Government Urges Ninth Circuit to Uphold Tax Obstruction Conviction

UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
STEPHEN J. DOUGAN,
Defendant-Appellant.

IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF CALIFORNIA
D.C. NO. 2:16-CR-145-WBS

ANSWERING BRIEF OF THE UNITED STATES

MCGREGOR W. SCOTT
United States Attorney

CAMIL A. SKIPPER
Assistant U.S. Attorney
Appellate Chief

MICHAEL M. BECKWITH
Assistant U.S. Attorney
Eastern District of California
501 I Street, Suite10-100
Sacramento, California 95814
Telephone: (916) 554-2700

Attorneys for Appellee

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TABLE OF CONTENTS

Table of Contents

Table of Authorities

Introduction

Statement of Jurisdiction

Issues Presented for Review

Bail Status

Statement of the Case

Summary of Argument

Argument

Conclusion

Statement of Related Cases

Certificate of Compliance

Certificate of Service

TABLE OF AUTHORITIES

CASES

Echavarria-Olarte v. Reno, 35 F.3d 395 (9th Cir. 1994)

Hagner v. United States, 285 U.S. 427 (1932)

Kaneshiro v. United States, 445 F.2d 1266 (9th Cir. 1971)

Marinello v. United States, 138 S. Ct 1101 (2018)

Miller v. Stagner, 757 F.2d 988 (9th Cir. 1985)

Perry v. Rushen, 713 F.2d 1447 (9th Cir. 1983)

Sansone v. United States, 380 U.S. 343 (1965)

Sec. Alarm Fin. Enterprises, LP v. Alarm Prot. Tech., LLC, 743 Fed. Appx. 786 (9th Cir. 2018)

Stirone v. United States, 361 U.S. 212 (1960)

Taylor v. Illinois, 484 U.S. 400 (1988)

United States v. Adamson, 291 F.3d 606 (9th Cir. 2002)

United States v. Bassignani, 575 F.3d 879 (9th Cir. 2009)

United States v. Boulware, 384 F.3d 794 (9th Cir. 2004)

United States v. Dababneh, 28 M.J. 929 (N.M.C.M.R. 1989)

United States v. Evans, 728 F.3d 953 (9th Cir. 2013)

United States v. Farr, 536 F.3d 1174 (10th Cir. 2008)

United States v. Fernandez, 839 F.2d 639 (9th Cir. 1988)

United States v. Frederick, 78 F.3d 1370 (9th Cir. 1996)

United States v. Harrison, 585 F.3d 1155 (9th Cir. 2009)

United States v. Hartz, 458 F.3d 1011 (9th Cir. 2006)

United States v. Hugs, 384 F.3d 762 (9th Cir. 2004)

United States v. Kelly, 147 F.3d 172 (2d Cir. 1998)

United States v. LeMaster, 54 F.3d 1224 (6th Cir. 1995)

United States v. Lo, 231 F.3d 471 (9th Cir. 2000)

United States v. Marcus, 560 U.S. 258 (2010)

United States v. Miller, 471 U.S. 130 (1985)

United States v. Miller, 874 F.2d 1255 (9th Cir. 1989)

United States v. Miller, 891 F.3d 1220 (10th Cir. 2018)

United States v. Montana, 199 F.3d 947 (7th Cir. 1999)

United States v. Morgenstern, 933 F.2d 1108 (2d Cir. 1991)

United States v. Necoechea, 986 F.2d 1273 (9th Cir. 1993)

United States v. Neely, 980 F.2d 1074 (7th Cir. 1992)

United States v. Olano, 507 U.S. 725 (1993)

United States v. Ortega, 203 F.3d 675 (9th Cir. 2000)

United States v. Pang, 362 F.3d 1187 (9th Cir. 2004)

United States v. Pheaster, 544 F.2d 353 (9th Cir. 1976)

United States v. Ponticelli, 622 F.2d 985 (9th Cir. 1980)

United States v. Ramirez, 176 F.3d 1179 (9th Cir. 1999)

United States v. Reyes, 577 F.3d 1069 (9th Cir. 2009)

United States v. Ross, 626 F.2d 77 (9th Cir. 1980)

United States v. Ruiz, 710 F.3d 1077 (9th Cir. 2013)

United States v. Russell, 369 US 749 (1962)

United States v. Sager, 227 F.3d 1138 (9th Cir. 2000)

United States v. Salmonese, 352 F.3d 608 (2d Cir. 2003)

United States v. Shipsey, 190 F.3d 1081 (9th Cir. 1999)

United States v. Shryock, 342 F.3d 948 (9th Cir. 2003)

United States v. Spangler, 810 F.3d 702 (9th Cir. 2016)

United States v. Stever, 603 F.3d 747 (9th Cir. 2010)

United States v. Stoehr, 196 F.2d 276 (3d Cir. 1952)

United States v. Wallace, 848 F.2d 1464 (9th Cir. 1988)

United States v. Ward, 747 F.3d 1184 (9th Cir. 2014)

United States v. Wilkes, 662 F.3d 524 (9th Cir. 2011)

STATUTES

18 U.S.C. § 3231

26 U.S.C. § 7206(2)

26 U.S.C. § 7212(a)

28 U.S.C. § 1291

RULES

Fed. R. App. P. 4(b)

Fed. R. Evid. 801(a)

Fed. R. Evid. 803(3)

MISCELLANEOUS

5 J. Weinstein, Evidence § 803.05[2][a]

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INTRODUCTION

The prosecutors in this case took seriously their roles as officers of the court. As the district court found, the prosecutors did not engage in misconduct by making knowingly false statements during closing argument. As the record indicates, the government's arguments were properly based on record evidence and the reasonable inferences that could be drawn from that evidence.

Dougan's other challenges to his conviction are equally unpersuasive. The court properly excluded Dougan's irrelevant and unreliable hearsay statements. Moreover, there was no constructive amendment here because the proof offered at trial matched the charges in the indictment. The broad allegations in counts one and two allowed for any evidence showing a willfully false statement as to income or expenses. The broad allegation in count three allowed for any evidence showing Dougan corruptly obstructed the IRS audit. This Court should affirm Dougan's conviction.

STATEMENT OF JURISDICTION

The district court had jurisdiction pursuant to 18 U.S.C. § 3231. Judgment was entered on September 10, 2019. ER 1-7; CR 240. Dougan filed a timely notice of appeal on September 9, 2019. Fed. R. App. P. 4(b); ER 69; CR 237. This Court has jurisdiction pursuant to 28 U.S.C. § 1291.

ISSUES PRESENTED FOR REVIEW

1. Whether the district court abused its discretion by excluding two of Dougan's hearsay statements.

2. Whether the district court committed plain error by constructively amending the indictment.

3. Whether the district court committed plain error by allowing the government to making closing arguments based on evidence in the record.

4. Whether cumulative error deprived Dougan of a fair trial.

BAIL STATUS

Dougan is out of custody.

STATEMENT OF THE CASE

I. Dougan was a personal-injury attorney who earned most of his income on a contingent fee basis.

Dougan was an experienced personal-injury attorney in Sacramento who practiced for decades. SER 755. He earned most of his income on a contingent fee basis. Dougan brought in over $3 million in gross receipts in 2006 and over $2.6 million in gross receipts in 2007. SER 360-61, 481-82. In the vast majority of his cases, Dougan charged his clients a 40% contingency fee. SER 837-1067. That is, he earned 40% of the gross receipts from any settlement or recovery. SER 835-36.

Despite having a standard fee of 40%, Dougan repeatedly told his tax preparers, audit representatives, and the IRS that his fee was 33.3%. SER 620, 680. Accordingly, he claimed his business income was 1/3 of the IRS Form 1099s he received in 2006 and 2007. SER 187, 276-78, 285-97, 311, 471, 601, 620, 755. A difference of roughly 7% was significant given his gross receipts in those years. SER 360, 481. Dougan told the IRS that he had been using this method of calculating his income “since he opened his office in 1988.” SER 775. As discussed below, that was not true.

In addition to understating his fee income in 2006 and 2007, Dougan had other substantial sources of income, including (1) income earned from medical lien reductions and (2) income for which he did not receive a Form 1099,¹ none of which he disclosed to his preparers, tax attorneys, or the IRS. SER 244-45, 360, 481, 835-36, 871.

Dougan worked with two sets of tax professionals. He hired Gilbert Associates (“CPA”), an accounting firm, to prepare his taxes and represent him during the audit. SER 640. Later, he engaged the tax law firm of Wagner, Kirkman, Blaine, Klomparens & Youmans LLP (“tax lawyers”) to represented him as well. SER 740.

II. Dougan gave false information to his CPAs during the preparation of his 2006 and 2007 tax returns.

In preparing his tax returns for 2006 and 2007, Dougan provided Gilbert with information related to his business income and expenses. SER 364, 485, 469-70, 471, 600, 601. Gilbert, in turn, took that information and used it to complete and file Dougan's tax returns. SER 364, 485, 469-70, 471, 600, 601.

A. Dougan told his CPAs to use a percentage method when filing his 2006 tax return.

According to his CPAs, Dougan was the source of the income statement made on his 2006 tax return. SER 471. Specifically, Dougan told them his income was 1/3 of the gross receipts he received in 2006, as reported on his IRS Form 1099s from that year. SER 285-97, 311, 471. On October 15, 2007, Gilbert filed Dougan's 2006 tax return and reported his gross income as $889,679, which was 1/3 of his gross receipts of $2.669 million, as reported on his Form 1099s for 2006. SER 361, 471. Dougan's business income (line 12, Form 1040) was determined by subtracting his business expenses from his gross income/profit. SER 367, 371, 471.

Gilbert was forced to rely on Dougan's figures because the only income information he gave them was (1) his Form 1099s from 2006 and (2) his statement that his income was 1/3 of his total 1099s for the year. SER 171, 285-97, 435-58. With regard to his business expenses, Dougan provided only a 2-page, year-end summary from his Quicken account. SER 469.

B. The IRS initiated a review of Dougan's 2006 tax return.

Dougan learned that his 2006 tax return was being reviewed by the IRS on November 13, 2007. SER 617. That day, he sent an email to his CPA tax preparer, Corinne Hernandez,² in which he said, “I just got off the phone with IRS . . . WHAT I FOUND DISTURBING IS that they transferred me to the Examination Department. They said my return is being reviewed????????????” SER 617.

