Court Opinion

ID: 1021713
Source: CourtListenerOpinion
Date Created: 2013-07-04 23:11:04.005374+00
Date Added: 2024-06-11T12:12:55.975515
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 05-5274

UNITED STATES OF AMERICA,

                                                Plaintiff - Appellee,

          versus

RONALD G. BAILEY,

                                               Defendant - Appellant.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (CR-04-17-A)

Submitted:   November 20, 2006             Decided:   February 8, 2007

Before WILKINS, Chief Judge, and TRAXLER and GREGORY, Circuit
Judges.

Affirmed by unpublished per curiam opinion.

Michael S. Nachmanoff, Acting Federal Public Defender, Suzanne
Little, Assistant Federal Public Defender, Sapna Mirchandani,
Research and Writing Attorney, OFFICE OF THE FEDERAL PUBLIC
DEFENDER, Alexandria, Virginia, for Appellant. Chuck Rosenberg,
United States Attorney, Alan Hechtkopf, Gregory Victor Davis,
UNITED STATES DEPARTMENT OF JUSTICE, Tax Division, Washington,
D.C., for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

       Ronald G. Bailey appeals his thirty-six-month sentence for

filing false tax returns and his fifty-one-month sentence for

income tax evasion. Bailey argues that the district court erred in

its tax-loss calculation in determining his base offense level and

wrongfully applied a two-level enhancement based on Bailey’s use of

sophisticated means to evade his tax obligations. For the following

reasons, we reject Bailey’s appeal and affirm the district court’s

calculation of his sentence.

                                      I.

       From 1991 to 2002, Bailey was the general manager of a nursing

home    located   in    Stafford,   Virginia.     When   Bailey    began   his

employment, the nursing home was known as Brookwood Nursing Home

(“Brookwood”)     and   was   owned    by    William   Bagley.    Bailey   was

responsible for the day-to-day operations of Brookwood and was paid

a salary of $95,000 per year as a consultant to, rather than

employee of, Brookwood. Bailey regularly issued checks to himself

from Brookwood’s account to pay for his personal expenses. Bailey

engaged in these efforts to avoid seizure of his assets to satisfy

federal tax liens dating from his failure to pay individual income

taxes from 1985 through 1987. Bailey received notice of a lien in

the amount of $6,441 on December 14, 1993.

                                       -2-
     For the tax years 1991 through 1993, Brookwood had an outside

accountant who prepared tax returns, cost reports, and financial

statements    based   on   Brookwood’s    general   ledger.    Bailey   was

responsible for filing Brookwood’s tax returns and federal employee

withholding taxes, but failed to do so. On January 12, 1994, Bailey

received notice of a tax lien for Brookwood’s unpaid employee

withholding taxes in the amount of $73,273. Receiving this lien did

not motivate Bailey to comply with the tax laws, and he received

another lien for Brookwood’s unpaid employee withholding taxes in

the amount of $240,318 on September 30, 1996.

     In 1996, Brookwood entered Chapter 7 bankruptcy and was sold

to Platinum Care LLC (“Platinum Care”), a company of which Bailey

was the managing member. Bailey reestablished Brookwood as the

Brooke Nursing Center (“Brooke”), and appointed Nancy Colp as

comptroller. Colp was responsible for Brooke’s checking account,

payroll, and accounts receivable and payable. Colp wrote the

majority of Brooke’s checks from 1996 through 1998 and all of the

checks from 1998 through 2000.

     In 1997, the Internal Revenue Service (“IRS”) contacted Bailey

about his failure to pay both his personal taxes and penalties

assessed against Brookwood for unpaid employment taxes. Following

this communication, Bailey filed individual tax returns for the

years 1992 through 1995, indicating that he was a W-2 employee of

Brookwood    and   attaching   a   withholding   schedule     on   Brookwood

                                    -3-
stationary. Bailey reported his total income in 1992 as $39,780; in

1993 as $41,184; in 1994 as $42,068; and in 1995 as $43,004.

Subsequent investigation revealed, however, that these figures

understated Bailey’s income by $25,232.70 in 1992; $20,285.15 in

1993; and $80,604.13 in 1994. In total, Bailey underreported his

personal income by more than $126,121.

