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U.S. v. McGill

filed: May 13, 1992; As Amended May 19, 1992.

UNITED STATES OF AMERICA, APPELLANT IN 91-1201
v.
THOMAS L. MCGILL, JR., APPELLANT IN 91-1122



On Appeal From the United States District Court For the Eastern District of Pennsylvania. (D.C. Criminal Action No. 90-144-01)

Before: Stapleton, Scirica and Roth, Circuit Judges

Author: Roth

Opinion OF THE COURT

ROTH, Circuit Judge

Defendant Thomas L. McGill, Jr. was convicted in the Eastern District of Pennsylvania of five violations of the Internal Revenue Code. Of these convictions, one fell within the Federal Sentencing Guidelines, and on this count the trial Judge granted McGill a two-level reduction for acceptance of responsibility. The Government appeals that reduction. McGill cross-appeals his convictions on all five counts.

The Government charged McGill under 26 U.S.C. § 7201 (1988 and Supp. 1990) with five counts of evasion of payment of income taxes, comprising tax years 1980 through 1987.*fn1 Section 7201 is a felony offense. A jury found McGill guilty of three counts of evasion of payment, covering the years 1985 through 1987 (Counts 6, 7 and 8). The jury acquitted McGill of felony charges on the remaining two counts, which included tax years 1980 through 1984 (Counts 4 and 5). On those two counts, however, the jury found that McGill willfully failed to pay federal income taxes, a misdemeanor under 26 U.S.C. § 7203 (1988 and Supp. 1990).*fn2

McGill contests several aspects of his trial, including the sufficiency of the evidence as to the felony convictions, misleading jury instructions, misjoinder of offenses, and the erroneous exclusion of evidence relating to the willfulness of his violations. This court has jurisdiction over appeals from final judgments of conviction under 28 U.S.C. § 1291 (1988). We have jurisdiction under 18 U.S.C. § 3742(b) (1988) to review the Government's appeal of the sentence imposed on McGill under Count 8.

We will affirm in part and reverse in part. We will affirm the misdemeanor convictions on Counts 4 and 5, and McGill's felony conviction on Count 6. We believe, however, that there was insufficient evidence of affirmative acts of evasion for the tax years 1986 and 1987. Therefore, we will reverse the convictions on Counts 7 and 8. Because of our decision on Count 8, we need not reach the sentencing issue raised by the Government.*fn3

I.

A. Procedural History

On March 27, 1990, Thomas McGill and co-defendants Kenneth Harris and Leon Brown were charged by a federal grand jury with violation of the Travel Act, 18 U.S.C. § 1952 (1988), and conspiracy to violate the Travel Act, 18 U.S.C. § 371 (1988). Additionally, McGill was charged with five counts of evading payment of his federal income taxes, in violation of 26 U.S.C. § 7201. After a seven-day jury trial, McGill was convicted of three of the felony counts of evasion of tax payment (26 U.S.C. § 7201),*fn4 and of two counts of the lesser-included offense of willful failure to pay federal income taxes (26 U.S.C. § 7203).*fn5 McGill was acquitted, and the other defendants were convicted, of the Travel Act violations and the related conspiracy charge, which arose out of an alleged judicial bribery scheme.

McGill was sentenced to two five year terms of probation on Counts 6 and 7, these terms to be served concurrently with each other and to a concurrent term of five years probation imposed under the one felony (Count 8) which fell within the Federal Sentencing Guidelines. The five years probation under Count 8 included a condition that McGill spend the first month in a community treatment center or half-way house, followed by three months of home confinement. The court computed this sentence under the Guidelines after awarding McGill a two-level reduction for acceptance of responsibility. Additionally, McGill was sentenced to two consecutive one year terms of probation on the misdemeanors, these terms to run concurrently with the five year terms.

McGill filed a post-verdict motion seeking judgment of acquittal, or alternatively, a new trial. In the motion for judgment of acquittal, McGill alleged insufficient evidence on two elements of the felony charge: affirmative acts of evasion and willfulness. He also alleged failure of proof as to willfulness on the two misdemeanor counts. The motion for new trial focused on improper jury instructions regarding: willfulness and affirmative acts of evasion; the relevance of the defendant's Offer In Compromise; the voluntariness of levy collections; the relevance of the defendant's inability to pay his taxes; and the charging of lesser-included misdemeanors. Finally, McGill alleged that misjoinder of his bribery and tax offenses necessitated a new trial. The trial Judge denied these motions. United States v. McGill, No. 90-144-01 (E.D. Pa. Jan. 24, 1991).

The Government filed an appeal in this court challenging the two-level reduction for acceptance of responsibility; McGill cross-appealed both his convictions and the denial of his post-verdict motions.

