United States v. McKee ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
10-29-2007
USA v. McKee
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-3297
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No: 05-3297
UNITED STATES OF AMERICA
v.
KEVIN MCKEE,
Appellant
No: 05-3469
UNITED STATES OF AMERICA
v.
INGE DONATO,
Appellant
No: 05-3357
UNITED STATES OF AMERICA
v.
JOSEPH DONATO,
Appellant
________
On Appeal from the United States District Court
for the District of New Jersey,
(D.C. Nos. 04-cr-00216-3, 04-cr-00216-2 & 04-cr-00216-1)
District Judge: Hon. Jerome B. Simandle
Argued: November 8, 2006
Before: SCIRICA, Chief Judge, McKEE and STAPLETON,
Circuit Judges
(Opinion filed: October 29, 2007)
Eileen J. O’Connor, Assistant Attorney General
John Hinton, III (Argued)
Alan Hechtkopf
Gregory Victor Davis
2
Brian D. Galle
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044
Attorneys for Appellee, United States Department of Justice
Peter Goldberger (Argued)
Pamela A. Wilk
50 Rittenhouse Place
Ardmore, PA 19003-2276
Attorney for Appellants, Joseph Donato and Inge Donato
Rocco C. Cipparone, Jr., Esq. (Argued)
203-205 Black Horse Pike
Haddon, Heights, NJ 08035
Attorney for Appellant, Kevin McKee
George S. Leone, Esq.
Office of United States Attorney
970 Broad Street
Room 700
Newark, NJ 07102
Attorney for Appellee, USA
OPINION
3
McKEE, Circuit Judge.
Defendants, Kevin McKee, Joseph Donato, and Inge
Donato challenge their convictions for conspiracy to obstruct a
government function, failure to pay federal employment taxes,
and failure to file individual income tax returns for certain years.
Each defendant makes specific claims regarding his/her
conviction, and they collectively challenge the jury instruction
on the conspiracy count, the sufficiency of the evidence, several
evidentiary rulings, and the sentences that were imposed. Since
we agree that the district court’s jury instruction constructively
amended the indictment, we will vacate the Defendants’
convictions on the tax evasion charges in Counts 2 through 13
and remand for a new trial on those charges. In addition, we
will reverse Inge Donato’s conviction on Counts 14 and 16
because the evidence was insufficient to establish guilt beyond
a reasonable doubt, and instruct the district court to enter a
4
judgment of acquittal on those counts on remand.1
I. Background
During the period charged in the indictment, Joseph
Donato and Kevin McKee owned and operated McKee-Donato
Construction Company (“the Partnership”), a small New Jersey
carpentry and home renovation business. Inge Donato
functioned as the Partnership’s bookkeeper. All three are
longstanding members of the Reformed Israel of Yaweh
(“RIY”), a small religious sect founded by Leo Volpe that
opposes payment of taxes based upon the members’ religious
opposition to war and the taxes that fund it.
1
Inasmuch as we are vacating each of the defendants’
convictions on Counts 2 through 13, and Inge’s convictions on
two counts, we need not address the claims of error that pertain
to sentencing. We will, however, address certain evidentiary
rulings that are challenged in this appeal as the same issues may
again arise if the Defendants are retried on the tax evasion
charges.
5
The Partnership employed members of RIY as well as
non-members. When providing the Partnership’s payroll
records to accountants for preparation of quarterly payroll tax
returns (IRS Form 941), Inge Donato omitted payroll
information for the employees who were members of RIY.
Consequently, federal withholding taxes were not deducted from
their paychecks. However, the correct payroll information was
provided for employees who were not members of RIY, and
their taxes were properly withheld from their paychecks. The
omission resulted in incomplete and inaccurate quarterly tax
returns for the Partnership for the applicable years. The
Partnership also failed to withhold or pay employment taxes that
should have been collected from RIY-member/employees for
those same quarters. In addition, Kevin McKee and Joseph
Donato failed to file their individual federal income tax returns
for the years 1997 through 2000. As we shall explain, Joseph’s
6
failure to file had consequences for Inge, who was also charged
with failure to file for those years.
Kevin McKee and the Donatos were each charged
separately with conspiracy to defraud the United States (Count
1), and employment tax evasion (Counts 2 through 13). In
addition, they were each charged with failure to file their
individual federal income tax returns for the years 1997 through
2000, in violation of 26 U.S.C. § 7203. (Counts 14 through
21).2 The court granted Inge’s motion for judgment of acquittal
on Counts 15 and 17, charging her with failure to file for 1997
through 2000, because the evidence did not establish that she
had income for those tax years. The court denied her motion for
judgment of acquittal on Counts 14 and 16 based upon evidence
that we will discuss detail below. The jury returned guilty
2
The Donatos were charged in Counts 14 through 17 and
McKee in Counts 18 through 21.
7
verdicts against all Defendants on each of the remaining counts,
and this appeal followed their sentencing.
II. Discussion.
A. Constructive Amendment to the Jury Instructions
Defendants all contend that the jury instructions on
Counts 2-13 were erroneous because they constructively
amended the indictment. Defendants concede they did not raise
this argument in the District Court, but claim they are
nevertheless entitled to relief because the instructions
constituted plain error. See Fed.R.Crim.P. 52(b). We agree.
United States v. Olano, 507 U.S. 725 (1993).
An indictment is constructively amended when evidence,
arguments, or the district court’s jury instructions effectively
“amend[s] the indictment by broadening the possible bases for
conviction from that which appeared in the indictment.” United
8
States v. Lee, 359 F.3d 194, 208 (3d Cir. 2004). We have held
that a constructive amendment is an exceptional category of
error because it violates a basic right of criminal defendants, the
grand jury guarantee of the Fifth Amendment. Id. at 154 (3d
Cir. 2002) (applying United States v. Adams, 252 F.3d 276 (3d
Cir. 2001)). “A constructive amendment to the indictment
constitutes ‘a per se violation of the fifth amendment’s grand
jury clause.’” Id. at 148 (quoting United States v. Castro, 776
F.2d 1118, 1121-22 (3d Cir. 1985)). A constructive amendment
of the charges against a defendant deprives the defendant of
his/her “substantial right to be tried only on charges presented
in an indictment returned by a grand jury.” United States v.
Syme, 276 F.3d 131, 149 (3d Cir. 2002) (citation omitted).
Thus, where a trial court constructively amends a jury
9
instruction, our plain error analysis presumes prejudice. Id.3
Here, in instructing the jury about conduct that could
establish the charged conspiracy, the court included failing to
report information to the Partnership’s accountant, and
falsifying books and records. The court explained:
Various schemes and devices may be used in an attempt
to evade or defeat a tax. Affirmative attempts to evade
federal employment taxes include, for example, filing
3
Courts of Appeals are split on whether a constructive
amendment to an indictment are per se reversible error under plain
error review. Compare United States v. Floresca, 38 F.3d 706,
712-13 (4th Cir. 1994) (en banc) (holding that constructive
amendments, which are per se reversible under harmless error
analysis are also per se reversible under plain error analysis) with
United States v. Fletcher, 121 F.3d 187, 192-93 (5th Cir. 1997)
(refusing to reverse a constructive amendment absent an objection
because “it could not have affected the outcome of the trial” and
therefore there was no prejudice under a plain error analysis); United
States v. Remsza, 77 F.3d 1039, 1044 (7th Cir. 1996) (“In the context
of plain error review, the amendment must constitute a mistake so
serious that but for it the defendant would probably have been
acquitted in order for us to reverse.”) (internal quotations omitted).
In United States v. Syme, 276 F.3d 131, 154 (3d Cir. 2002), we held
that although constructive amendments are not per se reversible, they
give rise to a rebuttable presumption of prejudice.
10
false Employers Quarterly Federal Tax Returns (Forms
941), falsifying books and records so as to conceal the
payment of wages and the employment taxes due thereon,
or failing to report to your accountant all of the wages
paid to employees.
Appendix (“App”). 984 (emphasis added).4
The superseding indictment charged each of the
Defendants with attempted evasion of employment taxes by
preparing, signing, and causing the filing of false and fraudulent
federal employment tax returns. App. 73, in Counts 2 through
13.5 Even though the government introduced evidence that
books and records were falsified and information was withheld
4
In adopting this instruction, the court apparently relied upon
the points for charge that the government had tendered, and may not
have realized that the italicized language included conduct that was
supported by testimony, but not charged in the indictment.
5
These taxes were not due from any individual, but from the
employer, McKee-Donato Construction Company. Defendants were
prosecuted as third parties, alleged to have attempted to evade (or to
have aided and abetted the attempted evasion of) the taxes due from
the Partnership as the “employer.”
11
from the Partnership’s accountant, that conduct was never
charged in the indictment. Accordingly, the court’s instructions
had the effect of broadening the indictment to include conduct
not charged in the indictment; conduct that government
witnesses testified about during the course of the trial.
Defendants argue that the examples of tax evasion
explained in the jury instruction but not charged in the
indictment improperly broadened the indictment in violation of
Stirone v. United States, 361 U.S. 212 (1960). There, the Court
held that a defendant’s Fifth Amendment right to due process
includes the right to be tried only on charges returned by a grand
jury, and that right is violated if the evidence and jury
instructions broaden the possible grounds for conviction beyond
that alleged in the indictment. Id. at 218-19.
The government concedes that the jury instructions did
12
not match the charges contained in the superseding indictment.
However, the government reminds us that we must assess the
jury instruction as a whole and rely upon the “almost invariable
assumption of the law that juries follow their instructions.”
