United States v. George

United States Court of Appeals
For the First Circuit

No. 05-1506

UNITED STATES OF AMERICA,

Appellee,

v.

DANIEL H. GEORGE, JR.,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Patti B. Saris, U.S. District Judge]

Before

Howard, Circuit Judge,

Coffin and Campbell, Senior Circuit Judges.

John J.E. Markham, II, with whom Markham & Read was on brief,
for appellant.
Michael J. Pineault, Assistant United States Attorney with
whom Michael J. Sullivan, United States Attorney was on brief, for
appellee.

May 24, 2006
 HOWARD, Circuit Judge. Daniel H. George, Jr., was

convicted of four counts of tax evasion, see 26 U.S.C. § 7201, and

sentenced to thirty months' imprisonment. George says the district

court plainly erred in failing to instruct the jury on an obvious

(but unargued) defense theory. He also challenges the denial of

his motion for a new trial. We affirm.

I.

We present the facts in the light most favorable to the

verdict. See United States v. Medina-Martinez, 396 F.3d 1, 3 (1st

Cir. 2005). George is a self-taught chemist who operated a

nutritional supplement business out of his home in Rockport,

Massachusetts. George, who holds five patents, researched and

developed his supplements at various Boston-area university

laboratories and libraries.

George's business dealings generally took two forms.

First, he provided research services, raw materials, and finished

supplements to various health supplement companies. Second, he

directly administered supplements for a host of maladies from his

front porch to various individuals and groups that came to see him

in Rockport. In both lines of business, George typically required

payment in advance (by cash or check, with a preference for cash)

and steadfastly refused to provide receipts or other documentation

of his sales and services. He ultimately accumulated over six

million dollars in various bank accounts.

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 Through a series of events, including investigations by

the Drug Enforcement Administration and New Jersey authorities who

were looking into the murder of George's friend and business

associate, Richard Breitbarth, George's business came under

scrutiny by the Internal Revenue Service (IRS). The IRS discovered

that George had never paid taxes on any of his business income. An

IRS agent interviewed George, who maintained that he neither

provided research services for pay nor sold supplements or their

constituent raw materials. Instead, George stated that all the

monies that he had received were "gifts" or "donations" from his

patrons, who supported his goal of building a non-profit research

laboratory. In 2003, George was indicted on four counts of tax

evasion for the years 1996, 1997, 1998, and 1999.

At trial, the government called several of George's

clients, who testified that they had paid for products or services

and that their payments were not gifts or donations. One witness

testified that George increased the price of one of his products

ninefold when it began to achieve commercial success. Another

testified that George called him after the indictment to do "damage

control" and offered to refund all monies that the client had paid

if the client would sign a statement that the payments had been

donations.

Three New Jersey detectives who had investigated the

Breitbarth murder testified that George had made no mention of

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gifts or donations, but rather acknowledged a business relationship

with Breitbarth which included George's receiving payments for his

research services twice a month. Two IRS agents testified about

the aforementioned IRS interview, George's bank accounts,1 and his

tax deficiency. The government established income of approximately

$900,000 for the relevant years, which yielded a tax liability of

approximately $252,000. The government's case emphasized two

primary acts of evasion by George: (1) using false Social Security

numbers to open bank accounts, see supra note 1; and (2) making

false statements to the IRS about the nature of his activities.2

George did not take the stand, but called witnesses and

presented documentary evidence. The defense maintained that the

monies George received were non-taxable gifts or donations. The

defense painted George as a reclusive and eccentric genius,

emphasizing that he lived as a pauper in a small house supported

only by Social Security disability payments of approximately $9,000

a year. The defense called attention to the fact that George had

1
George had opened fifteen bank accounts at ten different banks
using seven different Social Security numbers and transferred large
sums between the accounts. The Social Security numbers utilized
included his actual Social Security number and six false numbers,
which generally contained transpositions of his actual number. The
different Social Security numbers made it difficult for the IRS to
track George's interest income.
2
To convict a defendant of tax evasion, the prosecutor must prove
a tax deficiency, an affirmative act constituting an evasion, and
willfulness. See United States v. Lavoie, 433 F.3d 95, 97 (1st
Cir. 2005).

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never used any of the supplement proceeds for himself, but had

saved the money with the goal of building a non-profit research

foundation. Finally, the defense highlighted the fact that,

following his indictment, George had established the Biogenesis

Foundation, Inc., which received tax-exempt status from the IRS

under 26 U.S.C. § 501(c)(3).3

As to the evasion issue, the defense suggested that the

use of incorrect Social Security numbers at some banks was

accidental and caused by George's quirkiness. The defense

emphasized that all the other information that George provided to

the banks, including his name and address, was accurate. As to the

statements to the IRS agent, the defense argued that George was

genuinely confused about whether the payments he received were

taxable because he intended to use them for his charitable

foundation.

