U.S. v. Shortt Accountancy Corp.

• Citation: 785 F.2d 1448
• Decision Date: 04 April 1986
• Docket Number: No. 85-1016,85-1016
• Parties: -1120, 86-1 USTC P 9317 UNITED STATES of America, Plaintiff-Appellee, v. SHORTT ACCOUNTANCY CORPORATION, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1448

785 F.2d 1448

57 A.F.T.R.2d 86-1120, 86-1 USTC P 9317

UNITED STATES of America, Plaintiff-Appellee, v. SHORTT ACCOUNTANCY CORPORATION, Defendant-Appellant.

No. 85-1016.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 15, 1985.

Decided April 4, 1986.

Jay R. Weill, Asst. U.S. Atty., San Francisco, Cal., for plaintiff-appellee.

Neil F. Horton, Johnston & Horton, Oakland, Cal., for defendant-appellant.

Appeal from the United States District Court for the Northern District of California.

Before DUNIWAY, ANDERSON, and PREGERSON, Circuit Judges.

DUNIWAY, Circuit Judge:

Shortt Accountancy Corporation appeals from its conviction on seven counts of making and subscribing false tax returns in violation of Sec. 7206(1) of the Internal Revenue Code of 1954. We affirm.

FACTS

Appellant Shortt Accountancy Corporation (SAC) is a CPA firm that performs accounting services, prepares tax returns and gives tax planning advice to its clients. Ronald Ashida was its chief operating officer and ran its day-to-day activities in 1981-82.

In the fall of 1981, Clifford Wilson contacted SAC for tax planning advice and services. In late December 1981, Ashida told Wilson that he could invest through SAC in a "straddle" position in government securities that would enable Wilson to claim a sizable deduction on his 1981 federal income tax return. A straddle is the simultaneous holding of a contract to purchase and a contract to sell a specific commodity at some time in the future. It is used to minimize risks by offsetting losses and gains. In order to claim the deduction, however, Wilson would have to backdate a promissory note so that the investment would appear to have been made in May, 1981, rather than December. The backdating was necessary, said Ashida, because Congress had changed the law to disallow deductions to taxpayers who purchased a straddle investment after June 23, 1981. Wilson agreed to consider the investment, but made no decision before the end of the year.

In early January 1982, Wilson told an Assistant U.S. Attorney about Ashida's investment advice. The Attorney put him in touch with the IRS, which proposed that Wilson cooperate with it in building a criminal case against SAC. He agreed upon the condition that the IRS reimburse him for the purchase price of the straddle position and for any fees charged him by SAC. He also understood that if SAC eventually prepared a tax return for him, the IRS would audit it and disallow any improper deductions claimed by SAC on his behalf. In that case, the IRS would assess Wilson for additional taxes owed, but would not require him to pay interest or penalties resulting from the improper deductions.

Wilson ultimately purchased a straddle position from SAC in April 1982. In addition to the purchase price of $3400, SAC charged Wilson interest calculated from May 1, 1981, so that it appeared that the transaction had occurred before the June 1981 cutoff date. No backdated documents were ultimately used in the transaction.

SAC completed preparation of Wilson's 1981 tax return in January 1983. In it, the firm claimed a $23,024 deduction for Wilson relating to his April 1982 straddle investment. Paul Whatley, who supervised the actual preparation of the return and subscribed to its correctness on behalf of SAC, based this figure on information provided to him by Ashida. Whatley did not know, when he signed the return, that the straddle investment was improperly claimed.

After receiving his 1981 return from SAC, Wilson delivered it to an IRS special agent who immediately filed it with the IRS District Director. He forwarded it to a processing center in October 1983 and Wilson has since received the tax refund claimed, plus applicable interest. He has not filed any other 1981 federal income tax return.

In the subsequent investigation of SAC's preparation of Wilson's 1981 return, the grand jury determined that SAC had prepared tax returns for at least six additional clients in which it improperly claimed deductions for straddle investments. In each case, the straddle position at issue was originally owned by other SAC clients who had purchased their interests from SAC before Congress' disallowance of the deduction in June 1981. Although these clients incurred straddle losses in May 1981 that properly could have been claimed on their 1981 tax returns, SAC determined that the original owners were oversheltered for the year and did not need the deductions. As a result, SAC, which was authorized to sell the client's interest in the straddle should it deem it to be in the client's best interest, sold their straddle positions and resulting losses to Wilson and the other new clients. Each sale occurred after the change in the law disallowing straddle deductions and each was structured to appear that it had occurred before the cutoff date.

