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[2001-1 USTC ¶50,126] United States of America , Plaintiff-Appellee v. Samuel Aragbaye, Defendant-Appellant

(CA-9), U.S. Court of Appeals, 9th Circuit, 99-50603, 12/13/2000

234 F3d 1101

2000 U.S. App. LEXIS 31561. Affirming an unreported District Court decision.

[Code Sec. 7433 ]

Fraud and false Statements: Preparation of false returns: Sentencing guidelines: U.S. Sentencing Commission Guidelines.--A tax return preparer's sentence for conspiracy to present false claims against the government was properly determined under the sentencing guidelines for tax offenses and, thus, upheld. The tax return preparer and his employees filed more than 1,500 false returns. Although the Statutory Index of the U.S. Sentencing Guidelines Manual recommended use of the sentencing guidelines for fraud in connection with the taxpayer's conviction, the underlying scheme was the manipulation of the tax laws for the purpose of filing fraudulent tax returns and, thus, correctly characterized as a tax fraud.

[Code Sec. 7203 ]

Fraud and false Statements: Preparation of false returns: Sentencing guidelines: Enhanced sentence: Sophisticated means.--Sufficient evidence existed to uphold the sentence enhancement of a tax return preparer whose tax preparation business consisted solely of preparing fictitious returns. The sophisticated means enhancement was appropriate based on the taxpayer's use of a false name and social security number used in applying for an electronic filing identification number, the use of 141 different addresses at which to receive fraudulent refunds and the return preparer's opening of his own check cashing business to deposit fraudulent refunds.

Elana S. Artson, Assistant United States Attorney, Los Angeles , Calif. , for plaintiff-appellee. Firdaus Dordi, Deputy Federal Public Defender, Los Angeles , Calif. , for defendant-appellant.

Before: TASHIMA and TALLMAN, Circuit Judges, and ALSUP, District Judge. ^*

OPINION

TASHIMA, Circuit Judge:

Samuel Aragbaye ("Appellant") appeals the sentence imposed by the district court following his guilty plea to violations of 18 U.S.C. §§287 (presenting false claims against the United States ) and 371 (conspiring to defraud the United States ). Appellant contends that the district court erred in relying on the sentencing guidelines for tax offenses rather than the guidelines for fraud in imposing his sentence. Appellant further contends that the district court erred in applying sentencing enhancements for being a tax preparer and for use of sophisticated means. We have jurisdiction pursuant to 18 U.S.C. §3742 and 28 U.S.C. §1291, and we affirm.

BACKGROUND

Appellant was the owner of a tax preparation business named Teko Tax & Accounting Service. In the course of this business, Appellant ¹ filed false income tax returns with the Internal Revenue Service ("IRS"), seeking refunds based on false claims regarding dependents, expenses, fuel tax credits, and earned income credits. He filed more than 1,500 false tax returns, resulting in an "intended loss" of over $ 5 million. Appellant prepared the false returns by using the names of (1) individuals "solicited to have their tax returns prepared by" Appellant, (2) people who were indigent or receiving state aid and did not know their names and social security numbers were being used to file tax returns, and (3) children whose names were obtained from someone working for Children's Social Services. Appellant also made use of an unrelated, legitimate payroll company, named Precision Payroll, that maintains employee payroll records and issues paychecks and W-2 forms. Appellant created a fictitious company, TIG, and provided Precision Payroll with the names, social security numbers, and numbers of hours worked per pay period of 35 fictitious employees, in order to generate W-2 forms to be used in filing false tax returns.

Appellant directed his employees to prepare the tax returns by using nearly identical information, providing them with lists of names and social security numbers. The IRS ultimately issued at least $ 551,664.63 in tax refunds. Appellant opened post office boxes at which to receive the tax refunds, and used check cashing businesses, including one he opened himself and one run by a co-conspirator, to cash the checks.

Appellant pled guilty to one count of conspiracy to present false claims against the United States , in violation of 18 U.S.C. §371, and to two counts of presenting false claims against the United States , in violation of 18 U.S.C. §287. ² The district court concluded that the guidelines for tax offenses, rather than the fraud guideline recommended by the U.S. Sentencing Guidelines Manual, should be used to calculate Appellant's sentence. The court further added enhancements for being a tax preparer, for use of sophisticated means, and for Appellant's leadership role, resulting in a base offense level of 29. The court then decreased the level for acceptance of responsibility, which, with a criminal history category of I, resulted in a sentencing range of 63 to 78 months. The court sentenced Appellant to 78 months of imprisonment. Appellant timely appeals his sentence.

DISCUSSION

I. Application of Tax Guidelines

The U.S. Sentencing Guidelines Manual directs the sentencing court to "determine the offense guideline section in Chapter Two (Offense Conduct) most applicable to the offense of conviction (i.e., the offense conduct charged in the count of the indictment or information of which the defendant was convicted)." USSG §1B1.2(a) (1997). ³ The Statutory Index, found in Appendix A of the Guidelines, "provides a listing to assist in this determination." USSG §1B1.2, cmt. n.1. "The guidelines cross-referenced in the Statutory Index are not mandatory," however. United States v. Fulbright, 105 F.3d 443, 453 (9th Cir. 1997). The Index "merely points the court in the right direction. Its suggestions are advisory: what ultimately controls is the 'most applicable guideline.' " United States v. Cambra, 933 F.2d 752, 755 (9th Cir. 1991).

The Statutory Index recommends the use of USSG §2F1.1, the fraud guideline, for a violation of 18 U.S.C. §287. See USSG app. a. For a violation of §371, the Index refers to various guidelines, depending on the type of conspiracy--for example, §2A1.5 for conspiracy to commit murder, §2C1.7 for conspiracy to defraud by interference with governmental functions, and, relevant here, §2T1.9 for conspiracy to impede, impair, obstruct, or defeat tax. See id. The Introduction to the Index notes, however, that, "in an atypical case, the guideline section indicated for the statute of conviction [may be] inappropriate because of the particular conduct," in which case the court is to "use the guideline section most applicable to the nature of the offense conduct," referring to USSG §1B1.2. Id.

The district court rejected Appellant's objections to the Presentence Report ("PSR") and concluded that the general fraud guideline in §2F1.1 was not applicable because it was not "the most applicable guideline to the offense of conviction." The court reasoned that Appellant's conduct constituted "tax fraud, a more specific genre of false claims against the United States , because it is based upon the manipulation of the tax laws provisions within the overall taxing scheme of the United States ." The court thus relied on §2T1.4 (for aiding, assisting, procuring, counseling, or advising tax fraud) and §2T1.9 (conspiracy to impede, impair, obstruct, or defeat tax) in determining Appellant's sentence. The court further relied on Application Note 1 to §1B1.2, which states that "when a particular statute proscribes a variety of conduct that might constitute the subject of different offense guidelines, the court will determine which guideline section applies based upon the nature of the offense conduct charged in the count of which the defendant was convicted." USSG §1B1.2, cmt. n.1. Reasoning that §§371 and 287 "proscribe a variety of conduct," the court decided that the tax guidelines were the most applicable to the specific conduct.

Whether a particular guideline applies to a specific set of facts is subject to de novo review. See Fulbright, 105 F.3d at 453; United States v. Koff, 43 F.3d 417, 419 (9th Cir. 1994). "Due deference is given to the district judge's application of the Guidelines to the facts." United States v. Van Krieken, 39 F.3d 227, 230 (9th Cir. 1994).

Although Appellant was charged under §287 for presenting false claims against the United States , the entire scheme was based on filing fraudulent tax returns. Appellant's situation is thus similar to that in United States v. Hopper, 177 F.3d 824 (9th Cir. 1999), cert. denied, 120 S.Ct. 1179, and cert. dismissed sub nom. United States v. Reed, 146 L.Ed.2d 477, 120 S.Ct. 1578 (2000), where the defendants were not convicted under tax statutes, but their offense conduct related to a tax scheme. The defendants in Hopper were convicted of conspiracy under §371 and obstruction of proceedings under 18 U.S.C. §1505. Although the guideline specified by the Index for a violation of §1505 is §2J1.2, Obstruction of Justice, we upheld the district court's application of the tax conspiracy guideline because §2J1.2 did not adequately address the seriousness of the defendants' conduct and "the amount of tax liability [they] attempted to obstruct." Id. at 832.

Moreover, the statute under which Appellant was charged is a general statute. Section 287 criminalizes the presentation of any false, fictitious, or fraudulent claim against the United States . The commentary to USSG §2F1.1 states:

Sometimes, offenses involving fraudulent statements are prosecuted under 18 U.S.C. §1001, or a similarly general statute, although the offense is also covered by a more specific statute. . . . Where the indictment or information setting forth the count of conviction . . . establishes an offense more aptly covered by another guideline, apply that guideline rather than §2F1.1.

USSG §2F1.1, cmt. n.13. The commentary thus specifically considers a situation such as that found here, where the defendant is charged under a general statute, but the offense conduct is "more aptly covered by another guideline."

Appellant argues that §§2T1.9 and 2T1.4 apply only to offenses involving interference with the collection of taxes, not an offense whose "objective was simply to obtain money." In support of this contention, Appellant quotes Application Note 1 to §2T1.9, which states that "this section applies to conspiracies to 'defraud the United States by impeding, impairing, obstructing and defeating . . . the collection of revenue.' " USSG §2T1.9, cmt. n.1 (quoting United States v. Carruth [83-1 USTC ¶9247], 699 F.2d 1017, 1021 (9th Cir. 1983)). The note goes on to state that §2T1.9 "does not apply to taxpayers, such as a husband and wife, who merely evade taxes jointly or file a fraudulent return." Id.

While it is true that the sentencing guidelines commentary "must be given 'controlling weight unless it is plainly erroneous or inconsistent with the regulation,' " it is not "binding in all instances." Stinson v. United States, 508 U.S. 36, 43, 44, 123 L.Ed.2d 598, 113 S.Ct. 1913 (1993) (quoting Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414, 89 L.Ed. 1700, 65 S.Ct. 1215 (1945)). Even if the commentary were binding, the Application Note does not limit the application of §2T1.9 to only those tax offenses that specifically are intended to impede the collection of tax revenue, which, according to Appellant's argument, only means offenses such as money laundering or false tax shelters. Rather, reading the entire note reveals that the purpose of the note is to distinguish between an actual conspiracy, to which §2T1.9 is properly applicable, and mere joint filers of a tax return, to which it does not apply. The commentary does not preclude the application of §2T1.9 to a tax offense involving fraudulent claims of tax refunds, and it makes no sense to draw a distinction between impeding collection of revenue and the fraudulent disbursement of revenue.

Appellant's offense conduct was at heart a scheme to file fraudulent tax returns and thus "could be considered on par with" tax fraud. Van Krieken, 39 F.3d at 231. The district court, accordingly, did not err in applying the tax guidelines rather than the fraud guideline. See United States v. Velez, 113 F.3d 1035, 1038 (9th Cir. 1997) (holding that the district court erred in applying the fraud guideline designated by the Index because the "more applicable guideline" was §2L2.1, which "by its very title . . . concerns false statements relating to naturalization and immigration"); Koff, 43 F.3d at 418-19 (upholding the district court's application of §2J1.2, Obstruction of Justice, to a violation of 26 U.S.C. §7212, rather than the assault guidelines designated by the Index); Van Krieken, 39 F.3d at 231 (upholding the application of the obstruction of justice guideline, rather than the tax guideline, for a conviction under 26 U.S.C. §7212 because the defendant's conduct "could be considered on par with obstruction of justice"); United States v. Hanson [94-1 USTC ¶50,075], 2 F.3d 942, 947-48 (9th Cir. 1993) (the district court "correctly determined that the assault guidelines specified in the index were inapplicable to the instant case," where the defendant filed a false tax return and various false forms with the IRS in violation of 26 U.S.C. §§7206 and 7212(a)). In sum, the district court did not err in employing the tax guidelines rather than the fraud guidelines.

II. Enhancements

A. Tax Preparer Enhancement

Section 2T1.4(b)(1)(B) provides for a two-level enhancement if the defendant "was in the business of preparing or assisting in the preparation of tax returns." The district court decided that the enhancement was appropriate "based upon the evidence before the Court." The PSR applied the enhancement because Appellant was the owner of a financial service company, "doing business as a tax return preparer." Whether Appellant was in the business of tax preparation is a factual finding reviewed for clear error. See United States v. Lopez-Sandoval, 146 F.3d 712, 716 (9th Cir. 1998) (district court's determination that a defendant was a leader for purposes of enhancement is reviewed for clear error); United States v. Welch [94-2 USTC ¶50,358], 19 F.3d 192, 195 (5th Cir. 1994) (sentencing court's finding that defendant was in the business of tax preparation is factual finding reviewed for clear error); but cf. United States v. Petersen, 98 F.3d 502, 506 n.4 (9th Cir. 1996) (discussing whether a district court's determination that a defendant used a "special skill" under USSG §3B1.3 is reviewed for clear error, abuse of discretion, or de novo); United States v. Zuniga, 66 F.3d 225, 228 (9th Cir. 1995) (applying de novo review to determination that defendant was "in the business of receiving and selling stolen property" as a mixed question of law and fact). ⁴

The guideline does not specify whether the enhancement should be applied to a defendant whose tax preparation business consists solely of preparing fictitious tax returns, as opposed to a defendant with a legitimate tax preparation business who commits tax fraud in the course of that business. The commentary to §2T1.4 states, however, that the enhancement was intended for "those who make a business of promoting tax fraud because their misconduct poses a greater risk of revenue loss and is more clearly willful." USSG §2T1.4, cmt. (backg'd) (emphasis added). Applying the enhancement to someone whose sole business is that of promoting tax fraud thus seems consistent with the intent of the guideline. Moreover, someone whose tax preparation business consists solely of preparing fictitious returns poses just as great, if not a greater risk of revenue loss than someone who commits tax fraud in the course of a legitimate business, and the misconduct is clearly just as willful. Application of the enhancement to a defendant in Appellant's position, therefore, furthers the policy of enhancing the sentence of a defendant who uses his special skill and knowledge about the tax system to manipulate it fraudulently. We hold, therefore, that the tax preparer enhancement applies to a defendant who is in the business of preparing fictitious tax returns. Accord Welch [94-2 USTC ¶50,358], 19 F.3d at 196 (reasoning that the enhancement was "not limited to officially licensed tax preparers," the Fifth Circuit found no error in the district court's finding that the defendant was "in the business of filing fraudulent tax returns") (internal quotation marks omitted); cf. United States v. Moore, 997 F.2d 55, 59 (5th Cir. 1993) (the district court's application of the tax preparer enhancement was not challenged where the defendants were in the business of preparing illegal amended tax returns).

An analogy to the enhancement in USSG §2B1.1 for being "in the business of receiving and selling stolen property" supports the application of the tax preparer enhancement to Appellant's situation. In Zuniga, the court adopted the "totality of the circumstances" test to determine whether the enhancement in §2B1.1 should apply. See 66 F.3d at 228-29. Under this test, "the sentencing judge undertakes a case by case approach with emphasis on the 'regularity and sophistication of a defendant's operation.' " Id. at 228 (quoting United States v. St. Cyr, 977 F.2d 698, 703 (1st Cir. 1992)); see also St. Cyr, 977 F.2d at 703-04 (reasoning by analogy to the tax preparer enhancement in §2T1.4 that "more than isolated, casual, or sporadic activity [must] be shown before a business is found to exist"); cf. United States v. Phipps, 29 F.3d 54, 56 (2d Cir. 1994) ("If a defendant is shown to have prepared or assisted in the preparation of tax returns on more than an occasional or sporadic basis, the sentencing court may find that he provided those services regularly; and if it finds that he was paid for those services, the court may properly conclude that he was in the business of preparing tax returns within the meaning of §2T1.4(b)(3)."). Based on this standard of regularity and sophistication, or "more than isolated, casual, or sporadic activity," the enhancement properly applies to Appellant's conduct. ⁵

The record indicates that Appellant owned at least one, if not two, tax preparation businesses. He stated at his sentencing hearing that he went to tax school, and he filed applications with the IRS for electronic filing identification numbers as a tax preparer. He identified himself as a tax preparer when submitting an application with a bank to participate in a program that allows taxpayers to receive advances based on anticipated tax refunds. The district court did not err in applying the tax preparer enhancement.

