The PEOPLE, Plaintiff and Respondent, v. Johnny Ardean HAGEN, et al., Defendants and Appellants.
A jury found defendants Patricia Hagen and her husband Johnny Ardean Hagen guilty of three counts of violating Revenue and Taxation Code former section 19405, subdivision (a)(1) by willfully subscribing tax returns, under penalty of perjury, which returns they did not believe to be true as to every material matter. In addition, the jury found Patricia Hagen guilty of embezzling more than $100,000 from her employer, Del Smith Insurance Agency. Defendants jointly and individually raise numerous claims of error all directed at challenging the jury's verdicts on the noted charges. We conclude, as explained below, that the trial court did not err in any of the ways defendants complain of in this appeal. Therefore, we will affirm the judgments as to both defendants.
In June 1990, in the course of calculating his second quarter estimated tax payment, David Deveny, the owner of Del Smith Insurance Agency, discovered an apparent discrepancy in his business records. Specifically, Deveny found that commission checks paid to his agency from one of the insurance companies for which he wrote policies had been deposited into his trust account when those checks should have been deposited into the business operating account. Comparing his office receipt books with the trust account deposit stubs, Deveny discovered that in 1988, his business received approximately $64,000 more than was deposited, in 1989 receipts exceeded deposits by approximately $57,000 and in 1990 the business received approximately $12,000 more than the amount deposited into the trust account.
Patricia Hagen had worked for Deveny since 1982 and was the office manager of Del Smith Insurance Agency at the time pertinent to this appeal. Patricia's responsibilities included making bank deposits. After he discovered the apparent discrepancy between the receipts and bank deposits, Deveny called Patricia into his office. Donald Bender, a friend of Deveny's and a deputy sheriff, was there with Deveny. When Deveny confronted Patricia about the missing money, she initially asked whether he was accusing her of stealing. Although she refused to look at Deveny's calculations, Patricia eventually admitted, “I may have taken $20 every now and then for gas money.” Patricia, however, denied taking “all of the money” and ultimately stated that she did not want to go to jail. A week later both defendants met with Deveny and asked how they could solve the “problem.” Johnny Hagen offered Deveny the deed to a parcel of real property. Deveny rejected the offer. Patricia eventually told Deveny she would send him the proceeds from an IRA she claimed she was closing. Deveny never received the money. The prosecutor also presented evidence to show that in 1988 defendants, both of whom were employed and received paychecks from their employers,1 deposited a total of $19,694.20 in cash into their various bank accounts, in 1989 they made cash deposits totaling $36,690 and in 1990 a total of $14,277 in cash was deposited into their accounts. Additional facts pertinent to particular issues defendants raise in this appeal will be recounted in our discussion of the relevant issue.
1.INSUFFICIENCY OF THE EVIDENCE TO PROVE TAX COUNTS
Johnny Hagen (hereafter referred to as JH) challenges the sufficiency of the evidence to prove he violated Revenue and Taxation Code section 19405, subdivision (a) in any of the three years alleged in the amended information. These three counts were based on defendants' failure to report as income the money Patricia embezzled from her employer during the three years in question.2
With respect to the Revenue and Taxation Code section 19405 charges, the trial court instructed the jury in pertinent part that, in order to prove a violation, “each of the following elements must be proved:
“1. A person willfully made and subscribed a return, statement, or other document, that contains or is verified by a written declaration that is made under the penalties of perjury.
“2. Such person did not believe that document to be true and correct as to every material matter.”
