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United States v. Root

October 29, 2009


On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 07-cr-00149) District Judge: Honorable Berle M. Schiller.

The opinion of the court was delivered by: Hardiman, Circuit Judge.


Argued June 2, 2009

Before: McKEE, HARDIMAN and GREENBERG, Circuit Judges.


Thomas Root appeals his judgment of conviction for tax evasion and conspiracy to defraud the United States following a jury trial. Although Root challenges the venue of the District Court and the sufficiency of the evidence as to the conspiracy count, the principal question of precedential import on appeal is whether the Government may charge a defendant for evading the assessment of taxes for multiple years in a single count.


We review the facts in the light most favorable to the Government because the jury found Root guilty of both charges. United States v. Mornan, 413 F.3d 372, 382 (3d Cir. 2005).


A former attorney, Root began working in the mid-1990s as special projects director at Reading Broadcasting, Inc. (RBI), an independent television station in Reading, Pennsylvania. Root worked closely with RBI's Presidents - Micheal Parker and Frank McCracken - reviewing contracts, preparing shareholder correspondence and annual reports, and ensuring the company's compliance with Federal Communications Commission and Equal Employment Opportunity Commission regulations.

Pleased with Root's work, McCracken rewarded Root with additional commissions from a new client, Master Media Enterprises. The commissions were initially paid through RBI's payroll and included in Root's regular salary payments. As a result, taxes on the commissions were withheld and reflected on Root's W-2 forms. Soon thereafter, however, Root wrote to McCracken requesting that his commissions be paid to KGR New Perspectives (New Perspectives), a limited liability company that Root established in Ohio. Around the same time, McCracken - who also was receiving commissions from Master Media sales - requested that his commissions be paid to his own limited liability company (Framco) which Root had formed at McCracken's request. Between 2001 and 2004, RBI paid New Perspectives $94,077.34 and Framco $509,210.43. Because Root and McCracken had requested that the commissions be paid to their respective limited liability companies, these payments were not reflected on their respective W-2 forms.

In January 2002, RBI's bookkeeper, Barbara Williamson, asked McCracken and Root whether she should issue Form 1099s to New Perspectives and Framco to account for the commissions paid to those entities. Both men responded that they did not know whether 1099s were necessary when payments were made to limited liability companies, but that they would look into the matter further. When Williamson inquired a second time some weeks later, McCracken told her that she did not need to issue 1099s to those entities. As a result, RBI never notified the IRS of these payments.

At the same time they failed to inform the IRS of the commissions being paid to New Perspectives, Root and his wife Kathy cited the New Perspectives income on a loan application they submitted when refinancing their home mortgage in 2001. The payments made by RBI to New Perspectives were deposited equally into Kathy's personal account and into a New Perspectives account on which Kathy was the lone signatory.*fn1

In applying for the loan, the Roots listed as income Thomas Root's RBI salary as well as $3,000 of monthly income from New Perspectives attributable to Kathy Root. Because the bank required the couple to produce verification of the listed income, Thomas Root asked McCracken to sign a "Commission Agreement" between RBI and New Perspectives under which RBI would pay New Perspectives a two percent commission on monthly revenues that RBI collected from Master Media in exchange for sales services. Though Kathy Root signed the agreement on behalf of New Perspectives, the services were performed solely by Thomas Root.

In addition to the payments from RBI, Root received income from two Ohio attorneys, George Ford and Victor Merullo. Root performed legal research and writing services for the attorneys and instructed that they pay him through his sole proprietorship, Legal Information Services Associates (LISA). Ford and Merullo paid Root as an independent contractor but did not withhold taxes or issue 1099s to Root. From 2001 to 2003, Root earned $58,041.91 from Ford and $19,573.85 from Merullo.

Finally, Root performed services for Micheal Parker unrelated to his work at RBI, including setting up companies in connection with Parker's many business ventures. Parker paid Root - either directly or through LISA - a "success fee" or "bonus" for his work and covered his related expenses. Root earned $56,000 from Parker in 2001 and 2002. Parker never issued Root any 1099s in connection with these payments.


