Willfulness Defined Page4

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1. Government's standing to assert fraudulent conveyance claim against Taxpayers.

As indicated above, in opposing the United States ' Motion for Summary Judgment on the fraudulent conveyance claim, the Taxpayers only contend that the United States does not have standing to prosecute its liens against the Castle Shannon property and therefore, cannot seek summary judgment on Count III. "Only a Bankruptcy Trustee has standing to recover a transfer of property such as the Castle Shannon property that is described in Count III, unless: (a) the Trustee abandons it; or (b) the Trustee is unable or unwilling to bring the claim, and a court finds that not bringing the claim is an abuse of discretion," neither of which occurred in the Taxpayers' bankruptcy case. Taxpayers' Opposition Brief, p. 28.

The United States responds to the Taxpayers' standing argument by contending that once a bankruptcy proceeding is over and the debtor has received a discharge, the Government has standing to bring a state law claim for fraudulent conveyance. Brief in Support of United States' Motion to Strike Barbara Doyle's Declaration, and in Reply to Taxpayers' Opposition to United States' Motion for Summary Judgment ("United States' Reply Brief"), pp. 20-21; Letter Brief dated June 10, 2003.

In Hatchett v. United States [ 2003-1 USTC ¶50,504], 330 F.3d 875 (6th Cir. 2003), the United States Court of Appeals for the Sixth Circuit recently held that "[t]hough the trustee has the exclusive right to bring an action for fraudulent conveyance during the pendency of the bankruptcy proceedings, the Bankruptcy Code does not extinguish the right of the Government to bring a state law action for fraudulent conveyance after the debtor receives a discharge in bankruptcy.... Accordingly, because the bankruptcy proceedings are over, the Government has standing to assert its fraudulent conveyance theory." Id. at 886. The Court agrees with the Hatchett court's analysis of the standing issue and adopts it as our own. See also Federal Deposit Insurance Corp. v. Davis, 733 F.2d 1083, 1085 (4th Cir. 1984) (where trustee during bankruptcy proceeding had not attempted to attack a fraudulent conveyance, court held that "[o]nce a bankruptcy case has been closed, creditors having unavoided liens on fraudulently conveyed property can pursue their state law remedies independently of the trustee in bankruptcy and thus, creditor with unavoided lien which was attached to certain property was free to attack a fraudulent conveyance of that property). Accordingly, in that the Taxpayers' bankruptcy proceeding is concluded, the United States has standing to assert its state law fraudulent conveyance theory against them.

2. Substantive Analysis of Government's fraudulent conveyance claim.

In Count III of the United States 's Second Amended Complaint, the United States seeks to set aside the Taxpayers' conveyance of the Castle Shannon property to Maureen and Brian Doyle and to order the foreclosure and sale of the Castle Shannon Property to satisfy its tax liens. Specifically, the United States contends that the Taxpayers conveyed the Castle Shannon Property to their children, Maureen and Brian Doyle, with the actual intent to hinder, delay or defraud the United States . "Once the conveyance is set aside, the tax lien attaches." United States' Brief in Support of Its Motion for Summary Judgment ("United States' Supporting Brief"), p. 40 n. 13. In support of its allegations, the United States cites to the admissions of the Taxpayers where in response to the question "[t]he conveyances referred to in paragraphs 28, 31, 32, and 33 of the United States Amended Complaint [these paragraphs refer to the Castle Shannon Property] were made with the actual intent to hinder, delay or defraud the United States of America, a creditor of the taxpayers," the Taxpayers both responded: "[a]lthough these are both conclusions of law, this Defendant does not contest these allegations. The government did not take the action that it was required to take in the bankruptcy and lacks standing now to contest the conveyances. Thus, upon discharge, the bankruptcy trustee and judge in effect determined as a matter of law that we had no fraudulent intent." Answer #5 of Barbara Doyle's Response to United States ' First Request for Admissions to Barbara Doyle; Answer #5 of S. Byrne Doyle's Response to United States ' First Request for Admissions to S. Byrne Doyle.

The applicable law is as follows. "Upon assessment, a federal tax lien attaches to all property and rights to that property belonging to a taxpayer. See 26 U.S.C. §§6321 and 6322. Generally, a tax lien does not attach to property that a taxpayer previously transferred and which ostensibly no longer belongs to the taxpayer. Id. However, if a taxpayer fraudulently disposes of property prior to the existence of tax liens, the Government may seek relief under the applicable fraudulent conveyance laws of the state in which the property is located." United States v. LaBine [ 99-1 USTC ¶50,448], 73 F.Supp.2d 853, 857 (N.D. Ohio 1999) (citations omitted in part).

Here the federal tax liens for the Taxpayers' income tax liabilities for 1980 through 1982 did not arise until April 20, 1993, the date of the assessment, and the Taxpayers had transferred the Castle Shannon Property to Maureen and Brian Doyle on March 3, 1993. Therefore, the United States must rely on the fraudulent conveyance laws of Pennsylvania , the state where the property was located, to set the conveyance aside. Because the transfer of the Castle Shannon Property occurred in March, 1993, the applicable fraudulent conveyance laws are those contained in the Pennsylvania Uniform Fraudulent Conveyance Act ("UFCA"). ⁶

Section 357 of the UFCA provides that: "[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud either present or future creditors, is fraudulent as to both present and future creditors." 39 P.S. §357. A creditor is defined in §351 of the UFCA as being a "person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent." Id. at §351. Section 359(1)(a) of the UFCA further provides:

(1) [w]here a conveyance or obligation is fraudulent as to a creditor, such creditor, when his claim has matured, may, as against any purchaser except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such a purchaser:

(a) have the conveyance set aside or obligation annulled to the extent necessary to satisfy his claim.

Id. at §359(1)(a). Section 353 of the UFCA provides, in relevant part, that "fair consideration" for property is given when "in exchange for such property ..., as a fair equivalent therefor and in good faith, property is conveyed or an antecedent debt is satisfied." 39 P.S. §353(a).

Obviously a critical factor in the analysis of whether the Castle Shannon Property was fraudulently conveyed by the Taxpayers is that the transfer was an intrafamial transfer. The issue of alleged fraudulent conveyances to family members was addressed in United States v. Kudasik [ 98-2 USTC ¶50,535], 21 F.Supp.2d 501 (W.D. Pa. 1998) (Smith, J.). In Kudasik, the United States alleged that a taxpayer had fraudulently conveyed various pieces of property to his sister, including certain parcels of land in Central City, which he conveyed for a $1.00 consideration ("the Central City Properties"). The sister subsequently conveyed these properties to her daughter (the debtor's niece), with no consideration being exchanged. In applying the UFCA to the facts of the case, the Kudasik court explained as follows about interfamial [ sic] transfers when allegations of fraudulent conveyance are raised under the UFCA:

[i]n Iscovitz v. Filderman, 334 Pa. 585, 6 A.2d 270, 272 (1939), ⁷ the Pennsylvania Supreme Court recognized that the determination of whether there was an actual intent to hinder, delay or defraud under the Act must `be proved by facts and circumstances which taken together show the existence of fraud. Although the intent must exist at the time the transfer was made, it may be shown by conduct subsequent to the execution of the conveyance of such a nature as to show fraud in its inception." Id. (citations omitted). The court affirmed the decree that several conveyances from husband to wife, and then from parents to children, were made with the intention of defrauding the creditor plaintiff. The court reasoned

"[w]here the transaction is between husband and wife actual intent does appear where it is shown that there was a deed given for a nominal consideration. This is but a presumption of fact and places on the wife the burden of showing the fairness of the transaction. Since family collusion by a debtor is so easy to execute and so difficult to prove, the evidence to sustain the claim of such cases must be clear and satisfactory."

Id. at 507. Ultimately, the Kudasik court found that because the transfer of the Central City Properties was an intrafamial transfer between brother and sister and there was no evidence of record which would support a finding of "fairness" with respect to the conveyance such that the "clear and satisfactory" burden was not met, the Central City Properties conveyances had to be set aside pursuant to 39 P.S. §359(1)(a). Id. at 508. The Kudasik court further concluded that the subsequent conveyance of the Central City Properties to the daughter did not affect the government's right to have the conveyance set aside because she was not a "purchaser for a fair consideration...." Id. (citations omitted).

Applying the above-stated law to the facts of this matter and using the Kudasik decision as a guide, the Court finds as follows. First, by virtue of the Tax Court's Decision in December 1992, the United States had a claim against the Taxpayers for unpaid taxes at the time of the conveyance of the Castle Shannon Property in March 1993 and therefore, the United States qualifies under the terms of the UFCA as a "creditor" of the Taxpayers. Second, we find that even viewing the Taxpayers' above-quoted admissions in a light most favorable to them as the non-moving party, there is no other way to interpret the Taxpayers' responses other than as admissions, as opposed to a concession, by the Taxpayers that the transfer of the Castle Shannon property was made with the actual intent to hinder, delay or defraud the United States of America, a creditor of the taxpayers. Third, even without considering these admissions, the Court finds that given the undisputed evidence of record that: (1) the March 1993 conveyance of the Castle Shannon Property, where their eldest daughter was then residing, was to their two other children for $1.00 and "natural love and affection;" (2) the conveyance was at a time when the Tax Court had already rendered its Decision finding that the Taxpayers owed the United States money for unpaid taxes and penalties; and (3) at the time of the conveyance, Brian Doyle was aware that his parents were having problems with the IRS and opined that the conveyance was to protect the property from the IRS for his sister Kathleen, there is no genuine issue of material fact with respect to whether the conveyance to Brian and Maureen Doyle was fair; i.e., the presumption that the intrafamial transfer by the Taxpayers for nominal consideration was made with the intent to defraud the United States is not rebutted. ⁸ Fourth and finally, under these same undisputed facts of record, the Court finds that there is no evidence in the record to raise a genuine issue of material fact as to whether Brian and Maureen Doyle and the subsequent transferees of the Castle Shannon Property were purchasers "for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such a purchaser." See 39 P.S. §359(1). Thus, the Court finds that Taxpayers transferred the Castle Shannon Property to Maureen and Brian Doyle with the actual intent to hinder, delay or defraud the United States of America, a creditor of the taxpayers, thereby violating 39 P.S. §357, and Maureen and Brian Doyle and all of the other subsequent transferees were not purchasers "for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such a purchaser." Accordingly, pursuant to §359(1)(a) of the UFCA, the conveyance of the Castle Shannon Property by the Taxpayers to Maureen and Brian Doyle and all the subsequent transfers of the Castle Shannon Property are set aside and the federal tax lien attaches to the Castle Shannon Property.

With respect to the Government's request that the Court order the sale of the Castle Shannon Property to satisfy the tax liens, 26 U.S.C. §7403 is entitled "[a]ction to enforce lien or to subject property to payment of tax," and states, in pertinent part, that:

[t]he court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court with respect to the interests of the parties and of the United States. If the property is sold to satisfy a first lien held by the United States , the United States shall bid at the sale such sum, not exceeding the amount of such lien with expenses of sale, as the Secretary directs.

Id. at §7403(c). Having found that the tax lien is attached to the Castle Shannon Property and therefore, the United States has an interest in the Property, pursuant to §7403(c), the Court orders that the Castle Shannon Property be sold to satisfy the tax lien. ⁹ The Court will hold a hearing on September 10, 2003 at 9:30 a.m. to determine who is to conduct the sale and how the proceeds of the sale are to be distributed. ¹⁰

The Government's motion for summary judgment on Count III of the Second Amended Complaint is granted.

C. Count IV of Second Amended Complaint.

In Count IV of the Second Amended Complaint, the Government asks to foreclose its federal tax lien against the Glen Shannon Property and to have the Glen Shannon Property sold and the proceeds used to satisfy the tax lien. In response, the Taxpayers agree that the Glen Shannon Property is bound by the filing of the Notice of Federal Tax Lien in 1993 and concede that the Plaintiff has a secured claim in the Glen Shannon Property and that the secured claim survived the bankruptcy, but argue that "[t]he secured claim is limited to the value of the residence that was not encumbered by the mortgage on the date of our Bankruptcy." Taxpayers' Opposition Brief, p. 11, See also Id. at p. 24 (stating that the lien can be foreclosed, to the extent of the Taxpayers' equity in the residence when the lien attached in 1993).

