FILED
United States Court of Appeals
Tenth Circuit
October 20, 2017
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v. No. 16-3321
KATHLEEN STEGMAN,
Defendant - Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. No. 2:14-CR-20109-JAR-1)
Justin K. Gelfand, Capes Sokol Goodman & Sarachan, P.C., St. Louis, Missouri,
appearing for Appellant.
Jeffrey Brian Bender, Attorney, Tax Division (David A. Hubbert, Acting
Assistant Attorney General, S. Robert Lyons, Chief, Criminal Appeals & Tax
Enforcement Policy Section, and Gregory Victor Davis, Attorney, Tax Division,
with him on the brief), United States Department of Justice, Washington, D.C.,
appearing for Appellee.
Before BRISCOE, EBEL, and MATHESON, Circuit Judges.
BRISCOE, Circuit Judge.
Defendant Kathleen Stegman was convicted by a jury of two counts of
evading her personal taxes for the tax years 2007 and 2008, in violation of 26
U.S.C. § 7201. Stegman was sentenced to a term of imprisonment of 51 months,
to be followed by a three-year term of supervised release. The district court also
ordered Stegman to pay a $100,000 fine, plus restitution in the amount of
$68,733. Stegman now appeals. Exercising jurisdiction pursuant to 28 U.S.C.
§ 1291, we affirm Stegman’s convictions and sentence.
I
Factual background
In September 1997, Stegman formed a Kansas corporation called Midwest
Medical Aesthetics Center, Inc. (MMACI). The company operated in an office in
Leawood, Kansas, and provided a wide range of medical aesthetic services
including, but not limited to, liposuction, microdermabrasion, and laser hair
removal.
On January 16, 1998, a Certificate of Amendment was filed with the
Kansas Secretary of State to reflect a name change from MMACI to Midwest
Medical Aesthetics Center, P.A. (MMACPA or Midwest), and, relatedly, to
convert the business to a professional association. Notwithstanding the name
change, the business continued to be owned and operated by Stegman, and also
continued to provide the same types of medical aesthetic services.
2
Clients of Midwest were permitted to pay for services with a credit card,
cash, or checks made out to Stegman personally. Of these forms of payment,
Stegman preferred and encouraged the use of cash or checks. At the end of each
business day, Stegman would personally collect the cash and checks that were
paid by Midwest’s clients.
Stegman established several limited liability corporations, including
Samson, LLC (Samson). Stegman in turn used these corporations to effectively
launder Midwest client payments. As part of this process, Stegman would use the
corporations to purchase money orders, typically in denominations of $500 or
less, that she in turn used to purchase items for personal use. In 2007, Stegman
purchased 162 money orders totaling $77,181.92. In 2008, she purchased 252
money orders totaling $121,869.99. And in 2009, she purchased 157 money
orders totaling $73,697.31. Notably, Stegman reported zero cash income on her
federal income tax returns during each of these years.
Stegman employed separate tax preparers for her corporate and personal tax
returns. Alex Jones prepared the corporate tax returns. Don Lake prepared
Stegman’s personal tax returns. Although Stegman provided Jones with Midwest
bank account information as proof of its corporate income, she did not provide
him with bank records for the other accounts into which she deposited corporate
income, including the Samson account and a personal account at U.S. Bank.
Similarly, Stegman did not provide Lake with accurate records of the Midwest
3
client payments that she used to purchase personal property.
In November 2009, the Internal Revenue Service (IRS) initiated a civil
audit of the 2007 and 2008 tax returns of both Stegman and Midwest. During the
civil audit, Stegman told the IRS that Midwest never accepted cash payments and
rarely accepted checks. Stegman further told the IRS that she kept approximately
$300,000 in cash at her home and reported that the source of the cash was gifts
from relatives or money that she had saved from prior earnings. Stegman also
provided the IRS with conflicting information about Samson and its purpose.
Initially, Stegman told the IRS that “the business purpose of Samson was to lease
equipment to Midwest . . . , and she paid them approximately $3,000 a month.”
Aplee. App. at 115. She later told the IRS that “Samson had no business
purpose” and “was only the name of a bank account.” Id. at 116.
In October 2010, the case was referred to the IRS’s criminal investigation
division. The criminal referral report listed the basis for suspected fraud as
omitted income and false expenses/deductions. The report noted that Midwest
took in large amounts of cash, yet made no cash deposits in 2007 or 2008. The
report also noted Stegman’s “lavish” lifestyle, which included frequent travel,
large asset purchases of approximately $2,000,000 (unsupported by associated
loans), all despite her reporting personal income of $50,000 for 2007 and $57,105
in 2008. Notably, the report indicated that, contrary to her 2007 and 2008 tax
returns, Stegman had submitted loan applications reporting personal income
4
ranging from $10,000 to $46,000 per month.
For example, in 2007, Stegman applied for loans related to the purchase of
two condominium units in Las Vegas. On her loan applications, Stegman
represented that her monthly income was $30,000, even though her 2007 federal
tax return reported an annual adjusted gross income of $79,428. Stegman
purchased the condominium units for $543,966.16 and $558,652.86. In 2009,
however, she disposed of both units by way of short sale contracts, resulting in
forgiven debt of $362,209 and $339,722. In doing so, Stegman falsely reported to
the lending bank that she was broke.
As part of its criminal investigation, the IRS interviewed Midwest
employees and clients, reviewed bank records, money order purchases, business
and bank records, and tax records. The investigation revealed that Stegman used
Samson to create false business expenses. For example, Stegman falsely claimed
that Samson provided “cleaning,” “maintenance,” “equipment,” and “supplies” to
Midwest.
The investigation also revealed that Stegman engaged in obstructive
conduct. In particular, she altered Midwest’s general ledgers and directed
employees of Midwest to destroy business records, including payment receipts,
client folders, and a sign that was used at the business stating that cash was
accepted. Stegman also altered business ledgers that she provided to the IRS; the
IRS was able, however, to obtain the original, unaltered ledgers from her tax
5
preparer. Lastly, Stegman encouraged a former Midwest client, Dr. Evelyn Clark,
to tell the IRS that she didn’t remember anything about her dealings with
Midwest.
Procedural background
On October 29, 2014, a federal grand jury indicted Stegman on five counts
(Counts 1 through 5) of tax evasion, covering the tax years 2007 through 2010, in
violation of 26 U.S.C. § 7201, and one count (Count 6) of conspiring to defraud
the United States by obstructing the lawful governing functions of the IRS, in
violation of 18 U.S.C. § 371. 1 Each of the five counts of tax evasion were tied to
a specific tax year. Counts 1 through 3 related to the tax years 2008 through 2010
for the business. Counts 4 and 5 related to the tax years 2007 and 2008 for
Stegman personally. The conspiracy count (Count 6) charged both Stegman and
an individual named Christopher Smith with conspiring to defraud the United
States by obstructing the IRS from ascertaining, computing, assessing and
collecting federal corporate and personal taxes.
On February 24, 2015, Stegman moved “to dismiss th[e] case due to the
Government’s destruction of exculpatory evidence,” namely, “the IRS audit file
regarding . . . Stegman’s 2000 and 2001 federal tax returns.” Aplt. App., Vol. 1
at 95. The district court denied that motion.
1
A superseding indictment was filed on January 21, 2015. The superseding
indictment did not add or remove any counts that were contained in the original
indictment.
6
The case proceeded to trial beginning on March 8, 2016. During the first
week of trial, the district court granted the government’s motion to amend the
indictment to change all of the references to “Midwest Medical Aesthetics Center,
Inc.” to instead read “Midwest Medical Aesthetics Center.” At the conclusion of
the evidence, the jury convicted Stegman of evading her personal taxes for the tax
years 2007 and 2008 (Counts 4 and 5), as well as evading corporate taxes for the
tax years 2008 and 2009 (Counts 1 and 2). The jury acquitted Stegman of
evading corporate taxes for the tax year 2010 (Count 3). The jury also acquitted
Stegman and Smith of the conspiracy charge (Count 6).
Stegman moved for judgment of acquittal or, in the alternative, a new trial.
The district court granted the motion as to the two counts that related to the
evasion of corporate taxes (Counts 1 and 2), but denied the remainder of the
motion. In doing so, the district court concluded that “there was a flaw in the
way the case was charged.” Aplt. App., Vol. XII at 3311. In other words, the
district court explained, it chose to acquit Stegman of the corporate tax evasion
counts not due to a lack of “proof beyond a reasonable doubt that this corporation
evaded taxes,” but rather because “the indictment itself was flawed in attributing
the loss as due and owing by Ms. Stegman, when actually it was due and owing
by the corporation.” Id. at 3314.
