## Facts

- The United States prosecuted Charles C. Stone, Dora B. Stone, and L. Byron Woody for tax-related offenses in federal court.
- The government charged all three defendants with conspiracy to defraud the United States, and it also charged Charles and Dora Stone with attempted tax evasion.
- To prove tax liability and characterize certain transactions, the government sought to present opinion testimony from Ms. Cantrel.
- Ms. Cantrel was a certified public accountant and former IRS agent with many years of auditing and investigative work, including criminal tax investigations.
- In forming her opinions, Cantrel relied on multiple sources, including documents and interviews she conducted during the IRS investigation.
- Part of Cantrel’s analysis depended on statements she obtained from employees of Benton Manufacturing Company during interviews.
- Those employees were not expected to testify at trial, and the defendants argued the employee statements were hearsay.
- The defendants objected to Cantrel’s proposed testimony on the ground that her opinions were based on inadmissible hearsay and therefore should be excluded or limited.
- The court addressed whether Cantrel could rely on those interviews under the Federal Rules of Evidence and, if so, what limits should apply to presenting the interview content to the jury.

## Issues

1. Under Federal Rule of Evidence 703, may a CPA/former IRS agent testifying as an opinion witness in a criminal tax case base her opinions in part on hearsay statements from non-testifying company employees if such information is of a type reasonably relied on in the field?
2. If such reliance is permitted, to what extent may the government disclose the underlying hearsay statements to the jury consistent with Rules 703 and 403?

## Decision

- The court permitted Ms. Cantrel to testify and rejected the broad request to exclude her opinions merely because some of the inputs included hearsay interviews.
- The court found that interview information of the type at issue may be used by an opinion witness as a basis for opinions under Rule 703 when practitioners in the field commonly rely on it.
- The court limited how the government could present the hearsay basis to the jury, cautioning that Rule 703 cannot be used to place otherwise inadmissible hearsay before the jury for its truth.
- The court indicated that any disclosure of hearsay details would be controlled through Rule 403 balancing and, where needed, limiting instructions.

## Legal Principles

- Federal Rule of Evidence 702 allows opinion testimony from a qualified witness if the testimony will assist the jury and rests on a reliable method applied to the case.
- Federal Rule of Evidence 703 permits an opinion witness to base an opinion on facts or data that are not themselves admissible, so long as they are of a type reasonably relied upon by practitioners in that area of work.
- Allowing an opinion witness to rely on hearsay does not convert the hearsay into substantive evidence; the hearsay remains inadmissible for its truth unless another rule permits it.
- Courts must guard against using Rule 703 as an indirect route to admit hearsay; disclosure of underlying inadmissible facts to the jury is restricted and is subject to Rule 403 concerns such as unfair prejudice or jury confusion.
- In tax cases, a witness who reconstructs income and tax liability may rely on common investigative sources (such as records review and interviews) as part of the foundation for opinions, but the trial court retains control over how the foundation is presented.

## Conclusion

United States v. Stone, 222 F.R.D. 334 (E.D. Tenn. 2004), held that the government could present opinion testimony from a CPA and former IRS agent even though her analysis relied in part on interviews with non-testifying employees, because such information may be reasonably relied on under Rule 703; however, the court restricted disclosure of the hearsay interview content to prevent Rule 703 from serving as a route to place inadmissible hearsay before the jury, applying Rule 403 controls and limiting instructions as needed.


United States v. Stone, 222 F.R.D. 334 (2004)