In United States v. Ellefsen, 655 F.3d 769 (8th Cir. 2011), the Eighth Circuit held that the government’s failure to disclose IRS documents to the defense did not violate Brady v. Maryland, 373 U.S. 83 (1963), because the undisclosed information was not material.
Southwest Missouri Bone & Joint, Inc. (“SMBJ”) was owned by Brian Ellefsen (“Brian”), an orthopedic surgeon, and managed by Mark Ellefsen (“Mark”). In 1997, the Ellefsens joined the Aegis Business Trust System, an offshore tax shelter. From 1997 to 2003, SMBJ transferred over $1 million to various Aegis- created domestic and foreign entities and deducted the transfers as “management fees” on SMBJ’s tax returns. During the same period, Brian declared on his tax returns that he had no interest or authority over any foreign account. In 2005, after Brian’s and SMBJ’s records were subpoenaed, Brian amended his prior years’ individual tax returns, adding most of the “management fees” to his taxable income.
In May 2009, a jury convicted the Ellefsens of conspiracy to defraud the United States, filing false income tax returns, and aiding and assisting in the preparation of false tax returns. The Ellefsens moved for acquittal or a new trial, arguing, among other things, that the government had withheld material exculpatory information regarding the IRS treatment of Brian’s amended individual tax returns, in violation of Brady. The district court denied the motion, holding that the withheld information did not contain any new evidence and was not material or exculpatory.
On appeal, the Ellefsens argued that the withheld documents constituted Brady material because they showed the IRS had accepted the amended returns, had treated the earnings as regular income, and had deemed the amended returns a final civil assessment. The Eighth Circuit held that no Brady violation had occurred, because even if the withheld evidence was favorable, the Ellefsens had not shown it was material. The court noted that evidence is material for purposes of Brady if there is a reasonable probability that, had it been disclosed to the defense, the result of the proceeding would have been different. Applying this standard, the court concluded that the amended returns, which had been submitted years after the filing of the false original returns and months after the Ellefsens learned they were under investigation, were of minimal probative value as to the Ellefsens’ state of mind at the time of the alleged crimes and, therefore, were not material.