U.S. v. Powell, 96-20831

• Decision Date: 24 September 1997
• Docket Number: No. 96-20831,96-20831
• Parties: -6845, 47 Fed. R. Evid. Serv. 1113 UNITED STATES of America, Plaintiff-Appellee, v. Joseph Reade POWELL, Jr., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 655

124 F.3d 655

80 A.F.T.R.2d 97-6845, 47 Fed. R. Evid. Serv. 1113

UNITED STATES of America, Plaintiff-Appellee, v. Joseph Reade POWELL, Jr., Defendant-Appellant.

No. 96-20831.

United States Court of Appeals, Fifth Circuit.

Sept. 24, 1997.

Robert E. Lindsay, Alan L. Hechtkopf, Susan Helen Vrahoretis, U.S. Department of Justice, Tax Division, Washington, DC, for Plaintiff-Appellee.

Ronald E. Dahlin, II, Federal Public Defender, H. Michael Sokolow, Houston, TX, for Defendant-Appellant.

Appeal from the United States District Court for the Southern District of Texas.

Before KING, DAVIS and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

This appeal rises from the conviction of Joseph Reade Powell, Jr. for evading federal fuel excise taxes. Powell contests the admission of certain items of evidence and the application of the United States Sentencing Guidelines. We affirm the judgment of the district court.

I. FACTUAL BACKGROUND

From approximately July 1986 through 1991, Joseph Powell operated a wholesale distributorship of gasoline and diesel products named J.P. Energy. Powell bought a building in Kingswood, Texas, in which he maintained his offices. He sold gasoline and diesel fuel to retail outlets, such as convenience stores, service stations, and truck stops in and around Houston, Texas.

In the late 1980s, the federal government and the State of Texas offered excise tax reduction programs for gasohol producers. ¹ On July 21, 1988, Powell registered with the Internal Revenue Service as a gasohol producer. He obtained a Form 637, which enabled him to purchase gasoline at a reduced rate of excise tax beginning on July 25, 1988.

Under the federal program, a person who was buying gasoline to blend it into gasohol could obtain authorization to buy gasoline from his suppliers at a reduced rate of tax. In order to obtain his Form 637, Powell represented to the IRS that he was going to blend gasoline to make gasohol. The registration Powell received warned him about the legal consequences of misusing the certificate. Powell was required to blend the gasoline into gasohol within twenty-four hours, and if he failed to do so he would become liable for the difference between the reduced rate of tax he paid and the full excise tax rate. During 1989 and 1990, that difference was 5.6 cents per gallon. Powell was also obligated to file a Federal Quarterly Excise Tax Return (Form 720) for each quarter.

Powell also registered to buy diesel fuel and heating oil tax-free on September 19, 1988. He became eligible to buy these fuels tax-free on October 31, 1988. In order to obtain this registration, Powell represented that he would act as a wholesale distributor of diesel fuel. Powell was obligated to notify the IRS if his business changed, but he never notified the IRS that he was using the Form 637 for a purpose other than the one he claimed on his application.

During 1988, less than one percent of Powell's sales involved gasohol or ethanol. Powell bought ethanol from Koch Industries, Inc. ("Koch"), and Petdon, which was owned by Powell's friend Tom Petty. Petty stopped supplying Powell with ethanol in March 1988, and Powell stopped buying ethanol from Koch in December 1988. Powell nevertheless continued to use his Form 637 to buy gasoline at the reduced rate of federal excise tax for gasohol blenders. He also continued to use his other Form 637 to buy diesel fuel tax-free. Powell sold these products to his retail customers, whom he charged the full rates of federal and state excise tax on both types of fuel.

In 1988, Powell contacted Oscar Lee Martin and entered into an agreement whereby Powell would receive ethanol produced by Martin's grain processing plant, Livingston Steam Power, in exchange for paying the expenses of the plant, the notes on the equipment, and a small salary for Martin. Powell told Martin that he (Powell) had the facilities to blend ethanol with gasoline and that it would be very profitable for him (Powell) to have a source of ethanol. In 1988 and part of 1989, the plant never produced more than a total of six to eight loads of ethanol. Powell received three of the loads of ethanol in 1988; the others were sold to other buyers because Powell told Martin that he (Powell) did not need the ethanol.

