United States v. Abramson

• Decision Date: 25 January 2023
• Docket Number: 18 CR 681
• Parties: UNITED STATES OF AMERICA, v. MICHAEL ABRAMSON.
• Court: U.S. District Court — Northern District of Illinois

UNITED STATES OF AMERICA,
v.
MICHAEL ABRAMSON.

No. 18 CR 681

United States District Court, N.D. Illinois, Eastern Division

January 25, 2023

MEMORANDUM OPINION AND ORDER

Virginia M. Kendall, United States District Judge

The United States has charged Defendant Michael Abramson with thirteen counts of filing false tax returns in violation of 26 U.S.C. § 7206(1). (Dkt. 1). Abramson moves to exclude testimony of the government's summary expert witness, Internal Revenue Service (IRS) Revenue Agent Michael Welch, under Federal Rule of Evidence 702. (Dkt. 85). For the following reasons, the Court denies Abramson's Motion. [85]

Background

The government has charged Defendant Michael Abramson with thirteen counts of making false statements in both his personal tax returns and in tax returns that he directed to be prepared and filed for Leasing Employment Services (LES), a business in which he has an ownership interest. (Dkt. 1). Abramson owns two other companies, Eastern Advisors and PayTech, which Abramson claims were consolidated with LES for corporate tax purposes. (Dkt. 85 at 2). Abramson allegedly did not file any corporate tax returns for Eastern Advisors until after the IRS's investigation went overt in fall 2013. (Dkt. 89 at 4). He subsequently filed amended consolidated corporate tax returns for LES from tax years 2006-2012 and consolidated corporate returns for tax years 2013 and 2014 that each included Eastern Advisors. (Id.; see also dkt. 1 at 7-14, 16).

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The criminal charges relate certain payments that Eastern Advisors made to Jerilyn Totani, who was involved in an extramarital romantic relationship with Abramson. (Dkt. 85 at 2; dkt. 89 at 2). The government intends to prove that Abramson used Eastern Advisors to divert taxable corporate and personal income to Totani. (Dkt. 89 at 2-4). Abramson allegedly began directing payments from Eastern Advisors to Totani in June 2003. (Dkt. 1 at 3). The payments were classified as “advance on commissions” or “commissions” or “loans” on Eastern Advisors' books. (Id.) The government claims Abramson knew these payments were none of these things but were instead personal payments from Abramson to Totani based on income he received from Eastern Advisors. (Id.)

Abramson maintains that Eastern Advisors' twice monthly $2,500 payments were contractually agreed commissions that Totani-a licensed real estate broker-earned through her role in bringing a business deal to Eastern Advisors. (Dkt. 85 at 2-3). Abramson also acknowledges that Eastern Advisors made additional loans to Totani for her personal expenses but maintains they were properly classified as such. (Id. at 3). He denies making material misstatements on his personal income tax returns or on LES's corporate tax returns regarding these transactions.

According to the government's theory of the case, approximately 85% of the deposits coming into Eastern Advisors' loan account (denoted as “Loan-MAA”) were not shareholder loans from Abramson despite the account's name and his claims. (Dkt. 89 at 3). The government says these deposits represented corporate earnings and profits from Eastern Advisors' regular business dealings. (Id.) Deposits were made by a broker (A.A. Sayia) or from clients of a Mexican oregano company (Grupo Mexquitic) in which Abramson also had an ownership stake. (Id.) Eastern Advisors' business earnings and profits that Abramson directed to Totani, the government argues, should have been declared as taxable distributions from Eastern Advisors to Abramson. The

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government maintains these payments represented his personal income from Eastern Advisors that he directed to Totani for personal rather than business reasons. (Dkt. 85 at 6-7). As a result, Abramson allegedly understated his income on his personal income taxes.

Abramson, however, contends that the deposits into the Eastern Advisors' “Loan-MAA” account should be treated as nontaxable capital contributions or shareholder loans from Abramson to Eastern Advisors. (Dkt. 89 at 3; dkt. 85 at 4-5). According to Abramson, the commission payments and loans that he directed Eastern Advisors to make to Totani were intended as repayments of Abramson's shareholder loans to Eastern Advisors and thus nontaxable return of capital, rather than taxable distributions on income earned. (Dkt. 85 at 6-7). He denies any false statements on his personal income taxes.

The government further intends to prove that the commission payments and loans to Totani on Eastern Advisors' books were not what they purported to be, so Abramson made material false statements on LES's consolidated corporate tax returns. (See dkt. 1 at 7-14, 16). The government intends to prove that the commission payments to Totani were not deductible business expenses, but rather nondeductible personal expenses to pay for Totani's lifestyle. (Id.) Similarly, the government intends to prove that the corporation's other assets reporting “loans receivable” to “JT” were not loans but personal payments from Abramson to Totani. (Id.) Abramson also denies these allegations.

The government intends to call IRS Revenue Agent Michael Welch as a summary expert witness to testify to tax loss calculations made from analyzing Abramson's personal tax returns and LES's consolidated corporate tax returns. (Dkt. 85 at 1; dkt. 89 at 1). Abramson moves to exclude Agent Welch's testimony under Federal Rule of Evidence 702 and the Supreme Court's framework in Daubert v. Merrell Dow Pharmaceuticals as employing unreliable methodology and

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irrelevant. (Dkt. 85 at 1). After full briefing on the motion, the Court held a Daubert hearing on December 14, 2022, to examine Agent Welch. (Dkt. 104). The parties also filed supplemental posthearing briefs. (Dkts. 113, 114).

Legal Standard

“The admissibility of expert testimony is governed by Federal Rule of Evidence 702 and the Supreme Court's opinion in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).” Lewis v. CITGO Petroleum Corp., 561 F.3d 698, 705 (7th Cir. 2009). Trial judges act as gatekeepers to screen expert testimony for relevance and reliability. Daubert, 509 U.S. at 589; see also C.W. ex rel. Wood v. Textron, Inc., 807 F.3d 827, 834 (7th Cir. 2015). Rule 702 permits opinion testimony from a “witness who is qualified as an expert by knowledge, skill, experience, training, or education” if his or her expertise will assist the trier of fact “to understand the evidence or to determine a fact in issue,” and “the testimony is based upon sufficient facts or data, the testimony is the product of reliable principles and methods, and the witness has applied the principles and methods reliably to the facts of the case.” Fed.R.Evid. 702. Thus, “the key to the gate is not the ultimate correctness of the expert's conclusions but rather the soundness and care with which the expert arrived at her opinion.” Burton v. E.I. du Pont de Nemours & Co., Inc., 994 F.3d 791, 826 (7th Cir. 2021) (quoting Schultz v. Akzo Nobel Paints, LLC, 721 F.3d 426, 431 (7th Cir. 2013)) (internal quotation marks omitted).

District courts apply Daubert flexibly, consistent with the Court's gatekeeping function. Kumho Tire Co. Ltd. v. Carmichael, 526 U.S. 137, 147 (1999). The Court uses a three-part analysis when applying the Daubert framework to proposed Rule 702 evidence. The Court determines: (1) “whether the witness is qualified;” (2) “whether the expert's methodology is scientifically reliable;” and (3) “whether the testimony will assist the trier of fact to understand the evidence or

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determine a fact in issue.” Myers v. Ill. Cent. R.R....