In the

United States Court of Appeals

For the Seventh Circuit

No. 09-4077

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

WAYNE W. KRUSE,

Defendant-Appellant.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 1:08-cr-00339-WCG-1—William C. Griesbach, Judge.

ARGUED APRIL 14, 2010—DECIDED MAY 25, 2010

Before POSNER, RIPPLE and KANNE, Circuit Judges.

RIPPLE, Circuit Judge. Wayne W. Kruse was convicted

of one count of conspiracy to defraud the United States,

in violation of 18 U.S.C. § 371, and three counts of

filing false income tax returns, in violation of 26 U.S.C.

§ 7206(1). He now challenges the sufficiency of the evidence supporting his conviction. For the reasons set

forth in this opinion, we affirm the judgment of the

district court.
2 No. 09-4077

I

BACKGROUND

Mr. Kruse owned Wayne’s Caulking as a sole proprietorship. He had owned the business since 1991 and has

been in the industry approximately 35 years. During times

relevant to this case, Mr. Kruse employed a bookkeeper

and receptionist, Jody Zepnick, and used the services

of a paid tax preparer, Lonny Swaney, who owned

Pullen Accounting. The evidence established that

Mr. Kruse filed materially false income tax returns for

the years 2002, 2003 and 2004. His returns claimed deductions for non-existent business expenses and therefore

underreported his business income by $476,287 over

the three years. The underreported amounts ranged from

$100,000 in 2003 to $198,802 in 2002. Consequently, the

amount of tax due was underreported by $168,532 over

the three years. The dispute at trial focused on whether

Mr. Kruse willfully had filed these false returns.

We review the basic evidence submitted to the district

court who sat as the trier-of-fact. In 2005, the Government audited Mr. Kruse’s returns. At Mr. Kruse’s direction, Zepnick worked with IRS revenue agent Robert

Ulrich during the audit. Agent Ulrich asked Zepnick to

document a $105,803.72 expense from December 2003,

attributable to job materials. Zepnick produced invoices

totaling $5,803. Zepnick also indicated that, according to

Mr. Kruse, receipts documenting the remainder of the

expenses had been moved to Mr. Kruse’s residence

because of insufficient storage room at the shop. Agent

Ulrich testified, however, that “[i]t appeared that they
No. 09-4077 3

had plenty of storage in their business location.” Trial Tr.

at 45, Apr. 13, 2009. Agent Ulrich subsequently met

with Mr. Kruse. Mr. Kruse stated that he had gone

through the boxes he had moved and could not find the

receipts. He said that he must have totaled the invoices

at the end of the year.

Mr. Kruse also had tens of thousands of dollars in

unreported gambling winnings as shown in W-2G’s—

$12,000 in 2003 and over $100,000 in 2004. Agent Ulrich

testified that, when asked why he did not report

the winnings, Mr. Kruse stated that “[i]t wasn’t that

much, so he didn’t think it mattered that much.” Id. at 64.

Although Mr. Kruse indicated that he thought he

was losing money on his gambling, he did not keep

records of it.

After Agent Ulrich’s audit, the case was transferred to

Special Agent Jeffrey Luepke. Mr. Kruse told Special

Agent Luepke that no suppliers billed him at the end of

the year, and there would not have been any large, end-ofyear inventory purchases. When asked about the

$105,000 entry from 2003, Mr. Kruse stated that he did

not know where that number had originated or why

there would be such a large entry at the end of the year.

He said that Swaney, his tax preparer, must have made

the entry. Mr. Kruse had a similar response to a $140,000

entry from 2004. Mr. Kruse also stated that he was

making $300,000 to $400,000 per year from the business.

When told that his tax returns only showed about

$100,000 of income per year, Mr. Kruse “stated maybe he

wasn’t as profitable as he thought.” Id. at 194. Mr. Kruse
4 No. 09-4077

again acknowledged his gambling winnings, expressed

his belief that he was losing and stated that he did not

keep any records.

In a second meeting with Special Agent Luepke,

Mr. Kruse attempted to explain the inconsistency

between what he earlier told Special Agent Luepke and

what he had told Agent Ulrich. The amount of expenses

documented at his home, Mr. Kruse stated, would not

come close to the amounts in question. Moreover, he

did not recall totaling up receipts at the end of the year.

He also stated that he did not know the origin of a

$175,000 entry from 2002.

Mr. Kruse also told Special Agent Luepke about his

contacts with Swaney. According to Special Agent

Luepke, Mr. Kruse said that the two had met “to discuss

his taxes and that during that conversation they talked

about how they could use the term ‘balance things out’

and they could move things here and move things here

[sic] to reduce his tax liability.” Id. at 206. Mr. Kruse

also told Special Agent Luepke that he and Swaney

recently had agreed to “cover each other’s backs. And

[Special Agent Luepke] asked him what that meant, and

he said, [w]ell, we said we wouldn’t squeal.” Id. at 207.