Richardson v. Marsh, 481 U.S. 200, 207 (1987). The
government cites numerous cases from other jurisdictions to
support its contention that “no constructive amendment arises
from the admission of acts not charged in the indictment when
the court’s instructions to the jury preclude the possibility that
the defendant was convicted on those acts.” See, e.g., United
States v. Gonzalez, 661 F.2d 488, 492 (5th Cir. 1981) (no
constructive amendment in trial for conspiracy to distribute
methaquaalone, despite admission into evidence of other types
of illegal narcotics).6
6
See also United States v. Johnson, 248 F.3d 655, 665 (7th
Cir. 2001) (admission of evidence of pre-conspiratorial events did not
13
However, the problem here is that the jury instructions
broaden scope of conspiracy charged and therefore constructively
amend the jury instruction); United States v. Novak, 217 F.3d 566,
575 n.22 (8th Cir. 2000) (no constructive amendment where court
admitted evidence of wrongdoing prior to the time period alleged in
the indictment); United States v. Paredes-Rodriguez, 160 F.3d 49, 55-
56 (1st Cir. 1998) (no constructive amendment: “the setting forth, in
approximate form, of [a] date in the indictment does not preclude the
admission of evidence relating to events which occurred earlier.”);
United States v. Frank, 156 F.3d 332, 337-38 (2d Cir. 1998) (the
overt act element of a conspiracy charge may be satisfied by
admission of evidence of an overt act that is not specified in the
indictment, so long as there is no prejudice to the defendant); United
States v. Lokey, 945 F.2d 825, 831-32 (5th Cir. 1991) (proof of the
conspiracy’s existence before February 1987 was not a constructive
amendment of the indictment); United States v. Schnabel, 939 F.2d
197, 203 (4th Cir. 1991) (no constructive amendment where jury
instructions did not vary from the indictment); United States v.
Medina, 761 F.2d 12, 16 (1st Cir. 1985) (the possibility that the jury
might have convicted defendant of a different kidnapping than the
one listed in the indictment was obviated by the district judge who
charged the jury that evidence of a different kidnapping was not the
crime with which defendant was charged “but would at most
constitute evidence of similar overt acts as alleged in Count One of
the indictment”); United States v. Clark, 732 F.2d 1536, 1540 (11th
Cir. 1984) (no constructive amendment where defendants were
charged with conspiracy to distribute one type of drug, but where a
different drug was introduced at trial; the jury was clearly apprised
that they had to find conspiracy to distribute the type of drug in the
indictment to convict).
14
informed the jury that the Defendants could be convicted on the
basis of conduct that was not charged in the indictment, of
which they had no notice. The trial court gave a specific
instruction on tax evasion that identified the conduct that could
satisfy the affirmative act element of the charged conspiracy.
As will be discussed in greater detail below, the government
only had to prove one—not all—of the overt acts charged in the
indictment. United States v. Adamo, 534 F.2d 31, 38 (3d Cir.
1976). Nevertheless, the Defendants can not be convicted on
the basis of an overt act that is included in jury instructions, but
not charged in the indictment. Syme, supra.The language we have italicized in the above-quoted jury
instruction, though only intended as examples of offending
conduct, plainly referred to particular evidence in the case and
therefore allowed the jury to convict the Defendants for
15
uncharged conduct. Accordingly, the court’s instructions
improperly amended the indictment. See, e.g., United States v.
Thomas, 274 F.3d 655, 670 (2d Cir. 2001) (constructive
amendment occurs when the terms of the indictment are
effectively modified by the court’s actions such that “there is a
substantial likelihood that the defendant may have been
convicted of an offense other than that charged in the
indictment”).7 Unless the government can show with certainty
7
Because the error affected the charging terms of the
indictment, it is a constructive amendment, not a variance. See
United States v. Castro, 776 F.2d 1118, 1121-22 & n. 1(3d Cir.
1985) (distinguishing constructive amendments from variances).
“[A]mendments . . . occur when the charging terms of the indictment
are altered . . . .” Id. at 1122. Variances occur when the charging
terms are unchanged, “but the evidence at trial proves facts materially
different from those alleged in the indictment.” Id. If a variance
between the indictment and the evidence “does not alter the elements
of the offense charged, we will focus upon whether or not there has
been prejudice to the defendant.” Id.; see also United States v.
Syme, 276 F.3d 131, 154 (3d Cir. 2002) (“The presumption of
prejudice [of constructive amendments] under plain error analysis
does not extend to the more frequently encountered category of
variances from an indictment, which may be dismissed as harmless
16
that the jury did not convict Defendants based on those improper
examples, we must find plain error and reverse Defendants’
convictions on Count 1.
We realize that the court properly admonished the jury
that Defendants were not on trial for any conduct not alleged in
the indictment. The government relies upon that introductory
instruction and the jury charge as a whole to argue that
Defendants were not prejudiced by the constructive amendment
because, as just noted, we presume that jurors follow the court’s
instructions on the law. Syme, 276 F.3d at 155. However, that
legal axiom cuts both ways here. The government’s argument
ignores the fact that the court then gave examples of evidence
that would establish the Defendants’ guilt for the charged
crimes, and included conduct the jury heard testimony about that
even when properly objected to at trial.”).
17
was not charged in the indictment. If we presume, as we must,
that the jury followed the court’s instructions, we must conclude
that there is a real possibility that the jury relied upon the
uncharged examples of conduct to convict the Defendants, just
as the court instructed.
The government insists, relying on United States v. Boffa,
688 F.2d 919 (3d Cir. 1982), cert. denied, 460 U.S. 1022 (1983),
that we can conclude “with certainty” that the Defendants’
conviction for tax evasion was based only on the affirmative
acts of preparing, signing, and causing the filing of false federal
employment tax returns, as alleged in the superseding
indictment. In Boffa, the court held there was no prejudice
where a curative instruction clarified that the jury could not
convict the defendants of a RICO conspiracy unless it found that
the conspiracy existed after a certain date. Id. The curative
18
instruction specifically pin-pointed the time period during which
the conspiracy had to have been established. Here, however,
there was no analogous instruction. The court did not tell the
jury to rely only upon evidence of the specific overt acts charged
in the indictment.8
In Syme, we recognized the difficulty of a defendant
proving actual prejudice in this situation. 276 F.3d at 154. That
difficulty caused us to reject the government’s argument that the
pattern of convictions demonstrated that the jury had not relied
on the court’s erroneous instructions. Id. at 155. As we have
explained, it is nearly impossible for a defendant to demonstrate
that his/her conviction was based on particular evidence or a
particular theory. Id. Similarly, there is no way to determine
8
In distinguishing between this case and Boffa, we do not
intend to suggest anything about whether such a curative instruction
would have negated the presumption of prejudice.
19
whether the jury convicted any or all of the Defendants here on
the second and third examples in the instruction. See id.Accordingly, the presumption of prejudice arising from the
constructive amendment has not been rebutted. See id. at 155.
Leaving this error uncorrected would seriously affect the
fairness and integrity of the proceeding. Id. at 155-56 (citing
United States v. Olano, 507 U.S. 725, 736 (1993)). We must
therefore vacate Defendants’ convictions on Counts 2 through
13 of the superseding indictment and remand for further
proceedings on those counts.
B. Sufficiency of the Evidence
Although we are vacating the convictions on Counts 2
through 13, and remanding to the district court, the Defendants
can only be retried on those counts if the Government
introduced sufficient evidence to sustain those convictions;
20
otherwise, we must direct a judgment of acquittal on remand in
order to avoid a violation of the Double Jeopardy clause. We
must therefore determine if the evidence was sufficient to
convict any of the Defendants on any of those counts.
Accordingly, we will first address whether the evidence was
sufficient to sustain the convictions on Counts 2 through 13, and
then address the Defendants’ remaining challenges to the
sufficiency of the evidence.
We review the evidence in the light most favorable to the
government. We do not reweigh the evidence or assess witness
credibility. See United States v. Peppers, 302 F.3d 120, 126 (3d
Cir. 2002). Viewed in that light, we must sustain the verdict “if
a rational trier of fact could have found [the] defendant guilty
beyond a reasonable doubt, and the verdict is supported by
substantial evidence.” United States v. Coyle, 63 F.3d 1239,
21
1243 (3d Cir. 1995). If there is substantial evidence to support
the jury’s determination, we will “not disturb the verdict
although on that evidence we might not have made the same
decision.” Cooper, 121 F.3d at 133 (citing United States v.
Hannigan, 27 F.3d 890, 892 (3d Cir. 1994)). Thus, our inquiry
is limited to determining whether the jury’s verdict is
permissible. See United States v. McGill, 964 F.2d 222, 229 (3d
Cir. 1992). We begin that inquiry with the Defendants’
convictions for payroll tax evasion.
1. Payroll Tax Evasion.
Tax evasion requires the government to prove beyond a
reasonable doubt: (1) an attempt to evade or defeat a tax; (2) an
additional tax due and owing; and (3) willfulness. See Sansone
v. United States, 380 U.S. 343, 351 (1965); see 26 U.S.C.A. §
7201. The “affirmative act” of evasion can be “any conduct, the
22
likely effect of which would be to mislead or to conceal.” Spies
v. United States, 317 U.S. 492, 499 (1943). Here, we believe
that each element is established beyond a reasonable doubt as to
all Defendants for each of the periods charged in Counts 2
through 13.
a. Affirmative Act of Evasion
Defendants dispute the sufficiency of the evidence to
convict them of tax evasion for the last three quarters of 2000
because the authenticity of the signatures on the corresponding
941 forms was not established. Defendants claim that the jury
could not rely on 26 U.S.C. § 6064, which provides that the fact
of a signature on the tax return is prima facie evidence that the
return was signed by the named individual.
