Conditional Remedial Evidence In Tax Fraud Case Did Not Burden The Right Against Self-Incrimination

In a tax fraud trial of a public official, the Fifth Circuit concludes that there was no violation of the Fifth Amendment when the trial court conditionally admitted evidence that the defendant took remedial steps to amend his tax returns and reimburse his campaign committees after the defendant heard from agents about the pending tax investigation; the trial court decided to provisionally admit this evidence if the defendant could show “each remedial action was relevant to his state of mind at the time he filed the original tax returns”; since the defendant failed to satisfy the court's conditional requirement, "the jury would be confused by ... evidence of remedial actions" and the evidence was ultimately excluded, in United States v. Beavers, _ F.3d _ (7th Cir. June 30, 2014) (No. 13–3198)

A number of tactical or strategic choices are made in the presentation of evidence at trial. As the Seventh Circuit recently noted, difficult choices does not necessarily infringe other rights, including the Fifth Amendment right against self-incrimination.

Trial Court Proceedings: Provisionally Admitting Remedial Evidence Subject To Proof

Defendant Beavers served as a Chicago alderman and Cook County Commissioner. He had three political campaign committees. After an investigation, he was charged with tax fraud charges based on his failure to report various transfer payments involving his three political campaign committees. At trial, he sought to introduce evidence of his remedial steps to amend his tax returns and reimburse his committees after he was contacted by federal agents as "probative of his good faith and lack of intent to file fraudulent returns." Beavers, _ F.3d at _.

The government moved to exclude this evidence as irrelevant to the defendant's "state of mind at the time he filed the original returns, and that the jury would be confused by the admission of evidence of remedial actions," under FRE 401 and FRE 403. The trial court provisionally decided to admit the remedial evidence subject to the defendant showing that "each remedial action was relevant to his state of mind at the time he filed the original tax returns." The defendant never made this showing and the remedial evidence was not admitted.

After his jury trial conviction, the defendant claimed on appeal that the trial court impermissibly "burdened" his Fifth Amendment right against self-incrimination by requiring him to testify about his remedial efforts. Specifically, the defendant contended the trial court ruling "forced him either to testify (in order to lay the appropriate foundation) or to forgo the opportunity to get evidence before the jury." Beavers, _ F.3d at _.

Seventh Circuit Review: Relevancy And The Fifth Amendment

The Seventh Circuit affirmed the exclusion of the remedial evidence. The circuit concluded the trial court ruling simply required a connection between the filing of the amended returns and the defendant's belief that "his original returns were accurate when he filed them." As the circuit noted, the trial court:

did not exclude the evidence entirely—it simply conditioned the evidence’s admission on some kind of showing of its relevance to Beavers’ state of mind at the time he filed his original returns several years earlier. Beavers did not make this showing. In fact, his theory of defense is at odds with his argument that the re-medial evidence was relevant. Beavers’ argument in defense (which he maintains on appeal) was that all of the transfers from his campaign committees were loans, not income. Thus, evidence that Beavers declared some of the campaign-fund transfers as income on his amended tax returns after he was under investigation has little bearing on whether he considered the transfers to be loans at the time he took the funds. In sum, the district court’s sensible approach to the remedial evidence was within its discretion.

Beavers, _ F.3d at _.

Impermissible Self-Incrimination

The Fifth Circuit also found unpersuasive the claim that the trial court impermissibly burdened the defendant's Fifth Amendment right against self-incrimination. As the circuit explained:

