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BACKGROUND

We take the following facts from one of our prior opinions in this case: ¹

The conspiracy count alleges that Defendants operated an organization known as "Association de Libertas" (ADL) that conducted "constitutional history seminars" throughout the United States . It further alleges that ADL leaders falsely told the seminar attendees that they were "nonresident aliens" exempt from most federal income taxes. For a fee of $1,500 to $1,600 for "forms training," ADL instructors taught the attendees how to complete an amended return form (Form 1040X) and/or a nonresident alien income tax return form (Form 1040NR), falsely claiming a refund for past years' taxes. In addition to the above fee, ADL also required one-third of any refund. To ensure payment, the mailing address of an ADL instructor or "escrow agent" appeared on the amended returns. The false return counts allege that the Defendants assisted in preparation of tax returns that were false and fraudulent as to a material matter, specifically classifying the taxpayers as nonresident aliens when the taxpayers were in fact residents of the United States subject to taxation and not entitled to the refunds claimed.

United States v. Ambort, 193 F.3d 1169, 1170-71 (10th Cir. 1999).

ADL participants could also pay $2500 to attend an "instructors" seminar. All payments for seminars were made in cash, money order, or cashier's check. An ADL representative told one of the participants that the cash-only policy was used because cash could not be traced by the government. Graduates of the "instructors" seminars were eligible to enroll new clients in ADL and would receive a portion of the fees the new enrollees paid.

The basic precept of the ADL's seminars was that anyone can, for federal income tax purposes, claim to be a "nonresident alien" with no domestic-source income. ADL instructors told participants that the Fourteenth Amendment changed the definition of citizenship so that only non-white residents of the territorial United States were actually "residents" for income tax purposes. Thus, Ambort and his co-defendants told customers that they were to claim on their income tax returns that they were nonresident aliens, regardless of their place of birth, and to write "n/a" in the place where the tax forms asked for the taxpayer's social security number. They also told customers that they could use IRS Form 1040X to file a corrected return for the previous three tax years, assert nonresident status for each year, and obtain a full refund of any taxes paid or withheld for that period.

Ambort was aware that the ADL position was not accepted law, and that the IRS had rejected it. He was aware that tax returns submitted by numerous ADL clients had been returned as frivolous by the IRS and had incurred penalties.

Ambort was tried and convicted by a jury, along with three of his alleged co-conspirators. The district court ordered Ambort detained pending sentencing. This court affirmed the district court's order denying his request for release pending sentencing and appeal. United States v. Ambort, No. 03-4117, 2003 WL 21685825 (10th Cir. July 18, 2003). The United States Supreme Court denied Ambort's petition for a writ of habeas corpus seeking his release pending appeal. In re Ambort, 124 S.Ct. 356 (mem.) (Oct. 6, 2003). The district court subsequently sentenced Ambort, pursuant to the United States Sentencing Commission, Guidelines Manual ("USSG"), to 108 months' imprisonment, the top end of Guideline range, followed by five years of supervised release.

In this fourth appearance before our court, Ambort argues (1) the district court erred by improperly limiting the scope of his good faith defense; (2) the district court erred in refusing to grant his motion to dismiss the indictment; and (3) the district court erred in enhancing his offense level based upon various judge-found facts, in violation of Blakely v. Washington, 124 S.Ct. 2531 (2004), and United States v. Booker, 125 S.Ct. 738 (2005). ²

DISCUSSION

I. Good Faith Defense

Ambort was charged with "willfully aid[ing] and assist[ing]" in the preparation of false income tax returns and with conspiring with others to do so. In the context of criminal tax statutes, the standard for willfulness "requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Cheek v. United States [ 91-1 USTC ¶50,012], 498 U.S. 192, 201 (1991); see United States v. Guidry [ 2000-1 USTC ¶50,118], 199 F.3d 1150, 1156 (10th Cir. 1999); United States v. Willie [ 91-2 USTC ¶50,409], 941 F.2d 1384, 1392 (10th Cir. 1991).

Ambort does not, and cannot, argue that he has a good faith belief that he is a nonresident alien not subject to taxation. We have specifically said as much, and Ambort concedes that his argument has been repeatedly rejected. See Ambort v. United States, 392 F.3d 1138, 1140 (10th Cir. 2004) ("The federal courts have long rejected Ambort's rationale for lack of tax liability."); Benson v. United States, Nos. 94-4182, 95-4061, 1995 WL 674615, at **3 (10th Cir. Nov. 13, 1995) (unpublished) ("Mr. Ambort's argument that he is a nonresident alien not subject to taxation is frivolous."); ³ R. Vol. XXVII at 898. He argues that he has a good faith belief that he was pursuing the proper procedure to attempt to change that law. He relies upon the following passage from Cheek: "There is no doubt that Cheek, from year to year, was free to pay the tax that the law purported to require, file for a refund and, if denied, present his claims of invalidity, constitutional or otherwise, to the courts." Cheek [ 91-1 USTC ¶50,012], 498 U.S. at 206. Ambort thus claims that he and the people he counsels in the ADL seminars are simply following the procedure outlined in Cheek, which demonstrates that they did not act willfully: "[I]f a defendant has a good faith belief that he is using the proper procedure for challenging the tax laws, he has not acted wilfully under Cheek." Appellant's Opening Br. at 9.

Ambort claims the district court impermissibly restricted his right to present that good faith defense by excluding as irrelevant certain testimony. In particular, at several times during their trial, Ambort and his co-defendant, John Benson, talked about the procedures they were employing and were urging others to employ (pay the tax assessed, file for a refund, and seek further relief in court if the refund was denied) to challenge the established law as to who is a resident subject to taxation. On one occasion, the court responded to Ambort's testimony as follows:

Let me interrupt here.

I am going to give you the instructions of the law in a little while, not that long from now, but I do want you to understand what are and are not proper defenses. It is a proper defense to the crimes charged here for the defendants to claim that they had a good faith belief that what they were advocating was lawful even though it wasn't. A good faith belief is a defense.

 

Even a good faith belief that resorting to knowing criminal activity as a method of gaining access to the court system is not a defense to a crime. I don't want there to be any confusion on that.

R. Vol. XXVIII at 1120-21. On another occasion, co-defendant Benson stated that he was "trying to explain why we gave the seminars and that is the same reason why when the tax court ruled against us that that has to happen if you're going to get that case up to the Supreme Court eventually and that is the system." R. Vol. XXVII at 961. The court responded "[n]ow, I am going to strike that from the record. I am going to strike that statement to the extent that it is trying to tell the jury what the system was. It is hard for me to see that that is relevant, you telling the jury that that is the system." Id.

Later in Benson's testimony, the following exchange occurred:

MR. BENSON: [A]s I read Section 7422 of the Internal Revenue Code it provided that instead of going against the collector you would bring your action against the government. It substituted the government in lieu of the collector. But they also said before you could go against the government you had to first go through an administrative step of filing your claim for a refund.

MR. BAILEY [Government counsel]: Your Honor, I object. We seem to be getting away from the issues.

THE COURT: The objection is on what basis?

MR. BAILEY: Relevance.

THE COURT: Sustained.

MR. BENSON: Well, at any rate, I relied on my reading of Section 7422 as the right as an administrative --

MR. BAILEY: Same objection, Your Honor.

THE COURT: Mr. Benson, let me explain something about the law of evidence to you.

When I sustain an objection and find something irrelevant then you're [sic] next phrase cannot be, at any rate, and then you go right back into the same subject.

MR. BENSON: I was simply --

THE COURT: You may disagree with my ruling but it is the ruling and you have to move on to a different subject.

R. Vol. XXVIII at 1018-19. Ambort argues "[w]ith these rulings, the district court effectively precluded defendants from presenting and arguing the nature of their good faith in filing their claims." Appellant's Opening Br. at 15.

