United States v. Albert J. Pirro, Jr., Anthony G. Pirro

Compensation Board is the contrary— Anthony Pirro, G. Defendant. the risks of ignorance are better No. Docket 99-1760. borne AFOP than by the individual United States Court of Appeals, AmeriCorps participants. This is not a Second Circuit. situation where a later law it illegal makes plaintiff for a to perform or partially per- Argued: March form but plaintiff still seeks to paid be May Decided: price, contract as in American Mercantile Exchange, 213-14, 66 A. at the case on

which the court Rather, district relied.

after entering into the contract in reliance promise

on the of workers’ compensation,

Twombly performed her side the con-

tract. It unjust would say be AFOP is from obligation.5

excused If AFOP did to oblige wish .provide itself work-

ers’ compensation form, any pro-

vide if if the state Workers’

Compensation Board approved, it could

have drafted the contract accordingly.

We entry of summary judg- affirm

ment claim, on the health coverage reverse entry of summary judgment on' the compensation claim,

workers’ and remand

for further proceedings. No costs are

awarded. America,

UNITED STATES

Appellant, PIRRO, Jr.,

Albert J. Defendant-

Appellee, 5. The Maine Compensation Workers’ injury. Board of her We take that as established. If determined that "Twombly traveling remaining are issues about cover- part of her duties ... age, [at] AFOP” at the they may time explored on remand. Properties

come return of Distinctive Croton, Inc., Corporation, in viola- tion The dismissed allegations charge also Pirro with misstat- ing Proper- his own interest in failing payments ties and reflect all Properties company wholly made to a by owned Chairman. The argues the district court erred in dis- missing allegations. these We affirm. allegations The dismissed form portion of Count 67 of the indictment. count alleges early brought Chairman to Pirro’s attention the availability building of a commercial office Croton, Properties York. pur- New $950,000 chased the building for and leased Ventures, Valley it to Hudson Inc. Ven- planned tures to use building as a professional building space and lease physicians Hospital.3 affiliated Jacobson, B. Elliott Assistant United While Ventures leased the building, Attorney for Southern District payments made lease payments other Seibel, (Cathy of New York Justin S. Wed- building’s operation related to the to Prop- dle, Weiss, Baruch Assistant United States time, during Properties erties. Also brief), Attorneys, Mary on on the behalf of by PM payments made a series of check to White, Attorney Jo United States for the Messenger, company wholly owned York, appel- District of New Southern by Messenger Pirro. controlled then lant. payable precise made checks Giuffra, Jr., Robert Sullivan & J. Crom- com- Properties amount received from to a (Gustave well, York, H. New- New N.Y. wholly by owned the Chairman. pany man, Greenberg, Newman Schwartz & $135,726.70. In payments These totaled brief), York, NY, for appellee. New July purchased the build- Ventures $1,500,000. After ing Properties from McLAUGHLIN, KATZMANN, Before: Properties closed on the sale of the build- GIBSON,* Judges. Circuit Ventures, ing company wholly another payment by made a check owned GIBSON, Judge: R. JOHN Circuit $156,572.57 in the amount Chair- appeals from an or- United States company. man’s dismissing allega- der of the district court Pir- that the ac- charging alleges tions of an indictment Albert Count 67 Chairman Prop- failing quired “ownership ro with a 45% interest” Proper- interest of the of the Board of at or about the same time Chairman2 erties Valley purchase building. on the in- on the Hospital Hudson Center ties closed * Gibson, appropriate We the title Chair- Hon. John R. of the United States think it use Circuit, sitting Appeals Eighth man as used in the indictment.- Court of for the by designation. Hospital 3. Ventures and the were both owned corporation, parent Westchester- indictment refers to the Chairman with- the same Services, him, Management naming although Inc. out the briefs do so. Pulnam Health

It also alleges that Pirro assisted the found that whether there is a obli- in concealing Chairman his ownership in- gation to include an individual with an terest Properties and his receipt “ownership interest” on the tax return of monies Messenger violation corporation an S is debatable and thus what Pirro believed to be the Chairman’s should not supply predicate for crimi- fiduciary duty duty and of disclosure to the nal liability. The district court further Hospital and its parent corporation. explained lack of clarity in the law

The remaining counts of the should be resolved a defendant’s favor. charge brother, either Pirro both, or his pointed court out that the law relat- with conspiracy to the tax violate laws and ing corporations repeatedly refers to with numerous violations of 26 U.S.C. rejected shareholders and the govern- 7201, §§ 7206(1), 7206(2). They and al- argument ment’s that “de facto sharehold- lege, among things, other that Pirro’s vari- er” or “ownership interest” congruent ous paid businesses personal his ex- with “shareholder.” The court concluded penses and that the tax returns for these that the had not shown that companies disguised expenditures as Pirro was report business expenses. Chair- Pirro’s alleg- brother edly man’s preparation Properties assisted interest in of un- the false returns. der the provisions relevant of Subchapter S.

