United States v. Brown

JOHN R. BROWN, Chief Judge:

This case, one of the very fewin the recorded annals of the 85 year history of the Fifth Circuit, involves not the trials and tribulations, attempted frauds and other derelictions of taxpayers, which are common grist for our mill. Rather, it involves fraud by a tax preparer, one whose Twentieth Century occupation is now almost indispensable to all save those taxpayers who can use, or risk the use of, a short form with standard deductions. In this Bicentennial foray we see the hazards both to the system and to the protection of rights of the public and the individuals concerned. To be remembered is that it is the fraud or false misstatement of the preparer, not the taxpayer, which counts. Indeed, the tax properly due may be of no, or only secondary, significance.

Defendant-Appellant Amos P. Brown, Sr., a part-time income tax preparer, was convicted by a jury on 12 counts of counseling, procuring and advising the preparation and presentation of fraudulent and false United States Individual Income Tax Returns for others in violation of 26 U.S.C.A. § 7206( 2), Internal Revenue Code. The District Court subsequently denied Brown's motions for judgment of acquittal and for new trial and sentenced Brown to 11 concurrent terms of three years each, followed by three years probation. Brown appealed, asserting insufficiency of the evidence, the improper admission of prejudicial evidence, the Trial Court's failure to investigate possible jury misconduct and ineffective assistance of counsel. We find that the Trial Judge committed plain error by improperly admitting certain evidence which was highly prejudicial to the defendant. Accordingly, we reverse and remand for a new trial.

In A Nutshell

Amos P. Brown, Sr., is a school teacher who has taught in Florida public schools since 1947. His educational background includes a bachelor's degree in Agricultural Education from Florida A. & M. University and an H. & R. Block course in income tax preparation. Except for the H. & R. Block course, he has had no formal courses in accounting. He has no prior criminal record.

After taking the H. & R. Block course in 1970, he began helping friends and neighbors, most of whom had low incomes and many of whom had little or no formal education, prepare their income tax returns. In preparing the returns, defendant relied on both written and oral evidence of expenses furnished him by the taxpayer. . . .

In 1973, an IRS audit of approximately 163 returns which had been prepared by Brown revealed that many contained substantially over-stated deductions. Of these returns, 17 were culled out to serve as the basis of the present case. The evidence does not reveal whether the IRS agent asked for, or received, supporting documents for deductions claimed by both spouses in each case, or by only one taxpayer of the pair. The evidence also does not reveal the grounds on which the IRS agent disallowed deductions. The evidence does disclose that the agent did not ask whether the taxpayer gave the same or different information to defendant before defendant prepared the audited return.

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The testimony most damaging to the defendant was given by the IRS agent, Adrienne Peacock. Witness Peacock testified that about 160 returns prepared by the defendant had been audited by the IRS and that between 90% and 95% of these returns contained overstated itemized deductions. She did not have a list of the taxpayers, their names, or their records with her, nor did she have access to the documents for the purpose of refreshing her memory before she testified. She did not audit all of the tax returns in question. Because she was testifying solely from her recollection of these audits, the tax returns were not introduced into evidence and the taxpayers concerned (save for the 17 count taxpayers) were not called as witnesses, Peacock was not able to tell why the IRS considered the various deductions to be overstated, and was further unable to supply direct proof of the overstatements.

Upon consideration of all the evidence, including Witness Peacock's testimony, the jury returned a verdict of guilty as to Counts 3, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16 and 17. The Judge sentenced defendant to concurrent terms of three years each for every count except Count 17. For that count, the Judge sentenced defendant to three years probation, to be served after his prison sentence. After being found guilty and sentenced by the Court, the defendant moved for a judgment of acquittal notwithstanding the jury verdict and for a new trial. The Judge denied both motions and this appeal followed.

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The Peacock's Tale

The Government also introduced the testimony of IRS agent Adrienne Peacock, who testified that between 90% and 95% of about 160 returns prepared by defendant contained overstated itemized deductions. There could be no doubt that her testimony played a substantial part in the jury's finding that the defendant possessed the intent required by § 7206(2). Of the 17 counts originally brought by the Government, five were dismissed for insufficiency of the evidence. Since the remaining counts did not present particularly strong evidence of willfulness on the part of the defendant (although sufficient to place the matter before the jury), Peacock's testimony was particularly devastating.

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If Peacock's testimony was admissible, we might affirm this case. See note 31, infra. If the testimony was not admissible, however, we must vacate the conviction and remand for a new trial, in light of the prejudicial nature of the evidence and especially since it permeated all the counts, both probatively weak and strong, and the cumulative effect of numerous counts of repetitive acts could serve to meet the element of willfulness. . . .

On this appeal, the Government asserts that Peacock's testimony was admissible under the rule that evidence of commission of other crimes closely related in both time and nature to the crime charged may be admitted to establish identity, Halfen v. United States. . . .

United States v. Broadway. . . .

We conclude, however, that Peacock's testimony was inadmissible under Broadway (as well as its modern counterpart, F.R.Evid. 403 and 404(b)), and, more important, was independently inadmissible under the hearsay rule. Because the ultimate underlying defect in Peacock's testimony was its hearsay character, we proceed to a discussion of that issue first.

