United States v. Pree, Bette J. ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-1516
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
BETTE J. PREE, also known as
BETTS PREE,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Central District of Illinois.
No. 02 CR 30004—Jeanne E. Scott, Judge.
____________
ARGUED DECEMBER 12, 2003—DECIDED MAY 20, 2005
____________
Before COFFEY, RIPPLE and KANNE, Circuit Judges.
RIPPLE, Circuit Judge. Bette J. Pree was indicted by a grand
jury for one count of failing to file a tax return for the tax
year 1994, in violation of 26 U.S.C. § 7203, and for two
counts of filing false tax returns for the tax years 1995 and
1996, in violation of 26 U.S.C. § 7206(1). After trial, a jury
found Ms. Pree not guilty of the failure to file charge but
guilty of both counts of filing false tax returns. The district
court sentenced Ms. Pree to 18 months’ imprisonment, to be
2 No. 03-1516
followed by a one-year term of supervised release, with the
special condition that she pay taxes owed to the Internal
Revenue Service (“IRS”) in the amount of $38,852. Ms. Pree
appealed her convictions. On September 14, 2004, this court
affirmed the judgments of conviction but vacated the
sentence and remanded the case to the district court
for resentencing. We stayed our mandate pending the
Supreme Court’s decision in United States v. Booker, 125
1
S. Ct. 738 (2005). On January 12, 2005, the Supreme Court
issued its decision in Booker. At this court’s invitation, each
party has submitted a memorandum presenting its views on
the application of Booker to this case. For the reasons set
forth in the following opinion, we revise our prior instruc-
tions with respect to Ms. Pree’s sentence. In light of Booker,
125 S. Ct. 738, while retaining jurisdiction of this case, we
remand this case to the district court in accordance with this
court’s decision in United States v. Paladino, 401 F.3d 471 (7th
Cir. 2005).
I
BACKGROUND
A. Facts
Ms. Pree was convicted of filing false returns for tax years
1995 and 1996. To present a coherent background of the
1
Prior to this court’s decision vacating Ms. Pree’s sentence, she
had completed her term of incarceration and had begun serving
her term of supervised release. This court directed that any mat-
ter with respect to bail should be addressed to the district court.
The Government filed an unopposed motion requesting that the
district court place Ms. Pree on bond with the same conditions
that were in place prior to her reporting to the Bureau of Prisons.
The district court granted this motion.
No. 03-1516 3
circumstances upon which those convictions are based, we
first must relate some events that transpired prior to those
tax years.
In 1993, Maurice Furlong, the President of Health Care
Centers of America (“HCCA”) contacted Ms. Pree’s daughter,
a former lobbyist for the Illinois Chiropractic Society, about
a potential job opportunity with HCCA. Ms. Pree and her
daughter met Furlong, and he discussed the company and
its expansion plans with them. After this meeting, Furlong
developed an interest in hiring Ms. Pree as well as Ms. Pree’s
daughter because Ms. Pree was a nurse and held a real
estate license.
After this meeting, Ms. Pree and her daughter moved to
Las Vegas. On December 8, 1993, Ms. Pree signed a lease
that was assigned to “HCCA—Health Care Centers of
America and/or Bette Pree.” Gov’t Ex.81A. Ms. Pree and her
daughter received approximately $4,000 from Furlong for
moving expenses.
Beginning in 1994, Ms. Pree began selling HCCA stock
to friends, family, former co-workers and other acquain-
tances. In January 1994, Ms. Pree wrote to one former co-
worker and noted, “This company I work for HCCA Health
Care Centers of America is going on the Stock Market right
away.” Gov’t Ex.91A. Ms. Pree encouraged the co-worker to
buy as much stock as she could. The letter further indicated:
“I’m Exec. Assistant to President of Co.” Gov’t Ex.91A.
Ms. Pree continued selling stock through 1996. In selling
stock, Ms. Pree would provide prospective purchasers with
her HCCA business card on which her title was listed as
“Administrator of Aquisition [sic],” Gov’t Ex.15G, and
would distribute company literature. She also would
correspond on company letterhead. Ms. Pree explained to
prospective purchasers that she had been hired to oversee
4 No. 03-1516
the opening of an office and “in lieu of salary they [HCCA]
were issuing her stocks in the company to do with what she
chose.” R.67 at 106.
Although Ms. Pree began selling stock in January of 1994,
she first received HCCA stock in May of 1994. The stock she
received consisted of 350,000 shares of restricted stock
formerly registered to Furlong. The restricted stock bore the
statement: “The shares represented by this certificate have
not been registered under the Securities Act of 1933 and
may not be sold, transferred or otherwise disposed of by the
2
holder unless registered under said Act . . . .” Gov’t Ex.2A.
When a securities investigator from the Illinois Secretary of
State investigated Ms. Pree’s stock sales, Ms. Pree wrote a
letter in response, justifying the transactions as personal
sales from stock received for services. She described the
stock as
given to me by Maurice Furlong from his own personal
shares for my assistance in the development and ar-
rangement of the chiropractic presentation and business
plan, and for introducing him to Chiropractors and
Associates in Illinois, as well as assisting with various
administrative duties or tasks.
Gov’t Ex.49.
Throughout the course of Ms. Pree’s stock sales, the prices
at which she sold the stock fluctuated. During 1994, she sold
stock at prices between a nickel and a dollar per share.
During 1995, her stock prices ranged from a quarter to a
dollar per share. In 1996, she sold the stock at prices be-
tween nine cents and fifty cents per share. During 1995, Ms.
2
According to the stock transfer agent, who later testified at Ms.
Pree’s trial, the restricted stock could be sold in a private transac-
tion.
No. 03-1516 5
Pree received $21,500 from sales of the HCCA stock. In 1996,
3
Ms. Pree received $60,450 from stock sales. In a 1996
declaration to a casino, Ms. Pree indicated that she had an
annual income of $80,000 from stocks, retirement and social
security.
Ms. Pree did not file her 1995 and 1996 tax returns when
due but instead requested and received automatic exten-
sions to file. She later met with Ann Westphal, a part-time
H & R Block tax preparer, to prepare her 1995 and 1996
returns. Westphal prepared returns indicating pension and
social security income for 1995 in the amount of $3,441, and
pension, taxable interest and gambling income for 1996 in
4
the amount of $7,231. Neither return included any income
from stock sales, nor did either return include Schedule D,
the schedule on which capital gain or loss from sale of stock
is calculated. Westphal prepared the returns at her home as
a personal favor to Ms. Pree. Westphal did not prepare them
through H & R Block, nor did she sign them. Ms. Pree
ultimately signed and submitted her 1995 and 1996 tax
returns on March 1, 1998. While meeting with Westphal,
Ms. Pree also told her about the opportunity to purchase
HCCA stock, and Westphal agreed to purchase 25,000
shares for $500 from Ms. Pree.
3
Ms. Pree also earned $3,622 in gambling income in 1995 and
$7,800 in 1996. Ms. Pree received W-2Gs, gambling income
reporting forms, from the casinos in which these amounts were
won.
4
Specifically, the 1995 return reported no gambling winnings
while the 1996 return reported $3,622 of gambling income (the
amount won in 1995).
6 No. 03-1516
5
Ms. Pree later was indicted on several charges. Count II
charged Ms. Pree with filing an income tax return for 1995
in which she “listed total income of $3,441, whereas, as she
then and there well knew and believed, she had received
additional income substantially in excess of that amount in
calendar year 1995.” R.1 at 2. Count III charged Ms. Pree
with filing an income tax return for 1996 in which she
“listed total income of $7,231, whereas, as she then and
there well knew and believed, she had received additional
income substantially in excess of that amount in calendar
year 1996.” R.1 at 3.
