United States v. Samuel Moore, III , 498 F. App'x 195 ( 2012 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-4684
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
SAMUEL J.T. MOORE, III,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. Robert E. Payne, Senior
District Judge. (3:10-cr-00249-REP-1)
Argued: September 19, 2012 Decided: November 28, 2012
Before DUNCAN and DAVIS, Circuit Judges, and Timothy M. CAIN,
United States District Judge for the District of South Carolina,
sitting by designation.
Affirmed by unpublished opinion. Judge Davis wrote the opinion,
in which Judge Duncan and Judge Cain joined.
ARGUED: David G. Barger, GREENBERG TRAURIG, LLP, McLean,
Virginia, for Appellant. Joseph Brian Syverson, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON
BRIEF: Lee W. Kilduff, LAW OFFICE OF LEE W. KILDUFF, Richmond,
Virginia, for Appellant. Kathryn Keneally, Assistant Attorney
General, Frank P. Cihlar, Chief, Criminal Appeals & Tax
Enforcement Policy Section, Gregory Victor Davis, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C.; Neil H. MacBride,
United States Attorney, Alexandria, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
DAVIS, Circuit Judge:
Appellant Samuel J.T. Moore, III (“Moore”), owned and
operated Club Velvet (“the Club”), a strip club in downtown
Richmond, Virginia. A jury convicted him of tax offenses
relating to tax years 2005, 2006, and 2007. He appeals his
convictions on various grounds, including sufficiency of the
evidence, as well as the district court’s denial of his motion
to suppress evidence seized during a search of the Club. He also
challenges his sentence. For the following reasons, we affirm.
I.
A.
In 2000, Moore opened Club Velvet as a sole proprietorship
(i.e., a Schedule C corporation), and registered the business as
L.A. Diner. The Club (and thereby Moore) received income from
various sources. For purposes of this case, 1 the Club’s income
fell into six main categories:
The first income category comprised cover charges, which
were tracked by “doorwatchers.”
1
The overarching question at trial was whether the
government proved that the Club’s gross receipts were in fact
substantially higher than the amount Moore reported on Schedule
C of his Form 1040 tax returns.
3
The second income category comprised dancer fees and fines.
These were payments by dancers of the Club’s share of payments
(by patrons to the dancers) for lap dances (ranging from $20 to
$30), and fines for “violations” of Club rules, such as failing
to perform a minimum number of dances. The amount the dancers
owed in fees and fines was tracked by a “dancewatcher.” Several
dancewatcher notebooks, which tallied dances and fines, were
recovered during the search of the Club.
The third income category comprised disc jockey payments.
Under the procedures implemented by Moore, each of the dancers
paid the DJ $40 per night, and the DJ turned over half of those
payments to the Club.
The fourth income category comprised fees, ranging from $10
to $20, the Club received on cash advances to customers on their
credit cards.
The fifth income category comprised fees the Club received
beginning on August 5, 2005, when three ATMs installed the
previous month became operational. These were fees paid by
patrons withdrawing cash from the ATMs.
The sixth and final category comprised income from the sale
of food, drinks (including $250 bottles of champagne, which gave
4
patrons access to the Club’s third-floor “champagne room”), and
tobacco products, as well as from pool table rentals. 2
Moore relied on his accountant, Greg Jonson (“Jonson”), to
prepare his individual tax returns, which included the Club’s
income on Schedule C. To the extent Moore reported the Club’s
income to Jonson he did so using hand-written forms called
“daily sheets,” which listed the Club’s revenue in each of
several categories: food, drinks, and cigars; cover charges; lap
dances; pool table rentals; and fines. Moore also used the daily
sheets to report to Jonson the amounts he deposited in the
Club’s bank account. Some deposits were from the minority of
patrons who used credit cards, and were deposited directly into
the L.A. Diner account. Most patrons, however, paid with cash.
On the daily sheets, Moore reported the amount deposited as
“cash to bank.”
But the credit card revenue and “cash to bank” totals did
not account for the full amount of the Club’s revenue, because
Moore was using another avenue to, in effect, deposit cash in
2
The Club also received money that Moore invested from his
own savings. Because the Club was a sole proprietorship, those
funds did not constitute taxable income for the Club (since
Moore was effectively transferring his own funds among his own
accounts). Thus, any of Moore’s own funds that he contributed to
the Club (either in cash or to the Club’s Bank of America
account in the name of L.A. Diner) did not constitute taxable
income.
5
the bank; that is, on a nightly basis, Moore replenished the
cash held in the three ATMs he had installed in July 2005. Each
time a patron withdrew cash from an ATM, the funds were debited
from the patron’s bank account and credited, along with a fee,
to the L.A. Diner account. The sums Moore deposited in the
Club’s account in this manner equaled $256,660 in 2005, $776,260
in 2006, and $693,980 in 2007.
To summarize, there were three ways the Club’s revenue was
deposited in the L.A. Diner bank account: (1) credit card
payment transfers; (2) cash deposited directly into the bank;
and (3) cash used to replenish the ATMs, which was indirectly
deposited in the bank when a customer withdrew the cash from the
ATM.
B.
In August 2007, the Virginia Department of Alcoholic
Beverage Control (“ABC”) began investigating the Club after
receiving complaints that it was serving alcoholic beverages to
underage customers, serving alcohol after hours, and allowing
fully nude lap dances, any one of which would have constituted
violations of Virginia law. Undercover ABC agents visited the
Club several times in late 2007 and observed the violations that
were the subject of the complaints. Meanwhile, the Richmond
Police Department (“RPD”) had also begun investigating the Club,
although for different alleged offenses. Detective Sergeant
6
Steve Ownby (“Ownby”) had learned from a confidential informant,
a former dancer at the Club who was Moore’s ex-girlfriend, that
Moore was engaged in illegal narcotics and prostitution
activities. See United States v. Moore, 775 F. Supp. 2d 882, 886
(E.D. Va. 2011) (“Moore I”).
Ownby’s investigation led him to seek the assistance of
Robin Rager (“Rager”), a Special Agent at the federal Internal
Revenue Service. Ownby and Rager had worked together previously
during other investigations. Id. Ownby contacted Rager on August
31, 2007, because he knew that Rager “had expertise that would
be helpful in analyzing financial aspects of the investigation.”
Id.Sometime in September or October 2007, Ownby contacted a
state prosecutor, Shannon Taylor, about the possibility of
convening a grand jury investigation into the suspected illegal
activities at the Club. Around the same time, the ABC agents
also separately contacted Taylor about the evidence they had
gathered. The ABC and RPD then continued a joint investigation
and conducted additional undercover visits to the Club. Around
this same time, in November 2007, Rager opened an IRS “Primary
Investigation.” Id. In connection with Moore’s later motion to
suppress, the district court found that the purpose of opening
the investigation was to “provide assistance and resources to
7
Sgt. Ownby’s state investigation” and to “account for her time
for administrative purposes.” Id.In February 2008, Ownby began to prepare an application for
a search warrant. The execution date for the warrant was
accelerated after the RPD received a report from a woman who
alleged that Moore was having an “inappropriate sexual
relationship” with her underage daughter. Id. at 887. A state
judge issued the warrant on February 22, 2008, and it was
executed early the next day. The warrant authorized the police
to search for evidence of prostitution (Va. Code §§ 18.2-346,
18.2-347, 18.2-348, 18.2-357), bestiality (Va. Code § 18.2-361),
public nudity (Richmond City Code § 66-249), and drug
distribution (Va. Code § 18.2-248). The police officers who
conducted the search were accompanied by ten IRS agents and four
agents from the federal Bureau of Alcohol, Tobacco, and Firearms
(ATF). Ownby sought the assistance of the federal agents for two
reasons: (1) “it was expected that the search would yield a
substantial volume of documentary evidence to be catalogued,”
and “the RPD lacked sufficient staff to conduct the document-
intensive search and to manage the search in an orderly
fashion”; and (2) “Sgt. Ownby decided that it was necessary to
keep search preparation completely secret, even from other RPD
sections.” Moore I, 775 F. Supp. 2d at 887. The state officers,
8
assisted by the federal agents, executed the search warrant and
seized documents and money from the Club.
