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7207- Fraudulent Returns, Statements, or Other Documents: Conviction

 

 [69-2 USTC ¶9638] United States of America , Plaintiff-Appellee v. Jack W. Satterfield, Sr., Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 26659, 5/20/69, Aff'g unreported District Court case

[Code Sec. 7207]

Crimes: False and fraudulent statement: Conviction.--The taxpayer was properly convicted of making a false and fraudulent statement and representation of a material fact. The evidence was sufficient to submit to the jury the question of the willful and intentional purpose of the taxpayer to deceive the Internal Revenue Service into accepting a purported assignment as a true assignment where the Government proved that a side agreement between the taxpayer and the purported assignee prevented the document from being a true assignment.

Robert B. McGowan, Assistant United States Attorney, P. O. Box 2841, Tampa, Fla., for plaintiff-appellee. Russell Hornsby, 311 N. Rosalind Ave. , Orlando , Fla. , for defendant-appellant.

Before TUTTLE and SIMPSON, Circuit Judges, and CASSIBRY, District Judge.

PER CURIAM:

This is an appeal from the conviction of appellant for making a false and fraudulent statement and representation of a material fact in a matter within the jurisdiction of the Treasury Department, in violation of Section 1001, 18 U. S. C. A.

We conclude that there is no merit in the grounds of appeal.

We are satisfied that the indictment adequately alleged the materiality of the false statement, within the concept of Gonzales v. United States (10 Cir., 1960), 286 F. 2d 118, relied upon by appellant.

It is clear that the parol evidence rule has no application to a case such as this, where the government proved by one of the purported parties to an assignment that the side agreement between appellant and the purported assignee prevented the document from being the assignment which it purported to be.

Finally, there was ample evidence to submit to the jury the question of the wilful and intentional purpose of appellant to deceive the Internal Revenue Agent into accepting the purported assignment as speaking the truth when it, in fact, did not.

The judgment is AFFIRMED.

 

 

 

 

[83-1 USTC ¶9151] United States of America , Plaintiff-Appellee v. Ronald N. Fern, Defendant-Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 81-6235, 696 F2d 1269, 1/17/83 , Affirming an unreported District Court decision

[Code Sec. 7207 and 18 U. S. C. §1001]

Crimes: Material false statement: Accountant: Tax audit.--An accountant's conviction under 18 U. S. C. §1001 for making a materially false statement to an IRS auditor was affirmed. The accountant's unsolicited false statement that caused a tax auditor to initially believe that the client was entitled to an additional charitable deduction was a materially false statement that he only recanted after the IRS became suspicious. The fact that the statement did not actually influence the agency was immaterial. The government was free to choose to prosecute for a felony under the more general statute, 18 U. S. C. §1001, rather than for a misdemeanor under Code Sec. 7207.

Kent S. Robinson, Assistant United States Attorney, Miami, Fla. 33130, Glenn L. Archer, Jr., Assistant Attorney General, Michael L. Paup, Robert E. Lindsay, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. Kenneth L. Ryskamp, Goodwin, Ryskamp, Welcher, Carrier & Donoff, 25 W. Flagler Street , Miami , Fla. 33130 , for defendant-appellant.

Before RONEY and JOHNSON, Circuit Judges, and DYER, Senior Circuit Judge.

DYER, Senior Circuit Judge:

Fern appeals his jury conviction for violating 18 U. S. C. §1001 ¹ by making a materially false statement to an Internal Revenue Service Tax Auditor. ² He asserts that §1001 is inapplicable within the parameters of this case; that it was error for the Court to hold that his statement was material; that the evidence was insufficient to sustain a conviction; and that Fern was never identified as the person who made the false statement. We disagree and affirm.

When the evidence is viewed in the light most favorable to the Government, Glasser v. United States, 315 U. S. 60, 62 S. Ct. 457, 86 L. Ed. 680 (1942) it shows the following facts:

Fern was a practicing accountant. On April 19, 1974 he and an investment partner executed an agreement to provide the New Testament Baptist Church with $125,000 in gifts. On April 25, 1974 Fern and his partner purchased property from Dade Christian School , a sister organization of the church. On that date $50,000 was paid to the church.

In late December 1974, Fern asked his client Brumer if he would make a $25,000 contribution to the church which would be tax deductible. He told Brumer that the money would be used to pay off pledges to the church in place of a mortgage, and that the money would be paid off at the time of the sale of the property. Brumer made out his check to the church for $25,000 and gave it to Fern, who delivered it to the church. The church treated the check as a contribution, and cancelled the $75,000 indebtedness of Fern in exchange for the Brumer check.

In January 1975, Brumer decided not to claim his $25,000 payment as a charitable deduction and asked Fern for repayment. On Fern's partnership tax return the $25,000 was listed as a liability. When Fern sold the property he had acquired from the church on April 1, 1975 , Fern gave Brumer a check for $25,000, which included a notation that it was for repayment of a loan.

In March 1975 (before the repayment of $25,000 from Fern to Brumer), Fern suggested that Brumer take the $25,000 as a charitable deduction. Brumer told Fern that he did not want to take it as a tax deduction and that it was not to be claimed on his 1974 tax return.

In the spring of 1976, the Internal Revenue notified Brumer that it would audit his 1974 return, having challenged deductions claimed by Brumer for air conditioning repair and a part of his daughter's wedding expense. Fern attended the audit interview on May 17, 1976 with Tax Auditor Wilson. After Wilson indicated that she would disallow the challenged deductions, Fern stated that Brumer had found a deduction that he had not claimed on his tax return and that he, Fern, would like to submit it to her. He said that it was a contribution, and handed Wilson a copy of a cancelled check made out to the New Testament Baptist Church in the amount of $25,000. Wilson examined the check, marked it into her worksheet, checked a rough copy of Brumer's 1975 return given to her by Fern to ascertain whether the payment had been claimed for that year, and then told Fern she would accept it as a charitable contribution.

After this interview Wilson telephoned and wrote Fern requesting further verification of the contribution. By mail she received a copy of a letter from the church to Brumer thanking him for the $25,000 gift and a letter directly from the church erroneously indicating that no contribution had been received from Brumer.

As a result of the conflicting letters from the church, Internal Revenue Service Auditor Eddins called Fern and asked if there was a contribution made by Brumer. Fern told him there was a contribution made to the church but that Brumer was uncertain whether or not he would take credit for it. Later Fern told Eddins that after discussing the matter further with Brumer they had decided not to claim a deduction. However, such a conversation between Fern and Brumer had not taken place after the audit.

Fern first urges that he could not be prosecuted under §1001 because the application of the statute in this case would reach a patently absurd result. In any event, it is argued, the Government should be required to proceed under the more specific, tax-related misdemeanor statute, 26 U. S. C. 7207. We find no merit to these contentions.

Fern's absurdity-result argument rests upon Sorrells v. United States, 287 U. S. 435, 53 S. Ct. 210, 77 L. Ed. 413 (1932). There the Court held that even though there was a violation of the literal terms of the National Prohibition Act the conviction could not be upheld in the light of admitted entrapment saying, "[t]o construe statutes so as to avoid absurd or glaringly unjust results, foreign to the legislative purpose, is, as we have seen, a traditional and appropriate function of the courts."

Lifting this sentence out of context, Fern argues that to apply §1001 here creates the absurd result of swallowing up the perjury statute contrary to congressional intent. ³ We disagree.

Sorrells was careful to point out that "the case lies outside of the purview of the Act" and that "its general words should not be construed to demand a proceeding . . . abhorent to the sense of justice."

Quite unlike Sorrells the opposite is true here. The purpose of §1001 is clearly to protect the Government from fraud and deceit. The reach of the statute covers all materially false statements, including non-monetary fraud, made to any branch of the Government. United States v. Bramblett, 348 U. S. 503, 506-07, 75 S. Ct. 504, 506, 99 L. Ed. 594 (1955). Moreover, the term "jurisdiction" should not be given a narrow or technical meaning for purposes of §1001. Bryson v. United States , 396 U. S. 64, 90 S. Ct. 355, 24 L. Ed. 246 (1969). As we said in United States v. Lichenstein, 610 F. 2d 1272 (5 Cir. 1980) the statute prohibits a false statement "that is capable of affecting or influencing the exercise of a government function. United States v. Goldfine, 538 F. 2d 815, 820 (5 Cir. 1975); United States v. McGough, 510 F. 2d 598, 602 (5 Cir. 1975). That, as here, the Government is not actually influenced by the statement is immaterial. Goldfine, 538 F. 2d 820-21. Accord, Beer, 518 F. 2d 168 at 172 (5 Cir. 1975) (dictum). The potential effect on the Government need not involve pecuniary loss. United States v. Gilliland, 312 U. S. 86, 93, 61 S. Ct. 518, 522, 85 L. Ed. 598 (1941); United States v. Krause, 507 F. 2d 113, 115, 117 (5 Cir. 1975). The false statement must simply have the capacity to impair or pervert the functioning of a governmental agency."

Clearly, the Internal Revenue Service is a "department or agency" of the United States . See United States v. Beacon Brass Co. [52-2 USTC ¶9528], 344 U. S. 43, 73 S. Ct. 77, 97 L. Ed. 61 (1952); United States v. Johnson [76-1 USTC ¶9398], 530 F. 2d 52 (5 Cir. 1976), cert. den., 429 U. S. 833, 97 S. Ct. 96, 50 L. Ed. 2d 97 (1976), and a false material oral statement made to a tax auditor falls within the purview of §1001. United States v. McCue, [62-1 USTC ¶9359], 301 F. 2d 452 (2 Cir. 1962) cert. den., 370 U. S. 939, 82 S. Ct. 1586, 8 L. Ed. 2d 808 (1962).

Fern made an affirmative, unsolicited, false statement which caused a tax auditor to initially conclude that an additional charitable deduction was due the taxpayer. If it was material, the statute applies for "[p]erversion of a governmental body's function is the hallmark of a §1001 offense." United States v. Lambert, 501 F. 2d 943 (5 Cir. 1974). (En banc.)

Relying on United States v. Beer, 518 F. 2d 168 (5 Cir. 1975), Fern argues that Congress never intended that 18 U. S. C. §1001 should be used to prosecute false statements made to the Internal Revenue Service since a specific statute, 26 U. S. C. 7207 ⁴ is applicable, and a specific statute controls a more general one. ⁵ Fern's reliance on Beer is misplaced. While it is true that we expressed a preference for prosecution under specific statutes, we expressly declined to reverse a §1001 prosecution on that ground despite the presence of a more specific statute §1005, and despite the fact that the §1001 penalty was twice as severe as the penalty provided in §1005. In commenting on Beer, we said in United States v. Carter, 526 F. 2d 1276 (5 Cir. 1976), "[m]any statutes in the Criminal Code overlap, and the Government may elect the provision under which it wishes to proceed. Erlich v. United States , 238 F. 2d 481 at 485 (5 Cir. 1976). Although we recently indicated a preference for prosecution under specific false statements statutes, we declined to reverse the conviction on grounds that 18 U. S. C. §1001 had been chosen for prosecution." The Supreme Court has long recognized

that when an act violates more than one criminal statute, the Government may prosecute under either so long as it does not discriminate against any class of defendants. Whether to prosecute and what charges to file or bring before a grand jury are decisions that generally rest in the prosecutor's discretion. (Citations omitted.)

. . . there is no appreciable difference between the discretion a prosecutor exercises when deciding whether to charge under one of the statutes with different elements and the discretion he exercises when choosing one of two statutes with identical elements.

United States v. Batchelder, 442 U. S. 114, 99 S. Ct. 2198, 60 L. Ed. 2d 755 (1979).

Fern's argument is categorically foreclosed by the Ninth Circuit in United States v. Schmoker [78-1 USTC ¶9109], 564 F. 2d 289 (9 Cir. 1977) (concurring opinion) in which the Court said, "the government [may] choose to prosecute a taxpayer who makes a false statement to an Internal Revenue agent for a felony, under the general false statement statute, 18 U. S. C. §1001, rather than for a misdemeanor, under 25 U. S. C. §7207, a statute specifically directed to persons who made false statements to the Internal Revenue Service." (Citations omitted). To the same effect see, United States v. Beacon Brass Co. [52-2 USTC ¶9528], 344 U. S. 43, 73 S. Ct. 77, 97 L. Ed. 61; United States v. Carpenter, 611 F. 2d 113 (5 Cir. 1980); United States v. Gordon, 548 F. 2d 743 (8 Cir. 1977); United States v. Radetsky, 535 F. 2d 556 (10 Cir. 1976); United States v. Smith, 523 F. 2d 771 (5 Cir. 1975); United States v. Burnett, 505 F. 2d 815 (9 Cir. 1974); United States v. Chakmakis, 449 F. 2d 315 (5 Cir. 1971); United States v. Eisenmann, 396 F. 2d 565 (2 Cir. 1968).

Fern next questions the materiality of the statements made by him to Wilson . He argues that the court was misled by the Government in describing the audit procedure because no claim was made in the manner required by the Internal Revenue Service regulations, ⁶ and consequently the statement made by Fern, that his client Brumer had made a charitable contribution, was not material since there was nothing to investigate. Materiality is a question of law, United States v. Krause, 507 F. 2d 113 (5 Cir. 1975), thus we are concerned only with the correctness of the district court's ruling and not the reasons underlying it.

We start with the premise that "[a] material false statement under this rule is one that is capable of affecting or influencing the exercise of a government function. . . . The statement must have been made with an intent to deceive, a design to induce belief in the falsity or to mislead, but §1001 does not require an intent to defraud--that is, the intent to deprive someone of something by means of deceit." United States v. Lichenstein, supra, at 1277, 1278.

Fern's contention that his statements could not have been material because all claims for refunds must be in writing misses the point. Statements such as that given by Fern to Wilson falsely stating that his taxpayer had found a deduction that he had not claimed, i. e., a charitable contribution of $25,000, and that he would like to submit it, led Wilson to add it to her worksheet as an item opened by the Service. She was prepared to execute a report including the charitable deduction, which would have resulted in an offer of an agreement regarding Brumer's tax liability ⁷ until her supervisor required her to obtain further verification. Clearly this was a material false statement which perverted the agency's function, and the fact that it did not actually influence the Government is immaterial. United States v. McGough, 510 F. 2d 598 (5 Cir. 1975); United States v. Johnson [76-1 USTC ¶9398], 530 F. 2d 52 (5 Cir. 1976). United States v. Beer, supra is not to the contrary as argued by Fern. There the false statement made to the Federal Deposit Insurance Corporation could not have influenced that agency when the loan had already been repaid before the agency learned about the statement. Nor are we persuaded by Fern's assertion that, assuming for the sake of argument, his statement of a claim was false and material, he subsequently orally recanted it and under United States v. Cowden, 677 F. 2d 417 (8 Cir. 1981) there can be no criminal liability. In Cowden the defendant made a false declaration on a customs form, but amended his claim before the official indicated that he had found undeclared currency. The court held that even if the official had found the currency in the defendant's luggage before he orally amended his declaration it would be "manifestly unfair that a customs officer should make every effort to conceal his discovery and then, once the passenger has requested to amend his declaration [pursuant to 18 C. F. R. §148.16] to forbid amendment." Obviously this case is inapposite to the case sub judice where Fern apparently changed his story only after the Internal Revenue Service became suspicious.

Fern next asserts error in the Court's holding that there was sufficient proof of a violation of §1001 to submit the case to the jury. Relying on United States v. Poutre [80-2 USTC ¶9588], 646 F. 2d 685 (1 Cir. 1980); United States v. Clifford, 426 F. Supp. 696 (E. D. N. Y. 1976), and United States v. Ehrlichman, 379 F. Supp. 291 (D. D. C. 1974), Fern argues that since Wilson's testimony as to what Fern said to her was ambiguous and uncorroborated, and since the statements of Fern were susceptible to an interpretation that was literally true, the evidence was insufficient to take the case to the jury. Evaluating these contentions in the light of the evidence most favorable to the Government, Glasser v. United States , supra; United States v. Herberman, 583 F. 2d 222 (5 Cir. 1978), we disagree.

Fern would have us take twelve sentences of Wilson's testimony and construct a reading of them to mean that rather than making an actual claim to the Internal Revenue Service, Fern was only speculating out loud as to what he might do, and in effect told Wilson that he could claim a deduction if he wished. We are unwilling to isolate a statement from context and give it a meaning entirely different from that which it has when the entire evidence is considered. We need not iterate the evidence we have previously related. Suffice it to say that it established that the audit was open for both the Service and Brumer; that Wilson examined a copy of the check to the church and asked Fern for the rough return for 1975. She told Fern that she thought the deduction was acceptable and she added it to her worksheet as an item approved by the Service.

Moreover, while no corroboration is necessary to sustain a conviction for making a false statement under §1001, Gevinson v. United States, 358 F. 2d 761, Stein v. United States [66-2 USTC ¶9518], 363 F. 2d 587 (5 Cir. 1966), cert. den. 385 U. S. 934, 87 S. Ct. 294, 17 L. Ed. 2d 214 (1966), Wilson 's testimony was corroborated. The Service requested verification of the alleged donation to the church and Fern answered this request. Fern told Agent Eddins that Brumer was entitled to the $25,000 contribution deduction. Fern questioned Agent Mastin whether the Service was trying to make a case out of the contribution. All of this testimony would have made no sense without the occurrence of the conversation between Wilson and Fern as related by Wilson . Poutre is clearly distinguishable. The Court there held that a verbatim transcript or written statement is not required per se in a prosecution under §1001, but when a transcript of some answers was taken and two or three of the allegedly false answers are not included in the transcript, and only one prosecution witness testified as to one of the statements, the evidence was "too fragile" to support a conviction. Id. at 688. In contrast, Fern's statements were unambiguous and corroborated by witnesses and documents.

In Ehrlichman the Court applied the "literal truth test" enunciated in Bronston v. United States, 409 U. S. 352, 93 S. Ct. 595, 34 L. Ed. 2d 568 (1972) to allegedly false representations under §1001 and found that the defendant was too disadvantaged in attempting to argue that his statements to the F. B. I. were literally true on the sole basis of the agents' sketchy notes. The Court concluded, therefore, that §1001 was improperly invoked. ⁸ But we discern no parallelism between Ehrlichman and the case at bar. Quite properly the Court found insufficient proof of the underlying settlement in Ehrlichman, as opposed to our findings here.

In Clifford, the Court referring to Bronston, found that in the absence of a transcript of what was said Clifford was in the same untenable position as was Ehrlichman in trying to argue that his statements were literally true because ". . . there was no basis, other than pure speculation upon which a reasonable juror could determine what question was asked and what response was given." Id. at 703. It seems clear that in each of these cases the truthfulness of the statement was left in doubt because there was a deficiency in the proof of the underlying facts, while here the falsity of the statement depends on the unambiguous testimony that Fern referred to the check as a contribution.

In Bronston the Court held and nonresponsive, misleading answers, which were nevertheless literally true, could not support a perjury conviction. Id. at 362, 93 S. Ct. at 601. There the defendant's statements were not contested as being untruthful. Not so here. Fern did not base his defense on the basis that his statements to Wilson were literally truthful, nor did he raise this issue at trial. On the contrary, he flatly denied that he made the statements as related by Wilson and presented his own version. Thus the jury was presented with a clear choice of who was telling the truth, and it obviously disbelieved Fern.

Finally, Fern contends that since Wilson never identified Fern as the person who made the false statements, Fern's motion for a judgment of acquittal should have been granted. This argument gives us little pause. Courtroom identification is not necessary when the evidence is sufficient to permit the inference that the defendant on trial is the person who made the statements in question. Delegal v. United States , 329 F. 2d 494 (5 Cir. 1964), cert. den. 379 U. S. 821, 85 S. Ct. 44, 13 L. Ed. 2d 32 (1964). The inference here was overwhelming. Agent Mastin identified Fern as the person who told him he had met with Wilson , and Brumer identified Fern as having represented him at the audit. Fern could not have denied making the statements to Wilson in his various conversations with the Internal Revenue Service agents unless he had been at the meeting in question.

AFFIRMED.

¹ Section 1001 provides in pertinent part:

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

² Count 2 of the Indictment returned against Fern charged him with submitting a document which falsely stated that a $25,000 payment made by his client Brumer was a charitable contribution. The jury deadlocked on Count 2 and a mistrial was declared.

³ Fern also relies on Friedman v. United States, 374 F. 2d 363 (8 Cir. 1967) to bolster his absurdity-result argument. There the defendant made a voluntary statement to the F. B. I. complaining of mistreatment by a highway patrolman. The statement was false and he was prosecuted under §1001. The Court of Appeals reversed his conviction. However, the Fifth Circuit, sitting en banc in United States v. Lambert, 501 F. 2d 943, 945 (5 Cir. 1974) explicitly refused to adopt the Friedman holding. The Court held that a false statement concerning possible criminal conduct was within the jurisdiction of the F. B. I. and amenable to §1001.

⁴ 26 U. S. C. §7207 provides:

Any person who willfully delivers or discloses to the Secretary or his delegate any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $1,000 or imprisoned not more than one year, or both . . .

