United States v. Wade ( 2006 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
October 30, 2006
TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
U N ITED STA TES O F A M ER ICA,
Plaintiff - Appellee,
No. 05-4160
v. (D.C. No. 2:04-CR -00141-TS)
(D. Utah)
STANLEY LEO W AD E,
Defendant - Appellant.
OR D ER AND JUDGM ENT *
Before KELLY, BEAM , ** and HA RTZ, Circuit Judges. ***
Defendant-Appellant Stanley L. W ade was convicted of seven charges
relating to tax evasion and bankruptcy fraud, and he was sentenced to 100 months
in prison, 36 months of supervised release, and a fine of $125,000. M r. W ade
appeals his conviction and sentence, alleging that the district court erred in
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
**
The H onorable C. Arlen Beam, Senior Circuit Judge, United States C ourt
of Appeals for the Eighth Circuit, sitting by designation.
***
After examining the briefs and the appellate record, this three-judge
panel has decided unanimously to honor the request of the parties to proceed
without oral argument. The cause is therefore ordered submitted without oral
argument.
several evidentiary rulings, that it improperly instructed the jury, that it permitted
the government to make prejudicial arguments in its closing, and that it did not
give his attorney a sufficient opportunity to argue mitigation at sentencing. Our
jurisdiction arises under 28 U.S.C. § 1291, and we affirm.
Background
M r. W ade and his wife, Janet, were charged in a nine-count indictment.
Count 1 alleged that the W ades conspired to defraud the IRS by transferring
ownership of various apartment complexes into sham entities called
“Unincorporated Business Organizations” (“UBOs” or “business trusts”) and not
reporting the income from them. The indictment alleged that the complexes
generated gross rental receipts in excess of $7 million, taxable income of $4
million, and a tax liability of over $1.5 million. The W ades were accused of
conspiring to hide ownership of the complexes not only to conceal income and
evade tax, but also to conceal a source of payment of an outstanding tax liability
from 1982-84 in excess of $1 million. Count 1 also alleged that the W ades
conspired to file for bankruptcy fraudulently, with M r. W ade representing that he
had no real property assets. Counts 2-5 charged the W ades with evasion of
assessment for tax years 1997-99 and evasion of payment for 1982-84 in violation
of 26 U.S.C. § 7201 and 18 U.S.C. § 2. Count 6 alleged that M r. W ade
comm itted bankruptcy fraud in violation of 18 U.S.C. § 157, and count 8 charged
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him with making a false statement in a bankruptcy proceeding in violation of 18
U.S.C. § 152. Counts 7 and 9 alleged the same bankruptcy charges against M rs.
W ade. M rs. W ade entered a guilty plea, but M r. W ade elected to stand trial.
After a seven-day jury trial in M arch of 2005, M r. W ade was convicted on all
charges against him.
The parties are familiar w ith the facts, and we need not restate them here.
Instead, we will describe only the facts crucial to our decision on each alleged
error.
Discussion
1. The Attorney-Client Privilege
M r. W ade first argues that the district court erred by permitting the
government to introduce a letter written to him by his attorney, David Black,
addressing the legality of using UBOs to shield the income generated by the
W ades’ apartment complexes from federal taxes. This letter advised that there
w as “no exemption from reporting or taxation in general that applies to a UBO ”
and that the IRS was likely to prosecute if the W ades persisted in failing to report
income from the properties nominally held by their UBOs. I Aplee. Supp. App. at
27.
In the district court, M r. W ade sought to bar the government from
presenting any evidence about the letter, arguing that it was covered by the
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attorney-client privilege. At the suppression hearing, the government offered the
testimony of the W ades’ nephew, Adam Passey, and Troy Pow ell, who assisted
M r. W ade in managing the apartment buildings. Both w itnesses testified that M r.
W ade had shown them the letter. See III Aplee. Supp. App. at 457, 476.
The district court found that “M r. and M rs. W ade, in their individual
capacities, were M r. Black’s clients.” Id. at 491. It then addressed the disclosure
of the attorney-client communication, finding that:
M r. W ade disclosed the letter both to M r. Passey and M r. Powell.
Neither Passey nor Pow ell were employees or agents of M r. W ade,
but rather the UBOs. . . . M r. W ade did not need to disclose the
contents of the letter in order to ask M r. Pow ell to resolve the billing
dispute. . . . M r. W ade’s disclosure to M r. Passey was motivated
more by his frustration with the contents of the letter rather than a
need for M r. Passey to know about the letter and its contents. . . . M r.
Passey and M r. Pow ell were third parties to the attorney/client
relationship between M r. Black and M r. and M rs. W ade.
Id. at 491-92. The court concluded that the letter was privileged but M r. W ade
waived the privilege by disclosing it to M r. Passey and M r. Pow ell. Id. at 492.
W e “review a district court’s determinations regarding waiver of attorney-
client privilege and work-product protection for abuse of discretion. In doing so,
however, we review the district court’s underlying factual findings for clear error,
and its rulings on purely legal questions de novo.” Thiessen v. Gen. Elec. Capital
Corp., 267 F.3d 1095, 1112 (10th Cir. 2001) (citations omitted). 1
1
The government asserts that M r. W ade has waived this argument by
failing to include in the record “the letter, the pretrial motions and memoranda,
the hearing transcript, or the court’s order.” A plee. Br. at 33. W e ordinarily will
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The law governing the waiver of the attorney-client privilege provides that
“[t]he attorney-client privilege is lost if the client discloses the substance of an
otherwise privileged communication to a third party.” United States v. Ryans,
903 F.2d 731, 741 n.13 (10th Cir. 1990). M r. W ade contends that he did not
waive the privilege by disclosing the letter to M r. Powell because “Powell
testified that he played an important role in the Defendant’s business and that
Defendant gave him a copy of the opinion letter as a part of his work.” A plt. Br.
at 3. He further contends that M r. Pow ell was present during discussions with the
attorney and had been instructed to communicate with the attorney about the
UBOs. Aplt. Br. at 11. M r. W ade relies upon Diversified Indus., Inc. v.
