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IV.

Finally, Swanson argues that the district court overstated the tax "loss" he caused for sentencing purposes. This is a factual finding, which we review for clear error. United States v. Williams, 977 F.2d 866, 869 (4th Cir. 1992). There was no clear error here. The district court adopted the findings in the pre-sentence report that Swanson caused a tax loss of almost $5.5 million. The calculations in the report do not appear to be faulty and the district court was entitled to rely on them. See United States v. Terry, 916 F.2d 157, 160-162 (4th Cir. 1990). Indeed, as the Government pointed out at sentencing, Swanson also evaded payment of corporate taxes and failed to pay taxes on embezzled income and none of these amounts were included in the loss calculation. In view of this, the district court properly noted that the pre-sentence report's loss figure "is probably a conservative estimate." Accordingly, the district court did not err in sentencing Swanson based on a loss of almost $5.5 million.

V.

For the foregoing reasons, Swanson's convictions and sentences are hereby

AFFIRMED.

¹ The Government argues that Swanson has waived his limitations defenses because he did not attempt to present them to the jury. Swanson did, however, file a pre-trial motion to dismiss based on the statute of limitations and raised the limitations defense again immediately before trial and at the close of the Government's case. Accordingly, we refuse to find Swanson has waived these claims.

² Swanson's claim that "willfully" and "corruptly" constitute the same element is meritless. "Willfulness" is a "voluntary, intentional violation of a known legal duty." Cheek v. United States [91-1 USTC ¶50,232], 498 U.S. 192, 201 (1991). " 'Corruptly,' " by contrast, " 'describes an act done with an intent to give some advantage inconsistent with the official duty and rights of others' . . .. Misrepresentation and fraud. . . are paradigm examples of activities done with an intent to gain an improper benefit or advantage." United States v. Mitchell [93-1 USTC ¶50,171], 985 F.2d 1275, 1278 (4th Cir. 1993) (citing United States v. Reeves [85-1 USTC ¶9190], 752 F.2d 995, 998 (5th Cir. 1985)).

 

 

 

[2000-1 USTC ¶50,389] United States of America , Plaintiff-Appellee v. John E. Codner, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 98-4078, 4/12/2000, 2000 U.S. App. LEXIS 6718. Affirming an unreported District Court decision

[Code Secs. 7203 and 7206 ]

Crimes: Filing false returns: Tax evasion: False deductions: Concealed income: Willfulness: Elements of crime: Tax deficiency.--The owner of a printing business who claimed false deductions for unreimbursed employee expenses and who transferred assets into sham trusts was properly convicted of filing false returns and attempted tax evasion. His actions were willful because his accountant told him that the deductions were improper, he admitted to associates that he transferred his assets in order to conceal his income from the IRS, and his accountant and stockbroker both warned him against pursuing his questionable tax practices. Moreover, his claim that he had no deficiency for one of the tax years at issue was irrelevant to his conviction for filing false returns; an outstanding tax liability is not an element of that crime, as it is for tax evasion.

[Code Sec. 7206 ]

Crimes: Filing false returns: Statute of limitations: Tolling: Motion to quash third-party summonses.--A printer's prosecution for filing false returns was not barred by the statute of limitations. Although he was indicted more than six years after he claimed deductions for false unreimbursed employee expenses, the limitations period was tolled during the entire pendency of his intervening suit to quash third-party summonses issued by the IRS during its investigation of his tax liability.

[Code Secs. 7203 and 7206 ]

U.S. Sentencing Commission Guidelines: Base offense: Tax loss: Subsequent tax years: Continuing course of conduct: Fifth Amendment: Self-incrimination: Voluntary disclosures.--In calculating the tax loss caused by a printer's filing of false returns and attempted tax evasion, the trial court properly included losses arising from his failure to file timely returns for several tax years after he committed his crimes. Since his refusal to file also violated the tax code, it constituted part of a continuing course of conduct with his criminal activities. Further, his Fifth Amendment rights against self-incrimination were not violated by the calculation of the tax loss based on information from untimely returns that he voluntarily filed during his presentence investigation.

[Code Sec. 7203 ]

Crimes: Filing false returns: Tax evasion: False deductions: Concealed income: Evidence: Admissibility: Materiality.--The owner of a printing business who was convicted of filing false returns and attempted tax evasion was not entitled to submit evidence regarding the IRS investigation of his tax liability and the events surrounding his arrest. The evidence would not change the decision in his case.

Meghan S. Skelton, Kevin M. Kelcourse, Melissa E. Schraibam, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. Paul J. Young, Henderson , Nev. , for defendant-appellant.

Before: TACHA, MCKAY and MURPHY, Circuit Judges.

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

ORDER AND JUDGMENT ^*

MCKAY, Circuit Judge:

This case was originally scheduled for oral argument on May 14, 1999 , but before argument the parties agreed to submit the case on the briefs. This panel has examined the briefs and the appellate record and determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a)(2); 10th Cir. R. 34.1(A)(2). The case is therefore ordered submitted without oral argument.

Defendant-Appellant John E. Codner appeals the judgment of the United States District Court for the District of Utah convicting him of willfully subscribing to false tax returns under penalties of perjury and attempting to evade federal income tax in violation of 26 U.S.C. §§7206(1) and 7201, respectively.

Defendant has owned and operated a small printing business in Provo , Utah , since 1979. It appears he and his business filed accurate tax returns and paid all tax obligations through 1987. Between 1988 and 1996, however, Defendant entered into a few relationships with self-proclaimed tax experts who dispensed erroneous tax, accounting, and legal advice. Defendant acted on that advice, against the counsel of his long-time accountant, and on his 1988 and 1989 individual tax returns he claimed false deductions for unreimbursed employee expenses for overtime hours he spent working at his business. The false deductions would have reduced the amount of Defendant's tax liability to zero. Between 1990 and 1996, Defendant simply did not file tax returns. In 1990 and 1991, acting again on the advice of his newfound tax advisors, Defendant transferred all of his assets into eight different trusts to avoid paying taxes and to conceal his income from the Internal Revenue Service. He also opened five bank accounts under the names of trustees who were acquaintances or former business associates and who, in fact, conducted no business on behalf of the trusts.

A grand jury indicted Defendant on November 14, 1996 , of two counts of filing a false tax return and two counts of tax evasion. On January 13, 1998 , a jury found Defendant guilty on all counts. The district court then sentenced Defendant to fifteen months of incarceration and a fine of $4,000.

