advised Reed to add $140,000 to his income because he paid that sum to his ex-wife, but ignored the fact that his final reported gross income from the practice of law, $988,599.25, could not possibly include the total of the Scharold and Cash fees, let alone his other business income. The evidence of Bishop's actions more than adequately supports the jury's verdict as to 1991.

2.

Bishop's claim that there is no evidence of an affirmative act of evasion with respect to the 1994 tax year is incorrect. As stated above, Bishop knew when large fees were received at the firm. The payments deposited at Chappell Hill Bank were substantial. Bishop specifically requested that the $400,000 check be deposited in his personal account, knowing that such a transaction would prevent the fee from being recorded in his firm's books. He then gave inaccurate and misleading information to his return preparers, telling them that there was no income other than that listed on the firm's books. He reviewed the return before signing it. His confusion with regard to the partial reporting of the $400,000 does not excuse his other actions, particularly when they are viewed in combination with Bishop's experience as a lawyer, his failure to file timely returns, and the large sums of money involved.

B.

To prove the willful filing of a false return in violation of 26 U.S.C. §7206, the government must show (1) that a false return was made and signed, (2) that the false entry was material, (3) that the return contained a written declaration that it was made under the penalties of perjury, (4) that the defendant did not believe that the return was true and correct when signed, and (5) that the defendant signed willfully and with specific intent to violate the law. See United States v. Bishop [73-1 USTC ¶9459], 412 U.S. 346, 350, 93 S.Ct. 2008, 2012, 36 L.Ed.2d 941, 945 (1973); United States v. Wisenbaker, 14 F.3d 1022, 1024 (5th Cir. 1994); United States v. Rob inson [92-2 USTC ¶50,565], 974 F.2d 575, 579 (5th Cir. 1992).

Bishop admitted that he signed the 1991 return, the falsity of which was virtually undisputed. The amount of the underreported income is such that the error was material. The reversal of the initial Scharold fee entry, along with the bypassing of the operating account with the Cash fee, supported a finding of knowledge and willfulness. The evidence produced at trial is sufficient to sustain the conviction.

V.

Bishop asserts that the district court's jury instructions as to the deficiency element of tax evasion were inadequate. Jury instructions must, as a whole, correctly state the law and clearly inform jurors of the principles of law applicable to the factual issues. See United States v. Martinez , 190 F.3d 673, 678 (5th Cir. 1999); United States v. Cartwright, 6 F.3d 294, 300 (5th Cir. 1993). The elements of the crime that the government needs to prove beyond a reasonable doubt must be explained to the jury through the court's instructions. See Sandstrom v. Montana , 442 U.S. 510, 520, 99 S.Ct. 2450, 2457, 61 L.Ed.2d 39, 48 (1979); United States v. Moser, 123 F.3d 813, 826 (5th Cir. 1997). The trial judge is not obligated to give a requested instruction if its content is adequately covered by the other charges. See United States v. Asibor, 109 F.3d 1023, 1035 (5th Cir. 1997). ¹²

As we have already stated, the elements of tax evasion are: (1) a tax deficiency, (2) an affirmative act constituting an evasion or attempted evasion of the tax, and (3) willfulness. See Sansone v. United States [65-1 USTC ¶9307], 380 U.S. at 351, 85 S.Ct. at 1010, 13 L.Ed.2d at 888. The district court advised the jury that a deficiency was present if "the defendant owed substantially more federal income tax for the calendar years 1991 (Count One) and 1994 (Count Three) than was declared due on his income tax returns." There were no additional instructions as to how to calculate the deficiency. According to Bishop, the instruction limited the jury's inquiry to the content of the returns he filed, and prevented consideration of five credits, refunds, or payments he made or qualified for but did not report on his returns. Therefore, he asserts he paid more than he actually owed and did not commit tax evasion, as no deficiency was present.

The district court did not specify that the jury should consider unreported payments Bishop may have made in previous years. The jury could, however, still take such items into account when determining the amount of tax Bishop actually owed, regardless of whether each item appeared on his returns. In closing arguments, Bishop's lawyers stressed that he made substantial payments to the IRS on several occasions. The jury had the opportunity to consider these past payments when determining whether a deficiency was present. The jury may not, however, have found the evidence to be convincing. As we explain above, Bishop was not entitled to credit for all five items, and even if he was, a substantial deficiency would remain. Therefore, the outcome of the trial was consistent with the jury's consideration of the potential credits identified by Bishop.

