People v. Hagen

• Citation: 967 P.2d 563,19 Cal.4th 652,80 Cal.Rptr.2d 24
• Decision Date: 07 December 1998
• Docket Number: No. S063524,S063524
• Parties: , 967 P.2d 563, 98 Daily Journal D.A.R. 12,385 The PEOPLE, Plaintiff and Respondent, v. Johnny Ardean HAGEN et al., Defendants and Appellants
• Court: United States State Supreme Court (California)

Page 24

80 Cal.Rptr.2d 24

19 Cal.4th 652, 967 P.2d 563, 98 Daily Journal D.A.R. 12,385

The PEOPLE, Plaintiff and Respondent, v. Johnny Ardean HAGEN et al., Defendants and Appellants.

No. S063524.

Supreme Court of California

Dec. 7, 1998.

Rehearing Denied Jan. 20, 1999.

F. Thos. Caporael, Redlands, and Phillip I. Bronson, Encino, under appointments by the Supreme Court, for Defendants and Appellants.

Daniel E. Lungren, Attorney General, George Williamson, Chief Assistant Attorney General, Gary W. Schons, Assistant Attorney General, Garrett Beaumont, Carl H. Horst and Steven T. Oetting, Deputy Attorneys General, for Plaintiff and Respondent.

WERDEGAR, Justice.

Defendant Johnny Ardean Hagen was convicted of three counts of willfully making and subscribing a tax return without belief in its material truth, a felony. (Rev. & Tax.Code, former § 19405, subd. (a)(1).) ¹ The questions presented for review are whether the trial court properly instructed the jury on the meaning of willfulness in this statute; whether the convictions were supported with substantial evidence of willfulness; and whether the court erred in failing to instruct sua sponte on an asserted lesser included offense, the misdemeanor defined in former section 19401, subdivision (a). ² Concluding the court committed no reversible instructional error and the convictions are supported by substantial evidence, we will affirm the judgment of the Court of Appeal, which affirmed the convictions.

FACTUAL AND PROCEDURAL BACKGROUND

The convictions relate to tax returns for the years 1988, 1989 and 1990. During that time defendant Johnny Ardean Hagen (Johnny) was employed as an officer of the California Highway Patrol. His wife, defendant Patricia Hagen (Patricia), was the office manager of an insurance agency. As part of her ordinary duties, Patricia deposited cash received from clients into the agency's trust account and recorded the amount of cash so deposited. These deposits were made about once a week. In June of 1990, David Deveny, who owned and operated the insurance agency, noticed a discrepancy between recent revenues and bank deposits. He then compared the agency's records of cash receipts against the records of cash bank deposits.

Deveny found that in 1988 approximately $64,000 more cash was shown received than was deposited, in 1989 about $57,000 more and, through June 30, 1990, about $12,000 more. A certified public accountant who later reviewed the agency's records testified that a total of about $130,000 in cash receipts had not been deposited.

The Hagens deposited virtually all their wages, which were paid by check, into a joint checking account at Hemet Federal Savings and Loan Association. In addition, they made cash deposits into this account of $19,694 in 1988, $36,690 in 1989, and $14,277 in the first six months of 1990. Johnny personally made five cash deposits of $1,000 or larger in 1989-1990.

Both of the Hagens wrote checks on the account, Johnny's totaling more than $40,000 in the two and one-half years in question. The couple's disbursements from their savings and loan account exceeded deposits by check to the account by over $15,000 in 1988, $11,000 in 1989, and $24,000 in 1990. In addition, Johnny bought a horse trailer in April 1989 for about $4,000, paying in cash, and in October 1989 paid $2,100 in cash for a teller's check from their savings and loan. In 1988 through June 30, 1990, the Hagens made no cash withdrawals from the savings and loan's automated teller machines.

On their state and federal tax returns, the Hagens reported income of $55,238 in 1988, $56,673 in 1989, and $64,573 in 1990. In 1988, they reported interest income and a state tax refund in addition to their employment wages; in 1990 they reported an individual retirement account (IRA) distribution and unemployment compensation received by Patricia, as well as wages from employment. Their tax preparer testified that as part of his standard interview he had asked the Hagens, " 'Is there any other income?' " Nonetheless, the Hagens did not report any other income, including any income from theft.

Deveny confronted Patricia with evidence of the missing money on July 11, 1990. Patricia said she "couldn't have taken that much," but admitted she might occasionally have taken money for gas. She said she did not want to, or could not, go to prison. A week later, Deveny met with both Hagens. Johnny asked Deveny how they could solve the "problem" and offered to assign Deveny a deed to real property in Mariposa, an offer Deveny declined. Still later, Patricia told Deveny she was cashing in an IRA and would send him the proceeds; however, he never received any such money.