The district court sentenced Stegman on October 18, 2016. Based upon
testimony from IRS Revenue Agent Janice Willard, the district court found that
7
Stegman’s evasion of personal and corporate taxes caused a federal tax loss in
excess of $550,000. The district court also imposed enhancements for use of
sophisticated means and obstruction of justice. The district court ultimately
sentenced Stegman to a term of imprisonment of 51 months, a sentence at the low
end of the advisory Guidelines range, to be followed by a three-year term of
supervised release. The district court also ordered Stegman to pay a $100,000
fine, plus restitution to the IRS in the amount of $68,733.
II
Stegman raises five issues on appeal, four of which pertain to her
convictions and one of which pertains to her sentence. Although several of these
issues require extensive discussion due to their fact-intensive nature, we conclude
that all of these issues lack merit.
A. The amendment of the indictment during trial
In her first issue on appeal, Stegman contends that the district court erred
by granting the government’s motion to amend the indictment in the midst of
trial. We review de novo a district court’s decision to grant or deny a motion to
amend an indictment. See United States v. Pina, 974 F.2d 1241, 1243 (10th Cir.
1992).
1. Relevant facts
In 1997, Stegman filed articles of incorporation with the State of Kansas
for MMACI. The following year, 1998, Stegman filed an amendment to the
8
articles of incorporation that converted the business to a professional association
and altered slightly its name (MMACPA).
Stegman’s filings with the IRS, however, did not make the nature or name
of her business clear. During the time period covered by the superseding
indictment, the tax returns that Stegman filed with the IRS identified the business
as “Midwest Medical Aesthetics Center,” but did not otherwise identify
Midwest’s particular corporate form. Further, the forms effectively treated the
business as a C corporation. Not until February 2013 did Stegman file documents
with the IRS adding a “P.A.” to the name of her business.
The indictment in this case alleged that Stegman “was the owner/operator
of Midwest Medical Aesthetics Center, Inc. (MMACI), located in Leawood,
Kansas.” Dist. Ct. Docket No. 1 at 1. The indictment proceeded to refer
repeatedly to MMACI. A superseding indictment was returned in January 2015
that included the same references to MMACI.
During opening statements at trial, defense counsel mentioned that the
entity at issue was “more properly called Midwest Medical Aesthetics Center,
P.A. for professional association.” Aplt. App., Vol. VIII at 2251. Subsequently,
“in the course of cross examining more than several [government] witnesses,”
defense counsel raised the issue “again as to the proper name [of the entity] and,
beyond that even, the existence of the entity Midwest Medical Aesthetics Center,
Inc.” Id. The government objected, and the district court heard arguments and
9
invited briefing on the issue. The government, as part of its briefing on the issue,
moved to amend the superseding indictment to read “Midwest Medical Aesthetics
Center and not Midwest Medical Aesthetics Center, Inc.” Aplt. App., Vol. II at
444.
On the sixth day of trial 2, the district court granted the government’s
motion to amend and ordered that the superseding indictment refer to Stegman’s
business as “Midwest Medical Aesthetics Center.” Id., Vol. VIII at 2258-59. In
doing so, the district court concluded that Stegman was “fully on notice of which
entity [wa]s at issue” in the indictment. Id. at 2254. The district court explained:
This isn’t a situation where there actually is a Midwest
Medical Aesthetics Center, Inc., that filed a different set of tax
forms. This isn’t a situation where there could potentially be a
jeopardy, double jeopardy problem because there’s an entity that
filed tax returns under this name, but the government has charged an
entity under another name. All were on notice that it was Midwest
Medical Aesthetics Center that was the subject of Counts 2, 3, and 4.
And therefore, I find that it is a minor change and a variance.
It doesn’t prejudice the defendants. The defendants were on notice.
And that in all respects, this is a variance that can be amended, as the
government moves to amend, by going forward with the name being
Midwest Medical Aesthetics Center. That matches the name on the
tax returns. It matches the name on most of the business records that
I’ve seen thus far. * * *
A variance, as opposed to an amendment, occurs when the
evidence at trial proves facts other than those alleged in the
indictment, but the charging terms and elements stated in the
indictment remain unaltered. And that is the case here.
2
The first day of trial was comprised solely of voir dire. Testimony began
on the second day of trial, following the parties’ opening statements. The
presentation of testimony from both sides occurred over a period of
approximately twenty days.
10
This is the type of variance that does not affect the substantial
rights of the defendants in this case because the variance does not
prevent the defendants from presenting their defense properly, it does
not unfairly surprise them, or surprise them at all. It does not expose
them to double jeopardy.
This variance is not fatal because the defendants, again,
could’ve anticipated from the indictment and the evidence what
evidence would be presented at trial. Could’ve anticipated just from
the face of the indictment itself what evidence would be presented at
trial, again, the corporate tax returns for this entity.
Id. at 2254-2256.
At the conclusion of all the evidence, the jury found Stegman guilty of two
counts of corporate tax evasion and two counts of personal tax evasion, and
acquitted her on one count of corporate tax evasion and the conspiracy charge.
Stegman subsequently moved for judgment of acquittal, and the district court
granted her motion in part, dismissing the two convictions for corporate tax
evasion. In doing so, the district court noted, as argued by Stegman, that “the
Superseding Indictment specifie[d] that the corporate taxes were due and owing
by Stegman, and the Government did not prove that Stegman herself owed the
taxes.” Id., Vol. VI at 1740. More specifically, the district court noted that the
government “did not offer evidence that would have supported a theory that
[Midwest] was a sham corporation or a disregarded entity, nor did it attempt to
pierce [Midwest]’s corporate veil.” Id. at 1740-1741. Thus, the district court
concluded, “the income tax at issue . . . was due and owing by [Midwest], not Ms.
Stegman.” Id. at 1741.
11
2. Analysis
The Presentment Clause of the Fifth Amendment states, in pertinent part,
that “[n]o person shall be held to answer for a capital, or otherwise infamous
crime, unless on a presentment or indictment of a Grand Jury.” U.S. Const.
amend. V. The Supreme Court has interpreted this provision to mean that an
indictment may not be “amended except by resubmission to the grand jury.”
Russell v. United States, 369 U.S. 749, 770 (1962); see also Stirone v. United
States, 361 U.S. 212, 215-16 (1960).
This prohibition does not, however, “extend to alterations that are ‘merely a
matter of form.’” United States v. Dowdell, 595 F.3d 50, 67 (1st Cir. 2010)
(quoting Russell, 369 U.S. at 770). Thus, we “ha[ve] distinguished between a
district court’s amending an indictment as to form, which is permissible, and as to
substance, which is an impermissible usurpation of the grand jury’s prerogative.”
United States v. Pina, 974 F.2d 1241, 1243 (10th Cir. 1992). Further, we have
“defined an amendment of form as a change that does not mislead the defendant
in any sense, does not subject the defendant to any added burdens, and does not
otherwise prejudice the defendant.” Id. Likewise, other circuits “have allowed
ministerial corrections of clerical errors in names, dates, and citations, so long as
the change would not deprive the defendant of notice of the charges against him.”
Dowdell, 595 F.3d at 68. “In short, when a change ‘le[aves] the substance of the
charge unaffected, the switch d[oes] not usurp the prerogative of the grand jury.”
12
Id. (quoting United States v. Eirby, 262 F.3d 31, 38 (1st Cir. 2001)) (alteration in
original).
Stegman argues that “[t]he amendment substantively changed the entity
from which individual and corporate income tax obligations allegedly flowed and
the affirmative acts of tax evasion the Government had to prove.” Aplt. Br. at 13.
“Furthermore,” she argues, “the district court constructively amended the
indictment by, inter alia, broadening the possible bases for conviction.” Id.
Stegman argues that “[t]o allow an indictment to be amended in a tax evasion
case to substitute the name of one business entity allegedly impacting tax liability
for the name of another business entity frustrates 130 years of jurisprudence
prohibiting district courts from amending indictments.” Id.
We reject these arguments. Contrary to her assertion, and consistent with
what the district court concluded, the amendment was merely a matter of form,
dropping the “Inc.” to accurately reflect the change that Stegman made to the
structure of her business (and a change, we note, that she did not alert the IRS to
when she filed the business’s federal tax returns). Further, as clearly stated by
the district court, the amendment did not mislead Stegman in any sense, did not
subject her to any added burdens, and did not otherwise prejudice her in any way.
See Pina, 974 F.2d at 1243. Moreover, the amendment did not deprive Stegman
of notice of the charges against her. In short, the obvious and consistent focus of
the criminal proceedings, both before and after the amendment, was on whether
13
Stegman evaded federal taxes by diverting money from the only business she
owned that generated an income, using that money for personal expenses, and
failing to properly report these transactions to the IRS. Consequently, because
the amendment was one of form only, the district court did not err in granting the
government’s motion to amend the indictment.
