U.S. v. Daniels

• Decision Date: 27 October 2004
• Docket Number: No. 03-1105.,03-1105.
• Citation: 387 F.3d 636
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Gregory R. DANIELS and Susan V. Daniels, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

387 F.3d 636

UNITED STATES of America, Plaintiff-Appellee, v. Gregory R. DANIELS and Susan V. Daniels, Defendants-Appellants.

No. 03-1105.

United States Court of Appeals, Seventh Circuit.

Argued September 10, 2004.

Decided October 27, 2004.

Appeal from the District Court for the Eastern District of Wisconsin, Randa, C.J Scott James Campbell (argued), Office of U.S. Atty., Milwaukee, WI, for Plaintiff-Appellee.

Michael Holzman, Rosen & Holzman, Waukesha, WI, Eric M. Schwing, Springfield, IL, for Gregory R. Daniels.

Eric M. Schwing (argued), Springfield, IL, for Susan Daniels.

Before FLAUM, Chief Judge, and POSNER and ROVNER Circuit Judges.

FLAUM, Chief Judge.

Defendant-appellant Gregory Daniels is a chiropractor who operated his own practice, Daniels Chiropractic. His wife, co-defendant-appellant Susan Daniels, served as the clinic's manager. Together they were charged with two counts of income tax evasion in violation of 26 U.S.C. § 7201. Following a jury trial, defendants were convicted on both counts. They now appeal their convictions and sentences. For the reasons stated herein, we affirm.

I. Background

On September 26, 2000, a federal grand jury returned a two-count indictment against Gregory and Susan Daniels. Count I charged that on or about April 15, 1994, defendants filed a fraudulent joint federal income tax return for the year 1993 in violation of 26 U.S.C. § 7201. Count II charged that on or about April 15, 1995, defendants filed a fraudulent joint federal income tax return for the year 1994 in violation of 26 U.S.C. § 7201. Defendants moved to dismiss both counts on the ground that the indictment failed to allege that the tax deficiency due for the years in question was substantial. Defendants also moved to dismiss Count I as barred by the six-year statute of limitations set forth in 26 U.S.C. § 6531(3).

After briefing by both parties, on February 12, 2001, the magistrate judge recommended that the district court: (i) deny defendants' motion to dismiss the indictment for failure to allege an essential element of the offense; and (ii) dismiss Count I because the indictment was returned more than six years after April 15, 1994, the date of the alleged offense.

The next day, February 13, 2001, the government filed a superseding indictment, which changed the dates of the alleged fraudulent filings to October 15, 1994 in Count I, and August 15, 1995 in Count II. Other than these date changes, the superseding indictment was identical to the original.

On March 8, 2001, the district court denied defendants' motion to dismiss the original indictment. The district court adopted the report of the magistrate judge with respect to the substantiality requirement, stating: "The Court thinks, as did the Magistrate Judge, that Sansone v. United States, 380 U.S. 343, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965) trumps the Seventh Circuit authority submitted by the defendant on the question of whether the indictment must relate a `substantial' tax deficiency to survive." (R. at 30.) The district court also found the motion to dismiss Count I of the indictment on statute of limitations grounds moot in light of the superseding indictment. (Id.)

Defendants then moved to dismiss Count I of the superseding indictment, contending that it materially amended the initial charges, and therefore did not relate back to the filing date of the original indictment. On May 25, 2001, the district court adopted the magistrate's recommendation denying the defendant's motion to dismiss. The district court reasoned:

[T]he Superseding Indictment does not materially amend the initial charges because there were no substantive changes to the allegations. The charges are exactly the same. Defendants are alleged in both indictments to have filed a fraudulent tax return for the tax year 1993. Only the date on which they allegedly did this is different. In other words, the Daniels, who were obligated to file a tax return in 1994 for 1993, are alleged to have fraudulently done so in October of 1994, instead of April of 1994. This cannot be said to be a material broadening or substantial amendment of the charges in the original Indictment. The Superseding Indictment therefore relates back to the original indictment bringing the charges within the statute of limitations.

(R. at 43.)

The case proceeded to trial, and resulted in a mistrial. Following a second trial defendants were convicted on both counts. Gregory Daniels was sentenced to 15 months imprisonment on each of Counts I and II, both terms to run concurrently, and three years of supervised release, and ordered to pay $13,014.15 in restitution, along with a $200 special assessment. Susan Daniels also was sentenced to serve 15 months imprisonment on each of Counts I and II, both terms to run concurrently, upon the completion of her husband's incarceration. She was also ordered to pay $13,014.15 in restitution, for which she would be jointly and severally liable with her husband, and a $200 special assessment. Defendants now appeal their convictions and sentences.

