U.S. v. Tomko

• Decision Date: 20 August 2007
• Docket Number: No. 05-4997.,05-4997.
• Citation: 498 F.3d 157
• Parties: UNITED STATES of America, Appellant v. William TOMKO.
• Court: U.S. Court of Appeals — Third Circuit

498 F.3d 157

UNITED STATES of America, Appellant v. William TOMKO.

No. 05-4997.

United States Court of Appeals, Third Circuit.

Argued October 24, 2006.

Filed: August 20, 2007.

Alan Hechtkopf, S. Robert Lyons, (Argued), United States Department of Justice, Tax Division, Washington, DC Attorneys for Appellant.

J. Alan Johnson, Cynthia R. Eddy, (Argued), Johnson & Eddy, Pittsburgh, PA, Attorneys for Appellee.

Before: SMITH, FISHER and COWEN, Circuit Judges.

OPINION OF THE COURT

FISHER, Circuit Judge.

The Government appeals from a judgment of sentence imposed on William Tomko, Jr., who pleaded guilty to a fraudulent scheme to evade personal income taxes. Tomko's fraudulent scheme resulted in a tax deficiency of more than $225,000. The District Court imposed a below-Guidelines sentence consisting of 250 hours of community service, three years of probation (including one year of house arrest), and a fine of $250,000. Tomko was also ordered to undergo twenty-eight days of in-house treatment for alcohol abuse. As discussed below, this sentence is unreasonable in light of the circumstances of this case and the sentencing factors outlined in 18 U.S.C. § 3553(a). It was therefore an abuse of discretion for the District Court to impose it and we will vacate the judgment and remand for resentencing.

I. BACKGROUND

William G. Tomko, Jr., pleaded guilty to a fraudulent scheme to evade federal income taxes that revolved around the construction of his luxurious new home in southwestern Pennsylvania. From 1996 through 1998, during the construction of this home, Tomko had numerous subcontractors falsify their billing invoices to make it appear their work had been done for his construction company, W.G. Tomko, Inc. ("Tomko, Inc."), at one of its job sites, rather than for Tomko, the individual, at his personal residence. As a result, the company paid the construction costs of the home, illegally deducted the expenses, and Tomko did not properly report the value of the construction costs paid for by the company as income on his personal income taxes.¹ The scheme resulted in a stipulated tax deficiency of $228,557.

Numerous subcontractors were involved in Tomko's scheme. One subcontractor, for example, who installed the lawn sprinkler system at Tomko's residence, told Internal Revenue Service-Criminal Investigation Division (IRS-CID) investigators that he wrote billing invoices at Tomko's behest that made it appear his work had been done at one of five local area schools. Because Tomko, Inc. was working jobs at these local schools, the company could appear to be legitimately paying the invoices.² As a result, the construction costs were diverted from Tomko personally to Tomko's company, which then deducted them as expenses. Similarly, another subcontractor, who installed the granite and marble countertops throughout Tomko's home, told the IRS-CID investigators that Tomko had stated "I'll pay you but this is how I want it written up." Tomko then instructed him to prepare invoices indicating that the work had been done at one of the local area schools so that Tomko, Inc. could foot the bill and deduct the expenses.

There are even more egregious examples in the record of this sort of fraudulent misrepresentation. One subcontractor, who built custom cabinetry for Tomko's house, stated that he was told by Tomko to "be creative" in his billing and that he had previously been "tipped" that Tomko was running the costs of the construction through his business. Another subcontractor, who installed stainless steel kitchen fixtures at the house, stated that Tomko told him he "wanted this job run through [a local school]" and that the billing invoice was to be sent to Tomko, Inc. Another subcontractor, who did specialty wiring at the house, stated that Tomko instructed him to prepare false invoices indicating that the services he had provided for the house were actually done for yet another local school.

IRS-CID investigators interviewed seventeen individuals in all with respect to Tomko's scheme. While the details vary from individual to individual, in most cases the pattern of conduct resembled the examples already described ! Tomko attempted to evade paying taxes by fraudulently diverting construction costs through his company, Tomko, Inc., deducting the costs as business expenses, and then failing to report as income the value of the services provided to him personally. On October 4, 2001, an IRS-CID agent contacted Tomko to advise him there was an allegation of unreported income against him and to request an interview. On May 11, 2004, Tomko waived indictment and pleaded guilty to a one-count information charging tax evasion for 1997, in violation of 26 U.S.C. § 7201.