M eredith, 572 F.2d 596, 610 (8th Cir. 1977), which addressed the extent to which
a corporate employee’s communications with counsel are protected by the
attorney-client privilege.
W e have noted that the attorney-client privilege facilitates the client’s need
for advice and the attorney’s need for complete information in rendering that
advice. In re Q west Commc’ns, Int’l, Inc., 450 F.3d 1179, 1185 (10th Cir.
2006). Here, the clients were M r. and M rs. W ade, and the opinion letter was
not review a decision, even for plain error, where the “relevant portions of the
transcript of the trial proceedings are not part of the record on appeal.” United
States v. Davis, 60 F.3d 1479, 1481 (10th Cir. 1995). Here, however, we elect to
review it because the materials provided by the government provide a sufficient
basis on which to decide the issue.
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drafted at M rs. W ade’s urging. M r. Powell and M r. Passey both testified that M r.
W ade talked with them about the U BOs and how he could avoid paying taxes. III
Aplee. Supp. App. at 452, 474. Even were we to accept that M r. Pow ell assisted
M r. W ade in his ventures and that M r. Pow ell’s role included assisting M r. W ade
in obtaining legal advice, M r. W ade does not address the fact that he also
disclosed the letter to his nephew, M r. Passey. See Aplt. Br. at 3 (claiming that
the letter “was reviewed only by W ade, Janet and Powell”) (emphasis added); see
also III Aplee. Supp. App. at 491 (district court’s remarking that parties agreed
letter was disclosed to M r. Pow ell and M r. Passey). This constitutes an
independent ground to uphold the district court’s ruling, and it is well supported
by the record. M r. Passey testified that anytime M r. W ade met with his attorneys,
he w anted a witness. III Aplee. Supp. App. at 454. M r. Passey’s role as a
witness, however, had nothing to do with facilitating attorney-client
comm unications about the UBOs. Id. at 454-55. Thus, M r. W ade’s disclosure of
the letter in the process of venting about the quality of the advice he received
(and its expense) had no connection with any responsibilities M r. Passey had to
the W ades individually.
2. The M arital Privilege
M r. Wade next argues that the district court erred by permitting two
government witnesses, M r. Passey and the W ades’ accountant, M arvin Haney, to
testify about statements they heard M rs. W ade make to her husband. M r. Passey
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recounted M rs. W ade’s concerns about whether the W ades could afford to pay
their taxes and whether the UBOs w ould protect them from tax liability. Aplt.
App. at 62-64. The gist of the statements M rs. W ade made in M r. Haney’s
presence was “you are going to get me put in jail over this.” Id. at 51-52.
M r. W ade objected to the use of these statements, arguing that they were
hearsay and privileged marital communications. The district court held a hearing
in which it found that the government had established that the W ades w ere
involved in a conspiracy, making M rs. W ade’s statements non-hearsay under Rule
801(d)(2)(E), Fed. R. Evid. 2 I Aplee. Supp. App. at 76-92. However, the
government represented that it only intended to offer statements made in the
presence of others, w hich would not be covered by the marital privilege. Aplt.
App. at 46. The court granted M r. W ade’s motion to exclude any privileged
spousal communications without addressing the admissibility of statements made
in the presence of third parties. See id. at 85.
M r. W ade now claims that the government did, in fact, offer privileged
2
Under Rule 801(d)(2)(E), a statement is not hearsay if it is “a statement
by a coconspirator of a party during the course and in furtherance of the
conspiracy.” The district court did not explain how statements like “you are
going to get me put in jail over this” were made in furtherance of the W ades’
conspiracy, and we do not think that such statements w ere in any way intended to
promote conspiratorial objectives or facilitate the conspiracy. See United States
v. Caro, 965 F.2d 1548, 1557 (10th Cir. 1992). However, any error in their
admission was harmless; the statements were non-hearsay because they were not
offered “to prove the truth of the matter asserted.” Fed. R. Evid. 801(c). Instead,
they were offered to show M r. W ade had notice of the illegality of his actions,
rebutting his good-faith defense.
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statements and the district court failed to exclude them. The government
maintains that M r. W ade failed to object and our review should be for plain error.
See United States v. Ambort, 405 F.3d 1109, 1115 (10th Cir. 2005). Given a
proper objection, a trial court’s decision not to apply the marital privilege is an
evidentiary ruling reviewed for an abuse of discretion. See United States v.
Leonard, 439 F.3d 648, 650 (10th Cir. 2006). W hether we review this under the
plain error standard or for an abuse of discretion, the outcome is the same.
“Federal courts recognize two marital privileges: the first is the testimonial
privilege which permits one spouse to decline to testify against the other during
marriage; the second is the marital confidential communications privilege, which
either spouse may assert to prevent the other from testifying to confidential
comm unications made during marriage.” United States v. Jarvison, 409 F.3d
1221, 1231 (10th Cir. 2005). Here, M r. W ade argues that the second privilege
allows him to prevent his wife’s de facto testimony through third party witnesses.
He cites no authority for the idea that the marital privilege can keep a third party
from testifying about statements made by one spouse to another. However, we
need not decide whether M rs. W ade’s statements could be covered by the marital
privilege, because even if they were eligible, the privilege would not apply in this
case.
In Pereira v. United States, the Supreme Court held that “[a]lthough marital
comm unications are presumed to be confidential, that presumption may be
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overcome by proof of facts showing that they were not intended to be private.”
