United States v. Sorensen

• Citation: 801 F.3d 1217
• Decision Date: 14 September 2015
• Docket Number: No. 14–1366.,14–1366.
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Jerold R. SORENSEN, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

801 F.3d 1217

UNITED STATES of America, Plaintiff–Appellee

v.Jerold R. SORENSEN, Defendant–Appellant.

No. 14–1366.

United States Court of Appeals, Tenth Circuit.

Sept. 14, 2015.

Sean Connelly, Reilly Pozner, LLP, Denver, CO; (Ashley Blair Arnett and Michael Louis Minns, Michael Louis Minns, PLC, Houston, TX, with him on the briefs), (Gary Lozow, Foster Graham Milstein & Calisher, LLP, Denver, CO, with him on the briefs), for Defendant–Appellant.

James C. Murphy, Office of the United States Attorney, Denver, CO; (John F. Walsh and Matthew T. Kirsch, Office of the United States Attorney, Denver, CO, with him on the brief); for Plaintiff–Appellee.

Before PHILLIPS, BALDOCK, and EBEL, Circuit Judges.

Opinion

PHILLIPS, Circuit Judge.

From 2002 to 2007, Jerold Sorensen, an oral surgeon in California, concealed his income from the Internal Revenue Service (“IRS”) and underpaid his income taxes by more than $1.5 million. He did so by using a “pure trust” scheme, peddled by Financial Fortress Associates (“FFA”), an entity he found on the Internet. After attending an FFA seminar and consulting with its representatives, he began depositing his dental income into these trusts without reporting all of it to the IRS as income. Over the years, he also retitled valuable assets in the trusts' names. In 2013, after a series of proffers, the government charged him with violating 26 U.S.C. § 7212(a) for corruptly endeavoring to obstruct and impede the due administration of the internal-revenue laws. A jury convicted him of the charged offense.

On appeal, Sorensen raises seven arguments: (1) his conduct amounts to evading taxes so it is exclusively punishable under 26 U.S.C. § 7201, and not under § 7212(a) ; (2) the district court erred by refusing his offered instruction requiring knowledge of illegality; (3) the district court erred by giving the government's deliberate-ignorance instruction; (4) the district court erred by instructing the jury that it could convict on any one means alleged in the indictment; (5) the district court erred by refusing to allow him to provide certain testimony from a witness in surrebuttal; (6) the prosecution misstated evidence in its closing rebuttal argument; and (7) cumulative error. Exercising jurisdiction under 28 U.S.C. § 1291, we conclude that none of Sorensen's arguments merit relief. We affirm his conviction.

I. BACKGROUND

In 2000, Sorensen began looking for “a coherent sound business plan for [his] oral surgery practice....” Appellant's App. vol. III at 585. He found FFA after online research. FFA offered seminars advising attendees how to reduce or even eliminate their tax liabilities using “Pure Trust Organizations” (“PTOs”). Under this system, clients learned to create so-called PTOs and open bank accounts in the trusts' names to hold personal income and title to the clients' assets. The clients could then deduct the money and value of the assets on their tax returns, lowering their taxable income.

Sorensen did not know anyone else who used FFA's programs. So in 2000, before attending an FFA seminar, he called FFA official Ed Akehurst. Akehurst referred him to FFA's attorney, Melissa Sugar, a Denver attorney with a L.L.M. in tax law. Sorensen and Sugar spoke by phone several times before he attended the seminar. Sorensen testified that Sugar assured him that the program was legal. He also testified that he was impressed with Sugar because of her education and her ability to explain the program. Sugar never billed Sorensen for these calls.

In October 2000, Sorensen attended his first FFA seminar in Atlanta, Georgia. At the seminar, he learned that FFA offered two different programs. The first was for clients wishing to “drop out” of the tax system altogether, and the second was for clients wishing to stay in the tax system but to limit their tax liabilities by using FFA's pure-trust program. Sorensen chose the latter. Several seminar speakers explained different aspects of the program. One speaker presented a letter from the IRS, supposedly supporting the pure-trust system. Sugar also spoke at the seminar, explaining various banking aspects of the trusts. A third speaker, Akehurst, cautioned that FFA clients should not use their Social Security numbers in connection with their PTOs—supposedly to avoid identity fraud. Sorensen left the seminar impressed.