The government alleged that false Partnership
employment tax returns for the quarters ending in March 1998
23
through January 2001 qualified as affirmative acts of evasion for
Counts 2 through 13. Sansone v. United States, 380 U.S. 343,
352 (1965) (crime of tax evasion is complete as soon as the false
understatement of taxes is filed); see also United States v.
Schafer, 580 F.2d 774 (5th Cir. 1978), cert. denied, 439 U.S.
970; Swallow v. United States, 307 F.2d 81, 83 (10th Cir. 1962),
cert. denied, 371 U.S. 950 (1963).
The Defendants are correct in noting that the signatures
on the 941 forms were never authenticated. However, the fact
that a return may have been signed by someone other than one
of the Defendants does not necessarily undermine the jury’s
conclusion that Defendants knew the returns were false and
approved the filings to evade applicable employment taxes.
“The law does not require the defendant’s own signature to
sustain a conviction under § 7201: it merely requires sufficient
24
circumstances . . . from which a reasonable jury could find that
the defendant did authorize the filing of the return with his name
subscribed to it.” United States v. Fawaz, 881 F.2d 259, 265
(6th Cir. 1989). The jury could therefore reasonably have
concluded that either Joseph or Inge Donato signed the 941
Forms and that each Defendant authorized the fraudulent filings.
Inge Donato was McKee-Donato’s bookkeeper and there
was no evidence to suggest that her duties changed during
2000—the disputed time period. The jury could therefore
conclude that Defendants continued to execute the payroll for
the Partnership in the same manner they had during the previous
eleven years: Inge generated and managed the company payroll
records upon which the false tax returns were based, and each
payday Joseph Donato and/or Kevin McKee handed out
“untaxed” paychecks to their RIY-member/employees and
“taxed” paychecks to their other employees. Given our
25
obligation to draw all reasonable inferences in favor of the
verdict winner, Jackson v. Virginia, 443 U.S. 307 (1979), we
can not conclude that the evidence on Counts 2 through 13 was
insufficient.
Moreover, the overt acts of Joseph and Inge on behalf of
the Partnership may be imputed to Kevin McKee for the period
1997 through 2000. During that period, McKee shared the
obligation of filing employment taxes on behalf of the
Partnership. An employer has a duty to deduct from its
employees’ gross wages, scheduled amounts for their social
security contributions, and to pay income tax, 26 U.S.C.A. §§
3102(a), 3402(a); and to hold them in trust for the United States
until remitted. Id. § 7501(a). The tax laws provide for criminal
liability for any person who “willfully attempts in any manner to
evade or defeat any tax imposed by this title or the payment
26
thereof . . . .” 26 U.S.C.A. § 7201. Section 7343 of the U.S.
Code explains that the term “person,” as used in the chapter of
the Internal Revenue Code concerning criminal liability for tax
evasion, “includes . . . a member or employee of a partnership,
who as such officer, employee, or member is under a duty to
perform the act in respect of which the violation occurs.” 26
U.S.C. § 7343. Defendants all satisfy the code’s definition of a
“person” for purposes of criminal tax liability. Inge and Joseph
were actively involved in the process of filing the tax returns.
As partners, Kevin McKee and Joseph Donato each had a legal
duty to file accurate tax returns on behalf of the Partnership.
Accordingly, the fraudulent filings satisfied the overt act of tax
evasion for all three Defendants.
Defendants also argue that the government failed to
establish that they intended to conceal or mislead. They contend
27
that without that mens rea, the government’s proof fails. See
Donato’s Br. at 29. Defendants are correct that the mere failure
to file a tax return cannot, by itself, support a finding that he/she
affirmatively attempted to evade the payment of taxes. A person
cannot be convicted of tax evasion based merely on an omission;
“the person must also undertake an affirmative act of evasion.”
United States v. Romano, 938 F.2d 1569, 1573 (2d Cir. 1991);
see also McGill, 964 F.2d at 231 (mere failure to pay assessed
taxes, without more, does not constitute evasion of payment,
though it may satisfy requirements for willful failure to pay
taxes).
Here, however, we have more than a mere “omission.”
Defendants filed tax returns that falsely stated the total amount
of employee wages owed to the United States by deliberately
om itting R I Y - m e m b e r / e m p l o ye e wages. Their
28
misrepresentation of the total wages subject to employment
taxes was a willful act of concealment. Thus, they did not
merely fail to file, or fail to pay, like the defendants in Romano
and McGill respectively. Rather, they filed returns that misled
by affirmative misstatement, thus concealing crucial tax
information. See McGill, 964 F.2d at 231 (“[A]ffirmatively
evasive acts-acts intending to conceal-are punishable under §
7201.”). In rejecting a challenge to the sufficiency of the
evidence, we have instructed that Spies and its progeny:
simply require that there be some evidence from which
a jury could infer intent to mislead or conceal . . . . [I]t is
for the jury to determine, as a matter of fact, whether the
affirmative act was undertaken, in part, to conceal funds
from or mislead the government.
United States v. Voigt, 89 F.3d 1050, 1090 (3d Cir. 1996).9
9
As we have repeatedly stated, circumstantial evidence is
routinely offered to satisfy the intent element in criminal cases. See
generally United States v. Iafelice, 978 F.2d 92, 98 (3d Cir. 1992) (“It
29
Defendants’ misstatements of the total employee wages subject
to federal taxation satisfy this requirement, notwithstanding their
public and vocal opposition to taxes. See Swallow v. United
States, 307 F.2d 81, 83 (10th Cir. 1962) (“A wilful intent to
evade or defeat tax liability may be inferred from the conduct of
the taxpayer.”) (footnotes omitted).
Defendants also claim that their failure to file accurate
returns was equally consistent with innocent activity. Donatos’
is not unusual that the government will not have direct evidence.
[Mens rea] is often proven by circumstances.”). This rule applies
equally to tax evasion prosecutions. United States v. Voigt, 89 F.3d
1050, 1090 (3d Cir. 1996). The Supreme Court has stated that “any
conduct, the likely effect of which would be to mislead or conceal,”
is sufficient to satisfy the “affirmative act” element. Spies v. United
States, 317 U.S. 492, 499 (1943); accord United States v. Conley, 826
F.2d 551, 556 (7th Cir. 1987) (rational jury can infer intent to evade
upon learning of manner in which defendant conducted his financial
affairs). This requires that there be “some evidence from which a jury
could infer an intent to mislead or conceal beyond mere failure to pay
assessed taxes; it is for the jury to determine, as a matter of fact,
whether the affirmative act was undertaken, in part, to conceal funds
from or mislead the government.” Voigt, 89 F.3d at 1090.
30
Br. at 28 (citing United States v. Matsinger, 191 F.2d 1014,
1016 (3d Cir. 1951) (“[A] case may not be submitted to a jury
when the actions of the accused are as consistent with innocence
as with guilt . . . .”)). However, the evidence we have already
discussed was sufficient to allow the jury to conclude that the
false filing was intentional, see, e.g., 26 U.S.C.A. § 3102(a)
(employer’s duty to deduct from its employees’ gross wages
scheduled amounts for their obligations to make social security
and other tax contributions), even if Defendants’ also had an
“innocent” motive. See United States v. Jungles, 903 F.2d 468,
473-74 (7th Cir. 1990) (activity that is itself lawful can
constitute an affirmative act to evade); see also United States v.
Pollen, 978 F.2d 78, 86 (3d Cir. 1992) (transporting funds to
foreign countries, thereby making it more difficult to trace,
provides inference of intent to evade), cert. denied, 508 U.S.
906 (1993).
31
Therefore, even if Defendants’ failure to accurately
report the total wages subject to employment taxes was
motivated by their desire to respect their employees’ religious
convictions, that “innocent” motive does not exempt Defendants
from their obligation to deduct federal taxes and accurately
report the wages subject to that tax, particularly since the
cornerstone of the tax system is voluntary self-reporting.
Thomas v. United States, 41 F.3d 1109, 1113 (7th Cir. 1994)
(The tax code “requires employers to withhold federal Social
Security and income taxes from the wages of their employees
and to hold those taxes in trust for the government. 26 U.S.C.
§§ 3102 , 3402. Employers must report and pay the taxes they
withhold quarterly.”). Given the evidence here, failure to
comply with these requirements by concealing wages subject to
withholding is sufficient to support a finding that Defendants
intended to evade the Partnership’s employment tax obligation.
32
b. Tax Due and Owing
The existence of a tax deficiency is an essential element
of the crime of tax evasion. However, the government need not
allege or prove the precise amount of additional tax due and
owing. See United States v. Citron, 783 F.2d 307, 314-15 (2d
Cir. 1986). The evidence need only establish a substantial tax
deficiency. See United States v. Johnson, 319 U.S. 503, 517-18
(1943); United States v. Burdick, 221 F.2d 932, 934 (3d Cir.
1955). The government established this element with the
uncontested testimony of an IRS agent regarding the deficiency
charged in Counts 2 through 13.
c. Willfulness
As we have already explained, the element of willfulness
protects the average citizen from criminal prosecution for
innocent mistakes in filing tax forms that may result from
33
nothing more than negligence or the complexity of the tax laws.
