Appeal from a judgment of the United States District Court for the Eastern District of New York, Pratt, J., convicting appellant, following a six-day jury trial, of tax evasion in violation of 26 U.S.C. § 7201 and of willfully subscribing false income tax returns in violation of 26 U.S.C. § 7206(1). Reversed and remanded for a new trial.
Before Waterman, Ingraham*fn* and Mansfield, Circuit Judges.
While it is superfluous to say that the intent of a tax evader is to try "to screw the government out of some cash if (he can)," what makes this contested tax evasion case remarkable is that, according to the government, Quinto, the alleged tax evader here, was gracious enough to acknowledge to two Internal Revenue Service agents when interviewed by them that that is precisely what he was hoping to accomplish by failing to report approximately $15,000 of income over a two-year period. Not surprisingly, though, Quinto's recollection of his interview with the IRS agents, as developed during his testimony in his own defense at his trial before Judge Pratt and a jury in the United States District Court for the Eastern District of New York on two charges of tax evasion (26 U.S.C. § 7201) and two charges of willfully subscribing false income tax returns (26 U.S.C. § 7206(1)), is somewhat different.
The legal issue which we are required to resolve on this appeal from Quinto's conviction on all counts of the four-count indictment brought against him was precipitated by the government's unwillingness to rely solely upon the revenue agents' in-court testimony regarding their interview. More particularly, to rehabilitate one agent's damaged credibility and further to prove that Quinto had indeed made certain extremely incriminatory remarks to his inquisitors, the government sought to introduce, and, after initial refusals by the judge, was permitted to introduce an elaborate IRS memorandum recounting in extraordinary detail what had purportedly transpired during Quinto's interrogation by the IRS agents and two federal prosecutors. Inasmuch as we agree with Quinto that the district court erred by admitting the memorandum as a prior consistent statement under Fed.R.Evid. 801(d)(1)(B) and that the court's erroneous admission of the document severely prejudiced Quinto's right to a fair trial, we reverse the judgment order of conviction and remand for a new trial on all counts of the indictment.
The four-count indictment upon which Quinto was prosecuted charged him with two counts of income tax evasion, in violation of 26 U.S.C. § 7201, for the calendar years 1974 and 1975, and with two counts of willfully subscribing false income tax returns, in violation of 26 U.S.C. § 7206(1), for those same two years. Following a six-day jury trial in the United States District Court for the Eastern District of New York, Quinto was convicted on all four counts. Upon his four convictions, Quinto was sentenced to a two-year term of imprisonment on each count, the sentences to be served concurrently with two months of each two-year term to be served in a "jail-type" institution. Quinto was also fined $2,500 on each of the four convictions, the total of the fines so imposed being $10,000. Execution of sentence was stayed and Quinto has been free on bail pending disposition of this appeal.
Michael Quinto is a full-time employee of the Suffolk County (New York) Land Management Bureau, serving in the capacity of Senior Right of Way Agent. Since 1965, however, Quinto had also performed services on a part-time basis for the architectural and engineering firm of Wiedersum Associates. Because of Quinto's numerous business and personal contacts with school board members throughout Suffolk County, Wiedersum had retained him as a "public relations man or sales representative" who might be able to arrange interviews for the firm with Suffolk County school boards interested in obtaining architectural or engineering services of the type provided by Wiedersum. Quinto's arrangement with Wiedersum provided that if, as a result of the interviews Quinto arranged, the firm were selected to perform professional services for a school district, Quinto's compensation would amount to 41/2-5% Of Wiedersum's gross architectural fee. It was understood, however, that, as a general matter, Quinto would not be reimbursed by Wiedersum for any of the business expenses he might incur while performing services for Wiedersum. Beginning in 1965 Quinto received $50 per week from Wiedersum as an advance against the commissions it was expected he would earn and in 1966 the size of the weekly advance was increased to $100 per week. Quinto continued to receive these weekly payments until 1975. Moreover, the firm would also occasionally make lump-sum payments to Quinto to cover commissions he had earned.
As a result of Quinto's successful public relations efforts, Wiedersum paid Quinto over $75,000 and on his federal income tax returns for the years 1965-1973 Quinto carefully reported as gross income all these amounts so received from Wiedersum. Quinto's troubles with the Internal Revenue Service, however, developed out of his failure to report on his 1974 and 1975 federal income tax returns any income he received from Wiedersum during those years. It is conceded that Wiedersum paid Quinto $10,400 (composed of $5,400 in weekly checks and a $5,000 lump-sum payment) in 1974 and $5,300 (all in weekly payments) in 1975. Quinto did not report any of this income, and he did not claim any business expenses which he might have incurred through his employment by Wiedersum. According to the testimony of an IRS official, as a result of Quinto's failure to report the payments received from Wiedersum in 1974 and 1975 Quinto underpaid his federal income tax by approximately $3,300 in 1974 and by $1,950 in 1975.
