Filed: Dec. 15, 1997
Latest Update: Feb. 21, 2020
Summary: [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 96-5013 _ D.C. Docket No. 95-6067 CR-NCR UNITED STATES OF AMERICA, Plaintiff-Appellee, versus RUSSELL G. BARAKAT, Defendant-Appellant. _ Appeal from the United States District Court for the Southern District of Florida _ December 15, 1997) Before ANDERSON, DUBINA and CARNES, Circuit Judges. CARNES, Circuit Judge: A jury acquitted Russell G. Barakat of mail fraud conspiracy involving a kickback scheme but convicted hi
Summary: [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 96-5013 _ D.C. Docket No. 95-6067 CR-NCR UNITED STATES OF AMERICA, Plaintiff-Appellee, versus RUSSELL G. BARAKAT, Defendant-Appellant. _ Appeal from the United States District Court for the Southern District of Florida _ December 15, 1997) Before ANDERSON, DUBINA and CARNES, Circuit Judges. CARNES, Circuit Judge: A jury acquitted Russell G. Barakat of mail fraud conspiracy involving a kickback scheme but convicted him..
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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 96-5013
________________________
D.C. Docket No. 95-6067 CR-NCR
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
RUSSELL G. BARAKAT,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
December 15, 1997)
Before ANDERSON, DUBINA and CARNES, Circuit Judges.
CARNES, Circuit Judge:
A jury acquitted Russell G. Barakat of mail fraud conspiracy
involving a kickback scheme but convicted him of filing a false
income tax return in violation of 26 U.S.C. § 7206(1), i.e., tax
evasion. At his sentencing, the district court determined that
Barakat had a base offense level of eight and a criminal history
category of I, which under the United States Sentencing Guidelines
resulted in a sentencing range of zero to six months. However, the
district court gave Barakat sentence enhancements for: (1) failing
to report more than $10,000 in income from criminal activity (four
levels), see U.S.S.G. § 2T1.1(b)(1); (2) using sophisticated means
to impede the discovery or extent of his offense (two levels), see
U.S.S.G. § 2T1.1(b)(2); and (3) abusing his position of public
trust in a manner which significantly facilitated the commission or
concealment of his offense (two levels), see U.S.S.G. § 3B1.3.
Those three enhancements made Barakat's total offense level
sixteen, resulting in a sentencing range of 21 to 27 months. The
district court sentenced him to 21 months in prison.
Barakat's challenge to the tax evasion conviction is meritless
and requires no discussion. However, several of his contentions
involving the sentence enhancements applied in this case present
novel issues. As discussed below, we conclude that the district
court erred in applying two of the three sentence enhancements in
this case, and a remand is necessary for clarification of that
court’s ruling concerning the third enhancement.
2
I. FACTS
Barakat was the head of the Broward County Housing Authority
(“Authority”) during the late 1980's. His contract with the
Authority barred him from working for clients other than the
Authority, and Florida law prohibited him from holding any
employment or having any contractual relationship with any entity
that did business with his agency. In the event that Barakat had
outside income exceeding 5 percent of his annual Authority salary,
he was required to file a public disclosure statement.
During his tenure with the Authority, Barakat gained
experience working with the United States Department of Housing and
Urban Development (“HUD”) and the Federal Housing Authority
(“FHA”). He also became acquainted with Frank Daniels, an executive
of the Benton Mortgage Company. Benton Mortgage financed
$26,600,000 of the Authority's projects while Barakat headed the
Authority. At the same time, Benton Mortgage was seeking to finance
several HUD and FHA projects around the country, including projects
in San Antonio and Los Angeles. In its application to the San
Antonio and Los Angeles housing authorities, Benton Mortgage listed
Barakat as a reference. When representatives of the Los Angeles and
San Antonio authorities contacted Barakat, he gave Daniels and
Benton Mortgage favorable references. Both of those housing
authorities thereafter selected Benton Mortgage to help finance
their projects.
