McKEAGUE, Circuit Judge.
Fayez "Alex" Damra ("Damra") was convicted of evading corporate income tax in violation of 26 U.S.C. § 7201 and of, together with his brother, Fawaz Damra ("Fawaz"), conspiring to defraud the United States in violation of 18 U.S.C. § 371. He now appeals his conviction and sentence. We affirm Damra's conviction, but—as the district court incorrectly sentenced Damra at offense level 16 instead of level 15—vacate Damra's sentence and remand for resentencing at the correct offense level.
During the late summer or early fall of 2004, Special Agent Gary Rasoletti of the Criminal Division of the IRS was assigned to a financial investigation of Fawaz, then the Imam of the Islamic Center of Cleveland. In June of 2004, Fawaz had been found guilty of unlawfully obtaining citizenship in violation of 18 U.S.C. § 1425 by making false statements in a citizenship application and interview. See United States v. Damrah, 412 F.3d 618, 620 (6th Cir.2005). In September of 2004, the district court sentenced Fawaz to serve two months in prison, and ordered that Fawaz's citizenship be revoked pursuant to 8 U.S.C. § 1451(e); we affirmed Fawaz's conviction on March 15, 2005. Id. In reviewing Fawaz's tax returns, Rasoletti noticed that for a single year (1999) Fawaz had filed a Schedule C reporting $100,000 of income received as a consultant for a software company. (Fawaz paid $18,239.15 of income tax on this $100,000.) Rasoletti determined that the funds had come from Applied Innovation Management ("AIM"), a California company controlled by Damra. Rasoletti then contacted Mir Ali, Fawaz's regular tax-return preparer; Rasoletti also arranged for Ron Gesell, another IRS investigator, to carry a subpoena seeking AIM records to Damra, who was then operating in Las Vegas.
When Gesell served the subpoena on October 7, 2004, Damra agreed to answer questions. At trial, Gesell testified that Damra stated that: he was the youngest of nine children; his parents lived in Jerusalem; he himself had come to the United States in the early 1980s; he was not a citizen, but had a green card; and he had graduated in 1987 from Purdue University
Following Gesell's interview, James Moroney, an Assistant United States Attorney (AUSA) in Cleveland, received a letter dated November 5, 2004 from Wolfe Thompson, an attorney acting for Damra and AIM. In the letter, Thompson reported that Damra had located two checks (totaling $10,500) payable to Fawaz from AIM "representing gifts from Fayez (Alex) Damra to his brother." (App'x at 294.) The gifts "were accounted for by the corporation as compensation paid to Fayez (Alex) Damra for consultant services rendered to the company." (App'x at 294.)
On January 11, 2005, Moroney received a follow-up letter from Damra stating that he was terminating Thompson's involvement and would "answer every question in detail" himself. (App'x at 216.) Damra then discussed his relationship with Fawaz:
(App'x at 216-17.) "I have to meet with you ... as soon as possible," Damra concluded. (Id.)
On February 7, 2005, both Rasoletti and Moroney met with Damra in Cleveland. At trial, Rasoletti testified that during this interview, Damra stated that: (1) in 1993, Sparkman, Damra's partner, had resigned from AIM after Damra caught him embezzling; (2) Fawaz had invested between $20,000 and $40,000 in AIM, which money Damra thought Fawaz had gotten by skimming
Together with Gesell, Rasoletti met with Damra for a third time in Las Vegas on April 21, 2005. According to Rasoletti's later testimony, at this meeting Damra made numerous damaging admissions, stating that: (1) he had made payments from AIM to family members in the Middle East to get his brothers off of his back, but had no business dealings there; (2) he sent checks from AIM to his brother Nader Damra because "he could afford to," but that "he now understands he just can't write checks to anybody"; (3) some checks to Nader were marked "business development" because his brother wanted to start a new business, and others were marked "consulting" although Nader was not an AIM consultant; (4) a $32,000 check to "Al Adhamieh General Trade" was actually a check to Nader, though Damra had falsely told his accountant that the check was for "software development"; and (5) "I mishandled the money, there is abuse here." (Id. at 528-31, 537.) Rasoletti testified that he then explained to Damra that, because Damra's 1997 and 1998 tax returns showed that Damra made only $20,000 a year, Rasoletti believed that Damra must be getting the money to write these checks out of his company. In response, Rasoletti testified, Damra "just kind of shook his head and said yes." (Id. at 532.) Finally, Rasoletti testified, Damra stated that Fawaz "had not done $5 of work for AIM" and was not qualified to be an AIM consultant. (Id. at 533-34.) "I will accept responsibility," Damra reportedly stated; "this is not right." (Id. at 533.) Damra added that "it was a gray area" whether his actions were in violation of the law. (Id. at 534.) Rasoletti also testified that he showed Damra two checks totaling $32,000 (classified as consulting expenses) written from AIM to Charles Schwab setting up a personal account for Damra, and that Damra was surprised.
On July 25, 2006, a grand jury indicted Damra and Fawaz on three counts: Count 1 alleged that Damra and Fawaz had conspired to defraud the United States in violation of 18 U.S.C. § 371 for the purpose of obstructing the IRS's lawful government functions; Count 2 alleged that Damra alone had committed corporate tax evasion under 26 U.S.C. § 7201 by filing a fraudulent 1999 Form 1120 for AIM and by causing funds paid from AIM to Fawaz to be falsely reported as Schedule C gross receipts on Fawaz's 1999 Form 1040; and Count 3 alleged that Fawaz alone had aided and abetted in the preparation of a fraudulent Form 1040. Damra and Fawaz were arraigned on August 21, 2006. At the time, Fawaz was in ICE custody in Monroe, Michigan, and—having stipulated on January 9, 2006 to removability from the United States—was awaiting a host country to accept him for deportation. The court ultimately did not issue bond for Fawaz, but instead returned Fawaz to ICE custody, so as to preserve his right to file
Following the arraignment, Fawaz filed a motion for a separate trial pursuant to Bruton v. United States, 391 U.S. 123, 88 S.Ct. 1620, 20 L.Ed.2d 476 (1968), arguing that the introduction of Damra's statements to Gesell, Moroney, and Rasoletti would violate Fawaz's Sixth Amendment right of confrontation. In response, the government stated that "if any statement of Alex Damra is determined herein to present a Bruton problem, that statement will not be offered so as to preserve a joint trial." (R. 32 at 2.) In October and November of 2006, the district court twice pushed back the trial. During a status conference on January 8, 2007, the government advised the court that Israel had agreed to accept Fawaz, and that Fawaz had been deported on January 2, 2007. (At the time Fawaz was deported, his motion for a separate trial was still pending; it has never been withdrawn.) Given national security concerns, the government explained, it had been unable to give the district court or the defense any notice. Fawaz's attorney moved to dismiss the indictment. The court denied the motion and issued an arrest warrant to provide for trial in the event Fawaz ever re-entered the country.