Mr. Kruse admitted that he knew something was going

on with the tax returns, but did not know the extent of it.

The documentary evidence introduced at trial included an annotated profit-loss statement from 2004. The

annotations, in the handwriting of Swaney, stated:

“Added $199090.00. Saved $74459.66 in taxes.” Ex. 14. Also,

documents revealed that Mr. Kruse took personal draws
No. 09-4077 5

in each of the years in question that dwarfed his

reported income. Finally, the tax returns from 2002

through 2004 reflected profit margins of only 8-11%,

much lower than the 26% margin reflected in 2005 and

32% in 2006.

When Zepnick, Mr. Kruse’s bookkeeper, was asked

whether Swaney “was involved in preparing tax returns for Mr. Kruse’s business,” Zepnick answered, “I’m

assuming no. I don’t know for certain who did the taxes.”

Trial Tr. at 101, Apr. 13, 2009. When asked if she remembered what kinds of records she provided during the

IRS audit, or any bumps in the road during the audit,

Zepnick said no. She did not recall any questions from

the auditor concerning the amount of $105,803.72. She

also testified that Mr. Kruse does none of the bookkeeping work for his business, and that she never went

through the tax returns with Mr. Kruse or even saw him

look at them. She admitted, however, that she provided

information from Pullen Accounting to Swaney’s son,

Michael, to be entered into the business’s QuickBooks

computer journals.

Mr. Kruse testified that he met Swaney for five minutes

after Swaney called to introduce himself and to tell

Mr. Kruse about his impending takeover of Pullen Accounting. Mr. Kruse further testified that he and Swaney

never discussed the preparation of tax returns. He

testified that he never reviewed his actual tax return, he

“just sign[ed] it and sen[t] it back.” Trial Tr. at 95, Apr. 14,

2009. He never had prepared his own tax returns. He

did not recall getting the annotated 2004 profit-loss state-
6 No. 09-4077

ment from Swaney. He also testified that it never

occurred to him that he would be violating the law by

“put[ting] this over here, this over here to give me the

best tax break that they can come up with.” Id. at 107.

Mr. Kruse was convicted following a bench trial. The

district court issued a written decision in which it emphasized several facts. No one other than Mr. Kruse

profited from filing the false tax returns; the profit-loss

statements reflecting the fictitious expenses were taken

from Mr. Kruse’s own business; Mr. Kruse had made

contradictory statements to IRS officials and admitted

to making some sort of agreement with Swaney; and

Mr. Kruse had made large personal draws for himself

that dwarfed his reported income. The court also noted

Mr. Kruse’s gambling habits, which suggested a possible

motive for his conduct, as well as a willingness to

cut corners on taxes.

The court noted that Mr. Kruse denied that he had

entered into a conspiracy or that he willfully had overstated his expenses, but found this testimony not credible. Moreover, that lack of credibility strengthened the

case against Mr. Kruse.

II

DISCUSSION

Mr. Kruse contends that the Government did not

prove that his conduct was willful and that the Government did not prove that he conspired with Swaney. We
No. 09-4077 7

first shall review the legal principles that guide our

inquiry.

In order to convict Mr. Kruse of filing false tax returns,

the Government was required to prove, among other

things, that his conduct was willful. This element

requires “proof of a ‘voluntary, intentional violation of a

known legal duty.’ ” United States v. Ellis, 548 F.3d 539,

542 (7th Cir. 2008) (quoting Cheek v. United States, 498

U.S. 192, 200 (1991)). In order to convict Mr. Kruse of

conspiracy, the Government had to prove (1) that

the charged conspiracy existed, (2) that the defendant

knowingly and willfully joined the conspiracy with

intent to further the conspiracy and (3) that an overt act

was committed in furtherance of the conspiracy. United

States v. Presbitero, 569 F.3d 691, 704 (7th Cir. 2009). The

intent required is intent to defraud the United States.

Id. at 704-05.

When reviewing the sufficiency of the evidence, we

view the evidence in the light most favorable to the

Government and reverse only if no rational trier of fact

could have concluded that all elements of the offenses

were proven beyond a reasonable doubt. United States v.

Khattab, 536 F.3d 765, 769 (7th Cir. 2008). We do not

weigh the evidence or assess credibility. United States v.

