703 F.3d 46 (2012)
As previously noted, the trial defendants (including Nissenbaum) concede that they were aware of Add-On’s lack of profit potential as of February 2003, when an e-mail exchange revealed the impact of fees on the profitability of the transaction. See Part II.A.1.ii, ante. The Government argues that, because Nissenbaum was also aware that the IRS was conducting depositions related to the ongoing audit of the Add-On shelter, it was reasonably foreseeable to him that a coconspirator would commit tax evasion. The Government does not, of course, assert the proposition that the mere fact of an ongoing IRS inquiry suggests, much less shows, criminal intent or knowledge that the subject of the inquiry is unlawful.
The trouble with the Government’s argument is that “even Pinkerton liability . . . is premised on a mental state.” United States v. Ferguson, 676 F.3d 260, 279 n.18 (2d Cir. 2011) (citing Pinkerton, 328 U.S. at 647 (“The criminal intent to do the act is established by the formation of the conspiracy.”)). In other words, although Pinkerton may permit a broader scope of liability for established coconspirators, the doctrine does not dilute or erode the basic requirement that “the person charged with conspiracy knew of the existence of the scheme alleged in the indictment and knowingly joined and participated in it.” Rodriguez, 392 F.3d at 545 (emphasis added) (quotation marks omitted). The Government’s only attempt to identify an affirmative act by Nissenbaum that would demonstrate the requisite criminal intent is the three-line March 2000 e-mail. That is simply not enough.
As previously noted, see Part II.A.1.iii, ante, the false statements objective of the § 371 conspiracy was clearly directed to the conduct charged in Counts Six and Seven. The Government does not contend that Nissenbaum was aware of or involved in the false statements to the IRS during the Coplan and Vaughn depositions. There was no separate substantive false statements charge against Nissenbaum in connection with his own deposition.
Having examined the evidence against Nissenbaum with respect to each of the three objectives of the § 371 conspiracy charged in Count One, we turn again to the task of “looking at [the conspiracy] as a whole.” Cont’l Ore Co., 370 U.S. at 699. Once again, our review of the record and the arguments of counsel compels the conclusion that the evidence against Nissenbaum is insufficient to support his conviction on Count One. Viewed in the light most favorable to the Government, the evidence with respect to Nissenbaum’s intent “gives equal or nearly equal circumstantial support to a theory of guilt and a theory of innocence.” United States v. Glenn, 312 F.3d 58, 70 (2d Cir. 2002) (internal quotation marks omitted). Under these circumstances, “a reasonable jury must necessarily entertain a reasonable doubt.” Id. (quotation marks omitted). Accordingly, we conclude that Nissenbaum’s conviction on Count One must be reversed.
Defendants Shapiro and Nissenbaum also challenge the sufficiency of the evidence to support their convictions on Counts Two and Three, which charged all the trial defendants with tax evasion in violation of 26 U.S.C. § 7201. To prove a violation of § 7201, the Government must establish beyond a reasonable doubt (1) a substantial tax deficiency; (2) willfulness, meaning the intentional violation of a known legal duty; and (3) an affirmative act “with the intent to evade or defeat a tax or payment of it.” United States v. Romano, 938 F.2d 1569, 1571 (2d Cir. 1991). We have already reviewed the evidence supporting the tax evasion liability of both Shapiro and Nissenbaum in connection with the foregoing discussion of the tax evasion conspiracy objective. See Part II.B.1.ii, II.B.2.ii, ante. For substantially the reasons that compel reversal as to Count One,1 we conclude that the convictions of Shapiro and Nissenbaum on Counts Two and Three must be reversed.2
Finally, Nissenbaum challenges the sufficiency of the evidence on Count Four, which charged him with obstruction of the IRS in violation of 26 U.S.C. § 7212(a). As previously noted, § 7212(a) prohibits conduct by which a defendant “corruptly or by force or threats of force . . . obstructs or impedes, or endeavors to obstruct or impede, the due administration of [the internal revenue code].” 26 U.S.C. § 7212(a). “The key words in [§] 7212(a) are ‘corruptly’ and ‘endeavors.’” United States v. Kelly, 147 F.3d 172, 176 (2d Cir. 1998). The District Court instructed the jury as follows:
To act corruptly means to act with the intent to secure an unlawful advantage or benefit either for oneself or for another. Acting corruptly requires consciousness of wrongdoing.
A VI: 428/6193–94. Although we have previously declined to read a willfulness requirement into § 7212(a), we have held that a substantially similar jury instruction was “as comprehensive and accurate as if the word ‘willfully’ was incorporated in the statute.” Kelly, 147 F.3d at 177.
Here, the Government argues that Nissenbaum violated § 7212(a) by causing false and misleading statements to be submitted to the IRS in response to an IRS Information Document Request (“IDR”) regarding the Tradehill tax shelter. The evidence with respect to Count Four principally turns on the implications of the testimony of two E&Y partners who participated in the Tradehill transaction, Jacob Blank and Martin Flashner, and who testified at trial pursuant to immunity orders. Count Four originally alleged that the IDR contained four false statements:
(1) Profit motivation. The first allegedly false statement in the IDR response was that the E&Y partners had entered into the Tradehill transaction in order to generate profits. After Nissenbaum’s counsel made a Rule 29 motion on Count Four, the Government agreed to withdraw the allegation that this statement was “false and misleading” and to redact the Indictment accordingly.
(2) Euro exposure. The second allegedly false statement in the IDR response, as summarized in the Redacted Indictment, was that “the Tradehill transaction was intended fully to hedge the partners’ exposure to fluctuation in the euro.” The Redacted Indictment alleged that this statement was false because “in reality, the transaction had no capacity to do so.” A I: 106.
The statement at issue appeared in response to the first question in the IDR questionnaire: “Describe all of your reasons and/or objectives for entering into the Transaction. For each reason and/or objective, were these reasons and/or objectives achieved?” The IDR response letter, which was submitted and signed by Proskauer Rose LLP (“Proskauer”) attorney Abraham Gutwein (“Gutwein”), included a ten-paragraph answer to question one. Among those ten paragraphs, the Government primarily quarrels with the following passage:
Partly in order to hedge his exposure to the euro and to offset the losses sustained to date with respect to his Cap Gemini holdings, the taxpayer entered into the option transactions on November 1, 2000.
Under the currency option positions purchased and sold, the taxpayer would stand the potential of a substantial profit if the euro continued to decline in value relative to the dollar (as had been the prevailing trend) at the option exercise dates. . . . In that manner the taxpayer intended to fully hedge his exposure to fluctuation in the value of the euro.
SA 812.
The Government argues that the direct examination of Blank and Flashner, the principal witnesses with respect to Count Four, conclusively established that they did not enter the Tradehill transaction in order to hedge against exposure to the euro. We disagree. Blank’s testimony, for example—both on cross-examination and redirect examination—showed that his tax-minimization purpose was not the only objective of the Tradehill transaction. On direct examination, Blank testified as follows:
Q: Did you enter into the transaction in order to hedge your exposure to the euro?
A: No, I did not.
....
Q: Why then was it not your purpose to hedge the euro?
A: The purpose of entering into the transaction was really to generate the loss. That was the real reason . . . I made my investment. The fact that foreign currency options were used, there was an exposure, . . . it certainly was a factor or a competing factor that we were able to focus on, but . . . foreign currency exposure was not the reason we entered into the deal. The reason was to get the tax loss.
