y today before the court this case is and is an appeal off of the request to jury charge of willfulness in a criminal tax fraud case the appellant was charged with six counts the first count being conspiracy concerns conspiracy to willfully adan system the false preparation of tax returns as a tax preparer the counts two through six were five substantive counts that related to the actual filing of the of the returns that were that are alleged in the conspiracy count after a jury trial the jury acquitted the appellant as to the conspiracy count but found him guilty  in a criminal tax case especially h e construction which is what we're talking about today requires a evaluation of the facts of the case because it's not always appropriate and all tax cases and certainly isn't appropriate in a large number and any other tax case that any other case and i'm aware of in this particular case the facts are that the appellant john carter was a an accountant he had an accounting degree from a university he worked for tenneco is counted for sixteen years after he left tenneco he started to generate income through tax returns and around two thousand he did a tax return for his brother his brother robert carter had made had purchased a large amount of african art and had made a charitable donation of this art to texas southern university mr carter did the return and in the return of brother asked him to and he did make a request for a deduction based on the fair market value of the art that was given to the ch institution that being the university based upon that occurrence mr carter started a practice of purchasing either having his clients purchase for him purchasing african and doing tax returns were in the art would be contributed to either a university or a museum or something or other church institution then mr carter would fill the returns out there and he would claim the fair market value of the art as a deduction so that the clients the tax payers could receive a size of the direction off of the the charitable gifts the requirements to make a charitable deduction under the i r s were for our purposes essentially threefold that one that there be an accurate appraisal of the value of the art to that the art be given to a qualified charitable institution and that those items that that appraisal and that that donation be submitted in a form an i r s form eighty two eighty three form and three that in order to declare the fair market value of the art that the art must be possessed of the charitable or it must be possessed for a period of one year prior to making the donation the donations made prior to the one year then you cannot get the fair market value you only get the value you paid for on the yard it is interesting that in this case the amount paid for the art is considerably less than what the appraisal said they are his worth however that was not an issue that was submitted by the government and its indictment or its proof as being part of the fraud in this case the government didn't produce any evidence that about one of the up at this library in south carolina i don't see any evidence the government presented that's correct that's correct on the question was whether the timing on the the government had two theories of fraud in this case one of them is the fact that the art was back dated for an inappropriate year that instead of the charitable donation being made being made in two thousand and seven it was made in two thousand and four carry forward to two thousand and nine two thousand and ten to having back dated the art filled out the form incorrectly saying that it was donated in two thousand and seven when in fact it was donated according to the government in two thousand and two coconspirator plead guilty to a conspiracy count or some other  tax related i think you figure pled guilty to a substantive count ok ok and the other thing i want just to be clear when you listed the three elements in order to claim the deduction as i understand it the defendant your client testified that he was aware of the one year holding rule to claim the deduction but he was unaware that mr jar was back dating the forms is that correct he's he said that he was unaware that mr  was there in the record on page record on appeal five forty three through five sixty nine the defendant claimed that he was totally unaware that he had to wait here before he made the contribution but that he did rely on mr jaro his coconspirator to submit the art in the appropriate year two thousand and seven in order to qualify for a deduction and two sorry yes it was five thirty six five forty five eighty is where the defendant testified he did not know of the one year rule that he had to hold the art for one year at the conclusion of the testimony the defendant the poet requested the jury instruction and the jury instruction that requested with it was requested this very similar to had an object had an object of lee on reasonable belief and that what he was doing complied with the titles then he could not be found guilty of tax fraud or in other words even though ok a court or a jury may find it isn't reasonable for him not to have known about a certain aspect of the tax law if he and good honest faith believe that was the case then he would not fulfill the qualifications of a willful violation of our federal tax laws the instruction you wanted in your entire good faith defense went only to that theory about the one year holding requirement right because  if the government no one theory case just on the back dating that would've been a he said she said about when this whether your client knew about the back did he wasn't his but his knowledge of the tax laws on that issue that's correct your honor i believe that if all they had was a back dating theory of fraud that i would not have been entitled to the cheek instruction i think the cheek as been modified through the years and it's pretty clear that it applies only to very specific set facts situations it has been trimmed down to exclude for example people that don't believe in our tax laws tax protesters at applied of them were as originally as written that could have been interpreted that way it has been modified to the point that it applies to specific facts situations were in attacks were and i defended it is claiming ignorance of a particular aspect of the tax code and there is  question as to whether that ignorance is objective only and reasonable on the to think it's part the jury must decide and they are we are entitled to the defendant is entitled to instruction on that very issue what is interesting about the facts in ariel in this case is that the same jury instruction was appealed from judge hughes the same instructions appeal to the first circuit in the case of that gummer that both parties cite but that decision was not handed