Court Opinion

ID: 4181293
Source: CourtListenerOpinion
Date Created: 2017-06-27 17:01:27.542313+00
Date Added: 2024-06-11T14:24:57.214696
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 17a0372n.06

                                        Case No. 16-6331

                             UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT
                                                                                       FILED
                                                                                 Jun 27, 2017
UNITED STATES OF AMERICA,                              )                     DEBORAH S. HUNT, Clerk
                                                       )
       Plaintiff-Appellee,                             )
                                                       )         ON APPEAL FROM THE
v.                                                     )         UNITED STATES DISTRICT
                                                       )         COURT FOR THE EASTERN
JOHN DANIELS,                                          )         DISTRICT OF KENTUCKY
                                                       )
       Defendant-Appellant.                            )
                                                       )
                                                       )                              OPINION

BEFORE:        COLE, Chief Judge; STRANCH and DONALD, Circuit Judges.

       COLE, Chief Judge. John Daniels appeals his conviction and sentence for tax evasion in

violation of 26 U.S.C. § 7201. We hold that there was sufficient evidence to convict Daniels,

that any district court errors—taken cumulatively—did not result in a fundamentally unfair

process, and that the district court reasonably concluded that Daniels’s failure to file was relevant

conduct for determining the amount of loss. We therefore affirm Daniels’s conviction and

sentence.

                                       I. BACKGROUND

       Daniels owned and operated the Central Kentucky Wellness Center (“the Center”), a pain

clinic in Lexington. The Center operated predominantly on a cash basis. Payments went

through Terika Witten, the Center’s office manager and Daniels’s mistress.            Patients paid
Case No. 16-6331, United States v. Daniels

between $200 and $300 to visit the clinic. At the end of each day, Witten reconciled the cash

and deposited it into Daniels’s business account. Daniels used a program known as QuickBooks

to handle the bookkeeping for the Center.

       In May 2011, Witten began withholding some patient payments and storing the withheld

cash in a separate cabinet. Witten would direct this cash to Daniels at his instructions. She did

not know how it was to be used. Witten kept track of the money she withheld in a notebook.

According to her records, Witten gave Daniels $17,200 in cash between May 2 and December

15, 2011. Witten gave Daniels $29,950 in cash between January 3 and August 10, 2012.

Finally, Witten gave Daniels $69,500 in cash between January 3 and December 12, 2013. In

total, Witten gave Daniels $116,650 in cash, none of which was deposited in the business

account or recorded in QuickBooks.

       In 2011, Daniels hired Jim Bryant, a certified public accountant who was the managing

partner of Wells & Company, to assist Daniels with his personal and corporate tax returns.

Daniels and Bryant were familiar with one another from 2004 when Daniels worked as a

seasonal employee at Wells & Company. Bryant completed Daniels’s tax returns for tax years

2010, 2011, and 2012 based on the data in QuickBooks. Bryant filed for an extension to file

Daniels’s 2011 and 2012 returns. The 2010 return was completed on time and Bryant filed it on

Daniels’s behalf. Daniels did not provide Bryant with prompt information for his 2011 and 2012

returns. Bryant sent Daniels his completed 2011 returns in August 2013 and his completed 2012

returns in November 2013. In each case, Bryant sent Daniels tax returns with instructions on

filing and an envelope for submission to the Internal Revenue Service. Daniels never submitted

these returns and never paid his tax liability for these years.

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Case No. 16-6331, United States v. Daniels

       On October 8, 2015, Daniels was charged in a four-count indictment with two counts of

willfully failing to file income tax returns, in violation of 26 U.S.C. § 7203, and two counts of

attempting to defeat or evade payment of a tax, in violation of 26 U.S.C. § 7201. A superseding

indictment was filed on December 10, 2015.

       Witten testified before the grand jury about the money that she took from the cash box.

At that time, Witten testified that Daniels had told her to give him “pocket money from money

that was collected at the clinic.” (Trial Tr., R. 56, PageID 566.)

       At trial, Witten testified differently, stating that she decided on her own to hold back

patient payments. She also testified that she was telling the truth at trial, that she had found some

grand jury questions confusing, and that she did not believe that her trial testimony was

inconsistent with her grand jury testimony.

