UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 93-2463

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

VERSUS

DAVID J. TOWNSEND,

Defendant-Appellant.

Appeal from the United States District Court

for the Southern District of Texas

(August 25, 1994)

Before REYNALDO G. GARZA, SMITH, and PARKER, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

Defendant was convicted under I.R.C. § 7201 for evasion of

excise tax. The district court found a tax deficiency, affirmative

acts constituting tax evasion, and that defendant acted willfully.

For the reasons discussed below we affirm.

I. Introduction

This case involves the use of a fraudulent Form 637 in an

attempt to circumvent federally imposed excise tax. In 1987
2

federal law imposed an excise tax of nine cents on each gallon of

gasoline sold for highway use. A wholesale distributor of

gasoline holding a valid "Registration for Tax-Free Transactions,"

or Form 637, could purchase gasoline free of the excise tax. A

Form 637 enables a distributor to purchase gas tax-free and sell it

tax-free to a registered wholesaler or retailer. The distributor

becomes liable for the excise tax if it sells to an unregistered

buyer. In this case Appellant fraudulently presented a Form 637 to

several distributors, purchased the gas, and then promptly sold the

gas to an unregistered buyer.

II. Background

 David Townsend, the inventor of a gasoline oxygenating

product, moved his California-based fuel blending business

(Anafuel) to Houston, Texas in 1986. Townsend, with Lloyd Maxwell,

Lamar Maxwell, David Maxwell, Don Maxwell, and Arthur Maxwell

formed Petrolife, Inc. (Petrolife), a gasohol blending company.

Appellant Townsend was named chief executive officer, Lloyd Maxwell

was named the secretary-treasurer and chief financial officer, and

Lamar Maxwell was named president. 

In November of 1986 Petrolife decided to apply for a Form 637.

Signed by Lloyd Maxwell as chief financial officer and dated

November 20, 1986, the form was submitted to the IRS. IRS Agent

Mike Grayson met with Lloyd Maxwell and Charles Crockett, a

Petrolife employee, to discuss the application. Agent Grayson

explained the requirements of the Form 637 and told them that it
 

1Mr. Crockett testified that he was surprised that Townsend

was able to procure approval of Form 637 so quickly and seemingly

without leaving the building. It was his understanding that it

could take several months to obtain approval.

3

could take several months to obtain approval. Petrolife decided

that they were not prepared to disclose all the necessary financial

information required for approval at that time. Consequently, the

application was deferred. Mr. Crockett was to retain Petrolife's

copies of the application until the corporation was ready to

reapply. Petrolife never reapplied for the Form 637.

Subsequently, Appellant asked Mr. Crockett for the

application. Mr. Crockett handed the application to him under the

assumption that he was seeking to reapply for approval. Later that

day Townsend showed Mr. Crockett the Form 637 and said that he had

obtained a registration number and the signature of the IRS

district director.1

In July of 1987 Townsend contacted Jetero, a gasoline

distributor, and expressed interest in making a purchase. Jetero

met with Townsend and discussed forms Jetero required before fuel

could be supplied. Townsend provided the necessary forms,

including the fraudulent Form 637. These forms listed Petrolife as

a manufacturer selling gasohol and listed Petrolife/Anafuel as the

purchaser. Upon receipt of the required forms Jetero commenced

supplying the fuel tax-free. The Jetero invoices were addressed to

"Petrolife, Attn: David J. Townsend."

A total of 264,030 gallons of gasoline were purchased from Jetero

in August of 1987.
 

2Mr. Boulos testified that he thought the taxes were

included in the purchase price of the gasoline.

4

Townsend also contacted Crown, another gasoline distributor,

expressing his desire to purchase gasoline. After he provided the

requested documentation, including the fraudulent Form 637, Crown

began supplying gasoline. The checks used to pay for the gas

listed Petrolife/Anafuel as purchaser. A total of 161,679 gallons

of gasoline were purchased from Crown in August of 1987.

The gasoline supplied by Jetero and Crown was shipped to Mr.

