U.S.A. v. Middlton
| Decision Date | 13 March 2001 |
| Docket Number | No. 00-3056,00-3056 |
| Citation | 246 F.3d 825 |
| Parties | (6th Cir. 2001) United States of America, Plaintiff-Appellee, v. David Middleton, Defendant-Appellant. Argued: |
| Court | U.S. Court of Appeals — Sixth Circuit |
Appeal from the United States District Court for the Northern District of Ohio at Akron. No. 99-00109, David D. Dowd, Jr., District Judge. [Copyrighted Material Omitted]
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[Copyrighted Material Omitted] Christian Strickan, ASSISTANT UNITED STATES ATTORNEY, Cleveland, Ohio, for Appellee.
Harvey B. Bruner, Bret Jordan, HARVEY B. BRUNER & ASSOCIATES, Cleveland, Ohio, for Appellant.
Before: COLE and GILMAN, Circuit Judges; BORMAN, District Judge*.
OPINION
Defendant-Appellant David Middleton ("Middleton") appeals his conviction and sentence for attempting to evade or defeat income tax due and owing, in violation of 26 U.S.C. §7201 (1994). Middleton concedes that from 1992 through 1996, he failed to file an income tax return despite earning more than $1.5million in income. He argues now, however, as he did unsuccessfully at trial, that he had a good-faith belief that he had no obligation to pay income tax, because the Internal Revenue Code ("the Code") sets forth no provision that explicitly requires the payment of income tax. Middleton assigns error to the following: (1) the district court's exclusion of his proposed voir dire questions; (2) the district court's admission into evidence of Middleton's 1976 income tax return without permitting him an opportunity to testify concerning its contents; (3) the district court's admission of evidence pertaining to Middleton's income for the tax years 1997 and 1998; (4) the district court's limitation of his cross-examination of Internal Revenue Service ("IRS") Special Agent Edward James; (5) the district court's exclusion of Middleton's trial exhibits; (6) the district court's allowance of Plaintiff-Appellee United States of America ("the Government") to rely upon allegedly unrelated court opinions to impeach Middleton; (7) the district court's instruction of the jury that "voluntary" is not the equivalent of "optional"; (8) the district court's denial of Middleton's motion to dismiss; (9) the district court's failure to define "affirmative act" in its instruction of the jury; (10) the district court's failure to permit Middleton to cross-examine the Government's expert witness, IRS Special Agent Kenneth Liuzzo on matters within his field of expertise; (11) the district court's refusal to grant him a three-level acceptance-of-responsibility reduction; (12) the district court's application of a two-level obstruction-of-justice sentencing enhancement; (13) the district court's application of a two-level sophisticated-means sentencing enhancement; (14) the district court's failure to grant Middleton's motion for judgment as a matter of law when the Government allegedly failed to establish that there was any tax due and owing; and (15) the district court's alleged bias, which deprived him of his right to a trial by a fair and impartial jury.
We affirm the judgment of the district court on every issue except that which concerns the district court's application of a two-level obstruction-of-justice sentencing enhancement. The district court's failure to set forth factual findings, independent of those contained within the presentence investigation report, in support of its enhancement of this contested sentencing issue -- as mandated both by Fed. R. Crim. P. 32(c)(1) and our decision in United States v. Tackett, 113 F.3d 603 (6th Cir. 1997) -- requires that we vacate Middleton's sentence and remand to allow the district court an opportunity to set forth its reasons for the enhancement. Accordingly, for the reasons set forth below, we AFFIRM the jury's judgment of conviction, VACATE Middleton's sentence, and REMAND to the district court for resentencing.
Middleton and his ex-wife, June Middleton, worked as real estate agents for Rockport Real Estate Investments, Inc. ("RRI"), a company owned by Regan Lutsko, and in which Middleton held no ownership interest. In 1981 or 1982, Middleton terminated his employment with RRI, but nevertheless held himself out as a principal of RRI, opening several bank accounts as an authorized accountholder and owner of RRI.
