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B. Actual Knowledge of Material Falsity

In her opening brief, Boulerice also claims that the district court erred in denying her Rule 29 motion because there was "no evidence that Boulerice `actually knew' the return[s] [were] materially false" when she filed them. She asserts that the government was required to prove that she knew her father was deducting her "wages" as a business expense on his corporate income tax returns. Since the government did not do so, she maintains, she is entitled to judgment of acquittal.

This assignment of error has no basis in law. Although the government had to prove to the jury the materiality of Boulerice's false statements, the government did not have to prove her knowledge of the materiality. ³ See LaSpina, 299 F.3d at 179; Drape [ 82-1 USTC ¶9145], 668 F.2d at 25-26; cf. United States v. Notarantonio, 758 F.2d 777, 785 n.4 (1st Cir. 1985) (holding that in prosecution under 18 U.S.C. §1001, "knowledge" is assessed "with respect to the defendant's knowledge of the falsity of the statements rather than with respect to the defendant's knowledge of the statement's materiality to the federal agency involved"). Hence, whether Boulerice actually knew of the false statements' materiality to the government does not enter the calculus of proof. ⁴

III. The Admission of Evidence of Unreported Freelance Income as "Other Bad Act" Evidence

At trial, the government, without objection, cross-examined Boulerice concerning her failure to report freelance income to the IRS after 1992. Boulerice now claims that this "extrinsic evidence," as she describes it, ⁵ was highly prejudicial "other bad act" evidence offered to show criminal propensity without serving another legitimate purpose, in violation of Federal Rules of Evidence 404(b) and 403. ⁶

The government responds with a number of theories of admissibility. We need not dwell at length on any of them, however, for two reasons. First, since Boulerice failed to object below, we review only for plain error. United States v. Olano, 507 U.S. 725, 733 (1993); United States v. Baldyga, 233 F.3d 674, 684 n.11 (1st Cir. 2000). Under this standard, we will disregard the purported error unless "a miscarriage of justice would otherwise result," or if the error "seriously affects the fairness, integrity or public reputation of [the] judicial proceedings." Olano, 507 U.S. at 736. Second, the government had already introduced evidence of Boulerice's unreported freelance income, without objection, during its case-in-chief, precluding any argument that this cross-examination affected Boulerice's substantial rights. See Fed. R. Crim. P. 52(a).

Among the witnesses called by the government was Marvin Kennedy, the AIC accountant who assisted with the preparation of Boulerice's 1991 and 1992 tax returns and who testified that Boulerice had provided him with receipts for freelance income which he included on her returns for those years. Thereafter, the government elicited testimony from Michael Barret, the AIC accountant who assisted with the preparation of Boulerice's 1993 and 1994 tax returns, that Boulerice did not claim any freelance income during those two years. When the government asked Barret if he would have included freelance income had Boulerice provided documentation of any, Boulerice objected to the question as "calls for speculation." ⁷ The objection was overruled. Subsequently, the government --without objection from Boulerice --introduced evidence of paid freelance work performed by Boulerice in 1993 and 1994 through, among other things, the testimony of Boulerice's employers.

When Boulerice took the stand, the government first cross-examined her about her knowledge of her responsibilities under the tax code:

Q: And you know what wages are, for example? You know what that is, don't you?

A: What you make.

Q: And it's what you make when you work, correct?

A: Correct.

Q: And you knew that wages have to be reported accurately to the Internal Revenue Service, isn't that correct?

A: Yes.

....

Q: You knew you had to report the figure on the income tax return accurately and truthfully and correctly, isn't that correct?

A: Yes.

Boulerice then testified that she had assisted her accountant in the preparation of her tax returns:

Q: And you recall that you would send him information to assist him in reporting accurately all your income; do you recall doing that?

A: I believe I did.

At this point the government began to cross-examine Boulerice about her various freelance jobs, the income she received from those jobs, and her failure to report that income on her tax returns. Under this questioning, Boulerice admitted to having failed to report significant freelance income on her tax returns.

Boulerice contests on appeal only this cross-examination and not the evidence of her unreported freelance income admitted during the government's case-in-chief. Hence we need not address the government's theories regarding the propriety of the cross-examination. Since the jury had already heard evidence of Boulerice's unreported freelance income without objection, Boulerice cannot be heard to complain that her cross-examination regarding the same was unfairly prejudicial. See United States v. Perrotta, 289 F.3d 155, 165 (1st Cir. 2002); Doty v. Sewall, 908 F.2d 1053, 1057 (1st Cir. 1990); Lacy v. Gardino, 791 F.2d 980, 986 (1st Cir. 1986). Thus, we conclude that the district court did not plainly err in indulging the cross-examination.

IV. The Failure to Read Back Testimony

At the start of its second day of deliberations, the jury submitted a note to the court stating that the jury "would like to listen to the testimony of Marvin Kennedy." Assuming that the jury was asking the court to read back the testimony of Kennedy in its entirety, the court (outside the presence of the jury) informed counsel: "I don't do that. I've never done it before." The court continued:

I'll certainly hear you before I make my final decision but it's been my practice in the past not to do that for two reasons. First, I don't think we have a transcript of the testimony of Marvin Kennedy. We have the notes. We have the stenographic notes from which a transcript could be prepared, but I don't believe that we have a transcript of Mr. Kennedy's testimony.

 

....

 

Even if we did, I would hesitate to read it to them. It would tend to put, I believe, or at least would have the potential for putting undue emphasis on Mr. Kennedy's testimony in contrast to the testimony of Mr. Barrett or the testimony of the defendant or whatever. And so if I was going to do it, I would probably have to consider doing all the witnesses' testimony as well so there won't be any imbalance.

I'm sure it's frustrating to the jury to be told that they're not going to get what they're asking for, but this is what I've done in the past and this is what I am inclined to do in this case.

Before I make my final decision, I'd be happy to hear from counsel.

Counsel for Boulerice then stated:

Well, I do know that from some past experience in other courts, the court reporter has read from the stenographic notes the testimony of the witness. Short of that, I would have no other possible suggestions, Your Honor.

The court then reiterated its concern that, even assuming an accurate transcript could be quickly assembled, there would still be the risk of inappropriately highlighting the testimony of Kennedy. After hearing from the prosecutor, who voiced his opposition to any read back, the court indicated that it would not read back the testimony.

Boulerice now assigns error to this decision. A district court's decision not to read back testimony is reviewed only for abuse of discretion. United States v. Akitoye, 923 F.2d 221, 226 (1st Cir. 1991). We find no abuse of discretion here.

Before the district court, Boulerice's counsel offered only one justification for reading back the testimony: other courts in which she has appeared have read back testimony. She failed, however, to respond to the two concerns articulated by the district court, both of which we have held to be valid considerations. See United States v. Aubin, 961 F.2d 980, 983 (1st Cir. 1992) (indicating that "risk of confusion" and "difficulty in compliance" are proper considerations in ruling on request for read back of testimony).

Belatedly, Boulerice now maintains that of all the witnesses, Kennedy was the "crucial one," that Kennedy's testimony was short and consisted of "only" seventy pages of trial transcript, and that the court reporter was capable of accurately reading back from her stenographic notes. Whatever the merits of any of these arguments, they do not alter our conclusion that the district court acted well within its discretion in denying the read back.

Boulerice also complains that the district court did not actually exercise any discretion in deciding not to read back the testimony. She claims that the district court, in a "knee-jerk reaction," summarily dismissed the jury's request, without engaging in the thoughtful balancing of interests which normally goes into the exercise of a court's sound discretion. We disagree. While the district court did initially indicate its reluctance to read back the testimony ("I don't do that. I've never done that before."), it subsequently explained why it was inclined to deny the jury's request. The court then gave counsel the opportunity to be heard and to present any counter-arguments before making a final decision. Only then did the district court render its final decision. We therefore reject Boulerice's claim that the district court failed to engage in the proper analysis.

V. The Prosecutor's Closing Argument

Boulerice's final claim of error concerns three statements made by the prosecutor during closing argument --only one of which elicited an objection from Boulerice. Boulerice claims that these statements "improperly shifted the burden of proof to the defendant." We disagree.

Part of Boulerice's defense theory hinged on her relationship with her father. In an effort to defeat the government's conspiracy charge, Boulerice claimed that she had an abusive relationship with her father and that she was in such fear of him that there was no way she could turn down the money that he sent her through MPS and AIC. She unquestioningly accepted the payments from him because she was afraid to inquire about their source and thereby risk incurring his wrath. Thus, she argued, there was no conspiracy to defraud the United States . ⁸

The only witness to testify to this allegedly difficult father-daughter relationship was Lisa Boulerice herself. In closing argument, the prosecutor commented on this fact:

And one of the things about intent that you can do is you can consider the credibility of that person because there's really no other evidence that the defense has presented, other than this person, the defendant who has the most to lose, and if you don't think that she's credible, that means you can consider that as evidence of guilt.

Later, the prosecutor continued:

We will never know what the true relationship between her and this defendant was. We do know that they haven't put a shred of evidence on from anyone else as to the true nature of the relationship.

Boulerice interposed an objection after this comment. She did not indicate a basis for her objection. The court responded: "I'm going to overrule it. The jury may consider the evidence for what it's worth." The prosecutor then immediately picked up where he left off:

Calling not just the defendant but another witness as well, ⁹ and yet you're supposed to believe the uncorroborated testimony of this one person alone.

Boulerice claims that these statements impermissibly shifted the burden of proof in the jury's eyes from the government to her.

Boulerice cites no authority in support of her position, nor can we find any. Indeed, the case law makes clear that when a defendant puts her credibility at issue by testifying, the prosecution can comment on the implausibility of her testimony or its lack of an evidentiary foundation. See, e.g., United States v. Roberts, 119 F.3d 1006, 1014 (1st Cir. 1997) ("When a defendant advances a theory of the case, [] this opens the door to an appropriate response by the prosecution, commenting on the quality of his witnesses or attacking the weak evidentiary foundation on which the defendant's theory of the case rested.") (ellipses and quotation marks omitted); United States v. Kubitsky, 469 F.2d 1253, 1255 (1st Cir. 1972) (noting that prosecutor may "comment upon the absence of witnesses other than the defendant, such as alibi witnesses, that might have been logically expected").

As for the particular comments at issue here, we were faced with a similar situation in United States v. Savarese, 649 F.2d 83 (1st Cir. 1981). In that case, the defendant did not choose to take the stand. He did, however, offer alibi testimony from his mother. During closing argument, the government highlighted the fact that the only alibi presented was from a highly biased witness, and that there were no other witnesses to corroborate this alibi. We held that the prosecutor's argument was not improper.

To be sure, the statements were, to some degree, a comment on defendant's failure to produce evidence, which, of course, defendant had no obligation to do. However, defendant chose to call witnesses and put forth an alibi. Having done so, he had no right to expect the government to refrain from commenting on the quality of his alibi witnesses or from attacking the weak evidentiary foundation on which the alibi rested.

Id. at 87. While it is axiomatic that the prosecutor cannot comment on a defendant's failure to testify, see Griffin v. California, 380 U.S. 609, 615 (1965), once a defendant has taken the stand in her own defense, the prosecutor is not precluded from impugning the defendant's credibility by commenting on her failure to produce any corroborating evidence. Other courts have come to the same conclusion. See United States v. Cabrera, 201 F.3d 1243, 1250 (9th Cir. 2000); United States v. Bautista, 23 F.3d 726, 733 (2d Cir. 1994); United States v. Dahdah, 864 F.2d 55, 59 (7th Cir. 1988); see also 75A Am. Jur. 2d Trial §605 (2002) ("[A] prosecutor may properly comment on the defendant's failure to present exculpatory evidence which would substantiate defendant's story as long as it does not constitute a comment on a defendant's silence."). In light of these ample precedents, there was nothing improper about the prosecutor's comments here. ¹⁰

Affirmed .

¹ For convenience, we refer to Lisa Boulerice as "Lisa" or "Boulerice," and Ronald Boulerice as "Ronald."

² Ronald Boulerice pleaded guilty to one count of mail fraud, one count of conspiracy to commit mail fraud, two counts of money laundering, and one count of filing a false tax return.

³ A "material" matter is one that is likely to affect the calculation of tax due and payable, or to affect or influence the IRS in carrying out the functions committed to it by law, such as monitoring and verifying tax liability. See DiRico [ 96-1 USTC ¶50,149], 78 F.3d [732] at 735-36. As indicated previously, Boulerice does not challenge on appeal the materiality of the false statements.

⁴ At one point in the instructions, the district court instructed the jurors that the government had to prove that "Boulerice herself actually knew the return was materially false." This, as explained in the text, overstates the government's burden. Elsewhere in its instructions, however, the court more accurately instructed that "the defendant must be proved to have known that material statements in the return were false" and that she "in fact did not believe the return was true and correct in every material matter." We do not believe that, taken as a whole, these instructions confused or misled the jury. See United States v. Smith, 278 F.3d 33, 38 (1st Cir. 2002).

⁵ "Extrinsic evidence" is evidence of specific instances of conduct "not relevant in the litigation to establish a fact of consequence," i.e., evidence of a "collateral matter." United States v. Andujar, 49 F.3d 16, 26 (1st Cir. 1995). Testimony elicited under cross-examination, however, is not actually "extrinsic." See 4 Jack B. Weinstein & Margaret A. Berger, Weinstein's Federal Evidence, §608.20[1] (Joseph M. McLaughlin, ed., Matthew Bender 2d ed. (2003)) ( "Evidence is `extrinsic' if offered through documents or other witnesses, rather than through cross-examination of the witness himself or herself.").

⁶ Rule 404(b) provides, in pertinent part:

Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident, provided that upon request by the accused, the prosecution in a criminal case shall provide reasonable notice in advance of trial ... of the general nature of any such evidence it intends to introduce at trial.

