In The Courts

Among the defendant's arguments on appeal was that the trial court erred in excluding his evidence that he had unclaimed depreciation deductions available to his hotels and, thus, was entitled to take “bad debt” deductions on his personal tax returns. The defendant also argued that the trial court erred by not allowing him to present evidence showing that he was not a sophisticated accountant and thus did not “willingly” violate the law. The court rejected the defendant's “bad debt” argument by noting that he was charged with evading his personal, not corporate, income taxes. The court noted that the government used the corporate tax returns merely to show that the “bad debt” deduction taken on the personal tax return was willfully false. The court also held that the exclusion of parts of the defendant's expert's testimony relating to the sophistication of the defendant in tax and financial matters did not impact the case because the defendant was still able to argue that his failure to take all depreciation deductions was evidence of his lack of financial sophistication.

Pre-Subpoenaed Bookkeeper Not an 'Agent of the Government'

In United States v. Huber, 404 F.3d 1047 (8th Cir. Apr. 21, 2005), the Eighth Circuit held that the defendant's bookkeeper, who met with a federal investigator 5 days before both being served with a subpoena and turning over financial information, was not “an agent of the government” and did not collect information at the government's behest in violation of the defendant's rights under the Fourth Amendment.

The defendant, an operator of a large farming business, rented and sub-leased land and labor to third parties for farming operations. The sub-lessees enrolled in various federally subsidized farm programs and were paid by the programs throughout the year. Once the third parties received payment, they passed it on to the defendant. According to the government, the defendant enlisted the third parties in order to take advantage of federally subsidized farming programs that he either did not qualify for or where he was constricted by payment limitations. The government further contended that the defendant and the third parties intended to make the sub-leasing arrangement look as if the third parties owned the farmland. The defendant and his two companies were convicted of violating various federal laws prohibiting fraudulent statements to the government, tax fraud, and money laundering.

On appeal, the defendant's principal argument was that the trial court erred in denying his motion to suppress evidence gleaned from his bookkeeper. The bookkeeper, who kept the defendant's books in conjunction with the farming operation, was approached by a federal agent about the defendant's farming business. The bookkeeper offered to turn over the information that she had in her possession. The agent denied the offer and told her to wait until she was subpoenaed. Five days later, the bookkeeper was served with a grand jury subpoena and given an offer of immunity. The bookkeeper then provided the government with the information. At trial, the government relied on the bookkeeper's information. The defendant argued that the bookkeeper was a government agent for purposes of the Fourth Amendment after she first spoke to the federal agent. The court rejected this argument, holding that there was no evidence that the federal agent asked the bookkeeper to take any action on the government's behalf before she was subpoenaed. The court held that the bookkeeper's desire to help the government was not enough to make her a government agent.

Premature Invoices Includable in Sentencing Guidelines' Amount-of-Loss Calculation

The Fifth Circuit recently considered whether the district court erred in calculating the amount of loss under the Sentencing Guidelines by including in the loss amount “premature invoices,” which were invoices submitted by the defendant before he completed his work and before payment was due. United States v. Pennell, 2005 WL 1030123 (5th Cir. May 4, 2005),

The defendant was the president and sole owner of a data cabling company. He entered into a factoring agreement with a local bank, whereby the bank would advance his money in return for his assigning its accounts receivable to the bank as collateral for the loans. Once the defendant submitted an invoice, the bank would pay him 80% of the value of the invoice and submit 20% into a reserve account. If a customer failed to pay an invoice within 120 days, the defendant was required to buy back the invoice from the bank.

The defendant submitted invoices for $479,000 for work not yet performed (premature invoices) and invoices for $362,000 for work that was never contracted. Eventually, his fraud was detected and he was indicted, tried and convicted for numerous offenses.

On appeal, the defendant argued that the district court erred in determining the amount of loss for sentencing purposes. Among other things, he argued that the court erred by including the “premature invoices” in the loss calculation. The court rejected this argument and held that the premature invoices were properly calculated as a “loss” because they were not receivables when submitted by the defendant and the risk of loss in the event of non-payment fell on the bank. The court, however, remanded the case for re-sentencing because the trial court committed Booker error by using extra-verdict facts to compute the loss under the mandatory Sentencing Guidelines regime.