Chehade Boulos, a service station operator. The funds used by

Townsend were drawn from an account opened in the name of Anafuel

at the Lone Star Bank. Mr. Boulos would make deposits to this

account in exchange for the gasoline shipments. The bank would

then issue cashier checks, which were used to pay Crown and Jetero.

Basically, Townsend used the funds prepaid by Mr. Boulos to make

the payments to Crown and Jetero.

No taxes were paid by Townsend or Petrolife on the gasoline

sold to Mr. Boulos.2 By using the fraudulent Form 637 and

purchasing gas through an Anafuel account, Townsend acted without

the knowledge or consent of the other officers of Petrolife. When

Mr. Crockett became aware of Appellant's transactions he informed

Mr. Lloyd Maxwell of his intention to inform the IRS. Mr. Maxwell

approved.

IRS Agent Grayson became aware of the fraudulent Form 637

during a routine inspection of Jetero's records. Agent Grayson

immediately knew the form was invalid. First, he knew that
5

Petrolife's Form 637 had never been approved. Second, the

registration number did not correspond to the numbers issued by the

Houston office. Third, the signatures on the form were not signed

properly. Agent Grayson spoke with Mr. Gonzales, the owner of

Jetero, concerning the problem. Mr. Gonzales told Appellant that

the registration number was invalid. Townsend responded rather

angrily that the number was correct. Later he told Mr. Gonzales

that he had a new temporary number. Notwithstanding the temporary

number, Mr. Gonzales refused to sell any more gasoline to Townsend

on advice of the IRS.

IRS Agent Vitz took over the investigation. Agent Vitz

observed the same inconsistencies in the Petrolife Form 637 and

therefore contacted Townsend. On September 5, 1987 Agent Vitz

requested more information regarding the application. Townsend

promised that the information would be forthcoming. After

receiving no new information, Agent Vitz paid a visit to his

office. Townsend again stated that the registration number was a

temporary number issued by the Houston office. But no temporary

numbers had issued in 1987.

Agent Taylor met with Townsend and showed him the fraudulent

Form 637 and asked if he had ever seen this form. Townsend replied

that Mr. Crockett had presented this form to him but that he,

Townsend, had never given it to anyone. 

On May 20, 1992 a grand jury indicted Townsend for attempting

to evade federal excise taxes in violation of I.R.C. § 7201.

Townsend was convicted by a jury before Honorable Melinda Harmon in
6

March of 1993. He was sentenced to 14 months in prison and three

years supervised release; he was fined $10,000 and specially

assessed $50.

Townsend appeals the district court's rulings on four bases.

The first basis asserted is whether there was sufficient evidence

to support a conviction. Second is whether the district court

abused its discretion in limiting Appellant's cross-examination of

certain witnesses. The third basis is whether the district court

abused its discretion in allowing opinion testimony concerning

Appellant's liability on federal excise tax. The fourth basis

Appellant urges is whether the district court erred in failing to

include a proposed jury instruction in the charge. For reasons

discussed below, we affirm the decision of the district court.

III. Discussion

1. Sufficiency of the Evidence to Support the Conviction

The standard of review for sufficiency of evidence appeals is

whether a rational fact finder could find the essential elements

constituting the crime beyond a reasonable doubt. United States v.

Nixon, 816 F.2d 1022, 1029 (5th Cir. 1987), cert. denied, 484 U.S.

1026 (1988). In viewing the evidence under the rational fact

finder standard, this Court is obliged to take all inferences

reasonably drawn from the evidence in the light most favorable to

the verdict. United States v. Molinar-Apodaca, 889 F.2d 1417, 1423

(5th Cir. 1989).
 

3 A total of 425,709 gallons of gasoline was bought and

resold: 264,030 gallons from Jetero and 161,679 gallons from

Crown. The deficiency arose automatically when the tax became

due at the end of the quarter and no excise tax return was filed.