Defendant appeals his conviction and sentence arguing (1) that the evidence was insufficient to establish that he violated §§7206(1) and 7201, (2) that a statute of limitations barred prosecution on the two counts of filing a false tax return, and (3) that the district court erred in its determination of his offense level under the United States Sentencing Guidelines. ¹ We exercise jurisdiction pursuant to 28 U.S.C. §1291 and 18 U.S.C. §3742.

I.

In arguing that the evidence was insufficient to support his convictions, Defendant contends that the evidence did not establish (1) that he acted willfully, a necessary element for all counts of filing a false tax return and tax evasion, and (2) that he owed a substantial tax liability for 1989, a component of the second count of filing a false tax return. To review an argument alleging insufficient evidence, we " 'must review the record de novo and ask only whether taking the evidence--both direct and circumstantial, together with the reasonable inferences to be drawn therefrom--in the light most favorable to the government, a reasonable jury could find the defendant guilty beyond a reasonable doubt.' " United States v. Hanzlicek, 187 F.3d 1228, 1239 (10th Cir. 1999) (quoting United States v. Voss, 82 F.3d 1521, 1524-25 (10th Cir. 1996)). We consider each of Defendant's two arguments in turn.

A.

The standard for willfulness in the context of criminal tax statutes "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, 112 L.Ed.2d 617, 111 S.Ct. 604 (1991). Defendant asserts that he acted with a good faith belief that he was complying with tax laws. His only error, he claims, was to trust a number of unscrupulous individuals who dispensed erroneous tax, legal, and accounting advice. Defendant apparently wishes that we would not take into consideration the ample evidence and testimony presented at trial demonstrating the accurate advice he received but disregarded.

In 1988 and 1989, Defendant's long-time accountant counseled Defendant that the unreimbursed employee expense deduction he claimed on his returns was not justified. To punctuate his advice after Defendant insisted upon claiming the deduction, the accountant refused to sign those returns. A jury could reasonably infer from the accountant's testimony that Defendant understood his duties to comply with the tax laws and knew that the deductions he claimed for unreimbursed employee expenses were improper. With regard to the tax evasion charges under §7201, a former business partner testified at trial that Defendant acknowledged to him that his purpose in transferring assets into trusts was to conceal his income from the IRS. One of Defendant's employees testified that he heard Defendant explaining to others at his business that he was setting up the trusts to avoid paying taxes. That same employee also heard Defendant's stock broker and accountant warn Defendant against setting up the trusts and getting involved in questionable tax practices. On the basis of this testimony, we conclude that a rational trier of fact could have found beyond a reasonable doubt that Defendant knowingly and intentionally violated his legal duty to comply with the laws that prohibit tax evasion and the filing of false tax returns. Cf. United States v. Huebner [95-1 USTC ¶50,008], 48 F.3d 376, 380 (9th Cir. 1994) (holding that the concealment of assets to avoid tax collection, as opposed to a simple delay of payment that would be "consistent with an intent ultimately to make payment," supports a finding of willfulness in tax evasion under §7201).

B.

In the second part of Defendant's insufficiency of the evidence argument, he argues that the evidence was not sufficient to establish a tax liability for 1989. He claims that a tax deficiency is a necessary component of the offense of willfully subscribing to a false tax return in violation of 26 U.S.C. §7206(1). ² Under the law of this circuit, however,

to sustain a conviction under Section 7206(1), the government must prove (1) that the Appellant made and subscribed to a tax return containing a written declaration, (2) that it was made under the penalties of perjury, (3) that he did not believe the return to be true and correct as to every material matter and (4) that he acted willfully.

United States v. Owen [94-1 USTC ¶50,281], 15 F.3d 1528, 1532 (10th Cir. 1994) (citing United States v. Kaiser [90-2 USTC ¶50,338], 893 F.2d 1300, 1305 (11th Cir. 1990)). Nothing in this standard requires proof of a tax deficiency. Accord United States v. Marashi [90-2 USTC ¶50,482], 913 F.2d 724, 736 (9th Cir. 1990) ("Section 7206(1) is a perjury statute; it is irrelevant whether there was an actual tax deficiency."). We therefore hold that the existence of a tax deficiency is not an element of §7206(1).

Having reviewed the record on appeal, we also conclude that the evidence was sufficient to establish a violation of §7206(1), even if the prosecution did not establish that Defendant owed any tax for 1989. In sum, the evidence presented to the jury on the two counts of filing fraudulent tax returns and the two counts of tax evasion was sufficient to support a verdict of guilty beyond a reasonable doubt.

II.

Defendant asserts that his prosecution on the two counts of filing a false tax return should have been barred by a statute of limitations. We review this question of law de novo. See Industrial Constructors Corp. v. United States Bureau of Reclamation, 15 F.3d 963, 967 (10th Cir. 1994).

The limitations period for violations of 26 U.S.C. §7206(1) is six years. See 26 U.S.C. §6531(5). The period on count one of Defendant's indictment began to run on October 15, 1989 , when he subscribed to his 1988 return under penalties of perjury, and the limitations period for count two began on April 16, 1990 , when he signed and filed his 1989 return. Under ordinary circumstances, then, the limitations periods would have expired on October 15, 1995 , for the first count and April 16, 1996 , for the second. The statute of limitations seemingly would bar the prosecution of the two counts of willfully subscribing to a false tax return for which Defendant was indicted on November 14, 1996 .

The Internal Revenue Code, however, provides for the tolling of the statute of limitations period if an individual seeks to quash a summons issued to a third party for financial information relevant to the individual's tax liability. See 26 U.S.C. §7609(e). The Code provides that

if any person . . . [moves to quash a summons to a third party] and such person is the person with respect to whose tax liability the summons is issued . . ., then the running of any period of limitations . . . under section 6531 (relating to criminal prosecutions) with respect to such person shall be suspended for the period during which a proceeding, and appeals therein, with respect to the enforcement of such summons is pending.

Id. §7609(e)(1). Federal regulations mandate that the limitations period is tolled for the entire time during which the summons is litigated, including the pendency of an appeal and the time in which a petition for rehearing may be made. See 26 C.F.R. §301.7609-5(b).