⁵ We are not called upon to determine whether 26 U. S. C. §7207 applies to oral statements or only to written statements. Fern argues it, even though he concedes that there is no case law to support the application of that section to an oral statement. We adopt Fern's argument for the purposes of discussion only.

⁶ Fern cites 26 C. F. R. 301.6 which sets forth the procedure for filing claims for refunds and which requires, among other things, that the claim must set forth in detail the ground upon which the credit is claimed, contain supporting evidence, and be verified by a written declaration that it is made under the penalties of perjury.

⁷ If a taxpayer agrees to a written proposed assessment prepared by a tax auditor, 26 C. F. R. §601.105(b)(4), it operates as a formal claim for a refund. Bauer v. United States [79-1 USTC ¶9348], 594 F. 2d 44, 46 (5 Cir. 1974).

⁸ The Court also premised its holding in Ehrlichman on the exculpatory "no" answer doctrine which applies a limiting principle to §1001 to prevent its broad language from being used to prosecute a person who answers an exculpatory "no" when he is asked by the F.B.I. if he had committed a crime, since Congress did not intend to add a felony conviction to compel potential defendants to confess guilt to governmental investigators. This doctrine is inapplicable to this case.

 

 

[85-1 USTC ¶9368] United States of America , Appellee v. The Southland Corporation and S. Richmond Dole and Eugene Mastropieri, Defendants

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket Nos. 84-1284, 84-1307, 4/23/85 , Affirming an unreported District Court decision

[Code Secs. 6531 and 7207]

Criminal prosecutions: Fraud: Statute of limitations: Jury instructions: Lesser-offense rule.--The U. S. Court of Appeals at New York (CA-2) affirmed the convictions of a corporation and a New York City Councilman on charges of defrauding the United States by impeding the functions of the IRS in ascertaining and collecting income taxes. The court found that the trial judge did not err in instructing the jury as to the statute of limitations applicable to the federal tax offense and another offense for which the defendants were charged. The fact that the indictment was sealed for 39 days after the statute had run did not violate the Federal Rules of Criminal Procedure. The indictment was returned within the statutory period. Finally, the court concluded that the trial judge did not err in denying the defendants' requests to include a lesser included offense instruction relating to the filing of false tax returns under Code Sec. 7202.

Raymond Dearie, United States Attorney, Gregory Wallance, Jane Simkin Smith, Assistant United States Attorneys, Brooklyn, N. Y. 11201, for appellee. Peter Bleakley, William J. Baer, Robert N. Weiner, Edward L. Wolf, Arnold & Proter, 1200 New Hampshire Ave., N. W., Washington D. C. 20036, for Southland Corp. Gerald L. Shargel, 150 East 58th St., New York, N. Y. 10155, for Eugene Mastropieri.

Before FEINBERG, Chief Judge, FRIENDLY and MANSFIELD , Circuit Judges.

FRIENDLY, Circuit Judge:

The Southland Corporation, a large retailer with headquarters in Dallas , Texas , and Eugene Mastropieri, a lawyer in the borough of Queens who was a member of the New York City Council, appeal from judgments of conviction, rendered after trial before Judge Sifton and a jury in the District Court for the Eastern District of New York. ¹ The convictions were rendered on a single count superseding indictment, charging a conspiracy in violation of 18 U. S. C. §371, having two objectives as set forth below. Mastropieri was sentenced to 18 months in prison and Southland to a fine of $10,000.

The indictment began by alleging that there were pending before the Department of Taxation and Finance of the State of New York various cases which concerned Southland's liability for sales taxes due and owing upon the sale of merchandise through 7-Eleven stores franchised by Southland and for other reasons. It proceeded to allege that defendants conspired to travel in foreign and interstate commerce and use facilities in interstate commerce with intent to bribe state officials in violation of Article 200 of the Penal Law of the State of New York in relation to such taxes and had also conspired to defraud the United States by impeding the function to the Internal Revenue Service in determining the true nature of Southland's business expenses by causing amounts intended to be paid as bribes to such officials to appear on Southland's corporation tax return as legal fees to Mastropieri. Various steps in the conspiracy were alleged in further detail. The last overt act relating to the Travel Act objective occurred on March 27, 1978 ; the last overt act relating to the fraud on the United States occurred on November 24, 1980 . Pursuant to a special verdict Mastropieri was found guilty of conspiring to achieve both objectives; Southland was found guilty of conspiring only with respect to the tax fraud objective.

Discussion

I. Sufficiency of the Evidence. The jury could reasonably have found the facts to be as follows: Some of Southland's 7-Eleven convenience stores in New York were owned by the corporation; some were franchised. In 1977 Vice President S. Richmond Dole was headquarters executive in charge of all Southland franchise stores. The stores were divided into regions, each with its own manager. In 1977 the Northern Region Manager was Frank Kitchen. A part of that region, the Northeast Division, which included New York State , was managed by Eugene DeFalco, the Government's principal witness. In 1973 the New York Department of Taxation and Finance began proceedings against 7-Eleven franchise store operators and against Southland itself involving potential liability in excess of $1,000,000, on a legal theory which was by no means implausible. This was a considerable sum for the Northeast Division, which had had only one profitable year in its history. Also, because of bouns arrangements, DeFalco had a direct stake in the Northeast Division's earnings.

In January, 1977, DeFalco was introduced by a corporate security consultant, John Kelly, to defendant Mastropieri, a New York City councilman from Queens . DeFalco reviewed the history of Southland's problems with the Tax Commission. Mastropieri said that he knew a number of people in the sales tax bureau, including the chairman of the Tax Commission, James Tully, that "he could be of service" to DeFalco and that he would later be able to estimate the cost. DeFalco reported the meeting to Dole and to Clark J. Matthews II, Southland's general counsel. In a meeting a week later DeFalco told Mastropieri that he anticipated testifying before a judge in a formal proceeding relating to the tax dispute. Mastropieri interjected that sales tax cases were decided without formal hearings by tax commissioners who were political appointees and their aides who were professionals, and that he was very friendly with both. He explained that it would not be uncommon for the aides to mark the commissioners' agendas at the time of the hearing with indications how they should vote. After repeating that he had worked with a number of these people, Mastropieri said with a smile, "This may require heavy entertainment;" DeFalco answered "that was possible, we had entertained people before." DeFalco wanted to know what the entertainment would cost but Mastropieri deferred such inquires.

DeFalco immediately reported to Dole that he and Mastropieri had discussed the case further, and that Mastropieri had told him "in very broad terms who he was going to work with in Albany, the bureaucrats and Mr. [Tully]." DeFalco gave it to Dole as his opinion, based on the the dinner conversation, that Mastropieri "was going to be paying somebody off." Dole said, "handle it or can you handle it and take care of it."

Kelly, Mastropieri and DeFalco then sought to come up with suitable financial arrangements. Mastropieri called for $45,000 in cash, of which he was to receive $25,000 "for an up front payment or retainer" and '20,000 was to be for the expenses that [DeFalco] and he discussed." Dole advised DeFalco that it would be impossible to generate such a large sum in cash within the corporation. A second proposal was to enter into a phony airplane lease arrangement with a friend of Kelly; this ran into difficulties too numerous to be stated. Finally it was proposed that Mastropieri submit a legal bill for $96,500. Since this sum would have to come from the headquarter's accounts, this proposal was discussed, after a large sales meeting for the Northeast Division at the Hilton Hotel at Hartford, Connecticut, in the suite of John P. Thompson, Southland's CEO. The latter inquired about Mastropieri's fee. DeFalco explained it would be in the "90 to $100,000 range" and would include "entertainment." At the mention of this word Dole and DeFalco chuckled. When Kitchen complained in the hotel corridor as to what was going on, DeFalco gestured to Dole to handle him.

Shortly after the Hartford meeting Dole informed DeFalco that the Mastropieri fee would be paid from a corporate legal accrual account and how the bill should read. On July 7, 1977 , Dole left with Eugene Pender, Southland's Controller, an undated bill reading as follows:

EUGENE F. MASTROPIERI

Attorney At Law

67-40 Myrtle Avenue Glendale, New York 11227

VAndyke 1-2210-1

VAndyke 1-3612-3

Mr. Eugene A. DeFalco c/o The Southland Corporation 425 Cherry Street Bedford Hills , New York 10507

FOR PROFESSIONAL SERVICES RENDERED

Balance Due October 1976 thru May 1977 $96,500.00

Dole asked that payment be expedited; when Pender asked why, Dole told him not to pursue that question any further. On the same day a check for $96,500 was made payable to Mastropieri and mailed to DeFalco. Southland took the entire $96,500 as a deductible business expense on its 1977 corporate income tax return. At the same time Southland sent and IRS Form 1099 to Mastropieri informing him that $96,500 was being reported to the IRS as a professional fee.

DeFalco sent the $96,500 check to Kelly, with the note reproduced in the margin. ² Kelly arranged to have Mastropieri call at his home on Sunday, July 17, 1977 . Mastropieri brought with him a signed blank check on his firm's escrow account. Kelly handed him the Southland check, which Mastropieri would subsequently deposit in the escrow account. Kelly made the escrow account check payable to himself in the amount of $96,500 and later caused it to be deposited in his account at the Bank of Montreal in Toronto . DeFalco established an account in the same bank into which $20,000 was deposited by intra-bank transfer to serve as a bribery slush fund. By way of numerous checks and wire transfers, an additional $28,500 was siphoned off by DeFalco for his personal use. The $48,000 that remained in Kelly's account was earmarked as Mastropieri's compensation and to cover Kelly's additional tax liability.

Mastropieri had had an inconclusive conference on April 22, 1977 with the state tax officials. In late 1977 Mastropieri asked DeFalco to prepare a draft opinion which the Tax Commission could adopt. DeFalco obliged with an opinion that stated that "[t]here is clear and convincing testimony on the part of Southland to the effect that in no case did it purchase the inventory . . . by repossession," when in fact there was no testimony of any sort, and that "the transfer of the merchandise inventory by the former owners to The Southland Corporation constitutes a transfer in settlement or realization of security interests which are excepted from the general requirements of Article Six of the Uniform Commercial Code and the purposes of Section 1141(c) of the Tax Law."

Events were thus proceeding according to plan when, in early August 1977, high officials of Southland received a letter from senior management announcing the establishment of a Business Ethics Review (BER) program. The cover letter was accompanied by an eight page questionnaire and an explantory memorandum from Clark J. Matthews II, the general counsel. The questions inquired concerning Knowledge of any payments to government officials to settle any disputes including tax disputes, knowledge of any payment to any government official to "grease" or expedite matters, knowledge of the existence of any off-the-book accounts or slush funds, knowledge of any laundering or other recycling of funds, etc. DeFalco called Dole, who had been one of the signers of the covering letter, and asked whether Dole had any problem with any of the questions. Dole answered that he didn't have a problem and asked if DeFalco did. DeFalco responded, "no, I don't have a problem anymore." DeFalco then answered the questions in the negative; Kitchen, after speaking with DeFalco, likewise omitted any mention of the Mastropieri matter. Pender, on the other hand, in responding to the question concerning "grease" payments to public officials, voiced his suspicion "that a payment made in the N/E Stores division to a law firm about July 1977 was inflated to cover costs other than legal fees. Dick Dole should have details."

Responsibility for supervising the BER was placed in Southland's Audit Committee, consisting of three outside directors who generally met once a month in the library of Southland's department. At some time during the first half of 1977, Matthews told the Audit Committee that Dole and DeFalco had approached him to pay a fee to a New York lawyer in the form of an airplane rental lease of $45,000. The Committee rejected this proposal and told Matthews to look into the matter further. As the BER got under way, Matthews took staff attorney Michael Davis on as an assistant for the project and instructed him to add the Mastropieri matter to the list of subjects for inquiry. While in Dallas at a business meeting on October 17 and 18, they interviewed DeFalco and Kitchen but not Pender or Dole.

The DeFalco interview disclosed a history conforming closely to what has been recounted. DeFalco said that part of the Mastropieri fee would be used for the "entertainment" of the Tax Commission members and staff; Davis, who took notes during the interview, later claimed that he understood this to mean "drinks, dinner, that kind of entertainment." There is a dispute whether a note by Davis, "Tully to get", was followed by a word reading "moving" or "money;" the jury could reasonably have found it to be the latter. After the conclusion of the interview Matthews, who was walking with DeFalco and Davis to the parking lot, suggested that maybe he should talk to Mastropieri "to flush out some details;" DeFalco said "I would not touch that with a ten foot pole," explaining--falsely as matters turned out--that "at least five thousand dollars of the payoff had already been made".

The interview with Kitchen produced an admission that he thought a payoff was discussed at the mid-February 1977 meeting at Hartford attended by Dole, Thompson and DeFalco; later he correspondingly amended the answer to his questionnaire. The Audit Committee apparently having instructed Matthews to interview Mastropieri, DeFalco assured the latter that this would be a charade. Subsequently Matthews advised the Committee that he had spoken to Mastropieri and obtained assurances that there were no irregularities in his representation of Southland. Mastropieri also contributed a letter for Matthew's files stating that his fee arrangement with Southland had been agreed to and paid. Later Matthews wrote a summary of the BER's discoveries in regard to the Mastropieri matters which will be described in Point III below. The final report on the BER, however, made no reference to the Mastropieri matter.

Still, Matthews and Davis were understandably concerned that, without some action on their part, the Mastropieri "legal fee" was going to be taken as a deduction on Southland's 1977 income tax return and raised the question of deductibility with the company's outside tax counsel, without, however, stating why they considered that the "fee" might not be a proper deduction. Apparently by accident, an IRS audit team learned of the BER, and requested a copy of the report and the underlying questionnaires. Matthews met with Davis and gave him a short list of names of persons whose answers to questionnaires should not be given to the IRS; the list included Pender and Kitchen. These questionnaires were withheld although the IRS agents were falsely assured they had been given all questionnaires with positive responses.

The final piece of evidence worth recounting concerned a conversation between DeFalco and Dole in November 1980, two months after DeFalco had been promoted to a vice presidency and assigned to the Dallas headquarters. Dole, who had become aware of the FBI's investigation of the Mastropieri fee and thought the bribe had been paid, called DeFalco and instructed him not to reveal the existence of the bribery scheme. During the course of the conversation, DeFalco wrote down on the back of an office telephone message slip:

11-24

Dole called--

Blood oath on N. Y. deal

Hang together or we all can get into trouble.

In light of the facts which the jury was entitled to find, appellants' arguments with respect to insufficiency, including the argument that the coconspirators did not know that "heavy entertainment" could include bribery, border on the frivolous. The only ones even deserving mention are some of Southland's more particularized arguments. One of those is that the Government failed adequately to demonstrate that Southland was aware of 26 U. S. C. §162(c) which forbids deduction of a bribe in determining net income. Ignorance of the law is no defense to a charge of purposeful and intentional action. United States v. Gregg, 612 F. 2d 43, 51 (2 Cir. 1979). Furthermore, the indictment did not turn on 26 U. S. C. §162(c); the charge was conspiring to defraud the United States by obstructing the IRS in performing the function of determining Southland's allowable deductions, and it is absurd to suppose that the Southland officials concerned with the Mastropieri matter did not know that deductions may be taken only for "ordinary and necessary" business expenses, 26 U. S. C. §162(a), and that a bribe is not such an expense. Finally, there was evidence that Dole, DeFalco, Matthews and Davis were all very much concerned that the $96,500 payment was being improperly taken as a deduction.

A shade more needs to be said in regard to Southland's contention that the Government proved only an intent to deprive the State of New York of a fair hearing with respect to Southland's New York sales taxes rather than an intent to deprive the United States of income tax. It may well be true that when DeFalco began his relationship with Mastropieri, defrauding the United States was not in his mind. However, it was not too long before the conspirators became aware that the means chosen to conceal the payment of the intended bribe, a $96,500 legal fee, was almost certain to find its way into the deductions in Southland's 1977 income tax return. This is evidenced by the sending of the Form 1099 to Mastropieri, as well as much other conduct related heretofore and hereafter. If the Southland officials had wished to avoid defrauding the United States , they needed only to advise Southland's Treasurer that the $96,500 deduction for legal fees should not have been taken and that an amended return omitting this deduction should be filed. Section 371 has often been applied to reach conduct intended to defraud the United States , although the original activity was aimed at quite different objectives. A good example is United States v. Parker, 469 F. 2d 884, 895-96 (10 Cir. 1972). There the defendants made Molotov cocktails and other bombs to burn buildings belonging to their competitors and enemies. The court upheld their conviction under §371 for conspiring to defraud the United States because they did not pay the required taxes on the explosive devices. Where defendants are shown to have intended to defraud the United States , they cannot escape liability by showing that this intent was merely incidental to some other action which constituted their primary motivation. See United States v. Barker, 546 F. 2d 940, 945 (D. C. Cir. 1976) (Wilkey, J., concurring).

II. The Dual Statute of Limitations Instruction. Judge Sifton charged the jury that a conspiracy to violate the Travel Act has a five year statute of limitations, see 18 U. S. C. §3282. He further instructed that, in the language of 26 U. S. C. §6531(1), the period of limitations is six years for "offenses arising under the internal revenue laws" and "involving the defrauding or attempting to defraud the United States or any agency thereof, whether by conspiracy or not." Hence, in order to convict under the portion of the indictment charging a conspiracy to violate the Travel Act the jury had to find an overt act within five years of the return of the indictment but to covict under the portion of the indictment charging a conspiracy to defraud the United States, it needed to find only an overt act within six years.

On its face the charge seems to be precisely what the statutes require. Clearly this is what the judge would have had to instruct if the indictment had contained two conspiracy counts instead of one. In opposition, appellants urge a somewhat metaphysical argument that since the indictment charges only one crime, there can be only one applicable period of limitations, just as there can be only one punishment, see Braverman v. United States [42-2 USTC ¶9731], 317 U. S. 49, 53-54 (1942). Whatever the philosophical merits of the argument may or may not be, we fail to see a good sense basis for it. If the Government adduced sufficient evidence to convince the jury that Southland conspired to defraud it within the six year period provided by 26 U. S. C. §6531(1), as we have held that it did, we do not see why it should be deprived of a conviction for this violation of 18 U. S. C. §371 because it failed to establish to the jury's satisfaction that Southland also engaged, during a five year period antedating the indictment, in a conspiracy to violate the Travel Act. Even more clearly, if the Government established to the jury's satisfaction that Mastropieri had engaged in a conspiracy to violate the Travel Act within five years and to defraud the United States within six, we cannot see what is wrong in his being convicted for a conspiracy with both objectives. Any danger of jury confusion was eliminated by the taking of special verdicts as to each object. If the Government had failed to present sufficient substantive evidence to warrant submission of the Travel Act objective to the jury but did meet its burden with respect to the fraud objective and the jury convicted, defendants would surely not have been entitled to have the indictment dismissed. See United States v. James, 528 F. 2d 999, 1014 (5 Cir.), cert. denied, 429 U. S. 959 (1976). We fail to perceive how their case stands better because the Government did present sufficient evidence to send to the jury the case with respect to both defendants and both objectives.

So far as the authorities are concerned, neither United States v. Cunningham [83-2 USTC ¶9730], 723 F. 2d 217 (2 Cir. 1983), cert. denied, 104 S. Ct. 2154 (1984), nor United States v. Fruehauf Corp. [78-1 USTC ¶16,287], 577 F. 2d 1038, 1069-70 (6 Cir.), cert. denied, 439 U. S. 953 (1978), gives the defendants the support that is claimed. On the other hand, United States v. Albanese [54-2 USTC ¶9647], 123 F. Supp. 732 (S. D. N. Y. 1954) aff'd [55-1 USTC ¶9494], 224 F. 2d 879 (2 Cir.), cert. denied, 350 U. S. 845 (1950), does not give the Government all the support for which it contends. This leaves us with United States v. Head, 641 F. 2d 174 (4 Cir. 1981), cert. denied, 103 S. Ct. 3113 (1983). The actual holding in that case was simply that where an indictment alleged a conspiracy with three unlawful objects, two of them carrying a five and one a six year period of limitations, and a question of limitations had been raised with respect to the former, it was error for the court to have instructed merely that it was enough for the Government to have proved that the defendant had conspired to violate one of the three statutes. Since the jury was asked only to render a general verdict, this created the possibility of a conviction solely as to objects subject to the five year statute although no act occurred within that period. After this clearly correct holding, the court added in an unnecessary footnote:

The government contends that a five-year period applies only to a conspiracy to violate the bribery laws while a six-year period would apply to a conspiracy with tax objects. . . . While this may be true, we are not convinced that this difference would require the "hybrid" statute of limitations charge suggested by the government. In a multiple-object conspiracy where the object crimes bring into play differing statutes of limitations, the proper course may be to apply the rule of lenity in construing the statutes and apply the shorter limitations period to the entire conspiracy.