347 U.S. 1, 6 (1954). Specifically, “[t]he presence of a third party negatives the
presumption of privacy.” Id. Here, the statements by M rs. W ade were uttered
aloud, often during confrontations between M r. and M rs. W ade, in the presence of
M r. Passey and M r. Haney. W e find no error in the admission of the statements,
plain or otherwise.
3. The Confrontation Clause
M r. W ade also asserts that the district court erred in admitting testimony
about statements made by M rs. W ade and Richard K ennedy, an IRS lawyer,
because they were not subject to cross-examination. In addition to recounting the
aforementioned statements made by M rs. W ade, M r. Passey testified that he told
M r. W ade about a conversation he had with M r. Kennedy. M r. W ade’s counsel
objected on hearsay and relevance grounds, but the court allowed the testimony as
evidence of notice. According to M r. Passey, he told M r. W ade that:
I said, Richard, have you ever seen a UBO be used for tax benefit
purposes, ever. He says no, I’ve never seen it, Adam. I’ve
prosecuted and dealt with approximately 65 of these. Every single
time they are used for income tax savings and that type of thing, they
are always blown away. They never prevail. They are never
successful.
Aplt. App. at 60.
Because M r. W ade did not raise his Confrontation Clause objections at
trial, our review is for plain error. United States v. Crockett, 435 F.3d 1305, 1311
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(10th Cir. 2006); see also United States v. Gomez, 67 F.3d 1515, 1524 (10th Cir.
1995) (“[T]he failure to object to the admissibility of evidence is a waiver absent
plain error.”). Under this standard, we look for (1) an error (2) that is plain and
(3) that affected substantial rights; we will reverse only if the error “affected the
outcome of the district court proceedings.” United States v. Olano, 507 U.S. 725,
732-34 (1993).
In Crawford v. W ashington, the Supreme Court held that the Sixth
Amendment requires a trial court to exclude hearsay that is “testimonial” in
nature when the defendant has not had the opportunity to cross-examine the
declarant. 541 U.S. 36, 68 (2004). The Court did not precisely define testimonial
in Crawford, but it indicated in Davis v. W ashington that a statement is
testimonial if the “the circumstances objectively indicate . . . that the primary
purpose of the interrogation is to establish or prove past events potentially
relevant to later criminal prosecution.” 126 S. Ct. 2266, 2273-74 (2006); see also
United States v. Summers, 414 F.3d 1287, 1302 (10th Cir. 2005) (“[A] statement
is testimonial if a reasonable person in the position of the declarant would
objectively foresee that his statement might be used in the investigation or
prosecution of a crime.”).
Neither M rs. W ade’s nor M r. Kennedy’s statements qualify as “testimonial”
under this definition of the term. M rs. W ade said she was w orried about going to
jail, w orried about paying the taxes, and worried about going into bankruptcy.
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M r. Kennedy offered observations based on his extensive experience dealing with
UBOs. These statements lacked the “formality [that] is indeed essential to
testimonial utterance,” Davis, 126 S. Ct. at 2278 n.5 (2006), and the
circumstances do not indicate that they were likely to be used in the investigation
or prosecution of a crime. M r. Passey and M r. Haney were not government
agents or even private investigators. They were not adverse to the W ades in any
way. Indeed, M r. Passey testified that his intent in questioning M r. Kennedy was
to obtain statements he could communicate to M r. W ade in order to help him
avoid prosecution. See Aplt. App. at 57 (“I needed to speak to someone in the
IRS because if I could get the information, maybe I could take it to [my] family
member and get him not to do something which could very well–was probably
illegal.”).
In any case, the statements were not testimonial because they were not
offered for their truth. W e have held that “[o]ne thing that is clear from Craw ford
is that the [Confrontation] Clause has no role unless the challenged out-of-court
statement is offered for the truth of the matter asserted in the statement.” United
States v. Faulkner, 439 F.3d 1221, 1226 (10th Cir. 2006). Here, M rs. W ade
complained that her husband was “going to get me put in jail over this.” Aplt.
App. at 52. As M r. W ade concedes, his wife’s statements were circumstantial
evidence offered to show that he “intended to commit the crimes for which he was
convicted.” Aplt. Br. at 9. Similarly, M r. Kennedy’s statement was not offered
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for the truth of whether M r. Kennedy had actually never seen a successful attempt
to use a UBO to shield income; it was offered to show that M r. W ade w as aware
that he should have reported income from the U BOs but that he willfully chose
not to do so. Both witnesses’ statements were offered to prove notice, and, as
such, their use did not implicate the Confrontation Clause.
In short, we conclude that these statements were non-testimonial, and thus
it was not error, plain or otherwise, to admit them.
4. M r. W ade’s A ffidavit
M r. W ade argues that the district court erred in admitting an affidavit he
signed in connection with a state court lawsuit that was litigated shortly before
his criminal trial began. In this affidavit, the W ades and their two sons affirmed
that they “or certain trusts or business entities legally or equitably owned by”
them ow ned the properties held by one of the UBOs at issue here. Aplt. App. at
191.
M r. W ade objected to the affidavit, arguing that it lacked an adequate
foundation and was unduly prejudicial because it was confusing. Id. at 183. To
authenticate the affidavit, the government was prepared to call John M ullen, an
attorney who represented the opposing party in the W ades’ lawsuit. The parties
presented a stipulated proffer of M r. M ullen’s testimony, which described the
nature of the law suit and identified the affidavit as the one that the W ade family
filed. Id. at 188-89. Following the proffer, the court asked if the stipulation
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included “the admission of [the affidavit] in a redacted form” and M r. W ade’s
counsel replied, “[s]ubject to prior discussions with the Court.” Id. at 189-90.
