U.S. v. Fletcher

• Decision Date: 06 March 2003
• Docket Number: No. 02-2307.,02-2307.
• Citation: 322 F.3d 508
• Parties: UNITED STATES of America, Appellee, v. Donald Stuart FLETCHER, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

322 F.3d 508

UNITED STATES of America, Appellee, v. Donald Stuart FLETCHER, Appellant.

No. 02-2307.

United States Court of Appeals, Eighth Circuit.

Submitted: December 10, 2002.

Filed: March 6, 2003.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

R. Brannon Sloan, Jr., argued, Little Rock, AR, for appellant.

Karen M. Quesnel, argued, Washington, DC (Eileen J. O'Connor, Robert E. Lindsay, Alan Hechtkopf, and H.E. (Bud) Cummin, on the brief), for appellee.

Before BOWMAN, MORRIS SHEPPARD ARNOLD, and RILEY, Circuit Judges.

MORRIS SHEPPARD ARNOLD, Circuit Judge.

A jury convicted Donald Fletcher of one count of conspiracy to defraud the United States, see 18 U.S.C. § 371, and two counts of aiding and assisting in the preparation or presentation of false income tax returns, see 26 U.S.C. § 7206(2). The district court¹ sentenced Mr. Fletcher to seventy-one months in prison. Mr. Fletcher appeals his convictions, arguing that the evidence was insufficient, that the government introduced evidence outside the scope of the indictment, that the district court erred in admitting evidence of prior civil adjudications resulting from Mr. Fletcher's past provision of tax services, and that the indictment was insufficient. Mr. Fletcher also appeals his sentence, contending that the district court abused its discretion in departing upward based on the prior civil adjudications. We affirm.

I.

This case arises out of Mr. Fletcher's involvement in James Otis & Company (JO & C), a California company that provided tax consultation, tax preparation, and audit representation services to self-employed taxpayers in Arkansas. The essence of the charges was that Mr. Fletcher conspired with William Webber, Jr., Deborah Rogers, and Ryan Rogers to prevent the Internal Revenue Service (IRS) from determining JO & C's clients' income and tax liabilities, and induced taxpayers to file false tax returns with the IRS. (Mr. Webber, Mr. Rogers, and Mrs. Rogers all pleaded guilty shortly before trial, leaving Mr. Fletcher as the sole defendant.) A brief outline of the scheme follows.

After Mr. Rogers had recruited a sufficient number of prospective clients in Arkansas, Mr. Fletcher would travel to Arkansas and conduct seminars promoting JO & C's tax services. During the seminars, Mr. Fletcher advocated reducing or eliminating tax liability by converting what appeared to be ordinary personal expenditures into tax deductible business expenses. Following these seminars, Mr. Fletcher and Mr. Rogers together, or Mr. Rogers alone, met with individual prospective clients. If persuaded to use JO & C's services, the clients signed a JO & C "participation agreement" that Mr. Fletcher designed. Clients agreed to pay JO & C either 5.5% of their gross income or an amount equal to half of the tax savings that resulted from JO & C's services (savings often generated by amending previous years' returns to create larger tax refunds). Mr. and Mrs. Rogers provided tax consultation and audit representation services to the Arkansas clients, while Mr. Webber supervised and assisted a staff in preparing tax returns and audit documentation for them.

JO & C furnished the Arkansas clients with tax data organizers, more commonly referred to as workbooks, to record income and business expenses for tax purposes. The Arkansas clients, on the basis of advice received through JO & C, recorded ordinary personal expenditures as tax deductible business expenses. For example, one client who operated a home-based day care center deducted veterinary and food costs for her family pets as security and rodent control expenses. A doctor and his wife deducted as a business travel expense a wholly personal one-night trip to Las Vegas to get married; that same couple deducted as a security expense $17,384 in health care costs incurred for the heart condition of the wife's intravenously-fed, non-mobile, eleven-year old German shepherd. A dentist deducted $12,000 in wages allegedly paid to his minor children, when no such wages were in fact paid. At times, the tax preparers themselves inflated the clients' expenses. For example, one client's workbook estimate of $3,277 in farm expenses was increased to $54,893 on his tax return.

Ultimately, JO & C's clients' tax returns prompted an investigation and audits by the IRS. When informed of the investigation, Mr. Fletcher instructed his colleagues and clients to delay the audit process for as long as possible. Mr. and Mrs. Rogers also advised clients that, if asked by the IRS who prepared the tax returns, they should respond that they prepared the returns themselves. Generally, the tax preparers did not sign the amended returns or signed them illegibly in order to avoid a connection between the preparer and the return. During the audit process, Mr. Fletcher encouraged the fabrication of, and Mr. Webber and Mr. and Mrs. Rogers fabricated, records to support the Arkansas clients' deductions by, for example, creating phony invoices for professional services or false calendar entries for business meetings.

II.

