United States v. William R. Hooks

William Hooks appeals his conviction by a jury of conspiring to defraud the United States in violation of 18 U.S.C. § 371 and of aiding in the filing of a false estate tax return in violation of 26 U.S.C. § 7206(2). We affirm.

I. Facts

This case concerns the unreported, untaxed assets of a decedent’s estate. The underlying facts are not in dispute. Appellant Hooks’ father-in-law, Floyd Loge, died in Evansville, Indiana, on September 26, 1978, leaving an $8 million estate. Loge’s widow, Celia May Loge, and the Citizens National Bank of Evansville were co-executors under the will; the bank administered the estate.

Mrs. Loge and her daughter, Patricia Susan Hooks, turned over to the bank a box of stock certificates and bonds to be included in Loge’s estate. When the bank asked Loge’s personal broker to determine the market value of those assets, the broker discovered that he was not given ten issues of bearer bonds that had previously been a part of Loge’s portfolio. The face value of those bonds was approximately $375,000.00.

The bank questioned Mrs. Loge about this discrepancy, and was told that the missing bonds could not be found. On the assurance that all of Floyd Loge’s assets had been turned over, therefore, the bank prepared the federal estate tax return without including those ten bearer bonds in the estate. The return was filed on March 20, 1980.

In 1978, appellant William Hooks was a vice president of the Plasti-Drum Corporation. He asked his employer, Walter Craig, to store some bearer bonds in Craig’s safe deposit box because he did not want anyone to know of his connection with the bonds. According to Craig, Hooks said that “the girls” (Mrs. Loge and Patricia Hooks) told Hooks to take the bonds from under Mr. Loge’s bed. When Hooks and Craig went to the bank to put the bonds in Craig’s box, they chatted with the loan officer of the bank, Patrick Richter. Hooks showed Richter the bonds. Richter told him he could convert the bonds to cash; Hooks responded that the cashing of the bonds would have to be done in such a manner that it could not be connected or traced to him.

Craig placed the bonds in his safe deposit box on October 31, 1978, and removed them, at Hooks’ request, on December 1, 1978. Hooks then handed the bonds to Richter and told him to proceed with their plan for cashing them.

Richter approached bond broker Harold Finley with seven bond issues to be negotiated, and asked whether the bond proceeds could be paid by check payable to bearer or to cash. Both Finley and his office manager answered that, because the IRS required records of such transactions, payment had to be made by check to the owner of the bonds. Richter responded, “Well, we are trying to keep them out of a ten million dollar estate.”

*788 Although Finley refused to sell the bonds under those conditions, Richter eventually did sell them through Paul Gantzert, a trust officer of Union National Bank in Joliet, Illinois. All the bonds were cashed between December 1978 and March 1979. The proceeds of the bond sales were transmitted payable to the Union National Bank; Gantzert then issued checks and money orders to Richter and others. One money order for $45,000 was made payable to Green Bay Aviation Corporation as a down payment on the purchase of a corporate airplane for Plasti-Drum. The proceeds were also used to set up a new bank account and to purchase such items as two pieces of art by Chagall and a condominium.

It is undisputed that the bonds given to Richter for sale by Hooks were the ones missing from Loge’s estate, and that their value was not included in that estate or reported on the estate tax return. As a result, $96,564.58 in estate tax was avoided.

Although the government considered Mrs. Loge and Mrs. Hooks to be unindicted co-conspirators who were a part of the plan to defraud the government, Hooks and Richter were the only members of the conspiracy who were indicted. The trial began August 26, 1986, and lasted thirteen days. On September 15,1986, a jury found Hooks and Richter 1 guilty of conspiracy to defraud the government (18 U.S.C. § 371) and of aiding in the preparation of a materially false federal estate tax return (26 U.S.C. § 7206(2)). 2

Hooks has appealed, contending that (1) the evidence at trial was insufficient to support either count of the conviction; (2) the court’s admission of a co-conspirator’s statement and exclusion of certain exculpatory hearsay statements were an abuse of its discretion; and (3) the prosecutor’s refusal to offer immunity to defense witnesses denied him due process of law. For the reasons presented below, we affirm.

