UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 93-2463
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
DAVID J. TOWNSEND,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Texas
(August 25, 1994)
Before REYNALDO G. GARZA, SMITH, and PARKER, Circuit Judges.
REYNALDO G. GARZA, Circuit Judge:
Defendant was convicted under I.R.C. § 7201 for evasion of
excise tax. The district court found a tax deficiency, affirmative
acts constituting tax evasion, and that defendant acted willfully.
For the reasons discussed below we affirm.
I. Introduction
This case involves the use of a fraudulent Form 637 in an
attempt to circumvent federally imposed excise tax. In 1987
federal law imposed an excise tax of nine cents on each gallon of
gasoline sold for highway use. A wholesale distributor of
gasoline holding a valid "Registration for Tax-Free Transactions,"
or Form 637, could purchase gasoline free of the excise tax. A
Form 637 enables a distributor to purchase gas tax-free and sell it
tax-free to a registered wholesaler or retailer. The distributor
becomes liable for the excise tax if it sells to an unregistered
buyer. In this case Appellant fraudulently presented a Form 637 to
several distributors, purchased the gas, and then promptly sold the
gas to an unregistered buyer.
II. Background
David Townsend, the inventor of a gasoline oxygenating
product, moved his California-based fuel blending business
(Anafuel) to Houston, Texas in 1986. Townsend, with Lloyd Maxwell,
Lamar Maxwell, David Maxwell, Don Maxwell, and Arthur Maxwell
formed Petrolife, Inc. (Petrolife), a gasohol blending company.
Appellant Townsend was named chief executive officer, Lloyd Maxwell
was named the secretary-treasurer and chief financial officer, and
Lamar Maxwell was named president.
In November of 1986 Petrolife decided to apply for a Form 637.
Signed by Lloyd Maxwell as chief financial officer and dated
November 20, 1986, the form was submitted to the IRS. IRS Agent
Mike Grayson met with Lloyd Maxwell and Charles Crockett, a
Petrolife employee, to discuss the application. Agent Grayson
explained the requirements of the Form 637 and told them that it
2
could take several months to obtain approval. Petrolife decided
that they were not prepared to disclose all the necessary financial
information required for approval at that time. Consequently, the
application was deferred. Mr. Crockett was to retain Petrolife's
copies of the application until the corporation was ready to
reapply. Petrolife never reapplied for the Form 637.
Subsequently, Appellant asked Mr. Crockett for the
application. Mr. Crockett handed the application to him under the
assumption that he was seeking to reapply for approval. Later that
day Townsend showed Mr. Crockett the Form 637 and said that he had
obtained a registration number and the signature of the IRS
district director.1
In July of 1987 Townsend contacted Jetero, a gasoline
distributor, and expressed interest in making a purchase. Jetero
met with Townsend and discussed forms Jetero required before fuel
could be supplied. Townsend provided the necessary forms,
including the fraudulent Form 637. These forms listed Petrolife as
a manufacturer selling gasohol and listed Petrolife/Anafuel as the
purchaser. Upon receipt of the required forms Jetero commenced
supplying the fuel tax-free. The Jetero invoices were addressed to
"Petrolife, Attn: David J. Townsend."
A total of 264,030 gallons of gasoline were purchased from Jetero
in August of 1987.
1
Mr. Crockett testified that he was surprised that Townsend
was able to procure approval of Form 637 so quickly and seemingly
without leaving the building. It was his understanding that it
could take several months to obtain approval.
3
Townsend also contacted Crown, another gasoline distributor,
expressing his desire to purchase gasoline. After he provided the
requested documentation, including the fraudulent Form 637, Crown
began supplying gasoline. The checks used to pay for the gas
listed Petrolife/Anafuel as purchaser. A total of 161,679 gallons
of gasoline were purchased from Crown in August of 1987.
The gasoline supplied by Jetero and Crown was shipped to Mr.
Chehade Boulos, a service station operator. The funds used by
Townsend were drawn from an account opened in the name of Anafuel
at the Lone Star Bank. Mr. Boulos would make deposits to this
account in exchange for the gasoline shipments. The bank would
then issue cashier checks, which were used to pay Crown and Jetero.