JH contends the evidence was insufficient to show he willfully underreported his income. To the extent JH purports to challenge the sufficiency of the evidence to show he knew about the embezzled funds and, therefore, knew there was income he should have reported, we must reject that claim. In raising this claim, JH acknowledges that during the years in question he and his wife maintained a joint checking account into which they both made cash deposits and on which they both wrote checks. JH contends the cash deposits he made involved only relatively small sums of money and he did not write a large number of checks or checks for large amounts of money on that account. While he attempts to minimize the significance of the noted evidence, JH impliedly acknowledges that such evidence was presented to the jury and constitutes circumstantial evidence from which the jury could infer that he knew about the embezzled funds. Moreover, the prosecutor presented evidence to show that during the years in question, defendants' expenses exceeded their respective income by $15,000, $11,000 and $24,000, respectively. That evidence, which the jury apparently believed as disclosed by their verdicts, is sufficient to support the inference JH knew about the embezzled money. Accordingly, we must reject this aspect of JH's challenge to the sufficiency of the evidence.3
JH also purports to challenge the sufficiency of the evidence to prove he acted “willfully.” Citing People v. Smith (1984) 155 Cal.App.3d 1103, 1178, 203 Cal.Rptr. 196, JH contends in this context, “Willfullness involves a specific intent which must be proven by independent evidence and which cannot be inferred from the mere understatement of income.” The initial defect in this aspect of JH's challenge to the sufficiency of the evidence is that the trial court instructed the jury according to CALJIC No. 1.20 (which contains the Penal Code section 7 definition of “willfully”) that, “The word ‘willfully’ when applied to the intent with which an act is done or omitted means with a purpose or willingness to commit the act or to make the omission in question. The word ‘willfully’ does not require any intent to violate the law, or to injure another, or to acquire any advantage.” Defendants both contend, albeit as a separate issue, that the noted instruction was incorrect and the trial court should have instructed the jury on “willfullness” according to the purported above-quoted definition in People v. Smith, supra. We disagree and conclude, to the extent People v. Smith holds otherwise, that it is wrongly decided.
At the outset, we note the language defendants quote from the Smith opinion, as set out above, is taken out of context and does not constitute that court's definition of “willfullness.” The quoted language is from the Smith court's discussion of whether the defendant was prejudiced by the trial court's refusal to exclude the defendant's tax returns for years other than those charged. In the context of discussing the relevance of those tax returns, the court quoted the following language from Holland v. United States (1954) 348 U.S. 121, 139, 75 S.Ct. 127, 137, 99 L.Ed. 150, “willfulness ‘involves a specific intent which must be proven by independent evidence and which cannot be inferred from the mere understatement of income.’․” (People v. Smith, supra, 155 Cal.App.3d at p. 1178, 203 Cal.Rptr. 196.) Although defendants have not cited the pertinent language, they nevertheless are correct in their assertion that the Smith court adopted an interpretation of the term “willfully” that requires more than simply an intent to commit the act and, instead, requires an intentional violation of a known legal duty. As we now will explain, that definition is incorrect.
The defendant in Smith was charged with and convicted of violating Revenue and Taxation Code former sections 19405 and 19406 for the years 1971 and 1973. In challenging those convictions, the defendant asserted, among other things, that the section 19405 offense is necessarily included in the section 19406 violation such that Penal Code section 654 prohibited imposing punishment for both crimes. In addressing that assertion, the Smith court relied on United States Supreme court cases interpreting federal tax statutes and concluded that, “The ‘wilful’ element of both violations means defendant voluntarily and intentionally violated a known legal duty [Citations.]” (People v. Smith, supra, 155 Cal.App.3d at p. 1157, 203 Cal.Rptr. 196.) The Smith court based this conclusion on United States v. Bishop (1973) 412 U.S. 346, 360, 93 S.Ct. 2008, 2017, 36 L.Ed.2d 941, which held the term “willfully” has the same meaning in felony and misdemeanor federal tax crime statutes. In explaining this conclusion, the Bishop court noted, “The Court ․ has recognized that the word ‘willfully’ in these statutes generally connotes a voluntary, intentional violation of a known legal duty. It has formulated the requirement of willfulness as ‘bad faith or evil intent,’ [citation], or ‘evil motive and want of justification in view of all the financial circumstances of the taxpayer,’ [citation], or knowledge that the taxpayer ‘should have reported more income than he did.’ [Citations.] [¶] This longstanding interpretation of the purpose of the recurring word ‘willfully’ promotes coherence in the group of tax crimes․ The Court's consistent interpretation of the word ‘willfully’ to require an element of mens rea implements the pervasive intent of Congress to construct penalties that separate the purposeful tax violator from the well-meaning, but easily confused, mass of taxpayers.” (Id. at pp. 360-361, 93 S.Ct. at pp. 2017-2018.) With that purpose in mind, the Bishop court held, “Until Congress speaks otherwise, we therefore shall continue to require, in both tax felonies and tax misdemeanors that must be done ‘willfully,’ the bad purpose or evil motive described in [United States v.] Murdock [ (1933) 290 U.S. 389, 54 S.Ct. 223, 78 L.Ed. 381]. We hold, consequently that the word ‘willfully’ has the same meaning in § 7207 that it has in § 7206(1).” (United States v. Bishop, supra, 412 U.S. at p. 361, 93 S.Ct. at pp. 2017-2018.) 4
The Supreme Court's interpretation of a federal tax statute, while highly persuasive in interpreting a “substantially identical” state tax provision (Rihn v. Franchise Tax Board (1955) 131 Cal.App.2d 356, 360, 280 P.2d 893), nevertheless is not binding on this court. In adopting the Murdock definition of “willfully,” the Supreme Court in Bishop focused solely on the purported need for consistent interpretation of the term in order to punish only the purposeful or intentional federal tax violator. While that objective arguably is laudable, it necessarily assumes that the goal of all tax crime statutes is to punish only the knowing or willful evasion of the tax in question. The plain language of section 19405 and its federal equivalent, section 7206(1), reveals, however, that the purpose of both provisions is to require tax return filers to provide information they believe is true and accurate. In other words, the purpose of both section 19405 and 7206(1) is to punish perjury. (See United States v. Marashi (9th Cir.1990) 913 F.2d 724, 736, which explains, “Section 7206(1) is a perjury statute; it is irrelevant whether there was an actual tax deficiency. [Citations.] ‘A violation of 26 U.S.C. § 7206(1) is complete when a taxpayer files a return “which he does not believe to be true and correct as to every material matter.” ’ [Citations.].”)
Revenue and Taxation Code section 19405, likewise, is a perjury statute the violation of which is complete when a taxpayer files a return the taxpayer does not believe to be true and correct as to every material matter. In the context of perjury, “The word ‘wilfully’ simply means a purpose or willingness to commit the act or make the omission referred to.” (CALJIC No. 7.24 (5th ed.1988) which defines the “willfulness” and “knowledge” necessary to commit perjury.) In other words, the Penal Code section 7 definition of “willfully,” which, as noted above, the trial court gave in this case, applies to the general crime of perjury defined in Penal Code section 118 and to the more specific crime of perjury committed in the course of filing a tax return defined in Revenue and Taxation Code section 19405. Simply stated, we conclude the trial court correctly instructed the jury on the definition of the term “willfully” as used in Revenue and Taxation Code section 19405 by instructing the jury according to the definition set out in Penal Code section 7.
Because we reject defendants' claim that the trial court incorrectly instructed the jury on the meaning of the term “willfully,” we, in turn, must reject JH's challenge to the sufficiency of the evidence to prove that element of the section 19405 charges. As noted, above, JH's claim in that regard depended entirely on his assertion that “willfully” required evidence of specific intent which must be proved by independent evidence. JH's assertion is incorrect, as we have explained. We must also reject defendants' separate claim that the trial court, in response to an inquiry from the jury during deliberations, incorrectly instructed the jury on the definition of the term “willfully.” Defendants' contrary claim notwithstanding, the trial court correctly instructed the jury according to the Penal Code section 7 definition.
LESSER INCLUDED OFFENSE INSTRUCTION
Defendants contend the trial court erred in failing to instruct the jury, sua sponte, that Revenue and Taxation Code former section 19401 is a lesser included offense to the section 19405 charge. The trial court's duty to so instruct is well-established. (See People v. Sedeno (1974) 10 Cal.3d 703, 715-717, 112 Cal.Rptr. 1, 518 P.2d 913.) The only issue here is whether the section 19401 violation is a necessarily included lesser offense to the charged crime. We conclude it is not.
