UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_________________________________________

No. 92-7306

_________________________________________

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

VERSUS

JOSEPH T. COVENEY and

FRANCIS M. COVENEY,

Defendants-Appellants.

_________________________________________________________________

Appeals from the United States District Court

for the Southern District of Texas

_________________________________________________________________ (July 6, 1993)

Before POLITZ, Chief Judge, REAVLEY, and BARKSDALE, Circuit Judges.

BARKSDALE, Circuit Judge:

This tax frau d appeal turns on a fairly routine, straightforward and simple issue, sufficiency of the evidence; but, it is

complicated greatly by the Government's failure to carry the day on

its global theory for conviction, by the concomitant difficulty of

instead reviewing its proof on a count-by-count basis, and by the

incomplete state of the record on appeal, due to the Government's

failure to include the exhibits. Also in issue is the possible

prejudice suffered by Joseph and Francis Coveney when the

Government called two of their former attorney s to testify, one

invoking the attorney-client privilege 20 times. Each of the2

Coveneys was convicted of aiding and assisting in the preparation

of 29 false income tax returns, and conspiracy to commit those

offenses. Finding the evidence on conspiracy and 16 of the aiding

and assisting counts sufficient, and no reversible error arising

out of the attorneys' testimony, we AFFIRM on those counts.

However, because the evidence, as contained in the incomplete

record on appeal, is insufficient for 13 of the aiding and

assisting counts, we REVERSE th ose convictions, and R EMAND for

resentencing.

I.

I n 1983, brothers Francis and Joseph Coveney formed

Temperature Technology, Inc. (TTI), a Houston-based company which

installed energy management systems (EMS) in commercial buildings.

(An EMS is an energy control unit which is connected to an item of

equipment and is designed to reduce energy use by causing the item

to cycle on and off.) TTI became a recommended installation

company for the OEC Leasing Corporation (OEC), as part of its

promotion of a tax shelter program. OEC purchased EMS units from

Franklin New Energy Corporation (FNEC). (The EMS was driven by a

microprocessi ng panel manufactured by Eckard Engineering.) OEC

leased the EMS units to investors, who in turn contracted with an

installation company to install and service the s ystems. The

installation company was responsible for locating an "end-user" for

each system

-- a commercial building where the unit would be

installed. If the EMS saved energy costs, those savings would be

s hared by the end-user, the investor, and the installation1 The end-user retained 50% of the savings. It was billed by

the installation company for the other 50%. The testimony was

inconsistent on the further division of the savings. Some

witnesses testified that the installation company kept 15% of the

savings and forwarded the remai ning 35% to the investor; others,

that the installation company kept only 15% of the amount it

received from the end-user, leaving 85% of that amount for the

investor.

2 Each channel represents an individual switching device which

will control one piece of equipment. An eight-channel unit, for

example, can control eight different pieces of equipment within a

building.

3 company. 1 In addition to these shared savings, the installation

company received an installat ion fee from the investor, the enduser re aped the benefits from a unit it was not required to

purchase or maintain, and the investor was entitled on his income

tax return to an investment tax credit and deductions for, among

other things, depreciation and installation.

Almost immediately, TTI began to experience technical problems

with the OEC units, which were apparently caused by the FNEC/Eckard

microprocessors. TTI attempted to correct the problem, and, in

May, hir ed John Millar as national service manager. Millar's

technical staff made a number of changes in the microprocessing

chips and eventually resolved the problem.

At approximately the same time, Francis C o veney directed

Millar to begin developing a solar-powered EMS. Millar immediately

developed a proto type using the FNEC/Eckard unit. Also working

with a National Enco brand EMS, which he considered superior, he

converted the National Enco eight and 16-channel units to solar

power, but was unable to do so with the 24-channel unit. 2 This 24-

channel unit had a remote monitoring capability, which allowed the3 Merry testified that he wasn't sure who intended to use his

report. He was retained by TTI and conducted the evaluation at its

offices, but he understood that the device was being manufactured

by Enersolex.

4 unit to be accessed and programmed through telephone lines.

Without such remote monitoring, the unit must be serviced on site.

Although the eight and 16-channel National Enco units did not have

remote monitoring, the FNEC/Eckard units did. But, Millar was

never able to convert those units to solar power while maintaining

the remote monitoring feature.

Francis Coveney had directed development of a solar-p owered

EMS with an eye toward a new venture. In August 1984, he formed

Enersolex, a San Antonio-based company which marketed a tax shelter

similar to that offered by OEC. In the Enersolex program, however,

investors purchased, rather than leased, their EMS units, and the

units were to be solar, rather than electrically, powered. There

was no added benefit for the installation company or the end-user;

but, because the unit was solar powered, the investor was entitled

to a 15% energy tax credit, in addition to the investment tax

credit and deductions available to an OEC investor.

While Millar was still developing the prototypes, financial

planners expressed an interest in marketing the solar-powered EMS.

T TI retained Raymond Merry, an energy consultant, to analyze the

feasibility of such a system. 3 He prepared a report on the

capabilities of the proposed EMS, but noted carefully that it had

not yet been assembled. And, Enersolex retained Craig Welscher, an

attorney, to prepare a tax opinion on the proposed solar unit.4 Testimony regarding the purchase price ranged from $32,500 to

$52,000.

5 Mor eover, Francis Coveney retained CPA John Pearl to prepare an

analysis of the estimated tax write-off and cash benefits of the

Enersolex system. The documents became part of the Enersolex

promotional package, which was distributed to financial planners.

A videotape featuring the National Enco prototype was prepared, as

well as a slideshow featuring the FNEC/Ec kard model.

Representativ es of both Enersolex and TTI visited a number of

cities, promoting and demonstrating the solar-powered EMS. TTI,

still installing and serv icing OEC units, was also a recommended

installation company for the new Enersolex program.

Meanwhile, a New Jersey-based Internal R evenue Service task

force, investigating potentially abusive tax shelters, had heard of

the Enersolex promotion. In October 1984, two IRS agents travelled

to San Antonio and met with Francis Coveney, his attorney,

accountant, and the Enersolex marketing director. Francis Coveney

demonstra ted the Enersolex unit and asked whether he should

continue to sell it. The agents explained that they were not then

in a position to answer that question, but would advise him if they

determined that the tax shelter was abusive. The investigation was

transferred to Texas before that determination was made.

