United States v. Dorsey ( 2012 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
Nos. 11-4577 and 11-4578
_____________
UNITED STATES OF AMERICA
v.
TROY DORSEY,
Appellant
_____________
UNITED STATES OF AMERICA
v.
MONNIE DORSEY,
Appellant
_____________
Appeals from the United States District Court
for the District of Delaware
(D.C. Criminal Nos. 1-10-cr-00091-001 and 002)
District Judge: Honorable Sue L. Robinson
_____________
Submitted Under Third Circuit LAR 34.1(a)
September 21, 2012
Before: SLOVITER, RENDELL and HARDIMAN, Circuit Judges
(Opinion Filed: September 24, 2012)
_____________
OPINION OF THE COURT
_____________
RENDELL, Circuit Judge.
Appellants Troy and Monnie Dorsey appeal their convictions on charges of
conspiracy to defraud the IRS in violation of 18 U.S.C. § 371, filing false tax returns for
tax years 2004 through 2006 in violation of 26 U.S.C. § 7206(1), and, as to Troy Dorsey
only, structuring cash deposits to avoid tax reporting requirements in violation of 31
U.S.C. § 5324(a)(3) and (d)(2). For the reasons set forth below, we will affirm the
Dorseys’ convictions. 1
I.
Troy and Monnie Dorsey, the owners and operators of the Day School for
Children in New Castle, Delaware, reported adjusted gross incomes of $15,697, $3,742,
and $10,341 on their joint federal income tax returns for the years 2004, 2005, and 2006,
respectively. The evidence presented at trial showed that the Dorseys operated the Day
School primarily on a cash basis: requesting at least some parents to pay tuition in cash,
paying teacher salaries in cash, refusing to issue tax forms reflecting income paid to
teachers, and, in some cases, encouraging teachers not to file tax returns or report income
they earned from the school.
At the same time, the Dorseys possessed large quantities of cash: the government
introduced bank records showing that, from 2004 to 2006, Troy Dorsey deposited over
$346,000 in cash into the couple’s account. The deposits all were made in increments of
less than $10,000, i.e., below the threshold that triggers a bank’s obligation to report
1
We have jurisdiction to review the Dorseys’ final orders of conviction under 28 U.S.C.
§ 1291.
2
suspicious currency transactions to the IRS. In late 2007, the Dorseys used postal service
money orders to make two deposits totaling almost $40,000 towards the purchase of a
$716,000 house. At trial, the government offered, and the District Court admitted: (1) a
buyer’s affidavit the Dorseys completed in September 2007 in connection with the home
purchase, certifying that they had a combined annual income of $168,000 (compared to
the $10,341 in adjusted gross income the Dorseys reported on their 2006 tax return), and
(2) copies of the small-denomination (mostly $1,000) postal money orders the Dorseys
used to make deposits on the house. 2
II.
On appeal, the Dorseys challenge the sufficiency of the evidence supporting their
conspiracy and tax-fraud convictions; urge that trial testimony by the IRS’s Special
Agent that was arguably inconsistent with the agent’s testimony at sentencing fatally
undermines those convictions; and contend that the District Court abused its discretion in
admitting the evidence related to their 2007 house purchase. Troy Dorsey also argues
that the government improperly used the postal money orders to prove the intent element
of the structuring charges. We reject all of these arguments. 3
2
The record includes two different forms the home builder filed with the IRS reporting
cash payments from the Dorseys of over $10,000. The first shows that the Dorseys used
postal money orders purchased over five days from eight different post offices to make an
initial deposit of $20,372. The second shows that the Dorseys used postal money orders
purchased over six days from six different post offices to make a second, $18,000
deposit.
3
Because the Dorseys did not file a timely motion for judgment of acquittal, we review
whether sufficient evidence supports the conspiracy and tax-fraud convictions for plain
error. See United States v. Powell, 113 F.3d 464, 466-67 (3d Cir. 1997). We review the
3
A.
