UNITED STATES COURT OF APPEALS FIFTH CIRCUIT
______________
No. 92-1545 ______________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
ROY W. CHARROUX and HARRY J. JAMES,
Defendants-Appellants.
__________________________________________________
Appeal from the United States District Court For the Northern District of Texas __________________________________________________ (September 23, 1993)
Before EMILIO M. GARZA and DEMOSS, Circuit Judges, and ZAGEL, District Judge.*
EMILIO M. GARZA, Circuit Judge:
Defendants, Roy W. Charroux and Harry J. James ("Charroux and
James" or "defendants"), were convicted of conspiracy, attempted
tax evasion, and signing a false tax return. They now appeal their
convictions and sentences, and we affirm.
I
James, Charroux, Susan Petr, and James McClain were all in the
real estate business in Dallas.1 James was the president and co-
owner of Texas Land Holding Corporation ("Texas Land"). Charroux
* District Judge for the Northern District of Illinois, sitting by designation. 1 We present the facts in the light most favorable to the jury's verdict. All dollar amounts are approximate. was the other co-owner and vice president of Texas Land. Petr and
McClain each owned half of Petr-Avery Development Corporation
("Petr-Avery"), of which Petr was president.
After Petr met James and Charroux at a bar, they introduced
her to the concept of land flips, a type of transaction where a
buyer agrees to purchase a tract of land at an inflated price, in
return for a share of the seller's profits on the sale. James
explained to Petr that a lot of money, which he described as
profits, could be made on land flips.
Thereafter, James, Charroux, McClain, and Petr engaged in
several land flip transactions together. First they formed a joint
venture to purchase a tract of land in Carrollton, Texas. The
joint venture agreement provided that all interests, including
profits, in the sale of the Carrollton property would be divided as
follows: 23.33% each to James, Charroux, and Petr; 30% to McClain.
Petr-Avery then purchased the property from Sweden & Smith
Investment Brokers for $3.1 million and resold it on the same day
to Texas Land for $4.5 million. Texas Land financed its purchase
of the Carrollton acreage with a $5.2 million loan, of which the
lending institution disbursed roughly $4.8 million to Dallas Title
Co.2 Dallas Title, which oversaw the sale to Texas Land, then
disbursed the $4.8 million as instructed by Petr: $3.1 million to
Sweden & Smith; $315,000 each to James, Charroux, and Petr-Avery;
and $418,000 to McClain. Before the end of the year, James and
2 Most of the remainder of the loan was retained by the lender in payment of interest due.
-2- Charroux were released from their liability on the $5.2 million
loan.
A land flip involving acreage in Coppell, Texas was
accomplished in a similar manner. The defendants, Petr, and
McClain formed a joint venture to purchase the property, with the
profits from the sale of the land to be divided between James,
Charroux, Petr, and McClain. Thereafter Petr-Avery purchased the
Coppell tract from James Fuller for $2.8 million and resold it on
the same day to Texas Land for $4.2 million. Texas Land then sold
the land to the joint venture for $4.2 million. The joint venture
financed these transactions by borrowing $5 million, out of which
the lender disbursed $4.5 million to Dallas Title. Dallas Title
then distributed those funds according to Petr's instructions.
James Fuller received $2.8 million for the property, and Petr-
Avery's profits on the sale to Texas Land were divided among the
joint venturers. James and Charroux each received $276,000. By
the end of the year, neither defendant was liable on the joint
venture's $5 million loan.
The third land flip involved property in Plano, Texas.
McClain, Petr, and the defendants formed CPH Joint Venture ("CPH"),
of which one half was owned by Texas Land and the other half was
owned by First American Capital Corporation.3 Petr-Avery purchased
the Plano land for $16 million and resold it the same day to CPH
for $18 million. CPH financed this deal by borrowing $25 million.
As instructed by Petr, the lender disbursed $18 million to Petr-
3 First American Capital was controlled by James McClain.
-3- Avery. Petr-Avery's $2 million in profits were divided among
McClain, Petr-Avery, James, and Charroux. Each of the defendants
received $441,000. Before the end of the year, Texas Land withdrew
from CPH Joint Venture, and James and Charroux were no longer
liable on the $25 million loan.
Texas Land's withdrawal from CPH Joint Venture occurred when
McClain purchased Texas Land's interest in the venture for $5
million ("the CPH buyout"). From the $5 million, Texas Land
distributed $1.23 million to each defendant and $1.25 million each
to McClain and Petr.
The foregoing transactions were reviewed by a number of tax
advisers who were retained by James and Charroux. However, it was
revealed at trial that the defendants did not disclose to their tax
advisers the agreements between themselves, Petr, and McClain to
divide the profits from the land transactions. The tax
professionals also did not see the checks which James and Charroux
received as a result of those transactions, which indicated that
the funds paid were for proceeds from the sale of land.
