U.S. v. Conley

• Decision Date: 03 September 1987
• Docket Number: No. 86-2644,86-2644
• Citation: 826 F.2d 551
• Parties: -5409, 87-2 USTC P 9469, 23 Fed. R. Evid. Serv. 254 UNITED STATES of America, Plaintiff-Appellee, v. Edward J. CONLEY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 551

826 F.2d 551

60 A.F.T.R.2d 87-5409, 87-2 USTC P 9469,

23 Fed. R. Evid. Serv. 254

UNITED STATES of America, Plaintiff-Appellee, v. Edward J. CONLEY, Defendant-Appellant.

No. 86-2644.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 11, 1987.

Decided July 29, 1987.

Rehearing Denied Sept. 3, 1987.

Joseph A. Lamendella, Lamendella & Daniel, Chicago, Ill., for defendant-appellant.

Laurie N. Feldman, Asst. U.S. Atty., Anton R. Valukas, U.S. Atty., Chicago, Ill., for plaintiff-appellee.

Before WOOD, COFFEY and RIPPLE, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

The defendant, Edward J. Conley, a personal injury lawyer, was convicted by jury in July 1986 on three counts of willful attempt to evade and defeat the payment of his personal income tax, in violation of 26 U.S.C. Sec. 7201. ¹ The defendant was charged with concealing and attempting to conceal the nature, extent, and ownership of his assets by placing his assets, funds, and other property in the names of others and by transacting his personal business in cash to avoid creating a financial record. The defendant was charged in Count I with a deficiency of approximately $71,397 for the year 1979; in Count II, for the year 1980, a deficiency of approximately $45,987, and in Count III, for 1981, a deficiency of $11,622. ²

The defendant raises four issues: (1) whether the evidence was sufficient to show the affirmative acts of evasion charged; (2) whether the proof of evasive acts occurring throughout the year was at fatal variance with the allegations that evasive acts occurred "on or about April 15" of the years involved; (3) whether various items of evidence were properly admitted into evidence, and (4) whether certain instructions were appropriate.

I. FACTUAL BACKGROUND

As a self-employed personal injury lawyer the defendant did well, but he was less than enthusiastic about sharing his money with the government. From 1966 through 1981, he assessed his own tax debt at $241,657.13, but during that period he paid less than $7,000 on time. He totally ignored the requirement that he make quarterly estimated income tax payments. Each year the defendant received a deficiency notice on the joint returns he filed with his wife, but the deficiencies, together with added interest and penalties, failed to sufficiently impress him with his tax obligations. We will examine in more detail the latter four years of that period.

In early 1978, the IRS filed a tax lien in Will County in the total amount of $32,278.97 owed by defendant for the years 1974, 1975, and 1976. When April 15, 1978, arrived, the defendant neither filed his return nor paid the prior year's taxes. Three days later, however, defendant and his wife created a land trust of their house and acreage, property which they had previously held in joint tenancy. The Chicago Title and Trust Company was trustee, defendant's wife was named beneficiary, and the defendant was the contingent beneficiary. On May 1, 1978, the defendant paid what he owed for 1974, but he failed to satisfy the other deficiencies.

In early 1979, the IRS began to pay more attention to the defendant. In January, an IRS agent made a house call on the defendant to collect back taxes. Finding no one at home, the agent left his calling card. In February, the IRS filed more liens in Will and Cook counties. The day after the liens were filed, the defendant left for a trip to Florida. About a week later, the IRS served a notice of levy and a summons on the trustee for the property held in the land trust. After learning of this action from the trustee, the defendant paid $6,000 on his 1976 taxes. Also in February, the IRS served a levy on the American National Bank where defendant maintained three accounts: a Client Fund account, the funds of which, according to the defendant, belonged to his clients; an Attorney-at-Law account in his own name; and an R.C. Stables account for which he and his son, Terrence J. Conley, were signatories. The defendant was not listed as an owner of the stables account. Nevertheless, the defendant used this stables account to pay some business and personal expenses, including the expenses for his horse-racing activities. His son maintained a separate account at American National Bank.

After the bank received notice of the IRS's levy, it segregated the funds in the defendant's Attorney-at-Law account. The bank did not, however, segregate the funds in the defendant's Client Fund account because those funds did not appear to belong to the defendant, but to his clients. The bank gave the defendant notice of its actions, and the defendant responded within a week by opening a new account at the Chicago Tokyo Bank in the name of his son, Terrence. This account was funded by $2,000 cash and a $2,000 check drawn on defendant's Client Fund account. Terrence did not contribute to this account. With the exception of one check drawn by his son, the defendant used this account for his personal and business expenses.

