Opposition Brief — Michael Sang Han, Petitioner v. United States

Supreme Court briefFeb 18, 2021

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No. 20-690

In the Supreme Court of the United States

MICHAEL SANG HAN, PETITIONER

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

ELIZABETH B. PRELOGAR

Acting Solicitor General

Counsel of Record

DAVID A. HUBBERT

Acting Assistant Attorney

General

S. ROBERT LYONS

KATIE BAGLEY

JOSEPH B. SYVERSON

DOUGLAS C. RENNIE

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTIONS PRESENTED

1. Whether the district court abused its discretion in

admitting evidence that petitioner made misrepresentations to investors about his company’s economic prospects and the activities for which the investors’ funds

would be used.

2. Whether the court of appeals correctly determined that, in the circumstances of petitioner’s trial,

any error in the district court’s jury instruction on petitioner’s theory of his defense was harmless.

(I)

ADDITIONAL RELATED PROCEEDINGS

United States District Court (D.D.C.):

United States v. Han, No. 15-cr-142 (Oct. 17, 2018)

United States Court of Appeals (D.C. Cir.):

United States v. Han, No. 18-3081 (June 19, 2020)

(II)

TABLE OF CONTENTS

Page

Opinion below ................................................................................ 1

Jurisdiction .................................................................................... 1

Statement ...................................................................................... 2

Argument....................................................................................... 9

Conclusion ................................................................................... 24

TABLE OF AUTHORITIES

Cases:

Busch v. Commissioner, 728 F.2d 945 (7th Cir. 1984)....... 20

Collins v. Commissioner, 3 F.3d 625 (2d Cir. 1993) ........ 20

Commissioner v. Makransky,

321 F.2d 598 (3d Cir. 1963) ................................................ 20

Commissioner v. Wilcox, 327 U.S. 404 (1946) .................... 18

Crowley v. Commissioner,

962 F.2d 1077 (1st Cir. 1992) ....................................... 20, 21

Estate of Mixon v. United States,

464 F.2d 394 (5th Cir. 1972) ....................................... 20, 21

Frierdich v. Commissioner,

925 F.2d 180 (7th Cir. 1991) ............................................ 21

James v. United States, 366 U.S. 213 (1961) .... 10, 17, 18, 19

Jaques v. Commissioner,

935 F.2d 104 (6th Cir. 1991) ......................................... 20, 21

John Kelley Co. v. Commissioner,

326 U.S. 521 (1946).............................................................. 19

Jones v. United States, 527 U.S. 373 (1999) ........................ 22

Merck & Co. v. United States,

652 F.3d 475 (3d Cir. 2011) ................................................ 21

Piedmont Minerals Co. v. United States,

429 F.2d 560 (4th Cir. 1970) ............................................ 21

(III)

Cases—Continued:

Page

Todd v. Commissioner,

486 Fed. Appx. 423 (5th Cir. 2012) ................................. 20

United States v. McGinn,

787 F.3d 116 (2d Cir. 2015) .............................. 7, 15, 17, 22

United States v. Pomponio,

563 F.2d 659 (4th Cir. 1977),

cert. denied, 435 U.S. 942 (1978) ....................................... 20

United States v. Swallow, 511 F.2d 514 (10th Cir.),

cert. denied, 423 U.S. 845 (1975) ........................... 7, 15, 22

Welch v. Commissioner,

204 F.3d 1228 (9th Cir. 2000) ..................... 8, 15, 20, 21, 22

Williams v. Commissioner,

627 F.2d 1032 (10th Cir. 1980) ................................... 20, 21

Statute and Rules:

26 U.S.C. 7201 ...................................................................... 2, 5

Fed. R. Crim. P. 52(b) ........................................................... 22

Federal R. Evid.:

Rule 403 .............................................................................. 7

Rule 404(b) ......................................................................... 7

Miscellaneous:

1 Mertens Law of Federal Income Taxation

(Carina Bryant ed., Jan. 2021 update) .............................. 19

In the Supreme Court of the United States

No. 20-690

MICHAEL SANG HAN, PETITIONER

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinion of the court of appeals (Pet. App. 1a-12a)

is reported at 962 F.3d 568.

JURISDICTION

The judgment of the court of appeals (Pet. App.

13a-14a) was entered on June 19, 2020. On March 19,

2020, this Court extended the time within which to file

any petition for a writ of certiorari due on or after that

date to 150 days from the date of the lower-court judgment, order denying discretionary review, or order

denying a timely petition for rehearing. The petition for

a writ of certiorari was filed on November 13, 2020. The

jurisdiction of this Court is invoked under 28 U.S.C.

1254(1).

(1)

STATEMENT

Following a jury trial in the United States District

Court for the District of Columbia, petitioner was convicted on two counts of willfully attempting to evade or

defeat federal taxes, in violation of 26 U.S.C. 7201. Pet.

App. 15a. Petitioner was sentenced to 48 months of imprisonment, to be followed by 36 months of supervised

release. Id. at 17a-18a. The court of appeals affirmed.

Id. at 1a-12a.

