Asset Protection Concepts and Strategies by Riser Adkisson LLP

Bogus Offshore Scheme Lands Tax Preparer in Jail

A planner cannot get assist getting clients into an illegal offshore scheme but then later deny responsibility. The following case illustrates this, and also the perils of a bogus offshore invoicing scheme designed to fabricate deductions in the U.S. while moving the client's money outside of the U.S. but still under the client's control. This is not anything like bona fide asset protection planning.

U.S. v. Bedford, ___ F.3d ____, 2008 WL 3315790 (10th Cir.
(Colo.) August 12, 2008)

United States Court of Appeals,
Tenth Circuit.
UNITED STATES of America, Plaintiff-Appellee,
v.
Robert N. BEDFORD, Defendant-Appellant.

No. 07-1236.

Aug. 12, 2008.

Appeal from the United States District Court for the District
of Colorado (D.C. No. 02-CR-00541-WDM).
Lawrence J. Leigh, Parsons Behle and Latimer, Salt Lake City,
UT, for Defendant-Appellant.

Mark S. Determan, Attorney, Tax Division, United States
Department of Justice, Washington, D.C., (Troy A. Eid, United
States Attorney, Of Counsel; Nathan J. Hochman, Assistant
Attorney General; and Alan Hechtkopf, Attorney, Tax Division,
United States Department of Justice, Washington, D.C., with
him on the brief) for Plaintiff-Appellee.

Before MURPHY, McKAY, and BALDOCK, Circuit Judges.

McKAY, Circuit Judge.

*1 Defendant-Appellant Robert N. Bedford appeals his
conviction for conspiracy under 18 U.S.C. sec. 371.FN1 The
government filed a twenty-nine-count superseding indictment
charging three individuals with various crimes. Defendant was
named in Count One of the indictment, which charged him with
conspiracy to commit two underlying crimes: 1) defrauding the
United States of America by impeding the Internal Revenue
Service in its lawful efforts to collect income taxes, and 2)
assisting individual taxpayers in filing fraudulent tax
returns in violation of 26 U.S.C. sec. 7206(2).FN2 The jury in
Defendant's original trial could not reach a verdict, but
after a retrial, a second jury convicted him of conspiracy.

FN1. If two or more persons conspire either to commit any
offense against the United States, or to defraud the United
States, or any agency thereof in any manner or for any
purpose, and one or more of such persons do any act to effect
the object of the conspiracy, each shall be fined under this
title or imprisoned not more than five years, or both.18
U.S.C. sec. 371 (2000).

FN2. Any person who-....... [w]illfully aids or assists in, or
procures, counsels, or advises the preparation or presentation
under, or in connection with any matter arising under, the
internal revenue laws, of a return, affidavit, claim, or other
document, which is fraudulent or is false as to any material
matter, whether or not such falsity or fraud is with the
knowledge or consent of the person authorized or required to
present such return, affidavit, claim, or document
.......shall be guilty of a felony....

26 U.S.C. sec. 7206(2) (2000).

The genesis of this case involved a business called Tower
Executive Resources that billed itself as an executive
recruitment business. In fact, Tower promoted to its members
the opportunity to protect assets and to enjoy tax deferral
through an offshore venture. Tower marketed its asset
protection services to select clients through seminars at
which Defendant and others spoke.

Essentially, clients learned at these seminars how to create
bogus corporate entities called "international business
corporations," referred to as IBC-1s and IBC-2s. IBC-1s were
domestic corporations that would hire and pay IBC-2s, foreign
corporations, to perform services for the IBC-1s. Those
services did not actually occur.

Tower clients, as owners of the IBC-2s, could then repatriate
the untaxed funds the IBC-1s had paid to the IBC-2s,
purportedly as business expenses. However, some Tower members
repatriated the funds for personal use. Tower members also
used the IBCs to engage in financial shenanigans such as bogus
loans, fraudulent option agreements, and purported
scholarships for their children.

