United States v. James Morris , 723 F.3d 934 ( 2013 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 12-1525
___________________________
United States of America
lllllllllllllllllllll Plaintiff - Appellee
v.
James Bruce Morris
lllllllllllllllllllll Defendant - Appellant
___________________________
No. 12-1526
___________________________
United States of America
lllllllllllllllllllll Plaintiff - Appellee
v.
Karen Sue Morris
lllllllllllllllllllll Defendant - Appellant
____________
Appeal from United States District Court
for the Eastern District of Arkansas - Little Rock
____________
Submitted: April 11, 2013
Filed: July 29, 2013
____________
Before COLLOTON, MELLOY, and SHEPHERD, Circuit Judges.
____________
SHEPHERD, Circuit Judge.
James and Karen Morris (collectively, “Appellants”) were charged with 44
counts of fraudulent behavior relating to theft of government funds, filing of their
personal taxes, and actions they took as paid tax preparers. After a jury trial,
Appellants were convicted of all charges. They now appeal their convictions and
sentences. We affirm.
I.
James Morris entered the United States Army in 1966 but was hospitalized with
meningitis during the first six months. He did not return to active duty and was
honorably discharged in 1968. Later in life, James developed a variety of health
problems—including temporal lobe epilepsy, occipital headaches, depression, and
hearing loss—as a result of his service-related illness. Based on these health
problems, James applied for various government benefits in the mid-1980’s, including
unemployability benefits from the Veterans Administration (“VA”) and disability
benefits from the Social Security Administration (“SSA”). In his initial applications,
James told both agencies that he had not worked since 1983 or 1984 and that he
remained unable to work. Both the VA and the SSA approved James for benefits.
During intermittent reviews of his continuing eligibility for benefits over the next 20
years, James made additional representations to both agencies that he could not and
did not work. From the 1980’s through the 2000’s, James received more than
-2-
$450,000 in VA and SSA benefits that were contingent on his inability to obtain or
maintain employment.
During roughly the same time period, however, James sought and obtained
designation as a public accountant (“PA”) in the state of Arkansas. In his application
for the PA title in 1987, James reported to the Arkansas State Board of Public
Accountancy (“Board”) that he had been continuously employed as an accountant
since 1974. The Board granted James a PA license in December 1987, and he
maintained this license through at least 2007. Further, in order to maintain his PA
title, James was required to annually certify that he participated in continuing
education hours and was involved in accounting. From 2002 through 2007, the years
for which records of certification were available, James represented to the Board that
he completed the necessary professional education hours and was still working as an
accountant.
Beginning in at least 1997 and extending through 2007, James owned a
company called B. Morris Limited (“BML”), which provided accounting, payroll, and
tax preparation services. Karen Morris, whom James married in 2002, also worked
at BML. Between 2005 and 2007, IRS records indicate Appellants each filed
hundreds of tax returns. Appellants both reported to an IRS agent in 2007 that they
were the principal tax return preparers at BML. Appellants also prepared and filed
their own taxes between 2002 and 2005.
In addition to James’s receipt of VA and SSA benefits, Appellants also obtained
federal funds from the Department of Education (“DOE”) in the form of Pell Grants
for Karen’s two daughters, Angela and Megan. Pell Grants are need-based grants to
low-income students that, unlike loans, do not have to be repaid. Between 2005 and
2007, Karen and her daughters annually completed the Free Application for Federal
Student Aid, which collects information regarding the student’s household—including
who lives in the household and the annual household income—in order to calculate
-3-
eligibility for federal student aid. In total, Karen’s daughters received $28,870 in Pell
Grant disbursements.
In 2011, Appellants were charged via superseding indictment with 44 counts
of fraudulent conduct. The indictment charged Appellants, either individually or
jointly, with theft of government funds from the VA and SSA, 18 U.S.C. §§ 2, 641;
conspiracy to defraud the government, 18 U.S.C. § 371; concealment of a material fact
as to SSA funds, 42 U.S.C. § 408(a)(4); obtaining Title IV funds by fraud and false
statements, 20 U.S.C. § 1097(a), 18 U.S.C. § 2; filing false tax returns, I.R.C. §
7206(1), 18 U.S.C. § 2; and causing another to file a false tax return, I.R.C. § 7206(2),
18 U.S.C. § 2.
The Appellants were joined for jury trial. During the trial, the district court
prohibited one of Appellants’ witnesses from discussing the standard of care for tax
preparers. Appellants moved for a judgment of acquittal at the close of the
Government’s case and again at the close of all evidence. The district court1 denied
both motions, finding that the Government had presented sufficient
evidence—including inconsistent representations by Appellants—of the charged
conduct. The jury returned guilty verdicts on all 44 counts.
