Restitution

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7206- Fraud and False Statements: Restitution

   

[97-2 USTC ¶50,636] United States of America , Appellee v. Milton Gottesman, Defendant-Appellant

(CA-2), U.S. Court of Appeals, 2nd Circuit, 96-1674, 9/3/97 , Affirming in part, vacating in part and remanding in part an unreported District Court decision

[Code Secs. 7203 and 7206 ]

Crimes: Tax evasion: Failure to file: Guilty plea: Restitution: Court-ordered: Power to award.--A district court was not authorized to order an individual, who pleaded guilty to making a false application for an extension of time to file and to failure to file, to pay restitution to the IRS. Pursuant to a written plea agreement, the individual agreed to pay his delinquent taxes according to a plan that was to be negotiated by him and the IRS. Although sentencing courts may order restitution in criminal cases to the extent agreed to by parties to a plea agreement, the language of the individual's agreement did not mention restitution. Thus, the individual did not agree to pay restitution; rather, he promised to make payments under an arrangement with the IRS.

Alex Young K. Oh, Assistant United States Attorney, New York , N.Y. 10007 , for appellee. David A. Lewis, The Legal Aid Society, Federal Defender Division Appeals Bureau, New York, N.Y., for defendant-appellant.

Before: WALKER, MCLAUGHLIN, and PARKER, Circuit Judges.

Defendant appeals his sentence because it imposed an order of restitution. (Sotomayor, J.) (S.D.N.Y.) He contends that the power to award restitution is statutory, and no statute allowed the district court to order restitution for violations of Title 26, the Title under which Gottesman was convicted.

AFFIRMED IN PART, VACATED IN PART, AND REMANDED.

BACKGROUND

MCLAUGHLIN, Circuit Judge:

In February 1996, the government charged Milton Gottesman in a two-count information. Count One charged Gottesman with making a false Application for Automatic Extension of Time to File a United States Individual Tax Return, in each year from 1988 through 1991, in violation of 26 U.S.C. §7206(1). Count Two charged him with failing to file income tax returns for 1988 through 1991, in violation of 26 U.S.C. §7203.

Gottesman waived his right to be charged in an indictment and pled guilty to both counts in the information pursuant to a written plea agreement. The plea agreement contained a paragraph which read:

It is understood that, prior to the date of sentencing, [Milton Gottesman] shall file accurate income tax returns for the years 1986 through 1991. Milton Gottesman will pay past taxes due and owing to the Internal Revenue Service ("IRS") by him for the calendar years 1986 through 1991, including any applicable penalties, on such terms and conditions as will be agreed upon between Milton Gottesman and the IRS.

The Agreement also contained a typical merger clause stating that "[t]here are no promises, agreements, or understandings between this Office, the Tax Division, Department of Justice, and the Defendant other than those set forth herein." The plea agreement was silent as to the applicable Sentencing Guidelines.

Gottesman entered his guilty plea before Judge Sonia Sotomayor (S.D.N.Y.). During the plea colloquy, there was no mention, either by Judge Sotomayor or the prosecutor, of the possibility that Gottesman would be subject to court-ordered restitution. Judge Sotomayor accepted Gottesman's plea and set a date for sentencing.

The Probation Department then prepared a Presentence Report. It determined that the 1991 Sentencing Guidelines applied and that under section 1B1.3 thereof, the district judge might consider the defendant's "relevant conduct" when setting a sentence. Relevant conduct can include acts that did not form the basis of a charge in the indictment or information. The Probation Department thus concluded that Gottesman's relevant conduct included not only the tax evasion from 1988 through 1991 (for which he was charged and to which he pled guilty), but also tax evasion from 1986 through 1987.

The Probation Department determined that the loss of tax revenue from 1986 though 1987 was $83,426, and the loss of tax revenue from 1988 through 1991 was $166,016, for a total loss of tax revenue of $249,442. Under section 2T4.1 of the 1991 Guidelines, when a defendant causes over $200,000 in tax loss, the applicable offense level is 14 and the Probation Department recommended that Judge Sotomayor reduce it by two levels under section 3E1.1(a) for Gottesman's acceptance of responsibility. With the final offense level of twelve, and Gottesman's Criminal History Category of I, the applicable sentencing range was ten to sixteen months.

In October 1996, Judge Sotomayor, noting that Gottesman had not filed tax returns for twenty years, sentenced Gottesman to 12 months' imprisonment, followed by one year of supervised release. She also required that, at the end of his supervised release, Gottesman sign a confession of judgment and make full restitution of the $249,442. Judge Sotomayor ordered that Gottesman pay the government 10% of his income until the full tax debt was paid.

Gottesman appeals the portion of his sentence ordering him to make restitution.

DISCUSSION

Gottesman's sole argument on appeal is that a court's power to award restitution is statutory, and no statute allowed Judge Sotomayor to order restitution for violations of Title 26, the Title under which Gottesman was convicted.

A. Court-Ordered Restitution in Title 26 Cases

"Federal courts have no inherent power to order restitution. Such authority must be conferred by Congress" through statute. United States v. Helmsley [91-2 USTC ¶50,455], 941 F.2d 71, 101 (2d Cir. 1991). Section 3663 of Title 18 of the United States Code is the statute that empowers a sentencing court to order restitution. This section specifies the crimes for which a court may order restitution; and the tax crimes of Title 26 are not listed. However, §3663(a)(3) provides that a sentencing court "may . . . order restitution in any criminal case to the extent agreed to by the parties in a plea agreement." 18 U.S.C. §3663(a)(3) (emphasis added); see United States v. Silkowski, 32 F.3d 682, 689 (2d Cir. 1994).

The government contends that the language of the agreement that "Gottesman will pay past taxes due and owing to the IRS, . . . on such terms and conditions as will be agreed upon between . . . Gottesman and the IRS," is sufficient under 18 U.S.C. §3663(a)(3) to empower the district court to order restitution for the amount of taxes due and owing. Gottesman answers that he never agreed to court-ordered restitution, and thus §3663(a)(3) has no application. Gottesman asserts that he agreed only to pay back taxes according to a plan later to be negotiated between himself and the IRS--not as ordered by a court. And no such plan was ever negotiated.

B. Language in Plea Agreements Contemplating Court-Ordered Restitution

Not to put too fine a point on it (as Snagsby was wont to say in Bleak House), it would seem self-evident that for a court to order restitution under §3663(a)(3), the plea agreement might be expected to mention the word "restitution." In United States v. Broughton-Jones, the defendant argued that the district court erred in ordering him to pay restitution in an amount greater than the loss attributable to the offense of conviction. 71 F.3d 1143, 1147-48 (4th Cir. 1995). The Fourth Circuit, reasoning that under 18 U.S.C. §3663(a)(3) a sentencing court could order restitution in any amount agreed to in a plea agreement, and that such an agreement "may authorize restitution in an amount greater than the loss attributable to the offense of conviction[,]" examined the plea agreement to discern if there was any arrangement regarding restitution. Id. at 1147-48. The court held that, because restitution was not mentioned in the plea agreement, the district court could not order restitution under 18 U.S.C. §3663(a)(3).

Here, while the plea agreement does not include the word "restitution", it is certain that the government anticipated some tax payment by Gottesman. The only question is whether Gottesman understood that these reparations could be ordered by a court.

Section 3663(a)(3) is straightforward: "court[s] may also order restitution in any criminal case to the extent agreed to by the parties in the plea agreement." 18 U.S.C. §3663(a)(3) (emphasis added). Two consequences flow from this language. First, the court can order restitution only in an amount not to exceed that agreed upon by the parties. See, e.g., United States v. Bartsh, 985 F.2d 930, 933 (8th Cir. 1993). Second, a court can order restitution only if the parties agreed that a court may do so. Cf., e.g., Silkowski, 32 F.3d at 689; United States v. Stover, 93 F.3d 1379, 1382 (8th Cir. 1996); United States v. Osborn, 58 F.3d 387, 388 (8th Cir. 1995).

In United States v. Stout, the Fifth Circuit faced circumstances analogous to those presented in this appeal. See 32 F.3d 901 (5th Cir. 1994). In Stout, the defendant promised in his written plea agreement to "resolve" his tax liability. The sentencing judge ordered the defendant to make restitution of his tax liability as a condition of his supervised release. On appeal, the defendant argued that he never promised "to pay those taxes or to make restitution[, but] that he was obligated only to negotiate a settlement with the IRS." Id. at 904. The Fifth Circuit agreed and held that because the defendant never promised in the plea agreement to pay restitution, agreeing only to "resolve" his tax liability, the district court was not empowered to order restitution.

The need for precise language in §3663(a)(3) cases is driven by the policy that plea agreements, like contracts, are instruments used to protect the rights and expectations of the parties. See United States v. Harvey , 791 F.2d 294, 300 (4th Cir. 1986). Hence, plea agreements get a contract law analysis, see United States v. Yemitan, 70 F.3d 746, 787 (2d Cir. 1995), tempered with an awareness of "due process concerns for fairness and . . . adequacy," United States v. Ready, 82 F.3d 551, 558 (2d Cir. 1996) (internal quotations and citations omitted).

As with any contract in which the drafting party has an overwhelmingly superior bargaining position, plea agreements are construed strictly against the government. See Ready, 82 F.3d at 559. Here, the district court failed to guard Gottesman's expectations. While the government certainly contemplated that Gottesman would make tax payments, it was also apparent that the terms of payment were yet to be negotiated by Gottesman and the IRS--not imposed by court order. The plea agreement plainly states that Gottesman "will pay past taxes due and owing . . . on such terms and conditions as will be agreed upon between Milton Gottesman and the IRS." The agreement, in no uncertain terms, reserved for Gottesman the right to negotiate a method of payment with the IRS. Court-ordered restitution, with a court-devised payment plan, was not part of the bargain.

We have recognized in the Rule 11 context a similar need for precision of language to protect a defendant's expectations in a plea agreement. In United States v. Showerman, 68 F.3d 1524, 1528 (2d Cir. 1995), this Court reviewed a defendant's claim that the district court violated Federal Rule of Criminal Procedure 11(c) when it failed to mention during the plea allocution the possibility that the defendant would be subject to an order of restitution. See Fed. R. Crim. P. 11(c)(1) ("the court must address the defendant personally . . . and inform [him] . . . that the court may . . . order the defendant to make restitution to any victim of the offense"). The district court in Showerman made no mention of restitution during the plea colloquy, and the plea agreement, while it mentioned the defendant's agreement to make restitution, "made no reference to the court's power to order restitution as part of the sentence." Showerman, 68 F.3d at 1528 (emphasis added). The Showerman court therefore vacated the sentence and remanded the case to the district court for a new Rule 11 hearing.

Because the agreement between Gottesman and the government did not contemplate court-ordered restitution, the district court did not have the power to order restitution under 18 U.S.C. §3663(a)(3).

We vacate only that portion of the district court's sentence that imposed restitution, and otherwise affirm the sentence. We therefore remand to the district court with instructions to withdraw its direction to make restitution. See 18 U.S.C. §3742(f)(1).

CONCLUSION

Accordingly, we vacate that portion of the district court's sentence that imposes an order of restitution, otherwise affirm the sentence, and remand to the district court for a disposition consistent with this opinion.

 

 

[99-1 USTC ¶50,244] United States of America , Plaintiff-Appellee v. Kelvin L. Dunigan, Defendant-Appellant

(CA-6), U.S. Court of Appeals, 6th Circuit, 97-5980, 1/8/99 , 163 F3d 979, Reversing and remanding an unreported District Court decision

[Code Sec. 7206 ]

Crimes: Fraud: False refund claims: Restitution: Ability to pay: Abuse of discretion.--The trial court abused its discretion by ordering an individual who conspired to solicit individuals to file false refund claims to pay restitution to the government. In determining the amount of restitution, the court did not adequately consider the individual's ability to pay, which was one of the sentencing factors listed in 18 U.S.C. §3664(a). Although the court noted that the individual was intelligent and capable of employment, it had no basis to conclude that he could pay the amount of restitution ordered.

Robert E. Lindsay, Alan Hechtkopf, Frank P. Cihlar, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. Deirdra J. Brown, Assistant Federal Public Defender, Federal Public Defender Services of East. Tenn. , Inc., Chattanooga , Tenn. , for defendant-appellant.

Before: MERRITT and COLE, Circuit Judges, and EDMUNDS, District Judge. ^*

OPINION

COLE, JR., Circuit Judge:

Defendant-Appellant Kelvin L. Dunigan appeals the district court's judgment which requires him to pay full restitution in the amount of $311,605. Dunigan argues that the district court abused its discretion by ordering full restitution because it did not adequately consider his financial condition and ability to pay. For the following reasons, we REVERSE the judgment of the district court and REMAND for further proceedings consistent with this opinion.

I.

This case arose from Dunigan's organization of and participation in a scheme to obtain the payment of false refund claims from the Internal Revenue Service (IRS). Dunigan solicited individuals living in public housing projects in Chattanooga to file false 1991 and 1992 income tax returns. The individuals used their true names and social security numbers; however, Dunigan, or an individual working for Dunigan, supplied false W-2 forms that set forth fabricated employment and salary information for the individuals filing the returns. Additionally, Dunigan encouraged the individuals to list nonexistent dependent children on the returns so that they could file as a head-of-the-household and obtain earned income tax credit.

Dunigan instructed the individuals to file the false returns electronically in order to request refund anticipation loans, or "rapid refunds." When a recruited individual received a check for the fraudulent refund, Dunigan, or someone at his direction, would escort the individual to a check-cashing business. To facilitate the cashing of the checks, Dunigan would assist the individuals who filed the false returns to obtain photographic identity cards. Typically, the individual who filed the return received approximately $500. If another person recruited the individual to file the false tax return, that person received $100 to $200. Dunigan kept the balance of the refund.

As a result of Dunigan's scheme, fifty-four false claims for refunds were filed for the 1991 tax year and sixty-four false claims for refunds were filed for the 1992 tax year. Dunigan netted $319,171, of which the IRS was able to recover $7,566. Dunigan owes the remaining $311,605 to three separate banks, all of which made the refund anticipation loans, and to the IRS.

On February 19, 1997 , the grand jury charged Dunigan with one count of conspiring to defraud the United States by obtaining or aiding to obtain the payment or allowance of false, fictitious or fraudulent claims, in violation of 18 U.S.C. §286; and thirteen counts of making and presenting to the IRS claims for payment which he knew to be fictitious and fraudulent, in violation of 18 U.S.C. §§2 and 287. Thereafter, Dunigan entered into a plea agreement whereby he pleaded guilty to the conspiracy count.

The Presentence Report (PSR) recommended that the court order Dunigan to pay full restitution. Dunigan objected to a number of items in the PSR, including the amount of recommended restitution. At the sentencing hearing, the district court adopted the factual findings and the recommended application of the guidelines as set forth in the PSR. With respect to restitution, the district court stated:

Consider the amount of the loss, consider the defendant's financial resources. It's true that the defendant does not have a lot of financial resources right now, but this defendant as evidenced by this scheme that he cooked up here to defraud the government has a lot of ability.

I mean, this defendant is not without ability and not without intelligence and he has no dependents as I understand it.

* * *

I just think we should set our sights high in this case. It may be in the long run that the defendant is not able to pay all this restitution, but after considering all the factors mentioned in the statute, I do believe that he should be given that opportunity.

* * *

And I can't say that he does not have the ability to pay over a period of years. I think I just pointed out [a] while ago that he does have a lot of ability. And he may be able to pay and may not, but I think that at least at this point anything less than full restitution would be an injustice to the public. So, I think he should restitute the whole amount of restitution.

The district court sentenced Dunigan to 31 months' imprisonment, three years of supervised release, an assessment of $50 and full restitution in the amount of $311,605. This timely appeal followed.

II.

Dunigan challenges the district court's order of restitution in the amount of $311,605.00, arguing that the court had no basis to conclude that he would be able to pay that amount. ¹ We review de novo whether a restitution order is permitted under the law. See United States v. Comer, 93 F.3d 1271, 1278 (6th Cir.), cert. denied, 117 S. Ct. 595 (1996). If it is, "we then review the amount ordered under the abuse of discretion standard." Id. (citations omitted).

