United States v. Abramson-Schmeiler

FILED
United States Court of Appeals
Tenth Circuit

November 29, 2011
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
FOR THE TENTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v. No. 11-1125
(D.C. No. 1:09-CR-00359-REB-1)
LINDA ABRAMSON-SCHMEILER, (D. Colo.)
a/k/a Linda J. Abramson, a/k/a Linda
Abramson, a/k/a Linda A. Schmeiler,
a/k/a Linda Schmeiler,

Defendant-Appellant.

ORDER AND JUDGMENT *

Before TYMKOVICH, Circuit Judge, BRORBY, Senior Circuit Judge, and
EBEL, Circuit Judge.

A jury convicted Linda Abramson-Schmeiler of five counts of violating

26 U.S.C. § 7206(1). She appeals from her convictions. We have jurisdiction

pursuant to 28 U.S.C. § 1291, and we affirm.

*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
 Background

Defendant was charged with five counts of filing a false tax return in

violation of 26 U.S.C. § 7206(1). The charges were based on her alleged failure

to report all of the income she received from her business of “diversionary sales”

(purchasing and then reselling large quantities of hair-care products). The

government alleged that she falsely underreported her business’s gross receipts,

or sales, by more than $1.4 million during the years 2003, 2004, and 2005, which

then resulted in her falsely underreporting her personal income for the same

amount. In support of these allegations, the government introduced evidence at

trial through defendant’s bank records and tax returns. These records showed that

the gross-receipts figures on defendant’s taxes were significantly lower than the

gross-receipts amounts reflected in her bank records.

At trial, defendant’s main defense was that she did not intentionally

underreport her sales and income. She admitted that she had failed to report

payments her business received for selling hair-care products. But she asserted

that many of her diversionary sales were in cash and unrecorded and that she lost

money or broke even on many of these transactions. She testified that when she

did not make money on a transaction, she would consider it a “wash” and she

would not report the transaction to her accountant for reporting on her income tax

returns. Aplt. App., Vol. 5 at 1305-06. She testified that she did not knowingly

fail to report gross receipts on her taxes.

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 Agent R. Jonathan Lynch, a certified public accountant who works for the

Internal Revenue Service, testified for the government. He testified that in order

for defendant to account for more than $1.4 million in unreported sales, she

would also have had to underreport her purchases by $1.4 million so that the net

effect on her profits (and taxable income) was zero. Agent Lynch testified that

after reviewing her tax returns and bank records, he could find no evidence that

she underreported the amount of hair-care products she purchased, nor could he

find that she had an additional $1.4 million to spend.

At trial, defendant claimed to have an additional off-the-books source of

funds that was not included in the records obtained by the government. She

testified that she found $1 million in cash and $80,000 in bonds in her parents’

house after her mother died. She testified that she did not put this money in the

bank because she “just didn’t want to,” Aplt. App., Vol. 6 at 1456, so she kept it

in a box in her house. She testified that she used the cash from the box to pay for

the hair-care products.

The jury convicted defendant on all counts. She was sentenced to thirty-six

months’ imprisonment on each count, to be served concurrently, and ordered to

pay restitution. This appeal followed.

Discussion

Defendant challenges her convictions on three grounds: 1) the district

court erred in precluding important lay witness testimony; 2) the district court

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erred in refusing to give defendant’s good-faith jury instruction; and 3) the

government committed prosecutorial misconduct throughout the trial.

1. Exclusion of Lay Witness Testimony

The evidentiary ruling at issue here took place during testimony by

defendant’s tax accountant, Richard Powell. He prepared defendant’s tax returns

for the years she was charged with failure to report all of her income. The

government called Mr. Powell to testify in support of its case and he was not

designated as an expert at trial.

During cross-examination of Mr. Powell, defense counsel asked to

approach the bench. The following exchange then took place:

[Counsel]: . . . The one issue I want to approach on, when I
conducted an interview of this witness his opinion was if the
payments were underreported that he didn’t believe that she did it on
purpose, and I know that’s an [ultimate] issue opinion but under Rule
704 that’s not precluded. There is some language about experts but
he has not been qualified as an expert . . . .

Court: No one, expert or any other witness, may express an opinion.
It’s precluded expressly under [Federal Rule of Evidence] 704, and
it’s generally precluded through a lay fact witness such as
Mr. Powell.

Aplt. App., Vol. 2 at 539.

Defendant argues that the district court committed reversible error when it

relied on Rule 704 to preclude this important lay witness testimony that went to

the heart of her defense. We review for abuse of discretion a district court’s

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decision on the admissibility of evidence. United States v. Leonard, 439 F.3d

648, 650 (10th Cir. 2006).