Mr. Fletcher argues that the evidence was insufficient to sustain his convictions. On appeal from a conviction, we must view the evidence in the light most favorable to the verdict, giving the government the benefit of all reasonable inferences. United States v. Peterson, 223 F.3d 756, 759 (8th Cir.2000), cert. denied, 531 U.S. 1175, 121 S.Ct. 1149, 148 L.Ed.2d 1011 (2001). "We will reverse the conviction[] only if we can conclude from the evidence that a reasonable fact finder must have entertained a reasonable doubt about the government's proof concerning one of the essential elements of the crime." United States v. McCarthy, 97 F.3d 1562, 1568 (8th Cir.1996), cert. denied, 519 U.S. 1139, 117 S.Ct. 1011, 136 L.Ed.2d 888 and 520 U.S. 1133, 117 S.Ct. 1284, 137 L.Ed.2d 359 (1997).

Mr. Fletcher was charged under the portion of 18 U.S.C. § 371 that proscribes conspiracies to defraud the United States by "`impairing, obstructing, or defeating the lawful function of any department of [the G]overnment.'" United States v. Derezinski, 945 F.2d 1006, 1011 (8th Cir.1991) (quoting Haas v. Henkel, 216 U.S. 462, 479, 30 S.Ct. 249, 54 L.Ed. 569 (1910)) (alteration in Derezinski). In particular, the indictment alleged a conspiracy to defraud the IRS in the function of assessing and collecting taxes, commonly known as a Klein conspiracy. See United States v. Ervasti, 201 F.3d 1029, 1037 (8th Cir.2000); United States v. Klein, 247 F.2d 908 (2d Cir.1957), cert. denied, 355 U.S. 924, 78 S.Ct. 365, 2 L.Ed.2d 354 (1958). To convict a defendant of a Klein conspiracy, the government must show the existence of an agreement to defraud the IRS and an overt act by one of the conspirators in furtherance of the agreement's objectives. See United States v. Zimmerman, 832 F.2d 454, 457 (8th Cir.1987) (per curiam); see also United States v. Furkin, 119 F.3d 1276, 1279 (7th Cir.1997); United States v. Alston, 77 F.3d 713, 720 n. 17 (3d Cir.1996); United States v. Shoup, 608 F.2d 950, 956 (3d Cir.1979); United States v. Vogt, 910 F.2d 1184, 1202 (4th Cir.1990), cert. denied, 498 U.S. 1083, 111 S.Ct. 955, 112 L.Ed.2d 1043 (1991). Mr. Fletcher contends that the government failed to prove the existence of, and his knowing participation in, any conspiracy to defraud the IRS. We believe that the evidence demonstrates otherwise.

Although Mr. Fletcher and every other individual working with JO & C considered themselves to be "independent contractors," testimony at trial suggested that Mr. Fletcher controlled JO & C. Becky Mears, who performed administrative work for JO & C, testified that there was no distinction between Mr. Fletcher and JO & C. Barbara Nofrey, who performed administrative work for Mr. Fletcher and Mr. Webber, testified that Mr. Fletcher was the "head honcho" and controlled JO & C. Ms. Nofrey further testified that Mr. Fletcher directed JO & C to pay Mr. Webber for the tax return preparation work and that Mr. Fletcher was Mr. Webber's boss. Mr. Webber testified that Mr. Fletcher brought in the funds, allocated how money would be spent, and decided how the business would work. Mr. Webber also testified that, despite Mr. Webber's concern that amended returns had a high audit rate, Mr. Fletcher insisted that Mr. Webber prepare amended returns because "they would provide for consistent income" to JO & C.

A videotape of Mr. Fletcher's seminar promoting JO & C's tax services and related trust services reflects that Mr. Rogers introduced Mr. Fletcher as "the head of our tax service department out of California." Mr. Fletcher repeatedly used the term "we" in describing JO & C's services at the seminar, explaining, for example, "[W]e do tax workbooks ... where we will show you ... based on a workbook, before you do your tax returns what the numbers really should be." This is consistent with Ms. Nofrey's testimony that Mr. Fletcher met with at least one (unidentified) Arkansas client and, using tax software on his laptop computer, prepared draft tax returns, taking information from the client in order "to get an idea what their potential expenses could or should be to make their refunds come out to be a certain dollar amount."

Also during the seminar, Mr. Fletcher stated "we can help you. You can get your tax money back. You can make sure you don't pay any more for the next twenty years." Mr. Fletcher explained, "the whole secret that we're talking about ... is to convert personal expenses into business expenses ... and the businesses that are reimbursing your expenses are totally deductible because, they're not persons driving cars or having meals or living in houses and therefore, all the stuff that wasn't deductible yesterday is deductible." Mr. Fletcher also told the prospective clients that JO & C knew of "secret" provisions hidden in the Internal Revenue Code, provisions accountants and attorneys were not trained in, and that his method was not taught...