Contrary to the Taxpayers' position, the Court concludes that the Government's secured claim on the Glen Shannon Property is not limited to the extent of the Taxpayers' equity in the residence when the lien attached. Rather, the tax lien attaches to any appreciated value of the Glen Shannon Property, said value to be determined when the property is sold. To hold otherwise would allow a debtor as opposed to a creditor to get the benefit of any appreciation in value and such a result would be unjust. See United States v. Avila [ 96-2 USTC ¶50,357], 88 F.3d 229, 234 (3d Cir. 1996) (where debtor had sold property subject to a tax lien and property subsequently increased in value, court reversed district court's finding that government's tax lien in realty was limited to debtor's equity when he conveyed the property and instead held that tax lien attached to the appreciated value of debtor's former interest in property).

Because the United States has requested that the Court order the sale of the Glen Shannon Property, the Court turns again 26 U.S.C. §7403. Pursuant to §7403(c), the Court orders that the Glen Shannon property be sold. ¹¹ The Court will hold a hearing on September 10, 2003 at 9:30 a.m. to determine who is to conduct the sale and how the proceeds of the sale are to be distributed. ¹²

The Government's motion for summary judgment on Count IV of the Second Amended Complaint is granted.



IV. Conclusion.

For the reasons set forth above, the United States ' Motion for Summary Judgment is granted as to all counts in the Second Amended Complaint as against all of the Defendants. An appropriate order will follow.

ORDER

AND NOW, this 4th day of August, 2003, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the Motion for Summary Judgment filed by Plaintiff United States of America (Doc. #33) is GRANTED ON ALL COUNTS CONTAINED IN THE SECOND AMENDED COMPLAINT as to all of the Defendants (S. Bryne [ sic] Doyle, Barbara S. Doyle, Maureen Doyle, Brian Doyle, Kathleen Dorsch, Richard Dorsch and Bank of America).

IT IS FURTHER ORDERED, ADJUDGED, and DECREED that judgment is entered in favor of the United States and against Defendant S. Bryne [ sic] Doyle in the amount of $501,570.85 (the tax liabilities for tax years 1980, 1981 and 1982), plus interest from June 30, 2000 to the date that the judgment is satisfied.

IT IS FURTHER ORDERED, ADJUDGED, and DECREED that judgment is entered in favor of the United States and against Defendant Barbara Doyle in the amount of $501,570.85 (the tax liabilities for tax years 1980, 1981 and 1982), plus interest from June 30, 2000 to the date that the judgment is satisfied.

IT IS FURTHER ORDERED, ADJUDGED, and DECREED that the conveyance of the Castle Shannon Property from S. Bryne [ sic] and Barbara Doyle to Maureen Doyle and Brian Doyle and all subsequent conveyances thereof are set aside as fraudulent under 39 P.S. §357 and 359(1)(a) and declared null and void.

IT IS FURTHER ORDERED, ADJUDGED, and DECREED that the federal tax liens, arising from the assessments issued by the Internal Revenue Service to S. Bryne [ sic] Doyle and Barbara Doyle on April 20, 1993, attached to the Castle Shannon Property on April 20, 1994.

IT IS FURTHER ORDERED, ADJUDGED, and DECREED that a hearing shall be held in Courtroom 3 of the United States Post Office and Courthouse, 700 Grant Street, 8th Floor, Pittsburgh, Pennsylvania, 15219 on September 10, 2003 at 9:30 a.m. to determine: (1) what official is to conduct the sales of the Glen Shannon and Castle Shannon Properties and (2) how the proceeds of the sales are to be distributed unless the parties stipulate to the official to conduct the sale and the manner in which the proceeds are to be distributed.

¹ While neither Maureen Doyle, Brian Doyle, Kathleen Dorsch, Richard Dorsch nor Bank of America filed any opposition to the Plaintiff's Motion for Summary Judgment, in reviewing the merits of the pending motion for summary judgment and rendering our decision, the Court has taken into account the rights and interests of these parties.

² In it Brief in Support of Its Motion for Summary Judgment ( "United States' Supporting Brief"), the United States states that the amount of income tax and interest owed for tax years 1980, 1981 and 1982 is now $501,570.85 per individual and attaches in support thereof the Declaration of IRS Revenue Officer Patricia Skorupan, ¶ ¶11-12. United States ' Supporting Brief, p. 16. The Taxpayers have not disputed the correctness of said figure.

³ Notably, the debtor appealed the bankruptcy court's decision. In In re Krumhorn [ 2001-2 USTC ¶50,701], 2001 WL 1155258 (N.D. Ill. September 28, 2001) ( "Krumhorn II"), the district court reviewed the bankruptcy court's finding of collateral estoppel under a de novo standard of review and affirmed the bankruptcy court's conclusion that collateral estoppel barred the debtor from re-litigating the issue of whether he wilfully evaded his tax obligation.

⁴ In so finding, the Court expressly disagrees with the position of the Taxpayers that unless the effect of the transfer of the Castle Shannon Property to the children was to mislead the IRS or the transfer was concealed from the IRS, the transfer cannot constitute conduct that triggers the application of §523(a)(1)(C). See Taxpayers' Opposition Brief, pp. 20-23. Additionally, for purposes of creating a complete Record, with respect to the Taxpayers' conduct in refinancing their mortgage on the Glen Shannon Property, upon reading Mrs. Doyle's Declaration and viewing the statements made therein concerning this refinancing in a light most favorable to the Taxpayers as the nonmoving parties, the Court concludes that at the time the Taxpayers refinanced the mortgage on their residence, they were of the mind set that the Glen Shannon property was generally exempt from levy by the United States and therefore, they legally could refinance the mortgage. Given such an opinion, there exists a genuine issue of material fact as to whether the Taxpayers were attempting to avoid their tax liability when they refinanced their property on Glen Shannon property. Further, the Court finds that to the extent the Taxpayers, in making their financial decisions, took into account that 240 days post-tax assessment they could file for bankruptcy and have their tax debt for the years in issue discharged, this mind set is not evidence of attempted tax evasion. See In re Schlesinger [ 2003-1 USTC ¶50,152], 290 B.R. 529, 539 (Bankr. E.D. Pa. 2002) (where debtor filed for bankruptcy soon after 240 days passed after being assessed taxes due, court disagreed with government's position that the timing of the petition supporting finding the debtor's tax debts were non-dischargeable under §523(a)(1)(C), explaining that there is a difference between tax avoidance and tax evasion and that "to the extent that a debtor employs legally permissible methods to avoid payment of taxes, such conduct does not constitute improper tax evasion."). Finally, in rendering our decision with respect to Counts I and II, the Court has not considered either Answer #5 of Barbara Doyle's Response to United States' First Request for Admissions to Barbara Doyle or Answer #5 of S. Byrne Doyle's Response to United States' First Request for Admissions to S. Byrne Doyle.

⁵ See Memorandum in Opposition to Plaintiff's Motion to Strike Barbara Doyle's Declaration, p. 3 ( "[we] do not concede what [our] intent in making the conveyance actually was, [we] just say that [we] are willing to part with the Castle Shannon property if the Plaintiff has standing to bring this action.")

⁶ While the UFCA was repealed in 1993, it is applicable to conveyances, such as the Castle Shannon Property transfer, which occurred before February 1, 1994, the effective date of the new Uniform Fraudulent Transfer Act, 12 Pa.C.S.A. §5101 et seq.

⁷ In Iscovitz, the defendant had conveyed realty to a straw man who then conveyed the realty to the defendant and his wife as tenants by the entireties. Id. at 586. A year later, the couple had transferred the realty to their children. Id. at 587.

⁸ In so holding, the Court acknowledges Byrne Doyle's explanation at his deposition that the Taxpayers transferred the Castle Shannon Property to their children because of their awareness of their mortality and that the two children would outlive them, but we find this explanation "inherently incredible" and "too incredible to be believed by reasonable minds." Armbruster v. Unisys Corporation, 32 F.3d 768, 784 n. 21 (3d Cir. 1994); Losch v. Borough of Parkesburg , Pennsylvania , 736 F.2d 903, 909 (3d Cir. 1984). Therefore, the Court concludes that this explanation does not create a genuine issue of material fact sufficient to defeat the Government's motion for summary judgment.

⁹ In so ordering, the Court understands that when deciding whether a forced sale of property under §7403(c) is warranted, the Court has some discretion under equity principles, see U.S. v. Rodgers [ 83-1 USTC ¶9374], 461 U.S. 677, 711, 103 S.Ct. 2132, 2152 (1982), but concludes that under the facts of this case, such discretion is not warranted.

¹⁰ Such a hearing will not be necessary if, consistent with this Opinion, the parties stipulate to who should conduct the sale and how the proceeds therefrom should be distributed.

¹¹ Again, the Court understands that when deciding whether a forced sale of property under §7403(c) is warranted, the Court has some discretion under equity principles, see U.S. v. Rodgers [ 83-1 USTC ¶9374], 461 U.S. 677, 711, 103 S.Ct. 2132, 2152 (1982), but concludes that under the facts of this case, such discretion is not warranted.

¹² Again, such a hearing will not be necessary if, consistent with this Opinion, the parties will stipulate to who should conduct the sale and how the proceeds therefrom should be distributed.

 

 

 

 

 

 

 

 

[2005-1 USTC ¶50,429] United States of America , Appellee v. Eugene A. McNeally, Appellant.

U.S. Court of Appeals, 8th Circuit; 04-1717, March 10, 2005 .

Unpublished opinion affirming, per curiam, an unreported DC Neb. decision.

[ Code Sec. 7203]

Crimes: Willful failure to file returns: Knowledge: Intent. --

The record supported an individual's convictions for willful failure to file his income tax returns for five years. His knowledge of his legal duty to file returns was proved by his admission that he had filed federal tax returns in prior years. His efforts to dissociate himself from his property and income by using his wife's bank account to maintain his anonymity proved intent.

[ Code Sec. 7203]

Crimes: Willful failure to file returns: Jurors. --

The trial court did not abuse its discretion by refusing to strike a potentially suspect juror because the impartiality of the juror was established.

[ Code Sec. 7206]

Crimes: Willful failure to file returns: False statements. --

The record supported an individual's convictions for knowingly making false statements. The taxpayer was a citizen of the United States, but he informed several contractors for whom he performed services that he was a nonresident alien, which resulted in their failure to file required Forms 1099 with the IRS. Although the false statements had not been made directly to a government agency, the statements did relate to matters within the jurisdiction of the IRS.

Before: Bye, Riley and Colloton, Circuit Judges.

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

PER CURIAM: Eugene McNeally appeals his five convictions for willfully failing to file income-tax returns, in violation of 26 U.S.C. §7203, and his eleven convictions for knowingly making or using false statements in a matter within the jurisdiction of a federal agency, in violation of 18 U.S.C. §1001(a)(3). A jury returned the verdicts after a five-day jury trial, and the district court ¹ later sentenced McNeally to concurrent terms of 10 months' imprisonment for willfully failing to file tax returns, and 12 months' imprisonment for making false statements. On appeal, McNeally argues that there was insufficient evidence that he acted willfully in failing to file his tax returns. He also asserts that the evidence was insufficient to show that his statements were false, and made knowingly and in a matter within the jurisdiction of a federal agency. Finally, he challenges the court's refusal to strike a juror.

When viewed in a light most favorable to the verdicts, we believe the evidence is sufficient to show that McNeally willfully failed to file his income tax returns for 1995 through 1999, particularly given his admissions at trial that he had filed federal tax returns in the past, and had used his wife's bank account to maintain his anonymity. See United States v. Espino, 317 F.3d 788, 791-92 (8th Cir. 2003) (standard for sufficiency-of-evidence challenges); United States v. Brooks, 174 F.3d 950, 955 & n.5 (8th Cir. 1999) (willfulness in criminal tax context requires proof defendant knew of and intentionally violated legal duty; proof that defendant filed tax returns in prior years showed he knew of duty, and his efforts to dissociate himself from his property and income by establishing bank account in name of trust belied good-faith defense).

We also believe the trial evidence supports the false-statement convictions. McNeally repeatedly informed several contractors for whom he had performed construction services that he was a nonresident alien, thus prompting many of them not to file a required Form 1099 with the Internal Revenue Service. The evidence at trial, however, established that McNeally was born in Minnesota , lived in Nebraska during the years at issue, and had no citizenship other than that of the United States . See United States v. Yermian, 468 U.S. 63, 68-70 (1984) (defendant must have knowledge of falsity of statements, not knowledge of statement's materiality to federal agency involved); United States v. Baker, 200 F.3d 558, 561 (8th Cir. 2000) (materiality inquiry under §1001 "focuses on whether the false statement had a natural tendency to influence or was capable of influencing the government agency or official"); United States v. Popow, 821 F.2d 483, 486 (8th Cir. 1987) (false statements need not be made directly to government agency to establish jurisdiction under §1001; instead, they need only relate to matter in which federal agency has power to act).