       Special Agent Jared Volk, an agent with the IRS’s criminal investigation division, also

testified at trial. Over Daniels’s objection to relevancy, Volk testified about the internal approval

process required for determining if prosecution is warranted. In the process of investigating

Daniels, Volk interviewed Bryant, Witten, and a number of other employees of the Center. Volk

learned in his interview with Witten that she gave Daniels “pocket money.” (Trial Tr., R. 57,

PageID 685.) To determine the total tax liability that Daniels owed, Volk added the cash

payments Witten recorded in her notebook to the tax liability reported on the unfiled tax returns.

Based on Volk’s calculations, Daniels’s total liability for tax years 2011 and 2012 was $47,684.

       During the trial, the government noticed that it had charged the wrong dates on the two

counts of failure to file. The failure to file counts charged Daniels with failing to file his tax

returns by April 16, 2012, and April 15, 2013, respectively. However, Daniels had received an

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Case No. 16-6331, United States v. Daniels

extension of the filing date in each of those years. The government therefore moved to dismiss

those two counts during the trial.

       The jury found Daniels guilty on both counts of tax evasion. Daniels moved for a

judgment of acquittal, or, alternatively, a new trial. Daniels argued that there was insufficient

evidence to convict him. He moved for a new trial based on the manifest weight of the evidence

and cumulative errors by the district court. The district court denied Daniels’s motion, finding

that there was sufficient evidence, that the manifest weight of the evidence did not necessitate a

new trial, and that any errors at trial were harmless.

       The district court sentenced Daniels to fifteen months’ imprisonment. The district court

noted that under both the Sentencing Guidelines § 2T1.1(c)(1) (tax evasion) and § 2T1.1(c)(2)

(failure to file), the base offense level is based on the amount of loss. The district court used §

2T1.1(c)(2) because Daniels never filed his 2011 and 2012 tax returns. The court, using Volk’s

calculations, determined that the tax loss was $47,684. Daniels timely appealed his conviction

and sentence.

                                          II. ANALYSIS

       A. Sufficiency of the Evidence

       We view the evidence in the light most favorable to the prosecution to determine whether

“any rational trier of fact could have found the essential elements of the crime beyond a

reasonable doubt.” United States v. Vichitvongsa, 819 F.3d 260, 270 (6th Cir. 2016) (quoting

Jackson v. Virginia, 443 U.S. 307, 319 (1979)). We do not “weigh the evidence presented,

consider the credibility of witnesses, or substitute our judgment for that of the jury.” United

States v. M/G Transp. Servs., Inc., 173 F.3d 584, 588–89 (6th Cir. 1999). All conflicts of

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Case No. 16-6331, United States v. Daniels

testimony are resolved in favor of the government, and every reasonable inference is drawn in

the government’s favor. United States v. Siemaszko, 612 F.3d 450, 462 (6th Cir. 2010).

       The statute under which Daniels was prosecuted provides that “[a]ny person who

willfully attempts in any manner to evade or defeat any tax imposed by [the Internal Revenue

Code] or the payment thereof shall . . . be guilty of a felony.” 26 U.S.C. § 7201. The

government must prove three elements to support a conviction for tax evasion: (1) the existence

of a tax deficiency, (2) willfulness, and (3) an affirmative act constituting an evasion or

attempted evasion. United States v. Gross, 626 F.3d 289, 293 (6th Cir. 2010) (citing Boulware v.

United States, 552 U.S. 421, 424 n.2 (2008)). Daniels did not contest the existence of a tax

deficiency; it is undisputed that Daniels failed to pay his taxes in 2011 or 2012. Accordingly, we

need only address whether the government proved willfulness and an affirmative act.

               1. Affirmative Act

       In § 7201, Congress proscribed attempts to evade taxes “in any manner.” Recognizing

this, the Supreme Court has held that the type of affirmative act that may constitute evasion is

broad and has declined to define or limit it. See Spies v. United States, 317 U.S. 492, 499 (1943).