Furthermore, according to accountant Kemble White, who analyzed the
land flip transactions, the closing binders did not show payments
to James and Charroux as a result of the land sales. After White
noticed the amounts received from the land flips in the defendants'
bank records, he inquired about them and was told by the
defendants' in-house accountant Samuel Buggs, on behalf of James
and Charroux, that the funds were excess loan proceeds.
-4- As a result of the foregoing transactions and the defendants'
failure to report the proceeds on their income tax returns, the
defendants were indicted for conspiring to defraud the United
States, pursuant to 18 U.S.C. § 371 (1988), attempting to evade
income taxes, in violation of 26 U.S.C. § 7201 (1988), and
subscribing to false tax returns, in violation of 26 U.S.C.
§ 7206(1) (1988). A jury convicted the defendants on all counts,
and the district court sentenced them to 33 months in prison.
James and Charroux appeal, contending that (a) the evidence
presented at trial was insufficient to sustain their convictions,
as it was not proved that they acted willfully; (b) the district
court erred by permitting the government's summary witness to
testify that the payments which they received were kickbacks;
(c) the district court violated Fed. R. Crim. P. 32(c)(3)(D) by
failing to make explicit findings of fact at sentencing concerning
the defendants' objections to the presentence report; (d) the
district court increased their sentences on the basis of an
erroneous finding that they used sophisticated means to conceal
their offense; and (e) the district court erroneously increased
their sentences by miscalculating the tax loss which resulted from
their offenses.
II
A
James and Charroux argue that the evidence presented at trial
was insufficient to sustain their convictions, because the
-5- government failed to prove that they acted willfully.4 "In
deciding the sufficiency of the evidence, we determine whether,
viewing the evidence and the inferences that may be drawn from it
in the light most favorable to the verdict, a rational jury could
have found the essential elements of the offenses beyond a
reasonable doubt."5 United States v. Pruneda-Gonzalez, 953 F.2d
190, 193 (5th Cir.), cert. denied, ___ U.S. ___, 112 S.Ct. 2952,
119 L. Ed. 2d 575 (1992). "It is not necessary that the evidence
exclude every rational hypothesis of innocence or be wholly
inconsistent with every conclusion except guilt, provided a
reasonable trier of fact could find the evidence establishes guilt
beyond a reasonable doubt." Id. "We accept all credibility
choices that tend to support the jury's verdict." United States v.
Anderson, 933 F.2d 1261, 1274 (5th Cir. 1991). Moreover, juries
are "free to choose among all reasonable constructions of the
evidence." United States v. Chaney, 964 F.2d 437, 448 (5th Cir.
1992).
4 Willful conduct is an element of each of the substantive tax offenses of which the defendants stand convicted. See 26 U.S.C. §§ 7201, 7206 (1988). Also, "in order to sustain a judgment of conviction on a charge of conspiracy to violate a federal statute, the Government must prove at least the degree of criminal intent necessary for the substantive offense itself." United States v. Feola, 420 U.S. 671, 686, 95 S. Ct. 1255, 1265, 43 L. Ed. 2d 541 (1975); see also United States v. Buford, 889 F.2d 1406, 1409 n.5 (5th Cir. 1989) ("To sustain a conviction for conspiracy under [18 U.S.C. § 371] the government must prove `the requisite intent to commit the substantive offense.'"). 5 We apply this standard of review because Charroux and James preserved their sufficiency claims by moving for a judgment of acquittal at trial. The "manifest miscarriage of justice" standard is applied where the defendant fails to preserve his or her sufficiency claim. See United States v. Galvan, 949 F.2d 777, 782-83 (5th Cir. 1991) (applying manifest miscarriage of justice standard because defendant failed to move for directed verdict or for judgment of acquittal).
-6- James and Charroux contend that the government failed to prove
willfulness6 because they relied on the advice of hired tax
professionals in filing their tax returns.7 "[R]eliance on a
qualified tax preparer is an affirmative defense to a charge of
willful filing of a false tax return." United States v. Wilson,
887 F.2d 69, 73 (5th Cir. 1989). However, "[t]o avail himself of
the defense, a defendant must demonstrate that he provided full
information to the preparer and then filed the return without
6 Willfulness is defined as "a voluntary, intentional violation of a known legal duty." United States v. Pomponio, 429 U.S. 10, 12, 97 S. Ct. 22, 23, 50 L. Ed. 2d 12 (1976) (26 U.S.C. § 7206); Cheek v. United States, 498 U.S. 192, ___, 111 S. Ct. 604, 610, 112 L. Ed. 2d 617 (1991) (26 U.S.C. § 7201). 7 Samuel Buggs, the defendants' in-house accountant, had access to all of their bank records and ledgers, as well as the closing binders for the three land flips and the CPH buyout. When Buggs began preparing income tax returns for the defendants, he was uncertain about how to treat the four amounts received by each of the defendants))$315,000, $276,000, $441,000, and $1.23 million. As a result, Buggs sought assistance from a lawyer and accountant named Kemble White. Buggs provided White and his associate, Gary Moore, with the defendants' bank records, ledgers, and closing binders. White determined that no taxable income arose from the Carrollton, Coppell, and Plano transactions. He further concluded that the proceeds of the CPH buyout should be reported as corporate income of Texas Land. The defendants thereafter filed individual income tax returns which failed to report any income from the four aforementioned transactions. Pursuant to the advice of William Bailey, of the accounting firm of Bailey, Vaught, Robertson & Co., the defendants later filed amended individual income tax returns which reported the $1.23 million from the CPH buyout as income. The amended returns did not, however, report any income from the Plano, Coppell, or Carrollton transactions. All of the tax professionals who reviewed these transactions))Buggs, White, Moore, William Bailey, and his associates, Joel Landau and Ronald Miller))testified that the defendants never denied them any information regarding these transactions. Several of these individuals testified either that they had all the information needed to prepare an accurate tax return, or that they had no reason to believe that any information was concealed from them regarding these transactions.