Neither Ambort nor Benson objected to the district court's evidentiary rulings, so our review is limited to determining whether the court's rulings were plain error. ⁴ See United States v. Ramirez, 348 F.3d 1175, 1181 (10th Cir. 2003). To establish plain error, Ambort must show that there is "(1) an error; (2) that is plain or obvious; (3) that affects his substantial rights; and (4) that seriously affects the fairness, integrity, or public reputation of judicial proceedings." United States v. Hernandez-Rodriguez, 352 F.3d 1325, 1329 (10th Cir. 2003).

We conclude that the district court did not err, let alone commit plain error, when it excluded as irrelevant Ambort's or Benson's testimony on their good faith belief that they were pursuing the proper procedure to challenge the established law. The fundamental premise of Ambort's ADL teachings was that certain people could claim to be "nonresident aliens" not subject to the tax laws. Ambort knew that that viewpoint was contrary to well-established law. He cannot disguise his knowing disregard of well-established legal principles and duties as a good faith procedural effort to evade those principles and duties. As the Court stated in Cheek, "a defendant's views about the validity of the tax statutes are irrelevant to the issue of willfulness and need not be heard by the jury, and, if they are, an instruction to disregard them would be proper." Cheek [ 91-1 USTC ¶50,012], 498 U.S. at 206. That is precisely what the district court did in this case.

Moreover, while Ambort places great reliance upon other language in Cheek stating that a taxpayer may challenge the tax laws by filing for a refund and appealing the denial of the refund to the courts, we have already reminded Ambort that "[a]n important qualification, made throughout the passage [in Cheek, referring to this "safe harbor" mechanism], however, is that a taxpayer also must be willing 'to accept the outcome.'" Ambort, 193 F.3d at 1171 n.1 (quoting Cheek [ 91-1 USTC ¶50,012], 498 U.S. at 206). In any event, "Cheek simply does not address any right to enlist and prepare returns on behalf of others, as alleged in this case." Id.

II. Denial of Motion to Dismiss Indictment

Ambort, adopting the argument in co-defendant Benson's brief, argues that the district court erred when it denied his motion to dismiss the indictment. Neither Ambort's nor Benson's briefs indicate which precise motion or motions are challenged. We therefore assume that the government's assessment is correct:

[I]t appears that [Ambort] is referring to the defendants' joint motion to dismiss filed April 24, 2000 , in which they contended, as here ... that 26 U.S.C. [§] 7206 was overbroad as applied to their conduct, because it allegedly infringed on their putative First Amendment right to petition the government for redress.... Benson's brief also raises some arguments first presented to the District Court in [Ambort]'s September 26, 2000 motion to dismiss.... In that motion, [Ambort] asserted, as he does now ... that §7206 does not make criminal inaccurate statements of a legal position and that the indictment therefore failed to state an offense.

Appellee's Br. at 11.

"Generally, we review the grant or denial of a motion to dismiss an indictment for an abuse of discretion. However, when the dismissal involves issues of statutory interpretation, or when the sufficiency of a charge is challenged, we review the district court's decision de novo." United States v. Giles, 213 F.3d 1247, 1248-49 (10th Cir. 2000) (citing United States v. Wood, 6 F.3d 692, 694 (10th Cir. 1993)). "We test the indictment 'solely on the basis of the allegations made on its face, and such allegations are to be taken as true.'" United States v. Reitmeyer, 356 F.3d 1313, 1316-17 (10th Cir. 2004) (quoting United States v. Hall, 20 F.3d 1084, 1087 (10th Cir. 1994)).

Ambort makes two arguments here: first that the government's prosecution of him has denied him his First Amendment right to petition for redress; and second, that, because he was following, and was encouraging others to follow, the "safe harbor" mechanism described in Cheek (to pay the tax, file for a refund and, if denied, petition the courts), and because the tax returns in question were accompanied by correct information, the indictment against him should have been dismissed because his conduct was not criminal under §7206.



A. First Amendment

As the government correctly points out, the First Amendment provides no protection for knowingly fraudulent or frivolous claims. "The first amendment interests involved in private litigation ... are not advanced when the litigation is based on intentional falsehoods or on knowingly frivolous claims." Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 743 (1983) (citing Thomas A. Balmer, Sham Litigation and the Antitrust Laws, 29 Buff. L. Rev. 39, 60 (1980)). The indictment alleged that Ambort and his co-defendants conspired to defraud the IRS by assisting in the filing of false tax returns and that, in particular, they told their ADL seminar attendees that they were "nonresident aliens" who were exempt from most United States income taxes, when "in truth and in fact as defendants ... well knew... the ... taxpayers were not." Indictment at 6-7, R. Vol. I. Claiming that they were actually pursuing in good faith what they believed was the proper procedure to attempt to evade the consequences of their intentional and knowing fraud does not somehow bring their conduct within the First Amendment's protection. As we have acknowledged, "the right to petition is not an absolute protection from liability." Cardtoons, L.C. v. Major League Baseball Players Ass'n, 208 F.3d 885, 891 (10th Cir. 2000).

B. Criminal Conduct Under §7206

Ambort also appears to argue that "[c]riminal tax law does not and cannot reach differences in legal positions" and that the conduct alleged in the indictment "is not a crime." Appellant Benson's Br. at 8, 16. He alleges that the tax returns in question were all submitted with correct information on them, but that he (and the taxpayers whose refunds he had helped prepare) simply came to a different legal conclusion as to their residency. He thus claims that his conduct did not constitute a crime under 26 U.S.C. §7206(2).

The indictment alleged, as §7206 requires, that Ambort conspired to and aided others in filing tax returns that were "false and fraudulent as to material matters." Indictment at 2, 6, R. Vol. I. The returns asserted that the taxpayers were nonresident aliens, when in fact, as Ambort knew, they were not nonresident aliens under well-established tax law principles. It is irrelevant that the returns may have also included information from which the IRS could, and in fact did, determine that the representation of residency status was false. The fact that the scheme ultimately failed to fool the IRS does not vitiate the fraudulent nature of the scheme.

III. Sentencing Issues

In sentencing Ambort, the district court determined that his base offense level was nineteen, based upon an amount of loss exceeding $2.5 million but less than $5 million. The court then added two points for deriving substantial income from the enterprise, two points for the use of sophisticated means, two points for being in the business of assisting people in the filing of tax returns, and four points for being a leader and organizer, resulting in a Guidelines range of 87-108 months. The court sentenced Ambort to 108 months, the high end of the range.

In his opening brief on appeal, filed on May 7, 2004, Ambort argued only that the district court erred in enhancing his offense level by two points under USSG §2T1.1(b)(2) because "sophisticated means were used to impede discovery of the nature or extent of the offense." After his opening brief was filed, and while his appeal was pending, the Supreme Court held in Blakely v. Washington, 542 U.S. __, 124 S.Ct. 2531 (2004), that, "in a state prosecution the Sixth Amendment requires that the maximum permissible sentence in a given case must be determined solely by reference to 'facts reflected in the jury verdict or admitted by the defendant.'" United States v. Gonzalez-Huerta, No. 04-2045, 2005 WL 807008, at *1 (10th Cir. Apr. 8, 2005) ( en banc) (quoting Blakely, 124 S.Ct. at 2537). In United States v. Booker, 543 U.S. __, 125 S.Ct. 738 (2005), the Court applied Blakely's rationale to the federal sentencing guidelines: "[a]ny fact (other than a prior conviction) which is necessary to support a sentence exceeding the maximum authorized by the facts established by a plea of guilty or a jury verdict must be admitted by the defendant or proved to a jury beyond a reasonable doubt." Id. at 756. To remedy this constitutional infirmity the Court held the Guidelines are advisory. Booker applies to all cases pending on direct review. Id. at 769.

Ambort argues that under Blakely, his total offense level should be fourteen, not twenty-nine, as the district court found, because he claims the district court enhanced his base offense level after finding various factors which were not contained in the indictment, admitted by Ambort, or submitted to the jury. We consider that argument in light of Booker.

