                      FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,                          No. 05-10752
                Plaintiff-Appellee,
               v.                                    D.C. No.
                                                   CR-99-00239-ER
MICHAEL H. BOULWARE,
                                                      OPINION
             Defendant-Appellant.
                                             
       Appeal from the United States District Court
                for the District of Hawaii
  Hon. Edward Rafeedie,* Senior District Judge, Presiding

                    Argued and Submitted
            January 21, 2009—Pasadena, California

                        Filed March 9, 2009

    Before: Pamela Ann Rymer and Sidney R. Thomas,
  Circuit Judges, and Stephen G. Larson,** District Judge.

                     Opinion by Judge Thomas




   *The Honorable Edward Rafeedie, Senior District Judge for the Central
District of California, sitting by designation. The panel notes with regret
the passing of Judge Rafeedie, who served as a federal district judge with
great distinction from 1982 until his untimely death in 2008. He will be
greatly missed.
   **The Honorable Stephen G. Larson, United States District Judge for
the Central District of California, sitting by designation.

                                  2921
2924                UNITED STATES v. BOULWARE




                             COUNSEL

John D. Cline, Kelli Crouch, Jones Day, San Francisco, Cali-
fornia, for the defendant-appellant.

Nathan J. Hochman, Assistant Attorney General; Alan Hecht-
kopf, Karen M. Quesnel, S. Robert Lyons, Attorneys, Depart-
ment of Justice, Tax Division, Washington, D.C., for the
plaintiff-appellee.


                              OPINION

THOMAS, Circuit Judge:

   This case returns to us from the Supreme Court with direc-
tions to conduct a thorough examination of the record to
determine whether or not the defendant’s offer of proof was
sufficient to justify the presentation of a “return of capital”
theory to the jury. We conclude it was not and affirm the
judgment of the district court.

                                    I

  The facts of this case have been described fully in prior
appellate decisions,1 so we need not explain the background
  1
   Boulware v. United States, ___ U.S. ___, 128 S. Ct. 1168 (2008)
(“Boulware III”); United States v. Boulware, 470 F.3d 931 (9th Cir. 2006)
                     UNITED STATES v. BOULWARE                        2925
in detail. In brief, Michael H. Boulware was the president and
fifty-percent owner of Hawaiian Isles Enterprises (“the corpo-
ration”), a distributor of tobacco, water, coffee, vending
machines, and video games. Boulware was initially convicted
on five counts of filing a false tax return in violation of 26
U.S.C. § 7206(1), four counts of tax evasion in violation of 26
U.S.C. § 7201, and conspiracy to make a false statement to a
federally-insured financial institution in violation of 18 U.S.C.
§ 371, all related to his receipt of certain funds from the cor-
poration without disclosing the same on his income tax
returns.

   On appeal from the first trial, we reversed the tax convic-
tions because of the exclusion of evidence regarding a state
court’s adjudication of property rights in funds diverted from
the corporation, and affirmed the conspiracy conviction. Boul-
ware I, 384 F.3d at 798-99.

   Boulware was re-tried and convicted on the five counts of
filing false tax returns and the four counts of willfully
attempting to evade taxes. The government’s theory was that
Boulware diverted more than $10 million from the corpora-
tion for his personal use, without disclosing those funds in his
tax returns. Boulware asserted a number of alternative theo-
ries in an attempt to show the diversions were proper,2 includ-
ing claiming the distributions were a non-taxable return of
capital. To that end, Boulware sought to present evidence,
including expert witness testimony, that the corporation had
no earnings and profits in the relevant taxable years, so the
money distributed by the corporation was, in fact, a non-
taxable return of capital up to the amount of his basis in his
stock. 26 U.S.C. §§ 301, 316(a).

(“Boulware II”); United States v. Boulware, 384 F.3d 794 (9th Cir. 2004)
(“Boulware I”).
   2
     Boulware also argued, as he had in Boulware I, that the corporate dis-
tributions were actually loans, see 384 F.3d at 811, or, alternatively, that
the funds were held in trust for the purchase of his then-wife’s stock, see
384 F.3d at 800.
2926              UNITED STATES v. BOULWARE
   The government filed a motion in limine to prevent Boul-
ware from presenting evidence regarding the “return of capi-
tal” theory. It relied on then-existing circuit precedent that a
defendant was required, as a prerequisite to the assertion of
the theory, to show that the corporation intended the distribu-
tion to be a return of capital. See United States v. Miller, 545
F.2d 1204, 1215 (9th Cir. 1976).