1. Petitioner was the founder, sole owner, and chief

executive of Envion, Inc., a company purportedly engaged in developing recycling technologies. Pet. App.

2a; Gov’t C.A. Br. 2-3. After incorporating Envion in

2004, petitioner began seeking outside investments in

the company, telling potential investors that Envion

owned the rights to a technology for converting plastic

waste into oil. See ibid.; Gov’t C.A. Supp. App.

SA30-SA31, SA96. The company, however, “never sold

any recycling technology and never earned any revenue.” Pet. App. 2a.

Petitioner succeeded in securing millions of dollars

in investments in Envion, including from former Secretary of Defense Frank Carlucci, many in the form of

loans to the company documented by promissory notes.

Pet. App. 2a-3a; see Gov’t C.A. Br. 4-5; Gov’t C.A. Supp.

App. SA87-SA90, SA97-SA103. From 2004 to 2009, petitioner spent $7 million in funds invested in Envion on

his personal expenses, including high-end sports cars.

Pet. App. 2a; see Gov’t C.A. Br. 7; Gov’t C.A. Supp. App.

SA130-SA131. For those years, he did not timely file

individual or corporate tax returns. Pet. App. 2a.

In 2010, after receiving a notice from the Internal

Revenue Service regarding the missing tax returns, petitioner worked with his accountants to prepare returns

for those prior years. See Pet. App. 2a; Gov’t C.A. Supp.

App. SA148-SA149; Gov’t C.A. Br. 33. In doing so, petitioner learned from his accountants that the millions

of dollars of company funds that he had spent on personal expenses had to be characterized either as compensation to petitioner, which would be taxable, or as

shareholder loans to petitioner, which would not be taxable but that he would be obligated to repay. Pet. App.

2a-3a; see Gov’t C.A. Br. 7-8. Petitioner elected the latter option, treating those expenditures as nontaxable

shareholder loans. Pet. App. 3a. Envion’s 2009 tax return accordingly reported a cumulative shareholderloan balance owed by petitioner to the company in excess of $7 million. See Pet. C.A. App. A400. That return

also reported that Envion owed more than $15 million

to Carlucci and another investor, James Russell, on outstanding loans they had made to the company, which

were documented by promissory notes from Envion.

Ibid.; see, e.g., Pet. App. 54a-60a, 78a-85a.

At around the same time, petitioner solicited millions

of dollars of additional funds from Carlucci and Russell,

telling them that the funds were needed for an “[i]nvestment deal for Envion” that was “imminent.” Gov’t C.A.

Supp. App. SA59; see id. at SA70-SA71, SA104. Carlucci and Russell agreed to invest an additional $20 million and $2.3 million, respectively, in Envion. Ibid.; Pet.

App. 3a; see Gov’t C.A. Br. 9-11. Carlucci and Russell

believed that they were loaning the money to Envion,

not to petitioner personally. See Pet. App. 3a, 10a n.2;

Gov’t C.A. Supp. App. SA71-SA73, SA114-SA115. Petitioner, however, had the funds wired to his personal accounts. Pet. App. 3a. He initially documented the new

2010 investments with promissory notes that named petitioner, rather than Envion, as the borrower, but that

otherwise resembled loans to a corporate entity. See id.

at 47a-54a, 71a-78a (listing the borrower as “the Individual,” i.e., petitioner, but providing that investors could

convert the notes into stock in “the Individual” and stating that the note was executed on behalf of “the Individual * * * by its duly authorized officers”). Petitioner

later provided both Carlucci and Russell with global

promissory notes that listed Envion as the borrower for

all of their respective investments, including the 2010

payments. Id. at 61a-70a, 86a-93a; Gov’t C.A. Br. 14-15.

Petitioner did not inform Envion’s accountants about

the additional loans in 2010 from Carlucci and Russell.

D. Ct. Doc. 173, at 86-87 (Oct. 19, 2018). Instead, he

misappropriated millions of dollars of the newly obtained funds for his personal use. Pet. App. 3a. Among

other things, petitioner paid off a portion of his outstanding shareholder-loan balance owed to Envion; purchased and renovated a Palm Beach home; and bought

a Ferrari. Ibid.; Gov’t C.A. Supp. App. SA167-SA180,

SA198-SA202. Petitioner filed individual tax returns

for 2010 and 2011, but those returns did not report the

misappropriated funds as income. Pet. App. 3a.

In 2012, Carlucci sued petitioner and Envion. Pet. C.A.

App. A194, A254; Gov’t C.A. Supp. App. SA112. Petitioner and Envion filed a joint answer to the amended

complaint in that proceeding, in which they admitted that

Carlucci had “provided $20 million to Envion in exchange

for a promissory note,” and that in 2011 the “promissory

note from Envion” was “rolled into one promissory note.”

Pet. C.A. App. A254-A255. Envion “admit[ted] that it

ha[d] not paid $32,393,000”—the debt recited in that

global note—“to Mr. Carlucci,” and the answer stated

that petitioner “[wa]s not a party to th[at] promissory

note.” Id. at A255. A default judgment was later entered

against petitioner. Id. at A194-A195.

