Saturday, August 28, 2010

Kottwitz -- a Long Rambling Tax Opinion Covering Most of the Major Tax Crimes (8/28/10)

I write about the Eleventh Circuit's recent decision in United States v. Kottwitz, 614 F.3d  1241 (11th Cir. 2010), here., opinion revised and expanded on accountant reliance jury instruction, 627 F.3d 1383 (11th Cir. 2010).  The decision is per curiam so we don't know which judge or which judge's clerks took the laboring oar for the opinion. Judge Birch does dissent, so the other two who formed the majority are Circuit Judge Edmondson and assigned District Judge Terrell Hodges, although I suppose Judge Birch could have written the majority opinion and dissented the part inserted at the insistence of the other two. The per curiam opens with a summary:
Defendants Theresa L. Kottwitz ["Kottwitz"], Gerard Marchelletta, Sr. ["Senior"], and Gerard Marchelletta, Jr. ["Junior"] appeal their convictions and sentences for tax fraud-related charges. We find the evidence sufficient to support the jury's verdict regarding their conspiracy convictions and that the general good faith jury instruction that was provided by the district court fully encompassed Kottwitz and the Marchellettas' theory of defense on this charge. We find, however, that the district court erred in refusing to give Kottwitz's and the Marchellettas' requested special instruction to the jury on their good faith reliance on their accountant's advice. Because the evidence was sufficient for a properly instructed jury to convict on the charges of filing materially false personal income tax returns for 2000 as to Junior and Senior and for evading taxes as to Senior, we vacate and remand for retrial in light of the jury instruction error. Because the evidence was insufficient for a properly instructed jury to convict on the charge of aiding and assisting in the filing of a materially false corporate tax return for 2001, we reverse the convictions of Kottwitz, Junior, and Senior and remand with directions to enter a judgment of acquittal on this count.
1. Conspiracy.

The Per Curiam opinion affirms the sufficiency of the evidence on the conspiracy issue. The analysis is rambling, replete with unfocused glittering generalities and string points and quotations, followed by a a summary conclusion that, well, the evidence was sufficient to present to the jury. For flavor, consider the following:
The knowledge requirement must be established by evidence that each alleged conspirator knew that the scheme would culminate in the filing of false tax returns. Adkinson, 158 F.3d at 1155. Evidence of a conspiracy or that a defendant acted in a way that would have furthered "a conspiracy if there had been one" is insufficient; there must also be independent evidence that the defendants knew of the conspiracy in progress and knowingly and voluntarily joined it. Id. (citation omitted). Due to the complexity of the tax laws, specific intent or "willful" conduct is a necessary element of tax offenses. Cheek v. United States, 498 U.S. 192, 200, 111 S. Ct. 604, 609 (1991). "This tax purpose [to interfere with the IRS's lawful functions in collecting taxes] must be the object of a Klein conspiracy, and not merely a foreseeable consequence of some other conspiratorial scheme." Adkinson, 158 F.3d at 1155. The Klein conspiracy to impede the IRS must be the object, or at least an object in a conspiracy with multiple objectives; it is not adequate if the act of impeding the IRS is "only a collateral effect of an agreement." Id. (quotation and citation omitted). Evidence that owners directed their accountant to refer any questions to them and failed to disclose to their accountant payments to some employees or unreported revenue was sufficient to support a conspiracy conviction for IRS fraud. United States v. Useni, 516 F.3d 634, 650 (7th Cir. 2008).
Innocuous even if unfocused.  I do, however, raise a limited issue. Notice how the Per Curiam Opinion weaves into the conspiracy analysis the Cheek willfulness standard. As I have discussed ad nauseum in my article, that is not how the Government in its expansive imagination of the Klein conspiracy offense imagines it. See John A. Townsend, Is Making the IRS's Job Harder Enough?, 9 Hous. & Bus. Tax L.J. 260 (2009), here.

Addendum on 12/24/10:  On rehearing, the Eleventh Circuit panel reversed the conspiracy conviction for the same reason it reversed other convictions (discussed at paragraph 4, below).  The order on rehearing is here.  Specifically, the good faith reliance on accountant requested instruction.  The panel had already reversed some of the counts on this basis for retrial; since the burden to receive a requested instruction is light, the panel was convinced on rehearing that the requested instruction was proper for the Count One Conspiracy charge.

2. Tax Perjury.

The Per Curiam then says that there was sufficient evidence for the tax perjury charge. This too is based upon a rambling set of the same type stuff that, at least to me, does not convince that the Per Curiam Judges came to grips with the argument. I cannot say the result is wrong. Just that it seems less than focused.

3. Aiding and Assisting.

The Per Curiam then, quite summarily, reverses the aiding and assisting conviction by simply saying that there is no evidence. I guess that, if indeed there were no evidence, there is nothing to talk about. And so the Per Curiam doesn't talk about it [or the not it] other than to note its absence.

4. Failure to Give the Requested Good Faith Instruction.

Now we come to something a bit more meaty. The defense asserted a good faith reliance defense and the record had sufficient evidence to establish that it was a defense to be submitted to the jury. The defense thus properly requested a good faith jury instruction drawn from the Eleventh Circuit's pattern jury instructions. The Per Curiam held that the defense was entitled to that instruction and failure to give it upon proper request was reversible error.

