U.S. v. Ellefsen

• Decision Date: 09 September 2011
• Docket Number: Nos. 10–2857,10–2858.,s. 10–2857
• Citation: 108 A.F.T.R.2d 2011,2011 USTC P 50621,655 F.3d 769
• Parties: UNITED STATES of America, Appellee,v.Brian Keith ELLEFSEN, Appellant.United States of America, Appellee,v.Mark Edward Ellefsen, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

655 F.3d 769

108 A.F.T.R.2d 2011-6149

2011-2 USTC P 50,621

UNITED STATES of America, Appellee,

v.Brian Keith ELLEFSEN, Appellant.United States of America, Appellee,

v.Mark Edward Ellefsen, Appellant.

Nos. 10–2857

10–2858.

United States Court of Appeals, Eighth Circuit.

Submitted: April 11, 2011.Filed: Sept. 9, 2011.

Edward L. Dowd, Jr., Dowd Bennett LLP, St. Louis, MO, argued, for appellants Brian and Mark Ellefsen (Thomas S. Rea, Dowd Bennett LLP, St. Louis, MO, on the brief, for appellant Brian Ellefsen, Barry A. Short, Evan Z. Reid, Lewis, Rice & Fingersh, L.C., St. Louis, MO, on the brief, for appellant Mark Ellefsen).Philip M. Koppe, Asst. U.S. Atty., Kansas City, MO, argued (Beth Phillips, U.S. Atty., Kansas City, MO, Steven M. Mohlhenrich, Asst. U.S. Atty., Springfield, MO, Michael C. Boteler, Tax Div., U.S. Dept. of Justice, Washington, DC, on the brief), for appellee.Before WOLLMAN and MELLOY, Circuit Judges, and MILLER,¹ District Judge.WOLLMAN, Circuit Judge.

Brian Keith Ellefsen and Mark Edward Ellefsen were convicted of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, by obstructing the Internal Revenue Service (IRS) in the assessment and collection of federal taxes.² Brian was also convicted of three counts of filing false income tax returns, in violation of 26 U.S.C. § 7206(1), while Mark was convicted of three counts of aiding and assisting the preparation of false income tax returns, in violation of § 7206(2). The district court ³ sentenced Brian to 22 months' imprisonment and ordered restitution in the amount of $1,202,475.58. Mark was sentenced to 14 months' imprisonment and ordered to pay $50,000 in restitution. The Ellefsens appeal their convictions, arguing that the government intentionally suppressed evidence that was material and favorable to the defense, in violation of Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). They further contend that the district court abused its discretion in admitting certain testimony, in limiting their cross-examination of an IRS agent, and in excluding the testimony of a defense-expert witness. They also appeal from the denial of their motions for judgment of acquittal or a new trial, arguing that the government failed to prove that the their conduct was willful. Finally, the Ellefsens challenge the restitution order.

We affirm.

I. Background

Brian is an orthopedic surgeon, who provided services through a corporation named Southwest Missouri Bone & Joint, Inc. (SMBJ, Inc.). In 1997, Brian hired his brother Mark to serve as SMBJ, Inc.'s business manager. L. Michael Stelmacki is a certified public accountant who had assisted Brian with his accounting and taxes since Brian first began practicing medicine in the late 1980s.

In 1997, the Ellefsens attended a presentation by James Quay about the Aegis Business Trust System, which used domestic and foreign trusts to shelter assets from taxes. Quay explained that the Aegis system was “an asset protection device with tax deferral,” through which professionals could send their income offshore and defer paying taxes on it until they “[r]epatriate[d] the funds back to the United States.” Tr. at 1121. Participants in the system could access the funds with a credit card. Following the presentation, the Ellefsens sought advice from Stelmacki, who thereafter spoke to Quay about the Aegis system. Stelmacki concluded that Quay “was a person to avoid” and urged Brian to consult an independent tax attorney—one not associated with Aegis. Tr. at 151. Brian failed do so. In July 1997, the Ellefsens enrolled in the Aegis system.

On July 21, 1997, Stelmacki faxed an article to Mark, with a note that read, “Mark, please read this article. I hope that it's not too late for Brian to reconsider.” The article addressed the IRS's crackdown on abusive trust schemes. Stelmacki wrote to Brian on August 26, 1997, saying:

I noticed in your July disbursements an expense to Mr. Jim Quay for $15,000 for professional fees. I am also aware that you have decided to go ahead with the Aegis Company's program to use offshore entities to shield you from Federal and State income taxes. I am writing to you because I am concerned for you and the risks you may inadvertently be taking.... While I share your interest in reducing your tax burden, I feel that you have the opportunity to build sizable wealth without incurring high risks.