7

To prove a violation of I.R.C. § 7201 the government must

prove (1) the existence of a tax deficiency, (2) an affirmative act

constituting an evasion or attempted evasion of the tax, and (3)

that the defendant acted willfully. Sansone v. United States, 380

U.S. 343, 351 (1965); United States v. Wisenbaker, 14 F.3d 1022,

1024 (5th Cir. 1994). The first issue that must be addressed is

whether there was a tax deficiency. Wisenbaker, 14 F.3d at 1024.

Excise taxes for the quarter ending September 30, 1987 were due and

owing in the amount of $38,313.813 on the gasoline bought from

Crown and Jetero and resold to Mr. Boulos. The existence of a tax

deficiency was not contested by Appellant. However, Appellant did

take issue as to who owed the tax. He claims that Petrolife owed

the tax and he therefore could not be convicted of evading tax of

another. This is clearly wrong. I.R.C. § 7201 provides that it is

a violation for "any person" to willfully attempt to evade or

defeat "any tax." I.R.C. § 7201 is not limited to prosecutions of

those who evade taxes that they may owe themselves, but rather it

encompasses prosecutions of any person who attempts to evade the

tax of anyone. See id. at 1024-25. It is the act of evasion that

is proscribed; adopting the limited reading Appellant asserts

would severely restrict if not defeat the purpose of the statute.

The second issue that must be determined is whether Appellant

committed an affirmative act of tax evasion. Id. at 1024.
8

Townsend contends that the government failed to prove this element.

Taken in the light most favorable to the verdict, the evidence

reveals that Townsend committed numerous affirmative acts.

Townsend prepared a fraudulent Form 637 that contained two forged

signatures and a fabricated registration number. He presented the

fraudulent Form 637 to Crown and Jetero in furtherance of his taxfree transaction. He also arranged for the purchase and subsequent

sale of gasoline to Mr. Boulos, an unregistered retailer. Townsend

signed a customer card agreement enabling him to purchase tax-free

gasoline from Crown and signed a federal excise tax exemption

certificate required by Jetero, certifying that he was registered

to purchase tax-free gasoline. He arranged for the purchase to be

made with cashiers checks that were paid from funds deposited by

Mr. Boulos into an account opened in the name of Anafuel over which

Townsend's son had signature authority. Subsequent to the purchase

and sale, Townsend told Agent Taylor that he had never presented

the Form 637 to anyone when in fact he had. Finally, he told Agent

Vitz that he had obtained a temporary registration number, which

turned out to be fabricated. Taking this evidence as true

establishes beyond a reasonable doubt that Townsend took

affirmative acts of tax evasion. 

The final issue in which this Court must inquire is whether

Appellant acted willfully. Id. at 1024. The U.S. Supreme Court

has recognized that the term "willfully" connotes a voluntary,

intentional violation of a known legal duty. United States v.

Pomponio, 429 U.S. 10, 12 (1976). I.R.C. § 7201 imposes that duty
 

4Appellant asserts due process violations yet cites only

evidentiary authority. Accordingly, we will address each issue

under the Federal Rules of Evidence.

9

and the evidence taken in the light most favorable to the verdict

establishes that Appellant acted willfully in violation of this

duty. Townsend was experienced in the motor fuels industry and

demonstrated familiarity with legal duties imposed by the federal

tax scheme. He was no proverbial babe in the woods. He obtained

and fraudulently completed a Form 637 and presented it to

distributors. Townsend manifested knowledge that his actions were

unlawful by attempting to hide them from both Jetero and the IRS

agents. Finally he attempted to conceal the gasoline transactions

by conducting them through a non-Petrolife bank account.

Therefore, the evidence established a tax deficiency, revealed

affirmative acts constituting an attempt to evade the excise tax,

and demonstrated that Townsend acted willfully.

2. Cross-Examination of Government Witnesses

Appellant argues that the district court erred in restricting

his cross-examination of various government witnesses regarding (a)

falsification of corporate records, (b) bad business practices, and

(c) testimony that Townsend was personally liable for excise tax.

The applicable Federal Rules of Evidence are 403, 404(b), and

608(b).4 "The admission or exclusion of evidence at trial is a

matter committed to the discretion of the trial court." United

States v. Moody, 903 F.2d 321, 326 (5th Cir. 1990). We review the

trial court's ruling under the abuse of discretion standard. Id.
 

