Opinion ID: 399922
Heading Depth: 2
Heading Rank: 1

Heading: Alleged Denial of Right to Present Theory of Defense to Jury.

Text: 8 White and Kuykendall contend that the trial court's evidentiary rulings, comments, and instructions to the jury denied them due process by precluding them from presenting their theory of defense to the jury. 9 IRS agent Frank Matthews testified for the Government regarding a course of self-dealing between White and the Co-op. In 1974, the Co-op decided to finance the construction of new Co-op facilities through an industrial development bond issue authorized by Ark.Stat.Ann. § 13-1601 et seq. (Act 9 bonds). The Co-op itself had sufficient funds available to pay for construction of the new facility; however, at the instance of Jack White the Co-op entered into a convoluted financing arrangement with the City of Van Buren, Arkansas. On behalf of the Co-op, the City of Van Buren issued industrial development bearer bonds in a principal amount of $1,500,000. The bond agreement obligated the Co-op to pay bondholders interest at the rate of eight percent per annum over the twenty-year life of the bonds. The interest was purportedly tax-exempt under I.R.C. § 103. 10 The bond underwriter refused to market the bonds out of concern that the local market serviced would not readily purchase the bonds. Because the Co-op itself could not purchase the issue and retain a federal tax exemption on the interest, White arranged an interest-free loan of $1,500,000 from the Co-op to himself, which he used to purchase the entire issue of bonds. White, in turn, sold bonds to other individuals, and transferred the funds he received from these sales to the Co-op in repayment of his loan. He never executed a note to the Co-op evidencing this loan. 3 11 In 1975 and 1976, Jack White received from the Co-op $77,200 and $72,400 respectively in interest on the Act 9 bonds he held. White's personal income tax returns for those years, which Gene Kuykendall prepared, did not report the interest as income. By manipulating the books and records of the Co-op, White and Kuykendall masked the true nature of the industrial development bond arrangement, and disguised payments of taxable compensation to White as purportedly tax-exempt interest. See infra pp. 1131-1133 (discussing White's personal income tax returns). 12 After Frank Matthews testified regarding the Act 9 bonds, defense counsel cross-examined him about the proper tax treatment of the Co-op's interest-free loan to White. Matthews testified that he did not question the Co-op's right to make interest-free loans to its employees, officers, or directors, as long as it's an arms-length transaction. Defense counsel then inquired about Matthews' familiarity with several tax cases dealing with corporate loans, without interest or security, to the corporation's officers, directors, and employees. 4 13 At that point, without objection by the Government, the court reminded defense counsel that the court had the duty and responsibility of instructing the jury on the law applicable to the case. When defense counsel asserted the right to cross-examine Matthews as an expert on matters within his expertise, the court opined that the tax cases cited had no relevance to the instant case, but allowed the line of questioning to proceed. 14 When Matthews then denied familiarity with the cases cited, defense counsel attempted to frame a general question about the legal rule on interest-free loans by a corporation to an officer. The court interrupted and advised defense counsel that the court would instruct the jury on the applicable law at an appropriate time. 5 15 White and Kuykendall now argue that the court's action in curtailing cross-examination of Matthews denied them the right of confrontation and prevented them from presenting their theory of defense to the jury. White and Kuykendall maintain that the cases they mentioned to Matthews support their treatment of the bond interest on White's personal income tax returns. At least, appellants assert, they had a right to allude to these cases as support for their treatment of the interest income and thereby negate the Government's charges of willful tax fraud. White and Kuykendall contend that the court prevented them from presenting to the jury their theory of defense, i.e., lack of specific intent to disguise the actual form of the Co-op's financial transactions. 16 We do not agree. This record discloses no prejudicial error. The trial court has wide latitude in limiting the scope of cross-examination. United States v. Drake, 542 F.2d 1020, 1022 (8th Cir. 1976), cert. denied, 429 U.S. 1050, 97 S.Ct. 762, 50 L.Ed.2d 766 (1977). Here, the court did not abuse its discretion in limiting defense counsel's cross-examination of Matthews, regarding particular tax cases. Despite its expressed concern about the relevance of the cases to which defense counsel referred, the court did not prohibit the line of questioning altogether. Eventually, however, the court halted defense counsel's questioning about particular cases and legal principles, because it is the role of the court, not the jury, to determine the issues of law. United States v. Jordan, 508 F.2d 750, 753 (7th Cir. 1972), cert. denied, 423 U.S. 842, 96 S.Ct. 76, 46 L.Ed.2d 62 (1975). 17