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Supplemental instructions which are given by a trial court in response to jury inquiries are held to a similar standard. Although the trial court is obliged to "eliminate confusion when a jury asks for clarification of a particular issue," the "necessity, extent and character" of supplemental instructions, lies within the discretion of the trial court. Hayes, 794 F.2d at 1352.

A. Oral Contracts. The district court instructed the jury that patents could be assigned only in writing. This instruction arguably foreclosed appellants' contention that they had entered or thought that they had entered into valid patent purchase agreements prior to January 1, 1977 . Appellants raise two criticisms of the instruction. First, they contend that the court should have instructed the jury that the patent purchase agreements in issue did not have to be in writing to be valid. Second, they contend that the jury should have been instructed that a good faith belief as to (1) the validity of oral agreements, or (2) the validity of certain boilerplate patent purchase agreements Solomon unilaterally signed in December 1976 would negate the "specific intent" or "willfulness" element of 26 U.S.C. §7206(1) and (2) . ¹

The first contention, that the oral agreements for the assignment of patents allegedly entered into in 1976 were valid is unpersuasive. Some evidence was presented at trial to suggest that appellants' agent, Henry Winkler, may have obtained oral assurances of varying degrees of finality from inventors, prior to 1977, for the purchase of patents they owned. This evidence was not uncontradicted, however, and in the end the trial court determined, as a matter of law, that a valid assignment of a patent to become operational as limited partnership property required a writing. The court stated: "in the context of an assignment of a patent, they can agree verbally until the cows come home, and that patent isn't assigned until there's a writing." As a consequence, the jury was instructed that only written agreements to assign patent rights are valid. The district court was correct on the law.

A patent is a creature of federal statute and may be transferred only according to the terms of the patent statutes. The rules governing the transfer and assignment of patent rights clearly envision a scheme of written assignment by providing that patents "shall be assignable in law by an instrument in writing." 35 U.S.C. §261 . Indeed, the necessity of a writing, like the necessity of an automobile certificate or a deed, to effect a valid transfer of a patent right has long been a matter of hornbook law. One authoritative treatise describes the state of the law as follows:

An assignment of a patent must be in writing to fulfill the requirements of the federal statute, and though no particular form of words is required, the instrument of transfer must be unambiguous and show a clear and unmistakable intent to part with the patent; it must express intention to transfer ownership.

5 Lipscomb's Walker on Patents, Title §19:7 (3d ed. 1986).

Moreover, whether it may be possible to enter into an enforceable oral contract to assign a patent--assuming proper delivery and the existence of adequate consideration--is not relevant here because such an agreement would not suffice for determining tax consequences when a patent had been purchased by one of the appellants' limited partnerships. A contract to assign a patent is legally distinguishable from an assignment of a patent, and valid assignments are a prerequisite to the taking of patent tax shelter depreciation deductions. See Treas. Reg. §1.167(a)-6 (1987) ("patentee" entitled to depreciate cost of patent). See also Sarkes Tarzian, Inc. v. United States , 159 F.Supp. 253, 256 (D.Ind. 1958) (patent application, although a form of property, is only an inchoate patent right, maturing into a depreciable patent asset only when patent issues); Fed. Tax Guide Rep. (CCH) ¶1723.20 (1987) (ownership of patent asset necessary predicate to patent depreciation deduction). Even if one of the limited partnerships had an enforceable oral agreement to purchase a patent in 1976 investors could not have taken valid tax deductions until 1977 following the perfection of a valid written assignment of that patent.

With respect to the second contention, after reviewing the instructions given by the district judge, we conclude that the instructions, taken as a whole, adequately charged the jury on the issues of willfulness and specific intent. The district court was not required to give a "good faith belief" instruction with respect to the issue of the validity of oral patent purchase agreements because the jury was instructed to find specific intent as an element of section 7206(2) and the other federal statutes. We have held that the failure to give an instruction on a "good faith" defense is not fatal so long as the court clearly instructed the jury as to the necessity of "specific intent" as an element of a crime. United States v. Green [84-2 USTC ¶9661 ], 745 F.2d 1205, 1209 (9th Cir. 1984) cert. denied, 106 S.Ct. 259 (1985); citing United States v. Cusino, 694 F.2d 185, 188 (9th Cir. 1982), cert. denied, 461 U.S. 932 (1983).

In sum, we hold that the district court correctly refused to instruct on the possibility of a valid oral assignment of a patent. Further, we hold that the court did not abuse its discretion by refusing to give a "good faith" instruction when the jury was adequately instructed on "specific intent."

B. Dahlstrom. Defendants proposed a jury instruction, based on United States v. Dahlstrom [83-2 USTC ¶9557 ], 713 F.2d 1423 (9th Cir. 1983), cert. denied, 466 U.S. 980 (1984), stating that if the jury found the legality of the patent tax shelter in question was unsettled, then they must vote for acquittal. The district court correctly refused to give the instruction.

In Dahlstrom, we reversed convictions for tax fraud and conspiracy to defraud the United States for two reasons. First, we concluded that the "unsettled legality" of the tax shelter scheme denied "fair notice" under the fifth amendment and made it impossible for the defendants to have a specific intent to "willfully" violate the federal statutes. Second, we concluded that because the defendants had only advocated the use of a complex tax shelter scheme involving foreign trusts and had taken no further steps to bring the scheme to fruition, the first amendment protected them from criminal sanction.

Cases we have decided since Dahlstrom, however, have narrowed both its fifth amendment and first amendment prongs.

In United States v. Schulman [87-1 USTC ¶9334 ], 817 F.2d 1355 (9th Cir. 1987), we narrowed Dahlstrom to situations involving the " 'prosecution for advocacy of a tax shelter program' . . . because such prosecution 'is offensive to the first and fifth amendments.' " Id. at 1359, quoting Dahlstrom, 713 F.2d at 1429. Here, appellants did far more than merely advocate the creation of patent tax shelters. Rather, they actively performed all the organizational and managerial tasks necessary to create and operate the tax shelters. They sought out patents available for purchase, enticed limited partner investors, inflated the cost bases of patents purchased, and filed erroneous partnership tax returns and other documents used in the preparation of tax returns. In sum, because defendants were closely involved in the creation and operation of the tax shelters they can draw no support from Dahlstrom or the first amendment. See United States v. Crooks, 804 F.2d 1441, 1449 (9th Cir. 1986). See also Akland v. Commissioner [85-2 USTC ¶9593 ], 767 F.2d 618, 621-22 (9th Cir. 1985) (in a civil action for tax deficiencies and fraud, specific intent to defraud can be inferred from the nature and extent of defendant's involvement in the operation of foreign trust tax shelters).

In a case involving more than mere advocacy, the court must next inquire whether the law clearly prohibited the conduct alleged in the indictment. Schulman, 817 F.2d at 1359. Even if we were to assume that the tax shelter scheme was legal or of "unsettled legality" as it was envisioned, the defendants' administration of the mechanics of the limited partnership transactions was blatantly illegal. The indictment charged and the jury found that the defendants backdated the participation of limited partners in limited partnerships to the beginning of 1977. They were also found to have acted fraudulently as though patents purchased in 1977 had been purchased in December 1976. Finally, for each of the limited partnerships, the jury found that the defendants had caused patents purchased for development to be accorded a fraudulently inflated value. Taken together, these affirmative acts of fraud move this case completely outside the scope of the fifth amendment. See Crooks, 804 F.2d at 1449; United States v. Vreeken [87-1 USTC ¶9187 ], 803 F.2d 1085, 1091 (10th Cir. 1986), cert denied, 107 S.Ct. 955 (1987), United States v. Little [84-2 USTC ¶9889 ], 753 F.2d 1420, 1434 (9th Cir. 1984).

It was not an abuse of discretion for the district court to refuse to give the proposed Dahlstrom instruction.

C. The mechanics of the tax shelter scheme. Neither defendant objected during the trial to the failure of the district court to give more detailed instructions on the mechanics and potential legality of the patent tax shelter scheme. As a consequence, we review the failure to give the suggested instruction for "plain error." Fed. R. Crim. P. 52(b); Cusino, 694 F.2d at 188; United States v. Giese, 597 F.2d 1170, 1199 (9th Cir.), cert. denied, 444 U.S. 979 (1979). In applying this standard, we review the entire record of the trial and will reverse only if failure to do so will result in a "miscarriage of justice." United States v. Young, 470 U.S. 1, 15 (1985), quoting United States v. Frady, 456 U.S. 152, 163 n.14 (1982).

Defendants contend that the jury may have had difficulty understanding the complexities of their patent tax shelter program. They had proposed that the jury be instructed as to the facial legality of their tax scheme in order to forestall a jury conclusion that the scheme was fraudulent from its inception. After reviewing the district court's instructions, however, we do not believe that the failure to give more detailed instructions was "plain error." The district court's instructions were clear and correct. The jury was not instructed that the tax programs were fraudulent as conceived but that they could find that they became fraudulent as carried out by the defendants.

II. Sufficiency of Evidence

Nicoladze asserts that the evidence did not establish his criminal intent as a matter of law and fact. The argument comes in two stages. First, he contends that the tax shelter scheme was legal as envisioned. Second, he claims that any irregularities and illegalities that occurred--such as the inflating of patent cost values and backdating of transactions--were a result of Solomon acting alone without Nicoladze's knowledge or approval.

The first part of Nicoladze's argument, that the tax shelter scheme may have been legal as envisioned, is repetitive. In essence, the argument comes down to a Dahlstrom defense, which, for reasons noted, does not apply here.

As to the second part, that Nicoladze was involved only to the extent of "conceptualization" of the tax shelter scheme while Solomon actually performed any possibly illegal acts, there is substantial evidence in the record that contradicts this assertion of innocence. At trial, the government established Nicoladze's intimate involvement with Solomon and others in the promotion and management of the tax shelter scheme. The jury had sufficient evidence reasonably to conclude that Nicoladze had been a wifull and knowing participant with Solomon in criminal violations. That is all the government had to prove.

III. Admission of Documents

The district court received into evidence approximately 100 personal tax returns filed by limited partner participants in defendants' tax shelter partnerships. Appellants attack the admission of these documents alleging (1) a lack of relevancy under Fed. R. Evid. 402 and (2) a denial of sixth amendment rights to confrontation and cross-examination.

A. Relevancy. Because defendants objected on constitutional grounds to the admission of the tax returns, we review their admission under a "harmless error beyond a reasonable doubt" standard. Chapman v. California , 386 U.S. 18, 24 (1967); United States v. Valle-Valdez, 554 F.2d 911, 915 (9th Cir. 1977).

The personal tax returns of limited partners in the tax shelter partnerships were clearly relevant to the government's case. The admission of the returns allowed the government to establish the "presentation" element of 26 U.S.C. §7206(2) . This section prohibits aiding and abetting the preparation and presentation of false income tax returns. For conviction, the government had to show that limited partners had actually either (1) claimed full-year deductions to which they were not entitled or (2) taken deductions derived from fraudulently dated patent assignments in returns presented to the IRS. Defendants contend that this purpose would have been served by the admission of the limited partnerships' K-1 returns, which by themselves, detailed the amounts of deductions passed through to individual limited partners. This contention fails to comprehend that the K-1's do not establish that the improper deductions were actually "presented" or taken by the individual limited partners within the meaning of section 7206(2) .