Willfulness requires the voluntary, intentional violation of a
known legal duty as a condition precedent to criminal liability.
Cheek v. United States, 498 U.S. 192 (1991) (citations omitted);
see also United States v. Pomponio, 429 U.S. 10, 12 (1976).
Defendants argue that their opposition to payment of federal
taxes was openly expressed, Donatos’ Br. at 27, and, therefore,
the government failed to prove intent or wilfulness. They
characterize the proof at trial as “consistent with [defendants’]
having only intended to respect the religious convictions and
wishes of [RIY] employees.” Id. at 29.
We reject that argument based upon the totality of the
evidence we have already discussed. See United States v.
Habig, 390 U.S. 222, 222-23 (1968) (citing Swallow, 307 F.2d
at 83 (“The offense is complete when the taxpayer files a false
34
and fraudulent return with intent to evade or defeat any part of
the tax due. A wilful intent to evade or defeat tax liability may
be inferred from the conduct of the taxpayer.”) (footnotes
omitted)).
The Defendants were selective in not reporting wages.
The jury could certainly conclude that this was not merely
negligence or an unfortunate coincidence, but could only have
been willful and deliberate. That conduct was inherently likely
to mislead or conceal. See Spies, 317 U.S. at 499 (affirmative
willful attempt may be inferred from conduct such as keeping a
double set of books, making false entries of alterations, or false
invoices or documents, destruction of books or records,
concealment of assets or covering up sources of income,
handling of one’s affairs to avoid making the records usual in
transactions of the kind, and any conduct, the likely effect of
35
which would be to mislead or to conceal). “[W]e have often
held that repetitious conduct resulting in underpayment of taxes
may be sufficient to show willfulness.” Ashfield, 735 F.2d at
105 (consistent failure to include all income on the books and
records of a defendant’s business); see also United States v.
Alker, 260 F.2d 135, 148 (3d Cir. 1958) (“consistent
understatement [of tax liability] is evidence of willfulness”);
United States v. Frank, 245 F.2d 284, 287-88 (3d Cir. 1957)
(proof of a consistent pattern of underreporting “is itself
enough” to sustain a jury finding of willful tax evasion). See
also United States v. Greenlee, 517 F.2d 899, 903 (3d Cir. 1975)
(“a two year pattern of derelictions . . . [is] itself indicative of
the willfulness”). That is precisely what the government
established here.
Moreover, since Defendants were aware of Leo Volpe’s
36
criminal conviction, they knew that their religiously based
opposition to taxes did not excuse compliance with the revenue
laws or immunize them from the consequences of their willful
conduct. The Defendants argue that the government’s consistent
failure to prosecute them even though they were outspoken in
their opposition to paying taxes, caused the Defendants to
believe that the IRS had excused them from paying federal
taxes. The jury obviously rejected this interpretation of the
evidence, and so do we. On the contrary, willfulness may be
proven through the evidence of Defendants’ tax protestor
activities. See United States v. Hogan, 861 F.2d 312, 316 (1st
Cir. 1988) (jury was properly allowed to consider animosity
toward the IRS as an indication of defendant’s willfulness);
United States v. Grosshans, 821 F.2d 1247, 1252 (6th Cir. 1987)
(defendant’s attendance at tax protestor organizational meetings
admissible to show willfulness); United States v. Turano, 802
37
F.2d 10, 11-12 (1st Cir. 1986) (defendant’s statements and
actions at tax protestor meetings useful to establish state of
mind); United States v. Reed, 670 F.2d 622, 623 (5th Cir. 1982)
(defendant’s philosophy, motivation, and activities as tax
protestor admissible to show intent).
Defendants maintain that Volpe’s conviction for criminal
tax evasion was inadmissible because he was convicted for
failure to pay taxes, while Defendants were charged with failure
to file taxes. Defendants thus claim that the evidence was
irrelevant and prejudicial and should have been excluded. The
distinction Defendants make, though technically correct, is not
sufficient to alter our analysis of the evidence here because
Volpe’s conviction put Defendants on notice that failure to
comply with tax laws can have criminal consequences even if
motivated by religion.
38
McKee argues that the government did not establish that
he knew that the Partnership was selectively withholding
employee payroll taxes or that he agreed to it since he did not
sign the fraudulent tax forms and was not involved with the
financial aspects of the Partnership. See Benatar v. United
States, 209 F.2d 734 (9th Cir. 1954) (finding that defendant
president’s signature on tax forms was sufficient evidence to
support conviction for conspiracy with corporation to defraud
Government by obstructing proper functions of IRS); United
States v. Sun Myung Moon, 718 F.2d 1210 (2d Cir. 1983)
(upholding conviction of conspiracy to file false tax returns
and/or obstruct justice based on evidence that executive
defendant closely scrutinized his personal affairs and was aware
of information contained in his tax returns); United States v.
Cyprian, 23 F.3d 1189, 1202 (7th Cir. 1994) (finding that
evidence supported conviction for conspiracy to defraud
39
government where defendant personally paid employees in cash,
and was responsible for filing tax forms on behalf of employees
and providing them with W-2 forms).
McKee is correct that unlike the proof in Benatar, Sun
Myung Moon and Cyprian, the government did not present
evidence that he signed tax forms, closely scrutinized the payroll
records that Inge maintained, regularly paid employees, or was
responsible for filing tax forms on behalf of employees or
providing them with W-2 forms. However, as we have already
stressed, “rank and file” employees were aware of what was
happening with withholding on wages of RIY members and
non-members. It was therefore reasonable for the jury to infer
that McKee, a named partner involved with the operation of the
business, also knew. The evidence established that employees
who worked for the company knew generally that “any [RIY]
40
member who worked for McKee-Donato did not pay federal
income tax . . . that was a help to both parties to not - - it was a
relationship to get out of paying those taxes.” App. at 658-59;
see also App. at 296-97 (non-RIY-member/employee testifying
that RIY member/employees were paid by a different payroll
company and were not subject to withholding). Moreover, the
cases McKee relies upon did not involve individuals with a long
history of protesting taxes and instructing others on how to
avoid audit trails to minimize chances of detection.
On this record, the jury could conclude that McKee had
to have known that the federal payroll forms omitted RIY-
member/employees’ information; yet, he took no steps to correct
the situation or report the unreported wages. That is sufficient
to establish willfulness.
2. Conspiracy To Defraud the Government (Count 1).
41
In order to prove a conspiracy to defraud the United
States in violation of 18 U.S.C. 371 (Count 1), the evidence
must establish the following elements beyond a reasonable
doubt: (1) an agreement to defraud the United States, (2) the
defendant’s knowing and voluntary participation in the
conspiracy, and (3) each conspirator’s commission of at least
one overt act in furtherance of the conspiracy. See United States
v. Rankin, 870 F.2d 109, 113 (3d Cir. 1989).10 “To conspire to
defraud the United States means primarily to cheat the
government out of property or money, but also means to
interfere with or obstruct the government by deceit, craft,
trickery, or at least by means that are dishonest.”
Hammerschmidt v. United States, 265 U.S. 182, 188 (1924).
10
The conspiracy that was charged in Count 1 is known as “a
Klein conspiracy,” referring to United States v. Klein, 247 F.2d 908(2d Cir. 1957), cert. denied, 355 U.S. 924 (1958).
42
We address the sufficiency of the proof of each of these
elements in turn.
a. Agreement
Defendants make much of the fact that the government
failed to introduce any direct evidence of an agreement;
however, direct evidence is not required. Rather, a
conspiratorial agreement can be proven circumstantially based
upon reasonable inferences drawn from actions and statements
of the conspirators or from the circumstances surrounding the
scheme. See, e.g., United States v. Smith, 294 F.3d 473, 478 (3d
Cir. 2002) (A reasonable juror could certainly conclude that a
tacit agreement exists amongst a group of people when they
engage in “so many unusual acts.”); see also United States v.
Barr, 963 F.2d 641, 650 (3d Cir. 1992) (“It is well settled that
a written or spoken agreement among alleged co-conspirators is
43
unnecessary; rather, indirect evidence of [a] mere tacit
understanding will suffice.”). Thus, a conspiratorial agreement
does not have to be explicit. See United States v. Perez, 280
F.3d 318, 353 (3d Cir. 2002) (In determining the scope of the
criminal activity that the particular defendant agreed to jointly
undertake . . . the court may consider any explicit agreement or
implicit agreement fairly inferred from the conduct of the
defendant and others.”). Indeed, common sense suggests, and
experience confirms, that illegal agreements are rarely, if ever,
reduced to writing or verbalized with the precision that is
characteristic of a written contract. Rather, the illegal agreement
can be, and almost always is, an implicit agreement among the
parties to the conspiracy. See, e.g., United States v. Price, 13
F.3d 711, 728 (3d Cir. 1994) (many of the understandings in
drug distribution conspiracies are implicit).
44
Here, proof of an agreement included undisputed
evidence of RIY’s anti-tax teachings, Defendants’ commitment
to those teachings, their positions within RIY, and their steady
ascent up the tiers of influence within the organization.
However, Defendants can not be convicted solely because of
their associations. See Barnes Found. v. Township of Lower
Merion, 242 F.3d 151, 163 (3d Cir. 2001) (citing N.A.A.C.P. v.
