United States v. Farnsworth

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
12-11-2008
USA v. Farnsworth
Precedential or Non-Precedential: Non-Precedential
Docket No. 07-2200
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 07-2200
_____________
UNITED STATES OF AMERICA
v.
ARTHUR L. FARNSWORTH,
Appellant
__________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(E.D. Pa. No. 04-cr-00707)
District Judge: Honorable John R. Padova
__________
Submitted Under Third Circuit LAR 34.1(a)
on November 21, 2008
Before: SCIRICA, Chief Judge, RENDELL, Circuit Judge,
and O’CONNOR,* Retired U.S. Supreme Court Justice.
(Filed: December 11, 2008)
__________
OPINION OF THE COURT
__________
* Honorable Sandra Day O’Connor, retired Associate Justice of the United States
Supreme Court, sitting by designation.
RENDELL, Circuit Judge.
Arthur L. Farnsworth challenges his conviction by the United States District Court
for the Eastern District of Pennsylvania on three counts of attempted tax evasion.
Farnsworth argues that the District Court lacked jurisdiction, that the Government failed
to meet its burden of proof on a particular element, and that the District Court erred with
regard to jury instructions. For the reasons stated below, we will affirm.
DISCUSSION
I. Background
Arthur L. Farnsworth was indicted by a grand jury on three counts of attempted tax
evasion under 26 U.S.C. § 7201, relating to the tax years of 1998, 1999, and 2000. The
indictment charged, and it is undisputed, that Farnsworth earned substantial income
during each of those years, and that he failed to file tax returns for each year. The
indictment also charged Farnsworth with concealing and attempting to conceal income
through “various means, including, among other things: (1) transferring ownership of his
assets to fraudulent trusts; (2) encumbering assets; and (3) hiding his money in overseas
bank accounts.” (App. at 31-33.)
Prior to trial, the District Court informed the parties that it intended to instruct the
jury that it would have to find the existence of an assessment in order to conclude that
Farnsworth attempted to evade payment of taxes. United States v. Farnsworth, 456 F.3d
394, 396 (3d Cir. 2006). The Government appealed the decision to this Court, arguing
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that we should reverse the ruling or, in the alternative, issue a writ of mandamus ordering
the District Court to give a different instruction. Id. at 396. We concluded that we did
not have jurisdiction to reverse the ruling. Id. at 400. As for mandamus relief, we noted
that our previous opinions only discussed the assessment issue in dicta, and we agreed
with the Government that the “weight of authority favors [the] view that an assessment is
not required.” Id. at 403. However, because we also found that the state of the law was
not clear, we did not find the intended instruction to be clear error of law, and accordingly
did not issue a writ of mandamus. Id. The District Court considered our opinion, and
ultimately did not instruct the jury that it was essential to find the existence of an
assessment.
At trial, Farnsworth did not contend that he complied with the tax laws, but rather
he asserted that he believed compliance with the tax system to be voluntary. The jury
returned a guilty verdict on all three counts. Farnsworth argues that the District Court
lacked subject matter jurisdiction, that the Government failed to present sufficient proof
that he knowingly transferred assets to fraudulent trusts, and that the District Court erred
with regard to its instructions to the jury.
II. Jurisdiction
This Court exercises plenary review over questions of subject matter jurisdiction.
Frederico v. Home Depot, 507 F.3d 188, 193 (3d Cir. 2007). Undeterred by clear
precedent, Farnsworth argues that the District Court lacked subject matter jurisdiction
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over his case. Contrary to his contentions, there is no question that 18 U.S.C. § 3231, in
establishing jurisdiction over “all offenses against the laws of the United States,”
encompasses the federal tax statutes, United States v. Isenhower, 754 F.2d 489, 490
(3d Cir. 1985), and specifically the crime of attempted tax evasion under 26 U.S.C.
§ 7201, United States v. Gwinnett, 483 F.3d 200, 201 (3d Cir. 2007). Moreover, we reject
Farnsworth’s resort to the “‘hackneyed tax protester refrain’” that federal courts lack
criminal jurisdiction outside of federal territories. E.g., United States v. Chisum, 502 F.3d
1237, 1243 (10th Cir. 2007) (quoting United States v. Collins, 920 F.2d 619, 629
(10th Cir. 1990)).