....
Q: What, if any, understanding did you have at the time of the transaction about how much of a hedge this transaction could provide?
A: I had none.
Q: What, if any, discussions did you have with other members of the transaction about how much of a hedge this transaction could provide?
A: None.
....
Q: This [IDR response] says: In that manner the taxpayer intended to fully hedge his exposure to fluctuation in the value of the euro, is that statement true?
A: It’s not correct.
A II: 588/3037–38. But on cross examination, Blank equivocated by acknowledging that hedging against fluctuations in the euro was “an objective,” as follows:
Q. I’m not asking you your primary objective, sir. I’m asking you [whether] an objective of entering into th[e] [Tradehill] transaction was to hedge the currency? An objective.
THE COURT. Yes or no. Can you answer it?
Q. At that time.
A. At that time, yes.
....
Q. The [IDR] question did not ask you what your primary objective was, did it?
A. That is correct.
....
Q. So the three objectives that the participants had were to hedge against the currency, were to make money, and the obvious, tax motive. That’s why everybody is doing this, is that correct, sir?
....
A. Yes.
A II: 609/3121–23. And on redirect examination, the Government harked back to Blank’s testimony that because the Cap Gemini stock he had received “was not denominated in dollars” but rather “was denominated in a foreign currency, . . . the justification for entering into the transaction from a business perspective was to be able to, in effect, hedge and try to reduce the risk associated with owning non-U.S. dollar denominated investments.” A II: 570/2966–67. It sought clarification:
Q. On direct examination you said that hedging the euro was a justification for the transaction. Do you remember using that word?
A. Yes, sir, I do.
Q. What did you mean by that?
A. At the time we entered into the transaction, I was desirous of assuring that there was a business purpose for the transaction, and at that time I did have the foreign currency exposure, because, again, the stock that we were awarded in the sale was not denominated in dollars, it was in foreign currency, and to the extent that the transaction we entered offered, to the best of my knowledge at the time, the possibility of trying to mitigate or hedge some of the risk associated with the dollar going up or the dollar going down, that to me at that time, based on what I understood then, represented a business purpose for entering into this transaction.
Q. Was it the reason you entered into the transaction?
A. It was not the primary reason.
A II: 618/3156.
The record reflects a similar tension with respect to Flashner, who testified on direct examination that he did not enter the Tradehill transaction in order to hedge his exposure to the euro, A III: 24/3395, but admitted on cross examination that the E&Y partners discussed the “exchange rate risk” presented by their receipt of stock denominated in euros, A III: 32/3424. Flashner further testified that “it would make sense” to protect his investment “by trying to make some money from this downward movement of the euro against the dollar.” A III: 33/3430–31. Finally, Flashner admitted that his goals in investing in Tradehill were “two-fold”: to obtain tax losses and “to earn a profit from the transaction.” A III: 24/3394.
Faced with obvious internal tension within the testimony of its two principal witnesses on Count Four, the Government avers that “the jury was entitled to rely on the direct examination.” Gov’t’s Br. 185–86. But even if the jury fully credited the direct examination, as we must assume here, that testimony lends implicit support to Nissenbaum’s defense as well. As noted above, Blank’s direct testimony was that “[t]he purpose of entering into the transaction was really to generate the loss. That was the real reason . . . I made my investment. The fact that foreign currency options were used, there was exposure . . . it certainly was a factor or a competing factor that we were able to focus on, but . . . foreign currency exposure was not the reason we entered into the deal.” A II: 588/3037. The straightforward implication of Blank’s testimony is that hedging against fluctuations in the euro was not the primary reason for entering the Tradehill transaction. But that was not the question posed by the IDR. Question number one prompted the taxpayer to “[d]escribe all of your reasons and/or objectives for entering the Transaction.” Blank’s statement—in the same sentence excerpted by the Government—that foreign currency exposure “certainly was a factor” appears consistent with the statement in the IDR response that the transaction was entered “[p]artly in order to hedge.” SA 812 (emphasis added).
(3) Non-written understandings. The third allegedly false statement in the IDR response was that “[t]here were no non-written understandings” among the participants in the Tradehill transaction. . The Redacted Indictment alleged that this statement was false because “in reality, there was an understanding among all the parties to the transaction that the E&Y partners would exit their option positions before the end of 2000, in order to claim tax losses they could use to offset their . . . income.” A I: 106.
There was no affirmative testimony about the existence of “non-written understandings” among the Tradehill participants. In fact, both Blank and Flashner denied engaging in discussions with any other E&Y partner about exiting their option positions. A II: 578/ 2997, 579/3000, 580/3005 (Blank); A III: 23/3389 (Flashner). Nevertheless, the Government insists that the “entire thrust” of their testimony was that the partners were entering the Tradehill transaction to generate a tax loss for the same tax year, and would take the steps necessary to that end.
Even assuming arguendo that the Government is correct about the “thrust” of the testimony, a more fundamental defect in this allegation remains: the Tradehill participants retained Gutwein—not Nissenbaum—to represent them with regard to the IRS audit. Gutwein, who had powers of attorney from the Tradehill participants, substantially revised a response that Nissenbaum proposed about “understandings” among the E&Y partners. In a draft IDR response, Nissenbaum noted that “[a]ny ‘understandings’ involved the purchase and contribution of the options, the creation of the various entities and the sale of the assets that generated the losses.” A V: 130. Gutwein then revised the response to state that “[t]here were no non-written understandings between the [Tradehill participants].” Thus, it appears that the language suggested by Nissenbaum was more accurate than the language of the final IDR response.
(4) Future referral of business. The final allegedly false statement in the IDR response was that there was no expectation or referral of any future business to Proskauer, “when in reality, in 2001, the defendants referred PICO clients to [Proskauer] for opinion letters.” The Government relies on the fact that about the time Proskauer was completing the legal opinions for the Tradehill shelter, it was given the paid work of writing PICO opinions, which had to that point been prepared by Arnold & Porter. Based on the timing, the Government argues that the jury was free to conclude that there was indeed an “expectation or referral” of future business, rendering the IDR statement to the contrary false and misleading. But Blank and Flashner did not testify to any expectation or referral of future business to Proskauer. In the absence of any affirmative proof, we are left only with the “speculation and surmise” that such an expectation existed. Langston v. Smith, 630 F.3d 310, 314 (2d Cir. 2011) (“[A] conviction based on speculation and surmise alone cannot stand . . . .”) (quotation marks omitted).
Having reviewed the record and the arguments of counsel, we conclude that the record compels reversal of Nissenbaum’s conviction on Count Four. Given the equivocal testimony by Blank and Flashner and the role of Gutwein in drafting the IDR response, “a reasonable jury must necessarily entertain a reasonable doubt” as to whether Nissenbaum corruptly obstructed or impeded the IRS. Glenn, 312 F.3d at 70 (quotation marks omitted).3
Defendant Vaughn challenges the propriety of venue for Count Six, charging him with making false statements to the IRS during a June 12, 2002 deposition in Nashville, Tennessee, in violation of 18 U.S.C. § 1001.