M r. W ade first contends that the affidavit should have been excluded
because it was irrelevant. W e review this ground for plain error because it was
not part of M r. W ade’s objection at trial. Under Rule 401, relevant evidence
“means evidence having any tendency to make the existence of any fact that is of
consequence to the determination of the action more probable or less probable
that it would be without the evidence.” Fed. R. Evid. 401. M r. W ade was
charged with failing to list the UBOs among his assets during his bankruptcy;
thus, his subsequent sworn admission that he and his family were the equitable or
legal owners of one of the UBOs is highly probative of whether he committed
bankruptcy fraud. Admitting it was not plain error.
M r. W ade also argues that the affidavit should have been excluded because
it was unduly prejudicial. W e review this ground for an abuse of discretion
because it was raised at trial. Aplt. App. at 183-84. M r. W ade contends that the
affidavit was misleading and that it “suggested that [he] was engaged in ongoing
criminal activity.” Aplt. Br. at 20. Under Rule 403, relevant evidence “may be
excluded if its probative value is substantially outweighed by the danger of unfair
prejudice, confusion of the issues, or misleading the jury . . . .” Fed. R. Evid.
403. The district court concluded that the affidavit had “substantial probative
value,” A plt. App. at 184, and we agree. Not only was the affidavit relevant to
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the bankruptcy fraud charges, it was probative of whether the income from the
entities M r. W ade claimed to own should have been included on his tax returns.
On the other hand, M r. W ade argues that the affidavit was prejudicial because it
was signed as the statement of all four members of the W ade family, not M r.
W ade alone, and that it could have been confusing because it required the parties
to educate the jury about the facts and claims in the state court civil suit. W ithout
doubt, these are valid concerns. However, given that the affidavit went to the
heart of several of the charges against M r. W ade and was a recent sworn
statement signed by him, we cannot say that the danger for prejudice substantially
outweighed its probative value. M r. W ade had an opportunity to explain the
circumstances of the affidavit to the jury. Aplt. App. at 255-56. The district
court did not abuse its discretion in admitting it.
5. M r. Hunter’s Testimony
In his defense, M r. W ade called Daniel Hunter, an attorney and CPA who
began representing him in 1998. M r. W ade now argues that the district court
erred in three rulings limiting M r. Hunter’s testimony. W e review the decision to
admit or exclude evidence for an abuse of discretion. Leonard, 439 F.3d at 650.
(a) M r. Hunter’s 1998 Advice to M r. W ade
M r. W ade’s attorney questioned M r. Hunter about discussions he had with
M r. W ade concerning tax shielding. See Aplt. App. at 201-02. The government
objected that the conversations w ere irrelevant because the UBOs w ere created in
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1992, six years before M r. Hunter began representing M r. W ade. The district
court sustained the objection, and M r. W ade’s counsel made the following
proffer: “This advice was given before the filing of the bankruptcy and it would
have an effect on conduct the government here charges to be criminal[:] . . . his
state of mind at that time.” Id. at 201. The court replied: “For that limited
purpose, I’ll allow you to continue.” Id.
M r. W ade now argues that the district court abused its discretion in limiting
M r. Hunter’s testimony. However, the district court admitted the testimony for
precisely the reason his attorney claimed to be offering it. M r. W ade’s brief does
not explain why this limitation was an error or how else the testimony could have
been used. He also fails to explain how the limitation was prejudicial. W e
believe that the limitation was entirely reasonable in light of the proffer made by
M r. W ade’s counsel, and we consequently find no abuse of discretion.
(b) M r. Hunter’s Opinion of M r. W ade’s Level of Sophistication
M r. W ade next argues that the court erred in preventing M r. Hunter from
giving his opinion of M r. W ade’s level of sophistication in the area of grantor
trusts. Under Rule 701, a lay witness’s testimony “in the form of opinions . . . is
limited to those opinions . . . which are (a) rationally based on the perception of
the witness, [and] (b) helpful to a clear understanding of the witness’ testimony or
the determination of a fact in issue . . . .” Fed. R. Evid. 701. The government
contends that M r. Hunter’s opinion was inadmissible under Rule 701(b) because it
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was not helpful in understanding his testimony. 3 M r. Hunter had already testified
that the grantor trust rules in relation to revocable and irrevocable trusts are so
complicated that an ordinary layperson (and even an attorney or CPA without
experience) would not understand them upon reading them. See Aplt. App. at
203-04. W e agree that M r. Hunter’s opinion of M r. W ade would have added little
to clarify those statements; the jury could apply M r. Hunter’s testimony to M r.
W ade and reach its own conclusion. The district court did not abuse its
discretion.
(c) M r. Hunter’s Attempts to Settle M r. W ade’s Tax Debt W ith the IRS
M r. W ade contends that the court erred in excluding testimony by M r.
H unter and himself concerning attempts to settle his tax debt with the IRS. H e
argues that:
Wade would have testified that the IRS w as not interested in settling,
that he intended to make a $2 million tax payment, and that he was
willing to cooperate with a diversion agreement. All of this was
relevant and admissible regarding Defendant’s state of mind and
willfulness as to all charges.
Aplt. Br. at 22 (emphasis added). Significantly, M r. Wade offers no arguments
about what M r. Hunter would have said or how that would have been relevant and
admissible. M oreover, we fail to see how the attempts to settle the tax debt after
3
Of course, lay opinion testimony may also be used if it is “helpful to . . .
the determination of a fact in issue.” Fed. R. Evid. 701(b). M r. W ade does not
make this argument, so we need not consider whether the opinion could have been
admitted for this reason.
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the charged offenses are relevant to his conduct beforehand. W e find no error.