Fed. R. Evid. 404(b). Under Rule 403, relevant evidence may be excluded "if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence." Fed. R. Evid. 403.

⁷ The district court, overruling Boulerice's "speculation" objection, nevertheless sua sponte raised the issue of other bad act evidence, expressing a concern that the government was perhaps trying to elicit inadmissible "propensity evidence." The government responded that the evidence went to Boulerice's intent, particularly her knowledge of her responsibilities under the tax laws. Boulerice essentially repeated her speculation objection. The court then indicated that, "to the extent this is evidence of some sort of bad act, I think it is relevant on the issue of intent and I don't think that its probative value is outweighed by any prejudicial value."

⁸ The jury acquitted Boulerice of the conspiracy count.

⁹ Other than Boulerice, the defense called only one other witness at trial --a character witness who did not corroborate Boulerice's story regarding her relationship with her father.

¹⁰ Since we have concluded that the statements were not improper, we need not determine whether any objection to them was properly preserved.

 

 

 

 

[2003-1 USTC ¶50,461] Bernhard Fred Manko, Plaintiff-Appellant, Jon Edelman, Petitioner-Appellant v. United States of America , Defendant-Appellee.

U.S. Court of Appeals, 2nd Circuit; 98-2639 (L), 98-2676 (Con), April 28, 2003 .

Unpublished opinion affirming an unreported DC N.Y. decision.

[ Code Sec. 7206]

Fraud and False Statements: Evidence: Settlement agreement. --

Two individuals' convictions for aiding and abetting in the fraudulent preparation of tax returns were upheld. Evidence of a settlement agreement between the IRS and the individuals, which disallowed 80 percent of the deductions that the IRS claimed to be fraudulent, was properly excluded. The evidence's probative value was substantially outweighed by the danger of confusion its introduction would have caused.

T. Barry Kingham, Herbert Stoller, James E. Connelly, Curtis, Mallet-Prevost, Colt & Mosle, for plaintiff-appellant. Gerard A. Riso, Stein, Anusia L. Gayer, Riso, Haspel & Jacobs LLP, for petitioner-appellant. Mary Jo White, United States Attorney, Stanley Okula, David Greenwald, Paul A. Engelmayer, Assistant United States Attorneys, for defendant-appellee.

Before: Walker, Jr., Chief Judge, and Oakes and Newman, Circuit Judges.

¬ Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.®

Plaintiff-appellant Bernhard Fred Manko and petitionerappellant Jon Edelman moved to vacate their convictions and to obtain a new trial pursuant to 28 U.S.C. §2255. Following a joint jury trial, Manko and Edelman were convicted in 1991 of making false tax returns and aiding and abetting the preparation of false tax returns in violation of 26 U.S.C. §7206(1) and §7206(2), and of conspiring to violate the tax laws and to defraud the United States in violation of 18 U.S.C. §371. We presume familiarity with the facts and procedural history detailed in the decision below, Manko v. United States, Nos. 95 Civ. 1611, 96 Civ. 3667, 1998 WL 391129 (S.D. N.Y. July 13, 1998) ("Manko III"), and from the prior decisions relating to this case, see United States v. Manko, 979 F.2d 900 (2d Cir. 1992) ("Manko I"); Manko v. United States, 87 F.3d 50 (2d Cir. 1996) ("Manko II"); Manko v. Comm'r [ CCH Dec. 52,351(M)], 74 T.C.M. (CCH) 1174 (1997); and Manko v. Comm'r [ CCH Dec. 50,412(M)], 69 T.C.M. (CCH) 1636 (1995). The key question in this appeal is whether the district court properly excluded evidence of the appellants' earlier civil settlement with the IRS which disallowed eighty percent of the deductions that the IRS claimed to be fraudulent.

In 1996, we vacated and remanded the district court's denial of habeas relief because the district court had erroneously excluded evidence of an earlier civil settlement with the IRS as a matter of law under Fed.R.Evid. 408. See Manko II, 87 F.3d at 55. On remand, the district court ruled that the evidence of a settlement was not relevant under Fed.R.Evid. 401 and 402, and that the evidence's probative value was substantially outweighed by the danger of confusion under Fed.R.Evid. 403. On appeal, Manko and Edelman argue that (1) a tax court decision collaterally estopped the district court from finding that the settlement was inadvertent; (2) the evidence was relevant; (3) the district court erred in excluding the evidence under Rule 403; and (4) they should receive a new trial because the prosecution suppressed the evidence and permitted false testimony relating to the settlement.

We review the district court's evidentiary rulings for abuse of discretion. Old Chief v. United States, 519 U.S. 172, 174 n.1 (1997). Assuming arguendo that the IRS intended to settle its civil case against Manko and Edelman and that the settlement was relevant under Rules 401 and 402, the district court did not abuse its discretion in ruling that the evidence's probative value is substantially outweighed by the danger of confusion of the issues and of misleading the jury. Fed.R.Evid. 403. The district court found that the evidence had little probative value with respect to the ultimate issue of guilt in the criminal case because the settlement reflected the IRS's doubts as to its ability to prove its case at trial, not doubt as to whether the underlying transactions were fraudulent. Manko III, 1998 WL 391129, at *10. The settlement's disallowance of eighty percent of the claimed deductions suggests that even those doubts about success at trial were not strong. Id. at *6.

If the evidence were admitted, the trial would have been diverted from the central issue of guilt or innocence to a complicated inquiry into the IRS's bureaucratic mechanisms in hopes of divining the IRS's true intent in reaching a civil settlement with appellants. This inquiry necessarily would delve into the morass of a particularly messy negotiation in this case and into the IRS's complex policies of settlement and enforcement. Admission of the settlement would have yielded little probative value, and it would have confused and misled the jury. Furthermore, this evidence would have wasted time. Fed.R.Evid. 403. Exploration of the issues relating to the settlement at the district court's §2255 hearing lasted several days, and could have been expected to consume more time when conducted before a jury. We have held that "[a] trial judge has discretion to exclude evidence [that] is only slightly probative if its introduction would confuse and mislead the jury by focusing its attention on collateral issues and if it would unnecessarily delay the trial." United States v. Bowe, 360 F.2d 1, 15 (2d Cir. 1966); cf. United States Football League v. Nat. Football League, 842 F.2d 1335, 1373 (2d Cir. 1988) (not error to exclude evidence that would have led to "mini-trial").

Manko and Edelman claim that they are entitled to a new trial because the prosecution improperly withheld evidence of the settlement. Assuming arguendo that the prosecution knew or should have known of the settlement, a new trial is warranted only "if there is a reasonable probability that, had the evidence been disclosed to the defense, the result of the proceeding would have been different." Kyles v. Whitley, 514 U.S. 419, 433 (1995) (internal quotation marks omitted). Because the evidence would have been excluded under Rule 403, the result of the proceedings would not have been different. Accordingly, the appellants are not entitled to a new trial.

For the foregoing reasons, the judgment of the district court is AFFIRMED.

 

 

 

[2003-1 USTC ¶50,478] United States of America , Appellee v. William N. Jackson, Defendant-Appellant.

U.S. Court of Appeals, 2nd Circuit; 02-1089, May 16, 2003 .

Unpublished opinion affirming an unreported DC Conn. decision.

[ Code Secs. 7206 and 7402]

Penalties, criminal: Jurisdiction of courts: Review by Court of Appeals: Fraud and false statements: Sentencing Guidelines: Evidence: Findings. --

The conviction and sentence of an individual for aiding and assisting the filling of false tax returns was upheld because any error was harmless in the face of overwhelming evidence against him and the calculation of loss attributable to his wrongdoing was reasonable. The contentions of the taxpayer, the sole proprietor of a tax preparation business, that prior bad acts evidence was improperly admitted and that a government witness improperly stated legal conclusions were dismissed. If any error occurred, it was harmless in the face of testimony by his clients whose returns he filed with false information they had not given him, his own admissions to government agents and the fact that an incredible 99 percent of the returns filed generated refunds. Moreover, the calculation of the loss of tax revenue attributable to his wrongdoing was reasonable because it was reasonable to conclude that the taxpayer had acted with fraudulent intent with respect to all of the fraudulent returns.

Eric J. Glover, Assistant United States Attorney, for appellee. Michael G. Considine, Day, Berry & Howard, LLP, for defendant-appellant.

Before: Minder, McLaughlin and Pooler, Circuit Judges.

¬ Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.®

SUMMARY ORDER

ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of said District Court be and it hereby is AFFIRMED.

William N. Jackson appeals from a judgment of the United States District Court for the District of Connecticut. After a jury convicted Jackson of eleven counts of aiding and assisting the filing of false tax returns in violation of 26 U.S.C. §7206(2), the court sentenced him to a term of forty-two months imprisonment. Jackson appeals the conviction, asserting various trial errors, and the sentence. With respect to the sentence, Jackson urges that the court improperly calculated the loss attributable to his conduct.

Jackson was the sole proprietor of a tax preparation business, the Tax Center , which used the Internal Revenue Service's ("IRS") electronic filing system for submitting returns. Filing tax returns electronically creates an advantage for the preparer because its preparation fee can be automatically deducted from the refund, which is directly deposited to a bank that has issued a loan in anticipation of the refund. In order to file electronically, a preparer must have an electronic filing identification number ("EFIN"), which may be revoked if the preparer acts improperly.

By indictment returned February 24, 2000, a grand jury charged Jackson with filing eleven false tax returns for six different clients. The falsities included creating non-existent businesses and non-existent business expenses, claiming fictional deductions and dependent exemptions, and misstating income.

All of the taxpayers named in the indictment testified against Jackson . They claimed that certain items on their returns were false and that they had not given Jackson or the Tax Center the falsely reported information. In addition, IRS Special Agent Richard Schumacher testified that Jackson told him that he never created a fictitious business unless a client instructed him to do so. Schumacher further testified, over Jackson 's objection, that Jackson 's admission was significant because of the "elements of the offense" and then listed the elements of the offense including "knowledge that the returns are false as a material matter, and that the [preparer submits the false returns] willfully and with voluntary intent to do so." Schumacher also testified, again over objection, that if Jackson signed electronic return forms that had actually been prepared by others, he committed a criminal violation.

Michael Kinsley, the IRS electronic tax administrator coordinator who supervised Jackson 's filings, testified that 99% of returns filed by Jackson for 1993 and 1994 generated refunds although the nationwide average for refunds was between 30% and 35%.

The government also introduced evidence of bad conduct not included in the indictment. First, Joanne Burks, a friend of Jackson's, testified that in October or November 1995, apparently around the time his own EFIN was revoked, Jackson told her he was being audited by the IRS and asked to use her EFIN number to file returns. Burks allowed Jackson to use the number. Second, IRS auditor Janice Ferretti testified that she conducted an audit of Jackson 's 1993 personal tax return in August 1995. During the audit, Jackson furnished a letter from his attorney, Sharon Skyers Jenkins, stating that Jackson had legal expenses of approximately $300 in 1993. Ferretti confronted Jackson with her belief that the relevant date had been altered. Jackson admitted that he changed "1994" in the original to "1993." Jenkins, who testified before Feretti, identified the original letter with the "1994" date and testified that she had not made the change in the copy Jackson submitted to the auditor. Jackson objected to the proof of both incidents. Although the court overruled his objections, it gave instructions to the jury limiting its consideration of the "bad acts" evidence to the issue of willfulness.

Jackson testified in his own defense. He claimed that he did not prepare all of the returns that were filed under his EFIN and that some were done by "people that came around that knew how to do taxes." He kept no documentation concerning his employees and none of the documentation furnished to him by taxpayers. Jackson also testified that he included in tax returns only the income, expenses, and deductions that were reported to him by the taxpayers. On cross-examination, the prosecutor repeatedly confronted Jackson with testimony from other witnesses that contradicted Jackson 's testimony and asked if Jackson recalled the testimony.

After Jackson 's conviction, the district court conducted a sentencing hearing to consider objections to the pre-sentence report. During the hearing, testimony was offered concerning the amount lost to the government as a result of false returns Jackson submitted. Special Agent Schumacher testified that, by auditing returns Jackson submitted that were not included in the counts of conviction, the government arrived at an underpayment figure of $433,406.26. The district court found a loss in excess of $325,000 by adding the $17,953.81 in tax loss from the returns included in the indictment to the tax losses from only those 1993 and 1994 Tax Center-generated returns for which the taxpayers had agreed to the government's calculation of the underpayment. The court also found that the totality of the evidence established that Jackson acted with fraudulent intent with respect to the returns included in the calculation. In marshaling this evidence, the court referred to (1) the proof that 99% of Jackson's returns resulted in refunds; (2) Jackson's lack of credibility as demonstrated by "his selective recollection of details;" (3) Jackson's admissions to investigating agents; and (4) his use of Burks' EFIN number and submission of an altered document to the IRS.

On appeal, Jackson makes many arguments, but we need discuss only his claims that (1) the prosecution engaged in improper cross-examination; (2) admission of the prior bad acts evidence was error; (3) a government witness was improperly allowed to testify to legal conclusions; and (4) the loss was improperly calculated.

The prosecution's cross-examination of Jackson was not improper. See United States v. Weiss, 930 F.2d 185, 195 (2d Cir. 1991) (not finding error in similar cross-examination).