Ultimately, Moore was not charged with the state offenses
underlying the search warrant. Instead, on September 7, 2010, he
was indicted by a federal grand jury in the Eastern District of
Virginia on two charges of tax fraud. On October 6, 2010, the
grand jury returned a three-count superseding indictment. Counts
One and Two charged Moore with making and subscribing a false
tax return for tax years 2005 and 2006, respectively, in
violation of 26 U.S.C. § 7206(1). 3 Count Three charged Moore with
tax evasion for tax year 2007, in violation of 26 U.S.C. § 7201.
Moore was tried from February 7 through 15, 2011, and
convicted on all three counts. The district court sentenced him
to 78 months’ imprisonment followed by three years of supervised
release, and imposed a $250,000 fine. Moore filed a motion for a
new trial and a motion for a judgment of acquittal on Count One.
The district court denied each in separate memorandum opinions.
Moore timely appealed.
3
Because the Club was a sole proprietorship, Moore reported
the business’s receipts or sales on Schedule C of his individual
Form 1040 tax return. Counts One and Two therefore alleged that
the amounts Moore reported as gross receipts or sales on his
Schedule C returns were less than the actual gross receipts or
sales.
9
II.
Moore first argues that the evidence produced at trial was
insufficient to support his conviction on Count One, relating to
tax year 2005. This alleged insufficiency also, in Moore’s view,
entitles him to a new trial on Counts Two and Three.
We begin by explaining a bit more about the charges Moore
faced. Count One charged Moore with making and subscribing a
false tax return, in violation of 26 U.S.C. § 7206(1), for tax
year 2005. Moore’s tax return for 2005 reported gross business
receipts of $546,887. The government argues that the trial
evidence showed that Moore willfully understated the Club’s
gross receipts for 2005 by $34,400. 4 Count Two also charged
fraudulent underreporting of income, for tax year 2006. For that
year Moore reported gross Club receipts of $688,304, which the
government argues understated his actual income by $354,050.
Count Three was somewhat different, because Moore did not
file a tax return for tax year 2007. He did, however, report
some of the Club’s income to his accountant, although the
government sought to prove that the reported amount understated
his actual income for 2007, just as the reported income was
understated for 2005 and 2006. The amount Moore reported to his
4
At trial the government argued that the 2005
understatement was $101,953, but by sentencing decreased the
estimated understatement to $34,400.
10
accountant as the Club’s gross receipts was $808,470. The
government argues the evidence shows that this number
understated the Club’s 2007 receipts by $255,506. 5 The statute
under which Moore was charged for tax year 2007 was not §
7206(1), because he did not actually file a return, but rather
26 U.S.C. § 7201.
“We review the sufficiency of the evidence to support a
conviction by determining whether there is substantial evidence
in the record, when viewed in the light most favorable to the
government, to support the conviction.” United States v.
Palacios, 677 F.3d 234, 248 (4th Cir. 2012) (quotation marks
omitted). “[I]n the context of a criminal action, substantial
evidence is evidence that a reasonable finder of fact could
accept as adequate and sufficient to support a conclusion of a
defendant’s guilt beyond a reasonable doubt.” United States v.
Burgos, 94 F.3d 849, 862 (4th Cir. 1996) (en banc).
To prove a violation of 26 U.S.C. § 7206(1), the government
must prove that “(1) the defendant made and subscribed to a tax
return containing a written declaration; (2) the tax return was
5
There is some confusion as to the amount that the
government argues the 2007 receipts were understated. In its
brief, the government asserts that unreported cash receipts for
2007 were $237,621, Gov’t Br. 16, but the sentencing exhibit it
cites for the figure lists unreported receipts for 2007 as
totaling $255,506, J.A. 1560. For purposes of this appeal, we
assume the sentencing exhibit figure is the correct one.
11
made under penalties of perjury; (3) the defendant did not
believe the return to be true and correct as to every material
matter; and (4) the defendant acted willfully.” United States v.
Aramony, 88 F.3d 1369, 1382 (4th Cir. 1996). As to Count Three,
in order to obtain a conviction for income tax evasion under 26
U.S.C. § 7201, the government must prove “[1] willfulness, [2] a
substantial tax deficiency, and [3] an affirmative act
constituting an attempted evasion of the tax.” United States v.
Goodyear, 649 F.2d 226, 227-28 (4th Cir. 1981). “In order to
prove a tax deficiency, the government must show first that the
taxpayer had unreported income, and second, that the income was
taxable.” United States v. Abodeely, 801 F.2d 1020, 1023 (8th
Cir. 1986) (internal quotation marks omitted).
One way to prove a defendant’s actual income is through
direct evidence. As the Eighth Circuit has explained, however,
such evidence is rare:
Proof of unreported taxable income by direct means is
extremely difficult and often impossible. By the very
fact that a taxpayer has failed to report the income,
it behooves him to obscure any trace of its existence.
Therefore, direct methods of proof, which depend on
the taxpayer’s voluntary retention of records of the
income, fail. Accordingly, the government has armed
itself with an arsenal of indirect methods of proof
which rely on circumstantial evidence to disclose
unreported taxable income.
Id. Nonetheless, the government here did present direct
evidence, which it called “specific-items evidence.” The
12
specific-items evidence mainly consisted of documents seized
from the Club that, the government argued, showed the Club
received significantly more income than was reported on Moore’s
tax returns.
The government did not rely solely on the specific-items
evidence, however. Rather, as in many § 7206(1) cases, the
government also sought to prove that the Club’s receipts were
higher than those reported through a circumstantial method of
proof: here, a modified version of the “bank-deposits” method.
Under [the bank-deposits] method, all deposits to the
taxpayer’s bank and similar accounts in a single year
are added together to determine the gross deposits. An
effort is made to identify amounts deposited that are
non-taxable, such as gifts, transfers of money between
accounts, repayment of loans and cash that the
taxpayer had in his possession prior to that year that
was deposited in a bank during that year. This process
is called “purification.” It results in a figure
called net taxable bank deposits.
The government agent then adds the amount of
expenditures made in cash . . . . The total of this
amount and net taxable bank deposits is deemed to
equal gross income. This is in turn reduced by the
applicable deductions and exemptions. The figure
arrived at is considered to be “corrected taxable
income.” It is then compared with the taxable income
reported by the taxpayer on his return.
United States v. Boulet, 577 F.2d 1165, 1167 (5th Cir. 1978)
(footnote omitted) (quoted in United States Department of
Justice Criminal Tax Manual, § 33.01 (2008)).
13
The government presented its specific-items evidence and
its bank-deposits evidence as independent, alternative methods
of proof. 6 As the district court instructed the jury:
Both of [these] methods are acceptable methods of
proving unreported income. They should be viewed by
you independently, and you can use either one of them,
or you can use both of them for any and all tax years
in deciding whether the government has proved the
elements of the crimes charged beyond a reasonable
doubt.
J.A. 1320.
As we describe below, each of the government's methods of
proof is independently sufficient to support the verdict here.
A.
We first examine the sufficiency of the government’s
specific-items evidence. The specific-items evidence did not
account for all of Moore’s alleged unreported income, but it did
not need to; to convict Moore, the jury needed to find only that
Moore willfully understated the Club’s gross receipts by some
“material” amount. Aramony, 88 F.3d at 1382. The government
relied on the following specific-items evidence.
First, Moore employed a “dancewatcher,” whose
responsibility was to tally the number of lap dances each dancer
6
The specific-items evidence was also relevant to the bank-
deposits method of proof, because the specific-items evidence
(such as ledgers tallying lap dances) corroborated that the
funds deposited in the L.A. Diner account constituted income the
Club received in the course of its business.
14
performed each night. With this information Moore sought to
ensure that each dancer turned over Moore’s cut of each lap
dance fee, and also to enforce his minimum-dance requirement,
under which a dancer who failed to perform a certain number of
dances paid him a “fine.” During the February 2008 raid of the
Club, the RPD seized (and later turned over to the IRS)
dancewatcher notebooks for July and August 2005, and December
2007 through February 2008. Some pages tallied the number of
dances performed, some showed dancers’ hours, and others tracked
fines the dancers owed and/or paid.
