§ 7202 Convictions Reversed for Improper Bad Acts Evidence (9/23/19)

In United States v. Snyder, 2019 U.S. App. LEXIS 28326 (6th Cir. 9/19/19) (unpublished), here, Snyder fell into the not uncommon trap of using company (Attevo) withheld trust fund tax for purposes other than paying over to the IRS and went one step further by using funds that should have been deposited to employee 401(k) plans.  The company failed.  The trust fund tax was not paid.  Snyder was indicted "on seven counts of willfully failing to pay over taxes, see 26 U.S.C. § 7202, and one count of embezzling from an employee-benefit plan, see 18 U.S.C. § 664."  Snyder was acquitted on two § 7202 counts and convicted on the remaining counts.

On appeal, Snyder argued that the trial court abused its discretion in allowing the introduction and use of evidence in closing argument that Snyder had failed to file personal tax returns for some number of years.  That evidence is so-called "bad acts" evidence that must run the gamut of FRE 404(b), which limits the use of such evidence, and 403, which requires exclusion of relevant evidence if prejudicial or confusing.  The court generalized the law as follows:

“The government may not use evidence of prior bad acts to show that a defendant’s character made him more likely to commit the charged crime.” United States v. English, 785 F.3d 1052, 1055 (6th Cir. 2015); see Fed. R. Evid. 404(b)(1). However, such evidence “may be admissible for another purpose, such as proving . . . intent . . . [or] absence of mistake.” Fed. R. Evid. 404(b)(2). Even if the evidence is admissible under Rule 404(b), the district court may still exclude it “if its probative value is substantially outweighed by a danger of,” among other things, “unfair prejudice, confusing the issues, [or] misleading the jury.” Fed. R. Evid. 403. 

Because the tax charges against Snyder are specific-intent offenses, this is the kind of case in which evidence of prior bad acts might be admissible. See United States v. Johnson, 27 F.3d 1186, 1191–92 (6th Cir. 1994). But that does not mean such evidence “is automatically admissible.” Id. at 1192 (emphasis added).  

Under Rule 404(b), prior bad acts are inadmissible if they “are too unrelated” to the charged conduct or “too far apart in time to be probative of” the defendant’s specific intent. United States v. Clay, 667 F.3d 689, 696 (6th Cir. 2012). Likewise, dissimilar or long-ago bad acts are usually inadmissible under Rule 403, because they have “a powerful impact on a juror’s mind” despite their “slim probative value.” Ibid. There is “too much of a risk that the jury will generalize from prior examples of bad character.” Id. at 697.

Bottom-line, the Court felt that the failure to file tax returns was too dissimilar to the crime of willful failure to pay over trust fund tax charged under § 7202.

Of course, admission of such evidence is reversible only if not harmless, as is often the case.  The Court seemed particularly troubled about the prosecutor's use of the evidence in closing argument:

If Pizzola’s testimony had amounted only to an isolated blurt, the error likely would have been harmless (as Snyder conceded at oral argument). But Pizzola’s comment was not the only reference to Snyder’s personal tax troubles: Terry, the other IRS witness, also testified about them. And to make matters worse, the government’s closing argument expressly invited the jury to make the propensity inference Rule 404(b) exists to prevent: “[Y]ou heard testimony that the defendant wasn’t even paying his own taxes. He’d done it before, and he was doing it this time.” The government’s misuse of the testimony makes it impossible to dismiss the erroneous admission of this evidence as harmless.

While the district court gave a limiting instruction, this is not “a sure-fire panacea for the prejudice resulting from the needless admission of” propensity evidence. United States v. Haywood, 280 F.3d 715, 724 (6th Cir. 2002). “As empirical studies have shown, evidence of prior bad acts influences factfinders even when the court gives a limiting instruction.” Clay, 667 F.3d at 697. A limiting instruction may be “insufficient to mitigate these potential risks,” and it does not preclude a new trial. Id. at 700–01. See also United States v. Jenkins, 345 F.3d 928, 939 (6th Cir. 2003).

 Accordingly, the Court vacated the § 7202 convictions but affirmed the embezzlement conviction.