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United States v. Krogstad

argued: January 6, 1978.



Rosenn and Higginbotham, Circuit Judges and Donald W. VanArtsdalen, District Judge.*fn*

Author: Vanartsdalen


VANARTSDALEN, District Judge.


The defendant, Edward Krogstad (Krogstad), president and majority shareholder of Power Flow, Inc. (Power Flow),*fn1 was charged with conspiracy, falsifying federal quarterly employer tax returns, and causing, aiding and abetting a federal internal revenue agent to submit a false audit report, all in regard to Power Flow's 1969 and 1970 employer tax returns. Count I of the indictment charged Krogstad, Joseph Vetere (Vetere), an accountant, and Emmett F. Diehl (Diehl), an Internal Revenue Service (IRS) agent, with conspiracy in violation of 18 U.S.C. § 371. Counts II, III and IV charged only Krogstad with making and causing to be subscribed three separate false federal quarterly employer tax returns for Power Flow in violation of 26 U.S.C. § 7206(1). Count V charged Krogstad, Vetere and Diehl with causing, aiding and abetting Diehl to submit a false and fraudulent audit report to the IRS with respect to the 1969 and 1970 federal employer tax returns filed by Power Flow, in violation of 18 U.S.C. §§ 2, 1001. In substance, the indictment charged that Power Flow filed false employer tax returns by understating the true number of its employees and, thus, not reporting and failing to pay the appropriate amount of income and social security taxes withheld as to such employees. Thereafter, in an attempt to cover-up the false returns, the indictment charges that Diehl, the IRS auditor, was bribed in return for filing a false audit report that in substance approved the false returns as filed.

Vetere and Diehl entered guilty pleas to some or all of the charges pending against them and Krogstad was tried alone. Neither Vetere nor Diehl testified at Krogstad's trial. The jury convicted the defendant of Count V (causing, aiding and abetting) and acquitted him of the remaining counts. Several issues have been raised on appeal, only three of which need be addressed. For the reasons to follow, we will affirm the conviction.


Certain testimony as to Diehl's activities and statements was received into evidence under the so-called " co-conspirator exception" to the hearsay rule, as expressly provided and codified in the Federal Rules of Evidence 801(d)(2)(E).*fn2 Because the defendant was acquitted on the conspiracy charge, he contends that both under the law and the district court's instructions, the jury could not consider the evidence admitted under Rule 801(d)(2)(E) as to Count V which charged him with causing, aiding and abetting the submission of the false audit report. Absent this evidence, the defendant contends the Government's case was insufficient as a matter of law to convict him. He concludes therefore that the jury's verdict must necessarily have been based upon an improper consideration of such evidence.

Defendant does not challenge the admissibility of any evidence including that admitted under Rule 801(d)(2)(E). In addition, he does not here challenge the district court's instructions to the jury. In those instructions the court stated:

Now, whenever it appears beyond a reasonable doubt from the evidence in this case that a conspiracy existed and that a defendant was one of the members, then the statements thereafter knowingly made and the acts thereafter knowingly done, by any person likewise found by you to be a member of the conspiracy may be considered as evidence in the case as to the defendant found to be a member of the conspiracy, even though the statements and acts may have occurred in the absence and without the knowledge of the defendant, provided such statements and acts were knowingly made and done during the continuance of such conspiracy and in furtherance of some object or purpose of the conspiracy. Otherwise any admission or incriminating statement made or act done outside of the court by one person may not be considered as evidence against any person who was not present and did not hear the statement made or see the act done.

Our first inquiry is whether the evidence presented by the Government, excluding all evidence that was admitted under Rule 801(d)(2)(E), was sufficient to sustain a conviction on the causing, aiding and abetting count. If it was, then we need not concern ourselves with whether the jury, of necessity, considered certain evidence admitted under Rule 801(d)(2)(E) that the district court directed it could not consider absent a preliminary finding by the jury that a conspiracy existed. We conclude that the nonhearsay evidence is independently sufficient to sustain the conviction.

An assessment of the Government's evidence as to the charges in Count V requires a two-fold inquiry. First, was the evidence sufficient for the jury to find beyond a reasonable doubt that Diehl knowingly submitted a false audit report? Second, was the evidence sufficient for the jury to find beyond a reasonable doubt that Krogstad caused, aided and abetted the submission of a false audit report by Diehl? To answer these questions, we look to the trial transcript to ascertain what relevant evidence was admitted that does not fall under Rule 801(d)(2)(E).

Krogstad was president and Siggia vice-president of Power Flow which engaged in essentially three types of enterprises: it was a general construction contractor, and it performed engineering services and technical consulting for other businesses, and it supplied other businesses temporary draftsmen, designers and engineers. This latter phase of the business was described as analogous to the well-known "Kelly Girl" type of operation. Power Flow was responsible, as the employer, for paying wages and collecting, reporting and paying all federal employee withholding and social security taxes. For the services it provided, Power Flow would bill the customers who had engaged the temporary draftsmen, designers and engineers the gross wages plus an additional amount for its overhead and profit. Although wages had to be paid on a current basis, billings and collections were not always immediate. Due to a relatively small capital investment by the corporate owners, Power Flow faced a serious and continuing ...

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