Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca4-06-04506/USCOURTS-ca4-06-04506-0/pdf.json

Parties Involved:
James Dominic Delfino
Appellant
United States of America
Appellee

Document Text:

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA, 

Plaintiff-Appellee,

v.  No. 06-4506

JAMES DOMINIC DELFINO,

Defendant-Appellant. 

UNITED STATES OF AMERICA, 

Plaintiff-Appellee,

v.  No. 06-4507

JEANIENE ANN DELFINO,

Defendant-Appellant. 

Appeals from the United States District Court

for the Eastern District of Virginia, at Richmond.

Robert E. Payne, District Judge.

(3:05-cr-00202-REP)

Argued: November 2, 2007

Decided: December 18, 2007

Before TRAXLER, SHEDD, and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge Shedd wrote the opinion, in

which Judge Traxler and Judge Duncan joined.

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COUNSEL

ARGUED: William Mallory Kent, Jacksonville, Florida, for Appellants. Gregory Victor Davis, Tax Division, UNITED STATES

DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON

BRIEF: Chuck Rosenberg, United States Attorney, Alexandria, Virginia; Alan Hechtkopf, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. 

OPINION

SHEDD, Circuit Judge: 

James and Jeaniene Delfino appeal their convictions for tax evasion, mail fraud, and conspiracy to defraud the United States, alleging

trial and sentencing errors. Finding no error, we affirm.

I

A grand jury returned a four-count superseding indictment charging the Delfinos with one count of conspiracy to defraud the United

States in violation of 18 U.S.C. § 371; two counts of attempted evasion of payment of income tax in violation of 26 U.S.C. § 7201 and

18 U.S.C. § 2; and one count of mail fraud in violation of 18 U.S.C.

§ 1341. The case was tried to a jury. 

At trial, the evidence tended to show that during the 1990s and

2000s, the Delfinos owned and operated several computer consulting

firms which generated their personal income. However, for the years

1993 through 2004, the Delfinos did not file income tax returns.

Instead, the Delfinos established several trusts in which they placed

their incomes. These trusts likewise failed to file income tax returns

or pay income taxes, and the Government alleged that the trusts were

formed for the purpose of avoiding the payment of income taxes. 

In 1997, the Internal Revenue Service ("IRS") began an audit of the

Delfinos and their trusts, but the Delfinos refused to cooperate. As a

result, the IRS calculated the Delfinos’ income from bank records and

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prepared the Delfinos’ tax returns for the years they had failed to do

so. The IRS then assessed tax on the Delfinos’ total income for those

years without allowing any deductions which they could have

claimed. This assessment formed the basis for the tax evasion and the

conspiracy-to-defraud counts against the Delfinos. 

The Delfinos sought to prove that they had relied in good faith on

the advice of Royce McCarley, a trust promoter and self-described tax

consultant. The Delfinos presented evidence that McCarley advised

them how to structure their trusts, that their trusts could be used to

shift liability for income taxes, and that the use of these trusts was

legal. Based on this testimony, the district court instructed the jury

that it could consider the Delfinos’ good-faith defense. 

The jury found the Delfinos guilty on all counts. At sentencing, the

Delfinos argued that the tax loss contained in the presentence report

was erroneous because it did not credit them with the deductions

which they could have claimed had they filed their tax returns. The

district court rejected this argument and sentenced the Delfinos based

on the tax loss calculated in the presentence report. 

The Delfinos now appeal, arguing (1) the district court abused its

discretion by refusing to admit testimony from six of McCarley’s clients who participated in trust schemes similar to those at issue here;

(2) there is insufficient evidence to sustain their mail fraud convictions; (3) venue was improper in the Eastern District of Virginia; and

(4) the district court incorrectly calculated their tax loss. We consider

each of these issues in turn.

II

The Delfinos first claim that the district court erred by excluding

testimony from witnesses who would have testified regarding their

participation in McCarley’s schemes. The district court excluded this

evidence because it found that certain of the witnesses did not participate in a scheme similar to that which the Delfinos claim to have participated in, thus rendering the testimony of those witnesses

irrelevant. The district court excluded the remaining witnesses

because it found (1) that good-faith reliance is a purely subjective

defense and that the testimony of other participants in McCarley’s

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scheme was irrelevant to the Delfinos’ own subjective good-faith

beliefs and (2) that even if these witnesses were "marginally relevant"

to the Delfinos’ defense, their testimony would confuse the jury and

constitute a waste of time because it would require a detailed discussion of each witness’s participation in McCarley’s schemes and therefore would essentially constitute a trial within a trial. 

We review the district court’s evidentiary rulings for abuse of discretion. United States v. Hedgepeth, 418 F.3d 411, 419 (4th Cir.

2005). A district court abuses its discretion when it acts arbitrarily or

irrationally, fails to consider judicially recognized factors constraining

its exercise of discretion, relies on erroneous factual or legal premises,

or commits an error of law. Id.; United States v. Williams, 461 F.3d

441, 445 (4th Cir. 2006). 

