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United States v. Sato

decided: March 16, 1987.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 86 CR 157-1 - Nicholas J. Bua, Judge Presiding.

Coffey and Easterbrook, Circuit Judges, and Grant, Senior District Judge.*fn*

Author: Grant

GRANT, Senior District Judge.

Joseph Y. Sato appeals from his conviction and sentence on two counts of a three-count indictment charging him with willful failure to file federal income tax returns. After the jury returned its verdict and the district court denied Sato's motion for a new trial, the court sentenced Sato to three years of probation with the condition that Sato pay back taxes in the amount of $7,172.96, plus interest and penalties, and file tax returns during the period of probation. The court also imposed a $20,000 fine to be paid during the period of probation and, thereafter, denied Sato's motion for reduction of sentence. Sato now appeals.


For fifteen years prior to the 1982 tax year, Sato dutifully filed federal income tax returns and usually without incident. In the years 1978 through 1981, Sato's son, Mark, prepared Sato's tax returns, which included deductions for the "Sato Family Trust." These deductions became the focus of IRS audits. The trust deductions were disallowed and the IRS notified Sato of additional taxes due. Ultimately, the United States Tax Court dismissed two petitions Sato filed to challenge disallowance of the 1978, 1979 and 1980 trust deductions. The decisions of the Tax Court are not an issue here.

Sato failed to file tax returns for the 1982, 1983 and 1984 tax years. At trial on criminal charges of willful failure to file tax returns, 26 U.S.C. § 7203, Sato offered as a principal theory of defense that he relied on his son's advice with respect to tax matters and, therefore, the government could not prove Sato "willfully" failed to file. Specifically, Sato contends his son made the decision not to file, and an unpublished Order of this Court was pivotal in "reinforcing his belief in his son." Appellant Br. at 8. Mark testified at trial that he represented his father on all tax matters.


Sato argues it was reversible error for the district court to allow only a stipulation to a document, rather than allowing it into evidence. The document, an unpublished Order of this Court (Sato v. Henry Yon, 725 F.2d 687 (1983), concerned the ability of Sato's son to represent his father during the earlier IRS audit. According to Sato, the Order would offer to the jury a persuasive explanation for his reliance on the judgment of his son on tax matters. Because Sato's defense in this criminal tax case was premised upon the good faith reliance on the advice of his son, he argues the court was "without authority" to deny admission of a document providing the best proof that he did not "willfully" fail to file a return. We believe Sato has failed to show the district court abused its discretion in refusing to admit the document. We will not reverse an evidentiary ruling of the district court unless we are convinced the court abused its discretion. United States v. Harris, 761 F.2d 394, 398 (7th Cir. 1985).

Relevance is doubtful under Fed. R. Evid. 401. To make a case for relevance, Sato must argue that the unpublished Order would help to explain to the jury why his reliance on his son justified his failure to file tax returns. The Order would be relevant if its subject matter touches upon something affecting Sato's state of mind, or specifically, operates to negate a finding of willfulness.

In this tax case setting, willfulness is defined as "a voluntary, intentional violation of a known legal duty." United States v. Pomponio, 429 U.S. 10, 12, 50 L. Ed. 2d 12, 97 S. Ct. 22 (1976). See United States v. Verkuilen, 690 F.2d 648, 655 n.8 (7th Cir. 1982). Although the government need not show mens rea, or that Sato had an "evil-meaning mind," Morissette v. United States, 342 U.S. 246, 251, 96 L. Ed. 288, 72 S. Ct. 240 (1952), a finding of willful conduct "would necessarily negate any possibility of 'good faith' in failing to file." United States v. Moore, 627 F.2d 830, 833 n.1 (7th Cir. 1980). Typically, defendants have argued that a particular instruction to the jury on the meaning of "willful" conduct leaves no room for making out a good faith defense. E.g., United States v. Verkuilen, 690 F.2d 648 (7th Cir. 1982). Ours is a different, but similar, problem. Sato contends the unpublished Order is legally relevant to his good faith defense for failing to file tax returns. He insists suppression of the Order denies his defense.

This Court has recognized that only an inadvertent failure to file or a bona fide misunderstanding of the duty to make a return constitutes justifiable excuse under the meaning of "willful" in 26 U.S.C. § 7203. United States v. Matosky, 421 F.2d 410, 413 (7th Cir.), cert. denied, 398 U.S. 904, 90 S. Ct. 1691, 26 L. Ed. 2d 62 (1970). Sato has made no claim that his was an inadvertent failure to file. A bona fide misunderstanding of the duty to file, on the other hand, might be framed as a "mistake of law" defense which, according to this Court, succeeds or fails on the standard of objective reasonableness. United States v. Foster, 789 F.2d 457, 461 (7th Cir. 1986); United States v. Moore, 627 F.2d 830, 833 (7th Cir. 1980). We conclude it would be almost impossible for a taxpayer to reasonably believe that the contents of the Order suggest Sato is excused from filing an income tax return. The Order simply states the son may represent Sato during the earlier IRS audit; in no way does the Order make the existence of good faith more or less probable. The Order does not and could not, reasonably, create any bona fide misunderstanding of the duty to file tax returns. Because the Order was not relevant to Sato's defense, it was within the district court's discretion to refuse to admit the document in evidence. Moreover, we find particularly comforting the decision of the district court to place no limitations on Sato's testimony concerning the contents of the Order or his reliance on his son.


Sato contends the district court abused its discretion in imposing the $20,000 fine. He argues that once his Rule 35 motion for reduction of sentence was made and denied, the court was required to issue a full statement of reasons. Sato insists the court should have considered a broader range of sentencing factors, something more than his lack of repentance and the presentence investigation report. Specifically, he suggests the district court should have considered his advanced age of 69 years, ill health -- including hearing, walking, and prostate problems -- his forced internment during World War II as a Japanese-American, as well as the "disparity" between the sentence he ...

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