United States v. Kottwitz

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 08-13740 AUGUST 19, 2010
________________________ JOHN LEY
CLERK
D. C. Docket No. 07-00107-CR-TCB-3-1

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

THERESA L. KOTTWITZ,
GERARD MARCHELLETTA, JR.,
GERARD MARCHELLETTA, SR.,

Defendants-Appellants.

________________________

Appeals from the United States District Court
for the Northern District of Georgia
_________________________

(August 19, 2010)

Before EDMONDSON and BIRCH, Circuit Judges, and HODGES,* District
Judge.

*
Wm. Terrell Hodges, United States District Judge for the Middle District of Florida,
sitting by designation.
PER CURIAM:

Defendants Theresa L. Kottwitz [“Kottwitz”], Gerard Marchelletta, Sr.

[“Senior”], and Gerard Marchelletta, Jr. [“Junior”] appeal their convictions and

sentences for tax fraud-related charges. We find the evidence sufficient to support

the jury’s verdict regarding their conspiracy convictions and that the general good

faith jury instruction that was provided by the district court fully encompassed

Kottwitz and the Marchellettas’ theory of defense on this charge. We find,

however, that the district court erred in refusing to give Kottwitz’s and the

Marchellettas’ requested special instruction to the jury on their good faith reliance

on their accountant’s advice. Because the evidence was sufficient for a properly

instructed jury to convict on the charges of filing materially false personal income

tax returns for 2000 as to Junior and Senior and for evading taxes as to Senior, we

vacate and remand for retrial in light of the jury instruction error. Because the

evidence was insufficient for a properly instructed jury to convict on the charge of

aiding and assisting in the filing of a materially false corporate tax return for 2001,

we reverse the convictions of Kottwitz, Junior, and Senior and remand with

directions to enter a judgment of acquittal on this count.

2
 I. BACKGROUND

Nastasi & Associates [“Nastasi”] is a carpentry union subcontractor in

Garden City, New York which installs and finishes drywall. R20 at 438. It was

formed by Frank Nastasi [“Frank”] and Senior in 1993, and was owned by Frank

and Tom Nastasi, Hughey White, and Senior. In 2002, Nastasi’s president was

Frank’s son, Anthony Nastasi [“Anthony”].1 Id. at 437, 439-42, 473. At Nastasi,

Senior served as the Executive Vice President and was in charge of estimating. Id.

at 442. Nastasi owned a majority interest in Circle Industries [“Circle”], a

commercial drywall contracting business in Atlanta, Georgia formed by Junior in

the early 1990s.2 R17 at 95; R18 at 224; R20 at 370-71, 474. During the first few

years after Circle began working in Atlanta, Circle was often short of cash,

including what was necessary for payroll, and regularly obtained loans from

Nastasi. Id. at 392, 430, 435, 521.

1
Frank and his brother, Tom Nastasi, established Nastasi Brothers in the 1950s. R20 at
468-69. Senior started working for the Nastasi Brothers while he was in high school, and was
eventually promoted to a job estimator in the front office. Id. at 469. In the late 1950s or early
1960s, Nastasi Brothers merged with another subcontractor to form Nastasi White. Id. at 438,
468, 470. Nastasi & White was owned, in part by Frank, Tom, and Senior, and installed drywall
work in the World Trade Center. Id. at 471-72.
2
Junior had worked as an employee of Nastasi predecessor, Nastasi White. R20 at 474;
R17 at 95. In 1984, Nastasi White purchased New York’s “biggest” drywall business, Circle
Industries. R20 at 471-72.

3
 In 1998, Circle was awarded a construction project working on the Atlantis

hotel and casino in Nassau, Bahamas. R18 at 224-25, 228. Because Bahamian

employment law required that employees working in the Bahamas work for

Bahamian companies, Circle organized Circle Industries, Ltd. as a Bahamian

company to pay its employees. Id. at 239; R20 at 415.

About the same time, Senior decided that he wanted to retire from Nastasi

and move to Atlanta to help Junior run Circle. On 31 December 1998, Senior and

Frank entered into a stock swap agreement with the assistance of Nastasi’s tax

attorney, William Bernard, in which Senior exchanged his interest in Nastasi for

the stock held by Nastasi in Circle, and Nastasi agreed to repay a $700,000 loan

from Senior.3 R20 at 444-45, 448-49, 478, 499-521; R27 at 1102-03; Govt. Exhs.

458-60. The stocks transfer was to have been completed prior to 1 January 2000.

R26 at 289. At the time of the stock swap agreement, the Nastasi stock was owned

70 percent by Frank and 30 percent by Senior; the Circle stock was owned 80

percent by Nastasi. R20 at 448. Senior’s 30 percent share of Nastasi stock was

valued at $1,300,000; Nastasi’s 80 percent share of Circle stock was valued at

$1,050,000. Id. at 502-03; Exh. 473. As part of the consideration, Nastasi agreed

to make an additional $250,000 payment to Circle. Id. at 503; Exhs. 456. 473,

3
The stock exchange agreement was also reviewed by Stanley Schleger [“Schleger”], an
independent accountant who performed Nastasi’s audits. R20 at 499, 524-25.

4
473.1. The stock exchange was recorded in Nastasi’s general ledger. R20 at 501.

The $250,000 was wired from Nastasi to Circle on 11 February 1999, and was

received and recorded in Circle’s operating account where it was co-mingled with

other monies in that account. Id. at 501-04; R24 at 198-207; R26 at 280-82.

Schleger, who was performing accounting and auditing services for both Nastasi

and Circle in 1999, considered the $250,000 transfer a loan and entered it on

Nastasi’s records as an “advance against cost to affiliate” [Circle] and on Circle’s

books as an advance from a shareholder [Nastasi]. R20 at 503-04, 505-07, 522-24;

R24 at 199-200, 202-03; R26 at 280-82; Govt. Exh. 473.1. The $250,000 was

spent from that account by the end of February 1999. R26 at 282-84. After the

stock swap, Senior had no ownership interest in Nastasi and owned about a 75

percent interest in Circle; Junior served as President of Circle and owned about 25

percent. R18 at 153; R20 at 500; R26 at 288; Govt. Exhs. 5 at 2, 458-60. Senior

devoted 75 percent of his time to Circle, while Junior devoted 100 percent of his

time to Circle. Govt. Exh. 5 at 2. For tax year 2000, Circle had approximately $26

million in gross revenue, principally from large commercial projects such as

dormitories, hospitals, hotels, nursing homes, and resorts. R18 at 224-25; R20 at

373; Govt. Exh. 5 at 1.

5
 Senior’s estimating expertise and the estimating software that he developed

were “critical” to Nastasi’s business, and he continued to work for Nastasi until he

retired in 2000. R20 at 450. While working for Nastasi, Senior’s W-2 statements

were prepared by the Nastasi bookkeeping department and reviewed by their

accountants. Id. at 518. Upon Senior’s retirement, he entered into an agreement

not to compete with Nastasi for construction work. The agreement also provided

that Senior and Circle were employed as advisors and consultants to Nastasi, with

payment to Circle, Senior or any company either or both of them owned. By

separate agreement, Senior or his designee was guaranteed $1,300,000, to be paid

in 213 weekly installments of $6,000 and one $4,000 installment as consulting

payments, effective 1 January 2000. Id. at 450-51, 453-57, 508; R26 at 294; R27

at 1102-03; Govt. Exhs. 459, 460. Much of the consultation estimation work took

place between the information technology departments of Nastasi and Circle

working with Senior’s estimating software, which both Nastasi and Circle used.

R20 at 451, 458-59. On a weekly basis, Circle sent an invoice to Nastasi for

Senior’s consulting work, Nastasi paid Circle $6,000, and Circle deposited the

$6,000 into its bank account. Id. at 459-62, R24 at 218; Exhs. 461-63, 465.1-.44,

466.1-.42, 467.1-.13. Nastasi recorded the payments as “consulting fees” and

Circle recorded them as “other income.” R20 at 458-61, 509, 545, 555-60; R22 at

6
163; R24 at 215. No other checks or monies were posted to the “other income”

account. R20 at 557. The payments were included on Nastasi & Associates’

corporate income tax return, which were audited by the IRS, as consulting fees. Id.

at 510, 530-31.

Kottwitz was employed as a bookkeeper/controller for Nastasi. Id. at 504.

While at Nastasi, Kottwitz worked with Nastasi’s outside accountant, Gary

Schwartz [“Schwartz”], while he was working with the Stanley Schleger

independent accounting firm4 and after he had opened his own practice. Id. at 424-

25, 497, 513, 521; R22 at 30-33, 36-38, 156. Schwartz performed work on the

Nastasi tax returns at both the Nastasi and Schleger accounting offices. Id. at 35.

Kassandra Logan [“Logan”] began working for Circle in 1994 and,

beginning in 1995, performed data entry for accounts payable and estimating. R20

at 370-72. She learned Circle’s Emque accounting program from Kottwitz during

a trip to New York and spoke to her on the telephone if she had any questions. Id.

at 370, 374. Logan explained that, when an invoice for goods or services was

received at Circle, it was opened by the receptionist and sent to an accounts

payable clerk, who then matched it to a shipping or delivery ticket to insure that the

materials had been received, and entered the job name and number and general

4
Schleger worked with the Nastasis, in their various businesses, for over 40 years until
2004. R20 at 498.

7
ledger information onto the invoice. Id. at 375, 383, 422-23. Circle received

between 50 and 100 invoices each day. Id. at 423; R26 at 312. The job name

reflected the project and the job number was assigned by year and the historical

order of the awarded job. Id. at 376-377. The standard job number consisted of

five digits: the first two represented the year that the project began, and the last

three were assigned consecutively in chronological job order. Id. The accounts

payable clerk determined what job and general ledger number to assign to each

invoice, entered the invoice data into the Emque program, and filed the invoice

into an unpaid invoice file. R20 at 388-89, 423; R26 at 312-13. Circle accounts

employees made about 2000 entries to the Emque program per month. Id. at 315.

If journal entries or reclassifications were made on the Circle books, they were

done under the instruction of Kottwitz or Schwartz. R20 at 408-09. About once a

month, an accounts payable report of unpaid invoices was printed and given to

Junior for the selection of invoices to be paid. Id. at 389-90, 423-24. Junior had

signature authority for Circle; Logan and other accounts payable employees had a

signature stamp that they frequently used. Id. at 395-96. Logan provided copies of

the job management (“JM”) reports, accounts payables reports, and general ledgers

to Schleger and Schwartz, and discussed the general ledger revisions with them.

Id. at 377, 424-25, 431. The JM reports provided information on a job’s overall

8
cost, the company’s profits and losses, the progress of the job, and the percentage

of the job that had been completed. Id. at 377. The JM reports could show both

the active and inactive accounts, and both reports were routinely given to Junior.

Id. at 378, 380.

Beginning in 1999, Schwartz was “engaged by Circle to prepare their

audited financial statements and the related tax returns.” R22 at 39, 45, 125, 185.

His engagement letter provided that he would “reasonably obtain information”

from the accounts, and assess whether the accounts were free from material

misstatements to insure that each was reconciled and valid. Id. at 39, 41, 48.

Although Schwartz received much of the information for tax return preparation by

mail, he also traveled from New York to Atlanta for the audits and spent two and

one-half days reviewing Circle’s books and records each June from 1999 through

2003.5 Id. at 41-43, 45, 84, 89. When he noticed any mislabeled entries, Schwartz

made journal entries and advised Logan, Kottwitz, or Kenya Diggs, an accounts

receivable clerk, so that the entries could be correctly labeled.6 R20 at 431, 563-

5
Circle’s fiscal year ended on 31 March each year, and Schwartz waited about two and
one-half months for the books to close before performing the audit. R22 at 43.
6
Diggs was in charge of Circle’s accounts receivable department from October 2001
until December 2004. R20 at 545.

9
64, 581-82, 584; R22 at 32, 107, 162. Schwartz completed the audits at his New

York home office. Id. at 36, 41, 43.

Schwartz conducted Circle’s audits for their bonding insurance, and used the

audits to prepare Circle’s corporate tax return and the Marchellettas’ personal tax

returns. Id. at 47, 83-84, 90. Schwartz explained that it was “quite difficult” to

perform the audits of “the company’s internal control,” but that the audits were

done “only to the extent to assess the control risk” and not to “uncover certain

types of irregularities.” Id. at 46, 49, 171. Schwartz testified that no one at Circle

limited his time in Atlanta or his audit analysis in any way, and that they provided

him with as much time and information as he needed to prepare the audits. R22 at

47, 60, 154, 161-62. Schwartz reviewed Circle’s general ledgers, payroll and

salary schedules, and the JM report. Id. at 57-58, 60-61, 63-64; Govt. Exh. 431.1.

