DC Circuit Reverses Preparer Conviction for Prosecutorial Misconduct (7/22/17)

I do not spend much time on this blog on return preparer fraud (or stolen identity refund fraud).  But, this case caught my attention United States v. Davis, ___ F.3d ___, 2017 U.S. App. LEXIS 13109 (DC Cir. 2017), here.  The reason it caught my attention was that the Court of Appeals found prosecutorial misconduct in the prosecutors' closing argument.  The prosecution was of a mother and a son involved in the return preparation business.

Here is the key part of the discussion:

To set the context for assessing Andre's contention that the court must reverse his convictions on both counts because of prosecutorial misconduct during closing arguments, we summarize the relevant evidence, and this necessarily entails some overlap with our consideration of Andre's sufficiency challenge. The government's case against Andre as to both Count 1 and Count 19 was thin. See Part II.B, infra. Although the evidence established that Andre began working with his mother after graduating from college and that false tax returns were filed under the Davis Financial Services EFIN during this period, the evidence of Andre's knowing participation in Sherri's tax fraud scheme was equivocal, at best. LaDonna testified that she cautioned Andre against working for Sherri, but she did not specify why she thought doing so "wasn't a good idea." Trial Tr. 81 (Jan. 20, 2015 (pm)). Thomas Jaycox testified on direct examination that Andre had prepared his 2012 tax return, but qualified his testimony on cross-examination and redirect by clarifying that Sherri had, in fact, also "put[] information on" and "finalize[d]" his return after Andre had worked on it. Trial Tr. 47, 80 (Jan. 22, 2015 (am)). The evidence thus failed to establish who entered the false deductions into Jaycox's return; Sherri was just as, if not more, likely to have done so than Andre. The remaining evidence against Andre, such as Andre's name on the EFIN application and other documents, at most confirms only that he was engaged in operating a tax-preparation business, not that he had the specific intent to file false returns or otherwise knowingly joined Sherri's conspiracy to defraud the United States. 

Examination of the prosecutor's closing arguments reveals multiple misstatements of this evidence and, given the gaps in the government's evidentiary case, their prejudicial effect is readily apparent. For instance, the prosecutor told the jury that Andre personally designated the bank account into which tax preparation fees were deposited in 2013 and that Andre and Sherri made a "staggering amount of money" but failed to report such income in their individual tax returns. Trial Tr. 170 (Jan. 28, 2015). Even assuming that the first point is not false, because Andre's designation of the bank account might be viewed as a reasonable inference from the TaxWise evidence, there is no evidentiary basis for the second, nor does the government point to any on appeal. The evidence of earnings and income reporting related only to Sherri's receipt of fees and failure to accurately report her individual income to the IRS. There was no comparable evidence as to Andre. Not only was there no direct evidence Andre received fees for preparing and filing false returns, much less in "staggering amounts," as the prosecutor told the jury, Trial Tr. 170 (Jan. 28, 2015), there was no evidence Andre under-reported his individual income on his tax returns. Lumping Andre together with Sherri in this manner was clearly prejudicial to Andre. The prosecutor also misleadingly minimized Sherri's role in completing Jaycox's 2012 return, telling the jury that Sherri only "came over to make sure it was okay, or something to that effect," id. at 88, when Jaycox testified that Sherri "finalize[d]" his taxes and "finished everything else out" on his 2012 return. Trial Tr. 47, 80 (Jan. 22, 2015 (am)). 

Even more critically, the prosecutor blatantly misrepresented the evidence regarding Andre's mens rea. First, in the opening portion of his closing argument after asking the jury, "how do we know that the Defendant Andre Davis acted willfully," the prosecutor told the jury that LaDonna had told Andre about the criminal charges she was facing and that Andre had reassured her by saying, "Don't worry. I know what I'm doing." Trial Tr. 96 (Jan. 28, 2015). The prosecutor then told the jury: "So he knows. He knows that 2FT is under criminal investigation, but yet he continues to file. . . . He acted willfully with the specific intent to violate the law." Id. at 97. But this did not accurately recount LaDonna's testimony. Even now, the government's brief misstates that there was evidence LaDonna had told Andre about the criminal nature of the investigation in which she was involved. See Appellee Br. 17. In fact, LaDonna's account of the conversation never indicated that she had told Andre or that he was otherwise aware of the criminal nature of the IRS investigation of 2FT or that Sherri, rather than LaDonna alone, was implicated in it. Second, in rebuttal closing argument, the prosecutor again asked "how do we know that these defendants were trying to commit fraud," and this time told the jury that it's because "[t]hey're photocopying Goodwill receipts and whiting them out . . . to have back-up documents to support the $47,000 and $50,000 deductions for Thomas Jaycox[.]" Id. at 170. But the evidence regarding the business providing clients with blank Goodwill or other charitable receipts pertained only to years prior to the time when Andre began working with his mother and his tenure at Davis Financial Services. Jaycox brought his own receipts in 2012. The government's response on appeal, that the "Sherri or Andre" statement is technically true, because Sherri provided blank Goodwill receipts, rings hollow; the government tarred Andre with evidence that it implicitly acknowledges had nothing to do with him. See Appellee Br. 46.