Although the district court’s ruling is not a model of clarity, in prohibiting

Mr. Powell from testifying that he did not believe defendant underreported her

income on purpose, the court appears to be suggesting that there is a categorical

bar against opinion testimony on ultimate issues. But there is only one

categorical bar to a witness offering an opinion on an ultimate issue and that

involves expert testimony.

Rule 704(b) expressly precludes an expert from offering an opinion about

the ultimate issue of a defendant’s mental state in a criminal case, explaining that

“[s]uch ultimate issues are matters for the trier of fact alone.” Fed. R. Evid.

704(b). Rule 704(a), however, explains that all other opinion testimony that is

otherwise admissible “is not objectionable because it embraces an ultimate issue

to be decided by the trier of fact.” Fed. R. Evid. 704(a).

In addition, there is no bar to this type of testimony in Federal Rule of

Evidence 701, which governs opinion testimony by lay witnesses. That rule

provides:

If the witness is not testifying as an expert, the witness’ testimony in
the form of opinions or inference is limited to those opinions or
inferences which are (a) rationally based on the perception of the
witness, (b) helpful to a clear understanding of the witness’
testimony or the determination of a fact in issue, and (c) not based on
scientific, technical, or other specialized knowledge within the scope
of Rule 702.

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Fed. R. Evid. 701. This issue came up in a recent case where the district court

excluded all lay witness testimony about a defendant’s mental state. In reversing

the district court’s decision, we explained that: “The Federal Rules of Evidence

do not . . . categorically prohibit lay witnesses from offering opinion testimony

regarding the defendant’s mental state.” United States v. Goodman, 633 F.3d

963, 968 (10th Cir. 2011).

We conclude that the district court expressed a mistaken view of the law

and therefore abused its discretion in excluding this opinion testimony for the

reasons expressed at trial. See United States v. Allen, 449 F.3d 1121, 1125

(10th Cir. 2006) (“Although the abuse of discretion standard is deferential, abuse

is shown where the decision was based on a mistaken view of the law.”). But that

does not end our inquiry. Although the government does not concede that the

district court erred, it argues that any error by the district court was harmless. We

agree.

“A non-constitutional error, such as a decision whether to admit or exclude

evidence, is considered harmless unless a substantial right of a party is affected.”

United States v. Burgess, 576 F.3d 1078, 1100 (10th Cir. 2009) (quotations and

brackets omitted). “An error affecting a substantial right of a party is an error

which had a substantial influence on the outcome or which leaves one in grave

doubt as to whether it had such an effect.” Id. (quotations omitted). When

making the harmless error determination, “[w]e review the record as a whole.”

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Id. (quotations omitted). Given these considerations and our review of the record,

we conclude that the exclusion of Mr. Powell’s opinion testimony was harmless

error.

Defendant provided ample testimony in support of her good faith defense.

Defense counsel elicited testimony on cross-examination that Mr. Powell never

explained to defendant how the IRS calculates cost of goods sold; never explicitly

told her to “make sure that you include in your sales and in your cost of goods

sold all transactions where you didn’t make a profit,” Aplt. App., Vol. 2 at 526;

and he did not think there was anything suspicious about the gross receipts and

cost-of-goods-sold numbers she provided to him. Mr. Powell also agreed with the

statement that “someone who is uneducated in tax law and how [a] tax return is

done might say the transactions I don’t make a profit on I don’t need to report

them because it doesn’t affect my ultimate tax . . . .” Id. at 529. He further

testified that he kept preparing defendant’s taxes– even after learning of the

criminal investigation– explaining, “from my end I had nothing there to say

anything was going wrong.” Id. at 532. And even after speaking with the IRS

criminal investigators three times and giving testimony to the grand jury, he

continued to do her taxes because he “still didn’t think she was doing anything

wrong.” Id. at 533.

Defense counsel also solicited testimony from Mr. Powell that the

government attorneys were having difficulty with the concept of how you

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calculate profit in relation to the cost of goods sold so Mr. Powell prepared his

own exhibit to help explain it. Id. at 529-530; see also Aplt. Br., Att. D.

Mr. Powell further testified that he never went over anything like what was

contained in the exhibit with the defendant. Defense counsel also solicited

testimony from Agent Lynch, the IRS investigator. Agent Lynch testified that to

determine defendant’s gross receipts he needed to look at the gross receipts

definition in the IRS tax code, the Department of Treasury regulations, and case

law. As defendant argues in her opening brief, “Agent Lynch’s testimony, in

conjunction with Mr. Powell’s, supports [defendant’s] good faith defense in that it

demonstrates that the information she would need to know to accurately report her

business income was extremely complex.” Aplt. Br. at 23-24.

