IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION ------------------------------------------------------- UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) VS. ) NO. 03-20111-Ml ) ) VERNICE KUGLIN, ) ) Defendant. ) ------------------------------------------------------- TRIAL PROCEEDINGS BEFORE THE HONORABLE JON PHIPPS MCCALLA, JUDGE AUGUST 5, 2003 VOLUME II BRENDA PARKER OFFICIAL REPORTER SUITE 942 FEDERAL BUILDING 167 NORTH MAIN STREET MEMPHIS, TENNESSEE 38103 228 A P P E A R A N C E S Appearing on behalf of the Plaintiff: TERRELL L. HARRIS, ESQ. UNITED STATES ATTORNEY SUITE 800 FEDERAL BUILDING 167 NORTH MAIN STREET MEMPHIS, TENNESSEE 38103 By: JOSEPH MURPHY, ESQ. Appearing on behalf of the Defendant: LOWELL H. BECRAFT, JR. 209 LINCOLN STREET HUNTSVILLE, ALABAMA 35801 ROBERT G. BERNHOFT, ESQ. 207 EAST BUFFALO STREET MILWAUKEE, WISCONSIN 53202 229 W I T N E S S I N D E X WITNESS PAGE LINE MARY ANN OSBORNE DIRECT EXAMINATION BY MR. MURPHY: ........................ 267 6 CROSS EXAMINATION BY MR. BECRAFT: ....................... 282 19 REDIRECT EXAMINATION BY MR. MURPHY: ........................ 312 17 KIMBERLY GILLUM DIRECT EXAMINATION BY MR. MURPHY: ........................ 316 6 ELIZABETH EDWARDS DIRECT EXAMINATION BY MR. MURPHY: ........................ 319 6 CROSS EXAMINATION BY MR. BECRAFT: ....................... 330 10 REDIRECT EXAMINATION BY MR. MURPHY: ........................ 332 2 KARLENE NUBY DIRECT EXAMINATION BY MR. MURPHY: ........................ 334 6 CROSS EXAMINATION BY MR. BECRAFT: ....................... 336 6 230 DANIEL JOSEPH HAUGHTON DIRECT EXAMINATION BY MR. MURPHY: ........................ 339 6 CROSS EXAMINATION BY MR. BECRAFT: ....................... 341 13 REDIRECT EXAMINATION BY MR. MURPHY: ........................ 343 14 ISABELLE BAKER DIRECT EXAMINATION BY MR. MURPHY: ........................ 345 6 CROSS EXAMINATION BY MR. BECRAFT: ....................... 348 5 LEPORLEON PRUITT DIRECT EXAMINATION BY MR. MURPHY: ........................ 351 6 CROSS EXAMINATION BY MR. BECRAFT: ....................... 358 20 ALEXANDER RIVERA DIRECT EXAMINATION BY MR. MURPHY: ........................ 364 6 CROSS EXAMINATION BY MR. BECRAFT: ....................... 367 1 JEANNE GRIFFIS DIRECT EXAMINATION BY MR. MURPHY: ........................ 369 6 231 CROSS EXAMINATION BY MR. BECRAFT: ....................... 371 1 DAVID SCOBEY DIRECT EXAMINATION BY MR. MURPHY: ........................ 373 6 CROSS EXAMINATION BY MR. BECRAFT: ....................... 374 24 DEBORAH WHITE DIRECT EXAMINATION BY MR. MURPHY: ........................ 382 6 CROSS EXAMINATION BY MR. BECRAFT: ....................... 399 9 REDIRECT EXAMINATION BY MR. MURPHY: ........................ 411 7 VERNICE KUGLIN DIRECT EXAMINATION BY MR. BECRAFT: ....................... 419 6 232 E X H I B I T I N D E X EXHIBIT NUMBER PAGE LINE Exhibit Number 1 Notes to Taxpayer - 1996 271 3 Exhibit Number 2 Cert. of Lack of Record 271 22 Exhibit Number 3 1996 IRPTRO 273 16 Exhibit Number 4 1997 IRPTRO 274 10 Exhibit Number 5 1998 IRPTRO 274 21 Exhibit Number 6 Information Returns 275 7 Exhibit Number 7 2000 IRPTRO 275 18 Exhibit Number 8 2001 IRPTRO 276 3 Exhibit Number 9 1992 Certificate 277 4 Exhibit Number 10 1993 Certificate 279 1 Exhibit Number 11 1994 Certificate 280 16 Exhibit Number 12 1995 Certificate 282 3 Exhibit Number 13 IMF Transcript 289 5 Exhibit Number 13 Application 317 12 Exhibit Number 14 W-2s 321 2 Exhibit Number 15 W-4s 325 24 Exhibit Number 16 FedEx Direct Deposit Entry 8 17 Exhibit Number 17 1995 Form W-4 331 21 Exhibit Number 18 W-2 Form 335 22 Exhibit Number 19 Mortgage Interest Summary 41 8 Exhibit Number 20 Mortgage Interest Payments 7 24 Exhibit Number 21 Statement of Accounts 353 10 233 Exhibit Number 22 Application for Account 355 8 Exhibit Number 23 Mortgage Documents 365 23 Exhibit Number 24 Loan Documents 370 20 Exhibit Number 25 Chart 384 25 Exhibit Number 26 Chart 385 2 Exhibit Number 27 Paper Copy of Charts 385 4 Exhibit Number A Document 6209 308 19 234 1 TUESDAY MORNING & AFTERNOON AUGUST 5, 2003 The trial of this case resumed on this date, Tuesday, August 5, 2003, at 9:05 o'clock a.m., when and where evidence was introduced and proceedings were had as follows: ____________ THE COURT: All right. We're ready, we'll bring the jury in. COURT SECURITY OFFICER: Yes, Your Honor. (Jury in at 9:05 a.m.) THE COURT: You can be seated. And, of course, thank you very much. I'm sorry we're running a little late. They came just as I was leaving to do some storm work, so I had to stay a little bit, but we'll try to stay on schedule. Ladies and gentlemen, I told you that we would swear you in this morning, so I'm going to have you stand, all raise your right hand, Mrs. Saba is going to administer the juror oath at this time. THE CLERK: Do you and each of you solemnly swear that you will well and truly try the issues herein joined and render a true verdict according to the law, so help you God? PRELIMINARY INSTRUCTIONS BY THE COURT 235 1 THE JURY: I do. 2 THE CLERK: You may be seated. 3 COURT SECURITY OFFICER: You are now the jury 4 in the case, and I'm going to take a few minutes to tell 5 you about your duties as jurors and give you some 6 instructions to give you some guidance as to how to listen 7 to the case. Now, at the end of the case, I will give you 8 more detailed instructions, and it is those instructions 9 that you must rely upon in reaching your decision in the 10 case. 11 This is a criminal case brought by the United 12 States government. The charges against the defendant are 13 contained in the indictment. And we went over the 14 indictment at the very beginning of the case. I'm going 15 to read you Count 1 of the indictment because it is 16 somewhat typical -- actually, I'm going to read you -- let 17 me make sure. I'll read you Count 2. They're all pretty 18 much alike, there's a little bit of difference, and they 19 do relate to different time periods. Count 2 says that 20 during the calendar year 1997, the defendant, Vernice B. 21 Kuglin, had and received taxable income in the sum of 22 approximately $147,999.60, that well knowing and believing 23 the foregoing facts, the defendant on or about April 15, 24 1998, in the Western District of Tennessee, did willfully 25 attempt to evade and defeat the said income tax due and PRELIMINARY INSTRUCTIONS BY THE COURT 236 1 owing to her by the United States of America for said 2 calendar year by failing to make an income tax return on 3 or before April 15, 1998, as required by law, to any 4 proper officer of the Internal Revenue Service by failing 5 to pay the Internal Revenue Service said income tax, and 6 by filing a false Form W-4 in 1997, in violation of Title 7 26, United States Code, Section 7201. And you'll remember 8 that Count 1 is similar to a number of the counts. There 9 are six counts all together. Count 2 is similar to most 10 of the counts. Count 1 is just a little different, and a 11 couple of the counts are different too in they make no 12 reference to the Form W-4. 13 Now, the indictment -- an indictment is just 14 for the purpose of presenting information, it's not for 15 the purpose of evidence at all. 16 In this case, the indictment is, as usual, just 17 a description of the charge made by the government against 18 the defendant and, again, it's not evidence of anything. 19 The defendant has pled not guilty to the charge 20 contained -- each charge contained in the indictment and 21 is presumed innocent unless and until the government 22 proves beyond a reasonable doubt that the defendant is 23 guilty. It will be your duty to decide from the evidence 24 to be presented whether the defendant is guilty or not 25 guilty of the crime charged. You will decide from the PRELIMINARY INSTRUCTIONS BY THE COURT 237 1 evidence what the facts are, and your verdict will be 2 based on those facts. You are the sole judges of the 3 facts. You must then apply those facts to the law which I 4 shall give you, and in that way reach your verdict. 5 You must follow the law whether you agree with 6 it or not, and you should not take anything that I may say 7 or do during the trial as indicating what I think of the 8 evidence or what I think your verdict should be. The law 9 in this case is contained in 26 United States Code, 10 Section 7201, and that code section reads in relevant part 11 as follows: 12 Any person who willfully attempts in any manner 13 to evade or defeat any tax imposed by this title or the 14 payment thereof shall be guilty of a crime. 15 The indictment in this case charges that the 16 defendant in six separate counts violated from the period 17 1996 to 2001, Section 7201 of Title 26 of the United 18 States Code. 19 The tax system or the system of tax collection 20 in the United States relies upon the honesty of taxpayers. 21 The government needs taxpayers to report timely, 22 completely and honestly all taxes they owe so that it can 23 collect the taxes due. Congress, therefore, has made it a 24 criminal offense for a taxpayer to evade taxes, to file a 25 false return or to file no return under certain PRELIMINARY INSTRUCTIONS BY THE COURT 238 1 circumstances. 2 In order for the crime of income tax evasion to 3 be proved, the government must establish beyond a 4 reasonable doubt each of the following elements: 5 First, that the defendant owed substantially 6 more federal income tax for the calendar year of which 7 they're charged in that count in the indictment than was 8 declared due on the income tax return, or if there was no 9 return filed, that it should have been contained in a 10 return filed. 11 Second, that the defendant committed an 12 affirmative act constituting tax evasion described in the 13 indictment and that the defendant acted willfully. 14 Of course, the first thing the government 15 always has to prove in a tax evasion case is that the 16 defendant owed substantial federal income tax for the year 17 that's charged. The government doesn't have to prove the 18 exact amount the defendant owed, nor does the government 19 have to prove all of the tax charged in the indictment or 20 if a particular sum charged in the indictment is the 21 precise sum. It's not an accounting question, it's a 22 question of whether or not there was a substantial act. 23 So, of course, one of the things the government generally 24 must prove beyond a reasonable doubt is that the defendant 25 received substantial income in the year in which the taxes PRELIMINARY INSTRUCTIONS BY THE COURT 239 1 were not paid and that tax was due on that income in the 2 year or the following year which the income was received. 3 In order to prove that the defendant received 4 substantial income which was not included in the return, 5 the government has to introduce evidence of income and the 6 receipt of that income by the defendant. 7 If you find based on all the evidence that the 8 government established beyond a reasonable doubt the 9 defendant did receive substantial income during the tax 10 year in question that was not reported in which nothing 11 was paid, then the first element of the offense can be 12 established. But, of course, if the government fails to 13 do that, then on that particular year, the element would 14 not be established. 15 The second element that the government must 16 prove as a general proposition is that the defendant -- 17 and they must prove it beyond a reasonable doubt -- 18 committed an affirmative act constituting tax evasion. 