In September 2008, the IRS formally notified Dougan of the 2006 audit. SER 618. Over time, the audit expanded to include tax years 2007 to 2010. SER 775-78. After the formal notice, Dougan sent an email to Hernandez on September 15, in which he said:

Corrine: Please find attached the Tax Audit notice. After reviewing the same, I am NOT as concerned. There are 4 x areas of inquiry. Two (2) the areas: Gross receipts and Costs of goods are easily explained. My 1099(s) total approximately $2.6 million and my net is only $899 or so. So, IRS wants to know where the difference went. As you know, I am a personal injury lawyer. When the case resolves, the Insurance companies send me a 1099 for the entire amount, but I would receive 1/3 as my fees. The balance is distributed as client settlements and medical lien payments. Accordingly, i think this area of inquiry is easily answered. Third Area: Advertising is listed as $5OK. I am putting together the receipts for you today. . . .

SER 620.

On September 16, the IRS issued Information Document Request No. 1 (“IDR No. 1”) for “[a]ll bank statements, cancelled checks, and deposit slips (both business and personal, savings and checking),” including certificate of deposit (“CD”) accounts.³ SER 621.

C. Dougan again told his CPAs to use a percentage method when filing his 2007 tax return.

According to his CPAs, Dougan was also the source of the income statement made on his 2007 tax return. SER 601, 620. Dougan again told them his income was 1/3 of the gross receipts he received in 2007, as reported on his Form 1099s from that year. SER 226-28, 331, 601, 620. On October 15, 2008, his CPAs filed Dougan's 2007 tax return, and reported his gross income as $893,632, which was 1/3 of his gross receipts of $2.68 million, as reported on his Form 1099s for 2007. SER 487, 482, 601.

As with the 2006 return, the only income information Dougan gave his CPAs was (1) his Form 1099s from 2007 and (2) his statement that his income was 1/3 of his total 1099s for the year. SER 554-73, 601 With regard to his business expenses, Dougan provided a 1-page, year-end summary from his Quicken account. SER 600.

Dougan did his own bookkeeping and reconciled his bank accounts on a monthly basis. SER 207 (Dougan “said that he did all his own bookkeeping . . . roughly since the mid-1990s”), 338 (“Mr. Dougan did not have a bookkeeper . . . he did the bookkeeping himself . . . Mr. Dougan stated that he reconciled his bank accounts on a monthly basis”). Nevertheless, for his 2006 and 2007 returns, Dougan did not give CPAs the following documents, despite having access to them:⁴ (1) bank statements for his trust and operating accounts; (2) cancelled checks; (3) information related to income that was not subject to a 1099; (4) client invoices showing the actual fee he received; (5) his monthly expense reports from Quicken; and (6) deposit information for his $900,000 CD. SER 275, 279, 298-305, 214-15 (IRS received Dougan's final accountings and monthly Quicken reports in 2012), 382, 509 (2006 and 2007 work papers), 632, 635 (Dougan delivered bank statements without checks after the 2007 filing), 837-1067 (final accountings), 1068, 1161, 1214, 1336 (monthly Quicken reports).

D. Dougan failed to report over $1.4 million in income during the 2005, 2006 and 2007 tax years.

Dougan failed to report over $1.4 million in business income between 2005 and 2007. Specifically, he failed to report over $920,000 in business income from the 2006 and 2007 tax years. SER 360, 481 (uncontested summary charts). The government charged Dougan with underreporting his income in both of those years. ER 609-14; CR 1. Dougan also failed to report an additional $510,000 in income from the 2005 tax year. SER 248-49, 1389. Dougan used the unreported income from 2005 to purchase a CD in 2006, one of the charged years. SER 248. Setting aside his unreported income from 2005, Dougan's actions resulted in a tax loss of over $327,000 in the charged years. SER 360, 481.

III. Dougan obstructed the IRS audit of his tax returns.

During the IRS audit, Dougan concealed over $1.4 million in unreported business income by engaging in a number of acts, including: (1) falsely claiming to his audit representatives (his CPAs and tax lawyers) that his income was only 1/3 of the Form 1099s he received in a given year; (2) providing his audit representatives and the IRS with false and misleading documents to substantiate his claimed income; (3) falsely substantiating his clerical and advertising expenses; (4) providing the IRS with a 3-month sample of redacted checks from his trust account (the “3-month sample”) to falsely substantiate his income and certain expenses for 2006; (5) falsely stating under oath that his basis for redacting the 3-month sample was to protect client names when, in fact, he redacted his own name on fee checks he wrote to himself; (6) approving a false protest letter; and (7) concealing the fact that he deposited $510,000 in unreported income from 2005 and other fee checks into a CD in 2006.

A. Dougan falsely claimed that his income was 1/3 of his Form 1099s.

While the IRS was auditing his 2006 and 2007 tax returns, Dougan regularly claimed that his income was 1/3 of the Form 1099s he received in a given year. At the beginning of the audit, Dougan told his CPAs, “I would receive 1/3 as my fees. The balance is distributed as client settlements and medical lien payments.” SER 620. Later in the audit, Dougan claimed, “my income was but a percentage of the total of the 1099 forms that were sent to me.” SER 791. (Dougan Decl. ¶ 17). One of Dougan's CPAs and audit representatives, Darla Colson, testified that, during the audit, Dougan told her 6 to 10 times that his income was 1/3 of the Form 1099's he received. SER 187.

Dougan's actual gross profit (gross income)⁵ in both 2006 and 2007 was much higher that he reported — over $1.3 million in 2006 (rather than $889,679); and over $1.1 million in 2007 (rather than $893,632). SER 360, 481. Dougan's actual income was higher than reported because he in fact charged his clients a 40% fee (not a 33% fee) in the vast majority of his cases. SER 835. He also had other substantial sources of unreported income, including (1) fee income earned from medical lien reductions (i.e., getting paid to negotiate lower medical bills), and (2) income for which he did not receive a Form 1099.⁶ SER 226, 244-45 360, 481, 835, 874-75.

None of this was disclosed to his audit representatives or the IRS. SER 194-202, 208-12. Dougan's average fee in 2006 and 2007 was in fact 40.5%. SER 835 (uncontested chart). As Dougan's long-time paralegal, Jan Pollo, testified, Dougan was well aware of his actual fee in each case. SER 260-61. Dougan used an invoice (or “final accounting”) in each case, which he personally approved and which identified his fee. SER 260-61.

Despite the fact that the IRS audit began in 2008, Dougan maintained this false position for years, never revealing to the IRS that his standard fee was 40% until after the IRS defeated his motion to quash (discussed below) and obtained his unredacted bank records and final accountings in 2012. SER 213-14.

B. Dougan provided false and misleading documents to support his claimed income while concealing other sources of income.

During the audit, Dougan provided misleading, partial, and false documents to the IRS to substantiate his claimed income. SER 147-53. Specifically, he provided: (1) a redacted fee contract from 2006 showing his fee to be 25% to 33.3% of the total settlement amount; (2) a redacted final accounting from the Dwyer case dated May 2, 2006, showing the total attorneys' fees in the case to be 33.3% of the settlement amount; and (3) a redacted fee check from the Dwyer case dated May 2, 2006, that showed he received $114,855 (or 26.4%) of the settlement amount. SER 204-06, 680, 683, 684 (income support documents provided by Dougan during the audit). Dougan provided these documents to his CPA around October or November 2008. SER 147-53, 160, 163-64.

These three documents suggested he charged only 25% to 33.3% of the total settlement as his fee in each case. SER 680-84. Moreover, these documents falsely implied that he only charged a fee of 26.4% in the Dwyer case. SER 684. His true fee in that case was much higher. SER 835.

These documents misrepresented the truth. First, Dougan's actual fee in the vast majority of his cases was 40% of any recovery, not 25% to 33.3%.⁷ Dougan's final accountings and fee checks illustrate this fact and establish that his actual income was much higher than he reported.⁸ SER 360, 481, 837-1053. Indeed, Dougan's income, as a percentage of the Form 1099s he received, often exceeded 40%. SER 835.

Second, these documents did not account for Dougan's other substantial sources of income, including (1) income earned for reducing medical bills and (2) income for which he did not receive a Form 1099. SER 226. Neither his CPAs nor his tax attorneys were aware of his income from medical lien reductions. SER 162, 329.

Third, Dougan gave his audit representatives and the IRS only part of the May 2, 2006, final accounting from the Dwyer case. Compare SER 871 with SER 683.⁹ The Dwyer final accounting had a second page that accounted for a medical lien reduction and the payment to Dougan of a second fee of $50,800. SER 871. On the second page, Dougan told Dwyer he was able to “successfully negotiate a reduction of Blue Cross' Medical Lien.” SER 871. Neither this second fee check for $50,800 nor the second page of the final accounting were provided to his audit representatives or the IRS. SER 153-58. They received only Exhibit 329 (the redacted and modified version of Exhibit 417). SER 683.

Dougan's provision of a misleading fee agreement, a partial final accounting (which he modified),¹⁰ and only one of the fee checks associated with the Dwyer case, were all intentional acts. Below are the redacted and unredacted versions of the Dwyer final accounting, as well as the second page of that accounting and the second fee check from that case.

As discussed below, on May 18, 2006, Dougan deposited the above $50,800 fee check into a CD at First Northern Bank, along with $510,000 in unreported income from 2005 (SER 248-49), and several other fee checks he wrote to himself in 2006. SER 1389. These deposits, which Dougan made during one of the audited years, totaled over $900,000. SER 1389. Despite being asked for these deposits, Dougan reported none of them to the IRS during the audit. SER 219-22, 623 (IDR asking for all CD accounts). The CD at First Northern Bank is discussed below in Section I.

Notably, the Dwyer fee check ($50,800) and the five fee checks from 2005 (the unreported income) were concealed a second time when Dougan redacted them as he prepared a 3-month sample of checks to substantiate his business income for the IRS during the audit. SER 655. The 3-month sample is discussed in Section E.

C. Dougan falsely substantiated the clerical expenses he claimed in 2006.

During the audit, the IRS also asked Dougan to substantiate his 2006 clerical expenses, which totaled $40,419. SER 624. In response, Dougan provided 15 redacted checks, which he claimed he wrote to his assistant and paralegals. SER 682. He also provided an additional 29 redacted checks he wrote to ASAP Attorney Services (ASAP) and Litigation One. ER 440-69. Together, these 44 checks totaled $41,942.13. SER 716.