2. A federal grand jury in the District of Columbia

returned a superseding indictment charging petitioner

(as relevant) with two counts of willfully attempting to

evade and defeat federal taxes, in violation of 26 U.S.C.

7201. Pet. C.A. App. A66-A70. Petitioner pleaded not

guilty and proceeded to trial. Id. at A15; Pet. App. 15a.

The central dispute at trial was whether the 2010

loans extended by the investors were loans to Envion or

to petitioner personally. The government’s theory of

the case was that the loans had been extended to Envion; that petitioner misappropriated corporate funds

when he spent the loan proceeds on personal expenditures (including to repay a portion of his shareholderloan balance); and that such spending of corporate

funds on personal expenditures constituted taxable income that petitioner had willfully failed to report on his

2010 and 2011 returns. See Gov’t C.A. Br. 18. Petitioner’s principal defense was that he did not willfully

fail to report those expenditures as income because he

believed that Carlucci and Russell had loaned the $22

million to petitioner personally, rather than to Envion,

and as the borrower he was not required to report the

loan proceeds as income. Pet. App. 3a.

Petitioner and the government did not dispute at

trial the proposition that the proceeds of a bona fide

loan are not taxable income, nor did they dispute the

characteristics of a bona fide loan. Instead, they disputed whether the loans had been extended to Envion

or instead to petitioner himself. Both parties presented

expert testimony addressing various factors to be considered in determining whether a bona fide loan to petitioner existed, including whether he had the ability to

repay a given loan. See Pet. App. 35a-38a, 45a, 94a–96a;

D. Ct. Doc. 176, at 28-29, 32-33, 68-70 (Oct. 19, 2018).

Petitioner did not propose an instruction stating that

loans are not taxable income, an instruction defining a

nontaxable loan, or an instruction articulating or otherwise delimiting the factors that the jury could consider

in determining whether the loans were extended to petitioner personally rather than to Envion. See Pet. C.A.

App. A276-A289, A295-A316. Petitioner did request a

theory-of-defense jury instruction that included a statement that petitioner “believed that the funds he received in 2010 could legally be treated as non-taxable

personal loans.” Id. at A276. The district court gave a

theory-of-defense instruction, but it declined to include

that precise language, stating that, because petitioner

had not testified, “we don’t know what he believed.” Id.

at A295-A296; see id. at A296 (court stating that “I don’t

think I can put what he believed because I don’t have

any evidence”). Instead, the theory-of-defense instruction stated:

The defense theory of the case is that there was a

reasonable basis not to report the funds [petitioner]

received in 2010 as taxable income in the years

charged. He did in good faith rely on the advice he

received from accounting and tax professionals in filing his tax returns. As a result, he did not act with

the intent to violate the law.

Id. at A327; see id. at A296-A299.

The jury found petitioner guilty on both counts. Pet.

App. 15a. The district court sentenced him to 48 months

of imprisonment. Id. at 17a.

3. The court of appeals affirmed. Pet. App. 1a-12a.

Petitioner contended on appeal that the district

court had abused its discretion by admitting certain

“evidence that [petitioner] made misrepresentations to

investors about Envion’s economic prospects.” Pet.

App. 7a. In particular, petitioner argued that the court

should not have allowed evidence that he had lied to the

investors about the existence of the supposedly imminent deal for which he told investors the 2010 loans were

necessary—specifically, evidence that petitioner had

not executed certain agreements on behalf of Envion,

and testimony that a purported Envion project was

much further from completion than petitioner had indicated to investors. Pet. C.A. Br. 29-30. Petitioner

acknowledged “that the government was entitled to dispute” petitioner’s “characterization” of the 2010 loans

as having been made “to him personally, rather than to

Envion,” using “evidence of how Carlucci and Russell

thought the funds would be used.” Pet. App. 7a. But he

contended that, “while the representations that Carlucci and Russell relied on in wiring money to [petitioner] were relevant, evidence that these statements

were misrepresentations was not” relevant. Ibid.

(quoting Pet. C.A. Br. 28) (brackets omitted). He further argued that such evidence, if it were relevant,

should have been excluded under Federal Rules of Evidence 403 and 404(b). Pet. C.A. Br. 28-30.

The court of appeals rejected those contentions. Pet.

App. 7a-8a. The court stated that “[w]hether a borrower

has the intent and ability to repay a purported loan is a

factor in judging whether the transaction is in fact a loan

for tax purposes,” and that “ ‘loans obtained in bad faith

and without an intent to repay them’ are taxable income.” Id. at 7a (quoting United States v. Swallow,

511 F.2d 514, 519 (10th Cir.), cert. denied, 423 U.S. 845

(1975)); see id. at 7a-8a (citing United States v. McGinn,

787 F.3d 116, 126-127 (2d Cir. 2015), and Welch v. Commissioner, 204 F.3d 1228, 1230 (9th Cir. 2000)). The

court explained that, in this case, the government “introduced the challenged evidence to show that [petitioner]

knew the deals he told the investors would be the source

of their repayment would never be consummated—and

hence that the investors’ money could not have constituted loans to [petitioner] because he had no intent or

ability to repay them.” Id. at 8a. The court additionally

noted that the district court had “t[aken] exemplary care

to insist that testimony on this subject be ‘brief ’ and

‘very tailored,’ and ‘to limit how the government could

argue’ the evidence in its closing,” thus minimizing “the

danger of unfair prejudice.” Ibid. (brackets and citation

omitted).