Jackson 's two principal evidentiary contentions --that prior bad acts evidence was improperly admitted and that a government witness improperly stated legal conclusions --are more substantive. However, we need not address their merits because, even considered cumulatively, any errors committed were harmless. See United States v. Myerson, 18 F.3d 153, 167 (2d Cir. 1994) (holding that even if prior bad acts evidence should not have been admitted, its admission was harmless in light of "sufficiently strong" additional evidence); see also United States v. Taubman, 297 F.3d 161, 165 (2d Cir. 2002) (same with respect to evidentiary rulings in general); United States v. Duncan, 42 F.3d 97, 103 (2d Cir. 1994) (applying harmless error analysis to claim government witness testified to legal conclusions). The evidence against Jackson was overwhelming. The testimony of the six taxpayers was buttressed by Jackson 's own admissions to government agents and by the incredible refund rate achieved for Jackson 's clients. Because of this overwhelming evidence, we conclude that any error was harmless and does not require a new trial. See United States v. Tubol, 191 F.3d 88, 97 (2d Cir. 1999) (indicating that the weight of the evidence against the defendant is the most important factor in a harmless error analysis).

In calculating loss for sentencing purposes, the district court need only "make a reasonable estimate" where "the amount of tax loss [is] uncertain." U.S.S.G. §2T1.1.cmt. n.1; see also United States v. Bryant, 128 F.3d 74, 76 (2d Cir. 1997) ( per curiam) (upholding estimation of loss from unaudited returns where 20% of over 8,500 returns had been audited). Jackson contends that the district court's calculation was unreasonable because (1) Agent Schumacher had not personally performed the audits; (2) the record did not reveal whether the audits involved in-person interviews of the taxpayer; (3) returns were counted regardless of whether they were prepared by Jackson or by another Tax Center employee; and (4) contrary to statements in the PSR and the position of the government at sentencing, Jackson neither refused to identify his employees in 1993 and 1994 nor testified inconsistently with the statements he made to government agents prior to trial. None of these arguments has merit. First, because the district court's determination concerning Jackson 's credibility was not clearly erroneous, it cannot be disturbed. United States v. Medley, 313 F.3d 745, 748 (2d Cir. 2002). Second, responsibility for the inability to separate returns Jackson prepared from those prepared by other employees rests squarely on the shoulders of Jackson, the only person in a position to know which returns he prepared. Especially in light of (1) the 99% refund rate and (2) a notation in one file from an employee that he or she had to create a fictional business for a taxpayer, it was reasonable for the court to conclude that Jackson acted with fraudulent intent with respect to all the fraudulent returns. Finally, no particular audit method is necessary for the audit results to be admissible at a sentencing hearing, and it was not necessary that each auditor testify at the hearing. See U.S.S.G. §6A1.3.(stating that rules of evidence do not apply to resolving disputes relevant to sentencing).

We have considered all of Jackson 's remaining arguments and found that they lack merit.

 

 

 

[2005-2 USTC ¶50,565] United States of America , Plaintiff-Appellee v. David L. Smith, Defendant-Appellant. United States of America , Plaintiff-Appellee v. Herbert A. Bates, Defendant-Appellant.

U.S. Court of Appeals, 9th Circuit; 03-10548, 03-10604, September 13, 2005 .

Affirming in part and remanded in part an unreported DC Calif. decision.

[ Code Sec. 7206]

Procedure and administration: Tax shelters: Fraud and false statements: Aiding and abetting. --

Tax shelter promoters (the "promoters") willfully aided clients in filing false or fraudulent tax returns in violation of Code Sec. 7206(2). The promoters charged hundreds of clients to set up and manage trusts known as Unincorporated Business Organizations (UBOs), which purportedly avoided taxes on income streamed into them. The government sufficiently proved the three elements of a Code Sec. 7206 violation. First, the IRS proved that the promoters aided, assisted or otherwise caused the preparation and presentation of a false or fraudulent return. Code Sec. 7206 does not require that the promoter actually prepare the offending tax returns. Second, the returns at issue were fraudulent or false as to a material matter because they omitted reportable income. While the income could have been reported elsewhere, it was not and, therefore, the failure to report the income on the clients' personal returns made those returns false and fraudulent. Finally, the promoters willfully acted to defraud the government. It did not matter that the promoters also intended to steal money from their clients.

John Balazs, for defendant-appellant Smith; Victor S. Haltom, for defendant-appellant Bates; Samantha S. Spangler, Assistant United States Attorney, for plaintiff-appellee.

Before: Kleinfeld, Hawkins and Graber, Circuit Judges.

OPINION

HAWKINS, Circuit Judge: Defendants David Larry Smith ("Smith") and Herbert Arthur Bates ("Bates") appeal their convictions on multiple counts of tax fraud, mail and wire fraud, money laundering, and conspiracy, as well as their sentences. Defendants challenge: (1) arraignment by a magistrate judge, (2) multiplicity of the indictment resulting in a multiplicitous sentence on the three conspiracy counts, (3) an indictment passed on by grand jurors not questioned about their feeling towards the IRS, (4) denial of a suppression motion based on alleged defects in the arrest and search warrants, (5) sufficiency of the evidence on the tax counts, (6) denial of a motion for a new trial based on alleged petit juror bias, and (7) denial of a multiple conspiracy instruction. In addition to disputing the district court's application of various sentencing guidelines, Smith and Bates make a United States v. Booker, 125 S.Ct. 738 (2005), challenge to sentencing based on facts not found by a jury, and an ex post facto challenge to application of an advisory guideline system to their sentences. We have jurisdiction under 28 U.S.C. §1291 and affirm the convictions in all respects and remand on sentencing pursuant to United States v. Ameline, 409 F.3d 1073 (9th Cir. 2005) (en banc).

FACTS AND PROCEDURAL HISTORY

The government brought Smith and Bates ¹ to trial for enlisting hundreds of clients to set up trusts known as Unincorporated Business Organizations, or "UBOs," which purportedly avoided taxes on income streamed into them; the defendants charged their clients to set up and conduct transactions for the UBOs, only to later steal their clients' money.

The defendants advised their clients to transfer all of their income and assets --including their businesses, homes, relative's homes, furniture, jewelry, cars, and even pets --into the UBO. Defendants also advised clients to ask their employers to issue pay checks, commission checks, or other income sources in the names of their UBOs instead of in their names.

Moreover, the defendants assured clients that they could use the UBOs to pay a variety of expenses, to be deducted as "business expenses" from the UBO's income. These business expenses included everything from mortgage and utility payments to business equipment to haircuts, pet needs, laundry, clothes, and lawn care. As one client testified, "practically everything we did could be seen as a legitimate deduction." Another client echoed that "pretty much everything could be deducted or be used as legitimate business expenses. ... Probably certain personal items were not exempt, so to speak. Like toothpaste."

Numerous clients testified at trial how defendants (usually Smith ² ) advised them that they did not have to pay taxes once they paid the defendants to establish a UBO. For example, Phyllis Ellen Denby testified that Bates advised her to establish a UBO to distribute stock profits in a way the IRS would not be aware of them. Bates told Denby and her husband that no taxes need be paid on "any money" that was in the UBO. Charles Michael Stoker testified that Smith told him and his wife that by placing their home into the UBO, the home could be sold and yet he could withhold the proceeds from tax filing. David Vette testified that Smith informed him that "as long as the UBO did not have a profit at the end of the year, there was no taxable consequence. I did not have to file a tax return." Ronald J. Herrema testified that Smith told him that UBOs are never audited and do not have any filing requirements. Smith strongly recommended that Herrema "get rid of any cash" in the UBO at the end of the year to "not raise a flag to the Internal Revenue Service," and thus "never [be] subject to filing requirements or IRS audit inspections." And, Smith "highly suggested" that he and his wife kept their income below $10,500, the ceiling below which married couples were not required to file tax returns.

Similarly, James Allen Herrema testified that Smith told him that the benefit of the UBO receiving his income is that he "would not have to file personal income tax on that income." Smith plainly stated that income into the UBO "fell into a category of not being taxable." When Herrema specifically asked whether he had to continue filing personal tax returns, Smith said "it was not necessary." Sharon Ludders testified that she was told that everything she owned could be transferred into the UBO, and that the trust would "take care" of her obligations to pay personal income taxes. Judith Reitz testified that Smith told her that "it wasn't necessary" for her UBO to file a tax return; "[i]n fact, it was really not desirable." When Ms. Reitz said she planned to continue filing personal income tax returns, Smith explicitly told her not to file.

Michael Joseph Young was told by Smith that trust expenses would be deducted from the income into the trust, to achieve a zero balance at the end of the year. "You didn't have to worry about filing a return or anything like that on it." Young understood from Smith that the money that went into the UBO did not need to be reflected on his personal income tax return, either. Lawrence Newton Craig testified that Smith said that UBOs did not have to file any tax returns. Smith said UBOs were "basically a tax shelter."

In addition to the above advice, Smith had a "particular way" at "particular bank[s]" to set up the UBO accounts, which he did in person. Smith established non-interest-bearing accounts for the UBOs, which the government argued kept the banks from filing with the IRS to report interest income.

Smith told clients not to discuss their UBOs with qualified accountants or attorneys. Bates told one set of clients to not even tell their closest relatives about their UBO. Smith told another client that she did not have the authority to provide UBO-related documents to the IRS because a vote of the trustees was needed. Bates and Smith also insisted on handling correspondence with the IRS. For example, Bates would write the IRS requesting legal authority for reporting certain income to the IRS, as well as asking the IRS to review certain portions of the Constitution regarding the power to collect taxes. The letters attempted to avoid paying taxes. Indeed, with or without such letters, most of the defendants' clients did not file tax returns and/or filed tax returns that omitted substantial income.

In order to make the UBO scheme work, many clients were told that they had to make "distributions" out of their UBOs to avoid filing taxable income within them. As one client put it, "if there was a [UBO] profit, we would do a distribution, and that would eliminate any of the profit, and there would be no taxable occurrence." Clients were told that their "distribution" was "going offshore into an investment program ... and it would earn a profit ... and [they] would have access to it down the road." Smith offered several ways to get the distribution money back, including an out-of-country credit card account or a direct payment to Smith to move the money offshore for an eleven percent charge. Although clients could access their distribution or investment money for a while, Smith eventually transferred the money to another bank, and the clients could no longer access their money. Client losses ranged from $20,000 to $400,000.

Agent Bridgette O'Keeffe ("Agent O'Keeffe"), the government's summary witness, testified, among other things, regarding (1) each of the tax returns charged in the counts pertaining to aiding and assisting false or fraudulent returns, and (2) the numerous mail fraud and wire fraud counts, explaining the monies she traced that clients had invested with the defendants that ended up in Cayman Islands accounts.

The jury found Bates guilty of: (1) conspiracy to defraud the United States in the ascertainment, computation, or assessment of taxes, in violation of 18 U.S.C. §371; (2) multiple counts of aiding and assisting in the preparation and presentation of false and fraudulent tax returns, in violation of 26 U.S.C. §7206(2); (3) conspiracy to engage in mail or wire fraud, in violation of 18 U.S.C. §371; and (4) conspiracy to launder money, in violation of 18 U.S.C. §371. The jury also found Smith guilty of the above charges, as well as multiple counts of each of the following: (1) mail fraud, in violation of 18 U.S.C. §1341; (2) wire fraud, in violation of 18 U.S.C. §1343; (3) money laundering, in violation of 18 U.S.C. §§1956(a)(1)(A) 1956(a)(1)(B); and (4) engaging in financial proceeds of unlawful activity, in violation of 18 U.S.C. §1957.

Bates and Smith moved for a new trial based on the alleged lack of impartiality of Jurors #9 and #1. Juror #9 wrote Agent O'Keeffe after the trial suggesting they "get acquainted." Juror #9 did not converse with Agent O'Keeffe during the trial, at most exchanging a smile across elevators. The district court considered allegations of Juror #9's bias, and found "absolutely no tangible evidence that there was any extraneous information or extraneous influence on this juror by anyone."

During deliberations, Juror #1 wrote that she was criticized by the foreperson and felt intimidated. The district court questioned Juror #1 outside the presence of other jurors, whereupon Juror #1 told the court she felt able to return to deliberations and make future decisions based on her own conscience and belief. After considering the evidence as to Jurors #1 and #9, the district court denied the motion for a new trial.

At the close of the evidence, Smith moved for judgment of acquittal on the counts charging him with aiding and assisting in the preparation and presentation of false tax returns and conspiracy to commit tax fraud. The district court denied the motion as to both Smith and Bates, and denied the renewed motion after the verdict as to all defendants.

Smith was sentenced to 151 months' imprisonment; Bates to 136 months' imprisonment. The district court also ordered three defendants, including Smith and Bates, to forfeit $1 million, pursuant to the parties' stipulation.

DISCUSSION

I. Magistrate Judge's Authority to Conduct Arraignment

Magistrate Judge John F. Moulds presided over Smith's hearing for the entry of a plea. The magistrate judge asked Smith's counsel, Scott Tedmon, for the entry of the plea to the indictment. Smith's counsel had no objection and stated that his client was prepared to enter a plea of not guilty and requested a jury trial. The magistrate judge then scheduled a status conference before District Judge Lawrence Karlton.

Smith now argues that the magistrate judge had no authority to arraign Smith under Rules 5 and 10 of Criminal Procedure, and that Judge Karlton erroneously denied his motion to dismiss the indictment on this ground. We review de novo the district court's refusal to dismiss an indictment for lack of jurisdiction. United States v. Phillips, 367 F.3d 846, 854 (9th Cir.), cert. denied, 125 S.Ct. 479 (2004).

Rule 5 pertains to initial appearances before a magistrate judge for "arrest[s] under a warrant issued upon a complaint or any person making an arrest without a warrant." Fed. R. Crim. P. 5(a) (2000). Thus, Rule 5(c)'s provision that a magistrate judge may not accept a plea in a felony case is inapposite.

Nor does Smith cite any violations of Rule 10 (stating the requirements for an arraignment in open court) either, except to say that magistrate judges are not authorized to conduct a Rule 10 arraignment. Smith is mistaken. Rule 72-302(b)(1) of the Local Rules of the United States District Court for the Eastern District of California grants authority to magistrate judges to handle pretrial matters in felony cases, and does not exclude the arraignment process for a not guilty plea. Thus, the magistrate judge had authority to arraign Smith.