Sometime after Barakat gave those favorable references for
Benton Mortgage, Daniels instructed a Benton Mortgage loan
3
underwriter to pay E. Lewis Fields, an attorney, a $5,000 “referral
fee.” The underwriter who received those instructions had worked
closely with Daniels on the San Antonio project but he had never
heard of Fields and, as far as he knew, Fields had not performed
any legal work on the project.
In 1990, a federal investigation began to focus on Fields' law
firm. Investigators discovered that Fields had received large fees
on at least two bond issues and that those fees were deposited into
his firm's trust account instead of an operating account. In
reviewing documents subpoenaed from Fields' law firm, investigators
came across five checks that had been drawn on Fields' trust
account and made payable to Barakat in 1989. The total amount of
these five checks was $9,666.
The government interviewed Barakat in connection with its
investigation of Fields. During his interview, Barakat told the
government that in 1989 he had done some consulting work for Fields
on projects “located in San Antonio . . . and Los Angeles.” He had
been hired, he claimed, based on his experience in dealing with HUD
and FHA. After further questioning, he admitted that he had done
the consulting work for Benton Mortgage and Frank Daniels, for
which he had received $15,000. According to Barakat, Fields had
initially received the $15,000 but the funds were thereafter split,
with two-thirds going to Barakat and one-third being kept by
Fields.
The government investigated Barakat's story. Bank records
revealed that Benton Mortgage had written two checks to Fields.
4
The first, for $5,000, was deposited in Fields' trust account on
December 30, 1988. The second, for $10,000, was deposited in
Fields' trust account on January 31, 1989. On January 10, 1989, a
check drawn on Fields' trust account for $3,333 was made payable to
Barakat. On February 16, 1989, Barakat received a second check, for
$5,000, drawn on that account. Later in 1989, Barakat received
three additional checks from the trust account in the amounts of
$700, $333, and $300. The government determined that Barakat had
not reported any of the money he received from Fields’ trust
account as income in 1989.
II. DISTRICT COURT PROCEEDINGS
Based on its investigation, the government obtained an
indictment of Barakat for conspiracy to commit mail fraud and
income tax evasion. The government introduced the evidence of
Barakat's relationship with Benton Mortgage, the recommendations
made by Barakat to the Los Angeles and San Antonio housing
authorities, the suspicious payments from Benton Mortgage to
Fields' trust account, and the payments from Fields' trust account
to Barakat. Apparently, the government’s position was that these
activities were part of an illegal “kickback” scheme, in which
Barakat aided Benton Mortgage in obtaining business by using his
position at the Authority in return for money. A jury acquitted
Barakat on the mail fraud conspiracy charge, but convicted him on
the income tax evasion charge.
The United States Probation Office prepared a Presentence
Investigation Report (“PSI”) for Barakat and, in accordance with
5
the jury's verdict that the tax loss did not exceed $5,000,
calculated Barakat's base offense level at eight. See U.S.S.G. §
2T1.1. The PSI recommended that Barakat receive a four-level
sentence enhancement because he “failed to report or correctly
identify the source of income exceeding $10,000 in any year from
criminal activity.” See U.S.S.G. § 2T1.1(b)(1). For that
enhancement to apply, as the PSI noted, the district court would
have to consider conduct pertaining to the mail fraud conspiracy
charge, for which Barakat had been acquitted. The PSI recommended
three additional sentence enhancements: two levels because Barakat
used “sophisticated means” to impede the discovery of the existence
or extent of the offense, see U.S.S.G. § 2T1.1(b)(2); two levels
because Barakat was the organizer, leader, manager or supervisor of
the criminal activity, see U.S.S.G. § 3B1.1(c); and two levels for
Barakat's abuse of his position of public trust; see U.S.S.G. §
3B1.3. Adding these enhancements to Barakat's base offense level
of eight, the PSI concluded that Barakat had a total offense level
of eighteen, which corresponded to a sentencing range of twenty-
seven to thirty-three months.