Because “[p]roper venue in criminal proceedings was a matter of concern to the Nation’s founders,” the United States Constitution “twice safeguards the defendant’s venue right.” United States v. Cabrales, 524 U.S. 1, 6 (1998). Article III requires that “the Trial of all Crimes . . . shall be held in the State where the said Crimes shall have been committed.” U.S. Const. art. III, § 2, cl. 3. The Sixth Amendment further provides that “[i]n all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed.” Id. amend VI;4 see also Fed. R. Crim. P. 18 (requiring that “the government must prosecute an offense in a district where the offense was committed”).
When the relevant federal statute does not specify how to determine the location where the crime was “committed,” “[t]he locus delicti must be determined from the nature of the crime alleged and the location of the act or acts constituting it.” Cabrales, 524 U.S. at 6–7. In conducting this inquiry, we “must initially identify the conduct constituting the offense . . . and then discern the location of the commission of the criminal acts.” United States v. Rodriguez-Moreno, 526 U.S. 275, 279 (1999). “Venue is proper only where the acts constituting the offense—the crime’s ‘essential conduct elements’—took place.” United States v. Tzolov, 642 F.3d 314, 318 (2d Cir. 2011) (quoting Rodriguez-Moreno, 526 U.S. at 280).
“When a crime consists of a single, non-continuing act, the proper venue is clear: The crime is ‘committed’ in the district where the act is performed.” United States v. Ramirez, 420 F.3d 134, 139 (2d Cir. 2005) (other internal quotation marks omitted). In other cases, “where the acts constituting the crime and the nature of the crime charged implicate more than one location, the Constitution does not command a single exclusive venue.” United States v. Magassouba, 619 F.3d 202, 205 (2d Cir. 2010) (internal quotation marks and alterations omitted). Congress has codified the so-called “continuing offense” rule in 18 U.S.C. § 3237(a), which provides in relevant part:
Except as otherwise expressly provided by enactment of Congress, any offense against the United States begun in one district and completed in another, or committed in more than one district, may be . . . prosecuted in any district in which such offense was begun, continued, or completed.
The Government bears the burden of proving that venue is proper. Tzolov, 642 F.3d at 318. “[T]he venue requirement, despite its constitutional pedigree, is not an element of a crime so as to require proof beyond a reasonable doubt; rather, venue need be proved only by a preponderance of the evidence.” United States v. Rommy, 506 F.3d 108, 119 (2d Cir. 2007) (emphasis and internal quotation marks omitted). The propriety of venue is a question of law that we review de novo. United States v. Drachenberg, 623 F.3d 122, 124 (2d Cir. 2010).
The federal false statements statute, 18 U.S.C. § 1001(a), makes it a crime, inter alia, “in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully . . . [to] make[ ] any materially false, fictitious, or fraudulent statement or representation.” 18 U.S.C. § 1001(a)(2).
We have considered the issue of venue for a § 1001(a) violation on two prior occasions. In United States v. Candella, 487 F.2d 1223 (2d Cir. 1973), a case arising in the Southern District of New York, the defendants were charged with making false statements based on fraudulent affidavits that were submitted to a municipal branch office in Brooklyn and then conveyed to the Housing and Urban Development office in Manhattan. Id. at 1227. We held that, although the crime began in the Eastern District of New York, “it does not follow that the crime then terminated, and that what transpired in Manhattan was irrelevant for venue purposes.” Id. at 1228. In United States v. Ramirez, 420 F.3d 134 (2d Cir. 2005), we elaborated upon the reasoning of Candella, holding that, where a false statement was made in one jurisdiction and then transmitted to another, venue was proper in both jurisdictions. Id. at 143 (holding that venue was proper in the Southern District of New York because the “‘statements continued to be false and continued to be in the jurisdiction of the United States’ when they finally reached Manhattan” (quoting Candella, 487 F.2d at 1228)).5
Vaughn contends that venue for Count Six was improper because his statements were both made and received during the IRS deposition in Nashville. For that reason, Vaughn argues, the subsequent review and analysis of his statements by IRS officials in Manhattan afforded no basis for venue in the Southern District of New York. We disagree.
We begin by identifying the “essential conduct elements” of § 1001(a)(2). Rodriguez-Moreno, 526 U.S. at 280. In United States v. Ali, 68 F.3d 1468 (2d Cir. 1995), amended on denial of reh’g, 86 F.3d 275 (2d Cir. 1996), we held for the first time that materiality is a statutory element of all charges under § 1001. Ali, 68 F.3d at 1474–75; see United States v. Mandanici, 205 F.3d 519, 523 (2d Cir. 2000). Thus, in order to secure a conviction under § 1001(a)(2), the Government must prove that a defendant (1) knowingly and willfully, (2) made a materially false, fictitious, or fraudulent statement, (3) in relation to a matter within the jurisdiction of a department or agency of the United States, (4) with knowledge that it was false or fictitious or fraudulent.6
But not all statutory elements constitute “essential conduct elements” within the meaning of Rodriguez-Moreno. In reviewing the elements of § 1001, the Supreme Court has noted that the statutory requirement that the false statement be made “in any matter within the jurisdiction . . . of the United States” is “jurisdictional language [that] appears in a phrase separate from the prohibited conduct” and is simply a “predicate circumstance” of the offense. United States v. Yermian, 468 U.S. 63, 68–69 (1984) (quotation marks omitted). Similarly, the mens rea requirement constitutes “a circumstance element that does not contribute to determining the locus delicti of the crime.” United States v. Oceanpro Indus., Ltd., 674 F.3d 323, 329 (4th Cir. 2012).7 Thus, the essential conduct prohibited by § 1001(a)(2) is the making of a materially false, fictitious, or fraudulent statement.
In this case, the materiality requirement proves dispositive with respect to venue. “Under § 1001, a statement is material if it has a natural tendency to influence, or be capable of influencing, the decision of the decisionmaking body to which it was addressed, or if it is capable of distracting government investigators’ attention away from a critical matter.” United States v. Adekanbi, 675 F.3d 178, 182 (2d Cir. 2012) (internal citations, quotation marks, and alterations omitted). Accordingly, whether Vaughn’s false statements were material turns on the tendency or capacity of those statements to influence the decisionmaking body at issue—in this case, the IRS.
Proving the materiality of Vaughn’s false statements in Tennessee necessarily requires evidence that those statements were conveyed to or had an effect on the IRS investigators working in the Southern District of New York. Oceanpro, 674 F.3d at 329; see United States v. Salinas, 373 F.3d 161, 167 (1st Cir. 2004) (“When materiality is a critical component of the statutory definition, it makes perfect sense to consider the crime as continuing into the district in which the effects of the false statement are felt.”); United States v. Ringer, 300 F.3d 788, 792 (7th Cir. 2002) (finding venue in the district where the investigation was “reasonably likely to be affected by [the defendant’s] statements”); but see United States v. Smith, 641 F.3d 1200, 1208 (10th Cir. 2011) (finding venue, where false statement was not recorded, only in the jurisdiction where the false statement was made). We therefore conclude that venue for Count Six was proper in the Southern District of New York.8
This result is fully consistent with our holdings in Candella and Ramirez. It is undisputed that Vaughn “ma[de]” the false statements at issue during the IRS deposition in Nashville—but “it does not follow that the crime then terminated, and that what transpired in Manhattan was irrelevant for venue purposes.” Candella, 487 F.2d at 1228. In Ramirez, the offense began in New Jersey, where the fraudulent paperwork was filed, and ended in the Southern District of New York, the jurisdiction to which New Jersey officials forwarded the paperwork. Ramirez, 420 F.3d at 137–38. Similarly, the instant offense case began in Tennessee, where Vaughn made the false statements to IRS officials, but continued into the Southern District of New York, where his deposition transcript was reviewed and discussed by IRS officials in connection with the ongoing E&Y audit. The fact that Vaughn’s statements “‘continued to be false and continued to be in the jurisdiction of the United States when they finally reached Manhattan,’” Ramirez, 420 F.3d at 143 (quoting Candella, 487 F.2d at 1228)), confirms our view that venue was proper in the Southern District of New York.
