Unpublished Disposition, 872 F.2d 431 (9th Cir. 1989)

MEMORANDUM^* 

* FACTS AND PROCEEDINGS

Frank Forrester developed tax shelter programs designed to reduce taxpayers' income tax liabilities. Under Forrester's primary program, the "personal services contract," taxpayers would "sell" their life services to Professional and Technical Services ("PTS"), an entity created by him, for $1 per year. PTS then transferred these contracts to International Dynamics, Inc. ("IDI"), another Forester organization. When the taxpayers received paychecks from their employers, they would endorse the checks and send them to IDI. IDI in turn transferred the funds to IDI credit union ("IDICU"), which would send the taxpayers "gift" checks equal to 90 to 92 percent of the taxpayers' original paychecks.

Forrester's other tax program at issue here was the "9:1 tax shelter" under which taxpayers purchased "consulting services" from IDI. Taxpayers paid an allegedly deductible consulting fee to IDI, and IDI immediately sent the taxpayers an alleged tax-free reimbursement check less a 10% fee. No consulting services were ever performed.

Defendants James C. Russell, Earhl R. Schooff, and Lawrence M. Richey, along with Forrester, who is now deceased, were charged in a 28-count indictment with a variety of tax fraud, mail fraud, and tax evasion violations. Schooff himself was charged with a single count of violating 18 U.S.C. § 371 (conspiracy to defraud the United States by "impeding, impairing, obstructing, and defeating the lawful functions of the Internal Revenue Service"). All of Schooff's codefendants were charged with the conspiracy and aiding and assisting in the preparation of false and fraudulent tax returns. Russell and Forrester were also charged with mail fraud, interstate transportation of monies obtained by fraud, and attempted tax evasion.

Schooff's participation stemmed from his position as managing director of the American Constitutional & Civil Rights Union ("ACCRU"), an organization whose purpose apparently was to find ways to avoid tax liability. After discussions with Russell concerning the tax shelter schemes described above, Schooff agreed to refer ACCRU members to Russell in return for a one and one-half percent (later two percent) commission to be paid to ACCRU. Schooff did refer a number of clients to Russell, and ACCRU did receive such commissions.

Following a jury trial, Schooff was convicted on the conspiracy count. He was sentenced to a two-year term of imprisonment and assessed a fine of $25,000. He was also ordered to pay one-third of the costs of prosecution. His codefendants, Russell and Richey, were convicted on all counts with which they were charged.

II

ANALYSIS

Schooff argues that the trial court erred in admitting Exhibit 22-H, titled "Summary of Tax Deficiencies for Russell Clients Examined By Internal Revenue Service." This exhibit was admitted pursuant to Fed.R.Evid. 1006, which allows admission of summaries of voluminous records. Schooff contends that the summary was based in part on inadmissible hearsay evidence, and thus was itself inadmissible.

Because this objection was not made in the trial court, we review the district court's decision to admit this evidence under the plain error standard. United States v. Sims, 617 F.2d 1371, 1377 (9th Cir. 1980). "Plain error is only found in exceptional circumstances where the reviewing court finds that reversal 'is necessary to preserve the integrity and reputation of the judicial process, or to prevent a miscarriage of justice.' " Id. (citations omitted).

No plain error occurred here. Exhibit 22-H was based on a file containing audit information and correspondence relevant to clients of the tax shelter schemes. Schooff contends that because there were letters in the file containing inadmissible hearsay, a summary based on the file was inadmissible. It is true that summary evidence admitted pursuant to Fed.Rule of Evid. 1006 must be based on admitted or admissible evidence. See United States v. Johnson, 594 F.2d 1253, 1257 (9th Cir.), cert. denied, 444 U.S. 964 (1979). Exhibit 22-H, however, did not rely on the letters in the file. Rather, Exhibit 22-H was based on ledger cards kept by the perpetrators of the scheme. These cards named the scheme's clients, and described the clients' total wages and "gift" check amounts. The ledger cards were admitted into evidence. The numbers found in Exhibit 22-H could be determined simply by referring to these cards and the clients' tax returns, which were also admissible. Desimone v. United States, 227 F.2d 864, 867-868 (9th Cir. 1955). Thus the requirements of Rule 1006 were satisfied.

B. Failure to Give First Amendment Instruction

Schooff contends that he was entitled to a first amendment instruction pursuant to United States v. Dahlstrom, 713 F.2d 1423 (9th Cir. 1983), cert. denied, 466 U.S. 980 (1984), because his participation in the scheme amounted to nothing more than pure speech.

Schooff failed to request, or object to the district court's omission of, a first amendment instruction. Thus, the district court's failure to give the instruction for which Schooff now argues is reviewable under the plain error standard. United States v. Solomon, 825 F.2d 1292, 1298 (9th Cir. 1987), cert. denied, 108 S. Ct. 782 (1988). We find no plain error here. Schooff did not merely engage in speech. Rather, he referred members of ACCRU to Russell in exchange for a percentage of the fees his codefendants earned from the referrals. In addition, Schooff's codefendants prepared false tax returns which were actually filed. Thus, the present case is distinguishable from Dahlstrom. See United States v. Solomon at 1297 (appellants who "actively performed ... organizational and managerial tasks," "enticed investors," and "filed erroneous ... tax returns" relating to illegal tax shelters could "draw no support from Dahlstrom or the first amendment").