At his sentencing hearing, Barakat objected to the PSI on
several grounds: (1) that the income he did not report was not
derived from criminal activity; (2) that he did not receive more
than $10,000 in any year; (3) that the government failed to
establish that he had abused a position of trust; (4) that the
government failed to establish that he had used sophisticated means
to commit the offense of income tax evasion; and (5) that he should
6
not be given an enhancement for being “an organizer or leader” of
the criminal activity.
At the sentencing hearing, IRS Special Agent Steven Musgrave,
who was stipulated to be an expert on tax matters, testified that
Barakat should have reported $15,000 in income rather than $9,666.
Musgrave testified that the entire $15,000 was income to Barakat
and that the $5,334 Barakat “paid” to Fields could not be deducted
as an “ordinary and necessary expense.”
The district court found that the evidence concerning the tax
count and the mail fraud conspiracy count were “inextricably
intertwined,” because the court could not distinguish between the
acquitted conduct and the conduct underlying the tax evasion count.
However, the court stated that even if it did manage to separate
the evidence concerning of tax evidence from the evidence of mail
fraud conspiracy, it would still determine that Barakat's base
offense level was twelve, because Barakat had received more than
$10,000 in income from criminal activity in one year. The court
found that Fields was just a “conduit,” and therefore rejected
Barakat's suggestion that he should not be held accountable for the
full $15,000 in payments. The court also held that Barakat had used
“sophisticated means” in committing the offense, and therefore
deserved a two-level enhancement. However, the court rejected the
PSI's recommendation that Barakat be given a two-level enhancement
for being an “organizer or leader” of criminal activity. Finally,
the court found that it was “rather obvious” that Barakat had
abused the public trust. The court therefore determined that
7
Barakat's total offense level was sixteen and sentenced him to
twenty-one months in prison.
III. STANDARD OF REVIEW
We review de novo the district court's interpretation and
application of the United States Sentencing Guidelines (“Sentencing
Guidelines”). See United States v. Lewis, 115 F.3d 1531, 1536
(11th Cir. 1997). In the context of applying enhancements to
specific offense characteristics, this Court has held that our
review is de novo. See United States v. Taylor,
88 F.3d 938, 942
(11th Cir. 1996); cf. United States v. Scroggins,
880 F.2d 1204,
1206 n.5 (11th Cir. 1989)(holding that the misapplication of
guidelines to undisputed facts raises a question of law subject to
de novo review). However, we review the district court's factual
findings related to the imposition of sentencing enhancements only
for clear error. See
Lewis, 115 F.3d at 1536 (citing United States
v. Dukovich,
11 F.3d 140, 141 (11th Cir. 1994)).
IV. DISCUSSION
Barakat challenges each of the three sentence enhancements
that the district court applied, and we will discuss each one in
turn.
A. THE §2T1.1(b)(1) ENHANCEMENT FOR FAILURE TO REPORT MORE
THAN $10,000 FROM CRIMINAL ACTIVITY IN ONE YEAR.
The district court found that Barakat had failed to report
more than $10,000 that he received from criminal activity. Barakat
contends that he did not receive the unreported income from
8
criminal activity. He argues that because he was acquitted of the
mail fraud count, the money he received from Fields' trust account
and did not report on his tax return was not income from “criminal
activity.” Moreover, he argues that the government failed to
establish that the checks from Fields' trust account represented
the proceeds of criminal activity, with the result being that the
district court clearly erred in determining the money he received
was obtained from criminal activity. Furthermore, he says, it
would be “unfair” and violative of his Fifth Amendment Double
Jeopardy and Due Process rights to consider conduct for which he
was acquitted when enhancing his sentence.