At a status hearing on February 13, 2007, Damra stated that he wanted his brother as a witness, and asked whether he needed to file a motion stating so. The government, meanwhile, moved to admit at trial the statements Fawaz had made to tax preparers as the statements of a co-conspirator under FED.R.EVID. 801(d)(2). On April 26, 2007, the district court granted the prosecution's motion. On April 30, 2007, Damra filed a motion objecting to the admission of this evidence as a violation of his Sixth Amendment rights and arguing that the government was responsible for Fawaz's being unavailable. The district court denied Damra's motion the next day.
Trial began on April 30, 2007, and continued for five days. The prosecution was handled by AUSA Moroney, who was joined at the prosecution table by Rasoletti. The government called seven witnesses: Alan David, AIM's California accountant; Barbara Burrer, Eigen Software's Las Vegas accountant; Penny Moore, an IRS representative; Mir Ali, Fawaz's tax-return preparer for 1997, 1998, and 2000 (but not 1999); Bernard Niehaus, Fawaz's tax-return preparer for 1999; Agent Gesell; and Agent Rasoletti. Gesell and Rasoletti testified as to the conversations they had with Damra, and repeated the admissions they said he had made.
David and Burrer both testified that AIM wrote numerous checks—but did not, as far as they knew, issue 1099s—to individuals Damra said were consultants. Burrer, in fact, "fired" Damra as a client after warning him twice about his business practices. As she explained at trial: "I don't keep clients that don't follow the law." (Trial Tr. at 279.) David and Burrer also testified regarding a $250,000 check that AIM wrote to Eigen, which was deducted on AIM's books as an expense but which the government argued represented some of Damra's profits from AIM. "I understood that it was a software development expense, and assumed it would be picked up as income, reported as income to
Mir Ali, an elderly native of India who had appreciable hearing difficulties, and spoke quickly in accented English, testified that he had prepared Fawaz's taxes for several years, but that he refused to file Fawaz's 1999 return because he thought Fawaz was trying to claim income he had not earned. On direct examination, Ali also testified that Fawaz told him that Fawaz had received the money from his brother in California, and that Fawaz wanted to report the $100,000 as his own income because "[the brother] is in the high income bracket." (Id. at 325.) Fawaz returned to him in 2000, Ali added, but was no longer claiming any income from consulting for a computer software company. "He knew that I knew it was just a fraud on his part, and he corrected himself and came," Ali explained. (Id. at 336.)
Due to Ali's age, heavy accent, inability to hear clearly, and difficulty confining himself to answering questions, there were numerous instances during Ali's testimony when Ali, the attorneys, the judge, or the court reporter had difficulty understanding exactly what was being said or asked. After testifying on May 1, Ali promised to bring fresh batteries for his hearing aid when he returned the following day. At that point, Damra expressed some concerns to the court, stating that he "believe[d] the witness indeed has a hearing problem" and that he was worried about being too aggressive in stopping Ali from going off on tangents. (Id. at 357.) In response, the district court noted:
(R. 103 at 9-10.) In addition, the judge placed herself between Ali and the jury in order to better control Ali and stop him when he showed signs of rambling.
On cross-examination, Ali repeated the same basic testimony he had given on direct examination, stating: "[Fawaz] just told me that `My brother in California has very successful year, and he's in high bracket. He wanted me to report $100,000 in my bracket, which would be lower than his.'" (Trial Tr. at 374.) While the transcript demonstrates that Rasoletti faithfully repeated Damra's questions to Ali, it also demonstrates that there were numerous times when Ali himself could not be heard or understood, and the court reporter instead relied upon Rasoletti's repetition of what Ali had said.
Bernard Niehaus, who ultimately prepared Fawaz's 1999 tax return, testified that he prepared Fawaz's return to show $100,000 of consulting income, and that he gave the return to Fawaz on July 31, 2000. Penny Moore testified that Fawaz and Nesreen Damra's 1999 income tax return had been mailed on August 3, 2000, and received August 7, 2000. The tax return, she added, bore Niehaus's signature, but was processed without the taxpayers' signatures in order to be timely and avoid triggering interest and penalties.
On May 4, 2007, the jury found Damra guilty on both counts of the indictment that applied to him.
After being convicted, Damra hired counsel and filed a motion for a new trial, arguing that the government had presented insufficient evidence to warrant conviction on Count 1 and that the district court had failed to instruct the jury on a defense of "good faith misunderstanding of the law" as to Count 2. The district court denied Damra's motion on October 25, 2007. On April 2, 2008, Damra filed a motion to dismiss the indictment and for reconsideration of the order denying his motion for a new trial. Damra asserted various deficiencies in the district court's jury instructions and argued that Count 1 of the indictment failed to state a claim under 18 U.S.C. § 371. The district court denied this motion on September 12, 2008. By this time, Damra's counsel had withdrawn, and so Damra represented himself at sentencing.
At the sentencing hearing, held on October 21, 2008, the parties and the district court focused on the tax-loss deficiency attributable to Damra's actions. The third revision of the Presentencing Investigation Report (PSR) recommended that Damra be sentenced at offense level 19, for a sentencing range of 30-37 months. After hearing arguments, the district court struck $500,000 from the tax loss computation, thus reducing Damra's sentencing level to 18. Damra argued that the court should similarly strike another $250,000 from the tax-loss computation; in a sentencing memorandum filed before sentencing, he had already argued that the court should give him credit for the $18,239.15 Fawaz paid in personal income tax on the $100,000 shifted from AIM. The court did not respond explicitly to either argument, but, in the end, it concluded the $250,000 in the tax-loss calculation and disregarded the $18.239.15. The court then concluded that, given that Damra was proceeding pro se in his third language, the two-level enhancement for obstruction of justice under U.S.S.G. § 3C1.1 was inappropriate; this reduced Damra's offense level to 16, for a range of 21-27 months. The court ultimately sentenced Damra at the lowest end of the Guideline range: 21 months of imprisonment and three years of supervised release, with restitution of $274,389 and a fine of $50,000.
Damra filed a timely notice of appeal on October 29, 2008. On April 9, 2009, the district court issued an order denying Damra's supplemental motion for release pending appeal, in which it also responded to Damra's arguments that the government had violated his Sixth Amendment right of compulsory process by deporting Fawaz before trial and that the court had erred in including the $250,000 when calculating the tax loss attributed to Damra.
