REVISED, APRIL 28, 2000
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 98-50554
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
FRANKLIN Y WRIGHT, JR; ANNETTE RYAN
WRIGHT, also known as Annette S Wright,
also known as Annette Kaufman Wright;
ROBERT E BARGER,
Defendants-Appellants.
Appeals from the United States District Court
For the Western District of Texas
April 27, 2000
Before REYNALDO G. GARZA, HIGGINBOTHAM, and BENAVIDES, Circuit
Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
This appeal presents various challenges to the tax evasion-
related convictions of Franklin Wright, his wife Annette Wright,
and Franklin’s attorney and tax preparer, Robert Barger. Barger
also appeals his sentence. We reject the defendants’ legal
challenges to the convictions and find that the evidence was
sufficient to support each of the verdicts. Because it appears
that the district court believed it could not downward depart under
the Sentencing Guidelines based on a discrepancy in sentences among
the co-defendants, we remand for the re-sentencing of Barger.
I
The charges against all of the defendants stem from tax
deficiencies owed by Franklin Wright for 1986, 1987 and 1988.
Collection proceedings began in 1988, and the Internal Revenue
Service (“IRS”) and Franklin began a long period of negotiation.
In August 1992, Barger submitted an Offer in Compromise to the
IRS and set up a $5,000-a-month payment plan for Franklin, which
Franklin followed until December 1994. Although the offer was
substantial, the IRS eventually rejected it because Franklin failed
to provide required additional information. Through seizures and
voluntary payments, however, Franklin eventually paid about
$490,000 toward his tax liability of $419,000, not including
penalties and interest.
Franklin and Annette married in 1989, after Franklin
accumulated his deficiency. The government charged Annette with
assisting Franklin in hiding assets from the IRS. In August 1992,
while the Offer in Compromise was pending, Annette decided to sell
the home she had owned before her marriage to Franklin and buy a
new house. Annette claims that she was unable to secure financing
for the home because of Franklin’s tax problems. She asked a
friend, Caroline Haggard, to buy the home in Haggard’s name and
stated that she would assume the mortgage once the tax issues had
been resolved. Haggard agreed to this arrangement.
Franklin and Annette brought her almost $150,000 for the house
in a bag containing $100 bills. Franklin told Haggard that the
cash was money from his law practice. Haggard testified at trial
that the Wrights assured her that the taxes had been paid on the
2
money but warned that she should avoid depositing the funds in the
bank to avoid problems with the IRS.
Haggard decided to deposit the money anyway, resulting in a
report to the IRS. She called Barger for advice, and Barger asked
her why she had deposited the money when she had been told not to.
Barger also participated in the home purchase in other ways: he
assisted Haggard in gathering financial records in order to qualify
for the mortgage; drew up papers transferring the mortgage to
Annette; and loaned Franklin $64,000 for the remainder of the down
payment. In April 1993, Barger submitted an amendment to the Offer
in Compromise stating that the Wrights had sold their house because
they could no longer make mortgage payments and were now renting.
The form did not list the new home as potential community property.
The government indicted the Wrights, Barger and Haggard for
conspiracy to defraud, Franklin for tax evasion, and Barger for
making false statements. Haggard, also facing prosecution on
unrelated Medicaid fraud charges, plead guilty to all charges and
testified on behalf of the government. A jury found all three of
the others guilty.1 The district court sentenced Franklin to
concurrent 12-month terms. Annette received five years’ probation
so that she could care for the couple’s small children. Barger
received concurrent 18-month terms; his sentence included a two-
point enhancement for use of a special skill. Haggard attempted to
withdraw her plea after the trial, claiming that she was innocent
1
Barger was acquitted on one of the counts of making false
statements.
3
of the tax charges; her appeal proceeded separately and was
rejected by a panel of this court. At issue today are the appeals
of the other three defendants.
II
All three defendants raise several legal challenges to the
convictions. First, they claim that the convictions are improper
because Franklin had no underlying tax deficiency. Franklin
contends that he owed only interest and penalties and could not be
prosecuted for evasion if no tax was owed.
The Supreme Court has held that the elements of Internal
Revenue Code (“I.R.C.”) § 7201, the provision criminalizing the
evasion of taxes, include the existence of a “tax deficiency.”2
While § 7201 does not describe “tax deficiency,” it is defined
elsewhere in the IRC as the amount by which the tax exceeds the tax
reported on the return plus the amounts previously assessed as a
tax deficiency.3 The IRC specifically excludes interest from being
treated as tax for purposes of deficiency procedures.4 The
Sentencing Guidelines also exclude interest and penalties in
assessing the penalty for tax evasion.5
Although the deficiency procedures are separate from the
criminal liability provisions, we are persuaded that the definition
2
See Sansone v. United States, 380 U.S. 343, 351 (1965).