Rager analyzed these notebooks to determine how much the
Club likely earned from lap dance fees and fines during the
periods covered by the notebooks. She then compared those totals
with the revenue numbers Moore reported to Jonson. Rager
testified that, according to her analysis, Moore substantially
understated the Club’s revenue for the periods covered by the
notebooks. In particular, the evidence showed at least the
following:
Period Receipts per Receipts per Amount understated,
dancewatcher’s daily sheets including unreported
notebook fines (other than
minimum dance) and
lap dance fees
July 2005 $13,950 $5,280 $8,670
August 1- $4,495 $1,640 $2,855
10, 2005
December $40,851 $15,418 $25,433
2007
January $36,130 $12,510 $23,620
15
2008
February $30,895 $2,910 $27,985
1-22, 2008
She also testified that Moore received additional income during
those periods, such as minimum-dance fines. Minimum-dance fines,
she testified, increased the unreported income by $17,190 for
July 1, 2005 through August 10, 2005, and $24,300 for December
1, 2007 through February 22, 2008. The government argues that
the jury could reasonably extrapolate from that evidence, and
thereby infer from Rager’s testimony, that Moore understated the
Club’s gross receipts for each of tax years 2005 through 2007.
Second, the three dancewatchers who testified at trial
examined a summary of the receipts reported from 2005 through
2007 for Thursdays, Fridays, and Saturdays, the Club’s busiest
nights. All of them testified that the fines, lap dance fees,
and cover charges reported on the daily sheets for the periods
they worked at the Club were too low. They reached this
conclusion because, for example, lap dance fees reported were
lower than the cover charges reported, even though in their
experience the Club took in more revenue from lap dances than
from cover charges, and because the reports showed many nights
when no fines were reported, even though fines were collected
nearly every night.
16
Third, the government showed that although Moore collected
cash advance fees from patrons, he never told his accountant he
collected such fees.
Fourth, the government showed that Moore altered records to
conceal his under-reporting. In one instance, when an employee
completed a daily sheet reporting cover charges of $2,395, Moore
crossed out that figure and replaced it with $890; but $890 in
cover charges was too low for that day, which was a busy weekend
day. Moore also instructed Jonson to increase the fines and lap
dance fees he had reported on the daily sheets for January 2008
after the dancewatcher notebook covering that month was seized
during the search of the Club. On February 29, 2008, one week
after the search, the amounts of gross receipts shown on the
Club’s January 2008 books for fines and lap dance fees, and
cover charges were increased by $35,520 and $5,280,
respectively.
Fifth, in a will Moore signed on March 14, 2007, Moore
attested that if the Club were run by a “competent manager,” it
would net over $1 million per year. J.A. 1932. The government
argued that because this number was far higher than the $546,887
and $688,304 he reported as gross receipts for 2005 and 2006
(and higher than the $808,470 on his unfiled draft 2007 return),
Moore’s admission in his will was further evidence that Moore
was underreporting his income.
17
Based on these specific items of evidence, the government
argues that the evidence was sufficient for the jury to find
that Moore willfully understated the Club’s gross receipts from
2005 to 2007 in two ways: (1) by understating the amount the
Club received in the form of cover charges, lap dance fees, and
dancer fines; and (2) by failing to report income at all in
certain categories, such as cash advance fees, even though on
the daily sheets there were blank spaces for Moore to include
additional revenue sources.
We agree that the specific-items evidence, standing alone,
was sufficient to support the verdicts on each count. From that
evidence, the jury could reasonably infer that Moore willfully
understated the Club’s gross receipts for 2005, 2006, and 2007.
Nevertheless, because a primary focus of the trial was on the
government’s bank-deposits evidence, we proceed to examine the
sufficiency of that evidence, as well.
B.
The government also relied on a modified version of the
bank-deposits method of proof, supplemented and corroborated by
the specific-items evidence. The object of the bank-deposits
method is to sum the deposits to a taxpayer’s account in a
particular year, ascertain the portion of those deposits that
constitutes taxable income, and then show that actual taxable
income was higher than the reported taxable income.
18
The government’s burden under the bank-deposits method
encompasses three elements: “(1) that, during the tax years in
question, the taxpayer was engaged in an income producing
business or calling; (2) that he made regular deposits of funds
into bank accounts; and (3) that an adequate and full
investigation of those accounts was conducted in order to
distinguish between income and non-income deposits.” Abodeely,
801 F.2d at 1023. Once the government has established these
elements, “the jury is entitled to infer that the difference
between the balance of deposited items and reported income
constitutes unreported income.” Id.On the “adequate and full investigation” prong, which the
Boulet court referred to as the “purification” prong, 577 F.2d
at 1167, the government’s burden is to show that it did
“everything that is reasonable and fair [in] the circumstance to
identify any non-income transactions and deduct them from total
deposits,” Abodeely, 801 F.2d at 1024-25 (alteration in
original). “[T]he government is not required to negate all
possible non-income sources of the deposits, particularly where
the source of the income is uniquely within the knowledge of the
taxpayer.” United States v. Slutsky, 487 F.2d 832, 841 (2d Cir.
1973). “At the same time, however, the government may not
disregard explanations of the defendant reasonably susceptible
of being checked.” Id. (internal quotation marks omitted). “The
19
critical question is whether the government’s investigation has
been sufficiently adequate to support the inference that the
unexplained excess in receipts was in fact attributable to
currently taxable income.” Id.If a particular deposit is from a non-taxable source (e.g.,
a transfer from another of the taxpayer’s bank accounts), then
the government must deduct the amount of the deposit from the
gross deposit figure. If (1) the government cannot identify the
source despite all reasonable efforts to do so, (2) the
defendant does not explain why the deposit did not constitute
taxable income, and (3) the government proves that the failure
to report the income was willful, then the jury may infer that
the defendant willfully understated his income. See Slutsky, 487
F.2d at 840.
In this case, the government made three modifications to
the typical bank-deposits analysis. First, ordinarily the
government seeks to prove both the amount of unreported income
that a defendant deposited in a bank and the amount of cash the
defendant spent without ever depositing. See Boulet, 577 F.2d at
1167 (describing the latter as “the amount of expenditures made
in cash”); Abodeely, 801 F.2d at 1023 (explaining that the
phrase “cash expenditure” as an “adjunct to ‘bank deposits’” is
a misnomer, and is more accurately described as “non-deposits”).
Here, apparently for simplicity’s sake (and because it resulted
20
in a more conservative estimate), the government limited its
estimate of Moore’s unreported income to funds that were
deposited, in one way or another, in the Club’s bank account.
Second, ordinarily in a bank-deposits case, the government
seeks to show the total deposits for a full tax year in order to
capture the defendant’s full actual income for that year. Here,
as to 2005, again apparently for simplicity’s sake, the
government limited its analysis to the period beginning July 28,
2005, the date Moore had the three ATMs installed in the Club.
Third, the government modified how it used the bank-
deposits method. Ordinarily, the object of applying this method
is to determine a taxpayer’s total corrected taxable income.
Here, the existence of the ATMs in the Club, and the fact that
the cash used to fund the ATMs consisted solely of cash earned
from operations at the Club, allowed the government to use the
bank-deposits evidence in a different way. The government’s goal
was to show that the Club must have received significantly more
cash revenue than Moore reported as part of the Club’s gross
receipts. At trial, the government alleged that in order to fund
the ATMs, the Club must have received additional cash from an
“unknown source” in the amounts of $104,953 in 2005, $497,095 in
2006, and $364,934 in 2007.
By the time of sentencing, the government conceded an
error, and reduced the unreported gross receipts number for
21
sentencing purposes to $34,400 for 2005, $368,457 for 2006, and
$255,508 for 2007. Setting aside those recalculations for
sentencing, Moore argues there was a significant flaw in the
government’s proof at trial such that he is entitled to a
judgment of acquittal on Count One and a new trial on Counts Two
and Three.
