USA v. John Daniel

Filing

OPINION filed: AFFIRMED, decision not for publication. R. Guy Cole , Jr., (authoring), Chief Circuit Judge; Jane Branstetter Stranch, Circuit Judge; and Bernice Bouie Donald, Circuit Judge.

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 17a0372n.06
Case No. 16-6331
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

FILED
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
JOHN DANIELS,
Defendant-Appellant.

BEFORE:

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Jun 27, 2017
DEBORAH S. HUNT, Clerk

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE EASTERN
DISTRICT OF KENTUCKY

OPINION

COLE, Chief Judge; STRANCH and DONALD, Circuit Judges.

COLE, Chief Judge. John Daniels appeals his conviction and sentence for tax evasion in
violation of 26 U.S.C. § 7201. We hold that there was sufficient evidence to convict Daniels,
that any district court errors—taken cumulatively—did not result in a fundamentally unfair
process, and that the district court reasonably concluded that Daniels’s failure to file was relevant
conduct for determining the amount of loss. We therefore affirm Daniels’s conviction and
sentence.
I. BACKGROUND
Daniels owned and operated the Central Kentucky Wellness Center (“the Center”), a pain
clinic in Lexington. The Center operated predominantly on a cash basis. Payments went
through Terika Witten, the Center’s office manager and Daniels’s mistress.

Patients paid

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between $200 and $300 to visit the clinic. At the end of each day, Witten reconciled the cash
and deposited it into Daniels’s business account. Daniels used a program known as QuickBooks
to handle the bookkeeping for the Center.
In May 2011, Witten began withholding some patient payments and storing the withheld
cash in a separate cabinet. Witten would direct this cash to Daniels at his instructions. She did
not know how it was to be used. Witten kept track of the money she withheld in a notebook.
According to her records, Witten gave Daniels $17,200 in cash between May 2 and December
15, 2011. Witten gave Daniels $29,950 in cash between January 3 and August 10, 2012.
Finally, Witten gave Daniels $69,500 in cash between January 3 and December 12, 2013. In
total, Witten gave Daniels $116,650 in cash, none of which was deposited in the business
account or recorded in QuickBooks.
In 2011, Daniels hired Jim Bryant, a certified public accountant who was the managing
partner of Wells & Company, to assist Daniels with his personal and corporate tax returns.
Daniels and Bryant were familiar with one another from 2004 when Daniels worked as a
seasonal employee at Wells & Company. Bryant completed Daniels’s tax returns for tax years
2010, 2011, and 2012 based on the data in QuickBooks. Bryant filed for an extension to file
Daniels’s 2011 and 2012 returns. The 2010 return was completed on time and Bryant filed it on
Daniels’s behalf. Daniels did not provide Bryant with prompt information for his 2011 and 2012
returns. Bryant sent Daniels his completed 2011 returns in August 2013 and his completed 2012
returns in November 2013. In each case, Bryant sent Daniels tax returns with instructions on
filing and an envelope for submission to the Internal Revenue Service. Daniels never submitted
these returns and never paid his tax liability for these years.

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On October 8, 2015, Daniels was charged in a four-count indictment with two counts of
willfully failing to file income tax returns, in violation of 26 U.S.C. § 7203, and two counts of
attempting to defeat or evade payment of a tax, in violation of 26 U.S.C. § 7201. A superseding
indictment was filed on December 10, 2015.
Witten testified before the grand jury about the money that she took from the cash box.
At that time, Witten testified that Daniels had told her to give him “pocket money from money
that was collected at the clinic.” (Trial Tr., R. 56, PageID 566.)
At trial, Witten testified differently, stating that she decided on her own to hold back
patient payments. She also testified that she was telling the truth at trial, that she had found some
grand jury questions confusing, and that she did not believe that her trial testimony was
inconsistent with her grand jury testimony.
Special Agent Jared Volk, an agent with the IRS’s criminal investigation division, also
testified at trial. Over Daniels’s objection to relevancy, Volk testified about the internal approval
process required for determining if prosecution is warranted. In the process of investigating
Daniels, Volk interviewed Bryant, Witten, and a number of other employees of the Center. Volk
learned in his interview with Witten that she gave Daniels “pocket money.” (Trial Tr., R. 57,
PageID 685.) To determine the total tax liability that Daniels owed, Volk added the cash
payments Witten recorded in her notebook to the tax liability reported on the unfiled tax returns.
Based on Volk’s calculations, Daniels’s total liability for tax years 2011 and 2012 was $47,684.
During the trial, the government noticed that it had charged the wrong dates on the two
counts of failure to file. The failure to file counts charged Daniels with failing to file his tax
returns by April 16, 2012, and April 15, 2013, respectively. However, Daniels had received an

