Source: https://m.openjurist.org/941/f2d/71
Timestamp: 2020-07-02 10:28:32
Document Index: 140118434

Matched Legal Cases: ['§ 201', '§ 446', '§ 1', '§ 1', '§ 7206', '§ 1341', '§ 522', '§ 7201', '§ 3651', '§ 3663', '§ 1472', '§ 3663', '§ 371', '§ 1341', 'in fine', '§ 6', '§ 6', '§ 212', '§ 4', '§ 6651', '§ 7206', '§ 7201', '§ 209', '§ 23', '§ 1041', '§ 168', '§ 168', '§ 446', '§ 1', '§ 203', '§ 1', '§ 1', '§ 201', '§ 168', '§ 201', '§ 168', '§ 3663', '§ 371', '§ 215', '§ 6']

941 F. 2d 71 - United States v. M Helmsley V J M
941 F2d 71 United States v. M Helmsley V J M
68 A.F.T.R.2d 91-5272, 60 USLW 2174,
91-2 USTC P 50,455
ACRS, since repealed, was mandatory for property "placed in service" after December 31, 1980. See Economic Recovery Tax Act of 1981, Pub.L. No. 97-34, § 201, 95 Stat. 172, 203-04. Within ACRS, formerly Section 168 of the Internal Revenue Code, a taxpayer did have options. That section designated real property as "15-year real property" and personal property as "5-year property." The general depreciation provision, Section 168(b)(1), the one selected by Padwe, provided that the basis of 5-year property could be recovered over five years in percentages of 15, 22, 21, 21 and 21, respectively. Section 168(b)(2) stated that 15-year real property was to be depreciated according to a schedule to be promulgated by the Secretary. However, Section 168(b)(3) allowed a taxpayer to elect one of three additional options. Five-year property could be depreciated on a straight-line basis over 5, 12 or 25 years, and 15-year real property could be depreciated on a straight-line basis over 15, 35 or 45 years.
Mrs. Helmsley argues that by not segregating her real and personal property she made no election with respect to personal property, and that therefore the ACRS provisions of Section 168(b)(1) applied by Padwe--five-year depreciation in percentages of 15, 22, 21, 21 and 21, respectivelyapplied to the personal property component of her partnerships by default. It is true that Section 168(b)(3) does not provide straight-line depreciation of 5-year property over fifteen years, the option used on the Helmsleys' returns. However, Mrs. Helmsley had four depreciation options available for personal property: (1) over five years in percentages of 15, 22, 21, 21 and 21 respectively (the method used in Padwe's testimony), (2) over five years on a straight-line basis, (3) over twelve years on a straight-line basis, and (4) over twenty-five years on a straight-line basis. The fact that a fifteen-year depreciation schedule for (unsegregated real and) personal property was selected is not grounds for allowing her now to convert the depreciation of personal property to the accelerated five-year schedule of Section 168(b)(1) that Padwe used--rather than five, twelve or twenty-five years on a straight-line basis--solely to avoid a tax evasion charge for an entirely separate aspect of her tax returns. This is so whether or not Mrs. Helmsley's original selection was for strategic tax-savings reasons or was a good faith error.
Under the doctrine of election, a taxpayer who makes a conscious election may not, without the consent of the Commissioner, revoke or amend it merely because events do not unfold as planned. See, e.g., J.E. Riley Investment Co. v. Commissioner, 311 U.S. 55, 61 S.Ct. 95, 85 L.Ed. 36 (1940); Pacific National Co. v. Welch, 304 U.S. 191, 58 S.Ct. 857, 82 L.Ed. 1282 (1938). "Once the taxpayer makes an elective choice, he is stuck with it." Roy H. Park Broadcasting, Inc. v. Commissioner, 78 T.C. 1093, 1134 (1982).
Absent the Commissioner's consent, a taxpayer who has used a particular depreciation method may not defend an evasion charge on the ground that, under an alternative method, additional depreciation could have been claimed. See Fowler v. United States, 352 F.2d 100 (8th Cir.1965), cert. denied, 383 U.S. 907, 86 S.Ct. 887, 15 L.Ed.2d 663 (1966). In Fowler, appellants were convicted of tax evasion and argued that the district court erred in excluding expert testimony that appellants could have taken greater depreciation on certain assets had the useful life of the assets been calculated under a different method. The Eighth Circuit disagreed, explaining that the exclusion of expert testimony was proper because appellants had "elected one method of determining depreciation and that election binds them for purposes of this action." Id. at 106.
In any event, Mrs. Helmsley's failure to segregate personal property was equivalent in scope and effect to the selection of an accounting method for personal property, and it is axiomatic that a taxpayer may not change accounting methods without first obtaining the Commissioner's consent. See 26 U.S.C. § 446(e) (1988); Treas.Reg. § 1.446-1(e)(2)(ii)(a) (1957) (defining accounting method change as "a change in the treatment of any material item"). See also Witte v. Commissioner, 513 F.2d 391 (D.C.Cir.1975); Standard Oil Co. (Indiana) v. Commissioner, 77 T.C. 349 (1981). Moreover, Treasury Regulation Section 1.167(e)-1(a) requires that "[a]ny change in the method of computing the depreciation allowances with respect to a particular account ... is a change in method of accounting, and such a change will be permitted only with the consent of the Commissioner." Treas.Reg. § 1.167(e)-1(a) (as amended in 1972). This rule applies whether or not the original accounting method was permissible. See Witte, 513 F.2d at 394 (consent requirement applies "regardless of whether the change in method is from one proper method to another or from an improper method to a proper one"); United States v. Kleifgen, 557 F.2d 1293, 1297 n. 9 (9th Cir.1977) (same).
