New York Federal Criminal Practice Blog
November 12, 2007

Second Circuit Reverses Convictions for Misjoinder of Tax Counts with Non-Tax Counts

Trying to convict a defendant on personal tax evasion if nothing else is a well-worn prosecutorial strategy.  But it is one that backfired in United States v. Shellef, 2007 WL 3286908 (2d Cir. November 8, 2007), decided last week.  In a rare reversal on misjoinder grounds, the Second Circuit vacated the convictions of two defendants because the government had improperly charged one defendant with tax fraud counts related to unreported personal and corporate income that had nothing to do with the conspiracy and wire fraud schemes that formed the basis of the other charges against the defendants. The challenged tax counts in fact predated and had "no meaningful overlap" with the main conspiracy in the indictment.  As the Court held, "the fact that the businesses that produced the 1996 unreported income [that formed the basis of the tax counts] were also subsequently used to perpetrate the alleged conspiracy and wire fraud does not justify a conclusion that the offenses charged are 'based on the same act or transaction, or are connected with or constitute parts of a common scheme or plan,' under Rule 8(a)," governing joinder of offenses.  The Court thus reiterated a previous holding that "[t]ax counts may be joined with non-tax counts where it is shown that the tax offenses arose directly from the other offenses charged," usually where the "funds derived from non-tax violations either are or produce the unreported income."

The Court found the error was not harmless here where the risk of prejudice was great.  The jury could have concluded that the defendant's willingness to lie to the IRS indicated a willingness to lie both to the victims of the later fraud, and, since the defendant testified at trial, to the jury itself.  The adverse implications could also have had a spillover effect on the co-defendant, especially since he did not testify.  A critical factor in the Court's decision was the fact that the trial court failed to give any limiting instructions to the jury as to the use of the tax count evidence in its deliberations on the non-tax counts.  But here, it is hard to see how any jury could have genuinely followed such a limiting instruction once the bad act was out of the bag. 

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