In the
United States Court of Appeals
For the Seventh Circuit
No. 09-4077
U NITED STATES OF A MERICA,
Plaintiff-Appellee,
v.
W AYNE W. K RUSE,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 1:08-cr-00339-WCG-1—William C. Griesbach, Judge.
A RGUED A PRIL 14, 2010—D ECIDED M AY 25, 2010
Before P OSNER, R IPPLE and K ANNE, Circuit Judges.
R IPPLE, Circuit Judge. Wayne W. Kruse was convicted
of one count of conspiracy to defraud the United States,
in violation of 18 U.S.C. § 371, and three counts of
filing false income tax returns, in violation of 26 U.S.C.
§ 7206(1). He now challenges the sufficiency of the evi-
dence supporting his conviction. For the reasons set
forth in this opinion, we affirm the judgment of the
district court.
2 No. 09-4077
I
BACKGROUND
Mr. Kruse owned Wayne’s Caulking as a sole proprie-
torship. He had owned the business since 1991 and has
been in the industry approximately 35 years. During times
relevant to this case, Mr. Kruse employed a bookkeeper
and receptionist, Jody Zepnick, and used the services
of a paid tax preparer, Lonny Swaney, who owned
Pullen Accounting. The evidence established that
Mr. Kruse filed materially false income tax returns for
the years 2002, 2003 and 2004. His returns claimed deduc-
tions for non-existent business expenses and therefore
underreported his business income by $476,287 over
the three years. The underreported amounts ranged from
$100,000 in 2003 to $198,802 in 2002. Consequently, the
amount of tax due was underreported by $168,532 over
the three years. The dispute at trial focused on whether
Mr. Kruse willfully had filed these false returns.
We review the basic evidence submitted to the district
court who sat as the trier-of-fact. In 2005, the Govern-
ment audited Mr. Kruse’s returns. At Mr. Kruse’s direc-
tion, Zepnick worked with IRS revenue agent Robert
Ulrich during the audit. Agent Ulrich asked Zepnick to
document a $105,803.72 expense from December 2003,
attributable to job materials. Zepnick produced invoices
totaling $5,803. Zepnick also indicated that, according to
Mr. Kruse, receipts documenting the remainder of the
expenses had been moved to Mr. Kruse’s residence
because of insufficient storage room at the shop. Agent
Ulrich testified, however, that “[i]t appeared that they
No. 09-4077 3
had plenty of storage in their business location.” Trial Tr.
at 45, Apr. 13, 2009. Agent Ulrich subsequently met
with Mr. Kruse. Mr. Kruse stated that he had gone
through the boxes he had moved and could not find the
receipts. He said that he must have totaled the invoices
at the end of the year.
Mr. Kruse also had tens of thousands of dollars in
unreported gambling winnings as shown in W-2G’s—
$12,000 in 2003 and over $100,000 in 2004. Agent Ulrich
testified that, when asked why he did not report
the winnings, Mr. Kruse stated that “[i]t wasn’t that
much, so he didn’t think it mattered that much.” Id. at 64.
Although Mr. Kruse indicated that he thought he
was losing money on his gambling, he did not keep
records of it.
After Agent Ulrich’s audit, the case was transferred to
Special Agent Jeffrey Luepke. Mr. Kruse told Special
Agent Luepke that no suppliers billed him at the end of
the year, and there would not have been any large, end-of-
year inventory purchases. When asked about the
$105,000 entry from 2003, Mr. Kruse stated that he did
not know where that number had originated or why
there would be such a large entry at the end of the year.
He said that Swaney, his tax preparer, must have made
the entry. Mr. Kruse had a similar response to a $140,000
entry from 2004. Mr. Kruse also stated that he was
making $300,000 to $400,000 per year from the business.
When told that his tax returns only showed about
$100,000 of income per year, Mr. Kruse “stated maybe he
wasn’t as profitable as he thought.” Id. at 194. Mr. Kruse
4 No. 09-4077
again acknowledged his gambling winnings, expressed
his belief that he was losing and stated that he did not
keep any records.
In a second meeting with Special Agent Luepke,
Mr. Kruse attempted to explain the inconsistency
between what he earlier told Special Agent Luepke and
what he had told Agent Ulrich. The amount of expenses
documented at his home, Mr. Kruse stated, would not
come close to the amounts in question. Moreover, he
did not recall totaling up receipts at the end of the year.
He also stated that he did not know the origin of a
$175,000 entry from 2002.
Mr. Kruse also told Special Agent Luepke about his
contacts with Swaney. According to Special Agent
Luepke, Mr. Kruse said that the two had met “to discuss
his taxes and that during that conversation they talked
about how they could use the term ‘balance things out’
and they could move things here and move things here
[sic] to reduce his tax liability.” Id. at 206. Mr. Kruse
also told Special Agent Luepke that he and Swaney
recently had agreed to “cover each other’s backs. And
[Special Agent Luepke] asked him what that meant, and
he said, [w]ell, we said we wouldn’t squeal.” Id. at 207.
