Running a profitable small business is notoriously difficult. But the clients of a tax preparation service run by a husband and wife, Gladstone and Jacqueline Morrison, brought business failure to a new level. Year in and year out, the vast majority of the clients submitted tax returns showing sizable business losses. A federal jury provided the following explanation for this seeming anomaly of unlucky clients: the Morrisons helped their clients prepare returns with fake business losses so the clients could obtain refunds rather than pay the taxes they owed.
That was not the only fraud the jury found. Once they became aware of an IRS investigation into their business, the Morrisons attempted to rid themselves of the problem by selling the business on multiple occasions. Not only did those sales not insulate the Morrisons from tax fraud charges, but they resulted in additional charges of wire fraud because the Morrisons made numerous misrepresentations in connection with these deals, including falsely stating that the business was not the subject of any ongoing investigation.
The Morrisons appeal their convictions for conspiring to submit fraudulent tax returns, aiding and abetting the filing of numerous false returns, and wire fraud in connection with the attempted sales of the business. They both challenge the sufficiency of the evidence. They also raise, among other arguments, separate challenges to the district court's conduct during the trial. Jacqueline contends that the district court impermissibly limited her testimony. Gladstone contends that the district court assisted the prosecution. Finding no reversible error, we affirm.Actually, the opening is not as precise as it should be. I have bold-face the part that is in error. The defendants were not convicted of aiding and abetting (a concept under 18 USC § 2(a)) but rather aiding and assisting in the preparation of false returns (a substantive crime under § 7206(2)). The distinction is important, as I explain below.
Aiding and Assisting § 7206(2) is Not Aiding and Abetting
Later in the opinion the Court of Appeals panel indicates that it does understand the distinction between aiding and abetting under 18 USC § 2(a) and aiding and assisting under § 7206(2), but, erroneously, I think, says that § 7206(2) is an aiding and abetting statute. This permits, erroneously I think, the Court of Appeals panel to state at one point aiding and abetting is not involved (see fn. 1 below), but then move back and forth between the aiding and assisting concept and the aiding and abetting concept. Here is the Court's analysis, with my bold-face to draw the readers' attention.
That statute incorporates aiding and abetting liability by making one guilty who "[w]illfully aids or assists" in the filing of false returns. 26 U.S.C. § 7206(2); United States v. Searan, 259 F.3d 434, 443-44 (6th Cir. 2001) ("The recognition that the first element of a § 7206(2) charge effectively incorporates 'aiding and abetting' complicity liability means that charging a defendant with 'aiding and abetting,' under 18 U.S.C. § 2, the 'aid[ing], assist[ing], procur[ing] . . .' of false tax returns, under 26 U.S.C. § 7206(2) is a redundancy."). n1 Section 7206(2) thus "relies on a theory of liability akin to complicity: it criminalizes an act that facilitates another person's crime when the act is undertaken willfully and with knowledge of the circumstances that make the other person's act illegal." Clark, 577 F.3d at 285 (quoting Searan, 259 F.3d at 443).
n1 The indictment in this case takes that unnecessary step of also charging the separate aiding and abetting statute under 18 U.S.C. § 2.
But such a requirement is inconsistent with our precedential case law construing section 7206(2) and that of other circuits, as well as general aiding and abetting principles. To be convicted under an aiding and abetting theory, the defendant must "share in the principal's criminal intent" and take some affirmative steps "to aid the venture or assist the perpetrator of the crime." United States v. Garcia, 242 F.3d 593, 596 (5th Cir. 2001) (examining sufficiency of aiding and abetting evidence in drug case). He "must have aided and abetted each material element of the alleged offense[s]." United States v. Lombardi, 138 F.3d 559, 561 (5th Cir. 1998) (examining sufficiency of evidence of aiding and abetting the use of a minor in a drug offense conviction).
Relying on these principles in the context of the false tax return statute, the Sixth Circuit rejected an argument like Gladstone's when a son argued that his mother prepared and signed most of the returns in question. Searan, 259 F.3d at 445. Using evidence adduced to support the overarching conspiracy conviction, the court upheld guilty verdicts on the substantive counts based on evidence that the the son actively participated in the criminal acts by assuring victims of his mother's competency, prepared certain fraudulent returns himself, held himself out to be a partner in the business, and split profits. Id.; see Nye & Nissen v. United States, 336 U.S. 613, 619, 69 S. Ct. 766, 93 L. Ed. 919 (1949) (explaining that the "fact that some of th[is] evidence" supporting aiding and abetting liability "may have served double duty by also supporting the charge of conspiracy is of course immaterial").
Like Searan, a case we have relied on before in interpreting this statute, see Clark, 577 F.3d at 285 (quoting Searan, 259 F.3d at 443), much of the evidence underpinning Gladstone's conspiracy convictions supports his guilt on the substantive counts as an aider and abettor. n2 As previously recounted, Gladstone co-owned the business with Jacqueline, was the Chief Operating Officer, and oversaw the entire operation. He prepared the false returns for Stefanie Brown, (the subject of counts 13 and 14) that suffered from the same fraudulently-inflated Schedule C losses as those that Jacqueline prepared (counts 3-12). Gladstone also created false tax returns for himself and Jacqueline which grossly underreported their taxable income. Recognizing that Gladstone's connection to counts 3 through 12 is less direct than what we have seen in other section 7206(2) cases, we nonetheless conclude that his active involvement in, and knowledge of, the scheme were sufficient evidence from which a jury could find that he knowingly assisted in the submission of these false returns. Clark, 577 F.3d at 286.
n2 That is not to say that a defendant guilty of conspiring to commit an offense is necessarily guilty of aiding and abetting all substantive offenses committed during the course of the conspiracy. See Lombardi, 138 F.3d at 561-62 (noting that the government "seem[ed] to be confusing aiding and abetting with conspiracy" and rejecting argument that evidence proving drug conspiracy was sufficient to prove aiding and abetting of the use of a minor in a drug offense). Lombardi notes one difference is that aiding and abetting liability requires that the defendant take some "action to make the venture succeed." Id. at 562. Conspiracy requires only an agreement, and sometimes (as with the general section 371 conspiracy statute) an overt act aimed at making the venturing succeed. But the defendant need not commit that act, an act by any conspirator suffices.
Of course, a conspiracy conviction can also result in Pinkerton liability for foreseeable substantive offenses committed in the course of the conspiracy. But when a jury is not instructed on Pinkerton liability as was the case here, it is not a basis for liability. See United States v. Polk, 56 F.3d 613, 619 n.4 (5th Cir. 1995).