By the end of 1984, approximately 115 Enersolex units had been

sold, most in the last two weeks of December. 4 A majority of the

Enersolex investors selected TTI as their installation company.

Each investor received a letter from Joseph Coveney, thanking them5 TTI was responsible for locating end-users, and Joseph Coveney

testified that he believed the locations belonged to TTI. Not so

for the units installed there. The service agreement between TTI

and the OEC lessees stated that "[t]he lessee shall retain full

legal possession of the system notwithstandin g delivery of the

s ervice company". Indeed, Joseph Coveney admitted that the "EMS

unit on the wall ... was the OEC lessee['s]. That was his."

6 for selecting TTI and telling them that information about their

end-user location would be forthcoming. A second letter told them

when and where their unit had been installed; most included

photographs of the unit and/or the end-user site.

Although TTI had represented that it had secured numerous enduser locations for the Enersolex units, this was apparently not the

case. Because most investors intended to file their income tax

returns on April 15, see infra at 7 and note 20, the pressure was

on to i nstall these units in the first few months of 1985. By

letter in February 1985, TTI informed OEC investors for whom it was

an installer that it would no longer service units through the OEC

program, explaining that it was becoming increasingly difficult to

obtain parts for repair and maintenance of those units. Therefore,

the units would be removed, and each OEC investor was to inform TTI

where his unit should be sent. Within days of that notice to OEC

investors, Enersolex investors began to receive letters from TTI

about their end-user sites. Many of the Enersolex units were

installed in the same locations from which OEC units had been

removed. There was extensive testimony at trial regarding specific

locations. In some cases, the OEC unit was physically removed, and

an Enersolex unit installed in its place. In most cases, however,

the OEC unit was simply converted to solar power. 5 Among other7

things, internal wiring was changed, and the unit was connected to

solar panels which were installed on the roof. The brown OEC units

were painted blue and an Enersolex sticker added. Each Enersolex

investor was notified of his unit's installation; a nd, on their

1984 tax returns, most claimed a 15% energy tax credit, a 10%

investment tax credit, and deductions for depreciation and

installation (tax benefits).

Picking up on the earlier investigation, IRS agents in Texas

met with representatives of Enersolex, including Francis and Joseph

Coveney, on April 3 and 22, 1985. That July, they referred the

case to the Criminal Investigation Division of the IRS. First

indicted in April 1991, Francis and Joseph Coveney, Enersolex

accountant John Pearl, and Gerald Ramsey, TTI's vice-president of

operations, were charged in a superseding i ndictment in October

1991 with conspiracy to aid and assist in the preparation of false

income tax returns (count 1). Pearl and the Coveneys were also

charged in 30 counts with aiding and assisting in the preparation

of false income tax returns (counts 2-31). And, Ramsey was charged

in two additional substantive counts (counts 32 and 33).

In presenting its evidence, the Government called two of the

defendants' former attorneys as witnesses, as disc ussed in part

II.A. The defendants unsuccessfully moved for a mistrial, premised

on the repeated invocation of the attorney-client privilege. Their

motio ns for judgments of acquittal upon the completion of the

Government's case-in-chief were taken under advisement, re-urged at

the close of all the evidence, and ultimately denied.6 Francis and Joseph Coveney filed virtually identical briefs.

Therefore, we analyze their cases individually only when

considering the sufficiency of the evidence against them.

8 Before the case went to the jury, the Government dismissed one

substantive count against the Coveneys and Pearl (count 4).

Francis and Joseph Coveney were each found guilty on the conspiracy

count and the remaining 29 substantive counts against them; Pearl

was acquitted; and Ramsey was found guilty of conspiracy, but

acquitted on his two substantive counts. On the conspiracy count,

Francis Coveney w as fined $3,500 and Joseph Coveney, $2,750; and

each was sentenced to 30 concurrent prison terms

-- Francis

Coveney's being 18 months each, and Joseph Cove ney's, 16 months

each. Only the Coveneys are before us on appeal.

II.

The Coveneys challenge the d enial of a mistrial and the

sufficiency of the evidence. 6

A.

The grant or denial of a mistrial is, of course, a matter left

to the discretion of the district court. We review only for abuse

of that discretion, United States v. Burke

, 496 F.2d 373 (5th

Cir.), cert. denied

, 419 U.S. 966 (1974), and, as explained below,

find none here.

After the Gov e rnment subpoenaed three of the defendants'

former attorneys to testify, the defe ndants moved to quash,

asserting the attorney-client privilege. The district court denied

the motions, but conducted a voir dire of the witnesses to7 The district court instructed the jury as follows:

You have heard this attorney do what is called

invoking a privilege, an attorney-client privilege

in terms of him not testifying about things that he

may have been told or discussed or saw or heard or

observed having to do with his re presentation of

one or more of the defendants in this case. Please

understand that that is a completely acceptable

practice in the law. Any time anyone goes to an

attorney to discuss anything, no matter how

frivolous, they are entitled to assume that that is

going to be held in confidence, and any attorney

who receives such information may not divulge it to

third persons eve n in open court without the

express permission of his client. There is nothing

sinister nor inappropriate nor illegal nor evil

about invoking the attorney-client privilege. It

is simply, simply put from our childhood, "I told

you a secret and I expect you to keep it," nothing

more than that.

Please, d o not engage in any speculation or

conjecture as to what communications, if any, might

have transpired. Do not engage in any imagination

as to what questions or answers might have flown

from any answer but the o ne that counsel gave in

regard to that specific question.

9 establish the acceptable boundaries for their testimony. Two of

the three, Robert Fee and Craig Welscher, were called to testify.

Fee was called as the Government's first witness. After he

twice invoked the attorney-client privilege, the defendants moved

for a mis trial. The motion was denied, but the jury was given a

limiting instruct ion. 7 When Fee invoked the privilege a third

time, the defendants unsuccessfully re-urged their motion.

After a three-day weekend, the trial resumed; and Welscher was

called as the third witne ss that day. During his testimony, the8 When the Government asked Welscher what materials he relied on

in preparing his tax opinion, the defense objected, and the court

gave the following instruction to Welscher and the jury:

[W]hen you answer this question, I want you to feel

free to refer to a ny treatises, law, or other

generally recognized publications that you would of

necessity rely on in formulating any such opinion.