Stegman also asserts that the district court’s allowance of the amendment
violated her due process rights. Specifically, she argues that “[t]he jury was
never told there was an amendment or that [she] was entitled to rely on the
indictment” and, “[a]s a result, the jury may have been left with the impression
that [she] misled them on the issue of the existence of MMACI.” Aplt. Br. at 29.
This argument fails for several reasons. First, Stegman’s counsel conceded
at oral argument that Stegman never asked the district court for such an
instruction. Second, and relatedly, she failed to properly alert the district court to
this constitutional challenge. Third, the argument lacks merit given our
conclusion that the amendment was one of form only. Finally, the evidence of
Stegman’s guilt was overwhelming and thus we are not persuaded that the district
court’s decision to allow the amendment deprived her of the right to a fair trial.
B. The purported Braswell violation
In her second issue on appeal, Stegman contends that the government
violated the Supreme Court’s decision in Braswell v. United States, 487 U.S. 99
(1988), by using against her corporate records, specifically company ledgers, that
14
it obtained by compulsory summons issued to her, and that this violation requires
reversal of her convictions. Because this issue concerns Stegman’s Fifth
Amendment privilege against self-incrimination, we review the issue de novo.
See United States v. Banks, 761 F.3d 1163, 1184 (10th Cir. 2014) (“Whether a
defendant’s Fifth Amendment privilege against self-incrimination has been
violated is a legal question we review de novo.”).
1. The holding in Braswell
The Supreme Court granted certiorari in Braswell to address “the question
whether the custodian of corporate records may resist a subpoena for such records
on the ground that the act of production would incriminate him in violation of the
Fifth Amendment.” 487 U.S. at 100. The Supreme Court “conclude[d] that he
may not.” Id. In reaching this conclusion, the Court began by noting that
corporations “are not protected by the Fifth Amendment.” Id. at 102. More
specifically, the Court noted that it “ha[d] long recognized that, for purposes of
the Fifth Amendment, corporations and other collective entities are treated
differently from individuals.” Id. at 104. This collective entity rule, the Court
noted, mandated “that without regard to whether [a] subpoena is addressed to the
corporation” or “to the individual in his capacity as a custodian, a corporate
custodian . . . may not resist a subpoena for corporate records on Fifth
Amendment grounds.” Id. at 108-09 (citations omitted). The Court then
contrasted this with sole proprietorships and noted that sole proprietors are
15
entitled to “show that [an] act of production [of proprietorship documents] would
entail testimonial self-incrimination.” Id. at 104.
In a passage relevant to the case at hand, the Court explained the proper
and improper uses of corporate records produced pursuant to a subpoena:
Although a corporate custodian is not entitled to resist a subpoena on
the ground that his act of production will be personally
incriminating, we do think certain consequences flow from the fact
that the custodian’s act of production is one in his representative
rather than personal capacity. Because the custodian acts as a
representative, the act is deemed one of the corporation and not the
individual. Therefore, the Government concedes, as it must, that it
may make no evidentiary use of the “individual act” against the
individual. For example, in a criminal prosecution against the
custodian, the Government may not introduce into evidence before
the jury the fact that the subpoena was served upon and the
corporation’s documents were delivered by one particular individual,
the custodian. The Government has the right, however, to use the
corporation’s act of production against the custodian. The
Government may offer testimony—for example, from the process
server who delivered the subpoena and from the individual who
received the records—establishing that the corporation produced the
records subpoenaed. The jury may draw from the corporation’s act
of production the conclusion that the records in question are
authentic corporate records, which the corporation possessed, and
which it produced in response to the subpoena. And if the defendant
held a prominent position within the corporation that produced the
records, the jury may, just as it would had someone else produced the
documents, reasonably infer that he had possession of the documents
or knowledge of their contents. Because the jury is not told that the
defendant produced the records, any nexus between the defendant
and the documents results solely from the corporation’s act of
production and other evidence in the case.
Id. at 117-18 (footnote omitted).
16
2. Relevant facts
Prior to trial, Stegman moved “to exclude from evidence handwritten
ledgers of Midwest . . . , which were produced to the IRS pursuant to a Corporate
Summons.” Dist. Ct. Docket No. 146 at 7. Stegman argued, in pertinent part,
that under Braswell, “the Government [could not] introduce into evidence the fact
that . . . Stegman produced the documents in response to [a] subpoena, and thus
[could not] attribute the documents to Stegman as an individual.” Id. The district
court denied Stegman’s motion. In doing so, the district court concluded that “the
ledgers [we]re admissible as business records without compelling . . . Stegman to
testify.” Id. The district court emphasized that “[t]he Government’s witnesses
would not be permitted to name . . . Stegman as the custodian of records or the
person who received the subpoena.” Id. at 7-8.
During its case in chief, the government presented testimony from IRS
Agent Janice Willard. She testified that the IRS, during its criminal investigation,
served a summons on Midwest and obtained ledgers in response to the summons.
Defense counsel, citing Braswell, objected to the ledgers being “attributed to Ms.
Stegman by her handwriting.” Aplt. App. at 2717 (Trial Tr. at 3904). The district
court overruled the objection, consistent with its pretrial ruling on Stegman’s
motion to exclude the evidence.
Later, during the cross-examination of Stegman’s expert witness,
government counsel asked about those ledgers:
17
Q. Whose ledgers are these?
A. I’m assuming they’re Ms. Stegman’s.
Q. So you’re testifying in a criminal tax case based on ledgers
that are squarely at issue, and you’re assuming that those are Ms.
Stegman’s?
A. Well, you’re assuming. That’s the testimony you’re giving.
You’re saying that she faxed those or she provided those. I’m not
sure about - - is that 2010?
Q. Did you hear testimony from Revenue Agent Willard that in
response to a summons, she received these green ledgers; yes or no?
A. I don’t know what years those are.
Q. So you don’t know when these ledgers were received by the
IRS; is that what you’re saying to the jury now?
A. I can’t tell you - - if you’d let me see the ledgers, I could tell
you. I know that there - - there were ledgers provided. I don’t know
who you got them from at this point.
Q. Well, have you - - let me ask you, did you listen to Revenue
Agent Willard testify that she received green ledgers, and that was
introduced as evidence in this trial you were part of?
A. These are green ledgers that she received; is that what you’re
saying? In 2010, okay, right.
Q. Okay. Do you recognize those ledgers?
A. I do.
Q. And can you finally agree with us that those are Ms.
Stegman’s ledgers that she controlled; yes or no?
Aplt. App. at 3063-64 (Trial Tr. at 4547-48).
Before Stegman’s expert witness responded to this last question, Stegman’s
18
counsel asked to approach the bench. The district court responded in the
following manner, carefully noting the parameters of the holding in Braswell:
There’s no Braswell violation. This is a - - basically, it’s a
closely-held corporation, almost a single shareholder, depending on
what you look at in those years. The testimony has been that these
were produced pursuant to a summons, not who produced them, but
produced pursuant to a summons, received by the revenue agent.
And there has obviously been testimony that these were ledgers
prepared by Ms. Stegman. All of that taken together in context does
not make that a Braswell violation.
I was concerned during his examination of this witness that he
was going to say something inappropriate in the context of him not
wanting to answer questions. So you might want to remind him
about that rule because I don’t typically want anybody testifying that
Ms. Stegman produced these in response to a summons.
Id. at 3064-65 (Trial Tr. at 4548-49).
3. Analysis
Stegman argues on appeal that “[t]he prosecutor . . . violated Braswell by
asking [the] witness to agree ‘that those are Ms. Stegman’s ledgers that she
controlled.’” Aplt. Br. at 14 (quoting Aplt. App. at 3062-64). In other words,
Stegman argues, “[t]he prosecutor blatantly attributed the records to [her], not the
corporation.” Id. at 33 (emphasis in original). Stegman in turn argues that
“[b]ecause inter alia the Government used these ledgers to advance its allegation
that [she] used whiteout before disclosing documents to the IRS, the Government
cannot prove that this was harmless beyond a reasonable doubt.” Id. at 14.
19
Contrary to Stegman’s assertions, however, we conclude that the
prosecutor’s questions did not violate Braswell. Specifically, the prosecutor did
not ask the witness whether Stegman was the one who the compulsory summons
was served upon or the one who delivered the requested ledgers to the
government. Rather, the prosecutor asked the witness only who owned or
controlled the ledgers and the witness testified simply that he assumed the ledgers
belonged to Stegman. Thus, the questions did not violate the prohibition outlined
in Braswell. It is also worth noting, as the district court did in overruling
Stegman’s contemporaneous objection, that nothing about the questions or the
response was particularly significant, given the other evidence that was presented
at trial establishing that Stegman was in complete control of Midwest and had
prepared the ledgers at issue.
