United States v. Wright

REVISED, APRIL 28, 2000

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 98-50554

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

FRANKLIN Y WRIGHT, JR; ANNETTE RYAN

WRIGHT, also known as Annette S Wright,

also known as Annette Kaufman Wright;

ROBERT E BARGER,

Defendants-Appellants.

Appeals from the United States District Court

For the Western District of Texas

April 27, 2000

Before REYNALDO G. GARZA, HIGGINBOTHAM, and BENAVIDES, Circuit

Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This appeal presents various challenges to the tax evasion-

related convictions of Franklin Wright, his wife Annette Wright,

and Franklin’s attorney and tax preparer, Robert Barger. Barger

also appeals his sentence. We reject the defendants’ legal

challenges to the convictions and find that the evidence was

sufficient to support each of the verdicts. Because it appears

that the district court believed it could not downward depart under

the Sentencing Guidelines based on a discrepancy in sentences among

the co-defendants, we remand for the re-sentencing of Barger.

I

The charges against all of the defendants stem from tax

deficiencies owed by Franklin Wright for 1986, 1987 and 1988.

Collection proceedings began in 1988, and the Internal Revenue

Service (“IRS”) and Franklin began a long period of negotiation.

In August 1992, Barger submitted an Offer in Compromise to the

IRS and set up a $5,000-a-month payment plan for Franklin, which

Franklin followed until December 1994. Although the offer was

substantial, the IRS eventually rejected it because Franklin failed

to provide required additional information. Through seizures and

voluntary payments, however, Franklin eventually paid about

$490,000 toward his tax liability of $419,000, not including

penalties and interest.

Franklin and Annette married in 1989, after Franklin

accumulated his deficiency. The government charged Annette with

assisting Franklin in hiding assets from the IRS. In August 1992,

while the Offer in Compromise was pending, Annette decided to sell

the home she had owned before her marriage to Franklin and buy a

new house. Annette claims that she was unable to secure financing

for the home because of Franklin’s tax problems. She asked a

friend, Caroline Haggard, to buy the home in Haggard’s name and

stated that she would assume the mortgage once the tax issues had

been resolved. Haggard agreed to this arrangement.

Franklin and Annette brought her almost $150,000 for the house

in a bag containing $100 bills. Franklin told Haggard that the

cash was money from his law practice. Haggard testified at trial

that the Wrights assured her that the taxes had been paid on the

2

money but warned that she should avoid depositing the funds in the

bank to avoid problems with the IRS.

Haggard decided to deposit the money anyway, resulting in a

report to the IRS. She called Barger for advice, and Barger asked

her why she had deposited the money when she had been told not to.

Barger also participated in the home purchase in other ways: he

assisted Haggard in gathering financial records in order to qualify

for the mortgage; drew up papers transferring the mortgage to

Annette; and loaned Franklin $64,000 for the remainder of the down

payment. In April 1993, Barger submitted an amendment to the Offer

in Compromise stating that the Wrights had sold their house because

they could no longer make mortgage payments and were now renting.

The form did not list the new home as potential community property.

The government indicted the Wrights, Barger and Haggard for

conspiracy to defraud, Franklin for tax evasion, and Barger for

making false statements. Haggard, also facing prosecution on

unrelated Medicaid fraud charges, plead guilty to all charges and

testified on behalf of the government. A jury found all three of

the others guilty.1 The district court sentenced Franklin to

concurrent 12-month terms. Annette received five years’ probation

so that she could care for the couple’s small children. Barger

received concurrent 18-month terms; his sentence included a two-

point enhancement for use of a special skill. Haggard attempted to

withdraw her plea after the trial, claiming that she was innocent

1

Barger was acquitted on one of the counts of making false

statements.

3

of the tax charges; her appeal proceeded separately and was

rejected by a panel of this court. At issue today are the appeals

of the other three defendants.

II

All three defendants raise several legal challenges to the

convictions. First, they claim that the convictions are improper

because Franklin had no underlying tax deficiency. Franklin

contends that he owed only interest and penalties and could not be

prosecuted for evasion if no tax was owed.

The Supreme Court has held that the elements of Internal

Revenue Code (“I.R.C.”) § 7201, the provision criminalizing the

evasion of taxes, include the existence of a “tax deficiency.”2

While § 7201 does not describe “tax deficiency,” it is defined

elsewhere in the IRC as the amount by which the tax exceeds the tax

reported on the return plus the amounts previously assessed as a

tax deficiency.3 The IRC specifically excludes interest from being

treated as tax for purposes of deficiency procedures.4 The

Sentencing Guidelines also exclude interest and penalties in

assessing the penalty for tax evasion.5

Although the deficiency procedures are separate from the

criminal liability provisions, we are persuaded that the definition

2

See Sansone v. United States, 380 U.S. 343, 351 (1965).

