U.S. v. Wapnick

• Decision Date: 10 July 1995
• Docket Number: 648 and 544,D,1305,Nos. 647,s. 647
• Citation: 60 F.3d 948
• Parties: -5601 UNITED STATES of America, Appellee, v. Seth WAPNICK, Harold Wapnick, Jon Wapnick, and Steven Wolfson, Defendants-Appellants. ockets 94-1206, 94-1207, 94-1208 and 94-1209.
• Court: U.S. Court of Appeals — Second Circuit

Page 948

60 F.3d 948

76 A.F.T.R.2d 95-5601

UNITED STATES of America, Appellee, v. Seth WAPNICK, Harold Wapnick, Jon Wapnick, and Steven Wolfson, Defendants-Appellants.

Nos. 647, 1305, 648 and 544, Dockets 94-1206, 94-1207,

94-1208 and 94-1209.

United States Court of Appeals Second Circuit.

Argued April 11, 1995.

Decided July 10, 1995.

Joshua L. Dratel, New York City (Lefcourt & Dratel, P.C., Gerald B. Lefcourt, of counsel), for defendant-appellant Seth Wapnick.

Richard Ware Levitt, New York City, for defendant-appellant Jon Wapnick.

Barry Gene Rhodes, Brooklyn, NY, for defendant-appellant Steven Wolfson.

Harold Wapnick, pro se.

Shari D. Leventhal, Asst. U.S. Atty., Brooklyn, NY (Zachary Carter, U.S. Atty., E.D.N.Y., Emily Berger, Thomas H. Roche, Asst. U.S. Attys., Brooklyn, NY, of counsel), for appellee.

Before: FEINBERG, WALKER and CABRANES, Circuit Judges.

JOSE A. CABRANES, Circuit Judge:

Appellants Seth Wapnick, Harold Wapnick, Jon Wapnick, and Steven Wolfson appeal from judgments of conviction entered in the United States District Court for the Eastern District of New York (Carol Bagley Amon, Judge ). The jury convicted all four appellants of conspiracy to defraud the United States by impeding, impairing, obstructing and defeating the lawful functions of the Internal Revenue Service ("IRS") in collecting income taxes and information regarding cash transactions in excess of $10,000, in violation of 26 U.S.C. Sec. 7201 and 18 U.S.C. Sec. 3623; all four appellants of aiding and abetting the filing of false tax returns, in violation of 26 U.S.C. Sec. 7206(2); Harold, Jon and Seth Wapnick ("the Wapnicks") for failing to meet reporting requirements for large cash transactions, in violation of 31 U.S.C. Secs. 5313, 5322(b); Harold Wapnick of tax evasion, in violation of 26 U.S.C. Sec. 7201; and Seth Wapnick of making false statements on his tax return, in violation of 26 U.S.C. Sec. 7206(1) and 18 U.S.C. Sec. 3623. The Wapnicks were also convicted of structuring transactions to evade currency transaction reporting requirements, in violation of 31 U.S.C. Sec. 5324, but the district court set aside those convictions prior to sentencing in light of the Supreme Court's holding in Ratzlaf v. United States, --- U.S. ----, ----, 114 S.Ct. 655, 663, 126 L.Ed.2d 615 (1994).

Appellants challenge their convictions and sentences on multiple grounds. We find their arguments to be without merit, and we affirm the judgments of conviction as well as the sentences imposed by the district court.

I

Harold Wapnick, an accountant, operated a tax preparation service called Harold Wapnick & Sons ("the Wapnick business") out of the basement of his home in Brooklyn. The Wapnick business employed Harold Wapnick's sons, Jon and Seth, and Steven Wolfson. A large number of appellants' clients were taxicab operators, including many self-employed immigrant cab drivers. Appellants grew to be a major force in the New York taxi industry, and at one time prepared the tax returns for an estimated 13% of the city's cab drivers--a large number of them immigrants from Haiti, Russia, Israel and other countries. See N.R. Kleinfield, Pursuing Tax Cheats in Land of Opportunity, N.Y. TIMES, June 16, 1993, at A1, in Gov't App. 235.

A

In the spring of 1988, the Finance Department of the City of New York began investigating allegations that the tax returns prepared by the Wapnick business on behalf of their taxi clients were fraudulent. As part of the city probe, city investigator Joseph McQuillen worked as an undercover cab driver and, appropriately "wired," visited the Wapnick business. There, McQuillen told defendants that he had received a notice from the city requesting taxes due, and that he had not filed any tax returns for the 1985, 1986 or 1987 tax years. The Wapnick business subsequently prepared tax returns for McQuillen for those years, without asking McQuillen about his fares, tips and expenses for those years.

In November 1988, McQuillen told defendants that he had received a notice of hearing from the City and feared a tax return audit. Harold and Jon Wapnick reportedly advised McQuillen to purchase a diary and fabricate maintenance expenses; further, Jon Wapnick allegedly told McQuillen to spill coffee on the diary and scuff it in order to make it appear authentic.

