UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 93-1174

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

VERSUS

ANTHONY QUINN WELCH,

a/k/a Tony Welch,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Texas

(April 7, 1994)

Before GOLDBERG, DAVIS, and D E MOSS, Circuit Judges.

D E MOSS, Circuit Judge:

Anthony Quinn Welch pled guilty to five counts of aiding in

the preparation of false tax returns. He now appeals his sentence.

We affirm the sentence with an adjustment to the term of supervised

release.

I.

Welch owned and managed All Pro Sports, representing himself

as a professional sports agent. Welch sought and received tax

return information during 1990 and 1991 from four client-athletes1 Welch filed a total of five fal se claims for the four

athletes. He filed two claims for one of the athletes and filed

one claim each for the others.

2 The athletes gave Welch what they believed to be true and

correct information for the purpose of having th eir tax returns

prepared. They had no knowledge of the additional false

information submitted to the tax return preparers by Welch.

Furthermo re, Welch's attempt to have the refunds deposited into

accounts that h e controlled took place without the clients'

knowledge or consent.

2 to prepare their tax returns. In five separate instances, 1 Welch

submitted this tax return information, along with additional false

tax information, to a certified public accountant or other income

tax preparer, who then used the information to prepare each

client's individual tax r eturn. The false information included

losses from businesses never owned by the cli ents and deductions

that the clients were not entitled to receive. As a result of the

false information Welch provided, the athletes' tax returns showed

inflated refunds.

Welch then obtained the prepared tax returns and had them

electronicall y filed with the Internal Revenue Service by an

electronic transmitter. The returns contained instructions

directing the refunds to be deposited dir ectly into various bank

accounts controlled by Welch. 2 As a result of the false tax return

information, five refund claims totaling $105,817 were made against

the IRS, and the government lost $29,045.17.

In April 1992, Welch was indicted on five counts of aiding in

the preparation of false tax returns. 26 U.S.C. § 7206(2). Welch

pled guilty to all five counts of the indictment. In February3 Absent contrary instructions from the Sentencing Commission,

amendments to the Guidelines are prospective. S ee United States v.

Windham

, 991 F.2d 181, 183 (5th Cir. 1993). Thus, the Fifth

Circuit should apply the Guidelines in effect at the time of

Welch's sentencing, i.e., the November 1992 Guidelines.

3 199 3, the district court sentenced Welch in accordance with the

pre-sentence investigation (PSI) to 33 m onths in prison on each

count to be served concurrently, followed by three years of

supervised release. The district court also imposed a mandatory

$250 special assessment. Welch now appeals his sentence.

II.

A.

Welch first argues, an d the government concedes, that the

district court improperly classified Welch's violation of 26 U.S.C.

§ 7206(2) as a Class D felony, authorizing a three-year term of

supervised release under 18 U.S.C. § 3583(b)(2). We agree. Each

violation of § 7206(2) carries a maximum penalty of three years

imprisonment and therefore is classified as a Class E felony under

18 U.S.C. § 3559(a)(5). Welch should have been sentenced to a oneyear rather than three-year term of supervised releas e after

imprisonment. 18 U.S.C. § 3583(b)(3). Accordingly, this portion

of Welch's sentence is vacated, and the term of supervised release

is amended to one year. S ee United States v. Stokes

, 998 F.2d 279,

282 (5th Cir. 1993).

B.

Welch next argues that the district court incorrectly

increased his base offense level by two levels under U.S.S.G. §

2T1.4(b)(1) (Nov. 1992). 3 That provision authorizes a two-level4

increase for tax fraud "[i]f the defendant committed the offense as

part of a pattern or scheme from which h e derived a substantial

portion of his income." U.S.S.G. § 2T1.4(b)(1).