II. Sufficiency of the Evidence

A. 26 U.S.C. § 7206(2): “Aiding and Abetting”

Section 7206(2) of the Internal Revenue Code imposes criminal sanctions against one who

willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document.

26 U.S.C. § 7206(2).

Appellant Hooks asserts that the government’s proof showed only that he concealed and cashed the bonds, and not that he aided or assisted in the filing of a false tax return. Claiming that this prosecution involved a “rare and novel application” of 26 U.S.C. § 7206(2), Hooks insists that one who is not the taxpayer, tax preparer, or supplier of information for the return cannot be charged with aiding and abetting a false estate tax filing.

The appellate standard used to determine whether a jury verdict rests on sufficient evidence is well established. If the reviewing court, considering all the evidence in the light most favorable to the prosecution, finds that “any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt,” it must affirm the conviction. Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979); United States v. Martinson, 832 F.2d 1465, 1469 (7th Cir. 1987); United States v. Conley, 826 F.2d 551, 556 (7th Cir.1987).

The essential elements of an offense under section 7206(2) are (1) that defendant *789 aided, assisted, procured, counseled, advised or caused the preparation and presentation of a return; (2) that the return was fraudulent or false as to a material matter; and (3) that the act of the defendant was willful. United States v. Dahlstrom, 713 F.2d 1423, 1426-27 (9th Cir.1983), cert. denied, 466 U.S. 980, 104 S.Ct. 2363, 80 L.Ed. 2d 835 (1984). See also United States v. Kouba, 822 F.2d 768, 773 (8th Cir.1987); United States v. Crooks, 804 F.2d 1441, 1448 (9th Cir.1986); United States v. Perez, 565 F.2d 1227, 1233-34 (2nd Cir.1977); United States v. LaHaye, 548 F.2d 474, 475 (3d Cir.1977). No challenge to the second criterion has been raised.

To establish the first element of the offense, aiding and abetting the filing of a false tax return, “there must exist some affirmative participation which at least encourages the perpetrator.” United States v. Graham, 758 F.2d 879, 885 (3d Cir.1985), cert. denied, 474 U.S. 901, 106 S.Ct. 226, 88 L.Ed.2d 226 (1985), quoting United States v. Buttorff, 572 F.2d 619, 623 (8th Cir.), cert. denied, 437 U.S. 906, 98 S.Ct. 3095, 57 L.Ed.2d 1136 (1978).

It is well engrained in the law that one who aids or abets the commission of an act is as responsible for that act as if he committed it directly. Nye & Nissen v. United States, 336 U.S. 613, 618, 69 S.Ct. 766, 769, 93 L.Ed. 919 (1949).

In order to aid and abet another to commit a crime it is necessary that a defendant “in some sort associate himself with the venture, that he participate in it as in something that he wishes to bring about, that he seek by his action to make it succeed.” L. Hand, J., in United States v. Peoni, 100 F.2d 401, 402 [2nd Cir. (1938)].

Id. at 619, 69 S.Ct. at 769-70.

The government showed that Hooks engaged in affirmative participation to make the common goal successful: He both concealed and liquidated the bearer bonds which were purportedly assets of the Loge estate. The evidence established that Hooks received from Celia Loge the ten bonds that should have been turned over to the tax preparer; that he hid those bonds in his employer’s safe deposit box; and that he later cashed the bonds with the aid of his co-defendant Patrick Richter in such a way that they could not be traced back to him or to the estate. As a result, the estate did not include those bonds, Hooks and Richter were the beneficiaries of the proceeds from the bonds, and the Loge estate tax return, which did not report approximately $375,000 in assets, was false.

