Tactical Stop-Loss, LLC v. Travelers Casualty and Surety

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 10-2857
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United States of America, *
*
Appellee, *
*
v. *
*
Brian Keith Ellefsen, *
*
Appellant. *
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Appeals from the United States
No. 10-2858 District Court for the
___________ Western District of Missouri.
United States of America, *
*
Appellee, *
*
v. *
*
Mark Edward Ellefsen, *
*
Appellant. *
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Submitted: April 11, 2011
Filed: September 9, 2011
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Before WOLLMAN and MELLOY, Circuit Judges, and MILLER,1 District Judge.
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WOLLMAN, Circuit Judge.
Brian Keith Ellefsen and Mark Edward Ellefsen were convicted of conspiracy
to defraud the United States, in violation of 18 U.S.C. § 371, by obstructing the
Internal Revenue Service (IRS) in the assessment and collection of federal taxes.2
Brian was also convicted of three counts of filing false income tax returns, in violation
of 26 U.S.C. § 7206(1), while Mark was convicted of three counts of aiding and
assisting the preparation of false income tax returns, in violation of § 7206(2). The
district court 3 sentenced Brian to 22 months’ imprisonment and ordered restitution in
the amount of $1,202,475.58. Mark was sentenced to 14 months’ imprisonment and
ordered to pay $50,000 in restitution. The Ellefsens appeal their convictions, arguing
that the government intentionally suppressed evidence that was material and favorable
to the defense, in violation of Brady v. Maryland, 373 U.S. 83 (1963). They further
contend that the district court abused its discretion in admitting certain testimony, in
limiting their cross-examination of an IRS agent, and in excluding the testimony of
a defense-expert witness. They also appeal from the denial of their motions for
judgment of acquittal or a new trial, arguing that the government failed to prove that
the their conduct was willful. Finally, the Ellefsens challenge the restitution order.
We affirm.
1The Honorable Brian S. Miller, United States District Judge for the Eastern
District of Arkansas, sitting by designation.
2Because the parties share a last name, we will refer to them individually by
their first names for clarity.
3The Honorable David Gregory Kays, United States District Judge for the
Western District of Missouri.
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I. Background
Brian is an orthopedic surgeon, who provided services through a corporation
named Southwest Missouri Bone & Joint, Inc. (SMBJ, Inc.). In 1997, Brian hired his
brother Mark to serve as SMBJ, Inc.’s business manager. L. Michael Stelmacki is a
certified public accountant who had assisted Brian with his accounting and taxes since
Brian first began practicing medicine in the late 1980s.
In 1997, the Ellefsens attended a presentation by James Quay about the Aegis
Business Trust System, which used domestic and foreign trusts to shelter assets from
taxes. Quay explained that the Aegis system was “an asset protection device with tax
deferral,” through which professionals could send their income offshore and defer
paying taxes on it until they “[r]epatriate[d] the funds back to the United States.” Tr.
at 1121. Participants in the system could access the funds with a credit card.
Following the presentation, the Ellefsens sought advice from Stelmacki, who
thereafter spoke to Quay about the Aegis system. Stelmacki concluded that Quay
“was a person to avoid” and urged Brian to consult an independent tax attorney—one
not associated with Aegis. Tr. at 151. Brian failed do so. In July 1997, the Ellefsens
enrolled in the Aegis system.
On July 21, 1997, Stelmacki faxed an article to Mark, with a note that read,
“Mark, please read this article. I hope that it’s not too late for Brian to reconsider.”
The article addressed the IRS’s crackdown on abusive trust schemes. Stelmacki wrote
to Brian on August 26, 1997, saying:
I noticed in your July disbursements an expense to Mr. Jim Quay for
$15,000 for professional fees. I am also aware that you have decided to
go ahead with the Aegis Company’s program to use offshore entities to
shield you from Federal and State income taxes. I am writing to you
because I am concerned for you and the risks you may inadvertently be
taking. . . . While I share your interest in reducing your tax burden, I feel
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that you have the opportunity to build sizable wealth without incurring
high risks.