II. Multiplicity of Conspiracy Counts & Plain Error

The three conspiracy counts are: (1) conspiracy to defraud the United States in the ascertainment, computation, or assessment of taxes, in violation of 18 U.S.C. §371; (2) conspiracy to engage in mail or wire fraud, in violation of 18 U.S.C. §371; and (3) conspiracy to launder money, in violation of 18 U.S.C. §§371 and 1956(h). Bates and Smith ³ argue that these three conspiracy counts are multiplicitous because there was only one combined scheme, i.e., one conspiracy. Bates asserts that the convictions and consecutive sentences on these counts violate the Double Jeopardy Clause and separation of powers principles. Bates bases these claims not on the multiplicity of the indictment, but rather the multiplicity of sentences imposed by the district court.

Typically, whether a defendant's double jeopardy rights have been violated is reviewed de novo. United States v. Stoddard [ 97-2 USTC ¶50,574], 111 F.3d 1450, 1454 (9th Cir. 1997). However, Bates did not clearly raise the multiplicity of sentences issue below. Though Bates claims that he raised the issue when his counsel argued at the sentencing hearing that "the Government's case against [Bates] was one set of acts done for a common purpose, and that he, therefore, should be sentenced accordingly rather than for multiple reasons," this one sentence is insufficient to raise a double jeopardy objection with respect to the three conspiracy counts.

Nevertheless, a multiplicious sentence cannot be waived. ⁴ See Launius v. United States , 575 F.2d 770, 772 (9th Cir. 1978) ( per curiam) ("[I]f sentences are imposed on each count of [a] multiplicious indictment the defendant is not forced to serve the erroneous sentence because of any waiver.") (internal quotations and citation omitted). Because Bates failed to raise this issue before the district court, plain error review applies. See United States v. Freeman, 6 F.3d 586, 600-01 (9th Cir. 1993) (consecutive sentences for duplicitous charges subject to plain error review); United States v. Hernandez-Guardado, 228 F.3d 1017, 1028-29 (9th Cir. 2000) (failure to raise double jeopardy claim based on a second trial not waived absent evidence of a voluntary and knowing relinquishment of right against double jeopardy).

For Bates to prevail under plain error review, he must show (1) an error, (2) that is plain, (3) that affects substantial rights, and (4) that seriously affects the fairness, integrity, or public reputation of judicial proceedings. Johnson v. United States , 520 U.S. 461, 467 (1997).

[1] "The Double Jeopardy Clause prohibits subdivision of a single criminal conspiracy into multiple violations of one conspiracy statute." United States v. Montgomery, 150 F.3d 983, 989 (9th Cir. 1998) (internal quotations and citation omitted). Because all three conspiracy counts in this case violate the same statute --18 U.S.C. §371 ⁵ --this court uses the five-factor test adopted in Arnold v. United States, 336 F.2d 347, 350 (9th Cir. 1964), rather than the test articulated in Blockburger v. United States, 284 U.S. 299, 304 (1932). See United States v. Luong, 393 F.3d 913, 916 (9th Cir. 2004), cert. denied, 125 S.Ct. 1953 and 1963 (2005); Montgomery , 150 F.3d at 990.

[2] The Arnold analysis has been summarized by Stoddard:

To determine whether two conspiracy counts charge the same offense and so place the defendant in double jeopardy, we consider five factors: (1) the differences in the periods of time covered by the alleged conspiracies; (2) the places where the conspiracies were alleged to occur; (3) the persons charged as coconspirators; (4) the overt acts alleged to have been committed; and (5) the statutes alleged to have been violated.

[ 97-2 USTC ¶50,574], 111 F.3d at 1454 (internal quotations and citation omitted). Rather than focus on any one factor, the court considers all the factors together to determine if there was more than one agreement. "'The fact that there is some interrelationship between conspiracies does not necessarily make them the same criminal enterprise,' where one conspiracy involves unlawful transactions 'quite distinct in their means of execution and their objects.'" United States v. Guzman, 852 F.2d 1117, 1121 (9th Cir. 1988) (quoting United States v. Ingman, 541 F.2d 1329, 1331 (9th Cir. 1976) ( per curiam).

On appeal, the defendant has the burden of showing that the multiple conspiracies charged are based on a single agreement, i.e., that the conspiracies are "indistinguishable in law and in fact." Montgomery , 150 F.3d at 990 (citing Guzman, 852 F.2d at 1119-20). This issue is based on sufficiency of the evidence, examining the evidence "in the light most favorable to the prosecution to determine if any rational trier of fact could have found that more than one conspiracy existed." Id.

A. Time Frame

[3] The government alleged that the Count 1 conspiracy spanned from August 14, 1981 to June 13, 1997 , the Count 25 conspiracy from August 14, 1981 to February 1, 1998 , and the Count 64 conspiracy from January 1, 1987 to June 13, 1997 . Thus, there is substantial overlap in timing. It is worth noting here that the government argued that "from the very beginning" of the Count 1 agreement, there was a plan to steal the clients' money, which would involve mail and wire fraud (Count 25) and money laundering (Count 64). ("From the very beginning of the agreement between the parties, the agreement was to engage in tax crimes together with mail and wire fraud crimes together with money laundering crimes.")

B. Geographic Locations

[4] Bates contends that the vast majority of activities relevant to all three counts occurred in Sacramento , California , and the Cayman Islands . The government does not dispute this contention. The indictment and the evidence at trial support Bates's contention that the overt acts for all three counts occurred in the same geographic locations.

C. Participants

All four defendants were charged in Count 1, and all defendants except Charlotte Wadsworth were charged in Counts 25 and 64. However, the third factor depends not only on overlap in membership, but also the roles of the overlapping members. Stoddard [ 97-2 USTC ¶50,574], 111 F.3d at 1455. Bates contends that the roles were the same in all three counts.

[5] The government argued at trial that the defendants each played different roles in the various schemes. However, that many overt acts are incorporated by reference between the conspiracy counts supports the defendants' argument that the (different) role of each defendant was similar across the three alleged conspiracies.

D. Overt Acts

[6] Although the overt acts for three counts are not identical, they substantially overlap. For Count 1, the government alleged 166 overt acts; for Count 25, 151 of the 166 overt acts are incorporated by reference, and 23 new overt acts are added; for Count 64, overt acts are incorporated by reference from Counts 1 and 25.

The overt acts in Count 1 generally relate to defendants: (1) forming various UBOs, (2) accepting fees (in the form of checks or wire transfers) for the UBOs, (3) depositing fees, (4) serving as agents or trustees for the UBOs, (5) advising clients they need not file taxes, (6) writing letters to clients and the IRS, (7) forming corporations and bank accounts in the Cayman Islands, (8) opening bank accounts in California, and (9) authorizing wire transfers between various accounts. Count 25 adds overt acts pertaining to specific fraudulent investments defendants persuaded the UBO clients to pursue.

E. Statutes Violated

[7] The three conspiracy counts allege a violation of the same statute --18 U.S.C. §371 --although Count 64 also alleges a violation of 18 U.S.C. §1956(h). However, the fifth factor considers not only the violation of the same statute, but also whether the goals of the conspiracies were similar. Stoddard [ 97-2 USTC ¶50,574], 111 F.3d at 1456.

The government specifically addressed in closing argument how 18 U.S.C. §371 can relate to three separate crimes. In arguing that "the conspiracy counts are very different," the government first pointed to the two distinct types of crimes covered by §371: (1) conspiracy to defraud the United States in the exercise of its lawful governmental functions, and (2) conspiracy to violate a specific section of the United States Code. The government further explained that Count 1, the first type of conspiracy, related to defrauding the IRS in the assessment of taxes, whereas Counts 25 and 64 related to violations of different code sections (mail or wire fraud sections, and money laundering sections, respectively).

However, the government argued to the jury that the goals of defrauding the government, and engaging in mail and wire fraud and money laundering, were all inter-related:

This case is a situation where the defendants had a single unified plan from the very beginning. This is not a situation where the defendants that engaged in one type of activity and then did that for a while and then decided to get into some other type of activity which might be fraudulent and then to launder money at the end of day.

The defendants had a single, unified plan from, as I say, the very get-go in this case. From the very beginning of the agreement between the parties, the agreement was to engage in tax crimes together with mail and wire fraud crimes together with money laundering crimes. That's the only way the defendants' actions and their activities make any sense at all is to look at all the actions as pieces of a bigger essentially three-dimension, circular-type of a scheme.

The tax scheme was set up in a certain way specifically for the purpose to create the ability to engage in mail and wire fraud. ... And the defendants could not engage in mail and wire fraud if they did not launder money. ... So from the very beginning, the defendants had it in their mind the aspect of stealing --effectively stealing, to use a generic term, money from the investors and use the promotion of the tax vehicle as a way to accomplish that fraud.

The government concluded closing arguments with the point that all the counts were fraud crimes to enrich the defendants --with respect to the tax crimes, to collect fees on the UBOs; with respect to money laundering, "to move the money around and get what [defendants] need without being caught"; and with respect to mail and wire fraud, more monetary motives.

[8] Given the government's contention that the goal for all three conspiracies was one and the same --to steal money --it appears under Stoddard that they should be treated as one conspiracy, at least for the purpose of sentencing. Considering all five Arnold factors, it was arguably error for Bates and Smith to be sentenced to consecutive terms on the three conspiracy counts.

[9] However, an error is not plain unless it is "clear" or "obvious." United States v. Olano, 507 U.S. 725, 734 (1993). Plain error "is so clear-cut, so obvious, a competent district judge should be able to avoid it without benefit of objection." United States v. Turman, 122 F.3d 1167, 1170 (9th Cir. 1997) (citing United States v. Frady, 456 U.S. 152, 163 (1982)). In this complex case, with hundreds of overt acts, multiple defendants, and weeks of trial, it was not plain or obvious that only one conspiracy transpired. Indeed, the government convinced the jury that the defendants engaged in three separate conspiracies.

[10] To muddle the multiplicity issue further, defendants did not merely fail to argue that there was one overarching conspiracy for double jeopardy purposes; they argued the opposite position: that each of the three conspiracy counts were themselves duplicitous, encompassing multiple agreements and conspiracies in each one. That is, they asserted that there were even more conspiracies. As to Count 1, Smith disputed one overarching conspiracy to defraud the United States because the overt acts covered six alleged UBOs, with differing (1) time periods, (2) identity of defendants involved, (3) identity of taxpayers involved, and (4) specific transactional facts. Smith posed the "same argument and analysis" from Count 1 to Counts 25 and 64. Thus, it was not clear or obvious that the three conspiracies were multiplicitous, even at the sentencing stage. The defendants have failed to show plain error.

III. Dismissal of Indictment Based on Potentially Biased Grand Jury

Smith argues that the district court erred in denying his motion to dismiss the indictment because the grand jurors were not questioned about their contacts with the IRS to ensure that they could serve as impartial jurors.

We review de novo the district court's denial of a motion to dismiss an indictment. United States v. Rivera-Sillas, 376 F.3d 887, 889 (9th Cir. 2004). A district court may not dismiss an indictment for error in a grand jury proceeding unless the error prejudiced the defendant. Bank of N.S. v. United States [ 88-2 USTC ¶9547], 487 U.S. 250, 254 (1988). "Substantial proof of grand jury bias is required to overturn an indictment." United States v. Miller, 105 F.3d 552, 555 (9th Cir. 1997).

[11] Smith bases his grand juror (potential) bias claim on 28 U.S.C. §1866(c)(2), which states in part that "no person or class of persons shall be disqualified, excluded, excused, or exempt from service as jurors: Provided, That any person summoned for jury service may be ... (2) excluded by the court on the ground that such person may be unable to render impartial jury service." Not surprisingly, neither §1866(c)(2) nor any Ninth Circuit case ⁶ requires probing the grand jurors with questions about their feelings toward the IRS.

[12] Given that Smith makes no factual allegation of actual bias on the part of any grand juror in his case, he has not shown "[s]ubstantial proof of grand jury bias," see Miller, 105 F.3d at 555, let alone prejudice, see Bank of N.S. [ 88-2 USTC ¶9547], 487 U.S. at 254. Thus, the district court did not err in denying dismissal of the indictment on this ground.



IV. Search and Arrest Warrants

Smith argues that the district court erred by denying his motion to suppress evidence based on defects in the search and arrest warrants, alleging that: (1) the search warrant lacked particularity and was facially overbroad, (2) the government agents flagrantly seized items outside the scope of the warrant, (3) the agents failed to provide a complete copy of the warrant at the outset of the search, and (4) the search and arrest warrants were invalid because they lacked a court seal and the magistrate judge did not sign the arrest warrant.

We review de novo the district court's denial of a motion to suppress, and the factual findings supporting the denial for clear error. United States v. Mann, 389 F.3d 869, 874 (9th Cir. 2004), cert. denied, 125 S.Ct. 1719 (2005).

A. Particularity and Overbreadth

[13] "The Fourth Amendment requires that a warrant particularly describe both the place to be searched and the person or things to be seized." United States v. Spilotro, 800 F.2d 959, 963 (9th Cir. 1986). As Spilotro explained, "[t]he description must be specific enough to enable the person conducting the search reasonably to identify the things authorized to be seized." Id. The purpose of the breadth requirement is to limit the scope of the warrant "by the probable cause on which the warrant is based." In re Grand Jury Subpoenas, 926 F.2d 847, 856-57 (9th Cir. 1991). Both the particularity and breadth requirements prevent "general, exploratory rummaging in a person's belongings." Id. at 857 (quotation marks and citations omitted).

