U.S. v. Pirro

• Decision Date: 01 August 1999
• Docket Number: No. 1632,D,No. 99-1760,1632,99-1760
• Citation: 212 F.3d 86
• Parties: (2nd Cir. 2000) UNITED STATES OF AMERICA, Appellant, v. ALBERT J. PIRRO, JR., Defendant-Appellee, ANTHONY G. PIRRO, Defendant. ocket
• Court: U.S. Court of Appeals — Second Circuit

Page 86

212 F.3d 86 (2nd Cir. 2000) UNITED STATES OF AMERICA, Appellant,
v.
ALBERT J. PIRRO, JR., Defendant-Appellee, ANTHONY G. PIRRO, Defendant. No. 1632, Docket No. 99-1760
August Term, 1999 UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT Argued: March 15, 2000
Decided: May 05, 2000

Appeal from a judgment of the United States District Court for the Southern District of New York (Parker, J.), dismissing a portion of a criminal indictment.

Judge McLaughlin dissents in a separate opinion.

Affirmed.

Page 87

Elliott B. Jacobson, Assistant United States Attorney for the Southern District of New York (Cathy Seibel, Justin S. Weddle, Baruch Weiss, Assistant United States Attorneys, on the brief), on behalf of Mary Jo White, United States Attorney for the Southern District of New York, for appellant.

Robert J. Giuffra, Jr., Sullivan & Cromwell, New York, NY (Gustave H. Newman, Newman Schwartz & Greenberg, New York, NY, on the brief), for appellee.

Before: McLAUGHLIN, KATZMANN, and GIBSON,^*. Circuit Judges.

JOHN R. GIBSON, Circuit Judge:

The United States appeals from an order of the district court dismissing allegations of an indictment charging Albert Pirro with failing to report the ownership interest of the Chairman ² of the Board of Hudson Valley Hospital Center on the income tax return of Distinctive Properties of Croton, Inc., an S Corporation, in violation of 26 U.S.C. § 7206(1). The dismissed allegations also charge Pirro with misstating his own ownership interest in Properties and failing to reflect all payments that Properties made to a company wholly owned by the Chairman. The government argues that the district court erred in dismissing these allegations. We affirm.

The dismissed allegations form only a portion of Count 67 of the indictment. The count alleges that early in 1991, the Chairman brought to Pirro's attention the availability of a commercial office building in Croton, New York. Properties purchased the building for $950,000 and leased it to Hudson Valley Ventures, Inc. Ventures planned to use the building as a professional building and lease space to physicians affiliated with the Hospital.³

While Ventures leased the building, it made lease payments and other payments related to the building's operation to Properties. Also during that time, Properties made a series of payments by check to PM Messenger, a company wholly owned and controlled by Pirro. Messenger then made checks payable in the precise amount received from Properties to a company wholly owned by the Chairman. These payments totaled $135,726.70. In July 1993, Ventures purchased the building from Properties for $1,500,000. After Properties closed on the sale of the building to Ventures, another company wholly owned by Pirro made a payment by check in the amount of $156,572.57 to the Chairman's company.

Count 67 alleges that the Chairman acquired a 45% "ownership interest" in Properties at or about the same time Properties closed on the purchase of the building.

Page 88

It also alleges that Pirro assisted the Chairman in concealing his ownership interest in Properties and his receipt of the monies from Messenger in violation of what Pirro believed to be the Chairman's fiduciary duty and duty of disclosure to the Hospital and its parent corporation.

The remaining counts of the indictment charge either Pirro or his brother, or both, with conspiracy to violate the tax laws and with numerous violations of 26 U.S.C. §§ 7201, 7206(1), and 7206(2). They allege, among other things, that Pirro's various businesses paid for his personal expenses and that the tax returns for these companies disguised the expenditures as business expenses. Pirro's brother allegedly assisted in the preparation of the false returns.

The crime alleged in Count 67 is that Pirro willfully and knowingly made and subscribed a false 1992 tax return for Properties in violation of section 7206(1). Pirro's motion to dismiss challenged only subpart (2) of paragraph 56 in Count 67,⁴ claiming that it failed to state an offense. Subpart (2) alleged that Pirro:

failed to report thereon the hospital Chairman's ownership interest in [Properties], misstated thereon ALBERT J. PIRRO, JR.'s ownership interest in [Properties], and failed to reflect thereon all of the payments [Properties] had made, through [Messenger], to the hospital Chairman's wholly owned company.