Damra's first argument is that the government violated his Sixth Amendment right of compulsory process by deporting his brother. "In all criminal prosecutions, the accused shall enjoy the right ... to have compulsory process for obtaining witnesses
In 1982, the Supreme Court in Valenzuela-Bernal directly addressed to what extent the right of compulsory process is implicated when the government deports an individual that a criminal defendant wishes to call as a witness at trial. Valenzuela-Bernal himself was arrested and charged with transporting an illegal alien named Enrique Romero-Morales. 458 U.S. at 860, 102 S.Ct. 3440. After stopping the car Valenzuela-Bernal was driving, law enforcement apprehended Valenzuela-Bernal, Romero-Morales, and two of the other four passengers in the vehicle. Id. at 861, 102 S.Ct. 3440. Following their arrest, Valenzuela-Bernal, Romero-Morales, and the two others admitted that they were in the country illegally; Valenzuela-Bernal admitted that he was transporting the others, and the others identified Valenzuela-Bernal as the driver of the car. Id. The government detained Romero-Morales "to provide a nonhearsay basis for establishing that respondent had transported an illegal alien," but deported the other two passengers almost immediately after an Assistant United States Attorney concluded that they "possessed no evidence material to [Valenzuela-Bernal's] prosecution or defense." Id. Valenzuela-Bernal argued that the indictment against him needed to be dismissed because the deportation of the other two passengers violated his Sixth Amendment right to compulsory process for obtaining witnesses and "deprived him of the opportunity to interview them to determine whether they could aid in his defense." Id. As the Court added, however, he "made no attempt to explain how the deported passengers could assist him in proving that he did not know that Romero-Morales was an illegal alien...." Id.
Holding that "[t]he mere fact that the Government deports [illegal-alien] witnesses is not sufficient to establish a violation of the Compulsory Process Clause of the Sixth Amendment or the Due Process Clause of the Fifth Amendment," id. at 872-73, 102 S.Ct. 3440, the Court concluded that Valenzuela-Bernal had not demonstrated any constitutional violation. "[T]he responsibility of the Executive Branch faithfully to execute the immigration policy adopted by Congress justifies the prompt deportation of illegal-alien witnesses upon the Executive's good-faith determination that they possess no evidence favorable to the defendant in a criminal
Id. at 863-66, 102 S.Ct. 3440 (citations omitted).
With this ruling, the Court explicitly reversed the Ninth Circuit's holding that "a constitutional violation occurs ... [whenever] `the [deported] alien's testimony could conceivably [have] benefit[ed] the defendant." Id. at 862, 102 S.Ct. 3440. The Court then turned to the specific evidence that a defendant is required to produce to demonstrate that the government has violated his Sixth Amendment right to compulsory process:
Id. at 867, 102 S.Ct. 3440 (citations omitted).
The Supreme Court also explicitly addressed Valenzuela-Bernal's argument that forcing him to bear the burden of demonstrating materiality would be unjust in light of the fact that the two illegal aliens at issue were deported immediately, such that "neither he nor his attorney was afforded an opportunity to interview the deported witnesses to determine what favorable information they possessed." Id. at 870, 102 S.Ct. 3440. In response, the Court reasoned that "while this [fact] may well support a relaxation of the specificity required in showing materiality, we do not think that it affords the basis for wholly dispensing with such a showing." Id. The Court continued:
Id. at 871-74, 102 S.Ct. 3440.
Fairly read, Valenzuela-Bernal stands for three propositions: (1) that there is no violation of the Compulsory Process Clause where the government deports a potential witness unless the defendant "make[s] some plausible showing of how [the witness's] testimony would have been both material and favorable to his defense," id. at 867, 102 S.Ct. 3440; (2) that, where the defendant did not have any opportunity to interview the witness before deportation, this showing of materiality and favorability "may well [be] relax[ed in] specificity," but even if the defendant cannot "make any avowal of how a witness may testify," nonetheless, in such circumstances "the events to which a witness might testify, and the relevance of those events to the crime charged," must "demonstrate... the presence ... of the required materiality," id. at 870-71, 102 S.Ct. 3440; and (3) that regardless, no sanction (such as dismissal of the indictment) is merited unless there is "a reasonable likelihood that the testimony could have affected the judgment of the trier of fact,"
Two years after Valenzuela-Bernal, we, reading that case, established a three-prong test for determining whether the government acted in good faith in deporting a witness. As we observed:
McLernon, 746 F.2d at 1121 (citations omitted). We thus described the showing of materiality and favorability as one prong of demonstrating the government's bad faith; we were also arguably unclear regarding the fact that it is the defendant who bears to burden of demonstrating these elements.
In retrospect, it seems that this test does not conform well to the dictates of Valenzuela-Bernal. Neither the second nor the third McLernon prongs, for example, has any basis in Valenzuela-Bernal. The Valenzuela-Bernal Court did not hold that "the government [may not] facilitate the `prompt deportation' of the illegal-alien witness"; indeed, in Valenzuela-Bernal, the government had done exactly that, and the Court found no constitutional violation. The "promptness" of the deportation was simply not a factor in the Court's analysis; rather, it was relevant only to the extent it deprived the defendant of a chance to interview the witnesses, which in turn lowered the specificity threshold of the required materiality showing. Similarly, Valenzuela-Bernal did not hold that depriving the defendant of "an opportunity to interview the witness" had any inherent constitutional consequence, other than lowering the specificity of the materiality showing required to establish a compulsory-process violation. It is quite clear under Valenzuela-Bernal that the defendant is not required to show that he was deprived of an opportunity to interview the witness in order to establish a violation, and it is even clearer that the government is not required to show that the defendant did have such an opportunity in order to defeat a Compulsory Process Clause claim. Despite the shortcomings in the McLernon test, however, we have not revisited the question of compulsory process violations in this context since 1984.
While Valenzuela-Bernal is the only Supreme Court opinion explicitly addressing an alleged violation of compulsory process where the government has deported a witness, four years after we laid out the McLernon test, the Supreme Court in Youngblood rendered a decision that has powerful implications for our approach to these sorts of claims. Youngblood actually
Youngblood, then, can be read as modifying or clarifying Valenzuela-Bernal by adding a threshold requirement that any defendant arguing violation of his right of compulsory process—or any constitutional violation involving the loss of potentially exculpatory evidence—show that the government acted in bad faith (in, for example, deporting a potential witness). The Second, Seventh, Ninth, and Tenth Circuits have all viewed the decision in this light. See United States v. Chaparro-Alcantara, 226 F.3d 616, 624 (7th Cir.2000) ("Notably, in Youngblood, the Court reaffirmed this holding by pointing to Valenzuela-Bernal as an example of a case in which the defendant was required to show bad faith. If bad faith is shown, the defendant has satisfied the first prong of the Valenzuela-Bernal test, but he must still show that the evidence would be material and favorable to his defense.") (citations omitted); United States v. Iribe-Perez, 129 F.3d 1167, 1173 (10th Cir.1997); United States v. Dring, 930 F.2d 687, 693-94 (9th Cir.1991); Buie v. Sullivan, 923 F.2d 10, 11-12 (2d Cir.1990). The Ninth Circuit, for example, explicitly read Valenzuela-Bernal (as modified by Youngblood) as imposing a two-step test for compulsory-process claims in the context of deported witnesses, under which "the defendant must make an initial showing that the Government acted in bad faith and [then show] that ... the testimony of the deported witness would have been material and favorable to his defense...." Dring, 930 F.2d at 693-94.
