Opinion ID: 414210
Heading Depth: 2
Heading Rank: 2

Heading: Reed's Claim

Text: 9 On May 5, 1980, the Criminal Section of the Department of Justice Tax Division sent Reed a letter informing him that his case was being transferred to the IRS. According to Reed's testimony, he then wrote to the Tax Division for an explanation of the letter. The Tax Division, however, viewed Reed's letter as a request for an interpretation of the Tax Division's reference number code system, and answered accordingly. Reed then destroyed his business records. Reed contends that his destruction of the business records was done in reasonable reliance on the Tax Division's letters, and that he suffered actual prejudice as a result of the destruction of the records. 10 As was the case with Carruth, the district court found no actual prejudice as a result of the destruction of the records. We affirm. 11 First, it is obvious that the loss of the records was due to Reed's mistaken interpretation of the Tax Division's letters, and not to the delay in bringing the indictment. A reasonable person would, at least, have sought legal advice or further clarification from the Tax Division of its letters before destroying any records, especially since the May 5 letter informed Reed that he was still under investigation by the IRS. 12 Second, in 1977, IRS agents had microfilmed Reed's records. These were made available to Reed in preparation for trial. Reed claims, however, that the microfilmed records were not properly organized. This claim is frivolous. The records were Reed's own business records, and he should have been in a better position than the IRS to organize them. In addition, there is no indication that the records were organized before they were microfilmed. 13 Reed also argues that some documents were missing from the IRS microfilms. This statement is contradicted by the testimony of the IRS agents that they had microfilmed all of the records. Moreover, Reed admitted that some of the records were lost due to his own carelessness before the IRS agents had copied them. Finally, Reed testified at trial as to the contents of the records, and failed to show that the presence of the missing records would have done more to exonerate him. See United States v. West, 607 F.2d 300, 304-05 (9th Cir.1979). 14 Because we find that there was no actual prejudice to Carruth or to Reed, we need not balance the prejudice suffered by the defendants against the reasons for and length of the pre-indictment delay. United States v. Mills, 641 F.2d 785, 789 (9th Cir.1981). We note, however, that the delay was caused by the unusual complexity of the tax shelter transactions involved in Carruth and Reed's operations and not by the government's intentionally or recklessly delaying the indictment to gain a tactical advantage, as is normally necessary for a defendant to prevail in a pre-indictment claim. 1 Id. at n. 2. Also, the three year delay in this case from the beginning of the criminal investigation to the return of the indictment was not inordinate, given the difficulty of unraveling the defendants' schemes. Cf. United States v. Mays, 549 F.2d 670 (9th Cir.1977) (no due process violation from four and one-half year delay). III. CARRUTH'S OTHER CLAIMS A. Variance 15 The indictment alleged that Reed and Carruth conspired to defraud the United States in violation of 18 U.S.C. Sec. 371, 2 by impeding, impairing, disrupting and defeating the lawful Governmental functions of the Internal Revenue Service in the ascertainment, computation, assessment and collection of the revenue. 16 Carruth claims that there was a variance between the indictment and the evidence presented at trial. 3 He urges that the evidence did not amount to a conspiracy to defraud the United States, but encompassed at most a civil action for fraud on the investors. Moreover, Carruth contends that the government's fraud claim is based on the notion that Carruth and Reed conspired to force the IRS to audit the tax returns of the limited partners, and that the evidence did not show that Carruth and Reed had the requisite intent to commit such a fraud. Finally, Carruth argues that to be guilty of a conspiracy to defraud the United States, he must have conspired to receive benefits directly from the United States, whereas Carruth and Reed sought benefits not for themselves, but for the tax shelter investors. These arguments are without merit. 17 First, the defendants were in the business of selling tax shelters, which had as their purpose the reduction or elimination of the investors' tax burden. The evidence showed that Carruth and Reed knew that the deductions that the limited partners would take on their tax returns were based in large part on nonexistent transactions, and that the Treasury would be deprived of substantial sums in tax revenues as a result. 4 18 Second, the conspiracy described in the indictment was not limited to causing the IRS to devote resources to auditing the limited partners--although this did occur, and was the logical result of a tax shelter fraud on the scale of the present one--but included defeating the lawful collection of tax revenues. As noted above, the evidence shows that this was the defendants' intent in putting together their tax shelter schemes. 19 Finally, a conspiracy against the United States can encompass transactions such as the present ones, in which the conspirators do not realize benefits directly from the United States, but conspire to defraud the United States for the direct benefit of others and the indirect benefit of themselves. See, e.g., United States v. Winograd, 656 F.2d 279 (7th Cir.1981), cert. denied, 455 U.S. 989, 102 S.Ct. 1612, 71 L.Ed.2d 848 (1982) (upholding conviction under 18 U.S.C. Sec. 371 of commodities broker who operated illegal tax straddle to reduce the tax burden of an investor). B. Sufficiency of the Evidence 20 Carruth claims that there was insufficient evidence presented at trial to support his conviction under 18 U.S.C. Sec. 371 for conspiracy to defraud the United States. 5 He contends that in preparing Schedule K-1 forms for the limited partnerships, he merely relied on information supplied to him by Reed, and that he had no reason to doubt Reed's word. Therefore, Carruth argues, he lacked knowledge of any fraudulent activities of Reed, and did not agree with Reed to participate in a conspiracy. The jury verdict against Carruth must be sustained, however, if, viewing the evidence in the light most favorable to the government, a reasonable jury could find the defendant guilty beyond a reasonable doubt. United States v. Universal Trade and Industries, Inc., 695 F.2d 1151, 1153 (9th Cir.1983). After examining the record, we conclude that there was sufficient evidence to support the jury's verdict. 21 The evidence shows that Carruth had a long-term exclusive business arrangement with Reed and with corporations owned or controlled by Reed. The evidence also establishes that there was a circular flow of money through the Reed entities and back to Carruth's partnerships, and that Carruth was aware of this money flow. Finally, the evidence indicates that Carruth was responsible for creating documentation for illusory cattle and feed purchases and loans, as well as the partnership income tax returns, and that Carruth actively concealed the nature of the partnership transactions from the investors. While this evidence is merely circumstantial, circumstantial evidence can be sufficient to support a conviction for conspiracy to defraud, as is the case here. Cf. United States v. Sears, 663 F.2d 896, 905 (9th Cir.1981), cert. denied, 455 U.S. 1027, 102 S.Ct. 1731, 72 L.Ed.2d 148 (1982).