Eighth Circuit Affirms Adult Entertainer's Conviction for Tax Perjury and Sentencing for Unreported Income for Sexual Services (3/20/16)

In United States v. Fairchild, ___ F.3d ___, 2016 U.S. App. LEXIS 4858 (8th Cir. 2016), here, the Court opens the drama:

A jury found Veronica J. Fairchild guilty on four counts of making and subscribing a false tax return, in violation of 26 U.S.C. § 7206(1). The district court n1 sentenced Fairchild to 33 months' imprisonment. On appeal, Fairchild argues that (1) insufficient evidence supports the jury's finding that Fairchild knowingly and willfully underreported her income; (2) the district court abused its discretion in failing to instruct the jury that it was required to unanimously agree on which source of income that Fairchild failed to report on her income tax return; and (3) the district court improperly calculated Fairchild's Guidelines range and imposed a substantively unreasonable sentence. We affirm.

Highly summarized, the facts are:  Fairchild was a female adult entertainer who received large sums of money (over $1,000,000) from one of her customers and smaller significant sums from another.  She failed to file timely income tax returns during the years in which she received the income but subsequently filed delinquent tax returns for the years "apparently unaware of the ongoing IRS investigation."  (The delinquent returns were apparently needed in order to obtain financing for a real estate purchase.)  In those delinquent returns, she reported about 1/2 the amount that the two customers had given her and probably most of that was from sources other than the two customers.  Fairchild claimed that the transfers from her two customers to her were gifts rather than compensation for services.

She claimed that when she met with her accountant in 2010 to prepare her tax returns, she decided to claim some of the gifts from Karlen as income to benefit him, so that he did not have to pay the taxes on all of it. To determine her income over the four years, she "decided that any time [she] spent with David [Karlen], anything that could be construed as income or considered a gray area at a thousand dollars an hour." She testified that she spent an average of two times per month with Karlen over the 48-month period, and she estimated that she spent approximately four or five hours with Karlen during each "session." She stated that she also included going out to eat with Karlen as part of the billable time. Fairchild calculated that she had earned "about $120,000 a year" for each of the four years for services that she provided to Karlen. She testified that, at the time that she filed the tax returns, she believed that the money in excess of what she reported as income was "[g]ifts." But Fairchild admitted that "Karlen never used the word 'gift' with [her]."

I am leaving out some of the details from the opinion.  I think most readers can project the general nature of the details or can read the opinion to get them from the court.

1. Sufficiency of the Evidence.

Fairchild and her customers testified differently at trial as to what the payments were for.  There was sufficient evidence that the jury could determine that she underreported her income on the delinquent returns.  The Court then rejected Fairchild's claim that the nature of the payments was sufficiently unclear that she was not willful in underreporting the income.  Arguing lack of proof of willfulness beyond a reasonable doubt is often the only ultimate defense in criminal tax cases.  Here is what the Court says:

Fifth Circuit Rejects the Equipoise Rule in Testing Sufficiency of Evidence (10/17/15)

The Fifth Circuit recently issued a nonprecedential opinion in United States v. Perez (5th Cir. 2015), here, affirming a preparer's convictions for aiding and assisting.

The opinion is a bit cursory, but the cryptic discussion of the "equipoise rule" caught my eye.  The Court introduces the defendant's claims in the opening paragraph as follows:

Mickey Joe Perez challenges the sufficiency of the evidence supporting his convictions for seven counts of aiding and assisting in the preparation and presentation of false and fraudulent individual income tax returns. According to Perez, none of the employees of Action E-File Services testified that he trained or encouraged anyone to commit tax fraud or that they observed him commit the crimes alleged in the counts of conviction; the testimony of taxpayers for whom he prepared returns was insufficient to show that he willingly violated federal tax laws; and the taxpayers' testimony was not credible because they received "consideration" as the Government stated it did not intend to prosecute them. Perez further asserts that the jury's decision was not rational because the evidence on the counts of conviction was materially indistinguishable from the counts on which he was acquitted. In a similar vein, he asserts that the evidence against his codefendant, Carolyn Clark, was more incriminating than any evidence presented against him, but the jury acquitted Clark on all but one count. Finally, Perez maintains that reversal of his convictions is required because of the "equipoise rule," that the evidence tends to give equal or nearly equal circumstantial support to a theory of guilt or a theory of innocence.

