U.S. v. Olbres

• Decision Date: 01 August 1996
• Docket Number: 96-1022,Nos. 96-1021,s. 96-1021
• Parties: -6998, 65 USLW 2326, 96-2 USTC P 50,670 UNITED STATES of America, Appellee, v. Anthony G. OLBRES and Shirley A. Olbres, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 28

99 F.3d 28

78 A.F.T.R.2d 96-6998, 65 USLW 2326,

96-2 USTC P 50,670

UNITED STATES of America, Appellee, v. Anthony G. OLBRES and Shirley A. Olbres, Appellants.

Nos. 96-1021, 96-1022.

United States Court of Appeals First Circuit.

Heard Aug. 1, 1996.

Decided Nov. 1, 1996.

Gregory G. Katsas, with whom John B. Nalbandian, Jones, Day, Reavis & Pogue, Washington, DC, Scott P. Lopez, Terry Philip Segal, Segal & Feinberg, Boston, MA, Steven M. Gordon, and Shaheen & Gordon, Concord, NH, were on brief, for appellants.

Karen Quesnel, Attorney, Tax Division, Department of Justice, with whom Loretta C. Argrett, Assistant Attorney General, and Robert E. Lindsay and Alan Hechtkopf, Attorneys, Tax Division, Department of Justice, Washington, DC, were on brief, for appellee.

Before SELYA, CYR and LYNCH, Circuit Judges.

LYNCH, Circuit Judge.

This tax evasion case raises two sentencing issues, one of import to tax cases and one of larger import. We hold that a sentence in a tax evasion case must be predicated on findings as to amounts that the government has proven were willfully evaded and that it is unlikely the requisite findings were made here. We also hold that there is no categorical imperative prohibiting the very consideration of whether a case is so unusual as to warrant a downward departure based on the loss of jobs to innocent employees occasioned by the imprisonment of the defendant owner of a small business. We reject the argument that the United States Sentencing Commission's comment discouraging departures based on the "vocational skills" of the defendant categorically prohibits consideration of such job loss to third parties. Accordingly, we vacate defendants' sentences and remand.

I

Anthony and Shirley Olbres, husband and wife, run a business, Design Consultants ("DC"), which creates exhibit booths for trade shows. Design Consultants currently employs twelve people in addition to Anthony Olbres, who is president of the company, and Shirley Olbres, who serves as DC's part-time bookkeeper. In 1987, Mr. and Mrs. Olbres had a total income of $837,480. In June 1987, they purchased a Rolls Royce Corniche convertible for $158,000. They drove the Rolls to a local restaurant in Exeter, New Hampshire. A passing IRS employee saw the luxury car parked outside of the restaurant. His curiosity engaged, he wrote down the license plate number with the intention of identifying the car's owner and examining his or her tax returns. The IRS employee's curiosity led to a 1989 audit of the Olbres' 1987 joint tax returns and eventually resulted in a criminal investigation. The investigation led the government to conclude that Mr. and Mrs. Olbres had committed criminal tax evasion.

Mr. and Mrs. Olbres were indicted on three counts of criminal tax evasion related to the income tax returns they filed for the years 1986, 1987, and 1988. See 26 U.S.C. § 7201. The returns understated the couple's taxable income for those years by approximately $153,000, $749,000, and $175,000, respectively. For 1987, the year with the bulk of the unreported income, Mr. and Mrs. Olbres failed to report income from three sources: 1) payments, totaling $630,000, from business customers that were deposited directly into a business savings account and not recorded in the cash receipts journal provided to the Olbres' accountant; 2) rental income, totaling $22,000, from various properties the couple owned; and 3) rebates, totaling $97,000, paid by shipping companies utilized by DC. Mr. and Mrs. Olbres conceded all the understatements but defended on the basis that none were willful. The couple insisted that they had relied on their accountant, who had prepared their returns since 1977. That accountant died before the trial. The couple attributed other errors, including the failure to report the shipping rebates, to Mrs. Olbres, who was depicted as a well-meaning but untrained bookkeeper.

The jury acquitted Mr. and Mrs. Olbres on the charges relating to the 1986 and 1988 returns and convicted on the charge related to the 1987 return. The jury verdict was general; the district judge instructed the jury that it could convict on a count if it found that Mr. and Mrs. Olbres had willfully attempted to evade a "substantial" amount of taxes for the relevant year. There was no specific jury finding as to the amounts willfully evaded, or as to whether the willful evasion encompassed some or all of the categories of income involved.

