Motion to Sever

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7206- Fraud and False Statements: Motion to Sever

 

[80-1 USTC ¶9309] United States of America , Plaintiff-Appellee v. Michael William Strand, Defendant-Appellant

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 79-1155, 617 F2d 571, 3/19/80

[Code Sec. 7206]

Returns: Fraudulent: Sale of securities.--The taxpayer's conviction by a jury of willfully filing a false and fraudulent return was affirmed because the taxpayer failed to prove that the trial judge committed reversible error in the conduct of the trial or in the instructions given to the jury.

Ronald L. Rencher, United States Attorney, Steven W. Snarr, Assistant United States Attorney, Salt Lake City, Utah 84101, for plaintiff-appellee. Richard J. Leedy, 610 E. S. Temple, Salt Lake City , Utah , for defendant-appellant.

Before MCWILLIAMS, BARRETT and MCKAY, Circuit Judges.

BARRETT, Circuit Judge:

Michael William Strand (Strand) appeals his jury convictions of subscribing a false income tax return in violation of 26 USCA §7206(1) and fraud in the sale of securities in violation of the Securities Act of 1933, 15 U. S. C. A. §77q(a) and 77x. A third charge for interstate transportation of stolen property was dismissed upon Strand 's motion at the conclusion of the Government's case.

The alleged violations occurred during 1973. Strand was then involved in numerous selling and purchasing stock transactions of Epoch Corporation (Epoch), being traded on the over-the-counter exchange. Strand effectuated these transactions through his own accounts and through various nominee accounts ¹ at different brokerage houses. By utilizing both his own and various nominee accounts, Strand was able to control the purchase and sale "prices" of Epoch stock and create the appearance of an active market for its securities. In summarizing these transactions, Special Agent David Jensen of the Internal Revenue Service estimated Strand 's Epoch transactions produced gross receipts of $293,793.37. The Government also established that during this same time frame, Strand was involved in preparations for two mergers for which he received finder's fees of $29,000.00.

Exhibit 27, admitted as a certified copy of Strand 's income tax return for 1973, showed zero tax computations and income. It did not contain references to the gross receipts relating to Strand 's sale of stocks or the aforesaid finder's fees.

Strand defended the charge that he had subscribed a false income tax return in violation of §7206(1) on the basis that he had actually suffered a loss of $7,000 in 1973 on the Epoch transactions; that he did not realize he had any tax reporting obligation until after 1973 when he "heard" that even though he did not have income he was obligated to file; and that, accordingly, in January, 1975, he filed a 1973 return.

Strand defended the fraud in the sale of securities charge on the basis that: he took over trading in Epoch corporation when he thought its proposed merger with an insurance company would cause its stock to increase in value; the sale of Epoch stock, giving rise to the charges, was initiated by one Bruce Allen Jensen (Jensen); Jensen managed the entire transaction and was the principal actor throughout the whole transaction; he (Strand) was not aware that his account had been improperly used by Jensen; and when, as here, the alleged defrauded party, Jensen, was a principal in the transaction and wholly aware of the nature of the fraud, there was no fraud on that person simply because the transaction did not prove to be as beneficial as expected.

Following the jury verdicts of guilty on the charges of subscribing a false tax return (Count I) and fraud in the sale of securities (Count II), Strand was sentenced to three years on Count I, and five years on Count II, with all but six months suspended. Strand was ordered to serve the six months in a "jail type" facility. He was placed on probation for the balance of the sentence.

On appeal, Strand contends the trial court erred, inter alia, in: (1) instructing the jury on materiality in Count I; (2) not granting his motion to sever the Counts; (3) allowing specific evidence "of the general bad character of the appellant"; (4) imposing a different burden of proof on Count II in contradiction to another disstrict judge's previous ruling; (5) not correcting the prejudicial error committed by the prosecutor's failure to produce evidence properly discoverable under Rule 16(a)(1)(A); and (6) refusing to dismiss Count II because of prejudicial pretrial delay.

I. Strand contends the Court erred in instructing the jury on the materiality issue found in Count I of the indictment and in treating the issue as one of law. Strand argues that in so instructing, the Court effectively denied him his right to trial by jury.

Count I charged Strand with subscribing a false tax return in violation of §7206(1). Section 7206(1) provides in part:

Any person who--

1) Willfully makes and subscribes any return, . . . which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true as to every material matter, . . .

* * *

shall be guilty of a felony . . .

In instructing on Count I the Count stated:

The question of materiality of the allegedly false statements made in connection with the subscribing of a tax return is a question of law for the Court. The Court instructs you that if you find that a substantial amount of gross receipts or other income was omitted from the tax return at issue herein, such omission is of a material matter as contemplated by Section 7206, Subsection 1, of Title 26 of the United States Code.

[R., Supp. Vol. VI at p. 921].

Section 7206(1) is a felony statute, which "is violated when one '[willfully makes and subscribes any return', under penalties of perjury, 'which he does not believe to be true and correct as to every material matter'". United States v. Bishop [73-1 USTC ¶9459], 412 U. S. 346 (1973) at p. 350.

While acknowledging that there is a diversity of authority on whether the issue of materiality under §7206(1) is properly one of law for the court, Strand contends that the correct rule is set forth in United States v. Null [69-2 USTC ¶9641], 415 F. 2d 1178 (4th Cir. 1969) wherein the Court stated that the test of materiality was:

. . . whether a particular item must be reported "in order that the taxpayer estimate and compute his tax correctly". . . . This issue was properly submitted to the jury.

415 F. 2d at p. 1181.

This Court has not heretofore ruled on whether the issue of materiality under §7206(1) is properly one of fact for the jury or one of law for the court. We hold that it is one of law for the court. We agree with this rationale contained in United States v. Taylor [78-1 USTC ¶9474], 574 F. 2d 232 (5th Cir. 1978), cert. denied, 439 U. S. 893 (1978).

This appeal raises squarely the question of whether a taxpayer's failure to report substantial amounts of gross livestock receipts on Schedule F renders the return materially false. We hold that it does.

The trial judge did not err in deciding the question of materiality as a matter of law rather than submitting it to the jury. We have long held that in a prosecution for perjury the materiality of the false statement is a question of law. Blackmon v. United States , 108 F. 2d 572, 574 (5th Cir. 1940). The rule applies to prosecutions under section 7206(1). Hoover v. United States [66-1 USTC ¶9343], 358 F. 2d 87 (5th Cir. 1966), cert. denied 385 U. S. 822, 87 S. Ct. 50, 17 L. Ed. 2d 59 (1966); accord, United States v. Romanow [75-1 USTC ¶9153], 509 F. 2d 26 (1st Cir. 1975).

574 F. 2d at p. 235.

The Court, in Taylor , supra, further noted:

Other courts of appeals have considered directly whether omission of gross receipts is a material falsehood. In Siravo v. United States [67-1 USTC ¶9446], 377 F. 2d 469 (1st Cir. 1967), the court affirmed a conviction under section 7206(1), holding that gross receipts from the taxpayer's business were "material items necessary to the computation of income." Id. at 472. In striking similarity to Taylor, Siravo received wages, which he reported, ⁸ and also operated a jewelry assembling business. He made no entry on his Form 1040 opposite the heading "profit (or loss) from business," nor did he file a separate Schedule C. The government proved that he had received gross receipts ranging from $22,242 to $54,319 for the three years in question.

574 F. 2d at p. 236. [Footnote omitted].

This view was also adopted in United States v. Warden [76-2 USTC ¶9790], 545 F. 2d 32 (7th Cir. 1976). The Court there stated:

The test of materiality with respect to a false return case "is whether a particular item must be reported 'in order that the taxpayer estimate and compute his tax correctly.'" United States v. Null [69-2 USTC ¶9641], 415 F. 2d 1178, 1181 (4th Cir. 1969). Since deductions are subtracted from gross income or adjusted gross income to reduce the ultimate tax liability, they are material to the contents of the return. Stated otherwise, the deduction will invariably affect the taxpayer's liability. Thus, when Judge McLaren instructed the jury that the deductions were material matters as that term is used in the indictment, he did no more than state the obvious fact that deductions affect the computation of tax liability.

545 F. 2d at p. 37.

In adopting this rule, we do not, as well stated in United States v. Haynes [78-1 USTC ¶9455], 573 F. 2d 236 (5th Cir. 1978), cert. denied, 439 U. S. 850 (1978), interfere with the jury's obligation of deciding the ultimate issue of whether the returns were willfully falsified:

Accordingly, we hold that the materiality question under §7206(2) should be treated no differently than the same issue under §7206(1) and other federal perjury statutes. That is, materiality is a question of law to be decided by the court. We point out that the jury still must decide the ultimate issue of whether the returns had been willfully falsified, and this issue is generally the focal point of of §7206 cases. See United States v. Pomponio [76-2 USTC ¶9695], 429 U. S. 10, 97 S. Ct. 22, 50 L. Ed. 2d 12 (1976); United States v. Bishop [73-1 USTC ¶9459], 412 U. S. 346, 93 S. Ct. 2008, 36 L. Ed. 2d 941 (1973); United States v. Brown, supra. In the instant case, the jury had to find that Haynes had willfully inflated legitimate deductions or manufactured nonexistent deductions in order to find him guilty. See United States v. Warden [76-2 USTC ¶9790], 545 F. 2d 32 (7 Cir. 1976). Thus, the trial judge in the instant case correctly concluded that the materiality question was one of law for the court to decide.

573 F. 2d at pp. 240-241.

II. Strand argues that the Court erred in not granting his motion to sever Count I, (subscribing a false tax return) from the counts of fraud in the securities transactions and interstate transportation of stolen property. (As noted, supra, Count III, charging Strand with interstate transportation of stolen property was dismissed by the Court at the end of the Government's case.)

Strand contends that the joinder of Counts I and II was improper under the Fed. Rules Cr. Proc. rule 8(a), 18 U. S. C. A., which provides:

(a) Joinder of Offenses. Two or more offenses may be charged in the same indictment or information in a separate count for each offense if the offenses charged, whether felonies or misdemeanors or both, are of the same or similar character or are based on the same act or transaction or on two or more acts or transactions connected together or constituting parts of a common scheme or plan.

Strand further argues that even if Counts I and II were properly joined under Rule 8(a), the Court abused its discretion in failing to grant his motion to sever and elect under Fed. Rules Cr. Proc. rule 14, 18 U. S. C. A. Rule 14 provides in part:

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

The decision to grant a severance is within the sound discretion of the trial court and its decision will not ordinarily be reversed in the absence of a strong showing of prejudice. United States v. Heath, 580 F. 2d 1011 (10th Cir. 1978), cert. denied, 439 U. S. 1075 (1979). A trial court may grant a severance if it appears that the defendant or Government is prejudiced by joinder. United States v. Herring, 582 F. 2d 535 (10th Cir. 1978). In order to obtain a severance, a defendant must show clear prejudice resulting from joinder at trial. United States v. Bridewell, 583 F. 2d 1135 (10th Cir. 1978). The fact that severance would improve chances for acquittal is not sufficient. United States v. Heath, supra; United States v. Campanale, 518 F. 2d 352 (9th Cir. 1975), cert. denied 423 U. S. 1050 (1976).

Applying these standards to the case at bar, we hold that the trial court did not err in refusing to grant Strand 's motion for severance. The interrelationship of the evidence, vis-a-vis the charges of submitting a false tax return and fraud in the sale of securities, was extremely clear, and, for the most part, inseparable. Strand's argument that the investigations of the charges were handled separately and that severance was necessarily proper is of no moment, when, as here, evidence of submitting a false tax return was directly related to evidence of fraud in the sale of securities. Furthermore, as urged by the Government, the Court properly instructed the jury on the separate nature of the offenses charged:

[By the Court]

You are instructed that you must consider each of the two counts by itself. Each offense charged is a separate offense and must be considered by you as a separate offense.

If the essential elements charged as to any count have been established by the evidence to your satisfaction and beyond a reasonable doubt, it is your duty to find the defendant guilty as charged in the particular count of the indictment. On the contrary, if any one or more of the essential elements of the offense charged as to any count has not been established by the evidence to your satisfaction and beyond a reasonable doubt, or if you believe the defendant to be not guilty of such count, or if you have a reasonable doubt thereof, it is your duty to return a verdict of not guilty as to the defendant as to such count.

[R., Supp. Vol. VI at pp. 918-919].

We hold that the trial court did not err in refusing to grant Strand 's motion to sever.

III. Strand contends "[t]he trial court committed error as to Count II of the indictment in instructing the jury in the alternative as to acts sufficient to convict where another district judge had imposed a different burden on the prosecution in refusing to dismiss Count II as duplicitous, and as framed Count II of the indictment was insufficient to allow defendant to know the nature of the charge against him and was duplicitous." [Appellant's brief at p. 39]. Disposition of this contention requires elaboration of specific facts relating thereto.

Several weeks prior to trial, on September 22, 1978 , a hearing was held on Strand 's motion to dismiss Count II of the indictment. During the course of the hearing Strand argued that Count II was duplicitous in that three sales were set forth in the indictment, that the most fatal defect in the indictment was the failure to allege the instrumentalities (of interstate commerce) which were used and how, and that it was impossible to defend the case "unless I know what . . . [Strand] . . . is charged with doing".

In response, Government counsel stated that the indictment was sufficient in that it: (1) charged a crime with sufficient clarity so as to allow Strand to prepare a defense and (2) protected Strand against being twice placed in jeopardy for the same offense that Count II of the indictment set forth one scheme or device in connection with the offer or sale of certain securities; and that the six subparagraphs of Count II setting forth specific events and transactions all portray and describe different aspects of a complete transaction, and, as such, they all constitute part of one scheme.

In denying the motion to dismiss, the Court stated:

The Court will rule that the motion is denied. The Government is charged with proving all of those things and it is the sales as contemplated under the statute.

[R., Supp. Vol. I at p. 23].

In so doing the Court ruled, according to Strand , that the Government was obligated to prove each of the offenses conjunctively alleged in Count II.

Strand 's case was thereafter assigned to another judge. After all of the trial evidence was presented, but prior to the Court's instructions to the jury, the following colloquy occurred in chambers:

THE COURT: All right. Make your motion.

MR. LEEDY: [Counsel for Strand] If it please the Court, prior to instructing the jury, we would request that the Court give an instruction that the government be required to prove all of the allegations contained in count two of the indictment. This motion is made on the grounds and for the reason of the earlier ruling of Judge Anderson in this case that the indictment would not be dismissed, because of the representations of the U. S. Attorney that they would prove all of the allegations contained in count two, and that such proof would be necessary before a conviction.

MR. SNARR: [Government Attorney] I would like to respond to that, Your Honor, if I might.

THE COURT: All right.

MR. SNARR: I think what Mr. Leedy has reference to are the six subparagraphs of the count two which spell out the scheme to defraud that the government has alleged. We do allege that each of those six subparagraphs are part of the same scheme to defraud, and that they are all interrelated and a necessary part of that scheme. We feel that the Court's suggested instruction coming from Devitt and Blackmar, Section 54.07, covers the point in that it requires that the jury find the defendant to be involved with that particular scheme which we have spelled out in those six subparagraphs, and with that instruction, and entitled, "You must find specific scheme as charged," we believe that that is an appropriate instruction consistent with the law, and also consistent with Judge Anderson's ruling on that point.

THE COURT: Well, if I had made a ruling, I would have reversed myself. If that's what he's ruled, that you have to prove every one of them, because that's not the law. The law is that they must prove one or more. And that's the way I'm going to rule. So the motion will be denied.

[R., Supp. Vol. VI at pp. 844-845].

Pursuant to this ruling, the Court instructed the jury in detail relative to Count II by reading Count II, verbatim, and by reading §§ 77q(a) and 77x verbatim and thereafter further instructing:

The burden is on the prosecution to prove each of these elements beyond reasonable doubt. The law never imposes on the defendant in a criminal case the burden of introducing any evidence or of calling any witnesses.

[R., Supp. Vol. VI at p. 926].

