United States v. Shows

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 21, 2009
No. 08-60219 Charles R. Fulbruge III
Clerk
UNITED STATES OF AMERICA
Plaintiff - Appellee
v.
BILLY RAY SHOWS, II; BILLY RAY SHOWS
Defendant - Appellant
Appeals from the United States District Court
for the Southern District of Mississippi
USDC No. 4:05-CR-28-2
Before SMITH and SOUTHWICK, Circuit Judges, and ENGELHARDT, District
Judge.*
PER CURIAM:**
Defendants Billy Ray Shows (“Dr. Shows”) and Billy Ray Shows, II
(“Shows II”) appeal their criminal tax convictions. Both appellants argue that
the evidence was insufficient to support their convictions. In addition, Dr.
Shows maintains that the district court erred in allowing the introduction of
evidence from tax years preceding and following the years charged in the
*
District Judge of the Eastern District of Louisiana, sitting by designation.
**
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 08-60219
indictment, permitting a variance between the charges in the indictment and the
proof offered at trial, and preventing him from introducing evidence in support
of his theory of defense. We find no reversible error and AFFIRM.
I. BACKGROUND
For the majority of the time period at issue in this case, Dr. Shows worked
as a private practitioner and contract emergency room doctor in Newton,
Mississippi. Dr. Shows ran his private practice out of a building known as
“Shows Medical Clinic,” which he built and originally owned. Eventually, Dr.
Shows transferred the property to his daughter, who transferred it to his wife.
Dr. Shows’s wife then transferred the building to Shows II, who was in the real
estate business, and Shows II leased the clinic to Dr. Shows for $6,000 per
month.
In 1997, the Mississippi State Board of Medical Licensure suspended Dr.
Shows’s medical license for two consecutive, six-month periods during which he
was not permitted to prescribe certain medications or operate his private
practice. Additionally, in 1998, Medicare audited its payments and determined
that it had overpaid Dr. Shows by approximately $42,000. Medicare accordingly
suspended payments for Dr. Shows’s services in order to recover the
overpayment. During this period of professional and financial difficulty, Dr.
Shows fell behind on both his rent and federal income tax payments.
Except for minor withholdings, Dr. Shows has not paid any income tax
since 1996.1 Furthermore, he did not file tax returns for 1997-2001 until
January 2004, and his 2002-2006 tax returns were also late. The IRS began
investigating Dr. Shows in March 2002. IRS agents met with Dr. Shows as a
part of their investigation. They obtained a copy of his books and records. Dr.
Shows maintains that he informed the investigators that he wanted to catch up
1
This reflects Dr. Shows’s tax status as of the trial date in this matter.
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No. 08-60219
on his past-due taxes and that it was his understanding that after he gave the
agents his records, they would make findings regarding his income and
allowable expenses, from which he could file and pay his taxes. The IRS agents
allege that there was no such understanding.
In August 2005, a federal grand jury returned a four-count indictment
against Dr. Shows and Shows II. Both were charged with one count of
conspiracy to obstruct or defeat the payment of taxes in violation of 18 U.S.C. §
371. Dr. Shows was further charged with three counts of attempted tax evasion
in violation of 26 U.S.C. § 7201, one count for each year from 1999-2001. Both
defendants pled not guilty and were tried by a jury in December 2007. The jury
found the defendants guilty on all counts. After the district court entered a
judgment on the jury’s verdict, both defendants timely appealed.
II. DISCUSSION
A. Sufficiency of the Evidence
We review the district court’s denial of a properly preserved motion for a
judgment of acquittal de novo. United States v. Mitchell, 484 F.3d 762, 768 (5th
Cir. 2007) (citations omitted). “Our review of the sufficiency of the evidence
following a conviction is narrow. We will affirm if a rational trier of fact could
have found that the evidence established the essential elements of the offense
beyond a reasonable doubt.” United States v. Westbrook, 119 F.3d 1176, 1189
(5th Cir. 1997) (citations omitted). Moreover, we view the evidence, reasonable
inferences drawn therefrom, and credibility determinations in the light most
favorable to the verdict. Id. “The evidence need not exclude every reasonable
hypothesis of innocence or be wholly inconsistent with every conclusion except
that of guilt, and the jury is free to choose among reasonable constructions of the
evidence.” Mitchell, 484 F.3d at 768. Furthermore, the court need not change
its standard of review if the evidence supporting the conviction is circumstantial
rather than direct. Id.
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No. 08-60219
For a conspiracy conviction under 18 U.S.C. § 371, “the government must
prove beyond a reasonable doubt that two or more people agreed to pursue an
unlawful objective together, that the defendant voluntarily agreed to join the
conspiracy, and that one of the members of the conspiracy performed an overt
act to further the conspiracy.” United States v. Faulkner, 17 F.3d 745, 768 (5th
Cir. 1994) (citation omitted). Circumstantial evidence may be used to establish
each of these elements. Id. “To support a conviction for attempted tax evasion
[under 26 U.S.C. § 7201], . . . the government must prove beyond a reasonable
doubt that there was a tax deficiency, an affirmative act constituting an attempt
to evade or defeat the tax, and willfulness.” United States v. Bishop, 264 F.3d
535, 550 (5th Cir. 2001) (citing Sansone v. United States, 380 U.S. 343, 351
(1965)).