Finally, the district court did not abuse its discretion in refusing to strike the potentially suspect juror. The court reminded the juror of his obligation to maintain an open mind until all the evidence was presented. Before the case was submitted to the jury, the court stated --without objection by McNeally --that it would talk to the juror outside the presence of counsel and would let him remain on the jury only if, based on this discussion, the court believed the juror had an open mind about the case. See United States v. Evans, 272 F.3d 1069, 1078-79 (8th Cir. 2001) (although removal of juror is appropriate if juror has formed opinion as to issue to be tried, it is sufficient if juror can lay aside pretrial impression or opinion and render verdict based on evidence presented in court); United States v. Duke, 255 F.3d 656, 659 (8th Cir. 2001) (rulings on juror qualifications will not be disturbed absent clear showing of abuse of discretion vested in district court); United States v. Campbell, 845 F.2d 782, 785 (8th Cir. 1988) (district court has discretion to question juror whose qualifications have come into doubt during trial to insure impartiality of jury).

Accordingly, we affirm.

¹ The Honorable Lyle E. Strom, United States District Judge for the District of Nebraska.

 

 

[2005-2 USTC ¶50,453] United States of America , Plaintiff-Appellee, v. Ernest Glenn Ambort, Defendant-Appellant.

U.S. Court of Appeals, 10th Circuit; 03-4243, May 3, 2005 .

Affirming an unreported DC Utah decision.

[ Code Secs. 7203 and 7206]

Crimes: Fraud and false statements: Aiding and advising preparation of false returns: Good faith defense: Willful disregard of established law. --

A seminar organizer who had willfully aided and assisted seminar attendees in the preparation of false income tax returns could not use a good faith defense to disguise his knowing disregard of well-established legal principles and duties. He had advised the attendees to classify themselves as nonresident aliens when he knew that position was erroneous and that they were, in fact, residents of the United States , subject to taxation and not entitled to the refunds they claimed.

[ Code Sec. 7206]

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

Although a seminar organizer's base offense level was erroneously enhanced, there was nothing in the record to support a conclusion that his sentence should be less than the sentence imposed. He failed to show that his substantial rights were adversely affected by the sentencing. The organizer had willfully aided and assisted seminar attendees in the preparation of false income tax returns.

[ Code Sec. 7206]

Crimes: Fraud and false statements: Aiding and advising preparation of false returns: Willful disregard of established law. --

A seminar organizer who had knowingly and intentionally assisted seminar attendees in preparing fraudulent federal tax returns could not seek protection under his First Amendment right to petition for redress. He had advised seminar attendees to classify themselves as nonresident aliens when he knew that position was erroneous and that they were, in fact, residents of the United States , subject to taxation and not entitled to the refunds they claimed. The ultimate failure of the scheme did not vitiate its fraudulent nature.

Brian Galle, Alan Hechtkopf, Department of Justice, for plaintiff-appellee. Steven B. Killpack, Federal Public Defender, Scott Keith Wilson, Assistant Federal Public Defender, for defendant-appellant.

Before: Kelly, Anderson and Tymkovich, Circuit Judges.

ANDERSON, Circuit Judge: Defendant Ernest Glenn Ambort appeals his conviction and sentence following a jury trial on one count of conspiracy to defraud the United States by assisting in the preparation of false tax returns, in violation of 18 U.S.C. §371, and sixty-nine counts of aiding and assisting in the preparation of false federal tax returns, in violation of 26 U.S.C. §7206(2). We affirm.

BACKGROUND

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

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

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

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

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

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

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

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

DISCUSSION

I. Good Faith Defense

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

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

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

Let me interrupt here.

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

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

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

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

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

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

THE COURT: The objection is on what basis?

MR. BAILEY: Relevance.

THE COURT: Sustained.

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

MR. BAILEY: Same objection, Your Honor.

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

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

MR. BENSON: I was simply --

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

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

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

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

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

II. Denial of Motion to Dismiss Indictment

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

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

Appellee's Br. at 11.

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

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

A. First Amendment

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

B. Criminal Conduct Under §7206

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

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

III. Sentencing Issues

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

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

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

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

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

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

We have recently stated:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONCLUSION

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

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

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

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

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

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

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

 

 

[2005-2 USTC ¶50,565] United States of America , Plaintiff-Appellee v. David L. Smith, Defendant-Appellant. United States of America , Plaintiff-Appellee v. Herbert A. Bates, Defendant-Appellant.

U.S. Court of Appeals, 9th Circuit; 03-10548, 03-10604, September 13, 2005 .

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

[ Code Sec. 7206]

Procedure and administration: Tax shelters: Fraud and false statements: Aiding and abetting.  

Tax shelter promoters (the "promoters") willfully aided clients in filing false or fraudulent tax returns in violation of Code Sec. 7206(2). The promoters charged hundreds of clients to set up and manage trusts known as Unincorporated Business Organizations (UBOs), which purportedly avoided taxes on income streamed into them. The government sufficiently proved the three elements of a Code Sec. 7206 violation. First, the IRS proved that the promoters aided, assisted or otherwise caused the preparation and presentation of a false or fraudulent return. Code Sec. 7206 does not require that the promoter actually prepare the offending tax returns. Second, the returns at issue were fraudulent or false as to a material matter because they omitted reportable income. While the income could have been reported elsewhere, it was not and, therefore, the failure to report the income on the clients' personal returns made those returns false and fraudulent. Finally, the promoters willfully acted to defraud the government. It did not matter that the promoters also intended to steal money from their clients.

John Balazs, for defendant-appellant Smith; Victor S. Haltom, for defendant-appellant Bates; Samantha S. Spangler, Assistant United States Attorney, for plaintiff-appellee.

Before: Kleinfeld, Hawkins and Graber, Circuit Judges.

OPINION

HAWKINS, Circuit Judge: Defendants David Larry Smith ("Smith") and Herbert Arthur Bates ("Bates") appeal their convictions on multiple counts of tax fraud, mail and wire fraud, money laundering, and conspiracy, as well as their sentences. Defendants challenge: (1) arraignment by a magistrate judge, (2) multiplicity of the indictment resulting in a multiplicitous sentence on the three conspiracy counts, (3) an indictment passed on by grand jurors not questioned about their feeling towards the IRS, (4) denial of a suppression motion based on alleged defects in the arrest and search warrants, (5) sufficiency of the evidence on the tax counts, (6) denial of a motion for a new trial based on alleged petit juror bias, and (7) denial of a multiple conspiracy instruction. In addition to disputing the district court's application of various sentencing guidelines, Smith and Bates make a United States v. Booker, 125 S.Ct. 738 (2005), challenge to sentencing based on facts not found by a jury, and an ex post facto challenge to application of an advisory guideline system to their sentences. We have jurisdiction under 28 U.S.C. §1291 and affirm the convictions in all respects and remand on sentencing pursuant to United States v. Ameline, 409 F.3d 1073 (9th Cir. 2005) (en banc).

FACTS AND PROCEDURAL HISTORY

The government brought Smith and Bates ¹ to trial for enlisting hundreds of clients to set up trusts known as Unincorporated Business Organizations, or "UBOs," which purportedly avoided taxes on income streamed into them; the defendants charged their clients to set up and conduct transactions for the UBOs, only to later steal their clients' money.

The defendants advised their clients to transfer all of their income and assets --including their businesses, homes, relative's homes, furniture, jewelry, cars, and even pets --into the UBO. Defendants also advised clients to ask their employers to issue pay checks, commission checks, or other income sources in the names of their UBOs instead of in their names.

Moreover, the defendants assured clients that they could use the UBOs to pay a variety of expenses, to be deducted as "business expenses" from the UBO's income. These business expenses included everything from mortgage and utility payments to business equipment to haircuts, pet needs, laundry, clothes, and lawn care. As one client testified, "practically everything we did could be seen as a legitimate deduction." Another client echoed that "pretty much everything could be deducted or be used as legitimate business expenses. ... Probably certain personal items were not exempt, so to speak. Like toothpaste."

Numerous clients testified at trial how defendants (usually Smith ² ) advised them that they did not have to pay taxes once they paid the defendants to establish a UBO. For example, Phyllis Ellen Denby testified that Bates advised her to establish a UBO to distribute stock profits in a way the IRS would not be aware of them. Bates told Denby and her husband that no taxes need be paid on "any money" that was in the UBO. Charles Michael Stoker testified that Smith told him and his wife that by placing their home into the UBO, the home could be sold and yet he could withhold the proceeds from tax filing. David Vette testified that Smith informed him that "as long as the UBO did not have a profit at the end of the year, there was no taxable consequence. I did not have to file a tax return." Ronald J. Herrema testified that Smith told him that UBOs are never audited and do not have any filing requirements. Smith strongly recommended that Herrema "get rid of any cash" in the UBO at the end of the year to "not raise a flag to the Internal Revenue Service," and thus "never [be] subject to filing requirements or IRS audit inspections." And, Smith "highly suggested" that he and his wife kept their income below $10,500, the ceiling below which married couples were not required to file tax returns.

Similarly, James Allen Herrema testified that Smith told him that the benefit of the UBO receiving his income is that he "would not have to file personal income tax on that income." Smith plainly stated that income into the UBO "fell into a category of not being taxable." When Herrema specifically asked whether he had to continue filing personal tax returns, Smith said "it was not necessary." Sharon Ludders testified that she was told that everything she owned could be transferred into the UBO, and that the trust would "take care" of her obligations to pay personal income taxes. Judith Reitz testified that Smith told her that "it wasn't necessary" for her UBO to file a tax return; "[i]n fact, it was really not desirable." When Ms. Reitz said she planned to continue filing personal income tax returns, Smith explicitly told her not to file.

Michael Joseph Young was told by Smith that trust expenses would be deducted from the income into the trust, to achieve a zero balance at the end of the year. "You didn't have to worry about filing a return or anything like that on it." Young understood from Smith that the money that went into the UBO did not need to be reflected on his personal income tax return, either. Lawrence Newton Craig testified that Smith said that UBOs did not have to file any tax returns. Smith said UBOs were "basically a tax shelter."

In addition to the above advice, Smith had a "particular way" at "particular bank[s]" to set up the UBO accounts, which he did in person. Smith established non-interest-bearing accounts for the UBOs, which the government argued kept the banks from filing with the IRS to report interest income.

Smith told clients not to discuss their UBOs with qualified accountants or attorneys. Bates told one set of clients to not even tell their closest relatives about their UBO. Smith told another client that she did not have the authority to provide UBO-related documents to the IRS because a vote of the trustees was needed. Bates and Smith also insisted on handling correspondence with the IRS. For example, Bates would write the IRS requesting legal authority for reporting certain income to the IRS, as well as asking the IRS to review certain portions of the Constitution regarding the power to collect taxes. The letters attempted to avoid paying taxes. Indeed, with or without such letters, most of the defendants' clients did not file tax returns and/or filed tax returns that omitted substantial income.

In order to make the UBO scheme work, many clients were told that they had to make "distributions" out of their UBOs to avoid filing taxable income within them. As one client put it, "if there was a [UBO] profit, we would do a distribution, and that would eliminate any of the profit, and there would be no taxable occurrence." Clients were told that their "distribution" was "going offshore into an investment program ... and it would earn a profit ... and [they] would have access to it down the road." Smith offered several ways to get the distribution money back, including an out-of-country credit card account or a direct payment to Smith to move the money offshore for an eleven percent charge. Although clients could access their distribution or investment money for a while, Smith eventually transferred the money to another bank, and the clients could no longer access their money. Client losses ranged from $20,000 to $400,000.

Agent Bridgette O'Keeffe ("Agent O'Keeffe"), the government's summary witness, testified, among other things, regarding (1) each of the tax returns charged in the counts pertaining to aiding and assisting false or fraudulent returns, and (2) the numerous mail fraud and wire fraud counts, explaining the monies she traced that clients had invested with the defendants that ended up in Cayman Islands accounts.

The jury found Bates guilty of: (1) conspiracy to defraud the United States in the ascertainment, computation, or assessment of taxes, in violation of 18 U.S.C. §371; (2) multiple counts of aiding and assisting in the preparation and presentation of false and fraudulent tax returns, in violation of 26 U.S.C. §7206(2); (3) conspiracy to engage in mail or wire fraud, in violation of 18 U.S.C. §371; and (4) conspiracy to launder money, in violation of 18 U.S.C. §371. The jury also found Smith guilty of the above charges, as well as multiple counts of each of the following: (1) mail fraud, in violation of 18 U.S.C. §1341; (2) wire fraud, in violation of 18 U.S.C. §1343; (3) money laundering, in violation of 18 U.S.C. §§1956(a)(1)(A) 1956(a)(1)(B); and (4) engaging in financial proceeds of unlawful activity, in violation of 18 U.S.C. §1957.

