Opinion ID: 710876
Heading Depth: 2
Heading Rank: 2

Heading: The Tax-Fraud Convictions

Text: 54 The question remains to what degree the invalid conviction under Sec. 666(a)(1)(B) affected Foley's tax-fraud conviction for assisting in the Taft-Crosspointe and Taft Group fraudulent overstatements of their deductions on their federal income tax returns. It is a federal offense willfully to assist in the preparation of a tax return which is fraudulent or is false as to any material matter, 26 U.S.C. Sec. 7206(2), and a willful assistance in the taxpayer's overstatement of its deductions is prosecutable under this provision. See, e.g., United States v. Owen, 15 F.3d 1528, 1530, 1535 (10th Cir.1994). A business is allowed to deduct the ordinary and necessary expenses of its operations, see 26 U.S.C. Sec. 162(a) (1988), but it is not allowed to deduct as an ordinary and necessary business expense any payment made, directly or indirectly, to an official or employee of any government ... if the payment constitutes an illegal bribe or kickback. 26 U.S.C. Sec. 162(c)(1) (1988) (emphasis added). This section allows for the possibility that some bribes or kickbacks may be lawful; if lawful, they may properly be deducted if they are ordinary and necessary expenses of the business. See Raymond Bertolini Trucking Co. v. Commissioner, 736 F.2d 1120, 1123-25 (6th Cir.1984) (concluding on facts of case that kickback was legal, ordinary, and necessary and hence was deductible); cf. Car-Ron Asphalt Paving Co. v. Commissioner, 758 F.2d 1132, 1133-34 (6th Cir.1985) (finding legal kickback not necessary and thus not deductible). 55 Further, the source of the illegality referred to in 26 U.S.C. Sec. 162(c)(1) may be either federal or state law. See 26 U.S.C. Sec. 162(c)(2); see also Commissioner v. Tellier, 383 U.S. 687, 693-94, 86 S.Ct. 1118, 1121-22, 16 L.Ed.2d 185 (1966). Thus, a properly instructed jury may convict under Sec. 7206(2) based on the deduction of a bribe that was (a) illegal under federal law, (b) illegal under state law, or (c) legal but not an ordinary and necessary business expense. When, however, the jury has been presented with several bases for conviction, one of which is invalid as a matter of law, and it is impossible to tell which ground the jury selected, the conviction must be vacated. See, e.g., Yates v. United States, 354 U.S. 298, 312, 77 S.Ct. 1064, 1073, 1 L.Ed.2d 1356 (1957) (prosecution for conduct beyond statute-of-limitations period invalid as a matter of law), partially overruled on other grounds by Burks v. United States, 437 U.S. 1, 7-10, 98 S.Ct. 2141, 2145-47, 57 L.Ed.2d 1 (1978); Stromberg v. California, 283 U.S. 359, 368-70, 51 S.Ct. 532, 535-36, 75 L.Ed. 1117 (1931) (prosecution for constitutionally protected conduct invalid as a matter of law); see generally Griffin v. United States, 502 U.S. 46, 52-56, 112 S.Ct. 466, 470-73, 116 L.Ed.2d 371 (1991). Though the mere insufficiency of the evidence to support one of the bases submitted to the jury does not fall within this principle, see id. at 56, 112 S.Ct. at 472-73, a basis is invalid as a matter of law when the conduct in question fails to come within the statutory definition of the crime, id. at 59, 112 S.Ct. at 474; see, e.g., United States v. Musacchia, 955 F.2d 3, 4 (2d Cir.1991) (withdrawing earlier affirmance and remanding for new trial where, after affirmance, government raised inapplicability of substantive provision, and court could not determine whether or not that provision was basis for conspiracy conviction). 56 In the present case, the jury was presented with two bases on which it could find that Foley had willfully aided in the preparation of a tax return that was false as to a material matter. First, the indictment, which the judge read to the jury as part of its instructions, and which the jury had with it during its deliberations, alleged that Foley had assisted in the taxpayers' deductions of the bribery payments, though they were not a legitimate business expense. This facet of the instructions permitted the jury to convict on the theory that bribe payments were not ordinary and necessary business expenses. 57 The second basis related to the impermissibility of a deduction for bribes that were illegal. In this connection, the district court instructed the jury that [m]oney paid to a public official for a corrupt purpose is not a legitimate expense and a taxpayer is not allowed to deduct such payments as business expenses. (October 28 Tr. at 93.) Assuming that use of the phrase for a corrupt purpose--a phrase that suggests a subjective test--was a sufficient surrogate for the objective requirement that the bribe or kickback be illegal, the court's instruction appears plainly to have been premised on the bribery having come within the scope of Sec. 666(a)(1)(B). There is no indication that the government invoked any provision of state law, such as Conn.Gen.Stat. Sec. 53a-147 (1994), which provides that [a] person is guilty of [the felony of] bribery if he promises, offers, confers or agrees to confer upon a public servant ... any benefit as consideration for the recipient's decision, opinion, recommendation or vote as a public servant.... See also id. Sec. 53a-148 (1994) (A public servant ... is guilty of [the felony of] bribe receiving if he solicits, accepts or agrees to accept from another person any benefit for, because of, or as consideration for his decision, opinion, recommendation or vote.). The only basis for illegality presented to the jury was Sec. 666(a)(1)(B). 58 Since we have concluded that the conduct alleged and proven with respect to the bribery count was not an offense under Sec. 666(a)(1)(B), the only section under which Foley was charged with bribery, and since we are unable to determine whether the jury's general verdict was based on the view that the bribe payments were not ordinary and necessary expenses or instead was based on the premise that the deduction was impermissible because the bribe payments were illegal under Sec. 666(a)(1)(B), we vacate Foley's convictions on the tax-fraud counts and remand for a new trial on those counts.