down until about a month after this trial was over so judge hughes did not have the benefit of the government case when he when we had our jury and submitted jury instructions when there was a hearing harmless error it says that unlike the cheek instruction instruction sheet was an inaccurate statement of the law it said if his belief in the awfulness of his actions isn't reasonable he can't have a good faith defense that's just an inaccurate statement  law there was an issue in cheek here in montgomery you just have an omission judge shoes didn't tell the jury oh if he's on reasonable in his belief you keep you know he loses the good faith defense he just didn't give that additional instruction so in so  he says well since it's really a problem of omission rather than misstating anyway you know you could have argued all this in closing the instruction in a prevent you from arguing that so i want that same analysis h for an acquittal it's one thing for me to argue that it's another thing for the court to instruct the jury that they may not be you may not think it's reasonable that a tax preparer is not aware of this this one you're holding well this fair fair market value but if you honestly believe that he that he wasn't aware of it then you must acquit there's a big difference between me arguing it as an advocate and the judge instructing the jury that that is the standard by which they make that determination and dad is what we're asking the jury to didn't this or was that we're asking the jury to do in this case was to make that determination because the government put on a significant amount of evidence primarily through the case agent and also an argument how reasonable is it for a person to be engaged in the practice of tax preparation and to be making these deductions but yet not being aware of this when you're holding and the question then becomes not as to how reasonable it is for the quarter the average juror but how reasonable it was whether mr carter in fact honestly believe that or whether he is trying  to deceive the the jury on this particular issue so it was being held in the wrong state we there's an issue as to harmful air here the standard is whether it could have affected the outcome common sort of requirement it is or on a nation it is common judge to declaim to claim that fair market value it must be held for a year is in one part of the code as it relates to a charitable the court feels that this was errors did the mcgovern record then the question becomes whether it's harmless error we argued in our appeal that will because i find him not guilty on the conspiracy that therefore it cannot be harmless the conspiracy counts the one that involves appraisal and that therefore of the jury was convicting him based upon that the hold in the art for a year the government has responded recent other apple is responding recently with two cases saying you cannot extrapolate facts from a jury acquittal i agree with that but the government when they argue that the facts in this case are overwhelming as to guilt on the backdating aspect of the case is asking the court to do just that the conspiracy elements in this case are the very elements that are found in both fraud cases both the back dating aspect as well as owning it for a year if we to to hold that the government's evidence of what they view as overwhelming guilt on the back pain is the only thing that we're to consider we're ignoring the fact that this jury decided that the government did not meet all the elements beyond a reasonable doubt your time has expired yes or it was sometime the claim for the cheap instruction does not apply at all to the first theory of prosecution we had that these tax returns claimed taxpayers were donating art in a year in which they didn't own the art or make any donations the evidence is sufficient for that the mr jaro testified that he back dated but even if you discount it or threw out mr jarvis testimony the rest of the evidence in the case is sufficient to support that theory the one thing all the taxpayers testified to that fact they didn't own of the author of don't it in two thousand and seven for the two thousand and seven returns by the way one of the returns of the two thousand and eight return which will probably address later by itself but besides the testimony of the taxpayers there is some written evidence mr estell on his two thousand and seven return paid for the art for that years to duction in two thousand and eight we had his check introduced into evidence it's  exhibit to see it's dated march three two thousand and eight mr patterson paid five thousand dollars down for the art in february february nineteenth of two thousand and eight and that supported their testimony they did not buy the art in two thousand and seven the other taxpayers pearson and hightower and the remainder of mr patterson's fees were collected out of the income tax refunds they later received so those monies weren't zero seven they weren't even paid when the return was prepared they were going to be paid to mr carter if the i r s made the mistake of issuing these large income tax refunds in this case besides that evidence  you can look at the tax returns themselves and it jumps out at you that these donations have to be false for the four returns that are two thousand and seven returns if you look at the form eighty two eighty three that's attached to each one of those returns it all shows in the bottom of the second page of the form that the art was appraised on the same day twelve eleven zero seven it was signed by the don't e on twelve eleven same exact day on all four returns the trouble is mr john r rose appraisal office is in houston and the yard was delivered in part to brian texas and also the st george south carolina a library up there and  missed that part in our brief but that would have put mr jara at three places on the same day twelve eleven o seven and i crossed mr carter about that at trial how could mr jara be three places at once and he had no answer for that the sides that mr carter tried to testify that he made a home equity loan of one hundred thousand dollars that would have paid for some of his art but he had to admit on cross that there were no withdrawals from his bank account when he b made that home equity loan prior to these returns mr carter did not sign these tax returns and we crossed him on that in the record of pages five eighty and eighty one he tried to dodge that question and it was a clear  inference that he knew he shouldn't be signing these returns and of course there was the panic evidence when the agent approached mr carter about this he didn't talk to him at first he started shredding the forms eighty to eighty three that he had in his office he later realized that's not going to do him any good because the eighty two eighty