First, the Dorseys urge that the “bank deposit method” the government used to
prove that they understated their income was flawed because the government did not
sufficiently establish the Dorseys’ “starting cash on hand,” and because the evidence did
not support the government’s estimate of the amount of cash generated by the Day
School. 4
For many years courts have held that, when using the bank deposit method of
proof, the government must show that the defendant had a lucrative business, that he
made periodic and regular cash deposits into his bank accounts, that the difference
between deposits and withdrawals reflected income, and that there was a substantial
understatement in reporting that income. See United States v. Boulware, 384 F.3d 794,
811 (9th Cir. 2004) (quoting Gleckman v. United States, 80 F.2d 394, 399 (8th Cir.
1935)); United States v. Venuto, 182 F.2d 519, 521 (3d Cir. 1950). It is well settled that
the government need not prove the exact amount of a deficiency, as long as it establishes
that the defendant’s understatement is substantial. Boulware, 384 F.3d at 811.
As part of this process, the government must establish the defendant’s starting
cash on hand with “reasonable certainty.” United States v. Normile, 587 F.2d 784, 785
(5th Cir 1979). To do so, it must “conduct an adequate and full investigation,”
District Court’s admission of the evidence related to the Dorseys’ home purchase for
abuse of discretion. United States v. Mathis, 264 F.3d 321, 326 (3d Cir. 2011).
4
The Dorseys do not challenge the basic facts underlying their convictions, i.e., the
amounts they reported on their 2004, 2005, and 2006 tax returns and the number and
amount of cash deposits they made into their bank accounts during that time.
4
accounting for any non-income related deposits, Boulware, 384 F.3d at 811, and looking
into all reasonably verifiable, non-taxable sources of cash the defendant identifies, United
States v. Boulet, 577 F.2d 1165, 1168-69 (5th Cir. 1978). The government’s obligation to
“negate other sources of non-taxable income” is “satisfied by proof of an adequate
investigation that did not disclose non-taxable sources.” Id. at 1168.
Here, the government’s thorough investigation did not disclose any source of cash
other than income from the Day School. IRS Special Agent Thomas Sorrentino began
his investigation by reviewing bank records both from the Dorseys’ personal account and
the Day School’s account. Sorrentino sought financial records for the Day School
through two grand-jury subpoenas and a search warrant, but none were produced in
response to the subpoenas or found after a search of the premises. Sorrentino also
interviewed Troy Dorsey, who offered several conflicting explanations for the cash
deposits. Dorsey first stated that the cash was a gift from his father-in-law. But after his
wife contradicted that account, stating that her father never had that kind of money, Troy
changed his story, claiming the cash was earnings he had accumulated since age fourteen
and kept on his person, at his house, and in a safe-deposit box at the bank.
After further investigation, Sorrentino found no evidence to support Dorsey’s
explanations. He determined that the Dorseys’ father-in-law could not have been the
source of the cash deposited in the Dorseys’ account, in part because of Monnie’s
admission during the interview, and in part because the Dorseys received only $35,000
(paid by check, not in cash) from the father-in-law’s estate. Bank records indicated that
Troy did not open a safe-deposit box until 2006, after much of the cash at issue had
5
already been deposited into the Dorseys’ account. Finally, Troy’s past earning statements
offered no evidence of any income paid in cash and, in all events, was less than the
amount of cash deposits Dorsey made between 2004 and 2006. 5
Viewing the record in the light most favorable to the government, as we must, see
United States v. Dent, 149 F.3d 180, 187 (3d Cir. 1998), we conclude that ample
evidence supported the jury’s conclusion that the Dorseys were guilty of conspiracy to
defraud the IRS and of willful submission of false tax returns for the 2004–2006 tax
years. The Dorseys have not established any error in this regard, let alone an error that is
plain.
B.
The Dorseys also contend that an inconsistency between Special Agent
Sorrentino’s trial testimony and his testimony at sentencing improperly prejudiced the
jury and undermines their convictions. Here again, the Dorseys have not established
plain error.