Strand contends that by reason of the aforesaid pretrial ruling of Judge Anderson the Government was obligated to prove each of the offenses conjunctively alleged in Count II, i. e., that he did employ a device, scheme, and artifice to defraud; that he had obtained money and property by means of untrue statements of material facts and omissions; and that he engaged in transactions and practices in a course of business which operated as a fraud and deceit upon principals of Epoch Corporation stock. [Appellant's Brief at pp. 39-40]. Thus, Strand contends that the Court, at the pretrial motion hearing, ruled that the Government was obligated to prove, conjunctively, the violations set forth disjunctively under §77q(a) which provides:

§77q. Fraudulent interstate transactions

(a) It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly--

(1) to employ any device, scheme, or artifice to defraud, or

(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(3) to engage in any transportation, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

15 U. S. C. A., §77q(a). [Emphasis supplied].

We disagree with Strand 's construction of the two rulings in question. It is clear that during the course of the pretrial hearing, Strand repeatedly argued that Count II was duplicitous in that the six subparagraphs set forth therein alleged three separate violations. It is equally clear that the Government defended Count II on the basis that it set forth and alleged one scheme or artifice to defraud and that the subparagraphs simply delineated or identified the interrelated events and transactions forming the single scheme or artifice to defraud. It is in this setting that the trial court, in our view, correctly ruled that because the Government was alleging a single scheme or artifice to defraud, it had to prove each of the events and transactions delineated within the six subparagraphs of Count II. Such a ruling, however, is not in conflict with the trial court's subsequent ruling, prior to submitting instructions to the jury, that under §77q(a) the Government need only prove one or more of the three subsections set forth therein. Thus, we hold that the rulings were not in conflict. One presiding judge at pretrial ruled on the burden of proof relating to a particular count, and thereafter the trial court judge ruled on the proof necessary to convict under a specific statute. To be sure, we acknowledge the direct relationship between Count II and §77q(a). Even so, the rulings are not pari materia as alleged by Strand . Thus, they do not give rise to any prejudice or reversible error. This is particularly true, when, as here, the instructions given, when considered in whole, were proper and adequate.

IV. Whereas Strand attacks the sufficiency of the evidence under Count II vis-a-vis the participation of Bruce Allen Jensen as an officer of Associated Underwriters, he has failed to cause to be transmitted to this Court as part of the record on appeal, a transcript of the trial proceedings. See: United States v. Hubbard, 603 F. 2d 137 (10th Cir. 1979). Thus, we decline to consider any sufficiency of evidence contentions "since we cannot make a meaningful evaluation of the claim of error". Herron v. Roselle , 480 F. 2d 282, 288 (10th Cir. 1973).

Assuming, without conceding, on the basis of Strand's record on appeal, that Strand's appellate brief constitutes a challenge to the sufficiency of the evidence, we are bound, in reviewing the sufficiency of the evidence, following a verdict of guilty, to view the evidence in the light most favorable to the Government to determine whether there is sufficient substantial proof, direct and circumstantial, together with reasonable inferences to be drawn therefrom, upon which a defendant might be found guilty beyond a reasonable doubt. United States v. Gibbons, 607 F. 2d 1320 (10th Cir. 1979). Viewed in this light we are satisfied that the evidence amply supports the conviction.

V. We have carefully considered Strand 's remaining allegations of error. We hold that they are, individually and collectively, without merit.

WE AFFIRM.

¹ A nominee account is one in which the account is listed in the name of an individual, when in fact the transactions within the account are for someone other than the named individual.

Concurring and Dissenting Opinion

MCKAY, Circuit Judge, concurring in part and dissenting in part:

I concur with the majority's treatment of the issues concerning Count I of the indictment. I believe, however, that Part III of the majority opinion seriously undermines a fundamental tenet of our jurisprudence--that an accused defendant "be informed of the nature and cause of the accusation," U. S. Const. amend. VI, in order that he may prepare and present his defense.

I agree with the majority that Judge Anderson, who presided at the pretrial hearing, imposed on the government the obligation to prove the six alleged events and transactions set out in Count II, but not each of the alternative subparts of §17(a) of the Securities Act of 1933. However, I find no basis for the majority's position that the trial judge did not reverse Judge Anderson on that more limited issue. I do not find in the trial judge's language, reproduced by the majority at page 14 of its opinion, even the slightest room for doubt about the subject of his ruling.

A comparison of the pretrial hearing discussion with the trial judge's jury instructions makes clear that the majority's characterization is at odds with what in fact occurred. Immediately before his ruling, Judge Anderson engaged in the following colloquy with the government attorney:

THE COURT: Well, if [the six events and transactions] are all interrelated then you are saying you have to prove them all.

MR. SNARR: I am happy and comfortable with that, Your Honor. I am not sure I am willing to say at this point if I missed one I would not have proved the total scheme to the satisfaction of the jury. We think they are all part of the scheme and we had to charge them all and we would be attempting to prove them all in support of the one charge and that's the scheme to defraud.

Record, vol. 1, at 22. Judge Anderson then charged the government with "proving all of those things." Id. at 23. In contrast, the trial judge instructed the jury that the fraudulent scheme could be shown much more easily:

While a number of representations are alleged in the indictment, it is not incumbent upon the government to prove each and every one of them, but is incumbent upon the government to prove one or more, or a sufficient number of them to indicate and show to you beyond reasonable doubt that the scheme alleged was actually set up.

Record, supp. vol. 6, at 932. I cannot imagine a more sharply defined reversal of legal theories.

The implications of the majority's opinion are especially troublesome. In this case the defendant properly believed that the government was working under one theory, and his defense was based upon that understanding. Only after his entire case was presented were the rules of the game changed. To hold, as the majority does, that the rulings "do not give rise to any prejudice," maj. op. at 16, is to render the mandates of the Fifth and Sixth Amendments meaningless. Read expansively, but not unfairly, this decision permits the government to inform the accused of the "nature and cause of the accusation" after the completion of the trial.

 

 

[86-1 USTC ¶9231] United States of America v. Joseph E. Todaro, Sr

U.S. District Court, West. Dist. N.Y. , CR-83-29E, 6/6/85 , 610 FSupp 923, (610 FSupp 923.)

[Codes Secs. 446 , 7201 and 7206 ]

Crimes: Attempt to evade or defeat tax: Fraud and false statements: Evidence: Reconstruction of income: Bank records and net worth increases: Sufficiency of indictment: Separate counts: Motion to sever.--A taxpayer charged with three counts of willfully evading income tax and four counts of willfuly filing false income tax returns was denied a motion for dismissal premised on the contention that the government failed to discharge its obligation to investigate all possible leads when using the net worth method of reconstruction of income. A district court reasoned that to rule on the motion would be premature, since it presupposes that the government will fail to establish at trial that it had discharged its obligation to investigate such leads. However, the court granted the taxpayer's motion to sever count seven for willful filing of false statements from the other six counts, since the government utilized a different theory of proof, the specific item deduction method, which might unfairly prejudice the taxpayer's case as to that issue. Furthermore, in an unrelated motion involving the same parties, the court denied the government's motion to require the taxpayer to provide written objections to the authenticity of certain designated records before trial to expedite the proceedings, because the government was not entitled to the advantage of pretrial rulings on its proposed exhibits.

Anthony M. Bruce, Department of Justice, Washington , D.C. 20530 , for plaintiff. Joseph Latona, John W. Condon, Jr., 300 Statler Bldg., Buffalo , N.Y. , for defendant.

Memorandum and Order

ELFVIN, District Judge:

In this prosecution charging three counts of willfully and knowingly attempting to evade federal income tax liabilities in violation of 26 U.S.C. §7201 and four counts of willfully and knowingly making and subscribing false tax returns in violation of 26 U.S.C. §7206(1) , the abovenamed individual ("the defendant") has moved to dismiss the Indictment and, alternatively, for a severance of the trial of Count Seven of the Indictment from the other six counts.

The government has indicated, with respect to the tax evasion counts, that it intends to demonstrate at trial the existence and extent of defendant's unreported taxable income in each year by utilization of the "net worth plus non-deductible expenditures" method of proof. See Holland v. United States [54-2 USTC ¶9714 ], 348 U.S. 121 (1954). Defendant's dismissal motion is premised upon the government's alleged failure to have investigated adequately certain "leads" that he had provided to it regarding three substantial loans which he has claimed had been made to him during the periods in question.

Under Holland v. United States, supra, when income tax evasion is sought to be established by use of the net worth method, the government has an obligation to investigate all leads provided to it be the defendant when and to the extent that such leads are reasonably susceptible of being checked. "When the government fails to show an investigation into the validity of such leads, the trial judge may consider them as true and the Government's case insufficient to go to the jury." Id. at 136.

Although the government has submitted affidavits and documentation with respect to the nature and scope of its investigation of the provided leads, consideration of such is not necessary to the determination of defendant's dismissal motion inasmuch as this Court finds that such motion is premature. The government has correctly contended that the motion presupposes that the government will fail to prove at the trial of this case that it had discharged its obligation to investigate the leads. Should the government thus fail at trial, this Court could, with legal propriety, prevent the govenment's case from going to the jury. See Holland v. United States , supra, at 135-136; United States v. Scott [81-2 USTC ¶9663 ], 660 F.2d 1145, 1167 fn.42 (7th Cir. 1981), cert. denied, 455 U.S. 907 (1982). Defendant's additional contentions that the government had failed to exhaust the leads during the Grand Jury's investigation and should have presented informant evidence to that body regarding one of the claimed loans have been considered and have been found insufficient to warrant dismissal of the Indictment. Accordingly defendant's request for dismissal shall be denied without prejudice.

Defendant's motion to sever Count Seven from the other six counts, is bottomed on the assertion that such count had been improperly joined with the other six under Fed.R.Crim.P. rule 8(a). He has further contended that severance of said count from the others is appropriate under Fed.R.Crim.P. rule 14 due to the separate transaction upon which Count Seven is premised, the dissimilar theory of proof that will be utilized by the government regarding such count and the possible jury confusion and unfair prejudice to him of a trial of this count jointly with the others.

The parties are in basic agreement that: (a) Counts One through Six charge defendant with willfully evading income tax liability (Counts One, Three and Five) and willfully filing false tax returns (Counts Two, Four and Six) for fiscal years ending in 1976, 1977 and 1978 respectively; (b) the government's evidence regarding these charges will be presented according to the net worth/non-deductible expenditures method of proof; (c) Count Seven charges defendant with willfully filing a false income tax return for the fiscal year ending June 30, 1979 due to his alleged fraudulent deduction of the payment of a personal gambling debt as a business expense; and (d) the government will utilize a "specific item" method of proof regarding Count Seven. The government has also indicated the substantial correctness of defendant's prediction that, with one or two possible exceptions, different witnesses will be called by the government in attempting to prove Counts One to Six than with respect to Count Seven.

Rule 8(a) of the Federal Rules of Criminal Procedure permits joinder of two or more offenses in the same indictment where the crimes charged "are of the same or similar character." In the case at bar the offense charged in Count Seven--namely, the willful filing of a false income tax return with respect to the fiscal year ending June 30, 1979 in violation of 26 U.S.C. §7206(1) --is sufficiently similar to the violations of 26 U.S.C. §7206(1) charged in Counts Two, Four and Six--and even to Counts One, Three and Five--to warrant joinder under rule 8(a). Cf. United States v. Sciandra, 529 F.Supp. 316, 318 (S.D.N.Y. 1981).

"Moreover, Rule 8(a) is not limited to crimes of the 'same' character but also covers those of 'similar' character, which means '[n]early corresponding; resembling in many respects; somewhat alike; having a general likeness.' " United States v. Werner, 620 F.2d 922, 926 (2d Cir. 1980).

However, the propriety of the joinder of distinct offenses under rule 8(a) does not preclude the granting a severance under Fed.R.Crim.P. rule 14 "if it appears that the defendant is prejudiced by the joinder." Id. at 928. In United States v. Halper [79-1 USTC ¶9127 ], 590 F.2d 422, 430-431 (2d Cir. 1978), it was explained:

"When all that can be said of two separate offenses is that they are of the 'same or similar character,' the customary justifications for joinder (efficiency and economy) largely disappear. Whereas the joinder of offenses 'based on the same act or transaction' or of offenses based 'on two or more acts or transactions connected together or constituting parts of a common scheme or plan' is reasonable and desirable both from the government's and the defendant's perspective, the same cannot be said for joinder of offenses of the 'same or similar character.' "

The Court in Halper (wherein two separate indictments had been joined for trial) noted the potential dangers to which a defendant is exposed by joinder of offenses of the "same or similar character"--e.g., the jury might view the government's evidence cumulatively or improperly utilize the evidence regarding one offense to infer a criminal disposition on the part of defendant regarding another offense--and announced a rule requiring

"a severance of offenses that are purportedly of the 'same or similar character' unless evidence of the joined offenses would be mutually admissible in separate trials or, if not, unless the evidence is sufficiently 'simple and distinct' to mitigate the dangers otherwise created by such a joinder." Id. at 431.

In the instant criminal action application of this rule justifies a separate trial of Count Seven. The government's assertion that "evidence that the defendant committed any one of the first six counts might be admissible in a separate trial of Count Seven" is too speculative to deny the sought severance in view of the possible unfair prejudice to defendant and is not persuasive in view of the absence of any contention by the Government of a common scheme or plan by defendant to have evaded taxation regarding all of the charged offenses. Such assertion is, in all probability, not going to be fulfilled on trial. In view of the numerous documents and witnesses that the government is expected to utilize regarding Counts One through Six, as well as the complexity of the net worth theory of proof, the expected relative simplicity of the government's case with respect to Count Seven does not warrant denial of defendant's motion. While it might not be an abuse of this Court's discretion to deny the severance, it most certainly can not be deemed improper to grant such relief. The latter course will not enable the government to adduce evidence of the defendant's gambling activities, if any there be, with its unfair influence upon the jury to the substantial adverse interest of the defendant on the trial of Counts One through Six.

For these reasons it is hereby

ORDERED that defendant's motion for dismissal of the Indictment is denied without prejudice; and it is hereby further

ORDERED that defendant's motion for a severance and a separate trial of Count Seven of the Indictment is granted; and it is hereby further

ORDERED that the government shall, within fifteen (15) days of the entry of this Memorandum and Order elect in writing whether it will go to trial September 10, 1985 on Counts One through Six or on Count Seven. ¹

Memorandum and Order

In this prosecution charging defendant with willfully attempting to evade federal income tax liabilities in violation of 26 U.S.C. §7201 and willfully subscribing false tax returns in violation of 26 U.S.C. §7206(1) , the government has moved pursuant to Fed.R.Cr.P. rule 12(d)(1) to require defendant to file written objections to the authenticity of certain designated records and for a pretrial hearing for the purpose of ruling on any objections filed by defendant. Defendant has opposed such motion, asserting that the government is not entitled to the relief sought.

Fed.R.Cr.P. rule 12(d)(1) permits the government to provide a defendant with notice of "its intention to use specified evidence at trial in order to afford the defendant an opportunity to raise objections to such evidence prior to trial" in the form of a motion to suppress evidence under rule 12(b)(3). In the case at bar the government seeks to compel defendant to make his position known prior to trial with respect to the authenticity vel non of some 568 exhibits that the government intends to offer at trial. Although this Court recognizes that the granting of the instant motion would conserve its time, would reduce the length of what is expected to be a prolonged trial by eliminating certain witnesses and/or testimony and possibly would diminish confusion of the jury which can arise when attorneys argue about and witnesses testify as to the authenticity of records, rule 12(d)(1) does not authorize the procedure sought by such motion and the government has not cited any other rule or authority which would permit such procedure. In addition, although this Court certainly would favor a stipulation by the parties as to the authenticity of any exhibits the genuineness of which is not disputed, I shall not order defendant to file specific objections inasmuch as such procedure could serve to provide the government with notice of problem as to a specific exhibit and an opportunity to rectify such prior to trial. Absent the requested order the government might find at trial that it is unable to introduce into evidence a certain exhibit or exhibits for lack of having established adequately its or their authenticity. Accordingly, I find that the government is not entitled to the advantage of pretrial rulings on the authenticity vel non of its exhibits.

For these reasons it is hereby ORDERED that the government's motion is denied.

¹ The government had indicated, tentatively, that it would opt to try the defendant on Count Seven initially and then on Counts One through Six. Inasmuch as the unfair prejudice works in but a single direction--viz., from Count Seven into the disposition of Counts One through Six--it would appear that, if the government were to try the latter first, the same jury could be utilized. In a sense, there would be a bifurcated trial with a single jury.

 

 

[88-2 USTC ¶9526] United States of America , Appellee v. Jay Turoff, Alan Silver and Harriet Silver, Defendants-Appellants

(CA-2), U.S. Court of Appeals, 2nd Circuit, 87-1278, 87-1382, 87-1383, 7/14/88 , 853 F2d 1037, Affirming an unreported District Court decision

[Code Sec. 7206 --Result unchanged by the Tax Reform Act of 1986 ]

Crimes: False return: Criminal intent: Joinder.--Convictions of several individuals were affirmed because it was permissible to join, in a single indictment, multiple offenses involving tax and mail fraud schemes. One scheme involved a city taxicab commission official's use of his position to have meters made by a certain company installed in taxicabs, and another scheme involved unreported interest income from amounts deposited with a credit union. One scheme stemmed from the other in that the tax fraud hinged on the fraudulent activities taken to advance the meter conspiracy, so that the proof of one scheme is indispensible for a full understanding of the other. Based on the evidence and each individual's financial and business sophistication, the jury's determination that they knowingly and intentionally committed tax fraud by omitting income was sustained.