II. Discussion

A. Substantiality

We review defendants' challenge to the sufficiency of the indictment de novo. United States v. Sandoval, 347 F.3d 627, 633 (7th Cir.2003). The tax evasion statute provides: "Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall ... be guilty of a felony...." 26 U.S.C. § 7201. As the Supreme Court set forth in Sansone v. United States: "[T]he elements of § 7201 are will-fullness; the existence of a tax deficiency; and an affirmative act constituting evasion or attempted evasion of the tax." 380 U.S. 343, 350, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965) (internal citations omitted).

Defendants argue that the district court erred in denying their motion to dismiss the indictment. They point out that the Supreme Court decision in Sansone preceded our decision in United States v. Davenport, 824 F.2d 1511 (7th Cir.1987), and therefore insist that the district court was incorrect to suggest that Sansone "trumps" the law of this Circuit. While it is true that this Court was aware of Sansone when we decided Davenport, we disagree with defendants' principal argument that the existence of a "substantial" tax deficiency is an essential element of the crime of tax evasion under our case law.

Defendants rely primarily on the language in Davenport, where we listed the elements of the offense of tax evasion as follows:

(1) an affirmative act constituting an evasion or attempted evasion of the payment or collection of taxes;

(2) the existence of a substantial tax deficiency; and (3) that the defendant acted willfully. Sansone v. United States, 380 U.S. 343, 351, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965); United States v. Foster, 789 F.2d 457, 459 (7th Cir.1986).

Id. at 1516 (emphasis added). On at least one other occasion, we have used the word "substantial" in our recitation of the tax deficiency element. See United States v. King, 126 F.3d 987, 993 (7th Cir.1997) ("Again, the elements of a § 7201 offense are the existence of a substantial tax deficiency, willfulness, and an affirmative act constituting an attempt to evade or defeat tax.") (emphasis added) (citing Sansone, 380 U.S. at 351, 85 S.Ct. 1004; United States v. Eaken, 995 F.2d 740, 742 (7th Cir.1993)).

On many other occasions, however, we have recited the elements of tax evasion without mentioning the substantiality of the tax deficiency. See, e.g., King, 126 F.3d at 989 (setting forth earlier in the opinion that "[i]n order to obtain a conviction under § 7201, the government must prove three elements: (1) the existence of a tax deficiency; (2) willfulness; and (3) an affirmative act constituting an attempt to evade or defeat tax.") (citing Sansone, 380 U.S. at 351, 85 S.Ct. 1004; Eaken, 995 F.2d at 742); United States v. Beall, 970 F.2d 343, 345 (7th Cir.1992); United States v. Jungles, 903 F.2d 468, 473 (7th Cir.1990); United States v. Fournier, 861 F.2d 148, 150-51 (7th Cir.1988); United States v. Tishberg, 854 F.2d 1070, 1072 (7th Cir.1988); United States v. Conley, 826 F.2d 551, 556 (7th Cir.1987).¹

Ignoring these other decisions, defendants latch on to the language in Davenport to argue that under Seventh Circuit law, substantiality is an essential element of the crime of tax evasion. Therefore, they argue, the indictment in this case was inadequate in failing to charge a substantial tax deficiency.

Defendants read too much into Davenport. While the word "substantial" does appear in our opinion, the case did not address the issue that confronts us today: whether in a § 7201 prosecution the government must charge in the indictment, and prove beyond a reasonable doubt, the existence of a substantial tax deficiency.

In Davenport, we addressed whether the government must disprove the defendant's entitlement to every possible deduction in order to sustain a conviction for tax evasion. 824 F.2d at 1516-17. The defendant argued that there was reasonable doubt that he had a substantial tax liability for the year 1980 because "he could have been entitled to additional deductions, if itemized, above the standard deduction." Id. at 1516. The revenue agent calculated a tax deficiency of $3358.68, giving the defendant credit for any possible deductions that could have been itemized, and the defendant introduced no evidence of additional deductions to which he was entitled. Id. We held that the government need not prove "that there are no other conceivable deductions of any sort to which the defendant might be entitled in the absence of some indication that they may in fact exist," and that in any event a deficiency of just over $3,000 was sufficient. Id. at 1516-17. The parties in that case did not raise the question whether substantiality was an element of the offense, and we did not hold that it was.

Nor did we address whether substantiality is an element of tax evasion in K...