They are clearly within the public domain and don't

refer to these defendants. To the extent that they

gave you any documentation, information,

representation, or other information that you

relied on to formulate the report that indeed you

incorporated into the report which was subsequently

published, you may, of course, reve al all of that

as well and of necessity must.

Anything that was revealed to you that is not

made a part of the report clearly falls within the

attorney-client privilege, and I do not want that

waived inadvertently. So I'm asking you to give a

complete answer bas ed on the limitations I have

expressed.

Ladies and gentlemen, by admonishing this

witness along those lines, please understand that I

am not suggesting to you that there is any secret

information out there or anything along those

lines. I am simply requiring this lawyer to do

that which he must, wh ich is to observe the

attorney-client privilege, and that's all.

9 See notes 7 and 8, supra

.

10 attorney-client privilege was invoked 20 times, either by him or

one of the defendants. 8

The Coveneys contend that the Government knew Fee and Welscher

would assert the attorney-client privilege, and committed

reversible error by calling them to testify. They maintain that

continued invocation of the privilege, highlighted by the district

court's "ineffective" limiting instructions, 9 cast suspicion on

them and caused the jury to believe that they were "keeping

secrets".11

Both the Supreme Court, see Namet v. United States , 373 U.S.

179 (1963), and our court, see San Fratello v. United States , 340

F.2d 560 (5th Cir. 1965), have recognized that forced invocation of

a testimonial privilege might, in some cases, so prejudice the

defendant as to warrant reversal. Having reviewed the testimony of

both attorneys, we are convinced that this is not such a case.

In San Fratello , this court found reversible error where the

Government called the defendant's wife to testify after she had

made it known to the court that she would refuse on the ground that

her testimony might i ncriminate her. When called, she answered

questions about her name and address, but, invoking the privilege,

refused to answer further. The district court instructed the jury

that "[t]he reluctance of a witness to incriminate herself may not

be used to incriminate others", San Fratello , 340 F.2d at 563-64,

and emphasized that no unfavorable inferences could b e drawn

against the defendant because of his wife's refusal to testify.

This court concluded, however, that "[t]he prosecution could have

had no purpose in calling this witness and requiring her to claim

her privilege in the presence of the jury other than to use her

conduct as an incriminating circumstance against her husband". 340

F.2d at 567. Even the limiting instruction did not cure the error,

because it was "more than reasonably probable" that the wife's

refusal to testify prejudiced her husband. Id

.

The case before us, however, is much more closely analogous to

Namet

. Unlike the wife who refused to testify in S an Fratello

, Fee

and Welscher "possessed nonprivileged informat ion that could be10 The Coveneys contend that Fee was calle d only to establish

that they refused to fo llow his legal advice. At his voir dire,

the Government did explain th at it wished to call him for that

purpose. The court made it clear, however, that such testimony

would not be allowed; and the Government did not inquire about the

substance of his legal advice.

11 As noted, Fee invoked the attorne y-client privilege three

times, but twice it was in response to the same question.

12 For example, at voir dire, Fee was asked, "You were hired

... in 1984 to syndicate a tax opinion, weren't y ou?", to which he

answered "Yes". When asked if he was hired because he was a tax

specialist, he asserted the privilege.

12 used to corroborate the Government's case". N amet

, 373 U.S. at

188. Fee's testimony was very brief. He testified that he had

been retained by TTI in early 1984, but refused to elaborate. 1 0

Both of the questions he refused to answer 11 were quite similar to

questions he had answered at voir dire. 1 2 They did not touch on

sensitive areas or critical issues in the case. His testimony was

of no particular import to the Government's case; but, on the other

hand, his refusal to answer could not have raised any suspicion

that he was "keeping a secret" for the Coveneys.

Conversely, Welscher was an important substantive witness. As

author of the tax opinion used in the Enersolex promotion, his

testimony was critical to the Government's case. Although he

claimed the privilege 20 times, this number must be viewed in the

context of his entire testimony and the substance of the questions.

First, his testimony was significantly longer than that of any

other witness in the 12-day trial. As in Namet , "[t]he effect of

these questions was minimized by [Welscher's] lengthy nonprivileged

testimony". 373 U.S. at 189. Second, the privilege was often13 Welscher asserted the privilege in response to questions

about, inter alia

, the nature of TTI's business, what TTI did

before it began to install EMS units, and whether anyone had

explained to him how an EMS worked.

14 The record on appeal reflects numerous acts by the Cove neys

that are shabby business practices at best; criminal violations at

worst. For example, the Enersolex promotional brochure touted the

creation of a defense fund, through which Craig Welscher was to

serve as counsel to any investor whose claims were challenged by

the IRS. Welscher testified that no such fund existed. As another

example, when IRS agents were scheduled to visit the Enersolex

offices in San Antonio in October 1984 to see the solar-powered

units, the Enersolex warehouse was empty. Therefore, approximately

200 boxes, for OEC units, were moved from TTI's Houston warehouse,

and "Enersolex" was stenciled on them. Steve Halliburton testified

that most of the boxes were empty -- only about ten contained OEC

EMS units.

13 asserted in response to questions which were not even slightly

incriminating, and which were ultimately answered by other

witnesses. 13 Some of the questions were inappropriate and intruded

into privileged territory; but "[w]e cannot find th at these few

lapses, when viewed in the context of the entire trial, amounted to

planned or deliberate attempts by the Governm ent to make capital

out of witnesses' refusals to testify." Namet , 373 U.S. at 189.

Moreover, any error was cured by the district court's limiting

instructions. Although the instructions made reference to secrets,

they also made it clear that a lawyer is duty-bound to invoke the

privilege, and that its invocation should not be perceived as an

effort to hide information from the jury.

B.

The Coveneys also contend that the evidence was insufficient to

convict them for aiding and assisting in the preparation of false

income tax returns, and conspiracy to do so. 14 We view the evidenceNotwithstanding the repugnance of such activities, it must be

kept in mind that the on ly charges before us are aiding and

assisting in the preparation of f alse income tax returns, and

conspiracy to do so. That is what the Government was required to

prove beyond a reasonable doubt.

