U.S. v. Chesson, 90-4416

• Decision Date: 03 June 1991
• Docket Number: No. 90-4416,90-4416
• Citation: 933 F.2d 298
• Parties: -5065, 92-1 USTC P 50,230 UNITED STATES of America, Plaintiff-Appellee, v. Lilton CHESSON, Jr. and Randall Chesson, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 298

933 F.2d 298

68 A.F.T.R.2d 91-5065, 92-1 USTC P 50,230

UNITED STATES of America, Plaintiff-Appellee, v. Lilton CHESSON, Jr. and Randall Chesson, Defendants-Appellants.

No. 90-4416.

United States Court of Appeals, Fifth Circuit.

June 3, 1991.

Michael S. Fawer, Denise LeBoeuf, Dallas, Tex., for Lilton Chesson, Jr.

Thomas L. Lorenzi, Godwin, Roddy, Lorenzi, Watson & Sanchez, Lake Charles, La., for Randall Chesson.

William J. Flanagan, First Asst. U.S. Atty., Joseph S. Cage, Jr., U.S. Atty., Shreveport, La., for U.S.

Appeal From the United States District Court for the Western District of Louisiana.

Before GOLDBERG, HIGGINBOTHAM, JONES, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Lilton Chesson, Jr. and his brother, Randall Chesson, appeal their convictions on three counts of tax evasion, 26 U.S.C. Sec. 7201, and one count of conspiracy to obstruct the tax collecting function of the Internal Revenue Service, 18 U.S.C. Sec. 371. At trial the prosecutor argued to the jury that the Chessons channeled through their privately-held companies various personal and church-related expenditures and that in the years 1981 through 1983 they filed corporate and personal tax returns treating such non-corporate expenditures as deductible business expenses. On appeal the Chessons argue that the government failed to adduce sufficient evidence of willfulness. They contend that it was never shown that they attempted in any manner to conceal the fact that the corporations were paying these non-business expenses; to whatever extent they knowingly allowed the corporations to bear these expenses, they argue that they were reasonably relying upon their accountants to correct any errors in classification. Relatedly, the Chessons dispute the existence of a tax deficiency. They contend that had the accountants performed as reasonably expected, there would have been no additional tax obligation. We affirm.

I.

Lilton Chesson, Sr. founded Chesson Oil Corporation in 1970. In 1974 Lilton Chesson, Jr. took over active control of the business and, in the same year, formed Cameron Offshore Services, a sister company. Both companies were closely-held corporations engaged in the oil and gas production and marketing business. Lilton Chesson was the chief executive officer of the related companies in the years in issue. Between them, Lilton Chesson and his brother Randall were the companies' sole shareholders. Randall assisted Lilton in managing the affairs of the family businesses, though as of 1975 Randall was also the full-time pastor of Parkview Baptist Church.

Gladys Harbour was the office manager and ranking administrative employee for Chesson Oil and Cameron Offshore Services. The field supervisors of the various company terminals, as well as the head of the accounting department, Kathy Baham, reported directly to Harbour, or to Lilton or Randall Chesson.

The companies shared one accounting department, although different employees worked exclusively for and were paid by one or the other of the corporations. The companies needed a relatively large accounting staff because they handled a large volume of discrete purchase and sale transactions. It was the job of the accounting staff to keep close track of accounts payable and receivable. In the years at issue the companies processed as many as 10,000 invoices for purchases per year. Files were kept by vendor of all accounts payable. Invoices received in the main office would be stamped with a processing block with all information needed for payment. This information included: (1) the company to be billed--either Chesson Oil, Cameron Offshore, or one of their subsidiaries; (2) the terminal involved; (3) the date; (4) the account code number; (5) the approving authority; and (6) a description of the item or services purchased.

Invoices would be coded by company in the accounting department and then sent out to the appropriate terminal for approval. Lilton and Randall Chesson and Gladys Harbour had the authority to approve invoices in the main office, and each field supervisor had authority to approve invoices at the terminals. Once they were approved and a description of the services entered, the invoices would be sent back to the accounting department. There they would be coded, journalized, and set up for payment. Coding decisions were usually made by the accounts payable supervisors. When they had questions they would go to Kathy Baham, who in turn directed her questions to Gladys Harbour or either of the Chessons.

