U.S. v. Leveto

Decision Date02 November 2004
Docket NumberNo. CRIM. 01-6(1).,CRIM. 01-6(1).
Citation343 F.Supp.2d 434
PartiesUNITED STATES of America, v. Daniel LEVETO, Defendant.
CourtU.S. District Court — Western District of Pennsylvania

John J. Mead, Scarpitti & Mead Law Firm, Erie, PA, for Daniel Leveto.

Thomas G. Voracek, Rita Genetti Calvin, U.S. Department of Justice Tax Division, Washington, DC, for United States of America.

OPINION

COHILL, Senior District Judge.

Presently before the Court is defendant's "Motion to Suppress Evidence" (Doc. 59), the Government's response thereto ("Government's Omnibus Response to Defendant Daniel Leveto's Pre-Trial Motions") (Doc. 68) and defendant's reply. (Doc. 69). The court held a suppression hearing on October 28, 2004; we orally denied the motion to suppress at the conclusion of the hearing, stating a brief synopsis of the reasons for our denial of the motion to suppress. The purpose of this opinion is to explain in more detail the basis for our denial of the motion to suppress.

I. BACKGROUND

The following facts are not in dispute. On February 15, 2001, a grand jury returned a five count indictment against Daniel Leveto, Margaret Leveto, and Donald Turner, a/k/a Don Wood, filed at Crim. No. 01-06 Erie. Count I charges all three defendants with conspiracy to defraud the United States from August 1991 through May 23, 1997, in violation of 18 U.S.C. § 371. Counts II and III charge Daniel Leveto with willful subscription to a false federal income tax return on April 15, 1995 and April 15, 1996, respectively, in violation of 26 U.S.C. § 7206(1). Counts IV and V charge defendant Margaret Leveto with willful subscription to a false federal income tax return on April 15, 1995 and April 15, 1996, respectively, also in violation of 26 U.S.C. § 7206(1). Upon Leveto's failure to appear at his arraignment, an arrest warrant was issued on December 28, 2001. Leveto was not arrested until March 17, 2004; he was found in the Northern District of Ohio. He was subsequently transferred to the Western District of Pennsylvania, Erie Division, making his initial appearance before the magistrate judge on April 1, 2004. Leveto pleaded not guilty1 as to all three counts against him and has been detained pending trial. At the conclusion of a hearing on the issue of waiver of right to counsel, he was granted permission to represent himself; stand-by counsel was appointed. Stand-by counsel was present at the suppression hearing.

Leveto was a veterinarian who practiced out of the Langdon and Leveto Veterinary Hospital at 316 Conneaut Lake Road, Meadville, Pennsylvania. Dr. Leveto was the main target of an undercover operation that began in December of 1994. Pursuant to a search warrant authorized by a U.S. Magistrate Judge, the IRS searched the Leveto business and residence on May 2, 1996. Leveto challenges the validity of the search warrant.

On May 1, 1996, IRS Special Agent Robert A. Lapina,2 who at that time had nearly nine years' experience in the IRS's Criminal Investigation Division ("IRS-CID"), submitted a 27 page, signed affidavit ("Lapina Affidavit") to Magistrate Judge Susan Paradise Baxter, explaining the history of the IRS-CID's still-ongoing investigation into possible tax evasion by Dr. Leveto. The Lapina Affidavit is attached to the Government's Omnibus Response to Defendant Daniel Leveto's Pre-Trial Motions (Doc. 68) as Attachment D. According to the affidavit, Dr. Leveto and his co-defendant wife, Margaret A. Leveto, filed joint federal income tax returns. The Levetos were suspected of willfully attempting to evade personal income tax liabilities, in violation of 26 U.S.C. § 7201, willfully making materially false income tax returns for the years 1991 through 1994, in violation of 26 U.S.C. § 7206(1), and conspiracy to defraud the United States in violation of 18 U.S.C. § 371.

Included in the Lapina Affidavit is a description of a book entitled "Tax Free How the Super Rich Do It", written by Don Turner, also a target of the investigation, who previously served 18 months in prison for income tax related violations. Dr. Leveto stated to a confidential informant that he (Dr. Leveto) was the only individual in the United States who was marketing this publication. He promoted the book to one confidential informant and to the undercover agent, and later sold a copy of this book to the undercover agent. The book advocates the use of "colatos", which stands for (c)ommon (l)aw (t)rust (o)rganizations, and advises that individuals can sell their business to a foreign "colato" and then receive the profits from this business in the form of non-income sources. The foreign "colato" is responsible for filing a 1040 Non-Resident Alien federal income tax return ("1040NR"). Instead of paying tax on the profits, the foreign "colato" can elect to distribute these profits to another foreign "colato", thereby converting income earned in the United States to foreign source income.