In response to the government's investigation of him, Defendant filed a petition on February 17, 1993 , to quash summonses to third parties relating to his tax liability in 1988 and 1989. After the district court denied his petition and granted the government's petition to enforce the summonses, this court affirmed the district court's order on February 28, 1994 . See Codner v. United States [94-1 USTC ¶50,248], 17 F.3d 1331 (10th Cir. 1994). Defendant then had a period of forty-five days to petition this court for rehearing, pursuant to Federal Rules of Appellate Procedure Rule 40(a). This period expired on April 14, 1994 . Under 26 C.F.R. §301.7609-5(b), the statute of limitations for Defendant's false tax return violations was tolled for 421 days, from February 17, 1993 , to April 14, 1994 . After taking the tolling period into account, we conclude that the limitations period on the first count of filing a false tax return did not expire until December 9, 1996 , and the limitations period on the second count did not expire until June 10, 1997 . Since Defendant was indicted on November 14, 1996 , we hold that the indictment and prosecution were not barred by the statute of limitations.

III.

We turn to Defendant's arguments that the district court erred in determining his offense level under the Sentencing Guidelines. We review a district court's legal interpretation of the Sentencing Guidelines de novo. See United States v. Henry, 164 F.3d 1304, 1310 (10th Cir.), cert. denied, U.S. , 119 S.Ct. 2381 (1999). We review factual findings supporting a base offense level calculation for clear error. See United States v. McClelland, 141 F.3d 967, 973 (10th Cir. 1998).

Defendant argues that the district court should not have been permitted to use the tax loss from the years 1992 through 1996 in addition to the tax loss from 1988 through 1991 for the purpose of calculating the total tax loss attributable to Defendant's base offense level. He further asserts that the district court's use of the 1992-1996 tax loss violated his Fifth Amendment right against self-incrimination and was contrary to the intent of Congress because the district court obtained the amount of tax loss for those years from the income tax returns submitted by Defendant to the probation officer during the presentence investigation.

A.

We consider first whether the district court erred in including the tax loss from 1992 through 1996 in its determination of the total tax loss attributable to Defendant. ³ The base offense levels for violations of 26 U.S.C. §§7201 and 7206(1) are based on the tax loss attributable to the defendant's conduct. Section 2T1.1 of the Sentencing Guidelines defines "tax loss" as "the greater of: (A) the total amount of tax that the taxpayer evaded or attempted to evade; and (B) the 'tax loss' defined in §2T1.3." U.S.S.G. §2T1.1. For a noncorporate taxpayer, §2T1.3 defines "tax loss" as "28 percent of the amount by which the greater of gross income and taxable income was understated, plus 100 percent of the total amount of any false credits claimed against the tax." Id. §2T1.3. In determining the tax loss for an offense, the sentencing court may consider not only the offense of conviction but also all relevant conduct that is part of the same course of conduct or common scheme or plan. See id. §2T1.1 comment. (n.3); §1B1.3(a)(2). "All conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated." Id. §2T1.1 comment. (n.3); §2T1.3 comment. (n.3). We have held that "even uncharged tax losses constitute relevant conduct which a sentencing court may consider in determining the basic offense level tax loss." United States v. Higgins, 2 F.3d 1094, 1097-98 (10th Cir. 1993) (citing United States v. Meek [93-2 USTC ¶50,409], 998 F.2d 776, 781 (10th Cir. 1993)).

The district court included in its tax loss calculations the amount attributable to Defendant for not filing income tax returns for the years 1992 through 1996. At sentencing, the government proved indirectly that this conduct was part of the same course of conduct by establishing simply that by not filing income tax returns from 1992 through 1996 Defendant violated the tax code. See Meek [93-2 USTC ¶50,409], 998 F.2d at 782 (noting that "the government may prove that the defendant's non-charged conduct was part of the same course of conduct as the offense of conviction . . . indirectly, by establishing simply that all the conduct to be aggregated constituted violations of the tax code"). Despite the fact that the presentence investigative report provided ample notice of the conduct that would be considered at sentencing, Defendant failed to rebut the presumption accorded the government's proof "by coming forward with evidence that his non-charged conduct was clearly unrelated to his conviction." Id. In fact, up through the time of trial Defendant failed to file income tax returns at the times required by law and persisted in concealing his assets in trusts. We hold that the district court did not clearly err in determining that the tax loss from the years 1992 through 1996 was part of the same course or pattern of falsifying tax returns and evading taxes that Defendant began in 1989. Accordingly, the district court did not err in its calculation of tax loss and relevant conduct under the sentencing guidelines.

B.

Turning now to the constitutional claim, we note that the district court was able to arrive at the amounts of tax loss attributable for the years 1992 through 1996 because Defendant submitted tax returns for those years during the presentence investigation. Defendant complains that the district court's use of these returns submitted during the presentence investigation as part of his "good faith attempt to reconcile with the system by paying up years of taxes" violates his Fifth Amendment rights against self-incrimination and congressional intent to encourage compliance with tax laws. Appellant's Br. at 29. These arguments are unavailing.

The Fifth Amendment protects against the use of compelled testimony; it does not prohibit the use of evidence that a defendant voluntarily turns over to the government. "Voluntary statements of any kind are not barred by the Fifth Amendment. . . ." Miranda v. Arizona , 384 U.S. 436, 478, 16 L.Ed.2d 694, 86 S.Ct. 1602 (1966). Therefore, "the government may use voluntarily filed tax returns against a defendant without violating the Fifth Amendment." United States v. Hammes, 3 F.3d 1081, 1083 (7th Cir. 1993) (citing Garner v. United States [76-1 USTC ¶9301], 424 U.S. 648, 665, 47 L.Ed.2d 370, 96 S.Ct. 1178 (1976)); see also United States v. Brown [79-1 USTC ¶9322], 600 F.2d 248, 252 (10th Cir. 1979) (indicating that Fifth Amendment does not protect defendant against the disclosure of income in tax returns). Because Defendant voluntarily submitted the returns for 1992 through 1996 which disclosed his income, the district court did not err in using the amounts reported in those returns at sentencing.

Defendant also argues that the district court's use of the returns he filed during the presentence investigation is inconsistent with congressional intent to promote compliance with the tax laws. His argument ignores the fact that the Internal Revenue Code was designed "to induce prompt and forthright fulfillment of every duty under the income tax law." Spies v. United States [43-1 USTC ¶9243], 317 U.S. 492, 497, 87 L.Ed. 418, 63 S.Ct. 364 (1943) (emphasis added). The government furthers the objective of inducing prompt compliance with tax laws when it places taxpayers on notice that, as here, a sentence for charged offenses will be longer when a defendant has committed additional violations of the law. Defendant filed his tax returns for the years 1992 through 1996 in an attempt to set things straight only after he had been prosecuted and found guilty of willfully subscribing to false tax returns and tax evasion. The district court's use of his 1992-1996 tax returns to calculate his sentence was not inconsistent with congressional intent to promote prompt and exacting compliance with federal tax law.