1. Whether the Court Erred In Considering
the Mail Fraud Evidence
Relevant conduct of which a defendant was acquitted
nonetheless may be taken into account in sentencing for the offense
of conviction, as long as the government proves the acquitted
conduct relied upon by a preponderance of the evidence. See United
States v. Watts, --- U.S. ----, ---, 117 S. Ct. 633, 636, reh'g
denied, --- U.S. ----,
117 S. Ct. 1024 (1997); United States v.
Frazier,
89 F.3d 1501, 1506 (11th Cir. 1996); United States v.
Averi,
922 F.2d 765, 766 (11th Cir. 1991). Courts have uniformly
rejected the Double Jeopardy and Due Process arguments Barakat
makes, because “the defendant is punished only for the fact that
the present offense was carried out in a manner that warrants
increased punishment.”
Watts, 117 S. Ct. at 636. Moreover, the
9
burden of proof the government carries in a sentencing hearing is
the preponderance of the evidence standard, not the “beyond a
reasonable doubt” standard. See id. at 637 (citing Witte v.
United States, 515 U.S. ---, ---,
115 S. Ct. 2199, 2207-08 (1995)).
Therefore, the district court was free to consider Barakat's
conduct which formed the basis of the mail fraud conspiracy charge
as long as it was established by a preponderance of the evidence.
2. Whether Barakat Received More Than
$10,000 From Criminal Activity
The record before us indicates that the finding that Barakat
had failed to report more than $10,000 in income from criminal
activity was not clearly erroneous, either. Much of the evidence
at trial was directed at proving that Barakat illegally received
the income. The government introduced evidence of a scheme in
which Barakat helped Benton Mortgage get business, whether by
recommendation or by using his position with the Authority more
directly, and in return he would receive “kickbacks” for that
service. Although the jury found that the government had not
proven the mail fraud conspiracy count beyond a reasonable doubt,
the district court did not clearly err in finding that a
preponderance of the evidence proved Barakat had received the
unreported income from criminal activity.
Furthermore, the district court did not clearly err in
finding that Barakat's unreported criminal income exceeded $10,000.
IRS Special Agent Steven Musgrave testified that the entire $15,000
paid by Benton Mortgage to Fields' trust account was attributable
10
to Barakat. The district court accepted that testimony, finding
that Fields was merely a “conduit,” so that the entire amount was
income to Barakat. The district court did not clearly err in
finding that Barakat had received more than $10,000 in income from
his criminal activity. See Anderson v. City of Bessemer City, 470
U.S. 564, 575,
105 S. Ct. 1504, 1512 (1985)(recognizing that a
trial court's finding based on a decision to credit the testimony
of one of two or more witnesses, which extrinsic evidence does not
contradict, can virtually never be clear error); Krys v. Lufthansa
German Airlines,
119 F.3d 1515, 1523 (11th Cir. 1997). Whether he
received that amount in any one year is another matter.
3. Whether Or Not the More Than $10,000 In Income
From Criminal Activity Was Received In One Year
Barakat contends that the district court erred by concluding
that he received the $15,000 in “one year.” He points to the
undisputed evidence that a $5,000 check from Benton Mortgage was
deposited into Fields' trust account in December of 1988 and a
$10,000 check was deposited in January of 1989. Because Barakat
used a calendar year as his tax reporting period and the checks
arrived in different calendar years, he argues he did not fail to
report more than $10,000 in any one year.
The government argues that the district court was correct,
because Barakat received the money during a time period of less
than one year, i.e. less than twelve months, even though that time
period spanned parts of two calendar years. Counting from either
Benton Mortgage's payments to the trust account or from the checks
to Barakat, Barakat did receive all of the money in a twelve-month
11
period spanning parts of 1988 and 1989. Therefore, the government
asserts, he failed to report more than $10,000 in income in one
year.
The resolution of this issue depends on the definition of a
“year” for the purposes of U.S.S.G. § 2T1.1(b)(1). The language of
the Sentencing Guidelines is to be given its plain and ordinary
meaning. See United States v. Tham, 118 F.3d 1501, 1506 (11th Cir.