In determining the amount of restitution that should be ordered, a sentencing court is required to consider the factors listed in 18 U.S.C. §3664(a), ² including the defendant's ability to pay. See United States v. Bondurant, 39 F.3d 665, 668 (6th Cir. 1994). The court must "consider the amount of the loss sustained by any victim as a result of the offense, the financial resources of the defendant, the financial needs and earning ability of the defendant and the defendant's dependents, and such other factors as the court deems appropriate." Id. (citing 18 U.S.C. §3664(a)).

Dunigan argues that the district court's order of restitution in the amount of $311,605 to be paid within the three-year period of supervised release following his incarceration "clearly exceeds [his] earning potential and ability to pay." Dunigan contends that absent "a miracle," his limited educational background and vocational skills will not enable him to satisfy the restitution order, and the restitution order serves only to "[set him] up for repeated failure."

We share Dunigan's concerns. At the time of sentencing, Dunigan was twenty-eight years old and indigent. Dunigan's educational background includes graduating high school ranked third in his class and completing some college-level course work. Dunigan claims his only assets are two cars, valued at $600 and $500 respectively; however, the PSR indicated that Dunigan's cars were valued at $600 and $3,800 (with a loan balance of $500) and that Dunigan owns tools valued at $150. Dunigan also has "various other miscellaneous debts" and an account balance of $300 at Heilig Meyers department store. Dunigan argues that to satisfy the restitution order he would have to clear $8,656 per month, after taxes, every month for the three-year period of his supervised release. Based on his recent employment history of working at Vita Foam as a foam-cutter for $200 per week and performing handyman jobs for approximately $1000 a month, Dunigan asserts that it will be impossible for him to satisfy the restitution order. Accordingly, Dunigan claims that the district court did not properly consider his financial resources and earning ability, as required by 18 U.S.C. §3664(a).

Dunigan additionally argues that public policy dictates that a district court must give adequate consideration to a defendant's ability to pay. Relying on an Eleventh Circuit case, United States v. Fuentes, 107 F.3d 1515 (11th Cir. 1997), Dunigan contends that restitution orders in amounts that a defendant cannot likely repay "effectively eliminate the mandate of section 3664(a) that the sentencing court consider the defendant's ability to pay." Id. at 1529.

We conclude that the district court did not adequately consider Dunigan's ability to pay, one of the factors set out in 18 U.S.C. §3664(a). Although the district court noted that Dunigan was intelligent and capable of employment, the district court had absolutely no basis on the record before it to conclude that Dunigan would be able to pay in excess of $8000 per month to satisfy his obligation; in fact, the district court expressed considerable doubt that Dunigan ever would be able to pay. The district court therefore abused its discretion by ordering Dunigan to pay that amount. See id. (stating that "[a] district court abuses its discretion when it orders restitution in an amount that it finds the defendant is not likely to be able to pay"). Like the Fuentes court, we believe that ordering restitution in an amount that a defendant cannot possibly pay "threatens respect for judicial orders generally" and provides the defendant with "less incentive to seek remunerative, rehabilitative, and non-criminal employment." Id. (citation and quotation omitted).

We recognize that the burden is on the defendant to establish a lack of financial resources. See United States v. Blanchard, 9 F.3d 22, 25 (6th Cir. 1993). We believe that Dunigan has met his burden in this case by establishing that "absent a miracle," he will not be able to satisfy his restitution obligation. Accordingly, we hold that a district court must have, at a minimum, some indication that a defendant will be able to pay the amount of restitution ordered in order to comply with 18 U.S.C. §3664(a). In this case, the district court abused its discretion by failing to do so.

III.

For the foregoing reasons, we REVERSE the judgment of the district court and REMAND for further proceedings consistent with this opinion.

^* The Honorable Nancy G. Edmunds, United States District Judge for the Eastern District of Michigan, sitting by designation.

¹ At the outset, Dunigan alleges an ex post facto violation because he asserts that the district court relied upon the mandatory restitution provisions set forth in 18 U.S.C. §§2248 and 3663A, which were enacted as a result of the Mandatory Victims Restitution Act of 1996 (MVRA). Dunigan argues that although he was sentenced after the enactment of the MVRA, he committed the offenses before the enactment of the MVRA; hence, the ex post facto problem. In support of his argument, Dunigan notes that the PSR referred to U.S.S.G. §5E1.1, which requires mandatory restitution for offenses committed after Nov. 1, 1997 , if such restitution is authorized by law. In citing to the applicable restitution statute, however, the PSR referred to 18 U.S.C. §3663(a), which provides for discretionary restitution. Moreover, upon Dunigan's objections to the PSR, the probation officer clearly stated that the decision to order restitution was within the sound discretion of the district court. Finally, in sentencing Dunigan, the district court gave no indication that it considered restitution to be mandatory in this case. Because the district court did not rely upon the mandatory restitution provisions, Dunigan's ex post facto argument lacks merit.

In addition, the government did not argue that the MVRA was in fact applicable in this case; therefore we need not address that issue or the issue of whether the application of the MVRA in these circumstances would violate the ex post facto clause.

² Title 18 U.S.C. §3664(a) provides in part that "[t]he [presentence] report shall include, to the extent practicable, a complete accounting of the losses to each victim, any restitution owed pursuant to a plea agreement, and information relating to the economic circumstances of each defendant."

 

 

[98-2 USTC ¶50,765] United States of America , Appellee v. David S. Bok, Defendant-Appellant

(CA-2), U.S. Court of Appeals, 2nd Circuit, 97-1595, 9/8/98, 156 F3d 157, 156 F3d 157. Affirming an unreported District Court decision

[Code Secs. 301 , 316 , 7201 and 7206 ]

Return of capital: Sole stockholder: Burden of production, failure of taxpayer to meet: Jury instructions: Fraud and false statements: Tax evasion.--The sole shareholder of a construction company was properly convicted of tax evasion and making false statements on corporate income tax returns despite the trial court's refusal to instruct the jury that funds he withdrew from the corporation but failed to report on his personal return qualified as a nontaxable return of capital. Although the "no earnings and profits, no income" rule regarding return of capital was applicable, the taxpayer failed to produce evidence that the corporation lacked earnings or profits for the tax year at issue.
[Code Secs. 7201 and 7206 ]

Penalties, criminal: Sentencing guidelines: Restitution.--The trial court did not exceed its authority by requiring a sole shareholder who had been convicted of tax evasion and making false statements on a corporate income tax return to pay 10% of his gross monthly income against his personal tax liability for the tax year at issue. Under the Sentencing Guidelines of 1990, the court could order restitution as a condition of the taxpayer's supervised relief.
[Code Sec. 7206 ]

Fraud and false statements: Materiality determined by jury.--It was within the discretion of the trial court to permit the jury to decide whether false statements made by a sole shareholder on the corporation's tax returns were material.

Mary Jo White, United States Attorney, Jeremy H. Temkin, Craig A. Stewart, Assistant United States Attorneys, New York, N.Y., for appellee. John L. Pollok, Hoffman, Pollock & Pickholz, 260 Madision Ave. , New York , N.Y. 10016 , for defendant-appellant.

Before: CALABRESI, CABRANES and STRAUB, Circuit Judges.

Appeal from a conviction by a jury in the United States District Court for the Southern District of New York (John G. Koeltl, Judge) for attempted income tax evasion and for making false statements on corporate income tax returns. We hold that the trial court properly found that because the defendant failed to meet his burden of production, a jury instruction on the nontaxability of a shareholder's return of capital was not appropriate. We further hold that the trial court did not err in its instruction on the materiality of false statements on a tax return, that it properly admitted evidence of other acts under Rule 404(b), and that it permissibly ordered appellant to make payments against his personal income tax liability as a condition of supervised release.

Affirmed.

STRAUB, Circuit Judge:

David S. Bok appeals from a conviction by a jury before Judge Koeltl for attempted income tax evasion in violation of 26 U.S.C. section 7201 and for making false statements on corporate income tax returns in violation of 26 U.S.C. section 7206(1). Bok's appeal raises several issues. First, he argues that the trial court erred in not instructing the jury that a distribution of money he received from a corporation in which he was the sole shareholder may have constituted a nontaxable return of capital. Bok also challenges the trial court's instruction to the jury on the materiality of the false statements he made on the corporate returns he signed. Third, Bok alleges that the trial court improperly admitted evidence of his not filing various state and federal tax returns--which were not at issue in the indictment--to prove intent under Rule 404(b) of the Federal Rules of Evidence. And finally, Bok contends the trial court's requirement that he contribute ten percent of his gross monthly income towards his outstanding personal tax liability as a condition of supervised release violates 28 U.S.C. section 3663.

Having considered these arguments, we affirm in all respects.

BACKGROUND

Bok was in the construction contracting business in 1988 and 1989, during which time he was the president and sole shareholder of Abacus Construction Corp. Abacus had numerous clients both for commercial and residential projects, mostly in Manhattan . In the years before 1988, Bok had occupied a similar position with Abacus's predecessor corporation and, immediately before that, had attended and graduated from law school, having passed courses in both personal and corporate taxation.

Bok ran into trouble with the Internal Revenue Service in the early 1990s because he had not filed a personal income tax return for the 1988 tax year, and because Abacus had not filed corporate returns for 1988 and 1989. Responding to the IRS's requests, Bok eventually filed all three returns, in each case using the services of an accountant to prepare them. The accountant testified that he in turn had based his work on information provided by Bok. When Bok did file Abacus's corporate returns, there were significant discrepancies between Abacus's reported gross receipts and its actual gross receipts as suggested by a review of the company's bank statements. Similar discrepancies existed with respect to Bok's personal return for 1988, on which he had failed to include over $200,000 he had received from Abacus that year.

Specifically, for the 1988 tax year, a review of Abacus's bank statements indicated that the company had gross receipts of between $3.9 million and $4.8 million. Abacus's tax return for that year reflected gross receipts of just below $410,000. Similarly in 1989, Abacus's bank statements indicated gross receipts of just over $2 million, while its tax return reported slightly less than $405,000.

Bok's 1988 individual tax return listed his gross income as $58,154, only $16,700 of which derived from Abacus. During 1988, however, Bok used $202,765 of Abacus's assets to purchase a condominium in Manhattan , which Bok used as a personal residence. Also in 1988, Bok used $20,122.22 of Abacus's funds to purchase municipal bonds in his own name. In neither case did Bok disclose to his accountant his appropriation of Abacus's funds, and his personal income tax return in no way reflected his appropriation of those funds.

Bok was indicted and tried on one count of attempted personal tax evasion and two counts of making false statements on an income tax return. A jury convicted him on all three counts, and the trial court sentenced him to thirty months' incarceration and three years' supervised release. In addition, as a condition of Bok's supervised release, the trial court required Bok's cooperation in calculating the amount of back taxes that he owed to the government and ordered that Bok pay ten percent of his gross monthly income towards his individual tax liability for 1988 (up to a total of $45,000). As outlined above and discussed in greater detail below, Bok challenges his conviction on several grounds. After considering Bok's arguments, we conclude that the trial court committed no error and therefore affirm.

DISCUSSION

I. JURY INSTRUCTIONS

Two discrete portions of Bok's jury instructions are before us on appeal. First, we must determine whether the trial court erred in not instructing the jury that the money Bok took from Abacus to pay for the condominium and municipal bonds may have been an untaxable return of capital. Second, we analyze whether the trial court improperly prevented the jury from deciding the materiality of Bok's misstatements on Abacus's corporate tax returns.

As an initial matter, "[a] jury instruction is erroneous if it misleads the jury as to the correct legal standard or does not adequately inform the jury on the law." United States v. Dinome, 86 F.3d 277, 282 (2d Cir. 1996) (internal quotation marks omitted). We review challenged jury instructions de novo but will reverse only if all of the instructions, taken as a whole, caused a defendant prejudice. See United States v. Locascio, 6 F.3d 924, 939 (2d Cir. 1993) (citing United States v. Pujana-Mena, 949 F.2d 24, 27 (2d Cir. 1991)), cert. denied, 511 U.S. 1070 (1994). With respect to both instructions, the government argues that Bok did not object to the court's actual charge and that therefore he may only challenge portions of it if the trial court's decisions amount to plain error under Rules 30 and 52(b) of the Federal Rules of Criminal Procedure. See Johnson v. United States , 520 U.S. 461, --, 117 S. Ct. 1544,1548 (1997). Bok admits that he did not object at the proper time to the materiality issue and that the plain error standard applies. He does not explicitly accept or deny the government's contention with respect to the instruction on calculation of his income. It is, however, not necessary in this case for us to determine whether to use plain error analysis or whether the usual harmless error standard applies because neither of the trial court's instructions was erroneous.

A. RETURN OF CAPITAL

On the morning of the last day of the government's case, one day before the trial court submitted the case to the jury, Bok presented the court with several additional requests to charge. One of them concerned the treatment for tax purposes of money withdrawn by a shareholder from a corporation. Through that proposed charge, Bok sought to characterize the money he received from Abacus for his condominium and his municipal bonds as a nontaxable return of capital that he had invested in the corporation rather than as a taxable dividend. The proposed charge read as follows:

RETURN OF CAPITAL NON-INCOME TRANSACTION

If a shareholder in a corporation withdraws his capital from that corporation, either all or part of that withdrawal is not income to the shareholder, and need not be reflected on that shareholder's personal income tax return. The same treatment occurs if the shareholder directs the corporation to pay to a third party for his benefit all or part of his capital contribution.

Defendant's Additional Requests to Charge at 2. The government opposed the use of the proposed charge, arguing both that it was not legally correct as written and that there was no basis in fact for its inclusion in the charge as a whole.

After entertaining arguments from both sides, the trial court decided against including Bok's proposed charge as written. The trial judge did invite Bok to work with the government to craft a more correct statement of the law, but the two sides evidently never reached agreement on an instruction. The trial judge went on to say that, in keeping with his obligation to instruct the jury correctly on the law, he had included a charge "about a corporate distribution and how that can be income." Trial Transcript at 963. Ultimately the relevant portion of the charge read as follows:

Gains or profits and income derived from any source whatever are included in gross income for the purpose of taxation of income. This includes both lawful and unlawful gains.

In order to prove that the defendant received substantial additional income omitted from his tax return, the government has introduced evidence that the defendant was the sole shareholder, or owner, of Abacus Construction Corp., a corporation, and received certain funds or assets from the corporation for the purchase of an apartment and a bond.

If you find that the defendant obtained such funds, or assets, or other property from Abacus Construction Corp., then you should proceed to determine whether this was income to the defendant.

In this connection, the question for you to determine is whether the defendant had control over the funds, or assets, or other property from that corporation, took it as his own and treated it as his own, so that as a practical matter he derived economic value from the funds, or assets, or other property received. If you find this to be the case, then the funds, or assets, or property received by the defendant would be income; if you do not find this to be the case, then the funds or assets or other property obtained by the defendant would not be income to the defendant.

Trial Transcript at 1126-27.

We have long recognized that under certain circumstances monies lawfully withdrawn from a corporation by one of its shareholders may constitute a nontaxable return of capital. See United States v. D'Agostino [98-1 USTC ¶50,380], 145 F.3d 69, 72 (2d Cir. 1998); DiZenzo v. Commissioner [65-2 USTC ¶9518], 348 F.2d 122, 125 (2d Cir. 1965). A central condition for the application of the return capital theory--which we have also called the "no earnings and profits, no income" rule--is that the corporation must not have earned a profit for the year in which the withdrawal was made. See D'Agostino [98-1 USTC ¶50,380], 145 F.3d at 72. Under this theory, if a shareholder has invested capital in a corporation and the corporation has not earned a profit for the year at issue, any monies the shareholder removes from the corporation (up to the amount of invested capital) constitute only a return of the shareholder's basis, not dividend income.

The return of capital theory derives from the Internal Revenue Code itself, which defines the term "dividend" to mean "any distribution of property made by a corporation to its shareholders . . . OUT OF ITS EARNINGS AND PROFITS OF THE TAXABLE YEAR, . . . without regard to the amount of the earnings and profits at the time the distribution was made." 26 U.S.C. section 316(a)(2) (1994) (emphasis added). The Code further provides that "[t]hat portion of the [corporate] distribution [of property to its shareholders] which is not a dividend shall be applied against and reduce the adjusted basis of the stock." 26 U.S.C. section 301(c)(2) (1994). The natural implication of the two provisions read together is that in the absence of earnings or profits, a shareholder may treat any distribution up to the value of capital invested in the corporation--that is, the taxpayer's basis--as a return of that capital. Both the Tax Court and the Tax Litigation Service of the IRS have explicitly adopted this approach in the civil enforcement context. See Truesdell v. Commissioner [CCH Dec. 44,500], 89 T.C. 1280, 1294-95 (1987); Truesdell, action on decision, 1988-025, 1988 AOD Lexis 22 (Sept. 12, 1988).