Claiborne Hardware, 458 U.S. 886, 918-19) (1982) (additional
citation omitted)). First Amendment protections require that the
government produce more than evidence of association to
impose liability for conspiracy. The Supreme Court has
instructed that, “[f]or liability to be imposed by reason of
association alone, it is necessary to establish that the group itself
possessed unlawful goals and that the individual held a specific
intent to further those illegal aims.” Claiborne Hardware, 458
U.S. at 920. Moreover, evidence of intent must be judged
45
“according to the strictest law.” Id. at 919.
We believe that the evidence here satisfies this
“strictissimi juris” doctrine. The government produced evidence
of RIY’s advocacy of non-tax-payment as well as overt acts and
omissions on the part of the Partnership to effectuate those
goals. For example, the Partnership failed to file 941 payroll tax
reporting forms for employees who were members of RIY so
that they did not have to pay federal taxes; yet, that information
was provided for employees who were not members of RIY.
Accordingly, the taxes of those nonmembers were withheld as
required by law. The jury could infer an agreement to run the
Partnership in a manner that was consistent with RIY’s
teachings based on the roles Kevin McKee and Joseph Donato
had in the Partnership. Both men were perceived as the “boss,”
exercising positions of supervisory authority at McKee-Donato
46
Construction. App. 292, 313, 318-19. Although Joseph Donato
was usually the one who handed employees their paychecks, the
evidence established that both men did so. Moreover,
depending on who was primarily responsible for a given job,
both McKee and Donato exercised final decision-making
powers. App. 319. Although Kevin McKee and Joseph Donato
never executed a written partnership agreement, the evidence
established that both regularly received Partnership distributions
over the years, and it was undisputed that both had an ownership
interest in the Partnership. App. 854.
McKee contends that he had no knowledge of any illegal
agreement and he could therefore not be convicted of
conspiracy. Although a defendant’s failure to report income can
be an overt act in furtherance of a Klein conspiracy, the
government must “still prove there was an agreement whose
47
purpose was to impede the IRS (the conspiracy), and that each
defendant knowingly participated in that conspiracy.” United
States v. Adkinson, 158 F.3d 1147, 1154 (11th Cir. 1998). Of
course, as we have just explained, where there is no direct
evidence “of an agreement by all for each to evade his income
taxes,” the government can rely on circumstantial evidence. Id.Nevertheless, “[t]he failure to disclose income is, without more,
generally insufficient . . . .”, id., to support a conviction for a
Klein conspiracy. “To be sufficient, the evidence must
establish an agreement among the conspirators with the intent to
obstruct the government’s knowledge and collection of the
revenue due.” Id. “When the government relies upon
circumstantial evidence to establish a tax conspiracy, the
circumstances must be such as to warrant a jury’s finding that
the alleged conspirators had some common design with unity of
purpose to impede the IRS.” Id.48
McKee also argues that there was insufficient evidence
to convict him because the evidence did not establish that he
was involved with bookkeeping or general management. He
stresses that the evidence demonstrated that his partnership role
at McKee-Donato did not generally include business decisions
or filing the Partnership’s tax returns. For instance, the
representative for the firm that processed weekly payroll for the
Partnership testified that he dealt with Joseph Donato and every
941 payroll tax reporting form in evidence was purportedly
signed by either Joseph or Inge Donato, not McKee. Likewise,
no evidence was presented that McKee submitted (or even saw)
any payroll tax forms. The accountant for McKee-Donato
testified that during the eleven years that she did payroll tax
returns for the firm, she had never once spoken to McKee and
that she always received the company’s ledger from Inge
Donato.
49
Nonetheless, inasmuch as we must interpret the evidence
in the light most favorable to the government and determine if
the evidence, so viewed, could establish guilt beyond a
reasonable doubt, United States v. Gambone, 314 F.3d 163 (3d
Cir. 2005), we believe the government’s proof of McKee’s
participation in the conspiracy and its failure to file 941s for the
Partnership was sufficient to establish his agreement.
It was widely known to McKee-Donato employees that
the paychecks of RIY-member/employees at McKee-Donato did
not have federal withholding taken out even though those taxes
were withheld from the paychecks of employees who were not
members of RIY. See App. 658-59, 290, 296-97. Moreover, for
a period of time, a separate payroll company was used for
employees who were not RIY members, see App. 296, and there
was a noticeable difference in the checks of members and
50
nonmembers. App. 300 (Michael Chambers, a Partnership
employee testified: “The paychecks were different, the
members’ paychecks were from the local bank, and all the
checks we received [sic] from the window envelope, mailing
envelope.”). One non-member/employee testified: “[I]t was
pretty noticeable that our checks were different. They came in
different envelopes each week.” App. 296 (Chambers).11 The
jury could certainly conclude that McKee knew at least as much
as his employees about the difference between the checks of
members and nonmembers. This is particularly true since
McKee occasionally handed out the paychecks, see App. at 327,
the company was very small and had only two partners, McKee
11
According to one witness, the non-RIY employees’
paychecks had a window envelope and were paid through Ajex
Enterprises, an outside bookkeeping company, whose name appeared
at the top of the check. App. 300, 430. The RIY-employees’ checks
were different. Id. at 299-300. They were paid by McKee-Donato
bookkeeping and appeared to come from the local bank. Id.51
and the Donatos had a close relationship through the Partnership
as well as through RIY, and all three openly subscribed to the
anti-tax principles of RIY. App. 290 (Chambers testified: “They
[Joe and Kevin] didn’t believe in federal income taxes is the
statement Joe made . . . . Joe indicated that it was a war tax,
and they didn’t believe in war.”).12 In addition, McKee’s
personal belief that paying federal taxes was wrong was
expressed openly to Partnership employees. App. 320-21
(Michael Gruszkoski, a Partnership employee testified: “Joe and
Kevin both mentioned they don’t think paying federal taxes is
right, that the military spending on it was wrong.”).
The jury could conclude, based on the foregoing
evidence, that McKee intended that the business in which he
was a partner be run in a manner that was consistent with his
12
This statement was not admitted for its truth, but rather as
proof that Kevin McKee was open about his stated beliefs.
52
personal beliefs about the evils of paying taxes, and that he
entered an agreement to that effect. App. at 321. Additional
evidence proffered by the government further supports the jury’s
conclusion. This includes evidence that all three Defendants
were involved in leadership positions with RIY—a group that
counseled its members on how to conceal audit-trails in order to
avoid detection by the IRS, and the fact that McKee did not file
his personal federal income taxes. Given our deferential
standard of review, this evidence was clearly sufficient to
convince a reasonable fact finder beyond a reasonable doubt that
Kevin McKee had agreed with the Donatos to engage in
practices that interfered with the government’s ability to collect
taxes from the members of RIY who were employed by the
Partnership, and that all three were criminally culpable for the
Partnership’s failure to file 941 forms as charged in Counts 2
53
through 13.13
b. Participation.
To prove Defendants’ participation in the conspiracy, the
government also had to establish “a ‘unity of purpose,’ intent to
achieve a common goal, . . .” United States v. Wexler, 838 F.2d
88, 90-91 (3d Cir. 1988); see also United States v. American
Investors of Pittsburgh, Inc., 879 F.2d 1087, 1100 (3d Cir.),
cert. denied, 493 U.S. 955 (1989). The government must proffer
evidence that he/she knew of the agreement and intended both
to join it and to accomplish its illegal objects. See United States
v. Rankin, 870 F.2d 109, 113 (3d Cir. 1989).
Our discussion of the evidence of an agreement is equally
13
The evidence of Joseph and Inge’s agreement is even more
substantial than McKee’s. Everything we have discussed regarding
McKee applies with greater force to Joseph Donato who was more
directly involved in the business of the Partnership and an equally
active member of RIY. Inge functioned as the bookkeeper.
54
applicable here. The knowing and intentional participation of
Defendants in the charged conspiracy is a fair inference from the
evidence of their positions in RIY and their involvement in the
Partnership. A defendant’s knowledge and intent may be
inferred from conduct that furthered the purpose of the
conspiracy. See Direct Sales Co. v. United States, 319 U.S. 703,
711 (1943). Inge’s deliberate embrace of the conspiracy and its
illegal objectives is clear from her role in the preparation of the
federal payroll tax returns that falsely omitted the names and
wages of the RIY employees and from her signature on RIY
employees’ paychecks that McKee and Donato distributed.
Joseph’s deliberate participation was established by his role as
supervisor of McKee-Donato employees, his activities managing
the business, and ultimately by evidence of his signature on the
payroll records and tax returns.
55
Kevin McKee’s participation was less direct. To support
its argument that his conviction should be sustained, the
government relies on case law holding that membership in a
conspiracy may be satisfied with evidence of only a slight
connection to the scheme. See United States v. McGlory, 968
F.2d 309, 321 (3d Cir. 1992). However, “those having no
knowledge of the conspiracy are not conspirators.” United
States v. Falcone, 311 U.S. 205, 210 (1940). “At a minimum,
. . . it must be shown that . . . a person has knowledge of the
conspiracy’s illicit purpose when he performs acts which further
that illicit purpose.” United States v. Klein, 515 F.2d 751, 753
(3d Cir. 1975). Nevertheless, it goes without saying that,
notwithstanding the quantum of evidence needed to connect a
defendant to a given scheme, guilt must still be established
beyond a reasonable doubt. To establish McKee’s participation,
we must determine whether there was sufficient evidence for the
56
jury to find that McKee was aware of the nature of the
conspiracy and that he was committed to it. See United States
v. DiPasquale, 740 F.2d 1282, 1292 (3d Cir. 1984).