14 supporting criminal convictions in the light most favorable to the

verdict, and affirm if "any rational trier of fact could have found

the essential elements of the offense beyond a reasonable doubt".

United States v. Chaney , 964 F.2d 437, 448 (5th Cir. 1992).

Of course, when multiple defendants are tried on a multi-count

indictment, as here, the analysis is a lengthy one. We must review

each count separately as to each def endant. Our review in this

case, however, is atypical. Neither the evidence at trial, nor the

briefs on appeal, have been presented in such a fashion. Rather,

the Government's theory has been a global one: Enersolex marketed

a solar-powered energy management system and promoted its potential

tax benefits; Enersolex never created the system it marketed;

therefore, investor/taxpayers who claimed the tax benefits which

the defendants represented they were entitl ed to, filed returns

which were, by definition, false; and, because the defendants knew

that the investor/taxpayers were not entitled to those tax

benefits, they aided and assisted in the preparation of the

investors' false returns. Under such a theory, the Government need

only prove that the investors fil ed tax returns claiming tax

benefits for a system which did not exist, and that the defendants

assisted them in doing so. Having reviewed the record on appeal,

however, we must conclude, for the reasons that follow, that a

reasonable jury could not have found these defendants guilty beyond15

a reasonable doubt on the global theory asserted by the Government.

In addition to the difficulty of trying to piece the evidence

together on a count-by-count basis, our task in analyzing its

sufficiency is complicated greatly by the incomplete state of the

record on appeal. After trial, hundreds of exhibits were released

to the Government "for safekeeping until the time for appeal has

run". After the Coveneys filed their notices of appeal, each

ordered transcripts of his initial appearance, arraignment, trial

and sentencing. They made no further designation of the record.

In short, they did not request inclusion of the exhibits. Nor did

the Government supplement the record. Therefore, the record before

us consists only of the papers filed in the district court and the

transcripts ordered by the appellants. We do not have the

exhibits.

It is well-settled, of cour se, that the appellant bears the

burden of creating th e record on appeal. Fed. R. App. P. 11(a).

I f the record does not establish a basis for reversal, we will

affirm. Here, however, the record provided by the appellants,

albeit incomple te, shows that the evidence was insufficient to

support the Government's global theory. We must then look to more

specific evidence for whether each tax return listed in the

indictment was false, and whether the defendants willfully assisted

in its preparation. In some instances, those elements can be

established from the trial testimony. In others, they cannot. It

may well be that the documentary evidence, to which we ar e not

privy, would establish the essential elements on those counts. The15 The record does contain the trial exhibit list. While we

recognize the generality of that list, it appears that the

documentary evidence would not have provided the necessary

additional supp ort to prove, beyond a reasonable doubt, the

Govern ment's contention that no solar-powered EMS unit ever

existed.

16 dilemma before us, then, is which party bears the burden of placing

such evidence into the appellate record. If the burden is with the

appellants, we must affirm as to those counts. See United States

v. O'Brien

, 898 F.2d 983, 985 (5th Cir. 1990). But, if the burden

is with the Government, we must reverse the convictions as to the

applicable counts.

We hold that, given the specific facts of this case

, the

burden of establishing a record which might provide sufficient

evidence of an alternative basis for affirmance must be with the

Government. Though the appellants must initially designate the

record, the appellee always has the opportunity to supplement it.

Here, the appellants needed only the record, as they ordered it, to

show that there was insufficient evidence to support the

Government's global theory. 15 Thus, we must consider the

alternative basis for affirmance through a count-by-count review;

and the Government must bear resp onsibility for providing us

adequate information with which to do so.

Moreover, the Government must realize that the potentially

critical docume nts are not in the record before us. They were

released to it at the close of the tr ial, and there are repeated

reference s to them in the Government's brief. There are no such17

references in the appellants' briefs. From this, we must conclude

that the exhibits are still in the Government's possession.

We have recognized, in the civil context, that the appellee

bears some responsibility for creating a complete record on appeal.

See Soley v. Star & Herald Co.

, 390 F.2d 364 (5th Cir. 1968).

Soley was decided before the Federal Rules of Appellate Procedure

became effective, so it relies upon rules of civil procedure which

have since been usurped by the appellate rules. However, the

rationale behind that decision is unchanged. There, the district

court dismissed an action for failure to stat e a claim. In so

doing, it apparently referred to evidence outside the pleadings.

Acknowledging that the motion had been treated as one for summary

judgment, our court concluded that it was unable to review that

judgment, because the record did not include the evidence to which

the district court had referred. The appellees asserted that they

were entitled to affirmance by default: because the record did not

include the necessary information, there were no grounds upon which

to reverse. Our court disagreed, concluding that the appellees had

notice of the appellant's allegation of error, and were "not devoid

of responsibility to inform" the appellate court. S oley

, 390 F.2d

at 367. "That responsibility increases when such appellees seek

our stamp of approval on an unarticulated summary judgment for

which no justification can be found in the record." Id . at 368.

Likewise, that responsibility must also increase when we are

asked by the Government to conclude, pursuant to its global theory,

that the jury had sufficient evidence upon which to convict. If16 The statute reads, in pertinent part:

Any person who --

* * *

(2) A id or assistance. --Willfully aids

or assists in, or procures, counsels, or

advises the preparation or presentat ion

under, or in connection with any matter

arising under, the internal revenue laws,

of a return, affidavit, claim, or other

document, which is fraudulent or is false

as to any material matter, whether or not

such falsity or fraud is with the

knowledge or consent of the person

authorized or required to present such

return, affidavit, claim, or document

...

* * *

shall be guilty of a felony....

26 U.S.C. § 7206.

18 the Government has nonetheless proven guilt beyond a reasonable

doubt on some other theory, it bears the burden of showing us how.

Obviously, this includes providing a sufficient and complete record

on appeal.

1.

We look first to the 29 substantive counts of aid ing and

assisting in the preparation of f alse income tax returns, in

violation of 26 U.S.C. § 7206(2). 16 Proof for such a violation must

establish that (1) the defendant advised or assisted in the

preparation of a tax return, (2) the return was false or fraudulent

as to a material matter, and (3) the defendant acted willfully in

doing so. S ee United States v. Salerno

, 902 F.2d 1429 (9th Cir.19

1990); United States v. Sassak

, 881 F.2d 276 (6th Cir. 1989);

United States v. Hooks , 848 F.2d 785 (7th Cir. 1988).