. . .
It seems to me that the promoters are relying on an elaborate chain of
complex entities to conceal taxable income. They have concocted a
series of transactions to cloak earned taxable income from rendering
patient services in Carthage, Missouri into non-reported foreign source
income and then arranging to lend or gift the money back to you. I am
especially suspicious when I learned that they will provide you with a
Visa card to access the money. They have also represented that you will
have a power of attorney that will allow you to transfer funds at will.
You will be earning the income by performing services and you will be
enjoying the benefits of the income. Therefore it is reasonable that the
I.R.S. could potentially look through this masquerade and say that it is
taxable income to you regardless of the structure.
. . .
I am asking that you consider the worst case scenario in which the I.R.S.
takes the position that you are committing tax evasion. They have the
power to assess huge penalties and interest, to prosecute you, to ruin
your career, and seize your property. Is the risk worth it?
Shortly thereafter, Stelmacki spoke to Mark regarding the letter and his concerns.
Following their conversation, Stelmacki believed that the Ellefsens would not proceed
with Aegis, and thereafter the Ellefsens did not mention Aegis to Stelmacki.
In August 1997, Brian established the Stekadash Asset Management Trust
(SAMT) and the Southwest Missouri Bone & Joint Trust (SMBJ Trust) and opened
bank accounts in their names. In September, he authorized Aegis to open foreign
bank accounts for him. Thereafter, three bank accounts were opened in St. John’s,
Antigua. One account was in the name Stekadash International Trust, and two were
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in the name of Stekadash Services Company Ltd. In early October, cashier’s checks
drawn from SAMT’s bank account were deposited into the Stekadash International
Trust account.
After the foreign bank accounts were established, Brian received a credit card,
which he could use for cash advances and purchases. Aegis explained that the foreign
bank had been instructed to transfer funds from the Stekadash International Trust
account to the Stekadash Services Company Ltd. account that was used to pay the
credit card balance. The third account maintained a $15,000 balance to secure the
credit card. Brian could transfer funds from the domestic accounts into the Stekadash
International Trust account and ultimately use those funds to pay the monthly balance
on the credit card without ever paying taxes on the income.
The Ellefsens also met with Lynn Bell-Osina, an accountant then-associated
with Aegis, and hired her to prepare tax returns for the newly created entities. After
the initial meeting, Bell-Osina had no further interactions with Brian. Mark provided
the records to prepare the tax returns.
In 1997, SMBJ, Inc. transferred $107,388 through the Aegis system and
recorded the transfers as management fees in its records and on its 1997 corporate tax
return. In 1998, SMBJ, Inc. transferred $199,000 through the Aegis system, again
recording the transfers as management fees in its records and on its 1998 corporate tax
return. In 1999, SMBJ, Inc. transferred $175,000 through the same process. On his
personal tax returns in 1997 through 1999, Brian declared that he had no interest or
authority over any foreign accounts. From 1997 to 1999, Brian used his credit card
mostly for cash advances, but also to purchase lobsters, jewelry, wine, and high-end
apparel, among other things.
On March 31, 2000, federal agents executed search warrants at the Aegis
offices and Bell-Osina’s office. Bell-Osina testified that in mid-April 2000, she called
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Mark and told him that “the Internal Revenue Service had come to my office and
seized the files of my clients, that I had subsequently contacted . . . a tax attorney, who
explained to me that . . . the Aegis system was illegal.” Tr. at 563. Bell-Osina
explained that she was “calling all of my clients to let them know that they needed to
seek alternate tax counsel, that they should go to see a tax attorney.” Id. Bell-Osina
recommended the attorney who had advised her that her clients should amend their
tax returns to undo the trust. During their conversation, Mark told Bell-Osina that he
was not going to amend the returns.