With regard to the 15 checks he claimed that he wrote to his assistant and paralegals, Dougan told his CPAs: “You will find attached checks made payable to my Assistant and Paralegal(s) in the amount of $34,000. You will note for privacy purposes [I've] redacted their last names.” SER 640. However, $27,000 worth of those checks were, in fact, personal checks Dougan wrote to his fiancé, Veronica Layman, and his former divorce lawyer, Stephen Wagner. SER 701, 716. At trial, both Wagner and Layman testified that they never worked as an assistant or paralegal for Dougan. SER 262-65, 267-68, 269-71. During the hearing on the Dougan's post-trial motions, the court found that Layman had testified truthfully. ER 10-11; CR 184. Dougan's false claim that Wagner and Layman had worked for him and his presentation of personal checks as substantiation of his firm's business expenses, were corrupt acts that served to obstruct the audit.¹¹

As to the other 29 checks Dougan wrote to ASAP and Litigation One (roughly $7,400), those checks had already been deducted as a Schedule C business expense on his 2006 return. SER 254-55. As Revenue Agent Oertel testified, impermissible double counting occurs when one check is deducted twice on a tax return. SER 231-32, 254-55. Dougan presented these 29 checks as substantiation for his “clerical expenses” when he had already deducted them as a business expense elsewhere. SER 254-55. This was another false statement.

D. Dougan falsely substantiated the advertising expenses he claimed in 2006.

During the preparation of his 2006 return, Dougan told his CPAs that his “Misc. Expenses should be under Advertising.” SER 469, 479. These miscellaneous expenses, however, had little or nothing to do with advertising. See SER 738. Because Dougan provided only a 2-page, year-end Quicken summary and withheld his monthly Quicken expense reports, his tax preparers had nothing to go on but his word. SER 214-18, 275, 279-80, 298-300, 301-05, 382 (2006 work papers), 469 (Quicken summary), 1068, 1161 (2006 monthly Quicken reports, which show the details underlying each year-end expense category and connect each check to each expense). At Dougan's direction, the following payments were switched from personal expenses to business expenses and deducted on his 2006 return:

In all, Dougan converted $34,151 worth of his miscellaneous personal expenses¹² to business advertising expenses, for a total claimed advertising expense of $50,893. SER 361, 469, 479, and 738 (uncontested chart detailing $34,151 worth of his personal expenses that Dougan directed his CPAs to deduct as advertising expenses).

During the audit, the IRS asked Dougan to substantiate his 2006 advertising expenses of $50,893, which included $34,151 of his converted personal expenses. SER 621. In response, Dougan provided the IRS with a false invoice (allegedly from Fugitive Watch in 2006) for $34,100 and a check for $55 written to COPS. SER 721-24. Together, the false invoice and the check totaled $34,155 — almost the exact amount of miscellaneous personal expenses Dougan needed to substantiate.¹³ SER 738.

The Fugitive Watch invoice was fake. According to Agent Oertel, who reviewed all of Dougan's bank records, Dougan made no advertising payments to Scott Castruita or Fugitive Watch in 2006, let alone one for $34,100. SER 28, 239-41, 257, Moreover, at the time the invoice was allegedly stamped “paid in full,” it listed the wrong business address for Dougan. SER 724. The invoice was dated September 1, 2006, it was allegedly stamped “paid in full” the same day, and Dougan's business address was listed as 3017 Douglas Boulevard, Suite 300 (the address he had at the time of the audit). SER 724. However, on September 1, 2006, Dougan was still working at 400 Capitol Mall, Suite 900. SER 1453, 1454. Dougan did not move to the Douglas Blvd. address until four or five months later. SER 1453. These facts were uncontested at trial.

E. Dougan provided the IRS with a misleading sample of redacted checks to substantiate his income and cost of goods sold.

On November 21, the IRS asked for a 3-month sample of canceled checks from Dougan's trust account to better understand his income and cost of goods sold (a component of Dougan's Schedule C business income). SER 361, 625 (IDR No. 3), 651, 655 (“I only needed to provide a random sampling of redacted trust account checks . . . as proof of income”). The IRS sought checks from May, July, and November 2006 to insure that Dougan was not writing checks to himself. SER 208-12.¹⁴

On December 30, Dougan provided three months of redacted checks to his CPAs who, in turn, provided those checks to the IRS. SER 652, 761 (3-month sample). Dougan later claimed in a sworn declaration that he redacted only client names. SER 791 (“I compiled the records and redacted [my] clients' names for the three months designated”). Dougan, however, also redacted his name and entire checks that he wrote to himself. SER 1389. With regard to the month of May alone, Dougan redacted over $560,000 worth of fee checks that he wrote to himself. SER 1390-93.

The $560,000 Dougan hid from the IRS included the $50,800 fee check for the Dwyer medical lien reduction (discussed above) and five checks totaling $510,000 in unreported income from 2005. SER 248-49. These checks are shown below in both redacted and unredacted form. The IRS only obtained the unredacted documents (bank records) in 2012 after it defeated Dougan's motion to quash (discussed below in Section F). SER 213-14.

As a result of Dougan's redactions, the IRS could not identify the recipient of each check. So while it could see large amounts of money moving in and out of the trust account, the IRS could not attribute that money to either income or the cost of goods sold. SER 225-26 361, 482.

With his redacted sample, Dougan again misled the IRS and obstructed the audit. By redacting checks he wrote to himself, and claiming those checks went to clients, Dougan under-represented his income in 2006. SER 761, 1389. Moreover, by concealing his unreported income from 2005, Dougan reduced the chance that the audit would expand to include the 2005 tax year or that the IRS would treat his unreported income from 2005 as income in 2006. SER 246-49 (2005 income not reported in either year), 654, 775, 786 (IRS was expanding Dougan's audit).

Revenue Agent Langston asked Dougan to redact only part of the payee's full name on each check so the IRS could confirm Dougan's claim that the checks represented payments to clients and not to Dougan himself. SER 225. Dougan refused to partially redact the names. SER 225-26, 827. Notably, despite the fact that he redacted only last names on the checks he used to substantiate his clerical expenses, he refused to do the same with these checks. Compare SER 225-26, 640 (“for privacy purposes, I've redacted their last names”).

F. Dougan lied under oath to quash an IRS summons that would reveal his tax fraud and his intentional obstruction of the audit.

On May 13, the IRS issued a summons to First Northern Bank for unredacted records from Dougan's trust and operating accounts. SER 775. In June 2009, Dougan petitioned the court to quash the IRS summons for the complete bank records from his trust account and operating account. Dougan v. United States, No. 2:09-mc-52-FCD-DAD (E.D. Cal.) [CR 1]. These bank records, if provided, would have allowed the IRS to determine (1) the accuracy of Dougan's returns, and (2) the truth of his claims regarding the 3-month sample. See, e.g., SER 360, 481 (uncontested tax return information based on bank records). Dougan claimed that he sought to quash the IRS summons to protect the identities of his clients. However, he in fact used this legal process (and his position as an attorney) to conceal over $1.4 million in unreported income. See SER 791 (Dougan Decl. ¶ 12). In his declaration, made under the penalty of perjury, Dougan stated:

I determined that I could provide the IRS with full access to relevant and non-privileged records and bank accounts for the years in question. . . . I likewise formed a good faith belief that the names of my clients were not relevant to the IRS investigation into the accuracy of my federal income tax returns.

* * *

In providing this documentation, I redacted the clients' names from the memo lines where appropriate. . . . I again communicated to the IRS through my accountants the problems with producing these bank records to the extent that they would disclose my clients' identities.

* * *

In mid-November of 2008, Ms. Langston offered a compromised agreement in which she would randomly select three months from 2006 and I would provide her with requested documentation from the client trust account

* * *

I advised my accountant that if I had to produce any of these bank records . . . I would redact them to delete the names of other information identifying my clients. . . . I compiled the records and redacted [my] clients' names for the three months designated by the IRS.

SER 791 (Dougan Decl. ¶¶ 11-12, 13, 16, 19, 20-21).

Despite his statements under oath that he was redacting only client information and that he would “provide the IRS with full access to relevant and non-privileged records,” the IRS later learned that, in the 3-month sample, Dougan redacted his own name and over $560,000 worth of fee checks he wrote to himself. SER 791, 1389.

G. Dougan reviewed and approved a false protest letter.

In May 2010, the IRS disallowed Dougan's expense for cost of goods sold (a claimed expense of over $1.7 million) for lack of substantiation. ER 421-23. At this time, Dougan's motion to quash was still pending. Colson notified both Dougan and his tax attorneys about the IRS's decision:

It appears . . . she disallowed all of the costs of good sold, which represented the 2/3 amount he pays out to clients and he retains 1/3 per his agreement with his clients (which she has a copy of). We gave her the checks but the names of course had been redacted.

ER 421-23 (May 19, 2010 email). Colson later told both Dougan and his tax attorneys: “I believe had the checks not been redacted and the auditor could have seen the client names on the checks the adjustment to the cost of goods sold amounts would have not been made, or at least not totally disallowed.” SER 741 (June 10, 2010 email). Both of these emails were addressed to Dougan, but he made no effort to clarify Colson's misunderstanding, and she continued to believe Dougan had made the redactions to protect the identities of his clients. SER 165-74.

In June 2010, Dougan's tax attorneys drafted a protest letter, challenging the IRS decision. SER 753. In drafting the letter, Dougan's tax attorneys relied on the single fee agreement he provided earlier in the audit to substantiate his income and cost of goods sold. SER 316 (“there was only one fee agreement in our file at the time that the protest letter was prepared”). That fee agreement reflected a fee range of 25% to 33.3%. SER 380, 740 (“I had misplaced stephen's fee contract . . . which gave rise to the changes . . . reflected in the attached redline”) 745 (attached redline changing 40% to 33.3%). Dougan reviewed and approved the filing of the protest letter, which stated he “generally charg[ed] 25.0% to 33.3% of any recovery as his fee.” SER 320, 322, 753 (Protest Letter), 1455 (June 14, 2010, email approving letter).

This protest letter, filed with the IRS on June 15, was another knowingly false statement. SER 753. Dougan's actual fee in the vast majority of his cases was 40% of any recovery, not 25% to 33.3%. SER 837-1053. Youmans and Klomparens both testified during a post-trial evidentiary hearing that Dougan never told them his standard fee was 40%. SER 322, 325, 335.

H. The district court denied Dougan's petition to quash the IRS summons; the IRS began receiving records.

On September 12, 2011, the district court denied Dougan's petition to quash the IRS summons. SER 820. Finally, in 2012, Dougan began providing his client invoices (the “final accountings”) that revealed, in the vast majority of cases, he charged his clients a 40% fee. SER 213-14, 215-24, 627-30, 631, 837-1053. It became clear that his prior claims of a fee of 25% to 33% were false. SER 835. By this time, the audit had expanded to include the 2008, 2009, and 2010 tax years as well. SER 780, 786.