1997); United States v. Pompey,
17 F.3d 351, 354 (11th Cir. 1994);
United States v. Wilson,
993 F.2d 214, 217 (11th Cir. 1993); United
States v. Strachan,
968 F.2d 1161, 1163 (11th Cir. 1992). The
plain and ordinary meaning of a word depends on its context. As
Justice Holmes eloquently put it in another case involving income
tax, “a word is not a crystal, transparent and unchanged, it is the
skin of a living thought and may vary greatly in color and content
according to the circumstances and the time in which it is used.”
Towne v. Eisner,
245 U.S. 418, 425,
38 S. Ct. 158, 159 (1918).
The § 2T1.1(b)(1) enhancement only applies to offenses
involving taxation. See U.S.S.G. § 2T (title and introductory
comment). The measuring rod for tax offenses, especially reporting
offenses, is almost invariably the taxable year. The taxable year
is defined by 26 U.S.C. § 441. Because Barakat, like the
overwhelming majority of personal income tax filers, did not keep
accounting records, § 441(g) applied and his “taxable year” was the
calendar year, see 26 U.S.C. § 441(g), a point the government does
not dispute. 26 U.S.C. § 6012 imposes an obligation to file a tax
return each taxable year, and the statute under which Barakat was
12
convicted, 26 U.S.C. § 7206(1), criminalizes willfully making a
false return. As these statutes applied in this case, Barakat was
convicted of making a false return for calendar year 1989.
Therefore, for the purposes of applying § 2T1.1(b)(1), “year” means
taxable year, which in this case is the 1989 calendar year.
The government concedes that Barakat did not receive more than
$10,000 from criminal activity in 1989. Therefore, we hold he did
not fail to report more than $10,000 from criminal activity in
calendar year 1989 -- the “one year” for the purposes of §
2T1.1(b)(1). The district court erred by giving Barakat a four-
level enhancement pursuant to that provision.
B. THE § 3B1.3 ENHANCEMENT FOR “ABUSE OF A POSITION OF TRUST”
The district court also gave Barakat a two-level enhancement
pursuant to U.S.S.G. § 3B1.3 for the abuse of a position of trust,
because he used his position at the Authority to help Benton
Mortgage get business. Barakat contends that the district court
should not have imposed the abuse of trust enhancement upon him,
because any abuse of trust was unrelated to the offense for which
he was convicted, tax evasion. The government contends that the
district court was correct, because absent Barakat's abuse of his
position of trust, he could not have committed the offense for
which he was convicted.
The resolution of this issue depends on our delineation of the
boundaries of what is an abuse of trust for the purposes of §
3B1.3. That section of the Sentencing Guidelines provides:
If the defendant abused a position of public or private
trust, or used a special skill, in a manner that
13
significantly facilitated the commission or concealment
of the offense, increase [the sentence] by two levels.
The commentary provides an elaboration about which abuses of trust
are contemplated by the guideline:
The position of trust must have contributed in some
substantial way to facilitating the crime and not merely
have provided an opportunity that could easily have been
afforded to other persons. . . .
U.S.S.G. § 3B1.3, comment. (n.1).
This Court’s case law is lean on the issue of when an abuse of
trust facilitates or contributes in a significant way to the
commission or concealment of an offense. In United States v.
Mullens, 65 F.3d 1560, 1566 (11th Cir. 1995), we noted that the
Sentencing Guidelines require that the abuse of trust “must have
contributed in some significant way to facilitating the commission
or concealment of the offense,” but, our holding in Mullens was
based on another ground, that the defendant's cultivation of
ordinary social relationships did not place him in a “position of
trust.” See
id. By contrast, in this case it is clear that
Barakat was in a position of trust and that he abused that trust to
obtain the income he did not report on his 1989 tax return.
Other circuits have addressed the issue now before us more
directly. In United States v. Broderson, 67 F.3d 452, 456 (2d Cir.