In July 2000, Aegis mailed a newsletter to its members, detailing a plan to
“Drop[] Off the Radar Screen,” by using a new program called the Fortress Trust. In
December 2000, Brian converted to the new system, establishing Strategic
Management Services, LLC (SMS, LLC). Mark, as its registered agent, opened two
bank accounts in the name of SMS, LLC in February 2001 at a domestic bank. Brian
transferred $300,000 from the SAMT account to an SMS, LLC account.
In 2000, SMBJ, Inc. transferred $650,000 to the Aegis-created entities and
deducted the transfers as management fees on its 2000 corporate tax return. On his
personal tax returns, Brian again declared that he had no interest or authority over any
foreign accounts. As Stelmacki was preparing SMBJ, Inc.’s corporate tax return, he
expressed concern regarding the deduction of $650,000 in management fees and
requested that Brian represent in writing that the fees were legitimate. Stelmacki
testified that he sent a representation letter because he wanted to be certain that Brian
actually acknowledged that the payment was “an ordinary and necessary expense of
business.” Tr. at 199. Stelmacki discussed the representation letter and his concerns
over the fees with Mark, and Brian thereafter signed and returned the letter.
In 2001, SMBJ, Inc. recorded an additional $460,000 in management fees. In
February 2002, while preparing the 2001 corporate tax return for SMBJ, Inc.
Stelmacki sent another letter to Brian, in which he stated:
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Again we noted that Southwest Missouri Bone & Joint, Inc. incurred
substantial management fees amounting to $460,000. Last year, we
asked that you provide us with a representation letter as to the
deductibility of those management fees which you provided to us. We
are concerned that these expenses will not meet the I.R.S. test as to being
ordinary and necessary expenses of the business. It is our understanding
that your financial consultants have attorneys and tax specialists that
have advised you that these expenses are properly deductible. However,
the I.R.S. says that tax preparers should suspect that a taxpayer may be
involved in a tax shelter that the I.R.S. considers abusive if certain
factors exist.
. . .
We believe this important matter should command your immediate
attention. Regarding the Corporation’s 2001 tax returns, we are unable
to proceed in completing the tax returns unless we have an opinion from
a tax attorney who is not associated with promoting or administering the
management company or related entities indicating that he has reviewed
the transactions and concluded they are legitimate and deductible. We
will also require a representation letter from you similar to last year.
Stelmacki enclosed numerous articles regarding abusive trust schemes and the
possible criminal ramifications. In a phone conversation that September, Mark
informed Stelmacki that they had hired someone else to prepare their 2001 return and
that Brian would not provide further information or seek an outside opinion. SMBJ,
Inc.’s 2001 corporate tax return was ultimately prepared by an accountant associated
with Aegis and deducted $460,000 in management fees.
In February 2003, Stelmacki sent an IRS press release by facsimile to the
Ellefsens. The release listed the “dirty dozen tax scams.” The first scam listed was
entitled OFFSHORE TRANSACTIONS: “Some people use offshore transactions to
avoid paying United States income tax. Use of an offshore credit card, trust or other
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arrangement to hide or underreport income or to claim false deductions on a federal
tax return is illegal.” The release mentioned that the IRS was “offering people with
improper offshore financial arrangements a chance to make things right.” Through
April 15, 2003, eligible taxpayers would not face civil fraud and information return
penalties. The release warned that a taxpayer “who does not come forward now,
however, will be subject to payment of taxes, interest, penalties and potential criminal
prosecution.”
In April 2003, SMBJ, Inc. reported $180,000 in management fees on its 2002
corporate tax return. Those funds were deposited in an SMS, LLC bank account, from
which Mark wrote checks to pay Brian’s personal expenses, including almost
$270,000 for the construction of Brian’s new home and the purchase of a lake house.
In March 2005, Stelmacki received a federal grand jury subpoena from an IRS
agent for records pertaining to Brian and SMBJ, Inc. When Stelmacki informed Brian
that he was under investigation, Brian responded that “he had nothing to hide.” Tr.
at 269. In July 2005, Brian retained William Hauser to review Brian’s prior individual
and corporate tax filings. Following that review, in December 2005 Hauser filed
amended individual tax returns for Brian, adding most of the so-called management
fees to his taxable income. In February 2006, Brian remitted $534,675 in additional
payment to the IRS. According to Hauser, that amount represented all taxes,
penalties, and interest. The SMBJ, Inc. returns from 1997 to 2002, however, were not
amended.