Finally, even if Mrs. Helmsley made a good faith mistake when she failed to segregate her personal property, her sufficiency defense fails as a matter of law. The government's showing of a deficiency can be rebutted by a recalculation showing an overpayment that is, under applicable law, mandatory. A showing of a deficiency cannot be rebutted by a recalculation based on the selection of the most favorable option, where other equally available options result in a deficiency. Padwe's testimony merely selected the most favorable option. If the original depreciation method selected by Mrs. Helmsley was a good faith mistake, she may still make a late election of depreciation periods under Section 168(b)(3) as well as under Section 168(b)(1). Resort to Section 168(b)(1) is, therefore, not mandatory. Under an exception to the doctrine of election, a taxpayer who makes a good faith mistake may make a late election. See, e.g., Dougherty v. Commissioner, 60 T.C. 917 (1973) (permitting late election under Section 962 where taxpayers mistakenly believed that they had no Section 951(a) gross income for taxable year at issue); Reaver v. Commissioner, 42 T.C. 72 (1964) (late installment sale election allowed where taxpayers erroneously but in good faith characterized payments received as gross receipts rather than proceeds from a sale of property); Bayley v. Commissioner, 35 T.C. 288 (1960) (permitting late installment sale election where taxpayer made good faith error on original return). It is a matter of public record that, for the reasons stated supra, the Internal Revenue Service applies this exception to Section 168 and allows taxpayers who have originally made a good faith mistake to make a late election of one of the options available under Section 168(b)(3) as well as under Section 168(b)(1). IRS Tech. Mem. 1986-46010 (July 21, 1986).
Under traditional principles, the government bears the burden throughout the trial of proving beyond a reasonable doubt all elements of tax evasion. See In re Winship, 397 U.S. 358, 364, 90 S.Ct. 1068, 1072, 25 L.Ed.2d 368 (1970); Davis v. United States, 160 U.S. 469, 487, 16 S.Ct. 353, 358, 40 L.Ed. 499 (1895). So long as, after viewing the evidence in the light most favorable to the prosecution, a rational trier of fact could find the essential elements of the crime beyond a reasonable doubt, the trial judge must submit the question to the jury. See Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979); United States v. Taylor, 464 F.2d 240, 242-43 (2d Cir.1972).
Mrs. Helmsley challenges her convictions on Count 1, Counts 8-10, and Counts 14-29 on the ground that the jury instructions unconstitutionally amended and expanded the offense alleged in the indictment. Under the Fifth Amendment, a criminal defendant has the right to be tried only on the charges contained in the indictment returned by a grand jury. See Stirone v. United States, 361 U.S. 212, 216-17, 80 S.Ct. 270, 272-73, 4 L.Ed.2d 252 (1960); Ex Parte Bain, 121 U.S. 1, 7 S.Ct. 781, 30 L.Ed. 849 (1887). An unconstitutional amendment of the indictment occurs when the charging terms are altered, either literally or constructively, such as when the trial judge instructs the jury. In contrast, a variance occurs when the charging terms are unaltered, but the evidence offered at trial proves facts materially different from those alleged in the indictment. See United States v. Zingaro, 858 F.2d 94, 98-99 (2d Cir.1988). Variances are subject to the harmless error rule and thus are not grounds for reversal without a showing of prejudice to the defendant. Constructive amendments, however, are per se violative of the Fifth Amendment. See id. at 98; United States v. Weiss, 752 F.2d 777, 787 (2d Cir.), cert. denied, 474 U.S. 944, 106 S.Ct. 308, 88 L.Ed.2d 285 (1985).
A defendant is deprived of his right to be tried only on the charges returned by a grand jury when an essential element of those charges has been altered. See Zingaro, 858 F.2d at 98; Weiss, 752 F.2d at 787. Nevertheless, even an amendment or variance that does not alter an essential element may still deprive a defendant of an opportunity to meet the prosecutor's case. See Weiss, 752 F.2d at 789 (citing Berger v. United States, 295 U.S. 78, 55 S.Ct. 629, 79 L.Ed. 1314 (1935)). However, the indictment and the jury charge in the instant matter comported with one another in all essential respects, and Mrs. Helmsley had adequate notice of the conduct she was called upon to defend.
1. Count 1: Conspiracy
Section 371 thus defines two ways in which its provisions are violated: (1) conspiring to commit "offenses" that are specifically defined in other federal statutes, and (2) conspiring to "defraud the United States." These offenses overlap when the object of a conspiracy is a fraud on the United States that also violates a specific federal statute. See United States v. Rosenblatt, 554 F.2d 36, 40 (2d Cir.1977).
[Defendants] did unlawfully, wilfully and knowingly combine, conspire, confederate and agree together ... to commit offenses against the United States, to wit, violations of Title 26, United States Code, Sections 7201 and 7206, and Title 18, United States Code, Section[s] 1341, and to defraud the United States and an agency thereof, to wit, the Internal Revenue Service of the United States Department of Treasury.
(emphasis added). This statement, along with paragraphs 30-45, which detailed the particulars of the conspiracy, were sufficient to charge a defraud clause violation and to put Mrs. Helmsley on notice with respect to that violation. See United States v. Lane, 765 F.2d 1376, 1380 (9th Cir.1985).
Mrs. Helmsley argues that because her indictment did not employ the language of the indictment in United States v. Klein, 247 F.2d 908, 915 (2d Cir.1957), cert. denied, 355 U.S. 924, 78 S.Ct. 365, 2 L.Ed.2d 354 (1958)--"impeding, impairing, obstructing and defeating the lawful functions of the Department of the Treasury in the collection of the revenue; to wit, income taxes"--it did not sufficiently charge her with violating the defraud clause of Section 371. Although the Klein language may have become customary boilerplate in defraud clause indictments, it is not legally required. What is required is only that an indictment charging a defraud clause conspiracy set forth with precision "the essential nature of the alleged fraud." Rosenblatt, 554 F.2d at 42; see Dennis v. United States, 384 U.S. 855, 860, 86 S.Ct. 1840, 1843, 16 L.Ed.2d 973 (1966); Russell v. United States, 369 U.S. 749, 765, 82 S.Ct. 1038, 1047, 8 L.Ed.2d 240 (1962). Paragraphs 30-45, which particularize the alleged scheme to charge personal expenditures for Dunnellen Hall to Helmsley-controlled business entities, were more than sufficient to hone the broad language of Paragraph 25 into a pointed allegation of a specific fraud.