Because of the potential for confusion of overlapping corporate entities, Gladys Harbour directed the accounting personnel to be vigilant to ensure that all invoices were charged to the correct corporate entity and that the invoices so indicated. In the earlier years invoices addressed to the wrong entity would be returned to the vendor with instructions to create a new, corrected invoice. As the company grew it became apparent that these procedures could no longer assure prompt payment on all accounts payable. Thus, at the direction of Lilton Chesson, Gladys Harbour instructed the accounting staff to make the necessary modifications of invoices internally. Every paid invoice, with the check stub, was filed according to vendor.

At least from 1981 through 1983, the corporations paid a wide variety of Lilton's and Randall's personal expenses. These expenses included personal travel, vehicle repair, sporting goods, home maintenance and improvements, home furniture, electronic equipment, legal fees, jewelry, as well as other personal items billed to their corporate American Express cards. The accounting department knew that the corporation was paying these personal expenses. Such invoices, many patently relating to personal items, were routinely processed and paid in the same manner as legitimate business expenses. The invoices were also filed in the same way, by vendor, and clearly labelled.

All work done on Lilton's or Randall's personal residences was supervised by Rodney Guidroz, the field supervisor of the Chloe terminal. When an invoice for such work came to the company it was sent to Guidroz for approval. In filling out the processing stamp Guidroz would normally put the initials "LC" or "RC" in the space allotted for description of the purchase. This was Guidroz's code for work done at either Lilton's or Randall's home. Occasionally, invoices for personal items would be sent to Randall or Lilton at their homes. As a matter of routine, the accounting department would change the addressee on these invoices in the same way it changed invoices addressed to the wrong corporate entity. Each of the Chesson employees who testified denied ever being told to conceal the fact that the corporation was paying for personal items and services for Lilton and Randall Chesson.

In 1980 Parkview Baptist Church began to renovate and reconstruct the church and its school. The contributions of church members to the building fund were modest compared to the cost of the project. But it was understood by the church that Randall and Lilton would supplement the building fund as necessary. From 1981 through 1983 the Chessons through their corporations paid nearly $700,000 in project costs. These payments were treated by the Chessons and the church as a gift.

It was also common knowledge among Chesson employees that the company was paying for the construction of the new church and school. Lilton Chesson met with Rodney Guidroz and David Stayshich, a staff engineer, and informed them that this venture would be undertaken, in part, by company employees and paid for, in whole, by company funds. The new church structures were designed by Stayshich. Rodney Guidroz functioned as the general contractor for the project. He and his subordinates did much of the carpentry work but they also subcontracted certain specialized jobs. Lilton told Guidroz to charge the company for these outside costs and, for accounting purposes, to use the designation "R & M," indicating the repairs and maintenance account, on all invoices. At a later date Lilton directed Guidroz to begin billing church construction costs to Cameron Offshore instead of Chesson Oil.

Again, invoices were sometimes addressed to the Parkview Baptist Church. As with the other invoices, these would be changed to conform the addressee to the paying entity. Even after these changes, many invoices plainly related to work done for the church. Several invoices mentioned the name of the church in the description. Some also contained words evidencing that they were church-related expenses--words such as "sanctuary," "alter," or "pew." While addressee changes to these invoices were routinely made, the description sections of several were also found to have been changed. These changes included obliterations of the name of the church or other church-related references. None of the Chesson employees that testified admitted knowledge of such changes. All of the employees that testified denied ever being told by Randall or Lilton Chesson to conceal the fact that the company was making these expenditures on behalf of the church.

In early 1980, the IRS audited the 1978 corporate tax return of Chesson Oil Corporation. This was a routine civil audit, but it did result in certain disallowances. Phyllis Hodgkins, the revenue agent who conducted the audit, found in the corporation's books certain improper church-related expenses as well as personal expenses for both Randall and Lilton Chesson. Agent Hodgkins reclassified the personal items as additional compensation to Randall and Lilton, creating additional tax obligations for each of them. The church-related expenditures, on the other hand, she simply reclassified as corporate charitable contributions, creating no additional tax obligations for the corporation. Agent Hodgkins then discussed the disallowances with Randall and Lilton individually and obtained their signatures on an...