We have made clear that the return of capital theory applies equally in both criminal and civil cases, assuming that the diversion itself was not unlawful. ¹ See D'Agostino [98-1 USTC ¶50,380], 145 F.3d at 72-73; see also United States v. Leonard [75-2 USTC ¶9695], 524 F.2d 1076, 1083 (2d Cir. 1975) (Friendly, J.) (recognizing the return of capital theory in a criminal tax prosecution but holding that the defendant failed to meet the burden of going forward as to the corporation's lack of earnings or profits), cert. denied, 425 U.S. 958 (1976). In D'Agostino, we explicitly rejected the prevailing rule in several of our sister Circuits. See [98-1 USTC ¶50,380], 145 F.3d at 72-73. These require only that the government prove that the taxpayer had "actual command" over the funds at issue in a criminal tax evasion case and do not require a showing that earnings and profits existed in a year in which the distribution was made. See United States v. Williams [89-2 USTC ¶9390], 875 F.2d 846, 850-52 (11th Cir. 1989); United States v. Goldberg [64-1 USTC ¶9316], 330 F.2d 30, 38 (3d Cir.), cert. denied, 377 U.S. 953 (1964); Davis v. United States [55-2 USTC ¶9685], 226 F.2d 331, 335-36 (6th Cir. 1955)), cert. denied, 350 U.S. 965 (1956).

Similarly, in return of capital cases, a taxpayer's intent is not determinative in defining the taxpayer's conduct. That is, the taxpayer or the corporation need not have described the distribution at issue as a dividend or a return of capital at the time it was made; rather, the realities of the transaction--including the amount of the shareholder's basis and the corporation's earnings or profits, as well as the amount of the distribution--govern its characterization for tax purposes. See D'Agostino [98-1 USTC ¶50,380], 145 F.3d at 72-73. In this way, the court in D'Agostino applied the return of capital theory even though it had "little doubt the D'Agostinos acted with bad intentions" when Mrs. D'Agostino surreptitiously diverted up to $4,000 each week in large bills from the couple's solely-owned businesses to her kitchen drawer. ² Id. at 70, 73.

The fact that the return of capital theory applies in this Circuit does not, however, end our inquiry. We must also determine whether Bok established an adequate basis in the record for the proposed charge. The legal standard is generous: Generally "a criminal defendant is entitled to instructions relating to his theory of defense, for which there is some foundation in the proof, no matter how tenuous that defense may appear to the trial court." United States v. Dove, 916 F.2d 41, 47 (2d Cir. 1990), quoted in United States v. Workman, 80 F.3d 688, 702 (2d Cir.), cert. denied, -- U.S. --, 117 S. Ct. 319 (1996). On appeal, however, "[a] conviction will not be overturned for refusal to give a requested charge . . . unless that instruction . . . represents a theory of defense with basis in the record that would lead to acquittal." United States v. Allen, 127 F.3d 260, 265 (2d Cir. 1997) (quoting United States v. Vasques, 82 F.3d 574, 577 (2d Cir. 1996)) (internal quotation marks omitted). In determining whether an adequate basis exists for a return of capital charge, we must first determine the extent and nature of the showing the defendant must make.

Although our earlier cases have not stated it with perfect clarity, a defendant does always bear the burden of production--under which the defendant must make an initial showing on each key element of the theory--to receive an instruction on the return of capital theory. That is, there must be some credible evidence that the corporation did not enjoy income or profits for the tax year at issue, and that the amount of the taxpayer's capital contribution exceeded the amount of the distribution from the corporation. The court in Leonard effectively held as much:

In prosecutions for income tax violations, production of a rather slight amount of evidence by the Government, here the proof of receipt of what are charitably characterized as constructive dividends rather than embezzled funds, may transfer the burden of going forward to the defendant. Although the ultimate burden of persuasion remains with the Government, Leonard did not introduce sufficient evidence of an absence of earnings or profits. . . . ³

[75-2 USTC ¶9695], 524 F.2d at 1083 (citations omitted). Though Leonard used precatory language in discussing the defendant's burden of production, it did not purport to do away with the general requirement that a proposed jury instruction must have an adequate basis in fact. To the extent that Leonard was at all unclear on the issue, we now clarify that in order to merit a charge on the return of capital theory, a defendant must satisfy a burden of production by showing that an adequate basis in fact exists for the charge. As suggested by the cases cited in Leonard [75-2 USTC ¶9695], 524 F.2d at 1083, this is not the only circumstance in which a taxpayer faces a burden of production once the government has come forward with evidence of tax evasion. See, e.g., United States v. Vardine [62-2 USTC ¶9624], 305 F.2d 60, 63 (2d Cir. 1962) ("[I]t is reasonable to he defendant, if he wishes to disprove intent and likely source [of a net worth bulge], to bear the burden of going forward when he alleges that he had additional deductions not claimed on his income tax return."). Of course in cases involving the return of capital theory, the allocation of the burden of going forward to the taxpayer does not affect the ultimate burden of persuasion, which always remains with the government. See Leonard [75-2 USTC ¶9695], 524 F.2d at 1083.

Like the taxpayer in Leonard, Bok failed to satisfy his burden of going forward and therefore did not establish an adequate basis in the record for his proposed instruction. Specifically, neither Bok nor the government produced any admissible evidence to suggest that Abacus lacked earnings or profits for 1988. Although Bok did introduce Abacus's 1988 financial statements, he made clear that they were offered only to show Bok's state of mind when he gave information to his accountant, not for the underlying truth of the figures in the statements. Even if the financial statements had been admitted for their truth, they alone would not have satisfied Bok's burden because they were based entirely on information provided by Bok, purportedly using an entirely different method of accounting than that used on Abacus's corporate return. ⁴ In addition, Bok had suggested that Abacus DID have net earnings for 1988. During the IRS's investigation, Bok accounted for the low figures in the gross receipts portion of Abacus's return by explaining that he had mistakenly entered the corporation's net profits in place of its gross receipts. At trial Bok referred to this explanation for the false statements on Abacus's returns in arguing that he lacked the requisite intent to be convicted. Bok continues to make the same argument on appeal, noting his contention that the numbers on the gross receipts line of Abacus's tax returns "were really net profits." Brief for Defendant-Appellant David S. Bok at 36. Finally, Bok declined the trial court's invitation to elicit facts to support his proposed charge. Because Bok's accountant had not been qualified as an expert witness, the trial court rejected Bok's attempt to establish through the cross examination of the accountant that, as a matter of law, a return of capital was a nontaxable event. In doing so, however, the trial court expressly suggested that Bok use the witness to develop facts that Bok might later use as the basis for a jury instruction; Bok did not follow up on the trial court's suggestion.

Thus, despite our generous approach to jury instructions, under which the defendant is entitled to an instruction on his theory when "there is some foundation in the proof, no matter how tenuous," Dove, 916 F.2d at 47, Bok did not provide sufficient facts to warrant his proposed charge. Given the lack of evidence produced by Bok on the issue of Abacus's earnings or profits, we cannot say the trial judge erred in finding no basis in the record for the return of capital theory. Because Bok failed to satisfy his burden of production, the trial court properly rejected Bok's proposed instruction.

B. MATERIALITY OF FALSE STATEMENTS

Bok also argues that the trial court erred in not permitting the jury to decide whether the false statements Bok made on Abacus's corporate returns were material. In doing so, he appears to argue that United States v. Klausner [96-1 USTC ¶50,173], 80 F.3d 55, 60 (2d Cir. 1996), which permitted a trial judge to decide issues of materiality in a section 7206 case, is wrongly decided under United States v. Gaudin, 515 U.S. 506 (1995). Gaudin affirmed the Ninth Circuit's reversal of a conviction under 18 U.S.C. section 1001 because the trial court had not submitted the question of materiality to the jury. Because the trial court DID submit the question of materiality to the jury in this case, it is not necessary for us to examine or apply Klausner.

It is abundantly clear that the trial judge allowed the jury to decide the issue of materiality, even though Klausner did not explicitly require him to do so. The court charged the jury in pertinent part as follows:

. . . [T]he third element the government must prove beyond a reasonable doubt is that the return at issue in the count you are considering was not true and correct as to every material matter. . . .

In relation to whether statements on a document are incorrect as to a material matter, a line on a tax return is a material matter if the information required to be reported on that line is capable of influencing or impeding the IRS in verifying or auditing the return. In other words, the test of materiality in this case is whether the information required to be reported on the tax return in question was necessary for the proper evaluation of the accuracy of the tax return. . . .

. . . [I]f you find beyond a reasonable doubt that gross receipts were understated in such a way as to influence or impede the IRS in verifying and auditing the return, then you should conclude that the return was not true and correct as to all material matters . . . .

Trial Transcript at 1135-36. Thus, in his instructions, the trial judge did nothing more than define "material" for the jury, an action which is entirely permissible under Gaudin. See 515 U.S. at 513. If the jury had found that the statements were false but would not "influence or impede" the IRS in its evaluation of the returns, the jury would have been free to acquit because the false statements were not material.

Because the trial judge left the question of materiality to the jury, he committed no error in his instruction on that issue.

II. SIMILAR ACTS

Also at issue is one of the trial judge's evidentiary rulings. Over Bok's objection, the government introduced evidence at trial of other similar acts by Bok, specifically his failure to file a state personal tax return for 1988 as well as the failure of Abacus and its predecessor corporation to file federal and state corporate returns for the years during and after those in the indictment. On appeal we must decide whether such evidence of similar acts was admissible to prove Bok's knowledge and intent, and whether the trial court properly admitted such evidence in the government's case in chief on the assumption that the defendant would argue that he lacked the requisite intent for conviction. District courts enjoy broad discretion in admitting evidence of similar acts; to find an abuse of that discretion "we must be persuaded that the trial judge ruled in an arbitrary and irrational fashion." United States v. Pipola, 83 F.3d 556, 566 (2d Cir.), cert. denied, -- U.S. --, 117 S. Ct. 183 (1996). We hold that the trial judge did not abuse his discretion here, and therefore the admission of this similar act evidence in the government's case in chief was permissible.

Rule 404(b) of the Federal Rules of Evidence governs the admissibility of evidence on "[o]ther crimes, wrongs, or acts," permitting its admission for purposes including "proof of . . . intent [or] knowledge" while prohibiting its admission "to prove the character of a person in order to show action in conformity therewith." Fed. R. Evid. 404(b); accord United States v. Germosen, 139 F.3d 120, 127 (2d Cir. 1998). "We take an 'inclusive approach' to 'other acts' evidence: it can be admitted 'for any purpose except to show criminal propensity,' unless the trial judge concludes that its probative value is substantially outweighed by its potential for unfair prejudice." Germosen, 139 F.3d at 127 (internal citation omitted) (quoting United States v. Stevens, 83 F.3d 60, 68 (2d Cir.), cert. denied, -- U.S. --, 117 S. Ct. 255 (1996)).

Both section 7201 and section 7206(1) require that the government prove that the defendant acted willfully. And the Supreme Court has made clear that in order to avoid snaring people in the tangled net of the tax code solely due to their incompetence, willfulness under the tax laws requires " 'a voluntary, intentional violation of a known legal duty.' " Cheek v. United States [91-1 USTC ¶50,012], 498 U.S. 192, 200-01 (1991) (quoting United States v. Bishop [73-1 USTC ¶9459], 412 U.S. 346, 360 (1973)); see also Klausner [96-1 USTC ¶50,173], 80 F.3d at 62-63. As we have often explained, a defendant's past taxpaying record is admissible to prove willfulness circumstantially. See, e.g., Klausner [96-1 USTC ¶50,173], 80 F.3d at 63 (holding that failure to file income tax returns and underestimating tax liability for purposes of estimated payments for the tax years at issue constituted evidence of willfulness); United States v. Ebner [86-1 USTC ¶9215], 782 F.2d 1120, 1126 n.7 (2d Cir. 1986) ("The jury may consider evidence of intent to evade taxes in one year as evidence of intent to evade payment in prior or subsequent years."); United States v. Magnus [66-2 USTC ¶9660], 365 F.2d 1007, 1011 (2d Cir. 1966) ("[P]rior taxpaying history, both federal and state, was probative of [taxpayer']s wilfulness in failing to pay substantial amounts of federal taxes in [the years at issue.]"), cert. denied, 386 U.S. 909 (1967). As a simple matter of logic, Bok's failure to file state or federal returns for either himself or his corporations until told to do so by the IRS is indicative of an intent to evade the tax system. This is particularly true in light of Bok's legal education, which included coursework in both corporate and personal taxation.

Although it is generally the favored practice for the trial court to require the government to wait before putting on its similar act evidence until the defendant has shown that he will contest the issue of intent, see United States v. Colon, 880 F.2d 650, 660 (2d Cir. 1989), "such evidence is admissible during the Government's case-in-chief if it is apparent that the defendant will dispute that issue," United States v. Inserra, F.3d 83, 90 (2d Cir. 1994). Accord United States v. Zackson, 12 F.3d 1178, 1183 (2d Cir. 1993), cert. denied, 512 U.S. 1224 (1994). In this case, before the admission of the evidence, Bok had proposed instructions that concerned intent, and in Bok's cross examination of his accountant, Bok had suggested that his reliance on the accountant effectively negated his willfulness. The trial court was therefore well within its discretion in allowing the introduction of evidence of similar acts when it did.

III. SENTENCING

Finally, we must consider whether the trial judge exceeded his authority by requiring Bok to pay ten percent of his gross monthly income--up to $45,000 in total--against his 1988 personal tax liability as a condition of his term of supervised release. ⁵ Bok argues that this condition is effectively an order of restitution and therefore not permitted except when provided by statute. The dispute centers around how to harmonize 18 U.S.C. sections 3563(b)(2), 3583(d), and 3663, which provide when a court may order restitution, with this Circuit's most extensive interpretation of any of those statutes in the tax context, United States v. Gottesman [97-2 USTC ¶50,636], 122 F.3d 150 (2d Cir. 1997). We hold that a natural reading of the statutes permits the trial court's order here, and that Gottesman does not require a different result.

It is well-established that a federal court may not order restitution except when authorized by statute. See United States v. Helmsley [91-2 USTC ¶50,455], 941 F.2d 71, 101 (2d Cir. 1991), cert. denied, 502 U.S. 1091 (1992). Section 3663(a) provides that a district court generally may order restitution as part of a sentence itself when the defendant is convicted of a specified collection of statutes; that collection, however, does not include either of the statutes Bok violated here. See 18 U.S.C. section 3663(a)(1)(A) (Supp. II 1996). In addition to section 3663, section 3583(d) governs orders of restitution within the context of supervised release, detailing the required and permissible conditions of restitution in that context. It provides that "[t]he court may order, as a further condition of supervised release, to the extent [certain factors not relevant here are met,] any condition set forth as a discretionary condition of probation in section 3563(b)(1) through (b)(10) . . . and any other condition it considers to be appropriate." 18 U.S.C. section 3583(d) (1994). Among the discretionary conditions of probation referred to in section 3563(b) is the requirement that the defendant "make restitution to a victim of the offense . . . (BUT NOT SUBJECT TO THE LIMITATION OF SECTION 3663(a) . . .)." 18 U.S.C. section 3563(b)(2) (Supp. II 1996) (emphasis added). Thus a plain reading of sections 3583(d) and 3563(b) permits a judge to award restitution as a condition of supervised release without regard to the limitations in section 3663(a).

The Sentencing Guidelines of 1990, which were in effect at the time Bok committed his crimes, provide additional support for the conclusion we find to be suggested by the statutes. Section 5E1.1(a) specifically authorized a trial court to order restitution as a condition of supervised release in all cases, without reference to the limitations in section 3663(a). See U.S. Sentencing Guidelines Manual section 5E1.1(a) (1990). Revisions to the Guidelines have been even clearer, requiring the trial judge to order restitution as a condition of supervised release or probation where restitution would be available under section 3663(a) but for the fact that the offense is not within the category of offenses listed in the statute. See id. section 5E.1.1(a)(2) (1997).