Basically, Townsend used the funds prepaid by Mr. Boulos to make
the payments to Crown and Jetero.
No taxes were paid by Townsend or Petrolife on the gasoline
sold to Mr. Boulos.2 By using the fraudulent Form 637 and
purchasing gas through an Anafuel account, Townsend acted without
the knowledge or consent of the other officers of Petrolife. When
Mr. Crockett became aware of Appellant's transactions he informed
Mr. Lloyd Maxwell of his intention to inform the IRS. Mr. Maxwell
approved.
IRS Agent Grayson became aware of the fraudulent Form 637
during a routine inspection of Jetero's records. Agent Grayson
immediately knew the form was invalid. First, he knew that
2
Mr. Boulos testified that he thought the taxes were
included in the purchase price of the gasoline.
4
Petrolife's Form 637 had never been approved. Second, the
registration number did not correspond to the numbers issued by the
Houston office. Third, the signatures on the form were not signed
properly. Agent Grayson spoke with Mr. Gonzales, the owner of
Jetero, concerning the problem. Mr. Gonzales told Appellant that
the registration number was invalid. Townsend responded rather
angrily that the number was correct. Later he told Mr. Gonzales
that he had a new temporary number. Notwithstanding the temporary
number, Mr. Gonzales refused to sell any more gasoline to Townsend
on advice of the IRS.
IRS Agent Vitz took over the investigation. Agent Vitz
observed the same inconsistencies in the Petrolife Form 637 and
therefore contacted Townsend. On September 5, 1987 Agent Vitz
requested more information regarding the application. Townsend
promised that the information would be forthcoming. After
receiving no new information, Agent Vitz paid a visit to his
office. Townsend again stated that the registration number was a
temporary number issued by the Houston office. But no temporary
numbers had issued in 1987.
Agent Taylor met with Townsend and showed him the fraudulent
Form 637 and asked if he had ever seen this form. Townsend replied
that Mr. Crockett had presented this form to him but that he,
Townsend, had never given it to anyone.
On May 20, 1992 a grand jury indicted Townsend for attempting
to evade federal excise taxes in violation of I.R.C. § 7201.
Townsend was convicted by a jury before Honorable Melinda Harmon in
5
March of 1993. He was sentenced to 14 months in prison and three
years supervised release; he was fined $10,000 and specially
assessed $50.
Townsend appeals the district court's rulings on four bases.
The first basis asserted is whether there was sufficient evidence
to support a conviction. Second is whether the district court
abused its discretion in limiting Appellant's cross-examination of
certain witnesses. The third basis is whether the district court
abused its discretion in allowing opinion testimony concerning
Appellant's liability on federal excise tax. The fourth basis
Appellant urges is whether the district court erred in failing to
include a proposed jury instruction in the charge. For reasons
discussed below, we affirm the decision of the district court.
III. Discussion
1. Sufficiency of the Evidence to Support the Conviction
The standard of review for sufficiency of evidence appeals is
whether a rational fact finder could find the essential elements
constituting the crime beyond a reasonable doubt. United States v.
Nixon, 816 F.2d 1022, 1029 (5th Cir. 1987), cert. denied, 484 U.S.
1026 (1988). In viewing the evidence under the rational fact
finder standard, this Court is obliged to take all inferences
reasonably drawn from the evidence in the light most favorable to
the verdict. United States v. Molinar-Apodaca, 889 F.2d 1417, 1423
(5th Cir. 1989).
6
To prove a violation of I.R.C. § 7201 the government must
prove (1) the existence of a tax deficiency, (2) an affirmative act
constituting an evasion or attempted evasion of the tax, and (3)
that the defendant acted willfully. Sansone v. United States, 380
U.S. 343, 351 (1965); United States v. Wisenbaker, 14 F.3d 1022,
1024 (5th Cir. 1994). The first issue that must be addressed is
whether there was a tax deficiency. Wisenbaker, 14 F.3d at 1024.