Brian and Mark were indicted in April 2007 and pleaded not guilty. The
conspiracy count alleged that from 1997 through 2003, the Ellefsens conspired to
divert more than $1.5 million in funds from SMBJ, Inc. “for the benefit, use and
enjoyment of Defendant B. Ellefsen, without paying any taxes on the diverted funds.”
The remaining charges alleged that Brian made and subscribed false individual
income tax returns for the calendar years 2000, 2001, and 2002, and that Mark aided
and assisted in the preparation of those false and fraudulent returns.
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The case proceeded to trial in May 2009. The government called IRS revenue
agent Sharon Vandenberg to testify as a summary witness. According to Vandenberg,
SMBJ, Inc. was a schedule C corporation and “a personal service corporation, because
the income generated off of this corporation is directly from [Brian’s] personal
services.” Tr. at 968. Vandenberg testified that SMBJ, Inc. paid so-called
management fees to SMBJ Trust, which in turn transferred the funds to SAMT.
Although SMBJ Trust received the management fees, “there [were] no expenses, no
services provided. It merely transfers the income at—before paying taxes on it down
to Stekadash Asset Management Trust.” Id. at 931. From there, SAMT transferred
the funds to an offshore trust, Stekadash International Trust, without paying taxes.
The funds were then transferred to Stekadash Services Company, Ltd., another
offshore account, and used to pay for Brian’s personal expenses. Vandenberg
explained that in 2001, the structure had changed: SMBJ, Inc. began paying the
management fees to SMS, LLC, which paid wages to Mark and the personal expenses
of Brian.
To determine SMBJ, Inc.’s tax liability, Vandenberg “collaps[ed] the trust,”
adjusting the corporation’s income to “move the items back to where they would have
been if those trusts had not been in existence.” Tr. at 968. Because SMBJ, Inc. had
treated the management fees as a deduction, she added that amount back into the
corporation’s income. The income was then treated as a constructive dividend to
Brian, resulting in tax consequences for both the corporation and Brian, as set forth
in the summary charts Vandenberg had prepared. On direct examination, Vandenberg
did not mention Brian’s amended individual tax returns and additional payments,
wherein he had reported the management fee as income and paid income taxes on
those amounts. When defense counsel attempted to cross-examine Vandenberg about
the amended returns, the district court sustained the government’s objection that those
returns were beyond the scope of direct examination. Vandenberg testified that the
total tax loss was $1.1 million.
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The defense called Hauser to testify regarding Brian’s amended individual tax
returns. Hauser testified that he found a problem with the amount of management fees
deducted on the SMBJ, Inc. corporate tax returns. He testified that the corporate tax
returns for SMBJ, Inc. were correct but that he had amended Brian’s individual tax
returns to reflect the additional income he had failed to report. According to Hauser,
the amended returns included payment for all taxes due and owing, including penalties
and interest.
The defense sought to introduce the expert testimony of Victoria Osborn, a
certified fraud examiner. She was prepared to testify that, based on certain codes in
the IRS documents, the IRS had accepted and posted the amended tax returns,
meaning that civil liability had been determined. According to Osborn, the IRS had
determined that Brian had paid his individual income taxes in full when he filed his
amended tax returns. The district court sustained the government’s objection to
Osborn’s testimony, remarking that “it is questionable whether or not this has any
relevance in this case . . . if it does, this evidence should be excluded because any
probative value it may offer is substantially outweighed by confusion of the issues,
possible misleading of the jury, waste of time.” Tr. at 1403.
Following the eleven-day trial, the jury found the Ellefsens guilty on all counts.