In sum, then, we conclude that the prosecutor’s questions and the witness’s
response did not violate Stegman’s Fifth Amendment privilege against self-
incrimination.
C. The alleged destruction of exculpatory evidence
In her third issue on appeal, Stegman argues that the district court erred in
denying her motion to dismiss the indictment due to destruction of exculpatory
evidence. As explained in more detail below, the district court denied the motion
based upon a series of factual findings made after conducting an evidentiary
hearing on the motion. We review the district court’s factual findings for clear
20
error. United States v. Harry, 816 F.3d 1268, 1276 (10th Cir. 2016).
1. Relevant facts
In 2004 and 2005, the IRS audited Stegman’s personal tax returns for the
years 2000 and 2001. The IRS did so because of Stegman’s involvement in, and
victimization by, an offshore investment “Ponzi scheme” called Anderson Ark
Associates. This audit ultimately resulted in a “no change” letter issued by the
IRS to Stegman.
In November 2009, the IRS initiated a civil audit of the 2007 and 2008 tax
returns of both Stegman and Midwest. In October 2010, the case was referred to
the IRS’s criminal investigation division. As part of the referral, the IRS’s civil
division forwarded to the criminal division a “referral package” of documents that
included the file from the earlier audit that the IRS had conducted regarding
Stegman’s 2000 and 2001 tax returns. That file “consisted of a stack of paper that
was approximately six to seven inches thick.” Dist. Ct. Docket No. 108 at 4.
On April 6 and 11, 2011, IRS agent Willard spent approximately twelve
hours reviewing the file relating to the 2000 and 2001 audit. Willard “took
fourteen pages of notes” during this review. Id. According to Willard, “she
reviewed the file to see if there were similar issues involved as with her
investigation, to see if [Stegman] or her tax preparer made a statement in the prior
audit, and to see if there was a pattern of conduct.” Id. Further, Willard
indicated that “[h]er notes were intended to serve as a manageable summary of
21
the documents included in the file.” Id. Willard provided her notes to her
supervisor, Special Agent Randy Praiswater, “and they discussed the file” and
“agreed the civil audit [in 2000 and 2001] dealt with the Anderson Ark scheme
because Stegman was considered a victim of that Ponzi scheme.” Id. at 5.
Although “[t]hey noted that there were some similar transactions included in the
civil audit file related to the current investigation,” they likewise noted that “the
civil audit file involved conduct that was close to ten years old” and “[t]hey did
not believe those transactions were relevant to the tax years that were the subject
of the criminal investigation.” Id.
Willard and Praiswater did not discuss the 2000 and 2001 audit file again
until February 2013, when they agreed that the file should be sent back to the
IRS’s civil division for refiling because it was not relevant to the criminal
investigation. According to Praiswater, he and Willard “examined the file for
potential defenses, or for items that were similar to the activity . . . under
investigation, and determined that the civil audit file was not relevant to the . . .
criminal case.” Id. at 5-6. Consequently, “[o]n March 1, 2013, . . . Willard
returned the civil audit file to her supervisor . . . in St. Louis” and “[n]either . . .
Willard nor . . . Praiswater requested a hold or freeze be placed on the civil audit
file.” Id. at 6. “[T]hey [both] believed that the file would be returned to
wherever it had originally been stored.” Id. Willard’s supervisor, Linda
McAdon, “received the audit file on March 4, 2013, and recommended that it be
22
refiled.” Id. at 16. However, “[t]he file was ultimately destroyed at the National
Archives and Record Administration facility around July 2013, without the IRS
agents’ knowledge.” Id.
2. The district court proceedings
On October 29, 2014, the criminal investigation culminated in the
indictment in this case. On February 24, 2015, Stegman moved to dismiss the
indictment due to destruction of exculpatory evidence, namely the old civil audit
file relating to her tax returns for 2000 and 2001. Stegman argued that these
returns “contain[ed] positions that were similar, if not identical, to the positions
the Government [wa]s claiming [we]re criminal in this case and that, after the IRS
put the tax returns under the microscope and summonsed financial records, the
IRS . . . found the tax returns were accurate and did not assess any additional
tax.” Dist. Ct. Docket No. 69 at 3. Stegman further argued that the IRS civil
audit file stemming from 2000 and 2001 was destroyed by the IRS and was thus
unavailable for their review and use at trial.
The district court held an evidentiary hearing on the motion on July 14,
2015, and took the matter under advisement. On August 21, 2015, the district
court issued a memorandum and order denying the motion to dismiss the
indictment.
Stegman had argued that “she had a good faith belief that she was
complying with the tax laws” and that she should have been “able to rely on” the
23
“no change” letter issued by IRS following the 2000-2001 audit “as circumstantial
evidence to support her good faith defense.” Dist. Ct. Docket No. 108 at 8. But
the district court concluded “that the civil audit file’s exculpatory value as to a
good faith defense was not obvious at the time it was destroyed.” Id. More
specifically, the district court noted, citing Willard’s notes, that the 2000-2001
audit focused on the Anderson Ark matter and “Stegman’s business expenses
were not the focus of th[at] audit.” Id. at 9. Thus, the district court concluded
“that the purpose of the 2000-2001 civil audit was entirely unrelated to the
charges at issue in this [criminal] case.” Id. In addition, the district court found
that the presence in the old civil audit files of information from Stegman’s banks
and creditors was the result of Stegman failing to cooperate initially with the civil
audit, which in turn prompted the IRS to issue third party summonses for bank
records and creditor information. Id. at 9-10. Further, the district court
concluded that the “no change” letters sent to Stegman “would not have
communicated to her any information about the substance of the audit” and
instead “merely communicated the fact that there was no change to her taxes due
and owing for the tax years in question.” Id. at 10. Lastly, the district court
concluded that the disclosure and effective use of the old civil audit file would
not have “ma[d]e the difference between a conviction and acquittal for Stegman.”
Id.
Stegman also argued “that the information in the civil audit file about
24
checks she received from her mother, non-liquid personal property such as furs
and jewelry, and cash holdings [was] exculpatory because [it] support[ed] a cash
hoard defense.” Id. at 11. The district court, however, concluded that Stegman
had “fail[ed] to explain how a cash hoard would exculpate her given the[]
[government’s] allegations” that “it was not relying on the net worth method of
proof in this case” and would instead rely on evidence that Stegman “mishandled
income derived from her business” and “claimed personal expenditures as
business expenditures on her tax returns.” Id. Thus, the district court found that
“[w]hile the evidence m[ight] be potentially exculpatory, Stegman ha[d] failed to
establish that the civil audit file had apparent exculpatory value as to a cash
hoard.” Id. at 13.
In sum, the district court “f[ound] that the exculpatory value of the civil
audit file was not apparent.” Id. More specifically, the district court concluded
that “[a]lthough the contents of the file m[ight] potentially relate to Stegman’s
cash hoard or good faith defenses, the record before [it] d[id] not support the
conclusion that they were facially exculpatory.” Id. “Moreover,” the district
court concluded, “even if facially exculpatory, Stegman [did] not me[et] her
burden of showing she could not obtain comparable evidence through reasonable
means.” Id. On this point, the district court noted that “Agent Willard’s fourteen
pages of notes were produced to defendants and [could] be used at trial.” Id.
Further, “the notes indicate[d] that the documents included in the file that the
25
investigators thought m[ight] be relevant to the current investigation—tax returns,
bank records, statements of asset—were obtained from third party summons” and
thus could “be obtained from other sources.” Id. “[I]n particular,” the district
court noted, “Stegman could produce evidence of her liquid and non-liquid assets
in support of any cash hoard defense.” Id.
The district court then turned to the question of “whether Stegman ha[d]
shown that the Government destroyed the records in bad faith.” Id. at 14. The
court began by rejecting the notion that the government had explicit notice that
Stegman believed that the civil audit file was exculpatory. Id. at 15. The civil
audit file, the court noted, “contained evidence of cash and other holdings during
a much earlier time frame, 2000-2003,” and “this evidence was in the form of
bank records and other financial documents that had been summonsed during the
audit based on Stegman’s initial failure to cooperate, but were not ultimately
relevant to the purpose of the audit.” Id. The district court further noted that “the
underlying financial documents could be reasonably obtained elsewhere” because
some were “public records and others could reasonably be expected to be within
Stegman’s possession or control.” Id. at 16.
The district court also concluded there “[wa]s no evidence that the files
were destroyed at the agents’ direction.” Id. “Neither Agent Willard nor SA
Praiswater returned the file with the understanding that it would be destroyed.”
