7th Circuit Speaks on Convictions for Tax Evasion and Failure to File (7/7/12)

In United States v. Collins, ___ F.3d ___, 2012 U.S. App. LEXIS 13743 (7th Cir. 2012), here GS here, the defendant, a former city councilman and vice-mayor of East St. Louis, IL, was convicted of tax evasion (§ 7201), failure to file (§ 7203), and voter fraud (42 U.S.C. § 1973i(c)).  I focus here on the tax counts of conviction.

The key facts are that, while being investigated for voter fraud and related possible crimes, the federal agents check his IRS records and discovered that he had not filed income tax returns since March 1992.  He was indicted for tax "was indicted on nine counts: three counts of tax evasion in violation of 26 U.S.C. § 7201 (for tax years 2003, 2004, and 2005); [and] three counts of willful failure to file tax returns in violation of 26 U.S.C. § 7203 (for the same years)."  With this background, the key facets of the case are:

1.  The Cheek Instructions.  The defendant complained that the district court had given only the standard Cheek instructions from the Seventh Circuit's Pattern Jury Instructions.  These instructions were (i) "the term 'willfully' means the voluntary and intentional violation of a known legal duty," and that "defendant does not act willfully if he believes in good faith that he is acting within the law."  The additional instruction defendant sought and the district court refused to given was that willful did not include "negligence, inadvertence, justifiable excuse, mistake, or a misunderstanding of the law."  This nuance on the word willfully is, of course, a correct nuance and implicit in the instructions that the trial court did give.  The Court of Appeals held that the trial court had not abused its discretion in not giving that requested instruction, invoking standard holdings that the jury was adequately instructed by the instructions given.  The Court of Appeals said (685 F.3d at 656):

Collins's jury was properly instructed on the element of willfulness; the two pattern instructions necessarily—if implicitly—excluded a conviction based on negligent failure to file. Collins's proposed supplemental instruction regarding negligence was redundant and therefore unnecessary. It was also wholly unsupported by the evidence in this case. Collins's persistent failure to file federal and state tax returns—spanning nearly 20 years—cannot plausibly be attributed to mere "negligence."

2.  Conviction for Evasion and Failure to File for the Same Years.  The defendant complained about the sufficiency of the evidence to support the jury conviction on the tax evasion counts.  If that argument prevailed, the defendant would have still been guilty of the three counts of failure to file crime which is a misdemeanor and, setting aside the voter fraud, would have capped the sentence at 36 months (although the Sentencing Guidelines factors would not have been affected).  The Court of Appeals found ample evidence that established the minimal sufficiency to allow the jury's convictions to stand.  In the course of its discussion, the Court of Appeals said (685 F.3d at 656), some case citations omitted):

To convict Collins on the tax-evasion counts, the government had to prove more than a willful failure to file a tax return, which is a separate, lesser offense. n1 For each of the tax years at issue, the government had to prove that Collins took some willful, affirmative step to "evade or defeat" his tax obligation. 26 U.S.C. § 7201. Thus, to convict Collins of tax evasion under § 7201, the government had the burden of proving the following three elements: "(1) a tax deficiency existed, (2) the defendant acted willfully, and (3) the defendant took an affirmative step to elude or defeat the payment of taxes." United States v. Hassebrock, 663 F.3d 906, 918 (7th Cir. 2011).
   n1 In this circuit, a defendant may be convicted and sentenced for both tax evasion in violation of 26 U.S.C. § 7201 and willful failure to file a tax return in violation of 26 U.S.C. § 7203. See United States v. Foster, 789 F.2d 457, 459-61 (7th Cir. 1986). Our holding in Foster is contrary to the position of eight of our sister circuits, and we have recently suggested that it may need to be revisited. United States v. Hassebrock, 663 F.3d 906, 916-17 (7th Cir. 2011). We do not address the issue here because Collins did not raise it.

The relevant part of Hassebrock is (some case citations omitted):

Hassebrock's next claim is similar to his multiplicity claim and contends that the district court erred by failing to give a lesser included offense instruction. He concedes that nothing in the record indicates that his counsel requested this instruction at trial. Because Hassebrock did not request this specific instruction below, we review only for plain error. The initial step in plain error review is to determine whether an error occurred. It was not an error to decline to give a lesser included offense instruction because we have repeatedly reaffirmed Foster's holding that § 7203's charge of willful failure to file is not a lesser included offense of § 7201's charge of tax evasion.  

Hassebrock urges us to reconsider our position given Sansone's [Sansone v. United States, 380 U.S. 343, 351 (1965)] dicta and the contrary position taken by other circuits. See, e.g., United States v. Helmsley, 941 F.2d 71, 99 (2d Cir. 1991); United States v. DeTar, 832 F.2d 1110 (9th Cir. 1987). Hassebrock failed to preserve this argument for de novo review due to his failure to request the lesser included offense instruction at trial. Moreover, ample evidence in the record suggests that Hassebrock engaged in affirmative acts of tax evasion beyond a mere failure to file, thereby rendering a lesser included offense instruction inappropriate even under Sansone. We therefore decline this invitation to revisit our conclusion in Foster and its progeny that § 7203 is a separate offense and not a lesser included offense of § 7201.

The following is a brief introduction to the lesser included offense concept (Michael H. Hoffheimer, The Rise and Fall of Lesser Included Offenses, 36 Rutgers L. J. 351, 356 (2005)):

The doctrine of lesser included offenses evolved to accomplish a number of different tasks. It provides notice to defendants of what crimes, not named in an indictment or formal charge, may be prosecuted at trial. It offers prosecutors flexibility in charging offenses by permitting them to add or substitute less serious charges without suffering the cost and delay that would be occasioned by reindicting or amending charging instruments. It bestows on defendants an opportunity to reduce their liability to a more appropriate, less serious level. It recognizes the right of jurors to be informed of related offenses that might apply. And it establishes limits on multiple prosecutions and cumulative punishments.

I don't think it is necessary here to go too deeply into the concept of lesser included offense and its various permutations in different contexts.  The relevance of the argument in Collins was that, if the defendant could have prevailed on the insufficiency argument for tax evasion, the failure to file counts would stand but would permit a maximum sentence of only 3 years.  In this regard, the trial court seems to have sentenced the crimes only under the tax crimes Guidelines (which would result in the same calculations regardless of whether either or both of evasion or failure to file were counts of conviction) and did not consider the voter fraud Guidelines (see the cryptic footnote 3 at the end of the opinion).  Thus, the defendant apparently could have achieved a real benefit by prevailing on the sufficiency argument as to tax evasion, because counts of conviction only for failure to file would permit a maximum sentence of 3 years regardless of the higher Guidelines ranges.  (Note the application of merger -- one context for lesser included offense analysis -- would not have helped him because merger would have knocked out the failure to file, leaving the tax evasion convictions which would easily support the Guidelines calculations and the sentence the trial court imposed.)

3.  As noted, the Sentencing was apparently under the Sentencing Guidelines for tax.  The trial court sentenced based on the 20% of gross income estimate sanctioned by the Guidelines in the absence of a more accurate determination.  The defendant attempted to argue for a lesser tax loss based on his accountant's reconstruction.  The trial court found his accountant's presentation not credible and rejected it.  The trial court did find the Government's presentation of gross income credible and thus, without a more accurate determination, the trial court applied the 20% estimate.  The Court of Appeals rejected the defendant's assertion of a lesser tax loss because the trial court had found the basis for that assertion not credible.