Bates and Smith moved for a new trial based on the alleged lack of impartiality of Jurors #9 and #1. Juror #9 wrote Agent O'Keeffe after the trial suggesting they "get acquainted." Juror #9 did not converse with Agent O'Keeffe during the trial, at most exchanging a smile across elevators. The district court considered allegations of Juror #9's bias, and found "absolutely no tangible evidence that there was any extraneous information or extraneous influence on this juror by anyone."

During deliberations, Juror #1 wrote that she was criticized by the foreperson and felt intimidated. The district court questioned Juror #1 outside the presence of other jurors, whereupon Juror #1 told the court she felt able to return to deliberations and make future decisions based on her own conscience and belief. After considering the evidence as to Jurors #1 and #9, the district court denied the motion for a new trial.

At the close of the evidence, Smith moved for judgment of acquittal on the counts charging him with aiding and assisting in the preparation and presentation of false tax returns and conspiracy to commit tax fraud. The district court denied the motion as to both Smith and Bates, and denied the renewed motion after the verdict as to all defendants.

Smith was sentenced to 151 months' imprisonment; Bates to 136 months' imprisonment. The district court also ordered three defendants, including Smith and Bates, to forfeit $1 million, pursuant to the parties' stipulation.

DISCUSSION

I. Magistrate Judge's Authority to Conduct Arraignment

Magistrate Judge John F. Moulds presided over Smith's hearing for the entry of a plea. The magistrate judge asked Smith's counsel, Scott Tedmon, for the entry of the plea to the indictment. Smith's counsel had no objection and stated that his client was prepared to enter a plea of not guilty and requested a jury trial. The magistrate judge then scheduled a status conference before District Judge Lawrence Karlton.

Smith now argues that the magistrate judge had no authority to arraign Smith under Rules 5 and 10 of Criminal Procedure, and that Judge Karlton erroneously denied his motion to dismiss the indictment on this ground. We review de novo the district court's refusal to dismiss an indictment for lack of jurisdiction. United States v. Phillips, 367 F.3d 846, 854 (9th Cir.), cert. denied, 125 S.Ct. 479 (2004).

Rule 5 pertains to initial appearances before a magistrate judge for "arrest[s] under a warrant issued upon a complaint or any person making an arrest without a warrant." Fed. R. Crim. P. 5(a) (2000). Thus, Rule 5(c)'s provision that a magistrate judge may not accept a plea in a felony case is inapposite.

Nor does Smith cite any violations of Rule 10 (stating the requirements for an arraignment in open court) either, except to say that magistrate judges are not authorized to conduct a Rule 10 arraignment. Smith is mistaken. Rule 72-302(b)(1) of the Local Rules of the United States District Court for the Eastern District of California grants authority to magistrate judges to handle pretrial matters in felony cases, and does not exclude the arraignment process for a not guilty plea. Thus, the magistrate judge had authority to arraign Smith.

II. Multiplicity of Conspiracy Counts & Plain Error

The three conspiracy counts are: (1) conspiracy to defraud the United States in the ascertainment, computation, or assessment of taxes, in violation of 18 U.S.C. §371; (2) conspiracy to engage in mail or wire fraud, in violation of 18 U.S.C. §371; and (3) conspiracy to launder money, in violation of 18 U.S.C. §§371 and 1956(h). Bates and Smith ³ argue that these three conspiracy counts are multiplicitous because there was only one combined scheme, i.e., one conspiracy. Bates asserts that the convictions and consecutive sentences on these counts violate the Double Jeopardy Clause and separation of powers principles. Bates bases these claims not on the multiplicity of the indictment, but rather the multiplicity of sentences imposed by the district court.

Typically, whether a defendant's double jeopardy rights have been violated is reviewed de novo. United States v. Stoddard [ 97-2 USTC ¶50,574], 111 F.3d 1450, 1454 (9th Cir. 1997). However, Bates did not clearly raise the multiplicity of sentences issue below. Though Bates claims that he raised the issue when his counsel argued at the sentencing hearing that "the Government's case against [Bates] was one set of acts done for a common purpose, and that he, therefore, should be sentenced accordingly rather than for multiple reasons," this one sentence is insufficient to raise a double jeopardy objection with respect to the three conspiracy counts.

Nevertheless, a multiplicious sentence cannot be waived. ⁴ See Launius v. United States , 575 F.2d 770, 772 (9th Cir. 1978) ( per curiam) ("[I]f sentences are imposed on each count of [a] multiplicious indictment the defendant is not forced to serve the erroneous sentence because of any waiver.") (internal quotations and citation omitted). Because Bates failed to raise this issue before the district court, plain error review applies. See United States v. Freeman, 6 F.3d 586, 600-01 (9th Cir. 1993) (consecutive sentences for duplicitous charges subject to plain error review); United States v. Hernandez-Guardado, 228 F.3d 1017, 1028-29 (9th Cir. 2000) (failure to raise double jeopardy claim based on a second trial not waived absent evidence of a voluntary and knowing relinquishment of right against double jeopardy).

For Bates to prevail under plain error review, he must show (1) an error, (2) that is plain, (3) that affects substantial rights, and (4) that seriously affects the fairness, integrity, or public reputation of judicial proceedings. Johnson v. United States , 520 U.S. 461, 467 (1997).

[1] "The Double Jeopardy Clause prohibits subdivision of a single criminal conspiracy into multiple violations of one conspiracy statute." United States v. Montgomery, 150 F.3d 983, 989 (9th Cir. 1998) (internal quotations and citation omitted). Because all three conspiracy counts in this case violate the same statute --18 U.S.C. §371 ⁵ --this court uses the five-factor test adopted in Arnold v. United States, 336 F.2d 347, 350 (9th Cir. 1964), rather than the test articulated in Blockburger v. United States, 284 U.S. 299, 304 (1932). See United States v. Luong, 393 F.3d 913, 916 (9th Cir. 2004), cert. denied, 125 S.Ct. 1953 and 1963 (2005); Montgomery , 150 F.3d at 990.

[2] The Arnold analysis has been summarized by Stoddard:

To determine whether two conspiracy counts charge the same offense and so place the defendant in double jeopardy, we consider five factors: (1) the differences in the periods of time covered by the alleged conspiracies; (2) the places where the conspiracies were alleged to occur; (3) the persons charged as coconspirators; (4) the overt acts alleged to have been committed; and (5) the statutes alleged to have been violated.

[ 97-2 USTC ¶50,574], 111 F.3d at 1454 (internal quotations and citation omitted). Rather than focus on any one factor, the court considers all the factors together to determine if there was more than one agreement. "'The fact that there is some interrelationship between conspiracies does not necessarily make them the same criminal enterprise,' where one conspiracy involves unlawful transactions 'quite distinct in their means of execution and their objects.'" United States v. Guzman, 852 F.2d 1117, 1121 (9th Cir. 1988) (quoting United States v. Ingman, 541 F.2d 1329, 1331 (9th Cir. 1976) ( per curiam).

On appeal, the defendant has the burden of showing that the multiple conspiracies charged are based on a single agreement, i.e., that the conspiracies are "indistinguishable in law and in fact." Montgomery , 150 F.3d at 990 (citing Guzman, 852 F.2d at 1119-20). This issue is based on sufficiency of the evidence, examining the evidence "in the light most favorable to the prosecution to determine if any rational trier of fact could have found that more than one conspiracy existed." Id.

A. Time Frame

[3] The government alleged that the Count 1 conspiracy spanned from August 14, 1981 to June 13, 1997 , the Count 25 conspiracy from August 14, 1981 to February 1, 1998 , and the Count 64 conspiracy from January 1, 1987 to June 13, 1997 . Thus, there is substantial overlap in timing. It is worth noting here that the government argued that "from the very beginning" of the Count 1 agreement, there was a plan to steal the clients' money, which would involve mail and wire fraud (Count 25) and money laundering (Count 64). ("From the very beginning of the agreement between the parties, the agreement was to engage in tax crimes together with mail and wire fraud crimes together with money laundering crimes.")

B. Geographic Locations

[4] Bates contends that the vast majority of activities relevant to all three counts occurred in Sacramento , California , and the Cayman Islands . The government does not dispute this contention. The indictment and the evidence at trial support Bates's contention that the overt acts for all three counts occurred in the same geographic locations.

C. Participants

All four defendants were charged in Count 1, and all defendants except Charlotte Wadsworth were charged in Counts 25 and 64. However, the third factor depends not only on overlap in membership, but also the roles of the overlapping members. Stoddard [ 97-2 USTC ¶50,574], 111 F.3d at 1455. Bates contends that the roles were the same in all three counts.

[5] The government argued at trial that the defendants each played different roles in the various schemes. However, that many overt acts are incorporated by reference between the conspiracy counts supports the defendants' argument that the (different) role of each defendant was similar across the three alleged conspiracies.

D. Overt Acts

[6] Although the overt acts for three counts are not identical, they substantially overlap. For Count 1, the government alleged 166 overt acts; for Count 25, 151 of the 166 overt acts are incorporated by reference, and 23 new overt acts are added; for Count 64, overt acts are incorporated by reference from Counts 1 and 25.

The overt acts in Count 1 generally relate to defendants: (1) forming various UBOs, (2) accepting fees (in the form of checks or wire transfers) for the UBOs, (3) depositing fees, (4) serving as agents or trustees for the UBOs, (5) advising clients they need not file taxes, (6) writing letters to clients and the IRS, (7) forming corporations and bank accounts in the Cayman Islands, (8) opening bank accounts in California, and (9) authorizing wire transfers between various accounts. Count 25 adds overt acts pertaining to specific fraudulent investments defendants persuaded the UBO clients to pursue.

E. Statutes Violated

[7] The three conspiracy counts allege a violation of the same statute --18 U.S.C. §371 --although Count 64 also alleges a violation of 18 U.S.C. §1956(h). However, the fifth factor considers not only the violation of the same statute, but also whether the goals of the conspiracies were similar. Stoddard [ 97-2 USTC ¶50,574], 111 F.3d at 1456.

The government specifically addressed in closing argument how 18 U.S.C. §371 can relate to three separate crimes. In arguing that "the conspiracy counts are very different," the government first pointed to the two distinct types of crimes covered by §371: (1) conspiracy to defraud the United States in the exercise of its lawful governmental functions, and (2) conspiracy to violate a specific section of the United States Code. The government further explained that Count 1, the first type of conspiracy, related to defrauding the IRS in the assessment of taxes, whereas Counts 25 and 64 related to violations of different code sections (mail or wire fraud sections, and money laundering sections, respectively).

However, the government argued to the jury that the goals of defrauding the government, and engaging in mail and wire fraud and money laundering, were all inter-related:

This case is a situation where the defendants had a single unified plan from the very beginning. This is not a situation where the defendants that engaged in one type of activity and then did that for a while and then decided to get into some other type of activity which might be fraudulent and then to launder money at the end of day.

The defendants had a single, unified plan from, as I say, the very get-go in this case. From the very beginning of the agreement between the parties, the agreement was to engage in tax crimes together with mail and wire fraud crimes together with money laundering crimes. That's the only way the defendants' actions and their activities make any sense at all is to look at all the actions as pieces of a bigger essentially three-dimension, circular-type of a scheme.

The tax scheme was set up in a certain way specifically for the purpose to create the ability to engage in mail and wire fraud. ... And the defendants could not engage in mail and wire fraud if they did not launder money. ... So from the very beginning, the defendants had it in their mind the aspect of stealing --effectively stealing, to use a generic term, money from the investors and use the promotion of the tax vehicle as a way to accomplish that fraud.

The government concluded closing arguments with the point that all the counts were fraud crimes to enrich the defendants --with respect to the tax crimes, to collect fees on the UBOs; with respect to money laundering, "to move the money around and get what [defendants] need without being caught"; and with respect to mail and wire fraud, more monetary motives.

[8] Given the government's contention that the goal for all three conspiracies was one and the same --to steal money --it appears under Stoddard that they should be treated as one conspiracy, at least for the purpose of sentencing. Considering all five Arnold factors, it was arguably error for Bates and Smith to be sentenced to consecutive terms on the three conspiracy counts.

[9] However, an error is not plain unless it is "clear" or "obvious." United States v. Olano, 507 U.S. 725, 734 (1993). Plain error "is so clear-cut, so obvious, a competent district judge should be able to avoid it without benefit of objection." United States v. Turman, 122 F.3d 1167, 1170 (9th Cir. 1997) (citing United States v. Frady, 456 U.S. 152, 163 (1982)). In this complex case, with hundreds of overt acts, multiple defendants, and weeks of trial, it was not plain or obvious that only one conspiracy transpired. Indeed, the government convinced the jury that the defendants engaged in three separate conspiracies.