B. Facts

McGill was charged in Counts 4 through 8 of the indictment with evading payment of $46,910 in personal income taxes. This figure encompasses assessed but unpaid taxes for the years 1980 through 1987, excluding penalties and interest.*fn6

McGill is a self-employed attorney in Philadelphia. During the decade 1980 through 1990, he received income from three sources: private criminal defense work, for which he was paid in cash and by personal check; court appointments to represent indigent criminal defendants, for which he was paid, upon submitting vouchers, by the City of Philadelphia (the City); and service as an appointed member of a Pennsylvania commission,*fn7 for which he received a stipend from the Commonwealth.

For each of the years 1980 through 1987, McGill filed federal income tax returns indicating taxes due. There is no dispute as to the accuracy of McGill's tax forms. However, he failed to include with his returns payment of any of the tax which he admittedly owed.*fn8

In 1983 the Internal Revenue Service (IRS) directed McGill to pay his 1978 taxes and file returns for the years 1979-1982. He submitted the overdue returns, and acknowledged amounts due, but remitted no payment. The IRS then in 1984 issued levies against McGill's two personal bank accounts. The banks informed the IRS that no funds were available in these accounts. In May 1985, the IRS again issued levies against McGill's two personal bank accounts, and also against McGill's fees from the Commonwealth and the City. McGill was aware of the levies from the time they were imposed, as he acknowledged in a meeting with the IRS in late May 1985.

After the 1985 levies were imposed, McGill ceased using his personal bank accounts. Those accounts were later closed by the banks. McGill deposited and wrote checks on an account in his wife's name*fn9 (the Lillie account) and on a joint account which he and several other lawyers had established for the purpose of handling common expenses for office space they shared (the McGill & Seay account).*fn10 The IRS had no record of the Lillie and the McGill & Seay accounts.*fn11 McGill testified that he used the family and the business accounts because he thought his two personal accounts had been closed. At the same time, he admitted at trial that he used the business account "thinking that the IRS wouldn't bother the money." Joint App. at A-2102.

McGill made one attempt in 1986 to settle his debts with the IRS: he hired an attorney and prepared an Offer In Compromise (OIC) of his tax liability. He filed financial disclosure forms in connection with the OIC in late May 1986. The record contains conflicting information about the adequacy of the disclosure forms, none of which is before us. IRS Agent Kroll assured the trial court that McGill had provided him with information about all bank accounts, Joint App. at A-1198, but the Government alleged in oral argument that McGill failed to include the McGill & Seay account with the filing. The OIC was finally withdrawn after the IRS suggested that the proposed level of payment was too low.*fn12 The IRS further noted that McGill had made no effort to pay his current year's (1986) estimated taxes, a prerequisite for a good faith OIC. McGill asserted that he could not pay his 1986 taxes because most of his earnings--his income from the Commonwealth and the City--were subject to IRS levies.

During the period from January 1986 until January 1987, when the OIC was being negotiated, McGill on the advice of counsel did not submit expense vouchers to the City. Thus, the IRS received no levy payments from the City in that year. McGill submitted the entire year's vouchers -- worth approximately $5,000 -- after he withdrew his Offer In Compromise. Of this amount, approximately $3,700 went to the IRS. Joint App. at A-1987-88.

In 1987, McGill sent a $3,000 check to the IRS. He was seeking election to a local Judgeship at the time. This was the only non-levy payment McGill made to the IRS between April 1985 and March 1990, the period relevant to the indictment.*fn13

In March 1988, the Government instituted a criminal tax investigation of McGill. McGill continued to accept court appointments from the City. The IRS kept the income levied from these City appointments in a "suspense account" while pursuing the criminal charges. At the time of trial, the suspense account contained nearly $30,000.*fn14 None of these funds was allocated toward McGill's liability for the tax years charged in the indictment (1980 through 1987).*fn15

In about August 1988, five months after the Government initiated its criminal investigation, McGill opened a checking account in his own name at the Philadelphia Savings Fund Society (the PSFS account). He testified at trial that he opened the account "because my attorney advised me that questions were being raised about my use of the McGill & Seay account." Joint App. at A-2112-13. The IRS was not initially aware of the PSFS account.*fn16

At about the same time, approximately $9,000 of McGill's fees from the City were not captured by the IRS levy but were sent directly to him. McGill contacted the City Comptroller's Office to inquire about his receipt of these funds. Joint App. at A-2099. As a result, the remaining $1,000 then due to him from the City was sent directly to the IRS. It appears that McGill deposited the $9,000 in one of his accounts and did not forward any part of it to the IRS.*fn17 He did, however, claim that he declared the money as income on his income tax return for that year. Joint App. at A-2100.

