False Returns 1 Page5

---

[ Back ] [ Next ]

 

This argument overstates the scope of the protections afforded by the Religion Clauses. The term "religion" was defined by the Supreme Court nearly 100 years ago in Davis v. Beason, 133 U. S. 333, 342 (1980) as having reference to a person's views of his relations to his Creator. This definition seems unduly narrow today. In every religion there is an awareness of what is called divine and a response to that divinity. 7 The Encyclopedia of Philosophy 143 (1972). But, there are religions which do not positively require the assumption of a God, for example, Buddhism and the Unitarian Church . Hence, a broader definition of the word religion--one which we think more accurately captures its essence--is that formulated by the pre-emient American philosopher, William James, who said religion means: "the feelings, acts, and experiences of individual men in their solitude, so far as they apprehend themselves to stand in relation to whatever they may consider the divine." W. James, The Varieties of Religious Experience 31 (1910). In referring to an individual's relation to what he considers the divine, Professor James used the word "divine" in its broadest sense as denoting any object that is godlike, whether it is or is not a specific deity. Id. at 34. Therefore, under the Religion Clauses, everyone is entitled to entertain such view respecting his relations to what he considers the divine and the duties such relationship imposes as may be approved by that person's conscience, and to worship in any way such person thinks fit so long as this is not injurious to the equal rights of others. "It was never intended or supposed that the amendment could be invoked as a protection against legislation for the punishment of acts inimical to the peace, good order and morals of society." Davis v. Beason, 133 U. S. at 342. The Supreme Court continued, "however free the exercise of religion may be, it must be subordinate to the criminal laws of the country, passed with reference to actions regarded by general consent as properly the subjects of punitive legislation." Id. at 342-43. To foreclose a court from analyzing a church's activities as needed to determine whether those activities violated a statute, on the ground that the First Amendment forbids such injury, would mean that there are no restraints or limitations on church activities. See Christian Echoes National Ministry, Inc. v. United States [73-1 USTC ¶9129], 470 F. 2d 849, 856 (10th Cir.), cert. denied, 414 U. S. 864 (1973). The "free exercise" of religion is not so unfettered. The First Amendment does not insulate a church or its members from judicial inquiry when a charge is made that their activities violate a penal statute. Consequently, in this criminal proceeding the jury was not bound to accept the Unification Church 's definition of what constitutes a religious use or purpose.

Holy Spirit Association v. Tax Commission, 55 N. Y. 2d 512, 518 (1982), is inapposite. That case dealt with the inquiry that a court may conduct when determining whether a religious organization is entitled to a real property tax exemption under New York law. The principles there enunciated upon which appellant relies are relevant in that context and do not serve as precedent in a federal criminal tax prosecution.

Moon also argues that an omission from the charge--the so-called "Messiah" defense--permitted the jury to look at the assets held in his name "secularly," in violation of the First Amendment. Counsel asserts that Moon's worldwide followers believe him to be "potentially the new Messiah." From this theological premise the argument is made that Moon personifies the church movement and is indistinguishable from it. Since the Unification Church movement can owe no taxes on income derived from church-related activities, the defense argues that neither can Reverend Moon.

We do not accept this defense. The fact that Moon is the head of the Church does not mean that the Church itself is not a distinct and separate body. Moon's spiritual identity as leader of the Unification Church movement and his legal identity as a taxpayer are not the same. He is the spiritual leader of the Church, as the Pope is the spiritual leader of the Roman Catholic Church, but he also has a legal identity as a distinct, individual human being. It is in this latter capacity that he, or the Pope, could have taxable income. It has long been held that a church may hold property legally free from government interference because such interference would violate the First Amendment. Terrett v. Taylor, 13 U. S. (9 Cranch) 43, 51-52 (1815). But where property held individually and used personally gives rise to income, that income is subject to taxation. To allow otherwise would be to permit church leaders to stand above the law, a view we have previously rejected.

Finally, contrary to defendant's argument, the failure to charge that assets which came from church sources to be used for church purposes are not taxable to Moon, did not violate the "neutral principles" approach outlined in Jones v. Wolf, 443 U. S. 595 (1979). In Jones the Supreme Court held that the First Amendment prohibits the resolution of intra-church property disputes by civil courts interpreting religious doctrine, and required that civil courts defer the resolution of such issues to the highest hierarchical church organization. This "neutral principles of law" approach is one of several approved methods of resolving church property disputes between groups within the church. Id. at 602. The doctrine has no application to the facts of this case. ⁵

C. Charge on Intent

The final jury charge objections deal with the issue of intent in two particulars. First, Moon objects to the "if-then" formulation contained in the following instruction:

If you find that Moon provided the person who prepared the tax return with full and honest information as to his income and that Moon then adopted, signed and filed the tax returns as prepared in the belief that the return contained the full and honest information he had provided to the preparers regarding income, then you must find defendant Moon not guilty.

(emphasis added). This objection is rather surprising, in light of the fact that the defendant requested the following charge:

If you find Rev. Moon and his representatives acted in good faith in providing the information that they believed to be relevant to the determination of Rev. Moon's tax liability and that they responded fully and candidly to Peat, Marwick's requests for additional information relating to the Chase accounts, then you must find defendant Rev. Moon not guilty of the false return counts for 1974 and 1975.

(emphasis added). Needless to say, the defendant cannot now be heard to complain of the same "if-then" formulation he requested. In fact, this requested language was preceded by a sentence which shifted the burden of proof even more emphatically to the defendant than did the charge given by the court.

Second, the intent charge gave the jury factors to consider in evaluating defendant's state of mind. Among those mentioned as an affirmative act designed to conceal consciousness of wrongdoing was "dealing in cash." Moon claims that dealing in cash is a common practice in the Orient and could not, therefore, be interpreted as evidence of intent to conceal. In tax fraud cases evidence tending to show misconduct through extensive dealings in cash is properly admitted into evidence, see United States v. White [69-2 USTC ¶9675], 417 F. 2d 89, 92 (2d Cir. 1969), cert. denied, 397 U. S. 912 (1970). It is, therefore, properly chargeable. And, in any event, the "dealing in cash" language was immediately followed by a balancing charge that "openness in conduct" could give rise to the inference that the taxpayer believed he had done nothing wrong and "had nothing to hide." ⁶

IV

MISCELLANEOUS ISSUES

A. Selective Prosecution

Both appellants contend that the prosecution mounted against them was impermissibly motivated by hostility toward their religion and that the district court erred in denying their request for discovery and a hearing on the issue of selective prosecution. In this Circuit, a defendant who advances a claim of selective prosecution must do so in pretrial proceedings, see United States v. Taylor 562 F. 2d 1345, 1356 (2d Cir.), cert. denied, 432 U. S. 909 (1977). The person asserting such a claim bears the burden of estabishing prima facie both:

(1) that, while others similarly stituated have not generally been proceeded against because of conduct of the type forming the basis of the charge against him, he has been singled out for prosecution, and (2) that the government's discriminatory selection of him for prosecution has been invidious or in bad faith, i. e., based upon such impermissible considerations as race, religion, or the desire to prevent his exercise of constitutional rights.

United States v. Berrious, 510 F. 2d 1207, 1211 (2d Cir. 1974).

No evidentiary hearing or discovery is mandated unless the district court, in its discretion, see id. at 1212, finds that both prongs of the test have been met. See United States v. Ness [81-2 USTC ¶9621], 652 F. 2d 890, 892 (9th Cir.), cert. denied, 454 U. S. 1126 (1981); United States v. Catlett [78-2 USTC +9775], 584 F. 2d 864, 866 (8th Cir. 1978); Berrios, 501 F. 2d at 1211. We cannot say on this record that the district court abused its discretion in holding that appellants failed to demonstrate the necessary factual predicates for their claim of selective prosecution.

The only evidence offered pretrial in support of appellants' assertion of selective prosecution was to the effect that Congress had previously conducted an investigation into Korean-American relations (Korea-gate), that such investigation had touched upon the Unification Church, and therefore that the government's prosecution of Moon could be seen to have stemmed from impermissible religious and/or political hostility. No other evidence was submitted in support of the motion. The proof before the trial court was wholly insufficient to mandate further inquiry or a hearing and the court's rejection of the claim of selective prosecution at that point was clearly proper.

Following the trial, and in an arguably untimely manner, appellants submitted additional "evidence" of selective prosecution. Specifically, they presented affidavits from four individuals who, while disavowing any knowledge of the government's motive in this case, asserted that they held church funds in their own names and did not pay taxes on interest earned on the funds. Moon also submitted a copy of a letter from United States Senator Robert Dole to the IRS requesting that it look into the Unification Church 's tax exempt status. While acknowledging that Moon's status as a highly visible, religious leader may well have led to the audit of his tax returns, the district court reasoned that the government's decision to institute criminal rather than civil charges was a wholly separate decision and that the additional evidence of improper prosecutorial motive submitted by appellants still failed to satisfy the requirements of Berrios. We need not decide here whether appellants' post-trial submission of evidence regarding selective prosecution was too late; even considering that evidence, the district court correctly concluded that it was insufficient to meet the Berrios standard.

With respect to the first requirement of Berrios--proof that "others similarly situated" have not been prosecuted--the four above-mentioned affidavits of other church leaders did not adequately prove Berrios' first prong for two reasons. First, the government's theory against Moon was that the funds he held were his own personal property and that therefore any interest earned on the funds was taxable to him. By contrast, the submitted affidavits describe situations involving persons who claim to hold church funds, as opposed to personal funds, in their own names and pay no taxes on interest earned by the funds. While Moon still contends that the funds he held were church property, at the time of this post-trial motion the jury had squarely rejected this theory. Second, this case also involved charges of perjury and obstruction of justice. Reference to these charges is totally ignored in appellants' analysis of whether similarly situated individuals have been prosecuted. In short, appellants simply failed to provide the necessary prima facie evidence that others similarly situated have not been prosecuted.

As for the second prong of Berrios--proof that the government's decision to prosecute was based on impermissible considerations of race and/or religion--appellants rely heavily on the above-mentioned letter from Senator Robert Dole to the IRS. That letter merely requested an audit of the Unification Church 's tax exempt status. It did not request an audit of Moon's personal tax status, suggest that he be criminally prosecuted, or indicate any racial or religious bias. Thus, we fail to see how the letter can be said to constitute prima facie evidence that the decision to prosecute Moon was the product of an impermissible motive. Appellants have therefore failed to satisfy either prong of Berrios.

We recognize that Moon is a controversial public figure who has been subjected to extensive media attention, much of it critical, and that his church may perhaps be viewed by the general public in an unfavorable light. These facts naturally tend to foster suspicion that the motive behind this prosecution might have been improper. That naked suspicion cannot serve as a substitute for the evidentiary showing mandated by Berrios. This case is not the first occasion when a controversial political or religious figure has been criminally prosecuted; and if history teaches us anything, plainly, it will not be the last. By their very nature, such highly visible cases will always engender some suspicion with respect to the government's bona fides. But to engage in a collateral inquiry respecting prosecutorial motive, there must be more than mere suspicion or surmise. If a judicial inquiry into the government's motive for prosecuting could be launched without an adequate factual showing of impropriety, it would lead far too frequently to judicial intrusion on the power of the executive branch to make prosecutorial decisions. Unwarranted judicial inquiries would also undermine the strong public policy that resolution of criminal cases not be unduly delayed by litigation over collateral matters.

B. Interpreters Act

The next issue raised concerns the Court Interpreters Act of 1978, 28 U. S. C. §1827 (Supp. V 1981). It provides in pertinent part that:

The presiding judicial officer . . . shall utilize the services of the most available certified interpreter . . . in any criminal or civil action initiated by the United States in a United States district court . . . if the presiding judicial officer determines . . . that [a] party (including a defendant in a criminal case), or a witness who may present testimony in such action--

(1) speaks only or primarily a language other than the English language; or

(2) suffers from a hearing impairment (whether or not suffering also from a speech impairment) so as to inhibit such party's comprehension of the proceedings or communication with counsel or the presiding judicial officer, or so as to inhibit such witness' comprehension of questions and the presentation of such testimony.

28 U. S. C. §1827(d) (Supp. V 1981).

The Act further provides that persons, "other than witnesses," may waive, with the court's permission, their entitlement to a court-appointed interpreter and use their own translator instead. 28 U. S. C. §1827(f) (Supp. V 1981).

During pretrial proceedings, Moon moved pursuant to §1827(f) to waive the use of a court-appointed interpreter and to employ instead his own personally-selected translator. The district court ruled that Moon was free to use the interpreter of his own choice for purposes of translating the proceedings of the trial to him; but, that if Moon elected to testify, his testimony would have to be translated by a court-appointed, certified interpreter. Moon elected not to testify at his own trial.

While it was not argued below that the use of a court-appointed translator would impinge upon Moon's ability to communicate effectively with the jury, he now argues that the district court incorrectly construed §1827(f) to preclude him from waiving the use of an appointed interpreter if and when he elected to testify. Specifically, he asserts that if he had testified, he would have been a party-witness, that a party-witness is not a "witness" within the meaning of §1827(f), and that he therefore should have been allowed to waive the use of a court-appointed interpreter.

Moon's premise--that party-witnesses are somehow different from other witnesses for purposes of §1827(f)--is untenable. The express language of subsection (f) makes no such distinction. While §1827(d) does refer to "parties" and "witnesses" separately, this language does not create a distinction that must be carried over to subsection (f). The legislative history of §1827(f) indicates that its purpose was to prevent parties from using untrustworthy translators. For example, the House Judiciary Committee Report in discussing the waiver provision refers to the danger of allowing "an individual to waive use of a certified interpreter and then to substitute their own personal interpreter [which] might create an opportunity for a party to use an unscrupulous interpreter." H. R. Rep. No. 95-1687, 95th Cong., 2d Sess. 5, reprinted in 1978 U. S. Code Cong. & Ad. News 4652, 4656. (emphasis added). To interpret the §1827(f) term "witness" so narrowly as not to include party-witnesses, as Moon now suggests, would seriously undermine Congress's scheme of using independent interpreters to insure accurate translations. Thus, the district court correctly ruled that under §1827(f), if Moon elected to testify, he would have to speak through a certified, court-appointed interpreter.

Moon further argues that requiring him to testify through a court-appointed interpreter impermissibly burdened his Fifth and Sixth Amendment rights to present a full defense. Citing Brooks v. Tennesee, 406 U. S. 605 (1972), he asserts that by depriving him of the opportunity to testify through an interpreter of his own choosing, the district court unconstitutionally restricted his decision as to whether or not he would testify. Brooks dealt with a state requirement that a defendant choosing to testify must testify at the beginning of the defense case before any other testimony is heard. This restriction is different from that now at issue. By forcing a defendant to decide whether he will testify at a point in the trial where a realistic assessment of the value of his testimony is difficult, the condemned state provision in Brooks restricted the privilege to remain silent because it put the defendant at an unfair tactical disadvantage in deciding whether to exercise his privilege. Id. at 610-11. The Interpreters Act does not make the assertion of the privilege similarly costly; it simply ensures that whatever testimony a defendant gives is honestly reported.

Moreover, even were requiring Moon to use a court-appointed interpreter to be viewed as some restriction on his ability to present a full defense, we observe that not all restrictions on a defendant's right to testify are per se impermissible. See e.g., United States v. Bifield, 702 F. 2d 342, 350 (2d Cir.), cert. denied, 51 U. S. L. W. 3826 (U. S. May 5, 1983 ). For example, certain evidentiary and procedural restrictions are sanctioned where reasonably necessary to the achievement of a fair trial. See id. There is no evidence here that use of a court-appointed interpreter would have been unfair to Moon and he has not suggested why it would have been. We regard §1827 as reasonably designed to further the legitimate public interest in the fair administration of criminal trials. Such interest necessarily requires accurate and unbiased translations of trial testimony. Since the statute does not force a defendant who elects to testify to do so at any unfair disadvantage, we hold that the district court's application of §1827 did not impermissibly restrict Moon's constitutional right to present a full defense.

