U.S. v. Evangelista

• Decision Date: 13 August 1997
• Docket Number: 1479,D,Nos. 1478,s. 1478
• Citation: 122 F.3d 112
• Parties: -6085, 97-2 USTC P 50,608 UNITED STATES of America, Appellee, v. Peter EVANGELISTA and Anthony Evangelista, Defendants, Louis Evangelista and Claude Evangelista, Defendants-Appellants. ockets 96-1712(L), 96-1718(CON).
• Court: U.S. Court of Appeals — Second Circuit

Page 112

122 F.3d 112

80 A.F.T.R.2d 97-6085, 97-2 USTC P 50,608

UNITED STATES of America, Appellee, v. Peter EVANGELISTA and Anthony Evangelista, Defendants, Louis Evangelista and Claude Evangelista, Defendants-Appellants.

Nos. 1478, 1479, Dockets 96-1712(L), 96-1718(CON).

United States Court of Appeals, Second Circuit.

Argued Jan. 24, 1997.

Decided Aug. 13, 1997.

Stuart E. Abrams, Frankel & Abrams, New York City (David S. Hammer, Kostelantz & Fink, LLP, New York City, on the brief), for Defendant-Appellant Louis Evangelista, Sr.

David I. Schoen, New York City, for Defendant-Appellant Claude Evangelista.

Demetri M. Jones, Assistant United States Attorney, Brooklyn, NY (Zachary W. Carter, United States Attorney for the Eastern District of New York, Peter A. Norling, Assistant United States Attorney, on the brief), for Appellee.

Before: OAKES, KEARSE, and JACOBS, Circuit Judges.

JACOBS, Circuit Judge:

Following a 13-day jury trial, Louis Evangelista, Sr. and his son, Claude Evangelista, were convicted in the United States District Court for the Eastern District of New York (Wexler, J.) of conspiracy to defraud the United States by impeding the Internal Revenue Service in the collection of income and payroll taxes (in violation of 18 U.S.C. § 371), and failure to pay withholding taxes and FICA contributions to the IRS (in violation of 26 U.S.C. § 7202). Evangelista, Sr., who also was convicted of evading personal income taxes (in violation of 26 U.S.C. § 7201), was sentenced to 51 months in prison and three years of supervised release, and a $1,150 special assessment. Claude Evangelista was sentenced to 46 months in prison and three years of supervised release, and a $450 special assessment. The district court's judgment of conviction and sentence for each defendant was entered on October 30, 1996; both defendants filed timely appeals. ¹

The Evangelistas' separate briefs make essentially identical arguments, Claude Evangelista We affirm the Evangelistas' convictions and sentences in full. We write primarily to address their second argument, regarding the proper construction of, and the requirements for conviction under, 26 U.S.C. § 7202.

                expressly joining in and adopting all of his father's legal arguments pursuant to Rule 28(i) of the Federal Rules of Appellate Procedure. 2  First, they claim that the district court erred by refusing to instruct the jury as to their specific theories of defense, chiefly that their failure to pay taxes resulted from severe financial pressures, and that they did not subjectively believe the nonpayment to be unlawful because they were relying on their accountant's advice that payment could be deferred pending negotiation of a formal payment agreement with the IRS.  Second, they argue that their convictions under 26 U.S.C. § 7202 were invalid because that statute requires proof of both (a) willful failure to "pay over" payroll taxes, and (b) willful failure to "truthfully account for" such taxes, the latter of which the government did not prove beyond a reasonable doubt.  Third, the Evangelistas contend that § 7202 is governed by a three-year statute of limitations rather than the six-year period used by the district court, so that many counts of their convictions should have been dismissed.  Finally, they argue that the prosecutor's intemperate response to an audible comment by Evangelista, Sr. from the defense table--the prosecutor sarcastically "call[ed] Louis Evangelista to the stand"--prejudiced the jury, was inadequately cured by the court's instruction, and irreparably tainted their convictions
                

BACKGROUND

Louis Evangelista, Sr. and members of his family--including his son Claude, and his brothers (co-defendants) Peter and Anthony--owned and operated several businesses active in real estate development and management, construction, and equipment rental. These businesses operated through numerous separate entities, one of which, Monaco Management, Inc. ("Monaco"), was formed specifically as a payroll company, and served as the centralized paymaster for the Evangelistas' other enterprises.