Because the district court judge enhanced Ambort's sentence based upon judge-found facts, Ambort presents a Sixth Amendment constitutional error under Booker. See Gonzalez-Huerta, 2005 WL 807008, at *2 (discussing difference between Booker constitutional error and Booker non-constitutional error). Although Ambort challenged the evidentiary basis for the judge-found facts as to the sentencing enhancements, he did not argue at trial that the use of the Guidelines violated the Constitution. See United States v. Dazey, Nos. 03-6187, 03-6205, 03-6208 & 03-6228, 2005 WL 846227, at *19 (10th Cir. Apr. 13, 2005). Because he failed to raise this issue below, we review for plain error. Gonzalez-Huerta, 2005 WL 807008, at *3; cf. Booker, 125 S.Ct. at 769 ("[W]e expect reviewing courts to apply ordinary prudential doctrines, determining, for example, whether the issue was raised below and whether it fails the 'plain-error' test.").

"Plain error occurs when there is (1) error, (2) that is plain, which (3) affects substantial rights, and which (4) seriously affects the fairness, integrity, or public reputation of judicial proceedings." Gonzalez-Huerta, 2005 WL 807008, at *3 (further quotation omitted). "We conduct this analysis 'less rigidly when reviewing a potential constitutional error.'" Dazey, 2005 WL 846227, at *19 (quoting United States v. James, 257 F.3d 1173, 1182 (10th Cir. 2001)).

Under Booker it is clear that the district court erred when it sentenced Ambort, and that error is plain. See Gonzalez-Huerta, 2005 WL 807008, at *3; Dazey, 2005 WL 846227, at **19-20. We turn to the "more difficult question" of "whether the constitutional error in [Ambort's] case affects his substantial rights." Dazey, 2005 WL 846227, at *20. To affect the defendant's substantial rights, "the error must have been prejudicial: It must have affected the outcome of the district court proceedings." United States v. Olano, 507 U.S. 725, 734 (1993). Ambort bears the burden of making this showing. Gonzalez-Huerta, 2005 WL 807008, at *3; see also United States v. Vonn, 535 U.S. 55, 63 (2002). To meet this burden, Ambort must show "'a reasonable probability that, but for the error claimed, the result of the proceeding would have been different.'" Gonzalez-Huerta, 2005 WL 807008, at *3 (quoting United States v. Dominguez Benitez, 524 U.S. 74, 124 S.Ct. 2333, 2339 (2004)).

We have recently stated:

In a case of constitutional Booker error, there are at least two ways a defendant can make this showing. First, if the defendant shows a reasonable probability that a jury applying a reasonable doubt standard would not have found the same material facts that a judge found by a preponderance of the evidence, then the defendant successfully demonstrates that the error below affected his substantial rights. This inquiry requires the appellate court to review the evidence submitted at the sentencing hearing and the factual basis for any objection the defendant may have made to the facts on which the sentence was predicated. Second, a defendant may show that the district court's error affected his substantial rights by demonstrating a reasonable probability that, under the specific facts of his case as analyzed under the sentencing factors of 18 U.S.C. §3553(a), the district court judge would reasonably impose a sentence outside the Guidelines range.

Dazey, 2005 WL 846227, at *20 (footnotes omitted). Ambort cannot satisfy either test, nor does he demonstrate in any other way that his substantial rights were affected.

Under the 1991 Guidelines applicable to Ambort's offense, the district court determined Ambort caused a tax loss of more than $2.5 million, but less than $5 million, which was less than that recommended by the probation office in the PSR. While Ambort challenged that figure at his sentencing, the district court concluded that it "can without any hesitation find beyond a preponderance of the evidence that [the government] justif[ies] $2.6 million." R. Vol. XXXI at 28. When the question of the amount of loss arose again later in the sentencing proceeding, and the district court indicated a willingness to take a recess to conduct further investigation into the proper amount of loss, defense counsel declined, stating "we understand how you have arrived at that and we understand you are giving the benefit to the defendants in one regard.... We will go ahead and submit it on that." Id. at 60. His concession at sentencing renders the amount of the loss as determined by the district court an admitted fact. Not surprisingly, Ambort did not challenge that finding in his initial appellate brief.

Ambort also contested the leader or organizer enhancement, claiming that the ADL participants were "kind of a loose collection of people, each of whom sort of had a role, and there is no question that Mr. Ambort in some way managed things ... but I don't see those attributes of a true leader or organizer." R. Vol. XXXI at 15. The district court rejected that argument, finding:

[a]s to role in the offense, I think that it is clear. Mr. Ambort by his own admission he was A.D.L. and he organized it, he spoke on the videotape, he spoke frequently about it, and his was the mailing address in Oregon where information was sent and he hired people to work for the organization. It was definitely in excess of the five persons required to qualify Mr. Ambort for four points as being an organizer or leader.

Id. at 66. Ambort again did not initially challenge that finding on appeal, and the record overwhelmingly supports that finding.

Ambort further contested the two-point enhancement for deriving substantial income from the enterprise and the two-point enhancement for being in the business of preparing or assisting in the preparation of tax returns. The district court found that it was "clear that [Ambort] received basically his entire livelihood" from his criminal enterprise, and that he clearly assisted in the preparation of tax returns. Id. at 60-61. Ambort did not challenge either one of those findings in his initial appellate brief, and the record overwhelming supports them.

Finally, the enhancement Ambort challenges most vigorously, and the only enhancement he challenged in his initial appellate brief, is the two-point enhancement for the use of sophisticated means. The 1991 Guidelines stated that "[i]f sophisticated means were used to impede discovery of the nature or extent of the offense, increase [the base offense level] by 2 levels." USSG §2T1.1(b)(2) (1991). The commentary provides that "'[s]ophisticated means,' as used in §2T1.1(b)(2), includes conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case. An enhancement would be applied for example, where the defendant used offshore bank accounts, or transactions through corporate shells." USSG §2T1.1(b)(2), comment. (n.6).

At sentencing, Ambort contested the factual basis for the district court's enhancement for use of sophisticated means, arguing that the ADL seminars were advertised and conducted in the open, and really espoused a simple idea about tax liability. The district court rejected Ambort's argument, finding that Ambort had employed "sophisticated means," including:

the overall operation of this program that was designed to provide a basis that someone could articulate later on for trying to explain to someone else why they, A, thought they were a non-resident alien and entitled to that status tax filing and, B, what history and case law precedent and all of the rest supported that belief. As a third element that it was genuinely held.

R. Vol. XXXI at 62. The court further explained:

The fact that the seminars included information about how not to include proper addresses and not to include Social Security numbers which would allow the taxpayer to be more quickly traced, the use of the symbols N.A. ... instead of a Social Security number, and the reasons why it shouldn't be on there, are just other examples of why sophisticated means were used to impede discovery of the nature or extent of the offense.

Id. The record amply supports the district court's conclusion.

Even "[t]aking the requisite 'less rigid[]' approach appropriate to constitutional error," Dazey, 2005 WL 846227, at *22, we conclude that Ambort has failed to show a reasonable probability that a jury evaluating the above evidence and applying a reasonable doubt standard would not have found the same material facts that the district court found with respect to Ambort's offense. The only enhancement which Ambort seriously contests on appeal is the one for the use of sophisticated means, and we conclude that the record overwhelming supports the application of that enhancement. See United States v. Riccardi, No. 03-3132, 2005 WL 896430, at *20 (10th Cir., Apr. 19, 2005) ("The plethora of evidence supporting the district court's factual findings strongly suggests that these findings were correct.").

We further conclude that there is no "reasonable probability that if the district judge had not thought himself bound by the mandatory Guidelines to sentence in accordance with these judge-found, preponderance-of-the-evidence facts," he might have determined that Ambort's conduct warranted a sentence lower than that imposed. Id. We observed in Dazey that a defendant might make such a showing "if during sentencing the district court expressed its view that the defendant's conduct, based on the record, did not warrant the minimum Guidelines sentence." Id. at *20. Nothing in the record in this case suggests that the district court, sentencing post- Booker under a discretionary system, would have imposed a lesser sentence, regardless of whether it found the identical enhancements appropriate. ⁵ Indeed, the court sentenced Ambort at the top of the Guideline range, although the court could have sentenced him anywhere within that range. See Riccardi, 2005 WL 896430, at *20 (noting that sentence at the top of the Guideline range supported the conclusion that the defendant's substantial rights were not violated); United States v. Lawrence, No. 02-1259, 2005 WL 906582, at *12 (10th Cir. Apr. 20, 2005) (noting that the district court's imposition of a sentence two months above the bottom of the range supported the conclusion that the defendant failed to show that his sentence would "likely change to a significant degree if [the case] were returned to the district court for discretionary resentencing" for purposes of meeting the fourth prong of plain-error review). The district court gave no indication that it felt constrained in any way by the Guidelines, or in any way inclined to impose a different sentence.