C. Evidentiary Problems

Both defendants raise questions regarding the admissibility of certain evidence at trial. Moon contends that the district court erred in allowing the government to introduce various immigration documents as similar act evidence. Kamiyama complains that the prejudice created by this evidence infected his trial by "spilling over." Additionally, Kamiyama challenges the admission during the government's rebuttal of evidence concerning his failure to file income tax returns in 1973 and 1974. Finally, both defendants claim that the government presented improper evidence to the jury regarding the religious practices of the Unification Church which they claim permitted them to be tried by religious innuendo.

After the defense rested, the government introduced documents relating to Moon's and his wife's applications for permanent residence in the United States . Contained in these documents were what the government maintained were false representations concerning the Moons' income for 1972 and 1973. The government argued that such evidence was probative of Moon's intent and knowledge because it was relevant on the question of absence of mistake regarding the preparation of the tax returns.

We acknowledge the long held view of this Circuit that the trial judge is in the best position to weigh competing interests in deciding whether or not to admit certain evidence. See United States v. Birney, 686 F. 2d 102, 106 (2d Cir. 1982). Absent an abuse of discretion, the decision of the trial judge to admit or reject evidence will not be overturned by an appellate court. Id. In reviewing the district court's determination we turn to Federal Rule of Evidence 401 which states that relevant evidence "means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." The government argues now, as it did at trial, that the submission of false immigration documents was relevant to Moon's intent in filing the false tax returns. We do not see how the submission of the false immigration papers to the Immigration and Naturalization Service in one instance is relevant to the defendant's intent to submit unrelated false papers to the IRS in another. Cf. United States v. Halper [79-1 USTC ¶9127], 590 F. 2d 422, 432 (2d Cir. 1978) (submission of false tax return not relevant as to whether defendant intended to submit false Medicaid claims, and vice versa). Admission of this irrelevant evidence constituted an abuse of the trial court's discretion. Nevertheless, in light of the strong evidence relating to Moon's intent to file false tax returns, see Section II A.(2) supra, the error must be deemed harmless. See United States v. Quinto [78-2 USTC ¶9633], 582 F. 2d 224, 235 (2d Cir. 1978).

With respect to Kamiyama's claim of spillover, the trial court's charge contained the cautionary instruction that the immigration documents were to "have no bearing on the case against [Kamiyama]." This instruction, coupled with the fact that the government made no claim that Kamiyama had any connection with the Moons' immigration papers, was sufficient to safeguard adequately against impermissible prejudice. See United States v. Reed, 639 F. 2d 896, 907 (2d Cir. 1981).

Kamiyama's major claim of evidentiary error relates to the admission of an IRS certificate indicating that there was no record of Kamiyama having filed federal income tax returns for the years 1973 and 1974. It was the government's contention that the certificate was relevant on the issue of Kamiyama's motive to create the Family Fund Ledger. Purportedly, Kamiyama paid $10,000 cash for 100 shares of Tong Il stock in 1973 and $110,000 cash for 1,100 shares of Tong Il stock in 1974. The government argued that this "untraceable" cash was income and that to cover up the source of this money Kamiyama concocted the Family Fund Ledger. Since precisely the same scenario was established to account for the cash deposits in Moon's Chase accounts, the jury was entitled to infer from Kamiyama's conduct, so the government argues, that his handling of Moon's returns was with the requisite criminal intent and knowledge.

Nonetheless, there was no proof that Kamiyama had income sufficient to require him to file a tax return for the years in question. Simply purchasing stock with cash is not proof that Kamiyama had taxable income, since the cash might have come from some other source, see Marcus v. United States [70-1 USTC ¶9213], 422 F. 2d 752, 755 (5th Cir. 1970). Lacking a proper foundation, see Dupree v. United States [55-1 USTC ¶9169], 218 F. 2d 781, 784 (5th Cir.), reh'g denied [55-1 USTC ¶9366], 220 F. 2d 748 (5th Cir. 1955), the IRS certificate was not relevant evidence and it was improperly admitted. We note that the certificate and the testimony accompanying it were admitted in the government's case on rebuttal and that this proof occupied an insignificant portion of the trial record, was not raised in summation, and was not in the trial court's instructions to the jury. Balanced against the other evidence of Kamiyama's guilt, we find this error harmless.

With respect to trial by religious innuendo, concededly there was testimony that members of the Unification Church lived and worked together, donating their earnings to their church. ⁷ The central issue for the jury to decide was whether the Tong Il stock and Chase Manhattan Bank accounts belonged to the Church or to Moon personally. In probing that issue, it was inevitable that some Unification Church practices would creep into the trial in order to illustrate Moon's control over the activities of other church officials. The question before us is whether evidence of Church practices, although relevant, should have been excluded because "its probative value [was] substantially outweighed by the danger of unfair prejudice," Fed. R. Evid. 403. The trial judge from his superior vantage point is in the best position to weigh these competing interests. See United States v. Robinson, 560 F. 2d 507, 514 (2d Cir. 1977) (en banc), cert. denied, 435 U. S. 905 (1978). Absent an abuse of his broad discretion, the decision of the trial judge to admit the challenged evidence of religious practices must stand. To find such abuse, we must conclude that the trial judge acted arbitrarily or irrationally; to avoid acting arbitrarily a court must make a conscientious assessment when weighing probative value against the risk of unfair prejudice. United States v. Birney, 686 F. 2d at 106. A thorough review of the record reveals no abuse of the district court's discretion.

D. Post Trial Proceedings

After the trial was concluded claims surfaced of improper influences on the jury. These allegations arose when a Unification Church member, attorney David Hager, was contacted by a man named Bruce Romanoff who was apparently attempting to sell tape recordings of phone conversations between Romanoff's associate, John Curry, and former trial juror Virginia Steward, a personal friend of Curry. On these tapes Steward made various statements indicating that the jury might have been exposed to extraneous prejudicial information and improper outside influences. After conducting a hearing where Romanoff, Curry, Steward and two other potentially knowledgeable jurors, forelady Mary Nimmo and John McGrath, were questioned, the trial court concluded that no grounds existed to believe that the jury had been exposed to improper outside influences or extraneous prejudicial information and that there was no need to continue the inquiry.

It hardly bears repeating that courts are, and should be, hesitant to haul jurors in after they have reached a verdict in order to probe for potential instances of bias, misconduct or extraneous influences. As we explained in United States v. Moten, 582 F. 2d 654, 666-67 (2d Cir. 1978), a trial court is required to hold a post-trial jury hearing only when reasonable grounds for investigation exist. Reasonable grounds are present when there is clear, strong, substantial and incontrovertible evidence, King v. United States, 576 F. 2d 432, 438 (2d Cir.), cert. denied, 439 U. S. 850 (1978), that a specific, nonspeculative impropriety has occurred which could have prejudiced the trial of a defendant. A hearing is not held to afford a convicted defendant the opportunity to "conduct a fishing expedition." United States v. Moten, 582 F. 2d at 667. Although the circumstances in the decided cases are instructive, each situation in this area is sui generis. United States v. Barnes, 604 F. 2d 121, 144 (2d Cir. 1979), cert. denied, 446 U. S. 907 (1980).

This same standard, which applies to a trial judge's determination of whether to hold a post-verdict hearing, is also useful in ascertaining whether the scope of a hearing that has been held is adequate. While the breadth of questioning should be sufficient "to permit the entire picture to be explored," United States v. Moten, 582 F.2d at 667, that picture is painted on a canvass with finite boundaries. Therefore, in the course of a post-verdict inquiry on this subject, when and if it becomes apparent that the above-described reasonable grounds to suspect prejudicial jury impropriety do not exist, the inquiry should end.

Moon asserts that the district court improperly curtailed defense attempts to conduct a more thorough inquiry and that at the post-trial hearings three areas should have been explored further. First, he claims it was error to block defense efforts to find out whether the jurors discussed Moon's request not be tried by a jury. This fact was allegedly reported at the end of a newspaper article which concerned a different topic that had apparently been mentioned by Nimmo and discussed among the jurors. But all the jurors questioned stated that they had not read the article, and the two found to be credible by the court below noted that the main subject of the article was mentioned only casually and was passed-off lightly. None even indirectly intimated that Moon's request concerning a jury trial was known to them, let alone a topic of conversation before the jury at large. Moreover, Moon has not shown how he would be prejudiced even were the jurors aware of his desire to be tried without a jury.

Second, Moon claims that the trial court erred by refusing to call additional jurors to explore the issue of newspapers in the jury room. The fact that there were newspapers in the jury room is an insufficient predicate for conducting a post-verdict inquiry. The jurors were instructed not to read articles concerning the case before them; they were not absolutely precluded from looking at newspapers. All of those questioned indicated that they had not read articles about the case, did not know of any jurors who had, and had not heard other jurors discussing such articles (other than the one alluded to above). One said she did not look at the newspapers, another said she only played the "Wingo" game, and the third said he and others cut out articles about the case, but he was saving these to read after the trial. There has been no showing, let alone a substantial one, that any of the jurors read prejudicial newspaper accounts of the case. Moon's claim that some juror might have done so is a speculative argument insufficient to justify further inquiry.

Third, Moon argues that it was necessary to call juror Esperanza Torres to the stand and to explore the circumstances surrounding the firing of a shot through Torres's window during the trial. Steward testified that Torres had been upset one day because a shot had been fired through her window the night before, and that Torres intimated to Steward that the incident might be connected to her jury service. Steward also related that Torres told her the police had investigated, found no bullet, and concluded that the hole in Torres's window was most likely caused by a BB shot by "just some fresh kids . . . fooling around." Steward apparently thought little of the incident since Torres lived in a bad neighborhood, and when Torres had been similarly upset after her car was hit from behind, Steward told her not to be silly and that it was just a coincidence. Nimmo confirmed having heard second-hand of the BB incident and that it was probably due to the nature of Torres's neighborhood, but she had not heard that Torres attributed it to the trial. McGrath, who sat next to Torres in the jury box, heard nothing about these events.

Given these facts it was unnecessary for the district court to probe any further into the event since, unlike the circumstances in Remmer v. United States [54-1 USTC ¶9274], 347 U. S. 227 (1954), appeal following remand [56-1 USTC ¶9320], 350 U. S. 377 (1956) and United States v. Gersh, 328 F. 2d 460 (2d Cir. 1964), there was no rational basis to connect these outside incidents with the trial. Moreover, even if Torres had been interrogated, she could only have been questioned about "whether any outside influence was improperly brought to bear upon" her, and could not have been asked about "the effect of [the incident] upon [her] mind or emotions as influencing [her] to assent to or dissent from the verdict," Fed. R. Evid. 606(b). The most she could have done was to repeat the story about the BB shot, but it would violate Rule 606(b) to have her juxtapose the incident with her jury service and have her testify that it influenced her vote. See United States v. Beltempo, 675 F. 2d 472, 481 (2d Cir.), cert. denied, 102 S. Ct. 2936 (1982). Without calling Torres the court had sufficient information from which it could conclude that there was no outside influence improperly brought to bear upon her, and that any supposed connection between the two events and the trial was not and could not be supported factually.

Of course, "[t]he safeguards of juror impartiality, such as voir dire and protective instructions from the trial judge, are not infallible" and "it is virtually impossible to shield jurors from every contact or influence that might theoretically affect their vote." Smith v. Phillips, 455 U. S. 209, 217 (1982). It is up to the trial judge to determine the effect of potentially prejudicial occurrences, id., and the reviewing court's concern is to determine only whether the trial judge abused his discretion when so deciding. Whether or not we, sitting in the trial judge's place, might have called Torres to testify is not the issue. We cannot say that Judge Goettel abused his discretion by ending the post-trial inquiry when he did.

At the conclusion of the post-verdict jury inquiry, the district judge also ordered, on pain of contempt,

that the defendants . . . and their agents, the defense attorneys and their agents, and the Government attorneys and their agents, are restrained from communicating with, or contacting in any manner whatsoever any juror, alternate juror, or . . . prospective juror in the [instant] case, without prior consent of the Court.

Defense counsel argue that this amounts to a gag order which violates the First Amendment because, when read in conjunction with the court's accompanying memorandum decision, it placed a prior restraint on all Unification Church members, forbidding them from communicating with the media on the subject of jury prejudice in Moon's case. Aside from the fact that the memorandum does not say this, such a reading of the clear, unambiguous language of the restraining order is far-fetched. While the accompanying memorandum sheds light on the court's reasons for imposing and power to impose the restraint against jury contact, it is gratuitous insofar as the content of the order itself is concerned. Moreover, we lack appellate jurisdiction to review this order and mandamus is inappropriate where, as here, the district court's power to act as it did is unquestionable. See Miller v. United States, 403 F. 2d 77 (2d Cir. 1968) (no appellate jurisdiction, and virtually identical order condoned).

V

KAMIYAMA CLAIMS

A. Intent to Impede the Grand Jury Investigation

Kamiyama contends that his conviction for knowingly submitting false and misleading documents to the grand jury with intent corruptly to impede its investigation, in violation of 18 U. S. C. §1503 (Supp. V 1981), must be set aside. Specifically, he asserts that he only submitted the documents in question (the Family Fund Ledger and European Loan Agreements) to the grand jury because it had subpoenaed them and that there was insufficient evidence that he intended to impede its investigation. In response to this challenge, the government answers that Kamiyama's corrupt intent was adequately demonstrated by the facts that he could have resisted production of the documents on Fifth Amendment grounds and that he vouched for the accuracy of the documents in his testimony before the grand jury. Specific intent to impede the administration of justice is an essential element of a §1503 violation, United States v. Ryan, 455 F. 2d 728, 734 (9th Cir. 1972) (citing Pettibone v. United States, 148 U. S. 197 (1893)), which the government must establish beyond a reasonable doubt. Viewing the evidence in the light most favorable to the prosecution, we are unpersuaded that Kamiyama's corrupt intent was adequately proved.

In examining the evidence underlying this Count, we may look only to that evidence actually introduced before the petit jury. There would be no problem with the government's contention had it introduced proof before the petit jury to the effect that Kamiyama had not only produced the questionable documents, but had also affirmatively vouched for their accuracy. Similarly, the government's case would be more persuasive were there any evidence that Kamiyama had submitted the documents with the knowledge that, had he chosen, he could have resisted production on the grounds of self-incrimination. On both of these points the government fails to direct us to any portion of the trial record in which such evidence was brought to the petit jury's attention. Nor have we, after reviewing the actual trial transcript, found any such evidence.

What remains to be answered is whether the petit jury could still properly infer corrupt intent from the fact that Kamiyama submitted the false documents to the grand jury knowing that the documents were material to that jury's investigation. Intent to obstruct justice is normally something that a jury may infer from all of the surrounding facts and circumstances. See United States v. Haldeman, 559 F. 2d 31, 115-16 (D. C. Cir. 1976), cert. denied, 431 U. S. 933 (1977); cf. United States v. Dibrizzi, 393 F. 2d 642, 644 (2d Cir. 1968) (dealing with intent to embezzle). Were it not for the fact that the documents were subpoenaed, such an inference would doubtless have been permissible in this case. But here the ledger and loan agreements were produced pursuant to subpoena and even though there was ample proof of their being falsely backdated, there was no evidence of Kamiyama's corrupt intent in producing them. Whether or not Kamiyama could have resisted production, as the government argues, evidence of this government theory was not before the trial jury. Without it, a reasonable doubt as to Kamiyama's mens rea exists. Therefore, his Count Seven conviction must be reversed.