In addition, the probative value of the personal tax returns was not outweighed by any danger of undue prejudice. United States v. Beattie, 594 F.2d 1327, 1330 (9th Cir. 1979), is not to the contrary. In Beattie, a prosecution witness, testifying in connection with bank fraud and conspiracy charges, stated that the bank had charged off $315,000 in bad loans approved by the defendant when in fact only $17,000 in loan write-offs were related to the conspiracy charged. The testimony therefore permitted the jury to draw an enhanced inference as to the extent of the defendant's illegal conduct. For this reason, we reversed and remanded, finding that the possibility of undue prejudice made the testimony improper.

By contrast, in this action, the government's last witness, IRS agent Paul Perry, testified as to his estimation of the total amount of deductions attributable to defendants' tax shelter limited partnerships as partly reflected in the personal tax returns admitted into evidence. This testimony was competent because the government was entitled to attempt in this fashion to prove its conspiracy allegation. All of the limited partnership transactions in reference to which Perry testified were covered by the indictment. In addition, each personal tax return specified by name and amount deductions derived from participation in one or more of the limited partnerships.

B. Sixth Amendment. In admitting the tax returns, the district court admitted a few returns filed by limited partners then deceased. The court also denied defendants' motion for a continuance to interview the remaining limited partners whose returns were to be offered into evidence. Appellants assert that they did not have an effective opportunity to cross-examine or confront these limited partners within the meaning of the confrontation clause of the sixth amendment. These arguments lack merit for two reasons. First, as verbal acts and public records, the returns were admitted not for the truth of their contents but to establish the existence of a limited partnership deduction. Cross-examining a limited partner after he or she has filed a return which claimed the deduction would be irrelevant. The deduction either was taken or it was not. ² Second, even if a colorable confrontation clause violation occurred, any error that may have resulted was harmless beyond a reasonable doubt. The state of mind of the taxpayers was never an issue in this case. See United States v. Regner, 677 F.2d 754, 759 (9th Cir.) (even assuming that admission of foreign documents into evidence violated the confrontation clause such admission was harmless because there was sufficient other evidence to support the mail fraud conviction), cert. denied, 459 U.S. 911 (1982).

IV. Prosecutorial Misconduct

This court reviews allegations of prosecutorial misconduct to consider whether the conduct "materially affected the fairness of the trial." United States v. Polizzi, 801 F.2d 1543, 1558 (9th Cir. 1986), quoting United States v. McKoy, 771 F.2d 1207, 1212 (9th Cir. 1985). If timely objection is made at trial, we review under a harmless error beyond a reasonable doubt standard. Polizzi, 801 F.2d at 1558. If timely objection is not made at trial, we review the prosecutor's conduct under the more exacting "plain error" standard. Young, 470 U.S. at 6, 16. Young also instructs that "a criminal conviction is not to be lightly overturned on the basis of a prosecutor's comments standing alone, for the statements or conduct must be viewed in context . . . [to determine] whether the prosecutor's conduct affected the fairness of the trial." Id. at 11.

Appellants contend that the prosecutor's remarks, by hinting at the existence of additional evidence of criminal activity, improperly influenced the jury.

During closing argument to the jury, the prosecutor made two comments which appellants assert were improper. The first comment was a suggestion that the government suspected or knew of substantially more criminal violations by defendants than those charged in the indictment. Defendants' counsel registered his protest, and in response, the district court admonished the prosecutor not to mention or comment on any fraud not charged in the indictment. Later that morning during his rebuttal argument, the prosecutor referred to "30 or 40" blank patent purchase agreements executed by Solomon and dated December 15, 1976 , when the indictment alleged that only 20 were dated December 15, 1976 , and that only eleven of those had been backdated. At the first recess defendants' counsel objected to the reference.

We think the prosecutor's remarks did not exceed propriety because the indictment contained a conspiracy charge and the remarks could be taken as comment on the scope of the conspiracy. In any event, we need not characterize the quality of the remarks because the remarks, even of improper beyond a reasonable doubt, did not materially affect the fairness of the trial. The evidence of criminal activity presented in this case was of repeated and cumulative acts of fraud. The possibility that the jury might have inferred from the remarks that there may have been a greater number of questionable or illegal transactions than those charged in the indictment would not likely have been a determinative factor in their deliberations on whether fraud occurred.

V. Jury Comments

Just before discharging the jury, the district judge suggested to the jury that their deliberations would be best "kept to themselves." This admonition no doubt reflected the district court's hope that a retrial could be avoided.

Nicoladze asserts that these comments "had a chilling effect on their [the jury's] speech thereby interfering with defendant's right to a trial by a fair and impartial jury." This is nonsense. Nicoladze confuses the line of cases establishing a defendant's rights to Brady material in the possession of the prosecution with the right of a court to control the post-verdict interrogation of jurors. There is no clear relationship between counsel's desire to inquire after the verdict and the right to a fair trial. The district court's comments to the jury prior to discharge were in no way improper and had no impact on the fairness of the trial.

VI. Nicoladze's Increased Sentence

After the first conviction in this action, Nicoladze was sentenced to a total of five years in custody and a $15,000 fine. The first conviction was reversed on appeal and a new trial was held. After the second trial, Nicoladze received a sentence of six years in custody and a total fine of $20,000.

Under North Carolina v. Pearce, 395 U.S. 711, 726 (1969), any increase in a defendant's sentence upon retrial after a successful appeal is "presumptively" vindictive unless the trial court identifies "objective information in the record justifying the increased sentence." United States v. Goodwin, 457 U.S. 368, 374 (1982). Nicoladze asserts that the increase of one year in custody and $5,000 in fines was "vindictive" in violation of due process.

At sentencing after the retrial, the district court reviewed and noted the contents of a sentencing memorandum indicating that Nicoladze had continued his involvement in questionable tax sheltering activities after the first trial. Perhaps as a consequence, the district court conditioned Nicoladze's bail and probation on a cessation of such activities. The district court may have been concerned about Nicoladze's lack of remorse and continuing involvement in highly questionable tax sheltering schemes. While such concerns are potentially objective sentencing factors, they were not memorialized in the record as is required under Pearce. As a consequence, we have no choice but to vacate the sentence of Nicoladze. The sentence of Nicoladze is remanded to the district court for resentencing in accordance with the cases cited above. The sentence imposed upon Solomon is not disturbed.

CONCLUSION

 

The judgments of the district court are affirmed as to all issues except the sentencing of Nicoladze. The Nicoladze case is remanded to the district court solely for resentencing pursuant to North Carolina v. Pearce, 395 U.S. 711.

AFFIRMED in part, VACATED in part and REMANDED.

¹ A "willful" act element has been read into 26 U.S.C. §7206(1) by United States v. Brooksby [82-1 USTC ¶9210 ], 668 F.2d 1102, 1104 (9th Cir. 1982). A "willful" act element has been read into 26 U.S.C. §7206(2) by United States v. Dahlstrom [83-2 USTC ¶9557 ], 713 F.2d 1423, 1426-27 (9th Cir. 1983), cert. denied, 466 U.S. 980 (1984).

² Our examination of the personal tax returns admitted into evidence reveals that each incorporates specific references by name, date, and amount to losses stemming from ownership interests in the limited parnerships charged in the indictment. Accordingly, each return helped the government to establish requisite elements of section 7206(1) and (2) .

 

 

 

 

 

 

 

[88-2 USTC ¶9538] United States of America , Plaintiff-Appellee v. Samuel E. Rogers, Defendant-Appellant

(CA-4), U.S. Court of Appeals, 4th Circuit, 87-5678, 8/2/88 , Affirming an unreported District Court decision

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

Criminal penalties: Tax return preparer: False statements.--Four points of error raised by a tax return preparer who was convicted of preparing false tax returns failed to persuade the appellate court to overturn his conviction. His claim that a jury, not the lower court, should have determined whether false information on the returns was material was rejected in a ruling that materiality was a matter of law left solely to the lower court. It was harmless error of the lower court to proceed with a portion of the trial without the taxpayer in attendance, since the taxpayer's absence was brief, the government's case was strong, and trial transcripts were made available to the taxpayer in case he wanted to challenge the unattended proceedings. Evidence of the taxpayer's convictions in North Carolina for passing bad checks was properly admitted by the lower court, since dishonesty and false statements were elements of the convictions. Although the government's closing argument was harsh, it did not constitute plain error, given the government's strong case.

Margaret P. Currin, United States Attorney, Raleigh, N.C. 27611, William S. Rose, Jr., Assistant United States Attorney General, Alan Hechtkopf, Gary R. Allen, Robert E. Lindsay, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. Patricia Ruth Moss, Deputy Federal Public Defender, William E. Martin, Federal Public Defender, Raleigh, N.C., for defendant-appellant.

Before WIDENER, SPROUSE, and ERVIN, Circuit Judges.

ERVIN, Circuit Judge:

Samuel Rogers was convicted on twenty-four counts of preparing false tax returns in violation of 26 U.S.C. §7206(2) . ¹ He raises numerous issues on appeal. We affirm.

I.

Rogers was in the business of preparing income tax returns. These charges arose from ten 1979 returns and fourteen 1980 returns. Fifteen witnesses testified that Rogers prepared false tax returns for them. Several testified that they hired Rogers because they heard he could get them larger refunds and that his fee was based on the size of the refund. All of them testified that he included false information that they did not furnish him. Three testified in Rogers ' absence because he was fifty minutes late on the second day of trial.

The twenty-four returns were false in one or more usually recurring aspects. These included excess exemptions, nonexistent political contributions, false child care credits, improper residential energy credits, fictitious uniform deductions, and other similar credits and deductions. While two witnesses admitted that they knew of the falsities at the time, the rest were in the dark because Rogers did not go over the returns with them. Rogers testified that he used only the information that his clients provided.

To impeach his testimony, the government introduced a large number of worthless check convictions. The prosecutor also made a number of inflammatory remarks during closing argument, calling Rogers a liar, thief and crook who could not be believed. In a moment of cinematic excess, he told the jury that Rogers was "a disease on society [a]nd you are the cure." Defense counsel did not object to these remarks.

The jury convicted him on all twenty-four counts. He raises four errors on appeal. First, he argues that materiality of the false information is an essential element of a §7206(2) violation that should be decided by the jury. Second, he argues that Fed. R. Crim. P. 43(b) was violated when witnesses testified in his absence. Third, he argues that the district court improperly allowed cross-examination regarding his worthless check convictions. Finally, he argues that the prosecutor's closing argument was improper. Finding no reversible error, we affirm.

II.

In crimes involving false statements, the materiality of the statement is usually decided as a matter of law by the court. See e.g., United States v. Farnham, 791 F.2d 331, 333 (4th Cir. 1986) (perjury); Nilson Van & Storage Co. v. Marsh, 755 F.2d 362, 367 (4th Cir.), cert. denied, 474 U.S. 818 (1985) (false statements to a government agency). The same is true for §7206 . ² See United States v. Flake [84-2 USTC ¶9985 ], 746 F.2d 535, 537-38 (9th Cir. 1984), cert. denied, 469 U.S. 1225 (1985)(§7206(1) ); United States v. Holecek [84-2 USTC ¶9638 ], 739 F.2d 331, 336-37 (8th Cir. 1984), cert. denied, 469 U.S. 1218 (1985)(§7206(2) ); United States v. Greenberg [84-1 USTC ¶9509 ], 735 F.2d 29, 31 (2d Cir. 1984(§7206(1)); United States v. Whyte [83-1 USTC ¶9185 ], 699 F.2d 375, 379 (7th Cir.1983)(§7206(1) ); United States v. Gaines, 690 F.2d 849, 858 (11th Cir. 1982)(§7206(1) ); United States v. Strand [80-1 USTC ¶9309 ], 617 F.2d 571, 573-75 (10th Cir.), cert. denied, 449 U.S. 841 (1980)(§7206(1) ); United States v. Taylor [78-1 USTC ¶9474 ], 574 F.2d 232, 235 (5th Cir.), cert. denied, 439 U.S. 893 (1978)(§7206(1) ); United States v. Romanow [75-1 USTC ¶9153 ], 509 F.2d 26, 28-29 (1st Cir. 1975)(§7206(1) ); but see United States v. Null [69-2 USTC ¶9641 ], 415 F.2d 1178, 1181 (4th Cir. 1969)(§7206(1) ).

