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 headed -- 9 THE COURT: I'm looking on my screen. What are 10 we looking for? 11 MR. BECRAFT: This is -- I had it premarked as 12 53, but the manual, there's a certain transaction on the 13 Government Exhibit Number 1, it's called a mail filing 14 requirement, it is present on that document, it is mail 15 filing requirement 01, and I think it is beneficial for 16 the jury to have the witness say there is a code on 17 Government Exhibit Number 1 that ultimately construed, 18 according to the manual, says return not required to be 19 mailed to file. That's the point I'm trying to make with 20 this examination. 21 MR. MURPHY: Well, Judge, here is the thing. 22 This came up when we were getting ready for it, what that 23 has to do with is the -- you know, they mail returns out 24 to everybody. 25 THE COURT: Right. CROSS - MARY ANN OSBORNE 305 1 MR. MURPHY: That has to do with the mailing of 2 returns. But I mean I think what she is going to say is 3 that that is a misinterpretation, that the return doesn't 4 have to be filed. 5 THE COURT: The main thing is for me to 6 understand is where do you say that -- the IRS has some 7 document, something that she relied on, she can tell us 8 about it, but this doesn't sound like this is what it is. 9 It sounds like this is an internal -- 10 MR. BECRAFT: I have been down this road a 11 number of times, Your Honor. This is an official document 12 of the government. 6209 interprets all that computer 13 stuff. 14 THE COURT: Sure. 15 MR. BECRAFT: There is a code on Government 16 Exhibit Number 1, and as I lead through, Your Honor I can 17 show the court, if the court wants me to run over there 18 and get it off the Elmo, I will show you where it is. 19 THE COURT: Sure, that's fine. 20 MR. BECRAFT: That symbol, page number one, MFR 21 01, it's called mail filing requirement of the manual, and 22 these are the transactions for mail filing requirement. 23 THE COURT: Uh-huh. 24 MR. BECRAFT: And that symbol right there 25 construed, according to the manual, it says -- and I think CROSS - MARY ANN OSBORNE 306 1 this is -- this goes to the impeachment of -- well, 2 construction of the document. 3 MR. MURPHY: Well, but, Judge, unless the 4 defendant relied on it, it's not relevant. And this 5 witness didn't offer an opinion that this defendant had to 6 file a tax return. 7 THE COURT: I mean we have got -- let's see 8 what the codes are on here. It has got a bunch of codes 9 on here. I mean unless she had something that she relied 10 on, it wouldn't matter what is in an internal document -- 11 this is an internal document? 12 MR. BECRAFT: Yes, Your Honor. 13 THE COURT: It is a computer printout. It's 14 their road map. 15 MR. BECRAFT: Right. 16 THE COURT: Well, I mean if she had gotten the 17 notice that said 01, not required to file a return, then 18 that's one thing, but that's not -- this isn't it, this is 19 just part of the certificate of official record, and it 20 then has a series of codes on it, a lot of other 21 information. I think Mr. Murphy is right, I don't see how 22 it's going to go anywhere, that is lead to anything that 23 is relevant to any issue in this case to ask this witness 24 about this code. Mr. Murphy, why -- what harm does it do? 25 MR. MURPHY: Well, Judge, I think it creates CROSS - MARY ANN OSBORNE 307 1 confusion, and the gist of his defense is, I relied, you 2 know, I -- if it's a good faith defense, there is nothing 3 that shows that she relied upon this. And I think it is 4 going to confuse everything. 5 THE COURT: I think it is conceded that she 6 didn't have this document, that's what I understood to be 7 said. 8 MR. BECRAFT: Yes. 9 THE COURT: And that she didn't utilize this 10 document in making -- in forming her beliefs, and, 11 therefore, it really is not probative on the issue before 12 the jury. 13 MR. BECRAFT: Okay, Your Honor. 14 THE COURT: So I'm going to sustain Mr. 15 Murphy's objection. 16 MR. BECRAFT: Your Honor, can I also offer, 17 being mindful that I have stuck exhibit stickers on this, 18 can I move this labeled Defendant's Exhibit 53, which 19 is -- put it in the ID category? 20 THE COURT: I mean this hasn't been presented 21 through anybody I could receive it through anyway, could 22 I? 23 MR. BECRAFT: No, this is my offer of proof, 24 where I was ultimately headed. This is a document that 25 construes -- CROSS - MARY ANN OSBORNE 308 1 THE COURT: Where is this from? 2 MR. BECRAFT: That's from their manual. My 3 offer of proof would be that I would get her to 4 authenticate the manual, authenticate that this is a page 5 from that manual, page 8-77. 6 THE COURT: Okay. 7 MR. BECRAFT: You know, this is just an exhibit 8 that I would tender in support of this line of questioning 9 elicited from this witness. 10 THE COURT: That's no problem. If you want to 11 make it A or Exhibit A in the case. 12 MR. BECRAFT: Okay. 13 THE COURT: This is not an exhibit received, it 14 is just marked for identification. 15 MR. BECRAFT: Yes, Your Honor. 16 THE COURT: This is marked as Exhibit A for 17 identification. 18 MR. BECRAFT: Thank you, Judge. 19 (Exhibit Number A was marked. Description: 20 Document 6209.) 21 (The following proceedings were had in open 22 court.) 23 Q. Now, Ms. Osborne, I'm going to -- do you have the copy 24 in front of you? 25 A. Yes, sir. CROSS - MARY ANN OSBORNE 309 1 Q. I'm going to -- you made some statements about -- page 2 number four relates to the year 1993, is that correct? Let me 3 show you -- can you see page number four up there on the 4 screen? 5 A. Yes, sir. 6 Q. I'm going to look toward the bottom of page number 7 four, do you see that on the screen? 8 A. Yes, sir. 9 Q. You see these things, MF stat notices? 10 A. Yes, sir. 11 Q. That's what you call them, right? 12 A. Yes, sir. 13 Q. Now, you said during the course of your direct 14 testimony that for '93 and '94 and maybe '95, you correct me 15 if I'm wrong, that there were taxes withheld for Ms. Kuglin? 16 A. Yes, sir. 17 Q. And that at some stage there was an SFR or substitute 18 for return that the IRS prepared for Ms. Kuglin, correct? 19 A. Correct. 20 Q. And ultimately there was a conclusion made by the IRS 21 that additional monies were due and owing, right? 22 A. Yes, sir. 23 Q. And, in essence, the government then levied upon the 24 money that was withheld from her paycheck for '93, '94, '95, 25 is that correct? CROSS - MARY ANN OSBORNE 310 1 A. I have no idea about that. 2 Q. Okay. Are you familiar with the process that, you 3 know, in a situation like this, that the government has to 4 send out what is known as a ticket to tax court, a 90-day 5 letter? 6 A. Yes, sir, I'm familiar with a 90-day letter. 7 Q. Does have it a certain particular transaction code? 8 A. The TC 300 usually has a 90-day letter that is a 9 associated with it. 10 Q. Okay. Do you see anything that in reference to the 11 year 1993 -- and I'm looking at page three and moving over to 12 page four, those transaction codes, is there anything there 13 that would indicate to you that this procedure of sending out 14 a notice of deficiency was a procedure that was done? 15 A. The 90-day letter? 16 Q. Yeah. 17 A. I couldn't tell on this specific tax period. 18 Q. Well, isn't it customary or routine, at least, if the 19 government sent out a 90-day letter to someone to say that you 20 owed additional taxes, that type of transaction would show up 21 on this document, Government Exhibit 1? 22 A. I couldn't say. 23 Q. Okay. Well, do you see -- flipping over to '94, and 24 I'm on page five, and I'm going to flip over to page six, 25 where my fingers are, I'm going down the left side of the CROSS - MARY ANN OSBORNE 311 1 page, those are transaction codes, right? 2 A. Yes, sir. 3 Q. Now, do you see anything there that would indicate that 4 a 90-day letter had been sent to Ms. Kuglin? 5 A. Not on this specific document. 6 Q. Okay. How about -- let me flip over to my next -- I 7 moved over to page seven, is there anything on there that 8 would tell you that a 90-day letter had been sent to Ms. 9 Kuglin? 10 A. Under the stat notices, no, sir. 11 Q. All right. Do you have any -- other than you reading 12 from this document, you can't tell us whether or not the 13 IRS -- you know, you said during your direct testimony, you 14 know, a notice was sent on such and such a date. Your 15 testimony in that respect arises just from you doing something 16 like looking at this government exhibit, and, for example, on 17 page number ten, looking at the stat notices down there at the 18 bottom of the page, right? 19 A. Yes, sir. 20 Q. And that's the way you reach certain conclusions? 21 A. Most cases. 22 Q. And just because something appears there, you say, 23 well, I guess a notice was sent? 24 A. Notices have specific numbers, and those specific 25 numbers will indicate which notice or what type of notice is CROSS - MARY ANN OSBORNE 312 1 sent to the taxpayer. 2 Q. You don't know whether a document -- other than seeing 3 an entry that is recorded here, you have no personal knowledge 4 that actual notices were actually sent to Ms. Kuglin, is that 5 correct? 6 A. No, sir, I don't know. 7 Q. And you have no actual knowledge that even 90-day 8 letters were sent to Ms. Kuglin at least for '93, '94, '95? 9 A. Other than the fact that I know what is supposed to go 10 out when a transaction code 300 is assessed, no, sir, I do 11 not. 12 MR. BECRAFT: Nothing further, Your Honor. 13 THE COURT: Redirect? 14 MR. MURPHY: If I could see some exhibits, Your 15 Honor. 16 REDIRECT EXAMINATION 17 BY MR. MURPHY: 18 Q. Ms. Osborne, I'm going to pass to you what has been 19 marked as Exhibit 9 in this case, and would you take a look at 20 that? 21 A. Yes, sir. 22 Q. Okay. What is Exhibit 9? 23 A. This is the certificate of assessments, payments and 24 other specified matters for the year 1992. 25 Q. Does that contain some of the information that's in REDIRECT - MARY ANN OSBORNE 313 1 Exhibit 1 without computer codes? 2 A. No, sir, it does not, '92 was not included on this. 3 Q. Okay. I'm sorry. I'm sorry. Let me ask this: I've 4 gone back too far. I'm showing you what has been marked 5 Exhibit 10. Now, what is that? 6 A. This is a certificate of assessments, payments and 7 other specified matters for the Form 1040 for 1993. 8 Q. Okay. Let's put it up on the screen. Now, does this 9 contain some of the information that's -- that's in Exhibit 1? 10 A. Yes, sir, it does. 11 Q. Okay. And is this that information without the codes? 12 A. Yes, sir, it is. 13 Q. Okay. And, in fact -- well, does Exhibit 10 indicate 14 that delinquency notices were sent? 15 A. Yes, sir, it does. 16 Q. Okay. I'm showing you what's been marked as Exhibit 11 17 in this case. What is that, ma'am? 18 A. This is a certificate of assessments, payments and 19 other specified matters for Form 1040 for the year 1994 20 Q. Okay. Now, I'm going to put this document up on the 21 camera. Now, does this particular document also contain 22 information that was in Exhibit 1, for lack of a better word, 23 in the uncoded form? 24 A. Yes, it does. 25 Q. Okay. And does that indicate notices -- well, I'm REDIRECT - MARY ANN OSBORNE 314 1 going to turn to page two. Does that indicate notices were 2 sent to Ms. Kuglin? 3 A. Yes, sir, it does. 4 Q. Okay. And I'm going to show what you has been marked 5 as Exhibit 12 in this case. Again, what is Exhibit 12? 6 A. It is a certificate of assessments, payments and other 7 specified matters for Form 1040 for the tax year 1995. 8 Q. Okay. Thank you. 9 Now, does this also contain information that is in the 10 uncoded form? 11 A. Yes, sir, it does. 12 Q. And does that particular document indicate that a 13 statutory notice of intent to levy was issued on March the 9th 14 of 1998? 15 A. Yes, sir, it does. 16 Q. Okay. So the -- the certificates of assessments, 17 payments and other specified matters for 1040, those contain 18 uncoded language? 19 A. Yes, sir, it spells it out in plain English. 20 MR. MURPHY: Okay. One second, Your Honor. 21 Judge, I don't have any further questions. 22 THE COURT: All right. Thanks very much. We 23 will let you step down. 24 (Witness excused.) 25 THE COURT: Who is our next witness going to 315 1 be? 2 MR. MURPHY: Your Honor, it is going to be Kim 3 Gillum from Federal Express. 4 THE COURT: If you would stop there at the 5 podium and raise your right hand. Do you swear that the 6 testimony you are about to give in this case will be the 7 truth, the whole truth and nothing but the truth, so help 8 you God? 9 THE WITNESS: Yes. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DIRECT - KIMBERLY GILLUM 316 1 KIMBERLY GILLUM, 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. Kimberly Gillum. 9 Q. And would you spell your first and last name for the 10 court reporter? 11 A. K-I-M-B-E-R-L-Y G-I-L-L-U-M. 12 Q. Who do you work for, ma'am? 13 A. FedEx. 14 Q. And what is your position with FedEx? 15 A. Paralegal records custodian. 16 Q. They call them at FedEx these days, it's still Federal 17 Express? 18 A. It is still Federal Express. 19 Q. And is -- as part of your duties as custodian, are you 20 involved with the records at FedEx? 21 A. Yes. 22 Q. Okay. I'm going to hand to you a document and ask you 23 to tell us what that document is, please. 24 A. This is Vernice Kuglin's employment application. 25 Q. And does it -- DIRECT - KIMBERLY GILLUM 317 1 MR. BECRAFT: No objections, Your Honor. 2 THE COURT: All right. 3 Q. Is that an employment application for FedEx? 4 A. Yes, it is. 5 Q. And what's the date it was issued or signed? 6 A. June 17, 1985. 7 Q. Okay. And what position was Ms. Kuglin applying for? 8 A. Pilot. 9 MR. MURPHY: Your Honor, at this time, we would 10 move that into evidence as the next numbered exhibit. 11 THE COURT: Exhibit 13. 12 (Exhibit Number 13 was marked. Description: 13 Application.) 14 MR. MURPHY: And I don't have any further 15 questions, Your Honor. 16 MR. BECRAFT: No questions, either, Your Honor. 17 THE COURT: Ms. Gillum, thank you. We will let 18 you step down. 19 (Witness excused.) 20 MR. MURPHY: Your Honor, the next witness is 21 Elizabeth Edwards. 22 THE COURT: All right. 23 THE CLERK: Will you please raise your right 24 hand? Do you swear the testimony you are about to give 25 the court and the jury to be the truth, the whole truth 318 1 and nothing but the truth, so help you God? 2 THE WITNESS: I do. 3 THE CLERK: You may take the witness chair. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DIRECT - ELIZABETH EDWARDS 319 1 ELIZABETH EDWARDS, 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. Elizabeth Edwards. 9 Q. And how do you spell your first and last name? 10 A. E-L-I-Z-A-B-E-T-H E-D-W-A-R-D-S. 11 Q. Who do you work for? 12 A. Federal Express Corporation. 13 Q. What do you do at Federal Express? 14 A. I'm manager of payroll taxes and garnishments. 15 Q. Okay. And are you involved with income tax withholding 16 on FedEx employees and maintenance of the W-4s, that sort of 17 thing? 18 A. Yes, sir. 19 Q. Now, do you know a lady that works for FedEx named Ms. 20 Vernice Kuglin? 21 A. Yes, sir. 22 Q. Do you see Ms. Kuglin in the courtroom today? 23 A. Yes, sir. 24 Q. And can you describe for us where she is seated and 25 what she is wearing, please? DIRECT - ELIZABETH EDWARDS 320 1 A. She is at the desk on my right side, has on an orange 2 jacket. 3 MR. BECRAFT: Stipulate she is sitting next to 4 me, Your Honor. 5 THE COURT: Well, that's not the question. So 6 you want to finish the question? 7 Q. Ma'am, does FedEx keep records of the amount of wages 8 they pay people that work out there and the amount of taxes 9 withheld and that sort of thing? 10 A. Yes, sir. 11 MR. MURPHY: Your Honor, if I may approach. 12 Judge, if you want -- I don't think there's going to be 13 any objection to these, I can put these on the screen and 14 she can look at them on the screen. 15 THE COURT: Without objection, they can be 16 displayed. 17 MR. BECRAFT: Let me just look real quick, Your 18 Honor. No objections, Your Honor. 19 THE COURT: All right. We can mark them 20 sequentially, 13, 14 -- how many are there? 21 MR. BECRAFT: I don't know, could we staple it 22 altogether and put one exhibit sticker on it? 23 THE COURT: It is really up to Mr. Murphy. 24 MR. MURPHY: Judge, I don't have an objection 25 to that. This is all W-2s I'm going to deal with now. We DIRECT - ELIZABETH EDWARDS 321 1 could make it collective. Collective Exhibit 14. 2 (Exhibit Number 14 was marked. Description: 3 W-2s.) 4 Q. Okay. Ms. Edwards, if you look at the screen up there, 5 I'm going to try and zoom in on this. Do you recognize that 6 document? 7 A. Yes, sir. 8 Q. And what is that document? 9 A. It's a facsimile of a W-2 for the employees. 10 Q. And is -- did you -- these documents I have got, you 11 gathered a bunch of these up for us? 12 A. Yes, sir. 13 Q. And these came from FedEx records? 14 A. Yes, sir. 15 Q. Now, is that your handwriting at the bottom of the 16 date? 17 A. Yes, it is. 18 Q. And is that a document for Ms. Kuglin? 19 A. Yes, it is. 20 Q. Okay. How much in wages were reported? 21 A. $113,293.25. 22 Q. Okay. And how much federal tax was withheld? 23 A. $22,227.65. 24 Q. Is that that figure right next to fed tax? 25 A. Yes, it is. DIRECT - ELIZABETH EDWARDS 322 1 Q. Okay. And, again, what year was that for? 2 A. 1992. 3 Q. Now, I'm showing you another document, do you recognize 4 that document? 5 A. Yes, I do. 6 Q. And what is that document? 7 A. It's a facsimile of the 1993 W-2. 8 Q. And who is it for? 9 A. Vernice Kuglin. 10 Q. And what amount of -- what was her pay? 11 A. Her wages, federal wages? 12 Q. Her wages. 13 A. $107,386.87. 14 Q. And does that particular document show the amount of 15 federal tax withheld? 16 A. $20,847.53. 17 Q. Okay. Is that that figure with federal tax next to it? 18 A. Yes, it is. 19 Q. Okay. I'm showing you another document, can you tell 20 us what that document is? 21 A. It's a facsimile of the W-2 for 1994. 22 Q. Who was that for? 23 A. Vernice Kuglin. 24 Q. Okay. And what were the amount of -- Ms. Kuglin's 25 wages in that year? DIRECT - ELIZABETH EDWARDS 323 1 A. $118.815. 2 Q. And how much federal income tax was held? 3 A. $24,311.24. 4 Q. And is that that figure with the word fed tax written 5 next to it? 6 A. Yes, it is. 7 Q. I'm showing you another document, can you tell me what 8 that document is? 9 A. It's a facsimile of the 1995 W-2. 10 Q. And is that for a particular FedEx employee? 11 A. For Vernice Kuglin. 12 Q. And how much did Ms. Kuglin make that year? 13 A. $112,112.85. 14 Q. And that would be that figure right there? 15 A. Yes, sir. 16 Q. And does it show how much federal tax was withheld from 17 her paycheck? 18 A. $22,218.73. 19 Q. Okay. Ma'am, I'm showing you another document, can you 20 tell me what that document is? 21 A. It's 1996 facsimile of the W-2 for Vernice Kuglin. 22 Q. And what was the amount of wages paid to Ms. Kuglin? 23 A. $183,408.01. 24 Q. And what was the amount of federal tax withheld? 25 A. There was no federal tax withheld. DIRECT - ELIZABETH EDWARDS 324 1 Q. What year was that for then? 2 A. 1996. 3 Q. I have got another document that is up there on the 4 screen. Can you see it okay? 5 A. Yes. 6 Q. Okay. What is that document? 7 A. It's a facsimile of the W-2 for the year 1997. 8 Q. And what amount of wages does that document show? 9 A. $172,674.37. 10 Q. And how much federal income tax was withheld? 11 A. There was zero federal tax. 12 Q. I'm going to show you another document. What is that 13 document? 14 A. It's a W-2 for Vernice Kuglin. 15 Q. Okay. And what year is it for? 16 A. 1998. 17 Q. Okay. And what was the amount of wages? 18 A. $164,196. 19 Q. And was any tax withheld? 20 A. No federal income tax. 21 Q. Okay. I'm going to show you another document that's 22 part of this collective exhibit. What is that document? 23 A. It's a W-2 for 1999 for Ms. Vernice Kuglin. 24 Q. And what was the amount of wages she was paid that 25 year? DIRECT - ELIZABETH EDWARDS 325 1 A. You're going to have to bring that a little closer. 2 Q. I have the same problem. 3 A. 1724 -- $172,428. 4 Q. And how much federal income taxes withheld? 5 A. There was no federal incomes withheld. 6 Q. The next document I'm showing you, what is that? 7 A. It's a W-2 for Ms. Vernice Kuglin from the year 2000. 8 Q. Okay. And what was the amount of her wages that year? 9 A. $191,292.99. 10 Q. And was any federal tax withheld? 11 A. No, there was no federal tax withheld. 12 Q. Okay. What's the document that's up there now? 13 A. It's a copy of the W-2 from the year 2000 for Vernice 14 Kuglin. 15 Q. Okay. And what was the amount of wages for Ms. Kuglin 16 that year? 17 A. $190,673.37. 18 Q. And was any federal tax withheld? 19 A. There was no federal income tax withheld. 20 Q. Okay. Thank you. 21 MR. MURPHY: Judge, we have got a group of Form 22 W-4s, if we could make that collective exhibit. 23 THE COURT: Certainly. 15. 24 (Exhibit Number 15 was marked. Description: 25 W-4s.) DIRECT - ELIZABETH EDWARDS 326 1 Q. Ma'am, can you tell us what a Form W-4 is for? 2 A. W-4 provides the employer the information from the 3 employee, their social security number, name, address, number 4 of withholdings for income tax purposes, federal income tax 5 purposes. 6 Q. I'm going to pass you what has been marked Collective 7 Exhibit 15. Can you tell me what that is? 8 A. This is a Form W-4 from 1988 for Vernice B. Kuglin. 9 Q. If you would go through all the other documents in 10 there. 11 A. 1990 Form W-4 for Vernice Kuglin, 1997 W-4 for Ms. 12 Vernice Kuglin, 1998 W-4 for Vernice Kuglin, 1999 W-4 for Ms. 13 Kuglin and a 2000 W-4 for Ms. Vernice Kuglin and 2001 for Ms. 14 Vernice Kuglin W-4. 15 Q. Okay. And these were records that came from FedEx? 16 A. Yes, sir. 17 MR. MURPHY: Your Honor, we would ask this be 18 admitted into evidence as Exhibit 15. 19 MR. BECRAFT: No objection, Your Honor. 20 THE COURT: It's received. 21 Q. If you would, ma'am, in 1988, how many withholding 22 exceptions did Ms. Kuglin claim? 23 A. Six. 24 Q. Would you go to the next form, and in 1990, how many 25 did she claim? DIRECT - ELIZABETH EDWARDS 327 1 A. Ten. 2 Q. What's the next W-4 form? 3 A. 1997. 4 Q. Okay. And in 1997, what did Ms. Kuglin claim as her 5 status regarding income tax withholdings? 6 A. Exempt. 7 Q. Okay. And if I can -- keep going through that, what is 8 the next year? 9 A. 1998 was exempt. 1999 is exempt. 2000 is exempt. 10 2001 is exempt. 11 Q. Okay. Now, I have got another document that I would 12 like to show you. Ma'am, I'm going to show you another 13 document, can you tell me what that document is? 14 A. It's a screen print of our banking screen in our FedEx 15 system, personnel system. 16 Q. And is that for any particular person at Federal 17 Express? 18 A. It's for Vernice B. Kuglin. 19 Q. Okay. And what does that document authorize or direct 20 y'all to do? 21 A. It's a direct deposit request to have all her wages or 22 anything that she is paid from Federal Express direct 23 deposited. 24 Q. Where were they to be direct deposited? 25 A. To the Federal Express Credit Association. DIRECT - ELIZABETH EDWARDS 328 1 Q. And to a particular account? 2 A. Yes. 3 Q. What's the account number? 4 A. 48512-076, and it goes to the bank ID number is 5 284084350. 6 Q. Okay. Thank you. Judge, at this time -- let me ask 7 you this something, before we move this into evidence. Is 8 this the kind of thing that would -- that would take place 9 because an employee directs it? 10 A. Yes. 11 Q. Okay. 12 A. The employee is the only one who can make that change. 13 MR. MURPHY: Judge, if we could have this 14 marked as the next exhibit. 15 MR. BECRAFT: No objection, Your Honor. 16 THE COURT: 16. 17 (Exhibit Number 16 was marked. Description: 18 FedEx Direct Deposit Entry.) 