-7- having reason to believe it was incorrect." Id.; see also United
States v. Masat, 948 F.2d 923, 930 (5th Cir. 1991) (stating that
defendant must show "(i) he relied in good faith on a professional
and (ii) he made complete disclosure of all the relevant facts"),
cert. denied, ___ U.S. ___, 113 S. Ct. 108, 121 L. Ed. 2d 66
(1992).
According to James and Charroux, the "uncontroverted testimony
that [the defendants] . . . fully disclose[d] all necessary
information to their tax experts" establishes that they relied in
good faith on those experts and therefore did not willfully violate
the tax laws. We disagree.8 On the basis of the evidence
8 The defendants' sufficiency argument is unpersuasive partly because it relies upon mischaracterizations of the evidence. According to James and Charroux, accountant Kemble White testified that, in preparing the defendants' tax returns, "he had all of the relevant information `at his disposal.'" Brief for James and Charroux at 17; see also Reply Brief for James and Charroux at 3 (referring to "the unchallenged testimony of accountants from McDaniel & White that they had all the necessary information `at [their] disposal.'"). This is, at best, a questionable characterization of the record. The testimony to which the defendants refer is as follows:
Q. [Mr. Zachry, counsel for James] All right, sir. So everything you determined in the course of your analysis as to the taxability of these now four amounts, including the sale of the interest, this 1.2 million dollars, you had at your disposal, correct? A. [White] I'd say so. . . . [T]here was nothing that I asked for that I didn't get. Record on Appeal, vol. 9, at 68-69. White did not testify either that he had at his disposal all of the relevant information, or that he had all of the necessary information. The defendants also mischaracterize the testimony of their summary witness, Jerry Stamps. According to James and Charroux, Stamps "concluded [that] the tax preparers in this case had all the necessary information from which to prepare an accurate tax return." Brief for James and Charroux at 20. In fact Stamps testified as follows: Q. [Mr. Belcher, counsel for the government] You agree that based on the evidence Mr. James and Mr. Charroux never told the return preparers, specifically Mr. White, or Mr. Landau, or Mr. Bailey, or Mr. Miller, about the 276,000, 441,000, 315,000 at the time that the returns were being prepared based on the opinion letters, correct? A. [Stamps, summary witness] Those people had the))based on the
-8- presented at trial, the jury could have reasonably concluded that
James and Charroux believed the disputed funds to be taxable
income, and that they withheld information from their tax
professionals which was relevant to the taxability of those funds.
The record supports the conclusion that the funds which the
defendants received from the land flips were taxable profits, and
that the defendants regarded them as such. Susan Petr testified
that James introduced her to the idea of land flips and told her a
lot of money, which he described as profits, could be made on them.
Petr further testified that she engaged in land flip transactions
with James, Charroux, and James McClain, involving the Carrollton,
Coppell, and Plano tracts, and that the profits derived from those
transactions were split up between them. McClain further testified
that he, Petr, James and Charroux split up the profits from the
land flip transactions. McClain also testified that James and
Charroux told him they had five to seven million dollars of taxable
income for the year in question. According to McClain, he
discussed with James and Charroux whether they might use tax
credits from an oil company McClain owned to offset some of their
tax liability.
evidence that's been introduced during this trial and testimony, they had the documentation which would have told them that had they looked at it.
Record on Appeal, vol. 10, at 161. It is incorrect to describe this testimony as concluding that the tax professionals "had all the necessary information from which to prepare an accurate tax return." Stamps merely stated that the tax professionals were put on notice of the three dollar amounts mentioned, and not that they were provided with information which revealed the taxable nature of those payments.
-9- The documentary evidence included an agreement between James,
Charroux, and Petr-Avery Development, which provided that James and
Charroux each were to receive 25% of the profits from the Plano
transaction. Similar agreements relating to the other transactions
were in evidence as well. Furthermore, the checks which James and
Charroux received from the Carrollton transaction stated that the
payments were "proceeds on sale of 26.7716 acres."