The jury convicted George on all counts. Subsequently,

George hired new counsel and moved for a new trial on the basis of

newly discovered evidence in the form of (1) five Social Security

Administration and Bureau of Prison documents from the 1970's and

early 1980's which contained inaccurate Social Security numbers for

3
Section 501(c)(3) provides an exemption from taxation for
"[c]orporations . . . organized and operated exclusively for
religious, charitable, scientific, testing for public safety,
literary, or education purposes . . . [so long as] no part of the
net earnings of [the corporation] inures to the benefit of any
private shareholder or individual . . . ." 26 U.S.C. § 501(c)(3).

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George; (2) post-conviction reports by psychiatrists opining that

George suffered from Asperger's Syndrome, a mental disorder; and

(3) an expert report opining that the sales income was not taxable

because George was operating a tax-exempt "social welfare

organization" pursuant to 26 U.S.C. § 501(c)(4).4 The district

court denied the motion and sentenced George to 30 months'

imprisonment. This appeal followed.

II.

George presents us with two arguments. First, he

contends that the district court committed plain error in failing

to instruct the jury sua sponte about Section 501(c)(4)

organizations. Second, he argues that the district court erred in

denying his motion for a new trial.5

4
Section 501(c)(4) provides a tax-exemption for "organizations
not organized for profit but operated exclusively for the promotion
of social welfare . . . the net earnings of which are devoted
exclusively to charitable, educational, or recreational purposes .
. . " with the limitation that the exemption "shall not apply to an
entity unless no part of the net earnings of such entity inures to
the benefit of any private shareholder or individual." 26 U.S.C.
§ 501(c)(4).
Generally speaking, the primary differences between Section
501(c)(3) organizations and Section 501(c)(4) organizations are
that contributions to the former are tax deductible while those to
the latter are not, and the latter can engage in some political
activities while the former cannot. See generally Federal Election
Comm'n v. Beaumont, 539 U.S. 146, 150 n.1 (2003).
5
George's brief hints at additional due process arguments but
fails to develop them sufficiently to warrant further mention. See
United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990). George
also criticizes trial counsel's performance, but fact-specific
claims of ineffective assistance of counsel must be pursued via 28
U.S.C. § 2255. See United States v. Mercedes Mercedes, 428 F.3d

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A. Jury Instruction

George argues that the district court plainly erred in

failing to instruct the jury sua sponte about § 501(c)(4) because

evidence at trial made the applicability of a defense based upon

this statute "obvious." George asserts that such an instruction

would have resulted in an acquittal because George was "obviously"

running a non-profit scientific foundation, and sales by such an

entity are exempt from federal taxation. The absence of a §

501(c)(4) instruction was especially harmful, George says, because

the district court inaccurately instructed the jury that George's

income was either taxable sales income or a product of tax-exempt

gifts and donations. We disagree.

George concedes that he did not request such an

instruction in a timely manner, and that our review must be

conducted for plain error pursuant to Fed. R. Crim. P. 30(d) and

52(b). See Medina-Martinez, 396 F.3d at 8. Thus, to prevail,

George must show "that (1) an error occurred, (2) the error was

clear or obvious, (3) the error affected his substantial rights,

and (4) the error also seriously impaired the fairness, integrity,

or public reputation of judicial proceedings." Id.; see also

United States v. Frady, 456 U.S. 152, 163 (1982) (failure to give

a particular instruction constituted an "error so plain the trial

judge and prosecutor were derelict in countenancing it, even absent

355, 361 (1st Cir. 2005).

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the defendant's timely assistance in detecting it"). George's

claim fails for several reasons.

First, George is claiming an entitlement to an

instruction that he did not suggest relating to a defense that he

did not assert. "Where a defendant does not offer a particular

instruction, and does not rely on the theory of defense embodied in

that instruction at trial, the district court's failure to offer an

instruction on that theory sua sponte is not plain error." United

States v. Montgomery, 150 F.3d 983, 996 (9th Cir. 1998); cf. United

States v. Lebron-Cepeda, 324 F.3d 52, 60 (1st Cir. 2003)(per

curiam)("[I]t would be most unusual for us to find that a district

court erred in failing to give a limiting instruction that was

never requested").

Second, any § 501(c)(4) instruction would have been

contrary to the defense theory that George actually relied upon:

that the monies in question were gifts and donations from George's

patrons to fund his research. "If an instruction is inconsistent

with the defense's theory of the case, it is inappropriate."