19 Q. Now, do you recall an incident where Ms. Kuglin turned 20 in a W-4, but didn't sign it? 21 A. Yes, sir. 22 Q. Okay. Do you recall about when that happened? 23 A. It was in 2000. Probably -- well, we send out 24 notification letters in December to anyone who is filing -- 25 who has had exempt status in the year, and we request them to DIRECT - ELIZABETH EDWARDS 329 1 be returned to us by February the 15th, so it would have been 2 somewhere around -- from February 15th to the end of February. 3 Q. Okay. Would this be for tax year 2000? 4 A. 2001. 5 Q. 2001, okay. Now, did Ms. Kuglin bring in a form that 6 wasn't signed or how did this -- the situation arise? 7 A. I believe she sent the form in and it was not signed. 8 Q. Okay. And do the forms have to be signed? 9 A. Yes, they do. 10 Q. And did you talk with her about it? 11 A. She did call me, yes. 12 Q. What did she say about the form? 13 A. She wanted to know why I didn't accept it, and I told 14 her because it wasn't signed and told her that she would have 15 to bring me a W-4 or get a W-4 that is signed in order for me 16 to honor it. 17 Q. Did she add anything else, say anything about 18 withholding? 19 A. Not on the phone call itself, I don't think. At the 20 meeting, when she brought me the W-4, she did. 21 Q. Okay. What did she say? 22 A. She was very upset because we had held income tax out 23 of her paycheck, and she filled out the form, signed it and 24 said I want you to make sure you refund me my taxes, which we 25 did. DIRECT - ELIZABETH EDWARDS 330 1 Q. Did she say anything else? 2 A. No. 3 MR. MURPHY: One second, Judge, if I can look 4 at my notes, I may be done. 5 THE COURT: Certainly. 6 MR. MURPHY: Judge, I don't have any further 7 questions. 8 MR. BECRAFT: Briefly, Your Honor. 9 CROSS EXAMINATION 10 BY MR. BECRAFT: 11 Q. Ms. Edwards, you have been the head of the payroll at 12 FedEx for some period of time, is that correct? 13 A. Yes, sir. 14 Q. Would it be just the last couple of years? 15 A. Yes, last two years. 16 Q. Isn't it true that as custodian of the records for the 17 FedEx business records that relate to withholding, you have 18 access to all of the employees W-4 forms going back as far as 19 you keep records, is that correct? 20 A. What's legally required, yes. 21 MR. BECRAFT: May I approach the witness, Your 22 Honor? 23 THE COURT: You may. 24 Q. I'm going to show you a document, a Form W-4 dated 1995 25 and ask you if you can identify that for me, please. CROSS - ELIZABETH EDWARDS 331 1 A. It is a W-4 for Ms. Vernice Kuglin. 2 Q. Now, when you came to court, what the government has 3 asked you to do is to bring to court the forms W-4 that 4 would -- that are after that date, is that correct? 5 A. Yes. 6 Q. All right. And the one that you have in front of you 7 is an exempt W-4 form dated December the 30th of '95, right? 8 A. Yes, sir. 9 Q. Do you know whether or not that is the actual Form W-4 10 that Vernice Kuglin submitted to FedEx in December of '95? 11 A. No, sir, I do not. 12 Q. Have you ever seen that before? 13 A. I have seen it, yes. 14 Q. Do you doubt that that is the exempt W-4 form that 15 Vernice Kuglin submitted to FedEx? 16 A. No, sir, I don't doubt it. 17 MR. BECRAFT: Your Honor, I move the admission 18 of that as the next exhibit. 19 MR. MURPHY: No objection, Your Honor. 20 THE COURT: 17. 21 (Exhibit Number 17 was marked. Description: 22 1995 Form W-4.) 23 THE COURT: Anything else from the government? 24 MR. MURPHY: Yes, sir, Your Honor, just one 25 question. REDIRECT - ELIZABETH EDWARDS 332 1 REDIRECT EXAMINATION 2 BY MR. MURPHY: 3 Q. Ms. Edwards, do you know if there were any problems 4 locating a W-4 for like '96? 5 A. I don't know that there is a problem. Everything right 6 now is in vital records for that period of time, it's in 7 storage. 8 Q. Okay. I'm going to show you something, see if that may 9 refresh your recollection. I'm showing you what has been 10 marked Exhibit 15. 11 A. Right, right. This particular W-4 that's marked 19 -- 12 has 1996 marked through it and 1997 written beside it, there's 13 a note at the bottom that says 1996 is no longer available, 14 it's signed by Kim Gillum. 15 MR. MURPHY: Judge, I don't have any further 16 questions. 17 THE COURT: All right. Ms. Edwards, thank you, 18 we will let you step down. 19 (Witness excused.) 20 THE COURT: Who will our next witness be? 21 MR. MURPHY: Judge, our next witness is going 22 to be Karlene Nuby. 23 THE COURT: If you would step to the podium, 24 please, and raise your right hand. Do you swear that the 25 testimony you are about to give in this case will be the 333 1 truth, the whole truth and nothing but the truth, so help 2 you God? 3 THE WITNESS: I do. 4 THE COURT: You may have a seat up here, 5 please. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DIRECT - KARLENE NUBY 334 1 KARLENE NUBY, 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. Karlene Nuby. 9 Q. And would you spell your first and last name for the 10 court? 11 A. Sure. K-A-R-L-E-N-E. Last name is N-U-B, as in boy, 12 Y. 13 Q. And who do you work for, Ms. Nuby? 14 A. Kemper Services. 15 Q. What business is Kemper Services in? 16 A. Disability insurance. 17 Q. Is Kemper Insurance involved in a program with FedEx? 18 A. Yes, we are. 19 Q. Okay. And what -- briefly tell us the nature of that 20 program. 21 A. Basically, our responsibility to Kemper is to provide 22 short-term and long-term disability for FedEx employees. 23 Q. Okay. I'm going to hand you a document. Can you look 24 at that document and tell me what it is? 25 A. It's a 1998 W-2 that was issued to Vernice Kuglin. DIRECT - KARLENE NUBY 335 1 Q. Okay. And could you spell the first and last name? 2 A. Sure. First name is V, as in Victor, E-R-N-I-C-E -- 3 Q. And what's the social security number? 4 A. 514-44-1724. 5 Q. Okay. Now, what does that particular document 6 indicate? 7 A. Basically, this document indicates that we at Kemper 8 Services paid to Ms. Kuglin wages in the gross amount of 9 $4,789.37. It indicates the amount of taxes that were 10 withheld for federal, social and Medicare. 11 Q. What amount of taxes was withheld? 12 A. Federal income tax that was withheld was $1,341.03, 13 social security tax withheld was $296.94. Medicare tax 14 withheld was $69.45. 15 Q. And what was the amount of the wages? 16 A. The wage amount was $4,789.37. 17 MR. MURPHY: Thank you. Your Honor, at this 18 time we would move this into evidence as the next numbered 19 exhibit. 20 MR. BECRAFT: No objection, Your Honor. 21 THE COURT: Exhibit 18. 22 (Exhibit Number 18 was marked. Description: 23 W-2 Form.) 24 MR. MURPHY: Judge, if I could check my notes, 25 sir. DIRECT - KARLENE NUBY 336 1 THE COURT: Certainly. 2 MR. MURPHY: No further questions, Your Honor. 3 MR. BECRAFT: Briefly, Your Honor. 4 THE COURT: Certainly. I'll do it from here. 5 CROSS EXAMINATION 6 BY MR. BECRAFT: 7 Q. Ms. Nuby, you don't know Vernice Kuglin, do you? 8 A. No, I do not. 9 Q. You just work for the insurance company that paid 10 disability, is that correct? 11 A. Correct. 12 Q. Do you have any idea when the disability was paid or 13 what it was for? 14 A. I do not know the -- it was paid for short-term 15 disability. The dates that it was paid for, I don't want to 16 take a guess at it, I believe it was some point in August of 17 '98 for approximately 14 days. 18 Q. Okay. So the $4,800 that was paid is for payments of 19 disability in August of '98? 20 A. Correct. 21 Q. For about some 14 days? 22 A. Correct. 23 Q. That's your recollection? 24 A. Yes, it is, sir. 25 Q. And, you know, if I got the document that is no longer CROSS - KARLENE NUBY 337 1 in front of you, looked at it, what you just said is probably 2 gleaned from the document? 3 A. I'm sorry? 4 Q. I'm sorry. Is that what that document says? 5 A. That -- 6 Q. Let me get it for you and let me approach the witness, 7 Your Honor. 8 A. Sure. 9 Q. This Exhibit Number 18 relates to what you just told 10 us? 11 A. Correct, sir. 12 Q. The $4,800 was paid for two weeks of disability? 13 A. Correct. 14 Q. In August? 15 A. Of '98. 16 MR. BECRAFT: Nothing further, Your Honor. 17 THE COURT: Redirect? 18 MR. MURPHY: Judge, I don't have any further 19 questions for this witness. 20 THE COURT: All right. Thank you. We will let 21 you step down. 22 (Witness excused.) 23 THE COURT: Who will our next witness be? 24 MR. MURPHY: It's going to be Dan Haughton, 25 Your Honor. 338 1 Your Honor, how late are we going to be going 2 today? 3 THE COURT: We're going to stop at 12:25, 4 12:30. We're going to take a one hour lunch break. 5 Tuesdays, Thursdays, we take a little shorter lunch break, 6 so we will take a shorter lunch break. 7 THE CLERK: Will you please raise your right 8 hand? Do you solemnly swear the testimony you are about 9 to give the court and the jury to be the truth, the whole 10 truth and nothing but the truth, so help you God? 11 THE WITNESS: I do. 12 THE CLERK: You may take the witness chair. 13 14 15 16 17 18 19 20 21 22 23 24 25 DIRECT - DANIEL JOSEPH HAUGHTON 339 1 DANIEL JOSEPH HAUGHTON, 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? 8 A. Daniel Joseph Haughton. 9 Q. Would you spell your first, middle and last name for 10 the court reporter? 11 A. D-A-N-I-E-L J-O-S-E-P-H, Haughton is H-A-U-G-H-T-O-N. 12 Q. And who do you work for, sir? 13 A. Starwood Vacation Ownership, Incorporated. 14 Q. And what business is Starwood Vacation Ownership is? 15 A. Starwood markets and develops and sells and manages 16 vacation ownerships or time share resorts all over the U. S. 17 Q. And how long have you worked for the company? 18 A. It will be five years in October. 19 Q. Okay. And are you familiar with the records that the 20 company keeps? 21 A. Yes, I am. 22 Q. Did you bring some record with you today that has to do 23 with a Vernice Kuglin? 24 A. Yes, I did. 25 Q. And specifically was there a record that had to do with DIRECT - DANIEL JOSEPH HAUGHTON 340 1 mortgage interest paid? 2 A. Yes, sir. 3 Q. Could you -- was it in summary form? 4 A. Yes. 5 Q. Would you get that out, because I need -- 6 A. Actually, I have -- there's a computer printout from 7 our computer system that's called a transaction history 8 report. 9 Q. Okay. 10 A. And from that report, I summarized interest payments 11 over the course of the loan. 12 Q. If you could get your summary out. 13 A. Okay. 14 Q. Thank you, sir. 15 MR. BECRAFT: No objections, Your Honor. 16 THE COURT: All right. 17 Q. Sir, I'm handing you this document, and if you would 18 explain to us what that document is. 19 A. It simply summarizes the interest paid on a -- there 20 are actually two accounts that were in the name of Vernie B. 21 Kuglin, and it summarizes the interest paid on each account 22 during the years that the accounts were open, the first 23 account was '92, '93, '94, '95 and '96, and the second was '91 24 '92, '93, '94, 95. 25 Q. Would that be mortgage interest? DIRECT - DANIEL JOSEPH HAUGHTON 341 1 A. Yes, sir, mortgage interest. 2 Q. And for 1996, what was the amount of mortgage interest 3 paid by Ms. Kuglin to your -- Ms. Kuglin to your firm? 4 A. In 1996, the amount paid was $1,047.79. 5 MR. MURPHY: Judge, if we could have this 6 marked as the next numbered exhibit. 7 THE COURT: Exhibit 19. 8 (Exhibit Number 19 was marked. Description: 9 Mortgage Interest Summary.) 10 THE COURT: Cross examination? 11 MR. BECRAFT: Yes, Your Honor. 12 CROSS EXAMINATION 13 BY MR. BECRAFT: 14 Q. Mr. Haughton, briefly, where are these time shares 15 located? 16 A. We have resorts in Orlando, Florida, St. Augustine, 17 Florida, South Carolina, Beaver Creek, Colorado, Mission 18 Hills, California and Maui, Hawaii. 19 Q. All right. Do you have any idea as to when Ms. Kuglin 20 bought a time share from your company? 21 A. Yes, I do. 22 Q. Okay. When was it? 23 A. Let's see, on this particular account, the purchase 24 date is recorded as October the 31st, 1991, and on the 25 previous account, it was October the 2nd, 1990. CROSS - DANIEL JOSEPH HAUGHTON 342 1 Q. Okay. So this time share, would it be in a condo 2 somewhere in the Orlando community? 3 A. Yes, sir. 4 Q. Okay. And so in October of '90 is the first time that 5 she entered into an agreement with your company to have a time 6 share condo down there in Orlando? 7 A. That's correct. 8 Q. And did she have, say, like about a week's worth of 9 time? 10 A. That's typically the way they're sold, yes. 11 Q. The first -- the October of '90? 12 A. Yes, sir. 13 Q. And then a couple of years later, she entered into an 14 agreement to get basically another week? 15 A. Yes, sir. 16 Q. Of time share of your condo in Orlando? 17 A. Yes, sir. 18 Q. Is there a market -- if somebody wants to get out of 19 these, is there a market where they can sell their interest to 20 someone else? 21 A. There's a market, but it is entirely saturated with 22 people trying to sell. 23 Q. Okay. And in the -- the relationship between your 24 company and Ms. Kuglin ended, I take it, sometime in '97? 25 A. The account was paid off, I believe -- yeah, the CROSS - DANIEL JOSEPH HAUGHTON 343 1 account was paid in full, but that doesn't necessarily end the 2 relationship because -- 3 Q. Okay. 4 A. Okay. 5 Q. So you're saying right now she has had -- since October 6 of 1990, she has had a time share even right now with your 7 company? 8 A. Unless she has sold it, that I'm not aware of, yes. 9 MR. BECRAFT: Okay. Nothing further, Your 10 Honor. 11 MR. MURPHY: Judge, I just have one question 12 that I omitted. 13 REDIRECT EXAMINATION 14 BY MR. MURPHY: 15 Q. Is mortgage interest reported to the IRS? 16 A. Yes, sir. 17 MR. MURPHY: Judge, I don't have any further 18 questions. 19 THE COURT: All right. Thank you. We will let 20 you be excused. 21 THE WITNESS: Thank you. 22 (Witness excused.) 23 THE COURT: Who will our next witness be? 24 MR. MURPHY: Your Honor, we call Isabelle 25 Baker. 344 1 THE CLERK: Will you please raise your right 2 hand? Do you solemnly swear the testimony you are about 3 to give the court and the jury to be the truth, the whole 4 truth and nothing but the truth, so help you God? 5 THE WITNESS: I do. 6 THE CLERK: You may take the witness chair. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DIRECT - ISABELLE BAKER 345 1 ISABELLE BAKER, 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. Isabelle Baker. 9 Q. And would you spell your first name and last name for 10 the court reporter? 11 A. I-S-A-B-E-L-L-E B-A-K-E-R. 12 Q. And who do you work for, Ms. Baker? 13 A. GMAC Mortgage. 14 Q. And what type of business is GMAC Mortgage in? 15 A. In the mortgage business. 16 Q. Okay. That's kind of dumb second question, wasn't it? 17 A. That's all right. 18 Q. And as part of your business, do you keep records of 19 the amount of mortgage interest that people pay on mortgages 20 held by your company or serviced by your company? 21 A. Yes, we do. 22 Q. Okay. Does -- I'm going to show you some documents, do 23 you recognize those documents? 24 A. Yes, I do. 25 Q. Okay. What are those documents? DIRECT - ISABELLE BAKER 346 1 A. They're 1098s. 2 Q. Okay. And do they give a figure of the amount of 3 mortgage interest that somebody pays over the course of a 4 year? 5 A. Yes, sir. 6 Q. Okay. Now, the first document, what year is that for? 7 A. For 1999. 8 Q. And who was the person that was paying the mortgage? 9 A. On the 1098, it says Vernice B. Kuglin. 10 Q. Can you spell the entire name? 11 A. First name V-E-R-N-I-C-E, last name Kuglin, 12 K-U-G-L-I-N. 13 Q. And what was the amount in -- that sheet we're talking 14 now is for 1999? 15 A. Yes, sir. 16 Q. And what was the amount of the interest? 17 A. Interest paid for 1999? 18 Q. Yes, ma'am. 19 A. Was $6,729.39. 20 Q. If you could turn that over, that page over. 21 A. Uh-huh. 22 Q. Turn that page over and go to the second sheet. 23 A. Okay. 24 Q. What is the second sheet? 25 A. Same kind of document for the year 2000. DIRECT - ISABELLE BAKER 347 1 Q. And what does it show, again? 2 A. For interest paid? 3 Q. Yes, ma'am. 4 A. $7,033.28. 5 Q. And for what year was that? 6 A. For the year 2000. 7 Q. Okay. I'm sorry. And who was the person that it was 8 issued to? 9 A. Same person, Vernice Kuglin. 10 Q. Okay. And if you would go to the third document. What 11 does the third document show? 12 A. The same document for the year 2001. 13 Q. Okay. And what does -- is it issued to Ms. Kuglin? 14 A. Yes, sir, it is. 15 Q. And how much mortgage interest does it indicate she 16 paid? 17 A. $6,690.56. 18 MR. MURPHY: Thank you, ma'am. Your Honor, at 19 this time, we would move these three documents into 20 evidence as a collective exhibit. 21 THE COURT: Yes. 22 MR. BECRAFT: No objections. 23 THE COURT: Exhibit 20. 24 (Exhibit Number 20 was marked. Description: 25 Mortgage Interest Payments.) DIRECT - ISABELLE BAKER 348 1 MR. MURPHY: Your Honor, I don't have any 2 further questions of the witness. 3 MR. BECRAFT: Briefly, Your Honor. 4 CROSS EXAMINATION 5 BY MR. BECRAFT: 6 Q. Ms. Baker, the interest that was paid by Ms. Kuglin on 7 this mortgage, you got documents for '99, 2000, and 2001, is 8 that correct? 9 A. Yes, sir. 10 Q. Now, is this a mortgage in relation to some real 11 property, land? 12 A. It is -- I don't know whether it's land or -- I 13 guess -- it must be a residence. 14 Q. Okay. And is there some brief description there 15 regarding what type of residence is the collateral for this 16 particular mortgage? 17 A. It has the address. 18 Q. What is the address? 19 A. 200 Wagner Place, number 802, Memphis, Tennessee 38103. 20 Q. Okay. Before 1999, did your company have any 21 relationship with Ms. Kuglin? 22 A. I'm not aware of that, sir. 23 Q. Your relationship with her arose during that year of 24 '99? 25 A. I can't say whether there was a relationship prior to CROSS - ISABELLE BAKER 349 1 that year or not. 2 Q. Your records indicate that some time in '99, your 3 company got a mortgage on her condominium? 4 A. Pardon me? 5 Q. Your records indicate that Ms. Kuglin obtained with 6 GMAC a mortgage on her condominium some time, I guess, in '99? 7 A. Yes, sir. 8 Q. Probably the early part of '99? 9 A. Yes, sir. 10 Q. Okay. And it has been in effect ever since? 11 A. Yes, sir. 12 Q. And how much was the mortgage for when it was obtained 13 sometime in early '99, if you know? 14 A. I just show principal balance, beginning principal 15 balance. I don't have that number that you're asking me. 16 MR. BECRAFT: Okay. Nothing further, Your 17 Honor. 18 MR. MURPHY: Judge, I don't have any further 19 questions. 20 THE COURT: All right. Thank you. We'll let 21 you step down. 22 (Witness excused.) 23 THE COURT: Who will our next witness be? 24 MR. MURPHY: Your Honor, our next witness will 25 be Mr. Leporleon Pruitt. 350 1 THE COURT: Okay. 2 THE CLERK: Would you please walk to the podium 3 and raise your right hand? Do you solemnly swear the 4 testimony you are about to give the court and jury will be 5 the truth, the whole truth and nothing but the truth, so 6 help you God? 7 THE WITNESS: Yes. 8 THE CLERK: You may take the witness chair. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DIRECT - LEPORLEON PRUITT 351 1 LEPORLEON PRUITT, 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? 8 A. Leporleon Pruitt. 9 Q. And, Mr. Pruitt, who do you work for? 10 THE COURT: Let's get the spelling on that. 11 Q. I'm sorry, Your Honor. How do you spell your name, Mr. 12 Pruitt? 13 A. L-E-P-O-R-L-E-O-N. Pruitt, P-R-U-I-T-T. 14 Q. And who do you work for? 15 A. FedEx Employees Credit Association. 16 Q. And what business is the FedEx Employees Credit 17 Association in? 18 A. The credit union business. 19 Q. Okay. And do you provide, as part of that business, 20 banking service for FedEx employees? 21 A. Yes, sir. 22 Q. Okay. Mr. Pruitt, are you familiar with how records 23 are kept at your company's business? 24 A. Yes, sir. 25 Q. I'm going to pass to you two sets of documents. Can DIRECT - LEPORLEON PRUITT 352 1 you tell me what the first document is? 2 A. First document is just the statement of the accounts 3 showing what they have in prime shares, that's savings, or 4 share draft, that's the checking account. 5 Q. Okay. Can you tell us -- that's a big stack of papers, 6 whose account are we talking about there? 7 A. Ms. Kuglin. 8 Q. Okay. Could you spell it? 9 A. K-U-G-L-I-N. 10 Q. What's the first name? 11 A. Vernice. 12 Q. Spell that, please. 13 A. V-E-R-N-I-E. 14 Q. And what's the account number? 15 A. The account number is 48512016. 16 Q. Okay. What kind of account is it? 17 A. She has a prime share, that's a savings, and she has a 18 checking account as well. 19 Q. Okay. And can you give me the date on the first page? 20 A. The date from the statement is from February the 1st of 21 '96 to February the 29th of '96. 22 Q. Okay. How about the statement on the last page? 23 A. The statement from the last page is from December the 24 1st of 2000 to December the 31st of 2000. 25 Q. And are there several -- there's a number of statements DIRECT - LEPORLEON PRUITT 353 1 in there? 2 A. Yes, sir. 3 Q. Okay. And these are all statements from your Credit 4 Union? 5 A. Yes, sir. 6 MR. MURPHY: Your Honor, if we could have this 7 marked as a collective exhibit. 8 MR. BECRAFT: No objection. 9 THE COURT: It will be Exhibit 21. 10 (Exhibit Number 21 was marked. Description: 11 Statement of Accounts.) 12 Q. Now, sir, there's a second document in front of you, 13 what is that document? 14 A. This document here is the membership application. 15 Q. Okay. And for who? 16 A. Vernice Kuglin. 17 Q. Vernice what? 18 A. Kuglin. 19 Q. Okay. Does it appear to be Kuglin? 20 A. Kuglin, yes. 21 Q. K-U-G-L-I-N 22 THE COURT: It's Kuglin. 23 THE WITNESS: Kuglin. 24 THE COURT: It's Kuglin. It is kind of like 25 your first name, it's confusing. DIRECT - LEPORLEON PRUITT 354 1 THE WITNESS: Yeah, it's Kuglin. 2 THE COURT: Because your first name starts with 3 an L? 4 THE WITNESS: Yes. 5 THE COURT: I wanted to make sure I got it 6 spelled right. 7 Q. And is that the document from the Credit Union's 8 records? 9 A. Yes. 10 Q. If someone opens an account, they're required to 11 execute that? 12 A. Yes, sir. 13 Q. Now, what's the date on that? 14 A. January the 27th of 1999. 15 Q. Okay. Now, the statements run before that? 16 A. Right. 17 Q. What -- why is that date different? 18 A. This date here is different because it looks like it 19 was something somebody added on the account or -- yeah, it 20 look like somebody added on the account. 21 Q. Now, when these documents were originally requested, 22 did you come up with the original account card, account 23 opening form? 24 A. Now, the original account card, these going through 25 images system, but this is on the system. DIRECT - LEPORLEON PRUITT 355 1 Q. Okay. The one in your hand? 2 A. Yes. 3 Q. Okay. Thank you. 4 MR. MURPHY: Your Honor, we would move this 5 into evidence as the next numbered exhibit. 6 MR. BECRAFT: No objection. 7 THE COURT: 22. 8 (Exhibit Number 22 was marked. Description: 9 Application for Account.) 10 Q. Now, sir, I'm going to put some things up on the camera 11 here and ask you about some entries on some of these 12 documents. I have got a document here from exhibit -- 13 Collective Exhibit 21. Can you see that document? 14 A. Yes, I can. 15 Q. Okay. This first column, it says date, what 16 information is in that column? 17 A. 4-1 of '96. 18 Q. What type of information do you put in there? Is 19 that -- what dates are those? 20 A. Those are the current dates like if -- from the 21 statement, when they do any kind of transactions. 22 Q. Okay. So would that date represent the account 23 transaction took place? 24 A. Yes. 25 Q. Okay. And if you go to this middle line, there's a DIRECT - LEPORLEON PRUITT 356 1 reference, I have got my finger on it? 2 A. Yes. 3 Q. EFT Federal Express? 4 A. Right. 