B. False Declarations Before the Grand Jury

Kamiyama also attacks his convictions under Counts Eleven, Twelve and Thirteen of the main indictment and the only count of the additional indictment (No. 194). As earlier noted, those counts charged Kamiyama with making false declarations to a grand jury, in violation of 18 U. S. C. §1623 (Supp. V 1981). That statute provides in pertinent part that "[w]hoever under oath . . . in any proceeding before or ancillary to any . . . grand jury of the United States knowingly makes any false material declaration" shall be guilty of a crime. 18 U. S. C. §1623(a). Before addressing the precise issues raised some background information is necessary.

In March 1981 Kamiyama appeared before the June 1980 Additional Grand Jury for the Southern District of New York (Grand Jury) but refused, on Fifth Amendment grounds, to testify. In July 1981 Kamiyama changed his mind and testified before both the Grand Jury and a substitute grand jury which was filling in for the Grand Jury while its members were on vacation. Counts Eleven, Twelve, Thirteen and No. 194 involve statements initially made and recorded before this substitute grand jury and later presented to the Grand Jury in accordance with the latter's instructions.

Prior to trial appellant moved to dismiss the perjury counts arising from his testimony before the substitute grand jury on the ground that this testimony was not material to any investigation being conducted by the substitute grand jury. In a published decision, the district court agreed that Kamiyama's statements to the substitute grand jury technically were not material to any investigation then being conducted by it. United States v. Moon, 532 F. Supp. 1360, 1371 (S. D. N. Y. 1982). Nevertheless, the district court refused to dismiss the subject counts, reasoning that S 1623(a) extends to proceedings ancillary to those of a grand jury and that at the time Kamiyama testified before the substitute body it was acting in such an ancillary capacity. Id. On that basis the trial judge found that Kamivama's substitute grand jury testimony was material to an investigation being conducted by the Grand Jury. The petit jury thereafter impliedly found by its conviction of defendant on Counts Eleven through Thirteen and No. 194 that Kamimaya gave the testimony knowing it to be false.

Kamiyama now challenges the district court's materiality finding. He argues that the substitute grand jury could not, as a matter of law, constitute an ancillary proceeding; that there was no evidence that the substitute grand jury was ancillary; that the district court erred in ruling on the ancillary proceeding question rather than submitting it to the petit jury; and that the district court impermissibly amended the indictment by relying on the ancillary proceeding theory which was not set out in the indictment. Moreover, he contends that there was insufficient evidence that his misstatements were material to the Grand Jury which eventually heard them. For the reasons discussed below these arguments are of no avail.

Section 1623 proscribes false declarations made before a grand jury where those declarations are "material," i.e., made in response to questions within the purview of matters that the grand jury is investigating. United States v. Berardi, 629 F. 2d 723, 727 (2d Cir.), cert. denied, 449 U. S. 995 (1980); see United States v. Mulligan, 573 F. 2d 775, 779 (2d Cir.), cert. denied, 439 U. S. 827 (1978). Whether or not a false declaration is material to a grand jury investigation is a question of law that must be determined by the court, not the jury. Sinclair v. United States, 279 U. S. 263, 298-99 (1929) (dicta); Berardi, 629 F. 2d at 728; Mulligan, 573 F. 2d at 779. Materiality is demonstrated if the question posed is such that a truthful response could potentially aid the inquiry or a false answer hinder it. Berardi, 629 F. 2d at 728. Because materiality is a question of law, an appellate court may substitute its judgment for that of the lower court on the issue of whether the materiality element has been met. See Berardi, 629 F. 2d at 728-29 (holding that the district court erred in finding false declaration immaterial).

Because we disagree with the district court's holding that Kamiyama's statements "technically" were not material when made to the substitute grand jury, we need not reach or decide the numerous questions regarding whether the substitute grand jury was conducting an ancillary proceeding. The district court's finding that Kamiyama's statements were immaterial to the substitute grand jury is at odds with the only evidence in the record on this point. There is uncontradicted, direct testimony in the record by Assistant United States Attorney Martin Flumenbaum that both the Grand Jury and the substitute grand jury were investigating Moon for possible tax violations. For example, Flumenbaum testified that the substitute grand jury was "charged with investigating the same matters that [the Grand Jury] was doing." This testimony was supported by affidavit evidence to the effect that: the Grand Jury approved in advance the procedure by which Kamiyama testified before the substitute grand jury, which was advised as to the substance of the on-going investigation of Moon and informed of the context in which Kamiyama was testifying; on two occasions the substitute grand jury heard testimony from another witness in this case; and the substitute grand jury actively participated in the proceedings by asking numerous questions relating to the handling of Moon's tax and business affairs and by requesting the production of documentary evidence. If the substitute grand jury cannot be said to have been investigating Moon's tax affairs when it was asking Kamiyama about those affairs, it is difficult to perceive exactly what it was doing.

Since both grand juries were investigating Moon's tax affairs, it seems somewhat illogical to say that Kamiyama's answers were immaterial when given to the substitute grand jury, but material, as the district court found they were, when repeated verbatim to the indicting Grand Jury. Our examination of the questions and responses in issue further strengthens our conviction that they were material to both grand juries' inquiries. The questions and answers set forth in Counts Eleven, Twelve, Thirteen and No. 194 do not deal simply with tangential matters of no relevance to the instant prosecution. Instead, they are concerned with the sources of Moon's Chase accounts funds, the Family Fund Ledger, the acquisition of the Tong Il stock, and the manner in which Moon conducted his business affairs. These matters were at the very heart of both grand juries' inquiries and related to the critical issues at trial. As a matter of common sense, we do not believe there is any basis to label them immaterial. ⁸

C. Claimed Translation Inaccuracies

Kamiyama further contends with respect to his perjury convictions that he was impermissibly indicted and convicted for statements he did not give. Because his principal language was Japanese, he addressed the grand juries through an interpreter. At the request of counsel tape recordings were made of Kamiyama's grand jury statements. After being indicted for perjury in October 1981, Kamiyama received copies of the tape recordings of his testimony. After they were reviewed by defense counsel Kamiyama moved to dismiss certain specifications contained in Counts Ten through Thirteen on the ground that the allegedly perjurous language did not accurately reflect what he had actually said to the grand jury. He also requested that a court-appointed translator review the accuracy of the challenged language. Before the trial court ruled on Kamiyama's motion, a superseding indictment was returned which omitted two of the allegedly inaccurate specifications in Count Ten.

The trial court ultimately appointed an interpreter to translate the tape recording of those portions of Kamiyama's grand jury testimony included in the indictment. Judge Goettel also requested defense counsel to "specify the particular portions of the translation that [were] in dispute." This was done at a pretrial hearing held on March 5, 1982 . With respect to the objections to Counts Ten and Eleven, the district court found no significant difference between Kamiyama's testimony as set out in the superseding indictment and the court-appointed translator's interpretation of the recordings of that testimony. It did agree with Kamiyama's claims that certain Count Twelve testimony had been translated inaccurately and it dismissed all of that Count's specifications objected to by Kamiyama. With regard to Count Thirteen, the court found that the appointed translator's version of what Kamiyama had said agreed with the language quoted in the indictment, and counsel for Kamiyama accepted those translations as being accurate. The government later obtained a superseding Count Twelve indictment which omitted the previously objected to language.

At trial Kamiyama did not argue that the translation of the testimony set forth in the remaining false declaration counts was inaccurate. After the close of the evidence, the district court granted Kamiyama's request to make the court translator's translation an exhibit which the jury could see, if requested. Although the jury was so informed, apparently it did not request the exhibit.

On appeal Kamiyama now asserts that "all specifications" in the perjury counts were erroneously translated and fatally ambiguous. ⁹ Close examination of appellants' contentions reveals that some of the points raised actually relate to sufficiency of the evidence as to falsity, not to accuracy of translation. In any event we address appellant's "translations" contentions one count at a time.

With respect to Count Nine, appellant asserts that while he was indicted for answering in the negative the question "did" Reverend Moon sign any documents dealing with stock, the question actually posed was whether Reverend Moon ever "had" to sign such documents. This claim of inaccurate translation was not raised in defendant's pretrial motion to dismiss; nor did he attempt to bring the purported infirmity to the attention of the court or jury at trial. Consequently, the objection to Count Nine has not been preserved for appeal. See United States v. Bonacorsa, 528 F. 2d 1218, 1222 (2d Cir.), cert. denied, 426 U. S. 935 (1976).

The testimony underlying Count Ten, as set out in the indictment, is as follows:

[False declarations or answers are in italic.]

Q. Did Reverend Moon Carry the check book with him?

A. He doesn't, because I managed it.

Q. You carried the check book with you from the very beginning of the account?

A. Yes, I kept it myself from the beginning.

Q. Did you sign any of the checks for Reverend Moon's account?

A. I never signed it myself, although I asked him for signature, and I made a request, but I never signed myself.

Q. Reverend Moon signed all the checks?

A. That's correct.

Q. And did Reverend Moon write out the other portions of the check other than his signature?

A. No, no, he didn't do it.

Q. You prepared all the checks for him?

A. That's correct.

* * *

Q. Did Reverend Moon ever write any portion of the checks on the Chase Manhattan account other than his signature?

A. He never wrote anything other than his own signature as far as I remember.

* * *

Q. So, to your knowledge, he never wrote anything but the signature; is that correct?

A. To the best of my knowledge, Reverend never affixed anything other than the signature in the book, in the check.

With respect to the first two allegedly false answers, Kamiyama's objection goes not to the accuracy of the translation, but to the sufficiency of the government's proof at trial. He claims that his answers stated only that Moon does not presently carry the Chase account checkbook; that while the government proved at trial that Moon previously carried the checkbook, it did not prove that he presently does so; and that, therefore, Kamiyama's answers were not shown to be literally false at trial. We disagree. Viewing the first two answers in sequence and in context, see Bonacorsa, 528 F. 2d at 1221, they plainly state that Moon "did" not carry the checkbook. This assertion was indisputably proved not to be true at the trial. Kamiyama's remaining contentions regarding Count Ten were either waived or are wholly without merit.

Moving to Count Eleven, the specifications of perjury were as follows:

[False declarations or answers are in italics.]

Q. Now, what was the largest deposit, single deposit that was made into Reverend Moon's account?

A. I think it was around four hundred thousand dollars.

Q. Who deposited that money?

A. I don't remember who I asked to do so. One thing is for sure, I didn't do it myself.

Q. And where did you get the money, that four hundred thousand dollars, to deposit in Reverend Moon's account?

A. From family fund.

Q. And where was the money actually at the time before you deposited it into Moon's account?

A. I wasn't physically in charge for that fund. But, I may have asked Miss Tomoko Torii, T-o-m-o-k-o T-o-r-i-i, but without clear recollection.

Q. Well, where did the four hundred thousand dollars--how did you get the four hundred thousand dollars that you deposited into Moon's account?

A. Over the years, our brethren from Japan , who came to USA , they contribute, and it was accumulated.

I remember that there are at least about seven hundred brethren coming to the USA .

Q. Was any of the money in the family fund ever used to pay expenses for the Japanese members who had come to New York ?

A. No. We never did that.

Q. So why didn't you put this money in a bank account?

A. Part of which was put into the bank, and the balance was kept.

Q. Well, did you have a bank account in the name of the family fund?

A. No.

Q. Why did you use Reverend Moon's name for the family fund?

A. As the money came from overseas, and part of that money may become necessary as expenses to take care of the brethren, we put it in Reverend Moon's name, who legitimately represents International Unification Church .

Kamiyama argues that the first two answers, although not alleged to be false, were inaccurately translated and somehow cast the third answer in a misleading context. Even assuming inaccuracies with respect to the interpretation of the first two answers, we fail to see any relationship between them and the third answer, the one alleged to be false. With respect to the second allegedly false answer, Kamiyama's claim that it was inaccurately translated is unpersuasive since the version set out in the indictment is in substantial agreement with the appointed translator's version. Kamiyama also argues that the third allegedly false answer--"As the money came from overseas"--resulted from an inaccurate translation by the interpreter. Comparing this language used in the indictment with the version of the court-appointed translator--"the money from overseas"--we see no material difference.

As for Count Twelve, none of the alleged mistranslations, ambiguities, or other purported infirmities complained of now was raised below. Thus, these claims are waived. Similarly while he now asserts that the two questions underlying Count Thirteen were translated in a fatally "vague and ambiguous fashion," appellant abandoned his Count Thirteen translation objections during the pretrial hearing on his motion to dismiss. Moreover, there is nothing unduly vague or ambiguous about the Count Thirteen colloquy, which reads as follows in the indictment:

Q. Did you ever tell Michael Warder [a lower echelon Unification Church official] to tell government investigators that he got $5000 to purchase stock in Tong Il from relatives or friends? Did you ever tell him to give that explanation to anyone?

A. I didn't do it.

Q. Did you ever tell Mike Warder to give a false explanation as to how he paid for his stock in Tong Il ?

A. No, I didn't.

Appellant further argues with respect to Count Thirteen that the government failed to prove the falsity of his answers. Specifically, he contends that the government demonstrated at trial only that he "suggested" or "recommended" that Warder give a false explanation as to the Tong Il stock's origin, which is not the same as "telling," and, therefore, that his answers to the grand jury questions were not proven false. Viewing the evidence in the light most favorable to the government, the jury could have concluded that when Kamiyama recommended to Warder that he do something he was telling him to do it. Appellant makes no specific claims with respect to the translation of colloquy underlying count No. 194. Nor does he argue that the government's evidence on that count was insufficient. ¹⁰

Accordingly, the judgments of conviction are affirmed on all counts except Count Seven, on which Kamiyama's conviction is reversed. The mandate of the court shall issue forthwith, provided that the mandate shall be stayed for the purpose of and for so long as is permissible to perfect and determine timely appeals from this decision.

¹ Appellants also contend that the subject matter of this tax fraud prosecution, together with the sheer volume of complicated exhibits, turned this trial into one of mesmerizing complexity. We believe the case was not so complex as to be beyond the grasp of the jury. While the trial lasted over six weeks and there were hundreds of exhibits introduced, very few of them were complicated. The jury's task came down to deciding the basic issue of ownership of the Chase accounts and the Tong Il stock.

² Since the defendant's only argument regarding the Tong Il stock is that it belonged to the Church rather than to Moon, it appears that he concedes the taxability of the distribution if in fact the stock belonged to Moon personally. The defendant did not assert below and does not assert now that the distributions constituted a gift to him from Tong Il , which gift of course would not be subject to the federal income tax. The jury could well have found that the whole transaction amounted to an indirect dividend to Moon from the companies under his control which transferred assets to Tong Il .

³ The instructions on the law of trusts were essentially correct, as discussed infra, and occupied only a very small portion of the jury charge. Therefore, even though these instructions were not required, their inclusion could not have confused or misled the jury.

⁴ If you find that the Chase time deposits and the Tong Il stock were in fact the property of the international Church Movement, rather than the personal property of Rev. Moon, then the exclusion from Rev. Moon's tax returns of the interest earned by the time deposits and the Tong Il stock was proper, and did not make those returns false.

⁵ Contrary to the defendant's contention, the trial judge did instruct the jury that lack of a formal organizational structure would not prevent the Unification Church movement from being the beneficial owner of the property in question.

⁶ Moon also contends that this language contravened the Religion Clauses by inviting the jury to treat the Church's practice of soliciting cash contributions from the public as suspect. But the charge clearly refers to Moon's conduct and not Unification Church practices.