On March 17, 1979, the defendant traveled to Seattle, Washington. On or about April 15, 1979, the defendant filed a tax return for 1978, but failed to enclose any payment.

Although the defendant had had an interest in horse racing for several years, within a week of failing to pay his 1978 taxes he transferred the horses he had owned and raced in 1977 and 1978 to his sons. From then through 1982, the defendant raced and claimed ³ horses in his sons' names. His son Terrence claimed two horses in 1979, Committee Doll for $4,000 and Smithton Road for $2,500. ⁴ Checks drawn on the account never named defendant as payee, but were endorsed to him and then cashed. The defendant's sons showed no horse income or expenses on their returns for 1979-1981. When the defendant's son Timothy was later audited, the defendant submitted an affidavit stating that the horses were actually his although nominally owned by Timothy. At trial the defendant admitted that any horse-racing proceeds were his.

In June of 1979, the IRS filed tax liens for defendant's 1978 taxes. Another agent visited his home, and again left a calling card when she found no one at home. Shortly thereafter, the agent served a notice of seizure and levy on the defendant's trust assets for the taxes due for 1975, 1976, and 1978. The total amount due was $57,221.31. A notice for sealed bids appeared in the Chicago Tribune, prompting the defendant to pay in full the amount due for those years. The 1977 tax year for some reason had not been included.

In August 1979 the defendant filed the 1977 return, but without enclosing payment. The IRS again filed liens. In October, the defendant and his wife left for a trip to England and France, and IRS seized the assets in the defendant's law office. When defendant understood that he would be locked out of his office and its contents sold, he promptly paid the amount then due in full, approximately $18,000.

For 1979 the defendant admitted over $200,000 gross income. Using its standard procedures, the IRS estimated that the defendant cashed checks payable to him, usually at a currency exchange, for about $104,000, without making any deposit. In that year defendant also spent over $12,000 purchasing horses. When he filed his return he deducted over $30,000 for horse-racing expenses. Defendant managed to make timely payments on installment loans for a Buick and a Cadillac and some other items including his mortgage, making some of the payments in cash.

In 1980, the defendant timely filed his 1979 tax return showing a tax due of $79,789, but, as was his habit, he made no payment. In April of 1980, the defendant opened a brokerage account at Paine Webber. He traded in risky stocks for about a year, investing over $30,000, but he suffered a net loss. Also in April, the defendant's house was taken out of trust and conveyed to the defendant's three children as joint tenants. The defendant's wife signed the order to the trustee directing the conveyance with a notation that it was to be rushed as it would soon be picked up by the defendant. The order had been notarized in the defendant's office. The defendant and his wife continued to live in the home, make the mortgage payments, and deduct the payments on their tax return. The defendant later admitted the transfer was to avoid seizure by IRS.

In May of 1980, the IRS levied on a personal account the defendant maintained at the Matteson-Richton Bank which he sometimes used for personal expenses. The IRS likewise levied on the Attorney-at-Law account at the American National Bank, but, again, not the Client Fund account because the money was apparently the defendant's clients', not his own. After this levy, the defendant stopped using the Attorney-at-Law account and began drawing for personal and business purposes on the Client Fund account as if it were his own. He continued his racing and claiming in the name of one of his sons, but admitted that his racing expenses exceeded $40,000. The defendant's total 1980 gross income, according to defendant's figures, was $131,000, about half of it estimated by the IRS to have been received in cash. The defendant began making even his mortgage payments in cash.

The defendant ushered in 1981 by opening an account with Charles Schwab & Co. During the year he invested about $12,000 in that account as well as about $2,500 in his PaineWebber account. He financed his Schwab investments with checks on the Chicago Tokyo account held in his son's name, or with checks drawn on his Client Fund account. The defendant timely filed his 1980 tax return, but again made no payment on his self-calculated obligation of $53,845.46. He later paid $7,500 on what he owed for 1979. The IRS responded with a lien for the 1980 taxes. The IRS estimated that in 1981 the defendant received approximately $127,055 in cash.

In January of 1982, the defendant traveled to Alabama. In February and March, the IRS filed liens in Cook County...