United States v. Daniels, Gregory R. ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-1105
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
GREGORY R. DANIELS and
SUSAN V. DANIELS,
Defendants-Appellants.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 00 CR 186—Rudolph T. Randa, Chief Judge.
____________
ARGUED SEPTEMBER 10, 2004—DECIDED OCTOBER 27, 2004
____________
Before FLAUM, Chief Judge, and POSNER and ROVNER
Circuit Judges.
FLAUM, Chief Judge. Defendant-appellant Gregory Daniels
is a chiropractor who operated his own practice, Daniels
Chiropractic. His wife, co-defendant-appellant Susan
Daniels, served as the clinic’s manager. Together they were
charged with two counts of income tax evasion in violation
of 26 U.S.C. § 7201. Following a jury trial, defendants were
convicted on both counts. They now appeal their convictions
and sentences. For the reasons stated herein, we affirm.
2 No. 03-1105
I. Background
On September 26, 2000, a federal grand jury returned a
two-count indictment against Gregory and Susan Daniels.
Count I charged that on or about April 15, 1994, defendants
filed a fraudulent joint federal income tax return for the
year 1993 in violation of 26 U.S.C. § 7201. Count II charged
that on or about April 15, 1995, defendants filed a fraudu-
lent joint federal income tax return for the year 1994 in
violation of 26 U.S.C. § 7201. Defendants moved to dismiss
both counts on the ground that the indictment failed to
allege that the tax deficiency due for the years in question
was substantial. Defendants also moved to dismiss Count
I as barred by the six-year statute of limitations set forth in
26 U.S.C. § 6531(3).
After briefing by both parties, on February 12, 2001, the
magistrate judge recommended that the district court: (i)
deny defendants’ motion to dismiss the indictment for fail-
ure to allege an essential element of the offense; and (ii) dis-
miss Count I because the indictment was returned more
than six years after April 15, 1994, the date of the alleged
offense.
The next day, February 13, 2001, the government filed a
superseding indictment, which changed the dates of the
alleged fraudulent filings to October 15, 1994 in Count I,
and August 15, 1995 in Count II. Other than these date
changes, the superseding indictment was identical to the
original.
On March 8, 2001, the district court denied defendants’
motion to dismiss the original indictment. The district court
adopted the report of the magistrate judge with respect to the
substantiality requirement, stating: “The Court thinks, as
did the Magistrate Judge, that Sansone v. United States, 380
U.S. 343 (1965) trumps the Seventh Circuit authority
submitted by the defendant on the question of whether the
indictment must relate a ‘substantial’ tax deficiency to sur-
No. 03-1105 3
vive.” (R. at 30.) The district court also found the motion to
dismiss Count I of the indictment on statute of limitations
grounds moot in light of the superseding indictment. (Id.)
Defendants then moved to dismiss Count I of the super-
seding indictment, contending that it materially amended
the initial charges, and therefore did not relate back to the
filing date of the original indictment. On May 25, 2001, the
district court adopted the magistrate’s recommendation de-
nying the defendant’s motion to dismiss. The district court
reasoned:
[T]he Superseding Indictment does not materially amend
the initial charges because there were no substantive
changes to the allegations. The charges are exactly the
same. Defendants are alleged in both indictments to
have filed a fraudulent tax return for the tax year 1993.
Only the date on which they allegedly did this is different.
In other words, the Daniels, who were obligated to file
a tax return in 1994 for 1993, are alleged to have fraudu-
lently done so in October of 1994, instead of April of 1994.
This cannot be said to be a material broadening or sub-
stantial amendment of the charges in the original Indict-
ment. The Superseding Indictment therefore relates back
to the original indictment bringing the charges within
the statute of limitations.
(R. at 43.)
The case proceeded to trial, and resulted in a mistrial.
Following a second trial, defendants were convicted on both
counts. Gregory Daniels was sentenced to 15 months im-
prisonment on each of Counts I and II, both terms to run
concurrently, and three years of supervised release, and
ordered to pay $13,014.15 in restitution, along with a $200
special assessment. Susan Daniels also was sentenced to
serve 15 months imprisonment on each of Counts I and II,
both terms to run concurrently, upon the completion of her
husband’s incarceration. She was also ordered to pay
4 No. 03-1105
$13,014.15 in restitution, for which she would be jointly and
severally liable with her husband, and a $200 special
assessment. Defendants now appeal their convictions and
sentences.
