United States v. Rozin

• Decision Date: 15 February 2012
• Docket Number: No. 11–3186.,11–3186.
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Leif D. ROZIN, Defendant–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

109 A.F.T.R.2d 2012-382

2012-1 USTC P 50,140

664 F.3d 1052

UNITED STATES of America, Plaintiff–Appellee,

v.Leif D. ROZIN, Defendant–Appellant.

No. 11–3186.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 13, 2011.Decided and Filed: Jan. 6, 2012.Rehearing and Rehearing En Banc Denied Feb. 15, 2012.

ARGUED: H. Louis Sirkin, Sirkin, Kinsley & Nazzarine Co., LPA, Cincinnati, Ohio, for Appellant. Deborah K. Snyder, United States Department of Justice, Washington, DC, for Appellee. ON BRIEF: H. Louis Sirkin, Scott Ryan Nazzarine, Sirkin, Kinsley & Nazzarine Co., LPA, Cincinnati, Ohio, for Appellant. Deborah K. Snyder, Frank P. Cihlar, Gregory Victor Davis, United States Department of Justice, Washington, DC, for Appellee.Before: ROGERS, COOK, and McKEAGUE, Circuit Judges.

OPINION

ROGERS, Circuit Judge.

Taxpayer Rozin, along with others, took business and individual tax deductions for the cost of so-called “Loss of Income” insurance policies, although the insurance aspect of the policies was questionable and the policies allegedly permitted Rozin to get back or maintain control of the premium funds. Rozin was convicted on three counts of tax-related crimes: subscribing a false tax return under 26 U.S.C. § 7206(1); attempting to evade taxes under 26 U.S.C. § 7201; and conspiracy to defraud the Government under 18 U.S.C. § 371. These convictions must be upheld because the Government presented sufficient evidence of the crimes, because Rozin's evidentiary argument regarding prior bad acts evidence is without merit, and because there is no merit to Rozin's argument that the Government was required by the nature of the charges to forgo charging him under the general crime of conspiracy to defraud the United States. Finally, the district court did not err in ordering Rozin to pay restitution for the personal income taxes of his co-conspirator.

I.

The conspiracy in this case involved the corporate and personal income tax returns filed on behalf of Rozin, Inc. and its co-owners, defendants Leif Rozin and Burton “Buddy” Kallick. Through Rozin, Inc., Rozin and Kallick owned a multi-state retail carpet chain in the 1990s. After two years of negotiations, Rozin and Kallick sold Rozin, Inc. in 2000, resulting in potentially large taxable profits.

In 1998, while Rozin and Kallick were negotiating the sale of Rozin, Inc., their long-time insurance broker, Milt Liss, was introduced to Bruce Cohen, another insurance broker, at a general insurance agents meeting. At the time, Cohen was selling purportedly tax-deductible “Loss of Income” (LOI) insurance policies offered by Caduceus Life Insurance Company, a company licensed in the U.S. Virgin Islands. Liss was unaware of the fact that, at the time that he met Cohen, Cohen's license to sell insurance had been revoked.

To market LOI and “return of premium” (“ROP”) insurance products, Cohen gave Liss various promotional materials, including an opinion letter from a law firm stating that premiums for the LOI policies were likely allowable deductions, and a two-page flyer entitled, “Tax Court Settlement on ‘Loss of Income’ Policy.” The flyer described Savage v. Commissioner, an alleged settlement between the IRS and a Caduceus LOI policyholder.

The LOI policies insured against loss of income due to certain circumstances, including corporate downsizing, changes in technology, or employee layoffs arising within one year from the date the policy was issued. The policies did not cover the following: death; disability; voluntary termination; self-inflicted injuries; proven criminal acts; negligent or willful misconduct; substance abuse; dishonesty or fraud; insubordination, incompetence, or inefficiency; conflict of interest; or breach of employment contract. Because the policies were allegedly tax deductible, they were especially advantageous for individuals in the highest tax brackets. In 1998, Caduceus also offered ROP riders in conjunction with the LOI insurance policy. If no claim was filed on the policy, the rider would enable the purchaser to receive a significant portion of the premium paid for the LOI policy. If the rider was purchased with the LOI, the LOI premium would be invested for the policy owner and would be distributed to the owner, taxable upon receipt, after ten years or at age sixty-five. If the insured died before the ROP amount became payable, the individual lost his premium. According to the promotional materials, the ROP rider was not tax-deductible, but the LOI premium payments were deductible. However, the promotional materials also included a caveat that if the IRS challenged the deduction, then the individual may owe past taxes due plus interest.