The government's evidence that Andre had the requisite mens rea for the offenses for which he was convicted was close to none and at best minimal. See Part II.B, infra. Perhaps recognizing the weakness in the government's case, the prosecutor sought to convince the jury during closing arguments that Andre knew about the fraudulent activity of the 2FT business and nonetheless knowingly joined in it once he began working with his mother. The prosecutor did so by inappropriately bolstering what little evidence there was. No remedial or limiting instruction was given to the jury at any point to mitigate the obvious prejudice to Andre. But for the government's misrepresentations of key evidence, the court is left with the distinct doubt that a jury would have found beyond a reasonable doubt that Andre was knowingly involved in preparing and filing false tax returns and thereby perpetrating the fraudulent tax scheme. The prosecutor's blatant misstatements on that critical issue jeopardize the court's confidence that the prosecutor's misconduct during closing arguments did not affect the jury's verdict against Andre. See Kotteakos v. United States, 328 U.S. 750, 764-65, 66 S. Ct. 1239, 90 L. Ed. 1557 (1946); Valdez, 723 F.3d at 209 (citing Gaither v. United States, 413 F.2d 1061, 1079, 134 U.S. App. D.C. 154 (D.C. Cir. 1969)). "This test applies regardless of whether our review is for harmless error or [as here] plain error." United States v. Watson, 171 F.3d 695, 700, 335 U.S. App. D.C. 232 (D.C. Cir. 1999); see McGill, 815 F.3d at 918. Standard jury instructions, such as that "statements and arguments of counsel are not evidence," Trial Tr. 33 (Jan. 28, 2015), and that it is the jury's "memory of the evidence . . . that should control during . . . deliberations," id. at 32, have long been recognized not to be "a cure-all for such errors," Gaither, 413 F.2d at 1079. Given that the evidence against Andre "was not such that his conviction was by any means a certainty," the prosecutor's egregious misstatements of it during closing argument amount to plain error, and accordingly, require reversal of Andre's convictions. United States v. Richardson, 161 F.3d 728, 737, 333 U.S. App. D.C. 178 (D.C. Cir. 1998).

The Court then held that Andre could not because the evidence was not sufficient to support a conviction.  The Court concludes:

In sum, the evidence failed to establish, beyond a reasonable doubt, that Andre knowingly defrauded the United States or knowingly assisted in the preparation and filing of a false tax return.

Earlier, the Court had set forth the requirements for Andre's convictions:

To prove Andre's guilt beyond a reasonable doubt on Count 1, conspiracy, the government had to prove that he knowingly agreed with Sherri (or another person) to defraud the federal government of money or to deceptively interfere with the lawful functions of the IRS. See Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S. Ct. 511, 68 L. Ed. 968 (1924); United States v. Treadwell, 760 F.2d 327, 333, 245 U.S. App. D.C. 257 (D.C. Cir. 1985). To prove Andre's guilt on Count 19, the government had to prove that he aided or assisted in the preparation or presentation of Jaycox's false tax return with a specific intent to violate the law. Cheek v. United States, 498 U.S. 192, 200-01, 111 S. Ct. 604, 112 L. Ed. 2d 617 (1991).

Note that the court correctly states the elements of proof for the two counts, using the term knowingly for the conspiracy count and, although not mentioning the statutory element of willfulness, using the Cheek test for willfulness for the aiding and assisting count under § 7206(2).  But then, by the time it reaches its conclusions quoted above, it describes the mens rea for both crimes as "knowingly," which actually misstates the mens rea for the aiding and assisting crime.  Of course, since the definitions of knowingly in the criminal law is less strict than willfulness for tax crimes, it would follow that, if the evidence did not establish that Andre acted knowingly, by definition, it did not establish that he acted willfully.  And, another possibility, is that the Court misspoke and meant to say willfully.