McKee was a name partner in a business entity that was
obligated to file withholding forms and pay withholding taxes
to the government. Although the relevant tasks were principally
carried out by Inge Donato, the evidence we have already
discussed, including the size of the partnership, the general
knowledge of employees that the checks of RIY members were
different from those of nonmembers, and the relationship
between the three Defendants, supports an inference that McKee
knew and consented to the manner in which Inge carried out
those tasks, and that he participated in the scheme. McKee was
not an absentee partner who knew nothing of the Partnership’s
activities. He was responsible for resolving problems that arose
57
on a given project (App. 319); supervising RIY-
member/employees, assisting with hiring and firing (App. 292),
and periodically distributing paychecks to RIY-employees that
always omitted withholding. (App. 327) Although a
conspirator’s stake in the venture is not an essential element of
the crime of conspiracy, the existence of such a stake is relevant
to the question of deliberate participation. See Direct Sales Co.,
319 U.S. 703, 713. Here, the Defendants’ stake in the venture
satisfied both a financial and a philosophical motive; it allowed
Joseph Donato and Kevin McKee to have an income without
compromising their opposition to the tax system because they
could undermine the government’s ability to collect the taxes
they opposed. App. 658-59.
In addition, as we previously stressed, the government
introduced evidence that the fraudulent withholding was
58
common knowledge amongst the Partnership’s employees. A
reasonable juror could certainly conclude that a name partner
with day-to-day involvement in McKee-Donato also knew of the
fraudulent activity, and participated in it as a partner. This is
particularly true since that activity benefitted McKee by
furthering his personal belief system, while allowing him to
offer employment to RIY-members that did not compromise his
opposition to the “war tax.”
In United States v. Bellomo, 176 F.3d 580, 591-592 (2d
Cir. 1999), the defendant’s conviction was upheld for his
participation in a Klein conspiracy consisting of acts of
concealing income. The evidence established that the defendant
controlled an organization that filed false tax returns, and that he
supervised members of his “crew” who collected money that
was never reported to the IRS, including the organization’s
59
treasurer. The court concluded that a rational juror could infer
from the importance of the cash payments to defendant’s crew
that the defendant must have been aware of them and benefitted
from them. Id. at 591.
We realize, of course, that the Partnership’s business is
a far cry from the illegal enterprise in Bellomo. There are limits
inherent in any analogy that attempts to compare a legitimate
home repair and carpentry company to a “business” operation
run by organized crime that is concerned only with profit and the
coercion and intimidation necessary to ensure it. The evidence
here was that the Partnership’s business was conducted
professionally. Thus, any attempt to compare the Partnership
with the enterprise in Bellomo, is limited at best. Moreover,
unlike the defendant in Bellomo, McKee did not independently
control the organization that filed false tax exempt returns;
60
McKee’s business management responsibilities at the
Partnership were significantly less than those of Joseph Donato.
Nonetheless, McKee’s activities at the Partnership, combined
with all of the other evidence in the case is sufficient to allow a
jury to conclude that McKee was also aware that fraudulent tax
returns were being filed by the Partnership, and that he
participated in the scheme.
Defendants correctly remind us that association alone
will not support a conviction for conspiracy. United States v.
Cole, 704 F.2d 554, 557 (11th Cir. 1983). However, there is
much more here than mere association. Moreover, the jury did
not have to ignore the anti-tax beliefs of RIY members, or the
association between the Donatos and McKee, either within RIY
or in the Partnership itself.
Based on the evidence we have already discussed, the
61
participation element is also satisfied for both Joseph and Inge
Donato. See Sleight v. United States, 82 F.2d 459 (D.C. Cir.
1936) (a partner is liable for the criminal acts of a co-partner if
he possesses guilty knowledge of the criminal act of his
co-partner or is an accessory thereto either before or after the
fact) (emphasis added); see also United States v. Ward, 168 F.2d
226, 229 (3d Cir. 1948) (same).
c. Overt Act
Proof of a Klein conspiracy also requires proof of at least
one overt act in furtherance of the charged conspiracy. An overt
act is any act performed by any conspirator for the purpose of
accomplishing the objectives of the conspiracy. See United
States v. Falcone, 311 U.S. 205, 207 (1940) (“[T]he gist of the
offense of conspiracy . . . is agreement among the conspirators
to commit an offense attended by an act of one or more of the
conspirators to effect the object of the conspiracy”). The
62
government’s evidence of an overt act focused on Inge Donato’s
role in the preparation and filing of the payroll taxes.
“The Supreme Court [has] held that the criminal act of
one conspirator in furtherance of the conspiracy is attributable
to the other conspirators for the purpose of holding them
responsible for the substantive offense.” United States v. Lopez,
271 F.3d 472, 480 (3d Cir. 2001) (citing Pinkerton v. United
States, 328 U.S. 640, 647 (1946)). (quotations and original
brackets omitted); see also United States v. Guadalupe, 979
F.2d 790, 793 (10th Cir. 1992) (Under 18 U.S.C. § 371, a
conviction for conspiracy requires that the government prove
beyond a reasonable doubt that the defendants agreed to defraud
the United States and that one of the conspirators committed an
overt act in furtherance of the conspiracy.). However, an overt
act of one conspirator is the act of all, even absent proof of any
63
agreement directed to that act. United States v. Walls, 225 F.3d
858, 864 (7th Cir. 2000). Viewed against the backdrop of RIY’s
tax animus, the Partnership’s failure to report income of its RIY
member employees established the overt act of concealment.
See Bellomo, 176 F.3d at 591-92.
Accordingly, we reject Defendants’ challenge to the
sufficiency of the evidence to prove the conspiracy charged in
Count One.14
14
Defendants were not charged with conspiring to commit a
substantive offense, but more generally with conspiring to defraud the
United States. See United States v. Vasquez, 319 F.2d 381, 384 (3d
Cir. 1963). Willfulness is not an element of the crime of conspiring
to defraud the United States. See United States v. Shoup, 608 F.2d
950, 956 (3d Cir. 1979). Nevertheless, the Donatos also argue that,
based on our decision in United States v. Alston, 77 F.3d 713, 718-21
(3d Cir. 1996), the government was required to prove, in addition to
the statutory elements discussed in the conspiracy section supra, that
Defendants acted willfully with respect to the charged conspiracy.
We need not determine whether that case added an additional element
to the crime of conspiracy to defraud the United States because there
is clearly sufficient evidence of the Defendants’ willfulness with
regard to the substantive charges.
64
3. Failure to File Individual Tax Returns
a) Inge Donato
Inge Donato challenges the sufficiency of the evidence to
convict her for willful failure to file tax returns in 1997 and
1999, Counts 14 and 16. The district court granted Inge’s
motion to dismiss Counts 15 and 17 because the government did
not establish that she had income for those tax years. However,
the court denied her motion on Counts 14 and 16 based on
evidence of income in the form of proceeds of three Partnership
checks that purchased two cars titled in her name, and a paint
job on her home where she lived with Joseph. To sustain the
conviction, the evidence must be sufficient to prove each of the
following elements beyond a reasonable doubt: (1) she was
required to file the tax returns; (2) she failed to file them; and
(3) her failure was willful. See United States v. Foster, 789 F.2d
65457, 460 (7th Cir. 1986). As we will explain, we agree that the
government’s evidence was not sufficient to establish her guilt
on Counts 14 and 16 beyond a reasonable doubt, and we will
direct the district court to enter a judgment of acquittal on those
counts.
A married individual’s tax responsibilities are separate
from those of her spouse with respect to her own income unless
she elects to file jointly. See 26 U.S.C.A. 1(a) (Married
individuals filing joint returns); 26 U.S.C.A. 6013 (Joint returns
of income tax by husband and wife). Accordingly, the district
court instructed the jury as follows:
[i]f the married couple files no returns, the law presumes
that the tax status of the husband and wife is married
filing separately. Therefore, if you find that no tax return
has been filed by a married person, you will assume that
his or her taxpayer status would be married filing
separately.
66
App. at 993. The court then informed the jury of the gross
annual income needed to trigger the legal requirement to file tax
returns in 1997 and 1999 for a taxpayer whose filing status was
married, filing separately. In 1997 that amount was $2,650 and
in 1999 it was $2,750.
The government conceded it lacked evidence that Inge
Donato was compensated for the services that she performed for
the Partnership with a regular paycheck, and that she was not
paid a salary. However, the government attempted to impute the
purchase of household items with McKee-Donato checks to her
as income. The government established that Partnership checks
totaling $29,887.80 were used to purchase a Honda Accord and
to pay for a paint job on the Donato’s residence in December
1997. The car was titled in Inge’s name. App. 852, 854. The
government thus claimed that Inge’s tax obligation in 1997 was
67
half the value of the Accord and the cost of painting the Donato
residence, or $14,943.90.
For the tax year 1999, the government presented evidence
that Inge earned half of the value of an Acura automobile that
was purchased with a Partnership check ($5,100). That car was
also titled in her name. The government’s theory was that the
proceeds from the Partnership checks in 1997 and 1999
constituted income to her because it represented compensation
for work Inge did for the Partnership. However, the government
did not establish that the proceeds were intended as
compensation for work Inge did for the Partnership or that if it
was, Inge knew that it was so intended and that she therefore
had a duty to file returns for those years.
At the outset, we note that the government’s theory of
“compensation” is technical in the extreme in that it attempts to
68
hold Inge criminally liable for knowledge of the definition of
“taxable income” that would more appropriately be expected of
a tax attorney or accountant, rather than a spouse who helped out
at her husband’s business over the years. Although the
government argues that the paint job and the cars were
compensation in lieu of a salary, it only charged her with one
half the value of the two cars and half the value of the paint job.