It is true that there was no direct evidence tying Hooks to the false tax return involved in the substantive count. Yet, as was the case in Nye & Nissen, there is circumstantial evidence wholly adequate to support the finding of the jury that he aided and abetted in the commission of that offense. Nye & Nissen, 336 U.S. at 619, 69 S.Ct. at 769-70. Clearly the government has been defrauded within the meaning of Section 7206(2) when the scheme is calculated to defeat government collection of tax. United States v. McGee, 572 F.2d 1097, 1099 (5th Cir.1978), citing United States v. Haimowitz, 404 F.2d 38 (2d Cir.1968). The scheme herein to defraud the government included both the nondisclosure of estate assets, which resulted in the false tax return and loss of revenue to the United States, and the subsequent cashing of the secreted bonds, which resulted in a gain of revenue to Hooks and Richter. The evidence presented, and the reasonable inferences drawn therefrom, were sufficient for the jury to decide that the defendants’ activities constituted aiding and abetting the filing of the false tax return.

To establish the third element of the offense under section 7206(2), the government must also prove that the defendant’s act was willful. The Eighth Circuit has recently examined what constitutes a “willful act” under this provision in United States v. Kouba, 822 F.2d 768 (8th Cir. 1987):

The Supreme Court has defined the term “willfuly” under § 7206 and related statutes to mean a voluntary intentional violation of a known legal duty. United States v. Pomponio, 429 U.S. 10, 12, 97 S.Ct. 22, 23, 50 L.Ed.2d 12 (1976). See *790 also United States v. Pohlman, 522 F.2d [974] at 977 [(8th Cir.1975)]. “Willful” requires “proof of a specific intent to do something which the law forbids; more than a showing of careless disregard for the truth is required.” United States v. Dahlstrom, 713 F.2d at 1427; see also United States v. Pohlman, 522 F.2d at 976.

Kouba, 822 F.2d at 773. See United States v. Foster, 789 F.2d 457, 461 (7th Cir.), cert. denied, — U.S.-, 107 S.Ct 273, 93 L.Ed.2d 249 (1986). Therefore there must be sufficient evidence that Hooks knowingly concealed the bonds with the expectation that Mrs. Loge, by denying the existence of those hidden assets, could cause a false estate tax return to be filed. See United States v. Williams, 809 F.2d 1072, 1095 (5th Cir.), cert. denied, — U.S. -, 108 S.Ct. 259, 98 L.Ed.2d 216 (1987).

The court finds ample evidence from the record of the scheme to conceal the estate assets from the IRS. Hooks knew that the bonds had belonged to Loge; he intentionally hid them in a safe deposit box that was not his own; he deliberately made several unsuccessful attempts, through his co-defendant Richter, to cash the bonds without identifying himself or Loge; he succeeded in negotiating the bonds only after they were taken from Indiana to an Illinois bank, which disposed of the bonds without divulging the recipient of the proceeds and without disclosing the transactions to the tax preparer who would have included them in the estate. These activities were deliberate, willful efforts to keep the bonds out of the taxable estate of Floyd Loge. The evidence is clear support for the jury’s finding of Hooks’ willfulness on the aiding counts. See United States v. Zimmerman, 832 F.2d 454, 457 (8th Cir.1987).

Appellant Hooks makes essentially the same argument in a different light: He asserts that the aiding and abetting statute is intended to prosecute those who supply false information to the tax preparer, or those who are under a duty to provide information; therefore, the violation of section 7206(2) actually occurred when Celia Loge decided neither to turn over nor to report the bonds to the tax preparer as part of her husband’s gross estate. Under this interpretation of the offense, Hooks’ later concealment and liquidation of the bonds was subsequent to, rather than part of, the conspiracy to cause the filing of a false estate tax return and immaterial to that violation.

This theory is similar to the argument presented by the defendant in United States v. Collazo, 815 F.2d 1138 (7th Cir. 1987). Collazo had been convicted of aiding and abetting the unlawful possession of stolen checks. On appeal, he asserted, unsuccessfully, that the evidence of aiding and abetting was insufficient because it had demonstrated that he dealt with the checks only after the act of unlawful possession was completed. 815 F.2d at 1144. In both cases, however, the defendants were willing recipients of the illegally possessed evidence which had been passed to them by other conspirators, and the scheme was furthered by their subsequent actions. See 815 F.2d at 1144-45.

