NOT RECOMMENDED FOR PUBLICATION

F ile Name: 07a0696n.06

F ile d : September 25, 2007

N o . 06-5876

U N I T E D STATES COURT OF APPEALS

F O R THE SIXTH CIRCUIT

U N IT E D STATES OF AMERICA

P l a in tif f -A p p e lle e

O n Appeal from the United

v. S ta te s District Court for the

W e ste rn District of Kentucky

C Y R U S JEFFREY BLAND, a t Bowling Green

D e f e n d a n t-A p p e llan t.

/

B efore: G U Y , ROGERS, and MCKEAGUE, Circuit Judges.

Defendant Cyrus Jeffrey Bland appeals

R A L P H B. GUY, JR., Circuit Judge. f ro m his conviction on two counts of filing false income tax returns in violation of 26U.S.C. § 7206(1). Seeking reversal, defendant argues (1) that the prosecutor committed misconduct in his closing argument sufficient to constitute plain error; and (2) that the district court a b u se d its discretion by allowing the government to present rebuttal testimony. After review o f the record and the arguments presented on appeal, we affirm. I. S e c tio n 7206, a perjury statute that criminalizes lying on any document filed with the IR S , provides that: "Any person who . . . willfully makes and subscribes to any return sta tem e n t, or other document, which contains or is verified by a written declaration that it is m a d e under the penalties of perjury, and which he does not believe to be true and correct as to every material matter . . . shall be guilty of a felony. . . ." It is not necessary, however, that th e government prove "the existence of a tax deficiency, exact amounts of unreported re c e ip ts or income, or an intent to evade taxes." United States v. Tarwater, 308 F.3d 494, 5 0 4 (6th Cir. 2002).

D e f e n d a n t, who lived in Campbellsville, Kentucky, emphasized that he has only a h ig h school education and professed not to understand the details of accounting. He ran a p a in tin g business during high school, started an automobile salvage company with a friend a f te r high school, and bought a textile machine manufacturing business from an in-law. He also owned a small air-transport company used to carry the textile machinery to customers a ro u n d the country. When the textile equipment and air-transport businesses failed in the w a k e of NAFTA, defendant purchased and operated a metal reprocessing company that made m e ta l siding and roofs. Defendant testified that although he could tell when a company was m a k in g money, he relied on long-time bookkeeper Ruby Wilson to monitor the financial d e ta ils of his businesses. The companies were operated as "S" corporations, with the income a p p e a rin g on his federal income tax returns. Defendant's tax returns were prepared by CPA H e n ry Lee based on the information provided by defendant. At its peak, defendant's line of c re d it at the bank exceeded $800,000.1 It was during a trip to Las Vegas in 1994 that defendant was introduced to gambling a n d won $2,500 playing three $100 slot-machine tokens. After returning home, defendant b e g a n frequenting nearby casinos and became what the casinos would consider a "high ro lle r" or a "whale." His federal income tax return for 1994 reported $2,500 in gambling in c o m e , which was offset by $2,500 in gambling losses. On the 1995 federal tax return, d e f en d a n t reported $101,000 in winnings and $65,000 in losses. The 1998 return noted a p la c e for "gambling losses," but no gambling income or losses were reported on either the 1 9 9 8 or 1999 returns.

T h e evidence showed that defendant won substantial sums gambling in both 1998 and 1 9 9 9 , although the amount of his net gambling income remained in dispute at trial. Bank re c o rd s showed that defendant deposited checks from the casinos into his account and drew c a sh ie rs checks written to the casinos. Whenever defendant's payout exceeded $10,000, the c a s in o would file a Currency Transaction Report (CTR). In addition, the casinos kept logs, re f e rre d to as "trip sheets," that recorded defendant's activity at the table games. The CTRs a le r t e d the IRS to the gambling income that was not reported. The two-count indictment filed in October 2005 charged defendant with making false statements by failing to report in c o m e from gambling on his federal income tax returns for 1998 and 1999.

D e f en d a n t's expert, CPA Marcia Lewis, concluded that defendant's net gambling in c o m e for 1998 and 1999 was $94,181.74 and $310,000, respectively. Amended returns for th o se years, along with payment of $165,000, were filed with the IRS shortly before trial.

T h e government's expert, IRS Special Agent Brandon Welch, prepared a revised su m m ary-- rev ised just before trial and in response to Lewis's report--that found defendant's n e t gambling income for 1998 and 1999 to be $292,843.90 and $319,241.02, respectively.