He also had access to Circle’s computer and could run any needed additional

reports. R20 at 424-25; R22 at 146. He prepared a “work-in-progress” schedule

that listed all pending jobs with their actual billings and expenses and compared it

to Circle’s estimate of the expected profit from that job to determine whether the

expenses and the revenues matched. Id. at 79.

In preparing the audits, Schwartz required that Circle provide “reasonable,

rather than absolute, assurance that the financial statements [we]re free of material

10
misstatement, whether caused by error or fraud” and explained that “a material

misstatement m[ight] remain undetected.” Govt. Exh. 425 at 1. He further

explained that “an audit is not designed to detect error or fraud that is immaterial to

the financial statements” and that “a material fraud may occur and not be

detected.” Id. Each tax year, Junior signed a document, prepared by Schwartz,

confirming that, to the best of his knowledge and belief, he had given Schwartz all

of the relevant documentation and information, including Circle’s financial

records, related data, and minutes of any stockholder or directors’ meetings, that

was necessary for Schwartz to audit Circle’s books and to prepare Circle’s and the

Marchellettas’ personal income tax returns. Id. at 50-54; 140; Govt. Exh. 427.10.

One of the items that Junior agreed to disclose was any “[r]elated party

transactions.” Govt. Exh. 427.10 at 2. The personal tax returns were due on 15

April each year; the corporate tax return was due on 15 September because Circle

operated on a fiscal year that began on 1 April and ended on 31 March. R22 at 90-

91; R24 at 106-07.

Schwartz eventually prepared Circle’s 31 March 2000 financial statement,

its tax returns for 1 April 1999–31 March 2000 and 1 April 2000–31 March 2001,

and the Marchellettas’ personal tax returns for 1999-2000. R22 at 7, 83-87, 102-

03; Govt. Exhs. 1-2, 5, 7.3, 475, 485. In preparing the Marchellettas’ personal

11
returns, Schwartz requested extensions for each of them. R22 at 91, 125, 174.

Junior’s 2000 tax return reported $145,000 in salary from Circle. Id. at 85-87;

Govt. Exh. 3. Senior’s 1999 and 2000 tax returns reflected income from his W-2s,

small capital gains, interest, and a pension.7 R22 at 100-03. Senior’s 2000 tax

return reported $176,000 in salary from Circle but did not include any income from

Nastasi or from the payment of personal expenses by Circle. Id. at 102-03; R24 at

232-34; Govt. Exh. 4. When Schwartz “generated” a tax return, he signed the

original that was sent to the IRS, sent his clients an unsigned copy of the return,

and kept an unsigned copy in his files. R22 at 92-93, 119.

In late 1999 or early 2000, Kottwitz moved to Atlanta to replace Logan as

Circle’s accounting manager and controller. R20 at 391, 420, 504, 563. Schwartz

testified that, after he was retained to work with Circle, he spoke to Kottwitz a few

times by telephone and then, after 1999, when he arrived in Atlanta for the audits,

he sat down with Kottwitz to review the documents that had been assembled for

the audits and to advise her regarding what other necessary information needed to

be pulled.8 R22 at 37, 43, 54-55, 57, 158, 160. Although Kottwitz was “very

7
Senior was a salaried employee of Nastasi in 1999, and a salaried employee of Circle in
2000. R20 at 518; R26 at 295, 306.
8
In a separate matter, Kottwitz testified that she did not perform audits for Circle and
that Circle’s audits were handled by “an outside CPA firm.” R18 at 309.

12
busy” in her position as Circle’s bookkeeper, comptroller, and office manager, she

provided him with “as much information as possible,” assisted him in locating

other needed information both while he was in Atlanta and after he had returned to

New York, and was “there to help.”9 R20 at 583-84; R22 at 32, 43, 56, 73, 156,

159, 161-62, 187. Schwartz did not generally ask Junior or Senior for information,

but relied on Kottwitz. Id. at 32. Kottwitz provided Schwartz with the JM

Reports, which listed all of Circle’s projects including Crabapple and Newport

Bay. Id. at 60-61, 63-64. Schwartz did not review every record on each

construction job, but had access to the job ledgers for every job and selected

certain jobs at random to review. Id. at 59-60, 146. Schwartz commented that

Kottwitz was “always” “reclassifying entries” to get them right on the books, and

would ask his advice on where to classify an entry. Id. at 98, 162. Senior was

aware that Schwartz and Kottwitz worked on the audits together, and that Schwartz

relied upon Kottwitz for information and documentation. Id. at 185-86.

Schwartz, who explained that he was unaware of Senior’s separation

agreement with Nastasi, noticed that Circle’s “other income” account had a large

9
Diggs also obtained documents for Schwartz, whom she understood to be Circle’s
independent CPA and not an employee of Circle. R20 at 563, 583.

13
balance of around $300,000, and asked Kottwitz about it.10 R20 at 101, 103; R22

at 164-65. Kottwitz explained that “it was income from Nastasi & Associates that

when the two former owners split up the company [Nastasi & Associates], money

was owed to – as commission income to the corporation [Circle].” Id. at 103; also

see id. at 120-21 (Schwartz explained that “what happened was [the Nastasi

payments] w[ere] first put into income and then [Kottwitz] told me that it was a

return of capital), id. at 164 (Schwartz answered “[c]orrect” when asked whether

Kottwitz had “said that it was her understanding that this money was a result of

negotiations between Senior and . . . Nastasi concerning the split-up”); id. at 165

(Schwarz answered “[c]orrect” when asked whether Kottwitz “was just telling

[Schwartz] what she was told.”); id. at 180-81 (Schwartz testified that Kottwitz

explained that the “money owed” to Senior after the company breakup was

deposited into Circle’s accounts and “should” have been credited to Senior).

Schwartz asked Kottwitz for “documentation” regarding the income but Kottwitz

did not have the documents. Id. at 104, 165, 184-85. Schwartz did not ask Senior

10
Other witnesses also testified that Circle’s books reflected these payments as “other
income.” Circle’s CPA Randy Brown testified that the $6,000 payments were “originally . . .
booked as other income.” R24 at 215. Circle accounts receivable clerk Kenya Diggs said that
Kottwitz told her to post the payments as other income. R20 at 556-57, 559-60. IRS Agent
Lesso testified that the $6,000 payments were recorded as “other income.” R24 at 216-17.

14
for the documents and never received any documentation for this income.11 Id. at

104, 165, 184. At the close of Circle’s fiscal year 2000, the “other income”

account was reclassified under the “note payable officer, loan to officer” account.12

Id. at 107-08, 120, 177-82.13 Schwartz explained that he suggested the

reclassification because he understood that “it was a return of capital, because of

the breakup of the two companies, . . . Senior was owed a lot of money. So, that’s

what . . . brought me to say that it should have been in note payable rather than

income.” Id. at 120-21. Schwartz made a journal entry regarding the discrepancy

and where the monies should be properly logged. Id. at 122-23, 177-78. After the

reclassification of the monies as loans payable to Senior, Circle paid three items on

Senior’s behalf which were “charged as offset” to what Circle owed Senior: his

11
Schwartz understood that the documents were at Nastasi’s attorney’s office. R22 at
184.
12
Despite the reclassification in Circle’s accounting, Schwartz did not correct Senior’s
personal income tax return which did not reflect the missing $300,000 in income. R22 at 182-
83; R24 at 232-34. Schwartz admitted that he knew that the tax return needed to be revised, but
did not have the necessary legal documents to appropriately account for the unreported income.
R22 at 183. Schwartz knew that Senior “never reviewed . . . any of the tax returns” and relied on
Schwartz to correctly calculate his taxes. Id. at 174, 185.
13
Lesso confirmed that the $6000 payments were reclassified as “notes payable officer”
account and that Schwartz’s explanation for the reclassification was consistent with his analysis.
R24 at 217.

15
2000 New York personal taxes, his 2000 federal personal taxes, and construction

costs owed to Seay Construction Services.14 R24 at 119-23; Govt. Exh. 600.

Schwartz and Kottwitz conferred on other issues when necessary, and

Schwartz provided Kottwitz with advice regarding the reporting of personal

expenses paid by Circle.15 R22 at 98, 185. Schwartz basically relied on Kottwitz

for all information and documentation, and did not generally confer with the

Marchellettas because they “didn’t want to get involved” and were unable to

provide him with answers when he did ask them questions. Id. at 185-87.

Schwartz recognized that Senior was not interested in the technicalities of books or

records, and did not review financial information or even his personal tax returns

with him. Id. at 174-75, 186. If Schwarz had questions while he was preparing

Senior’s personal tax return, he communicated with Senior’s wife. Id. at 174.

In March 1999, Junior purchased a residential lot on which he planned to

build a home. R18 at 186. In April 1999,16 Junior obtained a $250,000 loan from

14
Seay Construction was actually the builder of Junior’s, and not Senior’s, residence.
R18 at 270, 272, 300.
15
When Kottwitz asked how to document monies borrowed by an individual from the
company in 2003, Schwartz explained that she should set up a note receivable from the company
showing a loan receivable. R22 at 185.
16
Kottwitz was not working for Circle at this time. R20 at 391, 420.

16
C&G Enterprises, Ltd.,17 and used it to purchase the lot located on Tullamore Way

in Alpharetta, Georgia [“Crabapple”]. Id. at 262; R20 at 553-54; R21 at 851-53;

R26 at 248-49, 252. This purchase was not entered on Circle’s records.18 Id. at

248-49. Soon thereafter, Junior found a suitable lot for a home for Senior, and, in

September 1999, Senior signed an agreement for the purchase of the property

located in Newport Bay Cove, Alpharetta, Georgia [“Newport Bay”] for $270,000.

R18 at 321-24; Govt. Exh. 75.1. In October 1999,19 Senior assigned the contract to

Circle and Circle purchased the Newport Bay property for $270,006; the deed was

recorded with Circle’s name as owner.20 R18 at 321-22, 358-60; R22 at 75-76;

R24 at 200-01; R26 at 284; Govt. Exhs. 24, 75.2, 75.4. The land purchase, which

totaled $280,963 with “other amounts,” was recorded in Circle’s books as a “note

payable to officer” meaning that their officer owed Circle $280,963; it was never

shown on Circle’s books as an asset. R22 at 75-76; R24 at 201-02; R26 at 285,

355. The property was transferred to Senior in March 2002 for $10. Govt. Exh.

17
C&G Enterprises, Ltd., was a Bahamian company owned by George Gorman, one of
Junior’s close business associates. R18 at 227.
18
According to Internal Revenue Service [“IRS”] Agent John W. Lesso, this transaction
did not go “through the books” of Circle. R26 at 248.
19
Again, this transaction occurred before Kottwitz began working for Circle.
20
Lesso testified that the Circle check was made payable to Bank of America. R24 at
201. Lesso and building contractor Marc Dorman acknowledged that Newport Bay was actually
owned by Circle during the construction. R18 at 358-60; R26 at 316-17.

17
25. A certificate of occupancy was issued to Senior for the Newport Bay residence

on 10 May 2002, thus permitting Senior to occupy the home. Govt. Exh. 33.

Junior’s home construction began in January 2000, after builder Bob Seay

had received a deposit for a house on the Crabapple property. R18 at 272, 277-78;

Govt. Exh. 114. Seay referred Junior to Robert Frederick, mortgage loan

originator at First Colony Bank where Junior subsequently sought a $650,000

construction loan. R18 at 136-37, 141, 278. In January 2000, Senior contracted

with builder Allen Dorman, Inc. for the construction of a house on the Newport

Bay property. Id. at 338-43; Govt. Exh. 125. Marc Dorman, one of the owners of

Allen Dorman, Inc., understood that Senior was the owner of the property and, in

the Newport Bay construction contract, Senior was identified as “Owner”; there

was no reference to Circle. R18 at 339-43; Govt. Exh. 125.