The Guidelines do not specify what constitutes a "substantial

portion" of one's income. The sentencing court must make that

finding on its own. In this case, the sentencing court borrowed

the quasi-formula from the Guidelines' criminal livelihood

provision. Specifically, the provision defines "engaged in as a

livelihood" as: "(1) the defendant derived income from the pattern

of criminal conduct that in any twelve-month period exceeded 2,000

times the then existing hourly minimum wage under federal law; and

(2) the totality of circumstances shows that such criminal conduct

was the defendant's primary occupation in that twelve-month period

( e.g.

, the de fendant engaged in criminal conduct rather than

regular, legitimate employment; or the defendant's legitimate

employment was merely a front for his criminal conduct)." U.S.S.G.

§ 4B1.3 comment. (n.2).

Welch argues that § 4B1.3 should not have been used because

the Guidelines do not explicitly authorize the sentencing court to

refer to this section when determining whether a defendant has

earned a substantial portion of his income from tax fraud. He

claims that because the language of § 2T1.4(b)(1) itself and its

accompanying commentary do not mention § 4B 1.3, the Sentencing

Commission did not intend for it to be applied to § 2T1.4(b)(1).

We first note that the sentencing court's finding that Welch

derived a substantial portion of his income from tax fraud was a4 Welch argues that the court's finding was a legal one because

the court applied a separate Guideline provision in reaching its

conclusion. Welch's argument is not without merit; the difference

between factual and legal findings is not always clearly

recognized. Still, we point out that "findings which require both

assessment of complex evidence as well as sensitivity to legal

purposes may nevertheless be factual." Id . (citing Wainwright v.

Witt

, 469 U.S. 412 (1985)). The sentencing court's finding here

was factual because it used § 4B1.3 only as a guide in reaching its

factual finding under § 2T1.4.

5 Section 994(i)(2) states "[t]he Commission shall assure that

the guidelines sp ecify a sentence to a substantial term of

imprisonmen t for categories of defendants in which the defendant

committed the offense as part of a pattern of criminal conduct from

which he derived a substantial portion of his income."

5 factual one and, therefore, was reviewable only for clear error.

United States v. Mejia-Orosco

, 867 F.2d 216, 221 (5th Cir. 1989). 4

We find no such error. The sentencing court's reference to §

4B1.3 to determine that Welch derived a substantial portion of his

income under § 2T1.4(b)(1) was proper because § 4B1.3 is intended

to supplement the various specific offenses in Chapter 2 of the

Guidelines, including § 2T1.4(b)(1). Congress originally directed

t he Sentencing Commission to specify a substantial term o f

imprisonment for individu als who derive a substantial portion of

t heir income through illegal activities. S ee 28 U. S.C. §

994(i)(2). 5 Section 4B1.3 merely fulfills Congress's directive.

See § 4B1.3 comment. (b ackg'd) (reiterating § 944(i)(2)'s

direct ive). In particular, § 4B1.3 provides a quasi-formula to

determine whether the defendant's criminal activity constituted his

or her livelihood. S ee § 4B1.3 comment. (n.2). If so, a6 The government persuasively notes that, although § 2T1.4 does

not specifically refer to § 4B1.3, the wordin g of each is nearly

identical. Section 2T1.4 provides for a two level increase "[i]f

the defendant committed the offense as part of a pattern or scheme

from which he derived a substantial portion of his income ."

Section 4B1.3's commentary background states "[s]ection 4B1.3

implements 28 U.S.C. § 944(i)(2), which directs the Commission to

ensure that the guidelines specify a 'substantial term of

imprisonment' for a defendant who committed an offense as part of

a pattern of criminal conduct from which he derived a substantial

portion of his income ."

6 substantial portion of the defendant's income, in fact, comes from

the proscribed conduct. 6

Furthermore, in recent years we have upheld the application of

§ 4B1.3 to other specific offense s, even though the specific

offenses make no reference to the criminal livelihood provision.

See, e.g., U.S. v. Quertermous , 946 F.2d 375, 377 (5th Cir. 1991)

(applying § 4B1.3 to § 2B1.1); U.S. v. Cryer

, 925 F.2d 828, 829

(5th Cir. 1991) (same). While the issue in Quertermous and Cryer

was whether the criminal conduct satisfied § 4B1.3's minimum dollar

amount, both cases nonetheless applied the provision to specific

offenses. We see no material distinction between § 2T1.4 and the

specific offense provisions that were at issue in Quertermous and

Cryer

.

