U.S. v. Hayes, 87-1499

• Decision Date: 23 November 1988
• Docket Number: No. 87-1499,87-1499
• Citation: 861 F.2d 1225
• Parties: -306, 89-1 USTC P 9203, 27 Fed. R. Evid. Serv. 55 UNITED STATES of America, Plaintiff-Appellee, v. William L. HAYES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1225

861 F.2d 1225

63 A.F.T.R.2d 89-306, 89-1 USTC P 9203,

27 Fed. R. Evid. Serv. 55

UNITED STATES of America, Plaintiff-Appellee, v. William L. HAYES, Defendant-Appellant.

No. 87-1499.

United States Court of Appeals Tenth Circuit.

Nov. 23, 1988.

William A. Cohan, Denver, Colo. (Darold W. Killmer, Denver, Colo., was also on the brief), for defendant-appellant.

James K. Bredar, Asst. U.S. Atty., Denver, Colo. (Robert N. Miller, U.S. Atty., Denver, Colo., was also on the brief), for plaintiff-appellee.

Before HOLLOWAY, Chief Judge, and SETH and McKAY, Circuit Judges.

HOLLOWAY, Chief Judge.

Defendant Hayes was charged in a two count indictment with willful income tax evasion, a violation of 26 U.S.C. Sec. 7201 (1982). The jury acquitted him of the charge contained in count I, but found him guilty on count II of the lesser included offense of willful failure to file an income tax return for 1981, a violation of 26 U.S.C. Sec. 7203 (1982). ¹ He argues: (1) that the trial court erred in admitting computer data evidence which showed that he failed to file an income tax return for the 1981 tax year; and (2) that he was prejudiced when the trial court denied his motion to sever. We affirm.

I Factual Background

Considered in the light most favorable to the government, as it must be after a guilty verdict, the evidence shows the following. In 1978, 1979, and 1980 defendant Hayes filed individual income tax returns. He had income again in 1981, see V R. 22, but did not file an income tax return. III R. 49; V R. 21-22. Instead, he indicated to the Internal Revenue Service (I.R.S.), in response to a delinquency notice, that he was "not liable this period." III R. 49-50.

There is a dispute regarding the admissibility of the evidence which indicates that Hayes failed to file a return for the 1981 tax year. Dorothy Vest, an I.R.S. tax examiner, testified that she had searched Hayes' tax records for the 1978, 1979, 1980, and 1981 tax years and had determined that while Hayes had filed returns for the 1978, 1979, and 1980 tax years, he had not filed a return for the 1981 tax year. III R. 45, 49. Vest was the custodian of the records and she testified that they were kept in the ordinary and regular course of business. III R. 41-43, 48. During her search Vest obtained Certificates of Assessments and Payments for the 1978, 1979, 1980, and 1981 tax years. Those certificates reflected Hayes' tax information for the years in question and were admitted at trial as Government's exhibit 5. Hayes strenuously objected to the admission of the certificates (the computer data evidence) both prior to and during trial. They show that he failed to file a return for the 1981 tax year. III R. 49.

Later, during his cross examination, Hayes testified that that he had not filed a return for 1981. He also admitted that he had had income during the 1981 tax year. Hayes disagreed with the way the "federal income tax was administered" and did not believe he was required to pay taxes. V R. 21-23.

Before the 1981 tax year, Hayes had relied on the advice of several "tax experts," including Don Perry, Don Bearnson, and Lowell Anderson. In 1980 he invested $5,000 in foreign trust organizations on the advice of Perry and Bearnson. Anderson had assured him that the trust organizations were a legal way to reduce his tax liability. IV R. 29-30. These investments form the basis of Hayes' defense to count I, that he did not willfully seek to evade taxes.

Bearnson referred Hayes to another "tax expert," John Grandbouche, who advised Hayes that "he had the basis to believe that certain individuals, private people of this country, had no constitutional--or had no basis to pay income tax depending upon how they were situated in their lives." IV R. 83. Hayes paid "$120" for a year's membership in a "Commodity Exchange," and in return was given a number of books about the legalities of taxation as well as the right to use the Exchange. IV R. 85-88. Grandbouche also gave Hayes a number of United States Supreme Court cases to read regarding the constitutionality of taxation. IV R. 94-115. After reading these materials Hayes decided he was not a person constitutionally required to file income taxes. IV R. 121.

Before trial Hayes filed a motion to sever under Fed.R.Crim.P. 14. Hayes wanted a separate trial on count II so that he could testify at trial on count I (that he relied upon "tax experts" and did not willfully evade taxes) and exercise his right not to testify on count II (leaving the Government to its own proof on the issue of failure to file). The trial court denied Hayes' motion to sever in a minute order.