The family's real estate holdings, including rental, commercial, and residential properties, as well as unimproved land, expanded dramatically during the early 1980s. By 1986, the properties had an estimated gross fair-market value of $150-200 million. These holdings were highly leveraged, however, and vulnerable to market fluctuations; many were subject to 100% financing or had been financed through "cross-collateralization," whereby income-producing properties were used as collateral to obtain financing for non-income producing properties. In the real estate market downturn of the late 1980s, the Evangelistas' holdings plummeted in value. By 1991, they had lost virtually all of their properties through foreclosures, and Evangelista, Sr. (according to his accountant's testimony) had a negative net worth of roughly $20-25 million. ³

According to the Evangelistas, they became unable to pay the payroll withholding taxes and FICA contributions (collectively, "trust funds") owed in respect of their declining businesses. In any event, they stopped paying. Their total liability to the IRS eventually reached more than $1.5 million, most of which was owed by Monaco, the paymaster company. It is apparently uncontested that the Evangelistas (through Monaco) consistently filed the appropriate quarterly tax return forms--"Forms 941"--showing the amount of trust funds that the various family businesses owed to the IRS. But beginning in late 1988, the Evangelistas stopped making the actual payments that the filed forms showed to be due and owing.

In late 1989, the IRS initiated enforcement actions to collect the unpaid trust funds reflected on Monaco's Forms 941. IRS officers filed liens against the Evangelistas' assets and executed levies against the known bank In the period 1989 through 1995, the Evangelistas engaged in a series of schemes that (according to the government) were designed to: (a) defeat collection of the trust funds by the IRS, and (b) prevent the IRS from seizing other family and business assets to satisfy the trust fund obligations. First, the Evangelistas repeatedly commingled personal and corporate funds, and then spent those monies on personal expenses and new businesses, thereby beggaring Monaco and the other entities that owed the trust fund payments. For example, the government showed that numerous checks payable to Evangelista, Sr. in respect of the family's businesses were deposited in personal checking accounts set up in the names of himself and his wife (jointly), and in the names of at least two of their children, including Claude Evangelista. On those personal accounts, hundreds of thousands of dollars in checks were drawn for (inter alia ) mortgage and other expenses associated with at least two family residences; wedding expenses for Evangelista, Sr.'s two daughters; college tuition for a son and one daughter; and the lease payments and related expenses for a Mercedes Benz driven primarily by Evangelista, Sr.'s wife.

accounts of Monaco and the related businesses. In March 1990, the IRS and Monaco entered into a series of negotiations aimed at resolving the Evangelistas' trust fund delinquency. IRS agents advised one of the Evangelistas' accountants that no formal payment agreement could be reached until Monaco submitted financial statements demonstrating the Evangelistas' alleged inability to pay the funds; in addition, the agents advised the Evangelistas that remaining current on future payments was "always a prerequisite" to such an agreement. But Monaco never submitted the required financial statements; and the parties reached only informal understandings, through which Monaco and/or the Evangelistas voluntarily paid fractional amounts of the past-due trust funds. The IRS therefore continued its collection efforts--seizing the Evangelistas' assets and levying against their business bank accounts--and eventually recovered (as of March 1993) roughly $384,000 of the $1.5 million that had been reported on the Forms 941 but had been unpaid.

The Evangelistas frustrated seizure of other family assets by transferring ownership of those assets from family members who were personally liable for the overdue trust funds (chiefly Evangelista, Sr.) to those who were not. For example, title to Evangelista, Sr.'s personal residence was transferred to two of his children (jointly), and his $1 million partnership interest in one real estate enterprise was assigned to his son Claude. Once again, these intra-family transfers and personal expenditures took place while Monaco and other Evangelista entities owed the IRS over $1 million in past-due trust funds for which Evangelista, Sr. (at least) was personally liable.

The Evangelistas' defense was grounded almost entirely on the testimony of their long-time accountant, Martin Reffsin, who was their sole witness at trial. Reffsin testified about the organization of the Evangelistas' businesses and explained the financial difficulties that they encountered in the late 1980s and early 1990s. Reffsin also described his negotiations with the IRS on behalf of the Evangelistas, including his various unsuccessful efforts to work out an acceptable payment arrangement between the parties. The apparent thrust of the defense was to show that the Evangelistas and their family businesses had suffered financial hardship, and had endeavored--in good faith, and with assistance and advice from accounting professionals--to resolve those problems as best they could.

Nevertheless, Reffsin's testimony also makes clear that he consistently advised the Evangelistas (a) that they were personally liable for the outstanding trust funds and obligated to pay them; (b) that they had no right to use the trust funds for any purpose other than paying the IRS; and (c) that they should enter into an agreement with the IRS to begin at least partial...