The crime alleged in 67 is that .Count

Pirro willfully and knowingly made and subscribed a false 1992 tax return for I. Properties in of violation section Pirro’s motion to dismiss As a threshold challenged only issue we must consider (2) subpart of paragraph 66 in 67,4 Count whether we jurisdiction have over the ap claiming that it failed state an offense. peal of an order dismissing portion of a (2) Subpart alleged that Pirro: count. States, Sanabria v. United failed report 54, thereon the hospital U.S. 69 n. 98 S.Ct. 57 L.Ed.2d Chairman’s ownership interest [Prop- (1978), Supreme Court stated that erties], misstated thereon ALBERT J. there is no statutory barrier to such an PIRRO, JR.’s ownership interest in appeal. Statutory authority permits a [Properties], and failed to reflect there- government appeal from an order of a on all payments [Properties] had district court dismissing any one or more made, through [Messenger], to the hos- counts of an indictment. See 18 U.S.C. pital wholly Chairman’s owned company. (1994). § 3731 Tom, States (2d Cir.1986), district court pointed held that we Pirro’s mo- tion was out that our properly it, circuit interprets before as- the failure authori of ty an to allow indictment to charge appeal of a offense can dismissal of an allegation addressed at any time. could provided court stat- a dis ed that an indictment crete may be basis for a dismissed conviction. We reviewed where government’s theory portions dismissals of liability of counts in United is legally insufficient and that Margiotta, the exis- 646 F.2d 729 tence of a known duty 1981), owed by a and Alberti, United States v. taxpayer question is a law. Cir.1977).5 The court F.2d 617 (1) Subpart alleged disguised per- that Pirro 5. A number of decisions from other circuits expenses sonal expenses as agree business and de- that a portion dismissal of a of a count See, ducted appealable. rental expenses e.g., real estate that he United States v. Serafi ni, knew (3d Cir.1999); legitimate were not 814-16 on the 1992 tax Bloom, United States v. Properties. return for F.3d 652-54 (7th Cir.1998); Oakar, (D.C.Cir.1997). 149-150 (1)

Here, dismissed that the made the district court defendant or caused made, (2) to be a federal income tax return 56. Pirro’s only subpart paragraph year question for the which he veri- in alleged failure to (2) true; (and fied to be that the tax return the other terest of the Chairman (3) matter; was false to a material (2), note allegations subpart related see signed the defendant the return infra) completely different false; willfully knowing it was other crimes counts (4) that the return contained a written allegations subpart indictment and the declaration that it was made under the Subpart provides of Count 67. A penalty perjury. false statement is Accordingly, discrete basis for conviction. potential “material” when it “the has rulings Margioita it falls within the hindering the IRS’s efforts to monitor allegations of these Alberti. The dismissal verify and liability” corpo- the tax appealable. is thus ration and taxpayer. the Peters, 445, United States v. 153 F.3d II. (7th (citations Cir.1998) omitted), cert. de portion Pirro contends that the nied, 525 U.S. 119 S.Ct. challenges allege he fails to a indictment (1999); L.Ed.2d 663 see United States v. only that the Hos- crime because states (9th Scholl, Cir.), 979-80 , —U.S. pital “ownership had an inter- Chairman —, cert. 120 S.Ct. denied in which not neces- Properties, est” does (1999). 145 L.Ed.2d 149 sarily mean that he a shareholder. alleged false in statement the The argues only Pirro those deemed that, challenged portion of 67 is in Count reported have to “shareholders” be filing Properties, the 1992 tax return for shareholders, and that failure to name.a report Pirro “failed to thereon hospital the in a tax non-shareholder return is not a in ownership [Proper Chairman’s interest falsehood. ties].” The alleges Pirro filed The indictment this case (U.S. Form 1120-S Income Tax Return for 7206(1), a violation of 26 U.S.C. Properties an S for without corporation) makes it a to crime K-l including a Schedule for the Chair- willfully any [make subscribe] and re- K-l, man. Schedule which is attached to turn, statement, or other document 1120-S, Form is entitled “Shareholder’s which contains or is verified a written Income, Credits, Deductions, Share declaration that it is made under the requires the etc.” and shareholder’s identi- penalties perjury, and which [the number, fying shareholder’s name and ad- does not to true and maker] believe be dress, percentage and shareholder’s every correct as material matter. ownership year. stock for the 7206(1) Thus, the elements of a section two K-l that were at- executed Schedules to the tax return for Proper- violation are: tached (2) actually govern subpart appeal, Count contains Chairman's interest. On allegations: report argues three that Pirro “failed to ment in a footnote that failure to dis Properties hospital payments [on the Form close the to the Chairman is “an 1120-S] liability.” ownership [Proper- entirely discrete basis for criminal Chairman’s ties], PIRRO, misstated thereon ALBERT J. This one-sentence footnote is insufficient to [Properties], preserve appeal. JR.’s interest in and the issue for See Concourse Ctr., DeBuono, payments Nursing & Inc. v. failed to reflect thereon all of the Rehab. made, 1999); through [Messenger] [Properties] had Cir. 1993) hospital wholly Restrepo, Chairman's owned (“We company.” argument court did not consid- do not consider an mentioned district only adequately allegations separately latter a footnote to be raised or er these two review.”). allegation failing preserved appellate about to disclose the for as a alleged “ownership ties. One identified him shareholder Pirro to declare the stock, argues interest” the Chairman.7 Pirro owning other 90% of legal obligation requir- that there was no as a identified Paul J. Monsell shareholder ing corporations as sharehold- owning requires The tax code 10%. unspeci- tax returns ers their holders corporation the return of an S include “the “ownership fied interests.” The district persons owning names and of all addresses perusal that a code court held corporation ... stock [and] regulations compel did not the conclusion of shares of stock owned each number shareholder_” “ownership congruent interest” 6037(a) court fur- “shareholder.” district 1987). shareholder, (Supp. Y Other than nothing ther stated there was any no kind other interests indictment, responses to request par- required are be listed on the Schedule ticulars, government’s response K-l, and Pirro did not to list purport alleging motion dismiss other interests. Chairman ever elected become share- applicable regulations, statutes and Properties. Accordingly, holder of as well as the forms' filed court held that Pirro could not be said to thereunder, refer shareholders duty imposed have violated known relating corpora- stock. The statutes to S regulations code in failing tax and specifically tions refer on occa- numerous “ownership to reflect the Chairman’s inter- to to holding sions shareholders and stock est” 1992return. See, corporation. e.g., 26 U.S.C. Indeed, government has conceded 1361(b)(1) (1982) (S § corporation cannot regulation that there no' statute or shareholders,” “have more than 35 “have specifically corporations that that stated S person as a a ... is shareholder who not required report “ownership were to inter- individual,” an “have a nonresident alien returns, on their corporate ests” tax' nor shareholder,” a or “have more than 1 class has it provided Supreme Second Circuit or stock”); 1362(a)(2) (1982) § of 26 U.S.C. authority Court that so states. (entitled “All shareholders must consent (enti- election”); § 1366 This court has held United States v. shareholders”); tled of (2d Cir.1991): “Pass-thru items to Regan, 937 F.2d 823 (see previ- U.S.C. discussion in One of of most esoteric areas addition, paragraph). ous the relevant law is that of federal It taxation. only regulation refers to stock and share- intricacies”, replete with “full-grown 1.6037-l(a) holders. C.F.R. it is that a “simple, rare direct statement (1992) (tax corporation return for shall S of the law can be made without caveat.” “[t]he include names and of all addresses 1 Mertens Law Federal Income Tax of persons owning stock in the corporation” guilt 1.01.... [P]roóf such along “[t]he number shares predicated upon cases must be a volun- n shareholder”). owned each stock Final- tary, intentional violation of known ly, the K-l allega- Schedule on which the legal duty. tions are based refers shareholder (citations at Id. internal quotations ownership. and stock omitted); Bok, see also United v. States (2d Cir.1998) (“[W]illful 156 F.3d