However, the defendants did not make the foregoing information
available to their tax professionals. The documents which the
accountants received were bank statements, ledgers, and the closing
binders from the transactions. The bank statements showed that the
disputed amounts were received and deposited by the defendants, but
those documents revealed nothing about taxability: Samuel Buggs,
the defendants' in-house accountant, admitted that the bank
statements did not reveal whether a given deposit was income or
not. Furthermore, Buggs testified that the disputed amounts were
not referred to on the general ledgers which he prepared, and which
were then provided to the other tax preparers. Accountant Kemble
White testified that the closing binders "did not show proceeds
going out to Mr. James and Mr. Charroux" on any of the three land
sales, and that he did not see the disbursement sheets which
indicated payments to James and Charroux from those transactions.
Furthermore, Buggs testified that James and Charroux never
told him that the amounts they received on land sales))$276,000,
$315,000, and $441,000))were shares of the profits which Petr-Avery
derived from those transactions. According to White, at the time
-10- he prepared tax returns for James and Charroux he was not made
aware of any agreements entitling the defendants to shares of Petr-
Avery's profits from land transactions. White testified that, when
he first became aware of the payments, he suspected that they
constituted excess loan proceeds. White contacted Buggs, who
confirmed that the payments were in fact excess loan proceeds.
According to Buggs, James and Charroux told him the funds were loan
proceeds, and he conveyed that information to White.9 Buggs
admitted on cross-examination that, if the defendants believed the
money was "revenue associated," they would have misled him by
telling him that the funds were excess loan proceeds.
In light of all of the foregoing evidence, it is hardly
undisputed))as the defendants contend))that they provided to their
tax professionals all the information necessary for the preparation
of accurate tax returns. The jury could reasonably have concluded
that James and Charroux, knowing that the land flip revenues were
taxable income, led their tax advisers to believe that those funds
were nontaxable loan proceeds and withheld from their advisers the
information which would have revealed the taxable character of the
9 James and Charroux contend that it is irrelevant to their defense of reliance on tax professionals whether they led Kemble White to believe that the funds were excess loan proceeds. They argue that White regarded the funds as non-taxable because they were partnership funds rather than individual funds, and therefore the defendants' representation that the funds were loan proceeds did not affect White's determination of taxability. We disagree. It is undisputed that loan proceeds, i.e. borrowed money for which a taxpayer is liable, is not taxable, whereas profits are taxable. Therefore, regardless whether the defendants' representation affected White's view of the taxability of the funds, the jury was entitled to conclude that James and Charroux mischaracterized those funds, and therefore neither relied in good faith upon the advice of their tax professionals nor fully informed them of all relevant facts.
-11- money.10 Consequently, the defendants' attack on the sufficiency
of the evidence is without merit.
B
James and Charroux also contend that the district court erred
by permitting the government's expert summary witness, James
Whitfield, to testify that the payments received by the defendants
from the three land flips were "kickbacks." The decision whether
to admit expert testimony is entrusted to the sound discretion of
the district court and will be reversed only for an abuse of that
discretion. See United States v. Bryan, 896 F.2d 68, 72 (5th Cir.)
cert. denied, 498 U.S. 847, 111 S. Ct. 133, 112 L. Ed. 2d 101
(1990); United States v. Masat, 896 F.2d 88, 94 (5th Cir. 1990);
United States v. Newman, 849 F.2d 156, 165 (5th Cir. 1988).
At trial Whitfield gave the following testimony:
Q. [Mr. Belcher, counsel for the government] Mr. Whitfield, let me ask you first about the first three transactions, what have been referred to here by Mr. McClain and Ms. Petr as land flips. Did the monies that Mr. James and Mr. Charroux each receive[d] out of those three land flips in the amount of [$]315,000[,] [$]276,000 and $441,000 apiece, constitute income for Federal income tax purposes?
A. [Whitfield] To them, yes.
Q. How would you classify them for Federal income tax purposes based on the evidence that's been presented here in Court?
10 Counsel for James and Charroux assert that James Whitfield, the government's summary expert witness, "acknowledged that he found no attempt by [the defendants] to conceal the transactions and monies at issue in the tax returns." Again counsel for the defendants mischaracterize the testimony given at trial. Whitfield was not asked whether he found any attempt by the defendants to conceal the land flips. He was merely asked whether depositing the disputed funds into accounts bearing Harry James' social security number was "somehow an effort to secret these funds," and he responded in the negative. See Record on Appeal, vol. 8, at 49-50.
-12- A. As kickbacks.
Record on Appeal, vol. 8, at 22. The defendants objected to this
testimony, and the district court overruled the objection.
Whitfield referred to kickbacks several more times over the
defendants' objections.
James and Charroux contend that Whitfield was improperly
permitted to testify about their intent, in violation of Fed. R.