Our opinion in Gottesman does not require a different result. Gottesman rejected a court's order of restitution, payable upon the defendant's completion of supervised release, but did so primarily because the trial court ignored a provision in Gottesman's plea agreement, which provided that the defendant would pay his past taxes "on such terms and conditions as will be agreed upon between . . . Gottesman and the IRS." 122 F.3d at 150. The opinion focuses entirely on the requirements of section 3663(a)(3)--the provision concerning the treatment of restitution in the plea bargaining context--and the proper deference towards and interpretation of plea agreements. See id. at 151-53. ⁶

Outside the context of plea bargaining, which raises unique concerns about a defendant's expectations regarding sentencing, we see no reason to depart from the clear meaning of section 3583(d) and section 3563(b) and therefore hold that the trial judge permissibly ordered Bok to pay restitution as a condition of supervised release.

CONCLUSION

For the foregoing reasons, we affirm the judgment of conviction entered in the District Court, and we affirm the District Court's order that as a condition of his supervised release, Bok must pay ten percent of his gross monthly salary, up to $45,000, towards his personal tax liability.

¹ Our opinion in D'Agostino made clear that "the 'no earnings and profits, no income' rule would not necessarily apply in a case of UNLAWFUL diversion, such as embezzlement, theft, a violation of corporate law, or an attempt to defraud third-party creditors." [98-1 USTC ¶50,380], 145 F.3d at 73.

² In not finding intent to be determinative, this Circuit has also followed a different path from at least one of our sister Circuits. See United States v. Miller [76-2 USTC ¶9809], 545 F.2d 1204, 1215 (9th Cir. 1976) (permitting taxpayers to apply the return of capital theory only when there has been "some demonstration on the part of the taxpayer and/or the corporation that such distributions were intended to be such a return"), cert. denied, 430 U.S. 930 (1977).

³ Transferring the burden of production to the taxpayer is consistent with the burden allocation in DiZenzo, a civil case, under which the taxpayer faces burdens of both production and proof. See [65-2 USTC ¶9518], 348 F.2d at 126-27.

⁴ The accountant's letter accompanying the financial statements makes their limitations clear, explaining that the statements are "compilation[s] . . . limited to presenting in the form of financial statements information that is the representation of management. [The accounting firm] ha[s] not audit[ed] or reviewed the accompanying financial statements and, accordingly, do[es] not express an opinion or any other form of assurance on them."

⁵ Although Bok challenged the trial judge's authority to make ANY restitution order, he did not challenge the reasonableness of the actual order itself.

⁶ Gottesman also referred to a Fifth Circuit case, United States v. Stout, 32 F.3d 901 (5th Cir. 1994), which treated a trial court's order of restitution as a condition of supervised release in a tax evasion case. See Gottesman [97-2 USTC ¶50,636], 122 F.3d at 152. Like Gottesman, Stout involved a plea agreement, and the Fifth Circuit's reasoning depended on the trial court's interpretation of that agreement. See Stout, 32 F.3d at 904-05. That reasoning is therefore not applicable here.

 

 

 

[2000-1 USTC ¶50,102] United States of America , Plaintiff-Appellee v. David Hicks, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 98-6369, 12/8/99 , Affirming an unreported District Court decision

[Code Sec. 7206 ]

Fraud and false returns: Restitution: Sentencing: Plea agreement.--A district court's restitution order against an individual who participated in a tax fraud scheme while incarcerated was not erroneous. The record established that the taxpayer was young and sufficiently educated to acquire employment after his release from prison that would allow him to make the restitution payments. Moreover, the court properly limited restitution to the amount of loss attributable to fraudulent filings where the taxpayer himself filled out or signed the forms at issue.

Before: TACHA, Mckay"EC AND MURPHY, CIRCUIT JUDGES.

ORDER AND JUDGMENT ^*

MCKAY, Circuit Judge:

After examining the briefs and the appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument.

Defendant-Appellant David Hicks pleaded guilty to one count of conspiracy to defraud the United States by obtaining payment of false claims in violation of 18 U.S.C. §286 . He appeals the district court's order that he pay restitution in the amount of $11,403.95, contending that the court erred in its finding that, given his age and education, he would be able to find employment and pay restitution upon his release from confinement.

During the period from January 1993 to December 1995 while incarcerated in state prison, Defendant participated in a scheme to prepare fictitious 1040EZ tax returns to fraudulently obtain income tax refunds. Participants shared information used on the returns such as names, social security numbers, and addresses of fictitious filers, and involved others in cashing the fraudulently obtained refunds. Defendant himself prepared or signed fourteen income tax returns which had false claims that resulted in an actual loss to the Internal Revenue Service of $11,403.95.

On March 19, 1998 , the Government filed a one-count information charging Defendant with conspiracy to defraud the United States in violation of 18 U.S.C. §286 . The defendant pleaded guilty, and on September 11, 1998 , the district court filed its order entering judgment. The court sentenced Defendant to twenty-seven months of imprisonment to be followed by three years of supervised release. The court also ordered Defendant to make restitution to the IRS, payable immediately or in monthly installments of not less than $100 beginning no more than thirty days from his release from confinement. The Government contended that the conspiracy involved a total intended loss of $216,000 and resulted in an actual loss of $22,082.19. The district court found an actual loss of $11,403.95 attributable to Defendant and ordered restitution in that amount. See R., Vol. 1, Doc. 23 at 5, 8. The district court also waived any fine due to Defendant's inability pay both the fine and restitution. See id. at Doc. 22. Defendant timely filed a notice of appeal, and we exercise jurisdiction pursuant to 28 U.S.C. §1291 .

We review a district court's factual findings supporting a restitution order for clear error. See United States v. Olson, 104 F.3d 1234, 1237 (10th Cir. 1997). We review the amount of the restitution order for abuse of discretion. See id.

Both parties seemingly agree that the Victim and Witness Protection Act [VWPA], 18 U.S.C. §§3663 , 3664 , in its version prior to amendment in 1996, governs this restitution order. ¹ Under the VWPA restitution is not mandatory. Rather, when determining whether to order restitution and the appropriate amount of restitu tion, the court "shall consider the amount of the loss sustained by any victim as a result of the offense, the financial resources of the defendant, the financial needs and earning ability of the defendant and the defendant's dependents, and such other factors as the court deems appropriate." 18 U.S.C. §3664(a) . Defendant argues that given his demonstrated indigence, his lack of work experience, and his criminal history, the court erred in determining that he would be able to find employment to pay restitution once released from custody.

A restitution order "must be consistent with a defendant's ability to pay," but a defendant's inability to pay at the time of sentencing "is not itself a bar." Olson, 104 F.3d at 1237 (citing United States v. Gabriele, 24 F.3d 68, 73 (10th Cir. 1994)). While a restitution order "cannot be based solely on chance," such as the possibility that a defendant might win the lottery, it "will be upheld if the evidence indicates a defendant has some assets or earning potential and thus possibly may be able to pay the amount ordered." United States v. Rogat, 924 F.2d 983, 985 (10th Cir. 1991) (citing United States v. Mitchell, 893 F.2d 935, 936 n.1 (8th Cir. 1990)).

The record in this case supports the district court's restitution order. The court found that Defendant was young and sufficiently educated to acquire employment after release that would allow him to pay restitution. It noted that Defendant had completed numerous college classes while incarcerated. In addition, the court adopted the factual findings of the Presentence Investigation Report which indicated that Defendant had received his General Equivalency Diploma in 1990 and had taken college classes through a " 'talk back television' " program offered by Rose State College. R., Vol 3 at 11. The report also indicated that at the time of sentencing Defendant was still enrolled, working on an associate's degree in business administration, and had completed over forty credit hours during his incarceration. ² He also had completed 135 hours in carpentry and 135 hours in drafting through a vocational training program while incarcerated. Because the record shows that Defendant has some earning potential, it is possible that he may be able to pay the amount ordered. See Olson, 104 F.3d at 1237.

Defendant argues that his criminal record makes it unlikely that, despite his training, he will be able to find employment. While a criminal record may make it more difficult to secure employment, it does not make it impossible and does not show that the district court clearly erred in its factual determination that Defendant could pay restitution. To hold that a criminal record alone is sufficient to demonstrate that a defendant cannot secure employment would preclude any restitution order under the VWPA. Defendant's arguments fail to show that he will be unable to pay the $11,403.95 restitution order. ³ We conclude that the district court's factual findings supporting the restitution order are not clearly erroneous.

We further hold that the district court did not abuse its discretion in determining the amount of restitution. While the government presented evidence that the actual loss attributable to Defendant was $22,082.19, which included the loss attributable to Defendant's joint conduct with others in the conspiracy, the court limited restitution to the amount of loss attributable to fraudulent filings where Defendant himself filled out or signed forms. The court also waived a fine based on its determination that Defendant was unable to pay both a fine and restitution. Finally, as explained above, the record supplies some evidence that Defendant will be able to satisfy the restitution order. We conclude that the district court considered and balanced the evidence relating to the appropriate amount of restitution and did not abuse its discretion.

After submission of this appeal to the panel, we received Defendant's "Motion" entitled "Objection to Assigned Attorneys Representation." This motion requests an order dismissing Defendant's attorney or, in the alternative, an inquiry into the contentions Defendant raises in this motion, which include the following:

1. The plea agreement as entered in the record is not the plea agreement Defendant entered into at sentencing.

2. Assigned counsel said the sentence would run concurrently with his custodial state sentence.

3. The Assistant U.S. Attorney assured Defendant's attorney that his office would submit a "downward departure" (Defendant alleges that the U.S. Attorney's office submitted a downward departure for his codefendant).

4. Defendant was duped by his attorney who said he would straighten out the matter and originally took Defendant's phone calls, but now avoids all contact with Defendant and Defendant's wife.

We deny Defendant's motion to dismiss his attorney and follow his alternative suggestion by treating his motion as a supplemental brief. Upon review of the plea agreement, which is part of the record on appeal, we conclude that it does not support Defendant's arguments. The plea agreement indicates that in exchange for the plea of guilty the Government agreed to make no recommendation as to the actual sentence to be imposed and to forego prosecution for any other violations involved in this scheme to obtain payments by filing false income tax returns. See R., Vol. 1, Doc. 19 at 2-3. The plea agreement further states that "[n]o agreement exists concerning a sentencing departure . . . or concerning a reduction of sentence." Id. , Doc. 19 at 6. Additionally, the plea agreement includes this stipulation:

The parties further agree that the United States has advised this defendant and his attorney that the matter of sentencing is entirely within the discretion of the sentencing court, subject to the Sentencing Reform Act of 1984 (Sentencing Guidelines), and that the United States has made no promises or representations to this defendant or his attorney regarding what sentence might be imposed.

Id. , Doc. 19 at 7. Both Defendant and his attorney signed the agreement, and Defendant testified at the plea hearing that he voluntarily made the plea, understood its consequences, and understood that his sentence was subject to the court's discretion. See id., Vol. 2 at 8, 14.

While nothing in the record indicates whether Defendant's assigned counsel assured him that the sentence would run concurrently with the state sentence for which he was already incarcerated or whether the Assistant U.S. Attorney promised to seek a downward departure, Defendant did sign the plea agreement which indicated that it was "the only agreement between the United States and defendant, David Hicks, concerning his plea of guilty in the above-styled action, and that there are no other deals, bargains, agreements, or understandings which modify this agreement." Id. , Vol. 1, Doc. 19 at 7-8.

After review, we conclude that there is no merit to Defendant's challenge to his sentencing based on the plea agreement. To the extent that Defendant raises an ineffective assistance of counsel claim either for misrepresentations or other error, we dismiss that claim without prejudice. Generally, a claim of ineffective assistance of counsel should be brought in a collateral proceeding pursuant to 28 U.S.C. §2255 so that a proper record can be made. See United States v. Galloway, 56 F.3d 1239, 1240 (10th Cir. 1995) (en banc).

AFFIRMED.

^* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

¹ In 1996, Congress amended the VWPA by enacting the Mandatory Victims Restitution Act [MVRA] which now requires mandatory restitution to the victims of certain crimes. See 18 U.S.C. §3663A. The MVRA requires restitution "in the full amount of each victim's losses as determined by the court and without consideration of the economic circumstances of the defendant." Id. §3664(f)(1)(A). The MVRA is applicable to crimes defined under §3663A(c) for cases in which the defendant is convicted on or after April 24, 1996, "to the extent constitutionally permissible." Id. §2248 (Statutory Notes). This court has determined that it is constitutionally permissible to apply the MVRA when sentencing for a crime committed before the Act's effective date. See United States v. Nichols, 169 F.3d 1255, 1279-80 (10th Cir.), cert. denied, 120 S. Ct. 336 (1999). Reasoning that the "MVRA is not punitive in nature," the Nichols court held that its application is not prohibited by the Ex Post Facto Clause. Id. at 1279; accord United States v. Newman, 144 F.3d 531, 542 (7th Cir. 1998). But see United States v. Edwards, 162 F.3d 87, 91-92 (3d Cir. 1998); United States v. Siegel, 153 F.3d 1256, 1260 (11th Cir. 1998); United States v. Bapack, 129 F.3d 1320, 1327 n.13 (D.C. Cir. 1997); United States v. Williams, 128 F.3d 1239, 1241 (8th Cir. 1997); United States v. Baggett, 125 F.3d 1319, 1322 (9th Cir. 1997); United States v. Thompson, 113 F.3d 13, 15 n.1 (2d Cir. 1997).

The conviction in this case appears to fall under §3663A and §3664 of the MVRA. However, both parties to this appeal apply the VWPA in its version prior to the effective date of the MVRA, and neither party has raised the issue of whether the MVRA governs the restitution order in this case. We therefore do not address this issue, and our citations in this opinion refer to the VWPA provisions in effect before April 24, 1996 . We observe, however, that the district court's order in this case imposes restitution for the full amount of loss found, see R., Vol. 1, Doc. 23 at 8, a result compatible with the application of the MVRA.

² While not verifiable, Defendant states in his brief that it is probable that he "will have completed a college degree prior to his release." Appellant's Br. at 6.

³ This case is distinguishable from cases where the amount of restitution ordered has been entirely beyond the means of the defendant to pay. See, e.g., United States v. Patty, 992 F.2d 1045, 1052 (10th Cir. 1993) (holding, in a case where defendant's liabilities exceeded $3.2 million, that the district court abused its discretion when it ordered restitution for an amount more than 100 times the defendant's pre-conviction annual earnings).

 

 

[2001-1 USTC ¶50,112] United States of America , Appellee v. Claude Bruno, Defendant-Appellee

U.S. Court of Appeals, 2nd Circuit; 00-1346, 11-14-2000 , 2000 U.S. App. LEXIS 29313. Affirming an unreported District Court decision.

[Code Sec. 7602 ]

Penalties, criminal: False or fraudulent tax return: Jury instructions: Sentencing guidelines, application of.--An individual's conviction for aiding another to file a fraudulent tax return and subsequent sentencing were upheld. The evidence did not support his contention that the district court improperly left out the issue of materiality from the jury instructions. Further, the sentence requested by the government was reasonable under the sentencing guidelines given the number of violations and the amount of tax involved. The court was also within its discretion to enhance the sentence because of his attempts to intimidate government witnesses before trial.

[Code Sec. 7602 ]

Penalties, criminal: False or fraudulent tax return: Restitution.--An order requiring an individual who was convicted of aiding another to file a fraudulent tax return to make restitution of the tax loss to the government was upheld. The district court had discretionary statutory authority to order him to make restitution to the government.

Lawrence H. Schoenbach, New York . N.Y., for appellant. Nikki Kowalski, Assistant United States Attorney, Brooklyn , N.Y. , for appellee.

KEARSE, LEVAL and CABRANES, 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

OPINION

SUMMARY ORDER

ON CONSIDERATION WHEREOF, it is now hereby ordered, adjudged

, and decreed that the judgment of said District Court be and it hereby is affirmed.