B. Sophisticated Means Enhancement

Section 2T1.4(b)(2) provides for a two-level enhancement if "sophisticated means were used to impede discovery of the existence or extent of the offense." Application Note 3 provides as follows:

"Sophisticated means," as used in §2T1.4(b)(2), includes conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case. An enhancement would be applied, for example, where the defendant used offshore bank accounts or transactions through corporate shells or fictitious entities.

USSG §2T1.4, cmt. n.3. The district court applied the enhancement "based upon the evidence adduced here on the record." The district court's finding that Appellant used sophisticated means is a finding of fact reviewed for clear error. See United States v. Ford, 989 F.2d 347, 351 (9th Cir. 1993); cf. United States v. Friend [97-1 USTC ¶50,145], 104 F.3d 127, 129 (7th Cir. 1997) (applying clear error review for sophisticated means enhancement); United States v. Clements, 73 F.3d 1330, 1340 (5th Cir. 1996) (same).

Appellant's scheme was "sufficiently more complex" than routine tax evasion. Ford, 989 F.2d at 351. Appellant went to tax school and made use of tax credits that the average taxpayer would not be knowledgeable about. He applied for an electronic filing identification number with the IRS using a false name and social security number; set up tax preparation businesses through which he perpetrated his fraud; duped Precision Payroll into preparing W-2 forms for fictitious employees by providing names, social security numbers, and hours worked; opened numerous post office boxes ultimately employing 141 different addresses at which to receive the fraudulently obtained tax refunds; and opened a check cashing business in order to deposit the fraudulently obtained refunds. While this scheme may not be "singularly or uniquely sophisticated, it is more complex than the routine tax-evasion case in which a taxpayer reports false information on his 1040 form to avoid paying income taxes." United States v. Lewis [96-2 USTC ¶50,452], 93 F.3d 1075, 1082 (2d Cir. 1996).

Appellant's scheme certainly rivals in sophistication other cases in which the sophisticated means enhancement was applied. See, e.g., id. (scheme "used numerous fictitious entities and multiple checks with the sole purpose of evading taxes and avoiding IRS detection," and was "crafted by . . . an accounting firm with knowledge of the tax code and system"); Ford, 989 F.2d at 351 (using foreign corporation to claim foreign tax credit improperly); United States v. Jagim [93-1 USTC ¶50,093], 978 F.2d 1032, 1042 (8th Cir. 1992) (upholding the sophisticated means enhancement where the conspirators conceived a tax shelter scheme, brought other participants in, prepared and signed many false tax forms, and were "affirmatively making profits from this scam"). This is unlike United States v. Rice, 52 F.3d 843 (10th Cir. 1995), where the defendant "merely claimed to have paid withholding taxes he did not pay," and so should not have received the sophisticated means enhancement. Id. at 849.

Appellant argues that merely "using unauthorized social security numbers, filing false tax returns and having tax refund checks mailed to a mail drop" is not as sophisticated as using "fictitious entities, corporate shells or offshore bank accounts." "There is nothing talismanic about the use of shell corporations," however. Lewis [96-2 USTC ¶50,452], 93 F.3d at 1082. Appellant's scheme was "extensively planned and executed with careful attention to detail," much more sophisticated than a routine tax evasion case in which "an individual taxpayer completed his individual 1040 form with false information to avoid paying some of his federal taxes." Jagim [93-1 USTC ¶50,093], 978 F.2d at 1042. The district court did not err in applying the sophisticated means enhancement.

For all the foregoing reasons, the sentence imposed by the district court is AFFIRMED.

^* The Honorable William Alsup, United States District Judge for the Northern District of California, sitting by designation.

¹ Appellant actually worked with several co-conspirators; however, we refer only to Appellant.

² Section 371 criminalizes conspiracies "either to commit any offense against the United States , or to defraud the United States , or any agency thereof." 18 U.S.C. §371 (2000). Section 287 provides that it is a crime to "make[ ] or present[ ] to any person . . . in the civil . . . service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent." 18 U.S.C. §287 (2000).

³ The 1997 version of the Guidelines was used in determining Appellant's sentence. We therefore rely on the 1997 version throughout.

⁴ We need not choose between these standards of review because we conclude that the district court's application of the tax preparer enhancement was proper under any standard of review.

⁵ The record is unclear as to whether Appellant received payment from legitimate clients for tax preparation services. The Second Circuit in Phipps suggests that being paid for such services is a requirement before the court may conclude that a defendant was in the business of preparing tax returns for purposes of the enhancement. See Phipps, 29 F.3d at 56. The evidence in the instant case, however, supports application of the enhancement, with or without a finding that Appellant was paid for tax preparation services.

 

 

[2001-1 USTC ¶50,370] United States of America , Plaintiff-Appellee v. Edward Louis Kotmair, Defendant-Appellant

(CA-4), U.S. Court of Appeals, 4th Circuit, 00-4139, 4/19/2001 , 2001 U.S. App. LEXIS 7200. Affirming an unreported District Court decision

[Code Sec. 7203 ]

Failure to file returns: Willfulness: Evidence.--The district court properly determined that an individual's failure to file tax returns for three consecutive tax years was due to willfulness. He stipulated that his income for the tax years at issue exceeded the exemption amounts. Moreover, he failed to keep business records, operated his business on a cash basis in amounts less than $10,000, and was a member, and the son of the founder, of a tax protest organization.

[Code Sec. 7203 ]

Failure to file returns: Conduct: Sophisticated means.--An individual's sentence for failure to file tax returns was enhanced because he failed to offer any evidence to refute information in a presentence report indicating that he used sophisticated means to impede discovery of the nature or extent of his offense.

Janice McKenzie Cole, United States Attorney, Anne M. Hayes, David J. Cortes, Assistant United States Attorneys, Raleigh, N.C., for plaintiff-appellee. Gregory J. Ramage, Law Office of Gregory Ramage, Raleigh , N.C. , for defendant-appellant.

Before: NIEMEYER, TRAXLER and GREGORY, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

Per Curiam"

EC: Edward Louis Kotmair was charged with willful failure to file tax returns for the years 1990, 1991, and 1992, in violation of 26 U.S.C.A. §7203 (West Supp. 2000). Kotmair stipulated that he did not file tax returns for those years and that he had income in excess of the exemption amount. The only issue at trial was whether Kotmair's failure to file was willful. Following his convictions and sentence, Kotmair appeals. We affirm.

Kotmair first argues that counsel was ineffective for failing to call his father as a defense witness and that the district court erred in denying his motion for a new trial on this basis. Because Kotmair failed to present argument supporting his challenge to the court's denial of his motion for a new trial, it is waived on appeal. See Fed. R. App. P. 28(a)(6); Edwards v. City of Goldsboro, 178 F.3d 231, 241 n.6 (4th Cir. 1999).

As for Kotmair's challenge to counsel's failure to call his father as a witness, because the record on appeal does not conclusively demonstrate ineffective assistance of counsel, we do not now address this issue. See United States v. Richardson, 195 F.3d 192, 198 (4th Cir. 1999), cert. denied, 528 U.S. 1096, 145 L.Ed.2d 704, 120 S.Ct. 837 (2000). Rather, Kotmair may raise this claim in the district court in a 28 U.S.C.A. §2255 (West Supp. 2000) motion, if he so chooses.

Kotmair next challenges the sufficiency of the evidence to support his convictions. Kotmair stipulated that he did not file tax returns for 1990, 1991, and 1992, and that his income exceeded the exemption amounts. The only issue before the jury was whether Kotmair's failure to file was willful. See Cheek v. United States [91-1 USTC ¶50,012], 498 U.S. 192, 201-02, 112 L.Ed.2d 617, 111 S.Ct. 604 (1991). The trial evidence, viewed in the light most favorable to the government, Glasser v. United States, 315 U.S. 60, 80, 86 L.Ed. 680, 62 S.Ct. 457 (1942), showed that Kotmair had large amounts of income for the years in question, he failed to keep business records, he conducted business largely on a cash basis, he attempted to hide income and assets by requiring payments in amounts less than $ 10,000, he belonged to a tax protest organization, namely Save a Patriot Fellowship, he was notified by the IRS of his duty to file a return, and his father--founder of Save a Patriot--went to jail for his failure to file. This evidence was sufficient for the jury to infer that Kotmair's failure to file was willful. See Spies v. United States [43-1 USTC ¶9243], 317 U.S. 492, 499-500, 87 L.Ed. 418, 63 S.Ct. 364 (1943) (finding that inference of willfulness may arise from attempts to conceal income or assets, failure to keep books or records, and conducting business largely on cash basis); United States v. Turano [86-2 USTC ¶9714], 802 F.2d 10, 12 (1st Cir. 1986) (inference of willfulness from tax protest activities); United States v. Shivers [86-1 USTC ¶9404], 788 F.2d 1046, 1048 (5th Cir. 1986) (inference of willfulness from disregard of notices informing of duty to file); United States v. Ostendorff [67-1 USTC ¶9204], 371 F.2d 729, 731 (4th Cir. 1967) (allowing inference of willfulness from pattern of failure to file). We find that, taking the evidence in the light most favorable to the government, any rational juror could have found Kotmair guilty beyond a reasonable doubt. Glasser, 315 U.S. at 80; United States v. Saunders, 886 F.2d 56, 60 (4th Cir. 1989) (holding that in resolving sufficiency of evidence, appeals court does not weigh evidence or review credibility of witnesses).

Kotmair next argues that the district court clearly erred in determining that the amount of tax loss exceeded $ 350,000. He asserts that applying the tax loss computation rules in U.S. Sentencing Guidelines Manual §2T1.2(a) (1992), for the years 1990, 1991, and 1992, yields a tax loss of $ 166,889.21. In computing the tax loss, however, Kotmair failed to include all relevant conduct. The tax loss computation should include losses suffered by the federal and state governments in the years of conviction as well as other years in which the defendant's failure to file was "part of the same course of conduct or common scheme or plan," unless clearly unrelated. USSG §2T1.2, comment. (n.3); see United States v. Bove, 155 F.3d 44, 47 (2d Cir. 1998); United States v. Powell, 124 F.3d 655, 663-65 (5th Cir. 1997). We find that the district court properly considered losses from years other than the years of conviction and losses to the states in computing the tax loss attributable to Kotmair, and therefore did not clearly err in adopting the recommendation in the presentence report that the total tax loss exceeded $ 350,000. See United States v. Daughtrey, 874 F.2d 213, 217 (4th Cir. 1989).

The final issue Kotmair raises is whether the district court clearly erred in enhancing Kotmair's offense level by two for the use of sophisticated means to impede the discovery of the nature or extent of his offense. "Sophisticated means" includes"conduct that is more complex or demonstrates greater intricacy or planning than a routine tax evasion case." USSG §2T1.2, comment. (n.2). The district court applied the enhancement after noting that Kotmair engaged in structuring and laundering of his income to prevent the creation of currency transaction reports. Because Kotmair failed to offer any evidence to refute the findings in the presentence report, there was no clear error by the district court in adopting these findings. See United States v. Love, 134 F.3d 595, 606 (4th Cir. 1998); United States v. Terry, 916 F.2d 157, 162 (4th Cir. 1990).

In conclusion, we affirm Kotmair's convictions and sentence. We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before the court and argument would not aid the decisional process.

AFFIRMED

 

 

[99-1 USTC ¶50,153] United States of America , Plaintiff-Appellee v. Melvin Lloyd Richards, Defendant-Appellant

(CA-9), U.S. Court of Appeals, 9th Circuit, 98-50042, 9/14/98, Affirming an unreported District Court decision

[Code Sec. 7201 ]

Penalties, criminal: Tax evasion: Withdrawal of guilty plea: Admissions of underreporting: Evidence of fraud.--An individual's motion to withdraw his guilty plea to tax evasion was denied because he admitted that he underreported his income. Moreover, his claim of innocence was undermined by evidence of his involvement in a fraud scheme.

[Code Sec. 7201 ]

Penalties, criminal: Tax evasion: Sentencing Guidelines: Downward departure.--An individual's sentence tax for evasion was affirmed. Since the taxpayer denied that he possessed the requisite intent to commit the crime, he was not entitled to a downward departure for acceptance of responsibility under the U.S. Sentencing Guidelines. Moreover, the sentence was properly enhanced because the taxpayer used sophisticated means to conceal his tax evasion and he failed to report proceeds from his illegal activities in excess of $10,000. Finally, the district court properly counted the individual's misdemeanor conviction in his criminal history calculation. The fact that his probation was unsupervised was immaterial.

Before: FLETCHER, BOOCHEVER and THOMPSON, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

MEMORANDUM ^*

Melvin Richards appeals the district court's denial of his motion to withdraw his plea of guilty to one count of tax evasion which was entered pursuant to an agreement with the Government. Richards also appeals his sentence. We affirm.

Because the parties are familiar with the factual and procedural history of this case, we will not recount it here except as necessary to clarify our decision.

I. Withdrawal of the Guilty Plea

Under United States v. Hyde, -- U.S. --, 117 S.Ct. 1630, 1631, L.Ed.2d 935 (1997), and Federal Rule of Criminal Procedure 32(e), Richards must demonstrate a "fair and just" reason for withdrawal of his guilty plea. While a showing of actual innocence would certainly be a "fair and just" reason, Richards has not met this burden.

Richards admitted that he under-reported his income and plead guilty to a charge of tax evasion. The statements recanted by Cahill after he was sentenced dealt with Richards' involvement in the fraud scheme, not tax evasion. Furthermore, ample documentary evidence in the Government's case and other witnesses who would testify to Richards' involvement in the fraud scheme undermine his showing of actual innocence. The district court did not abuse its discretion in denying Richards' motion to withdraw his guilty plea.

II. Sentencing Issues

A. Base Level Sentence

Where a criminal defendant alleges a factual inaccuracy in the PSR, the district court is required either to "make a finding as to the accuracy of the challenged factual finding or indicate that the court is not taking it into consideration." United States v. Garfield, 987 F.2d 1424, 1428 (9th Cir. 1993) (citing Fed. R. Crim. Proc. 32(c)(3)(D)). The judge expressly adopted the probation officer's resolution of the disputed facts in the PSR and addendum. The factual finding requirement of Rule 32 was thus satisfied. A hearing was not required under Rule 32 because Richards had multiple opportunities to rebut the disputed facts in the PSR, see United States v. Stein, 127 F.3d 777, 780-81 (9th Cir. 1997), and after conducting a lengthy sentencing hearing, the district court determined that a further hearing was unnecessary. There was no clear error.

B. Acceptance of Responsibility

Where a criminal defendant denies that he possessed the requisite intent to commit the crime charged, he is not entitled to a downward departure for acceptance of responsibility under U.S.S.G. section 3E1.1. See, e.g., United States v. Burroughs, 36 F.3d 875, 883 (9th Cir. 1994). Richards moved to withdraw his guilty plea on the grounds that he did not willfully engage in tax evasion, thereby maintaining his innocence of the charge. The district court did not clearly err by refusing to grant a downward departure.

C. Sophisticated Means to Impede Discovery

Under U.S.S.G. section 2T1.1(b)(2), a two-point upward adjustment may be imposed if "sophisticated means were used to impede discovery of the nature and extent of the offense." The PSR discussed, and the district court made a factual finding, that Richards had used sophisticated means to conceal his tax evasion. There was no clear error.

D. Income Exceeding $10,000 From Criminal Activity

U.S.S.G. section 2T1.1(b)(1) provides for a two-point upward adjustment where "the defendant fails to report . . . income exceeding $10,000 in any year from criminal activity." The district court expressly adopted the probation officer's finding that Richards' proceeds from illegal activity in 1992 exceed $10,000. No further factual findings were necessary. See, e.g., United States v. McClain, 30 F.3d 1172, 1174 (9th Cir. 1994). The district court did not clearly err by imposing the two-point upward adjustment.

E. Calculation of Criminal History

The district court properly counted Richards' 1990 misdemeanor trespass conviction, for which he received three years probation, in his criminal history calculation under U.S.S.G. sections 4A1.2(c)(1)-(d). The fact that the probation was unsupervised is immaterial with respect to section 4A1.1(d). United States v. Sanchez, 914 F.2d 1355, 1363 (9th Cir. 1990).