...

It seems to me that the promoters are relying on an elaborate chain of complex entities to conceal taxable income. They have concocted a series of transactions to cloak earned taxable income from rendering patient services in Carthage, Missouri into non-reported foreign source income and then arranging to lend or gift the money back to you. I am especially suspicious when I learned that they will provide you with a Visa card to access the money. They have also represented that you will have a power of attorney that will allow you to transfer funds at will. You will be earning the income by performing services and you will be enjoying the benefits of the income. Therefore it is reasonable that the I.R.S. could potentially look through this masquerade and say that it is taxable income to you regardless of the structure.

...

I am asking that you consider the worst case scenario in which the I.R.S. takes the position that you are committing tax evasion. They have the power to assess huge penalties and interest, to prosecute you, to ruin your career, and seize your property. Is the risk worth it?

Shortly thereafter, Stelmacki spoke to Mark regarding the letter and his concerns. Following their conversation, Stelmacki believed that the Ellefsens would not proceed with Aegis, and thereafter the Ellefsens did not mention Aegis to Stelmacki.

In August 1997, Brian established the Stekadash Asset Management Trust (SAMT) and the Southwest Missouri Bone & Joint Trust (SMBJ Trust) and opened bank accounts in their names. In September, he authorized Aegis to open foreign bank accounts for him. Thereafter, three bank accounts were opened in St. John's, Antigua. One account was in the name Stekadash International Trust, and two were in the name of Stekadash Services Company Ltd. In early October, cashier's checks drawn from SAMT's bank account were deposited into the Stekadash International Trust account.

After the foreign bank accounts were established, Brian received a credit card, which he could use for cash advances and purchases. Aegis explained that the foreign bank had been instructed to transfer funds from the Stekadash International Trust account to the Stekadash Services Company Ltd. account that was used to pay the credit card balance. The third account maintained a $15,000 balance to secure the credit card. Brian could transfer funds from the domestic accounts into the Stekadash International Trust account and ultimately use those funds to pay the monthly balance on the credit card without ever paying taxes on the income.

The Ellefsens also met with Lynn Bell–Osina, an accountant then-associated with Aegis, and hired her to prepare tax returns for the newly created entities. After the initial meeting, Bell–Osina had no further interactions with Brian. Mark provided the records to prepare the tax returns.

In 1997, SMBJ, Inc. transferred $107,388 through the Aegis system and recorded the transfers as management fees in its records and on its 1997 corporate tax return. In 1998, SMBJ, Inc. transferred $199,000 through the Aegis system, again recording the transfers as management fees in its records and on its 1998 corporate tax return. In 1999, SMBJ, Inc. transferred $175,000 through the same process. On his personal tax returns in 1997 through 1999, Brian declared that he had no interest or authority over any foreign accounts. From 1997 to 1999, Brian used his credit card mostly for cash advances, but also to purchase lobsters, jewelry, wine, and high-end apparel, among other things.

On March 31, 2000, federal agents executed search warrants at the Aegis offices and Bell–Osina's office. Bell–Osina testified that in mid-April 2000, she called Mark and told him that “the Internal Revenue Service had come to my office and seized the files of my clients, that I had subsequently contacted ... a tax attorney, who explained to me that ... the Aegis system was illegal.” Tr. at 563. Bell–Osina explained that she was “calling all of my clients to let them know that they needed to seek alternate tax counsel, that they should go to see a tax attorney.” Id. Bell–Osina recommended the attorney who had advised her that her clients should amend their tax returns to undo the trust. During their conversation, Mark told Bell–Osina that he was not going to amend the returns.

In July 2000, Aegis mailed a newsletter to its members, detailing a plan to “Drop[ ] Off the Radar Screen,” by using a new program called the Fortress Trust. In December 2000, Brian converted to the new system, establishing Strategic Management Services, LLC (SMS, LLC). Mark, as its registered agent, opened two bank accounts in the name of SMS, LLC in February 2001 at a domestic bank. Brian transferred $300,000 from the SAMT account to an SMS, LLC account.

In 2000, SMBJ, Inc. transferred $650,000 to the Aegis-created entities and deducted the transfers as management fees on its 2000 corporate tax return. On his personal tax returns, Brian again declared that he had no interest or authority over any foreign accounts. As Stelmacki was preparing SMBJ, Inc.'s corporate tax return, he expressed concern regarding the deduction of $650,000 in management fees and requested that Brian represent in writing that the fees were legitimate. Stelmacki testified that he sent a representation letter because he wanted to be certain that Brian actually acknowledged that the payment was “an ordinary and necessary expense of business.” Tr. at 199. Stelmacki discussed the representation letter and his concerns over the fees with...