Beginning in April 2000, the first month of Circle’s 2001 fiscal year, Circle

began paying many of the contractor bills for the Crabapple and Newport Bay

homes.21 R18 at 207-08, 214-21; R24 at 233. Some of the contractors were paid

21
See R18 at 217 (Cameron Padgett architect Charles Cameron received a Circle check
as down payment on the Newport Bay house which he understood was to be Senior’s residence;
“most of the checks [came] from Circle”); id. at 285-86 (Seay’s subcontractors on the Crabapple
house were paid by Circle); id. at 319 (Seay subcontractor Lummus Supply’s owner Brandon
Underwood was paid by Circle); id. at 338, 349-350, 360 (builder Marc Dorman was instructed
by Senior to pick up his draw checks at Circle and was paid by Circle for work on the Newport
Bay house); R20 at 600-01, 603, 610-16 (although Diversified Cabinet Distributors’ employee
Jay Moore had contracted with Junior and Senior, she was paid by Circle for work at the
Crabapple and Newport Bay houses); R21 at 631-33, 636 (Gilmore Drywall co-owner Dennis

18
by Kottwitz or dealt with her regarding their payments.22 In an affidavit submitted

in an arbitration proceeding between Junior and Seay, Kottwitz indicated that she

had made payments on the Marchellettas’ homes as “compensation” to the

Marchellettas. R18 at 312-13. At other times, contractors’ payments were

approved by Senior or with a Circle check handled by Senior.23 Circle also paid

some of the vendors who worked on the Marchellettas’ homes after the 2001

corporate fiscal year ended.24

Gilmore was paid by Circle for work on the Crabapple residence); id. at 645-47, 649-50 (Marvin
Young, the owner of Shamrock Doors, was paid by Circle for work on the Crabapple residence);
id. at 666-67, 669 (Christian Crawford, the owner of Crawford Landscaping was paid by Circle
for work on the Crabapple residence); id. at 703, 705-06, 710, 712, 714, 716-17 (Jennifer Testa,
an employee of Testa Marble Creations, was paid by Circle for work on the Crabapple
residence); id. at 819, 822-23 (Dennis Rose, an employee with Spacemaker Closet Interiors, was
paid by Circle for work on a Marchelletta residence); id. at 828, 833 (Angelo Viale, the owner of
Iron Works International, was paid by Circle for work on a Marchelletta residence); id. at 835,
839-40 (David Whitcomb, the Chief Financial Officer for Capitol Materials, was paid by Circle
for materials used at the Marchellettas’ residences); and R23 at 912, 916-18 (Thierry Francois,
the owner of Stone Age Designs, was paid by Circle for work on the Crabapple residence).
22
See R18 at 349-350 (Dorman received a check from Kottwitz “every once in awhile”
and may have seen her write one check); R20 at 615 (Moore received a Circle check air-billed
by Kottwitz and spoke with her regarding a check); and R21 at 840 (Whitcomb knew that
Kottwitz was Circle’s comptroller, and he dealt with her for payments).
23
See R18 at 281, 283-84 (Seay discussed the Lummus and Williams Brothers’ invoices
with Junior and heard Senior approve payments); id. at 349-50 (Dorman received a check from
Senior “[e]very once in a while” and may have seen him write one check).
24
See R21 at 652-56 (Oscar Hadizadeh, the owner of Allgreen Landscape, worked with
Dorman on the Crabapple residence and was paid by Circle); id. at 659, 661, 663 (David White,
a co-owner of Specialty Fountains, was paid by Circle for work at the Crabapple residence); id.
at 674-76, 679 (Dan Bartlett with Bartlett Heating & Cooling was paid by Circle for work on the
Marchellettas’ residences); id. at 686, 690-91 (Jim Rast, owner of Jim Rast Drywall Company,
was paid by Circle for work on the Newport Bay residence); id. at 720, 726, 728-29 (Edmond
Capozzi, the owner of Modern Industries, was paid by Circle for work on the Crabapple

19
 Junior understood that the payments to the contractors from Circle were

shown on Circle’s books as employee loans but he did not investigate how they

were booked. R18 at 306. Senior’s home construction project was assigned the

name “Newport Bay” for its subdivision and the number 00998; Junior’s home

construction project was assigned the name “Crabapple” for its subdivision and the

number 00999. R20 at 380-81, 553-54; R26 at 243-44. The Marchelletta home

construction costs appeared in Circle’s books and records as “expenses” and

categorized as “cost of goods sold,”25 and were provided to Schwartz during his

audits. R22 at 60, 64-65, 141-145; R24 at 144, 159; R26 at 268, 276, 315-16;

Govt. Exh. 328. For Circle’s fiscal year ending on 31 March 2001, the home

construction jobs listed no income but substantial costs. R20 at 431-32; R22 at 64-

residence); id. at 762, 766, 768 (Charlene Lott, a co-owner of American Landmark Fence, was
paid by Circle for work on the Crabapple residence); R25 at 1008-09 (Louis Buckman, who
installed floor tile and granite countertops, was paid by Circle for work on the Crabapple
residence).
25
The Marchellettas’ homes’ construction costs were tracked on a “JM” Report, which
reflected jobs in progress as project numbers 00998 (“Newport Bay”) and 00999 (“Crabapple”).
R20 at 381, 552-54; R26 at 277. Schwartz testified that, during his audits, Kottwitz provided
him with boxes of materials relating to each of Circle’s jobs. R22 at 60. Schwartz
acknowledged that he had made handwritten notations on pages of a JM Report that listed
expenses for both the Newport Bay and Crabapple jobs, but made no notations as to either job
and was unsure whether he had spoken to Kottwitz about them. Id. at 65, 141-45. He explained
that he “may not have noticed” the absence of income. Id. at 65.

20
65; 144-46. The payments for the Newport Bay residence were made directly to

the contractors; no payments were made to Senior.26 R26 at 316-18.

Although both the Newport Bay and Crabapple expenses were recorded in

the JM reports, Schwartz did not include them on his 2001 work-in-progress

schedule, and did not discuss them with Kottwitz. R22 at 79-80; R26 at 144-45.

The JM reports showed that both the Newport Bay and Crabapple jobs contained

large expenses and no income. R22 at 65-66. Schwarz noted some of the

consulting fees for the home construction jobs in his audit but did not follow-up

with a letter to verify their work.27 R22 at 175-77. The Marchellettas’ construction

costs were not treated for accounting purposes until after the end of Circle’s

accounting year on 31 March. R24 at 156-57; R26 at 278. At that time, the costs

could be treated as shareholder distribution, straight income or compensation, or as

a loan to a shareholder. R22 at 70; R24 at 157-58; R26 at 278-79. Schwartz,

however, did not adjust Circle’s books regarding the home-related projects and the

distributions were reported as cost-of-goods-sold on the 2001 tax return, and did

not include the reported distributions as income on the Marchellettas’ personal

26
Circle’s records reflected over 99% of the expenses paid on the Newport Bay house.
R26 at 316.
27
Specifically, Schwartz noted the fees paid to the architectural firm Cameron Padgett
and to Crawford Landscaping. R22 at 175-77.

21
income tax returns. Id. at 62-65, 76, 78. Schwartz also testified that he was

unaware of the construction of the Marchellettas’ residences; he explained that

Circle’s construction of personal residences for the Marchellettas would have been

“related party transactions” but that he was never told that Circle was paying for

the Marchellettas’ construction expenses. Id. at 63, 65-66. He further testified that

he “may not have noticed” the project costs on the JM reports and thus the costs,

with no related billings, did not constitute a “red flag” for him. R22 at 53-54, 63,

65-66, 69, 71. He claimed that, if he had noticed the costs and realized that Circle

had paid for the personal residence construction costs, he would have booked the

costs as compensation or as a loan to the Marchellettas when he adjusted the

entries in June 2002. R22 at 69-71. Circle also paid for Senior’s Alpharetta,

Georgia apartment in 2000 and for lawn care at Senior’s Long Island, New York

home during 2000 and 2001. R21 at 694, 698, 733-35; R24 at 228-32; Govt. Ex.

522, 531. These expenses were booked on Circle’s records, respectively, as “office

rent” and “consulting fees.” R24 at 229-31; R26 at 241-42.

Circle also paid for Junior’s visits with business associates to the Gold Club,

an Atlanta adult entertainment venue, and clothing purchases. The Gold Club

charges appeared on the credit card statements as “Mike’s Sports Bar” or “MSB,

Inc.,” and were recorded on the Circle accounting system as miscellaneous office

22
or vehicle expenses. R21 at 785-88, 791-92; R26 at 253-54, 257; Govt. Ex. 518.

His clothing purchases, from Hong Kong Tailors, Elegant Fashions of Hong Kong,

in Atlanta, appeared on Circle’s credit card. R20 at 588, 590-91, 597-98; R26 at

257; Govt. Exhs. 518, 520, 529. These expenses were recorded on Circle’s books

as “vehicle” and “miscellaneous office” expenses. R26 at 259-62.

During the summer of 2002, Schwartz visited Circle to conduct his audit and

prepared tax returns for Circle and the Marchellettas. R22 at 45, 89-93. In the tax

return that Schwartz prepared for Junior, $183,231 was reported as salary from

Circle. R22 at 93; R24 at 100; Govt. Exh. 487. In the tax return that Schwartz

prepared for Senior, $176,000 was reported as salary from Circle. R24 at 129-30;

Govt. Exh. 497. Neither draft tax return reflected any personal expenses paid by

Circle for either Junior or Senior nor did Senior’s tax return include any income

from Nastasi. R24 at 104-05, 109-10, 113, 132. In September 2002, following a

United States Custom agent’s investigation of Circle’s Bahamian construction

project and a subsequent investigation by the Internal Revenue Service,28 the

Marchellettas were advised not to file any additional tax returns until their previous

returns were reviewed. R25 at 925, 927-30, 959-61. Thus, the 2001 returns

28
The Immigration and Customs Enforcement agent who investigated the Bahamian
project notified the IRS of Circle’s attorney’s “unusual” and “out of left field” concerns as to
whether the IRS would be contacted. R25 at 925, 931-33, 955-57.

23
prepared by Schwartz were never signed nor filed. R22 at 92; R24 at 96-98, 100-

02; Govt. Exhs. 487, 497. The investigations, however, continued. R25 at 965-71,

978.

In 2004, the Marchellettas hired CPA Randy Brown, who then met with

their attorney and Ted Robertson, a forensic accountant and former IRS agent.

R24 at 93, 95. Brown reviewed Circle and the Marchellettas’ records, including

drafts of unfiled 2001 returns prepared by Schwartz. R24 at 98-99, 102. Brown

then prepared and filed 2001 returns for the Marchellettas. Brown included the

income from Nastasi in Senior’s return, and treated as income the expenses for the

houses, credit cards, weekly expense payments, and automobile use for Senior and

Junior. Id. at 103, 163; Govt. Exhs. 491, 504. He explained that he reported the

payments that Senior received from the “Nastasi stock installment sale” in both

2000 and 2001 and treated the payments as “[l]ong term capital gain” because they

were “directly related to the sale of the stock, the exchange of the stock, and not to

any consulting services that were provided.” R24 at 136, 138-44. He observed

that both the Newport Bay and Crabapple home construction costs were shown on

the JM reports, which reported less than “a hundred” jobs, but that, since there was

“no contract amount for these jobs,” it was “obvious” that “something’s screwy”

because “it doesn’t look right.” R24 at 168-69. Before the returns were filed, the

24
Marchellettas submitted their estimated tax payments to the IRS. Id. at 149, 162-

63.

An indictment issued against Junior, Senior, and Kottwitz in April 2007, and

was followed by a superseding indictment against each of them in July 2007. R1-

1, 42. Nine felony charges were set forth in the superseding indictment: (1)

Junior, Senior and Kottwitz were charged with conspiracy to defraud the United

States by impeding the Internal Revenue Service in the collection of revenue, in

violation of 18 U.S.C. § 371 (Count One)29 ; Junior was charged with filing

materially false personal income tax returns for 1999 (Count Two) and for 2000

(Count Three) in violation of 26 U.S.C. § 7206(1)30; Senior was charged with filing

a materially false personal income tax return for 2000 in violation of 26 U.S.C. §

7206(1) (Count Four) and in evading taxes in violation of 26 U.S.C. § 7201 (Count

Five)31 ; Junior, Senior, and Kottwitz were charged with aiding and assisting in the

29
Under 18 U.S.C. § 371, an individual must have been part of a conspiracy with at least
one other person “to commit any offense against the United States, or to defraud the United
States, or any agency thereof in any manner or for any purpose . . . .”
30
“Any person who–[w]illfully makes and subscribes any return, statement, or other
document, which contains or is verified by a written declaration that is made under the penalties
of perjury, and which he does not believe to be true and correct as to every material matter . . .
shall be guilty of a felony . . . .” 26 U.S.C. § 7206(1).
31
“Any person who willfully attempts in any manner to evade or defeat any tax imposed
. . . or the payment thereof shall, in addition to other penalties provided by law, be guilty of a
felony . . . .” 26 U.S.C. § 7201.