B. District Court Proceedings
Ms. Pree’s case proceeded to trial. Before trial, Ms. Pree
filed a motion in limine to exclude evidence related to fraud
in her sale of stock to investors. The district court granted
this motion in part, barring testimony as to whether her
investors were satisfied or dissatisfied with their HCCA
investments.
The Government’s theory of the case, pertinent to this
appeal, was that, during the relevant time period, Ms. Pree
worked for HCCA and sold HCCA stock that she received
6
as compensation for her services. Despite a significant
increase in her income from these stock sales and despite
being informed that she had an obligation to report the
5
Count I charged Ms. Pree with failing to file an income tax
return for 1994. Ms. Pree was acquitted of that charge, and it is
not at issue in this appeal.
6
Ms. Pree received the stock in 1994 and 1998. Thus, the issue of
whether her initial receipt of the stock from Furlong constituted
taxable income is not relevant in this appeal, which deals with
Ms. Pree’s tax liability for 1995 and 1996.
No. 03-1516 7
income she received from such sales, Ms. Pree filed belated
returns for 1995 and 1996, on which she willfully failed to
7
report income from her stock sales.
1. Evidence
At trial, the Government presented evidence pertaining to
the nature of the stock Ms. Pree sold. An officer of the stock
transfer agent for HCCA testified that the stock originally
was registered to Furlong. In May 1994, however, Furlong’s
stock certificate was divided, and one of fifty-eight new
certificates was issued to Ms. Pree. The transfer agent
testified that the stock was restricted and that the effect of
the restriction on the stock certificate was to limit the stock’s
value to “whatever [the seller] can obtain from the pur-
chaser.” R.67 at 25.
Several individuals who obtained stock from Ms. Pree
testified to their purchases. Stipulations pertaining to
Ms. Pree’s stock sales to other investors also were read into
evidence by the Government. The testimony and stipula-
tions together revealed that Ms. Pree sold stock before any
was registered in her name, that she sold stock after she
received her certificate in May 1994, that she sold stock
throughout 1995 and 1996, and that she continued selling
stock after exhausting the shares originally registered in her
8
name.
7
The Government also relied upon unreported income from
gambling wins during those same tax years.
8
Some investors who paid Ms. Pree in 1996 did not receive stock
certificates until 1999, after new HCCA shares had been issued to
Ms. Pree. Ms. Pree received one million additional shares from
Furlong in May of 1998.
8 No. 03-1516
Additionally, the Government presented the testimony of
an IRS Special Agent who investigated Ms. Pree in 1996. The
Special Agent testified that Ms. Pree had indicated to her
that she was aware of her obligation to report stock sales on
her tax returns in the year of sale. Further, the Government
presented the testimony of Westphal. Westphal testified that
she had prepared Ms. Pree’s 1995 and 1996 taxes in Septem-
ber of 1997. She testified that Ms. Pree had brought her an
interest statement, pension and social security information
and gambling W-2Gs. Westphal indicated that Ms. Pree had
denied any other income: “We went through the return and
I asked her if that was all the information she had, all the
income she had, and she stated to me that it was.” R.67 at
166. Westphal further testified that, after she herself pur-
chased HCCA stock, the two discussed the need to report
income from stock sales, but Ms. Pree did not indicate that
any sales had been made in 1995 or 1996.
In concluding its case, the Government called Michael
Welch, an IRS Revenue Agent, as a summary witness. Agent
Welch had prepared an exhibit summarizing the HCCA
stock sales by Ms. Pree in 1994, 1995 and 1996. The exhibit,
Government Exhibit 101, was prepared from trial testimony,
exhibits and the stipulations, and it was admitted without
objection. Agent Welch also prepared a schedule that
summarized Ms. Pree’s 1994 gross income. The exhibit
included the full amount received from the stock sales in
1994 in the calculation of gross income. It was admitted as
Government Exhibit 102.
Agent Welch did not prepare any summaries for
Ms. Pree’s income for 1995 or 1996. Instead, when asked
where the 1995 stock sales would have been reported on the
1995 tax return, Agent Welch testified: “On Line 13 of the
face of the 1040 would be the gain or loss from sales of
stock. And a schedule D would be required to itemize the
No. 03-1516 9
various sales.” R.68 at 318. He also testified that “Line 22 is
an accumulation of Line 7 through 21, [it] would include
wages, interest, dividends, gain on sale, pension distribu-
tions, and that would be your total income on Line 22. Stock
sales would be included there.” R.68 at 318. Agent Welch
testified similarly when asked about stock sales for 1996.
On cross-examination, Agent Welch testified that income
from stock sales is a net figure derived from the gross sales
9
and the cost basis of the stock. In response to questions
stemming from the defense theory that Furlong gave
Ms. Pree the stock as a gift, Agent Welch also agreed that to
calculate capital gain or loss on the sale of a gift, you must
know the donor’s basis, the fair market value at the time of
the gift and the amount of any gift taxes paid. Agent Welch
9
The following colloquy occurred between Ms. Pree’s counsel
and Agent Welch:
Q. . . . You don’t just report the amount of money you receive
from the sale of stocks, isn’t that correct?
A. The Schedule D has several columns, you report the gross
sale and you report the cost basis and report the net gain or
loss.
....
Q. Capital gain or loss is a net figure with respect to the sale
of stock, is that correct?
A. It’s the net of the year’s activity.
Q. So if Ms. Pree sold—received the amount of money you
stated she has in your summaries, that’s the net—that’s the
money she got, that doesn’t necessarily mean it is a gain or
a loss, right?
A. That’s the sales price.
R.68 at 324-25.
10 No. 03-1516
admitted that he did not have information regarding
Furlong’s cost basis nor whether any amount of gift tax was
paid on the stock Ms. Pree received. Agent Welch testified,
however, that he believed the fair market value of the stock
10
was zero. On redirect, Agent Welch
10
Ms. Pree’s counsel engaged in the following cross-examination
of Agent Welch on this issue:
Q. Now, fair market value of the stock Bette sold was
basically what somebody would pay for it, wouldn’t you
agree?
A. When determining the fair market value of restricted
stock on the day you receive, I would say the value is zero.
You couldn’t go across the street from the courthouse here,
go into Merle Lynch [sic] and sell that stock because it is
restricted, there’s no market. There’s no market selling that
stock. So in my opinion it would be zero.
Q. So that would be your opinion as to the fair market value
as opposed to a taxpayer that may be interpreting that 551 of
fair market value, is that correct?
A. It would be the market value and there is no market. You
would have to go out into a private sale and find someone
and negotiate with them to come up with a price that they
would pay. And that isn’t in place when she receives the
stock. You receive the stock, you can’t go into the brokerage
house across the street and sell it, you have to go out and
find someone to sell it to. So on the day you receive that
stock, the fair market—
Q. The fair market value could be developed with the first
sales transaction, don’t you agree?
A. Are we talking about a gift or for service?
Q. I’m talking about the gift?
A. Well, the gift has nothing to do with—
(continued...)
No. 03-1516 11
clarified that he relied on the Government’s evidence that
Ms. Pree received the stock as compensation for services
rendered and explained why he treated the stock sales as
income:
Q. Now, you heard the testimony here when you chose
to characterize the 60,000 dollars worth of stock sales in
1996 that weren’t listed on Bette Pree’s return, you
characterized that as unreported income. Why is that?
A. It wasn’t reported on the return, it represents sale of
stock, sale of stock goes on Line 13 as a capitol [sic] gain
or loss. Actually a capitol [sic] gain. And that’s income.