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extension of the filing date in each of those years. The government therefore moved to dismiss
those two counts during the trial.
The jury found Daniels guilty on both counts of tax evasion. Daniels moved for a
judgment of acquittal, or, alternatively, a new trial. Daniels argued that there was insufficient
evidence to convict him. He moved for a new trial based on the manifest weight of the evidence
and cumulative errors by the district court. The district court denied Daniels’s motion, finding
that there was sufficient evidence, that the manifest weight of the evidence did not necessitate a
new trial, and that any errors at trial were harmless.
The district court sentenced Daniels to fifteen months’ imprisonment. The district court
noted that under both the Sentencing Guidelines § 2T1.1(c)(1) (tax evasion) and § 2T1.1(c)(2)
(failure to file), the base offense level is based on the amount of loss. The district court used §
2T1.1(c)(2) because Daniels never filed his 2011 and 2012 tax returns. The court, using Volk’s
calculations, determined that the tax loss was $47,684. Daniels timely appealed his conviction
and sentence.
II. ANALYSIS
A. Sufficiency of the Evidence
We view the evidence in the light most favorable to the prosecution to determine whether
“any rational trier of fact could have found the essential elements of the crime beyond a
reasonable doubt.” United States v. Vichitvongsa, 819 F.3d 260, 270 (6th Cir. 2016) (quoting
Jackson v. Virginia, 443 U.S. 307, 319 (1979)). We do not “weigh the evidence presented,
consider the credibility of witnesses, or substitute our judgment for that of the jury.” United
States v. M/G Transp. Servs., Inc., 173 F.3d 584, 588–89 (6th Cir. 1999). All conflicts of

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testimony are resolved in favor of the government, and every reasonable inference is drawn in
the government’s favor. United States v. Siemaszko, 612 F.3d 450, 462 (6th Cir. 2010).
The statute under which Daniels was prosecuted provides that “[a]ny person who
willfully attempts in any manner to evade or defeat any tax imposed by [the Internal Revenue
Code] or the payment thereof shall . . . be guilty of a felony.” 26 U.S.C. § 7201. The
government must prove three elements to support a conviction for tax evasion: (1) the existence
of a tax deficiency, (2) willfulness, and (3) an affirmative act constituting an evasion or
attempted evasion. United States v. Gross, 626 F.3d 289, 293 (6th Cir. 2010) (citing Boulware v.
United States, 552 U.S. 421, 424 n.2 (2008)). Daniels did not contest the existence of a tax
deficiency; it is undisputed that Daniels failed to pay his taxes in 2011 or 2012. Accordingly, we
need only address whether the government proved willfulness and an affirmative act.
1. Affirmative Act
In § 7201, Congress proscribed attempts to evade taxes “in any manner.” Recognizing
this, the Supreme Court has held that the type of affirmative act that may constitute evasion is
broad and has declined to define or limit it. See Spies v. United States, 317 U.S. 492, 499 (1943).
In Spies, the Court provided a non-exhaustive list of qualifying affirmative acts, such as keeping
a double set of books, creating false documents, destroying books or other records, concealing
assets, covering up sources of income, conducting business in a manner that avoids typical
recordkeeping, and other conduct that is likely to mislead or conceal. Id. In addition, tax
evasion need not be the sole motive for the conduct; it can still count as an affirmative act even if
the conduct also serves other purposes. Id.
Daniels argues that Witten acted alone in keeping a double set of books and concealing
the money she gave to him. On this point, Witten’s grand jury and trial testimony conflict.