Having determined that the sentencing court correctly used §

4B1.3 as a guide in applying § 2T1.4(b)(1) in this case, we now

review the result the court reached. We find no error in the

court's finding that Welch received "a substantial portion" of his

income by filing fraudulent returns. The government lost at least

$29,000 from Welch's fraudulent scheme, which is enough to satisfy

§ 4B1.3's minimum dollar require ment. In addition, Welch was7 See supra note 3.

8 Until now, we had not addressed former § 2T1.4(b)(3) and what

constitutes b eing "in the business" of filing fraudulent tax

returns. We have addressed, however, a similar provision: former

7 unable to show evidence of any legitimate employment or source of

income since 1986. In sum, the sentencing court found that Welch's

primary occupation was the filing of fraudulent tax r eturns,

through which he gained a substan tial portion of his income.

Because t he district court "enjoys wide latitude in implementing

the Sentencing Guidelines, particularly regarding findings of

fact," U.S. v. Quertermous , 946 F.2d 375, 377 (5th Cir. 1991), we

will not disturb its finding here.

C.

Welch's last argument is that the district court erred in

increasing his base offense level by two levels pursuant to former

§ 2T1 .4(b)(3). That provision provides that "[i]f the defendant

was in the business of preparing or assisting in the preparation of

tax returns, increase by 2 levels." U.S.S.G. § 2T1.4(b)(3) (Nov.

1992). 7 Welch argues that his primary occupation was as a sports

agent and that he offered to prepare tax returns for clients only

a s an added service. He claims that he did not regularly file

returns for or provide tax advice to the general public. Instead,

he claims, he merely employed a tax preparer or CPA to prepare the

tax returns o f his clients and, therefore, former § 2T1.4(b)(3)

does not apply.

We conclude that the sentencing court's finding was a factual

one. 8 We therefore review it only for clear error, M ejia-Orosco

,§ 2B1.2(b)(3)(A), which provided a four-point enhancement if the

defendant was "in the business of receiving and selling stolen

property." U.S.S.G. § 2B1.(b)(3)(A) (Nov. 1989). In U nited States

v. Esquivel

, 919 F.2d 957 (5th Cir. 1990), we affirmed the

enhancement of a defendant's sentence for stolen property, though

the conduct at issue was not prolonged or sustained. The Court

relied on the size and sophistication of the defendant's operation

in order to justify the increase. Id . at 960-961.

8 867 F.2d at 221, and again find no such error. We first dismiss

Welch's notion that § 2T1.4(b)(3) is limited to those tax preparers

w ho "hang out a shingle." Section 2T1.4(b)(3) i s not limited to

officially licensed tax preparers; the provision covers those who

are "in the business of . . . assisting in the preparation of tax

returns ." § 2T1.4(b)(3) (emphasis added). T he commentary

additionally provides that "[s]ubsection (b)(3) applies to persons

who regularly act as tax prepar ers or advisers for profit." §

2T1.4, comment. (n.3).

The sentencing court in this case found that Welch's true

occupation wa s not as a sports agent but as an organizer and

preparer of fraudulent tax returns for profit. Welch was not

licensed or recognized as a sports agent and was unable to provide

evidence of legitimate profits as a sports agent. Furthermore,

Welch failed to demonstrate that he was otherwise gainfully

employed, and he played the principal role in the drafting and

filing of at least five individual fraudulent tax returns over a

three-year period. He also misrepresented himself at least once as

a CPA. We find no error in the sentencing court's finding that

Welch was "in the business" of filing fraudulent tax returns.wjl\opin\93-1174.opn

jwl 9 III.

Because the sentencing court fi ndings were not clearly

erroneous, we AFFIRM Welch's sentence AS AMENDED.