[10] To muddle the multiplicity issue further, defendants did not merely fail to argue that there was one overarching conspiracy for double jeopardy purposes; they argued the opposite position: that each of the three conspiracy counts were themselves duplicitous, encompassing multiple agreements and conspiracies in each one. That is, they asserted that there were even more conspiracies. As to Count 1, Smith disputed one overarching conspiracy to defraud the United States because the overt acts covered six alleged UBOs, with differing (1) time periods, (2) identity of defendants involved, (3) identity of taxpayers involved, and (4) specific transactional facts. Smith posed the "same argument and analysis" from Count 1 to Counts 25 and 64. Thus, it was not clear or obvious that the three conspiracies were multiplicitous, even at the sentencing stage. The defendants have failed to show plain error.

III. Dismissal of Indictment Based on Potentially Biased Grand Jury

Smith argues that the district court erred in denying his motion to dismiss the indictment because the grand jurors were not questioned about their contacts with the IRS to ensure that they could serve as impartial jurors.

We review de novo the district court's denial of a motion to dismiss an indictment. United States v. Rivera-Sillas, 376 F.3d 887, 889 (9th Cir. 2004). A district court may not dismiss an indictment for error in a grand jury proceeding unless the error prejudiced the defendant. Bank of N.S. v. United States [ 88-2 USTC ¶9547], 487 U.S. 250, 254 (1988). "Substantial proof of grand jury bias is required to overturn an indictment." United States v. Miller, 105 F.3d 552, 555 (9th Cir. 1997).

[11] Smith bases his grand juror (potential) bias claim on 28 U.S.C. §1866(c)(2), which states in part that "no person or class of persons shall be disqualified, excluded, excused, or exempt from service as jurors: Provided, That any person summoned for jury service may be ... (2) excluded by the court on the ground that such person may be unable to render impartial jury service." Not surprisingly, neither §1866(c)(2) nor any Ninth Circuit case ⁶ requires probing the grand jurors with questions about their feelings toward the IRS.

[12] Given that Smith makes no factual allegation of actual bias on the part of any grand juror in his case, he has not shown "[s]ubstantial proof of grand jury bias," see Miller, 105 F.3d at 555, let alone prejudice, see Bank of N.S. [ 88-2 USTC ¶9547], 487 U.S. at 254. Thus, the district court did not err in denying dismissal of the indictment on this ground.

IV. Search and Arrest Warrants

Smith argues that the district court erred by denying his motion to suppress evidence based on defects in the search and arrest warrants, alleging that: (1) the search warrant lacked particularity and was facially overbroad, (2) the government agents flagrantly seized items outside the scope of the warrant, (3) the agents failed to provide a complete copy of the warrant at the outset of the search, and (4) the search and arrest warrants were invalid because they lacked a court seal and the magistrate judge did not sign the arrest warrant.

We review de novo the district court's denial of a motion to suppress, and the factual findings supporting the denial for clear error. United States v. Mann, 389 F.3d 869, 874 (9th Cir. 2004), cert. denied, 125 S.Ct. 1719 (2005).

A. Particularity and Overbreadth

[13] "The Fourth Amendment requires that a warrant particularly describe both the place to be searched and the person or things to be seized." United States v. Spilotro, 800 F.2d 959, 963 (9th Cir. 1986). As Spilotro explained, "[t]he description must be specific enough to enable the person conducting the search reasonably to identify the things authorized to be seized." Id. The purpose of the breadth requirement is to limit the scope of the warrant "by the probable cause on which the warrant is based." In re Grand Jury Subpoenas, 926 F.2d 847, 856-57 (9th Cir. 1991). Both the particularity and breadth requirements prevent "general, exploratory rummaging in a person's belongings." Id. at 857 (quotation marks and citations omitted).

Smith argues the warrant in this case "failed to restrict government agents in any meaningful way, converting the warrant into the type of general, overbroad warrant prohibited by the Fourth Amendment." Specifically, Smith argues that paragraphs 1 through 11 of the search warrant's Attachment B "authorized the seizure of virtually all of Smith's personal and business records, electronic documents, photographs, films, and videotapes ... 'for the period of January 1990 through the current date.'"

Attachment B describes the items to be seized as follows:

For the period January 1990 through the current date:

1) The following documents relating to the promotion of UBOs: seminar tapes, presentation documents, video tapes, literature, flyers, advertising, and business cards.

2) UBO client files to include UBO names, individuals names, addresses, telephone numbers, and other identifying information; contracts of "UBO Organization"; copies of minutes; domestic and foreign bank account statements; wire transfer documents; canceled checks; deposit slips; copies of money orders; copies of cashier's checks; correspondence to, from, and on behalf of UBO clients including correspondence with the IRS; copies of Forms SS-4, Request for Employer Identification Number; records of payments from and to UBO clients reflecting dates and purpose of such payments; invoices; receipts; memoranda; copies of tax returns, and any documents used in the preparation of tax returns.

3) All documents relating to any alleged defense contractor loan investment program including literature, contracts, agreements, notes, financial statements and records, correspondence, memoranda, receipts, advertising, and other records; copies of letters and invoices or monthly statements to investors.

4) All documents pertaining to the purchase, and/or sale, and/or transfer of real property including escrow statements, deeds, deeds of trust, mortgages, notes, correspondence, closing statements, mortgage payments and down payments including documents reflecting the form, amount, and date of such payments. Documents pertaining to the purchase/sale of personal property including vehicles, furniture, and other items to include receipts, contracts, agreements, financial statements, purchase agreements, and correspondence.

5) All books and records of UBO businesses, including general journals, general ledgers, financial statements, balance sheets, income statements, cash receipts and disbursements journals[.]

6) All documents relating to the receipt and disbursement of income, by or from any UBO, including credit card receipts and statements, receipts, invoices, statements of accounts at domestic and foreign banks, check registers, cancelled check, money orders, cashier's checks, wire transfer documents, bank drafts, safety deposit box records, stocks, bonds, and other securities, investment records, loan applications, and other financial statements, promissory notes, telephone toll records and bills, personal calendars, address and telephone books, rolodex indices, records relating to domestic and international travel including tickets, reservations, hotel receipts, travel logs, itineraries, and receipts, Forms 1099 and other tax documents; any other records used to reconstruct income and expenses; records relating to safe deposit box rental.

7) All documents reflecting current ownership, occupancy, and use of premises including utility bills, receipts, correspondence, monthly statements, photographs, film, and video tapes.

8) All information and/or data stored in the form of magnetic or electronic coding on computer media or on media capable of being read by a computer or with the aid of computer-related equipment. This media includes, but is not limited to, floppy diskettes, fixed hard disks, removable hard disk cartridges, laser disks, video cassettes, and any other media which is capable of storing magnetic coding.

9) All electronic devices which are capable of analyzing, creating, displaying, converting, or transmitting electronic or magnetic computer impulses or data. These devices include, but are not limited to, computers, computer components, computer peripherals, word processing equipment, modems, monitors, printers, plotters, encryption circuit boards, optical scanners, external hard drives, and other computer related electronic devices.

10) All instructions or programs stored in the form of electronic or magnetic media which are capable of being interpreted by a computer or related components. The items to be seized include, but are not limited to, operating systems, application software, utility programs, compilers, interpreters, and any other programs or software used to communicate with computer hardware or peripherals either directly or indirectly via telephone lines, radio, or other means of transmission.

11) All written or printed material which provides instructions or examples concerning the operation of a computer system, computer software, and/or any related device which is present at the scene.

[14] The warrant's Attachment B describes with sufficient specificity the types of documents and property sought. Potentially problematic is its breadth: though limited in time period and subject matter (UBO businesses and loan investment program since 1990), the warrant is quite broad as it relates to those enterprises. However, even an "extraordinarily broad" warrant authorizing the seizure of essentially all business records may be justified when there is "probable cause to believe that fraud permeated the entire business operation." United States v. Offices Known as 50 State Distrib. Co. , 708 F.2d 1371, 1374 (9th Cir. 1983). This is just such a case. The magistrate judge reviewed Agent O'Keeffe's affidavit in support of the application for the search warrant, which detailed her comprehensive investigation of the UBO scheme. The affidavit concluded that "the entirety of the businesses operated by Bates, Smith and their associates are criminal in nature." Agent O'Keeffe's affidavit provided ample probable cause to meet the "permeated-with-fraud" exception to the particularity and breadth requirements.

B. Seizure Outside the Scope of Warrant

Smith claims that federal agents flagrantly seized innocuous personal items outside the scope of the warrant, such as Christmas gifts, computer monitors, and computer games. However, computer monitors and computer games (to the extent they were on computer diskettes) were within the scope of the warrant. The alleged Christmas gifts remain unidentified in the record. Thus, there is no evidence that there was any evidence seized outside the scope of the warrant.

C. Defects in Providing Warrant to the Smiths

The district court held that the warrant "was provided to the Smiths on a prompt basis." The district court further held that, although Agent O'Keeffe's affidavit was not attached to the warrant, the warrant was valid and served the purpose of providing notice to the Smiths that the officers were executing a search under the color of law. Smith argues that the search of his home violated Federal Rule of Criminal Procedure 41(d) (1997) ⁷ because (1) agents failed to provide a copy of the search warrant at the outset of the search, and (2) the warrant was incomplete without the affidavit that was incorporated by reference into the warrant.

1. Failure to Provide Search Warrant at Outset of Search

At the evidentiary hearing, there was some discrepancy as to the length of time after the search began before Smith and his wife received a copy of the warrant. It is clear that the search did not start as soon as the agents entered the home, as they initially conducted a safety sweep for approximately fifteen minutes. The district court established that a delay of thirty to forty-five minutes occurred before the Smiths received the warrant.

[15] Under United States v. Gantt, 194 F.3d 987, 1001 (9th Cir. 1999), "[a]bsent exigent circumstances, Rule 41(d) requires service of the warrant at the outset of the search on persons present at the search of their premises." While the court recognized that "'technical' violations of Rule 41(d) require suppression only if there was a 'deliberate disregard of the rule' or if the defendant was prejudiced," it held that suppression was justified due to the deliberate violation in Gantt's case. Id. at 1005. Gantt was not served with the search warrant until after she was arrested, hours after the search and hours after she requested to see the warrant. Id. at 1000.

[16] In Smith's case, there is neither deliberate disregard of Rule 41(d) nor any prejudice. Gantt's interpretation of Rule 41(d) to require service of the warrant at the outset of the search was issued in 1999, whereas the search of Smith's home took place in 1997. Agent Adams's testimony reveals he did not know of an obligation to show the warrant at the outset of the search -- Adams "never" before had presented a warrant at the time of entry. Instead, his team typically did a safety sweep first, as was done in the Smith home.

Furthermore, unlike in Gantt, after Mrs. Smith asked for the warrant, she got one. The timing may be disputed --ten minutes after the request or half an hour later --but regardless, she and her husband received the warrant near the outset of the search. As the district court found, the delay was not unreasonable.

[17] Nor was the delay prejudicial. Upon receiving the warrant, Mrs. Smith "just kind of glanced at it" and believes that her husband "might have looked at it" more than she did. She admits that she chose not to review the warrant. Neither of the Smiths disputed the warrant after having access to it, and the search went on for another several hours. Thus, under Gantt, there was only a technical violation of Rule 41(d), which does not require suppression.

2. Warrant Missing Affidavit

[18] That the Smiths were given the search warrant without the affidavit of Agent O'Keeffe, though incorporated by reference in the warrant, does not require suppression. Smith argues that Gantt held that "when a warrant incorporates by reference the supporting affidavit, the affidavit comprises part of the warrant itself and must be provided with the rest of the warrant. 194 F.3d 987, 1001 n.7." The cited footnote 7 states: "Showing Gantt the face of the warrant without Attachment A certainly did not satisfy Rule 41(d). Without Attachment A, the warrant violated the Fourth Amendment's particularity requirement and for purposes of Rule 41(d) was not a valid warrant."

What Smith leaves out is the content of Attachment A in Gantt's case, which is substantively different from the O'Keeffe affidavit. In Gantt, "[i]nstead of describing the items to be seized, the warrant stated 'see Attachment A.' Attachment A was a two-page, typed list of items to be seized." Id. at 996. In Smith's warrant, Attachment B, which described the items to be seized, was attached. It was Agent O'Keeffe's affidavit, admittedly important in the magistrate judge's probable cause determination, that was missing. Agent O'Keeffe's affidavit was not related to the particularity requirement, which was satisfied by Attachment B.