Bishop also complains that the trial court did not require the jury to find that he knew of any tax deficiency. Knowledge is an essential element of tax evasion and of signing a false tax return. Bishop's assertion, however, is without merit. The court repeatedly and thoroughly informed the jury that proof of knowledge on the part of the defendant was required. Instructions included definitions of the terms "knowingly" and "willfully." The court explained that the charged crimes were specific intent crimes, and that therefore the government must prove the defendant not only had the intent to perform a particular act, but also knew that act was illegal. Methods of demonstrating intent were described. Willfulness was discussed as an element of each of the charged crimes. As we state above, there was ample evidence of intent on Bishop's part. The jury properly, and in accordance with the court's instructions, found that Bishop had knowledge of the deficiency.

VI.

Bishop appeals the district court's ruling denying this motion for a new trial in light of juror Tharp's criminal history. A district court's decision denying of a motion for a new trial on the basis of juror bias is reviewed for abuse of discretion. See United States v. Doke, 171 F.3d 240, 246 (5th Cir. 1999); United States v. Soto-Silva, 129 F.3d 340, 343 (5th Cir. 1997). In order to obtain a new trial, the moving party must demonstrate that a juror failed to answer a material voir dire question honestly, and that a correct response would have been a valid basis for a challenge for cause. See McDonough Power Equip. Corp. v. Greenwood , 464 U.S. 548, 556, 104 S.Ct. 845, 850, 78 L.Ed.2d 663, 671 (1984); Doke, 171 F.3d at 246-47. Motivations for concealing information may vary, but only those affecting a juror's impartiality can truly be said to affect the fairness of a trial. See McDonough, 464 U.S. at 556, 104 S.Ct. at 850, 78 L.Ed.2d at 671. Therefore, once the trial is complete, a felon's serving as a juror is not an automatic basis for a new trial. The defendant must demonstrate that the juror was actually biased or fundamentally incompetent. See Soto-Silva, 129 F.3d at 343; United States v. Scott, 854 F.2d 697, 698-99 (5th Cir. 1988); United States v. Gates, 557 F.2d 1086, 1088 (5th Cir. 1977) (quoting Ford v. United States, 201 F.2d 300, 301 (5th Cir. 1953)). See also Coughlin v. Tailhook Ass'n, 112 F.3d 1052, 1058-59 (9th Cir. 1997); United States v. Langford, 990 F.2d 65, 68-70 (2d Cir. 1993); United States v. Humphreys [93-1 USTC ¶50,100], 982 F.2d 254, 261 (8th Cir. 1992); United States v. Boney, 298 U.S. App. D.C. 149, 977 F.2d 624, 633-35 (D.C. Cir. 1992).

Actual bias exists when a juror fails to answer a material question accurately because he is biased. See McDonough, 464 U.S. at 556, 104 S.Ct. at 850, 78 L.Ed.2d at 671. In the majority of situations, the party seeking a new trial must demonstrate bias through admission or factual proof. See Scott, 854 F.2d at 699 (quoting United States v. Nell, 526 F.2d 1223, 1229 (5th Cir. 1976)). Bias may, however, be implied or presumed in extreme circumstances, including when the juror is employed by the prosecuting agency, is a close relative of a participant in the trial, or is somehow involved in the transaction that is the subject of the trial. See id. (quoting Smith v. Phillips, 455 U.S. 209, 222, 102 S.Ct. 940, 948, 71 L.Ed.2d 78, 89 (1982) (O'Connor, J., concurring)). Indicia of partiality are particularly problematic when coupled with the juror's lies or other efforts to hide a potential disqualification. See 854 F.2d at 699-700.

The Ninth Circuit presumed bias was present in two recent cases in which jurors engaged in a pattern of lying and other conduct intended to cover up their disqualifications. In Dyer v. Calderon, 151 F.3d 970 (9th Cir. 1998), a juror in a homicide case did not respond to voir dire questions as to whether she or any close family members had a criminal history or were crime victims. Later, it was discovered that the juror's brother was shot and killed six years earlier. The juror explained that she did not think she had to say anything because she believed her brother's death was an accident. The court presumed she was biased because her explanation was not plausible. She was close with her brother, was the plaintiff in a civil suit regarding his death, knew he was shot several times in the back and head, and knew the shooter was charged with murder. Moreover, she failed to mention that her husband was charged with rape a month before the trial, that she was the victim of a number of burglaries and other crimes, and that a number of her close relatives committed serious crimes. Her pattern of conduct showed that she sought to serve on the jury despite circumstances that she knew could disqualify her and which may well have affected her ability to be impartial.

In Green v. White, 232 F.3d 671 (9th Cir. 2000), a juror failed to reveal his assault conviction in a juror questionnaire and in voir dire. He explained that the questions were confusing and said he forgot about his conviction, but it was impossible that he forgot the six months he spent in jail. He also commented during the trial that he always knew the defendant was guilty. Again, the pattern of lies suggested a desire to serve on the jury and determine the outcome of the case.