II. Discussion
A. Substantiality
We review defendants’ challenge to the sufficiency of the
indictment de novo. United States v. Sandoval, 347 F.3d 627,
633 (7th Cir. 2003). The tax evasion statute provides: “Any
person who willfully attempts in any manner to evade or
defeat any tax imposed by this title or the payment thereof
shall . . . be guilty of a felony. . . .” 26 U.S.C. § 7201. As the
Supreme Court set forth in Sansone v. United States: “[T]he
elements of § 7201 are will-fullness; the existence of a tax
deficiency; and an affirmative act constituting evasion or
attempted evasion of the tax.” 380 U.S. 343, 350 (1965)
(internal citations omitted).
Defendants argue that the district court erred in denying
their motion to dismiss the indictment. They point out that
the Supreme Court decision in Sansone preceded our decision
in United States v. Davenport, 824 F.2d 1511 (7th Cir. 1987),
and therefore insist that the district court was incorrect to
suggest that Sansone “trumps” the law of this Circuit. While
it is true that this Court was aware of Sansone when we de-
cided Davenport, we disagree with defendants’ principal ar-
gument that the existence of a “substantial” tax deficiency
is an essential element of the crime of tax evasion under
our case law.
Defendants rely primarily on the language in Davenport,
where we listed the elements of the offense of tax evasion as
follows:
(1) an affirmative act constituting an evasion or at-
tempted evasion of the payment or collection of taxes;
(2) the existence of a substantial tax deficiency; and (3)
No. 03-1105 5
that the defendant acted willfully. Sansone v. United
States, 380 U.S. 343, 351 (1965); United States v. Foster,
789 F.2d 457, 459 (7th Cir. 1986).
Id. at 1516 (emphasis added). On at least one other occasion,
we have used the word “substantial” in our recitation of the
tax deficiency element. See United States v. King, 126 F.3d
987, 993 (7th Cir. 1997) (“Again, the elements of a § 7201
offense are the existence of a substantial tax deficiency,
willfulness, and an affirmative act constituting an attempt
to evade or defeat tax.”) (emphasis added) (citing Sansone,
380 U.S. at 351; United States v. Eaken, 995 F.2d 740, 742
(7th Cir. 1993)).
On many other occasions, however, we have recited the
elements of tax evasion without mentioning the substantial-
ity of the tax deficiency. See, e.g., King, 126 F.3d at 989
(setting forth earlier in the opinion that “[i]n order to obtain
a conviction under § 7201, the government must prove three
elements: (1) the existence of a tax deficiency; (2) willfulness;
and (3) an affirmative act constituting an attempt to evade
or defeat tax.”) (citing Sansone, 380 U.S. at 351; Eaken, 995
F.2d at 742); United States v. Beall, 970 F.2d 343, 345 (7th
Cir. 1992); United States v. Jungles, 903 F.2d 468, 473 (7th
Cir. 1990); United States v. Fournier, 861 F.2d 148, 150-51
(7th Cir. 1988); United States v. Tishberg, 854 F.2d 1070,
1072 (7th Cir. 1988); United States v. Conley, 826 F.2d 551,
556 (7th Cir. 1987).1
Ignoring these other decisions, defendants latch on to the
language in Davenport to argue that under Seventh Circuit
law, substantiality is an essential element of the crime of
tax evasion. Therefore, they argue, the indictment in this
case was inadequate in failing to charge a substantial tax
deficiency.
1
We also note that the Seventh Circuit pattern jury instructions
do not mention the word “substantial” in stating the essential
elements of a § 7201 violation.
6 No. 03-1105
Defendants read too much into Davenport. While the word
“substantial” does appear in our opinion, the case did not
address the issue that confronts us today: whether in a
§ 7201 prosecution the government must charge in the indict-
ment, and prove beyond a reasonable doubt, the existence
of a substantial tax deficiency.
In Davenport, we addressed whether the government must
disprove the defendant’s entitlement to every possible
deduction in order to sustain a conviction for tax evasion.
824 F.2d at 1516-17. The defendant argued that there was
reasonable doubt that he had a substantial tax liability for
the year 1980 because “he could have been entitled to addi-
tional deductions, if itemized, above the standard deduction.”
Id. at 1516. The revenue agent calculated a tax deficiency
of $3358.68, giving the defendant credit for any possible
deductions that could have been itemized, and the defendant
introduced no evidence of additional deductions to which he
was entitled. Id. We held that the government need not
prove “that there are no other conceivable deductions of any
sort to which the defendant might be entitled in the absence
of some indication that they may in fact exist,” and that in
any event a deficiency of just over $3,000 was sufficient. Id.
at 1516-17. The parties in that case did not raise the question
whether substantiality was an element of the offense, and
we did not hold that it was.
Nor did we address whether substantiality is an element
of tax evasion in King, considering only the defendant’s
challenge to his conviction based on the third element of the
offense, the commission of a willful act. 126 F.3d at 993.