As part of the government’s proof at trial, one element of
its case was to show it had undertaken an “adequate and full
investigation,” Abodeely, 801 F.2d at 1023, to determine Moore’s
July 29, 2005 cash on hand. The July 2005 cash-on-hand figure
was crucial because if Moore had substantial cash on hand as of
the date the ATMs began operation, then the jury could not find
that the cash used to fund the ATMs came from cash generated by
operations at the Club.
To prove that Moore did not have a significant cash hoard
as of July 2005, the government relied on the following
evidence. On December 6, 2004, Moore generated a financial
statement that listed his assets and liabilities, including cash
on hand. In that financial statement, Moore represented that his
cash on hand and in banks was $385,000. Rager corroborated this
figure by examining bank records, real estate transactions,
loans, safe deposit box records, and currency transaction
reports (“CTRs”). She then subtracted the total balance in
Moore’s bank accounts as of that date, which left $223,869 as
22
the amount of actual cash Moore had on hand on December 6, 2004.
From that amount, she subtracted the total in cash deposits
Moore made to the bank between December 6, 2004, and July 28,
2005, which resulted in $96,803 in cash on hand as of July 28,
2005. This amount was less than $2,000 shy of the amount of cash
Moore was discovered to have when the Club was searched in
February 2008. Accordingly, the government's evidence tended to
show that although Moore had some cash on hand as of July 25,
2005, in effect he did not use any of it to fund the ATMs
because he possessed virtually the identical sum of cash seven
months later.
In the course of establishing Moore’s July 2005 cash-on-
hand figure, the government presented evidence of funds that
Moore withdrew from several safe deposit boxes, and then
deposited in the L.A. Diner bank account. Moore argues, and
apparently the government does not dispute, that the
government’s evidence showed that from 1999 through the first
half of 2005, he withdrew $359,000 in cash from safe deposit
boxes and deposited it in the L.A. Diner account.
As the centerpiece of his appeal, Moore argues that this
$359,000 represents capital contributions to the Club. That is,
the money in the safe deposit boxes constituted Moore's savings
(either from pre-2005 income or from a substantial inheritance
he received when his parents died), and thus did not constitute
23
income taxable between 2005 and 2007. When (during the period
before August 2007) he took that cash from safe deposit boxes
and deposited it in the L.A. Diner account, Moore argues, he was
making loans to the business. Thus, Moore essentially argues
that because he loaned the business $359,000 prior to August
2005, and because the Club was a sole proprietorship, when the
Club started generating profit after July 2005, he was entitled
to offset the first $359,000 in income as a kind of credit.
This $359,000 offset, Moore argues, entitles him to a
judgment of acquittal on Count One, because $359,000 is larger
than the amount of alleged unreported income for 2005. He argues
further that the government’s failure of proof also entitles him
to a new trial on Counts Two and Three, because “errors of such
magnitude would have materially aided the defendant’s argument
that the government made hundreds of thousands of dollars in
mistakes . . . and that the defendant was not willful.” Moore
Br. 26.
Moore’s argument is singularly unpersuasive. An owner of a
sole proprietorship has no duty to document capital
contributions to the business because such contributions have no
tax consequences. Instead, the owner contributes whatever funds
might be necessary to run the business, and the business and the
owner are treated as a single entity for tax purposes and are
liable for taxes on net income (i.e., gross receipts minus
24
deductible business expenses). See Schedule C, IRS Form 2040;
Littriello v. United States, 484 F.3d 372, 375 (6th Cir. 2007)
(noting that in a sole proprietorship, “a single individual owns
all the assets, is liable for all debts, and operates in an
individual capacity”). But Moore does not argue that he claimed
(or would have claimed) the $359,000 as deductible business
expenses, or that the money should be viewed as such. Rather, in
Moore’s view, any capital contributions to a sole
proprietorship, no matter how long ago they were made, can be
used to offset a future tax liability from current income
produced by the sole proprietorship. That is not the law, and
Moore cites no authority to support his view that a sole
proprietor can make loans to himself in this way and deduct
future “loan repayments” whenever doing so suits the taxpayer.
In short, the amount Moore contributed to the business from
1999 through July 2005 is irrelevant to whether income the Club
received after July 2005 constitutes taxable income to Moore.
The evidence was thus sufficient for a jury to convict Moore
based on the bank-deposits method of proof, as well as the
specific items method of proof.
III.
Moore also seeks a new trial based on newly discovered
evidence. He argues that, at trial, the government’s bank-
25
deposits analysis overstated his taxable income for 2005 through
2007 by $191,236 because he had paid that amount in local and
state taxes but did not deduct that amount from gross receipts.
By the time of sentencing the government agreed that Moore
should be credited with these payments, but at trial it had
admitted only that the number should be decreased by about
$92,000. Moore argues that Agent Rager’s eventual concession at
sentencing that the original calculation of Moore’s unpaid tax
liability was incorrect constituted newly discovered evidence,
entitling him to a new trial. We disagree that this development
merited a new trial.
Federal Rule of Criminal Procedure 33 states that a
district court “may vacate any judgment and grant a new trial if
the interest of justice so requires,” and describes “newly
discovered evidence” as a potential reason for a new trial. “We
review the district court’s Rule 33 decision for abuse of
discretion.” United States v. Robinson, 627 F.3d 941, 948 (4th
Cir. 2010). In analyzing whether newly discovered evidence
requires a new trial, we look to five factors:
(a) the evidence must be, in fact, newly discovered,
i.e., discovered since the trial; (b) facts must be
alleged from which the court may infer diligence on
the part of the movant; (c) the evidence relied on
must not be merely cumulative or impeaching; (d) it
must be material to the issues involved; and (e) it
must be such, and of such nature, as that, on a new
trial, the newly discovered evidence would probably
produce an acquittal.
26
Id. (quoting United States v. Custis, 988 F.2d 1355, 1359 (4th
Cir. 1993)).
Moore argues that Rager’s failure to concede her erroneous
failure to credit Moore with the unclaimed deductions for state
and local taxes was newly discovered evidence, because she did
not make the concession until after Moore was convicted. Moore
argues he was diligent in pursuing this “evidence” because his
counsel vigorously cross-examined Rager, and recalled Jonson
(who had testified for the government but then agreed that the
government’s calculation was off by $191,236). Moore argues that
had Rager admitted the error earlier, “there is a substantial
likelihood that the jury would have viewed the government’s
evidence differently, would have viewed the IRS agent’s
testimony differently, and [would have] found that reasonable
doubt existed on the tax counts.” Moore Br. 21.
The government responds that Moore’s claim fails because
the concession at sentencing (1) was not newly discovered
evidence; (2) was merely cumulative or impeaching; and (3) would
not have impacted the verdict.
We need not decide whether Rager’s testimonial admission at
sentencing constitutes “newly discovered evidence” for purposes
of Rule 33 because Rager’s concession was “merely cumulative or
impeaching,” and we cannot say that had the jury heard it, the
testimony would have “probably produce[d] an acquittal.” See
27
Custis, 988 F.2d at 1359. First, the jury heard testimony that
Rager’s calculation was erroneous from one of the government’s
own witnesses: Moore’s accountant, Jonson. Thus, Rager’s
concession would have been cumulative. Second, even accounting
for the adjustment for local and state taxes, Moore still under-
reported his gross income for each of the years in question.
Third, the government’s bank-deposits analysis was conservative;
it assumed that cash on hand of any denomination was available
to fund the ATMs, even though the ATMs only dispensed $20 bills,
and it did not attribute any income to Moore for personal cash
expenditures, though the bank-deposits method permits the
government to include such expenditures. See, e.g., Boulet, 577
F.2d at 1167.
We thus reject Moore’s argument that the district court
abused its discretion in denying the motion for a new trial
based on Rager’s delayed concession that Moore should have been
credited with $191,236.
IV.
Moore next argues that, even if there was sufficient
evidence to support the verdicts, the district court committed
reversible error in instructing the jury on how to apply the
bank-deposits analysis. As explained above, the bank-deposits
method requires that the government prove, among other things,
28
how much cash Moore had on hand at the beginning of the relevant
time period. Here, the time period the government used began on
August 5, 2005, the date the ATMs became operational. Moore
argues this was error. If the government wanted to use the bank-
deposits method, he argues, the jury still had to be instructed
“that the starting point for a cash-on-hand analysis was January
1, 2005.” Moore Br. 38. By shifting the starting date, he
argues, the government inflated his unreported income by over
$100,000. We disagree.