The evi dence was sufficient to show that Francis and Joseph

Coveney advised or assisted in the preparation of the tax returns

of all Enersolex investor s. A person need not actually sign or

prepare a tax return to aid in its preparation. S ee United States

v. Williams

, 809 F.2d 1072 (5th Cir. ), as corrected , 828 F.2d 1

(5th Cir.), cert. denied

, 484 U.S. 896 (1987). It is sufficient

that the Coveneys knowingly parti cipated in the sale and

installation of EMS units and pro vided information about the

transaction " with the expectation "

, id

. at 1095 (emphasis in

origi nal), that the investors would use that information to file

their tax returns.

The Coveneys hired Ray Merry to prepare a report on the

technical feasibility of the solar-powered EMS. They retained

Craig Welscher to prepare an opinion letter on the tax implications

of purchasing the system and John Pearl to prepare an analysis of

the estimated tax write-off. They included all three documents in

a promotional brochure which was provided to potential investors

and financial advisors. The jury could have concluded that the

Enersolex project was marketed through financial advisors because

the Coveneys knew that its tax advantages were among its strongest

selling points. Finally, Joseph Coveney provided each Enersolex

investor who chose TTI as its installation company with photographs

of their unit and information about the date of installation. In

short, the jury could reasonably have found that the Coveneys20

marketed the units and provided the tax opinions and installation

dates with th e expectation that investors would rely on that

material in filing their income tax returns.

The more difficult question is whether the evidence was

sufficient as to the Coveneys willfully providing information which

they knew would lead to the preparation of tax returns which were

false as to a material matter. If they had told investors that

they had purchased a solar-powered EMS and that the E MS had been

installed, when, in fact, no solar-powered EMS existe d, then

certainly the element s of willfulness and falsity would also be

established. As noted, however, the record does not support that

global theory.

The Government put on extensive evidence that Enersolex often

demonstrated a National Enco prototype, but a ctually sold a

modified FNEC/Eckard unit; that there were problems w ith the

FNEC/Eckard microprocessing chips; that Millar considered the

National Enco model a superior one; and that the Enersolex EMS

could not simultaneously operate on solar power and retain its

remote monitoring capability. However, none of these facts, or

even all of them considered together, could lead a reasonable trier

of fact to conclude that no solar-powered EMS was ever developed.

In fact, many of the Government's own witnesses testified to the

contrary.

Welscher testified that he saw the Enersolex unit work at

least twi ce. Welscher was unsure whether the units he saw were

developed from National Enco or F NEC/Eckard models, but Millar17 Millar did testify that the un it could not simultaneously

operate on solar power and retai n remote monitoring capability.

Units which were not solar powered, of course, could not qualify

for the energy credit. But, there was no evidence, nor was the

jury instructed, that a unit must have remote monitoring ability in

order to qualify for an investment tax credit or energy credit.

Certainly, TTI would prefer to access its units by telephone in

order to avoid on-site maintenance calls.

From this obvious preference, the Governmen t builds its

argument that technicians were instructed to disable the solar

power in order to maintain the remote monitoring. But, while there

is evidence that, on one occasion, Francis Coveney instructed

technicians to install solar panels on the roof but not connect

them to the EMS unit, there is no evidence that this was standard

procedure. It may well be that any tax returns filed in relation

to that transaction were false, and that the Coveneys aided and

a ssisted in their preparation. Obviously, such evidence is

insufficient to establish that all tax returns claiming Enersolexrelated deductions and credits are false. This is particularly so

in light of the testimony that, in many cases, solar panels were

installed and connected to the EMS unit.

18 Teschemacher also testified that at least two of the National

Enco prototypes were installed at Enersolex end- user locations.

There was no evidence to the contra ry. Even if the FNEC/Eckard

unit never worked with solar power, installation of solar-powered

National Enco models (which the Government seems to concede would

qualify for the claimed credits and deduction s) would militate

against the global conclusion that all Enersolex investors filed

false tax returns.

21 testified that he was able almost immediately to convert the

FNEC/Eckard EMS unit to solar power. 17 Jack Teschemacher, the

Enersolex marketing director, testified that changes were made in

the FNEC/Eckard units to "bring them up to the Enersolex

standards". 18 Michael Munroe, whose company sold solar panels for

use with the Enersolex units, testified that solar power seemed an

expensive way to operate the EMS, but solar panels were capable of

powering the unit. Kent Maerki, head of Spectra Financial Network,

through which numerous Enersolex units were sold, and one of his

sales representatives also testified that they witnessed22

demonstrations of the Enersolex units, whic h appeared to be

functioning properly.

Defense witnesses also testified th at the Enersolex units

worked. John Pearl testified that he witnessed demonstrations of

both the National Enco and FNEC/Eckard prototypes. George Reneer,

an end-user whose EMS was either replaced with a solar-powered

unit, or converte d to solar power, as discussed i nfra concerning

count 3, testified that he save d money as a result of the unit

installed at his business , and that he continued to do so with a

solar-powered unit.

The Government emphasizes that many witnesses testified that

they simply couldn't tell whether the EMS unit was working, or

whether it was being powered by solar pan els. Indeed, they did;

but obviously, much more is required for a guilty verdict. The

Government must prove guilt beyond a reasonable doubt. In sum,

testimony which merely calls the investment (and, as a result, its

tax advantages) into question, is not sufficient, standing alone,

to support a conviction. Therefore, we must look to each

substantive count of the indictment and determine whether either of

the Coveneys aided and assisted in the preparation of the tax

return claimed to be false. In 16 instances, counts 6-8, 12, 13,

15, and 22-31

, we conclude that they did.

Count 6. Douglas Devore purchased an eight-channel Enersolex

EMS. He selected TTI to install it, and received notice that his

unit, serial number 8437, had been installed at the Ione Top Value19 Devore testified he was told initially that his unit would be

installed in Newport Beach, California. This was apparently near

his home, and he told TTI representatives that he intended to see

the unit. Approximately a month later, he was informed that the

unit could not be installed in Newport Beach and would, instead, be

installed in Ione.