641 F. 2d at 178 n. 5.

Apart from the fact that all this was dictum, the court did not commit itself; it said only that "[i]n a multiple-object conspiracy where the object crimes bring into play different statutes of limitations, the proper course may be to apply the rule of lenity in construing the statutes and apply the shorter limitations period to the entire conspiracy." Id. (emphasis supplied). On further reflection the court might well have decided otherwise. In the first place the rule of lenity operates only where there is a fair basis for the construction urged by the defense, see, e.g., Callanan v. United States, 364 U. S. 587, 596 (1961); United States v. Moore, 613 F. 2d 1029, 1043-45 (D. C. Cir. 1979); here we see none. Beyond that, as we have said before, we perceive no basis for invoking a rule of lenity in favor of defendants who have been proved to have conspired to take action condemned by 18 U. S. C. §371 within the six year time limit provided by 26 U. S. C. §6531(1) simply because they also have, or have not, been proved to be guilty of conspiracy to violate other statutes to which a five year period of limitations applies.

We hold that in this case, where special verdicts were taken, the dual statute of limitations instruction was proper.

III. Matthews' Notes. Early in the trial the Government offered in evidence notes prepared by Southland's general counsel Clark Matthews, which we quote in the margin. ³ This was the last of four yellow sheets found in a binder used by Southland's Legal Department to collect information discovered during the BER. The first three pages are an outline entitled "BER-Final Report to Board"; the only reference in these pages to the Mastropieri matter was "NY-Mastropieri Div Mg Thought Payment Outside Usual Controls." The final BER report made no reference to the Mastropieri matter, although Matthews then knew the scheme involved a bribery. The Government urged that the quoted note represented Matthews' real understanding of what had gone on. Judge Sifton initially declined to allow the note to be admitted, on the ground that "the portions of these notes relied on by the government are so cryptic that it seems to be speculative to attribute to these notes the meaning which the government argues they have" and that Matthews, the only witness who could explain the notes, intended to claim his Fifth Amendment privilege and would thus be unavailable. Upon urging by the Government, the court re-examined the issue but adhered to its decision. However, after Southland had completed its evidence and the last witness of the trial was on the stand, the judge announced that his views about the Matthews note had changed and admitted the entire exhibit. Southland objects that the note was speculative; that it was inadmissible hearsay; and that its admission violated the corporation's confrontation rights under the Sixth Amendment.

FRE 402 prescribes that, subject to certain exceptions not here material, "[a]ll relevant evidence is admissible," but FRE 403 provides that "[a]lthough relevant, evidence may be excluded if its probative value is substantially outweighed" by certain dangers there outlined, a balancing which Judge Sifton here expressly resolved in favor of probative value. FRE 401 says that relevant evidence means:

evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.

As said in Carter v. Hewitt, 617 F. 2d 961, 966 (3 Cir. 1980), the "standard of relevance established by the Federal Rules of Evidence is not high."

Particular deference is properly accorded to a ruling of the trial judge with respect to relevancy. See, e.g., United States v. Catalano [74-1 USTC ¶9204], 491 F. 2d 268, 273 (2 Cir.), cert. denied, 419 U. S. 825 (1974); United States v. Aulet, 618 F. 2d 182, 191 (2 Cir. 1980). He has a familiarity with the development of the evidence and the jury's reaction to it which an appellate court cannot equal. See United States v. Robinson, 560 F. 2d 507, 514-15 (2 Cir. 1977) (en banc), cert. denied, 435 U. S. 905 (1978). Hence courts of appeals have sustained rulings admitting evidence quite as equivocal as Matthews' notes, see, e.g., Tug Raven v. Trexler, 419 F. 2d 536, 543 (4 Cir. 1969), cert. denied, 398 U. S. 938 (1970) (suicide by one member of crew of tug after fire admitted as possibly showing consciousness of guilt); Carter v. Hewitt, supra, 617 F. 2d at 966 (letter by plaintiff encouraging filing of brutality complaints against prison guards admitted because it could be read as encouraging filing of false complaints of which plaintiff's was one). We have also ruled that great deference must be given to the trial judge's weighing under Rule 403. See United States v. Robinson, supra, 560 F. 2d at 514-15.

The reasonableness of concluding that the Matthews notes revealed his knowledge of the true nature of the Mastropieri transaction had become much greater at the end of trial when the jury had learned that Matthews had interviewed DeFalco and had been told that Mastropieri had originally sought $40,000 to $50,000 in cash, that Matthews had also been approached to approve the payment of a $45,000 legal fee to Mastropieri in the form of a phony airplane lease, and that Matthews had been told by DeFalco not to interview Mastropieri because a bribe had already been paid. Judge Sifton's change in his ruling thus did not reflect capriciousness, as Southland's counsel suggests, but a reasoned reaction to changed circumstances.

Responding to the hearsay objection the Government asserts that the notes were admissible either because they were not hearsay, see Rules 801(d)(2)(D) (vicarious admissions), 801(c) (statement not offered to prove the truth of the matter asserted), 801(d)(2)(E) (statement by coconspirator during the course and in furtherance of the conspiracy), or under the exception in Rule 803(3) (statement of declarant's existing state of mind). Judge Sifton predicated admissibility on Rule 801(c). He directed the jury that "[t]he Matthews notes were . . . admitted solely as bearing on their purported author's state of mind." Matthews' belief that a bribery had been planned was unquestionably relevant. If he knew that the Mastropieri transaction involved a bribe, this would tend to show that a number of his actions, and hence those of Southland, see United States v. Dotterweich, 320 U. S. 277, 281 (1943), e.g., that failure to interview Pender, the withholding from the IRS of the Pender and Kitchen questionnaires, the perfunctory nature of the interview of Mastropieri and the report to the Audit Committee in regard to the same, the mockery of the discussion with outside tax counsel, the failure to disclose to the Audit Committee what Matthews thought was a $5000 payment on the bribe, were in furtherance of a conspiracy to obstruct the IRS in the performance of its functions.

When a declaration is admitted only to prove a relevant state of mind, it does not appear to matter, save perhaps as later indicated, whether admissibility is predicated on the declaration not being hearsay because it was not offered to prove the truth of the matter asserted, FRE 801(c), or under the hearsay exception for declaration of states of mind, FRE 803(3). Under either theory, "[a] state of mind can be proved circumstantially by statements . . . which are not intended to assert the truth of the fact being proved," see 4 Weinstein, Evidence ¶803(3)[02], at 803-107 (1984). See also Metzler v. United States, 61 F. 2d 203, 208 (9 Cir. 1933) (letter from private detective to district attorney that county sheriff appointed by him was accepting protection money admissible to show district attorney's knowledge); United States v. De Carlo, 458 F. 2d 358, 363-64 (3 Cir.) (en banc), cert. denied, 409 U. S. 843 (1972); United States v. Taglione, 546 F. 2d 194, 200-01 (5 Cir. 1977); Mills v. Danson Oil Corp., 691 F. 2d 715 (5 Cir. 1982). We thus reject appellants' hearsay argument. ⁴

We come finally to appellants' objection based on the Confrontation Clause. See California v. Green, 399 U. S. 149 (1970); Dutton v. Evans, 400 U. S. 74 (1970); Ohio v. Roberts, 448 U. S. 56 (1980). It is not at all clear that the constitutional impediment against the receipt of extrajudicial declarations, whether within or, as in Dutton, without recognized exceptions to the hearsay rule, applies to a declaration which is not being used as proof of the fact stated, see Dutton v. Evans, supra, 400 U. S. at 88 (plurality opinion). The contention likewise seems hardly appropriate when voiced by Southland, since the witness it wishes to confront is, in the eyes of the law, itself. United States v. Dotterweich, supra, 320 U. S. at 281. However, assuming that both defendants are entitled to raise objection under the Confrontation Clause, we think Matthews' notes had sufficient assurances of reliability, particularly when they were received only as proof of his belief that a bribery had been planned. Dutton v. Evans, supra, 400 U. S. at 88-89. Matthews had no motive to make unfair accusations against anyone; to the contrary, his own involvement in the Mastropieri scheme and his concealment of facts from the Audit Committee gave him every inducement not to memorialize his beliefs unless he thought them true. Indeed the notes were later used as a basis for prosecuting Matthews for conspiracy to defraud the Government. United States v. Matthews, No. Cr. 84-00461 (E. D. N. Y. 1985). Matthews' contact with the Mastropieri matter both as it transpired and in the course of the BER gave him considerable firsthand knowledge of the planned bribe. DeFalco's testimony, which was subject to cross-examination, corroborated Matthews' notes in many respects. Cf. United States v. Wright, 588 F. 2d 31, 38 (2 Cir. 1978), cert. denied, 440 U. S. 917 (1979). Furthermore the notes were neither "crucial" to the Government's case nor "devastating" to the defense. See Dutton v. Evans, supra, 400 U. S. at 87. They dealt primarily with the bribery objective; the jury reached no verdict on this as respects Southland and the other evidence with respect to Mastropieri was overwhelming, at least unless the jury must be supposed to have been so gullible as not to understand what was meant by "heavy entertaining."

IV. The Exclusion of a Portion of Mastropieri's Grand Jury Testimony, and herein of the Sealing of the Indictment. After having brought out the fact of Mastropieri's receipt of IRS Form 1099 in relation to the legal bill for $96,500, the Government introduced an excerpt from his grand jury testimony reading as follows:

Q: As a result of receiving this [Form] 1099, Grand Jury Exhibit 18, and you know that the Southland Corporation was reporting the fact that you had received a fee of $96,500?

A: Yes.

However, the court refused to allow Mastropieri to introduce testimony immediately following this. After admitting his realization that Southland would be deducting the $96,500 as a legal fee, Mastropieri said that he had called DeFalco and complained about Southland's reporting the $96,500 as income to him when it knew that he had not actually received any funds. According to Mastropieri, DeFalco said that he would "take care of the matter" and that Mastropieri shouldn't worry about it. Mastropieri said he was not going to report "one cent of this $96,500" and thought DeFalco had said it was a mistake--"I should not have gotten this thing." Mastropieri contends that this testimony might have led the jury to conclude that he had taken steps which he could have expected would lead Southland not to have taken the deduction, thereby negating any intent on his part to defraud the Government.

FRE 106 provides that:

When a writing or recorded statement or part thereof is introduced by a party, an adverse party may require him at that time to introduce any other part or any other writing or recorded statement which ought in fairness to be considered contemporaneously with it.

We have interpreted this rule "to require that a statement must be admitted in its entirety when this is necessary to explain the admitted portion, to place it in context, or to avoid misleading the trier of fact . . . or to ensure a 'fair and impartial understanding' of the admitted portion." United States v. Marin, 669 F. 2d 73, 84 (2 Cir. 1982). This is a principle of simple fairness, long antedating the Federal Rules of Evidence see United States v. Stone, 282 F. 2d 547, 551-52 (2 Cir.), cert. denied, 364 U. S. 928 (1960) (also involving refusal to admit a portion of a defendant's grand jury testimony). The district judge was in error in relying on Marin as a basis for exclusion; there the excluded portion related to a subject that had been excised from the statement that was admitted and that was "neither explanatory of nor relevant to the admitted passages", see also 669 F. 2d at 85 n. 6. There is nothing in the Government's point that a part of the excluded testimony was favorable to it; Mastropieri still may rightfully complain of the exclusion of the parts that were not.

This, however, does not lead us to reverse the appellants' convictions. Excluding these portions of Mastropieri's grand jury testimony had no effect upon Southland. Even as to Mastropieri, the excluded portion of the testimony bore only on the fraud objective; it had no probative effect with respect to Mastropieri's guilt for conspiracy to violate the Travel Act. Were it not for a question concerning the running of the statute of limitations on the Travel Act objective discussed below, this would end the matter as Mastropieri's conviction could be upheld so long as he agreed to accomplish at least one of the criminal objectives charged. United States v. Papadakis, 510 F. 2d 287, 297 (2 Cir. 1975). Despite the limitations question, we will rule in the Government's favor since although the limitations point is of first impression in this court, we think the Government is correct. We therefore need not consider the Government's alternative argument that the exclusion of portions of Mastropieri's grand jury testimony was harmless error even in respect of the fraud charge.

The statute of limitations point is this: Mastropieri claims, and the Government does not dispute, that the last overt act charged against him in the bribery part of the conspiracy occurred on March 27, 1978 . The predecessor of the instant indictment was returned by the grand jury on March 25, 1983 . However, the Government obtained an order sealing the indictment; the basis for this was that announcement of the indictment would make it more difficult for the Government to obtain complete and truthful testimony from Frank Kitchen, a vice president of Southland who had been granted immunity, see Matter of Kitchen, 706 F. 2d 1266 (2 Cir. 1983). After this court's decision on April 27, 1983 made it evident to the Government that no purpose would be served by recalling Kitchen before the grand jury, the indictment was unsealed on May 5, 1983 . Judge Sifton found that the sealing, for a period of six weeks, lasted no longer than was necessary to accommodate legitimate prosecutorial interests. Mastropieri contends that there was no legal basis for the ruling and that May 5, 1983 must be taken as the date of the return of the indictment, thus barring prosecution for conspiracy to violate the Travel Act. He relies on two reasons. One is that under F. R. Cr. P. 6(e)(4) an indictment may be sealed only to assist in achieving custody of the defendant; the other is that if sealing is permitted for any other purpose, there was no proper purpose here.

Under both 18 U. S. C. §3282 and 26 U. S. C. §6531, the indictment must be "found" within the statutory periods. Read literally this does not require that the indictment must be made public. However, F. R. Crim. P. 6(e)(4) provides:

Sealed Indictments. The federal magistrate to whom an indictment is returned may direct that the indictment be kept secret until the defendant is in custody or has been released pending trial. Thereupon the clerk shall seal the indictment and no person shall disclose the return of the indictment except when necessary for the issuance and execution of a warrant or summons.

Mastropieri insists that no reason except the one mentioned in the Rule can justify the sealing of an indictment.

There is a surprising dearth of authority upon the subject. In United States v. Michael, 180 F. 2d 55, 57 (3 Cir. 1949), cert. denied sub nom. United States v. Knight, 339 U. S. 978 (1950), decided only three years after the Criminal Rules were adopted, the court stated in an opinion by Judge Maris:

Criminal Procedure Rule 6(e) authorizes indictments to be kept secret during the time required to take the defendant into custody. If such secrecy may lawfully be imposed in that situation we see nothing unlawful in the court imposing secrecy in other circumstances which in the exercise of a sound discretion it finds call for such action.

(footnote omitted). The court would scarcely have said this if the taking of custody had been the sole objective. ⁵

The notes of the Advisory Committee written when Rule 6(e) was adopted in 1946 say cryptically that "[t]he . . . sentence authorizing the court to seal indictments continues present practice." Such evidence as we have found suggests that the practice at the time the Rule was written allowed courts to seal indictments for reasons other than obtaining custody of the defendants. A treatise of the period, which described itself as focusing on "what is and not what has been or should be," reflects this in its statement that "[w]here the public interest requires it, or for other sufficient reason, the court may order an indictment to be sealed." Housel & Walser, Defending and Prosecuting Federal Criminal Cases §230, at 300 (2d ed. 1946) (emphasis supplied). Accord 1 Matthews, How to Try a Federal Criminal Case §215, at 318-19 (1960). At a symposium on the new Rules of Criminal Procedure sponsored by the New York University School of Law in collaboration with the American Bar Association, the New York State Bar Association and the Federal Bar Association, George Medalie--Associate Judge of the New York Court of Appeals, former United States Attorney for the Southern District of New York, and member of the Supreme Court Advisory Committee on the Criminal Rules--stated before a panel chaired by Judge Learned Hand, that Rule 6 contained:

the usual provision for the sealing of the indictment, where the district attorney or the attorney general is of the opinion that the indictment having been procured, for sound reasons of policy, nothing should be done for a while, no publication made of the fact. That, of course, is present practice.

VI Proceedings of the New York University Law School Institute on the Federal Rules of Criminal Procedure 155 (1946) (emphasis supplied). Further support for this view comes from comments received by the Supreme Court's Advisory Committee after circulation of its initial draft of the Rules. ⁶ For example, on attorney wrote the Committee to complain about "the increasing practice of using sealed indictments where it was unnecessary." 1 Orfield, Criminal Procedure Under the Federal Rules §6:2, at 348 (1966). Another attorney proposed that the Rules contain "a provision prohibiting secret or sealed indictments as to defendants already subject to the jurisdiction of the court." Id.

If, as we are therefore confident, the practice before adoption of the Rule permitted the sealing of indictments for reasons other than obtaining custody, we do not believe the intention was to restrict it. The Federal Rules of Criminal Procedure were not intended to be exhaustive. As a member of the Supreme Court Advisory Committee stated at the time, "many now accepted practices and judicial powers are omitted from the proposed Rules without intent that the omission shall be considered by implication a repeal thereof." Waite, The Proposed Federal Rules of Criminal Procedure, 27 J. Am. Jur. Soc. 101 (1943). If the Rule were read literally, a defendant who was subject to arrest on the return of the indictment could object to a sealing to facilitate the arrest of codefendants; yet the Rule has never been read that way. See United States v. Watson, 599 F. 2d 1149, 1155 (2 Cir. 1979), rev'd on other grounds sub nom. United States v. Muse, 633 F. 2d 1041 (2 Cir. 1980) (en banc), cert. denied, 450 U. S. 984 (1981). The limiting effect of the Rule was to place sealing in the hands of a judicial officer rather than as theretofore in those of a prosecutor. 1 Orfield, Criminal Procedure Under the Federal Rules, supra, §6:1, at 341. In sum, we see no reason for disagreeing with the Michael decision, rendered only three years after adoption of the Rule, a time when the intention of the framers was far better known that it now can be.

The question remains whether the prosecutorial objectives here sought to be obtained justified the sealing of the indictment. This is a point on which great deference should be accorded to the discretion of the magistrate, at least in the absence of any evidence of substantial prejudice to the defendant. The Government should be able, except in the most extraordinary cases, to rely on that decision rather than risk dismissal of an indictment, the sealing of which it might have been willing to forego, because an appellate court sees thing differently, after the expenditure of vast resources at a trial and at a time when reindictment is by hypothesis impossible. Mastropieri has not even asserted prejudice from the sealing of the indictment for 39 days after the statute had run. Obviously he had been on notice of the likelihood of indictment and could have begun his preparation for trial long before the end of the statutory period, see United States v. Watson, supra, 599 F. 2d at 1154.

V. Mastropieri's Argument that the Government Forfeited its Right to Prosecute by Failing to Indict him on or before September 30, 1982 . An argument which can be dealt with much more swiftly is one made by Mastropieri that the Government forfeited its right to prosecute him by an agreement made on July 22, 1982 . This reads in pertinent part:

Eugene Mastropieri hereby waives and shall not assert the defense that any prosecution for any crime incident to the retention by and representation of the Southland Corporation by Eugene Mastropieri is barred by the statute of limitations, provided that any such prosecution shall be brought on or before September 30, 1982 .

The background of the agreement was this: The Government feared in the summer of 1982 that it might be having limitations problems with respect to Mastropieri ⁷ but the latter wished to appear before the grand jury to present his side of the case. The Government was willing to accommodate him provided he would waive any statute of limitations defense if an indictment was brought on or before September 30, 1982 . When it became clear that the grand jury would not finish its deliberations by that date, the Government sought a further waiver which Mastropieri declined to give.

After the indictment returned on March 25, 1983 , was unsealed, Mastropieri moved to dismiss it on the basis of his waiver. The district judge denied this, saying that "the defendant is not so clearly right in his argument . . . that the issue can be decided on a motion to dismiss." Characterizing this as a "factual finding of ambiguity by the trial court," and citing numerous inapposite decisions, Mastropieri asks that we dismiss the indictment because the Government breached a promise to indict him on or before September 30, 1982 , if at all.

We see no force whatever in this argument. Mastropieri made a limited waiver of the statute of limitations; the Government did not promise anything. It is not asserting that Mastropieri has waived his right to contend that the indictment was found too late. He makes no contention that the indictment was not timely "found". Although Mastropieri argues that it would have been untimely if we should determine that the date of unsealing rather than the date of finding controls, the Government, while disputing the argument, does not challenge his right to make it. Judge Sifton made no "finding" that the agreement meant what Mastropieri said. No legal consequences arise from his having denied Mastropieri's motion on the ground that Mastropieri was not clearly right rather than, as we would have done, on the ground that he was clearly wrong.

VI. Refusal to Charge a Violation of 26 U. S. C. §7207 as a Lesser Included Offense.

Section 7202 of the IRS provides:

Any person who willfully delivers or discloses to the Secretary any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.

This crime being a misdemeanor, under 18 U. S. C. §371 conspiracy to commit it likewise is a misdemeanor. The judge denied defendants' requests to charge that if the jury did not find that they had committed the felony of conspiring to defraud the United States by impeding the functioning of the IRS, it might nevertheless find that defendants conspired to violate §7207.

We have held that a defendant is entitled to a lesser included offense instruction if:

(1) all of the elements of the lesser offense (§7207) were also elements of the greater offense (§371), see United States v. Giampino, 680 F. 2d 898 (2 Cir. 1982), and,

(2) the greater offense has one additional element not found in the lesser offense that the jury would be justified in finding the government had failed to prove beyond a reasonable doubt. United States v. Garcia-Duarte, 718 F. 2d 42 (2 Cir. 1983).