Defendant also testified in support of her good faith defense. She

explained that when she broke even on a sale she would consider it a “wash,” and

she did not write it down in her records or report it on her taxes because “there

was no consequence for income.” Aplt. App., Vol. 5 at 1306. She testified that

she did not knowingly leave off gross receipts or not report gross receipts to try to

cheat on her taxes and she didn’t report them to Mr. Powell because she didn’t

know they were gross receipts. She closed her direct testimony by stating “I still

am not clear that those were gross receipts, and I still think I did my taxes right. I

just see that the government wants you to put stuff down even if you didn’t make

anything on it. I didn’t know that at the time.” Id., Vol. 6 at 1418.

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 Defense counsel argues that the proffered testimony that Mr. Powell did not

believe defendant intentionally underreported payments “went to the very heart of

her defense,” Aplt. Br. at 24, and was not harmless. Although Mr. Powell’s

excluded testimony would have been consistent with defendant’s good faith

defense, there was sufficient testimony in the record to support her defense,

namely, the complexities of the tax code, Mr. Powell’s statement that he

continued to do her taxes because he did not believe she was doing anything

wrong, and defendant’s own testimony. Mr. Powell’s statement would have been

cumulative and would not have aided the jury in further understanding his

testimony. The jury could reasonably infer from Mr. Powell’s testimony that he

did not believe defendant intentionally underreported her income.

In addition, the government contends that the evidence against defendant

was “overwhelming,” and would have led the jury to convict her even if

Mr. Powell’s statement had been admitted. Aplee. Br. at 19-20. Defendant’s

main defense was that she did not intentionally violate the tax laws because she

did not believe she had to report “wash” sales. But the other part of her defense

had to respond to the government’s position that in order to account for more than

$1.4 million in unreported sales, she would also have had to underreport her

purchases by $1.4 million so that the net effect on her profits was zero.

Agent Lynch testified that after reviewing her tax returns and bank records,

he could find no evidence that she underreported the amount of hair-care products

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she purchased, nor could he find that she had an additional $1.4 million to spend.

To the contrary, Agent Lynch testified that defendant actually overstated her

purchases and that from 2003 to 2005 defendant was running a deficit of about

the same amount. He further testified that defendant’s personal expenditures

exceeded the amount of money she had available in income and bank-account

savings by $1.5 million over those three years.

If the jury credited Agent Lynch’s testimony and analysis, defendant’s

“wash” sales defense would be untenable unless she had some additional

off-the-books source of funds that was not included in the records obtained by the

government. Defendant did claim to have such an off-the-books source of funds:

she testified that she found $1 million in cash and $80,000 in bonds in her

parents’ house after her mother died. She testified that she put this money in a

box and put it under her bed. When asked if there was something preventing her

from putting the money in the bank, she testified that “she just didn’t want to,”

although she also testified that she did not “have a problem” using banks. Aplt.

App., Vol. 6 at 1456.

Defendant never gave an exact amount that was in the box and in later

testimony stated that there were actually two boxes– one with about $700,000 in

it and one with about $300,000 in it. Defendant also failed to adequately explain

why she would ever need to withdraw money from her bank accounts if she had a

box (or boxes) with $1 million in cash. Moreover, defendant never squarely

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addressed how a purported cash hoard of $1.1 million would be enough to account

for more than $1.4 million in additional hair-care product as well as over $1.5

million in personal spending.

At sentencing, the district court stated that “this defense was so feckless

and incredible that if the matter was not so serious it would be laughable. Boxes

full of money, quantities of money increasing every time the government was able

to demonstrate that the initial amount claimed in the initial box was inadequate

mathematically to support and sustain her position.” Id. at 1640. Viewing the

record as a whole, any error in excluding Mr. Powell’s proffered testimony did

not have a substantial influence on the outcome of the trial and therefore any

error was harmless. See Burgess, 576 F.3d at 1100-01.

2. Good-faith jury instruction

Defendant argues that the district court abused its discretion when it

refused to give her tendered good-faith instruction. Defendant initially tendered

two separate instructions–one for willfulness and one for good-faith, although the

willfulness instruction also contained good-faith language. The district court

ultimately rejected defendant’s stand-alone good-faith instruction, but gave the

jury a three-paragraph instruction, which included as its third paragraph the

good-faith language from defendant’s proposed willfulness instruction. The

instruction stated:

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 Defendant is considered to have acted “willfully,” as that term
is used in element number 4 of Instruction No. 10, when she is found
to have acted with the voluntary intent to violate a known legal duty.

Defendant acted willfully if she knew it was her legal duty to
include truthful information in her individual or corporate tax
returns, and then voluntarily and intentionally included false
information.

