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United States v. Simon

United States Court of Appeals, Seventh Circuit

August 15, 2013

United States of America, Plaintiff-Appellee,
v.
James A. Simon, Defendant-Appellant.

Argued February 10, 2012

Appeal from the United States District Court for the Northern District of Indiana, South Bend Division. No. 10 CR 56 — Robert L. Miller, Jr., Judge.

Before Ripple and Rovner, Circuit Judges, and Coleman, District Judge. [*]

Rovner, Circuit Judge.

A jury convicted James A. Simon of filing false income tax returns, failing to file reports of foreign bank accounts, mail fraud and financial aid fraud. He challenges the legal basis for his convictions on failing to file reports of foreign bank accounts and also contests the district court's decision to limit the evidence he could present in his defense on the false income tax return counts. He also contends that the court erred in its rulings on jury instructions, and he maintains that a reversal on some counts necessarily requires reversal on other counts. We affirm.

I.

James Simon is a Certified Public Accountant, a professor of accounting, and an entrepreneur whose business dealings require a flowchart to unravel. At the center of Simon's financial life was JAS Partners, a Colorado limited partnership. Simon and his wife Denise[1] each owned one percent of JAS Partners. The Simon Family Trust (hereafter "the Trust"), based in the Cook Islands, owned the other ninety-eight percent. The Trust existed for the benefit of Simon, his wife and their children; the trustees were a Cook Islands corporation and a retired attorney. Simon's sisters, Sherri Johnson and Sandra Simon, each owned forty-three percent of Elekta Ltd, a Gibralter company for which Simon served as the managing director. The Simon sisters are retired teachers who entrusted the entirety of the business to their brother. Elekta owned nineteen percent of JS Elekta, a Cyprus corporation, also managed by Simon. JS Elekta, in turn, owned seventy-five percent of Ichua Company, a Cyprus corporation also man- aged by Simon. Ichua owned 100% of Intellecom, a Ukrainian telecommunications business entity.[2] Simon thus was the managing director of three foreign companies, Elekta, JS Elekta and Ichua. In his capacity as managing director, he held signature authority over foreign bank accounts for each of these companies.

For tax years 2003 through 2006, the Simon family received approximately $1.8 million from JAS Partners, Elekta, JS Elekta, Ichua and William R. Simon Farms, Inc., most of this recorded as loans in Simon's personal financial records. Simon and his family spent approximately $1.7 million during this same period of time. Ye t Simon paid just $328 in income taxes for 2005, and claimed refunds for the other three years, at the same time pleading poverty to financial aid programs in order to gain need-based scholarships for his children at private schools. The government charged Simon with four counts of filing false tax returns, in violation of 26 U.S.C. § 7206(1) and 18 U.S.C. § 2; four counts of failing to file reports related to foreign bank accounts, in violation of 31 U.S.C. §§ 5314, 5322 and 18 U.S.C. § 2; eleven counts of mail fraud, in violation of 18 U.S.C. §§ 1341 and 2; and four counts of financial aid fraud, in violation of 20 U.S.C. § 1097 and 18 U.S.C. § 2. In his defense, Simon sought to demonstrate that the money he received from various entities was loaned to him and thus was not taxable. Alternately, he characterized the money he received as partnership distributions that were not taxable because they did not exceed his basis in the partnership. At worst, he explained, he mischaracterized some of the transactions, but not in a manner that violated any criminal law. As for any failure to file reports regarding his signature authority over foreign bank accounts, Simon contended that the IRS did not require him to file these reports by the dates alleged by the government, that the IRS had extended the filing deadlines for the tax years in question past the date of his indictment, and that he filed the reports within the extended time period. The other counts, he contended, were largely dependent on the false income tax counts, and he therefore maintained that a failure to prove the income tax counts necessarily required reversal of the other counts.

In ruling on pre-trial motions, the district court rejected Simon's claim regarding the extended deadlines for filing reports of foreign bank accounts as a matter of law. The court concluded that the relief the IRS granted from civil liability for certain failures to report foreign bank accounts could not relieve Simon of criminal liability for offenses completed before the IRS granted the civil relief. The court also found that evidence related to the funding of some of Simon's business entities would be excluded except to the extent that Simon himself provided that funding. A jury subsequently found Simon guilty of four counts of filing false tax returns; guilty of three counts (one count was dismissed) of failing to file reports related to foreign bank accounts; guilty of eight counts (and not guilty of three counts) of mail fraud; and guilty of four counts of financial aid fraud. Simon appeals.

II.

On appeal, Simon first contends that his convictions for failing to file reports of foreign bank accounts must be reversed because he filed the required documents within the time allotted by extensions granted by the IRS. He characterizes the issue as one of conflicting interpretations of the law by the Treasury Department and the Justice Department. He maintains that the courts should defer to the agency entrusted with implementing the statute at issue, in this case the Treasury Department, and that deferring to Treasury would require reversal of those counts. Second, Simon argues that evidentiary errors and jury instruction errors require reversal of his convictions for filing false tax returns. He complains that the court's rulings in limine prevented him from presenting a valid defense to the charges when he was not allowed to present certain evidence of his basis in JAS Partners. He also challenges the government's second theory underlying the false tax return counts: that the returns were false because Simon failed to check the "yes" box on Schedule B of his return in response to a question regarding whether he had signature authority over foreign bank accounts. If the conviction on the foreign bank reporting counts must be reversed, then the conviction on the false returns must also be reversed, he argues, because it was no more necessary to check the "yes" box revealing his signature authority over foreign accounts than it was to file reports for those accounts. Third, he maintains that the evidentiary errors he asserted on the false return counts led to an error in the jury instructions. Finally, Simon contends that if the false tax return counts are reversed, then he is also entitled to a new trial on the mail fraud and student loan fraud counts, because these convictions were dependent on the validity of the false tax return convictions.