In June 1984, the grand jury issued a fourteen count indictment charging SAC, Shortt and Ashida with violations of 18 U.S.C. Sec. 371, conspiracy to commit an offense against or to defraud the United States, and 26 U.S.C. Secs. 7206(1), false declaration under penalty of perjury, and (2), aiding preparation or presentation of false documents, under the internal revenue laws. The indictment's basis was SAC's alleged sale of interests in straddle positions after Congress disallowed deductions from such investments and its knowing preparation of tax returns claiming improper straddle deductions.

In August 1984, the defendants filed a joint motion for an evidentiary hearing on their motion to dismiss the counts relating to Wilson's return. They claimed that Wilson never intended the document prepared by SAC to represent his true 1981 federal income tax return and that his return was not, therefore, filed as required by United States v. Dahlstrom, 9 Cir., 1983, 713 F.2d 1423. The court denied the motion, holding that the issue was one for the jury.

At trial, defendants moved for judgment of acquittal following the opening statement and again at the close of the government's case. They claimed that a preparer of tax returns cannot be charged under Sec. 7206(1), which proscribes making and subscribing a false return, because it cannot "make" a return within the meaning of the statute. Defendants also argued that a corporation cannot be guilty of an offense under Sec. 7206(1) when the person who actually subscribes the false return believes it to be true and correct. The district court denied the motions.

One of defendant's defense theories at trial was that the returns it prepared were not false because Ashida had established a new partnership before the June 23, 1981 change in the law. This new partnership allegedly acquired the interests of the original straddle owners before May 4, 1981, the date when the straddle losses later sold to Wilson and the others actually occurred. Defendant claimed that Wilson and the other new SAC clients subsequently became partners in the new partnership and thus could properly deduct the straddle losses on their 1981 returns.

In charging the jury on SAC's partnership defense theory, the trial judge included the statement that "some act must have occurred creating this parent partnership on or before May 4, 1981, in order for this theory to apply." Defendants objected to the instruction on the grounds that it was erroneous as a matter of law and deprived them of their partnership defense theory. Their objection was overruled.

The jury ultimately convicted SAC on seven counts of willfully making and subscribing as preparer false income tax returns in violation of 26 U.S.C. Sec. 7206(1). SAC timely appeals.

I. Evidentiary Hearing on Motion to Dismiss.

Rule 12(b) of the Federal Rules of Criminal Procedure permits any defense "which is capable of determination without the trial of the general issue" to be raised by pretrial motion. The motion must be decided before trial "unless the court, for good cause, orders that it be deferred for determination at the trial of the general issue or until after verdict, but no such determination shall be deferred if a party's right to appeal is adversely affected." Fed.R.Crim.P. 12(e). SAC argues that this language required the district court to hold an evidentiary hearing on the issue of whether government informant Wilson intended his SAC prepared return to be his true return. Presumably, SAC further contends that the issue should have been decided before trial.

A pretrial motion is generally "capable of determination" before trial if it involves questions of law rather than fact. United States v. Korn, 5 Cir., 1977, 557 F.2d 1089, 1090; United States v. Jones, 6 Cir., 1976, 542 F.2d 661, 664; United States v. Miller, 5 Cir., 1974, 491 F.2d 638, 647. However, "a district court may make preliminary findings of fact necessary to decide the questions of law presented by pre-trial motions so long as the court's findings on the motion do not invade the province of the ultimate finder of fact." Jones, 542 F.2d at 664 (footnote omitted). See United States v. Coia, 11 Cir., 1983, 719 F.2d 1120, 1123. As the ultimate finder of fact is concerned with the general issue of guilt, a motion requiring factual determinations may be decided before trial if "trial of the facts surrounding the commission of the alleged offense would be of no assistance in determining the validity of the defense." United States v. Covington, 1969, 395 U.S. 57, 60, 89 S.Ct. 1559, 1561, 23 L.Ed.2d 94 . See 8 Moore's p 12.04 at 12-39 (1985).

Under this standard, the district court must decide the issue raised in the pretrial motion before trial if it is "entirely segregable" from the evidence to be presented at trial. United States v. Barletta, 1 Cir., 1981, 644 F.2d 50, 57-58. See Fed.R.Crim.P. 12(e); Jones, 542 F.2d at 664-65. If the pretrial claim is "substantially founded upon and intertwined with" evidence concerning the alleged offense, the motion falls within the province of...