We hold that the district court acted within its discretion in excluding the participants in the McCarley scheme. A good-faith/reasonable

reliance defense to tax evasion is provable based on a defendant’s

subjective beliefs. Cheek v. United States, 498 U.S. 192, 202 (1991).

Accordingly, testimony from other participants in the McCarley

scheme could be relevant, at most, to bolster the Delfinos’ claim that

they acted in good-faith reliance on McCarley’s advice. Yet the witnesses proffered by the Delfinos were not parties to the same McCarley presentations as the Delfinos, and the Delfinos had no

contemporaneous knowledge that these other participants had acted

on McCarley’s advice. This being the case, the proffered testimony

is not directly relevant to McCarley’s provision of the advice to the

Delfinos and their reliance thereon. Therefore, the district court did

not abuse its discretion by excluding the evidence.

III

The Delfinos next argue that the Government failed to present sufficient evidence to sustain their mail fraud conviction. Specifically,

the Delfinos contend that the Government did not adduce evidence

that they used an interstate commercial carrier. In reviewing the sufficiency of the evidence, our role is limited to considering whether

there is substantial evidence, taking the view most favorable to the

Government, to support the conviction. United States v. Beidler, 110

F.3d 1064, 1067 (4th Cir. 1997). "[S]ubstantial evidence is evidence

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that a reasonable finder of fact could accept as adequate and sufficient

to support a conclusion of a defendant’s guilt beyond a reasonable

doubt." United States v. Burgos, 94 F.3d 849, 862 (4th Cir. 1996) (en

banc). 

To obtain a conviction for mail fraud, the Government must prove

(1) the existence of a scheme to defraud and (2) the use of the mails

(or another interstate carrier) for the purpose of executing the scheme.

United States v. Loayza, 107 F.3d 257, 260 (4th Cir. 1997). The second element may be satisfied when a defendant causes the mails to

be used by doing "an act with knowledge that the use of the mails will

follow in the ordinary course of business, or where such use can reasonably be foreseen, even though not actually intended." Pereira v.

United States, 347 U.S. 1, 8-9 (1954). Further, the use of the mails

can be proven through evidence of business practice or office custom.

United States v. Scott, 730 F.2d 143, 146-47 (4th Cir. 1984). 

The Government contended that the Delfinos committed mail fraud

when they received by mail a loan application from Countrywide

Home Loans ("Countrywide") in Plano, Texas; fraudulently completed the application; and returned the same by commercial carrier

to Countrywide. In support of its case, the Government called a Countrywide loan officer who testified that he had no direct knowledge of

the receipt of the Delfinos’ loan application and that he did not have

direct knowledge as to whether it was received by mail or commercial

carrier. However, he stated that Countrywide’s normal business practice is to send the borrower a return United Parcel Service or Federal

Express envelope, which the borrower then typically uses to return

the application. He further testified that Countrywide likely has used

other methods to transmit or receive loan application information

including hand delivery or delivery by airplane or facsimile transmission. 

We find this evidence sufficient to support the Delfinos’ mail fraud

conviction. The jury was entitled to believe and to rely on the testimony that Countrywide typically sends out a commercial carrier’s

return envelope, which the borrower typically uses to return the loan

application. In relying on this testimony, the jury was entitled to conclude that the Delfinos likely returned their loan application by commercial carrier rather than the less likely, though possible, media of

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airplane, personal delivery, or facsimile transmission. United States v.

Hannigan, 27 F.3d 890, 892-93 (3d Cir. 1994) ("Once evidence concerning office custom of mailing is presented, the prosecution need

not affirmatively disprove every conceivable alternative theory as to

how the specific correspondence was delivered."). We therefore

affirm the Delfinos’ conviction for mail fraud.

IV

Finally, the Delfinos assert that the district court erred in calculating their tax loss for purposes of sentencing by not subtracting from

the amount of the loss any deductions they could have claimed for the

years in question but did not claim due to their failure to file returns.

We review de novo the legal question of whether the tax loss includes

deductions. United States v. Moreland, 437 F.3d 424, 433 (4th Cir.

2006). 

The sentencing guidelines define "tax loss" as: "the total amount of

loss that was the object of the offense (i.e., the loss that would have

resulted had the offense been successfully completed)." U.S.S.G.

§ 2T1.1(c)(1). In arguing that the district court erred in its interpretation of this provision, the Delfinos rely on United States v. Schmidt,

935 F.2d 1440 (4th Cir. 1991), where we held that it was error to disallow deductions a defendant could have taken under U.S.S.G.

§ 2T1.3(a) (1989), the then-applicable guideline for conspiracy to

impair, impede, or defeat tax defined tax loss. We concluded that "a

fair reading of § 2T1.3(a) supports . . . punishing a crime whose gravity is represented by the actual loss of tax revenue to the IRS." 935

F.2d at 1451 (emphasis added). 