20 All of the returns at issue were for the 1984 tax year. We do

not determine when the units must have been installed to qualify

for 1984 tax benefits, however, because TTI notified the investors

of the installation dates (only one of which was in 1984) and there

are no allegations that those dates were fabricated. The

Government does not contend that the investors' decisions regarding

the year for which they would claim the benefits of their

investments were the result of any aid or assistance from the

Coveneys.

23 Market in Ione, California, 19 on April 23, 1985. 20 Devore testified

that he spoke with an employee at the Ione Top Value and asked him

to check the serial number on the EMS unit installed there. Though

Devore never testified to the number the employee read to him, he

said that he became "concerned because of information [he] had

now". A photograph taken of the unit at the Ione Top Value

reflected a serial number which did not match the one assigned to

Devore. Devore received a subsequent letter from TTI informing him

that the unit had been removed from Ione and installed at the Del

Sol Food Market in Houston, Texas. But, a photograph of the unit

at the Del Sol revealed that it was a 16-channel unit, not an

eight-channel, as Devore had purchased.

Devore testified that he filed a 1984 return in which he

claimed benefits as a result of the Enersolex investment. Given

all of this evidence, a reasonable jury could have concluded that

Devore never owned a unit entitling him to th ose benefits.

Likewise, because Enersolex (Francis Coveney) and TTI (Joseph24

Coveney) gave him information apparently confirming such ownership,

a reasonable jury could have also found that the Coveneys aided and

assisted in the preparation of the false tax return filed as a

result of those representations.

Counts 7 and 8. Guillermo Bruce purchased an Enersolex EMS on

the recommendation of his financial planner, and was subsequently

informed that his unit, serial number 8434, had been installed at

the Lamplighter Restaurant in North Hollywood, Calif o rnia, on

December 31, 1984. Millar testified that the installation at the

Lamplighter was not a conversion. He took an Enersolex unit to

California, but did not activate its solar capa city. Francis

Coveney had instructed him to install the solar panels, but not

connect them to the unit, in order to maintain the remote

monitoring capability. In short, this unit looked solar powered,

but wasn't.

Approximately six weeks after receiving notice of the December

installation, Bruce was info rmed that his unit had been removed

from the Lamplighter because "savings could not be maintained at

the end user lo cation due to the operation of the owner". Two

weeks later, he was advised by letter that his unit had been

installed on June 10, 1985, at the Ione Top Value Supermarket.

Bruce claimed 1984 tax benefits for his Enersolex investment

both personally and through Bruce Investments Company. Other

evidence at trial included a photograph taken in 1986 of the EMS

unit at the Ione Top Value. That unit bore a different serial

number: 8467. A reasonable jury could have concluded that Bruce21 Joseph Coveney testified that these letters were sent to OEC

investors in February 1985.

25 never owned the Enersolex unit for which he claimed those benefits.

Accordingly, the returns for Bruce and his company would be false

a s to a material matter. As in the case of Devore, a reasonable

jury could have found that the Coveneys aided and assisted in the

preparation of those returns by giving false information upon which

a taxpayer relied in filing a return.

Counts 12 and 13. Janet Horner and her husband also purchased

the smallest Enersolex unit, an eight-channel EMS. She testified

that, as a result of that purchase, they claimed benefits on their

1984 personal and JMH Investment Company returns. A letter dated

May 1, 1985, informed the Horners that their unit had been

installed at Longhorn Foods.

Richard Barsness, an OEC investor, testified that one of his

units, leased in 1983, was installed at Longhorn Foods. Joseph

Coveney confirmed that a 24-channel unit was installed for Barsness

at that location. Some time later, however, Barsness received

notice that his unit was being removed from that location because

TTI was "unable to obtain necessary repair parts from the

manufacturer and because of economic reasons". 21

Janet Horner testified that she understood the Longhorn Foods

location was being "transferred" to her. She, however, purchased

an eight-channel EMS. The unit installed for Barsness had 24

channels. Joseph Coveney testified that that same unit "is on the

wall now assigned to Janet Horner". Because Barsness testified26

that he did not transfer his unit to anyone and gave no one

permission to use it, a reasonable jury could have concluded that

Enersolex "sold" the Horners a unit which belonged to OEC and was

being leased to Barsness. The Horners could not, therefore, own

the unit and would not be entitled to the tax advantages for such

ownership.

Counts 15 and 22 through 31. Count 22 involves the return of

the Energymisers partnership; counts 15 and 23-31, returns filed by

Energymisers partners. The partnership invested in several eightchannel Enersolex units and received notice that one of them was

installed at Ryder Truck Rental in Houston.

Steve Halliburton, who performed installation work for TTI,

described the process of converting an electrically-powered

FNEC/Eckard EMS to solar power. He testified that he performed

this transformation at a number of locations, thereby converting

an OEC unit to an Enersolex unit. One location was Ryder Truck

Rental. In light of the testimony about Enersolex's difficulty in

locating end-users and the termination of TTI-OEC contracts so that

OEC sites could be used for Enersolex investors, a reasonable jury

could have concluded that the unit at Ryder Truck Rental was the

property of OEC and one of its lessees. As was the case with the

Horners, it could not legally have been sold to Energymisers.

P hillip Rulon, the general partner who prepared 1984 income

tax returns for Energymisers partners, testified that Energymisers

claimed tax benefits because of the Enersolex investment.

M oreover, those benefits were passed through to the partners and27

were reflected in their individual returns. Neither the

partnership nor the partners would be entitled to such benefits if

the EMS was not Enersolex's to sell.

Evidence regarding counts 2, 3, 5, 9-11, 14, and 16-21 was

admitted at trial. However, the testimony was insufficient to

prove that the tax returns were false, or that the Coveneys

willfully provided the false information rendering th em so.

Accordingly, as hereinafter discussed, there was insufficient

evidence from which a reasonable jury cou ld find, beyond a

reasonable doubt, that either Francis or Joseph Coveney was guilty

on these counts.

