IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 92-5733
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
CHARLES T. CONAWAY,
Defendant-Appellant.
Appeal from the United States District Court
for the Western District of Texas
( December 17, 1993 )
Before HIGGINBOTHAM, DAVIS, and JONES, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
Charles Conaway gave the government financial records to prove
he paid his taxes. Analysis of the records led to a different
conclusion and a jury convicted him of multiple counts of tax
evasion. Conaway mounts four challenges to his convictions,
alleging that the government broke an agreement not to prosecute
him, that he produced his records during plea negotiations, that
the government incorrectly estimated his actual income, and that
the government offered insufficient proof of its estimate. We
affirm his convictions.
The U.S. Attorney for the Western District of Texas wrote
Charles Conaway on June 8, 1989, and then wrote his counsel on
September 11, 1989. The letters informed Conaway of a grand jury
investigation into a violation of currency transaction reporting
requirements he allegedly committed while buying a house in 1988,
and invited him to appear before the grand jury with certain
financial records. Conaway testified on November 17, 1989, and
turned over his records in January 1990. Subsequent IRS analysis
of his bank deposits and cash expenditures indicated that he had
understated his income from his law practice by $43,475.89 for
1985, $52,952.89 for 1986, $8,102.82 for 1987, and $69,014.17 for
1988.
A grand jury then indicted Conaway on four counts of tax
evasion1 and one count of structuring currency transactions to
evade reporting requirements.2 A jury found him guilty of
willfully attempting to evade his 1986, 1987, and 1988 income taxes
and of knowingly and willfully structuring currency transactions to
evade reporting requirements. The jury acquitted him of the tax
evasion charge for 1985. He received three concurrent prison terms
of fourteen months, followed by two years of supervised release and
two years of probation, along with an order to pay $200 in special
assessments and $1,670.40 in costs.3
1
26 U.S.C. § 2701.
2
31 U.S.C. § 5324; 18 U.S.C. § 2.
3
The court imposed imprisonment and supervised release
pursuant to the Sentencing Guidelines, as the structured
transaction and the filing of his 1987 and 1988 tax returns took
place after the Guidelines took effect. As the filing of his
1986 return predated the Guidelines, the court imposed a two year
sentence, suspended its execution, and imposed two years of
probation pursuant to 18 U.S.C. § 3651.
2
I.
Conaway contends that the government promised not to prosecute
him for structuring if he produced certain records and testified
before the grand jury. He says the indictment should be dismissed
because the government failed to comply with the agreement. See
United States v. Melton, 930 F.2d 1096, 1098 (5th Cir. 1991).
We are not persuaded that the district court clearly erred in
concluding there was no agreement not to prosecute. See United
States v. Weiss, 599 F.2d 730, 735-36 (5th Cir. 1979). The
September 11, 1989 letter inviting Conaway to appear before the
grand jury expressly stated that the invitation did not constitute
an agreement not to prosecute. Further, Conaway received warnings
in both of the government's letters and at his appearance before
the grand jury that any statements he made or documents he produced
could be used against him. While the record indicates that the
prosecutor considered not indicting Conaway if IRS investigation of
his finances showed that he had not engaged in illegal activity, no
evidence shows an agreement not to prosecute Conaway conditioned
only on his testifying or producing records.
II.
Alternatively, Conaway argues that the district court should
have suppressed the records he turned over to the grand jury,
contending that those records deserved protection because he turned
them over as part of plea negotiations. See Fed. R. Crim. P.
11(e)(6); Fed. R. Evid. 410. This circuit uses a two-part test to
evaluate such claims. United States v. Robertson, 582 F.2d 1356
3
(5th Cir. 1978) (en banc). The trial court first determines
whether the accused exhibited an actual subjective expectation to
negotiate a plea at the time of the discussion, and then determines
whether the accused's expectation was reasonable given the totality
of the objective circumstances. Id. at 1366.