19 The Internal Revenue Code makes it a crime to attempt in 20 any manner to evade or defeat any income tax imposed by 21 the law. There are different ways in which taxes may be 22 evaded, and in this case, the defendant -- the government 23 simply charges the defendant received a substantial 24 income, and then, according to the government, willfully 25 chose not to pay those taxes, knowing that those taxes PRELIMINARY INSTRUCTIONS BY THE COURT 240 1 were due. The government must, of course, establish this 2 type of affirmative element for each of the six counts in 3 the case. 4 Now, the third thing the government has to show 5 is that the defendant acted knowingly and willfully, and 6 it's in this context that we usually end up with a 7 discussion about whether someone had a good faith belief 8 that they didn't have to pay the taxes. Now, first, they 9 have to show that it was knowing and willfully. The 10 government has to prove beyond a reasonable doubt that the 11 defendant knew that she owed substantial federal income 12 tax for the particular year that is charged that was 13 declared on any return or returns filed should have been 14 declared on a return. Whether or not the defendant had 15 this knowledge is a question of fact that will have to be 16 determined by you on the basis of all the evidence. 17 Of course, an act can be done knowingly only if 18 it is done purposely and deliberately and not because of 19 mistake, accident, negligence or other innocent reason. 20 Now, I'll give you more detailed instructions 21 on all of this at the end of the case, but I anticipate 22 that the defendant will take the position that she has a 23 good faith belief that she did not have to pay or file the 24 income tax return. She didn't have to pay the taxes in 25 the respective year. PRELIMINARY INSTRUCTIONS BY THE COURT 241 1 A defendant does not act willfully, we just 2 talked about the willful element, if she believed in good 3 faith that her acts complied with the law. Therefore, if 4 the defendant actually believed that she was doing what 5 was in accordance with the tax statutes, she cannot be 6 said to have the criminal intent to willfully evade taxes. 7 Thus, if you find, after you have heard all the evidence 8 in the case, that the defendant honestly believed that she 9 owed no taxes, even if that belief was unreasonable or 10 irrational, then you should find her not guilty. However, 11 of course, you will be allowed to consider whether the 12 defendant's belief was actually reasonable as a factor in 13 deciding whether she held that belief in good faith. 14 It should also be pointed out that neither the 15 defendant's disagreement with the law nor her own 16 belief -- nor her own belief that the law is 17 unconstitutional, if she had that belief, no matter how 18 earnestly that belief is held, constitutes a defense of 19 good faith. It is, of course, the duty of all citizens to 20 obey the law regardless of whether or not they agree with 21 it. So -- and you'll get a copy of the -- of all of the 22 instructions on the elements, the concept of willfulness, 23 the concept of a good faith belief before you're required 24 or asked to deliberate, and it will be a little more 25 detailed than the one I have given you at this time. PRELIMINARY INSTRUCTIONS BY THE COURT 242 1 Well, that's a summary of the basic principles 2 of law that you're going to have to be dealing with in 3 this case. 4 Let me tell you a couple of other things. You 5 are going to decide, obviously, and have to decide the 6 fundamental question of who you believe in this case and 7 who you do not believe, or perhaps more clearly, you're 8 going to have to decide the fundamental question of 9 whether you believe the defendant, whether you believe 10 other proof that would suggest that you do not believe the 11 defendant had a good faith belief as to her not having to 12 pay taxes under the statutes that govern the payment of 13 taxes. So you're going to have to decide who you believe 14 or who you don't believe in this case. How do you do 15 that? There are a couple of things you try to do, 16 basically, usually. First of all, you observe the 17 demeanor of each witness as that witness testifies, 18 determine whether or not you believe what the witness has 19 to say in this case, determine whether or not the witness 20 has previously said something different than what the 21 witness is saying who is before you in this case, 22 determine whether or not the testimony of the witness is 23 different from the testimony of other witnesses that you 24 do believe and, of course, use your common sense in 25 evaluating whether or not the statement, the information PRELIMINARY INSTRUCTIONS BY THE COURT 243 1 provided by each witness does appear to you to be a 2 truthful statement on their part. Use the normal 3 observation skills that you have in your everyday walks of 4 life. Obviously, you're going to make a determination on 5 credibility in this case, and I will give you more 6 detailed instructions again on that at the end of the 7 case, but it is a common sense type of approach in which 8 you carefully observe the witnesses as they testify. 9 Let's talk about a couple of other things. 10 Note taking. Well, you have all got note pads, I think. 11 You're allowed to take notes in the case, and I suggest 12 that you may want to keep a list of witnesses just so you 13 can remember everybody who testified. You may want to 14 make a couple of notes about what they say or do not say. 15 But let me say this about notes: Don't let note taking 16 interfere with your observing witnesses. Don't get so 17 busy taking notes that you're not paying attention to the 18 witness as each witness gives his or her testimony, 19 because, of course, it's your observations about their 20 testimony that is going to be far more important. Your 21 notes are not evidence in the case. They're just there to 22 remind you individually of the testimony that you have 23 heard and the observations you made as the witness was 24 testifying. The notes aren't to be shared with others or 25 used to say, well, it's in my notes, it must be true. We PRELIMINARY INSTRUCTIONS BY THE COURT 244 1 all know that that's not necessarily accurate, people can 2 make erroneous notations or you might not observe 3 something the same way that someone else does. Those 4 notes are for your personal use, your personal use alone, 5 they're not in the evidence. And if you choose not to 6 take notes or you don't have notes on a particular point, 7 you're to rely on your own recollection and the collective 8 recollection of everybody else on the jury in determining 9 what occurred here in the courtroom and not on a set of 10 notes. So don't be overly influenced by somebody's note 11 or the fact that somebody has some notes, they shouldn't 12 really talk about what are in their notes, but the fact 13 that they have some notes in making a decision. It's your 14 own observation, the observation of all of you, that is 15 what counts in this case. 16 At the end of the case, again, I'll give you 17 detailed instructions. You will have a written set of 18 instructions. After I give you those instructions, which 19 will be there to guide you, and it's those instructions 20 that you should rely on in deciding the case. 21 Mr. Murphy, are you ready to proceed with 22 opening statement on behalf of the United States? 23 MR. MURPHY: Yes, sir, Your Honor. 24 THE COURT: You may proceed. 25 OPENING STATEMENT BY MR. MURPHY 245 1 MR. MURPHY: Thank you, Your Honor. 2 Good morning, ladies and gentlemen. 3 THE JURY: Good morning. 4 MR. MURPHY: This is the part of the trial we 5 call opening statements. Before I even say anything, I 6 want to congratulate you, ladies and gentlemen. I know 7 you're going to say why is Mr. Murphy congratulating us 8 for sitting as a juror on a tax case. It's not the most 9 exciting thing in the world. 10 Well, you, ladies and gentlemen, are now 11 judges, you're judges of the facts in the case. Now, you 12 don't sit up on the bench, you're in the jury box, and you 13 don't wear a robe, but you, ladies and gentlemen, listen 14 to the proof and make a decision based on the law that the 15 judge gives you. And I always start out by mentioning 16 that to people because it's very important that you 17 listen. Even a case that it's a little more exciting in 18 terms of what we're talking about can be difficult to 19 listen to. So it is important that you listen, because 20 the proof is what you're going to have to make your 21 decision about. And I know a lot of times when you get 22 back after lunch late in the day, it's difficult to 23 listen, and I know everybody will, but it's important that 24 you do. 25 As the judge told you, this is an income tax OPENING STATEMENT BY MR. MURPHY 246 1 evasion case. The indictment charges six counts of income 2 tax evasion. One for 1996, one for 1997, 1998, 1999, 2000 3 and 2001. In Counts 2 through 6, what's charged is the 4 evasion was aided or -- not aided, but was involved by 5 filing of false W-4 forms and failure to file a return, 6 failure to pay taxes. In Count 1, it's failure to pay 7 taxes and failure to file a return. 8 Now, what's the proof in this case going to 9 show? I anticipate, ladies and gentlemen, that the proof 10 in this case is going to show that the defendant was 11 employed by Federal Express as a pilot, and that she filed 12 income tax returns with the exception, I believe the proof 13 is going to be, one year from 1965 until 1992. She didn't 14 file any returns from '93 through 2001. The conduct 15 that -- the years involved in this case, however, are '96 16 through 2001. 17 The proof is going to be that she received 18 substantial income in each of those years and that she had 19 taxable income. Now, taxable income, the proof is going 20 to be, is that income that remains after you deduct 21 deductions, personal exemptions, that sort of thing and 22 that that is what you're actually taxed on. 23 I submit, ladies and gentlemen, and expect the 24 proof is going to be that in 1996, the defendant had wages 25 of $183,408, that she had taxable income that year after OPENING STATEMENT BY MR. MURPHY 247 1 making deductions for mortgage interest and those sort of 2 things of $162,883, and that the tax due was approximately 3 $47,000. 4 As to 1997, I anticipate that the proof is 5 going to be that the defendant had wages totaling $172,674 6 from Federal Express, that she had taxable income that 7 year of $147,999 and the tax due and owing was 8 approximately $42,000. 9 As to 1998, I anticipate the proof is going to 10 be that defendant received approximately a $168,000 in 11 wages and disability insurance compensation, that she had 12 total taxable income of approximately $137,000, and that 13 the tax due and owing for that year was $36,507. 14 As to 1999, I anticipate the proof is going to 15 that the defendant had $172,428 in wages from FedEx, that 16 her taxable income after making allowances for deductions 17 and exemptions -- okay, I forgot to turn that on this 18 morning. Hopefully, I won't blow everybody out of their 19 seats. Is that too loud for y'all? 20 Regarding tax year, 2000, I submit, ladies and 21 gentlemen, that the proof is going to be that the 22 defendant had wages from Federal Express in the amount of 23 $191,000 approximately, taxable income that year of 24 approximately $164,000, and tax due and owing of 25 approximately $47,000. OPENING STATEMENT BY MR. MURPHY 248 1 As to 2001, I submit the proof is going to be 2 that the defendant had wage income of $190,000 3 approximately in 2001, taxable income of $161,000, in 4 2001, tax due and owing of approximately $45,000. 