U.S. v. Little
| Decision Date | 15 February 1985 |
| Docket Number | 83-1026 and 83-1032,Nos. 83-1021,s. 83-1021 |
| Citation | 753 F.2d 1420 |
| Parties | -345, 84-2 USTC P 9889 UNITED STATES of America, Plaintiff-Appellee, v. F. Thomas LITTLE, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Peter CHERNIK, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Harold GRUTCHFIELD, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Deborah Wright Dawson, Washington, D.C., for plaintiff-appellee.
E.O.C. Ord, San Francisco, Cal., for defendants-appellants.
Appeal from the United States District Court for the Northern District of California.
Before ALARCON, and CANBY, Circuit Judges, and STEPHENS *, District Judge.
In these three companion appeals, appellants F. Thomas Little, Peter R. Chernik, and Harold Grutchfield challenge their convictions for conspiracy to defraud the United States by impeding, impairing, obstructing and defeating the lawful function of the Internal Revenue Service and Department of Treasury in the collection of tax revenue, in violation of 18 U.S.C. Sec. 371. Little, Chernik, and Grutchfield individually and jointly raise numerous issues on appeal. We affirm their convictions.
The indictment in this matter stemmed from an IRS undercover investigation of Indec Financial Inc. (Indec), a real estate development company that sold interests in real estate limited partnerships to investors. Little was the chairman of Indec's board of directors. Chernik, a member of the California bar, was Indec's legal counsel. Grutchfield was Indec's president. Peter Yost, who did not appeal his conviction, was a salesperson for Indec. 1
The IRS investigation commenced on December 24, 1980, when IRS Special Agent Christopher White, posing as Charles Whitman, a representative for a group of investors looking for tax shelters, called Little at Indec regarding a possible investment in a tax shelter. White was referred to Yost. White discussed with Yost the possibility of providing a $200,000 tax shelter for calendar year 1980 for a wealthy client. White stated that he might not be able to contact his client until January 1981. Yost indicated that Indec could accept a check in January 1981. Yost scheduled a meeting with White in Indec's offices for December 29, 1980.
At the December 29 meeting, Yost explained Indec's investment and shelter programs. According to Yost, Indec had two types of investment programs: one was designed to make a profit and the other was designed to shelter income from taxation. Bedford & Company, a partnership in the Cayman Islands, was of the latter type. Yost explained the Bedford partnership in detail and offered to sell White's client an interest in Bedford.
White again told Yost that he might have difficulty contacting his client before January 1981. Yost assured White that this would not be a problem. Yost explained that the client's entitlement to a tax deduction depended on his participation in the Bedford partnership prior to June 1, 1980. Because that critical date had already passed, a backdated subscription agreement and promissory note would be used to provide documentary proof that the client was a member of the partnership prior to the June 1, 1980 deadline. The partnership's records would then reflect that the client's 1981 check was a delinquent payment on the 1980 promissory note. Yost agreed with White that the client's accountant and attorneys should not be told of the backdated note. Before the December 29 meeting had ended, Yost gave White several documents, including a Bedford offering memorandum, a blank promissory note to Bedford, and a tax opinion letter regarding Bedford which bore Chernik's signature.
On January 12, 1981, White called Yost at Indec's offices to discuss the Bedford investment. Yost recommended that White's client participate in Bedford for three or four years to avoid scrutiny from the IRS. Yost repeated his explanation of the use of the backdated documents and reassured White that his client could take a deduction on his personal tax return for 1980, despite his becoming a member of the Bedford partnership until 1981. Yost further explained that the backdated promissory note would be used only for 1980. For subsequent years of participation in Bedford, White's client would be billed prior to June 1. Yost also emphasized that the IRS would be unable to subpoena Bedford's partnership records because they were maintained in the Cayman Islands.