Petitioner separately contended that the district

court had erred in “failing to instruct the jury that personal loans are not income” and in omitting from its

theory-of-defense instruction the precise statement—

that petitioner “ ‘believed that the funds he received in

2010 could legally be treated as non-taxable personal

loans’ ”—that he had requested. Pet. C.A. Br. 39-40

(capitalization altered; citation and emphases omitted);

see id. at 39-47. The court of appeals noted the government’s acknowledgment that the district court’s stated

reason for omitting that requested statement—that

there was no evidence in the record of what he

believed—“was not a valid basis for refusing to include

that statement.” Pet. App. 9a. The court of appeals additionally noted that, “although the remainder of the instruction made clear that [petitioner] was mounting a

defense based on his claimed good-faith belief, it did not

include the point that loans are not taxable.” Id. at

9a-10a.

The court of appeals determined, however, that “any

error” regarding the challenged instruction “was harmless.” Pet. App. 10a. The court found that, “ ‘[i]n light

of all the circumstances—the language of the instructions, the arguments of counsel, and the evidence

itself ’—there was no real risk of confusion about [petitioner’s] theory of the case or its legal basis.” Ibid. (citation omitted). It observed that both the government’s

and petitioner’s expert witnesses had testified that personal loans are not taxable, and petitioner’s counsel had

“stressed during closing arguments” that “there was no

disagreement on [that] point.” Ibid. The court additionally noted petitioner’s acknowledgment that “ ‘the

incredibility of a defendant’s claim that he considered

the transactions to be loans’ can provide a basis to find

the failure to instruct harmless.” Ibid. (brackets and

citations omitted). The court found that his “claim that

the $22 million from Carlucci and Russell were personal

loans to him * * * f [ell] well within the ‘incredible’ category,” citing evidence that the investors did not

make—and would not have agreed to make—loans totaling $22 million to petitioner personally, as well as petitioner’s admissions in the civil suit filed by Carlucci.

Ibid.; see id. at 10a n.2.

ARGUMENT

Petitioner contends (Pet. 9, 18, 22-23) that the district court committed reversible error in admitting at

trial certain evidence that petitioner made misrepresentations to investors about his company’s economic

prospects and the activities for which the funds the investors provided would be used. Petitioner additionally contends (Pet. 9-10, 19-20, 23) that the court erred

in instructing the jury on his theory of his defense. The

court of appeals correctly rejected those contentions,

finding that the district court had not abused its discretion in admitting the disputed evidence and that, in

the circumstances of this case, any error in the jury

instruction was harmless. Those factbound determinations do not conflict with any decision of this Court or

of another court of appeals.

Petitioner nevertheless urges (Pet. 1-2) this Court to

review the decision below, asserting that it conflicts

with James v. United States, 366 U.S. 213 (1961), and

implicates an existing lower-court conflict, by adopting

an erroneous “test for distinguishing taxable income

from non-taxable loan proceeds.” See Pet. 10-21. Those

assertions lack merit. The court of appeals did not pass

upon the legal standard for distinguishing nontaxable

loans from taxable income. Petitioner did not raise that

issue, and the court had no need to resolve it in addressing petitioner’s claims of case-specific error. The

decision below does not conflict with James or implicate

any substantive disagreement among the courts of appeals on the definition of nontaxable loans, and this case

would be an unsuitable vehicle for addressing that issue. Further review is not warranted.

1. The court of appeals correctly determined that

the district court did not abuse its discretion in admitting certain evidence that petitioner made misrepresentations to investors about the activities for which he was

soliciting additional investments. Pet. App. 7a-8a.

Petitioner’s “principal defense was the claim that

Carlucci and Russell had loaned $22 million to him personally, rather than to Envion.” Pet. App. 7a. As the

court of appeals recognized, whether petitioner had the

“intent” to repay those funds is highly relevant in determining whether they represented nontaxable loan

proceeds or taxable income. Id. at 7a-8a. Petitioner

himself argues that taxable income excludes only “bona

fide loan proceeds” and that “the transacting parties’

intent to adopt a repayment obligation is the ‘sine qua

non of a bona fide non-reportable loan.’ ” Pet. 12-13 (citation omitted). The court properly determined that the

evidence petitioner sought to exclude was relevant because it bore on the existence of such intent.