W h ile defendant makes much of the fact that the revisions from Welch's original summary in c lu d e d a reduction of nearly $750,000 in gambling revenue for 1998, the "bottom line" is th a t the revisions resulted in a relatively modest reduction in the defendant's net gambling in c o m e for each year.2 Even after these revisions, the government identified gambling re la te d deposits of $741,999 and $613,800 for 1998 and 1999, respectively.

B e f o re trial, Welch also prepared charts identifying specific items from the casino re c o rd s that were not reflected in Lewis's report. Those charts were not disclosed before trial o r used either in the government's case-in-chief or on cross-examination of Lewis.

R e s e rv i n g this evidence for rebuttal, the government recalled Welch to refute the defense e x p e rt's calculations. Defense counsel objected, but the district court permitted the testim o n y. This is the basis for defendant's second claim of error.

A lth o u g h the IRS initiated its investigation in May 2001, defendant was not contacted u n til February 2002. Defendant testified that he promptly went to an attorney with boxes of re c o rd s and learned in short order that he had been under the mistaken impression that he c o u ld "carry forward" his gambling winnings and losses over a five-year period. Defendant, w h o was represented by that same attorney at trial, related the substance of their first c o n v e rsa tio n and squarely laid blame for his failure to report the gambling winnings on his a c c o u n tan t. This testimony was central to the defendant's claim that he had not willfully m a d e false statements on the tax returns in question.

S p e c if ic a lly, defendant testified that he told Lee about his gambling winnings, but L e e told him not to worry about it because gambling income could be carried forward or b a c k w a rd for five years as with his businesses. Lee, on the other hand, stated unequivocally n o t only that the defendant did not tell him about any gambling income for 1998 and 1999, b u t also that Lee never advised the defendant that gambling income could be carried forward.

L e e explained that he prepared the returns from the information defendant provided, and that h e would ask defendant if there was "any other income." In closing argument, defense c o u n se l called Lee incompetent and vouched for the defendant's veracity. The prosecutor re sp o n d e d in rebuttal by arguing that defense counsel had helped defendant "concoct" or " w e a v e" a story that could be used as a defense at trial. Although no objection was made at th e time, these remarks are the basis for defendant's claim of prosecutorial misconduct.

D e f en d a n t testified that, once alerted to the error, he called the casino he had been p a tro n iz in g and found out that he had won $110,000 and $244,000 in the years 2001 and 2 0 0 2 . According to defendant, he then insisted that the gambling income be reported on the ta x returns for those years, even though Lee told Bland he was "wasting his money" and s h o u ld find a new tax preparer if he would not take Lee's advice. There is no dispute that th e returns for 2001 and 2002 reflected gambling income. Defendant testified that he s to p p e d gambling in 2002, after his losses mounted, and that he was later sued by the casino o v e r his gambling debts.

A t the conclusion of four days of testimony, the jury found defendant guilty on both c o u n ts . On June 23, 2006, the district court sentenced defendant to 24 months' imprisonment a n d ordered restitution equal to the tax liability that had not yet been paid. This appeal f o llo w e d .

II.

A. R e b u t ta l Evidence D e f en s e counsel objected to rebuttal evidence from Agent Welch detailing the tra n sa c tio n s that Lewis had not taken into account in determining the defendant's net g a m b lin g income. Defendant protested, as he does on appeal, that those charts--Exhibits 30 a n d 32--were prepared before trial from casino records that would be admitted in the g o v e rn m e n t's case-in-chief. As a result, defendant insists that the government could have in c o rp o ra te d the charts into Agent Welch's direct testimony or introduced them following d e f e n s e counsel's cross-examination concerning the accuracy of Welch's calculations.

A lte r n a tiv e l y, defendant argues that the charts would most naturally be used during crosse x a m in a t io n of Lewis. Instead, avoiding direct challenge to Lewis's calculations on cross, th e government reserved the analysis of her report for rebuttal. As defendant correctly o b s e rv e s, the trial court's decision to admit evidence on rebuttal is reviewed for abuse of d is c re tio n . United States v. Caraway, 411 F.3d 679, 683 (6th Cir. 2005).3 " `T h e proper function of rebuttal evidence is to contradict, impeach or defuse the im p a c t of the evidence offered by an adverse party.'" United States v. Levy, 904 F.2d 1026, 1 0 3 1 (6th Cir. 1990) (citation omitted). The district judge has discretion to limit rebuttal e v id e n c e "`to that which is directed to rebut new evidence or new theories proffered in the d e f en d a n t's case-in-chief.'" Toth v. Grand Trunk R.R., 306 F.3d 335, 345 (6th Cir. 2002) (q u o tin g Martin v. Weaver, 666 F.2d 1013, 1020 (6th Cir. 1981)). Evidence is "new" for p u rpo ses of rebuttal if it "`was not fairly and adequately presented to the trier of fact before th e defendant's case-in-chief.'" Id. (quoting Benedict v. United States, 822 F.2d 1426, 1429 (6th Cir. 1987)).