On occasion, we have supplemented our venue inquiry with a “substantial contacts” test that “takes into account a number of factors—the site of the defendant’s acts, the elements and nature of the crime, the locus of the effect of the criminal conduct, and the suitability of each district for accurate factfinding.” United States v. Reed, 773 F.2d 477, 481 (2d Cir. 1985). Since Reed, we have alternately applied and ignored the substantial contacts test. Compare United States v. Royer, 549 F.3d 886, 893 (2d Cir. 2008) (citing Reed with approval); United States v. Saavedra, 223 F.3d 85, 92–93 (2d Cir. 2000) (same); with United States v. Tzolov, 642 F.3d 314, 321 (2d Cir. 2011) (“Though Reed refers to a ‘substantial contacts rule’ for determining venue . . . it is clear that the [court] regarded the locale of the defendant’s acts as a sufficient basis for establishing venue.” (alteration in original) (other internal quotation marks omitted)).
We have previously held, and we now clarify, that use of the substantial contacts test may be appropriate where, as here, the defendant “argue[s] that his prosecution in the [contested district] . . . [will] result[ ] in a hardship to him, prejudice[ ] him, or undermine[ ] the fairness of his trial.” United States v. Magassouba, 619 F.3d 202, 205 n.2 (2d Cir. 2010). We think the District Court in this case proceeded with the required care by considering the factors enumerated in Reed and Saavedra before concluding that “the substantial contacts analysis weighs in favor of venue in this district.” Vaughn does not appear to challenge the substance of that determination on appeal.
In addition to their validity, sufficiency, and jurisdictional challenges, the trial defendants also mount a variety of evidentiary challenges. In the first of these, they argue that the District Court erred in admitting the testimony of Graham Taylor, a tax attorney who worked at the law firm of Pillsbury Madison and who indisputably committed a variety of crimes involving tax shelters unrelated to this case. We review the District Court’s rulings regarding the admissibility of evidence at trial for abuse of discretion. United States v. Williams, 585 F.3d 703, 707 (2d Cir. 2009); cf. In re Sims, 534 F.3d 117, 132 (2d Cir. 2008) (explaining that the term of art “abuse of discretion” includes errors of law).
In 1999, Taylor had a series of discussions about the CDS transaction with E&Y partner David Smith, the defendant in this action who was a fugitive at the time of trial. Taylor drafted an initial opinion letter regarding the CDS transaction, and Smith eventually brought the transaction and the draft opinion letter to E&Y. Taylor’s draft opinion letter contained a variety of statements regarding the CDS transaction that he knew were false, including statements that (1) the purpose of the partnership was investment profit; (2) the investors would have money at risk; and (3) that early termination of the swap was not predetermined. Taylor testified that he and Smith had agreed that these core elements of the transaction could not be disclosed in the opinion letter if the transaction were to yield the intended tax benefits. Other than a brief phone call with two unknown E&Y employees in June 1999, Taylor had no contact with anyone else at E&Y. E&Y ultimately engaged Brent Clifton at Locke Liddell rather than Taylor to write the CDS opinion letter.
The defendants moved to exclude Taylor’s testimony prior to trial, arguing that his testimony would consist primarily of recounting his conversations with Smith. The defendants argued that, since there was no evidence that the substance of those conversations had been relayed to the defendants, Taylor’s testimony was not relevant. The Government conceded that it would not produce direct “evidence that Taylor communicated directly with anyone at E&Y regarding what was falsely stated in, or intentionally omitted from, his draft opinion,” but argued that a jury could infer that “those matters necessarily would have been conveyed by Smith to one or more of the defendants.” The District Court denied the defendants’ motion and allowed the Government to present Taylor’s testimony, while warning that the Government would be required to “connect up” the evidence.
On appeal, the defendants principally argue that by admitting Taylor’s testimony, the District Court misunderstood its obligations under Federal Rule of Evidence 104(b), which governs questions of conditional relevance. Rule 104(b) provides that “[w]hen the relevance of evidence depends on whether a fact exists, proof must be introduced sufficient to support a finding that the fact does exist. The court may admit the proposed evidence on the condition that the proof be introduced later.” Fed R. Evid. 104(b). When faced with a question of conditional relevance, the district court should “examine[ ] all the evidence in the case and decide[ ] whether the jury could reasonably find the conditional fact . . . by a preponderance of the evidence.” Huddleston v. United States, 485 U.S. 681, 690 (1988). In this case, the defendants argue that the relevance of Taylor’s testimony depended upon a preliminary “conditional fact”—that the conversations between Taylor and Smith were ultimately conveyed to the defendants. In the absence of evidence that Taylor had substantive conversations with anyone else at E&Y, or that Smith told anyone at E&Y about his conversations with Taylor, the defendants argue that the Government failed to carry its burden to prove the conditional fact by a preponderance.
Despite the Government’s apparent failure to confront the Rule 104(b) analysis on appeal, we are persuaded that Taylor’s testimony was admissible as direct evidence of the conspiracy. As a preliminary matter, we note that the draft opinion letter prepared by Taylor and the final opinion letter issued by Locke Liddell were substantially similar, and that some passages appeared to be copied nearly verbatim. Indeed, even the defendants acknowledge that “it was certainly reasonable to conclude that Locke Liddell had received a copy of Taylor’s letter, and that it had used the letter as a starting point for its own.” Thus, Taylor’s testimony about the content of the draft opinion letter was independently admissible as to the circumstances manifesting the formation of the conspiracy.
Taylor’s testimony about his conversations with Smith admittedly presents a closer question of conditional relevance. Taylor testified at length about the various facts about the CDS transaction that had to be omitted from the tax opinion or described in misleading terms. As the Government notes, “what is striking about Taylor’s concerns is that they are precisely the same facts that the defendants, in e-mail after e-mail, cautioned people against revealing to the IRS.” Based on these similarities, the District Court concluded that a reasonable jury could infer that Taylor’s concerns were passed on to the defendants. In the circumstances presented here, we agree. Although the defendants protest that there is no evidence that Taylor communicated directly with the defendants, we have never required a statement to be disseminated to each member of the conspiracy in order to be admissible against the whole. Cf. United States v. Friedman, 854 F.2d 535, 562 (2d Cir. 1988) (“[T]here is no requirement that each member of a conspiracy conspire directly with every other member of the conspiracy.”). Accordingly, we affirm the District Court’s decision to admit Taylor’s testimony.
Defendant Vaughn, in an argument joined by each of the trial defendants, argues that the District Court committed reversible error by admitting the out-of-court statements of more than 20 alleged coconspirators. Federal Rule of Evidence 801 provides that a statement is not hearsay if it is both offered against a party and is “made by the party’s coconspirator during and in furtherance of the conspiracy.” Fed. R. Evid. 801(d)(2)(E). To admit hearsay testimony under Rule 801(d)(2)(E), the district court “must find (a) that there was a conspiracy, (b) that its members included the declarant and the party against whom the statement is offered [(the “non-offering party”)], and (c) that the statement was made during the course of and in furtherance of the conspiracy.” United States v. Alameh, 341 F.3d 167, 176 (2d Cir. 2003) (quotation marks omitted). These are “preliminary questions of fact” to be resolved by the district court under a preponderance of the evidence standard. Bourjaily v. United States, 483 U.S. 171, 175 (1987).