Thereafter, the Ellefsens moved for judgment of acquittal or for a new trial, arguing,
among other things, that the government withheld material, exculpatory information
from discovery and that the evidence was insufficient to sustain their convictions. The
district court determined that although the government did not provide the documents
to the Ellefsens before trial the documents did not contain any new evidence, nor was
the information contained therein material or exculpatory. D. Ct. Order of Jan. 11,
2010, at 11-12. The district court denied the Ellefsens’ post-trial motions.
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II. Analysis
A. Alleged Brady Violation
The Ellefsens contend that the government withheld various internal IRS
documents related to Brian’s amended individual tax returns in violation of Brady v.
Maryland, 373 U.S. 83 (1963). They argue that the documents showed that the IRS
had accepted the amended returns in 2006, had treated the earnings as regular income
(not dividends), and had deemed the amended returns a final civil assessment.
According to the Ellefsens, “[t]he evidence would have negated any showing of
willfulness on the part of the Defendants, contradicted any claim of fraud, and would
have destroyed the government’s dividend theory.” Appellants’ Br. at 1. We review
for abuse of discretion the district court’s denial of a new trial based on undisclosed
Brady material. United States v. Ladoucer, 573 F.3d 628, 636 (8th Cir. 2009).
“The Due Process Clause of the Fifth Amendment requires the government to
disclose to the accused favorable evidence that is material to guilt or punishment and
not otherwise available to the defendant.” United States v. Santisteban, 501 F.3d 873,
877 (8th Cir. 2007) (citing United States v. Bagley, 473 U.S. 667, 678 (1985); Brady,
373 U.S. at 87)). To prove a violation of his right to due process, the defendant must
show that the evidence was favorable and material and that the government
suppressed the evidence. Id.
Assuming that the evidence was favorable, the Ellefsens have failed to show
that the undisclosed documents contained material information. “[E]vidence is
material only if there is a reasonable probability that, had the evidence been disclosed
to the defense, the result of the proceeding would have been different.” Ladoucer, 573
F.3d at 636 (quoting Pennsylvania v. Ritchie, 480 U.S. 39, 57 (1987)). A “reasonable
probability” is “a probability sufficient to undermine confidence in the outcome.”
Bagley, 473 U.S. at 682.
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Evidence regarding the IRS’s treatment of the December 2005 amended returns
does not undermine the finding that Brian and Mark acted willfully when Brian
subscribed and Mark assisted in the preparation of false individual tax returns for
2000 through 2002. As an initial matter, we note that the amended returns were
submitted years after the false returns had been filed and months after Stelmacki
warned the Ellefsens that their records had been subpoenaed. We have previously
said that “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. Radtke, 415 F.3d 826,
840-41 (8th Cir. 2005) (holding that the district court did not abuse its discretion in
excluding evidence that the defendant filed an amended tax return after he had been
indicted for willfully subscribing to a known false tax return). The information set
forth in the undisclosed documents was even less probative of the Ellefsens’ state of
mind: The jury was well aware that Brian had filed amended returns and had paid
additional taxes and penalties; the undisclosed documents explained that the IRS
processed those amended returns and additional payments. The IRS’s treatment of the
amended tax returns was at best marginally relevant to Brian’s willfulness in making
and subscribing the original returns and to Mark’s willfulness in aiding and assisting
in the preparation of fraudulent or false returns. Likewise, the documents did not
contradict the charge of conspiracy to defraud the United States.
The Ellefsens contend that the undisclosed documents showed that the IRS
treated the unreported income as Brian’s earned income. Accordingly, they argue that
the government’s later characterization of the income as a constructive dividend
showed “the existence of a dispute over the tax treatment within the IRS that negated
a finding of willfulness by the Defendants.” Appellants’ Br. at 14. This is not a case
in which “the taxability of unreported income is problematical as a matter of law”
such that “the unresolved nature of the law is relevant to show that defendant may not
have been aware of a tax liability or may have simply made an error in judgment.”