3
See I.R.C. § 6211.
4
See § 6601(e).
5
See U.S. SENTENCING GUIDELINES MANUAL § 2T1.1 & App. Notes; United
States v. Clements, 73 F.3d 1330, 1339 (5th Cir. 1996).
4
of “tax liability” excluding penalties and interest extends to
§ 7201. We decline to assume a broader meaning for a “tax
deficiency” under § 7201 than under the deficiency proceedings
provision, especially when § 7201 attaches criminal liability to
the debt owed. The Guidelines merely confirm our conclusion.
Franklin fails to demonstrate, however, that he owed no tax
during the alleged period of evasion. Although his total payments
eventually exceeded his tax owed, the IRS collected a significant
portion of the paid amounts through seizure. The IRS applied the
seized amounts according to its normal procedure, which is first to
extinguish the taxpayer’s total tax, interest and penalties for the
earliest year owed.6 Franklin cites no authority for the
proposition that his requests as to how the IRS should apply his
voluntary payments must also have been honored as to the seized
amounts.7 Without having all of the seized amounts first applied
to his tax liability, Franklin continued to have a tax deficiency.8
The defendants also argue that the indictments under 18 U.S.C.
§ 371 impermissibly varied from the proof presented at trial.
Section 371 has two prongs: it prohibits a conspiracy to commit an
offense against the United States, or one to defraud the United
6
See Rev. Ruling 73-305, 1973-2 C.B. 43, amended by Rev.
Ruling 79-284, 1979-2 C.B. 83.
7
We are unpersuaded that Franklin had such a right under the
Due Process Clause of the Constitution.
8
Even if successful, this argument would affect only the
I.R.C. § 7201 conviction and not the convictions based on
conspiracy under 18 U.S.C. § 381. The latter provision prohibits
the defrauding of the United States, not just the evasion of taxes.
5
States. The first prong refers to specific offenses criminalized
elsewhere in the federal code; the second stands independently.
The government charged the defendants with conspiracy to defraud.
Franklin argues that the defrauding indictment was impermissible
because the alleged conduct could have been charged as a specific
offense: concealing income or assets from the IRS.
Franklin relies on United States v. Minarik, which held that
the government must proceed under the more specific clause of § 371
if it applies.9 Minarik, however, has since been limited: it now
applies only when the taxpayer’s duties are technical, the
violation was too isolated to comprise a “conspiracy to defraud,”
and the defendant receives no specific notice of the crimes
charged.10 Here, the conduct was not a mere technical violation of
the tax code, the allegations went beyond a single incident of
violation, and the indictment, which exhaustively set forth the
government’s allegations, gave specific notice of the crimes
charged.
Finally, the three defendants seek a motion for new trial
based on Haggard’s post-trial attempts to withdraw her plea.11
Haggard told several individuals that she believed she was not
9
875 F.2d 1186, 1193-94 (6th Cir. 1989).
10
See United States v. Khalife, 106 F.3d 1300, 1304-06 (6th
Cir. 1997). Other courts also follow this rule. See United States
v. Goulding, 26 F.3d 656, 663 (7th Cir. 1994); United States v.
Notch, 939 F.2d 895, 901 (10th Cir. 1991).
11
The defendants concede that their Singleton argument
regarding Haggard’s testimony is foreclosed by United States v.
Webster, 162 F.3d 308 (5th Cir. 1998).
6
guilty of conspiracy to defraud the IRS but had been pressured into
pleading to avoid a more severe penalty regarding the Medicaid
fraud. Because Haggard has never denied the truthfulness of her
testimony regarding the three other defendants, however, her
assertion of her own innocence is immaterial to the other three
convictions. The denial of a new trial was not an abuse of
discretion.
III
Franklin and Annette each challenge the sufficiency of the
evidence to support the jury verdicts. To establish a conspiracy
under 18 U.S.C. § 371, the government must prove (1) an agreement
(2) to commit a crime and (3) an overt act committed by one of the
conspirators in furtherance of the agreement.12 A conviction under
I.R.C. § 7201 requires a showing of willfulness, a tax deficiency,
and an affirmative act constituting evasion.13
There was sufficient evidence to support Franklin’s and
Annette’s convictions. Key evidence included Haggard’s testimony
regarding the delivery of the cash. While Annette’s purchase of
the home could have been bona fide, even if she accepted money from
Franklin for the house, the manner of payment, including the bag of
cash and Franklin’s comments, gave rise to an inference of illegal
activity. In addition, Annette’s claims that she wanted the house
to be hers alone are contradicted by Franklin’s funding of the down
12
See United States v. Gray, 96 F.3d 769, 772-73 (5th Cir.
