U.S. v. Ebner, s. 465

• Citation: 782 F.2d 1120
• Decision Date: 29 January 1986
• Docket Number: 495,D,496,497,466,498,Nos. 465,s. 465
• Parties: -759, 86-1 USTC P 9215, 19 Fed. R. Evid. Serv. 1488 UNITED STATES of America, Appellee, v. Frank V. EBNER, Frank T. Petrozza, Joseph S. Rodi, Lorraine C. Schneider a/k/a/ "Lorraine C. Jania", Lawrence Ranucci, Howard G. Tapen, Jr., Defendants-Appellants. ockets 85-1280 to 85-1283, 85-1302, 85-1338.
• Court: U.S. Court of Appeals — Second Circuit

Page 1120

782 F.2d 1120

57 A.F.T.R.2d 86-759, 86-1 USTC P 9215,

19 Fed. R. Evid. Serv. 1488

UNITED STATES of America, Appellee, v. Frank V. EBNER, Frank T. Petrozza, Joseph S. Rodi, Lorraine C. Schneider a/k/a/ "Lorraine C. Jania", Lawrence Ranucci, Howard G. Tapen, Jr. Defendants-Appellants.

Nos. 465, 466, 495, 496, 497, 498, Dockets 85-1280 to

85-1283, 85-1302, 85-1338.

United States Court of Appeals Second Circuit.

Argued Nov. 19, 1985.

Decided Jan. 29, 1986.

Martin L. Perschetz, Asst. U.S. Atty. (Rudolph W. Giuliani, U.S. Atty. for the S.D. of N.Y., Mary T. Shannon, Stuart E. Abrams, Asst. U.S. Attys., New York City, for appellee.

Barry M. Fallick, New York City (Rochman, Platzer & Fallick, New York City, of counsel), for defendants-appellants Lawrence Ranucci and Joseph S. Rodi.

Frank V. Ebner, Valley Stream, N.Y., pro se.

Eric Greenbush, New York City for defendant-appellant Howard G. Tapen, Jr.

Philip Katowitz, Brooklyn, N.Y., for defendant-appellant Frank T. Petrozza.

H. Howard Friedman, New York City, for defendant-appellant Lorraine C. Schneider.

Before FEINBERG, Chief Judge, LUMBARD and OAKES, Circuit Judges.

LUMBARD, Circuit Judge:

Frank Ebner, Frank Petrozza, Joseph Rodi, Lorraine Schneider, a/k/a "Lorraine C. Jania," Larry Ranucci, and Howard Tapen, Jr. appeal from judgments of conviction entered in July and August, 1985, in the Southern District, following a two-month trial before Judge Vincent L. Broderick and a jury. The indictment charged 15 counts against all the appellants as well as Donna Petrozza, Frank Petrozza's wife. The indictment charged the defendants with conspiracy to defraud the United States, in violation of 18 U.S.C. Sec. 371, and with individual income tax evasion, in violation of 26 U.S.C. Sec. 7201.

The appellants all argue, first, that the district court abused its discretion by receiving into evidence portions of a New York State Supreme Court opinion enjoining defendants from continuing to implement the tax avoidance scheme that was the subject of the federal indictment; they claim that the jury understood that evidence to be an authoritative statement of their guilt. Second, appellant Ebner argues that, as a result of several evidentiary decisions and the court's charge, he was denied a fair trial. Third, appellant Schneider contends that the evidence was insufficient to show that she committed affirmative acts of tax evasion, and thus, under Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418 (1943), her conviction cannot stand. Finally, appellant Tapen argues that Judge Broderick abused his discretion by denying Tapen's pretrial motion for a severance under Fed.R.Crim.P. 14, and that this denial unfairly prejudiced him. We find these arguments to be without merit.

The appellants' tax-evasion scheme centered around a bogus religious organization called the Life Science Church ("LSC"). The proof at trial showed that the defendants, on the basis of sham "vows of poverty" taken as LSC "ministers," followed by the assignment of income to their own personal "churches," paid no income taxes on over $3,660,000 of taxable income derived primarily from the marketing and sale to the public of LSC "ministries".

Ranucci and his co-defendants became associated in 1977, when Ranucci and his partner, Reichert, formed U.N.I. Vending, a Long Island company engaged in the sale and distribution of vending machines. Ebner and Tapen were U.N.I. commissioned salesmen; Frank and Donna Petrozza were independent distributors of U.N.I. Vending equipment; and Schneider, who is Ranucci's daughter, was U.N.I.'s bookkeeper.