R.68 at 344. When asked to clarify why he attributed a zero
basis to the stock, he explained:
A. It was based on my 18 years of being with the I.R.S.
and the [stock transfer agent] describing the restricted
stock. And the fair market value of something I received
is whatever the market value is. And right across the
street is Merle Lynch [sic], when you walk out the door.
If you receive stock that had value, you should be able
to walk in there, into a brokerage house, and sell that
stock. And from everything I’ve read and understand,
this restricted stock could not be sold in the market.
R.68 at 345. Agent Welch also testified that the transfer
agent said the stock had no market value.
At the close of the Government’s case, Ms. Pree moved for
an acquittal, in part on grounds that the Government had
10
(...continued)
Q. You are wanting to know what the fair market value is?
A. I can just start over.
Q. Probably a good idea. Actually, I think I’m done.
R.68 at 340-41.
12 No. 03-1516
presented no evidence of capital gains and had presented no
evidence that Ms. Pree knew the law related to capital gains.
The court denied the motion.
In defense, Ms. Pree presented evidence, including her
own testimony, to support her position that the stock was
received as a gift, that she never was employed by HCCA
and that her records of the stock transactions were stolen,
which caused a delay in her tax filing. Ms. Pree testified that
she heard somewhere that the cost basis of her stock was a
dollar and that she did not recall ever selling her stock for
more than a dollar. She testified that she sold the stock to
others to enable them to share in the investment opportu-
11
nity. She further testified that when she met with Westphal
to prepare her 1995 and 1996 taxes, Westphal told her she
did not need to file anything with regard to the stock sales
because she always sold the stock for less than it was
11
The following exchange occurred on cross-examination:
Q. You testified that you use [sic] to check the price of stock
before you sold it to investors, isn’t that right?
A. Sometimes.
....
Q. Sometimes you would sell it without any regard at all to
what the current market price was?
A. Yes, I just—yes, I would want some people who maybe
had no money or hard life or whatever to have some of this
stock. And the money wasn’t the main factor in it. The main
thing was that in my heart I felt I wanted them to have some
of it. And it wasn’t to see how much money I could make off
of my relatives and my friends.
R.69 at 617-18.
No. 03-1516 13
12
trading. At the close of her case, Ms. Pree renewed her
motion for judgment of acquittal, which the court denied.
2. Jury Instructions and Closing Arguments
Following the presentation of evidence, the court in-
structed the jury. The court did not give instructions re-
garding how to determine the total amount of taxable
income, nor did it instruct the jury how to calculate basis in
stock or net gains from the sale of stock. The defense did not
request or offer any instructions on these issues, nor did it
raise an objection on the ground that such an instruction
should be given. With respect to the summaries, the court
used the following pattern instruction:
Certain summaries are in evidence. They truly and ac-
curately summarize the contents of voluminous books,
12
Ms. Pree testified:
A. [Westphal] said that she looked at the information I had
there and she said, well, you didn’t make any money on this
because you sold it for less than it was trading for, so really
you have a loss there and you don’t need to file it. And
she—because I was—and she said, see that, she just wrote it
up and she said see.
She also said, you don’t have to report a sale until a
broker—or until the person has the certificate, until they
have the certificate in their hand. And I said oh, because I
didn’t know.
R.69 at 558-59.
The district court later enhanced Ms. Pree’s sentence on the
ground of obstruction of justice for knowingly false testimony on
a material matter based on her testimony related to her employ-
ment and Westphal’s advice.
14 No. 03-1516
records or documents, and should be considered to-
gether with and in the same way as all other evidence in
the case.
R.39. The defense did not object to this instruction. Nor did
the defense raise a substantive objection to the elements of
13
the law instruction.
In its closing and rebuttal arguments, the Government
emphasized that Ms. Pree was an employee of HCCA,
received the stock as compensation, sold the stock through-
out the tax years at issue, was repeatedly made aware of her
obligation to report the stock sales and yet took affirmative
and deceptive steps to avoid reporting that income. The
Government further challenged Ms. Pree’s explanation of
the stock sales as a “favor” to let individuals “share this
investment,” R.83 at 57-58, as well as Ms. Pree’s explanation
of stolen records. The Government summarized its evidence
by emphasizing that the tax returns Ms. Pree filed for 1995
and 1996 willfully excluded the income Ms. Pree received
from her stock sales throughout the relevant time period.
Ms. Pree’s counsel’s closing argument primarily attacked
the Government’s argument that Ms. Pree willfully misfiled.
Emphasizing the defense theory that Ms. Pree received the
stock as a gift, not as compensation, counsel argued that the
calculation of gift tax was too complicated for Ms. Pree
14
knowingly to have filed a false return. Indeed, counsel
13
The defense requested a minor clarification to reflect that the
instruction referred to Counts II and III of the indictment.
14
Specifically, counsel made the following statement:
Why doesn’t the prosecution want it to be a gift? Well, . . .
because you’ve seen how you tax gifts of stock. That’s why.
(continued...)
No. 03-1516 15
suggested, Ms. Pree believed she had sustained a loss on the
sale of her stock. Ms. Pree’s counsel also argued that Ms.
Pree had made good faith attempts to meet her filing
obligations, but stolen and lost records inhibited her ability
to comply. Counsel concluded the argument by urging:
Neither Bette nor her tax preparers had an adequate
knowledge of the law. Or even for that matter had suf-
ficient records in order to satisfy the strict requirements
of the law. That’s not a crime if you had a good faith,
honest belief that you were complying with your duty
to file tax returns.
R.83 at 54.
3. Jury Verdict
Following deliberation, the jury convicted Ms. Pree of
Counts II and III for willfully filing fraudulent returns for
1995 and 1996. At sentencing, the district court enhanced
Ms. Pree’s sentence on the ground of obstruction of justice
for knowingly false testimony on a material matter based on
her testimony related to her employment and Westphal’s
advice. Ms. Pree appeals the district court’s denial of the
judgment of acquittal on the ground of insufficient evi-
dence. She also appeals the admission of the summary
evidence and the adequacy of the jury instructions.
14
(...continued)
Nobody can figure that out. It better not be a gift or she lost.
Because you’ve seen those I.R.S. tax publications and—Mr.
Welch seemed to have a handle on it, but I bet none of you
did.
R.83 at 44. Counsel then proceeded to review gift basis and the
factors related to such a calculation.
16 No. 03-1516
II
DISCUSSION
A. Sufficiency of the Evidence
We review first Ms. Pree’s challenge to the sufficiency of
the evidence. See United States v. Douglas, 874 F.2d 1145, 1150
(7th Cir. 1989), abrogated on other grounds by United States v.
Durrive, 902 F.2d 1221 (7th Cir. 1990). Ms. Pree appeals the
district court’s denial of her motion for a judgment of
acquittal. She submits that the Government presented insuf-
ficient evidence of unreported income, as well as insufficient
evidence that she willfully misreported her income.
1. Standard of Review
The district court’s denial of a judgment of acquittal is re-
viewed de novo. See United States v. Sax, 39 F.3d 1380, 1385
(7th Cir. 1994). The motion should be granted if “the evi-
dence is insufficient to sustain a conviction.” Id. (quoting 2
Charles A. Wright, Federal Rules of Criminal Procedure § 467,
at 655 (1982)). A conviction is reversed only if, viewing the
evidence in the light most favorable to the Government,
no rational trier of fact could have found the essential ele-
ments of the offense beyond a reasonable doubt. See id.;
United States v. Chavin, 316 F.3d 666, 672 (7th Cir. 2002). “A
defendant has a heavy burden in challenging a conviction
based on the sufficiency of the evidence.” United States v.