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Before the grand jury, Witten was asked whether Daniels requested that she give him “pocket
money from money that was collected at the clinic.” (Trial Tr., R. 56, PageID 566.) Witten
answered in the affirmative. However, at trial, Witten testified that she decided on her own to
withhold patient payments. The government then impeached Witten with her contradictory
grand jury testimony at trial. On cross-examination, Witten said that she was telling the truth at
trial, that she found some grand jury questions confusing, and that she did not believe that her
trial testimony was different from her grand jury testimony.
Viewed in the light most favorable to the government, the evidence is sufficient to
support Daniels’s conviction. Keeping a double set of books is a common affirmative act that
supports a conviction for tax evasion. See Spies, 317 U.S. at 499; United States v. Madison,
226 F. App’x 535, 544 (6th Cir. 2007). A rational juror could infer from Witten’s grand jury
testimony that she was acting under Daniels’s direction in keeping a double set of books. The
government provided evidence that Witten withheld patient payments, recorded them on a
separate set of books, gave Daniels the withheld money, and that Daniels had requested this
money. Although Witten’s grand jury and trial testimony conflict, it is not within our province
to re-weigh the evidence or make decisions on the credibility of witnesses, and all conflicts of
testimony are resolved in favor of the government. Siemaszko, 612 F.3d at 462. Accordingly, a
rational juror could conclude that Daniels committed an affirmative act constituting tax evasion.
2. Willfulness
Daniels argues that the Supreme Court in Spies defined willfulness as “an act done with
evil motive, bad purpose, or corrupt design.” (Appellant Br. 29.) However, the definition of
willfulness has evolved since Spies. In United States v. Pomponio, the Supreme Court examined
different articulations of willfulness—including the one in Spies—and held that willfulness

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“simply means a voluntary, intentional violation of a known legal duty.” 429 U.S. 10, 12 (1976);
see also Cheek v. United States, 498 U.S. 192, 201 (1991).

This standard “requires the

Government to prove that the law imposed a duty on the defendant, that the defendant knew of
this duty, and that he voluntarily and intentionally violated that duty.” Id. at 201.
The evidence used to establish willfulness may be circumstantial. United States v.
Grumka, 728 F.2d 794, 797 (6th Cir. 1984) (per curiam). In addition, evidence of affirmative
acts may be used to show willfulness. United States v. Christians, 105 F. App’x 748, 751 (6th
Cir. 2004); see also United States v. Daniel, 956 F.2d 540, 543 (6th Cir. 1992). Evidence that a
defendant filed taxes in previous years can establish knowledge of the legal obligation. See
United States v. Woodman, 115 F. App’x 840, 843 (6th Cir. 2004); Daniel, 956 F.2d at 543.
A rational juror could determine that the government proved willfulness beyond a
reasonable doubt. The government proved that Daniels was aware of his legal duty to pay taxes
by introducing evidence that Daniels had previously filed taxes. There is also no question that
Daniels had substantial tax liabilities. The only question is whether Daniels voluntarily and
intentionally violated his duty to pay taxes.