Nor does the absence of defraud clause allegations in the section of Count 1 entitled "Objects of the Conspiracy" render the indictment defective. That section contained four paragraphs (numbers 26-29), reciting the language of each of the four federal statutes that the defendants allegedly conspired to violate. By definition there is no specific statutory language to recite in conjunction with the fifth object--defrauding the United States. As discussed, paragraphs 30-45 sufficiently detail that object to create a proper indictment. Thus, because Count 1 of the indictment alleged the same five objects as contained in the jury charge on that count, there is no chance that the jury convicted Mrs. Helmsley of something other than that for which she was indicted. See United States v. Mollica, 849 F.2d 723, 729 (2d Cir.1988); Weiss, 752 F.2d at 788-89.
Alternatively, Mrs. Helmsley contends that, if Count 1 sufficiently alleged both offense clause and defraud clause violations of Section 371, then that count is invalidly duplicitous because of the possibility of a non-unanimous jury verdict. See United States v. Gordon, 844 F.2d 1397, 1401 (9th Cir.1988). She posits that some jurors may have convicted for offense clause violations and other jurors for a defraud clause violation. However, any possibility of a duplicitous verdict was removed by Judge Walker's careful charge regarding unanimity on Count 1:
2. Counts 8-10: False Personal Returns
26 U.S.C. § 7206(1) (1988). False statements about income do not have to involve substantial amounts in order to violate this statute. See, e.g., United States v. Citron, 783 F.2d 307, 313-14 (2d Cir.1986); United States v. Greenberg, 735 F.2d 29, 31-32 (2d Cir.1984). The indictment's use of the word "substantial" was thus surplusage without legal significance in the context of Section 7206(1). Omitting that word in the jury charge in no way allowed the jury to convict Mrs. Helmsley for a different crime than that for which she was indicted. Indeed, the Supreme Court has specifically repudiated the proposition that "it constitutes an unconstitutional amendment to drop from an indictment those allegations that are unnecessary to an offense that is clearly contained within it." United States v. Miller, 471 U.S. 130, 144, 105 S.Ct. 1811, 1819, 85 L.Ed.2d 99 (1985).
It was followed by a list of sixteen tax returns on which the alleged falsehoods were entered. Later, a bill of particulars identified the precise lines on those returns charged to be false. Moreover, paragraphs 33-34, incorporated by reference in Counts 14-29, alleged that "millions of dollars of expenditures for Dunnellen Hall paid by business entities in the Helmsley Organization were falsely reflected on the books and records of those business entities as expenditures for the operation of the businesses" and "gave rise to millions of dollars of false and fraudulent tax deductions on the Federal and New York State income tax returns filed by those business entities for the years 1983, 1984 and 1985." In the context of Section 7206(2) "false and fraudulent" may mean mischaracterizing deductions as well as overstating them. See United States v. Gurary, 860 F.2d 521, 525 (2d Cir.1988), cert. denied, 490 U.S. 1035, 109 S.Ct. 1931, 104 L.Ed.2d 403 (1989); United States v. Bliss, 735 F.2d 294, 301 (8th Cir.1984). The jury instruction was thus consistent with the indictment and did nothing to amend it.
For this reason, Mrs. Helmsley is also wrong in arguing that Judge Walker erred in not giving a specific unanimity charge. Such an instruction is needed where there exists "a genuine possibility of jury confusion or that a conviction may occur as the result of different jurors concluding that the defendant committed different acts." United States v. Echeverry, 719 F.2d 974, 975 (9th Cir.1983). However, Judge Walker's instruction that Section 7206(2) would be violated even if the deductions were allowable but mischaracterized was hardly complex.11 The alleged offense involved a single predicate act: entering a false statement on a tax form. The requirement that unanimity exist as to the fact that the statement was false does not imply a need for unanimity as to why it was false, that is, agreement on the content of what would have been a correct statement. Moreover, a finding of overstatement through the creation of phony deductions necessarily includes a mischaracterization.
For her participation in the preparation and submission of these state returns to the New York State Department of Taxation and Finance, Mrs. Helmsley was convicted of ten counts of mail fraud under 18 U.S.C. § 1341. She claims that these convictions are invalid on two grounds. First, she argues that because there was no proof of taxes actually due to New York State, the alleged fraud did not deprive its victim of a property interest, as required by McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). Second, she argues that the mail fraud statute cannot apply in circumstances in which she was required to mail her state tax returns. We disagree as to both grounds.
In McNally, the Supreme Court held that Section 1341 did not extend to a scheme in which a state officer chose an insurance agent to provide coverage for the state and demanded kickback payments from the agent, but in which the state itself was defrauded of no money or property. See 483 U.S. at 360-61, 107 S.Ct. at 2881-82. The Court stated, "[t]he mail fraud statute clearly protects property rights, but does not refer to the intangible right of the citizenry to good government." Id. at 356, 107 S.Ct. at 2879. Unlike the conduct of the state official in McNally, Mrs. Helmsley's actions fall within the ambit of Section 1341, as construed by that decision.
McNally limited Section 1341 to schemes intended to deprive victims of money or property. See United States v. King, 860 F.2d 54, 55 (2d Cir.1988) (per curiam), cert. denied, 490 U.S. 1065, 109 S.Ct. 2062, 104 L.Ed.2d 628 (1989). In this case, Judge Walker explicitly instructed the jury that with respect to the mail fraud counts, it must find, inter alia, that the defendant "knowingly and wilfully participated in the scheme or artifice to obtain money or property by fraud." (emphasis added). In returning guilty verdicts on these counts, the jury therefore found a scheme to deprive New York State of money or property. The absence of proof of taxes actually due to New York State is immaterial because success of a scheme to defraud is not required. See United States v. Bucey, 876 F.2d 1297, 1311 (7th Cir.), cert. denied, --- U.S. ----, 110 S.Ct. 565, 107 L.Ed.2d 560 (1989).
To be sure, the absence of proof of taxes actually due may bear on the sufficiency of the evidence as to mail fraud. However, where the evidence of a scheme to charge personal expenses to business entities supports a conviction for federal tax evasion, where state tax returns were filed pursuant to the same scheme, and where certain entries on the state tax returns were derived from the corresponding federal returns, a juror could easily conclude beyond a reasonable doubt that the scheme was intended to deprive New York State of money or property. See Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979).