In sum, because Ambort has failed to "show a reasonable probability that either the factual predicate for sentencing would be different if the district court were not required to sentence on the basis of judge-found, preponderance-of-the-evidence facts, or that the ensuing sentence would be different if the court were entitled to greater latitude in considering the sentencing factors of 18 U.S.C. §3553(a), there is no basis for concluding that the error affected his substantial rights." Dazey, 2005 WL 846227, at *21. We accordingly hold that Ambort has failed to establish that his substantial rights were violated by the district court's erroneous mandatory enhancement of his offense level and subsequent sentence selection. We therefore do not consider whether we need to notice any such error. ⁶

CONCLUSION

For the foregoing reasons, we AFFIRM Ambort's conviction and sentence.

¹ Ambort and three co-defendants previously appealed an order of the district court denying their motion to dismiss the indictment. We dismissed the appeal for lack of jurisdiction. United States v. Ambort, 193 F.3d 1169 (10th Cir. 1999). He attempted another unsuccessful interlocutory appeal and request for mandamus relief. United States v. Ambort, Nos. 01-4077, 01-4078, 01-4079, 2002 WL 1647232 (10th Cir. July 24, 2002), cert. denied, 537 U.S. 1076 (2002).

² Both parties have filed supplemental briefs on the effect of Blakely. As indicated, infra, we consider the effect of Blakely in light of Booker.

³ While we ordinarily do not cite unpublished opinions, we do so here because it directly relates to this case. See 10th Cir. R. 36.3.

⁴ Ambort argues that he really is objecting to the district court's rulings on the scope of the defense he attempted to present. He argues that we should review that issue de novo. Under any standard of review, we would uphold the district court's rulings.

⁵ As we have recently acknowledged, "the Supreme Court's holding in Booker would not have prohibited the district court from making the same factual findings and applying the same enhancements and adjustments to [defendant's] sentence as long as it did not apply the Guidelines in a mandatory fashion." United States v. Lawrence, No. 02-1259, 2005 WL 906582, at *12 (10th Cir. Apr. 20, 2005); see also Dazey, 2005 WL 846227, at *21 (noting that constitutional Booker error "is the use of extra-verdict enhancements in a mandatory guidelines system").

⁶ We note that, in Gonzalez-Huerta, we stated that we need not address the third prong of plain-error review if we conclude that the defendant could not satisfy the fourth prong by demonstrating that the district court's error seriously affected the fairness, integrity, or public reputation of judicial proceedings. Gonzalez-Huerta, 2005 WL 807008, at *6; see also United States v. Lawrence, No. 02-1259, 2005 WL 906582, at *12 (10th Cir. Apr. 20, 2005). However, we see no reason not to resolve a case on the ground that the defendant failed to show that his substantial rights were affected, if the record makes it clear, as in this case, that the defendant has failed to meet his burden to show such an effect.

 

 

 

 

[2005-2 USTC ¶50,454] United States Of America , Plaintiff-Appellee v. John Benson, Defendant-Appellant.

U.S. Court of Appeals, 10th Circuit; 03-4249, May 5, 2005 .

Affirming an unreported DC Utah decision.

[ Code Sec. 7206]

Crimes: Fraud and false statements: Aiding and advising preparation of false returns: Mandatory enhancement of base offense: Sentencing Guidelines. --

The erroneous mandatory enhancement, based on judge-found facts, of a seminar organizer's base offense and the consequent enhanced sentencing for knowingly and intentionally assisting others to prepare fraudulent returns was affirmed. The sentencing did not adversely affect his substantial rights. He failed to demonstrate a reasonable probability that his sentence would be significantly lowered if the case were remanded.

Before: Kelly, Anderson and Tymkovich, Circuit Judges.

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

ORDER AND JUDGMENT ^*

ANDERSON, Circuit Judge: Defendant John W. Benson appeals from his conviction and sentence following a jury trial on one count of conspiracy to defraud the United States by assisting in the preparation of false tax returns, in violation of 18 U.S.C. §371, and sixty-nine counts of aiding and assisting in the preparation of false federal tax returns, in violation of 26 U.S.C. §7206(2). He was sentenced to seventy-two months' imprisonment.

Benson was tried along with co-defendant Ernest Glenn Ambort. Both Benson and Ambort were convicted on identical charges and they raise identical issues on appeal. We have recently issued an opinion affirming Ambort's conviction and sentence. United States v. Ambort [ 2005-2 USTC ¶50,453], No. 03-4243, 2005 WL1023345 (10th Cir. May 3, 2005). For the reasons stated in that opinion, we affirm Benson's conviction. We address separately the propriety of Benson's sentence under Blakely v. Washington, 124 S.Ct. 2531 (2004), and United States v. Booker, 125 S.Ct. 738 (2005).

Like Ambort, Benson challenges the district court's mandatory enhancement of his sentence based upon judge-found facts, in accordance with the United States Sentencing Commission, Guidelines Manual (Nov. 1991). Benson argues that, under Blakely, his total offense level should be fourteen, not twenty-nine, as the district court found. We now consider that argument, in light of Booker, which applied Blakely's rationale to the federal Sentencing Guidelines so that "[a]ny fact (other than a prior conviction) which is necessary to support a sentence exceeding the maximum authorized by the facts established by a plea of guilty or a jury verdict must be admitted by the defendant or proved to a jury beyond a reasonable doubt." Booker, 125 S.Ct. at 769.

As indicated, the district court initially calculated Benson's total offense level at twenty-nine, based upon an amount of loss more than $2.5 million but less than $5 million, and including enhancements for deriving substantial income from the enterprise, for the use of sophisticated means, for being in the business of assisting people in the filing of tax returns, and for being a leader and organizer. The court did so expressly because of the same factual findings the court made with respect to Ambort's conduct. See Ambort [ 2005-2 USTC ¶50,453], 2005 WL 1023345, at **6-10; R. Vol. XXXII at 3, 8-9. This yielded a Guideline range of 87-108 months. Benson moved for a downward departure on the basis of his age and health. ¹ The court granted the departure, departing down two levels to a total offense level of twenty-seven "based on extraordinary physical impairment and advanced age." R. Vol. XXXII at 9. This yielded a range of 70-87 months, and the court sentenced Benson to seventy-two months, two months above the minimum. The court further stated that it was imposing "a six year prison sentence and for a 69 year old man with those conditions I think it is quite enough if not too much." Id. at 10.

As we indicated in Ambort, the district court committed plain constitutional error under Booker when it mandatorily sentenced Benson based upon judicially-found facts. Ambort [ 2005-2 USTC ¶50,453], 2005 WL 1023345, at *7. However, while the court committed plain error, for the reasons stated in Ambort, we conclude that the error did not affect Benson's substantial rights. In so concluding, we note that the court in this case did, in fact, depart downward, but then imposed a sentence two months above the minimum range it reached by its downward departure. Given this record, and additionally for the reasons stated in Ambort, we find that Benson has failed to demonstrate a reasonable probability that the district court, sentencing post- Booker under a discretionary scheme, would have departed even more. See United States v. Lawrence, No. 02-1259, 2005 WL 906582, at *12 (10th Cir. Apr. 20, 2005) (noting that the district court's imposition of a sentence two months above the bottom of the range supported the conclusion that the defendant failed to show that his sentence would "likely change to a significant degree if [the case] were returned to the district court for discretionary resentencing").