25
filing of a materially false corporate tax return for 2001 (Count Six), and Kottwitz

was charged with aiding and assisting in the filing of a materially false tax return

for Junior for 1999 (Count Seven) and for 2000 (Count Eight), and for Senior for

2000 (Count Nine), in violation of 26 U.S.C. 7206(2).32

After the jury was selected, the district court provided the jury with initial

instructions. The district court advised the jury that they should not consider the

lawyers’ statements, arguments, questions, and objections as evidence. R17 at 4.

Later, during the same instructions, the district court again reminded the jury that

the “[o]pening statements are neither evidence nor arguments” and explained that

the government’s “opening statement . . . is simply an outline to help you

understand the evidence as it comes in.” Id. at 7.

At trial, the government claimed that Kottwitz and the Marchellettas

conspired to file false tax returns in 2000 and 2001. During its opening statement,

the government argued that the Marchellettas “knew the tax rules” but chose not to

follow them in order to live a lifestyle unattainable by the jurors. R17 at 10, 27. It

argued that the Marchellettas “conspired with each other and their long[]time loyal

32
“Any person who–[w]illfully aids or assists in, or procures, counsels, or advises the
preparation or presentation under, or in connection with any matter arising under, the internal
revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to
any material matter, whether or not such falsity or fraud is with the knowledge or consent of the
person authorized or required to present such return, affidavit, claim, or document shall be guilty
of a felony . . . .” 26 U.S.C. § 7206(2).

26
employee, . . . Kottwitz, the bookkeeper” to hide money from taxes by “cooking

the books” and “through accounting tricks,” and by filing false tax returns.33 R17

at 10-11, 23. It claimed that their crimes were “against the United States and its

taxpayers” and provided the Marchellettas with lifestyles replete with “mansions,”

“custom clothes,” and nightclub trips. Id. at 10-11, 28.

During Senior’s attorney’s opening statement, he explained that Senior

offered Schwartz the opportunity to work with Circle in Atlanta because he had

seen Schwartz’s work with Schleger for Nastasi, and Schwartz “held himself out as

a . . . New York CPA, . . . experienced . . . in the construction industry and . . . an

auditor, preparing financial statements.” R17 at 55-56. Senior’s attorney

emphasized that Schwartz was given “complete access to all the books of Circle,”

and conceded that, although Senior’s home construction costs were kept on

Circle’s books, Senior “had nothing to do with instructing anybody in the business

over where to classify the [home construction] invoices, . . . to conceal any facts,

[or] to bury the cost[s].” Id. at 56-57, 59. He further explained that Senior was

“not a book person, . . . d[id not] have that background,” but was a “blue-collar

worker who started out as a young man working hard, . . . an estimator,” who

33
Outside the presence of the jury, the government explained that “Kottwitz form[ed]
the hub” with Junior and Senior as the spokes, and “[t]hat the unreported income related to
Crabapple flow[ed] through [her].” R27 at 1025.

27
“relied on professionals, people who wear the suits . . . .” Id. at 59. Kottwitz’s

attorney also argued that Schwartz was hired for his tax expertise and to make sure

the financial records were correct or to make changes if needed, that Kottwitz did

not prepare, review, sign, or file any of the tax returns, and that Kottwitz knew so

little about taxes that she also asked Schwartz to do hers. Id. at 65-66, 71-73.

IRS revenue agent John Lesso calculated that the Marchellettas’ and Circle’s

transactions resulted in Junior having tax deficiencies of $103,616 for 1999,

$56,480 for 2000, and $319,041 for 2001; Senior having personal tax deficiencies

of $132,858 for 2000 and $319,832 for 2001; and Circle having corporate tax

deficiencies of $105,050 for the fiscal year ending in March 2001, and $510,667

for the fiscal year ending in March 2002. R24 at 236, 247, 258, 260, 262, 268,

271. He explained that the Nastasi payments constituted income to Senior because

(1) Anthony Nastasi and Schleger testified that these payments were for services

rendered to Nastasi, (2) Circle invoiced Nastasi every week, and (3) Nastasi

deducted the payments as expenses. Id. at 210-12. Lesso, however, never

examined the separation, payment guarantee, or consulting agreements. Id. at 209.

He explained that the reclassification of these payments to the “notes payable

officer” account was not inconsistent with his analysis, and that, based on the

reclassification of these payments as a loan to Senior, it permitted Senior tax-free

28
use of the income. Id. at 217-18, 220. By tracing the $250,000 received by Circle

from Nastasi in February 1999, he believed that the money was used in the

purchase of the property for Senior’s home in October 1999. Id. at 198-207.

Lesso confirmed that, from 1 January until 1 March, 2000, the $6,000

payments were entered on Circle’s books as “other income” and that Circle paid

tax on this as income to Circle. R24 at 216-17; Govt. Exh. 7.3. He explained that

Junior had about $150,506.97 in unreported income and owed a tax deficiency of

$56,480 in 2000 as a result of the expenses for the Crabapple home construction

and suits, and that he had $798,295.97 in unreported income and owed a tax

deficiency of $319,041 for 2001 as a result of the expenses for the Crabapple home

construction and other personal expenses. R26 at 258-62.

Lesso believed that the monies that Circle paid for Senior’s apartment and

landscaping work constituted unreported personal income taxable to Senior

because the expenses were unrelated to Circle’s business. R24 at 228-32; R26 at

242. He explained that, although temporary housing was a possible business

expense, it was limited to a short-term period. R24 at 231. He agreed, however,

that the Newport Bay property was an asset of Circle’s during 2001. R26 at 316-

17. Although he explained that Circle’s expenditures on behalf of Junior and

Senior were “taxable when the individual receives an economic benefit,” he later

29
testified that the construction expenses on Circle’s books could be characterized at

the end of the corporation’s fiscal year either as loans or income to the

shareholders, and that such a determination was not made in this case until

Schwartz closed Circle’s books, adjusted entries, and prepared and filed Circle’s

tax returns during June through September 2001. R26 at 275-80, 354.

Robert Hishon, an attorney and CPA who specializes in tax matters, testified

on behalf of Junior and Senior. R27 at 1111-13. Hishon opined that Senior’s

“receipt of $6,000 a week would be proceeds from the sale or exchange . . . of his

shares in Nastasi. . . . that would be classified under the Internal Revenue Code as a

capital asset, [and] taxed as [long-term] capital gain . . . [and] would qualify . . . as

an installment sale.” R28 at 1132-33. He explained that, as a capital gain, the

“transaction would be taxed by taking the total value of what was received minus

the basis” and paid all at once, but that under the Internal Revenue Code, the tax

could be paid over a period of time if the payments on the sale were over a period

of time. Id. at 1133. He noted that Circle appeared to maintain an “open account”

for both shareholders, where things were charged and credited, and that such an

account was “not unusual.” Id. at 1134. He observed that Circle’s payments of the

apartment rental for Senior were “ordinary and necessary business expenses . . . as

sort of a working condition fringe” benefit to help Senior move from New York to

30
Atlanta. Id. at 1138. He believed that the lodging expenses were either excludable

from Senior’s gross income as “ordinary and necessary” expenses or deductible

because they were temporary, necessary for the employee to participate with the

business, and an ordinary and necessary expense for a person who lived in New

York and was employed by a Georgia corporation. Id. at 1141-42. He stated that

the 2000 home construction costs for Senior were “tax neutral” because Circle

owned the land and, at that time, was building the house. Id. at 1142. He said that

the construction costs were taxable to Senior at the end of Circle’s 2001 tax year

when he obtained the house title as compensation, and observed that Senior then

paid the tax. Id. at 1143-44. Hishon believed that the lawn maintenance expenses

were incorrectly charged to Circle and should have been booked as part of the

shareholders’ open account. Id. at 1144-45.

At the close of the evidence, the government dismissed Count Seven against

Kottwitz. R2 at 94; R27 at 1020. Kottwitz and the Marchellettas jointly moved for

an acquittal on all of the remaining counts, arguing that there was no evidence that

they intended to violate the tax laws, and that their due process rights were violated

by the government’s improper references during trial to their wealth. Id. at 1022-

23, 1027, 1035, 1037, 1039-45, 1047-48. These motions were denied. R2 at 94;

R27 at 1049.

31
 Kottwitz and the Marchellettas requested a “reliance on accountant” jury

instruction.34 R1-81 at 26; R5 at 81, Exh. A at 15; R28 at 1199-1200. Based on its

34
The Marchellettas’ requested instruction read:
Good faith is a complete defense to the charges in the indictment since
good faith on the part of the Defendant is inconsistent with the existence of intent
to defraud or willfulness which is an essential part of the charge. Specific intent
to defraud or willfulness “may be negated by a good-faith misunderstanding of
law or a good-faith belief that one is not violating the law . . . ” The burden of
proof is not on the Defendant to prove good faith, of course, since the Defendant
has no burden to prove anything. The Government must establish beyond a
reasonable doubt that the Defendant acted willfully and with specific intent as
charged in the indictment.
“Good faith reliance on a qualified accountant . . . [is] a defense to
willfullness in cases of tax fraud.” So, a Defendant would not be “willfully”
doing wrong if, before taking any action with regard to the alleged offense, the
Defendant consulted in good faith an . . . accountant whom the Defendant
considered competent, made a full and accurate report to that . . . accountant of
all material facts of which Defendant had the means of knowledge, and then acted
strictly in accordance with the advice given by that . . . accountant.
Whether the Defendant acted in good faith for the purpose of seeking
advice concerning questions about which the Defendant was in doubt, and
whether the Defendant acted strictly in accordance with the advice received, are
all questions for you to determine.
Also a complete defense to the charges in the indictment is where the tax
violation was the result of a failure of an accountant to exercise due care or
diligence, and not the result of the Defendants’ actions. Title 26, Code of Federal
Regulations, Section 16694-1 provides that an accountant or tax preparer who
prepares taxes for a person “may not ignore the implications of information
furnished to the preparer or actually known to the preparer. The preparer must
make reasonable inquiries if the information as furnished appears to be incorrect
or incomplete . . . The preparer must make appropriate inquiries to determine the
existence of facts and circumstances required by a[n] [Internal Revenue] Code
section or regulation as a condition to claiming the deduction.”
Article V, Section 56 of the American Institute of Certified Public
Accountants Code of Professional Conduct and Article V of the New York State
Society of CPA’s Principles of Professional Conduct provide, in relevant part,
that “[d]ue care requires [an accountant] to discharge professional
responsibilities with competence and diligence. It imposes the obligation to
perform professional services to the best of a member’s ability with concern for
the best interest of those for whom services are performed and consistent with the
[accounting] profession’s responsibility to the public.” “[Accountants] should be

32
interpretation of United States v. Johnson, 730 F.2d 683 (11th Cir. 1984), the

district court denied the instruction, finding that the good faith reliance instruction

required that the defense “show, one, that [the defendants] fully disclosed all

relevant facts to the expert and, two, that [the defendants] relied in good faith on

the expert’s advice.” R22 at 1200. It commented that “there [wa]s no evidence

that the defendant[s] supplied all relevant information to their accountant or

accountants and relied in good faith on accountant’s opinion” and that the

instruction was not appropriate as it was not “adjusted to the facts.” Id. at 1199-

1200. Junior’s counsel responded that, as to the 2001 returns initially drafted by

Schwartz and ultimately prepared by Brown, he did not want to be foreclosed from

arguing that they had presented “testimony through Brown and through Hishon

that the defendants believed that what they did in filing the 2001 returns fixed the

problem, if you will. And that is reliance on the advice of an expert.” R28 at

1200-01. The government objected that it did not “think the [c]ourt should put its

diligent in discharging responsibilities to clients . . . Diligence imposes the
responsibility to render services promptly and carefully, to be thorough, and to
observe applicable technical and ethical standards.
If you find that an accountant or tax preparer ignored any information,
did not make reasonable inquiries as to whether any information provided to him
was complete and correct, or otherwise was not diligent, thorough or careful to
the best of his ability, and that the failure to exercise due care caused the tax
violations charged in the indictment, you must acquit the Defendants.
R5-81, Exh. A at 15 (italics are the Marchellettas’ additions to the Eleventh Circuit Pattern Jury
Instructions).

33
imprimatur on Randy Brown’s advice” and that the defendants were asking that the

court “essentially ignore their contemporaneous intent to . . . look to what they did

after the fact.” Id. at 1201-02. When the district court asked whether it was not

sufficient for the government “just to make that argument to rebut [Junior’s

attorney’s] point,” the government responded that was “what [it] would do,” to

which Junior’s attorney replied, “[t]hat’s all I need.” Id. at 1202.