three zero tatchell tax returns and filed with the i r s so he explained that he just panicked i think it's important to keep that evidence in mind with the fact that one of his clients panicked too when mr hightower was visited by the agent he claimed he inherited all this art from his grandfather which was a lie and then he later went to the i r s and corrected that statement if the client panicked and knew that was the problem on his tax return to prepare a new t and for the two thousand and eight return which i put off in may that's our that was our count three that's mr estelle's second return he had the two thousand and seven return which is our count two and then his two thousand and eight return mr estell had two forms eighty two eighty three attached to his return for two thousand and eight one of them is dated twelve eleven o seven just like the zero seven returns it's the wrong year on the face of the for the other one the art on that one according to jar was delivered in july of two thousand and eight mr estell testified he didn't pay for the two thousand and eight or until november two thousand and eight which would keep him from having a one year hold over one year holding period acquittal means is that we did not prove beyond a reasonable doubt one of the elements of conspiracy and as i listened to the prior stand i thought i should also mention to the court that if the court see acquittal on the conspiracy count to be an inconsistent verdict with the substantive counts and i'm not saying it is committing a crime and then conspiring to commit the crime are really not the same things but the law in this circuit is that inconsistent verdict permissible because it could be explained as a jury mistake compromise or lenity but he's not challenging the he's not actually of counsel on factual sufficiency and in what he's saying is there's this be erroneous jury instruction and then it becomes your to show harmless error so why shouldn't in deciding whether you've met your burden to show harmless error why shouldn't we consider that there was this acquittal on this one conspiracy count worth considering but i would say there may be and i hate to speculate because those letters that twenty a j letter i mentioned i sent and explained that we're not supposed to speculate what factual findings could have been there but the jury could have could have had two other reasons for acquitting him on that conspiracy count one reason is mr jara didn't plead to a conspiracy count the second reason is mr jara didn't prepare tax returns he filled out these forms eighty two eighty three but that was it he didn't know the taxpayers income he did know what effect it would have on the return and he showed that the devil would know whether there would be carried forward years in which the tax deduction would be carried forward perhaps the jury was concerned with that but as long as the evidence is sufficient for the substantive counts and as i pointed out it is sufficient for that i'd like to address now the argument on our second theory of prosecution that mr carter claims he knew when he did not know that you had to hold the art the the art for more than one year before he did donated samarkand that it was science a fact that this man had an accounting degree in which he took at least two classes in tax preparation i think he said and besides the fact that he worked at a very responsible job with an oil company and he testified that at that company he had the keys to the kingdom besides that the form itself tells him when you're donating are over twenty thousand dollars to see the instructions and there are other things he may do that are not on the face of this form or on the face of a schedule a which this form relates to he knew that are could be donated only up to fifty percent of the just of gross income that's in the instructions he knew that you could carry forward access to documents for five years that's in the instructions not on the face of the forms and he also knew the one you're holding period he explained a trial that on mr estell returns on schedule d which deals with stocks and bonds he knew all about the holding period the capital gains long term capital gains short term capital gain and so forth he tried to testify at trial that he and he testified quote he got to testify pulling that this and explain his whole story to the jury and it was i didn't know where i bought the art who i bought it from or how much i paid for it he claimed he bought the art from people in the shadows he kept no records of the art even though he's an accountant he couldn't explain any of that and then he also testifies why i thought i signed the returns well i must not have and then he acts and then he explains i just didn't know anything about the holding period or anything it's a convenient defense of explaining how he didn't know any of this but when you put it in perspective on these five tax returns there was a one point seven million dollars of our donated on the ones dated twelve eleven zero seven and another two hundred thousand on the one hundred fifty thousand i the second one from this or else those two thousand eight return that's one point seven million dollars of art that he is just getting to these clients to put on their tax returns during taxes and half of them couldn't pay him they were waiting to see if the i r s sent the refund check out before he could get paid and how much he paid for the article he conveniently can't tell us but what we could gather mr estell paid him ninety three thousand dollars to get over nine hundred thousand dollars of  deductions and the rest of the art people the taxpayers are paid in from their refund checks the total mr mr carter received was something less than one hundred sixty thousand dollars as best we can calculate for one point seven million dollars our deductions but your theory wasn't that the inflation was it wasn't necessary it wasn't for us to try to prove that the art was inflated would have involved swearing match of experts and would have involved trying to find this art mr car library but we decided it was not worth the expense or trouble to try to locate the art compare it to pictures because there wasn't much writing being done it his bank records show that he was paying out these withdrawals to show where he was buying the ar know the bank records wouldn't he was paying cash he tended to show withdrawals of cash they would then explain where he got the money to buy the art from no you're on a d we only checked when he brought that up about his home equity loan there with no withdrawals around the time or that the art was being purchased for these blind people but we have absolutely no record mr and mr carter could give us no indication of what it was the jury heard this entire story and on the good faith