Late in 1978, Ranucci was approached by William Drexler, who was the national head and "Archbishop" of LSC. Drexler, a former lawyer, ¹ explained to Ranucci that a principal "belief" of LSC's was that Americans were overtaxed and had the right to choose not to pay taxes; he said that LSC marketed and sold "ministries" as a means of eliminating or substantially reducing a purchaser's income tax liability. Drexler offered to sell Ranucci and Reichert, for $60,000, an LSC "bishopship" covering New York State and New England, pursuant to which they would be enabled to sell "ministries" to the public for $3,000 each. They would retain $2,500 and then remit the balance of $500 to Drexler, who would supply a complete packet of credentials. These new "ministers" could in turn recruit other members of LSC, and receive commissions out of the $2,500 retained by the "bishops." Ranucci quickly agreed, paid Drexler the $60,000, and left U.N.I. Vending to work for the church full-time. ² He headed the scheme in New York and New England, and was assisted in the New York area by his co-defendants. Ebner, Schneider, and Tapen also left U.N.I. to join LSC.

On December 22, 1978, Ranucci opened his first LSC "church" bank account in the name of the "Life Science Church", which only Ranucci could use in New York as the name for his own personal "church." One week later, he signed his LSC "vow of poverty," pledging to make an irrevocable gift to his "church" of all his present and future assets and income. The remaining defendants all opened their "church" bank accounts and took their LSC "vows of poverty" at different times in 1979. Each chose his or her own name for the personal "church"--for example, Howard Tapen, who owned an automobile transmission repair shop, became the "minister" of the "Church of Transmission."

The LSC scam was implemented in two ways. The more popular was the "vow of poverty" system, according to which a "minister" would transfer all his interest in present and future income and in material assets to his "church." The "minister" would close all of his personal bank accounts and open at least one checking account in the name of his church, over which the "minister" would exercise full control. The "minister's" personal expenses, which often included luxury items such as cars, boats, or, in Ranucci's case, a "baptismal" (swimming) pool in his backyard, were paid out of church funds and were characterized for tax purposes as authorized expenses of a tax-exempt "church" for the support of its "minister" and to fulfill the "church's" religious and charitable purposes.

Another way to implement the scheme was called the "50% system." The "minister" would not take a vow of poverty, but would instead continue to maintain accounts and assets in his own name, and would not claim to have renounced his interest in his income. He would, however, open a bank account in the name of his LSC personal "church," and deposit into that account up to 50% of his adjusted gross income, which is the maximum amount permitted to be deducted as a charitable contribution under the I.R.C. The "minister" would continue to file tax returns, but would deduct all funds deposited into his "church" account, even though he retained complete control over them and used the funds to pay his personal expenses. Most new ministers chose the "vow of poverty" system because it resulted in greater tax savings and because the 50% system ran a greater risk of an income tax audit.

As area "bishop" in charge of all LSC operations in New York and New England, Ranucci controlled the bank accounts containing the membership fees paid by the new LSC "ministers," which were called "donations." Ranucci retained at least 60% of these fees; the remainder was paid out in commissions to the "missionaries" who recruited the new LSC ministers. In 1980, the "Bishop's Council" was formed--comprised of Ranucci, Ebner, the Petrozzas, Rodi, Schneider, and Ranucci's son, Larry Ranucci, Jr. From that point on, all membership fees were deposited into a bank account in the name of Life Science Church, N.A. ("LSCNA"), a partnership made up of the members of the Bishop's Council. Ranucci presided over the Bishop's Council, and as an LSCNA partner he received a 20% distributive share of its net profits after expenses.

Ebner, Petrozza, Rodi, Schneider, and Tapen all assisted Ranucci by recruiting and "training" new ministers; they received commissions in the form of "donations" from LSC to their individual auxiliary "churches." Upon formation of the Bishop's Council in 1980, all but Tapen became "Auxiliary Bishops" who, as LSCNA partners, were entitled to equal 20% shares of the partnership's net profits. From December 15, 1980, through November 25, 1981, over $2.1 million in cash was withdrawn from the LSCNA bank account and divided among the Auxiliary Bishops and Ranucci, Jr., who functioned as a messenger in withdrawing the cash from the LSCNA account.

Ranucci stopped paying taxes in the year 1978, writing on his return for that year that he had taken a vow of poverty and was exempt from federal taxes. He had not filed a tax return by the time of trial, even though he had earned $1,696,045.35 in taxable income in the years 1979-81, mainly from selling ministries. Ebner paid no federal income taxes for the years 1978 through 1983, even though he earned $656,156.88 in taxable income from selling ministries in the years 1979-81 alone. The Petrozzas filed no federal income tax returns and paid no federal income taxes for the years 1980 through 1983, even though they earned $590,576.62 in 1980 and 1981, primarily from the sale of LSC ministries. Schneider paid no federal income taxes for the years 1980-82, although she earned $293,496.03 of taxable income from the sale of LSC ministries in 1980 and 1981. Tapen filed joint tax returns with his wife in the years he was involved with LSC, but he omitted from their 1980 joint return $61,064.50 in taxable income from the sale of ministries.

While the defendants were reporting to the IRS that they were ministers living under "vows of poverty," they were enjoying their tax-free affluence. They used "church" funds to pay their daily expenses and to pay for Cadillacs, oceanfront homes, and boats, and also to establish bank accounts in other countries. All the...