Excise taxes for the quarter ending September 30, 1987 were due and
owing in the amount of $38,313.813 on the gasoline bought from
Crown and Jetero and resold to Mr. Boulos. The existence of a tax
deficiency was not contested by Appellant. However, Appellant did
take issue as to who owed the tax. He claims that Petrolife owed
the tax and he therefore could not be convicted of evading tax of
another. This is clearly wrong. I.R.C. § 7201 provides that it is
a violation for "any person" to willfully attempt to evade or
defeat "any tax." I.R.C. § 7201 is not limited to prosecutions of
those who evade taxes that they may owe themselves, but rather it
encompasses prosecutions of any person who attempts to evade the
tax of anyone. See id. at 1024-25. It is the act of evasion that
is proscribed; adopting the limited reading Appellant asserts
would severely restrict if not defeat the purpose of the statute.
The second issue that must be determined is whether Appellant
committed an affirmative act of tax evasion. Id. at 1024.
3
A total of 425,709 gallons of gasoline was bought and
resold: 264,030 gallons from Jetero and 161,679 gallons from
Crown. The deficiency arose automatically when the tax became
due at the end of the quarter and no excise tax return was filed.
7
Townsend contends that the government failed to prove this element.
Taken in the light most favorable to the verdict, the evidence
reveals that Townsend committed numerous affirmative acts.
Townsend prepared a fraudulent Form 637 that contained two forged
signatures and a fabricated registration number. He presented the
fraudulent Form 637 to Crown and Jetero in furtherance of his tax-
free transaction. He also arranged for the purchase and subsequent
sale of gasoline to Mr. Boulos, an unregistered retailer. Townsend
signed a customer card agreement enabling him to purchase tax-free
gasoline from Crown and signed a federal excise tax exemption
certificate required by Jetero, certifying that he was registered
to purchase tax-free gasoline. He arranged for the purchase to be
made with cashiers checks that were paid from funds deposited by
Mr. Boulos into an account opened in the name of Anafuel over which
Townsend's son had signature authority. Subsequent to the purchase
and sale, Townsend told Agent Taylor that he had never presented
the Form 637 to anyone when in fact he had. Finally, he told Agent
Vitz that he had obtained a temporary registration number, which
turned out to be fabricated. Taking this evidence as true
establishes beyond a reasonable doubt that Townsend took
affirmative acts of tax evasion.
The final issue in which this Court must inquire is whether
Appellant acted willfully. Id. at 1024. The U.S. Supreme Court
has recognized that the term "willfully" connotes a voluntary,
intentional violation of a known legal duty. United States v.
Pomponio, 429 U.S. 10, 12 (1976). I.R.C. § 7201 imposes that duty
8
and the evidence taken in the light most favorable to the verdict
establishes that Appellant acted willfully in violation of this
duty. Townsend was experienced in the motor fuels industry and
demonstrated familiarity with legal duties imposed by the federal
tax scheme. He was no proverbial babe in the woods. He obtained
and fraudulently completed a Form 637 and presented it to
distributors. Townsend manifested knowledge that his actions were
unlawful by attempting to hide them from both Jetero and the IRS
agents. Finally he attempted to conceal the gasoline transactions
by conducting them through a non-Petrolife bank account.
Therefore, the evidence established a tax deficiency, revealed
affirmative acts constituting an attempt to evade the excise tax,
and demonstrated that Townsend acted willfully.
2. Cross-Examination of Government Witnesses
Appellant argues that the district court erred in restricting
his cross-examination of various government witnesses regarding (a)
falsification of corporate records, (b) bad business practices, and
(c) testimony that Townsend was personally liable for excise tax.
The applicable Federal Rules of Evidence are 403, 404(b), and
608(b).4 "The admission or exclusion of evidence at trial is a
matter committed to the discretion of the trial court." United
States v. Moody, 903 F.2d 321, 326 (5th Cir. 1990). We review the
trial court's ruling under the abuse of discretion standard. Id.