I. Dougan concealed substantial amounts of income in his personal CD at First Northern Bank.

In September 2012, after the IRS obtained a complete set of Dougan's bank records, it was finally able to trace the funds moving in and out of his trust account. SER 208-12. By tracing the funds, the IRS uncovered Dougan's $900,000 CD. SER 219-22. Dougan purchased the CD with $510,000 in unreported income from 2005 and over $391,000 in income from 2006. SER 246-49, 1389. As Revenue Agent Oertel explained, the unreported income from 2005 was not reported in 2006 either. SER 246-49. That money — over a half-million dollars — went unreported in both tax years because Dougan switched his accounting methods.

From 2002 to 2005, Dougan's CPA reported his income based on the deposits he made into his operating account from his client trust account (a deposits method). SER 180-86, 248-49, 307-07, 1428, 1430 (2002: gross income based on deposits); 1432, 1434 (2003: same); 1436, 1438 (2004: same); 1440, 1444 (2005: same). Beginning in 2006, after his long-time CPA at Gilbert died, Dougan changed his method of reporting income and instructed other CPAs at Gilbert to calculate his income as a percentage of the Form 1099s he received in a given year (a percentage method). SER 471. Dougan used this method in 2006 and 2007. SER 184-85 (in contrast to previous years, Dougan removed the inflow/income information from his annual Quicken summaries for 2006 and 2007) 471, 601, 620. He returned to using the deposits method in 2008 at the direction of Colson. SER 185.

Dougan's switch from a deposits method in 2005 to a percentage method in 2006 concealed over half a million dollars in unreported income that was sitting in his client trust account at the end of 2005.¹⁵ SER 248-49, 306-07. Because the money had not been deposited into his operating account in 2005, under the deposits method, it was not counted as income in that year. SER 248-49. Moreover, while Dougan used the money to purchase a CD in 2006, because he directed his CPAs to use a percentage method based on his Form 1099s from 2006 — which would not account for money earned in 2005 or earlier — the $510,000 was not be treated as income in 2006 either. SER 248-49. Dougan's switch to a percentage method in 2006 not only underreported his actual income by roughly 7%, but it insured that over $500,000 of additional personal income would not be reported. See SER 248-49.¹⁶

Dougan never provided his CD statements or deposit information, despite the IRS expressly requesting this information in IDR No. 1 in September 2008. See SER 219-24, 621. Once the IRS learned about the CD, the under-reporting of his income, and the false claims regarding his business expenses, the audits were suspended and the case was referred to IRS, Criminal Investigations in 2013.

IV. Pre-trial Proceedings

A grand jury indicted Dougan in 2016, charging him with two counts of willfully assisting in the preparation of a false tax return (for tax years 2006 and 2007), and one count of corruptly endeavoring to impede the due administration of the internal revenue laws. 26 U.S.C. §§ 7206(2), 7212(a); ER 609-14; CR 1.

Trial began in 2019. In light the Supreme Court's intervening decision in Marinello v. United States, 138 S. Ct 1101 (2018), the parties stipulated to strike certain language from the indictment before it was read to the jury. ER 573-74. At no time while discussing the scope of the indictment did Dougan raise an objection regarding a constructive amendment.

Prior to trial, the court heard argument but did not rule on a number of in limine motions, including the exclusion of records related to Dougan's prior tax returns (2002 through 2005), the exclusion of Dougan's hearsay statements, and the exclusion of checks from 2005. SER 1523-46; CR 83, 84.

V. Trial proceedings

A. The court admitted records related to Dougan's other tax returns and the Fugitive Watch invoice.

During trial, the court overruled Dougan's objection to the admissibility of records related to other tax years, finding the records were “relevant to his intent in connection with the two tax returns that are in issue in this case.” SER 1575-76. The court then gave a limiting instruction, which it summarized later:

The defendant is on trial only for alleged conduct in connection with the 2006 and 2007 tax years. He is not on trial for any conduct in connection with prior tax years. You may consider evidence of his conduct in connection with prior tax years only for the limited purpose as it relates to his intention or intentions in connection with the 2006 and 2007 tax years.

SER 175-79.

On the second day of trial, the government offered the false invoice from Fugitive Watch into evidence. SER 721. Dougan did not object. SER 1572.

B. The court ruled that Dougan's out-of-court statements were not admissible.

1. Dougan's April 2009 statement was excluded as hearsay.

On the fourth day of trial, Dougan offered an email from April 21, 2009. ER 405; SER 1577. The email contained a statement Dougan made during the audit. ER 405 (“I have made the decision to provide the IRS the Account info.”). The government objected on the basis of hearsay and under Rule 403. SER 1577-78, 1523-46.

Dougan acknowledged that he wanted the email in evidence to counter the government's claim that Dougan “filed the petition to quash to . . . hide the checks from the IRS.” SER 1578. The court found, “It's relevant, but it's hearsay. That's the objection that I'm concerned with. If you're offering it for the purpose that you just mentioned, then it's hearsay.” SER 1578.

Dougan then argued the email was relevant to Colson's state of mind and could be used to impeach her. SER 1579-80. The court reminded Dougan of Colson's actual testimony, finding, “it doesn't impeach her.” SER 1580-81. The court continued: “It does sound to me like you want this admitted for the truth of the matters asserted, and it is hearsay, and it does not come within the recognized exceptions.” SER 1581.

Dougan then asked to admit it for his state of mind. The court refused, finding that Dougan was under audit and had “too much time to reflect.” SER 1582. The court noted that Dougan could say that personally, but “you can't put in hearsay to prove that. That's the problem. So I'm going to exclude this. I don't think it comes in . . . under 803(3).” SER 1582. The court also made a finding under Rule 403: “the prejudicial effect if it were offered for the truth of the matters asserted outweighs any probative value. So I'm going to sustain the objection now to this Exhibit Y.” SER 1582.

2. Dougan's alleged offer to pay was excluded as hearsay.

In opening, the defense claimed that tax attorneys Robin Klomparens and Doug Youmans would testify that Dougan offered to pay the taxes he owed for 2006 and 2007 during a meeting with the IRS in August 2012. SER 342, 346. Dougan questioned Langston and Colson about the alleged offer to pay. ER 37, 41. The government objected on the basis of hearsay, and the court sustained those objections. ER 37, 41. Earlier, the government objected to this alleged statement on the basis of hearsay, relevance, and Rule 403. SER 1543-46. Dougan chose not to call Klomparens and Youmans to testify at trial. SER 359.

On January 28, 2019, the jury found Dougan guilty of corruptly obstructing an IRS audit. CR 143. They found him not guilty of willfully aiding in the preparation of a false tax return for 2006, and they were unable to reach a unanimous verdict as to the question of whether he willfully aided in the preparation of a false tax return for 2007. CR 143. (The government later moved to dismiss the that count. CR 206, 209.)

VI. Post-trial proceedings

A. The court ruled that the prosecutors did not engage in misconduct.

After trial, Dougan filed an amended motion to dismiss the indictment for prosecutorial misconduct. CR 159. The government opposed the motion (CR 171), and the court held an evidentiary hearing during which Dougan's tax attorneys, Youmans and Klomparens, testified. CR 194. After the hearing the court found that the prosecutors did not engage in misconduct. ER 11, 13. With regard to the inclusion of the 25-33% figure in the IRS protest letter, the court found that Dougan either “lied to his attorneys regarding what his normal fees were” or “the attorneys conspired with Dougan to mislead the IRS.” ER 13 (“defendant at a minimum committed a lie of omission”).

B. Dougan raised a constructive amendment claim for the first time after trial.

On September 6, 2019, Dougan was sentence to 36 months in prison for corruptly obstructing an IRS audit. ER 641; CR 236. On September 9, Dougan filed a motion for bail pending appeal and raised the issue of constructive amendment for the first time. ER 641-42; CR 238, 239.

SUMMARY OF ARGUMENT

The court properly excluded Dougan's April 2009 email as unreliable hearsay. It also found that the email lacked probative value sufficient to overcome the prejudice resulting from its admission. The court properly limited cross-examination of Colson and Langston regarding Dougan's alleged offer to pay, finding that such a statement would be hearsay and irrelevant.

There was no constructive amendment here because the proof offered at trial matched the charges in the indictment. The broad allegations in counts one and two allowed for any evidence showing a willfully false statement as to income or expenses. The broad allegation in count three allowed for any evidence showing that Dougan corruptly obstructed the IRS audit.

As the court found, and the record supports, the prosecutors did not engage in misconduct. The government's arguments were properly based on record evidence and the reasonable inferences that could be drawn from that evidence.

There was not error here, so Dougan's cumulative error argument fails. This Court should affirm Dougan's conviction.

ARGUMENT

I. The district court properly excluded two of Dougan's hearsay statements.

A. Standard of Review

This Court reviews evidentiary rulings for abuse of discretion. United States v. Shryock, 342 F.3d 948, 981 (9th Cir. 2003) (upholding, in a murder case, the exclusion of a statement of self-defense made to the police). Evidentiary rulings will be reversed for an abuse of discretion only if the error more likely than not affected the verdict. See United States v. Ramirez, 176 F.3d 1179, 1182 (9th Cir. 1999).

B. Dougan's April 2009 email and his alleged offer to pay in August 2012 were not verbal acts.

Neither the April 2009 email nor the alleged offer to pay were verbal acts. Both were offered for the truth of the matter asserted and properly excluded as hearsay (the email was also excluded under Rule 403, and the alleged offer to pay was also excluded on relevance grounds). SER 1576-81; ER 29, 37, 41.

In the email, Dougan stated, “I have made the decision. . . .” ER 405. This was an out-of-court statement (a written assertion) offered for the truth of the matter asserted, i.e., that he in fact decided to turn over account information to the IRS.¹⁷ Fed. R. Evid. 801(a), (c). Dougan argued the email was needed for its truth, specifically, to counter the government's claim that he sought “to hide the checks from the IRS.” SER 1577. The court found, “It's relevant, but . . . If you're offering it for the purpose that you just mentioned, then it's hearsay.” SER 1577.

The court was correct. Dougan's assertion in his email was not a verbal act or a verbal part of an act. Verbal acts are those that create legal rights and obligations.¹⁸ The April 19 email did not create a legal right or obligation. Because this statement was offered for the truth of the matter asserted, rather than being offered to show the existence of a legal right, it did not fall within the non-hearsay category of verbal acts and it was properly excluded. Pang, 362 F.3d at 1192 (defining a verbal act as one that has a legally operative significance).

Dougan's alleged offer to pay, assuming it was actually made, was also hearsay.¹⁹ It was an out-of-court statement (an oral assertion) offered for the truth of the matter asserted. Fed. R. Evid. 801(a), (c). That is, according to Dougan, he wanted to pay his taxes as soon as he found out his accountants had made a mistake, i.e., he did not act corruptly during the audit. SER 342. Because this statement was offered for the truth of the matter asserted, rather than being offered to show the existence of a legal right or obligation, it does not fall within the non-hearsay category of verbal acts. Pang, 362 F.3d at 1192.