We think that these circuits have correctly analyzed the effect of Youngblood on Valenzuela-Bernal. Accordingly, to comply with this reading of these cases, we hereby modify our test for violations of compulsory process in the context of deported witnesses from the three-prong test we stated in McLernon to a two-prong test more in line with those stated by our sister circuits: in order to demonstrate that the government has violated his right of compulsory process, a defendant must first make an initial showing that the government has acted in bad faith, and, having made that showing, must then make
Damra here cannot meet the burden of demonstrating either prong (bad faith or materiality-and-favorability) of this test.
The only argument Damra offers to demonstrate bad faith is that he was relying on the government's supposed promise that Fawaz would be present for trial. Damra is referring to an exchange during a status conference on September 14, 2006, in which Fawaz's counsel explained Fawaz's immigration status to the district court, stated that Fawaz was in ICE custody "awaiting deportation," and eventually concluded that "[w]henever the Court needs him to come back here, the Court can order him, and he'll be here for trial or for whatever proceedings the Court deems necessary." The prosecutor then responded, "Your Honor, if I may, just to inform the Court, that what [Fawaz's counsel] says is accurate." Despite Damra's protestations, however, the government never promised Damra or the Court that Fawaz would not be deported before trial, nor is such a promise fairly implied from the prosecutor's statement. As Damra offers no other evidence of bad faith on the part of the government, he necessarily cannot demonstrate that the government violated his right of compulsory process by deporting Fawaz.
Even were Damra able to demonstrate bad faith on the part of the government, he cannot demonstrate that Fawaz's testimony would have been material and favorable,
(R. 134 at 8-9.) Damra's argument that he could not have predicted the government's case is unavailing: Damra knew no later than when he was indicted in July of 2006 that the government was alleging that he had "caus[ed]" Fawaz to file a false tax return. Had he wished to interview his brother, he had months to do so before Fawaz was deported in January of 2007. As the district court observed, there is no indication that Damra ever sought to interview his brother. Certainly, at any time prior to Fawaz's departure Damra could have sought to depose Fawaz. See FED. R.CRIM.P. 15(a)(1) ("A party may move that a prospective witness be deposed in order to preserve testimony for trial. The court may grant the motion because of exceptional circumstances and in the interest of justice."). Moreover, Damra could have sought to depose his brother even after his brother's deportation. Damra argues that there is no treaty that permits the gathering of such evidence—but, provided that a witness is willing to testify, there is no need for a treaty or convention.
At oral argument, Damra's attorney conceded that "technically, [Damra] may have had the opportunity to interview" Fawaz. We agree, and accordingly find that Damra cannot demonstrate that Fawaz's deportation deprived him of an opportunity to interview Fawaz to determine precisely what favorable evidence Fawaz might have had to offer. Given that Damra had an opportunity to interview Fawaz, but did not take advantage of that opportunity, Damra must instead demonstrate materiality and favorability with a plausible description of "the events to which a witness might testify, and the relevance of those events to the crime charged...." Valenzuela-Bernal, 458 U.S. at 871, 102 S.Ct. 3440. Despite his attempts to do so, however, Damra cannot meet this burden. In considering Damra's supplemental motion for release pending appeal, the court stated:
(R. 134 at 7-8.) Damra argues that Fawaz "could have testified that filing the allegedly false tax return for himself and his wife
As Damra cannot demonstrate either that the government acted in bad faith in deporting Fawaz or that Fawaz's testimony would have been material and favorable, we hold that Damra cannot demonstrate that the government violated his Sixth Amendment right of compulsory process by deporting Fawaz before trial.
Damra's second argument is that the district court erred by finding that Fawaz's statements to Mir Ali were admissible under the hearsay exemption of FED. R.EVID. 801(d)(2)(E) as the statements of a coconspirator.
The Federal Rules of Evidence disallow "hearsay" testimony. FED.R.EVID. 802. A statement is explicitly not hearsay, however, if it is offered against a party and it is made "by a coconspirator of a party during the course and in furtherance of the conspiracy." FED.R.EVID. 801(d)(2)(E). In order for a statement to qualify for this exemption, the offering party must prove by a preponderance of the evidence "that the conspiracy existed, that the defendant was a member of the conspiracy, and that the co-conspirator's statements were made `in furtherance of the conspiracy.'" United States v. Payne, 437 F.3d 540, 544 (6th Cir.2006) (quoting Gessa, 971 F.2d at 1261); see also Bourjaily v. United States, 483 U.S. 171, 181, 107 S.Ct. 2775, 97 L.Ed.2d 144 (1987). Courts may examine the statements in question, Bourjaily, 483 U.S. at 181, 107 S.Ct. 2775, which must also be corroborated by independent evidence relating to the required factual determinations. Young, 553 F.3d at 1045 (citing Payne, 437 F.3d at 544).
Prior to the trial, in response to the government's motion, the district court
(Trial Tr. at 790-91.)
Damra's main argument is that there was no independent evidence that he ever told Fawaz how to treat any funds for tax purposes—what Damra refers to as "the most damaging statement"—and so the district court lacked the independent corroborating evidence required to make its preliminary factual determination under Rule 801(d)(2)(E), see Young, 553 F.3d at 1045. Damra, seemingly misunderstanding the nature of the corroboration required under Rule 801(d)(2)(E), is wrongly focusing on whether there was corroboration of the contents of Fawaz's statements; our case law requires instead corroboration "of defendant's knowledge of and participation in the conspiracy." See United States v. Clark, 18 F.3d 1337, 1341-42 (6th Cir.1994) (finding "the independent evidence sufficiently corroborates the out of court statements to establish [the defendant's] participation in a conspiracy by a preponderance of the evidence.").
Whether there was confirmation of the contents of any one statement is not dispositive, provided that there was independent evidence offered corroborating the court's preliminary factual determinations that the conspiracy existed, that the defendant was a member of that conspiracy, and that the statements were made in furtherance of the conspiracy.
As Damra has misunderstood the independent-corroborating-evidence requirement under Rule 801(d)(2)(E), and as there is (as the government points out) clearly evidence independent of Fawaz's statements corroborating the district court's conclusion that Damra was conspiring with his brother and that Fawaz's statements were made in furtherance of the conspiracy, we hold that the district court did not err in finding that Fawaz's statements to Mir Ali were admissible at trial under FED.R.EVID. 801(d)(2)(E) as the statements of a coconspirator.
Damra's third argument is that the district court erroneously denied his Rule 29
Given Damra's failure to renew his Rule 29 motion at the close of evidence, we review the denials of these two motions under two separate standards. "[W]hen the sufficiency of the evidence is challenged on appeal, the standard of review is whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime[.]" United States v. Kuehne, 547 F.3d 667, 696 (6th Cir.2008) (quoting United States v. Jones, 102 F.3d 804, 807 (6th Cir.1996)). Here, Damra filed a timely motion for a new trial on the basis that the evidence was insufficient to prove Count 1. We thus review the district court's denial of Damra's motion for a new trial under the "any rational trier of fact" standard. In his motion for a new trial, Damra focused only on the sufficiency of evidence going to Count 1, the charge of conspiring to defraud the United States.