Andrew J. Maloney, United States Attorney, Ephraim Savitt, John Gleeson, Assistant United States Attorneys, Brooklyn, N.Y. 11201, for appellee. Roger B. Adler, P.C., 225 Broadway, New York , N.Y. 10007 , for defendants-appellants.

Before NEWMAN and CARDAMONE, Circuit Judges, and GRAY, ^* District Judge.

CARDAMONE, Circuit Judge:

On these appeals from criminal convictions for tax conspiracy and tax fraud, appellants raise a number of issues. The principal one is that it is impermissible to join in a single indictment multiple offenses involving tax and mail fraud schemes charged against the several defendants. Fed. R. Crim. P. 8(b) permits joinder of defendants if they participated "in the same series of acts or transactions constituting an offense or offenses." Rule 8(a) states that for joinder of offenses the acts or transactions must either constitute a "common scheme or plan" or be otherwise "connected together."

It has long been settled law that the joint trial of charges against several accuseds when they are not for the same act or transaction, or for connected acts or transactions, or provable by the same evidence is prejudicial. See McElroy v. United States , 164 U.S. 76, 79-80 (1896). Also well-recognized is the proposition that joint trials serve the public interest in economy, convenience, and the prompt trial of the accused. See United States v. Lane, 106 S. Ct. 725, 732 (1986). The former is supported by considerations of fairness to defendants, and the latter by the need for the efficient administration of criminal justice.

The phrase "connected together" is not defined in Rule 8 and in this case--as in most joinder determinations--how it is defined suggests the outcome because the phrase takes its meaning from the frame of reference in which it is placed. If defined broadly everything may be connected, but when the reference is narrowed the number of events connected to each other is reduced. For example, if the frame of reference for stars is the solar system, all the visible stars are related, but if the reference is "Casseopia," then only those in that constellation are connected. In that same way choosing the definitional frame of reference dictates whether joinder is proper in a given case. Hence, in deciding joinder under 8(b) the test posited must be broad enough to maintain "efficient" justice, yet not so all-encompassing as substantially to prejudice the accused. Such is our task on this appeal.

BACKGROUND AND FACTS

The charges against Jay Turoff and Alan and Harriet Silver revolved around two fraudulent schemes: (1) a plan by appellants and others to exploit Turoff's power as the New York City Taxi and Limousine Commission Chairman to foster the production and marketing of an electronic meter for New York City medallion taxicabs--the basis for the mail fraud charges--and (2) an arrangement by appellants to obtain accounts at Hyfin Credit Union which allowed them to earn substantial taxable interest that the credit union did not report to the Internal Revenue Service (IRS) and the appellants did not declare as income on their federal tax returns. To understand the interrelationship between these schemes, it is necessary to set forth the complex facts in some detail.

1. Hyfin Operations

The illegal combination began on November 7, 1979 when Turoff, who was then Chairman of the New York City Taxi and Limousine Commission (Taxi Commission), met with Edmund Lee, Treasurer of the Hyfin Credit Union (Hyfin or Credit Union), at Hyfin's Brooklyn offices. Turoff controlled the regulation and licensing requirements of the nearly 12,000 medallion taxicabs in New York City ; Lee controlled the finances of the third largest state-chartered credit union in New York State . During that meeting, Lee explained that Hyfin generally did not report sizable deposits to the IRS and that if Turoff opened an account at Hyfin, the interest earned (called "dividends" in the credit union context) would not be reported. The Credit Union had not reported interest income to the IRS since 1980. Lee also explained that Turoff would be able to deduct as interest expense the payments he made on Hyfin loans. Subsequently, Lee opened account #69510 in Turoff's name with Turoff's initial deposit of $10,000. At the same time, Turoff obtained a $10,000 loan from Hyfin. Over the next five years Turoff made a number of sizable deposits into his account, but he never reported the substantial interest income generated to the IRS. In return for these benefits, Turoff supplied Lee with confidential Taxi Commission lists of medallion taxi owners, which enabled Lee to review and approve loan applications by taxi owners more quickly than competing loan institutions.

2. Compumeter Scheme

In 1981, two developers demonstrated to Turoff their prototype electronic taxi meter that met mayoral commission specifications for an accurate, permanently affixed meter that would discourage taxi owners from underreporting revenues. Turoff described the meter to a friend, Herman (Hy) Schwartz, and urged him to develop and market a competing electronic taxi meter. Turoff told Schwartz that he could guarantee a market by mandating the installation of such meters in every medallion taxicab in New York City .

Excited by this prospect, Schwartz sought financing from the Silvers, friends of Turoff who owned a Brooklyn printing business. Schwartz and the Silvers formed a new company, Electronic Compumeter, Inc. (Compumeter) and Harriet Silver became Compumeter's president. The new company's stock was divided into three equal parts--one to Mrs. Silver, one to Schwartz, and one unissued. On September 12, 1982 Schwartz formally advised Turoff that Compumeter had developed an electronic taxi meter and requested Taxi Commission testing of a prototype.

On May 11, 1983 the Taxi Commission unanimously approved the Compumeter prototype. On the same day, Turoff brought Alan Silver to Hyfin's offices and introduced him to Lee. Lee suggested that Silver open a Hyfin account to expedite the processing of loans if a financing arrangement for Compumeter production costs could be agreed upon. Silver said that he wanted the "same deal Jay [Turoff] has." Lee understood this to mean a nonreported interest account. Account #415990 was then opened for Alan Silver in trust for Harriet Silver with an initial deposit of five dollars. Lee also advanced Silver a $10,000 Hyfin loan. The Silvers later opened other interest-bearing joint and individual accounts at Hyfin.

3. Hyfin Financing of Compumeter

Lee, Alan Silver, and Hy Schwartz then agreed upon the following scheme: Lee would advance Hyfin funds for Compumeter's production costs without the usual formalities; Silver and Schwartz would pay Lee a $100 "commission" for every meter sold. To advance this conspiracy, Turoff backed a December 9, 1983 Taxi Commission order requiring the installation of electronic meters in all medallion taxis by June 1984.

Lee opened eight Hyfin accounts (accounts #1000, #940, #950, #960, #970, #980, #990, #930) in 1983 and 1984 to be used as internal control accounts through which disbursements of Hyfin funds were funnelled for Compumeter's manufacturing costs and for financing taxi owners' purchases. Because the laws governing credit unions prohibit corporate loans, these accounts were all opened in the name of Harriet Silver, who executed signature cards for them. By April 1984 Compumeter's production progress and sales were proceeding more slowly than expected. Compumeter had received 1,500 purchase orders and total sales of no more than 3,000 meters were anticipated. When Turoff demanded to be paid for his role in the scheme, Lee transferred $30,000--$10 per meter--from Harriet Silver's Hyfin account #960 into Turoff's account #69510.

4. Appellants' Unreported Hyfin Account Interest

While Lee handled the Compumeter financing, the Silvers made significant deposits to their newly opened personal accounts. On October 11, 1983 a joint account, #457150, was opened in the Silvers' names. On February 22, 1984 accounts #510050 and #510060 were opened in the names of Harriet Silver and Alan Silver, respectively. As of December 31, 1984 the closing balance on these three accounts totalled $205,577.97. The $6,947.40 interest on the funds in these accounts earned in 1984 was not reported to the IRS by Hyfin or the Silvers. That failure is the basis for the charges of making false statements on their joint tax return against the Silvers in Count Eighteen of the indictment. Hyfin's statements for account #69510 reveal that Turoff earned interest income of $19,437 during the years 1982 through 1985. Although Turoff deducted almost all the interest expenses charged to his loans, he did not declare interest income from account #69510 on his tax returns for the four relevant years. His false statements on those returns account for the indictment charges against Turoff in Counts Fourteen through Seventeen.

5. Proceedings Below

The jury rendered its verdict on April 10, 1987 after a two-month trial of Turoff, the Silvers, and a fourth codefendant in the United States District Court for the Eastern District of New York (Glasser, J.). Appellant Jay Turoff was found guilty of conspiracy to defraud the United States in the collection of tax revenues in violation of 18 U.S.C. §371 (1982) (Count Thirteen), and making false statements in his federal income tax returns for the tax years 1982 through 1985 in violation of 26 U.S.C. §7206(1) (1982) (Counts Fourteen through Seventeen). Turoff had also been charged with conspiracy to commit mail fraud (Count One) and 11 substantive mail fraud counts (Counts Two and Twelve). The district court dismissed four of the 11 substantive mail fraud counts, and the jury acquitted him of the seven remaining counts and the mail fraud conspiracy. Turoff was sentenced to concurrent three-year terms on each count for which he was convicted, four months to be served in prison and the balance on probation. He was also fined $50,000 and assessed $250.

Appellants Alan and Harriet Silver were found guilty of conspiracy to defraud the United States in the collection of tax revenues in violation of 18 U.S.C. §371 (1982) (Count Thirteen) and making false statements in their joint federal tax return for the tax year 1984 in violation of 26 U.S.C. §7206(1) (1982) (Count Eighteen). The Silvers were also found guilty of conspiracy to commit mail fraud (Count One) and eight substantive mail fraud charges (Counts Two through Nine), but these verdicts were later vacated by the district court in light of the Supreme Court's decision in McNally v. United States, 107 S.Ct. 2875 (1987). The Silvers were each sentenced to concurrent three-year probationary terms, with a special condition of four months of house detention and 200 hours community service, and each of them was fined $25,000.

As noted, Count One charged appellants with a conspiracy to commit mail fraud and Counts Two through Twelve charged them with substantive mail fraud crimes arising from the Compumeter scheme. All of these counts against appellants have dropped by the wayside through dismissal or acquittal. Nevertheless, because this opinion is focused on the initial joinder in the indictment of these mail fraud counts with the tax charges, the Compumeter scheme is critical to an understanding of the issues on appeal.

DISCUSSION

Appellants raise five challenges to their convictions. They claim that the evidence was legally insufficient to establish that they (1) had the requisite criminal intent in failing to report their interest income on their federal tax returns, (2) conspired with each other to cheat on their taxes by not reporting this income, or (3) participated in the single tax fraud conspiracy for which they were convicted instead of multiple conspiracies. Appellants assert, in addition, that (4) the charges relating to the mail fraud scheme were impermissibly joined with the tax fraud counts, and (5) the trial court improperly limited cross-examinations of prosecution witnesses. Turoff also argues that the district court incorrectly admitted "similar act" evidence in support of the tax fraud charges.

Although none of these claims warrant reversal, each will be discussed. Our principal reason for writing is to clarify the rules applicable to the joinder of multiple charges and multiple defendants in a single indictment, to which we turn first.

A. Joinder of the Mail Fraud and Tax Fraud Charges Against Turoff and the Silvers

Prior to trial, appellants moved to sever the tax fraud charges from the mail fraud charges arising from the Compumeter scheme. The district court denied the motion, noting that "[a]t a minimum, the proof of the two alleged schemes will overlap, because the government charges that the tax law violations stem from the defendants' ill-gotten gains in the Compumeter scheme." United States v. Turoff, 652 F.Supp. 707, 711 (E.D.N.Y. 1987). After this denial of severance, the prosecutor called to Judge Glasser's attention that defendants Alan Silver and Harriet Silver were charged with failing to report interest income derived from sources other than the Compumeter scheme charged in the mail fraud counts. The Silvers responded by renewing their severance motion. Concluding that joinder would be appropriate if the prosecution could prove that the Silvers' tax violations were the products of an "overall corrupt relationship" among the defendants and Hyfin, Judge Glasser again denied the motion. See United States v. Turoff, No. 86 Cr. 00422 (E.D.N.Y. Feb. 17, 1987 ) (Supplemental Memorandum and Order). Appellants now challenge their convictions upon the ground that joinder of the tax fraud charges with the mail fraud charges was improper under Fed. R. Crim. P. 8.

1. Rule 8 in General

The principal question is whether an indictment against multiple defendants joining these different sets of charges--each of which involves an alleged conspiracy and alleged substantive crimes--is proper under Fed. R. Crim. P. 8. Unlike review of a motion made pursuant to Rule 14 (severance of counts as relief from prejudicial joinder of defendants or offenses) or Rule 13 (joinder at trial of separate indictments against multiple defendants) for abuse of discretion, the propriety of joinder under Rule 8 raises a question of law and is subject to full appellate review. United States v. Lane, 106 S. Ct. 725, 732 n.12 (1986) (Rule 8(b)); United States v. Werner, 620 F.2d 922, 926 & n.5 (2d Cir. 1980); United States v. Granello [66-2 USTC ¶9587 ], 365 F.2d 990, 995 (2d Cir. 1966), cert. denied, 386 U.S. 1019 (1967). If joinder should not have been permitted, a conviction must be reversed, unless failure to sever was harmless error. Lane, 106 S. Ct. at 730-32; Werner, 620 F.2d at 926; Granello, 365 F.2d at 995.

Rule 8(a) permits joinder of offenses against a single defendant in three circumstances: offenses may be joined in a single indictment when they are (1) "based on the same act or transaction," or (2) based "on two or more acts or transactions connected together or constituting parts of a common scheme or plan," or (3) "of the same or similar character." Fed. R. Crim. P. 8(a). Each of these tests for when offenses may be tried together reflects a policy determination that gains in trial efficiency outweigh the recognized prejudice that accrues to the accused. See Werner, 620 F.2d at 929.

Rule 8(b) permits joinder of defendants "if they are alleged to have participated in the same act or transaction or in the same series of acts or transactions constituting an offense or offenses." Fed. R. Crim. P. 8(b). Unlike Rule 8(a), Rule 8(b) does not permit joinder of defendants solely on the ground that the offenses charged are of "the same or similar character." Thus, though both subdivisions of Rule 8 focus on the nature of the acts constituting the alleged offenses, 8(b) provides a more restrictive test when multiple defendants are involved. See Granello, 365 F.2d at 993-94.

2. Motion to Sever Decided Under 8(b)

Rule 8 does not explicitly provide a standard that governs when multiple offenses and multiple defendants are joined in one indictment. One logical approach would invoke Rule 8(a) when defendants seek severance of offenses, which is the case here, and Rule 8(b) when defendants seek severance of defendants, which is not this case. We have permitted multiple defendants facing multiple charges to move for either type of severance, but we invoke only Rule 8(b) to test the validity of joinder regardless of which type of severance is sought. As the district court recognized, our cases indicate that " 'when a defendant in a multiple-defendant case challenges joinder of offenses, his motion is made under 8(b) rather than 8(a).' " 652 F.Supp. at 710 (quoting United States v. Papadakis, 510 F.2d 287, 300 (2d Cir.), cert. denied, 421 U.S. 950 (1975)); see United States v. Turbide, 558 F.2d 1053, 1061 n.7 (2d Cir.), cert. denied, 434 U.S. 934 (1977); 1 C. Wright, Federal Practice and Procedure §144 , at 494 (2d ed. 1982). The effect of construing Rule 8 in this fashion is that multiple defendants cannot be tried together on two or more "similar" but unrelated acts or transactions; multiple defendants may be tried together only if the charged acts are part of a "series of acts or transactions constituting an offense or offenses." See 1 C. Wright, supra, §144 , at 508-09.

Sound policy reasons underlie this distinction. The use of Rule 8(a) to join offenses against a single defendant inevitably involves some danger of prejudice. See Werner, 620 F.2d at 929 (substantial prejudice must be shown before severing trials under Rule 14 because Rule 8 authorizes some prejudice). Despite this potential for unfairness, "Congress has authorized consolidation in the belief that public considerations of economy and speed outweigh possible unfairness to the accused." United States v. Smith, 112 F.2d 83, 85 (2d Cir. 1940) (commenting on former 18 U.S.C. §557 , which is substantially restated by Rule 8(a)); see United States v. Barrett [75-1 USTC ¶9340 ], 505 F.2d 1091, 1106 (7th Cir. 1974) ("Obviously any adding of offenses to others is prejudicial to some extent."), cert. denied, 421 U.S. 964 (1975). Rule 8(b) reflects a similar policy. Juxtaposing these two rules, the District of Columbia Circuit summarized them, stating

When similar but unrelated offenses are jointly charged to a single defendant, some prejudice almost necessarily results, and the same is true when several defendants are jointly charged with a single offense or related offenses. Rule 8(a) permits the first sort of prejudice and Rule 8(b) the second. But the Rules do not permit cumulation of prejudice by charging several defendants with similar but unrelated offenses.

Cupo v. United States, 359 F.2d 990, 993 (D.C. Cir.) (footnote omitted), cert. denied, 385 U.S. 1013 (1966). Thus, multiple defendants may be charged with and tried for multiple offenses only if the offenses are related pursuant to the test set forth in Rule 8(b), that is, only if the charged acts are part of a "series of acts or transactions constituting . . . offenses."