Hearsay

This trial, conducted after July 1, 1975, was governed by the federal rules of Evidence. Under F.R.Evid. 801, hearsay is defined as "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted."

In this case, Peacock's testimony that between 90% and 95% of the returns she audited contained substantially overstated itemized deductions was introduced for the sole purpose of proving, circumstantially, the "willfulness" requirement of § 7206(2). In order to arrive at the conclusion that the deductions in these returns were overstated, Peacock's perusal of the 160 tax returns was not sufficient, since the returns obviously do not show on their face which deductions are overstated. The record shows that Peacock must have gotten her "proof" of the overstatements through conversations with each of the taxpayers audited. Presumably, the proof consisted either of statements by these taxpayers to Peacock that they all gave different information to the defendant tax preparer than defendant put down on their returns, or that they were unable to substantiate their deductions, because they did not have any (or had inadequate) supporting records. The proof might also have consisted of the fact that the IRS had legitimate disagreements with all or some of the deductions claimed. However, a prerequisite to this form of proof would be the initial conversation between Peacock and each taxpayer, so that Peacock could determine the bases for the deductions claimed.

The point to be emphasized, therefore, is that the information obtained by Peacock from the out-of-court statements made by the 160 taxpayers whose returns she audited, was absolutely vital to her ultimate in-court conclusion that between 90% and 95% of the 160 returns she audited contained substantially overstated itemized deductions. Because her testimony had to have been based directly on the out-of-court statements of these taxpayers, defendant had no opportunity to test their ultimate assumptions through cross-examination. He obviously could not cross-examine the taxpayers concerned, because they were not in court. He could not even cross-examine Peacock adequately, because she did not have with her any of the records of conversations she had had with these taxpayers, but was testifying solely from memory, in the most general, amorphous terms. Thus, the jury had no way to examine the trustworthiness of Peacock's testimony, because it could not examine the statements of the declarant taxpayers or others on which Peacock's testimony was directly and substantially founded. Given the rationale of the hearsay rule, a clearer case of hearsay testimony would be difficult to imagine. [Footnote 20]

========== Footnote 20 ==========
Peacock's testimony also inescapably presented by implication the facts leading to her conclusion which she got from other nontestifying declarants, such as the taxpayers concerned. The implication was strong that she satisfied herself from talking to others that what the preparer entered was not what the taxpayer told him. It was an implied assertion that the defendant was responsible for the repetitious acts or practices from which the jury could infer the requisite willfulness. It was an assertion, in other words, of the ultimate fact that these faulty returns were due to defendant's acts.
========== End Footnote ==========

Nor is her testimony admissible under any of the exceptions to the hearsay rule. This is not a recorded recollection (F.R.Evid. 803(5)), a record of regularly conducted activity (F.R.Evid. 803(6)), or a public record or report (F.R.Evid. 803(8)). It was the mere unrefreshed, sometimes borrowed, memory of a witness testifying on the basis of what she had been told by others. Furthermore, there can be no doubt that Peacock's testimony was extremely prejudicial to defendant. . . . Thus, because of the hearsay problem raised by Peacock's testimony, we would reverse and remand this case, even if her testimony was otherwise admissible under the Broadway standard.

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The judgment of conviction against defendant is reversed, and the case remanded for new trial on all counts.

REVERSED and REMANDED.



GEE, Circuit Judge, dissenting.

Convinced that admission of Agent Peacock's testimony - if error at all - is not plain error, I respectfully dissent.

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Because I disagree that Peacock's testimony constituted hearsay or that it so violated standards of admissibility for other-offense evidence as to amount to plain error, I cannot join in reversing appellant's conviction on the grounds enunciated by the majority.

Hearsay

The majority's characterization of Agent Peacock's testimony as "hearsay" represents an unprecedented departure from usual hearsay concepts. F.R.Evid. 801 defines hearsay as "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Agent Peacock's statements at trial were (1) that she personally audited all but two or three of the 163 tax returns prepared by appellant and audited by IRS, and (2) that her audit had determined that 90 to 95 percent of those returns contained overstated itemized deductions disallowed under IRS standards. Agent Peacock obviously testified from her own personal knowledge about the results of tax audits she conducted. In her testimony she neither related nor relied upon out-of-court statements by other persons.

It is too plain for argument that Peacock's testimony as to what she knew herself from the returns she individually audited does not fall within Rule 801's hearsay definition. An examination of the record reveals that all of Peacock's testimony was based on knowledge she personally acquired while auditing the tax returns prepared by Brown. In fact, the majority points to no statement whatever by Agent Peacock which it claims contains hearsay; she mentioned no statements others had made to her during the course of her audit. The majority objects, however, that Agent Peacock's audit necessarily rested on "'proof' of the overstatements through conversations with each of the taxpayers audited." Since her testimony had to have been based directly on the out-of-court statements of these taxpayers who could not be cross-examined, it is said that "a clearer case of hearsay testimony would be difficult to imagine." I find little difficulty in doing so. . . .