The district court concluded that Conaway did not satisfy
either prong of the Robertson test, and we find nothing clearly
erroneous in those conclusions. See United States v. Maldonado,
735 F.2d 809, 814 (5th Cir. 1984). Conaway testified before the
grand jury about his alleged structuring offense, denying that he
was a tax evader and claiming that he had paid his taxes. The
prosecutor, impressed by his testimony, gave Conaway an opportunity
to corroborate his claims with documentary proof by furnishing his
records, reminding him on several occasions that the government
could use his statements and records against him. As any promise
of lenience the government made was conditioned on the result of
the investigation of Conaway's records, its promise imposed no
obligation when evidence of wrongdoing emerged from that
investigation. United States v. Weiss, 599 F.2d 730, 738 (5th Cir.
1979). Cf. United States v. Herman, 544 F.2d 791, 798 (5th Cir.
1977) (statements made in the course of seeking the dropping of a
murder charge in exchange for a robbery guilty plea found
inadmissible). See generally Robertson, 582 F.2d at 1365 (noting
that "not every discussion between an accused and agents for the
government is a plea negotiation"). The government had no greater
obligation in this case than if Conaway had decided to confess.
4
United States v. Cross, 638 F.2d 1375, 1380 (5th Cir. 1981),
modified on other grounds, 655 F.2d 50 (5th Cir. Unit A Sept.
1981); Robertson, 582 F.2d at 1368.
III.
Conaway next contends that the government's proof of his
actual income was insufficient because it included no evidence
about his yearly net worth. A successful prosecution under 26
U.S.C. § 7201 requires proof of willfulness, the existence of a tax
deficiency, and an affirmative act of evasion or attempted evasion
of the tax. Sansone v. United States, 380 U.S. 343, 351 (1965);
United States v. Chesson, 933 F.2d 298, 303-04 (5th Cir.), cert.
denied, 112 S.Ct. 583 (1991). To prove a tax deficiency the
government must establish that the taxpayer had unreported income
and that such income was taxable. See Chesson, 933 F.2d at 306.
Proving taxable income often requires indirect methods of proof
sufficiently reliable to overcome the doubts inherent in the use of
circumstantial evidence. See United States v. Boulet, 577 F.2d
1165, 1167-68 & 1167 n.3 (5th Cir. 1978), cert. denied, 439 U.S.
1114 (1979).
Conaway argues that the government used an "expenditures"
method of proving his unreported income. This technique focuses on
a taxpayer's expenditures during a certain period as proof of
income received. See United States v. Newman, 468 F.2d 791, 793
(5th Cir. 1972), cert. denied, 411 U.S. 905 (1973). The taxpayer's
net worth is calculated for each taxable year at issue. A change
in net worth during a given year exceeding reported taxable income
5
after adjustment for deductions and exemptions supports an
inference that the increase was unreported taxable income. Boulet,
577 F.2d at 1167 n.3. Based on this characterization of the
government's methodology, Conaway argues that the government failed
to prove his net worth for each year at issue, and that the judge
erred by not instructing the jury on the government's burden to
prove his net worth for each year for which it sought a conviction.
We find both claims of error groundless because the government
did not employ an "expenditures" method of proof. The government
used a different method of proving unreported income, which
analyzed Conaway's cash expenditures and bank deposits. Cash
expenditures and bank deposits exceeding reported income after
adjustment for applicable exemptions and deductions supports an
inference that the taxpayer had unreported income. Boulet, 577
F.2d at 1167; United States v. Parks, 489 F.2d 89, 90 (5th Cir.
1974) (per curiam). This method does not require proof of net
worth. See Boulet, 577 F.2d at 117 & n.3. See also United States
v. Abodeely, 801 F.2d 1020, 1024 (8th Cir. 1986). Such proof is
not required because the evidence of bank deposits suffices to
raise the inference that the taxpayer's income came from a taxable
source. See generally United States v. Penosi, 452 F.2d 217, 219
(5th Cir. 1971) ("[T]he government must establish, either directly
or inferentially, that the expenditures were made from a taxable
source of income."), cert. denied, 405 U.S. 1065 (1972). Cf.
