U.S. v. Kelly, 97-1307

• Citation: 147 F.3d 172
• Decision Date: 18 June 1998
• Docket Number: No. 97-1307,97-1307
• Parties: -5030, 98-2 USTC P 50,501 UNITED STATES of America, Appellee, v. Richard H. KELLY, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 172

147 F.3d 172

82 A.F.T.R.2d 98-5030, 98-2 USTC P 50,501

UNITED STATES of America, Appellee, v. Richard H. KELLY, Defendant-Appellant.

No. 97-1307.

United States Court of Appeals,

Second Circuit.

Argued Feb. 9, 1998.

Decided June 18, 1998.

Meghan S. Skelton, U.S. Dept. of Justice, Tax Div., Washington, DC (Loretta C. Argrett, Asst. Atty. Gen., Alan Hechtkopf, Robert E. Lindsay, U.S. Dept. of Justice, Tax Div., Zachary W. Carter, U.S. Atty., Washington, DC, of counsel), for PlaintiffAppellee.

Stuart E. Abrams, New York City (Frankel & Abrams, of counsel), for Defendant-Appellant.

Before: VAN GRAAFEILAND, JACOBS and LAY, ^* Circuit Judges.

VAN GRAAFEILAND, Circuit Judge:

Richard H. Kelly appeals from a judgment of the United States District Court for the Eastern District of New York (Hurley, J.) convicting him of corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue laws, in violation of 26 U.S.C. § 7212(a). The district court sentenced Kelly to eighteen months in prison. We affirm.

From 1984 to 1988, Kelly, an experienced attorney and businessman, served as vice-president and general counsel of Intercontinental Monetary Corporation ("IMC"), a financial services company. Kelly left IMC in 1988 and, with an associate, organized a financial consulting business called D.M. Condor & Company, Inc. Prior to his departure, Kelly executed an agreement under which he agreed to provide consulting services to IMC from June 1, 1988 to June 30, 1990. In return, IMC agreed to pay him a consulting fee of $244,200.

The agreement specified that IMC would pay Kelly in two equal installments of $122,100, the first of which would cover services rendered from June 1, 1988 to June 30, 1989, and the second of which would cover services rendered from July 1, 1989 to June 30, 1990. In fact, however, IMC paid Kelly his entire fee before the beginning of the prescribed period of service, issuing him checks on November 5, 1987, February 16, 1988, and March 9, 1988. The parties agreed that these payments would be treated as advances on Kelly's fee and that IMC would consider the fee "earned" as of the dates specified in the original agreement.

Thereafter, in 1988, Kelly agreed with his associate to assign to Condor all of his rights and obligations under the IMC agreement. In a letter dated December 28, 1989, Kelly informed IMC of the agreement and requested that IMC issue to Condor any tax reporting forms stemming from the company's payment of Kelly's consulting fee. IMC acknowledged Kelly's request, but refused to honor it. Instead, in early 1990, IMC prepared and sent to Kelly an IRS Form 1099 indicating its payment to him of $122,100 as compensation for services rendered during the 1989 fiscal year.

Kelly filed his 1989 personal income tax return on April 16, 1990. On Schedule C of the return, Kelly reported as part of his gross receipts the $122,100 he received from IMC but indicated in an accompanying note that he had assigned this income to Condor. Based on this alleged assignment, Kelly deducted the $122,100 from his gross receipts and paid no tax on the IMC income.

In October 1991, Internal Revenue Agent Vincent Marcantonio began an audit of Kelly's 1989 tax return. In the course of this audit, Marcantonio met with Kelly on two occasions. During their first meeting, Kelly provided Marcantonio with copies of the two aforementioned agreements and explained that he had deducted the IMC income from his gross receipts because he had assigned the income to Condor. Kelly also informed Marcantonio that Condor did not file a tax return in 1989. During their second meeting, Kelly reiterated his explanation of his treatment of the IMC income. Contrary to his earlier statements, however, Kelly told Marcantonio that Condor "picked up" the IMC income in 1989, a statement which Marcantonio took to mean that Condor had reported the income to the IRS for tax purposes. Following the second meeting, Marcantonio verified that Condor had not reported the IMC income in 1989. He also determined that Kelly had not transferred any of the IMC income to Condor. Marcantonio concluded that Kelly's deduction of the IMC income was improper and that his purported assignment of that income to Condor was a sham.