Defendant had a tax preparation business which prepared tax
returns for some Tower clients. Defendant claims it was his
understanding that Tower's system was not a tax fraud scheme,
and he asserts he regularly told Tower clients they could only
access the funds in their IBC-2s for regular business
expenses, not personal expenses.

Discussion

On appeal, Defendant argues his conviction occurred because of
erroneous jury instructions, error in the superceding
indictment, and error in allowing an IRS agent to testify in
the form of legal conclusions applied to the facts of the
case. We address each of Defendant's contentions in turn.

I. Jury Instructions

As to jury instructions, Defendant raises three points of
error: 1) that the district court erred in including an agency
instruction, 2) that he was entitled to his entire proposed
theory of defense instruction, and 3) that elements of the
underlying substantive crimes were missing from the
instructions.

We review de novo the jury instructions as a whole and view
them in the context of the entire trial to determine if they
"accurately state the governing law and provide the jury with
an accurate understanding of the relevant legal standards and
factual issues in the case." United States v. Crockett, 435
F.3d 1305, 1314 (10th Cir.2006); see also United States v.
Park, 421 U.S. 658, 674 (1975). We review the district court's
decision to give or to refuse a particular jury instruction
for abuse of discretion. See United States v. Nacchio, 519
F.3d 1140, 1158-59 (10th Cir.2008) (stating we review for
abuse of discretion a district court's decision whether to
refuse a particular jury instruction); United States v.
McClatchey, 217 F.3d 823, 834 (10th Cir.2000) (stating we
review for abuse of discretion a district court's decision
whether to give a particular jury instruction). We also review
for abuse of discretion a district court's shaping or phrasing
of a particular jury instruction.

*2 When a defendant objects to the omission of an element from
a jury instruction, we review the omission for harmless error.
United States v. Robertson, 473 F.3d 1289, 1291 (10th
Cir.2007). However, "[w]e review a jury instruction for plain
error when a party fails to object to the instruction at
trial." United States v. Willis, 476 F.3d 1121, 1127 (10th
Cir.2007). "Plain error exists only where (1) there was error,
(2) that is plain, (3) that affects substantial rights, and
(4) that seriously affects the fairness, integrity or public
reputation of judicial proceedings." Robertson, 473 F.3d at
1291; see also Fed.R.Crim.P. 52(b).

Instruction No. 20

Defendant appeals the district court's giving of an agency
instruction based on 18 U.S.C. sec. 2(b).FN3 This instruction
stated:

FN3. "Whoever willfully causes an act to be done which if
directly performed by him or another would be an offense
against the United States, is punishable as a principal." 18
U.S.C. sec. 2(b) (2000).

In order to sustain its burden of proof, it is not necessary
for the government to prove that the defendant personally did
every act constituting the offense charged. As a general rule,
whatever a person is legally capable of doing himself he can
do through another acting as his agent. So if the acts or
conduct of another are deliberately ordered or directed by the
defendant or deliberately authorized or consented to by the
defendant, then the law holds the defendant responsible for
such acts or conduct just the same as if personally done by
him.
(R. at 1546-47.)

On appeal, Defendant makes three specific objections to this
instruction. First, Defendant asserts the instruction misled
the jury as to the mental state required for conviction
because it instructed the jury that Defendant was legally
responsible for acts he deliberately consented to or
authorized rather than those in which he willfully
participated. Second, Defendant argues that giving the
instruction was improper because the instruction's underlying
law did not apply to a conspiracy charge. Third, Defendant
argues that this instruction was not warranted by the facts in
evidence.

Defendant did not specifically raise his first objection to
this instruction before the district court. We therefore
review only for plain error. See United States v. Luke-Sanchez
483 F.3d 703, 706 (10th Cir.2007) (noting that only specific
grounds for an objection that are raised before the trial
court are properly preserved for appeal); see also
Fed.R.Crim.P. 30(d) (noting that party objecting to
instruction must inform court of "the grounds for the
objection"); Comcoa, Inc. v. NEC Tels., Inc., 931 F.2d 655,
660 (10th Cir.1991) ("When considering a party's challenge to
jury instructions, our initial inquiry is whether the party
properly preserved that issue for appeal by objecting at the
district court level to the instruction on the same grounds
raised on appeal.").FN4

FN4. While Defendant did object to the entire instruction in
the district court, his objection did not rise to the level of
specificity required to preserve the precise issue he raises
on appeal. Even if Defendant had preserved this issue for
appeal and we had reviewed it for an abuse of discretion, we
are convinced it would not change our decision regarding this
instruction.