James was sentenced to 48 months imprisonment for each count (to run
concurrently), followed by 3 years supervised release, and ordered to pay $3,700 in
special penalty assessments and $668,647.87 in restitution. Karen was sentenced to
24 months imprisonment on each count (to run concurrently), followed by 3 years
supervised release, and ordered to pay $2,200 in special penalty assessments and
$295,397.00 in restitution. This timely appeal followed.
1
The Honorable Susan Webber Wright, United States District Judge for the
Eastern District of Arkansas.
-4-
II.
A.
Appellants first argue there was insufficient evidence to support conviction on
any of the charges. Specifically, Appellants argue the Government failed to prove
knowing or intentional mens rea, a requirement for each charge. “We review the
sufficiency of the evidence de novo, viewing evidence in the light most favorable to
the government, resolving conflicts in the government’s favor, and accepting all
reasonable inferences that support the verdict.” United States v. Yarrington, 634 F.3d
440, 449 (8th Cir. 2011) (quotation omitted). We will affirm the verdict “if any
rational jury could have found the defendant guilty beyond a reasonable doubt.”
United States v. Ojeda-Estrada, 577 F.3d 871, 874 (8th Cir. 2009). “Decisions
regarding credibility of witnesses are to be resolved in favor of the jury’s verdict.”
United States v. Gabe, 237 F.3d 954, 961 (8th Cir. 2001) (quotation omitted).
1.
In Counts 1 through 9, Appellants were charged with theft of funds from the
SSA and VA, 18 U.S.C. §§ 2, 641; concealment of a material fact as to Social Security
funds, 42 U.S.C. § 408(a)(4); conspiracy to defraud the government, 18 U.S.C. § 371;
and obtaining Title IV funds (i.e. DOE Pell Grants) by fraud and false statement, 20
U.S.C. § 1097(a), 18 U.S.C. § 2.2 Appellants argue there was insufficient evidence
to establish the requisite mens rea, knowing or intentional conduct, required for all
these charges. We disagree.
2
James was charged alone in Counts 2 and 3 (concealment of a material fact as
to Social Security funds and theft of VA funds). James and Karen both were charged
in Count 1 and Counts 4 through 9 (theft of SSA funds, conspiracy, and obtaining
Title IV funds by fraud or false statement).
-5-
“Intent frequently cannot be proven except by circumstantial evidence; the
determination often depends on the credibility of witnesses, as assessed by the
factfinder.” United States v. Henderson, 416 F.3d 686, 692 (8th Cir. 2005). The jury
may infer intent from the Appellants’ conduct, such as inconsistencies between
Appellants’ representations to government agencies and other entities. See id.
(finding intent to defraud SSA where defendant’s statements were inconsistent, such
as telling SSA she had 4 to 5 migraines a week but telling her cosmetic surgeon she
had only 1 to 2 a month). “An issue, like knowledge, that turns in large part on the
credibility of the witnesses is peculiarly within the province of the factfinder.” United
States v. Erdman, 953 F.2d 387, 390 (8th Cir. 1992).
Here, the Government provided evidence of a variety of inconsistent statements
made by Appellants. For example, James represented to the Board that he was a
practicing accountant from 1974 through at least 2007 and also told an IRS agent in
2007 that he had been working as an accountant for the preceding ten years.
However, James regularly reported to the SSA and the VA during the same time
period that he could not and did not work at all. Although James suggests there are
innocent reasons for these inconsistencies (i.e., good-faith misinterpretations of the
agencies’ definitions of “work”), a reasonable jury could have disregarded James’s
explanation and found these inconsistencies evidenced knowing and/or intentional
theft of Social Security and VA funds, as well as knowing or intentional concealment
of a material fact (i.e., James’s ability to work) from the SSA.
Likewise, sufficient evidence supports Appellants’ convictions for obtaining
Title IV funds (i.e., Pell Grants) by fraud and false statement. Although Appellants
had been married for several years in 2005, James used “single” as his filing status for
that year. An IRS agent testified that James reported using this filing status to
“facilitate his wife [Karen] with her Pell grant applications.” Trial Tr. 117. Karen
also misrepresented her marital status in applications for federal student aid for her
daughters, repeatedly filing as either Head of Household or divorced/separated, even
-6-
though witnesses testified James and Karen were never separated and never lived apart
during the relevant period. Further, for the 2005-2006 school year, Karen submitted
a tax return, prepared by James, to one university that was different from the tax return
she submitted to the IRS that year. Although Appellants suggest these were errors
made in good faith due to confusing student aid regulations, the jury did not have to
credit this defense. Appellants’ conduct, including falsely reporting their marital
status and making inconsistent representations to the IRS and various schools,
provided sufficient evidence for the jury to infer the requisite criminal intent. Cf.
United States v. Ross, 77 F.3d 1525, 1547 (7th Cir. 1996) (finding sufficient evidence
for §1097(a) conviction where Appellants “intentionally falsified documents and lied
to students in order to fraudulently obtain more money than they were entitled to”).