In defense, Patricia testified that others, especially including Deveny, had access to and collected the cash receipts, and that she merely deposited the cash she was given and recorded that amount, without checking it against receipt records. Patricia, however, was unable to explain the large cash deposits she and her husband made to their checking account or to identify the source of cash for the $4,000 horse trailer. Johnny did not testify.

Johnny and Patricia were each convicted of three counts of filing a false tax return. (Former § 19405(a)(1).) Patricia was also convicted of grand theft, with a finding the property taken exceeded $100,000 in value. (Pen Code, §§ 487, 12022.6.) The jury was unable to reach a verdict on the grand theft charge against Johnny, and the court declared a mistrial on that count.

The Court of Appeal affirmed the judgments. The court rejected defendants' contention the trial court erred by instructing the jury with CALJIC No. 1.20, which, following the language of Penal Code section 7, defines "willfully" as simply "with a purpose or willingness to commit the act or to make the omission in question." In doing so, the appellate court expressly disagreed with the decision in People v. Smith (1984) 155 Cal.App.3d 1103, 1157, 203 Cal.Rptr. 196, which adopted the definition developed by the United States Supreme Court in the interpretation of federal tax evasion statutes, according to which willfulness means the intentional violation of a known legal duty. The Court of Appeal then found the evidence sufficient to show willfulness under the Penal Code section 7 definition. Finally, on the question of whether former section 19401(a), misdemeanor filing of a false return, is a lesser included offense of the charged felony, former section 19405(a)(1), the court held it was not, because former section 19401(a) requires We granted Johnny's petition for review.

the return or other information actually be false, while, in the Court of Appeal's view, the felony, former section 19405(a)(1), can be violated by the filing of a true return that the taxpayer believes to be false as to some material matter.

DISCUSSION

I. The Meaning of "Willfully" in Former Section 19405(a)(1)

Former section 19405(a)(1) punished as a felon any person who "Willfully makes and subscribes any return, statement, or other document, that contains or is verified by a written declaration that it is made under the penalties of perjury, and that he or she does not believe to be true and correct as to every material matter." (As amended by Stats.1993, ch. 826, § 6, repealed by Stats.1994, ch. 1243, § 58; see now § 19705, subd. (a)(1) [same].)

Prior to the decision in this case, the only published appellate decision construing "[w]illfully" in former section 19405(a)(1) was People v. Smith, supra, 155 Cal.App.3d 1103, 203 Cal.Rptr. 196 (Smith ), disapproved on other grounds in Baluyut v. Superior Court (1996) 12 Cal.4th 826, 832-835, 50 Cal.Rptr.2d 101, 911 P.2d 1. Smith was charged with willfully underreporting income in violation of former section 19405 and former section 19406, ³ an overlapping tax evasion statute that requires intent to evade taxation but does not require verification under penalty of perjury. Because of these differing elements, the Smith court held former section 19405(a) was not necessarily included in former section 19406. (Smith, supra, at pp. 1152-1157, 203 Cal.Rptr. 196.) The court also concluded, however, that willfully in both statutes meant the same thing: that the defendant "voluntarily and intentionally violated a known legal duty." (Id. at p. 1157, 203 Cal.Rptr. 196.) Smith relied for this definition on United States Supreme Court authority interpreting parallel federal tax fraud statutes. (Ibid.) We turn briefly to those federal laws and decisions.

Section 7206(1) of the Internal Revenue Code (26 U.S.C. § 7206(1)) is virtually identical to our former section 19405(a)(1) and present section 19705, subdivision (a)(1). It punishes as a felon any person who "[w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter...." (Int.Rev.Code, § 7206(1).)

In United States v. Bishop (1973) 412 U.S. 346, 93 S.Ct. 2008, 36 L.Ed.2d 941 (Bishop ), the high court comprehensively addressed the meaning of "willfully" in Internal Revenue Code section 7206(1) and other criminal tax fraud statutes. Echoing its earlier observation, in United States v. Murdock (1933) 290 U.S. 389, 394-395, 54 S.Ct. 223, 78 L.Ed. 381 (Murdock ), that the meaning of "willfully" varies and must be determined from the statutory context (Bishop, supra, at p. 356, 93 S.Ct. 2008), the court held the term has a uniform meaning in the federal criminal tax statutes; it "generally connotes a voluntary, intentional violation of a known legal duty." (Id. at p. 360, 93 S.Ct. 2008.) " 'It is not the purpose of the law to penalize frank difference of opinion or innocent errors made despite the exercise of reasonable care.' [Citation.] Degrees of negligence give rise in the tax system to civil penalties. The requirement of...