In the fall of 1989, McGill took a part-time job as a law clerk to a Philadelphia Judge, at a salary of about $25,000. He has also continued to take court appointments from the City.

The total amount of moneys which the IRS levied from McGill during the period up to his trial is in dispute. The IRS contends that a total of $57,746.88 was levied. McGill claims that the total levy was over $75,000. The main part of the discrepancy apparently lies in certain fees which the City has indicated were sent to the IRS but which at the time of McGill's trial had not been recorded as received by the IRS.

II.

McGill was charged under 26 U.S.C. § 7201 with five counts of attempted evasion of payment of tax. He was convicted of three counts of felony evasion and of two counts of the lesser offense of willful failure to pay taxes under 26 U.S.C. § 7203.

The elements of the felony of attempted evasion of payment of tax under § 7201 are three: 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. Sansone v. United States, 380 U.S. 343, 351, 13 L. Ed. 2d 882, 85 S. Ct. 1004 (1965). Willful failure to pay tax under § 7203 contains two elements: 1) failure to pay a tax when due, and 2) willfulness. See id.

A. Tax Deficiency

The first element in a § 7201 offense is a tax due and owing. Sansone, 380 U.S. at 351. There is no dispute that McGill owes taxes in the amount of $46,910. He has contemporaneously satisfied the first element of § 7203, by failing to pay the amounts owed according to the returns he has filed.

B. Affirmative Acts

Section 7201 further requires proof of an affirmative act of evasion. One act will suffice. United States v. Conley, 826 F.2d 551, 556-57 (7th Cir. 1987). McGill argues that the Government did not prove that he committed affirmative acts of evasion during each time period charged. The Government asserts that McGill met the threshold for felony evasion under § 7201 when 1) after learning that the IRS had placed a levy on his assets to recover unpaid taxes, he ceased using the personal bank accounts and instead deposited and withdrew money from the Lillie and the McGill & Seay accounts; and 2) he opened the PSFS account without informing the IRS and deposited $9,000 in fee checks from the City. Additionally, the Government maintains that the jury could have inferred affirmative acts of evasion from the consistent pattern of cash withdrawals from the Lillie account, even after deposits attributable to McGill had ceased.

Our review of the sufficiency of the evidence is "governed by strict principles of deference to a jury's findings." United States v. Ashfield, 735 F.2d 101, 106 (3d Cir.), cert. denied, sub nom. Storm v. United States, 469 U.S. 858, 83 L. Ed. 2d 122, 105 S. Ct. 189 (1984). When a motion for judgment of acquittal brought on a claim of insufficient evidence to support a conviction is denied, this court must sustain the verdict if "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319, 61 L. Ed. 2d 560, 99 S. Ct. 2781 (1979) (emphasis omitted). See also United States v. Coleman, 862 F.2d 455, 460-61 (3d Cir. 1988), cert. denied, 490 U.S. 1070, 104 L. Ed. 2d 638, 109 S. Ct. 2074 (1989). The reviewing court must simply determine whether "the Conclusion chosen by the factfinders was permissible." Ashfield, 735 F.2d at 106.

1. Evasiveness

McGill alleges that the charged acts -- the use of the Lillie and the McGill & Seay accounts, and the opening of the PSFS account -- are not affirmative acts of evasion within the meaning of 26 U.S.C. § 7201.

An affirmative act is anything done to mislead the government or conceal funds to avoid payment of an admitted and accurate deficiency. Cohen v. United States, 297 F.2d 760, 762 & 770 (9th Cir.), cert. denied, 369 U.S. 865, 8 L. Ed. 2d 84, 82 S. Ct. 1029 (1962). The offense is complete when a single willful act of evasion has occurred. See United States v. Conley, 826 F.2d 551, 557 (7th Cir. 1987). Section 7201 explicitly refers to "attempts [to evade] in any manner." 26 U.S.C. § 7201. Generally, affirmative acts associated with evasion of payment involve some type of concealment of the taxpayer's ability to pay his or her taxes or the removal of assets from the reach of the Internal Revenue Service. See Joint App. at A-225. Thus, "any conduct, the likely effect of which would be to mislead or to conceal" is sufficient to establish an affirmative act of evasion. Spies v. United States, 317 U.S. 492, 499, 87 L. Ed. 418, 63 S. Ct. 364 (1943).