We believe we can no longer rely on Schmidt’s interpretation of

"tax loss" under the sentencing guidelines. When we decided Schmidt,

the guidelines defined tax loss as "the greater of: (A) the total amount

of tax that the taxpayer evaded or attempted to evade; and (B) the ‘tax

loss’ defined in § 2T1.3." U.S.S.G. § 2T1.1(a) (1989). Section 2T1.3,

in turn, defined tax loss as "28% of the amount by which the greater

of gross income and taxable income was understated, plus 100% of

the total amount of any false credits claimed." U.S.S.G. § 2T1.3(a)

(1989). However, the Sentencing Commission amended the guidelines in 1993 by replacing the definition of "tax loss" on which we

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relied in Schmidt with the current definition found in § 2T1.1(c)(1).

The current guideline refers to the "total amount of the loss that was

the object of the offense (i.e., the loss that would have resulted had

the offense been successfully completed)" rather than "the total

amount of the tax that the taxpayer evaded or attempted to evade."

The Sentencing Commission explained that it adopted this amendment so that a uniform definition of tax loss would "eliminate[ ] the

anomaly of using actual tax loss in some cases and an amount that

differs from actual tax loss in others." U.S.S.G. App. C, Amend. 491

(1993). By altering the language which Schmidt interpreted and on

which it rested, this change in the sentencing guidelines supersedes

our holding in Schmidt. 

With Schmidt no longer binding on this point, we conclude that the

phrase "object of the offense" means "the attempted, or intended loss,

rather than the actual loss to the [G]overnment." United States v.

Chavin, 316 F.3d 666, 677 (7th Cir. 2002) (emphasis in original). In

other words, "the object of the offense" means the loss that would

have resulted had a defendant been successful in his scheme to evade

payment of tax. Thus, if the Delfinos’ scheme had succeeded, the

Government would have been deprived of the tax on the amount by

which they underreported (or failed to report) their taxable income.

This unpaid tax represents the intended loss to the Government. It was

this amount which the district court properly used to calculate the tax

loss for purposes of sentencing. 

The Delfinos next look to U.S.S.G. § 2T1.1(c)(2)(A) for relief.1

Section 2T1.1(c)(2)(A) provides:

If the offense involved failure to file a tax return, the tax

loss shall be treated as equal to 20% of the gross income . . .

1The Government asserts that the Delfinos’ reliance on

§ 2T1.1(c)(2)(A) is misplaced because the Delfinos were sentenced

under § 2T1.1(c)(1) (tax evasion) rather than § 2T1.1(c)(2)(A) (failure to

file a tax return). While that the Delfinos were, indeed, convicted of tax

evasion, § 2T1.1(c)(2)(A) at least arguably applies because the Delfinos’

conduct did include "failure to file a tax return." We therefore consider

the Delfinos’ argument that § 2T1.1(c)(2)(A) entitles them to resentencing. 

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less any tax withheld or otherwise paid, unless a more accurate determination of the tax loss can be made.

The Delfinos claim that the phrase "a more accurate determination of

the tax loss" mandates the calculation of deductions before tax loss

is determined. The three courts of appeals which have considered this

issue have split, with a majority rejecting the position advanced by the

Delfinos. Compare Chavin, 316 F.3d at 679 (rejecting the inclusion

of deductions) and United States v. Spencer, 178 F.3d 1365, 1368

(10th Cir. 1999) (same) with United States v. Gordon, 291 F.3d 181,

187 (2d Cir. 2002) (concluding that § 2T1.1(c)(1)(A) requires the calculation of deductions). We agree with and adopt the majority view.

In Spencer, the Tenth Circuit stated:

The sentencing guidelines simply authorize a court to avoid

the presumptive tax rates if a "more accurate determination

of the tax loss can be made." We do not interpret this provision as giving taxpayers a second opportunity to claim

deductions after having been convicted of tax fraud. It must

be remembered that, in tax loss calculations under the sentencing guidelines, we are not computing an individual’s tax

liability as is done in a traditional audit. Rather, we are

merely assessing the tax loss resulting from the manner in

which the defendant chose to complete his income tax

returns. 

178 F.3d at 1368 (emphasis added) (internal citations omitted). We

find this reasoning persuasive. The Delfinos chose not to file their

income tax returns. They also chose not to cooperate with the initial

IRS audit, at which time they could have claimed deductions to which

they were entitled. By doing so, they forfeited the opportunity to

claim these deductions. Were the district court now to attempt to

reconstruct the Delfinos’ income tax returns post hoc, it would be

forced to speculate as to what deductions they would have claimed

and what deductions would have been allowed. This would place the

court in a position of considering the many "hypothetical ways" that

the Delfinos could have completed their tax returns. Chavin, 316 F.3d

at 678. The law simply does not require the district court to engage

in this speculation, nor does it entitle the Delfinos to the benefit of

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deductions they might have claimed now that they stand convicted of

tax evasion.

V

Based on the foregoing, we affirm the Delfinos’ convictions and sentences.2

AFFIRMED

2The Delfinos also contend that the Government failed to establish

venue in the Eastern District of Virginia. Because the Delfinos’ improper

venue claim was raised in their post-trial motion for judgment of acquittal and/or new trial, we conclude that it was untimely and that the claim

is waived. See United States v. Ebersole, 411 F.3d 517, 528 (4th Cir.

2005); United States v. Collins, 372 F.3d 629, 633 (4th Cir. 2004). 

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