A. requires ness under the tax laws a volun government tary, and Pirro battle intentional violation of a known legal (citation over whether legal duty duty.”) there is a known quotations and internal statutes, Judge judgment regulations, Katzmann concurs in cause were no opinion, based on of this Section II.A dispositive stating corpora- case law S Subchapter corporations had no known le- report tions were such interests. gal duty report “ownership be- interests” omitted). proof requires voluntary intentional these cases refer violation While trial, application-as duty, duty a known “the principle has involved must be indictment, criminal lia- to an where knowable.” Id. well underlying turns on an bility perjury government contends numer . tax law. violation of ous civil cases establish that beneficial or law Pirro no notice provided The tax de facto pur controls for tax inter- “ownership that failure to poses, citing v. Corp. Cabintaxi Commis v. est” was criminal. United States sioner, (7th Cir.1995), 63 F.3d 614 Wilson (7th Harris, Cir.1991), 942 F.2d (5th Commissioner, 560 F.2d 687 Circuit held that indict- Seventh 1977), Commissioner, Kean v. where “current ment must be dismissed (9th Cir.1972), v. Com Hoffman payments the tax law on treatment missioner, 47 T.C. 1966 WL 1116 warning Harris no fair provided mistresses (1966). It significant the indict criminal,” that her conduct was and be- ment the Chairman had an tax law points may cause “new not be interest, obviously a term that of criminal convictions.” The basis includes interests that would have discussing court referred to a civil case duty report, allege had no not did gifts, distinction between income and and that he awas beneficial owner or a de . stated: facto shareholder prosecutions are a different [C]riminal also relies on United story. on a violation These must rest Biaggi, 680-81 If a clear rule of law.... “defendants Cir.1990), and Ingredient ... could have ascer- [in case] Technology Corp., 698 F.2d 94-95 applicable tained the standards Cir.1983), to establish that Pirro violated conduct, proceedings may their criminal reporting the law not the Chairman’s punish not be used to define and an cases, Properties. interest in Both howev- alleged failure to conform to those stan- er, distinguishable are as neither ad- Mallas, dards.” United States v. 762 duty dressed the of a defendant to (4th Cir.1985). 361, F.2d 361 alleged ownership another’s interest in an Id. corporation. Mallas, Similarly in Fourth Circuit We conclude indictment does reversed the defendants’ convictions for charge legal not a violation of a known tax evasion that arose out of a tax shelter duty. program they rested an un- because “on theory of law.” substantiated tax B. at 363. The court stated: settled,” “It court is observed argues Pirro also the indictment analogous criminal case of United allege fails to the essential facts constitut- Critzer, States v. “that where the law is ing the A criminal defen- charged. offense debatable, vague highly or a defen- dant to an indictment is entitled actually imputedly or dant — —lacks charge states the essential elements of the requisite to violate it.” F.2d intent 498 States, against him. See Jones United (4th Cir.1974). 1160, 1162 Criminal 227, 232, 1215, 526 119 143 U.S. S.Ct. prosecution for the violation of an un- (1999); Hamling L.Ed.2d 311 v. United duty clear itself violates the clear consti- 2887, States, 87, 117, 41 418 U.S. 94 S.Ct. duty tutional to warn (“[A]n L.Ed.2d 590 is particular citizens whether conduct is it, first, sufficient if contains the elements illegal. or charged fairly the offense informs charge against Id. willful conduct criminal which he Because defendant of defend, and, second, him to under section 7206 and because willfulness must enables 92