There is no dispute that the first condition was met; the elements of a conspiracy to file a return known to the maker to be fraudulent or false as to any material matter (§7207) would also constitute elements of a conspiracy to defraud the United States by impeding the functioning of the IRS. The debated question relates to the second condition, which the Government contends was absent.

The Court said in Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343, 350 (1965):

A lesser-included offense instruction is only proper where the charged greater offense requires the jury to find a disputed factual element which is not required for conviction of the lesser-included offense.

In Keeble v. United States, 412 U. S. 203, 208 (1973), the Court phrased the test as being whether "the evidence would permit a jury rationally to find [the defendant] guilty of the lesser offense and acquit him of the greater." See also United States v. Markis, 352 F. 2d 860, 865-67 (2 Cir. 1965), vacated on other grounds, 387 U. S. 425 (1967).

We fail to see what this additional element would be. Once the jury decided that Southland had filed a return taking a deduction for legal expenses which it knew had not been incurred, as the jury would have had to do in order to find a violation of 26 U. S. C. §7207, it would have decided every element necessary to convict Southland of defrauding the United States under 18 U. S. C. §371. This is particularly clear in light of United States v. Bishop [73-1 USTC ¶9459], 412 U. S. 346 (1973), which held that §7207 requires proof of the same degree of scienter as criminal tax felony statutes using the adverb "willfully", and consquently reversed the Court of Appeals for the Ninth Circuit which had reversed a district court for refusing to give lesser included offense instructions in a case where the defendant had been charged with violating 26 U. S. C. §7206. If, as held in Bishop, 412 U. S. at 360-61, a conviction of defendants for violating §7207 would have required proof of "bad purpose or evil motive" in the sense described in United States v. Murdock [3 USTC ¶1194], 290 U. S. 389, 394-95 (1933), no more is needed to establish the "intent to defraud" required by §371.

Defendants argue that the jury could have found that they agreed purposefully to file a false tax return in violation of §7207, without finding that they intended to defraud the United States of revenue. Even if such a finding by the jury were possible, it is of no aid to the defendants. The Government need not prove that the defendants intended to defraud the United States of revenue to establish a violation of §371. Conspiracy to defraud the United States includes attempts to "interfere with or obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest. It is not necessary that the Government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official action and purpose shall be defeated by misrepresentation . . .." Hammerschmidt v. United States , 265 U. S. 182, 188 (1924). Accordingly, once the jury determined that the defendants violated §7207 by deliberately filing a false tax return, it would also have decided that they conspired in violation of §371 to defraud the United States by interfering with the lawful function of the IRS in ascertaining Southland's legitimate tax deductions.

Defendants argue that the indictment charged not broadly that they conspired to defraud the United States, which is all that the statute requires, but that they agreed that the defrauding should be accomplished "by impeding, obstructing and defeating the lawful functions of the Internal Revenue Service of the Treasury Department of the United States in the ascertainment, computation, assessment and collection of income taxes, to wit: by conducting their business affairs and financial transactions in a manner which would prevent the Internal Revenue Service from ascertaining the true and correct nature of business expense deductions . . .." But the means by which defendants did this was the filing of a return which took a $96,500 deduction for legal fees to which the defendants knew the corporation was not entitled. This is precisely what the Government would have to prove to establish a conspiracy to violate §7207. We see nothing to the contrary in United States v. Tarnopol, 561 F. 2d 466 (3 Cir. 1977), on which Southland heavily relies. The case had nothing to do with failure to charge a lesser included offense; the reversal there was because of the judge's having submitted a conspiracy count with an instruction that the jury could bring in a guilty verdict if it found that defendants had acted in pursuit of any of three objectives when there was insufficient evidence with respect to one, namely, a conspiracy to defraud the United States under §371. 561 F. 2d at 474.

The judgments of conviction are affirmed.

¹ The jury was unable to reach a verdict with respect to a third defendant, S. Richmond Dole, who was a Vice President of Southland.

² "25 GM

10 GM (Re invoice/your baby)

13 JK (service fee)

48.5 Back in cash ASAP"

It is not disputed that "GM" means Eugene Mastropieri, JK means John Kelly, and ASAP means "as soon as possible."

³ NY Tax Comm-X

--300m

Since 10/11/72 50 pending sales tax term franchisees contend fc sec int

10/76-5/77 paid 7/7/77 abt 200 stores

Kelly (camera) $107,757.92 phase out--take care of for $40M to spread among mems tax comm

(mtn & sec film kit) Mastropieri

⁴ Although it is not necessary to decide the point, we would not wish to be understood as foreclosing the Government's argument that the Matthews notes were outside the hearsay rule, and thus admissible against Southland, under FRE 801(d)(2)(D) as "a statement by [an] agent or servant concerning a matter within the scope of his agency or employment, made during the existence of the relationship." The appellants contend that Litton Systems, Inc. v. American Tel. & Tel. Co. , 700 F. 2d 785, 816-17 (2 Cir. 1983), cert. denied, 104 S. Ct. 984 (1984), requires that the author of the admission have personal knowledge, apparently meaning knowledge from non-hearsay sources. We do not read the Litton opinion as going so far. The material excluded in Litton was merely notes of employee interviews; the opinion describes them as containing "multiple levels of hearsay" and refers to the recorded material as "gossip," citing 4 Weinstein, Evidence ¶801(d)(2), at 801-164 (1981). Here Matthews had obtained knowledge of the questionable nature of the Mastropieri fee in his capacity as general counsel before his assignment to the BER. Moreover, the Litton opinion does not cite the statement in the Advisory Committee's Notes:

The freedom which admissions have enjoyed from . . . the restrictive influences of the opinion rule and the rule requiring firsthand knowledge, when taken with the apparently prevalent satisfaction with the results, call for generous treatment of this avenue of admissibility.

FRE 801(d)(2)(D) advisory committee note. The only case cited in Litton on this point, Northern Oil Co. v. Socony Mobil Oil Co., 347 F. 2d 81, 83 (2 Cir. 1965), antedates the Rules, and the Third Circuit has thought it to be "clear from the Advisory Committee Notes that the drafters intended that the personal knowledge foundation requirement of Rule 602 should apply to hearsay statements admissible as exceptions under Rules 803 and 804 but not to admissions (including coconspirator statements) admissible under Rule 801(d)(2)." United States v. Ammar, 714 F. 2d 238, 254, cert. denied, 104 S. Ct. 344 (1983) (footnote omitted). The Seventh and Eighth Circuits agree; see Mahlandt v. Wild Canid Survival & Research Center, 588 F. 2d 626 (8 Cir. 1978); MCI Communications v. American Tel. & Tel. Co., 708 F. 2d 1081, 1143 (7 Cir.), cert. denied, 104 S. Ct. 234 (1983). Reconciliation of Rule 801(d)(2)(D) and Rule 602 should await a case where this is essential.

⁵ Examination of the briefs in the Third Circuit tend to confirm this. While, in their statements of fact, the parties merely note the sealing of the indictment without providing relevant details, the appellants stated in a Supplemental Brief on Reargument:

The docket entry discloses no reason for the impoundment [of the indictment]. One thing, however, is certain. It was not for the purpose of facilitating the apprehension of the accused. . . . Why the indictment was thus arbitrarily and indefinitely impounded must remain a matter of conjecture.

This statement that custody could not have been the purpose for the sealing is further supported by the fact that the defendants were reputable members of the Pittsburg business community and do not appear to have been the type of individuals who would have gone "underground" to evade capture by the authorities; when the presiding judge unsealed the indictment, he refused the United States Attorney's request that bench warrants be issued for the defendants and directed that the accused be notified by letter or telephone to appear for arraignment.

⁶ The preliminary draft of Rule 6 of Federal Criminal Procedure provided that:

The court may direct that the indictment shall be kept secret until the defendant is in custody or has given bail and the clerk shall seal the indictment and in that event no person shall disclose the finding of the indictment except when necessary for the issuance and execution of a warrant or summons.

Except for minor stylistic revisions, this language is identical to that in the Rule which was eventually adopted.

⁷ The Government had similar concerns as regards Southland, and the corporation executed an identically worded waiver on the same date as Mastropieri. At the Government's request, Southland subsequently extended its waiver through May 5, 1983 , the date of the expiration of the term of the grand jury investigating the matter.

 

 

[85-2 USTC ¶9676] United States of America , Appellee v. Joseph R. Pisani, Defendant-Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 84-1330, 773 F2d 397, 9/12/85 , Reversing, remanding and affirming unreported District Court convictions

[Code Secs. 61, 102, 7202, and 7207]

Campaign contributions: Use for personal purposes: Income v. gifts: Issue of law v. issue of fact.--A state senator who diverted campaign contributions to his personal use and filed false campaign statements was improperly convicted of income tax evasion, filing false tax returns, and mail fraud. Although he had been unable to show that the trial judge's conduct had otherwise deprived him of a fair trial or that the indictment was invalid, he successfully showed that the judge erred by instructing the jury that political contributions are, per se, includible in gross income when they are used for personal purposes. The issue was one of fact which should have been resolved by the jury according to the donors' intent. In addition, because the "fraudulent scheme" charged in the indictment was not established at trial, the related mail fraud convictions were also reversed and dismissed.

Rudolph W. Giuliani, United States Attorney, Charles G. LaBella, Assistant United States Attorney, Stacy J. Moritz, Assistant United States Attorney, New York, N. Y., for plaintiff-appellee. John R. Wing, Weil, Gotshal & Manges, 767 Fifth Ave. , New York , N. Y. 10153, for defendant-appellant.

Before NEWMAN, KEARSE, and PRATT, Circuit Judges.

PRATT, Circuit Judge:

Joseph R. Pisani appeals from a judgment of conviction entered on jury verdicts after a five-week trial before Hon. David N. Edelstein in the United States District Court for the Southern District of New York. The jury acquitted Pisani on eleven counts of mail fraud, and could not agree on ten counts relating to a real estate transaction, but convicted him on ten other counts of mail fraud, four counts of income tax evasion, and four counts of filing false income tax returns. Judge Edelstein sentenced Pisani to a total of four years' imprisonment followed by four years' probation, imposed fines totaling $69,000, and, on one of the mail fraud counts, required restitution to a former law client of defendant in the amount of $3,604.

On appeal Pisani raises numerous issues, of which the following require discussion: (1) whether Judge Edelstein's conduct deprived Pisani of a fair trial; (2) whether the grand jury that returned the indictment was lawfully constituted; (3) whether the trial court erred in instructing the jury that political contributions used for personal purposes constituted taxable income; and (4) whether Pisani's conduct in using campaign funds for personal purposes and then falsely reporting those personal expenses as campaign expenditures violated the federal mail fraud statute.

We reverse and dismiss the nine mail fraud counts that are based on filing false reports of campaign expenditures (counts 12, 13, 15, 16, 18, 22, 23, 25, and 26), and we reverse and remand for a new trial on the income tax charges (counts 32 through 39). We affirm the conviction on the mail fraud charge that involved funds of one of Pisani's former clients (count 28).

Background Facts

Pisani was originally elected to the New York State Senate for the 62nd District in Westchester County in 1972 and was reelected to that position every two years up through 1982. During that ten-year period Pisani also campaigned for the offices of New York State Attorney General, Westchester County Executive, and Governor of New York State.

In addition to his public activities, Pisani maintained an active law practice in association with two other lawyers in Westchester County , first as a partner from 1976 to 1980, and thereafter until 1983, as counsel to the firm.

Proceedings Below

On March 8, 1984 , the government filed a 39-count indictment against defendant and one Kathryn Godfrey. For discussion purposes, the charges of the indictment can be viewed in four groups:

1. Mallon real estate transaction. Counts 1 through 10 focused on an alleged transaction by which Pisani purchased a summer home from Joseph and Roberta Mallon, and compensated them by providing Joseph Mallon with a no-show job in a state agency. Included in these counts were charges of mail fraud against the state agency, perjury, obstruction of justice, subordination of perjury, and conspiracy to commit mail fraud and perjury and to obstruct justice. Godfrey was named as a codefendant on two counts of perjury (counts 6 and 7), and one count of obstruction of justice (count 9). In all other counts of the indictment Pisani was the only defendant.

2. Campaign fund mail fraud. Counts 11 through 26 charged defendant with mail fraud based on his use of campaign funds for personal purposes and filing false reports of his campaign expenditures.

3. Law practice mail fraud. Counts 27 through 31 charged Pisani with mail fraud in his dealings with his law partners and clients.

4. Tax violations. Counts 32 through 39 charged Pisani with four years of income tax violations.

After a one-month trial and 31/2 days of deliberations the jury could not agree on any of the ten counts relating to the Mallon real estate transaction; it found him guilty on nine and acquitted on seven of the campaign fund mail fraud counts; it found him guilty on one and acquitted him on four of the law practice mail fraud counts; and it found him guilty on all eight of the income tax counts.

As to defendant Godfrey, who is not a party to this appeal, the jury acquitted her on one count of perjury, and could not agree on the other two charges brought against her.

On the nine campaign fund mail fraud convictions Judge Edelstein sentenced Pisani to nine concurrent three-year prison terms and nine $1,000 fines. On the law practice mail fraud conviction, which involved a client's escrow account, Judge Edelstein sentenced Pisani to a three-year prison term, but suspended execution of sentence and imposed probation of four years to commence on his release from prison, on condition that Pisani pay restitution of $3,604 to the defrauded former client. On the four income tax evasion convictions, Judge Edelstein sentenced Pisani to four three-year prison terms to run concurrently with each other and with the nine mail fraud jail sentences, plus four $10,000 fines. On the four convictions for filing false income tax returns, Judge Edelstein sentenced Pisani to four one-year prison terms, to run concurrently with each other, but consecutively to the other sentences, plus four $5,000 fines. Overall, therefore, Pisani was sentenced to four years in prison to be followed by four years' probation, fined a total of $69,000, and required to pay restitution of $3,604.

Issues

On appeal Pisani raises a variety of claims. Some of them are rendered moot by our conclusions on other issues; others have been carefully reviewed and found to be lacking both in merit and jurisprudential significance. Of the claims discussed below two are directed at all counts on which Pisani was convicted: (1) that the trial judge's misconduct deprived him of a fair trial, and (2) that the indicting grand jury was not legally constituted. In addition, Pisani attacks his convictions of mail fraud by use of the mails to embezzle, divert, and convert money from his campaign funds and concealment of the diversions and embezzlement on the ground that his conduct as proved is not proscribed by the federal mail fraud statute. He attacks all of his tax convictions, on the ground that the trial court erred in removing from the jury the issue of whether or not his campaign contributions were gifts and therefore not includible in gross income. Pisani raises no argument on appeal, however, that is directed particularly at his conviction on count 28 of mail fraud with respect to the client's escrow account.

Discussion

A. Judge Edelstein's Conduct. Pisani contends that Judge Edelstein's "hostile and disparaging" treatment of defendant, defense counsel, and defense witnesses during the trial, combined with his "coercive and demeaning" treatment of the jurors, deprived Pisani of his constitutional rights to a fair trial, due process, and the effective representation of counsel. This alleged judicial misconduct, he claims, entitles him to a new trial.

Reviewing Pisani's claim is difficult because, of course, we are unable to observe directly the interaction of personalities during trial; our review is necessarily limited to `the cold black and white of a printed record'". United States v. Grunberger, 431 F. 2d 1062, 1067 (2d Cir. 1970) (quoting United States v. Ah Kee Eng, 241 F. 2d 157, 161 (2d Cir. 1957)). For this reason, we have no handy tool with which to gauge automatically whether the trial judge's conduct has improperly tipped the balance of the trial against the defendant. United States v. Nazzaro, 472 F. 2d 302, 304 (2d Cir. 1973). Our disposition of the claim must flow from careful deliberation after close scrutiny of the record. Our role, however, is not to determine whether the trial judge's conduct left something to be desired, or even whether some comments would have been better left unsaid. Rather, we must determine whether the judge's behavior was so prejudicial that it denied Pisani a fair, as opposed to a perfect, trial. United States v. Robinson, 635 F. 2d 981, 984 (2d Cir. 1980), cert. denied, 451 U. S. 992 (1981). If we conclude that the conduct of the trial had so impressed the jury with the trial judge's partiality to the prosecution that this became a factor in determining the defendant's guilt, then the convictions should be reversed. United States v. Guglielmini, 384 F. 2d 602, 604 (2d Cir. 1967). In light of these general standards we turn to Pisani's various complaints about Judge Edelstein's conduct.

1. Rulings on objections. Pisani first objects to the manner in which Judge Edelstein ruled on objections throughout the trial, emphasizing that Pisani's counsel usually came out on the losing side. Of course, a trial judge must be ever conscious of the special attention and respect he commands from the jury and must exercise caution to maintain an appearance of impartiality. United States v. Vega, 589 F. 2d 1147, 1153 (2d Cir. 1978). But a trial judge must rule on countless objections, and a simple numerical tally of those sustained and overruled, one which here favors the government, is not enough to establish that the scales of justice were tipped against a defendant. Of far greater importance is the correctness and fairness of the judge's evidentiary rulings.

After carefully reviewing the trial transcript we conclude that Judge Edelstein's rulings on objections from both sides were generally sound. Pisani has not pointed to any prejudicially erroneous rulings, and lacking such support, we will not fault the trial judge simply because defense counsel would have preferred a more favorable scorecard. There were numerous instances when the trial judge did sustain defense objections. Moreover, if defense counsel objects when objections are unwarranted--as he did on numerous occasions--he can hardly complain that "it is hard to find a defense objection that was sustained." Similarly, if defense counsel pursues an objectionable line of questioning, he can hardly cry "foul" when the judge sustains a government objection or even excludes the testimony sua sponte.

2. Requiring written argument on objections. Defendant next complains that "the most shocking illustration of the trial court's prejudicial partiality was his imposition on defense counsel--and only defense counsel--of the novel and totally unfair procedural requirement that objections be made by means of written notes". In the first place, this assertion is untrue; Judge Edelstein also required the government to write out its objections on occasion. Second, Judge Edelstein required written submissions only with respect to extended arguments; as the record shows, he entertained repeated oral objections from both sides, and allowed brief side bar conferences at the request of either party. Third, Judge Edelstein adopted this procedure to avoid distracting the court and jury from the examination of witnesses, and we have long recognized that a trial judge has wide discretion to adopt methods designed to expedite a trial. United States v. Dardi, 330 F. 2d 316, 330 (2d Cir.), cert. denied, 379 U. S. 845 (1964). This procedure effectively served that end.

Finally, Pisani claims prejudice because the practice allowed evidence to be received and absorbed by the jury before the court could make a considered ruling on the objection. Aside from the fact that the trial judge could have cured most prejudicial effects by proper instructions to the jury, the defendant points to no instance, nor do we find any, where prejudicial evidence was erroneously revealed to the jury under this practice and then later excluded.

3. Questioning defense witnesses. Pisani also contends that Judge Edelstein exceeded the proper scope of his duties by interrupting defense counsel to ask questions of both Pisani and the other defense witnesses. But as Judge Edelstein colorfully informed this jury, a trial judge need not sit like "a bump on a log" throughout the trial. He has an active responsibility to insure that issues are clearly presented to the jury. Vega, 589 F. 2d at 1152. Thus, the questioning of witnesses by a trial judge, if for a proper purpose such as clarifying ambiguities, correcting mistatements, or obtaining information needed to make rulings, is well within that responsibility. United States v. Bronston, 658 F. 2d 920, 930 (2d Cir. 1981), cert. denied, 456 U. S. 915 (1982). Here, some of the interruptions were invited by defense counsel's often ambiguous or repetitive questions. See United States v. Pellegrino, 470 F. 2d 1205, 1207 (2d Cir. 1972), cert. denied, 411 U. S. 918 (1973). Even though it is sometimes difficult to tell from the written record whether a judge's questions unfairly disparaged the defense, see Grunberger, 431 F. 2d at 1067, it does not appear here that the judge's limited questioning of either the defendant or the other defense witnesses exceeded any proper bounds or conveyed to the jury and impression of the judge's belief in the defendant's probable guilt. See United States v. De Sisto, 289 F. 2d 833, 835 (2d Cir. 1961).

4. Criticisms of counsel. Somewhat more troubling for us is the abrupt tenor of some of Judge Edelstein's instructive and evaluative comments to defense counsel. We have repeatedly insisted that a trial judge display patience with counsel "so as not to prejudice a party or create an impression of partisanship before the jury", see e.g., United States v. Pellegrino, 470 F. 2d at 1207. However, we must also keep in mind the enormous pressures placed upon our trial judges by their ever-expanding dockets and the increasing complexity of modern trials, and we recognize that those pressures, particularly in a protracted case, can on occasion cause even the most imperturbable judge to vent irritation or impatience that ideally should be suppressed. See United States v. Nazzaro, 472 F. 2d at 304.

With distressing frequency, however, Judge Edelstein made comments in the jury's presence that could better have been avoided, such as needlessly characterizing counsel's questions or statements as "improper" and "completely without merit". He also may have suggested to the jury a negative perception of defense counsel's competence by directing him to "stop mumbling", by stating that a particular line of questioning was "a bore and a waste of time", and by implying several times that counsel was misleading the jury.

