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United States v. Gambone

January 03, 2003

UNITED STATES OF AMERICA
v.
JOHN A. GAMBONE, SR. A/K/A JACK JOHN A. GAMBONE, SR., APPELLANT IN NO. 01-4424
UNITED STATES OF AMERICA
v.
ANTHONY GAMBONE A/K/A TONY ANTHONY GAMBONE, APPELLANT IN NO. 01-4427



On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Crim. Nos. 00-00176-1 and 00-00176-2) District Judge: Honorable John R. Padova

Before: Roth and Greenberg, Circuit Judges, and Ward, District Judge*fn1

The opinion of the court was delivered by: Greenberg, Circuit Judge.

PRECEDENTIAL

Argued October 17, 2002

OPINION OF THE COURT

I. FACTUAL AND PROCEDURAL HISTORY

This matter comes on before this court on appeals from judgments of conviction and sentence entered in the district court on December 13, 2001. Defendants-appellants, John A. Gambone, Sr. ("Jack") and Anthony Gambone ("Tony"), are brothers who owned and operated a construction business, known since 1983 as Gambone Brothers Organization, Inc. ("Gambone Brothers"). The indictment accused them of engaging in a three-part scheme over the course of 20 years, the purpose of which was to file false personal income tax returns and to aid and assist certain of their employees and subcontractors in doing the same. Although there are other Gambone defendants in this case, we sometimes refer to Jack and Tony exclusively as the Gambones as they are the only appellants.

The first prong of the conspiracy, called the "cash-skimming" prong in the indictment, involved a systematic plan to receive payment from home purchasers for certain "extras" in cash, not to record those payments on Gambone Brothers' books, and to hide this additional income from the IRS by buying United States savings bonds or simply by holding the cash in a safe or a nightstand.*fn2

Prong two of the conspiracy, called the "overtime/expense reimbursement/ 'off-payroll' fraud" prong in the indictment, charged that the Gambones used three methods to avoid reporting to the IRS significant wages paid to their employees with the intention that the employees would do the same. The first and most common method was to pay the employees "straight time" rather than time and one-half for all work beyond 40 hours per week and to pay the employees with two separate checks, one for 40 hours paid from a payroll account and a second for overtime paid from a nonpayroll account.*fn3 The purpose of this scheme was to avoid the requirements of the Fair Labor Standards Act and to avoid paying the employer's share of Social Security and Medicare ("FICA") taxes by not reporting the overtime wages to the IRS and by not withholding income or FICA taxes.

The indictment also alleged that the Gambones, either themselves or through their personnel employees, informed new employees that Gambone Brothers would not report overtime wages and encouraged those employees to do the same. The second method used to avoid reporting wages involved disguising certain employees' raises as expense reimbursements, which are not reported as income. The third method involved paying some employees partially or completely "off-payroll," that is, paying them from nonpayroll, operating accounts rather than from payroll accounts.

To conceal all three types of payments the Gambones had their finance department prepare and file numerous fraudulent tax documents, including false W-2 forms to be attached to employees' personal income tax returns reporting regular wages but failing to report overtime wages, expense reimbursements, and off-payroll wages. The government estimated that the Gambones aided and assisted their employees in failing to report at least $4.5 million in overtime wages and hundreds of thousands of dollars in wages disguised as expense reimbursement and off-payroll payments.

The third prong of the conspiracy, called the "unreported subcontractor payments" prong in the indictment, charged that the Gambones failed to issue and file IRS forms 1099 for millions of dollars worth of services rendered by subcontractors. In doing so, the Gambones aided and assisted some subcontractors in failing to report substantial income.

A grand jury returned a 67-count indictment against the Gambones and their co-defendants, Sandra Lee Gambone ("Sandy"), William Murdock, John Gambone, Jr. ("Johnny"), and Robert Carl Meixner on April 6, 2000. In particular Count One charged all defendants with the conspiracy to defraud the United States as outlined above, in violation of 18 U.S.C. S 371. Murdock and Meixner were implicated, however, only in the second prong of the conspiracy. Count Two charged Jack and Sandy, who are married, with the substantive offense of subscribing to their own false 1994 tax return, in violation of 26 U.S.C. S 7206(1). Count Three against Tony, Count Four against Murdock, Count Five against Johnny, and Count Six against Meixner similarly charged each individual with subscribing to a false personal tax return for either the 1993 calendar year (Johnny, Murdock, and Meixner) or the 1994 calendar year (Tony). Counts Seven through Sixty-Seven charged Jack and Tony with aiding and assisting in the preparation of false individual income tax returns for 61 employees, in violation of 26 U.S.C. S 7206(2).