The Supreme Court has made clear that the crime of aiding in the fraudulent preparation of a tax return is “committed at the time the return is filed.” United States v. Habig, 390 U.S. 222, 223, 88 S.Ct. 926, 927, 19 L.Ed.2d 1055 (1968). The fraudulent return for the Loge estate was filed March 20, 1980; the bonds were concealed and sold by March 1979.

Moreover, Hooks’ attempt to narrow his own involvement to the mere liquidation of assets while Mrs. Loge actually conceptualized the scheme and performed the illegal act of assisting in the preparation of a false tax return must fail. There is substantial evidence in the record that establishes a common scheme to withhold the bonds from the tax preparer, whether the purpose for that nondisclosure and concealment was to obtain less estate tax liability or more personal profit. Hooks’ deliberate concealment of the existence and sale of the bonds, the true owner of the bonds, the amount of the proceeds from the secret sales, and the recipient of those proceeds did in fact keep those amounts out of Loge’s estate, thereby reducing the collec *791 tion of tax revenue on that estate. Mrs. Loge and Mrs. Hooks furthered the scheme by denying the existence of the bonds when questioned about them. Together their efforts succeeded in evading the payment of federal estate tax. It is not significant that different fraudulent practices occurred at different periods. The circumvention of the federal taxation system by the presentation of false information about the estate assets and by the carefully manipulated selling of estate assets “were part and parcel of the same conspiracy as charged and proved.” Nye & Nissen v. United States, 336 U.S. at 617, 69 S.Ct. at 769. The jury had sufficient evidence reasonably to conclude that Hooks had been a willful and knowing participant in criminal violation of section 7206(2). That is all the government had to prove. See United States v. Solomon, 825 F.2d 1292, 1298 (9th Cir.1987), cert. denied, — U.S.-, 108 S.Ct. 782, 98 L.Ed.2d 868 (1988).

The court finds the government’s application of section 7206(2) in these circumstances to be appropriate rather than “rare and novel.” 3 Section 7206(2) has a broad sweep, making all forms of willful assistance in preparing a false return an offense. United States v. Shortt Accountancy Corp., 785 F.2d 1448, 1454 (9th Cir.), cert. denied, 478 U.S. 1007, 106 S.Ct. 3301, 92 L.Ed.2d 715 (1986), citing United States v. Haynes, 573 F.2d 236, 240 (5th Cir.), cert. denied, 439 U.S. 850, 99 S.Ct. 154, 58 L.Ed.2d 153 (1978). One may be guilty of aiding the preparation or filing of a false return under § 7206(2) whether or not the tax preparer knew of such falsity or fraud. “[T]he scope of the statute extends to all participants of a scheme which results in the filing of a false return, whether or not those parties actually prepare it.” United States v. Siegel, 472 F.Supp. 440, 444 (N.D. Ill.1979), cert. denied, 455 U.S. 989, 102 S.Ct. 1612, 71 L.Ed.2d 848 (1982), citing United States v. Crum, 529 F.2d 1380, 1382 (9th Cir.1976); United States v. Frazier, 365 F.2d 316, 318 (6th Cir.1966), cert. denied, 386 U.S. 971, 87 S.Ct. 1164, 18 L.Ed.2d 133 (1967). See United States v. Zimmerman, 832 F.2d at 457. The evidence adduced by the government showed Hooks to be a knowing and willful participant in the scheme which resulted in the filing of a false return. The court thus holds that a reasonable jury could have found the essential elements of an offense under section 7206(2) beyond a reasonable doubt.

B. 18 U.S.C. § 371: Conspiracy

The crime of conspiring to defraud the United States is set out in 18 U.S.C. § 371, which provides in pertinent part:

If two or more persons conspire either to commit any offense against the United *792 States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years, or both.

18 U.S.C. § 371.

Appellant argues that the evidence was insufficient to show that he was a member of a conspiracy or that he had the specific intent to aid in the preparation of the false tax return.

