Opposition Brief — Witte v. United States

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No. 94-327 | OFFICE O& Tek CLERK

In the Supreme Court of the Guted States

OCTOBER TERM, 1994

STANLEY D. BEUS, PETITIONER

Uv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

Drew S. DAYS, III

Solicitor General

LORETTA C. ARGRETT

Assistant Attorney General

ROBERT E. LINDSAY

ALAN HECHTKOPEF

Scott A. SCHUMACHER

Attorneys

Department of Justice

Washington, D.C. 20530

(202) 514-2217

QUESTIONS PRESENTED

1. Whether a conviction for willful violation of the

Internal Revenue Code is subject to harmless-error

analysis.

2. Whether the evidence considered by the jury was so

overwhelming as to render an allegedly unconstitutional

jury instruction harmless beyond a reasonable doubt.

(I)

PL,

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

Cases:

Arizona v. Fulminante, 499 U.S 279 (1991) ................066. 5

Boyde v. California, 494 U.S. 370 (1990) oe eee 8

Chapman v. California, 386 U.S. 18 (1967) ................. ee 6

Cheek v. United States, 498 U.S. 192 (1991) .................0.. 6, 7, 10

Cupp v. Naughten, 414 U.S. 141 (1978) ....... cee eeeeeeeeeee 9

Estelle v. McGuire, 112 S. Ct. 475 (1991) oe eeeeeeees 8,9

Pope v. Illinois, 481 U.S. 497 (1987) ..............ccccescseosseesees 6,7

Kose ¥. Clark, 478 U.S. STO (1986) ..........ccccsccsccsscescssceesees 5, 7

United States v. Park, 421 U.S. 658 (1975) «0.0... eee 9

United States v. Young, 470 U.S. 1 (1985) ........ ee. 7

Yates v. Evatt, 500 U.S. 391 (1991) .o...eeeeceeeseeeeeee 5, 6, 7, 8

Constitution, statutes and regulation:

U.S. Const. Amend. V (Due Process Clause) ................... 4

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(II])

N

In the Supreme Court of the Giited States

OCTOBER TERM, 1994

No. 94-327

STANLEY D. BEUS, PETITIONER

v.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

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

unpublished, but the decision is noted at 21 F.3d 1116

(Table).

JURISDICTION

The judgment of the court of appeals was entered on

April 22, 1994. A petition for rehearing was denied on

May 23, 1994. Pet. App. 13. The petition for a writ of

certiorari was filed on August 22, 1994. The jurisdiction

of this Court is invoked under 28 U.S.C. 1254(1).

(1)

2

STATEMENT

Following a jury trial in the United States District

Court for the District of Idaho, petitioner was convicted

on eight counts of aiding or advising in the preparation

of fraudulent or false tax documents, in violation of

26 U.S.C. 7206(2). Pet. App. 2-8. Petitioner was sen-

tenced to four months’ imprisonment, to be followed by a

one-year term of supervised release: /d. at 3. He was

also ordered to pay a fine of $10,000 and costs of

prosecution of $11,958.92. Ibid. The court of appeals

affirmed. Jd. at 1-12.

1. In 1981, petitioner formed Shilo Automatic

Sprinkler, Inc. (Shilo), a closely held corporation that

was in the business of installing fire sprinkler systems

in commercial buildings throughout the western United

States. Pet. App. 2. Petitioner was a shareholder and

manager of the corporation. Beus C.A. Br. 2-3. Em-

ployees of Shilo who worked in excess of 40 hours in a

given week were paid for their overtime at straight

rates, with no income tax withheld. Jbid. These over-

time payments were recorded in Shilo’s books not as

wages, but as reimbursements for expenses. Under

Treasury Regulations then in effect, reimbursements

for expenses were not subject to income tax withholding.

Id. at 2, 18.

Between 1985 and 1987, Shilo made quarterly filings

with the Internal Revenue Service (IRS) on Form 941,

the tax return for an employer. Pet. App. 2. Line two of

Form 941 required the employer to report all wages and

tips paid to an employee that were subject to

withholding, plus other compensation. Jd. at 4n.3. The

returns filed by Shilo did not show any of the overtime

that was paid to Shilo’s employees. Jd. at 2. Petitioner

directed that Shilo’s bookkeepers prepare the returns in

3

that manner. Jd. at 4-5. On September 18, 1987, the IRS

notified petitioner that Shilo was the subject of a routine

audit. Id. at 2. On October 12, 1987, Shilo began properly

accounting for the overtime payments on its quarterly

returns. Ibid.