Smith confuses the "well-settled principle that a warrant's overbreadth can be cured by an accompanying affidavit that more particularly describes the items to be seized," United States v. Luk, 859 F.2d 667, 676 (9th Cir. 1988), with the contention, unsupported by case law, that an affidavit incorporated by reference must always be attached for the search warrant to be valid --even if the warrant is not overbroad without the attachment. For example, in United States v. Hayes, 794 F.2d 1348, 1355 (9th Cir. 1986), the court held that the affidavit could not be considered because it did not accompany the warrant; nevertheless, the court went on to examine the warrant "on its face" for overbreadth, determining it met the breadth requirement and did not require suppression, id. at 1355-56.

[19] Thus, here, the warrant without the affidavit was facially valid standing alone. The failure to attach the affidavit does not require suppression.

D. No Court Seal on Search and Arrest Warrants; No Magistrate Judge's Signature on Arrest Warrant

Smith argues that the search and arrest warrants are void because (1) the arrest warrant was initialed only by the court clerk, but not signed by the magistrate, in violation of Rule 4(c)(1) of Criminal Procedure, and (2) neither warrant contained the seal of the court. The district court found that neither alleged defect invalidated the warrants.

First, Rule 9, rather than Rule 4(c)(1), governs arrest warrants on an indictment. Rule 9(b)(1), pertaining to the form of the warrant, states it must be signed "by the clerk," not the magistrate judge.

Smith's second argument that the court seal must be affixed to both the search and arrest warrants also fails. The argument relies on 28 U.S.C. §1691, which states: "All writs and process issuing from a court of the United States shall be under the seal of the court and signed by the clerk thereof." However, the Federal Rules of Criminal Procedure for arrest warrants on an indictment (Rule 9) and search warrants (Rule 41) make no mention of the requirement for a court seal. The arrest warrant and search warrant follow the stated dictates of Rules 9 and 41, respectively. The magistrate judge unquestionably issued a bench warrant without bail on Smith, and a deputy clerk signed an arrest warrant, as required by Rule 9. The search warrant was issued and signed by a magistrate judge on January 3, 1997.

[20] Thus, there appears to be only a technical violation of 28 U.S.C. §1691. None of this circuit's cases has suppressed evidence for lack of a court seal. Cf. Ystrom v. Handel, 252 Cal. Rptr. 110, 114 (Ct. App. 1988) (lack of court's seal "is a mere technicality and does not render [a summons] 'substantially defective'").

[21] We have refused to suppress evidence or reverse convictions based on technical rule violations. In a similar context, "'technical' violations of Rule 41(d) require suppression only if there was a 'deliberate disregard of the rule' or if the defendant was prejudiced." Gantt, 194 F.3d at 1005. Here, there is no evidence in the record that officers executing either warrant relied in bad faith on them because they lacked the court seal, and certainly no evidence of deliberate disregard of 28 U.S.C. §1691. Neither is there a scintilla of prejudice to the defendant: if the warrants did have the court seal, Smith's home would still have been searched, and his person still arrested. Thus, neither suppression nor reversal of Smith's conviction is warranted by this technical violation of 28 U.S.C. §1691.

V. Sufficiency of the Evidence

Smith and Bates argue that the evidence is insufficient to sustain their convictions for: (1) multiple counts of aiding and assisting in the preparation and presentation of false tax returns, under 26 U.S.C. §7206(2); and (2) conspiracy to defraud the United States in the ascertainment, computation, or assessment of taxes, under 18 U.S.C. §371.

After the jury verdict, the district judge denied a Federal Rules of Criminal Procedure 29 motion for judgment of acquittal as to all defendants. We review de novo the district court's ruling on a motion for acquittal. United States v. Johnson, 357 F.3d 980, 983 (9th Cir. 2004). The evidence is reviewed in the light most favorable to the prosecution to determine "whether any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Id. (internal quotations and citations omitted).

Section 7206(2) pertains to any person who:

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

[22] Under §7206(2), the government must prove that "(1) the defendant aided, assisted, or otherwise caused the preparation and presentation of a return; (2) that the return was fraudulent or false as to a material matter; and (3) the act of the defendant was willful." United States v. Salerno [ 90-1 USTC ¶50,261], 902 F.2d 1429, 1432 (9th Cir. 1990). Defendants argue that the government presented insufficient evidence on all three elements.

A. Aid, Assist In, Procure, Counsel, or Advise

[23] Although Smith and Bates did not actually prepare their clients' tax returns, the plain language of §7206(2) is satisfied by aid, assistance, procurement, counsel, or advice in the preparation or presentation of a false or fraudulent return --there need not be actual preparation of the return at issue. Unsurprisingly, we do not require defendants engaged in tax schemes to physically "prepare" the tax returns to be found guilty of §7206(2). See, e.g., United States v. Crum [ 76-1 USTC ¶9214], 529 F.2d 1380, 1382 (9th Cir. 1976) ("[T]he reach of Section 7206(2) is clearly not limited to acts of tax return 'preparers[.]'").

[24] A review of the record reveals ample evidence of aid, assistance and advice in the preparation of the defendants' clients' false tax returns. To promote their tax shelter scheme, the defendants explicitly advised their clients to transfer all of their income and assets to the UBO, and then not to file any tax returns (for the business trust, personal income, or otherwise). Smith advised UBO clients to have their employers issue pay checks, commission checks, or other income sources in the name of the UBO instead of the clients' names. Further, defendants established mechanisms for the UBO income to go undetected by the IRS, such as keeping end-of-the-year income below a certain threshold through "distributions," false "business deductions," and non-interest-bearing accounts. These actions directly caused clients to file false and fraudulent returns. ⁸

B. Fraudulent or False Return

Smith argues that the particular 1040 personal returns or 1065 partnership tax returns were not false for omitting income or revenue that should have been reported on a separate 1041 trust return. However, IRS Agent Brown testified that although revenue in a business trust such as a UBO would typically be reported on a form 1041, as a default the income could also be reported on a 1040 personal income tax return. In any event, the income had to be reported on some IRS form. Thus, the under-reporting of income on the clients' personal returns, that could have been but was not reported elsewhere, made the personal returns "false" or "fraudulent."

[25] Agent O'Keeffe methodically went through each allegedly false or fraudulent return, and testified to the substantial understatement of income on each one. Viewing the evidence in the light most favorable to the prosecution, there is sufficient evidence from which a rational juror could find that the returns were false or fraudulent.

C. Willfulness

Smith argues that the evidence was insufficient to show that he acted willfully "with specific intent to defraud the government in the enforcement of its tax laws." Salerno [ 90-1 USTC ¶50,261], 902 F.2d at 1432. While there is nothing "inherently unlawful with an UBO," and the government told the jury during closing argument to assume UBOs are "legitimate," the government provided ample evidence that Smith gave advice to unlawfully use UBOs to file false or fraudulent tax returns (or not to file at all).

Smith further argues that there was no evidence presented that Smith was advised by the IRS that UBOs must file a tax return or that his actions were illegal. However, Smith worked in concert with Bates, who kept busy drafting "response" letters to the IRS disputing the IRS's contention that taxes needed to be paid.

Finally, Smith argues that "even under the government's own theory, Smith's purpose was to steal money or defraud the persons who purchased UBOs from him; he did not have the specific intent to defraud the government in the enforcement of its tax laws." Smith ignores that stealing from clients and defrauding the government are not mutually exclusive --and that the evidence is sufficient to establish both purposes.

Smith argues that this case is analogous to Salerno , where this court reversed the defendants' §7206(2) convictions because, although they were guilty for implementing a scheme to embezzle millions from the casino, "the government failed to prove the scheme had as a purpose the violation of the federal tax laws." [ 90-1 USTC ¶50,261], 902 F.2d at 1430. The government had to show that the defendants engaged in the scheme "not merely for their own benefit but with a specific intent to cause the casino to file false tax returns." Id. at 1432. However, there was neither evidence that the defendants had anything to do with preparation of tax returns, nor "evidence that the defendants had any motive for conducting a scheme to defraud the government, [n]or that they ever mentioned their own taxes, much less the tax returns of the casino." Id.

Unlike in Salerno , Smith and Bates had as "a purpose," although not their sole purpose, the violation of tax laws. They specifically advised clients that the UBO income need not be reported on any kind of tax return, and told them not to consult friends, family, or accountants about their UBOs. The evidence was sufficient to prove that the defendants had a "specific intent to cause" their clients to file false returns.

[26] Further unlike Salerno , Smith and Bates had a "motive" for conducting a scheme to defraud the government: to hook the clients into giving them control over the clients' money so they could steal it. Finally, unlike in Salerno , here there was ample mention of the clients' tax returns within the scheme. Thus, there was sufficient evidence, viewing the evidence in the light most favorable to the prosecution, to find that the defendants willfully intended to cause false or fraudulent returns to be filed.

D. Conspiracy Count 1

Smith argues that the reasons for the insufficiency of the §7206(2) counts apply to invalidate the Count 1 conspiracy conviction. Because his arguments with respect to the §7206(2) counts fail, they fail equally with respect to the conspiracy count.

VI. Alleged Juror Bias & Misconduct

Smith and Bates argue that they are entitled to a new trial because of two instances of alleged juror misconduct and bias. We review a district court's denial of a post-verdict evidentiary hearing for an abuse of discretion, United States v. Saya, 247 F.3d 929, 934 (9th Cir. 2001), and its denial of a new trial on the assertion of juror misconduct or bias for abuse of discretion as well, United States v. Hanley, 190 F.3d 1017, 1031 (9th Cir. 1999). "Because of the trial judge's unique opportunity to observe the jurors during trial, to hear the defenses asserted, and to hear the evidence, the judge's conclusion about the effect of the alleged misconduct deserves substantial weight." Saya, 247 F.3d at 937 (quotations and citations omitted).

A. Juror #9's Alleged Bias

[27] "The Sixth Amendment guarantees criminal defendants a verdict by impartial, indifferent jurors." Dyer v. Calderon, 151 F.3d 970, 973 (9th Cir. 1998) (en banc). "A court confronted with a colorable claim of juror bias must undertake an investigation of the relevant facts and circumstances." Id. at 974. However, "[a]n evidentiary hearing is not mandated every time there is an allegation of jury misconduct or bias. Rather, in determining whether a hearing must be held, the court must consider the content of the allegations, the seriousness of the alleged misconduct or bias, and the credibility of the source." Hanley, 190 F.3d at 1031 (quotations and citation omitted). An evidentiary hearing is not necessary where the court knows "the exact scope and nature" of the bias allegation. Saya, 247 F.3d at 935 (internal quotations and citations omitted).

About a month after the jury returned the verdicts in this case, Juror #9 wrote the following letter to Agent O'Keeffe:

Dear Bridget,

My name is Brandt Mayer and I was juror #9 in the Bates/Smith/Wadsworth trial in Sacramento recently. As a sworn in juror as you know, we were not allowed to converse with anyone on the case.

Now that it's over and forgotten by me (thank god) I would like the opportunity to be able to talk with you. Not about the case of course, or your profession or mine, but in a casual way.

I was deprived not being allowed to just walk up and start a conversation with you, which normally for me is completilly [sic] out of character, as I am a bit timid.

After listening to you on the stand [you] showed a very "kind" aura about you. You're [sic] sofistication [sic] also impressed me. You're [sic] introduction led me to believe that you are a single woman and has given me the comfort and insentive [sic] to write you.

I am hoping that you remember who I was: You were getting off the elevator one day on the 10th floor and I leaned out of the elevator accross [sic] from you as we (the jurors) were heading down. I purposly [sic] gave you a smile. It appeared that you returned a smile back to me. In fact the jurors teased me about that for days afterward, but that's ok, I told them that the smile was for me and not them.

Could it be possable [sic] to send an e-mail to me? A "get aquianted" [sic] type. I will surely respond.

But if you are finding this type of approach odd, tastless [sic], or in anyway [sic] out of line, or that you're simply not interested, I will surely understand and appollogize [sic]. I couldn't think of any other way to give it a try and I thought it couldn't hurt. Take care.

Agent O'Keeffe promptly reported the letter to prosecutors who in turn reported the letter to the court and opposing counsel. Thereafter, Smith and Bates moved for a new trial based on Juror #9's claimed bias; Bates also requested an evidentiary hearing. Both sides submitted briefs on the issue and argued the motion before the district court ruled. After considering the evidence, the district court denied the motion without conducting an evidentiary hearing.

