Monday, November 21, 2011

Third Circuit Opinion for Conviction of Offshore Trust Players (11/21/11)

In a recent non-precedential decision, United States v. Crim, 2011 U.S. App. LEXIS 22891 (3d Cir. 2011), here, the Third Circuit addressed some issues that might be of interest to readers of this blog. The opinion covers the background cryptically because the opinion is addressed "primarily for the parties" who already know the background. Basically, the defendants marketed offshore trust schemes intended to fraudulently evade U.S. tax for the clients entering the schemes. The defendants were charged with several of the various tax crimes that the Government can trot out for such schemes. In the balance of this blog, I address only matters that I think of particular interest to readers.

1. The defendants were charged with a Klein conspiracy (the ubiquitous count one for many tax indictments) and at least one of them (one Crim) was charged with tax obstruction under section 7212(a). Crim did not contest his conviction for conspiracy but did contest the conviction for tax obstruction. As I have previously noted in this blog, the two crimes have essentially the same key features, so the Third Circuit rejected the attack on the tax perjury conviction, noting that Crim's "recognition  that the evidence was sufficient to prove that CTC was an illegal conspiracy to promote tax evasion more than establishes Crim's state of mind for the first element of a Section 7212(a) violation." For prior discussions of the overlap between a Klein conspiracy and section 7212(a), see my prior blog, Tax Obstruction Crimes -- Section 7212 and Klein Conspiracy (5/26/11), here, and see also my larger, longer article, John A. Townsend, Is Making the IRS's Job Harder Enough?, 9 Hous. & Bus. Tax L.J. 260 (2009), here.

2. Another defendant, one Taylor, also tried the same gambit of not contesting the Klein conspiracy but contesting section 7212(a). She also failed.

3. One defendant (Brownlee) did contest the sufficiency of the evidence for the Klein conspiracy conviction. The Court found the evidence sufficient to permit a rational jury to convict on the following basis (footnote omitted):
The Government established that Brownlee warned clients about all-expenses paid vacations to "Club Fed" if they did not shred, burn, and separate their garbage. The evidence showed that Brownlee sent emails to Crim, Taylor and another co-defendant, Wayne Roebuck, expressing his concern about "drawing the attention of the IRS and leaving a trail." In an email to Crim, for example, Brownlee warned about having a client "who gets pinched hard by the IRS and turns into a singing canary." The evidence also revealed that Brownlee sold trusts and opinion letters to clients on behalf of CTC and received commissions for those sales. Brownlee was a frequent speaker at CTC conferences and training seminars. In sum, there was sufficient evidence to support Brownlee's conviction at Count One. 
There was also sufficient evidence to support Brownlee's conviction at Count Two. Testimony revealed that Brownlee spoke about liens at CTC's training session in Lancaster. Brownlee, an attorney, specifically spoke on the topic of the "Legal Substance of Liens," which outlined a method advocated by the conspirators to make a client's assets appear valueless and not subject to taxation by the IRS. An IRS investigator also testified to a handwritten document he discovered at the Lancaster Host Hotel, the location of a CTC conference. The one-page document had the initials "J.B." and a date on it. No conference speaker besides Appellant Brownlee had the initials "J.B." These notes, the record reveals, were similar to several slides of a Power-Point presentation on liens. The investigator also testified that Brownlee often used Power-Point in his presentations. From this evidence, the jury could certainly infer that Brownlee spoke at CTC's Lancaster conference about the firm's techniques of fraudulently using liens to hide assets from the IRS.
4. The defendants complained that the court should not have admitted their personal failures to file tax returns in a case where the charges were about their assistance of others' tax evasion and tax obstruction rather than their own. The district court admitted this evidence as intrinsic evidence of the charges made. The Court of Appeals questioned whether the evidence was intrinsic evidence of the crimes charged, but
The failure to file a tax return was certainly probative of their intent to defraud the Government and prevent the IRS from assessing and collecting taxes on CTC clients. This evidence was also admissible as proof of motive, intent, plan or knowledge. See Fed.R.Evid. 404(b). Further, evidence that they failed to file a tax return was not unduly prejudicial to the Appellants, no more so than the emails, documents and audio recordings introduced at trial, all admitted with no objection from the Appellants.
5. The Court of Appeals rejected one defendant's (Brownlee's) hearsay challenge to certain handwritten notes. Hearsay is a large subject. Suffice it to say in the present context, hearsay is out of court statements from a nontestifying witness used to prove the truth of the statements made. (There are, of course, Confrontation Clause issues swirling around hearsay, but in this case, the statement was Brownlee's own handwriting and thus does not present Confrontation Clause issues.) The particular hearsay in this case was admissible because the admission was solely to prove that the statements were made, not that they were true.

6. The defendants complained about the district court's omission of an agreed-to instruction to use the cooperating defendant's guilty pleas only to assess the credibility of the witness, to eliminate the concerns that the prosecutors were singling out the remaining defendants for prosecution, and to explain how they have first hand knowledge of the events to which they testified. But the district court did adequately advise the jury to view the testimony "with care and caution" and consider whether the testimony might have been influenced by the plea agreement or any other consideration from the Government. Nevertheless, while not complete, the instructions as given were adequate.

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