People v. Mojica

Filed 5/25/06   (second opn.; prior opn. vacated this date by separate order)

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

            APPEAL from the judgment of the Superior Court of Los Angeles County.  Michael K. Kellogg, Judge.  Reversed.

            Stephen M. Lathrop, under appointment by the Court of Appeal, for Defendant and Appellant.

            Bill Lockyer, Attorney General, Robert R. Anderson, Chief Assistant Attorney General, Pamela C. Hamanaka, Assistant Attorney General, Robert F. Katz and Roy  C. Preminger, Deputy Attorneys General, for Plaintiff and Respondent.

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            Abel Mojica appeals from the judgment entered after a jury convicted him of felony income tax evasion.  (Rev. & Tax. Code, §  19706.)  Because the jury was not instructed that it had to find the existence of a tax deficiency as an element of the offense, we reverse.

FACTS AND PROCEDURAL HISTORY

            In 1994, Abel Mojica opened a small market on Verdugo Road in Los Angeles,  where he sold soda pop, candy, produce, and lottery tickets.  Mojica filed state income tax returns for 1994 and 1995, and in 1994 he had gross sales of $97,303.  He did not file returns for the 1996 or 1997 tax years, however, and was charged with two felony counts for failing to file his returns in those years with the intent to evade the payment of taxes.  (Rev. & Tax. Code, §  19706.)^[1]

            In March 1995, Mojica obtained approval from the United States Department of Agriculture (USDA) to redeem food stamps.  As part of his training, Mojica was taught that he could accept food stamps for purchases made at his market only, and could not exchange food stamps for cash.  In August 1997, the USDA disqualified Mojica from further participation in the food stamp program because, in violation of federal regulations, his food stamp redemptions greatly exceeded the amount of his food sales.  USDA records showed that Mojica redeemed food stamps totaling $323,400 for all of 1996 and $94,700 from January through August of 1997.  The USDA then referred the matter to California's Franchise Tax Board (FTB) for investigation.

            An FTB agent's analysis of Mojica's bank records showed that in 1996, Mojica deposited into his account $315,800 in food stamp redemptions and $75,130 in cash.  For 1997, Mojica deposited into his account $90,700 in food stamp redemptions, $94,870 in cash, and $46,653.09 in checks.  Under California's tax laws, food stamps are considered the equivalent of money, and when food stamps are redeemed by a merchant, they are considered to be cash income.  As part of his obligation to remit sales tax payments to the state, Mojica also reported his gross sales.  In 1996, he reported gross sales of around $64,000, but for 1997 the amount he reported jumped to $291,200.  Mojica's obligation to file a tax return irrespective of his actual tax liability was triggered by a gross income of approximately $20,000.  The FTB sent Mojica notices that he was required to file tax returns for 1996 and 1997, but Mojica never complied.

            The FTB agent interviewed Mojica, who said he had since closed his market due to poor sales.  Mojica told the agent that half the food stamps he deposited into his account during 1996 and 1997 came from his brother Humberto, who was also a grocer.  According to Mojica, he was doing Humberto a favor, and that in exchange for the food stamps, he would give Humberto signed blank checks.  Mojica did not believe he owed any taxes for those years.  Mojica said he commingled his personal and business expenses and had no records of any kind.

            The evidence also showed that Mojica bought an apartment building in 1996 and another property that included a business and a house in 1997, each with a down payment of $14,000.  His bank records showed that Mojica made mortgage payments on both properties.  The fact that Mojica bought real property and made mortgage payments indicated that Mojica had income.

            The prosecution's theory was that Mojica did not file tax returns in part to cover up his food stamp crimes and in part to avoid paying taxes on the money he made from that scheme.  Mojica testified that none of the food stamp money went to him.  Instead, as a favor to his brother, he took the food stamps and paid Humberto with checks that matched the amounts of the food stamps Mojica would eventually deposit in his account.  According to Mojica's expert accounting witness, such transactions were nothing more than non-taxable exchanges of capital.  Mojica also testified that he did not file tax returns in 1996 and 1997 because he made no profit in those years, that he was unaware of the various food stamp redemption regulations, and that he operated his real properties at a loss.  In short, Mojica did not have the intent to evade his tax obligations, and did not file tax returns because he thought he owed no taxes.  At most, therefore, Mojica believes he was guilty of the lesser included misdemeanor offense of failing to file tax returns.  (§  19701.)

            The jury convicted Mojica of both felony counts (§  19706) for the 1996 and 1997 tax years.  He moved for a new trial, contending that the jury was never asked to consider, and the prosecution did not prove, that he actually owed taxes for those years.  That motion was denied.  In anticipation of the sentencing hearing, the FTB determined that Mojica's unpaid tax liability for 1996 and 1997 was $53,675.  When penalties, interest, and the costs of investigation were added on, the total rose to $135,178.91, according to the FTB report.  The court suspended the imposition of sentence and placed Mojica on formal probation for five years.  Mojica was also ordered to make restitution to the FTB.

            Mojica has appealed.  At issue is whether the existence of a tax deficiency--that Mojica in fact owed some taxes for the years in question--was an element of the felony tax evasion charge, and, if so, whether the court's failure to instruct the jury on that element was reversible error.^[2]

DISCUSSION

1.  The Existence of a Tax Deficiency Is an Element of a State Law Felony

     Tax Evasion Charge

            A.  The Federal and California Statutes

            Mojica was convicted of violating section 19706, which provides in relevant part:  â€