Powell put a fax machine and a new telephone line in Martin's house because Powell wanted Martin to send him records so Powell would "have a paper trail for his auditors." On September 29, 1988, Powell faxed to Martin a copy of an invoice that was different in form from the one Livingston Steam Power used and that did not meet the state requirements. The invoice described a delivery by Livingston Steam Power of 8,063 gallons of ethanol purportedly made by Martin's truck. The delivery had never occurred; Martin did not even own a truck. Martin confronted Powell in his (Martin's) front yard, and told Powell that he did not have invoices like the one faxed by Powell, that such invoices did not comport with state law, and that Powell should not send him invoices any more. Martin testified that the State of Texas required him to keep certain records in order to sell a load of ethanol. All of the ethanol going into the truck had to be measured by meter, and the operator had to sign the meter ticket and invoice, including on the invoice the number of the trailer containing the ethanol. Martin testified that he never gave anyone any ethanol without generating these documents. Powell had a stack of similar invoices that he wanted Martin to use to keep a paper trail in the event of an audit. Martin told Powell that he could not use those invoices and not to send them any more.

Martin closed the grain processing plant in January 1989. The plant closed permanently in September or October 1989. Powell told Chuck Henderson, a business associate who participated in Powell's scheme to evade taxes, that it did not make any difference whether Livingston Steam Power worked or not. Powell told Henderson that Livingston Steam Power gave him a vehicle to show that he manufactured ethanol so that he could get the tax credit for blending.

In 1989, Powell continued to purchase gasoline at the reduced federal excise tax rate of 3.44 cents per gallon reserved for gasohol producers, and he sold the gasoline, unblended, to retail outlets. Powell charged his customers the full rate of 9.1 cents per gallon federal excise tax, and the full rate of state excise taxes on gasoline. He kept the difference.

Powell formed a second company, JLK Transport, which he incorporated, in order to transport fuel to his customers. Powell formed a separate company to transport fuel so that he could better determine whether he was making or losing money on transportation. JLK Transport was run for Powell by Charles Henderson, who pleaded guilty in August 1995 to state organized-criminal-activity charges concerning his failure to pay fuel tax.

Henderson did business with Powell in the late 1980s and early 1990s, after Powell approached Henderson and offered to sell him fuel. Henderson sold only gasoline and diesel fuel, no gasohol, from his service stations. Henderson bought only gasoline and diesel fuel from Powell. Powell charged Henderson excise tax on both gasoline and diesel fuel.

Henderson and Powell became friends, and Henderson bought fuel from and delivered fuel for Powell's company. Their business arrangement was that Powell would handle the fuel orders and Henderson would handle the deliveries, and each would pick up some of the checks and money. They agreed that Henderson would run JLK Transport out of Henderson's office, and Powell would pay Henderson for transporting the fuel. Henderson leased five trucks from Raymond Young, and Powell co-signed a note so that Henderson could buy another truck. Henderson paid off the note on that truck. Powell gave Henderson the title of vice-president for signing paperwork. Powell gave Henderson transport tickets, letterhead, and other paperwork necessary to run JLK Transport at his office. Powell had a fuel card, and he gave other fuel cards to the drivers or left them in the office for the drivers. Henderson testified that he and Young transported fuel under the name JLK Transport with Powell's "complete approval." Powell kept track of freight expenses on a spreadsheet. This arrangement lasted until April 1990.

Henderson and Powell discussed blending fuel with ethanol and the corresponding tax credits. Powell told Henderson that he got a tax credit from the government for blending fuel, which allowed him to sell fuel an average of five cents below rack prices.

Henderson never stored any fuel for Powell, and he never stored any ethanol in his tanks nor sold any ethanol to Powell. Henderson sometimes blended diesel fuel and barge strippings, and sometimes blended gasoline, but he never blended gasoline with ethanol. Four drivers who delivered fuel for JLK Transport in 1989 and 1990 testified that during the time they delivered fuel for Powell, they delivered only gasoline and diesel fuel to truck stops, convenience stores, and service stations. These drivers never blended gasoline with ethanol. Three of the drivers had never transported ethanol for Powell, and the fourth driver had only done so on one occasion, when he picked up a load at Livingston Steam Power.

Between June 1989 and September 1989, Young, from whom Henderson had leased five trucks, came in and took over Henderson's business. Young arranged credit on credit transactions, collected the money, paid Henderson for his equity share of business, and paid the bills. Young used the name of one of Henderson's companies, Travel Stop, for Young's stations in Louisiana. Faye Bartniski, who had kept Young's books, came to work at Henderson's offices to keep the books for their business venture. Henderson and Bartniski sent more than $25,000 in cash at a time to Young by an overnight delivery service in order for Young to pay the...