The government introduced evidence that

(1) Daniels conducted his business mostly through cash, (2) Witten—on his instructions—
withheld cash from the business and provided Daniels with that cash frequently, and
(3) Daniels’s unfiled tax returns did not report this information. A rational juror could conclude
from this evidence that Daniels voluntarily and intentionally violated his known legal duty to pay
taxes.
We have considered Daniels’s argument that he failed to file his tax return because he did
not have the money—not to evade tax liability. However, we find this argument to be without

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merit. The Supreme Court held in Sansone v. United States that intending to pay tax liability in
the future does not vitiate willfulness under § 7201. 380 U.S. 343, 354 (1965).
Because a rational juror could conclude that the government proved all of the elements of
tax evasion under § 7201 beyond a reasonable doubt, we hold that the evidence was sufficient to
support Daniels’s conviction.
B. Motion for a New Trial
We review a denial of a motion for a new trial for abuse of discretion. United States v.
Callahan, 801 F.3d 606, 616 (6th Cir. 2015). Daniels argues that the district court should have
granted his motion for a new trial because the verdict is against the manifest weight of the
evidence and because the district court’s cumulative errors rendered Daniels’s trial
fundamentally unfair. We disagree.
1. Manifest Weight of the Evidence
A district court reviewing a motion for a new trial acts in the role of a thirteenth juror and
considers the credibility of the witnesses and the weight of the evidence. Id. at 616–17. The
court must grant a new trial if the verdict is against the manifest weight of the evidence. Id. at
616. We “simply review the evidence and the district court’s ruling,” reversing only based on “a
definite and firm conviction that the district court committed a clear error of judgment.” Id. at
617 (internal quotation marks omitted).
The district court determined that a jury could reasonably find that Witten lacked
credibility because of her contradictory testimony and her intimate relationship with Daniels.
The district court also determined that between the testimony of Witten and Volk, a jury could
reasonably determine that Daniels intended to evade his tax liabilities.

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Daniels has pointed to no specific problems so egregious as to warrant a finding that the
district court committed a “clear error of judgment.” Id. Daniels primarily argues that Witten’s
trial testimony is more credible than her grand jury testimony. However, it is the role of the
district court to assess the witnesses’ credibility. United States v. Lutz, 154 F.3d 581, 589 (6th
Cir. 1998). We simply review the district court’s ruling for abuse of discretion and have found
none.
2. Cumulative Errors
A defendant seeking a new trial based on cumulative error “must show that the combined
effect of individually harmless errors was so prejudicial as to render his trial fundamentally
unfair.” United States v. Trujillo, 376 F.3d 593, 614 (6th Cir. 2004). Even “errors that might not
be so prejudicial as to amount to a deprivation of due process when considered alone . . . may
cumulatively produce a trial setting that is fundamentally unfair.” Id. (quoting United States v.
Hernandez, 227 F.3d 686, 697 (6th Cir. 2000)).
a. Exclusion of Witten’s Testimony
On cross-examination, Witten was asked four questions about whether Daniels told her to
keep track of cash she removed from the box. The government objected on hearsay grounds to
these questions, and the objections were sustained. The government admits that the district court
erred in sustaining these objections. However, the prejudicial impact of this error was low.
Witten had already testified on direct examination that Daniels had told his employees to keep
track of money they took out of the cash box.
b. Use of Witten’s Grand Jury Testimony in Closing
Daniels argues that the district court erred by allowing the government to use Witten’s
grand jury testimony as a demonstrative aid during closing. However, Witten’s grand jury

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testimony was a prior inconsistent statement that the district court should have allowed the
government to admit as substantive evidence. See United States v. Mayberry, 540 F.3d 506,
515–16 (6th Cir. 2008). Given that the government should have been allowed to admit this
testimony as substantive evidence, it was not error to allow the government to use it during
closing.
c. Special Agent Volk’s Testimony
Daniels argues that the district court allowed Volk to testify about matters that had no
relevance, including the IRS’s process for determining if an individual will be prosecuted for tax
violations and about the cash Witten gave to Daniels in 2013. Under Federal Rule of Evidence
401, evidence is relevant if “(a) it has any tendency to make a fact more or less probable than it
would be without the evidence; and (b) the fact is of consequence in determining the action.”
Fed. R. Evid. 401. Volk’s testimony that Witten withheld cash is relevant to prove willfulness.
The increasing amounts of withheld cash make it more probable that Daniels intentionally
violated his duty to pay his taxes and make it less probable that Daniels could have mistakenly
overlooked the withheld cash. The district court did not abuse its discretion in finding this
evidence relevant.
Neither did the district court abuse its discretion in allowing Volk to testify about the IRS
investigative process that led to charging Daniels for tax evasion. Daniels argues that the
evidence was irrelevant and inflammatory in violation of Rule 403, which provides that
“[a]lthough 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
considerations of undue delay, waste of time, or needless presentation of cumulative evidence.”
Fed. R. Evid. 403. However, because defense counsel raised a relevancy objection under Rule