4
Appellant asserts due process violations yet cites only
evidentiary authority. Accordingly, we will address each issue
under the Federal Rules of Evidence.
9
If we find that an abuse of discretion has occurred we view the
error under the harmless error doctrine. Id. The right and
opportunity to cross-examine an adverse witness is guaranteed by
the sixth amendment. Delaware v. Van Arsdall, 475 U.S. 673, 678-
79; Moody, 903 F.2d at 329. However, the trial court is given
"wide latitude" in imposing reasonable restraints upon defendant's
right to cross-examination. Moody, 903 F.2d at 329.5
A. Falsification of Corporate Records
Townsend contends that the district court abused its
discretion in overly restricting the cross-examination of Mr.
Crockett and Mr. Maxwell concerning their conduct in allegedly
falsifying Petrolife's corporate records. Townsend claims that Mr.
Crockett's deposition indicated that the records were falsified in
anticipation of bankruptcy and the IRS investigation. Appellant
sought to introduce this evidence in hopes of impeaching their
testimony. Rule 608(b) of the Federal Rules of Evidence provides
that a witness may be questioned about specific instances of
conduct, in the discretion of the trial court, to attack the
witness's reputation for truthfulness. Rule 403 requires the trial
court to balance the dangers of unfair prejudice, confusion of the
issues, misleading the jury, or waste of time against the probative
value of the evidence.
5
The trial court may not place the witness's character or
reputation for veracity outside the scope of inquiry. Moody, 903
F.2d at 329; See generally United States v. Garza, 754 F.2d
1202, 1206 (5th Cir. 1985)
10
The district court found that Mr. Crockett's deposition did
not support Appellant's assertion that the corporate minutes were
falsified. The district court disputed Appellant's contention of
falsification finding a lack of evidence to support this line of
questioning.6 Furthermore, the district court held that admitting
the evidence would only serve to mislead and confuse the jury, and
prolong the trial. This Court will reverse a decision of the trial
court in excluding or admitting evidence only upon a showing that
the trial court abused its discretion in weighing the probative
value of the evidence against its prejudicial effect. United
States v. York, 888 F.2d 1050, 1056 (5th Cir. 1989). Because
Appellant cannot show an abuse of discretion we affirm the district
court's decision to exclude this evidence.
Appellant also contends that the evidence of falsification
demonstrates Mr. Crockett's and Mr. Maxwell's propensity, motive,
and opportunity to falsify the Form 637. The motives for
falsification, Townsend asserts, were for personal and corporate
gain and self-vindication. He claims that these motives were the
same as those that allegedly led Mr. Maxwell and Mr. Crockett to
apply for the Form 637 and to testify against Townsend. Further,
Townsend contends that the scheme to falsify the corporate records
was "sufficiently similar if not identical to the offense of
falsifying a Form 637."
6
The district court found that the corporate minutes had not
been kept up to date and it was unclear from the deposition what,
if any, part of the minutes were not true. Based on Mr.
Crockett's explanation of the deposition, the court found
insufficient evidence of fraud.
11
Rule 404(b) provides that a defendant may offer through
extrinsic evidence or by cross-examination similar bad acts,
crimes, or wrongs to show motive, opportunity, intent, and the
like.7 However, under Rule 404(b), evidence of crimes, wrongs, or
acts is not admissible if offered to prove the character of a
witness in order to show that the witness acted in conformity
therewith on a particular occasion. As discussed above, the
district court did not find a scheme or plan to falsify the
corporate records, thereby refuting the reasons Appellant proffered
for introducing the evidence. Furthermore, Appellant's brief
indicates that the evidence was introduced for purposes of showing
conformity rather than motive or intent in direct contravention to
Rule 404(b). Appellant alleged that the "scheme to falsify
documents to mislead or defraud the bankruptcy court and the IRS
was sufficiently similar if not identical to the offense of
falsifying a Form 637." Therefore, this Court affirms the district
court's decision in excluding the evidence. Because the district
court did not commit error, we do not reach application of the
harmless error doctrine.