With Juror #9's letter in hand, the district court understood the exact nature and scope of the bias allegation. Cf. Saya, 247 F.3d at 935. The district court examined the content of the allegations from the letter and never doubted the credibility of the source to which defendants pointed --Juror #9 himself. Cf. Hanley, 190 F.3d at 1031. In analyzing the seriousness of the allegations, the district court took into account that (1) Agent O'Keeffe was one of the last witnesses to take the stand after six weeks of trial (thereby limiting her influence on Juror #9), (2) Agent O'Keeffe was a summary witness who presented no new evidence, (3) other than the "kind aura" statement, there was "absolutely no tangible evidence that there was any extraneous information or extraneous influence on this juror by anyone," (4) there was "absolutely no evidence that Juror Number 9 did anything inappropriate during the trial" (noting at most a smile was exchanged), and (5) there was no evidence filed by defendants or declarations from any of the jurors that there was extraneous information or influence.

The district court logically reasoned it was unlikely that this juror was attempting to impress Agent O'Keeffe by finding defendants guilty, since he voted to acquit Charlotte Wadsworth, to acquit Bates of 88 out of 111 counts against him, and to acquit Smith on three counts. Furthermore, Juror #9 explicitly wrote Agent O'Keeffe that he had no desire to discuss the case with her, making the argument that he was trying to impress her with guilty verdicts even more attenuated.

An evidentiary hearing to listen to Juror #9's testimony regarding the trial would likely not have produced any valuable information. When inquiring into the validity of a verdict, pursuant to Federal Rule of Evidence 606(b),

a juror may not testify as to any matter or statement occurring during the course of the jury's deliberations or to the effect of anything upon that or any other juror's mind or emotions as influencing the juror to assent to or dissent from the verdict or indictment or concerning the juror's mental processes in connection therewith, except that a juror may testify on the question whether extraneous prejudicial information was improperly brought to the jury's attention or whether any outside influence was improperly brought to bear upon any juror.

(emphasis added). Thus, even if the juror's thought process was biased with his alleged "infatuation" with Agent O'Keeffe, the court was not free to hear evidence in this regard. Further, it was clear from Juror #9's letter that there was neither extraneous prejudicial information from Agent O'Keeffe (a smile can hardly be so deemed), nor "outside influence [that] was improperly brought to bear."

[28] The district court did not abuse its discretion in denying the evidentiary hearing and a new trial. Even if this juror had something of a crush on Agent O'Keeffe, his letter made clear that he diligently performed his duty as a juror, never speaking to Agent O'Keeffe during the trial, and at most exchanging a smile with her. It is unlikely that any trial goes by without one juror finding one witness nice or attractive. The only unusual thing about this case is that Juror #9 put his feelings in writing. The district court was well within its discretion in finding no evidence of juror misconduct and no extraneous influences on the juror, such that an evidentiary hearing was not required.

B. Juror #1's Alleged Intimidation

The district court also denied defendants' motion for a new trial based on the alleged intimidation of Juror #1. During the trial, Juror #1 wrote an e-mail explaining her disagreement with the foreperson regarding her approach to analyzing the mail and wire fraud counts without first considering the basis of the conspiracy charges. She explained:

I have been criticized by the foreperson and consequently have felt intimidated into proceeding on a ruling on more than two dozen counts without having first established the underlying business relationship of the defendants. She criticized me for wanting to review my notes; she criticized me for wanting to look at the evidence, and specifically she criticized me for wanting to look at evidence relative to count one. At one point she accused me of having already made up my mind because I suggested that we consider the prosecution's foundation for the case. The foreperson then threatened to throw me off the jury.

The district court questioned Juror #1 outside the presence of the other jurors about her feelings of intimidation. After the juror reiterated her concerns from the e-mail, the judge told her:

Each of you [jurors] must decide the case for yourself, but you should do so only after you have considered all the evidence, discussed it fully with the other jurors, and listened to the views of your fellow jurors.

Do not be afraid to change your opinion if the discussion persuades you that you should. But do not come to a decision simply because other jurors think it is right. It is important that you attempt to reach a unanimous verdict, but, of course, only if each of you can do so after having made your own conscientious decision. Do not change an honest belief about the weight and effect of the evidence simply to reach a verdict.

Although Juror #1 told the judge that she did not believe her decisions were made based upon her own beliefs up to that point, after hearing the above instruction, she felt able to return to deliberations and make future decisions (including those on verdicts that may have been rendered previously) based on her own conscience and belief.

The attorneys for defendants and the government then had a long discussion about whether the jury should be instructed to start deliberations anew or be instructed again on their role as jurors, and whether to keep Juror #1 on the jury. The court then brought Juror #1 back in, and asked more questions regarding whether she still felt intimidated, to which she answered she did not. The court was convinced that Juror #1 made "very clear that she is not intimidated at this point, that she understands her duty as a juror, and that she is ready to continue her deliberations in this case after the entire jury is reinstructed as to 34 and 39" (which had been reread to Juror #1).

[29] Smith argues that the foreperson's bullying of Juror #1 "demonstrates that the jury was not impartial and that the jury deliberation process was not functioning properly." However, if anything, the foreperson's misconduct ran to the defendants' favor by discounting the prosecution's theories. This alleged misconduct was thoroughly investigated by the district court, and its effect cured by ensuring that Juror #1 no longer felt intimidated. The district court did not abuse its discretion in refusing a new trial on this ground.

VII. Duplicity and Multiple Conspiracies Jury Instruction

Before trial, Smith moved to dismiss Counts 1, 25, and 64, the three conspiracy charges of the indictment, arguing that each one encompassed multiple conspiracies (and thus that each one was duplicitous). Bates joined this motion. Defendants disputed that there was one overarching conspiracy within any of these counts because the overt acts covered six alleged UBOs, with differing: (1) time periods, (2) identity of defendants involved, (3) identity of taxpayers involved, and (4) specific transactional facts.

The government opposed the motion, arguing that Counts 1, 25, and 64 each contained a singular conspiracy. As to Count 1, the government asserted that defendants entered into an agreement to impair and impede the IRS through the use of UBOs "in a fashion which knowingly and intentionally understated income and overstated legitimate deductible expenses." Although the UBOs were marketed to 249 or more taxpayers, the government argued that the Count 1 conspiracy was not "taxpayer specific"; it involved "one agreement, regardless of the number of taxpayers whose income tax return[s] were involved." As to Count 25, the government argued that there was one agreement to use the mail and interstate wire communications in furtherance of a scheme to defraud. Finally, Count 64, though involving different money laundering sections (18 U.S.C. §§1956(a)(1)(A), 1956(a) (1)(B), and 1957), encompassed only one agreement to engage in money laundering. The government summarized its argument as "[o]ne agreement; one count."

After considering the pre-trial briefs and supplemental briefs of all the parties on this issue, the district court found the indictment not duplicitous as to Counts 1, 25, and 64. After the trial, during the jury instruction conference, Smith renewed the motion to dismiss these counts, claiming that the government had "not been able to show an overarching conspiracy but rather ha[d] shown individual conspiracies." The district court denied the motion, and sustained the government's objection to a multiple conspiracy instruction.

The district court's ruling that there were no duplicitous counts appears correct, and defendants do not dispute it on appeal. Instead, defendants now argue that the district court erred in denying the request for the multiple conspiracy instruction. However, this argument is not based on any of the pretrial briefing arguments or post-trial jury instruction conference arguments that each conspiracy count encompassed multiple conspiracies. Rather, defendants argue (based on their multiplicitous sentence argument) that three conspiracy counts inherently require a multiple conspiracy instruction.

This argument was never made below, and thus was waived. Even if it were not waived, the argument misconstrues the nature of a multiple conspiracy instruction, which pertains to multiple conspiracies within a conspiracy count. The district court correctly denied the multiple conspiracy instruction.

VIII. Application of Sentencing Guidelines

Smith and Bates argue that the district court erred in enhancing their sentences under the Sentencing Guidelines. "Even though the Guidelines are no longer mandatory after the Supreme Court's decision earlier this year in United States v. Booker, 125 S.Ct. 738 (2005), the district court should still consult them for advice as to the appropriate sentence, id. at 767." United States v. Kimbrew, 406 F.3d 1149, 1152 (9th Cir. 2005). We review "the district court's interpretation of the Sentencing Guidelines de novo, the district court's application of the Sentencing Guidelines to the facts of this case for abuse of discretion, and the district court's factual findings for clear error." Id. at 1151 (citation omitted).

A. U.S.S.G. §3D1.2

[30] Smith and Bates argue the district court erred by grouping the tax counts separately from the money laundering and mail and wire fraud counts, which resulted in a two-point increase in each of their offense levels. The Guidelines provide that "[a]ll counts involving substantially the same harm shall be grouped together into a single Group." U.S.S.G. §3D1.2. In part, "same harm" means the counts involve the "same victim." Id. §3D1.2(a), (b).

The government argued at sentencing that the counts in question encompassed different harms and different victims. The Presentence Investigation Reports ("PSRs") for Bates and Smith both found that the victim as to the tax fraud counts is the United States government, whereas the victims as to the mail fraud and wire fraud counts "are the clients who had their money stolen by the defendants." The district court adopted the PSRs' findings and declined to group all counts together.

[31] The district court's factual finding that multiple victims were involved is not clearly erroneous, and the district court did not abuse its discretion in applying U.S.S.G. §3D1.2.

B. U.S.S.G. §3B1.1(c)

The U.S.S.G. §3B1.1(c) aggravating role two-level enhancement applies "[i]f the defendant was an organizer, leader, manager, or supervisor in any criminal activity" involving less than five participants and that was not otherwise extensive. Smith's PSR recommended this enhancement because Smith managed the activities of Christopher Bates and Charlotte Wadsworth. The district court's adoption of this factual finding was not clearly erroneous.

IX. Increasing Smith's Sentence Based on Allocution

Near the end of Smith's sentencing hearing, the district court stated its intention "to depart somewhat from the Probation Officer's recommendations and to sentence Mr. Smith to the low end of [the] guideline range of 121 months imprisonment." Defense counsel and the prosecution presented nothing further. Then, the district court asked whether Smith wished to address the court; Smith did.

Smith made a lengthy speech, denying (1) the jurisdiction of the district court, (2) that he had any connection to any state or the United States, (3) the existence of the United States, California, Sacramento, the district court, the prosecutor, defense counsel, Judge England, a list of UBOs, and even himself, and (4) that he is a Fourteenth Amendment "person." Smith contested that the offenses he was charged with were committed by anyone, and argued that the prosecution had "failed to show any actual or threatened injury as a result of the challenged conduct." Smith demanded that the court "reconsider and withdraw the proposed sentence, reverse the conviction, enter judgment of acquittal, vacate the charges against [him], quash the indictment, dismiss the complaint and otherwise ... set [him] free."

The district court responded to Smith's speech:

The defendant's statements to the Court that were just read have made it abundantly clear to this Court that Mr. Smith has absolutely no remorse for his actions. And further, he has directly challenged this Court and its ultimate authority. Accordingly, I find that this defendant is appropriate to be sentenced not at the lower end of the guideline range but at the upper end.

Mr. Smith apparently just simply does not get it. He is a direct and continuing threat to the financial safety of the public. And this Court has the belief, well-founded belief that if he were to be released from custody at any earlier time, he would immediately resume the criminal activity for which he was on trial here in this court.

The district court then sentenced Smith to 151 months instead of 121 months. Smith's counsel made no objection to the increased sentence.

[32] Smith argues that his First Amendment free speech and Fifth Amendment due process rights were violated because he was punished with a higher sentence for expressing his views on the district court's lack of jurisdiction. But the district court made it clear that it was increasing the sentence based on Smith's lack of remorse, and his threat to the financial safety of the public when released. These are legitimate sentencing factors under 18 U.S.C. §3553(a), which include considering the "characteristics of the defendant" and the need for the sentence "to promote respect for the law," "to afford adequate deterrence to criminal conduct," and "to protect the public from further crimes of the defendant."

[33] The district court may indicate a tentative sentence and then hear from the defendant before making a final sentencing determination. See United States v. Laverne, 963 F.2d 235, 236 (9th Cir. 1992). The district court here "was able to consider the defendant's statement and was free to alter its view of the sentence if the defendant offered a sufficient reason for changing its view." Id. at 237. That the district court considered Smith's lack of remorse in sentencing him is by no means a novel concept. See United States v. Malquist [ 86-2 USTC ¶9484], 791 F.2d 1399, 1402-03 (9th Cir. 1986) ("inclusion of [defendant's] lack of repentance in the court's sentencing calculus was permissible"). The district court did not err in taking Smith's statement into consideration for sentencing. The Sentencing Guidelines, in either their mandatory or advisory status, do not insulate a defendant from his or her own foolishness.

