Keep the Door Closed

United States v. Curtis | 14-2069

April 2015

In U.S. v. Curtis, after an expensive divorce and some looting by a former law partner, Curtis fell behind on his taxes. The IRS worked cooperatively with Curtis over the next decade but eventually referred the matter for criminal investigation. Curtis was charged with three misdemeanor counts of willfully failing to pay taxes in 2007, 2008, and 2009 in violation of 26 U.S.C. § 7203. The only issue at trial was whether he acted willfully. Before trial, Curtis objected to the government’s proposed use of evidence that he failed to pay payroll taxes for his law firm’s employees for the second half of 2013. He argued, and the district court initially agreed, that the evidence was not relevant to his state of mind in 2007-2008, and that the government was using the evidence solely to show a propensity to evade taxes.

At trial, however, Curtis gave away his victory. Curtis testified that he was current on his tax obligations for 2010-2012—which was true. However, because the testimony suggested Curtis was current on all recent taxes, the government asked again to offer evidence that Curtis failed to pay certain 2013 payroll taxes. The district court allowed the evidence, and the Seventh Circuit affirmed, applying the recent 404(b) test set forth in United States v. Gomez, 763 F.3d 845 (7th Cir. 2014).  The Seventh Circuit first found that by offering testimony regarding his 2010-2012 income taxes, Curtis implied that his recent tax compliance demonstrated good faith, and that once Curtis put his recent compliance at issue, his lack of compliance on payroll taxes became relevant beyond propensity. Second, the Seventh Circuit found that the evidence was highly relevant to the only issue at trial (Curtis’s intent), and that this relevance was not substantially outweighed by prejudice, particularly in light of the government’s limited use of the evidence.

In this case, keeping the payroll-tax evidence out would not have saved Curtis. The district court (acting before Gomez) had not fully explained its balancing reasoning, as is now required by Gomez, but the Seventh Circuit found the error was harmless because the “payroll tax evidence was lost in a sea of far more damning evidence demonstrating Curtis’s intent.” But in many other cases, a single piece of bad propensity evidence could be the difference between a win and a loss. This case serves as a reminder that counsel should protect evidentiary wins by not opening the door to later admission of initially excluded evidence.