See United States v. Garber, 607 F.2d 92, 98 (5th Cir. 1978) (concluding that the
taxability of earnings from the sale of blood plasma “was completely novel and
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unsettled by any clearly relevant precedent”). Whether taxable as compensation or as
dividends, it is undisputed that the income was subject to federal income tax and thus
should have been reported to the IRS.
Because the undisclosed information was not material, we conclude that no
Brady violation occurred. We note that the district court conducted a thorough review
of the undisclosed document and prepared an opinion rejecting the allegations that the
government had suppressed information. The district court also found baseless the
Ellefsens’ allegations of prosecutorial misconduct:
I want to clear up something else. There were some allegations made
about—against the government’s attorneys and their conduct. And I
want to make sure the record is clear that I found their conduct very
honorable, very appropriate. . . . And I appreciate the professionalism
during the course of this. In case there’s any questions about that,
because sometimes there [were] some things thrown . . . against the
refrigerator and . . . I want to make sure that doesn’t stick. Because there
was nothing to that, in my opinion.
Sentencing Tr. at 91.
B. Vandenberg’s Testimony
The Ellefsens contend that because Vandenberg’s classification of the
management fees as constructive dividends was incorrect as a matter of law, the
district court abused its discretion in admitting her testimony on that matter.
According to the Ellefsens, “[p]ayments made to Dr. Ellefsen by SMBJ were Dr.
Ellefsen’s earned wages—not constructive dividends—and, therefore, properly
deductible to the corporation.” Appellants’ Br. 21.
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SMBJ, Inc. was a personal services corporation organized under subchapter C
of the Internal Revenue Code. Corporations may deduct all ordinary and necessary
expenses, including “a reasonable allowance for salaries or other compensation for
personal services actually rendered.” 26 U.S.C. § 162(a)(1). Dividends, however, are
distributions of property made by the corporation to its shareholders out of its earnings
and profits. § 316(a). Because corporations are not allowed a deduction for dividends
paid to the shareholders, dividends are taxed as corporate income. See § 61; see also
Menard, Inc. v. Comm’r, 560 F.3d 620, 621-22 (7th Cir. 2009) (explaining that a
dividend is not deductible from the corporation’s taxable income). A constructive
dividend “means simply a corporate disbursement that is a dividend in the
contemplation of law though not called such by the corporation making the
disbursement.” United States v. Mews, 923 F.2d 67, 68 (7th Cir. 1991). The
Ellefsens contend that “the diverted income paid by SMBJ to the various Aegis trusts
in the form of management fees should have been treated by the government as earned
income to Dr. Ellefsen.” Appellants’ Br. 26.
We conclude that the district court did not abuse its discretion in allowing
Vandenberg to testify that the funds flowing through the Aegis system constituted
constructive dividends. “[W]here controlling shareholders divert corporate income
to themselves, such diverted funds should be treated as constructive dividends.”
Simon v. Comm’r, 248 F.2d 869, 873 (8th Cir. 1957); see Truesdell v. Comm’r, 89
T.C. 1280, 1300 (1987) (“In concluding our discussion of the constructive dividend
issue, we would emphasize that in a case such as this diverted amounts taxed to a
shareholder as constructive dividends also remain fully taxable to the corporation to
which attributable.”). SMBJ, Inc. paid Brian a salary for his personal services,
presumably the salary that he, as sole shareholder, demanded. Although the
corporation likely could have paid him more for those services and properly deducted
that amount as a business expense—with Brian then paying income tax on his
additional compensation—the Ellefsens did not structure Brian’s income in that way.
They instead decided to utilize the Aegis system and falsely deduct management fees
from SMBJ, Inc.’s corporate tax returns. The income was not taxed at all—despite
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the fact that Brian was spending the money—until after the government subpoenaed
documents from Stelmacki and Brian decided to amend his personal tax returns. In
these circumstances, we conclude that the so-called management fees were properly
considered constructive dividends.