Inasmuch as the defense acknowledged that Quinto had failed to report the aggregate $15,700 received from Wiedersum during 1974 and 1975, the government's proof at trial was directed at establishing that at the time he had failed to report the income Quinto had had the willful intent that must exist for a defendant to be convicted of tax evasion (§ 7201) and of willfully subscribing false income tax returns (§ 7206(1)). To establish the willfulness of Quinto's failure to report income, the government relied upon the testimony of James Wallwork, a Special Agent in the Intelligence Division of the Internal Revenue Service. The crucial portion of the agent's testimony concerned an interview with Quinto conducted by Wallwork, Peter Fuhrman, another IRS Special Agent, and two Assistant United States Attorneys. Several days prior to August 20, 1976, the date on which the interview was conducted, a federal prosecutor had called Quinto and asked him to appear for the interview at the prosecutor's office in the United States Courthouse in Brooklyn. At the time the invitation was extended, the agents and the prosecutor were fully aware that Quinto had not reported the $15,700 he had received from Wiedersum during 1974 and 1975. Unaccompanied by counsel, Quinto appeared at the scheduled time and was ushered into the prosecutor's office. Wallwork testified at trial that, prior to the start of the interrogation, one of the two prosecutors who was present advised Quinto that he was a target of a grand jury investigation and that he was also a subject of a criminal investigation by the Internal Revenue Service. Miranda warnings were also given, and these were repeated several times during the course of the interview. After the initial warnings had been given, Quinto claimed to understand his rights and expressed his desire to proceed with the discussion. Quinto was eventually asked why he had not reported the money he had received from Wiedersum during 1974 and 1975, and according to Wallwork, Quinto, after some abortive attempts to extricate himself from his obvious predicament, blurted out: "Okay, I was trying to screw the government out of some cash if I could."
Defense counsel conducted a vigorous cross-examination of Wallwork which was designed to show that the meeting of August 20 had been more of an inquisition than an interview and that subsequent to that interview the IRS had failed to conduct an adequate enough investigation for the purpose of corroborating Quinto's story that he had had various unreported business expenses, attributable primarily to Quinto's entertainment of members of local school boards, which would counterbalance any unreported income.*fn1 On Agent Wallwork's redirect examination, the government attempted to prove that the IRS had carefully investigated all business expenses which Quinto claimed he had not reported and had found that these claimed expenses simply did not exist. In particular, Wallwork testified that he personally had interviewed seven local school board members whom Quinto claimed he had entertained during 1974 and 1975 and that all seven individuals, including a Mr. O'Connell and a Mr. Fingar, denied having been entertained by Quinto.
More importantly, though, the prosecution on redirect examination elicited from Wallwork that the agents had prepared a memorandum following the August 20 "interview" with Quinto. The document, consisting of eight single-spaced, typed pages, purported to describe exactly what had happened at Quinto's session with the agents. It disclosed, among other things, that Quinto had been read the rights to which Wallwork had previously referred in his direct testimony and, in what was portrayed as a verbatim quotation of Quinto's remarks, that Quinto had confessed that his purpose in failing to report the income was "to screw the government out of some cash if (he) could." Arguing that there had been "a general attack on the agent's credibility," the government attempted to introduce the memorandum as a prior consistent statement usable not only to corroborate Wallwork's in-court direct testimony but also usable under Fed.R.Evid. 801(d)(1)(B) as "substantive evidence" to prove that Quinto had made the fatal admission the IRS agents claim he made. The defense objected to the admission of the document, and, although the judge sustained the objection, he expressly left open the possibility that he might permit the document to be admitted later in the trial "if there (were) a challenge to its credibility, even the form of a contradiction."*fn2
Quinto testified in his own defense and his testimony covered two distinct areas. First of all, his recollection of what had transpired at his interview conducted by the IRS agents and the federal prosecutors differed materially from the version of that incident conveyed to the jury through Agent Wallwork's testimony and, importantly, the version which would eventually be conveyed to the jury through the later-admitted IRS memorandum of that interview as well. Quinto, claiming that he had been lured to the interview on the pretext that the discussions there would involve certain land condemnation procedures, stated that the interview had been conducted in inquisitorial fashion, his inquisitors "badgering" and "goading" him and calling him a "liar" at several points during the interview. Quinto stated that he had not been informed at the start of the interview that he was a target, and that he had no recollection of having been informed that he had the right to leave the room at any time, or that he could refuse to answer questions. As to the supposed admission that he was trying "to screw the government out of some cash," Quinto testified that Agent Wallwork had distorted what Quinto had actually said:
When they were goading me and goading me, I just said, "Do you think for one moment I would try to screw the Government out of a few dollars?" That's what I said, in just that tone, with a question mark on the end of it. (Tr. at 693.)
During Quinto's direct examination, defense counsel also attempted to establish that Quinto's failure to report income and to pay the taxes due on that income was attributable to his good faith belief that his undeclared business expenses for 1974 and 1975 exceeded his unreported income for those two years.*fn3 During his cross-examination, Quinto denied that he had admitted at the interview that his purpose in not reporting the income had been to "screw the government out of some cash." Undaunted by this categorical denial, the prosecutor kept pressing the witness to concede that he had made the damaging statement and, to get Quinto to retract his denial, the prosecutor attempted to "refresh the witness's recollection" by showing him the IRS memorandum and directing his attention to the point in the memorandum where it was stated that Quinto had made the admission of guilt. At this point the prosecutor again offered the IRS memorandum into evidence, and again Judge Pratt refused to admit the document.
The remainder of the defense case was presented through character witnesses and witnesses who testified in support of Quinto's story that certain business expenses he supposedly incurred during 1974 and 1975 were incurred in connection with his promotional efforts on behalf of Wiedersum. Moreover, two of the witnesses, O'Connell and Fingar, who were members of local school boards, directly contradicted portions of Wallwork's prior testimony. As already mentioned, Wallwork had testified that, during his investigation to determine whether Quinto had incurred the business expenses Quinto said he had incurred, Wallwork had visited with these particular school board members. According to Wallwork's direct testimony during the government's case-in-chief, these individuals had responded that they had not been entertained by Quinto during 1974 or 1975. During their direct testimony on Quinto's behalf at trial, however, these two school board members denied having told the IRS agents that Quinto had not entertained them during 1974 and 1975. In addition, another witness contradicted Wallwork's testimony. Wallwork had previously testified that the IRS agents had learned, contrary to what they had been told by Quinto, that Quinto's wife had purchased certain gifts from a ...