Count 2. Rena and Clifford Brantner claimed benefits on their

1984 return as a result of purchasing two eight-channel Enersolex

units. They received letters from Joseph Coveney informing them

that one unit was installed on April 8, 1985, at Patterson Services

in Houston; the other, at Baytown Motors in Baytown, Texas, on

April 11, 1985. The IRS disallowed the Brantners' depreciation

de duction, and they appealed. Clifford Brantner testified that

they "did resolve [the matter]" through the appeal process. It is

unclear from his testimony whether other credits or deductions were

disallowed, and how the depreciation issue was finally resolved.

This evidence is insufficient to establish either the falsity

of the return or the Coveneys' willfulness. We cannot discern the

preci se basis for the IRS's initial disallowance, or how that

matter was ultimately concluded. Neither are there any questions

r aised, as there were on some counts, about the Brantners'28

ownership of their units, or whether those units were actually

solar powered. And, the record on appeal is silent about either of

the Brantners' end-user locations.

Count 3. Concerning Katheryne and Roger Chassay's return, he

testified that he invested in Enersolex for the 1984 tax year, and

claimed benefits as a result of that investment. Chassay testified

also that he visi ted Gayla Industries, the installation site for

one of his units, on more than one occasion. During a visit in May

1985, solar panels were visible on the roof; on another occasion,

they were not.

Reneer, the vice-president of Gayla, w hose testimony is

discussed in part supra

, was called as a defense witness, and

testified that TTI installed an EMS there in the early to mideighties, that the unit saved money on electric bills, and that

solar panels were later added to the system. When Gayla added a

new roof to its building, the panels were removed, but Reneer never

contacted TTI to replace them. Reneer identified a photograph of

the Enersolex unit installed at Gayla, confirming that it looked as

if a label underneath the one pictured had been torn off. But, he

testified that "either a sticker or a label was changed or m aybe

there was a different panel to start with ." (Emphasis added.)

This evidence is similar to that which we found sufficient for

counts 15 and 22-31. It is a close call. But, because Reneer

testified that the EMS unit may have been replaced, we hold that it

is insuff icient to establish the Coveneys' guilt. A reasonable

jury could not have concluded beyond a reasonable doubt that an OEC29

unit was initially installed and later converted to solar power.

Therefore, there is insufficient evidence to conclu de that the

Chassays did not own the unit.

A reasonable jury could have concluded that the unit ceased

being sol ar powered when Gayla re-roofed its building. However,

there is no proof on when that took place. In order to establish

falsity in the Chassays' 1984 tax return, the Government had to

prove that the unit was not solar powered during the period covered

by that return. Nor, concerning the panel removal, was there any

testimony which would establish the Coveneys' willfulness. Indeed,

there was no testimony that the Coveneys knew about, or directed,

removal of the panels.

In short, this evidence could not have led a reasonable jury

to conclude either that the Chassays' 1984 income tax return was

false, or that the Coveneys willfully provided information

rendering it so.

Count 5. For Barbara and Stephen Kucka's 1984 return, Stephen

Kucka testified that, on November 16, 1984, he received a letter

from Joseph Coveney, informing him that his Enersolex unit had not

been installed. On April 8, 1985, he received notice that his unit

had been assigned serial number 8410, and installed at Chem Central

in Ho uston on April 1. In reliance on this information, Kucka

claimed tax benefits, which were disallowed by the IRS.

Kucka's testimony also described his difficulty in contacting

TTI. After numerous attempts to do so, he called Chem Central to

confirm installation. He learned that the "unit was not functional30

and not working". Millar testified that he performed the Enersolex

installation at Chem Central. He explained that an OEC unit had

previously been placed at that location, but was not converted to

solar power. Rather, it was replaced with an Enersolex unit.

This evidence could not lead a reasonable jury to find the

Coveneys guilty beyond a reasonable doubt of aiding and assisting

in the preparation of a false income tax return. There is no

evidence which calls the Kuckas' ownership of the unit into

question. Steve Kucka testified that the unit did not work, but

this alone does not establish the falsity of the return or

w illfulness on the part of the Coveneys. The evidence does not

describe the problem, nor is there any evidence that the Coveneys

knew this unit did not work properly, or that it malfunctioned

because of any action by them.

Count 9. Concerning the 1984 return for Carol and Stanley

Swartz, there was very little testimony about them; and we conclude

that the evidence was insuff icient to support the conviction of

either Francis or Joseph Coveney.

James Baker, a CPA and Spectra representative, testified that

he sold an Enersolex unit to the Swar tzes, and that the unit was

installed on April 1, 1985. Baker also prepared the Swartzes' 1984

return, which included deductions for depreciation and installation

of the Enersolex unit, as well as investment and energy tax

credits.22 Baker did testify that he and the Swartzes once called the

end-user and asked maintenance personnel if the unit was installed

there. He did not name the end-user; and a hearsay objection was

sustained, pr ecluding him from repeating the response to his

installation inquiry.

31 Our review of the record reveals no evidence about the

Swartzes' end-user location 22 or the installation process for that

u nit. In short, a reasonable jury could not have concluded that

the Swartzes' return was false as to a material matter.

Count 10. As for the 1984 return of Ann and George Yount,

they purchased three Enersolex units through Baker. He also

prepared their 1984 income tax return, claiming the same benefits

as he did on behalf of the Swartzes. Again, there is insufficient

evidence from which a reasonab le jury could conclude that the

Younts were not entitled to those benefits. Indeed, what little

testimony was offered on the matter s eems to support such

entitlement.

The Younts were informed that one of their units was installed

at a Ben Franklin store in Houston, another at a Baptist church in

the Houston area, and the last at Texas Western Beef (no location

given). There was no further identification of the church. The

testimony regarding Texas Western Beef and Ben Franklin points to

the legitimacy -- not falsity -- of the return. Millar testified

that OEC units previously existed at both locations, but that he

removed them and installed Enersolex units. There was no contrary

e vidence. We conclude, therefore, that the evidence was

insufficient to establish the falsity of the return.23 Of course, we mean only that this was not established in the

record on appeal (testimony). Examination of the Combses' and

Kurtzes' 1984 returns, had they been included in the record on

appeal, would have shown whether they claimed benefits through the

partnership. In addition, examination of Rulon by the Government

included repeated references to, and introduct ion of, exhibits,

such as the partnership return and the Schedule K1 and tax returns

32 Counts 11 and 14. These counts involve the 1984 returns of

Joyce and Roswell Combs (count 11) and Mignon and Eugene Kurtz

(count 14). The Combses and the Kurtzes each purchased a 16-

channel Enersolex unit through their accountant and tax preparer,

Phillip Rulon. As discussed, Rulon also arranged the investments

in eight-channel Enersolex units for the Energymisers partnership

and prepared the 1984 individual tax returns for most of its

partners ( counts 15 and 22-31). The same year, he arranged the

purchase of three 16-channel units: one for the Combses, one for

the Kurtzes, and one for himself.

