U.S. v. Bove

• Decision Date: 13 August 1998
• Docket Number: Docket No. 97-1239
• Citation: 155 F.3d 44
• Parties: -5784 UNITED STATES of America, Appellee, v. John M. BOVE and Theodore J. Cervini, Defendants, Thomas J. Zeppieri, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

Page 44

155 F.3d 44

82 A.F.T.R.2d 98-5784

UNITED STATES of America, Appellee, v. John M. BOVE and Theodore J. Cervini, Defendants Thomas J. Zeppieri, Defendant-Appellant.

Docket No. 97-1239.

United States Court of Appeals, Second Circuit.

Argued May 12, 1998.

Decided Aug. 13, 1998.

Sara M. Lord, Assistant United States Attorney for the Northern District of New York, Albany, New York (Thomas J. Maroney, United States Attorney, of counsel), for Appellee.

Phillip G. Steck, Cooper, Erving, Savage, Nolan & Heller, LLP, Albany, New York, for Defendant-Appellant.

Before: WINTER, Chief Judge, McLAUGHLIN, Circuit Judge, and SHADUR, ^* Senior District Judge.

SHADUR, Senior District Judge:

Thomas Zeppieri ("Zeppieri") appeals from the sentence imposed by the United States District Court for the Northern District of New York (Thomas J. McAvoy, Chief Judge ) after Zeppieri had entered a guilty plea to (1) one count of subscribing to a false tax return in violation of 26 U.S.C. § 7206(1) and (2) one count of conspiring to structure financial transactions to evade reporting requirements in violation of 18 U.S.C. § 371. Application of the sentencing guidelines ("Guidelines") produced a concurrent prison sentence of 12 months and 1 day on each count, a three-year term of supervised release, a $100 special assessment and a $15,000 fine. Before us Zeppieri challenges various aspects of the Guideline calculations that produced his custodial sentence. We affirm certain of the disputed aspects of the district court's calculations, but because we find that other of those aspects were in error, we remand the case for resentencing.

Background

In May 1994 Adirondack Entertainment and Recreation, Inc. ("Adirondack"), a corporation whose officers included Chief Executive Officer Zeppieri, President Thomas Cervini ("Cervini"), Vice-president John Bove ("Bove") and Secretary-treasurer Robert Signoracci, began negotiations with Karis Realty, Inc. ("Karis") to lease a parcel of property in Lake George Village, New York that included an amusement arcade and a miniature golf course. Karis was represented in those discussions by its President Charles Yagar and its Secretary-treasurer Jilda Yagar ("Jilda") (collectively "Yagars"). Eventually the parties agreed orally on a payment of $50,000 for the lease, half of which was to be paid directly to the Yagars as a concealed cash transaction. Pursuant to that oral agreement, Cervini wrote two checks on Adirondack's bank account--one for $25,000 to acquire the lease and another for $5,000 to secure an option to purchase the Lake George property. Cervini and Zeppieri then delivered those checks to Jilda along with $25,000 in cash and a lease agreement that falsely stated a $25,000 payment for the lease.

On August 15, 1994 Yagars agreed to sell the property to Adirondack for $950,000. Because the agreed-upon deal called for a secret $100,000 cash payment to Yagars at the closing, on October 19 of that year the parties signed documents that misrepresented the purchase price as $850,000. Adirondack then tendered $50,000 in cash and a $50,000 cashier's check to Yagars. Yagars refused to accept the check and demanded an additional $50,000 in cash to conform to the parties' agreement.

Shortly thereafter Zeppieri drafted or received six checks totaling $50,000, each made payable to "Cash" for an amount less than $10,000 (apparently to evade the issuance of currency transactions reports). ¹ On the following day Bove and Zeppieri either personally cashed or arranged for the cashing of each check, and they then delivered $50,000 to Yagars to complete the real estate transaction. On January 19, 1995 Zeppieri, in response to questions posed by a federal agent, reaffirmed as accurate the fraudulently-prepared real estate documents showing an $850,000 purchase price.

In addition to his position at Adirondack, Zeppieri was the President and majority shareholder of Z's Amusements Inc. ("Amusements"), a company that operated amusement game and vending machines. During the grand jury investigation into the fraudulent real estate transaction, it was discovered that a large number of Amusements' corporate checks had been written to cover Zeppieri's personal expenses. Amusements improperly deducted those items as corporate expenses on its 1992 and 1994 tax returns. ² For his part Zeppieri failed to declare that income on his 1992-1994 personal returns, so that both the corporate and Zeppieri's personal income were severely underreported.