Id. Rather, the district court found, “[t]hey both believed from prior experience
26
that it would be refiled.” Id.
In addition, the district court concluded that “the evidence [wa]s not central
to the Government’s case,” and “there [wa]s no indication that it plan[ned] to use
any information about the civil audit to prove the charges in this case.” Id.
Indeed, the court noted, “the Government ha[d] steadfastly maintained that the
civil audit was completely unrelated to the charges in this case and therefore
ha[d] no probative value.” Id. at 17.
Finally, the district court found “that the Government ha[d] offered an
innocent explanation for the destruction of the civil audit file.” Id. The court
explained:
The agents determined after carefully reviewing the file and
preparing a written summary, that the civil audit file was neither
relevant nor exculpatory to their criminal investigation. The Court
weigh[ed] heavily the fact that Agent Willard prepared a careful
summary of the file and provided it to Defendants in discovery; these
[we]re not actions of a person attempting to cover up exculpatory
evidence. When Agent Willard and SA Praiswater decided to close
out their investigation to fraud suspense, they had to decide what to
do with the civil audit file. They decided to return the file with the
expectation that it would be refiled, as this had been their experience
when returning and requesting audit files in the past. Agent Willard
sent the file to McAdon in March 2013, and McAdon recommended
that it be refiled. The Government was unaware that the file had
been destroyed until Defendants requested the file during discovery
in December 2014.
Id.
In sum, the district court found no bad faith on the part of the agents.
27
3. Analysis
“The Due Process Clause imposes duties on the government not to deprive
a defendant of exculpatory evidence.” United States v. Harry, 816 F.3d 1268,
1276 (10th Cir. 2016). In Brady v. Maryland, 373 U.S. 83 (1963), the Supreme
Court held that “the suppression by the prosecution of evidence favorable to an
accused upon request violates due process where the evidence is material either to
guilt or to punishment, irrespective of the good faith or bad faith of the
prosecution.” Id. at 87.
Where, as here, a defendant “made the requisite request[] but the evidence
was no longer available at that time,” “the failure to preserve the evidence
violates due process if the evidence was exculpatory and its exculpatory value
was apparent before its loss (assuming that the evidence was ‘of such a nature
that the defendant would be unable to obtain comparable evidence by other
reasonably available means’).” Harry, 816 F.3d at 1276 (quoting California v.
Trombetta, 467 U.S. 479, 489 (1984)). “If, however, the exculpatory evidence
was not apparently exculpatory but merely ‘potentially useful,’ the failure to
preserve the evidence does not violate due process ‘unless [the] criminal
defendant can show bad faith on the part of the police.’” Id. (quoting Arizona v.
Youngblood, 488 U.S. 51, 58 (1988)) (alteration in original).
28
i. Was the civil audit file facially exculpatory?
The district court in this case correctly observed, as we have previously
held, that “[t]he government’s duty to preserve extends only to evidence that
‘might be expected to play a significant role in the suspect’s defense.’” Id.
(quoting Trombetta, 467 U.S. at 488). Stegman, as the defendant, “bears the
burden of showing that the missing evidence met that standard when it was lost.”
Id.
Stegman argues on appeal, as she did below, that the civil audit file was
“facially exculpatory.” Aplt. Br. at 37. In support, Stegman points to testimony
of IRS Agent Willard at the evidentiary hearing conceding that the civil audit file
showed that Stegman had some cash and thus could perhaps support a cash hoard
defense. Stegman also asserts that the civil audit file “contained ‘no change
letters’—evidence that Stegman could have introduced to establish that she relied
in good faith on the IRS’s determination that her tax positions were valid.” Id.
(emphasis in original).
Addressing these two arguments in order, the district court expressly
rejected Stegman’s argument, made below, that “evidence of a cash hoard is
exculpatory as a matter of law.” Dist. Ct. Docket No. 108 at 11. Thus, Stegman
must point to something in addition to evidence that she was in possession of a
large amount of cash. As noted, Stegman points, as she did below, to Agent
Willard’s testimony at the evidentiary hearing conceding that Stegman had some
29
cash and that this could conceivably support a cash hoard defense. Notably, the
district court stated in its decision that it “d[id] not agree with [Stegman] that
[Willard] agreed that the civil audit file contained evidence that supported a cash
hoard defense in this case.” Id. at 13. “To be sure,” the district court stated,
“Willard agreed with Stegman’s attorney that the audit file contained evidence of
cash, and of non-liquid holdings that could be converted to cash, but both [IRS]
agents repeatedly testified that they did not believe that the audit file contained
evidence that was relevant to a defense to the charges in this case, including a
cash hoard defense.” Id. Stegman makes no attempt on appeal to challenge the
district court’s findings on this point. Nor does Stegman even acknowledge, let
alone address, the district court’s conclusion that a cash hoard would not have
exculpated Stegman because the government was not using a net worth method to
prove her tax evasion, and instead was gathering and relying on evidence that she
“mishandled income derived from” Midwest,” took cash from Midwest, and
“claimed personal expenditures as business expenditures on her tax returns.” Id.
at 12. Finally, Stegman fails to acknowledge, let alone challenge, the district
court’s finding that many of the documents contained in the civil audit file could
be obtained from other sources, including Stegman herself. Id. at 13.
Turning next to Stegman’s argument that the civil audit file would have
supported a good faith defense, the district court specifically found that,
(1) “Stegman’s affidavit” in the civil audit case “was wholly concerned with the
30
Anderson Ark matter,” (2) her then-attorney’s “letters [in the civil audit file] all
discuss his client’s conduct with regard to Anderson Ark and the fact that she was
a victim of the investment scheme,” (3) “Stegman’s business expenses were not
the focus of the [prior] audit,” and (4) “[t]here can be no dispute that the purpose
of the 2000-2001 civil audit was entirely unrelated to the charges at issue in this
case.” Id. at 9. Stegman makes no attempt to challenge any of these findings on
appeal. Thus, the fact that the civil audit file contained “no change” letters,
standing alone, is immaterial.
The district court did not clearly err in finding “that the exculpatory value
of the civil audit file was not apparent” with respect to the defenses of good faith
or cash hoard. Id. at 13.
ii. Did the IRS agents act in bad faith?
Because the civil audit file was not apparently exculpatory, “the
government [could have] violated [Stegman’s] right to due process only if it lost
or deliberately destroyed the [file] in bad faith.” Harry, 816 F.3d at 1278. As
previously noted, the district court found that Stegman failed to establish that the
IRS agents acted in bad faith.
On appeal, Stegman challenges this finding, arguing that “[e]ven if the civil
audit files were only potentially exculpatory, the Government acted in bad faith,
therefore requiring dismissal.” Aplt. Br. at 38 (emphasis in original). In support,
Stegman asserts that IRS agents “Willard and Praiswater admitted they knew the
31
evidence supported” her cash hoard defense. Id. at 39 (emphasis in original).
Stegman also argues that “the IRS’s violation of federal law prohibiting the
agency from destroying records establishes per se bad faith.” Id. at 40 (emphasis
in original). But, Stegman complains, “the district court denied [her] the
opportunity to establish a violation of federal law by the IRS.” Id.
Addressing these arguments in order, the district court agreed that “the
Government was on notice that [Stegman] advanced a cash hoard defense” before
the civil audit file was returned and destroyed. Dist. Ct. Docket No. 108 at 15.
“But the question,” the district court concluded, was “not whether the
Government was aware that Stegman was maintaining a cash hoard defense, but
whether it was on notice that the information contained in the civil audit file
would support that defense.” Id. Although both Willard and Praiswater testified
that the civil audit file “included evidence of Stegman’s cash, and of her non-
liquid assets that could be converted to cash,” both of them “determined that the
financial documents included in the audit file were not exculpatory as to the cash
hoard defense.” Id. Stegman points to nothing in the record that would establish
that the district court’s findings on this point were clearly erroneous. Indeed, the
district court noted that “evidence of cash and other holdings” in the civil audit
file pertained to “a much earlier time frame, 2000-2003.” Id. The district court
also noted that “the underlying financial documents could be reasonably obtained
elsewhere,” id., some being “public records and others [that] could reasonably be
32
expected to be within Stegman’s possession or control.” Id. at 16. Notably,
Stegman makes no mention of these findings, nor does she attempt to challenge
them.
As for Stegman’s claim that the agency itself acted in bad faith, the district
court found that “[t]he file was ultimately destroyed at the National Archives and
Record Administration facility around July 2013, without the IRS agents’
knowledge” and that “[t]here [wa]s no evidence that the files were destroyed at
the agents’ direction.” Id. at 16. Although Stegman now contends that she would
have presented evidence from IRS personnel “that incineration of these audit files
was inconsistent with the Code of Federal Regulations provisions governing the
retention of these particular records,” she fails to point to any evidence
establishing that the IRS itself played a role in the file’s destruction.