There is no attempt to explain why the checks could not just as
likely have been intended as support, or interpreted as such.
Moreover, if the payment was intended as compensation for her
work at the Partnership, there is nothing to explain why only
half of the total amount of the three checks constituted
compensation although the cars were solely in her name, and no
explanation is apparent to us.
Inge disputes that the cars and the paint job were income
69
under the tax laws. She argues that they were just as likely to
have been support or gifts from her husband, the breadwinner,
and that they therefore did not constitute income. See 26
U.S.C.A. §§ 61, 102(a), 2501(a) (“Gross income” for tax
purposes does not include gifts, which are taxable to donor,
rather than to recipient); see also Bors I. Bittker & Martin
McMahon, Jr., Federal Income Taxation of Individuals, ¶ 5.02
(“Amounts paid by breadwinners to support their spouses and
minor children are routinely excluded from the beneficiary’s
gross income even though they satisfy a legal obligation.”)
(2007).
Inge only had a duty to file if the money that was used to
pay for the cars and the paint job was income to her, and not a
gift or support. See, e.g., 26 U.S.C. § 2502(c) (When a gift is
made, the gift tax liability falls on the donor). Even assuming
70
that the proceeds of the Partnership checks constituted income,
she can not be criminally liable for failing to pay taxes on that
income unless she knew that she had a duty to pay the resulting
taxes and “voluntarily and intentionally violated that duty.”
Cheek, 498 U.S. 192. The government must prove that an
individual has a duty to file a tax return based on the receipt of
taxable income. Clawson v. United States, 198 F.2d 792, 794
(9th Cir. 1952). However, “[o]nly true income can be
considered in determining whether [a defendant] was obliged to
file an individual tax return, and . . . the prosecution has the
burden of establishing any money received as being true
income.” Id.The government cites United States v. Fogg, 652 F.2d
551, 553-55 (5th Cir. 1981); and United States v. Lacob, 416
F.2d 756, 760 (7th Cir. 1969), to support its argument that it
71
established a prima facie case by proving that Inge received
unreported funds that had the appearance of income. However,
neither case supports that contention. Both cases involved
individuals who received funds in consideration of a business
arrangement or for legal work and then failed to report it.
Moreover, the nature of the consideration in those cases was
sufficient to itself put the recipient on notice that he was
receiving compensation. In Fogg, the defendant received
“kickbacks” from an orange juice supplier. Id. at 553-54. The
defendant did not report these “kickbacks” as personal or
corporate income. Id. at 54. The court explained the situation
as follows:
This appeal concerns the amazing attempt of
appellant, the corporate president of a thriving
food store chain, to skim approximately $80,000
per year off the wholesale price that his company
paid for orange juice and pour it, tax-free, into his
own pocket.
72
Id. at 553. That is not this case, and Lacob does not advance the
government’s position any farther.
In Lacob, the defendant was an attorney specializing in
personal injury litigation who received funds in the form of
settlement checks, but did not deposit the entirety of the checks
received; giving the appearance of having received less and
thereby underreporting income to the IRS. 416 F.2d at 760.
The government provides no authority to support its
claim that a married spouse’s purchase of shared household
items with a check from the working spouse’s business puts the
receiving spouse on notice that some portion of the proceeds
constitute income with a concomitant tax obligation.15 The
15
Given the frequency with which spouses voluntarily help
out by doing work for the family business owned by the other spouse,
the general proposition the government is relying upon could have
sweeping consequences that would impose criminal tax liability for
all manner of gifts and support.
73
distributions the government relies on here could just as
reasonably be viewed as support or a gift from Joseph Donato
to Inge. Indeed, the fact that the government attributes only half
of the value of the cars and the paint job to Inge is consistent
with that view. Without evidence tying these checks to
compensation for work Inge did for the business her husband
partially owned, those checks could just as well have been
contributions to the marital household or support. This is
particularly true of the funds used to paint the Donatos’ home,
and no attempt was made to separate those proceeds from
proceeds to purchase the two cars that were titled solely in
Inge’s name.
There is no evidence here that would allow a jury to
reasonably relate the amount of any of the checks to the amount
of time Inge “worked” at the Partnership, or to conclude that the
74
checks were intended to compensate her for work she had
historically done on an unpaid basis. For example, the
government did not show that her hours in 1997 and 1999 were
so markedly different than her hours in other years that she
would have known that the checks were intended as
compensation for work she had historically done without pay.
Similarly, there is no evidence that Inge did substantially more
work in 1997 than in 1999 and therefore no attempt to explain
the disparity in the amounts of the Partnership checks used to
purchase the Honda and the paint job one year ($14,943.90), and
the Acura two years later ($5,100).
The only direct evidence the government provided to
prove these items were intended as compensation for work done
at the Partnership consisted of the “expert” testimony of an IRS
agent. He gave his legal opinion that the purchase of the Honda
75
and Acura and paint job constituted income chargeable to Inge.
However, that expert opinion does not appear to be based on
anything more than the checks and Inge’s work at the
Partnership; work she had historically done without
compensation. Moreover, even if we accept that unsupported
opinion, Inge is no tax expert and clearly can not be charged
with the tax knowledge of a purported IRS tax expert.
Furthermore, although the government claims that these items
constituted a personal benefit to Inge, demonstrating a personal
benefit is not enough. Support and gifts also benefit the
recipient. Indeed, it is hard to imagine giving a gift that the
grantor does not intend to benefit the recipient. The same is true
of support; it certainly benefits the recipient who may be
dependent upon it. Thus, benefit alone can not establish income.
A transfer of property is income if it is the result of “the
76
constraining force of any moral or legal duty, constitutes a
reward for services rendered, or proceeds from the incentive of
anticipated benefit of an economic nature.” United States v.
Harris, 942 F.2d 1125, 1128 (7th Cir. 1991) (quoting
Commissioner v. Duberstein, 363 U.S. 278, 285 (1960)).
“Under Commission v. Duberstein, the donor’s intent is the
critical consideration in distinguishing between gifts and
income.” Harris, 942 F.2d at 1127 (citations and quotation
marks omitted). The evidence here does not establish beyond a
reasonable doubt that Joseph intended to compensate Inge for
her help by giving her money to paint the home they lived in,
rather than simply conveying a gift. “A transfer of property is
a gift if the transferor acted out of a detached and disinterested
generosity, . . . out of affection, respect, admiration, charity, or
like impulses.” Id. at 1128 (citation and quotation marks
omitted).
77
Harris is instructive. There, the jury convicted two
women for tax evasion based on a substantial sum of money
each was paid by a very wealthy widower who enjoyed the
company of younger women. On appeal, the convictions were
reversed because the evidence failed to show the money was
intended as income as opposed to a gift, and because the
government did not establish the recipients knew the money was
intended as income. In reversing, the court of appeals explained,
“[t]his failure to show [the donor’s] intent is fatal to the
government’s case.” Id. at 1129.
The same fatal flaw undermines the government’s proof
here. Moreover, even if Joseph intended the checks as
compensation, there is nothing to show that Inge knew of any
such intent on Joseph’s part for the Partnership checks she
received in 1997 and 1999. Accordingly, her convictions on
78
Counts 15 and 17 can not stand, and we will remand with
instructions to vacate the convictions on those counts, and enter
a judgment of acquittal.16
b) Joseph Donato
Joseph Donato also argues that the government did not
prove his failure to file an individual federal tax return was
willful.
As is evident from the preceding discussion of Inge’s
conviction, and as the Court of Appeals for the Sixth Circuit has
explained:
The word “willfully,” as used in this statute,
means a voluntary, intentional violation of a
known legal duty. In other words, the defendant
must have acted voluntarily and intentionally and
with the specific intent to do something he knew
16
Because we reverse Inge Donato’s conviction on those
Counts, we need not address her challenge to the pertinent jury
instructions.
79
the law prohibited, that is to say, with intent either
to disobey or to disregard the law. Negligent
conduct is not sufficient to constitute willfulness.
United States v. Tarwater, 308 F.3d 494, 510 (6th Cir. 2002).
This element is satisfied here by evidence of Joseph’s failure to
file, together with his participation in routine strategy sessions
with RIY members regarding how to avoid the creation of audit
trails, his failure to file federal payroll taxes for the employees
of McKee-Donato, evidence of his tax protest activities, and his
knowledge of the conviction and sentencing of Leo Volpe for
failure to pay federal income tax.17
17
We recognize that this same evidence applies with equal
force to Inge; however, as we have explained, the evidence did not
establish that she had a duty to file, and proof of her willfulness is
therefore not enough to support a conviction. On the other hand,
Joseph Donato knew that he had income from his Partnership; the
business was his livelihood, and there is no issue about his knowledge
of his duty to file.
We of course appreciate the fact that the jury quite naturally
may have believed that Inge would not have paid taxes on any of the
income she received from the Partnership even if Joseph intended to
compensate her and even if she knew of that intent. However, that is
not dispositive. Absent that intent on the part of Joseph, and absent
80
Although a reasonable jury could not conclude that Inge
Donato was guilty of a failure to file her individual tax returns
on the strength of the evidence presented, see United States v.
Cooper, 121 F.3d 130, 133 (3d Cir. 1997), Joseph Donato’s
conviction is supported by the evidence. Accordingly, we will
affirm Joseph Donato’s conviction for failure to file his
individual federal tax returns.