B e c a u s e Lewis's calculations and conclusions were not fairly and adequately p re se n te d before the defendant's case-in-chief, Agent Welch's critique of her report was p ro p e rly offered in rebuttal to disprove the accuracy of her calculations. Id.; see also United S ta te s v. Tejada, 956 F.2d 1256, 1266-67 (2d Cir. 1992). Moreover, this court has s p e c if ic a lly rejected the argument that admission of proper rebuttal evidence is limited by the f a c t that it could have been introduced in the government's case-in-chief. Caraway, 411 F.3d a t 683; Toth, 306 F.3d at 345; Tejada, 956 F.2d at 1267. Indeed, for real rebuttal evidence, " th e [government] has no duty to anticipate or to negate a defense theory in [its] case-inc h ie f ." Martin, 666 F.2d at 1020. The district judge, therefore, did not abuse his discretion in allowing Agent Welch to testify in rebuttal.4 B. P r o se c u to r ia l Misconduct T h is court has adopted a two-step approach for evaluating claims of prosecutorial m is c o n d u c t. United States v. Carroll, 26 F.3d 1380, 1385-87 (6th Cir. 1994). First, we d e te rm in e whether the prosecutor's conduct and comments were improper. Id. at 1387. If im p ro p e r, then we consider and weigh four factors to determine whether the impropriety was f la g ra n t and thus warrants reversal. Id. Because no objection was made at trial, however, o u r review is only for plain error. United States v. Young, 470 U.S. 1, 6-7 (1985); United S ta te s v. Collins, 78 F.3d 1021, 1039 (6th Cir. 1996). To establish plain error, the defendant m u s t demonstrate (1) an error, (2) that is plain, (3) that affects the defendant's substantial r ig h ts , and (4), if the first three are shown, that this error seriously affected the fairness, in te g rity, or public reputation of the judicial proceedings. Collins, 78 F.3d at 1039; see also U n ite d States v. Carter, 236 F.3d 777, 783 (6th Cir. 2001).

T h e government concedes that it was improper to make personal attacks on the v e ra c ity of defense counsel by suggesting that defense counsel helped the defendant " c o n c o c t" or "weave" a story that could be presented in defense at trial. Young, 470 U.S. at 9 ; Collins, 78 F.3d at 1040. Turning to the four-factor flagrancy test, this court must d eter m ine whether the remarks were so exceptionally flagrant as to constitute plain error.

C a r te r, 236 F.3d at 783. The four factors are: (1) whether the remarks tend to mislead the ju ry or prejudice the accused; (2) whether the comments were isolated or extensive; (3) w h e t h e r they were deliberately or accidentally made; and (4) whether the evidence against th e accused was strong. Id. In weighing these factors, we must examine the prosecutor's re m a r k s "within the context of the trial to determine whether the prosecutor's behavior Young, 470 U.S. at 12. This consideration includes a m o u n te d to prejudicial error." " w h e t h e r, and to what extent, the prosecutor's improper remarks were invited by defense c o u n se l's argument." Id.; see also Carter, 236 F.3d 783.5 W ith o u t arguing that the remarks would tend to mislead the jury about the evidence, d ef en d an t maintains that they were prejudicial because the defense depended on the jury's e stim a tio n of the defendant's veracity and the prosecutor was asserting that defense counsel h a d put false testimony in defendant's mouth. This case is unlike Carter, where the p ro s e c u to r's arguments not only misstated evidence but also accused defense counsel of lying a b o u t the testimony. Here, defense counsel injected his own credibility into the proofs, re p re se n ted he had personal knowledge of the facts, and vouched for the defendant.

A s discussed earlier, the defendant was asked to relate the substance of their first c o n v e rs a tio n in the following exchange: Q : And then did you come to my office then . . . and bring me all your records th a t you had . . . in some boxes? A : Yes, I did.