5The trial court may not place the witness's character or

reputation for veracity outside the scope of inquiry. Moody, 903

F.2d at 329; See generally United States v. Garza, 754 F.2d

1202, 1206 (5th Cir. 1985)

10

If we find that an abuse of discretion has occurred we view the

error under the harmless error doctrine. Id. The right and

opportunity to cross-examine an adverse witness is guaranteed by

the sixth amendment. Delaware v. Van Arsdall, 475 U.S. 673, 678-

79; Moody, 903 F.2d at 329. However, the trial court is given

"wide latitude" in imposing reasonable restraints upon defendant's

right to cross-examination. Moody, 903 F.2d at 329.5

A. Falsification of Corporate Records 

Townsend contends that the district court abused its

discretion in overly restricting the cross-examination of Mr.

Crockett and Mr. Maxwell concerning their conduct in allegedly

falsifying Petrolife's corporate records. Townsend claims that Mr.

Crockett's deposition indicated that the records were falsified in

anticipation of bankruptcy and the IRS investigation. Appellant

sought to introduce this evidence in hopes of impeaching their

testimony. Rule 608(b) of the Federal Rules of Evidence provides

that a witness may be questioned about specific instances of

conduct, in the discretion of the trial court, to attack the

witness's reputation for truthfulness. Rule 403 requires the trial

court to balance the dangers of unfair prejudice, confusion of the

issues, misleading the jury, or waste of time against the probative

value of the evidence.
 

6The district court found that the corporate minutes had not

been kept up to date and it was unclear from the deposition what,

if any, part of the minutes were not true. Based on Mr.

Crockett's explanation of the deposition, the court found

insufficient evidence of fraud.

11

The district court found that Mr. Crockett's deposition did

not support Appellant's assertion that the corporate minutes were

falsified. The district court disputed Appellant's contention of

falsification finding a lack of evidence to support this line of

questioning.6 Furthermore, the district court held that admitting

the evidence would only serve to mislead and confuse the jury, and

prolong the trial. This Court will reverse a decision of the trial

court in excluding or admitting evidence only upon a showing that

the trial court abused its discretion in weighing the probative

value of the evidence against its prejudicial effect. United

States v. York, 888 F.2d 1050, 1056 (5th Cir. 1989). Because

Appellant cannot show an abuse of discretion we affirm the district

court's decision to exclude this evidence. 

Appellant also contends that the evidence of falsification

demonstrates Mr. Crockett's and Mr. Maxwell's propensity, motive,

and opportunity to falsify the Form 637. The motives for

falsification, Townsend asserts, were for personal and corporate

gain and self-vindication. He claims that these motives were the

same as those that allegedly led Mr. Maxwell and Mr. Crockett to

apply for the Form 637 and to testify against Townsend. Further,

Townsend contends that the scheme to falsify the corporate records

was "sufficiently similar if not identical to the offense of

falsifying a Form 637."
 

7See also United States v. Luffred, 911 F.2d 1011, 1015 (5th

Cir. 1990) (holding that prior bad acts may be relevant under

Fed. R. Evid. 404(b) to prove that a witness had the opportunity

and ability to concoct a fraudulent or deceitful scheme).

12

 Rule 404(b) provides that a defendant may offer through

extrinsic evidence or by cross-examination similar bad acts,

crimes, or wrongs to show motive, opportunity, intent, and the

like.7 However, under Rule 404(b), evidence of crimes, wrongs, or

acts is not admissible if offered to prove the character of a

witness in order to show that the witness acted in conformity

therewith on a particular occasion. As discussed above, the

district court did not find a scheme or plan to falsify the

corporate records, thereby refuting the reasons Appellant proffered

for introducing the evidence. Furthermore, Appellant's brief

indicates that the evidence was introduced for purposes of showing

conformity rather than motive or intent in direct contravention to

Rule 404(b). Appellant alleged that the "scheme to falsify

documents to mislead or defraud the bankruptcy court and the IRS

was sufficiently similar if not identical to the offense of

falsifying a Form 637." Therefore, this Court affirms the district

court's decision in excluding the evidence. Because the district

court did not commit error, we do not reach application of the

harmless error doctrine. 

