United States v. Jerome E. Heinemann and George Allen Delanoy, III

801 F.2d 86, 21 Fed. R. Serv. 976, 58 A.F.T.R.2d (RIA) 5814, 1986 U.S. App. LEXIS 30956
CourtCourt of Appeals for the Second Circuit
DecidedSeptember 12, 1986
Docket1251, 1252, Dockets 86-1077, 86-1086
StatusPublished
Cited by69 cases

This text of 801 F.2d 86 (United States v. Jerome E. Heinemann and George Allen Delanoy, III) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Jerome E. Heinemann and George Allen Delanoy, III, 801 F.2d 86, 21 Fed. R. Serv. 976, 58 A.F.T.R.2d (RIA) 5814, 1986 U.S. App. LEXIS 30956 (2d Cir. 1986).

Opinion

WINTER, Circuit Judge:

Jerome E. Heinemann and George Allen Delanoy, III appeal from their convictions by a jury before Judge Sand. Both appellants were convicted on one count of conspiracy to defraud the United States in violation of 18 U.S.C. § 371 (1982), and sentenced to three years imprisonment. The conspiracy involved the sale of “ministries” in purported tax-exempt “churches.” On appeal, appellants raise several issues. First, both argue that there was insufficient evidence to support the single conspiracy alleged in the indictment rather than multiple conspiracies involving the sale of ministries in four different churches. Second, both claim that prejudicial evidence of their association with the “notorious fugitive” Robert Vesco was erroneously admitted. Heinemann makes two additional claims. He argues that Judge Sand’s charge relating to “conscious avoidance” was erroneous, and that testimony concerning his conduct before a New Jersey grand jury was improperly admitted. Delanoy also raises two additional issues. He claims that Judge Sand erroneously admitted a taped conversation between a government informant and a co-defendant and certain other evidence prejudicial to Dela-noy. We reject their contentions and affirm.

Between 1977 and 1981, Frank Conti operated a series of businesses that sold “ministries” in various churches to be used by the buyer as a means of reducing his federal tax liability. Such ministries were used to reduce taxes by two predominant methods: one was ironically dubbed the “vow of poverty” method, while the other was called the “50% system.” Under the vow of poverty, by far the most lucrative technique, the “minister” would renounce interest in all income in favor of the church. Paychecks would then be deposited in the church account, which in turn was used to pay the minister’s personal and family living expenses. In the first year of a ministry, the minister would file an income tax return claiming to have earned no income and requesting a refund of all income tax previously withheld during that year. In subsequent periods, a minister would claim sufficient exemptions on W-4 Forms so that no portion of wages would be withheld, and would pay no federal income tax. Under the 50% plan, the minister would deposit up to 50% of income in a church account and claim this amount as a charitable contribution deduction from adjusted gross income. Of course, the minister retained control over these “charitable contributions,” characterizing disbursements of the funds as expenses of maintaining the parsonage.

The ministry business began in late 1977, when Conti expanded a business known as Money Card, which sold memberships in a discount buying club, to include the sale of ministries in the Universal Life Church *89 (“ULC”). He operated the business with a pyramidal sales network, through which salespeople earned commissions both on their own sales of ministries and on the sales of additional salespeople whom they had recruited.

In early 1978, after meeting with William Drexler, the “Archbishop” of the Life Science Church (“LSC”), Conti began selling ministries in the LSC. By the end of 1978, Conti had renamed his business “Freedom of Choice” and was concentrating exclusively on selling LSC ministries, again employing the pyramidal structure used to sell ULC ministries. Conti had paid Drexler $25,000 for the privilege of being named the LSC “Bishop” for New Jersey, entitling him to be the exclusive representative in that state for the sale of LSC ministries. In January 1979, however, after a dispute with Drexler over the size of Conti’s exclusive sales territory, Freedom of Choice left the LSC.

Conti then decided that his organization would promote Basic Bible Church of America (“BBCA”) ministries instead. He held a meeting at which he urged the membership of Freedom of Choice to switch affiliation. Jerome Daly, the “Archbishop” of BBCA, spoke at the meeting, taking credit for Drexler’s success with the LSC, criticizing defects in the plan promoted by Drexler, and outlining his own BBCA plan. After a dispute with Daly, however, Conti caused Freedom of Choice to revert to ULC ministries.

During this period, Conti applied to the Internal Revenue Service (“IRS”) for a tax-exempt determination letter for his own church, the Freedom Church of Revelation (“FCR”). He also renamed his sales organization the Freedom Institute of America. The IRS issued FCR an individual tax-exempt determination letter on June 8, 1979. In October 1979, Conti gathered the members of his organization for a meeting at which he announced his new church, and encouraged all existing members of Freedom of Choice to join at a starting fee of $3,000. Those who had previously enrolled in ULC through Conti’s organization were allowed to deduct their earlier payments from this membership fee. Freedom of Choice’s pyramidal sales structure was also adopted by FCR and formalized into a “missionary program.” Church members acted as “missionaries” who recruited new church ministers and thereby earned commissions, in the form of “donations” to their FCR “congregations,” consisting of a percentage of the membership fees paid by the new ministers whom they had recruited. The size of that commission depended on the member’s level in the pyramid.

Heinemann, a truck driver with St. Johnsbury Trucking, purchased an LSC ministry through Freedom of Choice in late 1978. Heinemann purported to take a vow of poverty, and opened a bank account in the name of LSC over which he and his wife were trustees. Heinemann requested a refund of all income tax withheld for 1978 and filed no tax returns for 1979-1983. After joining LSC, Heinemann consistently attended Conti’s various church meetings and switched affiliation along with the Freedom of Choice organization to BBCA and then to ULC. Heinemann opened a ULC bank account in April 1979. During this period, Heinemann quickly rose in the ranks of Conti’s organization. When FCR was formed, Heinemann became president of the Freedom Institute. He was also named a “Bishop” in FCR’s governing “Bishops Council,” and later became Dean of Freedom College, the “educational” arm of FCR that sought to teach outsiders the benefits of an FCR ministry. At weekly Bishops Council meetings, Heinemann met with Conti, co-defendant Delanoy, and Joseph Coniglione, a government witness at trial.

Delanoy joined the FCR in December 1979 by purchasing a position on the Bishops Council, which entitled him to the maximum portion of recruitees’ membership fees. Like Heinemann, he took a vow of poverty, opened a church bank account, and filed no tax returns. Delanoy eventually rose to the position of Assistant to the Archbishop, and ran the FCR national office when Conti moved to Florida.

*90 Each of the churches sold by Conti’s organization was promoted to the general public as a means of avoiding taxes. Although FCR policy required new ministers to sign pledges that they joined for “religious, charitable and educational purposes,” not for “personal financial gain,” “ministers” were instructed in techniques to avoid taxation, most notably disguising the fact that they were personally benefiting from their charitable contributions or were earning income under their vows of poverty.

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Bluebook (online)
801 F.2d 86, 21 Fed. R. Serv. 976, 58 A.F.T.R.2d (RIA) 5814, 1986 U.S. App. LEXIS 30956, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-jerome-e-heinemann-and-george-allen-delanoy-iii-ca2-1986.