Approximately one month later, IRS agent Kevin Carroll applied for a warrant to search the basement office of the Wapnick business, in support of which Carroll submitted an eleven-page affidavit that reported McQuillen's account of his undercover dealings with appellants and stated also that the Wapnicks' own tax returns appeared to understate their reported gross incomes. Then-Magistrate Judge Allyne Ross issued a warrant for "the basement office of 2024 East 18th Street, Brooklyn, New York," authorizing seizure of a detailed list of items. Pursuant to the warrant, on December 15, 1988, IRS agents searched the basement office of the Wapnick business, seizing a computer and approximately one million documents.

In April 1992, United States Attorney Andrew Maloney and New York City Mayor David Dinkins made a joint appearance at City Hall to announce that defendants had been named in a 152-count indictment charging them with numerous federal crimes arising out of the activities of their tax preparation business. See Dan Jacobson, Tax Preparers Accused in Tax Scam, UPI, Apr. 9, 1992.

Prior to trial, Jon and Seth Wapnick moved to have the evidence seized in the December 1988 search and seizure suppressed on multiple grounds. In an opinion dated March 15, 1993, the district court denied the motion to suppress.

B

Appellants' trial began March 29, 1993, and lasted thirteen weeks. More than seventy witnesses testified for the government, including clients of the Wapnick business, expert witnesses, and McQuillen, the undercover city investigator. The government sought to establish at trial that (1) all four appellants participated in aiding and abetting their clients in filing false tax returns that understated their clients' income; (2) Harold Wapnick evaded tax liability by employing sham corporations to conceal income generated by business activity of the Wapnick family; (3) Seth Wapnick understated his own business income on his tax returns; and (4) Harold, Seth and Jon Wapnick failed to file required reports for cash transactions exceeding $10,000, and structured their cash transactions to evade those reporting requirements.

1. The Preparation of False Tax Returns for Taxi Clients

At trial, McQuillen testified about his undercover dealings with the Wapnick business, stating that appellants had prepared his tax returns with fabricated information. Twelve self-employed cab drivers gave similar accounts on the stand, testifying that appellants had prepared their tax returns without the benefit of any information about their fares, tips or expenses. Two drivers and McQuillen testified that appellants coached them on how to fabricate diaries to substantiate the false tax returns.

The returns prepared by the Wapnick business, according to witness testimony, grossly understated the taxi drivers' fare income by claiming that mileage registered on the drivers' meter boxes was actually run up by others to whom the drivers leased the cabs--even though the drivers testified that they had never leased their cabs to anyone, nor told appellants that they had done so.

2. Harold Wapnick's Tax Evasion Scheme

Tax returns filed by Harold Wapnick on behalf of the Wapnick business reported taxable income of $5,460 in the 1985 tax year, and $5,908 in 1986. Harold Wapnick did not file a return for the 1987 tax year. The government sought to show at trial that these returns vastly underreported the true income generated by the Wapnick tax preparation service and by a loan and check-cashing business conducted on the side by Harold, Seth and Jon Wapnick. According to government testimony, Harold Wapnick concealed the income derived from the loan and check-cashing businesses by depositing the revenues into thirteen different corporate accounts at Republic National Bank employing unauthorized employer identification numbers belonging to former clients of the tax preparation business. Government witnesses testified that Harold Wapnick's unreported income from accounting fees, check-cashing fees, interest income and capital gains totalled $600,515 in 1985, $787,080 in 1986, and $1,008,325 in 1987.

3. Seth Wapnick's False Tax Returns

Seth Wapnick had a business activity of his own--leasing taxi medallions--and was also understating his income on his tax returns, government witnesses testified. According to the government's evidence, Seth Wapnick leased the medallions using three corporations in which he was a shareholder, ¹ none of which filed any corporate tax returns for the 1986 or 1987 tax years. According to the government, Seth Wapnick's actual income from medallion-leasing was $9,862 in the 1986 tax year, and $21,184 in 1987. His tax returns, however, understated this income by 57% in 1986, and by 59% in 1987.

4. The Money Laundering Scheme

Financial institutions are required by law to file currency transaction reports ("CTRs") with the Secretary of the Treasury in connection with transactions involving more than $10,000 in United States currency. 31 U.S.C. Sec. 5313(a) (prescribing the filing of CTRs for currency transactions exceeding an amount set by regulation); 31 C.F.R. Sec. 103.22(a) (1986); id. (1987) (setting amount at $10,000). Witnesses for the government testified that the Wapnick business routinely cashed checks in amounts exceeding $10,000; yet the Wapnicks never filed any CTRs concerning those transactions.

To fund their loan and check-cashing operations, the Wapnicks frequently made large cash withdrawals from their numerous Republic National Bank accounts. According to the testimony of a bank employee, the Wapnicks would make multiple withdrawals in the same...