Hoover, 175 F.3d 564, 570 (7th Cir. 1999).
2. Sufficient Evidence of Unreported Income
Prosecution under 26 U.S.C. § 7206(1) requires that a
taxpayer cause to be made and verify as true under penal-
ties of perjury a tax return that the taxpayer knows is not
No. 03-1516 17
true and correct as to every material matter. See 26 U.S.C.
§ 7206(1); see also United States v. Peters, 153 F.3d 445, 461
(7th Cir. 1998). Ms. Pree was indicted for tax returns not true
and correct as to Line 22, the line for total income on the
United States Individual Income Tax Return (Form 1040).
The Government’s evidence showed that Ms. Pree re-
ceived $21,500 from stock sales in 1995 and $60,450 from
stock sales in 1996. No portion of either amount was re-
ported on the 1995 and 1996 tax returns. Ms. Pree contends,
in this sufficiency challenge, that the Government did not
establish that any portion of these amounts represented a
net gain, and therefore did not establish that her income tax
return was materially false as to total income.
Ms. Pree’s argument is unavailing. It is true that the
Government did not present evidence of technical valua-
tions of the restricted stock. See Valuation of Securities
Restricted from Immediate Resale, Rev. Rul. 77-287, 1977-2
C.B. 319, 321-22 (indicating that factors relevant to the val-
uation of restricted stock include the earnings, net assets,
and net sales of the corporation, the resale provisions of
the restricted stock, the relative bargaining strength of the
buyers and sellers and the market experience of the corpora-
tion’s freely tradeable securities), as amplified by Rev. Rul. 80-
213, 1980-2 C.B. 101, as amplified by Rev. Rul. 83-120, 1983-2
C.B. 170. Nor, apparently, in cautious deference to Ms.
15
Pree’s motion in limine, did the Government ask investors
15
At one point in the trial, during a sidebar conference, the
Government indicated that it was treating the motion in limine as
precluding evidence of fraud:
Your Honor . . . I believe the Defendant had sought in a
motion in limine to keep out evidence of the fraud. And
(continued...)
18 No. 03-1516
about the value of their purchases. Nevertheless, the
evidence presented by the Government was sufficient to
permit an inference that Ms. Pree sold her stock for a net
gain in both 1995 and 1996.
Agent Welch testified that Ms. Pree possessed a zero basis
in her stock and that the full amount of income received
from stock sales should have been included as gross income
on Line 22. He clarified this conclusion by explaining that
Ms. Pree’s basis in that stock was the fair market value of
the stock when she received it. However, prior to Ms. Pree’s
sales, the stock had no readily ascertainable value because
it was not publicly traded. By virtue of the restriction, the
stock could not be sold in a public transaction. Thus, the
only “market” for the stock was the one Ms. Pree created.
The evidence of Ms. Pree’s sales permitted, but did not
compel, the conclusion that the stock lacked ascertainable
value outside the transactions she orchestrated. Despite the
large number of shares that Ms. Pree sold, over 43,000 shares
in 1995, and well over 150,000 shares in 1996, Ms. Pree
testified that she never knew her basis and did not always
check the value of the stock before selling it. Moreover, to
the extent Ms. Pree or her investors checked the “value”
of HCCA stock, that “value” pertained to publicly traded
stock, not to the restricted stock sold by Ms. Pree. Addition-
ally, the Government’s evidence indicated that, after
exhausting the initial block of shares transferred to her,
15
(...continued)
realistically what this opens the door to is that there is an
enormous fraud by a number of people; and we have made
great pains to keep it out; including the Defendant.
R.68 at 258. The court’s grant of the motion in limine specifically
prevented the Government from asking investors about their
satisfaction with the HCCA stock.
No. 03-1516 19
Ms. Pree continued to “sell” stock months and even years
before additional shares were registered in her name. De-
spite Ms. Pree’s own statement to investors that the stock
represented “the best investment you ever have made,”
Gov’t Ex.15C, Ms. Pree herself apparently retained none of
the initial 350,000 shares transferred to her. Under these
circumstances, one plausible conclusion is that the stock
lacked ascertainable value outside the transactions Ms. Pree
engineered. See 26 C.F.R. § 1.1001-1(a) (indicating that “in
rare and extraordinary cases” property may be considered
to have no fair market value).
As we indicated previously, on a sufficiency challenge, we
view the evidence in the light most favorable to the Govern-
ment. In this respect, we note the absence of evidence in the
record contradicting the Government’s position that the
restricted stock lacked ascertainable value prior to Ms.
Pree’s sales. Although on appeal Ms. Pree advances a
valuation of the restricted stock based on factors such as net
assets or net sales of the corporation, such evidence is not in
the record and was not considered by the jury. Even
accepting, arguendo, Ms. Pree’s own theory of the stock as
a “gift,” we note that the record contained no evidence as to
the valuation of her “gift basis” in the stock, i.e., evidence of
Furlong’s basis and any gift taxes paid at the time of
transfer. In sum, the trial record will not support a method
of valuation different from that employed by Agent
Welch—that the full amount of stock sales should be
included in income because Ms. Pree possessed a zero basis
in the stock. Indeed, Ms. Pree attempted only to convince
the jury through her own testimony that she sold all the
stock in 1995 and 1996 at a loss or without a gain as a
“favor” to her investors. R.69 at 609. The jury was entitled
to reject that explanation. See United States v. Agostino, 132
F.3d 1183, 1193 (7th Cir. 1997) (reasoning that a rational jury
could have found defendant’s explanation not credible).
20 No. 03-1516
Finally, we think it is important to note that, to establish
falsity as to the 1995 and 1996 returns, the Government
needed only to prove that Ms. Pree had unreported income,
not the exact amount of such unreported income or the
existence of a tax deficiency. See Peters, 153 F.3d at 461(indicating that the Government need not establish a tax
deficiency in a prosecution under § 7206(1)). Based on the
evidence presented, a rational jury could have determined
that some portion of Ms. Pree’s $21,500 stock sales receipts
in 1995 and some portion of her $60,450 stock sales receipts
in 1996 represented net gain and should have been included
as income on the respective tax returns. Having reviewed
the evidence presented at trial in the light most favorable to
the Government, we must conclude that sufficient evidence
of unreported income exists.
3. Sufficient Evidence of Willful Misfiling
Prosecution under § 7206(1) also requires that the defen-
dant sign the return willfully, knowing it to be false. See 26
U.S.C. § 7206(1); see also Peters, 153 F.3d at 461. The evidence
of willful misfiling is more than sufficient here.
The Government presented evidence that several individ-
uals informed Ms. Pree of her obligation to report income
from stock sales in the year such income was received and
that Ms. Pree admitted understanding her obligation. In
particular, Westphal testified that, following her purchase
of stock from Ms. Pree and while preparing her 1995 and
1996 returns, she informed Ms. Pree of her obligation to
report stock sales in the year the income was received.
Westphal further testified that Ms. Pree failed to reveal any
of the 1995 and 1996 stock sales at that time. Also, the IRS
Special Agent who investigated Ms. Pree in 1996 testified
that she asked Ms. Pree if she was aware that she needed to
No. 03-1516 21
report income from stock sales in the year the sale was
made, and Ms. Pree responded that she was aware. Further-
more, Ms. Pree acknowledged her stock sales income in a
self-serving forum—the declaration to the casino in which
she indicated income in the amount of $80,000 from retire-
ment, stock sales and social security.