While we regard such unnecessary barbs most seriously, we have carefully evaluated the incidents complained of and, on balance, have concluded that they did not deprive defendant of a fair trial. At least some of Judge Edelstein's comments were provoked by counsel's continuing to do things that the court had specifically cautioned him to avoid, a factor that properly may be taken into account to determine whether defendant was prejudiced. Robinson, 635 F. 2d at 985.

Moreover, as serious as some of the incidents are, they occupy but a very small part of this extensive trial record. Most importantly, Judge Edelstein at least partially mitigated the possibly prejudicial impact of his comments by explaining to the jury several times that his admonishments of counsel should have no bearing on their deliberations or determinations. See id. Fortunately, he also saved his most intemperate comments for delivery outside the presence of the jury. Viewing the record as a whole, therefore, we conclude that while some of the trial judge's comments and behavior toward defense counsel were regrettable, they did not convey to the jury an impression of partiality toward the government to such an extent that it became a factor in their deliberations.

5. Treatment of jurors. We find no support in the record for Pisani's assertion that Judge Edelstein treated the jurors in a demeaning fashion. On the contrary, Judge Edelstein seems to have established a friendly rapport with the jurors and made reasonable efforts to help them deal with the inconvenience attendant to jury service in any lengthy trial.

Finally, we reject Pisani's assertion that Judge Edelstein coerced a verdict by his statements to the jurors on Thursday, the third day of deliberations, when he informed them that they would have to deliberate through the weekend if they did not reach a verdict by Friday. Although some of his comments concerning the difficulties faced by judges, court personnel, and others involved in the trial process could better have been omitted, nothing he did say exceeded a permissible level of encouragement to the jurors to responsibly pursue their duties as jurors. See United States v. Bermudez, 526 F. 2d 89, 100 (2d Cir. 1975), cert. denied, 425 U. S. 970 (1976).

In short, we reject Pisani's claim that Judge Edelstein's conduct at trial, whether viewed as separate incidents or as a whole, deprived Pisani of a fair trial or effective representation of counsel.

B. Validity of the indictment. Pisani attacks the validity of his indictment, claiming that the term of the grand jury had expired because the rule under which it had been extended was illegally adopted. This attack rests on an intricate chain of reasoning. The grand jury that indicted Pisani was originally empanelled on March 23, 1982 , for a term of 18 months to expire on September 23, 1983 , the maximum term permitted by Fed. R. Crim. P. 6(g). An amendment to rule 6(g), which permits a six-month extension of a grand jury's term if the district court determines that the extension was "in the public interest", became effective on August 1, 1983 . By order dated August 18, 1983 , Chief Judge Motley of the Southern District of New York extended the term of Pisani's grand jury for six months to March 23, 1984 . During the extension period the grand jury returned the original and first superseding indictments against Pisani, as well as the second superseding indictment on which he was tried.

Rule 6(g) was amended by the "report and wait" procedure set forth in 18 U. S. C. §3771. Under that procedure, the Supreme Court is authorized to prescribe rules of "pleading, practice and procedure" for criminal cases. The rules are reported to congress and take effect after 90 days, unless rejected, postponed or amended by congress.

Relying upon Costello v. United States [56-1 USTC ¶9321], 350 U. S. 359, 362 (1956), and United States v. Fein, 504 F. 2d 1170, 1173-79 (2d Cir. 1974), Pisani argues that he has a substantive right to be indicted by a grand jury that is independent from prosecutorial control and that the length of the grand jury's term is directly related to its independence. Pisani reasons that since the tenure of the grand jury is thus a matter of substance, and not one of "pleading, practice or procedure", any attempted amendment by the "report and wait" procedure was invalid. He concludes that since the life of the grand jury had been extended pursuant to an invalidly adopted rule, his indictment was returned by a grand jury whose term had expired, and, under United States v. Fein, must be dismissed.

One flaw in Pisani's reasoning rests with his attempted characterization of the tenure of a grand jury as substantive, rather than procedural. Although we expressed concern in United States v. Fein, 504 F. 2d at 1179, that grand jurors "might by dint of longer service become themselves arms of the state instead of representatives of the citizenry", we did not thereby create any substantive right to indictment within 18 months. Indeed, congress itself in 18 U. S. C. §3331 has provided that the term of a grand jury empanelled pursuant to the Organized Crime Control Act may be extended to a maximum of 36 months, and we have upheld the validity of that statute. United States v. Schwartzbaum, 527 F. 2d 249, 256 (2d Cir. 1975), cert. denied, 424 U. S. 942 (1976).

A further flaw in Pisani's argument is the fact that former rule 6(g) which established the 18 month term for a grand jury was adopted by the same "report and wait" procedure used to enact the challenged 1983 amendment. Pisani responds that the former rule merely restated law already on the books, 28 U. S. C. §421, which had been enacted by express congressional action, but we see no significance to this historical fact. Its very nature, as well as its inclusion in the Federal Rules of Criminal Procedure (emphasis added,) demonstrates the procedural character of the amendment to rule 6(g), which was adopted after a history of congressional experimentation with grand jury tenure. See United States v. Fein, 504 F. 2d at 1173-9.

We conclude that Pisani's indictment by a grand jury whose tenure had been extended pursuant to the 1983 amendment of rule 6(g) was not invalidated by the manner in which the amendment authorizing that extension had been adopted.

C. The erroneous charge on income. Pisani contends that Judge Edelstein's jury instructions on the income tax counts improperly removed from the jury's consideration "the question of whether gifts to Pisani's campaign funds yielded taxable income to him when spent on personal items."

To prove a substantial tax due in this criminal case the government followed the "specific items" approach, whereby it presented evidence of specific items of claimed taxable income that Pisani had received but not reported on his relevant returns. With respect to his campaign contributions, the specific items relied upon by the government were those funds that Pisani had taken from his campaign funds and used for personal, rather than political, purposes.

One of Pisani's central contentions at trial was that the money contributed to his campaign by his supporters constituted nontaxable gifts to him because the money was donated without restriction as to use. Four of Pisani's witnesses testified substantially to that effect. One government witness, a former law partner of Pisani, testified that when he gave Pisani money he expected it would be used for campaign purposes. Pisani, himself, testified that he believed that a number of the contributions were unrestricted gifts that he was not required to report as income. A factual issue was thus generated as to whether the campaign funds Pisani used personally came from contributions and gifts that were unrestricted as to use. If so, should they have been excluded from Pisani's taxable income?

The Internal Revenue Code defines income to include all income received from any source, except as otherwise provided. 26 U. S. C. §61. It is "otherwise provided", however, that the value of property acquired by gift is not included in gross income. 26 U. S. C. §102(a).

The fourth and sixth circuits have held than any funds contributed to a recipient's political campaign and then diverted to his personal use are income taxable to the recipient. United States v. Miriani [70-1 USTC ¶9248], 422 F. 2d 150, 152 (6th Cir.), cert. denied, 399 U. S. 910 (1970) (criminal); United States v. Jett [65-2 USTC ¶9706], 352 F. 2d 179, 182 (6th Cir. 1965), cert. denied, 383 U. S. 935 (1966) (criminal); O'Dwyer v. Commissioner [59-1 USTC ¶9441], 266 F. 2d 575, 585-86 (4th Cir.), cert. denied, 361 U. S. 862 (1959) (civil).

In reaching their conclusions in Miriani, Jett, and O'Dwyer, these courts all relied on a 1954 revenue ruling in which the IRS had declared that any political gift "used by a candidate or other individual for personal use constitutes taxable income to such candidate or other individual for the year in which the funds are so diverted." Rev. Rul. 54-80, 1954-1 C. B. 11, 12. In Jett, the court also cited Reichert v. Commissioner [Dec. 19,504], 19 T. C. 1027, (1953), which stated a similar proposition, see 19 T. C. at 1038-39.

In 1968, however, the I. R. S. modified its position. It abandoned its absolute, inflexible rule that made taxable all personal diversions of campaign funds and adopted a rebuttable presumption focused upon the donors' intent. In Rev. Proc. 68-19 it stated that

The service will presume in the absence of evidence to the contrary that contributions to a political candidate are political funds which are not intended for the unrestricted personal use of such recipient. If it can be shown that the funds were intended for the unrestricted personal use of the political candidate, then the Service will apply the principles set forth in Commissioner v. Mose Duberstein, et al., [60-2 USTC ¶9515], 363 U. S. 278 (1960) * * * to determine whether or not the funds may [as gifts] be excluded from his gross income under section 102 of the Code.

Rev. Proc. 68-19, 1968-1 C. B. 810, 811.

Quoting Rev. Proc. 69-19 in Stratton v. Commissioner [Dec. 29,958], 54 T. C. 255, 280 (1970), the tax court held that "[t]he line between an outright gift and a campaign contribution is a very thin line." The court then analyzed whether funds received by Stratton, the former governor of Illinois , constituted untaxable gifts. Based on the unequivocal testimony of several individuals that they had intended "to make outright gifts to [Stratton] to do with as he pleased with no strings attached", the court found that these transfers "were made from a 'detached and disinterested generosity,' 'out of affection, respect, admiration, charity or like impulses [,]' Commissioner v. Duberstein [60-2 USTC ¶9515], 363 U. S. 278, 287 (1960)" and therefore were not taxable income. Stratton v. Commissioner, 54 T. C. at 281.

We think that this approach is correct. See United States v. Scott [81-2 USTC ¶9663], 660 F. 2d 1145, 1164 & n. 37 (7th Cir. 1981), cert. denied, 455 U. S. 907 (1982). Moreover, it would be unfair to Pisani not to treat the question as a factual one when the commissioner and the tax court had, prior to the tax years in question, expressly declared that the question was factual.

Judge Edelstein, however, did not submit that issue of fact to the jury. He charged the automatic rule that was adopted by Miriani, Jett, and O'Dwyer and was based on Rev. Rul. 54-80. He charged the jury:

[P]olitical contributions that are diverted to personal use are not gifts. They are includable in gross income in the year in which the funds are used personally.

In effect, therefore, he ignored Rev. Proc. 68-19 and Stratton, and he did so despite Pisani's specific request for a charge that would have permitted the jury to determine whether the political contributions were non-taxable gifts or taxable income. Although Pisani's counsel took no specific exceptions after the charge was given, the charge was erroneous and the magnitude of its error was enhanced in the very next paragraph when Judge Edelstein instructed the jury to determine whether other moneys Pisani had received from clients were actually gifts as he claimed. The proper instruction on gifts from clients contrasted sharply with the immediately prior instruction that political contributions could not be gifts, and it virtually guaranteed Pisani's conviction on the tax counts. On this record, therefore, and in light of defendant's specific request to charge, we conclude that this erroneous instruction constituted plain error requiring reversal of all eight of Pisani's income tax convictions.

D. Mail fraud based on Pisani's personal use of campaign funds. Pisani challenges his campaign fund mail fraud convictions on the ground that his conduct did not constitute the crime of mail fraud proscribed under 18 U. S. C. §1341. That section provides:

Whoever, having devised * * * any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, * * * for the purpose of executing such scheme or artifice [uses the mails, shall be guilty of a crime].

The "fraudulent scheme" charged against Pisani in paragraph 40 of the indictment was one

to obtain, divert and embezzle at least $45,000 unlawfully from the Joseph R. Pisani Campaign Funds, to convert said funds to the personal use, enjoyment and benefit of the defendant PISANI * * *, and to conceal said diversion and embezzlement. (emphasis added).

The italicized words above support the thrust of Pisani's argument on this issue. He contends that his use of campaign funds for personal purposes was not unlawful and therefore that there simply was no "fraudulent scheme" as charged in the indictment.

At the heart of this issue lies the question of whether New York law required Pisani to use moneys contributed by his compaign fund solely for campaign purposes, and prohibited him from putting them to personal use. The government contends that applicable New York law did prohibit personal use of campaign funds, and that Pisani's conceded use of some of them for personal purposes constituted embezzlement and conversion. Pisani contends and we agree, that at the time of the events in question, nothing in New York law prohibited a candidate from using campaign funds for personal purposes. Consequently, the "fraudulent scheme" charged in the indictment was not established at trial, and those campaign fund mail fraud counts on which Pisani was not acquitted must be dismissed.

1. Factual background. Campaign funds of state offices in New York state are typically handled through a candidate's political campaign committees which collect contributions and disburse funds. Those committees, which often consist of no more than the candidate and a bookkeeper, are required to file statements of their receipts and expenditures periodically with the state board of elections. N. Y. Elect. Law §§ 14-110, 14-118 (McKinney 1978 & Supp. 1984).

Senator Pisani maintained several political campaign committees that collected and disbursed funds for his candidacies for public office. Lillian Steinberg, Pisani's secretary, kept the books and prepared and filed with the New York State Board of Elections the required financial disclosure statements. These statements required identification of the recipient, amount, and purpose of all disbursements of $50 or more, and noted that any false statement was punishable as a misdemeanor. In preparing the statements, Steinberg obtained the required information by reviewing the campaign books and by asking Pisani for more information when the books did not provide an explanation.

It is undisputed that Pisani used substantial amounts from the campaign funds to pay personal expenses of himself, of members of his family, and of his codefendant, Kathryn Godfrey, as well as for various business investments. It is also undisputed that the corresponding entries on his disclosure statements did not accurately reflect the true purpose of those personal expenditures, and it may be, although we do not decide the question, that a scheme to defraud his contributors could have been alleged and proved.

As this particular case was charged by the grand jury and presented to the trial jury, however, the essence of the alleged fraudulent scheme was that Pisani unlawfully defrauded his own campaign funds for personal purposes. This position was set forth in the indictment, urged in the government's opening statement and summations, and reinforced by the charge of the trial judge who provided no separate description of the alleged scheme to defraud but, instead, simply referred the jury back to the scheme of embezzlement and conversion charged in the indictment.

As he presented what the case was about, in his opening statement, the prosecutor stated that

Pisani took money from his campaign funds to pay for personal expenses * * *. Tr. 3

The fourth group of charges involves the campaign funds * * *. From these funds wre [sic] taken money by Joseph Pisani, Senator Pisani, for his personal expenses, for his personal use, not related to legitimate campaign expenses. Tr. 7

Finally, you will hear how Senator Pisani used his campaign funds like a personal bank account. The Senator freely took money from the campaign funds to pay for his vacation, to pay for expenseive [sic] gifts he gave to others and to pay for personal business investments. Tr. 15

The evidence will show that Senator Pisani withdrew money from his campaign funds for personal expenses and falsely represented those expenditures on the financial disclosure statements. Tr. 15

You will hear many such examples of money taken out of the campaign funds, used for personal expenses and the purpose for the disbursement falsely represented on the disclosure statement filed with the Board of Elections. Tr. 17

In his main summation the prosecutor stated:

The government has proven that Senator Pisani engineered and carried out a scheme to defraud his various campaign committees by filing false financial returns, false financial disclosure statements. Tr. 2245

On his rebuttal summation the prosecutor repeated:

What the case is about, this case comes down to, is the 3 frauds, the Mallon house in Blooming Grove , New York , and the coverup of that transaction, the fraud against the law firm and the clients of the law firm, and the fraud against the campaign, the campaign funds. Tr. 2396 He further stated on rebuttal:

The real point here is that Joe Pisani used thousands of dollars in his campaign funds for personal expenses * * *. Not only that, he hid how he used that money. Tr. 2428

In at least two portions of his charge Judge Edelstein reinforced the prosecutor's view that these mail fraud charges involved a scheme to defraud the campaign funds. When reviewing the various counts of the indictment he stated:

Counts 11 through 26 charge that Joseph R. Pisani violated the mail fraud statute, Title 18 of the United States Code, section 1341, by scheming to defraud his political campaign funds of at least $36,000 to pay personal expenses for himself, his family and others. Tr. 2446-7

When he discussed the elements of mail fraud, Judge Edelstein reminded the jury that it was "not necessary that the government prove every single allegation set forth in that count of the Indictment", Tr. 2465, but that it was necessary that three elements be proved, including the existence of a fraudulent scheme. But he made no reference to either the proof or the government's contentions with respect to the fraudulent scheme and thereby left the jury to decide the case based on the indictment and the arguments, all of which focused upon the claim that Pisani had defrauded his own funds by taking from them moneys that he was not entitled to have for personal purposes, and by concealing what he had done by filing false disclosure statements through the mails.

2. The Mail Fraud statute. The two key elements of a mail fraud violation are a scheme to defraud and use of the mails in furtherance of that scheme. Use of the mails is not in issue; we are concerned only with the alleged fraudulent scheme. Although congress has not defined the term "scheme to defraud", the federal courts have broadly interpreted it in determining the reach of the mail fraud statute. United States v. Buckner, 108 F. 2d 921, 926 (2d Cir.), cert. denied, 309 U. S. 669 (1940). The United States Supreme Court has held that congress may forbid any use of the mails that furthers a scheme to defraud that it regards as contrary to public policy, even if congress could not forbid the scheme itself. Parr v. United States , 363 U. S. 370, 389 (1960). This versatility has led to the observation that

[t]o federal prosecutors of white collar crime, the mail fraud statute is our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart--and our true love. We may flirt with RICO, show off with 10b-5, and call the conspiracy law "darling," but we always come home to the virtues of 18 U. S. C. §1341, with its simplicity, adaptability, and comfortable familiarity.

Rakoff, The Federal Mail Fraud Statute (Part 1), 18 Duq. L. Rev. 771, 771 (1980) (footnotes omitted).

Even the best of relationships, however, must occasionally experience some strain, and in the context of Pisani's campaign fund mail fraud counts, we think that occasion has arrived.

3. New York law on use of campaign funds. It seems clear that no provision of New York law in effect prior to this indictment prohibited a candidate from using campaign funds for personal purposes. Certainly, there was no express provision on the subject in the New York statutes, and both the attorney general and the board of elections of the state have rendered opinions indicating that nothing in New York 's election law governs how campaign moneys that are not disbursed for campaign purposes may be spent.

In 1983 the attorney general was asked by a city government to consider

whether a local government is authorized to enact regulations prohibiting the use or expenditure of campaign contributions for non-campaign related purposes.

Op. Att'y Gen., No. I-83-57 (Sept. 28, 1983). He concluded that precisely because state law does not address that issue, a locality may properly enact an ordinance prohibiting the personal use of campaign funds. His opinion reads, in part:

[W]e have found no provision of the Election Law that deals with the disposition of surplus campaign funds. * * * Nor have we discovered from the legislative history of Article 14 of the Election Law or from the provisions of the Article any intent that reporting was viewed as a means to regulate the use of campaign funds. While disclosure may tend to inhibit the personal use of funds, such use is not prohibited and is not subject to sanction.

Id. (emphasis added).

Along similar lines, the state board of elections concluded that

there is nothing in the Election Law which limits the use of surplus funds. * * * [T]here is nothing in the Election Law which would prohibit an elected official from using surplus campaign funds for any lawful purpose * * *.

New York State Board of Elections, 1979 Opinion No. 3.

The government seizes upon the term "surplus funds" in these opinions as limiting their applicability only to those funds that are left over at the end of a campaign. We do not think this is a fair interpretation of the principle discussed, and in any event, there was nothing in the New York statutory system covering campaign funds to warrant drawing a restrictive distinction between "surplus" and "active" campaign funds that would permit personal use of the former but prohibit it as to the latter.

The government also attempts to deduce a prohibition upon personal use of campaign funds from Election Law §17-140. Both the language and history of that lengthy statute, which was enacted long before the modern concept of campaign committees and campaign funds was developed, reveal that its purpose was not to limit the uses to which contributed campaign moneys could be put, but to regulate how any moneys, whether contributed to a candidate or drawn from his own personal resources, could be spent in connection with election campaigns.

At the relevant times, §17-140 read: Any person who directly or indirectly by himself or through any other person in connection with or in respect of any election:

1. On a day of a general, special or primary election, gives or provides, or causes to be given or provided, or shall pay for wholly or in part, any meat, drink, tobacco, refreshment or provision, to or for any person, other than persons who are official representatives of the board of elections or political parties and committees and persons who are engaged as watchers, party representatives or workers assisting the candidate; or,

2. Pays, lends or contributes, or offers or promises to pay, lend or contribute any money or other valuable consideration, for any other purpose than the following matters and services at their reasonable, bona fide and customary value is guilty of a class A misdemeanor: [There follows a list of authorized expenditures such as publicity, rent, telephone, travel, etc.]

Nothing in this section refers to campaign committee funds or in any other way identifies the source of the moneys from which expenditures may be made. The clear intent was to regulate what could be spent "in respect of any election", and not to regulate or restrict a candidate's expenditures for nonelection purposes.

Finally, the New York legislature, after argument of this appeal, enacted Chapter 152 of the Laws of 1985 which directly addresses this issue. It added to the Election Law a new section 14-130 which provides:

Campaign funds for personal use. Contributions received by a candidate or a political committee may be expended for any lawful purpose. Such funds shall not be converted by any person to personal use which is unrelated to a political campaign or the holding of a public office or party position.