The Ellefsens also allege a violation of their right to confront Vandenberg,
arguing that they should have been allowed to question her about Brian’s amended tax
returns and the payments he made in 2006. At trial, defense counsel argued that he
was trying to establish that “there’s a difference of opinion about how these matters
are handled. Because in the civil side, in these investments, these matters are handled
as further earned income to my client.” Tr. at 1021. The district court determined that
the amended returns were beyond the scope of the direct examination and thus
prohibited examination on the amended returns, but told counsel, “You can ask her
what she used to make her calculations.” Tr. at 1022. The Ellefsens argue that the
cross-examination was prejudicially curtailed and that they were unable to test the tax-
loss amount.
As stated above, Vandenberg testified as a summary witness. “[T]estimony by
an IRS agent that allows the witness to apply the basic assumptions and principles of
tax accounting to particular facts is appropriate in a tax evasion case.” United States
v. McElroy, 587 F.3d 73, 82 (1st Cir. 2009). “The testimony of a summary witness
may be received so long as she bases her summary on evidence received in the case
and is available for cross-examination.” United States v. King, 616 F.2d 1034, 1041
(8th Cir. 1980).
Cross-examination into the basis of Vandenberg’s testimony should have been
allowed. See Fed. R. Evid. 611(c) (“Cross-examination should be limited to the
subject matter of the direct examination and matters affecting the credibility of the
witness.”). That is, defense counsel should have been allowed to ask whether
Vandenberg considered or relied upon the amended tax returns and her reasons for
doing so or not doing so. Those questions would have been within the subject matter
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of the direct examination, during which she explained how she completed her
calculations and mentioned that “there’s never anything absolute and firm in the tax
law. It’s—positions can be taken, discussed, weighed and merited.” Tr. at 1010-11.
Similarly, the Ellefsens should have been permitted to question Vandenberg about
Brian’s additional payments. Although the government now argues that the amount
of tax loss is irrelevant, the government itself solicited the tax-loss amount during
Vandenberg’s direct examination. Accordingly, the defense should have been allowed
to cross-examine Vandenberg regarding the $1.1 million tax-loss calculation and
whether she considered Brian’s additional payments.
We conclude, however, that any error in denying the cross-examination was
harmless beyond a reasonable doubt. See Santisteban, 501 F.3d at 879 (standard of
review). “To determine whether a Confrontation Clause error was harmless, we look
to ‘whether, assuming that the damaging potential of the cross-examination were fully
realized, a reviewing court might nonetheless say that the error was harmless beyond
a reasonable doubt.’” Id. (quoting Delaware v. Van Arsdall, 475 U.S. 673, 684
(1986)). Other than disallowing an inquiry into the treatment of the amended returns
and additional payments, the district court permitted a comprehensive cross-
examination of Vandenberg. Defense counsel inquired about her treatment of the
management fees as dividends. Hauser, who prepared the amended returns, rebutted
Vandenberg’s calculations by testifying that the amended individual tax returns
properly characterized the management fees as income to Brian. Moreover, the
evidence against the Ellefsens was overwhelming. We thus conclude that any error
in precluding them from cross-examining Vandenberg regarding the amended returns
and additional payment does not require reversal.
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C. Exclusion of Osborn’s Proposed Expert Testimony
The Ellefsens contend that the district court abused its discretion by excluding
Osborn’s testimony under Federal Rule of Evidence 403. The Ellefsens maintain that
Osborn’s testimony was relevant to prove their offense conduct was not willful and
that it rebutted the testimony that the income should be treated as a dividend. Rule
403 provides that even relevant evidence “may be excluded if its probative value is
substantially outweighed by the danger of unfair prejudice, confusion of the issues,
or misleading the jury, or by consideration of undue delay, waste of time, or needless
presentation of cumulative evidence.”
Osborn’s testimony would have had only slight probative value on the question
whether the Ellefsens’ conduct was willful. “Willfulness requires proof of a
voluntary, intentional violation of a known legal duty.” United States v. Morse, 613
F.3d 787, 794 (8th Cir. 2010). As set forth above, evidence that the IRS treated the
amended tax returns and payments as a final assessment is at best marginally
probative of the Ellefsens’ willfulness or lack thereof. Accordingly, the district court
was correct in its assessment that “it is questionable whether or not this has any
relevance in this case.” Tr. at 1403.