3. Application of 8(b)

As the district court recognized, " 'tax counts can properly be joined with non-tax counts where it is shown that the tax offenses arose directly from the other offenses charged.' " 652 F.Supp. at 711 (quoting United States v. Kopituk, 690 F.2d 1289, 1313 (11th Cir. 1982), cert. denied, 461 U.S. 928 (1983)). The most direct link possible between non-tax crimes and tax fraud is that funds derived from non-tax violations either are or produce the unreported income. See United States v. Kenny, 645 F.2d 1323, 1344 (9th Cir.) ("[T]he tax evasion charges . . . arose directly and solely out of unreported income flowing from the illicit contracting activities."), cert. denied, 452 U.S. 920 (1981). However, if the character of the funds derived do not convince us of the benefit of joining these two schemes in one indictment, other overlapping facts or issues may.

In this case, the funds that formed the basis of the unreported income, with one exception, were not derived directly from the Compumeter scheme. The only evidence of a direct connection is that Turoff accepted two $15,000 payments from Lee in 1984 for his role in the Compumeter scheme. These funds were part of the 1984 closing balance in his Hyfin account that earned $4,695.19 of unreported interest. As for the Silvers, the government conceded before trial that they were "charged with failing to report interest income derived from sources other than the scheme charged in the mail fraud counts." United States v. Turoff, No. 86 Cr. 00422, supra. For this reason, identity of funds derived from the Compumeter conspiracy and those funds unreported in the tax fraud schemes does not provide the essential connection for joinder under 8(b).

Yet, there is a key link between the two offenses--one scheme stemmed from the other--and that link provides a sound basis for joinder under Rule 8(b). Appellants and their cohorts manipulated the Hyfin accounts simultaneously to advance the Compumeter scheme and to accumulate unreported income. The acts involved in each scheme have more than a temporal and spatial relationship. See United States v. Jackson, 562 F.2d 789, 796 (D.C. Cir. 1977). Significantly, the tax fraud hinged on the fraudulent activities taken to advance the Compumeter conspiracy. Consequently, the proof of one scheme is indispensable for a full understanding of the other.

A quid pro quo was exchanged between these participants, each giving something of value to enhance the Compumeter mail fraud scheme with the expectation of some financial benefit in return. And these financial benefits were part and parcel of the tax fraud. Cf. United States v. Korfant, 771 F.2d 660, 663 (2d Cir. 1985) (distinct unrelated conspiracies for double jeopardy purposes where success or failure of one is independent of the corresponding success or failure of the other). From the inception of his relationship with Lee, Turoff's budding misuse of his position as Taxi Commission Chairman and his unreported Hyfin account income went hand in hand. For instance, Lee reduced the interest rate on several of Turoff's loans in exchange for a promise from Turoff that Hyfin would handle exclusively the financing of Compumeter purchases. Again, for example, Harriet Silver opened eight Hyfin accounts for the express purpose of allowing Lee to funnel into them loan proceeds involved in the Compumeter scheme. And, at the same time, the Silvers opened the Hyfin accounts used to commit the tax fraud. Thus, the Hyfin accounts were used to facilitate the personal and financial relationships that enabled the Compumeter scheme to proceed. Although the actual unreported income was largely (in Turoff's case) or wholly (in the Silvers' case) earned from deposits unrelated to the Compumeter scheme, these accounts served in some measure as a tie connecting appellants to each other, to Lee, and to both schemes. Lee, of course, was the crucial figure overseeing the manipulation of the Hyfin bank accounts, and it was these accounts that served as the channels for illegal activity.

In sum, applying a commonsense rule to these facts, we conclude that a reasonable person would easily recognize the common factual elements that permit joinder of the mail fraud charges and the tax fraud charges in one indictment. Therefore, the charges were properly joined under Rule 8(b).

B. Other Challenges to the Convictions

 

Appellants contend that the evidence was not sufficient for a jury to find that each defendant omitted the specified income--over $19,000 in four years for Turoff and nearly $7,000 in 1984 for the Silvers--with specific intent to defraud as required under 26 U.S.C. §7206(1) . While conceding that the relevant income was not reported, appellants contend that the only conclusion a reasonable jury could reach is that each defendant was unaware that the income was taxable.

In light of the testimony of Lee, the activity in the relevant accounts, Turoff's existing IRA account, Alan Silver's existing pension plan, and each defendant's financial and business sophistication, all of which was submitted to the jury, we conclude that the evidence was sufficient to demonstrate that each defendant knowingly and intentionally committed tax fraud by omitting income produced from deposits in Hyfin accounts. See Jackson v. Virginia, 443 U.S. 307, 319 (1979) (jury's verdict must be sustained if "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt"). This challenge to the convictions is without merit.

Appellants also attack their convictions of conspiracy to commit tax fraud (Count Thirteen) on two grounds. First, they maintain that the evidence was insufficient to establish the existence of a tax conspiracy between Lee, Turoff, and the Silvers. Second, they contend that, at best, the evidence proved multiple conspiracies--one between Lee and Turoff and one between Lee and the Silvers--and not the single conspiracy charged in Count Thirteen.

The defense argument at trial and on appeal is that each defendant made individual determinations to open the Hyfin accounts, deposit funds, and file tax returns without reporting Hyfin-generated interest. The only other possible conclusion a reasonable juror could reach, appellants argue, is that Lee agreed independently with Turoff and with the Silvers not to report or declare the income. Concededly, the fact that each appellant omitted certain Hyfin-generated income on tax returns does not demonstrate the agreement or the overt acts necessary to establish a conspiracy. See United States v. Rosenblatt, 554 F.2d 36, 42 (2d Cir. 1977). In short, appellants argue that the government proved no agreement, nor any acts in furtherance of any agreement, to omit interest income on federal tax returns and that the evidence demonstrated only parallel behavior in separate years.

The government responds that the evidence disclosed "a common conspiratorial thread" running throughout Turoff's and Silvers' tax fraud conspiracy with Lee. United States v. Murray, 618 F.2d 892, 902 (2d Cir. 1980). The issue of whether the government proved the conspiracy or conspiracies alleged in the indictment is usually a question of fact submitted to the jury. Id.; United States v. Armedo-Sarmiento, 545 F.2d 785, 789 (2d Cir. 1976), cert. denied, 430 U.S. 917 (1977); United States v. Finkelstein, 526 F.2d 517, 522 (2d Cir. 1975), cert. denied, 425 U.S. 960 (1976). We believe that in light of Turoff's initial arrangement with Lee in 1979, Turoff's introduction of Alan Silver to Lee in 1983, Silver's request for the same "deal as Jay [Turoff]," the defendants' strikingly parallel behavior, and the creation of the Compumeter scheme, a rational juror could link Turoff and the Silvers together in a single conspiracy. Additionally, the jury was thoroughly and properly instructed on the single versus multiple conspiracies issue. Consequently, appellants' tax fraud conspiracy convictions under Count Thirteen do not warrant reversal.

Appellants also assert the trial court improperly limited the cross-examination of Edmund Lee concerning Hyfin's reporting practices and IRS agent Marlowe concerning taxpayer confusion regarding tax returns. The trial court has "broad discretion over the scope of cross-examination" which is seldom disturbed on appeal. United States v. Bari, 750 F.2d 1169, 1178 (2d Cir. 1984), cert. denied, 472 U.S. 1019 (1985). The record reveals that the defense theory was adequately presented to the jury and that the trial court's limitations on cross-examination of these two witnesses did not constitute an abuse of its discretion.

Last, Turoff maintains that the trial court improperly admitted as proof of his intent to defraud the government on his personal tax returns evidence concerning a secret corporate account maintained by Turoff in which he concealed corporate revenues from the IRS. The testimony of Turoff's accountant and the information revealed by the corporate account proved that Turoff did commit the corporate tax fraud. Fed. R. Evid. 404(b) authorizes the use of proof of previous crimes to show intent to commit the charged offense, and any possible prejudice warranting exclusion under Fed. R. Evid. 403 was cured by the cautionary jury instructions.

CONCLUSION

 

For the above reasons, the judgments of conviction are affirmed.

^* Honorable William P. Gray, United States District Court for the Central District of California, sitting by designation.

 

 

 

[2000-2 USTC ¶50,702] United States of America, Plaintiff-Appellee v. Todd C. Gaskill, Defendant-Appellant United States of America, Plaintiff-Appellee v. Martin L. Goodrich, Defendant-Appellant

(CA-9), U.S. Court of Appeals, 9th Circuit, 99-10154, 99-10155, 7/27/2000, 2000 U.S. App. LEXIS 18375. Affirming in part, reversing in part and remanding an unreported District Court decision

[Code Sec. 7206 ]

Penalties, criminal: Preparation of false returns: Conspiracy to defraud.--Sufficient evidence existed to support an individual's convictions for conspiracy to defraud the government and assisting in the preparation of false income tax returns. The taxpayer cycled his clients' income through offshore trusts and subsequently filed false income tax returns. The transactions were conducted to evade the clients' tax liability and the participants in the scheme retained control over the cycled funds. Moreover, the taxpayer advocated the use of the offshore trusts and assisted in their creation and operation.
[Code Sec. 7206 ]

Penalties, criminal: Preparation of false returns: Conspiracy to defraud: District Court: Abuse of discretion: Sentencing: Downward departure.--Insufficient evidence existed to support a conviction against a co-conspirator for assisting in the preparation of false returns for a business in connection with a tax evasion scheme. He did not prepare the returns and his mere association with the business was inadequate to establish a violation of Code Sec. 7206 . However, jurisdiction was lacking to review the district court's refusal to grant a downward departure of his sentence since it acted within its discretion.

[Code Sec. 7206 ]

Penalties, criminal: Preparation of false returns: Conspiracy to defraud: Severance motion: Exculpatory evidence: District Court: Abuse of discretion.--The district court's denial of an individual's motion to sever the government's case against him for conspiracy to defraud and assisting in the preparation of false income tax returns from that of his co-conspirator for the purpose of introducing exculpatory evidence was not an abuse of discretion. That his co-conspirator might invoke his Fifth Amendment right against self-incrimination and, thereby, exclude certain evidence, was not sufficient to sustain the severance motion.

Benjamin B. Wagner, Michael Malachek, Sacramento, Calif. 95814, for plaintiff-appellee. Donald S. Frick, Sacramento, Calif., for Todd C. Gaskill, Joe Alfred Izen, Jr., Izen & Assocs., P.C., Bellaire, Tex., for Martin L. Goodrich.

Before: NOONAN, THOMAS and BERZON, Circuit Judges.

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

MEMORANDUM ¹

Todd C. Gaskill and Martin Goodrich appeal from their jury convictions and sentences for conspiracy to defraud the United States, in violation of 18 U.S.C. §371, and aiding and assisting in the preparation of a false income tax return, in violation of 26 U.S.C. §7206(2). We have jurisdiction pursuant to 28 U.S.C. §1291, and we affirm. Because the parties are familiar with the facts and procedural history, we do not recount them here.

I.

The government presented sufficient evidence to establish that Goodrich participated in a fraudulent tax scheme with the requisite intent in violation of §371. Section 371 is intended to cover a broad range of activity involving the "defrauding" of the federal government. See United States v. Caldwell, 989 F.2d 1056, 1058 (9th Cir. 1993). To convict someone under §371, the government must show that he (1) entered into an agreement (2) to impede, impair, obstruct or defeat a lawful function of the government (3) by deceitful or dishonest means and (4) perpetrated at least one overt act in furtherance of the conspiracy. See id.; see also United States v. Tuohey, 867 F.2d 534, 537 (9th Cir. 1989); United States v. Everett, 692 F.2d 596, 599 (9th Cir. 1982).

In his briefs and oral argument, Goodrich argued that reversal was compelled by Zmuda v. C.I.R. [84-1 USTC ¶9442], 731 F.2d 1417 (9th Cir. 1984), because the government failed to present any evidence establishing that either the trustees or taxpayers maintained "complete control" over the monies transferred to the foreign trusts. This argument misapprehends Zmuda, which held that: "although the taxpayer may structure a transaction so that it satisfies the formal requirements of the Internal Revenue Code, the Commissioner may deny legal effect to a transaction if its sole purpose is to evade taxation." Zmuda [84-1 USTC ¶9442], 731 F.2d at 1421 Lack of the indicia of formal "control" was merely one element in the Zmuda's trust scheme that supported the government's contention that the scheme was a sham transaction. Here, sufficient evidence was presented to demonstrate that tax evasion was the sole purpose of the transactions, and that the participants in the scheme retained ultimate control over the funds as they cycled through the various trusts.

Contrary to Goodrich's assertion, sufficient evidence also existed to prove that he intended or acted in a manner to defraud the United States. Goodrich clearly participated in not only advocating the use of the offshore trusts, but also in assisting in the creation and operation of the trusts. See United States v. Moran, 759 F.2d 777, 785 (9th Cir. 1985). Based on Gawley's testimony and the recorded conversations between Gawley and Goodrich alone, a rational trier of fact could have concluded beyond a reasonable doubt that Goodrich's participation in the conspiracy to defraud included the requisite element of deceit or dishonesty.

II.

Because Goodrich did not assert his variance argument before the district court, we review only for plain error. United States v. Jackson, 84 F.3d 1154, 1158 (9th Cir. 1996). No variance occurred. Count three of the indictment charges Gaskill, Goodrich and Winburn with the conspiracy, along with their clients, "to impair, impede, and obstruct the lawful function of the Internal Revenue Service in the computation, assessment, and collection of federal income tax liabilities of certain clients of GGA." The object of the conspiracy, as alleged, was to conceal taxable income from the IRS by cycling clients' income through a series of offshore trusts and then having the clients file false income tax returns.

Contrary to Goodrich's assertions, the evidence adduced at trial did not prove a conspiracy different from the one alleged in the indictment. See United States v. Olano, 62 F.3d 1180, 1194 (9th Cir. 1995). The government presented sufficient evidence to show that the sham transactions formed the basis of the conspiracy charged and is not required to show that any of the defendants formally controlled the transferred funds.

Goodrich's acquittal on the charges in count six does not establish that a variance existed. The conspiracy charge in count three and aiding and abetting charge in count six form separate and independent charges, and acquittal on the §7206(2) charge does not necessitate acquittal on a §371 conspiracy charge.

III.

The district court did not abuse its discretion in denying Goodrich's severance motion based on the possibility that Gaskill might have invoked his Fifth Amendment rights, as Goodrich urged before trial. See United States v. Mariscal, 939 F.2d 884, 886 (9th Cir. 1991) (defendant seeking severance to obtain exculpatory testimony of co-defendant "must show that the co-defendant's testimony is 'substantially exculpatory' in order to succeed").

In his brief, Goodrich contended for the first time that the severance motion should have been granted because of the disparity in amount of evidence introduced against joined defendants. Although this may furnish a basis for severance, see United States v. Donaway, 447 F.2d 940, 943 (9th Cir. 1971),the prejudicial effect of evidence relating to the guilt of co-defendants is "generally held to be neutralized by careful instruction by the trial judge," as is true in Goodrich's case. United States v. Escalante, 637 F.2d 1197, 1201 (9th Cir. 1980).

Finally, Goodrich's reliance on United States v. Sababu, 891 F.2d 1308 (7th Cir. 1989), is misplaced. The weight of the evidence against Goodrich was substantial, and much of the background testimony on the structure and operation of the trust schemes would be admissible against Goodrich as well as his co-conspirators; and, the limiting instructions given by the district court make it clear that the district court was aware of the danger of prejudice. ²

IV.

The district court did not err in denying the pro hac vice application of Goodrich's appellate counsel, Joe A. Izen, an attorney admitted to practice law in Texas. The record demonstrated that several actual and potential conflicts of interest existed, constituting proper bases for denying a pro hac vice application in order to "ensure the ethical . . . administration of justice." See Wheat v. United States, 486 U.S. 153, 160-64, 100 L.Ed.2d 140, 108 S. Ct. 1692 (1988); see also United States v. Stites, 56 F.3d 1020, 1026 (9th Cir. 1995). A review of the record shows that the district court clearly did not impose upon Izen any burden of proving that he was free from conflict of interest. The district court also afforded Izen a sufficient hearing in which it attempted to elicit a clear response from Izen regarding the alleged conflicts asserted by the government. No adequate explanation was tendered.

V.

The government did not present sufficient evidence for any rational trier of fact to find beyond a reasonable doubt that Gaskill violated 26 U.S.C. §7206(2) as charged in count four of the indictment. See United States v. Hernandez, 105 F.3d 1330, 1332 (9th Cir. 1997).