This argument reflects a misunderstanding of the
government’s method of proof. By choosing August 5 as a starting
point for 2005, the government sought to prove Moore’s
unreported income only for the latter five months of 2005, not
the full year. Because the government was starting its analysis
of Moore’s bank deposits in August, that was the date it had to
determine (and the jury had to find) Moore’s cash on hand. The
reason for requiring proof of a beginning cash-on-hand figure is
to determine whether and to what extent cash already in a
defendant’s possession (rather than cash from taxable income)
explains the source of a cash deposit during the relevant
period. See, e.g., United States v. Mounkes, 204 F.3d 1024, 1028
(10th Cir. 2000) (noting that proof of cash on hand is required
to “distinguish between unreported, taxable income and those
deposits and expenditures not derived from taxable income”).
29
As the government explains, because Rager’s bank-deposits
analysis “relied exclusively on bank deposits attributable to
ATM withdrawals to calculate the gross income defendant failed
to report[,] . . . only cash that defendant possessed on the
date the ATMs were installed could offer an alternative
explanation for the deposits to defendant’s bank account
attributable to ATM withdrawals.” Gov’t Br. 34. In other words,
Moore “could not have used any cash that he had on hand on
December 31, 2004, to fund the ATMs unless he still had that
cash on hand when the ATMs were installed.” Id.The district court thus did not err in instructing the jury
to determine Moore’s cash on hand as of August 5, 2005.
V.
Moore next argues that the district court erred in denying
his motion to suppress. Before August 2007, the RPD was
investigating Moore on suspicion that he was involved in
narcotics and prostitution. The investigating officers came to
suspect that Moore may have also been engaging in tax fraud, and
in August 2007 contacted the IRS, asking it to assist in the
investigation of Moore. On or about February 20, 2008, Ownby
drafted a state search warrant. The City of Richmond Circuit
Court issued the warrant on February 22, 2008. The government
30
obtained the documentary evidence it introduced at trial during
the execution of that warrant.
Moore argues that the search was unlawful for two reasons.
First, he argues that the true purpose of obtaining a search
warrant was to seize evidence that Moore was violating federal
law, not state law; in his view, the state-law allegations in
the warrant application were a pretext to allow the IRS to avoid
obtaining a federal warrant, and the government therefore
violated Federal Rule of Criminal Procedure 41. Second, he
argues that the state warrant was overbroad and therefore
violated the Fourth Amendment.
A.
We first examine whether the search violated Federal Rule
of Criminal Procedure 41. The Federal Rules of Criminal
Procedure govern “criminal proceedings” in the federal courts.
Fed. R. Crim. P. 1(a)(1). Rule 41 governs the process for
applying for, obtaining, and executing a federal search warrant.
Unless an exception to the warrant requirement applies, Rule 41
requires that investigating officers obtain a warrant issued by
a federal magistrate judge, “or if none is reasonably available,
a judge of a state court of record in the district.” Fed. R.
Crim. P. 41(b)(1).
The evidence in this case was obtained during the execution
of a state search warrant, in the context of an investigation
31
that involved both state and federal agents. Moore argues that
because federal agents were involved in preparing the search
warrant application and in executing the search, Rule 41
applied. Because the Rule requires either that officers have
obtained a federal warrant or that a federal magistrate judge
have not been “reasonably available,” and because neither
condition was met here, he argues the government violated Rule
41. Finally, he argues, the violation of Rule 41 justifies
suppressing the evidence obtained during the execution of the
warrant.
We addressed the applicability of Rule 41 to a joint
federal-state investigation most recently in United States v.
Claridy, 601 F.3d 276 (4th Cir. 2010). There, the search was
conducted pursuant to a state search warrant obtained by a state
police officer who was part of a formal federal-state joint task
force and had been federally deputized. Id. at 278. The
defendant argued that the officer “violated Fed. R. Crim. P. 41
by applying to a state judge for a warrant, despite the fact
that he was conducting a federal narcotics investigation and
despite the fact that there was no indication that a federal
magistrate was unavailable.” Id. at 279. We rejected that
argument and devised the following test:
[T]he triggering condition for application of Rule 41
is not a finding that the investigation was federal in
nature but a determination that the proceeding was a
32
federal proceeding. . . . When . . . federal and state
agencies cooperate and form a joint law-enforcement
effort, investigating violations of both federal and
state law, an application for a search warrant cannot
categorically be deemed a “proceeding” governed by the
Federal Rules of Criminal Procedure, based simply on
the role that federal law-enforcement officers played
in the investigation. See, e.g., [United States v.
Smith, 914 F.2d 565, 569 (4th Cir. 1990)] (observing
that mere involvement of federal officers in the
execution of the search warrants does not trigger
application of Rule 41). Such an investigation is
conducted on behalf of both sovereigns, and its object
is to reveal evidence of crime--be it federal crime or
state crime. . . .
[W]hen a member of a joint task force initiates a
proceeding in state court to obtain a search warrant
in furtherance of the joint investigation, it is not
only relevant to understand the role of federal
officers in obtaining the warrant and conducting the
search, but it is also necessary to review the details
of the proceeding itself to determine what law the
warrant will serve and the scope of the warrant.
Id. at 281-82 (emphasis in original). The facts the Claridy
court deemed material to finding that the “proceeding” for
obtaining the search warrant was a state proceeding (governed by
state law) rather than a federal proceeding (governed by Rule
41) were (1) the warrant application alleged violations of state
law; (2) the officers authorized to execute the search were
state officers; and (3) the warrant was returnable to the state
court.
Here, it is undisputed that the same three facts are
present. Nonetheless, Moore argues that the federal agents’ role
in obtaining and executing the search warrant here was greater
33
than in Claridy, for these reasons: (1) Rager opened a “primary”
IRS investigation of Moore into money laundering to assist Ownby
and track her time; (2) Rager analyzed Moore’s bank records to
help Ownby prepare the search warrant application; (3) Rager’s
time records showed that on February 20, 2008, she recorded six
hours as “draft SW”; (4) in the warrant application, Ownby
stated he had experience investigating violations of the federal
Money Laundering Control Act, not any state money laundering
statutes; (5) in an internal IRS form Rager prepared before
executing the search, she referred to Moore’s income as “legal
income,” which Moore argues suggests a federal tax case despite
Rager’s testimony that she had simply made an error filling out
her form; (6) the majority of the officers present during the
execution of the search warrant were federal (including 10 IRS
agents and four other federal agents), and Rager’s IRS
supervisor was listed on a “preop” report as a supervisor
(though Rager indicated that this merely referred to a job
classification rather than a role in the search); (7) after the
search, although city agents reviewed seized videotapes, only
IRS agents reviewed seized financial records; and (8) the local
special prosecutor testified that the focus of her investigation
was narcotics and prostitution, not money laundering.
Because Rager later opened an official federal
investigation of Moore, and the financial records seized during
34
the search were admitted at trial, Moore argues that the state
money laundering offense was listed in the search warrant
application “as a pretext to allow the IRS agent access to the
financial records without seeking a federal search warrant under
Rule 41.” Moore Br. 45.
The government responds that the district court did not
clearly err in finding that the state law allegations were not a
pretext for avoiding having to obtain a federal warrant, and
therefore no federal warrant was required and Rule 41 did not
apply. The government relies on the following countervailing
evidence: (1) Rager testified that Ownby, a state officer, asked
Rager to examine Moore’s bank records because of her expertise
in financial investigations; (2) both Rager and Ownby testified
that although Rager assisted with some analysis of Moore’s bank
records for inclusion in the search warrant application, Rager
did not otherwise assist in drafting or reviewing the warrant;
(3) the warrant itself was issued to investigate only state
crimes (narcotics, prostitution, public nudity, bestiality, and
money laundering); (4) Ownby testified that he decided to
include the state money laundering charge in the application
because he wanted to investigate further what Moore was doing
with the proceeds from the suspected drug dealing and
prostitution, not to gather evidence of tax fraud; (5) the
affidavit attached to the warrant application provided evidence
35
of state crimes, not federal crimes; 7 (6) Ownby, not Rager, was
responsible for planning and executing the search of the Club;
and (7) a member of Ownby’s unit took custody of the items
seized in the search.