The disputed evidence consisted of testimony indicating that the purportedly “imminent” “[i]nvestment

deal for Envion” for which petitioner had solicited more

than $22 million in additional funds from investors was

not as advertised. Gov’t C.A. Supp. App. SA59. The

government introduced that testimony “to show that

[petitioner] knew the deals he told the investors would

be the source of their repayment would never be consummated.” Pet. App. 8a. Petitioner’s knowledge that

he could not repay the money solicited from investors

from the intended revenue source, combined with his

lack of “independent money” from which to repay the

investors, would tend to negate petitioner’s defense that

he intended to repay the money. Ibid. (citation omitted). If credited, the testimony was thus relevant to the

issue of intent.

As the court of appeals additionally noted, the district court “took exemplary care” with this evidence to

avoid creating a “danger of unfair prejudice,” by narrowly limiting both the evidence and related argument

the government could present. Pet. App. 8a. The court

of appeals correctly found that the district court did not

abuse its discretion, and that case-specific evidentiary

ruling does not warrant further review.

2. The court of appeals also correctly determined

that any error in the district court’s jury instruction on

petitioner’s theory of his defense was harmless and did

not warrant reversal of his conviction. Pet. App. 9a-10a.

And that factbound, record-specific ruling similarly

does not warrant this Court’s view.

Petitioner requested a statement in the theory-ofdefense instruction that he “believed that the funds he

received in 2010 could legally be treated as non-taxable

personal loans.” Pet. C.A. Br. 40 (quoting Pet. C.A.

App. A276) (emphasis omitted). The district court’s instruction did not include that particular statement. But

it did make clear that petitioner’s “theory of the case”

was that “a reasonable basis” existed for not reporting

the 2010 funds as taxable income, and that petitioner had

“in good faith rel[ied] on the advice he received from accounting and tax professionals” and thus “did not act

with the intent to violate the law.” Pet. C.A. App. A327.

Petitioner contended below that the omitted statement would also have conveyed that “the 2010 funds

‘could legally be treated’ as personal loans” and that

“personal loans are ‘non-taxable.’ ” Pet. C.A. Br. 40.

The court of appeals acknowledged that, although the

instruction given made clear that petitioner “was

mounting a defense based on his claimed good-faith belief,” it “did not include the point that loans are not taxable.” Pet. App. 9a-10a. But the court properly found

any error in the omission of that point to be harmless on

the record of this case. Id. at 10a. As the court explained, “ ‘[i]n light of all the circumstances,’ ” including

the specific “ ‘language of the instructions, the arguments of counsel, and the evidence itself,’ ” “no real

risk” existed that the jury would be “confus[ed] about

[petitioner’s] theory of the case or its legal basis.” Ibid.

(citation omitted). Both parties’ experts had testified

that personal loans are not taxable, and petitioner’s

counsel had “stress[ed] during closing arguments” that

the point was undisputed by the parties. Ibid.

In addition, as the court of appeals further explained,

any error in that instruction was harmless for the independent reason that petitioner’s “claim that the $22 million from Carlucci and Russell were personal loans to

him” was “ ‘incredible.’ ” Pet. App. 10a. Petitioner himself acknowledged that “ ‘the incredibility of a defendant’s claim that he considered the transactions to be

loans’ ” can provide a freestanding “basis to find the failure to instruct harmless.” Ibid. (brackets and citations

omitted). And in this case, as the court observed, ample

evidence showed that petitioner’s claim lay far outside

the bounds of plausibility: petitioner had issued superseding, global promissory notes to both Carlucci and

Russell making clear that the $22 million had been

loaned to Envion, not to petitioner personally; petitioner

had admitted as much with respect to the $20 million

Carlucci contributed in a pleading in separate civil litigation that Carlucci commenced; and testimony by Russell

and by Carlucci’s wife (Carlucci was too ill to testify himself) showed that neither investor would have made personal loans to petitioner in those amounts. Id. at 10a-11a

n.2. The court correctly determined that any error was

harmless.

3. In this Court, petitioner devotes nearly all of his

argument to contending that the court of appeals

adopted an erroneous “test for distinguishing taxable

income from non-taxable loan proceeds.” Pet. 1; see

Pet. 1-2, 10-21. He argues that “the proper test focuses

on the parties’ intent at the time of the transaction,” and

“other factors” may be considered “only as a means of

ascertaining intent.” Pet. 1. Petitioner contends (Pet.

1-2, 10-21) that the court of appeals rejected that understanding and that its decision conflicts with this Court’s

precedent and other circuits’ decisions. Those contentions lack merit and do not warrant further review.

a. Petitioner’s assertions (Pet. 1-2, 10-21) that the

decision below conflicts with this Court’s precedent and

with decisions of other courts of appeals all rest on the

mistaken premise that the court of appeals articulated

a particular legal standard for distinguishing nontaxable loans from taxable income. The court made no such

pronouncement in this case. Petitioner did not raise

that issue on appeal, and the court had no occasion to

address it in adjudicating the case-specific claims of error that petitioner did present.

As the court of appeals recounted, petitioner challenged his conviction on appeal on four case-specific

grounds: “(1) the district court admitted evidence that

was irrelevant and improperly showed prior ‘bad acts’;

(2) the government improperly appealed to ‘class prejudice’ throughout the trial; (3) the district court erred

in declining to give [petitioner’s] preferred theory-ofthe-defense instruction; and (4) his trial counsel was

ineffective.” Pet. App. 4a; see Pet. C.A. Br. 16-57.