To establish a §7206(2) violation, the government must show that: (1) the defendant aided, assisted, or otherwise caused the preparation and presentation of a return; (2) that the return was fraudulent or false; and (3) the act of the defendant was willful. See United States v. Salerno [90-1 USTC ¶50,261], 902 F.2d 1429, 1432 (9th Cir. 1990). The undisputed evidence was that Gaskill did not directly prepare, aid or cause preparation of the return. Indeed, there was not even circumstantial evidence linking him to preparation of any tax return at issue. Rather, the government's theory was that he was liable because he was associated with the business and was trustee of one of the trusts. Thus, there was a failure of proof that Gaskill had any actual knowledge that "the false information would be used in the preparation of the tax returns." See United States v. Crum [76-1 USTC ¶9214], 529 F.2d 1380, 1381-82 (9th Cir. 1976). Unlike the situation in Crum, there was no evidence that Gaskill personally met with the Picks prior to the preparation of the return and participated in providing them advice. In fact, Gaskill did not meet the Picks until after he had left G & D Associates and after the tax return had been prepared. Nor was there any testimony that the Picks relied upon any material generated by Gaskill. He did not produce any such material until long after the preparation of return at issue. The charge was temporally specific and limited to conduct between January 18, 1994 and April 15, 1994 . Thus, there was not sufficient evidence to sustain Gaskill's conviction on this specific count.

VI.

We review de novo a district court's conclusion that it lacked authority to depart downwards, see United States v. Mena, 925 F.2d 354, 355 (9th Cir. 1991). However, we lack jurisdiction to review a discretionary refusal to depart downward. See United States v. Morales, 972 F.2d 1007, 1011 (9th Cir. 1992). The district judge's articulation of reasoning in this case creates doubt whether he considered fully whether the defendant's head injury created a deficit in judgment; rather, the district court appeared to limit its consideration to an assessment of Gaskill's intellectual prowess. The question to be decided was not whether Gaskill knew the difference between right and wrong or whether he could reason and articulate rational judgments, but whether his injuries and the operations on his frontal and parietal lobes had significantly affected the processing of emotions that affect judgment. Substantial evidence was presented that such had occurred: the reports of his attending physicians at periods well before he was on trial and the decline in his law practice and the difficulties described by his spouse in the 1980's. In light of this evidence and substantial scientific opinion that a person may retain rationality while his damaged emotional brain impairs his judgment, the basis of the district court's decision is unclear. ³

Nonetheless, in the end, the district court stated on the record that it recognized its authority to depart, but chose not to exercise its discretion to do so. Thus, because the district court acted within its discretion to refuse to grant a downward departure on the grounds of diminished capacity, we lack jurisdiction to consider Gaskill's claims on appeal. See United States v. Govan, 152 F.3d 1088, 1095 (9th Cir. 1998).

VII.

In summary, we affirm the judgment against Goodrich in its entirety. We reverse the conviction against Gaskill on count four of the indictment and remand his case for resentencing and further proceedings consistent with this opinion.

AFFIRMED in part; REVERSED in part; REMANDED.

¹ This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as may be provided by Ninth Circuit Rule 36-3.

² At oral argument, Goodrich contended for the first time that severance should have been granted because of Gaskill's presentation of a diminished capacity defense. Because this argument was not presented to the trial court, nor in appellate briefing, we decline to consider it.

³ Because we are reversing Gaskill's conviction in part and remanding for new sentencing, the district court will have the opportunity to consider as part of that re-sentencing procedure whether to exercise his discretion to grant a downward departure based on impaired judgment as distinct from impaired intellectual ability. Cf. United States v. Cantu, 12 F.3d 1506, 1511, 1513 (9th Cir. 1993) ("mental capacity" downward departure factor includes not only "a lack of full intellectual functioning" but also "distorted . . . reasoning" and "interference with . . . ability to make considered decisions.")

 

 

[2005-2 USTC ¶50,513] United States of America v. Robert B. Creamer, Defendant.

U.S. District Court, No. Dist. Ill., East. Div.; 04 CR 281, April 8, 2005 .

[ Code Secs. 6531, 7202 and 7206]

Criminal procedure: Statute of limitations: Tax evasion: Timeliness of indictment: Willfulness: False statements: Failure to pay withholding tax. --

A taxpayer's motion to dismiss an indictment for bank fraud and tax violations because of pre-indictment delay was denied. The taxpayer failed to establish that the government's eight-year delay between the completion of its investigation and the indictment caused actual and substantial prejudice to his fair trial rights. Further, in a case of first impression, the court held that the limitations period began to run when the payment became past due, and not on April 15 of the succeeding calendar year, as the government claimed. For Code Sec. 7202 offenses, the focus is not on the filing of tax returns, but on the collection and payment of withholding taxes. Accordingly, April 15 could not be the offense date because the employer had no obligation regarding the withholding taxes on that date. Moreover, the court also concluded that the plain meaning of the statutory language and the vast body of case law set the limitations period at six years for Code Sec. 7202 offenses. The court also upheld the taxpayer's motion to sever the bank fraud counts from the tax violations, since joinder would prejudice the taxpayer's defense.

MEMORANDUM OPINION AND ORDER

MORAN, Senior Judge: The government accuses defendant Robert B. Creamer of committing bank fraud under 18 U.S.C. §1344, and tax violations under 26 U.S.C. §§7202 and 7206. The section 1344 charges stem from a check kiting scheme that defendant allegedly orchestrated while he served as director of several non-profit organizations. The section 7202 charges arise from defendant's alleged failure to pay withholding taxes to the Internal Revenue Service (IRS). The section 7206 charges relate to false statements that defendant allegedly made on his personal tax returns. Defendant has now filed seven pretrial motions in which he seeks the following grounds of relief: dismissing the section 7202 charges as untimely; dismissing all counts due to pre-indictment delay; severing the bank fraud and tax counts; dismissing the §7206 charges for failing to state an offense; and three discovery-related motions which request that the government disclose certain categories of evidence. For the following reasons, defendant's motions are granted in part and denied in part.

BACKGROUND

Defendant is the former director of several non-profit organizations that addressed primarily consumer advocacy issues. Those organizations were the Illinois Public Action Fund (IPAF), the Citizen Action Center for Consumer Rights (CACCR), and the National Consumers Foundation (NCF). The government alleges that defendant executed three separate check-kiting schemes in 1993, 1996 and 1997, during his tenure at those organizations. A check-kiting scheme "involves the knowing drafting and depositing of a series of overdraft checks between two or more federally insured banks with the purpose of artificially inflating bank balances so that checks can be drawn on accounts that actually have negative funds." United States v. LeDonne, 21 F.3d 1418, 1425, n.2 (7th Cir. 1994). According to the government, the defendant drew insufficiently-funded checks on the organizations' bank accounts and then deposited those checks in other bank accounts held by the same organizations in order to create the appearance of positive account balances. He then drew money from those accounts in order to pay the organizations' operational expenses. Responding to those allegations, defendant claims that the organizations had access to a large reservoir of funds to sustain their operations and that this reservoir of funds was sufficient to cover the organizations' bank debts.

The schemes were allegedly executed in similar fashion, and the illustration of one scheme provides an adequate background for all. In Count 1 the government alleges that in 1997 defendant drew insufficiently-funded checks on an account held by CACCR at US Bank of Oregon (US Bank), and then deposited them into accounts at South Shore Bank that were held by CACCR and IPAF. Defendant then drew insufficiently-funded checks on the CACCR account at South Shore Bank and deposited them into the IPAF account at South Shore Bank. Next, defendant drew insufficiently-funded checks on the IPAF account at South Shore Bank and deposited them into an IPAF account at Cole Taylor Bank. Defendant then issued insufficiently-funded wire transfers against the IPAF account at Cole Taylor and deposited them into the CACCR account at US Bank and the South Shore account of IPAF. Thus, according to the government, defendant allegedly used the organizations' accounts at the different banks to create a circuit through which he passed insufficiently-funded checks and wire transfers in order to maintain the appearance of positive balances, from which he withdrew funds to support the organizations.

The sums at stake were substantial. According to the government, the combined balance of the organizations' accounts during the 1997 kite ranged from negative $1 million to more than negative $2.6 million. Counts 2 through 7 each relate to the issuance of one in a series of six checks, which ranged from $93,000 to $98,000 in value. The combined daily balance during the 1996 check-kiting scheme ranged from negative $70,000 to more than negative $900,000. Counts 9 through 12 relate to a series of kited checks that were drawn in amounts from $64,000 to $99,000. The combined balance of the organizations' accounts during the 1993 scheme ranged from negative $600,000 to approximately negative $900,000. Finally, Counts 14 through 16 address three kited checks, which ranged from $13,721 to $14,200 in value.

In Counts 17 through 30 the government accuses defendant of violating §7202 by failing to pay to the IRS withholding taxes during specific fiscal quarters between 1996 and 2000. Counts 17 through 20 charge defendant with failing to pay taxes withheld from IPAF employees. Defendant left IPAF in 1997 and formed Issue Dynamics, Inc. (IDI), a political consulting firm where defendant was president and also the sole employee. Counts 21 through 30 charge that defendant failed to make ten payments reflecting taxes that he withheld at IDI. In his defense, defendant asserts that neither he nor any of the organizations that he directed ever misrepresented the amount of taxes owed.

Counts 31 through 34 charge defendant with making false statements on personal tax returns he filed between the years 1996 through 1999. Specifically, the government claims that defendant included withholding taxes on the 1040 forms when he knew that no withholding taxes were actually paid over to IRS. Defendant moves to dismiss these counts, and argues that the relevant line on Form 1040 asks only for taxes that were withheld, and not taxes that were paid to the IRS. He further contends that a taxpayer may include amounts withheld, even if the taxpayer's employer never paid those sums to the IRS.

The grand jury returned a 34-count indictment against defendant on May 10, 2004. Before the indictment's issuance, defendant and the government entered into an agreement whereby defendant agreed to toll the statute of limitations period for all counts on May 31, 2003. If not for that agreement, the government could not pursue Counts 13 through 16, which relate to the 1993 bank fraud, as the relevant statute of limitations period for §1344 offenses is ten years.

As is evident from the description above, the charges against defendant divide into two categories: bank fraud and tax violations. And, within those two categories, the charges relate to defendant's professional business life and his personal life. The charges do overlap, but defendant says the similarities are insufficient to justify the joinder of the bank fraud and tax violations. Further, over a decade passed between the first check-kiting activity and the indictment. Defendant claims that the government's delay in bringing its case against him is sufficiently prejudicial to warrant dismissal of the entire indictment. That contention, along with defendant's remaining arguments, are discussed below in detail.

DISCUSSION

Defendant's Motion to Dismiss All Counts for Pre-Indictment Delay

Defendant seeks to dismiss all counts in the indictment due to the pre-indictment delay. This is defendant's second argument, but the court addresses it first because defendant's success on this claim could conceivably moot his remaining arguments. However, defendant does not prevail here since he cannot demonstrate with requisite specificity that the government's lengthy pre-indictment delay caused him actual and substantial prejudice.

Defendant focuses primarily on the bank fraud counts, and specifically those stemming from the alleged 1993 check-kiting scheme. As for the tax counts, defendant contends that the government joined them in order to portray the bank fraud counts as timely. Over ten years passed between the alleged 1993 bank fraud and defendant's indictment on March 10, 2004. As noted above, if not for defendant's agreement to toll the statute of limitations period on March 31, 2003, the government would not be able to pursue the 1993 offenses. Defendant claims that the pre-indictment delay has caused him to lose three sources of valuable information. He identifies financial records relating to IPAF, NCF and CACCR that were destroyed; a business associate and personal friend, Mirron Alexandroff, who died in 2001; and other witnesses' memories, which have faded, as sources of evidence that he may no longer use to assist his defense. Defendant contends that if he had access to that evidence he would have used it to demonstrate that he never intended to expose the banks to actual or potential losses, and that the organizations, particularly IPAF, had sufficient funds to cover any overdrafts. Without those sources of information, defendant believes that his defense suffers severe prejudice. In response, the government argues that all of the charges have been brought within the time periods set by the relevant statutes of limitations. The government also labels plaintiff's lost evidence as insufficient to establish prejudice. Lastly, the government asserts that the delay was not due to any impermissible purpose.

The primary safeguard to a timely indictment is a statute of limitations. See United States v. Sowa, 34 F.3d 447, 450 (7 ^th Cir. 1994); United States v. Henderson, 337 F.3d 914, 919 (7 ^th Cir. 2003); United States v. Pardue, 134 F.3d 1316, 1319 (7 ^th Cir. 1998) ("A defendant's primary protection against overly stale criminal charges is the applicable statute of limitations, which is the legislative limit on prosecutorial delay."). Still, charges filed within the statute of limitations may violate the Due Process Clause of the Fifth Amendment, which "plays a limited role in protecting a defendant from undue prosecutorial delay." United States v. Smith, 80 F.3d 1188, 1191 (7 ^th Cir. 1996). To show that a pre-indictment delay violates due process, a defendant "must prove that the delay caused actual and substantial prejudice to his fair trial rights, and there must be a showing that the government delayed indictment to gain a tactical advantage or some other impermissible reason." Sowa, 34 F.3d at 450. Defendant's showing of actual and substantial prejudice must be "'specific, concrete, and supported by evidence.'" Id. quoting Pharm v. Hatcher, 984 F.2d 783, 787 (7 ^th Cir. 1993). That showing has also been described as "exacting" ( United States v. McMutuary, 217 F.3d 477, 482 (7 ^th Cir. 2000)), and "quite stringent." United States v. Hunter, 197 F.3d 862, 865 (7 ^th Cir. 1999). "Vague, speculative, or conclusory allegations" of harm are insufficient to establish prejudice. United States v. Canoy, 38 F.3d 893, 902 (7 ^th Cir. 1994); United States v. Spears, 159 F.3d 1081, 1084 (7 ^th Cir. 1998). After the defendant shows that the delay caused him actual and substantial prejudice, the government "must come forward and provide its reasons for the delay." Sowa, 34 F.3d at 451. Finally, after the government explains the delay, its reasons "are balanced against the defendant's prejudice to determine whether the defendant has been denied due process." Id. Due process is not violated if the delay "is legitimately investigative in nature." Id. Due process "is only implicated if the government purposely delayed the indictment to take advantage, tactically, of the prejudice or otherwise acted in bad faith." Id. at 450. In Sowa, the court recognized that it "has never characterized a pre-indictment delay as a constitutional violation." Id. Over ten years have passed since Sowa was decided, and the court's observation remains unchanged.

Defendant describes Alexandroff as a longtime friend who could "provide distinctive insight into [defendant's] operation of IPAF and [defendant's] utter lack of fraudulent intent in the financing of the organization." Alexandroff served on IPAF's Board of Directors and was also a personal friend of defendant. Defendant asserts that Alexandroff thus had a unique dual perspective --an overview of IPAF due to his role on the board, and a window into defendant's state-of-mind due to his friendship. According to defendant, he and Alexandroff discussed financial matters during 1996 and 1997. Defendant argues that Alexandroff would have testified to defendant's lack of intent to defraud any bank, and also that there is no other source for this testimony. In response, the government advances three arguments: despite his role on the Board of Directors, Alexandroff lacked knowledge of IPAF's day-to-day banking affairs; if Alexandroff actually knew about IPAF's financial affairs, then he would have been a co-schemer; and further, Alexandroff's testimony would have been inadmissible hearsay.

The Court of Appeals has been clear that the death or unavailability of a witness during a pre-indictment delay is not sufficient to establish actual and substantial prejudice. See Henderson, 337 F.3d at 920; United States v. Perry, 815 F.2d 1100, 1103 (7 ^th Cir. 1987). When a witness dies, the defendant claiming prejudice must prove "that the missing witness would have testified on the defendant's behalf, would have withstood cross-examination, and would have been a credible witness before the jury." Canoy, 38 F.3d at 902. Defendant does make a generalized showing as to the factors, but he must detail specifics and not generalities and vagaries. See United States v. Koller, 956 F.2d 1408, 1416 (7 ^th Cir. 1992) ("The defendant must also allege more than that a particular witness is no longer available and that his testimony would have been favorable to the defense."). Defendant's showing falls far short of the prejudice demonstrated in the rare instance of dismissal for pre-indictment delay, United States v. Sabath, 990 F. Supp. 1007 (N.D. Ill. 1998). In that case three key witnesses died during the delay, and in support of his motion to dismiss the defendant submitted evidence to support the deceased witnesses' testimony. Defendant presents no similar evidence that corroborates what he posits Alexandroff would have said. It is more than probable that other IPAF employees were familiar with the organization's finances and also knew defendant on a personal level. And it is implausible that Alexandroff was the only person with whom defendant discussed IPAF's finances. Defendant's unsupported portrayal of Alexandroff as the ultimate insider is bereft of the concrete and specific evidence necessary to establish prejudice.

Next, defendant claims prejudice due to the fact that financial records from IPAF, NCF and CACCR were discarded in or around 1999. The mere loss of records during a pre-indictment delay is not enough to establish prejudice. Spears, 159 F.3d at 1085. Defendant must show what the records would have shown and how they would have helped his defense. Canoy, 38 F.3d at 902-03. Defendant asserts that had the government indicted the case in a timely manner he would have used the records to establish that the organizations had sufficient funds to reimburse the banks, and that he thus lacked any intent to defraud. Defendant further argues that the loss of the records prevents him from arguing that no bank suffered actual monetary losses, which, in his view, evidences that he did not intend to defraud any bank. These arguments fail to establish actual and substantial prejudice.