In Spies, the Court provided a non-exhaustive list of qualifying affirmative acts, such as keeping

a double set of books, creating false documents, destroying books or other records, concealing

assets, covering up sources of income, conducting business in a manner that avoids typical

recordkeeping, and other conduct that is likely to mislead or conceal. Id. In addition, tax

evasion need not be the sole motive for the conduct; it can still count as an affirmative act even if

the conduct also serves other purposes. Id.

       Daniels argues that Witten acted alone in keeping a double set of books and concealing

the money she gave to him. On this point, Witten’s grand jury and trial testimony conflict.

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Case No. 16-6331, United States v. Daniels

Before the grand jury, Witten was asked whether Daniels requested that she give him “pocket

money from money that was collected at the clinic.” (Trial Tr., R. 56, PageID 566.) Witten

answered in the affirmative. However, at trial, Witten testified that she decided on her own to

withhold patient payments. The government then impeached Witten with her contradictory

grand jury testimony at trial. On cross-examination, Witten said that she was telling the truth at

trial, that she found some grand jury questions confusing, and that she did not believe that her

trial testimony was different from her grand jury testimony.

       Viewed in the light most favorable to the government, the evidence is sufficient to

support Daniels’s conviction. Keeping a double set of books is a common affirmative act that

supports a conviction for tax evasion. See Spies, 317 U.S. at 499; United States v. Madison,

226 F. App’x 535, 544 (6th Cir. 2007). A rational juror could infer from Witten’s grand jury

testimony that she was acting under Daniels’s direction in keeping a double set of books. The

government provided evidence that Witten withheld patient payments, recorded them on a

separate set of books, gave Daniels the withheld money, and that Daniels had requested this

money. Although Witten’s grand jury and trial testimony conflict, it is not within our province

to re-weigh the evidence or make decisions on the credibility of witnesses, and all conflicts of

testimony are resolved in favor of the government. Siemaszko, 612 F.3d at 462. Accordingly, a

rational juror could conclude that Daniels committed an affirmative act constituting tax evasion.

               2. Willfulness

       Daniels argues that the Supreme Court in Spies defined willfulness as “an act done with

evil motive, bad purpose, or corrupt design.” (Appellant Br. 29.) However, the definition of

willfulness has evolved since Spies. In United States v. Pomponio, the Supreme Court examined

different articulations of willfulness—including the one in Spies—and held that willfulness

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Case No. 16-6331, United States v. Daniels

“simply means a voluntary, intentional violation of a known legal duty.” 429 U.S. 10, 12 (1976);

see also Cheek v. United States, 498 U.S. 192, 201 (1991).             This standard “requires the

Government to prove that the law imposed a duty on the defendant, that the defendant knew of

this duty, and that he voluntarily and intentionally violated that duty.” Id. at 201.

         The evidence used to establish willfulness may be circumstantial. United States v.

Grumka, 728 F.2d 794, 797 (6th Cir. 1984) (per curiam). In addition, evidence of affirmative

acts may be used to show willfulness. United States v. Christians, 105 F. App’x 748, 751 (6th

Cir. 2004); see also United States v. Daniel, 956 F.2d 540, 543 (6th Cir. 1992). Evidence that a

defendant filed taxes in previous years can establish knowledge of the legal obligation. See

United States v. Woodman, 115 F. App’x 840, 843 (6th Cir. 2004); Daniel, 956 F.2d at 543.

         A rational juror could determine that the government proved willfulness beyond a

reasonable doubt. The government proved that Daniels was aware of his legal duty to pay taxes

by introducing evidence that Daniels had previously filed taxes. There is also no question that

Daniels had substantial tax liabilities. The only question is whether Daniels voluntarily and

intentionally violated his duty to pay taxes.         The government introduced evidence that

(1) Daniels conducted his business mostly through cash, (2) Witten—on his instructions—

withheld cash from the business and provided Daniels with that cash frequently, and

(3) Daniels’s unfiled tax returns did not report this information. A rational juror could conclude

from this evidence that Daniels voluntarily and intentionally violated his known legal duty to pay

taxes.

