# Opposition Brief — Witte v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1995
- **Citation:** 515 U.S. 389

## Text

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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unpublished, but the decision is noted at 21 F.3d 1116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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5

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_0301%3A2. Public record. Not legal advice.