It is also worth noting, as did the district court, that much of the
information allegedly contained in the civil audit files could have been obtained
by Stegman from other sources, including herself. Again, Stegman’s appellate
brief is silent on this point.
Lastly, Stegman argues that “the IRS’s violation of federal law prohibiting
the agency from destroying records establishes per se bad faith.” Aplt. Br. at 40
(emphasis in original). We disagree. As we have noted, there is no evidence that
the IRS itself played a role in the file’s destruction and the district court made no
such finding. Moreover, Stegman fails to cite to any authority supporting a per se
33
bad faith rule.
iii. Conclusion
In sum, we conclude that Stegman has failed to establish that the district
court erred in denying her motion to dismiss the indictment due to destruction of
allegedly exculpatory evidence.
D. The admission of testimonial statements from Don Lake
In her fourth issue on appeal, Stegman argues that the district court erred
by allowing the government to introduce testimonial statements from her personal
tax preparer, Don Lake, in violation of the Confrontation Clause. “[W]e review
de novo to determine whether the defendant was afforded a reasonable
opportunity to impeach adverse witnesses consistent with the Confrontation
Clause.” United States v. John, 849 F.3d 912, 918 (10th Cir. 2017).
1. Relevant facts
Stegman employed Don Lake as her personal tax preparer for the tax years
in question. During the course of the IRS’s criminal investigation, various agents
interviewed Lake and Lake also responded to summonses requiring disclosure of
documents related to his preparation of Stegman’s personal tax returns.
Stegman’s defense attorneys also interviewed Lake.
Lake died in May 2015, after Stegman was indicted, but before the case
proceeded to trial. Stegman responded by filing a motion in limine asking the
district court to “prohibit[] the Government from eliciting evidence and/or making
34
references to any oral or written statements allegedly made by . . . Lake . . . to
Government agents.” Dist. Ct. Docket No. 116 at 1. The district court heard
arguments on the motion on March 1, 2016, and took the matter under
advisement. The district court subsequently denied the motion during trial,
outside the presence of the jury.
The district court concluded “that there [we]re . . . two categories of
statements” from Lake. Aplt. App., Vol. VI at 1746. “The first category,” the
district court concluded, “consist[ed] of documents that Lake provided to IRS
agents in connection with their investigation into Stegman’s taxes and notes of
interviews conducted by IRS officials during which both Lake and Stegman were
present.” Id. “Some of the[se] documents had Lake’s handwriting on them,
which was identified at trial by Lake’s wife; some documents contained
handwriting that witnesses testified belonged to . . . Stegman.” Id. The district
court “allowed those documents to be admitted at trial because they [we]re not
testimonial and [we]re not subject to the Confrontation Clause.” Id. The district
court explained that these “documents were turned over to the IRS on Stegman’s
behalf within the scope of Lake’s power of attorney relationship with Stegman,”
and were also “business records, which [we]re not testimonial and [we]re not
subject to the Confrontation Clause.” Id. The district court also noted that
“statements in Stegman’s handwriting, once properly authenticated, were
admissible as statements of a party opponent pursuant to Fed. R. Evid.
35
801(d)(2)(A).” Id. Lastly, the district court concluded that “Stegman was present
for the interviews with IRS agents, and though Lake may have been the one
talking to agents, he did so on her behalf as her power of attorney.” Id. Thus, the
district court concluded, “[t]he interview notes . . . contain[ed] Stegman’s
statements and [we]re also admissible pursuant to Fed. R. Evid. 801(d)(2)(A).”
Id.
“The second category of statements,” the district court concluded,
“consist[ed] of statements made by Lake to IRS officials that were not truly . . .
Stegman’s statements.” Id. “The only statement of that nature the Government
sought to introduce was a statement that Lake made to IRS agents without
Stegman present, stating that Samson, LLC was a Schedule E real estate
business.” Id. at 1746-47. The district court “did not allow that statement to be
admitted at trial” for three reasons: “because Stegman was not present when Lake
made the statement, her own statements about Samson, LLC contradicted Lake’s
statement, and Stegman had no opportunity to cross examine Lake about that
testimonial statement.” Id. at 1747.
2. Analysis
In her appeal, Stegman focuses exclusively on the district court’s admission
of Government Exhibit 85. 3 Exhibit 85, which was admitted through the
3
At oral argument, Stegman’s counsel clarified that her Confrontation
Clause challenge does not extend to Government Exhibits 331 and 332.
36
testimony of Lake’s widow, Patricia Lake, 4 was comprised of a fax cover sheet
and faxed records that Lake sent to IRS Revenue Agent Schrock during the course
of the IRS’s investigation. 5 Mrs. Lake identified Lake’s handwriting on the fax
cover sheet and on some of the accompanying records. Stegman objected to
Exhibit 85, arguing that the language on the fax cover sheet—“workpapers [sic]
used to prepare her 2008 tax returns”—violated her confrontation rights because
“[s]he ha[d] no idea what work papers he used, and yet they’re being attributed
and used against” her. Aplt. App., Vol. VIII at 2138. The district court
concluded that all of the documents “appear[ed] to be business records . . . of the
Lake’s Tax Service because there [we]re documents collected as part of the client
file.” Id. at 2140. The only exception, the district court concluded, were two
pages in the exhibit that “on their face appear[ed] to be a communication from
. . . Stegman to . . . Lake.” Id. The district court concluded that “these [we]re
4
Mrs. Lake testified that she worked with Lake and assisted him in
preparing tax returns for clients, including Stegman.
5
The district court noted that these records included “a GMAC mortgage
account,” “personal property tax receipts from a state government, special
assessment bills on real property,” “real property tax-related documents, county
tax notices, Countrywide Home Loan mortgage statement, State of Kansas vehicle
registration, documents about personal property tax, Bank of America, 1099
statements,” “a Schedule K-1,” “a letter on the letterhead of SA Investors Group
to Samson, LLC,” “country treasurer records and property tax statements,”
“W-2s,” “a modified adjusted gross income worksheet that ha[d] some
computations under regular tax and alternative minimum tax” and a document
from Stegman to Lake that was both typewritten and handwritten and included
“itemized information.” Aplt. App., Vol. VIII at 2138-39.
37
the same kind of documents that . . . Stegman would’ve produced directly to the
IRS at their request” had Lake not been acting as her representative. Id. at 2142.
And, the district court noted, although Lake’s fax cover sheet referred to the
documents as “workpapers [sic],” it concluded that the documents were “not work
papers at all,” and instead “were just documents.” Id. At defense counsel’s
request, the district court instructed the jury regarding Exhibit 85: “I’m
instructing you that when you consider this exhibit, it’s not work papers, it’s a
number of financial documents from institutions. It’s not really work papers, but
it is a number of financial documents that you can fully consider.” Id. at 2147.
Stegman argues in her appeal that “Lake’s assertions to Government agents
investigating [her] [we]re testimonial.” Aplt. Br. at 43. According to Stegman,
“[w]hen a preparer responds to an IRS agent’s request—even in the context of a
civil matter—that preparer unquestionably recognizes that his response is formal
and that the primary purpose of the request is to establish the existence of some
fact that is at least potentially relevant to a criminal investigation.” Id.
(emphasis in original). Stegman in turn argues that “Lake, as a retired IRS agent,
no doubt appreciated the possibility of a criminal investigation based on the IRS’s
request for his work papers (not a common request in a routine civil audit),” and
hence his “assertion to Schrock that the documents he provided were the
‘workpapers [sic] used to prepare her 2008 tax returns’ was a testimonial
statement not subject to confrontation.” Id. at 44.
38
The problem with Stegman’s arguments is that she makes no attempt to
challenge the district court’s finding that the papers contained in Exhibit 85 were,
save for the fax cover sheet, Stegman’s financial documents rather than Lake’s
work papers. And, in turn, she makes no attempt to explain how such financial
documents were testimonial in nature. As for the fax cover sheet that contained
Lake’s handwriting, we agree with the district court that it was not testimonial in
nature either. The Confrontation Clause, the Supreme Court has emphasized,
“reflects an especially acute concern with a specific type of out-of-court
statement.” Crawford v. Washington, 541 U.S. 36, 51 (2004). In particular, it is
focused on “[a]n accuser who makes a formal statement to government officers”
and thus “bears testimony in a sense that a person who makes a casual remark to
an acquaintance does not.” Id. In other words, testimonial statements are those
that the declarant “would reasonably expect to be used prosecutorially.” Id.