A properly preserved Rule 29 motion for a judgment of acquittal is similarly reviewed under the "any rational trier of fact" standard. A Rule 29 motion is properly preserved for appeal when a defendant makes a "motion for acquittal at the end of the prosecution's case-in-chief and at the close of evidence." Kuehne, 547 F.3d at 696 (quoting United States v. Chance, 306 F.3d 356, 368-69 (6th Cir. 2002)). While Damra correctly moved for acquittal pursuant to Rule 29 at the close of the government's evidence, he failed to renew his motion at the close of evidence. "Failure to make the required motions constitutes a waiver of the objections to the sufficiency of the evidence." Id. Where there has been a waiver, we are limited in reviewing the sufficiency of evidence to determining whether there has been a "manifest miscarriage of justice." Id. (quoting United States v. Carnes, 309 F.3d 950, 956 (6th Cir.2002)). "Under this standard, `we only reverse a conviction if the record is devoid of evidence pointing to guilt.'" Id. (quoting Carnes, 309 F.3d at 956).
In arguing that the evidence was insufficient to support his conviction, Damra argues that Ali's testimony was "incoherent," and that—apart from Ali's testimony— there was no independent evidence of a conspiracy between Damra and Fawaz. In response, the district court stated:
(R. 103 at 6-10 (citations omitted).)
In his appeal, Damra entirely ignores the district court's conclusion that— even without Ali's testimony—Damra's admissions to Rasoletti alone were sufficient to support the conviction. As the district court concluded, moreover, there is no reason to ignore Ali's testimony, despite the difficulties that arose during Ali's direct and cross-examinations. Regardless, Damra's focus on whether there was evidence of an explicit agreement between him and Fawaz, or whether there was evidence that Damra told Fawaz how to file Fawaz's tax return, is misplaced, as a defendant's agreement to participate in a conspiracy can be inferred from his actions. See United States v. Warman, 578 F.3d 320, 332 (6th Cir.2009) ("The existence of a conspiracy `may be inferred from circumstantial evidence that can reasonably be interpreted as participation in the common plan.'") (quoting U.S. v. Martinez, 430 F.3d 317, 330 (6th Cir.2005)).
Because, any rational trier of fact, viewing the evidence in the light most favorable to the prosecution could have found the essential elements of both Counts (and thus, necessarily, that the record was not devoid of evidence of guilt), we find that the district court did not err in denying Damra's motions for a judgment of acquittal and a new trial.
Damra's fourth argument is that the district court erred by assigning Agent Rasoletti, the lead criminal investigator and a key prosecution witness, to "interpret" for Mir Ali, another critical prosecution witness. A court's decision regarding whether to appoint an interpreter or facilitator in part falls under FED. R.EVID. 611(a), which states that "[t]he court shall exercise reasonable control over the mode and order of interrogating witnesses and presenting evidence so as to (1) make the interrogation and presentation effective for the ascertainment of the truth, (2) avoid needless consumption of time, and (3) protect witnesses from harassment or undue embarrassment." Ordinarily, "[u]nder Rule 611 ... a judge's rulings will not be the basis for reversal of a criminal conviction unless a defendant's substantial rights are affected." United States v. Terry, 729 F.2d 1063, 1067 (6th Cir.1984). As Damra never objected to the court's appointment of Rasoletti to facilitate Mir Ali's testimony, we review for plain error. Plain error review involves four prongs:
Puckett v. United States, ___ U.S. ___, 129 S.Ct. 1423, 1429, 173 L.Ed.2d 266 (2009). Fourth, if these three prongs are satisfied, then the court "has the discretion to remedy the error—discretion which ought to be exercised only if the error `seriously affect[s] the fairness, integrity or public reputation of judicial proceedings.'" Id. (emphasis in original).
(R. 103 at 9-10.) There is no indication that Damra objected to Rasoletti's role (as opposed to Mir Ali's testimony). The record does, however, indicate that Ali often could not be heard or understood, and the court reporter in those instances instead relied upon Rasoletti's echoing of Ali's words.
As an initial matter, we conclude that Rasoletti's appointment falls under FED. R.EVID. 604, which broadly governs interpreters. Not only did the district court twice refer to Rasoletti as "the interpreter," but the court and the court reporter both depended upon Rasoletti to transmit accurately answers that they otherwise could not hear or understand.
Given that Rasoletti's appointment falls under Rule 604, and thus implicates the case law addressing that Rule, it seems equally clear that the district court erred in appointing Rasoletti. "[T]he law contemplates that a fair, impartial, and correct interpretation shall be had, and to this end, a disinterested interpreter should be provided if possible...." Prince v. Beto, 426 F.2d 875, 877 (5th Cir.1970) (quoting Almon v. State, 21 Ala.App. 466, 109 So. 371, 372 (1926)). Rasoletti, the lead criminal investigator, actually sat at the prosecution table and was introduced to the jury as the man whose investigation "brought us here today." In Prince, where the district court appointed a husband to interpret for his wife in the criminal trial of her alleged attempted rapist, the Fifth Circuit condemned the court's actions. "[W]e cannot approve the action of the state trial court," the Prince court wrote. "One can imagine few situations in which there would be a greater potential for bias by an interpreter." Prince, 426 F.2d at 877. Surely, one such situation is where the lead criminal investigator in a case is assigned to interpret for an important prosecution witness.
While the court erred, however, Damra has not alleged, and cannot demonstrate, that the error "affected the outcome of the district court proceedings." Puckett, 129 S.Ct. at 1429, 129 S.Ct. 1423. Put another way, the error did not affect Damra's substantial rights—and so would not even rise to abuse of discretion in the Rule 611 context, had Damra objected at trial to Rasoletti's appointment and thus
In a fifth argument, Damra alleges that the district court erred in issuing jury instructions as to Count 1, the charge of conspiring to defraud the United States in violation of 18 U.S.C. § 371. While the prosecution must prove that a defendant acted "willfully" in order to convict that defendant under this statute, Damra argues, the district court here instead instructed the jury that the prosecution needed to prove that Damra had "knowingly and voluntarily" joined the conspiracy. In other words, Damra is arguing that there is a such a great distinction between "willfully" on the one hand and "knowingly and voluntarily" on the other as to render his conviction on Count 1 improper. As Damra concedes that he failed to object to the instructions at trial, we review for plain error.