Section 1344 does not require that the victim bank actually suffer any loss. See 18 U.S.C. §1344; Neder v. United States [ 99-1 USTC ¶50,586], 527 U.S. 1, 24-25 (1999) ("The common-law requirements of 'justifiable reliance' and 'damages' ... plainly have no place in the federal fraud statutes."); United States v. Barrett, 178 F.3d 643, 648 (2d Cir. 2000) ("[A]ctual or potential loss to the bank is not an element of the crime of bank fraud but merely a description of the required criminal intent."); United States v. Mason, 902 F.2d 1434, 1441 (9 ^th Cir. 1990) ("[A] federally supported financial institution need not incur a 'loss' in order to be a victim of 'false or fraudulent pretenses, representations, or promises.'"). Even if actual loss was relevant, the banks' own records could adequately show what losses, if any, they actually suffered due to defendant's alleged check-kiting scheme. Thus, even if defendant had the records, and assuming that they showed his organizations had sufficient funds to cover the checks, and that no bank actually suffered any loss, he could still be convicted under section 1344. There is yet another reason why the absence of the organizations' financial records does not sufficiently prejudice defendant. The loss of those records does not preclude defendant from showing that he did not intend to commit bank fraud because any specifically identifiable funds received by the organizations would be noted in at least two locations: the organizations' records and the records held by the sources of those funds. Thus, those sources, whether they be banks, contributors, or other lenders, may establish the financial situations at the organizations. Using the records from those sources, defendant may show that the organizations had or expected to receive sufficient funds to reimburse the banks, and thus support his claim that he never intended to defraud the banks. However, defendant has not made a specific showing that these records are unavailable.

Defendant also argues that he suffers prejudice due to the "enormous task" of finding witnesses and reconstructing their memories that have eroded over time. Defendant asserts that task has been complicated by the many organizational and institutional changes that several of the banks have experienced. This is clearly the weakest of defendant's arguments, for he does not point to any specific and concrete evidence, and the general category of lost evidence --faded memories --is vague and insufficient. See Koller, 956 F.2d at 1416 ("Allegations that witnesses' memories have faded is not enough."). A defendant's burden of proving prejudice in pre-indictment delay cases has been described as a "monumental hurdle" ( Sowa, 34 F.3d at 451), which is an appropriate image because the defendant must construct with detail and specificity that which is lost and unavailable. Here, defendant does not provide any potential witnesses --what they would say and how their testimony would help his defense. See Aleman v. Honorable Judges, 138 F.3d 302, 310 (7 ^th Cir. 1998) ("It is not enough simply to speculate ... that witnesses' memories might have faded because of the passage of time.").

As is the case with his arguments relating to Alexandroff and the lost records, defendant fails to point to any evidence to corroborate that those sources of information would actually support his defense. See United States v. Sample, 565 F. Supp. 1166, 1178-79 (N.D. Ill. 1983). Defendant has also failed to show that no other sources of evidence exist. Instead, he cites prejudice from the "enormous task" of locating that evidence. In sum, defendant falls far short of clearing the monumental hurdle that is before him.

Having held that defendant has failed to establish actual and substantial prejudice, it is unnecessary to reach into the next stage of the pre-indictment delay analysis --the government's reasons for the delay. Still, we note that the government's explanation is conclusory, vague and speculative. According to the government, it was under the impression that most of the financial records were destroyed, but in late 2001 it learned that those records actually existed. This explanation, which is not supported by an affidavit, only shows that the government lacked some evidence, not that it was ignorant of all suspected wrongdoing. The government does not contend that the evidence was so sparse that it could not prosecute the case prior to discovering the records, but, instead, that the case against defendant was bolstered by the newly-discovered records. The government describes what the discovered records reveal regarding the organizations' expenditures, but it fails to show specifically how the absence of the records precluded prosecution. It is unclear how these records correspond to the charges because the government does not link those records to specific charges. Further, the government fails to argue that the charges could not be supported by evidence from other sources. Still, despite the government's delay, and its inability to explain that delay, due process has not been violated here and this is not the rare case that must be dismissed for pre-indictment delay.

Defendant's Motion to Dismiss Counts 17 Through 29 as Untimely

Counts 17 through 30 charge defendant with willfully failing to pay over withholding taxes to the IRS, in violation of section 7202. Section 7202 requires a person to withhold certain taxes ¹ from an employee's paycheck and to pay over those sums to the IRS, and a failure to meet either of those obligations violates the statute. United States v. Gilbert [ 2001-2 USTC ¶50,655], 266 F.3d 1180, 1185 (9 ^th Cir. 2001). See also Internal Revenue Manual §9.1.3.3.3.1 (stating that the elements of a section 7202 offense are "either a duty to collect any tax or a duty to account for and pay over any tax, or both; either failure to collect any tax or failure to truthfully account for and pay over any tax, or both; and willfulness.").

Defendant argues that the controlling limitations period for section 7202 offenses is three years, but the government contends that the period is six years. Defendant also claims that the limitations period begins to run when payment becomes past due, but the government states that the clock starts on April 15 of the succeeding calendar year. Under 26 U.S.C. §6531 the limitations periods for "offenses arising under the internal revenue laws" is three years "after the commission of the offense," but, if one of eight statutory exceptions apply, the limitations period is six years. At issue here is if one of those exceptions --section 6531(4) --applies to section 7202. Defendant has agreed to toll the limitations period on March 31, 2003, which means that the limitations periods must have begun after either March 30, 1997, or March 30, 2000. If section 6531(4) does not apply, then only Count 30, which relates to a tax payment due on April 30, 2001, would be within three years of the indictment. ² But if section 6531(4) does apply, and assuming that limitations period begins to run on the payment's due date, then only Counts 17 and 18 are untimely. ³ We conclude that when a taxpayer fails to pay over withholding taxes the government must bring a section 7202 prosecution within six years from the date the payment was due.

Section 6531(4) extends the limitations period to six years "for the offense of willfully failing to pay any tax, or make any return ... at the time or times required by law or regulations." This subsection does not explicitly reference another tax code provision, unlike four other subsections. See section 6531(5) (referencing sections 7206(1) and 7207); section 6531(6) (referencing section 7212(a)); section 6531(7) (referencing section 7214(a)); section 6531(8) (referencing 18 U.S.C. §371). But the absence of specific reference to section 7202 by name does not indicate that it is beyond the coverage of section 6531(4), as an analysis of the language of section 6531(4) demonstrates.

Defendant claims that the language of section 6531(4) shows that Congress did not intend that it cover section 7202 offenses. Defendant argues that section 6531(4) closely tracks the language of section 7203, not section 7202, which indicates that section 6531(4) covers only section 7203. Compare section 6531(4) ("offense of willfully failing to pay any tax, or make any return ... at the time or times required by law or regulations"), with section 7203 ("[a]ny person ... who willfully fails to pay such estimated tax or tax, make such return"). But if Congress intended for section 6531(4) to reference section 7203 exclusively, it would have mentioned section 7203 by name. It instead chose to track a phrase from section 7203, which is insufficient to establish an exclusive relationship between the sections. Relying on United States v. Block [ 82-1 USTC ¶9256], 497 F.Supp. 629, 632 (N.D. Ga. 1980), defendant emphasizes that section 6531(4) applies only to the "offense of willfully failing to pay any tax," and therefore cannot refer to two offenses --those in sections 7202 and 7203. That argument fails because its predicate --that section 6531(4) is solely wedded to section 7203 --is wrong. Further, "offense" clearly modifies "any tax, or ... any return," and the government's attempts to depict "offense" as plural through linguistic maneuvers such as arguing that "any tax" is actually plural, are wholly unnecessary. Failing to pay any tax on different occasions will lead to multiple offenses, and multiple violations.

Defendant also argues that section 6531(4) does not cover section 7202 because it punishes the failure to "pay any tax," not the failure to "pay over any tax" from section 7202. Defendant also cites United States v. Brennick [ 97-1 USTC ¶50,390], 908 F.Supp. 1004, 1018-19 (D. Mass. 1995), which held that the absence of the phrase "pay over" from section 6531(4) shows that it did not cover section 7202. "Pay over" is key language to section 7202 because it describes how an employer pays over to the IRS federal income taxes withheld from an employee's salary. Yet these "third party taxes" ( Block [ 82-1 USTC ¶9256], 497 F.Supp. at 632) are still taxes, and section 6531(4) clearly applies to "any tax." We would have to ignore the plain meaning of "pay any tax" in order to exempt from its coverage withholding taxes, which, despite their method of payment, are still taxes that must be paid.

Further, case law heavily favors the longer limitations period. Block and Brennick are the only two cases to hold that the three-year limitations period applies. In contrast, five federal circuits hold that the six-year limitations period applies to section 7202. See United States v. Adam [ 2002-2 USTC ¶50,502], 296 F.3d 327 (5 ^th Cir. 2002); United States v. Gilbert [ 2001-2 USTC ¶50,655], 266 F.3d 1180 (9 ^th Cir. 2001); United States v. Gollapudi [ 97-2 USTC ¶50,978], 130 F.3d 66 (3d Cir. 1997); United States v. Evangelista [ 97-2 USTC ¶50,608], 122 F.3d 112 (2d Cir. 1997); United States v. Porth [ 70-1 USTC ¶9329], 426 F.2d 519 (10 ^th Cir. 1970). Those decisions discuss many of the persuasive arguments in favor of the longer limitations period that are detailed above and other arguments as well, such as the inconsistency of Congress applying section 6531(4) to section 7203, a misdemeanor statute, but not section 7202, a felony statute. See Gollapudi [ 97-2 USTC ¶50,978], 130 F.3d at 71. Thus, the plain meaning of the statutory language and the vast body of case law set the limitations period at six years for section 7202 offenses.

In order to be timely charged, any criminal activity must have occurred after March 30, 1997. Counts 17 and 18 present the unique question of when the limitations period begins for offenses under section 7202 --on the payment due date or on the date when the party from whom the taxes were withheld must file her taxes. The payment due date for Count 17 was October 30, 1997, and for Count 18 payment was due on January 31, 1997. Defendant argues that the clock starts on the payment due date, which means that neither count was timely filed. The government contends that the critical date is April 15 of the year succeeding the payment due dates, which would mean that the limitations period for Counts 17 and 18 began on April 15, 1997. Neither party offers case law that directly addresses this issue, and it appears to be one of first impression.

It is important to recognize the nature of the taxes that are at issue. An employer will typically withhold federal income taxes from an employee's paycheck, and then pay over those taxes to the government. Those payments are due after each quarter. See 26 C.F.R. 31.6011(a)-4 ("every person required to make a return of income tax withheld from wages pursuant to section 3402 shall make a return for the first calendar quarter in which the person is required to deduct and withhold such tax and for each subsequent calendar quarter."). The withheld sums never belong to the employer, who basically holds the taxes in trust for the government. The government accuses the defendant of not paying over the withheld taxes and instead using them to meet the operational costs of the organizations that he operated. Thus, the government does not charge defendant with failing to pay his own taxes, but rather the taxes that others owed.

The analysis begins with section 6531, as it sets the limitation periods for criminal prosecutions. The final sentence of section 6531 states: "For the purpose of determining the periods of limitation on criminal prosecutions, the rules of 6513 shall be applicable." Section 6513(b) provides that "any tax actually deducted and withheld at the source during any calendar year under chapter 24 shall, in respect of the recipient of the income, be deemed to have been paid by him on the 15 ^th day of the fourth month following the close of his taxable year with respect to which such tax is allowable credit under section 31." This subsection thus sets the "payment date" with respect to the employee, who is the recipient of the income, but not the employer. Further, a tax is deemed paid on April 15 by the taxpayer who includes the withholding tax deduction on his tax return form, not paid in the sense of the employer paying a tax over to the I RS. Sections 6513(c) and 6513(e) are also irrelevant. Section 6513(c)(1) provides that, with respect to FICA tax, if a return is filed before April 15 of the succeeding year, it is considered filed on April 15 of that year. Section 6513(c)(2) establishes that any remuneration or amount paid prior to April 15 is considered to be paid on April 15. Section 6513(e) provides that any payment of FUTA taxes made for a calendar year or period within that year is considered to be made on the last day for filing. These provisions do not apply when the employer withholds money from an employee but fails to pay that money over to the government. No return was filed here, so section 6513(c)(1) does not apply, and no payments were made, which makes sections 6513(c)(2) and 6513(e) irrelevant. The reasons behind section 6513's irrelevance highlight the major flaw in the government's argument for April 15 as the beginning of the limitations period. April 15 relates to the tax obligations of the employee, and not the employer. Finding no guidance in section 6513, we return to section 6531.

Section 6531 provides that an indictment must be found within three or six years "next after the commission of the offense." The limitations period thus begins when the offense was committed. See Pendergast v. United States, 317 U.S. 412, 418 (1943) ("statutes of limitations normally begin to run when the crime is complete"). We believe that a section 7202 offense is committed and completed when the employer fails to pay over withholding taxes, and not when the employee files his taxes. The government knows, at the time a quarterly payment is due but not paid, not only that it is owed money, but also who must pay those sums. The government's date, April 15, cannot be the offense date because the employer has no obligations regarding the withholding taxes on that date. April 15 relates to the date that the employees from whom taxes were withheld must file their tax returns. As discussed below in connection with Counts 31 through 34, a taxpayer may include withholding payments on her tax form even if those payments were never paid over to the government. The indictment provides additional support for the conclusion that the payment due date is the date of the offense. The government has charged defendant with fourteen separate violations of section 7202. Each violation corresponds to quarterly payment due dates. If April 15 was truly the payment due date, then the government would have brought only five counts against defendant. Instead, the charges relate to the payment due dates, which shows that the offenses occurred on those dates. By insisting that the offense occurs on April 15, the government ignores the special circumstances that section 7202 is designed to address.

While courts have not addressed when the limitations period begins for section 7202 offenses, they have resolved the same issue with respect to section 7201, which criminalizes tax evasion. Under section 6513(a), the payment of any tax prior to the filing's due date is considered to be filed on the due date, which is April 15. The section 7201 offense does not become complete until the tax return is due, as it is not until then that a tax deficiency exists. United States v. King [ 97-2 USTC ¶50,746], 126 F.3d 987 (7 ^th Cir. 1997). If the taxpayer files after April 15, the limitations period begins when the return is actually filed. United States v. Habig [ 68-1 USTC ¶9243], 390 U.S. 222 (1968). Thus, the taxpayer can never cause the limitations period to run prior to April 15, and if he files after that date he cannot cause the period to run before he actually filed. Further, the limitations period may begin on the date of the taxpayer's last evasive act, even if that date is after the actual date of filing. See United States v. Anderson [ 2003-1 USTC ¶50,237], 319 F.3d 1218, 1219 (10 ^th Cir. 2003); Sanchez & Tejeda, 41 AM. CRIM. L. REV. at 1154 ("The statute of limitations begins to run on the date the taxpayer files the fraudulent document or on the date of the last affirmative act of evasion."). In each scenario the limitations period begins when the offense is complete. The offense is usually complete when taxpayer files falsified tax forms and creates a tax deficiency, ( United States v. Carlson [ 2001-1 USTC ¶50,152], 235 F.3d 466, 470 (9 ^th Cir. 2000)), which explains why the limitations period for section 7201 offenses typically begins on April 15. However, that date is not the default starting date for section 7202 offenses, which focus not on the filing of tax returns, but on the collection and payment of withholding taxes.

Also demonstrating that April 15 is irrelevant to section 7202 offenses is "the last act of evasion" principle from section 7201 cases. Tax evasion cases often involve acts of concealment and subterfuge occurring over the course of many years, and each act of evasion is part of a larger scheme. United States v. Hunerlach [ 99-2 USTC ¶51,009], 197 F.3d 1059, 1065 (11 ^th Cir. 1999). In contrast, section 7202 offenses are discrete crimes, even when the defendant fails to pay over taxes over a number of quarters, as the government accuses defendant of doing here. Under the government's argument, defendant's last evasive act occurred on April 15. But that argument fails because it focuses on the employee's filing due date and not on defendant's conduct. United States v. Butler [ 2002-2 USTC ¶50,579], 297 F.3d 505 (6 ^th Cir. 2002), also illustrates why the quarterly payment due date rather than the filing date begins the limitations period. In Butler the government accused the defendant of violating section 7201 by failing to pay taxes for the quarter ending December 31, 1991. The defendant argued that the indictment was untimely because it was filed on January 29, 1998. The court rejected that position and concluded that December 31 only marked the end of the quarter, and not the beginning of the limitations period. That period began to run on the date of the last affirmative act of evasion, which was January 31, 1992, the quarterly payment due date, which made the indictment timely by three days. Id. at 511-12. Thus, the last act necessary is the failure to pay over taxes on the payment due date.