⁷ We note that theUnification Church members' mode of living, evidence of which appellants claim amounts to religious innendo, is also prevalent in certain centuries-old orders of Christians and Buddhist monks.

⁸ Our decision on the materiality issue does not intrude on appellant's double jeopardy rights under the Fifth Amendment since it neither necessitates a retrial nor has the effect of setting aside a judgment of acquittal on the merits. See Berardi, 629 F. 2d at 730; cf. Whalen v. United States , 445 U. S. 684, 688 (1980) (double jeopardy protects against a second trial for the same offense); United States v. Scott, 437 U. S. 82, 91 (1978) (judgment of acquittal may not be appealed and terminates prosecution when reversal would necessitate new trial). We have merely adopted another basis for affirming the district court's conclusion that Kamiyama's substitute grand jury statements were material.

⁹ Citing United States v. Estepa, 471 F. 2d 1132, 1137 (2d Cir. 1972), Kamiyama also contends that the prosecution abused the grand jury process by not having it reevaluate all of the perjury counts in light of the court-appointed translator's findings. This claim is meritless; even Kamiyama concedes that the translator's findings generally accorded with the allegedly perjurous language set forth in the indictment. Where there were material variances, for example in Count Twelve, the government did resubmit its case to the grand jury.

¹⁰ Kamiyama's final contentions regarding his perjury convictions are: (1) that the government breached some obligation on its part to insure at the grand jury level that Kamiyama's erroneous answers were in fact intentional lies rather than mere negligent mistakes; and (2) that his false answers underlying Counts Nine and Ten were immaterial because the grand jury already had in its possession information contradicting his testimony. The district court rejected these arguments in its published decision see 532 F. Supp. at 1371-72, 1374, and we agree with that rejection for the reasons stated in the district court's opinion.

Dissenting Opinion

OAKES, Circuit Judge (dissenting):

While fully concurring in the other portions of Cardamone's lucid and careful opinion, I am required to dissent to that portion of it relating to the trial judge's charge on the law of trusts. Majority op. IIIA. Contrary to the Government's brief and the majority's view that "Moon did not raise until late in the trial" the claim that he was holding the assets in question in trust, this was his position in the pretrial motion to dismiss as well as during argument on the midtrial motion for a judgment of acquittal. The trial judge quite properly acknowledged his obligation to charge on the law of trusts and did so no fewer than three times in the space of six pages of transcript. ¹ The Government's assertion that defendants made "no claim . . . that [they] wanted, much less were entitled to, any of the specific instructions on the law of trusts which are claimed to be so crucial on appeal" simply does not hold water. The Reverend Moon submitted detailed instructions with supporting memoranda of law both on the general issue of beneficial ownership (No. 16) and on the specific issue whether an unincorporated religious association can be the beneficiary of a charitable trust (No. 15). Similarly, counsel pressed and elaborated upon his requests at the charging conference and made plain his disagreement with the proposed instruction submitted by the Government. Furthermore, counsel lodged specific objections to the instructions as given and in doing so specifically renewed the request for proposed instructions. The defense position was clear and consistent throughout the proceedings. See United States v. Kelinson, 205 F. 2d 600, 601-02 (2d Cir. 1953) (Fed. R. Crim. P. 30 "does not require a lawyer to become a chattering magpie").

Even if objections were not properly preserved, however, the issue of beneficial ownership was one "central to the determination of guilt or innocence" in the case, United States v. Alston, 551 F. 2d 315, 321 (D. C. Cir. 1976). Thus, any defects in respect to the charge on this central issue would constitute plain error and require reversal. See Connecticut v. Johnson, 51 U. S. L. W. 4175, 4178 (U. S. Feb. 23, 1983 ).

Before discussing in detail what I believe were the errors in the trust instructions, I wish to put them in context because it is only then that their importance becomes apparent. In the first place, whether the Chase Manhattan Fund and the Tong Il stock held in Moon's own name were church property or Moon's personal property was the critical issue in the case. The Government went to great lengths to establish a fact that was really conceded from the beginning, that the assets were held in Moon's own name. But the law is clear that dominion and control over funds does not by itself establish taxability, at least where funds are beneficially owned by another. See, e.g., Brittingham v. Commissioner [CCH Dec. 31,032], 57 T. C. 91 (1971); Seven-Up Co. v. Commissioner [CCH Dec. 17,656], 14 T. C. 965 (1950). See also Poonian v. United States [61-2 USTC ¶9647], 294 F. 2d 74 (9th Cir. 1961). Thus, it was essential that the court's instructions precisely state the law on the creation of a trust relationship and the implications of the jury's finding that such a relationship existed in this case.

In the second place, this case did not involve a claim that an ordinary, lay taxpayer held certain assets in a private trust for the benefit of another. On the contrary, the taxpayer here was the founder and leader of a worldwide movement which, regardless of what the observer may think of its views or even its motives, is nevertheless on its face a religious one, the members of which regard the taxpayer as the embodiment of their faith. Because Moon was the spiritual leader of the church, the issue whether he or the church beneficially owned funds in his name was not as crystalclear as might seem at first glance to be the case.

In appears that the assets in question came to Moon largely from members of his faith, and there was some evidence that the donors intended their contributions to be used by him for religious purposes. The religious context involved gives the case a special color. As noted in cases such as Winn v. Commissioner [79-1 USTC ¶9392], 595 F. 2d 1060, 1065 (5th Cir. 1979), funds donated for the use of an individual involved in religious work may be considered gifts to the religious organization with which the individual is affiliated. In Winn, for example, it was held that where money was given to the taxpayer's cousin, a missionary, in response to a church-sponsored solicitation, for deposit ultimately to her personal account, and was used, as intended, to support her mission work, it was sufficiently established that the funds were donated "for the use of" the church(es) to permit the contributing taxpayers to claim deductions for contributions. Similarly in Morey v. Riddell [62-2 USTC ¶9673], 205 F. Supp. 918, 921 (S. D. Cal. 1962), it was held that where money contributed to a totally unorganized religious association by way of checks to individual "ministers" was used to meet expenses of the church, including the ministers' living expenses, deductions for religious contributions would be permitted. But see Cox v. Commissioner [62-1 USTC ¶12,047], 297 F. 2d 36 (2d Cir. 1961) (not deductible when intent was to make bequest to individual). The Reverened Moon's claim that he held the Chase Funds and the Tong Il stock as trustee for the Unification Church movement likewise raised the question whether the donors intended this property to be used for religious purposes. In this context, then, I think it was incumbent upon the court to make certain that the trust charge not only properly state the factual elements that were involved, but that it also clearly emphasize that the Government had the burden of proof beyond a reasonable doubt on this difficult issue.

Moreover, as we are referred to state law in respect to ownership, see United States v. Mitchell [71-1 USTC ¶9451], 403 U. S. 190, 197 (1971); United States v. Manny [81-1 USTC ¶13,400], 645 F. 2d 163, 166 (2d Cir. 1981); see also Treas. Reg. §301.7701-4 (1974), the instructions must be viewed in light of New York law pertaining to assets given to a religious leader for use by the trust. While I by no means agree with the appellants' contention that New York law establishes a presumption that any assets given to a religious leader are held by him in a charitable trust, it at least permits of a finding to this effect.

This conclusion stems from the following facts. First, the law favors charitable trusts and will draw reasonable inferences and resolve ambiguities to find and uphold them. In re Price's Will, 264 A. D. 29, 35 N. Y. S. 2d 111, 114-15, aff'd, 289 N. Y. 751, 46 N. E. 2d 354 (1942); In re Estate of Nurse, 35 N. Y. 2d 381, 389, 362 N. Y. S. 2d 441, 446, 321 N. E. 2d 537 (1974). See N. Y. Est. Powers & Trusts Law §8-1.1 ( McKinney 1967). Second, when a gift appears to have been made for charitable or religious purposes, the gift may be found to have been made in trust even if no trust language has been used and even if the gift was in form absolute. In re Durbrow's Estate, 254 N. Y. 469, 477, 157 N. E. 747, 749 (1927); see also New York City Mission Society v. Board of Pensions, 261 A. D. 823, 823, 24 N. Y. S. 2d 395, 396 (1941). Third, there are numerous cases holding that a minister or other church official who held title to property in his own name did so as trustee for the church. See, e.g., Sears v. Parker, 193 Mass. 551, 79 N. E. 772 (1907) (fund for widows and orphans of church ministers); Jones v. Habersham, 107 U. S. 174, 182 (1882) (devise to church trustees to benefit of poor and feeble churches in state). See 4 A. Scott, The Law of Trusts §§ 371.3, at 2885 & n. 4, 351 at 2797-98 (3d ed. 1967). Finally, where the source of the assets is a church source, added to the fact that the donee is a religious official, a trust may be imposed. See Fink v. Umscheid, 340 Kan. 271, 19 P. 623 (1888) (Catholic bishop using money supplied by congregation to purchase land in his own name for a church and school, later attempting to sell property; land concededly held in trust). See also Archbishop v. Shipman, 79 Cal. 288, 21 P. 830 (1889). Thus the key issue was whether the funds were given to Moon for his own use or for that of his international church movement, and whether, even though some of the funds were utilized for his own living purposes, the donors intended to permit such use. ²

I reprint in the margin ³ the instructions on the "key issue" or the "central question" as the judge in his instructions to the jury termed it. The ensuing discussion relates to this material. In my view those instructions contained errors which, because they were on the crucial issue of the case, must be considered prejudicial.

First, in referring to the fact that the jury should consider all the evidence on the issue whether the Unification Church movement existed and whether the movement or the Reverend Moon owned the funds in the Chase accounts and Tong Il stock, the court listed eight factors as set forth in Paragraph Six of the footnote. Listed among these, but not emphasized, was "the intent of the parties who caused the stock and funds to be transferred to Reverend Moon's name.' Rather than simply including intent as one of the things for the jury to consider, the court in my view should have advised the jury to accord the greatest weight to this factor. The church source of the funds and Moon's role as church leader were likely to cast light on the issue of the donors' intent, and accordingly the charge should have specifically directed the jury's attention to them. The instruction as given allowed the jury to find against Moon on the issue of beneficial ownership without even considering the crucial issue of donors' intent. See Sandstrom v. Montana , 442 U. S. 510 (1979).

Secondly, though the issue was whether funds were given to a religious trust, the charge was that the intent to create it must be "clear and unambiguous," as in the case of private trusts. I recognize that the majority believes this portion of the charge to be correct under New York law, but the cases it cites for that proposition do not support it. County of Suffolk v. Greater New York Councils, Boy Scouts of America, 51 N. Y. 2d 830, 832-33, 433 N. Y. S. 2d 424, 425, 413 N. E. 2d 363, 364 (1980), dealt only with the issue when a donation to a charitable organization, concededly subject to charitable trust restrictions, will be subject to additional specialized restrictions on use narrower than the organization's general charitable purpose; the court reversed a holding that a bequest to the Queens County Council of the Boy Scouts had to be used forever for a particular Boy Scout camp as distinct from the Boy Scouts generally. Lefkowitz v. Cornell University, 35 A. D. 2d 166, 173, 316 N. Y. S. 2d 264, 271 (1970), aff'd, 28 N. Y. 2d 876, 322 N. Y. S. 2d 717 (1971), held that a trust was not created by the donee's actions. Relying upon In re Fontanella, 33 A. D. 2d 29, 30, 304 N. Y. S. 2d 829, 831 (1969), the court held that the evidence was insufficient to show that the donee ever intended to create a trust. Fontanella simply involved a private trust, not a religious trust, and the donee was not the leader of a religious group. ⁴

Thus, there appears to be no good basis for finding that "clear and unambiguous" intent is necessary to create a charitable trust under the law of New York . The strong policy of New York trust law and of trust law generally is to uphold charitable trusts whenever possible and to construe their terms liberally. See, e.g., In re Price's Will, 264 A. D. at 29, 35 N. Y. S. 2d at 111; In re Durbrow's Estate, 245 N. Y. at 469, 157 N. E. at 747. In light of this fact, it is anomalous to require "clear and unambiguous" proof of the donor's intent to establish a charitable trust.

The second crucial error in the instructions lies in the charge that the jury should consider as the very first factor whether the International Unification Church movement "had a specific organizational structure, written charter or constitution . . .." (See supra note 3, ¶3.) The Government concedes that it is a cardinal rule of trust law that a charitable trust cannot fail for lack of a specific beneficiary. The court should have said that a specific organizational structure was not a prerequisite to the existence of a charitable trust because in fact no beneficiary of a charitable trust need be designated at all. See N. Y. Est. Powers & Trust Law §8-1.1 ( McKinney 1967). ⁵ See 4 A. Scott, The Law of Trusts §364, at 2838-39 (3d ed. 1967).

Moreover, the court's instructions regarding the use or misuse of trust funds were at the very least confusing. (See supra note 3, ¶14.) First, while it may be correct as a matter of law that a trustee who diverts trust property to his own use is taxable to the extent of the diversion, diversion was not charged in the indictment. Thus, evidence of diversion was irrelevant to the case. The diversion instruction, given over defense objection, was at variance with the theory on which the Reverend Moon was indicted and on which the entire case was tried.

Second, a trust may exist even though the trustee is endowed with the freedom to use for his own personal benefit a portion of the funds he holds in trust and such use will not nullify the existence of the trust. United States v. Scott [81-2 USTC ¶9663], 660 F. 2d 1145, 1166 n. 38 (7th Cir. 1981), cert. denied, 455 U. S. 907 (1982); Rev. Rul. 71-449, 1971-2 C. B. 77. This is particularly true in the case of monies held in trust by religious leaders, since often use of such funds to pay a leader's living expenses are within the scope of the church's religious purposes. See, e.g., Morey v. Riddell, 205 F. Supp. at 918. Moreover, the instruction failed to explain that, even if the Reverend Moon had improperly diverted some of the Chase funds to a nontrust use, such partial diversion could not make the entire corpus, and thus the interest thereon, taxable to him. United States v. Scott, 660 F. 2d at 1145; see also Herbert v. Commissioner [67-1 USTC ¶9421], 377 F. 2d 65 (9th Cir. 1967). The inclusion of the phrase "to the extent so diverted" in the diversion portion of the charge could not have conveyed this concept at all.

Finally, in my view the instructions shifted to the defendant the burden of proof on the issue of beneficial ownership. The jury was charged that "if" it found the Chase funds were the property of the International Unification Church movement or were held in trust by Moon for the movement, "then" the interest "would not be taxable income to Moon." The implication of this instruction was that Moon had to convince the jury that the property belonged to the movement. See Notaro v. United States, 363 F. 2d 169, 175-76 (9th Cir. 1966) (condemning an "if/then" instruction as obscuring the locus of the burden of proof). By saying that the donor's intent must be "clear and unambiguous," not only was the law of charitable trusts being misstated, but the burden of proof improperly placed upon the defendant was made heavy indeed. I do not believe that the mention of "beyond a reasonable doubt" at the tail end of this discussion overcame the improper language within the curative concept of Cupp. v. Nanghten, 414 U. S. 141, 146-47 (1973).

Thus in a case where the crucial issue, and indeed the only real factual question, was whether property unquestionably held in Moon's own name was beneficially owned by him personally or was held by him on behalf of his international church movement, the charge fell short in several respects.

While often a charge is simply a way to achieve rough justice with the help of a jury, when a critical issue separating criminal conduct from civil is involved, in my view it must be accurate in all respects. This charge, I believe, was not.