Evid. 704(b). According to the defendants, "[t]he element of
improper intent . . . is present in both the layman's definition of
the term [kickback] . . . [and] the legal definition accepted in
the Fifth Circuit."11 Therefore, they argue, "[i]n order to
conclude that [the defendants] were engaged in a kickback scheme,
the government witness necessarily would have had to conclude that
the [defendants] had the requisite mental state for engaging in
such illegal activity. . . . To state that a party received a
kickback is thus to testify that he possessed a culpable mental
state." We disagree.
As we understand Whitfield's testimony, he did not intend, by
using the term kickback, to suggest anything about the defendants'
intent. On cross-examination counsel for the defendants elicited
from Whitfield his definition of the term.12 It was Whitfield's
11 See United States v. Porter, 591 F.2d 1048, 1054 (5th Cir. 1979) (interpreting 42 U.S.C. § 1395nn(b)(1), which prohibited soliciting, offering, or receiving kickbacks). 12 Q. [Mr. Zachry, counsel for James] Define kickback for me.
A. [Whitfield] Kickback?
-13- understanding that a kickback occurred when money was transferred
from one party to another and some of the money was passed back to
the original possessor. Whitfield did not define kickbacks as
involving any improper intent, and specifically admitted that he
did not know whether they were illegal.13 Consequently, we disagree
Q. Yes, just a general definition. You've used the term, the Government uses it in the Indictment. I'd like to know what you mean by it.
A. In my mind it's))it's the original possessor of the funds pays to a successor possessor, and the second one passes money back to the original possessor of the funds.
Q. In other words, if I paid you money, and you pay me part of that money back that's a kickback? Is that what you're saying? I want closer.
A. If it is a))if for some reason you purchase))if I bought an asset or bought services from this other person, and in return for getting that contract or that deal, then we agreed that I'm going to pass funds back to you, sorry))
Q. That's okay. So there's an agreement there for to))you pay me money, okay, and you're going to do something for me, right. Is that what you're saying?
A. Right.
Q. Because you're going to do something for me I'm going to give you a portion of that money back, right?
* * *
Q. All right, sir. Are all kickbacks illegal?
A. I don't know. Record on Appeal, vol. 8, at 67-68. 13 James and Charroux contend that it is presumed that the jury, as laypeople, understood the layperson's definition of the term kickback. Furthermore, according to the defendants, the
-14- with the defendants' argument that Whitfield implicitly testified
that they acted with wrongful intent. Whitfield merely used the
term kickback in a descriptive fashion, to point out how money
changed hands in the land flip transactions.14
James and Charroux also contend that Whitfield's testimony
should not have been permitted because his conclusion))that the
payments were kickbacks))was not supported by any evidence in the
record. According to the defendants, the evidence showed only that
they received excess loan proceeds for the purpose of developing
the Carrollton, Coppell, and Plano tracts. This argument is not
supported by the record. As we have already discussed, see supra
Part II.A., substantial evidence supports the conclusion that the
funds which the defendants received represented profits. The
testimony of James McClain reveals that James and Charroux
purchased land at inflated prices and in return for doing so
received a share of the sellers' profits. That evidence certainly
supports the conclusion that the payments were kickbacks, as
layperson's definition is found in the American Heritage Dictionary and describes kickbacks as being "by confidential arrangement or coercion." However, the defendants cite no authority for the proposition that we should presume the jury to have understood Whitfield's testimony in terms of the American Heritage Dictionary definition of the term kickback, and we are not inclined to do so where Whitfield expressly stated that he had a different understanding of that word. 14 James and Charroux also contend that Whitfield testified to a legal conclusion which was outside his area of expertise, and that Whitfield invaded the province of the jury as fact finder. Because it is clear from the defendants' brief that these arguments are premised on the assumption that Whitfield testified about the defendants' intent))a proposition which we have already rejected))they are without merit.
-15- defined by Whitfield. Furthermore, the defendants' summary
witness, Jerry Stamps, admitted that he had not seen a single
document which stated that excess loan proceeds were disbursed to
James and Charroux. According to Stamps, it was Samuel Buggs and
Kemble White who characterized the funds as excess loan proceeds,
and the testimony of White and Buggs reveals that they received
that information from James and Charroux. Finally, James McClain
testified that James and Charroux never used any of the funds for
development purposes, and Susan Petr testified that the defendants
spent the money for clothes and other personal uses. Whitfield's
testimony was supported by the evidence at trial. The district
court therefore did not abuse its discretion by permitting
Whitfield to testify that the payments received by James and
Charroux were kickbacks.