     From   1996   through       1999,    Bailey    presented    Colp   with    his

personal liabilities, including rent, utilities, and credit cards,

to be paid with Brooke funds. In addition, Bailey had two of his

associates, Daniel Guerrero and Jeffrey DeMoss, request funds from

Colp on his behalf. Colp then issued Guerrero or DeMoss checks from

Brooke on behalf of Bailey and noted on the general ledger that

those distributions were for Bailey. Bailey received approximately

$400,000 from Colp using these methods.

     In 1998, in an additional effort to conceal his income, Bailey

began directing Colp to withdraw cash from her personal savings

account   and   deposit    the    funds    into    the    personal   accounts   of

Guerrero and DeMoss, accounts to which Bailey had complete access.

Colp then issued a check to herself from Brooke’s account in the

transferred     amount    of   the   “loan,”       plus   12%   interest.   These

transactions were evidenced with “loan” agreements between Bailey,

Brooke, and Colp, totaling more than $300,000, but were never

repaid upon the sale of Brooke in 2002. Colp eventually pleaded

                                         -4-
guilty to tax evasion based on the unreported income interest she

received from the “loans.”

     Finally, from 1996 through 2000, Bailey did not file any

personal income tax returns. From 1996 through 2002, Brooke and

Platinum    Care    did    not     file     tax    returns      or   remit      employee

withholding taxes. Based on distributed wages, the withholding

taxes due from Platinum Care or Brooke during September 1996

through September 2002 totaled $819,535.07.

     After a bench trial, the district court found Bailey guilty of

four counts of filing a false tax return in violation of 26 U.S.C.

§ 7206(1) (2000) and four counts of income tax evasion in violation

of   26    U.S.C.   §     7201.    Finding        the   total      tax   loss    to   be

$1,416,117.50,      a   base      offense       level   of   22,     U.S.    Sentencing

Guidelines Manual (“Guidelines”) § 2T1.1(c)(2) (2004), and adding

a two-level enhancement for the use of sophisticated means, id.

§ 2T1.1(b)(2), the district court sentenced Bailey to concurrent

terms of thirty-six months for failure to file tax returns and

fifty-one months for tax evasion.

                                          II.

     “In considering whether a sentence is unreasonable, we . . .

review the district court’s legal conclusions de novo and its

factual findings for clear error.” United States v. Hampton, 441

F.3d 284, 287 (4th Cir. 2006). In reviewing loss calculation, we

                                           -5-
review   de    novo   the   district    court’s    interpretation   of   what

constitutes “loss,” while accepting the calculation of loss absent

clear error. United States v. Hughes, 401 F.3d 540, 557 (4th Cir.

2005) (reviewing determination of loss under § 2F1.1(b)(1)(I)). We

review   the     determination     of        whether   the   defendant   used

“sophisticated means” for clear error. Id. (enhancement under

§ 2F1.1(b)(1)(I)); see also United States v. Kontny, 238 F.3d 815,

821 (7th Cir. 2001). Finally, any objection to sentencing not

raised below is subject to review only for plain error. United

States v. Olano, 507 U.S. 725, 731-32 (1993); United States v.

Uzenski, 434 F.3d 690, 711 (4th Cir. 2006). Plain error requires

that the defendant show that “(1) there was error; (2) the error

was plain; and (3) the error affected his substantial rights.”

Uzenski, 434 F.3d at 708. “If these conditions are met, we may then

exercise our discretion to notice the error, but only if it

‘seriously affect[s] the fairness, integrity or public reputation

of judicial proceedings.’” United States v. Ruhbayan, 406 F.3d 292,

301 (4th Cir. 2005) (alteration in original) (quoting Olano, 507

U.S. at 732), cert. denied 126 S. Ct. 291 (2005).

     Under § 2T1.1(c)(1)(A) of the Guidelines, the tax loss for an

offense involving underreporting of gross income is “equal to 28%

of the unreported gross income . . ., unless a more accurate

determination of the tax loss can be made.” Under § 2T1.1(c)(3),

for a failure to file a return, “the tax loss is the amount of tax

                                       -6-
that the taxpayer owed and did not pay.” In this case, the relevant

conduct was Bailey’s underreporting of his personal income taxes

and his failure to remit payroll taxes for Brookwood and Brooke.