1995), the Second Circuit held that an enhancement for an abuse of
trust requires that the discretion or trust abused must have been
placed with the defendant by the victim. Because the defendant in
Broderson was placed in a position of trust by his employer but not
by the government, which was the entity victimized by his
14
fraudulent statements, the § 3B1.3 enhancement was held not to
apply. See id. at 455-56. Although we do not quarrel with the
result in Broderson, the rule stated in that opinion may be too
broad. Under that statement of the rule, an enhancement for abuse
of trust might be precluded where a doctor uses his professional
position and medical license to violate the controlled substance
law. Or perhaps the Second Circuit would hold that that scenario
falls within the Broderson rule, because the victim in such a case
is society as a whole, which has entrusted the doctor with his
professional position and license. In any event, we have held that
a § 3B1.3 enhancement is appropriate in such circumstances. See
United States v. Hoffer , --- F.3d ---, --- (11th Cir. Nov. 21,
1997).
The Seventh Circuit has applied the § 3B1.3 enhancement
broadly. In United States v. Bhagavan, 116 F.3d 189, 190 (7th Cir.
1997), the defendant was convicted of income tax evasion and given
a § 3B1.3 sentencing enhancement. Bhagavan had stolen money from
the corporation he operated, thereby bilking his fellow
shareholders out of a substantial amount of money. See
id. He
failed to report the embezzled funds and was convicted of tax
evasion. The Seventh Circuit, rejecting Bhagavan's argument that
the government was the only “victim” of tax evasion, held that
because Bhagavan's “overall scheme” was to cheat the shareholders
and not report the income, he could be given an enhancement for
abusing his position of trust with the shareholders to acquire the
income. See
id. at 193. The Court explained:
15
It is enough that identifiable victims of Bhagavan's
overall scheme to evade his taxes put him in a position
of trust and that his position 'contributed in some
significant way to facilitating the commission or
concealment of the offense.'
Id. (citation omitted).
However, Judge Cudahy dissented in Bhagavan, because he
recognized that the majority had failed to tie the abuse of trust
closely enough to the offense of conviction. He explained:
[A]lthough minority stockholders may be victims of the
diversion of revenue, they are not victims of the crime
of conviction -- tax evasion -- or any other crime, for
that matter. Thus, there is no nexus between the
putative victims, the minority stockholders, and the
crime of conviction, tax evasion. No nexus, no
enhancement. . . .
Id. at 194 (Cudahy, J., dissenting).
We agree with Judge Cudahy's statement, however, we believe it
is more accurate to phrase the required connection as between the
abuse of the position of trust and the offense of conviction. That
is how the Sentencing Guidelines themselves phrase it. They say
that the defendant's abuse of trust must “significantly facilitate
the commission or concealment of the offense.” U.S.S.G. § 3B1.3.
In this context, “offense” must be read as “offense of conviction”
in order to maintain consistency with the definition of relevant
conduct in U.S.S.G. § 1B1.3(a)(sentencing courts can only consider
“relevant conduct,” which is conduct related to the offense of
conviction).
The Sentencing Guidelines provide examples of what constitutes
“significant facilitation”:
This adjustment, for example, would apply in the case of
an embezzlement of a client's funds by an attorney
16
serving as a guardian, a bank executive's fraudulent loan
scheme, or the criminal sexual abuse of a patient by a
physician under the guise of an examination.
U.S.S.G. § 3B1.3 comment. (n.1). In the three Sentencing
Guidelines scenarios, the person in the position of trust has an
advantage in committing the crime because of that trust and uses
that advantage in order to commit the crime. It is much easier for
an attorney who has been entrusted with a client's money to steal
that money than for an ordinary criminal to do so.