Smith argues the warrant in this case "failed to restrict government agents in any meaningful way, converting the warrant into the type of general, overbroad warrant prohibited by the Fourth Amendment." Specifically, Smith argues that paragraphs 1 through 11 of the search warrant's Attachment B "authorized the seizure of virtually all of Smith's personal and business records, electronic documents, photographs, films, and videotapes ... 'for the period of January 1990 through the current date.'"

Attachment B describes the items to be seized as follows:

For the period January 1990 through the current date:

1) The following documents relating to the promotion of UBOs: seminar tapes, presentation documents, video tapes, literature, flyers, advertising, and business cards.

2) UBO client files to include UBO names, individuals names, addresses, telephone numbers, and other identifying information; contracts of "UBO Organization"; copies of minutes; domestic and foreign bank account statements; wire transfer documents; canceled checks; deposit slips; copies of money orders; copies of cashier's checks; correspondence to, from, and on behalf of UBO clients including correspondence with the IRS; copies of Forms SS-4, Request for Employer Identification Number; records of payments from and to UBO clients reflecting dates and purpose of such payments; invoices; receipts; memoranda; copies of tax returns, and any documents used in the preparation of tax returns.

3) All documents relating to any alleged defense contractor loan investment program including literature, contracts, agreements, notes, financial statements and records, correspondence, memoranda, receipts, advertising, and other records; copies of letters and invoices or monthly statements to investors.

 

4) All documents pertaining to the purchase, and/or sale, and/or transfer of real property including escrow statements, deeds, deeds of trust, mortgages, notes, correspondence, closing statements, mortgage payments and down payments including documents reflecting the form, amount, and date of such payments. Documents pertaining to the purchase/sale of personal property including vehicles, furniture, and other items to include receipts, contracts, agreements, financial statements, purchase agreements, and correspondence.

5) All books and records of UBO businesses, including general journals, general ledgers, financial statements, balance sheets, income statements, cash receipts and disbursements journals[.]

6) All documents relating to the receipt and disbursement of income, by or from any UBO, including credit card receipts and statements, receipts, invoices, statements of accounts at domestic and foreign banks, check registers, cancelled check, money orders, cashier's checks, wire transfer documents, bank drafts, safety deposit box records, stocks, bonds, and other securities, investment records, loan applications, and other financial statements, promissory notes, telephone toll records and bills, personal calendars, address and telephone books, rolodex indices, records relating to domestic and international travel including tickets, reservations, hotel receipts, travel logs, itineraries, and receipts, Forms 1099 and other tax documents; any other records used to reconstruct income and expenses; records relating to safe deposit box rental.

7) All documents reflecting current ownership, occupancy, and use of premises including utility bills, receipts, correspondence, monthly statements, photographs, film, and video tapes.

8) All information and/or data stored in the form of magnetic or electronic coding on computer media or on media capable of being read by a computer or with the aid of computer-related equipment. This media includes, but is not limited to, floppy diskettes, fixed hard disks, removable hard disk cartridges, laser disks, video cassettes, and any other media which is capable of storing magnetic coding.

9) All electronic devices which are capable of analyzing, creating, displaying, converting, or transmitting electronic or magnetic computer impulses or data. These devices include, but are not limited to, computers, computer components, computer peripherals, word processing equipment, modems, monitors, printers, plotters, encryption circuit boards, optical scanners, external hard drives, and other computer related electronic devices.

10) All instructions or programs stored in the form of electronic or magnetic media which are capable of being interpreted by a computer or related components. The items to be seized include, but are not limited to, operating systems, application software, utility programs, compilers, interpreters, and any other programs or software used to communicate with computer hardware or peripherals either directly or indirectly via telephone lines, radio, or other means of transmission.

11) All written or printed material which provides instructions or examples concerning the operation of a computer system, computer software, and/or any related device which is present at the scene.

[14] The warrant's Attachment B describes with sufficient specificity the types of documents and property sought. Potentially problematic is its breadth: though limited in time period and subject matter (UBO businesses and loan investment program since 1990), the warrant is quite broad as it relates to those enterprises. However, even an "extraordinarily broad" warrant authorizing the seizure of essentially all business records may be justified when there is "probable cause to believe that fraud permeated the entire business operation." United States v. Offices Known as 50 State Distrib. Co. , 708 F.2d 1371, 1374 (9th Cir. 1983). This is just such a case. The magistrate judge reviewed Agent O'Keeffe's affidavit in support of the application for the search warrant, which detailed her comprehensive investigation of the UBO scheme. The affidavit concluded that "the entirety of the businesses operated by Bates, Smith and their associates are criminal in nature." Agent O'Keeffe's affidavit provided ample probable cause to meet the "permeated-with-fraud" exception to the particularity and breadth requirements.

B. Seizure Outside the Scope of Warrant

Smith claims that federal agents flagrantly seized innocuous personal items outside the scope of the warrant, such as Christmas gifts, computer monitors, and computer games. However, computer monitors and computer games (to the extent they were on computer diskettes) were within the scope of the warrant. The alleged Christmas gifts remain unidentified in the record. Thus, there is no evidence that there was any evidence seized outside the scope of the warrant.

C. Defects in Providing Warrant to the Smiths

The district court held that the warrant "was provided to the Smiths on a prompt basis." The district court further held that, although Agent O'Keeffe's affidavit was not attached to the warrant, the warrant was valid and served the purpose of providing notice to the Smiths that the officers were executing a search under the color of law. Smith argues that the search of his home violated Federal Rule of Criminal Procedure 41(d) (1997) ⁷ because (1) agents failed to provide a copy of the search warrant at the outset of the search, and (2) the warrant was incomplete without the affidavit that was incorporated by reference into the warrant.

1. Failure to Provide Search Warrant at Outset of Search

At the evidentiary hearing, there was some discrepancy as to the length of time after the search began before Smith and his wife received a copy of the warrant. It is clear that the search did not start as soon as the agents entered the home, as they initially conducted a safety sweep for approximately fifteen minutes. The district court established that a delay of thirty to forty-five minutes occurred before the Smiths received the warrant.

[15] Under United States v. Gantt, 194 F.3d 987, 1001 (9th Cir. 1999), "[a]bsent exigent circumstances, Rule 41(d) requires service of the warrant at the outset of the search on persons present at the search of their premises." While the court recognized that "'technical' violations of Rule 41(d) require suppression only if there was a 'deliberate disregard of the rule' or if the defendant was prejudiced," it held that suppression was justified due to the deliberate violation in Gantt's case. Id. at 1005. Gantt was not served with the search warrant until after she was arrested, hours after the search and hours after she requested to see the warrant. Id. at 1000.

[16] In Smith's case, there is neither deliberate disregard of Rule 41(d) nor any prejudice. Gantt's interpretation of Rule 41(d) to require service of the warrant at the outset of the search was issued in 1999, whereas the search of Smith's home took place in 1997. Agent Adams's testimony reveals he did not know of an obligation to show the warrant at the outset of the search -- Adams "never" before had presented a warrant at the time of entry. Instead, his team typically did a safety sweep first, as was done in the Smith home.

Furthermore, unlike in Gantt, after Mrs. Smith asked for the warrant, she got one. The timing may be disputed --ten minutes after the request or half an hour later --but regardless, she and her husband received the warrant near the outset of the search. As the district court found, the delay was not unreasonable.

[17] Nor was the delay prejudicial. Upon receiving the warrant, Mrs. Smith "just kind of glanced at it" and believes that her husband "might have looked at it" more than she did. She admits that she chose not to review the warrant. Neither of the Smiths disputed the warrant after having access to it, and the search went on for another several hours. Thus, under Gantt, there was only a technical violation of Rule 41(d), which does not require suppression.

2. Warrant Missing Affidavit

[18] That the Smiths were given the search warrant without the affidavit of Agent O'Keeffe, though incorporated by reference in the warrant, does not require suppression. Smith argues that Gantt held that "when a warrant incorporates by reference the supporting affidavit, the affidavit comprises part of the warrant itself and must be provided with the rest of the warrant. 194 F.3d 987, 1001 n.7." The cited footnote 7 states: "Showing Gantt the face of the warrant without Attachment A certainly did not satisfy Rule 41(d). Without Attachment A, the warrant violated the Fourth Amendment's particularity requirement and for purposes of Rule 41(d) was not a valid warrant."

What Smith leaves out is the content of Attachment A in Gantt's case, which is substantively different from the O'Keeffe affidavit. In Gantt, "[i]nstead of describing the items to be seized, the warrant stated 'see Attachment A.' Attachment A was a two-page, typed list of items to be seized." Id. at 996. In Smith's warrant, Attachment B, which described the items to be seized, was attached. It was Agent O'Keeffe's affidavit, admittedly important in the magistrate judge's probable cause determination, that was missing. Agent O'Keeffe's affidavit was not related to the particularity requirement, which was satisfied by Attachment B.

Smith confuses the "well-settled principle that a warrant's overbreadth can be cured by an accompanying affidavit that more particularly describes the items to be seized," United States v. Luk, 859 F.2d 667, 676 (9th Cir. 1988), with the contention, unsupported by case law, that an affidavit incorporated by reference must always be attached for the search warrant to be valid --even if the warrant is not overbroad without the attachment. For example, in United States v. Hayes, 794 F.2d 1348, 1355 (9th Cir. 1986), the court held that the affidavit could not be considered because it did not accompany the warrant; nevertheless, the court went on to examine the warrant "on its face" for overbreadth, determining it met the breadth requirement and did not require suppression, id. at 1355-56.

[19] Thus, here, the warrant without the affidavit was facially valid standing alone. The failure to attach the affidavit does not require suppression.

D. No Court Seal on Search and Arrest Warrants; No Magistrate Judge's Signature on Arrest Warrant

Smith argues that the search and arrest warrants are void because (1) the arrest warrant was initialed only by the court clerk, but not signed by the magistrate, in violation of Rule 4(c)(1) of Criminal Procedure, and (2) neither warrant contained the seal of the court. The district court found that neither alleged defect invalidated the warrants.

First, Rule 9, rather than Rule 4(c)(1), governs arrest warrants on an indictment. Rule 9(b)(1), pertaining to the form of the warrant, states it must be signed "by the clerk," not the magistrate judge.

Smith's second argument that the court seal must be affixed to both the search and arrest warrants also fails. The argument relies on 28 U.S.C. §1691, which states: "All writs and process issuing from a court of the United States shall be under the seal of the court and signed by the clerk thereof." However, the Federal Rules of Criminal Procedure for arrest warrants on an indictment (Rule 9) and search warrants (Rule 41) make no mention of the requirement for a court seal. The arrest warrant and search warrant follow the stated dictates of Rules 9 and 41, respectively. The magistrate judge unquestionably issued a bench warrant without bail on Smith, and a deputy clerk signed an arrest warrant, as required by Rule 9. The search warrant was issued and signed by a magistrate judge on January 3, 1997.

[20] Thus, there appears to be only a technical violation of 28 U.S.C. §1691. None of this circuit's cases has suppressed evidence for lack of a court seal. Cf. Ystrom v. Handel, 252 Cal. Rptr. 110, 114 (Ct. App. 1988) (lack of court's seal "is a mere technicality and does not render [a summons] 'substantially defective'").

[21] We have refused to suppress evidence or reverse convictions based on technical rule violations. In a similar context, "'technical' violations of Rule 41(d) require suppression only if there was a 'deliberate disregard of the rule' or if the defendant was prejudiced." Gantt, 194 F.3d at 1005. Here, there is no evidence in the record that officers executing either warrant relied in bad faith on them because they lacked the court seal, and certainly no evidence of deliberate disregard of 28 U.S.C. §1691. Neither is there a scintilla of prejudice to the defendant: if the warrants did have the court seal, Smith's home would still have been searched, and his person still arrested. Thus, neither suppression nor reversal of Smith's conviction is warranted by this technical violation of 28 U.S.C. §1691.

V. Sufficiency of the Evidence

Smith and Bates argue that the evidence is insufficient to sustain their convictions for: (1) multiple counts of aiding and assisting in the preparation and presentation of false tax returns, under 26 U.S.C. §7206(2); and (2) conspiracy to defraud the United States in the ascertainment, computation, or assessment of taxes, under 18 U.S.C. §371.

After the jury verdict, the district judge denied a Federal Rules of Criminal Procedure 29 motion for judgment of acquittal as to all defendants. We review de novo the district court's ruling on a motion for acquittal. United States v. Johnson, 357 F.3d 980, 983 (9th Cir. 2004). The evidence is reviewed in the light most favorable to the prosecution to determine "whether any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Id. (internal quotations and citations omitted).

Section 7206(2) pertains to any person who:

Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document[.]

[22] Under §7206(2), the government must prove that "(1) the defendant aided, assisted, or otherwise caused the preparation and presentation of a return; (2) that the return was fraudulent or false as to a material matter; and (3) the act of the defendant was willful." United States v. Salerno [ 90-1 USTC ¶50,261], 902 F.2d 1429, 1432 (9th Cir. 1990). Defendants argue that the government presented insufficient evidence on all three elements.

A. Aid, Assist In, Procure, Counsel, or Advise

[23] Although Smith and Bates did not actually prepare their clients' tax returns, the plain language of §7206(2) is satisfied by aid, assistance, procurement, counsel, or advice in the preparation or presentation of a false or fraudulent return --there need not be actual preparation of the return at issue. Unsurprisingly, we do not require defendants engaged in tax schemes to physically "prepare" the tax returns to be found guilty of §7206(2). See, e.g., United States v. Crum [ 76-1 USTC ¶9214], 529 F.2d 1380, 1382 (9th Cir. 1976) ("[T]he reach of Section 7206(2) is clearly not limited to acts of tax return 'preparers[.]'").