We agree with the government that the district court did
not clearly err in finding that the IRS only assisted in the
preparation and execution of the search warrant. There was
sufficient evidence for the district court to find that, under
Claridy, Rule 41 did not apply and thus the allegations of state
law were not a pretext for avoiding having to obtain a federal
warrant. The district court therefore properly concluded that
the absence of a federal warrant did not render the search
unlawful. 8
Moore argues Claridy is distinguishable because the IRS and
the RPD did not have a formal joint investigation arrangement as
existed in Claridy. But that is not a meaningful distinction. In
7
The affidavit described grand jury testimony from two
undercover Virginia ABC agents and an informant who worked with
the ABC agents that (1) Moore provided cocaine and heroin to
Club employees; (2) a Club dancer sold cocaine to the second
informant; (3) Ownby’s informant procured prostitutes from the
Club, and Moore received a portion of the fee; (4) Club dancers
regularly provided sexual services to patrons; and (5) Moore
used the Club’s surveillance cameras to videotape sexual acts
performed there.
8
We do not reach the question of whether suppression would
have been an appropriate remedy if a Rule 41 violation had in
fact occurred.
36
Claridy, it was not the structure of the investigation that
determined the law that applied to the issuance of the warrant,
but the proceeding the law enforcement officers chose to pursue
to obtain the warrant. 601 F.3d at 281-82. Moreover, the
existence of the task force in Claridy cuts against Moore’s
argument, because the federal government’s role in the
investigation in Claridy was more extensive than the IRS’s role
here. See also United States v. Williams, 977 F.2d 866, 867,
869-70 (4th Cir. 1992) (holding Rule 41 did not apply because
there was “no evidence suggesting that the warrant obtained by
[a state police officer] was issued in response to a directive
or urging from” a federal agent); United States v. Smith, 914
F.2d 565, 569 (4th Cir. 1990) (holding Rule 41 did not apply
because there was “no evidence that [the state police officer]
applied for the warrant at the direction or urging of a federal
officer”).
B.
We next examine whether the warrant was overbroad. The
Fourth Amendment requires that a search warrant “particularly
describ[e] the . . . things to be seized.” U.S. Const. amend.
IV. The warrant here authorized officers to search and seize a
wide range of materials, including “[a]ny and all bank records”
and all “items evidencing the obtaining, secreting,
transferring, and/or concealment and/or expenditure of money.”
37
J.A. 127. Moore argues that, as to the financial records to be
seized, the warrant was insufficiently particularized because it
“set no temporal limit” on which such records could be seized,
even though “the allegations that formed the basis for the
affidavit described events occurring in 2006 and 2007.” Moore
Br. 45.
We disagree. When “[t]he dates of specific documents could
not have been known to the Government,” a search warrant need
not be limited by “specific time periods.” United States v.
Shilling, 826 F.2d 1365, 1369 (4th Cir. 1987) (abrogated on
other grounds by Staples v. United States, 511 U.S. 600 (1994)).
Moore has pointed to no evidence showing that officers had
reason to believe his alleged money laundering was limited to
particular years. Though officers had Moore’s general bank
account information, they could not have known what specific
documents revealing money laundering (or other financial crimes)
Moore possessed, what years they corresponded to, or what years
(if any) would suggest money laundering. Further, where fraud is
concerned, there is leeway to allow for more expansive warrants.
See, e.g., United States v. Oloyede, 982 F.2d 133, 139-140 (4th
Cir. 1992).
At bottom, the warrant was concerned, in part, with
“financial records that, by their nature reveal an attempt to
disguise and conceal the true nature of a prostitution
38
business,” J.A. 127. Consequently, the officers had no way of
knowing the specific time periods of those records. As a result,
we hold that the district court did not err in evaluating the
sufficiency of the warrant’s particularity.
VI.
Moore next argues that the district court erred when it
excluded the following evidence: (1) exhibits showing Club
income for 2009 and 2010; (2) impeachment evidence that several
of the Club’s former employees failed to file tax returns; and
(3) evidence that Moore’s accountant advised him not to file a
tax return in 2007. “We review a trial court’s rulings on the
admissibility of evidence for abuse of discretion, and we will
only overturn an evidentiary ruling that is ‘arbitrary and
irrational.’ To that end, we ‘look at the evidence in a light
most favorable to its proponent, maximizing its probative value
and minimizing its prejudicial effect.’” United States v. Cole,
631 F.3d 146, 153 (4th Cir. 2011) (citations omitted).
A.
We turn first to Moore’s argument that the district court
abused its discretion in excluding exhibits showing Club income
for 2009 and 2010. As explained above, the government’s
specific-items method of proving Moore’s unreported income
included use of the recovered dancewatcher notebooks, which
39
contained records for just a few months, to determine a monthly
average from which to extrapolate the yearly unreported income.
At trial, Moore argued that this method overstated his actual
income because the months for which there were dancewatcher
notebooks happened to be particularly lucrative.
One way Moore sought to substantiate his position was
through income statements that Jonson prepared for 2009 and
2010, based on the daily sheets Moore provided him during those
years. He argued those documents were relevant because they
provided “some probative value in determining whether there was
consistency in the dollars that [Moore] reported” on the daily
sheets. J.A. 1201. In other words, the income Moore reported to
Jonson in 2009 and 2010 would give the jury “a more complete
picture of whether there is, in fact, underreporting or whether
the reporting is consistent.” J.A. 1203. This evidence, he
argued, showed that the Club’s income averaged $12,000 to
$17,000 per month both before the February 2008 search and after
–- not the higher amount argued by the government.
The government objected, on what seems to have been two
grounds. First, the government argued the 2009 and 2010
statements were irrelevant to the Club’s income from 2005 to
2007, the tax years in question. Moreover, even if Moore’s
reported income for 2009 and 2010 was similar to his reported
income in 2005 to 2007, that was irrelevant to the amount of his
40
unreported income in 2005 to 2007. In other words, the amount
Moore put on the daily sheets in any of the years was irrelevant
to how much he failed to include on those sheets. Second, the
government argued that, to the extent the evidence was relevant,
there was no foundation for it. The statements would only have
been relevant to the amount of Moore’s unreported income for
2005 to 2007 if the 2009 to 2010 statements, unlike the daily
sheets from previous years, included all of the Club’s income.
To establish relevance on that basis, Moore had to show that
there was a change in procedure around 2008, such that Moore
began reporting all of the Club’s income on the daily sheets.
Moore sought to lay such a foundation through Jonson, but could
not do so because Jonson lacked firsthand knowledge about
Moore’s reporting practices, and his testimony on that point was
thus hearsay.
The district court sustained the government’s objection on
Rule 403 grounds. The court first explained that Moore had
failed to lay a foundation for the income statements, and that
in any event the documents had “marginal relevance . . . if
any.” J.A. 1206. Moreover, to the extent the documents were
marginally relevant, their relevance was “outweighed by delay
and confusion”: delay because of the time “necessary to deal
with it,” and confusion because “the jury likely would be . . .
having to guess what the foundation for the document was.” Id.41
On appeal, Moore argues the court’s foundation ruling was
wrong because one of the government’s own witnesses testified
that “the post-search procedure was to record all dance income
in the cash register (which insured the accountant would pick it
up on the tax return).” Moore Br. 27 (citing J.A. 667-68). Moore
also argues that the statements were admissible “even without
that foundation, since [he] knew, post-search, that he was under
investigation and had an incentive to report his income or risk
more charged offenses.” Moore Br. 27-28 (citing J.A. 682-83).
We hold that the district court did not abuse its
discretion in excluding the income statements from 2009 and
2010. The court acted well within its discretion in concluding
that their relevance was outweighed by delay and the risk of
confusion. 9
B.