¹ For example:

But I do think you have got to get before the jury the notion that if the jury believes that the people who gave the money intended it to be for the International Unification Church Movement, and if Moon believed he was holding it for that purpose, and if he believed he was using them for that purpose, even though he may have in a few instances made bad investments or used some of it for himself, that the monies could still be viewed as not being his but being the Movement's.

T. 6122.

² I note here that Moon was indicted, and the case was tried, on the theory that the funds were never in trust to begin with, and not on the theory that he had "diverted" to his own use funds originally given in trust.

³ The key issue is whether or not the bank accounts at the Chase Manhattan Bank and the Tong Il stock issued in Reverend Moon's name belonged to Reverend Moon.

The defense contends that these funds and stock were beneficially owned by the International Unification Church Movement which supported the activities of the various national church entities in the United States and elsewhere.

The government contends that these funds belong to Reverend Moon.

This is the crucial issue of fact for you to decide.

If you find that the funds in the Chase accounts were the property of International Unification Church Movement or were held in trust by Moon for the International Unification Church Movement and used for church purposes and that the interest on those funds also belonged to the International Unification Church Movement and were used for it, then that interest would not be taxable income to Moon. You should not consider whether that interest income would be taxable to anyone other than Moon; that is, you should not concern yourself with whether the International Unification Church Movement had any tax liability for the interest earned by the time deposits, because that is not an issue in this case.

In determining whether in 1973, 1974 and 1975 the International Unification Church Movement existed and whether the Movement owned the funds in the Chase accounts and Tong Il stock or whether Reverend Moon owned them, you should consider all the evidence, including such factors whether the Movement had a specific organizational structure, written charter or constitution, the existence of other Unification Church corporate entities during the relevant time period, the fact that the accounts were maintained under Reverend Moon's name, the source of the funds, the intent of the parties who caused the stock and funds to be transferred to Reverend Moon's name, evidence of any agreements as to how the funds would be used, the manner in which the stock and funds were administered and whether there is any evidence Moon ever accounted to anyone for the use of the funds.

This list is by no means exhausted. You should consider all the evidence in making your determination.

In consider[ing] the evidence, there are a number of related issues which may occur to you. I want to briefly instruct you on the law applicable to these issues.

As I have mentioned, you may consider whether the International Unification Church Movement had a specific organizational structure in making your decision. However, the lack of a formal corporation does not prevent a religious movement from being the beneficial owner of property held in the name of another.

Now, the defendants contend, among other things, that Moon held the Tong Il stock and the funds of the Chase accounts as trustee for the International Unification Church Movement. Let me briefly explain to you the essentials of a trust in order for you to evaluate these contentions.

A trust is created when a person is given money or property to be held and used for the benefit of someone else. The person holding the property is called the trustee.

The person who transfers the property to the trust is referred to as a "settler"; the person who holds the property is the "trustee"; and the person or entity on whose behalf it is held is the "beneficiary."

Whether a trust is created depends on the intent of the person giving the property at the time of the transfer, and that intent must be clear and unambiguous. A trust can be created orally or by the conduct of the parties. The trust need not be reflected in a written document.

In order for a trust to exist, the trustee must be obligated to use the property for the benefit of the beneficiaries; a gift with a mere request or expectation that the property would be used a particular way does not create a trust. There is no trust if the person who receives the money is free to use it for his own benefit. If a trust does exist and the trustee diverts trust property to his own use, the funds diverted become taxable to him at the time and to the extent so diverted.

In determining whether a trust relationship existed, you should, as I have already mentioned, consider all the evidence before you.

It is unnecessary for there to be a written agreement between Reverend Moon and the International Unification Church , providing he held the time deposits and the Tong II stock on behalf of the church. All that is required is that both parties to the relationship understand that the first person is holding the property for the benefit of the second, and you can find such an understanding on the basis of the party's conduct.

Also the mere fact that Reverend Moon exercised control over the funds and the stock is not necessarily indicative of his personal ownership. A person who holds property on behalf of another may be given broad authority and discretion to deal with that property as long as he does so in a manner consistent with the purpose for which he was given title to the property in the first place.

I would like to say a few final words on the subject of religious movements.

Such organizations can invest and conduct businesses. While the income from such businesses is taxable, this fact does not make taxable the religion's income from other sources, including interest it earns on funds it has on deposit.

There is no legal requirement that a religious society be incorporated prior to making business investments. It is legal for an unincorporated church or religious association to be the beneficial owner of property held for its use in the name of others.

A religious organization can properly pay the living expenses of [its] leaders or ministers in order to allow them to pursue its religious purposes and can make loans to its ministers or leaders on arm's length terms.

T. 6583-88.

⁴ The majority is equivocal in saying, on the one hand, that the only burden on Moon was to present a prima facie case that he held the assets in trust, and not to establish this as an affirmative defense and, on the other, that a review of the evidence reveals no proof that Moon actually held the subject funds in trust. The majority states that "the only evidence presented was the testimony of three church members who simply stated that they gave money to Moon intending to donate it to their church. Nothing was said about creation of a trust." This statement runs contrary to the New York and other trust law I have cited above. It was not necessary that the creation of a trust be mentioned. See N. Y. Est. Powers & Trusts Law §8-1.1 ( McKinney 1967); Restatement (Second) of Trusts §351 comment b (1959) ("No particular form of words or conduct is necessary for the manifestation of intention to create a charitable trust. Compare, as to private trusts, §24(2). A charitable trust may be created although the settlor does not use the word 'trust' or 'trustee.'").

In this connection the trial court and I agree. There was evidence sufficient, though by no means conclusive, to present the question to the jury. The majority and I agree that, if this were the case, the burden of proof beyond a reasonable doubt remained upon the Government. But the majority thinks there was not enough evidence to present the issue to the jury at all.

⁵ N. Y. Est. Powers & Trusts Law §8-1.1(a) ( McKinney 1967) reads as follows:

No disposition of property for religious, charitable, educational or benevolent purposes, otherwise valid under the laws of this state, is invalid by reason of the indefiniteness or uncertainty of the persons designated as beneficiaries. If a trustee is named in the disposing instrument, legal title to the property transferred for such a purpose vests in such trustee; if no person is named as trustee, title vests in the court having jurisdiction over the trust.

 

 

[84-2 USTC ¶9966] United States of America , Plaintiff-Appellee v. Albert Isaksson, Defendant-Appellant

(CA-7), U. S. Court of Appeals, 7th Circuit, No. 84-1004, 744 F2d 574, 9/17/84 , Affirming an unreported District Court decision

[Code Sec. 7206]

Criminal penalties: Aiding in the preparation of false returns.--A taxpayer's convictions for aiding and assisting in the preparation of false income tax returns and for conspiring to commit such offense were affirmed. The government had introduced sufficient evidence to establish that income was underreported on returns filed by one of the taxpayer's employees and that the taxpayer assisted him in the understatement. It did not matter that the taxpayer was acquitted by the same jury of a similar charge of assisting another employee in the preparation of false returns.

Thomas D. Sykes, Assistant United States Attorney, Madison , Wis. 53701 , for plaintiff-appellee. Robert E. Meldman, Meldman, Case & Weine, Ltd., 788 North Jefferson St. , Milwaukee , Wis. 53202 , for defendant-appellant.

Before CUMMINGS, Chief Judge, CUDAHY and POSNER, Circuit Judges.

CUMMINGS, Chief Judge:

Defendant Albert Isaksson appeals from his convictions of Counts 10 and 11 of an indictment for aiding and assisting in the preparation of 1978 and 1979 false income tax returns in violation of 26 U. S. C. §7206(2), and his conviction of Count 1 for conspiring to commit the above substantive offense in violation of 18 U. S. C. §371. Defendant argues that the government introduced sufficient evidence to establish that income was under-reported on the two returns in issue, and that the conspiracy conviction is inconsistent with the jury finding of acquittal on Counts 4 and 5 also alleging violations of 26 U. S. C. §7206(2). ¹ For the reasons provided herein we reject defendant's arguments and affirm defendant's convictions under Counts 1, 10 and 11.

I

Defendant Albert Isaksson and his brother owned and operated the Isaksson Lumber Company of Herbster, Wisconsin (the "Company"). The Company consisted of a retail lumber outlet, a sawmill, and a pulpwood and logs division, i. e., tree-cutting operations. As the testimony at the jury trial indicated, during the late 1970's employees of the Company participated in a scheme designed to reduce the amount of tax paid by both the employees and the Company. Participating employees were paid partially or completely for their services with a check charged against the pulpwood and logs account on the Company's books, the remainder being charged against the wages account. Only from the checks for payment of wages charged to the wages account were amounts withheld by the Company for federal income tax, state income tax, and for withholding under the Federal Insurance Contributions Act (FICA). From the checks for payment of wages charged against the pulpwood and logs account, no amounts were withheld for these purposes, nor was the payment of wages represented by these checks reported on the W-2 forms provided to the employees and filed with the Internal Revenue Service by the Company. The several employees who allegedly participated in the scheme are said to have used these W-2 forms in the preparation of their understated federal income tax returns for the years 1977, 1978, and 1979.

Another facet of the scheme designed to reduce an employee's overall income tax liability involved making a portion of the employee's wages payable from the pulpwood and logs account to a non-existent person or a relative of the employee, usually a child, who was not employed by the Company. For example, the government at trial introduced records of numerous checks, signed by defendant, that were made payable to Kenneth and Douglas Belanger, minor sons of employee Louis Belanger.

On April 13, 1983, a twelve-count indictment was filed against defendant Albert Isaksson. ² Counts 2 through 12 charged him with aiding and assisting each of seven named individuals in the preparation of a federal income tax return that was false as to a material matter in contravention of 26 U. S. C. §7206(2). Count 1 charged him with conspiring to defraud the federal government by aiding and assisting in the preparation of the false returns through understated W-2 forms in violation of 18 U. S. C. §371. The case was tried before a jury, the government's principal witnesses being employees, Louis Belanger and bookkeeper Carla Collins, who both testified as to the scheme. After all evidence was introduced, defendant's counsel moved for judgment of acquittal on all counts. The court ruled that the government in making its prima facie case had not introduced evidence that five of the seven individuals named in Counts 2 through 12 were employees as opposed to independent contractors. ³ The distinction is critical in this case because payments made to independent contractors are not considered wages and therefore are not subject to withholding, nor must they be reported on form W-2. See 26 U. S. C. §3121(d)(3) infra. Judge Crabb granted the motion on Counts 2, 3, 6, 7, 8, 9, and 12, and denied the motion with respect to Counts 4, 5, 10, and 11. Counts 4 and 5 relate to the W-2 forms and income tax returns of Carla Collins for 1978 and 1979, respectively; Counts 10 and 11 relate to the W-2 forms and income tax returns of Louis Belanger for the same years.

The jury found defendant not guilty of Counts 4 and 5 as to Carla Collins, but guilty of Counts 10 and 11 as to Louis Belanger, and guilty of conspiracy Count 1 as to Belanger. Defendant was sentenced to 30 days' imprisonment and $10,000 fine under Count 1, 30 days' concurrent imprisonment and $5,000 fine under Count 10, and three years' probation under Count 11.

II

Defendant's first contention on appeal is that the government did not adduce sufficient evidence under Counts 1, 10 and 11 for a jury to find beyond a reasonable doubt that Louis Belanger's federal income tax returns understated wages. Defendant argues that Louis Belanger's work outside the sawmill, i.e., as a cutter, slasher, ⁴ skidder, and truck driver, was independent contractor work as opposed to work as an employee of the Company. According to defendant, Belanger inadvertently withdrew payments for his services as an independent contractor from the wages account rather than the pulpwood and logs account during the years in question. Defendant claims an overstatement of wages resulted which offsets the understatement attributable to the use of the pulpwood and logs account for wages, i.e., sawmill work. Defendant also contends that even if defendant cannot establish that this offset did in fact occur, the government bears the burden of proof to show it did not occur, and failed to meet this burden.

This Court must address two preliminary matters which call into question defendant's framing of the issues. First, defendant assumes that if Louis Belanger did in fact take independent contractor pay from the wages account in the amount of underreporting, then defendant did not violate 26 U. S. C. §7206(2) ⁵ because the returns would not be false as bo a material matter. However, this position overlooks the fact that if the offset did occur, it did so only by virtue of the inadvertent conduct of nondefendant Belanger, which does not mitigate defendant's willful assistance in evading the federal tax laws. As the testimony at trial established, whether Belanger drew a particular payment on the wages account or the pulpwood and logs account was a matter within Belanger's discretion, this practice being allowed by defendant. Moreover, the source of one's income is a material matter, the false statement of which can be prosecuted under Section 7206. United States v. Divarco [72-1 USTC ¶9470], 343 F. Supp. 101 (N. D. Ill. 1972). Therefore Isaksson's purported defense, if established, would not negate the evidence that he willfully aided in the fraudulent scheme.

The second preliminary matter is whether, as defendant assumes, Belanger's work outside sawmill, i.e., the cutting, skidding, slashing, and truck driving, is characterizable as independent contractor work. 26 U. S. C. §3121(d)(3) defines employee for employment tax purposes as one who:

[P]erforms services for remuneration for any person * * * if the contract of service contemplates that substantially all of such services are to be performed personally by such individual; except that an individual shall not be included in the term "employee" under the provisions of this paragraph if such individual has a substantial investment in facilities used in connection with the performance of such services (other than in facilities for transportation), or if the services are in the nature of a single transaction not part of a continuing relationship with the person for whom the services are performed.

Under this test it is a plausible conclusion that Belanger's work as a tree cutter, slasher, skidder, and hauler was derived from an employment relationship with the Company rather than from an independent contractor arrangement. As Belanger testified, the Company owned the cutting, skidding, slashing, and hauling equipment (although he did own and use his own chain saw). Albert Isaksson selected the areas for the tree-cutting operations and purchased the timber from the land owners. Unlike many of the other loggers, Belanger also worked in the sawmill on the Company's premises; moreover, his logging services provided during the years in question can be said under 26 U. S. C. §3131(d)(3) to be "part of a continuing relationship with the person for whom the services are performed," i.e., Isaksson. See Rev. Rul. 71-273, 1971-1 C. B. 286 (logging company that retains right to control and direct skidders' services and manner of performance employs skidders). Compare Jones v. United States [81-1 USTC ¶9244], 43 A. F. T. R. 2d (P-H) 79,521 (E. D. Tex. 1978) (tree cutter was independent contractor where cutter provided his own tools and equipment and bore both the opportunity for profit and risk of loss), reversed and remanded on other grounds, [80-1 USTC ¶9291] 613 F. 2d 1311 (5th Cir. 1980).

There exist other factors that could lead to a contrary conclusion. Belanger testified that when working on the skidder he could select the days and times he would work, although the record does not indicate whether the Company needed advance notice of Belanger's schedule. He had no quota but was paid in essence on commission, and only after the wood was sold to a customer. And it is certainly a reasonable conclusion that an individual may be both an employee and an independent contractor in his relationship to the same company. Cf. Pulver v. Commissioner [CCH Dec. 39,232(M)], 44 T. C. M. (CCH) 644, 648-650 (1982).

We need not decide these preliminary issues; rather, we accept (without deciding) defendant's view so that we may press on and decide the central issue of whether on the evidence adduced at trial a rational jury could conclude beyond a reasonable doubt that Belanger's income tax returns understated wages. Belanger testified plainly and without contradiction that he received checks for sawmill work drawn against the pulpwood and logs account during 1978 and 1979. Defendant does not contend that insufficient evidence was presented to establish that he willfully aided and assisted Belanger in this fraudulent practice; therefore the only possible defense is that Belanger inadvertently withdrew sufficient pay from the wage account for independent contractor work to offset the amount fraudulently under-reported.