Defendant Claude Bruno appeals from a judgment entered in the United States District Court for the Eastern District of New York following a jury trial before Raymond J. Dearie, Judge, convicting him on seven counts of aiding the filing of fraudulent federal income tax returns, in violation of 26 U.S.C. §7206(2), sentencing him principally to 36 months' imprisonment, to be followed by a one-year term of supervised release, and ordering him to pay restitution in the amount of $11,514. On appeal, Bruno contends that the district court improperly removed the question of materiality from the jury, made errors in calculating his sentence under the Sentencing Guidelines ("Guidelines"), and lacked authority to order restitution. Finding no merit in his contentions, we affirm.

Section 7206(2) prohibits aiding the preparation of a federal tax return that "is fraudulent or is false as to any material matter." 26 U.S.C. §7206(2). In general, "a false statement is material if it has a natural tendency to influence, or [is] capable of influencing, the decision of the decisionmaking body to which it was addressed." Neder v. United States [99-1 USTC ¶50,586], 527 US 1, 16, 144 L.Ed.2d 35, 119 SCt 1827 (1999) (internal quotation marks omitted). In contending that the trial court "improperly instructed the jury by precluding from their [sic] determination the factual question of materiality" (Bruno brief on appeal at 23), Bruno points to a portion of the instructions that stated as follows:

As to materiality, a statement is material if it has a natural tendency to influence, or is capable of influencing the Internal Revenue Service in its determination of whether income tax was owed. If you find that the defendant willfully reported the false deductions charged in the indictment, then you may find that such false and fraudulent statements were false as to a material matter.

(Trial Transcript ("Tr.") at 651.) Bruno argues principally that this "instructed the jury that the question of 'materiality' was not an element the jury could consider or need resolve." (Bruno brief on appeal at 23 (emphasis in original).) We do not so read this language, and Bruno's reading is belied by other parts of the charge as well.

In determining whether the district court properly charged the jury, and in assessing the likely effect of a given instruction on the jury, we must view the targeted language not in isolation but rather in light of the instructions as a whole. See, e.g., Cupp v. Naughten, 414 US 141, 146-47, 38 L.Ed.2d 368, 94 SCt 396 (1973); United States v. Clark, 765 F2d 297, 303 (2d Cir. 1985) (jury charge "must be viewed in its entirety and not on the basis of excerpts taken out of context, which might separately be open to serious question"). In the present case, the portion of the instructions criticized by Bruno had been preceded by a clear statement that

"in order for you to find a defendant guilty of this crime as to the count you are considering, you must be convinced that the government has proven each of the following three elements beyond a reasonable doubt":

. . . .

Second, that the return was false as to a material matter,

(Tr. 650). The later passage that began "As to materiality" (Tr. 651), which Bruno contends removed the issue of materiality from the jury, dealt not with the duty of the jury to consider materiality, but rather with the meaning of materiality. We see no indication that the jury was instructed--or could reasonably have believed it was instructed--that it need not find materiality in order to convict.

In challenging his sentence, Bruno contends, inter alia, that the district court improperly calculated the loss caused by his assistance in the preparation of the false tax returns. We disagree. The Guidelines require that the offense level of a defendant whose violation of 26 U.S.C. §7206(2) caused a tax loss be calculated with respect to the amount of such loss caused by the offense of conviction and by his same course of conduct violating the tax laws. See Guidelines §§2T1.4, 2T4.1, 2T1.1 (as incorporated in §2T1.4). Recognizing that "in some instances, such as when indirect methods of proof are used, the amount of tax loss may be uncertain[,] the guidelines contemplate that the court will simply make a reasonable estimate based on the available facts." Guidelines §2T1.1 Application Note 1 (incorporated in §2T1.4 Application Note 1). Accordingly, we have upheld the extrapolation by the district court from audited figures to determine an appropriate total loss figure for these purposes. See United States v. Bryant, 128 F3d 74, 76 (2d Cir. 1997) (per curiam) ("It is permissible for the sentencing court, in calculating a defendant's offense level, to estimate the loss resulting from his offenses by extrapolating the average amount of loss from known data and applying that average to transactions where the exact amount of loss is unknown.").

In the present case, the government contended that Bruno's base offense level should be 18 based on losses totaling some $850,394, see Guidelines §2T4.1(M) ($550,001 to $950,000). The government's calculation included losses totaling $11,514 on the returns at issue in the seven counts of conviction, and actual and extrapolated evidence with respect to losses on other returns. The government presented evidence that audits of 114 of the returns prepared by Bruno for the years 1992 and 1993 revealed losses to the government totaling $180,045 (including fraudulent amounts, revealed in criminal investigations, totaling $77,136 on eight returns), and that for those years Bruno had prepared 497 returns. By extrapolation, the government calculated that on all of the returns prepared by Bruno for that period, other than those for which he was tried, the losses to the government totaled $838,880. The district court set Bruno's base offense level at 15 pursuant to Guidelines §2T4.1(J), the range for losses totaling $120,001 to $200,000. We conclude that the evidence presented by the government would have justified a higher base offense level, and we therefore reject Bruno's challenge to the level selected.

Bruno also challenges the district court's enhancement of his sentence for obstruction of justice pursuant to Guidelines §3C1.1, contending that there was insufficient evidence that he was responsible for the attempted obstructions. This contention need not detain us long. It is undisputed that persons scheduled to testify at Bruno's trial received telephoned threats shortly prior to the start of trial, warning them not to testify against Bruno. The district court's finding that Bruno instigated those threats (see Sentencing Transcript ("S.Tr.") at 43 ("I am satisfied virtually beyond any doubt that this defendant is responsible for that conduct")), was adequately supported. The record included evidence that the calls began after the government had furnished to defense counsel its witness list and shortly after it provided defense counsel with the witnesses' 3500 material; that when Bruno was arrested in the wake of the threatening calls, he had in his possession a copy of the witness list, on which the names of two witnesses had been circled, and that those two witnesses had second thoughts and decided not to testify against Bruno; and that in issuing one of the threats, the caller referred to the witness by a name that the witness had not used in several years but by which he had been known to Bruno. We reject the contention that the evidence was insufficient to permit the court to find that Bruno was responsible for the threats.

Finally, Bruno, arguing that 18 U.S.C. §3663(a) is "the only statute which empowers a sentencing court to enter [a restitution] order" (Bruno brief on appeal at 44), contends that the district court was without statutory authority to require him to make restitution to the government of the $11,514 in losses caused by the tax frauds of which he was convicted. We reject Bruno's premise. Although §3663(a)(1) lists offenses with respect to which the court may sentence a defendant to pay restitution, and offenses under Title 26 are not included, §3663(a) is not the only source of authority for an order of restitution. The court is authorized to impose, inter alia, any "discretionary condition of probation in section 3563(b)(1) through (b)(10)" as a condition of supervised release. 18 U.S.C. §3583(d). Section 3563(b)(3), as it read at the time of Bruno's offenses (now renumbered §3563(b)(2)), which is among the sections referred to by §3583(d), authorized a sentencing court to order a defendant, as a condition of probation, to make restitution to a victim of the offense, and stated explicitly that power is "not subject to the limitations of section 3663(a)." 18 U.S.C. 3563(b)(3) (1994). Accordingly, a sentencing court is authorized to order restitution for a violation of 26 U.S.C. §7206(2) as a condition of supervised release. See, e.g., United States v. Bok [98-2 USTC ¶50,765], 156 F3d 157, 166-67 (2d Cir. 1998).

In the present case, we see no indication that the court purported to order restitution under §3663(a) rather than as a condition of supervised release. The presentence report prepared on Bruno did not mention §3663(a); it stated that "the Court may order restitution as a special condition of supervised release." In announcing Bruno's sentence at the sentencing hearing, the court did not cite §3663(a); and although it also did not cite §§3583(d) or 3563(b), the restitution order was followed immediately by a reference to supervised release. As transcribed, the statement was:

Restitution in the amount of $11,514. As a special condition of his supervised release, he is to make full financial disclosure when and if required by the Probation Department and under the direction and supervision of the court.

(S.Tr. 46.) We see no reason to believe that the court was not imposing restitution as a special condition of supervised release. Indeed, this passage would read equally well if, in punctuating the court's oral statement, the court reporter had simply placed the first period after the word "release" rather than earlier. To the extent that the court's oral statement was ambiguous, the written judgment of conviction may be consulted to resolve the ambiguity, See, e.g., United States v. Pugliese, 860 F2d 25, 30 (2d Cir. 1988), cert. denied, 489 US 1067, 103 L.Ed.2d 813, 109 SCt 1344 (1989), and the judgment convicting Bruno lists the restitution order as one of the "ADDITIONAL SUPERVISED RELEASE TERMS." We thus see no merit in Bruno's challenge to the order for restitution.

We have considered all of Bruno's contentions on this appeal and have found them to be without merit. The judgment of the district court is affirmed.

 

 

 

 

 

[2005-2 USTC ¶50,480] United States of America, Plaintiff-Appellee v. Bette J. Pree, also known as Betts Pree, Defendant-Appellant.

U.S. Court of Appeals, 7th Circuit; 03-1516, May 20, 2005 .

Remanding an unreported DC Ill. decision.

[ Code Sec. 7206]

Fraud and false statements: Sentencing guidelines: Restitution. --

The Appellate Court remanded for rehearing the issue of whether it was proper to order a taxpayer who was convicted of filing a false tax return to make restitution. The individual, who was sentenced under the Federal Sentencing Guidelines to a term of imprisonment followed by supervised release, was required to pay taxes owed to the IRS as a special condition of her sentence. However, it was unclear from the record whether restitution would have been required but for the court having treated the sentencing guidelines as mandatory rather than advisory.

.

Before: Coffey, Ripple and Kanne, Circuit Judges.

RIPPLE, Circuit Judge: Bette J. Pree was indicted by a grand jury for one count of failing to file a tax return for the tax year 1994, in violation of 26 U.S.C. §7203, and for two counts of filing false tax returns for the tax years 1995 and 1996, in violation of 26 U.S.C. §7206(1). After trial, a jury found Ms. Pree not guilty of the failure to file charge but guilty of both counts of filing false tax returns. The district court sentenced Ms. Pree to 18 months' imprisonment, to be followed by a one-year term of supervised release, with the special condition that she pay taxes owed to the Internal Revenue Service ("IRS") in the amount of $38,852. Ms. Pree appealed her convictions. On September 14, 2004, this court affirmed the judgments of conviction but vacated the sentence and remanded the case to the district court for resentencing. We stayed our mandate pending the Supreme Court's decision in United States v. Booker, 125 S.Ct. 738 (2005). ¹ On January 12, 2005, the Supreme Court issued its decision in Booker. At this court's invitation, each party has submitted a memorandum presenting its views on the application of Booker to this case. For the reasons set forth in the following opinion, we revise our prior instructions with respect to Ms. Pree's sentence. In light of Booker, 125 S.Ct. 738, while retaining jurisdiction of this case, we remand this case to the district court in accordance with this court's decision in United States v. Paladino, 401 F.3d 471 (7th Cir. 2005).

I

BACKGROUND

A. Facts

Ms. Pree was convicted of filing false returns for tax years 1995 and 1996. To present a coherent background of the circumstances upon which those convictions are based, we first must relate some events that transpired prior to those tax years.

In 1993, Maurice Furlong, the President of Health Care Centers of America ("HCCA") contacted Ms. Pree's daughter, a former lobbyist for the Illinois Chiropractic Society, about a potential job opportunity with HCCA. Ms. Pree and her daughter met Furlong, and he discussed the company and its expansion plans with them. After this meeting, Furlong developed an interest in hiring Ms. Pree as well as Ms. Pree's daughter because Ms. Pree was a nurse and held a real estate license.

After this meeting, Ms. Pree and her daughter moved to Las Vegas . On December 8, 1993, Ms. Pree signed a lease that was assigned to "HCCA --Health Care Centers of America and/or Bette Pree." Gov't Ex.81A. Ms. Pree and her daughter received approximately $4,000 from Furlong for moving expenses.

Beginning in 1994, Ms. Pree began selling HCCA stock to friends, family, former co-workers and other acquaintances. In January 1994, Ms. Pree wrote to one former co-worker and noted, "This company I work for HCCA Health Care Centers of America is going on the Stock Market right away." Gov't Ex.91A. Ms. Pree encouraged the co-worker to buy as much stock as she could. The letter further indicated: "I'm Exec. Assistant to President of Co. " Gov't Ex.91A.

Ms. Pree continued selling stock through 1996. In selling stock, Ms. Pree would provide prospective purchasers with her HCCA business card on which her title was listed as "Administrator of Aquisition [sic]," Gov't Ex.15G, and would distribute company literature. She also would correspond on company letterhead. Ms. Pree explained to prospective purchasers that she had been hired to oversee the opening of an office and "in lieu of salary they [HCCA] were issuing her stocks in the company to do with what she chose." R.67 at 106.

Although Ms. Pree began selling stock in January of 1994, she first received HCCA stock in May of 1994. The stock she received consisted of 350,000 shares of restricted stock formerly registered to Furlong. The restricted stock bore the statement: "The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be sold, transferred or otherwise disposed of by the holder unless registered under said Act ...." Gov't Ex.2A. ² When a securities investigator from the Illinois Secretary of State investigated Ms. Pree's stock sales, Ms. Pree wrote a letter in response, justifying the transactions as personal sales from stock received for services. She described the stock as

given to me by Maurice Furlong from his own personal shares for my assistance in the development and arrangement of the chiropractic presentation and business plan, and for introducing him to Chiropractors and Associates in Illinois , as well as assisting with various administrative duties or tasks.

Gov't Ex.49.

Throughout the course of Ms. Pree's stock sales, the prices at which she sold the stock fluctuated. During 1994, she sold stock at prices between a nickel and a dollar per share. During 1995, her stock prices ranged from a quarter to a dollar per share. In 1996, she sold the stock at prices between nine cents and fifty cents per share. During 1995, Ms. Pree received $21,500 from sales of the HCCA stock. In 1996, Ms. Pree received $60,450 from stock sales. ³ In a 1996 declaration to a casino, Ms. Pree indicated that she had an annual income of $80,000 from stocks, retirement and social security.

Ms. Pree did not file her 1995 and 1996 tax returns when due but instead requested and received automatic extensions to file. She later met with Ann Westphal, a part-time H & R Block tax preparer, to prepare her 1995 and 1996 returns. Westphal prepared returns indicating pension and social security income for 1995 in the amount of $3,441, and pension, taxable interest and gambling income for 1996 in the amount of $7,231. ⁴ Neither return included any income from stock sales, nor did either return include Schedule D, the schedule on which capital gain or loss from sale of stock is calculated. Westphal prepared the returns at her home as a personal favor to Ms. Pree. Westphal did not prepare them through H & R Block, nor did she sign them. Ms. Pree ultimately signed and submitted her 1995 and 1996 tax returns on March 1, 1998. While meeting with Westphal, Ms. Pree also told her about the opportunity to purchase HCCA stock, and Westphal agreed to purchase 25,000 shares for $500 from Ms. Pree.

Ms. Pree later was indicted on several charges. ⁵ Count II charged Ms. Pree with filing an income tax return for 1995 in which she "listed total income of $3,441, whereas, as she then and there well knew and believed, she had received additional income substantially in excess of that amount in calendar year 1995." R.1 at 2. Count III charged Ms. Pree with filing an income tax return for 1996 in which she "listed total income of $7,231, whereas, as she then and there well knew and believed, she had received additional income substantially in excess of that amount in calendar year 1996." R.1 at 3.


B. District Court Proceedings

Ms. Pree's case proceeded to trial. Before trial, Ms. Pree filed a motion in limine to exclude evidence related to fraud in her sale of stock to investors. The district court granted this motion in part, barring testimony as to whether her investors were satisfied or dissatisfied with their HCCA investments.

The Government's theory of the case, pertinent to this appeal, was that, during the relevant time period, Ms. Pree worked for HCCA and sold HCCA stock that she received as compensation for her services. ⁶ Despite a significant increase in her income from these stock sales and despite being informed that she had an obligation to report the income she received from such sales, Ms. Pree filed belated returns for 1995 and 1996, on which she willfully failed to report income from her stock sales. ⁷

1. Evidence

At trial, the Government presented evidence pertaining to the nature of the stock Ms. Pree sold. An officer of the stock transfer agent for HCCA testified that the stock originally was registered to Furlong. In May 1994, however, Furlong's stock certificate was divided, and one of fifty-eight new certificates was issued to Ms. Pree. The transfer agent testified that the stock was restricted and that the effect of the restriction on the stock certificate was to limit the stock's value to "whatever [the seller] can obtain from the purchaser." R.67 at 25.