2. At petitioner’s request, the district court

instructed the jury on petitioner’s theory of defense—

that Shilo did not need to report payments made for work

performed in excess of 40 hours per week if they were

reimbursement for “expenses.” After charging the jury

that the government had to prove beyond a reasonable

doubt that “the total wages and tips subject to

withholding plus other compensation portion of the Form

941 failed to include the amount of wages paid to em-

ployees for overtime” (Pet. App. 14), the court instructed

the jury (id. at 15) that

[petitioner] has presented evidence that the disputed

sums at issue in this case were paid to employees as

reimbursement for travel and travel-related business

expenses incurred or to be incurred by them in the

course of their employment with Shilo Automatic

Sprinklers, Inc. Therefore, as part of your

deliberations you must decide whether the disputed

sums were in fact paid as bona fide travel expenses or

as overtime wages as the government alleges.

If you find that the disputed sums were * * * paid

to the employees as bona fide reimbursement for

travel-related business expenses incurred by them,

you must enter a verdict of not guilty on all counts

against [petitioner].

If you find that the disputed sums were in fact paid

to the employees as wages for overtime hours worked

by them under the pretense of expenses, you must

4

proceed in your deliberations. You must address

each count separately, bearing in mind the elements

which the Government must prove beyond a

reasonable doubt which are set forth in [a previous

instruction].

Petitioner objected that the instruction was narrower

than the one he had proposed, but the district court

overruled the objection. It explained in its order denying

petitioner’s post-trial motions that “[n]lo reference was

made to other types of business expenses [in the

instruction] because the court simply could not justify

instructing the jury that they could find that the

disputed sums were advancements or reimbursements

for expenses other than travel-related expenses. No

evidence had been offered which would support such a

claim.” Gov’t C.A. Br. 19.

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

court rejected petitioner’s claims that there was

insufficient evidence to sustain the jury’s guilty verdict

and that the district court improperly modified his

proposed jury instruction to limit it to travel and travel-

related expenses. /d. at 3-9.

The court of appeals did find, however, that the district

court’s instruction on petitioner’s theory of defense

failed to state explicitly that the government was obliged

to disprove petitioner’s “affirmative” defense beyond a

reasonable doubt and that the instruction therefore

violated the Due Process Clause. Pet. App. 9-10. The

court of appeals stated that, based upon the district

court’s instruction, the jury might have believed that it

could convict petitioner even if the government had

disproven petitioner’s affirmative defense by 4n evi-

dentiary standard less rigorous than proof beyond a

reasonable doubt. /d. at-10.

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The court determined, however, that the error was

subject to harmless-error analysis under Rose v. Clark,

478 U.S. 570, 580 (1986). Pet. App. 10-11. Quoting Yates

v. Evatt, 500 U.S. 391, 405 (1991), the court of appeals

concluded that petitioner’s convictions must be

sustained if “the force of the evidence . . . is so

overwhelming as to leave it beyond a reasonable doubt

that the verdict resting on that evidence would have been

the same in the absence of the [constitutional error].”

Pet. App. 11 (emphasis added by court of appeals).

Analyzing the evidence, the court held that even if the

district court had properly instructed the jury, the force

of evidence disproving the affirmative defense was “so

‘overwhelming’ that the verdict would unquestionably

have been the same.” Pet. App. 11. The court noted that

“[tlhere is little if any evidence in the record” to support

the affirmative defense, and that based upon the

undisputed testimony of Shilo employees, as well as the

admissions of petitioner, “the jury had no choice but to

conclude that, even under the strictest possible standard,

the disputed amounts were not ‘expense allowances.’”

Id. at 11, 12.

ARGUMENT

1. Petitioner contends (Pet. 6-11) that harmless-error

analysis is unavailable in criminal tax cases when the

trial court improperly instructs the jury with respect to

the government’s burden of proof. Contrary to peti-

tioner’s claim, the decision below is consistent with this

Court’s decisions and does not merit further review.

Harmless-error analysis is the norm in our system.

See Arizona v. Fulminante, 499 U.S. 279, 306-310 (1991);

Rose v. Clark, 478 U.S. 570, 579 (1986). This Court has

accordingly held that “the taint of an unconstitutional

burden-shifting jury instruction may be harmless.”