5 Now, the proof is also going to show a pattern 6 with the defendant's W-4 filings. You will see W-4s, but 7 the proof is going to be that that is where you claim your 8 withholding exemptions. The defendant in 1988 submitted a 9 statement to Federal Express in which she claimed six 10 withholding exemptions. I anticipate the proof is going 11 to be in 1990, she submitted a W-4 to Federal Express 12 where she had ten exemptions. Then somewhere along 1996, 13 1995, Federal Express stopped withholding income tax from 14 the defendant's wages, and that around that time, she 15 submitted the W-4 and -- where she claimed exemption. 16 Now, the proof is going to be that on W-4 17 forms, there's a line that says I claim exemption from 18 withholding for the year, and I certify that I meet both 19 the following conditions for exemption. Last year, I had 20 the right to a refund of all federal income tax withheld 21 because I had no tax liability, and this year I expect a 22 refund of all federal income tax withheld because I have 23 no tax liability. If you meet both conditions, write 24 exempt here, and there's a box for exempt. 25 Then if you go down, there's a signature line OPENING STATEMENT BY MR. MURPHY 249 1 that says, under penalties of perjury, I certify that I am 2 entitled to the number of withholding allowances on this 3 certificate or I'm allowed to claim exempt status. 4 Employee signature of Ms. Kuglin, signed her name and 5 dated it in every case. And in every case except one, she 6 added the language reserving all of my constitutional 7 rights in this matter, to the perjury declaration where 8 you swear under the penalty of perjury that that is a 9 truthful statement. 10 The proof is also going to show again that once 11 that was submitted, Federal Express withheld no income 12 tax. Further, there is going to be proof that no tax 13 returns were filed by the defendant during this period, 14 and that based on the agent's investigation, except for 15 the one year -- one year where a sum of 13 -- 16 approximately $1300 was withheld from the Kemper Insurance 17 checks, there was no other withholding and no tax payment. 18 And further, the proof is going to be that during this 19 period of time, Ms. Kuglin's check was deposited at the 20 Federal Express Credit Union, and from '96 till -- at 21 least there will be records from '96 to 2000, I anticipate 22 the proof is going to be that she would paid be by 23 electronic funds transfer, and most days that there was a 24 payday, Ms. Kuglin or someone would go down to the bank 25 and withdraw large sums of cash that same day as the OPENING STATEMENT BY MR. MURPHY 250 1 paycheck was deposited. There will also be proof that 2 because of some tax problems that Ms. Kuglin had that 3 there were levies made against her and garnishments and 4 that she was sent notice of these. That is in sum what I 5 anticipate the proof is going to be, and the reason we do 6 this is because we're going to have several different 7 witnesses. This isn't like television where you have one 8 witness who can get up there and give you all the proof. 9 I anticipate the government will have 14, 15 witnesses. 10 Most of it will go pretty quick, but this way we do this 11 so you can understand there will be people coming that 12 will give proof about the mortgage interest, the agent 13 will go through the tax computation, FedEx will come in 14 and there will be proof about the wages paid. 15 Ladies and gentlemen, I am just about done. I 16 just want to urge you to listen to all the proof in this 17 case, because, remember, you're the judges, and it is 18 going to be up to you to decide whether the defendant did 19 evade taxes and did so knowingly and willfully. Thank 20 you, ladies and gentlemen. 21 22 23 24 25 OPENING STATEMENT BY MR. BECRAFT 251 1 MR. BECRAFT: May it please the court -- I kind 2 of hate these microphones, anybody having any problem with 3 me speaking too loud or are you having any problem hearing 4 me? 5 THE COURT: Have you got your mic on? 6 MR. BECRAFT: I thought I turned it on, Judge. 7 I was looking for the red light to come on. 8 THE COURT: If you don't have it on, it's not 9 through our system, and that way you can't be heard in the 10 clerk's office. And we need -- you know, that's -- 11 MR. BECRAFT: Somehow, the little -- how is 12 that? 13 May it please the court, ladies and gentlemen 14 of the jury, before I give you at this stage what lawyers 15 call opening statement -- and in opening statement what we 16 like to do is kind of give you a road map of what this 17 case looks like. You know, I want to first express before 18 I get rolling this morning, something that everybody on 19 this side of the courtroom believes. I think Judge 20 McCalla will agree with what I say, I know Mr. Murphy will 21 agree with what I say Ms. Kuglin and Mr. Bernhoft. You 22 know, yesterday when y'all came, we spent a whole day 23 picking the jury. A lot of you saw some of these other 24 people get up, oh, you know, I got some problem, some of 25 those were real problems. But as to each and every one of OPENING STATEMENT BY MR. BECRAFT 252 1 you, I think you appreciated and understood the civic duty 2 that was being imposed upon you and the need here in 3 America, particularly in reference to criminal cases, for 4 us to call in our friends and neighbors, people from the 5 community and come in and decide a case that can't be 6 decided without your intervention. 7 Now, let me just tell you, ladies and 8 gentlemen, on this side of the room, we really appreciate 9 what you have done. 10 You know, as Judge McCalla has told you, this 11 is a criminal case, and I've -- you know, while he was 12 giving y'all instructions this morning, what I did is I 13 kind of sat down and listened to what he had to say, and I 14 have written out, y'all can fault me for my handwriting, 15 but let me kind of summarize, if I can, what this case is 16 about. Here in America, you know, we have an indictment 17 that comes out, it's a piece of paper or several pieces of 18 paper, and what they do is they make a formal accusation 19 of the commission of a crime. Here in this case, what we 20 have is we have got an indictment, and I want to 21 familiarize yourselves with what we're dealing with. As 22 you have been told before, Count 1 alleges that tax 23 evasion was committed in '96, Count 2 is in '97, Count 3 24 is in '98, Count 4 is in '99, Count 5 is in 2000 and Count 25 6 is in 2001. Tax evasion. What is that we're going to OPENING STATEMENT BY MR. BECRAFT 253 1 have to look at here? What are the elements, as Judge 2 McCalla told you about earlier this morning? Well, you 3 know, lawyers take a look at statutes, and we sit there 4 and we kind of -- we divide them into what we call 5 elements. Elements are facts. What does the government 6 have to prove beyond a reasonable doubt that a crime 7 that's charge in the indictment was committed. In this 8 situation, as Judge McCalla told you a minute ago, I'm 9 kind of summarizing the fact or element that must be 10 proven was taxes were owed. 11 MR. MURPHY: Judge, can we approach for a 12 second? 13 THE COURT: You may. 14 (The following proceedings had at side-bar 15 bench.) 16 MR. MURPHY: Judge, I'm not trying to waylay 17 Mr. Becraft, but this is opening, not closing. And 18 talking about elements at this point -- 19 MR. BECRAFT: I want to just talk about intent, 20 Your Honor, that is where I was headed, real quickly move 21 through some of the things about what is important in this 22 case, make admissions, tell the jury what this case is 23 about, which is all criminal intent. That's where I'm 24 headed. 25 THE COURT: As a general proposition, the OPENING STATEMENT BY MR. BECRAFT 254 1 purpose of opening statement is to give a road map as to 2 what proof is anticipated -- what proof is anticipated by 3 the respective party, and that does not mean usually 4 having a detailed discussion of the elements, that sort of 5 thing. 6 MR. BECRAFT: I understand. 7 THE COURT: It is more of a road map. 8 MR. BECRAFT: I will move on, Your Honor. 9 (The following proceedings were had in open 10 court.) 11 MR. BECRAFT: What I want to point out to you 12 is what's important for this case, what y'all are going to 13 have to decide is primarily the criminal intent that Judge 14 McCalla told you what's in issue in this case, 15 willfulness. That's that criminal intent I was telling 16 you about when we were picking the jury. The government 17 is going to come in in this case and offer some proof and 18 you're going to find out most of it is probably not going 19 to be contested by the defense. The defense does not 20 contest -- Vernie Kuglin does not contest the fact that 21 she worked for FedEx and she made good money. She's not 22 going to contest all these other things that the 23 government is going to be talking about. These witnesses, 24 they're going to come up here and testify about how much 25 was made or how much interest was paid on mortgages and OPENING STATEMENT BY MR. BECRAFT 255 1 everything else. Ladies and gentlemen, that's not the 2 issue in this case, at least from the defense. What is in 3 question is that criminal state of mind. Did Vernie 4 Kuglin commit the crime of tax evasion with a criminal 5 intent? Did she act willfully? 6 Now, let me tell you about -- I think you need 7 to know something about who Vernie Kuglin is in order for 8 you to make an assessment of her intent. I've never ask 9 her her date of birth, and I'm not going to, but her 10 parents were missionaries, and they were missionaries to 11 Africa at some time in the past, and Vernie Kuglin was 12 born in Africa, but her parents were from Kansas. And 13 after a certain number of years in the field, that family 14 came back, and Vernie Kuglin enrolled in school in Kansas, 15 and she ultimately, let's say, in the early '60s went to 16 college. The proof is going to be that she had enough 17 high school credits to move without getting a degree 18 straight into college. She went a couple of years to 19 college in Kansas. Right after that, you know, she had, 20 during the course of her teenage years and early college 21 years, she was doing things like waiting tables, being a 22 waitress, but by the mid 60s, '65, 1966, she worked her 23 way down to Dallas where she became a flight attendant for 24 Braniff Airlines. And after a couple of years of being a 25 flight attendant for Braniff Airlines, she met a man out OPENING STATEMENT BY MR. BECRAFT 256 1 in California, married him, and as a result of have union, 2 they had a son by the name of Christopher. Unfortunately, 3 that marriage didn't work out and the parties were 4 divorced. So in the early '70s, you know Vernie Kuglin 5 has been a flight attendant, she had been married, she is 6 now divorced, she has got to support a young baby boy, and 7 she does such things as become a librarian, she becomes a 8 book binder, she does other odds and ends, and I think one 9 of her jobs was she worked for Welfare, but ultimately 10 while doing these jobs and raising her young son, she 11 determined that she had an interest in flying. So in the 12 '70s, '75, '76, '77, '78, right around there, Vernie 13 Kuglin decided I want to become a pilot, and I think she 14 was living in Dallas at the time and took her first flying 15 lesson. After that, she became a flight instructor. By 16 some time around 1980 or 1981, there was a company, I 17 think, in Lafayette, Louisiana by the name of Royal 18 Airlines, and she became a corporate pilot for that 19 company. By 1985, she did what most people wanted to do, 20 hey, if you're a pilot and you want to get a job with one 21 of the big commercial airlines. Well, ultimately, she did 22 get a job in 1985 with FedEx. She moved to Memphis from, 23 I believe, Dallas or Louisiana, and she has lived here 24 ever since. By 1985, you know, if you take the trolly all 25 the way down to Beale Street, there is Waterford condos OPENING STATEMENT BY MR. BECRAFT 257 1 down there. In 1989, she bought that apartment down 2 there, or that condominium. What she does and what she 3 has done for most of her life is a FedEx pilot or at least 4 since 1985. We all know what FedEx does, those pilots get 5 to the airport about -- you know, sometime in the evening, 6 and while we're in bed, those FedEx pilots are flying all 7 over the country delivering their cargo. And after they 8 go from, say, like from Memphis to Dallas or San Francisco 9 or Portland, then they come back. You know, it is early 10 morning when they get ready to go to bed, and they go to 11 bed, and then they get up and they do the same thing. 