AFFIRMED

^* This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir. R. 36-3.

 

 

[98-2 USTC ¶50,560] United States of America , Appellee v. Eugene H. Mathison, Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 97-2986, 7/14/98, Affirming an unreported District Court decision

[Code Sec. 7201 ]

Crimes: Tax evasion: Placement of assets in name of nominee: Pro se taxpayer: Evidence, admission of: Harmless error.--A taxpayer's pro se challenges to his conviction on multiple counts of tax evasion involving the concealment of assets from the IRS by placing them in the name of nominees were rejected. Concealment qualified as evasion of payment under Code Sec. 7201 . The taxpayer's argument that evidence of a false answer to an IRS official concerning the liabilities at issue had been improperly admitted was rejected since the answer was probative of willfulness, an element of the offense being tried. Likewise, the trial court's refusal to allow a defense witness to testify was harmless error in light of the other evidence against the taxpayer.

[Code Sec. 7201 ]

Crimes: Tax evasion: Pro se taxpayer: Discharge of counsel: Lesser-charge instruction.--A taxpayer's pro se challenges to his conviction on multiple counts of tax evasion was rejected. The trial court did not abuse its discretion by refusing the taxpayer's request to discharge his counsel and present his closing argument pro se. The trial court's concern about jury confusion was entitled to deference. Moreover, the taxpayer's related argument that he withdrew his request for a lesser-charge instruction based on the belief that he could present a closing argument pro se was also rejected.

[Code Sec. 7201 ]

Crimes: Tax evasion: Pro se taxpayer: Sentence enhancement: Sophisticated means to impede discovery of offense.--A taxpayer's pro se challenges to his sentencing in connection with multiple tax evasion convictions, which centered around the contention that he had accurately reported taxes due and simply did not pay them, were rejected. Also, a two-level sentencing enhancement for his use of sophisticated means to impede discovery of the offense was properly assessed by the trial court.

[Code Sec. 7402 ]

Crimes: Tax evasion: Pro se taxpayer: Jurisdiction: Failure to preserve issues for appeal: Ineffective assistance of counsel: Illegal search.--An appellate court lacked jurisdiction to consider the pro se arguments of a taxpayer convicted of tax evasion regarding jury instructions and the prosecution's closing remarks because the taxpayer failed to preserve those issues by objecting at trial. Additionally, his argument that certain evidence should have been suppressed because it was based on an illegal search was rejected since no motion to suppress or objection to the evidence was made at trial. Claims of ineffective assistance of counsel were outside the scope of the proceedings.

David L. Zuercher, Mara M. Kohn, Pierre , S.D. 57501-2489 , for plaintiff-appellee. Eugene H. Mathison, Federal Correctional Institution, P.O. Box 1000 , Sandstone , Minn. 55072-1000 , for defendant-appellant.

Before: MCMILLIAN, NOONAN ¹ and ARNOLD, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

Per Curiam"

EC: Eugene H. Mathison appeals from the final judgment entered in the District Court ² for the District of South Dakota upon a jury verdict finding him guilty of multiple counts of tax evasion, in violation of 26 U.S.C. §7201. The district court sentenced appellant to serve twenty-one months imprisonment and three years supervised release, and to pay $51,019.85 in restitution, a $4,000 fine, $1,448.80 representing the costs of prosecution, and a special assessment of $650. For reversal, Mathison raises a number of pro se challenges to his jury-trial convictions and the resulting sentence. For the reasons discussed below, we affirm the judgment of the district court.

Mathison was the founder, treasurer, and CEO of Golden Age Services Corp., a company that sold living-trust packages to the public. After Golden Age failed to pay various employment taxes, the Internal Revenue Service (IRS) investigated. As a result, Mathison was later charged with thirteen counts of attempting to evade and defeat the payment of federal income-withholding and FICA taxes owed by Golden Age, by concealing and attempting to conceal assets from the IRS through placement of funds and property in the names of nominees, in violation of §7201. On appeal Mathison first argues the district court erred in denying his motion to dismiss the indictment against him, because §7201 does not apply to the charged offenses. After de novo review, see United States v. Sykes, 73 F.3d 772, 773 (8th Cir.), cert. denied, 517 U.S. 1246 (1996), we reject this argument. Section 7201 clearly covers the offenses described in the indictment. See 26 U.S.C. §7201 (stating in relevant part that "[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall . . . be guilty of a felony" (emphasis added)); United States v. McGill [92-1 USTC ¶50,052], 964 F.2d 222, 230 (3d Cir.) (§7201 encompasses two kinds of affirmative behavior--evasion of assessment and evasion of payment--and latter includes, inter alia, placing assets in name of others; citing Spies v. United States [43-1 USTC ¶9243], 317 U.S. 492, 499 (1943)), cert. denied, 506 U.S. 1023 (1992).

Next, Mathison argues the district court erroneously admitted prior-bad-acts evidence against him at trial. We agree with the district court, however, that the evidence in question--a false answer Mathison gave during an interview with an IRS official who was investigating Golden Age's delinquent taxes--was an act of evasion probative of willfulness, an element of the offenses being tried. We thus conclude the district court did not abuse its discretion in admitting the testimony. See Fed. R. Evid. 404(b); United States v. Tomberlin, 130 F.3d 1318, 1320 (8th Cir. 1997) (standard of review); United States v. Heidebur, 122 F.3d 577, 579 (8th Cir. 1997) (Rule 404(b) admits evidence of other crimes or acts relevant to any issue in trial unless such evidence tends to prove only criminal disposition; bad acts that form integral part of crime charged fall outside Rules ambit).

Mathison also complains the district court denied him the right to call his former office secretary, who would have testified that she worked for Mathison at a new business after he left Golden Age, and taxes were promptly paid there. Assuming this matter is properly before us as an evidentiary issue (the defense did not call this witness, and Mathison's later pro se proffer of her testimony was made for the purpose of discharging counsel), we conclude the evidence was not so probative that the district court abused its broad discretion. See United States v. Barnes, 140 F.3d 737, 738 (8th Cir. 1998) (per curiam). In any event, given the other evidence against Mathison, we conclude any error in not admitting this testimony was harmless. See Fed. R. Crim. P. 52(a).

Next, Mathison argues the district court improperly denied him the right to discharge counsel and present closing argument pro se. We also reject this argument. First, it is questionable whether Mathison unequivocally asked to proceed pro se, because he stated at one point that he wished to act as co-counsel. In any event, we do not believe the district judge--who was concerned about jury confusion--abused his discretion in denying the request. See United States v. Einfeldt, 138 F.3d 373, 378 (1998) (no constitutional right to hybrid representation; it is available at district court's discretion); United States v. Webster, 84 F.3d 1056, 1062 & 1063 n.3 (8th Cir. 1996) (defendant must clearly and unequivocally assert desire to waive counsel and proceed pro se; right to self-representation is unqualified only if demanded before trial, and thereafter is subject to trial court's discretion which requires balancing of defendant's legitimate interests in representing himself against potential disruption and possible delay). We likewise reject Mathison's related contention that he is entitled to relief because he withdrew his request for a lesser-charge instruction believing he could present closing argument pro se.

Mathison also argues the district court should have instructed the jury that, to convict him, it had to find more money was due than was reported, Mathison did something to prevent the correct assessment of the tax owed, and he acted with an evil motive; Mathison takes further issue with a portion of the instruction permitting the jury, in determining willfulness, to consider any statements he had omitted. The record does not indicate Mathison preserved these issues by objecting below, and after reviewing the instructions as a whole, we find no error, much less plain error. See Fed. R. Crim. P. 52(b); United States v. Barnes, 140 F.3d at 738 (standard of review); Cheek v. United States [91-1 USTC ¶50,012], 498 U.S. 192, 201 (1991) (willfulness requires government to prove law imposed duty on defendant, defendant knew of duty, and defendant voluntarily and intentionally violated duty); United States v. Clements, 73 F.3d 1330, 1338 (5th Cir. 1996) (instruction accurately set out elements of §7201 offense where jury was told evidence had to establish beyond reasonable doubt that defendant knowingly and intentionally attempted to evade or defeat payment of taxes owed).

Next, Mathison argues the prosecution's closing remarks injected new and false allegations into the case. We reject this argument for lack of a showing that the remarks were inconsistent with the evidence. Cf. United States v. Rob inson, 110 F.3d 1320, 1327 (8th Cir.) (so long as prosecutors do not stray from evidence and reasonable inferences from it, they may use colorful and forceful language in arguments to jury), cert. denied, 118 S. Ct. 432 (1997). Even if the statements were improper, the defense did not object to them, and exceptional circumstances warranting reversal are not present here. See id. at 1326.

We also reject Mathison's sentencing arguments centering around his contention that he accurately reported taxes due and simply did not pay them, and we specifically reject his contention that the district court wrongly assessed a two-level enhancement for using a sophisticated means to impede discovery of the offense. See U.S.S.G. §2T1.1(b)(2) (1997); cf. United States v. Becker [92-2 USTC ¶50,314], 965 F.2d 383, 390 (7th Cir. 1992) (affirming sophisticated-means enhancement where defendant hid assets under account identified by arbitrary number, eliminated all bank accounts in his name, and deposited earnings in sons account), cert. denied, 507 U.S. 971 (1993). Mathison's suggestion that the district court should have referenced existing tax liens in its restitution order is equally meritless.

Mathison raises numerous issues relating to a search warrant affidavit. However, he did not file a motion to suppress or object to evidence based on an illegal search. Moreover, he challenged the search warrant in another criminal case resulting in convictions that are presently on appeal before us. We thus decline to consider the search warrant issues Mathison raises here, except to the limited extent we summarily reject his argument that the affidavit was improper for lack of any allegations that he tried to interfere with the assessment of the amount of tax due.

Last, we note Mathison's claims of ineffective assistance of counsel are more properly raised in proceedings under 28 U.S.C. §2255. See United States v. Reyna-Segovia, 125 F.3d 645, 646 (8th Cir. 1997) (per curiam).

Accordingly, we affirm the judgment of the district court. We also deny, as meritless or moot, the various motions the parties have filed on appeal.

¹ The Honorable John T. Noonan, Jr., United States Circuit Judge for the Ninth Circuit, sitting by designation.

² The Honorable Richard H. Battey, Chief Judge , United States District Court for the District of South Dakota.

 

 

[99-2 USTC ¶50,788] United States of America , Plaintiff-Appellee v. John E. Worthen, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 98-4043, 8/19/99, Affirming an unreported District Court decision

[Code Sec. 7203 ]

Criminal tax evasion: Motion to withdraw guilty plea: Failure to report income: Failure to file return: Date of criminal conduct: Acceptance of responsibility: Plea bargain.--The district court correctly denied an individual's motion to withdraw his guilty plea before his sentencing for attempted tax evasion. Although some evidence suggested that the taxpayer did not believe he owed any tax for the year at issue, he admitted that he knew he had income during the year and that he failed to file a return. In addition, he had the benefit of counsel, he had plenty of time to review his decision before entering the plea, and he repeatedly told the court he understood the plea and entered it voluntarily. Further, allowing him to withdraw his plea shortly before he was sentenced would prejudice the government and inconvenience the court.

[Code Sec. 7203 ]

Criminal tax evasion: Sentencing guidelines: Base offense level: Tax loss: Sophisticated means of concealment: Date of criminal conduct: Plea bargain.--The district court properly calculated an individual's base offense level according to the sentencing guidelines. The amount of the tax loss caused by his offense was based on stipulated facts. Moreover, the increase in the base offense level for concealing his crime by sophisticated means did not violate his plea agreement. Also, he began engaging in criminal conduct related to his offense as soon as he started receiving the unreported income, rather than when his return was due. Finally, his admission of wrongdoing did not constitute an acceptance of responsibility, especially in light of his continued assertion that he did not owe taxes on the unreported income.

Before: KELLY, MCKAY and HENRY, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

ORDER AND JUDGMENT ^*

MCKAY, Circuit Judge:

Defendant-Appellant John E. Worthen appeals the district court's denial of his motion to withdraw his guilty plea as well as various aspects of his sentence. On April 28, 1997, Defendant was indicted on the following counts: (I) attempting to evade or defeat payment of income tax in violation of 26 U.S.C. §7201 for the 1990 tax year; (II) making and subscribing a false tax return, statement, or other document in violation of 26 U.S.C. §7206(1); (III) failure to file a tax return, pay tax, or supply information in violation of 26 U.S.C. §7203; and (IV) failure to file a tax return, pay tax, or supply information on behalf of Nordic Limited, Inc., in violation of 26 U.S.C. §7203. Defendant entered a plea of guilty to Count I, attempted tax evasion, on September 22, 1997 . See Appellant's App. at 145. As part of the plea agreement, the Government agreed to urge dismissal of the remaining counts, see Addendum to Appellant's App. at 380, and it agreed not to recommend a sentence adjustment based on the use of sophisticated means to avoid detection of the offense. See Appellant's App. at 10.

On December 31, 1997 , Defendant filed a motion to withdraw his guilty plea. The court heard argument on the motion on January 5, 1998 ; held a hearing on the motion on January 15, 1998 ; held an evidentiary hearing on the motion February 2, 1998 ; and heard additional argument on February 3, 1998 . In an Order dated February 19, 1998 , the district court denied Defendant's motion to withdraw his guilty plea. See Appellant's Br. , Attach. at 2. On March 17, 1998 , the court sentenced Defendant to a term of 33 months' imprisonment followed by 3 years' supervised release.

The facts underlying the indictment indicate that Defendant was the president of Nordic Limited, Inc., which he operated out of his home in Salt Lake City , Utah . In 1990, acting on behalf of Nordic, Defendant sold mining leases owned by Nordic to Crown Resources of Colorado for $494,520. As payment for the mining leases, Crown Resources issued a cashier's check payable to Nordic. Upon presenting the check for payment, Defendant obtained five separate checks totaling $494,520 payable to five separate corporate entities over which he exercised substantial control. Defendant subsequently deposited these checks into bank accounts maintained by the corporations.

During 1990, in connection with his probation for a separate conviction, Defendant reported $57,440.19 in annual income to his probation officer. He did not, however, report the $494,520 from the sale of the Nordic mining leases to Crown Resources. In addition, the record shows that Defendant received income during the last three months of 1990 when he used corporate accounts to make personal expenditures totaling at least $88,405.21. The record does not indicate whether Defendant reported that income to the probation office.

On April 15, 1991 , Defendant filed an Application for Automatic Extension to File U.S. Individual Income Tax Return in which he reported his tax liability for 1990 as $2,235 and to which he attached a check in that amount. Defendant did not subsequently file an income tax return for 1990.

For purposes of the plea agreement, Defendant and the Government stipulated to the amount of Defendant's tax liability for 1990. The parties stipulated that Defendant's taxable income included the $57,440.19 he reported to his probation officer and the $88,405.21 he received as expenditures from corporate accounts. See Appellant's App. at 14-19. Less the $2,235 payment he sent with his extension application, Defendant's stipulated amount of tax liability for 1990 was therefore $38,601.74. See Addendum to Appellant's App. at 387.

I.

We review the district court's denial of a motion to withdraw a guilty plea for abuse of discretion. See United States v. Killingsworth, 117 F.3d 1159, 1161 (10th Cir. 1997). Rule 32(e) of the Federal Rules of Criminal Procedure provides that "[i]f a motion to withdraw a plea of guilty . . . is made before sentence is imposed, the court may permit the plea to be withdrawn if the defendant shows any fair and just reason." In determining whether a defendant has established a "fair and just reason," we consider seven factors: (1) whether the defendant has asserted his innocence; (2) prejudice to the government; (3) the defendant's delay in filing his motion; (4) inconvenience to the court; (5) the defendant's assistance of counsel; (6) whether the plea is knowing and voluntary; and (7) waste of judicial resources. See United States v. Carr, 80 F.3d 413, 420 (10th Cir. 1996). "Although a defendant's motion to withdraw a plea before sentencing should be 'freely allowed' and 'given a great deal of latitude,' we will not reverse absent a showing that the trial court acted 'unjustly or unfairly.' " United States v. Kramer, 168 F.3d 1196, 1202 (10th Cir. 1999).