C
The defendants further contend that the district court
violated Fed. R. Crim. P. 32(c)(3)(D) by failing to make specific
findings regarding their objections to factual inaccuracies in
their presentence reports (PSR's).15 James and Charroux filed
written objections to several aspects of their PSR's and raised
15 Fed. R. Crim. P. 32(c)(3)(D) provides:
If the comments of the defendant and the defendant's counsel or testimony or other information introduced by them allege any factual inaccuracy in the presentence investigation report or the summary of the report or part thereof, the court shall, as to each matter controverted, make (i) a finding as to the allegation, or (ii) a determination that no such finding is necessary because the matter controverted will not be taken into account in sentencing.
-16- further objections at the sentencing hearing.16 In overruling those
objections, the district court made the following statements:
As to the objections to the Pre-Sentence Report, and this goes to both Defendants, I'm going to overrule the objections. . . . I overrule))reject the argument that there's no evidence that the tax loss occurred on the last filing. True, the amended return lowered the tax loss, but there were errors in that return. And there was still a substantial loss to the government on that filing. Then third, as to the amount of the tax loss, I think the Probation Department has correctly concluded that the total loss, 2.9 million approximately, should be the basis of the guideline calculation. There is a conspiracy count. There was a conviction on conspiracy, and I think it's proper to treat it on that basis. . . . [A]s to the sophisticated means, I do overrule that objection. The means are sophisticated within the meaning of the guidelines. I don't have to have an offshore tax problem in order to have a sophisticated means. And based on the evidence heard at trial, I would reject that objection.
As to the objections to paragraph 8, 25, another objection to 25, I would overrule those based on the reasons that I've stated, and based on the evidence that was heard during trial.
16 The defendants objected to the following matters: (1) the statement in paragraph 8 of the PSR that "the defendants concealed income from land flips"; (2) the suggestion in paragraph 18 that the defendants filed amended tax returns only because the government initiated an investigation of James McClain; (3) the calculation in paragraph 19 of the amount of money the defendants received from the three land flips and the CPH buyout; (4) statements in paragraphs 20 and 25 regarding the amount of income that the defendants failed to report and the amount of tax loss that they caused to the United States; and (5) the suggestion in paragraph 26 that the defendants used sophisticated means in the course of their offense. The PSR's of the two defendants are identical in all respects pertinent to those objections. The defendants' remaining objections dealt with legal rather than factual matters, and therefore are not relevant to the defendants' Rule 32(c)(3)(D) argument.
-17- And then as to James' objections, the government's objections were exactly the same; first one accepted, the second one rejected.17 And as to the specific objections to paragraph 8, paragraph 18, paragraph 19, paragraph 20, paragraph 25, 26, 39, those are overruled for the reasons stated here, and also based on the evidence presented during trial.
Record on Appeal, vol. 12, at 24-26.
James and Charroux argue that this explanation of the district
court's ruling was insufficient to satisfy Rule 32(c)(3)(D) because
the district court "cannot simply adopt the findings of the Pre-
Sentence Report in order to support a sentencing decision." The
defendants' argument is meritless. In United States v. Garcia, 963
F.2d 693 (5th Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 388,
121 L. Ed. 2d 296 (1992), the district court rejected the
defendants' objections with less explanation than the district
court provided in this case:
[T]he information contained in the presentence report, paragraphs objected to, paragraphs 15 through 20, and 22, is by a preponderance of the evidence correct, and I believe it. I further find that your objections to paragraphs 25, 30, 32, along with paragraph 46, and paragraph 60 and 61, are not well taken. That it is clear from all the evidence before me, and the information furnished, and I find from a preponderance of the evidence that the defendant was involved with all three of the marijuana loads, and that the guidelines were appropriately applied and correct offense level was used in calculating the sentence guidelines range.
Id. at 706. However, we held that "the district court adequately
complied with Rule 32" because the "adoption of the [PSR's]
findings indicates that the court `at least implicitly, weighed the
17 The district court indicated that the government's second objection was overruled for the reason stated by the probation department in its response to the government's objections.
-18- positions of [the] probation department and the defense and
credited the probation department's determination of the facts.'"
Id. (quoting United States v. Sherbak, 950 F.2d 1095, 1099 (5th
Cir. 1992)). No less can be said here. The district court
specifically referred to each disputed issue and indicated that the
defendants' objections to the factual findings in the PSR were
without merit. In several instances the district court provided
more detail regarding the factors which it considered in resolving
the factual disputes. This was enough to satisfy Rule 32(c)(3)(D).
As we noted in Garcia, "`Rule 32 does not require a catechismic
regurgitation of each fact determined and each fact rejected when
they are determinable from a [PSR] that the court has adopted by
reference." Id. at 706-07 (quoting Sherbak). In light of Garcia,
we are convinced that the defendants' Rule 32 argument is without
merit. Cf. United States v. Hooten, 942 F.2d 878, 882 (5th Cir.
1991) (remanding for further factual findings where "district court
never addressed the question of who owned the pistol").
D
The defendants also contend that the district court erred in
sentencing them, by applying a sophisticated means enhancement
under § 2T1.3(b)(2) of the Sentencing Guidelines. See United
States Sentencing Commission, Guidelines Manual, § 2T1.3(b)(2)
(Nov. 1992) ("If sophisticated means were used to impede discovery
of the nature or extent of the offense, increase by 2 levels.").