We further conclude that the testimony would have had little probative value
to rebut the government’s evidence that the income should be treated as a dividend.
We agree with the district court’s assessment that “[a]dmission of her testimony
would have side-tracked the proceedings in a mini-trial concerning whether the civil
division of the IRS had made a final determination regarding Brian’s amended tax
returns, and if so, how it had treated the amended tax returns.” D. Ct. Order of Jan.
11, 2010, at 4. Accordingly, we conclude that the district court did not abuse its
discretion in excluding Osborn’s testimony.
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D. Denial of the Motions for Judgment of Acquittal or New Trial
The Ellefsens contend that the district court erred in denying their motions for
judgment of acquittal and for a new trial. We review de novo the district court’s
denial of a motion for judgment of acquittal, applying the same standard as the district
court. United States v. Worman, 622 F.3d 969, 977 (8th Cir. 2010). “A conviction
will be reversed only if, after viewing the evidence most favorably to the verdict and
giving the government the benefit of all reasonable inferences, no construction of the
evidence supports the jury’s verdict.” Id. We review for abuse of discretion the denial
of a motion for a new trial. Id.
The Ellefsens contend that they are entitled to judgment of acquittal or a new
trial because the government failed to prove willfulness and that the district court
“invested too much meaning and credence in one uncorroborated statement of Lynn
Bell-Osina in finding sufficient evidence of willfulness.” Appellants’ Br. at 42. The
district court, however, carefully recounted the evidence that showed both Brian and
Mark acted willfully. The Ellefsens used a series of domestic and offshore entities to
move money from the medical practice to several bank accounts, from which Brian
received the benefit of the money without paying taxes on it. Both Brian and Mark
received multiple warnings from Stelmacki that the Aegis system was illegal. Bell-
Osina testified that in 2000 she informed Mark that the system was illegal and advised
him to seek alternate tax counsel and to amend the tax returns. Yet the Ellefsens did
nothing until after files were subpoenaed from Stelmacki. The record is replete with
evidence to support the jury’s finding that Brian and Mark acted willfully. The
district court did not err in denying the motion for judgment of acquittal and did not
abuse its discretion in denying the motion for a new trial.
E. Restitution
The Ellefsens argue that the government failed to submit evidence to support
the restitution amount and that the district court failed to deduct the payments Brian
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submitted with his amended returns from the amount owed to the IRS. The
government has the burden of proving by a preponderance of the evidence the
restitution owed by the Ellefsens, and we review for clear error the district court’s
determination of the amount of restitution. United States v. Smiley, 553 F.3d 1137,
1146 (8th Cir. 2009).
The government submitted a proposed restitution order, along with a summary
document showing the tax harm for the years charged in the conspiracy. The
document listed the amount of additional individual and corporate tax owed for the
years 1997 through 2002. The document also showed payments that Brian made
when he filed his amended individual tax returns in 2005 and that those payments
were deducted from the amount of individual income tax that was owed. Interest was
added, pursuant to 26 U.S.C. § 6601, and the total tax liability was calculated to be
$1,252,475.58. The government’s summary document was supported by
documentation showing a detailed explanation of the amount of taxes, penalties,
interest, and additional payments, for each year. The government proved the amount
of additional taxes at trial, through the testimony of Vandenberg and the evidence of
the Revenue Agent Reports for Brian and for SMBJ, Inc. The government established
through certified IRS transcripts of accounts the amount of additional taxes that were
paid when Brian submitted amended individual tax returns. The Ellefsens have not
disputed the interest calculation. Accordingly, the government met its burden of proof
and deducted Brian’s additional payments from the amount of restitution owed to the
IRS. We find no clear error in the district court’s judgment, which ordered Brian to
pay $1,202,475.58 and Mark to pay $50,000.
III. Conclusion
The convictions and restitution orders are affirmed.
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