Similarly, the jury was entitled to disbelieve Ms. Pree’s
testimony that she did not understand the law related to
capital gains income. See Agostino, 132 F.3d at 1193 (“The
jury . . . has the choice to disbelieve the defendant’s testi-
mony regarding [her] intent.”). The Government’s evi-
dence—that Ms. Pree had been informed of her obligation
to report income, that she had admitted understanding that
obligation and that she acknowledged her stock sales
income in another forum—is sufficient to support her
16
convictions.
16
The Government also presented unrefuted evidence that
Ms. Pree failed to report her gambling income from 1995 and
under-reported her gambling income in 1996. Ms. Pree contends,
however, that the Government’s evidence that she willfully
misreported this income is not sufficient.
We note that the W-2G forms are dated. Westphal testified that
Ms. Pree presented her with W-2Gs for 1996 only. However, the
amount reported for 1996, $3,662, corresponds with the W-2Gs
for 1995. No combination of the amounts won in 1996 total
$3,662. For these reasons, Ms. Pree contends that “the only logical
explanation for the fact that Pree reported exactly $3,622 on her
1996 return instead of her 1995 return is that Westphal mistakenly
entered the total gambling income for 1995 on the 1996 return
and Pree did not catch her error.” Appellant’s Reply Br. at 8. Ms.
Pree does not address, however, the unreported $7,800 of
gambling income properly attributable to 1996.
We do not reach this issue. Having established that the jury
could have concluded from the evidence presented that Ms. Pree
(continued...)
22 No. 03-1516
B. Admission of the Summary Evidence
At trial, Agent Welch testified as a summary witness
for the Government. The Government also established his
qualifications before the jury. During his testimony, Govern-
ment Exhibit 101, summarizing Ms. Pree’s stock sales during
1994, 1995 and 1996, and Government Exhibit 102, calculat-
ing Ms. Pree’s 1994 gross income, were offered into evi-
dence. Ms. Pree submits that the court improperly admitted
Agent Welch’s testimony because Agent Welch exceeded his
role as a summary witness. Ms. Pree also argues that the
errors in his testimony were compounded by the district
court’s failure to give a cautionary instruction regarding the
summary evidence. At trial, counsel for Ms. Pree raised no
objection either to Agent Welch’s testimony or to the lack of
a cautionary instruction regarding the summary evidence.
1. Standard of Review
This court reviews for plain error the admission of
evidence to which an objection was not made at trial. United
States v. Williams, 133 F.3d 1048, 1051 (7th Cir. 1998); see also
United States v. Beall, 970 F.2d 343, 347 (7th Cir. 1992)
(indicating that review of admissibility of IRS agent’s expert
testimony would normally occur under abuse of discretion
but reviewing under plain error standard for lack of an
objection at trial). “[B]efore an appellate court can correct an
error not raised at trial, there must be (1) ‘error,’ (2) that is
‘plain,’ and (3) that ‘affect[s] substantial rights.’ ” Johnson v.
United States, 520 U.S. 461, 466-67 (1997) (quoting United
16
(...continued)
willfully failed to report income from stock sales in 1995 and
1996, we need not rely upon the gambling winnings as a basis for
her conviction.
No. 03-1516 23
States v. Olano, 507 U.S. 725, 732 (1993)). “If all three condi-
tions are met, an appellate court may then exercise its
discretion to notice a forfeited error, but only if (4) the error
seriously affect[s] the fairness, integrity, or public reputation
of judicial proceedings.” Id. at 467 (internal quotations and
citations omitted). The defendant bears the burden of
establishing that the error affected substantial rights, i.e.,
“that the outcome probably would have been different with-
out the error.” United States v. Colvin, 353 F.3d 569, 577 (7th
Cir. 2003) (citing Olano, 507 U.S. at 734).
2. Agent Welch’s Testimony
It is well-established that “[t]he nature of a summary
witness’ testimony requires that he draw conclusions from
the evidence presented at trial.” United States v. Esser, 520
F.2d 213, 218 (7th Cir. 1975). When a summary witness
simply testifies as to what the Government’s evidence shows,
he does not testify as an expert witness. See United States v.
Swanquist, 161 F.3d 1064, 1073 (7th Cir. 1998).
Ms. Pree’s primary complaint with Agent Welch’s testi-
mony is that Agent Welch concluded from the evidence
presented that Ms. Pree possessed a zero basis in her stock.
We already have determined, however, that this was a per-
missible inference in light of the Government’s evidence.
That evidence showed that Ms. Pree received the stock as
compensation, that the stock was restricted, which meant
that it only could be sold in private transactions, and that its
worth was limited to what Ms. Pree could obtain in the
market she created. One plausible inference from the
irregular nature of Ms. Pree’s sales was that, prior to those
transactions, the stock lacked ascertainable value. Accord-
ingly, Agent Welch was entitled to treat Ms. Pree’s basis
as zero both in his testimony and in the summaries he
24 No. 03-1516
prepared. See Esser, 520 F.2d at 218 (noting that summary
witness’s testimony was properly admitted in a tax evasion
case when the evidence was sufficient and the witness relied
only on that evidence and was available for full cross-
examination).
Ms. Pree contends, however, that Agent Welch exceeded
his role as a summary witness and provided inadmissible
expert testimony in the guise of a summary witness. We be-
lieve Agent Welch primarily testified within his role as a
summary witness. However, we acknowledge that, in such
a case as the present, where an IRS Revenue Agent sum-
marizes the evidence for purposes of establishing the tax
consequences, the line between summary testimony and
expert testimony is indistinct. Given the assistance such an
individual can provide to the jury, it has not been unusual
in previous cases for an IRS agent to testify as an “expert
summary witness.” See United States v. Moore, 997 F.2d 55,
58 (5th Cir. 1993); United States v. Mohney, 949 F.2d 1397,
1406 (6th Cir. 1991); United States v. Bosch, 914 F.2d 1239,
1242 (9th Cir. 1990); United States v. Dotson, 817 F.2d 1127,
1132 (5th Cir.), vacated in part on reh’g., 821 F.2d 1034 (5th
Cir. 1987); see also United States v. Benson, 941 F.2d 598, 615
(7th Cir. 1991) (Kanne, J., dissenting) (“A summary witness
need not necessarily be an expert, but experts in accounting
and other disciplines regularly give summary evidence of
the sort envisioned by Federal Rule of Evidence 1006.” (cit-
ing 5 D. Louisell & C. Mueller, Federal Evidence § 599, at 540
(1981))), mandate recalled and amended by 957 F.2d 301 (7th
Cir. 1992). “As a summary witness, an IRS agent may testify
as to the agent’s analysis of the transaction which may
necessarily stem from the testimony of other witnesses.
The agent may also explain his analysis of the facts based on
his special expertise.” Moore, 997 F.2d at 58. As an expert
witness, an IRS agent’s “opinion as to the proper tax
No. 03-1516 25
consequences of a transaction is admissible evidence.”
United States v. Windfelder, 790 F.2d 576, 581 (7th Cir. 1986).
“Similarly, . . . an IRS expert’s analysis of the transaction
itself, which necessarily precedes his or her evaluation of
the tax consequences, is also admissible evidence.” Id.Here, Agent Welch analyzed the stock sales and described
the income tax consequences. Although he was not prof-
fered as an expert witness, his qualifications were in
evidence. Those qualifications included eighteen years of
service with the IRS as a revenue agent, a bachelor’s degree
in accounting and a master’s degree in taxation. While
employed by the IRS, he completed additional classes in
taxation, specialized training and continuing professional
education. At the time of trial, he had conducted approxi-
mately two hundred tax audits and had reviewed several
thousand audits of other revenue agents. Agent Welch was
therefore qualified to express “an opinion as to the proper
tax consequences of a transaction” and of the “transaction
itself, which necessarily precedes his . . . evaluation of the
tax consequences.” Id. at 581.