During closing arguments, the government claimed that Kottwitz was

“central” to the tax scheme, and characterized Kottwitz’s statement, to wit, that she

understood Circle’s payments for the Marchellettas’ residences as “income” to the

Marchellettas, as a “lie[] . . . under oath.” R29 at 1265; see also R18 at 312-13. It

suggested that Kottwitz was liable for the conspiracy and the tax fraud because she

failed to disclose to Schwartz that Circle was paying for the Marchellettas’

residences. R29 at 1256. The government also maintained that, because the

Marchellettas did not direct allocation of their home construction costs to any

specific account, the “payables clerks . . . had no idea” how the Marchellettas

would treat the income shown on their home job ledgers or whether or not they

would actually declare it as income. Id. at 1268. It suggested that the defense

argument that “Schwartz was supposed to know about” the inclusion of the

Marchellettas’ personal expenses in Circle’s expense logs was “nonsense” since he

34
only reviewed the accounts on “one day.” Id. at 1329-30. Senior’s attorney’s

closing argument emphasized that there was no evidence that he had any

knowledge of how entries were booked on Circle’s accounting records, that certain

entries should have alerted Schwartz to potential problems and the need to file

amended returns, and that Senior had no criminal intent to violate the tax laws. Id.

at 1303-04.

The district court instructed the jury to base its verdict only on the evidence

and the court’s instructions on the law, and not on the lawyers’ statements. Id. at

1214-16; see also R6-113 at 2-3. The court provided the jury with a general

instruction on the elements of a good faith defense to the charge of intent to

defraud and on willfullness.35 R29 at 1228-30; R6-113 at 19-21. After closing

35
The court’s good faith instruction provided:

Good faith is a complete defense to the charges in the indictment since
good faith on the part of the defendant is inconsistent with intent to defraud or
willfulness[,] which is an essential part of the charges. While the term ‘good
faith’ has no precise definition, it means an honest belief, a lack of malice, and
the intent to perform all lawful obligations. The burden of proof is not on the
defendant to prove good faith, of course, since the defendant has no burden to
prove anything. The Government must establish beyond a reasonable doubt that
the defendant acted with specific intent to defraud as charged in the Indictment.
One who expresses an honestly held opinion, or an honestly formed belief,
is not chargeable with fraudulent intent even though the opinion is erroneous or
the belief is mistaken; and, similarly, evidence which establishes only that a
person made a mistake in judgment or an error in management, or was careless,
does not establish fraudulent intent.

R29 at 1228-29.

35
arguments, the jury was excused for lunch, instructed to begin deliberations when

they returned to the jury room, and advised that they would be provided with the

admitted exhibits and a copy of the indictment and verdict form. Id. at 1340. With

the jury out of the courtroom, Junior’s attorney notified the district court that he

had prepared a written objection to court’s denial of the requested jury instructions;

the district court instructed him to “[j]ust file it.” Id. at 1343-44. In the written

objection, Junior observed that the district court had “refused to give the

Defendants’ proposed Jury Instruction Number 15, concerning ‘Good Faith

Reliance Upon . . . Accountant Failure of Accountant to Exercise Due Care’” and

The district court’s willfullness instruction stated:

The word ‘willfully,’ . . . means that the act was committed voluntarily
and purposely, with the specific intent to do something the law forbids; that is
with bad purpose either to disobey or disregard the law.
...
So, if you find beyond a reasonable doubt that the acts constituting the
crime charged were committed by a defendant voluntarily as an intentional
violation of a known legal duty; that is, with specific intent to do something the
law forbids, then the element of ‘willfulness’ as defined in these instructions has
been satisfied.
On the other hand, if you have a reasonable doubt as to whether a
defendant acted in good faith, sincerely believing that the tax returns in question
were true and correct as to every material matter and that no additional tax was
owed, then the defendant did not intentionally violate a known legal duty; that is,
the defendant did not act ‘willfully’--and that essential part of the offense would
not be established. It is not the purpose of the tax laws to penalize innocent errors
made despite the exercise of reasonable care, and it is not enough to show merely
that a lesser tax was paid than was due. Nor is a negligent, careless, or
unintentional understatement of income sufficient.

Id. at 1229-30.

36
argued that “the district court should have granted the [good faith reliance]

instruction.” R2-95 at 4.

Following deliberations, the jury found Kottwitz not guilty of Counts Eight

and Nine (aiding and abetting Junior and Senior in the filing of materially false

personal returns for 2000), and found Junior not guilty of Count Two (filing a

materially false personal return for 1999). R2-109 at 2-4. Kottwitz was convicted

on Counts One and Six; Junior was convicted on Counts One, Three and Six; and

Senior was convicted on Counts One, Four, Five, and Six. Id. at 3.

Kottwitz and the Marchellettas jointly moved for an acquittal on all of the

counts of conviction, arguing that there was no evidence to support a finding of

intent to violate the tax laws, and that the government’s improper references

during the trial to their wealth violated due process rights. R2-106; R2-127 at 4-5,

24-26. They argued, inter alia, that “many, if not all, of the government’s specific

items of alleged omitted income were not required to be reported as income for

[the] year in question.” R2-127 at 9. The district court denied the motion, finding

that there was substantial evidence from which a reasonable jury could have found

criminal intent to violate the tax law and that the government properly introduced

evidence of the defendants’ wealth because the evidence of their failure to report a

high volume of income was relevant to their willfulness. R2-134.

37
 At sentencing, Senior objected to the probation officer’s determination as to

the amount of the tax loss. R30 at 21-24, 32-37, 39-42, 45. The district court

overruled Senior’s objections and found that the loss amount was between

$1,000,000 and $2,500,000. Id. at 54-55. Kottwitz was sentenced to twenty-four

months of imprisonment on each of the two counts of conviction, to run

concurrently, and three years of supervised release on each count, to run

concurrently. R30 at 147. She was also fined $2500 and assessed $200. Id.; see

also R10-156. Junior was sentenced to thirty-six months of imprisonment on each

of the three counts of conviction, to run concurrently, thirty-six months of

supervised release on Count One and twelve months of supervised released on each

of Counts Three and Six, to run concurrently. R30 at 146. He was also fined

$50,000 and was assessed $300. Id.; see also R3-154. Senior was sentenced to

thirty-three months of imprisonment on each of the four counts of conviction, to

run concurrently and thirty-six months of supervised release on each count of

conviction, to run concurrently. R30 at 145-46. He was also fined $50,000 and

was assessed $400. Id. at 146. Kottwitz and the Marchellettas were each released

on bond pending appeal. R10-186.

38
 II. DISCUSSION

On appeal, Kottwitz, Junior, and Senior argue that the evidence was

insufficient to support their convictions and that the district court erred in refusing

to give the jury a good faith reliance on accountant instruction.36

A. Insufficiency of the Evidence

Kottwitz, Junior, and Senior contend that the trial evidence was insufficient

to show the existence of a tax conspiracy, that they knowingly participated in any

conspiracy that may have existed, or that they aided and abetted in the filing of a

false tax return for Circle in 2001. Senior maintains that, because he was owed

$250,000 at the end of 1999 from the assignment of the loan made by Nastasi to

Circle and the stock swap, any personal expenditures made by Circle for him

should have been credited against the notes payable, thus reducing Circle’s debt to

him. As such, the expenditures were properly accounted for and did not result in

any taxable income to him. Senior also argues that the evidence was insufficient to

show that he knowingly evaded taxes or filed a false tax return for 2000. Kottwitz

36
Junior adopted Senior’s sufficiency argument; Senior adopted Junior’s argument on
this issue regarding the timing and tax consequences of the home construction expenses, and
application of Boulware v. United States, 552 U.S. 421, 128 S. Ct. 1168 (2008).
Kottwitz adopted Junior’s and Senior’s arguments regarding the reliance on accountant
instruction, and both Junior and Senior adopted each other’s arguments on this issue.
Junior and Senior also raised the issue of prosecutorial misconduct, and Senior raised an
issue regarding sentencing. Because we reverse, we will not address these issues.

39
maintains that the evidence showed she consistently tried to do the right thing and

never saw any of the tax returns at issue or had any expectation that the filed

returns would be materially false. She contends that there is no trial evidence

showing that she knew of any conspiracy that would result in the filing of false tax

returns or that she agreed to join any such conspiracy. Junior and Senior also

argue that the district court erred by denying their motion for judgment of acquittal

because, under Boulware v. United States, 552 U.S. 421, 128 S. Ct. 1168 (2008),

distributions made to a shareholder of a closely-held corporation cannot be

classified for tax purposes until the final date of the corporation’s fiscal year.

We review both a challenge to the sufficiency of the evidence and the denial

of a Rule 29 motion for judgment of acquittal de novo. United States v. Mercer,

541 F.3d 1070, 1074 (11th Cir. 2008) (per curiam); United States v. Descent, 292

F.3d 703, 706 (11th Cir. 2002) (per curiam). “[W]e view the evidence in the light

most favorable to the government,” making all reasonable inferences and

credibility choices in the government’s favor, and then “determine whether a

reasonable jury could have found the defendant guilty beyond a reasonable doubt.”

Mercer, 541 F.3d at 1074. We will uphold a Rule 29 motion denial if we

“determine that a reasonable fact-finder could conclude that the evidence

40
established the defendant’s guilt beyond a reasonable doubt.” Descent, 292 F.3d at

706 (quotation marks and citation omitted).

1. Conspiracy

A conspiracy to defeat the Internal Revenue Service’s (“IRS”) lawful

functioning and victimize the IRS is known as a Klein conspiracy. United States v.

Adkinson, 158 F.3d 1147, 1154 (11th Cir. 1998) (citing United States v. Klein, 247

F.2d 908 (2d Cir. 1957)). The government must show not only (1) the requisite act

of a failure to properly report income but also (2) an agreement between at least

two conspirators to impede the IRS’ functioning and (3) knowing participation in

such a conspiracy. Adkinson, 158 F.3d at 1153. Although the requisite act

requirement is established by the failure to properly report income, such, without

more, is insufficient to establish a conspiracy. Id. at 1154. The requisite acts must

be considered under “the objective economic realities of a transaction rather than . .

. the particular form the parties employed.” Boulware, 552 U.S. at 429, 128 S. Ct.

at 1175 (quotation marks and citation omitted). The agreement requirement must

be established by evidence of actual knowledge by each participant that a

conspiracy between at least two participants intending to obstruct the IRS’s

collection of owed tax revenue was in progress and by evidence of each

participant’s knowing and voluntary intentional participation in it. Adkinson, 158

41
F.3d at 1153-54. The evidence must show a “common agreement” to violate the

law. Id. at 1155 (quotation marks and citation omitted). The evidence of such an

agreement may be circumstantial or direct, and may be inferred from the parties’

concerted actions, overt acts, relationship, and the entirety of their conduct. United

States v. Schwartz, 541 F.3d 1331, 1361 (11th Cir. 2008). If the conspiracy

evidence is circumstantial, it must warrant a jury finding that the conspirators

operated with a “common design with unity of purpose to impede the IRS” based

on “reasonable inferences, and not mere speculation.” Adkinson, 158 F.3d at

1154, 1159 (quotation marks and citation omitted); United States v. Perez-Tosta,

36 F.3d 1552, 1557 (11th Cir. 1994). See also Ingram v. United States, 360 U.S.

672, 678-79, 79 S. Ct. 1314, 1319-20 (1959) (knowledge of tax liability is

essential); United States v. Gurary, 860 F.2d 521, 524 (2d Cir. 1988) (stating that

the government must present “evidence from which the jury could infer that

defendants knew their scheme would result in the filing of false . . . tax returns, and

deliberately proceeded with their scheme in the face of that knowledge”). A

conspiracy conviction cannot stand without evidence showing a meeting of the

minds to commit the illegal act. Adkinson, 158 F.3d at 1155. Circumstantial

evidence that income has been disguised as non-taxable proceeds is not sufficient;

42
the government must also show statements of co-conspirators manifesting a desire

to impede the IRS. United States v. Pritchett, 908 F.2d 816, 822 (11th Cir. 1990).

The knowledge requirement must be established by evidence that each

alleged conspirator knew that the scheme would culminate in the filing of false tax

returns. Adkinson, 158 F.3d at 1155. Evidence of a conspiracy or that a defendant

acted in a way that would have furthered “a conspiracy if there had been one” is

insufficient; there must also be independent evidence that the defendants knew of

the conspiracy in progress and knowingly and voluntarily joined it. Id. (citation

omitted). Due to the complexity of the tax laws, specific intent or “willful”

conduct is a necessary element of tax offenses. Cheek v. United States, 498 U.S.