5 Q. Salary, what is that in reference to? 6 A. The EFT is the -- it's electronic funds transfer, it's 7 her salary. 8 Q. Okay. And then you've got a notation of a withdrawal? 9 A. Yes. 10 Q. And what does that mean? 11 A. That's a withdrawal that she took out on 4-15-96. 12 Q. And then if you go over to this account, this line that 13 says change to balance where my finger is? 14 A. Yes. 15 Q. What information does that represent? 16 A. That is representing withdrawals, money going in and 17 out of the account. 18 Q. Okay. Does that give you the amount of a particular 19 transaction? 20 A. Yes, it does. 21 MR. MURPHY: Judge, if I can have one second, 22 I'm almost done. 23 THE COURT: Certainly. 24 Q. I'm going to show you another page from Collective 25 Exhibit 21. And -- now, the format of these documents is a DIRECT - LEPORLEON PRUITT 357 1 little different. What information is in this first column 2 here on the left? 3 A. The dates -- month, date and year. 4 Q. Okay. And what do those dates signify? 5 A. Those dates signify from the whole statement, from 6 November to the end of the month, and it signifies a date that 7 a transaction has happened. 8 Q. Now, if you go over, there's a line, share draft to 9 cash disbursed, what type of transaction is that? 10 A. That's a withdrawal from her checking account. 11 Q. Okay. Now, just so we understand the way this is 12 formatted, you have got some transactions? 13 A. I can't see your finger on that. 14 Q. Okay. Am I in the way? 15 A. Okay. 16 Q. There you go. Is that better? 17 A. Yes. 18 Q. Okay. You have got some transactions that have a minus 19 symbol after them, does that indicate money was coming out of 20 the account? 21 A. Yes. 22 Q. Okay. And when you have a transaction with no minus 23 sign behind it, for example, that $9,456.90, does that 24 represent that money came into the account? 25 A. Correct. DIRECT - LEPORLEON PRUITT 358 1 MR. MURPHY: Thank you, sir. One second, Your 2 Honor, I'm just about done. 3 THE COURT: Certainly. 4 Q. Mr. Pruitt, when -- 5 MR. MURPHY: Judge, I don't think my microphone 6 is working. 7 THE CLERK: It may need a new battery. 8 Q. Mr. Pruitt, does your company also lend money? 9 A. Yes, sir. 10 Q. Okay. Now, when -- if it involves mortgage and 11 mortgage interest, you report the amount of the interest to 12 the IRS? 13 A. Yes, we do. 14 MR. MURPHY: Okay. One second, Judge. 15 Judge, I don't have any further questions. 16 THE COURT: All right. 17 MR. BECRAFT: Briefly, Your Honor. 18 THE COURT: Certainly. 19 CROSS EXAMINATION 20 BY MR. BECRAFT: 21 Q. Mr. Pruitt, when was the FedEx Credit Union started, do 22 you know? 23 A. Back in 1973 -- '72, '73. 24 Q. Is it your understanding that most, perhaps all of the 25 FedEx employees are members of the Credit Union, right? CROSS - LEPORLEON PRUITT 359 1 A. They have the -- they can join if they're a member -- 2 if they work for FedEx, they have right to join the Credit 3 Union. 4 Q. And the services that are provided by the Credit Union 5 include, you know, people can open up a savings account there? 6 A. Yes, sir. 7 Q. They can have a checking account? 8 A. Yes, sir. 9 Q. They can obtain financing for homes and cars? 10 A. Yes, sir. 11 Q. In this particular situation, you have been asked to 12 bring in reference -- to this particular case in reference to 13 Ms. Kuglin, you brought in basically her checking account 14 statements for a number of years? 15 A. Yes, sir. 16 Q. And those are Exhibits 21 and 22? 17 A. Yes, sir. 18 Q. And so she had an account with the FedEx Credit Union, 19 oh, throughout '96? 20 A. Yes, sir. 21 Q. '97, '98, '99, all the way up to 2001, correct? 22 A. Yes, sir. 23 Q. Did she have any savings account? 24 A. Yes. 25 Q. Did she have any mortgages with the company? CROSS - LEPORLEON PRUITT 360 1 A. That, I don't know, sir. 2 Q. Do you know anything about cars? 3 A. Yes, sir. 4 Q. Did she have any mortgages -- or did your company 5 finance any cars for her? 6 A. That, I don't know, sir. 7 MR. BECRAFT: All right. Nothing further, Your 8 Honor. 9 THE COURT: Redirect? 10 MR. MURPHY: Judge, I don't have any further 11 questions. 12 THE COURT: All right. Mr. Pruitt, thank you. 13 We will let you step down. 14 (Witness excused.) 15 THE COURT: Who else do we have? 16 MR. MURPHY: Judge, I have got some custodians, 17 but I need to talk to them. 18 THE COURT: It's fine to take a break now. I 19 think we have done pretty well. Ladies and gentlemen, 20 we're going to take our lunch break, let you come back at 21 1:30. Do not discuss the case among yourselves. Don't 22 let anybody talk with you about the case. Of course, if 23 anybody tries to, report that immediately to one of our 24 court security officers or a member of my staff or me. As 25 usual, don't speak to the parties or the lawyers in the 361 1 case and, of course, don't do any research. Don't read 2 anything or look up anything that might be about this case 3 or cases like it, and continue to keep an open mind. 4 It's a short -- it's not that long of a lunch 5 break, so, of course, you can -- there are a number of 6 places to eat, and you're probably familiar with those 7 already. You can go north on the mall and south, there's 8 nothing really close, except the cafeteria. There are 9 lots of places about four or five blocks south and about 10 three and a half, four blocks north. We will see you at 11 1:30. 12 (Lunch recess taken at 12:30 to 1:35 p.m.) 13 THE COURT: If we have got everybody, we can 14 bring them in. 15 (Jury in at 1:35 p.m.) 16 MR. MURPHY: Judge, I want to alert the court, 17 I think we will be done with the government's proof today. 18 THE COURT: I understand. I have already 19 started making plans on that. 20 MR. BECRAFT: The court -- I asked a couple of 21 weeks ago -- 22 THE COURT: Let's come to side bar if we're 23 going to talk about it. 24 MR. BECRAFT: Just real quick for the benefit 25 of the court. 362 1 (The following proceedings had at side-bar 2 bench.) 3 MR. BECRAFT: When I asked about jury 4 instructions? I thought you asked if we had a disk 5 available -- I have got a disk of our requested 6 instructions. 7 THE COURT: Did you give them to us? 8 MR. BECRAFT: I turned in my -- I have got it 9 with me. 10 THE COURT: If you don't ever give it to me, I 11 guarantee you I won't use it. You should have given it to 12 me at the beginning of the case. 13 MR. BECRAFT: I filed my jury instructions last 14 Friday. They were filed. 15 THE COURT: Okay. Well -- 16 MR. BECRAFT: If you want the disk -- I 17 delivered it to chambers. 18 THE COURT: Don't worry about it. I have got 19 the other two materials, if you will hand the disk to Ms. 20 Saba, she will take care of it. 21 (The following proceedings were had in open 22 court.) 23 THE COURT: Mr. Murphy, who will our next 24 witness be? 25 MR. MURPHY: Our next witness is Mr. Alex 363 1 Trivino. 2 THE COURT: Mr. Trevino, if you would step to 3 the podium and raise your right hand, please. That's it 4 right there. Do you swear that the testimony you are 5 about to give in this case will be the truth, the whole 6 truth and nothing but the truth, so help you God? 7 THE WITNESS: I do, but my last name isn't 8 Trevino, it's Rivera. 9 THE COURT: Well, good. I'm glad 10 MR. MURPHY: I'm sorry, Mr. Rivera. 11 THE COURT: Mr. Rivera, do you also make that 12 oath? 13 THE WITNESS: Yes, I do. 14 THE COURT: I think they said Trevino, maybe 15 I'm wrong about that. 16 MR. MURPHY: Judge, I did. I had it written 17 down wrong. 18 THE COURT: Tell me your name again. 19 THE WITNESS: Alex Rivera. 20 THE COURT: Spell that last name. I will let 21 you get up here and we'll write it down. 22 THE WITNESS: It's R-I-V-E-R-A. 23 THE COURT: Thank you. 24 25 DIRECT - ALEXANDER RIVERA 364 1 ALEXANDER RIVERA, 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. Sir, would you state your name, please? 8 A. Alexander Rivera. 9 Q. And would you spell your first and last name for the 10 court reporter? 11 A. Sure. A-L-E-X-A-N-D-E-R R-I-V-E-R-A. 12 Q. And who do you work for, Mr. Rivera? 13 A. CUNA Mutual Mortgage Corporation. 14 Q. And what is that located? 15 A. That is in Madison, Wisconsin. 16 Q. Okay. And what business is C-U-N-A in? 17 A. It's a -- CUNA Mutual Mortgage is a servicing 18 corporation. 19 Q. Okay. And what is a servicing corporation? 20 A. We fund loans and we service those loans for investors. 21 THE COURT: Just for our sake, I'm going to 22 make sure I have got the spelling on the name of the 23 corporation down. 24 THE WITNESS: It's C-U-N-A, CUNA. 25 THE COURT: CUNA, okay. DIRECT - ALEXANDER RIVERA 365 1 THE WITNESS: It stands for Credit Union 2 National Association. 3 THE COURT: Okay. Thank you. 4 Q. As part of your company's activities as a servicer of 5 mortgages, do you keep records of the amount of mortgage 6 interest payment? 7 A. Yes, we do. 8 Q. And did you bring some documents with you today? 9 A. Yes, I did. 10 Q. Could you give me those documents? 11 MR. MURPHY: Thank you, sir. 12 MR. BECRAFT: We won't have objections to these 13 exhibits, Your Honor, for this witness, and perhaps we 14 ought to put one sticker on all of them. 15 THE COURT: That's -- whatever suits the 16 government. 17 MR. MURPHY: Judge, I have no objection to 18 making it a cumulative exhibit. 19 THE COURT: Cumulative Exhibit 23, that's how 20 we're going to do it. 21 MR. MURPHY: Or collective. 22 THE COURT: Collective. 23 (Exhibit Number 23 was marked. Description: 24 Mortgage Documents.) 25 Q. Sir, I'm passing you a form that -- for the year 2000, DIRECT - ALEXANDER RIVERA 366 1 what is that form? 2 A. That's mortgage interest statement, a form 1098. 3 Q. And who is it addressed to? 4 A. It's addressed to Vernice B. Kuglin. 5 Q. How do you spell her name on the form? 6 A. V-E-R-N-I-C-E B. Kuglin is K-U-G-L-I-N. 7 Q. Does that show that Ms. Kuglin paid mortgage interest 8 in the year 2000? 9 THE COURT: We're all going to work to get it 10 right, Kuglin, we keep promising to do that. We will try 11 to get it right. It is not always obvious. 12 A. Yes. 13 Q. And what amount was the mortgage interest? 14 A. It is for $5,382.58 for the year 2000. 15 Q. Do you have a form for the year 2001? 16 A. Yes. 17 Q. And what's the amount of the mortgage interest? 18 A. $12,618,47. 19 MR. MURPHY: Judge, at this time we would move 20 this into evidence as collective exhibit 23. 21 THE COURT: Received as 23. 22 MR. MURPHY: Judge, I don't have any further 23 questions. 24 THE COURT: All right. 25 CROSS EXAMINATION CROSS - ALEXANDER RIVERA 367 1 BY MR. BECRAFT: 2 Q. Briefly, you brought a number of records to show how 3 much interest had been paid by Ms. Kuglin for these two years. 4 Can I ask you some questions about your general records? 5 A. Sure. 6 Q. Okay. Did your company, what, buy a mortgage that was 7 on some real property that was owned by Ms. Kuglin? 8 A. That's correct. 9 Q. All right. And do you have a judgment or recollection 10 as to when that happened? 11 A. The date of the loan is July of 2000. 12 Q. And how much was the note that you bought? 13 A. I believe it was 156,000. 14 Q. And so some other company had mortgaged the property 15 and then your company comes along and buys that for a hundred 16 and fifty thousand? 17 A. A hundred and fifty-six. 18 Q. And that happened in June of 2000? 19 A. July. 20 Q. July of 2000. And is it still currently a valid 21 mortgage? 22 A. Yes. 23 Q. Still in effect? 24 A. Yes. 25 MR. BECRAFT: All right. Nothing further, Your CROSS - ALEXANDER RIVERA 368 1 Honor? 2 THE COURT: Redirect? 3 MR. MURPHY: Judge, I don't have any further 4 questions of the witness. 5 THE COURT: All right. Mr. Rivera, thanks they 6 very much. We will let you step down. 7 (Witness excused.) 8 THE COURT: Who is our next witness? 9 MR. MURPHY: It is going to be Jeanne Griffis 10 with First Tennessee, Your Honor. 11 THE CLERK: Will you please raise your right 12 hand? Do you solemnly swear the testimony you are about 13 to give the court and jury will be the truth, the whole 14 truth and nothing but the truth, so help you God? 15 THE WITNESS: I do. 16 THE CLERK: You may take the witness chair. 17 18 19 20 21 22 23 24 25 DIRECT - JEANNE GRIFFIS 369 1 JEANNE GRIFFIS, 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? 8 A. Jeanne Griffis. 9 Q. And would you spell your first name and last name for 10 the court reporter? 11 A. J-E-A-N-N-E G-R-I-F-F-I-S. 12 Q. Who do you work for, ma'am? 13 A. First Tennessee Bank. 14 Q. And what is your job at First Tennessee Bank? 15 A. I'm manager of legal services and ten compliance 16 departments. 17 Q. And are you the records custodian? 18 A. Yes, I am. 19 Q. Now, some inquiry was made about whether a Vernice B. 20 Kuglin had some loans with First Tennessee Bank. 21 A. Yes. 22 Q. Okay. Did you check the records? 23 A. Yes, I did. 24 Q. Okay. Now, were there loans that she had with First 25 Tennessee Bank? DIRECT - JEANNE GRIFFIS 370 1 A. Yes. 2 Q. Now, you weren't able to get 1098s on those loans? 3 A. Correct. 4 Q. Was that interest income reported to the IRS? 5 A. Yes, it is. 6 Q. Now, I'm going to pass you what we're going to mark as 7 a collective exhibit, Collective Exhibit 24, and can you tell 8 me what these documents are? 9 A. This is a personal statement. They're personal 10 statements, all of them for Vernice Kuglin that shows the 11 assets and liability of the customer. 12 Q. And did those come from the loan documents? 13 A. Yes. 14 Q. Okay. And those were made in connection with the 15 loans? 16 A. Yes. 17 MR. MURPHY: Your Honor, if we could have this 18 marked as a collective exhibit. 19 THE COURT: Exhibit 24. 20 (Exhibit Number 24 was marked. Description: 21 Loan Documents.) 22 MR. MURPHY: Judge, I don't have any further 23 questions for Ms. Griffis. 24 THE COURT: All right. Cross examination? 25 CROSS EXAMINATION CROSS - JEANNE GRIFFIS 371 1 BY MR. BECRAFT: 2 Q. Ms. Griffis, does your bank at the present time have a 3 mortgage on any property of Ms. Kuglin? 4 A. I don't know. 5 Q. All right. Are you familiar with some property called 6 One Main South? 7 A. No. 8 Q. How about 802 at Waterford Plaza condominium? 9 A. No, I would not be familiar with those properties. 10 Q. Has your bank at any time in the past, say, like, since 11 1990 forward held any mortgage on property owned by Vernice 12 Kuglin? 13 A. The mortgage is a separate entity. The mortgage 14 company is separate from the bank. Now, we had several loans 15 for Ms. Kuglin, but whether they were secured as a second 16 mortgage, without looking at them, I can't tell you. 17 Q. Okay. The only thing that you know about as manager of 18 legal services are these applications that we have just 19 submitted, right? 20 A. Well, I know there are loans for Ms. Kuglin or there 21 were loans, yes. 22 MR. BECRAFT: Nothing further, Your Honor. 23 THE COURT: Redirect? 24 MR. MURPHY: Your Honor, I don't have any 25 further questions. CROSS - JEANNE GRIFFIS 372 1 THE COURT: Thank you very much. 2 (Witness excused.) 3 THE COURT: Who will our next witness be? 4 MR. MURPHY: John Scobey, Your Honor. 5 THE COURT: If you would step to the podium, 6 please, and raise your right hand. 7 THE CLERK: Will you raise your right hand, 8 please? Do you solemnly swear the testimony you are about 9 to give the court and the jury will be the truth, the 10 whole truth and nothing but the truth, so help you God? 11 THE WITNESS: I do. 12 THE CLERK: You may take the witness chair. 13 14 15 16 17 18 19 20 21 22 23 24 25 DIRECT - DAVID SCOBEY 373 1 DAVID SCOBEY, 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? 8 A. David Scobey. 9 Q. And would you spell your first and last name, please, 10 sir? 11 A. David, D-A-V-I-D. Last name Scobey, S-C-O-B-E-Y. 12 Q. And who do you work for, sir? 13 A. Henry Turley Company. 14 Q. Mr. Scobey, do you go by the name of John? 15 A. I do go by the name of John. 16 THE COURT: That's confusing to me. 17 THE WITNESS: Well, that's my middle name. 18 David J. 19 Q. Mr. Scobey, have you had some dealings with an 20 individual named Vernice Kuglin? 21 A. Our company has. 22 Q. And specifically why has your company had dealings with 23 Ms. Kuglin? 24 A. We sold her a condominium unit down on South Main. 25 Q. Did there come a point in time within the last couple DIRECT - DAVID SCOBEY 374 1 of years where you got a summons from the Internal Revenue 2 Service requesting records having to do with Ms. Kuglin's 3 property? 4 A. Yes, we did. I believe it was in October of 2001. 5 Q. Okay. And did you call Ms. Kuglin about those records, 6 about that documents request, rather? 7 A. I called Ms. Kuglin just simply as a courtesy to let 8 her know that we had got a summons or subpoena and that I 9 thought we would have to comply. 10 Q. Okay. And what did Ms. -- what was Ms. Kuglin's 11 response to that? 12 A. Her response was that she was under the opinion that 13 the summons was faulty or not valid and that she would have 14 her lawyer contact me to, you know, to give his opinion on the 15 matter. 16 Q. Okay. Did she indicate whether you had to comply with 17 the subpoena? 18 A. Just that it was her opinion that it was faulty and I 19 would not have to comply. 20 MR. MURPHY: Okay. One second, Your Honor. 21 No further questions, Your Honor. 22 THE COURT: Cross examination? 23 CROSS EXAMINATION 24 BY MR. BECRAFT: 25 Q. Mr. Scobey, the relationship between, is it the Turley CROSS - DAVID SCOBEY 375 1 Company? 2 A. The Henry Turley company. 3 Q. The Henry Turley Company. At one time that company 4 owned some property on South Main? 5 A. It did. It still does. Actually, the company doesn't, 6 but Henry Turley, our shareholder, does. 7 Q. And it's a two-story building out here on Main Street? 8 A. That's correct. 9 Q. A couple of blocks down from this courthouse? 10 A. Correct. 11 Q. Somewhere around '92, '93, is that about the time frame 12 in which Mr. Turley sold or conveyed some interest in the 13 property to Ms. Kuglin and her son, Christopher? 14 A. It was in March of '93, we sold a unit in a condominium 15 to Ms. Kuglin. 16 Q. And so since that time, there have been periodic 17 payments made by either Ms. Kuglin or her son regarding the 18 amounts that would be owed to Mr. Turley for the purchase of 19 that property? 20 A. She had a promissory note at the closing, which she has 21 subsequently paid off, and since then, they have been paying 22 condominium maintenance fees to the condominium association, 23 which we manage. 24 Q. Well, the condominium, basically? It's a two-story 25 building, and the top story is all hers, right? CROSS - DAVID SCOBEY 376 1 A. That's correct. 2 Q. So you have a number of records that would relate to 3 this particular transaction, the purchase from Mr. Turley by 4 her of that unit that she bought in '93? 5 A. Correct. 6 Q. And so in October of 2001, somebody from the IRS got in 7 touch with you and delivered a summons wanting all of the 8 financial records regarding Mr. Turley's association or Turley 9 Company's association with Ms. Kuglin, is that correct? 10 A. That's correct. 11 Q. Did you meet Ms. Deborah White on that occasion? 12 A. I did. 13 Q. Was she the party that delivered the summons to you? 14 A. She was. 15 Q. Okay. I take it your company has done this in the 16 past? You know, the IRS comes along and asks for some 17 information, right? 18 A. Well, in my fifteen years, this was the first time. 19 Q. How often have you talked to Ms. Kuglin since she has 20 bought this property from Mr. Turley? 21 A. I've probably spoken to her two or three times. It's 22 very infrequent. 23 Q. Would it relate to this property? 24 A. It related to this property. 25 Q. Did she ever make any comments to you about taxes? CROSS - DAVID SCOBEY 377 1 A. No. 2 Q. She has never discussed her position with you about 3 federal income taxes? 4 MR. MURPHY: Judge, I object to hearsay. 5 THE COURT: Objection sustained. 6 Q. Now, on this particular occasion, when Ms. White 7 delivered the summons to you in October of 2001, you read the 8 summons over, correct? 9 A. I did. 10 Q. And do you have an in-house lawyer in the company? 11 A. No, no. 12 Q. Do you have private counsel? 13 A. Yes, we do. 14 Q. Once of the first things you did when you received the 15 summons, you picked up the phone and called Ms. Kuglin? 16 A. That's correct. 17 Q. And she had a position? 18 A. She did. 19 Q. And she believed -- at that point in time, had she seen 20 the summons? 21 A. I have no idea. 22 Q. Well, the amount of times -- was the summons delivered 23 to you personally? 24 A. It was. 25 Q. Okay. And did you provide -- before you picked up the CROSS - DAVID SCOBEY 378 1 phone, did you provide a copy of that summons to Ms. Kuglin 2 before you talked to her about it? 3 A. I don't recall. 4 Q. Okay. Well, is it likely that you -- or is it more 5 likely that you did not give her a copy of it? 6 MR. MURPHY: Judge, I'm going to object to the 7 question because I think the witness has said he doesn't 8 know. 9 THE COURT: Well -- 10 MR. BECRAFT: I'll withdraw it, Your Honor. 11 THE COURT: Beyond the personal knowledge -- 12 well, he has already said what he had to say about that. 13 Objection sustained. 14 Q. And when you picked up the phone and called Ms. Kuglin, 15 you said, in essence, that a summons had been requesting 16 certain financial information from the Turley Company, right? 17 A. That's correct. 18 Q. And you informed her that it was the IRS that was 19 wanting it, right? 20 A. I did. 21 Q. And she told you that -- did you tell her much about 22 the facts of the summons, how it was delivered to you, what it 23 requested? 24 A. I don't remember that I did tell her very much. She 25 indicated that similar documents had been delivered to others. CROSS - DAVID SCOBEY 379 1 Q. Okay. And she did tell you that she had a lawyer that 2 would respond, is that correct? 3 A. That he would give his opinion to me on why that she 4 didn't feel that I had to comply. 5 Q. Okay. And do you know who this lawyer was? 6 A. I believe his name was Baxley. 7 Q. From Florida? 8 A. I don't recall. 9 Q. Okay. Do you recall having received at some time 10 shortly after or within a reasonable time after October of 11 2001, that Mr. Baxley, in fact, contacted you and sent you 12 something about the summons? 13 A. He did send me a letter. 14 MR. BECRAFT: Nothing further, Your Honor. 15 MR. MURPHY: Your Honor, I don't have any 16 further questions of Mr. Scobey. 17 THE COURT: Thank you. We will let you step 18 down. 19 (Witness excused.) 20 THE COURT: Who will our next witness be? 21 MR. MURPHY: Our next witness is going to be 22 Special Agent Deborah White, but I need to let a witness 23 go. 24 THE COURT: Okay. 25 MR. MURPHY: If I could have one minute. 380 1 THE COURT: That's no problem. 2 MR. MURPHY: Your Honor, the government calls 3 Special Agent Debbie White. 4 THE CLERK: Will you please raise your right 5 hand? Do you solemnly swear the testimony you are about 6 to give the court and the jury will be the truth, the 7 whole truth and nothing but the truth, so help you God. 8 THE WITNESS: Yes, I do. 9 THE CLERK: You may take the witness chair. 10 MR. BECRAFT: May it please the court, can I 11 take up one matter right now at side bar? 12 THE COURT: Sure. I'm going to ask you your 13 first name is? 14 THE WITNESS: Deborah, D-E-B-O-R-A-H, White, 15 W-H-I-T-E. 16 THE COURT: Thank you. 17 (The following proceedings had at side-bar 18 bench.) 19 MR. BECRAFT: This is not something we 20 necessarily called to the attention of the court, but, you 21 know, I haven't formally invoked the rule, but -- 22 MR. MURPHY: This is the last witness. 23 MR. BECRAFT: I know, but that's -- 24 THE COURT: The rule has now been invoked, it 25 wasn't invoked earlier by anybody. Now, it is invoked. 381 1 MR. BECRAFT: Okay. I was told by Ms. Kuglin, 2 the red headed lady in the back of the courtroom may be a 3 witness. 