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 Benson's attorney at sentencing stated, "[Mr. Benson] is now 69 years old and suffers from a heart defect problem, a heart illness as well as diabetes. Even of late he has been suffering from the diabetes even in court today and he is having issues with it. He has real problems with his vision because of it." R. Vol. XXXII at 4.

 

 

 

 

 

 

[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.

 

 

 

 

[2005-2 USTC ¶50,498] United States of America , Plaintiff-Appellee v. Troy Holland , Defendant-Appellant.

U.S. Court of Appeals, 9th Circuit; 04-10199, August 1, 2005 .

Unpublished opinion affirming in part, remanding in part an unreported DC Calif. decision.

[ Code Sec. 7206]

Federal income tax returns: Sentencing guidelines: Prosecutorial misconduct: Ineffective assistance of counsel: Restitution. --

The issue of whether it was proper to enhance a taxpayer's sentence for willfully aiding and assisting the filing of false federal income tax returns was remanded. It could not be determined from the record whether a materially different sentence would have been imposed had the judge known that the Federal Sentencing Guidelines are advisory rather than mandatory. The restitution order was also remanded; however, the taxpayer's claims of ineffective assistance of counsel and prosecutorial misconduct were dismissed. .

Before: Schroeder, Chief Judge and Canby, Circuit Judge, and Duffy ^* , Senior Judge.

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

MEMORANDUM ^**

Troy Holland appeals his jury conviction of twenty-seven counts of willfully aiding or assisting the filing of false federal income tax returns. 26 U.S.C. §7206(2). Holland contends that: (1) the prosecution engaged in misconduct by vouching for its witnesses during closing argument and by forcing Holland to testify on the veracity of the prosecution's witnesses, (2) Holland's trial counsel provided ineffective assistance of counsel by failing to object to the foregoing misconduct, (3) Holland's sentence violated United States v. Booker, 125 S.Ct. 738 (2005), and (4) the district judge improperly awarded restitution or, at least, miscalculated the amount. We affirm Holland 's convictions, but we remand for further proceedings with regard to his sentence and restitution order.

I. PROSECUTORIAL MISCONDUCT

The government does not dispute that error occurred, but it maintains that the error neither prejudiced Holland nor "seriously affected the fairness, integrity, or public reputation of judicial proceedings." United States v. Geston, 299 F.3d 1130, 1135 (9th Cir. 2002) (internal quotation omitted). We agree. The evidence, including substantial documentary evidence, weighed heavily against Holland , and he has not shown that the error affected the result. Furthermore, the error, in the context of this case, did not "seriously affect[] the fairness, integrity, or public reputation of judicial proceedings" and therefore, even if we were to find prejudice, we would decline to exercise our discretion to upset the convictions.



II. INEFFECTIVE ASSISTANCE OF COUNSEL

We express no view on the merits of this claim because the record is insufficient for us to address the issue on direct review. See United States v. Gurolla, 333 F.3d 944, 958 (9th Cir. 2003) (stating general rule that ineffective assistance of counsel claims should not be brought on direct appeal). Holland 's claim does not fall within any exceptions to the rule. We therefore dismiss his claim without prejudice. See id.

III. BOOKER ERROR

The district judge enhanced Holland 's sentences considerably on the basis of the government's contention that Holland 's scheme caused between $550,000 and $950,000 in loss on the tax loss tables. ¹ See U.S.S.G. §2T4.1. Holland disputed this amount. Holland also disputed the district court's application of two enhancements: (1) obstruction of justice (for instructing several witnesses to lie and allegedly committing perjury on the stand), U.S.S.G. §3C1.1; and (2) for being in the business of preparing false tax returns, U.S.S.G. §2T1.4(b)(1).

Holland 's sentences are subject to the limited remand procedure outlined in our recent Ameline decision because "it cannot be determined from the record whether the judge would have imposed a materially different sentence had [she] known that the Guidelines are advisory rather than mandatory." United States v. Ameline, 2005 WL 1291977, at *10; see also id. at *6 ("We surmise that the record in very few cases will provide a reliable answer to the question of whether the judge would have imposed a different sentence had the Guidelines been viewed as advisory."). We therefore remand this matter to the district court to make this determination and, if the sentence would have been materially different, to resentence accordingly. See id. at *7.

IV. ERRONEOUS RESTITUTION ORDER

For three reasons, we vacate and remand Holland 's restitution order. First, the government concedes that the award should be reduced by $45,096 (the amount of IRS penalties included in the restitution order). Second, it appears that the IRS recouped a substantial portion of its losses by the time of the order. On remand, the district judge shall consider any amounts recovered by the IRS and decrease the ordered restitution to the extent necessary to avoid double recovery. See 18 U.S.C. §3664(j)(2). Third, the district court appears to have delegated to the probation office most of the responsibility for establishing a schedule of restitution payments. We have held this function to be nondelegable. United States v. Gunning, 401 F.3d 1145, 1150 (9th Cir. 2005); see also 18 U.S.C. §3664(f)(2). On remand, the district court shall establish a new payment schedule, taking into account Holland 's financial resources.

CONVICTION AFFIRMED ; REMANDED for further proceedings with regard to sentence.

^* The Honorable Kevin Thomas Duffy, Senior United States District Judge for the Southern District of New York, sitting by designation.

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

¹ Because Holland did not raise a Sixth Amendment challenge to his sentence below, we review for plain error. See United States v. Ameline, No. 02-30326, 2005 WL 1291977, at *3 (9th Cir. June 1, 2005) ( en banc).

 

 

 

 

 

 

[2005-2 USTC ¶50,546] United States of America , Plaintiff-Appellee v. Randolph George, Defendant-Appellant.

U.S. Court of Appeals, 9th Circuit; 04-10307, August 23, 2005 .

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

[ Code Secs. 451, 7203 and 7206]

Year income taxable: Claim of right doctrine: Penalties, criminal: Intent: Fraudulent return: Sentencing. --

An individual who did not report as income receivership fees paid to him was properly convicted for willfully filing false income tax returns and failing to file a tax return. Although the taxpayer argued that the fees were taxable in the year the receiverships closed, the claim of right doctrine applied so that the fees were taxable in the year they were received, even though the fees were subject to possible disgorgement at the time of a final accounting. The taxpayer's good faith defense was rejected because he failed to report the receiver fees even after the receiverships were closed. Finally, for purposes of sentencing, the individual's offense level was not improperly based on tax losses attributable to his wife. The trial court based the offense level on tax losses the individual admitted to in a stipulation. However, the case was remanded for review of the sentence since it was unclear whether the sentence would have been materially different under a discretionary sentencing regime.

David L. Denier, Assistant United States Attorney, for plaintiff-appellee. Marcus S. Topel, Daniel F. Cook, Topel & Goodman, for defendant-appellant.

Before: Lay, ^* Senior Circuit Judge, and Fletcher and Hawkins, Circuit Judges.

OPINION

 

LAY, Senior Circuit Judge: Randolph George was convicted by a jury on two felony counts of willful filing of false tax returns in violation of 26 U.S.C. §7206(1), and one misdemeanor count of willful failure to file a tax return in violation of 26 U.S.C. §7203. The district court sentenced George to fifteen months of imprisonment for the false returns, twelve months for failure to file (to run concurrently), and one year of supervised release. Additionally, the district court ordered George to pay $70,000 in restitution, a $20,000 fine, and $125 in special assessments. We affirm.

I. Background

 

This case presents two key issues: First, are receivership ¹ fees paid to a cash-basis taxpayer taxable in the year received even though they are subject to subsequent court review and possible disgorgement? Assuming they are, was the law on this point sufficiently clear to allow a criminal prosecution of George for failure to report this income? We answer both questions in the affirmative.

During 1991, 1992, and 1993, George was affiliated with Media Venture Partnership, which brokered the sale of radio stations and, through its affiliate Media Venture Management, Inc., handled court-appointed receiverships for financially troubled radio stations being sold off to satisfy debts owed to the stations' creditors. Because corporations cannot serve as court-appointed receivers, George, a cash-basis taxpayer, was appointed in his individual capacity to serve as the receiver. George's receiver fees, which were negotiated with the interested parties and approved by the court at the start of the receivership, were paid on an interim basis during the administration of the receivership, usually monthly.