Several individuals who obtained stock from Ms. Pree testified to their purchases. Stipulations pertaining to Ms. Pree's stock sales to other investors also were read into evidence by the Government. The testimony and stipulations together revealed that Ms. Pree sold stock before any was registered in her name, that she sold stock after she received her certificate in May 1994, that she sold stock throughout 1995 and 1996, and that she continued selling stock after exhausting the shares originally registered in her name. ⁸

Additionally, the Government presented the testimony of an IRS Special Agent who investigated Ms. Pree in 1996. The Special Agent testified that Ms. Pree had indicated to her that she was aware of her obligation to report stock sales on her tax returns in the year of sale. Further, the Government presented the testimony of Westphal. Westphal testified that she had prepared Ms. Pree's 1995 and 1996 taxes in September of 1997. She testified that Ms. Pree had brought her an interest statement, pension and social security information and gambling W-2Gs. Westphal indicated that Ms. Pree had denied any other income: "We went through the return and I asked her if that was all the information she had, all the income she had, and she stated to me that it was." R.67 at 166. Westphal further testified that, after she herself purchased HCCA stock, the two discussed the need to report income from stock sales, but Ms. Pree did not indicate that any sales had been made in 1995 or 1996.

In concluding its case, the Government called Michael Welch, an IRS Revenue Agent, as a summary witness. Agent Welch had prepared an exhibit summarizing the HCCA stock sales by Ms. Pree in 1994, 1995 and 1996. The exhibit, Government Exhibit 101, was prepared from trial testimony, exhibits and the stipulations, and it was admitted without objection. Agent Welch also prepared a schedule that summarized Ms. Pree's 1994 gross income. The exhibit included the full amount received from the stock sales in 1994 in the calculation of gross income. It was admitted as Government Exhibit 102.

Agent Welch did not prepare any summaries for Ms. Pree's income for 1995 or 1996. Instead, when asked where the 1995 stock sales would have been reported on the 1995 tax return, Agent Welch testified: "On Line 13 of the face of the 1040 would be the gain or loss from sales of stock. And a schedule D would be required to itemize the various sales." R.68 at 318. He also testified that "Line 22 is an accumulation of Line 7 through 21, [it] would include wages, interest, dividends, gain on sale, pension distributions, and that would be your total income on Line 22. Stock sales would be included there." R.68 at 318. Agent Welch testified similarly when asked about stock sales for 1996.

On cross-examination, Agent Welch testified that income from stock sales is a net figure derived from the gross sales and the cost basis of the stock. ⁹ In response to questions stemming from the defense theory that Furlong gave Ms. Pree the stock as a gift, Agent Welch also agreed that to calculate capital gain or loss on the sale of a gift, you must know the donor's basis, the fair market value at the time of the gift and the amount of any gift taxes paid. Agent Welch admitted that he did not have information regarding Furlong's cost basis nor whether any amount of gift tax was paid on the stock Ms. Pree received. Agent Welch testified, however, that he believed the fair market value of the stock was zero. ¹⁰ On redirect, Agent Welch clarified that he relied on the Government's evidence that Ms. Pree received the stock as compensation for services rendered and explained why he treated the stock sales as income:

Q. Now, you heard the testimony here when you chose to characterize the 60,000 dollars worth of stock sales in 1996 that weren't listed on Bette Pree's return, you characterized that as unreported income. Why is that?

 

A. It wasn't reported on the return, it represents sale of stock, sale of stock goes on Line 13 as a capitol [sic] gain or loss. Actually a capitol [sic] gain. And that's income.

R.68 at 344. When asked to clarify why he attributed a zero basis to the stock, he explained:

A. It was based on my 18 years of being with the I.R.S. and the [stock transfer agent] describing the restricted stock. And the fair market value of something I received is whatever the market value is. And right across the street is Merle Lynch [sic], when you walk out the door. If you receive stock that had value, you should be able to walk in there, into a brokerage house, and sell that stock. And from everything I've read and understand, this restricted stock could not be sold in the market.

R.68 at 345. Agent Welch also testified that the transfer agent said the stock had no market value.

At the close of the Government's case, Ms. Pree moved for an acquittal, in part on grounds that the Government had presented no evidence of capital gains and had presented no evidence that Ms. Pree knew the law related to capital gains. The court denied the motion.

In defense, Ms. Pree presented evidence, including her own testimony, to support her position that the stock was received as a gift, that she never was employed by HCCA and that her records of the stock transactions were stolen, which caused a delay in her tax filing. Ms. Pree testified that she heard somewhere that the cost basis of her stock was a dollar and that she did not recall ever selling her stock for more than a dollar. She testified that she sold the stock to others to enable them to share in the investment opportunity. ¹¹ She further testified that when she met with Westphal to prepare her 1995 and 1996 taxes, Westphal told her she did not need to file anything with regard to the stock sales because she always sold the stock for less than it was trading. ¹² At the close of her case, Ms. Pree renewed her motion for judgment of acquittal, which the court denied.

2. Jury Instructions and Closing Arguments

Following the presentation of evidence, the court instructed the jury. The court did not give instructions regarding how to determine the total amount of taxable income, nor did it instruct the jury how to calculate basis in stock or net gains from the sale of stock. The defense did not request or offer any instructions on these issues, nor did it raise an objection on the ground that such an instruction should be given. With respect to the summaries, the court used the following pattern instruction:

Certain summaries are in evidence. They truly and accurately summarize the contents of voluminous books, records or documents, and should be considered together with and in the same way as all other evidence in the case.

R.39. The defense did not object to this instruction. Nor did the defense raise a substantive objection to the elements of the law instruction. ¹³

In its closing and rebuttal arguments, the Government emphasized that Ms. Pree was an employee of HCCA, received the stock as compensation, sold the stock throughout the tax years at issue, was repeatedly made aware of her obligation to report the stock sales and yet took affirmative and deceptive steps to avoid reporting that income. The Government further challenged Ms. Pree's explanation of the stock sales as a "favor" to let individuals "share this investment," R.83 at 57-58, as well as Ms. Pree's explanation of stolen records. The Government summarized its evidence by emphasizing that the tax returns Ms. Pree filed for 1995 and 1996 willfully excluded the income Ms. Pree received from her stock sales throughout the relevant time period.

Ms. Pree's counsel's closing argument primarily attacked the Government's argument that Ms. Pree willfully misfiled. Emphasizing the defense theory that Ms. Pree received the stock as a gift, not as compensation, counsel argued that the calculation of gift tax was too complicated for Ms. Pree knowingly to have filed a false return. ¹⁴ Indeed, counsel suggested, Ms. Pree believed she had sustained a loss on the sale of her stock. Ms. Pree's counsel also argued that Ms. Pree had made good faith attempts to meet her filing obligations, but stolen and lost records inhibited her ability to comply. Counsel concluded the argument by urging:

Neither Bette nor her tax preparers had an adequate knowledge of the law. Or even for that matter had sufficient records in order to satisfy the strict requirements of the law. That's not a crime if you had a good faith, honest belief that you were complying with your duty to file tax returns.

R.83 at 54.

3. Jury Verdict

Following deliberation, the jury convicted Ms. Pree of Counts II and III for willfully filing fraudulent returns for 1995 and 1996. At sentencing, the district court enhanced Ms. Pree's sentence on the ground of obstruction of justice for knowingly false testimony on a material matter based on her testimony related to her employment and Westphal's advice. Ms. Pree appeals the district court's denial of the judgment of acquittal on the ground of insufficient evidence. She also appeals the admission of the summary evidence and the adequacy of the jury instructions.

II

 

DISCUSSION

A. Sufficiency of the Evidence

We review first Ms. Pree's challenge to the sufficiency of the evidence. See United States v. Douglas, 874 F.2d 1145, 1150 (7th Cir. 1989), abrogated on other grounds by United States v. Durrive, 902 F.2d 1221 (7th Cir. 1990). Ms. Pree appeals the district court's denial of her motion for a judgment of acquittal. She submits that the Government presented insufficient evidence of unreported income, as well as insufficient evidence that she willfully misreported her income.

1. Standard of Review

The district court's denial of a judgment of acquittal is reviewed de novo. See United States v. Sax, 39 F.3d 1380, 1385 (7th Cir. 1994). The motion should be granted if "the evidence is insufficient to sustain a conviction." Id. (quoting 2 Charles A. Wright, Federal Rules of Criminal Procedure §467, at 655 (1982)). A conviction is reversed only if, viewing the evidence in the light most favorable to the Government, no rational trier of fact could have found the essential elements of the offense beyond a reasonable doubt. See id.; United States v. Chavin, 316 F.3d 666, 672 (7th Cir. 2002). "A defendant has a heavy burden in challenging a conviction based on the sufficiency of the evidence." United States v. Hoover , 175 F.3d 564, 570 (7th Cir. 1999).

2. Sufficient Evidence of Unreported Income

Prosecution under 26 U.S.C. §7206(1) requires that a taxpayer cause to be made and verify as true under penalties of perjury a tax return that the taxpayer knows is not true and correct as to every material matter. See 26 U.S.C. §7206(1); see also United States v. Peters [ 98-2 USTC ¶50,650], 153 F.3d 445, 461 (7th Cir. 1998). Ms. Pree was indicted for tax returns not true and correct as to Line 22, the line for total income on the United States Individual Income Tax Return (Form 1040).

The Government's evidence showed that Ms. Pree received $21,500 from stock sales in 1995 and $60,450 from stock sales in 1996. No portion of either amount was reported on the 1995 and 1996 tax returns. Ms. Pree contends, in this sufficiency challenge, that the Government did not establish that any portion of these amounts represented a net gain, and therefore did not establish that her income tax return was materially false as to total income.

Ms. Pree's argument is unavailing. It is true that the Government did not present evidence of technical valuations of the restricted stock. See Valuation of Securities Restricted from Immediate Resale, Rev. Rul. 77-287, 1977-2 C.B. 319, 321-22 (indicating that factors relevant to the valuation of restricted stock include the earnings, net assets, and net sales of the corporation, the resale provisions of the restricted stock, the relative bargaining strength of the buyers and sellers and the market experience of the corporation's freely tradeable securities), as amplified by Rev. Rul. 80-213, 1980-2 C.B. 101, as amplified by Rev. Rul. 83-120, 1983-2 C.B. 170. Nor, apparently, in cautious deference to Ms. Pree's motion in limine, ¹⁵ did the Government ask investors about the value of their purchases. Nevertheless, the evidence presented by the Government was sufficient to permit an inference that Ms. Pree sold her stock for a net gain in both 1995 and 1996.

Agent Welch testified that Ms. Pree possessed a zero basis in her stock and that the full amount of income received from stock sales should have been included as gross income on Line 22. He clarified this conclusion by explaining that Ms. Pree's basis in that stock was the fair market value of the stock when she received it. However, prior to Ms. Pree's sales, the stock had no readily ascertainable value because it was not publicly traded. By virtue of the restriction, the stock could not be sold in a public transaction. Thus, the only "market" for the stock was the one Ms. Pree created.

The evidence of Ms. Pree's sales permitted, but did not compel, the conclusion that the stock lacked ascertainable value outside the transactions she orchestrated. Despite the large number of shares that Ms. Pree sold, over 43,000 shares in 1995, and well over 150,000 shares in 1996, Ms. Pree testified that she never knew her basis and did not always check the value of the stock before selling it. Moreover, to the extent Ms. Pree or her investors checked the "value" of HCCA stock, that "value" pertained to publicly traded stock, not to the restricted stock sold by Ms. Pree. Additionally, the Government's evidence indicated that, after exhausting the initial block of shares transferred to her, Ms. Pree continued to "sell" stock months and even years before additional shares were registered in her name. Despite Ms. Pree's own statement to investors that the stock represented "the best investment you ever have made," Gov't Ex.15C, Ms. Pree herself apparently retained none of the initial 350,000 shares transferred to her. Under these circumstances, one plausible conclusion is that the stock lacked ascertainable value outside the transactions Ms. Pree engineered. See 26 C.F.R. §1.1001-1(a) (indicating that "in rare and extraordinary cases" property may be considered to have no fair market value).

As we indicated previously, on a sufficiency challenge, we view the evidence in the light most favorable to the Government. In this respect, we note the absence of evidence in the record contradicting the Government's position that the restricted stock lacked ascertainable value prior to Ms. Pree's sales. Although on appeal Ms. Pree advances a valuation of the restricted stock based on factors such as net assets or net sales of the corporation, such evidence is not in the record and was not considered by the jury. Even accepting, arguendo, Ms. Pree's own theory of the stock as a "gift," we note that the record contained no evidence as to the valuation of her "gift basis" in the stock, i.e., evidence of Furlong's basis and any gift taxes paid at the time of transfer. In sum, the trial record will not support a method of valuation different from that employed by Agent Welch --that the full amount of stock sales should be included in income because Ms. Pree possessed a zero basis in the stock. Indeed, Ms. Pree attempted only to convince the jury through her own testimony that she sold all the stock in 1995 and 1996 at a loss or without a gain as a "favor" to her investors. R.69 at 609. The jury was entitled to reject that explanation. See United States v. Agostino, 132 F.3d 1183, 1193 (7th Cir. 1997) (reasoning that a rational jury could have found defendant's explanation not credible).

Finally, we think it is important to note that, to establish falsity as to the 1995 and 1996 returns, the Government needed only to prove that Ms. Pree had unreported income, not the exact amount of such unreported income or the existence of a tax deficiency. See Peters [ 98-2 USTC ¶50,650], 153 F.3d at 461 (indicating that the Government need not establish a tax deficiency in a prosecution under §7206(1)). Based on the evidence presented, a rational jury could have determined that some portion of Ms. Pree's $21,500 stock sales receipts in 1995 and some portion of her $60,450 stock sales receipts in 1996 represented net gain and should have been included as income on the respective tax returns. Having reviewed the evidence presented at trial in the light most favorable to the Government, we must conclude that sufficient evidence of unreported income exists.

3. Sufficient Evidence of Willful Misfiling

Prosecution under §7206(1) also requires that the defendant sign the return willfully, knowing it to be false. See 26 U.S.C. §7206(1); see also Peters [ 98-2 USTC ¶50,650], 153 F.3d at 461. The evidence of willful misfiling is more than sufficient here.

The Government presented evidence that several individuals informed Ms. Pree of her obligation to report income from stock sales in the year such income was received and that Ms. Pree admitted understanding her obligation. In particular, Westphal testified that, following her purchase of stock from Ms. Pree and while preparing her 1995 and 1996 returns, she informed Ms. Pree of her obligation to report stock sales in the year the income was received. Westphal further testified that Ms. Pree failed to reveal any of the 1995 and 1996 stock sales at that time. Also, the IRS Special Agent who investigated Ms. Pree in 1996 testified that she asked Ms. Pree if she was aware that she needed to report income from stock sales in the year the sale was made, and Ms. Pree responded that she was aware. Furthermore, Ms. Pree acknowledged her stock sales income in a self-serving forum --the declaration to the casino in which she indicated income in the amount of $80,000 from retirement, stock sales and social security.

Similarly, the jury was entitled to disbelieve Ms. Pree's testimony that she did not understand the law related to capital gains income. See Agostino, 132 F.3d at 1193 ("The jury ... has the choice to disbelieve the defendant's testimony regarding [her] intent."). The Government's evidence --that Ms. Pree had been informed of her obligation to report income, that she had admitted understanding that obligation and that she acknowledged her stock sales income in another forum --is sufficient to support her convictions. ¹⁶

B. Admission of the Summary Evidence

At trial, Agent Welch testified as a summary witness for the Government. The Government also established his qualifications before the jury. During his testimony, Government Exhibit 101, summarizing Ms. Pree's stock sales during 1994, 1995 and 1996, and Government Exhibit 102, calculating Ms. Pree's 1994 gross income, were offered into evidence. Ms. Pree submits that the court improperly admitted Agent Welch's testimony because Agent Welch exceeded his role as a summary witness. Ms. Pree also argues that the errors in his testimony were compounded by the district court's failure to give a cautionary instruction regarding the summary evidence. At trial, counsel for Ms. Pree raised no objection either to Agent Welch's testimony or to the lack of a cautionary instruction regarding the summary evidence.