We agree that materiality under §7206(2) is a matter of law for the court to decide, not an issue of fact for the jury. Null represents a narrow exception to the general rule that materiality is an issue of law. In Null, this court affirmed a conviction under §7206(1) where the trial court had submitted the materiality issue to the jury. No one objected to that aspect of the case; instead, the defendant argued that the court should have further instructed the jury on a de minimis violation defense. This court affirmed the submission of the more limited materiality instruction as proper under §7206(1) . Placed in its proper context, the Null holding does not control our decision as to materiality under §7206(2) , and we hold today that materiality is a matter of law for the court to decide.

III.

On the second day of trial, Rogers arrived about fifty minutes late, and three witnesses testified in his absence. Before testimony began, the court asked defense counsel where he was, but counsel did not know, and the court proceeded without further inquiry. To limit the effects of his absence, the court made transcripts of the testimony available the next day and allowed Rogers the opportunity to recall the three witnesses.

Rule 43 ³ requires the defendant's presence "at every stage of the trial," although a continued presence is not required under certain circumstances. One such circumstance is a voluntary absence without compelling justification, which constitutes a waiver of the right to be present. See United States v. Peterson, 524 F.2d 167, 184-85 (4th Cir. 1975), cert. denied, 423 U.S. 1088, 424 U.S. 925 (1976). The right, however, "cannot cursorily, and without inquiry, be deemed by the trial court to have been waived simply because the accused is not present when he should have been." United States v. Beltran-Nunez, 716 F.2d 287, 291 (5th Cir. 1983). The court should try to find out where the defendant is and why he is absent, and should consider the likelihood the trial could soon proceed with the defendant, the difficulty of rescheduling and the burden on the government. Peterson, 524 F.2d at 185; United States v. Tortora, 464 F.2d 1202 (2d Cir. 1972). Typically, these factors will favor proceeding without the defendant in multi-defendant trials only. Tortora, 464 F.2d at 1210 n.7.

The court below inquired of defense counsel regarding Rogers ' whereabouts, but did nothing else. This is not sufficient to establish a waiver of his rule 43 right, particularly in a single defendant trial, and the court abused its discretion by proceeding without further investigation. A rule 43 violation, however, is subject to harmless error analysis. United States v. Reynolds, 489 F.2d 4, 8 (6th Cir. 1973). We find the court's erroneous decision to proceed to be harmless because of the brief nature of Rogers ' absence, the overall strength of the government's case, the consistency throughout all of the testimony, and the availability of transcripts the next day which he could have used by recalling the witnesses for further cross examination.

IV.

On cross examination, the prosecutor asked Rogers about more than twenty misdemeanor worthless check convictions in North Carolina . Rogers argues that the convictions were inadmissible because there was no showing they "involved dishonesty or false statement." Fed. R. Evid. 609(a). The government counters that under North Carolina law, worthless check convictions involve dishonesty or false statements under all circumstances. We agree.

North Carolina has two worthless check statutes. One requires acting "with intent to cheat and defraud another." N.C. Gen. Stat. §14-106 (1986). The second statute requires knowledge that the maker or drawer has insufficient funds. N.C. Gen. Stat. §14-107 (1986). The North Carolina Supreme Court has stated that under §14-107, a check is a representation that there are sufficient funds that, "if known to be untrue, is a false pretense." Nunn v. Smith, 270 N.C. 374, 154 S.E.2d 497, 501 (1967). Therefore, both statutes define crimes involving dishonesty or false statement, and Rogers ' convictions for worthless checks were properly admitted under rule 609 as a matter of law. No additional showing was required.

V.

During closing argument, the prosecutor made a number of inflammatory remarks intended to gut whatever credibility Rogers had as a witness. While much of it was excessive and uncalled for, defense counsel did not object so we review for plain error. See United States v. Garza, 608 F.2d 659 (5th Cir. 1979). Given the strength of the government's case, we do not find that the argument affected Rogers ' substantial rights. Fifteen witnesses testified similarly regarding Rogers ' tax preparation scheme, so it is doubtful that the prosecutor's remarks had any impact. They amounted to harmless overkill, not plain error.

None of Rogers ' issues on appeal constitute reversible error, so we affirm his conviction on all counts.

AFFIRMED.

¹ In relevant part, 26 U.S.C. §7206 provides:

Any person who -

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

shall be guilty of a felony. . . .

² Subsection (1) directly prohibits false statements by the taxpayer while subsection (2) applies to those, such as tax preparers, who aid or assist the taxpayer in making such statements. Therefore, cases involving materiality under either section are relevant to our inquiry.

³ Rule 43. Presence of the Defendant

(a) Presence Required. The defendant shall be present at the arraignment, at the time of the plea, at every stage of the trial including the impaneling of the jury and the return of the verdict, and at the imposition of sentence, except as otherwise provided by this rule.

(b) Continued Presence Not Required. The further progress of the trial to and including the return of the verdict shall not be prevented and the defendant shall be considered to have waived the right to be present whenever a defendant, initially present

(1) is voluntarily absent after the trial has commenced (whether or not the defendant has been informed by the court of the obligation to remain during the trial), or

(2) after being warned by the court that disruptive conduct will cause the removal of the defendant from the courtroom, persists in conduct which is such as to justify exclusion from the courtroom.

(c) Presence Not Required. A defendant need not be present in the following situations:

(1) A corporation may appear by counsel for all purposes.

(2) In prosecutions for offenses punishable by fine or by imprisonment for not more than one year or both, the court, with the written consent of the defendant, may permit arraignment, plea, trial, and imposition of sentence in the defendant's absence.

(3) At a conference or argument upon a question of law.

(4) At a reduction of sentence under Rule 35.

Concurring Opinion

WIDENER, Circuit Judge

I concur in the result, and, as well, I concur in all of the opinion except that I would give a different reason for reaching our result in Part V thereof. I would not consider the remarks made by the United States Attorney in closing argument because no objection was made; neither was there a motion for mistrial, which should have been required. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 238-239 (1940); Dennis v. General Electric Corp., 762 F.2d 365, 366-367 (4th Cir. 1985); United States v. Elmore [70-1 USTC ¶9275 ], 423 F.2d 775, 780-782 (4th Cir. 1970).

 

 

[90-1 USTC ¶50,246] United States of America , Plaintiff-Appellee v. Edward R. Knight, Defendant-Appellant

(CA-5), U.S. Court of Appeals, 5th Circuit, 89-4571, Summary Calendar, 3/14/90 , 898 F2d 436, 898 F2d 436. Affirming an unreported District Court decision

[Code Secs. 7206 and 7602 ]

Returns: False: Prosecutor's comment, effect on conviction: Examination of books and witnesses: Agent of the IRS: Criminal prosecution.--A taxpayer's conviction for filing false individual and corporate returns was upheld despite the four issues that he raised on appeal. An overall reading of the record made it clear that the jury had ample evidence to sustain the three counts, which involved gambling debts that were paid as "commissions" from the taxpayer's wholly owned corporation and the unreported constructive dividends that the taxpayer received from his corporation. Statements that the taxpayer made to an IRS agent, which were obtained by the agent in violation of IRS manual guidelines, were not obtained through "fraud, trickery and deceit." A statement made by the prosecutor in his closing argument, allegedly in regard to the taxpayer's failure to testify, was remedied by a curative instruction and was also harmless error in view of the overwhelming evidence against the taxpayer. Finally, evidence of the taxpayer's alleged dealings with bookmakers was relevant because it showed a continuing course of conduct, was not directed at the taxpayer's character, and was not prejudicial.

Joseph S. Cage, Jr., United States Attorney, William J. Flanagan, Duro J. Duplechin, Jr., Assistant United States Attorneys, Shreveport , La. 71101 , for plaintiff-appellee. C. Michael Hill, Juneau, Judice, Hill & Adley, P.C., 926 Coolidge St., Lafayette, La. 70505-1769, Eddy M. Quijano, Adams & Reese, 451 Florida St., Baton Rouge, La. 70801, for defendant-appellant.

Before GEE, WILLIAMS and JOLLY, Circuit Judges.

WILLIAMS, Circuit Judge:

Appellant, Edward R. Knight, was convicted by a jury of making and subscribing false individual income tax returns in 1981 and 1982, and a corporate income tax return for Knight Specialities, Inc., his wholly owned corporation, for its tax year ending February 28, 1982 . He was sentenced to imprisonment for two years, suspended and conditioned upon four months confinement at a Salvation Army Halfway House, two years probation, and a $30,000 fine. The appeal is timely.

Appellant raises four issues on appeal:

1. Was there sufficient evidence to sustain a conviction?

2. Did the district court err in denying defendant's motion to suppress oral statements made by him to an Internal Revenue Service agent?

3. Did the prosecutor comment improperly during closing argument on defendant's failure to testify?

4. Did the district court abuse its discretion in admitting evidence of earlier payoffs of gambling debts by appellant?

I.

The evidence disclosed that appellant deducted large payments to two named individuals, Kenny Duay and Golden Stutes, on the corporate tax return as "commission" expenses. These two persons on their returns did not report the receipt of any commissions. Both of the named individuals reported to the IRS agent that the payments received from the corporation were not commissions but were for appellant's personal gambling debts. One of the two bookmakers testified that he received checks totalling $86,000 drawn on the Knight Corporation, between September 1981 and January 1982 in payment of gambling debts. The other bookmaker testified that he received corporate checks between November 1978 and January 1982 totalling $138,850 in payment of gambling debts.

There is no dispute that these "commission" charges were in payment of gambling debts. The only disputed evidence is appellant's testimony that he thought the payments by the corporation were being added to his "personal loan account". The proof is that the checks were "coded" by the corporation as commission expenses. It is obvious that the jury did not believe his explanation that he did not know this or have anything to do with it.

The two counts involving his personal income tax returns were obviously related in that the payment of these gambling debts by the corporation constituted unreported constructive dividend income to Knight and should have been reported as such on his individual income tax returns.

An overall reading of the record makes it clear that the jury had before it ample evidence which, if believed, sustains the convictions on all three counts.

II.

Before trial, appellant filed a motion to suppress oral statements he had made to IRS Agent Leblanc. The district court denied the motion to suppress. No issue is raised as to which specific words in the statement were prejudicial. The attack upon the admission of the statement is more basic. It is urged that Agent Leblanc had already made a fraud determination at the time he talked to appellant but did not tell him so. Rather he treated the case still as simply an IRS investigation of tax returns to see if they were correct. At the hearing on the pretrial motion when the court asked whether the critical statements were inculpatory, the reply only was that they were assumed to be because the government planned to use them.

Thus, we do not evaluate the precise content of the statements because that issue is not raised. Instead, appellant urges that the statements were obtained by the agent in violation of IRS rules since the examiner had already "discovered a firm indication of fraud", at which point under the rule the investigation is to cease and the case is to be turned over to the Criminal Investigation Division. Further, it is claimed that the statement was obtained by fraud and deceit by the agent not telling appellant that in his mind at this time there was a firm indication of fraud.

