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United States v. Fairchild

United States Court of Appeals, Eighth Circuit

March 17, 2016

United States of America, Plaintiff - Appellee
v.
Veronica J. Fairchild, Defendant - Appellant

         Submitted October 23, 2015.

          Appeal from United States District Court for the District of South Dakota - Sioux Falls.

         For United States of America, Plaintiff - Appellee: Jeffrey C. Clapper, Assistant U.S. Attorney, U.S. ATTORNEY'S OFFICE, Sioux Falls, SD.

         Veronica J. Fairchild, Defendant - Appellant, Pro se, Waseca, MN.

         For Veronica J. Fairchild, Defendant - Appellant: Neil Fulton, Federal Public Defender, FEDERAL PUBLIC DEFENDER'S OFFICE, Pierre, SD; Timothy J. Langley, Assistant Federal Public Defender, Molly Quinn, Assistant Federal Public Defender, FEDERAL PUBLIC DEFENDER'S OFFICE, Sioux Falls, SD.

         Before RILEY, Chief Judge, SMITH and SHEPHERD, Circuit Judges.

          OPINION

         SMITH, Circuit Judge.

         A jury found Veronica J. Fairchild guilty on four counts of making and subscribing a false tax return, in violation of 26 U.S.C. § 7206(1). The district court[1] sentenced Fairchild to 33 months' imprisonment. On appeal, Fairchild argues that (1) insufficient evidence supports the jury's finding that Fairchild knowingly and willfully underreported her income; (2) the district court abused its discretion in failing to instruct the jury that it was required to unanimously agree on which source of income that Fairchild failed to report on her income tax return; and (3) the district court improperly calculated Fairchild's Guidelines range and imposed a substantively unreasonable sentence. We affirm.

         I. Background

         " We present the facts in a light most favorable to the verdicts, drawing all reasonable inferences from the evidence that support the jury's verdicts." United States v. Ramon-Rodriguez, 492 F.3d 930, 934 (8th Cir. 2007) (citation omitted).

         In 2009, Internal Revenue Service (IRS) Special Agent Daniel Wright opened an investigation on Fairchild and her husband. Agent Wright discovered that Fairchild and her husband had not filed income tax returns since 2004. Agent Wright obtained records from Fairchild's two primary bank accounts dating back to January 1, 2005. These bank records showed that a number of large cashier's checks had been deposited into her accounts. Specifically, there were 37 deposits of checks from David Karlen totaling $1,103,647.84. Fairchild's accounts reflected another six checks totaling $50,000 from Paul Pietz deposited into two main accounts in 2008. The bank records also showed $210,348.39 in total cash deposits from 2005 to 2008.

         In July 2010, Fairchild and her husband filed joint income tax returns for 2005, 2006, 2007, and 2008, apparently unaware of the ongoing IRS investigation. Fairchild, a professional adult entertainer, reported income in each of the respective years as $122,345; $120,000; $120,000; and $151,325. The total income reported of $513,670 was far less than the $1,153,647.84 that Fairchild received from Karlen and Pietz during that same time span. Additionally, the returns did not identify any of Fairchild's cash deposits during those years as income.

         Agent Wright interviewed Fairchild about her tax returns on July 13, 2011. During that interview, Fairchild explained " that she actually thought all of the money, that every single cashier's check she received from Mr. Karlen was a gift, but that she had reported some of it to take some of the tax burden off of him." To determine how much income to claim, Fairchild told Agent Wright that she " ballparked" the amount. In the same interview, Fairchild also claimed that the money from Pietz was a gift and that he had told her that he reported the gift on his income tax return. Even though $30,000 of the money from Pietz was included as income on her 2008 income tax return, Fairchild maintained that it was really a gift that her accountant had mistakenly included as income.

         At trial, Fairchild explained that in addition to the money that she earned dancing on stage, she also made money off stage in private rooms at the exotic dancing clubs or off the premises. Fairchild testified that she gave private dances to both Karlen and Pietz and maintained that these private dances never included sex.

         Fairchild also testified that Karlen " knew everything about me financially." According to Fairchild, she asked Karlen for money for constructing her home, paying bills, getting breast implants, and paying college tuition, and Karlen would provide the funds. She considered it all a gift. Fairchild testified that she thanked Karlen for the money that he " gifted" her by giving him free private dances.

         Fairchild admitted that she did not file income tax returns for 2005 through 2008 until 2010, but she claimed that the delay was due to problems that she experienced during the construction of her new home. She claimed that when she met with her accountant in 2010 to prepare her tax returns, she decided to claim some of the gifts from Karlen as income to benefit him, so that he did not have to pay the taxes on all of it. To determine her income over the four years, she " decided that any time [she] spent with David [Karlen], anything that could be construed as income or considered a gray area at a thousand dollars an hour." She testified that she spent an average of two times per month with Karlen over the 48-month period, and she estimated that she spent approximately four or five hours with Karlen during each " session." She stated that she also included going out to eat with Karlen as part of the billable time. Fairchild calculated that she had earned " about $120,000 a year" for each of the four years for services that she provided to Karlen. She testified that, at the time that she filed the tax returns, she believed that the money in excess of what she reported as income was " [g]ifts." But Fairchild admitted that " Karlen never used the word 'gift' with [her]."