Finally, there was sufficient evidence to support the charge of conspiracy to
defraud the government. “To convict a defendant of conspiracy, the government must
prove that there was an agreement to achieve an illegal purpose, that the defendant
knew of the agreement, and that the defendant knowingly became part of that
agreement.” United States v. Jenkins-Watts, 574 F.3d 950, 959 (8th Cir. 2009). As
noted above, there was testimony that James used a false marital status to aid Karen’s
application for federal student aid for her daughters. Further, James prepared at least
one of the fraudulent tax returns that Karen submitted in support of her application for
federal student aid. There was also evidence that Karen submitted false
representations to the SSA on behalf of James. A reasonable juror could conclude
from this evidence that Appellants knowingly joined in agreements to misrepresent
their marital status to support Karen’s application for student aid, and to provide false
representations to the SSA regarding James’s ability to work. This is sufficient to
support Appellants’ conspiracy conviction. See United States v. Boesen, 491 F.3d
852, 858 (8th Cir. 2007) (finding evidence sufficient to infer conspiracy when
defendant, acting as office manager for his physician brother, submitted medical
billing codes to insurance companies when both knew codes were unjustified).
-7-
2.
In Counts 10 through 15, Appellants were both charged with filing false tax
returns for the tax years 2003, 2004, and 2005, in violation of I.R.C. § 7206(1).
Section 7206(1) prohibits a defendant from “[w]illfully mak[ing] and subscrib[ing]
any return, statement, or other document . . . which he does not believe to be true and
correct as to every material matter.” Again, Appellants argue they did not possess the
requisite criminal intent. We disagree.
“Willfulness in a criminal tax case may be established by a consistent pattern
of not reporting income.” United States v. Schaefer, 4 F.3d 679, 681 (8th Cir. 1993).
Here, the Government presented evidence that James regularly under-reported his
income to the IRS. For example, in 2003 James filed as a “single” taxpayer with
income of approximately $10,000. In the same year, James submitted false
documentation to Liberty Bank, which provided financing for James’s accounting
business, indicating that James filed as “married filing jointly” with an income of
approximately $160,000. Similar under-reporting or inconsistent reporting of income
occurred in 2004, where James under-reported BML’s corporate income by $100,000,
which flowed through to Appellants’ individual tax return, and also in 2005, where
James reported inconsistent corporate income to a financing bank for BML and to the
IRS and also under-reported personal rental income. A reasonable juror could find
willful tax fraud based on this pattern of not reporting or inconsistently reporting
income.
The Government also presented evidence of consistent errors in Karen’s tax
returns. In 2003 and 2005, she filed tax returns using an improper “Head of
Household” filing status and also improperly stated her income in order to claim an
undeserved Earned Income Tax Credit. Further, in 2004, Karen and James filed a
joint tax return that substantially understated their income, and thus resulted in a
substantial under-assessment of their income tax. And as noted earlier, a Government
-8-
witness testified that James indicated he and Karen manipulated their filing status in
order to obtain Pell Grants for Karen’s daughters. Taken together, this pattern of false
reporting of status and improper reporting of income by Karen could have lead a
reasonable juror to find willful tax fraud.
3.
Finally, in Counts 16 through 44, Appellants were charged with numerous
instances of fraudulent conduct as tax preparers, a violation of I.R.C. § 7206(2).3
Section 7206(2) has three essential elements: “(1) the defendant aided, assisted,
procured, counseled, advised or caused the preparation and presentation of a return;
(2) the return was fraudulent or false as to a material matter; and (3) the act of the
defendant was willful.” United States v. McLain, 646 F.3d 599, 604 (8th Cir. 2011)
(quotation omitted), cert. denied, 132 S. Ct. 1763 (2012). Again, Appellants only
challenge whether their action was willful.
“‘Willful’ requires proof of a specific intent to do something which the law
forbids; more than a showing of careless disregard for the truth is required.” United
States v. Kouba, 822 F.2d 768, 773 (8th Cir. 1987) (quotation omitted). But
willfulness can be demonstrated circumstantially, such as by showing a pattern of
inflated deductions for clients. See id.; see also United States v. Goosby, 523 F.3d
632, 637 (6th Cir. 2008) (“[T]he similarity in the type of false deductions claimed on
most of the tax returns is strong circumstantial evidence that the defendant willfully
submitted tax returns containing false statements.”). Here, the evidence showed that
James, and to a lesser extent Karen, consistently over-reported income for clients
filing as individuals, resulting in artificially high Earned Income Tax Credits for the
taxpayers. Similarly, for corporate clients and business owners, James consistently
3
Karen alone was charged in Counts 16, 20, 23, 25, 26, 28, and 29. James alone
was charged in Counts 17-19, 24, 27, and 30-44. Appellants were both charged in
Counts 21-22.