Dougan's reliance on United States v. Montana, 199 F.3d 947, 950 (7th Cir. 1999), is misplaced. Montana supports the government's position, holding that testimony about someone else's promise to pay money is hearsay. Id. at 950 (“Had the marshal overheard Dodd tell Montana, 'your father has promised me $10,000,' Dodd's overheard statement would have been hearsay, because its value as evidence would have depended on it being truthful”). As in Montana, Dougan sought to offer testimony about what he allegedly said. Such a statement, had it actually been made, would have been hearsay because its evidentiary value depended on its truth.²⁰ Id.

The above statements did not establish a legal right or obligation, nor were they offered as evidence of such a thing. Accordingly, they were not verbal acts — they were simply hearsay, offered for their truth, and the court properly excluded them. ER 37, 41; SER 1577-82. There was no abuse of discretion here.

C. The April 2009 email and Dougan's alleged offer to pay did not fall under the state-of-mind exception to the hearsay rule.

Dougan's out-of-court statements about his alleged state of mind were not admissible under Rule 803(3) because they were made long after he was aware that he was under government scrutiny and had plenty of time to reflect on what he needed to say to suit his interests. Fed. R. Evid. 803(3). In short, they were unreliable.

When a hearsay declaration is made after time for reflection, the state-of-mind exception does not apply. See United States v. Miller, 874 F.2d 1255, 1264 (9th Cir. 1989) (finding “[t]he rationale of the hearsay exception in Rule 803(3) is that the declarant presumably has no chance for reflection and therefore for misrepresentation”) (internal quotations omitted) (emphasis added); United States v. Ponticelli, 622 F.2d 985, 991 (9th Cir. 1980) (overruled on other grounds) (finding “Ponticelli had a chance for reflection and misrepresentation in making the proffered statements”) (emphasis added); United States v. Neely, 980 F.2d 1074, 1083 (7th Cir. 1992) (“it must be shown that declarant had no time to reflect, that is, no time to fabricate or misrepresent his thoughts”) (emphasis added); see also 5 J. Weinstein, Evidence § 803.05[2][a], at 803-28 (2012) (noting there must be no circumstances suggesting “a motive for the declarant to fabricate or misrepresent his or her thoughts”).²¹ An out-of-court statement by a person who knew he was under IRS scrutiny and had time to reflect is inadmissible due to a lack of reliability. Id. ([Ponticelli] was aware that he was under investigation”); see also Sec. Alarm Fin. Enterprises, LP v. Alarm Prot. Tech., LLC, 743 Fed. Appx. 786, 788 (9th Cir. 2018) (“Ultimately, it is the reliability of the statement . . . that determines admissibility.”).

Twenty-four hours is enough time for an attorney defendant to fabricate a self-serving statement regarding his then-existing state of mind and render the statement inadmissible hearsay. United States v. LeMaster, 54 F.3d 1224, 1231-32 (6th Cir. 1995) (excluding defendant's statement because “the declarant must not have had an opportunity to reflect and possibly fabricate or misrepresent his thoughts”) LeMaster knew he was under investigation and had 24 hours to think of an explanation, which the court found was “sufficient time to fabricate one.” Id. Indeed, two hours is enough time to fabricate a story and make the hearsay declaration inadmissible. See Miller, 874 F.2d at 1264 (excluding defendant's statement made during an investigation because “at least two hours elapsed before Miller made his statement to Christiansen”). Because Miller had time to reflect and a sufficient opportunity to fabricate the explanation to Christiansen, that “statement did not fall within the Rule 803(3) exception to the hearsay rule”). Here, Dougan, a seasoned attorney, had months, if not years, to think about what he wanted to say to the IRS investigators.²²

Notably, as in Ponticelli, Dougan's statements were made “while consulting an attorney. This fact implies [Dougan] was considering the legal significance of his declarations at the time he made them.” Ponticelli, 622 F.2d at 991. Such statements are certainly unreliable hearsay.

Dougan's reliance on Ponticelli is misplaced because he focuses on the wrong factor of the admissibility test. Dougan cites to the contemporaneousness factor, not the chance for reflection factor. AOB at 36; Ponticelli, 622 F.2d at 991 (“the court must evaluate three factors: contemporaneousness, chance for reflection, and relevance”). At issue here is the chance-for-reflection factor.

Dougan's out-of-court statements lacked reliability because he was able to reflect before making them. Accordingly, these statements were inadmissible under Rule 803(3), and the court properly excluded them as hearsay. ER 37, 41; SER 1576-81. There was no abuse of discretion here.

D. Dougan's April 2009 email was also properly excluded under Rule 403.

The court excluded the April 2009, finding: “It does sound to me like you want this admitted for the truth of the matters asserted, and it is hearsay, and it does not come within the recognized exceptions,” noting Dougan had “too much time to reflect.” SER 1580-81. The court noted that Dougan could testify and say that personally, but “you can't put in hearsay to prove that. That's the problem. So I'm going to exclude this. SER 1582.

The court then made a finding under Rule 403: “And furthermore, the prejudicial effect [of the April 2009 email] if it were offered for the truth of the matters asserted outweighs any probative value. So I'm going to sustain the objection now to this Exhibit Y.” SER 1582. In light of its unreliability, the email had no probative value and it was properly excluded under Rule 403 as well.

E. Dougan's alleged offer to pay was also properly excluded as irrelevant.

Subsequent offers to pay taxes are “irrelevant” because, “[w]ere the rule otherwise, tax evaders could avoid criminal prosecution simply by paying up after being caught.” Pang, 362 F.3d at 1194. Dougan's alleged offer to pay was irrelevant — that is, it had no probative value — because he had already filed his taxes and obstructed the audit. The alleged offer — made after his motion to quash was defeated and the IRS was gathering all his bank records — could not undue what he had already done.

Dougan's offer to pay, “even if taken at face value, would not detract from the criminality” of the crimes charged in the indictment because each crime was completed before Dougan made the alleged statement in 2012. See Sansone v. United States, 380 U.S. 343, 354 (1965) (“we cannot agree that [intent to pay] vitiates the willfulness requirement of § 7201”); United States v. Ross, 626 F.2d 77, 81 (9th Cir. 1980) (finding offer to pay taxes “was not relevant” to the charge of willfully failing to file). Counts one and two (the filing offenses) were completed when the returns were filed. See Sansone, 380 U.S. at 354. And Dougan completed the crime charged in count three (the obstruction offense) 11 times before August 2012, because a violation of Section 7212(a) is predicated on (and completed after) each act of obstruction.²³ See, e.g., United States v. Kelly, 147 F.3d 172, 174-75 (2d Cir. 1998) (affirming Section 7212(a) conviction for a single act — providing a false document “in an effort to substantiate [a] deduction . . . on his 1989 tax return” during an IRS audit).

By August 2012, Dougan had completed 11 obstructive acts, any one of which could support his conviction under Section 7212(a): (1) he provided the IRS with a misleading fee contract to substantiate his claim that his standard fee was 25% to 33.3% of any recovery; (2) he provided only part of a final accounting (which he modified to conceal his higher standard fee) as further substantiation that his standard fee was 25% to 33.3%; (3) he withheld the second page of that final accounting, which detailed an additional $50,800 in fee income; (4) he provided a check for $114,855 that falsely suggested his fee in that case was only 24.6% of the settlement; (5) he withheld (and later hid) the second fee check for $50,800 he received from the same case; (6) he falsely substantiate his clerical expenses by providing redacted personal checks; (7) he falsely substantiated his advertising expenses by providing a false invoice and a check he had already deducted elsewhere on his return; (8) he provided a misleading 3-month sample of checks from his trust account that under-represented his income; (9) he filed a motion to quash supported by a false declaration in which he swore that he redacted only his clients' names in the 3-month sample (in fact, he redacted his own as well, concealing over $500,000 in unreported income and the check for $50,800 mentioned above); (10) he approved a false protest letter, again claiming his standard fee was 25% to 33.3%; and (11) he withheld fact that he deposited over $900,000 in income into a CD in 2006, one of the audited years.

Dougan's alleged offer to pay had no probative value because his crime was completed — he had already acted to obstruct the audit in a number of ways. As the Supreme Court found, a subsequent intention to pay taxes is not a defense to a past intention to evade taxes. See Sansone, 380 U.S. at 354; Ross, 626 F.2d at 81; United States v. Stoehr, 196 F.2d 276, 282 (3d Cir. 1952) (“If defendant's reason for introducing the 1946 return was merely to . . . negative intent for the years 1943, 1944, and 1945, then we think the 1946 return was properly excluded as lacking any probative value”). Dougan, like Stoehr, offered the statement to negate his intent (AOB at 40); however, because he had already committed his crimes, his alleged offer to pay had no probative value.

The district court correctly found the offer to pay was irrelevant. Following the reasoning in Sansone, the court noted, “It's no defense that after you stole some money, you eventually intended to repay it.” ER 29. There was no abuse of discretion here.

F. The court did not violate Dougan's right to present a defense by properly excluding unreliable hearsay.

The court did not abuse its discretion or violate Dougan's constitutional right to present a defense. The April 2009 email and the alleged offer to pay were both properly excluded on a number of grounds. Moreover, both the email and the alleged offer were unreliable forms of evidence related to topics about which Dougan himself could have testified.

The right to present a defense “is not absolute, since the adversary process could not function effectively without adherence to rules of procedure that govern the orderly presentation of facts and arguments.” United States v. Evans, 728 F.3d 953, 959 (9th Cir. 2013) (quotation marks and citations omitted). A defendant “does not have an unfettered right to offer testimony that is incompetent . . . or otherwise inadmissible under standard rules of evidence.” Taylor v. Illinois, 484 U.S. 400, 410, 415-16 (1988). This Court has found the government's “legitimate interest in reliable and efficient trials” to be compelling. Perry v. Rushen, 713 F.2d 1447, 1451-52 (9th Cir. 1983). Consequently, “only the exclusion of critical, reliable and highly probative evidence will violate due process.” Id.

Because the district court properly excluding the April 2009 email and alleged offer to pay, this Court must consider the Miller factors before finding a constitutional violation:

The court should consider the probative value of the evidence on the central issue; its reliability; whether it is capable of evaluation by the trier of fact; whether it is the sole evidence on the issue or merely cumulative; and whether it constitutes a major part of the attempted defense. A court must also consider the purpose of the rule; its importance; how well the rule implements its purpose; and how well the purpose applies to the case at hand. The court must give due weight to the substantial state interest in preserving orderly trials, in judicial efficiency, and in excluding unreliable or prejudicial evidence.