Policy also favors starting the clock when the payments are due. From the government's perspective, an employer's payment of withholding taxes is timely if it is received prior to April 15 of the year succeeding the payment due dates. This is true even when the employer is obligated to make quarterly payments to the government. The government's position vitiates any requirement to make quarterly payments and clouds the clarity provided by set deadlines. That position also creates incentives for employers to keep the withholding taxes (and reap the benefits of possession) until April 15. The government's argument also undermines the principle that an employer holds withholding taxes in trust for the government. See Davis v. United States [ 92-1 USTC ¶50,292], 961 F.2d 867, 869 (9 ^th Cir. 1992) ("Although an employer collects [withholding taxes] each salary period, payment to the federal government takes place on a quarterly basis. In the interim, the employer holds the collected taxes in trust for the government."); see also 26 U.S.C. §7501(a) ("Whenever any person is required to collect or withhold any internal revenue tax from any other person and to pay over such tax to the United States, the amount of tax so collected or withheld shall be held to be a special fund in trust for the United States."). In contrast, viewing a section 7202 offense to be complete on the payment due date supports the policy of employer as trustee of withholding taxes, and also sets clear standards for employers obligated to pay those taxes over to the government.

The limitations period for section 7202 offenses begins to run when the tax payments were due, which renders Counts 17 and 18 untimely, as those tax payments were due more than six years prior to the indictment. Counts 19 through 30 are timely filed.

Defendant's Motion to Sever Bank Fraud Counts from Tax Violations

The government's case against defendant spans many years and covers a wide range of conduct. We have already held that the government's pre-indictment delay was not sufficiently prejudicial to warrant dismissal of the entire indictment. Defendant challenges the second facet of the government's case when he moves to dismiss the bank fraud counts (Counts 1 through 16) from the tax counts (Counts 17 through 34). Defendant argues that the bank fraud and tax counts are improperly joined because they are not sufficiently related, and he also contends that joinder will prejudice his right to a fair trial.

The government may charge a defendant with multiple offenses provided that they "are of the same or similar character, or are based on the same act or transaction, or are connected with or constitute parts of a common scheme or plan." FED. R. CRIM. P. 8(a). Even if offenses are properly joined, a court has discretion to sever them if their joinder sufficiently prejudices the defendant. FED. R. CRIM. P. 14(a); United States v. Shue, 766 F.2d 1122, 1134 (7 ^th Cir. 1985). If the Rule 8 requirements are met, then Rule 14 controls severance issues. United States v. Lane, 474 U.S. 438, 447 (1986).

Joinder of offenses increases judicial economy by avoiding duplicative trials. See United States v. Coleman, 22 F.3d 126, 132 (7 ^th Cir. 1993) ("Judicial economy and convenience are the chief virtues of joint trials --i.e. joinder often avoids expensive and duplicative trials."). The Seventh Circuit has emphasized that Rule 8 should be broadly construed to promote judicial efficiency. See United States v. Stokes, 211 F.3d 1039, 1042 (7 ^th Cir. 2000); United States v. Freland, 141 F.3d 1223, 1226 (7 ^th Cir. 1998); United States v. Alexander, 135 F.3d 470, 476 (7 ^th Cir. 1998); United States v. Moore, 115 F.3d 1348, 1362 (7 ^th Cir. 1992). Despite the policy favoring joinder, benefits of joint trials "must be balanced against the defendant's right to a trial free of prejudice." United States v. L'Allier, 838 F.2d 234, 240 (7 ^th Cir. 1988); see also Coleman, 22 F.3d at 132. ("defendant embarrassment or confoundment in presenting separate defenses simultaneously, jury cumulation of evidence, and jury inference of criminal disposition are [joinder's] main vices."). When determining whether or not joinder is proper, the court focuses on the indictment. Alexander , 135 F.3d at 475; United States v. Hubbard, 61 F.3d 1261, 1270 (7 ^th Cir. 1995); United States v. Bruun, 809 F.2d 397, 406 (7 ^th Cir. 1987).

Defendant argues that joinder is improper because the indictment fails to show that the bank fraud offenses are sufficiently linked to the tax violations. Defendant contends that the indictment actually shows that the two groups of offenses are dissimilar. He states that the bank fraud offenses occurred between 1993 and 1997, but the tax violations transpired between 1996 and 2001. Defendant further emphasizes that the final bank fraud scheme terminated prior to the incorporation of IDI. Defendant also highlights that the offenses derive from distinct titles in the U.S. Code, that the victims are different, and that the offenses require proof of entirely different elements.

According to the government, joinder is proper because the bank fraud and tax counts are part of the same transaction and common scheme or plan. Specifically, the government believes that defendant used the bank fraud and tax violations to maximize the organizations' operating income and his own influence. The government also states that the charges do share evidence, specifically defendant's bank accounts, which the government believes will show that defendant orchestrated the check-kiting schemes and also had sufficient money to meet the organizations' tax obligations. The government further contends that it will use the IPAF tax returns to establish defendant's IDI-related tax violations.

Absent from the face of the indictment is any clear connection between the bank fraud offenses and tax violations. Counts 17 through 20 incorporate only paragraph one of Count 1, which conveys the following information: defendant was the executive director at IPAF; he was in charge of the day-to-day operations; he was responsible for maintaining the books and records, including corporate receipts, bank accounts, and tax forms. Counts 31 through 34, which relate to the section 7206 violations, do not incorporate paragraph one from Count 1. Indeed, Counts 31 through 34 are silent as to the bank fraud violations and, likewise, Counts 1 through 16 do not mention the section 7206 offenses. Finding that the face of the indictment fails to link the two groups of offenses, we turn to the bases for joinder set forth in Rule 8(a).

As mentioned above, Rule 8(a) provides three possible grounds for joinder. The government contends that the bank fraud offenses and tax violations are based on the same transaction and common scheme, and it does not argue that the charges are of the "same or similar character," ⁴ which is "the broadest of the possible bases for joinder under Rule 8(a)." Alexander, 135 F.3d at 476. The "transaction" basis has been interpreted broadly, and it applies when charges share a "logical relationship." United States v. Berardi, 675 F.2d 894, 899 (7 ^th Cir. 1982). A logical relationship exists when one charge serves as a "logical precursor" for the other. United States v. Woody, 55 F.3d 1257, 1267 (7 ^th Cir. 1995). In Woody, the defendant was charged with possessing stolen mail and assault. The court held that the stolen mail charge was a logical precursor for the assault because the assault occurred while officers attempted to arrest the defendant on the mail charges. Similarly, multiple charges comprise a "common scheme or plan," when one charge is directly related to and even provides the impetus for the other charge. See United States v. Randazzo, 80 F.3d 623, 627 (1st Cir. 1996) (observing that the "common scheme or plan" basis "is often used to join false statement claims with tax fraud charges where the tax fraud involves failure to report specific income obtained by the false statements."). The indictment does not expressly state that the charges comprise either a transaction or common scheme, but the government may still establish joinder through other means, such as the existence of an evidentiary overlap between the charges.

There is some dispute as to the role that evidence should play in the joinder analysis. Some courts have ruled that evidence has no bearing in determining whether joinder is proper. See United States v. Kaquatosh, 227 F. Supp. 2d 1045, 1050 n.10 (E.D. Wis. 2002 ) ("potential evidentiary overlap ... is irrelevant under the controlling legal standard"); United States v. Lanas, 324 F.3d 894, 899 (7 ^th Cir. 2003) ("whether there was misjoinder under Rule 8 is determined by looking solely at the allegations in the indictment; it is thus irrelevant what was shown by the proof at trial."). Other courts have held that evidence does indeed serve a role when considering joinder problems. See L'Allier, 838 F.2d at 240 (quoting United States v. Shue, 766 F.2d 1122, 1134 (7th Cir. 1985)) (stating that joinder is proper "if the 'counts refer to the same type of offenses occurring over a relatively short period of time, and the evidence as to each count overlaps.'"); United States v. Donaldson, 978 F.2d 381, 391 (7 ^th Cir. 1992) ("Offenses may be joined if ... the evidence of several counts overlaps."). See also United States v. Best, 235 F. Supp. 2d 923, 928 (N.D. Ind. 2002) (recognizing that "[t]he Seventh Circuit has formulated two slightly different tests for analyzing whether the joinder of charges is proper under Rule 8."). This dispute may derive from the Seventh Circuit observation that Rule 8(a) contains "a rather clear directive to compare the offenses charged for categorical, not evidentiary, similarities." Coleman, 22 F.3d at 133. That "directive" related to the "same or similar character" language from Rule 8(a), which is not at issue in this case. The court in Coleman also contrasted the "same or similar character" language with the other two grounds for joinder, which are prefaced by the words "are based on," which implies that considering evidence is proper and relevant to the transaction and common scheme grounds. Further, establishing if crimes are connected to form a common scheme necessarily involves looking at the evidence that supports each charge. See United States v. Windom, 19 F.3d 1190, 1196 (7 ^th Cir. 1994) (quoting United States v. Montes-Cardenas, 746 F.2d 771, 776 (11 ^th Cir. 1984)) ("Two crimes are 'connected together' if the proof of one crime constitutes a substantial portion of the proof of another."). Because the government seeks joinder on the "transaction" and "common scheme" grounds, the court will consider the argument that the evidentiary overlap justifies the joinder of the bank fraud and tax charges.

The government claims that the bank records are common to all charges and are sufficient to justify joinder. But that evidence is only common to the offenses occurring in 1996 and 1997. Bank records relating to the 1993 bank fraud have no bearing on any alleged tax violations. And because Counts 17 and 18 are untimely, the bank records are only relevant to Counts 19 and 20. The evidentiary overlap is much too minimal to support joinder. Not only does the government's evidence fail to join all counts, it also fails to explain how the bank fraud charges and tax violations are a transaction, or are connected together as a common scheme or plan. The government alleges that defendant used the check-kiting scheme to pay the organizations' operational costs, which presumably included salaries paid to IPAF employees. See Indictment, Count 1, ¶ 12(c) (defendant kited checks "to fraudulently cover the payment of bills and other financial obligations defendant CREAMER had authorized."). It was from those salaries that defendant withheld federal income taxes, which he then allegedly failed to pay over to the government. However, the government does not allege that there is such a direct link between the proceeds from the check-kiting scheme and tax violations. According to defendant, any such link would be impossible because the bank fraud created no proceeds. Regardless of the existence of proceeds, neither allegations nor evidence binds the two alleged schemes together and the two groups of charges are not logically related to each other.

The dearth of shared evidence suggests that severance will not lead to wasted judicial resources. A joint trial would require the jury to consider two different bodies of law. The bank fraud and tax offenses share no common elements. In contrast, in Coleman the court held that joinder was appropriate because the four counts against the defendant each derived from the same criminal statute, which meant that each offense shared the same elements. See Coleman, 126 F.3d at 135 ("Also, the central contested issue for each count was virtually the same --i.e. constructive possession --and, as a result, the jury did not have to grapple with the application of widely variant governing principles.").

Joinder may also be improper when the offenses are not temporally related. See Donaldson, 978 F.2d at 391 ("Offenses may be joined if they occur within a relatively short period of time."). As many as eight years separate the earliest bank fraud offense from the final alleged tax violation. In Coleman the court described the temporal relation between offenses that were separated by twenty-one months to "range from moderate to quite slim." Coleman, 22 F.3d at 131. In United States v. Turner, 93 F.3d 276, 283 (7 ^th Cir. 1996), the court observed that a fourteen-month time span between offenses indicated that those offenses were not temporally related. And, in Hubbard, the court described seventeen months as a "significant expanse of time" that failed to establish a temporal connection between two charges. Hubbard, 61 F.3d at 1270. Under those standards, an eight-year expanse certainly shows that the offenses are not temporally related, and weighs in favor of severance.

Joinder is improper because the bank fraud charges and the tax violations are independent of each other. In cases where joinder is appropriate, one charge often provides the impetus or motive for the other charge. For example, in United States v. Dominguez, 226 F.3d 1235 (11 ^th Cir. 2000), the court held that drug offenses and mortgage fraud charges were properly joined because "concealing income from the drug activity was the motive for the mortgage fraud." Id. at 1242. In that case, when the defendant applied for a mortgage he submitted false tax returns in order to hide the fact that his income derived from illegal drug activity. The court observed that "the fact that one illegal activity provides the impetus for the other illegal activity is sufficient to constitute a common scheme for joinder purposes." Id. at 1239. In United States v. Buchanan, 930 F. Supp. 657, 667 (D. Mass. 1996) the court held that joinder was improper because there were no allegations that charges relating to one scheme served as the "predicate" for charges involving another scheme. In United States v. Koen, 982 F.2d 1101, 1112 (7 ^th Cir. 1992), the defendant argued that the government improperly joined an embezzlement charge with arson and mail fraud charges. The court disagreed and held that "the fact that [the defendant] may have committed embezzlement would be especially relevant to establishing a motive to commit later acts of mail fraud." In Berardi, the defendant was charged with extortion, mail fraud, and obstruction of justice and claimed misjoinder. The court found the charges were properly joined because evidence supporting one offense helped prove another offense. Berardi, 675 F.2d at 900. In each of the cases one charge essentially derived from another, as seen when the defendant commits illegal acts in an attempt to cover up prior illegal conduct. The government cannot point to similar links between the offenses brought against defendant.

The government does not allege that defendant failed to pay over the withholding taxes because of the bank fraud charges. Nor does it argue that the bank fraud charges were either predicate or impetus for the tax violations. Further, as mentioned above, the government does not contend that the tax violations were based on income produced by the bank fraud. See United States v. Anderson, 809 F.2d 1281, 1288 (7 ^th Cir. 1987) ("Joinder of tax evasion counts is appropriate when it is based upon unreported income flowing directly from the activities which are the subject of the other counts."). Even if the bank fraud counts played a very small role in the tax violations, separate trials would be required to protect defendant's right to a fair trial. United States v. Emond, 935 F.2d 1511, 1516 (7 ^th Cir. 1991).

The government also contends that a common scheme exists due to defendant's alleged instrumental role in both the bank fraud and tax violations during his tenure as IPAF's director. In Koen, the court noted that the offenses were of a "similar character because they all relate to [defendant's] mishandling of the funds." Koen, 982 F.2d at 1111. And in Alexander, the court concluded that joinder was proper because the defendant committed the offenses "in order to enhance the resources of his bankruptcy petition filing business." Alexander, 135 F.3d at 476. These cases are distinguishable on several grounds. First, these cases focused on the "same or similar character" basis, which the government does not seek to apply here. Second, sufficient evidentiary and temporal support bolstered the government's case for joinder in those cases, whereas here there is a lack of evidentiary support and the bank fraud and tax violations are separated by as many as eight years. Under the government's approach, any criminal conduct that defendant allegedly committed that contributed to the organizations' bottom line would be part of the common scheme and subject to joinder. Thus, a bank robbery or narcotics transaction that yielded proceeds later used to pay IPAF's heating bill would be subject to joinder, even if those criminal acts occurred eight years after the bank fraud. We are to apply Rule 8 broadly, but the government's construction stretches that rule beyond its proper bounds.

Defendant also alleges that joinder would prejudice his right to a fair trial. Much of the evidence related to the alleged check-kiting schemes would be inadmissible at trial on the tax violations. The government does not contend that all evidence would be cross-admissible. The introduction of inadmissible evidence could allow the jury to convict defendant based on a perceived propensity to violate the law. See Coleman, 22 F.3d at 132 (if "evidence of the joined offenses would be inadmissible at separate trials, joinder seems to implicate the set of concerns underlying the so-called propensity rule of evidence."). Defendant has shown that joinder would prejudice his defense. Having found that Counts 1 through 16 are improperly joined with Counts 17 through 34, we need not reach defendant's argument that severance is required under Rule 14.

Defendant's Motion to Dismiss Counts 31 Through 34 For Failure to State an Offense

In Counts 31 through 34 the government accuses defendant of submitting tax returns he knew were not correct in every material matter, in violation of 26 U.S.C. §7206(1). ⁵ Specifically, the government alleges that defendant misstated the total taxes that were owed or overpaid for the years 1996 through 1999 when he included withholding taxes, thus inflating the total tax payments.

Defendant argues that Counts 31 through 34 fail to state a claim because Form 1040 only requires the taxpayer to include the taxes withheld, not the sums actually paid over to the IRS, and that the government does not accuse him of misstating the amounts withheld. Thus, according to defendant, because the actual payment of the withholding taxes is irrelevant to the veracity of his tax forms, and since he accurately stated the amounts withheld, his tax forms are literally true and do not violate section 7206(1).

In the normal course, an employer withholds income taxes from its employees; submits quarterly a form 941 disclosing the amount withheld; and deposits that amount, together with other taxes due, with the federal government. The employer annually prepares W-2 and 1099 forms, which disclose the amount withheld during that taxable year and furnishes them to each of its employees. The employee thereafter files his or her tax return, in which the employee takes credit as a payment the federal income tax withheld as set forth in the forms W-2 and 1099.