In preparing joint tax returns for himself and his wife for the tax years 2001, 2002, and 2003, Root failed to disclose the commissions he received from RBI or the income received from Ford, Merullo, and Parker. Furthermore, New Perspectives did not file tax returns for those tax years. Consequently, Root owed taxes in the following amounts: $11,571 in 2001, $19,619 in 2002, and $6,473 in 2003. After New Perspectives was served with a grand jury subpoena in 2004, Root filed amended returns for 2001, 2002, and 2003, which disclosed the payments made to New Perspectives in those years. Root still failed to disclose the income from Ford, Merullo, or Parker, however.

A grand jury indicted Root on one count of conspiracy to defraud the United States in violation of 18 U.S.C. § 371, one count of tax evasion for the years 2000 to 2003 in violation of 26 U.S.C. § 7201, and seven counts of filing a false return in violation of 26 U.S.C. § 7206(1). The conspiracy count alleged that Root and McCracken agreed to defraud the United States by hiding portions of Root's income from the IRS.

Root, who is a resident of Ohio, moved for dismissal of the tax evasion and false return counts, contending that the Eastern District of Pennsylvania was an improper venue to bring those charges. The Government agreed to dismiss the false return charges and to limit the tax evasion count to the years 2001 to 2003, acknowledging that the alleged evasive acts relating to 2000 occurred exclusively in Ohio. After the Government made those concessions, the District Court determined that venue was proper with regard to the remaining counts and the case proceeded to trial. The jury convicted Root of both tax evasion and conspiracy. Following the verdict, Root moved for judgment of acquittal or, alternatively, for a new trial. The District Court denied both motions.*fn2


Root first argues that his conviction for tax evasion should be vacated and dismissed because it alleged multiple years of evasion in a single count and was therefore duplicitous. "Duplicity is the improper joining of distinct and separate offenses in a single count." United States v. Haddy, 134 F.3d 542, 548 (3d Cir. 1998). Whether an indictment is duplicitous is a question of law subject to de novo review. Id. at 547.


To determine whether a count is duplicitous, we must ascertain the allowable unit of prosecution to decide whether the indictment properly charges a violation of the pertinent statute. Id. at 548. To do so, we inquire into Congressional intent by examining the language of the statute. Id.

The tax evasion statute provides:

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall... be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000..., or imprisoned not more than 5 years, or both....

26 U.S.C. § 7201.

Section 7201 is silent regarding whether each tax year must be charged separately or whether multiple years can be combined in one count. That question was considered in United States v. Shorter, 809 F.2d 54 (D.C. Cir. 1987), where the Government charged the defendant with one felony count of tax evasion that covered twelve tax years. During the relevant time period, the defendant had conducted all of his personal and professional business in cash, avoided the acquisition of attachable assets, and failed to record receipts and disbursements. See id. at 57. The defendant argued that trying him for all twelve years in one count was duplicitous. Id. at 56.

The Court of Appeals for the District of Columbia Circuit disagreed, holding that "tax evasion covering several years may be charged in a single count as a course of conduct... where the underlying basis of the indictment is an allegedly consistent, long-term pattern of conduct directed at the evasion of taxes for [those] years." Id. The court held that the defendant's activities constituted a continuous course of conduct, and each affirmative act of evasion was intended to evade payment of all taxes owed or anticipated at the time. Id. The court also observed that section 7201 does not directly address whether it is possible to charge a continuing scheme to evade taxes for several years. Rather, the statute merely makes it a felony for any person to "willfully attempt[ ] in any manner to evade or defeat any tax imposed by this title or the payment thereof." Id. at 57 (quoting 26 U.S.C. § 7201). This broad language, the court concluded, supported a finding that a multi-year tax evasion count "may fairly be read to charge but a single scheme and is therefore not duplicitous." Id.