We review for clear error a district court’s findings as to whether “there was a conspiracy involving the declarant and the nonoffering party, and [whether] the statement was made during the course and in furtherance of the conspiracy.” In re Terrorist Bombings of U.S. Embassies in E. Africa, 552 F.3d 93, 137 (2d Cir. 2008) (quotation marks omitted) (alteration in original). As previously noted, we review a district court’s determination as to the admissibility of evidence at trial for abuse of discretion. Williams, 585 F.3d at 707.
Prior to trial, the Government identified 50 people as coconspirators with the defendants, including central figures such as David Smith, Peter Cinquegrani, and Belle Six. When the Government offered out-of-court statements of the alleged coconspirators at trial, the defense objected that the Government had not carried its burden as to the elements of the coconspirator exception. The District Court admitted the evidence subject to connection under the procedure established in Bourjaily v. United States, 483 U.S. 171 (1987), which permits the district court to “examine the hearsay statements sought to be admitted” in “making a preliminary factual determination.” Id. at 181. At the close of the Government’s case, the defense filed a motion to strike the out-of-court statements of the alleged coconspirators. After holding oral argument on the motion and requesting copies of certain exhibits for additional review, the District Court made a blanket ruling that “the prerequisites of Rule 801(d)(2)(E) have been shown by a preponderance of the evidence with respect to each of the conditionally admitted statements.”
The defendants argue on appeal that the District Court’s blanket admission of the coconspirator statements transgresses the “limit[s] [on] the proper use of Rule 801(d)(2)(E) to admit coconspirator testimony.” United States v. Gigante, 166 F.3d 75, 82 (2d Cir. 1999). Specifically, Vaughn argues that, as to most or all of the alleged coconspirators, the Government failed to prove that they had the intent to join and further an illegal venture. See id. at 83 (“It is the unity of interests stemming from a specific shared criminal task that justifies Rule 801(d)(2)(E) in the first place . . . .”). For example, the defendants argue that two outside accountants, Fred Goldman and Robert Cooper, were “merely outside functionaries” and “cannot be considered ‘co-conspirators’ with the defendants under any reasonable definition of the term.”
In response, the Government accuses Vaughn of “cherry-pick[ing]” testimony to argue his case when there was “ample evidence” to establish that Goldman, Cooper, and others were coconspirators with the defendants. In particular, the Government notes that Cooper acknowledged at trial that he had given false and misleading testimony during an IRS tax audit and that he believed he was helping clients commit tax evasion when he signed tax returns for the Add-On transaction.
Upon review of the foregoing arguments, it appears that the defendants’ fundamental objection to the coconspirator evidence relates to the generalized nature of the District Court’s ruling. See Vaughn Reply 34 (“In point of fact, it is the summary fashion by which the District Court dispensed with these detailed, specific objections by the Defendants which forms the basis of Vaughn’s argument concerning this point on appeal.”). Although the blanket ruling by the District Court certainly makes appellate review more difficult, we have never required the district court to make particularized rulings or conduct separable analyses with respect to each coconspirator, much less each coconspirator statement. Cf. United States v. Al-Moayad, 545 F.3d 139, 173 (2d Cir. 2008) (vacating the judgment because “[t]he court made no findings, by a preponderance of the evidence or otherwise, about the existence of a conspiracy” (emphasis added)). The record makes clear that the able and experienced district judge reviewed the defendants’ motion papers, held oral argument, obtained additional evidence from the Government, applied the correct legal standard, and made a considered oral ruling. In light of these facts, the District Court did not clearly err in its factual determination that the out-of-court statements were made in furtherance of the conspiracy, and therefore did not abuse its discretion by admitting the out-of-court statements under the coconspirator exception.
Coplan and Vaughn argue that the District Court abused its discretion by excluding from evidence portions of their deposition transcripts. As part of an IRS “promoter exam” of E&Y,9 the IRS deposed both Coplan and Vaughn in June 2002. The deposition transcripts formed the basis for Counts Six and Seven of the Redacted Indictment, which charged Coplan and Vaughn with making false statements to the IRS. At trial, the Government sought to introduce only the portions of the deposition transcripts containing the false statements alleged in Counts Six and Seven. Coplan and Vaughn sought to admit their entire deposition transcripts in order to demonstrate that the statements, even if false, were not material to the promoter exam. The District Court thereafter accepted certain counter-designations proposed by the defendants, but refused to admit the entire transcripts, holding that the excluded portions were “largely inadmissible hearsay offered by defendants, or they [we]re simply irrelevant to the issues here.”
Once again, we review a district court’s determination as to the admissibility of evidence at trial for abuse of discretion. Williams, 585 F.3d at 707.
Coplan and Vaughn argue that, in excluding more than 80 percent of the deposition transcripts, the District Court erred by (1) ruling that the bulk of the deposition transcripts constituted hearsay; (2) failing to admit the statements under the rule of completeness; and (3) failing to admit the statements under the state of mind exception to the hearsay rule.
Under Federal Rule of Evidence 801, a hearsay statement is an out-of-court “assertion” that is “offer[ed] . . . to prove the truth of the matter asserted in the statement.” Fed. R. Evid. 801(a) & (c); see United States v. Marin, 669 F.2d 73, 84 (2d Cir. 1982) (“When the defendant seeks to introduce his own prior statement for the truth of the matter asserted, it is hearsay, and it is not admissible.”). Here, Coplan and Vaughn challenge the District Court’s predicate ruling that the bulk of the deposition transcripts were offered for the truth of the matter asserted. But as the Government tacitly concedes, see Gov’t’s Br. 232, the questions posed by the IRS agent were not hearsay, because as a matter of law, questions are not “assertions” within the meaning of Rule 801. See United States v. Oguns, 921 F.2d 442, 449 (2d Cir. 1990) (“An inquiry is not an ‘assertion,’ and accordingly is not and cannot be a hearsay statement.” (quotation marks omitted)). Thus, the District Court erred by invoking the hearsay rule to exclude the questions contained in the deposition transcripts.
The hearsay status of the defendants’ responses presents a closer question. Coplan insists that his responses were not offered for the truth of the matter asserted, but to demonstrate “the overall purpose of the interview, the context in which the charged statements were made, and [his] willingness to cooperate fully in the interview.” Coplan Reply 31 n.5. The Government counters that Coplan’s true purpose was to convince the jury that, in the course of a lengthy deposition, he was mostly truthful. The Government’s contention finds support in a letter brief from Coplan’s counsel, which made clear that he wished to admit the entire deposition transcript in order to show “his forthcoming approach to the proceeding.” SA 303. In light of these facts, the District Court did not abuse its discretion by invoking the hearsay rule to exclude the deposition responses.
