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United States v. Davis

United States Court of Appeals, District of Columbia Circuit

July 21, 2017

United States of America, Appellee
v.
Sherri Davis, Appellant

          Argued February 3, 2017

         Appeals from the United States District Court for the District of Columbia Nos. 1:14-cr-00037-1, 1:14-cr-00037-2

          Lisa B. Wright, Assistant Federal Public Defender, argued the cause for appellant Andre Davis.

          Adam H. Kurland, appointed by the court, argued the cause for appellant Sherri Davis. With them on the briefs were A.J. Kramer, Federal Public Defender, and Beverly G. Dyer, Assistant Federal Public Defender.

          Tony Axam Jr. and David W. Bos, Assistant Federal Public Defenders, entered appearances.

          Alexander P. Robbins, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief was Gregory Victor Davis, Attorney. Frank P. Cihlar, Attorney, entered an appearance.

          Before: Rogers and Srinivasan, Circuit Judges, and Ginsburg, Senior Circuit Judge.

          OPINION

          Rogers, Circuit Judge.

         Sherri Davis and her son, Andre Davis, appeal from their convictions of conspiracy to commit tax fraud and related offenses. Sherri owned a tax preparation business, which the Internal Revenue Service determined was filing returns that falsely reported charitable and business deductions. A key government witness, LaDonna Davis, who was Sherri's niece and employee, described at trial how the business operated generally, and specifically how Sherri had taught her to prepare false returns. Andre worked with his mother later on. Both Sherri and Andre challenge their convictions on the grounds of prosecutorial misconduct during closing arguments to the jury and various evidentiary errors by the district court. Andre also contends that there was insufficient evidence to demonstrate his guilt beyond a reasonable doubt and suggests that the verdict against him on two counts is explained, among other reasons, by the government's mischaracterizations of the evidence during closing arguments. Upon consideration of the weakness of the evidence offered against Andre and its centrality to the issue of his mens rea, we conclude that the prosecutor's blatant misstatements of key evidence during closing arguments, in the absence of any steps to mitigate the resulting prejudice, require reversal of Andre's convictions. Further, we conclude that the evidence against Andre was insufficient and consequently he is not subject to retrial. Finally, finding no such prejudice from the closing arguments as to Sherri, and concluding her evidentiary challenges are unpersuasive, we affirm Sherri's convictions but remand her case for resentencing and for consideration of her claims of ineffective assistance of counsel.

         I.

         In 2003, Sherri Davis registered 2FT Fast Facts Tax Service with the Internal Revenue Service ("IRS"). 2FT was a tax preparation business aimed at recovering its clients' tax withholdings and maximizing their tax refunds. Sherri's niece, LaDonna Davis, began working for 2FT in 2006, first doing clerical work but later preparing and filing tax returns herself. LaDonna would work during the day and into the evenings, and Sherri, who was a public school teacher, would join her once the school day ended and sometimes work on returns until midnight. 2FT also employed other individuals to help around the office, but only Sherri and LaDonna prepared tax returns. Clients were charged between $99 and $500 for each return, often taken as a deduction from the client's refund without the client knowing the specific amount. During tax season, 2FT would prepare twenty to thirty returns a day, seven days a week. Fees, annually totaling hundreds of thousands of dollars, were deposited in Sherri's bank account; employees were paid in cash.

         An IRS investigation of 2FT led to an interview with Sherri about the responsibilities of tax preparers. Subsequent undercover investigations in 2010 and 2011 captured LaDonna on videotape preparing false returns for undercover IRS agents. In April 2011, the IRS executed a search warrant for 2FT's business location at 1841 Burke Street, SE, Washington, DC, where Sherri and LaDonna also lived, and seized computers and files. At the time, IRS agents also interviewed LaDonna and she agreed to cooperate with their investigation. In October 2011, LaDonna entered into a plea agreement admitting conspiring to defraud the United States of more than $14 million. She pled guilty to conspiracy to defraud the United States, in violation of 18 U.S.C. §§ 2, 371, and aiding and abetting first degree theft, in violation of D.C. Code §§ 22-3211, 22-3212, 22-1805. That same month, the IRS expelled Sherri from its electronic filing program and suspended 2FT's electronic filing numbers ("EFINs"). Sherri continued her tax preparation business under a new name, Davis Financial Services. Instead of identifying Sherri as owner, however, Davis Financial Services' February 2012 IRS EFIN application listed Andre as the principal and the primary contact.

