State v. Steed

• Decision Date: 16 May 2014
• Docket Number: No. 20110389.,20110389.
• Citation: 325 P.3d 87,760 Utah Adv. Rep. 24
• Court: Utah Supreme Court
• Parties: STATE of Utah, Plaintiff and Appellee, v. Joan A. STEED and Frank J. Steed, Defendants and Appellants.

325 P.3d 87

760 Utah Adv. Rep. 24

STATE of Utah, Plaintiff and Appellee,

v.Joan A. STEED and Frank J. Steed, Defendants and Appellants.

No. 20110389.

Supreme Court of Utah.

May 16, 2014.

Sean D. Reyes, Att'y Gen., Andrew F. Peterson, Asst. Att'y Gen., Salt Lake City, for appellee.

Max D. Wheeler, Rodney R. Parker, and Richard A. Van Wagoner, Salt Lake City, for appellants.

Chief Justice DURRANT, opinion of the Court:

INTRODUCTION

¶ 1 Following a criminal jury trial, Frank and Joan Steed (the Steeds), husband and wife, were each convicted of three counts of failure to render (file) a proper tax return and one count of engaging in a pattern of unlawful activity. They were acquitted of four counts of tax evasion and two additional counts of failure to file a proper tax return. The failure-to-file statute required proof that the Steeds (1) failed to file, and (2) that they did so with one of three specific intents. At the close of the State's case, the Steeds submitted a Motion to Dismiss based on the State's failure to provide sufficient evidence of two of the three specific intent alternatives. We conclude that the State presented insufficient evidence of these two contested intent alternatives, and therefore the court erred in denying the Steeds' Motion to Dismiss. The court should have submitted only the one remaining intent alternative to the jury.

¶ 2 Ultimately, the failure-to-file charges were presented to the jury, but instead of submitting the single supported intent alternative to the jury, the court excluded that alternative and submitted the two unsupported intent alternatives to the jury. The excluded intent alternative was the only basis for conviction that was supported by the State's evidence, so we also conclude that there was insufficient evidence to support the verdicts. As a result, the court erred in denying the Steeds' Motion to Arrest Judgment. We therefore reverse each of the Steeds' failure-to-file convictions and remand with instructions to enter a judgment of acquittal. We also reverse the pattern counts, which were contingent on these convictions. Because we reverse on sufficiency of the evidence grounds, we do not reach the Steeds' remaining arguments.

BACKGROUND

¶ 3 In 2000, the Steeds moved to Utah from Mississippi to continue their real estate development business. Once in Utah, they settled in the Uintah Basin and began to develop “mini-ranch” home sites. The Steeds formed seven different Utah corporations, each of which was involved in various aspects of the business, including building cabins, operating motels, and developing culinary water systems. They also hired an accountant, Roger Oliphant, who helped them file tax returns in both 2001 and 2002.

¶ 4 Several years later, the Utah State Tax Commission (Commission) conducted an audit of the Steeds' sales tax collection. In the course of the audit, the auditor requested copies of the Steeds' tax returns for 2003–2006, as well as supporting documentation. Mr. Oliphant had been unable to file the Steeds' tax returns for these years, allegedly because the Steeds had failed to provide all of the necessary receipts and information. The sales tax auditor made approximately ten separate requests for the returns and other documents; when the requests went unanswered, the auditor referred the matter for a criminal investigation.

¶ 5 Agent Scott Mann of the Commission led the investigation. He concluded that the Steeds had not filed personal tax returns from 2003–2007. An information was then filed against the Steeds in 2008, charging each of them separately with five counts of failing to file a state tax return for the years 2003–2007, four counts of tax evasion for the years 2003–2006, and one count of a pattern of unlawful activity.

¶ 6 Before trial, the Steeds filed a motion asking the court to require the State to prove a tax deficiency as an element under the failure-to-file and tax evasion statutes. The trial court, consistent with our opinion in State v. Eyre,¹ concluded that the tax evasion statute requires proof of a tax deficiency, but it also concluded that the failure to file statute does not require proof of a tax deficiency. In a later ruling, the trial court also ordered the State to disclose its tax calculations to the Steeds so they could prepare their defense based on the State's proposed estimate. In response, the State provided a one-page summary of its calculated income figures for the Steeds, without any explanation of how the figures were calculated. The Steeds then requested a more detailed computation of the State's proposed adjusted gross income (AGI) figures. The State provided a new chart, though it provided no additional information about the State's method of calculating the Steeds' AGI.