We next turn to Moore’s argument that the district court
erred in excluding impeachment evidence concerning several of
the government’s witnesses who were former Club employees. At
trial, the government stipulated that three of its witnesses
filed tax returns that were false because they did not report
9
Our conclusion is bolstered by the fact that, at trial,
Moore argued simply that Jonson’s testimony provided the
necessary foundation, and failed to make either of the arguments
to the court that he now makes on appeal.
42
cash tip income. The court permitted Moore to cross-examine
those witnesses about their allegedly false returns, on the
ground that making a false statement on a tax return is evidence
of untruthfulness, and therefore can be used to impeach a
witness under Federal Rule of Evidence 608(b).
Moore also sought to cross-examine three other former Club
employees about their failure to file tax returns at all. He
argued that their failure to file was as relevant to
truthfulness as the filing of false returns, because “[i]f you
don’t file your tax return, it could be a crime.” J.A. 797. The
district court sustained the government’s objection on Rule 403
grounds. The court explained that a person’s failure to file a
tax return is not necessarily evidence of untruthfulness,
because there might well be an innocent explanation for the
failure to file. A failure to file serves to impeach a witness
only if “the circumstances surrounding the failure to file”
prove that the witness actually owed taxes. J.A. 797. If Moore
were to ask the former employees whether they filed returns,
that question would have “opened the door to testimony about the
reasons why the former employees failed to file returns, thereby
potentially confusing the jury about the issues and delaying the
trial.” J.A. 1351. Accordingly, the court reasoned that “failing
to file a tax return was not probative of character for
untruthfulness, and, to the extent that it might be minimally
43
relevant, the marginal relevance was substantially outweighed by
the danger of confusion of the issues, misleading the jury, and
considerations of delay and waste of time under Rule 403.” Id.On appeal, Moore argues that the court abused its
discretion in so concluding. We disagree. Moore is correct that
the witnesses’ conduct could have been not only a misdemeanor
failure to file, but also felony tax evasion. But the witnesses’
failure to file would have been relevant only if they owed
taxes, and establishing that fact would have required
substantial time and effort. The court properly exercised its
discretion in finding that to the extent the witnesses’ failure
to file was relevant to their character for truthfulness, the
delay and confusion in establishing that fact outweighed any
impeachment value.
C.
We turn now to Moore’s argument that the district court
abused its discretion in refusing to admit evidence that Moore’s
accountant advised him not to file a tax return in 2007. Moore’s
tax return for 2007 was originally due April 15, 2008, and
October 15, 2008, with extensions. He had made $60,000 in
estimated tax payments during 2007, including $50,000 in
estimated federal income taxes. In October and November 2008, he
made two additional tax payments totaling $95,000 for tax year
2007. But he never filed a return for 2007.
44
Count Three charged that Moore committed tax evasion in
violation of 26 U.S.C. § 7201 because he “received taxable
income of approximately $718,398.54” and thus owed “a
substantial amount of income tax,” but “willfully attempt[ed] to
evade and defeat a large part of the income tax,” in part by
committing the following “affirmative act[s] of evasion”:
(a) maintaining a double set of books and records for
CLUB VELVET;
(b) self-funding CLUB VELVET’s ATM machines with
substantial amounts of unreported cash proceeds; and
(c) providing [Jonson] with false financial
information regarding CLUB VELVET’s gross cash
receipts.
J.A. 150-51.
As stated above, the three elements of a violation of §
7201 are (1) willfulness, (2) a substantial tax deficiency, and
(3) “an affirmative act constituting an attempted evasion of the
tax.” Goodyear, 649 F.2d at 228. At trial, to prove that his
failure to file a return for 2007 did not constitute a willful
attempt to evade taxes, Moore sought to offer Jonson’s testimony
that Jonson was told by Moore’s attorney not to file the 2007
return, given the pendency of the criminal case.
Although Moore frames his argument as an evidentiary issue,
it appears more like an argument asserting legal insufficiency.
He does not seem to dispute that his failure to file was
“willful” in the sense that he fully intended not to file.
Rather, he seems to argue that the government must also show
45
that the failure to file itself constituted an act of tax
evasion. But the government did not allege, or argue at trial,
that the failure to file was an “affirmative act of evasion.”
The statute requires proof of “evasion” only as to those alleged
acts. Accordingly, absent a reliance-on-counsel defense (which
Moore did not raise), the reason he failed to file (i.e., advice
of counsel) was irrelevant to the government’s case or any
cognizable defense, and thus the district court properly
excluded that evidence.
Further, to the extent the jury might otherwise have been
confused and believed that failure to file alone could
constitute evidence of an affirmative evasive act, the court’s
instruction was adequate to clear up any such confusion. That
instruction included the following:
[T]he phrase “attempts in any manner to evade or
defeat any tax” contemplates and charges that Mr.
Moore knew and understood that during the calendar
year 2007, he owed a substantial federal income tax,
and that he tried in some way to evade that tax.
I instruct you now that merely failing to file a
return is not sufficient to establish an attempt to
evade a tax. You may not draw any adverse inference
from the fact that the defendant did not file an
income tax return for 2007.
J.A. 1318 (emphasis added). In these circumstances, we cannot
hold that the district court abused its discretion in refusing
to allow Jonson to testify that Moore’s attorney told him not to
file the 2007 return.
46
VII.
Moore also raises two issues concerning his sentence.
First, he asserts that the district court clearly erred in
finding a tax loss greater than $400,000 at sentencing. Next, he
asserts that the district court abused its discretion in
imposing a $250,000 fine.
A.
We turn first to Moore’s argument concerning the district
court’s finding of a tax loss greater than $400,000. The
applicable sentencing guideline provides standards for “Tax
Evasion; Willful Failure to File Return, Supply Information, or
Pay Tax; Fraudulent or False Returns, Statements, or Other
Documents.” U.S.S.G. § 2T1.1. Subsection (a) establishes the
base level for the offense according to the amount of “tax
loss,” or designates the level as 6 if the crime caused no tax
loss. U.S.S.G. § 2T1.1(a). Subsection (c)(1) explains that “[i]f
the offense involved tax evasion or a fraudulent or false
return, statement, or other document, the tax loss is the total
amount of loss that was the object of the offense (i.e., the
loss that would have resulted had the offense been successfully
completed).” U.S.S.G. § 2T1.1(c)(1). Note (A) to subsection
(c)(1) establishes the following formula for computing tax loss
in cases involving fraudulent filings: “28% of the unreported
gross income . . . plus 100% of any false credits claimed
47
against tax, unless a more accurate determination of the tax
loss can be made.” U.S.S.G. § 2T1.1(c)(1) n.(A).
Under the Guidelines, the government must prove tax loss by
a preponderance of the evidence. United States v. Butner, 277
F.3d 481, 487 (4th Cir. 2002). However, “[t]he amount of tax
loss is not always a precise figure, and ‘the guidelines
contemplate that the court will simply make a reasonable
estimate based on the available facts.’” United States v. Mehta,
594 F.3d 277, 282 (4th Cir. 2010) (quoting U.S.S.G. § 2T1.1,
cmt. n.1). “In assessing whether a district court has properly
applied the Guidelines . . . we ‘review the district court’s
legal conclusions de novo and its factual findings for clear
error.’” United States v. Manigan, 592 F.3d 621, 626 (4th Cir.
2010) (citation omitted). “Generally, the district court’s
calculation of the amount of loss for sentencing purposes is a
factual finding reviewed for clear error.” Mehta, 594 F.3d at
281.
At sentencing, the government presented two alternative
ways to calculate the tax loss: a “conservative” method, which
yielded a loss of $321,000, and an “aggressive” method, which
yielded a loss of $458,606. Moore objected to both, and the
district court adopted the latter.
The first method, which resulted in the more “conservative”
loss of $321,000, was a reiteration of the government’s modified
48
bank-deposits analysis at trial, although it credited Moore with
sales and admissions taxes the Club had paid from 2005 to 2007.
This analysis, which was modified to limit deposits to those
attributable to ATM withdrawals, yielded a loss of $321,676.
That was the number adopted by the Probation Office in its pre-
sentence investigation report. Moore argues that this
calculation was erroneous because “the IRS[] fail[ed] to credit
Moore with the approximate $359,000 in deposits he made to the
business before 2005.” Moore Br. 47 n.7. This argument fails for
the same reasons the $359,000 in pre-2005 deposits could not
offset taxes due on income the Club received later.