B. Bad Business Practices

Townsend also contends that the district court erred in

curtailing his cross-examination of Mr. Boulos. Appellant asserts
13

that Mr. Boulos's alleged bad business practices would reveal his

motive and intent to use Townsend's son to set up a bank account.

Mr. Boulos, Appellant contends, failed to timely pay his bills,

"bounced" checks, and sold substandard gasoline. The unauthorized

use of the bank account circumvented a credit check by Crown and

Jetero in furtherance of the tax evasion scheme. Under 404(b)

evidence of crimes, bad acts, or wrongs are admissible to prove

intent or opportunity. However, the district court found no

evidence showing that Mr. Boulos knew of or aided Townsend in the

tax evasion scheme.

Townsend asserts that Mr. Boulos was also guilty of tax

evasion if he knowingly carried out the scheme to buy gas tax-free.

These facts would serve to impeach Mr. Boulos under 608(b). Rule

608(b) provides that specific acts of misconduct, though they

cannot be proved by extrinsic evidence, may be elicited on crossexamination to impeach the credibility of a witness. But again

Rule 403 serves to temper the otherwise unreigned use of 608(b).

The district court did not find that Mr. Boulos participated in any

scheme of tax evasion and therefore excluded this testimony. The

district court did not abuse its discretion because trivial acts,

such as untimely payment, should be excluded, absent evidence of a

fraudulent scheme, because the dangers of confusing the issues and

misleading the jury substantially outweigh any minor probative

value the testimony would have.

C. Evidence of Townsend's liability for the excise tax
14

Townsend contends that the district court abused its

discretion in prohibiting cross-examination into areas of the

Comptroller's decision and Mr. Maxwell's letter, dated March 27,

1989. The Comptroller held that Petrolife rather than Townsend was

liable for state excise tax. In the Maxwell letter Mr. Maxwell

allegedly expressed the desire to align himself with the IRS's

position in order to avoid Petrolife's tax liability. Appellant

contends that he had a right to impeach the witness and reveal the

motivation and bias of Mr. Maxwell's adversarial testimony.

Appellant has failed to show any evidence in the record indicating

an arrangement under which Mr. Maxwell would receive any benefit

for cooperating with the government. The district court found,

under Rule 403, that the probative value of the testimony was

substantially outweighed by the danger of confusion of the issues.

Because Appellant has failed to show that the district court abused

its discretion, we affirm the district court on this point. York,

888 F.2d at 1056; see also United States v. Sutherland, 929 F.2d

765, 777 (1st Cir.) cert. denied, 112 S. Ct. 83 (1991) (holding

that appellant failed to demonstrate a basis for suspecting bias

other than a conclusory allegation).

 Agent Vitz testified that Townsend was liable for the excise

tax. Appellant contends that he had a right to cross-examine Agent

Vitz concerning the Maxwell letter and the Comptroller's decision

holding Petrolife liable for state excise tax. The district court

excluded this testimony under Rule 403. We find no error requiring

reversal. Anyone who willfully evades a tax is in violation of
 

8As discussed supra all that is required to establish a

violation of I.R.C. § 7201 is proof beyond a reasonable doubt of

a tax deficiency, affirmative acts of evasion, and willfulness.

15

I.R.C. § 7201 regardless of who owed the tax.8 Thus, exclusion of

testimony that Townsend was not personally liable was harmless

error. 

3. Expert Testimony

The government called Agent Vitz as a summary witness and an

expert on excise tax. Agent Vitz testified that Townsend became

liable for the excise tax when he sold it to Mr. Boulos. Agent Vitz

also calculated the tax deficiency owed on the gas sold to Mr.

Boulos. Appellant contends that the district court erred in

admitting this testimony because it interfered with the jury's

function, it was inadmissible under Fed. R. Evid. 704(b), and it

was inadmissible under Fed. R. Evid. 403.

