U.S. v. Bencs

• Decision Date: 30 June 1994
• Docket Number: No. 93-3408,93-3408
• Citation: 28 F.3d 555
• Parties: -5271, 94-2 USTC P 50,347 UNITED STATES of America, Plaintiff-Appellee, v. Ronald BENCS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 555

28 F.3d 555

74 A.F.T.R.2d 94-5271, 94-2 USTC P 50,347

UNITED STATES of America, Plaintiff-Appellee, v. Ronald BENCS, Defendant-Appellant.

No. 93-3408.

United States Court of Appeals Sixth Circuit.

Argued May 2, 1994.

Decided June 30, 1994.

Linda M. Betzer, Asst. U.S. Atty., Stephen G. Sozio, Asst. U.S. Atty. (argued and briefed), Cleveland, OH, for plaintiff-appellee.

Harvey H. Starkoff, Richard A.F. Mendelsohn (argued and briefed), Cleveland, OH, for defendant-appellant.

Before: KEITH and SUHRHEINRICH, Circuit Judges; and JOINER, Senior District Judge. ^*

JOINER, Senior District Judge.

Ronald Bencs was charged with conspiring to defraud the United States, evading income tax, money laundering, and structuring financial transactions to avoid cash reporting requirements applicable to transactions in excess of $10,000. The government claimed generally that Bencs was involved in a large marijuana selling business, and attempted to shelter his drug profits from taxes and hide them from detection. The jury convicted on all counts, and Bencs appeals all but his conspiracy conviction, raising numerous claims of error. We conclude that the structuring charges (counts 16 and 17) were submitted to the jury under erroneous instructions, and reverse those convictions and remand for a new trial. In all other respects we affirm.

I.

A.

In 1988, the IRS criminal investigation unit investigated Bencs' accountant, Robert Gross, for allegedly helping a drug dealer launder drug proceeds and evade income tax on those proceeds. Agents searched Gross' office in April 1988, and, among other documents, seized the financial records of Ronald Bencs and his company, Diversified Financial Enterprises.

In reviewing those records, IRS agents Cappara and Kacarab noted that Bencs' net worth was approximately $1.2 million, but that his reported income did not justify this accumulation of wealth. The agents researched public records, bank records and tax returns, and interviewed a number of people, including Bencs, to account for the discrepancy. Bencs told the agents that Diversified's business was, in fact, diversified, and that the company had sources of income from striping parking lots; selling jewelry, art work and Christmas trees; and renovating houses. Bencs also claimed nontaxable sources of income in the form of loans from various individuals and banks. Bencs denied receiving income from illegal activities.

Contrary to Bencs' denial, the investigation indicated that Bencs was involved in a large marijuana distribution operation. Raymond Russell testified that he started selling marijuana to Bencs in 1972, and sold 300 to 500 pounds per month to him in 1973 and 1974. Russell testified that he sold 9000 pounds of marijuana for Bencs between 1980 and approximately 1985. Bencs occasionally bought cocaine from Russell during this period in amounts of one-half to one kilogram at a time. Russell's activity for the years 1985-89 abated somewhat. He testified that during this four-year period, he sold marijuana to Bencs on two occasions, one involving 40 pounds and one involving 60 pounds. Russell also borrowed $16,000 from Bencs to buy cocaine and repaid Bencs in 1986 or 1987 with 500 pounds of marijuana.

Michael McCarthy testified that from 1974 to 1976 he transported Russell's marijuana from Arizona, delivering it to Bencs in Cleveland. McCarthy testified that his dealings with Bencs resumed in 1983 and continued to 1985, when he again transported marijuana to Bencs, delivering 200-300 pounds on each trip. He and Bencs each made a profit of $100 per pound. Finally, George Abraham testified that between 1974 and 1983 he sold marijuana to Bencs in 200-300 pound amounts. These transactions took place at varying intervals, as seldom as once very six months and as frequently as two times per week.

Bencs formed Diversified in 1978, naming himself president. Bencs was the sole shareholder, and Gross maintained the financial records. Kacarab analyzed the deposits to and checks written against Diversified's account for the years 1983-88, demonstrating at trial that a total of $376,460.28 in cash was deposited, and only $41,680 in checks. Most of these checks were from individuals, or were government checks endorsed by the individuals to Diversified. A total of $318,374 was disbursed from the account in payroll checks to Bencs. Kacarab testified that a payroll check was usually negotiated shortly after a cash deposit was made. Diversified's bank records and tax returns did not reflect expenses customarily incurred by businesses engaged in sales and contracting work, such as cost of goods sold, rent, utilities, and labor. Diversified's tax returns reflected losses for all years but one, when it reported a $241 gain.