192, 200, 111 S. Ct. 604, 609 (1991). “This tax purpose [to interfere with the

IRS’s lawful functions in collecting taxes] must be the object of a Klein

conspiracy, and not merely a foreseeable consequence of some other conspiratorial

scheme.” Adkinson, 158 F.3d at 1155. The Klein conspiracy to impede the IRS

must be the object, or at least an object in a conspiracy with multiple objectives; it

is not adequate if the act of impeding the IRS is “only a collateral effect of an

agreement.” Id. (quotation and citation omitted). Evidence that owners directed

their accountant to refer any questions to them and failed to disclose to their

accountant payments to some employees or unreported revenue was sufficient to

43
support a conspiracy conviction for IRS fraud. United States v. Useni, 516 F.3d

634, 650 (7th Cir. 2008).

Despite the lack of direct evidence that Kottwitz and the Marchellettas

conspired to impede the IRS, the circumstantial evidence was sufficient for the jury

to have concluded beyond a reasonable doubt that they had entered into the

charged conspiracy (Count One). Kottwitz oversaw the accounting books and

knew where the various home and personal expenses of the Marchellettas were

booked on the Circle accounts. She communicated with Schwartz concerning

theses expenses in conjunction with both the Circle and Marchelletta tax returns.

Kottwitz, Junior, and Senior had a long-standing employment relationship and

were not distant.

2. Filing of a False Income Tax Return

Junior and Senior contend that the home construction costs were the only

basis for the jury’s verdict related to Junior’s 2000 tax return. The jury rejected the

prosecution’s accusation that Junior had understated his income on his 1999 tax

return by failing to include the $250,000 loan from C&G enterprises or the

clothing and entertainment expenditures (which were omitted from both the 1999

and 2000 returns) (Count Two). They assert the Boulware objective

characterization rule requires consideration of (1) the timing or tax year of the

44
recognition of the distribution and (2) the classification of the transaction as

compensation, loans, dividends, returns of capital, or gains from the exchange or

sale of property. They reason that Junior’s home construction cost distributions

could not be assigned to him as income in 2000 because it was impossible for

Circle to classify the distributions paid after 1 April 2000 until its fiscal year closed

in March 2001 and that the deposit made in January 2000 was de minimis and,

therefore, not a material matter. They suggest that Boulware’s holding as to 26

U.S.C. § 7206(1) extends to § 7206(2) since both contain similar language

regarding the truthfulness of the tax return: “every material matter” in § 7206(1)

and “any material matter” in § 7206(2). They maintain that the only expense paid

by Circle on Junior’s home before 1 April 2000 was the general contractor’s

deposit paid in January 2000.

The government responds that the evidence was sufficient to sustain the

convictions because it showed that the Marchellettas skimmed over $1,000,000

from their company to fund personal expenses, failed to disclose this information

to their accountant, and signed false tax returns omitting this income. They also

maintain that Kottwitz facilitated the Marchellettas’ actions by writing checks and

supervising Circle’s books which showed the expenditures as business expenses.

45
 Randy Brown, a certified public accountant who prepared amended 2001 tax

returns and subsequent returns for Circle and the Marchellettas, explained that

Circle’s 2001 tax year began on 1 April 2000 and ended on 31 March 2001. R24 at

106-07. Circle spent $144,000 during the 2000 calendar year and $908,000 during

the 2001 tax year on Junior’s home construction costs. Id. at 106, 108, 111.

Brown stated that the construction costs were not due to be reported as income to

Junior until the costs were “expensed” by Circle, and could “be treated as an

officer loan until the point that the company takes it as a deduction.” Id. at 107.

Brown prepared Junior’s 2001 personal tax return in 2004, and explained that

Junior’s income of $1,330,546 was a result of his wages, dividends, and various

“officer advances” which he received from Circle including the home construction

costs in 2000 and 2001 and personal credit card and auto use expenses. Id. at 115-

16. He stated that the advancement of monies from a company to a shareholder

“happens a lot” such as loans or personal credit card expenses. Id. at 117. He

explicated that “it depends on the internal accounting of the company” as to when

or whether an expense was initially “treated as an officer advance” or was “buried”

in other expenses such that the classification of the expense would have to wait

until the company’s financial statement adjustments “at the end of the year.” Id. at

117-18; see also IRS Agent John W. Lesso’s testimony that “nothing’s final until

46
the financial statements are prepared.” R26 at 278. Junior testified that he

understood the construction expenses to be “an employee loan.” R18 at 306.

Circle paid a $36,456 deposit, due five days within the commencement of

construction, on Junior’s home in January 2000. R18 at 27-78. No other expenses

were paid on behalf of Junior’s home construction until April 2000. Id.

For a conviction under 26 U.S.C. § 7206(1), the government must prove that

the defendants: (1) filed a tax return with a written declaration made under the

penalty of perjury; (2) did not believe the return to be true and correct as to every

material matter; and (3) acted willfully and not merely negligently. United States

v. Edwards, 777 F.2d 644, 651 (11th Cir. 1985). A conviction under § 7201

requires that the government show that the defendants (1) acted willfully; (2)

deficiently paid their taxes; and (3) affirmatively acted to evade or attempted to

evade their taxes. Sansone v. United States, 380 U.S. 343, 351, 85 S. Ct. 1004,

1010 (1965). Therefore, the specific intent of willfullness is a requirement in both

offenses. United States v. Lankford, 955 F.2d 1545, 1550 (11th Cir. 1992) (§

7206(1); Sansone, 380 U.S. at 351, 85 S. Ct. at 1010. The willfulness standard

requires “‘the voluntary, intentional violation of a known legal duty’” and can be

“negated by a good-faith misunderstanding of the law[,] a good-faith belief that

one is not violating the law, regardless of whether or not the belief is reasonable,”

47
or a good-faith reliance on a professional’s advice. United States v. Morris, 20

F.3d 1111, 1114-15 (11th Cir. 1994) (citing Cheek, 498 U.S. at 202, 111 S. Ct. at

610-11).

In Boulware, the Supreme Court noted that tax classifications mandated

consideration of “the objective economic realities of a transaction rather than . . .

the particular form [of classification] that the parties employed.” Boulware, 552

U.S. at 429, 128 S. Ct. at 1175. The Court held that intent is irrelevant to the

timing of objective tax classifications and IRS reporting requirements for

distributions to shareholders of closely held corporations; objective application of

the Internal Revenue Code Sections 301 and 316 apply. Id. 424-25, 434, 439, 128

S. Ct. at 1173, 1179, 1182. Specifically, it stated that a criminal tax “defendant . . .

does not need to show a contemporaneous intent to treat diversions as returns of

capital before relying on [Sections 301 and 316] to demonstrate that no taxes are

owed.” Id. at 439, 128 S. Ct. 1182. The Supreme Court applied Boulware to 26

U.S. C. § 7206(1) cases noting that “[a]lthough . . . § 7206(1) does not require the

prosecution to prove the existence of a tax deficiency, . . . the nature and character

of the funds received can be critical in determining whether . . . § 7602(1) has been

violated.” Id. at 433 n. 9, 128 S. Ct. 1178 n.9 (internal quotation marks and

citations omitted). The Court noted that classifications of transactions between

48
closely-held corporations and shareholders may be difficult because “a corporation

and its shareholders have a common objective-to earn a profit for the corporation

to pass onto its shareholders,” that a “corporation . . . wholly owned by one

shareholder . . . becomes the alter ego of the shareholder in his profit making

capacity,” and that, by “passing corporate funds to himself as shareholder,” the

owner-shareholder “is acting in pursuit of these common objectives.”37 Id. at 438

n.13, 128 S. Ct. 1181 n.13 (citing Truesdell v. Comm’r, IRS Non Docketed Service

Advice Review, 1989 WL 1172952 (Mar. 15 1989)) (internal quotations omitted).

“[E]conomic substance remains the right touchstone for characterizing funds

received when a shareholder diverts them before they can be recorded on the

corporation’s books” as the diverted funds may be treated as “dividends or capital

distributions” based on the benefit received by the shareholder. Id. at 430, 128 S.

Ct. 1176. If it is unclear, however, whether the corporation will have sufficient

funds to cover distributions to its shareholders at the end of its tax year, it must

37
In United States v. Williams, 875 F.2d 845 (11th Cir. 1989), we held that the
government was not required to “characterize diverted income in criminal tax cases” by
determining whether the income was properly classified as a “constructive dividend” based on
sufficient corporate earning and profits to cover the income as a “dividend.” Id. at 851-52. In
Boulware’s discussion of the circuit split “over the application of §§ 301 and 316(a) to
informally transferred or diverted corporate funds in criminal tax proceedings,” the Supreme
Court observed that, in Williams, we had taken the position that §§ 301 and 316(a) were
“altogether inapplicable in criminal tax cases involving informal distributions.” Boulware, 552
U.S. at 428 n.6, 128 S. Ct. at 1175 n.6.

49
report the distributions as dividends even if the distribution will later be treated as

a capital gain or a return on capital. Id. at 434 n.11, 128 S. Ct. 1179 n.11.

“[A] distribution of property . . . made by a corporation to a shareholder with

respect to its stock shall be treated in the manner provided in subsection (c).”38 26

U.S.C. § 301(a). Subsection (c) provides that, if the amount of the distribution

constitutes a dividend, it should “be included in gross income;” if the amount

which is not a dividend, it should “be applied against and reduce the adjusted basis

of the stock;” and, if the amount “which is not a dividend . . .exceeds the adjusted

basis for the stock,” it should “be treated as gain from the sale or exchange of

property.” § 301(c)(1)-(3)(a). Income should be included in an individual’s gross

income during the year that it is received by the taxpayer.39 26 U.S.C. § 451(a); 26

C.F.R. § 1.301-1 (a dividend becomes taxable when it is “unqualifiedly made

subject to [the shareholders’] demands.”); Avery v. Comm’r of Internal Revenue,

292 U.S. 210, 215, 54 S. Ct. 674, 676 (1934) (a dividend becomes taxable to the

38
For tax purposes, “‘property’ means money, securities, and any other property;” it
“does not include stock in the corporation making the distribution.” 26 U.S.C. § 317(a).
[T]he term ‘dividend’ means any distribution of property made by a corporation to its
shareholders–(1) out of its [retained] earnings and profits . . . , or (2) out of its earnings and
profits of the tax year (computed as of the close of the taxable year without diminution by reason
of any distributions made during the taxable year) without regard to the amount of the earnings
and profits at the time the distribution was made. 26 U.S.C. § 316(a).
39
“[T]he time of actual receipt of the dividend govern[s] its inclusion in taxable
income.” Dynamics Corp. of America v. United States, 392 F.2d 241, 248 (Ct. Cl. 1968).

50
shareholder upon actual receipt). The receipt of income can be actual or

“constructive.” “Constructive receipt” of income occurs when it is “is credited” to

the taxpayers account and he can draw upon it. 26 C.F.R. § 1.451-2(a).

Constructive receipt does not occur, however, “if the taxpayer’s control of [the

received income] is subject to substantial limitations or restrictions.” Id. A

constructive dividend is a corporate disbursement for the benefit of a shareholder

and must be reported by the shareholder as income.40 United States v. Mews, 923

F.2d 67, 68 (7th Cir. 1991).

Although the personal expense entries in Circle’s books could not have been

characterized as dividends or balanced in relation to Junior’s and Senior’s

shareholder interests until the end of Circle’s accounting year, the jury possessed

40
Further, distributions are “regarded as dividends where a corporation makes a loan to a
shareholder and later cancels the indebtedness, or sells property to a shareholder for a purchase
price for below its fair market value, or pays compensation to an officer-shareholder in an
amount in excess of the value of his services.” Dynamics Corp., 392 F.2d at 246. “It is not the
intent of the parties that governs the characterization of the distribution, but rather the economic
and consequent legal effect of their actions.” Id. at 247. Intent, however, may be considered in
the determination of whether or not a distribution was a loan to a shareholder. Haber v. Comm’r
of Internal Revenue, 52 T.C. 255, 266 (1969). In such a determination, the intent of the parties
at the time of the distribution is key: the shareholder’s intent to repay the loan and the
corporation’s intent to enforce such an obligation. Id. Evidence of such intent may be shown by
notes of indebtedness, collateral or other security provided for repayment of the loan, agreements
as to the time of the repayment and the amount of interest to be paid, or corporate resolutions
regarding the loan. Id.
If there is insufficient evidence of a shareholder loan, a shareholder’s receipt of corporate
receipts is “treated as a constructive distribution . . . taxable as a dividend to the extent of
corporate earnings and profits for the corporate fiscal year in which it occurred.” Midwest
Stainless, Inc. v. Comm’r of Internal Revenue, T.C.M. 2000-314, *4 n.5 (2000).