Mr. Kruse admitted that he knew something was going
on with the tax returns, but did not know the extent of it.
The documentary evidence introduced at trial in-
cluded an annotated profit-loss statement from 2004. The
annotations, in the handwriting of Swaney, stated:
“Added $199090.00. Saved $74459.66 in taxes.” Ex. 14. Also,
documents revealed that Mr. Kruse took personal draws
No. 09-4077 5
in each of the years in question that dwarfed his
reported income. Finally, the tax returns from 2002
through 2004 reflected profit margins of only 8-11%,
much lower than the 26% margin reflected in 2005 and
32% in 2006.
When Zepnick, Mr. Kruse’s bookkeeper, was asked
whether Swaney “was involved in preparing tax re-
turns for Mr. Kruse’s business,” Zepnick answered, “I’m
assuming no. I don’t know for certain who did the taxes.”
Trial Tr. at 101, Apr. 13, 2009. When asked if she remem-
bered what kinds of records she provided during the
IRS audit, or any bumps in the road during the audit,
Zepnick said no. She did not recall any questions from
the auditor concerning the amount of $105,803.72. She
also testified that Mr. Kruse does none of the book-
keeping work for his business, and that she never went
through the tax returns with Mr. Kruse or even saw him
look at them. She admitted, however, that she provided
information from Pullen Accounting to Swaney’s son,
Michael, to be entered into the business’s QuickBooks
computer journals.
Mr. Kruse testified that he met Swaney for five minutes
after Swaney called to introduce himself and to tell
Mr. Kruse about his impending takeover of Pullen Ac-
counting. Mr. Kruse further testified that he and Swaney
never discussed the preparation of tax returns. He
testified that he never reviewed his actual tax return, he
“just sign[ed] it and sen[t] it back.” Trial Tr. at 95, Apr. 14,
2009. He never had prepared his own tax returns. He
did not recall getting the annotated 2004 profit-loss state-
6 No. 09-4077
ment from Swaney. He also testified that it never
occurred to him that he would be violating the law by
“put[ting] this over here, this over here to give me the
best tax break that they can come up with.” Id. at 107.
Mr. Kruse was convicted following a bench trial. The
district court issued a written decision in which it em-
phasized several facts. No one other than Mr. Kruse
profited from filing the false tax returns; the profit-loss
statements reflecting the fictitious expenses were taken
from Mr. Kruse’s own business; Mr. Kruse had made
contradictory statements to IRS officials and admitted
to making some sort of agreement with Swaney; and
Mr. Kruse had made large personal draws for himself
that dwarfed his reported income. The court also noted
Mr. Kruse’s gambling habits, which suggested a possible
motive for his conduct, as well as a willingness to
cut corners on taxes.
The court noted that Mr. Kruse denied that he had
entered into a conspiracy or that he willfully had over-
stated his expenses, but found this testimony not credi-
ble. Moreover, that lack of credibility strengthened the
case against Mr. Kruse.
II
DISCUSSION
Mr. Kruse contends that the Government did not
prove that his conduct was willful and that the Govern-
ment did not prove that he conspired with Swaney. We
No. 09-4077 7
first shall review the legal principles that guide our
inquiry.
In order to convict Mr. Kruse of filing false tax returns,
the Government was required to prove, among other
things, that his conduct was willful. This element
requires “proof of a ‘voluntary, intentional violation of a
known legal duty.’ ” United States v. Ellis, 548 F.3d 539,
542 (7th Cir. 2008) (quoting Cheek v. United States, 498
U.S. 192, 200 (1991)). In order to convict Mr. Kruse of
conspiracy, the Government had to prove (1) that
the charged conspiracy existed, (2) that the defendant
knowingly and willfully joined the conspiracy with
intent to further the conspiracy and (3) that an overt act
was committed in furtherance of the conspiracy. United
States v. Presbitero, 569 F.3d 691, 704 (7th Cir. 2009). The
intent required is intent to defraud the United States.
Id. at 704-05.
When reviewing the sufficiency of the evidence, we
view the evidence in the light most favorable to the
Government and reverse only if no rational trier of fact
could have concluded that all elements of the offenses
were proven beyond a reasonable doubt. United States v.
Khattab, 536 F.3d 765, 769 (7th Cir. 2008). We do not
weigh the evidence or assess credibility. United States v.
Huddleston, 593 F.3d 596, 601 (7th Cir. 2010). “[A] verdict
may be rational even if it relies solely on circumstantial
evidence.” United States v. Warren, 593 F.3d 540, 547
(7th Cir. 2010) (internal quotation marks and citation
omitted).