At trial, Sorrentino testified that he gave the Dorseys “credit” for certain purported
business expenses in calculating the amount of unreported gross business receipts from
the Day School for each of the three tax years at issue. And, in fact, it appears that
Sorrentino gave the Dorseys “credit” for those expenses by reducing his calculation of
the Day School’s gross business income by the amount of reimbursement checks made
5
Although it was not part of the government’s affirmative case, we note that Troy
Dorsey testified at trial. When asked, he could not identify the amount of cash he
deposited over the three-year period in question, and he did not offer any alternative, non-
taxable explanation of its source.
6
out to the Dorseys. In calculating the tax loss caused by the Dorseys’ understatements for
sentencing purposes, however, Sorrentino did not give the Dorseys “credit” for those
expenses by reducing the gross business income by the amount of the reimbursements.
Sorrentino testified that the record did not support a conclusion that the reimbursements,
which included, among other things, restaurant meals, payments for a Mercedes Benz,
and non-school-related travel, reflected legitimate business expenses.
We agree with the District Court that Sorrentino’s trial testimony, which suggested
that he was treating the reimbursements as legitimate business expenses, was confusing.
But this confusion does not undermine the Dorseys’ convictions in any way. As noted
above, at trial, the government needed only to prove that the Dorseys understated their
income, and that the understatement was substantial. The confusion regarding
Sorrentino’s treatment of reimbursements relates solely to the calculation of the tax loss
arising from the Dorseys’ conduct, which is purely a sentencing issue; 6 it does not bear at
all on the questions whether the Dorseys understated their income from the Day School
or whether that understatement was substantial. Accordingly, we will not reverse the
Dorseys’ convictions on this basis.
C.
The Dorseys also challenge the District Court’s admission of documents
pertaining to their house purchase. The Dorseys argue the documents were inadmissible
because they pertained to acts that occurred after the last overt act of conspiracy alleged
6
Notably, the Dorseys do not challenge their sentences on appeal. This is likely because
the District Court rejected Sorrentino’s calculation and gave the Dorseys credit for the
challenged expenses, resulting in a smaller tax loss and, presumably, lighter sentences.
7
in the complaint. That argument fails because, regardless of whether the documents were
relevant to the conspiracy charges (an issue we do not address), the documents plainly are
relevant to the tax-fraud charges. Therefore, the District Court did not abuse its
discretion in admitting them.
Among other things, the documents are probative of the Dorseys’ willfulness in
understating income on their 2006 tax return. That the Dorseys certified that their
combined annual income from the Day School was $168,000 in September 2007 strongly
suggests that they knew the $10,341 annual income they claimed on their 2006 tax return
(which they filed five months earlier, in April 2007) was false. See United States v.
DeMuro, 677 F.3d 550, 558-59 (3d Cir. 2012) (holding evidence of personal spending
can be relevant to prove the defendant acted willfully; it can be relevant to the jury’s
assessment of the defendant’s willfulness; and it is also probative of guilt). The Dorseys’
payment of deposits on the house by multiple postal money orders in small
denominations, rather than a lump-sum payment from a bank, also supports the notion
that the Dorseys sought to hide large amounts of cash from the IRS.
D.
Lastly, Troy Dorsey argues that the government improperly relied on the postal
money orders to prove the intent element of his structuring charges. We disagree.
To support his argument, Troy cites only the following brief excerpt of the
government’s closing argument, to which he did not object: “I would suggest to you,
again, you’re trying to stay as invisible as possible, because you know you haven’t
8
reported your business income, you don’t intend to report your business income, and you
don’t want the IRS to find out about it, which leads us back to structuring.”
In context, the portion of the government’s argument quoted above suggests that
the government intended to argue that Troy structured the cash deposits into the couple’s
bank account as part of the Dorseys’ overall attempt to hide their income from the
government, not that the Dorseys’ later use of postal money orders proved that Troy’s
earlier bank deposits were structured to evade reporting requirements. As discussed
above, the District Court properly admitted the postal money orders as evidence of the
Dorseys’ overall scheme to hide funds from the IRS. Troy has not identified any
reversible error here.
III.
For the foregoing reasons, we will affirm the judgments of conviction.
9