         Sherri was indicted for federal tax violations two years later, in February 2014. A superseding indictment filed in July 2014 named Sherri and Andre as defendants and LaDonna as an unindicted co-conspirator. Count 1 charged Sherri and Andre with conspiracy to defraud the United States by preparing and filing fraudulent and false individual income tax returns, in violation of 18 U.S.C. §§ 2, 371. Counts 2 through 33 charged Sherri with willfully aiding and assisting in the preparation of false returns, in violation of 26 U.S.C. § 7206(2); Andre was charged with the same violation in Counts 6, 15, 19, and 22. Counts 34 through 36 charged Sherri with filing false individual returns, in violation of 26 U.S.C. § 7206(1) and 18 U.S.C. § 2. The district court granted the government's pretrial motion to dismiss Counts 2 through 6.

         At trial, eleven of Sherri's clients testified. According to the government,

all t[old] essentially the same story: each worked for an employer that withheld federal income taxes from the wages it paid, each went to Sherri's house between 2007 and 2013 to file a tax return for the prior year, and each (with a single exception) used Sherri to prepare returns for multiple tax years. Most of the clients specifically identified Sherri as either the only person who prepared their returns or one of two people who prepared them. All of the returns reported huge false deductions . . . .

Appellee Br. 11 (footnote omitted).

         LaDonna was the government's star witness. She had come to live with Sherri when she was sixteen years old. She testified that Sherri taught her how to prepare tax returns, which primarily meant getting clients back what was withheld from their paychecks, usually by inventing or exaggerating charitable deductions and business losses and expenses. She described in some detail how Sherri operated her tax preparation business. For example, Sherri had instructed her to assign values for charitable donations up to several thousands of dollars on blank receipts provided either by 2FT or the clients. Eventually, LaDonna testified, "it all became like a routine" and she began filling in charitable deductions without even asking clients if they had receipts. Trial Tr. 95 (Jan. 20, 2015 (pm)).

         LaDonna also testified that Sherri would sometimes come in and finish returns when LaDonna had been logged into the e-filing system, so returns completed by Sherri "would come in under my name" - that is, returns finished by Sherri listed LaDonna as the preparer. Id. at 92. As another example of how Sherri operated, LaDonna recounted how she had prepared a return showing a client owed money and, after the client became upset, Sherri made changes to the return, "put[ting] some stuff in, " so that the client would no longer owe anything. Id. at 18. Subsequently a number of clients were audited after LaDonna misinterpreted Sherri's instructions and included the total mileage, not the annual mileage, on vehicles owned by clients as part of their business deduction calculation. Sherri told LaDonna to stop reporting total mileage and introduced the clients to a woman who could create fake mileage logs for them to provide to the auditors.

         LaDonna testified at trial that once she had learned about the audits and that an IRS representative had spoken with Sherri, she began to suspect something was wrong and stopped filing "Schedule C" forms showing business profits and losses. Her concerns were heightened, she claimed, when IRS agents executed the search warrant in April 2011. At the time, LaDonna telephoned Sherri, who was in Las Vegas, to alert her to what was happening, and Sherri told her to tell the agents that she had learned how to prepare tax returns on her own and to "go get [her]self committed so that [the agents] would think that [she] was crazy." Trial Tr. 12 (Jan. 20, 2015 (pm)). LaDonna did not take Sherri's advice and relations between the two women became strained. (On cross examination, LaDonna conceded that she never told the IRS agents during their interviews of her that Sherri had told her to say something that she knew was untrue.) LaDonna testified that they subsequently had "a falling out" because she kept asking Sherri if anything was wrong and, while Sherri kept trying to reassure her that nothing was wrong she also wanted LaDonna "to lie about the fact that she . . . [had] taught [LaDonna] how to do taxes." Trial Tr. 69 (Jan. 20, 2015 (pm)). LaDonna stopped working for 2FT and moved out of 1841 Burke Street, SE; Sherri continued preparing tax returns, telling LaDonna "no one told her that she had to stop." Id. at 14.

         As to Andre, LaDonna testified that he would come home during his spring and summer breaks from Lincoln University in Pennsylvania, but that he was neither an employee of 2FT nor prepared tax returns. Sometime after the search warrant was executed in April 2011, however, LaDonna learned Andre was planning to help Sherri prepare tax returns after his graduation. She told him not to get involved in view of "everything else that was going on, " and Andre responded that the investigation "wasn't a big deal, and that it was just going to go away." Id. Indeed, ...


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