United States v. Morrison

• Decision Date: 12 August 2016
• Docket Number: No. 15–10170,15–10170
• Citation: 833 F.3d 491
• Parties: United States of America, Plaintiff–Appellee, v. Gladstone Morrison; Jacqueline Morrison, Defendants–Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

833 F.3d 491

United States of America, Plaintiff–Appellee,

v.Gladstone Morrison; Jacqueline Morrison, Defendants–Appellants.

No. 15–10170

United States Court of Appeals, Fifth Circuit.

August 12, 2016

Leigha Amy Simonton, James Wesley Hendrix, U.S. Attorney's Office, Dallas, TX, for Plaintiff–Appellee.

Phillip Craig Gregory, Gregory Law Firm, P.C., Fort Worth, TX, Tiffany Alex Talamantez, Sorrels, Udashen & Anton, Dallas, TX, for Defendant–Appellant Gladstone Morrison.

Gladstone Morrison, Seagoville, TX, Pro Se.

Tony Nasser, Robert Edward Barnes, Esq., Barnes Law, L.L.P., Los Angeles, CA, Meagan Temple, Bruzzese & Temple, Pittsburgh, PA, Jeffery Charles King, Law Office of Jeffery King, P.L.L.C., Dallas, TX, for Defendant–Appellant Jacqueline Morrison.

Before SMITH, BARKSDALE, and COSTA, Circuit Judges.

GREGG COSTA

, Circuit Judge:

Running a profitable small business is notoriously difficult. But the clients of a tax preparation service run by a husband and wife, Gladstone and Jacqueline Morrison, brought business failure to a new level. Year in and year out, the vast majority of the clients submitted tax returns showing sizable business losses. A federal jury provided the following explanation for this seeming anomaly of unlucky clients: the Morrisons helped their clients prepare returns with fake business losses so the clients could obtain refunds rather than pay the taxes they owed.

That was not the only fraud the jury found. Once they became aware of an IRS investigation into their business, the Morrisons attempted to rid themselves of the problem by selling the business on multiple occasions. Not only did those sales not insulate the Morrisons from tax fraud charges, but they resulted in additional charges of wire fraud because the Morrisons made numerous misrepresentations in connection with these deals, including falsely stating that the business was not the subject of any ongoing investigation.

The Morrisons appeal their convictions for conspiring to submit fraudulent tax returns, aiding and abetting the filing of numerous false returns, and wire fraud in connection with the attempted sales of the business. They both challenge the sufficiency of the evidence. They also raise, among other arguments, separate challenges to the district court's conduct during the trial. Jacqueline contends that the district court impermissibly limited her testimony. Gladstone contends that the district court assisted the prosecution. Finding no reversible error, we affirm.

I.

Jacqueline and Gladstone started a tax preparation firm called Jacqueline Morrison & Associates, or JMA, in 2005. Jacqueline was the accountant. Gladstone came from an engineering background and taught himself how to prepare taxes. The business started small and included staff who had never prepared taxes before, including the Morrisons' family and friends.

JMA first came to the attention of the IRS because it filed tax returns without W–2 forms. But in 2008, during a compliance visit following up on the W-2 issue, an IRS agent noticed that there was an unusually high number of Schedule C tax forms being filed on behalf of JMA clients. Schedule C forms are used to record income or losses from a sole proprietorship. Although small businesses have a high failure rate, it is unusual for a Schedule C form to show substantial losses for multiple years because most personal businesses would not continue to operate with recurring annual losses. Although consistent losses do not make for good business, they do reduce tax liability. And for a number of JMA clients, the Schedule C losses reduced income enough to make them eligible for the earned income tax credit.

The vast majority of JMA's clients filed Schedule C forms, ranging from 92.5% of clients in 2006 to 74.4% in 2009. This is a much higher rate than the general population of taxpayers. Nationally only about 21% of taxpayers filed Schedule C forms, with that number rising slightly to just over 23% in the Dallas–Fort Worth metroplex where JMA was located. The returns of JMA clients look even more suspicious when the numbers on those Schedule C forms are considered. Between 2006 and 2009, an average of 61.4% of JMA clients filing Schedule Cs showed losses, whereas only 4.6% of national Schedule C filers showed losses (and 6.5% of those in the Dallas–Fort Worth region).

Many of JMA's clients testified at trial about how the losses reported on their returns were grossly overstated or simply fictitious. For example, Rosland McFadden was a full-time teacher who also sold Avon and Mary Kay products on a small scale. In 2009, her Schedule C form showed income of $2,508 from “cosmetic services” and expenses of $39,243 for a net loss of $36,735. Her JMA-prepared Schedule C forms showed similar losses in prior years even though she testified that she had no expenses from the side business.