“An offense is necessarily included within a charged offense ‘if under the statutory definition of the charged offense it cannot be committed without committing the lesser offense, or if the charging allegations of the accusatory pleading include language describing the offense in such a way that if committed as specified the lesser offense is necessarily committed.’ [Citation.]” (People v. Toro (1989) 47 Cal.3d 966, 972, 254 Cal.Rptr. 811, 766 P.2d 577, quoting People v. Geiger (1984) 35 Cal.3d 510, 517, fn. 4, 199 Cal.Rptr. 45, 674 P.2d 1303.) In what we view as a telling omission, defendants do not mention, least of all discuss, the quoted legal standard. Instead, defendants assert without discussion or analysis that section 19401 is a lesser included offense to section 19405. Defendants simply are incorrect.5
Because the charging allegations are in the precise words of the statute, we are only concerned here with the statutory definition of the charged offense. As set out above and as previously discussed, section 19405, subdivision (a)(1) is a perjury statute that punishes “[a]ny person who ․ [w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which [the person] does not believe to be true and correct as to every material matter.” Revenue and Taxation Code section 19401 provides, in pertinent part, that, “Any person who ․:[¶] (a) With or without intent to evade ․ makes, renders, signs, or verifies any false or fraudulent return or statement, or supplies any false or fraudulent information” is liable for a penalty of not more than $5,000. Section 19401 defines a strict liability misdemeanor which requires that the statement, return or information actually be false or fraudulent. Section 19405 does not require that the return, statement, or other document actually be false or fraudulent. Therefore, Revenue and Taxation Code section 19405, subdivision (a), as quoted above, is violated by a return, et cetera, which in fact is true, but which the person “does not believe to be true and correct as to every material matter.” Because it is possible to violate section 19405 without also violating section 19401, the latter is not a necessarily included lesser offense to the former charge. The trial court, therefore, had no sua sponte duty to instruct the jury on the section 19401 violation and we reject defendants' contrary claim.
The judgments are affirmed as to both defendants.
1. Johnny Hagen was employed as a California Highway Patrol officer at the time in question.
2. The trial court instructed the jury, in effect, that embezzled funds constitute income which should be included in the gross income of the embezzler in the year in which the embezzlement occurred.
3. Additional evidence that supports the jury's verdicts on the tax counts including evidence that JH offered Patricia's employer the deed to real property in Mariposa in repayment of the embezzled money. In his reply brief, JH for the first time challenges the admissibility of that statement. We will not address that claim, first, because it is not dispositive of his insufficiency of the evidence claim but, also, because JH improperly raises the issue in his reply brief. “Obvious reasons of fairness militate against consideration of an issue raised initially in the reply brief of an appellant. [Citation.]” (Varjabedian v. City of Madera (1977) 20 Cal.3d 285, 295, fn. 11, 142 Cal.Rptr. 429, 572 P.2d 43; 9 Witkin, Cal. Procedure (3d ed.1985) § 496, pp. 484-485.)
4. 26 United States Code section 7206(1) is, as the Smith court observed, “virtually identical” to section 19405 and “makes it a felony when a person ‘willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under penalties of perjury, and which he does not believe to be true and correct as to every material matter.’ ” (People v. Smith, supra, 155 Cal.App.3d at pp. 1154-1155, 203 Cal.Rptr. 196.) Section 7207, on the other hand, defines a misdemeanor offense which arises when “Any person ․ willfully delivers or discloses to the Secretary or his delegate any list, return, account, statement, or other document, known by [the person] to be fraudulent or to be false as to any material matter․” (United States v. Bishop, supra, 412 U.S. at pp. 347-348, 93 S.Ct. at p. 2011.)
5. Defendants cite People v. Smith, supra, to support this argument. The case is irrelevant, however, because although the defendant was charged with and convicted of violating both section 19405 and 19406, the court only discussed section 19401 as a lesser included offense to section 19406 (which essentially is identical to section 19401 but requires the person act “willfully” and “with the intent to evade any tax.”) (People v. Smith, supra, 155 Cal.App.3d at pp. 1182-1185, 203 Cal.Rptr. 196.)
FOOTNOTE. See footnote *, ante.
McKINSTER, Associate Justice.
RAMIREZ, P.J., and RICHLI, J., concur.