IV.

Finally, on September 27, 1999 , and January 4, 2000 , Defendant filed three motions with our court pursuant to Rule 27 of the Federal Rules of Appellate Procedure and the Tenth Circuit Rules making several requests. In his first motion filed September 27, 1999 , Defendant requested an extension of time to supplement the record. In his second motion filed September 27, 1999 , Defendant provided a lengthy recount of the circumstances surrounding his arrest and investigation and requested leave to file a brief in lieu of oral argument. In the third motion filed January 4, 2000 , Defendant repeated his version of the factual scenario surrounding his arrest and investigation claiming that he continues to suffer harassment at the hands of IRS officials, reiterated his request to supplement the record with further affidavit and memorandum, and appeared to request an order for injunctive relief requiring the IRS to refrain from assessing taxes for the periods of time which are the subject of this appeal.

We are not persuaded that anything in the content of Defendant's motions would change the outcome of our decision in this case. The district court ruled at trial that evidence of the events surrounding Defendant's arrest and investigation by the IRS was inadmissable. We see no reason to question the district court's ruling on the matter. For this reason and because we are satisfied that Defendant has failed in every other attempt to present a cogent legal argument of error in the judgment and sentence imposed by the district court, we deny his motions and affirm Defendant's convictions and sentence.

DENIED and 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 Defendant also makes three other cursory allegations of error by the district court: (1) the government mischaracterized the testimony of Defendant's accountant during closing arguments and therefore misled the jury; (2) an ex parte meeting in which the prosecution asserted that Defendant was associating with known tax protestors prejudiced him before the judge; and (3) the district court erred in not allowing Defendant to present evidence of the circumstances of his arrest. See Appellant's Br. at 3-5, 16; Appellee's Br. at 22. However, because Defendant's brief fails to support these three issues with pertinent authority, record citations, or reasoned arguments, we will treat them as waived. See United States v. Callwood, 66 F.3d 1110, 1115 n.6 (10th Cir. 1995) ("A litigant who mentions a point in passing but fails to press it 'by supporting it with pertinent authority . . . forfeits the point.' " (quoting Pelfresne v. Village of Williams Bay, 917 F.2d 1017, 1023 (7th Cir. 1990)); United States v. Evans, 970 F.2d 663, 671 n.11 (10th Cir. 1992); see also United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990) ("It is not enough merely to mention a possible argument in the most skeletal way, leaving the court to do counsel's work, create the ossature for the argument, and put flesh on its bones.").

² Defendant also claims that a tax deficiency is a necessary component of charges of tax evasion under §7201. See Appellant's Br. at 18. He is correct on that point. However, the count for the year 1989 was willfully subscribing to a false tax return in violation of §7206(1). Defendant was charged with only two counts of tax evasion, more specifically for the years 1990 and 1991, for which the government established the existence of a tax deficiency.

³ Defendant was sentenced under the November 1, 1991 edition of the United States Sentencing Guidelines. All references to the Guidelines in this opinion are to that edition.

 

 

 

[2003-1 USTC ¶50,312] United States of America , Plaintiff-Appellee v. Warren Monroe Hayes, Defendant-Appellant.

U.S. Court of Appeals, 4th Circuit; 02-4421, 02-4478, 322 F3d 792, March 14, 2003 .

Affirming in part, vacating and remanding in part an unreported DC Va. decision.

[ Code Secs. 6531 and 7206]

Penalties, criminal: Fraud and false statements: Statute of limitations: Six-year period. --

The prosecution of a return preparer for procuring the presentation of tax returns containing false statements by fraudulently inflating taxpayers' deductions, in violation of Code Sec. 7206(2), was not barred by the statute of limitations. The six-year limitations period under Code Sec. 6531(3) applied because the preparer's actions constituted acts furthering the presentation of false returns. The application of Code Sec. 6531(3) to offenses under Code Sec. 7206(2) was appropriate, notwithstanding that Code Sec. 6531 neither expressly refers to Code Sec. 7206(2) nor incorporates all of the elements of a Code Sec. 7206(2) offense.

[ Code Sec. 7206]

Penalties, criminal: Fraud and false statements: Sufficiency of evidence. --

A federal district court properly convicted a tax preparer of procuring the presentation of tax returns containing false statements by fraudulently inflating taxpayers' deductions in violation of Code Sec. 7206(2). The preparer's appeal asserted that there was insufficient evidence to support six of his convictions. However, the weight of the evidence, including the testimony of witnesses for whom he had prepared returns, was sufficient to support a finding of the preparer's guilt.

[ Code Sec. 7206]

Penalties, criminal: Fraud and false statements: Sentencing guidelines. --

A federal district court erred in failing to consider evidence of relevant conduct submitted by the government in sentencing a return preparer convicted of procuring the presentation of tax returns containing false statements in violation of Code Sec. 7206(2). While the sentencing guidelines preserve a broad range of discretion for district courts, a court had no discretion to disregard relevant conduct in order to determine the sentence it considered appropriate.

Paul J. McNulty, United States Attorney, Laura C. Marshall, Assistant United States Attorney, for appellee. Mary Elizabeth Maguire, Frank W. Dunham, Jr., for appellant.
Before: Wilkins, Chief Judge, and Widener, Circuit Judge, and Greenberg, Senior Circuit Judge.

OPINION

WILKINS, Chief Circuit Judge: Warren Monroe Hayes appeals his convictions for 24 counts of procuring the presentation of tax returns containing false statements, in violation of 26 U.S.C.A. §7206(2) (West 2002). He asserts that 20 of the charges against him are barred by the statute of limitations, that six of his convictions are not supported by sufficient evidence, and that the district court erred in admitting certain evidence. On cross-appeal, the Government contends that the district court improperly refused to consider relevant conduct at sentencing. Finding merit only in the Government's claim, we affirm Hayes' convictions, vacate his sentence, and remand.

I.

On November 19, 2001 , a grand jury in the Eastern District of Virginia issued an indictment charging Hayes with preparing 24 tax returns that fraudulently inflated the taxpayers' deductions. The returns in question were filed between February 17, 1996 and April 15, 1999 .

Hayes moved to dismiss all but four of the charges. In support, he argued that a three-year statute of limitations applied under 26 U.S.C.A. §6531 (West 2002) and that only four of the charges in the indictment involved conduct within the preceding three years. The district court denied Hayes' motion, concluding that the applicable limitations period is six years, not three.