In the course of its glittering generalities and string quotes, the Per Curiam says some curious things. It says, for example, "The requested good faith reliance jury instruction was based on our pattern jury instructions and was, therefore, a correct statement of the law." The Per Curiam cannot be serious in that statement read on its face. Congress never passed the pattern jury instructions nor has the Supreme Court put its imprimature on it, so if the pattern jury instructions misinterpret the law, the pattern jury instructions do not become the law. Cf. United States v. Svete, 521 F.3d 1302, 1310(11th Cir. 2008), reversed en banc 556 F.3d 1157 (11th Cir. 2009) (although reversed because the pattern was found correct, the key point is that pattern jury instructions are not the law).

Once you work past the fluff, the bottom line is that there was sufficient evidence to support the requested jury instruction.

The opinion, including the short dissent, is 70 pages long. Reminds me of the quote attributed to Blaise Pascal (and others), "I would have written a shorter letter, but I did not have the time."


In the subsequent opinion on petition for rehearing, 627 F.3d 1383 (11th Cir. 2010), here, the Court expanded its discussion on the reliance on good faith and expanded it to the conspiracy charge.  The opinion on rehearing is short, so I quote it in full:  I have bold-faced certain portions of the opinion to draw the readers attention in light of the earlier discussion in this blog.
Defendants/Appellants have petitioned for rehearing. We have considered Defendants' arguments and the Government's reply. And we have looked at the record again. We stand by our decision, United States v. Kottwitz, 614 F.3d 1241 (11th Cir. 2010),  except on the issue of the accountant-reliance jury instruction for Count One. 
Defendants contend that the district court erred in refusing to give Defendants their requested jury instruction about reliance on an accountant's advice. In our original decision, we concluded that this refusal constituted reversible error on Counts Three, Four, and Five. Then, we remanded the case to the district court for retrial with the requested instruction on those counts only. Now, we conclude that the district court was also similarly incorrect to deny Defendants' accountant-reliance jury instruction on the Count One conspiracy charges. 
To receive a requested jury instruction in this Circuit, a defendant's burden is light: "any foundation in the evidence" is sufficient. United States v. Opdahl, 930 F.2d 1530, 1535 (11th Cir. 1991). On reflection, we accept that Defendants met this burden. Sufficient evidence was introduced to allow the conviction of Defendants on Count One on the basis of several alternative interpretations of the facts. 
Even though no evidence directly showed that Defendants' accountant was involved in initially entering/hiding transactions on the corporate books (for example, the personal-expense transactions), Defendants introduced enough circumstantial evidence to warrant an instruction that -- at some pertinent point -- Defendants may have relied on the accountant's advice. 
Virtually all of the suspect transactions occurred after Defendants' accountant was hired in mid-1999; and the accountant had authority to (and in fact did) review and reclassify some entries in the corporate books. In addition, the accountant prepared the tax returns that resulted in underpayment of taxes. Even if it was not the only and not the most likely explanation of events leading to the guilty verdicts on Count One, an evidentiary basis existed for conviction under Count One that could have involved Defendants, in fact, relying on the advice of their accountant. For example, the jury might have believed that Defendants acted with the accountant's tacit approval of Defendants' accounting methods. n2
|   n2 The correct test in this Circuit for the "act" element in an 18 U.S.C. section 371 conspiracy (including the subset of Section 371 conspiracies against the Internal Revenue Service known as Klein conspiracies) is "the commission of an act in furtherance of the agreement." United States v. Adkinson, 158 F.3d 1147, 1153 (11th Cir. 1998). A "failure to properly report income," id. at 1154, is one example of conduct that could satisfy the act element of a Klein conspiracy. But it is not the only possible act that could do so: for example, intentionally making false entries in corporate books could be an act in furtherance of the agreement. Because we cannot know the precise act(s) on which the jury relied for the Count One conspiracy convictions, we cannot rule out that the jury relied on an act that involved -- in a material way -- advice from Defendants' accountant. 
For these reasons, we vacate Kottwitz's, Junior's, and Senior's convictions for conspiracy to defraud the IRS (Count One) and remand the case to the district court for a new trial with an accountant-reliance jury instruction. We withdraw all language in our opinion, United States v. Kottwitz, 614 F.3d 1241 (11th Cir. 2010), inconsistent with this present order. n3
   n3 To be clear, as a result of our original decision and this present order, we have vacated or reversed each of Defendants' convictions and sentences at issue on appeal. 
Otherwise, Defendants' petitions for rehearing are DENIED. And, no judge of the Court having requested a poll, Defendant Kottwitz's suggestion for rehearing en banc is DENIED. 
Petitions DENIED, except Defendants' convictions and sentences on Count One are VACATED; the case is REMANDED.
The point is that a reliance on accountant instruction is essentially a good faith instruction.  By relying on the accountant in good faith, they did not have the requisite Check willfulness intent to violate the law.  Where the record permits that inference of reliance / good faith, they are entitled to the instruction.


  1. What was the final decision on the appeal?

  2. All counts were acquitted or reversed.

    It was a BS isr bogus case where they went for “the win” and not justice. The Appeals court got it right.

    Alpharetta Contractors’ Conviction Overturned

    Marchellettas Win on Appeal


Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.