U.S. v. Hoover

• Decision Date: 28 April 1999
• Docket Number: No. 98-2992,98-2992
• Citation: 175 F.3d 564
• Parties: -2214 UNITED STATES of America, Plaintiff-Appellee, v. Harvey L. HOOVER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 564

175 F.3d 564

83 A.F.T.R.2d 99-2214

UNITED STATES of America, Plaintiff-Appellee, v. Harvey L. HOOVER, Defendant-Appellant.

No. 98-2992.

United States Court of Appeals Seventh Circuit.

Argued Jan. 22, 1999.

Decided April 28, 1999.

Jon E. DeGuilio, Andrew B. Baker, Jr. (argued), Office of the United States Attorney, Dyer, IN, for Plaintiff-Appellee.

Joseph F. Rubin (argued), Mishawaka, IN, for Defendant-Appellant.

Before POSNER, Chief Judge, FLAUM, and RIPPLE, Circuit Judges.

FLAUM, Circuit Judge.

Defendant Harvey Hoover appeals from the sentence he received after a jury found him guilty of three counts of filing false income tax returns in violation of 26 U.S.C. § 7206 and one count of presenting a false statement on a college financial aid application in violation of 18 U.S.C. § 1001. For the reasons stated herein, we modify the district court's restitution order to the extent that it applies to Hoover's tax liability, but we affirm on all other grounds.

I. BACKGROUND

Harvey Hoover ("Hoover") was a dairy farmer in Wabash County, Indiana. His sons, Michael, born in 1962, and Tadd, born in 1973, helped him run the large family farm. He did not pay his sons a salary, but gave them spending money as they needed it. The Hoover farm consisted of sixty milk cows and 300 acres on which corn, beans and hay were grown. In addition to his dairy business, Hoover sold calves and grain. Hoover did not keep many business records; according to his sons, he merely kept track of "some things" by handwritten notes on scraps of paper.

Hoover and his wife, Judith, became enmeshed in bitter divorce proceedings beginning in 1989. As a result of the divorce decree, Judith was granted judgments against certain assets of the farm. In the process of executing against these judgments, Hoover's tax and dairy records were subpoenaed. This turned out to be the beginning of a federal investigation which later resulted in the charges against Hoover.

Hoover was obsessed with saving the farm from coming into his former wife's possession. Apparently, he was equally obsessed with protecting his money from the IRS. Hoover hid his money in a number of ways. He frequently put property and bank accounts in the names of other people, usually his sons. He instructed creditors to write checks made out to his sons, but kept all the proceeds for himself. Sometimes Hoover told his sons to endorse checks made out to them, sometimes he signed his sons' names himself. He set up bank accounts in his sons' names, listing them as father and son and giving his older son, Michael, a birth date of March 9, 1916. He set up an account in Tadd's name, showing Tadd's birthday as September 9, 1938, Hoover's own birthday. Though he hid his money in other, equally creative ways, it is not necessary to go into them all in this opinion. Suffice it to say that, after all of his maneuvering, Hoover had unreported income of $192,234 in 1990, $152,820 in 1991 and $141,577 in 1992.

Additionally, in 1992, Hoover signed and submitted an application for student loans for Tadd, a student at Purdue University, stating that he (Hoover) had no income in 1991. Hoover also stated on the application that he did not file an income tax return in 1991 and that he had assets of only $13.00. Based on these representations, Tadd received over $7,000 in financial aid from Purdue that year.

Hoover was charged and tried for one count of conspiracy to defraud the government, one count of filing a false statement on a college financial aid application, and three counts of filing false income tax returns. He was acquitted of the conspiracy count, but was convicted by a jury of filing false tax returns and of presenting a false statement to Purdue University. Following the return of verdicts, the court ordered that Hoover, "pending further order of the court, not cash, negotiate or transfer any United States savings bonds, period." On July 24, 1998, the court sentenced Hoover to 46 month imprisonment. As part of the sentence, the court ordered Hoover to turn over to the United States government, by August 7, 1998, title to 304 savings bonds in the names of Michael and Tadd Hoover. Each bond had a face value of $1000 and the total was to be applied to (1) the expenditures under the Criminal Justice Act for Hoover's attorney, his expert witness and the costs of prosecution, (2) Purdue University in the sum of $13,543, and (3) the IRS for application to Hoover's tax liability.