   The district court granted the motion in limine because
Boulware’s proffer failed to satisfy Miller and because much
of the evidence was excludable as improper legal opinion.
After Boulware was convicted a second time, we affirmed the
district court’s denial of the proffer because Miller required
“some demonstration on the part of the defendant or corpora-
tion that distributions were intended to be a return of capital.”
Boulware II, 470 F.3d at 933-34.

   The Supreme Court reversed Boulware II, holding that the
Miller rule upon which the panel was required to rely was
incorrect, and concluding that a defendant could establish a
return of capital or assert the return of capital theory without
a showing of contemporaneous intent to make a distribution.
128 S. Ct. at 1180. As the Court noted, under the relevant stat-
utory sections, “the tax consequences of a ‘distribution by a
corporation with respect to its stock’ depend, not on anyone’s
purpose to return capital or to get it back, but on facts wholly
independent of intent: whether the corporation had earnings
and profits, and the amount of the taxpayer’s basis for his
stock.” Id. at 1177.

   The Supreme Court agreed, however, that the theory
requires more than merely showing that the corporation
lacked earnings and the recipient’s stock basis was in excess
of the distribution, emphasizing that there must be evidence
that the distribution was “with respect to . . . stock.” Id. at
1180. The Supreme Court then remanded with instructions for
us to reconsider the proffer in light of its decision and the
entire record of the case.
                  UNITED STATES v. BOULWARE                   2927
   We review a district court’s decision to admit or exclude
expert opinion testimony under the deferential abuse of dis-
cretion standard. United States v. McCaleb, 552 F.3d 1053,
1060 (9th Cir. 2009). We review de novo whether an offer of
proof satisfies the elements of the asserted defense. United
States v. Schoon, 971 F.2d 193, 195 (9th Cir. 1992).

                               II

   [1] “Due process requires that criminal prosecutions ‘com-
port with prevailing notions of fundamental fairness’ and that
‘criminal defendants be afforded a meaningful opportunity to
present a complete defense.’ ” Clark v. Brown, 450 F.3d 898,
904 (9th Cir. 2006) (quoting California v. Trombetta, 467
U.S. 479, 485 (1984)). “A defendant is entitled to an instruc-
tion on his theory of the case if the theory is legally cogniza-
ble and there is evidence upon which the jury could rationally
find for the defendant.” United States v. Morton, 999 F.2d
435, 437 (9th Cir. 1993).

   On remand, the question for us is whether the tender of evi-
dence to support the “return of capital” theory was sufficient
to allow the presentation of the evidence and theory to the
jury. As we noted in United States v. Kayser, 488 F.3d 1070,
1076 (9th Cir. 2007):

    The legal standard is generous: “a defendant is enti-
    tled to an instruction concerning his theory of the
    case if the theory is legally sound and evidence in
    the case makes it applicable, even if the evidence is
    weak, insufficient, inconsistent, or of doubtful credi-
    bility.” United States v. Washington, 819 F.2d 221,
    225 (9th Cir. 1987). A defendant needs to show only
    that “there is evidence upon which the jury could
    rationally sustain the defense.” United States v. Jack-
    son, 726 F.2d 1466, 1468 (9th Cir. 1984) (per
    curiam).
2928              UNITED STATES v. BOULWARE
   On the other hand, a trial court may preclude a defense the-
ory where “the evidence, as described in the defendant’s offer
of proof, is insufficient as a matter of law to support the prof-
fered defense.” United States v. Dorrell, 758 F.2d 427, 430
(9th Cir. 1985). Counsel must also “articulate every ground
on which the evidence is admissible, since a ground not iden-
tified at trial will not provide a basis for reversal on appeal.”
Jack B. Weinstein and Margaret Berger, Weinstein’s Federal
Evidence, § 130.20[5], p. 103-39 (Joseph M. McLaughlin, ed.,
Matthew Bender 2d. ed. 2008); see also Hudspeth v. Comm’r,
914 F.2d 1207, 1215 (9th Cir. 1990) (holding that failure to
identify ground of admissibility limited appellate review to
plain error).

  In support of his assertion of the return of capital theory,
Boulware made an offer of proof as to expert testimony and
evidence regarding corporate earnings.