Had this new provision been in effect during the period covered by Pisani's indictment, we would not hesitate to affirm his convictions here. But since no similar provision had ever been enacted previously, we conclude that prior to 1985 a candidate in New York state was not prohibited from using campaign funds for personal purposes. That being so, the central premise underlying the fraudulent scheme charged against Pisani fails.

As a fall-back position the government, on appeal, has shifted its emphasis. Now it argues that even if the scheme to defraud did not involve embezzlement and conversion of campaign funds, the evidence shows that Pisani fraudulently schemed to file false reports of how he used his campaign funds. In essence, the government argues that Pisani reported the information falsely, and that he did so to conceal the truth of his personal expenditures from the board of elections and from his contributors, who would not have continued to support him had they known he was using some of their contributions for private investments and other personal purposes.

As to a claimed scheme to defraud the state board of elections, there is no indication before us that had the board known the truth about the nature of the expenditures it would have been able or willing to take any corrective action. As to the claimed scheme to defraud the contributors, there is scant evidence to establish that contributors entertained the expectations attributed to them by the government. While one witness, Pisani's former law partner, testified that he had contributed to Pisani's campaign funds and expected that the money would be spent for campaign expenses, four others who testified about how they expected their contributions to be used all agreed that they did not care whether Pisani used them for political or personal purposes. Now was there any evidence that any of Pisani's political contributors ever saw or heard about the contents of the disclosure statements he filed with the board of elections.

In any event, we think this shift in theory and emphasis in the government's case comes far too late to sustain Pisani's campaign fund mail fraud convictions. We need not now decide whether a mail fraud charge might be based on misleading contributors through false reports of campaign fund expenditures, because that is not the case that the government brought against Pisani and tried to the jury. Since the government has failed to uphold the legal premise of the fraudulent scheme on which it chose to prosecute Pisani, namely, that personal use of campaign funds was prohibited under New York law, the campaign fund mail fraud convictions must be dismissed.

Conclusion

The convictions on the campaign fund mail fraud counts are reversed, and those counts of the indictment are dismissed. The convictions on the income tax counts are reversed, and those counts are remanded for a new trial. The conviction on the law practice mail fraud count is affirmed.

 

 

 

 

 

[92-1 USTC ¶50,133] United States of America , Appellee v. Leonhard F. Wodtke, Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 91-2394, 12/18/91 , 951 F2d 176, 951 F.2d 176. Affirming an unreported District Court decision

[Code Sec. 7207 ]

Crimes: Filing false statements: Materiality: Sixth Amendment.--The taxpayer's conviction for making false statements to the IRS was upheld because the statements filed by the taxpayer on Forms 1099 were "material" and his Sixth Amendment right to counsel was not violated. The false statements were capable of influencing the function of the IRS and were, therefore, material because the IRS uses the information conveyed on Forms 1099 to assess taxes and enforce tax compliance; the IRS was not required to prove that it actually relied on the statements. Further, the record did not support the taxpayer's claim that the trial court should not have allowed him to represent himself because he was not competent to waive counsel and because his waiver was not made knowingly and voluntarily. Although the taxpayer stated at his arraignment that he appeared only "in the name of Jesus Christ, his King, Lord, and High Priest," the trial court conducted a competency hearing, warned the taxpayer of the dangers of self-representation, and made stand-by counsel available at trial.

John T. Bannon, Jr., Washington , D.C. , for appellee. Robert G. Duncan, Duncan, Coulson, Schloss, Chancellor and Norris, 2800 B. Kendallwood Parkway, Kansas City, Mo. 64119, for appellant.

Before ARNOLD and FAGG, Circuit Judges, and WOODS, ^* District Judge.

WOODS, District Judge:

Over the course of several months beginning in late 1989 and ending in early 1990, appellant, Leonhard F. Wodtke, sent the IRS several 1099 forms. ¹ On these forms, he represented that he had paid several individuals amounts ranging up to $1,261,075.71. Because these representations were not true, he was charged with making false statements to the IRS in violation of 18 U.S.C. §1001 .

Appellant appeared before a United States Magistrate at his arraignment but refused to enter a plea. He maintained that although he was Leonhard F. Wodtke, he was not the Leonhard F. Wodtke named in the indictment and was only appearing in the name of Jesus Christ, his King, Lord, and High Priest. On the basis of this statement and others in a similar vein, a psychiatric examination was ordered. The examiners found him competent to stand trial.

Following the examination, appellant again appeared before the United States Magistrate. Although represented by court-appointed counsel, appellant insisted upon representing himself. Despite several warnings about the hazards and disadvantages of representing himself, he stood by his request. The Magistrate concluded that appellant had knowingly and voluntarily waived his right to counsel and should be permitted to represent himself.

The trial court ² subsequently conducted a competency hearing. At the conclusions of this hearing, appellant was found competent to stand trial. During this hearing, the trial court also addressed the self-representation question. The trial court warned appellant of the numerous dangers of representing himself. Despite this warning, he insisted upon representing himself.

The trial court addressed the self-representation question a second time during a pre-trial conference held a few days later. At this conference, the trial court agreed to the appellant's request that he be allowed to represent himself, having been satisfied that he was competent to stand trial and had knowingly and voluntarily waived his right to counsel. The trial court did, however, make stand-by counsel available for him at trial.

Appellant represented himself at trial. His lack of any formal legal training was painfully obvious. He was convicted, and this appeal followed. Appellant raises only two points for reversal. First, he maintains that the trial court should not have allowed him to represent himself because he was not competent to waive counsel and because his waiver was not made knowingly and voluntarily. The record establishes otherwise.

Second, appellant alleges that the false statements on the 1099 forms were not "material." In order for a statement to be "material," it must be one which is "capable of influencing" the function of the IRS. See United States v. Land, 877 F.2d 17, 20 (8th Cir.), cert. denied, 493 U.S. 894, 110 S.Ct. 243, 107 L.Ed.2d 194 (1989). It is not necessary, however, for the IRS to demonstrate that it "actually relied" upon the statement. See United States v. Hicks, 619 F.2d 752, 754 (8th Cir.1980). A prosecution witness testified that the information contained on the 1099 forms must be truthful because the information is used to assess taxes and enforce tax compliance. On the basis of this testimony, the false statements contained on the 1099 forms were "capable of influencing" the function of the IRS and were therefore "material."

The judgment of the trial court is affirmed.

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

¹ The 1099 form documents the payment of miscellaneous income, including non-employee compensation, to the individuals named on the form.

² The Honorable Dean Whipple, United States District Judge for the Western District of Missouri .

 

 

 

[93-1 USTC ¶50,100] United States of America , Appellee v. Lloyd E. Humphreys, Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 91-3812, 12/7/92 , Affirming an unreported District Court decision

[Code Secs. 7201 and 7207 ]

Tax evasion: Unreported income: Convictions: Procedural issues.--Procedural arguments failed to overturn convictions of tax evasion and filing a false return. An attorney failed to report legal fees received in cash and payments received following a stock sale. He was convicted of tax evasion and filing a false return. On appeal, he sought to suppress certain evidence obtained from a search of his office and questioned the denial of severance of the various counts against him and the denial of a change of venue. He also questioned juror disqualification and jury instructions. The attorney failed to provide sufficient evidence on any claim that warranted overturning the convictions.

Alvin E. Entin, Entin, Schwartz, Goldman, Margules & Moore, 2450 N.E. Miami Gardens Dr., Miami, Fla. 33130, for appellant. Rodger E. Overholser, Assistant United States Attorney, Cedar Rapids , Iowa , for appellee.

Before FAGG and BOWMAN, Circuit Judges, and LARSON, ^* Senior District Judge.

LARSON, Senior District Judge:

Lloyd E. Humphreys appeals from his conviction by jury trial on four counts of income tax evasion and one count of filing a false income tax return. In addition, Humphreys appeals from the district court's ¹ denial of his motions for a new trial, to suppress evidence, and to sever and transfer his case to Texas. We affirm the judgment of the district court in all respects.

I.

Lloyd E. Humphreys is an attorney who practiced law in Cedar Rapids , Iowa . Humphreys was indicted on three counts of tax evasion (counts 1, 2, and 3) for the tax years 1983, 1984, and 1985. Humphreys failed to report numerous legal fees which he received in either trade or undeposited cash during those tax years. He also failed to report additional fees which were run through an unreported escrow account. Humphreys's defense to the charges was that he relied in good faith upon his accountant/tax preparer. However, testimony revealed that Humphreys failed to inform the accountant of the cash receipts and the currency receipt books which were kept, or of the existence of the escrow account.

A superseding indictment added two more counts of tax evasion (counts 4 and 5) for the tax years 1988 and 1989. Humphreys assisted in the formation of a corporation in 1981. In addition to several questionable practices which have no bearing on this matter, Humphreys received 25% of the stock issued by the corporation in exchange for legal advice. At various times Humphreys loaned the corporation money and guaranteed three SBA loans. All loans were paid in full, with interest. In 1988, Humphreys agreed to sell his stock in the corporation, and received a down payment of $10,000.00. Thereafter, throughout 1988 and 1989, Humphreys received monthly payments of principal plus interest. Humphreys did not report the downpayment or the principal payments and did not inform his accountant of the stock sale. While Humphreys did report the interest payments, under the false premise that he had a basis in the stock, he did not provide his accountant with any information regarding the claimed basis.

Humphreys filed a motion to suppress evidence seized from his law office under a search warrant. An evidentiary hearing was held and the motion was denied. Humphreys's motion to sever and transfer counts 4 and 5 was also denied. At the close of the evidence Humphreys moved for acquittal, based upon insufficiency of the evidence. The district court ruled that the evidence was insufficient to support a conviction of tax evasion under count 3 (26 U.S.C. §7201 ), and replaced the count with the lesser included offense of misdemeanor filing of a false return (26 U.S.C. §7207 ).

II.

A. Suppression of Evidence

Humphreys's motion to suppress evidence stems from a search of his law office, conducted pursuant to two search warrants authorized by a United States magistrate. Humphreys alleges that the district court erred in its denial of the motion because: (1) the affidavits in support of the search warrants failed to support a finding of probable cause and, more specifically, failed to allege anything more than a de minimis omission of income; (2) the reliability of certain informants was not established and, moreover, the affidavits contained material omissions and false and misleading statements; and (3) privileged attorney-client documents were seized in the search. We review the court's rulings on the motion to suppress under the clearly erroneous standard. United States v. Johnson, 925 F.2d 1115 (8th Cir. 1991); United States v. McGlynn, 671 F.2d 1140 (8th Cir. 1982).

The magistrate issuing the search warrants was required to find that there was probable cause that Humphreys was willfully attempting to evade the payment of taxes by understating his income. The applicable standard of probable cause has been set forth by the Supreme Court: "[I]t is clear that only the probability, and not a prima facie showing, of criminal activity is the standard of probable cause." Illinois v. Gates, 462 U.S. 213, 235 (1983) (citation omitted). The Court further stated:

The task of the issuing magistrate is simply to make a practical, common sense decision whether, given all the circumstances set forth in the affidavit before him, including the "veracity" and "basis of knowledge" of persons supplying hearsay information, there is a fair probability that contraband or evidence of a crime will be found in a particular place. And the duty of a reviewing court is simply to insure that the magistrate had a "substantial basis . . . for conclud[ing]" that probable cause existed.

Illinois v. Gates, 462 U.S. at 238 (quoting Jones v. United States, 362 U.S. 257, 271 (1960)). Here, the affidavits clearly demonstrated that Humphreys was not reporting all cash income. The affidavits showed that cash receipts from clients were not being deposited to Humphreys's business account, that his tax preparer relied solely upon the deposit records, and that former employees were instructed by Humphreys to give him all cash, which he then placed in his desk or in a safe. Certainly the magistrate, and ultimately the district court, had a substantial basis for making the practical, common sense decision, based upon a totality of circumstances, that probable cause existed. See United States v. Peterson, 867 F.2d 1110, 1113 (8th Cir. 1989).

Humphreys's assertion that the affidavits are deficient unless they state a specific, "substantial" amount of tax deficiency is simply unsupported. The essence of the inquiry was whether there was tax due and whether Humphreys willfully attempted to evade the tax. Where the affidavits made the clear connection between the existence of the unexplained funds and the allegations of underreporting (citing the applicable criminal statute), we hold that sufficient facts were set forth to establish the probability of criminal activity.

This court need not engage in a searching, lengthy review of the statements of the various informants and affiants. The magistrate below permitted an extensive hearing on the issues raised under Franks v. Delaware, 438 U.S. 154 (1978). ² The magistrate then penned a comprehensive and detailed Report and Recommendation, addressing each and every one of Humphreys's allegations of false and misleading statements, and omissions of fact, and concluding that Humphreys's allegations were insufficient to support a Franks challenge. Having carefully reviewed the magistrate's recommendations, we are satisfied that the district court's denial of Humphreys's motion was not clearly erroneous. None of Humphreys's allegations cast doubt upon the existence of probable cause. Humphreys fails to understand that, while he may believe that the informants lacked credibility, where the informants' information is at least partially corroborated, attacks upon credibility and reliability are not crucial to the finding of probable cause. See United States v. Flagg, 919 F.2d 499 (8th Cir. 1990); United States v. Parker, 836 F.2d 1080 (8th Cir. 1987).

Shortly after the commencement of the search of Humphreys's law office, IRS agents were informed of the presence and location of attorney-client privileged files pertaining to this case. Humphreys alleges that these very files were taken, pillaged, and ultimately used against him. The burden is clearly upon Humphreys to demonstrate that he was prejudiced by the alleged actions of the IRS. See United States v. Morrison, 449 U.S. 361, 365 (1981); Weatherford v. Bursey, 429 U.S. 545 (1977). Humphreys is required to show which documents were privileged, cf. In re Grand Jury Proceedings, 791 F.2d 663, 666 (8th Cir. 1986) (in which the burden rested upon individual subpoenaed by grand jury to establish that information sought fell within attorney-client privilege), and the illegality of the manner in which they were allegedly obtained. Here, Humphreys provided nothing more than speculation and contradictory statements. No files or documents were produced for the review of the district court, and no objection was made during the trial on the grounds that evidence introduced was illegally obtained. Even if the search was overbroad in its scope, no showing of its effect upon the prosecution has been made. Humphreys has not demonstrated that he was prejudiced.

B. Severance

Humphreys launches a two pronged argument in support of his contention that the district court erred in denying his motion for severance of counts 4 and 5 from counts 1, 2, and 3 under Rule 14 of the Federal Rules of Criminal Procedure. First, Humphreys urges that the documents, witnesses, and proof supporting counts 4 and 5 are totally different from those supporting 1, 2, and 3. Second, Humphreys argues that his right to a fair trial has been abridged because of the "spillover effect" of the evidence pertaining to the first three counts onto the latter two counts. Under the explicit language of Rule 14, Humphreys must demonstrate prejudice from the joinder of the counts. United States v. Adkins, 842 F.2d 210 (8th Cir. 1988); United States v. Starr, 584 F.2d 235 (8th Cir. 1978) (stating that the burden is a heavy one). Bearing in mind that joinder of all offenses against a defendant is a favored practice, we will not reverse the district court's refusal to grant severance absent a clear abuse of discretion. United States v. Dennis, 625 F.2d 782, 801-802 (8th Cir. 1980).

While, according to Humphreys, the dissimilarities in the two "sets" of evidence are legion (time, geographical location, business entities, tax preparers, type and complexity of transactions), the similarities carry the day. The type of offense (tax evasion through underreporting) is the same. Indeed, the method of committing the offense (failing to inform the tax preparer of income generated, whether from legal fees or stock sales) is the same. United States v. Lindsey, 782 F.2d 116 (8th Cir. 1986) (stating that the crimes need only be similar or nearly corresponding in nature). Most persuasive is the fact that the evidence in each set of counts is mutually admissible to show Humphreys's motive, intent, and pattern of criminal behavior, and to negate Humphreys's defenses. See Fed. R. Evid. 404(b). Where evidence of one crime would be admissible at a separate trial for another crime, a joint trial does not engender additional prejudice. United States v. Dennis, 625 F.2d at 802.

We completely dismiss the notion that the "spillover effect" fatally prejudiced Humphreys's case. The sheer volume of the evidence compiled in support of counts 1, 2, and 3 was substantially greater, due to the nature of the transactions. However, the fact that Humphreys may have had a better chance for acquittal in separate trials is not a sound basis for severance. United States v. Brim, 630 F.2d 1307 (8th Cir. 1980), cert. denied, 452 U.S. 966 (1981); United States v. Dennis, 625 F.2d 782 (8th Cir. 1980). The stock sale was not a complex transaction, beyond the jury's ability to decipher and compartmentalize the evidence.

C. Venue

Humphreys's original motion to sever and transfer this case to Texas included all five counts and was based upon his belief that the United States Attorney had a "vendetta" against him and that pretrial publicity reduced his ability to receive an impartial trial. Humphreys's renewed motion to sever and transfer invoked for the first time the right to transfer under 18 U.S.C. §3237(b). ³ The district court denied the renewed motion because: (1) it was untimely, and (2) §3237(b) applies only where venue is based on mailing. We find no error in the district court's ruling. An untimely motion may be denied at the lower court's discretion. A belated attempt to bootstrap the argument to an earlier, unsuccessful, and clearly different argument does not save the motion from its demise.

Venue in this instance was not based solely on a mailing to the IRS, but upon the commission of the crime in the Northern District of Iowa. The indictment plainly charges that Humphreys committed the offenses "by preparing and causing to be prepared and by signing and causing to be signed," false tax returns. Humphreys made a conscious choice, through his volitional acts, to have contact with the district. He presented the tax information and records to his tax preparers in Iowa , and he instructed that the returns be prepared in Iowa . Humphreys's mailing of the returns from his new home in Texas is of no import to this inquiry. Much ado has been made by both parties of the meaning and legislative history of §3237(b). However, the plain language of the entire statute mandates the conclusion that the provisions of subsection (b) were not intended to apply to this situation. See Burlington Northern R.R. Co. v. Oklahoma Tax Comm'n, 481 U.S. 454 (1987) (where statutory terms are unambiguous, judicial inquiry is complete). Granting a de facto severance where a defendant has clearly committed the continuing tax evasion crime in a given district, and venue is not based solely upon the mailing of a completed tax return, is not the result intended. ⁴

Humphreys cannot complain of undue burden or inconvenience. All of the evidence and witnesses, save Humphreys himself, were in Iowa, the income was generated and deposited at least in part in Iowa, and the tax returns were prepared in Iowa. Moreover, Humphreys was required to be in Iowa for the prosecution of counts 1, 2, and 3.

D. Juror Disqualification

At trial, the court's voir dire questioning revealed that one of the jurors had been convicted thirty-one years earlier on an embezzlement charge. Subsequent to entry of the verdict, Humphreys discovered that the juror's civil rights had not been restored. Humphreys then brought a motion for a new trial, claiming statutory disqualification of the juror. A hearing was held at which the juror testified. It is abundantly clear from the record that the juror was operating under a good faith belief that he was at all times a qualified juror, and that he did not fear retaliation from the government if he voted for acquittal. Humphreys's claims to the contrary are, at best, disingenuous.

Failure to have one of the juror qualifications set forth at 28 U.S.C. §1865(b) should not necessarily render an individual fundamentally unfit to serve. Rather, it should serve as a basis for challenge to the person's qualifications. ⁵ We are in agreement with the recent holding of the District of Columbia Circuit Court of Appeals, in which the court stated:

The Sixth Amendment right to an impartial jury does not require an absolute bar on felon-jurors. The touchstone of the guarantee of an impartial jury is protection against juror bias. A per se rule would be appropriate only if one could reasonably conclude that felons are always biased against one party or another. Congress' purpose in restricting, in 28 USC 1865-67, jury service by felons seems to stem from considerations other than a concern about biased jurors. More important, a per se rule in this context seems inconsistent with the hostility expressed in McDonough Power Equipment Inc. v. Greenwood, 464 U.S. 548 (1984), to unnecessary new trials and to the axiom that a defendant is entitled to a fair trial but not a perfect one. We think, therefore, that the Sixth Amendment does not require automatic reversal of every conviction reached by a jury that included a felon.

United States v. Boney, --F.2d--(D.C. Cir. 1992), 1992 WL 267481.

It is the defendant's duty to investigate, to question, and to assert a challenge prior to the return of the verdict. If actual bias or prejudice is revealed, an obvious challenge for cause is timely presented. If not, the court may still determine the necessity of taking remedial action, such as the seating of an alternate juror. In an effort to obtain a new trial, it is incumbent upon the defendant to clearly demonstrate that the juror's lack of qualifications presented actual bias or prejudice, affecting the juror's impartiality and impacting the fairness of the trial. ⁶ A challenge after the verdict without such a showing comes too late. ⁷

Humphreys's challenge fails in both respects. Humphreys did not pursue any questioning of the juror on voir dire. Nor did he further investigate or raise any challenge during trial. Having failed to diligently and timely discover the relevant information, he is precluded from being heard on the issue of juror qualification. At the conclusion of the hearing on Humphreys's motion, the district court specifically found that there was no evidence of either bias or unfairness as a result of the seating of this juror. This conclusion is not clearly erroneous and we have no inclination to set it aside. See United States v. Miscellaneous Firearms & Ammunition, 945 F.2d 239 (8th Cir. 1991). The court did not abuse its discretion in refusing to grant Humphreys's motion for a new trial.