6. M r. Roberts’s Testimony
M r. W ade next argues that the district court improperly permitted Steven
Roberts, a revenue agent, to testify against him as an expert summary witness.
M r. W ade’s objections to M r. Roberts’s testimony may be grouped into three
categories: (1) M r. Roberts testified about the law, which is impermissible under
Rule 702, Fed. R. Evid.; (2) M r. Roberts misstated the law in his testimony,
prejudicing the defendant and confusing the jury; and (3) M r. Roberts implied
that M r. W ade acted willfully, and an expert opinion about the defendant’s mental
state is forbidden by Rules 702 and 704(b), Fed. R. Evid.
M r. W ade contends that M r. Roberts’s testimony went beyond the
permissible scope of expert testimony because he “state[d] legal conclusions by
applying the law to the facts . . . .” Aplt. Reply Br. at 4. Specifically, he argues
that it was improper for M r. Roberts to testify that (1) the income was reportable
under the grantor trust rules because of the attributes of ownership maintained,
(2) the attributes of ownership included “control,” (3) the W ades should have
reported rental income from the UBOs on their income tax returns because the
trusts operated businesses, and (4) the rental income w as taxable to the W ades
because the UBOs were shams. W e note that M r. W ade did not object to much of
what he finds fault w ith here, suggesting that a plain error review is appropriate.
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Crockett, 435 F.3d at 1311. 4
As an initial matter, any expert must be qualified and his testimony must be
reliable, but M r. W ade did not object on those grounds. See United States v.
Pree, 408 F.3d 855, 870 (7th Cir. 2005). Substantively, “[w]hile testimony on
ultimate facts is authorized under Rule 704 . . . testimony on ultimate questions of
law is not favored [because it] . . . circumvents the jury’s decision-making
function by telling it how to decide the case.” Specht v. Jensen, 853 F.2d 805,
808 (10th Cir. 1988) (en banc). However, “[w]e do not exclude all testimony
regarding legal issues. W e recognize that a w itness may refer to the law in
expressing an opinion without that reference rendering the testimony
inadmissible. Indeed, a w itness may properly be called upon to aid the jury in
understanding the facts in evidence even though reference to those facts is
couched in legal terms.” Id. at 809. The crucial distinction lies between
“discoursing broadly over the entire range of the applicable law,” w hich is
improper, and “focus[ing] on a specific question of fact,” which is permissible.
Id.4
M r. W ade’s counsel did object on the grounds that mere control of
property transferred into an entity is not enough to make it a grantor trust. IV
Aplee. App. at 515. The district court overruled the objection, and the next
question by the prosecutor dealt with the specific facts of this case and whether
the UBOs were grantor trusts. Id. at 516. M r. Roberts responded that they were,
but that it would not be his primary audit position. Id. For reasons explained
below, we conclude that the district court did not err in permitting this testimony;
thus, it did not abuse its discretion in overruling the objection.
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In Specht, we concluded that it was error to allow a lawyer to testify as an
expert about the legality of searches. This testimony “painstakingly developed
over an entire day the conclusion that defendants violated plaintiffs’
constitutional rights” using a series of hypothetical situations to illustrate when
consent was validly given, when it was unnecessary, and when individual officers
could be held liable under 42 U.S.C. § 1983. Id. at 806-08. In the wake of
Specht, we have prohibited evidence that purely addresses questions of law. See,
e.g., United States v. W illie, 941 F.2d 1384, 1396 (10th Cir. 1991) (refusing to
allow a judicial opinion as evidence that the defendant’s tax position was taken in
good faith). On the other hand, we have allowed experts to apply the law to the
facts to reach a discrete legal conclusion relevant to the case. See, e.g., United
States v. Dazey, 403 F.3d 1147, 1172 (10th Cir. 2005) (allowing Federal Reserve
bank fraud expert’s opinion that the scheme at issue was a “prime bank fraud”
because “[e]ven if his testimony arguably embraced the ultimate issue, such
testimony is permissible as long as the expert’s testimony assists, rather than
supplants, the jury’s judgment”); see also Specht, 853 F.2d at 809 (“[A] court
may permit an expert to testify that a certain weapon had to be registered with the
Bureau of A lcohol, Tobacco, and Firearms.”).
W e have not specifically addressed the scope of permissible testimony by
an IRS w itness acting as an expert, but other courts have. In United States v.
W indfelder, the Seventh Circuit upheld the admission of testimony by IRS agents
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about the tax treatment of certain transferred assets, and it concluded that,
although the admission of other testimony (that a defendant intentionally
understated his income and was well aware of what happened to other assets) was
error, the error was harmless given overwhelming evidence of guilt. 790 F.2d
576, 582 (7th Cir. 1986). The court held, and we agree, that a properly qualified
IRS agent may analyze a transaction and give expert testimony about its tax
consequences but may not express an opinion about the defendant’s state of mind
at the time of the transaction. Id. at 581-82; see also United States v.
M ikutowicz, 365 F.3d 65, 72 (1st Cir. 2004). Some of that testimony necessarily
will include the agent’s understanding of the applicable law as a backdrop to
explaining how the government analyzed the transaction.
In light of these considerations, we conclude that the district court did not
err in allow ing M r. Roberts’s testimony. Although he reached legal conclusions,
he did so only after explaining his understanding of the relevant law and then
applying the facts as he understood them. His conclusions were presented as
opinions rather than unquestionable facts. M r. Roberts was cross-examined about
the bases for his conclusions, and the trial court gave specific instructions that his
testimony was expert opinion and that it was up to the jurors whether they wanted
to credit all of it, none of it, or parts of it. III Aplee. Supp. App. at 417, 422-23.