C. Evidentiary Challenges
Kevin McKee challenges several evidentiary rulings, and
Inge and Joseph Donato adopt some of those challenges.
Although we have already granted all of the Defendants a new
trial on Counts 2 through 13, we still must consider the
evidentiary challenges relevant to those Counts in order to
provide guidance should the government choose to retry
Inge’s knowledge of such an intent, she simply can not be held
criminally liable for not filing returns as we have explained.
81
Defendants, and also to determine if a new trial should be
granted on any of the remaining counts. We hold that a new
trial is necessary only for Counts 2 through 13 based upon the
constructive amendment to the jury instruction that we discussed
at the outset.18
McKee challenges the evidence concerning the arrest and
prosecution of Leo Volpe. He argues that this evidence was
irrelevant and unduly prejudicial because “[a] defendant ha[s] a
right to have his guilt or innocence determined by the evidence
presented against him, and not by what happened with regard to
a criminal prosecution against someone else.” United States v.
Toner, 173 F.2d 140, 142 (3d Cir. 1949). Although we certainly
18
Our discussion of the evidentiary challenges pertaining to
Counts 2 through 13 necessarily overlaps our discussion of the
sufficiency of the evidence because much of the same evidence is
relevant to other counts in the indictment and that evidence had to be
considered as part of our analysis of the sufficiency of the evidence
to convict on other counts.
82
agree that none of the Defendants could be convicted based on
his association with Leo Volpe, that does not mean this
argument has merit. As the government points out, a jury may
properly take into account the defendant’s awareness of relevant
circumstances, including relevant court decisions that undermine
a defendant’s good faith defense with regard to interpretation of
the Internal Revenue Code. See Cheek, 498 U.S. at 202.
When willfulness is an element of a charged tax offense,
courts routinely allow the government to introduce evidence
that, prior to the conduct in question, a defendant became aware
of the tax improprieties inherent in that conduct. See, e.g.,
United States v. Dack, 987 F.2d 1282, 1285 (7th Cir. 1993).
Volpe’s prosecution and conviction for failure to pay taxes
based on religious practices embraced by the Defendants,
together with McKee’s knowledge of those facts, were thus
83
properly admitted for the purpose of disproving his good faith
defense even though Volpe’s charges were not identical to the
charges here. We also agree with the government that whether
the jury was correctly advised that Volpe was convicted of
willful failure to pay a tax or willful failure to file is irrelevant.
The applicable statute, 26 U.S.C. § 7203, governs persons who
both fail to file and fail to pay taxes and the willfulness element
applies equally to both.
We likewise find that the admission of evidence
regarding McKee’s marriage to Volpe’s widow was properly
admitted. We review the district court’s ruling for plain error
where, as here, there was no objection. App. 716 (objection
made and withdrawn). After Volpe died, Volpe’s widow
assumed a leadership role within RIY. McKee assisted her in
the leadership of RIY, and they subsequently married. As we
84
have explained, evidence of a tax protestor’s activities and
philosophies is admissible to prove willfulness. See, e.g.,
Grosshans, 821 F.2d at 1252. McKee’s relationship with the
leader of an organization that promoted tax-protestor
philosophies, and his leadership role, is relevant to his
willfulness. Moreover, even if the evidence of McKee’s
marriage to Volpe’s widow was improperly admitted, any error
would have been harmless in light of the overwhelming
evidence of McKee’s tax animus.
Defendants all object to the admission of statements by
Inge to a radio talk-show host, and statements by Joseph Donato
to law enforcement agents. We also review those rulings for
plain error and find none. Apart from Inge’s admission that she
does not pay taxes, Inge’s statements were offered to show that
RIY members openly protested taxes. That suggests an anti-tax
85
philosophy which was relevant to proving Inge Donato’s
willfulness. We note yet again that evidence of willfulness may
be found in a defendant’s tax protest activities and philosophies.
See Hogan, 861 F.2d at 316 (defendant’s attitude toward
Internal Revenue Service was relevant as indication of
willfulness of his attempted tax evasion); Grosshans, 821 F.2d
at 1252. Moreover, the limiting instructions were sufficient to
ensure that the jury considered the statements each defendant
made only with regard to his or her own guilt where appropriate.
McKee and Donato offer an alternative basis for the
judge’s alleged error in admitting Inge’s statements over the
radio. They maintain that the admission constituted plain error
under the Confrontation Clause of the Sixth Amendment and
violated the rule of Bruton v. United States, 391 U.S. 123(1968). McKee and Inge make the same claims with regard to
Joseph Donato’s statements to the IRS. A Bruton analysis is
86
triggered where an admission of a co-defendant is so
“powerfully incriminating” or “devastating” that a limiting
instruction fails to adequately safeguard the defendant’s Sixth
Amendment rights. 391 U.S. at 135-36. Although Inge’s
statement was not a full confession, it provided evidence that
supported a key element of the government’s case: willfulness.
However, we do not agree that the circumstances here implicate
Bruton. The statements in question added little, if anything, to
the totality of the evidence against each defendant, the court
gave appropriate cautionary instructions, and the circumstances
are not such as to negate the effectiveness of those instructions.
Thus, the court’s rulings on these statements readily survive
plain error review. See Olano, 507 U.S. at 732.
Moreover, even if the district court erred in admitting the
radio broadcast evidence, it was harmless. Aside from Inge’s
87
broadcast, there was substantial evidence to establish that Inge,
McKee, and Joseph Donato had expressed their committed
opposition to paying the “war tax.” App. 321, 336-37, 531-33,
624-25, 650-52. Furthermore, Defendants’ conceded their
beliefs about the immorality of the federal tax system and their
self-exemption from the revenue laws. See Virgin Islands v.
Joseph, 964 F.2d 1380-90 (3d Cir. 1992) (holding that
admission of evidence in violation of Confrontation Clause was
harmless because it did not relate to the contested issue before
jury).
Likewise, there was no plain error in permitting the IRS
agent to testify about Joseph Donato’s admissions. These
included RIY’s open condemnation of the “war tax,” the non-
filing history of RIY’s members, and McKee’s status as
Donato’s business partner. App. 292, 354, 618-25, 648-49, 658-
88
59, 161-64. Defendants’ tax protestor philosophies and non-
filing histories were not contested, nor was Donato’s status as
McKee’s partner.19
D. Prosecutorial Misconduct
Finally, Defendants argue that the government committed
reversible misconduct during closing argument by questioning
the sincerity of their religious beliefs. Defendants contend that
misconduct occurred when the prosecution asked the jury why
the Defendants would not pay state taxes if their religious
beliefs were genuinely based on the “war” tax. The prosecutor
thus suggested that the only reason Defendants failed to file
19
Defendants further allege that the admission of Inge’s radio
interview and Joseph Donato’s statements to the IRS also violated
their Fifth Amendment right to a fair trial. This adds nothing to their
Bruton claims. See Bruton, 391 U.S. at 135-36 (analyzing the fair
trial consequences of Confrontation Clause violations). Moreover,
we reject the Defendants’ Fifth Amendment claim for the same
reasons we reject their Sixth Amendment claim.
89
state taxes was to hide their tax protestor activities, and to “stay
under the radar.” App. 1007. He also questioned how
Defendants’ beliefs explained their evasion of Social Security
and Medicare taxes. We do not believe that the prosecution’s
remarks “resulted in an egregious error or a manifest
miscarriage of justice.” United States v. Irizarry, 341 F.3d 273,
306 (3d Cir. 2003).
Although these remarks may be viewed as excessive or
overly zealous, they can also be viewed as a proper comment on
the evidence. Throughout the trial, Defendants introduced
evidence of their good-faith belief as well as the absence of IRS
action despite their open tax protest, to prove their lack of
criminal intent. These themes were advanced by Defendants in
their opening statements, their cross-examination of witnesses,
and in direct evidence of character and opinion evidence of
90
honesty, truthfulness and sincerity.20 See, e.g., App. 306
(defense cross-exam of witness Chambers regarding Joseph
Donato’s genuinely held belief against paying federal taxes
because he considered it a war tax), 336-37 (defense cross-exam
of witness Gruszkowski regarding Donato’s belief that the
federal tax supported war or killing), 638-39, 688, 495 (defense
cross-exam of witness Noto regarding defendants’ reputation for
honesty and trustworthiness), 503 (same, witness Gibson). But
compare App. 1026-27 (defense closing arguing that Donato’s
religious belief against paying the war tax is not his defense),
1032-33 (defense closing argument that individual defendants
were under no obligation to deduct taxes, only the construction
20
Defendants concede that appellant McKee’s opening theme
did advance the theme of religious sincerity, but argue that an
opening is not evidence and the government’s remedy, if McKee went
too far, was not to retaliate in closing, but to object and ask the court
to enforce its pretrial rulings. Donatos’ Reply Br. at 13, n.6.
91
company itself).
The prosecution was thus entitled to challenge
Defendants’ implicit good-faith defense, and to preemptively
address any sympathy arising from the Defendants’ religious
views.
CONCLUSION
For the foregoing reasons Defendants’ convictions on
Count 1 for conspiracy to defraud the United States are
affirmed. However, based on our constructive amendment
analysis, we will vacate Defendants’ convictions on Counts 2
through 13 of the superseding indictment and remand for a new
trial on those counts. Inge Donato’s convictions on Counts 14
and 16 will also be reversed and vacated, and the district court
will be ordered to enter a judgment of acquittal on both of those
counts on remand.
92