E. Lesser Included Offense

Much to the benefit of Humphreys, the district court reduced the charge on count 3 from tax evasion to the lesser included offense of filing of a false return. The court ruled, and Humphreys agreed, under Sansone v. United States [65-1 USTC ¶9307 ], 380 U.S. 343 (1965), that 26 U.S.C. §7207 is a lesser included offense of 26 U.S.C. §7201 . Humphreys received adequate notice of the possibility of conviction on the lesser charge when he was charged with the greater offense. See Schmuck v. United States , 489 U.S. 705 (1989).

F. Jury Instructions

Humphreys raises objections to those jury instructions regarding intent and wilfulness. We have reviewed the jury charge as a whole, and we hold that the instructions fairly and adequately instruct the jury as to the substantive law in this matter. United States v. Cheatham, 899 F.2d 747, 751 (8th Cir. 1990) (stating that a defendant is not entitled to a particularly worded instruction where the instructions given, when viewed as a whole, adequately and correctly cover the substance of the requested instruction). The district court has wide discretion in the formulation of jury instructions, United States v. Walker, 817 F.2d 461 (8th Cir.), cert. denied, 484 U.S. 863 (1987), and we hold that it did not abuse that discretion in this matter.

III.

For the foregoing reasons, the judgment of the district court is affirmed.

^* The HONORABLE EARL R. LARSON, Senior United States District Judge for the District of Minnesota, sitting by designation

¹ The Honorable David R. Hansen was a United States District Judge for the Northern District of Iowa at the time judgment was entered. He was appointed to the United States Court of Appeals for the Eighth Circuit on November 18, 1991 .

² In order to prevail on a challenge to a warrant affidavit under Franks v. Delaware, supra, a defendant must show: (1) that a false statement knowingly and intentionally, or with reckless disregard for the truth, was included in the affidavit, and (2) that the affidavit's remaining content is insufficient to establish probable cause. The same analysis applies to omissions of fact. The defendant must show: 1) that facts were omitted with the intent to make, or in reckless disregard of whether they thereby make, the affidavit misleading, and 2) that the affidavit, if supplemented by the omitted information, could not support a finding of probable cause. United States v. Sueth, 807 F.2d 719, 726 (8th Cir. 1986); United States v. Reivich, 793 F.2d 957, 960 (8th Cir. 1986).

³ Title 18, U.S.C., §3237, states:

§3237. Offenses begun in one district and completed in another.

(a) Except as otherwise expressly provided by enactment of Congress, any offense against the United States begun in one district and completed in another, or committed in more than one district, may be inquired of and prosecuted in any district in which such offense was begun, continued, or completed.

* * *

(b) Notwithstanding subsection (a), . . . where venue for prosecution of an offense described in section 7201 . . . is based solely on a mailing to the Internal Revenue Service, and prosecution is begun in a judicial district other than the judicial district in which the defendant resides, he may upon motion filed in the district in which the prosecution is begun, elect to be tried in the district in which he was residing at the time the alleged offense was committed: Provided, That the motion is filed within twenty days after arraignment of the defendant upon indictment or information. (Emphasis supplied.)

⁴ The only case cited to this court which discusses §3237(b) subsequent to its 1984 amendment (Tax Reform Act of 1984, Pub.L.No. 98-369, 98 Stat. 697) is United States v. Melvan, 676 F.Supp. 997 (C.D.Cal. 1987). See United States v. Marchant, 774 F.2d 888 (8th Cir. 1985), cert. denied, 475 U.S. 1012 (1986), for a pre-amendment decision.

⁵ See Ford v. United States , 201 F.2d 300 (5th Cir. 1953).

⁶ In those cases addressing a challenge for cause based upon bias or prejudice, the Court has stated:

To obtain a new trial . . . a party must first demonstrate that a juror failed to answer honestly a material question on voir dire, and then further show that a correct response would have provided a valid basis for challenge for cause. The motives for concealing information may vary, but only those reasons that affect a juror's impartiality can truly be said to affect the fairness of the trial.

McDonough Power Equipment, Inc. v. Greenwood , 464 U.S. 548, 556 (1984).

⁷ See Shotwell Manufacturing Co. v. United States [63-1 USTC ¶9184 ], 371 U.S. 341 (1963), where an objection to the petit jury array brought four years after the verdict was returned was not timely, the relevant information was available before entry of the verdict through due diligence, and no prejudice was shown.

 

 

 

[2000-1 USTC ¶50,409] United States of America , Plaintiff-Appellee, Cross-Appellant v. Ljupco Ristovski, Defendant-Appellant, Cross-Appellee

(CA-6), U.S. Court of Appeals, 6th Circuit, 98-1749, 98-1868, 4/18/2000, 2000 U.S. App. LEXIS 7282. Affirming an unreported District Court decision

[Code Sec. 7206 ]

Penalties, criminal: Signing false return: Corporations: President: Willfulness.--The president of a steel cutting company that failed to report advances that it received from a purchaser of scrap metal was properly convicted of signing false corporate returns. Evidence regarding unreported advances received by the corporation during a prior tax year and the evasion of the cash transaction reporting requirement was properly admitted because it was relevant to the issue of willfulness.
[Code Secs. 7206 and 7207 ]

Penalties, criminal: Signing false return: Corporations: President: Financial control: Reasonable reliance in accountant.--The president of a steel cutting company that failed to report advances that it received from a purchaser of scrap metal was properly convicted of signing false corporate returns. He had sufficient knowledge of and took an active role in the company's finances, and he made arrangements to receive the advances; thus, his conduct was willful for purposes of Code Sec. 7206 , and his contention that he reasonably relied on the company's accountant to prepare the returns was rejected.
[Code Sec. 7206 ]

Penalties, criminal: Signing false return: Submission of false documents: Corporations: President: Jury instructions: Willfulness.--The convictions of a corporate president for signing false corporate returns and submitting false documents to the IRS were upheld since the jury was properly instructed that mere negligence was insufficient to constitute willfulness. [Code Sec. 7207 ]

Penalties, criminal: Submission of false documents: Invoices: Defenses: Waiver: Misdemeanors: Multiplicity.--The president of a steel cutting company was properly convicted of submitting false documents to the IRS in connection with replacement invoices that he furnished after the company's records were allegedly stolen. The IRS was unable to substantiate payments reported in the documents, and the mechanic who prepared them admitted that they were largely based on his own memory and figures suggested by the taxpayer. Moreover, by failing to argue that the misdemeanor counts based on the documents were multiplicitous at trial, the taxpayer waived his right to raise the issue on appeal. Furthermore, even if the documents were not relevant to the company's false returns, they were admissible evidence because they contained false statements that were material to the documents themselves.
[Code Secs. 7206 and 7207 ]

Penalties, criminal: Signing false return: Submission of false documents: Corporations: President: Sentencing: United States Sentencing Guidelines: Harmless error: Tax loss, determination of: Criminal convictions.--The sentence imposed on the president of a steel cutting company who was convicted of signing false corporate returns and submitting false documents to the IRS was upheld since the trial court's mistakes in applying the U.S. Sentencing Guidelines constituted harmless error. The court erred on the side of the government by using guidelines from the wrong year, and it erred in favor of the taxpayer by failing to consider his personal tax evasion in the calculation of the tax loss caused by his conduct and in excluding misdemeanor convictions from its consideration of his criminal history. The court correctly included the full amount of advances received by the corporation in a prior tax year in its calculation of the tax loss caused by the taxpayer's conduct.

Ross MacKenzie, David J. Debold, Asst. U.S. Attorneys, Office of the U.S. Attorney, Detroit, Mich., for plaintiff-appellee, cross-appellant. Gordon S. Gold, Seyburn, Kahn, Ginn, Bess, Deitch & Serlin, Southfield , Mich. , for defendant-appellant, cross-appellee.

Before: MERRITT, NELSON and DAUGHTREY, Circuit Judges.

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

OPINION

NELSON, Circuit Judge:

Ljupco Ristovski was convicted on two felony counts of subscribing false corporate tax returns in violation of 26 U.S.C. §7206(1) and eight misdemeanor counts of submitting false documents to the Internal Revenue Service in violation of 26 U.S.C. §7207. Sentenced to concurrent terms of imprisonment, the longest of which was 18 months on the felony counts, he has appealed his convictions and sentences. The United States has cross-appealed, contending that the district court erred in favor of Ristovski in its application of the sentencing guidelines.

We find no basis for reversing the convictions. We think there were probably errors on both sides of the ledger in the calculation of the defendant's sentencing range under the guidelines, but the errors cancelled one another out; the range actually used in sentencing was identical to what it would have been had there been no errors. Accordingly, we shall affirm both the convictions and the sentences.

I

Ristovski was the president of Precision Steel Shearing Company, a small business that cut steel to its customers' specifications. The steel-cutting process produced scrap that was sold to a company known as Mason Iron & Metal.

As a service to its customers, Mason would sometimes make advance payments for scrap that was to be delivered in the future. Mason was willing to make these advances in the form of checks made out to cash. Mason was also willing to break down advances of more than $10,000 into several smaller checks, thus making it possible to circumvent IRS reporting requirements for cash transactions of more than $10,000.

Through Ristovski, Precision arranged to receive numerous advances from Mason. Many were in the form of checks (or multiple checks) made payable to cash. Ristovski cashed a number of these checks himself, and he asked other employees or family members to cash the rest. Whoever cashed the checks generally returned the proceeds to Ristovski, but occasionally would be instructed to use some of the money to buy items for the business.

Precision's activities came to the attention of the IRS during an audit of Mason. After a preliminary investigation into Precision's records, the IRS began a formal audit of Precision. It soon became apparent that a sizable portion of the cash received via the Mason checks in 1988, 1989, and 1990 had not been accounted for as corporate income. Neither was the money included as income on Ristovski's personal tax returns.

As the audit was getting underway, a break-in and theft allegedly occurred at Precision's plant. Whether fortuitously or otherwise, most of the items that turned up missing were materials needed for the audit.

In the face of the loss of Precision's records, Ristovski contacted Chris Formosa, a mechanic who serviced the company's vehicles, and had him create replacement invoices to show what work Formosa had done for the company and what he had been paid. The recreated records, which were turned over to the IRS, were based for the most part on Formosa 's memory, augmented with suggestions from Ristovski himself. The documents were clearly marked as replacements; there was no attempt to misrepresent them as original records.

Other documentation was available to show that some of the cash taken by Ristovski and members of his family had represented repayment of loans previously made by them to the company. Much of the cash from the Mason checks, however, could not be traced to any corporate use.

Precision's books were kept by Joan Penny, Ristovski's girlfriend at the time, who worked as the office secretary and had no prior bookkeeping experience. She knew of the cash advances from Mason, and she claimed to have expressed concern about them to Ristovski.

The company's tax returns were prepared by John Golovich, an accountant. Golovich apparently had serious personal or psychological problems, as a result of which he disclaimed any recollection of the events at issue in the trial. Precision has since sued Golovich for malpractice and has recovered a default judgment against him.

In 1996, as an upshot of the IRS audit, Ristovski was indicted on 12 counts. Counts I and II of the indictment charged him with willfully attempting to evade personal income tax, in violation of 26 U.S.C. §7201, by filing false individual tax returns for 1989 and 1990. Counts III and IV charged him with subscribing false corporate returns, a violation of 26 U.S.C. §7206(1), for the same years. Counts V through XII charged him with submitting false documents (the Formosa replacement records) to the IRS on August 8, 1995 , in violation of 26 U.S.C. §7207.

After the case was tried and submitted to the jury, the court accepted a partial verdict when the jury reported that it had reached a unanimous decision on Counts III through XII. The verdict proved to be "guilty" on each of these counts. The jury then deliberated further on Counts I and II, but was eventually discharged because it could not reach a unanimous decision. Counts I and II were later dismissed.

At sentencing, the court overruled an objection by the government to a recommendation in the presentence investigation report that the tax loss from the false corporate returns not be aggregated, for purposes of applying the guidelines, with the tax loss from Ristovski's individual tax returns. The court also sustained an objection by Ristovski to the criminal history category assigned him in the report; contrary to the recommendation of the probation officer who prepared the report, the court declined to give effect to two prior misdemeanor convictions on Ristovski's record, thereby placing him in Category I rather than Category II. Using the 1997 edition of the sentencing guidelines (an edition identical, in all relevant aspects, to the 1994 edition that was in effect at the time of the misdemeanor offenses charged in Counts V through XII), the court then imposed concurrent sentences of 18 months for Counts III and IV and 12 months for the remaining counts. Ristovski's appeal and the government's cross-appeal followed.

II

A. Sufficiency of the Evidence

1. Sufficiency of the Evidence as to Signing to False Returns

At the close of the evidence, Ristovski moved for a judgment of acquittal on the ground that the evidence was insufficient to support a conviction. The motion was denied.

Appellate review of the denial of such a motion is conducted de novo. See United States v. Gibson, 675 F.2d 825, 829 (6th Cir.), cert. denied, 459 U.S. 972, 74 L.Ed.2d 285, 103 S.Ct. 305 (1982). The reviewing court must ask "whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319, 61 L.Ed.2d 560, 99 S.Ct. 2781 (1979). This does not involve weighing the evidence or judging the credibility of witnesses. See Gibson, 675 F.2d at 829.

To prove a violation of 26 U.S.C. §7206(1), the government must demonstrate that (1) the defendant willfully made and subscribed a tax return that was (2) signed under penalties of perjury and (3) the defendant did not believe the return to be true and correct as to every material matter. See United States v. Bishop [73-1 USTC ¶9459], 412 U.S. 346, 350, 36 L.Ed.2d 941, 93 S.Ct. 2008 (1973). Challenging the adequacy of the government's proofs with respect to the element of willfulness in signing and filing the false returns prepared by Golovich, Ristovski argues that he lacked formal education and that he conducted the financial aspects of his business--freely mixing personal and business assets--in accord with his "old world" background. (He had immigrated to the United States from Yugoslavia at the age of 9.) He also maintains that his management of the company focused on operations in the shop and that he remained largely ignorant of the company's finances. He naively trusted Penny and Golovich to keep accurate records, he says, and had no idea that anything was amiss when he signed the tax returns in question. The jury, obviously, disagreed.

For purposes of section 7206, willfulness has been defined as a "voluntary intentional violation of a known legal duty." United States v. Pomponio [76-2 USTC ¶9695], 429 U.S. 10, 12, 50 L.Ed.2d 12, 97 S.Ct. 22 (1976). The government is permitted to prove willfulness--a state of mind that entails more than a careless disregard for the truth--through the surrounding facts and circumstances. See United States v. Barnes [63-1 USTC ¶9247], 313 F.2d 325, 327 (6th Cir. 1963). Facts and circumstances relevant in this connection include the extent of the defendant's knowledge about the income and revenues of the business and the role played by the defendant in the business operations. See United States v. Mohney [92-1 USTC ¶50,081], 949 F.2d 1397, 1406 (6th Cir. 1991), cert. denied, 504 U.S. 910, 118 L.Ed.2d 546, 112 S.Ct. 1940 (1992).

In the case at bar the evidence did indicate that Ristovski spent a considerable amount of time in the shop. There was also ample evidence, however, that he took an active role in the financial affairs of the business as well. It was Ristovski who, working with a man named Michael Duerr of Mason Iron & Steel, made the arrangements for the advances and for the checks payable to cash. After the initial deal was made, Ristovski would often call Duerr seeking an advance and would instruct Duerr as to the amount he wanted on each check. Ristovski would either pick up the checks and cash them himself or would instruct someone else to do so. When others cashed the checks, they always returned the money to Ristovski or made purchases at Ristovski's instruction.

Ristovski claims that he arranged for checks payable to cash in order to prevent his father (who acted as corporate treasurer) from learning how Precision was spending the money. The father cashed some of the Mason checks, however, and turned the proceeds over to the son. The younger Ristovski had become a signatory on the corporate account in 1987, moreover--before the arrangement with Mason was established--and it was unnecessary for him to obtain his father's approval on corporate expenditures.

Defendant Ristovski's involvement in the financial aspects of the business is also evident from the fact that he kept track of how much money Precision owed to others and how much others owed Precision. He often asked Ms. Penny whether particular funds had been received or particular bills had been paid. Ristovski also orchestrated other financial transactions for the business, such as the purchase and refinancing of property. Further, there was evidence that both Penny and Golovich warned him of the danger of misusing the cash received from Mason.

The jury, in short, heard ample testimony to the effect that Ristovski played an active and sentient role in the financial operations of the business. Under the circumstances presented here, this was more than enough to sustain the denial of his motion for acquittal. See Mohney [92-1 USTC ¶50,081], 949 F.2d at 1406. The evidence did not have to exclude every reasonable hypothesis except that of guilt. See United States v. Reed [87-1 USTC ¶9345], 821 F.2d 322, 325 (6th Cir. 1987).

2. Sufficiency of the Evidence as to Submitting False Documents

The misdemeanor charges against Ristovski for submitting false documents were based on the delivery to the IRS of the replacement invoices created by Chris Formosa. A violation of 26 U.S.C. §7207 occurs when a person willfully discloses to the IRS any documents that the person knows to be false as to any material matter. See 26 U.S.C. §7207. See also Sansone v. United States [65-1 USTC ¶9307], 380 U.S. 343, 13 L.Ed.2d 882, 85 S.Ct. 1004 (1965).

Ristovski argues that the evidence did not show a violation of this section because he had a legitimate reason--the alleged break-in and theft--for giving the IRS replacement invoices; he informed the IRS of this reason; the documents clearly indicated that they were replacements rather than originals; and the IRS was not deceived. Furthermore, according to Ristovski, he did not give the documents to the IRS (his sister did), and he did not otherwise authorize their disclosure. Finally, Ristovski argues that the documents were not "material" inasmuch as the payment of cash for corporate expenses had nothing to do with the false corporate tax returns.

These arguments are not without flaws. Although the replacement invoices were given to the IRS agent by Ristovski's sister, for example, the jury was entitled to find that she was acting as his attorney at the time, just as it could find that Ristovski himself had instructed Formosa to create the new documents with a view to their delivery to the IRS. Moreover, Ristovski arranged for new documents to be created even where some original paperwork was available. (The original paperwork was later taken from Formosa in a drug raid.) Formosa --who apparently owed Ristovski money at the time in question--testified that the documents were reconstructed largely from memory, although he did rely to some extent on existing receipts for items he had bought for use in making repairs to Precision's vehicles. He admitted to simply making up some figures to suit Ristovski's needs, and he testified that the numbers given were merely guesstimates. The IRS, for its part, was unable to substantiate the payments reported in the replacement documents.

Given, as we have said, that our task is to determine "whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt," see Jackson, 443 U.S. at 319, we conclude that Ristovski's conviction for submission of false documents must be affirmed. The argument regarding materiality does not persuade us otherwise. Contrary to what Ristovski suggests, the documents need not have been relevant to the tax evasion. These documents probably had such relevance, in our view, but the law only requires that the falsities be material to the documents themselves. See 26 U.S.C. §2707. Here the documents set forth amounts--and perhaps entire transactions--that were fictitious. This would certainly be material to any reconstructed invoice.

B. Lack of "Willfulness" Jury Instruction

Ristovski argues that the alleged insufficiency of the evidence as to his willfulness in subscribing the false corporate returns was exacerbated by the court's failure to give a requested jury instruction as to the meaning of "willfulness" in this context. Refusal to give a jury instruction is reversible error if:

"(1) the omitted instructions are a correct statement of the law; (2) the instruction is not substantially covered by other delivered charges; and (3) the failure to give the instruction impairs the requesting party's theory of the case. It is only when the instructions given, viewed as a whole, are misleading, that a reversal of judgment is warranted." Sutkiewicz v. Monroe County Sheriff, 110 F.3d 352, 361 (6th Cir. 1997).

Although the trial court refused to give the requested instruction on willfulness with respect to the corporate tax returns, the court did instruct the jury that, as to all the counts, the "Government must prove beyond a reasonable doubt that the Defendant acted willfully. To act willfully means to act voluntarily and deliberately and intending to violate a known legal duty. Negligent conduct is not sufficient to constitute willfulness." This differed from Ristovski's proposed instruction only in the last sentence, where Ristovski asked for this formulation: "Mere negligence, inadvertence, mistake, a careless disregard for the truth, or even gross negligence is not sufficient to constitute willfulness." We believe that the requested instruction was "substantially covered by other delivered charges," and the instructions as given clearly applied to the corporate tax return counts. Viewed as a whole, the instructions were not misleading.

