Case Name: UNITED STATES of America, Plaintiff-Appellee, v. John F. PRICE and Clarence D. Brinson, Defendants-Appellants
Court: United States Court of Appeals for the Seventh Circuit
Jurisdiction: United States
Decision Date: 1993-06-08
Citations: 995 F.2d 729
Docket Number: Nos. 91-3606 and 91-3607
Parties: UNITED STATES of America, Plaintiff-Appellee, v. John F. PRICE and Clarence D. Brinson, Defendants-Appellants.
Judges: Before KANNE and ROVNER, Circuit Judges, and REYNOLDS, Senior District Judge.
Reporter: Federal Reporter 2d Series
Volume: 995
Pages: 729–734

Head Matter:
UNITED STATES of America, Plaintiff-Appellee, v. John F. PRICE and Clarence D. Brinson, Defendants-Appellants.
Nos. 91-3606 and 91-3607.
United States Court of Appeals, Seventh Circuit.
Argued Nov. 10, 1992.
Decided June 8, 1993.
Gillum Ferguson, Barry R. Elden, Asst. U.S. Attys., John J. Tharp, Jr., Office of the U.S. Atty., Crim. Receiving, Appellate Div. (argued), Chicago, IL, for plaintiff-appellee.
Matthew F. Kennedy, Margaret L. Paris, Robert M. Stephenson (argued), Cotsirilos, Stephenson, Tighe & Streicker, Bernard B. Nathan, Chicago, IL, for John F. Price, defendant-appellant.
Matthew F. Kennedy, Margaret L. Paris, Robert M. Stephenson (argued), Cotsirilos, Stephenson, Tighe & Streicker, Chicago, IL, for Clarence D. Brinson, defendant-appellant.
Before KANNE and ROVNER, Circuit Judges, and REYNOLDS, Senior District Judge.
. The Honorable John W. Reynolds, Senior District Judge for the Eastern District of Wisconsin, is sitting by designation.

Opinion:
REYNOLDS, Senior District Judge.
Clarence D. Brinson ("Brinson") and John F. Price ("Price") were principal shareholders and officers of Vegetarian Health Society ("VHS"). After a twelve-day trial, both were found guilty by a jury on charges of conspiring to defraud the United States with respect to income taxes in violation of Title 18 United States Code § 371, and attempting to evade personal income taxes in violation of 26 U.S.C. § 7201. Brinson was also found guilty of making a false corporate income tax return in violation of 26 U.S.C. § 7206(1) and Price was found guilty of aiding and assisting in the making of false documents in violation of 26 U.S.C. § 7206(2). Both appeal their judgments of conviction. This court has jurisdiction pursuant to 28 U.S.C. § 1291.
FACTS
VHS was a wholesale mail order business which sold vegetarian food products and literature produced by other manufacturers. When established in 1979, VHS had five or six employees, including a bookkeeper. VHS also retained an outside accountant, who created VHS's accounting system and prepared the company's financial statements and tax returns.
When a sale was made at VHS, the salesperson would prepare a purchase order. A copy of the purchase order was then sent to the bookkeeping department, where the sale was recorded in a sales journal. The accountant would then record the figures from the sales journal in VHS's general ledger, from which financial statements were prepared, and review bank statements to reconcile the money amounts. The accountant received bank statements for approximately five corporate bank accounts, which he used in preparing VHS's financial statements and tax returns. In 1979, sales totaled almost $76,-000.
In 1982, VHS hired Gerry McCarty, who became sales manager. In that year, sales reached $1.8 million. Brinson and Price claim that McCarty (who died in 1987) exercised almost exclusive control over VHS's finances, and basically ran the business. McCarty was fired in 1985. Brinson and Price allege that the tremendous sales increase in 1982 created havoc within VHS's accounting system. They concede that sales went unreported on VHS's tax returns in 1982-1985, and that they received money from VHS which was not reported on their personal tax returns.
VHS's accountant was unaware of additional VHS bank accounts, and a second sales journal for March 1982. Brinson and Price did not disclose the existence of the additional accounts during the IRS investigation. Many of the sales invoices provided by VHS to the IRS were forged or issued to nonexistent companies. Account numbers on checks which were deposited into one of Brinson's accounts were altered by changing "3" to "8." Some checks also had false notations indicating their purpose.
ANALYSIS
The issues presented by Brinson and Price are whether the district court' properly limited their expert's testimony and whether the district court properly instructed the jury regarding their intent to defraud the government.
Expert Testimony
In general, a district court has broad discretion in determining whether evidence should be admitted or excluded. United States v. Saunders, 973 F.2d 1354, 1358 (7th Cir.1992), cert. denied, — U.S. -, 113 S.Ct. 1026, 122 L.Ed.2d 171 (1993). In particular, a district court has broad discretion in determining whether to exclude expert witness testimony. United States v. Larkin, 978 F.2d 964, 971 (7th Cir.1992), cert. denied, — U.S. -, 113 S.Ct. 1323, 122 L.Ed.2d 709 (1993); see also Fed.R.Evid. 702 ("If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert . may testify thereto in the form of an opinion or otherwise"). We therefore will reverse the district court's ruling which limited the expert's testimony only if it abused its discretion. Id.