Moreover, the cases on which we relied to list the elements
of tax evasion in Davenport and King do not themselves men-
tion substantiality. See Sansone, 380 U.S. at 351 (“[T]he
elements of § 7201 are will-fullness; the existence of a tax
deficiency; and an affirmative act constituting evasion or
attempted evasion of the tax.”) (internal citations omitted);
Foster, 789 F.2d at 459 (“A violation of 26 U.S.C. § 7201 re-
No. 03-1105 7
quires proof of the following elements: (1) the existence of a
tax deficiency; (2) an affirmative act constituting an evasion
or attempted evasion of the tax; and (3) willfulness.”) (citing
Sansone, 380 U.S. at 351); Eaken, 995 F.2d at 742 (“The crime
of willful tax evasion has three elements: willfulness, the
existence of a tax deficiency, and an affirmative act consti-
tuting an attempt to evade or defeat the payment of the
tax.”).2
We take this opportunity to clarify the law in this Circuit:
the government need not charge a substantial tax deficiency
to indict or convict under 26 U.S.C. § 7201. To hold other-
wise would contradict the clear language of the statute and
lead to an absurd result. Requiring the government to charge
and prove that a defendant’s tax deficiency is substantial in
2
Defendants also cite several decisions from other circuits which
mention a substantial tax deficiency as an element of tax evasion.
See, e.g., United States v. Romano, 938 F.2d 1569, 1571 (2d Cir.
1991); United States v. Parr, 509 F.2d 1381, 1385-86 & n.12 (5th
Cir. 1975); United States v. Burkhart, 501 F.2d 993, 995 (6th Cir.
1974). Defendants’ reliance on the language of these decisions is
questionable because those courts were not squarely faced with
the question. Moreover, subsequent opinions of these courts have
listed the elements of tax evasion without requiring a “substantial”
tax deficiency. See, e.g., United States v. D’Agostino, 145 F.3d 69, 72
(2d Cir. 1998); United States v. Bishop, 264 F.3d 535, 545 (5th Cir.
2001); United States v. Cor-Bon Custom Bullet Co., 287 F.3d 576,
579 (6th Cir. 2002).
The Fourth and Tenth Circuits have mentioned a substantial
tax deficiency as an element of tax evasion more consistently,
although these courts also have not been called upon to decide the
issue directly. See, e.g., United States v. Wilson 118 F.3d 228, 236
(4th Cir. 1997) (citing United States v. Goodyear, 649 F.2d 226,
227-28 (4th Cir. 1981)); United States v. Mounkes, 204 F.3d 1024,
1028 (10th Cir. 2000) (citing United States v. Meek, 998 F.2d 776,
779 (10th Cir. 1993)). Defendants conceded at oral argument that
no court has held that an insubstantial tax deficiency is not
punishable under 26 U.S.C. § 7201.
8 No. 03-1105
order to prosecute her for tax evasion would prevent the
prosecution and punishment of those who willfully cheat
the government out of small or “insubstantial” amounts of
money.3 A substantiality element would invite taxpayers to
cheat on their taxes in small amounts without fear of pros-
ecution. We cannot countenance such a result. Although
evidence of a large or substantial tax deficiency may aid the
government in proving willfulness, it is not itself an
element of the offense.
B. Timeliness of the Indictment
Defendants argue that the original indictment was un-
timely and therefore cannot toll the statute of limitations to
allow the subsequent filing of the superseding indictment.
They further argue that the district court erred in concluding
that the superseding indictment did not materially amend
the original indictment.
The government responds that the first indictment was
timely because the statute of limitations began running on
or about October 15, 1994, the date the Daniels actually
filed their fraudulent 1993 tax return, not on or about
April 15, 1994, the date of the offense as stated in the orig-
inal indictment. They also contend that the superseding
indictment relates back to the filing date of the original in-
dictment for tolling purposes because it alleges exactly the
same charges.
3
Defendants do not propose an amount at which a tax deficiency
becomes “substantial,” or how we could set a threshold. In any
event, defendants did not contest substantiality at trial, and at
sentencing they conceded a tax loss of over $69,000. Certainly,
this amount is substantial under any rubric. Cf. Davenport, 824
F.2d at 1517 (“the little more than $3000 in taxes the defendant
evaded paying will amply suffice”).
No. 03-1105 9
We review the district court’s ruling regarding the statute
of limitations de novo. United States v. Pearson, 340 F.3d 459,
464 (7th Cir. 2003). The crime of tax evasion prohibited by
26 U.S.C. § 7201 must be charged within six years “after
the commission of the offense.” 26 U.S.C. § 6531.