Sometime prior to 1992, the Middletons formed Middleton & Associates, which provided property-tax-reduction services to commercial property owners. The Middletons would identify commercial properties that appeared to be overvalued for property tax purposes, request a reassessment by the county (often without the owners' knowledge or consent), and then seek fees from the owners of 33% to 50% of the tax savings for successful appeals. Middleton also worked during this period as a consultant with Pro Tax, a California-based tax-reduction service operated by his sons. In 1992, Pro Tax began to send checks to Middleton, payable to RRI, for consulting fees. From 1992 through 1996, Middleton's Pro Tax receipts grew progressively larger. Although he received only $38,000 in consulting fees in 1992, that amount had increased to $630,000 by 1996. Inclusive of real estate sales and property tax consulting with both Middleton & Associates and Pro Tax, Middleton received more than $1.5 million in gross receipts over this five-year period: $212,866.64 in 1992; $78,584 in 1993; $275,000 in 1994; $328,137.14 in 1995; and $656,131.21 in 1996.
Middleton would deposit these receipts into various non-interest-bearing business accounts that he had established at banks in California and Ohio under various business names, such as Rockport Realty Investments/Middleton & Associates, Middleton & Associates, and Rockport Realty Investments. According to the Government, Middleton preferred such accounts because they neither generate IRS 1099 forms that record earned interest nor carry employer identification numbers. Middleton was the only authorized signer on these accounts. Once Middleton made a deposit, the Government alleges that he would write several checks and then travel to a rotating schedule of branches to cash them by making a series of structured withdrawals for less than $10,000, a process that sometimes took days to complete. Withdrawals of less than $10,000 do not generate Currency Transaction Reports ("CTRs") from the bank to the United States Treasury Department. From 1992 to 1996, Middleton made 247 withdrawals ($1,455,500 of the $1,556,647.16 that he deposited in his accounts), only three of which were for more than $10,000. Middleton never reported his gross receipts to the IRS as compensation received from any of the business entities listed on his bank accounts.
In 1995, after noticing Middleton's pattern of repeated withdrawals of less than $10,000, a Lorain National Bank employee filed a Suspicious Activity Report ("SAR"), which prompted an investigation of Middleton by IRS Special Agent Edward James. James's investigation revealed that Middleton lived what the Government has referred to as "a cash lifestyle." He never used personal or business checks to pay bills, relying instead on cash, money orders, bank checks, and endorsed business receipt checks. James also determined that Middleton had earned $1,556,647.16 in income during the tax years 1992 through 1996, and that he had filed no income tax returns since 1976.
On April 7, 1999, a grand jury of the United States District Court for the Northern District of Ohio returned a five-count indictment against Middleton, charging him with attempting to evade or defeat income tax due and owing for the tax years 1992 through 1996, in violation of 26 U.S.C. §7201. 1 Relying upon Cheek v. United States, 498 U.S. 192 (1991), Middleton admitted that he had not filed a tax return since 1976, but argued at trial that he had a good-faith basis to believe that he was under no legal obligation to do so. A jury rejected his argument and returned a guilty verdict as to all counts on September 30, 1999. The district court sentenced him to 36 months' imprisonment. Before this Court is Middleton's timely appeal from the judgment and sentence.
In reviewing the district court's voir dire in this case, we must determine whether the court "abused the broad discretion vested in [it] by the rulings of the Supreme Court of the United States in [its] impaneling of [the] jury," United States v. Phibbs, 999 F.2d 1053, 1071 (6th Cir. 1993) (quoting United States v. Blanton, 719 F.2d 815, 822 (6th Cir. 1983)), remaining mindful of the fact that a district court "retains great latitude in deciding what questions should be asked on voir dire." Mu'Min v. Virginia, 500 U.S. 415, 424 (1991). We ascertain only whether the district court ensured that Middleton had "a fair trial by a panel of impartial, 'indifferent' jurors." Irvin v. Dowd, 366 U.S. 717, 722 (1960). Only in the absence of a fair trial is reversal warranted. See id.
Prior to jury selection, Middleton submitted a list of proposed voir dire questions that were crafted "to elicit answers from the venire which would reveal the presence of any bias against individuals who do not pay income taxes, or any 'tax protestor' activities." The Court refused to ask Middleton's proposed questions, opting instead to ask more general questions on the subject of bias. Middleton contends that the district court abused its discretion by refusing his requests to inquire into tax-protestor bias on the part of the venire, while permitting the Government an opportunity to ask the venire questions concerning anti-IRS bias.
Middleton's argument is without merit. While it is true that the district court refused to ask the venire specific...
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