Hayes also filed a pre-trial motion to suppress the computer data evidence. The trial court denied that motion, relying on Fed.R.Evid. 803(6) and noting that Government Exh. 5 would only corroborate the testimony of I.R.S. employees. I R. Exh. 4. The defendant renewed the motion to suppress the computer data evidence on the morning of trial and a lengthy suppression hearing was held. At the hearing the defendant presented some evidence intended to show that the I.R.S. record keeping system is unreliable and untrustworthy. The evidence, much of which was compiled by Arthur Howe of the Philadelphia Inquirer and published in a series of articles in 1985, detailed large numbers of failures of the I.R.S. record keeping and computer system generally, such as a loss of tax filings in 1985, the deliberate destruction of records, the mistaken destruction of tax returns, the erroneous granting of refunds, and typographical errors. See II R. 8-20. Upholding its earlier ruling, the court reasoned that before the entire I.R.S. record keeping system could be shown unreliable or untrustworthy, some comparative evidence would have to be offered to show, for example, the percentage of lost documents. II R. 23.

An objection to the computer data evidence was raised a third time during the testimony of Vest. By that time I.R.S. employee Steven Ray had testified generally about the procedures followed at the Ogden, Utah Regional Service Center, the place where Hayes' returns had been sent. On cross examination Ray testified that it would be "very unlikely" for a tax return to just disappear, that he was not aware of any documents that had been destroyed by employees, that he was not aware of any data entry problems, and that he was not aware of computer programs running incorrectly. See III R. 22, 35-36. Based upon this testimony and the foundation which had been laid, the trial court overruled the objection and admitted the evidence.

II Analysis

A Admissibility Of The Computer Data Evidence

The trial court admitted the computer data evidence under Fed.R.Evid. 803(6). Hayes does not dispute the well established proposition that "computer data compilations may constitute business records for purposes of Rule 803(6), ² and may be admitted at trial if a proper foundation is established." United States v. Croft, 750 F.2d 1354, 1364 (7th Cir.1984) (citing United States v. Young Brothers, Inc., 728 F.2d 682, 694 (5th Cir.), cert. denied, 469 U.S. 881, 105 S.Ct. 246, 83 L.Ed.2d 184 (1984)). Vest attested to the authenticity of Government Exhibit 5 and laid the foundation for its admission. Young, 728 F.2d at 694. Both Vest and Ray testified that Hayes' tax records were kept in the ordinary course of business and that it was the regular practice of the I.R.S. to keep such records. See United States v. Bowers, 593 F.2d 376, 380 (10th Cir.1979), cert. denied, 444 U.S. 852, 100 S.Ct. 106, 62 L.Ed.2d 69 (1979) (records must be kept in the regular course of business activity). A proper foundation for the admission of the evidence was laid.

Hayes argues, however, that the computer data evidence is untrustworthy and therefore inadmissible under Rule 803(6). It is true that business records are inadmissible if the source of information or the method or the circumstances of preparation indicate a lack of trustworthiness. Croft, 750 F.2d at 1364. Accord United States v. Hines, 564 F.2d 925 (10th Cir.1977), cert. denied, 434 U.S. 1022, 98 S.Ct. 748, 54 L.Ed.2d 770 (1978). Here the trial court found that the general evidence presented by the defendant at the suppression hearing, even if it is all accepted as true, does not lead to the conclusion that the I.R.S. record keeping system is unreliable or untrustworthy. II R. 23. Comparative data (e.g., the number of incorrect refunds compared to the number of correct refunds) is needed before such general evidence can have any force and no comparative data was offered at trial. The testimony of Vest and Ray, which related specifically to the procedures at the Ogden, Utah Center and the search done in this case, provided an ample factual basis for the trial court to find that the source of information and method and circumstances of preparation were not untrustworthy. We find no abuse of discretion in the admission of the computer data evidence. See United States v. Turner, 799 F.2d 627, 630 (10th Cir.1986).

The real question regarding the computer data evidence is whether it should have been excluded under the rationale of United States v. Oates, 560 F.2d 45 (2nd Cir.1977). There the court held that "police and evaluative reports not satisfying the standards of FRE 803(8)(B) and (C) may not qualify for admission under FRE 803(6) or any of the other exceptions to the hearsay rule." Id. at 77. The court admitted exhibits purporting to be the official report of a United States Custom Service Chemist, who had concluded that the white powdery substance which he had analyzed was heroin. Id. at 63. The chemist did not testify, but the documents were admitted as business records under Rule 803(6), with reliance also placed on Rules 803(8) ³ and 803(24). The Second Circuit held that the chemist's report and worksheet constituted a factual finding resulting from an investigation made pursuant to authority granted by law under Rule 803...