This Court followed Shorter in United States v. Pollen, 978 F.2d 78 (3d Cir. 1992), where we upheld the Government's charge of four counts of tax evasion, each of which covered the same seven-year period. In each count, the Government alleged a distinct affirmative act: the illegal transfer of hundreds of thousands of dollars in successive attempts to evade payment of taxes over seven years. Id. at 86. We stated that while "it is logical... to charge attempts to evade the assessment of taxes for distinct years in separate counts," id. at 87, "it is also permissible under section 7201 to charge tax evasion covering several years in a single count as a 'course of conduct' in circumstances 'where the underlying basis of the indictment is an allegedly consistent, long-term pattern of conduct directed at the evasion of taxes for these years,'" id. at 84 (quoting Shorter, 809 F.2d at 58). We noted the breadth of the statutory language, finding that "[t]he plain language of this section... evinces the congressional intent to allow distinct, significant, affirmative acts of tax evasion to constitute separate section 7201 offenses," regardless of whether the evasion was carried out over a single year or multiple years. Id. at 86. Additionally, we stated that "nothing in section 7201's legislative history requires us to conclude that Congress intended to limit this provision's unit of prosecution to an individual tax year" and "the scant legislative history of this provision simply does not address the question of its allowable unit of prosecution." Id. at 86 n.14 (citing H.R. REP. NOS. 83-1337 and 83-2543 (1954), reprinted in 1954 U.S.C.C.A.N. 4137, 4572; 5280, 5343).

Relying largely on Shorter and Pollen, the District Court upheld the Government's inclusion of multiple years of evasion in a single count, finding that Root's actions constituted a "continuous course of conduct." Shorter, 809 F.2d at 57. These actions included: diverting commission payments from RBI for the years 2001 to 2003 through New Perspectives without declaring them as income; funneling his legal research payments from Ford and Merullo for the years 2001 to 2003 through LISA without declaring them as income; avoiding the issuance of 1099s to New Perspectives or LISA; and failing to declare as income any payments from Parker for the years 2001 or 2002. The court determined that these actions - taken over the course of three years - represent the sort of "consistent, long-term pattern of conduct directed at the evasion of taxes" found in Shorter and Pollen.


Root does not dispute that Shorter and Pollen approve of multi-year tax evasion prosecutions. Instead, he attempts to distinguish those cases by drawing a line between prosecutions under 26 U.S.C. § 7201 for evasion of tax assessment, which involve efforts to shield taxable income to prevent the IRS from determining one's tax liability, and evasion of tax payment, which concern conduct designed to place assets out of reach to prevent the IRS from settling one's tax liability. See Sansone v. United States, 380 U.S. 343, 354 (1965); United States v. McGill, 964 F.2d 222, 230 (3d Cir. 1992). Here, the Government alleges evasion of assessment, arguing that Root failed to disclose certain income in an effort to decrease his tax liability.*fn3 By contrast, Shorter and Pollen were evasion of payment cases because they involved efforts to shield assets from recovery by the IRS once the defendants' tax liabilities were calculated. Root argues that unlike evasion of payment cases, in evasion of assessment cases, the Government must treat each tax year as the basis for a separate count.*fn4

In a dictum in Pollen, we acknowledged that evasion of assessment and evasion of payment cases may be treated differently under § 7201, noting that the practice of combining years "is particularly appropriate in a case charging tax evasion committed through the evasion of payment." 978 F.2d at 87. This is because "a defendant attempting to evade payment of taxes may... engage in transactions designed to conceal assets from the IRS in an attempt to evade the payment of taxes due for a number of years." Id. By contrast, we explained, "[i]n cases charging evasion of the assessment of tax, the alleged fraudulent action of a defendant often directly affects assessment for a particular tax year. Consequently, it is logical in that type of case to charge attempts to evade the assessment of taxes for distinct years in separate counts." Id. The Fifth Circuit has similarly remarked: "Because our income tax system is on an annual basis, failure to report income must be charged for a specific year." United States v. Boulet, 577 F.2d 1165, 1167 (5th Cir. 1978).

Root's argument also is supported by the Department of Justice's Criminal Tax Manual for 2008, which cites "two distinct manners" by which one can violate § 7201:

Because income taxes are an annual event, an alleged evasion of assessment must relate to a specific year and it must be shown that the income upon which the tax was evaded was received in that year. Consequently, in most evasion of assessment cases, each tax year charged stands alone as a separate offense. Thus, a charge that a taxpayer attempted to evade and defeat taxes for the years 1990, 1991, and 1992 would constitute three separate counts in an indictment.

Evasion of payment, on the other hand, often involves single acts which are intended to evade the payment of several years of tax due the government. Thus, in evasion of payment cases, it is sometimes permissible to charge multiple years of tax due and owing in one count.