M r. W ade also objects to the substance of M r. Roberts’ testimony,
contending that parts of it were inaccurate or incomplete. M r. Roberts necessarily
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testified about entity taxation and transactions that have economic substance. H e
explained in layman’s terms that the income from the UBOs must be reported
somewhere, asserting his primary position that the UBO was an association or
proprietorship and that the income should have been reported on the W ades’
personal returns. IV Aplee. Supp. App. at 518. He further testified that his
secondary position was that the businesses were grantor trusts, and that such
trusts could file as corporations, partnerships, or proprietorships, depending upon
the circumstances. Id. at 517. Although M r. W ade argues that M r. Roberts took
too limited a view, failing to acknowledge the possibility of corporate filing
status, this is really beside the point: M r. Wade did not elect corporate status and
never filed corporate tax returns for the UBOs.
M r. W ade also argues that M r. Roberts spoke incorrectly when he indicated
that a trust will be deemed a grantor trust if the grantor retains “control” or
“ownership.” Although the testimony might not cover every situation, M r.
Roberts was using lay terms against the backdrop of what occurred here to refer
to the power to control the disposition of “the beneficial enjoyment of the corpus
or the income therefrom” under I.R.C. § 674(a). See Aplt. App. at 103 (“Q: W hat
attributes of ownership would you be talking about there? A: Being able to
receive the income and determine what happens to it. Being able to . . . do
whatever they want with the property . . . .”).
Finally, M r. W ade argues that M r. Roberts’s definition of a sham w as
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incomplete. M r. Roberts testified that a sham is “an arrangement that has been
set up that really lacks economic substance.” A plt. App. at 109. In response, M r.
W ade offers our language from Bohrer v. Commissioner:
[A] transaction will be accorded tax recognition only if it has
economic substance which is compelled or encouraged by business or
regulatory realities, is imbued w ith tax-independent considerations,
and is not shaped solely by tax avoidance features that have
meaningless labels attached.
945 F.2d 344, 347-48 (10th Cir. 1991) (internal quotation marks omitted). Given
this definition, we do not believe that M r. Roberts’s statement is inaccurate or
incomplete. The quoted language offers a definition of economic substance, but it
does nothing to displace the accuracy of the assertion that a sham is an
arrangement that lacks economic substance. M r. Roberts w as testifying to
practical application of the tax laws, not authoring a treatise.
M oreover, we reject M r. W ade’s contention that M r. Roberts gave
impermissible opinion testimony about M r. W ade’s state of mind by repeatedly
using the term “sham.” Aplt. Reply Br. at 5-7. W hile an objection to the
repeated use of the word “sham” might have been well taken, it was not made,
and we do not think that M r. Roberts crossed the line to impermissible state-of-
mind testimony. The district court’s decision to allow his testimony was not
error.
7. The Proposed Jury Instruction
M r. W ade also contends that the district court erred in refusing to give one
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of his proposed jury instructions. 5 At the jury instruction conference, M r. W ade’s
5
The instruction provided:
The evidence in this case establishes that the individual
income tax returns filed by Stanley and Janet W ade for the years
1991 through 2001 w ere prepared by M arvin H aney. M r. Haney also
prepared certain corporate income tax returns for AP Construction,
Inc., W ade Properties, Inc., and for various corporations, including
Cherry Hills Apts., Inc., Del M onico Apts., Inc., El Caliente Apts.,
Inc., Hillrise Apts., Inc., La Parisenne Apts., Inc., Sade Apts., Inc.,
and Shangri-La, Apts., Inc.
M r. Haney is an account [sic] who prepares federal income tax
returns for compensation. As such, M r. Haney is a “tax return
preparer” as that term is defined in the Internal Revenue Code.
Under the Internal Revenue Code, a tax return preparer may not give
tax advice, or prepare and sign a return unless he believes that the
tax reporting positions have a realistic possibility of being sustained
if challenged by the Internal Revenue Service. This means that the
tax return preparer must believe that the tax advice he is giving and
the tax returns that he is preparing are supportable by a least a one-
in-three possibility of success if challenged by the Internal Revenue
Service. Thus, a return preparer may properly give advice, prepare
and sign a tax return that he or she believes is likely to be wrong if
challenged.
The reporting standard applied to a return preparer is higher
than that which is applied to a taxpayer. To file a lawful tax return,
the taxpayer’s position need only have a “reasonable basis.” A
reasonable basis position is one which is “arguable” and not patently
frivolous. A taxpayer may, therefore, lawfully take tax reporting
positions which are highly likely to be wrong if challenged by the
Internal Revenue Service.
Therefore, the Government must prove beyond a reasonable
doubt that the Defendant, Stanley L. W ade, did not believe in good
faith that his tax reporting position was arguable. If the prosecution
does not prove this to your satisfaction, beyond a reasonable doubt,
then you should find the Defendant not guilty.
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counsel stated: “I would like this charge in order to make . . . clear to the jury
that just aggressive conduct by itself is not sufficient with respect to the act of
taking a tax position itself.” IV Aplee. Supp. App. at 649. The court sustained
the government’s objection, explaining:
I believe that it would be extremely confusing to the jury. I believe
it states a position on the law that the Court is not convinced is the
law, maybe IRS practice, but that does not constitute the law. I think
you have every opportunity in closing to make your point about M r.
Haney’s role. . . . An instruction of a sort contemplated by No. 37
would add nothing to the jury’s understanding that would help them
make the decision that they have to make.
Id. at 652.
“W e review for abuse of discretion a district court’s refusal to give a
particular instruction. In doing so, we also consider the instructions as a whole de
novo to determine whether they accurately informed the jury of the governing
law.” United States v. Serrata, 425 F.3d 886, 898 (10th Cir. 2005) (quoting
Bangert Bros. Const. Co. v. Kiewit W . Co., 310 F.3d 1278, 1287 (10th Cir.