I have bold-faced the issue I discuss here.  The Court dismisses that claim summarily are follows:

Contrary to Perez's argument, we do not consider the jury's rejection of certain counts in determining whether the evidence is sufficient to support Perez's convictions. See United States v. Parks, 68 F.3d 860, 865 (5th Cir. 1995). Further, we have abrogated the "equipoise rule" cited by Perez. See United States v. Vargas-Ocampo, 747 F.3d 299, 301-02 (5th Cir. 2014) (en banc).

That led me to the opinion in Vargas-Ocampo, here.  Here is the relevant part of that en banc opinion (one footnote omitted):

The court voted to rehear this case en banc on the question whether, when examining the sufficiency of evidence supporting a criminal conviction, this court should no longer refer to the "equipoise rule." According to appellant, the "equipoise rule" states that the court "must reverse a conviction if the evidence construed in favor of the verdict 'gives equal or nearly equal circumstantial support to a theory of guilt and a theory of innocence of the crime charged.'" United States v. Jaramillo, 42 F.3d 920, 923 (5th Cir. 1995) (citations omitted). n2 A majority of the court now holds that the "equipoise rule" is not helpful in applying the Supreme Court's standard prescribed in Jackson v. Virginia, whereby reviewing courts must affirm a conviction if, after viewing the evidence and all reasonable inferences 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. 443 U.S. 307, 319, 99 S. Ct. 2781, 2789, 61 L. Ed. 2d 560 (1979) (emphasis in original). We abandon use of the "equipoise rule" and affirm Vargas-Ocampo's conviction.
   n2 See also United States v. Ortega-Reyna, 148 F.3d 540, 543 (5th Cir. 1998) (interpreting the "equipoise rule" to hold that "[w]hen the evidence is essentially in balance, a reasonable jury must necessarily entertain a reasonable doubt"). Other cases citing this "rule" in our circuit include, e.g., United States v. Penaloza-Duarte, 473 F.3d 575, 580-81 (5th Cir. 2006); United States v. Reveles, 190 F.3d 678, 686 (5th Cir. 1999); United States v. Stewart, 145 F.3d 273, 277-80 (5th Cir. 1998). 

1. The "Equipoise Rule" 

Coplan #8 - Summary (12/6/12)

I have finished my trip through Coplan.  I thought a good summary, without the details, but the gravamen of the  Court of Appeals approach and concerns is this "cut and paste" from the excellent blog of a colleague.  Peter D. Hardy, Second Circuit Vacates Part of Tax Shelter Case (White Collar Crime Prof Blog 12/4/12), here.  Mr. Hardy's commentary is focused principally on the sufficiency of the evidence claims.  Here are some excerpts:

The opinion is lengthy and complex, and resists easy summarization.  It is well worth reading because it discusses in detail a kaleidoscope of issues relevant to any "white collar" criminal trial, from evidentiary rulings to jury instructions to sentencing.  This commentary is limited to the sufficiency of evidence claims, and some of their implications for lawyers as potential defendants. 

The panel in Coplan displayed a remarkable willingness to comb through an extremely complicated trial record and test every nuanced inference that the government urged could be drawn from the evidence in support of the verdicts.  The bottom-line holding of the panel was that, after making all inferences in favor of the government, the convictions had to be vacated because the evidence of guilt was at best in equipose. 

Although this general principle can be stated easily, its practical application in Coplan involved the panel conducting a particularized review of the evidence that appellate courts often forego.  For example, one important fact for Shapiro was that a tax opinion letter provided to shelter clients stated that, for the purposes of the "economic substance" test governing tax-related transactions, the clients had a "substantial nontax business purpose" (OK, per the Coplan panel), rather than stating, as it had before Shapiro’s revisions, that the clients had a "principle" (sic - principal) investment purpose.  Likewise, although Shapiro had reviewed letters and attended phone conferences deemed incriminating by the government, his involvement in such conduct was not "habitual" or otherwise substantial.  As for Nissenbaum’s Section 7212(a) conviction, his response to the IDR that the government characterized as obstructive – a partial explanation of the clients’ subjective business reasons for participating in the　tax shelters – could not sustain the conviction because the IDR drafted by the IRS had sought all reasons held by the clients, rather than their primary reason.  If this sounds somewhat murky and convoluted, it is.  The point is that multiple convictions for very significant offenses were vacated after much effort at extremely fine line-drawing.