Applying the concept drawn from those examples to this case,
it is clear that Barakat did not use an advantage he, as
distinguished from an ordinary criminal, had in order to commit the
crime of tax evasion. The government's contention that Barakat
abused his position of trust to obtain the income he did not report
would broaden the crime of tax evasion to include the manner in
which the income was obtained. However, the law prohibiting tax
evasion is neutral as to the method by which the defendant obtained
the income, caring not whether it was ill-gotten or richly
deserved. The crime of tax evasion is simply the willful filing of
a return known to be false. See 26 U.S.C. § 7206(a). Anyone with
any kind of taxable income can do that. Barakat did not use his
particular position of trust to give him an advantage in the
commission or concealment of the offense of tax evasion.
Therefore, we conclude that the district court should not have
given Barakat a sentencing enhancement for abuse of a position of
trust.
C. THE § 2T1.1(b)(2) ENHANCEMENT FOR USE OF SOPHISTICATED MEANS
17
The district court also gave Barakat a two-level enhancement
pursuant to U.S.S.G. § 2T1.1(b)(2) for using “sophisticated means,”
channeling the payments from Benton Mortgage through Fields' trust
account, in order to impede discovery of the existence or extent of
the offense. Barakat challenges this enhancement, arguing that:
(1) the use of an attorney's trust account could not be
“sophisticated means” as a matter of law; and (2) because the use
of the trust account was related to the mail fraud count, it was
outside the scope of the “relevant conduct” which could be
considered in sentencing him for his tax evasion conviction.
1. Standard of Review
This Court has addressed the issue of what “sophisticated
means” are once before, and then only briefly. In United States v.
Paradies, 98 F.3d 1266, 1292 (11th Cir. 1996), we held that the
district court did not clearly err in enhancing the defendant's
conviction for tax evasion where the evidence showed that the
defendant routinely transferred money through shell corporations.
Although reaching that conclusion in Paradies, we did not discuss
in any detail the standard by which this Court would review the
district court's application of the sophisticated means
enhancement.
The Sentencing Guidelines explain that “sophisticated means .
. . includes conduct that is more complex or demonstrates greater
intricacy or planning than a routine tax-evasion case.” U.S.S.G.
§ 2T1.1 comment. (n.4). This inquiry necessarily involves a
comparison between the present case and the “routine” tax evasion
18
case, a comparison identical in nature to the inquiry a district
court makes in determining whether a mitigating or aggravating
factor takes a case out of the heartland thereby justifying a
sentencing departure. Compare U.S.S.G. § 2T1.1 comment.(n.4) with
U.S.S.G. § 5K2.0 (“An offender characteristic or other circumstance
that is not ordinarily relevant in determining whether a sentence
should be outside the applicable guideline range may [be used if
it] distinguishes the case from the 'heartland' cases covered by
the guidelines. . . .”). Therefore, we will take the standard of
review prescribed by the Supreme Court in Koon v. United States, --
- U.S. ---, 116 S. Ct. 2035 (1996), for reviewing § 5K2.0
departures and use it in reviewing a sophisticated means
enhancement.
In Koon, the Supreme Court noted that findings of fact
relevant to sentencing decisions are to be accepted unless clearly
erroneous. See id. at 2046. That is essentially what this Court
did in Paradies.
See 98 F.3d at 1291 (accepting the district
court's finding that the defendant had used shell corporations to
conceal his income because it was not clearly erroneous). The
Supreme Court did note in Koon that if the district court makes a
ruling of law in its sentencing decisions, the court of appeals
“need not defer to the district court's resolution of the point.”
116 S. Ct at 2047. Therefore, we will review any rulings of law
made by the district court in conjunction with the sophisticated
means enhancement de novo.
2. Discussion
19
Barakat argues that in committing the offense of tax evasion,
his only act was to misrepresent his 1989 income on his tax return.
He asserts that because everyone fills out a tax form, his means of
committing tax evasion are no different than the means used by
anyone else, and therefore he cannot be said to have used
“sophisticated means” to commit the offense of tax evasion. That
contention misses the mark, because it focuses on the use of
sophisticated means to commit a tax offense, while the enhancement
focuses on the use of sophisticated means to conceal the tax
offense. See U.S.S.G. § 2T1.1(b)(2) (“If sophisticated means were
used to impede the discovery of the existence or extent of the
offense, increase by 2 levels.”).