                                    III.

                                     A.

     Bailey   first    contends    that    the   district   court   erred   in

calculating the tax loss by including Brooke’s unpaid employee

payroll taxes. Bailey argues that Colp alone was responsible for

payment of Brooke’s withholding taxes and that such amounts should

not be included in the calculation of tax loss for purposes of his

sentencing.

     In   Plett   v.   United     States,    this   Court   held    that    the

responsible person, for purposes of remitting payroll taxes, “is

not limited to one person in a company but rather may include many

persons connected with the same employer.” 185 F.3d 216, 219 (4th

Cir. 1999). To determine who is a responsible person, “we undertake

a pragmatic, substance-over-form inquiry into whether an officer or

employee so ‘participate[d] in decisions concerning payment of

creditors and disbursement of funds’ that he effectively had the

authority—and hence a duty—to ensure payment of the corporation’s

payroll taxes.” Id. (alteration in original) (quoting O’Connor v.

United States, 956 F.2d 48, 51 (4th Cir. 1992)). Plett set out six

factors indicative of the requisite authority, “including whether

                                     -7-
the employee (1) served as an officer of the company or as a member

of its board of directors; (2) controlled the company's payroll;

(3) determined which creditors to pay and when to pay them; (4)

participated in the day-to-day management of the corporation; (5)

possessed the power to write checks; and (6) had the ability to

hire and fire employees.” Id. We reject Bailey’s argument because

it ignores Plett.

      Bailey argues that Colp was the general manager of Brooke and

therefore responsible for remitting payroll taxes. Under Plett,

however, more than one person can be responsible for remitting

payroll taxes. The record reveals that Bailey often asked Colp to

pay   his    personal   expenses      with   Brooke   funds   and   asked   his

associates to request funds from Colp on his behalf. In addition,

Bailey used Colp and her personal assets to further his “loans”

from Brooke, the scheme for which Colp pleaded guilty to tax

evasion.

      Although Colp wrote the majority of Brooke’s checks and served

as comptroller, Bailey remained in actual control of disbursement

of funds. Indeed, Bailey directed Colp to make payments to himself

and   to    his   associates   that   were   not   for   legitimate   business

expenses of Brooke. Colp’s tax evasion, rather than being an

independent scheme, was part and parcel of a scheme Bailey directed

to obtain cash payments for himself without having to pay taxes on

those amounts. Given that Bailey engineered multiple schemes to

                                       -8-
avoid payment of taxes, and in each directed Colp to make various

withdrawals and payments from the Brooke bank account, it is

evident that he had the actual authority concerning payment of

creditors and disbursement of funds.

      Finally, Bailey was a 5% partner in Brooke, was the managing

member of Platinum Care, which owned Brooke, hired an accountant to

perform audits for Brooke, and signed a contract with ADP to

provide payroll services for Platinum Care. In sum, Bailey met all

six of the Plett factors and was thus a person responsible for

payment of Brooke’s payroll taxes. Accordingly, the district court

did   not   err    by    including     tax   loss    attributable      to   Brooke’s

nonpayment of payroll taxes in computing Bailey’s tax loss.

                                        B.

      Bailey      next    contends    that     the   district    court      erred    in

calculating       the    tax   loss   attributable    to   his   tax     evasion     by

including all payments from Brookwood and Brooke to him as taxable

income because he regularly transferred payments to Bagley and that

the general ledger was not always accurate with regard to these

payments. Bailey also argues that payments to Gilbert Davis,

Guerrero, and DeMoss were wrongly attributed to him and that those

payments    do     not    constitute     his    taxable    income      because      the

individuals actually performed work for Brookwood and Brooke.

                                         -9-
Bailey did not raise this argument in the district court, thus we

review the issue for plain error.