None of those factbound challenges asked the court of

appeals to pass upon the legal definition of nontaxable

loans or required it to do so. And consistent with the

scope of petitioner’s arguments on appeal, the court of

appeals did not resolve that issue or articulate any

global statement of the governing test. It simply rejected his case-specific claims asserting evidentiary and

instructional errors, allegedly improper efforts by the

government at trial to exploit class prejudice, and ineffective assistance of his trial counsel. See Pet. App.

4a-12a.

Petitioner points (Pet. i, 2, 18, 22) to one brief passage in the court of appeals’ opinion—in the portion rejecting his contention that the district court erred in

admitting evidence about his misrepresentations to

investors—that he argues adopted a test for identifying

nontaxable loans. In that passage, the court stated that

“[w]hether a borrower has the intent and ability to repay a purported loan is a factor in judging whether the

transaction is in fact a loan for tax purposes.” Pet. App.

7a. The court then quoted a decision of the Tenth Circuit for the proposition that “ ‘loans obtained in bad faith

and without an intent to repay them’ are taxable income,” ibid. (quoting United States v. Swallow,

511 F.2d 514, 519, cert. denied, 423 U.S. 845 (1975)), and

it cited decisions of the Second and Ninth Circuits as

supporting the same principle. See id. at 7a-8a (citing

United States v. McGinn, 787 F.3d 116, 126-127 (2d Cir.

2015), and Welch v. Commissioner, 204 F.3d 1228, 1230

(9th Cir. 2000)). Applying that principle, the court of

appeals found that the evidence of petitioner’s misrepresentations was relevant to showing that petitioner

“had no intent or ability to repay” the 2010 loans from

the investors, because they established that petitioner

“knew the deals he told the investors would be the

source of their repayment would never be consummated,” and he had no other, “ ‘independent’ ” resources

with which to repay them. Id. at 8a (citation omitted).

Petitioner errs (Pet. i, 1, 10, 23) in portraying that

passage as embracing a “shapeless” “multi-factor balancing test.” Petitioner seizes (Pet. 20) on the court of

appeals’ allusion to a borrower’s “intent and ability to

repay,” which he describes (Pet. 18) as placing another

consideration (a borrower’s ability to repay) “on equal

footing” with intent to do so. See Pet. 22. But the

court’s analysis of that consideration here suggests that

it may have viewed a borrower’s ability to repay in the

manner petitioner approves: not as a freestanding element independent of intent to repay, but as an “indication[ ] of intent.” Pet. 1 (citation omitted). The court

found that the government’s evidence of petitioner’s

misrepresentations regarding the supposedly imminent

deal to investors was pertinent because it showed that

petitioner knew he would have no ability to repay the

purported loans; it thus would tend to show that petitioner obtained the loans with no intention to repay

them. The passing conjunctive phrase petitioner cites

did not endorse a comprehensive definition of nontaxable loans.

Nor did the court of appeals’ application of the proposition that intent to repay is relevant (Pet. App. 8a)

embody a complete definition of nontaxable loans, much

less endorse the freeform inquiry petitioner imputes to

the court’s opinion. The court had no need to adopt such

a definition to determine that the evidence petitioner

challenged in this case was properly admitted. Regardless of which (if any) considerations other than intent to

repay might also be properly considered in distinguishing nontaxable loans from income, intent is at least a

relevant consideration. In light of its finding that the

evidence of petitioner’s misrepresentations was probative of his intent to repay, the court correctly found that

the district court did not abuse its discretion in admitting that evidence.

Petitioner similarly errs in contending (Pet. 15, 18)

that the court of appeals’ citation of decisions of other

circuits that petitioner disapproves reflects the court’s

adoption of an “open-ended,” “amorphous” approach to

identifying nontaxable loans that petitioner imputes to

those other circuits. In the same breath, the court also

cited a decision of the Second Circuit, which petitioner

contends (Pet. 15) follows the approach he advocates,

under which intent to repay is the touchstone, with

other criteria potentially relevant only as “indicia of intent.” See Pet. App. 7a-8a (citing McGinn, 787 F.3d at

126-127). The court of appeals’ citation of other decisions does not support petitioner’s inference that the

court tacitly adopted a freeform definition of nontaxable

loans.

At bottom, petitioner’s reading of the decision below

would turn that decision on its head. The court of appeals rejected petitioner’s evidentiary claims because

the evidence was relevant to his intent to repay, not despite the absence of such intent. Petitioner agrees that

intent to repay is highly relevant; indeed, in his view, it

is necessary for a payment to be deemed a nontaxable

loan. See Pet. 10-13, 18-21. The decision below is thus

wholly consistent with petitioner’s arguments about the

definition of a nontaxable loan.

b. Petitioner’s contention (Pet. 2, 18-21) that the decision below conflicts with this Court’s decision in

James v. United States, supra, by adopting a “multifactor balancing test” (Pet. 2) accordingly lacks merit

because the court of appeals’ decision adopted no such

standard. That contention also fails for the independent

reason that petitioner overreads James.