We do not find the denial of the motion to suppress by the district court in error.

As to the alleged violation of the IRS Guidelines, the guidelines are contained in the IRS Manual, an internal document concerning the procedures of the IRS. There is ample authority that evidence obtained in violation of manual guidelines is not automatically inadmissible. The issue, as we indicated in United States v. Powell [88-1 USTC ¶9140 ], 835 F.2d 1095, 1101 (5th Cir.1988), is whether a manual violation may show bad faith on the part of an agent.

The only case cited by appellant with respect to the issue of the violation of the IRS Manual is United States v. Toussaint [78-2 USTC ¶9793 ], 456 F.Supp. 1069 (S.D.Tex.1978). This case, however, is prior to the Supreme Court decision in United States v. Caceres [79-1 USTC ¶9294 ], 440 U.S. 741, 99 S.Ct. 1465, 59 L.Ed.2d 733 (1979), in which the Court held that it was not error to deny the suppression of evidence obtained in violation of IRS Regulations. The Supreme Court in its opinion said: ". . . a rigid application of an exclusionary rule to every regulatory violation could have a serious deterrent impact on the formulation of additional standards to govern prosecutorial and police procedures." 440 U.S. at 755, 99 S.Ct. at 1473.

It follows that the nature of the issue in this case is not the possible violation of the IRS Manual by the agent but is the more fundamental issue appellant also raises that the statement was obtained through "fraud, trickery, and deceit". As to this broader charge of fraud, trickery, and deceit, the district court considered the claim specifically and found that the government had no advantage in the situation under the facts of the case. The defendant had as much information about what was going on and what the problem [was] or was going to be as the government did. Thus, while it is clear that evidence obtained through fraud, trickery, and deceit is not admissible in criminal tax prosecutions, United States v. Powell, 835 F.2d at 1098, we made clear in United States v. Prudden [70-1 USTC ¶9336 ], 424 F.2d 1021, 1033 (5th Cir.), cert. denied, 400 U.S. 831, 91 S.Ct. 62, 27 L.Ed.2d 62 (1970), that the mere failure of a revenue agent to warn a taxpayer that the investigation may result in criminal charges is not fraud, trickery, and deceit.

We did find in United States v. Tweel [77-1 USTC ¶9330 ], 550 F.2d 297 (5th Cir.1977), that the revenue agent had intentionally misled the taxpayer as to the nature of the audit. In response to a question by the taxpayer he denied by implication that there were criminal overtones to the investigation. Thus, in that case the agent intentionally misled the taxpayer. Appellant concedes that the Tweel case is not controlling. Agent Leblanc made no affirmative misrepresentation and left no inquiry of the taxpayer unanswered. Taxpayer complains only of the failure to disclose tentative calculations Leblanc made as to tax based upon fraud. We review the district court's finding as to fraud, trickery, and deceit under the clearly erroneous standard, United States v. Caldwell [87-2 USTC ¶9423 ], 820 F.2d 1395, 1399 (5th Cir.1987), and the finding of the district court was not clearly in error.

III.

Appellant's third issue involves the claim that the prosecutor impermissibly commented in his closing argument on defendant's failure to testify. This claim stems from the testimony of Mr. Hamza, who was appellant's accountant.

The statement by the prosecutor in closing referred to a chart listing some 1400 accounts of the company as of 1985. All the prosecutor said was that the witness, Mr. Hamza, was still in custody of the corporate records and that he did not bring in an earlier chart of the accounts, one that was relevant to the years involved in the charges. On the Hamza cross-examination it had been established that the chart of accounts introduced (over the objection of the government) was not in use during the years 1981 and 1982. The prosecutor then had asked without objection if the accountant had brought the chart of accounts used during that earlier period and he replied that he had not.

The statement by the prosecutor, then, at closing argument constituted a reference to the evidence introduced by the witness, not to actual lack of testimony of the appellant. At the time of the statement in closing argument a motion was made for a mistrial. The assertion was that the statement shifted the burden of proof to appellant and was a comment upon appellant's failure to testify.

Pursuant to the objection the court gave a curative instruction to the effect that it was improper for the government to suggest that the appellant could have produced an additional exhibit or any additional evidence or additional witness to support the witness' testimony. So the jury was instructed to disregard the statement by the prosecution.

Assuming that the district court was correct in deciding that the argument was in error, it was not a blatant challenge against a constitutional right of appellant. It properly could be cured by curative instruction, as it was, and in any event the record reveals that it was harmless error in view of the overwhelming evidence that appellant had to know how these many large checks for gambling debts were being treated in the corporate accounting.

IV.

The district court admitted in evidence other instances of appellant paying personal gambling debts to a third bookie, Rogers, and also payments to Stutes, one of the two bookies involved in the counts against appellant. The district court in its discretion admitted the evidence under Fed. R.Evid. 404(b). It is clear under that rule that the district court did not abuse its discretion in finding that the evidence was relevant to an issue other than defendant's character and that its probative value was not outweighed by prejudice. The court found that the payments were relative to appellant's intent or absence of mistake since appellant had told agent Leblanc that he did not know the payments for his personal gambling expenses had been coded as commission expenses. These additional expenses were also improperly deducted on the corporate tax returns.

As the government points out, this evidence was relevant in evaluating appellant's claim of a 14 month lack of knowledge of the accounting methods of his business months because it extended that time period to three years. Since the evidence showed a continuing course of conduct, and was not directed at appellant's character, it was not unduly prejudicial. Certainly it was not prejudicial in showing dealings with bookmakers. There was ample evidence of the dealings with bookmakers with respect to the payments which were involved in the criminal indictment counts under which appellant was prosecuted.

We find that appellant has failed to establish grounds for a reversal of the jury verdict and the decisions of the district court.

AFFIRMED.

 

 

 

[91-2 USTC ¶50,402] United States of America , Appellee v. Charles L. Bussey, Jr., Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 90-2112EM, 8/20/91 , Affirming an unreported District Court decision

[Code Secs. 7203 and 7206 and 18 USC §1001 ]

Crimes: Failure to file returns: Filing false returns: Evidence: Exclusion of oral testimony: Instructions to jury: Prosecutorial misconduct.--An attorney's convictions for failing to file income tax returns, filing false income tax returns and filing false statements with the Department of Housing and Urban Development were upheld. The trial court did not err in giving a "willful blindness" instruction because the evidence introduced could have supported a finding that he had deliberately avoided knowledge of the facts that made his conduct illegal. This instruction did not taint his conviction for filing a false statement with HUD because other instructions made it clear that actual intent to violate the law was required to support a conviction. In addition, the court did not abuse its discretion in excluding the testimony of one of the taxpayer's impeachment witnesses because calling such a witness would have been inappropriate. Further, statements made at trial by the government did not justify setting the convictions aside because they did not rise to the level of prosecutorial misconduct. Finally, the evidence introduced was sufficient to support the verdict.

Steven E. Holtshouser, Assistant United States Attorney, Stephen B. Higgins, St. Louis, Mo. 63101, for appellee. Charles L. Bussey, Jr., pro se, Carl W. Bussey, Lloyd J. Jordan, St. Louis, Mo., for appellant.

Before MCMILLIAN and MAGILL, Circuit Judges, and WOODS, ^* District Judge.

MAGILL, Circuit Judge:

Charles L. Bussey, Jr., appeals his convictions for filing false tax returns for the years 1981, 1983 and 1984, in violation of 26 U.S.C. §7206(1) ; failing to file a tax return for 1982, in violation of 26 U.S.C. §7203 ; and filing a false statement with the Department of Housing and Urban Development, in violation of 18 U.S.C. §1001 . Bussey argues that the district court ¹ erred in giving a "willful blindness" instruction because such an instruction was not warranted by the evidence; in failing to grant his motion for acquittal on the ground that the evidence was insufficient to convict him; in excluding certain testimony under Fed.R.Evid. 608(b); and in refusing to grant him a new trial on the ground of prosecutorial misconduct. We affirm.

I.

A. Background

In 1977, Bussey's father, Charles Bussey, Sr. (Bussey Sr.), who resided in Little Rock , Arkansas , contacted his St. Louis-based son about a potential real estate development project in Little Rock . Because Bussey did not have much experience in such matters, he in turn contacted his friend and former employer, William A. Thomas, an experienced real estate appraiser, developer, and consultant, for assistance. In 1978, Thomas suggested that Bussey, a practicing lawyer, form Eastview Development Company, Inc., to build an apartment complex on the Little Rock property. Bussey Sr. and two of his friends were the sole shareholders and officers of the corporation.

To finance the project, Thomas and Bussey sought a Department of Housing and Urban Development (HUD)-insured mortgage in 1980. That same year Bussey Sr. was elected to the Little Rock city council. After the election, there was some question as to whether Bussey Sr.'s involvement with the Eastview project while serving in an elected position was improper. As a result, Bussey Sr. withdrew from the development company and was replaced by his son. Work continued on the project, with Bussey and Thomas eventually obtaining an option to purchase the Little Rock property.

After receiving the HUD mortgage insurance commitment, Thomas found an outside investor for the Eastview project, J&B Management Company (J&B). On April 1, 1981 , Bussey, Thomas and J&B formed the Eastview Terrace Limited Partnership (Partnership), whose purpose was to build and develop the apartment complex. Supp. App. 9, at 2. Bussey and Thomas were the Partnership's sole general partners; each had a one and a half percent interest in the Partnership's capital. J&B was a limited partner. Executed simultaneously with the partnership agreement was a Development Agreement (DA) between Bussey, Thomas, the Partnership, and J&B. See Supp. App. 10, at 1. The DA provided that the Partnership would pay the general partners a developer's fee for their services. Id. at 15. This sum was to be paid in four annual installments (the guaranteed payments). 2 Tr. at 60. Each installment payment was split in two parts for tax purposes. Id. at 65.

In connection with the partnership agreement, Bussey and Thomas verbally agreed that any revenue the Partnership received would go to Bussey and that Thomas would receive only a consulting fee and traveling expenses. These totaled approximately $41,500 for the entire project. 2 Tr. at 49. Bussey and his father agreed that Bussey would pass on part of the payments to Bussey Sr. 8 Tr. at 86-88.

After the initial closing in 1981, J&B gave the Partnership a check for $174,084. The check was deposited in a Little Rock bank account for which Thomas and Bussey were the signatories. Pursuant to the DA, Bussey wrote two checks to himself and Thomas, one for $90,000 and one for $84,084, representing the guaranteed payment. Both men endorsed the checks and Bussey redeposited them in the Little Rock account.

Mario Toca, a Florida accountant, prepared the Partnership's tax return for 1981. In conjunction with the information return Form 1065, he filled out Schedule K-1s for the partners, which listed each partner's share of the Partnership's income, credits, and deductions. ² The K-1s for Bussey and Thomas listed the guaranteed payment as income, attributing $87,042 (half of the total payment) to each. Under 11 U.S.C. §707(c) , such guaranteed payments were gross income to Bussey and Thomas and were to be reported on Schedule E of their Form 1040 income tax returns. When Thomas received the K-1, he noticed it was incorrect, because he had agreed to be paid only his consultant fee and expenses. Therefore, he directed his accountant to contact Toca and make the necessary correction. ³ Bussey's K-1 was sent to Bussey Sr.'s Little Rock address, which Bussey had used in the partnership documents. Bussey nevertheless received the K-1, which he did not read, but merely placed in the box in which he kept his financial records. 7 Tr. at 230.