The defendants argue that they are not knowledgeable or
sophisticated with regard to the tax laws, and furthermore their
-19- methods were not so sophisticated that the IRS could not have
easily discovered the sources of the disputed funds. We review for
clear error the district court's factual finding that the
defendants used sophisticated means to conceal their offenses. See
United States v. Shell, 972 F.2d 548, 550 (5th Cir. 1992) ("For
purposes of the [sentencing] guidelines, the sentencing court's
findings of fact are reviewed under the `clearly erroneous
standard.'"); United States v. Becker, 965 F.2d 383, 390 (7th Cir.
1992) (applying clearly erroneous standard to finding of
sophisticated means), cert. denied, ___ U.S. ___, 113 S. Ct. 1411,
122 L. Ed. 2d 783 (1993). We will not find a district court's
ruling to be clearly erroneous unless we are left with the definite
and firm conviction that a mistake has been committed. United
States v. Mitchell, 964 F.2d 454, 457-58 (5th Cir. 1992).
We find no clear error here. Although the evidence does not
indicate that either James or Charroux were tax experts, it does
support the conclusion that they structured elaborate transactions
to hide their revenues. James McClain described one advantage of
land flips, such as the ones he engaged in with James and Charroux,
as follows: "What happens was you bought a piece of property for
an inflated price and then everybody involved took part of the
proceeds and the closing statement, as well as the documents to the
savings and loan, showed that you paid that much for the piece of
property. Therefore, the regulators didn't realize where the money
was really going, . . . [who] was receiving it, or what you were
using the funds for." The evidence also supports the conclusion
-20- that James and Charroux sought the advice of various tax
professionals in order to lend the appearance of legitimacy to
their dealings, while withholding from those professionals the
information which would have permitted them to determine correctly
the taxability of the land flip revenues. See supra Part II.A. As
in United States v. Jagim, 978 F.2d 1032 (8th Cir. 1992), cert.
denied, ___ U.S. ___, 113 S. Ct. 2447, 124 L. Ed. 2d 664 (1993),
upon which the defendants rely, this was not merely a case in which
"an individual taxpayer completed his individual 1040 form with
false information to avoid paying some of his federal taxes." See
id. at 1042. The district court's finding of sophisticated means
was not clearly erroneous.18
E
Lastly, James and Charroux argue that they were improperly
sentenced because the district court miscalculated the tax loss
which resulted from their offenses. The district court arrived at
a figure of $2.9 million by aggregating all tax liability of either
defendant on any funds received from the four transactions at issue
here. Each defendant was sentenced on the basis of the total tax
loss caused by both defendants. Based on the tax loss of $2.9
18 We are not persuaded by the defendants' reference to "[t]he ease with which the I.R.S. could have discovered the allegedly `hidden' income." Agent Whitfield's testimony, on which the defendants rely, does not support the proposition that the sources of the funds were easily discoverable. Whitfield merely testified that he would have asked about the source of the funds if he had seen the defendants' bank records in the course of an audit. Furthermore, other evidence supported the conclusion that the defendants' means were sophisticated, even if they were not fail- safe.
-21- million, the district court set the defendants' base offense level
at 16 and sentenced both defendants to 33 months in prison.19 On
appeal the defendants present several arguments contesting the
correctness of the $2.9 million tax loss figure. None of these has
merit.
The defendants first argue that the district court erred by
including in the tax loss the tax due on the amounts which they
received in connection with the Coppell and Carrollton
transactions))$276,000 and $315,000. They contend that these sums
represented loans for which they were liable, and that the money
therefore was not taxable. Whether these amounts represented loans
to the defendants is a factual question, and the district court's
resolution of that issue is reviewed only for clear error. See
Shell, 972 F.2d at 550. As our earlier discussions should make
clear, substantial evidence supports the conclusion that these
payments were not loans but kickbacks. See supra Parts II.A. & B.
Therefore the district court did not clearly err by including as
tax loss the tax due on the proceeds of the Coppell and Carrollton
transactions.
19 The PSR assigned the defendants a base offense level of 16 based on a tax loss of $1,044,643. See United States Sentencing Commission, Guidelines Manual, § 2T4.1(K) (1988) (providing base offense level of 16 where tax loss was between $1,000,001 and $2,000,000). Although the district court later adopted the higher tax loss figure of $2.9 million, it is apparent that the district court failed to adopt a higher base offense level, as directed by the guidelines, see id. § 2T4.1(L) (providing base offense level of 17 in cases where tax loss was between $2,000,000 and $5,000,000), because the district court stated at the sentencing hearing that the guideline range for the defendants was 27-33 months, which was the range arrived at by the PSR on the basis of the $1,044,643 tax loss figure and the base offense level of 16.