¶ 7 The day before trial was scheduled to begin, and as a result of the State's noncompliance, the Steeds moved to preclude the State from offering evidence of the Steeds' income at trial. The trial court granted the motion. But on the first scheduled day of trial, April 27, 2010, the court reversed its ruling by concluding that the State may not have fully understood the prior orders. As a result, the court struck the trial date and gave the State another opportunity to provide the Steeds with the necessary calculations. Just over two months later, on July 7, 2010, the State identified David Bateman as its expert witness and provided the Steeds with a copy of his report, which was later used extensively at trial. Trial was then scheduled to commence just over two months later, on September 14, 2010.

¶ 8 At trial, Mr. Bateman explained the calculations in his report. He began by identifying $45 million in total deposits among the Steeds' various accounts. He then eliminated certain deposits from this figure, including intercompany transfers, deposits from unknown payors, uncategorized deposits, deposits less than $1,000, and checks written for under $1,000. He then categorized the Steeds' various expenses in order to subtract them from this figure and calculate the Steeds' income for each year. Particularly, Mr. Bateman testified that “[if] there was a question as to whether it might be a business expense or a personal expense, it's in the personal category.” And by his calculations, the Steeds had an alleged total of $8.6 million in personal expenses over the years in question. By his calculations, the Steeds' “bottom line” income totaled more than $16 million for the years in question. On a large chart presented to the jury, Mr. Bateman claimed that the Steeds' “taxable income” was $3,512,006 in 2003; $4,341,695 in 2004; $5,779,525 in 2005; and $2,912,117 in 2006.

¶ 9 On cross examination and in rebuttal, the Steeds disputed many of Mr. Bateman's categorized “apparent personal expenses,” noting that millions of these purported personal expenses actually included costs for cabin construction, infrastructure, a $3 million water tank, and other business expenses. In response, Mr. Bateman testified that even if he had recategorized all of these expenses as business expenses, the Steeds would still have had a combined total of $5.5 million in net income for the years in question. Importantly, Mr. Bateman was only allowed to testify about the Steeds' income and not to calculate a tax. And Mr. Bateman was careful to avoid claiming that he was calculating a tax, despite his “estimated taxable income figure,” noting carefully that he had no tax experience.

¶ 10 Several other witnesses testified, including Agent Mann, who asserted that the Steeds received multiple large payments to both their business and personal deposit accounts. He then testified that, if these payments constituted gross income, the Steeds were required to file a tax return. The State also called Arlene Jones to testify. She was an employee who worked for Mr. Oliphant, the Steeds' former accountant. She testified that, based on the information that the Steeds had provided to her office, the Steeds owed thousands of dollars in taxes for 2003 through 2006. She also testified that the Steeds had told their accountants that they did not want to pay any taxes at all. Finally, Delores Furniss, custodian of records for the Commission, testified that the Steeds did not file returns for the years in question. She also testified that individuals must file a return if their gross income exceeds certain threshold amounts, even if no federal return was filed.

¶ 11 Before trial had commenced, the Steeds submitted a proposed elements instruction that was consistent with how the court interpreted the failure-to-file statute. The elements instruction ultimately submitted to the jury was consistent with the Steeds' proposed instruction. This instruction was problematic in that it permitted the jury to convict on only two of the three possible intent alternatives set forth in the statute, excluding the third alternative—the “intent to evade ... a[ ] requirement of Title 59.” In effect, this meant the State had to prove that the Steeds (1) intentionally failed to file, and (2) did so with one of two included specific intents—either the intent to evade a tax or the intent to evade a “lawful requirement of the Utah State Tax Commission.”

¶ 12 The Steeds conceded multiple times that they earned sufficient income each year to trigger the filing requirement, including in their briefing before us: “[i]t was never disputed that the defendants had sufficient income to trigger the filing requirement.” At trial, the Steeds conceded the same—that they had sufficient income to trigger the filing requirement. But the fact that a taxpayer has gross income, which triggers the filing requirement, does not necessarily mean that the same taxpayer has tax liability, which is a separate requirement altogether. And the Steeds argued in a Motion to Dismiss that the State failed to present evidence either of a tax deficiency or of their intent to evade a “lawful requirement” of the...