Defendant is correct in that the Company's records do not provide concrete, documentary evidence that Belanger unwittingly negated the fruits of the fraudulent practice. Company records specify the date, amount, and payee of each check and whether the check was drawn against the wages or pulpwood and logs account. Yet the Company made available virtually no records in regard to whether the services performed for each payment were for services in the sawmill or for tree cutting and related services.

Nonetheless, reviewing the evidence in the light most favorable to the government, United States v. Beck, 615 F. 2d 441, 448 (7th Cir. 1980), the government proffered sufficient evidence for a rational jury to conclude beyond a reasonable doubt that Belanger's income tax returns understated wages. At trial he could not recall a specific instance of drawing checks from the wages account for his services as a slasher, which comprised a substantial portion of his purported independent contractor services (Belanger test., p. 12). Nor did he testify that he ever asked for or received wages checks for other work he performed as an independent contractor.

Moreover, what documentary evidence of Belanger's work activities was discovered indicated that he did not draw his independent contractor pay from the wages account. Nine "work reports" for independent contractor services during September through November 1977 indicated the number of the check remitted to Belanger for the work. All nine of these checks were drawn against the pulpwood and logs account, not the wages account.

Further, as the district court observed in denying defendant's post-verdict motion for judgment of acquittal, "It is illogical to think that any individual entitled to payment without deductions would have asked for, or accepted, a check drawn on the 'Wages' account * * *." This inference is compelling despite the apparent lack of sophistication on the part of Belanger. Finally, defendant has failed to refute the evidence that substantial payments were made from the pulpwood and logs account, and only from this account, to Belanger's sons Kenneth and Douglas, who were not employed by the Company in any capacity.

The government need not establish the exact amount of understated income in order to establish tax evasion. See United States v. Marcus [68-2 USTC ¶9599], 401 F. 2d 563, 565 (2d Cir. 1968) certiorari denied, 393 U. S. 1023; Clark v. United States [54-1 USTC ¶9291], 211 F. 2d 100, 103 (8th Cir. 1954). In sum, the evidence viewed in the light most favorable to the government was sufficient to permit a reasonable jury to find beyond a reasonable doubt that Belanger's income tax returns for 1978 and 1979 understated wages.

III

The second principal issue raised by defendant is whether the conspiracy conviction (18 U. S. C. §371) can be sustained on the basis of overt acts 4 and 5 contained in Count 1 of the indictment and the jury finding in regard to these overt acts. After amendment and deletions by the district court, the two pertinent overt acts state essentially ⁶ that in January 1979 and January 1980, defendant authorized W-2 forms falsely understating wages, prepared by bookkeeper Carla Collins and given to Louis Belanger and Carla Collins. These alleged overt acts are the same overt acts alleged in Counts 4 and 5 and 10 and 11 of willful assistance of Collins and Belanger respectively in the preparation and filing of their 1978 and 1979 false tax returns based on the understated W-2 forms (26 U. S. C. §7206(2)). As noted earlier, the jury convicted defendant of willfully assisting Belanger in the preparation and filing of false returns for the years 1978 and 1979 (Counts 10 and 11), and acquitted defendant of willfully assisting Carla Collins in similar fashion (Counts 4 and 5).

This Court has held that in prosecutions involving aiding and abetting as well as conspiracy, the government is required to prove an overt act designed to aid in the commission of the offense. See, e.g., United States v. Beck, 615 F. 2d 441, 449 (7th Cir. 1980). To the jury's satisfaction the government proved Count 1 overt acts 4 and 5 of providing false form W-2 assistance to Louis Belanger; consequently, without more, the conspiracy conviction is sustainable, for the "government [is] not required to prove all overt acts charged: proof of one can suffice." United States v. Cassell, 452 F. 2d 533, 536 (7th Cir. 1971); see also Robinson v. United States, 210 F. 2d 29, 32 (D. C. Cir. 1954).

Even if the acquittal of Counts 4 and 5 relating to the assisting of Carla Collins is construed to be inconsistent with the Counts 10 and 11 convictions of assisting Louis Belanger in the preparation and filing of false returns, such a conclusion does not, as defendant contends, mandate reversal of his convictions of either the underlying offense (Counts 10 and 11) or the conspiracy offense (Count 1). Appellate courts should seek to reconcile verdicts to avoid if possible a finding of inconsistency, see Stone v. City of Chicago, No. 83-1340, slip op. at 6-7 (7th Cir. July 20, 1984 ), and here the substantial evidence in the record linking defendant with Collins as well as Belanger in the fraudulent scheme creates an apparent inconsistency in view of defendant's acquittal of Collins Counts 4 and 5. Nonetheless, as the Supreme Court held in Dunn v. United States, 284 U. S. 390, 393, "Consistency in the verdict is not necessary. Each count in an indictment is regarded as if it was a separate indictment." Accord: Hamling v. United States , 418 U. S. 87, 101. The policy consideration underlying this rule is that a jury may acquit on some counts and convict on others not because they are unconvinced of guilt, but because of compassion or compromise. United States v. Beck, 615 F. 2d 441, 448 (7th Cir. 1980); United States v. Blasco, 581 F. 2d 681, 685 n.9 (7th Cir. 1978), certiorari denied, 439 U. S. 966; United States v. Reicin, 497 F. 2d 563, 567 (7th Cir. 1974), certiorari denied, 419 U. S. 996. Further, as distinguished Professor Rollin Perkins has observed, where the jury acts out of lenity or similar motives in acquitting on some counts, it is unlikely that the jury intended the partial acquittal to prompt a reversal of the convictions on appeal. See R. Perkins, Dealing With The Inconsistent Verdict, 15 Crim. L. Bull. 405 (1979).

Defendant in effect urges this Court to carve out an exception to this rule where a conspiracy is alleged in addition to underlying substantive offenses. We decline to do so. While a conspiracy count and its relationship to the underlying offenses may present an added complexity to the jury, this complexity is not so great as to create a presumption that it is beyond the comprehension of a lay jury. On the basis of this record there is no perceptible confusion in the presentation of evidence or jury instructions to warrant a contrary conclusion.

Although our research discloses no recent Seventh Circuit decisions directly on point, the applicability of the inconsistent verdict rule to the instant scenario was noted in Worthington v. United States, 1 F. 2d 154 (7th Cir. 1924). There the conspiratorial overt acts specifically alleged were also the acts upon which the underlying offenses were predicated. The jury found defendant guilty of conspiracy and of one of the three substantive counts. We held that no ground for reversal existed as long as there was sufficient evidence to support the convictions, and that "[t]he apparent inconsistency of the verdict does not show, as claimed, confusion in the minds of the jury as to either the issues or proof." 1 F. 2d at 155. In Worthington the Court remarked that the jury may have acquitted out of leniency for the defendant in that "it was sufficient to find defendant guilty upon the first two counts." Id. This rationale may have been operative in the instant case, or perhaps the jury simply did not find Carla Collins to be culpable in her own right as to Counts 4 and 5. Whatever the reason, an appellate court is not free to speculate. What is certain is that the jury intended to convict and did convict defendant on Counts 1, 10 and 11; to reverse solely on the basis of the acquittal on Counts 4 and 5 without some evidence of jury confusion would amount to an unwarranted intrusion into the province of the jury.

Defendant contends that United States v. Moloney, 200 F. 2d 344 (7th Cir. 1952), dictates a contrary result. There defendant was charged with two counts of the use of interstate mail facilities with intent to extort (18 U. S. C. §876) and conspiracy to commit extortion (18 U. S. C. §371). The overt acts alleged in the conspiracy count were the acts comprising the alleged underlying offenses, along with two other overt acts that the government never attempted to prove at trial. The jury acquitted defendant on both substantive offenses but convicted on the conspiracy offense. Defendant challenged the conviction on appeal, and this Court reversed the conviction. Moloncy, however, is distinguishable because the government introduced insufficient evidence to sustain the conspiracy conviction, 200 F. 2d at 347. In the instant case there is ample evidence to sustain both the conspiracy conviction (Count 1) and the conviction for willfully aiding Louis Belanger in the preparation and filing of false income tax returns (Counts 10 and 11). Moreover, although not stated as the basis for the decision in Moloney, there the jury had acquitted defendant on all counts of the underlying offense; where this occurs, some courts have held that "a jury's acquittal on substantive counts operates as an acquittal on the underlying conspiracy count where the acquittal on the substantive counts constitutes a determination that no overt act in support of the conspiracy took place." United States v. Morales, 677 F. 2d 1, 3 (1st Cir. 1982); see also Herman v. United States, 289 F. 2d 362, 368 (5th Cir. 1961). In the trial below the jury convicted defendant on two counts (10 and 11) of willfully aiding the filing of false returns by Louis Belanger, these same acts constituting overt acts 4 and 5 specifically alleged as a basis of the Count 1 conspiracy. Therefore the narrow exception to the inconsistent verdict rule prescribed by Morales, even if it were to be accepted by this Court, is inapposite.

IV

For the aforesaid reasons, the convictions of defendant are affirmed. ⁷

¹ The district judge granted defendant's motion for acquittal as to parallel Counts 2, 3, 6, 7, 8, 9 and 12. See text and n. 3 infra.

² Defendant's wife Gloria, who was the principal bookkeeper for the Company, was also indicted; the charges against her subsequently were dismissed at the government's request on account of her severe illness.

³ Counts 2, 3 and 12 covered Kevin Carlson, Count 6 covered Dennis Hipsher, Count 7 covered Scott Hipsher, Count 8 covered Larry Badura and Count 9 covered Gregory Belanger. Counts 4 and 5 covered Carla Collins and Counts 11 and 12 covered Louis Belanger. Only the latter four substantive counts plus conspiracy Count 1 went to the jury. See Tr. for July 21, 1983 .

⁴ A device containing a loader and a saw which cuts logs into eight-foot lengths.

⁵ Section 7206(2) makes it a felony to aid or assist willfully in the preparation of a materially false or fraudulent tax return.

⁶ The exact text is as follows:

[One], during January, 1979, W-2 forms falsely understating the amount of wages received by the following employees during 1978 from the company were with the authorization of the defendants, Albert Isaksson and Gloria Isaksson, prepared by Carla Collins and given to those employees and filed with the Internal Revenue Service. Those employees being Louis Belanger and Carla Collins. Two, during January of 1980 W-2 forms falsely understating the amount of wages from the company were with the authorization of the defendants, Albert Isaksson and Gloria Isaksson, prepared by Carla Collins and given to the employees and filed with the Internal Revenue Service. The employees being Louis Belanger and Carla Collins.

Jury Instructions, p. 11. These instructions copy Count 1 overt acts 4 and 5 except that the instructions refer only to Louis Belanger (Counts 10 and 11) and Carla Collins (Counts 4 and 5) because they were the only "employees" left in the case after the trial judge acquitted defendant under Counts 2, 3, 6, 7, 8, 9 and 12.

⁷ Defendant's other contentions merit no discussion.

 

 

[85-1 USTC ¶9273] United States of America , Plaintiff-Appellee v. Armen B. Condo, Defendant-Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 82-1390, 7/5/84 , Affirming unreported District Court decision

[Code Secs. 7205 and 7206]

Criminal penalties: False statements and exemption certificates: Tax protestor.--A tax protestor's convictions for willfully aiding in the preparation of false W-4 forms and the submission of fraudulent withholding exemption certificates were upheld. His willfulness was evident in his persistence in challenging the constitutionality of the revenue laws with oft-rejected arguments. A plethora of objections to lower court procedures was rejected as well.

Christine W. S. Byrd, Assistant United States Attorney, Los Angeles , Calif ,. for plaintiff-appellee. Armen B. Condo, Huntington Beach , Calif , pro se.

Before SNEED, KENNEDY, and SCHROEDER, Circuit Judges.

Memorandum ^*

We affirm the convictions for violating 18 U. S. C. §1341 (mail fraud through submission of false withholding forms), 26 U. S. C. §7206(2) (willfully aiding the preparation of false W-4 forms), and 26 U. S. C. §7205 (aiding the submission of fraudulent withholding exemption certificates).

Condo's first challenge to the tax laws derives from his alleged understanding of the constitutional reference to weights and measures and other references leading to his conclusion that current Federal Reserve notes are not valid currency, cannot be taxed, and are merely "debts." The Ninth Circuit has repeatedly rejected this theory as frivolous. United States v. Kelley [76-2 USTC ¶9489], 539 F. 2d 1199 (9th Cir.), cert. denied, 429 U. S. 963; United States v. Gardiner [76-1 USTC ¶9300], 531 F. 2d 953 (9th Cir., cert. denied, 429 U. S. 853 (1976).

Condo's other tax theories are equally frivolous. His assertion that 26 U. S. C. §7343 only applies to business entities and their employees ignores the word "includes" in the statute delineating the class of persons liable. The word "includes" expands, not limits, the definition of "person" to these entities. He asserts that the sixteenth amendment only allows taxing income from "sources" (entities and monopolies created by law), not persons. The sixteenth amendment authorization, however, is for a tax on income from whatever source derived.

Condo's various proposed jury instructions offered pro se were rejected by the trial court, and properly so.

We have previously addressed and denied Condo's selective prosecution claim. His indictment for both tax fraud and mail fraud was proper, since proof of different facts was required. United States v. Piascik, 559 F. 2d 545, 551 (9th Cir. 1977), cert. denied, 434 U. S. 1062 (1978); see also United States v. Miller [76-2 USTC ¶9809], 545 F. 2d 1204, 1216 (9th Cir. 1976), cert. denied, 430 U. S. 930 (1977) (mail fraud and tax fraud convictions upheld where defendant signed false tax returns and submitted them to the IRS through the mails).

The district judge properly denied Condo's requested immunity for certain defense witnesses. The witnesses were themselves the target of prosecutorial investigation, see United States v. Turkish [80-2 USTC ¶9478], 623 F. 2d 769, 778 (2d Cir. 1980), cert. denied, 449 U. S. 1077 (1981), and the refusal to grant immunity to defense witnesses did not deprive Condo of a fair trial. United States v. Alessio, 528 F. 2d 1079, 1081-82 (9th Cir.), cert. denied, 426 U. S. 948 (1976).

The district judge's refusal to dismiss for prosecutorial misconduct was not an abuse of discretion. There was no reversible error because of unauthorized persons present in the grand jury room. The case agent was there to aid the grand jury in handling bulky documents, his presence was fleeting, and any error was harmless. Condo was allowed to present his theories before the grand jury, and the Government's failure to present all exculpatory evidence is not a basis for dismissal. There is no showing of any prosecution misconduct so "flagrant" that the grand jury was "deceived." United States v. Wright, 667 F. 2d 793, 796 (9th Cir. 1982).

Condo's claims relating to the sixth amendment are likewise invalid. He was allowed to present his pro se instructions to preserve his constitutional theories on appeal. He showed no "special need," and there is no absolute sixth amendment right to both self-representation and assistance of counsel. United States v. Halbert, 640 F. 2d 1000, 1009 (9th Cir. 1981). The trial judge's refusal to allow him co-counsel status was not an abuse of discretion. Nor does Condo have a cognizable claim arising from his lack of counsel on appeal. Apparently, he argues that the trial judge should have ordered Your Heritage Protection Association (YHPA) to pay his counsel fees on appeal. While the appeal bond conditions may have made retention of counsel more difficult, and although Condo's in forma pauperis motion was denied, his sixth amendment rights do not appear violated; Condo could have retained counsel on his own.