Tomko was sentenced on September 30, 2005.³ At the sentencing hearing, the District Court properly recognized its obligation to calculate the correct advisory United States Sentencing Guidelines ("Guidelines") offense level and concluded that the applicable offense level was thirteen.⁴ The recommended Guidelines sentencing range for this offense level is twelve to eighteen months of incarceration, but defense counsel proposed, in lieu of imprisonment, that Tomko be allowed to do volunteer work with Habitat for Humanity and assist in its efforts to provide housing for victims of Hurricane Katrina. Counsel stated "I wouldn't ask that normally, Your Honor, but it seems to me that if he were sitting in prison, whether it's minimum security or medium security or whatever, and he could be helping the people who have been so devastated so significantly in the New Orleans area and in the Gulf Coast area...."

Defense counsel then presented as a witness the Executive Director of the Pittsburgh affiliate of Habitat for Humanity, who was first contacted about Tomko's interest in volunteering, after Tomko's guilty plea. The Director was generous in her appraisal of Tomko. She testified that his construction expertise and local contacts had helped the organization immensely and that he had been able to contribute substantially to a number of their ongoing construction projects. She outlined the Pittsburgh Habitat for Humanity's plans to aid in the Gulf Coast reconstruction efforts by building prefabricated housing ("Home in a Box Program") for shipment to the Gulf Coast and Tomko's assistance in that effort.

Defense counsel also proffered testimony from Tomko, Inc.'s chief financial officer stating that Tomko's absence from the company could very well place Tomko, Inc. in dire straits financially. The Court indicated that it had reviewed and considered all motions and briefs submitted by the parties. One of these motions was a Motion for Downward Departure, in which defense counsel stated as grounds for downward departure: (1) the effect incarceration would have on Tomko's business, causing a job loss to more than 300 innocent employees; (2) Tomko's exceptional charitable and community activities; (3) extraordinary acceptance of responsibility; and (4) a combination of factors. The motion included as exhibits over fifty letters from friends, family, and community leaders attesting to Tomko's generosity and compassion.

After stating that it had reviewed and considered all motions and briefs submitted by the parties, the District Court then proceeded to place on the record its consideration of the Guidelines and the § 3553 factors.⁵ First, in considering the nature and circumstances of the offense, § 3553(a)(1), the District Court found that the offense was nonviolent, not ongoing in nature, not part of a larger pattern of criminal activity, and that there were no identifiable victims of the offense. Regarding the history and characteristics of the defendant, id., the Court noted Tomko's good family history, educational attainment, gainful employment, and negligible criminal history. It also observed that Tomko had a drinking problem that could benefit from treatment and moderate depression that was already being treated. Second, in applying § 3553(a)(2), the Court considered that tax evasion was a serious offense, but that Tomko had led an otherwise crime-free life and there was little likelihood of recidivism. Finally, in addressing § 3553(a)(3), (4), and (6), the Court considered the kinds of sentences available and "the need for unwarranted sentence disparities among Defendants with similar records who have been found guilty of similar conduct" and acknowledged that "these considerations generally weigh in favor of sentencing a Defendant within the Guidelines range." The Court then concluded:

However, this need to avoid unwarranted sentence disparities among Defendants with similar records also gives me enough leniency [] to understand that there are differences and those differences have to be taken into account. I recognize the need for consistent sentencing; however, in this case, given the Defendant's lack of any significant criminal history, his involvement in exceptional charitable work and community activity, and his acceptance of responsibility, we find that a sentence that is mitigated by the factors of 3553 are warranted.

In urging the District Court to sentence Tomko to incarceration rather than home confinement, the Government observed that Tomko had "cheated his Government out of the money to build his house" and that "it would be a travesty of justice to put [Tomko] in the very mansion he stole from the Government, from these very citizens." It also asserted that probation would be sending the message "you can buy your way out of trouble." Speaking of the contracting industry specifically, which it suggested was "riddled with tax fraud," the Government argued that a sentence of probation would be interpreted as "go ahead, cheat on your taxes. If you get caught, you'll have to pay some money, but you won't have to go to prison." The Government argued that "real deterrence is jail" and "the threat of jail is real for these white collar criminals that...