                               A

   [2] We need not consider whether Boulware’s proffer of
expert testimony satisfied the requirement that the defendant
minimally establish all the elements of the asserted theory
because the trial court denied the proffer on alternate and ade-
quate grounds. In addition to precluding the testimony on the
basis of Miller, the district court excluded the expert testi-
mony because it constituted a legal opinion. It did not abuse
its discretion in doing so. United States v. Scholl, 166 F.3d
964, 973 (9th Cir. 1999); see also Aguilar v. International
Longshoremen’s Union, 966 F.2d 443, 447 (9th Cir. 1992)
(noting matters of law are for the court’s determination, not
that of an expert witness).

   [3] Here, Boulware’s expert sought to testify that the corpo-
rate distributions were legally non-taxable, either because
they were loans, monies placed in trust, or returns of capital.
The trial court’s exclusion of the expert testimony to the
extent that it constituted a legal opinion was well within its
                  UNITED STATES v. BOULWARE                 2929
discretion. See Nationwide Transp. Fin. v. Cass Info. Sys., 523
F.3d 1051, 1059-60 (9th Cir. 2008) (“[A]n expert witness can-
not give an opinion as to her legal conclusion, i.e., an opinion
on an ultimate issue of law.”) (quoting Hangarter v. Provi-
dent Life & Accident Ins. Co., 373 F.3d 998, 1016 (9th Cir.
2004)).

                               B

   Boulware sought to introduce other evidence in support of
his return of capital theory. Specifically, Boulware wished to
introduce evidence that the corporation had over-reported
earnings in its tax returns to show that the corporate distribu-
tions to Boulware “could be deemed a constructive dividend
or return of capital to Boulware which may or may not be
income depending on whether [the corporation] had earnings
or profits for the years when the monies were obtained by
Boulware.”

   After a careful examination of the record, we conclude that
the district court properly declined the offer of proof as to the
return of capital theory because the offer failed to satisfy all
the elements of the theory. As the Supreme Court explained
in Boulware III, the return of capital theory requires: (1) a
corporate distribution with respect to a corporation’s stock,
(2) the absence of corporate earnings or profits, and (3) the
stockholder’s stock basis be in excess of the value of the dis-
tribution. 128 S. Ct. at 1180 & n.12.

   The admission of evidence of corporate earnings, by itself,
is plainly insufficient to satisfy the elements necessary to
assert a return of capital theory. However, in evaluating an
offer of proof on appeal, we are not confined to the four cor-
ners of the formal offer, but may evaluate “evidence . . . made
known to the court.” Movie 1 & 2 v. United Artists
Commc’ns, Inc., 909 F.2d 1245, 1249 (9th Cir. 1990). Thus,
in evaluating whether the defendant was entitled to present a
return of capital theory, we examine not only the formal offer
2930              UNITED STATES v. BOULWARE
of proof, but the record as a whole to see if “there is evidence
upon which the jury could rationally sustain the defense.”
Kayser, 488 F.3d at 1076 (quoting Jackson, 726 F.2d at
1468).

   However, we will not consider any new offers on appeal,
as Boulware seems to suggest we should. See United States
v. Lara-Hernandez, 588 F.2d 272, 274 (9th Cir. 1978) (hold-
ing it was too late to present an additional theory of relevance
of evidence after the verdict). “The offer of proof required by
Rule 103(a)(2) is meant to give the trial judge contemporane-
ous knowledge about the proposed evidence, so that the judge
can make a proper ruling on the evidence at the time it is
offered.” Weinstein at § 130.20[4], p. 103-38.1. The point of
an offer of proof is to preserve the issue for appeal, not to
create a new evidentiary issue on appeal. In addition, except
in extraordinary circumstances, we generally will not allow
parties to supplement the record on appeal. See Lowry v.
Barnhart, 329 F.3d 1019, 1024 (9th Cir. 2003) (noting the
general rule against supplementation of the trial record on
appeal and that Fed. R. App. P. 10(e)(2)(C) allows the court
of appeals to supplement the record only by formal motion
based on extraordinary circumstances or error correction).

                               1

   [4] The first element necessary to the assertion of a return
of capital theory is that the corporate distribution be “with
respect to . . . stock.” Boulware III, 128 S. Ct. at 1180. The
Supreme Court declined to define this element in any particu-
larity, noting:

    This, however, is not the time or place to home in on
    the “with respect to . . . stock” condition. Facts with
    a bearing on it may range from the distribution of
    stock ownership to conditions of corporate employ-
    ment (whether, for example, a shareholder’s efforts
                      UNITED STATES v. BOULWARE                        2931
      on behalf of a corporation amount to a good reason
      to treat a payment of property as salary).