The district court granted the Olbres' motion for judgment of acquittal on the conviction relating to the 1987 tax return on the basis that the government had failed to prove willfulness beyond a reasonable doubt. United States v. Olbres, 881 F.Supp. 703, 706 (D.N.H.1994). The government appealed, and this court reversed, holding that there was evidence of willfulness sufficient to uphold the conviction. United States v. Olbres, 61 F.3d 967, 970-73 (1st Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 522, 133 L.Ed.2d 430 (1995). This court did not parse the evidence as to the specific amounts willfully underreported for the year 1987. See id.

On remand, the district court determined that the tax loss caused by Mr. and Mrs. Olbres totalled $632,158, which, according to the Sentencing Guidelines' Tax Table, places the Olbres' base offense level at 15. See U.S.S.G. § 2T4.1. The $632,158 amount included the $470,236 tax loss from 1987 as well as the tax losses from 1986 and 1988, despite the defendants' challenge to the inclusion of certain amounts from 1987 and of the entire 1986 and 1988 amounts.

The district court judge sentenced Mr. and Mrs. Olbres to 18 months in prison, the lowest possible sentence within the level 15 sentencing range for their Criminal History Category of I. That sentence is predicated upon the willfulness requirement having been met for the entire sum underreported for 1987. It is also predicated on the entire sums underreported for 1986 and 1988, as the court felt it was required to consider those amounts as relevant conduct, despite the acquittals. Stating that it was legally required to do so, the court rejected Mr. and Mrs. Olbres' argument that there should be a downward departure from the sentence because sending them to prison would mean the demise of their small business and loss of employment for a dozen innocent employees. It is from these determinations that Mr. and Mrs. Olbres appeal.

Three issues are argued. Mr. and Mrs. Olbres argue that the district court erred in failing to determine whether they willfully evaded all of the taxes on which their sentence was based. They also argue that the consideration of the acquitted conduct stemming from the 1986 and 1988 tax years violated the Sentencing Reform Act and the Double Jeopardy and Due Process Clauses of the Constitution. Finally, Mr. and Mrs. Olbres argue that the district court erred as a matter of law in adopting a per se rule that a trial court may never consider a downward departure to prevent termination of an ongoing business enterprise and the loss of employment to innocent persons. We vacate the sentence and remand for further proceedings on the first and third grounds and do not reach the Olbres' acquitted conduct argument.

II

The United States and defendants agree on this appeal that for sentencing purposes the trial judge was required by Rule 32(c)(1), Fed.R.Crim.P., to find that Mr. and Mrs. Olbres willfully attempted to evade all of the taxes used in determining their base offense level. The dispute is over whether the court adequately, or ever, made such findings. The government contends that although the trial court made no specific findings, the trial judge, by expressly adopting the findings of the Presentence Investigation Report ("PSR"), implicitly found that Mr. and Mrs. Olbres had willfully evaded taxes on income of approximately $1.1 million, encompassing the tax years 1986, 1987, and 1988. Mr. and Mrs. Olbres contend that the trial court improperly declined to make such findings and instead erroneously assumed that the general jury verdict and this court's opinion in its sufficiency review established that the entire sum of $1.1 million was willfully evaded. Because the record is unclear as to what the district court actually found, and in light of our disposition of the downward departure issue, we vacate the Olbres' sentences and remand for further proceedings. See United States v. Garafano, 36 F.3d 133, 135 (1st Cir.1994).

In order to determine the base offense level under the Sentencing Guideline for tax evasion, the sentencing court must determine the amount of "tax loss" to the government. U.S.S.G. § 2T1.1(a)(1987). In the pertinent 1987 Guidelines Manual, "tax loss" is defined as "the total amount of tax that the taxpayer evaded or attempted to evade, including interest to the date of filing of an indictment." Id.

The primary difficulty presented by this case is that the jury, in order to convict, was not required to find the total amount of the tax that the taxpayers evaded or attempted to evade. Indeed, the jury was instructed that "[t]he government does not have to prove the exact amount the defendants owed, nor does the government have to prove that all the tax charged in the indictment was evaded." Thus, the sentencing judge is required to make a determination which is not necessarily made by the jury and, in this case, was not made.

Further enlarging the sentencing judge's task, the Guidelines also state that "[w]hen more than one year is involved, the tax losses are to be added." U.S.S.G. § 2T1.1. The Guidelines Commentary explains this instruction as follows:

While the definition of tax loss corresponds to "criminal deficiency," its amount is to be determined by the same rules applicable in determining any other sentencing factor. In accordance with the "relevant conduct" approach adopted by the guidelines, tax losses resulting from more than one year are to be added regardless of whether the...