The government’s second calculation was more aggressive,
and yielded a loss of $458,606. The government reached this
figure by extrapolating from the five months of records
contained in the dancewatcher notebooks. Leaving out some
additional potential sources of income, the government
calculated that in these five months, the total unreported
income was $96,988 in lap dance fees and recorded fines, and
$51,030 in minimum dance fines. This produced a monthly average
of $19,416 in unreported lap dance fees and recorded fines, and
$10,206 in unreported minimum dance fines. The government then
multiplied these average numbers by the number of months between
March 2005 and February 2008 for which there was no dancewatcher
data, and added to the unreported income amounts for the five
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months for which data existed. This produced a 36-month total of
$1,065,742 in unreported income. The government then calculated
the total federal and state tax loss from 2005 to 2007 by adding
the $1,065,742 in unreported income to the income Moore reported
on his 2005, 2006, and draft 2007 returns, and then calculating
the resulting additional tax due. This resulted in a total tax
loss of $458,606.
Moore argues that this analysis suffered from five flaws,
but we are not persuaded by his arguments. First, Moore argues
that “the data sample was too small.” Id. Moore is correct that
the government relied only on dancewatcher notebook tallies from
July 2005, 10 days in August 2005, December 2007, January 2008
and part of February 2008, and then extrapolated the data from
those five months to the remaining 31 months. But this was a
reasonable methodology, especially because the government
expressly excluded several categories of income in order to err
on the side of underestimating Moore’s unreported income.
Second, Moore finds error in the fact that part of the
sample was from January and February 2008, rather than the years
for which Moore was prosecuted. This argument erroneously
assumes that there was something about January and February 2008
that rendered the Club’s income non-probative of the Club’s pre-
2008 income. There was nothing inherently wrong about using
50
dancewatcher tallies from 2008 to estimate the Club’s monthly
income in previous years.
Third, Moore argues that the income in some of the months
included in the calculation was not representative, and that the
government should have included data from 2008 to 2010. But
Moore has not shown that the district court’s adoption of the
government’s calculation was clearly erroneous. Similarly, the
court did not clearly err in declining to consider income
amounts for the remainder of 2008. As the government explains,
“the trial evidence showed that the change in defendant’s
reporting practices was the result of the search of Club Velvet
and, moreover, even though the amounts defendant reported
increased, business volume actually declined following the
search.” Gov’t Br. 52. 10
Fourth, Moore argues that the government’s method of proof
erroneously failed to deduct from his gross income certain
business expenses, namely cash payments to waitresses, dancers,
cover charge collectors, and doorwatchers. Although he did not
10
Moore also argues that by including February 2008 in its
calculations, the government understated his reported income
because the warrant was executed on February 23, 2008, and he
had not yet reported that month’s income to the accountant. But
as the government correctly points out, that fact is irrelevant
because Moore had completed a daily sheet for each day in
February prior to the search. The amounts he intended to report
to his accountant were therefore apparent.
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claim these as deductions on his tax returns, he argues the
district court erred in failing to deduct these expenses in
calculating his total taxable income for sentencing purposes. 11
The government offers two arguments in response. First, the
government argues Moore’s position is “unsupported by the
record” because Moore “fails to point to any evidence
demonstrating the timing or amount of these purported cash
expenditures.” Gov’t Br. 53. Second, in reliance on United
States v. Delfino, 510 F.3d 468 (4th Cir. 2007), the government
argues that “the district court was not required to consider any
deductions attributable to cash expenditures that [Moore] never
claimed on a filed tax return.” Gov’t Br. 53. 12
If the district court had to take into account potential,
but unclaimed, deductions, the burden is on Moore to prove he
was entitled to those deductions. United States v. Gordon, 291
F.3d 181, 187 (2d Cir. 2002). Thus, Moore is arguing (1) as a
legal matter, tax loss must account for unclaimed but proven
deductions, and (2) he met his burden to show that he was
entitled to deduct from his gross income cash he paid to
employees. The government responds that (1) as a legal matter, a
11
Moore claimed deductions only for those payments he made
by check.
12
We review de novo whether “the tax loss includes
deductions.” Delfino, 510 F.3d at 472.
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taxpayer convicted of tax evasion or filing a false return is
not entitled to unclaimed deductions in calculating tax loss
under U.S.S.G. § 2T1.1, and (2) even if tax loss should be
reduced by the amount of unclaimed deductions, Moore did not
prove he was entitled to any unclaimed deductions for cash paid
to employees.
Moore’s argument is mostly, but not entirely, foreclosed by
Delfino. There, however, the defendants did not file any tax
returns, whereas Moore filed tax returns for 2005 and 2006, and
for most purposes the government treated Moore as if he had also
filed a tax return for 2007. We decline to determine whether
this distinction renders Delfino distinguishable, because
Moore’s claim fails for another reason: he has not presented any
evidence demonstrating the timing or amount of the expenditures
purportedly giving rise to unclaimed deductions. In other words,
Moore failed to prove he was entitled to a deduction (albeit
unclaimed) for business expenses based on cash expenditures to
dancers and other employees.
Fifth and finally, Moore argues that the government failed
to reduce the alleged unreported income by the $359,000 in
deposits he made from his personal account to the L.A. Diner
account. This argument fails for the reasons discussed above.
The district court thus did not err in finding a tax loss
greater than $400,000.
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B.
Moore also challenges his fine. At sentencing, the
government sought, and the court adopted, a two-level upward
departure to a guideline level of 24. For this offense level,
the advisory fine range was $10,000 to $100,000. U.S.S.G. §
5E1.2(c)(3). The district court imposed a variant fine of
$250,000. Moore argues the fine was “excessive and not justified
by the record,” and in any event the district court imposed the
fine “without sufficient explanation.” Moore Br. 54.
We disagree with Moore. First, the district court’s
explanation was sufficient. In explaining its decision to vary
upward under 18 U.S.C. § 3553(a), the court stated that the
increased fine was necessary “to reflect the seriousness of the
offense, including the loss here, and to promote respect for the
law and promote just punishment and afford deterrence.” J.A.
1548. The court also noted that Moore’s offense was particularly
serious, justifying an above-Guidelines fine, because (1) Moore
“engaged in a deliberate, calculated scheme”; (2) “he did it in
a way that lasted over a substantial period of time”; (3) “he
tried . . . to imbue [his scheme] with legitimacy by using his
accountant and misleading his accountant into what the income
was”; (4) he “engaged in some of the most obstructive behavior”
that the court had seen; and (5) he engaged in that behavior
“even while the case was proceeding to and during trial.” J.A.
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1549-50. In the court’s view, Moore, “and anybody else who would
be inclined to commit offenses such as this, need[ed] to be
deterred from” committing such conduct. J.A. 1550. This was a
satisfactory explanation for the upward variance on the fine.
Second, the evidence supported the district court’s finding
that Moore engaged in “obstructive behavior.” First, Moore tried
to influence Lauren Jennings, a former waitress and bartender at
the Club who was subpoenaed to give grand jury testimony. She
testified that Moore told her to lie to the grand jury and
testify that she was paid by check, not in cash. Second, before
trial the government showed that one of the witnesses the
defense planned (but later declined) to call, Claire Coleman, a
former Club dancer and dancewatcher, was receiving a “pretty
penny” for testifying. Third, there was evidence that Moore
tried to hide his assets. After learning of the indictment,
Moore transferred his interests in the Club to a friend, Scott
Staten, who sold the club to a third party but maintained the
proceeds for Moore in an account under Staten’s name. Staten
also sold four of Moore’s vehicles for him, maintaining the
proceeds in the same manner.
Moreover, the fine was within the statutory maximum. Under
18 U.S.C. § 3571(d), the maximum fine is “twice the gross gain
or twice the gross loss.” As discussed above, the district court
did not clearly err or abuse its discretion in finding that the
55
amount of the tax loss was over $400,000. A $250,000 fine
obviously does not exceed twice that loss.
VIII.
For the reasons set forth, we affirm the judgment in all
respects.
AFFIRMED
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