Miller v. Stagner, 757 F.2d 988, 994-95 (9th Cir. 1985) (citing Perry, 713 F.2d at 1452-53); see also United States v. Stever, 603 F.3d 747, 756 (9th Cir. 2010). Balancing these factors, the court's proper exclusion of the proffered evidence did not deprive Dougan of his right to present a defense.

1. The proffered evidence was unreliable.

As discussed above, the proffered statements were unreliable because Dougan knew he was under IRS scrutiny and had plenty of time to reflect on what he needed to say to suit his interests. ER 39, 41; SER 617, 618, 620. Such out-of-court statements lack reliability. Ponticelli, 622 F.2d at 991; Miller, 874 F.2d at 1264.

The alleged offer to pay is particularly unreliable because Dougan's former tax attorneys, Doug Youmans and Robin Klomparens, were its source. In a written order, the court found that Youmans and Klomparens made misleading statements in sworn declarations supporting Dougan's motion to dismiss the indictment. ER 12; CR 196. The court was “concerned with defendant's reliance on these misleading statements” to support part of his misconduct claim. ER 12-13. The court highlighted that “Mr. Youman's statements regarding his relationship with Ms. Klomparens in particular appear to be a deliberate intent to mislead the court.” ER 12. The court also noted that “Mr. Youmans' and Ms. Klomparens' memories of what they knew at the time of the IRS audit has vacillated over time, even in the brief time between their signing of their declarations and their testimony at the evidentiary hearing on this motion.”²⁴ ER 13. With regard to the false protest letter, the court found that Dougan either “lied to his attorneys regarding what his normal fees were” or “the attorneys conspired with Dougan to mislead the IRS.” ER 13. There were significant reliability concerns surrounding any information provided by Youmans and Klomparens.

Notably, as Dougan conceded, the summaries of the interview written by Langston and Yu did not reflect that Dougan made offer to pay. ER 37, 583. Such an offer to pay (one that included “any deductions you are disallowed,” as Dougan described in his opening statement) would have been of major interest to the revenue agents, and would likely have been recorded. ER 583; SER 342. This is particularly true given that Dougan and the IRS were in dispute over his unsubstantiated $1.7 million deduction for cost of goods sold, as highlighted by the protest letter. ER 421-23; SER 361, 753.

2. The proffered evidence had limited probative value.

The April 2009 email and the alleged offer to pay had limited probative value because they were out-of-court declarations from a person who knew he was under IRS scrutiny and had time to reflect. See Ponticelli, 622 F.2d at 991 (the declaration “has probative value” only if the declarant “has no chance for reflection and therefore for misrepresentation”). Like Ponticelli, Dougan knew he was under investigation. Id.

Moreover, the probative value of these statements was negligible with regard to the crimes Dougan already committed. Even if taken at face value, Dougan's claim that he decided to produce account information in April 2009 could not undue the fact that, earlier, he provided the IRS with false and misleading documents to substantiate his claimed income, withheld documents that undermined his claimed income, falsely substantiating his clerical and advertising expenses, and provided the IRS with a misleading, 3-month sample of checks to substantiate his income and cost of goods sold. See Sansone, 380 U.S. at 354; Pang, 362 F.3d at 1194; Ross, 626 F.2d at 81; Stoehr, 196 F.2d at 282.

Similarly, Dougan's alleged offer to pay in 2012 could not undue all that he had already done. Id. Notably, in August 2012, the IRS was yet to find Dougan's First Northern CD, as it was still in the process of reviewing the bank records it received after Dougan's motion to quash was defeated. SER 219-24. At that point, it was only a matter of time before the IRS found the CD Dougan purchased with over $500,000 in unreported income and the $50,800 fee check from the Dwyer case. Under these circumstances, even if the statement had been made — and was admitted over the proper hearsay and relevance objections — it would have been used by the government as compelling evidence that Dougan was making an effort to avoid criminal liability. Specifically, that he sought to end the audit before the IRS found the CD he purchased with his redacted fee checks. Indeed, upon finding the additional fee checks, the IRS could have expanded the audit to include 2005, or it could have decided to account for Dougan's unreported income in 2006.

3. The proffered evidence was not a major part of the defense; it played a supporting role as Dougan primary focus was attacking his former accountants.

Dougan's defense was to blame others. SER 340 (“It's really a case about inaccurate accounting by his accountants.”). Dougan blamed Hernandez, his former tax preparer, for getting his income and expenses wrong on his 2006 and 2007 returns. SER 340-41, 344-45, 346 (“Hernandez was his accountant at Gilbert . . . and she made a huge mistake in calculating his income and expenses.”). Dougan also blamed Colson, who signed and filed the 2007 return, after Hernandez suffered an aneurism a week or so before the filing deadline. SER 341 (Colson “[b]asically didn't do any work. Just looked at it a little bit and signed it”).

With regard to the audit, Dougan blamed his former CPA firm for his obstruction. Specifically, he claimed that, out of embarrassment and fear of an accounting malpractice claim, the CPAs blamed Dougan for all of the false documents, misleading statement, and redactions. SER 341-43, 346-47 (“This was a case of gross accounting malpractice. And when the accounting firm learned of their error, they hired a malpractice lawyer, blamed Mr. Dougan, pointed the finger at him, cooperated with the government, and got him indict[ed].”). In other words, Dougan's main argument was that his former CPAs framed him to protect themselves. SER 343 (“He gets indicted, no malpractice.”).

A fair reading of Dougan's opening statement establishes that the proffered evidence played only a supporting role in his attacks on his former accountants. SER 340-47. If the jury believed that the accountants were to blame, then his alleged offer to pay and his April 2009 email were of little moment.

4. The proffered evidence was cumulative of other evidence that Dougan could have presented on the issue.

The proffered statements, if taken at face value, were not the “sole evidence on the issue;” they were “merely cumulative” of the evidence Dougan himself could have provided had he chosen to testify. Miller, 757 F.2d at 994-95. Because of this, Dougan was not precluded from presenting a defense.

With regard to the April 2009 email, Dougan could have called any of his attorneys — Banks, Youmans, or Klomparens — to testify about what they saw as to the back-and-forth with the IRS over the 3-month sample, the redacted checks, and the motion to quash the IRS summons. Moreover, as the court noted, Dougan could have testified to his state of mind during that time period as well. SER 1582. Despite mentioning that Youmans, Klomparens and Banks would testify, Dougan ultimately chose not to call any of them as witnesses. SER 359.

Notably, unlike the broad evidentiary ban in Stever, here the court excluded only a single email. Cf., Stever, 603 F.3d at 757 (“the district court declared a range of defense theories off-limits”). There was no ban on Dougan presenting other evidence of his intent.

With regard to the alleged offer to pay, Dougan claims it was “the sole evidence of his intent during the latter portion of the audit.” AOB at 40. He is mistaken. Dougan could have called a number of witnesses (including Banks, Youmans, or Klomparens) to discuss his conduct and compliance during the latter phase of the audit, but he chose not to do so. SER 359. Moreover, Dougan could have testified about his intent to comply with the audit during its latter phase. Limiting the cross-examination of two witnesses did not prevent Dougan from calling his own.

Here, it appears the defense strategy was to present their case through cross-examination and the admission of favorable out-of-court statements. That strategy has appropriate and constitutional limitations. United States v. Fernandez, 839 F.2d 639, 640 (9th Cir. 1988) (“It seems obvious defense counsel wished to place Fernandez's statement to Bateman before the jury without subjecting Fernandez to cross-examination, precisely what the hearsay rule forbids.”); Ortega, 203 F.3d at 683 (“Ortega should not be allowed to use the Confrontation Clause as a means of admitting hearsay testimony through the 'back door' without subjecting himself to cross-examination”). While excluding the email, the court noted as much, stating that Dougan could testify, but “you can't put in hearsay to prove that.” SER 1582.

The court properly applied the evidentiary rules²⁵ and minimized the risk that the “judgment [would] be predicated on incomplete, misleading, or even deliberately fabricated” evidence. See Taylor, 484 U.S. at 411-12 (noting cross-examination is a valuable fact-finding tool). Because the proffered evidence was unreliable, lacked probative value, was not central to the defense, and could have been presented by Dougan or other witnesses, no constitutional error occurred here.

G. Any error was harmless.

The government's case that Dougan obstructed the audit was overwhelming, and any error here was harmless beyond a reasonable doubt. First, the proffered evidence cannot undue Dougan's previous acts of obstruction, including the provision of false and misleading documents and the making of false statements. This is true even if the proffered evidence is taken at face value.

Moreover, the facts of this case suggest the proffered evidence would have had no bearing on the verdict. Despite his April 2009 email, Dougan chose not to disclose his account information, he lied under oath about the basis for his motion to quash, he filed a false protest letter, and then he refused to relinquish his account information until ordered to do so. With regard to his alleged offer to pay, that came after the motion to quash was defeated, but before the CD was found. If it even occurred, any offer to pay after being caught (and before over a half-million dollars in unreported income was found) would be of little probative value.

II. The district court did not commit plain error by constructively amending the indictment.

A. Standard of Review

This Court reviews a constructive amendment claim for plain error when a defendant fails to object to the trial court's jury instructions.²⁶ United States v. Hugs, 384 F.3d 762, 766 (9th Cir. 2004). Here, Dougan helped craft the instructions and approved of their formulation. SER 349, 356-58; CR 140.

This Court reviews de novo a constructive amendment claim made before the verdict. United States v. Hartz, 458 F.3d 1011, 1019 (9th Cir. 2006). Though Dougan objected under Rule 404(b) to evidence from other tax years,²⁷ he did not claim the use of that evidence constructively amended the indictment. ER 594-95; CR 83. Accordingly, this Court reviews his claim for plain error.

B. Dougan's tardy challenge to the indictment requires this Court to construe the indictment broadly and allow for fair inferences.

Dougan first raised the issue of constructive amendment post-trial. ER 641-42; CR 238, 239. A tardy challenge — one made after the verdict — “'suggests a purely tactical motivation' and is needlessly wasteful because pleading defects can usually be readily cured through a superseding indictment before trial.” United States v. Lo, 231 F.3d 471, 481 (9th Cir. 2000) (quoting United States v. Pheaster, 544 F.2d 353, 360-61 (9th Cir. 1976)). Further, “'delay tends to negate the possibility of prejudice in the preparation of the defense,' because one can expect that the challenge would have come earlier were there any real confusion about the elements of the crime.” Id. (quoting Pheaster, 544 F.2d at 361).

