Eighth Circuit Affirms Offshore Account Related Conviction (1/18/14)

In United States v. Picardi, ___ F.3d )___, 2014 U.S. App.LEXIS 502 (8th Cir. 2014), here, the Eight Circuit affirmed conviction on counts of tax evasion (5 counts), tax perjury (5 counts) and FBAR violations (3 counts).  The Court of Appeals states the background succinctly as follows:

Picardi was a surgeon in western South Dakota. In the mid-1990s, Picardi became a client of Anthony Kritt, an attorney and a certified public accountant. From 1997 until 2003, Picardi participated in an "employee leasing program" promoted and run by Kritt that required Picardi to enter a contract with Montrain Services, Ltd., an Irish corporation, to lease his services as a physician. Montrain Services contracted with Professional Leasing Services, Inc., a Nevada corporation that was operated by Kritt, to provide Picardi's services to Professional Leasing Services. In turn, Professional Leasing Services contracted with Picardi's medical group to "lease" Picardi's services to it. 

Picardi's income from this program was distributed in a manner designed to avoid taxes. Picardi's medical group paid Professional Leasing Services a "leasing fee" for Picardi's medical services. Professional Leasing Services then paid Picardi a small portion of this "leasing fee" as wages, which Picardi reported as income on his tax returns. In a series of complex transactions, the other, larger portion of the "leasing fee" was transferred into foreign financial accounts set up for Picardi. Picardi did not report this portion as income on his federal income tax returns from 1999 until 2003. On paper, the unreported portion of Picardi's income was "deferred compensation" inasmuch as he was supposed to be unable to access it until he retired or turned seventy years old. Picardi did, however, access and use the funds through another series of complex transactions made to look like loans. Picardi further reduced his taxes by categorizing the portion of his income sent overseas as "professional leasing services" expenses on his medical practice's corporate income tax returns. In April 2003, Picardi withdrew from the "employee leasing program," but he continued to maintain his interest in the foreign accounts containing his "deferred compensation." For the 2004 to 2008 tax years, Picardi failed to disclose to the Internal Revenue Service ("IRS") his financial interest in the foreign accounts. 

A federal grand jury returned a superseding indictment charging Picardi with five counts of income tax evasion, in violation of 26 U.S.C. § 7201; five counts of filing a false return, in violation of 26 U.S.C. § 7606(1); and three counts of failing to file with the IRS a required form regarding his interests in foreign accounts, in violation of 31 U.S.C. §§ 5314 and 5322 and 31 C.F.R. §§ 103.24 and  [*4] 103.27(c). Picardi proceeded to a jury trial. At trial, Picardi claimed that he had a good faith belief that the "deferred compensation" component of the "employee leasing program" was legal and that he relied upon the expert and legal advice of Kritt. The jury found Picardi guilty of all thirteen counts, and he was sentenced to 60 months' imprisonment. Picardi then timely filed this appeal.

Picardi raised several issues on appeal.  I address only three (bold face in quotes supplied by JAT).

Exclusion of Exhibit 

During Picardi's cross-examination of IRS Special Agent Christopher Wright, Picardi sought to introduce  [*13] Exhibit 621, an email sent to Kritt containing an editorial that criticizes the IRS's policies regarding offshore bank accounts and describes a new "amnesty" program offered by the IRS. Kritt had forwarded the email to Randy Brodnik, another physician who also participated in an "employee leasing program" run by Kritt, but not to Picardi.4 The Government objected to the admission of the exhibit. The district court found that the unknown identity of the author of the editorial, the author's opinions about the IRS's policies, and the explanation of the changes in the IRS's regulations of offshore accounts would likely confuse the issues for the jury. Thus, the district court excluded Exhibit 621 under Federal Rule of Evidence 403, concluding the evidence was "not relevant in such a way as to have probative value that would overcome its likely confusion of issues for the jury." 

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Picardi claims Kritt's failure to forward the article to Picardi suggests that Kritt knew the program was illegal and sought to hide the IRS amnesty program from Picardi.  

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We conclude that "reversal is inappropriate because the record demonstrates that the district court engaged in the required balancing process and properly found that admitting [Exhibit 621] would violate Rule 403." Id. Exhibit 621 had limited probative value because it did not establish that Kritt never informed Picardi about the amnesty program. And we agree with the district court that the unknown editorial author's unsubstantiated opinions about the IRS's regulations of offshore accounts contained in Exhibit 621 were likely to confuse the jury. Therefore, the district court did not abuse its discretion by excluding Exhibit 621. Additionally, Exhibit 621 was cumulative of Picardi's testimony. Picardi testified that Kritt never advised him of any IRS amnesty program and that he was unaware of such a program. Thus, Picardi was able to testify to the same information that he sought to convey through Exhibit 621. Therefore, the district court's exclusion of Exhibit 621, even if it were improper, did not affect Picardi's "substantial rights" nor did it have "more than a slight influence on the verdict," making reversal inappropriate. See Summage, 575 F.3d at 877 (quoting Two Shields, 497 F.3d at 792).