Chiropractor's Conviction for Defrauding Medicare Upheld

The Tenth Circuit has upheld the conviction and sentence of a chiropractor on a variety of charges stemming from his systematic scheme to defraud Medicare. United States v. Lawrence, 2005 WL 906582 (10th Cir. Apr. 20, 2005),

The defendant ran a clinic that offered chelation therapy for patients eligible for Medicare. The defendant submitted bills to Medicare for the chelation therapy despite Medicare's general refusal to cover such therapy. In furtherance of the scheme, he used incorrect Medicare billing codes in invoices to Medicare that were for another Medicare-covered intravenous therapy. The defendant instructed his employees to use the incorrect codes. He also ordered employees to review old charts and re-bill Medicare for any chelation therapy by using one of the incorrect billing codes. He was tried and convicted for the fraudulent scheme.

On appeal, the defendant raised a number of issues including several challenges to his proposed jury instructions. Specifically, he asserted that the court erred in denying his request for a jury instruction that the Medicare Carriers Manual was not binding on providers. He argued that because the Medicare administration did not follow its own regulations by failing to issue to the defendant written corrective actions and failing to deny certain claims, the regulations within the Manual were not mandatory. The court rejected this argument, holding that although information contained within the Medicare Carriers Manual may be relevant, any jury instruction concerning the applicability of the regulations within the manual was not relevant. The court further held that the proposed jury instruction may have confused the jury.

Hotelier's Conviction for Tax Evasion Upheld

In United States v. Iskander, 2005 WL 1076545 (4th Cir. May 9, 2005), the defendant appealed his conviction on three counts of tax evasion and one count of structuring financial transactions to evade reporting requirements based on his role in skimming cash receipts and corporate checks received by two hotels he owned and operated.

The defendant controlled two corporations, each of which operated a hotel. At trial, it was shown that the defendant skimmed cash and credit card proceeds from the hotels and under-reported the hotels' gross receipts in an effort to conceal his diversion of funds. As a result of the scheme, the defendant deposited over $700,000 in corporate funds into his personal bank accounts. He also systematically structured the bank deposits below the $10,000 federal currency transaction reporting requirements. Finally, the defendant failed to pay either personal or corporate income tax on the funds. Instead, he used the underreported gross receipts amount for his corporate tax return, which not only led to no tax being paid for the hotels' business, but also led him to “write off” alleged loans made to the hotel as “bad” uncollectible debt.

Among the defendant's arguments on appeal was that the trial court erred in excluding his evidence that he had unclaimed depreciation deductions available to his hotels and, thus, was entitled to take “bad debt” deductions on his personal tax returns. The defendant also argued that the trial court erred by not allowing him to present evidence showing that he was not a sophisticated accountant and thus did not “willingly” violate the law. The court rejected the defendant's “bad debt” argument by noting that he was charged with evading his personal, not corporate, income taxes. The court noted that the government used the corporate tax returns merely to show that the “bad debt” deduction taken on the personal tax return was willfully false. The court also held that the exclusion of parts of the defendant's expert's testimony relating to the sophistication of the defendant in tax and financial matters did not impact the case because the defendant was still able to argue that his failure to take all depreciation deductions was evidence of his lack of financial sophistication.

Pre-Subpoenaed Bookkeeper Not an 'Agent of the Government'

In United States v. Huber , 404 F.3d 1047 (8th Cir. Apr. 21, 2005), the Eighth Circuit held that the defendant's bookkeeper, who met with a federal investigator 5 days before both being served with a subpoena and turning over financial information, was not “an agent of the government” and did not collect information at the government's behest in violation of the defendant's rights under the Fourth Amendment.