After reviewing the instructions as a whole, we conclude the
district court did not err when it used the word
"deliberately" instead of "willfully" in this instruction. The
court instructed the jury on the elements of the crime,
including the requirement that Defendant be shown beyond a
reasonable doubt to have known the essential objective of the
conspiracy and to have "willfully joined" it. (R. at 150.) At
least six separate instructions informed the jury as to the
level of knowledge, intent, deliberateness, and willfullness
required to convict Defendant. Because we review the
instructions as a whole, we therefore conclude the district
court did not mislead the jury as to the state of mind
necessary to convict Defendant of conspiracy.

*3 As to Defendant's second objection, which was argued before
the district court, that the law did not adequately support
the instruction, we review for abuse of discretion.
McClatchey, 217 F.3d at 834. We conclude the district court
did not abuse its discretion in instructing the jury that
Defendant could be held responsible for acts he deliberately
ordered, directed, consented to, or authorized. See United
States v. Giese, 597 F.2d 1170, 1179-80 (9th Cir.1979)
(holding that defendant can be found guilty of conspiring "to
cause to be committed" an illegal act by combining other
statutes with 18 U.S.C. sec. 2(b)).

We also reject Defendant's contention that there was no
factual basis for this instruction. The evidence in the record
shows, among other things, that Defendant: (1) signed a tax
return including materially false information or had an
employee sign such a return, and (2) advised Tower clients to
create and backdate invoices supporting fraudulent tax
returns. We thus conclude the district court did not abuse its
discretion by giving this instruction.

Theory of Defense Instruction

A defendant is entitled to a theory of defense instruction if
it is "a correct statement of the law, and if he has offered
sufficient evidence for the jury to find in his favor."
Crockett, 435 F.3d at 1314. However, a theory of defense is
not required if offered only to clarify the issues. United
States v. Alcorn, 329 F.3d 759, 767 (10th Cir.2003). It is
only required if, without the instruction, the other
instructions are erroneous or inadequate. Id.

We review the theory of defense instruction for plain error
because Defendant did not preserve this issue for appeal.FN5
Willis, 476 F.3d at 1127. On appeal, Defendant argues the
instruction should have included "that he was unaware that
certain members of Tower and a friend of one Tower member were
abusing the program by returning money to the United States
for personal purposes or participating in sham option
agreements without declaring the money as income on their
individual tax returns." (Appellant Br. at 25.) Defendant also
argues the court erred in omitting the phrase "as he
understood it" from the proposed instruction that stated
Defendant "contends that he is not guilty of the crime charged
because the Tower program, as he understood it, complied with
the Internal Revenue Code." (Appellant Br. Attach. 1.)

FN5. Defendant claims he preserved an objection as to this
instruction. However, a careful review of the record indicates
Defendant objected to the removal of the first paragraph of
his proposed instruction, but he expressly did "not object to
the Court's proposed revisions of the next paragraph." (R. at
1493-94.) These omissions from the proposed revisions of the
second paragraph are the subject of Defendant's arguments on
appeal. None of Defendant's arguments on appeal relate to the
original first paragraph.

We conclude the district court did not commit plain error by
deleting this state of mind language from Defendant's proposed
instruction. Defendant was entitled only to a correct
statement of law for which he had provided sufficient evidence
to support a jury finding in his favor. Defendant was not
entitled to "a recounting of the facts as seen through the
rose-colored glasses of the defense ." United States v.
Barham, 595 F.2d 231, 244 (5th Cir.1995); see also United
States v. Grissom, 44 F.3d 1507, 1513 (10th Cir.1995).