On the other hand, inaccurate responses to voir dire questions are excused when caused by inattention or when a query does not elicit the specific information relevant to the juror's disqualification. See cases cited in Scott, 854 F.2d at 700. Failure to disclose a conviction due to a mistaken, but honest belief the record was expunged, or due to embarrassment, also does not suggest bias. See United States v. Langford, 990 F.2d at 66-67, 69-70; United States v. Humphreys [93-1 USTC ¶50,100], 982 F.2d at 260-61. Even when a juror's non-disclosure is dishonest as opposed to mistaken, his behavior is not a basis for reversal unless the dishonesty appears to be rooted in bias or prejudice. See Coughlin, 112 F.3d at 1061.

The deferred adjudication statutorily disqualified Tharp from serving on a jury. 28 U.S.C. §1865(a) directs each federal judicial district to set up a system to determine whether each person called for jury duty is qualified to serve. 28 U.S.C. §1865(b) lists situations in which an individual is statutorily disqualified from serving as a juror, including when he "has a charge pending against him for the commission of, or has been convicted in a State or Federal court or record of, a crime punishable by imprisonment for more than one year and his civil rights have not been restored." 28 U.S.C. §1865(b)(5).

Article 42.12, section 5(a) of the Texas Code of Criminal Procedure allows deferred adjudication:

When in the judge's opinion the best interest of society and the defendant will be served, the judge may, after receiving a plea of guilty or plea of nolo contendere, hearing the evidence and finding that it substantiates the defendant's guilt, defer further proceedings without entering an adjudication of guilt, and place the defendant on community supervision.

Once the defendant successfully completes community supervision, the proceedings are dismissed. See Tex. Code Crim Proc. art. 4212, §5(c). If the defendant violates the conditions of supervision, the court may enter an adjudication of guilt on the original charges and impose a punishment. See id. §5(b). A dismissal and discharge upon completion of supervision is not a "conviction" triggering disqualifications or disabilities usually visited upon convicted felons. See id. §5(c). Until supervision is complete, however, the deferred adjudication is treated as a pending charge. See Thomas v. State, 796 S.W.2d 196, 197-98 (Tex. Crim. App. 1990).

Accordingly, Tharp's deferred adjudication was equivalent to a pending charge. A third degree Texas felony is punishable by imprisonment for two to ten years. See Tex. Penal Code §12.34. Therefore, under 28 U.S.C. §1865(b)(5), Tharp could not serve on Bishop's jury. Her status was an appropriate basis for a challenge for cause. The inquiries on the questionnaire and during voir dire sought to elicit information about her status, and were directly on point. Therefore her failure to respond was material. A new trial, however, is not warranted because Bishop did not demonstrate that Tharp was biased.

Tharp could not be presumed to be biased. Unlike the jurors in Dyer and White, she offered a plausible explanation for her failure to answer the juror questionnaire and voir dire inquiries regarding her criminal history accurately. She explained to the trial judge that the lawyer who represented her in the embezzlement matter told her that because adjudication of the charge was deferred, she need not tell anyone about it, for instance when applying for a job. Accordingly, she answered "no" on the questionnaire and did not raise her hand during voir dire because she believed the questions did not apply to her situation. Tharp was wrong, but it is quite possible she misunderstood the nature of the deferred adjudication. As demonstrated by the discussion above, the analysis required to arrive at the conclusion that Tharp could not serve is rather involved, especially when considered in conjunction with Tharp's lawyer's instructions to her.

Tharp's probation officer, Josette Rob inson, suggested that Tharp did not respond to the questions truthfully because she was in denial about her criminal history. Rob inson believed Tharp knew she could not serve on a jury, or at least knew she should have asked Rob inson what to do. This possibility alone is not determinative. Regardless of whether Tharp made a simple mistake or actually lied in order to escape her past, there is no suggestion that she especially desired to serve on the jury. Her motivations appear to have been purely personal and do not indicate she was prejudiced. Nor are there any other troubling circumstances such as a relationship with one of the participants. Accordingly, bias cannot be implied or presumed.