Condo's most substantial argument is that the Government did not prove his mental state satisfied the willful or intent to defraud requirement of the statutes. He suggests he relied on the advise of counsel. He originally developed his theories, however, without help from the legal profession. Condo received some later advice from several lawyers who were also tax protesters. Condo dismissed two attorneys, YHPA's counsel Barrett and Channell, after they eventually advised him his constitutional objections would not hold up. Condo also admitted he was aware as early as 1976 that his theories on the nontaxability of Federal Reserve notes had been rejected as frivolous by this court. He knew, as well, of several YHPA members' criminal convictions after they followed his program. Yet he continued to advise members of the unconstitutionality of the taxing system and aided in the preparation and mailing of the W-4 forms which gave rise to this criminal prosecution. Ample evidence at trial justified the jury's conclusion that Condo was not acting on reliance of counsel, but, instead, on his own initiative.

Condo also suggests that our recent decision in United States v. Dahlstrom [83-2 USTC ¶9557], 713 F. 2d 1423 (9th Cir. 1983), cert. denied, -- U. S. -- (1984), requires reversal for failure to establish willful intent. In Dahlstrom we held that mere negligence as to the illegality of an improper tax avoidance scheme in a gray area of the law did not support a conviction for willfully aiding, assisting in, or counseling the preparation of a fraudulent tax return. Id. 713 F. 2d at 1426-28. Whatever the wisdom of Dahlstrom on its own particular facts, we cannot extend it to justify reversal of Condo's conviction. The constitutionality of the taxing system is not a gray area, but one delineated in the black and white of prior decisions Condo was aware of, decisions rejecting his theories as frivolous.

Condo is adamant in asserting the unconstitutionality of the taxing system. But a belief in the unconstitutionality of a law, no matter how tenaciously held, does not excuse its violation if, indeed, the law is upheld as constitutional. United States v. Ness [81-2 USTC ¶9621], 652 F. 2d 890, 893 (9th Cir.), cert. denied, 454 U. S. 1126 (1981); United States v. Kelley [76-2 USTC ¶9489], 539 F. 2d 1199, 1204 (9th Cir.), cert. denied, 429 U. S. 963 (1976). Condo's additional arguments, advanced in briefs submitted after oral argument, are frivolous. Though Condo has developed his theory of how the Constitution should be interpreted, we have repeatedly held that theory is wrong. He violated the statutes in the face of these holdings.

AFFIRMED.

^* The panel has concluded that the issues presented by this appeal do not meet the standards set by Rule 21, of the Rules of this Court for disposition by written opinion. Accordingly, it is ordered that disposition be by memorandum, forgoing publication in the Federal Reporter, and that this memorandum may not be cited to or by the courts of this circuit save as provided in Rule 21(c).

 

 

 

[85-1 USTC ¶9421]United States of America, Plaintiff-Appellee v. John L. Freeman, aka Alton R. Moss, Defendant-Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 83-3043, 761 F2d 549, 5/22/85 , Affirming and reversing unreported District Court decision

[Code Sec. 7206(2)]

Fraud: Criminal penalties: Aiding and advising in preparation of false returns: Instructions to jury.--In the context of the evidence on twelve of the fourteen counts of aiding and abetting and counseling violations of the tax laws for which the taxpayer was convicted, the trial court erred by instructing the jury that the First Amendment was irrelevant to the case. The taxpayer, a tax protestor of sorts, conducted seminars where he urged the improper filing of returns, demonstrating how to report wages, cross out the deduction line for alimony and insert again the amount of the wages, showing them as "nontaxable receipts." Since the crime was one proscribed only if done willfully, the court of appeals held that the jury should have been charged that the expression was protected unless both the intent of the speaker and tendency of his words was to produce or incite an imminent lawless act, one likely to occur. However, as to the two other counts for which the taxpayer was convicted, there was no issue for the trier of fact as to what the returns stated or whether the calculations and entries reported were correct reports of actual transactions. Therefore, the trial court was correct to treat the question of falsity as a matter of law and to instruct the jury that the returns were false.

Robert E. Lindsay, Alan Hectkopf, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. John L. Freeman, Las Vegas, Nev., pro se, Stephen R. Sady, David S. Teske, Portland, Ore.

Before KENNEDY and NORRIS, Circuit Judges, and STEPHENS, ^* District Judge.

Opinion

KENNEDY, Circuit Judge:

Freeman was convicted on fourteen counts of aiding and abetting and counseling violations of the tax laws, an offense under 26 U. S. C. §7206 (2). Each count recited that another person had filed a false, individual tax return with Freeman's counsel, assistance, and aid. Of the various arguments on appeal, the most significant is the one based on the First Amendment. Had the court permitted the jury to consider the First Amendment defense, the evidence would have been sufficient for the jury to either acquit or convict the defendant on twelve of the counts. The trial court, though, instructed the jury that the question of free speech was not before it in any part of the case. With respect to these twelve counts, the instruction was error, and we reverse. The evidence on the two remaining counts disclosed no grounds for a legitimate free speech defense and on these counts we affirm.

Words alone may constitute a criminal offense, even if they spring from the anterior motive to effect political or social change. Where an indictment is for counseling, the circumstances of the case determine whether the First Amendment is applicable, either as a matter of law or as a defense to be considered by the jury; and there will be some instances where speech is so close in time and substance to ultimate criminal conduct that no free speech defense is appropriate.

The case for the prosecution was that Freeman, a tax protester of sorts, counseled violations of the tax laws at seminars he conducted. He urged the improper filing of returns, demonstrating how to report wages, then cross out the deduction line for alimony and insert again the amount of the wages, showing them as "nontaxable receipts." As the trial court correctly advised the jury, this manner of reporting results in no taxable income and a false return.

Freeman claims he did nothing more than advocate tax noncompliance as an abstract idea, or at most as a remote act, and that the First Amendment necessarily bars his prosecution. In this he is incorrect. Where there is some evidence, however, that the purpose of the speaker or the tendency of his words are directed to ideas or consequences remote from the commission of the criminal act, a defense based on the First Amendment is a legitimate matter for the jury's consideration. On twelve of the fourteen counts, the case before us falls within this category. Though it was weak, there was some evidence on Counts 1 through 11 and on Count 14 from which the jury might infer that Freeman directed his comments at the unfairness of the tax laws generally, without soliciting or counseling a violation of the law in an immediate sense. In some instances he made statements that, at least arguably, were of abstract generality, remote from advice to commit a specific criminal act. Also, he told some audiences to verify his advice because, as a non-lawyer, he had reached conclusions based upon his untrained reading of the Constitution. A jury might have thought those statements, in the context of the entire case, tended to diminish the imminence of the unlawful activity. There was, on the other hand, substantial evidence of Freeman's use of words of incitement quite proximate to the crime of filing false returns, words both intended and likely to produce an imminent criminal act. On the record here, we must assume a jury might discredit this latter testimony and find that Freeman confined his advocacy to abstract ideas or remote action. In the context of the evidence on these twelve counts, the trial court erred by instructing the jury that the First Amendment was irrelevant to the case.

In light of Freeman's defense and the evidence to support it, an instruction based upon the First Amendment should have been given to the jury. As the crime is one proscribed only if done willfully, the jury should have been charged that the expression was protected unless both the intent of the speaker and the tendency of his words was to produce or incite an imminent lawless act, one likely to occur. Brandenburg v. Ohio, 395 U. S. 444, 447-48 (1969) (per curiam). Tax evasion is a wrong of sufficient gravity that Congress can punish incitement to the crime. See United States v. Buttorff [78-1 USTC ¶9265], 572 F. 2d 619, 624 (8th Cir.), cert. denied, 437 U. S. 906 (1978).

United States v. Dahlstrom [83-2 USTC ¶9557], 713 F. 2d 1423 (9th Cir. 1983), cert. denied, 104 S. Ct. 2363 (1984), is not controlling here. There the court found that the legality of the proposed transaction was unsettled and, against this background, concluded that the likelihood of an imminent violation had not been established. Dahlstrom, 713 F. 2d at 1428. In our case, the falsity of the returns prepared under Freeman's instructions and the concomitant illegality in their filing are manifest.

The indictment charged that defendant not only counseled but also assisted in the filing of false returns. The defendant's direct participation in the preparation of returns is the gravamen of the Government's case with respect to Counts 12 and 13 of the indictment. On these counts the evidence was that one Lonnie Prather showed Freeman tax returns for two different years and asked Freeman to verify that Freeman's instructions had been properly followed. Freeman prepared a draft of a return for Prather; and after Prather filled out two tax forms, Freeman reviewed and approved them. Even if the conviction on these counts rested on spoken words alone, the false filing was so proximately tied to the speech that no First Amendment defense was established. United States v. Holeck [84-2 USTC ¶9638], 739 F. 2d 331, 335 (8th Cir. 1984).

Though a statute proscribes certain speech, in this case counseling, the defendant does not have a First Amendment defense simply for the asking. Counseling is but a variant of the crime of solicitation, and the First Amendment is quite irrelevant if the intent of the actor and the objective meaning of the words used are so close in time and purpose to a substantive evil as to become part of the ultimate crime itself. United States v. Barnett, 667 F. 2d 835, 842-43 (9th Cir. 1982); Buttorff, 572 F. 2d at 624. In those instances, where speech becomes an integral part of the crime, a First Amendment defense is foreclosed even if the prosecution rests on words alone.

There was no element of protected First Amendment activity on the Prather counts, and the jury could return convictions without consideration of a free speech defense.

On all of the counts, there was no issue for the trier of fact as to what the returns stated or whether the calculations and entries reported were correct reports of actual transactions. The trial court was correct, therefore, to treat the question of falsity as a matter of law and to instruct the jury that the returns were false. Holecek, 739 F. 2d at 335-36 & n. 4; see United States v. Greenberg [84-1 USTC ¶9509], 735 F. 2d 29, 31 (2d Cir. 1984) (materiality of falsehood is question of law for the court); see 26 U. S. C. §7206(2) (1982). The other contentions raised on appeal are without merit.

The convictions on Counts 12 and 13 are affirmed. The convictions on Counts 1 and 11, and on Count 14 are reversed.

AFFIRMED IN PART, and REVERSED IN PART.

^* Honorable Albert Lee Stephens, Jr., Senior U. S. District Judge for the Central District of California, sitting by designation.

 

 

[85-1 USTC ¶9404]United States of America, Plaintiff-Appellee v. Jerome Daly, Daniel P. Hulsey, Coston Lee Whatley, Mathus G. Wilson, Jr., Stanley J. Klir, Jr., Wayne R. Chermack, Alfred A. Breath and Gerald S. Ross, Defendants-Appellants

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 83-1310, 756 F2d 1076, 3/26/85 , Affirming an unreported District Court decision

[Code Sec. 7206]

Criminal penalties: Fraud and false statements: Aiding and advising preparation of false returns: False statements in return.--The court affirmed the taxpayers' convictions of conspiring to defraud the United States by impeding and impairing the legal functions of the IRS (18 U. S. C. §371), willfully aiding and assisting in the preparation of false individual returns, willfully subscribing false individual returns, and other related crimes that resulted from their use of personal churches as a tax avoidance scheme. The District Court did not abuse its discretion in refusing to sever one pro se defendant's trial from that of his codefendants. Also the prosecution did not infringe the defendants' First Amendment religious freedoms or freedom of speech. The court noted that there was sufficient evidence to support a jury's finding that they filed fraudulent vows of poverty and assignments of property and that the church chapters were not entitled to tax exempt status under settled tax law.

James A. Rolfe, United States Attorney, Ft. Worth, Tex. 76102, Glenn L. Archer, Jr., Assistant Attorney General, Michael L. Paup, Robert E. Lindsay, James P. Springer, Deborah W. Dawson, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. Jerome Daly, Lompoc Prison Camp, Lompoc, Calif., pro se. Paul M. Konig, 1000 Mercantile Dallas Bldg., Dallas, Tex. 75201, for Jerome Daly, Jerry D. Patchen, 1400 Congress, Houston, Tex. 77002, for Daniel P. Hulsey, William M. Ravkind, 700 N. Pearl, Dallas, Tex. 75201, for Coston Lee Whatley, Douglas W. Wright, One Tandy Center, Ft. Worth, Tex. 76102, for Mathus G. Wilson, Michael G. Parham, P. O. Box M, Jasper, Ga. 30143, for Stanley Klir and Gerald S. Ross, Gerald M. Birnberg, 8303 S. W. Freeway, Houston, Tex. 77074, for Alfred A. Breath, Wayne R. Chermack, P. O. Box 1708, Twin City Airport, Minn. 55111, pro se.

Before THORNBERRY, REAVLEY and HIGGINBOTHAM, Circuit Judges.

REAVLEY, Circuit Judge:

Defendants appeal their convictions of various crimes that resulted from their use of personal churches as a tax avoidance scheme. We affirm.

I. Facts. In 1976, Jerome Daly, a disbarred attorney and convicted tax evader, took control of the Basic Bible Church of America (BBC). The BBC had been established in 1973, and the IRS granted it tax exempt status in 1974 as a religious institution under 26 U. S. C. §501(c)(3) (1976.)

After taking control of the BBC in 1976, Daly began to sell BBC chapters at a price ranging from $500 to $1,250. Defendants Hulsey, Whatley, Wilson , Klir, Chermack, Breath, and Ross purchased from Daly BBC chapters along with instructions and forms devised by Daly for the chapter owners to claim that all their income was tax exempt.

Under the scheme, the owner of a BBC chapter executed a vow of poverty and assigned all his property and income to his personal chapter of the BBC. The owner then filed these documents with the IRS and claimed that because of the vow and assignment, all of his income was going to his BBC chapter and not to him personally. He then claimed that the income was not taxable to him and that his BBC chapter was tax exempt under 26 U. S. C. §501(c)(3) (1976). In fact, however, each owner of a BBC chapter continued to have complete control over his income and property and to live just as he had before the formation of the BBC chapter and before the vow and assignment.

The individual owners of BBC chapters formed or participated in the Master Executive Council (MEC). MEC newsletters introduced at trial tended to show that defendants used the MEC not for religious purposes but to give the BBC chapters the appearance of religious organizations while disseminating information on how to handle financial affairs and file tax returns so as to hamper IRS investigation and detection of the tax scheme.

After a trial lasting several months, the jury found all defendants guilty of one count of conspiring to defraud the United States by impeding and impairing the legal functions of the Internal Revenue Service (IRS), 18 U. S. C. §371 (1976); Daly, who did not himself file BBC returns, guilty of fifteen counts of willfully aiding and assisting in the preparation of false individual income tax returns, 26 U. S. C. §7206(2) (1976), and one count of aiding and abetting the knowing and willful making of a false statement to the United States government, 18 U. S. C. §§ 2, 1001 (1976); Chermack guilty of three counts of willfully subscribing false individual income tax returns, 26 U. S. C. §7206(1) (1976), and one count of knowingly and willfully making a false statement to the United States government, 18 U. S. C. §1001 (1976); ¹ Hulsey and Ross guilty of three counts of willfully subscribing false individual income tax returns, 26 U. S. C. §7206(1) (1976); and Wilson and Breath guilty of two counts of willfully subscribing false individual income tax returns, id. In addition, the jury acquitted Breath of one count of willfully subscribing false individual income tax returns, id., and Daly of one count of willfully aiding and assisting in the preparation of false individual income tax returns, 26 U. S. C. §7206(2) (1976).