defense i wanted to say a couple more things  the montgomery case held that not only was that evidence overwhelming but there was nothing in judge hughes's instruction that prevented the defense from placing its full defense before the jury and i submit to you this was the same judge roughly the same instruction and i was involved in both of those trials and i didn't see any difference between what judge hughes allowed the defense was allowed to cross examine the special agent and specifically asked him at trial if a man doesn't understand that adoption it's not a crime is it and a special agent truthfully answered in most cases know the correct answer then mr carro testified he didn't know the instruction and then the defense argued it  closing in the record that pages seven forty five and seven forty six and the defense was not getting any objection from us on this we are in fact we didn't object to his instruction at all because we were trying to avoid this appellate issue the instruction judge judge hughes agonized over this instruction he read sim cannon and the pump pony in case carefully and in both of those cases he drew the conclusion that if i instruct the jury properly on willfulness a good faith instruction is not needed and that's truly what those cases said and as i read montgomery montgomery i guess came to the conclusion if you're going to mention the word good faith you need to lay it all out and it's a it can be on reasonable i think in this case when you consider the context of this trial and everything that was put in front of the jury judge hughes instruction was not out in left field it was close to what it was enough and a valid reading of the law but not what the two one panel decision in montgomery agreed with and you consider the way mr carter was able to testify and argue this case that he was not deprived of of getting his defense before the jury the evidence in the case those is  just overwhelming  i'm trying to think if there's anything else that's on your minds that you want me to address about the order if they aren't needs to be health for over one year that's the capital danger or a year or less would make it less than to market value and of course in this case without knowing what mr carter paid for the art that he bought from people in the shadows we would have no way to try to figure basis in both cases basis would be the value you could you deduct on these returns but we're not left with that we're left with the story that we as we told the jury in closing what this story tells you is mr carter was peddling income tax deductions during filing s he was talking to people in the spring of the year following the tax year and arranging for payments of art that were backdated to take huge deductions hundreds of thousands of dollars on each return and some of the times waiting to get paid for his services from a refund check if it came that smacks of a peddling of tax schemes not any true organizations and as these people testified they didn't know these entities that the art was being donated to they never held the art in their hands and it just makes sense that people that have that much art to donate would have an institution they would like to direct it to or at least to see it hold in their own hands but that's not what we had in this case i think the evidence is sufficient to let's do sustain the convictions on the council much the defendant was convicted it's overwhelming that he did not operate but a good faith belief in what the law was but even without that our theory of prosecution stands under our feet up on the conviction stands under our first theory of prosecution if there are any other questions on i'll take them otherwise and i don't believe i have any more carter the peddling the doctrines his income tax return aspect that every tax preparer in this country would be guilty of advertising that they think that they could get you in the duction their tax returns the arguments that mr asher presented are factual arguments that he presented to the jury on the conspiracy count in that and that in the case and should at least in that respect the jury rejected his arguments it's interesting to note that on the tax preparers he talks about mr still the defendant points out on the record on page three sixty six that he did meet with mistress still in two thousand and seven and they did talk about making these deductions this pearson said that she could have met with the defendant in two thousand and seven or two thousand and eight that's in the record three ninety nine mr patterson said he meets with the defendant in two thousand and seven to discuss his taxes that's in the record for forty two and hightower the defendant claims it was referred to by his father who said he wanted to make these deductions now we never win into the value of the art the government chose not to charge that we didn't have to defend that they didn't present that as part of the for all but yet he stands before you and tells you that it's just irrational and then reasonable that you could possibly say that this jury charge of affect the outcome of the case because there's one point seven million dollars in art that was made here their witness mr jarl got on the witness stand and testified that as far as he was concerned the fair market price all on this art was correct my client said the fair of value as far as what mr jarvis telling him was correct that was not an issue before the jury and i don't understand why would be an issue before this court of this particular time but what about the checks that he brought up on the about those checks however was that ok we have this arc i've already purchased this art this art will be yours you will make the donation and you will pay me if in fact the donation comes through and or  it they just didn't pay him until a later day that is what he told the jury now once again this was presented before the jury the jury analyzed this and rejected the fact that mr  out those eighty two eighty three forms and submit them to the to the to the institution that and then subsequently where they were submitted to the rest so it's as much a speculation to say that the government  overwhelming evidence of guilt on this backdating as it is to say that this not guilty on conspiracy didn't have anything to do with the back a day in the late speculation in doing a harmless error analysis it's just  not appropriate i don't think as to the issue of that i could have argued and did argue that the defendant could honestly have believed that he didn't know what the tax laws were that he could hold of a year once again he was making a false assumption that if they thought well that's not reasonable for him to not know that all therefore we will find him guilty that's not the law sets therefore the treason title be instructed them