The admissibility of expert testimony rests within the sound

discretion of the district court and will be reversed only upon a

clear showing of abuse of discretion. United States v. Charroux,

3 F.3d 827, 833 (5th Cir. 1993). Rule 703 provides that a

qualified expert may testify in the form of an opinion if

scientific, technical, or other specialized knowledge will assist

the trier of fact in understanding the evidence. To qualify as an

expert, the witness must have specialized knowledge or training

such that his or her testimony will assist the fact finder in the

determination of a fact issue. United States v. Bourgeois, 950

F.2d 980, 987 (5th Cir. 1992). Agent Vitz's training in accounting
16

and experience in tax prosecutions qualifies him as an expert.

There is no evidence that the district court abused its discretion

in accepting Agent Vitz as an expert as Townsend failed to object

to Agent Vitz's qualifications. Accordingly, we will address the

substance of his testimony rather than his qualifications.

Appellant contends that Agent Vitz's testimony was an

usurpation of the jury's role in violation of Rule 704(b). Rule

704(b) states that an expert shall not testify with respect to the

mental state of a defendant in a criminal trial. Agent Vitz did

not opine that Townsend intended to file a fraudulent Form 637,

rather he testified that the form was invalid. Agent Vitz did not

express an opinion about Appellant's state of mind. Accordingly,

his testimony was not excludable under Rule 704(b). United States

v. Webster, 960 F.2d 1301, 1308-09 (5th Cir.) cert. denied, 113 S.

Ct. 355 (1992).

Rule 403 operates to exclude otherwise admissible evidence if

the probative value is substantially outweighed by its prejudicial

effects. Appellant contends that Agent Vitz's testimony was

prejudicial. Testimony presented by the government will invariably

be prejudicial to a criminal defendant. But Rule 403 only excludes

evidence that would be unfairly prejudicial to the defendant.

Here, the probative value of the evidence was not substantially

outweighed by its prejudicial effects. Agent Vitz testified as to

the existence of a tax deficiency, an element required for a

successful prosecution under I.R.C. § 7201. He also opined that

Townsend was personally liable on the excise tax. This arguably
17

has probative value. Someone would be more likely to evade their

own tax rather than another's. Because this testimony was

probative and not unfairly prejudicial, we find no error. 

4. Jury Instructions

Appellant requested the district judge to instruct the jury

that it could find him liable for a violation of I.R.C. § 7201 only

if he personally owed the taxes. The district court refused,

instructing the jury that it could convict the defendant for

attempting to evade taxes owed by another. Appellant cries foul.

The standard of review is abuse of discretion. United States

v. Chaney, 964 F.2d 437, 444 (5th Cir. 1992). A conviction will

not be reversed unless the instructions failed to correctly state

the law. United States v. Coleman, 997 F.2d 1101, 1105 (5th Cir.

1993), cert. denied, 114 S. Ct. 893 (1994). The issue this Court

must decide is whether the district court abused its discretion by

refusing the proposed instruction. A refusal to deliver a

requested jury instruction is reversible error only if the proposed

instruction was (1) substantively correct, (2) not substantively

covered in the jury charge, and (3) concerned an important issue in

the trial, such that failure to give the requested instruction

seriously impaired the defendant from presenting a defense. United

States v. Mollier, 853 F.2d 1169, 1174 (5th Cir. 1988). 

The actual jury charge correctly stated the law. The

instruction traced I.R.C. § 7201 and informed the jury that they

could convict Townsend for evading Petrolife's tax liability. See
18

United States v. Troy, 293 U.S. 58 (1934); United States v.

Wisenbaker, 14 F.3d 1022, 1026-27 (5th Cir. 1994). Appellant's

proposed instruction was not substantively correct. Appellant

contends that the jury should have been instructed to find Townsend

guilty only if he personally owed the tax. Because I.R.C. § 7201

proscribes evasion of any tax, this instruction fails the first

prong of the test. Accordingly, we affirm the district court's

ruling.

For the above stated reasons the defendant's conviction is

AFFIRMED.