Nothing in United States v. Porcelli, 865 F.2d 1352 (2d Cir.), cert. denied, --- U.S. ----, 110 S.Ct. 53, 107 L.Ed.2d 22 (1989), precludes application of Section 1341 to the instant case. In Porcelli, we considered whether the mail fraud statute applied to the owner of several gasoline stations who filed state sales tax returns that underreported his businesses' sales, enabling him to avoid paying sizeable amounts of tax owed on sales. Because there was no evidence that Porcelli physically collected sales tax from his customers and withheld it from the government (in which case he literally would have deprived the state of its property), we had to confront whether the failure to collect and to remit sales taxes deprives the state of its property. Likening tax obligations to a chose in action, we found that the necessary property interest existed. See 865 F.2d at 1361. Generally, then, Porcelli stands for the proposition that Section 1341 applies to schemes to avoid paying taxes due.
In so holding, we reject Mrs. Helmsley's second argument that, because her state tax returns were required to be mailed, she cannot be convicted under Section 1341 for those mailings. Assuming, without deciding, that she was prohibited from using any other delivery method, we reject her argument as a misreading of Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4 L.Ed.2d 1277 (1960). That case held that school district employees who looted the district of funds obtained through mailed tax assessments and remitted checks did not use the mails for the purpose of executing a fraud within the meaning of Section 1341. Id. at 393, 80 S.Ct. at 1184. The Court carefully limited its holding to the "particular circumstances of [the] case," relying on the facts that the school district was required to collect taxes, that the taxes assessed were not "padded," and that the assessment letters "contained no false pretense or misrepresentation." Id. at 391-92, 80 S.Ct. at 1184. The scheme was essentially one to steal funds that had been mailed, not to cause deception through the mails. See id. at 379-82, 80 S.Ct. at 1177-79. In contrast, Mrs. Helmsley's mailings contained, or so the jury found, fraudulent misrepresentations. Thus, they were " 'part[s] of the execution of the fraud.' " Parr, 363 U.S. at 391, 80 S.Ct. at 1183 (quoting Kann v. United States, 323 U.S. 88, 95, 65 S.Ct. 148, 151, 89 L.Ed. 88 (1944)).
Even if the remarks were improper, however, there would be ground for reversal only if "the statements, viewed against 'the entire argument before the jury' deprived the defendant of a fair trial." United States v. Wilkinson, 754 F.2d 1427, 1435 (2d Cir.) (quoting United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 242, 60 S.Ct. 811, 853, 84 L.Ed. 1129 (1940)), cert. denied sub nom. Shipp v. United States, 472 U.S. 1019, 105 S.Ct. 3482, 87 L.Ed.2d 617 (1985). In assessing whether a prosecutor's behavior amounted to "prejudicial error," see United States v. Young, 470 U.S. 1, 11-12, 105 S.Ct. 1038, 1044-45, 84 L.Ed.2d 1 (1985), we have focused on (1) the severity of the misconduct, (2) the measures adopted to cure the misconduct, and (3) the certainty of conviction absent the misconduct. See United States v. Friedman, 909 F.2d 705, 709 (2d Cir.1990). A consideration of these factors weighs overwhelmingly against reversal of Mrs. Helmsley's convictions.
This argument ignores Fed.R.Crim.P. 32(c),14 which provides the method by which sentencing judges obtain objective and accurate information relating to the defendant and her crime. See 3 C. Wright, Federal Practice and Procedure: Criminal, § 522, at 49 (2d ed. 1982). That rule instructs the Probation Department to conduct a presentence investigation and submit to the sentencing court a report containing, inter alia, a statement of the circumstances of the commission of the offense and information concerning any harm--including financial harm--done to any victim of the offense. At a reasonable time before sentencing, the court must afford the defendant an opportunity to read and comment on the report and to object to any alleged factual inaccuracy contained in it. If an inaccuracy is alleged, the court must make a finding as to the controverted matter or refrain from taking that matter into account in sentencing. See supra note 14. If no such objection is made, however, the sentencing court may rely on information contained in the report. See United States v. Aleman, 832 F.2d 142, 144 (11th Cir.1987); cf. United States v. Fatico, 579 F.2d 707, 713 (2d Cir.1978) (permitting the use of reliable hearsay evidence in sentencing). Moreover, if a defendant fails to object to certain information in the presentence report, she is barred from contesting the sentencing court's reliance on that information, unless such reliance was plain error. See United States v. Brody, 808 F.2d 944, 946-47 (2d Cir.1986).
Section 7201 of the Internal Revenue Code, the "capstone" of the comprehensive statutory scheme prohibiting and punishing federal tax fraud, see Spies v. United States, 317 U.S. 492, 497, 63 S.Ct. 364, 367, 87 L.Ed. 418 (1943), prohibits any attempt to evade or defeat any tax in any manner and provides that such an attempt is punishable as a felony. See 26 U.S.C. § 7201 (1988). A series of sections prohibiting specific methods of fraud in the collection and payment of taxes, all of which are separately punishable, follows Section 7201. See United States v. White, 417 F.2d 89, 93-94 (2d Cir.1969), cert. denied, 397 U.S. 912, 90 S.Ct. 910, 25 L.Ed.2d 92 (1970). Among these are Section 7206(1), criminalizing the signing of false tax returns under oath, and Section 7206(2), criminalizing aiding or assisting in the filing of a false tax return.
We have held that where false returns "were 'incidental step[s] in the consummation of the completed offense of attempted defeat or evasion of tax' and as such ... constituted a 'crime within [a] crime' under the lesser included offense doctrine" then a conviction under Section 7206(1) for filing those false returns merges into a conviction under Section 7201 for the inclusive fraud of tax evasion. White, 417 F.2d at 93-94 (quoting Gaunt v. United States, 184 F.2d 284, 290 (1st Cir.1950), cert. denied, 340 U.S. 917, 71 S.Ct. 350, 95 L.Ed. 662 (1951)); see also Sansone v. United States, 380 U.S. 343, 349, 85 S.Ct. 1004, 1009, 13 L.Ed.2d 882 (1965) (Sections 7203 and 7207 are lesser included offenses within Section 7201 in appropriate case).