12 These are night people, and that's what Vernie Kuglin was 13 doing, and she was paid good money to be a pilot. 14 As Mr. Murphy mentioned a minute ago, since the 15 early '60S probably, I don't know the exact date, perhaps 16 the government can tell us, all the way up through the 17 '90s Vernie Kuglin was like anybody else, she filed those 18 federal income tax returns. But what changed her mind? 19 What caused her to think otherwise? Let me kind of give 20 you a road map of what her beliefs were. I have kind of 21 summarized them in certain categories. If you can kind of 22 look at this, I want to kind -- if you're like me, you 23 know I want to kind of categorize these types of belief. 24 The first, she has a belief that, well, the federal income 25 tax is an excise tax, and based upon her reading of OPENING STATEMENT BY MR. BECRAFT 258 1 materials, an excise tax can't be imposed upon the right 2 to earn a living. That's point number one. Point number 3 two, she has been through this Internal Revenue Code, and 4 she thinks that those that are required to file an income 5 tax returns are parties that are statutorily made liable 6 for a income tax, and she has been unable to find such a 7 provision in the code. And finally her third major belief 8 is that, you know, let's call it the Paperwork Reduction 9 Act argument. The government has got to assign OMB 10 control numbers to certain documents and regulations, and 11 from her investigation of tax laws and other items, she 12 has reached the conclusion that, hey, this Form 1040 13 doesn't match up with what I see here. Why do I see Form 14 2555 entitled foreign earned income as what appears to her 15 to be the form that should be required to be filed? All 16 of these are oddities, but they are important for Vernie 17 Kuglin. 18 Now, how did she arrive at these beliefs? Let 19 me kind of summarize, if I can. In 1992, Vernie Kuglin is 20 probably somebody that's apolitical. One evening, as she 21 is kind of vacuuming around her condominium, she has got 22 the TV on, and there she is listening to C-Span and there 23 is a party convention, a political party convention on, 24 the Libertarian party, and she didn't know anything it, 25 and she sat down to watch this Libertarian party OPENING STATEMENT BY MR. BECRAFT 259 1 convention, these people debating, and she said, you know, 2 I'm kind of interested in this. As a result of seeing 3 what she saw on TV, she contacted a man that lives here in 4 Memphis, Don Winfield, and as a result of them talking, 5 ultimately Vernie Kuglin is becoming somebody who is 6 extremely interested in the Libertarian party. She and 7 Mr. Winfield, they kind of go to little meetings around 8 the state to fellow Libertarians. She goes to meetings in 9 other cities across America, and as she is getting into 10 this study and comprehension and understanding of the 11 message of the Libertarian party, she starts encountering 12 and running across tax information. People in the 13 Libertarian party are saying, well, you know -- they're 14 talking about taxes. Well, as a result of the talking 15 about taxes, you know, Vernie hears such things as people 16 saying, well, you know, it's voluntary. And Vernie checks 17 that out, and, you know, she sees actual government 18 documents, our tax system is based upon voluntary 19 compliance. That creates, you know, a view of the tax 20 laws that she has never seen before. She always thought 21 it was mandatory. Now, the government is saying our 22 remember system is based on voluntary compliance. Well, 23 once she starts seeing these documents, she makes a 24 commitment I want to learn something about the federal 25 income tax laws. One of the first things that she did is OPENING STATEMENT BY MR. BECRAFT 260 1 somehow some way, she will tell us, but this is a cassette 2 series, constitutional convention by Walter Cronkyte, the 3 ratification debates, the Bill of Rights, the text to the 4 United States Constitution, she starts listening to stuff 5 like this. She starts reading the Declaration of 6 Independence. She reads, you know, publications that are 7 put out, Freedom Daily. She reads books that she has 8 never read before, things that explain politics, economics 9 and taxation. And this process of learning about the law 10 for her for the first time is very revealing. Ultimately, 11 by some time in '92 or '93, she is beginning to engage in 12 a real detailed study of the law, what she perceives to be 13 the law. Now, I need to tell you before I get into the 14 details of this, I want to -- I made a promise to Judge 15 McCalla earlier, and I make a promise to you now, you 16 know, what is going to be important in this case is Ms. 17 Kuglin's beliefs and whether or not you believe that they 18 were her firmly held beliefs. Now, her beliefs, you know, 19 when she gets up there on the stand, I want to you 20 remember this one fact. When she says, well, I think this 21 is the law or I believe that this is what the law is, I 22 want to tell you right now, and I'm going to bring this up 23 with one of the first series of questions I'm going to be 24 asking her, our position is that's what she says up there 25 are her beliefs about the law. Don't confuse it with what OPENING STATEMENT BY MR. BECRAFT 261 1 the court is going to tell you in the way of jury 2 instructions at the end of this case. But Ms. Kuglin has 3 certain beliefs about the law. She studied the United 4 States Constitution, she found out that the Constitution 5 authorizes Congress to impose two types of taxes. She did 6 kind of a study of the history of income taxation at the 7 federal level. She learned that in 1895, you know, she 8 read some documents that she thought were decisions of the 9 United States Supreme Court, a case called the Pollock 10 case that held bad income tax unconstitutional. She read 11 and studied stuff about the ratification of the 16th 12 Amendment, the federal income tax amendment. She read a 13 case called the Brushaber case and reached the conclusion 14 that in a constitutional sense, the federal income tax is 15 an excise tax, point number one as I put up here. Now, 16 she didn't stop there. What is important for Vernie 17 Kuglin is in her mind she envisioned, well, the federal 18 income tax is a thing known as an excise tax. So what is 19 an excise tax? And so she started reading cases, and one 20 of the things that was real important for Vernie Kuglin 21 was a case that she thought was the Tennessee -- the 22 Supreme Court case of 1960 called the Jack Cole against 23 McFarland, and she read that case, and it says an excise 24 tax can't be used to tax the right to earn a living. And 25 she concludes that that is a very fundamentally important OPENING STATEMENT BY MR. BECRAFT 262 1 case, so fundamentally important that that is the reason 2 why there's no state income tax here in Tennessee. So it 3 is logical from her viewpoint to draw a conclusion based 4 upon what she understands are court cases, and she reaches 5 the conclusion, well, hey, I can see how people are 6 talking about you may not owe the federal income tax. But 7 she doesn't stop there, she moves on and she does some 8 other studying, what I call legal belief number two up 9 there on the screen. What she did is, as you can see, not 10 that we're going to be offering this into evidence, you 11 can see that by July of 1994, Vernie Kuglin had ordered a 12 copy of the Internal Revenue Code. Big thick book. She 13 reads some documents that come from the IRS that identify 14 the various laws that require you to file a return. So 15 she said I'm going to study those laws, and she sits down 16 and does it, and, you know, when she reads what she 17 believes to be Section 6001 of the Internal Revenue Code 18 and 6011 of the Internal Revenue Code, she says that the 19 law for filing returns, it doesn't say something like 20 every American, it says something to the effect that every 21 person liable, without telling you who it is. So as a 22 result of looking at the law, Vernie Kuglin starts looking 23 around and trying to find am I liable for the federal 24 income tax, and to make a long story short, she ultimately 25 goes through the income tax sections of that big thick OPENING STATEMENT BY MR. BECRAFT 263 1 book over there and reaches the conclusion, well, I only 2 found one statute that makes anyone liable for the federal 3 income tax, that's the only agent for nonresident aliens 4 and foreign corporations, and I'm not a nonresident alien 5 and I'm not a foreign corporation, and I'm not making 6 payments to nonresident aliens and foreign corporations. 7 So she reaches the conclusion, hey, I don't have to file 8 income tax returns. But then perhaps one of the final 9 things that kind of, you know, kind of solidified her 10 beliefs was this thing about the Paperwork Reduction Act. 11 She will explain what her beliefs are about this 12 particular law. You will hear OMB control numbers on 13 forms. There are OMB control numbers on regulations. She 14 knows that under this particular law, a tax regulation has 15 to have an OMB control number. She knows or she believes 16 that Section one of the Internal Revenue Code is the 17 section that imposes the tax. She knows that the 18 regulation that corresponds to that is Treasury Regulation 19 1.1-1. Now, Vernie Kuglin took a publication that comes 20 from the government and merely looked up to see what is 21 the form that applies to the tax imposed section of the 22 Internal Revenue Code. And to her amazement, she came up 23 with this Form 2555 entitled foreign earned income. 