At the ensuing trial, the Government presented testimony from several witnesses who had retained Hayes to prepare their taxes. Their testimony indicated that Hayes was not a full-time accountant or tax-preparer but that he supplemented his income every year by preparing returns for relatives and acquaintances. These returns were ostensibly based on documents provided to Hayes by his customers. The customers testified, however, that the returns prepared by Hayes substantially overstated some of their deductions, primarily for charitable contributions and medical expenses. The customers further testified that they did not review the returns before filing them; thus, even as they recognized that they were receiving larger refunds than they were accustomed to, they did not become aware of the overstatements until contacted by investigators from the Internal Revenue Service (IRS).

Hayes testified in his own behalf. He admitted that he made errors in the returns he prepared but denied fabricating any figures in order to increase his customers' deductions.

The jury found Hayes guilty of all 24 counts charged in the indictment. The court then sentenced Hayes to 24 concurrent terms of 30 months imprisonment.

II.

Hayes' first claim is that the district court erred in refusing to apply a three-year statute of limitations to the charges against him. This is a legal issue which we review de novo. See Franks v. Ross, 313 F.3d 184, 192 (4th Cir. 2002).

Section 6531 provides that criminal violations of tax laws are ordinarily subject to a three-year statute of limitations. The statute further provides, however, that the limitations period is six years for eight types of offenses. As is relevant here, the longer limitations period applies to

the offense of willfully aiding or assisting in, or procuring, counseling, or advising, the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a false or fraudulent return, affidavit, claim, or document (whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document).

26 U.S.C.A. §6531(3). The district court concluded that the charges against Hayes were governed by §6531(3) and thus subject to a six-year statute of limitations. We agree.

The charges against Hayes alleged violations of §7206(2), which establishes criminal penalties for any person who

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

Even a cursory comparison of these provisions demonstrates that §6531(3) refers to offenses under §7206(2). The language of the two statutes is virtually identical, with the only substantive difference being that §6531(3) omits the requirement that the defendant's false statements relate to a "material matter."

Hayes contends that this difference demonstrates that §6531(3) does not apply to violations of §7206(2). This argument might be persuasive if the additional requirement appeared in the procedural provision establishing the statute of limitations rather than the substantive provision defining the crime. Here, however, the reverse is true. Thus, while there may be offenses that satisfy §6531(3) without including all the elements of a §7206(2) violation, it is not possible to violate §7206(2) without meeting all the requirements of §6531(3). See United States v. Zavin [ 61-1 USTC ¶9468], 190 F.Supp. 393, 394 (D. N.J. 1961) ("A return which is false as to any material matter is a false return.").

Hayes further argues that the absence of any reference to §7206(2) in §6531 demonstrates that Congress did not intend for the extended statute of limitations to apply to §7206(2) offenses. He bolsters this argument by noting that §6531(5) specifically alludes to §7206(1). We acknowledge that the legislative intent would be clearer if §6531 identified both of the relevant portions of §7206 in the same manner, rather than referring to one by citation and to the other by incorporating its language. Nevertheless, the absence of an explicit reference to §7206(2) within §6531 does not preclude the application of a six-year limitations period here. Of the eight categories of offenses subject to the six-year period under §6531, four are defined through descriptions of offense conduct, see 26 U.S.C.A. §§6531(1)-(4), while the other four are defined through statutory references, see 26 U.S.C.A. §§6531(5)-(8). A holding that the six-year statute of limitations applies only to the statutory provisions explicitly mentioned in §6531 would effectively nullify the four paragraphs of that statute that use descriptions rather than citations. This result would contravene well-settled principles of statutory construction. See Lane v. United States [ 2002-1 USTC ¶60,437], 286 F.3d 723, 731 (4th Cir. 2002).

For the foregoing reasons, we conclude that application of §6531(3) to offenses under §7206(2) is appropriate, notwithstanding that §6531 neither expressly refers to §7206(2) nor incorporates all the elements of a §7206(2) offense. We therefore hold that the district court properly denied Hayes' motion to dismiss the 20 charges involving conduct occurring more than three years before he was indicted.

III.

We next consider Hayes' claim that there was insufficient evidence to support six of his convictions. We review this claim de novo. See United States v. Romer, 148 F.3d 359, 364 (4th Cir. 1998).

Section 7206(2) requires the Government to prove that "`(1) the defendant aided, assisted, or otherwise caused the preparation and presentation of a return; ... the return was fraudulent or false as to a material matter; and (3) the act of the defendant was willful."' United States v. Aramony, 88 F.3d 1369, 1382 (4th Cir. 1996) (quoting United States v. Salerno [ 90-1 USTC ¶50,261], 902 F.2d 1429, 1432 (9th Cir. 1990)). The verdict of the jury that Hayes committed this offense will be upheld if "`there is substantial evidence, taking the view most favorable to the Government, to support it."' United States v. Bennafield, 287 F.3d 320, 324 (4th Cir.) (quoting Glasser v. United States, 315 U.S. 60, 80 (1942)), cert. denied, 123 S. Ct. 388 (2002). With these standards in mind, we now examine the evidence supporting the convictions challenged by Hayes.

A. Count 7: Eunicea and Larry Ellerbe

Eunicea Ellerbe testified that she retained Hayes through her sister, Cynthia Peeples. Ellerbe gave relevant documents to Peeples for delivery to Hayes, and Hayes then prepared a tax return for Ellerbe and her husband. This return included, among other inaccurate figures, a claimed deduction of $16,381 for medical expenses. Ellerbe testified that she did not give Hayes any information supporting such a deduction.

Hayes contends that his conviction relating to the Ellerbe tax return is not supported by sufficient evidence because there was no evidence negating the possibility that Peeples, rather than Hayes, invented the deductions listed on the Ellerbe return. We disagree. Peeples testified at trial that, in addition to recruiting Hayes to prepare returns for Ellerbe, she twice hired him to prepare her own returns. The first return included deductions not supported by the information Peeples had provided to Hayes, and Peeples was audited as a result. She testified that she subsequently instructed Hayes "to do my taxes, but only put the figures on my taxes of what I give you." J.A. 564-65. The jury could reasonably infer that Peeples would not adhere to this policy for herself and yet provide Hayes with false information about her sister's taxes. This inference is particularly strong in light of the substantial similarities connecting the misstatements in the Ellerbe return with those in other returns prepared by Hayes. Cf. Morgan v. Foretich, 846 F.2d 941, 944 (4th Cir. 1988) (holding that evidence that two half-sisters suffered similar sexual abuse tended to show that they were abused by their common parent or grandparents).