4 MR. MURPHY: I'm not going to call her. 5 MR. BECRAFT: Oh, you're not? 6 MR. MURPHY: I'm not going to call her. 7 MR. BECRAFT: Sorry, Your Honor. That's okay. 8 (The following proceedings were had in open 9 court.) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DIRECT - DEBORAH WHITE 382 1 DEBORAH WHITE, 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. Ma'am, would you state your name, please? 8 A. Deborah White. It's D-E-B-O-R-A-H W-H-I-T-E. 9 Q. Who are you employed by, Ms. White? 10 A. I'm employed by the Internal Revenue Service, criminal 11 investigation. 12 Q. In what capacity? 13 A. I'm a special agent. 14 Q. And how long have you been a special agent with the 15 Internal Revenue Service? 16 A. I have been a special agent for about nine and a half 17 years. 18 Q. Okay. Now, were you involved in the investigation of 19 Ms. Kuglin's tax situation? 20 A. Yes, I was. 21 Q. Okay. And did you do a calculation to determine 22 whether any income taxes were due and owing? 23 A. Yes, I did. 24 Q. Okay. Now, in order to do that calculation, what 25 records did you use? DIRECT - DEBORAH WHITE 383 1 A. I used the IRP documents which contained -- and 2 summoned records that we got from Federal Express and Kemper 3 National Services, and that's basically it. Well, the 4 mortgage interest that she was paid -- or that she paid. 5 Q. And some of the -- did you get the mortgage interest 6 figures off of some of the 1098s that you were able to get and 7 some of it off the IRPs? 8 A. Right. I got most of the information off the IRPs. 9 MR. MURPHY: Your Honor, if we could set the 10 easel up, we have got a calculation. 11 THE COURT: That's fine. 12 MR. MURPHY: If the witness could come down. 13 THE WITNESS: And bring your papers with you. 14 THE COURT: It's okay also if you want to use 15 the overhead, whichever you want -- okay, you have got it 16 on chart, that's fine. 17 MR. MURPHY: Judge, we would have put it on the 18 overhead, but making it all fit is kind of hard. 19 THE COURT: That's no problem at all. But we 20 do have to let defense counsel have a chance to come 21 around to see. 22 MR. BECRAFT: I have looked at it already, Your 23 Honor. 24 THE COURT: Okay. 25 MR. BECRAFT: I do believe I have a letter size DIRECT - DEBORAH WHITE 384 1 copy. 2 THE COURT: Well, I'll let them use the form 3 they have got, and we might use the letter size also as an 4 extra exhibit, so that we can more easily fit it in the 5 record. 6 MR. MURPHY: The problem with the letter size 7 one for the jury to see, they kind of have to go like 8 that. 9 THE COURT: I understand. That's no problem. 10 MR. MURPHY: It is kind of a long deal. Okay. 11 THE COURT: That may need to be lifted up. And 12 there is a way to do that. I tell you what, though, would 13 you move it around so it is a little more in the corner so 14 that I can see it and everybody has a shot at seeing it? 15 And why don't we put the letter size one on the overhead, 16 anyway, if we have got one, counsel. 17 MR. MURPHY: Yes, sir. 18 THE COURT: Mrs. Saba, we want the letter sized 19 one on the overhead also. 20 And we probably ought to give it a number if 21 we're going to show it to the panel. 22 MR. MURPHY: Judge, what if we numbered the 23 panels two separate numbers and make that a third number. 24 THE COURT: It will be 25, 26, 27. 25 (Exhibit Number 25 was marked. Description: DIRECT - DEBORAH WHITE 385 1 Chart.) 2 (Exhibit Number 26 was marked. Description: 3 Chart.) 4 (Exhibit Number 27 was marked. Description: 5 Paper Copy of Charts.) 6 THE COURT: The charts are 25 and 26. 7 Q. Now, Ms. White, are these two panels that we have 8 marked Exhibits 25 and 26, are these blowups of the tax 9 calculation you prepared? 10 A. Yes, sir, they are. 11 Q. Let's start with this one first. Now, for 1996, the 12 year 1996, what did you compute Ms. Kuglin's wages as? 13 A. For 1996? 14 Q. Yes, ma'am. 15 A. The wages that she received were from Federal Ex -- 16 Federal Express, and they were in the amount of $183,408.01. 17 Q. And what was the total of all wages she received in 18 1996? 19 A. $183,408.01. 20 Q. And were there any adjustments to the income? 21 A. No, there were not. 22 Q. What are adjustments to income? 23 A. Adjustments to income are those items on the front of 24 the return. They primarily deal with, like, for self-employed 25 people where you get a credit for like half a year DIRECT - DEBORAH WHITE 386 1 self-employment tax, stuff like that. 2 Q. And what was the adjusted gross income? 3 THE COURT: You have the wrong one on the 4 screen. I tell you what, I'm going to take a two or 5 three-minute break, let y'all take a real short break, let 6 these folks get a little more organized and we will come 7 back. Thank you. 8 (Recess taken at 1:55 until 2:08 p.m.) 9 THE COURT: It's really easier for some jurors 10 to see the screen no matter where we put the overheads. 11 So that also lets me see it. I have a lot of trouble 12 seeing that far, just to be honest. 13 MR. MURPHY: I think if I ever have one of 14 these cases again, I'll do tax computations for everybody 15 in the courtroom, and we could -- 16 THE COURT: Oh, this is fine. This is fine. I 17 just knew we needed to give you a break so we wouldn't 18 have everything falling down. 19 MR. MURPHY: I apologize. 20 THE COURT: No problem. I think we're ready to 21 go, Mr. Tuggle. 22 Are you going to move that other chart so the 23 jurors can see it a little bit? It think we're where 24 people can see now, and that's better. 25 You have a monitor over there too? DIRECT - DEBORAH WHITE 387 1 MR. BECRAFT: Yes. I don't need to look at 2 that, I have a hard copy. 3 THE COURT: I understand, I understand. I 4 think we're all set, Mr. Tuggle. 5 COURT SECURITY OFFICER: All right, Judge. 6 (Jury in at 2:10 p.m.) 7 THE COURT: I hope y'all appreciate it, when 8 somebody can't see very well, nothing is more frustrating 9 for me than to try to see something and I can't see it. 10 So hopefully you're all able to see things now, it is real 11 important, and I think we're ready to proceed. 12 MR. MURPHY: Yes, sir, Your Honor. 13 Q. Now, Ms. White, we were going through the tax 14 calculation, and basically, we're talking about what has been 15 marked as Exhibit 25, and the 1996 year, what was the adjusted 16 gross income you came up with for that year? 17 A. The adjusted gross income for 1996 was $183,408.01. 18 Q. And did you determine whether Ms. Kuglin was entitled 19 to any itemized deductions? 20 A. On the itemized deductions, yes. 21 Q. Okay. 22 A. I concluded that. 23 Q. Okay. And what was the amount of those itemized 24 deductions? 25 A. The amount of those itemized deductions was $19,351.26. DIRECT - DEBORAH WHITE 388 1 Q. Was there some formula you used to determine that? 2 A. Yeah, just the -- the itemized deductions are phased 3 out after a certain income level, and so in your 1040 tax 4 booklet, there's like a little calculation sheet that you use, 5 you know, it just kind of gives you the formula for 6 determining what your deduction would be. 7 Q. And did you use that to determine the amount of 8 itemized deductions for '96, that little chart? 9 A. Yes, I did. 10 Q. Okay. And did you also determine the amount of the tax 11 exemption for Ms. Kuglin? 12 A. Yes, I did. Her exemption -- we gave her one exemption 13 for herself, and the exemption amount was $1,173. 14 Q. Did you also use some formula that was provided in the 15 1040 tax manual to determine the amount of exemption? 16 A. Yes, it it's the same type formula that's based on your 17 income. 18 Q. Okay. Now, going over to -- if we could put chart two 19 on the screen. For 1996, what was the corrected taxable 20 income? 21 A. For 1996, her corrected taxable income was $162,883.75. 22 Q. And what was -- did you compute the tax? 23 A. Yes, I did. 24 Q. And what was the tax? 25 A. The tax was $47,708.65. DIRECT - DEBORAH WHITE 389 1 Q. Okay. In 1996, what was the amount of income that 2 triggered the filing requirement? 3 A. For 1996, you had to have gross income equal to or in 4 excess of $6,550 in order to have a requirement to file a 5 return. 6 Q. And what is gross income? 7 A. Gross income, it's basically all items of income from 8 whatever source derived. 9 Q. Okay. 10 A. All monies. 11 Q. Now, in order to trigger the filing requirement -- the 12 filing requirement, do you -- before you determine, do you 13 subtract the deductions and all that? 14 A. I'm sorry, go ahead. 15 Q. The filing requirement, the minimum dollars that 16 require filing -- 17 A. Uh-huh. 18 Q. -- that's for what? 19 A. That's your gross income. 20 Q. Okay. Okay. And that's -- 21 A. Your gross income should be equal to or greater -- if 22 it's equal to or less than that. 23 Q. Less than what? 24 A. Than the $6,550, then you're not required to file a tax 25 return. DIRECT - DEBORAH WHITE 390 1 Q. Now, were there any taxes withheld from FedEx in '96, 2 according to your investigation? 3 A. In 1996? 4 Q. Yes, ma'am. 5 A. No, sir. 6 Q. Okay. Going over -- now, one more thing before we go 7 to the next year, on your initial computation, was there a 8 mistake made? 9 A. When I initially prepared our -- can I back up and 10 talk -- 11 Q. Sure. 12 A. -- kind of how the process we go through? 13 Q. Yes, sir. 14 A. When we recommend prosecution when we work our 15 investigation, we go out and gather the facts. If it deems 16 that prosecution is warranted, we write up a prosecution 17 report and attach -- which is just a long narrative report 18 that reports what our findings are. Attached to that would be 19 the exhibits which are, you know, items, bank records, stuff 20 like that that we get throughout the investigation that help 21 prove our case. Anyway, we put them all together in a binder, 22 and we have an agent in -- for Memphis, he's actually located 23 in Arkansas, he reviews all our cases, and does our 24 calculations and makes sure that everything is correct, and at 25 that point, I had actually made an error on my, I think it was DIRECT - DEBORAH WHITE 391 1 my exemption chart, I was supposed to round up, and I didn't 2 round at all. So that made a difference like in the taxable 3 income and all that. So he sent it -- when it came back to 4 me, I corrected it. These are the correct numbers, but I 5 forgot when I printed out the new worksheets, I didn't swap 6 them out in the exhibits. So these are the correct numbers. 7 And when my case went forward, it had the incorrect 8 calculation on the exhibits. And I think the incorrect 9 numbers were actually provided to the defense during the 10 discovery process, and we -- before we realized that I hadn't 11 swapped them out. That's kind of the error. 12 Q. But that error was corrected? 13 A. Yes. 14 Q. Okay. Let's talk about 1997. What wages based on your 15 investigation did Ms. Kuglin have before in 1997, and we're on 16 chart one. 17 A. Okay. Her wages for 1997 consisted of her W-2 wages 18 she received from Federal Express. Her wages for the year 19 were $172,674.37. 20 Q. Okay. And what was her corrected total income? 21 A. That same amount, $172,674.37. 22 Q. Were there any adjustments to her income? 23 A. No, sir. 24 Q. What was her adjusted gross income at that point? 25 A. Her adjusted gross income was the same amount, DIRECT - DEBORAH WHITE 392 1 $172,674.37. 2 Q. Okay. And did you give her credit for itemized 3 deductions? 4 A. Yes, I did. 5 Q. In what amount? 6 A. $23,137.77. 7 Q. Were her itemized deductions limited because of her 8 income or anything like that? 9 A. Right, right. 10 Q. Okay. Did you also give her an exemption? 11 A. Yes, I did. It totaled $1,537. 12 Q. Okay. And what was her corrected taxable income? 13 A. $147,999.60. 14 Q. If we could go to page two, what was the corrected 15 taxable income for 1997? 16 A. $147,999.60. 17 Q. And what was the tax per the tax rate schedule? 18 A. $42,050.36. 19 Q. And that's -- what bracket was Ms. Kuglin in, in terms 20 of was she single or head of household? 21 A. Single. 22 Q. Single. Based on your investigation, did she have any 23 dependents at the time? 24 A. No. 25 Q. Okay. Now, in 1997, what was the minimum amount of DIRECT - DEBORAH WHITE 393 1 income that triggered a filing requirement? 2 A. $6,800. 3 Q. Let's go over to 1999, page one of the chart. Did Ms. 4 Kuglin -- Ms. Kuglin receive wages from Federal Express? 5 A. Yes, she did. 6 Q. And what was the amount of the wages? 7 A. For 1998? 8 Q. Yes, ma'am. 9 A. The wages from FedEx were $164,196. She also received 10 that short-term disability pay from Kemper National Services 11 in the amount of $4,789.37. 12 Q. And what was her total adjusted gross income? 13 A. $168,985.37. 14 Q. And what were the amount of itemized deductions that 15 she received credit for? 16 A. $30,059.44. 17 Q. And were those -- the amount of those deductions 18 limited? 19 A. Yes. 20 Q. And did you use the tax calculation table for that? 21 A. Yes, I did. 22 Q. Let's talk about her exemption, how many exemptions did 23 she get for 1998? 24 A. Just one for herself. 25 Q. And what was the amount of that exemption? DIRECT - DEBORAH WHITE 394 1 A. $1,728. 2 Q. If we could shift over to page two. And what was Ms. 3 Kuglin's corrected taxable income for 1998? 4 A. Her corrected taxable income was $137,197.93. 5 Q. Did you determine what the amount of tax would be on 6 that amount? 7 A. Yes, I did. I used the tax rate schedule and 8 determined that it was $37,000 -- $37,848.75. 9 Q. Okay. And did Ms. Kuglin receive any credits for taxes 10 that were withheld? 11 A. Yeah, I credited back the -- when she filed the claim 12 with Kemper, when Kemper paid her, they withheld taxes from 13 her disability benefit in the amount of $1,341.03, and I 14 subtracted that. 15 Q. And what was the amount of tax due and owing per 1998, 16 according to your calculation? 17 A. It was $36,507.72. 18 Q. And I might have asked this already, what was the 19 income level that triggered the filing of a tax return in 20 1998? 21 A. $6,950. 22 Q. If we could go to page one again. I would like to talk 23 now about 1999. 24 A. Uh-huh. 25 Q. Did Ms. Kuglin receive any wages in 1999? DIRECT - DEBORAH WHITE 395 1 A. In 1999, she received W-2 wages from Federal Express in 2 the amount of $172,428.80. 3 Q. Okay. And were there any adjustments to her income? 4 A. No. 5 Q. What was her adjusted gross income then? 6 A. $172,428.80. 7 Q. And did she receive -- did you give her credit for 8 itemized deductions? 9 A. Yes, I did, in the amount of $24,152.14. 10 Q. Were those deductions limited because of her income? 11 A. Yes. 12 Q. Okay. And did you give her an exemption? 13 A. Yes, I did. For 1999, she got $1,705 as a personal 14 exemption. 15 Q. And was that limited because -- 16 A. Because of the amount of income. 17 Q. -- of the amount of income? 18 A. Uh-huh. 19 Q. If we could go over to page two. For 1999, what was 20 Ms. Kuglin's corrected taxable income? 21 A. Her corrected taxable income was $146,571.66. 22 Q. What was her tax per the tax table? 23 A. Per the tax rate schedule? 24 Q. Yes, ma'am. 25 A. It was $41,032.30. DIRECT - DEBORAH WHITE 396 1 Q. And what was your computation of the tax due and owing? 2 A. The tax due and owing was $41,032.30. 3 Q. If we could go back to page one, please. Did Ms. 4 Kuglin receive wages in 2000? 5 A. Yes, she did. Again, they were just wages from FedEx 6 in the amount of $191,292.99. 7 Q. And what was her corrected total income then? 8 A. Her corrected total income was $164,000 -- 9 Q. No, this is for 2000. 10 A. I'm sorry, her corrected total income, I'm sorry, 11 $191,292.99. 12 Q. And what was her adjusted gross income? 13 A. Her adjusted gross income was the same amount. 14 Q. Did you allow her any itemized deductions? 15 A. Yes, again, we allowed her the itemized deductions for 16 her mortgage interest that she paid in the amount of 17 $25,668.71. 18 Q. And were those deductions limited by the tax table or 19 the -- 20 A. Yes. 21 Q. Or by her income, rather? 22 A. By her income. 23 Q. And did you -- did she receive credit for an exemption? 24 A. Yes, she did. In 2000, her personal exemption was 25 $1400. DIRECT - DEBORAH WHITE 397 1 Q. And, again, was that limited by her income? 2 A. Uh-huh. 3 Q. Now, if we could go over to page two. What was her 4 corrected taxable income for 2000? 5 A. For 2000, it was $164,224.28. 6 Q. And what was the tax per the tax rate schedule? 7 A. $47,171.74. 8 Q. And what was the tax due and owing based on your 9 calculation? 10 A. $47,171.74. 11 Q. Okay. And could we go back to page one, please? 12 Now, referring to 2001, did Ms. Kuglin receive any 13 wages from FedEx? 14 A. Yes, her Federal Express wages totaled $190,673.37. 15 Q. And what was her corrected total income? 16 A. $190,673.37. 17 Q. And what was her adjusted gross income? 18 A. $190,673.37. 19 Q. And there were no adjustments to income? 20 A. No. 21 Q. And what -- was Ms. Kuglin credited with itemized 22 deductions for 2001? 23 A. Yes, she was. 24 Q. And what were the amount of those deductions? 25 A. $27,976.30. DIRECT - DEBORAH WHITE 398 1 Q. And was she credited with a personal exemption? 2 A. Yes, her personal exemption for 2001 was $1,508. 3 Q. What was her corrected taxable income? 4 A. $161,189.07. 5 Q. If we could go over to page two. For 2001, what was 6 Ms. Kuglin's corrected taxable income? Again, I'm going right 7 down the chart? 8 A. $161,189.07. 9 Q. And what was her tax per the tax rate schedule? 10 A. $45,036.87. 11 Q. What was her -- based on this calculation, what was her 12 tax due and owing? 13 A. $45,036.87. 14 Q. And other than the Kemper withholding in 1998, was 15 there any withholding that reduced her tax liability that you 16 were able to -- 17 A. No, there was not. 18 MR. MURPHY: One second, Judge. 19 Q. One more thing. The Ms. Kuglin you investigated, and I 20 know the charts are in your way, is she in the courtroom 21 today? 22 A. Yes, she is. 23 Q. Okay. Where is she seated and what is she wearing? 24 A. She is seated between the two gentlemen with an orange 25 jacket on. DIRECT - DEBORAH WHITE 399 1 MR. BECRAFT: We will stipulate she has 2 identified her, Your Honor. 3 THE COURT: The defendant has been identified, 4 and that's reflected in the record. 5 MR. MURPHY: Judge, I don't have any further 6 questions for Special Agent White. 7 THE COURT: Cross examination? 8 CROSS EXAMINATION 9 BY MR. BECRAFT: 10 Q. Good afternoon, Ms. White. 11 A. Good afternoon. 12 Q. I believe you testified that you had been working with 13 the IRS for the last nine and a half years, correct? 14 A. I have been a special agent for the last nine and a 15 half years. I have been employed with the IRS since 1985. 16 Q. Okay. Could I get a little bit of your educational 17 background, please? 18 A. Sure. 19 Q. Where did you go to school? 20 A. College, I have a bachelor's degree from Sam Houston 21 State University in Huntsville, Texas in criminal justice. 22 Q. Do you have an accounting background? 23 A. I have the accounting classes -- in order to become a 24 special agent with IRS, you have to have a bachelor's degree 25 and 15 hours of accounting. CROSS - DEBORAH WHITE 400 1 Q. So by the time you graduated, what, in '85, at the 2 place in Huntsville, Texas -- 3 A. No, I graduated in '90. It was on an extended plan. 4 Q. I see. So you went to work for the IRS in '85? 5 A. I went to work for the IRS in '85, and I was in college 6 in the evening and -- 7 Q. Okay. Good enough. But that was in criminal justice? 8 A. Right. 9 Q. You apparently obviously had designs on being a special 10 agent, is that correct? 11 A. That's correct. 12 Q. And -- but your college courses didn't deal anything 13 with necessarily tax and accounting, did it? 14 A. My -- I mean I took tax and accounting courses at 15 college, if that's what you are talking about. 16 Q. Okay. Good enough. Now, those courses involved going 17 to like a class in the evening, you said you were -- so you 18 might go Monday, Wednesday, Friday or Tuesdays and Thursdays 19 or some such, you might go and sit in the class for several 20 hours, correct? 21 A. Right. 22 Q. To learn accounting and tax? 23 A. Right. 24 Q. Okay. Now, since you have been working for the IRS, 25 have you gone to specialized schools that relate to accounting CROSS - DEBORAH WHITE 401 1 and taxes? 2 A. When you get hired as a special agent, you attend the 3 federal law enforcement training center down in -- it is in 4 Brunswick -- Glynco, Georgia. I was down there for like six 5 months. 6 Q. And did you learn more about taxes down there? 7 A. Yeah, that school -- that six-month school, it is split 8 up into three different schools. One is criminal investigator 9 training, one is tax, and the other is special agent 10 investigative techniques. 11 Q. I want to get an idea about how much study -- you 12 obviously recognize this, I hold in my hand, 1986 Internal 13 Revenue Code printed in 1994, right? 14 A. Right. 15 Q. And throughout this trial, Mr. Murphy -- oh, no, that's 16 not -- but you had here in the courtroom Internal Revenue 17 codes and other tax information with you, correct? 18 A. Yeah. 19 Q. Okay. Now, the courts that you have taken in special 20 agent -- I think you said you went down to Glynco, Georgia and 21 had at least a six-month course on tax? 22 A. No, I said that we had -- it was split into three 23 different courses. The criminal investigator training is the 24 first, you know, five or six weeks, and that basically teaches 25 you about the law. Basically, all federal agents within the CROSS - DEBORAH WHITE 402 1 Treasury Department and other -- I think the only ones that 2 don't go there are FBI agents and DEA agents, the rest of them 3 all attend that -- everybody takes that class. And then we 4 had a tax class and then we had -- we finished out with the 5 special agent investigative techniques, which is the course 6 that teaches you how to do the IRS special agent job. 7 Q. All right. And since you have been to Glynco, that 8 would be sometime maybe the late 1980s, early 1990s? 9 A. I got out in -- I went down there in January of '94, 10 and I got out in June, July. 11 Q. Okay. And since you got out of that course, have you 12 had, you know, kind of refresher courses or continuing 13 education courses that relate to tax? 14 A. We have -- every year, we have a continuing 15 professional education that's put on, by -- in the criminal 16 investigation area, and we roughly have it every year. I mean 17 if there's updates that, you know, we need to be, you know 18 aware of, or whatever, there would probably be a course 19 presented on that. But generally, the cases that we work 20 aren't current year cases, they're usually -- we have to give 21 you time to file or not file, or, you know, so it is -- 22 they're usually prior years. 23 Q. Now, would you disagree with me when I say that the 24 study of federal income taxes is complicated? 25 A. Sure. CROSS - DEBORAH WHITE 403 1 Q. Now, in addition to knowing something about -- we don't 2 have your copy of the Internal Revenue Code here, but you use 3 books like this in your regular work, right, the Internal 4 Revenue Code? 5 A. Yes. 6 Q. And it's this thick? 7 A. I don't know, we have a bunch of them, I don't know 8 that we necessarily have that same one. 9 MR. MURPHY: Your Honor, could we approach? 10 THE COURT: You may. 11 (The following proceedings had at side-bar 12 bench.) 13 MR. MURPHY: Judge, I'm going to object to the 14 cross. I mean how thick the book is and all this stuff, 15 he's not asking about the tax calculation. 16 MR. BECRAFT: She has been tendered as an 17 expert. 18 THE COURT: She was entered as a special agent 19 with knowledge about how to calculate taxes. 