The district court decided that the first, third, and sixth factors weighed against allowing Defendant to withdraw his plea. The court first concluded that Defendant did not assert his innocence before the court, and in fact he "admitted that he had over $100,000 in income which was not reported to the United States and upon which he had not paid taxes." Appellant's Br. , Attach. at 3. The court noted that Defendant signed and submitted to the court a statement certifying that the facts indicating that he had underreported his income were true and correct. See id. at 2. Weighing the third factor, the court found that Defendant delayed filing his motion to withdraw his plea until three months after he had entered the plea, which was just five days before sentencing and twelve days after reviewing his draft presentence report. According to the court, this timing indicated that "[D]efendant's reason for filing the motion was motivated by the contents of the presentence report, which is not a fair and just reason for the withdrawal of plea." Id. at 6. Finally, in considering the sixth factor, the court noted that Defendant had knowingly and voluntarily admitted his guilt, both orally and in writing, and that he had been "represented by counsel throughout the proceedings." Id. For these reasons, the court denied Defendant's motion.

On appeal, Defendant contends that the court abused its discretion in denying his motion to withdraw his plea because the Carr factors weighed in favor of granting the motion. Specifically, Defendant claims that he asserted his innocence and presented the testimony of two expert witnesses and an affidavit by a former IRS employee to support his assertion; that he had legitimate reasons for failing to file his motion to withdraw his plea in a more timely manner; and that his plea was not "knowingly and intentionally given," Appellant's Br. at 32, because even if he signed the statement certifying the truth of the facts showing that he committed the charged offense, he did not "ever admit a critical element of the offense; that is[,] that he owed any federal income tax . . . for 1990." Id. at 33.

We begin our analysis with the three factors relied on by the district court. With respect to the first factor, Defendant's alleged assertion of innocence, there is some evidence that Defendant may not have believed he owed any income tax for 1990. For example, at the initial plea hearing, Defendant testified that the actions underlying the charge of attempted tax evasion against him "arose out of [his] belief that a repayment of a loan from a corporation was not a taxable event." Appellant's App. at 121. More specifically, Defendant believed that the money he received from selling the mining leases for Nordic to Crown Resources constituted a repayment of the "vast sums of money" he had loaned to Nordic over a period of approximately twelve years. Id. at 122. Although this evidence suggests that Defendant asserted his innocence, the record also contains evidence contradicting his assertion. For example, at sentencing, Defendant's counsel stated that Defendant "concede[d] then and he concedes now that he had not filed his returns," even though he generally "knew he had income during that period." Id. at 341. At the same hearing, Defendant admitted that he "knew what [he] was doing for all the years [he] failed to file and pay [his] taxes and [he] knew it was wrong." Id. at 356-57. These admissions and others like it seriously contradict Defendant's assertion of innocence. Nevertheless, even if the evidence showing that Defendant asserted his innocence weighs in favor of granting the motion to withdraw the plea, see Carr, 80 F.3d at 420 (indicating that all this factor requires is an assertion of innocence), the remaining factors weigh against granting the motion.

Defendant's delay in filing his motion to withdraw the plea--the third factor--weighs against allowing Defendant to withdraw. Defendant filed his motion approximately three months after entering his plea, which was only five days before sentencing. Delays of three months or more "weigh against granting a withdrawal motion because they often result in substantial prejudice to the government and may suggest manipulation by the defendant." Id. Further, " '[i]f the defendant has long delayed his withdrawal motion, and has had the full benefit of competent counsel at all times, the reasons given to support withdrawal must have considerab[le] . . . force.' " Id. (quoting United States v. Vidakovich, 911 F.2d 435, 439 (10th Cir. 1990)). Defendant's excuses do not have considerable force. He claims that his expert witnesses were unprepared to testify that he had no tax liability prior to the time he filed the motion and that he did not have enough money to pay the experts. Considering that Defendant was indicted in April 1997, that he did not enter his plea until September 1997, and that he did not file his motion to withdraw his plea until the end of December of that year, however, we think that he had ample time in which to obtain the advice of experts and arrange for their payment. In addition, as the district court noted, the attempt to change the plea came shortly after Defendant reviewed his proposed presentence report, which suggests that the timing may have been linked to the contents of the report rather than to any difficulties he experienced in obtaining the testimony of his experts. This timing, which implies that Defendant was dissatisfied with the sentence he received, reflects an improper motivation for attempting to withdraw the plea. See United States v. Gordon, 4 F.3d 1567, 1573 (10th Cir. 1993) (stating that a defendant's "dissatisfaction with the length of his sentence is an insufficient reason to withdraw a plea").

Because the record reveals no evidence indicating that Defendant entered the plea involuntarily or unknowingly, the sixth factor also does not support Defendant's argument. In describing why he was prepared to enter a plea at the initial plea hearing, Defendant testified that he was "well aware that the grief that this thing has caused [him] already for the last three years, coupled with the possibility of losing at trial is just overwhelming for [himself] and [his] family." Appellant's App. at 118. Defendant also repeatedly told the court that he understood the plea and that he realized he could proceed to trial if he did not wish to enter a guilty plea. See, e.g., id. at 118, 134. Additionally, Defendant indicated that he understood that the facts included in the statement he signed would be included in the presentence report and that they were true and correct. See id. at 11. In light of this evidence, we can only conclude that Defendant entered his plea knowingly and voluntarily.

Finally, although the district court limited its discussion to the first, third, and sixth factors from Carr, we conclude that the second, fourth, fifth, and seventh factors weigh against granting the motion. With respect to the second factor, prejudice to the government, we note that, if the district court had granted Defendant's motion, not only would the government be required to recommence trial preparation and reissue subpoenas but also it would need to locate evidence and witnesses which may have been lost with the passage of time. The fifth factor also does not support Defendant's position because he was represented by competent counsel throughout the proceedings. See infra note 4. In addition, the fourth and seventh factors, which involve inconvenience to the court and waste of judicial resources, weigh against allowing Defendant to withdraw his plea. Although "some waste of judicial resources from a plea withdrawal is inevitable," Carr, 80 F.3d at 421, the court likely would be inconvenienced by a trial at this stage.

Because six of the seven factors weigh against allowing Defendant to withdraw his plea, we conclude that the district court did not abuse its discretion in denying the motion to withdraw the plea.

II.

Defendant also takes issue with several aspects of his sentence, including the calculation of the base offense level; the two-point increase to the base offense level for the use of sophisticated means to evade discovery of the offense; the calculation of the criminal history category; and the failure of the district court to reduce his base offense level for acceptance of responsibility. We review the district court's interpretation of the sentencing guidelines de novo and its factual findings for clear error. See United States v. Pretty, 98 F.3d 1213, 1222 (10th Cir. 1996). ¹ "We give due deference to the district court's application of the Guidelines to the facts." United States v. Hankins, 127 F.3d 932, 934 (10th Cir. 1997); see 18 U.S.C. §3742(e).

Defendant first argues that the district court incorrectly found that he was liable for between $20,000 and $40,000 in 1990 income taxes, and that, as a result, the court erroneously calculated his base offense level at 10, rather than 6. The court's conclusion regarding the amount of the tax loss is a factual finding which we review only for clear error. See Pretty, 98 F.3d at 1222. In connection with the plea agreement, the Government and Defendant stipulated that Defendant's taxable income was $145,845.50. See Appellant's App. at 14-19. This amount was based on Defendant's report of $57,440.19 in income from Fuji Financial, one of the corporations over which Defendant exercised substantial control, and the $88,405.21 allegedly paid out of corporate accounts to cover Defendant's personal expenditures. See id. Moreover, by signing the statement in advance of the plea which he submitted to the district court, Defendant admitted to earning income in this amount. See id. at 15, 19. Based on the stipulated amount of income, the district court correctly concluded that Defendant was responsible for a tax loss of $38,601.74. See Addendum to Appellant's App. at 387. Because the district court simply applied the amount to which the parties stipulated, we do not think that the court committed clear error in determining that Defendant was responsible for a tax loss of between $20,000 and $40,000. ²

Although we review the factual findings underlying the court's calculation of the base offense level for clear error, see United States v. Taylor, 97 F.3d 1360, 1362 (10th Cir. 1996), as mentioned above, our review of the district court's interpretation of the Guidelines is de novo. See Pretty, 98 F.3d at 1222. Section 2T1.1 of the 1990 Guidelines sets the base offense level for a violation of 26 U.S.C. §7201 at the "[l]evel from §2T4.1 (Tax Table) corresponding to the tax loss." U.S.S.G. §2T1.1(a). Reference to §2T4.1 demonstrates that the base offense level for a tax loss of more than $20,000 but less than $40,000 is 10. See id. §2T4.1(E). We conclude that the district court correctly determined Defendant's base offense level as 10.

Defendant also argues that the district court improperly increased his base offense level by two points for the use of sophisticated means in concealing the offense. See id. §2T1.1(b)(2). First, he claims that, in connection with the plea agreement, the Government agreed not to recommend an increase for sophisticated concealment. Second, Defendant urges that any sophisticated means he employed were not for the purpose of "imped[ing] discovery of the nature or extent of the offense." Id. §2T1.1(b)(2). In response to Defendant's first argument, we note that, although the Government agreed not to advocate an increase for use of sophisticated means, it reserved the right to defend such an increase "should the probation office determine it to be applicable." See Appellant's App. at 10. In fact, the probation office did recommend an increase on this basis. See Addendum to Appellant's App. at 389. Thus, the Government's reference to sophisticated means at sentencing, see Appellant's App. at 352, did not violate the plea agreement.

Defendant's second argument is also unpersuasive. The 1990 Guidelines describe "sophisticated means" as "conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case." U.S.S.G. §2T1.1, comment. (n.6). We think Defendant's conduct meets this description. As Defendant admitted at sentencing, some of his efforts involving his alleged income may have been intended to avoid creditors. See Appellant's App. at 344. The record further indicates that Defendant was less than fully candid with his probation officer in reporting his income. See Addendum to Appellant's App. at 389. Although Defendant seems to contend that this failure was due more to his lack of organization and inconsistent record-keeping than to an effort to impede investigatory efforts, we do not think the district court erred in finding otherwise. Moreover, the record indicates that Defendant routinely placed his income in a variety of corporate accounts and that he used corporate accounts to pay his personal expenses. See id.; see also Appellant's App. at 23. We do not think that the district court erred in concluding that Defendant's conduct amounted to the use of sophisticated means under §2T1.1(2)(b).

Defendant also argues that his criminal history category should have been IV rather than V as determined by the district court. Section 4A1.1(e) provides: "Add 2 points if the defendant committed the instant offense less than two years after release from imprisonment on a sentence counted under (a) or (b) . . . . If 2 points are added for item (d), add only 1 point for this item." U.S.S.G. §4A1.1(e). Because Defendant received two points for committing the instant offense while on parole pursuant to §4A1.1(d), the district court added only one point pursuant to §4A1.1(e). Defendant argues that this point should not have been added because he did not commit any part of the instant offense within two years of imprisonment. Specifically, he claims that the conduct related to the instant offense did not begin until August 15, 1991 , the date on which he was required to file his 1990 tax return, which was more than two years after his release from imprisonment on June 30, 1989 .

We agree with the district court that Defendant began committing conduct relating to the instant offense at least as early as September 1990. The record supports this conclusion. First, Defendant began making personal expenditures out of corporate accounts as early as September 1990. See Addendum to Appellant's App. at 384. Second, Defendant sold the Nordic mining leases in September of 1990, at which time he placed the money into various corporate entities. Third, Defendant failed to report the income he earned from the sale of the mining leases to his probation officer. Because this conduct began within two years of June 30, 1989, the last date on which Defendant was imprisoned, the court correctly added one criminal history point to Defendant's score, and it correctly calculated the criminal history category at V. See U.S.S.G. Ch. 5, Pt. A.

Finally, Defendant argues that the district court erred by failing to apply a two-point deduction to his base offense level for acceptance of responsibility. Determination of acceptance of responsibility is a question of fact which we review for clear error. See United States v. Mitchell, 113 F.3d 1528, 1533 (10th Cir. 1997). Because "[t]he sentencing judge is in a unique position to evaluate a defendant's acceptance of responsibility . . ., the determination of the sentencing judge is entitled to great deference on review." U.S.S.G. §3E1.1, comment. (n.5). According to §3E1.1 of the Guidelines, a two-point reduction in the base offense level is warranted when "the defendant clearly demonstrates a recognition and affirmative acceptance of personal responsibility for his criminal conduct." Id. §3E1.1(a). In spite of Defendant's admission that he failed to report most of the income he earned during 1990 and his admission that he knew his actions were wrong, see Appellant's App. at 356-57, he has denied owing any taxes on this income. This denial is inconsistent with accepting responsibility for the offense to which he pled guilty, i.e., attempted tax evasion. Moreover, we do not think that Defendant's admissions of wrongdoing necessarily constitute an acceptance of responsibility. See United States v. McMahon, 91 F.3d 1394, 1397 (10th Cir. 1996) ("A defendant is not entitled to an adjustment for acceptance of responsibility merely because he admits to wrongdoing."). When we consider Defendant's continued insistence that he does not owe taxes for 1990, his incomplete record-keeping with respect to his businesses, see Appellant's App. at 343, the complicated relationships between his corporations, his use of corporate funds for personal expenditures, and his failure to file income tax returns for many years prior to 1990, see id. at 343, 350, it seems apparent that Defendant has not "clearly demonstrate[d] a recognition and affirmative acceptance of personal responsibility for his criminal conduct." U.S.S.G. §3E1.1(a). We conclude that the district court did not commit clear error in finding that a downward adjustment on the basis of acceptance of responsibility was unwarranted.

We AFFIRM the dismissal of Defendant's motion to withdraw his guilty plea and his sentence. ³

^* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

¹ Although the district court did not indicate which version of the United States Sentencing Guidelines it applied, because the presentence report applied the 1990 version of the Guidelines, see Addendum to Appellant's App. at 388, we assume that the court also applied that version. The district court was correct in doing so. Although the general rule is that a sentencing court applies the version of the Guidelines in effect at the time of sentencing, if the later version imposes harsher punishment and thereby implicates the Ex Post Facto Clause, the court applies the Guidelines in effect at the time of the defendant's offense. See United States v. Nichols, 169 F.3d 1255, 1270 n.3 (10th Cir. 1999); United States v. Svacina, 137 F.3d 1179, 1186 (10th Cir. 1998). Under the Guidelines in effect at the time of sentencing, March 17, 1998 , Defendant's base offense level would have been 12, rather than 10, for a tax loss of $38,601.74. Compare U.S.S.G. §2T1.1 & 2T4.1 (1997) with U.S.S.G. §2T1.1 & 2T4.1 (1990). Accordingly, for purposes of this appeal, we refer only to the 1990 Guidelines.

² We note that the Government could have sought to hold Defendant responsible for a much larger amount. Presumably as part of the plea agreement, the Government did not seek to include as taxable income the $494,520 Defendant received for the sale of the mining leases to Crown Resources. See Appellant's App. at 348-49. Although Defendant disputed whether there was an overlap between this sum and the $88,405.21 in personal expenditures, and although he claims on appeal that he did not owe taxes on this amount at all, we believe that Defendant received a lower sentence than he might have otherwise.

³ Defendant submitted two additional motions in conjunction with this appeal. In the first motion, he moved pro se to file a supplemental brief in which he asserted that the district court violated Rules 11(c) and 11(f) of the Federal Rules of Criminal Procedure by failing to ensure that he understood the nature of the charge against him and by failing to establish an adequate factual basis for the plea, respectively. Defendant also claimed that he received ineffective assistance of counsel on appeal because his counsel failed to raise the Rule 11 arguments in the opening brief. We have reviewed the record, and we conclude that Defendant's Rule 11 arguments are without merit. Additionally, while we note that claims of ineffective assistance of counsel should normally be raised in collateral proceedings, see United States v. Galloway, 56 F.3d 1239, 1240 (10th Cir. 1995) (en banc), in this case we may review the claim because Defendant complains only about the assistance he received on appeal. See United States v. Boigegrain, 155 F.3d 1181, 1186 (10th Cir. 1998) (noting that this court may hear ineffective assistance claims in rare instances when they are fully developed on the record). In light of our conclusion that Defendant has failed to state a claim based on Rule 11, we hold that Defendant has failed to demonstrate that he received ineffective assistance of counsel on appeal. See Strickland v. Washington, 466 U.S. 668, 687 (1984) (articulating showing required for establishing claim of ineffective assistance of counsel). The motion to file a supplemental brief is denied.