Bussey never reported the 1981 guaranteed payment as income. In 1984, when Bussey had his 1981 personal income tax return prepared, Bussey told the preparer, Irl Steiner, that the Partnership's 1981 K-1, which Steiner had found in Bussey's box, was incorrect because the $87,042 attributed to him had actually gone to the Eastview Development Company, Inc. 3 Tr. at 185. ⁴ Steiner informed Bussey that if that was the case, the Partnership's return and the K-1s would have to be amended to agree with Bussey's return. Steiner also told Bussey that if the K-1 was not corrected, Bussey would have to pay additional taxes. Id. at 188. Bussey's K-1 from the Partnership also indicated a loss from the Partnership. This loss, unlike the guaranteed payment, was included in Bussey's return.

B. 1982 Return

Bussey traveled to Dallas in 1982 to pick up the second $174,084 installment payment from J&B's lawyer. This payment was deposited in the Partnership's account. Bussey then drafted two checks in the amount of $90,000 and $84,084, endorsed them, signing Thomas' name as well as his own, and redeposited them in the Partnership's account. 2 Tr. at 124.

In 1982 Bussey also worked for Maxxam Consulting Group, managing a minority business development agency contract for Maxxam in St. Louis . For his management services, Maxxam paid Bussey $18,000 that year. 3 Tr. at 260.

Bussey never filed an income tax return for 1982.

C. 1983 and 1984 Returns

In 1983, Bussey again traveled to Dallas to pick up the $174,084 payment. Bussey gave this check to his father, who deposited it in Bussey Sr.'s personal checking account. Of these funds, $33,000 was used to pay off Bussey's loans. 6 Tr. at 160. The final payment, for $131,292, was sent to Thomas in 1984. Thomas gave it to Bussey, who deposited the check in the Partnership's account, and then wrote two checks on the account, one to his father for $75,000 and one to Eastview's builder for $55,000.

Bussey also omitted any reference to the guaranteed payments in his 1983 and 1984 returns. His tax preparer for those years, Angela Evans, had given Bussey tax organizers to facilitate the preparation of the returns. These organizers specifically requested any information concerning partnerships. Bussey did not mention the guaranteed payments in the organizers. He also did not show Evans the Partnership's K-1s and did not inform her of any tax consequences related to the Partnership. 3 Tr. at 325.

D. False Statement to HUD

Bussey was a beneficiary of the federal government's program to assist low and moderate income families in the purchase of a house. Bussey applied for a HUD subsidy in 1982. The program he applied to required that to be eligible for the subsidy, an applicant had to sell any real estate she or he owned, report all sources of income, and list all assets. 5 Tr. at 158. On his application he listed his employment as the manager of a food service company, Midwest Host, Inc., in which he held an interest. He listed his salary as $22,000 a year. He listed no other sources of income. 5 Tr. at 180. The only bank account he listed was his personal account. Bussey also listed a house as an asset, with the notation that the house was to be sold. Bussey did not list among his assets his interest in the Partnership, his ownership interest in a number of small businesses, his partnership interest in a law firm he had founded in 1981, Bussey & Jordan, or his ownership of a 1982 Datsun 280Z car. As regards sources of income, Bussey did not list the guaranteed payments from the Partnership or his income from Bussey & Jordan. Based on the information he provided, HUD found that Bussey qualified for the subsidy.

In October 1983, Bussey sought to get his subsidy recertified. In his recertification papers, Bussey indicated that his current income was $22,800, see 5 Tr. at 210, but he failed to report to HUD the $174,084 guaranteed payment from the Partnership or income he received from Maxxam.

E. Procedural History

In April 1990, Bussey was charged with filing false income tax returns for the years 1981, 1983 and 1984, in violation of 26 U.S.C. §7206(1) ⁵; with failing to file an income tax return for 1982 and 1985, in violation of 26 U.S.C. §7203 ⁶; and with making a false statement to HUD, in violation of 18 U.S.C. §1001 . ⁷ Following a two-week jury trial, Bussey was convicted on all counts except the failure to file a return in 1985. The district court sentenced Bussey to three years' imprisonment on each income tax count and one year on the false statement count, with all sentences to run concurrently. The district court also ordered Bussey to repay the $7,883 housing subsidy he received as a result of his false statement to HUD, and to pay a $150 assessment as well as the costs of the prosecution. Bussey now appeals his convictions to this court.

II.

A. The Willful Blindness Instruction

Bussey's primary argument on appeal is that the district court erred in giving a willful blindness instruction. The instruction permitted the jury to find that Bussey had the requisite intent to commit the crimes if it determined that he had deliberately avoided knowledge of the facts that made his conduct illegal. The instruction read:

The element of knowledge may be satisfied by inferences drawn from proof that a defendant deliberately closed his eyes to what would otherwise have been obvious to him. A finding beyond reasonable doubt of a conscious purpose to avoid enlightenment would permit an inference of knowledge. Stated another way, a defendant's knowledge of a fact may be inferred from willful blindness to the existence of the fact.

It is entirely up to you as to whether you find any deliberate closing of the eyes, and the inferences to be drawn form [sic] any such evidence. A showing of negligence or mistake is not sufficient to support a finding of willfulness or knowledge.

Instruction 37, App. 1. Bussey argues that the willful blindness instruction, also known as the Jewell, see United States v. Jewell, 532 F.2d 697 (9th Cir.) (en banc), cert. denied, 426 U.S. 951 (1976), or "ostrich" instruction, see United States v. Ramsey, 785 F.2d 184, 189 (7th Cir.), cert. denied sub nom. McCreary v. United States , 476 U.S. 1186 (1986), was not justified because there was no evidence that he purposely sought to avoid any knowledge. ⁸

This court has specifically approved the use of the willful blindness instruction in tax fraud cases. See United States v. Zimmerman [88-2 USTC ¶9393 ], 832 F.2d 454, 458 (8th Cir. 1987) (per curiam). As we observed in United States v. Hiland, 909 F.2d 1114 (8th Cir. 1990), the willful blindness instruction "allows the jury to impute knowledge to [the defendant] of what should be obvious to him, if it found, beyond a reasonable doubt, a conscious purpose to avoid enlightenment." Id. at 1130 (quotation omitted). See also United States v. Mattingly [91-1 USTC ¶50,068 ], 924 F.2d 785, 792 (8th Cir. 1991) ("[T]he element of knowledge may be inferred from deliberate acts amounting to willful blindness to the existence of fact or acts constituting conscious purpose to avoid enlightenment."). In reviewing a district court's decision to give a willful blindness instruction, we must review the evidence and any reasonable inference from that evidence in the light most favorable to the government. Hiland, 909 F.2d at 1131.

1. The §7206 Convictions

The jury found Bussey guilty of willfully filing false income tax returns for the years 1981, 1983 and 1984. Viewing the evidence in the light most favorable to the government, we believe the district court did not err in submitting a willful blindness instruction to the jury on these charges. Although there is a great deal of evidence supporting the submission of the instruction, we will focus on only one transaction, the guaranteed payments Bussey received in connection with the Eastview project. As an initial matter, we note that Bussey testified at trial that he never read the partnership contract or the DA, or his tax returns for that matter: "Q. And among the documents you did not read include all of these Eastview closing documents, your own tax returns, did not read those. Is that what you're telling the jury? A. Yes, it is." 8 Tr. at 219.

As regards his 1981 tax return, Bussey did not report the Eastview guaranteed payment, even though he knew he had earned and received it:

Q. At that point in time [1981], with your understanding with Mr. Thomas he was only to receive $41,500 out of those monies, at that point in time, the rest of the money was yours. It was received by you, and it was earned by you at that point in time, wasn't it?

A. Yes.

8 Tr. at 92. Even though Bussey knew he had received the guaranteed payment, in 1984 he told Steiner that it was not his income because it had been paid to the development corporation that had preceded the Partnership:

Q. And you told [Steiner] that all the money had been paid to the corporation?

A. Well, based on the conversation that he said to me, yes, I did say that.

Q. And, in fact all of the money had not been paid to the corporation, had it? The money had been paid to Charles Bussey, Jr. and William A. Thomas, hadn't it?

A. You're raising a very technical--yes, yes.

Q. Is that where the money was paid?

A. Yes, yes.

8 Tr. at 160. At trial, Bussey was asked about his belief that the Partnership was transferring funds to the development company:

Q. Now, it's your understanding that there was still a development company in operation, and also a partnership?

A. Yes.

Q. Did you make any distinction between the two of them?

A. Well, what I thought was happening, because W.A. Thomas was taking care of the accounting, I thought W.A. Thomas was taking care of the accounting.

. . .

Q. Were you involved in any way with the books and records for [the Partnership]?

A. No. I thought Bill Thomas was taking care of it. He had selected [an accountant]. I thought [the accountant] was taking care of all of those things. . . .

7 Tr. at 233-34. On cross-examination, the government asked Bussey why he believed that Thomas was taking care of everything:

Q. Mr. Bussey, in 1981, what was your rational basis for believing that Mr. Thomas had these bank records from which he could conduct these analyses that you were depending on him to do?

A. I don't know how to answer the question.

Q. You didn't have one did you?

A. I don't know how to answer the question.

8 Tr. at 111.

The evidence also showed that Steiner, after receiving the 1981 K-1, told Bussey that he should contact the Partnership and that the Partnership's 1065 return and the K-1s should be amended to reflect that the guaranteed payments were going to a corporation. 3 Tr. at 187. ⁹ Bussey never did this. Nor did Bussey ever inform Steiner that he had an agreement with his father to pass on the guaranteed payments. 8 Tr. at 160. Furthermore, Bussey never asked Steiner or Toca about how to treat the partnership income, even though he did not know what a K-1 was or what it meant, 7 Tr. at 230, and he did not understand anything about partnership taxation. 8 Tr. at 25. Bussey's testimony at trial is illuminating:

Q. Did you believe . . . that you could make money as a general partner, and pass it on to someone else, and not have to report it yourself?

A. . . . I didn't think about the question.

Q. Didn't look into it either?

A. I did not.

8 Tr. at 95. Although Bussey was under no legal duty to contact any accountant or tax expert, his decision not to do so constitutes at least some evidence of deliberate ignorance. See Hiland, 909 F.2d at 1131.

With respect to the 1983 and 1984 returns, Bussey again failed to report the guaranteed payments as income. His tax preparer for those years, Angela Evans, provided Bussey with tax organizers to facilitate her preparation of his returns. The organizers expressly requested the taxpayer to provide information about any partnerships. Bussey provided none. 3 Tr. at 324, 330. Neither did he tell Evans anything about the Partnership or show her a K-1 for those years. Id. at 325, 330-31. ¹⁰ Evans testified at trial that had she seen the K-1, she would have asked Bussey about the guaranteed payment and the Partnership. Id.

In United States v. Graham [84-2 USTC ¶9742 ], 739 F.2d 351 (8th Cir. 1984) (per curiam), we affirmed a §7206(1) conviction based on a willful blindness instruction where the evidence showed that the taxpayer failed to give his accountant all the information relating to the taxpayer's sources of income. The taxpayer defended the failure by contending that the accountant already knew the information. Id. at 352. The taxpayer argued that although he may have been negligent because he did not read his tax returns before he signed them, his actions were not willful. Id. This court disagreed, and approved the district court's submission of the willful blindness instruction, explaining:

The substantive justification for the rule is that deliberate ignorance and positive knowledge are equally culpable. The textual justification is that in common understanding one "knows" facts of which he is less than absolutely certain. To act "knowingly," therefore, is not necessarily to act only with positive knowledge, but also to act with an awareness of the high probability of the existence of the fact in question. When such awareness is present, "positive" knowledge is not required.