1. Standard of Review

This court reviews for plain error the admission of evidence to which an objection was not made at trial. United States v. Williams, 133 F.3d 1048, 1051 (7th Cir. 1998); see also United States v. Beall [ 92-2 USTC ¶50,417], 970 F.2d 343, 347 (7th Cir. 1992) (indicating that review of admissibility of IRS agent's expert testimony would normally occur under abuse of discretion but reviewing under plain error standard for lack of an objection at trial). "[B]efore an appellate court can correct an error not raised at trial, there must be (1) 'error,' (2) that is 'plain,' and (3) that 'affect[s] substantial rights.' " Johnson v. United States, 520 U.S. 461, 466-67 (1997) (quoting United States v. Olano, 507 U.S. 725, 732 (1993)). "If all three conditions are met, an appellate court may then exercise its discretion to notice a forfeited error, but only if (4) the error seriously affect[s] the fairness, integrity, or public reputation of judicial proceedings." Id. at 467 (internal quotations and citations omitted). The defendant bears the burden of establishing that the error affected substantial rights, i.e., "that the outcome probably would have been different without the error." United States v. Colvin, 353 F.3d 569, 577 (7th Cir. 2003) (citing Olano, 507 U.S. at 734).

2. Agent Welch's Testimony

It is well-established that "[t]he nature of a summary witness' testimony requires that he draw conclusions from the evidence presented at trial." United States v. Esser [ 75-2 USTC ¶9654], 520 F.2d 213, 218 (7th Cir. 1975). When a summary witness simply testifies as to what the Government's evidence shows, he does not testify as an expert witness. See United States v. Swanquist, 161 F.3d 1064, 1073 (7th Cir. 1998).

Ms. Pree's primary complaint with Agent Welch's testimony is that Agent Welch concluded from the evidence presented that Ms. Pree possessed a zero basis in her stock. We already have determined, however, that this was a permissible inference in light of the Government's evidence. That evidence showed that Ms. Pree received the stock as compensation, that the stock was restricted, which meant that it only could be sold in private transactions, and that its worth was limited to what Ms. Pree could obtain in the market she created. One plausible inference from the irregular nature of Ms. Pree's sales was that, prior to those transactions, the stock lacked ascertainable value. Accordingly, Agent Welch was entitled to treat Ms. Pree's basis as zero both in his testimony and in the summaries he prepared. See Esser [ 75-2 USTC ¶9654], 520 F.2d at 218 (noting that summary witness's testimony was properly admitted in a tax evasion case when the evidence was sufficient and the witness relied only on that evidence and was available for full cross-examination).

Ms. Pree contends, however, that Agent Welch exceeded his role as a summary witness and provided inadmissible expert testimony in the guise of a summary witness. We believe Agent Welch primarily testified within his role as a summary witness. However, we acknowledge that, in such a case as the present, where an IRS Revenue Agent summarizes the evidence for purposes of establishing the tax consequences, the line between summary testimony and expert testimony is indistinct. Given the assistance such an individual can provide to the jury, it has not been unusual in previous cases for an IRS agent to testify as an "expert summary witness." See United States v. Moore, 997 F.2d 55, 58 (5th Cir. 1993); United States v. Mohney [ 92-1 USTC ¶50,081], 949 F.2d 1397, 1406 (6th Cir. 1991); United States v. Bosch, 914 F.2d 1239, 1242 (9th Cir. 1990); United States v. Dotson, 817 F.2d 1127, 1132 (5th Cir.), vacated in part on reh'g., 821 F.2d 1034 (5th Cir. 1987); see also United States v. Benson [ 91-2 USTC ¶50,437], 941 F.2d 598, 615 (7th Cir. 1991) (Kanne, J., dissenting) ("A summary witness need not necessarily be an expert, but experts in accounting and other disciplines regularly give summary evidence of the sort envisioned by Federal Rule of Evidence 1006." (citing 5 D. Louisell & C. Mueller, Federal Evidence §599, at 540 (1981))), mandate recalled and amended by 957 F.2d 301 (7th Cir. 1992). "As a summary witness, an IRS agent may testify as to the agent's analysis of the transaction which may necessarily stem from the testimony of other witnesses. The agent may also explain his analysis of the facts based on his special expertise." Moore , 997 F.2d at 58. As an expert witness, an IRS agent's "opinion as to the proper tax consequences of a transaction is admissible evidence." United States v. Windfelder [ 86-1 USTC ¶13,668], 790 F.2d 576, 581 (7th Cir. 1986). "Similarly, ... an IRS expert's analysis of the transaction itself, which necessarily precedes his or her evaluation of the tax consequences, is also admissible evidence." Id.

Here, Agent Welch analyzed the stock sales and described the income tax consequences. Although he was not proffered as an expert witness, his qualifications were in evidence. Those qualifications included eighteen years of service with the IRS as a revenue agent, a bachelor's degree in accounting and a master's degree in taxation. While employed by the IRS, he completed additional classes in taxation, specialized training and continuing professional education. At the time of trial, he had conducted approximately two hundred tax audits and had reviewed several thousand audits of other revenue agents. Agent Welch was therefore qualified to express "an opinion as to the proper tax consequences of a transaction" and of the "transaction itself, which necessarily precedes his ... evaluation of the tax consequences." Id. at 581.

Ms. Pree further contends that Agent Welch's testimony was inadmissible to the extent that he stepped into the role of an expert because he failed to use a recognized means of valuation of restricted stock. Agent Welch testified that the stock had no fair market value by virtue of the restriction because it could not be sold in a brokerage house. Admittedly, Agent Welch's statements to this effect were somewhat imprecise. Restricted stock does not lack value, per se, because it cannot be sold on the public market. See Rev. Rul. 77-287, 1977-2 C.B. at 321. Had Ms. Pree raised an objection to Agent Welch's testimony, on the ground that it constituted unreliable expert testimony, the district court would have undertaken the gatekeeping analysis Ms. Pree now recommends to this court. See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993); see also United States v. Conn, 297 F.3d 548, 557 (7th Cir. 2002) (indicating, in reference to a witness who was not proffered as an expert but testified in that role, that "[h]ad the defense had other concerns about the quality of [the agent's] training, the quantity of his experience, or the methodology that he employed in reaching his assessment of [the defendant's] firearms, it could have raised those questions during voir dire").

In the absence of an objection by Ms. Pree to Agent Welch's testimony as unreliable expert testimony, however, we do not perceive plain error. The conclusion that Ms. Pree's basis in the stock should be treated as zero was supported by sufficient evidence. Moreover, Ms. Pree's counsel had an opportunity to cross-examine Agent Welch as to his conclusions regarding the value of the stock. See United States v. Gonzalez, 933 F.2d 417, 429 (7th Cir. 1991) (indicating that "any questions or problems concerning the expert's opinion and testimony may be thoroughly explored during the cross-examination of the expert witness").

Ms. Pree also challenges Agent Welch's testimony as outside his area of expertise and improperly selective. We find no error on these grounds. First, Agent Welch's testimony did not fall outside his area of expertise in violation of our holding in Benson. In Benson, we held that an IRS agent's opinion as to whether the defendant was entitled to social security benefits was outside the agent's area of expertise and thus not admissible as expert testimony. See id. at 605. Unlike the testimony at issue in Benson, Agent Welch's testimony dealt directly with the tax consequences of Ms. Pree's stock sale transactions and the necessary underlying analysis of those transactions. See Windfelder [ 86-1 USTC ¶13,668], 790 F.2d at 581.

Second, Agent Welch did not make impermissible credibility determinations on the issue of whether Ms. Pree received the stock as a gift or as compensation. Rather, Agent Welch permissibly relied upon the Government's abundant evidence that Ms. Pree received her stock as compensation. See Moore, 997 F.2d at 58 ("Perhaps, his testimony was selective but that is why cross examination is allowed."). Moreover, "[i]f a witness' expertise would be helpful to the jury, ... and the facts which he recounts fall within his area of expertise, then there is nothing improper about a selective summary." Id. (internal citation omitted). Agent Welch possessed specialized knowledge of the tax consequences at issue and the evidence necessary to prove the indictment. The facts he recounted fell within his area of expertise. Thus, there was nothing improper as to his selective summary of the Government's evidence. It is true that, at one point, Agent Welch mistakenly testified that the transfer agent had said the stock had no value. ¹⁷ However, Ms. Pree's counsel had an adequate opportunity to conduct cross-examination following that testimony. Agent Welch's mistaken recollection does not create plain error in the admission of his testimony.

As a final response to Ms. Pree's various challenges to Agent Welch's testimony, we emphasize Ms. Pree's ample opportunity to cross-examine and to present her own evidence. Ms. Pree's counsel elicited from Agent Welch an explanation of capital gain as a net figure. Consistent with the defense theory, counsel then explored the computation of gift basis and capital gains and losses from the sale of gifts with Agent Welch. Counsel also attempted to explore Agent Welch's conclusions as to the fair market value of the stock when Ms. Pree received it, but counsel then abandoned the cross-examination on this point. Ms. Pree also had an opportunity to present evidence as to her basis and to the proper valuation of the stock. Given these opportunities, we conclude that no plain error occurred in the district court's admission of Agent Welch's testimony. "[W]here, as here, the defense conducted a thorough cross examination of the witness concerning the disputed matters, and also had the opportunity to present its own version of those matters, the likelihood of any error in admitting summary evidence diminishes." United States v. Norton, 867 F.2d 1354, 1363 (11th Cir. 1989).

3. Summary Charts

Ms. Pree also challenges the admission of Government Exhibits 101 and 102 without a limiting instruction as plainly erroneous. Other courts have held that a cautionary instruction should be given when summary evidence is admitted. See, e.g., United States v. Bishop [ 2001-2 USTC ¶50,762], 264 F.3d 535, 547 (5th Cir. 2001) (noting previously approved instructions that "summaries do not, of themselves, constitute evidence in the case but only purport to summarize the documented and detailed evidence already submitted," and a witness' summary "is not the evidence, the evidence is the documents themselves that he has been referring to"). We ourselves have indicated that, when summary charts are introduced into evidence as a teaching device rather than as substantive evidence, the "'preferred practice' " is "'to give a limiting instruction regarding this purpose.' " United States v. Doerr, 886 F.2d 944, 959 (7th Cir. 1989) (quoting United States v. Howard, 774 F.2d 838, 844 n.4 (7th Cir. 1985)).

No such instructions were given here; rather, a pattern instruction was given with regard to the summary evidence that stated that the summaries "truly and accurately summarize the content of voluminous books, records or documents, and should be considered together with and in the same way as all other evidence in the case." R.39. The Committee on Federal Criminal Jury Instructions for the Seventh Circuit advises that this instruction "should only be given when the accuracy and authenticity of the exhibits are not in question." Pattern Criminal Federal Jury Instructions for the Seventh Circuit 3.15 (1998). The accuracy of Government Exhibits 101 and 102 were not challenged at trial. Although the "preferred practice" with respect to summary evidence is to issue an appropriate cautionary instruction, under the circumstances here, the admission of the summary evidence without such a limiting instruction was not plain error. See also Swanquist, 161 F.3d at 1072-73 (indicating that the defendant had an opportunity during cross-examination to elicit facts suggesting the inaccuracy of summary charts and noting that a "party is not obligated ... to include within its charts or summaries its opponent's version of the facts").

C. Jury Instructions

Ms. Pree submits that the district court should have instructed the jury on the computation of capital gains income. She failed to request this instruction at trial, however. When a party neither requests an instruction nor objects to the court's failure to give it, this court reviews for plain error the failure to give the instruction. See United States v. Gee, 226 F.3d 885, 894 (7th Cir. 2000). "Reversal is proper only if the instructions as a whole are insufficient to inform the jury correctly of the applicable law and the jury is thereby misled." United States v. Madoch, 149 F.3d 596, 599 (7th Cir. 1998).

As a preliminary matter, we note the Government's argument that Ms. Pree waived, not merely forfeited, an objection to the jury instructions. A waiver is an "'intentional relinquishment or abandonment of a known right' " and precludes appellate review. United States v. Griffin, 84 F.3d 912, 924 (7th Cir. 1996) (quoting Johnson v. Zerbst, 304 U.S. 458, 464 (1938)). Waiver extinguishes any error. See id. "A waiver's operative force depends upon the context in which it is made and its precise character." Id. "The right to object to jury instructions on appeal is waived if the record illustrates that the defendant approved of the instructions at issue." Id.

In Griffin , this court found that the defendant waived an objection to the given jury instruction because the defendants' counsel noted that the defendants "would prefer 53A," the instruction at issue on appeal. Id. In this case, Ms. Pree's counsel approved the instruction regarding the elements of the offense, suggesting a modification to clarify only which count of the indictment was involved. However, unlike the defendant in Griffin , Ms. Pree is not requesting plain error review of an instruction she previously approved. Rather, Ms. Pree is arguing that an instruction should have been given that she failed to request. Such circumstances do not present waiver but dictate plain error review. See Gee, 226 F.3d at 894.

Ms. Pree contends that the district court's failure to instruct on the computation of capital gains removed from the jury's consideration one of the elements of the offense, namely falsity as to a material matter. Falsity as to a material matter is an element of a 26 U.S.C. §7206(1) prosecution. See United States v. Peters [ 98-2 USTC ¶50,650], 153 F.3d 445, 461 (7th Cir. 1998). "A false statement is 'material' when it has 'the potential for hindering the IRS's efforts to monitor and verify the tax liability' of the ... taxpayer." Id. (quoting United States v. Greenberg [ 84-1 USTC ¶9509], 735 F.2d 29, 32 (2d Cir. 1984)).

Although the district court did not instruct on the computation of capital gains income, it specifically did instruct the jury that it must find falsity as to a material matter: "To sustain the charge that the defendant willfully made and caused to be made a false individual income tax return as charged in Counts 2 and 3, the Government must prove the following propositions: ... the income tax return was false as to a material matter, as charged in the count ...." R.39. The court also charged the jury as follows:

A line on a tax return is a material matter if the information required to be reported on that line is capable of influencing the correct computation of the amount of tax liability of the individual or the verification of the accuracy of the return.

 

If you find that the defendant willfully understated the amount of total income on her individual tax return, and if you find that the amount of gross receipts on a tax return is essential to a correct computation of the amount of taxable income or tax or to the verification of that return, then you may find that the false and fraudulent statements were false as to a material matter.

R.39.

These instructions were fully adequate as to the element of material falsity. The instructions together with the indictment required the jury to determine whether the amount of total income reported on Line 22 was false on the 1995 and 1996 tax returns. Line 22 is undoubtedly a material matter. Such instructions more than adequately encompass the element of material falsity. Cf. United States v. Fernandez, 282 F.3d 500, 509 (7th Cir. 2002) (declining to find plain error in jury instructions which did not include instruction on materiality but, viewed in their entirety, "encompassed the concept of materiality"). Both parties had ample opportunity to argue how the facts of Ms. Pree's stock sales applied to the element of material falsity.

Additionally, the substantive direction that a capital gains instruction would have provided was already before the jury. Ms. Pree's counsel's cross-examination of Agent Welch clarified that income from the sale of stock was a net figure calculated from the seller's cost basis and the sales amount. The cross-examination highlighted the fact that Ms. Pree only was required to report net gain as income. Thus, the relevance of capital gain to the element of material falsity was presented to the jury.

As a final matter, we note that, in the closing argument, Ms. Pree's counsel chose to emphasize lack of proof that Ms. Pree willfully misreported her income, not absence of proof of capital gain. "When the jury instructions actually given 'as a whole treat a case fairly and accurately,' a defendant is not prejudiced by a district court's failure to give a particular instruction, and under such circumstances we will not disturb the jury instructions on appeal." United States v. Manjarrez, 258 F.3d 618, 626 (7th Cir. 2001) (quoting United States v. Koster, 163 F.3d 1008, 1011 (7th Cir. 1998)). The jury instructions given treated the case against Ms. Pree and her defense fairly and accurately. There was no plain error in the court's failure to sua sponte instruct on the calculation of capital gain.