In his second additional motion, Defendant moved to supplement the record with an IRS document that was not before the district court. Because the document does not definitively establish Defendant's tax liability for 1990 or the IRS's position with respect to his liability, and because it does not affect our holdings that Defendant's sentence and the district court's denial of Defendant's motion to withdraw his plea rested on sufficient factual bases, we deny the motion to supplement the record.

 

 

[97-2 USTC ¶50,538] United States of America, Appellee v. Joan M. Noske, Appellant United States of America, Appellee v. James L. Noske, Appellant United States of America, Appellee v. James L. Noske, Appellant United States of America, Appellee v. Joan M. Noske, Appellant United States of America, Appellee v. John B. Ellering, Appellant United States of America, Appellee v. Imelda M. Spaeth, Appellant United States of America, Appellee v. Laverne Scherping, Appellant United States of America, Appellee v. Loren Scherping, Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 95-3235MN, 95-3254MN, 96-1997MN, 96-1999MN, 96-2001MN, 96-2004MN, 96-2006MN, 96-2008MN, 6/24/97, Affirming an unreported District Court decision

[Code Sec. 1 ]

Constitutional arguments: Double jeopardy: Damages: Punitive v. remedial.--The prosecution of a brother and his sister on charges of conspiracy to defraud the government by impeding the IRS did not violate the Double Jeopardy Clause of the U.S. Constitution because the imposition of penalties for promoting abusive tax shelters compensated the government for its damages and was not punitive in nature. The siblings sold services involving the use of business trusts and supposedly tax-exempt corporations to help individuals hide income and assets from the IRS. They were convicted of income tax evasion and were penalized in an amount representing 20% of the income derived from their abusive activity.

[Code Sec. 7203 ]

Crimes: Evidence: Immunity: Admissibility.--Although taxpayers had been granted derivative use immunity concerning the information and records that they provided to IRS agents, the record established that the criminal indictments against them was derived from legitimate, independent sources. The trial court's determinations as to the admissibility of certain evidence were sustained.

[Code Sec. 7203 ]

Crimes: Conspiracy to defraud: Tax evasion: Defenses: Double jeopardy.--Two conspiracy counts against a brother and sister who promoted abusive tax shelters did not violate double jeopardy. The counts addressed separate agreements with separate objects among different people, rather than a single agreement to commit two crimes.

[31 U.S.C. §5311 ]

Bank Secrecy Act: Anti-structuring provisions: Violation: Evidence.--Evidence presented at trial supported an individual's conviction on charges of violating the anti-structuring provisions of the Bank Secrecy Act. The jury could reasonably have found that the taxpayer asked a bank to break down sale proceeds into cashiers checks and cash in amounts that would avoid triggering the reporting requirement and that the taxpayer willfully violated the applicable statute.

[Code Secs. 7203 and 7206 ]

Crimes: Evasion of tax: Conspiracy to evade: Conspiracy to defraud: Evidence.--The evidence supported the conviction of an individual on charges of tax evasion, conspiracy to evade taxes and conspiracy to defraud the government. The proof showed that taxes were owed, that a sale of assets was a sham for tax purposes, and that the taxpayer acted in agreement with others to defraud the government. Also, the evidence supported the convictions of two other individuals who had knowledge of the tax shelter activities on charges of conspiracy to defraud the government. Once a conspiracy was shown, the jury could reasonably infer that the parties knew of the conspiracy's object and willingly joined and participated.

[Code Sec. 7203 ]

Crimes: Tax evasion: Conspiracy to evade: Conspiracy to defraud: Jury instructions.--Jury instructions given at trial did not improperly prejudice taxpayers charged with crimes in connection with their promotion of abusive tax shelters. Any error in giving a willful blindness instruction was harmless with respect to the taxpayer challenging it. An instruction concerning trust arrangements as shams correctly stated the law. The failure of an instruction to include exhibit numbers was harmless. An instruction charging that a transaction lacking economic substance cannot be recognized for tax purposes was harmless because, reading the instructions as a whole, the jury was free to find that a transaction lacking economic substance was not entered into with intent to impede the IRS.

[Code Sec. 7203 ]

Crimes: Tax evasion: Conspiracy to evade: Conspiracy to defraud: Sentencing: Costs.--The trial court committed no errors in the sentencing of taxpayers who were convicted of tax evasion, conspiracy to evade taxes and conspiracy to defraud the United States. A presentence report was properly adopted without conducting an evidentiary hearing, and sentencing guidelines were properly followed. Tax loss was properly calculated in deciding the base offense levels. The trial court acted appropriately in adding two levels to the base offense level because the taxpayers used sophisticated means. Furthermore, one taxpayer's grouping argument and an attack on his criminal history category were rejected. The taxpayers were also properly assessed the costs of prosecution for tax evasion.

William Whitledge, Rob ert E. Lindsay, Wade W. Parrish, Cory Smith, Department of Justice, Washington, D.C. 20530, Keith William Reisenauer, United States Attorney's Office, 655 First Ave., N., Fargo, N.D. 58108, for plaintiffs-appellees. Virginia Guadalupe Villa, Federal Public Defender's Office, 300 S. Fourth St., Minneapolis, Minn. 55415, Richard Henderson, Nilles & Hansen, 1800 Radisson Tower, Fargo, N.D. 58108, Keith Anthony Cannon, United States Penitentiary, P.O. Box 1000, Leavenworth, Kan. 66048, Rob ert Gerard Malone, 386 N. Wabasha St., St. Paul, Minn. 55102, Thomas G. Dunnwald, 310 Fourth Ave., S., Minneapolis, Minn. 55415, Nancy R. Vanderheider, 505 N. Hwy., 169, Minneapolis, Minn. 55441, Paul G. Morreim, 301 McAndrews Rd., W., Burnsville, Minn. 55337, John Charles Brink, Daniel L. Gerdts, 401 Second Ave., S., Minneapolis, Minn. 54401, for defendants-appellants. Joan M. Noske, Federal Prison Camp, P.O. Box 6000, Pekin, Ill. 61555-6000, pro se. John B. Ellering, 466 First St., S.E., Richmond, Minn. 56368, pro se. Loren Scherping, 3595 County Rd., Freeport, Minn. 56331, pro se. Imelda M. Spaeth, P.O. Box 72, Richmond, Minn. 56368, pro se. James L. Noske, United States Medical Center for Federal Prisoners, P.O. Box 4000, Rochester, Minn. 55903-4000, pro se. Laverne Scherping, 26718 358th St., Freeport, Minn. 56331, pro se.

Before: MCMILLIAN, BEAM, and FAGG, Circuit Judges.

FAGG, Circuit Judge:

James L. Noske, a law school graduate and financial planner, and his sister, Joan M. Noske, an accountant and tax return preparer, sold services promoting the use of business trusts and supposedly tax-exempt corporations to help many individuals hide income and assets from the Internal Revenue Service (IRS). Basically, the Noskes helped their clients facing tax assessments transfer assets to one of the Noskes' "nonprofit" corporations in a "sale" for no consideration. The transfer made it appear as though the client no longer owned the property, preventing the IRS from levying on it to satisfy outstanding tax liabilities, but the clients continued to exercise full control over the property. The Noskes also helped clients seeking to reduce or avoid federal income tax form a business trust, which conducted no business activity, name the Noskes' "nonprofit" corporations as trustees, and transfer all income-producing property to the trust. Through a contribution of trust shares to one of the purported nonprofit corporations and other maneuvers, the arrangement effectively evaded the assessment and payment on 60% of the clients' income. With the help of Imelda M. Spaeth from the early 1980s through the early 1990s, and John B. Ellering from 1988 through 1993, the Noskes obtained third parties to sign often-blank documents as officers of the Noske corporations. Joan Noske filed income tax returns for the trusts, showing distributions to Noske corporations and the clients.

The Noskes' clients included brothers Loren and Laverne Scherping, owners and operators of a dairy farm in Minnesota . After the IRS decided the Scherpings owed a tax deficiency, the brothers purported to convey their farm to a trust formed with the help of the Noskes, naming Noske corporations as trustees. The Scherpings also transferred all their farm personal property, including equipment and livestock, to a Noske corporation. The Scherpings retained full control over their farm, however. When the Tax Court decided the income earned from the farm was taxable to the Scherpings individually rather than the Noske corporation, Joan Noske helped the Scherpings sell the cattle to avoid an IRS levy. In cashing the cattle purchasers' checks, Joan Noske deliberately evaded requirements that banks report currency transactions over $10,000 by breaking the transactions down into smaller amounts.

For their parts in the scheme, the Noskes, Spaeth, and Ellering were charged in Count I of the indictment with conspiracy to defraud the United States by impeding the IRS. The Government also charged the Noskes and the Scherpings with conspiracy to evade income taxes assessed against the Scherpings in Count II of the indictment, and with income tax evasion in Count III. Joan Noske and the Scherpings were also charged with several counts of structuring a monetary transaction for negotiation of the cattle proceeds. The Noskes, Spaeth, and Ellering were convicted of all charges against them. The Scherpings were found guilty of conspiracy to evade income taxes, but acquitted on the other charges. The Noskes, Spaeth, Ellering, and the Scherpings appeal. Having carefully examined their many arguments, we affirm.

The Noskes contend their prosecution on the conspiracy counts violates double jeopardy because the IRS had already imposed civil tax penalties against them for promoting abusive tax shelters. See 26 U.S.C. §6700 (1988) (providing for penalty of $1000 or 100% of income derived from activity). The Noskes have not been punished by assessment of the §6700 penalties, however, because the penalties are remedial rather than punitive in nature. The Noskes were jointly assessed a penalty of $490,174, representing 20% of the income derived from their abusive activity. As the district court found, this is not overwhelmingly disproportionate to the Government's damages. See United States v. Halper, 490 U.S. 435, 439 (1989) (penalty more than 220 times greater than Government's loss qualified as punishment for double jeopardy purposes). Although no final tally has been calculated, the district court found the Government had incurred "obviously substantial" costs and "significant expenses" because of the Noskes' behavior, including lost tax revenue and costs of investigation and prosecution over a ten-year period. At bottom, the penalties imposed do not exceed what could reasonably be regarded as compensation for the Government's damages. See id. "[T]he Government is entitled to rough remedial justice," id. at 446, regardless of the precise amount needed for compensation. See Thomas v. Commissioner [95-2 USTC ¶50,439], 62 F.3d 97, 101 (4th Cir. 1995) (§6653(b)(1) addition to tax not punitive in violation of double jeopardy). The district court concluded, and we agree, that the penalty serves the remedial goal of reimbursing the Government.

The Noskes also contend the Government's evidence against them included or was derived from information and records they provided to three particular IRS agents under a written immunity agreement in effect between 1983 and 1985. The district court held a five-day hearing on the immunity issue and concluded the Noskes had been granted derivative use immunity. After reviewing the 1994 indictment, the sources of information that led to the indictment, and the information provided under the grant of immunity, the district court held the Government had shown the information used to obtain the indictment was derived from legitimate, independent sources, and the information provided by the Noskes to the three agents was not used, directly or indirectly, in obtaining the indictment. Having reviewed the record, including the district court's lengthy report and addenda, we conclude the district court committed no error. See United States v. Wiley, 997 F.2d 378, 381 (8th Cir. 1993).

Next, the two conspiracy counts do not subdivide a single criminal conspiracy into multiple violations of the same offense in violation of double jeopardy. Although the two counts charge violations of the same statute, 18 U.S.C. §371, the totality of the circumstances reveals the counts address separate agreements. See United States v. Okolie, 3 F.3d 287, 290-91 (8th Cir. 1993). Count I charged the Noskes, Spaeth, and Ellering with conspiracy to defraud the United States , and the evidence showed they agreed to provide sham entities and record keeping services that permitted clients to hide their own tax liabilities. Count II charged the Scherpings, who were not members of the Count I conspiracy, and the Noskes with conspiring to evade the payment of the Scherping's tax liabilities. The evidence established the Scherpings were motivated to evade only their own tax liabilities, rather than to provide general tax evasion services like the Noskes, Spaeth, and Ellering. See United States v. Rosnow [92-2 USTC ¶50,506], 977 F.2d 399, 405-06 (8th Cir. 1992). In sum, the two conspiracy counts address separate agreements with separate objects among different people, not a single agreement to commit two crimes. See United States v. Thomas, 759 F.2d 659, 662 (8th Cir. 1985).

The district court did not abuse its discretion in denying motions by Spaeth and the Scherpings for severance. Joinder was proper under Fed. R. Crim. P. 8(a), and Spaeth and the Scherpings have not shown actual prejudice warranting severance under Fed. R. Crim. P. 14. See United States v. Delpit, 94 F.3d 1134, 1143 (8th Cir. 1996). Acquittals of some defendants on some charges and a defendant charged only with count II show the jury was able to compartmentalize the evidence. See id. at 1144; United States v. Nevils, 897 F.2d 300, 305 (8th Cir. 1990). Further, any risk of prejudice was reduced by the district court's instructions, which directed the jury to consider each offense and its supporting evidence separately, and to analyze the evidence with respect to each individual without considering evidence admitted solely against other defendants. See Delpit, 94 F.3d at 1144.

The district court also did not abuse its discretion in refusing to admit evidence of the Scherpings' willingness to pay what they believed was the correct amount of their income tax liabilities for 1979 through 1983. See id. at 1146 (standard of review). Under a Tax Court ruling, the Scherpings were legally obligated to pay a higher amount than they allegedly believed was correct. The Scherpings' willingness to pay an amount less than they legally owed was simply irrelevant.

The district court correctly refused to suppress a list of trust documents seized during a search of John Ellering's home and bowling alley. Even if the search violated Ellering's Fourth Amendment rights, the list was merely cumulative of other properly admitted evidence showing Ellering had knowledge of the trusts, and thus admission of the list was harmless beyond a reasonable doubt. See United States v. Johnson, 12 F.3d 760, 765 (8th Cir. 1993).

The district court did not abuse its discretion in admitting an exhibit showing that Spaeth had unpaid tax liabilities from 1980 and 1981, and that in Tax Court proceedings assessing the deficiencies, Spaeth had testified she had no taxable income from her job at a veterinary clinic because she had donated her services to a Noske nonprofit corporation, which allegedly performed services for the clinic under a contract. Noting the exhibit reflected Spaeth's activities during the time frame of the charged conspiracy, the court held the evidence was relevant and admissible. We agree. The evidence was connected with and part of Spaeth's activities with the Noskes, see United States v. Luna, 94 F.3d 1156, 1162 (8th Cir. 1996), and was not unfairly prejudicial, see Fed. R. Evid. 403. Even if the exhibit were considered evidence of other crimes, the exhibit was admissible to show Spaeth's knowledge of the conspiracy's object and her intent to join, and Spaeth's motion in limine shows she had reasonable notice the exhibit might be offered.

See Fed. R. Evid. 404(b).

Similarly, the district court did not abuse its discretion in excluding certain evidence James Noske sought to introduce. See Delpit, 94 F.3d at 1146. The court properly excluded evidence that IRS Special Agent Patrick Henry recommended against pursuing prosecution of the Noskes in 1988. Henry did not have the benefit of most of the evidence against the Noskes, which was gathered later, so his 1988 opinion was based on incomplete information and is irrelevant. Even if relevant, the minimum probative value of the evidence is outweighed by the danger of unfair prejudice, confusion of issues, and misleading the jury. See Fed. R. Evid. 403. As for the district court's ruling precluding James Noske from calling Agent Henry as a witness, Noske has not shown the exclusion prejudiced him.