24 Now, ladies and gentlemen, you can't say that 25 Vernie Kuglin is a legal scholar, but you can say that she OPENING STATEMENT BY MR. BECRAFT 264 1 is an ordinary American, and you can say that an ordinary 2 American has a right to sit down and read what she 3 understands to be the law, to read cases and draw 4 conclusions, and so as a result of her studies, what 5 Vernie Kuglin did is that for '93, '94, '95 or 6 thereabouts, you know, she is working at FedEx and she is 7 having withholding from her wages, but by the fall of '95, 8 she is committed to her position, she really believes that 9 she is not required to file returns, she really believes 10 that she is not subjected to withholding. She has a 11 meeting some time in 1995, one of the people that she met 12 here in Memphis had a little problem with the IRS, and 13 they go down to a meeting, and at this meeting, you know, 14 where Vernie Kuglin gets to see the IRS inter -- dealing 15 with somebody who is claimed to owe taxes, she starts 16 asking questions. And she learns that the IRS agents 17 don't want to answer the questions, and so she is directed 18 to study the law, go to the law library or hire a lawyer. 19 So what does Vernie Kuglin do as a result of what the IRS 20 told her? Goes to the library, runs over there to Memphis 21 State, does studying. She runs into an organization that 22 has lawyers on board. Ultimately, she gets those lawyers 23 to do some things for her. She did what the IRS said do 24 as a result of this meeting. But then by the fall of 25 1995, Vernie Kuglin -- I think she said she wrote a lot of OPENING STATEMENT BY MR. BECRAFT 265 1 this while she was flying, but she writes some letters to 2 the IRS, October of '95, November of '95. She has got a 3 series of questions that she poses to the IRS, one of 4 which is what law makes me liable for the federal income 5 tax and, therefore, required to file an income tax return. 6 She sends it to the IRS. Did she get a response? No. A 7 month later, she sends another letter to the IRS. Does 8 she get a response? No. Those are two letters that we're 9 going to offer into evidence here. Now, having not 10 received a reply from the government, Vernie Kuglin 11 decided that there's something to hide, and she started 12 implementing her beliefs, which are not something that's 13 drawn out of the thin air, but virtually everything that 14 she believes comes from the law or the government itself. 15 So by December 29th, December the 30th of 1995, Vernie 16 Kuglin gets around to submitting to FedEx this document 17 right here, which is the first exempt Form W-4 with a 18 bunch of attachments. Thereafter -- you know, the 19 government is going to bring in somebody from FedEx, hey, 20 think Vernie Kuglin submitted this W-4 exempt. You bet. 21 Vernie Kuglin is a woman that has firmly held beliefs. 22 Those firmly held beliefs caused her to ask questions of 23 the IRS. Ultimately, she hired lawyers to ask these 24 questions of the IRS. You know what, ladies and 25 gentlemen? This whole problem could have been resolved if OPENING STATEMENT BY MR. BECRAFT 266 1 somebody in the government had answered those questions. 2 So this case, ladies and gentlemen, let me tell you what 3 it boils down to. I think that this is the redeeming 4 thing of this case. Tax evasion is not committed by 5 reading the law and relying on the government. This, 6 ladies and gentlemen, is acting in good faith. That's 7 what the evidence will show in this case. And that, 8 ladies and gentlemen, is the reason why Vernie Kuglin is 9 not guilty. That concludes my remarks. I hope that we 10 can finish this case by sometime tomorrow afternoon. 11 Thank you. 12 THE COURT: Mr. Murphy, you may call your first 13 witness. 14 MR. MURPHY: Yes, sir, Your Honor. 15 THE COURT: If you would stop right there and 16 raise your right hand at the podium. I'm going to let you 17 get over to the microphone, thanks very much. Do you 18 swear that the testimony you are about to give in this 19 case will be the truth, the whole truth and nothing but 20 the truth, so help you God? 21 THE WITNESS: I do. 22 THE COURT: You may have a seat up here. 23 24 25 DIRECT - MARY ANN OSBORNE 267 1 MARY ANN OSBORNE, 2 was thereupon called as a witness on behalf of the 3 Plaintiff, and having been first duly sworn, was 4 examined and testified as follows: 5 DIRECT EXAMINATION 6 BY MR. MURPHY: 7 Q. Would you state your name, please, ma'am? 8 A. Mary Ann Osborne. 9 Q. And who do you work for, Ms. Osborne? 10 A. I work for Internal Revenue Service. 11 Q. And what do you for the Internal Revenue Service? 12 A. My job title is court witness coordinator. 13 Q. Okay. Are you also involved with -- you have got 14 knowledge of how the IRS keeps custody of documents? 15 A. Yes, sir, I represent the custodian of records, I do 16 prepare, research and receive these documents and do prepare 17 them for court. 18 Q. Okay. 19 MR. MURPHY: Your Honor, if I could approach. 20 THE COURT: You may. 21 MR. MURPHY: We have already shown this to 22 defense counsel. 23 MR. BECRAFT: May it please the court, for this 24 witness, there's not going to be any objection to the 25 exhibits that Mr. Murphy offers. DIRECT - MARY ANN OSBORNE 268 1 Q. Ma'am, I passed you a document, would you tell me what 2 that document is? 3 A. This is a certified copy of the individual master file 4 transcript, what we call a complete. 5 Q. Now, what information goes in an individual master file 6 transcript? 7 A. The individual master file transcript is a record of 8 all actions, transactions or anything taken or done to the 9 taxpayer's account. 10 Q. Okay. And that particular individual master file that 11 I passed to you, who was that for? 12 A. Vernice Kuglin. 13 Q. Would you spell the first and last name? 14 A. First name V-E-R-N-I-C-E. Last name K-U-G-L-I-N. 15 Q. And what was the social security number for that 16 taxpayer? 17 A. The social security number is 514-44-1724. 18 Q. All right. Now, can you examine that document and tell 19 us what years, if any, Ms. Kuglin has filed income taxes, 20 income tax returns, rather? 21 A. The first income tax return filed was in 1965. Let me 22 back up just a little bit. The first document we have of 23 something being done to this account was in 1965. 24 Q. Okay. 25 A. 1966, 1967. DIRECT - MARY ANN OSBORNE 269 1 Q. Now, '66 and '67, tax returns were filed? 2 A. I'm assuming they were. Looking at this document, I 3 cannot tell you for sure. 4 Q. Okay. Keep going. 5 A. There is nothing listed here for 1969, so there is 6 nothing documented for 1969. There was something done to this 7 account in 1970, 1971, 1972, 1973, 1974, 1975, '76, '77, '78, 8 '79, '80, '81, '82, '83, '84, '85, '86, '87, '88, '89, '90, 9 '91, '92, '93. 10 Q. Were tax returns filed in '93? 11 A. Yes, there was. 12 Q. Okay. Now, what kind of tax return was filed in '93? 13 Was that a substitute return? 14 A. Yes, sir, it was a substitute return. 15 Q. Okay. What is a substitute return? 16 A. A substitute return is where enough data has been sent 17 in to Internal Revenue Service by businesses, banks or 18 whatever to enable them to assess tax on a tax return. 19 Q. Okay. And does the IRS file a substitute return? 20 A. The IRS does prepare the substitute return. 21 Q. Okay. And how about '94, was a return filed? 22 A. Yes, sir, there was. This was also a substitute 23 return. 24 Q. Okay. Again, who prepares the substitute return? 25 A. Internal Revenue Service prepares the substitute DIRECT - MARY ANN OSBORNE 270 1 return. 2 Q. Now, does that record indicate that there were any 3 levies on any withholding monies? 4 A. The 1993, the 1994 and the 1995 tax return show that 5 there was withholding credited to this account. 6 Q. Okay. 7 A. The 1993 return shows that there were two payments made 8 to these accounts, and if I'm correct, I think these were levy 9 payments. 10 Q. Okay. And would a levy payment show up as a payment on 11 the account? 12 A. Yes, it would. 13 Q. Does that record indicate that there were notices sent 14 out to the taxpayer of some kind regarding the levies? 15 A. Yes, sir, it does. 16 Q. Okay. Can you tell us the date that the notices were 17 sent out? 18 A. 11-11-1996, what we call a stat notice 26 was sent out 19 to the taxpayer regarding the 1993 tax return. 6-15-1998, a 20 notice was sent out to the taxpayer regarding the 1994 return. 21 6-15-1998, a notice was sent out to the taxpayer regarding the 22 1995 return. 23 Q. Okay. Thank you, ma'am. 24 MR. MURPHY: Your Honor, at this time, we 25 request that that document be marked as Exhibit 1. DIRECT - MARY ANN OSBORNE 271 1 THE COURT: Yes, it will be Exhibit 1 in the 2 case. 3 (Exhibit Number 1 was marked. Description: 4 Notes to Taxpayer - 1996.) 5 Q. Ma'am, I'm going to pass you another document. Can you 6 tell me what that document is? 7 A. This document is certification of lack of record. 8 Q. And is that a document that you prepared? 9 A. Yes, sir, it is. 10 Q. And what does that document indicate? 11 A. This document indicates that there has been no record 12 of any return being filed by the taxpayer for 1996, 1997, 13 1998, 1999, 2000 and 2001. 14 Q. Thank you. So that would be based on your examination 15 of the IRS records, and there was no indication of any type of 16 return was filed? 17 A. No type of return was filed for those years. 18 MR. MURPHY: Your Honor, at this time, we would 19 ask that this record be introduced as Exhibit Number 2 in 20 the case. 21 THE COURT: It will be Exhibit 2 in the case. 22 (Exhibit Number 2 was marked. Description: 23 Cert. of Lack of Record.) 24 Q. Ma'am, are you familiar with some records that are 25 referred to in the IRS as IRP documents? DIRECT - MARY ANN OSBORNE 272 1 A. Yes, sir. 2 Q. What is an IRP document? 3 A. An IRP document is a document that is sent into the 4 service center. It could be W-2 to '98, to '99. Same type of 5 information is reported to social security. This gives 6 information of income that was received and paid by the 7 taxpayer. 8 Q. Okay. And is this information compiled? 9 A. Yes, it is. 10 Q. And is it formatted in a form that's referred to by the 11 IRS as an IRP? 12 A. Yes, sir. 13 Q. Okay. And would these documents -- these IRP documents 14 have, for example -- 15 THE COURT: Would you spell the word IRP? 16 Q. What are the initials? 17 A. The command code that is used to pull this information 18 up is spelled IRPTRO. 19 THE COURT: Thank you. 20 Q. When people shorthand it, they call it an IRP? 21 A. Yes, we call it IRP, I-R-P. 22 Q. Okay. Now, would these IRP documents show mortgage 23 payments that was made? 24 A. Yes, it does. 25 Q. Would it also show wage income? DIRECT - MARY ANN OSBORNE 273 1 A. Yes, it does. 2 Q. And interest income? 3 A. Yes, it does. 4 Q. Ma'am, I'm going to pass to you a document. Can you 5 tell me what that document is? 6 A. This is an information returns on-line transcript, 7 which is IRPTRO, for the taxpayer Vernice Kuglin, social 8 security number 514-44-1724. 9 Q. And what year is that for? 10 A. This is for the tax year 1996. 11 Q. Okay. And you -- this came from the IRS records? 12 A. Yes, sir, it did. 13 MR. MURPHY: Your Honor, at this time we would 14 ask that this be marked as Exhibit 3 in the case. 15 THE COURT: It Exhibit 3 in the case. 16 (Exhibit Number 3 was marked. Description: 17 1996 IRPTRO.) 18 Q. Ma'am, I'm going to pass another document to you. 19 Excuse me. Can you tell us what that document is? 20 A. This document is also a transcript, information returns 21 on-line transcript, again, IRPTRO, captioned Vernice Kuglin -- 22 I'm sorry if I'm pronouncing the name. 23 Q. I think it is Kuglin. 