Missing elements

*4 On appeal, Defendant argues the district court failed to
instruct the jury on the elements of the underlying
substantive crimes. Because Defendant did not raise this
objection before the district court, we review this claim for
plain error. See Willis, 476 F.3d at 1127. "[T]he essence of
any conspiracy is the agreement or confederation to commit a
crime." United States v. Robertson, 473 F.3d 1289, 1292 (10th
Cir.2007) (alteration in original) (internal quotation marks
omitted). Our precedent requires the prosecution in a
conspiracy case to prove the degree of criminal intent
necessary for a conviction on the underlying substantive
offense of the conspiracy. See United States v. Feola, 420
U.S. 671, 688 (1975). Thus, a district court must instruct the
jury about this criminal intent requirement for the underlying
offense.FN6 See Ingram v. United States, 360 U.S. 672, 678
(1959), United States v. Robertson, 473 F.3d 1289, 1292-93
(10th Cir.2007).

FN6. Defendant claims the court is required to instruct the
jury on all elements of each underlying crime. When reviewing
the sufficiency of a conspiracy indictment, we require the
indictment to aver "the essential elements upon which the
underlying offense rests," although we do not require the
indictment to allege "the underlying offense with the same
degree of specificity that is required to charge the offense
itself." Nelson v. United States, 406 F.2d 1136, 1137 (10th
Cir.1969). However, we have not held that the requirement of
listing the elements for each underlying crime in a conspiracy
case also applies to jury instructions. We do not do so now.
In any event, if our precedent did have this requirement, we
would conclude that the district court adequately instructed
the jury as to the elements of the two underlying offenses in
this case.

As for the substantive crime of defrauding the government, the
district court instructed the jury that the indictment charged
Defendant with willfully conspiring "[t]o defraud the United
States for the purpose of impeding, impairing, obstructing and
defeating the lawful government functions of the IRS." (R. at
1542.) The court instructed the jury that the word defraud
"means not only to cheat the government out of property or
money, but also to interfere with or obstruct one of the
government's lawful functions by means that are dishonest."
(R. at 151.) The instructions also focused on Defendant's
agreement to the conspiracy, explaining to the jury that the
government must prove beyond a reasonable doubt that Defendant
"knew the purpose or goal of the agreement or understanding
and deliberately entered into the agreement intending in some
way to accomplish the goal or purpose by this common plan or
action." ( Id. at 1544.) The instructions summarizing the
indictment further stated that Defendant was charged with
furthering the conspiracy by "committ [ing] or caus[ing] to be
committed overt acts such as ... causing the preparation and
filing of false and fraudulent income tax returns for Tower
members and for members' businesses." (R. at 149.) We conclude
these instructions as a whole properly instructed the jury as
to the requisite criminal intent for the underlying crime of
defrauding the government. See Hammerschmidt v. United States,
265 U.S. 182, 188 (1924); United States v. Scott, 37 F.3d
1564, 1575 (10th Cir.1994).

As to the intent element required for sec. 7206(2), the district
court repeatedly instructed the jury that Defendant must be
found to have acted knowingly and willfully, which is
consistent with the intent element of the underlying
substantive crime. See United States v. Pursley, 474 F.3d 757,
769-70 (10th Cir.2007). We therefore conclude that, taken as a
whole, the instructions adequately instructed the jury as to
the governing law regarding intent for both underlying
substantive offenses. We see no error, much less plain error,
in the court's instructions on the offenses underlying
Defendant's conspiracy charge.

II. Superceding Indictment

*5 Defendant raises two arguments regarding the indictment:
sufficiency and constructive amendment.