[24] A review of the record reveals ample evidence of aid, assistance and advice in the preparation of the defendants' clients' false tax returns. To promote their tax shelter scheme, the defendants explicitly advised their clients to transfer all of their income and assets to the UBO, and then not to file any tax returns (for the business trust, personal income, or otherwise). Smith advised UBO clients to have their employers issue pay checks, commission checks, or other income sources in the name of the UBO instead of the clients' names. Further, defendants established mechanisms for the UBO income to go undetected by the IRS, such as keeping end-of-the-year income below a certain threshold through "distributions," false "business deductions," and non-interest-bearing accounts. These actions directly caused clients to file false and fraudulent returns. ⁸

B. Fraudulent or False Return

Smith argues that the particular 1040 personal returns or 1065 partnership tax returns were not false for omitting income or revenue that should have been reported on a separate 1041 trust return. However, IRS Agent Brown testified that although revenue in a business trust such as a UBO would typically be reported on a form 1041, as a default the income could also be reported on a 1040 personal income tax return. In any event, the income had to be reported on some IRS form. Thus, the under-reporting of income on the clients' personal returns, that could have been but was not reported elsewhere, made the personal returns "false" or "fraudulent."

[25] Agent O'Keeffe methodically went through each allegedly false or fraudulent return, and testified to the substantial understatement of income on each one. Viewing the evidence in the light most favorable to the prosecution, there is sufficient evidence from which a rational juror could find that the returns were false or fraudulent.

C. Willfulness

Smith argues that the evidence was insufficient to show that he acted willfully "with specific intent to defraud the government in the enforcement of its tax laws." Salerno [ 90-1 USTC ¶50,261], 902 F.2d at 1432. While there is nothing "inherently unlawful with an UBO," and the government told the jury during closing argument to assume UBOs are "legitimate," the government provided ample evidence that Smith gave advice to unlawfully use UBOs to file false or fraudulent tax returns (or not to file at all).

Smith further argues that there was no evidence presented that Smith was advised by the IRS that UBOs must file a tax return or that his actions were illegal. However, Smith worked in concert with Bates, who kept busy drafting "response" letters to the IRS disputing the IRS's contention that taxes needed to be paid.

Finally, Smith argues that "even under the government's own theory, Smith's purpose was to steal money or defraud the persons who purchased UBOs from him; he did not have the specific intent to defraud the government in the enforcement of its tax laws." Smith ignores that stealing from clients and defrauding the government are not mutually exclusive --and that the evidence is sufficient to establish both purposes.

Smith argues that this case is analogous to Salerno , where this court reversed the defendants' §7206(2) convictions because, although they were guilty for implementing a scheme to embezzle millions from the casino, "the government failed to prove the scheme had as a purpose the violation of the federal tax laws." [ 90-1 USTC ¶50,261], 902 F.2d at 1430. The government had to show that the defendants engaged in the scheme "not merely for their own benefit but with a specific intent to cause the casino to file false tax returns." Id. at 1432. However, there was neither evidence that the defendants had anything to do with preparation of tax returns, nor "evidence that the defendants had any motive for conducting a scheme to defraud the government, [n]or that they ever mentioned their own taxes, much less the tax returns of the casino." Id.

Unlike in Salerno , Smith and Bates had as "a purpose," although not their sole purpose, the violation of tax laws. They specifically advised clients that the UBO income need not be reported on any kind of tax return, and told them not to consult friends, family, or accountants about their UBOs. The evidence was sufficient to prove that the defendants had a "specific intent to cause" their clients to file false returns.

[26] Further unlike Salerno , Smith and Bates had a "motive" for conducting a scheme to defraud the government: to hook the clients into giving them control over the clients' money so they could steal it. Finally, unlike in Salerno , here there was ample mention of the clients' tax returns within the scheme. Thus, there was sufficient evidence, viewing the evidence in the light most favorable to the prosecution, to find that the defendants willfully intended to cause false or fraudulent returns to be filed.

D. Conspiracy Count 1

Smith argues that the reasons for the insufficiency of the §7206(2) counts apply to invalidate the Count 1 conspiracy conviction. Because his arguments with respect to the §7206(2) counts fail, they fail equally with respect to the conspiracy count.

VI. Alleged Juror Bias & Misconduct

Smith and Bates argue that they are entitled to a new trial because of two instances of alleged juror misconduct and bias. We review a district court's denial of a post-verdict evidentiary hearing for an abuse of discretion, United States v. Saya, 247 F.3d 929, 934 (9th Cir. 2001), and its denial of a new trial on the assertion of juror misconduct or bias for abuse of discretion as well, United States v. Hanley, 190 F.3d 1017, 1031 (9th Cir. 1999). "Because of the trial judge's unique opportunity to observe the jurors during trial, to hear the defenses asserted, and to hear the evidence, the judge's conclusion about the effect of the alleged misconduct deserves substantial weight." Saya, 247 F.3d at 937 (quotations and citations omitted).

A. Juror #9's Alleged Bias

[27] "The Sixth Amendment guarantees criminal defendants a verdict by impartial, indifferent jurors." Dyer v. Calderon, 151 F.3d 970, 973 (9th Cir. 1998) (en banc). "A court confronted with a colorable claim of juror bias must undertake an investigation of the relevant facts and circumstances." Id. at 974. However, "[a]n evidentiary hearing is not mandated every time there is an allegation of jury misconduct or bias. Rather, in determining whether a hearing must be held, the court must consider the content of the allegations, the seriousness of the alleged misconduct or bias, and the credibility of the source." Hanley, 190 F.3d at 1031 (quotations and citation omitted). An evidentiary hearing is not necessary where the court knows "the exact scope and nature" of the bias allegation. Saya, 247 F.3d at 935 (internal quotations and citations omitted).

About a month after the jury returned the verdicts in this case, Juror #9 wrote the following letter to Agent O'Keeffe:

Dear Bridget,

My name is Brandt Mayer and I was juror #9 in the Bates/Smith/Wadsworth trial in Sacramento recently. As a sworn in juror as you know, we were not allowed to converse with anyone on the case.

 

Now that it's over and forgotten by me (thank god) I would like the opportunity to be able to talk with you. Not about the case of course, or your profession or mine, but in a casual way.

I was deprived not being allowed to just walk up and start a conversation with you, which normally for me is completilly [sic] out of character, as I am a bit timid.

After listening to you on the stand [you] showed a very "kind" aura about you. You're [sic] sofistication [sic] also impressed me. You're [sic] introduction led me to believe that you are a single woman and has given me the comfort and insentive [sic] to write you.

I am hoping that you remember who I was: You were getting off the elevator one day on the 10th floor and I leaned out of the elevator accross [sic] from you as we (the jurors) were heading down. I purposly [sic] gave you a smile. It appeared that you returned a smile back to me. In fact the jurors teased me about that for days afterward, but that's ok, I told them that the smile was for me and not them.

Could it be possable [sic] to send an e-mail to me? A "get aquianted" [sic] type. I will surely respond.

But if you are finding this type of approach odd, tastless [sic], or in anyway [sic] out of line, or that you're simply not interested, I will surely understand and appollogize [sic]. I couldn't think of any other way to give it a try and I thought it couldn't hurt. Take care.

Agent O'Keeffe promptly reported the letter to prosecutors who in turn reported the letter to the court and opposing counsel. Thereafter, Smith and Bates moved for a new trial based on Juror #9's claimed bias; Bates also requested an evidentiary hearing. Both sides submitted briefs on the issue and argued the motion before the district court ruled. After considering the evidence, the district court denied the motion without conducting an evidentiary hearing.

With Juror #9's letter in hand, the district court understood the exact nature and scope of the bias allegation. Cf. Saya, 247 F.3d at 935. The district court examined the content of the allegations from the letter and never doubted the credibility of the source to which defendants pointed --Juror #9 himself. Cf. Hanley, 190 F.3d at 1031. In analyzing the seriousness of the allegations, the district court took into account that (1) Agent O'Keeffe was one of the last witnesses to take the stand after six weeks of trial (thereby limiting her influence on Juror #9), (2) Agent O'Keeffe was a summary witness who presented no new evidence, (3) other than the "kind aura" statement, there was "absolutely no tangible evidence that there was any extraneous information or extraneous influence on this juror by anyone," (4) there was "absolutely no evidence that Juror Number 9 did anything inappropriate during the trial" (noting at most a smile was exchanged), and (5) there was no evidence filed by defendants or declarations from any of the jurors that there was extraneous information or influence.

The district court logically reasoned it was unlikely that this juror was attempting to impress Agent O'Keeffe by finding defendants guilty, since he voted to acquit Charlotte Wadsworth, to acquit Bates of 88 out of 111 counts against him, and to acquit Smith on three counts. Furthermore, Juror #9 explicitly wrote Agent O'Keeffe that he had no desire to discuss the case with her, making the argument that he was trying to impress her with guilty verdicts even more attenuated.

An evidentiary hearing to listen to Juror #9's testimony regarding the trial would likely not have produced any valuable information. When inquiring into the validity of a verdict, pursuant to Federal Rule of Evidence 606(b),

a juror may not testify as to any matter or statement occurring during the course of the jury's deliberations or to the effect of anything upon that or any other juror's mind or emotions as influencing the juror to assent to or dissent from the verdict or indictment or concerning the juror's mental processes in connection therewith, except that a juror may testify on the question whether extraneous prejudicial information was improperly brought to the jury's attention or whether any outside influence was improperly brought to bear upon any juror.

(emphasis added). Thus, even if the juror's thought process was biased with his alleged "infatuation" with Agent O'Keeffe, the court was not free to hear evidence in this regard. Further, it was clear from Juror #9's letter that there was neither extraneous prejudicial information from Agent O'Keeffe (a smile can hardly be so deemed), nor "outside influence [that] was improperly brought to bear."

[28] The district court did not abuse its discretion in denying the evidentiary hearing and a new trial. Even if this juror had something of a crush on Agent O'Keeffe, his letter made clear that he diligently performed his duty as a juror, never speaking to Agent O'Keeffe during the trial, and at most exchanging a smile with her. It is unlikely that any trial goes by without one juror finding one witness nice or attractive. The only unusual thing about this case is that Juror #9 put his feelings in writing. The district court was well within its discretion in finding no evidence of juror misconduct and no extraneous influences on the juror, such that an evidentiary hearing was not required.

B. Juror #1's Alleged Intimidation

The district court also denied defendants' motion for a new trial based on the alleged intimidation of Juror #1. During the trial, Juror #1 wrote an e-mail explaining her disagreement with the foreperson regarding her approach to analyzing the mail and wire fraud counts without first considering the basis of the conspiracy charges. She explained:

I have been criticized by the foreperson and consequently have felt intimidated into proceeding on a ruling on more than two dozen counts without having first established the underlying business relationship of the defendants. She criticized me for wanting to review my notes; she criticized me for wanting to look at the evidence, and specifically she criticized me for wanting to look at evidence relative to count one. At one point she accused me of having already made up my mind because I suggested that we consider the prosecution's foundation for the case. The foreperson then threatened to throw me off the jury.

The district court questioned Juror #1 outside the presence of the other jurors about her feelings of intimidation. After the juror reiterated her concerns from the e-mail, the judge told her:

Each of you [jurors] must decide the case for yourself, but you should do so only after you have considered all the evidence, discussed it fully with the other jurors, and listened to the views of your fellow jurors.

Do not be afraid to change your opinion if the discussion persuades you that you should. But do not come to a decision simply because other jurors think it is right. It is important that you attempt to reach a unanimous verdict, but, of course, only if each of you can do so after having made your own conscientious decision. Do not change an honest belief about the weight and effect of the evidence simply to reach a verdict.

Although Juror #1 told the judge that she did not believe her decisions were made based upon her own beliefs up to that point, after hearing the above instruction, she felt able to return to deliberations and make future decisions (including those on verdicts that may have been rendered previously) based on her own conscience and belief.

The attorneys for defendants and the government then had a long discussion about whether the jury should be instructed to start deliberations anew or be instructed again on their role as jurors, and whether to keep Juror #1 on the jury. The court then brought Juror #1 back in, and asked more questions regarding whether she still felt intimidated, to which she answered she did not. The court was convinced that Juror #1 made "very clear that she is not intimidated at this point, that she understands her duty as a juror, and that she is ready to continue her deliberations in this case after the entire jury is reinstructed as to 34 and 39" (which had been reread to Juror #1).

[29] Smith argues that the foreperson's bullying of Juror #1 "demonstrates that the jury was not impartial and that the jury deliberation process was not functioning properly." However, if anything, the foreperson's misconduct ran to the defendants' favor by discounting the prosecution's theories. This alleged misconduct was thoroughly investigated by the district court, and its effect cured by ensuring that Juror #1 no longer felt intimidated. The district court did not abuse its discretion in refusing a new trial on this ground.

VII. Duplicity and Multiple Conspiracies Jury Instruction

Before trial, Smith moved to dismiss Counts 1, 25, and 64, the three conspiracy charges of the indictment, arguing that each one encompassed multiple conspiracies (and thus that each one was duplicitous). Bates joined this motion. Defendants disputed that there was one overarching conspiracy within any of these counts because the overt acts covered six alleged UBOs, with differing: (1) time periods, (2) identity of defendants involved, (3) identity of taxpayers involved, and (4) specific transactional facts.

The government opposed the motion, arguing that Counts 1, 25, and 64 each contained a singular conspiracy. As to Count 1, the government asserted that defendants entered into an agreement to impair and impede the IRS through the use of UBOs "in a fashion which knowingly and intentionally understated income and overstated legitimate deductible expenses." Although the UBOs were marketed to 249 or more taxpayers, the government argued that the Count 1 conspiracy was not "taxpayer specific"; it involved "one agreement, regardless of the number of taxpayers whose income tax return[s] were involved." As to Count 25, the government argued that there was one agreement to use the mail and interstate wire communications in furtherance of a scheme to defraud. Finally, Count 64, though involving different money laundering sections (18 U.S.C. §§1956(a)(1)(A), 1956(a) (1)(B), and 1957), encompassed only one agreement to engage in money laundering. The government summarized its argument as "[o]ne agreement; one count."