Defendants argue that the government did not produce sufficient evidence
to establish the overt or affirmative act requirements of the conspiracy and
attempted tax evasion charges, and Dr. Shows further alleges that the
government did not prove the willfulness element of the attempted tax evasion
charges. The government maintains, however, that it introduced evidence from
which the jury could conclude that because the lease transaction between Dr.
Shows and Shows II had no economic reality, it constituted an overt act in
furtherance of the defendants’ tax evasion conspiracy and attempted tax evasion.
The government’s theory is that Shows Medical Clinic was transferred to Shows
II so that Dr. Shows could divert and conceal a portion of his taxable income as
rental expense deductions, and Shows II could then return the diverted rent
payments to Dr. Shows for his personal use.
Under the sham transaction doctrine, tax deductions are not permitted if
they result from a transaction with no economic substance other than to create
favorable tax consequences. See United States v. Wexler, 31 F.3d 117, 122 (3d
Cir. 1994). Also relevant is the step transaction doctrine, which provides that
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No. 08-60219
“the tax consequences of an interrelated series of transactions are not to be
determined by viewing each of them in isolation but by considering them
together as component parts of an overall plan.” Sec. Indus. Ins. Co. v. United
States, 702 F.2d 1234, 1244 (5th Cir. 1983) (internal quotation marks and
citation omitted).
We conclude that the government presented sufficient evidence for a jury
to find that the lease transaction was a sham that constituted an overt or
affirmative act in furtherance of the defendants’ conspiracy to divert and reduce
Dr. Shows’s taxable income and Dr. Shows’s attempts to evade the payment of
taxes. The government introduced evidence that Dr. Shows built and originally
owned Shows Medical Clinic; that through a series of transactions, Dr. Shows
transferred the building to Shows II for little or no consideration; that on the
same day Shows II obtained the property, he leased the space to Dr. Shows; that
Dr. Shows did not consistently pay the agreed rent for the property; and that
Shows II made several monetary gifts to Dr. Shows on the same days Dr. Shows
paid his rent.2 This evidence, combined with the proof that Dr. Shows failed to
timely file and pay taxes in the years before and after those charged in the
indictment, also provided sufficient grounds upon which a jury could find that
Dr. Shows acted willfully.
There was sufficient evidence to support the defendants’ convictions.
B. Rule 404(b) Evidence
A district court’s decision to admit evidence of other crimes or acts in a
criminal case is reviewed under a heightened abuse-of-discretion standard.
Mitchell, 484 F.3d at 774. Even if error in admission occurred, we examine
whether any harm resulted from the admission. Id.
2
As part of its overt or affirmative act evidence, the government argued that Shows II
returned Dr. Shows’s rental payments to him through these monetary gifts; however, the proof
at trial established that the monetary gifts added up to only a small percentage of the overall
amount Dr. Shows claimed in rental expenses.
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No. 08-60219
Under Rule 404(b) of the Federal Rules of Evidence,
[e]vidence of other crimes, wrongs, or acts is not admissible to prove
the character of a person in order to show action in conformity
therewith. It may, however, be admissible for other purposes, such
as proof of motive, opportunity, intent, preparation, plan,
knowledge, identity, or absence of mistake or accident . . . .
To be admissible, the rule requires the evidence to be relevant to an issue other
than the defendant’s character. Even if it is, the probative value must not be
substantially outweighed by “the danger of unfair prejudice, confusion of the
issues, or misleading the jury, or by considerations of undue delay, waste of time,
or needless presentation of cumulative evidence.” Fed. R. Evid. 403.
Dr. Shows argues that the district court erred in allowing the government
to introduce his tax records from years preceding and following the years
charged in the indictment. The district court admitted the tax returns and IRS
notices for the uncharged years as evidence of Dr. Shows’s knowledge of his tax
obligations and his willful intent to avoid such obligations; it also was evidence
that negated any argument that Dr. Shows had a good-faith belief that he was
not obligated to file tax returns or pay taxes. See United States v. Wisenbaker,
14 F.3d 1022, 1028 (5th Cir. 1994) (defendant’s prior state convictions for failure
to pay taxes properly admitted because such convictions were relevant to the
element of willfulness and tended to negate the defendant’s good-faith defense
that he believed he was not obligated to pay the taxes); United States v. Pry, 625
F.2d 689, 692 (5th Cir. 1980) (defendant’s prior failure to send quarterly tax
returns to the IRS was relevant as evidence of the defendant’s knowledge and
intent); see also United States v. Farber, 630 F.2d 569, 571-72 (8th Cir. 1980) (tax
documents for years subsequent to that charged in the indictment properly
admitted because “subsequent tax paying conduct is relevant to the issue of
intent or willfulness in a prior year”).