Defendant is not considered to have acted willfully if her
conduct resulted from negligence, inadvertence, accident, mistake, or
reckless disregard for the requirements of the law, or resulted from a
good faith misunderstanding that she was not violating a duty that the
law imposed on her.

Aplt. Br., Att. H.

Defendant concedes that the district court’s instruction gave the jury an

accurate definition of willfulness. She argues, however, that the district court’s

refusal to give her stand-alone good-faith instruction meant that the jury was not

adequately instructed regarding the “quantum of evidence necessary to consider

[her] defense, the government’s burden to disprove her good faith defense, and

the fact that such good faith belief need not be rational or reasonable,” Id. at 30.

When considering a jury-instruction challenge:

We review the instructions as a whole de novo to determine whether
they accurately informed the jury of the governing law. We then
review any instructions offered by the defendant and rejected by the
court. A defendant is entitled to an instruction on his theory of the
case if the instruction is a correct statement of the law, and if he has
offered sufficient evidence for the jury to find in his favor. We
review a district judge’s refusal to issue a requested instruction under
this standard for abuse of discretion.

United States v. Pinson, 542 F.3d 822, 831 (10th Cir. 2008) (citations omitted).

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 The government argues that the district court adequately instructed the

jury. 1 We agree. First, the jury was properly instructed on the parties’ respective

burdens of proof in the district court’s general reasonable doubt instruction. That

instruction explained to the jury: “The law does not require a defendant to prove

her innocence or produce any evidence at all. The government has the burden of

proving defendant guilty beyond a reasonable doubt concerning any alleged crime

then under your consideration.” Aplt. Br., Att. I, Instr. No. 6. Second, the

district court’s willfulness instruction covered defendant’s good-faith defense,

explaining that a “[d]efendant is not considered to have acted willfully if her

conduct resulted from negligence, inadvertence, accident, mistake, or reckless

disregard for the requirements of the law, or resulted from a good-faith

misunderstanding that she was not violating a duty that the law imposed on her.”

Id., Instr. No. 11.

The district court’s instructions correctly set forth the definition of

willfulness, correctly informed the jury that the government bore the burden of

proving defendant’s willfulness beyond a reasonable doubt, and correctly

explained that a person who makes a good-faith mistake was not acting willfully.

1
The government’s brief argues three alternative grounds for resolving
defendant’s jury instruction challenge: (1) waiver; (2) a good-faith instruction
was not required; and (3) the district court’s instructions to the jury were
adequate. Because we conclude that the district court did not abuse its discretion
in the instructions it gave to the jury, we need not reach the first two grounds
argued by the government.

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Because juries are presumed to follow their instructions, see Richardson v.

Marsh, 481 U.S. 200, 211 (1987), defendant’s argument amounts to no more than

a claim that her stand-alone good-faith instruction would have given the jury a

more clear understanding of the law. But as defendant acknowledges, this is not a

basis for finding an abuse of discretion. See Aplt. Br. at 27 (“[A theory of the

defense] instruction is not required . . . if it would ‘simply give the jury a clearer

understanding of the issues.’” (quoting United States v. Bowling, 619 F.3d 1175,

1183-84 (10th Cir. 2010)). We therefore see no abuse of discretion in the district

court’s refusal to give defendant’s proposed instruction.

3. Prosecutorial Misconduct

Defendant contends that the prosecutor’s continuing course of misconduct

throughout her trial requires the reversal of her convictions. Defendant argues

that the prosecutor (1) improperly solicited irrelevant and derogatory testimony

regarding her religion; (2) failed to disclose his intent to introduce evidence that

he subsequently used as improper propensity evidence at trial; and (3) engaged in

improper argument throughout his closing and rebuttal closing arguments.

Defendant admits, however, that she did not contemporaneously object to any of

this alleged misconduct during trial. Because defendant failed to object at trial,

we review the alleged misconduct for plain error. See United States v. Taylor,

514 F.3d 1092, 1095 (10th Cir. 2008).

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 To prevail on plain-error review, defendant must “show there is (1) error,

(2) that is plain, (3) which affects [her] substantial rights, and (4) which seriously

affects the fairness, integrity, or public reputation of judicial proceedings.”

United States v. Poe, 556 F.3d 1113, 1128 (10th Cir. 2009) (quotations omitted).

Viewing the alleged misconduct in the context of the whole trial, see United

States v. Lopez-Medina, 596 F.3d 716, 738 (10th Cir. 2010), defendant has failed

to show plain error.

Conclusion

The judgment of the district court is AFFIRMED.

Entered for the Court

Wade Brorby
Senior Circuit Judge

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