Given these considerations, “indictments which are tardily challenged are liberally construed in favor of validity.” Pheaster, 544 F.2d at 361; Echavarria-Olarte v. Reno, 35 F.3d 395, 397 (9th Cir. 1994). The question becomes whether the indictment is sufficient when “read in a common sense, nontechnical fashion.” Lo, 231 F.3d at 481 (“the requisite liberal reading of the indictment should take into account fair inferences from the indictment as a whole”); see also United States v. Spangler, 810 F.3d 702, 711 (9th Cir. 2016). An indictment challenged after the verdict “is to be upheld on appeal if 'the necessary facts appear in any form or by fair construction can be found within the terms of the indictment.'” Kaneshiro v. United States, 445 F.2d 1266, 1269 (9th Cir. 1971) (quoting Hagner v. United States, 285 U.S. 427, 433 (1932)).

C. There was no constructive amendment: The proof offered at trial matched the charges in the indictment.

The proof offered at trial “matched the charges made in the indictment.” Hartz, 458 F.3d at 1021. The broad allegations in counts one and two (the filing charges) allowed for any evidence showing a willfully false statement as to income or expenses. Similarly, the broad allegation in count three (the obstruction charge) encompassed an unlimited number of corrupt acts. ER 609-12.

By its nature, a constructive amendment claim must point to something offered for conviction that cannot fit within the language of the indictment. Stirone v. United States, 361 U.S. 212, 218 (1960) (acknowledging that “under an indictment drawn in general terms” a conviction can “rest upon a showing” of alternative evidence not mentioned in the indictment). Indeed, “where a generally framed indictment encompasses the specific legal theory or evidence used at trial, no constructive amendment occurs.” United States v. Morgenstern, 933 F.2d 1108, 1115 (2d Cir. 1991).

1. The broad allegations in counts one and two preclude a constructive amendment claim because they allow for any evidence showing a willfully false statement as to income or expenses.

Counts one and two tracked the statutory language and alleged Dougan “willfully” assisted in the preparation of a tax return that made “false and fraudulent” claims regarding his (1) gross profit; (2) cost of goods sold; (3) total expenses; and (4) net profit. While there were only four claims made in each count, each of these claims was broadly worded and allowed for the presentation of any evidence relevant to establishing the falsity of these claims and that Dougan acted willfully. There was no objection to the breadth of the indictment language, and Dougan approved of Instruction Numbers 13 and 14, which established the broad elements of counts one and two for the jury. SER 126-27, 131, 349, 356-58.

2. The broad allegation in count three precludes a constructive amendment claim because it allows for any evidence showing Dougan corruptly obstructed the IRS audit.

Count three also tracked the statutory language, but instead of being limited to a set number of corrupt acts, it encompassed all corrupt acts that were intended to obstruct the IRS audit. The indictment broadly alleged that Dougan “did corruptly endeavor to obstruct and impede” the IRS “by committing acts, including but not limited to” those stated in the indictment. ER 611. There was no objection to the breadth of the indictment language, and Dougan approved of Instruction Number 17, which established the broad elements of count three for the jury. SER 126-27, 131, 349, 356-58.

The general allegation in count three precludes a constructive amendment claim because its broad language encompassed the evidence presented at trial to prove obstruction, including Dougan's use of the false Fugitive Watch invoice and other acts of obstruction, such as withholding information from the IRS. Proof of acts not specified in a generally framed indictment does not create a constructive amendment. See United States v. Salmonese, 352 F.3d 608, 620-21 (2d Cir. 2003) (“the prosecution could carry its burden . . . by proving any alleged or unalleged overt act that fit within the 'core of criminality' identified in the indictment”). Here, the core criminality identified in the indictment was willful false statements corrupt acts of obstruction.

All the acts of obstruction the government presented at trial fell within the scope of the general allegation made in count three. This is not a case in which the government chose a narrow charging theory, which it later broadened during trial. See, e.g., United States v. Adamson, 291 F.3d 606, 614 (9th Cir. 2002). Here, it charged Dougan broadly with “corruptly” obstructing an IRS audit “by committing acts” that were “not limited to” those stated in the indictment. ER 611.

For that reason, Dougan's reliance on cases where the government charged in a narrow and finite manner is misplaced. Moreover, many of these cases acknowledge that when the government makes a general allegation, as it did here, there can be no amendment.

For example, in Stirone, the seminal case on this issue, the Supreme Court noted, “under an indictment drawn in general terms” a conviction can “rest upon a showing” of alternative evidence not mentioned in the indictment. See Stirone, 361 U.S. at 218.

In Miller, the court also found that a broader indictment allows the government to present a broader array of evidence. See United States v. Miller, 891 F.3d 1220, 1234 (10th Cir. 2018). The court noted, “the grand jury could have chosen to draw up an indictment alleging falsity as to both name and residence, [but] it chose instead to indict him only as to the false name, and thus the introduction of evidence concerning the . . . residence permitted conviction upon a set of facts different than those alleged in the indictment.” Id.

In Ward, this Court held that convictions can upheld “if the proof upon which they are based” corresponds to an offense described in the indictment. United States v. Ward, 747 F.3d 1184, 1191-92 (9th Cir. 2014). In Ward, the government charged in a narrow and finite manner — Ward “was indicted for aggravated identity theft as to only” two people. Id.

Similarly, in Farr, the government charged one form of tax evasion, but proved another. The court noted, “had the government simply charged Ms. Farr generically under Section 7201 with the willful evasion of a tax, we might have a different situation.” See United States v. Farr, 536 F.3d 1174, 1181 (10th Cir. 2008).

The Supreme Court has long recognized “[a]s long as the crime and the elements of the offense that sustain the conviction are fully and clearly set out in the indictment, the right to a grand jury is not normally violated by the fact that the indictment alleges . . . other means of committing the same crime.” See United States v. Miller, 471 U.S. 130, 136 (1985).²⁸

Dougan was tried on an indictment that set out the offense and the elements “for which he was ultimately convicted.” Id. at 140. There can be no constructive amendment when the proof is narrower than the indictment language, which, here, charged that Dougan “corruptly” obstructed and IRS audit “by committing acts” that were “not limited to” those stated in the indictment. Id. at 138-40.

3. The evidence about which Dougan complains was covered by the broad counts alleged in the indictment.

Dougan argues that two pieces evidence were outside the scope of the indictment: (1) the false Fugitive Watch; and (2) the fact that he “withheld information” from the IRS, including bank records related to his $900,000 CD. AOB at 44-45. Dougan's use of the false invoice and the fact that he “withheld information” from the IRS were covered by the language of the indictment.

a. Counts one and three were properly supported by the false Fugitive Watch invoice.

The government argued in rebuttal that the false invoice supported two counts, not one (as Dougan supposes, AOB at 45):

This invoice the defendant provided during the audit . . . standing alone is sufficient, we submit to you, to return a guilty verdict on Counts 3 and on Counts 1. . . . Providing a false document to conceal what you did in the preparation of your 2006 return we submit to you is a willful act, and it's sufficient evidence to convict on Count 3, that is, the audit, obstructing the audit by providing that false invoice. And then on Count 1, because it tells you what these expenses were really about, those are personal expenses. They weren't advertising.

SER 350.

With regard to the 2006 filing (count one), the false invoice was properly admitted as evidence that Dougan willfully over-reported his business expenses. He did so by directing his tax preparers to count his personal expenses (which were not deductible) as deductible advertising expenses for his business. SER 361, 469, 471, 479, 738. Count one alleged that Dougan “willfully” assisted in the preparation of his 2006 return, which contained a “false and fraudulent” representation in that he claimed “total expenses” of “approximately $581,878” when he in fact knew that “his total expenses were less than the amount reported.” ER 610. The invoice covered up the fact that he willfully and fraudulently over-reported his business expenses for 2006 by about $34,000. SER 479.

The invoice also addressed Dougan's intent during the audit (count three). First, he provided a false document to the IRS to substantiate his claimed advertising expenses — a corrupt act through which Dougan intended to secure a financial benefit for himself. Such an act properly fell within the broad, general allegation alleged in count three. Moreover, count three specifically alleged that Dougan responded to “questions and inquiries from IRS employees with false statements, both oral and written, about his income.” ER 612. Because Dougan was a Schedule C filer, his business income (line 12, Form 1040) was tied directly his expenses — that is, as his expenses increased, his taxable income decreased. SER 367, 371. So the false invoice concealed the fact that his business income in 2006 should have been about $34,000 higher. This is a fair reading of the indictment language. Kaneshiro, 445 F.2d at 1269 (an indictment challenged after the verdict “is to be upheld on appeal if the necessary facts appear in any form or by fair construction can be found [in] . . . the indictment”).

b. Every count in the indictment was properly supported by the fact that Dougan “withheld information” from the IRS.

The fact that Dougan “withheld information” from the IRS was directly relevant to his intent on multiple counts. With regard to the 2006 and 2007 filings (counts one and two), the fact that Dougan “withheld information,” such as his bank records, was properly admitted as evidence that he willfully under-reported his income. Dougan's bank records ultimately disclosed his actual income for 2006 and 2007 was much higher than he reported.²⁹ SER 360, 481. Counts one and two alleged that Dougan “willfully” assisted in the preparation of his tax returns, which contained “false and fraudulent” representations in that he claimed “a 'gross profit' of approximately [$889,679 in 2006 and $893,632 in 2007]” when he in fact knew that “his 'gross profit' was in excess of the amount reported.” The bank records and CD information, and the fact that he withheld them, were all direct evidence of the willful nature of Dougan's false claims on his 2006 and 2007 tax returns.³⁰ This is particularly true with regard to the CD records because the CD was purchased with $510,000 in income that had not been reported in 2005 or 2006. SER 248-49.

With regard to the audit (count three), because Dougan provided false and misleading documents to substantiate his income and expenses, the fact that he actively withheld his bank records (which showed his true income and expenses) through redactions and a dubious motion to quash, was direct evidence of his corrupt intent during the audit. This evidence properly falls within the broad, general allegation alleged in count three.

Moreover, count three specifically alleged that Dougan provided “documents that under-represented his gross income in 2006 in order to substantiate his cost of goods sold.” ER 612. Dougan withheld his bank records, and the CD information in particular, to conceal the fact that he “under-represented his gross income in 2006.” Withholding his bank information made the documents he provided, e.g., the 3-month sample, look accurate. The fact that he withheld his bank records, and the manner in which he did it, was directly relevant to his intent on this specific allegation.

Count three also specifically alleged that Dougan filed a letter with the IRS that “falsely maintained that his gross income was one-third of all the IRS Form 1099s he received” in a given year. ER 612. This allegation was also proven by Dougan's bank records, and the fact that he withheld them was evidence that he was aware of the false statement in the protest letter. SER 753, 1455.