With respect to the present case, George served as the court-appointed receiver for five different stations: Reno Broadcasting (Reno) from October of 1990 to January of 1992, Royal Broadcasting (Royal) from May of 1991 until 1994, KXGO Radio Station from March of 1991 to December of 1992, Diamond Broadcasting (Diamond) from May 1993 to May of 1994, and JJN Broadcasting (JJN) in 1994. In addition to brokerage commissions and income from other sources, George was paid $90,001.42 in receiver fees in 1991, $125,432.66 in 1992, and $154,595 in 1993. ² Tax returns for the 1991 and 1992 income were not filed until 1995. George never filed a return reporting the receivership income from 1993.

Nevertheless, when George refinanced the mortgage on his residence in March of 1994, he submitted copies of apparent tax returns for 1991 and 1992, listing the receiver fees as personal income for those years. George also submitted a Statement of Income and Expenses for 1993, listing receiver fees as his personal income. These returns turned out to be fraudulent documents fabricated by George for purposes of obtaining the refinancing of his mortgage.

On January 13, 1995, the Internal Revenue Service (IRS) sent George a written inquiry regarding his 1991 and 1992 returns which had not been filed. George falsely responded that the returns had been filed in December of 1994. George also falsely responded to a subsequent IRS inquiry, asserting that the accounting firm of Antonini Professional Corporation was to have completed the returns, but that it went out of business and another firm was working on the returns. George later prepared the 1991 and 1992 returns himself, filing them on October 16, 1995. Neither George's returns nor his spouse's for 1991 and 1992 reported the receivership fees received during those years. No return was filed by George or his wife for tax year 1993. Finally, The Georges' 1994 joint tax return reported only $23,000 in receiver fees, in addition to income from other sources. These returns, though filed years after George was paid the receiver fees and approximately one year after the last receivership was approved by the court, failed to report $347,029.08 in receiver fees.

When an IRS revenue agent initially interviewed George regarding his 1991 and 1992 returns on July 16, 1996, George did not disclose his employment as a receiver and did not disclose the $90,001.42 of receiver fees from 1991 nor the $125,432.66 of receiver fees from 1992. During a second interview on February 28, 1997, George admitted he earned the receiver fees, but only after he was confronted with the fraudulent tax returns submitted to the lender in 1994 in support of his mortgage application. A referral for criminal prosecution soon followed.

II. Analysis

A. Clarity of the Law

George first argues that, as a matter of law, he lacked wilfulness to commit a crime because the law governing allocation of receiver fees was not clearly established at the time of the offense. The district court's determination that the predicate law was clearly established is a question of law which we review de novo. See United States v. Schulman [ 87-1 USTC ¶9334], 817 F.2d 1355, 1358 (9th Cir. 1987) (citing United States v. Russell [ 86-2 USTC ¶9801], 804 F.2d 571, 574 (9th Cir. 1986)).

The element of wilfulness cannot obtain in a criminal tax evasion case unless "the law clearly prohibited the conduct alleged in the indictment." Schulman [ 87-1 USTC ¶9334], 817 F.2d at 1359; see also James v. United States [ 61-1 USTC ¶9449], 366 U.S. 213, 221-22 (1961) (vacating taxpayer's conviction for failure to report embezzled funds as income because conflicting caselaw rendered the predicate tax statute ambiguous when applied to embezzled funds). Without sufficient clarity in the law, taxpayers lack the "fair notice" demanded by due process so that they may conform their conduct to the law. United States v. Dahlstrom [ 83-2 USTC ¶9557], 713 F.2d 1423, 1427 (9th Cir. 1983) (citing United States v. Batchelder, 442 U.S. 114, 123 (1979)). However, a lack of prior appellate rulings on the topic does not render the law vague, nor does a lack of previously litigated fact patterns deprive taxpayers of fair notice. See Russell [ 86-2 USTC ¶9801], 804 F.2d at 575 (citing United States v. Ingredient Tech. Corp. [ 83-1 USTC ¶9140], 698 F.2d 88, 96 (2d Cir. 1983) (stating that it was "immaterial" that there was no prior litigation directly on point)). Thus, criminal prosecution is permissible when it is "clear beyond any doubt that [the conduct] is illegal under established principles of tax law ...." Russell [ 86-2 USTC ¶9801], 804 F.2d at 575.

The general income allocation rule provides that "[t]he amount of any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under the method of accounting used in computing taxable income, such amount is to be properly accounted for as of a different period." 26 U.S.C. §451(a). The applicable regulations further clarify this general rule by identifying the respective duties for cash-basis and accrual basis taxpayers. "Under the cash receipts and disbursements method of accounting, such an amount is includible in gross income when actually or constructively received." 26 C.F.R. §1.451-1(a). ³ Thus, as a cash-basis taxpayer, George would ordinarily be required to report income in the year it is received. ⁴

According to George, the statute and regulations are ambiguous as to when receiver fees should be reported as gross income. George points to caselaw that purports to support his claim that receiver fees paid to a cash-basis taxpayer are not taxable until the time of final accounting and approval by the supervising court. According to George, the potential for subsequent disgorgement means that receiver fees are not received under a claim of right. See e.g., C.I.R. v. Indianapolis Power & Light Co. [ 90-1 USTC ¶50,007], 493 U.S. 203, 209-10 (1990); American Valmar Int'l Ltd., Inc. v. C.I.R. [ 2000-2 USTC ¶50,781], 229 F.3d 98, 102 (2d Cir. 2000); Ahadpour v. C.I.R. [ CCH Dec. 53,212(M)], 77 T.C.M. (CCH) 1210 (1999), 1999 Tax Ct. Memo LEXIS 9 at * 16-17; Massey v. C.I.R. [ 44-2 USTC ¶9384], 143 F.2d 429, 430-31 (5th Cir. 1944); Parkford v. C.I.R. [ 43-1 USTC ¶9268], 133 F.2d 249, 250 (9th Cir. 1943); Helvering v. McGlue's Estate [ 41-1 USTC ¶9403], 119 F.2d 167, 169 (4th Cir. 1941); C.I.R. v. Cadwalader [ 37-1 USTC ¶9099], 88 F.2d 274, 274-75 (3d Cir. 1937).

George's reliance on these cases for such a proposition is misplaced. These cases simply suggest that receiver fees paid to cash-basis taxpayers are income in the year actually paid, and fees paid to accrual basis taxpayers are taxable in the year the applicable state law creates a right to demand the fees. Compare Cadwalader [ 37-1 USTC ¶9099], 88 F.2d at 275 ("As 1930 was the year in which she in fact received the cash commission from the Roebling estate, that is the year in which the income was received and the tax upon its receipt due.") (cash-basis taxpayer), and Massey [ 44-2 USTC ¶9384], 143 F.2d at 430-31 (holding attorney's receipt of cash payment for part of contingency fee taxable in the year actually received; remainder of fee not constructively received or taxable until settlement approved by the court) (cash-basis taxpayer), with McGlue's Estate [ 41-1 USTC ¶9403], 119 F.2d at 169 (stating that an accrual method taxpayer ordinarily reports executor fees only when entitlement to them attaches under applicable state law, but death of the taxpayer triggers special provision of tax code allocating income as of the date of death despite lack of entitlement under state law), and Parkford [ 43-1 USTC ¶9268], 133 F.2d at 250 (holding an accrual basis taxpayer who was not a receiver need not report commission income for sale of a company which happened to be in receivership until the supervising court approved the sale).

