## Facts

- Shortt Accountancy Corporation (SAC) was a certified public accounting firm providing tax planning and return preparation; Ronald Ashida managed day-to-day operations, and employee Paul Whatley supervised preparation of a client return.
- In late 1981 SAC advised client Clifford Wilson about a government-securities “straddle” strategy to generate a large tax loss deduction on Wilson’s 1981 federal return.
- Because the law had changed to disallow certain straddle deductions for securities purchased after June 23, 1981, Ashida advised that the transaction would need to appear to predate the cutoff, including discussion of backdating a promissory note.
- Wilson reported the proposal to federal authorities and cooperated with an IRS investigation under an arrangement that reimbursed his costs and limited his exposure to interest and penalties attributable to the undercover transaction.
- Wilson purchased the straddle through SAC in April 1982, but SAC structured charges (including interest calculated from May 1, 1981) to make the transaction appear to have occurred before the statutory cutoff; no document was facially backdated.
- SAC prepared Wilson’s 1981 return in January 1983 and included a large straddle loss deduction even though the underlying investment occurred in 1982; the return was signed under penalties of perjury.
- The government charged SAC with seven counts of willfully making and subscribing false tax returns under 26 U.S.C. § 7206(1); a jury convicted SAC on all counts.

## Issues

1. Whether sufficient evidence supported a finding that SAC acted “willfully” in making and subscribing returns that were false as to material matters under 26 U.S.C. § 7206(1).
2. Whether the government’s use of a cooperating client, including reimbursement and assurances regarding penalties, required dismissal based on entrapment-type principles or outrageous government conduct.
3. Whether criminal intent could be attributed to SAC when the employee supervising or signing the return allegedly lacked full knowledge of the illegality.
4. Whether the district court’s instructions on willfulness and materiality misstated the elements of § 7206(1).

## Decision

- The Ninth Circuit affirmed SAC’s convictions on all seven counts.
- The court held the evidence permitted a rational jury to find SAC willfully caused a materially false return to be filed by treating a 1982 straddle as if it qualified for a 1981 deduction.
- The court rejected claims that the cooperating-witness arrangement constituted entrapment or outrageous government conduct because the unlawful scheme originated with SAC and the government did not create the criminal proposal.
- The court held corporate liability was properly established because the intent and knowledge of responsible agents acting within their authority could be imputed to the corporation, even if different employees played different roles in the return preparation and signing.
- The court found no reversible error in the jury instructions concerning willfulness and materiality.

## Legal Principles

- Under 26 U.S.C. § 7206(1), the offense is willfully making and subscribing a return, under penalties of perjury, that the maker does not believe to be true and correct as to every material matter; proof of a tax deficiency is not required.
- A matter is material if it could influence the IRS in determining tax liability; misrepresenting the timing or character of a transaction affecting deductibility can be material.
- Willfulness may be inferred from evidence that a taxpayer or preparer knew the governing law and intentionally structured a transaction to create a false appearance of eligibility for a tax benefit.
- A corporation’s criminal intent may be established through the acts and intent of its agents acting within the scope of their authority; the government need not prove that the individual who signed the return personally knew every component of the scheme.
- Government use of a cooperating witness, including financial arrangements to facilitate cooperation, does not bar prosecution absent government creation of the crime or conduct that violates due process.

## Conclusion

The court upheld SAC’s § 7206(1) convictions because the evidence supported a finding that SAC, through its responsible personnel, intentionally caused a materially false tax return to be signed and filed by disguising the timing of a straddle transaction, and neither the informant arrangement nor the jury instructions warranted reversal.


United States v. Shortt Accountancy Corp., 785 F.2d 1448 (9th Cir. 1986)