Barakat also relies on United States v. Stokes, 998 F.2d 279
(5th Cir. 1993), to argue that he did not use “sophisticated means”
to conceal his tax evasion. In Stokes, the Fifth Circuit held that
the defendant's concealment of income from her accountant could not
be “sophisticated means” for the purposes of § 2T1.1(b)(2). See
id. at 282. With the Stokes holding in hand, Barakat argues that
the use of attorney Fields’ trust account was no more complex than
concealing income from an accountant. We do not think that the
holding of Stokes is applicable in this case. First, it is not
clear that the Stokes court, which made its decision before Koon
was decided, used the same standard of review that we use today.
Because our review is for clear error, we give greater deference to
the district court's finding that Barakat used sophisticated means
20
than the Stokes court appears to have given the district court’s
finding in that case.
Second, we do not think that merely failing to report income
to an accountant, which is all that was involved in Stokes, is
analogous to using an attorney's trust account. As the government
points out, because Benton Mortgage paid the $15,000 to Fields'
trust account, no IRS Form 1099 (used to report payments to non-
employees) was generated. As a result, Barakat could fail to
disclose the Benton Mortgage payments knowing that, in the absence
of a Form 1099, it was unlikely the IRS would ever become aware of
that income. Therefore, based on the evidence, we could not say
that the district court clearly erred in finding that Barakat had
used “sophisticated means” to conceal his tax evasion if we were
convinced the district court’s reasoning was untainted by any error
of law.
However, more analysis is required. While this is essentially
a factual issue, which is entrusted primarily to the district
court, see Koon, 116 S. Ct. at 2047, Barakat asserts that the court
committed legal error by taking into consideration conduct
pertaining to the mail fraud conspiracy count when deciding whether
to apply the § 2T1.1(b)(2) enhancement. If the district court took
into consideration conduct which does not directly relate to the
offense of conviction, it made an error of law. As noted above,
see supra at 16-17, a district court is limited by § 1B1.3 to
considering only conduct pertaining to the offense of conviction.
Unless the use of sophisticated means significantly facilitates the
21
defendant’s concealment of his tax evasion from the IRS, it is not
relevant conduct for the purposes of § 2T1.1(b)(2). See Stokes,
998 F.2d at 282.
The district court stated that, had it considered only the
evidence relating to the tax count, it would not have given Barakat
an enhancement for either an abuse of trust or use of sophisticated
means. We read that statement to mean the district court found
that Barakat had used sophisticated means to conceal his mail fraud
conspiracy, but not his tax evasion. If that is the district
court’s holding, it is error. However, it is unclear how the
district court could consider only evidence relating to the tax
count when it noted that the evidence relating to the mail fraud
conspiracy and tax evasion charges was “inextricably intertwined.”
Given this uncertainty, and because the issue of whether the use
of a trust account in these circumstances is a “sophisticated
means” of concealing tax evasion is a close question,1 we vacate
the district court's imposition of this enhancement and remand for
a reconsideration in light of our holding that only evidence
relating to the tax evasion count may be considered in making the
§ 2T1.1(b)(2) decision.
V. CONCLUSION
1
Compare United States v. Rice, 52 F.3d 843, 849 (10th Cir.
1995)(sophisticated means enhancement inappropriate);
Stokes, 998
F.2d at 282 (same), with United States v. Whitson,
125 F.3d 1071,
1075 (7th Cir. 1997)(sophisticated means enhancement appropriate);
United States v. Furkin,
119 F.3d 1276, 1285 (7th Cir.
1997)(same); United States v. Lewis,
93 F.3d 1075, 1083 (2d Cir.
1996)(same).
22
Barakat's conviction for tax evasion is AFFIRMED. We VACATE
his sentence and REMAND to the district court for further
proceedings consistent with this opinion.
23
