U.S. v. Kouba, 86-5174

Decision Date29 June 1987
Docket NumberNo. 86-5174,86-5174
Parties-5405, 87-2 USTC P 9396 UNITED STATES of America, Appellee, v. Albert W. KOUBA, a/k/a Rusty Kouba, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

William A. Cohan of Denver, Colo., for appellant.

Lynn E. Crooks, Asst. U.S. Atty., Fargo, N.D., for appellee.

Before WOLLMAN, Circuit Judge, BRIGHT, Senior Circuit Judge, and MAGILL, Circuit Judge.

WOLLMAN, Circuit Judge.

Albert (Rusty) Kouba appeals his conviction for aiding others in the preparation of false income tax returns, 26 U.S.C. Sec. 7206(2), 1 and for failing to file his own income tax returns, 26 U.S.C. Sec. 7203. 2 We affirm.

Following a two-year grand jury investigation that involved the participation of three grand jury panels, Kouba was indicted on nine counts of aiding others in the preparation of false income tax returns, two counts of failing to file his own income tax returns, and one count of suborning perjury. 3

Kouba admitted at trial that he had assisted in filing the tax returns at issue and that he had failed to file his own income tax returns for the years 1981 and 1982. He defended on the basis of a good faith misunderstanding of the requirements of the law. He claimed that he attempted to implement a tax shelter program for his clients based on a program developed by the American Law Association (ALA). See United States v. Russell, 804 F.2d 571 (9th Cir.1986); Zmuda v. C.I.R., 731 F.2d 1417 (9th Cir.1984); United States v. Dahlstrom, 713 F.2d 1423 (9th Cir.1983), cert. denied, 466 U.S. 980, 104 S.Ct. 2363, 80 L.Ed.2d 835 (1984). At the heart of this program were three foreign trusts to be established individually by each taxpayer. Property or income was transferred to and among these trusts and eventually transferred back to the taxpayer as a "gift." Some of the transactions, including the "gift" to the taxpayer, were allegedly tax-free in part because of the foreign status of the trusts. In addition to endeavoring to implement the ALA program for his clients, Kouba had his clients take large deductions for alleged expenses the "trusts" incurred. These deductions appeared on his clients' returns, however, as expenses from their existing ventures.

Kouba's defense at trial centered on the proposition that since the ALA program had not been determined to be illegal, he could not be convicted of assisting others in the preparation of false or fraudulent income tax returns. Further, monies which the government contended were includable in his income were in fact "gifts" from the foreign trusts and as such not includable under the Internal Revenue Code (IRC).

At trial, however, the government avoided the issue of the legality of the tax shelter program, basing its case on the deductions Kouba had claimed for his clients and his failure to file his tax returns. The government asserted that the main issues were whether Kouba in good faith believed that the deductions on his clients' returns were valid at the time he made them and whether he in good faith believed that he was not required to file income tax returns for the years 1981 and 1982.

The jury convicted Kouba on all counts save the count of suborning perjury. The district court 4 thereafter sentenced him to eighteen months in prison, followed by three years of probation.

Kouba first contends that the district court erred in instructing the jury both before deliberations began and again when the jury submitted questions during deliberations. We do not agree.

On appeal, we evaluate the adequacy of instructions by reviewing them as a whole. United States v. McQuarry, 726 F.2d 401 (8th Cir.1984) (per curiam). A district court has wide discretion in formulating appropriate jury instructions. United States v. Reda, 765 F.2d 715, 719 (8th Cir.1985). A defendant is not entitled to a particularly worded instruction where the instructions given adequately and correctly cover the substance of the requested instruction. United States v. Reda, 765 F.2d at 719; United States v. Lisko, 747 F.2d 1234, 1238 (8th Cir.1984). Nor is the defendant entitled to an instruction when the evidence does not support it. United States v. Walker, 817 F.2d 461 (8th Cir.1987).