Rulon served as the general partner in the Energymisers

partnership, and invested in the eight-channel units, as we ll.

However, it is unclear from his testimony whether the Government

was trying to prove that the Combses and the Kurtzes were

Energymisers partners, and therefore held an interest in the eightchannel units, in add ition to ownership of the 16-channel units.

Moreover, when the Government had Rul o n identify Energymisers

partners, it did not inquire about the Combses or the Kurtzes.

Because the Go vernment did not establish their Energymisers

p artnership beyond a reasonable doubt, we cannot affirm the

convictions on these counts on the same basis as those involving

proven Energymisers partners. 23he prepared for the partners; but, as stated, none are included in

the record on appeal. Our difficulty in reviewing his testimony,

without the exhibits referred to during it, is a classic example of

why the Government should have included them in the record on

appeal.

33 Furthermore, there is no testimony about the installation or

end-user sites for the 16-channel units these taxpayers purchased.

T herefore, the record on appeal contains no evidence which could

lead a reasonable jury to conclude that the returns were false, or

that any crime was committed by the Coveneys in aiding and

assisting in their preparation.

Count 16. Patricia and Kip Walker purchased an Enersolex

unit, and claimed benefits in their 1984 return as a result. Kip

Walker testified that he received a letter from TTI stating that

his unit had been installed in Austin, Texas, at a business known

as Freshco, on June 3, 1985. His testimony was preceded by that of

Mike Davis, an OEC investor. Davis testified that he invested in

OEC in late 1983, and that his OEC unit had also been assigned the

Freshco location. However, he received a letter from TTI, dated

June 10, 1985, stating that his unit had been removed because

savings could not be maintained. Davis did not sell his unit or

give anyone permission to move it.

In light of the testimony about on-site conversions, one

explanation of this situation might well be that Enerso lex

converted a unit it did not own. Absent testimony which would

support that theory, however, the jury is not allowed to make such

a log ical leap, for it is just as likely that the OEC unit was

indeed removed and replaced with the Enersolex unit. The record is34

full of testimony about particular locations, and the installations

or conversions which occurred there. However, there is no

testimony about the procedure followed at Freshco.

The only other testimony about this location came from

Margaret DePrez, with the IRS Criminal In vestigation Division.

DePrez testified that she visited Freshco in 1987 to photograph the

Enersolex unit, but was unable to locate it. The absence of a unit

in 1987, without more, does not prove the truth or falsity of the

1984 return. Accordingly, we conclude that the evidence was

insufficient to establish the falsity of that return, and

therefore, insufficient to support the convictions on this count.

Counts 17 through 21. Count 17 involves the 1984 partnership

return for Capital Equipment II; counts 18-21, the returns filed by

its partners. Galyd Perkins testified that he prepared the 1984

partnership and partner returns. The partnership claimed

deductions for depreciation and installation of Enersolex units, as

well as inves tment and energy tax credits. Each of the four

partners in issue claimed the tax benefits which were passed

through from the partnership.

Testimony revealed that the partnership purchased at least

three Enersolex units. One was installed at Truk Shak (no location

given); the other two in Houston, at Bobby's Supermarket and North

Freeway Porsche-Audi. A TTI field service technician testified

that the Truk Shak unit was converted at the warehouse and

transported to the installation site. An IRS agent visited the

North Freeway Porsche-Audi location in 1987 and photographed the35

EMS unit installed there. This evidence could not lead a

reasonable jury to conclude that the partners and partnership were

not entitled t o the claimed tax benefits. The record on appeal

contains no more testimony about these locations or the

installations which occurred there. Accordingly, we conclude that

the evidence was insufficient to support the convictions on these

counts.

2.

Although the record on appeal contains insufficient evidence

for affirmance on all substantive counts, it includes ample

evidence that Francis and Joseph Coveney conspi red to aid and

assist in the preparation of false returns (count 1). In order to

convict for conspiracy under 18 U.S.C. § 371, the jury must find

(1) an agreement between two or more people to violate the law, and

(2) an overt act by any member of the conspiracy in furtherance of

it. U nited States v. Bourgeois

, 950 F.2d 980, 983 (5th Cir. 1992).

Proof of a specific agreement is not necessary; the jury may infer

an agreement from a concert of action. Id

.

There was sub stantial evidence that the Coveneys worked

together in forming TTI and Enersolex, that they travelled together

promoting the Enersolex program, and that they worked together on

the day to day operation of each company. Though Francis worked

out of the Enersolex office in San Antonio, and Joseph out of the

TTI office in Houston, several witn esses testified that the two

companies were essentially one in the same. Moreover, both

brothers were apparently present at meetings where some of the36

"conversions" were discussed. An agreement to take an OEC unit,

without the consent of the OEC investor, convert it to solar power

and "sell" it to an Enersolex investor is an agreement to violate

the law, in that, among other things, the sale would aid and assist

in the preparation of false returns, because it was performed with

the expectation that investors would rely on their erroneous belief

of ownership in filing returns.

Needless to say, there were numerous overt acts in furtherance

of this agreement. Enersolex units were sold to those investors

previously discussed. Joseph Coveney wrote letters to many of

them, informing them of the end-user locations and install ation

dates. There was sufficient evidence for the jury to find that

these are all overt acts taken with the expectation that taxpayers

would rely on the false information in preparing and filing their

returns.

III.

Accordingly, the convictions on counts 1, 6, 7, 8, 12, 13, 15,

and 22-31 are AFFIRMED ; those on counts 2, 3, 5, 9, 10, 11, 14, and

16-21 are REVERSED ; all sentences are VACATED ; and the case is

REMANDED for resentencing.

AFFIRMED in Part; REVERSED in Part; and REMANDED.