Other cases cited by George provide that funds received while still subject to an express obligation to repay are not income. Unfortunately, these cases have little to do with the type of income at issue here: receiver fees. See e.g., Indianapolis Power & Light [ 90-1 USTC ¶50,007], 493 U.S. at 214 (stating deposits held by utility to secure payment from customers with poor credit was not income because the utility assumed an express obligation either to apply the deposits to customers' bills or to refund the balance); American Valmar [ 2000-2 USTC ¶50,781], 229 F.3d at 102-03 (finding customer deposits held by international broker not income because the broker had an obligation to use the deposits for the customers' benefit or to repay them); Ahadpour [ CCH Dec. 53,212(M)], 1999 Tax Ct. Memo LEXIS 9 at *16-17 (holding earnest money advanced to sellers from escrow under the terms of a contract to sell real property was not income to the sellers in the year received because the contract created an express obligation to repay the funds if the sale did not close).

In contrast, two other cases specifically apply the claim of right doctrine to allocate executors' fees in the year they are received. In United States v. Merrill [ 54-1 USTC ¶9275], 211 F.2d 297, 299 (9th Cir. 1954), a husband who was appointed as the executor of his wife's estate erroneously paid all of his executor fees out of his wife's segregated share of the community funds. We held that the entire $10,000 of executors' fees paid in 1939 were taxable to him under the claim of right doctrine despite the fact that $2,500 was repaid to the estate in a subsequent year due to the error. Id. at 303. Merrill therefore unambiguously applied the claim of right doctrine to the receipt of trustee fees even though they were subject to final court approval and were partially repaid.

Similarly, the Second Circuit applied the claim of right doctrine to executors' commissions in Jacobs v. Hoey [ 43-2 USTC ¶9512], 136 F.2d 954, 956-57 (2d Cir. 1943). The court held that such commissions were taxable in the year received, not in the year the supervising court conferred final approval. Of particular importance to the Jacobs court was the fact that the executor negotiated an arrangement with the beneficiaries that allowed advances against his ultimate commission. Because the interested parties had agreed in advance, "there was no reasonable likelihood that the [executor] would be called upon to return the sums that had been paid as commissions." Id. at 957. Rejecting the taxpayer's argument that the advance commissions should be treated as loans because they were subject to subsequent court approval and possible disgorgement, the Second Circuit held that the commissions were properly allocated to the taxpayer under the claim of right doctrine in the years they were actually paid. Id. at 956.

We conclude that the law clearly required George, a cash basis taxpayer, to report the receiver fees in the years he received them. We find 26 U.S.C. §451 and the applicable cash-basis provision of 26 C.F.R. §1.451-1 free from ambiguities regarding allocation of George's income. As stated in the regulation, "[u]nder the cash receipts and disbursements method of accounting, such an amount is includible in gross income when actually or constructively received." 26 C.F.R. §1.451-1(a).

The fact that George's receiver fees were subject to possible disgorgement at the time of a subsequent final accounting does not remove them from the claim of right doctrine. To the contrary, George's fees were taxable in the year received "even though it may [have been] claimed that he [was] not entitled to retain the money, and even though he may [have been] adjudged liable to restore its equivalent." N. Am. Oil Consolidated v. Burnet [ 3 USTC ¶943], 286 U.S. 417, 424 (1932). Merrill and Jacobs confirm that executor fees and commissions are not exempt from the claim of right doctrine merely because they are subject to final court approval and possible disgorgement. ⁵ Likewise, the fact that some fees were actually repaid does not insulate the fees from the claim of right doctrine. See Merrill [ 54-1 USTC ¶9275], 211 F.2d at 303; see also Rasmus v. C.I.R. [ CCH Dec. 40,909(M)], 47 T.C.M. (CCH) 829 (1984), 1984 Tax Ct. Memo LEXIS 664 at *14 (holding funds misappropriated from estate by the administering attorney constituted income to the attorney in the year misappropriated despite subsequent repayment). These same principles apply to receiver fees like George's.

Short of an express obligation to repay, a contingent obligation to repay a portion of receiver fees actually paid to a cash-basis taxpayer does not remove these payments from the claim of right doctrine. See Merrill [ 54-1 USTC ¶9275], 211 F.2d at 303-04. This is because "a potential or dormant restriction ... which depends on the future application of rules of law to present facts, is not a 'restriction on use' within the meaning of [the claim of right doctrine]." Healy v. C.I.R. [ 53-1 USTC ¶9292], 345 U.S. 278, 284 (1953). Indeed, application of the claim of right doctrine does not turn on the relative likelihood of a contingent obligation coming to fruition nor does it depend on the legitimacy of the taxpayer's right to retain the funds. See James [ 61-1 USTC ¶9449], 366 U.S. at 219-20 (stating illegally obtained funds are considered income and subject to the claim of right doctrine). Instead, the relevant inquiry centers on the taxpayer's dominion and control of the funds, see Indianapolis Power & Light [ 90-1 USTC ¶50,007], 493 U.S. at 212, and the manner in which the taxpayer treats the funds, see Alexander Shokai, Inc. v. C.I.R. [ 94-2 USTC ¶50,460], 34 F.3d 1480, 1485 (9th Cir. 1994). "A taxpayer receives a payment under a claim of right when he treats the payment 'as belonging to him.'" Id. (quoting Healy [ 53-1 USTC ¶9292], 345 U.S. at 282). ⁶

In sum, the district court correctly determined that the claim of right doctrine applied to George's receiver fees. The law on this point was sufficiently clear to allow prosecution for failure to report such fees in the years received.

B. Good Faith Defense

George next argues that because he held a good faith belief the receiver fees were not taxable until the year in which the final accountings were approved and the receiverships were closed by the supervising courts, the evidence was insufficient to support his conviction. When preserved in the district court through a motion for acquittal as it was in this case, we review a challenge to the sufficiency of the evidence de novo. See United States v. Carranza, 289 F.3d 634, 641 (9th Cir. 2002) (citing United States v. Munoz, 233 F.3d 1117, 1129 (9th Cir. 2000)). In this review, we examine the evidence in the light most favorable to the government and determine whether "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis in original) (citing Johnson v. Louisiana, 406 U.S. 356, 362 (1972)).

Willfulness is an element of making and filing a false tax return. See 26 U.S.C. §7206(1). To establish the requisite level of willfulness, the government must prove "that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Cheek v. United States [ 91-1 USTC ¶50,012], 498 U.S. 192, 201 (1991). The government cannot carry this burden without negating the defendant's claim that he was ignorant of the law, that he misunderstood the law, or that he held a good-faith belief his conduct did not violate the law. Id. at 202. Good faith reliance on a qualified tax accountant is a defense to willfulness. See United States v. Bishop [ 2002-2 USTC ¶50,488], 291 F.3d 1100, 1106-07 (9th Cir. 2002).

Viewing the evidence in the light most favorable to the government, we conclude the government met its burden to prove willfulness, including its burden to negate George's good faith defense. The government presented overwhelming evidence at trial which proved that the vast majority of the receiver fees paid to George were never reported on any tax return. The government's evidence showed that two of the receiverships ( Reno and Diamond) were closed in 1992, yet George did not report the receiver fees from these receiverships on his 1992 returns. This is fundamentally inconsistent with George's good faith defense that he was waiting until the receiverships were closed to report the income. Furthermore, the government's evidence showed that in 1994, the year the other receiverships closed, George failed to report the vast majority of the other receiver fees paid to him in 1991 and 1992. Based on this, a rational trier of fact could have concluded that there was no good faith on George's part.

Additionally, prosecution witness Orlando Antonini testified his firm was never retained by George to prepare his individual income tax returns. This testimony undermined George's claim that he relied on personal advice from Antonini in deciding not to report the fees until the receiverships were closed. Notably, defense counsel never asked Antonini whether he personally advised George to report the receiver fees on his personal returns in the year that the court approved the final accounting of the receivership, as opposed to the year the fees were actually received. George was the sole witness who testified to that effect, and the jury apparently found his testimony to be less than credible. Thus, we reject George's good faith defense.