As stated at the outset of this opinion, in accordance with the plea agreement Zeppieri plead guilty to (1) one count of conspiring to structure financial transactions to evade reporting requirements and (2) one count of subscribing to a false tax return for the 1993 tax year. At Zeppieri's March 20, 1997 sentencing hearing the district court determined that the Guideline base offense level for the conspiracy count was 6, to which the judge then added 5 levels to reflect the fact that $50,000 was the amount that had been structured (Guideline § 2F1.1(b)(1)(F)). As to the tax count, the district court calculated a tax loss of $41,912, for which Guideline § 2T4.1(H) prescribed an offense level of 13, to which the judge then added 2 levels because he found that the offenses in the two counts did not group (Guideline § 3D1.4) and deducted 2 levels for acceptance of responsibility (Guideline § 3E1.1(a)).

Because first offender Zeppieri was in Criminal History Category I, the adjusted offense level of 13 yielded a sentencing range of 12 to 18 months (Sentencing Table Ch. 5 Pt. A). After the district judge imposed a sentence at the low end of that range, Zeppieri appealed the district court's order and was granted a stay of his sentence pending the outcome of this appeal.

Standard of Review

As we have frequently noted, we review the district court's legal interpretation of the Guidelines de novo and review the related factual findings under the clearly erroneous standard (United States v. Escotto, 121 F.3d 81, 85 (2d Cir.1997)). In the latter respect, United States v. Macklin, 927 F.2d 1272, 1282 (2d Cir.1991)(internal quotation marks omitted) teaches:

A finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.

Tax Loss Calculation

Zeppieri first challenges his sentence on the ground that the district court erroneously calculated the "tax loss" attributable to him in determining the base offense level for his filing of a false tax return. We review that determination de novo (Escotto, 121 F.3d at 85).

Guideline § 2T1.1(a) directs that the base offense level be derived from the tax table in Guideline § 2T4.1 in terms of the "tax loss," which Guideline § 2T1.1(c)(1) defines as "the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed)." Guideline § 2T1.1 Application Note 7 goes on to provide that "[i]f the offense involves both individual and corporate tax returns [as is the case here], the tax loss is the aggregate tax loss from the offenses taken together."

At the time of sentencing this Court had not yet addressed the appropriate aggregation methodology for calculating the tax loss when a defendant both understates income on his or her corporate income tax return and fails to report the receipt of diverted funds on his or her personal tax return. In reliance on the Sixth Circuit's opinion in United States v. Cseplo, 42 F.3d 360, 362-64 (6th Cir.1994), the district court applied a corporate tax rate of 34% to the unreported corporate income and an individual tax rate of 28% to the full amount of unreported individual income (undiminished by the imputed corporate tax). Those calculations produced the already-referred-to aggregate tax loss of $41,912, and the consequent base offense level of 13 (Guideline § 2T4.1(H)).

But the Cseplo approach was not universally shared. At sentencing Zeppieri argued that the district court should instead follow United States v. Harvey, 996 F.2d 919, 920-21 (7th Cir.1993), which explicitly rejected the aggregation approach endorsed in Cseplo on the premise that it overstated the revenues lost to the Treasury and essentially amounted to double taxation in the calculation of the tax loss. Harvey, id. held that when a single crime causes both corporate and personal income to be understated, the tax loss should be computed sequentially--that is, the amount that should have been paid as corporate tax should be deducted from the individual's unreported income before the tax loss on the personal income side is calculated.

If the district court had used the Harvey aggregation method, Zeppieri's tax loss would have been less than $40,000, dropping the base offense level to 12 (Guideline § 2T4.1(G)). When combined with Zeppieri's Criminal History Category of I, that lower offense level would produce a sentencing range in Zone C of the Sentencing Table, thus qualifying Zeppieri for a split sentence, under which as much as half of his sentence could take the form of supervised release with a condition that substitutes community confinement or home detention for full-fledged custodial time (Guideline § 5C1.1(d)(2)).

Just a week before oral argument in this case, a panel of this Court resolved the issue in United States v. Martinez-Rios, 143 F.3d 662 (2d Cir.1998). Martinez-Rios, id. at 672 chose the Seventh Circuit's Harvey approach rather than the Cseplo method followed by the district court. We therefore remand the case to the district court for sentencing based on a recalculation of Zeppieri's tax loss in light of the principles recently announced in Martinez-Rios.

Inclusion of W-2 Income

Zeppieri also contends that the district court improperly considered some non-charged conduct--his failure to declare $14,800 in W-2...