Based on Marcantonio's findings, the Government indicted Kelly. In Count One of the indictment, the Government charged Kelly with obstructing the due administration of the revenue laws by providing Marcantonio with a copy of the allegedly false and fraudulent assignment agreement in an effort to substantiate his deduction of the IMC income on his 1989 tax return. In Count Two, the Government charged Kelly with filing a false tax return. The jury convicted Kelly of obstruction, but acquitted him of filing a false return.

At the time Kelly was sentenced, the federal sentencing guidelines did not specify a particular guideline to be used in cases arising under section 7212(a). Over Kelly's objection, the district court applied section 2T1.1 of the guidelines, a section customarily applied in cases of tax evasion. Pursuant to that guideline, the court determined that Kelly's criminal activities resulted in a tax loss of approximately $68,000 (the amount he would have paid had he reported the entire $244,200 he received from IMC as income), warranting a base offense level of eleven. The court then added two levels for each of its findings that Kelly had used special skills to facilitate his crime and that he gave perjured testimony at trial. These findings yielded a potential sentence range of eighteen to twenty-four months. The court sentenced Kelly to the minimum term of eighteen months.

Kelly contends on appeal that he should not have been charged with violating section 7212(a) because Congress intended that statute to proscribe only threatening or harassing conduct directed toward IRS agents. In support of this contention, he asserts that a majority of the cases prosecuted under section 7212(a) have involved threatening or harassing conduct. However, even the complete absence of a reported decision involving similar factual circumstances does not determine per se the proper scope of a particular statute. See United States v. Popkin, 943 F.2d 1535, 1539 (11th Cir.1991) (citing Parr v. United States, 363 U.S. 370, 391, 80 S.Ct. 1171, 4 L.Ed.2d 1277 (1960)).

The appropriate starting point for the interpretation of any statute is its language. O'Connell v. Hove, 22 F.3d 463, 468 (2d Cir.1994). See United States v. Trapilo, 130 F.3d 547, 551 (2d Cir.1997) (quoting United States v. Wiltberger, 5 Wheat. 76, 18 U.S. 76, 95-96, 5 L.Ed. 37 (1820) (Marshall, C.J.) ("The intention of the legislature is to be collected from the words they employ. Where there is no ambiguity in the words, there is no room for construction.")).

Section 7212(a) provides in part that any individual who:

corruptly or by force or threats of force (including any threatening letter or communication) endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly or by force or threats of force (including any threatening letter or communication) obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall [be guilty of a felony].

26 U.S.C. § 7212(a) (emphasis added). As the emphasized language makes clear, a defendant need not resort to force or the threat of force in order to be convicted of obstruction. Moreover, although the first clause pertains only to conduct directed against a government official, the second or "omnibus" clause is not so limited, and renders criminal "any other" action which serves to obstruct or impede the due administration of the revenue laws. In short, the plain language of section 7212(a) does not support Kelly's narrow interpretation of the statute.

Kelly next contends that the district court's decision to charge him under section 7212(a) violated a policy statement issued by the Tax Division of the Department of Justice. That directive instructs officers of the Department not to utilize the omnibus clause of section 7212(a) "where other more specific charges are available and adequately reflect the gravamen of the offense." Kelly argues that there was a more specific and appropriate charge available to the Government in his case, namely tax evasion under section 7201, and that the Government should have prosecuted him under that statute rather than section 7212(a). We are not persuaded by this contention. As a general rule, "non-compliance with internal departmental guidelines is not, of itself, a ground of which defendants can complain." United States v. Ivic, 700 F.2d 51, 64 (2d Cir.1983) (citing United States v. Caceres, 440 U.S. 741, 99 S.Ct. 1465, 59 L.Ed.2d 733 (1979)), rev'd on other grounds, National Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994). Cf. Crandon v. United States, 494 U.S. 152, 177, 110 S.Ct. 997, 108 L.Ed.2d 132 (1990) (Scalia, J., concurring in judgment). Such guidelines provide no substantive rights to criminal defendants. United States v. Piervinanzi, 23 F.3d 670, 682 (2d Cir.1994). Moreover, the record does not support Kelly's claim of non-compliance.

Kelly characterizes his actions as "garden variety" tax evasion rather than obstruction. We disagree. Kelly's delivery of the Condor assignment agreement to Marcantonio did more than merely further a tax evasion scheme--it was designed to impede Marcantonio from uncovering a tax evasion scheme that already had been effectuated. It expanded and delayed the progress of Marcantonio's audit and investigation and thus can be characterized accurately as obstruction, rather than evasion.

Kelly suggests the district court's broad interpretation of the statute potentially could run afoul of the constitutional doctrines of overbreadth and vagueness. In support...