After considering the pre-trial briefs and supplemental briefs of all the parties on this issue, the district court found the indictment not duplicitous as to Counts 1, 25, and 64. After the trial, during the jury instruction conference, Smith renewed the motion to dismiss these counts, claiming that the government had "not been able to show an overarching conspiracy but rather ha[d] shown individual conspiracies." The district court denied the motion, and sustained the government's objection to a multiple conspiracy instruction.

The district court's ruling that there were no duplicitous counts appears correct, and defendants do not dispute it on appeal. Instead, defendants now argue that the district court erred in denying the request for the multiple conspiracy instruction. However, this argument is not based on any of the pretrial briefing arguments or post-trial jury instruction conference arguments that each conspiracy count encompassed multiple conspiracies. Rather, defendants argue (based on their multiplicitous sentence argument) that three conspiracy counts inherently require a multiple conspiracy instruction.

This argument was never made below, and thus was waived. Even if it were not waived, the argument misconstrues the nature of a multiple conspiracy instruction, which pertains to multiple conspiracies within a conspiracy count. The district court correctly denied the multiple conspiracy instruction.



VIII. Application of Sentencing Guidelines

Smith and Bates argue that the district court erred in enhancing their sentences under the Sentencing Guidelines. "Even though the Guidelines are no longer mandatory after the Supreme Court's decision earlier this year in United States v. Booker, 125 S.Ct. 738 (2005), the district court should still consult them for advice as to the appropriate sentence, id. at 767." United States v. Kimbrew, 406 F.3d 1149, 1152 (9th Cir. 2005). We review "the district court's interpretation of the Sentencing Guidelines de novo, the district court's application of the Sentencing Guidelines to the facts of this case for abuse of discretion, and the district court's factual findings for clear error." Id. at 1151 (citation omitted).

A. U.S.S.G. §3D1.2

[30] Smith and Bates argue the district court erred by grouping the tax counts separately from the money laundering and mail and wire fraud counts, which resulted in a two-point increase in each of their offense levels. The Guidelines provide that "[a]ll counts involving substantially the same harm shall be grouped together into a single Group." U.S.S.G. §3D1.2. In part, "same harm" means the counts involve the "same victim." Id. §3D1.2(a), (b).

The government argued at sentencing that the counts in question encompassed different harms and different victims. The Presentence Investigation Reports ("PSRs") for Bates and Smith both found that the victim as to the tax fraud counts is the United States government, whereas the victims as to the mail fraud and wire fraud counts "are the clients who had their money stolen by the defendants." The district court adopted the PSRs' findings and declined to group all counts together.

[31] The district court's factual finding that multiple victims were involved is not clearly erroneous, and the district court did not abuse its discretion in applying U.S.S.G. §3D1.2.

B. U.S.S.G. §3B1.1(c)

The U.S.S.G. §3B1.1(c) aggravating role two-level enhancement applies "[i]f the defendant was an organizer, leader, manager, or supervisor in any criminal activity" involving less than five participants and that was not otherwise extensive. Smith's PSR recommended this enhancement because Smith managed the activities of Christopher Bates and Charlotte Wadsworth. The district court's adoption of this factual finding was not clearly erroneous.

IX. Increasing Smith's Sentence Based on Allocution

Near the end of Smith's sentencing hearing, the district court stated its intention "to depart somewhat from the Probation Officer's recommendations and to sentence Mr. Smith to the low end of [the] guideline range of 121 months imprisonment." Defense counsel and the prosecution presented nothing further. Then, the district court asked whether Smith wished to address the court; Smith did.

Smith made a lengthy speech, denying (1) the jurisdiction of the district court, (2) that he had any connection to any state or the United States, (3) the existence of the United States, California, Sacramento, the district court, the prosecutor, defense counsel, Judge England, a list of UBOs, and even himself, and (4) that he is a Fourteenth Amendment "person." Smith contested that the offenses he was charged with were committed by anyone, and argued that the prosecution had "failed to show any actual or threatened injury as a result of the challenged conduct." Smith demanded that the court "reconsider and withdraw the proposed sentence, reverse the conviction, enter judgment of acquittal, vacate the charges against [him], quash the indictment, dismiss the complaint and otherwise ... set [him] free."

The district court responded to Smith's speech:

The defendant's statements to the Court that were just read have made it abundantly clear to this Court that Mr. Smith has absolutely no remorse for his actions. And further, he has directly challenged this Court and its ultimate authority. Accordingly, I find that this defendant is appropriate to be sentenced not at the lower end of the guideline range but at the upper end.

Mr. Smith apparently just simply does not get it. He is a direct and continuing threat to the financial safety of the public. And this Court has the belief, well-founded belief that if he were to be released from custody at any earlier time, he would immediately resume the criminal activity for which he was on trial here in this court.

The district court then sentenced Smith to 151 months instead of 121 months. Smith's counsel made no objection to the increased sentence.

[32] Smith argues that his First Amendment free speech and Fifth Amendment due process rights were violated because he was punished with a higher sentence for expressing his views on the district court's lack of jurisdiction. But the district court made it clear that it was increasing the sentence based on Smith's lack of remorse, and his threat to the financial safety of the public when released. These are legitimate sentencing factors under 18 U.S.C. §3553(a), which include considering the "characteristics of the defendant" and the need for the sentence "to promote respect for the law," "to afford adequate deterrence to criminal conduct," and "to protect the public from further crimes of the defendant."

[33] The district court may indicate a tentative sentence and then hear from the defendant before making a final sentencing determination. See United States v. Laverne, 963 F.2d 235, 236 (9th Cir. 1992). The district court here "was able to consider the defendant's statement and was free to alter its view of the sentence if the defendant offered a sufficient reason for changing its view." Id. at 237. That the district court considered Smith's lack of remorse in sentencing him is by no means a novel concept. See United States v. Malquist [ 86-2 USTC ¶9484], 791 F.2d 1399, 1402-03 (9th Cir. 1986) ("inclusion of [defendant's] lack of repentance in the court's sentencing calculus was permissible"). The district court did not err in taking Smith's statement into consideration for sentencing. The Sentencing Guidelines, in either their mandatory or advisory status, do not insulate a defendant from his or her own foolishness.

X. Reconsideration of Bates's sentence

At sentencing, the district court stated its tentative intention to sentence Bates at the low end of the guideline range (121 months) because of Bates's medical condition. The government made "another pitch for the mid-range of 136 months" because "the defendant's criminal history is actually substantially understated." Although Bates was found not criminally liable, he was found civilly liable for fraud in the amount of $4,687,984.71.

The district court sentenced Bates to 136 months, explaining: "I have reconsidered my initial decision, and I am going to follow the recommendation of Probation for 136 months." The court further stated:

The Court wants to make it clear that the reconsideration of the sentencing is based upon not only the words that Mr. Twiss [AUSA] stated here today in open court, but also a further review of the Presentence Report and also the Court's own recollection of the magnitude of the scheme in which Mr. Bates was involved, which led to the losses of substantial sums of money, upwards of 1.8 million dollars, from varying individuals and ages, some who have lost their entire retirement system under this scheme of unincorporated business organizations.

And I want the record to reflect that as being the basis for the Court following the mid-term recommendation of 136 months.

Thus, the district court relied at least in part on proper factors, such as the magnitude of the scheme and the loss incurred by victims, in determining placement in the sentencing range. See 18 U.S.C. §3553(a)(2)(A) (sentence "to reflect the seriousness of the offense"). Furthermore, the Guidelines state that the "history" of the defendant may be considered. Id. §3553(a)(1). A civil judgment against a defendant could be a factor in the defendant's history. Thus, it does not appear that the district court relied on improper factors in sentencing Bates to the middle of the Guidelines range.

XI. Booker Issue

[34] Both Smith and Bates argue that they must be resentenced under Booker because their sentences are based on facts not found by a jury beyond a reasonable doubt. Because the defendants did not challenge their sentences on Sixth Amendment grounds in the district court, and because the record in this case does not "provide a reliable answer to the question of whether the judge would have imposed a different sentence had the Guidelines been viewed as advisory," we grant a limited remand to the district court to answer this question. United States v. Ameline, 409 F.3d 1073 (9th Cir. 2005) (en banc).


XII. Ex Post Facto Issue

Smith and Bates argue that upon resentencing, their sentences must be capped by the maximum terms of imprisonment authorized by the unenhanced base offense levels, under ex post facto principles. We have rejected that argument in United States v. Dupas, 2005 U.S. App. LEXIS 15938 (9th Cir. 2005).

CONCLUSION

For the foregoing reasons, the judgments of conviction are affirmed and the cases are remanded pursuant to Ameline.

¹ Smith and Bates were tried as co-defendants with another alleged participant in the conspiracy, Charlotte Wadsworth. Wadsworth was acquitted by the jury.

² Bates told clients that he took care of dealings with the IRS and legal advice, while Smith provided investment advice.

³ It appears from the joint reply brief that Smith joins Bates in this argument. ( "[A]ppellants' consecutive sentences on the three conspiracy counts in this case are multiplicitous and constitutionally infirm.")

⁴ Multiplicity of sentences is unlike the issue of the multiplicity of an indictment, which can be waived if not raised below. United States v. Klinger, 128 F.3d 705, 708 (9th Cir. 1997).

⁵ Title 18 U.S.C. §371 states, in part:

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

⁶ Smith mischaracterizes United States v. Hashimoto [ 89-2 USTC ¶9432], 878 F.2d 1126, 1134 n.9 (9th Cir. 1989), as determining that "general questions that did not delve into a juror's attitudes and dealings with the IRS are inadequate to expose bias of petit jurors in criminal tax cases." In Hashimoto, the trial court refused defendant's request for a jury panel list to investigate whether the jurors had been audited by the IRS, as he was entitled to do under 26 U.S.C. §6103(h)(5). [ 89-2 USTC ¶9432], 878 F.2d at 1129-33. Because of the specificity of the §6103(h)(5) inquiry, general questions on juror impartiality did not overcome the presumption of prejudice from the denial of the list. Id. at 1134 n.9. However, the court found that the presumption of prejudice could be overcome by juror voire dire on past audits and attitudes toward the IRS. Id. at 1134. Hashimoto does not hold that grand jurors in tax cases must be asked such questions.

⁷ Rule 41(d) stated, in relevant part: "The officer taking property under the warrant shall give to the person from whom or from whose premises the property was taken a copy of the warrant and a receipt for the property taken or shall leave the copy and receipt at the place from which the property was taken."

⁸ Defendants mistakenly argue that this case is "indistinguishable" from United States v. Dahlstrom [ 83-2 USTC ¶9557], 713 F.2d 1423, 1429 (9th Cir. 1983), which held that "[p]rosecution for advocacy of a tax shelter program in the absence of any evidence of a specific intent to violate the law is offensive to the first and fifth amendments of the United States Constitution." Dahlstrom's holding is limited to pure advocacy or speech cases. See United States v. Schulman [ 87-1 USTC ¶9334], 817 F.2d 1355, 1359 (9th Cir. 1987) ( Dahlstrom is properly read as an advocacy case); United States v. Russell [ 86-2 USTC ¶9801], 804 F.2d 571, 576 (9th Cir. 1986) (Ferguson, J., concurring) (as a member of the Dahlstrom panel, describing the case as "primarily a First Amendment case involving pure advocacy").

 

 

 

 

[2005-2 USTC ¶50,538] United States of America , Plaintiff v. Richard E. Reiss, Defendant.

U.S. District Court, Dist. Minn. ; 04-156 (PAM/RLE), June 9, 2005 .

[ Code Sec. 7206]

District court: Trial: Evidence: Admissibility: Prior bad acts. --

Evidence that a tax return preparer agreed to pay 60 penalties for understating tax liability for multiple tax years was admissible in a criminal trial in which the tax return preparer was charged with aiding the preparation and presentation of false tax returns. The imposition and payment of the penalties was material to the criminal case and was reasonably close in time to the criminal indictment. Additionally, the circumstances surrounding the imposition of the penalties was substantially similar to the facts alleged in the criminal case and was sufficient to prove the prior bad acts. Likewise, evidence of a civil judgment against the tax preparer obtained by clients was admissible because it was evidence of bad acts that formed the factual setting of the crime in issue. Finally, evidence of the tax preparer's failure to file personal tax returns, the reasons for the revocation of his CPA license and a decision by the Department of Economic Security to impose a higher tax rate on his renamed company due to unpaid taxes was inadmissible as irrelevant.

MEMORANDUM AND ORDER

MAGNUSON, District Judge: This matter is before the Court on Defendant Richard Reiss's Motion in Limine. For the reasons that follow, the Motion is granted in part and denied in part.

BACKGROUND

Defendant Richard Reiss, a tax preparer, is charged with aiding in the preparation and presentation of false tax returns from 1999 through 2002 in violation of 26 U.S.C. §7206(2). In particular, the Government alleges that Reiss overstated over $1,000,000 in expenses in eighty-six tax returns, thereby causing a $232,226 tax loss to the United States . Trial begins on June 13, 2005 . The Government has notified Reiss that it intends to introduce evidence of his past conduct in both its case in chief and in rebuttal. Reiss has filed a Motion in Limine to exclude much of that evidence.