-9-
misreported the corporation’s rental expenses and the owner’s personal business
income, resulting in artificially low tax liabilities for these clients. Each of these
taxpayer and taxpayer representatives denied providing false information to
Appellants or asking Appellants to provide false information to the IRS. A reasonable
juror could have found willful conduct by Appellants in these consistent patterns of
misrepresentation.
B.
Appellants also argue, for the first time on appeal, that they were prejudiced by
being joined for trial. Appellants acknowledge their failure to object and concede
plain error review, see United States v. Poitra, 648 F.3d 884, 887 (8th Cir. 2011)
(standard of review), but nonetheless argue that both Appellants were clearly
prejudiced by the joinder. We disagree.
To properly join defendants for trial, the indictment must allege that the
defendants “participated in the same act or transaction, or in the same series of acts
or transactions, constituting an offense or offenses.” Fed. R. Crim. P. 8(b). “It is not
necessary that all defendants be charged in each count,” and “[t]he prerequisites for
joinder are liberally construed in favor of joinder.” United States v. Liveoak, 377 F.3d
859, 864 (8th Cir. 2004) (quotation omitted). Here, Appellants were indicted for a
series of related fraudulent actions and were alleged to have participated in a
cooperative scheme to defraud various federal agencies. Although there was not
overlap on every charge, a complete overlap is not necessary for joinder to be proper.
See id. at 864-65 (finding joinder proper where appellant was one member of a
multi-party health care fraud conspiracy). Nor have the Appellants alleged that any
potential error “seriously affects the fairness, integrity, or public reputation of [these]
judicial proceedings,” as plain error requires. See Poitra, 648 F.3d at 887. Thus, we
conclude the district court did not err, much less plainly err, in joining Appellants for
trial.
-10-
C.
Appellants raise several additional arguments.4 First, Appellants suggest in
their opening brief that the district court erroneously excluded expert witnesses for the
defense. Appellants do not specify, however, which witness(es) or what testimony
was improperly excluded, or where in the transcript we could look to review the
exclusions. Appellants provide some additional specification in their Reply Brief,
where they argue that Ed Daniel, an attorney who testified for the defense, should
have been allowed to discuss the standard of conduct for tax preparers, as discussed
in IRS Circular 230. The district court prohibited such testimony, finding it irrelevant.
See Trial Tr. 1254-57. Assuming that Appellants refer to the exclusion of testimony
offered by Daniel, and reviewing for abuse of discretion, see Harris v. Chand, 506
F.3d 1135, 1139 (8th Cir. 2007) (standard of review), we do not find error in the
district court’s decision. As the lower court noted, Circular 230 would only be
relevant if the Government alleged, or Appellants raised as a defense, that Appellants
relied on misrepresentations from their tax clients when filing the false returns. But
no such defense was raised, and no such evidence was produced by Appellants. The
standard of care for preparing a tax return was simply not relevant to Appellants’
intent to defraud, and so it was not error for the district court to limit Daniel’s
testimony.
Second, Appellants suggest the district court erroneously denied their proffered
“good faith” jury instruction. Appellants raise this argument for the first time in their
4
Appellants mention a “regulatory limitations period” in the Issues Presented
section of their opening brief, see Br. of App. ix, but do not actually brief this issue.
Thus, we consider this issue abandoned. See Meyers v. Starke, 420 F.3d 738, 743
(8th Cir. 2005) (“To be reviewable, an issue must be presented in the brief with some
specificity. Failure to do so can result in waiver.”).
-11-
reply brief, and “we do not generally consider new arguments raised in a reply brief.”
United States v. Vincent, 167 F.3d 428, 431 (8th Cir. 1999). However, even if we
were to review for abuse of discretion, see United States v. Gill, 513 F.3d 836, 847
(8th Cir. 2008) (standard of review for rejection of proposed instruction), this
argument would fail. The district court did instruct the jury on good faith, see Clerk’s
R. at 97, and Appellants offer no reason why the district court’s instruction was
inadequate. Taken as a whole, the district court’s instructions “fairly and adequately”
submitted the issue of good faith to the jury, see United States v. Renner, 648 F.3d
680, 686 (8th Cir. 2011), and so it was not error to reject Appellants’ proffered good
faith instruction.
Lastly, Appellants argue the Government did not adequately demonstrate how
restitution was calculated. Again, this argument arises for the first time in Appellants’
Reply Brief, and so we generally would not consider it. See Vincent, 167 F.3d at 431.
However, even if we were to review this issue, Appellants offer no explanation of how
they believe restitution was incorrectly calculated, even though restitution was
extensively discussed during the sentencing phase. Since Appellants provide no basis
for us to reverse or amend the restitution order, we conclude that the district court’s
restitution calculation was not erroneous.
III.
Accordingly, we affirm.
______________________________
-12-