Id. at 353 (quoting United States v. Jewell, 532 F.2d 697, 700 (9th Cir.) (en banc), cert. denied, 426 U.S. 951 (1976)). ¹¹ What is apparent in this case is that Bussey knew the guaranteed payments had income tax consequences but deliberately sought to avoid learning anything about the specifics of those consequences. Bussey directed Steiner away from the payment in 1981 by telling the accountant the payment went somewhere else. In 1983 and 1984, he did not tell Evans anything at all. Bussey asked no questions, sought no guidance, did no research, all despite his claimed unfamiliarity with partnership taxation. Nor did he read his returns or the contracts he signed. From these actions, or lack thereof, a jury could reasonably infer that Bussey consciously avoided any opportunity to learn what the tax consequences were, and could then infer the requisite willfulness required by the statute. Therefore, based on the evidence adduced at trial, we conclude that the district court properly included an instruction on willful blindness for the §7206 charges.

2. The §7203 Conviction

Bussey was also convicted of willfully failing to file an income tax return for the year 1982. We are not sure of the nature of his appeal of this conviction. In the summary of his brief, Bussey claims that the willful blindness instruction, combined with prosecutorial misconduct, "tainted the misdemeanor verdict." Bussey's Brief at 10. However, in his discussion of the willful blindness instruction, Bussey's rather confused brief contains no mention of the misdemeanor conviction. Whatever the nature of Bussey's argument, we do not believe that the jury convicted Bussey based on the willful blindness instruction, for there was ample evidence that he willfully failed to file the 1982 return. In Cheek v. United States [91-1 USTC ¶50,012 ], 111 S. Ct. 604 (1991), the Supreme Court stated: "Willfulness, as construed by our prior decisions in criminal tax cases, requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Id. at 610. In this case, the government proved that Bussey had a duty to file a 1982 income tax return. It also proved that Bussey knew of this duty, based on his own testimony that in 1984 he had given his financial records for 1982 to Steiner, who was to prepare Bussey's 1982 return. ¹² Bussey's knowledge of this duty was also proved by the testimony of an Internal Revenue Service agent who interviewed Bussey in May 1987. During the course of the interview the agent asked Bussey about the status of the 1982 return, and Bussey replied that it had not been filed yet because he had had trouble getting the documents together, and because he was very busy and had not had the time. 6 Tr. at 96.

As regards the final requirement, there was evidence at trial from which the jury could infer that Bussey voluntarily and intentionally violated his duty to file a 1982 return. This evidence includes Bussey's testimony that in 1984 Steiner had refused to accept his 1982 financial records until Bussey had organized them, that he had left the records in his car, and that vandals then broke into the car, poured gasoline on the driver's seat, and set the car on fire. 7 Tr. at 271. Bussey's 1982 records were destroyed in this fire. Id. At the May 1987 interview, Bussey admitted not having filed a 1982 return, but mentioned nothing about his records having been destroyed. 6 Tr. at 95. Moreover, in his October 15, 1983, recertification application for the HUD subsidy, Bussey represented that he had filed his 1982 return in August 1983. ¹³ See App. 5, at 3. From this conflicting evidence, a jury could reasonably infer that Bussey intentionally failed to file a 1982 return and then sought to cover up his act. Therefore, because there was evidence from which a jury could conclude that Bussey willfully failed to file a 1982 return, the willful blindness instruction did not improperly taint the misdemeanor conviction. Cf. Mattingly [91-1 USTC ¶50,068 ], 924 F.2d at 792 ("Furthermore, we believe that even if the jury was mistaken about the role of willful blindness, the record indicates that the jury was presented with sufficient evidence of actual knowledge to find appellant liable, thus making any error harmless.").

Bussey also argues that two recent cases, Cheek v. United States [91-1 USTC ¶50,012 ], 111 S. Ct. 604 (1991), and Mattingly v. United States [91-1 USTC ¶50,068 ], 924 F.2d 785 (8th Cir. 1991), support his argument that the district court erred in giving a willful blindness instruction. Bussey's reliance on both cases is seriously misplaced. In Cheek, the Supreme Court reversed the Seventh Circuit's ruling that "a good-faith misunderstanding of the law or a good-faith belief that one is not violating the law, if it is to negate willfulness, must be objectively reasonable." [91-1 USTC ¶50,012 ], 111 S. Ct. at 610. Cheek did not involve a willful blindness instruction and is therefore irrelevant to Bussey's willful blindness issue on appeal. Also of little help to Bussey is Mattingly, wherein this court stated that in tax fraud cases under 26 U.S.C. §6701 , which requires that a defendant who helps a taxpayer prepare a return "know" that the return understates the taxpayer's liability in order to be convicted, a willful blindness instruction would be error if it allowed the jury to use willful blindness as a substitute for knowledge. [91-1 USTC ¶50,068 ], 924 F.2d at 791-92. Our observation in Mattingly was based on the language and legislative history of §6701 , id. at 791, neither of which are at issue in this case.

Bussey argues that like §6701 in Mattingly, §§7206 and 7203 require actual knowledge. The plain language of the statutes refutes this contention, as did the court in Mattingly in discussing the appropriateness of the willful blindness instruction: "Section 7206(2) . . . requires willful assistance in the commission of direct tax fraud. In that context evidence of willfulness and a jury instruction on willfulness is properly before the jury. In contrast, §6701 at issue in the present case does not contain the willful language . . . but instead contains the term 'knows.'" Id. at 791 (emphasis added). We recognized in Mattingly that Congress chose to use "knows" in some criminal tax provisions and the less stringent "willful" in others. Id. Apparently Bussey has missed this distinction. Therefore, Mattingly does not stand for the proposition that the willful blindness instruction is improper in §§7206 and 7203 prosecutions, and Bussey's argument is unavailing.

4. 18 U.S.C. §1001 Conviction

The jury also convicted Bussey of knowingly and willfully making a false statement to HUD. In his brief on this issue, Bussey makes a conclusory statement that the willful blindness instruction tainted his conviction, see Bussey's Brief at 19, but he again fails to discuss how the instruction specifically affected the §1001 charge. We note, however, that the court in Mattingly did observe that where a statute requires a defendant to have known a fact, a willful blindness instruction would be improper if it "allowed willful blindness to go beyond an inference of, and act as a substitute for, knowledge." [91-1 USTC ¶50,068 ], 924 F.2d at 792. Because §1001 requires knowledge as well as willfulness, we examine the instructions and the evidence to determine whether the jury in this case could have substituted willful blindness for knowledge.

The instructions on this charge required the jury to find that Bussey acted knowingly and willfully, and defined willfully as something "done voluntarily and intentionally, and with the specific intent to do something the law forbids." Instruction 19, 24. Because these instructions clearly emphasized the importance of finding specific intent to violate the law, they did not authorize the substitution of willful blindness for knowledge. See Mattingly [91-1 USTC ¶50,068 ], 924 F.2d at 792.

The 1983 HUD recertification form requests that the applicant provide information about his or her income as follows:

(1) How much did each person make last year, broken down by where the money came from? (2) How much does each person make right now? (3) How much does each person expect to make in the next 12 months, including raises, overtime, part-time jobs, etc.? You must show all money received, no matter where it comes from.

U.S. Department of Housing and Urban Development, Recertification of Family Income and Composition, Section 235(b) Form, reprinted in App. 5, at 3. Because the form was filled out in 1983, Bussey's income in 1982 was to be included. The only income he reported was $22,800 from his law firm. There was evidence at trial, however, that Bussey received substantial income from other sources that year, including $18,000 from Maxxam and the 1982 guaranteed payment of $174,084.

Bussey argues that the Maxxam payment was not income to him because it was actually a reimbursement for his contribution to the start-up of his law firm. ¹⁴ In 1981, Bussey had joined with two others in forming the law partnership of Bussey & Jordan. At trial, Bussey's law partner, Lloyd Jordan, testified that they had agreed that the Maxxam funds were income to the firm, and that the funds would be used to reimburse Bussey's $10,000 outlay for the firm's start-up costs. 7 Tr. at 41. The firm did not treat the monies as income, however. Rather, Maxxam sent the checks directly to Bussey, who deposited them into his personal account. 8 Tr. at 156. The firm had no record of the checks, see 8 Tr. at 91, and Jordan had no idea how much Bussey was receiving from Maxxam. See 8 Tr. at 86-87. Neither the firm nor Bussey reported the $18,000 as income. Both Jordan and Bussey testified that Bussey was never involved in financial affairs of the firm and that he let Jordan take care of everything. 7 Tr. at 67, 261. Bussey testified that he believed the $18,000 was firm money. 8 Tr. at 41. But he also testified that he did not perform legal services for Maxxam and that the firm had no claim to the money Maxxam paid him. 8 Tr. at 156.

In brief, the evidence shows that Bussey received $18,000 from Maxxam for non-legal services, that Bussey got Jordan to agree that these were partnership funds that would be used to reimburse Bussey's $10,000 contribution to the law firm, and that the funds were never reported as income to the firm or to Bussey, but were deposited into Bussey's personal account. From this evidence, and the guaranteed payment evidence discussed above, a jury could reasonably infer that Bussey deliberately never checked to see how the law firm was treating the Maxxam money or how he should treat the guaranteed payments. This inference in turn supports the inference that Bussey knew the $18,000 Maxxam payment was income to him, as was the guaranteed payment discussed above. Therefore, we conclude that the jury did not substitute willful blindness for knowledge in this case, but rather used it appropriately to infer knowledge.

In sum, the district court properly submitted a willful blindness instruction to the jury in this case. Bussey strenuously argues against the propriety of the instruction, contending that he was convicted merely for being negligent and for relying on the advice of his accountants. Bussey misses the point of a willful blindness instruction. As the First Circuit has observed: "The purpose of the willful blindness theory is to impose criminal liability on people who, recognizing the likelihood of wrongdoing, nonetheless consciously refuse to take basic investigatory steps." United States v. Rothrock [87-1 USTC ¶9111 ], 806 F.2d 318, 323 (1st Cir. 1986). By consciously avoiding discovery of the financial consequences of the guaranteed payments and the Maxxam income, Bussey was able to file false tax returns and a false recertification form, and yet now can argue lack of knowledge. We also note that Bussey defends his activities, or lack thereof, with respect to the guaranteed payments on the grounds that he believed Thomas was taking care of the accounting, that none of the Partnership's accountants contacted him about how the guaranteed payments should be treated, and that Steiner committed accounting malpractice and lied at trial to cover it up. These arguments, however, are irrelevant to the question of whether the evidence supported the district court's submission of the willful blindness instruction. Furthermore, they are simply more evidence of Bussey's general penchant for avoidance. His entire defense on the issue of the guaranteed payments was premised on the failures of others to tell him things or do things for him, specifically Thomas, Steiner and the Partnership's accountants. The jury determined, however, that the responsibility for Bussey's current predicament rests squarely on his own shoulders. We agree.

B. Sufficiency of the Evidence

Bussey next argues that the evidence at trial was insufficient to allow the jury to find him guilty beyond a reasonable doubt. In evaluating the sufficiency of the evidence supporting a guilty verdict, we review the evidence in the light most favorable to the government and we give the government the benefit of all reasonable inferences. See, e.g., United States v. Kouba [87-2 USTC ¶9396 ], 822 F.2d 768, 773 (8th Cir. 1987). We believe the evidence and inferences discussed in the foregoing section refute Bussey's contention.