Id. at 1180-81 (footnote omitted).

   [5] Despite the Supreme Court’s rejection of a contempora-
neous intent requirement for the return of capital theory, the
government contends that we should require the defendant to
make some showing of intent before a distribution may be
considered to be “with respect to stock.” This suggestion flies
squarely in the face of the Supreme Court’s admonition in
Boulware III that the tax consequences of a corporate distri-
bution should be evaluated “on facts wholly independent of
intent.” 128 S. Ct. at 1177.

   [6] As the Supreme Court explained, because a particular
corporate distribution with respect to stock may be considered
ordinary income, capital gain, or a non-taxable event, depend-
ing on corporate earnings and profits and the taxpayer’s basis
in the stock,3 “[t]he determination is computational and not
dependent upon intent.” Id. (quoting IRS Non Docketed Ser-
vice Advice Review, 1989 WL 1172952 (Mar. 15, 1989)). In
short, in this context, “intent is irrelevant.” Id. (quoting IRS
Non Docketed Service Advice Review, 1989 WL 1172952).
An intent-based requirement would also eviscerate the tax
evasion statute’s requirement of a tax deficiency, meaning
that a taxpayer could be found guilty of tax evasion without
owing taxes. Boulware II, 470 F.3d at 938 (Thomas, J., con-
curring). Further, importing a new intent requirement would
  3
    Under § 301(a), unless the Internal Revenue Code requires otherwise,
“a distribution of property . . . made by a corporation to a shareholder with
respect to its stock shall be treated in the manner provided in [§ 301(c)].”
Section 301(c) provides that the portion of the distribution that is a “divi-
dend,” as defined by § 316(a), must be included in the recipient’s gross
income; the portion that is not a dividend is, depending on the sharehold-
er’s basis for his stock, either a nontaxable return of capital or a taxable
capital gain. Section 316(a) defines “dividend” as a “distribution” out of
“earnings and profits.”
2932                  UNITED STATES v. BOULWARE
create a divergence in civil and criminal return of capital
theory—a divergence that is not warranted absent unusual cir-
cumstances. Id.; see also United States v. Bok, 156 F.3d 157,
162 (2d Cir. 1998) (“[T]he return of capital theory applies
equally in both criminal and civil cases, assuming that the
diversion itself was not unlawful.”). As the Supreme Court
aptly noted, “economic substance remains the right touch-
stone for characterizing funds received when a shareholder
diverts them before they can be recorded on the corporation’s
books.” Boulware III, 128 S.Ct. at 1176.

   Thus, we reject the government’s attempt on remand to
graft on a requirement that the taxpayer establish intent as part
of the determination as to whether a distribution “was with
respect to stock.”4

   Boulware urges on remand that a taxpayer is entitled to a
jury instruction on the return of capital theory if he shows he
owned stock, received payments from the corporation, and did
not receive those payments in any nonstockholder capacity.
Even under this definition, Boulware’s proffer is insufficient.
He failed to establish in the record before the district court
that he only could have received the distribution in his capac-
ity as a shareholder. To the contrary, Boulware offered evi-
dence and alternate theories that the distribution was a loan or
was distributed in trust. Moreover, the proffer only referenced
   4
     We also reject the government’s argument, raised for the first time on
remand, that only the government—not the taxpayer—may attempt to
characterize a transaction as “with respect to stock” after the transaction
has occurred. We previously rejected this argument in Kayser, holding that
nothing precluded a defendant in a tax evasion case “from asserting a
defense that is inconsistent with information falsely reported on his chal-
lenged tax returns.” 488 F.3d at 1074. As we further noted, a taxpayer was
entitled “to present evidence at trial regarding the facts of the transaction
at issue, notwithstanding the defendant’s improper or ‘scrambled’ report-
ing of those facts.” Id. Although Kayser discussed this issue in the context
of Miller, there is nothing about the reformulated return of capital require-
ments in Boulware III that would lead us to a different conclusion.
                     UNITED STATES v. BOULWARE                        2933
corporate earnings, without any offer to prove that the distri-
bution was “with respect to stock,” or that any nexus existed
between the distribution and Boulware’s stock ownership.
Under de novo review of the offer of proof and the record,
absent affirmative evidence of nexus or support for a negative
inference we must conclude that the trial court did not err in
denying the offer of proof.5

   [7] The Supreme Court declined the opportunity to define
the contours of the phrase “with respect to stock,” leaving that
for another day. So do we.6 It suffices, however, to say that
at the very least a taxpayer must tender some evidence of
nexus between the corporate distribution and stock ownership,
or show that there were no other alternate explanations,7 in
order to proceed with a return of capital theory at trial. Boul-
ware did neither, and the district court was justified in declin-
ing to allow him to present another alternative theory to the
jury.