The district court held that Pirro's motion was properly before it, as the failure of an indictment to charge an offense can be addressed at any time. The court stated that an indictment may be dismissed where the government's theory of liability is legally insufficient and that the existence of a known legal duty owed by a taxpayer is a question of law. The court found that whether there is a legal obligation to include an individual with an "ownership interest" on the tax return of an S corporation is debatable and thus should not supply the predicate for criminal liability. The district court further explained that lack of clarity in the law should be resolved in a defendant's favor.

The court pointed out that the law relating to S corporations repeatedly refers to shareholders and rejected the government's argument that "de facto shareholder" or "ownership interest" was congruent with "shareholder." The court concluded that the government had not shown that Pirro was required to report the Chairman's ownership interest in Properties under the relevant provisions of Subchapter S.

I.

As a threshold issue we must consider whether we have jurisdiction over the appeal of an order dismissing a portion of a count. In Sanabria v. United States, 437 U.S. 54, 69 n.23 (1978), the Supreme Court stated that there is no statutory barrier to such an appeal. Statutory authority permits a government appeal from an order of a district court dismissing any one or more counts of an indictment. See 18 U.S.C. § 3731 (1994). In United States v. Tom, 787 F.2d 65, 71 (2d Cir. 1986), we pointed out that our circuit interprets this authority to allow an appeal of a dismissal of an allegation that could have provided a discrete basis for a conviction. We reviewed dismissals of portions of counts in United States v. Margiotta, 646 F.2d 729 (2d Cir. 1981), and United States v. Alberti, 568 F.2d 617 (2d Cir. 1977).⁵

Page 89

Here, the district court dismissed only subpart (2) of paragraph 56. Pirro's alleged failure to report the ownership interest of the Chairman (and the other related allegations of subpart (2), see note 6, infra) is completely different from the crimes alleged in the other counts of the indictment and the allegations of subpart (1) of Count 67. Subpart (2) provides a discrete basis for conviction. Accordingly, it falls within the rulings of Margiotta and Alberti. The dismissal of these allegations is thus appealable.

II.

Pirro contends that the portion of the indictment he challenges fails to allege a crime because it states only that the Hospital Chairman had an "ownership interest" in Properties, which does not necessarily mean that he was a shareholder. Pirro argues that only those deemed "shareholders" have to be reported as shareholders, and that failure to name a non-shareholder in a tax return is not a falsehood.

The indictment in this case alleged a violation of 26 U.S.C. § 7206(1), which makes it a crime to

willfully [make and subscribe] any return, statement, or other document which contains or is verified by a written declaration that it is made under the penalties of perjury, and which [the maker] does not believe to be true and correct as to every material matter.

Thus, the elements of a section 7206(1) violation are:

(1) that the defendant made or caused to be made, a federal income tax return for the year in question which he verified to be true; (2) that the tax return was false as to a material matter; (3) that the defendant signed the return willfully and knowing it was false; and (4) that the return contained a written declaration that it was made under the penalty of perjury. A false statement is "material" when it has "the potential for hindering the IRS's efforts to monitor and verify the tax liability" of the corporation and the taxpayer.

United States v. Peters, 153 F.3d 445, 461 (7th Cir. 1998) (citations omitted), cert. denied, 525 U.S. 1070 (1999); see United States v. Scholl, 166 F.3d 964, 979-80 (9th Cir.), cert. denied, 120 S. Ct. 176 (1999).

The false statement alleged in the challenged portion of Count 67 is that, in filing the 1992 tax return for Properties, Pirro "failed to report thereon the hospital Chairman's ownership interest in [Properties]."⁶

The indictment alleges Pirro filed a Form 1120-S (U. S. Income Tax Return for an S corporation) for Properties without including a Schedule K-1 for the Chairman. Schedule K-1, which is attached to Form 1120-S, is entitled "Shareholder's Share of Income, Credits, Deductions, etc." and requires the shareholder's identifying number, shareholder's name and address, and shareholder's percentage of stock ownership for the tax year. Pirro executed two Schedules K-1 that were attached to the 1992 tax return for Properties.

Page 90

One identified him as a shareholder owning 90% of the stock, and the other identified Paul J. Monsell as a shareholder owning 10%. The tax code requires that the return of an S corporation include "the names and addresses of all persons owning stock in the corporation . . . [and] the number of shares of stock owned by each shareholder. . . ." 26 U.S.C. § 6037(a) (Supp. V 1987). Other than shareholder, no other ownership interests of any kind are required to be listed on the Schedule K-1, and Pirro did not purport to list any other interests.

The applicable statutes and regulations, as well as the forms required to be filed thereunder, refer only to shareholders and stock. The statutes relating to S corporations specifically refer on numerous occasions to shareholders and to...