X. Reconsideration of Bates's sentence

At sentencing, the district court stated its tentative intention to sentence Bates at the low end of the guideline range (121 months) because of Bates's medical condition. The government made "another pitch for the mid-range of 136 months" because "the defendant's criminal history is actually substantially understated." Although Bates was found not criminally liable, he was found civilly liable for fraud in the amount of $4,687,984.71.

The district court sentenced Bates to 136 months, explaining: "I have reconsidered my initial decision, and I am going to follow the recommendation of Probation for 136 months." The court further stated:

The Court wants to make it clear that the reconsideration of the sentencing is based upon not only the words that Mr. Twiss [AUSA] stated here today in open court, but also a further review of the Presentence Report and also the Court's own recollection of the magnitude of the scheme in which Mr. Bates was involved, which led to the losses of substantial sums of money, upwards of 1.8 million dollars, from varying individuals and ages, some who have lost their entire retirement system under this scheme of unincorporated business organizations.

And I want the record to reflect that as being the basis for the Court following the mid-term recommendation of 136 months.

Thus, the district court relied at least in part on proper factors, such as the magnitude of the scheme and the loss incurred by victims, in determining placement in the sentencing range. See 18 U.S.C. §3553(a)(2)(A) (sentence "to reflect the seriousness of the offense"). Furthermore, the Guidelines state that the "history" of the defendant may be considered. Id. §3553(a)(1). A civil judgment against a defendant could be a factor in the defendant's history. Thus, it does not appear that the district court relied on improper factors in sentencing Bates to the middle of the Guidelines range.

XI. Booker Issue

[34] Both Smith and Bates argue that they must be resentenced under Booker because their sentences are based on facts not found by a jury beyond a reasonable doubt. Because the defendants did not challenge their sentences on Sixth Amendment grounds in the district court, and because the record in this case does not "provide a reliable answer to the question of whether the judge would have imposed a different sentence had the Guidelines been viewed as advisory," we grant a limited remand to the district court to answer this question. United States v. Ameline, 409 F.3d 1073 (9th Cir. 2005) (en banc).

XII. Ex Post Facto Issue

Smith and Bates argue that upon resentencing, their sentences must be capped by the maximum terms of imprisonment authorized by the unenhanced base offense levels, under ex post facto principles. We have rejected that argument in United States v. Dupas, 2005 U.S. App. LEXIS 15938 (9th Cir. 2005).

CONCLUSION

For the foregoing reasons, the judgments of conviction are affirmed and the cases are remanded pursuant to Ameline.

¹ Smith and Bates were tried as co-defendants with another alleged participant in the conspiracy, Charlotte Wadsworth. Wadsworth was acquitted by the jury.

² Bates told clients that he took care of dealings with the IRS and legal advice, while Smith provided investment advice.

³ It appears from the joint reply brief that Smith joins Bates in this argument. ( "[A]ppellants' consecutive sentences on the three conspiracy counts in this case are multiplicitous and constitutionally infirm.")

⁴ Multiplicity of sentences is unlike the issue of the multiplicity of an indictment, which can be waived if not raised below. United States v. Klinger, 128 F.3d 705, 708 (9th Cir. 1997).

⁵ Title 18 U.S.C. §371 states, in part:

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.

⁶ Smith mischaracterizes United States v. Hashimoto [ 89-2 USTC ¶9432], 878 F.2d 1126, 1134 n.9 (9th Cir. 1989), as determining that "general questions that did not delve into a juror's attitudes and dealings with the IRS are inadequate to expose bias of petit jurors in criminal tax cases." In Hashimoto, the trial court refused defendant's request for a jury panel list to investigate whether the jurors had been audited by the IRS, as he was entitled to do under 26 U.S.C. §6103(h)(5). [ 89-2 USTC ¶9432], 878 F.2d at 1129-33. Because of the specificity of the §6103(h)(5) inquiry, general questions on juror impartiality did not overcome the presumption of prejudice from the denial of the list. Id. at 1134 n.9. However, the court found that the presumption of prejudice could be overcome by juror voire dire on past audits and attitudes toward the IRS. Id. at 1134. Hashimoto does not hold that grand jurors in tax cases must be asked such questions.

⁷ Rule 41(d) stated, in relevant part: "The officer taking property under the warrant shall give to the person from whom or from whose premises the property was taken a copy of the warrant and a receipt for the property taken or shall leave the copy and receipt at the place from which the property was taken."

⁸ Defendants mistakenly argue that this case is "indistinguishable" from United States v. Dahlstrom [ 83-2 USTC ¶9557], 713 F.2d 1423, 1429 (9th Cir. 1983), which held that "[p]rosecution for advocacy of a tax shelter program in the absence of any evidence of a specific intent to violate the law is offensive to the first and fifth amendments of the United States Constitution." Dahlstrom's holding is limited to pure advocacy or speech cases. See United States v. Schulman [ 87-1 USTC ¶9334], 817 F.2d 1355, 1359 (9th Cir. 1987) ( Dahlstrom is properly read as an advocacy case); United States v. Russell [ 86-2 USTC ¶9801], 804 F.2d 571, 576 (9th Cir. 1986) (Ferguson, J., concurring) (as a member of the Dahlstrom panel, describing the case as "primarily a First Amendment case involving pure advocacy").

 

 

[2005-2 USTC ¶50,569] United States of America , Plaintiff-Appellee v. Ralph N. Whistler, Defendant-Appellant.

U.S. Court of Appeals, 9th Circuit; 03-10667, July 5, 2005 .

Unpublished opinion affirming in part and remanding in part an unreported DC Ariz. decision.

[ Code Sec. 7206]

Procedure and administration: Crimes: Fraud and false statements. --

An individual who prepared and filed tax returns containing false information was properly convicted for aiding and assisting in the preparation of fraudulent income tax returns in violation of Code Sec. 7206(2). The term "willful" was not too vague to allege that the individual intended to violate a known legal duty. "Willfulness" is a term of art with a known meaning for tax defendants of knowing one's duty and intentionally and voluntarily violating it. Furthermore, the indictment properly alleged the statutory element of willfulness; therefore, the court's decision to not release grand jury transcripts was not an abuse of discretion. The case was, however, remanded for review of any Sixth Amendment issues.

Before: Rymer and Hawkins, Circuit Judges, and Brewster ^* , Senior District Judge.

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

MEMORANDUM ^**

Appellant Ralph N. Whistler challenges the sufficiency of the grand jury indictment, the failure of the district court to disclose grand jury transcripts, evidentiary rulings by the district court, and the term of his sentence. We affirm Whistler's conviction. We address the sentencing issues Whistler raised on appeal before us, but we remand in accordance with United States v. Ameline, 409 F.3d 1073 (9th Cir. 2005) (en banc).

Whistler was an experienced CPA who established trusts to reduce his clients' tax liability. However, when establishing the trusts, Whistler backdated or had employees backdate documents to allow clients to claim deductions for years prior to the establishment of the trusts, deducted for expenses that never occurred, and misstated ownership of assets. Whistler then prepared and filed tax returns containing these misrepresentations. Following trial, Whistler was convicted of aiding and assisting in the preparation of fraudulent income tax returns in violation of 26 U.S.C. §7206(2) and was sentenced to 39 months imprisonment.

Whistler contends his conviction should be reversed because the grand jury indictment failed to properly allege the statutory element of willfulness. We review the sufficiency of an indictment de novo. See United States v. James, 980 F.2d 1314, 1316 (9th Cir. 1992). "[A]n indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend, and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense." United States v. Morrison, 536 F.2d 286, 288 (9th Cir. 1976) (quoting Hamling v. United States, 418 U.S. 87, 117 (1974)).

According to Whistler, the word "willful" is too vague to allege that he intended to violate a known legal duty. We disagree. In the tax context, willfulness means a voluntary, intentional violation of a known legal duty, but does not require malice, bad faith, or an evil motive. Cheek v. United States [ 91-1 USTC ¶50,012], 498 U.S. 192, 200-201 (1991). By alleging that Whistler's actions were voluntary and intentional and were conducted with his knowledge or belief that each return was fraudulent ( i.e. illegal), the indictment charges willfulness. The term "willfulness" is not vague but is a term of art with a known meaning for tax defendants of knowing one's duty and voluntarily and intentionally violating it. Because the term "willfulness" has a known meaning, the indictment sufficiently apprised Whistler of the charges raised against him. Thus, the district court properly denied Whistler's motion to dismiss the indictment.

Whistler also challenges the failure of the district court to disclose grand jury transcripts. We review the district court's decision to release or not release grand jury transcripts for abuse of discretion. United States v. Plummer, 941 F.2d 799, 806 (9th Cir. 1991). "A party seeking disclosure of grand jury transcripts must demonstrate a particularized need for the disclosure." United States v. Perez, 67 F.3d 1371, 1381 (9th Cir. 1995), withdrawn in part on other grounds, 116 F.3d 840 (9th Cir. 1997) (en banc). Whistler claims a particularized need existed because the grand jury indictment failed to allege he violated a known legal duty. Whistler's argument is based on his proposition that the grand jury indictment is insufficient. But, as explained supra, the indictment properly alleged the statutory element of willfulness. As such, there is no particularized need for the disclosure of grand jury transcripts. Therefore, the district court did not abuse its discretion in failing to disclose the grand jury transcripts.

In addition, Whistler challenges several evidentiary rulings by the district court. We review evidentiary rulings by a district court for an abuse of discretion. See United States v. Sua, 307 F.3d 1150, 1152 (9th Cir. 2002); United States v. Soulard [ 84-1 USTC ¶9386], 730 F.2d 1292, 1296 (9th Cir. 1984). According to Whistler, the district court erred when it (1) excluded evidence of litigation brought by the government against National Trust Services (a separate entity whose trusts Whistler modeled his own trusts after), (2) allowed the government's expert witness to testify, and (3) admitted summary charts offered by the government as substantive evidence. We hold the district court did not abuse its discretion or commit reversible error.

First, the National Trust Service litigation evidence had no bearing on Whistler's misrepresentations --backdated documents, phantom deductions, and misstated assets. Since this evidence was irrelevant to the conduct at issue, the district court did not abuse its discretion when excluding it. See Fed. R. Evid. 401.

Second, under the Federal Rules of Evidence, an expert can testify on an ultimate issue to be decided by the trier of fact, as long as the expert does not testify about "whether the defendant did or did not have the mental state or condition constituting an element of the crime charged or of a defense thereto." See Fed. R. Evid. 704(a)-(b); United States v. Clardy [ 80-2 USTC ¶9721], 612 F.2d 1139, 1153 (9th Cir. 1980). Here, the testimony was not improper opinion evidence because the government's expert did not express an opinion as to Whistler's state of mind. Accordingly, the district court did not abuse its discretion when it allowed this testimony.

Third, the district court did not commit reversible error in admitting summary charts into evidence or allowing their use during jury deliberations. See United States v. Abbas [ 74-2 USTC ¶9755], 504 F.2d 123, 124-126 (9th Cir. 1974). The district court provided the jury limiting instructions regarding the charts and summaries. Id. at 125. Furthermore, the defense had an opportunity to cross examine the government's expert and to challenge the factual basis of the charts. See id.; United States v. Krasn, 614 F.2d 1229, 1238 (9th Cir. 1980). Thus, any error in how the district court treated the summary charts was harmless.

Finally, the district court did not commit clear error by including tax loss attributable to false returns filed by Hunt's True Value Lumber and John and Teresa Vail in its tax loss calculation to determine Whistler's base offense level. The government submitted sufficient evidence to show that these returns were part of Whistler's illegal scheme. Nor did the district court misapply the Guidelines in taking account of the filing of false state tax returns as relevant conduct to determine Whistler's sentence. See U.S.S.G. §2T1.1, cmt. n. 2 (1995) ("In determining the total tax loss attributable to the offense, all conduct violating the tax laws should be considered as part of the conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated.") (emphasis added); United States v. Newbert, 952 F.2d 281, 284 (9th Cir. 1991) (holding that conduct in violation of state rather than federal law was relevant conduct under U.S.S.G. §1B1.3(a)(2)).

However, because Whistler did not challenge his sentence on Sixth Amendment grounds in the district court, we grant a limited remand pursuant to Ameline, 409 F.3d 1073.

AFFIRMED IN PART, REMANDED IN PART.

^* The Honorable Rudi M. Brewster, Senior United States District Judge for the Southern District of California, sitting by designation.

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