Federal Evidence Review

IRS witness could summarize and analyze the evidence admitted and determine the tax liability; the agent did not provide impermissible legal opinions, by classifying entries as “income” or “expenses,” in United States v. Stierhoff, __ F.3d __ (1st Cir. Dec. 1, 2008) (No. 08-1183)

The First Circuit recently considered several objections to the use of an IRS agent summary testimony, finding expert testimony not necessary where tax calculations the agent's testimony presented were ”both straightforward and transparent.”

In a case, based on a state law enforcement referral, the Internal Revenue Service (IRS) began to investigate defendant Stierhoff. The investigation confirmed that the defendant had unreported taxable income of $1.25 million and owed $460,000 in taxes based on sales of used electronic equipment over the Internet using different names.

At trial, an IRS agent served as a summary witness over defense objection. Based on his review of the trial evidence, he determined the defendant’s tax liability for the years charged. The jury convicted the defendant. He was sentenced to serve 46 months in prison.

The circuit affirmed the summary testimony of the IRS agent and rejected several defense objections. Significantly, the agent’s testimony was based on evidence in the record. The circuit held “that in a tax evasion case, a summary witness may be permitted to summarize and analyze the facts of record as long as the witness does not directly address the ultimate question of whether the accused did in fact intend to evade federal income taxes.” Stierhoff, __ F.3d at __ (citing United States v. Hatch, 514 F.3d 145, 165 (1st Cir. 2008) (IRS agent testimony admitted “to establish whether, if the sums omitted from the tax returns had been included, substantial tax would be owed.”); see also United States v. Mikutowicz, 365 F.3d 65, 72 (1st Cir. 2004) (collecting cases)).

The circuit rejected the defense suggestion that the IRS agent provided impermissible legal opinions. As the circuit noted:

“He summarized the evidence and stated his conclusions regarding what that evidence showed as to the defendant's tax liability for the years in question. The characterizations that he made en route to those conclusions (classifying various entries as, say, ‘income’ or ‘expenses’) did not represent impermissible legal opinions but, rather, under the methodology that Pleshaw used, were part of a mechanical sorting of entries (e.g., classifying all receipts as ‘income’ and all withdrawals as ‘expenses’).”

Finally, there was no error in allowing the agent to provide lay testimony, instead of expert testimony. The government had provided pretrial notice of its intent to offer expert testimony. However, the trial court concluded there was no need for expert testimony. The circuit noted, “While such testimony sometimes may require expert qualification — the relative simplicity or complexity accompanying tax calculations can vary greatly — the calculations here were both straightforward and transparent.” Stierhoff, __ F.3d at __ (citing United States v. Milkiewicz, 470 F.3d 390, 401 (1st Cir. 2006) (“The invoices, checks, and other documents were routine financial records, and creating summaries of the data took patience but not expertise. Moreover, even if he is challenging the agent's credentials to do the tax computations, that challenge would fail. An IRS agent is qualified to express an opinion on the tax consequences of a transaction, particularly where, as here, the computation required no subjective judgment.”) (citation omitted)).