B. Bad Business Practices
Townsend also contends that the district court erred in
curtailing his cross-examination of Mr. Boulos. Appellant asserts
7
See also United States v. Luffred, 911 F.2d 1011, 1015 (5th
Cir. 1990) (holding that prior bad acts may be relevant under
Fed. R. Evid. 404(b) to prove that a witness had the opportunity
and ability to concoct a fraudulent or deceitful scheme).
12
that Mr. Boulos's alleged bad business practices would reveal his
motive and intent to use Townsend's son to set up a bank account.
Mr. Boulos, Appellant contends, failed to timely pay his bills,
"bounced" checks, and sold substandard gasoline. The unauthorized
use of the bank account circumvented a credit check by Crown and
Jetero in furtherance of the tax evasion scheme. Under 404(b)
evidence of crimes, bad acts, or wrongs are admissible to prove
intent or opportunity. However, the district court found no
evidence showing that Mr. Boulos knew of or aided Townsend in the
tax evasion scheme.
Townsend asserts that Mr. Boulos was also guilty of tax
evasion if he knowingly carried out the scheme to buy gas tax-free.
These facts would serve to impeach Mr. Boulos under 608(b). Rule
608(b) provides that specific acts of misconduct, though they
cannot be proved by extrinsic evidence, may be elicited on cross-
examination to impeach the credibility of a witness. But again
Rule 403 serves to temper the otherwise unreigned use of 608(b).
The district court did not find that Mr. Boulos participated in any
scheme of tax evasion and therefore excluded this testimony. The
district court did not abuse its discretion because trivial acts,
such as untimely payment, should be excluded, absent evidence of a
fraudulent scheme, because the dangers of confusing the issues and
misleading the jury substantially outweigh any minor probative
value the testimony would have.
C. Evidence of Townsend's liability for the excise tax
13
Townsend contends that the district court abused its
discretion in prohibiting cross-examination into areas of the
Comptroller's decision and Mr. Maxwell's letter, dated March 27,
1989. The Comptroller held that Petrolife rather than Townsend was
liable for state excise tax. In the Maxwell letter Mr. Maxwell
allegedly expressed the desire to align himself with the IRS's
position in order to avoid Petrolife's tax liability. Appellant
contends that he had a right to impeach the witness and reveal the
motivation and bias of Mr. Maxwell's adversarial testimony.
Appellant has failed to show any evidence in the record indicating
an arrangement under which Mr. Maxwell would receive any benefit
for cooperating with the government. The district court found,
under Rule 403, that the probative value of the testimony was
substantially outweighed by the danger of confusion of the issues.
Because Appellant has failed to show that the district court abused
its discretion, we affirm the district court on this point. York,
888 F.2d at 1056; see also United States v. Sutherland, 929 F.2d
765, 777 (1st Cir.) cert. denied, 112 S. Ct. 83 (1991) (holding
that appellant failed to demonstrate a basis for suspecting bias
other than a conclusory allegation).
Agent Vitz testified that Townsend was liable for the excise
tax. Appellant contends that he had a right to cross-examine Agent
Vitz concerning the Maxwell letter and the Comptroller's decision
holding Petrolife liable for state excise tax. The district court
excluded this testimony under Rule 403. We find no error requiring
reversal. Anyone who willfully evades a tax is in violation of
14
I.R.C. § 7201 regardless of who owed the tax.8 Thus, exclusion of
testimony that Townsend was not personally liable was harmless
error.
3. Expert Testimony
The government called Agent Vitz as a summary witness and an
expert on excise tax. Agent Vitz testified that Townsend became
liable for the excise tax when he sold it to Mr. Boulos. Agent Vitz
also calculated the tax deficiency owed on the gas sold to Mr.
Boulos. Appellant contends that the district court erred in
admitting this testimony because it interfered with the jury's
function, it was inadmissible under Fed. R. Evid. 704(b), and it
was inadmissible under Fed. R. Evid. 403.