D. Sentencing

The district court determined Ms. Pree's sentence under the then-mandatory United States Sentencing Guidelines. The court found that the total amount of tax loss was $41,535.10, which resulted in a base offense level of 13. See U.S.S.G. §2T4.1(H). The court added a two-level enhancement based on its finding that Ms. Pree had obstructed justice. See U.S.S.G. §3C1.1. A final offense level of 15 and a criminal history category of I resulted in a sentencing range of 18 to 24 months' imprisonment. The district court sentenced Ms. Pree to 18 months in prison. In addition, the district court ordered Ms. Pree to serve a one-year period of supervised release, with the special condition that she pay taxes owed to the IRS in the amount of $38,852. ¹⁸

Ms. Pree did not challenge the constitutionality of her sentence before the district court or to this court in her original briefs on appeal. Nonetheless, in light of the sea change in federal sentencing law wrought by United States v. Booker, 125 S. Ct. 738 (2005), and this circuit's precedent prior to Booker, we believe it unfair to characterize Ms. Pree as having waived a challenge to the validity of her sentence. Therefore, we invited each party to submit a memorandum presenting its views regarding the application of Booker to this case, which they have done. In these circumstances, both parties submit that our review should be for plain error. We agree.

Under the plain error test, "before an appellate court can correct an error not raised at trial, there must be (1) 'error,' (2) that is 'plain,' and (3) that 'affect[s] substantial rights.' " United States v. Cotton, 535 U.S. 625, 631 (2002) (quoting Johnson v. United States, 520 U.S. 461, 466-67 (1997)). "'If all three conditions are met, an appellate court may then exercise its discretion to notice a forfeited error, but only if (4) the error seriously affect[s] the fairness, integrity, or public reputation of judicial proceedings.' " Id. (quoting Johnson, 520 U.S. at 467).

The Government concedes that the district court committed error that was plain in treating the guidelines as mandatory and enhancing Ms. Pree's sentencing range based on the court's findings of fact. The Government submits, however, that Ms. Pree cannot show that the error affected her substantial rights because she cannot establish that she would have received a different sentence had the district court treated the guidelines as advisory, rather than mandatory. The Government also contends that Ms. Pree cannot show that the error seriously affected the fairness, integrity or public reputation of the judicial proceeding because judicial findings by a preponderance of the evidence are reliable and defendants have been sentenced under the guidelines for eighteen years with the approval of the federal courts. Moreover, the Government submits that Ms. Pree's sentence of 18 months fell within the 12 to 18 months sentencing range that would have applied had her offense level not been enhanced.

Ms. Pree, in turn, submits that, because she has completed her enhanced prison term, remand of that aspect of her sentence is not necessary. However, she contends that, in light of Booker, the district court plainly erred by ordering her to pay the IRS taxes amounting to $38,852 as a condition of her supervised release based solely upon the court's findings of fact. Ms. Pree requests that we vacate this condition of her supervised release and remand this case to the district court for reconsideration of the terms and conditions of her supervised release. ¹⁹

Ms. Pree's restitution obligation was imposed as a condition of her supervised release under the terms of the following sentencing guideline:

§5E1.1 Restitution

(a) In the case of an identifiable victim, the court shall --

....

(2) impose a term of probation or supervised release with a condition requiring restitution for the full amount of the victim's loss, if the offense is not an offense for which restitution is authorized under 18 U.S.C. §3663(a)(1) but otherwise meets the criteria for an order of restitution under that section.

U.S.S.G. §5E1.1(a).

We explained in United States v. George, 403 F.3d 470 (7th Cir. 2005), that

the contention that Booker requires juries rather than judges to assess restitution is misguided. There is no "statutory maximum" for restitution; indeed, it is not a criminal punishment but instead is a civil remedy administered for convenience by courts that have entered criminal convictions, see United States v. Bach, 172 F.3d 520, 523 (7th Cir. 1999); United States v. Newman, 141 F.3d 531, 537-42 (7th Cir. 1998), so the sixth amendment does not apply. We have accordingly held that Apprendi v. New Jersey , 530 U.S. 466, 120 S. Ct. 2348, 147 L.E.2d 435 (2000), does not affect restitution, see United States v. Behrman, 235 F.3d 1049, 1054 (7th Cir. 2000), and that conclusion is equally true for Booker.

George, 403 F.3d at 473. ²⁰

However, George does not deal with the issue that confronts us here. We are not concerned here, as we were in George, with whether the particular requirements of restitution can be set by a judge or must be determined by a jury. Rather, here we are confronted with the antecedent question of whether restitution in any amount should have been imposed as a condition of supervised release. The sentencing court, realizing that its decision was not governed by any explicit statutory command, grounded its decision solely in the sentencing guideline set forth earlier. Because the court acted prior to the advent of Booker, it believed that the guideline mandated the imposition of restitution on the condition of supervised release. Under our precedent, this misapprehension on the part of the trial court warrants our intervention. This is because our cases hold that the mandatory application of the guidelines itself, absent Sixth Amendment error, can amount to plain error in light of Booker. See United States v. White, No. 03-2875, 2005 WL 1023032, at *7 (7th Cir. May 3, 2005), United States v. Schlifer, 403 F.3d 849, 853 (7th Cir. 2005).

On this record we cannot be certain whether the district court would have imposed the condition of restitution upon Ms. Pree's supervised release had it understood the guidelines to be advisory, rather than mandatory. For that reason, we believe it appropriate, while retaining jurisdiction, to direct a limited remand in Ms. Pree's case for proceedings consistent with our circuit's recent decision in Paladino, 401 F.3d at 483-84. See White, slip op. at 13-15 (applying Paladino-limited remand due to mandatory application of the guidelines and noting that, with regard to the fourth prong of plain error, "we can and have predetermined that if the defendant has been prejudiced by an illegal sentence, then allowing that illegal sentence to stand would constitute a miscarriage of justice." (citing Paladino, 401 F.3d at 483; United States v. Pawlinski, 374 F.3d 536, 541 (7th Cir. 2004))).

Conclusion

Accordingly, while retaining jurisdiction, we remand this case to the district court for proceedings consistent with this opinion and this court's decision in Paladino, 401 F.3d at 483-84.

IT IS SO ORDERED

¹ Prior to this court's decision vacating Ms. Pree's sentence, she had completed her term of incarceration and had begun serving her term of supervised release. This court directed that any matter with respect to bail should be addressed to the district court. The Government filed an unopposed motion requesting that the district court place Ms. Pree on bond with the same conditions that were in place prior to her reporting to the Bureau of Prisons. The district court granted this motion.

² According to the stock transfer agent, who later testified at Ms. Pree's trial, the restricted stock could be sold in a private transaction.

³ Ms. Pree also earned $3,622 in gambling income in 1995 and $7,800 in 1996. Ms. Pree received W-2Gs, gambling income reporting forms, from the casinos in which these amounts were won.

⁴ Specifically, the 1995 return reported no gambling winnings while the 1996 return reported $3,622 of gambling income (the amount won in 1995).

⁵ Count I charged Ms. Pree with failing to file an income tax return for 1994. Ms. Pree was acquitted of that charge, and it is not at issue in this appeal.

⁶ Ms. Pree received the stock in 1994 and 1998. Thus, the issue of whether her initial receipt of the stock from Furlong constituted taxable income is not relevant in this appeal, which deals with Ms. Pree's tax liability for 1995 and 1996.

⁷ The Government also relied upon unreported income from gambling wins during those same tax years.

⁸ Some investors who paid Ms. Pree in 1996 did not receive stock certificates until 1999, after new HCCA shares had been issued to Ms. Pree. Ms. Pree received one million additional shares from Furlong in May of 1998.

⁹ The following colloquy occurred between Ms. Pree's counsel and Agent Welch:

Q. ... You don't just report the amount of money you receive from the sale of stocks, isn't that correct?

A. The Schedule D has several columns, you report the gross sale and you report the cost basis and report the net gain or loss.

....

Q. Capital gain or loss is a net figure with respect to the sale of stock, is that correct?

A. It's the net of the year's activity.

Q. So if Ms. Pree sold --received the amount of money you stated she has in your summaries, that's the net --that's the money she got, that doesn't necessarily mean it is a gain or a loss, right?

A. That's the sales price.

R.68 at 324-25.

¹⁰ Ms. Pree's counsel engaged in the following cross-examination of Agent Welch on this issue:

Q. Now, fair market value of the stock Bette sold was basically what somebody would pay for it, wouldn't you agree?

A. When determining the fair market value of restricted stock on the day you receive, I would say the value is zero. You couldn't go across the street from the courthouse here, go into Merle Lynch [sic] and sell that stock because it is restricted, there's no market. There's no market selling that stock. So in my opinion it would be zero.

Q. So that would be your opinion as to the fair market value as opposed to a taxpayer that may be interpreting that 551 of fair market value, is that correct?

A. It would be the market value and there is no market. You would have to go out into a private sale and find someone and negotiate with them to come up with a price that they would pay. And that isn't in place when she receives the stock. You receive the stock, you can't go into the brokerage house across the street and sell it, you have to go out and find someone to sell it to. So on the day you receive that stock, the fair market --

Q. The fair market value could be developed with the first sales transaction, don't you agree?

A. Are we talking about a gift or for service?

Q. I'm talking about the gift?

A. Well, the gift has nothing to do with --

Q. You are wanting to know what the fair market value is?

A. I can just start over.

Q. Probably a good idea. Actually, I think I'm done.

R.68 at 340-41.

¹¹ The following exchange occurred on cross-examination:

Q. You testified that you use [sic] to check the price of stock before you sold it to investors, isn't that right?

A. Sometimes.

....

Q. Sometimes you would sell it without any regard at all to what the current market price was?

A. Yes, I just --yes, I would want some people who maybe had no money or hard life or whatever to have some of this stock. And the money wasn't the main factor in it. The main thing was that in my heart I felt I wanted them to have some of it. And it wasn't to see how much money I could make off of my relatives and my friends.

R.69 at 617-18.

¹² Ms. Pree testified:

A. [Westphal] said that she looked at the information I had there and she said, well, you didn't make any money on this because you sold it for less than it was trading for, so really you have a loss there and you don't need to file it. And she --because I was --and she said, see that, she just wrote it up and she said see.

She also said, you don't have to report a sale until a broker --or until the person has the certificate, until they have the certificate in their hand. And I said oh, because I didn't know.

R.69 at 558-59.

The district court later enhanced Ms. Pree's sentence on the ground of obstruction of justice for knowingly false testimony on a material matter based on her testimony related to her employment and Westphal's advice.

¹³ The defense requested a minor clarification to reflect that the instruction referred to Counts II and III of the indictment.

¹⁴ Specifically, counsel made the following statement:

Why doesn't the prosecution want it to be a gift? Well, ... because you've seen how you tax gifts of stock. That's why. Nobody can figure that out. It better not be a gift or she lost. Because you've seen those I.R.S. tax publications and --Mr. Welch seemed to have a handle on it, but I bet none of you did.

R.83 at 44. Counsel then proceeded to review gift basis and the factors related to such a calculation.

¹⁵ At one point in the trial, during a sidebar conference, the Government indicated that it was treating the motion in limine as precluding evidence of fraud:

Your Honor ... I believe the Defendant had sought in a motion in limine to keep out evidence of the fraud. And realistically what this opens the door to is that there is an enormous fraud by a number of people; and we have made great pains to keep it out; including the Defendant.

R.68 at 258. The court's grant of the motion in limine specifically prevented the Government from asking investors about their satisfaction with the HCCA stock.

¹⁶ The Government also presented unrefuted evidence that Ms. Pree failed to report her gambling income from 1995 and under-reported her gambling income in 1996. Ms. Pree contends, however, that the Government's evidence that she willfully misreported this income is not sufficient.

We note that the W-2G forms are dated. Westphal testified that Ms. Pree presented her with W-2Gs for 1996 only. However, the amount reported for 1996, $3,662, corresponds with the W-2Gs for 1995. No combination of the amounts won in 1996 total $3,662. For these reasons, Ms. Pree contends that "the only logical explanation for the fact that Pree reported exactly $3,622 on her 1996 return instead of her 1995 return is that Westphal mistakenly entered the total gambling income for 1995 on the 1996 return and Pree did not catch her error." Appellant's Reply Br. at 8. Ms. Pree does not address, however, the unreported $7,800 of gambling income properly attributable to 1996.

We do not reach this issue. Having established that the jury could have concluded from the evidence presented that Ms. Pree willfully failed to report income from stock sales in 1995 and 1996, we need not rely upon the gambling winnings as a basis for her conviction.

¹⁷ The following exchange occurred:

Q. [The stock transfer agent] testified here, did she not, that the stock had no market value, isn't that right?

A. Yes, she did.

R.68 at 345. The transfer agent actually had testified that the value was limited to what could be received in a private transaction.

¹⁸ The district court did not expressly cite to a source of authority for imposing this special condition of supervised release. However, it adopted the portion of the presentence report that had recommended the special condition as required by U.S.S.G. §5E1.1(a)(2).

¹⁹ Ms. Pree additionally requests that we order the district court not to impose a term of supervised release that exceeds July 21, 2005, which is the date Ms. Pree would have completed her supervised release had her case not been stayed pending Booker.

²⁰ See also United States v. Rand, 403 F.3d 489, 495 n.3 (7th Cir. 2005) (noting that, because restitution is civil in nature, and not criminal punishment, restitution orders are not governed by Apprendi v. New Jersey, 530 U.S. 466 (2000), or United States v. Booker, 125 S. Ct. 738 (2005)); accord United States v. Garcia-Castillo, No. 03-2166, 2005 WL 327698, at *5 (10th Cir. Feb. 11, 2005) (unpublished) (determining that Booker did not apply because restitution is not a criminal punishment and concluding that United States v. Wooten, 377 F.3d 1134, 1144-45 & n.1 (10th Cir. 2004), in which another panel of that court stated that courts commonly regard restitution as a criminal penalty but rejected challenge based on Apprendi and Blakely v. Washington, 124 S. Ct. 2531 (2004), because the restitution ordered did not exceed the value of the damaged property --the maximum allowed by statute --was not controlling because earlier circuit precedent clearly held that restitution is a criminal punishment).

Other courts of appeals also have held that Apprendi does not apply to orders of restitution. See United States v. Ross, 279 F.3d 600, 609-10 (8th Cir. 2002) (stating that restitution constitutes a criminal penalty and deciding that, even if Apprendi does apply to restitution orders, the amount of restitution ordered was valid because it fell under any statutory maximum); United States v. Syme, 276 F.3d 131, 159 (3d Cir. 2002) (holding, under the plain error standard of review, that although restitution ordered under 18 U.S.C. §3663 is a criminal penalty, the Apprendi rule did not apply because the statute does not prescribe a statutory maximum amount); United States v. Bearden, 274 F.3d 1031, 1042 & n.4 (6th Cir. 2001) (noting that most courts have held that restitution is, at least in part, criminal punishment but holding that restitution order did not conflict with Apprendi because it did not exceed the relevant statutory maximum).

However, we acknowledge that "[w]hether restitution is a criminal punishment and whether restitution is subject to Apprendi, Blakely, and Booker are by no means settled questions in courts across the country." Garcia-Castillo, 2005 WL 327698, at *5 n.4 (collecting cases); see also United States v. McDaniel, 398 F.3d 540, 554 n.12 (6th Cir. 2005) (noting, without expressing an opinion, that although courts generally have recognized that Apprendi did not render the Mandatory Victims Restitution Act unconstitutional, "there is some question as to whether Booker requires us to reconsider our analysis of criminal defendants' jury trial rights with respect to restitution orders"); United States v. Trala, 386 F.3d 536, 547 n.15 (3d Cir. 2004) (rejecting Blakely challenge to restitution order on the ground that the amount of restitution was not a disputed issue of fact); United States v. DeSoto, No. 04-12307, 2005 WL 901878, at *6 (11th Cir. Apr. 19, 2005) (unpublished) ( "Because neither the Supreme Court nor this Circuit has addressed whether Booker applies to restitution, any error cannot be plain.").

In any event, none of these cases speak to the precise issue in this case: whether the district court erred by imposing restitution, in any amount, as a condition of supervised release under the guidelines.