As we understand it, the government is not contending that the employer did not file the form 941 quarterly reports or that defendant received any of the funds purportedly withheld. It charges, rather, that the employer did not make the required deposits, that defendant was responsible for making those deposits and that he claimed the amounts withheld (reflected in at least some instances in W-2 or 1099 forms, or both) as payment credits on his personal income tax returns, even though he knew the government had never received the money.

Defendant relies upon United States v. Borman [ 93-2 USTC ¶50,428], 992 F.2d 124 (7 ^th Cir. 1993), and United States v. Reynolds [ 91-1 USTC ¶50,267], 919 F.2d 435 (7 ^th Cir. 1990). In both cases the taxpayer or taxpayers used a form that required them to disclose only some of their income, and the disclosures as required by that form were accurate. While their failure to use the correct forms exposed them to criminal sanctions for failure to disclose their entire income or for tax evasion, they could not be prosecuted for filing a false return. The government argues, in response, that the returns here were inaccurate because defendant claimed credit for payments he knew had not been made, and which he had responsibility to make.

Again, in the normal course, a taxpayer is entitled to a credit for withholding taxes, even if those taxes were never paid to the I RS. 26 C.F.R. 1.31-1 ("If the tax has actually been withheld at the source, credit or refund shall be made to the recipient of the income even though such tax has not been paid over to the Government by the employer."); Sanchez & Tejeda, 41 AM. CRIM. L. REV. at 1167 ("Once an employer withholds taxes from an employee's wages, the IRS credits the withholdings to the employee regardless of whether the employer pays them over to the government."; Purdy Co. of Illinois v. United States [ 87-1 USTC ¶9227], 814 F.2d 1183, 1186 (7 ^th Cir. 1987) ("If the employer withholds these "trust fund" taxes but fails to pay them over to the United States, the employee is nevertheless credited with having paid the taxes and is not liable for any additional payment."); Weisman v. C.I.R. [ 2000-2 USTC ¶50,557], 103 F.Supp.2d 621 (E.D. N.Y. 2000). The policy is convincing and it benefits employees who are entitled to presume that their employers pay over the taxes withheld from their paychecks. It would be patently unfair to saddle an employee with the responsibility of verifying if her employer made quarterly tax payments.

In this case defendant was not only an employee, he allegedly held the dual status of employee and employer, and was, more importantly, the person responsible for paying over the withheld taxes to the government. Thus, according to the government, when he allegedly failed to make those payments he was no longer entitled to presume that they were paid. While that contention finds some support from United States v. Gollapudi [ 97-2 USTC ¶50,978], 130 F.3d 66 (3d Cir. 1997) (although there the defendant did not even file any form 941s), we think that it confuses the different capacities in which defendant allegedly acted. 26 C.F.R. 1.31-1 does not make the distinction. The failure to pay over is by the employer. The employee, without any reference to his knowledge, is entitled to the credit if the tax has been withheld.

That does not mean, however, that one with a dual status necessarily escapes sanctions. 26 U.S.C. §7202 imposes criminal penalties on a person required to pay over the withheld taxes, who wilfully fails to do so. That charge is the subject of Counts 21 through 30 of the indictment. Count 31 relates to the 1996 tax return, for a period when defendant was allegedly the chief executive officer of IPAF, and count 32 relates partially to a period when he held that position. Counts 21 through 30 relate to the period 1997-1999, when defendant was allegedly chief executive officer of IDI, which is partially the period for Count 32 and which are mirror images of the claimed credits on the personal tax returns in Counts 33 and 34. We conclude that Counts 21 through 30 are the proper charges and that Counts 31 through 34 are not.

Counts 31 through 34 are dismissed.

Discovery Related Motions

Defendant presents three motions related to pretrial discovery. He requests that the court order the government to present notice of its intention to use Rule 404(b) "other crimes, wrongs, or acts" evidence no later than forty-five days before trial. Defendant moves to compel the government to present no later than forty-five days prior to trial a proffer pursuant to United States v. Santiago, 582 F.2d 1128 (7 ^th Cir. 1978) ("Santiago proffer") in order to establish the existence of a conspiracy. He also moves for the disclosure of exculpatory evidence under Brady v. Maryland, 373 U.S. 83 (1963) and Giglio v. United States, 405 U.S. 150 (1972). These motions are denied as moot because the government has indicated that it understands its obligations and has pledged to meet them.

The government states that it will provide notice of its intent to use any evidence under Rule 404(b) and also present a Santiago proffer no later than four weeks prior to trial. That is a reasonable amount of time and will prevent unfair surprise and allow defendant to prepare any motions he deems necessary. As to the nature of the Rule 404(b) disclosure, the Advisory Committee Notes to the 1991 Amendments specify that the "Committee opted for a generalized notice provision which requires the prosecution to apprise the defense of the general nature of the evidence of extrinsic acts." Thus, the government need only disclose the "general nature" of the evidence; however, vague disclosures that prevent defendant from filing motions in limine are improper and undermine the purpose of disclosure. Defendant has requested disclosure of nineteen categories of exculpatory evidence, but the government argues that several of those categories are neither exculpatory nor impeaching. ⁶ It is not necessary at this juncture to label any category of evidence beyond the reach of Brady and Giglio. ⁷ The government acknowledges that it is under a continuing duty to disclose any exculpatory evidence.

CONCLUSION

For the foregoing reasons, defendant's motion to dismiss the indictment for pre-indictment delay is denied; the motion to dismiss Counts 19 through 29 is denied, but Counts 17 and 18 are dismissed as untimely; defendant's motion to sever Counts 1 through 16 from Counts 17 through 34 is granted; defendant's motion to dismiss Counts 31 through 34 is granted; and defendant's discovery-related motions pertaining to Rule 404(b) evidence, a Santiago proffer, and exculpatory evidence, are denied as moot.

¹ An employer's payroll tax liability includes the following: "(i) Federal Insurance Contribution Act ( "FICA") payments, which include the employee's contribution to Social Security and Medicaid; (ii) Federal Unemployment Tax Act ( "FUTA") payments; and (iii) required withholdings in connection with employee income taxes." Melissa Sanchez & Adam Tejeda, Tax Violations, 41 AM. CRIM. L. REV. 1147, 1167 (2004). The court uses "employer" as shorthand for "person required under this title to collect, account for, and pay over" from section 7202. Defendant does not dispute that he was a person charged with those responsibilities.

² This assumes that the limitations period begins to run on the payment due date. If April 15 of the year after the payment due date marks the start of the limitations period, then Counts 25 through 29 would also be timely. Counts 25 through 28 relate to quarterly payments due during 1999, which means the clock starts on April 15, 2000. And Count 29 corresponds to a January 30, 2000, due date, which sets the critical date at April 15, 2001.

³ Payment for Count 17 was due on October 30, 1996. Count 18 corresponds to the quarter ending December 31, 1996, and lists payment due on January 30, 1998. Defendant calls our attention to this typographical error in Count 18, and states that the due date was actually January 30, 1997. The government does not object, so we assume that the payment due date, and not the ending date for the quarter, is incorrectly transcribed in the indictment. There appear to be other clerical errors in the indictment. Count 19 states the quarter ended on March 31, 1997, but lists the tax payment due on April 30, 1998. Similarly, Count 20 states the quarter ended on June 30, 1997, but lists the tax payment due date as July 30, 1998. Also, Count 30 has the quarter ending on March 31, 2000, but states that the payment was due on April 30, 2001.

⁴ The government states in its brief: "The bank and tax offenses are properly joined because they stem from 'transactions,' within the meaning of Rule 8, which are 'connected together' and 'constitute parts of a common scheme or plan'" (quoting Rule 8(a)) and "All of the charges in this case arise from Creamer's common scheme to maximize the operating income and influence of himself and the entities he personally controlled through fraud."

⁵ A person violates section 7206(1) if he "Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter."

⁶ The government argues the following requests implicate evidence that is not Brady or Giglio material: (1) Any and all information about pre-indictment delay and (2) Request for names, addresses, and statements as to who was present when the events occurred but failed to implicate defendant is not even subject to discovery according to the government.

⁷ Evidence that does not on its face appear to be exculpatory or impeaching, such as any documents relating to and explaining the delay, could very well be discoverable. For instance, if the pre-indictment delay was caused by a witness who made statements exculpating defendant, but then changed his story, the witness's statements could be discoverable.

 

 

[2005-2 USTC ¶50,539]United States of America, Plaintiff v. Hal Hicks, Defendant.

U.S. District Court, So. Dist. Ill.; 2005-cr-40023-JPG, August 17, 2005 .

[ Code Sec. 7206]

Procedure and administration: Fraud and false statements: Motion to sever: Venue. --

An individual could not sever a tax-related count from a larger indictment and have that count transferred to another venue. The tax-related count alleged that the taxpayer filed a false income tax return. Under 18 U.S.C. §3237(a) the action could be prosecuted in the present district because the taxpayer's preparer received information in that district from the taxpayer that was used to prepare the allegedly false return. The court rejected the taxpayer's argument that an exception under 18 U.S.C. §3237(b) existed. Venue in the present district was not based soley on the taxpayer mailing his return to that district. Indeed, there was no IRS center there to which the taxpayer could have mailed his return, even accidentally. Rather, venue in the present district was based on the taxpayer's preparer working and receiving information from the taxpayer there.

MEMORANDUM AND ORDER

GILBERT, District Judge: This matter comes before the Court on defendant Hal Hicks's motion for a change of venue and severance (Doc. 8), to which the government responded (Doc. 25) and Hicks replied. (Doc. 41). Although the government also filed a sur-reply brief in this case, the Court's local rules provide that "[u]nder no circumstances will sur-reply briefs be accepted," so that brief (Doc. 43) will be STRICKEN from the record and hasn't otherwise been considered here. Having reviewed the relevant materials, the Court agrees with the government and finds that Hicks's motion should be DENIED.

Defendant Hal Hicks is no stranger to this Court. It's perhaps unremarkable that he'd like as many of the charges in this case as possible moved to the Middle District of Florida, not because the Court is prejudiced against him --it's not and no reasonable observer could think otherwise --but it's just that he's yet to win a case here. In any event, like the other civil actions we've become familiar with over the course of the past three years (with which the Court assumes familiarity for present purposes), the indictment in this case revisits to some extent the misdeeds Hicks allegedly committed in connection with his role in the Illinois corporations of Midwest Transit, Inc., Midwest Transport, Inc., Mail-A-Way, Hal. D. Hicks Mail Transportation, etc., all of which exist(ed) to serve the U.S. Postal Service exclusively. The indictment contains five counts, which we'll take chronologically. Count 5 accuses Hicks of filing a false 1998 income tax return and is the main focus of this Order. As the government explains in its opposition brief, the falsity stems from a $210,000 tax deduction Hicks took in 1998 for depreciation on a Raytheon King Air 350 aircraft. Because Hicks didn't take delivery of the plane until early 1999, the argument goes, it was illegal to claim depreciation for it in 1998. Count 4, by contrast, charges Hicks with falsifying a fuel use certification form submitted to the Postal Service in early 2003. Note that unlike normal businesses --which we know charge for their goods or services based on what the market will bear regardless whether that price necessarily yields a profit or not (at least in the short run) --Postal Service contractors seem to be given their costs plus a specified profit margin. Making money is guaranteed. It follows that the contractor's expenses must also be reported; fuel use certification forms were the means used for such reporting in this case. What's more, note that trucks are largely useless without fuel, which is therefore a major expense of such businesses. Given that fuel is sold in any number of places, as an incentive to high-volume customers (like Hicks) fuel-selling outlets --like Pilot Corporation, Fabik Power Systems, Blue Beacon Enterprises, and Dixie Management Group, in this case --offer rebates to their customers, though apparently not "instant rebates." And there you have it. What the government says happened in this case is that while Hicks charged the Postal Service with the full amount of the initial fuel purchase, he never accounted for the rebates he later received, i.e., he failed to issue credits reflecting the reduction in actual fuel expense. Finally, counts 1, 2 and 3, for their parts, are much easier to conceptualize. The accusation on this score is that Hicks received three checks, properly belonging to someone else and totaling just over $170,000, and cashed them in early 2004 to pay "his interior designer, plastic surgeon, brokerage accounts for kids, etc." In other words, he's accused of just plain old stealing.

Based on what we've said thus far, an astute reader might say that a logical gap seems to exist between count 5, on the one hand, and counts 1 through 4, as a group, on the other. While the latter arguably involve the diversion of revenue from one of the businesses, at some level at least, the crime alleged in count 5 seems purely individual, not to mention its temporal disparity with the others. And so Hicks argues, positing, one, that 18 U.S.C. §3237(b) entitles him to severance of count 5 from the remainder of the counts alleged in this case, as a matter of right, and transfer of this count to the Middle District of Florida for trial; two, that FED. R. CRIM. P. 14 entitles him to severance of count 5 from the remainder of the other counts in any event.

Let's take point one first. The Court notes that everyone in this case agrees that 18 U.S.C. §3237 applies here; the question is whether it's subsection (a) or (b) that controls. Subsection (a) states the general rule: "[A]ny offense against the United States begun in one district and completed in another, or committed in more than one district, may be inquired of and prosecuted in any district in which such offense was begun, continued, or completed. Any offense involving the use of the mails ... may be inquired of and prosecuted in any district from, through, or into which such ... mail matter ... moves." Recall that filing a false tax return is the "offense" at issue in count 5, so under subsection (a) this prosecution could've been brought where the return was made; subscribed; filed; or where the preparer received information from Hicks, even though Hicks may have signed and filed the return elsewhere. See United States v. Marrinson [ 87-2 USTC ¶9610], 832 F.2d 1465, 1475 (7th Cir. 1987), and cases cited there. See also United States v. Ringer, 300 F.3d 788, 791 (7th Cir. 2002). We've yet to see the evidence in this case, of course, but at the very least it seems that Michael Burton received information in this district from Hicks that Burton used to prepare the 1998 return. That's sufficient under Marrison. We're therefore left with subsection (b), an exception to the general rule stated in subsection (a), which provides: "Notwithstanding subsection (a), where an offense is described in section [7206(1)] of the Internal Revenue Code of 1986 ... [and] is based solely on a mailing to the Internal Revenue Service, and prosecution is begun in a judicial district other than the judicial district in which the defendant resides, he may upon motion filed in the district in which the prosecution is begun, elect to be tried in the district in which he was residing at the time the alleged offense was committed." But the problem with applying subsection (b) in this case is that venue in this district isn't based "solely on a mailing," as the provision requires. Most obviously, there's no Internal Revenue Service center in this district at all to which Hicks could've mailed his tax return --even accidentally. As the principal cases cited by the parties agree, subsection (b) is aimed at eliminating the burden placed on taxpayers prosecuted in distant judicial districts based "solely on the mailing" of their returns into those districts (recall, subsection (a) and cases like Marrinson would allow a southern Illinoisan to be prosecuted for the crime alleged in this case in the Western District of Missouri, for example, as the Kansas City, Missouri, service center is the one to which a southern Illinoisan mails his tax return and therefore the Western District of Missouri is one judicial district into which "such mail matter moves"), although such a prosecution involves significant inconvenience to the taxpayer, not to mention significant prejudice to his defense. But that's not what we have in this case. Hicks's tax preparer worked in this district, Hicks gave him tax information here. And again, venue isn't grounded on the mere presence of an IRS service center in this district, a determinative fact in both United States v. Humphreys [ 93-1 USTC ¶50,100], 982 F.2d 254 (8th Cir. 1993), and United States v. Melvan, 676 F.Supp. 997 (C.D. Cal. 1987), two cases rejecting this type of challenge. This also distinguishes United States v. Nathanson, 813 F.Supp. 1433 (E.D. Cal. 1993), from this case. Venue there was "premised solely on his mailing his returns to Fresno, California," a city within the Eastern District of California.

So, too, with point two. Granted, the case principally relied on by Hicks, United States v. Randazzo, 80 F.3d 623 (1st Cir. 1996), seems to suggest that joinder of count 5 with counts 1 through 4 in this case may be improper. The notion is that neither the income generated from the allegedly stolen rebate checks, nor the income realized from the failure-to-disclose, could've impacted a tax return filed five years earlier. True enough. But it's still early in the case, and FED. R. CRIM. P. 14 requires more than just improper joinder for severance to be necessary. See United States v. Lane, 474 U.S. 438, 449 n. 12 (1986). There must also be prejudice, which there is not at this point. It's been this Court's experience that juries are well-equipped to separate good counts from bad, and this case seems to present nothing new that a limiting instruction can't handle.

For the foregoing reasons defendant Hal Hicks's motion for a change of venue and severance (Doc. 8) is DENIED. The government's sur-reply (Doc. 43) is STRICKEN.

IT IS SO ORDERED.