"When jury instructions are claimed to be erroneous, we review the instructions as a whole, in order to determine whether they adequately informed the jury of the relevant considerations and provided a basis in law for aiding the jury in reaching its decision." United States v. Russell, 595 F.3d 633, 642 (6th Cir.2010) (quoting United States v. Frederick, 406 F.3d 754, 761 (6th Cir.2005)). "A judgment may be reversed based upon an improper jury instruction `only if the instructions, viewed as a whole, were confusing, misleading, or prejudicial.'" Id. (quoting Kuehne, 547 F.3d at 669). "It is clear that omitting instructions that are ... [related] to elements that go to the question of guilt or innocence is plain error." Glenn v. Dallman, 686 F.2d 418, 421 n. 2 (6th Cir. 1982). We have previously found willfulness to be a required element of § 371 conspiracy:
United States v. Beverly, 369 F.3d 516, 532 (6th Cir.2004) (citations omitted). The question, then, is whether by instructing the jury that Damra had "knowingly and voluntarily" participated in the conspiracy the district court was in effect omitting the required willfulness element of the crime.
In arguing that the district court omitted a required instruction, Damra insists that the Supreme Court "has explicitly held that mere knowing and intentional conduct is insufficient to satisfy the `willfulness' standard." (Damra Br. at 37.) In
Bishop, 412 U.S. at 352, 93 S.Ct. 2008 (quoting Spies v. United States, 317 U.S. 492, 497-98, 63 S.Ct. 364, 87 L.Ed. 418 (1943)).
In instructing the jury, the district court had this to say regarding the conspiracy charge:
(Trial Tr. at 810-813.)
While Damra is correct that the district court did not explicitly mention "willfulness," but instead discussed whether Damra had participated "knowingly and voluntarily," in fact the district court's instruction here mirrors our circuit pattern jury instructions. Sixth Circuit Pattern Jury Instructions, § 3.01B Conspiracy to Defraud the United States—Basic Elements ("[T]he government must prove that the defendant knowingly and voluntarily joined the conspiracy."). We regularly look to whether jury instructions mirror or track the pattern instructions as one factor in determining whether any particular instruction is misleading or erroneous. See, e.g., United States v. Blackwell, 459 F.3d 739, 765 (6th Cir.2006) ("As a comparison of the two instructions evidences, only one sentence of the second portion of the trial court's instruction differs from the pattern jury instructions. Thus, without more, we cannot say that the trial court's instruction was either misleading or erroneous.");
In our case law, moreover, we have repeatedly approved this exact "knowingly and voluntarily" formulation of describing conspiracy. See, e.g., United States v. Crossley, 224 F.3d 847, 856 (6th Cir.2000) ("The government, however, must show that a particular defendant knew the object of the conspiracy and `voluntarily associated himself with it to further its objectives.'" (quoting United States v. Gibbs, 182 F.3d 408, 421 (6th Cir.1999))); Gibbs, 182 F.3d at 421 ("To be found guilty of conspiracy, the government must prove that [the defendant] was aware of the object of the conspiracy and that he voluntarily associated himself with it to further its objectives." (quoting United States v. Hodges, 935 F.2d 766, 772 (6th Cir.1991))).
The Supreme Court in Bishop admittedly distinguished—at least in the context of tax default by confused taxpayers—"willful" behavior on the one hand from "knowing and intentional" default on the other. 412 U.S. at 352, 93 S.Ct. 2008. In instructing the jury in this case, however, the district court stated that the government needed to prove that Damra had joined the conspiracy "knowingly and voluntarily"—not, as discussed in Bishop, "knowing[ly] and intentional[ly]." Damra's argument thus rests on the assumption that "voluntary" action is the same thing as "intentional" action, and that knowledge and voluntariness are not the same thing as "willfulness." "Willful," however, is defined by at least one dictionary as "voluntary and intentional, but not necessarily malicious." BLACK'S LAW DICTIONARY (8th ed. 2004). More importantly, the Bishop Court itself observed that "[t]he Court, in fact, has recognized that the word `willfully' ... generally connotes a voluntary, intentional violation of a known legal duty. It has formulated the requirement of willfulness as `bad faith or evil intent'...." 412 U.S. at 360, 93 S.Ct. 2008 (emphasis added) (quoting United States v. Murdock, 290 U.S. 389, 398, 54 S.Ct. 223, 78 L.Ed. 381 (1933)); see also Cheek v. United States, 498 U.S. 192, 111 S.Ct. 604, 112 L.Ed.2d 617 (1991) ("[W]e described the term `willfully' as connoting `a voluntary, intentional violation of a known legal duty ....'") (citation omitted).
As the district court's instructions tracked our pattern instructions, as we have repeatedly approved of the "knowingly and voluntarily" formulation of the second element of conspiracy to defraud the government under 18 U.S.C. § 371, and as "willful" is in fact defined in part as "voluntary," we find that the district court did not omit the willfulness element of § 371 conspiracy when it instructed the jury, and so did not commit plain error in issuing its instructions as to Count 1.
Damra next argues that in issuing jury instructions as to Count 2, the charge of corporate tax evasion in violation of 26 U.S.C. § 7201, the district court erred by not issuing three types of instructions: first, an instruction stating that the government
Damra argues that the court needed to instruct the jury that the government bears the burden of negating Damra's good faith, because, in considering whether a defendant's actions in evading taxes were "willful," a jury must consider (and the court must instruct the jury to consider) the defendant's good faith belief that he is not violating the tax laws as part of that inquiry. For this principle, Damra cites Cheek. In Cheek, the defendant, who was on trial for tax evasion, argued that while he had not filed tax returns, he had not acted willfully because he sincerely believed that his actions were lawful. 498 U.S. at 195-97, 111 S.Ct. 604. The district court instructed the jury that an honest but unreasonable belief does not negate willfulness. Id. at 196-97, 111 S.Ct. 604. The Supreme Court reversed, stating:
Id. at 201-02, 111 S.Ct. 604.
Responding to Damra's argument regarding the good-faith instruction, the district court stated:
(R. 103 at 15-16.)
Damra disputes the district court's finding that he failed to argue at trial that he acted in good faith, and so asserts that the district court left the jury "with no road map regarding how" good faith evidence should be considered. Even assuming that Damra did indeed argue that he acted in good faith, however—an assumption that may not be warranted, given Damra's several and shifting explanations for why he gave Fawaz the money—the district court was in any event not required to give a good-faith instruction. As the Supreme Court has held, where a trial judge "adequately instructed the jury on willfulness" in a case concerning whether the defendants had filed fraudulent tax returns, "[a]n additional instruction on good faith was unnecessary." United States v. Pomponio, 429 U.S. 10, 13, 97 S.Ct. 22, 50 L.Ed.2d 12 (1976). Willfulness, the Court explained, "in this context simply means a voluntary, intentional violation of a known legal duty." Id. The clear implication of Pomponio is that where a district court presiding over a criminal tax-evasion case issues an instruction defining willfulness in this fashion, the good-faith requirement is effectively bundled into the willfulness instruction. Here, the district court instructed the jury that in order to sustain its burden of proof as to Count 2, "the government must prove beyond a reasonable doubt that defendant acted willfully. To act willfully means to act voluntarily and deliberately, and intending to violate a known legal duty." (Trial Tr. at 816-17.) By matching the language approved of in Pomponio, the district court effectively and correctly instructed the jury as to this element.