Applying these principles to Lake’s notation on the fax cover sheet, we are not
persuaded that it was testimonial. Specifically, Lake’s notation was “cooperative
and informal [in] nature” and there is no indication that Lake would have
reasonably expected the notation “‘to be used prosecutorially.’” United States v.
Wilson, 788 F.3d 1298, 1316 (11th Cir. 2015) (quoting Crawford, 541 U.S. at 51).
As a result, we conclude that the admission of the fax cover sheet did not violate
Stegman’s rights under the Confrontation Clause.
39
Finally, to the extent that Stegman argues that Lake’s act of production in
response to the IRS summons was testimonial, that argument was not raised in the
district court and fails under plain error review. See generally Molina-Martinez
v. United States, — U.S. —, 136 S. Ct. 1338, 1343 (2016) (discussing the
conditions that must be met to establish plain error). At a minimum, Stegman,
who does not cite to a single case in support of this argument, cannot establish
that any error in admitting evidence of Lake’s act of production was plain.
E. Stegman’s advisory sentencing range
In her final issue on appeal, Stegman argues that the district court erred by
miscalculating her advisory sentencing range under the Sentencing Guidelines.
More specifically, Stegman asserts that “the district court improperly calculated
the intended tax loss and improperly applied the sophisticated means and
obstruction of justice enhancements” in calculating her advisory Guidelines
sentencing range. Aplt. Br. at 50.
“We review sentencing decisions for ‘reasonableness under a deferential
abuse-of-discretion standard.’” United States v. Anwar, 741 F.3d 1134, 1136
(10th Cir. 2013) (quoting United States v. Begaye, 635 F.3d 456, 461 (10th Cir.
2011)). Although “[r]easonableness review is a two-step process comprising a
procedural and a substantive component,” id. (quoting United States v. Halliday,
665 F.3d 1219, 1222-23 (10th Cir. 2011)), Stegman challenges only the
procedural reasonableness of her sentence, i.e., whether the district court properly
40
calculated her advisory Guidelines range. “Procedural reasonableness ‘requires,
among other things, a properly calculated Guidelines range.’” Id. (quoting United
States v. Mollner, 643 F.3d 713, 714 (10th Cir. 2011)). In reviewing a district
court’s calculation of a defendant’s advisory Guidelines range, this court reviews
legal questions de novo and factual findings for clear error, giving due deference
to the district court’s application of the guidelines to the facts. Id.
1. Calculation of intended tax loss
Section 2T1.1 of the Sentencing Guidelines applies to tax-related crimes
such as those that Stegman was convicted of violating. It directs a district court,
in calculating a defendant’s advisory Guidelines sentencing range, to apply a base
offense level “from § 2T4.1 (Tax Table) corresponding to the tax loss.” U.S.
Sentencing Guidelines Manual § 2T1.1(a)(1) (U.S. Sentencing Comm’n 2013).
For “offense[s] involv[ing] tax evasion or a fraudulent or false return, statement
or other document, the tax loss is the total amount of loss that was the object of
the offense (i.e., the loss that would have resulted had the offense been
successfully completed).” Id. § 2T1.1(c)(1). “If the offense involved . . . both
individual and corporate tax returns, the tax loss is the aggregate tax loss from the
offenses added together.” Id. § 2T1.1(c)(1), note (D).
The district court in this case found that “the corporate tax loss and the
individual tax loss [we]re inextricably intertwined.” Aplee. App. at 276. The
district court explained:
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The individual tax liability is based on what happened at the
corporation. Ms. Stegman, the evidence showed, obtained income
through the corporation in the form of diverting cash that was
supposed to go to the corporation that never hit the corporation’s
books or – or bank account, for that matter, but went into Samson’s
bank account or her own bank account that she controlled.
The corporation expended monies on her behalf, either through
cash transactions or through credit cards– payments on credit cards
that were in her name. So in other words, in order to determine what
her tax liability is, one has to start with an analysis of the corporate
tax liability. And then the next step being what dividends –
distributions in the form of dividends or returns of capital
contributions or capital gains should be recognized as income to Ms.
Stegman. So these things are inextricably intertwined.
Ms. Stegman obtained personal benefit by using [Midwest]
essentially, as the government characterizes it, as her own bank
account, as her own cash piggy bank. She used that corporation to
pay her personal expenses. She skimmed a lot of cash out of that
corporation and paid it to herself without any record and without any
payment of tax by her or the corporation on the tax receipts – or on
the cash receipts that the corporation received.
So in that sense, it’s clearly a part of the same course of
conduct or common scheme or plan and so both should be
considered. It also meets the definition of relevant conduct under the
relevant conduct guideline. And there’s no caveat or limitation in
terms of whether it was reasonably foreseeable to her. That
particular language goes to jointly undertaking the activity.
Id. at 236-237.
On appeal, Stegman argues that “[t]he district court improperly included
the alleged intended corporate tax loss of MMACPA after granting [her] motion
for judgment of acquittal as to all corporate tax evasion counts.” Aplt. Br. at 50.
In support, she argues that “she was acquitted of all corporate tax evasion
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counts—not because the Government proved what was alleged only by a
preponderance of the evidence but not beyond a reasonable doubt, but because the
Government completely failed to prove what it alleged.” Id. at 52 (emphasis in
original). Consequently, Stegman argues, “the Government, at most, established
an intended tax loss amount of approximately $68,000 for the two counts of
conviction.” Id. at 53.
We disagree. At the time of sentencing, the district court acknowledged
that it had acquitted Stegman of the two counts of corporate tax evasion found by
the jury. The court explained, however, that it did so not because there was a
lack of “proof beyond a reasonable doubt that th[e] corporation evaded taxes,” but
rather because the indictment itself was flawed in attributing the loss as due and
owing by . . . Stegman, when actually it was due and owing by the corporation.
Aplt. App., Vol. 12 at 3314. The district court nevertheless concluded that, for
purposes of calculating Stegman’s sentence, it was “appropriate [under the
Guidelines] to aggregate the tax loss of both corporation and individual.” Id.
Quite clearly, § 2T1.1 directs a district court to consider “the aggregate tax
loss from the offenses added together” if the offense involved “both individual
and corporate tax returns.” U.S. Sentencing Guidelines Manual § 2T1.1(c)(1)(D)
(U.S. Sentencing Comm’n 2013). Further, Application Note 2 states, in pertinent
part, that “[i]n determining the total tax loss attributable to the offense (see
§ 1B1.3(a)(2)), all conduct violating the tax laws should be considered as part of
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the same course of conduct or common scheme or plan unless the evidence
demonstrates that the conduct is clearly unrelated.” Id., § 2T1.1 cmt. n.2. In
addition, § 1B1.3(a)(2), which is referenced in Application Note 2, states that a
defendant’s base offense level shall be determined on the basis of “all acts and
omissions” committed by the defendant “that were part of the same course of
conduct or common scheme or plan as the offense of conviction.” Id.
§ 1B1.3(a)(2). And that is consistent with our precedent, which holds that a
district court may consider as relevant conduct “unindicted, dismissed, or
acquitted conduct.” United States v. Rodebaugh, 798 F.3d 1281, 1300 (10th Cir.
2015).
Here, Stegman does not seriously dispute the district court’s factual
findings that the corporate and individual tax losses at issue were inextricably
intertwined. Consequently, we conclude that the district court did not err in
utilizing the aggregate loss to determine Stegman’s base offense level.
2. Sophisticated means enhancement
Section 2T1.1(b)(2) of the Sentencing Guidelines states that if a tax-related
“offense involved sophisticated means, increase [the base offense] level by 2
levels. If the resulting offense level is less than level 12, increase to level 12.”
U.S. Sentencing Guidelines Manual § 2T1.1(b)(2) (U.S. Sentencing Comm’n
2013). Application Note 5 to § 2T1.1 states that “‘sophisticated means’ means
especially complex or especially intricate offense conduct pertaining to the
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execution or concealment of an offense” and includes “[c]onduct such as hiding
assets or transactions, or both, through the use of fictitious entities, corporate
shells, or offshore financial accounts.” Id., cmt. n.5 (emphasis omitted).
The district court in this case concluded that the “sophisticated means”
enhancement applied to Stegman. Although Stegman objected to application of
the enhancement, the district court rejected Stegman’s objection:
This is not a case in which the only evidence as to the
execution or concealment of the tax fraud pertained to Ms. Stegman
simply not providing her accountant with information about income
or expenses, either individual or for purposes of the corporate return.
There was evidence in this case of an active and complicated scheme
to conceal assets. And some of – conceal assets and conceal income.
Some of it in the context of the investigation itself.