Equally unavailing is Farnsworth’s claim that the District Court lacked jurisdiction
due to an alleged defect in the arrest warrant that issued after his indictment. Even
assuming the warrant was defective, we see no reason to “retreat from the established rule
that illegal arrest or detention does not void a subsequent conviction.” Gerstein v. Pugh,
420 U.S. 103, 119 (1975).
III. Sufficiency of Evidence
Farnsworth argues that the evidence was insufficient to establish that he engaged
in an affirmative act of evasion, a required element under section 7201. An appellant
challenging the sufficiency of evidence in a criminal case bears a “very heavy burden.”
United States v. Soto, 539 F.3d 191, 194 (3d Cir. 2008). We will “view the evidence in
the light most favorable to the government, and will sustain the verdict if any rational trier
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of fact could have found the essential elements of the crime beyond a reasonable doubt.”
Id. (internal quotation marks and citations omitted).
A person is guilty of attempt to evade or defeat tax who “willfully attempts in any
manner to evade or defeat any tax imposed by [Title 26] or the payment thereof . . . .”
26 U.S.C. § 7201. Conviction requires proof of three elements: “1) the existence of a tax
deficiency, 2) an affirmative act constituting an attempt to evade or defeat payment of the
tax, and 3) willfulness.” United States v. McGill, 964 F.2d 222, 229 (3d Cir. 1992) (citing
Sansone v. United States, 380 U.S. 343, 351 (1965)). Farnsworth only challenges the
sufficiency of evidence with regard to the affirmative act element. “An affirmative act is
anything done to mislead the government or conceal funds to avoid payment” of a
deficiency. McGill, 964 F.2d at 230 (citation omitted). A single act is sufficient to satisfy
the element. Id. at 229.
Farnsworth argues that the Government failed to produce sufficient evidence to
prove the allegedly essential finding that Farnsworth knowingly transferred assets into
fraudulent trusts. The grand jury indictment charged Farnsworth with three separate
affirmative acts of evasion for each of the three tax years at issue: “(1) transferring
ownership of his assets to fraudulent trusts; (2) encumbering his assets; and (3) hiding his
money in overseas bank accounts.” (App. at 30-33.) The District Court instructed the
jury on each of these alleged acts. The Government argues that it was not required to
prove knowing transfer into fraudulent trusts because two other affirmative acts of
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evasion were charged, and, in any event, the evidence was sufficient with regard to the
fraudulent trusts.
We conclude that Farnsworth’s argument must fail because he does not challenge
the sufficiency of evidence relating to the other acts of evasion with which he was
charged. Since conviction under section 7201 only requires a single act, Farnsworth
cannot possibly meet his burden to challenge the sufficiency of evidence.
IV. Jury Instructions
Farnsworth raises two arguments with regard to the District Court’s instructions to
the jury. When a party timely objects to jury instructions, “[w]e exercise plenary review
to determine whether jury instructions misstated the applicable law, but in the absence of
a misstatement we review for abuse of discretion.” Cooper Distrib. Co. v. Amana
Refrigeration, Inc., 180 F.3d 542, 549 (3d Cir. 1999). Where a district court denies a
requested jury instruction, we will reverse “only when the requested instruction was
correct, not substantially covered by the instructions given, and was so consequential that
the refusal to give the instruction was prejudicial to the defendant.” United States v.
Phillips, 959 F.2d 1187, 1191 (3d Cir. 1992).
However, where a party claiming error in a jury instruction “did not make a timely
objection, we review for plain error.” Cooper, 180 F.3d at 549. We will only reverse if
that error was “fundamental and highly prejudicial, such that the instructions failed to
provide the jury with adequate guidance and our refusal to consider the issue would result
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in a miscarriage of justice.” Id. (internal quotation marks and citations omitted).