6

Yates v. Evatt, 500 U.S. 391, 402 (1991); see Pope v.

Illinois, 481 U.S. 497, 504:n.7 (1987) (“To the extent that

cases prior to Rose may indicate that a conviction can

never stand if the instructions provided the jury do not

require it to find each element of the crime under the

proper standard of proof, after Rose, they are no longer

good authority.”) (citation omitted).

In Chapman v. California, 386 U.S. 18, 24 (1967), the

Court held that it must appear “beyond a reasonable

doubt that the [constitutional] error complained of did

not contribute to the verdict obtained.” The Court

explained in Yates that while “the issue under Chapman

is whether the jury actually rested its verdict on [the]

evidence * * * beyond a reasonable doubt, independently

of the [constitutional error],” harmless-error analysis

does not require a subjective inquiry into the jurors’

minds. 500 U.S. at 404-405. Instead, a court must

determine “whether the force of the evidence presumably

considered by the jury in accordance with the instruc-

tions is so overwhelming as to leave it beyond a-

reasonable doubt that the verdict resting on that

evidence would have been the same in the absence of the

[constitutional error].” Jd. at 405.

Petitioner argues (Pet. 11) that “[t]he application of

the ‘overwhelming evidence’ analysis, as an objective

analysis, is * * * directly in conflict with the

requirement of subjective intent proof” required in

federal tax prosecutions under Cheek v. United States,

498 U.S. 192, 202 (1991). Petitioner contends (Pet. 8) that

a determination that an instruction was harmless based

on overwhelming evidence is appropriate only in cases in

which there is “a rock-solid state of objective facts based

on clear physical evidence.” Although the government

must prove that a defendant willfully. violated the tax

laws in order to obtain a criminal conviction, objective

7

factors may be considered in deciding what the defendant

subjectively believed or intended. See Cheek, 498 U.S. at

203-204 (jury may consider reasonableness of defendant’s

beliefs in determining state of mind). That inquiry is not

fundamentally different from other issues involving

proof of a defendant’s state of mind. Just as those state-

of-mind issues are subject to harmless-error analysis,

see Yates, 500 U.S. at 410 (examining specific cir-

cumstances of victim’s death in determining whether

defendant had the intent to kill), so too is a defendant’s

intent in a tax prosecution. Cf. United States v. Young,

470 U.S. 1, 19-20 (1985) (declining to reverse conviction

for specific-intent crime under plain-error analysis

because of “the overwhelming evidence of [defendant’s]

intent to defraud”).' The court of appeals was correct to

apply harmless-error analysis in this case and petitioner

points to no decisions of the courts of appeals to the

contrary.

2. Petitioner next contends (Pet. 12-27) that the court

of appeals erred in applying the two-step harmless-error

analysis outlined by this court in Yates, 500 U.S. at 404-

405, to the facts of his case. That fact-bound issue does

not warrant further review.

a. Initially, contrary to the determination of the court

of appeals, the instruction at issue did not impermissibly

' Petitioner seems to argue (Pet. 7-8) that decisions of this

Court limit harmless-error analysis to cases involving violent acts

or use of weapons. Not only has petitioner failed to explain the

constitutional basis for such a distinction, but his initial premise is

erroneous. In Pope v. Illinois, supra, this Court determined that a

conviction for selling obscene magazines could be “salvage[d] if the

erroneous instruction [was] found to be harm 'ess error,” 481 U.S.

at 501, and it remanded the case for an analysis of whether “the

record developed at trial established guilt beyond a reasonable

doubt,” id. at 502-503 (quoting Rose, 478 U.S. at 579).

8

suggest that the government did not bear the burden to

prove beyond a reasonable doubt that the payments were

for employee business expenses. The jury was in-

structed (Pet. App. 15):

[A]s part of your deliberations you must decide

whether the disputed sums were in fact paid as bona

fide travel expenses or as overtime wages as the

government alleges.

If you find that the disputed sums were * * * paid

to the employees as bona fide reimbursement for

travel-related business expenses incurred by them,

you must enter a verdict of not guilty on all counts

against [petitioner].

If you find that the disputed sums were in fact paid

to the employees as wages for overtime hours worked

by them under the pretense of expenses, you must

proceed in your deliberations. You must address

each count separately, bearing in mind the elements

which the Government must prove beyond a reason-

able doubt which are set forth in Instruction No. 21.