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No. 08-60219
In addition, the prejudicial effect of the tax returns and notices did not
substantially outweigh their probative value. We have described the probative
value of the evidence. Dr. Shows has not shown any significant prejudice. He
points to the fact that jurors during their deliberations asked about the IRS
notices for the 1996 tax year, which was prior to the period covered by the
charges. But jurors merely asked if they could consider the notices as evidence
on state of mind, which was the non-character purpose for which the notices
were admitted. Moreover, Dr. Shows admits that the court handled the question
properly. Any possible prejudice from the evidence was mitigated by the court’s
instruction that jurors should not convict a defendant for willful evasion of taxes
based on a mere failure to file.
The district court properly admitted the documents from the uncharged
years as Rule 404(b) evidence of Dr. Shows’s knowledge and intent.
C. Variance Between the Indictment and Proof
“A variance arises when the proof at trial depicts a scenario that differs
materially from the scenario charged in the indictment but does not modify an
essential element of the charged offense.” United States v. Delgado, 401 F.3d
290, 295 (5th Cir. 2005) (citations omitted). To determine whether a variance
occurred, the court compares the evidence presented at trial with the actual
language of the indictment. Mitchell, 484 F.3d at 769. If the court finds that a
variance occurred, reversal is only required “if the variance prejudiced the
defendant’s substantial rights.” Id. (citations omitted). “As long as the
defendant receives notice and is not subject to the risk of double jeopardy, his
substantial rights are not affected.” United States v. Freeman, 434 F.3d 369, 375
(5th Cir. 2005) (internal quotation marks and citation omitted).
Dr. Shows makes two arguments concerning variances. First, he
maintains that although the indictment charged him with felony tax evasion
under 26 U.S.C. § 7201, the proof offered at trial established only a misdemeanor
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No. 08-60219
failure to file tax returns or to pay taxes under 26 U.S.C. § 7203. A person may
not be convicted of felony tax evasion based solely on his willful failure to file or
pay taxes. Dr. Shows contends that the government did not introduce evidence
that he did anything but fail to file and pay. Second, Dr. Shows alleges that
although the indictment stated that he has not filed any tax returns since 1996,
the government offered his tax returns from 1996 to 2006 into evidence at trial.
Dr. Shows has not shown a fatal variance. Dr. Shows’s initial variance
claim is essentially an extension of his argument as to the sufficiency of the
evidence. The government proceeded under a felony tax evasion theory at trial,
and the jury was properly instructed as to the elements of felony tax evasion
under 26 U.S.C. § 7201. Whether the proof at trial established the essential
elements of the felony charges goes to the sufficiency of the evidence. As we
already discussed, the evidence was sufficient to support the convictions.
Dr. Shows’s second complaint does reveal an actual variance. Though the
indictment charged that he had not filed certain returns, Counts 2-3 of the
indictment clarified the misstatement and explained that for each of the
material years, Dr. Shows did not timely file a tax return. Furthermore, Dr.
Shows has not shown that the variance impaired his ability to prepare a defense
or subjected him to the risk of double jeopardy. The error did not affect Dr.
Shows’s substantial rights, and reversal is not justified.
D. Theory of Defense Evidence
“A district court’s evidentiary rulings are reviewed for abuse of discretion,”
and an error in excluding evidence does not necessitate reversal unless it
affected the defendant’s substantial rights. United States v. Lowery, 135 F.3d
957, 959 (5th Cir. 1998) (citation omitted).
Dr. Shows maintains that the district court erred in granting the
government’s motion in limine to exclude evidence of Dr. Shows’s voluntary
disclosure to the IRS. Dr. Shows admits that the district court excluded the
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No. 08-60219
evidence because voluntary disclosure is not an available defense to a criminal
investigation started before the disclosure. He asserts, however, that he was not
offering the voluntary disclosure evidence as an affirmative defense; rather, he
sought to use the evidence to discredit the government’s proof of willfulness. Dr.
Shows maintains that the court’s bar on voluntary disclosure evidence prevented
him from presenting his theory that his accountant had worked out a deal with
the IRS under which he could avoid criminal charges by filing and paying his
taxes based on the IRS’s computations.
The central problem with this argument is that the district court did not
prevent Dr. Shows from presenting his theory of defense. The court permitted
an accountant to testify that he gave Dr. Shows’s records to the IRS with the
understanding that the IRS would review the records, make findings, and then
allow Dr. Shows to prepare tax returns based on the IRS’s computations.
Moreover, Dr. Shows was allowed to question the IRS agent about the alleged
deal. Dr. Shows himself testified that he had an understanding with the IRS
agents that after reviewing his records, they would return to discuss the taxes.
Finally, the deal was discussed in Dr. Shows’s closing statement, and the jury
charge included an instruction on the good faith defense.
We find Dr. Shows was permitted to present his theory of defense, and
there was no abuse of discretion when the district court granted the
government’s motion in limine with respect to voluntary disclosure.
The district court’s judgment is AFFIRMED.
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