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401 as opposed to a Rule 403 objection, he has failed to preserve that argument for appeal and
plain error review applies. United States v. Warman, 578 F.3d 320, 348 (6th Cir. 2009); see also
Puckett v. United States, 556 U.S. 129, 135 (2009) (outlining the elements of the plain-error
test). Here, there is no clear and obvious error. The testimony satisfied Rule 401 by explaining
the reasons for the investigation and any prejudicial impact was low. Therefore, the district court
did not abuse its discretion in permitting the testimony.
Daniels makes a cursory argument as to why these errors are cumulatively prejudicial.
Considered cumulatively, we find no error, but even if such error occurred, it did not “produce a
trial setting that [was] fundamentally unfair.” Trujillo, 376 F.3d at 614 (citation omitted).
C. Amount of Tax Loss
We review de novo a district court’s legal conclusions interpreting the Sentencing
Guidelines, United States v. Tatum, 518 F.3d 369, 372 (6th Cir. 2008), but we give deference to
the district court’s factual tax loss findings, see United States v. Webb, 335 F.3d 534, 537 (6th
Cir. 2003).
Under the Guidelines, a defendant’s base offense level for tax evasion is determined by
the amount of the tax loss. U.S.S.G. § 2T1.1(c)(1). 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).” Id. However, “[i]f the offense involved failure to file a tax return, the
tax loss is the amount of tax that the taxpayer owed and did not pay.” U.S.S.G. § 2T1.1(c)(2).
The district court calculated Daniels’s tax loss under (c)(2) as opposed to (c)(1) because
Daniels failed to file taxes for tax years 2011 and 2012. Daniels argues that the district court
erred because he was convicted only of tax evasion, not failure to file. However, under the
Guidelines, the district court is allowed to consider all relevant conduct in determining the loss.

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U.S.S.G. § 1B1.3. This includes even uncharged conduct. United States v. Pierce, 17 F.3d 146,
150 (6th Cir. 1994). Application Note 2 of § 2T1.1 states that “all conduct violating the tax laws
should be considered as part of the same course of conduct or common scheme or plan unless the
evidence demonstrates that the conduct is clearly unrelated.”

U.S.S.G. § 2T1.1 cmt. n.2.

Accordingly, so long as the failure to file was part of the “same course of conduct or common
scheme,” the district court could include it as part of the tax loss.
Daniels’s failure to file was part of the same course of conduct as the tax evasion.
Application Note 2 of § 2T1.1 states that only “clearly unrelated” conduct should not be
considered part of the same course of conduct. When Daniels’s failure to file his tax returns is
viewed in light of his other conduct, including keeping a double set of books, not providing
complete information to his accountant, and not filing his taxes on time, a pattern of violations
emerges. See U.S.S.G. § 2T1.1 cmt. n.2. Under the Guidelines, the district court was permitted
to include this conduct in calculating the tax loss.
III. CONCLUSION
The district court did not err in determining that there was sufficient evidence to convict
Daniels or that Daniels’s uncharged conduct could be included in the amount of his tax loss
under the Guidelines. Nor did the district court’s alleged errors cumulatively prejudice Daniels.
Accordingly, we affirm Daniels’s conviction and sentence.

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