Dougan's fee check from the Dwyer case for $50,800 illustrates why Dougan withheld his bank records, including the CD account, and why those records are properly within the scope of count three as charged. Early in the audit, to substantiate his income, Dougan provided a misleading fee agreement, part of the final accounting from the Dwyer case, and one of the fee checks from the Dwyer case. SER 680, 683, 684. Dougan, however, did not provide the second fee check from the Dwyer case (or the second page of the Dwyer final accounting). The check represented $50,800 in additional income from that case alone. SER 871. While Dougan claimed his income from the Dwyer case was 26.4% of the recovery, his actual income from that case was 39% of the recovery. SER 835. Had he provided that check during the audit, it would have raised questions about his standard fee being 25% to 33.3% of any recovery — and it would have caused the IRS to ask for more information. Moreover, providing the check (and the second page of the final accounting) would have raised questions about his claim that his income was 1/3 of the Form 1099s from 2006 and 2007. SER 471, 601.

Accordingly, Dougan withheld this check from the IRS. He did so by refusing to turn over his bank records; by redacting this check in the 3-month sample; by refusing to reduce his redactions on the 3-month sample; and by not providing records related to his CD, where he deposited that check in 2006, along with $510,000 in income from 2005 that he failed to report. These acts all speak to his intent with regard to the allegations in count three.

D. The instructions in this case ensured that the jury convicted Dougan based solely on the conduct charged in the indictment.

On four separate occasions, the court instructed the jury that it could convict Dougan only on the conduct charged in the indictment. The court had the indictment read to the jury. SER 141-44. Then, during trial, after admitting records from other tax years, the court gave a limiting instruction:

The defendant is on trial only for alleged conduct in connection with the 2006 and 2007 tax years. He is not on trial for any conduct in connection with prior tax years. You may consider evidence of his conduct in connection with prior tax years only for the limited purpose as it relates to his intention or intentions in connection with the 2006 and 2007 tax years.

SER 175-78. The court reminded the jurors of the above limiting instruction thereafter, when it admitted additional evidence from other tax years. SER 179. Later, during Trader's testimony, the court gave the instruction again. SER 283-84. Finally, at the end of trial, but before deliberations began, the court gave the following limiting instruction:

You are here only to determine whether the defendant is guilty or not guilty of the charges in the indictment. The defendant is not on trial for any conduct or offense not charged in the indictment.

SER 354. These instructions ensured “that the jury convicted [Dougan] based solely on the conduct actually charged in the indictment.” Ward, 747 F.3d at 1191.

E. The indictment satisfied the constitutional requirements established in Russell.

There are two criteria governing the sufficiency of an indictment. First, “whether the indictment contains the elements of the offense intended to be charged, and sufficiently apprises the defendant of what he must be prepared to meet.” United States v. Russell, 369 US 749, 763-65 (1962). Second, “whether the record shows with accuracy to what extent he may plead a former acquittal or conviction.” Id.

First, the indictment set forth all the necessary elements of the violations alleged (ER 609-12), and the language of the indictment did not prejudice the preparation of Dougan's defense. Dougan was on notice of the government's theory regarding the CD about six weeks before trial. SER 1550; CR 77 (“He did not disclose the deposits into this CD to his tax preparers and this information was only obtained after he lost a motion to quash the IRS summons”). Moreover, Dougan had the government's exhibit list over three weeks before trial (SER 1478; CR 88), and he knew how the government would use its evidence because he had the government's trial brief about three-and-a-half weeks before trial. SER 1494-95, 1497, 1500-1501, 1504-06 (discussing the CD and the Fugitive Watch invoice); CR 102. Notably, Dougan had Scott Castruita, the owner of Fugitive Watch, on his witness list weeks before trial. SER 1489; CR 98. Finally, Dougan was represented by a competent and experienced counsel. He even hired a second attorney to assist during voir dire. SER 140. Dougan's preparation for his defense was not prejudiced.

Second, the drafting of the indictment would not in any way impair Dougan's ability to plead his conviction in any subsequent prosecution. The indictment specified the tax years at issue in counts one and two and provided the broad timeframe of the audit at issue in count three.

The indictment correctly alleged the elements of the crime, and the court properly instructed the jury on those elements. The proof at trial tracked those elements, and the government argued for a conviction based on those elements. On this record, this Court should conclude that there was no divergence in proof, and that even if there was, it was so insignificant that it did not prejudice Dougan under any standard of review.

III. The trial court did not commit plain error by allowing the government to making closing arguments based on evidence in the record.

A. Standard of Review

Because Dougan did not object to the government's argument during trial, this Court reviews for plain error. United States v. Harrison, 585 F.3d 1155, 1158 (9th Cir. 2009). Under plain error review, this Court will reverse “only if the government's statements were improper and the statements resulted in substantial prejudice.” United States v. Ruiz, 710 F.3d 1077, 1984 (9th Cir. 2013). The factual findings underlying a court's decision are reviewed for clear error. United States v. Bassignani, 575 F.3d 879, 883 (9th Cir. 2009).

B. As the court found, the prosecutors made proper arguments based on evidence in the record.

Dougan argues that the prosecutors made two knowingly false statements during closing arguments.³¹ AOB at 51. These arguments were made below and rejected. ER 11-13; CR 196.

First, the court found no misconduct “on the part of the government in arguing that defendant lied to his tax lawyers” by representing to them that the fee he charged “was generally from 25% to 33%.” ER 12. The court noted that “the government had a good faith basis to argue that Dougan lied to his tax lawyers.” ER 13. The record supports this finding of fact.

The draft protest letter (SER 742) and final protest letter (SER 753) highlighted the change from the higher fee range (33.3% to 40%) to the lower fee range (25% to 33.3%). The record also included the emails surrounding the drafting of the protest letter (e.g., ER 421-23; SER 740, 741, which show Dougan, Youmans, Klomparens, and Colson discussing the protest letter. When asked if he had “any other thoughts/comments before we finalize this for filing,” Dougan wrote, “Doug: I like it.” SER 1455. The record also included the fact that Dougan only provided one misleading fee agreement to his audit representatives before the motion to quash was defeated. SER 316, 740.

Moreover, after trial, both Youmans and Klomparens confirmed that Dougan misled them. Youmans stated, with regard to Dougan, “I believe that there were some misrepresentations relative to the extent of the 40 percent agreements . . . there was not necessarily full disclosure relative to what his, quote, standard fee agreement was.” SER 318-19. Klomparens stated, with regard to Dougan, “I know there's things that came out that I didn't know, that he didn't tell me . . . he omitted to tell me that he had a lot of fee agreements that were 40 percent.” SER 335.

The government's argument, which ultimately proved to be correct, was fairly based on evidence in the record. See United States v. Necoechea, 986 F.2d 1273, 1276 (9th Cir. 1993). There was no misconduct here.

Second, in rejecting Dougan's claim that “the government committed misconduct by arguing . . . that . . . [Dougan] redacted his checks to conceal his income from the IRS,” the court found “there was evidence supporting the government's arguments, and defendant has not shown that the government knew or should have known these arguments were false.” ER 13. The record supports this finding of fact as well.

Dougan provided a 3-month sample of checks from his trust account “as proof of income.” SER 655. Instead of sending a clean copy of the bank records, Dougan redacted them, telling the IRS he was redacting client names. When the IRS asked him to redact only a portion of the payee's name on each check so it could determine to whom each check was written (in order to separate income from expenses), Dougan refused, despite the fact he had done so on the checks he used to substantiate his clerical expenses. SER 225-26, 640. When the IRS issued a summons to obtain the unredacted records so they could complete the audit, Dougan filed a motion to quash the summons, falsely claiming under oath in support of his motion that he redacted only client names. SER 791. Dougan, however, also redacted his name on over $560,000 worth of fee checks (income) that he wrote to himself. SER 1390-94. Most of that income was unreported. SER 246-49.

Based on this evidence, the government was entitled to make the arguments it did. Necoechea, 986 F.2d at 1276 (“[P]rosecutors must have reasonable latitude to fashion closing arguments, and thus can argue reasonable inferences based on the evidence, including that one of the two sides is lying.”). If Dougan wanted to present an alternative narrative, the rules of evidence required him to testify. He chose not to do so. SER 359.

Dougan's reliance on Reyes is misplaced. Reyes holds “it is improper for the government to present to the jury statements or inferences it knows to be false or has very strong reason to doubt.” United States v. Reyes, 577 F.3d 1069, 1077 (9th Cir. 2009). Here, the evidence fairly suggested exactly what the government argued. The government is not required to credit a defendant's statement as true, especially one that was contradicted by other evidence in the record and where the record established that the defendant was willing to lie and mislead. As the court found, there is no evidence that the government knew Dougan was telling the truth. ER 13.

The government's arguments were properly based on the evidence in the record and fair inferences drawn from that evidence. There was no misconduct, and the court's findings were not clearly erroneous. Dougan's conviction should be affirmed.

IV. There was no cumulative error; the obstruction case against Dougan was overwhelming.

The cumulative error analysis is misplaced in this case because the district court did not err. Spangler, 810 F.3d at 711. Even if there were an error here, “one error is not cumulative error.” United States v. Sager, 227 F.3d 1138, 1149 (9th Cir. 2000).

Given the absence of prejudice and the strong evidence of guilt, Dougan cannot establish cumulative error. This is not a case in which “the convictions are based on largely uncorroborated testimony of a single accomplice or co-conspirator.” United States v. Wallace, 848 F.2d 1464, 1475 (9th Cir. 1988); United States v. Wilkes, 662 F.3d 524, 543 (9th Cir. 2011) (rejecting claim of cumulative prejudice and noting the government “presented ample evidence of Wilkes's guilt”); compare United States v. Frederick, 78 F.3d 1370, 1381 (9th Cir. 1996) (ruling “where the government's case is weak, a defendant is more likely to be prejudiced by the effect of cumulative errors”).

Here, the government's case was more than “ample,” it was overwhelming. Wilkes, 662 F.3d at 543. In light of the overlapping layers of corroborating evidence pointing to Dougan's guilt, including nearly a dozen acts of obstruction, the cumulative effect of any error in this case was insufficient to call into question the verdict. Dougan's conviction should be affirmed.

CONCLUSION

The government respectfully requests that this Court affirm Dougan's conviction.

Respectfully submitted,

MCGREGOR W. SCOTT
United States Attorney

MICHAEL M. BECKWITH
Assistant United States Attorney

STATEMENT OF RELATED CASES

The government is not aware of any related cases.