The defendant, an operator of a large farming business, rented and sub-leased land and labor to third parties for farming operations. The sub-lessees enrolled in various federally subsidized farm programs and were paid by the programs throughout the year. Once the third parties received payment, they passed it on to the defendant. According to the government, the defendant enlisted the third parties in order to take advantage of federally subsidized farming programs that he either did not qualify for or where he was constricted by payment limitations. The government further contended that the defendant and the third parties intended to make the sub-leasing arrangement look as if the third parties owned the farmland. The defendant and his two companies were convicted of violating various federal laws prohibiting fraudulent statements to the government, tax fraud, and money laundering.

On appeal, the defendant's principal argument was that the trial court erred in denying his motion to suppress evidence gleaned from his bookkeeper. The bookkeeper, who kept the defendant's books in conjunction with the farming operation, was approached by a federal agent about the defendant's farming business. The bookkeeper offered to turn over the information that she had in her possession. The agent denied the offer and told her to wait until she was subpoenaed. Five days later, the bookkeeper was served with a grand jury subpoena and given an offer of immunity. The bookkeeper then provided the government with the information. At trial, the government relied on the bookkeeper's information. The defendant argued that the bookkeeper was a government agent for purposes of the Fourth Amendment after she first spoke to the federal agent. The court rejected this argument, holding that there was no evidence that the federal agent asked the bookkeeper to take any action on the government's behalf before she was subpoenaed. The court held that the bookkeeper's desire to help the government was not enough to make her a government agent.

Premature Invoices Includable in Sentencing Guidelines' Amount-of-Loss Calculation

The Fifth Circuit recently considered whether the district court erred in calculating the amount of loss under the Sentencing Guidelines by including in the loss amount “premature invoices,” which were invoices submitted by the defendant before he completed his work and before payment was due. United States v. Pennell, 2005 WL 1030123 (5th Cir. May 4, 2005),

The defendant was the president and sole owner of a data cabling company. He entered into a factoring agreement with a local bank, whereby the bank would advance his money in return for his assigning its accounts receivable to the bank as collateral for the loans. Once the defendant submitted an invoice, the bank would pay him 80% of the value of the invoice and submit 20% into a reserve account. If a customer failed to pay an invoice within 120 days, the defendant was required to buy back the invoice from the bank.

The defendant submitted invoices for $479,000 for work not yet performed (premature invoices) and invoices for $362,000 for work that was never contracted. Eventually, his fraud was detected and he was indicted, tried and convicted for numerous offenses.

On appeal, the defendant argued that the district court erred in determining the amount of loss for sentencing purposes. Among other things, he argued that the court erred by including the “premature invoices” in the loss calculation. The court rejected this argument and held that the premature invoices were properly calculated as a “loss” because they were not receivables when submitted by the defendant and the risk of loss in the event of non-payment fell on the bank. The court, however, remanded the case for re-sentencing because the trial court committed Booker error by using extra-verdict facts to compute the loss under the mandatory Sentencing Guidelines regime.

Chiropractor's Conviction for Defrauding Medicare Upheld

The Tenth Circuit has upheld the conviction and sentence of a chiropractor on a variety of charges stemming from his systematic scheme to defraud Medicare. United States v. Lawrence, 2005 WL 906582 (10th Cir. Apr. 20, 2005),

The defendant ran a clinic that offered chelation therapy for patients eligible for Medicare. The defendant submitted bills to Medicare for the chelation therapy despite Medicare's general refusal to cover such therapy. In furtherance of the scheme, he used incorrect Medicare billing codes in invoices to Medicare that were for another Medicare-covered intravenous therapy. The defendant instructed his employees to use the incorrect codes. He also ordered employees to review old charts and re-bill Medicare for any chelation therapy by using one of the incorrect billing codes. He was tried and convicted for the fraudulent scheme.

On appeal, the defendant raised a number of issues including several challenges to his proposed jury instructions. Specifically, he asserted that the court erred in denying his request for a jury instruction that the Medicare Carriers Manual was not binding on providers. He argued that because the Medicare administration did not follow its own regulations by failing to issue to the defendant written corrective actions and failing to deny certain claims, the regulations within the Manual were not mandatory. The court rejected this argument, holding that although information contained within the Medicare Carriers Manual may be relevant, any jury instruction concerning the applicability of the regulations within the manual was not relevant. The court further held that the proposed jury instruction may have confused the jury.