Nor did Bishop present factual proof that Tharp was partial to one side or the other. Tharp herself denied she had any improper motive, and there is no contradictory evidence. She said she did not especially want to serve on the jury. Her crime was somewhat similar to Bishop's, and she knew what it felt like to be in his position, but did not feel sympathy for him. Nor did she favor the government. She did not reveal her experiences to the other jurors. She is not known to have expressed any strong opinions at the time the trial took place, or later. As the trial court noted, she probably was not particularly influential in deliberations, as the other jurors were older and more highly educated, and the deliberations lasted only a day despite the length of the trial. Bishop's lawyer questioned Tharp about her bankruptcy discharge, which occurred about a year after the embezzlement matter was considered, and suggested she owed taxes on the stolen money. Apparently the possibility had not previously occurred to Tharp, and therefore could not influence her. The district court did not abuse its discretion by denying Bishop's motion for a new trial.

VII.

Although Tharp was statutorily disqualified from serving on Bishop's jury, there is no evidence she was biased against him. The district court should not have admitted the IRS agents' notes, which were hearsay, but the error was harmless. Bishop's remaining arguments are without merit. We confirm Bishop's convictions on all three counts.

AFFIRMED.

^* Chief Judge F.A. Little, Jr. of the Western District of Louisiana, sitting by designation.

¹ 26 U.S.C. §7201.

² 26 U.S.C. §7206.

³ This figure includes $10,247.00 in self employment tax. The rest is income tax.

⁴ $196,006.74 may have been the portion of the $400,000 remaining after Bishop repaid a loan and sent $100,000 to his ex-wife.

⁵ The checks for the remaining portion of the $575,000 fee were reported properly. Campbell could not determine the source of $34,460.85 of Bishop's reported 1994 income. Accordingly, there is a slight possibility that the amount was attributable to the two checks deposited at Chappell Hill Bank.

⁶ Apparently no adjustment was made with regard to the omitted $10,000 check.

⁷ Moreover, at trial, Bishop did not object to admission of many of Campbell 's summaries, so review is limited to a determination as to whether a clear error occurred. See United States v. Cantu, 167 F.3d 198, 204 (5th Cir. 1999).

⁸ Contrary to Bishop's suggestion, the five items he identifies were not "rebates" reducing the extent of any deficiency which would otherwise exist. Rebates are not credits, refunds, or other payment made by the taxpayer, but rather are payments the IRS makes to a taxpayer "on the ground that the income tax imposed. . . is less than the excess of (1) the amount shown as the tax by the taxpayer upon the return increased by the amount previously assessed (or collected without assessment) as a deficiency over (2) the amount of rebates previously made." Treas. Reg. §301.6211-1(f). For example, a refund made because too much tax was withheld at the source is not a rebate, but a refund made because the IRS determined taxpayer's return overstated the tax due is a rebate. See id. Moreover, the existence of a rebate will actually increase the extent of deficiency, not decrease it according to the formula above, as the taxpayer returns the credit now known to be unwarranted. See Miles Prod. Co. v. CIR [93-1 USTC ¶50,189], 987 F.2d 273, 276-77 (5th Cir. 1993); United States v. Wilkes [91-2 USTC ¶50,565], 946 F.2d 1143, 1149 (5th Cir. 1991).

⁹ Locus testified that he was suspicious of a net operating loss of approximately $85,000 reported on Bishop's 1988 return, and was particularly interested in a $75,000 expense attributed to payroll taxes and related interest expenses. Locus determined that a check for $75,000, payable to the IRS, was drawn on Bishop's account at Bear Stearns. His information returns master file transcript, a record of all payments made to the IRS, shows a $74,896 payment drawn from the Bear Stearns account to pay employee benefits taxes.

Bishop's 1988 tax return is not in evidence, but a draft of a portion of the return shows a net operating loss of $86,327. Bishop's 1989 return includes a net operating loss of $85,226, with no further explanation. The government suggest the loss from the prior year was carried over, and there is no evidence to the contrary.

¹⁰ The effect of Bishop's filing status was also discussed in his presentence filings. According to Charles O. Matthys, Bishop's expert witness, Bishop failed to report all of his 1989 income, and this displaced the positive effect of the error in filing status.

¹¹ This figure includes $10,247.00 in self employment tax. Matthys largely agreed with Campbell 's analysis, particularly regarding the Scharold and Cash fees, although Matthys believed Bishop's unreported income from the last quarter of 1991 was $110,085.72, not $150,344.77 as Campbell stated. Matthys did not provide an estimate as to the amount of tax Bishop owed, but obviously there would be a significant underpayment.

¹² "No party may assign as error any portion of the charge or omission therefrom unless that party objects thereto before the jury retires to consider its verdict, stating distinctly the matter to which the party objects and the grounds of the objection." Fed. R. Crim. P. 30. At trial, Bishop did not challenge the instruction on deficiency, although he objected to the instruction on willfulness, and, prior to trial, proposed a somewhat more detailed instruction on deficiency.