United States v. Eberhart, 434 F.3d 935, 940 (7th Cir. 2006); see

also United States v. Fort, 998 F.2d 542, 547 (7th Cir. 1993). The

district court is not required "to embark on an intellectual frolic

of its own and instruct the jury on a defense [that the defendant]

did not choose to assert and to prove." United States v. Simmonds,

931 F.2d 685, 688 (10th Cir. 1991).

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 Finally, George was entitled only to defense theory

instructions "for which there [was] sufficient evidentiary

support," United States v. Lopez-Lopez, 282 F.3d 1, 18 (1st Cir.

2002). And the evidence here fell short of supporting a §

501(c)(4) instruction.

To qualify for a § 501(c)(4) exemption, there must be (1)

an organization, that (2) is not operated for profit, and that is

(3) operated exclusively for the promotion of social welfare. See

26 U.S.C. § 501(c)(4); 26 C.F.R. § 1.501(c)(4)-1. Such an

organization does not operate exclusively for the promotion of

social welfare if it "is carrying on business with the general

public in a manner similar to organizations which are operated for

profit." 26 C.F.R. § 1.501(c)(4)-1(a)(2)(ii).

George dealt in health products, but that does not

automatically mean that he worked for general social welfare,

particularly when his products were offered only to a select

clientele rather than the public at large. See generally IHC

Health Plans, Inc. v. Comm'r of Internal Revenue, 325 F.3d 1188,

1197-98 (10th Cir. 2003)(not every activity that promotes health is

entitled to a tax-exemption). Additionally, the evidence suggests

that George did not operate an "organization," given that he failed

to engage in any traditional business behavior, such as maintaining

records, hiring employees, or maintaining a formal office.

Finally, George's revenue from the sale of his products far

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exceeded his costs, and he deposited this profit into bank accounts

that he exclusively controlled. That George may have intended to

place these proceeds into a tax-exempt organization at some future

point does not alter the fact that they were business profits

available for his use. See 26 U.S.C. § 502 (profits of business

not tax-exempt simply because profits ultimately paid to tax-exempt

organization). In the end, George's business did not differ

significantly from other for-profit suppliers of health

supplements. Cf. Federated Pharmacy Servs., Inc. v. Commissioner

of Internal Revenue, 625 F.2d 804, 808 (8th Cir. 1980)(defendant

sold prescription drugs to public and that activity was

presumptively commercial).6

B. New Trial

George contends that the evidence he submitted post-trial

of five prior "innocent" misstatements of his Social Security

number eviscerates the government's case on the issue of evasion.

George significantly overstates the exculpatory value of this

evidence.

A defendant is entitled to a new trial on the basis of

newly discovered evidence only if he can establish that (1) the

6
That George received Section 501(c)(3) status for his foundation
post-indictment is of no consequence. The IRS's decision to grant
Section 501(c)(3) status is based entirely on the applicant's
unverified representations, and George's representations in the
application were greatly at odds with the evidence at trial. See
Zimmerman v. Cambridge Credit Counseling Corp., 409 F.3d 473, 476-
77 (1st Cir. 2005).

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evidence was unavailable or unknown at the time of trial; (2) the

defendant's failure to uncover the evidence earlier was not due to

a lack of diligence; (3) the tendered evidence is material and not

simply impeaching or cumulative; and (4) the new evidence will

probably result in an acquittal if the defendant is retried.

United States v. Rodriguez-Marrero, 390 F.3d 1, 14 (1st Cir. 2004),

cert. denied, 544 U.S. 912 (2005). "For newly discovered evidence

to warrant a retrial in a criminal case, the existence of the

required probability of reversal must be gauged by an objectively

reasonable appraisal of the record as a whole, not on the basis of

wishful thinking, rank conjecture, or unsupportable surmise."

United States v. Natanel, 938 F.2d 302, 314 (1st Cir. 1991). We

review a district court's denial of a motion for a new trial for

manifest abuse of discretion. United States v. Rivera Rangel, 396

F.3d 476, 485-86 (1st Cir. 2005).

The district court did not manifestly abuse its

discretion in concluding that George's "new" evidence, if admitted

at trial, was unlikely to result in an acquittal. Most of the

tendered misstatements were made by third parties inputting data.

Further, at trial, the IRS agent testified that George had no

difficulty recalling his Social Security number at his interview.

And most significantly, the accounts that George used for his

Social Security disability benefits utilized his correct number,

while the accounts containing the much larger income that he had

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lied about all utilized incorrect numbers. George's new evidence

creates no realistic likelihood of acquittal. See generally United

States v. Villarman-Oviedo, 325 F.3d 1, 15 (1st Cir. 2003)(a new

trial warranted only "where the evidence preponderates heavily

against the verdict")(internal citation and quotation omitted).

III.

For the reasons stated above, George's conviction is

affirmed. In light of our holding, George's pending bail motion is

denied.

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