Even though Mr. Helmsley was a partner in some of the partnerships involved in Counts 14-28, our ruling is consistent with United States v. Slutsky, 487 F.2d 832 (2d Cir.1973), cert. denied, 416 U.S. 937, 94 S.Ct. 1937, 40 L.Ed.2d 287 (1974). In that case, the two defendants, equal partners in a resort hotel, underreported the income of their partnership. Each was convicted of making and subscribing to a false partnership return in violation of Section 7206(1) and attempting to evade personal income taxes in violation of Section 7201. Id. at 835. Slutsky held that, because a partnership is not in itself a taxable entity and the partners are liable as individuals for the income from their respective partnership shares, underreporting income on the partnership returns was incidental to the tax evasion. The Section 7206(1) convictions thus merged with the Section 7201 convictions. Id. at 845.
Federal courts have no inherent power to order restitution. Such authority must be conferred by Congress. See United States v. Elkin, 731 F.2d 1005, 1010-11 (2d Cir.), cert. denied, 469 U.S. 822, 105 S.Ct. 97, 83 L.Ed.2d 43 (1984). At the time of Mrs. Helmsley's offenses two statutes relating to restitution were in effect. First, the Federal Probation Act, formerly codified at 18 U.S.C. §§ 3651-56 and repealed effective November 1, 1987, authorized a sentencing court to order restitution only as a condition of probation. See Elkin, 731 F.2d at 1011. Second, the Victim and Witness Protection Act ("VWPA"), 18 U.S.C. § 3663, enacted in 1982 and still in effect, authorized restitution only for violations of Title 18 of the United States Code and for certain offenses under the Federal Aviation Act of 1958, 49 U.S.C.App. § 1472. See 18 U.S.C. § 3663(a) (1988). Judge Walker did not specify under which statute he was acting, but the Federal Probation Act is clearly inapplicable because Mrs. Helmsley's restitution was not imposed as a condition of her probation. We must thus determine whether Judge Walker had authority under the VWPA to order restitution. We conclude that he did.
Mrs. Helmsley's convictions for conspiracy under Count 1 and mail fraud under Counts 30-39 were for violations of Title 18--18 U.S.C. § 371 and 18 U.S.C. § 1341, respectively. The VWPA thus applies.18 Mrs. Helmsley argues, however, that a district court is barred from ordering restitution under VWPA for tax-related offenses because Congress has not authorized restitution for violations of Title 26, the Internal Revenue Code. This argument is misguided, however, because, as we explain infra in our discussion of the fines imposed for these counts, conspiracy and mail fraud are crimes distinct from their underlying predicate acts and purposes, and involve additional harms. Moreover, nothing in Section 3663 limits the court's power to order restitution in such instances. Finally, the Internal Revenue Service and the State of New York can be "victims" under the VWPA. Cf. United States v. Kirkland, 853 F.2d 1243, 1246 (5th Cir.1988) (Farmers Home Administration victim); United States v. Sunrhodes, 831 F.2d 1537, 1545-46 (10th Cir.1987) (Indian Health Service victim); United States v. Gallup, 812 F.2d 1271, 1281 (10th Cir.1987) (Department of Housing and Urban Development victim); United States v. Ruffen, 780 F.2d 1493, 1496 (9th Cir.) (county agency victim), cert. denied, 479 U.S. 963, 107 S.Ct. 462, 93 L.Ed.2d 407 (1986); United States v. Fountain, 768 F.2d 790, 802 (7th Cir.1985) (Department of Labor victim), cert. denied, 475 U.S. 1124, 106 S.Ct. 1647, 90 L.Ed.2d 191 (1986).
Mrs. Helmsley contends that, even if the district court had the power to order restitution, it could not order her to pay a sum of taxes allegedly due without a formal adjudication of that amount. While there is authority for this position, see, e.g., United States v. Franks, 723 F.2d 1482, 1487 (10th Cir.1983), cert. denied, 469 U.S. 817, 105 S.Ct. 85, 83 L.Ed.2d 32 (1984); United States v. Touchet, 658 F.2d 1074, 1076 (5th Cir.1981); United States v. White, 417 F.2d 89, 94 (2d Cir.1969), cert. denied, 397 U.S. 912, 90 S.Ct. 910, 25 L.Ed.2d 92 (1970); United States v. Taylor, 305 F.2d 183, 187-88 (4th Cir.), cert. denied, 371 U.S. 894, 83 S.Ct. 193, 9 L.Ed.2d 126 (1962); United States v. Stoehr, 196 F.2d 276, 284 (3d Cir.), cert. denied, 344 U.S. 826, 73 S.Ct. 28, 97 L.Ed. 643 (1952), we hold, for the reasons stated in our discussion of Fed.R.Crim.P. 32(c), supra, that Mrs. Helmsley has waived her opportunity to contest the amount of restitution. In Stoehr, the basis for the authorities cited immediately above, the court stated,
196 F.2d at 284 (emphasis added). We believe that Mrs. Helmsley's failure to object to the figures of $1,221,900 and $469,300 in the presentence report and her adoption of the former figure in arguing mitigating circumstances constitute such acquiescence. Rule 32 clearly contemplates that the Probation Department will gather information on which to base restitution. See former Fed.R.Crim.P. 32(c)(2)(D) (presentence report shall contain "any other information that may aid the court in sentencing, including the restitution needs of any victim of the offense"). Having failed to avail herself of the opportunity under that Rule to seek a judicial finding with respect to the amount of taxes owed, cf. United States v. Weichert, 836 F.2d 769, 772 (2d Cir.1988), cert. denied, 488 U.S. 1017, 109 S.Ct. 813, 102 L.Ed.2d 802 (1989), she acquiesced in the presentence report.