Sufficiency

Generally, we review the sufficiency of an indictment de novo,
but when the argument is not raised at the trial level, as in
this case, we review only for plain error. See United States
v. Barrett, 496 F.3d 1079, 1091-92 (10th Cir.2007). "An
indictment is sufficient if it sets forth the elements of the
offense charged, puts the defendant on fair notice of the
charges against which he must defend, and enables the
defendant to assert a double jeopardy defense." United States
v. Hathaway, 318 F.3d 1001, 1009 (10th Cir.2003) (internal
quotation marks omitted). To indict a defendant with
conspiracy under sec. 371, the government must charge that: (1)
there was an agreement to violate the law, (2) the defendant
knew the essential objective of the conspiracy, (3) the
defendant knowingly and voluntarily participated in the
conspiracy, (4) an overt act was committed in furtherance of
the conspiracy, and (5) the coconspirators were
interdependent. See 18 U.S.C. sec. 371; United States v.
Ailsworth, 138 F.3d 843, 850 (10th Cir.1998); United States v.
Stoner, 98 F.3d 527, 531-32 (10th Cir.1996). When we review a
post-verdict challenge to an indictment that asserts an
element of the offense was absent from the indictment, we
conclude "the indictment is sufficient if it contains words of
similar import to the element in question." United States v.
Dashney, 117 F.3d 1197, 1205 (10th Cir.1997) (internal
quotation marks omitted).

Moreover, in a conspiracy prosecution, "[i]t is also necessary
that the indictment contain the essential elements upon which
the underlying offense rests." United States v. Daily, 921
F.2d 994, 999 (10th Cir.1990) (internal quotation marks
omitted). However, "the elements of the underlying offense
need not be charged with the same degree of specificity as
would ordinarily be required in a prosecution based on the
underlying offense." Id. As to the level of knowledge required
for the underlying offense, "[t]here is no magic to the words
used ... to allege guilty knowledge. What is demanded,
however, is a competent and forthright attempt to notify the
accused of the extent of his alleged culpability." Nelson v.
United States, 406 F.2d 1136, 1138 (10th Cir.1969) (second
alteration in original) (internal quotation marks omitted).

In this case, the indictment stated that Defendant and his
coconspirators:

knowingly and willfully conspired, combined and agreed
together, with each other and with other persons ... to
defraud the United States for the purpose of impeding,
impairing, obstructing and defeating the lawful government
functions of the Internal Revenue Service of the United States
Department of the Treasury in the ascertainment, computation,
assessment and collection of the revenue, to wit, income
taxes, and to commit offenses against the United Sates as
defined by Title 26, United States Code, Section 7206(2), that
is, to aid and assist in, and procure, counsel and advise the
preparation and presentation under the internal revenue laws
of returns that were fraudulent and false as to material
matters.

*6 (R. Doc. 199 at 2-3 (emphasis added).) This language
covered the first three elements of conspiracy. The indictment
also charged that Defendant and his codefendants "committed,
or caused to be committed, overt acts" in furtherance of the
conspiracy. ( Id. at 5.) Finally, while not using the label
interdependent, the indictment described the interdependent
behavior of the coconspirators in the sections entitled
"Manner and Means of the Conspiracy" and "Overt Acts." ( Id.
at 3-9.) Thus, the indictment sufficiently charged Defendant
with the elements of conspiracy.

As to the essential underlying elements, Defendant claims
"knowledge of falsity" and "interdependence" were not charged
in the indictment. (Appellant Br. at 36.) We disagree. Because
"the elements of the underlying offense need not be charged
with the same degree of specificity as would ordinarily be
required in a prosecution based on the underlying offense,"
Daily, 921 F.2d at 999, we conclude the indictment adequately
informed Defendant of the underlying offenses upon which the
conspiracy charge was based even though it may not have used
the express terms Defendant argued it should have included.
Finally, we also conclude the indictment adequately charged
Defendant with the intent required for the underlying
offenses, having the intent to defraud and acting knowingly
and willfully. We therefore reject Defendant's challenge to
the sufficiency of the indictment.

Constructive Amendment

"In reviewing a claim of constructive amendment, we consider
the jury instructions as a whole, reviewing de novo the
propriety of any individual jury instruction to which an
objection was made at trial." United States v. Alexander, 447
F.3d 1290, 1298 (10th Cir.2006).