[Defendant] Beavers’ argument misunderstands the nature of this right, however. Criminal defendants often face difficult choices in weighing the costs and benefits of testifying. And the rules of evidence sometimes prevent defendants from getting their story—or evidence of their state of mind—before the jury in the particular manner they would prefer.... For instance, the general rule against hearsay, see Fed. R. Evid. 802, would typically prevent a defendant from calling a friend to the stand to relay an exculpatory statement the defendant said to her, in lieu of the defendant testifying himself. Thus, the rule against hear-say may burden the defendant’s right to testify in the same way Beavers argues that his right was burdened here, since it puts him to the choice of taking the stand (and exposing himself to potentially damaging cross-examination) or losing the chance to get evidence before the jury. That sort of burden is not impermissible, however; it is simply part of a larger system in which “[t]he accused does not have an unfettered right to offer testimony that is … inadmissible under standard rules of evidence.” Taylor v. Illinois, 484 U.S. 400, 410 (1988). We see no meaningful difference between the hearsay situation and the burden Beavers faced here—both burdens are ordinary, well-established, and permissible. Indeed, we have previously approved the exclusion of purported state-of-mind evidence offered by a defendant where the defendant could have, but did not, supply the requisite foundation of relevance through his own testimony.

Beavers, _ F.3d at _ (citation omitted).

Cases Excluding Amended Returns After Knowledge Of The Investigation

The circuit noted that remedial efforts to amend a tax return may be admissible, depending on the facts of the case, several cases have excluded "evidence of remedial action taken after the taxpayer knows he is under investigation," citing:

  • United States v. McClain, 934 F.2d 822, 834–35 (7th Cir. 1991) (finding “no reason” to disturb the district court’s ruling that defendant’s 1985 tax return was not probative of his state of mind at the time he filed his 1984 return, given his indictment in the intervening year)
  • United States v. Radtke, 415 F.3d 826, 840–41 (8th Cir. 2005) ("Whether an amended tax return filed post-indictment technically might be "relevant" to the taxpayer's intent at the time he filed the original return, there is no doubt that self-serving exculpatory acts performed substantially after a defendant's wrongdoing is discovered are of minimal probative value as to his state of mind at the time of the alleged crime.")
  • United States v. Ross, 626 F.2d 77, 81 (9th Cir. 1980) ("The conduct of defendant in the years subsequent to 1972, 1973 and 1974 was not relevant to the charge that defendant had willfully failed to file tax returns in those three years.")
  • Post v. United States, 407 F.2d 319, 325 (D.C. Cir. 1968) ("Viewed, as well it could be, as a salvage effort by appellants at the expense of the life members, the proposal had little or no tendency to demonstrate appellants' good faith in the dealings to which the indictment referred.")
  • United States v. Stoehr, 196 F.2d 276, 282 (3d Cir. 1952) ("[T]he offer of compromise was submitted fifteen months after he learned about his false returns and after an almost equivalent amount of time had passed since his newly retained accountant had informed him of the amount of taxes due the government. This length of time might well have been considered by the trial court to have destroyed whatever slight probative value a prompt offer might have had.")
  • see also United States v. Philpot, 733 F.3d 734, 748 (7th Cir. 2013) (explaining, in political corruption case, that defendant’s remedial “actions after his bonuses were reported in the press shed little or no light on his state of mind two years earlier” when he received those bonuses)

Conclusion

Generally, FRE 407 bars evidence of subsequent remedial measures to show "negligence; culpable conduct; a defect in a product or its design; or a need for a warning or instruction." However, this evidence may be admitted "for another purpose, such as impeachment or — if disputed — proving ownership, control, or the feasibility of precautionary measures." While the circuit cited to this rule in passing, the case really turned on the relevancy of the effort to amend the tax returns to the defendant's state of mind at the time the original returns were filed.

The Beavers case shows that evidence about remedial steps to amend tax returns and reimburse payments may be admissible in a tax fraud case. In order to be admitted, the proponent, or taxpayers, will have to make the appropriate showing concerning their state of mind at the time of the filing of the original returns. This conditional requirement is part of the tactical choices made in presenting evidence and does not infringe the Fifth Amendment right against self-incrimination.

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Photo Description: U.S. Court of Appeals for the Seventh Circuit at the Everett McKinley Dirksen United States Courthouse in Chicago, Illinois. Learn more about the history of the courthouse.

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