James did not involve the classification of a payment

as a nontaxable loan rather than taxable income. The

case instead presented the question “whether embezzled funds are to be included in the ‘gross income’ of the

embezzler.” 366 U.S. at 213. The plurality answered

that question in the affirmative. See id. at 215-222.

The plurality in James observed that the Court had

previously held in Commissioner v. Wilcox, 327 U.S.

404 (1946), that “embezzled money does not constitute

taxable income to the embezzler,” on the ground that an

embezzler has no “ ‘bona fide claim of right’ ” to the embezzled funds and has “ ‘an unqualified duty and obligation to repay the[m].’ ” James, 366 U.S. at 215-216

(quoting Wilcox, 327 U.S. at 408). But the plurality in

James determined that Wilcox “was wrongly decided,”

had been “thoroughly devitalized” and “vitiated” by intervening decisions, and was not supported by congressional intent. Id. at 215, 217, 221; see id. at 215-221. The

plurality explained that “[i]t had been a well-established

principle, long before * * * Wilcox, that unlawful, as

well as lawful, gains are comprehended within the term

‘gross income,’ ” and that “the purpose of Congress” in

employing that phrase “was ‘to use the full measure of

its taxing power.’ ” Id. at 218-219 (citation omitted); see

id. at 241 (Clark, J., concurring in part and dissenting

in part) (“join[ing] in the specific overruling of [Wilcox]”); id. at 241-242 (Harlan, J., joined by Frankfurter,

J., concurring in part and dissenting in part) (similar).

In the passage on which petitioner relies (Pet. 2, 4,

12, 18), the plurality in James then stated:

When a taxpayer acquires earnings, lawfully or unlawfully, without the consensual recognition, express

or implied, of an obligation to repay and without restriction as to their disposition, he has received income which he is required to return, even though it

may still be claimed that he is not entitled to retain

the money, and even though he may still be adjudged

liable to restore its equivalent. In such case, the taxpayer has actual command over the property taxed—

the actual benefit for which the tax is paid. This

standard brings wrongful appropriations within the

broad sweep of “gross income”; it excludes loans.

366 U.S. at 219 (citations and internal quotation marks

omitted).

To the extent that passage was intended to address

the definition of nontaxable loans, which was not directly at issue, it at most described a “consensual recognition, express or implied, of an obligation to repay” as

a necessary condition for earnings to be deemed a nontaxable loan, 366 U.S. at 219 (plurality opinion), not as a

sufficient condition. Nor did the plurality in James

elaborate on the meaning of such a “consensual recognition” of an “obligation to repay” or “loans,” ibid., let

alone define those terms in a manner that would foreclose consideration of any factor other than intent to repay. Indeed, a pre-James decision that James did not

address had previously approved considering multiple

factors in evaluating whether a transaction constitutes

a bona fide loan. See John Kelley Co. v. Commissioner,

326 U.S. 521, 526 (1946) (reviewing the “indicia of indebtedness” consisting of certain “characteristics” of

the “obligations in question” and the “surrounding circumstances” to determine whether the payments were

deductible interest or nondeductible dividends);

1 Mertens Law of Federal Income Taxation § 5A:27 &

n.2 (Carina Bryant ed., Jan. 2021 update) (discussing

multiple “objective criteria” courts consider and citing

John Kelley as supporting that approach).

4. a. Even assuming that the decision below took a

position on the issue, petitioner errs in contending (Pet.

13-18) that review would be warranted in this case to

resolve a lower-court conflict regarding the proper approach for distinguishing taxable loans from nontaxable

income. As explained above, the court of appeals did not

articulate any specific test governing that question. See

pp. 14-17, supra. Petitioner significantly overstates the

differences among the approaches courts of appeals apply in identifying nontaxable loans.

The circuits whose decisions petitioner cites all apply

a broadly similar approach to one another. All of them

recognize that the intent of the parties that the borrower

will repay the money is central in determining whether

the transaction is a nontaxable loan. See Crowley v.

Commissioner, 962 F.2d 1077, 1079 (1st Cir. 1992); Collins v. Commissioner, 3 F.3d 625, 631 (2d Cir. 1993);

Commissioner v. Makransky, 321 F.2d 598, 600 (3d Cir.

1963); United States v. Pomponio, 563 F.2d 659, 662 (4th

Cir. 1977), cert. denied, 435 U.S. 942 (1978); Estate of

Mixon v. United States, 464 F.2d 394, 406-407 (5th Cir.

1972); Jaques v. Commissioner, 935 F.2d 104, 107

(6th Cir. 1991); Busch v. Commissioner, 728 F.2d 945,

948 (7th Cir. 1984); Welch, 204 F.3d at 1230; Williams v.

Commissioner, 627 F.2d 1032, 1034-1035 (10th Cir.

