("Laurice"), Defendant's co-conspirator, John Gagliardo, an Internal Revenue Service investigator, Donna Santangelo ("Santangelo"), Defendant's former girlfriend, and Helen Rabin, Defendant's ex-wife.
A. The Conspiracy
Defendant does not challenge the basic facts of the conspiracy as set out in the PSR. Defendant was a Coca-Cola route driver and union official with the International Brotherhood of Teamsters, Local 125, in Little Falls, New Jersey. In 1981, Coca-Cola offered drivers the opportunity to purchase their routes and operate them as distributorships. Defendant did not purchase his route since it would have created a potential conflict with his role as a union official. Laurice was a supervisor with Coca-Cola. Although Laurice was interested in a Coca-Cola route, as a member of Coca-Cola management, he was ineligible to purchase a distributorship route.
Laurice and Defendant entered into an agreement in 1981 that purported to transfer to Laurice Defendant's right to purchase his route from Coca-Cola. The terms of the agreement required Laurice to pay Coca-Cola $ 60,000 and the Defendant $ 100 per week for 20 years.
In fact, this agreement did not spell out the true terms of the payments. Under the actual terms, instead of a $ 100 flat rate, Defendant received 20 cents per case per week from Laurice. Laurice paid Defendant's "official" $ 100 per week by check, but he paid the remaining amount in cash. Laurice kept the difference between the commission he received per case and the 20 cent per case payment to Defendant.
In 1989, Defendant and Laurice drew up a contract that memorialized the true agreement between the parties. Defendant never reported the cash payments on his income tax returns and never paid taxes on the amount. This tax evasion continued until 1995.
Defendant was initially questioned as part of an investigation into Local 125 activities, but denied underreporting his income. Laurice, however, was granted immunity and revealed the true nature of his agreement with Defendant. PSR P 54-56.
B. Calculation of Tax Loss
The PSR calculates the tax loss by multiplying the number of cases of Coca-Cola sold by Laurice by 20 cents per case, resulting in the amount of money paid to Defendant under their "secret" agreement. Defendant's unreported income is this amount minus the income from the route that he reported to the Internal Revenue Service. The tax loss for sentencing purposes, pursuant to U.S.S.G. § 2T1.1(c)(1) Note A, is 28% of the total gross unreported income. The PSR figures were calculated using information provided by Laurice and verified through sales records from Coca Cola.
The PSR calculates Defendant's unreported income to be $ 423,101. The tax loss would thus be 28% of $ 423,101, or $ 118,580. Under U.S.S.G. § 2T4.1(I) (Tax Table), a tax loss of more than $ 70,000 but less than $ 120,000 results in a base offense level of 14.
Defendant challenges these calculations on three grounds. First, Defendant argues that the Government provides insufficient evidence of the amount of money paid to him. The Court disagrees. The Government introduced detailed records kept by Laurice himself tracking the number of cases of Coca-Cola sold as well as the amounts paid to Defendant. Furthermore, John Gagliardo, an Internal Revenue Service investigator, testified that the number of cases sold was verified against Coca-Cola's own sales records. The Court finds that ample evidence has been presented to support the Government's calculation of unreported income and tax loss.
Second, Defendant argues that using the figure of 20 cents per case sold results in an inaccurate calculation of the amount of unreported income, because Laurice was forced to cut his commissions for certain "discount store" customers. On these accounts, the agreement between Laurice and Defendant provided that Defendant would receive 10 cents per case, rather than 20 cents. Therefore, Defendant argues, the PSR overstates his income from the contract.
Although Defendant claims that certain accounts paid lower commissions, this assertion is not sufficient for the Court to conclude, without more, that the amount of loss is "substantially less" than that calculated by the PSR. The Government has calculated that the "cut commission" accounts, for which Defendant received 10 cents per case, result in an adjustment to his total gross income of only $ 33,600. The total amount of unreported income, accounting for "cut commission" accounts, comes to only $ 389,901. With an unreported income of $ 389,901, the tax loss is $ 97,475.25, which still results in a base offense level of 14 under U.S.S.G. § 2T4.1(I). Therefore, Defendant's objection has no bearing on the sentence under the Guidelines.
Finally, Defendant contends that the amount of tax loss should be limited to the years 1990-1993, the only years specified in the Information, rather than the years 1981-1993. Defendant claims this would result in a tax loss of $ 54,716 and a base offense level of 13 under U.S.S.G. § 2T4.1. The Sentencing Guidelines make clear, however, that the Court is not limited to the charged time period in calculating the amount of loss. On the contrary, the Commentary to U.S.S.G. § 2T1.1 provides that the total tax loss should be calculated based on the entire course of Defendant's tax-evasion scheme:
In determining the total tax loss attributable to the offense (see § 1B1.3(a)(2)), all conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan.... The following examples are illustrative of conduct that is part of the same course of conduct or common scheme or plan: (a) there is a continuing pattern of violations of the tax laws by the defendant; (b) the defendant uses a consistent method to evade or camouflage income ...; (c) the violations involve the same or a related series of transactions; ... and (e) the violation in each instance involves a failure to report or an understatement of a specific source of income ....
Application Note 2, U.S.S.G. § 2T1.1. Defendant's conduct fits nearly all of the examples of relevant conduct provided in the Guideline. He failed to report his true income under the agreement for years. He used a consistent method to camouflage his income -- under the table cash payments. The violations all arose from his "secret" interest in the Coca-Cola route.
The Court finds that Defendant's failure to report income and pay taxes on his secret agreement with Laurice constituted the same course of conduct from the inception of the agreement until he was arrested. Furthermore, Defendant pled guilty to Count One of the Information, which charged a conspiracy spanning the years 1981 through 1995. Therefore, it is appropriate to apply the amount of tax loss incurred for the entire course of the conspiracy. The Court will apply the adjusted amount of loss as calculated by the Government, $ 97,475.25, which dictates a base offense level of 14. U.S.S.G. § 2T4.1(I). See United States v. Valenti, 121 F.3d 327, 333 (7th Cir. 1997) (in cases involving tax evasion, sentencing court may use government's evidence of tax loss to determine base offense level).
C. Departure for Encouraging Others to Violate Tax Laws
Defendant next objects to the addition of two points to his offense level pursuant to U.S.S.G. § 2T1.9(b)(2), which allows an increase where a defendant's conduct
was intended to encourage persons other than or in addition to co-conspirators to violate the internal revenue laws or impede, impair, obstruct, or defeat the ascertainment, computation, assessment, or collection of revenue....