4. The Aggregate Fine
Judge Walker ordered Mrs. Helmsley to pay fines as follows: (1) a fine of $250,000 and a $50 special assessment on each of Counts 1, 3, 4, 9, 10, 14, 15, 17, 18, 20-29, and 31-38; (2) a fine of $100,000 on each of counts 2, 8, 16 and 19; and (3) a fine of $1,000 on each of Counts 30 and 39, for a total in fines of $7,152,000 and special assessments of $1,350. Mrs. Helmsley argues that this total is invalid because it exceeds the limit on aggregate fines imposed by the Criminal Fine Enforcement Act of 1984, Pub.L. No. 98-596, § 6(a), 98 Stat. 3134, 3137. We find this statutory capping provision inapplicable to her case.
Pub.L. No. 98-596, § 6(a), 98 Stat. at 3137. Repealed when the Sentencing Reform Act of 1984 became effective, see Pub.L. No. 98-473, §§ 212(a)(2), 235(a)(1), 98 Stat. 1987, 2031 (1984), as amended by Pub.L. No. 99-217, § 4, 99 Stat. 1728 (1985), Section 3623 applies to offenses committed between December 31, 1984 and November 1, 1987. Mrs. Helmsley argues that in her case, the maximum fine is $500,000, twice the $250,000 fine imposable on any of the counts.19
Her contention is wrong, however, because, although her offenses "arise from a common scheme or plan," they "cause separable or distinguishable kinds of harm or damage." Her offenses thus do not satisfy the prerequisite of Section 3623(c)(2). See United States v. Ramirez-Amaya, 812 F.2d 813, 816-17 (2d Cir.1987).
Counts 2-4 charged evasion of personal income taxes, the harm of which is self-evident. Count 1 charged conspiracy, which, because of the involvement of multiple parties, traditionally has been viewed as an offense that causes harm distinguishable from the harm caused by the underlying substantive offenses. See Ramirez-Amaya, 812 F.2d at 817 (citing Callanan v. United States, 364 U.S. 587, 593-94, 81 S.Ct. 321, 325, 5 L.Ed.2d 312 (1961); United States v. Rabinowich, 238 U.S. 78, 88, 35 S.Ct. 682, 684, 59 L.Ed. 1211 (1915)). Counts 8-10 and Counts 14-29 charged filing false returns. We have already ruled that the convictions on Counts 8-10 and Count 29 merge with the convictions on Counts 2-4. The behavior charged in Counts 14-28, as we discussed in addressing the merger question, provided illegal tax benefits to corporate entities, and thus involved a harm distinct from personal tax evasion. Counts 30-39 charged mail fraud and involved a separate harm to the United States postal system and to New York State. Finally, within each of these sets of counts, the individual counts each involved distinct incidents of fraudulent entries on tax returns, each of which was a separate affront to the government's interest in obtaining accurate tax information. See, e.g., United States v. Greenberg, 735 F.2d 29, 31-32 (2d Cir.1984). Given the separate and distinguishable nature of the harms caused by the actions for which Mrs. Helmsley was convicted, we hold that Section 3623(c)(2) is inapplicable.
For the reasons stated above, we affirm Mrs. Helmsley's convictions. However, because her convictions on Counts 8-10 and Count 29 merge as lesser included offenses with her convictions on Counts 2-4, we vacate her sentences on both sets of counts and remand to the district court to combine the two sets of convictions and resentence Mrs. Helmsley under the convictions on Counts 2-4. See United States v. Moskowitz, 883 F.2d 1142, 1151-52 (2d Cir.1989).
For reasons that I will spell out below, however, I would reverse her convictions on counts two through four, the evasion counts, and counts thirty through thirty-nine, the mail fraud counts. I also do not believe that the Victim and Witness Protection Act (VWPA) permits the court to order restitution of taxes owed or interest or penalties to the United States as "victim," see United States v. Joseph, 914 F.2d 780, 784 (6th Cir.1990) (VWPA permits restitution only for Title 18 offenses, not Title 26 offenses), when Congress already has a comprehensive scheme in the Internal Revenue Code for the recovery of taxes, interest and penalties, through civil actions, with liens, forfeitures and jeopardy assessments, among other things. See, e.g., 26 U.S.C. §§ 6651(a) (interest of up to 25 percent in case of failure to file a return), 6653(b), (d) (75 percent penalty for underpayments attributable to fraud), 6851 (jeopardy assessment of income when assessment or collection of deficiency jeopardized by delay).
* As to the tax evasion counts, as the majority agrees, if there has not been proof beyond a reasonable doubt of a deficiency, there cannot be proof of tax evasion. Sansone v. United States, 380 U.S. 343, 351, 85 S.Ct. 1004, 1010, 13 L.Ed.2d 882 (1965); Lawn v. United States, 355 U.S. 339, 361, 78 S.Ct. 311, 323, 2 L.Ed.2d 321 (1958); United States v. Koskerides, 877 F.2d 1129, 1137 (2d Cir.1989). Thus, accepting the fact that they (or Mrs. Helmsley) clearly had the intent to evade paying some of their taxes, if Mrs. Helmsley paid more taxes than were due on her personal income for the three years in question, she could be prosecuted for false statements made on her returns, 26 U.S.C. § 7206(1), but not for tax evasion under 26 U.S.C. § 7201. I do not believe the Government, which never purported to have audited the returns of the myriad of partnerships, joint ventures and corporations that contributed to the Helmsleys' vast income, proved that Mrs. Helmsley had in fact understated the total taxes due in any of the three years in question. This deficiency in proof of underpayment was exposed by an extremely technical but, I believe, ultimately persuasive argument presented by the defense at trial: certain accelerated depreciation deductions required by the law to have been taken by some of their limited partnerships had not in fact been taken, with the result that the Helmsleys' income was overstated by an amount greater than the personal expenses that they falsely claimed as business expenses.
During the years in question, the Helmsleys reported gains or losses from over 100 real estate partnerships. Some of these partnerships owned real estate "placed in service" after December 31, 1980. See Economic Recovery Tax Act of 1981, Pub.L. No. 97-34, § 209(a), 95 Stat. 172, 226 (1981). The law is clear that as to such property the Accelerated Cost Recovery System (ACRS) required accelerated depreciation, i.e., it was mandatory, as the majority opinion concedes. See 5 Mertens Law of Fed. Income Tax § 23.01 (1988 and Supp.1989) ("with limited exceptions, the ACRS provisions are mandatory....").