plead acquittal or conviction bar To prosecutor, allow the court, or the prosecutions future same of make subsequent guess as to what was fense.”); Fed.R.Crim.P.7(c). An indict in the minds of the grand jury at the ment that allege fails to the essential ele they time returned the indictment would ments of the charged crime offends both deprive the defendant of a protec- basic the Fifth and Sixth Amendments. See tion which the guaranty of the interven- States, Russell v. United 749, 369 U.S. grand tion of a jury designed 760-61, 82 S.Ct. 8 L.Ed.2d 240 secure. For a defendant could then be (1962). convicted on the basis of not found facts by, perhaps to, not even presented The Fifth guarantees Amendment grand jury which indicted him. person “No shall be held to answer for a at U.S. capital, S.Ct. crime, otherwise infamous un presentment less on a or indictment of a The Sixth Amendment guaranty of the Jury....” Grand If the indictment does right defendant’s “to be informed of the not state the essential elements of the nature and cause of the accusation” crime, the defendant cannot be assured against him is also offended indict- that he is being tried on the evidence ment that does not state the essential ele- presented to grand jury, Russell, see Russell, ments of the crime. 369 U.S. at at 1038; U.S. 82 S.Ct. 1038; Walsh, S.Ct. see also Walsh, States v. F.3d Cir. F.3d at 44. 1999), or that grand jury proper acted requirement Because the of a sufficient ly in indicting Russell, See him. 369 U.S. indictment serves these important pur 768-69, (An 82 S.Ct. 1038 important poses, the indictment must be considered corollary purpose requirement that in as it actually-drawn, it might dictment state elements of offense is to have been drawn. See Sanabria v. United allow court to evaluate whether facts al States, 54, 65-66, 437 U.S. 98 S.Ct. leged conviction.) could support gen (“The 57 L.Ed.2d 43 precise manner erally United States v. Wydermyer, 51 in which an indictment is cannot drawn (2d Cir.1995) (pleading re ”). ignored.... sufficiency of the in quirement at common law was “security dictment is matter of law re against the arbitrary multiplication of of viewed de novo. See United States v. Ve fenses”); 2 Wayne R. LaFave and Jerold lastegui, 590, (2d 199 F.3d Cir.1999). Israel, H. Criminal Procedure 19.2 at timing of the defendant’s objection is 436, (1984) (“[T]he 448-49 requirement important to the level of scrutiny em that the offense ... be stated specifying in ployed; a objects defendant who to the detail each crime, element of the was seen trial, before done, indictment as Pirro has as providing assurance both that grand the to a entitled more exacting review the jury understood what necessary indictment than one who waits until after an establish offense and that the courts did object. trial to See United States v. Good engage not in unanticipated extensions of win, (2d 394, 141 F.3d Cir.1997); Wy offense.”). the substance of the “The In dermyer, 51 F.3d at 324-25. dictment Clause of the Fifth Amendment requires that an indictment contain some Under modern pleading rules, “we have (cid:127) amount of factual particularity to consistently ensure upheld that ‘do indictments prosecution the will not fill in ele little more than to track the language of ments of its case with facts ‘other the than statute charged and state the time and those by considered (in the grand jury.” place terms) approximate alleged the ” Walsh, (internal 194 F.3d 44at quotations Walsh, crime.’ 194 F.3d at 44 (quoting omitted). As the Supreme Court stated in Tramunti, Russell: (2d Cir.1975)). Supreme Court, 484, 488 v. Foley, States a limitation on however, recognized has 1996), grounds, other United abrogated on so that practice, this 92-93 Santopietro, offence, States an the definition “where Cir.1999). sum, for an indictment common law at whether be terms, notifying the de it is not fulfill the functions of statute, generic includes indictment shall him and of charges against the sufficient fendant generic in the same matters assuring the offence that he is tried on the charge definition; it must but as in the jury, terms indict grand considered must descend species, state enough specific some fact must state ment —it v. Cruik States United particulars.” act, particular criminal rather describe a shank, L.Ed. 588 92 U.S. type a of crime. than language “Undoubtedly, the [1875].... sufficiently al- The indictment failed gener may be used of the statute of a section the second element lege offense, it must but description of al 7206(1) violation, namely a material false- a statement accompanied such be amounted to a or an omission that hood in as will facts and circumstances case, the alle- falsehood. material offense, specific form the accused of the something that Pirro omitted gation is description, general coming under An omission cannot a tax return. .charged.” he with which n statement, which is an to a false amount Hess, U.S. 7206(1)viola- of a essential element section L.Ed. 516 [1888]. tion, fact background without the crucial Russell, 1038. 82 S.Ct. 369 U.S. duty rise to to disclose gives instance, in the defendants For Russell Only omitted. the omission that was fact refusing to answer charged with were constitutes reported of facts subject under pertinent question The indictment material falsehood. congressional subcommit- inquiry before made the omis- allege what therefore must tee, say what did not the indictments sion this case criminal. subject inquiry was. The indict- under the defendants neither notified ments purports And indeed the them, nor charges against gist the return identify respect allowed the court ascertain incorrect; the is that the problem filed was 767-69, Id. at charges legally were valid. might allegation might or government’s Court there- Supreme 1038. The 82 S.Ct. incorrect, and in vio- make the return on the based reversed convictions fore It of section lation Id. at 82 S.Ct. indictment. defective interest” “ownership had an the Chairman the same where principle, Under fact, “ownership in- when Properties depends charges a crime that “share category than is a broader terest” statute, the turn on violation another seemingly ownership.” government The underlying identify the must is not “ownership interest” that admits 452; LaFave, at supra, offense. using, in its briefs by persisting in specific Practice Wright, Federal Alan Charles or the terms beneficial argument, at- and § 124 at 549 Criminal 3d Procedure: and opposed ownership of shares facto de (1999). “one element Similarly, when “ownership inter- term indictment’s the statute, rather in the implicit offense is the omitting a Schedule The most est.” the tracks and the indictment explicit, than imply is that be said to could K-l allege and fails to of the statute language Properties shareholders no other were the indict- explicitly, element implicit the This would be and Pirro Monsell. besides allege an offense.” United fails ment allega- company. is no wholly-owned There paragraphs and 53 The indictment 8. however, tion, payments cre- these as to how Properties Mes- payments from alleges the ownership interest. ate an to the Chairman’s senger Messenger and from a misstatement if in fact there other were and line reference of a Schedule K-l However, shareholders. the indictment it- where such interest should been so self does allege not that the Chairman reflected; (b) was statute, the regulation, shareholder, in those words any other or other authority tax requiring the disclo- legally equivalent. words Instead, it re- sure such aon Schedule fers to the Chairman as having an “owner- K-l.” government The chose not specify ship interest” Properties. the nature of the Chairman’s alleged inter- est, but instead answered the Here, request first allegation the is that the “owner- by saying that if the ship information could not interest” of the Chairman was not gleaned indictment, the reported. discovery “Ownership interest” is a ge- materials, particulars and the already neric term pro- that does not to partic- descend vided, it was “not Russell, properly subject ulars. the of a U.S. at Cf. particulars.” bill S.Ct. In response 1038. government Pirro’s strongly ar- request K-l, gues regarding the the govern- the Chairman was a de facto ment shareholder, stated that “a held a Schedule K-l beneficial should interest or have been nominee, Pirro filled out in its entirety but for the indict- hospital ment did not Chairman” use those particular and that authority terms. requiring the disclosure was proper not a government’s use the term subject of a bill particulars. “ownership interest” rather than “stock Thereafter, Pirro filed a ownership” motion to inadvertent, was not strike since the allegations government they because did not state chose respond mean- violation of ingfully section to Pirro’s request defending for a more against specific strike, motion description. govern- Following up to his ment request argued a bill of “beneficial” particulars, or “de facto” Pirro specifically requested controls purposes the govern- rather ment: than defending the actual words used in the indictment. In briefing the