C. Jury Instructions

George claims that the district court committed reversible error when it adopted a claim of right jury instruction and rejected his proposed contingent payment jury instruction. We review the district court's rejection of the defendant's proffered instructions de novo when this decision is based on a question of law. See United States v. Eshkol, 108 F.3d 1025, 1028 (9th Cir. 1997) (citing United States v. Duran, 59 F.3d 938, 941 (9th Cir. 1995)). Whether the claim of right doctrine applies to receiver fees is a question of law. See Alexander Shokai [ 94-2 USTC ¶50,460], 34 F.3d at 1485. While a defendant is entitled to an instruction that adequately addresses his theory of defense, he is not entitled to an instruction that misstates the law. See United States v. Hicks, 217 F.3d 1038, 1045 (9th Cir. 2000) (rejecting defendant's proffered instructions because, among other things, they "were not legally accurate").

The district court gave the following instruction:

Defendant is a cash-basis taxpayer. For a cash-basis taxpayer, income must be included as gross income on his federal income tax returns for the taxable year in which the income is actually received by the taxpayer. Income is actually received by a taxpayer when it is actually reduced to his possession. If a cash-basis taxpayer is paid income by check, the check constitutes income to the cash-basis taxpayer when he receives it. Income deposited in the taxpayer's bank is actually reduced to the taxpayer's possession.

George's proffered instruction would have added that income is not reduced to the taxpayer's possession "if the receipt is ... subject to substantial limitations or restrictions." George's proffered instruction went on to state:

[o]ne substantial limitation or restriction includes the receipt of the income by a trustee or receiver subject to later court approval of the amount received. In such circumstances, the income is not considered received until the court provides its final approval and is considered received and is to be reported in the tax year in which the court approval is obtained even though monies were actually received and used by the trustee or receiver at an earlier time.

We conclude the district court committed no error in rejecting George's proffered jury instruction. George's instruction misstated a cash-basis taxpayer's duty to report income in the year received, see 26 C.F.R. §1.451-1(a), and ignored the long-settled principle that income is taxable in the year received "even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent." N. Am. Oil [ 3 USTC ¶943], 286 U.S. at 424.

D. Motion for New Trial

George seeks a new trial based on the receivership returns for Royal and Diamond which he alleges were newly discovered after trial. George claims these receivership returns, which are entirely separate from his personal tax returns, show that prosecution witness Orlando Antonini presented material testimony that was incorrect, misleading, and false.

This court reviews a denial of a motion for new trial based upon newly discovered evidence for an abuse of discretion. See United States v. Kulczyk, 931 F.2d 542, 548 (9th Cir. 1991) (citing United States v. Lopez, 803 F.2d 969, 977 (9th Cir. 1986)). To prevail on a motion for new trial based upon newly discovered evidence, the defendant must show (1) the evidence is newly discovered; (2) failure to discover the evidence sooner was not due to lack of diligence; (3) the evidence was material to trial issues; (4) the evidence was not cumulative or merely impeaching; and (5) a new trial, if granted, would probably result in acquittal. See id.; see also FED. R. CRIM. P. 33.

We are not persuaded that the district court abused its discretion in denying George's motion for a new trial. George's failures to subpoena Antonini before trial or contact the California State Franchise Tax Board to obtain copies of the radio stations' state returns suggest that George was not diligent.

Moreover, the newly discovered evidence was not material. At trial, the prosecution called Antonini to testify for the purpose of showing that George never retained Antonini to prepare George's 1991 and 1992 personal tax returns, contradicting George's testimony that he relied on Antonini's advice to delay reporting receivership fees until the receiverships were closed. Antonini did testify that his firm performed bookkeeping work for George's receiverships and may have prepared tax returns for them, but when defense counsel presented Antonini with unsigned copies of the Royal Broadcasting returns, Antonini refused to state that his firm prepared them because the copies lacked any indicia of identification. We acknowledge that, had the newly acquired receivership returns been presented to Antonini at trial, Antonini would have been forced to admit that his firm prepared them. Still, this concession would not have bolstered George's claim that Antonini advised George not to declare receiver fees on his personal tax returns. It would have only established a collateral point --who prepared the receiverships' returns.

Next, assuming arguendo that the new returns partially impeached Antonini's credibility, this would not merit a new trial. See Kulcyk, 931 F.2d at 549 (stating "evidence that would merely impeach a witness cannot support a motion for a new trial"). Given the lack of materiality and George's apparent credibility problem, it is unlikely the new evidence would have resulted in an acquittal for George. Thus, we affirm the district court's denial of George's motion for a new trial.

E. Sentencing

George contends the district court erred when it included tax losses for fiscal year 1994, and tax losses attributable to George's spouse from 1991-1993, as relevant conduct for the purposes of determining George's total tax losses under the United States Sentencing Guidelines (U.S.S.G.). He cites United States v. Booker, 125 S. Ct. 738 (2005), to support his position.

A probation officer prepared a presentence investigation report (PSR) which included tax losses from fiscal year 1994, and tax losses attributable to George's spouse from 1991-1993, in calculating total tax losses of $145,685 incurred as a result of George's illegal conduct. This amount of tax loss corresponded to an offense level of 15. The district court considered but ultimately disregarded the recommendation contained in the PSR. Instead, the district court simply accepted the total tax loss amount stipulated to by the parties i.e., tax losses of "more than $70,000 but less than $120,000, resulting in a base offense level of 14 pursuant to U.S.S.G. §2T4.1 (1994)." George's sentence was therefore not based upon any judicial factfinding; his sentence was based on tax losses to which George admitted in the stipulation, and no Sixth Amendment issue exists.

The absence of a Sixth Amendment violation, however, is not the end of our inquiry. See United States v. Stafford, 2005 WL 1813313 at *7 (9th Cir. 2005) ("While it appears that the facts upon which the obstruction of justice enhancement was based were admitted by the defendant, we nonetheless follow Ameline's 'limited remand' approach."). "[D]efendants are entitled to limited remands in all pending direct criminal appeals involving unpreserved Booker error, whether constitutional or nonconstitutional." United States v. Moreno-Herdandez, No. 03-30387, 2005 WL _____, at *_____ (9th Cir. August 17, 2005).

On the record before us, we cannot determine whether the district court would have imposed a materially different sentence under a discretionary sentencing regime. Accordingly, we remand George's sentence in accordance with United States v. Ameline, 409 F.3d 1073, 1084-85 (9th Cir. 2005) ( en banc).

III. Conclusion

George's conviction is affirmed, but this case is remanded to the district court to review the sentence in accordance with Ameline.

AFFIRMED in part and REMANDED in part.

^* The Honorable Donald P. Lay, Senior United States Circuit Judge for the Eighth Circuit, sitting by designation.

¹ "A receiver is a court officer or representative appointed to take over the control and management of property that is the subject of litigation before the court, to preserve the property, and ultimately to dispose of it according to the final judgment." 6 WITKIN CAL. PROC. PROVISIONAL REMEDIES §416 (4th ed. 2004).

² The record indicates the disallowed $30,000 of expenses is fully reflected in the $154,595 of receiver fees paid in 1993. Final accountings for the Royal and Diamond receiverships required George to repay a total of $30,000 for disallowed expenses when these receiverships were closed by the court in 1994.

³ We no not reproduce other provisions of 26 C.F.R. §1.451-1 dealing with allocations under the accrual method of accounting as they do not apply to cash-basis taxpayers like George. Likewise, we do not consider 26 C.F.R. §1.45-2 applicable as this regulation is specific to the allocation of constructively-received income. The record shows that George actually received the fees.

⁴ George has never claimed to be an accrual basis taxpayer.

⁵ If anything, the fact that the courts supervising the receiverships approved George's fees demonstrates that he, like the executor in Jacobs, faced little threat of disgorgement. See People v. Riverside Univ., 35 Cal. App. 3d 572, 587 (1973) ( "It is settled that fees awarded to receivers are in the sound discretion of the trial court and in the absence of a clear showing of an abuse of discretion, a reviewing court is not justified in setting aside an order fixing fees.").

⁶ Taxpayers who are eventually called upon in a subsequent year to repay funds acquired under a claim of right are entitled to an offsetting deduction in the year of repayment. See Alexander Shokai [ 94-2 USTC ¶50,460], 34 F.3d at 1485; see also 26 U.S.C. §1341(a).