## Facts

- Richard Stadtmauer, a certified public accountant and executive vice president at Kushner Companies, oversaw operations and finances for numerous real-estate partnerships.
- The partnerships’ tax returns allegedly treated non-deductible items (including charitable contributions, capital expenditures, and personal gifts) as deductible business expenses, reducing taxable income reported by the partnerships and their partners.
- The government alleged Stadtmauer was aware of and participated in practices designed to conceal improper deductions in the partnerships’ records and returns.
- A grand jury charged Stadtmauer with conspiracy to defraud the United States (18 U.S.C. § 371) and with aiding and assisting in the preparation and filing of false tax returns (26 U.S.C. § 7206(2)).
- After a two-month jury trial, he was convicted of the conspiracy count and nine counts under § 7206(2).
- Over defense objection, the district court gave a willful-blindness instruction directed to knowledge relevant to willfulness, admitted certain lay-opinion testimony by an outside accountant, and admitted expert testimony by an IRS agent concerning the return items and their treatment.

## Issues

1. Whether a willful-blindness instruction may satisfy the willfulness element in criminal tax offenses, including the requirement of knowledge of a legal duty, consistent with Cheek v. United States.
2. Whether the evidence supported giving a willful-blindness instruction.
3. Whether admitting an accountant’s lay-opinion testimony about what Stadtmauer “knew” violated Federal Rule of Evidence 701 and required reversal.
4. Whether an IRS agent’s expert testimony improperly stated legal conclusions or invaded the jury’s role by characterizing returns as fraudulent.
5. Whether alleged prosecutorial misconduct and trial-management rulings (including limits on cross-examination and exhibits) warranted reversal.

## Decision

- The Third Circuit affirmed the convictions.
- The court held Cheek does not preclude a willful-blindness instruction in tax cases, including as to knowledge of relevant tax law, when properly framed.
- The court concluded the record supported instructing the jury on conscious avoidance (awareness of a high probability and deliberate avoidance, absent an actual contrary belief).
- Any error in admitting the accountant’s lay-opinion testimony was harmless in light of overwhelming circumstantial evidence.
- The IRS agent’s expert testimony was permissible because it assisted the jury on tax-return mechanics and tax concepts without deciding the ultimate issues of fraud and willfulness for the jury.
- The court found no reversible prosecutorial misconduct and no abuse of discretion or Sixth Amendment violation in the challenged limits on cross-examination and exhibits.

## Legal Principles

- In criminal tax prosecutions, a properly limited willful-blindness instruction may support the willfulness element, including legal-duty knowledge, where the jury is instructed on (i) awareness of a high probability, (ii) deliberate avoidance, and (iii) absence of an actual contrary belief.
- Cheek requires proof of willfulness and permits a defense based on good-faith misunderstanding of the law; it does not categorically bar conscious-avoidance instructions when the instruction preserves the “actual belief” limitation.
- Lay opinion under Federal Rule of Evidence 701 may not simply announce a defendant’s mental state; however, admission may be deemed harmless where the verdict is independently supported by substantial evidence.
- Expert testimony may explain tax rules, accounting treatment, and how return entries relate to those rules, but may not merely direct the jury to a legal result; whether fraud or willfulness is proven remains for the jury.
- Allegations of prosecutorial misconduct require a showing that false testimony was knowingly presented and that the conduct affected the trial’s fairness; trial courts retain broad discretion over cross-examination and evidentiary presentation.

## Conclusion

The Third Circuit sustained Stadtmauer’s tax-fraud convictions, ruling that willful blindness can satisfy tax-crime willfulness when the instruction includes the high-probability and actual-belief limits, and holding that the challenged evidentiary and misconduct claims did not justify reversal.


United States v. Stadtmauer, 620 F.3d 238 (3d Cir. 2010)