Identify case be- the nature of the “ownership court, fore this government interest” referred to allegedly acquired by the hos- Pirro aas “nominee” for the pital first time.9 Chairman in It [Properties], including (a) is also evident that the government the date such an has interest was ac- (b) made use of quired, “shareholder” any and “share paid by consideration ownership” not hospital acquire Chairman to statement of this inter- issues, est, (c) substantially throughout documents evidencing Russell, brief. hospital Chairman’s U.S. at ownership of such Cf. (“At interest, (d) S.Ct. 1038 statute, every stage regula- ensuing tion or criminal proceeding other authority [the supporting defendant] met with a allegation that the different hospital theory, byor Chairman no ac- theo- quired all, ry “ownership as to interest” in what the topic [Prop- [under been.”). inquiry] erties]. had In light of government’s statement argues that the court that the Chairman’s interest should have should infer “shareholder interest” from been disclosed on a K-l, Schedule the more general term “ownership inter- requested also (a) it to “identify page est.” argument This rejected. This In contrast to Subchapter S’s focus on 6031(b) the return. 26 U.S.C. (Supp. V shareholders, the regarding tax law partner- 1987). Further, the nominee give must the ships refers to “nominees” partnership of in- partnership the name and per- address of the partnership terests. A required that is to file son for whom he or she holds the interest and a tax return person must furnish "each who is give person the regarding information partner a or who holds an interest such in the partnership’s return. See 26 U.S.C. partnership as a person” nominee for another 6031(c) 1987). (Supp. V copy with a of the information

95 reasons, jury may grand the same For the the same with an indictment faced court Berlin, of the the elements v. not understood in United kind of defect Cir.1973). There, (2d necessary sup- to the evidence 1008 crime and F.2d 472 aiding charged indictment, required by the as port the defendant submitting false docu- abetting another Fifth Amendment. An essential and loan. savings to a

ments judgment the district of affirm We of the knowledge crime was of the element paragraph of dismissing subpart court documents, was no falsity of the of the indictment. 56 Count 67 only that the de- knowledge, allegation the other and caused” fendant “counseled McLAUGHLIN, Judge, Circuit gov- the documents. to person submit dissenting: that the indictment argued ernment view, my I dissent. respectfully “counseled and because enough good only is not constitu- in this case thing same meant about the caused” sufficient, of a alleges violation tionally court re- at 1007. This Id knowledge. required by more is legal duty. No argument: known government’s jected the agreé. cannot argument we With this another and cause can counsel

