United States District Court, W.D. Virginia, Abingdon Division
P. Beaty and Daniel T. McGraw, U.S. Department of Justice,
Tax Division, Washington, D.C., for United States;
Randall C. Eads, Eads & Eads, Abingdon, Virginia, for
Defendant Jeffrey S. Dalton, and Nancy C. Dickenson,
Assistant Federal Public Defender, Abingdon, Virginia, for
Defendant Karen L. Dalton.
OPINION AND ORDER
P. Jones United States District Judge
criminal case, in which the defendants are accused of tax
evasion and conspiracy to structure currency transactions, I
determine several pretrial motions in limine filed by the
I write primarily for the parties, I do not exhaustively
restate the facts here. The Indictment sets forth the
following pertinent allegations.
defendants, Jeffrey S. Dalton and Karen L. Dalton, husband
and wife, resided in Hillsville, Virginia, and owned and
operated a subcontracting business, Blue Ridge Stainless,
Inc. (“BRS”). BRS was treated as an S-Corporation
for tax purposes, which means the defendants, as the
corporation's sole shareholders, were responsible for
reporting the income or losses of the corporation on their
own individual income tax returns.
2009 through 2014, the defendants jointly filed their tax
returns and self-assessed their taxes due as a result of
income earned from BRS. The defendants failed to pay any
taxes, penalties, or interest to the Internal Revenue Service
(“IRS”) for these years. From 2012 through 2015,
the defendants communicated with the IRS regarding their tax
liabilities, but still failed to pay the full amounts owed.
It is alleged that the defendants also affirmatively acted to
evade the payment of such amounts. The IRS levied the
defendants' personal bank accounts, after which the
defendants allegedly used the BRS business account to pay
various personal expenses.
One of the Indictment charges that beginning in or around
October 2010 and continuing to the present, the defendants
willfully attempted to evade and defeat the payment of income
tax for the calendar years 2009, 2010, 2011, 2012, 2013, and
2014. Count One alleges that the defendants did so by placing
and holding real property in the names of their children and
other family members as nominees, signing and causing to be
filed a false IRS Form 433-A, and withdrawing over $250, 000
in cash from the BRS business account between June 10, 2015,
and December 9, 2015, in increments of less than $10, 000.
Two charges that beginning on or about June 10, 2015, and
continuing through at least on or about December 9, 2015, the
defendants knowingly conspired together for the purpose of
evading the currency transaction reporting requirements under
31 U.S.C. § 5313(a), in violation of federal law, by
withdrawing amounts close to but less than $10, 000 at a
government has filed four motions in limine and a renewed
motion for disclosure of defendants' financial
statements. The defendants have filed joint motions to
interview grand jury members and subpoena the IRS case agent.
All of the motions have been fully briefed and orally argued
Evidence of Post-Indictment Payment to the IRS.
first motion in limine, the government seeks to preclude all
evidence regarding the defendants' post-indictment
payment of tax liabilities. The government argues that such
evidence is not relevant and therefore inadmissible. In the
alternative, the government contends that even if the court
finds such evidence probative, any probative value is greatly
outweighed by the substantial risk of confusing or misleading
the jury, as well as jury nullification. The defendants argue
that the tax payment was not made post-indictment, but
instead, the payment was arranged a week prior. Accordingly,
the defendants contend that the payment is evidence of a lack
of willfulness and should be admitted.
of payment may be such that it merely shows a change of heart
or an attempt to vitiate a crime.” United States v.
Harned, 279 F. App'x 262, 264 (4th Cir. 2008)
(unpublished) (internal quotation marks and citation
omitted). However, evidence of payment may be offered
“under such circumstances as to warrant an inference of
good faith and lack of evil intent, ” and such evidence
“is admissible in an income tax evasion case to support
the contention that there was . . . no intent to evade
payment of taxes.” Id. Admissibility
“depends upon the facts and circumstances of each
case, the defendants are alleged to have evaded their tax
responsibilities for over five years. They did not finalize
arrangements to pay such tax liabilities until a week before
indictment, which was more than two years after their alleged
criminal conduct. These circumstances suggest that the
payment was an attempt to vitiate the crime.
government argues that the defendants' subsequent payment
does not detract from the criminality of their tax evasion.
That crime would be complete as soon as each fraudulent
understatement of taxes was filed, and subsequent intention
to pay taxes is no defense to a past intention to evade
taxes. See Sansone v. United States, 380
U.S. 343, 354 (1965); see also Unites States v.
Pang, 362 F.3d 1187, 1194 (9th Cir. 2004) (holding that
evidence of belated tax payments made while awaiting
prosecution is irrelevant).
government further argues that the defendants' act of
paying the IRS after indictment was most likely a
self-serving act performed more than two years after their
alleged wrongdoing. Such an act would have minimal probative
value as to the defendants' state of mind over the five
years they allegedly filed understated tax returns.
“[T]here is no doubt that self-serving exculpatory acts
performed substantially after a defendant's wrongdoing is
discovered are of minimal probative value as to his state of
mind at the time of the alleged crime.” United
States v. Radtke, 415 F.3d 826, 840-41 (8th Cir. 2005).
defendants argue that the tax payment prior to indictment is
indicative of their state of mind at the time they originally
failed to pay their taxes. The fact that the defendants made
arrangements to pay the outstanding liability before
indictment may suggest a lack of willfulness, but the
defendants would have been aware of possible criminal charges
since at least January 2016, and full payment to the IRS was
not made until August 2017. The defendants intend to offer
evidence at trial that they began making payments to the IRS
in 2015 and had been attempting to obtain loans since before
2016. Under these circumstances, evidence of payment could be
offered to support the contention that the defendants were
acting in good faith and had no intent to evade taxes.
government also argues that evidence of payment would be
confusing or misleading to the jury, and is likely to result
in jury nullification. Federal Rule of Evidence 403 provides
that evidence, though relevant, may be excluded if its
probative value is substantially outweighed by a danger of
confusing the issues or misleading the jury. Here, evidence
of full payment to the IRS could easily leave the jury
wondering why the government is prosecuting the defendants
for amounts they have now paid. In other words, the jury may
take a “no harm, no foul” position and acquit the
defendants based solely on the belated payment. However, I
believe this concern could be mitigated by a jury
instruction. I find that whether the August 2017 payment
bears upon the ...