The Government attempts to discredit this testimony with several arguments, two of which the court partially adopts and adds to, but none of which I find persuasive.1 In one argument, partially embraced by the court, the jury was entitled to reject Padwe's tax testimony on the basis of the Government's cross-examination because he admitted that he: (a) did not look at all the Helmsley partnership returns; (b) did not look at the effect of ACRS on the income side of Harry Helmsley's 1983 purchase of Leona Helmsley's interest in a partnership; (c) made no attempt to see if his analysis would have applied to the sale of 225 Broadway in 1983 (on which the Helmsleys reported a $23 million gain) so as to cause a greater gain on that sale; and (d) did not check on whether the recapture provisions of section 1245 applied to the Helmsleys' 1983-85 capital gains would have increased their tax liability. I believe, however, that: (a) Padwe only needed to look at returns of partnerships likely to have post-December 31, 1980 property, and he in fact did so as to the post-1975 partnerships, finding them "awash" [sic] (A. 6747) (except for the Formula partnerships); (b) Padwe did not agree that the Harry-Leona partnership transfer generated taxable income and, moreover, under 26 U.S.C. § 1041(a)(1) no gain or loss is recognized on an interspousal transfer; (c) 225 Broadway (the Woolworth building) was acquired in 1946 and likely to have little, if any, ACRS property; and (d) Alternative Minimum Tax requirements applied in any event to the Helmsleys. I think the Government's burden of proving a deficiency was not satisfied by the cross-examination of Padwe, nor do I think that the omission to calculate the effect of recapture resulting from the separation of real and personal property for depreciation purposes on the capital gains from the sales of certain other partnerships--"offsets to the offsets"--is of any note. The Government still had to prove a deficiency, and if indeed there were offsets to the offsets, the Government did not prove them, it merely hypothesized in interrogation.
The court goes on to argue, however, that the Helmsleys had four depreciation options for personal property (5 years in specified percentages as Padwe testified, and 5, 12 and 25 years on a straight-line method). In fact, however, absent a specific election to use one of the three straight-line depreciation methods under 26 U.S.C. § 168(b)(3), ACRS required the specified percentages over 5 years (15, 22, 21, 21 and 21) method to be utilized, as Padwe testified. 26 U.S.C. § 168(b)(1)(A). The Helmsleys clearly made no such election.
The court's response to this is that the Helmsleys "elected" to depreciate personal property over a fifteen year straight-line basis by the way their returns were filed. But this "election" or option was not available to them. They were required to follow ACRS. The court's suggestion is that it may have been a "strategically motivated, conscious decision" not to segregate personal property and depreciate it over a permissible period in order to obtain tax benefits, namely, to obtain capital gains treatment for the personal property upon its sale and to avoid recapture as income of depreciated amounts. But there was no evidence as to this; the fact that it could have been so does not make it so. Fowler v. United States, 352 F.2d 100, 106 (8th Cir.1965), cert. denied, 383 U.S. 907, 86 S.Ct. 887, 15 L.Ed.2d 663 (1966), relied on by the majority, stands only for the proposition that one who has elected a legally permissible depreciation method may not defend an evasion charge by showing he could have selected another permissible method. Here, however, the Helmsley claim relates to deductions under a method of depreciation the partnership was legally required to utilize. The court says this makes the case a fortiori to Fowler; I disagree, because that assumes that the failure to segregate personal property and to follow the required ACRS method was conscious, something as to which there is, as I have said, no evidence in the record.
As a penultimate argument, the court says that the failure to segregate personal property was "equivalent" to selection of an accounting method, which, axiomatically, cannot be changed without the Commissioner's consent, as provided by the statute, 26 U.S.C. § 446(e), and the regulations, Treas.Reg. § 1.167(e)-1(a). However, the change of method requirements were specifically inapplicable to ACRS under the Economic Recovery Tax Act of 1981, Pub.L. No. 97-34, § 203(c)(2), 95 Stat. 172, 222 (1981): "Sections 446 and 481 of the Internal Revenue Code of 1954 shall not apply to the change in the method of depreciation to comply with the provisions of this subsection." Moreover, correction of a classification of property is not a change in method of accounting. Treas.Reg. § 1.446-1(e)(2)(ii)(b).
The argument that the adjustment of rate from 6.67 to 7 percent was not mandatory because it was based on only a proposed regulation (§ 1.168.2) does not hold water, either. Not only did the Government not challenge this at trial but the ACRS tables were either set forth in the statute itself, Pub.L. No. 97-34, § 201(a), amending 26 U.S.C. § 168(b), 95 Stat. 204 (1981) or, in the case of 15 year real property, were to be "prescribed by the Secretary," Pub.L. No. 97-34, § 201(a), amending 26 U.S.C. § 168(b)(2), 95 Stat. 205 (1981). The 7 percent rate was so "prescribed" in the proposed regulation. I do not see how the Helmsleys could have done other than to follow it. The fact that ACRS was subsequently abolished and the proposed regulation never finalized accordingly seems to me immaterial. Just the other day, our court relied on a proposed but never promulgated regulation in a tax evasion case to substantiate taxpayers' position that they could take certain losses. United States v. Regan, 937 F.2d 823, 825 (2d Cir.1991).