One one later utter a statement FACTS THE Therefore, Berlin's untrue. to be learns factual recounting in full the by I begin he falsity at time knowledge sup government theory offered is not be made caused the statements (which the allegations the stricken port of allegation from the necessarily implied Boyle Allega “the refer to as parties caused” the “eounseléd and that he tions”). pur emphasis It bears to be made. statements facts “the appeal, of this poses the convic- We reversed at 1007-08: Id. taken as true.” government must indictment. inadequate based on tion Velastegui, 199 F.3d United States States v. Mor- at 1010. Accord Id. Cir.1999) (citing United States n. 2 Cir.1976) (9th rison, F.2d 76, 78 Rosengarten, 857 “converted” that defendant (allegation 1988)). theft, allege not sufficient property that from alleges may not involve may or government conversion since the chairman intent). Boyle was Robert (“HVHC”), Valley Hospital Center Hudson the omission of alleges The indictment Peekskill, hospital community a small have been re- might fact that a director was also York. He New this, alerted to report. When quired Westchester- corporation, parent HVHC’s advantage of failed take Services, Inc. Health Management Putnam to make particulars for bill of request CWPHMS”). 1991, Boyle called early “ownership interest” term general building office commercial an abandoned sufficient.10 legally specific more offices) Croton, (suitable for doctors’ paragraph subpart Count of defendant to the attention New York aof element the essential failed to state According to Albert Pirro. attorney Accordingly, misrepresentation. material Boyle then hatched Pirro and government, informed adequately Pirro was not abandoned to use the him, a scheme as is against Croton accusation nature of the they through vehicle as a building the Sixth Amendment. right his under Pir- ment."). government had notice particu suggest a bill 10. This is not challenged portion of the objection an otherwise defective ro’s have saved lars could not, Russell, have, indictment, file a but did U.S. and could indictment. ("[I]t that a bill a settled rule superseding S.Ct. indictment. ean invalid indict- particulars cannot sav exploit Boyle’s could status as a director Agreement 1991. This new Shareholders’ misappropriate money and chairman to Pirro, lists Boyle Messrs. and Monsell as from WPHMS and its subsidiaries. Pirro shareholders, DPC’s and declares that buy building, would the office and then shares, Monsell would own 10% of DPC’s Boyle’s help with would it a lease to sub- Boyle and that Pirro and would own each sidiary of WPHMS. would then WPHMS includes, however, Agreement 45%. The a renovation, pay building’s for the and the precedent” Boyle “condition requiring pair ultimately would it sell for a substan- obtain a written resolution of the Board profit. tial government’s Under the theo- consenting WPHMS Directors to his ry, Boyle agreed Pirro and to share their acquisition of the DPC shares. The profits from this scheme on a 50-50 basis. Agreement signed by and executed step plan, As the first up Pirro set Boyle as well as Pirro and Monsell. Croton, Properties Distinctive Inc. record, On undeveloped this the purpose (“DPC”) an Corporation. as orig- DPC’s of these two documents remains obscure. inal Agreement Shareholders’ lists Pirro Perhaps Boyle Pirro and actually thought owner, 90% as its with the being other 10% point one that WPHMS would consent partner, owned his law Paul Monsell. Boyle’s acquiring an ownership interest February about two-and-a half in DPC. perhaps pair Or never intend- months bought before DPC even the Cro- ed to the requisite seek consent from building, ton building DPC leased all, instead, WPHMS at govern- as the Ventures, Valley (“HW”), Hudson Inc. contends, ment created these documents subsidiary up by Boyle’s set employer as a sham cloak arrangement mere their WPHMS. legitimacy. some semblance of Whatev- pair figure The had to way pay out a case, er the undisputed that when Boyle calling without to the fleec- attention purchased DPC building Croton he was ing giving his employers. Two $950,000 19, 1991, April Boyle did not documents mystery record add some putative option exercise his formally $10 arrangements. purchase a 45% agreement The first is an April dated DPC. 1991, in granted which DPC to one of Boyle’s wholly owned companies It is clear that Boyle also never publicly —West- Concrete, Inc.—an option chester to ac- signed on as a shareholder of record quire 45% of DPC’s shares for $10. however, DPC. The alleges, Westchester Concrete was no company that, despite trail, the lack of a paper than cat’s-paw Boyle: more the $10 Boyle in fact became the beneficial owner option would long exist as Boyle shares, Pirro, 45% of DPC’s and that owned 100% of Westchester Concrete. acting nominee, as his straw man distribut- addition, agreement proclaimed that corporation’s ed the profits accordingly. granted option DPC because “ROB- For example, from 1991 to DPC BOYLE, ERT on behalf of Westchester payments received rental from HW for Concrete, Inc. did find and otherwise orga- the lease of the building. Croton During nize overall transaction including the leasehold, period entire as these lease Community Hospital Peekskill HW, payments came in from DPC made a various entities.” agreement payments series of to another of Pirro’s provided Boyle had to exercise the (“PMM”). companies, Messenger, PM Inc. option days within 30 purchase of DPC’s payments PMM then made precisely the Croton office building, otherwise the Inc., Rogene Industries, same amounts option expire. would company wholly by Boyle. owned

