United States v. Patricia Lynn Hough
2015 U.S. App. LEXIS 15973
| 11th Cir. | 2015Background
- Patricia Hough and her husband operated two profitable offshore medical schools (Saba School and MUA); they opened and moved large sums into multiple foreign bank accounts and foreign entities between 2001–2008.
- In April 2007 they sold the schools for $37.6 million; most sale proceeds were deposited into New Vanguard accounts held in Switzerland/Liechtenstein.
- Indicted in 2013: one count conspiracy to defraud the IRS (Klein conspiracy) and four counts of filing false individual income tax returns (2005–2008); Fredrick fled and remains a fugitive.
- At trial the jury convicted Hough of the conspiracy and three false-return counts (2005, 2007, 2008); the court acquitted her for 2006.
- Sentencing court calculated a tax loss of ~$15 million (treating the offshore entities as partnerships) yielding an advisory range of 78–97 months, then varied downward and imposed 24 months.
- Eleventh Circuit: affirms convictions; vacates sentence and remands for limited proceedings to resolve entity classification and tax-loss calculation.
Issues
| Issue | Hough's Argument | Government's Argument | Held |
|---|---|---|---|
| Sufficiency of evidence for Klein conspiracy (18 U.S.C. § 371) | No proof she knowingly joined scheme to impede IRS; she claimed funds belonged to Saba Foundation and she ‘‘signed whatever was put in front of her.’' | Circumstantial evidence (concerted actions, offshore entities/accounts, deposits, testimony disbelieved by jury) shows common design to hide income from IRS. | Affirmed: reasonable jury could infer agreement and knowing participation. |
| Sufficiency for false-return convictions (26 U.S.C. § 7206(1)) — failure to disclose foreign accounts on Schedule B | Her “No” answers could be true if exceptions applied; she lacked knowledge of accounts/ownership so no willfulness. | Form A account-opening records show Hough was beneficial owner of multiple foreign accounts exceeding $10,000; exceptions inapplicable. | Affirmed: convictions supported by evidence she had financial interests and willfully answered "No." |
| Cross-examination of character witnesses with guilt-assuming hypotheticals | Government impermissibly asked witnesses to assume guilt, violating Guzman/Candelaria-Gonzalez; this prejudiced jury and warrants new trial. | Defense counsel opened door by asking witnesses twice whether allegations would change their opinions; government properly followed up; in any event error harmless given overwhelming evidence. | No reversible error: court did not abuse discretion (defense opened door) and, alternatively, any error was harmless. |
| Admission of Fredrick’s out-of-court statements under co-conspirator exception (Fed. R. Evid. 801(d)(2)(E)) | Statements were improperly admitted because independent evidence of conspiracy and Hough’s participation was insufficient apart from Fredrick’s statements. | Independent circumstantial evidence (accounts, transfers, Form As, conduct) established conspiracy and participation; statements admissible. | No abuse of discretion: independent evidence supported foundation for co-conspirator statements. |
| Tax-loss calculation and entity classification at sentencing | Court erred by including taxes on interest/dividends/capital gains and treating Saba Foundation/MUA as partnerships — those profits may not be taxable to Hough if entities are corporations or elected association status. | Trial and sentencing factual findings (beneficial ownership of accounts and treatment of entities) support inclusion; if entities are partnerships, income is taxable to Hough; government can present foundational evidence on remand. | Vacated sentence and remanded for limited proceedings: government may prove (1) no corporate election and (2) at least one member lacks limited liability under foreign law; if it cannot, court must recalculate tax loss and resentence. |
Key Cases Cited
- United States v. Klein, 247 F.2d 908 (2d Cir.) (recognizing conspiracy to defraud IRS—Klein conspiracy)
- United States v. Adkinson, 158 F.3d 1147 (11th Cir. 1998) (elements and statute-of-limitations principles for Klein conspiracies)
- United States v. Kottwitz, 614 F.3d 1241 (11th Cir.) (circumstantial-evidence standards for conspiracy; unity of purpose requirement)
- United States v. Brown, 53 F.3d 312 (11th Cir. 1995) (defendant testimony, if disbelieved, can be used as substantive evidence)
- United States v. Clarke, 562 F.3d 1158 (11th Cir. 2009) (elements of § 7206(1) false-return offense)
- Boulware v. United States, 552 U.S. 421 (2008) (materiality and elements discussion for tax-perjury offenses)
- United States v. Guzman, 167 F.3d 1350 (11th Cir. 1999) (limits on guilt-assuming cross-examination of character witnesses)
- United States v. Candelaria-Gonzalez, 547 F.2d 291 (5th Cir. 1977) (reputation-witness cross-examination rule)
- Moline Properties, Inc. v. Commissioner, 319 U.S. 436 (1943) (treatment of business entities for federal tax purposes)