Under Federal Rule of Evidence 106, where a party introduces all or part of a recorded statement, an adverse party may require the introduction of any other part that “in fairness ought to be considered at the same time.” Fed. R. Evid. 106. The so-called “rule of completeness” provides that “even though a statement may be hearsay, an omitted portion of the statement must be placed in evidence if necessary to explain the admitted portion, to place the admitted portion in context, to avoid misleading the jury, or to ensure fair and impartial understanding of the admitted portion.” United States v. Kopp, 562 F.3d 141, 144 (2d Cir. 2009) (quotation marks omitted). The rule “does not, however, require the admission of portions of a statement that are neither explanatory of nor relevant to the admitted passages.” Id. (quotation marks omitted).
In this case, Coplan and Vaughn argue that the District Court erred in concluding that portions of the transcript offered under Rule 106 could still be excluded under the hearsay rule. Although the Government initially misstated the standard below, Coplan identified the mistake almost immediately, and there is no indication that the District Court misapprehended or misapplied the Rule 106 standard in electing to admit the defendants’ counter-designations but not the entire transcripts. Citing the relevant standard from United States v. Jackson, 180 F.3d 55, 73 (2d Cir. 1999), the District Court stated that it was “[u]sing [Rule] 106 as a filter or a polestar” in refusing to admit the deposition transcripts in their entirety, but admitting a number of counter-designations. We find no abuse of discretion in that determination.
Federal Rule of Evidence Rule 803(3) provides a hearsay exception for “[a] statement of the declarant’s then-existing state of mind . . . or emotional, sensory, or physical condition.” Fed. R. Evid. 803(3). The defendants contend that the excluded portions of the transcript were admissible under this “state of mind” exception. In particular, Coplan argues that a statement evincing his confusion about the definition of a “digital option” should have been admitted “to show [his] lack of understanding of some of the financial instruments involved.” Coplan Br. 83. But although Coplan raised Rule 803(3) “in general terms” below, it appears that his current argument—that certain statements were admissible to prove his lack of technical acumen—was never presented to the District Court. A III: 218/4167 (District Court ruling noting that defendants “haven’t given any specificity of statements that show state of mind of Vaughn or Coplan”).
In any event, even assuming arguendo that the District Court erred by not admitting the entirety of the deposition transcripts, the error was harmless. Fed. R. Crim. P. 52(a) (defining “harmless error” as “[a]ny error, defect, irregularity, or variance that does not affect substantial rights”). The defendants argue that the erroneous exclusion “gutted” their defense that the false statements “were, at best, ancillary to the investigation.” Coplan Br. 85. But in the full context of the record, it is clear that the defendants had ample opportunity to make these arguments through their cross-examination of the IRS agent and their closing arguments. Moreover, the jury heard testimony explaining how all of the information sought by the IRS was material to the promoter exam that was the subject of the deposition. On this record, we conclude that, even if the exclusion of the deposition testimony was erroneous, the error was harmless. See United States v. Farhane, 634 F.3d 127, 164 (2d Cir. 2011) (deeming harmless the exclusion of state of mind evidence where Government’s contrary evidence was “clearly overwhelming”); United States v. Song, 436 F.3d 137, 140 (2d Cir. 2006) (deeming harmless the erroneous exclusion of state of mind evidence where defendant “was permitted to testify in sufficient detail as to his theory of the case” and Government presented overwhelming evidence of guilt).
Shapiro, joined by Coplan and Vaughn, argues that the Government committed prosecutorial misconduct by introducing surprise arguments and misrepresenting evidence in its rebuttal summation. Specifically, the defendants challenge (1) the Government’s “surprise” arguments about client responses to the PICO IDR; and (2) the Government’s description of COBRA as a “trick” and an “amazing” and “extraordinary” distortion of the relevant tax regulations.10
As a general matter, a defendant asserting that a prosecutor’s remarks warrant a new trial “‘faces a heavy burden, because the misconduct alleged must be so severe and significant as to result in the denial of his right to a fair trial.’” United States v. Banki, 685 F.2d 99, 120 (2d Cir. 2012) (quoting United States v. Locascio, 6 F.3d 924, 925 (2d Cir. 1993) (alterations omitted)); see also United States v. Whitten, 610 F.3d 168, 202 (2d Cir. 2010) (“We will reverse on the ground of prosecutorial misconduct only if that misconduct caused substantial prejudice by so infecting the trial with unfairness as to make the resulting conviction a denial of due process.” (internal quotation marks omitted)). “In considering whether inappropriate remarks rise to the level of prejudicial error, we examine ‘the severity of the misconduct, the measures adopted to cure the misconduct, and the certainty of conviction absent the misconduct.’” United States v. Gansman, 657 F.3d 85, 96 (2d Cir. 2011) (quoting United States v. Caracappa, 614 F.3d 30, 41 (2d Cir. 2010)).
With respect to the “surprise” rebuttal argument, it is well established that “[r]ebuttal provides the government with the opportunity to respond to defendant’s arguments. It does not allow the government to bring in new matters.” United States v. Giovanelli, 945 F.2d 479, 495 (2d Cir. 1991) (quotation marks omitted). In context, however, it appears that the “surprise” PICO IDR argument was briefly discussed in the Government’s opening summation as “one of the most galling examples” of statements prepared by the defendants that falsely described their clients’ subjective intent. The Government then returned to the PICO IDR argument in rebuttal, highlighting the fact that none of the defense counsel had addressed the PICO IDR responses. Returning to an argument noted—although not emphasized—by the Government in its opening summation cannot be regarded as “deceitful and unfair.” Shapiro Br. 83. In the context of a rebuttal summation that spanned some 120 pages of trial transcript, any misconduct here cannot be deemed severe. See United States v. Newton, 369 F.3d 659, 681 (2d Cir. 2004) (cautioning against “disproportionate emphasis [on] isolated incidents of alleged error”).
The defendants also challenge the Government’s description of the COBRA transaction as a “trick” and an “amazing” and “extraordinary” distortion of the relevant tax regulations. This argument is equally unpersuasive. It is well established that the Government “has broad latitude in the inferences it may reasonably suggest to the jury during summation.” United States v. Edwards, 342 F.3d 168, 181 (2d Cir. 2003) (quotation mark omitted). In this case, the Government had presented ample evidence to support the inference that COBRA—a shelter that, rather than deferring or converting taxes, eliminated tax liability altogether—was based on an aggressive, although not necessarily unlawful, interpretation of the tax code. See, e.g., A II: 364/2149 (testimony of Belle Six) (“We did look at elimination strategies in [the VIPER Group]. The consensus was not that we wouldn’t sell them, but that it would be very unlikely that Ernst & Young would ever reach a level of authority to sell them.”). The Government’s comments about COBRA in rebuttal summation, “while arguably imprecise, were by no means unreasonable in light of the evidence presented at trial and the nature of the charged . . . scheme.” United States v. Cohen, 427 F.3d 164, 170 (2d Cir. 2005). For that reason, we find the defendants’ assertions of prosecutorial misconduct to be without merit.
Coplan, Shapiro, and Nissenbaum argue that the District Court’s jury instructions were flawed in three respects: (1) the instructions on Count One, the conspiracy to defraud charge, unfairly emphasized the Government’s theory of the case and omitted their theory of defense; (2) there was no factual basis for the conscious avoidance instruction in connection with Counts Two and Three, the tax evasion charges; and (3) the instructions on Counts Two and Three contained an improper definition of “economic substance.”