JMA reaped a significant benefit from the creation of fraudulent Schedule C forms. It charged higher fees for the creation of the Schedule C. The refunds that often resulted were an easy source of payment to JMA as its fees were debited directly from the refunds. Perhaps most significantly, submitting returns with the false losses fostered loyalty from customers who liked the refunds and referred others to JMA.

An undercover IRS agent's visit to JMA also revealed how the business worked. Given the information the agent provided when he asked JMA to prepare his taxes, his refund should have been about $200. But when he feigned disappointment at that low number, a JMA employee suggested the refund could be increased if he had an outside business. Despite the agent responding that he had no such business, the JMA employee created a daycare business and fabricated its expenses. The result was a refund of more than $2,000.

The seriousness of the IRS investigation became apparent when agents executed warrants at JMA's offices and the Morrisons' home in May 2010. About a month later, the Morrisons tried to distance themselves from what they now realized was a problem. They agreed to a franchise agreement with Express Tax, an H&R Block subsidiary, under which they gave up some ownership in the business, which would now be an Express Tax franchise, for $295,000. As part of the deal, Express Tax also obtained JMA's client list. During the negotiations, the Morrisons misrepresented that they were not under investigation.

After entering into the franchise agreement with Express Tax, the Morrisons sought a purchaser for the new franchisee and found Vernaljay Haney. After buying the business from the Morrisons, Haney met with Express Tax and realized he had purchased some things from the Morrisons that they no longer owned. The Morrisons had agreed to sell their client list and the whole company to Haney, but Express Tax already owned the client list and a 22.5% interest in the company. After Haney brought this problem to their attention, the Morrisons reduced the purchase price. When Haney's third installment of that price was due, Express Tax advised Haney not to pay, asserting that it, rather than the Morrisons, was entitled to the payment. Haney agreed with Express Tax and did not make the third payment to the Morrisons.

But Gladstone devised another way to receive the third installment. He asked for Haney's identification number for electronic tax filing purportedly because he was going to help Haney purchase and register tax software. Instead, Gladstone used Haney's number to change the location where JMA's preparer's fees would be deposited, rerouting the money from the business' account (now controlled by Haney) to the Morrisons'. Over $100,000 was transferred to the Morrisons before Haney realized the accounts had been changed.

After the unauthorized change of accounts, Haney left JMA, and the Morrisons sought a new purchaser. They found David Awe. In their negotiations with Awe, the Morrisons again signed a contract stating: “there are no legal actions, suits, claims, investigations, arbitrations or other legal administrative or governmental proceedings pending or threatened against the seller, nor does the seller know or have any reasonable grounds to know of any basis for the foregoing.”

After Awe assumed ownership, several clients reported they were being audited. The Morrisons assured Awe this was just “part of the normal audit process.” Awe's own investigation revealed that nearly all the prior year's returns had Schedule Cs filed. He stopped the practice of filing fraudulent Schedule Cs which resulted in the loss of clients. Once Awe learned of the extent of the fraud, he told the Morrisons he was not going to make further payments until after he evaluated the business at the end of tax season. Ultimately Awe did not make further payments.

The IRS investigation resulted in a grand jury charging the Morrisons with conspiracy to prepare false returns (18 U.S.C. § 371

and 26 U.S.C. § 7206(2) ), aiding and abetting in the assisting of preparing fraudulent returns (18 U.S.C. § 2 and 26 U.S.C. § 7206(2) ), and multiple counts of wire fraud (18 U.S.C. § 1343 ).

After a three day trial, a jury found the Morrisons guilty on all counts. The district court sentenced both defendants to a below-Guidelines prison term of 187 months. Both of them were also ordered to pay restitution of $17,807,106.

II.

The Morrisons challenge the sufficiency of the evidence on all counts, but Jacqueline's challenges to her conspiracy and wire fraud convictions are not sufficiently developed for us to consider. United States v. Thames , 214 F.3d 608, 611 n.3 (5th Cir. 2000)

(a party waives an issue if he fails to adequately brief it); see also FED. R. APP. P. 28(a)(8)(A) (Appellant's brief must contain his “contentions and the reasons for them, with citations to the authorities and parts of the record on which the appellant relies....”). For the other convictions, we review the sufficiency of the evidence de novo . United States v. Churchwell , 807 F.3d 107, 114 (5th Cir. 2015...