20 MR. BECRAFT: That's what she did, and I -- 21 THE COURT: You might want to turn your mic 22 off. But she has not been presented as a legal expert, 23 has she? 24 MR. MURPHY: Well, all she is presented for is 25 to do tax calculation. CROSS - DEBORAH WHITE 404 1 MR. BECRAFT: She has had training, Your Honor, 2 I just simply want to know -- 3 MR. MURPHY: You still don't have it off. 4 MR. BECRAFT: All I wanted to do, Your Honor, 5 was to show -- I think the jury is entitled to know, she 6 has testified similar to an expert, and all I'm doing is 7 trying to draw out how much training she has had on the 8 Internal Revenue Code and how complex the law is. I think 9 that's fair, because she has drawn legal conclusions, she 10 has testified like an expert. 11 THE COURT: What about it? 12 MR. MURPHY: Judge, I don't think she is 13 drawing a legal conclusion. She said I did this 14 calculation. In fact, I didn't ask her whether Ms. Kuglin 15 had the file. All I asked was what was the limit that 16 year. I mean I -- 17 THE COURT: Well, I mean she had fairly 18 limited -- you're outside the scope under 611, that's 19 pretty fair. 20 MR. BECRAFT: Okay. 21 THE COURT: And I think we probably ought to go 22 ahead. 23 MR. BECRAFT: Thank you, Your Honor. 24 THE COURT: No problem. 25 (The following proceedings were had in open CROSS - DEBORAH WHITE 405 1 court.) 2 MR. BECRAFT: Can we use the charts or do you 3 need to see something on the screen and ask you questions 4 about it? 5 THE COURT: You can use the charts. It is 6 probably not a bad idea to put it on the screen too. The 7 screen helps us know for sure where you are. It's a 8 little different than the chart. The chart lets you see 9 it. The screen, you can point out and say this is where I 10 am, and we can't miss it then. 11 MR. BECRAFT: I think I will stroll over here 12 myself, and can I use my copy? 13 THE COURT: Sure, that's fine. 14 Q. Now, you drafted this document up in order to calculate 15 how much she owed in the way of taxes, that's the ultimate 16 bottom line? 17 A. Correct. 18 Q. And to get there, you have got to calculate how much 19 Ms. Kuglin made, correct? 20 A. Right. 21 Q. And -- but then in order to arrive at and create this 22 chart, you have to have at least some knowledge, a good 23 working knowledge of the tax laws, correct? 24 A. Yeah. 25 Q. Now, you have a line here, you know, on one of these CROSS - DEBORAH WHITE 406 1 charts. When you compute the taxable income, you took all of 2 these figures here for '96 through 2001, all of these reported 3 figures here, they're based on the evidence that we obtained 4 from FedEx, correct? 5 A. Correct. 6 Q. The 1099s or W-2? 7 A. W-2s. 8 Q. Okay. For these years, and these are the figures that 9 came from there, correct? 10 A. Yeah. 11 Q. Okay. Now, down at bottom after you go through several 12 calculations, you have this corrected taxable income and you 13 have the various figures for the various years, correct? 14 A. Yes. 15 Q. And in order to arrive at that figure, you have to use 16 the Internal Revenue Code, consult certain sections, is that 17 correct, Section 61, 62, 63? 18 A. Yeah. Well, actually, you know, this return is just 19 itemized deductions and her exemptions, I mean you can get all 20 that information from the tax booklet that they mail to you. 21 Q. You have used your overall broad knowledge of tax laws 22 in order to devise and create this chart, is that true? 23 A. Yeah. 24 Q. Okay. But in order to make -- come up with corrected 25 taxable income, either from a booklet like the 1040 booklet or CROSS - DEBORAH WHITE 407 1 from the tax code itself, there's an interrelationship between 2 Section 61, 62, 63 to arrive at something called taxable 3 income, correct? 4 A. Uh-huh. 5 Q. And you also, to deal with the, you know, moving up the 6 line here to adjusted gross income, in order to calculate 7 corrected taxable income, you take adjusted gross income and 8 you deal with itemized deductions, correct? 9 A. Correct. 10 Q. And the tax code itself deals with itemized deductions, 11 right? 12 A. Okay. 13 Q. And can you tell us off the top of your head -- I think 14 you have limited it primarily in reference to this particular 15 case, the itemized deductions primarily to interest payments, 16 correct? 17 A. Right. 18 Q. Off the top of your head, can you tell us what section 19 of the code that would relate to taking that as an itemized 20 deduction? 21 A. Off the top of my head, no, I couldn't. 22 Q. Now, I'm going to flip over to the other chart here, 23 the one where you calculate the tax due and owing. Let's take 24 a look at the year 1998, you have taxes withheld of $1,300, is 25 that correct? CROSS - DEBORAH WHITE 408 1 A. That's correct. 2 Q. That's an adjustment as to the aggregate ultimate tax 3 liability that is dealt with in this case, right? 4 A. Right. 5 Q. Somehow, some way, we have got to -- there was the 6 $1,300 that was withheld in '98. Okay, can you tell us the 7 section of the Internal Revenue Code that would allow somebody 8 to have credit for withheld taxes? 9 A. You know -- no, off the top of my head, no, I'm sorry, 10 I don't know the exact code, but I do know this. 11 Q. Okay. 12 A. That -- she didn't have any wages -- I mean she didn't 13 have any federal income tax held withheld from her salary, and 14 so when we do our calculations if we have -- normally, if -- I 15 guess if people file tax returns and maybe they didn't report 16 all their income, we give them credit for the tax that they 17 did pay. So under normal circumstances, we would give them 18 credit for any taxes that they would have reported and paid on 19 their return. In this case, there were no returns filed, so 20 there was no tax paid. The only tax that was actually 21 withheld was that $1,300 from Kemper. 22 Q. All right. 23 A. So I'm giving her credit for it. 24 Q. I understand that, but my question was, it should be a 25 simple matter, can you tell us with which section deals with CROSS - DEBORAH WHITE 409 1 giving a credit for withheld taxes? 2 A. Off the top of my head, no, I don't know what -- I mean 3 if I had a question about it, I could look it up, I suppose 4 but, no, I don't have tall of those codes memorized. 5 Q. How about Section 31, does that kind of refresh your 6 recollection, would that -- credit for tax withheld? 7 A. I'm sorry. 8 Q. Okay. One moment, Your Honor. You have also given 9 testimony that -- I didn't write them all down, but you -- 10 when Mr. Murphy was asking you questions, he asked you about 11 what the threshold amount was for each year for filing? 12 A. Uh-huh. 13 Q. I wrote them down -- I didn't write them all down, but 14 I think you said 6500 or 6550 for 1996. 15 A. 6550, right. 16 Q. In '97, it was 6800, right? 17 A. '96 is 6800. 18 Q. Let's forget all the other figures, but you rattled 19 them all, is that correct? 20 A. Yes. 21 Q. Now, is the filing requirement, that provision, do you 22 find it in the law? 23 A. Do you have to file a return? 24 Q. Well, yes. 25 A. I mean I think it's 6011. CROSS - DEBORAH WHITE 410 1 Q. Okay. 2 A. That says that you must make a return if your gross 3 income exceeds the exemption amount. 4 Q. Now, you mentioned 6011, are you familiar with Section 5 6001? 6 A. Yes. 7 Q. Okay. Is it your understanding that at least two laws 8 that relate to the filing of income tax returns are Section 9 6001 and 6011 of the Internal Revenue Code? 10 A. Yes. 11 Q. And did you consult -- in your testimony, when you gave 12 these figures right here, you know, these are the filing 13 requirement. Did you actually look up the law to determine it 14 or did you do something like consult an instruction booklet? 15 A. No, actually, we -- I did look at the instruction 16 booklet, because it's right there, it is available, you can 17 download them off the internet, and, yes, I looked at the 18 instruction booklet, but I have since, you know, looked at the 19 code too. 20 Q. Okay. Do you know whether or not that -- you know, the 21 figures that you used, if you make so much money, if you make 22 6500, if you make 6800 in '97 or if you make 6950 in '98, 23 whether or not in Section 6001 or 6011 of the Internal Revenue 24 Code that you will find that type of information? 25 A. I don't know that it says the exact dollar amount, but CROSS - DEBORAH WHITE 411 1 it does say about the exemption and all. 2 MR. BECRAFT: Your Honor, I believe that's all. 3 THE COURT: Redirect. 4 MR. MURPHY: Your Honor, I don't -- well, since 5 it came up. 6 REDIRECT EXAMINATION 7 BY MR. MURPHY: 8 Q. Would you go through what the dollar amounts were that 9 required filing of the tax return for each of the six years? 10 A. Okay. In 1996, if you were single and under the age of 11 65 and your gross income exceeded $6,550, you were required to 12 file an income tax return. 13 Q. Okay. 14 A. In 1997, if you were a single person under the age of 15 65 and your gross income exceeded $6,800, you were required to 16 file a federal income tax return for that year. 17 In 1998, for a single person under the age of 65, the 18 amount was increased to $6,950. So if your gross income was 19 in excess of that -- equal to or in excess of that, you were 20 required to file an income tax return. 21 1999, that amount was increased to $7,050. 2000, that 22 amount was increased to $7,200, and in 2001, the amount was 23 $7,450. 24 MR. MURPHY: Judge, I don't have any further 25 questions. REDIRECT - DEBORAH WHITE 412 1 THE COURT: Thank you. We will let you step 2 down. 3 (Witness excused.) 4 THE COURT: Will there be any other witnesses 5 for the United States? 6 MR. MURPHY: Judge, there'll be no other 7 witnesses, and at this point the government rests with the 8 exception we would ask Your Honor to take judicial notice 9 of the fact that Memphis-Shelby County, Tennessee is 10 within the Western Judicial District of Tennessee. 11 THE COURT: I will take judicial notice of 12 that. Of course, ladies and gentlemen, we can only take 13 judicial notice for something that's so obvious that all 14 of us know, and it is obvious that Memphis and Shelby 15 County is within the Western District of Tennessee. 16 All right. We're going to take about a 17 ten-minute break, and I'm going to see where we're going 18 next, and then we will let you know. So I'm going to take 19 a ten-minute break, we're going to stay out here and work, 20 and we will let you know at the end where we're 21 proceeding. See you in ten minutes. 22 (Jury out at 2:47.) 23 THE COURT: Anything from the defense? 24 MR. BECRAFT: Yes, Your Honor, under Rule 29 25 real quick, and then we might require maybe about five 413 1 minutes to move some exhibits around and get them in -- 2 Ms. Kuglin up there on the stand and then have a way of 3 digging out her -- 4 THE COURT: Sure. Mrs. Saba, let's move those 5 things out of the center of the well while we're doing 6 that. 7 Yes, sir. 8 MR. BECRAFT: Your Honor, on -- on my motion, I 9 just -- I will make this real short, sweet and simple. 10 There are three elements the government has got to prove. 11 One is willfulness. You know, this has been an extremely 12 short case. The government has shown, one, that there was 13 a '92 return filed, then there are no returns filed for 14 the years in question. There has been some withholding 15 and then there has been no withholding. We have had proof 16 regarding what the gross amount of wages were, we just 17 completed the calculation of the tax, but it seems like to 18 me that the government has got to have at least a 19 scintilla of something more to show that she had that evil 20 animus, that malignant intent, that bad motive -- I won't 21 add any more adjectives, Your Honor, but you know one of 22 the things about this case is there is something missing 23 regarding intent. And I think that an evasion case has 24 got to be stronger than we have seen here. It has been 25 all paper, not even a letter from the defendant. That's 414 1 it, Your Honor. 2 THE COURT: Mr. Murphy? 3 MR. MURPHY: Well, Judge, the proof established 4 several things. The proof established that she had 5 taxable income. The proof established that her income was 6 above the levels that required filing. The proof in -- 7 and it was one of the exhibits they introduced from 8 Federal Express that, frankly, we didn't have that and 9 FedEx never gave us, but that -- in 1995, she claimed an 10 exempt status. If you look at the W-4, it -- in order to 11 be exempt, you have to be entitled to a refund of all your 12 prior year tax liability and -- or all your taxes and 13 don't incur any tax liability for the future year. That 14 was not a true statement. Based on the evidence the 15 government put forth, that was not a true statement. Now, 16 at this point she hasn't made that defense, and once she 17 gets up there, we have got to come up with some evidence 18 that rebuts it either through cross examination or 19 whatever, but there was also proof she filed in '93. 20 There was proof that '92 -- there was proof that notices 21 have been sent to her, that she had been subject to IRS 22 levies. And we would submit, Judge -- granted, it's a 23 quick case, but the government shouldn't be penalized for 24 being efficient. And there is also the comment of Mr. 25 Scobey that you don't have to comply with the IRS summons. 415 1 THE COURT: Well, certainly, the law and all 2 inferences are taken in favor of the government in the 3 context of this motion for this purpose, and the court 4 doesn't make any determinations on credibility questions 5 or anything like that, and so, therefore, the defense 6 motion is denied. 7 Is the defendant ready to proceed and do you 8 want a couple of minutes? 9 MR. BECRAFT: If we could have seven or eight, 10 maybe ten minutes, maybe the afternoon break will be 11 sufficient and then we would have -- 12 THE COURT: Go ahead and tell the jury then, 13 Mrs. Saba, we're going to take our afternoon break at this 14 time. We are going to come back and we do anticipate the 15 defense -- are you going to put on some proof? 16 MR. BECRAFT: This afternoon, Your Honor. 17 THE COURT: Okay. 18 MR. BECRAFT: I just need to -- 19 THE COURT: Only for the purpose of advising 20 the jury. 21 MR. BECRAFT: Yeah. 22 THE COURT: And we will come back and there 23 will be some additional testimony, so we will add ten 24 minutes to our break, and this is our afternoon break. 25 See you in ten minutes. 416 1 THE CLERK: All rise. 2 (Recess taken at 2:52 until 3:06 p.m.) 3 THE COURT: Bring the jury in. 4 (Jury in at 3:06 a.m.) 5 THE COURT: Let me see counsel at side bar. 6 (The following proceedings had at side-bar 7 bench.) 8 THE COURT: Do you have any objections to 9 the -- to any of the ones submitted by defense, the 10 instructions? 11 MR. MURPHY: Judge, I have got objections to 12 talking about the Paperwork Reduction Act and all that, 13 because that has been rejected by all the courts 14 uniformly. I have an objection to the stuff about the 15 Anti-Injunction Act because they can go -- they have got 16 avenues of -- Judge, if you want to stay tonight, I mean I 17 have got written down what is the problem. 18 THE COURT: There's no objection to using 19 quotes from Bishop, are there? I take it that is not a 20 problem. 21 MR. MURPHY: If that's what the Supreme Court 22 said, I'm stuck with it, Judge. 23 THE COURT: All right. 24 MR. BECRAFT: Thanks, Judge. 25 (The following proceedings were had in open 417 1 court.) 2 MR. BECRAFT: May it please the court, the 3 defendant calls the defendant, Vernice Kuglin. 4 THE COURT: Would you raise your right hand, 5 please? Do you swear that the testimony you are about to 6 give in this case will be the truth, the whole truth and 7 nothing but the truth, so help you god? 8 THE WITNESS: To the best of my ability, Your 9 Honor, yes, sir. 10 THE COURT: I have never had somebody say that, 11 so let's talk with counsel and see if that's okay. 12 (The following proceedings had at side-bar 13 bench.) 14 MR. BECRAFT: I will simply tell her to say yes 15 or no, Judge. 16 MR. MURPHY: I think she has got to swear or 17 affirm, I don't think -- 18 THE COURT: I think it's I do or I so swear or 19 I affirm or I do. 20 MR. BECRAFT: I will tell her to affirm, Judge, 21 I think that may be the problem. 22 THE COURT: Well, I'll ask her again and we 23 will see what the answer is. I had somebody one time 24 who -- what did that lady say? It wasn't in your case, I 25 had a lady who said I swam. She didn't say I swear, it 418 1 was I swam. It was a culture thing where she didn't want 2 to swear, so we talked about it, and what she wanted to do 3 was affirm. 4 (The following proceedings were had in open 5 court.) 6 THE COURT: Sometimes individuals wants to 7 affirm and not swear, and I usually ask them in advance do 8 you wish to affirm or do you wish to swear, it doesn't 9 matter. 10 THE WITNESS: I can swear. 11 THE COURT: Okay. Well, then, raise your hand 12 and I'll swear you again so we're all clear. Do you swear 13 that the testimony you are about to give in this case will 14 be the truth, the whole truth and nothing but the truth, 15 so help you God? 16 THE WITNESS: Yes, I do. 17 THE COURT: Okay. Thank you. 18 19 20 21 22 23 24 25 DIRECT - VERNICE KUGLIN 419 1 VERNICE KUGLIN, 2 was thereupon called as a witness on behalf of the 3 Defendant, and having been first duly sworn, was 4 examined and testified as follows: 5 DIRECT EXAMINATION 6 BY MR. BECRAFT: 7 Q. Will you state your name, please? 8 A. Yes, and I will state it correctly. My name is Vernice 9 Braendli Kuglin. 10 Q. Okay. I'm sure the court reporter would like it 11 spelled. 12 A. It is spelled V, as in Victor, E-R-N-I-C-E. Middle 13 name is B, as in boy, R-A-E-N-D-L-I. My last name is Kuglin, 14 K-U-G-L-I-N. 15 Q. You heard your name pronounced a multitude of different 16 ways in the courtroom. Your last name is Kuglin, correct? 17 A. That's correct. 18 Q. You're the defendant? 19 A. Yes. 20 Q. Have been throughout this whole trial? 21 A. Yes. 22 Q. Could you tell the jury a little bit about yourself, 23 about where you were born, where you grew up, a little bit 24 about your schooling? 25 A. I was born in Nigeria, West Africa. DIRECT - VERNICE KUGLIN 420 1 Q. Okay. Let me stop you right there. Who are your 2 parents? 3 A. My parents were Teckla and Carl Kuglin. 4 Q. Were they American citizens? 5 A. Yes, they were. My father was born and raised in 6 Kansas. He was a first generation American, and my mother was 7 born and raised in Milwaukee, Wisconsin. She was also first 8 generation. 9 Q. All right. And what was your -- how was your father 10 employed at the time you were born? 11 A. He was a missionary. He worked for the Sudan United 12 Mission, and after I was born, he registered my birth with the 13 United States Consul in Nigeria. 14 Q. Bring us quickly, if you can, up until about your mid 15 teens, about what you did, where you lived, where you went to 16 school. 17 A. Well, at the age of six -- let me back up a little bit. 18 When I was born, as I said, we were in Nigeria, I was born in 19 a mission hospital, and I grew up out in what we call the 20 bush. It was -- we had a thatch roof house, mud block, no 21 running water, no electricity, the kitchen was about fifty 22 yards from the house, it had a tin roof, and the outhouse was 23 about a hundred yards from the house. So I grew up in a 24 pretty primitive environment or conditions, but it was a life 25 that I learned to love. At age five, I was given DIRECT - VERNICE KUGLIN 421 1 anti-malarial drug, with Aspirin, I was paralyzed, and my 2 parents brought me home to the states where I went to Mayo 3 Clinic for some treatment. Went back out to Africa, and was 4 then -- at age six, I went off to boarding school. Now, all 5 of the missionary children in Nigeria lived in boarding 6 school, and this was 400 miles from where my parents lived, 7 and we lived there nine months out of the year. When I came 8 back to the states again in my fifth grade, went to school in 9 Kansas, and then again when I was a freshman in high school. 10 Q. All right. And when was it you entered high school? 11 A. I entered high school in 1961, this was in Kansas. 12 Q. Did you complete high school? 13 A. Yes and no. I did three years of high school, and I 14 had all -- I had taken all the credits that were available, 15 and so I went on to college out of my junior year of high 16 school because college only required -- it required fewer 17 credits than it was necessary to graduate. So I went on to 18 college through -- from my junior year. 19 Q. Give us an approximate range of the years in which you 20 were in school, '65, '66 through whatever? 21 A. It was about '6 -- let's see, '63 through about '66, 22 and in 1966, I dropped out of college. 23 Q. Okay. And did you seek employment after that? 24 A. Yes, I did. 25 Q. What was that? DIRECT - VERNICE KUGLIN 422 1 A. I had always dreamed of being a flight attendant, and 2 so I went down to Dallas, and I interviewed with Braniff. At 3 that time, Braniff was in its heyday. They had come out with 4 the new Braniff strip, and it was, you know, it was the 5 airlines to fly for. I did not get hired by Braniff, and so I 6 ended up working at Texas Instruments on the assembly line at 7 nighttime, and then later I did door-to-door encyclopedia 8 sales work, a job that I'm glad I'm not doing now. Later on 9 in that year, I decided to go back to Braniff to interview 10 again, and I was hired as a flight attendant, and I stayed 11 with Braniff from 1966 through '69. In March of '67, I 12 transferred out to Travis Air Force Base, and I flew the 13 military contract flights flying troops into Vietnam. 14 Q. About this time frame, '68, '69, did you meet somebody 15 and get married to them? 16 A. Yes, I did. 17 Q. Was that a long marriage? 18 A. No, that was a rather short marriage. 19 Q. Okay. As a result, did you have a son born to you? 20 A. Yes, I did. My son Christopher was born, and when he 21 was two months old, his father and I separated. 22 Q. Okay. And when was that? 23 A. That was in 1969. 24 Q. All right. What employment have you had since you -- 25 since 1969 and had your son? DIRECT - VERNICE KUGLIN 423 1 A. Oh, let's see, I have done many things. I have worked 2 for the Welfare department. I've been a waitress. I've been 3 a kitchen help. I have been a secretary. I have been a file 4 clerk. I was a book manager for a library, and I guess that 5 covers that range. 6 Q. Okay. And how long was that that you were doing those 7 types of jobs? 8 A. Well, that was until about '78. 9 Q. And where were you living at that time? 10 A. I was living in Baleo, California, Fairfield, 11 California. 12 Q. Did you get a job in 1978 that had something to do with 13 airplanes? 14 A. Actually, what I did, in 1975, Emily Wurner had been 15 hired by Western. She was the first woman to be allowed to 16 fly for the commercial carriers, and I was looking for a 17 career so that I would be able to support my son, put him 18 through college and such, and a friend of mine suggested that 19 I might take pilot training. 20 Q. And did you? 21 A. Yes, I did. So I went down to the local Nappa County 22 Airport, and I started taking my flying lessons. I got my 23 private license there, and the same friend had gotten then 24 hired by American Airlines and had moved to Dallas. So he 25 told me that if I would come down to Dallas that he would -- DIRECT - VERNICE KUGLIN 424 1 and bring along a certain amount of money that he would 2 continue my flying lessons. So I left my son with his father 3 and went to Dallas. Unfortunately, Alex could not -- did not 4 have time to give me the flying lessons, but I ended up taking 5 flight training at Beecham Field there in Fort Worth where I 6 got my commercial, my instrument and my multi-engine rating. 7 Q. Did there come a time -- 8 MR. MURPHY: Judge, could we approach? 