3

See I.R.C. § 6211.

4

See § 6601(e).

5

See U.S. SENTENCING GUIDELINES MANUAL § 2T1.1 & App. Notes; United

States v. Clements, 73 F.3d 1330, 1339 (5th Cir. 1996).

4

of “tax liability” excluding penalties and interest extends to

§ 7201. We decline to assume a broader meaning for a “tax

deficiency” under § 7201 than under the deficiency proceedings

provision, especially when § 7201 attaches criminal liability to

the debt owed. The Guidelines merely confirm our conclusion.

Franklin fails to demonstrate, however, that he owed no tax

during the alleged period of evasion. Although his total payments

eventually exceeded his tax owed, the IRS collected a significant

portion of the paid amounts through seizure. The IRS applied the

seized amounts according to its normal procedure, which is first to

extinguish the taxpayer’s total tax, interest and penalties for the

earliest year owed.6 Franklin cites no authority for the

proposition that his requests as to how the IRS should apply his

voluntary payments must also have been honored as to the seized

amounts.7 Without having all of the seized amounts first applied

to his tax liability, Franklin continued to have a tax deficiency.8

The defendants also argue that the indictments under 18 U.S.C.

§ 371 impermissibly varied from the proof presented at trial.

Section 371 has two prongs: it prohibits a conspiracy to commit an

offense against the United States, or one to defraud the United

6

See Rev. Ruling 73-305, 1973-2 C.B. 43, amended by Rev.

Ruling 79-284, 1979-2 C.B. 83.

7

We are unpersuaded that Franklin had such a right under the

Due Process Clause of the Constitution.

8

Even if successful, this argument would affect only the

I.R.C. § 7201 conviction and not the convictions based on

conspiracy under 18 U.S.C. § 381. The latter provision prohibits

the defrauding of the United States, not just the evasion of taxes.

5

States. The first prong refers to specific offenses criminalized

elsewhere in the federal code; the second stands independently.

The government charged the defendants with conspiracy to defraud.

Franklin argues that the defrauding indictment was impermissible

because the alleged conduct could have been charged as a specific

offense: concealing income or assets from the IRS.

Franklin relies on United States v. Minarik, which held that

the government must proceed under the more specific clause of § 371

if it applies.9 Minarik, however, has since been limited: it now

applies only when the taxpayer’s duties are technical, the

violation was too isolated to comprise a “conspiracy to defraud,”

and the defendant receives no specific notice of the crimes

charged.10 Here, the conduct was not a mere technical violation of

the tax code, the allegations went beyond a single incident of

violation, and the indictment, which exhaustively set forth the

government’s allegations, gave specific notice of the crimes

charged.

Finally, the three defendants seek a motion for new trial

based on Haggard’s post-trial attempts to withdraw her plea.11

Haggard told several individuals that she believed she was not

9

875 F.2d 1186, 1193-94 (6th Cir. 1989).

10

See United States v. Khalife, 106 F.3d 1300, 1304-06 (6th

Cir. 1997). Other courts also follow this rule. See United States

v. Goulding, 26 F.3d 656, 663 (7th Cir. 1994); United States v.

Notch, 939 F.2d 895, 901 (10th Cir. 1991).

11

The defendants concede that their Singleton argument

regarding Haggard’s testimony is foreclosed by United States v.

Webster, 162 F.3d 308 (5th Cir. 1998).

6

guilty of conspiracy to defraud the IRS but had been pressured into

pleading to avoid a more severe penalty regarding the Medicaid

fraud. Because Haggard has never denied the truthfulness of her

testimony regarding the three other defendants, however, her

assertion of her own innocence is immaterial to the other three

convictions. The denial of a new trial was not an abuse of

discretion.

III

Franklin and Annette each challenge the sufficiency of the

evidence to support the jury verdicts. To establish a conspiracy

under 18 U.S.C. § 371, the government must prove (1) an agreement

(2) to commit a crime and (3) an overt act committed by one of the

conspirators in furtherance of the agreement.12 A conviction under

I.R.C. § 7201 requires a showing of willfulness, a tax deficiency,

and an affirmative act constituting evasion.13

There was sufficient evidence to support Franklin’s and

Annette’s convictions. Key evidence included Haggard’s testimony

regarding the delivery of the cash. While Annette’s purchase of

the home could have been bona fide, even if she accepted money from

Franklin for the house, the manner of payment, including the bag of

cash and Franklin’s comments, gave rise to an inference of illegal

activity. In addition, Annette’s claims that she wanted the house

to be hers alone are contradicted by Franklin’s funding of the down

12

See United States v. Gray, 96 F.3d 769, 772-73 (5th Cir.