Q : And do you remember if you had a discussion with me about what could th is be about? A : Yeah. I remember about -- sitting in your office about 10 minutes and - w h e n I originally come to see you, and you saying right here is your problem.

Q : So what did I tell you your problem was? A : You told me I couldn't carry forward those.

Q : In 10 minutes that you came to my office I told you that you couldn't carry f o rw a rd those - A: Absolutely.

Q : Even though it was on the tax return, gambling losses, I told you you c o u ld n 't carry forward gambling losses or winnings; those had to be the same ye a r .

D ef en d an t testified explicitly that his accountant, Henry Lee, had told him he could carry f o rw a rd gambling income and losses, to show that the failure to report the gambling income w a s not willful. To support this defense, defendant testified that, once corrected, he reported h is gambling income on his returns for 2001 and 2002, and amended his returns to report g a m b lin g income for 1998 and 1999.

In closing argument, however, defense counsel revealed more about his initial meeting w ith defendant. Specifically, defense counsel told the jury it was obvious to me when Jeff came . . . to my office . . . and he showed me th e tax return, he showed me a `97 or `98 tax return, there's gambling losses o n the return. Now, no accountant in his right mind puts gambling losses on th e return if he doesn't intend to. And I said, Jeff, where are the winnings to g o with these losses.

H e said, the accountant didn't say I had to put them on; we're going to c a rry them forward for five years. I said, well, you can't carry -- I mean, it to o k 10 minutes to know that. You can't carry forward if you knew what you w e re doing, and that was the first time I realized that Henry Lee is in c o m p e te n t. The man should not be a CPA.

D e f en se counsel argued at length that Lee was incompetent and/or intimidated by the IRS, a n d that the defendant had relied in good faith on the advice he claimed to have gotten from L e e . Defense counsel personally vouched for defendant's credibility by saying "[Bland] n e v e r had a dishonest bone in his body." Defense counsel also offered his personal opinion o f the defendant, stating: "I don't think Jeff is a rocket scientist. I think he's a hard worker, a n d he relies on people for advice on certain things." Finally, defense counsel also asked the ju ry to "please believe" him that the defendant did not review the "20-something" page tax re tu rn before signing it.

T h e prosecutor's challenged comments addressed the defense--good faith reliance o n bad advice from an incompetent accountant--and argued that it was not believable.

B e c au s e defense counsel had injected his own credibility into the issue, his arguments invited c o m m e n t on his own role in asserting the defense and the accusations of incompetence on L e e 's part. The prosecutor argued in rebuttal that defense counsel a p p a re n tl y realized that they had a huge problem. These gambling records w e re going to be conclusive; you didn't report it; what could we possibly say; h o w could we possibly explain that. Then he saw that `98 return . . . and saw [ g a m b lin g ] losses on it and started thinking, how can we use that. Just weave a story, something we can say.

A s Marsha [Lewis] testified to you, it's not unusual for something like th a t to get put on returns. It's a computer program. You've got to check the b o x . Henry Lee testified that it got carried over because it hadn't been c h e c k e d off. He conclusively testified that he had never been told about g am b lin g winnings and losses in that year.

...

F irs t of all, did he voluntarily give some of the information over, but a lso what you heard was that Special Agent Welch subpoenaed a lot of it.

[D ef en se counsel] knew from day one that he could get it, so let's start w e a v in g our story, let's start creating a story about some explanation that we c a n defend you at trial. He gave some of it to Special Agent Welch. He had to get the rest. If we act like we're playing nice, maybe someday we can stand u p in court and say we cooperated, I must be innocent. That's exactly what's g o in g on here.

A n d you can see that even further if you look at what happened with the `9 8 and `99 tax return. Marsha Lewis testified that she estimated what his w in n in g s or losses were and prepared a 1998 and 1999 amended return, [that] ju st happened to get filed two weeks before trial, and why was that? It's pretty c o n v e n ie n t. It allows him to come up here and stand and say he's trying to do th e right thing. He's trying to pay his taxes.

U s e your common sense on that one. If you're contacted 2/12/2002, w h y not contact the casinos? Why not get the win/loss statement? You've h e a rd a lot of people testify that you could get that information. He could have ea sily amended those returns in 2002. At that point, he was hoping he wasn't g o in g to get indicted. He was hoping that a case wouldn't get brought.

....