9 THE COURT: You may. 10 (The following proceedings had at side-bar 11 bench.) 12 MR. MURPHY: Judge, I know that counsel wants 13 to get as much personal to give the jury some personal 14 context, but this is just irrelevant. 15 MR. BECRAFT: I'll speed it up, Judge. 16 THE COURT: Okay. 17 MR. BECRAFT: Okay. 18 (The following proceedings were had in open 19 court.) 20 Q. Ms. Kuglin, listen to my question, can you tell us 21 about -- where are you employed now? 22 A. I'm currently on a personal leave of absence from 23 Federal Express. 24 Q. Okay. And how long have you been working for FedEx? 25 A. I have been working for FedEx since 1985. DIRECT - VERNICE KUGLIN 425 1 Q. All right. Where were you working before that? 2 A. I was working for Royal Airlines in Shreveport, 3 Louisiana. 4 Q. And what were you doing for Royal Airlines? 5 A. I was flying their airplanes. I was first a co-pilot 6 and then a captain on the Beech 99 and then on the Bondarondi 7 (spelled phonetically). 8 Q. So you moved from Royal to FedEx? 9 A. Yes, I did. 10 Q. So when did you start to work for Royal? 11 A. I started to work for Royal, that was after my 12 employment as a corporate pilot in Lafayette, Louisiana, so 13 that was in 1980 -- '80, '81. 14 Q. So you were -- before Royal, you were flying also? 15 A. Oh, yes. I flew corporate in Lafayette, Louisiana for 16 an oil company for six months, and prior to that I had been 17 instructing for two years. After I received all my ratings, I 18 instructed for two years. I flew sky divers on the weekend to 19 build time, and those were my aviation jobs. Trying to build 20 my time so that I could get hired by FedEx. 21 Q. So the late '70s, you were training? 22 A. Yes. 23 Q. Flying sky divers, then you went to work for a company 24 as a corporate pilot? 25 A. Yes. DIRECT - VERNICE KUGLIN 426 1 Q. And then you moved from, I guess, '80 or '81 to '85, 2 you were flying as a pilot for Royal? 3 A. Royal, right. 4 Q. And then FedEx? 5 A. And then FedEx. And my son -- I had mentioned earlier 6 that I had left my son with his father, but that was only for 7 a year. So during this time that I was building time, my son 8 was with me, and we moved around quite a bit. 9 Q. When was it that you moved to Memphis? 10 A. I moved to Memphis in June -- excuse me, June of '85. 11 Q. And you have lived here ever since? 12 A. Yes, I have. 13 Q. And for the last -- since 1989, have you lived in a 14 very specific spot in Memphis? 15 A. Yes. 16 Q. What's the address? 17 A. I have lived at 200 Wagner Place, number 802, Memphis 18 Tennessee. It's right on the corner of Beale Street and 19 Wagner place. 20 Q. Ms. Kuglin, did -- have you read the indictment in this 21 case? 22 A. Yes, I have. 23 Q. You heard the -- you understand the indictment, right? 24 A. Yes, I do. 25 Q. It charges you with six counts of tax evasion? DIRECT - VERNICE KUGLIN 427 1 A. Yes. 2 Q. You heard Ms. Osborne come from the service center, and 3 she gave testimony in this case, and you sat right over there 4 and listened to it, correct? 5 A. Yes. 6 Q. She said you didn't file returns from -- 7 MR. MURPHY: Judge, I don't believe commenting 8 on other witness' testimony is proper, and I'm going to 9 object. 10 THE COURT: Objection sustained. 11 Q. Ms. Kuglin? 12 A. Yes. 13 Q. Let me back up, and I'll ask you this: When was it 14 that you started filing returns? 15 A. First job I had ever had was A&W Root Beer in Holton, 16 Kansas, and that would have been 1960, '61 when we first came 17 back from Africa. 18 Q. Do you have a recollection as to when it was you filed 19 your first tax return? 20 A. I would presume that it was probably -- although that 21 may have been with -- on my parents, so I don't know exactly 22 when the first return was filed. 23 Q. If somebody said '65, would you disagree with them? 24 A. Oh, no, not at all. 25 Q. And did you file returns in the late '60s, early 70's DIRECT - VERNICE KUGLIN 428 1 all the way up into the '80's. 2 A. Oh, yes, I did. 3 Q. Okay. Did you file returns in '91, '92? 4 A. I did. 5 Q. Why were you filing those returns during those years 6 that I have just named off? 7 A. Because I thought that I was required to. 8 Q. And was that based on any study of the law? 9 A. Oh, no, not at all. 10 Q. Did you ever prepare for these years, '65 through about 11 '91, '92, did you prepare your own returns? 12 A. Some of them, I did. 13 Q. All right. Did there come a time in which you had 14 others prepare your returns? 15 A. Yes, H & R Block did some of my returns. I had an 16 accountant here in Memphis do some of my returns. 17 Q. If we had -- I don't know the exhibit number, but you 18 have looked at the '92 return that the government has offered 19 into evidence, correct? 20 A. That's correct. 21 Q. There's an accountant listed on there as a return 22 preparer, right? 23 A. Yes. 24 Q. And that's Mr. Knapp? 25 A. That's correct. DIRECT - VERNICE KUGLIN 429 1 Q. He prepared your '92 return? 2 A. Yes. 3 Q. Did he prepare some of your returns before that time? 4 A. I believe he did, yes. 5 Q. For a number of years, whatever amount. Okay. 6 Have you ever attended any courses on tax all the way 7 up through about '91 or '92? 8 A. Not at all. 9 Q. Had you ever looked at the Internal Revenue Code? 10 A. I didn't even know what it looked like. 11 Q. Okay. Let me go straight to the matter, for the years, 12 '93, '94, '95, '96 through 2001, Ms. Kuglin, did you or did 13 you not file federal income tax returns? 14 A. No, I did not. 15 Q. Why? 16 A. For the last ten years, I have been asking the IRS 17 either through my own letters, through visits to the IRS and 18 finally through an attorney what section of the Internal 19 Revenue Code makes me liable for the individual income tax and 20 what law requires me to file the Form 1040. And to this day, 21 I have not had my questions answered, and so I decided then. 22 Q. When was it that you started changing your beliefs 23 regarding the filing of income tax returns? 24 A. Well, the journey that got me to this point to where we 25 are today actually started in 1992. DIRECT - VERNICE KUGLIN 430 1 Q. What happened then? 2 A. I was between flights, and as anybody who works for the 3 airlines or sales people, people who are gone, that when you 4 get home, there's a lot of mail, a lot of housework, a lot of 5 everything to do, and so I was cleaning house and turned on 6 C-Span, as you heard Mr. Becraft say earlier. 7 Q. Can I stop you right there? 8 A. Yes. 9 Q. You said -- I brought up something with the jury, can 10 you kind of describe what you do, your daily routine when 11 you're flying for FedEx? 12 A. Oh, yes, I can. 13 Q. All right. 14 A. The routine is different. We as pilots bid every month 15 for the routings that we want to fly, and based on seniority 16 and what we can hold in the seniority level, then we have a 17 different schedule every month. Some of the schedules entail 18 getting up in the middle of the night, flying to the 19 destination, sleeping in the hotels all day, coming back into 20 Memphis at midnight that night and going back out again. 21 That's what we call the infamous hub terms. Those are the 22 flights going in and out every night. Other flights leave 23 Memphis around 2:30 in the morning, go to a destination, sit 24 for a few hours and then back into Memphis. Other flights are 25 international flights which are 15-day flights where we're DIRECT - VERNICE KUGLIN 431 1 gone a long period of time, and I did those flights when I was 2 a co-pilot and flight engineer predominantly. So every month, 3 the schedule is different, but we're away from home probably 4 anywhere from 200 to 400 hours a month. 5 Q. And basically while we're sleeping, you're working? 6 A. Basically. 7 Q. Now, sometime in 1992, I interrupted you a minute ago, 8 you were saying something about you were doing something at 9 home when something came to your attention about something, 10 taxes? 11 A. Yes, I was cleaning house, and I listen to the TV so I 12 can get things done, and I would on C-Span, and on C-Span that 13 day, they were covering the Libertarian National Convention, 14 it was in July of '92. And I had never heard of the word 15 Libertarian before. I had no idea what it meant. I had no 16 idea there was a political party called the Libertarian Party. 17 So it caught my interest, and there two gentlemen, Andre Maru 18 (spelled phonetically) Dick Body (spelled phonetically) who 19 were vying for the nomination for the presidential candidate, 20 and as I listened to the debates between these two gentlemen, 21 I started hearing things that I had never heard the other two 22 parties talk about. I had been member of both the Republican 23 and the Democrat parties at different times, but these 24 gentlemen were discussing the Constitution, they were 25 discussing the role of government in society and they were DIRECT - VERNICE KUGLIN 432 1 discussing also taxes. And I found it so interesting and so 2 novel that I had never heard any of this stuff before that I 3 called the 800 number and asked them to send me some 4 information and anybody who might -- I might contact in the 5 local area. So I got the information. Excuse me. And they 6 referred me, excuse me, to a gentleman by the name of Don 7 Winfield. Don Winfield at that time was the chairman of the 8 Tennessee State Libertarian party, and he was conducting 9 meetings here in Memphis. So I went to the meeting. It was a 10 small group, and I asked them basically what a Libertarian was 11 or what the word meant, what the philosophy was, and I learned 12 at that time that there were really two words, there were the 13 big L -- there was the big L for Libertarian, which was the 14 political move, and then there was the little l Libertarian, 15 which was the philosophy of the Libertarian movement, and I 16 found out from that that the Libertarian philosophy was 17 basically the same philosophy of the founding fathers, the 18 philosophy that generated the Bill of Rights, the Constitution 19 and the Declaration of Independence, and this philosophy was 20 that in a civil society the initiation of force and the 21 initiation of fraud are not acceptable activities, that we as 22 citizens are absolutely responsible for our actions and we are 23 required to also hold those in power responsible for their 24 actions. I also learned that the role of government in a 25 society is to protect the rights of life, liberty and the DIRECT - VERNICE KUGLIN 433 1 pursuit of happiness for people. 2 Q. Now, this -- so you became interested in the 3 Libertarian party as a result of hearing this on the TV and 4 meeting Mr. Winfield? 5 A. Yes. 6 Q. Can you just briefly tell the jury what was your 7 association with the Libertarian party from that point until 8 about '95 or '96, just what you did? 9 A. Okay. Let's see. I was elected chairman. The state 10 Libertarian party, the first meeting that I went to, they were 11 looking for somebody and I was interested and I thought it 12 would be good learning the information about the Libertarian 13 party. I was also directed to an organization called the 14 advocates for self-government, and the advocates are located 15 in Atlanta. They are really the educational arm of the 16 Libertarian party, and from them I ordered a lot of 17 information, lots and lots of books. I have a room in my 18 house that the entire wall is a book shelf of videos, books, 19 tapes, flyers and such that I ordered from the advocates and 20 from other places. Don and I went to conventions. Don had 21 seminars. I organized a group in Memphis called the Advocates 22 for Self-Government supper club and once a month, people who 23 were interested would get together and we would discuss the 24 social political ideas of the Libertarian party and of the 25 United States. DIRECT - VERNICE KUGLIN 434 1 MR. BECRAFT: I'm listening to this TV back 2 here, I was wondering if the court could inquire as to 3 whether the jury can hear Ms. Kuglin? 4 THE WITNESS: Can you hear me all right? 5 THE COURT: They can hear fine. She is 6 speaking into her mic, I think everybody can hear well. 7 You can turn off the screen, if you want to. 8 MR. BECRAFT: I may not know how to do it, 9 Judge. 10 THE COURT: It has got an on/off button. I 11 think the juror can handle that. Thank you. 12 Q. Did you learn anything about taxes by attending these 13 various meetings where you went -- 14 A. Well, initially -- 15 Q. -- regarding the Libertarian party. 16 A. I'm sorry. 17 Q. You told us you went to a lot of Libertarian meetings, 18 did you learn or begin to learn anything about federal income 19 taxes while you were going to these various meetings? 20 A. I think the first thing that I heard which struck me or 21 made me take notice was that I kept hearing the fact that the 22 income tax was a voluntary tax. Now, I had been paying my 23 taxes, I had been filling out my 1040 forms, and Mr. Becraft 24 asked me earlier why I had been doing it at that time, and I 25 said because I thought I had to. Another factor was that I DIRECT - VERNICE KUGLIN 435 1 was afraid if I didn't that something bad would happen to me. 2 So when I started hearing that it was a voluntary system, it 3 just took me surprise. I couldn't understand how it could be 4 a voluntary system. And they said it was a voluntary 5 compliance. 6 Now, the words voluntary and compliance to me don't 7 match very well. Voluntary, I looked up in the dictionary, 8 and it -- basically, it was something that wasn't mandatory, 9 it was something that you chose to do, that you -- compliance 10 was completely different. It was something that you had to 11 do. So I was confused by this term, and I -- somebody at one 12 of the seminars suggested that I call the IRS and ask them if 13 the income tax was a voluntary tax. So I did. I called up 14 the IRS, and I said, you know, I would like to know if the 15 income tax is voluntary because if it is, I want to 16 unvolunteer right now. And they said, no, it's voluntary 17 compliance, and I said what does voluntary compliance mean, 18 and they said you have to do it. And I said that doesn't 19 sound very voluntary to me. Well, the conversation didn't get 20 very far. So I decided I needed to look somewhere else, and I 21 kept asking around, reading, trying to find some understanding 22 of this conflict of terms. And I finally met a gentleman, I 23 don't remember his name anymore, heard him at a seminar that I 24 heard him speak at, and he said his understanding was that as 25 American citizens, we are responsible for reading the tax DIRECT - VERNICE KUGLIN 436 1 code, for understanding what it says, for determining whether 2 or not there's a tax that applies to us. If it is, if we 3 determine that we are liable for one of the taxes in that 4 code, then it is our civic duty to fill out the documents 5 which relate to that tax. 6 Now, once we filled out the documents and 7 self-assessed, it's now our responsibility to comply with our 8 assessment. And I learned that as American citizens, we are 9 responsible for self-assessing. And once we self-assess, then 10 we must comply. But first of all, we have to determine 11 whether or not we're liable for one of the taxes. So that 12 straightened out the different -- the conflict in those words 13 for me. 14 Q. Okay. But -- one of the first things you kind of ran 15 into when you got involved in this -- on your personal 16 endeavor to learn something about the tax laws, you heard 17 these statements about voluntary? 18 A. Yes, I did. 19 Q. Now, down to your left -- 20 A. Yes. 21 Q. -- on the floor, there is that blue box, can I request 22 that you pull out the files that bear the numbers 5 through 15 23 and then also 22? Do you have them? 24 A. Yes. 25 Q. Okay. Now, can I direct your attention to the one that DIRECT - VERNICE KUGLIN 437 1 is -- has the number on it of five? 2 A. Yes. 3 Q. Okay. Can you identify that for me, please? 4 A. Yes. This is entitled Internal Revenue investigation. 5 It's dated Thursday, February the 3rd, 1953, House of 6 Representatives Subcommittee on Administration of the Internal 7 Revenue laws of the Committee on Ways and Means, Washington, 8 D. C. 9 Q. Is that something that you read and relied upon that 10 related to your understanding of tax laws? 11 A. Oh, yes, it is. 12 Q. Do you have a judgment or recollection as to when it 13 was that you might have seen or read this document? 14 A. This would have been early on prior to the time that I 15 stopped filing, somewhere between '92 and '95. 16 Q. Okay. But no later than April the 15th of 1996? 17 A. Oh, no, not at all. 18 Q. And what was it in this particular document that was 19 important for you? 20 A. Well, the -- I can probably quote it better than I can 21 find it. What was happening at this time is there was an 22 investigation of the Internal Revenue Service for corruption 23 within the service, and at this investigation was Mr. Avis who 24 at that time was the -- let's see, Mr. Avis, he, I believe, 25 was the head of the -- of the Alcohol, Tobacco and Firearms DIRECT - VERNICE KUGLIN 438 1 Division of the IRS. And as the committee was asking some 2 questions, they raised a question in reference to where there 3 would be some offices or counsel that would be -- that they 4 would contact, and Mr. Curtis who was one of the Congressmen 5 asked the question -- made the comment an alcohol tax matter 6 that would go to the appeals section, and he was interrupted 7 by Mr. Avis, and Mr. Avis said there is no such thing, that is 8 where the structure differs, and he went on to say, let me 9 point this out now, your income tax is one hundred percent 10 voluntary tax. Your liquor tax is a one hundred percent 11 enforced tax. Now, the situation is as different as night and 12 day. Consequently, your same rules just will not apply. 13 Q. Now, what's your understanding that that passage that 14 you just read us from, what does it come from? 15 A. Well, this comes from the government. This comes from 16 a congressional hearing, that comes from a man who is at the 17 head of an agency, and he's telling me here that the income 18 tax is one hundred percent voluntary tax. 19 Q. Okay. And it was your understanding that you were 20 reading from a government document? 21 A. Yes, sir. 22 Q. Okay. Let's kind of flip that over and set it aside 23 for right now. 24 A. Okay. 25 Q. And let me direct your attention to the one -- the DIRECT - VERNICE KUGLIN 439 1 document that has a number six on it. 2 A. All right, I have it. 3 Q. And can you identify that for us, please? 4 A. Yes, this is -- it says '79 annual report from the 5 Commissioner of the Internal Revenue. 6 Q. And what was important about that particular document 7 in reference to your beliefs? 8 A. Well, I find that throughout this document, there was 9 some six times where the word voluntary was mentioned, and it 10 says -- let me read the several places. Let's see, the whole 11 sentence, there is no doubt that better taxpayer assistance, 12 more sensitive responsiveness to taxpayer compliance, 13 complaints and problems and simpler tax forms and instructions 14 are of great importance in achieving a high level of voluntary 15 compliance with our tax laws. Later on, it says, to put these 16 figures in context in the same tax years individuals 17 voluntarily reported nearly 1.1 trillion in income and paid a 18 total of 142 billion dollars in taxes. 19 The next paragraph, the report lends considerable 20 weight to the conclusions drawn from past studies that 21 voluntary reporting is highest when incomes are subject to tax 22 withholding. And the next paragraph, in fairness to the 23 millions of taxpayers who voluntarily file, report their 24 income and pay the tax, we must strengthen current compliance 25 efforts. And I believe there's one more, it says the -- let's DIRECT - VERNICE KUGLIN 440 1 see. The great abuse we're finding in this area, if allowed 2 to continue unchecked, could result in serious decline in 3 taxpayers' perception of the fairness and evenhandedness of 4 our administration of the tax system and consequently in their 5 voluntary compliance. So here we have six places where the 6 Commissioner of the Internal Revenue Service talked about the 7 income tax or the tax system being a voluntary system. 8 Q. Take a look at the file that has the number on it 9 seven -- seven and eight. 10 A. You want me to set this aside? 11 Q. Yes. 12 A. Put it back in the file. Which number was that? 13 Q. Seven. 14 A. Seven. 15 Q. And can you identify the document for us, please? 16 A. Yes, this is a 1992 1040 form. 17 Q. Copies of parts of the '92 instruction booklet? 18 A. Yes, it is. 19 Q. Is that something you read and relied upon? 20 A. Yes, it is. 21 Q. Direct our attention to that particular document, the 22 '92 instruction booklet bearing the number seven on it, what 23 was it? 24 A. What was the document? 25 Q. What was on that document that you found? DIRECT - VERNICE KUGLIN 441 1 A. It says right here -- excuse me, I'm sorry, it says a 2 note from the commissioner. Dear Taxpayer. Thank you for 3 making this nation's tax system the most effective system of 4 voluntary compliance in the world. 5 Q. Let me direct your attention to another one, the next 6 one, number eight. Is that something similar except for '93? 7 A. Let me get this here. I did have a binder with all of 8 these, and somehow it disappeared last night when I left it 9 here at the court, so I'm not sure where it is. '93, yes. 10 THE COURT: Let me talk to people at side. 11 (The following proceedings had at side-bar 12 bench.) 13 THE COURT: Okay. That was a very 14 inappropriate aside. What is she talking about? You 15 didn't come to me this morning and say something is 16 missing. What is missing? 17 MR. BECRAFT: No, Your Honor. I left all of 18 our books up here last night. 19 THE COURT: Where did you leave them? 20 MR. BECRAFT: Just right there. 21 THE COURT: Is something missing? 22 MR. BECRAFT: Well, no, no -- we don't know 23 where it went. After we left court, I left all these 24 exhibits up here so I wouldn't have to bring them back and 25 forth. She has a white notebook that she has had her DIRECT - VERNICE KUGLIN 442 1 boyfriend looking for ever since. We walked down to 2 Gordon Biersch's last night. My suspicions is it got left 3 down there, but it was all her notes in it, but we have -- 4 for our exhibits, we have got so much redundancy built 5 into it that she has misplaced her notebook, but, you 6 know -- so we're just going through the ones that she has 7 got. 8 THE COURT: The problem with the inference is 9 that somehow she left it here, and Mr. Murphy is here and 10 it disappeared, that's the problem with the inference is 11 that she's blaming it on the government. Frankly, I'm not 12 the government, I'm the judiciary. I know we didn't do 13 anything with it. 14 MR. BECRAFT: I will ask a question about it. 15 THE COURT: Mr. Murphy, we don't have to say 16 anything about it, but I want to make sure that there is a 17 not a problem. If she thinks she is missing something, we 18 need to look for it. 19 MR. BECRAFT: We have, Your Honor. We haven't 20 located it, but we have got so much spare copies that 21 we're proceeding with the box that we have got. It 22 poses -- 23 THE COURT: That's no problem. That's fine. 24 (The following proceedings were had in open 25 court.) DIRECT - VERNICE KUGLIN 443 1 THE COURT: That's the first I had heard about 2 anybody leaving something in court and it not being here 3 the next morning. I wish they had told me this morning. 4 We try to lock things up every night, and, frankly, we do. 5 We lock up the courtroom. In fact, we even lock up the 6 jury room, have to unlock it in the morning, but I wanted 7 to make sure there wasn't something that we had 8 inadvertently moved around, and we will look for it, 9 although I don't think -- 10 THE WITNESS: May I address the court? 