As a general matter, we review a properly preserved claim of error regarding jury instructions de novo, reversing only where, “viewing the charge as a whole, there was a prejudicial error.” United States v. Aina-Marshall, 336 F.3d 167, 170 (2d Cir. 2003). The trial court “enjoys broad discretion in crafting its instructions[,] which is only circumscribed by the requirement that the charge be fair to both sides.” United States v. Brand, 467 F.3d 179, 205 (2d Cir. 2006) (quotation marks omitted). A defendant challenging a district court’s refusal to give a requested jury instruction carries the “heavy burden . . . [of showing] that his proposed charge accurately represented the law in every respect, and that the charge actually given, viewed as a whole, prejudiced him.” United States v. Feliciano, 223 F.3d 102, 116 (2d Cir. 2000) (internal quotation marks omitted).
First, the defendants argue that the jury instructions on Count One omitted their theory of defense and unfairly emphasized the Government’s theory of guilt. Although a defendant is “entitled to have the court charge the jury on any defense theory for which a foundation existed in the record, he [is] not necessarily entitled to have that instruction communicated to the jury in the language of his choice.” Brand, 467 F.3d at 205 (quotation marks omitted) (alteration in original). “We will vacate a conviction on account of a missing requested instruction if (1) the requested instruction was legally correct; (2) it represents a theory of defense with basis in the record that would lead to acquittal; and (3) the theory is not effectively presented elsewhere in the charge.” United States v. Prawl, 168 F.3d 622, 626 (2d Cir. 1999) (internal quotation marks omitted).
In this case, the defendants proposed a jury instruction on Count One that emphasized the distinction between acts that made the IRS’s job more difficult and acts that were done deceitfully or dishonestly. Their requested instruction included a number of examples that, in the defendants’ view, could not constitute a conspiracy to defraud, in order to advance the defense theory that their conduct was legitimate advocacy on behalf of their clients. See, e.g., A VI: 262 (proposed jury instruction) (“It is not illegal simply to make the IRS’s job harder. This is particularly true for the defendants, whose professional obligations as attorneys or certified public accountants required them to represent the interests of their clients vigorously in their dealings with adversaries, such as the IRS.”). The District Court adopted the substance of the proposed charge, but declined to include the defendants’ examples or to inform the jury about the special obligations of tax professionals who represent clients in an adversarial setting.11
We affirm the District Court’s ruling primarily because the defendants’ proposed charge did not “accurately represent[ ] the law in every respect.” Feliciano, 223 F.3d at 116 (quotation marks omitted). The examples of purportedly lawful conduct proffered by the defendants included the following: “an agreement between witnesses not to tell the government something unless specifically asked about it; advice from an attorney to a client to assert his constitutional right not to speak to government investigators; an agreement not to create a document that individuals had no obligation to create.” A VI: 262. Although these acts are not necessarily deceitful, no bright line rule excludes such acts from supporting a conspiracy to defraud. See Cont’l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 707 (1962) (“[I]t is well settled that acts which are in themselves legal lose that character when they become constituent elements of an unlawful scheme.”). We are not unsympathetic to the defendants’ view that a lay jury may struggle to fully apprehend the obligations of tax professionals zealously (and lawfully) representing clients before the IRS. Nevertheless, because the current understanding of the Klein doctrine does not categorically exclude the foregoing acts, the District Court properly omitted the proposed examples from the jury instructions.
In any event, the Court’s actual instructions on Count One repeatedly emphasized the need for the jury to find that the defendants acted in a deceitful or dishonest manner in order to convict. A VI: 419/6158 (“Only conduct that both is intended to impede the lawful functions of a government agency and is fraudulent or dishonest will support a charge of conspiracy to defraud a government agency. . . . Not all conduct that impedes the lawful functions of a government agency is illegal. To be unlawful, that conduct has to entail fraud, deceit, or other dishonest means.”). “[V]iewing the charge as a whole,” we find no prejudicial error. Aina-Marshall, 336 F.3d at 170.
The defendants further argue that there was no factual basis for the conscious avoidance instruction in connection with Counts Two and Three, the tax evasion charges. “‘A conscious avoidance instruction permits a jury to find that a defendant had culpable knowledge of a fact when the evidence shows that the defendant intentionally avoided confirming the fact.’” United States v. Quinones, 635 F.3d 590, 594 (2d Cir. 2011) (quoting United States v. Ferrarini, 219 F.3d 145, 154 (2d Cir. 2000)).12 A conscious avoidance instruction is appropriate only when (1) “a defendant asserts the lack of some specific aspect of knowledge required for conviction,” and (2) “the appropriate factual predicate for the charge exists, i.e., the evidence is such that a rational juror may reach the conclusion beyond a reasonable doubt that the defendant was aware of a high probability of the fact in dispute and consciously avoided confirming that fact.” United States v. Ferguson, 676 F.3d 260, 278 (2d Cir. 2011) (quotation marks omitted). The Government need not choose between an “actual knowledge” and a “conscious avoidance” theory. United States v. Kaplan, 490 F.3d 110, 128 n.7 (2d Cir. 2007).
In this case, the Government requested a conscious avoidance instruction in connection with the scienter element of Counts Two and Three, the tax evasion charges. The defense objected that there was no factual predicate for the conscious avoidance instruction; the District Court overruled the objection, finding unspecified “adequate evidence” to support the charge. The jury was instructed that the knowledge element would be satisfied if a defendant “was aware of a high probability that a CDS add-on shelter transaction lacked a reasonable possibility of a profit” and “acted with a conscious purpose to avoid learning the truth about whether or not the shelter had a reasonable possibility of a profit.”
With respect to Coplan, we conclude that the conscious avoidance instruction was clearly justified. In February 2001, Coplan reviewed and commented on a spreadsheet he received from Belle Six that listed the Add-On clients and provided basic information about each client. That spreadsheet reflected the cost of the client’s investment and the maximum potential payout ratio for the investment—two of three data points necessary to evaluate profit potential. Specifically, the spreadsheet showed that the investment for each taxpayer cost approximately 0.5% of the desired tax loss, and that the maximum payout ratio for each taxpayer was approximately 2:1 (profit to premium). See note 25, ante (describing the 2:1 payoff ratio). From these two variables, it was apparent that Add-On lacked profit potential if the fees exceeded 1.0%. Given Coplan’s role as the head of SISG and his involvement in setting the Add-On fees, there was sufficient evidence to allow the jury to conclude that, if Coplan did not have actual knowledge that the fees exceeded 1.0%, he “decided not to learn th[at] key fact,” Rodriguez, 983 F.2d at 458. For that reason, we conclude that the conscious avoidance instruction was appropriate with respect to Coplan.
The factual basis for the conscious avoidance instruction as to Shapiro and Nissenbaum presents a much closer question. Because we are reversing Counts Two and Three with respect to Shapiro and Nissenbaum based on the insufficiency of the evidence, see Part II.B, ante, we need not, and do not, reach their challenges to the conscious avoidance instruction.
Finally, the defendants also argue that the instructions on Counts Two and Three contained an improper definition of “economic substance.” The District Court instructed the jury that the Add-On transaction lacked “economic substance” if (1) the transaction offered “no reasonable possibility that the transaction would result in a profit,” and (2) the relevant taxpayer had “no business purpose” for engaging in the transaction.13 The defendants challenge the “no reasonable possibility that the transaction would result in a profit” language in the first element of the instruction, arguing instead a transaction lacks economic substance only where there is “no market risk.”