24 A. Kuglin. Social security 514-44-1724 for the tax year 25 1997. DIRECT - MARY ANN OSBORNE 274 1 Q. And when you use the term tax year, would that be for 2 most individuals the calendar year? 3 A. Yes, sir, it would. 4 Q. Okay. So it would run from January the 1st of '97 to 5 December 31st? 6 A. Yes, sir. 7 MR. MURPHY: Judge, if we could have this 8 marked as the next numbered exhibit. 9 THE COURT: Exhibit 4. 10 (Exhibit Number 4 was marked. Description: 11 1997 IRPTRO.) 12 Q. Ma'am, I'm going to pass to you another document. Can 13 you tell me what that document is? 14 A. This document is also an information returns on-line 15 transcript, again IRPTRO for Vernice Kuglin, social security 16 number 514-44-1724 for the tax year 1998. 17 MR. MURPHY: All right. At this time, we would 18 ask that this be admitted into evidence as the next 19 numbered exhibit. 20 THE COURT: Exhibit 5. 21 (Exhibit Number 5 was marked. Description: 22 1998 IRPTRO.) 23 BY MR. MURPHY: 24 Q. Ma'am, I'm going to pass you another document. Can you 25 tell me what this document is? DIRECT - MARY ANN OSBORNE 275 1 A. This document is an information returns on-line 2 transcript, again, IRPTRO for Vernice Kuglin, social security 3 number 514-44-1724 for the tax year 1999. 4 MR. MURPHY: Your Honor, we would ask that this 5 be marked as the next numbered exhibit. 6 THE COURT: It is Exhibit 6. 7 (Exhibit Number 6 was marked. Description: 8 Information Returns.) 9 Q. Ma'am, I pass you another document, can you tell me 10 what that document is? 11 A. This is an information returns on-line transcript, 12 again, IRPTRO, for Vernice Kuglin, social security number 13 514-44-1724 for the tax year 2000. 14 Q. Thank you. 15 MR. MURPHY: Your Honor, we would ask that be 16 admitted as the next numbered exhibit. 17 THE COURT: Exhibit 7. 18 (Exhibit Number 7 was marked. Description: 19 2000 IRPTRO.) 20 Q. Ma'am, I've handed to you another document, can you 21 tell me what that document is? 22 A. This is an information returns on-line transcript, 23 again, IRPTRO for Vernice Kuglin, social security number 24 514-44-1724 for the tax year 2001. 25 MR. MURPHY: Your Honor, we would ask this be DIRECT - MARY ANN OSBORNE 276 1 marked as the next numbered exhibit. 2 THE COURT: Exhibit 8. 3 (Exhibit Number 8 was marked. Description: 4 2001 IRPTRO.) 5 Q. Ma'am, I'm going to hand you another document, can you 6 tell us what that document is? 7 A. This is a certificate of assessments, payments and 8 other specified matters for a Form 1040, U. S. individual 9 income tax return captioned Vernice Kuglin, social security 10 number 514-44-1724 for the tax year 1992. 11 Q. Okay. What does that document indicate? 12 A. This document indicates that a tax return was filed for 13 1992, it shows the adjusted gross income, the taxable income, 14 the document locator number of the tax return filed, the 15 amount of tax that was assessed on this tax return, the 16 withholding credit that was allowed this taxpayer and the 17 refund that was issued to the taxpayer. 18 Q. Okay. What were those -- can you go through those 19 figures for us? 20 A. Yes, I can. I'm showing that the adjusted gross income 21 for 1992 was $112,084. I'm showing of that amount the taxable 22 income was $86,644. The tax on this return was $20,892 with a 23 document locator number of 49221104650003, withholding credit 24 of $22,228 with a refund to the taxpayer of $1,336. 25 Q. Okay. Thank you. DIRECT - MARY ANN OSBORNE 277 1 MR. MURPHY: Your Honor, we would ask this 2 record be made the next numbered exhibit. 3 THE COURT: Exhibit 9. 4 (Exhibit Number 9 was marked. Description: 5 1992 Certificate.) 6 Q. Ma'am, I'm going to pass to you another document. Can 7 you tell us what that document is? 8 A. This document is a certificate of assessments, payments 9 and other specified matters for Form 1040, U. S. individual 10 income tax return captioned Vernice B. Kuglin, social security 11 number 514-44-1724 for the tax year 1993. 12 Q. Okay. What does that document indicate? 13 A. This document indicates the adjusted gross income, the 14 taxable income, the document locator number for the substitute 15 for return. It also shows that two extensions were filed by 16 this taxpayer. 17 Q. Now, what is an extension? 18 A. An extension is filed on or before April the 15th 19 asking for additional time to file your tax return by the 20 taxpayer. 21 Q. Okay. And does -- does that indicate that there were 22 levies made or assessments made against the withheld 23 taxation -- tax money? 24 A. Yes, sir, it does. 25 Q. Okay. And at the end of the year, what was the balance DIRECT - MARY ANN OSBORNE 278 1 due and owing in that case? 2 A. There's a balance due showing of zero on this account. 3 Q. And what does that mean? 4 A. It means that all the taxes due on this account had 5 been paid by levy or by withholding and that there is no 6 additional taxes due and no refund due the taxpayer at this 7 time. 8 Q. For that year? 9 A. For that specific year. 10 Q. And does that document also indicate that there was any 11 contact with the taxpayer, any letters or anything like that 12 sent to her, notices? 13 A. Yes, sir. Delinquency notice was sent to the taxpayer 14 on 4-17-1995. Another delinquency notice was sent to the 15 taxpayer on 6-12-95. Another delinquency notice was sent on 16 7-24-1995. Another delinquency notice was sent on 9-4-1995. 17 The statutory notice of balance due was sent to the taxpayer 18 on 9-9-1996, and a statutory notice of intent to levy was sent 19 to the taxpayer on 9-30-1996. There are additional notices of 20 balance due on this account of -- from 1997, '99, 2000, 2001 21 and 2002. 22 Q. Thank you, ma'am. 23 MR. MURPHY: Judge, if we could have this 24 marked as the next numbered exhibit. 25 THE COURT: Exhibit 10. DIRECT - MARY ANN OSBORNE 279 1 (Exhibit Number 10 was marked. Description: 2 1993 Certificate.) 3 Q. Ma'am, I'm going to pass to you a document. Can you 4 tell me what that document is? 5 A. This document is a certificate of assessment payments 6 and other specified matters for Form 1040 U. S. individual 7 income tax return captioned Vernice Kuglin, social security 8 number 514-44-1724, for the tax year 1994. 9 Q. Okay. Now, does that show that any -- that a 10 substitute return was filed? 11 A. Yes, sir, it does. 12 Q. Again, who makes out the substitute return? 13 A. The Internal Revenue Service prepares the substitute 14 for return. 15 Q. And that 1994 tax year, had there been taxes withheld 16 from Ms. Kuglin's pay? 17 A. Yes, there was. 18 Q. In what amount? 19 A. Withholding credit of $22,218. 20 Q. Okay. Now, were assessments or levies made for that 21 tax year? 22 A. Assessments were made for the tax year of -- well, 23 let's see, you have an estimated tax penalty for $395, you 24 have a filing penalty for $2,534. You have tax assessed of 25 $32,353. You have interest assessed for $3,348.97. You have DIRECT - MARY ANN OSBORNE 280 1 a fee, our collection cost of $16. 2 Q. Okay. Does that document indicate any notices were 3 sent to the defendant regarding her tax situation? 4 A. Yes, sir, there was. There was a statutory notice of 5 balance due sent out on 11-24-1997, statutory notice with 6 intent to levy was sent out on 12-15-1997. There was another 7 statutory notice of balance due sent out on 4-6-1998. 8 Q. Okay. And there's a balance due and owing on that 9 account? 10 A. Yes, sir, there is, there is a balance due of 11 $16,428.97. 12 Q. Thank you, ma'am. 13 MR. MURPHY: Your Honor, we would move this 14 document into evidence as the next numbered exhibit. 15 THE COURT: Exhibit 11. 16 (Exhibit Number 11 was marked. Description: 17 1994 Certificate.) 18 Q. Ma'am, I'm going to show you one final document. Can 19 you take a look at that and tell us what it is? 20 A. This is a certificate for assessment payments and other 21 specified matters for Form 1040 U. S. individual tax return 22 captioned Vernice Kuglin, social security number 514-44-1724, 23 for the tax year 1995. 24 Q. Now, does it show any -- does it show a tax return was 25 filed for '95? DIRECT - MARY ANN OSBORNE 281 1 A. A substitute for return was filed for 1995. 2 Q. Okay. And does it show any withholding? 3 A. Yes, sir, it shows withholding of $24,311. 4 Q. Okay. And what taxes were paid with that sort of 5 thing? 6 A. No taxes were paid other than the withholding on the 7 account. There's estimated tax penalty assessed of 970. 8 Excuse me, $970. 9 Q. Okay. 10 A. There's a late filing penalty for $5,118. The tax 11 assessment on the account was $44,783, and interest is 12 assessed of $3,925.59. 13 Q. Okay. Does that document indicate that any notices 14 were sent out to Ms. Kuglin? 15 A. Yes, sir, there was. In 11-24-97, a statutory notice 16 of balance due was sent to the taxpayer. 12-15 of 1997, a 17 statutory notice of intent to levy was sent to the taxpayer. 18 Again, on 3-9-98, an additional notice of intent to levy was 19 sent to the taxpayer. 20 Q. Any other notices? 21 A. No, sir. 22 Q. And what is the balance due on that account? 23 A. The balance on this account is $30,485.59. 24 Q. Thank you, ma'am. 25 MR. MURPHY: Judge, if we could have this DIRECT - MARY ANN OSBORNE 282 1 marked as the next numbered exhibit. 2 THE COURT: Exhibit 12. 3 (Exhibit Number 12 was marked. Description: 4 1995 Certificate.) 5 Q. Ma'am, for people -- if you can answer this, for people 6 living in Tennessee, where do they send their tax returns 7 into? 8 A. Memphis. 9 Q. Okay. Is there an IRS Service Center here? 10 A. Yes, sir, there is a service center here in Memphis. 11 MR. MURPHY: One second, Your Honor. 12 Judge, we don't have any further questions for 13 Ms. Osborne. 14 THE COURT: Cross examination? 15 MR. BECRAFT: Could I ask the court something 16 about morning break? 17 THE COURT: It will be fairly soon. 18 CROSS EXAMINATION 19 BY MR. BECRAFT: 20 Q. Good morning, Ms. Osborne. 21 A. Good morning. 22 Q. How long have you worked for the Internal Revenue 23 Service? 24 A. I have worked for the Internal Revenue Service for 25 approximately 28 years. CROSS - MARY ANN OSBORNE 283 1 Q. Did you start out in the position that you're in now? 2 A. No, sir, I did not. 3 Q. What was your first job? 4 A. I was a data transcriber. 5 Q. And data transcriber, correct me if I'm wrong, if we 6 were sitting down at the IRS office in the spring of every 7 year, you have all of this information that is flowing in and 8 people that are data transcribers are taking information, 9 typing it in, loading it into the computer, is that correct? 10 A. That's correct. 11 Q. How long were you a data transcriber? 12 A. I was a data transcriber for approximately four months. 13 Q. And what did you do after that? 14 A. I went to an area called photocopy. 