1980). At the same time, those courts recognize that a

court should consider various “objective factors” beyond

a putative borrower’s testimony in ascertaining that

intent—including the economic substance of the transaction and other “objective facts” that may contradict the

borrower’s stated subjective intentions. Busch, 728 F.2d

at 948; see Crowley, 962 F.2d at 1079; Todd v. Commissioner, 486 Fed. Appx. 423, 426 (5th Cir. 2012) (per curiam); Jaques, 935 F.2d at 107; Welch, 204 F.3d at 1230;

Williams, 627 F.2d at 1034-1035.

Any tension in the language of the lower courts’ decisions concerns the characterization of the role of those

other, objective factors in the analysis. Some cases describe other factors as “indications of intent.” Busch,

728 F.2d at 948; see, e.g., Crowley, 962 F.2d at 1079;

Jaques, 935 F.2d at 107. Others similarly emphasize

that “self-serving declarations” of intent are insufficient

and must be considered in light of other, “more reliable

criteria of the circumstances surrounding the transaction” to determine the intended nature of an arrangement. Estate of Mixon, 464 F.2d at 407 (citation omitted); see, e.g., Williams, 627 F.2d at 1034-1035. And

others arguably have described factors other than direct evidence of intent as separate considerations in determining whether a purported loan is “bona fide.”

Welch, 204 F.3d at 1230; see, e.g., Merck & Co. v. United

States, 652 F.3d 475, 480-486 (3d Cir. 2011) (expressing

doubt as to “whether the intent of the parties by itself is

sufficient to create a loan, or whether that intent must

also be reflected in the objective characteristics of the

transaction in question,” and accordingly “analyz[ing]

both questions” and reaching the same result both

ways).

Whatever label a court attaches to such other factors, petitioner has not shown that the substance of the

circuits’ approaches meaningfully differs. For example,

he cites (Pet. 2, 16) the Ninth Circuit’s decision in Welch

as an archetypal example of a case applying an improper, “multi-factor balancing test” approach. But in

that case, in reciting “factors” that other courts had

deemed “relevant in assessing whether a transaction is

a true loan,” the court cited decisions of the First,

Fourth, and Seventh Circuits—which in petitioner’s view

(Pet. 13-15) apply the intent-focused approach that he

advocates. See Welch, 204 F.3d at 1230 (citing Crowley,

962 F.2d at 1079, Frierdich v. Commissioner, 925 F.2d

180, 182 (7th Cir. 1991), and Piedmont Minerals Co. v.

United States, 429 F.2d 560, 563 (4th Cir. 1970)).

The decision below similarly cited both decisions

from courts that petitioner argues apply the approach

he disfavors and a decision from a circuit whose approach he endorses. See Pet. App. 7a-8a (citing Swallow, 511 F.2d at 519, McGinn, 787 F.3d at 126-127, and

Welch, 204 F.3d at 1230). The court of appeals thus

likely either perceived no material difference among

those courts’ articulations of the standard or recognized

that any divergence was irrelevant to its decision here.

Whether intent to repay is the sole criterion in deeming

a payment to be a nontaxable loan or merely one factor

among others to be considered has no bearing on the

court of appeals’ determination here in the passage on

which petitioner relies: that the district court did not

abuse its discretion by admitting evidence that was relevant to petitioner’s intent to repay. Ibid. Either way,

a borrower’s intent is relevant to a material issue, and

the evidence could properly be admitted.

b. Finally, this case would be an unsuitable vehicle

to address broader questions of the definition of nontaxable loans for additional reasons.

Petitioner did not preserve in the district court any

argument to which his current conception of the proper

test for identifying nontaxable loans would be relevant.

He did not, for example, request an instruction from the

court defining a personal loan or identifying the indicia

of intent that the jury could consider. See Pet. C.A.

App. A276-A289, A295-A296. Any argument concerning

the inadequacy of the jury instructions regarding the

definition or identification of nontaxable loans thus

would have been reviewable on appeal only for plain error. See Jones v. United States, 527 U.S. 373, 388

(1999); Fed. R. Crim. P. 52(b). Petitioner, however, did

not present such an argument in the court of appeals

either. He contended that the jury instructions were

erroneous for failing to apprise the jury that personal

loans are nontaxable and that he believed the 2010 loans

were made to him personally and so were not taxable

income. See pp. 12-13, supra.

Moreover, petitioner could not have prevailed under

a plain-error standard had he raised the issue on appeal.

As the court of appeals found, his claim that the parties

intended the 2010 investments to be personal loans to

petitioner was “ ‘incredible.’ ” Pet. App. 10a. Testimony

showed that the investors did not and would not have

made personal loans totaling $22 million to petitioner at

that time. Global promissory notes encompassing the

loans listed Envion, not petitioner, as the borrower, and

petitioner admitted as much in separate civil litigation

with respect to the larger ($20 million) of the two 2010

loans. See p. 13, supra; Pet. App. 10a n.2. Even if the

jury had been instructed that the parties’ intent that the

borrower would repay a sum was the only relevant consideration in classifying that sum as a loan or taxable

income, petitioner could not plausibly have demonstrated on the record of this case that the parties intended the 2010 investments to be personal loans to

him. Further review is not warranted.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.