1996).
13
See Sansone, 380 U.S. at 351.
7
payment. The jury could reasonably have inferred from this account
that Franklin and Annette conspired to hide assets from the IRS,
and that Franklin thus attempted to evade the payment of his tax
deficiency.
IV
Barger challenges the sufficiency of the evidence against him,
as well as his sentence. He argues that there is insufficient
evidence of his involvement in the conspiracy because his
assistance with the purchase of the home was innocent. Barger
further argues that there was insufficient evidence regarding his
false statement conviction. To establish a violation of 18 U.S.C.
§ 1001(a)(3), the government must show a statement that is false
and material and made knowingly and willfully.14
We find support for both counts of Barger’s conviction. On
the amended Offer in Compromise form, he omitted any reference to
Franklin’s possible ownership interest in the home and stated that
the Wrights were renting their residence because they could not
make house payments. Barger’s involvement with the home purchase
was sufficient to infer that he knew that some of the down payment
might be Franklin’s funds, thus requiring him to list the home as
potential community property, and that he knew that the Wrights
were able to make payments on a house. His involvement also
provides sufficient evidence to support the conspiracy conviction.
14
See United States v. Puente, 982 F.2d 156, 158 (5th Cir.
1993).
8
His reproach to Haggard after she had deposited the money indicated
his intimate knowledge with the details of the transaction.
Barger raises two challenges to his sentence. He argues that
the district court clearly erred in applying a two-level
enhancement for the use of a special skill and that it erred in
failing to recognize that it could shorten Barger’s sentence based
on sentencing disparities.
The district court found that Barger’s special skills as a
Certified Public Accountant and tax attorney were essential to the
evasion scheme. While Barger’s contribution to the scheme was not
particularly sophisticated, part of it did involve his preparation
of the Offer in Compromise and other legal documents. Because this
use of special skills did further the conspiracy, it was not
clearly erroneous for the district court to apply the enhancement.
Barger argues for a downward departure based on the sentencing
disparity between Franklin, the taxpayer, and Barger, who played a
much more peripheral role and did not profit from the crime.15 In
Koon v. United States, the Supreme Court held that departure
factors should normally not be ruled out on a categorical basis and
that courts may depart if the case is outside the Guidelines’
heartland.16 After the Seventh Circuit categorically denied
departures based on discrepancies among co-defendants’ sentences,
15
Franklin will serve his time in a halfway house. With an 18-
month sentence, Barger is ineligible for the halfway program.
16
See 116 S. Ct. 2035, 2051 (1996).
9
the Supreme Court remanded the case for reconsideration in light of
Koon.17
This court may review a district court’s refusal to grant a
downward departure only if the district court mistakenly concluded
that the Guidelines did not permit the departure.18 From our review
of the sentencing transcript, it is evident that the district court
was troubled by the discrepancy in sentences between Franklin and
Barger. The district court concluded, “I still don’t like how
[Barger] can be assessed more time. And I’m already giving him
time for the attorney role, but I find no – I don’t have a basis
here to depart, though.” Although this candid comment was
doubtless not intended to be a full explication of the court’s
rationale, the court appears to have believed that the discrepancy
could not be a basis for a downward departure. We remand to the
district court for re-sentencing.
We find no legal grounds warranting reversal of any of the
convictions: Franklin had a tax deficiency for purposes of I.R.C.
§ 7201; the indictment was proper; and Haggard’s recantation is not
material to any of the defendants’ convictions. There was
sufficient evidence to convict the Wrights and Barger of conspiracy
to defraud, Franklin of evasion, and Barger of making false
statements. The district court did not clearly err in applying the
special skill enhancement to Barger’s sentence. As it appears that
17
See United States v. Meza, 127 F.3d 545, 547-48 (7th Cir.
1997).
18
See United States v. Palmer, 122 F.3d 215, 222 (5th Cir.
1997).
10
the district court believed that the Sentencing Guidelines did not
permit a downward departure based on discrepancies in sentences
among co-defendants, we REMAND for the re-sentencing of Barger.
AFFIRMED AS TO FRANKLIN WRIGHT AND ANNETTE WRIGHT; REMANDED
FOR THE RE-SENTENCING OF ROBERT BARGER.
11