As the district court issued a fully sufficient Pomponio instruction, we find that the district court did not err by not issuing a good-faith instruction as to Count 2.
Damra argues that, as one of the two affirmative acts alleged in Count 2 of the indictment occurred more than six years before the filing of the indictment (and so arguably outside the statute of limitations period), the district court erred by failing to instruct the jury that it must unanimously find that both affirmative acts in fact occurred.
According to the indictment as to Count 2:
(R. 1 at 8 (emphasis added).) In instructing the jury, the district court stated: "This is a criminal case, which requires a unanimous verdict.... To find Fayez Alex Damra guilty, every one of you must agree.... Either way, guilty or not guilty, your verdict must be unanimous." (Trial Tr. at 880-81.)
Damra argues that by failing to issue a unanimity instruction as to Count 2, the district court created the possibility that the jury might have rendered a "patchwork" verdict—in other words, that the jury might have convicted Damra with half of the jurors concluding that only the first affirmative act happened and the other half concluding that only the second affirmative act occurred. In support, Damra points to our decision in United States v. Duncan, 850 F.2d 1104, 1105 (6th Cir. 1988), overruled on other grounds by Schad v. Arizona, 501 U.S. 624, 111 S.Ct. 2491, 115 L.Ed.2d 555 (1991), in which we vacated a defendant's conviction because, where a jury was presented with arguments that two separate and distinct statements in a tax return were false, "[t]he structure of the indictment and ambiguous instructions given by the judge ... combined to create a substantial likelihood of jury confusion, with the result that it is unclear which of the statements the jurors found to be false and whether their verdict
In relying on Duncan, however, Damra ignores at least two critical differences between that case and this one. The first is that in Duncan the defendants had been convicted of violating 26 U.S.C. § 7206(1) and 7206(2), which prohibit the making and preparation of a tax return containing a false statement as to a material matter. Id. at 1105. In this case, in contrast, Damra was convicted of tax evasion under 26 U.S.C. § 7201. In Duncan, the indictment—though stated in the conjunctive—alleged that the defendant had made two separate and distinct false statements, either one of which would have been sufficient to justify conviction under § 7206. In contrast, § 7201 is written more broadly—as the Duncan court itself explicitly recognized. See id. at 1112 n. 8 ("If this were a prosecution for tax evasion under 26 U.S.C. § 7201, the reasoning would be different. The gist of a tax evasion charge is willful evasion of tax by filing a return that may involve multiple complex understatements or omissions made in the course of continuing conduct.") (emphasis in original). As the district court stated, "[t]he two affirmative acts enunciated in Count 2 were properly presented to the jury as collectively essential in the Indictment itself, in the arguments and evidence presented to the jury, and in the jury instructions." (R. 114 at 18.) In other words, the affirmative acts alleged in Count 2 of Damra's indictment were not separable; the charge was that Damra, by doing both of them, had willfully evaded paying required tax. Given that the indictment was stated in the conjunctive, the district court did not err by not giving an augmented unanimity instruction.
The second critical difference between Duncan and this case goes to the question of whether, even if the district court erred by failing to give an augmented unanimity instruction, the court committed plain error. In Duncan, we explicitly held that the defendant's sentence should be vacated because the district court had ignored prompts from both the defendants and the jury suggesting that the jury would be or was confused on this point:
Duncan, 850 F.2d at 1105. As we explained, our conclusion that the defendant's sentence needed to be vacated was due to special circumstances. The general rule, we observed, is that only a general unanimity instruction is required even where an indictment count provides multiple factual bases under which a conviction could rest, unless: "(1) the nature of the evidence is exceptionally complex or the alternative specifications are contradictory or only marginally related to each other;
As the indictment was stated in the conjunctive, and the affirmative acts alleged in Count 2 wee presented to the jury as collectively essential, we hold that an augmented unanimity instruction was not required, and therefore the court did not commit plain error in failing to provide one.
Damra argues that the district court erred by not informing the jury that it needed to find that Damra had committed some affirmative act after July 25, 2000. The statute of limitations for tax offenses is six years, 26 U.S.C. § 6531, and is triggered by the last affirmative act of evasion in furtherance of the crime. United States v. Dandy, 998 F.2d 1344, 1355 (6th Cir.1993). The indictment was returned on July 25, 2006. There is no question here but that the second affirmative act alleged in the indictment—the false reporting of income in Fawaz's tax return, which was mailed on August 3, 2000 and which was received by the IRS on August 7, 2000—fell within the statute-of-limitations period. Damra's argument is that, in the absence of a statute-of-limitations instruction as to Count 2, it is impossible to know whether the jury convicted Damra of tax evasion without unanimously agreeing that, within the statute-of-limitations period, he in fact "caus[ed] a portion of those funds paid to [Fawaz] ... to be falsely reported...." (R. 1 at 8.)
Damra's argument here rests on the same basis as does his argument that the jury might have rendered a "patchwork" verdict in the absence of an augmented Count 2 unanimity instruction. It fails for the same reason: in order to convict Damra on Count 2, the jury had to find that both of the affirmative acts alleged in the indictment occurred, and thus had to find that Damra caused the funds to be falsely reported within the statute of limitations period. As the district court explained:
(R. 114 at 18.)
Accordingly, as in finding Damra guilty of tax evasion, the jury must have concluded
Damra's next argument is that his conviction for conspiracy to defraud the United States must be vacated because Count 1 of the indictment, alleging that Damra conspired to defraud the United States, fails to allege an offense pursuant to 18 U.S.C. § 371, as Damra could in fact only be charged under § 371 with conspiring to commit any offense against (rather than to defraud) the United States. We review the sufficiency of an indictment de novo. Kuehne, 547 F.3d at 695.
18 U.S.C. § 371 contains both a "conspiracy to commit an offense" clause and a "conspiracy to defraud" clause. See Khalife, 106 F.3d at 1302.
18 U.S.C. § 371. Damra cites United States v. Minarik, 875 F.2d 1186 (6th Cir. 1989), in which we held that "an individual whose alleged wrongful agreement is covered by the offense clause (because covered by a specific offense defined by Congress), as well as arguably by the broad defraud clause, cannot be convicted or punished for both. Only by treating conspiracies to commit specific offenses (which are also arguably general frauds) exclusively under the offense clause of § 371 can multiple convictions and unnecessary confusion be avoided." Id. at 1193-94. Damra, relying on this holding, argues that Count 1 was not a proper charge pursuant to § 371 because Count 1 involves only his evasion of taxes and no other crime, and so he could be charged only under the "offense" clause, and not the "defraud" clause, and Count 1 alleged a conspiracy to defraud, rather than commit an offense.
The district court identified both the dispositive issue and applicable law on this question:
(R. 114 at 3-8).
As we have concluded in other cases in which defendants have made this argument, "[b]ecause the unique circumstances found in Minarik do not apply here, we decline to depart from the general rule that the defraud and offense clauses are not mutually exclusive." See United States v. Tipton, 269 Fed.Appx. 551, 556 (6th Cir.2008). Accordingly, we find that Damra could appropriately be charged under § 371's "defraud" clause, and that therefore Count 1 does not fail to allege an offense pursuant to 18 U.S.C. § 371.