UNITED STATES DEPARTMENT OF JUSTICE TAX DIVISION CRIMINAL TAX MANUAL 2008, § 8.07[2] (internal citations omitted). The Manual cites both Shorter and Pollen as examples of cases where courts approved of multi-year evasion of payment prosecutions.

Notwithstanding the Manual's guidance - and the analogous nature of the hypothetical posed therein - we find it neither controlling nor persuasive. As a preliminary matter, the Manual lacks legal authority. The Manual, which was published by the Assistant Attorney General for the Department of Justice's Tax Division, contains a disclaimer which accurately notes: "This Manual provides only internal Department of Justice guidance. It is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. Nor are any limitations hereby placed on otherwise lawful litigative prerogatives of the Department of Justice."

Additionally, the distinctions drawn in the Manual do not follow from the statutory language, which penalizes "[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof." 26 U.S.C. § 7201. Section 7201 neither distinguishes between evasion of assessment and evasion of payment, nor suggests that one type of evasion should be treated differently than the other for purposes of determining the unit of prosecution. Instead, the statute focuses on a defendant's acts - his willful attempts to evade or defeat any tax "in any manner" - rather than concentrating on the year or years when such conduct occurred. As we explained in Pollen: "The language of section 7201 is straightforward: it prohibits 'willful attempts in any manner to evade or defeat any tax.' It proscribes 'attempts' to evade or defeat any tax and thus speaks in terms of the act of evasion, as well as the taxes evaded." 978 F.2d at 86; see also Spies v. United States, 317 U.S. 492, 499 (1943) (analyzing predecessor tax evasion statute) ("Congress did not define or limit the methods by which a willful attempt to defeat and evade might be accomplished and perhaps did not define lest its effort to do so result in some unexpected limitation.").

As in Pollen, our inquiry here concerns Root's conduct, regardless of the length of time over which his acts took place. Federal Rule of Criminal Procedure 7(c)(1) allows a single count to allege "that the defendant committed [the offense] by one or more specified means." FED. R. CRIM. P. 7(c)(1) (emphasis added). It is true, of course, that taxes are assessed on an annual basis; in that sense, Root willfully evaded his 2001 federal tax assessment, his 2002 assessment, and his 2003 assessment. However, as the District Court found, each year's evasion resulted from the same conduct: a multi-year scheme in which he funneled money through a limited liability company and a sole proprietorship to hide money from the IRS. The Government alleged evasion of assessment of the same sources of income for all three tax years: the commission payments to New Perspectives and the legal work performed for Ford and Merullo, as well as payments received from Parker in 2001 and 2002. Furthermore, Pollen's dictum does not foreclose an evasion of assessment prosecution relating to multiple years; it merely observes that an evasion of assessment "often" affects the assessment of a single year's income. In this case, however, Root's evasive acts affected the assessment income for multiple years.

Accordingly, we decline Root's invitation to treat evasion of assessment cases differently than evasion of payment cases and we hold that the reasoning of Pollen extends to evasion of assessment prosecutions as well. Though the Government could have brought three separate counts for this single pattern of events spanning three years, section 7201 does not require that it do so.*fn5


Our inquiry in the present case is not limited simply to consideration of whether the text of section 7201 permits the Government to charge Root's conduct in a single count. Rather, we next examine the concerns traditionally associated with charging "in one count what could be several independent charges" and conclude that they are not implicated in this case. Shorter, 809 F.2d at 58 n.1. The purposes of the prohibition against duplicity include: (1) avoiding the uncertainty of whether a general verdict of guilty conceals a finding of guilty as to one crime and a finding of not guilty as to another; (2) avoiding the risk that the jurors may not have been unanimous as to any one of the crimes charged; (3) assuring the defendant adequate notice; (4) providing the basis for appropriate sentencing; and (5) protecting against double jeopardy in a subsequent prosecution. Id.; United States v. Margiotta, 646 F.2d 729, 732-33 (2d Cir. 1981). An assessment of such policy considerations is critical to any duplicity analysis, for fundamental fairness and due process of law may prohibit combining what could be several independent charges into a single count, even if the text of a ...

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