B. Counts 12 and 13: Ronald Gullette

Like Eunicea Ellerbe, Ronald Gullette retained Hayes through an intermediary (Van Ashe) and never interacted with Hayes directly. Hayes thus contends that the evidence fails to establish that he created the false information that was included on returns he prepared for Gullette; instead, such information may have been given to Hayes by Ashe. Once again, however, the jury could reasonably infer that Hayes was responsible, because the misstatements in Gullette's returns were so similar to those in other returns prepared by Hayes.

C. Count 14: Linda Macklin

Linda Macklin, Hayes' sister-in-law, testified that Hayes prepared her tax returns for 1996 and 1997. On her 1996 return, Hayes included a medical expense of over $13,000. Macklin told the grand jury that she had incurred more than $14,000 in medical bills in 1996, when her daughter was born. On this basis, Hayes asserts that the deduction noted on Macklin's return was not fraudulent.

This argument fails because Macklin testified that she never discussed her medical bills with Hayes. Also, it appears that Macklin never claimed to have paid these bills herself; instead, she testified that they were paid by her insurance, which rendered them non-deductible, see 26 U.S.C.A. §213(a) (West 2002). The jury could reasonably infer from these circumstances that Macklin did not provide Hayes with the $13,000 figure listed on her tax return and that Hayes may instead have invented this number. Moreover, while the $13,000 deduction noted by Hayes was close to Macklin's actual expenses, this figure also resembles false medical deductions claimed by Hayes in other returns he prepared.

D. Counts 23 and 24: Gloria and Willard ¹ Turnage

Gloria Turnage, like Linda Macklin, is Hayes' sister-in-law, and, like Macklin, Gloria hired Hayes to prepare tax returns for her and her husband in 1996 and 1997. These returns included large deductions for medical expenses and charitable contributions. Hayes asserts that the Turnages' testimony established that these deductions were accurate. This is incorrect. Under questioning by the court, Willard Turnage testified that the deductions on the Turnages' returns were "wrong." J.A. 193. Thus, the evidence supports the conclusion that the Turnages' returns included false statements.

Although Hayes has not raised this issue, we note that the evidence also supports the inference that it was Hayes who fabricated the incorrect amounts noted on the Turnages' returns. Gloria testified that she gave Hayes a series of documents --"[m]y W-2s, my medical bills, my financial statement from church, my day care," id. at 170 --and let him compute her deductions. Willard, for his part, stated that he "really didn't do anything" to assist Hayes with the preparation of tax returns. Id. at 189. It follows that neither Gloria nor Willard provided Hayes with the incorrect numbers that appeared on their tax returns. Consequently, Hayes must have either derived those numbers from Gloria's records or invented them himself. In light of the general reliability of business records and the substantial similarities between the errors on the Turnage returns and false deductions noted on other returns prepared by Hayes, a jury could reasonably conclude that Hayes fabricated the incorrect figures on the Turnage returns. Accordingly, the evidence was sufficient to support Hayes' convictions.

IV.

Hayes' remaining claims challenge the admission of certain evidence. Decisions allowing the introduction of evidence are reviewed for abuse of discretion. See United States v. Robinson, 275 F.3d 371, 383 (4th Cir. 2001), cert. denied, 122 S. Ct. 1581, 1945 (2002).

A. Summary Charts

Hayes initially challenges the admission of charts created by Special Agent Jo Ann Haarstick of the IRS. These charts summarized the alleged misstatements in tax returns prepared by Hayes. Hayes contends that these charts were unnecessary because this case was not unduly complex. He further asserts that the charts tended to bolster the testimony of the taxpayers who claimed that Hayes included false information in their returns.

We uphold the admission of the charts for three reasons. First, although the trial was short, numerous witnesses testified about multiple errors in 24 different tax returns; consequently, the charts may have aided the jury in organizing the information it received before Haarstick testified. See United States v. Loayza, 107 F.3d 257, 264 (4th Cir. 1997) (noting that a decision to admit summary charts should be guided by consideration of the "complexity and length of the case as well as the numbers of witnesses and exhibits"). Second, the charts and accompanying testimony assisted the Government in meeting its burden of proving that Hayes' misstatements were material to the computation of taxes owed by his customers. Third, the district court minimized the possibility that the jury would treat the charts as substantive evidence by instructing that, if the information in the charts conflicted with the materials from which the charts were derived, "it is the raw material underlying the charts and summaries that controls." J.A. 624; see Loayza, 107 F.3d at 264 (upholding admission of charts based in part on use of limiting instruction).

B. Vouching by Haarstick

Hayes next contends that the district court improperly permitted Haarstick to vouch for other Government witnesses. This claim arises from the following colloquy, which occurred at the end of the Government's direct examination of Haarstick:

Q And were any of the taxpayers subjects of the investigation?

A No.

Q Why is that?

A The element was willfulness. And when the interviews were done, to my knowledge --

[DEFENSE COUNSEL]: This requires hearsay. Second of all, requires a legal opinion, which I don't think she is qualified to make.

THE COURT: No. It is a policy of the IRS. The objection is overruled.

Proceed.

BY [THE PROSECUTOR]:

Q If you could just --the question was why weren't they considered to be --why wouldn't the IRS have considered them to be subjects of the investigation?

A It was determined that they did not willfully know what was on the tax return. They had not reviewed it, didn't have knowledge that it was false.

J.A. 483-84.

It is impermissible for a prosecutor to indicate her personal belief in the credibility of Government witnesses or to elicit one witness' opinion that another witness has told the truth. See United States v. Lewis, 10 F.3d 1086, 1089 (4th Cir. 1993). Such improper vouching is not necessarily reversible error, however. Instead, a reviewing court must assess the prejudicial effect of the improper comments by considering "(1) the degree to which the comments could have misled the jury; (2) whether the comments were isolated or extensive; (3) the strength of proof of guilt absent the inappropriate comments; and (4) whether the comments were deliberately made to divert the jury's attention." United States v. Sanchez, 118 F.3d 192, 198 (4th Cir. 1997).