Our standard of review remains the same as with the first issue. We will reverse a conviction for insufficient evidence only if no rational trier of fact could have found the defendant guilty beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. at 319, 99 S.Ct. at 2789; United States v. Collazo, 815 F.2d at 1142, 1144. After a jury verdict in favor of the government, “[i]t is not for us to weigh the evidence or to determine the credibility of witnesses. The verdict of the jury must be sustained if there is substantial evidence, taking the view most favorable to the government, to support it.” Glosser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942). Under this standard, therefore, the appellant has a heavy burden. United States v. Peters, 791 F.2d 1270, 1290 (7th Cir.), cert. denied sub nom. Odoner v. United States, — U.S.-, 107 S.Ct. 168, 93 L.Ed.2d 106 (1986).

The government had the burden of proving at trial these elements in order to sustain a conviction for conspiracy under § 371:

(1) an agreement to accomplish an illegal objective against the United States;

(2) one or more overt acts in furtherance of the illegal purpose; and

(3) the intent to commit the substantive offense.

United States v. Dahlstrom, 713 F.2d at 1429, citing United States v. Melchor-Lopez, 627 F.2d 886 (9th Cir.1980).

The Supreme Court has broadly interpreted the scope of this statutory conspiracy “to defraud ... in any manner or for any purpose” to include any fraud that “reaches ‘any conspiracy for the purpose of impairing, obstructing or defeating the lawful function of any department of Government.’ ” Tanner v. United States, — U.S.-, 107 S.Ct. 2739, 2751, 97 L.Ed.2d 90 (1987), quoting Dennis v. United States, 384 U.S. 855, 861, 86 S.Ct. 1840, 1844, 16 L.Ed.2d 973 (1966), quoting in turn Haas v. Henkel, 216 U.S. 462, 479, 30 S.Ct. 249, 253, 54 L.Ed. 569 (1910). In an earlier case, Ingram v. United States, 360 U.S. 672, 79 S.Ct. 1314, 3 L.Ed.2d 1503 (1959), the Court had interpreted the third element of a section 371 offense. Evaluating a section 371 prosecution of conspiracy to evade taxes, the Court found that the government need not prove “that the conspirators were aware of the criminality of their objective,” but it must show that they knew of the liability for federal taxes. “[Cjonspiracy to commit a particular substantive offense cannot exist without at least the degree of criminal intent necessary for the substantive offense itself.” 360 U.S. at 678; 79 S.Ct. at 1319.

The essence of the crime of conspiracy is a “combination or confederation between two or more persons formed for the purpose of committing, by their joint efforts, a criminal act.” United States v. Herrera, 757 F.2d 144, 149 (7th Cir.1985) (quoting United States v. Mayo, 721 F.2d 1084, 1088 (7th Cir.1983)). Because a conspiracy is by its nature secret, its existence and common purpose must often be proved by circumstantial evidence. “The government need not establish that there existed a formal agreement to conspire; circumstantial evidence and reasonable inferences drawn therefrom concerning the relationship of the parties, their overt acts, and the totality of their conduct may serve as proof.” United States v. Redwine, 715 F.2d 315, 320 (7th Cir.1983), cert. denied, 467 U.S. 1216, 104 S.Ct. 2661, 81 L.Ed.2d 367 (1984). See also United States v. Krasovich, 819 F.2d 253, 255 (9th Cir.1987). Circumstantial evidence may include whether the defendant has a stake in the outcome of the conspiracy. U.S. v. Collazo, 815 F.2d at 1143, quoting United States v. Xheka, 704 F.2d 974, 988 (7th Cir.), cert. denied, 464 *793 U.S. 993, 104 S.Ct. 486, 78 L.Ed.2d 682 (1983). “Once the Government proves the existence of a conspiracy, the Government need only offer ‘slight evidence' to prove that an individual was a member of the conspiracy.” United States v. Whaley, 830 F.2d 1469, 1473 (7th Cir.1987), quoting United States v. Castillo, 814 F.2d 351, 353 (7th Cir.1987).

Hooks contends that the acts and conversations attributed to Hooks by witnesses and co-conspirators at trial were innocent on their face and did not support an inference of an agreement to defraud the United States. Since no witness testified to an agreement between Mrs. Loge and the appellant, he claims that there was no proof that Hooks joined a conspiracy.