      To show plain error, Bailey must demonstrate that any loss-

calculation      error    affected     his   substantial    rights.     “In    some

instances . . . the amount of tax loss may be uncertain; the

guidelines contemplate that the court will simply make a reasonable

estimate based on the available facts.” Guidelines § 2T1.1 cmt. 1.

The   district    court    found   a   total   tax   loss    of    $1,416,117.50.

Bailey’s offense level was therefore a 22, as the tax loss was

between   one    million    and    two-and-a-half        million    dollars.   Id.

§ 2T4.1(I). The offense level below this range requires loss of

less than one million dollars. Id. Accordingly, for Bailey to

demonstrate that any district court error affected his rights, he

would   have    to   demonstrate     that    the   tax   loss   calculation     was

erroneous by at least $416,117.50, such that the tax loss would

have been less than one million dollars, thereby reducing his

offense level from 22 to 20. Bailey cannot make such a showing.

      The tax loss due to Bailey’s underreporting of his personal

income from 1991 through 1995 is $79,308.19. The tax loss from

Bailey’s unreported income from 1996 through 2000 is $197,241.24.

In total, the tax loss from Bailey’s failure to fully pay income

taxes on his personal income is $276,549.61. Thus, even if the

district court erred in calculating the tax loss due to Bailey’s

conduct by the full amount of loss due to his personal tax evasion,

                                       -10-
there is no prejudice, as a decrease of at least $416,117.50 in

loss   is     required     to   reduce    Bailey’s    offense   level.        Absent

prejudice, Bailey cannot prevail on his claim that the district

court wrongly included income to Bagley and others in the tax-loss

calculation. Furthermore, Bailey raised his argument about payments

to Guerrero, Davis, and DeMoss for the first time in his reply

brief and it is therefore deemed waived. See Cavallo v. Star

Enter., 100 F.3d 1150, 1152 n.2 (4th Cir. 1996) (“Under the

decisions of this and the majority of circuits, an issue first

argued   in    a   reply   brief    is   not    properly   before     a    court   of

appeals.”).

       Even   assuming     that    Bailey   could    overcome   the       procedural

obstacles to relief regarding the calculation of tax loss as to his

personal income, we conclude that the district court did not

plainly err in this regard. Scott Reynolds, an IRS special agent

and prosecution summary witness, calculated the tax loss due to

Bailey’s conduct based on an examination of the accounting records

of Brookwood and Brooke. Given that Reynolds only included checks

written to Bailey, and assigned to Bailey by the internal records

of Brookwood for the period of 1991 through 1995, and given

Bailey’s use of nominees to conceal income, it is likely that the

calculations understated Bailey’s actual income during those years.

       Bailey’s contention that the general ledger of Brookwood

erroneously recorded some distributions to him is not supported by

                                         -11-
the record. Although there is evidence that the ledger account

number assigned to Bailey was previously assigned to Bagley, the

Brookwood employees who worked with the accounting system knew of

this change and assigned disbursements to the appropriate accounts.

Bailey himself directed when checks issued to him were to be cashed

and given to Bagley, and those checks were denoted as such. Any

checks to Bailey that were for the benefit of Bagley but recorded

as solely for Bailey’s benefit were so recorded at the request of

Bailey himself.

     Similarly, Bailey claims that certain payments to Guerrero,

DeMoss, and Davis from 1996 through 2000 were erroneously counted

as his income. DeMoss was on Brooke’s ADP payroll, and Guerrero was

employed by Brooke for only one month. Davis performed work for

Brooke, but as a volunteer rather than employee. Colp paid both

Guerrero and DeMoss, however, from her personal account as part of

Bailey’s loan scheme. Any cash transfers to Guerrero, DeMoss, and

Davis were likely part of that scheme, as DeMoss would have been

paid through ADP for any legitimate work for Brooke, Guerrero was

employed by Brooke for only a short time, and Davis was never

employed by Brooke.

     In sum, even if Bailey could demonstrate prejudice from any

error, the district court did not plainly err in calculating the

tax loss due to Bailey’s underreporting of his personal income. We

                               -12-
affirm the district court’s determination of Bailey’s base offense

level.

                                 C.

     Next, Bailey argues that the district court erred in applying

the two-level sophisticated means enhancement to his offense level.