51
sufficient evidence to convict on Counts Three, Four and Five. Circle’s payment

of $5,000 for suits and $8,000 for night-club visits for Junior, which were

erroneously labeled on Circle’s books and not reported by Junior as personal

income, provided sufficient substantive evidence of the understatement of income.

Circle’s payments of New York landscaping fees for Senior, which were not

reported by Senior as personal income, provided sufficient substantive evidence of

the understatement of income. Further, if the jury determined that Circle’s

payment of the landscaping fees constituted personal income to Senior, the

objective element of a tax deficiency was met to satisfy the charge that Senior

evaded taxes. Viewing the evidence in the light most favorable to the government,

the jury could find sufficient circumstantial evidence to support a finding of intent

and willfulness on these counts.

3. Aiding and Abetting the Filing of a Materially False Income Tax Return

To prove a charge under 26 U.S.C. § 7206(2), the government must show

that the defendant “(1) willfully and knowingly aided or assisted (2) in the

preparation or filing of a federal income tax return (3) that contained material

statements that the defendant knew to be false.” United States v. Parker, 277 Fed.

Appx. 952, 957 (11th Cir. 2008) (per curiam) (citing United States v. Searan, 259

52
F.3d 434, 441 (6th Cir. 2001)). Although the defendant’s preparation of the returns

is not essential, the government must prove that the defendant knowingly provided

false documentation with the expectation that it would be used in the filing of a tax

return. United States v. Wolfson, 573 F.2d 216, 225 (5th Cir. 1978); United States

v. Aracri, 968 F.2d 1512, 1524 (2nd Cir. 1992) (convictions under § 7602(2)

upheld where the “defendants knew that their scheme would result in the filing of

false tax returns.”).

In this case, no evidence suggests that Kottwitz or the Marchellettas knew

that Circle would file a false 2001 tax return. Kottwitz and the Marchellettas

never saw the tax return before it was filed or took any action in preparation of it

with an expectation that it would be filed with materially false statements. Their

convictions on Count Six are reversed.

B. Failure to Give the Requested Good Faith Reliance Jury Instruction

Kottwitz and the Marchellettas argue that the district court erred by failing to

give their proposed jury instruction regarding good faith reliance on Schwartz’s

accounting advice and his failure to exercise due care in his audit of Circle. They

maintain that the district court misapprehended the law regarding what the jury

needed to decide in order for a defendant to succeed as opposed to when they

should be instructed for their ultimate determinations as to guilt or innocence.

53
They contend that there was overwhelming evidence that Schwartz failed to

exercise due care of diligence in discharging his duties.

The government responds that Kottwitz and the Marchellettas were not

entitled to a good faith reliance instruction because Schwartz never advised them

how to record and report the personal expenditures on their tax returns, they never

told Schwartz about the payments, and they gave him false books that disguised the

payments. It maintains that the charge would have confused the jury and was

unnecessary because the court provided an instruction regarding the high standard

of criminal intent and that “good faith is a complete defense.” Finally, it asserts

that we should review this issue for only plain error because Junior never

articulated any specific evidentiary grounds in support of the charge and did not

object to its omission until after the jury had retired.

We review de novo the issue of whether a requested jury instruction is

supported by sufficient evidence, United States v. Calderon, 127 F.3d 1314, 1329

(11th Cir. 1997), and review the district court’s refusal to give such an instruction

for abuse of discretion, United States v. Morris, 20 F.3d 1111, 1114 (11th Cir.

1994). A district court abuses its discretion in denying a requested jury instruction

if: (1) the instruction is correct; (2) the instruction was not substantially covered by

the given charge; and (3) the defendant’s ability to present an effective defense was

54
seriously impaired by the failure to give the instruction. United States v. Sirang,

70 F.3d 588, 593 (11th Cir. 1995). “The district court has broad discretion in

formulating jury instructions as long as those instructions are a correct statement of

the law.” United States v. Garcia, 405 F.3d 1260, 1273 (11th Cir. 2005) (per

curiam). Further, because “[a] confused jury can give as improper a verdict as one

which has failed to receive some significant instruction, . . . the charge should be

direct and focus the jury’s attention on the evidence given at trial.” United States

v. Blair, 456 F.2d 514, 520 (3d Cir. 1972).

In objecting to a district court’s failure to provide a requested jury

instruction, the objecting party must advise the court before the jury retires to

deliberate of its specific objection and the evidentiary grounds upon which the

objection was based. Fed. R. of Crim. Proc. 30(d). The objection must be specific

and timely, United States v. Wright, 392 F.3d 1269, 1277 (11th Cir. 2004), as “a

general objection . . . will not suffice,” United States v. Gallo-Chamorro, 48 F.3d

502, 507 (11th Cir. 1995). An objection is timely even if made after the jury has

been excused as long as the jury was told not to begin deliberations until further

notice. See United States v. Eiland, 741 F.2d 738, 742 (5th Cir. 1984). Although

“we do not insist on an extremely technical reading of Rule 30, the objection

should be sufficient to give the district court the chance to correct errors before the

55
case goes to the jury.” Sirang, 70 F.3d at 594 (citations omitted). Objections to the

district court’s erroneous belief that the requested instruction was an “incorrect

statement of the law,” United States v. Yeager, 331 F.3d 1216, 1223 (11th Cir.

2003), objections “as a matter of form” to the denial of all of the requested

instructions, United States v. Flynt, 15 F.3d 1002, 1006 (11th Cir. 1994) (per

curiam) (quotation marks omitted), and objections that do not address the district

court’s explanation for its denial of the instruction because it was “not tailored to

the evidence,” are inadequate to preserve the issue on appeal, Sirang, 70 F.3d at

594 (quotation marks omitted). A non-preserved objection to a court’s failure to

give a requested jury instruction is reviewed under the more stringent standard of

plain error. Fed. R. Crim. P. 52(b). As we have explained, a plain error is one that

is clear, is obvious under current law, and that affects substantial rights. United

States v. Eckhardt, 466 F.3d 938, 948 (11th Cir. 2006).

A trial court is not free to determine the existence of the defendant’s theory

of defense as a matter of law; it is established by the defendant’s presentation of an

evidentiary and legal foundation and, once established, the defendant is entitled to

jury instructions on that defense theory. United States v. Ruiz, 59 F.3d 1151, 1154

(11th Cir. 1995); United States v. Williams, 728 F.2d 1402, 1404 (11th Cir. 1984).

The requested jury instruction should “precisely and specifically, rather than

56
merely generally or abstractly, point [] to the theory of . . . defense.” Morris, 20

F.3d at 1117 (quotation marks and citations omitted). The law is clear that the

defendant’s burden is light as “any foundation in the evidence” is sufficient even if

that evidence is of doubtful credibility, frivolous, imprudent, inconsistent,

insufficient, unbelievable, or weak. United States v. Opdahl, 930 F.2d 1530, 1535

(11th Cir. 1991) (citation omitted); United States v. Middleton, 690 F.2d 820, 826

(11th Cir. 1982); Strauss v. United States, 376 F.2d 416, 419 (5th Cir. 1967). “[I]t

is reversible error to refuse to charge on a defense theory for which there is an

evidentiary foundation and which, if believed by the jury, would be legally

sufficient to render the accused innocent.” United States v. Edwards, 968 F.2d

1148, 1153 (11th Cir. 1992) (quotation marks and citation omitted).

“The defense of good faith reliance on expert advice is designed to refute the

government’s proof that the defendant intended to commit the offense.” United

States v. Johnson, 730 F.2d 683, 686 (11th Cir. 1984) (internal quotation marks

omitted). Such a defense is successful when the defendants establish that they (1)

fully disclosed all relevant facts to the expert and (2) relied in good faith on the

expert’s advice.41 Id. Once the defendant charged with willful income tax evasion

41
Where the accountant “possesse[s] all of the relevant facts concerning [the
transactions at issue] from the outset,” it is not necessary that the defendant show “that he
personally disclosed all pertinent facts to the accountant.” United States v. Lindo, 18 F.3d 353,
356 (6th Cir. 1994).

57
presents evidence that he disclosed all of the relevant facts to a competent tax

advisor and relied on the advisor’s advice based on his disclosures, he is entitled to

a jury instruction on the defense of good faith reliance on the advice of his advisor.

United States v. Eisenstein, 731 F.2d 1540, 1543-44 (11th Cir. 1984) (citing

Bursten v. United States, 395 F.2d 976, 981-82 (5th Cir. 1968)). If the expert

provides no advice or acts as a co-conspirator and not as an expert, good faith

reliance is not established. Johnson, 730 F.2d at 686; United States v. Miles, 290

F.3d 1341, 1354 (11th Cir. 2002) (per curiam). A reliance instruction is also not

required if the defendant failed to disclose “material facts related to [the

defendant’s] misrepresentations.”42 United States v. Condon, 132 F.3d 653, 657

(11th Cir. 1998) (per curiam).

The defendant bears an “extremely low” threshold to justify the good faith

reliance instruction and does not need to prove good faith. Ruiz, 59 F.3d at 1154;

see also Morris, 20 F.3d at 1114 n.2. Whether the defendant fully disclosed the

relevant facts, failed to disclose all relevant facts, or concealed information from

his advisor, and relied in good faith on his advisor are matters for the jury–and not

42
A taxpayer who fails to disclose material information from his accountants or takes
affirmative steps to mislead his accountants is not entitled to argue reliance. United States v.
Lisowski, 504 F.2d 1268, 1272 (7th Cir. 1974).

58
the court–to determine, under proper instruction.43 See United States v. Baldwin,

307 F.2d 577, 579 (7th Cir. 1962); United States v. Walters, 913 F.2d 388, 392

(7th Cir. 1990). A jury is entitled to the opportunity to believe or disbelieve even

fragile evidence in support of a defense. Strauss, 376 F.2d at 419; Eisenstein, 731

F.2d at 1545. Defendants are entitled to the good faith defense instruction if it

(1) was correct, (2) was not substantially covered by the court’s
charge to the jury, and (3) dealt with some point in the trial so
important that failure to give the requested instruction seriously
impaired the defendant’s ability to conduct his defense[,]

and where there is any evidence, regardless of how dubious, inconsistent or weak it

may have been, to support their good faith claim. Morris, 20 F.3d at 1116

(punctuation and citation omitted). The instruction is appropriate even where the

evidence might lead the jury to conclusions that would not benefit the defendant

because refusing the charge withdraws the point from the jury’s consideration and

a jury should be given the opportunity to resolve all questions of fact. United

States v. Platt, 435 F.2d 789, 792-93 (2nd Cir. 1970). Such an instruction was

proper where the defendants’ books were kept internally and reviewed by outside

43
The trial court’s evaluation of the evidence supporting a reliance defense and denial of
such a charge “dilutes” the defendants’ trial and acts as an “impermissible” directed verdict
against the defendants. Bursten, 395 F.2d at 981 (quotation marks and citation omitted).

59
accountants, and their tax returns were prepared by outside accountants,44 see

Morris, 120 F.3d at 1114, where the only evidence in support of the instruction is

the defendant’s own testimony, see Strauss, 376 F.2d at 419 (citing Tatum v.