         We have considered Daniels’s argument that he failed to file his tax return because he did

not have the money—not to evade tax liability. However, we find this argument to be without

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Case No. 16-6331, United States v. Daniels

merit. The Supreme Court held in Sansone v. United States that intending to pay tax liability in

the future does not vitiate willfulness under § 7201. 380 U.S. 343, 354 (1965).

       Because a rational juror could conclude that the government proved all of the elements of

tax evasion under § 7201 beyond a reasonable doubt, we hold that the evidence was sufficient to

support Daniels’s conviction.

       B. Motion for a New Trial

       We review a denial of a motion for a new trial for abuse of discretion. United States v.

Callahan, 801 F.3d 606, 616 (6th Cir. 2015). Daniels argues that the district court should have

granted his motion for a new trial because the verdict is against the manifest weight of the

evidence and because the district court’s cumulative errors rendered Daniels’s trial

fundamentally unfair. We disagree.

               1. Manifest Weight of the Evidence

       A district court reviewing a motion for a new trial acts in the role of a thirteenth juror and

considers the credibility of the witnesses and the weight of the evidence. Id. at 616–17. The

court must grant a new trial if the verdict is against the manifest weight of the evidence. Id. at

616. We “simply review the evidence and the district court’s ruling,” reversing only based on “a

definite and firm conviction that the district court committed a clear error of judgment.” Id. at

617 (internal quotation marks omitted).

       The district court determined that a jury could reasonably find that Witten lacked

credibility because of her contradictory testimony and her intimate relationship with Daniels.

The district court also determined that between the testimony of Witten and Volk, a jury could

reasonably determine that Daniels intended to evade his tax liabilities.

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Case No. 16-6331, United States v. Daniels

        Daniels has pointed to no specific problems so egregious as to warrant a finding that the

district court committed a “clear error of judgment.” Id. Daniels primarily argues that Witten’s

trial testimony is more credible than her grand jury testimony. However, it is the role of the

district court to assess the witnesses’ credibility. United States v. Lutz, 154 F.3d 581, 589 (6th

Cir. 1998). We simply review the district court’s ruling for abuse of discretion and have found

none.

               2. Cumulative Errors

        A defendant seeking a new trial based on cumulative error “must show that the combined

effect of individually harmless errors was so prejudicial as to render his trial fundamentally

unfair.” United States v. Trujillo, 376 F.3d 593, 614 (6th Cir. 2004). Even “errors that might not

be so prejudicial as to amount to a deprivation of due process when considered alone . . . may

cumulatively produce a trial setting that is fundamentally unfair.” Id. (quoting United States v.

Hernandez, 227 F.3d 686, 697 (6th Cir. 2000)).

                      a. Exclusion of Witten’s Testimony

        On cross-examination, Witten was asked four questions about whether Daniels told her to

keep track of cash she removed from the box. The government objected on hearsay grounds to

these questions, and the objections were sustained. The government admits that the district court

erred in sustaining these objections. However, the prejudicial impact of this error was low.

Witten had already testified on direct examination that Daniels had told his employees to keep

track of money they took out of the cash box.

                      b. Use of Witten’s Grand Jury Testimony in Closing

        Daniels argues that the district court erred by allowing the government to use Witten’s

grand jury testimony as a demonstrative aid during closing. However, Witten’s grand jury

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Case No. 16-6331, United States v. Daniels

testimony was a prior inconsistent statement that the district court should have allowed the

government to admit as substantive evidence. See United States v. Mayberry, 540 F.3d 506,

515–16 (6th Cir. 2008). Given that the government should have been allowed to admit this

testimony as substantive evidence, it was not error to allow the government to use it during

closing.

                      c. Special Agent Volk’s Testimony

       Daniels argues that the district court allowed Volk to testify about matters that had no

relevance, including the IRS’s process for determining if an individual will be prosecuted for tax

violations and about the cash Witten gave to Daniels in 2013. Under Federal Rule of Evidence

401, evidence is relevant if “(a) it has any tendency to make a fact more or less probable than it

would be without the evidence; and (b) the fact is of consequence in determining the action.”

Fed. R. Evid. 401. Volk’s testimony that Witten withheld cash is relevant to prove willfulness.