18 U.S.C. § 3663(e)(2) (1988) (emphasis added).
Our decisions in United States v. Nemes, 555 F.2d 51 (2d Cir.1977) and In re Corrugated Container Antitrust Litigation, 644 F.2d 70 (2d Cir.1981), are not to the contrary. In Nemes, the defendant was convicted of conspiring to submit false Medicare and Medicaid cost reports under 18 U.S.C. § 371. Previously she provided immunized testimony and documents to state officials who were investigating the same matter. We reversed the conviction and remanded for a Kastigar hearing because of the "possibility that someone who [had] seen the compelled testimony was thereby led to evidence that was furnished to federal investigators." 555 F.2d at 55. In Nemes, however, our holding was restricted to circumstances in which the state and federal investigations involved the same conduct, and opportunity for official manipulation existed. Indeed, we expressly noted that "[r]einstatement of the judgment of conviction will ... occur if [defendant] fails to show that she testified before the state grand jury under immunity on matters related to the federal prosecution." Id. at 55 n. 5. Similarly, in In re Corrugated Container Antitrust Litigation, we held that where a civil litigant uses the prior immunized testimony of a witness as the source of questions to that witness, a prosecutor may not use non-compelled answers to such questions in a subsequent prosecution against the witness. Of course, the answers were in a factual sense directly derived from the immunized testimony. See 644 F.2d at 77
Contrary to Mrs. Helmsley's suggestion, this is not an instance where the government satisfied its burden of proof merely by discrediting a witness or by relying on the assumption that a taxpayer has claimed all available deductions. See Small v. United States, 255 F.2d 604, 607 (1st Cir.1958). In its prima facie case, the government introduced affirmative evidence of underreported income in 1983 through 1985. Moreover, it sought to discredit only evidence introduced to combat its prima facie case. See United States v. Procario, 356 F.2d 614, 617 (2d Cir.), cert. denied, 384 U.S. 1002, 86 S.Ct. 1923, 16 L.Ed.2d 1015 (1966)
Assuming arguendo that Padwe's testimony was admissible, we reject Mrs. Helmsley's three claims of error regarding Judge Walker's instructions pertinent to that testimony. She claims, first, that an instruction concerning the defense's "pre-select[ion]" of a limited number of partnerships for Padwe to examine was an improper invitation to the jury to speculate about unproven "offsets-to-the-offsets." However, Judge Walker was well within his discretion to note the implications of the fact that Padwe's analysis was admittedly not comprehensive. A trial judge may assist the jury by explaining and commenting on the evidence provided that he makes it clear to the jury that matters of fact are submitted for its final determination. See Quercia v. United States, 289 U.S. 466, 469-70, 53 S.Ct. 698, 698-99, 77 L.Ed. 1321 (1933). Judge Walker's instruction simply instructed the jury that it might, or might not, find that Padwe's analysis did not tell the entire story, and that it was free to draw, or not to draw, inferences from the pre-selection of partnerships for Padwe's examination. Second, she argues that Judge Walker's charge regarding the "conscious election" of depreciation methods was improper because there was no evidence to support it and irrelevant because the ACRS rules were mandatory during the years in question. Our discussion of the admissibility of Padwe's testimony disposes of this challenge. Third, she contends that Judge Walker's phrasing with respect to Mrs. Helmsley's defense--in particular: "[Y]ou may consider the evidence offered by the defense"--belittled her case and erroneously invited the jury to ignore the evidence that she presented. This is frivolous. Viewed in its entirety, the charge was even-handed and in no way suggested to the jury that it was free to discard Mrs. Helmsley's defense. The gravamen of the charge was simply that the jury was bound to consider, but not bound to credit, Mrs. Helmsley's evidence
The version of the Rule applicable to Mrs. Helmsley's offenses, in effect prior to amendment by the Sentencing Reform Act of 1984, Pub.L. No. 98-473, § 215(a), 98 Stat. 1837, 2014 (1984), read in pertinent part:
See former Fed.R.Crim.P. 32, 18 U.S.C.A. (Supp.1991) (Rule applicable to offenses committed prior to Nov. 1, 1987).
Such reliance was in no way plain error under Fed.R.Crim.P. 52(b). It is a violation of due process to base a sentence on a material misapprehension of fact. See United States v. Tucker, 404 U.S. 443, 447-49, 92 S.Ct. 589, 591-93, 30 L.Ed.2d 592 (1972). However, we believe that there was a more than sufficient basis for the Probation Department to support its conclusions as to the magnitude of taxes owed. Cf. United States v. Fatico, 603 F.2d 1053, 1057 (2d Cir.1979), cert. denied, 444 U.S. 1073, 100 S.Ct. 1018, 62 L.Ed.2d 755 (1980). At trial, the government presented evidence of Mrs. Helmsley's federal tax deficiency, and the amount of state tax involved was easily derived from the Helmsleys' New York State income tax returns
COUNT   BUSINESS ENTITY FILING   TAX RETURN
14     HEI                      Corporate Form 1120
F/Y/E 6/30/84
15     HEI                      Corporate Form 1120
F/Y/E 6/30/85
16     Realesco                 Corporate Form 1120
Y/E 12/31/83
17     Realesco                 Corporate Form 1120
Y/E 12/31/84
18     Realesco                 Corporate Form 1120
16 months ending 4/30/86
19     Garden Bay Manor         Partnership Form 1065
Associates               Y/E 12/31/83
20     Garden Bay Manor         Partnership Form 1065
Associates               Y/E 12/31/84
21     Garden Bay Manor         Partnership Form 1065
Associates               Y/E 12/31/85
22     166 E. 61st St.          Partnership Form 1065
23     166 E. 61st St.          Partnership Form 1065
24     Windsor Park Apts.       Partnership Form 1065
25     230 Park Ave.            Partnership Form 1065
26     230 Park Ave.            Partnership Form 1065
27     Graybar Bldg. Co.        Partnership Form 1065
28     Graybar Bldg. Co.        Partnership Form 1065
Y/E 12/31/85
29     Middletowne              Partnership Form 1065
Some of the counts involving taxes for calendar year 1983, Counts 2, 8, 16, 19, 30 and 39, involve acts committed before December 31, 1984. Mrs. Helmsley argues that because the 1983 returns were part of the same alleged scheme, the capping provision of Section 3623(c)(2) should apply to convictions on these counts as well. We do not reach this issue, because we conclude that that provision does not apply to any of Mrs. Helmsley's convictions. In any event, Judge Walker imposed only the fine set forth in the statute creating the offense on these counts, and not the $250,000 maximum newly permitted by Section 3623(a)(3). See Pub.L. No. 98-596, § 6(a), 98 Stat. at 3137