C. Multiplicity of Counts for Submission of False Documents

Ristovski maintains that the eight misdemeanor counts based on the submission of the recreated invoices were multiplicitous. An indictment offends the rule against multiplicity when it charges one criminal offense in several counts. See United States v. Hart, 70 F.3d 854, 859 (6th Cir. 1995), cert. denied, 517 U.S. 1127, 134 L.Ed.2d 534, 116 S.Ct. 1368 (1996). Here the documents were all submitted to the IRS together, arguably giving rise to only one offense. But Ristovski did not raise the multiplicity issue prior to trial, and he thus waived any claim that the indictment should be dismissed on that ground. See id. at 860 (citing Rule 12(b)(2), Fed.R.Crim.P.), and United States v. Colbert, 977 F.2d 203, 208 (6th Cir. 1992).

As far as sentencing is concerned, we note that Risotvski's 12-month sentences for the misdemeanors are to be served concurrently. This being so, it makes no practical difference whether the counts were multiplicitous or not. Furthermore, Ristovski raised this issue in a footnote only. An argument raised in this manner merits little, if any, attention. See Becherer v. Merrill Lynch, Pierce, Fenner & Smith, 43 F.3d 1054, 1058-59 (6th Cir.), cert. denied, 516 U.S. 912, 133 L.Ed.2d 203, 116 S.Ct. 296 (1995).

D. Evidentiary Rulings

1. Evidence as to Money Received in 1988

Because he was not charged with tax evasion for 1988, Ristovski argues that the trial court erred in declining, as it did, to exclude evidence of the amount of money Precision received from Mason in 1988 in the form of checks payable to cash. Because the 1988 receipts were part of the same tax evasion scheme as that charged, however, the evidence was admissible as "intrinsic" to the charged conduct. The evidentiary rule on which Ristovski's relies--Rule 404(b), Fed.R.Evid.--need not be applied here. See United States v. Barnes, 49 F.3d 1144, 1149 (6th Cir. 1995). And even under Rule 404(b), which was considered by the district court in denying Ristovski's motion in limine on this matter, the evidence was admissible to show willfulness. See United States v. Ausmus [85-2 USTC ¶9742], 774 F.2d 722, 727-28 (6th Cir. 1985). In addition, an appropriate limiting instruction was given. We see no basis for a reversal on this point.

2. Information on Cash Transaction Reporting Requirement

Ristovski complains that the government should not have been allowed to introduce evidence that the IRS requires banks to file reports for cash transactions involving more than $10,000 and should not have been allowed to bring out the fact that Ristovski directed that checks totaling more than $10,000 be cashed at different bank branches. Again, however, this information was relevant under Rule 404(b) as indicative of willfulness.

3. Testimony by Joan Penny

Ristovski argues that Joan Penny should not have been allowed to testify that she told Ristovski to plead guilty and that he refused because the government would not offer him less than a felony conviction. This testimony, he says, was gratuitous and vindictive.

A cautionary instruction was given, however, and Ms. Penny's testimony does not seem particularly damning in context. She had made it clear to Ristovski that she did not want to become involved in the litigation, and her testimony could easily be read to mean that she asked him to plead guilty in order to keep her out of the matter. Any error, we believe, was harmless.

Ms. Penny also testified that Ristovski was subject to a restraining order as a result of having threatened to kill everyone in Penny's house. No objection to this testimony was made, so it can be reviewed for plain error only. See United States v. Kelly, 204 F.3d 652, 2000 U.S. App. LEXIS 2696 (6th Cir. 2000). Given the context of the statement--establishing the current extent of contact between Penny and Ristovski--no plain error is evident. Moreover, the jury already knew that Penny and Ristovski were no longer on amiable terms and that Ristovski had a violent temper. Her testimony added little to the story.

4. Impeachment of Formosa by the Government

Ristovski complains that the court erred in allowing the government to impeach Chris Formosa, its own witness. This impeachment occurred when the government showed that Formosa has a conviction on his record, that he was interviewed by the IRS while in jail, and that belongings he kept in his employer's garage had been subject to a search by the Drug Enforcement Administration.

Any party is allowed to impeach a witness, even the party calling the witness. See Rule 607, Fed.R.Evid. Formosa 's credibility was at issue because of his testimony regarding the validity of the replacement documents he created for Ristovski. In addition, his presence in jail, and the DEA raid, helped explain why he did not know where his original paperwork was at the time of trial. We reject this assignment of error.

E. Acceptance of Partial Jury Verdict

After more than six hours of deliberation, the jury informed the court that it had reached a unanimous verdict as to Counts III through XII. Defense counsel objected to the receipt of a partial verdict, urging that in further considering Counts I and II the jury might reconsider the other counts. The court nonetheless elected to receive the partial verdict. After deliberating further, the jury then asked the court this question: "Will our verdict on Counts III through XII stand if we are hung on Counts I and II?" Ristovski argues that this confirms that the jury did not understand the consequences of a partial verdict and might have reconsidered its decision as to Counts III through XII had it been able to.

Whether to accept a partial verdict is left to the sound discretion of the trial court. See United States v. Benedict, 95 F.3d 17, 19 (8th Cir. 1996). No abuse of that discretion is evident here, where the court gave the jury the option of continuing deliberations on all counts or proceeding with a partial verdict on the decided counts. The jury's subsequent note can reasonably be interpreted as seeking reassurance that being hung on two counts--which would lead to a mistrial--would not negate the verdict already rendered on the other counts.

There was no inconsistency, moreover, in finding the defendant guilty on Counts III through XII but not on Counts I and II. Further deliberations on Counts I and II did not necessarily require reconsideration of the other counts so as to make a partial verdict inappropriate. Cf. Benedict, 95 F.3d at 20.

F. Sentencing Issues

1. Use of the 1997 Guidelines

The presentence investigation report, which was largely followed by the district court in sentencing Ristovski, used the 1997 edition of the sentencing guidelines, the edition that was expected to be in effect at the time of sentencing. See 18 U.S.C. §3553 and U.S.S.G. §1B1.11(a). At the sentencing hearing the court observed that the 1994 edition was applicable to Ristovski, this having been the edition in effect in 1995 when the misdemeanors were committed. The court noted, however, that the 1997 edition was identical to the 1994 edition insofar as the relevant sections were concerned.

Ristovski argues that the 1991 edition of the guidelines should have been used, his felony convictions having been based on the subscription of tax returns for 1989 and 1990. These crimes occurred prior to 1993 guideline amendments that increased sentencing offense levels for corporate tax evasion. The increase, in Ristovski's case, came to two levels.

It seems to us that Ristovski's argument has considerable force, notwithstanding the "one book" rule embodied in U.S.S.G. §1B1.11(b)(2) and notwithstanding the rule that in general requires the use of an amended edition of the guidelines when a defendant has been convicted of one offense committed before the amendment and one committed afterwards. U.S.S.G. §1B1.11(b)(3). See Miller v. Florida, 482 U.S. 423, 96 L.Ed.2d 351, 107 S.Ct. 2446 (1987), where the Ex Post Facto Clause of the United States Constitution was held to bar retrospective application of an amendment in a state sentencing scheme. The Miller amendment was one that substantially disadvantaged the defendant, whose crime had been committed before the amendment was adopted; the Court declined to let the amendment be applied notwithstanding that the state statute had from the beginning warned of future amendments.

Ordinarily, as explained in the Background section of the Commentary accompanying U.S.S.G. §1B1.11 (1997 ed.), ex post facto considerations pose no bar to application of the guidelines as written (i.e., to use an amended edition) in situations where, as here, at least one of a series of offenses was committed after the amendment had become effective. This is so, basically, because relevant conduct involving the earlier offense or offenses can properly be taken into account in fixing the punishment for the post-amendment offense or offenses. In the instant case, however, the post-amendment offenses were misdemeanors for which the maximum term of imprisonment authorized by statute--12 months--was the sentence actually imposed by the court. Under these circumstances it is not readily apparent to us how the commission of misdemeanors after the 1993 amendment could properly be used to ratchet up the sentence for felonies committed before the amendment. For purposes of this appeal, in any event, we shall assume that Ristovski should have been sentenced under the 1991 edition of the guidelines.

2. Use as Relevant Conduct of Uncharged Violations Involving 1988 Returns

Ristovski takes issue with the district court's use of tax violations associated with the 1988 returns, which were not included in the indictment, in determining the tax loss under the sentencing guidelines. His complaint is not with the use of uncharged relevant conduct as such, see United States v. Pierce, 17 F.3d 146, 150 (6th Cir. 1994), but with the use of the full amount ($105,000) received from Mason in 1988 in the form of checks payable to cash. Ristovski argues that he had no way to rebut this figure, the bank records from 1988 no longer being available. Citing United States v. Silverman, 976 F.2d 1502, 1506 (5th Cir. 1991), cert. denied, 507 U.S. 990, 123 L.Ed.2d 159, 113 S.Ct. 1595 (1992), he contends that none of the $105,000 should have been included. At the very least, he asserts, $60,000 of the Mason advances was used to refinance Precision's real property, and this and other legitimate expenses should have been deducted from the $105,000.

We are not persuaded. It is clear from testimony throughout the trial that numerous records from 1988 were available. These showed that no deposits of the proceeds of Mason checks payable to cash were made to the corporate account or otherwise picked up as corporate income. As to the refinancing, the property in question was titled in the name of Ristovski's sister, not in the name of the company. After the refinancing, the company paid rent to the sister. The $60,000 thus cannot count as an expense for the business. Other items pointed to by Ristovski are not supported in the record either.

3. Failure to Aggregate Tax Loss from Personal Tax Evasion

The government argues here, as it did at the sentencing hearing, that the tax loss used to determine Ristovski's base offense level should have included both the loss from his personal tax evasion ($55,384)--a loss supported by a preponderance of the evidence, notwithstanding the absence of a conviction--and the loss resulting from the false corporate tax returns ($33,062), for an aggregate loss of $88,446. This figure would have resulted in a base offense level of 12, under the 1991 guidelines, rather than 11.

The sentencing court refused to aggregate the losses. The court used only the $55,384, ¹ expressing some concern that to do otherwise might constitute double counting, the same money not having been reported on either the personal or corporate returns. But in United States v. Cseplo, 42 F.3d 360 (6th Cir. 1994), a case with facts nearly identical to those presented here, we held that the personal tax loss and the corporate tax loss must be aggregated. See Cseplo, 42 F.3d at 364-65. That precedent is controlling in the instant case. The losses should have been aggregated, thereby raising the offense level by one.

4. Exclusion of Misdemeanors in Determining Criminal History Category

In determining Ristovski's criminal history category, the presentence investigation report counted two previous misdemeanor convictions. One was for assault and battery and the other for driving with a revoked license. The court sustained Ristovski's objection to the use of these convictions, thereby reducing his criminal history category from Category II to Category I.

In support of his objection, Ristovski argued that (1) there was inadequate documentation of the convictions; (2) there was no proof that Ristovski had been represented by counsel when he pleaded guilty; and (3) as to the revoked license offense, his sentence did not meet the requirements of U.S.S.G. §4A1.2.

The district court sustained the objection on the ground that the government could not show that Ristovski had been represented by counsel. The Supreme Court, however, has stated that the burden of proof as to the presence of counsel is properly placed on the defendant. See Parke v. Raley, 506 U.S. 20, 30-31, 121 L.Ed.2d 391, 113 S.Ct. 517 (1992). The district court should have presumed the validity of the convictions unless adequately rebutted by the defendant. See United States v. McGlocklin, 8 F.3d 1037, 1043 (6th Cir. 1993), cert. denied, 511 U.S. 1054, 128 L.Ed.2d 341, 114 S.Ct. 1614 (1994). See also United States v. Cordero, 42 F.3d 697, 701 (1st Cir. 1994), United States v. Ruo, 943 F.2d 1274, 1276 (11th Cir. 1991), and United States v. Gallman, 907 F.2d 639, 643 (7th Cir.), cert. denied, 499 U.S. 908, 113 L.Ed.2d 219, 111 S.Ct. 1110 (1991). Moreover, the probation officer testified that she verbally confirmed with the relevant state courts that their records indicated that Ristovski had been represented by counsel.

Ristovski's argument as to the lack of documentation has little merit. Although copies of the judgments were not provided, it is clear that Ristovski's counsel had paperwork regarding at least one of the convictions--he referred to it when arguing about Ristovski's sentence in the driving-with-revoked-license incident. Furthermore, the probation officer testified that she verified the convictions and that the courts had microfiche records of the incidents.

As to Ristovski's final argument, U.S.S.G. §4A1.2 provides that driving-with-revoked-license offenses are counted in a criminal history "only if (a) the sentence was a term of probation of at least 1 year or a term of imprisonment of at least 30 days. . . ." U.S.S.G. §4A1.2(c)(1) (1991). The application note to this section explains that if a defendant receives a sentence that allows him to elect a fine or other non-incarcerative punishment as an alternative to incarceration, the sentence is deemed not to have entailed incarceration at all. See U.S.S.G. §4A1.2(c)(1) comment. (n.4). In his objections to the presentence report, Ristovski argued that he received such an elective sentence and that the conviction should therefore not be counted.

This argument--which essentially concedes the existence and validity of the conviction--is incorrect as to the sentence's terms. It became evident at the sentencing hearing that the sentence for the licensing offense entailed a fine of $100, costs of $205, "and 30 Days or 60 Days in Macomb County Jail." (Emphasis added.) Ristovski was given 30 days' incarceration with release for work. His sentence thus qualified under §4A1.2.

In sum, we conclude that the sentencing court should not have sustained Ristovski's objection on the ground it did. Ristovski's alternative arguments as to why the court's decision was correct have no merit. He should have been placed in Criminal History Category II.

Had this been done, and had the sentencing court used the 1991 guidelines and aggregated the tax losses, the guideline range for the felony counts would have been 12-18 months. This, as it happens, is precisely the range that was used. Accordingly, we see no need for a remand.

Both the convictions and the sentences are AFFIRMED.

¹ For reasons not clear from the record, Ristovski was sentenced on the amount of tax loss from his personal tax evasion rather than the amount from the corporate tax evasion. He has not raised this issue on appeal.

 

 

 

 

[2003-1 USTC ¶50,313] United States of America , Plaintiff-Appellee v. Thelmiah Lee, Jr., Defendant-Appellant.

U.S. Court of Appeals, 4th Circuit; 02-4151, 60 FedAppx 425, March 14, 2003 .

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

[ Code Sec. 7207]

Crimes: Fraudulent tax returns: Conviction. --

An individual was properly convicted of two counts of filing fraudulent claims with the IRS under 18 U.S.C. §287. The taxpayer's challenge of the police search, which uncovered evidence of his involvement in the tax scheme, was rejected because the search was determined to be a valid protective sweep supported by probable cause. Tax returns presented during trial were correctly determined not to be Fed. R. Crim. P. 404(b) evidence. As a result, the taxpayer's motion to exclude such evidence was properly denied.

Thomas M. DiBiagio, United States Attorney, Odessa P. Jackson, Assistant United States Attorney, for appellee. Richard D. Bennett, Sean P. Vitrano, Todd M. Reinecker, for appellant.

Before: Luttig, Williams and Traxler, Circuit Judges.

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

OPINION

PER CURIAM: Thelmiah Lee, Jr., was convicted by a jury of three counts of mail fraud, 18 U.S.C. §1341 (2000), based on the filing of false tax returns with agencies in Arizona , Nebraska , and the District of Columbia . Lee was also convicted of two counts of filing false, fictitious, or fraudulent claims, 18 U.S.C. §287 (2000), with the Internal Revenue Service [IRS] for 1995 and 1996. He was sentenced to a thirty-seven month term of imprisonment. Lee appeals the denial of his pre-trial suppression motion and motion in limine. He further claims his due process rights were violated when George Pope, a defense witness, was arrested when he appeared to testify and then invoked his Fifth Amendment privilege through counsel. We affirm the district court's denial of the motions and affirm Lee's conviction.

Agents for the IRS sought and received a search warrant for apartment one at 5515 Second Street , N.W., Washington , D.C. The agents, in conjunction with the United States Postal Service, investigated reports from tax agencies that numerous returns requesting refunds gave the same post office box address in Riverdale , Maryland . Based on their surveillance of the post office and their investigation, the agents believed one person used variations of the names Thelmiah Lee, Jr., and George Pope on the fraudulent tax returns. When the search warrant for apartment one was executed, it became clear that two individuals were involved in the tax scheme and one of them, the man they had observed at the post office box and the residence at 5515 Second Street , was in a second floor apartment in the same building, apartment three. The agents knocked on the door of apartment three and observed, through the broken panels of the door, distinctive clothing the suspect had worn during the post office surveillance. Two District of Columbia police officers were present in conjunction with the execution of the search warrant within their jurisdiction. When the suspect in apartment three would not respond to the officers' inquiries, the officers unhooked the door and entered the apartment. The suspect was found in the bedroom and a shotgun was in the bathroom. The suspect was detained for a short period of time, questioned at the house, and released.

The agents sought another warrant, presenting the original warrant application supplemented with information derived before they entered apartment three: a man they knew as Lee from the post office surveillance was in apartment three, and clothing worn by the suspect was in apartment three. They also asserted information derived from what they characterized as a protective sweep of apartment three: observation of a diploma issued to Thelmiah Lee and mail addressed to Thelmiah Lee in the apartment. The magistrate judge issued a search warrant for apartment three. Evidence seized in the apartment tended to establish Lee resided there and included evidence of the tax scheme.

Upon Lee's arrest, he moved to suppress the evidence from apartment three as seized pursuant to an invalid search warrant. Lee asserted the agents' entry into apartment three was not a valid protective sweep, and the search warrant for apartment three was therefore based on illegally obtained information. The district court denied the motion, finding the entry was pursuant to a valid protective sweep. In the alternative, the court concluded that even if the protective sweep was illegal, sufficient probable cause to issue the warrant had been presented even if the information discovered during the protective sweep was redacted from the warrant application.

This court reviews the factual findings underlying the denial of a motion to suppress for clear error, while reviewing the legal determinations de novo. United States v. Rusher, 966 F.2d 868, 873 (4th Cir. 1992). When a suppression motion has been denied, review of the evidence is made in the light most favorable to the government. United States v. Seidman, 156 F.3d 542, 547 (4th Cir. 1998). The reviewing court should take care to review findings of historical fact only for clear error and to give due weight to inferences drawn from those facts by resident judges and local law enforcement officers. Ornelas v. United States , 517 U.S. 690, 699 (1996). We find it unnecessary to address the district court's finding the protective sweep was legal because we agree that ample probable cause to issue the search warrant existed independently of the information garnered during the protective sweep, that is, observations of the diploma and mail addressed to Lee. See United States v. Gillenwaters, 890 F.2d 679, 681-82 (4th Cir. 1989).

Lee asserts the district court erred in denying his motion in limine to exclude evidence of ninety-six federal tax returns and fifty-five state income tax returns not enumerated in the indictment. This court reviews a district court's ruling on a motion in limine for abuse of discretion. Malone v. Microdyne Corp., 26 F.3d 471, 480 (4th Cir. 1994). We generally review the admission of evidence for abuse of discretion. United States v. Rawle, 845 F.2d 1244, 1247 (4th Cir. 1988). Evidence of uncharged conduct that arises from the same series of transactions as the charged offense or evidence that completes the story of the crime on trial is distinguishable from Rule 404(b) evidence. See United States v. Kennedy, 32 F.3d 876, 886 (4th Cir. 1994); United States v. Mark, 943 F.2d 444, 448 (4th Cir. 1991). We find the district court properly determined the tax returns were not Rule 404(b) evidence, but were instead intrinsic to the offense charged. Therefore, the district court properly denied the motion in limine.

Lee next asserts the arrest of George Pope was improper intimidation of a defense witness. No objection was made at trial. A defendant's due process right to present witnesses may be violated if government intimidation of the witness amounts to "substantial government interference with a defense witness' free and unhampered choice to testify." United States v. Saunders, 943 F.2d 388, 392 (4th Cir. 1991) (citation and internal quotation omitted); see also United States v. MacCloskey, 682 F.2d 468, 479 (4th Cir. 1982). Generally, errors that have not been preserved by contemporaneous objection are reviewed only for plain error. See Fed. R. Crim. P. 52(b); United States v. Olano, 507 U.S. 725, 731-32 (1993). We find no error. The Government did not intimidate Pope but rather arrested him for participation in the tax scheme with Lee when he appeared.

Finally, Lee contends that the district court erred in accepting Pope's counsel's assertion that Pope would invoke his Fifth Amendment Privilege against self-incrimination, and that Pope should have been required to take the stand in front of the jury and so assert. At trial, Lee's counsel willingly accepted the proffer by Pope's counsel. Accordingly, the district court did not abuse its discretion by declining to require Pope to personally assert his privilege before the jury. United States v. Castro, 129 F.3d 226, 231 (1st Cir. 1997) ( citing Namet v. United States [ 63-1 USTC ¶15,502], 373 U.S. 179, 186 (1963)).

Accordingly, we affirm the district court's denial of the motion to suppress and the motion in limine. We also affirm Lee's conviction. We dispense with oral argument because the facts and legal contentions are adequately presented in the material before the court and argument would not aid in the decisional process.

AFFIRMED.