We assume for purposes of decision that Haarstick's testimony amounted to improper vouching. Nevertheless, applying the factors listed in Sanchez, we hold that any error was harmless. ²

With respect to the first factor, we conclude that the comments had no appreciable effect on the jury. We recognize that the comments in question went to the central issue to be decided at trial --that is, whether the misstatements in tax returns prepared by Hayes resulted from inaccurate information provided by Hayes' customers or from Hayes' own fabrications. But Haarstick's statement that the Government had resolved that question against Hayes only restated the obvious; if the IRS had believed Hayes rather than his customers, Hayes would not have been indicted. Furthermore, Haarstick expressed the conclusion of the IRS, without indicating either that the IRS had any undisclosed knowledge to support that conclusion or that she personally considered the testimony against Hayes to be credible. For these reasons, we do not believe the testimony in question misled the jury.

The remaining three factors also weigh against reversal. The testimony at issue was not extensive, but rather amounted to two or three sentences in the middle of the trial. In addition, the Government's case, viewed in its entirety, was quite strong, as it demonstrated a pattern of similar misstatements on 24 different tax returns prepared by Hayes; thus, the jury could not have credited Hayes' defense --that he relied entirely on information provided by his customers --without concluding that Hayes' diverse customers all made false claims involving the same types of deductions and similar dollar amounts. And finally, there is nothing in the record to indicate that the Government deliberately elicited the statements in question for improper purposes. For these reasons, we affirm Hayes' 24 convictions for violating §7206(2).

V.

We now turn to the Government's cross-appeal. The Government contends that the district court improperly refused to consider evidence that Hayes' offenses resulted in tax losses exceeding $274,000. "We review the district court's factual findings for clear error, but if the issue on review turns primarily on the legal interpretation of a guideline term, the standard moves closer to de novo review." United States v. Hudson, 272 F.3d 260, 263 (4th Cir. 2001) (alteration and internal quotation marks omitted).

The presentence report (PSR) prepared before Hayes' sentencing concluded that the crimes of which Hayes had been convicted cost the Government a total of $75,814 ("Indictment Losses"). The PSR then estimated that the Government suffered additional losses of $199,017 from 63 tax returns prepared by Hayes that did not result in prosecution ("Non-Indictment Losses"). In computing Hayes' sentencing range, the PSR included both the Indictment Losses and the Non-Indictment Losses in Hayes' relevant conduct. See U.S. Sentencing Guidelines Manual §1B1.3 (2000) (defining relevant conduct).

Before the sentencing hearing, Hayes filed written objections to the PSR. With respect to the Non-Indictment Losses, he argued that (1) the 63 returns in question were not part of his relevant conduct, (2) the value of the Non-Indictment Losses was calculated improperly, and (3) consideration of the Indictment Losses alone would result in an appropriate sentence under 18 U.S.C.A. §3553(a) (West 2000). The Government, responding in writing, disagreed with these assertions and offered to introduce evidence in support of its position.

The Government did not have an opportunity to present this evidence. At the beginning of the sentencing hearing, the district court ruled:

Given the facts in the pre-sentence report, I grant the defendant's objections to the calculations of the tax loss amount. Even though relevant conduct may be considered, The Court finds that a tax loss amount of $75,814, the total loss amount for the counts charged in the indictment, results in a sentence sufficient, but not greater than necessary, to reflect the seriousness of the offense, provide just punishment for an adequate deterrence, and to protect the public, in satisfaction of [ §3553(a)].

J.A. 691. The Government noted an objection and proffered evidence to support its assertions, but the court did not change its ruling. The effect of this ruling was to reduce Hayes' base offense level from 16 to 14. See U.S.S.G. §§2T1.4(a)(1), 2T4.1(I) & (K) (2000).

The Government asserts that the district court erred in refusing to consider its evidence. Hayes counters that the court did not refuse to consider any evidence, but instead found such evidence insufficient to demonstrate that the Non-Indictment Losses resulted from relevant conduct.

We agree with the Government's position. The statements of the district court do not reflect any inquiry whatsoever into the adequacy of the Government's proffers. Instead, the ruling quoted above indicates that the court simply made a personal assessment of what loss amount would result in an appropriate sentence, without regard to the sentencing guidelines. However, "[t]he relevant conduct provisions are designed to channel the sentencing discretion of the district courts and to make mandatory the consideration of factors that previously would have been optional." Witte v. United States, 515 U.S. 389, 402 (1995); see U.S.S.G. §1B1.3(a) (providing that a defendant's offense level ordinarily "shall be determined on the basis of" relevant conduct (emphasis added)). Thus, while the guidelines preserve a broad range of discretion for district courts, a court has no discretion to disregard relevant conduct in order to achieve the sentence it considers appropriate.

For these reasons, we must vacate Hayes' sentence and remand for further proceedings. On remand, the district court must apply §1B1.3 to determine whether to treat some or all of the Non-Indictment Losses as part of Hayes' relevant conduct. We take no position regarding the procedures the court must follow or what its ultimate conclusion should be.

VI.

For the reasons stated above, we affirm Hayes' convictions but vacate his sentence and remand for resentencing.

AFFIRMED IN PART; VACATED AND REMANDED IN PART

¹ The indictment spells Mr. Turnage's first name "Williard." J.A. 13. It appears in the transcript as "Willard," however. Id. at 188. We have adopted the latter spelling.

² The Government asserted at oral argument that this claim is subject to plain error review because Hayes did not object on the basis of improper vouching. We need not consider whether Hayes adequately preserved this claim, because we conclude that the Government prevails even under a harmless error standard.

 

 

 

 

 

 

[2003-1 USTC ¶50,315] United States of America v. Peter Bouzanis, George Palivos, JACPG, Inc., Peter Palivos and Louis Marin, Defendants.

U.S. District Court, No. Dist. Ill. , East. Div.; 00 CR 1065, March 6, 2003 .

[ Code Sec. 7206]

Crimes: Fraud and false statements: Financial broker: Aiding in preparation of fraudulent return: Materiality of false statement: Statute of limitations. --

A financial broker's motion to dismiss an indictment charging him with aiding, counseling, and causing the preparation and presentation of a third party's false and fraudulent tax return for the purpose of assisting that party to obtain a loan was denied. Although the return overstated the third party's income, the false statement was "material" because it had the potential for hindering IRS efforts to monitor and verify his tax liability. Consequently, the broker's indictment alleged a violation of Code Sec. 7206(2). In light of that determination, his contention that the prosecution was barred by the statute of limitations was rejected.

MEMORANDUM OPINION AND ORDER

LEFKOW, District Judge: This case revolves around the April 1996 sale of a restaurant named Waterfalls located in Antioch , Illinois . Codefendant JACPG sold the restaurant to codefendant Peter Bouzanis ("Bouzanis"). The indictment alleges that Bouzanis obtained a loan from The Money Store Investment Corporation ("The Money Store"), which loan was partially guaranteed by the United States Small Business Administration, and that JACPG and others secretly and fraudulently financed the capital that Bouzanis was required to provide to close the transaction. Defendant Louis Marin ("Marin") is a broker who introduced Bouzanis to The Money Store.