Denial of severance is reviewed for abuse of discretion. United States v. Sherlock, 865 F.2d 1069, 1078 (9th Cir. 1989). "The test for determining abuse of discretion in denying severance is whether a joint trial would be so prejudicial that the trial judge could exercise his discretion only one way.... The ruling of the trial judge will rarely be disturbed on appeal." United States v. Escalante, 637 F.2d 1197, 1201 (9th Cir.), cert. denied, 449 U.S. 856 (1980).

On appeal, Schooff's principal ground for urging that the district court abused its discretion involves a remark made by codefendant Russell, who was acting pro se, during his opening statement. Russell stated:

I am not a witness here; I am the accused, and I have been brought before this tribunal under duress in order to attempt to retain my inalienable rights in the common law. These rights I claim as a free white Christian male, holding no contact with the Government.

The district court responded immediately to Russell's remark by stating, "The court is not going to permit that presentation, and you've been warned about the consequences of doing so." After hearing the motions for severance and mistrial outside of the jury's presence, and warning Russell against making further offensive statements, upon returning the district court instructed the jury as follows:

Members of the jury, the court isn't certain whether you are aware or remember the remarks that the Court considered to be offensive to its prior rulings; but in any event if you do, those statements were stricken, and they should be disregarded as having no place in this proceeding.

There is no evidence that Russell made any further inflammatory remarks. In light of the district court's extensive remedial action, it is clear that the limited prejudicial impact Russell's statement had upon Schooff, if any, was eliminated.¹ 

Schooff's attorney also moved for a mistrial based on Russell's "free white Christian male" remark. The denial of this motion is also reviewed for abuse of discretion. United States v. Morris, 827 F.2d 1348, 1351 (9th Cir. 1987), cert. denied, 108 S. Ct. 726 (1988). Because Russell's remark was an "isolated statement" which was stricken, and because its potential prejudice was greatly outweighed by the probative force of properly admitted evidence, the district court did not abuse its discretion in denying the motion for a mistrial. Id.

Schooff contends that a gross disparity exists between his sentence of 2 years in prison and codefendant Richey's 5 years probation. We review this claim of error for abuse of discretion. United States v. Meyers, 847 F.2d 1408, 1416 (9th Cir. 1988). The disparity is not gross. Schooff promoted the scheme, while Richey, a former IRS agent, helped prepare a number of false tax returns (thus his multiple convictions). A sentence within statutory limits is generally not subject to review, and the district court need not explain disparate sentences to codefendants "absent an infringement of the defendant's constitutional right to stand trial." United States v. Endicott, 803 F.2d 506, 510 (9th Cir. 1986). Schooff's constitutional right to stand trial was not implicated here.

As the government acknowledges, however, the fine ($25,000) assessed against Schooff exceeds by $15,000 the statutory maximum allowed under section 371 at the time of Schooff's conviction. Consequently, the $25,000 fine will be vacated and the case will be remanded to the district court for redetermination of the fine. United States v. Whitworth, 856 F.2d 1268, 1287 (9th Cir. 1988), cert. denied, 109 S. Ct. 1541 (1989).

Schooff contends that his trial counsel was inadequate. This court recently articulated the relevant standard of review as follows:

We review claims of ineffective assistance of counsel de novo. To prevail on such a claim, the defendant must show: "(1) specific acts and omissions of counsel that fall below a standard of professional reasonableness, and (2) that these acts 'prejudiced' the defendant because there 'is a reasonable probability that absent the errors the factfinder would have had a reasonable doubt respecting guilt."

United States v. Catabran, 836 F.2d 453, 461 (9th Cir. 1988) (citations omitted). Schooff has not identified any acts or omissions on the part of his attorney that prejudiced him at trial. We hold that he was not denied effective assistance of counsel.

Finally, Schooff appeals the district court's denial of reimbursement for the cost of his transportation and subsistence from his home in Aloha, Oregon to his sentencing at Yakima, Washington. Schooff had requested reimbursement pursuant to 18 U.S.C. § 4285, which provides for discretionary reimbursement in cases where the defendant is "financially unable" to pay such costs.

Schooff had been receiving reimbursement for his travel and subsistence up until his conviction. While such reimbursement is discretionary, the district court apparently denied Schooff's request on the ground that it was "unwarranted in light of Mr. Schooff's conviction." Nothing in the statute indicates that sentencing proceedings are not covered by section 4285. The denial of reimbursement on the basis of his conviction was an abuse of discretion.

III

CONCLUSION

Schooff's conviction is affirmed. The portion of his sentence imposing a $25,000 fine is vacated. We remand this case to the district court (1) for the purpose of redetermining Schooff's fine within the $10,000 statutory limit and (2) to enable the district court to consider Schooff's request for reimbursement of travel and subsistence from Aloha, Oregon to his sentencing at Yakima, Washington pursuant to 18 U.S.C. § 4285.

AFFIRMED in part, REVERSED in part, and REMANDED to the district court for proceedings consistent with this disposition.