-22- The defendants also argue that the district court should not
have counted the tax owed on the $441,000 which each of them
received from the Plano transaction. According to the defendants,
that tax liability should not be considered because they did not
attempt to evade those taxes. They contend, as they did at trial,
that their failure to report the $441,000 as income resulted
entirely from the errors of their tax advisors, so that they had no
wrongful intent. Defendants are merely attempting to retry in this
Court the issue of reliance on tax professionals which was decided
against them at trial. As we have already stated, see supra Part
II.A., ample evidence supports the conclusion that the defendants
did not make full disclosure to their tax advisers, and did not
rely in good faith on their advice. Consequently, the district
court's inclusion in tax loss of the tax due on the $441,000 was
not clearly erroneous.20
Lastly, the defendants contend that the district court erred
by holding each of them responsible not only for the tax loss which
he caused, but also for the tax loss which the other caused. James
and Charroux argue that the definition of "tax loss" contained in
20 The defendants raise a similar argument regarding the tax due on the funds which they derived from the CPH buyout. However, we need not decide whether any error was committed with respect to these funds, since any error would be harmless. See Fed. R. Crim. P. 52(a). Even if the taxes due on the $1.23 million were excluded from the tax loss amount, that amount would still exceed $1,000,000. Therefore, the defendants' base offense level would still be 16, see U.S.S.G. § 2T4.1(K) (Nov. 1988) (providing base offense level of 16 where tax loss was between $1,000,001 and $2,000,000), and their sentencing guideline range would still be 27-33 months. Because any error would have no effect on the defendants' sentences, it would be harmless.
-23- U.S.S.G. § 2T1.3))which refers to "the taxpayer" and not to
multiple tax payers21))demonstrates that the sentencing guidelines
do not contemplate the calculation of tax loss on the basis of co-
conspirators' conduct.22 We are not inclined to extrapolate such
a momentous proposition from the fact that § 2T1.3 refers to the
taxpayer in the singular, particularly when other guidelines
clearly require the contrary result.
§ 1B1.3 of the sentencing guidelines provides that a
defendant's base offense level is determined on the basis of:
all acts and omissions committed or aided and abetted by the defendant, or for which the defendant would be otherwise accountable, that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense, or that otherwise were in furtherance of that offense . . . .
United States Sentencing Commission, Guidelines Manual,
§ 1B1.3(a)(1) (1988).23 "Conduct `for which the defendant would be
otherwise accountable' . . . includes conduct of others in
furtherance of the execution of [a] jointly-undertaken criminal
21 See U.S.S.G. § 2T1.3(a) (1992) ("If the taxpayer is a corporation, use 34 percent in lieu of 28 percent [in calculating tax loss]."). 22 In support of their argument, the defendants cite cases which support the proposition that a joint venturer owes taxes on joint venture revenues only to the extent that the revenues are earned from the portion or percentage of the joint venture which the joint venturer owns. See Melbourne Ranches, Inc. v. Commissioner, T.C. Memo 1971-264, 30 CCH TCM 1132 (1971). The defendants' sentences are governed by the sentencing guidelines, and not by civil tax cases. 23 The district court applied this version of § 1B1.3 in sentencing James and Charroux. A different version is now in effect.
-24- activity that was reasonably foreseeable by the defendant."
U.S.S.G. § 1B1.3, comment. (n.1). Because the record clearly
demonstrates that each of the defendants' conduct was reasonably
foreseeable to the other defendant, § 1B1.3 supports the district
court's decision to hold each defendant responsible not only for
the tax loss which he caused, but also for the tax loss caused by
his co-defendant.24
III
For the foregoing reasons, we AFFIRM.
24 We have not previously applied § 1B1.3 to aggregate the tax losses of co-conspirators. However, at least one district court has applied § 1B1.3 to an analogous situation. See United States v. Kaufman, 800 F. Supp. 648, 652 (N.D.Ind. 1992) ("U.S.S.G. § 1B1.3(a) requires the court to consider all unreported income, regardless of whose pocket into which it went."). Furthermore, § 1B1.3 has been applied to other criminal tax cases as well. Judge Easterbrook, of the Seventh Circuit, recently wrote that "[t]ax offenses, like embezzlements and drug crimes, fall within the rule that relevant conduct includes the whole scheme." United States v. Harvey, 996 F.2d 919, 922 (7th Cir. 1993) (referring to U.S.S.G. §§ 1B1.3, 2T1.3); see also United States v. Meek, 998 F.2d 776, ___ (10th Cir. 1993); United States v. Brimberry, 961 F.2d 1286, 1292 (7th Cir. 1992). Furthermore, guideline section 2T1.3, which governed the computation of tax loss in this case, specifically directs our attention to § 1B1.3. See U.S.S.G. § 2T1.3, comment. (n.3) ("In determining the total tax loss attributable to the offense (see § 1B1.3(a)(2)), all conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated.").
-25-