Joan Noske challenges her convictions for structuring a transaction to evade requirements that financial institutions report the payment, receipt, or transfer of currency exceeding $10,000. See 31 U.S.C. §5324(3) (1988) (found in 1994 version at §5324(a)(3) without substantive change); id. §5313(a). Viewing the evidence in the light most favorable to the verdict, see United States v. Erdman, 953 F.2d 387, 389 (8th Cir. 1992), the evidence supports Joan Noske's structuring convictions. Less than a week after the Tax Court sustained the Commissioner's determination of deficiencies in the Scherpings' tax liabilities for 1981 through 1983, the Scherpings and Joan Noske liquidated the Scherpings' herd of dairy cattle over a five-day period. In three of the sales, Joan negotiated the buyers' checks over $10,000 for currency and the purchase of money orders in amounts less than $10,000. The jury could reasonably find Joan asked the bank to break down the proceeds into cashiers' checks and cash in lesser amounts to avoid triggering the reporting requirement. The jury could also reasonably infer Joan Noske willfully violated the antistructuring statute. Ample evidence showed Joan knew of the bank's duty to report cash transactions over $10,000 and her own duty not to evade triggering a bank report, including her notification by the IRS about the reporting requirements, her status as a tax return preparer and later a certified public accountant, and the elaborate nature of the scheme. See Ratzlaf v. United States [94-1 USTC ¶50,015], 510 U.S. 135, 146-47, 149 n.19 (1994).

Although Joan did not trigger the reporting requirement by receiving more than $10,000 in cash on any one day, the indictment's structuring counts stated a crime. The reporting requirement need not be triggered for a person to violate §5324(3). See United States v. Davenport , 929 F.2d 1169, 1172-73 (7th Cir. 1991). Indeed, §5324(3) targets evasion of the reporting requirement; if the structuring is successful, the bank's duty to file a currency transaction report is not activated. See Davenport , 929 F.2d at 1172-73. Additionally, contrary to Joan's view, §5324(3) is not void for vagueness. See id. at 1173.

The evidence was also sufficient to sustain Joan Noske's other convictions. For Joan's tax evasion conviction, the Government introduced evidence that the Scherpings owed taxes, including the Tax Court decision finding the Scherpings' sale of their farm assets to a Noske corporation was a sham for tax purposes. Joan's conviction for conspiracy to evade the Scherpings' tax liabilities is similarly supported by evidence that she and the Scherpings began to liquidate the herd of cattle that the Scherpings had "sold" to the corporation, right after the Tax Court issued its adverse decision. Likewise, the evidence was sufficient to convict Joan of conspiracy to defraud the United States . Evidence showed Joan acted to impede the IRS, and agreed with others to do so. Joan's filing of income tax returns for the trusts rather than the clients individually was part of the deception.

The evidence was also sufficient to convict Spaeth and Ellering of conspiracy to defraud the United States . Once a conspiracy is shown, only slight evidence is needed to prove a particular defendant's participation. See United States v. McCarthy, 97 F.3d 1562, 1568 (8th Cir. 1996), cert. denied, 117 S. Ct. 1011, and cert. denied, 117 S. Ct. 1284 (1997). The jury could reasonably infer Spaeth and Ellering knew of the conspiracy's object and willingly joined and participated. Spaeth and Ellering were deeply involved in the Noskes' illegal activities. The evidence showed Spaeth used a Noske entity to try to evade her own tax liabilities, acted as an officer and an incorporator of bogus Noske entities, signed numerous fake documents, and was a signatory on a FAST trust checking account used to funnel income back to Noske clients. Similarly, Ellering put his own business into a Noske trust, acted as a trustee of Noske entities, and was also a signatory on the FAST trust checking account. In sum, ample evidence showed Spaeth and Ellering were knowingly involved in the Noskes' efforts to hide the income and assets of numerous taxpayers.

The district court's jury instructions did not improperly prejudice the appellants. The willful blindness instruction was proper at least with respect to unconvicted codefendant Dwaine Weber. See United States v. Gonzales, 90 F.3d 1363, 1371 (8th Cir. 1996). Any error in giving the instruction was harmless with respect to Joan Noske, who now challenges it. See United States v. Bolstad, 998 F.2d 597, 598 (8th Cir. 1993) (per curiam). Joan did not request that the instruction be limited to Weber, the Government did not argue it applied to her during closing argument, and evidence of Joan's actual knowledge was overwhelming.

The appellants also challenge the instruction that trust arrangements are shams for tax purposes if the trust's originator retains control over the property or income placed in the trust, and does not change the way the property or income is treated. The instruction correctly states the law, however. See Paulson v. Commissioner [93-1 USTC ¶50,271], 992 F.2d 789, 790 (8th Cir. 1993) (per curiam ). Whether the trusts were taxable as trusts or as corporations, the jury was properly instructed to decide if the trusts were economically viable entities or existed merely to facilitate the Noske tax evasion scheme.

James Noske also argues the district court should have included the exhibit numbers in an instruction that directed the jury not to consider Revenue Officer Cleland's testimony or any exhibits introduced through him in considering the case against the Noskes. Any error was harmless, however, because James provided the restricted exhibit numbers to the jury during closing arguments, without Government contradiction. As for the instruction charging that a transaction lacking economic substance is not recognized for tax purposes, any error was harmless because, reading the instructions as a whole, the jury was free to find a transaction lacking economic substance was not entered into with intent to impede the IRS. James Noske was not entitled to an instruction on entrapment by estoppel because the evidence did not support the defense. See United States v. Achter, 52 F.3d 753, 755 (8th Cir. 1995); United States v. Austin , 915 F.2d 363, 365 (8th Cir. 1990). Although James contends the district court committed error in refusing to give a series of other requested instructions, he does not explain why the instructions given instead were wrong.

Last, the district court committed no errors in sentencing James and Joan Noske. James contends the district committed error in adopting the presentence report (PSR) without conducting an evidentiary hearing. In response to James's lengthy objection to the PSR, the district court made detailed findings of fact addressing his objections, and noted that it had presided at the trial and had heard all the evidence. James was not entitled to an evidentiary hearing because the district court could properly base its sentencing findings on evidence and testimony from the trial. See Delpit, 94 F.3d at 1154.

Turning to the substantive attacks on their sentences, the Noskes first challenge the district court's calculation of tax loss in deciding their base offense levels. After holding an evidentiary hearing on the calculation of monetary loss, the district court adopted the amount specified in the PSR. Having carefully reviewed the matter, we conclude the district court correctly calculated the amount of tax loss. As loss resulting from the Count I conspiracy, the district court properly used 28% of the untaxed distributions to a Noske "nonprofit" corporation, which should have been paid as the distributors' personal income tax. The Government was not required to prove it actually lost that amount in taxes. See U.S. Sentencing Guidelines Manual §2T1.1(a)(B) (1992) ("U.S.S.G."); id. §2T1.3(a) (tax loss equals 28% of gross income). The record shows the distributors were not entitled to charitable deductions for the sham distributions. The district court also properly included for uncharged relevant criminal conduct the amounts of tax, computed from IRS files, evaded by clients other than the Scherpings by using the Noskes' business trust scheme. See United States v. Meek [93-2 USTC ¶50,409], 998 F.2d 776, 781-82 (10th Cir. 1993).

The district court was also right in adding two levels to the base offense level for the Noskes' use of sophisticated means. See U.S.S.G. §2T1.1(b)(2); id. n.6; United States v. Lewis [96-2 USTC ¶50,452], 93 F.3d 1075, 1080-82 (2d Cir. 1996). The district court made no mistake in adding two more levels to Joan Noske's base offense level under U.S.S.G. §3B1.3 for her abuse of a position of trust. The addition applies because of Joan's position as a financial planning adviser and tax preparer, even though she did not become a CPA until 1988. See United States v. Tardiff, 969 F.2d 1283, 1289-90 (1st Cir. 1992).

James Noske's grouping argument fails because his 96-month sentence does not exceed the total statutory maximum of 15 years. Likewise, his attack on his criminal history category is refuted by the plain language of the applicable guideline commentary. See U.S.S.G. §4A1.2 n.1. Finally, the Noskes were properly assessed the costs of prosecution for tax evasion as 26 U.S.C. §7201 requires. See United States v. Wyman [84-2 USTC ¶9147], 724 F.2d 684, 688 (8th Cir. 1984).

We have carefully considered all of the appellants' contentions, including those raised in their pro se briefs and not mentioned here. Having found no reason for reversal, we affirm.

 

 

[96-2 USTC ¶50,453] United States of America , Appellant v. Harry Richman, Defendant-Appellee

(CA-2), U.S. Court of Appeals, 2nd Circuit, 95-1682, 8/28/96 , 93 F3d 1085, 93 F3d 1085. Vacating and remanding an unreported District Court decision

[Code Sec. 7203 ]

Attempt to evade tax: Tax evasion scheme: Convictions: United States Sentencing Guidelines: Sophisticated means enhancement provision.--A physician's tax evasion scheme used sophisticated means under §2T1.1 of the United States Sentencing Guidelines (USSG) because it was more complex and demonstrated greater intricacy and planning than a routine tax-evasion case. Therefore, the lower court's decision was vacated and remanded so as to apply the sophisticated means enhancement provision at the taxpayer's resentencing. The fact that the taxpayer neither created nor devised the scheme did not preclude the application of the sophisticated means enhancement provision because that provision is an offense characteristic, not a specific offender characteristic. Further, charitable good works and employment-related contributions were not to be considered as relevant in deciding when to depart from the USSG.

Mary Jo White, United States Attorney, Lewis J. Liman, Alexandra Rebay, Assistant United States Attorneys, New York, N.Y. 10007, for appellant. Paula Schwartz Frome, Richard S. Kestenbaum, Kestenbaum & Mark, Great Neck, N.Y. 11021, for defendant-appellee.

Before: CARDAMONE, ALTIMARI and PARKER, Circuit Judges.

CARDAMONE, Circuit Judge:

This appeal from a sentence following a judgment of conviction in a criminal case asks us to determine whether "sophisticated means" were used to impede discovery of a tax-evasion scheme. See United States Sentencing Commission, Guidelines Manual §2T1.1(b)(2) (Nov. 1992) (U.S.S.G. or Guidelines). In light of our decision today in United States v. Lewis, No. 95-1681 (2d Cir. August--, 1996), a case argued in tandem with the instant case, we vacate the sentence imposed and remand the case for resentencing.

BACKGROUND

Between 1985 and 1993, Harry Richman, a medical doctor and a resident of New York , employed Abrams Associates, an accounting firm, to prepare his income tax returns. Abrams Associates was owned at different times during this period by three coconspirators, none of whom are charged in Richman's criminal prosecution. According to an information filed by the government, Richman and these others conspired to defraud the United States government by evading a substantial part of the income tax defendant owed.

The facts concerning the nature of the conspiracy are not disputed. Abrams Associates instructed Richman to draw checks (Escrow Checks) on his business bank accounts payable to fictitious individuals and entities, such as "Dr. Shuman Fu," "Dr. P. O'Leary," "UJA," "St. Paul," and "VA Medical Associates." These Escrow Checks were deposited into bank accounts (Satellite Accounts) that had been opened in the name of the non-existent payees, creating the appearance that Richman was making actual payments to legitimate businesses and charities.

The funds in turn were transferred from the Satellite Accounts into a second set of bank accounts (Operational Accounts). Abrams Associates then used 90 percent of the money in the Operational Accounts to pay Richman's bills, such as his child's tuition at Skidmore College , his personal investments, and miscellaneous living expenses. Although no actual payments were made to a business that would entitle the taxpayer to claim a deduction or to any charities, Richman falsely claimed $294,000 as tax deductions between 1984 and 1991. He also wrote $6,000 in Escrow Checks in 1992, but never claimed these as deductions because the Internal Revenue Service (IRS) uncovered the tax-evasion scheme before he filed his return. During this eight-year period, Richman wrote 267 Escrow Checks to 32 different fictitious entities and persons, thereby evading $84,000 in federal income taxes. He and 26 others have been charged with tax offenses arising out of the Abrams Associates operation; all but five have pled guilty.

Defendant Richman entered into a written plea agreement on February 1, 1995 , in which the government agreed to accept a guilty plea to both counts charged in the information. First, defendant pled guilty to violating 18 U.S.C. §371 , which prohibits individuals from participating in a conspiracy to defraud the United States . Second, he pled guilty to attempting willfully to evade income taxes imposed pursuant to the Internal Revenue Code, a violation of 26 U.S.C. §7201 and 18 U.S.C. §2 .

The plea agreement provided that the 1992 version of the United States Sentencing Guidelines--references to Guidelines provisions are hereafter to the 1992 version, unless otherwise specified--would govern sentencing, as it was more lenient than the current version and avoided any ex post facto problems. The parties stipulated that Richman's base offense level should be 12, and they further agreed that the defendant demonstrated acceptance of responsibility for his crimes, thus reducing his offense level by two levels pursuant to U.S.S.G. §3E1.1(a). The parties acknowledged that as Richman had no prior convictions, his criminal history category was I. Defendant also agreed to file amended returns for 1984-1991 and to pay appropriate taxes and penalties.

The agreement specifically stated that it included no stipulation on the question of whether "sophisticated means" were used in this tax-evasion scheme. If--as the government contended--such means were employed, the defendant's offense level would receive a two-level increase pursuant to U.S.S.G. §2T1.1(b)(2). This specific offense characteristic states that "[i]f sophisticated means were used to impede discovery of the nature or extent of the offense," the offense level should be increased by two levels. The commentary explains that " '[s]ophisticated means[]' ... includes conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case. An enhancement would be applied for example, where the defendant used offshore bank accounts, or transactions through corporate shells." U.S.S.G. §2T1.1, comment. (n.6).

Richman's plea allocution was conducted on April 6, 1995 in the United States District Court for the Southern District of New York (Leisure, J.). After his guilty plea, but before sentencing, the Probation Department's Presentence Report recommended applying the "sophisticated means" enhancement. At Richman's October 31, 1995 sentencing, the district court heard argument on this issue from both parties.

Reading its decision into the record, the district court relied heavily on Judge Scheindlin's decision in United States v. Lewis, 907 F. Supp. 683 (S.D.N.Y. 1995), noting its agreement with her decision. It stated that in its view the accountants in this case engaged in activities that would fall within the sophisticated means enhancement. The trial court explained that the major players in any attempt to impede discovery of the scheme were the accountants and the accounting firm, and concluded that Richman's activities did not employ sophisticated means.

The district court also believed that even if the sophisticated means enhancement applied, it could weigh, on the same scale with the enhancement, information concerning defendant's background, character, and conduct. Earlier, the sentencing court had acknowledged Richman's dedication to the medical profession, charity, religion, and to his family, and it was persuaded that these considerations tipped the scale towards denying the government's request to apply the sophisticated means enhancement.

It sentenced Richman to a two-year term of probation, including six months of home detention without electronic monitoring, required restitution of $84,000 to the IRS, ordered that he not possess firearms or dangerous weapons, and imposed a $100 special assessment. From this sentence, the United States appeals.

DISCUSSION

As discussed in Lewis, No. 95-1681 [96-2 USTC ¶50,452 ], we review de novo the district court's decision not to apply the "sophisticated means" enhancement pursuant to U.S.S.G. §2T1.1(b)(2), and conclude that the scheme in which Richman was engaged used sophisticated means. We so hold because the scheme was more complex and demonstrated greater intricacy and planning than a routine tax-evasion case. Further, we believe that because the enhancement provision is an offense characteristic and not a specific offender characteristic, it is of no moment that Richman himself neither created nor devised the scheme so long as sophisticated means were used in carrying it out. For the reasons discussed in Lewis, we reverse and remand for resentencing.

On remand, the sophisticated means enhancement must be applied. Once the factual predicate for the enhancement is satisfied, its application is mandatory. United States v. Jimenez, 68 F.3d 49, 51-52 (2d Cir. 1995) (enhancement for managerial role), cert. denied sub nom. Guzman v. United States , 116 S. Ct. 1448 (1996); see also United States v. Dunnigan, 507 U.S. 87, 98 (1993) (requiring enhancement for perjury when trial court properly determines such has occurred). The district court rightly acknowledged that the Guidelines do not "straitjacket a sentencing court, compelling it to impose sentences like a robot inside a Guidelines' glass bubble." United States v. Lara, 905 F.2d 599, 604 (2d Cir. 1990). But a sentencing court may only "disregard ... the Guidelines ... when it finds 'that there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission.' " Burns v. United States, 501 U.S. 129, 133 (1991) (quoting 18 U.S.C. §3553(b)). Guidelines §5H1.11 declares that charitable good works and employment-related contributions "are not ordinarily relevant" in deciding when to depart from the Guidelines. It follows that these factors cannot be relied upon to avoid the compulsory application of the sophisticated means enhancement.