Damra next argues that the district court miscalculated his offense level, and so improperly sentenced him at level 16 instead of level 15. In reviewing a sentence, the appeals court "must first ensure that the district court committed no significant procedural error, such as failing to calculate (or improperly calculating) the Guidelines range ... or failing to adequately explain the chosen sentence...." Gall v. United States, 552 U.S. 38, 51, 128 S.Ct. 586, 169 L.Ed.2d 445 (2007). Where "the district court materially erred by failing to calculate the appropriate guideline range," we are required to remand for re-sentencing. United States v. Novales, 589 F.3d 310, 314 (6th Cir.2009). Both Damra and the government appear to agree that in calculating the tax loss, which the district court found to be $274,389, the court erroneously included $78,680 of Damra's personal tax loss.
Damra next maintains that the district court committed procedural error by failing to rule on two objections he made to the district court's calculation of tax loss for sentencing: the first to the inclusion of a check for $250,000 from AIM to Eigen Software
The district court included in its calculation of Damra's tax-loss deficiency a $250,000 check from AIM to Eigen, which was written on December 30, 1999 and which was deposited early in 2000. (On his tax return for 2000, which he filed in April of 2001, Damra declared and paid tax on $750,000 of capital gains. He maintains, apparently without any proof other than his own assertion, that this $750,000
On April 9, 2009, six months after Damra filed his notice of appeal, the district court for the first time responded to this argument in denying Damra's motion for release pending appeal:
(R. 134 at 11.)
In his Sentencing Memorandum, Damra also argued that the court should have credited him with the $18,239.15 Fawaz paid in personal income tax on the $100,000 shifted from AIM to Fawaz as consulting income. It appears that, once again, the first time the district court explained its reasoning was in its April 9, 2009 order denying Damra's supplemental motion for release pending appeal, six months after Damra filed notice of appeal. In that document, the district court observed:
(R. 134 at 11.)
While the district court clearly intended to reject both of Damra's arguments, the court failed to explain its basis for rejecting these arguments until six months after Damra filed his notice of appeal. Such a delay is not appropriate; a district court must explain the basis for rejecting a non-frivolous sentencing argument at the latest before the sentence becomes final and the defendant files notice
Damra's final arguments address the substance of the district court's decisions in calculating his tax-loss deficiency, rather than the district court's failure to fully explain those decisions in a timely manner. Damra maintains that the district court erred in making this calculation both by including the $250,000 paid from AIM to Eigen Software and by excluding the $18,239.15 Fawaz paid in personal income tax on the $100,000 shifted from AIM. "Tax loss" is defined by the Sentencing Guidelines, which state that "[i]f the offense involved tax evasion or a fraudulent or false return, statement, or other document, the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed)." U.S.S.G. § 2T1.1(c)(1). As we have already determined that Damra's sentence must be vacated, and the case remanded for resentencing, we need not rule on these two arguments at this time. While we leave it to the district court to make these determinations, however, we take the opportunity the make some observations to help guide the district court.
Damra argues that the $250,000 paid directly from AIM to Eigen Software should not be factored into his tax loss, as this money was appropriately used to pay for software development and appropriately deducted from AIM's books as a software-development expense. In support of this proposition, Damra cites the testimony at trial of Alan David and Barbara Burrer, who successively served as AIM's accountants. Damra, however, is quoting trial testimony selectively to try to indicate that AIM's accountants approved of the deduction of these funds as a business expense to AIM. In fact, in David's words: "I understood that it was a software development expense, and assumed it would be picked up as income, reported as income to this Eigen. Had I known that it was—or if it were a distribution of personal money, it would have been classified as a liquidating distribution." (Trial Tr. at 251.) Damra cites Burrer as testifying that Damra "had developed some" software and that the $750,000 was the cost to AIM of that software. (Damra Reply Br. at 24.) In fact, however, Burrer testified that "[w]hat he told me is that he had developed some—personally developed software, that he was selling the rights to the corporation. This 750 was for the '99 sale that he was reporting in the year 2000." (Trial Tr. at 281 (emphasis added).) Burrer went on to testify that the money "should have been deducted on the 1999 corporate tax return." (Trial Tr. at 281.) To summarize, neither David nor Burrer testified that they advised Damra that this $250,000 represented a legitimate business deduction. Instead, both testified that they received financial information regarding AIM from Damra. Damra himself testified that the $250,000 represented "my share of what profit I made out of the old Applied Innovation Management in California." (Trial Tr. At 745.) "Profit" from AIM is, of course, not the same thing as money paid to Damra personally for the licensing rights to software.
Damra also argues that in calculating the tax loss deficiency, the district court should have credited him with the $18,239.15 Fawaz paid in income tax on the shifted $100,000. In response, the government cites the district court's conclusion that "just as the amount of tax owed by Fawaz Damra is not attributed to Alex Damra, so also the tax paid by Fawaz Damra is not properly deducted from the tax loss deficiency calculated against Alex Damra." (R. 134 at 11.)
While there is little case law on when and whether a co-defendant's payment of personal income tax on shifted funds should be credited in calculating tax loss, given both the definition of "tax loss" in the Sentencing Guidelines and the explicit language of the indictment under which Damra was convicted, Damra has a reasonable point. According to the Sentencing Guidelines, "the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed)." U.S.S.G. § 2T1.1(c)(1). In addressing whether this $18,239.15 should be credited against Damra's tax loss, it is thus necessary to determine what loss would have resulted had the offense been successfully completed. According to Count 2 of the indictment, Damra "did willfully attempt to evade and defeat a large part of the income tax due and owing by" AIM by, in part, "causing a portion of those funds paid to his brother ... to be falsely reported as Schedule C gross receipts on the Form 1040 filed jointly by Fawaz Damra and his wife for the year 1999." (R. 1 at 8.) The government itself has emphasized that the two affirmative acts in Count 2 of the indictment were pled in the conjunctive. The district court similarly relied on this fact, stating that "[t]he two affirmative acts enunciated in Count 2 were properly presented to the jury as collectively essential in the Indictment itself, in the arguments and evidence presented to the jury, and in the jury instructions." (R. 114 at 18.) As the record thus demonstrates, and as the government's own arguments and district court's own conclusions confirm, the theory under which Damra was convicted was that Damra transferred $100,000 from AIM to Fawaz with the intention of having Fawaz declare the money as taxable income. While, again, this is a question the district court should take up at resentencing, it seems that the object of the offense was
We affirm Damra's convictions for both conspiracy to defraud the United States and corporate tax evasion. As both Damra and the government agree, however, in sentencing Damra the court incorrectly calculated the tax loss attributable to Damra, thus sentencing him at offense level 16 instead of offense level 15. Such an incorrect calculation requires remand. Accordingly, we