Huddleston, 593 F.3d 596, 601 (7th Cir. 2010). “[A] verdict

may be rational even if it relies solely on circumstantial

evidence.” United States v. Warren, 593 F.3d 540, 547

(7th Cir. 2010) (internal quotation marks and citation

omitted).
8 No. 09-4077

In his reply brief, Mr. Kruse cites United States v. Durrive, 1

902 F.2d 1221, 1225 (7th Cir. 1990), to argue that the Government may not rely on the now-discredited “slight evidence”

rule to prove the defendant’s participation in a conspiracy.

The Government does not rely on such a standard. It acknowledges that we shall affirm if the evidence, taken in the light

most favorable to the Government, is sufficient to prove all

elements of the crime beyond a reasonable doubt. We note

that, in Durrive, we said that “we will continue to . . . accept

circumstantial evidence as support, even sole support, for

a conviction.” Id. at 1229.

The evidence at trial was sufficient to justify Mr. Kruse’s

conviction. Indeed, it was substantial. Government 1

witnesses testified about conflicting explanations of the

tax returns given by Mr. Kruse. According to these witnesses, Mr. Kruse told Agent Ulrich that Mr. Kruse had

totaled the invoices at the end of the year and those

invoices would have supported the tax return, but that

he could not find the receipts. Later, he told Special

Agent Luepke that he had no idea where the figures on

the tax return had originated. The contradictions in this

testimony allowed the district court, as fact-finder, to

infer that Mr. Kruse was altering his story because he

knew the returns were false.

Mr. Kruse also told Special Agent Luepke that he was

making $300,000 to $400,000 per year from the business—figures that greatly exceeded those on his tax

returns. The district court therefore could infer that

Mr. Kruse knew he should have reported additional

income. Finally, Mr. Kruse took personal draws from
No. 09-4077 9

Mr. Kruse submits that “the District Court erred in giving 2

great weight to Mr. Kruse[’s] failure to report gambling

los[s]es as a basis of finding him guilty of tax fraud.” Appellant’s

Br. 6. This proposed reweighing of the evidence is beyond

the scope of our review. It is enough to note that in this case,

Mr. Kruse’s failure to report over $100,000 of gambling

winnings in 2004 rationally could justify an inference that

Mr. Kruse lacked respect for the tax laws. This, in turn, helps

support the inference that Mr. Kruse willfully evaded taxes.

To the extent Mr. Kruse also contends that the Government 3

did not prove an overt act, we note that the filing of false

tax returns constitutes such an act.

the business, during each of the years in question, that

greatly exceeded his reported income. This conduct

allowed the trier to infer that Mr. Kruse knew that the

business was taking in at least as much money as he took

out. In addition to the foregoing evidence, which bears

directly on the 2002, 2003 and 2004 falsifications,

Mr. Kruse’s unreported gambling winnings allowed

the fact-finder, in the context of this case, to infer lack

of respect for the tax laws.2

The evidence also allowed the district court to convict

Mr. Kruse of conspiracy. Mr. Kruse submits that circumstantial evidence is insufficient to support his conspiracy conviction, but this assertion is incorrect. See 3

United States v. Starks, 309 F.3d 1017, 1021 (7th Cir. 2002)

(“[C]ircumstantial evidence is no less probative of guilt

than direct evidence.”). The circumstantial evidence of

his complicity in the understatement of his income

was, moreover, substantial. The district court was
10 No. 09-4077

entitled to conclude that a paid tax preparer would

have little motivation to falsify a client’s business expense

and provide the client with notes about the falsification

without the client’s complicity. Yet, the evidence

indicated that Swaney had followed just such a course

in his 2004 annotated profit and loss statement. Although Mr. Kruse contends that he never saw these

statements, they were taken from his business, of which

he was sole owner-operator. The district court was

entitled to infer that the notes were intended for him

and that he saw them. Additionally, Special Agent

Luepke testified about Mr. Kruse’s statements admitting

that he and Swaney had discussed preparation of his

taxes and that he and Swaney had agreed to cover each

other’s backs. A fact-finder certainly was entitled to

conclude that, unless Swaney and Mr. Kruse had agreed

to proceed illegally, they had nothing to cover.

Mr. Kruse’s other contentions are essentially requests

that we reweigh the evidence. He repeatedly points us to

his own testimony, as well as to that of Zepnick, and

argues that he had nothing to do with preparing his

taxes and had placed blind faith in Swaney. However, the

district court found Mr. Kruse’s testimony not credible.

It is not necessary that the court’s conclusion be the only

rational finding it could have made. “[T]he trier of fact

is free to choose among various reasonable constructions

of the evidence.” Starks, 309 F.3d at 1022 (internal quotation marks and citation omitted).
No. 09-4077 11

Conclusion

The evidence at trial was sufficient to find Mr. Kruse

guilty of the charged offenses beyond a reasonable

doubt. His convictions are therefore affirmed.

AFFIRMED

5-25-10