CONCLUSION

The sentence is vacated and the case remanded for resentencing.

 

 

[96-2 USTC ¶50,452] United States of America , Appellant v. Ephraim Lewis, Defendant-Appellee

(CA-2), U.S. Court of Appeals, 2nd Circuit, 95-1681, 8/28/96 , 93 F3d 1075, 93 F3d 1075. Vacating and remanding an unreported Distict Court decision

[Code Sec. 7203 ]

Attempt to evade tax: Tax-evasion scheme: Convictions: United States Sentencing Guidelines: Sophisticated means.--The lower court erred in holding that an individual's tax-evasion scheme did not involve the use of sophisticated means under section 2T1.1 of the United States Sentencing Guidelines. Therefore, his sentence was vacated, and the case was remanded for resentencing. The scheme involved a three-step scenario that used numerous fictitious entities and multiple checks and resulted in fraudulent deductions. Even though the scheme could not be described as singularly or uniquely sophisticated, it was crafted by an accounting firm hired by the taxpayer and was designed to move money through two levels of bank accounts in order to conceal the track the money followed. The absence of the use of shell corporations in the scheme did not weigh against a finding that sophisticated means were used. The use of fictitious entities is sufficiently similar to the use of shell corporations. The repetitive conduct of the scheme showed that more than routine planning was involved. In addition, although identity concealment is a relevant factor, it was not determinative of a sophisticated tax-evasion scheme. It was not unjust to hold the taxpayer, who hired the accountants to develop the scheme, as culpable as an individual who independently developed a similar scheme. Finally, a minor role adjustment would be inapplicable.

Mary Jo White, United States Attorney, Lewis J. Liman, Alexandra Rebay, Assistant United States Attorneys, New York, N.Y. 10007, for appellant. Rob ert G. Morvillo, Monique LaPointe, Morvillo, Abramowitz, Grand, Iason & Silberberg, P.C., 565 Fifth Ave., New York, N.Y. 10017, for defendant-appellee.

Before: CARDAMONE, ALTIMARI and PARKER, Circuit Judges.

CARDAMONE, Circuit Judge:

This appeal by the United States in a criminal sentencing case asks us to determine whether "sophisticated means" were used to impede discovery of a tax-evasion scheme. See United States Sentencing Guidelines §2T1.1(b)(2). This is our first occasion to interpret this provision of the Guidelines.

Courts are frequently asked to interpret broad phrases that defy precise definition. Such phrases are often expressed at a high level of generality, and a "mechanical jurisprudence" will not help define them. "Sophisticated means" is one such open-ended phrase. We are not charged with ascertaining an abstract formulation for it that would allow sentencing cases "[to] be worked out like mathematics from some general axioms." Oliver Wendell Holmes, The Path of the Law, in The Mind and Faith of Justice Holmes 71, 79 (Max Lerner ed., 1943). Rather, we need only determine how the words of the Guidelines are to be applied to the facts of a given case. In this inquiry we are guided by the language to be construed, commentary from its author, cases interpreting the language, and an understanding of the interests that the words are designed to further. Because we conclude that the tax-evasion scheme here involved the use of sophisticated means, we vacate the sentence imposed by the district court and remand the case for resentencing.

BACKGROUND

A. Underlying Facts

Defendant Ephraim Lewis is a former editor of a business magazine and a resident of New York City . Between 1982 and 1993 he employed Abrams Associates, an accounting firm, to prepare his tax returns. Abrams Associates was owned at different times by three coconspirators not charged in Lewis' criminal proceeding. According to an information filed by the government, Lewis and these others conspired to defraud the United States and to evade a substantial part of the income tax defendant owed.

The underlying facts concerning the conspiracy are not disputed. Abrams Associates instructed Lewis to draw checks on his personal bank accounts payable to various individuals and entities, including "YMCA," "Gods Church," "Ken Ferstig," "Ron Consulting," and "Don Shirley," all of which were fictitious. Abrams Associates deposited these checks (Escrow Checks) into bank accounts (Satellite Accounts) opened in the names of the sham entities. The existence of the Satellite Accounts created the false impression that Lewis' payments were made to actual businesses and charities.

Next, Abrams Associates transferred the funds from the Satellite Accounts into a second set of bank accounts (Operational Accounts). Ninety percent of the money in the Operational Accounts was used to pay defendant's creditors including Citibank, American Express, and Saks Fifth Avenue , to make personal investments on his behalf, and to pay his living expenses, e.g., mortgage payments and utility bills. Abrams Associates retained 10 percent of the funds in the Operational Accounts as its fee for facilitating defendant's tax evasion.

Despite the fact that defendant made no actual payments to any businesses that would entitle him to claim a tax deduction and did not make the alleged contributions to charity, he nonetheless claimed $130,000 in deductions between 1984 and 1991. He also wrote Escrow Checks totalling $7,000 in 1992, which were not claimed as deductions only because the Internal Revenue Service (IRS) discovered the conspiracy before Lewis filed his 1992 tax return. During this eight-year conspiracy, Lewis wrote 178 checks to 26 different fictitious businesses and charities, and he evaded $36,400 in federal personal income taxes. Lewis was not the only individual to profit from this fraudulent arrangement; over a score of others have also been indicted for tax-evasion offenses arising out of this conspiracy, all but five of whom have pled guilty.

B. Proceedings Below

Defendant entered into a written plea agreement on January 18, 1995 , in which the government agreed to accept a guilty plea to both counts in the information. Count One charged defendant with participating in a conspiracy to defraud the United States in violation of 18 U.S.C. §371 . Count Two charged that defendant willfully attempted to evade income taxes imposed pursuant to the Internal Revenue Code in violation of 26 U.S.C. §7201 and 18 U.S.C. §2 .

Both parties agreed to apply the 1992 United States Sentencing Guidelines, see United States Sentencing Commission, Guidelines Manual (Nov. 1992) (U.S.S.G. or Guidelines)--and references to Guidelines provisions hereafter are to the 1992 version, unless another date is specifically indicated--in calculating defendant's sentence, thereby avoiding any ex post facto problems and offering leniency to defendant. The plea agreement provided that Lewis' base offense level should be 10 (although the parties disputed whether the $7,000 that Lewis planned to deduct in 1992 should be included in this calculation). It was further agreed that defendant's offense level should be reduced by two levels to recognize his acceptance of responsibility. See U.S.S.G. §3E1.1(a). Lewis' criminal history category was I, as he had not previously been convicted of a crime. The plea agreement specifically provided that the parties entered into no stipulation concerning the question of whether U.S.S.G. §2T1.1(b)(2) applied. This specific offense characteristic states that "[i]f sophisticated means were used to impede discovery of the nature or extent of the offense," the sentencing court should increase the defendant's offense level by two levels.

Lewis pled guilty in the United States District Court for the Southern District of New York (Scheindlin, J.) on April 6, 1995 . The Probation Department adopted all the stipulations in the plea agreement and determined that the tax loss caused by defendant included the $7,000 in checks written in 1992. It also recommended that §2T1.1 be applied, observing that the use of fictitious entities made the Abrams tax-evasion plan similar to the use of corporate shells discussed in an application note to §2T1.1. When the defendant objected to this recommendation, the trial court held a hearing on the enhancement's applicability.

It found that the government did not prove by a preponderance of the evidence that this enhancement should be applied. United States v. Lewis, 907 F. Supp. 683, 688 (S.D.N.Y. 1995). Noting the difficulty of deciding whether a specific course of conduct can be described as sophisticated, the district court deemed the question "subjective" and "essentially a question of fact." Id. at 685. It described a "continuum of increasing sophistication," starting with the failure to report cash income and ending with the creation of phony foreign tax credits, id. at 685-86, and explained that its task was to "draw the line between a scheme that uses 'sophisticated means' and one that does not." Id. at 686.

The trial court considered the two examples of sophisticated means provided in the Guidelines commentary--offshore bank accounts and corporate shells--and found both examples involve shielding the taxpayer's identity. Identity concealment, it concluded, was an especially important factor in determining whether sophisticated means were employed. Id. at 686-88. Based on this analysis, the district court reasoned that the instant case involved nothing more than " 'an individual taxpayer complet[ing] his individual 1040 form with false information to avoid paying some of his federal taxes.' " Id. at 688 (quoting United States v. Jagim [93-1 USTC ¶50,093 ], 978 F.2d 1032, 1042 (8th Cir. 1992), cert. denied sub nom. Ziebarth v. United States , 508 U.S. 952 (1993)). Further, it ruled that although fictitious entities were used, no shell corporations actually existed, and that Lewis did not attempt to conceal his identity. Hence, the scheme was unsophisticated. Id.

The trial court specifically rejected two other government contentions. With respect to the duration and scale of the conspiracy, it determined that repetitive conduct alone does not show the use of sophisticated means. And, it ruled even if Abrams Associates used sophisticated means, Lewis was not involved in its overall plans but only in a single unsophisticated scheme. Id. at 688. On reconsideration, the sentencing court affirmed its decision, reasoning that even if the scheme was sophisticated, defendant did not initiate or create the scheme, and he did not take it to the extremity that the accounting firm did. Its analysis concerning the defendant's relative role in the overall tax avoidance plan relied on the rationale in a connected case it cited, United States v. Richman, 95 Cr. 292 (S.D.N.Y. 1995) (Leisure, J.). ¹ The district court also commented that if it were to apply the sophisticated means adjustment, a minor role adjustment (pursuant to U.S.S.G. §3B1.2) would then be appropriate because Lewis' role was minor in comparison to the role of Abrams Associates.

Lewis was thereupon sentenced to a term of three years of probation and 300 hours of community service, and ordered to pay all back taxes, interest and penalties, a $2000 fine, and a special assessment of $100. From this judgment, the United States appeals.

DISCUSSION

I Standard of Review

We must determine at the outset the standard by which we review the district court's decision. Defendant contends that because the sophisticated means inquiry is intensely factual, we should review for clear error. He draws our attention to cases from other circuits which have relied on this standard. See, e.g., United States v. Hunt, 25 F.3d 1092, 1097-98 (D.C. Cir. 1994) (reviewing for clear error); United States v. Charroux [93-2 USTC ¶50,628 ], 3 F.3d 827, 836 (5th Cir. 1993) (same). We have not yet construed the sophisticated means enhancement and therefore have not adopted a standard of review for such cases. But our standard for reviewing the application of other Guidelines provisions is not new: We review the district court's findings of fact for clear error, United States v. Mafanya, 24 F.3d 412, 414 (2d Cir. 1994), and review its application of the Guidelines to the facts de novo, giving due deference to the sentencing court. See 18 U.S.C. §3742(e); Mafanya, 24 F.3d at 414; United States v. Shoulberg, 895 F.2d 882, 884 (2d Cir. 1990). Cf. Koon v. United States, 116 S. Ct. 2035, 2047 (1996) (acknowledging that the deference that is due depends on the question presented and that a district court abuses its discretion when it makes an error of law).

This standard--de novo review with deference to the sentencing court's application--has been employed when reviewing district court interpretations of other Guidelines provisions no less fact-intensive or subjective than the sophisticated means enhancement. See, e.g., United States v. Palmer, 68 F.3d 52, 54-55 (2d Cir. 1995) ("crime of violence"); United States v. Gaston, 68 F.3d 1466, 1468 (2d Cir. 1995) (per curiam) ("minimal" or "minor" role); United States v. Broderson, 67 F.3d 452, 455 (2d Cir. 1995) ("abused a position of public or private trust"); United States v. Keller, 58 F.3d 884, 894 (2d Cir. 1995) ("related" robbery convictions); Mafanya, 24 F.3d at 414 (obstruction of justice).

Also, other circuits have adopted formulations similar to this Circuit's. See United States v. Pierce, 17 F.3d 146, 151 (6th Cir. 1994) (reviewing de novo application of §2T1.1(b)(2) to facts); see also United States v. Veksler, 62 F.3d 544, 550 (3d Cir. 1995) (exercising "plenary review" over legal questions regarding the meaning of §2T1.1(b)(2)), cert. denied sub nom. McNaughton v. United States, 116 S. Ct. 780 (1996); United States v. Rice, 52 F.3d 843, 849 (10th Cir. 1995) (giving only "due deference" to sentencing court's application of §2T1.1(b)(2) to facts), cert. denied, 116 S. Ct. 2536 (1996). Hence, we review the decision de novo, giving due deference to the district court's Guidelines application.

II Guidelines §2T1.1(b)(2)

A. Review of Language and Commentary

Interpretation of the Guidelines is similar to statutory construction. See United States v. Kirvan, 86 F.3d 309, 311 (2d Cir. 1996). We begin with the language of U.S.S.G. §2T1.1, which provides the sentencing rules for tax-evasion offenses. After explaining how the base offense level is calculated, it establishes two enhancements for "Specific Offense Characteristics." The enhancement relevant to this appeal, §2T1.1(b)(2), states that "[i]f sophisticated means were used to impede discovery of the nature or extent of the offense, increase [the offense level] by 2 levels."

The United States Sentencing Commission (Commission), author of the Guidelines, provided commentary explaining this subsection. In analogizing the Guidelines to "legislative rules adopted by federal agencies," the Supreme Court has compared the Commission's commentary "to an agency's interpretation of its own legislative rules." Stinson v. United States , 508 U.S. 36, 45 (1993). As such, this commentary should be "given 'controlling weight unless it is plainly erroneous or inconsistent with the regulation,' " id. (quoting Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945)), and we must accord it a significant role in our construction of §2T1.1. Should the commentary contradict the provision's text, the provision's plain language of course controls.

The commentary to §2T1.1 states that

"Sophisticated means," as used in §2T1.1(b)(2), includes conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case. An enhancement would be applied for example, where the defendant used offshore bank accounts, or transactions through corporate shells.

U.S.S.G. §2T1.1(b)(2), comment. (n.6). The Commission added that while "tax evasion always involves some planning, unusually sophisticated efforts to conceal the evasion decrease the likelihood of detection and therefore warrant an additional sanction for deterrence purposes." U.S.S.G. §2T1.1, comment. (backg'd).

The commentary furnishes three principal thoughts. First, the provision targets conduct that is more complex, demonstrates greater intricacy, or demonstrates greater planning than a routine tax-evasion case. This test is disjunctive, that is, the relevant conduct need only satisfy one of these requirements. Second, the 1992 commentary offers two examples of covered conduct--the use of offshore bank accounts or the use of corporate shells. The most current version of this commentary adds a third example, the use of "fictitious entities." See United States Sentencing Commission, Guidelines Manual §2T1.1, comment. (n.4) (Nov. 1995) (1995 U.S.S.G.). This language was added in a 1993 amendment to the Guidelines. See United States Sentencing Commission, Guidelines Manual App. C amend. 491, at 328, 333 (Nov. 1993). While this amendment does not control the instant case because it was not part of the 1992 Guidelines, it may be considered where it "clarifies and simplifies" the subject at issue and makes no "substantial change" to the Guidelines. United States v. Hendrickson, 26 F.3d 321, 330 n.6 (2d Cir. 1994); see also United States v. Colon , 961 F.2d 41, 45 (2d Cir. 1992) (indicating that clarifying amendments might be relevant).

Third, the commentary explains that the section is designed to increase punishment in those cases that, because of their sophistication, might be harder to detect and therefore require additional punishment for heightened deterrence. See U.S.S.G. §2T1.1, comment. (backg'd). The Commission also observed that "[b]ecause of the limited number of criminal tax prosecutions relative to the estimated incidence of such violations, deterring others from violating the tax laws is a primary consideration underlying these guidelines." U.S.S.G. ch. 2, pt. T1, intro. comment. These observations make clear that deterrence is the section's animating policy. We construe it with this in mind.