Defendant argues that the district court constructively
amended the superceding indictment when summarizing it for the
jury by leaving out the term "knowingly" from one of the
instructions. He argues that this omission might have raised a
jury question about the level of knowledge and understanding
required for conviction. However, as discussed above, we
conclude the instructions as a whole clearly and amply
informed the jury of the need for the Government to prove
beyond a reasonable doubt that Defendant knew the objective of
the conspiracy and knowingly participated in it. We therefore
reject Defendant's constructive amendment challenge.

III. Expert Testimony

Defendant claims that the Government's expert witness, IRS
Agent Lynch, improperly applied the law to the facts of the
case in his testimony concerning the deductibility of expenses
by Tower members and the inaccuracy of one Tower member's tax
returns. Defendant filed a motion in limine to exclude Mr.
Lynch's testimony, contending that the proposed testimony
would improperly render legal conclusions about the facts of
the case. The court ruled against Defendant on the motion.
Defendant contends that his motion preserved this argument for
appeal even though he did not object further to the testimony
at trial. We agree that he has preserved this argument for
appeal, but we conclude he is not entitled to relief on the
merits of his argument.

*7 Defendant's objection to expert testimony came in the form
of a pretrial motion in limine. "A pretrial motion in limine
to exclude evidence will not always preserve an objection for
appellate review." United States v. MejiaAlarcon, 995 F.2d
982, 986 (10th Cir.1993). "[A] motion in limine may preserve
an objection when the issue (1) is fairly presented to the
district court, (2) is the type of issue that can be finally
decided in a pretrial hearing, and (3) is ruled upon without
equivocation by the trial judge." Id. In this case,
Defendant's motion adequately informed the court of the basis
for his objections, and the court's ruling came after it
received the Government's detailed pretrial summary of the
opinions it intended to elicit from Mr. Lynch. The issue
raised in the motion could have been finally decided at a
pretrial hearing, although it was in fact decided during the
trial, outside the presence of the jury. And, the court's
decision to admit the testimony was final and unequivocal.
Thus, we hold that Defendant's motion preserved his objection
for appellate review. We therefore review the district court's
decision to admit this expert testimony for an abuse of
discretion, and we will reverse only if this decision was
"manifestly erroneous." United States v. Dazey, 403 F.3d 1147,
1171 (10th Cir.2005) (internal quotation marks omitted).

Rule 704(a) of the Federal Rules of Evidence "allows an expert
witness to testify in the form of an opinion or inference even
if that opinion or inference embraces an ultimate issue to be
determined by the trier of fact." A.E. ex rel Evans v. Indep.
Sch. Dist. No. 25, 936 F.2d 472, 476 (10th Cir.1991). An
"expert may not state legal conclusions drawn by applying the
law to the facts," but "[a]n expert may ... refer to the law
in expressing his or her opinion." Id.; see also United States
v. Johnson, 319 U.S. 503, 519 (1943) (allowing some discretion
to trial judges in determining whether expert testimony
appropriately leaves the jury free to exercise its judgment).

Our sister circuits have held that "[e]xpert testimony by an
IRS agent which expresses an opinion as to the proper tax
consequences of a transaction is admissible evidence," United
States v. Windfelder, 790 F.2d 576, 581 (7th Cir.1986), so
long as the expert does not "directly embrace the ultimate
question of whether [the defendants] did in fact intend to
evade income taxes," United States v. Sabino, 274 F.3d 1053,
1067 (6th Cir.2001) (alteration in original) (internal
quotation marks omitted). As we stated in a recent unpublished
opinion, "we agree that a properly qualified IRS agent may
analyze a transaction and give expert testimony about its tax
consequences." United States v. Wade, 203 F. App'x 920, 930
(10th Cir.2006). Based on this authority, we conclude the
district court did not abuse its discretion in admitting the
agent's testimony.

Conclusion

*8 We see no error in any of the district court's rulings. We
therefore AFFIRM Defendant's conviction and sentence.

Labels: advisor liability, asset protection, reinvoicing, sham, tax evasion, tax haven