So, for example, after Ms. Stegman was aware that there was a
criminal investigation, she told her tax preparer, I believe it was Mr.
Mendoza at that point, “We need to clean this up,” and sent him an e-
mail and some information regarding that. The altered ledgers were
in the context of knowing that there was an investigation underway.
But even before that, there was the creation of multiple LLCs. The
primary one used, of course, was Samson, that was used to divert
checks that should’ve been written to [Midwest] for services received
but were paid to Kathleen Stegman by use of her stamp and then
deposited in the Samson account.
To be sure, Samson was claimed on a couple of these tax
returns, but Ms. Stegman also indicated to one or more of her tax
return preparers that Samson was just a name on a bank account.
Well, actually that’s what she told the IRS, that Samson was just a
name on the bank account, it had no business purpose. She made
inconsistent statements at other times about Samson and claimed that
it did marketing and advertising and actually had a business purpose.
But the evidence at trial showed that Samson’s primary use
was apparently to divert money from [Midwest] and use of its bank
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account so that receipts from [Midwest] went into Samson. There
were other entities and other LLCs used as well, although Samson
was the primary one that was used for at least diversion of money.
There were – there was evidence about straw purchases. Tony
Felitsky buying the yacht. He couldn’t afford the yacht. He was in
the middle of a divorce, he had no money. There was some
suggestion he had reason to want to hide the fact that he was buying
the yacht, but there was also evidence that he didn’t have any money
and that he didn’t really use the yacht. And I think it was Ms.
Stegman’s brother that testified that it was her yacht. Everyone –
and her employees testified it was her yacht. Everyone understood it
was her boat, not Mr. Felitsky’s. She used him as a straw purchaser.
There was also straw purchases of gold through others, including one
or more of her boyfriends.
The use of the money orders one could definitely call
structuring. I mean, it’s way below the structuring limit and it was
driven not so much it seems to be by the – the reporting requirement
as it was the fact that money orders couldn’t be purchased for more
than $300 or $500, depending on the outlet. But it – it was a
mechanism by which she didn’t have to report. And there really, in
my view, was no reasonable explanation for somebody driving all
over Leawood and Overland Park buying money orders at every Hen
House and Hy-Vee in town to, in turn, use to – to make gold
purchases and to pay off a yacht and to other – to make payments on
other personal items to her own benefit.
Why spend the time? Why go through all of this? Why have
employees involved in buying money orders? Why use their name,
family members’ names, LLC’s names, everyone’s name but her own
name to buy money orders unless she was trying to hide the fact that
she was using cash from [Midwest] for personal – for personal
expenses and assets.
In that sense, it’s not an offshore account. Or there are
schemes that are clearly more sophisticated and more complex in
terms of using, you know, layers and layers of fictitious entities. But
in this case, Ms. Stegman didn’t just use entities, she used people and
layers and layers of people, employees, boyfriends, LLCs, and
engaged in what must’ve been a pretty time-consuming enterprise to
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essentially launder the money that she skimmed from [Midwest]
through money orders in very small amounts.
In that sense, and the totality of the evidence which I must
consider, it was complicated, it was complex, it was – it was labor-
intensive, and it was effective. So I think the sophisticated means
enhancement is appropriate and I’ll overrule and deny that objection.
Aplee. App. at 229-234.
In her appeal, Stegman challenges the district court’s findings and
application of the enhancement. To begin with, Stegman argues that “[t]he
individual tax evasion counts essentially boiled down to the Government’s theory
that [she] did not disclose income to her preparer, Lake.” Aplt. Br. at 53. Such
conduct, she argues, “is insufficient to trigger th[e] [sophisticated means]
enhancement” because “not telling someone something is hardly sophisticated.”
Id. at 53-54. Further, she argues, the creation and use of “multiple LLCs does
not, by any means, make her offenses ‘sophisticated.’” Id. at 54. According to
Stegman, “the formation of an LLC [is] straightforward,” and “the LLCs [she]
formed had legitimate business purposes and were unambiguously registered to
her.” Id. Lastly, Stegman argues that the district court improperly considered her
“alleged cash expenditures in applying this enhancement,” even though “the IRS
destroyed evidence that negated the Government’s theory that [she] had $0.00 at
the beginning of tax year 2006.” Id.
Addressing these arguments in order, it is clear from the record that the
district court based application of the sophisticated means enhancement on more
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than Stegman simply withholding information from Lake, her personal tax
preparer. In particular, the district court pointed to what it characterized as
Stegman’s “active and complicated scheme to conceal assets” and income. Aplee.
Supp. App. at 229. Part of that scheme, the district court noted, “was the creation
[and use] of multiple LLCs.” Id. at 230. Although it is undisputed that these
LLCs were registered to Stegman, no one but her knew that she was diverting
income from her business to Samson, or that she was using the other LLCs to
disguise information when it served her purposes. Moreover, the district court
expressly found, and Stegman has made no attempt to dispute, that “Samson’s
primary use was apparently to divert money from [Midwest] and use of its bank
account so that receipts from [Midwest] went into Samson.” Id. at 230-231. The
district court also found, and Stegman again does not dispute, that she used
employees of her business to purchase money orders in order to conceal income
from the business. In sum, the district court found, and Stegman does not
seriously dispute, that “she used people and layers and layers of people,
employees, boyfriends, LLCs, and engaged in . . . a . . . time-consuming
enterprise to essentially launder the money that she skimmed from [Midwest]
through money orders in very small amounts.” Id. at 232.
That leaves only Stegman’s argument that it was improper for the district
court to consider her cash expenditures because “the IRS destroyed evidence that
negated the Government’s theory that [she] had $0.00 at the beginning of tax year
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2006.” Aplt. Br. at 54. This argument is patently absurd. Even assuming, for
purposes of argument, that the old civil audit file contained information outlining
the amount of cash that Stegman had on hand, that information would have been
irrelevant because the audit occurred in 2004 and 2005 and pertained to the years
2000 and 2001, well before the conduct at issue in this case. Moreover, the
district court expressly found, and Stegman does not dispute, that all of the
information in the old civil audit file was available from other sources, including
Stegman herself.
Thus, in sum, we conclude that the district court did not err in applying the
sophisticated means enhancement under § 2T1.1(b)(2).
3. Obstruction of justice enhancement
Section 3C1.1 of the Guidelines directs a district court to “increase [a
defendant’s] offense level by 2 levels” if “the defendant willfully obstructed or
impeded, or attempted to obstruct or impeded, the administration of justice with
respect to the investigation, prosecution, or sentencing of the instant offense of
conviction” and “the obstructive conduct related to (A) the defendant’s offense of
conviction and any relevant conduct” or “(B) a closely related offense.” U.S.
Sentencing Guidelines Manual § 3C1.1 (U.S. Sentencing Comm’n 2014).
The district court in this case found that Stegman obstructed the IRS’s
investigation in three ways: directing employees to shred receipts that
documented cash that she received from her business, altering Midwest ledger
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entries (specifically, 2010 Midwest ledgers) to change the characterization of the
way certain expenses were entered so that they appeared to be legitimate business
expenses, and directing a witness, Dr. Evelyn Clark, to testify that she did not
remember her business relationship with Midwest. Aplt. App., Vol. 12 at
3241-44.
On appeal, Stegman argues that all of these acts of obstruction related
solely to Midwest’s finances and taxes, and not to her acts of personal tax
evasion. Thus, she argues, the acts did not relate to “the instant offense of
conviction.” As previously discussed, however, the district court expressly found
that the acts of corporate and personal tax evasion were inextricably intertwined
and Stegman does not dispute this finding. Moreover, the district court found,
and Stegman does not dispute on appeal, that the act of shredding corporate
receipts “directly related to [Stegman’s] tax liability because she didn’t claim as
dividends, as salary, as any sort of income, cash that she skimmed and took from
the corporation.” Id. at 3245. The district court also found, again without dispute
from Stegman on appeal, that in 2010 Midwest’s ledgers were changed so that
“things were being hidden in terms of the real characterization, how money was
being expended,” and “[b]y and large it was being expended . . . for the personal
benefit of . . . Stegman, not for any business expenses.” Id. at 3243.
Stegman also argues that any attempt she made to tamper with Clark’s
testimony was unsuccessful because Clark told investigators that she couldn’t
50
recall what happened when she was a client of Midwest. Notably, the district
court found that even if Stegman’s attempt to influence Clark’s testimony was
unsuccessful, it nevertheless was an attempt to obstruct justice that fell squarely
within the scope of § 3C1.1. Id. at 3244. Notably, Stegman fails to address this
“attempt” finding.
We therefore conclude that the district court did not err in applying the
obstruction of justice enhancement.
III
The judgment of the district court is AFFIRMED.
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