There is no reasonable likelihood that the jury

understood that instruction to imply that petitioner had

the burden of proving that the payments were

reimbursements for expenses. See Estelle v. McGuire,

112 S. Ct. 475, 482 & n.4 (1991); Boyde v. California, 494

U.S. 370, 380 (1990). Nor did the instruction create a

presumption that petitioner was required to rebut. See

Yates, 500 U.S. at 401-404. The instruction indicated to

the jury that it was required to find that the payments

were wages and not expense reimbursements. And the

last sentence of the instruction reminded the jury to

“bear[] in mind the elements which the Government

ee ee a ee eee

9

must prove beyond a reasonable doubt which are set forth

in Instruction No. 21.” Pet. App. 15.

Instruction No. 21 informed the jury, inter alia, that

the second element of a violation of 26 U.S.C. 7206(2) was

that the Form 941 was fraudulent as to a material

matter, “specifically, that the total wages and tips

subject to withholding plus other compensation portion

of the Form 941 failed to include the amount of wages

paid to employees for overtime.” Pet. App. 14. Viewed in

the context of that instruction, the subsequent in-

struction at issue here obviously was designed to guide

the jury in its determination of whether the government

had proven beyond a reasonable doubt that the un-

reported payments constituted wages and that the re-

turns were therefore false. Accordingly, viewed in the

context of the charge as a whole, see Estelle, 112 S. Ct. at

482; United States v. Park, 421 U.S. 658, 674 (1975); Cupp

v. Naughten, 414 U.S. 141, 146-147 (1973), the challenged

instruction maintained the burden of proof beyond a

reasonable doubt on the government.

b. Even if, as the court of appeals determined, the

instruction improperly shifted the burden of proof to

petitioner, the court was correct in determining that the

supposed error was harmless.

The court of appeals correctly found that there was

overwhelming evidence that the payments to Shilo’s

employees were not reimbursements of expenses. It is

undisputed that the payments at issue were made for

work performed by the employees and were based on

their hourly rates of pay. Pet. 4. Thus, the payments

were remuneration for services and, regardless of what

petitioner called them, were “wages” for withholding

purposes. See 26 U.S.C. 3401(a); Treas. Reg. § 31.3401(a)-

1(a)(2). Moreover, as the court of appeals observed, there

was “little if any evidence in the record that [petitioner]

10

ever reimbursed his employees for any expenses—travel

or otherwise.” Pet. App. 11.

To the extent that the erroneous instruction had any

bearing on the burden of proof with respect to the

element of willfulness,? there was similarly overwhelm-

ing evidence that petitioner committed a “voluntary,

intentional violation of a known legal duty.” Cheek, 498

U.S. at 201. Petitioner was told by two of Shilo’s

bookkeepers that he was improperly accounting for the

overtime employees worked. Pet. App. 4-5. One of the

bookkeepers asked petitioner whether she should issue

1099 statements for Shilo’s employees because the over-

time did not appear on their W-2 statements. Petitioner

refused. He told the bookkeeper that the IRS might get

suspicious if Shilo’s regular employees all had 1099

statements. /d. at 5. Petitioner also refused to include

the overtime of one of Shile’s employees on the em-

ployee’s W-2 or a 1099; he told the employee that if the

overtime was shown on the W-2, petitioner would be

caught. bid. Finally, shortly after being informed of a

routine audit, petitioner began to report the overtime

payments as wages. Id. at 2.

In light of that evidence, there was no likelihood that

the verdict would have been different if the trial court

had expressly instructed that the government was

required to disprove petitioner’s claim that the payments

constituted expenses. Accordingly, the court of appeals

2 Petitioner appears to assume (Pet. 13 n.10, 14 & n.11) that. the

challenged instruction went to the elements of falsity and will-

fulness. Both the instruction offered by petitioner, Pet. App. 6 n.5,

and the instruction given to the jury, id. at 15, however, concerned

the issue of expenses and thus did not have any bearing on the

burden of proof with respect to the element of willfulness.

PPS

11

correctly concluded that any instructional error was

harmless.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

DREwW S. DAYs, III

Solicitor General

LORETTA C. ARGRETT

Assistant Attorney General

ROBERT E. LINDSAY

ALAN HECHTKOPF

Scott A. SCHUMACHER

Attorneys

OCTOBER 1994