B. Jurisprudence From Other Circuits

Because the definition of sophisticated means is a question of first impression in this Circuit, decisions from other circuits are helpful in understanding what sorts of tax-evasion schemes have elsewhere been deemed sophisticated. In Jagim [93-1 USTC ¶50,093 ], 978 F.2d at 1042, enhancement was held appropriate for a defendant who helped create a fraudulent tax shelter that involved a partnership formed to breed cattle using embryos from "super cows." Id. at 1036. The shelter's beneficiaries profited through the falsification and backdating of documents. Id. In affirming the use of the enhancement for that extensively planned scheme, the court recognized that this was "not a case where an individual taxpayer completed his individual 1040 form with false information to avoid paying some of his federal taxes." Id. at 1042. Similarly, our case also involves the use of false documentation--in the form of personal checks to fictitious entities.

In United States v. Clements, 73 F.3d 1330, 1340 (5th Cir. 1996), use of a separate bank account in defendant's wife's name and the conversion of concealed income into multiple cashier's checks was sufficient to justify the enhancement. The defendant received $270,000 in the form of 23 checks and converted these large checks into smaller cashier's checks, sometimes as many as 13 smaller ones, some payable to defendant's creditors and others payable to himself. These smaller checks were then either cashed, placed in his wife's bank account, or converted into additional cashier's checks. Id. As in Clements, multiple checks and bank accounts were used in the instant case to evade IRS detection. In United States v. Becker [92-2 USTC ¶50,314 ], 965 F.2d 383, 390 (7th Cir. 1992), cert. denied, 507 U.S. 971 (1993), enhancement was ruled appropriate for a defendant who used a "so-called warehouse bank" that allowed him to keep his assets in an account identified only by an arbitrary number not readily traceable to defendant. The scheme used in the case at bar is no less complex than those employed in Jagim, Clements and Becker.

Some cases applying the enhancement appear to have involved a combination of acts, each of which standing alone was not especially complex, but which constituted sophisticated means when considered as a whole. See, e.g., United States v. Wu, 81 F.3d 72, 73-74 (7th Cir. 1996) (enhancement applicable when defendants falsified business records of closely-held corporation, deposited receipts in bank accounts under other names, used fraudulent documents to maintain offshore accounts, and provided incomplete and false information to accountant); Pierce, 17 F.3d at 150 (applying enhancement when defendant presented employer with false information, used several different mailing addresses, changed number of deductions so as not to alert IRS, and directed wife to file misleading returns).

Other cases applying the enhancement concerned tax evasion plans that appear more complex than the instant case. In Veksler, 62 F.3d at 547, for example, the defendants used so-called "daisy chains," which are a series of paper transactions made through several companies (including fictitious companies), to avoid paying taxes on a type of oil that is taxed when used as diesel fuel but tax-exempt when used for home heating purposes. Charroux [93-2 USTC ¶50,628 ], 3 F.3d at 829, involved "land flips," an "elaborate" transaction in which a buyer agrees to purchase land for an inflated price and in turn receives a share of the seller's profits on the sale. Id. at 837. See also Hunt, 25 F.3d at 1093-94, 1097 ("[N]either the probation officer nor the government nor apparently [defense counsel] can figure out exactly what he did.") (second alteration in original); United States v. Hammes, 3 F.3d 1081, 1082 (7th Cir. 1993) ("big-time bookie" who handled more than $23 million in bets in four years and used offshore money-laundering to disguise profits); United States v. Ford, 989 F.2d at 347, 349, 351 (9th Cir. 1993) (use of foreign corporation to claim foreign tax credit improperly).

Defendant draws our attention to Rice, 52 F.3d at 849, and United States v. Kaufman, 800 F. Supp. 648, 655 (N.D. Ind. 1992), two cases in which the enhancement was not applied. The means employed in both clearly were less sophisticated than those used here. In Rice, 52 F.3d at 849, the defendant "merely claimed to have paid withholding taxes he did not pay." And in Kaufman, 800 F. Supp. at 655, the defendant simply used a system of dummy deposit slips that effectively served as a second set of books in order to avoid declaring income. See also United States v. Stokes [93-2 USTC ¶50,545 ], 998 F.2d 279, 282 (5th Cir. 1993) (reversing application of enhancement because simply not disclosing income to an accountant is not sophisticated means). Although none of the above cases is squarely on point, together they shed light on the types of schemes that may be described as using sophisticated means.

III Instant Case Requires Enhancement

A. Sophisticated Means Employed

Having reviewed those cases more complex and those less complex than the scheme before us, we turn to the present case. Lewis wrote nearly 200 checks to non-existent businesses and charities during an eight-year period. These checks, drawn on his own bank account, were deposited into 26 different bank accounts. The money was transferred from these Satellite Accounts into Operational Accounts and most of the money in the Operational Accounts was used to pay Lewis' personal expenses. Before the IRS uncovered this arrangement, Lewis managed to claim $130,000 in fraudulent deductions.

Even though this tax-evasion scheme cannot be described as singularly or uniquely sophisticated, it is more complex than the routine tax-evasion case in which a taxpayer reports false information on his 1040 form to avoid paying income taxes, Jagim [93-1 USTC ¶50,093 ], 978 F.2d at 1042, or asserts he paid taxes that he did not pay, Rice, 52 F.3d at 849. Here, there was a three-step scenario that used numerous fictitious entities and multiple checks with the sole purpose of evading taxes and avoiding IRS detection. It was crafted by Abrams Associates, an accounting firm with knowledge of the tax code and system, and it was designed to move money through two levels of bank accounts in order to conceal the track the money followed. On reconsideration, the district court acknowledged that the overall plan required the use of sophisticated means.

While the use of shell corporations would have strengthened the government's contention that sophisticated means were employed, the district court should not have concluded that its absence weighed against application of the sophisticated means enhancement. See Lewis, 907 F. Supp. at 688. There is nothing talismanic about the use of shell corporations. While their absence might mean that the case cannot be disposed of by reference to one of the examples specifically enumerated in the commentary, the examples are by their own terms simply illustrative, not exclusive.

Further, we believe that the use of fictitious entities is sufficiently similar to the use of shell corporations that our decision today is not inconsistent with the examples provided in the commentary. Indeed, in the commentary in the current version of the Guidelines, the use of "fictitious entities" has been added as an example of sophisticated means of tax evasion. 1995 U.S.S.G. §2T1.1, comment. (n.4). This strengthens our conclusion that this tax-evasion scheme--one that relied heavily on the use of fictitious entities--was sophisticated.

Moreover, this plan was no less complex than those involved in Jagim [93-1 USTC ¶50,093 ], 978 F.2d at 1042 (using falsification and backdating of documents), Clements, 73 F.3d at 1340 (using multiple checks and bank accounts to disguise actual earnings), and Becker [92-2 USTC ¶50,314 ], 965 F.2d at 390 (using a single warehouse bank account to hide assets). When the district court held that this case involved little more than the filing of a tax form with incorrect information, Lewis, 907 F. Supp. at 688, it understated the complexity of the scheme. Here, because the taxpayer's checks were written to accounts bearing the names of fictitious entities, the transactions created cancelled checks that could be used to avoid detection in the event of an audit--a factor not present in a simple false filing case. Even if each step in the planned tax evasion was simple, when viewed together, the steps comprised a plan more complex than merely filling out a false tax return. See Wu, 81 F.3d at 73-74 (looking at scheme as a whole); Pierce, 17 F.3d at 151 (same).

The evasion strategy also required as much planning as was involved in some of the cases deemed sophisticated, such as Becker and Clements. While we agree with the district court that repetitive conduct alone does not show that sophisticated means were employed, Lewis, 907 F. Supp. at 688, the repetitive conduct here is relevant because it demonstrates that more than routine planning was involved. By writing so many checks to so many different entities, Lewis' actions lent a quality of authenticity and a higher level of intricacy to the plan than if he had only written a few large checks each year to a single entity. In addition, the use of scores of checks and more than two dozen different accounts also demonstrates that more planning was required here than in an ordinary tax-evasion case. In short, we do not believe that because we rule this scheme sophisticated, every defendant who filed a fraudulent tax return will be subject to enhancement. See Rice, 52 F.3d at 849 (raising this concern).

The district court placed special importance on the fact that Lewis did not mean to conceal his identity. Lewis, 907 F. Supp. at 688. It noted that "the checks he wrote were intended to be used as proof of his expenses." Id. Again, we agree with the trial court that identity concealment is a relevant factor in determining whether a scheme used sophisticated means. Naturally, concealment of identity can help make a scheme more complex and more difficult to detect and, as such, often requires additional planning. However, it is not the sine qua non of a sophisticated tax-evasion scheme. While some cases have involved identity concealment, see, e.g., Becker [92-2 USTC ¶50,314 ], 965 F.2d at 390, others have not, see, e.g., Ford, 989 F.2d at 351. Moreover, were we to adopt this heavy emphasis on identity concealment, few false deduction cases could ever be deemed to involve the use of sophisticated means. A taxpayer who claims false deductions must, by necessity, identify himself on his tax return.

Nor do we accept the "reasonably competent IRS auditor" standard advanced by defendant. The relevant inquiry is not whether the IRS could have or should have discovered the tax evasion conspiracy. This question is largely hypothetical, because in every case that is prosecuted, the IRS will have uncovered the plan. It is also an inquiry not readily susceptible to proof, since we should not require the IRS to disclose the standards and methods it uses to select tax returns for audit, a matter confided to the authority and discretion of the executive branch. Release of this information would allow parties to structure their tax returns to avoid audits. See Long v. IRS [89-2 USTC ¶9664 ], 891 F.2d 222, 224 (9th Cir. 1989); 26 U.S.C. §6103(b)(2) . Although a plan must be sophisticated for the enhancement to be applied, it need not be "fail-safe," Charroux [93-2 USTC ¶50,628 ], 3 F.3d at 837 n.18, or impossible for the IRS to uncover.

As this tax-evasion scheme was more complex and demonstrated greater intricacy and planning than a routine tax-evasion case, sophisticated means were employed. After according due deference to the sentencing court, we hold that it made an error of law when it ruled otherwise.

B. Offense Characteristic

On reconsideration, the district court held that even if the overall scheme operated by Abrams Associates was sophisticated, the court would not apply the enhancement because "it was the accounting firm that had devised the scheme, and although clearly the defendant was a willing participant, the defendant did not initiate or create this scheme." In effect, the district court treated the "sophisticated means" provision as a characteristic of the individual defendant rather than as an offense characteristic. In other words, it decided that the enhancement is inappropriately applied unless the individual defendant used sophisticated means.

The language of §2T1.1(b)(2) states that the enhancement is appropriate "[i]f sophisticated means were used to impede discovery ... of the offense." Written in the passive voice, it stands in contrast to §2T1.1(b)(1), which calls for an enhancement only "[i]f the defendant failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity." In other words, the latter provision specifically requires that the defendant engage in certain offense-related conduct, while the former only requires the "use[]" of sophisticated means in carrying out the offense.

When a Guidelines provision speaks in the passive voice, we generally consider it to refer to "an offense characteristic, not a characteristic of the individual defendant," United States v. Rosa , 17 F.3d 1531, 1552 (2d Cir.), cert. denied, 115 S. Ct. 211 (1994). We have held that §2B1.1(b)(4), the Guidelines provision that enhances a sentence "[i]f the offense involved more than minimal planning," does not require the defendant's personal involvement in the planning. Rosa , 17 F.3d at 1552 (applying then-applicable version of 1995 U.S.S.G. §2B1.1(b)(4)(A)). Similarly, §2E2.1(b)(1)(C), which provides an enhancement "if a dangerous weapon (including a firearm) was brandished, displayed or possessed" during the crime, "is satisfied by mere possession of the firearm during the crime, and does not require the particular defendant to have been in possession." United States v. Lanese, 890 F.2d 1284, 1292 (2d Cir. 1989), cert. denied, 495 U.S. 947 (1990); see also United States v. Giraldo, 80 F.3d 667, 677 (2d Cir. 1996) (indicating that defendant need not possess weapon for enhancement pursuant to §2D1.1(b)(1), which provides for enhancement "[i]f a dangerous weapon ... was possessed").

Defendant maintains that the commentary's wording bars this reading. The commentary states that "[a]n enhancement would be applied for example, where the defendant used offshore bank accounts." By referring to "the defendant," Lewis contends, the commentary implicitly regards the provision as a characteristic of the individual defendant. However, the commentary merely provides an example of the conduct covered by the provision. It does not foreclose the possibility that the enhancement could be applied in other circumstances, such as when a defendant profits through his participation in a plan devised by another. Also, to the extent that the commentary and the Guidelines language are in tension, the language of §2T1.1(b)(2) is, of course, controlling. See Stinson, 508 U.S. at 45.

Moreover, our reading is consistent with the policies underlying the sophisticated means enhancement. That Lewis himself did not personally develop the tax-evasion scheme did not make it any easier for the IRS to detect his illegal conduct. The same policy rationale that supports regarding the enhancement for planning as an offense characteristic--heavily planned crimes merit more severe punishment--also exists here, as more than routine planning is one possible way to show the employment of sophisticated means.

Nor is it in any way unjust for Lewis, who hired the accountants who developed the scheme, to be found equally culpable as a defendant who independently developed a similar scheme. A defendant cannot escape punishment simply by contracting out to his accountants the dirty work of tax evasion. Adopting the defendant's construction would effectively reduce U.S.S.G. §2T1.1(b)(2) to a mere accountants' liability provision, a result at odds with both the enhancement's language and its purpose.

Justice Holmes explained it in these words: "Taxes are what we pay for civilized society.... A penalty on the other hand is intended altogether to prevent the thing punished." Compania General de Tabacos de Filipinas v. Collector of Internal Revenue, 275 U.S. 87, 100 (1927) (Holmes, J., dissenting). Defendant's failure to recognize the implicit command in the first half of this proposition now ineluctably leads to imposition of a penalty of the sort described in the second half. Consequently, the sophisticated means enhancement applies in the case at hand even though defendant neither devised nor created the criminal scheme in which he participated and from which he benefitted.

IV No Minor Role Adjustment

On reconsideration, the district court stated that even if the court "did apply the sophisticated means adjustment, then [it] would have been inclined to cancel it out with the finding of minor role, because [it] would then be required to compare the role [of] the client to the role of the accounting firm." Whether this was an off-hand suggestion or an alternative holding, we note that no minor role adjustment would be appropriate here.

Abrams Associates, as discussed earlier, orchestrated a tax-evasion conspiracy with more than 20 participants. Lewis was only charged with participating in a small part of this conspiracy--his claiming of some $130,000 in false deductions. In other words, his base offense level was calculated on the basis of his limited role and not his role in the entire Abrams Associates conspiracy. A minor role reduction pursuant to U.S.S.G. §3B1.2(b) is therefore inappropriate. See United States v. Gomez, 31 F.3d 28, 31 (2d Cir. 1993). Lewis cannot be described as a "minor participant" in the conspiracy that existed only between himself and Abrams Associates. Accordingly, to the extent that this was an alternative holding, it was erroneous.

CONCLUSION

For the reasons stated, we vacate the sentence and remand this case to the district court for resentencing.

¹ The government's appeal in Richman is being heard in tandem with the instant case. We recognize that the Abrams Associates cases have been handled differently by other judges in the Southern District. Four district courts--two of them after the date of sentence in this case--applied the enhancement on facts highly similar to those arising out of the same tax evasion scheme at issue here. United States v. Korn, 95 Cr. 297 (S.D.N.Y. 1995) (Schwartz, J.); United States v. Lapin, 95 Cr. 296/95 Cr. 303 (S.D.N.Y. 1996) (Sprizzo, J.); United States v. Milici, 95 Cr. 301 (S.D.N.Y. 1995) (Schwartz, J.); United States v. Bayer, 95 Cr. 299 (S.D.N.Y. 1995) (Wood, J.). In addition to the Lewis and Richman courts, one court has declined to apply the enhancement to a scheme involving Abrams Associates. United States v. Sidel, 95 Cr. 304 (S.D.N.Y. 1996) (Kaplan, J.) (taxpayer's employer diverted portion of taxpayer's income to corporate bank account set up by Abrams Associates).