Limitation on Scope of Witness' Testimony.

At trial, Picardi sought to question a witness about a conversation, in which, Picardi alleged, he did not file amended returns to correct the erroneous reportings based on Kritt's advice.  The testimony, if elicited, would have gone to the reliance on counsel defense.  The trial court exluded the testimony.  The Court of Appeals held that the trial court had not abused its discretion.

Theory of Defense Instruction

The most significant holding in the case relates to Picardi's claim that the district court improperly denied him a theory of defense instruction.  The Court states his claim and rejects it succinctly:

Picardi argues that the district court abused its discretion by refusing to give his proposed theory-of-defense instruction, which stated that a defendant could not form the requisite intent to violate a vague or highly debatable tax law. n5 "We review a district court's rejection of a defendant's proposed instruction for abuse of discretion, and we recognize that district courts are entitled to broad discretion in formulating the jury instructions." United States v. Ironi, 525 F.3d 683, 688 (8th Cir. 2008) (quoting United States v. Hayes, 518 F.3d 989, 994 (8th Cir. 2008)).
   n5 Picardi's proposed instruction reads:
   Where the tax law is vague or highly debatable, a defendant lacks the requisite intent to violate it. Criminal prosecution for the violation of an unclear duty itself violates the clear constitutional duty of the government to warn citizens whether particular conduct is legal or illegal.
   A defendant cannot be guilty of willfully evading and defeating income tax when the law surrounding the deductibility of certain expenses is unsettled and there is no direct authority pointing to a ready answer. The tax law is "unsettled" where individuals could plausibly reach directly opposing, reasonable and well-supported, conclusions regarding the law's interpretation. 

A defendant is not entitled to a jury instruction regarding an issue reserved for the court. See United States v. Hiland, 909 F.2d 1114, 1127 n.17 (8th Cir. 1990). Picardi's proposed theory-of-defense instruction presents an issue reserved for the court because the question of whether a tax law is void for vagueness is a question of law for the court to decide, not the jury. United States v. Mallas, 762 F.2d 361, 364 n.4 (4th Cir. 1985); see id. ("The uncertainty of a tax law, like all questions of vagueness, is decided by the court as an issue of law."); see also Hiland, 909 F.2d at 1127 n.17 ("The issue whether the vagueness doctrine precluded conviction of [the defendant] . . . presented a question of law for the court to decide, not the jury."). Therefore, the district court did not abuse its discretion by refusing to give Picardi's proposed instruction. See United States v. House, 684 F.3d 1173, 1207 (11th Cir. 2012) (finding no abuse of discretion where the district court refused to give the defendant's instruction because "the issue of whether a [law] is void for vagueness is a question of law for the court to determine" (alteration in original) (quoting United States v. Paradies, 98 F.3d 1266, 1284 (11th Cir. 1996)).

Notice that the court couches the issue as an abuse of discretion issue -- not that the Picardi was categorically not entitled to an instruction of the type requested (in which case abuse of discretion would be irrelevant).  Does that mean that, in some cases, it might be appropriate for a judge to give some instruction of this type?  Of course, if the judge does, and the defendant is convicted anyway, the defendant has no complaint.  If the defendant is acquitted, the Government might have a complaint but just has no remedy.  And, it seems to me that while the general rule is as stated by the court that the trial judge makes the determination of legal uncertainty, legal uncertainty may blend into the factual defense that the defendant did not subjectively know the law. I think defense counsel should continue to press for this type of instruction, perhaps more tailored to the facts that developed at trial.

Also, I notice from the USAO SD press release on the original sentencing, here, that Picardi was sentenced to 60 months total based upon all convictions sentencings running concurrently.  The press release describes the underlying conduct:

On October 5, 2012 following a multi-week trial, Picardi was convicted by a federal jury after hearing evidence that he sent his earnings through a complicated offshore network. His earnings passed through a web of entities organized under the laws of Ireland, Hungary, Cyprus, Isle of Man, Jersey, and Guernsey. The money was ultimately deposited into various foreign accounts that Picardi controlled through a New Zealand trust, in the name of a corporation set up for him in Nevis, a Caribbean island. Through these offshore transactions, Picardi attempted to hide his income and evade over $1 million in taxes.