As a general matter, a transaction that lacks economic substance will not provide the basis for a tax deduction. Ferguson v. Comm’r, 29 F.3d 98, 101 (2d Cir. 1994). A transaction lacks economic substance if it “can not [sic] with reason be said to have purpose, substance, or utility apart from [its] anticipated tax consequences.” Lee v. Comm’r, 155 F.3d 584, 586 (2d Cir. 1998) (quotation mark omitted); see also Jacobson v. Comm’r, 915 F.2d 832, 837 (2d Cir. 1990) (“A sham transaction analysis requires a determination whether the transaction has any practicable economic effects other than the creation of income tax losses.” (internal quotation marks omitted)).
The law of economic substance, it must be said, is not a model of clarity. The economic substance doctrine was, “if not formulated, then at least popularized” by Judge Learned Hand’s opinion in Helvering v. Gregory, 69 F.2d 809 (2d Cir. 1934), aff’d, Gregory v. Helvering, 293 U.S. 465 (1935). David P. Hariton, Sorting Out the Tangle of Economic Substance, 52 Tax Law. 235, 241 (1999). Since Gregory, the economic substance doctrine “has been applied differently from circuit to circuit and sometimes inconsistently within circuits.” Modern Tax Controversies, 957 Practicing Law Inst. at 478-35 (summarizing the “disjunctive, conjunctive, and unitary formulations” of the economic substance doctrine).14
Our Circuit is no exception. In United States v. Atkins, we approved an instruction that a transaction lacks economic substance if it was subject to “no market risk.” 869 F.2d 135, 140 (2d Cir. 1989) (upholding a charge that the transaction at issue lacked economic substance if (1) it was “not intended either to make or preserve any profit or to limit a loss in any way,” and (2) it was subject to no market risk in that “changes in market prices cannot have any effect” (quotation marks omitted)). In United States v. Regan, 937 F.2d 823, 827 (2d Cir. 1991), we suggested, without expressly ruling, that a “no market risk” instruction was erroneous on the particular facts of that case. Most recently, in a non-precedential disposition, we approved an instruction that a transaction lacks economic substance when there is “no reasonable possibility that the transaction would result in a profit.” United States v. Pfaff, 407 F. App’x 506, 508 (2d Cir. 2010) (quotation marks omitted). In so holding, we noted that the “narrower definition” we previously approved did not “state the outer limits of the economic substance doctrine.” Id.
Despite these inconsistencies, we return to the premise that a transaction lacks economic substance if it “can not [sic] with reason be said to have purpose, substance, or utility apart from [its] anticipated tax consequences.” Lee, 155 F.3d at 586 (emphasis added). Given the presence of the reasonableness standard in our early formulations of the economic substance doctrine, we now hold that the District Court’s “no reasonable possibility that the transaction would result in a profit” instruction, see note 40, ante, accurately stated the law.
Coplan argues that, should his conviction on Counts One, Two, Three, or Seven be overturned, this Court would be obligated to vacate Count Five (obstruction of the IRS), based on “spillover prejudice.” Because we affirm Coplan’s conviction in its entirety, we reject this argument. Vaughn likewise argues that the allegedly improper venue on Count Six and the admission of the coconspirator statements caused prejudicial spillover. We reject this argument, as we rejected its predicates.
Finally, Bolton challenges the procedural and substantive reasonableness of his 15-month sentence. As previously noted, Bolton pleaded guilty to a Superseding Information charging him in one count of conspiracy, in violation of 18 U.S.C. § 371, with three objectives: (1) a Klein conspiracy; (2) making false statements to the IRS; and (3) obstruction of the IRS. On appeal, Bolton contends that (1) the District Court erred in concluding that his conviction under § 371 resulted in a “tax loss” within the meaning of the Guidelines; (2) his sentence of 15 months of imprisonment was substantively unreasonable; and (3) the $3 million fine imposed by the District Court should be vacated in light of United States v. Pfaff, 619 F.3d 172 (2d Cir. 2010).
We review a criminal sentence for “reasonableness,” which “amounts to review for abuse of
> A conspiracy to defraud the United States does not necessarily involve cheating the government out of money or property. The statute also includes conspiracies to interfere with or obstruct any lawful government function by fraud, deceit, or any dishonest means. I instruct you that the IRS is an agency of the United States government. The term “conspiracy to defraud the United States” therefore means that the defendants and their alleged co-conspirators are accused of conspiring to impede, impair, obstruct or defeat, by fraudulent or dishonest means, the lawful functions of the IRS to ascertain taxes and to collect lawfully due and owing tax revenue.
>
> Only conduct that both is intended to impede the lawful functions of a government agency and is fraudulent or dishonest will support a charge of conspiracy to defraud a government agency. A conspiracy to impede the functions of a government agency by fraudulent or dishonest means may include such things as altering documents after they have been demanded by the government agency, creating false documents, destroying records, making false statements, attempting to induce others to make false statements, or engaging in any other fraudulent or deceptive conduct that would have the effect of impairing the ability of the government agency to determine material aspects of a transaction. By giving you these examples, ladies and gentlemen, I do not mean to suggest that these are the only actions that could impede the IRS by fraudulent or dishonest means, nor am I expressing any view as to whether conduct similar to these examples actually took place here. That’s for you to decide.
>
> Not all conduct that impedes the lawful functions of a government agency is illegal. To be unlawful, that conduct has to entail fraud, deceit, or other dishonest means. It is not illegal simply to make the IRS’s job harder. Only an agreement to engage in conduct that tends to impede the IRS, and also involves fraudulent, deceitful or dishonest means, constitutes an illegal agreement to defraud the United States.
>
> It is not necessary that the government or the IRS actually suffer a financial loss from a scheme. A conspiracy to defraud exists when there is an agreement to impede, impair, obstruct, or defeat, in any fraudulent or dishonest manner, the lawful functions of the IRS. One cannot use deception or dishonest means to impede, impair, defeat, or obstruct the IRS, even to protect a legitimate tax position.
>
> Where, however, there is an agreement to impede, impair, obstruct, or defeat the lawful functions of the IRS by fraudulent, deceptive, or dishonest means, the first element is satisfied regardless of whether the means of doing so in that particular instance are or are not unlawful in and of themselves.
>
> That’s the first object that’s alleged here, defrauding the IRS and the United States.
> In order to establish that a transaction lacks economic substance, the government must prove two elements beyond a reasonable doubt: The first element is that there was no reasonable possibility that the transaction would result in a profit. The second element is that the relevant taxpayer had no business purpose for engaging in the transaction in question apart from the creation of the tax deduction.
>
> ....
>
> Now, let me say a few words about your determination as to whether or not there was a reasonable possibility that the shelter would result in a profit. This element requires you to reach an objective judgment about whether the government has proved that there was no reasonable possibility that the shelter would result in a profit. In other words, this does not depend upon what the taxpayer believed about the profit potential. It requires you to consider all of the evidence and reach a conclusion about whether the government has proved beyond a reasonable doubt that there was no reasonable possibility of a profit on the tax shelter after the fees and other costs were paid. If you find that the government has proved beyond a reasonable doubt that there was no reasonable possibility of a profit, then you move on to the second element, whether the relevant taxpayer had no business purpose for engaging in the tax shelter. If you find that the government has not proved the lack of a reasonable possibility of a profit, then you must reject the government’s theory and find the defendants not guilty.