Section 7201 encompasses two kinds of affirmative behavior: the evasion of assessment and the evasion of payment. Evasion of assessment cases are far more common. The affirmative act requirement in such a case is satisfied, inter alia, with the filing of a false return. See, e.g., Sansone, 380 U.S. at 351-52. If the false filing is shown to be willful, the offense is complete with the filing. See id. Evasion of payment cases are rare, and the required affirmative act generally occurs after the filing, if there is a filing at all. United States v. Mal, 942 F.2d 682, 687 (9th Cir. 1991) (evasion of payment "involves conduct designed to place assets beyond the government's reach after a tax liability has been assessed") (emphasis added). McGill was charged with evasion of payment.

Affirmative acts of evasion of payment include: placing assets in the name of others; dealing in currency; causing receipts to be paid through and in the name of others; and causing debts to be paid through and in the name of others. For example, in Spies, the petitioner "insisted that certain income be paid to him in cash, transferred it to his own bank by armored car, deposited it, not in his own name but in the names of others of his family, and kept inadequate and misleading records." The Supreme Court found this evidence sufficient to sustain a finding of attempted evasion. Spies, 317 U.S. at 499 (emphasis added). In Conley, the Court of Appeals for the Seventh Circuit affirmed a § 7201 conviction where the defendant placed assets in his sons' names, deposited his assets with others, dealt in currency, and paid creditors but not the government. Conley, 826 F.2d at 557. See United States v. Voorhies, 658 F.2d 710, 714 (9th Cir. 1981) (affirming § 7201 conviction where defendant travelled out of country on three occasions in one year, carrying over $80,000 in negotiable assets, did not declare these amounts to customs, and was later unable to account for use of large amount of cash and gold coins); United States v. Hook, 781 F.2d 1166 (6th Cir.) (affirming § 7201 conviction where the defendant did most of his business in cash, used credit cards belonging to others, and bought a house in his girlfriend's name), cert. denied, 479 U.S. 882, 93 L. Ed. 2d 246, 107 S. Ct. 269 (1986). See also United States v. Shorter, 257 App. D.C. 358, 809 F.2d 54, 57 (D.C. Cir.) (affirming § 7201 and § 7203 convictions where defendant carried on a "cash lifestyle"), cert. denied, 484 U.S. 817, 98 L. Ed. 2d 35, 108 S. Ct. 71 (1987).

Merely failing to pay assessed taxes, without more, however, does not constitute evasion of payment, though it may satisfy the requirements for the willful failure to pay taxes under § 7203. Sansone, 380 U.S. at 351; United States v. Romano, 938 F.2d 1569, 1573 (2d Cir. 1991). Only affirmatively evasive acts--acts intending to conceal--are punishable under § 7201.*fn18

2. Timing

Before we apply the law of affirmative acts to the facts of this case, we must consider an additional issue raised by the parties: whether affirmative acts in an evasion of payment situation can pre-date the existence of a tax deficiency. The Government argues that the crime of evasion of payment is not technically complete until a tax deficiency exists, though a taxpayer's prior acts may be credited toward that year. McGill counters that the indictment in this case required the jury to disregard prior acts, regardless of whether past behavior may have been relevant. Neither party misstates the law: a prior act may suffice to prove evasiveness in particular circumstances. E.g., United States v. Shorter, 257 App. D.C. 358, 809 F.2d 54, 57 (D.C. Cir. 1987) (court permitted government to join twelve years' tax payment evasion in a single indictment; defendant's activities evidenced a "continuous course of conduct," and "each affirmative act of tax evasion was intended to evade payment of all taxes owed, or which appellant expected to owe, at the time of the affirmative act.") (emphasis added); United States v. Hook, 781 F.2d 1166, 1170 (6th Cir. 1986) (limiting relevant acts under § 7201 to those occurring after assessment "would thus preclude felony prosecutions against those taxpayers who had the foresight to file accurate tax returns and commit acts of concealment of assets prior to assessment"). But see Mal, 942 F.2d at 688 (Court of Appeals for the Ninth Circuit suggests that relevance of acts may be determined by occurrence relative to assessment of tax deficiency: "if a defendant transfers assets to prevent the IRS from determining his true tax liability, he has attempted to evade assessment; if he does so after a tax liability has become due and owing, he has attempted to evade payment.")

However, as McGill correctly notes, we do not need to decide whether affirmative acts can predate the existence of a tax deficiency here. In this case, the indictment limited relevant activity to periods after deficiencies were assessed. McGill's evasive activity allegedly began on certain dates -- either the day the taxes were due, or the day the tax forms for those years were filed.*fn19 The indictment charged McGill with evading his 1980-83 and 1984 taxes beginning on or about April 15, 1985 (Counts 4 & 5); his 1985 taxes beginning on or about April 15, 1986 (Count 6); and his 1986 and 1987 taxes beginning on or about May 15, 1988 (Counts 7 & 8). The indictment by its terms required the jury to look forward in time for evidence of ...


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