2002)). W e agree with the district court that the instruction–attempting to define
negligence that might result in penalties for a tax return preparer not charged with
any wrongdoing and negligence that might result in a penalty for a taxpayer,
I.R.C. §§ 6662, 6694–was confusing and only minimally relevant to the criminal
charges in this case. Here, the jury was adequately instructed that M r. W ade’s
“conduct is not willful if you find that he failed to pay his income taxes because
Aplt. A pp. at 225-226.
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of negligence, inadvertence, accident, or reckless disregard for the requirements
of the law, or due to his good faith misunderstanding of the requirements of the
law.” III Aplee. Supp. App. at 400 (emphasis added). The court also instructed
that good faith was a complete defense. Id. at 415. These instructions addressed
M r. W ade’s concerns and properly stated the governing law. Thus, we conclude
that the district court did not abuse its discretion in refusing to give M r. W ade’s
proposed instruction.
8. The Objections to the Government’s Closing Argument
M r. W ade next asserts that the district court erred by allowing the
government to make prejudicial statements in its closing argument to the jury.
During the closing, M r. W ade’s counsel registered several objections, some of
which were sustained and others of which were overruled. On appeal, he points
to additional statements by the government that he believes his counsel should
have objected to but did not. He argues that the cumulative effect of all the
statements w as sufficiently prejudicial to warrant a new trial.
W here the trial court overrules an objection to a closing argument, we
review for abuse of discretion. United States v. Kravchuk, 335 F.3d 1147, 1153
(10th Cir. 2003). This requires a two-step analysis: “First, we decide whether the
conduct was improper. Second, we decide w hether the conduct, if improper,
w arrants reversal.” Id. (internal citation omitted). In making our inquiry, we
bear in mind that “a criminal conviction is not to be lightly overturned on the
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basis of a prosecutor’s comments standing alone, for the statements or conduct
must be viewed in context; only by doing so can it be determined whether the
prosecutor’s conduct affected the fairness of the trial.” United States v. Young,
470 U.S. 1, 11 (1985).
Of the statements raised in this appeal, only one was the subject of an
objection that was overruled. In reviewing, we must first consider whether it was
inappropriate for the prosecutor to state:
W e know that they got in a dispute over rents, and this man [M r.
W ade] had a receiver appointed to guard that trust. You know we
heard the evidence elicited by [M r. W ade’s attorney] about trusts, a
trustee to conserve and to protect the assets of the trust. So they
have a receiver who was a lawyer or an accountant, I’m sorry, a CPA
named G il M iller who is with PriceWaterhouse accounting firm, one
of the most famous accounting firms in the country.
Aplt. App. at 294. M r. W ade objected on the grounds that this information was
outside the record. The district court overruled the objection because it was part
of the proffered testimony of John M ullen, the defense attorney in M r. W ade’s
civil lawsuit. That proffer stated:
[I]f he were called to testify, [M r. M ullen] would testify that he
represented Don Taylor, who . . . was appointed as the trustee of
W ade M anagement UBO . . . . The case involved a dispute as
between Don Taylor, the trustee, and the W ade family over who
should have control over the rent collection of the UBO property that
we’re dealing with in this case.
M r. M ullen . . ., on behalf of the trustee, asked to have and
indeed [had] a receiver appointed to control those collections. That
receiver was an accountant with the firm of PriceW aterhouse and his
name w as Gil M iller.
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Id. at 188. Thus, the court did not abuse its discretion in overruling the objection.
M r. W ade’s attorney also made two objections that were sustained during
the closing. The first followed this argument by government:
M embers of the jury, I think it’s important probably here for just a
minute to talk about the very brief context we have for this [state
court civil] suit. Do you see what happened? A s it was recited in the
proffer, M r. W ade appointed a man named D on Taylor to act as
trustee for W ade M anagement UBO. Then a horrible thing happened
to M r. Wade, M r. D on Taylor started to act like a real trustee. He
started to worry about the rents.
Id. at 293-94. W hen M r. W ade’s counsel objected on the grounds of hearsay and
lack of evidence, the court sustained the objection. Id. at 294.
Later, the government turned its attention to M r. Haney, M r. W ade’s
accountant. It stated:
[I]f you just think about the facts surrounding [M r. Haney], and you
saw him, I mean he doesn’t–you can make your own judgments about
him, but he operates out of his house. He doesn’t have a big office
like M r. Steorts or M r. Black. He is in deep trouble. W hy is he in
deep trouble? Because he’s fresh out of jail and M r. W ade–
Id. at 299. M r. W ade’s attorney again objected, and the court sustained the
objection because “[t]here is no evidence about him being in trouble . . . .” 6 Id.
M r. W ade’s attorney did not object to the other snippets of testimony that
M r. W ade raises in this appeal. He claims that the statement “M r. W ade can’t
take it because he cannot have that sham treated as real” w as prejudicial. Aplt.
6
Somewhat troubling in the government’s argument is the notion that the
location of where professional services are rendered is indicative of their
legitimacy and quality.
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App. at 294. He also objects to the characterization of M r. Haney–a prosecution
witness–as “that old stock fraud artist,” id. at 298, who was “fresh out of jail,”
id. at 299. M r. W ade asserts that these statements, when considered together with
those to which his attorney did object, “went beyond allowable limits of advocacy
. . . affecting the Defendant’s substantial rights to due process.” Aplt. Br. at 24.