This position finds no support in the evidence. Testimony at trial adduced that Mrs. Loge and Mrs. Hooks gave ten bearer bonds to the defendant rather than to the bank for inclusion in Floyd Loge’s estate. After secreting the bonds in Walter Craig’s safe deposit box, Hooks then turned them over to defendant Richter for liquidation in a manner intended to conceal their connection both with himself and with the Loge estate. Richter told bond broker Finley that he could not disclose the name of the bond owner because “they were trying to keep the bonds out of a ten million dollar estate.”

This is clearly a “case where efforts at concealment would be reasonably explainable only in terms of motivation to evade taxation.” Ingram, 360 U.S. at 679, 79 S.Ct. at 1320. It was a reasonable inference on the part of the jury that Hooks was the person who informed Richter that the bonds were part of an estate. It was also reasonable for the jury to believe that a common plan existed among Mrs. Loge and/or Mrs. Hooks (who gave Hooks the bonds and denied their existence when questioned by the bank), Hooks (who concealed the bonds and arranged for their secret sale) and Richter (who disposed of the bonds without revealing the identity of the present and past owners). And, finally, the jury could reasonably infer that Hooks had a financial interest and stake in the successful outcome of the scheme. See Collazo, 815 F.2d at 1143. The evidence was ample to support the jury’s finding that Hooks, in concert with the other conspirators, actively assisted in keeping the bonds out of the estate and thus untaxed, thereby defeating the lawful functions of the IRS in the ascertainment and collection of federal estate taxes. 18 U.S.C. § 371.

We conclude that there was substantial evidence of Hooks’ knowing participation in a conspiracy to defraud the government in its efforts to collect estate taxes. There is no justification for reversing appellant’s conviction under 18 U.S.C. § 371.

III. Admissibility of Evidence

Appellant Hooks has presented two contentions of error concerning the admissibility of evidence at trial: the admission of a hearsay statement by Hooks’ có-defendant and co-conspirator; and the exclusion of the exculpatory written statements of unin-dicted co-conspirators Celia May Loge and Patricia Hooks.

It is well settled in this circuit that the trial judge has broad discretion concerning the admissibility of evidence, and that a reviewing court gives special deference to the evidentiary rulings of the trial court. United States v. Kaden, 819 F.2d 813, 818 (7th Cir.1987). Accordingly, this appellate court will neither substitute its judgment nor reverse the decision below absent a showing that the trial court abused its discretion. United States v. Conley, 826 F.2d 551, 559 (7th Cir.1987), citing United States v. Buishas, 791 F.2d 1310, 1313 (7th Cir.1986); United States v. Harris, 761 F.2d 394, 398 (7th Cir.1985).

A. Co-conspirator Exception to the Hearsay Rule

Hooks asserts that it was error for the district court to have permitted the following hearsay testimony of Harold Finley, the broker to whom defendant Patrick Richter first took the bearer bonds to be cashed:

Finley (direct): ... [E]ven on a small amount of money we have to know who *794 we are giving the check to and not just have a check payable to cash or bearer.

I know Patrick said, “Isn’t there some way we could word this where there would not be any person’s name on it but where the check could be immediately cashed?”

I was firm that whether it said cash or bearer or whatever, you just couldn’t do it that way.

I said, “Can’t” — “Is there some reason we can’t make these bonds payable to the owner if you are not the owner?”

And he didn’t seem to want to tell me who — what the situation was, but after a little — he was pretty unhappy that we couldn’t just do it in the way of payable to cash or bearer. And then he did ultimately make the remark, “Well, we are trying to keep them out of a ten million dollar estate,” but didn’t give me any clue whatsoever as to whose estate it was or what the connection between him and the estate.

Trial transcript at 726-28 (emphasis added).

Under Federal Rule of Evidence 801(d)(2)(E), 4 the co-conspirator exception to the hearsay rule, a statement made by a member of the conspiracy is admissible against other members of the conspiracy if made “during the course of and in furtherance of the conspiracy.” The government must show (1) that a conspiracy existed; (2) that the defendant and declarant were members thereof; and (3) that the offered statement was made during the course of and in furtherance of the conspiracy. United States v. Kaden, 819 F.2d at 819; United States