                                     2

   [8] The third element8 necessary to show that a distribution
  5
     We recognize, of course, that the argument before the trial court pri-
marily involved the application of Miller and that we are viewing this case
in hindsight. However, that fact does not relieve the defendant of making
an offer of proof that satisfies all the elements of the theory asserted.
   6
     We also decline, as did the Supreme Court, to consider the implications
of Holland v. United States, 348 U.S. 121(1954), and Sandstrom v. Mon-
tana, 442 U.S. 510, in this context because the issues raised in those cases
are not squarely presented here.
   7
     Put another way, “when you have eliminated the impossible, whatever
remains, however improbable, must be the truth.” Sir Arthur Conan Doyle,
Tales of Sherlock Holmes: The Sign of the Four, p. 228 (Grosset & Dunlap
1892). Of course, a defendant may pursue alternative theories. However,
when one attempts to characterize a transaction solely by negative infer-
ence, rather than affirmative proof, one usually must eliminate other possi-
ble theories, not prove their viability.
   8
     We need not discuss the second element—the absence of corporate
earnings or profit—because it was included in Boulware’s offer of proof.
2934                 UNITED STATES v. BOULWARE
was a non-taxable return of capital is that the stockholder’s
stock basis exceeded the value of the distribution. Boulware’s
offer of proof did not, on its face, purport to tender evidence
on this element. Therefore, we look to the entire record to
ascertain whether there was sufficient evidence to make a
threshold showing.

   [9] The corporate distributions to Boulware totaled $10
million. Thus, in order for the distributions to be considered
returns of capital, his stock basis must equal or exceed that
amount. There is no formal evidence of Boulware’s stock
basis in the record, nor did he make an offer of proof as to the
amount. In the record, Boulware testified to spending approxi-
mately $2 million purchasing Kona coffee beans for the busi-
ness. He also claims to have borrowed $1.2 million from the
corporation to buy equipment for the water plant, and that the
water business was given back to the corporation in return for
“30 percent more stocks or something.” From all of this evi-
dence a jury could conclude that Boulware was a shareholder
with a stock basis, but the evidence tendered was insufficient
to meet the threshold requirement that he have a stock basis
in excess of $10 million.

   [10] Therefore, Boulware’s tender of proof did not satisfy
the requirement that the corporate distribution exceed the tax-
payer’s basis in stock, providing an additional justification for
the trial court to preclude Boulware from presenting a return
of capital theory.9




  9
   We recognize that the government did not raise this objection at trial.
Indeed, this issue was first raised by the government in its reply brief to
Boulware’s petition for rehearing en banc in this court. The Supreme
Court noted that the government had conceded that Boulware’s basis was
                      UNITED STATES v. BOULWARE                        2935
                                    III

   [11] In sum, analyzing the specific offer of proof and the
record as a whole, we conclude that Boulware’s offer of proof
was insufficient as a matter of law to support the proffered
return of capital theory. We also conclude that the district
court did not abuse its discretion in excluding expert legal
opinion. Therefore, we conclude that Boulware is not entitled
to a third trial. We need not, and do not, reach any other issue
urged by the parties.

   AFFIRMED.




sufficient in its presentation, Boulware III, 128 S. Ct. at 1180 n.12 (“Nor
does the Government dispute that Boulware offered sufficient evidence of
his basis . . . .” ), although the government now disputes that it conceded
anything. Under other circumstances, we might well consider the objec-
tion waived and decline to exercise our discretion to entertain it. Neverthe-
less, on remand with instructions to consider the offer in light of the whole
record, and mindful that judicial economy militates against ordering a new
trial on speculative assertions, we exercise our discretion in this case to
analyze whether the element has been satisfied sufficiently to allow pre-
sentation of the theory to a jury at a new trial.