Cappara and Kacarab undertook a net worth analysis of Bencs and his company, necessitated because Bencs transacted business almost exclusively in cash and had records inadequate to determine his tax liability. The agents calculated Bencs' net worth at the end of 1983, and then for each of the years that followed through 1988. Included in the net worth computation were known income; personal, nondeductible expenditures for which documentation existed; bank account balances; real property; vehicles; securities; and other assets, such as loan receivables and an interest in a partnership. After subtracting liabilities, the agents then calculated Bencs' net worth for each tax year in question. The agents concluded that Bencs' net worth for the years 1984-88 exceeded his reported income in amounts ranging between $68,000 and $99,000, and that he had underpaid income tax for those years in amounts ranging between $21,000 and $40,000. Bencs presented an expert witness at trial who concurred in Kacarab's methodology and used most of his calculations. The expert's totals differed principally because he included Bencs' alleged ownership of coins, Krugerrands and jewelry in calculating Bencs' net worth as of the end of 1983, valuing them at $200,000.

B.

Bencs and Gross were charged with conspiring during the years 1978-89 to defraud the United States through obstructing the collection of tax on income earned from the illegal sale of controlled substances, 18 U.S.C. Sec. 371 (count 1). Bencs was charged with five counts of income tax evasion for the years 1984-88, 26 U.S.C. Sec. 7201 (counts 2-6). Gross was charged with four counts of filing false tax returns for the years 1985-88, 26 U.S.C. Sec. 7206(2) (counts 7-10). Bencs and Gross were charged with five instances of laundering drug proceeds as payroll in 1987 and 1988, 18 U.S.C. Sec. 1956(a)(1)(B)(i) (counts 11-15). Finally, Bencs was charged with two instances of structuring financial transactions to avoid the cash transaction reporting requirements, 31 U.S.C. Sec. 5322 (counts 16-17). Gross pled guilty to two counts of the indictment, and did not testify at trial. Bencs went to trial and was convicted on all counts. He was sentenced to 65 months imprisonment. No appeal is taken from the sentence.

II.

A. Denial of Motion to Suppress

Bencs moved to suppress the statements that he made to agents Cappara and Kacarab during the interview at his home, on grounds that he was not advised of his Miranda ¹ rights prior to the interview. The court conducted an evidentiary hearing and concluded that the motion was without merit. We review findings of fact in connection with a motion to suppress for clear error, and review the district court's conclusions of law de novo. United States v. Duncan, 918 F.2d 647, 650 (6th Cir.1990), cert. denied, 500 U.S. 933, 111 S.Ct. 2055, 114 L.Ed.2d 461 (1991).

The agents testified that they displayed their credentials to Bencs when they arrived at his home, informed him that they were conducting a criminal investigation, and advised him of his constitutional rights. Douglas Noe was in the house during this interview, but the agents testified that he was not present when they advised Bencs of his rights. Nonetheless, Noe testified that he heard the agents identify themselves and ask Bencs if he would answer some questions. Noe confirmed that Bencs was complying of his own free will and that the agents did not display weapons or restrict Bencs' movement. However, both Bencs and Noe denied that the agents informed Bencs of his rights. This alleged omission formed the basis for Bencs' motion to suppress. On appeal, Bencs does not argue that Miranda warnings were constitutionally required because he was "in custody"; rather, he suggests that the interview was a noncustodial one in which warnings were required, allegedly because the failure to give the warnings violated IRS procedure.

The suppression of evidence does not depend on whether agents violate internal operating procedures, but on whether those procedures are required by either the Constitution or federal law. United States v. Caceres, 440 U.S. 741, 749-55, 99 S.Ct. 1465, 1470-73, 59 L.Ed.2d 733 (1979). Miranda prohibits the use of unwarned statements made by a defendant "stemming from custodial interrogation[.]" Miranda v. Arizona, 384 U.S. 436, 444, 86 S.Ct. 1602, 1612, 16 L.Ed.2d 694 (1966). Accord Stansbury v. California, --- U.S. ----, 114 S.Ct. 1526, 128 L.Ed.2d 293 (1994); Beckwith v. United States, 425 U.S. 341, 346, 96 S.Ct. 1612, 1616, 48 L.Ed.2d 1 (1976) (holding that statements made during noncustodial interview with IRS agent need not be suppressed and confirming that determinative issue is whether suspect is in custody, not whether he is focus of investigation). ² The interview of Bencs was not a custodial interview, and Miranda warnings were not required. United States v. Sivils, 960 F.2d 587, 597-98 (6th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 130, 121 L.Ed.2d 84 (1992). The district court properly denied Bencs' motion to suppress.

B. Denial of Motion to Bifurcate and Motion for Mistrial

Bencs claims that the court erred in denying his motion to bifurcate the tax...