T h e re 's been no prejudice against them. . . . Just follow the time line in yo u r own head. He gets contacted on this date. He gets some records sent o v er . Doesn't file an amended tax return until a week before trial, four years late r. That shows what's going on here, and that shows how they're trying to s e t up Mr. Henry from day one.

H e n ry Lee came in here and testified twice, and you can compare his te stim o n y to that of Mr. Bland and the reasonableness of it, and use your c o m m o n sense.

M r. Bland . . . testified that he told Henry Lee certain things. One, I had w inn in g s in 1998 and 1999, and as a consequence of that, apparently Henry L e e , . . . came back and said, don't report it; you can carry it over five years.

A n d carrying it over five years is significant. That would be 1998, and again th a t's kind of convenient. It just happens to be roughly around when he visited [ d e fe n se counsel]. So that way they'd have an excuse. They could say he was g o in g to pay apparently, that, yeah, he was just waiting at the very end to see w h a t happened.

B u t look at the amount that he supposedly filed ­ he paid that year; $ 1 1 0 ,0 0 0 . If he was really carrying forward or carrying backward of whatever they're saying, how does that account for the million dollars of winnings? It d o e sn 't. That was . . . their attempt to create this story and to try to weave this d e f e n s e , and it falls short; and where you see it falling short most is the most rid icu lo u s thing he said in his testimony: I told Mr. Lee that I wanted to file a n d pay these taxes, and he said, you're crazy; if you pay those, I'm going to f ire you as a client.

....

. . . [I]n deciding the question of willfulness, you're ultimately going to h a v e to weigh Mr. Lee's testimony versus his testimony and look at everything in v o lv e d and look at when this story of carrying forward and carrying back w a s created, apparently created in conjunction with his attorney, and how it p l a ye d out through time; filed an amended tax return not then, not Mr. Honest Je f f Bland when he first got contacted; he waits [until] a week and a half b e f o re trial because his attorney tells him to do it. This is going to look good.

W e ' l l say you paid that. We can criticize the government now because they d id n 't contact you earlier and ask you to pay it.

H e could have paid it a long, long time ago, and that just simply shows th e story they're attempting to weave. We believe there's no doubt that the e v id e n c e we have presented to you will show and does show that he is guilty o f this, that he willfully knew about it, a million dollars is not on your tax re tu rn , he didn't report. . . . We ask you to find him guilty, because the e v id e n c e has proven that he is guilty.

T h e remarks, while not isolated or accidental, were less an attack on defense counsel p e rs o n a lly and more a response to the arguments linking defense counsel's credibility to the d e f en d a n t's good faith defense. In fact, the prosecutor emphasized to the jury that to decide th e issue they would have to weigh the defendant's testimony against the testimony from Lee.

A s for the final factor, we agree with the government that the evidence against the defendant w as strong. The defendant reported gambling income for 1994 and 1995, but did not report a n y gambling income for two years in which he had over $1 million in gambling-related d e p o s it s and during which defendant's own expert found he had substantial net gambling in c o m e of more than $400,000. The evidence left plenty of room for the jury to disbelieve d e f en d a n t's claim that he signed the 1998 and 1999 returns in the good faith belief that the g a m b lin g income and losses could be carried forward over a five-year period. While, as the g o v e rn m e n t concedes, the prosecutor should have avoided accusing defense counsel of c o n c o ctin g a story to lay the blame on bad advice from the accountant, defendant has not sh o w n that the error was so flagrant as to constitute plain error.

A F F IR M E D .

1 Defendant also testified that he suffered for years with back pain, underwent back surgery in 2002, became addicted to pain medication, and received ongoing psychiatric treatment for unspecified mental disord ers. 2 Specifically, the government's original summary tallied the net gambling income for 1998 and

1999 at $310,181.74 and $331,954.02, respectively, while the revised summary calculated the amounts to be $292.843.90 and $319,241.02, respectively. 3 The government argues that our review is for plain error because the objections were confined to the admission of the charts. While the objection began with the charts, defense counsel also asked that Agent Welch not be allowed to testify in rebuttal. The issue was adequately preserved. 4 Even if defendant could show an abuse of discretion, error in the admission of the rebuttal evidence would be harmless because even Lewis concluded that defendant had substantial unreported gambling income for the years 1998 and 1999. 5 Although defense counsel has a duty to avoid improper comments, the proper course is for a prosecutor to object to improper comments by defense counsel and receive a ruling from the court, Young,

470 U.S. at 10, 13-14.