Thursday, May 2, 2019

10th Circuit Rejects Affirmative Act Challenge to Tax Evasion Convictions (5/2/19)

In United States v. Gorrell, ___ F.3d ___, 2019 U.S. App. LEXIS 12758 (10th cir. 2019), here, "Gorrell was convicted of three counts of wire fraud, 18 U.S.C. § 1343, and three counts of tax evasion, 26 U.S.C. § 7201."  Gorrell appealed only his convictions of tax evasion.  As interpreted by the Court, his argument on appeal was that "the jury was improperly instructed because the alleged affirmative acts contained in the jury instructions (as set forth in the Superseding Indictment) are legally insufficient in light of the evidence presented at trial."  The Court concludes that the alleged affirmative acts were sufficient to support the general jury verdict of guilt on the tax evasions charges.

The instruction on tax evasion was:
To find the defendant guilty of tax evasion, you must be convinced that the government has proved each of the following elements beyond a reasonable doubt: 
FIRST: The Defendant owed substantial income tax in addition to the tax liability which he reported on his income tax return for the year charged in a particular Count; 
SECOND: The Defendant intended to evade and defeat payment of that additional tax; 
THIRD: The Defendant committed an affirmative act in furtherance of this intent, as charged in the Superseding Indictment; and 
FOURTH: The Defendant acted willfully, that is, with the voluntary intent to violate a known legal duty.
The Court of Appeals presents the separate jury instruction on the affirmative acts of evasion as follows:

Jury Instruction Number 19 defines an "affirmative act of evasion" and further explains that "[t]he government needs only to prove one act of evasion to satisfy this element of the offense, but you must unanimously agree on which act or acts were committed." Id. at 118. Jury Instruction Number [*8]  17 lists six actions which the government asserts satisfy the affirmative act element of tax evasion. The same six affirmative acts are found in each count of tax evasion. n4 Gorrell argues that four of these alleged affirmative acts are legally insufficient to sustain a conviction for tax evasion based on the evidence produced at trial. The four affirmative acts at issue are:
a. GORRELL caused investor funds to be deposited into various accounts at banks and E*TRADE that he maintained in his own name and in the name of his financial services company, Gorrell Financial, Inc., thereby commingling the investor funds with his personal funds and converting them to his own use;
b. GORRELL caused the payment of personal expenses from investor funds that had been deposited into the various financial accounts that he maintained at banks and at E*TRADE;
c. GORRELL caused the withdrawal of large amounts of cash from the various financial accounts that he maintained at banks and at E*TRADE;
d. GORRELL stopped using tax preparation services provided to him for free by his father, who was an accountant in Tulsa, Oklahoma, and instead engaged new tax preparers, located in Florida, who were previously unfamiliar with his business ventures, financial accounts, personal income, and expenses . . . .
[Note that the latter listing is from the Superseding Indictment.]

The Court describes the argument as follows:

Gorrell argues that four of the affirmative acts described in the jury instructions are, based on the evidence presented at trial, not affirmative acts of evasion within the meaning of § 7201. The four affirmative acts are: commingling of funds, paying personal expenses with investor funds, withdrawing cash from various funds, and changing accountants. Therefore, since the jury returned a general guilty verdict on each count without specifying which affirmative act served as the basis for each count, Gorrell argues the jury may have based his convictions on an insufficient legal theory which thereby entitles him to a new trial. The government responds that the alleged affirmative acts were legally sufficient. After review of the evidence presented at trial, we conclude that each of the alleged affirmative acts were legally sufficient and also supported by the evidence.
The Court then explains its conclusions, which I won't repeat here since the explanation is fairly routine.

JAT Comments:

1.  The tax evasion elements are usually stated in jury instructions in three elements rather than four (e.g., CTM GOVERNMENT PROPOSED JURY INST. NO. 26.7201-3, here, and GOVERNMENT PROPOSED JURY INST. NO. 26.7201-4 (link to the CTM jury instructions, here).  I won't dwell on that because I don't think the difference is of consequence in the case.

2.  Although not addressed in the opinion, it is not clear that Gorrell would have been materially better off if he had prevailed on the tax evasion convictions.  The three counts of conviction of wire fraud would likely permit the Court to sentence under Booker at whatever level it thought appropriate.  And, except for the possible multiple count adjustments in Chapter 3 Part D of the Guidelines, the Guidelines range likely would have not been materially affected, certainly not in a way that would have affected the bottom-line Booker sentence.

3.  Although not relevant to the case as presented, I picked up this reminder on tax evasion that the element of Willfulness is closely connected to the affirmative act element, so that particular evidence may tend to establish both elements.  See United States v. Boisseau, 841 F.3d 1122, 1127 (10th Cir. 2016) (citing United States v. Romano, 938 F.2d 1569, 1572 (2d Cir. 1991)); and United States v. Stone, 702 F.2d 1333, 1339 n.4 (11th Cir. 1983) (citing cases).

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