The admissibility of expert testimony rests within the sound
discretion of the district court and will be reversed only upon a
clear showing of abuse of discretion. United States v. Charroux,
3 F.3d 827, 833 (5th Cir. 1993). Rule 703 provides that a
qualified expert may testify in the form of an opinion if
scientific, technical, or other specialized knowledge will assist
the trier of fact in understanding the evidence. To qualify as an
expert, the witness must have specialized knowledge or training
such that his or her testimony will assist the fact finder in the
determination of a fact issue. United States v. Bourgeois, 950
F.2d 980, 987 (5th Cir. 1992). Agent Vitz's training in accounting
8
As discussed supra all that is required to establish a
violation of I.R.C. § 7201 is proof beyond a reasonable doubt of
a tax deficiency, affirmative acts of evasion, and willfulness.
15
and experience in tax prosecutions qualifies him as an expert.
There is no evidence that the district court abused its discretion
in accepting Agent Vitz as an expert as Townsend failed to object
to Agent Vitz's qualifications. Accordingly, we will address the
substance of his testimony rather than his qualifications.
Appellant contends that Agent Vitz's testimony was an
usurpation of the jury's role in violation of Rule 704(b). Rule
704(b) states that an expert shall not testify with respect to the
mental state of a defendant in a criminal trial. Agent Vitz did
not opine that Townsend intended to file a fraudulent Form 637,
rather he testified that the form was invalid. Agent Vitz did not
express an opinion about Appellant's state of mind. Accordingly,
his testimony was not excludable under Rule 704(b). United States
v. Webster, 960 F.2d 1301, 1308-09 (5th Cir.) cert. denied, 113 S.
Ct. 355 (1992).
Rule 403 operates to exclude otherwise admissible evidence if
the probative value is substantially outweighed by its prejudicial
effects. Appellant contends that Agent Vitz's testimony was
prejudicial. Testimony presented by the government will invariably
be prejudicial to a criminal defendant. But Rule 403 only excludes
evidence that would be unfairly prejudicial to the defendant.
Here, the probative value of the evidence was not substantially
outweighed by its prejudicial effects. Agent Vitz testified as to
the existence of a tax deficiency, an element required for a
successful prosecution under I.R.C. § 7201. He also opined that
Townsend was personally liable on the excise tax. This arguably
16
has probative value. Someone would be more likely to evade their
own tax rather than another's. Because this testimony was
probative and not unfairly prejudicial, we find no error.
4. Jury Instructions
Appellant requested the district judge to instruct the jury
that it could find him liable for a violation of I.R.C. § 7201 only
if he personally owed the taxes. The district court refused,
instructing the jury that it could convict the defendant for
attempting to evade taxes owed by another. Appellant cries foul.
The standard of review is abuse of discretion. United States
v. Chaney, 964 F.2d 437, 444 (5th Cir. 1992). A conviction will
not be reversed unless the instructions failed to correctly state
the law. United States v. Coleman, 997 F.2d 1101, 1105 (5th Cir.
1993), cert. denied, 114 S. Ct. 893 (1994). The issue this Court
must decide is whether the district court abused its discretion by
refusing the proposed instruction. A refusal to deliver a
requested jury instruction is reversible error only if the proposed
instruction was (1) substantively correct, (2) not substantively
covered in the jury charge, and (3) concerned an important issue in
the trial, such that failure to give the requested instruction
seriously impaired the defendant from presenting a defense. United
States v. Mollier, 853 F.2d 1169, 1174 (5th Cir. 1988).
The actual jury charge correctly stated the law. The
instruction traced I.R.C. § 7201 and informed the jury that they
could convict Townsend for evading Petrolife's tax liability. See
17
United States v. Troy, 293 U.S. 58 (1934); United States v.
Wisenbaker, 14 F.3d 1022, 1026-27 (5th Cir. 1994). Appellant's
proposed instruction was not substantively correct. Appellant
contends that the jury should have been instructed to find Townsend
guilty only if he personally owed the tax. Because I.R.C. § 7201
proscribes evasion of any tax, this instruction fails the first
prong of the test. Accordingly, we affirm the district court's
ruling.
For the above stated reasons the defendant's conviction is
AFFIRMED.
18