Kouba objects specifically to the district court's refusal to give an instruction concerning 26 U.S.C. Sec. 2501. He argues that the statute supports his position that the money he received from foreign trusts was not includable in gross income. Section 2501, however, concerns the gift tax; it provides that a transfer of intangible property by a nonresident is not subject to a gift tax. Internal Revenue Code section 102(a), covered by Instruction 26A, provides that gross income does not include the value of property acquired by gift. If the money Kouba received from foreign trusts was a gift, it was not includable in Kouba's gross income under section 102(a), regardless of whether it was exempt from gift tax under section 2501. Therefore, had the jury accepted Kouba's theory that money he received from foreign trusts was a gift, the instruction would have directed the jury to conclude that the money was not includable in his gross income and thus that he was not a person required to file income tax returns. Accordingly, we do not find that the district court abused its discretion in failing to give Kouba's proposed additional instruction.

Kouba also objects to the district court's failure to give a jury instruction generally setting out his theory of the case. 5 Reduced to its essence, Kouba's theory of the case was that he had a good faith misunderstanding of the law, both as to the charges of assisting in the preparation of false income tax returns and to the charges of failing to file his own income tax return.

The district court instructed the jury that in order to convict Kouba of the crimes charged, the government had to establish beyond a reasonable doubt that he willfully committed the acts prohibited by the statutes in question. In defining willfulness, the court instructed the jury that:

Defendant's conduct is not willful if he acted through negligence, inadvertence, or mistake, or due to good faith misunderstanding of the requirements of the law. It should be pointed out, however, that disagreement with the law is not a defense. It is the duty of all citizens to obey the law whether they agree with it or not.

The district court also instructed the jury that:

If a person in good faith believes that an income tax return, as prepared by him or her, truthfully reports the taxable income and allowable deductions of the taxpayer under the internal revenue laws, that person cannot be guilty of willfully preparing or presenting, or causing to be prepared or presented, a false or fraudulent return.

While good faith has no precise meaning, it encompasses, among other things, an honest intention, an absence of malice and an honest intention to abstain from taking any unconscientious advantage of another.

We find that these instructions adequately covered the substance of Kouba's defense theory and gave defense counsel the opportunity to make a fair and adequate argument on the theory that Kouba had a good faith misunderstanding of the law. See United States v. Walker, 817 F.2d 461 (8th Cir.1987); United States v. McQuarry, 726 F.2d at 402; United States v. Reda, 765 F.2d at 719. These instructions further fairly and adequately charged the jury as to what the government had to establish to support a conviction. See United States v. Pohlman, 522 F.2d 974 (8th Cir.1975), cert. denied, 423 U.S. 1049, 96 S.Ct. 776, 46 L.Ed.2d 638 (1976).

Kouba next claims that the district court engaged in an improper colloquy with the jury and erred in its response to a question submitted concerning Kouba's tax scheme after the jury reported that it was unable to reach a verdict on all counts. 6 The court requested the jury to prepare a partial verdict and return to the courtroom. When the jury returned, the court asked if in the opinion of all the members of the jury further deliberations would be productive. During the court's questioning, one of the jurors indicated that there was some confusion on how to treat the "trusts" issue in the case. The court responded that the validity or invalidity of the trusts was not an element in the case. 7 With two jurors indicating that further deliberations were possible and the foreperson concurring, the court sent the jury back for further deliberations. Soon thereafter the jury sent a question to the court which read: "Does the intent to use the trust have validity?" The court, over Kouba's objection, responded as follows:

ANSWER: You are instructed that the questions of intent and willfulness are covered in the instructions numbered 9, 10, 11 and 12 and that these instructions must be read with reference to all other instructions previously given to the jury.

Approximately one hour later, the jury returned the verdict finding Kouba guilty on all nine counts of assisting in the preparation of false income tax returns and on both counts of failing to file his own income tax return.

Kouba contends that the district court's response to the jurors' inquiry concerning the trust was improper and amounted to a directed verdict on the issue of intent in favor of the government. He also argues that the proper answer to the jury's question was that the intent to use the trust did have validity.

We conclude that when viewed in their entirety, the statements made in response to the jury's inquiries did not constitute an abuse of discretion on the part of the trial court. United States v. Larson, 612 F.2d 1301 (8th Cir.), cert. denied, 466 U.S. 936, 100 S.Ct. 2154, 64 L.Ed.2d 789 (1980). The court had ruled during the course of the trial that whether the trust system described by Kouba was a lawful method of tax avoidance was not at issue. At issue were Kouba's willfulness, his alleged good...

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