II. Issues. The numerous issues raised by this case are grouped into six broad categories: first, whether the district court abused its discretion in refusing to sever Daly's trial from that of his codefendants; second, whether the prosecution denied defendants their First Amendment freedoms; third, whether the convictions for willfully subscribing or aiding and assisting in the preparation of false income tax returns were proper; fourth, whether the convictions for conspiracy to defraud were proper; fifth, whether misconduct and improprieties occurring during the grand jury proceeding and at trial require reversal; sixth, whether evidence seized during a search of Daly's residence was improperly admitted. ²

III. Severance. Defendants Hulsey, Whatley, Wilson, Klir, Chermack, Breath, and Ross assert that Daly's prosecution should have been severed from that of his codefendants' for three reasons: because Daly would have given exculpatory testimony if the trials had been severed; because Daly's conduct as a pro se defendant prejudiced the other defendants; and because Daly's representation of himself resulted in his being a witness whom the other defendants had no opportunity to cross-examine. Each of these contentions will be considered against the well-known abuse of discretion standard used to review a district court's refusal to sever. United States v. Salomon, 609 F. 2d 1172, 1175 (5th Cir. 1980). "In order to demonstrate abuse of discretion, the defendant bears a heavy burden of establishing compelling prejudice." Id. (emphasis added).

A. Exculpatory Testimony. To make out a prima facie case for severance to introduce exculpatory testimony of a codefendant, the movant must establish: first, a bona fide need for the testimony; second, the substance of the testimony; third, its exculpatory nature and effect; and fourth, that the codefendant will in fact testify if the cases are severed. United States v. DeSimone, 660 F. 2d 532, 539 (5th Cir. 1981), cert. denied, 455 U. S. 1027, 102 S. Ct. 1732, 72 L. Ed. 2d 149 (1982); 456 U. S. 928, 102 S. Ct. 1976, 72 L. Ed. 2d 444 (1982). If the movant makes such a showing, the district court, in exercising its discretion to sever, should consider: first, the significance of the testimony in relation to the movant's theory of defense; second, the extent of prejudice caused by the absence of the testimony; third, factors of judicial administration and economy; and fourth, the timeliness of the motion. Id. at 540.

After a careful review of the motion to sever, of Daly's affidavit stating that he would testify and what he would testify about, and of the record of the severance hearing and the trial, we cannot find that the district court abused its discretion in denying severance. First, Daly equivocated at the hearing on whether he would actually testify at the other defendants' trial if his trial were severed. Second, the proposed testimony consisted of statements of what Daly had or had not told the defendants. The proposed testimony constituted, at best, unsupported, self-serving statements that were only tangentially exculpatory. Third, a defense lawyer stated at the severance hearing that he intended to impeach Daly in the event that he did testify at a severed trial--an unusual trial tactic if indeed Daly's testimony was necessary, as defendants claimed, to exonerate them. Finally, because the trial was expected to, and did, last several months, considerations of judicial economy support the district court's exercise of discretion.

B. Daly's Conduct as a Pro Se Defendant. Defendants next argue that the district court abused its discretion in denying the motion to sever because Daly made a series of tactical errors and outrageous statements in representing himself which denied them their right to effective assistance of counsel and caused them prejudice by enraging the jury against them.

Defendants' asserted tactical errors and outrageous statements, however, do not constitute sufficient compelling prejudice to prove that the district court abused its discretion in refusing to sever. See United States v. Salomon, 609 F. 2d 1172, 1175 (5th Cir. 1980). The blunders and statements were made out of the presence of the jury, ³ restated tenets of the BBC ⁴ or facts ⁵ already properly admitted into evidence, did not relate to the other defendants, ⁶ or were simply irrelevant. ⁷

Furthermore, we note that the district court, the government prosecutors, and the defense counsel all made effective efforts to restrain Daly from pursuing irrelevant matters that could prejudice his codefendants. The district court also appointed back-up counsel to assist Daly and gave limiting instructions when it believed them to be necessary. In United States v. Sacco, 563 F. 2d 552, 555-571 (2d Cir. 1977), cert. denied, 434 U. S. 1039, 98 S. Ct. 779, 54 L. Ed. 2d 789 (1978), the court held in a case where such precautions were taken that it was not an abuse of discretion to deny severance.

We hold that, under the facts of this case, where the alleged improprieties happened outside the presence of the jury, were restatements of admitted evidence, or concerned only Daly, the other defendants did not "suffer[ ] compelling prejudice against which the trial court was unable to afford protection." United States v. Romanello, 726 F. 2d 173, 177 (5th Cir. 1984).

C. Violation of Confrontation Clause. Defendants argue that Daly gave testimony during the course of representing himself. They claim that, because they could not cross-examine Daly, who did not take the stand, their constitutional right to confront witnesses against them was violated, and that it was therefore an abuse of discretion to deny severance.

The right to confront a witness arises only when that witness inculpates a defendant. See Chambers v. Mississippi, 410 U. S. 284, 297-98, 93 S. Ct. 1038, 1047, 35 L. Ed. 2d 297, 310 (1973); United States v. Sacco, 563 F. 2d 552, 556 (2d Cir. 1977), cert. denied, 434 U. S. 1039, 98 S. Ct. 779, 54 L. Ed. 2d 789 (1978). Daly's statements to which the other defendants object, such as arguing the unconstitutionality of the Sixteenth Amendment, did not inculpate the other defendants of tax fraud.

Furthermore, none of Daly's "testimony" could have harmed the others' defense. See Harrington v. California , 395 U. S. 250, 253-54, 89 S. Ct. 1726, 1728, 23 L. Ed. 2d 284, 287 (1969). Defendants argue that Daly's statements of his outrageous beliefs undermined their defense that Daly had convinced them that his tax plan was law Other evidence of Daly's beliefs--the basic tenets of the BBC--was properly introduced by the government to undermine that defense. Severance was not required.

IV. Infringement of First Amendment Rights

A. Infringement of First Amendment Religious Freedoms

Defendants contend that this prosecution infringes their First Amendment religious freedoms. Although courts may not determine whether a given belief is or is not a religion, see United States v. Ballard, 322 U. S. 78, 86-88, 64 S. Ct. 882, 886-87, 88 L. Ed. 1148, 1154 (1944), the trier of fact may determine whether a belief is truly held without violating the First Amendment, United States v. Seeger, 380 U. S. 163, 184, 85 S. Ct. 850, 863, 13 L. Ed. 2d 733 (1965). Here, the government carefully followed the dictates of the Supreme Court. The government introduced evidence tending to show only that the beliefs were not sincerely held--not that those beliefs did not constitute a religion. The jury was similarly instructed on what it could consider. Defendants were not here denied their First Amendment rights.

B. Right to the Freedom of Speech

Daly argues that a search warrant and subsequent search of his home, and his very prosecution, violated his First Amendment right to the freedom of speech. He claims that his advocacy of a tax scheme, whether legal or illegal, is protected by the First Amendment, because it did not incite imminent lawless action. Brandenburg v. Ohio , 395 U. S. 444, 447, 89 S. Ct. 1827, 1829, 23 L. Ed. 2d 430, 433 (1969). This claim is preposterous.

Daly was convicted of conspiring to defraud the United States by impeding and impairing the legal functions of the IRS, 18 U. S. C. §371 (1976), of fifteen counts of willfully aiding and assisting in the preparation of false individual income tax returns, 26 U. S. C. §7206(2) (1976), and of aiding and assisting in the willful making of a false statement to the United States government, 18 U. S. C. §§ 2, 1001 (1976). These statutes punish actions, not speech. The Court has emphasized that an illegal course of conduct is not protected by the First Amendment merely because the conduct was in part initiated, evidenced, or carried out by means of language. Cox v. Louisiana , 379 U. S. 536, 555, 85 S. Ct. 453, 465, 13 L. Ed. 2d 471, 484 (1965).

Daly argues that Street v. New York , 394 U. S. 576, 89 S. Ct. 1354, 22 L. Ed. 2d 572 (1969), holds that an indictment and conviction based on a combination of constitutionally protected speech and unprotected activities violates the First Amendment. In Street, the Court was unable to determine whether the defendant was indicted and convicted of malicious mischief because he exercised his right to free speech or because he burned a flag, only the latter being punishable. Id. at 588-90, 89 S. Ct. at 1364, 22 L. Ed. 2d at 582-583. Here, the speech Daly claims is protected was not itself a wrong for which he was convicted, but was merely the means by which he committed the crimes of which he was convicted.

V. Fraudulent Tax Return Convictions

All defendants were convicted of either willfully subscribing false individual income tax returns, 26 U. S. C. §7206(1) (1976), or willfully aiding and assisting in the preparation of false individual income tax returns, 26 U. S. C. §7206(2) (1976). Defendants attack these convictions on a number of grounds.

A. Willfulness and the State of the Law

The BBC scheme basically consisted in executing vows of poverty and assigning property and incomes to personal BBC chapters. Defendants argue that the owners of BBC chapters were merely agents receiving the incomes on behalf of their BBC chapters and, therefore, that the incomes were not taxable to them. Defendants then argue that their BBC chapters were religious institutions that were tax exempt under 26 U. S. C. §501(c)(3) (1976). They cite numerous statutes, regulations, revenue rulings, office decisions, judicial decisions, and IRS memoranda to support their claims that the scheme was legal or, at least, that the law was so unsettled that the willfulness requirement of 26 U. S. C. §7206 (1982) could not be found as a matter of law. See United States v. Garber, 607 F. 2d 92, 98 (5th Cir. 1979). Specifically, defendants argue that the law was unsettled on both the effectiveness of vows of poverty and assignments of income and property to shift tax liability and the tax exempt status of the BBC chapters.

We cannot agree with defendants' argument for three reasons. First, at trial the government argued that the vows and assignments were bad faith shams and that they therefore did not shift the tax liability on defendants' incomes to the BBC chapters. Therefore, the act of subscribing tax returns incorporating vows of poverty and assignments of income and property, done in bad faith, or the act of aiding or assisting in the preparation of such returns, would have been unlawful under 26 U. S. C. §7206 (1976). Accordingly, it does not matter whether the law on the effectiveness of such vows and assignments was settled.

Second, the law regarding the tax exempt status of religious organizations under 26 U. S. C. §501(c)(3) (1976) was settled at the time of defendants' actions. The Internal Revenue Code exempts from federal income taxation

[c]orporations, and any community chest, fund or foundation, organized and operated exclusively for religious . . . purposes . . . [and] no part of the net earnings of which inures to the benefit of any private shareholder or individual. . . .

26 U. S. C. §501(c)(3) (1976).

Therefore, for the BBC chapters to be entitled to tax exempt status: first, the chapters must have been operated exclusively for religious purposes; and second, no net earnings of the chapters could have inured to the benefit of any private individual member.

Furthermore, the requirements of section 501(c)(3) had been judicially interpreted well before defendants' actions. Under the exclusive purpose requirement, the existence of a single purpose not listed in section 501(c)(3), if substantial in nature, would destroy the exemption. See Better Business Bureau of Washington, D. C., Inc. v. United States, 326 U. S. 279, 283, 66 S. Ct. 112, 114, 90 L. Ed. 67, 71 (1945). Under the inurement requirement, although a church may pay subsistance allowances to its members, Golden Rule Church Association v. Commissioner [CCH Dec. 26,672], 41 T. C. 719 (1964), a member's ready use of the religious organization's funds for personal use or receipt of an unreasonable salary for services rendered violates the inurement requirement, Founding Church of Scientology v. United States [69-2 USTC ¶9538], 412 F. 2d 1197, 1202, 188 Ct. Cl. 490 (1969), cert. denied, 397 U. S. 1009, 90 S. Ct. 1237, 25 L. Ed. 2d 422 (1970). Of course, any salary received by defendants would be taxable to them. See 26 U. S. C. §61(a) (1976).

Government evidence introduced at trial supported its arguments both that the vows of poverty and assignments of income and property were bad faith shams, and that the BBC scheme violated the inurement requirement of section 501(c)(3). Government evidence showed that the creation of the BBC chapters had no effect on defendants' standard of living and that members made ready use of their BBC chapters' funds for personal use. Specifically, there was evidence that defendants used their BBC chapters' funds and assets to pay living expenses, to purchase furs, cars, planes, boats, gold coins, and real estate, to invest, to maintain country club memberships, to take foreign ski trips.

After a careful review of their arguments and authority, we find that defendants have either misapplied, misquoted, or misused the authority. We are therefore reluctant to repeat their arguments and authorities. We merely note that there was sufficient evidence to support a jury's finding that defendants filed fraudulent vows and assignments and that the BBC chapters were not entitled to tax exempt status under settled tax law.

B. Exclusion of Evidence on Willfulness

Defendants sought to introduce the testimony of Dr. W. L. Waller, which was proffered to prove the confusion on the state of the law and to support their claim of the absence of willfulness as required by 26 U. S. C. §7206 (1976). The court excluded the evidence as irrelevant. Defendants claim that this exclusion was error, citing United States v. Garber, 607 F. 2d 92, 98-100 (5th Cir. 1979), in which the court held that where the taxability of unreported income was uncertain as a matter of law, it was error to exclude the evidence of an expert who would testify about the unresolved nature of the law.

In United States v. Burton, 737 F. 2d 439, 443-44 (5th Cir. 1984), this court limited Garber to its bizarre facts--where the level of uncertainty approached legal vagueness. In Burton , we held that, where the uncertainty of the law does not approach legal vagueness, the admissibility of an expert's testimony is governed by relevancy under Fed. R. Evid, 403. 737 F. 2d at 443-44. The court noted that, where the existence of willfulness is determined by the defendant's state of mind at the time he acted, the relevance of the expert's testimony on plausible readings of the Internal Revenue Code can be easily outweighed by considerations of potential prejudice and of confusing the jury, especially considering that the judge is the jury's sole source of information regarding the law. Id. The court noted, finally, that once the Rule 403 balance has been struck by the district court, it will not be overturned on appeal absent an abuse of discretion. Id. Finding no abuse of discretion, the court upheld the exclusion of the testimony. Id.

In this case, the district court stated that Waller's interpretations on the law governing the legality of the BBC scheme had little probative value on the issue of the defendants' states of mind at the time they acted because there was no evidence that they had relied on his opinion at the time they acted. As against this slight probative value, the district court noted the great possibility of confusing the jury with more than one statement of the law. Because the court found that the possibility of confusing the jury outweighed the probative value of the proffered evidence, the court excluded that evidence. Because the district court properly balanced the interests set forth in Fed. R. Evid. 403 and in Burton, and because it permitted defendants to introduce other evidence of defendants' states of mind at the time they acted, the district court's exclusion of the testimony was proper.

AFFIRMED.

¹ Daly's and Chermack's convictions for willfully and knowingly making a false statement to the United States government, 18 U. S. C. §1001 (1976), arose from the fact that Chermack, aided and abetted by Daly, 18 U. S. C. §2 (1976), falsely claimed a $52,781.42 contribution to charity on his 1977 tax return.

² Only issues raised in the first three broad categories have precedential value. Local Rule 47.5 provides: "The publication of opinions that have no precedential value and merely decide particular cases on the basis of well-settled principles of law imposes needless expense on the public and burden on the legal profession." Pursuant to that Rule, the court has determined that the non-precedential portions of this opinion will not be published.

³ For example, Daly's statement that he advocated the killing of federal judges was made out of the jury's presence.

⁴ For example, Daly's repeated questioning of witnesses on the constitutionality of the Sixteenth Amendment and the legality of Federal Reserve notes occurred after the government had introduced evidence that these beliefs were tenets of the BBC.

⁵ For example, Daly's asking a witness, a minister called by the other defendants, whether he paid income taxes on the salary he earned as a minister was after the government had elicited testimony from the witness that he did pay federal income taxes.

⁶ For example, Daly commented that when he took over the BBC he deleted from its tenets the belief that Blacks were beasts of the field, which had been inserted by the BBC's founder.

⁷ For example, Daly questioned a witness on the legality of the Vietnam War.