A.

The Bank Secrecy Act of 1970, 31 U.S.C. § 5311, et seq. (the "Act"), requires "certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism." 31 U.S.C. § 5311. Section 5314 of the Act provides that the Secretary of the Treas u r y ("Secretary") "shall require … a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the … person makes a transaction or maintains a relation for any person with a foreign financial agency." Although the Act specifies the information that must be collected, it provides to the Secretary the discretion to prescribe the classification of persons subject to the law and regulations, the foreign countries to which record requirements may be applied, the magnitude and types of the transactions subject to record and reporting requirements, and the manner in which the information should be kept, among other things. See 31 U.S.C. § 5311(a)-(b). The persons required by the Act and its accompanying regulations to keep the designated records also must disclose them "as required by law." 31 U.S.C. § 5314(c). Willful violations of the disclosure requirements carry criminal and civil penalties. See 31 U.S.C. § 5322.

In each year from 2005 through 2007, Simon had signature authority over foreign bank accounts. Regulations in place at that time provided that Simon was required to file with the Commissioner of Internal Revenue (hereafter "IRS") a Form TDF 90-22.1, "Report of Foreign Bank and Financial Accounts, " also known as an "FBAR." See 31 C.F.R. § 103.24(a).[3] The deadline for filing FBARs was "June 30 of each calendar year with respect to foreign financial accounts exceeding $10, 000 maintained during the previous calendar year." 31 C.F.R. § 103.27(c).[4]

Simon concedes that he did not file the required FBARs for each calendar year from 2005 through 2007 by June 30 of the next year in each instance.[5] He nonetheless contends that he did not violate the law because the IRS issued guidance in 2009 and 2010 that granted retroactive extensions for filing FBARs for the 2008 and earlier calendar years. The initial guidance, which we discuss below, was published in the form of frequently asked questions and answers, and this document purported to extend the deadline for filing FBARs to September 29, 2009. An IRS notice then extended the FBAR filing date to June 30, 2010, and a second IRS notice later extended the deadline even further to June 30, 2011. See IRS Notice 2009-62, 2009-35 I.R.B. 260, 2009 WL 2414299 (hereafter "Notice 2009-62ʺ); IRS Notice 2010-23, 2010-11 I.R.B. 441, 2010 WL 672300 (hereafter "Notice 2010-23ʺ). By then, Simon asserts, he had filed the required FBARs and thus could not, as a matter of law, face prosecution for his failure to meet the original deadlines. Indeed, he filed the FBARs prior to his indictment and within the extended deadlines set forth in Notices 2009-62 and 2010-23 (collectively the "Notices"). The government counters that Simon's crimes were complete before the IRS issued the Notices, and that the Notices cannot serve to absolve a person of his then-existing criminal liability for completed acts. The government also contends that amendment of a regulation does not relieve criminal liability for conduct occurring prior to the amendment, even when the amendment purports to have retroactive application. Moreover, the government maintains that the Notices specified only that the IRS would not impose civil penalties for persons whose failure to comply was not willful, but that nothing in the Notices evidenced an intention to relieve from criminal liability taxpayers who willfully failed to file their FBARs. Finally, the Notices did not apply to taxpayers like Simon, the government contends, who had not reported all of their taxable income, had not paid all of their taxes, and instead willfully violated the FBAR provisions.

We turn to the language of the Notices themselves as well as earlier guidance that the IRS published on FBAR issues. In March 2009, the IRS initiated the "2009 Offshore Voluntary Disclosure Program, " intended to "get those taxpayers hiding assets offshore back into the system."[6] See http://www.irs.gov/uac/Statement-from-IRS-Commissioner-Doug-Shulman-on-Offshore-Income (last visited July 12, 2013). On May 6, 2009, the IRS posted on its website a series of Frequently Asked Questions ("FAQs") explaining the program to taxpayers in plain language. Several of the FAQs addressed FBAR issues, and one purported to extend the FBAR filing deadline:

Q9. I have properly reported all my taxable income but I only recently learned that I should have been filing FBARs in prior years to report my personal foreign bank account or to report the fact that I have signature authority over bank accounts owned by my employer. May I come forward under the voluntary disclosure practice to correct this?
A9. The purpose for the voluntary disclosure practice is to provide a way for taxpayers who did not report taxable income in the past to voluntarily come forward and resolve their tax matters. Thus, If [sic] you reported and paid tax on all taxable income but did not file FBARs, do not use the voluntary disclosure process.
For taxpayers who reported and paid tax on all their taxable income for prior years but did not file FBARs, you should file the delinquent FBAR reports according to the instructions … and attach a statement explaining why the reports are filed late. Send copies of the delinquent FBARs, together with copies of tax returns for all relevant years, by September 23, 2009, to the Philadelphia Offshore Identification Unit. …
The IRS will not impose a penalty for the failure to file the FBARs.

See http://www.irs.gov/uac/Voluntary-Disclosure:-Questions-and-Answers (last visited July 12, 2013). FAQ 7 instructs that taxpayers who are already under examination by the IRS are not eligible for the Voluntary Disclosure Program, and FAQ 14 ...


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