The Supreme Court has held that the offense of tax evasion
is “committed at the time the return is filed.” United States
v. Habig, 390 U.S. 222, 223 (1968) (holding that the statute of
limitations did not begin to run on the date the defendants’
tax returns were initially due, but rather on the date they
actually filed the returns after the defendants obtained an
extension). As the Court recognized in Habig, it would make
no sense to interpret the limitations period as “begin[ning]
to run before appellees committed the acts upon which the
crimes were based.” Id. at 224-25; see also Sansone, 380
U.S. at 354 (stating that the crime of tax evasion is “com-
plete as soon as the false and fraudulent understatement of
taxes . . . was filed”); United States v. Yeoman-Henderson,
Inc., 193 F.2d 867, 869 (7th Cir. 1952) (the crime of tax
evasion is “complete when the taxpayer willfully and know-
ingly files a false return with intent to defeat or evade any
part of the tax due to the United States”).
The facts of this case are analogous to those in Habig. The
offense with which the Daniels were charged was commit-
ted when they filed their fraudulent tax return for the year
1993. Although the return was originally due April 15, 1994,
the Daniels obtained two extensions, making the ultimate
due date October 15, 1994. They actually mailed the form
on October 10, 1994. Therefore, the offense stated in the in-
dictment: “willfully and knowingly attempt[ing] to evade
and defeat a large part of the income tax due and owing by
the defendants to the United States of America for the cal-
endar year 1993” was completed no earlier than October 10,
1994, when the defendants committed the affirmative act of
“causing to be prepared and [ ] signing or causing to be
signed, a false and fraudulent joint 1993 U.S. Individual
10 No. 03-1105
Income Tax Return, Form 1040.” Because the original in-
dictment was filed on September 26, 2000, it was within six
years of the completion of the offense charged in Count I. We
hold, therefore, that the original indictment was timely
when filed.
Defendants argue that even if the original indictment was
timely, the superseding indictment does not relate back to
the original filing date because the new charges materially
amend the original indictment. According to defendants, the
original and superseding indictments allege different af-
firmative acts constituting tax evasion. The original indict-
ment alleges that defendants took affirmative action to
violate the tax law on or about April 15, 1994; the supersed-
ing indictment charges that defendants took such action on
or about October 15, 1994. These two affirmative acts,
defendants argue, require different sets of proof by the gov-
ernment and call for different defenses.
We disagree. We have held that “a superseding indictment
that supplants a still-pending original indictment relates
back to the original indictment’s filing date so long as it
neither materially broadens nor substantially amends the
charges initially brought against the defendant.” Pearson,
340 F.3d at 464 (quoting United States v. Ross, 77 F.3d 1525,
1537 (7th Cir. 1996)). In Pearson, we held that the second
superseding indictment related back to the timely-filed
original indictment where it modified the end date of the
charged conspiracy from February 1996 to September 2000
and added three overt acts which occurred during that time.
Id. at 465. We noted that the defendants were “on notice of
the charges pending against them because the initial in-
dictment informed appellants in no uncertain terms that
they would have to account for essentially the same conduct
with which they were ultimately charged in the superceding
indictment,” and therefore held that the second superseding
indictment did not violate the statute of limitations. Id.
In Ross, a case involving mail and wire fraud, we held
No. 03-1105 11
that superseding indictments related back to the original,
timely-filed indictment where the counts at issue:
had been modified in only two minor respects: (1) ref-
erence to a specific Code of Federal Regulations pro-
vision had been deleted and replaced with the general
words “federal regulations” to obviate confusion from a
change in the regulations’ numbering; and (2) the time
period in which the conduct forming the basis of each
count was alleged to have occurred was narrowed by
one month.
77 F.3d at 1537-38. We held that neither of these superficial
changes to the indictment constituted the kind of broaden-
ing or amendment that would prevent relation back to an
earlier pending indictment. Id. at 1538.
As we explained in Ross, statutes of limitation are “mech-
anisms to guard against possible . . . prejudice resulting
from the passage of time between crime and arrest or charge.”
Id. at 1537 (quoting United States v. Marion, 404 U.S. 307,
322 (1971)). They are “designed to protect individuals from
having to defend themselves against charges when the basic
facts may have become obscured by the passage of time and
to minimize the danger of official punishment because of acts
in the far-distant past.” Id. (quoting Toussie v. United States,
397 U.S. 112, 114-15 (1970)).
As in Pearson and Ross, there is no question that the
Daniels were on notice that they were being prosecuted for
their fraudulent income tax filing for the year 1993. The
Daniels were aware, or should have been aware, that they
filed their Form 1040 for the year 1993 on or about October 15,
1994, even though the original indictment was dated April 15,
1994. The original and superseding indictments are iden-
tical in all respects except for the date changes. Therefore,
we cannot say that the superseding indictment materially
broadened or substantially amended the charges against
the Daniels.
12 No. 03-1105
III. Conclusion
For the foregoing reasons, the convictions are AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-27-04