         According to Karlen, he met Fairchild in 2003 or 2004 while she was dancing. He tipped her money when she danced on stage and paid for private dances inside the club in a private room. Fairchild gave her phone number to Karlen and would call him to tell him when and where she would be dancing. In 2005, Karlen went to watch Fairchild dance at a club; while there, Fairchild asked Karlen if he was interested in paying for sex with her outside of the club. Karlen testified concerning the first time that he met with Fairchild for a " private meeting outside the club." He stated that it occurred in Sioux Falls and that " it was just oral sex for . . . a thousand dollars." When asked if they had " more meetings after that," Karlen answered that they " probably did two, three, four of those." Karlen then confirmed that he later met Fairchild at a hotel for intercourse and paid her $5,000 in " [c]ash." He testified that Fairchild charged him the same price for future similar encounters.

         Prior to April 2005, Karlen paid Fairchild in cash. But around this time he began writing checks to Fairchild. Karlen explained that Fairchild would always ask him for a certain amount. For example, Karlen wrote a check in the amount of $39,000 on April 11, 2005, to Fairchild for sex. After Karlen started paying with checks, that is how he continued to pay Fairchild. Between 2005 and 2008, Karlen paid Fairchild $1,103,647.84 with 37 checks. When asked how he " treat[ed] the money that [he] gave to [Fairchild]," Karlen replied, " [f]or her service. . . . For sex." When asked whether the 37 payments were all for sexual services, Karlen replied, " [e]very one of those." He later confirmed that " [t]he whole $1.1 million was for sex" and that " [e]verything was for sex."

         According to Pietz, he first paid Fairchild $5,000 for a private dance at his home in February 2008. Pietz testified that Fairchild sometimes charged him $10,000 for a private show. In total, Pietz made six payments to Fairchild totaling $50,000. Pietz confirmed that he never paid Fairchild " money for anything other than a private dance."

         Fairchild retained Certified Public Accountant Derry Anderson in 2005 because Fairchild and her husband were opening a clothing store business and wanted advice on the type of corporation to create. Additionally, they hired Anderson to provide payroll services and to prepare their 2005 income tax returns. In May 2006, after filing requests with the IRS to file the income tax returns late, Anderson met with Fairchild to determine her income. Because Fairchild had no other documentation of her income, she reviewed her bank statements with Anderson to determine which deposits were income. Anderson testified, " I went through and had Veronica [Fairchild] read off the deposits to me, and I ran a tape on my calculator of the number of deposits that she would tell me. That's what we used as the total income for the 2005 Schedule C." Through that process, they calculated Fairchild's gross income from cash received in 2005 to be $308,727.69. After receiving additional information related to deductions from Fairchild in late October 2006, Anderson completed the 2005 tax return in December 2006. Anderson met with Fairchild and her husband on December 15, 2006, to review the completed return. Based on the information that Fairchild reported to Anderson, he determined that her gross income as a professional adult entertainer for 2005 was $311,073. As a result, Fairchild and her husband owed $56,217 in taxes, before penalties and interest.

         Anderson had also prepared the income tax return for Fairchild's clothing business and provided it to her. That return indicated a business loss with no tax liability. Anderson testified that he reviewed the tax returns with Fairchild and her husband and that " there was [sic] no issues on the gross income." He advised them to mail the returns to the IRS. Although Fairchild and her husband did mail the tax return for the business, they did not mail their personal income tax return. Instead, once Fairchild and her husband departed Anderson's office that day knowing that they owed $56,217 in taxes, they went to the Sioux Falls Federal Credit Union and borrowed over $100,000 to buy two Cadillac Escalades and a boat.

         Before Fairchild and her husband left Anderson's office, they told him that Fairchild's income was expected to be higher in 2006. Based on information that Fairchild provided, Anderson began to prepare the income tax return for 2006. As he did for the 2005 return, Anderson reviewed deposits in Fairchild's bank accounts in 2006 and determined that her gross income was $517,081. Anderson prepared a " working draft for the 2006 return," and he provided Fairchild and her husband with a copy of it.

         But Anderson did not prepare a 2006 income tax return for Fairchild until 2010. Fairchild and her husband met with Anderson in March 2010 to complete the income tax returns for 2006, 2007, and 2008. According to Fairchild, Anderson and her husband needed to complete their tax returns to obtain financing for a real estate purchase in Lake Okoboji, Iowa. Prior to that time, Fairchild had not provided Anderson with enough information to complete the returns. At the March 2010 meeting, Fairchild disclosed to Anderson that she had not filed the 2005 income tax return that Anderson had previously prepared.