White asked Yost to send him a sample of the documents used for filing the individual partners' personal tax returns and an outline of the mechanics of Bedford's On January 22, White went to Indec's offices to pick up the written explanation of the Bedford investment program and a copy of the schedule his client was to use when filing his individual tax return. The receptionist gave White an envelope which contained an outline of Bedford's investment plan prepared by Yost and a copy of a schedule E tax form. While White was at Indec's offices, Little approached White and asked him if he had any questions regarding the investment in Bedford. White responded that he was confused about the mechanics of the investment and how it related to the Bedford offering memorandum. Little told White that the offering memorandum was for purposes of the IRS only. Little also explained that Bedford would prepare the information necessary for White's client to file his tax return. Little assured White that his client's privacy would be protected by a numerical filing system. The only documents which would link names to the numbers were secured by an accountant in the Cayman Islands.
investment plan. The copy of the tax schedule Yost sent to White differed from that which Yost had previously indicated should be used. During a subsequent telephone cnversation with Yost, White inquired into this discrepancy. Yost explained that there were some options as to which tax schedule could be used and he would later determine which one White's client should use to report the deduction from Bedford.
On February 6, 1981, White and Special Agent Walter Perry, who posed as Vincenzo Paoli (Paoli), White's wealthy client, met with Yost, Little, and Chernik to discuss the Bedford investment plan. This and subsequent meetings and telephone conversations between IRS agents and Indec representatives were secretly recorded.
At the February 6 meeting, Little introduced Chernik as Indec's attorney and theorist. Little presented to White and Paoli an overview of Indec's investment programs. Little then elaborated on the specific mechanics of the Bedford partnership investment plan. Little explained that there was an interest in Bedford available for 1980, but in order for Paoli to take a 100% deduction Paoli would have to have entered the partnership before June 1, 1980. Little and Yost assured Paoli that a backdated promissory note would allow him to use Bedford as a deduction for his 1980 individual tax returns and that the IRS would not be able to dispute or disprove that he entered Bedford in May of 1980. Little and Yost also stated that they had successfully used the backdating procedure with other clients. Little advised Paoli not to inform his accountant of the true details of the Bedford deduction because accountants are not privileged. Chernik was present during Little's presentation of the Bedford partnership and explanation of the use of backdated documents.
During the course of the February 6 meeting, Little gave Paoli three copies of a blank subscription agreement and a promissory note to sign. Little encouraged Paoli to sign the Bedford partnership agreement so that he or Chernik could take these documents with them on their upcoming trip to the Cayman Islands. Paoli told the others that he had decided to leave the final decision whether to invest in Bedford up to White.
After the meeting concluded, Agent Perry initialed and signed the Bedford subscription agreements and the promissory note under his assumed name, Vincenzo Paoli. Perry gave the signed documents to White.
On February 9, White took the signed subscription and promissory note to Indec's offices. White told Yost and Little that he was uneasy about having to decide whether Paoli should invest in Bedford. Little and Yost reassured White that similar transactions had been successful in the past. Little again emphasized that the dates on the documents could not be disproved, absent a breach from one of the parties involved in the transaction. Little left the meeting and Yost continued speaking with White.
Yost showed White two client files containing backdated promissory notes and offered to contact one of these clients. The client told White that he was satisfied with the backdating method. Yost's client also told White that he had been given backdated dunning letters. Yost assured White that dunning letters could be provided to Paoli if he wanted them. Yost also emphasized the secrecy regarding the files on Paoli's investment in Bedford. White left Indec's office and later that evening called Yost to inform him that he had advised Paoli not to invest in Bedford.
On February 18, White returned Yost's call and briefly conversed with him. This was White's last contact with Indec personnel. The undercover operation was suspended for several months because of the unavailability of government funds for the investigation. IRS agents resumed the undercover investigation of Indec in August 1981.
On August 27, 1981, Agent Perry, acting as Paoli, called Yost and asked whether Indec still had any tax shelters available for 1980. Yost indicated that such a shelter was available and arranged a meeting for September 21.
On September 21, 1981, Paoli and another IRS special agent posing as Joe Russo, met with Yost, Little, Chernik, and Grutchfield at Indec's new office. Paoli...
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