The second document ais revised total Boyle DPC amount funneled to in Agreement” $135,726.70. “Shareholders’ dated March fashion was Then in statements, my of and to the best and out- ules building DPC sold days after two correct, true, million, belief, it HW, knowledge and tenant, for $1.5 right Corpora- AJP An officer companies, complete.” Pirro’s of and another yet Inc., Rogeiie paid sign the form. Group, tion must Management alleges that $156,572.57. The signed Pirro company president, As by DPC funneled payments total year. the 1992 for Form 1120-S DPC’s of exactly 45% to almost Boyle amounted Boyle’s 45% Notwithstanding purchase, from the derived the monies he, if interest, as out the return Pirro filled renovation, sale of Croton leasing and K- Pirro, DPC. No Schedule 90% of owned building. fine 20 Boyle. And on for was attached file DPC’s Pirro had early calls for which Schedule K-l Pirro’s of year. statute the 1992 return for owner- of stock percentage “Shareholder’s return for file a tax Pirro to requiring “90%”. Pirro entered year,” for tax ship Corporation Subchapter DPC as financial also set DPC’s return forth 6037(a). is) That § (and U.S.C. still to such In addition for results part: in pertinent provides statute assets, DPC’s things depreciation as a re- make Corporation shall Every S real estate income from activities net stating spe- year, for turn each taxable Pirro’s Schedule Correspondingly, listed. addresses the names and cifically ... of DPC’s forth his 90% share also set K-l corpora- owning stock persons all activities, as real estate income from net year, during the taxable any time tion expense income net gross as the well of stock owned of shares the number used to share. figures calculate during at all times each shareholder vio- charges Pirro The indictment with money year, the amount [and] taxable 7206(1), § makes which lating 26 U.S.C. by the distributed property and other [to][w]illfully ... “any person for felony year to during the taxable corporation ... subseribe[ ] return make[ ] each shareholder.... true and to be he does not believe 6037(a). § every material matter.” as to correct 6037(a), Corpora- San comply To charge actually, three Boyle Allegations tax return file its income tion must liability under criminal bases for discrete Income Tax “U.S. 1120-S entitled Form 7206(1): Among Corporation.” for an S Return . First, .- . . . 1120-S to Form obligatory attachments allege “failed they in- calling for such are various schedules return, Boyle’s] owner- DPC’s [on in- net Corporation’s as the S formation DPC.” ship interest in addition, come, losses. expenses and Second, . Form to its must attach Corporation the S [his own] thereon Pirro “misstated sharehold- K-l each 1120-S a Schedule in DPC.” ownership interest Shares the “Shareholders’ setting forth er Third, . Deductions, Credits, Etc.” On Income, all to reflect thereon Pirro “failed is the IRS’s Form 1120-S page first made, through had DPC payments penalties warning: “Under standard compa- PMM, wholly owned [Boyle’s] I examined I declare perjury, ny.”1 return, accompanying sched- including misstated, activities) they simply because are Allegation to have Boyle appears third 1. This Boyle DPC made payments omit whether Pirro’s conceal- nothing to do with such, charge the third through PMM. As in DPC Boyle’s ment criminal lia Instead, pleads independent basis charge an See, third constitutes crime. Bok, e.g., States v. bility. allege that various can be read 7206(1) Cir.1998) (affirming DPC's 1992 set forth on financial numbers receipts). I understating gross conviction for (such estate real net income from return DISCUSSION facts specific Boyle’s that led to acqui- of “a sition 45% interest” I. Perceived Constitutional Flaws (2) DPC; and notifies Pirro that con- this Judge Gibson homes in on the indict- duct allegedly violated ment’s “ownership use of the term inter- reading, Under man-in-the-street est” to describe beneficial share owner- language “45% ownership interest” is ship. He that the concludes indictment is sufficiently specific apprise Pirro that because, constitutionally by employ- flawed being charged he is with a violation of ing “ownership the term interest” it failed 7206(1) based on the concealment of (1) put to: Pirro on notice charged Boyle’s Indeed, 45% DPC. required by crime as the Sixth Amend- implicitly defendant that he concedes ment; give grand jury had sufficient notice of the crime charged understanding of what necessary him prepare allow a defense. His establish the elements of that crime as brief on appeal this advances no real com- required by the Fifth Amendment. See plaint that deprived he was of constitution- I disagree ante with both conclu- al notice. And his Rule 12 mo- sions. successful tion in the argue district court did not notice, A. Sixth dismissal on Clarity Amendment: based failure of rather weightier objection Indictment on the legal duty there is no to fill out a Schedule A unquestionably defendant enjoys the K-l for person who enjoys only “quasi- right to “be informed of the nature and shareholder Finally, status.” the district cause of the against accusation” him. U.S. court did not even base its dismissal on Const, amend. VI. All necessary that is Instead, failure of notice. Judge Gibson satisfy this constitutional mandate is that concedes, the district court dismissed the the indictment “inform[ ] the defendant of Boyle Allegations because concluded charged offense with clarity sufficient that a obligation to include an indi- so that he will not be prepar misled while vidual with an ownership interest on an S ing his defense.” Brozy States Corporation’s tax return is “debatable.” na, (2d Cir.1978) (inter 571 F.2d Ante at 88. quotation omitted); nal marks see United (2d Alfonso, States v. 143 F.3d circumstances, In these Russell v. Unit Cir.1998) (same). The Sixth Amendment’s States, ed 369 U.S. 82 S.Ct. protection notice implemented is by (1962), L.Ed.2d totally unhelpful to 7(c)(1) requirement of Rule that an indict Pirro. The Russell court did indeed hold plain, ment contain “a concise definite that an indictment which “failed to suffi written statement of the essential facts ciently apprise the defendant [of the crime constituting the charged.” offense Fed. charged]” inadequate. See 369 U.S. at 7(c); R.Crim. Pro. see United 764, 82 S.Ct. 1038. But the Court did so Walsh, Cir.1999). 194 F.3d unique circumstances which have been dis Here, the indictment satisfies tinguished these re- numerous times this and quirements. sure, To be courts, see, Walsh, indictment other e.g., 194 F.3d at does 45; not use the label “beneficial share- McClean, nor, holder” Boyle, to describe Cir.1976); for that United States v. matter, Paulino, use the (6th term “nominee” to de- 750 n. 4 Nevertheless, 1991) scribe Pirro. the indict- cases), (collecting and which bear ment: describes in detail the evolution relationship little to the issues confronting scheme, Boyle’s Pirro’s and including today. us Gibson, however, agree Judge appeal. Accordingly, See ante at 88 n. 5. I preserve join has failed to Judge this issue opinion. footnote 5 of Gibson’s beyond (c) specificity a level demands indict Russell, condemned the Court requires. Constitution what the ques to answer alleged refusal ments House Committee by the posed tions Grand B. refusal, Fifth-Amendment: This Activities. Un-American ' Jury Issue violated charged, Fifth made it misdemeanor clause of the jury grand pertinent any question similarly irrelevant to to answer Amendment “refuse[ ] prosecution The Court inquiry.” prohibits That clause appeal. under question the to grand not be to the presented could not charges defendants that the held Walsh, 44. All that F.3d at questions the jury. § See 192 “unless under guilty is that the satisfy the clause to perti in fact were to answer [they] refused of factu amount contain “some [congression indictment under specific topic nent to a prosecu that the to 768, particularity al ensure 82 S.Ct. at 369 U.S. inquiry.” al] of its case with fill in elements tion will not however, indictment the Crucially, 1038. by the those considered facts other than matter subject the even specify to failed omitted). (citations jury.” Id. grand Thus, inquiry. the congressional under defendants; with the trial faced Russell it was See 194 Although this long ago Circuit aban- 44; F.3d Alfonso, 776; at 143 F.3d at rigidity doned “technical in reviewing in- Stavroulakis, dictments,” F.2d at 952 Wydermyer, United States v. (2d 319, Cir.1995), 51 F.3d 324 Judge Gib- sum, my colleagues both legiti- may son also seeks to his Fifth support Amend- mately question whether Pirro’s failure to theory by ment engrafting an additional mention in Boyle’s DPC’s return real layer complexity onto our indictment ownership of DPC constitutes a crime. jurisprudence. He concludes that the in- This question is a fair that turns on wheth- dictment was defective because it fails to er legal Pirro had a duty known to disclose explicitly specify legal duty the Boyle’s beneficial shareholding in DPC. made Pirro’s lies Boyle about a crime un- question of whether there is known 7206(1). § der See ante at 92-93. Such legal however, duty, is one of law for the specificity required, Judge Gibson court, not the grand jury, to resolve. See maintains, because the “principle” that United Ingredient States v. Technology “where indictment charges a crime that (2d 88, Cir.1983). Corp., 698 F.2d 97 depends turn on violation of another Whatever the answer question, to that statute, the must identify the 7206(1) there § can be no doubt that the