United States, 190 F.2d 612, 617 (D.C. Cir. 1951), and where the defendant failed

to testify, see Lindo, 18 F.3d at 356. The reliance instruction is also proper even if

the outside accountant was a co-defendant. United States v. Duncan, 850 F.2d

1104, 1105, 1117 (6th Cir. 1988), overruled on other grounds, Schad v. Arizona,

501 U.S. 624, 111 S. Ct. 2491 (1991). The denial of the instruction may prejudice

the defendants where they have contested that they lacked the specific intent to

commit tax fraud; such prejudice is “amplified” when the evidence against them

was circumstantial and limited, and the evidence in their favor was substantial.45

44
The good faith reliance instruction was proper when the defendant: (1) had been
advised by an accountant that extensions had been requested, Platt, 435 F.2d at 790-92; (2) was
merely a “‘walk-in customer’” who provided only oral information rather than a regular
customer whose business activity was continuously overseen by an accountant, United States v.
Kim, 884 F.2d 189, 193-94 (5th Cir. 1989); (3) had signed a tax return prepared by an
accountant from records recorded by the defendant’s bookkeeper, Berkovitz v. United States,
213 F.2d 468, 470, 472-73, 476 (5th Cir. 1954); and (4) had signed tax returns prepared by an
accountant from records in which entries were classified by the bookkeeper and the defendant
neither concealed anything nor refused the accountant any information, United States v.
Pechenik, 236 F.2d 844, 845-47 (3rd Cir. 1956) (a jury was entitled to accept or reject evidence
that the defendant relied on his bookkeeper to determine how various expenses should be entered
into his books and on his accountant to audit the corporation’s books and prepare its tax returns).
See also United States v. Head, 641 F.2d 174,180 (4th Cir. 1981) (such an instruction was proper
where the defendant “relied upon accountants to prepare tax returns and did nothing to obstruct
the flow of information necessary to prepare those returns”).
45
The prejudice from a district court’s failure to give the good faith reliance instruction
is not abated by counsel’s presentation of the theory of defense during closing argument. With

60
Morris, 20 F.3d at 1118. The instruction may be properly denied, however, if: (1)

there is evidence that the defendant personally failed to record receipts, provide his

accountant with the underlying records, or inform his accountants of additional

income, see United States v. Garavaglia, 566 F.2d 1056, 1059-60 (6th Cir. 1977);

(2) there is no evidence that the defendant sought, received, or followed the advice

of an advisor in good faith or informed the advisor of all of the facts, see United

States v. Brimberry, 961 F.2d 1286, 1290 (7th Cir. 1992); United States v. Durnin,

632 F.2d 1297, 1301 (5th Cir. 1980); (3) such theory of defense is based merely

upon speculation, see Condon, 132 F.3d at 656; or (4) the issue of the defendant’s

reliance on advice for given conduct is not before the jury on the charges of

conviction, United States v. Snipes, F.3d , , 2010 WL 2794190 at *9 (11th

Cir. July 16, 2010). The reliance instruction is also not necessary where the district

court’s instructions regarding the defendant’s honest, good faith belief that his

actions were legitimate negates the specific intent required for conviction, United

States v. Tannehill, 49 F.3d 1049, 1058 (5th Cir. 1995), adequately covered the

substance of the defendant’s theory of defense and permitted defense counsel to

present adequate argument on the defendant’s good faith misunderstanding of the

law, Snipes, F.3d at , 2010 WL 2794190 at *10; United States v. Kouba, 822

no instruction on the legal effect of good faith reliance, a jury is left with no lawful or legitimate
alternative for the explanation for the defendant’s conduct. See Ruiz, 59 F.3d at 1155.

61
F.2d 768, 771 (8th Cir. 1987), or required that the jury rule out good faith in order

to convict the defendant. United States v. Martinelli, 454 F.3d 1300, 1316 (11th

Cir. 2006).

The requested good faith reliance jury instruction was based on our pattern

jury instructions and was, therefore, a correct statement of the law.46

We must first determine whether Kottwitz and the Marchellettas preserved

the issue of the good faith reliance instruction through their objection in the district

court. The good faith defense theory was presented throughout the trial. The

theory was set out in the opening statements, during Schwartz’s cross-examination,

and in closing arguments that Kottwitz, Junior, and Senior, none of whom were

trained or experienced in taxes, relied on Schwartz for his advice in classifying

entries made in Circle’s books and in preparing correct tax returns. They

specifically requested the instruction and objected both orally and in writing to the

district court’s refusal to grant the instruction before jury deliberations

commenced. We, therefore, review the district court’s refusal to give the

instruction for abuse of discretion.

46
The additions to the pattern jury instructions included language consistent with the
regulations under the Internal Revenue Code. “The tax return preparer must make reasonable
inquiries if the information as furnished appears to be incorrect or incomplete . . . [and] to
determine the existence of facts and circumstances required by a Code section or regulation as a
condition of the claiming of a deduction or credit.” 26 C.F.R. § 1.6694-1(e).

62
 Whether it was necessary to provide the good faith reliance instruction

depends on whether (1) a juror could find any evidence to conclude that Kottwitz

and the Marchellettas provided all material facts to their accountant, and (2) a juror

could find any evidence that Kottwitz and the Marchellettas relied in good faith on

that accountant’s advice and decisions. The evidence demonstrated that the

Marchellettas hired Schwartz to prepare Circle’s audited financial statements and

tax returns, and that Kottwitz worked closely with him during his yearly audits. In

a letter dated 21 August 2001, Junior confirmed to Schwartz that he had “to the

best of my knowledge and belief . . . made available to you all . . . [f]inancial

records and related data [and] [m]inutes of the meetings of stockholders, directors .

. . .” Govt. Ex. 427.10. Schwartz explained that he conducted the audits but relied

on Kottwitz for “mostly everything” because neither Junior nor Senior wanted to

be involved or provided him with clear answers regarding “the technicalities of the

books and records.” R22 at 185-86. He stated that Senior would walk through but

did not participate and did not seem to care about the numbers. Id. at 185-87.

Kottwitz did not limit Schwartz’s audit in any manner, provided him with

requested documentation, and relied on his accounting advice to insure the

propriety of Circle’s accounting. Schwartz testified that Kottwitz made her best

efforts to assure that Circle’s accounting was correct and to make appropriate

63
changes. Logan and Diggs both testified that Schwartz was given access to

Circle’s books and records and to any other requested documents, and that he

directed the correction of misclassified entries. Schwartz admitted that neither the

time that he spent on the audit nor his access to the documents was limited, and

made no changes to the time that he allocated after he found it “difficult” to

perform the audit in two days. Schwartz not only reclassified the monies Circle

received from Nastasi as a loan, but he failed to inform Senior of the

reclassification or its effect on his previously filed tax return and took no steps to

correct that tax return. Schwartz admitted reviewing the JM reports, which

included the Crabapple and Newport Bay costs of, respectively, about $1 million

and $800,000, and reflected no income.

Based on this evidence, the Marchellettas were entitled to have the jury

instructed on their good faith reliance on Schwartz’s advice and on Schwartz’s

failure to exercise due care. The requested instruction properly placed the

determination with the jury as to whether they acted in good faith in seeking

advice, fully and completely reporting to their accountant, and acting strictly in

accordance with the advice. The district court’s refusal to deliver the requested

instruction, which addressed the defense’s theory of the case on Counts Three,

Four, and Five was not substantially covered by other instructions seriously

64
impaired Kottwitz and the Marchellettas’ defense. The district court’s refusal to

deliver the requested instruction did not, however, impair Kottwitz and the

Marchellettas’ defense as to the conspiracy charge (Count One). The defense’s

theory of the case as to the conspiracy charge was fully encompassed by the good

faith instruction given by the district court because the conspiracy was

consummated before any reliance upon the advice of an accountant.

Before we resolve this issue, however, we must look again to our review of

the sufficiency of the evidence as the counts in question because “[o]nly if the

evidence is sufficient for a properly instructed jury to have convicted [the

defendants of the charged offenses] do we have to determine whether the district

court’s erroneous jury instruction constituted . . . error requiring reversal and

remand for a new trial.” United States v. Mount, 161 F.3d 675, 678 (11th Cir.

1998) (citation omitted). “If the record does not contain sufficient evidence under

which a properly instructed jury could have convicted [the defendants of the

charged offenses], then double jeopardy principles mandate that we vacate the

conviction and remand to the district court with directions to enter a judgment of

acquittal on the count in question.” Id. (quotation marks and citation omitted).

Because we have determined that the evidence was sufficient to support

Junior’s and Senior’s convictions for filing materially false personal income tax

65
returns for 2000 (Counts Three and Four), and Senior’s conviction for evading

taxes (Count Five), we reverse their convictions on these counts and remand for a

new trial. Because the evidence was, however, insufficient to support Kottwitz’s,

Junior’s, and Senior’s convictions for aiding and assisting in the filing of a

materially false corporate return for 2001 (Count Six), we need not address

whether the district court’s instruction would have constituted plain error requiring

a new trial if the evidence had been sufficient. See Mount, 161 F.3d at 680 n.4.

We reverse their convictions on this count and remand with directions to enter a

judgment of acquittal on this count and for resentencing for Kottwitz.47

III. CONCLUSION

For the reason stated above, we AFFIRM Kottwitz’s, Junior’s, and Senior’s

convictions for conspiracy to defraud the Internal Revenue Service (Count One).

We VACATE Junior’s and Senior’s convictions for filing materially false personal

income tax returns for 2000 (Counts Three and Four), and Senior’s conviction for

evading taxes (Count Five), and REMAND for a new trial. We REVERSE

Kottwitz’s, Junior’s, and Senior’s convictions for aiding and assisting in the filing

of a materially false corporate return for 2001 (Count Six) and REMAND with

47
Kottwitz did not appeal her sentence and the record of her sentencing is not before us.
We note, however, that because the sentencing on multiple counts may reflect interdependence
of the counts of conviction, resentencing is appropriate. See United States v. Watkins, 147 F.3d
1294, 1296 n.3, 1297 (11th Cir. 1998).

66
directions to enter a judgment of acquittal on this count and for resentencing of

Kottwitz on Count One.

67
BIRCH, Circuit Judge, concurring in part and dissenting in part:

I fully concur with the majority’s analysis of and ruling on the district

court’s failure to properly charge the jury. With regard to the majority’s

conclusion that the record reflects adequate evidence to sustain the prosecution’s

burden on the conspiracy charges, I respectfully dissent.

Mindful of the prosecution’s burden to prove guilt beyond a reasonable

doubt, a review of the record manifests that there was no direct or circumstantial

evidence presented that Kottwitz and the Marchellettas conspired to impede the

IRS. There was no evidence that showed that Kottwitz knew how the

Marchellettas would treat any of the Circle expenses which benefitted them

personally on their tax returns, had any in put in the preparation of their tax returns,

or ever saw their tax returns. There was no evidence presented showing that

Kottwitz ever even saw the Consulting Agreement or the Payment Guarantee

between Senior and Nastasi & Associates, had any direct knowledge of the terms

of those documents, or had any information as to their tax treatment. As Senior

maintains, the documents – and the IRS’s acceptance of Circle’s taxes on the first

three months’ payments of the $6,000 consulting fees – support a conclusion that

the payments were income to Circle and not to Senior. The written consulting

68
agreement provided that Nastasi was retaining the services of Senior and Circle,

and Nastasi’s IT people consulted with Circle’s IT people. Senior was a salaried

employee of Circle and paid income taxes based on a W-2 that he received from

Circle. The Nastasi monies were reclassified by Schwartz so as not to be

recognizable as taxable income to Circle and Schwartz failed to inform Senior of

the adjustment or to advise him that his 2000 tax returns needed to be amended to

reflect the adjustment. There was no evidence that (1) Kottwitz directed the

readjustment of Senior’s payments as taxable income to Senior, (2) attempted to

cover up the original classification of the payments, or (3) Senior knew of the

readjustment of these payments. There was no evidence presented that either

Junior or Senior directed any account entries into Circle’s accounts. The

construction costs for Crabapple and Newport Bay were set up as separate accounts

in Circle’s books, and all expenses were tracked within those accounts. There was

no evidence that Kottwitz made any decisions regarding the Newport Bay property

or how it was, or was not, treated on Circle’s books or by Senior. There was no

evidence that Kottwitz ever saw Circle’s tax returns or had any input other than

providing documentation for Schwartz. There was no evidence that Kottwitz had

any involvement in the preparation, execution or submission of Junior’s or

69
Senior’s tax returns or knew how Circle’s payments for the home construction and

other expenses were treated in Junior and Senior’s personal tax returns.

There was no evidence that suggests that Kottwitz or the Marchellettas knew

that Circle would file a false 2001 tax return. Kottwitz and the Marchellettas

never saw the tax return before it was filed or took any action in preparation of it

with an expectation that it would be filed with materially false statements.

Moreover, the personal expense entries in Circle’s books could not have

been characterized as dividends or balanced in relation to Junior’s and Senior’s

shareholder interests until the end of Circle’s accounting year. The determination

of these expenses from 1 April 2000 until 31 March 2001 as taxable income could

also not occur until the end of Circle’s fiscal year, after 31 March 2001, and the

adjusted entries were made in September 2001. At that time, the Marchellettas

recognized their constructive income and paid their respective taxes. Those

determinations could not be made for the 2000 tax year. The conspiracy

convictions should be reversed.

Because the government did not show that Kottwitz or the Marchellettas

knew of a tax conspiracy or that Kottwitz or the Marchellettas voluntarily and

knowingly agreed to impede the IRS’s collection of taxes, it failed on its burden of

proof with respect to the convictions on Count One.

70