W here counsel fails to object to a statement made during a closing
statement, we review for plain error. United States v. Dazey, 403 F.3d 1147,
1170 (10th Cir. 2005). In so doing, we must consider the comments in “the
context of the entire case.” United States v. Hernandez-M uniz, 170 F.3d 1007,
1011 (10th Cir. 1999). To warrant reversal, the plain error “must be so egregious
as to result in a miscarriage of justice.” Id. (internal quotation marks omitted).
The statement “M r. W ade can’t take it because he cannot have that sham
treated as real” is improper to the extent it is construed as a personal attack on
M r. W ade, but the surrounding comments make it clear that the prosecutor was
pointing out the inconsistent positions concerning the UBOs that M r. W ade was
forced to take. M oreover, the government’s entire case was that the U BOs were
sham entities, designed to defraud the IRS and later his bankruptcy creditors.
On the other hand, the government’s statements characterizing M r. Haney
as a “stock fraud artist” and claiming M r. Haney was “in big trouble” w ere
improper. Although he w as a prosecution witness, M r. Haney was hired by M r.
W ade, and M r. W ade w as understandably concerned that their business
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association could have affected the jury’s perception of him. W e do not,
however, think that these statements resulted in reversible plain error when
considered in light of the entire record and the overwhelming evidence of guilt
therein. M r. Haney’s felony conviction for securities fraud was already in
evidence. The statement that he was fresh out of jail was the subject of an
objection that was sustained, and the court reminded the jury that there was no
evidence that M r. Haney was in trouble. A plt. App. at 299. That was sufficient.
9. M r. W ade’s Sentencing
Finally, M r. Wade asserts that his attorney was not given enough time to
present his sentencing arguments to the district court. Rule 32(I) requires that the
sentencing court must “provide the defendant’s attorney an opportunity to speak
on the defendant’s behalf . . . [and] permit the defendant to speak or present any
information to mitigate the sentence . . . .” Fed. R. Crim. P. 32(i)(4)(A). Here,
the district court allowed both M r. W ade and his attorney, Randall Gaither, to
speak. M r. W ade contends that the district court violated Rule 32 by stopping
M r. Gaither after an hour and a half of argument and then denying his motion to
allow more time to address the court or to continue the hearing. He argues that
most of the first hour and a half was spent making objections to the presentence
report (“PSR”) as permitted by Rule 32(i)(1)(C) and that the ten minutes allowed
for the downward departure motion was insufficient under Rule 32(i)(4)(A). See
Aplt. Reply Br. at 15.
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W e review the district court’s decision to limit an attorney’s opportunity to
address the court pursuant to Rule 32(i)(4)(A ) for an abuse of discretion. It is
well established that a district court may place reasonable limits on the amount of
time for allocution by the defendant consistent with Rule 32. See, e.g., Ashe v.
North Carolina, 586 F.2d 334, 336-37 (4th Cir. 1978) (“This is not to say that a
defendant’s right to address the sentencing court is unlimited. The exercise of his
right may be limited both as to duration and as to content. He need be given no
more than a reasonable time . . . .”). Likewise, we believe Rule 32 permits
reasonable limitations on the time given to counsel to address the court at
sentencing.
The court noted early on that it had read the considerable material filed by
the defense and advised M r. Gaither to “spend some time on those matters that are
going to determine or decide whether or not your client serves and how long.”
Aplt. App. at 310. After allowing M r. Gaither to argue sixteen more objections to
the PSR, the court gave him ten minutes to argue his motion for downward
departure, which had also been fully briefed. M r. Gaither sought additional time
or a continuance to address various sentencing factors, but his request was denied.
After M r. W ade was given “as long as he would like” to address the court, id. at
354, the court imposed sentence.
It is significant that M r. Gaither was given multiple opportunities to
address the court orally and in writing and that M r. W ade had unlimited time to
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speak. M oreover, M r. W ade points to nothing that M r. Gaither planned to say
that might have affected his sentence. On these facts, we find no abuse of
discretion.
M r. W ade advances three further arguments. He first contends that the
district court applied the Sentencing Guidelines in a mandatory fashion, violating
United States v. Booker, 543 U.S. 220 (2005). However, the court explicitly
stated at sentencing that “it is clear that under Booker and subsequent case law,
while the Sentencing Guidelines are now advisory, a sentencing court must
consider the guideline calculations in determining what is ultimately a reasonable
sentence . . . .” Aplt. App. at 335. M r. W ade also asserts that the district court
calculated his sentence based upon factual findings not made by the jury in
violation of Blakely v. W ashington, 542 U.S. 296 (2004). Under Booker, judicial
factfinding is entirely permissible as long as the guidelines are not applied as
mandatory. 543 U.S. at 233; see also United States v. Visinaiz, 428 F.3d 1300,
1316 (10th Cir. 2005). Here, the district court properly recognized that the
guidelines are advisory, so no constitutional violation occurred.
Finally, M r. Wade contends that the district court erred by declining to
consider mitigating evidence at sentencing. Aplt. Br. at 29. Specifically, he
argues that the district court was required to consider “the nature and
circumstances of the offense, the history and characteristics of [the] defendant,
and the need for the sentence in light of sentencing purposes,” Aplt. Br. at 28
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(citing 18 U.S.C. § 3553(a)), as well as a laundry list of other factors from
U.S.S.G. §§ 5H1.1-5H1.12. W e have held that a district court need not “march
through” every factor it considers in arriving at a reasonable sentence. United
States v. Rines, 419 F.3d 1104, 1107 (10th Cir. 2005). Here, it is apparent that
the court carefully considered several pertinent factors, and M r. W ade has not
demonstrated that the court failed to consider others, let alone that any factor not
considered would have affected his sentence. Aplt. App. at 361-65.
A FFIR ME D.
Entered for the Court
Paul J. Kelly, Jr.
Circuit Judge
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