15 Q. And -- just kind of give us an idea of what you have 16 done at the IRS since you started to work for them. 17 A. I started as a data transcriber. From there, I went to 18 photocopy unit where requests are sent into the IRS for 19 photocopies of your tax returns. We photocopy this 20 information and send it to you for your records. From there, 21 I went to a typing unit where I transcribed letters that will 22 be sent out to the taxpayers. From there, I have worked many 23 places. I have worked -- majority of my time was spent in 24 collections where I worked with tax delinquent accounts and 25 where I set up installment agreements for taxpayers, written CROSS - MARY ANN OSBORNE 284 1 letters, answered questions concerning these accounts, tried 2 to explain a little bit about the accounts. I have also 3 worked in what we call notice review where after the tax 4 return has been prepared, that's for the balances, whether 5 you're going to get a refund or whether you're going to get a 6 balance due notice is sent to this area, and we check it to 7 make sure it is correct. We go back and check the return to 8 see if any payments or anything else was left off of the 9 account. I was in criminal investigation, worked for the 10 questionable refund unit where we questioned refunds on tax 11 accounts. We verified to see if these refunds were valid 12 refunds. 13 Q. You mentioned criminal investigation, is that the 14 function that you're in now? 15 A. Yes, sir. 16 Q. All right. 17 A. That's a part of the function I'm in now. 18 Q. So you have been working criminal investigation for how 19 long? 20 A. I have been in criminal investigation for nine years. 21 Q. Nine years. And that requires you to do things like -- 22 you said, I believe, on direct that you're a court witness. 23 A. Yes, I am. 24 Q. That means coming to court and testifying in cases like 25 this? CROSS - MARY ANN OSBORNE 285 1 A. Court witness coordinator is my current job title. I 2 do research accounts. I request the information for these 3 accounts and prepare these accounts for court for the special 4 agents. 5 Q. Now, can I describe for you -- you know, you have 6 offered into -- through your testimony Exhibit Number 1. Can 7 I ask you some questions about that, about how it's created? 8 A. Yes, sir. 9 Q. Okay. That's the IMF complete? 10 A. Yes, sir. 11 Q. Let me ask you these questions, see if I got the 12 picture right. A whole bunch of information flows into 13 service centers, you got tax returns, you got all sorts of 14 documents? 15 A. Yes, sir. 16 Q. And they flow in and the data transcribers sit down and 17 take the information off of it, right? 18 A. Yes, sir. 19 Q. And that information gets inserted into the IRS 20 computers, right? 21 A. Yes, sir. 22 Q. And so these -- these inputs of information are made at 23 a certain time, correct? 24 A. They are made all during the year. 25 Q. All right. And the approximate time in which the data CROSS - MARY ANN OSBORNE 286 1 is input is something that you can ultimately see when you get 2 a computer printout known as an IMF, right? 3 A. Yes, sir. 4 Q. For something like a tax return that flows into the 5 service center, is it not true that one of the first things 6 that gets done or at some stage of this process, you mentioned 7 during your direct testimony this thing known as a document 8 locator number? 9 A. Yes, sir. 10 Q. It gets stuck on a return, right? 11 A. Every document that comes into the service center has 12 to have a document locator number because that is what we use 13 to track and try to find this document. 14 Q. All right. And that information, you know, let's say a 15 1040 -- you mentioned I think you were reading off on the '92 16 return a document locator number for Ms. Kuglin's return? 17 A. Yes, sir. 18 Q. All right. And that gets inserted about the time that 19 the return gets filed, right? 20 A. Yes, sir. 21 Q. And that information gets logged into the computer, 22 right? 23 A. Right. 24 Q. And so that if someone like you wants to find 25 something, all you have to do is pull up the electronic file CROSS - MARY ANN OSBORNE 287 1 on every one, right? 2 A. Clarify by what you mean by electronic file. 3 Q. Okay. The individual master file. 4 A. Yes, sir. 5 Q. For the benefit of the jury, an individual master file 6 is kind of a -- 7 MR. MURPHY: Judge, I'm going to object to 8 counsel testifying. He can ask the witness a question. 9 MR. BECRAFT: I will frame it in a question. 10 THE COURT: All right. 11 Q. Is it not true that an individual master file is 12 basically the computer record regarding the various documents 13 that are filed regarding a particular individual? 14 A. Yes, sir. 15 Q. All right. So you can print it out and it will say 16 year? 17 A. I can call up specific years. 18 Q. Okay. And -- but then, you know, to take a look -- 19 well, let me ask you this: May I approach the witness, Your 20 Honor? 21 THE COURT: You may. 22 Q. Now, I don't have Government Exhibit Number 1, but I 23 have tendered to you a copy of Defense Exhibit Number 52, and 24 I would like to ask if you could identify that for me, please. 25 A. Yes, sir, this is a IMF, individual master file for a CROSS - MARY ANN OSBORNE 288 1 specific tax year, for the tax year 1996. You also have 1997 2 in here, 1998, 1999 and 2000. 3 MR. BECRAFT: Your Honor, can I approach again? 4 THE COURT: You may. 5 Q. I've just stuck back on -- in front of you there 6 Government's Exhibit Number 1, and can you kind of compare 7 them? I'm just asking for the -- Government's Exhibit Number 8 1, I don't know the date on it, but -- 9 A. Number 1 is a complete, which is every year, your 10 entity information, the tax returns that have been filed by 11 this taxpayer. The exhibit you gave me, this one is for a 12 specific year. They are one and the same, but the specific is 13 broken down per each tax year where the complete is all of the 14 tax years together. 15 Q. You don't deny -- listen to my question, on Government 16 Exhibit Number 1, I don't know the date, but off the top of my 17 head, I think it is November of 2002, is that about right? 18 A. Right. 19 Q. Okay. And Defendant's Exhibit Number 52 bears a date, 20 correct me if I'm wrong, it says 10-9-of 2001? 21 A. Right. 22 Q. Now, do you deny that this is an authentic print that 23 comes from the IRS's computer regarding Vernie Kuglin? 24 A. What do you mean do I deny? 25 Q. Well, do you accept that this is a specific -- CROSS - MARY ANN OSBORNE 289 1 A. Yes, sir. 2 MR. BECRAFT: Your Honor, may I move for the 3 admission of Defense Exhibit 52. 4 THE COURT: Exhibit 13. 5 (Exhibit Number 13 was marked. Description: 6 IMF Transcript.) 7 Q. Can I ask you some questions about this and since I 8 have a copy of this one and not the government's, can we refer 9 to Exhibit Number 13? 10 A. Yes, sir, I have turned to the same page. 11 Q. Let's show the jury what this looks like. 12 MR. BECRAFT: If it please the court, I have 13 got copies. 14 THE COURT: Have you got your microphone on? 15 We will take a break and let y'all work out the 16 technology. 17 MR. BECRAFT: Thank you, Your Honor. 18 THE COURT: Back in ten minutes. 19 (Recess taken at 10:35 until 10:55 a.m.) 20 THE COURT: Yes, sir, Mr. Murphy. 21 MR. MURPHY: We have got one matter to take up 22 at side bar. 23 THE COURT: Okay. Sure, come on up. I mean 24 there's nobody in here. 25 MR. MURPHY: The only thing is if we're on -- CROSS - MARY ANN OSBORNE 290 1 that's fine, as long as we're not on the microphones. 2 THE COURT: All I have to do is hit that button 3 and they can't hear you. 4 MR. MURPHY: Okay. Good. 5 THE COURT: Now, you're at side bar. 6 MR. MURPHY: Close enough. Judge, the defense 7 is going to offer a copy of this IMF transcript, and on 8 it, it has got -- for several of these years, and it 9 indicates a modified balance, accrued interest and penalty 10 of zero, zero, zero for some of the years covered in the 11 indictment. And this witness -- this particular witness 12 didn't testify that there was any tax due and owing or 13 that the IRS was carrying a balance on the account for the 14 years in question. So I would submit that it goes outside 15 of the scope of the direct, and it also may be confusing 16 because I believe what the IRS procedure is if they don't 17 have enough information or if there's not withholding, 18 they typically don't figure people's taxes as opposed to a 19 case where they have withholding and they do have 20 information. 21 MR. BECRAFT: If I may, Your Honor, that's not 22 where I'm headed. The government doesn't doubt that that 23 comes -- that's a document that comes straight out of 24 discovery. For all of my exhibits, I unfortunately 25 premarked all of my exhibits and put defense stickers on CROSS - MARY ANN OSBORNE 291 1 them, but I'm using that particular exhibit because it's 2 handy, it's similar to Government Exhibit Number 1. The 3 witness has authenticated it, and what Mr. Murphy fears is 4 the use to which I will be putting the document is simply 5 not the case. I'm not going to talk about -- you know, we 6 got -- what Mr. Murphy gave to me in discovery bears a 7 date in November of 2001 -- or October of 2001, and the 8 one that the government has used, which is a similar kind 9 of computer record printed out is about a year later, but, 10 you know, I'm not making any bones of contention about the 11 difference in the transactions between the two documents. 12 MR. MURPHY: Judge, and my understanding is 13 there isn't any difference. We just -- in order for her 14 to certify a copy of it, she had to print a new one. 15 MR. BECRAFT: Okay. 16 THE COURT: What do you want to do with Exhibit 17 13? 18 MR. BECRAFT: I wanted to use it primarily 19 because I don't have a copy of Government 1, which I would 20 like to -- 21 THE COURT: All you have to do is put it on the 22 screen. 23 MR. BECRAFT: Sure. 24 THE COURT: 13 is just duplicate. 25 MR. MURPHY: That's fine. CROSS - MARY ANN OSBORNE 292 1 MR. BECRAFT: There's two different types of 2 transcripts, Your Honor. One is a complete and one is a 3 specific. 4 THE COURT: Let me see 1. You want Exhibit 13 5 stricken or what do you want? 6 MR. BECRAFT: No, I offered it, Your Honor. 7 THE COURT: Mr. Murphy wants me to do something 8 to 13. 9 MR. MURPHY: Well, Judge, I don't think 10 that's -- I don't think you can use another document to 11 cross-examine the witness -- you know, the witness about 12 of a business record like this. Or if I had some idea 13 about what he was trying to do, it may be something that I 14 would just say, yeah, he gets to do it, Judge. 15 MR. BECRAFT: I mean I can limit it to -- my 16 only -- the reason -- Your Honor, I would like to have a 17 copy of Government Exhibit 1, I don't have one, so I'm 18 forced to kind of operate off of my discovery copy, which 19 is what I was doing. 20 THE COURT: Okay. Then I'm not clear what is 21 being said, but it sounds like Exhibit 13 is withdrawn, 22 and you just want us to make a copy of Exhibit 1. Let's 23 make a copy of Exhibit 1 and give it to him. Is that all 24 we need to do? 25 MR. BECRAFT: Yes, Your Honor. CROSS - MARY ANN OSBORNE 293 1 THE COURT: All right. Without objection, 2 Exhibit 13 is withdrawn. 3 MR. MURPHY: Judge, we're going to see if we 4 have got a copy of what -- of what this witness -- 5 THE COURT: They're making a copy right now. 6 It doesn't make any difference. 7 All right. I show it as withdrawn. Anything 8 else? 9 MR. MURPHY: No, sir, Your Honor. 10 MR. BECRAFT: That's it, Your Honor. 11 THE COURT: You can bring the jury in. 12 (Jury in at 11:00 a.m.) 13 THE COURT: If you're keeping track of the 14 numbers of exhibits, Exhibit 13 was simply withdrawn by 15 agreement. Exhibit 1 apparently has the same data on it, 16 and we didn't need another document, so we now have 12 17 exhibits, and 13 is withdrawn. 18 Yes, sir, you may proceed. 19 MR. BECRAFT: Thank you, Your Honor. 