A. Instruction Regarding Assessment
Farnsworth argues that the District Court abused its discretion by denying his
request to instruct the jury that an assessment is a necessary element in a charge of
attempted evasion of payment. Farnsworth contends that the District Court improperly
decided that an assessment was unnecessary upon considering our opinion in United
States v. Farnsworth, 456 F.3d 394 (3d Cir. 2006), an opinion that Farnsworth asserts was
“advisory.” (App. Br. at 41, 46.) The Government argues that any error regarding the
evasion of payment instruction would have been harmless because the jury expressly
found Farnsworth guilty under both evasion of payment and evasion of assessment
theories. Moreover, the Government contends, the District Court’s decision to deny
Farnsworth’s proposed instruction was proper, and the final instruction presented to the
jury was within the Court’s discretion. We agree with the Government.
We reject Farnsworth’s argument that our 2006 decision in this matter contained
an “advisory” opinion with regard to the elements of attempted evasion of payment. The
Government had requested a writ of mandamus to resolve a pre-trial dispute over the
evasion of payment jury instruction. Farnsworth, 456 F.3d at 400. This required us to
consider whether the District Court’s intended instruction constituted “a clear error of
law.” Id. We concluded that our prior discussions on the point were dicta, and that the
“weight of authority favors [the] view that an assessment is not required,” but also that
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lack of clarity in the law precluded us from concluding that the intended instruction
constituted “a clear error of law.” Id. at 403. In light of this, the District Court did not err
by reconsidering the jury instruction and deciding that an assessment was not required.
Moreover, Farnsworth’s argument necessarily fails for lack of prejudice.
Attempted evasion under section 7201 includes both “willfully attempting to evade or
defeat the assessment of a tax as well as the offense of willfully attempting to evade or
defeat the payment of a tax.” Sansone, 380 U.S. at 354. The Government proceeded
against Farnsworth on both theories, and the jury expressly found Farnsworth guilty of
both attempted evasion of assessment and evasion of payment for each of the tax years at
issue. Since Farnsworth would have been found guilty notwithstanding any potential
error in the evasion of payment instruction, we are unable to conclude that the District
Court’s refusal to use Farnsworth’s proposed instruction was prejudicial.
B. Instruction Regarding Fraudulent Trusts
Farnsworth argues that the District Court erred by failing to submit a special
verdict form to the jury to establish whether the jury specifically found that Farnsworth
knowingly transferred assets into fraudulent trusts. We note that, although not prohibited,
“special interrogatories are disfavored in criminal trials.” United States v. Hegepeth,
434 F.3d 609, 613 (3d Cir. 2006). Farnsworth did not request any such instruction at
trial, and thus must demonstrate that the failure to include the extraordinary instruction
constituted plain error, and that the error was fundamental and highly prejudicial.
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This argument rehashes Farnsworth’s challenge to the sufficiency of evidence, and
it fails for similar reasons. As discussed above, Farnsworth was indicted for multiple
affirmative acts of evasion for each of the tax years at issue. In addition to transfers to
fraudulent trusts, he was charged with encumbering assets and hiding his money in
overseas bank accounts. At trial, Farnsworth staked his defense not on his compliance
with tax law, but on defeating the willfulness element by asserting that he believed
compliance to be voluntary. In fact, Farnsworth either admitted or did not deny conduct
that was probative of affirmative acts of evasion other than the knowing use of fraudulent
trusts.1 Since a single affirmative act is sufficient under section 7201, we would be
unable to find heightened prejudice even if the District Court had clearly erred. We must
accordingly reject Farnsworth’s argument with regard to the fraudulent trust instruction.
1
For instance, Farnsworth did not deny that he earned income in the years for which he
did not file tax returns. He admitted that he transferred money from his retirement
account to an offshore bank account without paying taxes. He also admitted that
Farnsworth Engineering Services (“FES”) received payments for Farnsworth’s personal
consulting services, and that Farnsworth drew wages from FES without paying taxes on
either the receipts or the wages. Farnsworth further testified that a business entity under
his control took a lien out on the house he lived in, and that he did this as a means to
protect his assets from collection. When asked about also transferring his cars to a
business entity under his control, Farnsworth stated “I encumbered them - - I was
protecting them . . . . From among others, the Internal Revenue Service, I guess.” (App.
at 802.)
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CONCLUSION
For the reasons set forth above, we will AFFIRM the Judgment and Commitment
Order of the District Court on all grounds.
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