Brinson and Price maintain that their expert, Ira Edelson ("Edelson"), a certified public accountant and financial advisor, should have been allowed to testify that VHS's finances were in a state of confusion; that because costs of sales and development were under-reported, VHS had no tax liability; and that defendants had no personal tax liability, i.e. unreported money from VHS was not "income," but rather was non-taxable reimbursement for expenditures made on VHS's behalf. The district court excluded a portion of Edelson's testimony as irrelevant, too general, and likely to confuse the jury. Brinson and Price argue that the district court's limitation on Edelson's testimony precluded them from presenting a defense to the government's allegations, in essence, a defense that any misreporting was not willful.
In examining the trial transcript, we find that Edelson was allowed to testify to the jury that in his opinion, (1) VHS's accounting system had significant errors and therefore did not properly record expenditures made on VHS's behalf; (2) the accounting system was somewhat complicated; (3) there were insufficient personnel to .handle VHS finances, and VHS accounting personnel were inept; (4) sales entries were haphazardly made; (5) VHS employees did not check proper documentation before writing checks and making disbursements; (6) VHS's accountant did not reconcile accounts receivable with the general ledger, even though he knew there was a discrepancy between the two; (7) the "undisclosed" bank accounts, except for one, were disclosed in some form in the sales journal; and (8) the IRS analysis was meaningless because it did not consider the inadequacies of VHS's accounting system and the nature of VHS's transactions.
Edelson testified during defendants' offer of proof that when he calculated the ratio of VHS's unreported gross receipts to VHS's reported cost of sales, the ratio was significantly higher when compared with industry standards. Edelson testified that it therefore follows that VHS had unreported cost of sales. Edelson also testified that there was no indication in VHS's books that it directly paid for costs not reflected in its financial statements, which could only have been paid for by an outside agency, and the only disbursements unaccounted for were to Brinson and Price.
The government brought out the following facts during defendants' offer of proof which relate to the credibility of Edelson's conclusions: the statistics utilized by Edelson related to manufacturers, not a mail order business; Edelson did not account for nonbakery products such as literature; Edelson found no evidence that specific expenditures by Brinson or VHS went to particular VHS purposes; Edelson was not aware that eer-táin payments were allegedly supported by fraudulent invoices and check notations; and Edelson did not know VHS's correct cost of sales figures. The government additionally elicited on cross-examination in front of the jury that Edelson did not know VHS's gross receipts; Edelson did not review all of VHS's checks; and if a company keeps two sets of sales journals and only one set is given to the accountant, the general ledger will be wrong and the gross receipts figure on the corporate tax return will be incorrect.
We find that in reviewing Edelson's testimony, he did testify to the jury that VHS's accounting system had many problems. With respect to VHS's tax liability (which was not an issue before the jury), the pages defendants cite in the transcript do not support their proposition that VHS had no tax liability, and in reviewing Edelson's entire testimony, we likewise find no basis for this argument.
Brinson and Price argue that they were prevented from offering what constituted their entire defense with respect to the allegation of personal income tax evasion. Brin-son and Price were not, however, precluded from refuting the government's specific allegations of fraudulent invoices and checks, or from offering specific explanations for disbursements they made for VHS. Edelson was not capable of addressing the reasons for the "reimbursements" to defendants. We note that the fact that VHS's finances were in disarray does not negate the government's allegations that Brinson and Price willfully defrauded the government and skimmed money from VHS for their personal use, as defendants would argue.
We conclude that the district court did not abuse its discretion when it imposed limitations on Edelson's testimony.
Jury Instructions
The district court instructed the jury that "[a]s used in the instructions for Count 1 [conspiring to defraud the United States], the phrase 'intended to defraud' means that the acts charged in Count 1 were done knowingly, with the intent to deceive the United States Government." Defendants argue that an additional phrase should have been included to instruct that the acts were done "in order to cause a monetary loss to the United States or a financial gain to the defendant."
? trial court is given substantial discretion in formulating jury instructions. United States v. Olson, 978 F.2d 1472, 1477 (7th Cir.1992). Defendants cite no authority which requires that a jury be instructed as they propose. The government cites cases from other circuits which do not include such an element to prove "intent to defraud." See United States v. Tuohey, 867 F.2d 534, 537 (9th Cir.1989); United States v. Tarvers, 833 F.2d 1068, 1075 (1st Cir.1987); United States v. Southland Corp., 760 F.2d 1366, 1382 (2d Cir.), cert. denied, 474 U.S. 825, 106 S.Ct. 82, 88 L.Ed.2d 67 (1985); United States v. Puerto, 730 F.2d 627, 630 (11th Cir.), cert. denied, 469 U.S. 847, 105 S.Ct. 162, 83 L.Ed.2d 98 (1984). Defendants do not respond to the government's arguments in their reply brief, but merely state in a footnote that they "rely on their opening brief regarding the jury instruction issue raised on appeal." We conclude that the district court did not err when instructing the jury on intent to defraud.
For the foregoing reasons, the convictions of Brinson and Price are Affirmed.
. Cost of sales are costs directly related to the sale of a product, such as materials, labor and overhead.
. Edelson used VHS's unreported gross receipts as determined by the IRS.