20 Q. Ms. Osborne, we were, before the break, talking about 21 how Government Exhibit Number 1, a computer printout named 22 individual master file was created. And, in essence, over a 23 period of time, various transactions are made or insertions 24 into the computer are kind of stored so that the IRS can print 25 out a document which contains all -- basically all the entries CROSS - MARY ANN OSBORNE 294 1 that relate to a particular party, right? 2 A. Correct. 3 Q. So maybe in a few moments we'll will have Government 4 Exhibit Number 1 back, but generally what you do -- you know, 5 in order for you to make a determination about filing or 6 nonfiling in this case, you had to go to the computer, pull up 7 Vernie Kuglin's individual master file, correct? 8 A. Would you repeat your question, please? 9 Q. Government Exhibit Number 13, you probably have printed 10 out the same thing several times before, at least, right? 11 A. Yeah. 12 Q. Every time you print it out, it is just basically the 13 same thing except if you got a later transaction, the later 14 transaction will show up on a later print, is that about 15 right? 16 A. Correct. 17 MR. BECRAFT: May I approach, Your Honor? 18 THE COURT: You may. You can just put it on 19 the screen. 20 MR. BECRAFT: I will do that, Your Honor. 21 Q. Okay. Ms. Osborne, you can probably refer to the 22 original of Government Exhibit 1 and I will use a copy and I 23 will stick it up on the Elmo, and let's -- okay. This is what 24 Government Exhibit 1 looks like, correct? 25 THE COURT: Let's just put Exhibit 1 on the CROSS - MARY ANN OSBORNE 295 1 screen, that's what we will do. Is that 1? 2 MR. BECRAFT: Yes, Your Honor, it is. It's a 3 copy. This is a copy. 4 THE COURT: Let's use the original. 5 MR. BECRAFT: All right. 6 THE COURT: The reason we do that, ladies and 7 gentlemen, is you should be able to look at the original 8 or whatever is going to be shown to you in the jury room, 9 there is no reason for you to later wonder. 10 MR. BECRAFT: Thank you, Your Honor. 11 Q. You were talking -- or when you testified on direct 12 about the returns that had been filed, you -- in essence, you 13 were doing -- you were looking at this document, and based 14 upon your knowledge of how things get printed out, kind of 15 interpreting it, is that correct? 16 A. That's correct. 17 Q. All right. So looking at page one of Government 18 Exhibit Number 1, you know, you got these transactions -- you 19 see where my finger is pointed over here on the left side of 20 the page? 21 A. Yes, sir. 22 Q. These are years down here in the middle so, that, you 23 know, very first year is 1966? 24 A. Actually, that's a cycle. 25 Q. Okay, cycle. Would that relate to the year 1966? CROSS - MARY ANN OSBORNE 296 1 A. The cycle was 1966, cycle 20. 2 Q. Okay. So you can take a look at this type of 3 information and get a real good idea as to what happened? 4 A. Yes, sir. 5 Q. All right. So you're interpreting it, correct? 6 A. Yes, sir. 7 Q. Now, flip over to the second page, page number two of 8 this. Okay, now -- 9 THE COURT: It should be on your screen right 10 in front of you. 11 THE WITNESS: Yes. 12 MR. BECRAFT: Let me move it out a little. 13 THE COURT: Sure. 14 Q. It looks like I have got everything on page two up on 15 the screen, is that right? 16 A. Fairly close, yes, sir. 17 Q. And right down here where my finger is pointed, there's 18 the words tax period 30, 1993, 12. 19 A. Yes, sir. 20 Q. And that's kind of interpreted, that's the -- the 12 is 21 the end of the year? 22 A. Right. 23 Q. Of 1993? 24 A. Right. 25 Q. Right? And so what the IRS does is that for everything CROSS - MARY ANN OSBORNE 297 1 that related to year 1993, people log this stuff into the 2 computer, and so you're able to print out and show what 3 happened at a particular time, right? 4 A. Yes, sir. 5 Q. Now, for -- I flipped over to page three of Government 6 Exhibit Number 1, and I think that you said that for 1993, 7 this is a printout of everything that relates to Ms. Kuglin 8 for the year 1993, is that correct? 9 A. Everything that came through the service center, yes, 10 sir. 11 Q. At least up to the date of 11-7 of 2002, right? 12 A. Yes, sir. 13 Q. Okay. And so you reached the conclusion that for 1993, 14 there was a substitute for return filed in November of '95, 15 right? 16 A. Yes, sir. 17 Q. Okay. Where my fingers are pointed? 18 A. Yes, sir. 19 Q. And so to -- you see this number 150 out to the side? 20 A. Yes, sir. 21 Q. Is that what is known as a transaction code? 22 A. That is a transaction code. 23 Q. All right. Now, let me flip over to '94, let's see, 24 page four has more information about '93, right? 25 A. Right. CROSS - MARY ANN OSBORNE 298 1 Q. Okay. And then it isn't until you get down to page 2 five that we get into '94 information, right? 3 A. That's correct. 4 Q. Okay. Where the jury is looking at my finger? 5 A. Uh-huh. 6 Q. You can see tax period, 30, and that relates to '94? 7 A. Yes, sir. 8 Q. And '94 has got -- I'm flipping to subsequent pages, 9 and all of this is in computer lingo, so to speak, right? 10 A. Well, yes, sir, in a way. 11 Q. The people inside the IRS know what these various 12 transactions mean, right? 13 A. Most of them do, yes, sir. 14 Q. But in order to understand what they really mean, is 15 there some kind of a manual that tells you what certain things 16 mean like this transaction code 140 that my finger was on just 17 a second ago? 18 A. Yes, sir. 19 Q. Is that a document 6209? 20 A. Yes, sir, it is. 21 Q. Is document 6209 something you're familiar with? 22 A. Yes, sir, it is. 23 Q. Okay. You have to be very familiar, somebody in your 24 job that has worked in the position that you have worked for 25 nine years, you pull up these computer printouts regarding a CROSS - MARY ANN OSBORNE 299 1 whole bunch of people all the time, right? 2 A. Yes, sir, I do. 3 Q. And then you have to kind of look at them and, you 4 know -- this is plainly not English, it's transactions that 5 are kind of coded in a certain way, but you know what their 6 meaning is, is that correct? 7 A. Yes, sir, I do. 8 Q. Now, I think on your direct testimony, you mentioned 9 for '94, there was a substitute for return? 10 A. Yes, sir. 11 Q. Okay. I'm on page five, what I'm showing on the Elmo 12 here, you see where my finger is, tax period 30? 13 A. Yes, sir. 14 Q. So if the jury is looking at this document, going back 15 to page five and six, all the way up to some spot, about 16 halfway down the page of page seven, that's the information 17 that relates to '94? 18 A. Yes, sir, it is. 19 Q. And you reached the conclusion about substitute for 20 return -- you see where my finger is on page five? 21 A. Yes, sir. 22 Q. Substitute for return that would relate for year '94 is 23 indicated where my finger is placed, SFR 150? 24 A. Yes, sir. 25 Q. Now, in order for you to conclude that someone has not CROSS - MARY ANN OSBORNE 300 1 filed an income tax return, what you do for like the later 2 years, what you did is you're looking for a transaction code 3 or the absence of a transaction code, is that correct? 4 A. That's correct. 5 Q. And the absence of a transaction code -- let me back 6 up. A minute ago, I mentioned something and you did too, 7 mentioned something about a document locator number? 8 A. Yes, sir. 9 Q. And if I could direct us -- I happen to be on page five 10 which relates to the year 1994, and you see this on the far 11 left-hand side where my finger is SFR, transaction code 150, 12 right? 13 A. Uh-huh. 14 Q. And then this is date of the year? 15 A. The date that it was processed. 16 Q. And that would be -- let's see, that's -- what is that 17 date, that's 1997? 18 A. 04-21-1997. 19 Q. And then out here to the side, you see where my finger 20 goes, that's a 14 digit number? 21 A. Yes, that's document locator number. 22 Q. If you wanted to find something, if you're looking for 23 a particular return or maybe some other type of document, this 24 computer printout, you know, will have that document locator 25 number over there, and with that document locator number, you CROSS - MARY ANN OSBORNE 301 1 can find any document that has been filed by the IRS, right? 2 A. I can request that document, yes, sir. 3 Q. They're not necessarily stored around here, but you 4 would know where a particular document is stored and contact 5 that party and say, hey, give me the document that has this 6 document locator number on it, right? 7 A. Yes, I have to submit my request to a person and they 8 pull the document. 9 Q. Okay. Now, but as -- all of this stuff has no real 10 significance to anybody except people in the IRS that can 11 understand what the transaction codes mean, what the document 12 locator numbers mean, it simply is not in plain English, is 13 that correct? 14 A. That's correct. 15 Q. And -- but there is a manual that kind of tells us what 16 certain things mean, is that correct? 17 A. Yes, sir. 18 Q. And how long have you studied or been using or been 19 familiar with this document 6209? 20 A. For about 25 years. 21 Q. Okay. 22 MR. MURPHY: Judge, could we approach? 23 THE COURT: You may. 24 (The following proceedings had at side-bar 25 bench.) CROSS - MARY ANN OSBORNE 302 1 THE COURT: Put one side on this side and one 2 side on this side. Come over here, Mr. Murphy, that way 3 you're talking between her. 4 MR. MURPHY: Judge, we're going to object to 5 asking questions about the code book. You know, the 6 relevance of it. 7 THE COURT: It sounds like it would be 8 irrelevant. 9 MR. BECRAFT: Well, Your Honor, the -- 10 THE COURT: Turn your mic off. 11 MR. BECRAFT: I think I got it off, Judge. 12 Your Honor, this is -- I don't want to belabor the point, 13 that's not my purpose. 14 THE COURT: Okay. If you agree with the 15 government, move on. 16 MR. BECRAFT: The government offered Exhibit 17 Number 1, and there is certain information on there that 18 this witness is going to testify that she is familiar with 19 the very manual I have got. True, the manual is not in 20 evidence, but the manual is what I use in order to 21 interpret the very document that the government has 22 offered into evidence. 23 THE COURT: It doesn't have anything to do with 24 her good faith belief. 25 MR. BECRAFT: There's a transaction code on the CROSS - MARY ANN OSBORNE 303 1 government's document that I would like to have the 2 witness explain, that's where I'm headed. One transaction 3 code or one computer entry. 4 THE COURT: Does it have anything to do with an 5 issue that is going to be decided by the court? 6 MR. BECRAFT: I think it does. 7 THE COURT: What issue is it? 8 MR. BECRAFT: I will go ahead and tell the 9 court. Can I run back here and get something? 10 THE COURT: Sure. 11 MR. BECRAFT: This will be my offer of proof if 12 the -- 13 THE COURT: Sure. 14 MR. BECRAFT: Your Honor, I have got it over 15 here. This is the manual. Mr. Bernhoft got it, I have 16 got my own manual. This is Mr. Bernhoft's copy of the 17 manual. 18 THE COURT: Does she say that she got the 19 manual, reviewed the manual? 20 MR. BECRAFT: They use the manual all the time. 21 THE COURT: Did the defendant say that she got 22 the manual and used the manual? 23 MR. BECRAFT: No, Your Honor. 24 THE COURT: All right. Then let me understand 25 how it has got anything to do with anything. CROSS - MARY ANN OSBORNE 304 1 MR. BECRAFT: Your Honor, this is what I would 2 like to point out for the benefit of the jury, in 3 reference to the interpretation of Government's Exhibit 4 Number 1 -- 5 THE COURT: What is the thing we're 6 interpreting? 7 MR. BECRAFT: And according -- where I'm 8