DISCUSSION

A. Prior Acts Evidence in the Government's Case in Chief

1. Civil Penalties

The Government seeks to introduce evidence in its case in chief that Reiss agreed to pay sixty penalties to the Internal Revenue Service for understating tax liability for tax years 1984-1986 due to negligence or intentional disregard of internal revenue rules and regulations. Similarly, it seeks to introduce evidence that the Internal Revenue Service assessed civil penalties against Reiss after determining that Reiss willfully or negligently overstated tax deductions in some of the returns he prepared for tax years 1986-1987.

Reiss argues that this evidence should be excluded because it is irrelevant and inadmissible character evidence. The Government asserts that it will use the evidence to prove that Reiss knew that overstating expenses on tax returns --and thereby understating tax liability --was unlawful.

a. Federal Rule of Evidence 404(b)

Rule 404(b) of the Federal Rules of Evidence prohibits the admission of evidence of the accused's bad acts if the evidence is offered to show the accused acted in conformity with the prior bad acts. However, the Rule allows admission of prior acts evidence if it is offered for a non-propensity purpose, "such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident." Fed. R. Evid. 404(b); United States v. Adams , 898 F.2d 1310, 1313 (8th Cir. 1989). When intent is an element of the crime charged, "evidence of other acts tending to establish that element is generally admissible." Adams, 898 F.2d at 1312 (quoting United States v. Miller, 725 F.2d 462, 466 (8th Cir. 1984)); see also United States v. Southwest Bus Sales, Inc., 20 F.3d 1449, 1456-57 (8th Cir. 1994) (intent is at issue when it is an element of the crime charged and is necessary to the government proving its case beyond a reasonable doubt). Moreover, Rule 404(b) is a rule of inclusion. United States v. Crenshaw, 359 F.3d 977, 998 (8th Cir. 2004). However, it "does not give the government the unhindered ability to introduce evidence of prior acts." Id. Instead, the prior acts evidence must be: (1) relevant to a material issue; (2) similar in kind and close in time to the charged crime; (3) established by a preponderance of evidence; and (4) such that its probative value is not outweighed by any prejudicial impact. Crenshaw, 359 F.3d at 998 (citing United States v. Williams, 308 F.3d 833, 837 (8th Cir. 2002)).

Reiss argues that evidence relating to the civil penalties is not relevant to a material issue at hand. To the contrary, the imposition and payment of civil penalties put Reiss on notice that his conduct in overstating expenses in tax returns violated federal law. Accordingly, the evidence is relevant to prove intent, knowledge, and absence of mistake.

Reiss also contends that the impositions of civil penalties are neither similar nor close in time to the offenses charged. In particular, Reiss notes that the penalties were imposed twelve years before the offenses charged in the Superseding Indictment. In addition, he notes that the penalties relating to his preparation of 1984-1986 tax returns were imposed because of his negligent or intentional disregard for internal revenue rules or regulations --and not for the willful understatement of tax liability. ¹

Although the prior acts occurred twelve years before the offenses charged in the Superseding Indictment, that fact does not render the evidence relating to the prior acts inadmissible. See, e.g., United States v. McCarthy, 97 F.3d 1562, 1573 (8th Cir. 1996) (seventeen years separating offenses); United States v. Holmes, 822 F.2d 802, 804-05 (8th Cir. 1987) (twelve years separating offenses); United States v. Engleman, 648 F.2d 473, 479 (8th Cir. 1981) (thirteen years separating offenses). Courts do not employ an absolute rule regarding the number of years that can separate offenses. Instead, they apply a reasonableness standard and examine the facts and circumstances of each case. United States v. Hardy, 224 F.3d 752, 757 (8th Cir. 2000) (discussing cases permitting introduction of Rule 404(b) evidence despite separations in occurrences of offenses ranging from twelve to seventeen years).

The type of conduct involved in the imposition of the civil penalties is substantially similar to the type of conduct that is involved in this case: the overstatement of expenses that resulted in the understatement of tax liability. Based on the similarities of the conduct, as well as the probative value of the evidence, the Court concludes that the prior acts evidence is both similar in kind and close in time to the charged offenses.

Finally, Reiss maintains that the civil penalties do not establish by a preponderance of evidence that he actually committed the prior bad acts. He ignores the fact that he agreed to the assessment of the penalties relating to his preparation of 1984-1986 tax returns, and that the penalties assessed relating to his preparation of the 1986-1987 tax returns were sustained by this Court. Thus, his argument that proof of his prior conduct is insufficient fails.

b. Federal Rule of Evidence 403

Reiss also submits that the evidence of prior civil penalties should be excluded under Federal Rule of Evidence 403 because it presents a threat of unfair prejudice, confusion, and undue delay. While the evidence of prior civil penalties is undoubtedly prejudicial, Rule 403 "is concerned only with unfair prejudice, that is, an undue tendency to suggest decision on an improper basis." United States v. Fletcher [ 2003-1 USTC ¶50,283], 322 F.3d 508, 518 (8th Cir. 2003) (internal quotations and citation omitted). As in Fletcher, evidence in this case of previous civil penalties, which relate to acts similar to those charged in the indictment, possesses significant probative value, especially with respect to establishing Reiss's knowledge and intent. Moreover, any threat of prejudice or confusion will be allayed by an instruction that the evidence of the civil penalties cannot be considered to prove that Reiss committed the offenses charged in the Superseding Indictment. Accordingly, the Court finds that the probative value of the evidence is not substantially outweighed by the danger of unfair prejudice, confusion, or delay. The evidence relating to the civil penalties is admissible.

2. Civil Adjudication

The Government seeks to introduce evidence that Arnold and Annette Zach obtained a judgment against Reiss in conciliation court based on his preparation of their 1997-1999 tax returns. The Government intends to elicit testimony that the Zachs did not provide Reiss with expense information he used in their tax returns. These allegations comprise Counts 22 and 23 of the Superseding Indictment.

Any objection to the admissibility of this evidence based on Rule 404 is unavailing for two reasons. ² First, Fletcher is directly on point and clearly allows the admissibility of prior civil adjudications arising out of the past provisions of tax services. [ 2003-1 USTC ¶50,283], 322 F.3d at 518. Second, "bad acts that form the factual setting of the crime in issue or that form an integral part of the crime charged" do not fall within the scope of Rule 404. United States v. Heidebur, 122 F.3d 577, 579 (8th Cir. 1997) (quoting United States v. Williams, 95 F.3d 723, 731 (8th Cir. 1996)). Because the evidence relating to the civil action is inextricably linked with the charged offenses, it is admissible. Id. (citing United States v. McGuire, 45 F.3d 1177, 1188 (8th Cir. 1995)).

3. Employee Testimony

The Government intends to examine four employees of Richard E. Reiss & Associates and elicit testimony that they signed tax returns that Reiss prepared while he was suspended by the Internal Revenue Service. Generally, this testimony may be probative and therefore admissible, if it explains how Reiss allegedly aided in the preparation and presentation of income tax returns. See United States v. Brownlee, 890 F.2d 1036, 1441-42 (8th Cir. 1989).

However, the Government also seeks to introduce power of attorney forms signed by one of the employees, wherein the employee falsely indicated that he was a licensed certified public accountant. The fact that the employee made a false statement on the power of attorney forms is not probative to the allegations that Reiss willfully aided in preparing fraudulent tax returns, and therefore may be excluded under Rule 402. However, the fact that the employee made a false statement on the forms may go to the employee's credibility and therefore may be admissible under Rule 608. The Court will address this issue during trial if needed.

B. Prior Acts Evidence in the Government's Rebuttal

1. Untimely Tax Returns

The Government seeks admission of evidence that Reiss did not file timely tax returns for several years between 1978 and 1989. It also wants to offer evidence that Reiss has not filed his 2001-2004 personal tax returns --even though Reiss has been granted an extension until August 2005. Reiss contends that this evidence is irrelevant and will be used solely to impermissibly taint his character. The Government responds that the evidence is admissible under Rule 404.

Considering the four factors used to analyze admissibility under Rule 404(b), the Court finds that the evidence of untimely filings must be excluded. First, the prior acts evidence is only marginally relevant to whether Reiss willfully aided in the preparation and presentation of fraudulent tax returns. Indeed, the prior acts evidence is relevant only to show that Reiss engaged in other misconduct with the Internal Revenue Service, thereby showing that Reiss has a propensity to disregard tax law. This is precisely what Rule 404(b) prohibits. Second, the prior acts evidence involves conduct that is markedly different from the alleged conduct in this case. The prior conduct involving the late filing of tax returns differs substantially from the alleged assistance in preparing fraudulent tax returns. Finally, the potential prejudice of the prior acts evidence substantially outweighs its probative value. From the prior acts evidence, a juror may infer that Reiss has a propensity to disregard all tax law and use that inference to conclude that he is guilty of the offenses in this case. Thus, the evidence of previous untimely tax filings is inadmissible under Rule 404(b).

The Government also contends that it may use the untimely tax filings evidence to rebut Reiss's claims that he relied on others for the expense amounts he used in the tax returns. The Government may introduce evidence to rebut evidence presented by Reiss about his good character. See Fed. R. Evid. 404(a)(1). However, the fact that Reiss filed his personal income taxes in an untimely manner over a decade prior to the charged offenses bears no relevance to Reiss's credibility or character as it relates to the willful preparation of fraudulent tax returns. The evidence is therefore inadmissible under Rule 404(a).

Indeed, the evidence of the untimely filings is not relevant to any material issue in this case and is therefore inadmissible. See Fed. R. Evid. 401; Fed. R. Evid. 402.

2. License Revocation

The Government wants to introduce evidence that the Minnesota Board of Accountancy revoked Reiss's certified public accountant license in 1994, after it determined that Reiss obtained credit cards in the name of one of his clients and used the cards to buy merchandise between 1990 and 1991. Whether the revocation was permanent and whether Reiss committed any of the charged offenses while the revocation was in effect is unclear. Reiss argues that Rules 403 and 404(b) bar the admission of evidence relating to the revocation.

The Government also seeks to introduce a letter that Reiss sent to his clients after the revocation of his license, which advises them that his suspension did not involve negligence or malpractice. The Government construes the letter as disingenuous because it fails to advise the clients that the suspension involved intentional misconduct and allegations of fraud. Reiss objects, maintaining that the letter is neither dishonest nor probative and therefore inadmissible under Rules 402, 403, and 404(b).

Although the fact that Reiss was suspended by the Board of Accountancy may be relevant and therefore admissible, evidence relating to the underlying reasons for the suspension must be excluded under Rule 404(b). First, Reiss's conduct that led to the suspension is entirely independent and only marginally relevant to whether Reiss willfully aided in the preparation and presentation of fraudulent tax returns. Indeed, evidence of his conduct is relevant only to show that Reiss engaged in other dishonest behavior, thereby showing that Reiss has a proclivity to commit fraud. This is precisely what Rule 404(b) prohibits.

Second, although both involve fraudulent conduct, the prior conduct is markedly different from the alleged conduct in this case. Defrauding a client by using her name on a credit card differs substantially from defrauding the Government by preparing fraudulent tax returns. The victims are different, the beneficiaries are different, the methods of fraud are different, and the schemes are completely unrelated. See Schneider v. Revici, 817 F.2d 987, 991-92 (2d Cir. 1987) (questioning the relevancy of a suspension of a medical license and medicaid payments as it related to fraud claims).

Finally, the potential prejudice of the prior acts evidence substantially outweighs its probative value. From the prior acts evidence, a juror may infer that Reiss has a propensity to defraud others and use that inference to conclude that Reiss is guilty of the offenses charged in this case. Thus, evidence relating to why the Minnesota Board of Accountancy revoked Reiss's certified public accountant license --including the letter that Reiss sent to his clients --is inadmissible under Rule 404(b). However, if Reiss committed any of the alleged offenses while his license was revoked, that fact is relevant. Accordingly, evidence that Reiss's license was revoked while he committed the alleged offenses is admissible.

3. Department of Economic Security Decision

The Government seeks to introduce into evidence a decision by the Department of Economic Security, which found that Richard E. Reiss & Associates was the successor to Richard E. Reiss & Co. and therefore imposed a higher employer tax rate because Richard E. Reiss & Co. did not pay nearly $2,000,000 in wage taxes. Reiss objects, arguing that the evidence is irrelevant and prejudicial. The Court agrees, as the Department of Economic Security decision does not make a consequential fact in the case against Reiss more or less probable. See Fed. R. Evid. 402. Moreover, the danger of unfair prejudice and confusion of issues substantially outweighs the probative value of the evidence. See Fed. R. Evid. 403. Accordingly, the evidence is excluded.

4. Power of Attorney Form

The Government seeks to introduce evidence that Reiss filed a power of attorney in August 2000 on behalf of a taxpayer while Reiss was suspended from appearing as a taxpayer representative before the Internal Revenue Service. The power of attorney indicates that Reiss is an "unenrolled return preparer under §10(c)(viii) of the Treasury Department Circular No. 230" and does not claim to be a certified public accountant. Reiss objects, arguing that he did not make a dishonest statement in the form, and therefore the evidence is irrelevant and prejudicial. The Court will reserve ruling on the admissibility of this evidence until trial.

CONCLUSION

The Government notified Reiss of its intent to introduce other prior acts evidence at trial. However, Reiss has not sought to exclude such evidence. Thus, the Court will reserve ruling on the admissibility of the remaining prior acts evidence until trial. Accordingly, IT IS HEREBY ORDERED that Defendant's Motion in Limine (Clerk Doc. No. 76) is GRANTED in part and DENIED in part as set forth above.

¹ The penalties imposed for Reiss's preparation of 1986-1987 tax returns involved him overstating expenses to reduce taxable income. Those penalties were assessed under 26 U.S.C. §6694(b) for the willful understatement of tax liability.

² Reiss did not object to evidence of the prior adjudication in his Motion in Limine, but the Government briefed its position on the admissibility of the evidence in its pretrial memoranda.