         Also during the March meeting, Fairchild told Anderson for " the first time" that " she actually received a gift" from Karlen. Thus, the filed 2005 tax return accounted for this " change in income" and resulted in Fairchild actually requesting a refund of $1,979. Anderson admitted that Fairchild going from owing $56,217 on the 2005 return prepared in 2006 to requesting a refund on the filed 2005 return was " quite a change." Likewise, the taxes owed on the 2006 " working draft" went from $117,114 to $4,922.

         Between 2006 and 2008, Fairchild completed and signed several loan applications with financial institutions. In January 2006, she signed and submitted an application to Keystone Mortgage declaring her income to be $24,800 per month. In December 2006, when she borrowed money from the Sioux Falls Bell Federal Credit Union to purchase the boat and vehicles, she stated that her income was $17,647 per month. In March 2007, on a loan application for a Mercedes Benz, she stated that her annual income was $274,881. To support the loan application, Fairchild's husband directed Anderson to send a copy of the unfiled 2005 income tax return that had been prepared in December 2006.

         Fairchild also relied on the 2006 " working draft" income tax return to support her income level when she applied for a loan with Sioux Falls Federal Credit Union in 2007. At Fairchild's request, Anderson provided a copy of the 2006 " working draft" to Sioux Falls Federal Credit Union to verify her income to obtain a loan. In June 2007, when completing a mortgage application with Wells Fargo Bank, she claimed that her monthly income was $37,612. In July 2007, when applying for a loan to purchase a new Corvette, Fairchild stated that her gross annual income was $383,319. The same annual income was reported in 2008 when Fairchild applied for a $30,000 loan to purchase a completely restored 1970 Pontiac GTO.

         In September 2008, Fairchild asked Anderson to fax information about her 2007 income for a loan application with the Air Guard Federal Credit Union. Anderson sent a fax that stated, " [t]he Schedule C gross income will be close to the 2006 gross income, around $300,000 based on the information provided by Veronica [Fairchild]."

         Fairchild was charged with four counts of making and subscribing a false income tax return for tax years 2005 through 2008, in violation of 26 U.S.C. § 7206(1). A jury trial commenced. After the close of the government's case, Fairchild moved for judgment of acquittal under Federal Rule of Criminal Procedure 29. The district court denied the motion. The jury convicted Fairchild on all four counts. The district court sentenced Fairchild to 33 months' imprisonment on each count to run concurrently.

         II. Discussion

         On appeal, Fairchild argues that (1) insufficient evidence exists to support the jury's finding that Fairchild knowingly and willfully underreported her income; (2) the district court abused its discretion in failing to instruct the jury that it was required to unanimously agree on which source of income that Fairchild failed to report on her income tax return; and (3) the district court improperly calculated Fairchild's Guidelines range and imposed a substantively unreasonable sentence.

         A. Sufficiency of the Evidence

         Fairchild argues that the evidence is insufficient to sustain her convictions for making and subscribing a false income tax return for tax years 2005 through 2008, in violation of 26 U.S.C. § 7206(1), because no reasonable jury could conclude that she falsely reported her income or tax liability. She further asserts that even if her declaration of income and tax liability were " false," no reasonable jury could find that she believed that she was understating her income or that she willfully and intentionally did so.

         " Our standard of review on this issue is quite narrow." United States v. Smith, 104 F.3d 145, 147 (8th Cir. 1997) (citation omitted). When reviewing a district court's denial of a motion of judgment of acquittal based on sufficiency of the evidence, we view the evidence in the light most favorable to the jury's verdict. Id. The government gets " the benefit of all the reasonable inferences that could logically be drawn from the evidence." Id. (citation omitted). " We must uphold the verdict if the evidence so viewed is such that there is an interpretation of the evidence that would allow a reasonable-minded jury to find the defendant guilty beyond a reasonable doubt." Id. (quotation and citation omitted).

         Fairchild was convicted of violating 26 U.S.C. § 7206(1), which prohibits " [w]illfully mak[ing] and subscrib[ing] any return . .., which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter." To prove a violation of § 7206(1), the government must put forth evidence " that the document in question was false as to a material matter, that the defendant did not believe the document to be true and correct as to every material matter, and that he acted willfully with the specific intent to violate the law." Kawashima v. Holder, 132 S.Ct. 1166, 1172, 182 L.Ed.2d 1 (2012) (citations omitted). " In general, a false statement [under ยง 7206(1)] is material if it has 'a natural tendency to influence, or [is] capable of influencing, the decision of the decisionmaking body to which it was ...


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