Ms. Pree further contends that Agent Welch’s testimony
was inadmissible to the extent that he stepped into the role
of an expert because he failed to use a recognized means of
valuation of restricted stock. Agent Welch testified that the
stock had no fair market value by virtue of the restriction
because it could not be sold in a brokerage house. Admit-
tedly, Agent Welch’s statements to this effect were some-
what imprecise. Restricted stock does not lack value, per se,
because it cannot be sold on the public market. See Rev. Rul.
77-287, 1977-2 C.B. at 321. Had Ms. Pree raised an objection
to Agent Welch’s testimony, on the ground that it consti-
tuted unreliable expert testimony, the district court would
have undertaken the gatekeeping analysis Ms. Pree now
recommends to this court. See Daubert v. Merrell Dow Pharm.,
26 No. 03-1516
Inc., 509 U.S. 579 (1993); see also United States v. Conn, 297 F.3d
548, 557 (7th Cir. 2002) (indicating, in reference to a witness
who was not proffered as an expert but testified in that role,
that “[h]ad the defense had other concerns about the quality
of [the agent’s] training, the quantity of his experience, or
the methodology that he employed in reaching his assess-
ment of [the defendant’s] firearms, it could have raised
those questions during voir dire”).
In the absence of an objection by Ms. Pree to Agent Welch’s
testimony as unreliable expert testimony, however, we do
not perceive plain error. The conclusion that Ms. Pree’s
basis in the stock should be treated as zero was supported
by sufficient evidence. Moreover, Ms. Pree’s counsel had an
opportunity to cross-examine Agent Welch as to his con-
clusions regarding the value of the stock. See United States v.
Gonzalez, 933 F.2d 417, 429 (7th Cir. 1991) (indicating that
“any questions or problems concerning the expert’s opinion
and testimony may be thoroughly explored during the
cross-examination of the expert witness”).
Ms. Pree also challenges Agent Welch’s testimony as
outside his area of expertise and improperly selective. We
find no error on these grounds. First, Agent Welch’s tes-
timony did not fall outside his area of expertise in violation
of our holding in Benson. In Benson, we held that an IRS
agent’s opinion as to whether the defendant was entitled to
social security benefits was outside the agent’s area of ex-
pertise and thus not admissible as expert testimony. See id.
at 605. Unlike the testimony at issue in Benson, Agent Welch’s
testimony dealt directly with the tax consequences of
Ms. Pree’s stock sale transactions and the necessary under-
lying analysis of those transactions. See Windfelder, 790 F.2d
at 581.
Second, Agent Welch did not make impermissible cre-
dibility determinations on the issue of whether Ms. Pree
received the stock as a gift or as compensation. Rather,
No. 03-1516 27
Agent Welch permissibly relied upon the Government’s
abundant evidence that Ms. Pree received her stock as
compensation. See Moore, 997 F.2d at 58 (“Perhaps, his tes-
timony was selective but that is why cross examination is
allowed.”). Moreover, “[i]f a witness’ expertise would be
helpful to the jury, . . . and the facts which he recounts fall
within his area of expertise, then there is nothing improper
about a selective summary.” Id. (internal citation omitted).
Agent Welch possessed specialized knowledge of the tax
consequences at issue and the evidence necessary to prove
the indictment. The facts he recounted fell within his area of
expertise. Thus, there was nothing improper as to his
selective summary of the Government’s evidence. It is true
that, at one point, Agent Welch mistakenly testified that the
17
transfer agent had said the stock had no value. However,
Ms. Pree’s counsel had an adequate opportunity to conduct
cross-examination following that testimony. Agent Welch’s
mistaken recollection does not create plain error in the
admission of his testimony.
As a final response to Ms. Pree’s various challenges to
Agent Welch’s testimony, we emphasize Ms. Pree’s ample
opportunity to cross-examine and to present her own
evidence. Ms. Pree’s counsel elicited from Agent Welch an
explanation of capital gain as a net figure. Consistent with
the defense theory, counsel then explored the computation
of gift basis and capital gains and losses from the sale of
17
The following exchange occurred:
Q. [The stock transfer agent] testified here, did she not, that
the stock had no market value, isn’t that right?
A. Yes, she did.
R.68 at 345. The transfer agent actually had testified that the value
was limited to what could be received in a private transaction.
28 No. 03-1516
gifts with Agent Welch. Counsel also attempted to explore
Agent Welch’s conclusions as to the fair market value of the
stock when Ms. Pree received it, but counsel then aban-
doned the cross-examination on this point. Ms. Pree also
had an opportunity to present evidence as to her basis and
to the proper valuation of the stock. Given these opportuni-
ties, we conclude that no plain error occurred in the district
court’s admission of Agent Welch’s testimony. “[W]here, as
here, the defense conducted a thorough cross examination
of the witness concerning the disputed matters, and also
had the opportunity to present its own version of those
matters, the likelihood of any error in admitting summary
evidence diminishes.” United States v. Norton, 867 F.2d 1354,
1363 (11th Cir. 1989).
3. Summary Charts
Ms. Pree also challenges the admission of Government
Exhibits 101 and 102 without a limiting instruction as
plainly erroneous. Other courts have held that a cautionary
instruction should be given when summary evidence is
admitted. See, e.g., United States v. Bishop, 264 F.3d 535, 547
(5th Cir. 2001) (noting previously approved instructions that
“summaries do not, of themselves, constitute evidence in
the case but only purport to summarize the documented
and detailed evidence already submitted,” and a witness’
summary “is not the evidence, the evidence is the doc-
uments themselves that he has been referring to”). We
ourselves have indicated that, when summary charts are
introduced into evidence as a teaching device rather than as
substantive evidence, the “ ‘preferred practice’ ” is “ ‘to give
a limiting instruction regarding this purpose.’ ” United States
v. Doerr, 886 F.2d 944, 959 (7th Cir. 1989) (quoting United
States v. Howard, 774 F.2d 838, 844 n.4 (7th Cir. 1985)).
No. 03-1516 29
No such instructions were given here; rather, a pattern
instruction was given with regard to the summary evidence
that stated that the summaries “truly and accurately
summarize the content of voluminous books, records or
documents, and should be considered together with and
in the same way as all other evidence in the case.” R.39. The
Committee on Federal Criminal Jury Instructions for the
Seventh Circuit advises that this instruction “should only be
given when the accuracy and authenticity of the exhibits are
not in question.” Pattern Criminal Federal Jury Instructions
for the Seventh Circuit 3.15 (1998). The accuracy of Govern-
ment Exhibits 101 and 102 were not challenged at trial.
Although the “preferred practice” with respect to summary
evidence is to issue an appropriate cautionary instruction,
under the circumstances here, the admission of the sum-
mary evidence without such a limiting instruction was not
plain error. See also Swanquist, 161 F.3d at 1072-73 (indicat-
ing that the defendant had an opportunity during cross-
examination to elicit facts suggesting the inaccuracy of
summary charts and noting that a “party is not obligated . . .
to include within its charts or summaries its opponent’s
version of the facts”).
C. Jury Instructions
Ms. Pree submits that the district court should have
instructed the jury on the computation of capital gains
income. She failed to request this instruction at trial, how-
ever. When a party neither requests an instruction nor
objects to the court’s failure to give it, this court reviews
for plain error the failure to give the instruction. See
United States v. Gee, 226 F.3d 885, 894 (7th Cir. 2000). “Re-
versal is proper only if the instructions as a whole are
insufficient to inform the jury correctly of the applicable law
and the jury is thereby misled.” United States v. Madoch, 149
F.3d 596, 599 (7th Cir. 1998).