11 THE COURT: That's okay, I just wanted to make 12 sure we didn't lose something. 13 THE WITNESS: No, I just meant it was just I 14 had them all in file, and so I was just fumbling around a 15 little bit. I didn't mean to imply that there was 16 anything that -- you know, it's possible that I had taken 17 it with me and left it somewhere. 18 THE COURT: Sure, that's okay. I just wanted 19 to make sure that we didn't lose anybody, okay. 20 THE WITNESS: No, no. 21 THE COURT: It is possible for the federal 22 government to lose something, I agree with you on that. 23 THE WITNESS: I have everything here, it's just 24 not as easy for me to get to as my own copy. 25 THE COURT: No problem. DIRECT - VERNICE KUGLIN 444 1 Q. You had the same exhibits organized for yourself in 2 your own little folder? 3 A. Yes, I did. 4 Q. Which right now cannot be located? 5 A. That's correct. 6 THE COURT: If we find it, we will give it to 7 you. 8 THE WITNESS: If you don't mind me fumbling 9 around, I won't need it. 10 THE COURT: That's no problem at all. 11 MR. BECRAFT: My personal conclusion is it's 12 somewhere on Main Street. 13 THE WITNESS: Yes. 14 Q. We have been distracted, let's go back to that exhibit 15 number, what is labeled number 8? 16 A. It's number 8. 17 Q. Kind of hit it fast. Is that another statement like 18 the one you just read? 19 A. Right, it is 1993, 1040, it says you are among the 20 millions of Americans who comply with the tax law voluntarily. 21 Q. Okay. Let me direct your attention to the one that has 22 the number nine on it. 23 A. All right. 24 Q. Or skip that one and go to number ten. 25 A. All right. I have number ten. DIRECT - VERNICE KUGLIN 445 1 Q. Was that something you read and relied upon? 2 A. Yes, it is. 3 Q. What was important about it? 4 A. Well, the title is Withholding Is Not Required. 5 Employers and employees are volunteers in a tax scheme. It 6 says employers are not required to have money withheld from 7 their earnings. 8 Q. Okay. 9 A. Employees, I'm sorry. 10 Q. Okay. Now, listen to my number, I directed your 11 attention to number ten. 12 A. I'm sorry, you are absolutely correct, I pulled out the 13 wrong one. Number ten. 14 Q. What is your understanding of what that document is? 15 A. This document is -- at the top, it has the Internal 16 Revenue Service logo, and then it says mission. The purpose 17 of the IRS is to collect the proper amount of tax revenues at 18 the least cost to the public and in a manner that warrants the 19 highest degree of public confidence. In our integrity, 20 efficiency and fairness, to achieve that purpose, we will 21 encourage and achieve the highest possible degree of voluntary 22 compliance in accordance with tax laws and regulations. We 23 will advise the public of their rights and responsibilities. 24 Q. Now, let me direct your attention to -- there's a 25 series of similar documents that are labeled or numbered 13, DIRECT - VERNICE KUGLIN 446 1 14 and 15, can you pull those out for us, please? 2 A. I also had my documents highlighted, so it is going to 3 take me a little while to find. 4 Q. Now, you just got through talking about Exhibit Number 5 10, the mission statement of the IRS, right? 6 A. Yes. 7 Q. All right. Do 13, 14 and 15, those documents bearing 8 those numbers, do they kind of relate to this general topic of 9 the mission of the IRS? 10 A. Yes, they do. 11 Q. Okay. And is it similar to -- is that mission of the 12 IRS in those documents similar to the one in number 10? 13 A. Let me find this here right here. Yes, it is. The tax 14 system is based on voluntary compliance and taxpayers complete 15 and return the forms with payment of any tax owed. 16 Q. Is there something on that -- is that number 13? 17 A. This is number 13. 18 Q. Is there something at the top of the page that would 19 indicate a date? 20 A. Yes, it says 4-1 of '97. 21 Q. All right. And is it fair to say that the next two 22 exhibits are basically the same type of document, but for 23 later years? 24 A. Yes, they are, and they are for 4-1-98. Documents come 25 out of 26 Code of Federal Regulations, Chapter 1. And the DIRECT - VERNICE KUGLIN 447 1 third one is for April 1st of '99. 2 Q. Okay. Of course, these are later in time, but sometime 3 shortly after these documents would have been published and 4 before April 15 of, say, 2000 or 2001, had you read those 5 documents? 6 A. Yes, I had. 7 Q. Did you rely upon them? 8 A. Yes, I did. 9 Q. For the belief that there's statements from the 10 government about voluntary compliance? 11 A. Absolutely. 12 Q. Now, these documents right here, 13, 14 and 15, what is 13 your understanding as to their real nature, what are those 14 documents? 15 A. These are 601, 602 is tax form and instructions, it's 16 about completing the forms. 17 Q. All right. Is that regulations? 18 A. Yes, it is. 19 Q. Let me direct your attention to -- can you pull out 22? 20 Can you identify the exhibit number or the document that is 21 labeled 22 for us, please? 22 A. Yes, the document that is labeled 22 is a -- it's from 23 the Supreme Court reporter. It's a case entitled Walter Flora 24 versus the United States of America, and it's dated March -- 25 well, re-argued November 12th, 1959, decided March the 21st of DIRECT - VERNICE KUGLIN 448 1 1960. 2 Q. Okay. I have to ask you some questions that relate to 3 a promise that I made to the court. Ms. Kuglin, is it your 4 understanding that during your testimony of this case that 5 what you're going to be telling the jury is your beliefs about 6 the law, correct? 7 A. That's correct. 8 Q. All right. So if we kind of get rolling along here and 9 you say the law, the law, the law, are you telling us your 10 belief about the law? 11 A. Yes, it is my belief. Just my belief of the law. 12 Q. And you understand that later on, the court is going to 13 be telling the jury what the law is? 14 A. That's correct. 15 Q. So you're not attempting to tell the jury what the law 16 is? 17 A. No, I'm not. 18 Q. Having said about, let's roll back to that document 19 number 22, did you say it is called the Flora Supreme Court 20 case? 21 A. Yes. 22 Q. Okay. Did you read that at some time when you first 23 started studying the tax laws? 24 A. Yes, I did. 25 Q. Okay. Direct your attention to -- what was it that was DIRECT - VERNICE KUGLIN 449 1 important in that particular case that you noted? 2 A. This is on this document, it was at page six of 47, and 3 there's a statement which the court returned in their 4 decision. It says our system of taxation is based upon 5 voluntary assessment and payment, not upon distraint. 6 Q. What did that mean to you? 7 A. That basically substantiated the things that I had read 8 before about voluntary -- that the tax system was voluntary, 9 that, as I stated before, we as citizens are to understand the 10 tax code, as best we can, assess ourselves, and then 11 voluntarily comply with the rules and regulations if it 12 applies to us. 13 Q. So would you have read this case and relied upon it at 14 some time before, oh, 1996 or 1997? 15 A. Oh, yes. 16 Q. Would it have been before that time? 17 A. Yeah. Oh, yes. 18 Q. Give us your best judgment or recollection as to when 19 you were going to these meetings, when was it that you started 20 hearing this stuff about voluntary? 21 A. It was at the meetings, I first started hearing it, and 22 as I said before, I started to dig into it and accumulate 23 documents. At these conventions and meetings that you go to, 24 there is a lot of people who bring copies, forms and things 25 like that which, you know, talk about the different aspects of DIRECT - VERNICE KUGLIN 450 1 it. And what the speakers always tell you to do is not to 2 rely on what they have said, but to go and research the 3 documents, go to the library, find the documents, substantiate 4 what they have basically said, and that's why I got the 5 documents and what I started doing. 6 Q. Now, you said you got a lot of your tax information at 7 Libertarian party meetings? 8 A. Yes, and conventions and other places. 9 Q. Was the Libertarian party, the speakers there, were 10 they people that -- were the only speakers ones that were 11 speaking about taxes? 12 A. Oh, no, no, there were other -- I went to other 13 seminars that were being held. Don Winfield put on seminars 14 and he had speakers come. I go to a convention every August 15 called the ARIS Convention in Aspen and sometimes the speakers 16 there are discussing the tax issues. 17 Q. But are they talking about something beyond or other 18 than taxes? 19 A. Oh -- they do, yes, they talk about the -- let me see 20 how to put it. 21 Q. Do they have speakers about politics? 22 A. Yes. 23 Q. Economics? 24 A. They talk about politics, economics, the role of 25 government in society, how we can improve our society, what DIRECT - VERNICE KUGLIN 451 1 the founding fathers intended for our society, how the tax 2 system was developed and just a wide range of subjects. 3 Q. Well, so by -- between '92 and '93 and all the way up 4 through '94, were you digging into this topic of how do the 5 federal income tax laws operate? 6 A. Absolutely. I had -- when I -- some of the material I 7 had gotten from the Advocates for Self-Government, several of 8 the books, and I believe that they were in regard to the 9 Constitution. I got a series of cassette tapes on the 10 Constitution. I was very interested in finding out how the 11 founding fathers looked at the tax issues and how they 12 determined what type of tax system would -- was going to be in 13 the country. 14 Q. Let me stop you right there. 15 A. Sure. 16 Q. Just for -- you mentioned tapes and I have shown this 17 before, what do I have in my hand? 18 A. You have a series of cassette tapes done by Knowledge 19 Products. They're outside of Nashville, Tennessee or, I'm 20 sorry, Chattanooga. 21 Q. And narrated by Walter Cronkyte? 22 A. Yes. They have different series, one is on economics, 23 one is on religions of the world, different wars of the world, 24 just -- there's different series of those tapes, and they're 25 narrated by different very prominent people. And I find them DIRECT - VERNICE KUGLIN 452 1 to be very informative and very credible. 2 Q. Now, you listened to these tapes and learned something 3 about the United States Constitution, correct? 4 A. Yes, I did. 5 Q. Did you read any terms or engage in any study that 6 related to the constitutional provisions that relate to 7 taxation? 8 A. Yes, I did. 9 Q. Okay. Explain to us what it was that you were reading. 10 A. Okay. I ordered a tax code -- I'm sorry, I didn't mean 11 tax code, I looked over here. It's bigger than this. I 12 ordered a copy of the Constitution, and I was really surprised 13 when I got it, because the Declaration of Independence, the 14 Bill of Rights and the Constitution are in a book about this 15 small, and I thought, boy, I have never seen this, you know, 16 why did I not get this book in school. And I started reading 17 it, and I ordered the set of tapes so that it would help me 18 understand this, because I had read several places in the 19 Constitution that related to taxes -- 20 Q. Can I stop you right there? 21 A. Yes. 22 Q. So you had the tape series, the Constitution itself. 23 Were there any other documents, that in order to understand 24 the constitutional aspects of federal taxation, any other 25 types of things that you read? DIRECT - VERNICE KUGLIN 453 1 A. Yes, I did. After I had read the information they had, 2 there were court cases that I started reading. 3 Q. Okay. What were -- what were the names of those court 4 cases to your understanding? 5 A. The first case was the -- that I was directed to, and 6 you'll have to understand that I took -- 7 Q. Now, listen to my question. Just give the names of the 8 questions. 9 A. The first case was the Pollock case. The second case 10 was the Brushaber case. The third case was Flint versus Stone 11 Tracy. The fourth case was Redfield versus Fisher. Fifth 12 case was Sims versus Ahrens, and the final case in regard to 13 this was Jack Cole versus McFarland. 14 Q. Okay. So in these materials that you have listed off 15 for us, the Constitution itself, the audio tape series, those 16 cases, do they relate in some way to your understanding about 17 at least the constitutional nature of federal income taxes? 18 A. Yes, they did. 19 Q. Give us -- tell us what you learned by listening to the 20 audio tapes, reading the cases, looking at the Constitution, 21 reading anything else that you did. 22 A. Well, I found out that the founding fathers were very, 23 very interested in the tax issue. The revolution had 24 basically -- the straw that broke the camel's back was a three 25 cent tax on tea, and the whole revolution basically was trying DIRECT - VERNICE KUGLIN 454 1 to get out from under the long arm of the British government, 2 and after the revolution, there was the Articles of 3 Confederation were compiled, and the Articles of Confederation 4 are similar to the Constitution, much looser than the 5 Constitution. And the Articles of Confederation, one of the 6 things it did not allow for was for the national government to 7 be able to levy taxes, and part of this was because the 8 citizens of each of the states, the states had the power to 9 tax within their own borders and they were, very, very 10 hesitant to allow a central government to have the power of 11 competing with them in the taxation arena. So the Articles of 12 Confederation did not allow for that. 13 However, situations arose where there was some national 14 emergencies that really needed the federal government to 15 intervene, and at this time, the national government, as it 16 was called then, had very, very limited powers to protect from 17 the enemy without, to adjudicate disagreements, force and 18 fraud within the society, but without the ability to lay 19 taxes, they could not really fight a war, and so the -- there 20 was a convention convened in Philadelphia in order to revise 21 the Articles of Confederation to allow the national government 22 to be able to require the states to pay a portion of the 23 monies necessary for a war or something like that. What ended 24 up out of that was the Constitution. They actually wrote an 25 entirely new document. In those cassette tapes, there's some DIRECT - VERNICE KUGLIN 455 1 very, very interesting information on the debates that went on 2 about the tax issue. This was -- this was something very, 3 very serious for the founding fathers, and how they would 4 decide who got taxed, who got to do the taxing and such like 5 that. I found out that generally the strong arm of taxation 6 for -- in the past, kings, governments and such like that had 7 been customs taxes, indirect taxes, and that -- excuse me, I 8 need to take a drink. 9 Q. You want me to rephrase? 10 A. Yes. 11 Q. Okay. What was it that you learned by studying these 12 documents? You were telling us about your studies of the 13 Constitution, relationship to federal taxation, what was it 14 that you learned by engaging this study that had an effect 15 upon your beliefs? 16 A. Right. I found out in studying this that there were 17 two types of -- basically two types of taxes which were 18 created under the Constitution. There were the direct taxes 19 and indirect taxes. Now, Article 1, Section 8 of the 20 Constitution says basically that Congress shall have the power 21 to -- excuse me, let me get it out. I'm a little nervous 22 here. 23 THE COURT: Actually, I need to take about a 24 five-minute break. 25 THE WITNESS: That would be great. DIRECT - VERNICE KUGLIN 456 1 THE COURT: Is that okay? 2 THE WITNESS: That would be fine. Thank you. 3 THE COURT: We're going to take a short break, 4 and that way I can get something taken care of in the back 5 that I need to actually sign, and I will be right back. 6 Five minutes. That will also give you a short break. 7 We're going to stay really much past 5:00. We're going to 8 go right to 5:00, and we're going to stop at 5:00. We're 9 going to come back at 9:00 tomorrow, just like we did 10 today. 8:30, come back at 9:00 tomorrow, so that will be 11 our schedule. See you in five minutes. 12 (Recess taken at 4:10 until 4:15 p.m.) 13 THE COURT: You all set? 14 THE WITNESS: Yes, thank you. 15 THE COURT: Sure. I'm sorry we -- I tried to 16 check on having -- see if the cleaning folks could have 17 possibly gotten that book. I would have had them check 18 earlier this morning -- 19 THE WITNESS: That's all right. We can handle 20 it this way. You know, it will just be a little bit more 21 effort on my part, but that's fine. 22 MR. BECRAFT: I bet we left it at Gordon 23 Biersch's, that's my bet, Judge. 24 THE COURT: I wish -- we might make an effort 25 to try to take care of everybody. DIRECT - VERNICE KUGLIN 457 1 MR. BECRAFT: Judge, it's really no problem, 2 because she has made so many copies of the exhibits that 3 we have redundancy built in. 4 THE COURT: I think I have done what I should 5 do. I will check on everything I can and I will continue 6 to do that. 7 THE WITNESS: Don't be worried about it because 8 we will be fine. Thank you. 9 THE COURT: Well, Mrs. Parker, I'm going to let 10 you actually -- we'll be quite and let you go get the 11 jury. 12 (Jury in at 4:17 p.m.) 13 THE COURT: Anyway, we're ready to proceed. 14 Thank you. 15 MR. BECRAFT: May it please the court. 16 Q. Ms. Kuglin, I have an idea as to where we were before 17 the break. You were telling us -- I had posed some question 18 about from all this material that you read and studied, you 19 know, you had reached a certain belief about the taxes powers 20 of the United States under the United States Constitution, I 21 think you were explaining what you had learned or what you 22 believed in that respect when we broke. 23 A. That's correct. 24 Q. All right. I asked the same question all over again. 25 A. All right. And I said that in the Constitution there DIRECT - VERNICE KUGLIN 458 1 are three places that has a reference to taxes. Article 1, 2 Section 8 of the Constitution states that the Congress shall 3 have the power to lay and collect taxes, excised, imposed and 4 duties, to provide for the common defense and for the general 5 welfare. But all duties imposed and excises must be uniform 6 throughout the United States. In other words, if you have a 7 gas tax in Vermont of 50 cents, you have to have a gas tax in 8 California of 50 cents. They have to be uniform throughout 9 the country. That Article 1, Section nine of the Constitution 10 addresses a different type of tax. It says no capitation or a 11 direct tax shall be laid unless in proportion to the census 12 and the enumeration herein before ordered to be taken. 13 Now, in Article 1, section 8, they were discussing what 14 is known as indirect taxes. Indirect taxes are those, excised 15 imposed taxes which can be passed on to somebody else. In 16 other words, if you are a business person and you have a 17 certain business expense or you have a federal -- a tax that 18 you have to pay, you can pass that on to somebody else. 19 Direct taxes were taxes that couldn't be passed on, they were 20 basically taxes that were placed upon the property, fruits of 21 labor and such like that. And then later on, you have the 22 16th Amendment, which we'll get into, I believe, a little 23 later. 24 Q. Now, did you read something -- you mentioned earlier 25 this afternoon about some cases that you read. Did they -- DIRECT - VERNICE KUGLIN 459 1 those cases themselves relate to this issue of, you know, the 2 constitutional nature of federal income taxes, and did they 3 play some role in your beliefs about your requirement to file 4 returns? 5 A. Oh, absolutely. 6 Q. Okay. Can you explain to the jury what this Pollock 7 case was about? 8 A. Well, after the -- let me back up just a moment for 9 the -- back to the war between the states and to the direct 10 tax. There was a couple of things I wanted to explain on the 11 direct tax. There was some limitations on direct taxation. 12 The federal government could tax excise taxes or indirect 13 taxes, but they did have a limit on direct taxes. One of the 14 limitations on those direct taxes was that they could only be 15 levied in states of declared emergency and that the tax must 16 end within two years after that state of emergency ended. The 17 other requirement was that the cost of the state of -- of the 18 state of emergency needed to be computed, divided among the 19 states based on their inhabitance and the bill sent to the 20 states. I think all of us learned in school about no 21 taxation -- no taxation without representation. Well, that's 22 where this came from, that the percentage of the bill for the 23 state of emergency that was sent to any individual state was 24 done so based on the number of inhabitants. Now, one thing I 25 found very interesting was that the Congress could not DIRECT - VERNICE KUGLIN 460 1 directly tax the individuals in the states, that the bill was 2 sent to the individual states, and it was up to the states to 3 determine -- to figure out how they were going to pay their 4 share of the bill. Some states, if they had enough money in 5 their coffers to pay their share of the bill, the citizens of 6 the states might never ever know that the tax had been paid. 7 Other states, if they didn't have enough money would -- could 8 decide how they wanted to tax their citizens. For instance, 9 in the State of Tennessee, they might decide to tax real 10 estate, might decide to tax the number of windows you have in 11 a house, the number of fireplaces or such like that. But that 12 was left up to the state. That was not a rule the federal 13 government had, so I just wanted to clarify on the direct 14 taxes. And as I started reading more and more -- I was going 15 back to the war between the states, there was a tax, direct 16 tax levied for raising the money for the war between the 17 states, and this was done according to constitutional 18 mandates, and the bill was sent to the states. The tax ended 19 not two years after the war, they took a little extra year to 20 do that, but it did end three years after the war, and from 21 that time on, there really was no income tax, direct tax like 22 by the federal government until about 1894 that Congress 23 decided that they needed a little bit more money. I don't 24 think that's very unusual for us. We hear that all the time, 25 they want a little bit more money. And so there was an income DIRECT - VERNICE KUGLIN 461 1 tax of 1894 was passed. And you want me to continue? 2 Q. Well, my question to you is that you mentioned -- 3 A. Yes. 4 Q. -- this Pollock case. 5 A. Yes. 6 Q. I would like to know what you learned by reading that 7 document. 8 A. Okay. The Pollock case was really as a result of the 9 income tax of 1894. Mr. Pollock worked for Farmers Loan and 10 Trust Company, and when the income tax was instituted, the 11 directors of the company began taking -- paying taxes out of 12 the profits of his stocks and his bonds. And in 1895, people 13 were still very familiar with the Constitution. Most people, 14 you know, had read it and were familiar with it. And so he 15 felt that the income tax of 1894 was not a constitutional tax, 16 that it could not be levied on the income off of his stocks 17 and bonds, so he took the case to court, he and some other 18 people, and it ended up all the way up at the Supreme Court 19 level. And in that Supreme Court decision, the majority of 20 the judges or the majority ruling of that case was that the 21 income tax was a tax on property and that because it had not 22 been levied in relationship to uniformity, or I'm sorry, let 23 me back up. 24 Q. Let me ask you this -- why don't you pull out -- 25 A. Thank you. DIRECT - VERNICE KUGLIN 462 1 Q. There's a file folder in that blue box, there's a 2 number 16. 