Presently before the court is Marin's motion to dismiss Count Eight (the only count in which he is named) of the Fourth Superseding Indictment. According to the indictment, Marin assisted Bouzanis in preparing an individual tax return (Form 1040) that Bouzanis filed on February 29, 1996 for the 1994 tax year, and that the return declared a false, inflated income of $52,000.00. That tax return was submitted to The Money Store in support of the loan application to make Bouzanis appear a better credit risk than he actually was. The government charges Marin with aiding, counseling and causing the preparation and presentation of a false and fraudulent tax return to the Internal Revenue Service ("IRS") which Marin did not believe was true as to every material matter, in violation of 26 U.S.C. §7206(2) (Fraud and false statements) ¹ and of 18 U.S.C. §2 (Principals). ² Marin argues that the indictment does not allege the elements of an offense under §7062(2) and that the statute of limitations bars the prosecution. The motion is denied for reasons stated below.

DISCUSSION

A. Sufficiency of the indictment

Marin argues that the indictment fails to allege an offense under 26 U.S.C. §7206(2) in that it fails to allege a necessary element: that the tax return was "fraudulent or false as to any material matter." He rests his argument on the fact that Bouzanis's income was overstated rather than understated, which statement although false is not fraudulent because, he contends, it was not material.

Marin concedes that pecuniary loss to the government is irrelevant to §7206(2), ³ but he argues that "there must be some obstruction, delay or impairment of revenue function relating to the false statement itself rather than the actual attainment of its end as measured by collateral circumstances." (Def. Mem. at 2.) If Marin means by this opaque statement that the government must allege and prove some actual impairment of IRS function, so that if the effect was only to aid Bouzanis in obtaining a loan from The Money Store and thus there is no violation, he is without support in case law. Marin relies solely on United States v. Potstada [ 62-2 USTC ¶12,117], 206 F.Supp. 792 (N.D. Cal. 1962), which ruled in line with many other cases that an indictment stated a violation of §7206(2) where it alleged that the defendant had procured the filing of a gift tax return containing a false statement even though in fact no tax was due, i.e., "that defendant obtained for the government a tax that actually was not owing." Id. at 793. Marin lifts language from Potstada in which the court referred to cases interpreting §7206(2) and its predecessor, as well as the general false statement act, 18 U.S.C. §1001, and commented, "the courts seem to hold that it is not necessary to allege any pecuniary loss to the United States as the result of such false statements, and, that it is sufficient to allege and prove obstruction, delay or impairment of governmental functions. " Id. at 794 (emphasis added). The government's burden to allege and prove obstruction, delay or impairment of governmental functions, however, was not at issue in Potstada and thus it has no persuasive force concerning the argument Marin advances. Among the cases the Potstada court referenced is a Seventh Circuit case, United States v. Borgis [ 50-1 USTC ¶9330], 182 F.2d 274 (1950), but this court searches that case in vain also for the rule of law on which Marin would rely.

In any event, neither case would govern over United States v. Peters [ 98-2 USTC ¶50,650], 153 F.3d 445, 461-62 (7th Cir. 1998), on which the government relies. There, the defendant argued that the government had to prove a tax deficiency in order to convict under §7206(1), ⁴ which argument amounted to a contention that unless there was a tax deficiency the false statement was not material. The court rejected that argument, holding that proof of a tax deficiency was not essential to prove materiality. The court set out the elements of the offense including a definition of "material": "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 corporation and the taxpayer." Id. at 461, quoting United States v. Greenberg [ 84-1 USTC ¶9509], 735 F.2d 29, 32 (2d Cir. 1984); see United States v. DiVarco [ 73-2 USTC ¶9607], 484 F.2d 670, 673 (7th Cir. 1973) (Even though the government did not prove understatement of income, the court held that a false statement as to source of income on a tax return was material, relying in part on the policy that the IRS is entitled to accurate information). There is, of course, no question that the amount of income on a tax return is material in that it would have the potential for hindering the IRS's efforts to monitor and verify Bouzanis's tax liability; thus it follows that this indictment alleges a violation of §7206(2).

B. Statute of limitations

Marin's statute of limitations argument rests on the argument rejected above that the indictment fails to allege a violation of §7206(2). Inasmuch as that argument has been rejected, so also is the argument that the prosecution is time-barred.

ORDER

Accordingly, the court denies Marin's motion to dismiss his indictment.

¹ 26 U.S.C. §7206(2) (Aid or assistance) states:

Any person who --[w]illfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, ... which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, ... shall by guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000, ... or imprisoned not more than 3 years, or both, together with the costs of prosecution.

² 18 U.S.C. §2 (Principals) states:

(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.

(b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offenses against the United States, is punishable as principal.

³ Although making this concession, Marin cites United States v. Whyte [ 83-1 USTC ¶9185], 699 F.2d 375, 379 (7th Cir. 1983), as authority for the rule that materiality means understatement of gross income. This statement in Whyte was made in the context of whether the question of materiality is for the court or the jury. Thus, Marin takes the reference to out of context and Whyte has no bearing on the definition of materiality. See United States v. Minneman [ 98-1 USTC ¶50,347], 143 F.3d 274, 279 (7th Cir. 1998) (the defendants argued that because the defendant-taxpayer could have, but did not, take a deduction that would offset gross income, "the defendants did not have a financial motive to defraud the government" and thus the defendants did not falsify the return under 26 U.S.C. §7206(1) and 18 U.S.C. §371 (conspiracy to impede the IRS). The court disagreed, stating that "the amount of taxes owed is irrelevant to a prosecution for tax fraud.").

⁴ 26 U.S.C. §7206(1) (Declaration under penalties of perjury):

Any person who --[w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter;

Although the cases cited in the briefs deal mainly with §7206(1), the parties do not dispute, nor does the court disagree, that the Seventh Circuit's interpretation of the elements of the offense is also applicable to aiding and abetting under §7206(2).

 

 

 

 

 

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

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

[ Code Secs. 6531, 7202 and 7206]

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

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

MEMORANDUM OPINION AND ORDER

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

BACKGROUND

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

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

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

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

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

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

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

DISCUSSION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Counts 31 through 34 are dismissed.

Discovery Related Motions

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

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

CONCLUSION

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

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

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

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

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

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

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

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