30 No. 03-1516
As a preliminary matter, we note the Government’s argu-
ment that Ms. Pree waived, not merely forfeited, an objec-
tion to the jury instructions. A waiver is an “ ‘intentional
relinquishment or abandonment of a known right’ ” and
precludes appellate review. United States v. Griffin, 84 F.3d
912, 924 (7th Cir. 1996) (quoting Johnson v. Zerbst, 304
U.S. 458, 464 (1938)). Waiver extinguishes any error. See id.“A waiver’s operative force depends upon the context in
which it is made and its precise character.” Id. “The right to
object to jury instructions on appeal is waived if the record
illustrates that the defendant approved of the instructions at
issue.” Id.In Griffin, this court found that the defendant waived
an objection to the given jury instruction because the
defendants’ counsel noted that the defendants “would pre-
fer 53A,” the instruction at issue on appeal. Id. In this case,
Ms. Pree’s counsel approved the instruction regarding the
elements of the offense, suggesting a modification to clarify
only which count of the indictment was involved. However,
unlike the defendant in Griffin, Ms. Pree is not requesting
plain error review of an instruction she previously ap-
proved. Rather, Ms. Pree is arguing that an instruction
should have been given that she failed to request. Such
circumstances do not present waiver but dictate plain error
review. See Gee, 226 F.3d at 894.
Ms. Pree contends that the district court’s failure to in-
struct on the computation of capital gains removed from the
jury’s consideration one of the elements of the offense,
namely falsity as to a material matter. Falsity as to a mater-
ial matter is an element of a 26 U.S.C. § 7206(1) prosecution.
See United States v. Peters, 153 F.3d 445, 461 (7th Cir. 1998).
“A false statement is ‘material’ when it has ‘the potential for
hindering the IRS’s efforts to monitor and verify the tax
liability’ of the . . . taxpayer.” Id. (quoting United States v.
Greenberg, 735 F.2d 29, 32 (2d Cir. 1984)).
No. 03-1516 31
Although the district court did not instruct on the com-
putation of capital gains income, it specifically did instruct
the jury that it must find falsity as to a material matter: “To
sustain the charge that the defendant willfully made and
caused to be made a false individual income tax return as
charged in Counts 2 and 3, the Government must prove the
following propositions: . . . the income tax return was false
as to a material matter, as charged in the count . . . .” R.39.
The court also charged the jury as follows:
A line on a tax return is a material matter if the infor-
mation required to be reported on that line is capable of
influencing the correct computation of the amount of
tax liability of the individual or the verification of the
accuracy of the return.
If you find that the defendant willfully understated
the amount of total income on her individual tax return,
and if you find that the amount of gross receipts on a
tax return is essential to a correct computation of the
amount of taxable income or tax or to the verification of
that return, then you may find that the false and fraudu-
lent statements were false as to a material matter.
R.39.
These instructions were fully adequate as to the element
of material falsity. The instructions together with the indict-
ment required the jury to determine whether the amount of
total income reported on Line 22 was false on the 1995 and
1996 tax returns. Line 22 is undoubtedly a material matter.
Such instructions more than adequately encompass the
element of material falsity. Cf. United States v. Fernandez, 282
F.3d 500, 509 (7th Cir. 2002) (declining to find plain error in
jury instructions which did not include instruction on
materiality but, viewed in their entirety, “encompassed the
concept of materiality”). Both parties had ample opportu-
32 No. 03-1516
nity to argue how the facts of Ms. Pree’s stock sales applied
to the element of material falsity.
Additionally, the substantive direction that a capital gains
instruction would have provided was already before the
jury. Ms. Pree’s counsel’s cross-examination of Agent Welch
clarified that income from the sale of stock was a net figure
calculated from the seller’s cost basis and the sales amount.
The cross-examination highlighted the fact that Ms. Pree
only was required to report net gain as income. Thus, the
relevance of capital gain to the element of material falsity
was presented to the jury.
As a final matter, we note that, in the closing argument,
Ms. Pree’s counsel chose to emphasize lack of proof that Ms.
Pree willfully misreported her income, not absence of proof
of capital gain. “When the jury instructions actually given
‘as a whole treat a case fairly and accurately,’ a defendant is
not prejudiced by a district court’s failure to give a particu-
lar instruction, and under such circumstances we will not
disturb the jury instructions on appeal.” United States v.
Manjarrez, 258 F.3d 618, 626 (7th Cir. 2001) (quoting United
States v. Koster, 163 F.3d 1008, 1011 (7th Cir. 1998)). The jury
instructions given treated the case against Ms. Pree and her
defense fairly and accurately. There was no plain error in
the court’s failure to sua sponte instruct on the calculation
of capital gain.
D. Sentencing
The district court determined Ms. Pree’s sentence under
the then-mandatory United States Sentencing Guidelines.
The court found that the total amount of tax loss was
$41,535.10, which resulted in a base offense level of 13. See
U.S.S.G. § 2T4.1(H). The court added a two-level enhance-
ment based on its finding that Ms. Pree had obstructed
No. 03-1516 33
justice. See U.S.S.G. § 3C1.1. A final offense level of 15 and
a criminal history category of I resulted in a sentencing
range of 18 to 24 months’ imprisonment. The district court
sentenced Ms. Pree to 18 months in prison. In addition, the
district court ordered Ms. Pree to serve a one-year period of
supervised release, with the special condition that she pay
18
taxes owed to the IRS in the amount of $38,852.
Ms. Pree did not challenge the constitutionality of her
sentence before the district court or to this court in her
original briefs on appeal. Nonetheless, in light of the sea
change in federal sentencing law wrought by United States
v. Booker, 125 S. Ct. 738 (2005), and this circuit’s precedent
prior to Booker, we believe it unfair to characterize Ms. Pree
as having waived a challenge to the validity of her sentence.
Therefore, we invited each party to submit a memorandum
presenting its views regarding the application of Booker to
this case, which they have done. In these circumstances,
both parties submit that our review should be for plain
error. We agree.
Under the plain error test, “before an appellate court can
correct an error not raised at trial, there must be (1) ‘error,’
(2) that is ‘plain,’ and (3) that ‘affect[s] substantial rights.’ ”
United States v. Cotton, 535 U.S. 625, 631 (2002) (quoting
Johnson v. United States, 520 U.S. 461, 466-67 (1997)). “ ‘If all
three conditions are met, an appellate court may then ex-
ercise its discretion to notice a forfeited error, but only if (4)
18
The district court did not expressly cite to a source of authority
for imposing this special condition of supervised release.
However, it adopted the portion of the presentence report that
had recommended the special condition as required by U.S.S.G.
§ 5E1.1(a)(2).
34 No. 03-1516
the error seriously affect[s] the fairness, integrity, or public
reputation of judicial proceedings.’ ” Id. (quoting Johnson,
520 U.S. at 467).
The Government concedes that the district court com-
mitted error that was plain in treating the guidelines as
mandatory and enhancing Ms. Pree’s sentencing range based
on the court’s findings of fact. The Government submits,
however, that Ms. Pree cannot show that the error affected
her substantial rights because she cannot establish that she
would have received a different sentence had the district
court treated the guidelines as advisory, rather than manda-
tory. The Government also contends that Ms. Pree cannot
show that the error seriously affected the fairness, integrity
or public reputation of the judicial proceeding because judi-
cial findings by a preponderance of the evidence are reliable
and defendants have been sentenced under the guidelines
for eighteen years with the approval of the federal courts.