Hoover filed a notice of appeal on August 3, 1998. On September 18, 1998, the court held a hearing at which it found Hoover in contempt of its order to turn over the 304 savings bonds because Hoover placed 150 of the savings bonds in his son Michael's possession. As a result, the court sentenced Hoover to six additional months imprisonment.

II. ANALYSIS

Hoover raises four issues on appeal. First, he challenges the district court's use of a rate of 28% of unreported income as a basis for computing tax loss for purposes of the sentencing guidelines. Second, the defendant argues that the district court acted without legal authority when it ordered him to turn over savings bonds that were in his sons' names. Third, Hoover claims that the district court abused its discretion when it held him in contempt and sentenced him to an additional six months in prison for physically placing savings bonds in his son's possession after the court ordered him not to transfer the bonds. Finally, Hoover argues that the evidence was insufficient to establish the necessary element of wilfulness under 18 U.S.C. § 1001 and 26 U.S.C. § 7206(1).

1. 28% tax rate.

Hoover's first claim on appeal is that the district court erred in determining the tax loss to the government as 28% of his unreported income, instead of a lower tax rate proposed by his expert. We will uphold a sentence if the guidelines were properly applied to factual conclusions that were not clearly erroneous. United States v. Vopravil, 891 F.2d 155, 157 (7th Cir.1989). Thus, questions of fact are reviewed for clear error. United States v. Song, 934 F.2d 105, 109 (7th Cir.1991).

The sentencing guideline applicable to Hoover's tax convictions, USSG § 2T1.1(c)(1)(A), provides:

(A) If the offense involved filing a tax return in which gross income was under-reported, the tax loss shall be treated as equal to 28% of the unreported gross income (34% if the taxpayer is a corporation) plus 100% of any false credits claimed against tax, unless a more accurate determination of the tax loss can be made.

Hoover argues that the district court erred in applying the 28% rate because he presented evidence, through his accounting expert, Brent Dawes, that a more accurate determination of tax loss could be made.

In calculating his tax loss figure, Dawes looked at the three years of conviction: 1990, 1991 and 1992. He did not examine Hoover's actual expenses during those years, because Hoover had no records for those years. Instead, Dawes looked at the expenses of some of his own agricultural clients, a Purdue University Livestock Production Budget, and Hoover's canceled check stubs from 1988.

The district court rejected Dawes' methodology as flawed for two reasons. First, the court noted that Dawes' methods asked the court to offset assumed expenses and deductions against known unreported income where the assumptions were required solely because of Hoover's failure to keep records. Second, the court concluded that it was not reasonable to use the Purdue Livestock Budget because it was based on expenses incurred by an average dairy farmer. Hoover, the court determined, was far from an average dairy farmer--his farm and his profits were significantly larger than the average dairy farm included in the Purdue report.

The government points to additional ways in which Dawes' methodology was flawed. For example, Dawes relied on 1988 check stubs because Hoover told him 1988 was a representative year for the dairy farm. However, the evidence presented at trial showed that 1988 was a drought year, so presumably Hoover had less income and more expenses than usual. Thus, 1988 was not a representative year. Also, Dawes could not be certain that the check stubs used in his tax rate calculation actually represented farm expenses, as opposed to investment purchases. For instance, Hoover maintained a commodity futures trading account. "Iowa Grain" was the name of the clearing firm for the trading account. Thus, a canceled check to the grain company could have represented the purchase of a trading commodity rather than an actual expense for the purchase of grain.

The sentencing guidelines instruct the district court to use the statutory rate unless a more accurate rate of tax loss can be determined. It is clear that the calculations going into the tax rate proposed by Hoover's expert were no more accurate than the guidelines' rate and, as the district court observed, using the defendant's numbers would be just as arbitrary as the 28% figure used in the sentencing guidelines. Hence, it was not clearly erroneous for the district court to apply the presumed rate of tax loss, especially in light of the fact that the defendant's activity in not keeping records was the reason preventing a more accurate figure from being ascertained.

2. Savings bonds.

Hoover argues that the district court acted contrary to law when it ordered him to surrender savings bonds that were in his sons' names to satisfy an order of restitution. Because Hoover raises a legal challenge to the restitution order, our review is de novo. United States v. Lampien, 89 F.3d 1316, 1319-20 (7th Cir.1996).

Hoover's primary argument is that the district court lacked legal authority to make the restitution order. As an initial matter, the government concedes, and we agree, that the district court exceeded its authority to the extent that it ordered Hoover to surrender the bonds to pay his tax liability. This court held in United States...