Section 2T1.1(b)(2) of the Guidelines provides for a two-level

enhancement if the tax offense involves “sophisticated means,”

defined as “especially complex or especially intricate offense

conduct pertaining to the execution or concealment” of the offense.

cmt. 4. The examples provided by the comment to § 2T1.1(b)(2) are

“the use of fictitious entities, corporate shells, or offshore

financial accounts.” Id.

     “The   average   criminal   tax    fraud   .   .   .   involves   some

concealment; ‘sophisticated’ tax fraud must require more.” Kontny,

238 F.3d at 820-21. The sophistication does not refer to the

“style” of the defendant—“the degree to which he approximates Cary

Grant—but to the presence of efforts at concealment that go beyond

(not necessarily far beyond . . . ) the concealment inherent in tax

fraud.” Id. at 821. In United States v. Stone, this Court rejected

an argument that a defendant’s tax evasion was not sophisticated

because it involved a mere failure to report income from “side

jobs,” including in-kind benefits. 85 Fed. App’x 925, 938 (4th Cir.

2004) (unpublished opinion). Rather than simply not completing tax

returns or providing false information, the defendant in Stone used

                                 -13-
in-kind gifts and services, as well as fictional entities, to

disguise    the    unreported     income,   making     IRS   detection   more

difficult. Id.

      In United States v. Boyer, the defendant instructed his

attorney to hold funds in an escrow account until he withdrew the

funds into his children’s accounts. 166 F.3d 1210, 1998 WL 830677,

at   *2   (4th   Cir.   1998)   (unpublished   table   decision).   He   then

withdrew money from those accounts to purchase a house in his

wife’s name. Id. Finally, “through a series of cashier checks, he

moved the funds to new accounts.” Id. This Court upheld the

enhancement, commenting that the series of transactions undertaken

by the defendant was an attempt to hide assets from the IRS. Id.

Similarly, in United States v. Becker, the Seventh Circuit upheld

the enhancement for a defendant who used a numbered bank account,

canceled all accounts in his name, and deposited his earnings in

his son’s account. 965 F.2d 383, 390 (7th Cir. 1992).

      In this case, there is no evidence that the district court

plainly erred by imposing the enhancement. From 1991 through 1995

Bailey did not file personal tax returns, an omission made possible

because he had been paid as a consultant to, rather than an

employee of, Brookwood. At the same time, he was not remitting

Brookwood’s payroll taxes, thus ensuring an on-hand supply of cash

to fund his salary and pay most of his personal expenses, without

generating W-2s or other documents that would alert the IRS to his

                                     -14-
income. Having Brookwood pay his expenses directly and compensate

him as a consultant is akin to the acceptance of in-kind gifts at

issue in Stone. When Bailey finally did file tax returns for those

years, he understated his income, knowing that no W-2s had issued.

     Rather than continue to receive cash payments as a consultant,

Bailey then engaged the use of nominees to receive payments from

the personal account of Colp, the comptroller of Brooke. Those

“loans” were transferred, in cash, from the nominees to Bailey,

while Colp received payments from Brooke, plus interest. During

this time, Bailey also failed to remit payroll taxes for Brooke,

but provided employees with W-2 forms indicating the payroll taxes

that had been withheld from their paychecks. This continuing

failure to file enabled Brooke to retain more cash than was lawful,

providing the funds for Bailey’s “loans” and Colp’s “fees.”           These

efforts go beyond the concealment inherent in simple tax evasion.

Bailey’s conduct is similar to that of the defendants in Boyer and

Becker:   utilizing   third-party    accounts   to   mask   income,   while

closing or refraining from receiving cash in personal accounts to

avoid IRS detection. Accordingly, the district court did not

plainly err in enhancing Bailey’s sentence by two offense levels

because of his use of sophisticated means in evading payment of

income taxes.

                                    -15-
                              IV.

     We affirm Bailey’s sentence as calculated by the district

court. We dispense with oral argument because the facts and legal

contentions are adequately presented in the materials before the

Court and argument would not aid our decision.

                                                         AFFIRMED

                              -16-