1996).

13

See Sansone, 380 U.S. at 351.

7

payment. The jury could reasonably have inferred from this account

that Franklin and Annette conspired to hide assets from the IRS,

and that Franklin thus attempted to evade the payment of his tax

deficiency.

IV

Barger challenges the sufficiency of the evidence against him,

as well as his sentence. He argues that there is insufficient

evidence of his involvement in the conspiracy because his

assistance with the purchase of the home was innocent. Barger

further argues that there was insufficient evidence regarding his

false statement conviction. To establish a violation of 18 U.S.C.

§ 1001(a)(3), the government must show a statement that is false

and material and made knowingly and willfully.14

We find support for both counts of Barger’s conviction. On

the amended Offer in Compromise form, he omitted any reference to

Franklin’s possible ownership interest in the home and stated that

the Wrights were renting their residence because they could not

make house payments. Barger’s involvement with the home purchase

was sufficient to infer that he knew that some of the down payment

might be Franklin’s funds, thus requiring him to list the home as

potential community property, and that he knew that the Wrights

were able to make payments on a house. His involvement also

provides sufficient evidence to support the conspiracy conviction.

14

See United States v. Puente, 982 F.2d 156, 158 (5th Cir.

1993).

8

His reproach to Haggard after she had deposited the money indicated

his intimate knowledge with the details of the transaction.

Barger raises two challenges to his sentence. He argues that

the district court clearly erred in applying a two-level

enhancement for the use of a special skill and that it erred in

failing to recognize that it could shorten Barger’s sentence based

on sentencing disparities.

The district court found that Barger’s special skills as a

Certified Public Accountant and tax attorney were essential to the

evasion scheme. While Barger’s contribution to the scheme was not

particularly sophisticated, part of it did involve his preparation

of the Offer in Compromise and other legal documents. Because this

use of special skills did further the conspiracy, it was not

clearly erroneous for the district court to apply the enhancement.

Barger argues for a downward departure based on the sentencing

disparity between Franklin, the taxpayer, and Barger, who played a

much more peripheral role and did not profit from the crime.15 In

Koon v. United States, the Supreme Court held that departure

factors should normally not be ruled out on a categorical basis and

that courts may depart if the case is outside the Guidelines’

heartland.16 After the Seventh Circuit categorically denied

departures based on discrepancies among co-defendants’ sentences,

15

Franklin will serve his time in a halfway house. With an 18-

month sentence, Barger is ineligible for the halfway program.

16

See 116 S. Ct. 2035, 2051 (1996).

9

the Supreme Court remanded the case for reconsideration in light of

Koon.17

This court may review a district court’s refusal to grant a

downward departure only if the district court mistakenly concluded

that the Guidelines did not permit the departure.18 From our review

of the sentencing transcript, it is evident that the district court

was troubled by the discrepancy in sentences between Franklin and

Barger. The district court concluded, “I still don’t like how

[Barger] can be assessed more time. And I’m already giving him

time for the attorney role, but I find no – I don’t have a basis

here to depart, though.” Although this candid comment was

doubtless not intended to be a full explication of the court’s

rationale, the court appears to have believed that the discrepancy

could not be a basis for a downward departure. We remand to the

district court for re-sentencing.

We find no legal grounds warranting reversal of any of the

convictions: Franklin had a tax deficiency for purposes of I.R.C.

§ 7201; the indictment was proper; and Haggard’s recantation is not

material to any of the defendants’ convictions. There was

sufficient evidence to convict the Wrights and Barger of conspiracy

to defraud, Franklin of evasion, and Barger of making false

statements. The district court did not clearly err in applying the

special skill enhancement to Barger’s sentence. As it appears that

17

See United States v. Meza, 127 F.3d 545, 547-48 (7th Cir.

1997).

18

See United States v. Palmer, 122 F.3d 215, 222 (5th Cir.

1997).

10

the district court believed that the Sentencing Guidelines did not

permit a downward departure based on discrepancies in sentences

among co-defendants, we REMAND for the re-sentencing of Barger.

AFFIRMED AS TO FRANKLIN WRIGHT AND ANNETTE WRIGHT; REMANDED

FOR THE RE-SENTENCING OF ROBERT BARGER.

11