After the district court granted Sandy and Johnny a severance, the case was tried against the other four defendants.*fn4 At the trial each of the defendants moved for a judgment of acquittal on all counts against them pursuant to Fed. R. Crim. P. 29(a) but the district court reserved judgment on these motions pursuant to Fed. R. Crim. P. 29(b). On November 17, 2000, the jury returned guilty verdicts on all counts against the Gambones except for counts Forty-Three and Fifty-Seven. In addition, it found Murdock guilty on Counts One and Four and Meixner guilty on Counts One and Six. Thus, the jury found all defendants guilty on all counts except that it found the Gambones not guilty of aiding and assisting two of the 61 employees in preparing false individual returns.

Following the jury verdicts, each defendant renewed his motion for a judgment of acquittal and, in the alternative, moved for a new trial. On September 4, 2001, the district court granted Jack's motion for judgment of acquittal on Count Two, Tony's motion for judgment of acquittal on Count Three, Murdock's motion for judgment of acquittal on Count Four, and Meixner's Motion for Judgment of Acquittal on Count One.*fn5 The court denied all the defendants' motions on all other counts. See United States v. Gambone, 167 F. Supp. 2d 803 (E.D. Pa. 2001). All defendants except Meixner therefore were acquitted of the substantive offense of filing a false individual tax return in either 1993 or 1994 but the court did not disturb any of the convictions on the conspiracy count except Meixner's and did not disturb the Gambones' convictions on 59 counts of aiding and assisting in the preparation of false individual tax returns. Moreover, the court denied the defendants' motions for a new trial. The court subsequently sentenced the Gambones to custodial terms of 37 months on Count One and custodial terms of 36 months on all other counts, all terms to run concurrently, ordered them to pay fines of $75,000 and to pay the IRS $3,000,000. In addition, the court imposed terms of supervised release upon the Gambones' completion of their custodial terms and ordered them to pay certain costs of the prosecution.

They then appealed.*fn6 We have jurisdiction under 28 U.S.C. S 1291.

II. DISCUSSION

A. Sufficiency of the Evidence

1. Standard of Review

We review the "sufficiency of the evidence . . . in a light most favorable to the Government following a jury verdict in its favor." United States v. Antico, 275 F.3d 245, 260 (3d Cir. 2001) (citing Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469 (1942)). "We must sustain the verdict if there is substantial evidence, viewed in the light most favorable to the government, to uphold the jury's decision. . . . We do not weigh evidence or determine the credibility of witnesses in making this determination." United States v. Beckett, 208 F.3d 140, 151 (3d Cir. 2000) (citations omitted). In making our review we examine the totality of the evidence, both direct and circumstantial. See Antico, 275 F.3d at 260. We must credit all available inferences in favor of the government. See United States v. Riddick, 156 F.3d 505, 509 (3d Cir. 1998). Our review of the district court's interpretation of a statute is plenary. See United States v. DeJulius, 121 F.3d 891, 893 (3d Cir. 1997).

2. Aiding and Assisting Convictions

We first address the Gambones' convictions for aiding and assisting their employees in the preparation of false individual income tax returns in violation of I.R.C.

S 7206(2). Section 7206(2) provides:

Any person who

(1) [w]illfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document . . .

shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

The Gambones advance a two-part argument challenging their convictions under section 7206(2). The first step in their reasoning raises a purely legal question. Casting their conduct as, at most, a scheme to provide false W-2s, they argue that the Internal Revenue Code allowed the government to prosecute them only under I.R.C. S 7204. Section 7204 sets forth a misdemeanor offense for willful furnishing of a false W-2 to an employee as follows:

In lieu of any other penalty provided by law (except the penalty provided by section 6674) any person required under the provisions of section 6051 [governing an employer's obligation to issue, inter alia, W-2 forms to employees] to furnish a statement who willfully furnishes a false or fraudulent statement or who willfully fails to furnish a statement in the manner, at the time, and showing the information required under section 6051, or regulations prescribed thereunder, shall, ...


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