The specific focus of Bussey's argument appears to be that the government did not prove that he took an affirmative act in furtherance of the crimes with which he was charged and thus that the government failed to prove willfulness. ¹⁵ It is hornbook law that two of the essential elements of a crime are conduct and intent. See generally 1 W. LaFave & A. Scott, Substantive Criminal Law §3.1 (1986) (discussing the premises of criminal law). Bussey seems to have conflated the two separate elements. The conduct for which he was convicted was filing false income tax returns, failing to file a return, and making a false statement to a government agency. The government clearly proved this conduct. As discussed in Part II.A., the government also proved the intent necessary for the various charges, i.e., willfulness (for the §§7206 and 7203 charges) and willfulness and knowledge (for the §1001 charge). Therefore, Bussey's sufficiency argument fails.

C. Bussey's "Expert" Testimony

Bussey next argues that the district court erred in preventing one of his witnesses from testifying. ¹⁶ The district court, under Fed. R. Evid. 608(b), excluded the testimony on the ground that Bussey was seeking to impeach the testimony of Irl Steiner, Bussey's 1981 tax preparer and a government witness. ¹⁷ We review evidentiary rulings only for abuse of discretion. See United States v. Shyres, 898 F.2d 647, 656 (8th Cir.), cert. denied, 111 S.Ct. 69 (1990).

At trial, Steiner testified on direct examination that Bussey gave him the Partnership's 1981 K-1; that Bussey told Steiner that the income from the K-1 was not his, but had gone to the corporation; and that Steiner told Bussey that the Partnership's return and the K-1 should be amended and that if the K-1 was not changed, Bussey would have to pay additional taxes. 3 Tr. at 185-88. On cross-examination, Bussey asked Steiner about a checklist prepared by the accountant who reviewed Steiner's 1981 work. Steiner testified that the checklist includes things that still need to be done for the taxpayer. A completed item is initialed or checked off. One of the items on the list for Bussey's return was: "If no amended form 1065 with K-1s was filed for Eastview Terrace we should suggest this to avoid a problem with guaranteed payments." 3 Tr. at 220. Steiner conceded on cross-examination that that item was never checked off. Id. He maintained, however, that he had nonetheless discussed the necessary changes with Bussey. Id. at 226.

Bussey sought to introduce the testimony of Steven Conway, an accounting expert, making the following offer of proof:

As to the offer of proof, it's my understanding that if Mr. Conway were called concerning the testimony of Mr. Steiner, he would, in fact, tell the jury that there is [sic] standard accounting procedures, which are generally known as clearing the points, which if the procedure were followed in this case by [Steiner's firm] was to have [sic] second person review the accounting notes, the tax return Mr. Steiner prepared for Mr. Bussey, and then prepare a bunch of checklist points.

These points are generally listed on one side of the paper, and with room left on the other side of the paper to check off those points.

It was very clear that Mr. Steiner's testimony that they went through, I think it was six points.

Having checked off five out of those six points, and left one totally blank, which deals directly with the issue of whether Mr. Bussey was told to get an amended K-1.

That note of Mr. Weber's was, in effect, that we should suggest to the client that an amended K-1 be received from Eastview Terrace Limited Partnership.

There was no connotation that that was ever done or checked off by anyone.

And Mr. Conway would testify that that is against accounting procedures and [sic] clear indication that, in fact, such statements as to clearing that point were never done.

8 Tr. at 240-41.

Bussey makes numerous arguments attempting to convince us why the district court erred in excluding Conway's testimony but all fail in light of the straightforward dictates of Rule 608(b). ¹⁸ Bussey's offer of proof at trial unquestionably shows that Conway's testimony was intended to show that Steiner did not tell Bussey to get the K-1 amended. By addressing this specific instance of Steiner's conduct, Bussey obviously sought to use Conway to attack Steiner's credibility. Rule 608(b)'s plain language prohibits the use of extrinsic evidence for such purposes.

It is apparent that Bussey had every opportunity to impeach Steiner on cross-examination, and that the jury had to be aware of the conflicting testimony as to whether Steiner told Bussey to get the K-1s amended. The jury apparently resolved that credibility issue against Bussey, however, so he now asks this court to revisit it in the garb of an evidentiary issue on appeal. This we will not do, for the simple reason that the district court properly excluded the testimony based on Bussey's offer of proof.

D. Prosecutorial Misconduct

Finally, Bussey advances a hodgepodge of arguments in support of the proposition that the district court erred in not granting him a new trial on the basis of prosecutorial misconduct. The grounds for the alleged misconduct include the government's reference to Bussey's transferring the guaranteed payments to his father as a "kickback," the government's misstatement of certain dates, and the government's "vigorous advocacy for a denial of opportunity for Appellant's witness to testify regarding accounting errors made by the Government's witness Irl Steiner and the prosecutor's misdirection of the court on the rules of evidence surrounding the proposed testimony." Bussey's Brief at 42-54. Although the nature of these grounds varies, they all share one feature--none of them constitutes prosecutorial misconduct.

To prove prosecutorial misconduct, an appellant must show that: "(1) the prosecutor's remarks or conduct [were] improper, and (2) such remarks or conduct . . . prejudicially affected the defendant's substantial rights so as to deprive him of a fair trial." United States v. Pierce, 792 F.2d 740, 742 (8th Cir. 1986). None of the grounds Bussey has alleged satisfy both of these requirements. For example, the prosecution's "vigorous advocacy" that Conway's testimony should be excluded under Fed. R. Evid. 608(b) was obviously not improper. Neither was the limited reference to "kickback," in that Bussey headed a development project originally begun by his father and then passed monies from the development to his father. The government's misstatement of certain dates, while improper, appears to have been innocent. Moreover, because of the overwhelming evidence of Bussey's guilt, the misstatements did not deprive Bussey of a fair trial. We do not discuss Bussey's other grounds for the alleged misconduct because they are similarly unavailing.

III.

Accordingly, we affirm Bussey's convictions.

^* THE HONORABLE HENRY WOODS, United States District Judge for the Eastern District of Arkansas, sitting by designation.

¹ The Honorable Stephen N. Limbaugh, United States District Judge for the Eastern District of Missouri.

² Generally, partnerships do not pay income tax. Rather, the individual partners are liable for tax on their shares of the partnership income. Therefore, a partnership files a return, Form 1065, only for information purposes. Form 1065 states the partnership's gross income, credits, deductions, and the like, for the taxable year. Schedule K to Form 1065 is a summary schedule that lists all of the partners' shares of the partnership's income, credits, and deductions. Schedule K-1 shows each partner's individual share. A partnership must include copies of all K-1s with its 1065 return, as well as provide each partner with a copy of his or her K-1.

³ Thomas received no more K-1s from the Partnership.

⁴ The development company, however, had ceased to exist in the summer of 1981.

⁵ 26 U.S.C. §7206(1) provides:

[Any person who] [w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter . . . shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 . . . or imprisoned not more than three years, or both, together with the costs of prosecution.

⁶ 26 U.S.C. §7203 provides:

Any person . . . required by this title or by regulations made under authority thereof to make a return . . . who willfully fails to . . . make such return . . . at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 . . . or imprisoned not more than 1 year, or both, together with the costs of prosecution.

⁷ 18 U.S.C. §1001 provides:

Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully . . . makes any false, fictitious or fraudulent statements or representations . . . shall be fined not more than $10,000 or imprisoned not more than five years, or both.

⁸ Bussey also argues that the instruction permitted the jury to find him guilty based on simple negligence. See Bussey's Brief at 19. Because the instruction expressly informed the jury that negligence or mistake did not constitute willfulness or knowledge, this contention is without merit.

⁹ Bussey vehemently contests this point. However, based on our standard of review, we must view this issue in the government's favor.

¹⁰ Bussey claims that he never received a K-1 for the years 1982-84. The Partnership's 1065 returns indicate that he was sent the K-1s. Based on our standard of review, we resolve this conflict in favor of the government.

¹¹ We also approved the willful blindness instruction in Graham on the basis that the instructions viewed as a whole required the jury to find that the defendant acted voluntarily and intentionally, and not because of an accident, mistake or other innocent reason. 739 F.2d at 353. In this case, the jury was similarly instructed: "The word 'willful' as used in [§§7203 and 7206 ] means the deliberate, voluntary and intentional violation of a known legal duty, as distinguished from careless, inadvertent or negligent action." Instruction 50.

¹² Steiner disputed Bussey's claim, testifying that Bussey never gave him any records for 1982.

¹³ It appears that Bussey's law firm filed its 1982 partnership tax return in August 1983. The HUD form, however, clearly requests the applicant to provide information concerning the applicant's previous year's tax return. Therefore, Bussey cannot convincingly argue that he believed the partnership return was sufficient.

¹⁴ Bussey makes this argument in his cursory statement of the facts of this case. See Bussey's Brief at 7.

¹⁵ Bussey's argument on this issue is as follows:

The Appellant maintains that Government did not prove an "affirmative act" of willful conduct. As a result Government failed to prove the essential element of willfulness as a matter of law. The "Jewell" instruction combined with prosecution's failure to prove affirmative willful act conduct allowed the jury to convict the Appellant based on a negligence or reckless standard which is inconsistent with requirements of the law.

Bussey's Brief at 20.

¹⁶ The district court did permit the witness to testify on other issues, but Bussey chose not to call him.

¹⁷ Federal Rule of Evidence 608(b) provides: "Specific instances of the conduct of a witness, for the purpose of attacking or supporting the witness' credibility . . . may not be proved by extrinsic evidence. They may, however, in the discretion of the court, if probative of truthfulness or untruthfulness, be inquired into on cross-examination of the witness. . . ."

¹⁸ We note that in his brief on this issue, Bussey raises arguments for the admission of Conway's testimony that he did not make in his offer of proof, e.g., "The issue herein was not the truthfulness or untruthfulness of Irl Steiner. It was the reasonableness of the Appellant's reliance on the accountant's advice." See Bussey's Brief at 34. Not only do we question the accuracy of Bussey's characterization of the issue, but because these arguments were not raised in the offer of proof, we will not consider them here.

 

 

 

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

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

[Code Secs. 7201 and 7206 ]

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

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

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

OPINION

TASHIMA, District Judge:

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

FACTS

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

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

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

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

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

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

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

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

STANDARDS OF REVIEW

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

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

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

DISCUSSION

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

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

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

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

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

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

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

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

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

A. The Curative Instruction

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

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

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

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

B. Extent of Other Evidence

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

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

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

II. Admission of Tax Returns and Statement of Racial Bias

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

A. Admission of Tax Returns

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

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

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

B. Admission of Statement Concerning Racial Bias

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

REVERSED and REMANDED.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"A. Yes, sir."