8 No. 09-4077
The evidence at trial was sufficient to justify Mr. Kruse’s
conviction. Indeed, it was substantial.1 Government
witnesses testified about conflicting explanations of the
tax returns given by Mr. Kruse. According to these wit-
nesses, Mr. Kruse told Agent Ulrich that Mr. Kruse had
totaled the invoices at the end of the year and those
invoices would have supported the tax return, but that
he could not find the receipts. Later, he told Special
Agent Luepke that he had no idea where the figures on
the tax return had originated. The contradictions in this
testimony allowed the district court, as fact-finder, to
infer that Mr. Kruse was altering his story because he
knew the returns were false.
Mr. Kruse also told Special Agent Luepke that he was
making $300,000 to $400,000 per year from the busi-
ness—figures that greatly exceeded those on his tax
returns. The district court therefore could infer that
Mr. Kruse knew he should have reported additional
income. Finally, Mr. Kruse took personal draws from
1
In his reply brief, Mr. Kruse cites United States v. Durrive,
902 F.2d 1221, 1225 (7th Cir. 1990), to argue that the Govern-
ment may not rely on the now-discredited “slight evidence”
rule to prove the defendant’s participation in a conspiracy.
The Government does not rely on such a standard. It acknowl-
edges that we shall affirm if the evidence, taken in the light
most favorable to the Government, is sufficient to prove all
elements of the crime beyond a reasonable doubt. We note
that, in Durrive, we said that “we will continue to . . . accept
circumstantial evidence as support, even sole support, for
a conviction.” Id. at 1229.
No. 09-4077 9
the business, during each of the years in question, that
greatly exceeded his reported income. This conduct
allowed the trier to infer that Mr. Kruse knew that the
business was taking in at least as much money as he took
out. In addition to the foregoing evidence, which bears
directly on the 2002, 2003 and 2004 falsifications,
Mr. Kruse’s unreported gambling winnings allowed
the fact-finder, in the context of this case, to infer lack
of respect for the tax laws.2
The evidence also allowed the district court to convict
Mr. Kruse of conspiracy. Mr. Kruse submits that circum-
stantial evidence is insufficient to support his con-
spiracy conviction,3 but this assertion is incorrect. See
United States v. Starks, 309 F.3d 1017, 1021 (7th Cir. 2002)
(“[C]ircumstantial evidence is no less probative of guilt
than direct evidence.”). The circumstantial evidence of
his complicity in the understatement of his income
was, moreover, substantial. The district court was
2
Mr. Kruse submits that “the District Court erred in giving
great weight to Mr. Kruse[’s] failure to report gambling
los[s]es as a basis of finding him guilty of tax fraud.” Appellant’s
Br. 6. This proposed reweighing of the evidence is beyond
the scope of our review. It is enough to note that in this case,
Mr. Kruse’s failure to report over $100,000 of gambling
winnings in 2004 rationally could justify an inference that
Mr. Kruse lacked respect for the tax laws. This, in turn, helps
support the inference that Mr. Kruse willfully evaded taxes.
3
To the extent Mr. Kruse also contends that the Government
did not prove an overt act, we note that the filing of false
tax returns constitutes such an act.
10 No. 09-4077
entitled to conclude that a paid tax preparer would
have little motivation to falsify a client’s business expense
and provide the client with notes about the falsification
without the client’s complicity. Yet, the evidence
indicated that Swaney had followed just such a course
in his 2004 annotated profit and loss statement. Al-
though Mr. Kruse contends that he never saw these
statements, they were taken from his business, of which
he was sole owner-operator. The district court was
entitled to infer that the notes were intended for him
and that he saw them. Additionally, Special Agent
Luepke testified about Mr. Kruse’s statements admitting
that he and Swaney had discussed preparation of his
taxes and that he and Swaney had agreed to cover each
other’s backs. A fact-finder certainly was entitled to
conclude that, unless Swaney and Mr. Kruse had agreed
to proceed illegally, they had nothing to cover.
Mr. Kruse’s other contentions are essentially requests
that we reweigh the evidence. He repeatedly points us to
his own testimony, as well as to that of Zepnick, and
argues that he had nothing to do with preparing his
taxes and had placed blind faith in Swaney. However, the
district court found Mr. Kruse’s testimony not credible.
It is not necessary that the court’s conclusion be the only
rational finding it could have made. “[T]he trier of fact
is free to choose among various reasonable constructions
of the evidence.” Starks, 309 F.3d at 1022 (internal quota-
tion marks and citation omitted).
No. 09-4077 11
Conclusion
The evidence at trial was sufficient to find Mr. Kruse
guilty of the charged offenses beyond a reasonable
doubt. His convictions are therefore affirmed.
A FFIRMED
5-25-10