Marcus v. United States, 422 F.2d 752, 755 (5th Cir. 1970)
(reversing a conviction because "[t]he Government failed to lay any
6
foundation to indicate that the expenditures came out of current
income"). We find no deficiency in the government's proof or the
court's instruction.
IV.
Conaway's fallback position is that the government's evidence
was insufficient to convict him under the bank deposits and
expenditures method. We examine this argument bearing in mind the
different burdens and presumptions at work in this type of tax
evasion prosecution. The government must prove to the jury the
elements of section 7201 beyond a reasonable doubt. E.g., Boulet,
577 F.2d at 1168. To do so, the government must establish the
defendant's cash on hand at the beginning of each of the disputed
years with reasonable certainty, while negating all other sources
of nontaxable income during the same period. It may negate other
income sources by proving that an adequate investigation did not
disclose nontaxable sources of income. Id. If the trial judge
does not believe the government has met these burdens, it can take
the case from the jury because the government has not demonstrated
the reliability of the circumstantial evidence upon which the jury
would base its decision. Id. at 1170. However, if the government
satisfies those burdens, and does so in a way free of reasonable
doubts, "the defendant remains silent at his peril" and the jury
may find the defendant guilty. United States v. Holland, 348 U.S.
121, 138-39 (1954); Boulet, 577 F.2d at 1170.
Conaway first challenges a key piece of evidence in the
government's proof of his cash on hand. During the disputed years,
7
Conaway deposited some cash from his law practice into a safe
deposit box, writing the amount of cash in the box on the deposit
dates on a business card he kept in the box. The government used
this card as the basis for its determination of his yearly cash on
hand. The amounts on the back of the card were listed with
corresponding dates and years. The eight entries on the back of
the card include one for 1985, six in chronological order for 1986,
and one in 1987. On the front of the card, seven entries without
corresponding years appear in a chronological order running from
February 25 to November 18. Conaway challenges the government's
contention that the notations without corresponding years listed on
the front of the card fell in 1985.
The jury acquitted Conaway of tax evasion for 1985, so the
accuracy of the government's estimated cash on hand for the
beginning of 1985 is no longer important. The question is whether
without the dates on the front of the card the government's
estimates of cash on hand at the beginnings of 1986, 1987, and 1988
are sufficiently certain.
We conclude that they are sufficiently certain. The six
entries dated 1986 were made in chronological order and cover the
period from January 20, 1986 to December 8, 1986. None of the
notations without corresponding years fall closer to December 31,
1985 than the entry for January 20, 1986, and none fall closer to
December 31, 1986 than the entry for December 8, 1986. The IRS
could base its estimates of cash on hand at the beginning of 1986
and 1987 on this series of entries with reasonable certainty. See
8
generally Boulet, 577 F.2d at 1170 (noting that "[t]he prosecution
was not required to prove the opening cash figure with mathematical
exactitude").
As for 1988, the IRS had complete safe deposit box access
records for the period from April 22, 1987, through May 22, 1989,
and none of the dates on the front of the card corresponded to any
access date during that period. A reasonable estimate of cash on
hand at the beginning of 1988 could thus exclude the series of
entries on the front of the card from the calculation.
Conaway also contests sufficiency by arguing that the
government did not investigate other sources of cash on hand.
However, he does not show that he offered the government any
information about cash sources besides the safe deposit box. We
cannot reasonably expect the government to find secret cash hoards
without taxpayer assistance. See United States v. Normile, 587
F.2d 784, 786 (5th Cir. 1979). See also United States v. Johnson,
319 U.S. 503, 518 (1943) (declining to hold that "concealment is an
invincible barrier to proof"). The IRS agent's investigation of
the safe deposit box in this case satisfied the government's
burden.
AFFIRMED
9