At trial, Special Agent Michelle Hagemann, a criminal investigator with the IRS, explained how FFA's PTO system worked. Using FFA's services, its clients would first establish trusts. They would then pay Sugar, or another FFA affiliate, to open a bank account in the trusts' name. In Sorensen's case, he named the bank account Northside Management. Although the bank account would, on paper, be in the name of the trusts, the clients themselves had authorization to withdraw funds from the bank account, meaning they could deposit or write checks from the account and use it as they pleased. Clients would deposit money (such as earned income) into the trusts' bank account and could then access the money at will.

FFA clients would also title and retitle personal assets, such as homes and automobiles, in the trusts' names. For example, Sorensen retitled his personal residence, dental practice, and dental equipment—all of which he owned free and clear of mortgages or debt—in the names of his trusts, and then had his dental practice “pay” the trusts to “rent” his home, dental practice, and equipment. Using this approach, he began depositing dental income directly into the Northside Management bank account. After this, he would report these expenditures as business-expense deductions¹ on his personal tax returns, avoiding taxes on those amounts. Although the deductions looked legitimate, the trusts were actually shell entities.² Taxpayers legally cannot take business-expense deductions for payments to shell entities they control. See 26 U.S.C. § 183. This scheme enabled Sorensen to avoid reporting his true income to the IRS. For example, for tax year 2002, Sorensen reported $107,500 in income.

After attending the seminar, Sorensen paid FFA $9,000 to create six pure trusts: OMS Management, OMS Tools, OMS Properties, Olmec Holdings, Olmec Properties, and Olmec Enterprises.³ Sorensen hired Sugar to open and maintain the Northside Management bank account, which was set up in the trusts' names. She did so on September 29, 2000. Soon afterward, Sorensen began depositing his dental income into this account. Sorensen was the managing director of the trusts and controlled them. Although the account showed activity from January 2002 to September 2008, an IRS employee testified that the IRS has no record of any tax returns ever being filed for any of the trusts.

Sorensen paid Sugar about $250 per year for her services, including administering the Northside Management bank account and wiring money as needed. Because Northside Management was a non-interest bearing checking account, the bank was not required to report the account to the IRS. At trial, Sorensen testified that he “didn't pay attention to” his bank statements enough to know whether this account, holding more than $1 million, was even accruing interest. Appellant's App. vol. III at 691. Although non-interest bearing, the Northside Management account did have an Employer Identification Number (“EIN”) associated with it, with Sugar listed as the trustee. An employee of the IRS testified that the IRS had received an application from Northside Management requesting an EIN, and that the application had a notice obligating Northside Management to file a Form 1065 (partnership tax return). Even so, Northside Management never filed a Form 1065—as shown by the IRS's Certificate of Lack of Record Form 3500.

Although Sugar was listed as the “Trustee” of the Northside Management account, Sorensen had signatory authority over it as an “administrative assistant” to Sugar. Regardless of his title, Sorensen controlled the account, and he signed all of the checks written from the account.

By late 2001, Sorensen had transferred to the trusts the titles to valuable assets that he owned debt-free. These included his California home, his dental building, and his dental equipment. In addition to these asset transfers, from 2002 to 2007, Sorensen deposited into the trusts hundreds of thousands of dollars of dental income. Although Sorensen testified that he knew that using trust money from the Northside Management account for personal use created tax consequences (meaning he had to pay taxes on that money), he still did so without paying taxes. For instance, Sorensen used that money to build and furnish a second personal residence in Utah valued at well over a million dollars, to purchase automobiles, and to give gifts to family members. At trial, he testified that the second home in Utah was an investment for the trusts.

Soon after establishing the pure trusts, Sorensen approached his longtime accountant and family friend, Rita Sharp, seeking assurances about FFA's pure-trust program. Sharp testified that she had difficulty understanding the program and that Sorensen told her that an FFA-seminar speaker had said that most accountants would not understand it. After reviewing the program, Sharp was so concerned that she did some outside research, including indirectly reaching out to the IRS. After hearing back, she reported to Sorensen that the IRS “considered [the pure trusts] a scheme.” Appellant's App. vol. II at 291–92. She informed Sorensen that if he continued to use the PTO program, she would no longer prepare his tax returns. At trial, she testified that “[t]he point that struck me as most obvious was the fact that we didn't have to get a Federal ID number to establish this trust.” Appellant's App. vol. II at 288. She explained to Sorensen that despite FFA's direction, entities must always obtain one for reporting purposes. In 2002, she prepared Sorensen's tax returns one last time. In this final return, she included a disclosure...