The increasing amounts of withheld cash make it more probable that Daniels intentionally

violated his duty to pay his taxes and make it less probable that Daniels could have mistakenly

overlooked the withheld cash. The district court did not abuse its discretion in finding this

evidence relevant.

       Neither did the district court abuse its discretion in allowing Volk to testify about the IRS

investigative process that led to charging Daniels for tax evasion. Daniels argues that the

evidence was irrelevant and inflammatory in violation of Rule 403, which provides that

“[a]lthough relevant, evidence may be excluded if its probative value is substantially outweighed

by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by

considerations of undue delay, waste of time, or needless presentation of cumulative evidence.”

Fed. R. Evid. 403. However, because defense counsel raised a relevancy objection under Rule

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Case No. 16-6331, United States v. Daniels

401 as opposed to a Rule 403 objection, he has failed to preserve that argument for appeal and

plain error review applies. United States v. Warman, 578 F.3d 320, 348 (6th Cir. 2009); see also

Puckett v. United States, 556 U.S. 129, 135 (2009) (outlining the elements of the plain-error

test). Here, there is no clear and obvious error. The testimony satisfied Rule 401 by explaining

the reasons for the investigation and any prejudicial impact was low. Therefore, the district court

did not abuse its discretion in permitting the testimony.

       Daniels makes a cursory argument as to why these errors are cumulatively prejudicial.

Considered cumulatively, we find no error, but even if such error occurred, it did not “produce a

trial setting that [was] fundamentally unfair.” Trujillo, 376 F.3d at 614 (citation omitted).

       C. Amount of Tax Loss

       We review de novo a district court’s legal conclusions interpreting the Sentencing

Guidelines, United States v. Tatum, 518 F.3d 369, 372 (6th Cir. 2008), but we give deference to

the district court’s factual tax loss findings, see United States v. Webb, 335 F.3d 534, 537 (6th

Cir. 2003).

       Under the Guidelines, a defendant’s base offense level for tax evasion is determined by

the amount of the tax loss. U.S.S.G. § 2T1.1(c)(1). The tax loss “is the total amount of loss that

was the object of the offense (i.e., the loss that would have resulted had the offense been

successfully completed).” Id. However, “[i]f the offense involved failure to file a tax return, the

tax loss is the amount of tax that the taxpayer owed and did not pay.” U.S.S.G. § 2T1.1(c)(2).

       The district court calculated Daniels’s tax loss under (c)(2) as opposed to (c)(1) because

Daniels failed to file taxes for tax years 2011 and 2012. Daniels argues that the district court

erred because he was convicted only of tax evasion, not failure to file. However, under the

Guidelines, the district court is allowed to consider all relevant conduct in determining the loss.

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Case No. 16-6331, United States v. Daniels

U.S.S.G. § 1B1.3. This includes even uncharged conduct. United States v. Pierce, 17 F.3d 146,

150 (6th Cir. 1994). Application Note 2 of § 2T1.1 states that “all conduct violating the tax laws

should be considered as part of the same course of conduct or common scheme or plan unless the

evidence demonstrates that the conduct is clearly unrelated.”           U.S.S.G. § 2T1.1 cmt. n.2.

Accordingly, so long as the failure to file was part of the “same course of conduct or common

scheme,” the district court could include it as part of the tax loss.

       Daniels’s failure to file was part of the same course of conduct as the tax evasion.

Application Note 2 of § 2T1.1 states that only “clearly unrelated” conduct should not be

considered part of the same course of conduct. When Daniels’s failure to file his tax returns is

viewed in light of his other conduct, including keeping a double set of books, not providing

complete information to his accountant, and not filing his taxes on time, a pattern of violations

emerges. See U.S.S.G. § 2T1.1 cmt. n.2. Under the Guidelines, the district court was permitted

to include this conduct in calculating the tax loss.

                                        III. CONCLUSION

       The district court did not err in determining that there was sufficient evidence to convict

Daniels or that Daniels’s uncharged conduct could be included in the amount of his tax loss

under the Guidelines. Nor did the district court’s alleged errors cumulatively prejudice Daniels.

Accordingly, we affirm Daniels’s conviction and sentence.

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