Liss testified that he told Rozin that he had never seen anything like the LOI policy before. During trial, Liss explained that Cohen's LOI policy was different because the ROP rider allowed the policy-holder to “take the money and self-direct it into an investment or do other things.” In his experience, Liss did not know of any other policy that allowed the individual to retain control over the funds.

After Liss presented the LOI and ROP policies to Rozin, Liss advised Rozin to have someone look at the materials to assess the policies. Rozin had Alan Koehler, his in-house counsel, analyze the legality of the policies. Rozin also asked Thomas Keehn, a CPA who was the controller for Rozin, Inc., to review the Caduceus Tax Court flyer. After referring to a handbook for accountants, which suggested this type of policy was deductible, Keehn shared his findings with Koehler. Keehn was never told anything else about the policies.

After Koehler and Keehn conducted their research, Rozin, Kallick, and Koehler met with Cohen to discuss the policies. Cohen assured them that the LOI policies were tax-deductible, and that if they were not, “the worst thing that would happen would be that they would have to pay the additional taxes owed plus interest.”

Despite the research conducted by Keehn and Koehler and the meeting with Cohen, Rozin was still concerned about the legitimacy and viability of Caduceus. On October 5, 1998, Rozin, Liss, Koehler, and Cohen traveled to St. Croix in the Virgin Islands to visit Caduceus, meet with its principals, and see the company's banking operations.

Prior to the trip, Liss, Rozin, and Cohen discussed the three options available when purchasing the LOI policy. The first option was to leave the funds with Caduceus, allowing the company to invest the funds until the funds matured after ten years or after Rozin and Kallick reached the age of sixty-five. The second option was to invest the funds in a bank and then apply for a loan from that bank to gain access to a percentage of the premium funds. The third option was to have the ROP funds transferred to Liss, who would invest the money on behalf of Rozin and Kallick in a series of mutual funds. Though Liss would be in charge of the account, the funds were left in Caduceus's name. Rozin and Koehler decided on the third option.

On October 6, 1998, while Rozin was still in the Virgin Islands, Rozin, Inc. purchased two LOI policies and riders, with Rozin and Kallick named as the insured individuals. The premium on each policy was $600,000 and the amount of coverage was $720,000. If Rozin or Kallick qualified for coverage during the one-year policy period, the maximum amount that they could receive under the LOI policy was $30,000 per month for a period of twenty-four months. Rozin paid for the policies with a check totaling $1,275,787.56. On October 7, 1998, $1,037,400 from the check was wired to Liss's corporate account. Both Liss and Koehler earned commissions for their role in the LOI sale.

Instead of leaving the funds in Caduceus's name, Koehler used the money in Liss's account to open two grantor trust accounts—the Revolution Living Trust and the Emperor Living Trust—with Koehler as trustee. By placing the funds in the trust, Caduceus did not have access to the funds. The trusts were revocable by both Rozin and Kallick.

At the end of 1998, negotiations were ongoing for the sale of Rozin, Inc. After Rozin and Kallick entered into an agreement to sell Rozin, Inc. in July 1998, Rozin asked Clark, Schaefer, Hackett & Company, an accounting firm, to advise him regarding possible tax liabilities from the sale. John Parks, a CPA, determined that the tax liability resulting from capital gains could be almost $2,200,000.

Around this time, Liss and Cohen presented Rozin and Kallick with Basis Boost, another product intended to limit the owner's tax liability. Basis Boost was developed by Altheimer & Gray, a Chicago law firm, and acted as a tax shelter that artificially raised a seller's “basis” in his company for tax purposes and then created an artificial loss that would be reported with the gain from the sale, reducing the amount of taxes owed by the seller. At the end of December 1998, Rozin and Kallick gave Liss a check for $625,000. Though Rozin disputes the purpose of the check, Rozin and Kallick allegedly told Liss that if the 1998 sale of Rozin, Inc. went through, the money should be used to purchase Basis Boost. If not, Liss was instructed to buy additional LOI policies.

In early 1999, Rozin asked Keehn to prepare a tax projection including the $625,000 expense, though no one told Keehn what that expense was. Keehn estimated that with the additional $625,000 counted as income rather than as an expense, Rozin and Kallick would each owe approximately $80,000 in additional federal taxes.

In July 1999, Keehn prepared a draft 1998 tax return for Rozin, Inc. During this time, Rozin, Inc. labeled the October LOI payments as “general insurance” in the company's ledger and deducted those expenses in the tax returns. Though the promotional materials explicitly stated that the ROP rider premiums were not tax-deductible, the entire $1,275,787.56 was listed as a general insurance expense and treated as a tax deduction. The $625,000...