⁴ The judge instructed the jury:

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

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

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

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

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

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

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

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

 

 

 

 

 

[2000-1 USTC ¶50,355] United States of America, Plaintiff-Appellee v. Bonnie R. Rosco, Russell D. Rosco, Defendants-Appellants

(CA-9), U.S. Court of Appeals, 9th Circuit, 99-30109, 99-30117, 4/4/2000, Affirming an unreported District Court decision

[Code Sec. 7206 ]

Crimes: Filing false returns: Willfulness: Evidence: Harmless errors.--Married taxpayers who filed tax returns on which they claimed that their wages constituted nontaxable compensation were properly convicted of filing false returns. The evidence established that they had acted willfully. Despite the taxpayers' argument that they did not qualify as "employees" and did not earn "wages," they also failed to report nonemployee income. Also, the wife had taken tax preparation courses and had worked for the state (Washington) revenue department, and they were advised by numerous parties that their return position was wrong. Forms W-4 that were submitted reasonably close in time to the filing of the returns were properly admitted into evidence for their probative value as to the issue of willfulness. Moreover, the trial court's admission into evidence of the couple's tax return bearing the stamp "Frivolous Tax Penalty Assessed" was harmless error because it was more probable than not that the evidence did not materially affect the verdict. Other alleged errors were also deemed harmless.
[Code Sec. 7206 ]

Crimes: Filing false returns: Willfulness: Jury instructions.--Married taxpayers who submitted tax returns on which they claimed that their wages constituted nontaxable compensation were properly convicted of filing false returns. The taxpayers' challenges to two jury instructions regarding materiality were rejected. The instructions did not directly conflict with each other; one instruction pointed to the government's burden of showing that a misstatement affected the calculation of tax owed, while the second instruction properly relieved the government of the burden of showing an actual loss. Since the instructions presented an accurate statement of the law, the taxpayers were not entitled to have their proposed instruction on the issue of materiality given to the jury.
[Code Sec. 7206 ]

Crimes: Filing false returns: Willfulness: Prosecutorial misconduct.--Married taxpayers who submitted tax returns on which they claimed that their wages constituted nontaxable compensation were properly convicted of filing false returns. The prosecution's discussion of the wife's tax preparation training and its argument that the taxpayers were aware that their accountant had lost his license did not rise to the level of prosecutorial misconduct.

Robert A. Ellis, Assistant United States Attorney, Yakima, Wash., for plaintiff-appellee. Thomas M. Monaghan, Federal Defenders of Eastern Washington, Yakima, Wash., for Bonnie R. Rosco, Bonnie R. Rosco, Renton, Wash., pro se, John Maxwell, Jr., Yakima, Wash., for Russell D. Rosco.

Before: BROWNING, FLETCHER and GOULD, 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

The Appellants, Russell and Bonnie Rosco, were each convicted of filing false tax returns. On appeal, they argue that the evidence was insufficient to support the verdict and raise a number of issues regarding the fairness of their trial. The Appellants contend that the admission of their W-4 forms and an unredacted copy of their 1040 form was improper and that the prosecution engaged in misconduct during its closing which unfairly prejudiced their trial. We affirm the district court's judgment.

Bonnie and Russell Rosco filed form 1040 tax returns for the years 1992, 1993 and 1994 in which they claimed their wages were non-taxable compensation. The Roscos claimed a full refund for all sums withheld from their wages during those years and attached a four-page letter explaining their view that they were entitled to a refund. Later, the Roscos filed their 1040 form for the 1995 tax year and took the same position as they had in their previous returns. Each of these four tax returns and the explanatory letter was prepared by an accountant. The Internal Revenue Service (IRS) sent the Roscos a refund of $4,823 for their withholding in 1994. The Roscos' returns for 1992, 1993 and 1995 were determined to be frivolous by the IRS, triggering a criminal investigation. The Roscos were indicted for violating 26 U.S.C. §7206(1) by willfully making and subscribing to tax returns which they did not believe to be correct as to a material matter. A jury found both of the Roscos guilty. The Roscos moved for judgment of acquittal and for a new trial but both of these motions were denied by the district court.

The Appellants argue that there was insufficient evidence at trial to convict them. The issue of sufficiency of the evidence is evaluated based on "whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319, 61 L.Ed.2d 560, 99 S.Ct. 2781 (1979). Conviction under 26 U.S.C. §7206 (1) requires proof of four separate elements: (1) the defendant made and subscribed to income tax returns that contain false information as to a material matter; (2) the defendant knew this information was false; (3) the return contained a written declaration that it was being signed subject to the penalties of perjury; and (4) in making and filing the tax returns the defendant acted willfully. See United States v. Marabelles [84-1 USTC ¶9189], 724 F.2d 1374, 1380 (9th Cir. 1984).

The Appellants argue that there was not sufficient evidence that they acted willfully because the evidence supported the conclusion that the Roscos sincerely believed that their position as to the income tax law was correct. The Supreme Court interpreted the term "willfully" in United States v. Bishop [73-1 USTC ¶9459], 412 U.S. 346, 360, 36 L.Ed.2d 941, 93 S.Ct. 2008 (1973), as meaning "a voluntary, intentional violation of a known legal duty." The Court in Cheek v. United States [91-1 USTC ¶50,012], 498 U.S. 192, 202, 112 L.Ed.2d 617, 111 S.Ct. 604 (1991), elaborated that "the issue is whether, based on all the evidence, the Government has proved that the defendant was aware of the duty at issue, which cannot be true if the jury credits a good-faith misunderstanding and belief submission, whether or not the claimed belief or misunderstanding is objectively reasonable."

The Roscos' theory, according to the testimony of Bonnie Rosco and the four-page explanatory letter attached to their tax returns, was that the term "employee" as defined in the tax code did not include them, and that they did not earn "wages" as defined by the tax code. However, the Roscos also did not report Bonnie Rosco's social security income, the income from their vending business or any income earned from the sale of Herbalife products. The Roscos for a time ran a tax preparation business. Bonnie Rosco had taken courses at H&R Block and worked for the Washington State Department of Revenue. Both of the Roscos were repeatedly told by friends, employers and co-workers that their position as to their tax liability was wrong. Even under the Roscos' own theory, they should have reported the income from sources other than their employment. Taken together, all the admissible evidence from which inferences could be drawn was sufficient for a reasonable jury to find that the Roscos willfully filed false tax returns.

The Appellants also argue that the district court erred in giving two jury instructions which were in conflict on the issue of materiality and in failing to give the defendants' proposed jury instruction on the issue of materiality. We held, in United States v. Uchimura [97-2 USTC ¶50,671], 125 F.3d 1282, 1285 (9th Cir. 1997), that "information is material if it is necessary to a determination of whether income tax is owed." This was the substance of the first instruction given here. It explained that a statement was material if "necessary to determine whether income tax was owed." In United States v. Marashi [90-2 USTC ¶50,482], 913 F.2d 724, 736 (9th Cir. 1990), we reaffirmed that "it is irrelevant whether there was an actual tax deficiency." Another instruction, following this precedent, stated that the government "does not have to prove that there was a tax due and owing" or that the government suffered a loss. These instructions do not directly conflict with each other as one instruction points to the government's burden to show that a misstatement affected the calculation of tax owed while the other instruction properly relieved the government of the burden to show an actual loss. These instructions gave an accurate statement of the law. Therefore, the defendant was not entitled to the proffered instruction.

The Appellants further argue that the district court improperly allowed the Roscos' W-4 forms to be admitted at trial because they were never charged with filing false W-4 forms. In United States v. Bergman [87-1 USTC ¶9268], 813 F.2d 1027, 1029 (9th Cir. 1987), a case involving a criminal prosecution for willful failure to file federal income tax returns, we held that the filing of a false W-4 form was "evidence of 'other crimes' under Rule 404(b)." However, in that case, we further held that the W-4 forms were admissible because they were similar, close in time and highly probative on the issue of willfulness for the pending charge. See id. The facts in this case are very close to the facts of Bergman. Here, as there, the W-4 forms were introduced for the probative value on the issue of willfulness. As in Bergman, the W-4 forms in this case raise similar issues and are reasonably close in time to the filing of the 1040 returns. Therefore, the district court did not clearly abuse its discretion in admitting the W-4 forms.

The Appellants argue that the admission of the Roscos' 1995 1040 form with the stamp "Frivolous Tax Penalty Assessed" constituted inadmissible hearsay. Initially, the district court explicitly required the prosecution, in order to admit the evidence, to show that the information stamped on the return by the IRS had been conveyed to the Roscos. The district court later reversed itself, in denying the motion for mistrial, and stated that "whether or not it was conveyed" it remained the opinion of the IRS. Given the district court's initial ruling and the prosecution's failure to present evidence of the communication of the "frivolous" designation to the Roscos before the admission of this evidence, the district court abused its discretion in admitting the unredacted 1040 form because the form's probative value was substantially outweighed by the danger of unfair prejudice.

An error is not harmless "unless it is more probable than not that the error did not materially affect the verdict." United States v. Morales, 108 F.3d 1031, 1040 (9th Cir. 1997). The Roscos argue that the stamp suggested that they were informed by the IRS that their position was frivolous and, therefore, went to the issue of willfulness. In cross-examination, the defense counsel clearly brought out that there was no letter or phone communication from the IRS to the Roscos regarding this "frivolous" designation. Therefore, it is more probable than not that this evidence did not materially affect the verdict, making the error harmless.

The Appellants also argue that prosecutorial misconduct occurred during their trial because of the government's suggestion that conviction was necessary to insure a civil penalty and because of the violation of the motion in limine regarding questioning concerning membership in the "militia." The district court took very seriously the negative implications that linking the Roscos to the "militia" would have in the eyes of many jurors. However, the prosecutor did not seek to elicit the response regarding the "militia." The witness mentioned the "militia" only once to explain that Bonnie Rosco stated she was not involved. The district court properly instructed the jurors to disregard the entire statement. On cross-examination, defense counsel further emphasized Bonnie Rosco's lack of connection with the "militia." Therefore, the district court was correct in determining that this error was harmless.

On re-cross examination of Russell Rosco, the government asked: "Certainly you're aware, Mr. Rosco, that if you're convicted of this crime one of your obligations will be to pay back the United States the money you've taken?" The Appellants argue that this question suggested to the jury that absent a conviction the Roscos would not have to repay the tax refund. In United States v. Frank, 956 F.2d 872, 879 (9th Cir. 1992), we reaffirmed prior holdings maintaining that the jury is not to be concerned with the penalty or punishment to be imposed on the defendant. However, we also held, in United States v. Salcedo-Lopez, 907 F.2d 97, 99 (9th Cir. 1990), that restitution is not the same as punishment. The repayment of the mistaken tax refund would be a form of restitution rather than punishment. The district court was correct in its conclusion that the defendants were not significantly harmed by this question.

The Appellants also claim that the prosecution improperly argued in its closing that the Roscos were aware that their accountant had lost his license and that classes taken by Bonnie Rosco at H&R Block had gone beyond the preparation of tax forms. It is not misconduct for "the prosecutor to argue reasonable inferences based on the record." United States v. Atcheson, 94 F.3d 1237, 1244 (9th Cir. 1996). In addition, a prosecutor may express doubt about the veracity of a defendant witness' testimony. See United States v. Birges, 723 F.2d 666, 672 (9th Cir. 1984). However, a prosecutor may not "misstate, or exceed the evidence in any significant respect." United States v. Parker, 549 F.2d 1217, 1222 (9th Cir. 1977).

The prosecution's discussion of Bonnie Rosco's training at H&R Block was not improper. The prosecution recited facts in evidence regarding the variety of classes which she had taken with H&R Block and then recited her testimony about what she learned from these classes. The prosecution was entitled to challenge her veracity. The prosecution's reference to the Roscos' use of the accountant as an "escape hatch" was a bit of hyperbole that may over state the case, but does not rise to the level of prosecutorial misconduct.

Based on the foregoing reasons, we AFFIRM the district court's judgment.

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 Cir. Rule 36-3.