Moreover, the Government submits that Ms. Pree’s sentence
of 18 months fell within the 12 to 18 months sentencing
range that would have applied had her offense level not
been enhanced.
Ms. Pree, in turn, submits that, because she has completed
her enhanced prison term, remand of that aspect of her
sentence is not necessary. However, she contends that, in
light of Booker, the district court plainly erred by ordering
her to pay the IRS taxes amounting to $38,852 as a condition
of her supervised release based solely upon the court’s
findings of fact. Ms. Pree requests that we vacate this
condition of her supervised release and remand this case to
the district court for reconsideration of the terms and
No. 03-1516 35
19
conditions of her supervised release.
Ms. Pree’s restitution obligation was imposed as a con-
dition of her supervised release under the terms of the fol-
lowing sentencing guideline:
§ 5E1.1 Restitution
(a) In the case of an identifiable victim, the court shall—
....
(2) impose a term of probation or supervised release
with a condition requiring restitution for the full amount
of the victim’s loss, if the offense is not an offense for
which restitution is authorized under 18 U.S.C.
§ 3663(a)(1) but otherwise meets the criteria for an order
of restitution under that section.
U.S.S.G. § 5E1.1(a).
We explained in United States v. George, 403 F.3d 470(7th Cir. 2005), that
the contention that Booker requires juries rather than
judges to assess restitution is misguided. There is no
“statutory maximum” for restitution; indeed, it is not a
criminal punishment but instead is a civil remedy ad-
ministered for convenience by courts that have entered
criminal convictions, see United States v. Bach, 172 F.3d
520, 523 (7th Cir. 1999); United States v. Newman, 141
F.3d 531, 537-42 (7th Cir. 1998), so the sixth amendment
does not apply. We have accordingly held that Apprendi
v. New Jersey, 530 U.S. 466, 120 S. Ct. 2348, 147 L.E.2d
19Ms. Pree additionally requests that we order the district court
not to impose a term of supervised release that exceeds July 21,
2005, which is the date Ms. Pree would have completed her
supervised release had her case not been stayed pending Booker.
36 No. 03-1516
435 (2000), does not affect restitution, see United States v.
Behrman, 235 F.3d 1049, 1054 (7th Cir. 2000), and that
conclusion is equally true for Booker.
20
George, 403 F.3d at 473.
20
See also United States v. Rand, 403 F.3d 489, 495 n.3 (7th Cir.
2005) (noting that, because restitution is civil in nature, and not
criminal punishment, restitution orders are not governed by
Apprendi v. New Jersey, 530 U.S. 466 (2000), or United States v.
Booker, 125 S. Ct. 738 (2005)); accord United States v. Garcia-Castillo,
No. 03-2166, 2005 WL 327698, at *5 (10th Cir. Feb. 11, 2005)
(unpublished) (determining that Booker did not apply because
restitution is not a criminal punishment and concluding that
United States v. Wooten, 377 F.3d 1134, 1144-45 & n.1 (10th Cir.
2004), in which another panel of that court stated that courts
commonly regard restitution as a criminal penalty but rejected
challenge based on Apprendi and Blakely v. Washington, 124 S. Ct.
2531 (2004), because the restitution ordered did not exceed the
value of the damaged property—the maximum allowed by stat-
ute—was not controlling because earlier circuit precedent clearly
held that restitution is a criminal punishment).
Other courts of appeals also have held that Apprendi does not
apply to orders of restitution. See United States v. Ross, 279 F.3d
600, 609-10 (8th Cir. 2002) (stating that restitution constitutes a
criminal penalty and deciding that, even if Apprendi does apply
to restitution orders, the amount of restitution ordered was valid
because it fell under any statutory maximum); United States v.
Syme, 276 F.3d 131, 159 (3d Cir. 2002) (holding, under the plain
error standard of review, that although restitution ordered under
18 U.S.C. § 3663 is a criminal penalty, the Apprendi rule did not
apply because the statute does not prescribe a statutory maxi-
mum amount); United States v. Bearden, 274 F.3d 1031, 1042 & n.4
(6th Cir. 2001) (noting that most courts have held that restitution
is, at least in part, criminal punishment but holding that restitu-
(continued...)
No. 03-1516 37
However, George does not deal with the issue that con-
fronts us here. We are not concerned here, as we were in
George, with whether the particular requirements of resti-
tution can be set by a judge or must be determined by a
jury. Rather, here we are confronted with the antecedent
question of whether restitution in any amount should have
been imposed as a condition of supervised release. The sen-
tencing court, realizing that its decision was not governed
by any explicit statutory command, grounded its decision
20
(...continued)
tion order did not conflict with Apprendi because it did not exceed
the relevant statutory maximum).
However, we acknowledge that “[w]hether restitution is a crim-
inal punishment and whether restitution is subject to Apprendi,
Blakely, and Booker are by no means settled questions in courts
across the country.” Garcia-Castillo, 2005 WL 327698, at *5 n.4
(collecting cases); see also United States v. McDaniel, 398 F.3d 540,
554 n.12 (6th Cir. 2005) (noting, without expressing an opinion,
that although courts generally have recognized that Apprendi
did not render the Mandatory Victims Restitution Act unconstitu-
tional, “there is some question as to whether Booker requires us to
reconsider our analysis of criminal defendants’ jury trial rights
with respect to restitution orders”); United States v. Trala, 386 F.3d
536, 547 n.15 (3d Cir. 2004) (rejecting Blakely challenge to resti-
tution order on the ground that the amount of restitution was not
a disputed issue of fact); United States v. DeSoto, No. 04-12307,
2005 WL 901878, at *6 (11th Cir. Apr. 19, 2005) (unpublished)
(“Because neither the Supreme Court nor this Circuit has ad-
dressed whether Booker applies to restitution, any error cannot be
plain.”).
In any event, none of these cases speak to the precise issue in
this case: whether the district court erred by imposing restitution,
in any amount, as a condition of supervised release under the
guidelines.
38 No. 03-1516
solely in the sentencing guideline set forth earlier. Because
the court acted prior to the advent of Booker, it believed that
the guideline mandated the imposition of restitution on the
condition of supervised release. Under our precedent, this
misapprehension on the part of the trial court warrants our
intervention. This is because our cases hold that the manda-
tory application of the guidelines itself, absent
Sixth Amendment error, can amount to plain error in light
of Booker. See United States v. White, No. 03-2875, 2005
WL 1023032, at *7 (7th Cir. May 3, 2005), United States v.
Schlifer, 403 F.3d 849, 853 (7th Cir. 2005).
On this record we cannot be certain whether the district
court would have imposed the condition of restitution upon
Ms. Pree’s supervised release had it understood the guide-
lines to be advisory, rather than mandatory. For that reason,
we believe it appropriate, while retaining jurisdiction, to
direct a limited remand in Ms. Pree’s case for proceedings
consistent with our circuit’s recent decision in Paladino, 401
F.3d at 483-84. See White, slip op. at 13-15 (applying
Paladino-limited remand due to mandatory application of
the guidelines and noting that, with regard to the fourth
prong of plain error, “we can and have predetermined that
if the defendant has been prejudiced by an illegal sentence,
then allowing that illegal sentence to stand would constitute
a miscarriage of justice.” (citing Paladino, 401 F.3d at 483;
United States v. Pawlinski, 374 F.3d 536, 541 (7th Cir. 2004))).
Conclusion
Accordingly, while retaining jurisdiction, we remand this
case to the district court for proceedings consistent with this
opinion and this court’s decision in Paladino, 401 F.3d at 483-
84.
IT IS SO ORDERED
No. 03-1516 39
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—5-20-05