The IRS apparently had reason to suspect that Dr. Leveto, possibly with the help of Mr. Turner, was practicing the tax-evasion techniques espoused in this publication. For example, the undercover agent had numerous conversations with Dr. Leveto about how to go about setting up a "foreign colato." These conversations are detailed in the Lapina Affidavit. According to the Lapina Affidavit, Dr. Leveto also explained to a confidential informant that Dr. Leveto became involved in an "association" which could help the confidential informant reduce and/or eliminate paying income taxes. Dr. Leveto explained that once he (Dr. Leveto) joined the "association," he sold his business to either a person or organization, outside the United States. Leveto told the confidential informant that since the business was sold, he received only wages from this foreign individual/entity when in reality he still controlled all of the gross receipts of the veterinarian business. Leveto told the confidential informant that as a result of this, he pays only as much tax as he wants to. On another occasion, Dr. Leveto stated to a confidential informant that he pays only what he considers to be his "fair share" of taxes.

In addition, the IRS learned that sometime in 1993, a certain advertisement was placed in the Wall Street Journal, entitled "Hot New Report Reveals A Unique Way to Legally Pay Zero Taxes and Totally Eliminate Lawsuits." Anyone interested in responding to this advertisement was directed to write to Center Company, Daniel Leveto VMD, GM, 316 Conneaut Lake Road, Meadville, Pennsylvania. This is the same address as Dr. Leveto's veterinarian business. The same advertisement was found in the November 20, 1995 issue of The Spotlight weekly newspaper, with interested parties instructed to write to the same address described supra.

According to the Lapina Affidavit, and consistent with Dr. Leveto's statements to the confidential informant, Leveto had sold the veterinarian business to an entity named Center Company on July 31, 1991. Center Company filed nonresident alien income tax returns for the years 1991 and 1992, postmarked from the Turks and Caicos Islands, British West Indies. Both the 1991 and 1992 1040NRs reflect that all income was distributed to a beneficiary, resulting in Center Company having no total, adjusted, or taxable income.

In 1991, the Levetos reported $87,792 in taxable income. In 1992, 1993 and 1994 the Levetos reported zero taxable income. The Lapina Affidavit details various expenditures by the Levetos, including extravagant vacations and the purchases of airplanes and cars. Leveto made admissions to the confidential informant and to the undercover agent reflecting the fact that he was involved in nothing more than a "charade or sham." Special Agent Lapina stated that Dr. Leveto was "well aware he can dictate whatever taxable income he desires and then disguise the balance of funds he receives as non-income sources utilizing `debit cards' and a `line of credit', which he termed as a `paper tiger.'" Lapina Affidavit at ¶ 22.

Special Agent Lapina explained in his affidavit that it has been his experience that in order to determine an individual's correct taxable income, indirect methods of proof must be utilized, including documentation of assets, liabilities and expenditures. Such financial records are typically kept at business locations and residences. Lapina Aff. ¶ 5. The confidential informants, one-time friends of the Levetos, were able to pinpoint the likely locations of such financial records. They described the Leveto residence as having a home office with a computer, file cabinet and safe. Mrs. Leveto had explained to one confidential informant that her husband used the home computer for buying and selling commodities. She also explained that Dr. Leveto had a computer at work as well, which he used for this same activity. During the course of meetings with the undercover agent, Dr. Leveto admitted that he had evidence of assets placed in a nominee name as well as instructions on how "this whole process can be unwound", located in a safe. One confidential witness had seen a free standing safe in the Leveto home. Lapina Affidavit ¶ 27.

The IRS conducted covert mail cover operations on the Leveto residence and business from December 194 through July 1995. It learned that correspondence and information concerning assets, liabilities and financial accounts was being delivered to both addresses. Such correspondence included replies to Leveto's advertisement relative to Don Turner's publication, as well as from alleged nominee names of companies over which Leveto exercised control.

The Lapina Affidavit specifically mentions allegations of willfully attempting to evade personal income tax liabilities and/or willfully making and subscribing to materially false income tax returns for each of the years 1991, 1992, 1993, and 1994, in violation of Title 26 U.S.C. §§ 7201 and/or 7206(1). It also alleges probable cause that Daniel Leveto and Don Turner were...

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