3 A. Okay. I have 16. Mr. Pollock, yes. 4 Q. You just stuck something in your hand? 5 A. Yes. 6 Q. Is that file folder 16? 7 A. This is file folder 16, yes. 8 Q. Okay. Is that something you read and relied upon? 9 A. Yes, it is. It is the 339 pages of Farmer -- Pollock 10 versus Farmers Loan and Trust. 11 Q. All right. 12 A. And I can continue on with what I was saying if you 13 would like me to. 14 Q. You mentioned that that is an extremely long case, 339 15 pages? 16 A. Yes, I did. 17 Q. Did you read it all? 18 A. Yes. 19 Q. Have you studied it? 20 A. Yes, I have. I have read it several times. 21 Q. Is it a little harder to understand than a novel? 22 A. Yes, it is, but not too much harder. You have to read 23 it slowly, and if you read it slowly, then it begins to fall 24 into place. 25 Q. Now, what was the refined essence of what you learned DIRECT - VERNICE KUGLIN 463 1 by reading that document that you have in your hand? 2 A. Okay. As I was -- I was tempted to say a little 3 earlier that the majority of the judges ruled that the tax -- 4 income tax of 1894 was a direct tax and because -- on property 5 and that because it had not been apportioned that it was not 6 constitutional. 7 Now, they defined the direct tax as a tax on property. 8 Interestingly enough, there was a dissenting position in this 9 case, and this dissenting position was written by a new judge 10 on the court by the name of Justice White, and in his 11 dissenting position, Justice White said no, the income tax is 12 not a direct tax, it's an excise tax and, therefore, it must 13 be uniform across the country. 14 Q. Now -- 15 A. And so the case ruled the income tax of 1894 16 unconstitutional. 17 Q. Did you read any studies that related to what happened 18 after the Pollock case? 19 A. Yes. 20 Q. Was that type of stuff that was covered in this tape 21 series here? 22 A. Yes, in that tape series, and also I had read some 23 books that referred to, and there were other cases. There was 24 the next case that I'm going to talk about, had referred to 25 Pollock and some of the decisions in the Pollock case. DIRECT - VERNICE KUGLIN 464 1 Q. Okay. Let me direct your attention to that file 2 folder, 17. 3 A. Did you want me to lay this aside? 4 Q. Yes, lay 16 aside. 5 A. All right. Let me just clarify this, you just want the 6 stack of exhibits that we're using right here or -- 7 Q. Yeah, that will be fine, or you can turn around and put 8 them up there. We're through with them right now, if you need 9 space. 10 A. Okay. 11 Q. Now, you have pulled out of the blue box file folder 12 17? 13 A. That's correct. 14 Q. Okay. Can you tell us what that is? 15 A. Yes, this is another court case, Supreme Court printed 16 out of the Supreme Court Recorder, entitled Frank R. Brushaber 17 versus Union Pacific Railroad Company. 18 Q. Now, did you read this case? 19 A. Yes, I did. 20 Q. And can you tell the jury what you learned, how this 21 had some impact or view or -- impact upon your beliefs 22 regarding federal income taxes? 23 A. I want to back up just briefly, after the Pollock 24 decision, Congress was not real happy with this decision. And 25 other people were not real happy with it, and so they were DIRECT - VERNICE KUGLIN 465 1 garnering inform -- they were garnering support to attempt to 2 do another tax, income tax, and finally, in 1913, they -- 3 Congress garnered enough support to pass what we know as the 4 16th Amendment, and the 16th Amendment, I would like to read 5 that, if I might, what it said about -- 16th Amendment said 6 that Congress shall have the power to lay and collect taxes on 7 incomes from whatever source derived without apportionment 8 among the several states. Basically, what the amendment was 9 wanting to do is to get rid of the apportionment requirement 10 which the Pollock case had assigned to the income tax when it 11 defined it as a direct tax. So after they passed the 16th 12 Amendment, another situation -- another situation arose 13 similar to Mr. Pollock's situation. And this one was a Mr. 14 Brushaber,and Mr. Brushaber worked for the Union Pacific 15 Railroad Company, and again, he owned -- I'm sorry, he did not 16 work for the Union Pacific Railroad, he owned stock in the 17 Union Pacific Railroad Company and, again, they began 18 withholding taxes out of the profits of his stocks. So he 19 took this to the court -- excuse me a moment. Again, this 20 went all the way up to the Supreme Court. Now, interesting 21 factors, I told you before on the Pollock case that the 22 dissenting decision was written by a Justice White. By the 23 time the Brushaber came along, Justice White had become the 24 chief justice of the Supreme Court, and he decided to write 25 this opinion himself. And in the opinion, he said that the DIRECT - VERNICE KUGLIN 466 1 Pollock case was incorrect, that income tax was not a direct 2 tax and that it needed not to be apportioned, that, in fact, 3 by virtue of its name, the term the income tax was an indirect 4 tax, and the requirement under Section 1, Article 1, Section 8 5 of the Constitution says that indirect taxes must be levied 6 uniformly across the country. So the -- the -- one other 7 thing that came out of the Brushaber case was that the 16th 8 Amendment -- many people feel that the 16th Amendment was 9 declared unconstitutional at that time. It was not, and 10 Justice White did not declare it unconstitutional. He simply 11 defined that the constitutional restrictions of direct taxes 12 by apportionment, indirect taxes by uniformity still applied, 13 that had not been changed, but that the term income taxes was 14 an excise tax. 15 Q. Well, Ms. Kuglin, this is kind of -- you know, of what 16 significance is a case that declares the federal income tax to 17 be an excise tax, of what significance is it to you about 18 filing returns? 19 A. Well, an excise tax -- and in order to find the 20 definition of what exactly an excise tax was, I had to do a 21 little bit more research. 22 Q. Let me stop you there, what was that, what was this 23 research? 24 A. Well, the research that I did -- but the main research 25 was a case entitled Flint versus Stone Tracy. DIRECT - VERNICE KUGLIN 467 1 Q. Did you read that document? 2 A. Yes, I did. May I take it -- 3 Q. Yes, it is file number 18. 4 A. Okay. 5 Q. You can lay the other aside behind you. 6 A. I need to put this back. 7 Q. You have file number 18 in front of you? 8 A. Yes, I do. 9 Q. Can you identify that for us, please? 10 A. Yes. This case is entitled Flint versus Stone Tracy, 11 and it was decided in -- let's see the date on this is -- this 12 is in about 1925, I believe, it was an earlier case, and it 13 was in regard to excise taxes, and one of the -- or the 14 decision in this case, one -- the decisions in this case that 15 defined what an excise tax was, because it was rather 16 confusing at that time. And in Flint versus Stone Tracy, the 17 court said that excise taxes are those taxes laid upon the 18 manufacture, the sale and the consumption of commodities 19 within the country. They're taxes laid upon the licensing of 20 certain occupations and also upon corporate privileges. Now, 21 the thing that was really interesting about the Flint versus 22 Stone Tracy Company for me in regard to the income tax is that 23 my earnings from FedEx, I'm a pilot, I'm not a manufacturer of 24 commodities, I -- my job is not a job that requires a special 25 government privilege to do, and I'm not a corporation. So in DIRECT - VERNICE KUGLIN 468 1 light of the fact that Justice White in the Brushaber case 2 said that the income tax was actually an excise tax, and now 3 in Flint versus Stone Tracy, I'm told that excise taxes are 4 those laid upon manufacturers, upon licenses and upon 5 corporations. So I'm beginning to really question what is 6 going on here, because I know that I'm told that the income 7 tax is the tax I'm liable for on my wages, and every -- these 8 documents that I have come across so far tell me a different 9 story. 10 Q. Let me get you to -- pull out all at once files number 11 19, 20 and 21. 12 A. Are we finished with five through 11? 13 Q. Yes. 14 MR. BECRAFT: May I approach, Your Honor? 15 THE COURT: You may. 16 A. What number? 17 Q. 19, 20, and 21. Do you have them in your hands? 18 A. I do. 19 Q. Now, let me -- turn to file number 20. 20 A. Okay. File number 20. 21 Q. Can you identify that for me, please? 22 A. I can. This is a case that was heard in 1925. It 23 was -- it's entitled Sims versus Ahrens, and this case was 24 heard by the Supreme Court of our neighboring state, Arkansas. 25 This was decided in Little Rock. DIRECT - VERNICE KUGLIN 469 1 Q. What significance about this particular document 2 regarding your tax beliefs? 3 A. Well, in the rendering of the decision in regard to the 4 ability of a legislature or a legislative body to tax, it says 5 the legislature has no power to tax for revenue purposes those 6 occupations that are of common right. It goes on to say that 7 the legislature does have the power to declare as a privilege 8 and tax for state revenue purposes those occupations which are 9 not of common right. What this showed to me is that further 10 substantiated that the income tax is an excise tax. It's tax 11 on commodities, corporations and licenses, but here Flint 12 versus Stone Tracy is saying that the legislature does not 13 have the power to tax occupations of common right. Well, my 14 job as a pilot is an occupation of common right, anyone can do 15 what I did, go out to the local airport, start taking flying 16 lessons, building the flying time and become a pilot. So this 17 just substantiated for me one more piece of the puzzle that 18 was starting to fit into place and starting to build a 19 foundation which eventually was going to lead to my decision. 20 Q. Let me direct your attention to that file, number 21, 21 can you identify that for us, please? 22 A. Yes, this is Redfield versus Fisher. This was a case 23 decided by the Supreme Court of Oregon over on the West Coast 24 and it's dated October 24th, 1930. 25 Q. What was it that you learned by reading that case that DIRECT - VERNICE KUGLIN 470 1 related to your tax beliefs? 2 A. I learned about privileges and what are privileges, and 3 the court in its ruling, one of the most significant things 4 that it said was that the individual, unlike the corporation, 5 cannot be taxed for the mere privilege of existing. Said the 6 corporation is an artificial entity receiving its -- excuse 7 me, owing its existence and its charter powers to the state, 8 that the individual's rights to exist and own property are 9 natural rights. The enjoyment therefore -- it's a little 10 difficult the way they say it, it says the enjoyment of which 11 an excise tax cannot be imposed. And what this confirmed for 12 me a little bit more was that my job, my occupation was that 13 of common right and that I have a natural right to existence 14 and that a tax cannot be imposed on that right. 15 Q. Let me direct your attention to the file folder that 16 bears the number 19. Is that something you read and relied 17 upon? 18 A. This is something I read and definitely relied upon. 19 Q. Okay. Tell us about it. 20 A. This case is probably my favorite case, and perhaps 21 it's because this case actually was heard in the Supreme Court 22 of Tennessee, the Volunteer State. And this was Jack Cole 23 Company versus Alfred T. McFarland, commissioner, this is a 24 recent case, this is not -- the other cases were 1920s, 1930s 25 and prior to that. This was a 1960s case, and so it gave me, DIRECT - VERNICE KUGLIN 471 1 you know, some recent substantiation in the puzzle that was 2 beginning to form for me. And the important part of this case 3 that the court stated was that the realizing and receiving of 4 income and earnings or earnings is not a privilege that can be 5 taxed. It says since the right to receive income or earnings 6 is a right belonging to every person, this right cannot be 7 taxed as a privilege, and that was like one of the final 8 pieces in the puzzle as far as understanding why my right to 9 earn a living in the form in which I chose was not a privilege 10 that could be taxed. 11 Q. When was it that you engaged in this process of reading 12 and studying these cases that you have just mentioned? 13 A. I'm sorry, say that again. 14 Q. Okay. What's the time frame when you were reading this 15 stuff? 16 A. Oh, the time frame in this was '92, once after I had 17 first heard about the issue of tax, the truth in taxation 18 movement in the Libertarian party, and 1990 through '95. 19 Q. Well, definitely before April 15th of 1996? 20 A. Absolutely. 21 Q. You had read all these cases? 22 A. Yes, I had. 23 Q. Can you give us a refined essence of your conclusion 24 that you drew from reading and your studying of the 25 Constitution, its taxing powers and the series of cases that DIRECT - VERNICE KUGLIN 472 1 you have just described? 2 A. From the Constitution, I learned that there were two 3 forms of taxes, direct taxes and indirect taxes. Indirect 4 taxes had to be levied uniformly across the country. Direct 5 taxes were those taxes which were laid upon property and such 6 like that and they have to be apportioned and the bill sent to 7 the state, not the individual. Pollock, in the dissenting 8 case, Justice White, identified income taxes as falling in the 9 category and class of taxes known as indirect taxes and 10 therefore must be uniform. Brushaber in the Justice White 11 reconfirmed this. Flint versus Stone Tracy had defined for me 12 what an excise tax was, and I realized that my occupation did 13 not fall under the categories of manufacturing, corporations 14 or licenses. Redfield versus Fisher identified that as a 15 natural human being, an individual that had the right to make 16 a living could not be taxed and then, let's see Jack Cole 17 versus McFarland was the clincher, I had a right to earn a 18 living, I and every other American citizen has a right to earn 19 a living and that right cannot be taxed, and that really was 20 the final, I guess, piece of the puzzle that said, you know, 21 something is amiss here. And I decided at that point in time 22 that I was going to really take a stand on this and start 23 seriously asking questions. I had been doing a lot of the 24 research, but I hadn't really been asking questions about it. 25 And the -- of course, the IRS, each year -- I had been paying DIRECT - VERNICE KUGLIN 473 1 into taxes through my employer throughout all of this time, 2 and I -- up until '92 I had been filing my 1040 forms. But I 3 made the decision that I was not going to file a 1040 form, 4 and then I would start asking some very serious questions of 5 the organization who I thought should have the answers. 6 Q. Let me get you to pull out file folders 1 through 4A. 7 THE COURT: Counsel, it sounds like we're 8 getting ready to be more specific on some questions, is 9 that right? 10 MR. BECRAFT: Yes, that's correct. 11 THE COURT: I think I would rather have all of 12 this on the same day so that it will be more easily 13 followed. 14 MR. BECRAFT: Your Honor, we're here at the 15 pleasure of the court. 16 THE COURT: Well, I think that's -- I wish that 17 was true, but, anyway, that's a different thing. 18 THE WITNESS: You have made it very 19 pleasurable. Thank you, sir. Thank you, Your Honor. 20 THE COURT: We're here because we have a case 21 to try, and that's what -- I think we better do that. 22 That will make more sense tomorrow because otherwise we're 23 going to start this portion of the testimony and then Mr. 24 Murphy is going to start examining, and if we break it up, 25 it will be confusing, we don't want to do that. DIRECT - VERNICE KUGLIN 474 1 Ladies and gentlemen, we're going to start at 2 9:00 o'clock. That's a pretty good start time. You have 3 to be here at 8:30, hopefully have had your snack and we 4 will be ready to go. We should be ready to go right at 5 9:00. I don't think anybody is going to come about any 6 more repairs on my house tomorrow morning, although if 7 they do, I will stay and talk to them, I got to tell you 8 that. Is everybody okay on their -- we have no electrical 9 problems here, right, everybody is okay, and you don't 10 have any insurance problems, you got all your repairs 11 taken care of? All right. We're all working on it. 12 Well, don't talk about the case among 13 yourselves. Don't let anybody talk with you about it. 14 You heard a lot of references to cases and Supreme Court 15 references and that sort of thing, and I know actually for 16 the people who are really computer driven and get home and 17 get on that computer, it is tempting, and I'm just going 18 to remind you don't try to look anything up. That would 19 be very inappropriate. I will give you all the 20 information that you need from the law side in printed 21 form and also orally when we have the case submitted, and 22 the government and the defense will argue the facts, so 23 don't do that. Don't speak to anybody on either side or 24 anybody who is associated with any side. You should avoid 25 them. And if anybody tries to talk with you, of course, DIRECT - VERNICE KUGLIN 475 1 you should report that to one of the court security 2 officers, a member of my staff or directly to me. 3 And, again, continue to not watch anything on 4 television, read anything in the newspaper or listen to 5 anything on the radio that might be about this case or 6 cases like it. Well, continue to keep an open mind. We 7 have still only heard, frankly, a portion of the case and 8 you need to keep an open mind until you have heard 9 everything in the case, the final arguments of counsel, 10 the final instructions on the law and, of course, have had 11 a chance to go back to the jury room and then discuss the 12 evidence among yourselves, and then make up your mind. 13 Ladies and gentlemen, thanks very much. We 14 will let you excused, we will see you at 8:30 tomorrow. 15 We will start in here at 9:00. Thank you. 16 (Jury out at 4:50 p.m.) 17 THE COURT: I have a couple of questions I want 18 to ask you. I'm going to let you keep your materials, and 19 Mrs. Saba will re-check, because if we find something, we 20 will get it to you. I have a feeling that -- I mean 21 usually they do not remove anything from the courtroom, 22 and usually when we leave it, it is locked except for the 23 custodial folks. 24 THE WITNESS: My mind, I could have very 25 well -- DIRECT - VERNICE KUGLIN 476 1 THE COURT: Oh, I understand, and it's possible 2 to mislay something. 3 All right. I need to ask a couple of questions 4 about the instructions. One question, I just want to ask 5 Mr. Murphy, it is very clear to me on Counts 2, 3, 4, 5, 6 6, 7, 8, 9 -- I'm sorry, 2, 3, 4, 5 and 6, that you are 7 relying on the failure to file -- the information on the 8 Form W-4? 9 MR. MURPHY: Yes, sir. 10 THE COURT: As the affirmative act? 11 MR. MURPHY: Yes, sir. 12 THE COURT: That's perfectly clear. And what 13 I've been trying to figure out, you probably knew what I 14 was trying to figure out -- and we will let you have a 15 seat if you like -- is what is the affirmative act in 16 Count 1, and I'm not sure -- it can't be a failure to file 17 and it can't be a failure to pay. 18 MR. MURPHY: Judge, what it is going to be -- 19 and I don't mean to interrupt -- what it is going to be is 20 that '95, what do you call it, W-4? 21 THE COURT: There's a '95 W-4 also? 22 MR. MURPHY: Yes, sir, and that was 23 introduced -- 24 THE COURT: That was, that was. It's just not 25 stated and I wanted to be sure. So we're relying on W-4s DIRECT - VERNICE KUGLIN 477 1 throughout? 2 MR. MURPHY: Yes, sir. 3 THE COURT: Okay. That was the first question. 4 The second question was, is the government going to oppose 5 the giving of the lesser included offense charge? You 6 know, we usually don't do that, and I think there's some 7 authority that says that we don't have to give that. In 8 other words, I don't have to give lesser included offense 9 language, but -- but what does the government want to do? 10 MR. MURPHY: Judge, you know, I have been so 11 busy getting ready for this thing, I haven't really 12 thought about it. Part of the problem you have got is 13 some of the case law that -- I have read some cases on it, 14 you can have a failure to -- failure to file and evasion 15 are two different crimes. 16 THE COURT: They're different crimes. 17 MR. MURPHY: Because you can have an evasion 18 with the filing. 19 THE COURT: Well, sure, you can. 20 MR. MURPHY: Bogus tax. 21 THE COURT: False information contained in the 22 return, misstatement of various -- all sorts of things can 23 be done in a return. 24 MR. MURPHY: Sure. 25 THE COURT: That create a false filing. A DIRECT - VERNICE KUGLIN 478 1 failure to file is different, of course. 2 MR. MURPHY: Yes, sir. 3 THE COURT: In the Alamo case, we gave both 4 failure to file charges and other charges. It was not a 5 7201 case. Well, will you think about that? 6 MR. MURPHY: Yes, sir. 7 THE COURT: I kind of need to know that fairly 8 early. 9 MR. MURPHY: I will let you know first thing in 10 the morning. 11 THE COURT: I'm not real sure about that. And 12 then on some of the things like the Privacy Act and so 13 forth, I haven't heard anything, we haven't gotten all the 14 way through the material, you know, I mean I view this as 15 a pretty straightforward good faith question, good faith 16 defense, and whether the jury agrees or not is a jury 17 question. 18 MR. MURPHY: Yes, sir. 19 THE COURT: But what is your position on this? 20 MR. MURPHY: Well, Judge, I don't think the 21 jury ought to be instructed on all this other law they 22 have cited in the jury instructions for this reason: It 23 doesn't matter what the law is. What matters is her good 24 faith belief. 25 THE COURT: That's correct. That's correct. I DIRECT - VERNICE KUGLIN 479 1 think you're right on that. I'm not going to take the 2 final arguments on that right now. But that -- that's 3 kind of been the focus. I'm trying to get a set of 4 instructions that we can work from. 5 MR. MURPHY: Right. 6 THE COURT: I'm going to go back and refer to 7 the W-4s throughout, and that's where I'm going to be on 8 that. I suppose you could argue other things, and so I'm 9 not going to -- I'm giving a little more instruction on 10 what is an affirmative act of evasion. I'm just going to 11 give a little more instruction on that and make it 12 perfectly clear that omissions are not acts of evasion. 13 MR. MURPHY: Yes, sir. 14 THE COURT: All right. 15 MR. MURPHY: And I have I have no objection to 16 that. 17 THE COURT: It's a little helpful to me. 18 Are we going to have any witnesses after -- 19 MR. BECRAFT: Your Honor, I think we have got 20 one witness that -- we were going to bring one in, but I 21 think we have got enough stipulation on that or at least 22 Mr. Murphy is not going to object, and I was going to meet 23 with one other witness tonight, but, you know, I might 24 after -- he wouldn't be -- his name is Don Winfield, he 25 wouldn't be but about 30 minutes, but there's a distinct DIRECT - VERNICE KUGLIN 480 1 possibility I might just say forget him. 2 THE COURT: Well, I don't want to get into your 3 thought process. 4 MR. BECRAFT: Okay. I'm just telling the 5 court. 6 THE COURT: I think you're warning Mr. Murphy 7 and me that we may be to the jury pretty quickly, and I do 8 appreciate that. Okay. Gentlemen and ladies, we will see 9 you tomorrow at 9:00 o'clock. 10 MR. MURPHY: Thank you, Your Honor. 11 MR. BECRAFT: Thank you, Judge. 12 THE CLERK: All rise. 13 (Court adjourned at 4:55 p.m.) 14 15 16 17 18 19 20 21 22 23 24 25