underlying offense.” Id. charge itself fairly presented to the This has never been the law in this grand jury. contrary, Circuit. To the “we have consis- tently upheld indictments ‘do little II. Is It a Crime? than more to track language charged statute and state the time and turn, last, I regard to what I as the (in terms) place approximate colorable issue- this case. ” Walsh, crime.’ 194 F.3d at 44 (quoting Boyle Allegations purport charge a vio- Tramunti, United States v. 513 F.2d lation of That requires statute (2d Cir.1975)); 1113 see United States v. government prove defen- Alfonso, Cir.1998); 143 F.3d 776 dant “willfully” acted filing materially Stavroulakis, false tax Relying returns. on the due (2d Cir.1992). 693 clause, process Supreme “the Court has requirements These were more than made sat- clear order to avoid snaring Indeed, isfied Pirro’s indictment. people in tangled this net of the tax code is not Berlin, a case like United States solely v. due to incompetence, their willful- (2d Cir.1973) 1006 in which ness under the tax requires laws volun- ‘a actually omitted a requi- tary, violation legal intentional of a known ” site element of the charged Bok, duty.’ offense from States v. United F.3d 156 presented Cir.1998) the indictment grand 165 (quoting v. Cheek

101 26 C.F.R. election.” 200-01, to that 111 consent States, U.S. 498 . 1.1362-6(a)(2).3 (1991)) L.Ed.2d S.Ct. must file Corporation S Every year, an standards, heightened these Applying return, inter reporting, informational is a case by this presented question etc. alia, income deductiorts gross was a namely, whether close one— 6037(a). are the who Those See Boyle to reflect in 1992 duty known corpora of income beneficiaries on shares owner DPC’s as a beneficial income on that pay then taxes must tion Subchapter S. the tax returns 1366(c), basis, see 26 U.S.C. personal view, my is no. colleagues’ answer My is actual whether income regardless of yes. should be question answer id.; v. Commis Hume ly distributed. (CCH) 290, (1988), sioner, 56 T.C.M. Corporations A. S . (9th Cir.1990); see aff'd Revenue Internal Subchapter Commissioner, 62 T.C.M. also Knott encourage enacted (1991). Code was that undistrib (CCH) The fact corporate adopt explains small businesses taxed may uted income Commissioner, 506 form. See consent initial unanimous requiring rule Bufferd 927, 122 L.Ed.2d 523, 525, 113 S.Ct. en That U.S. election. rule Corporation an S (1993). accomplishes The statute the beneficial person no who sures system pass-through aof by means goal undistrib Corporation’s an S recipient of losses, income, de corporate report under which that forced to will be income uted to are attributed ductions, credits and v. Com involuntarily. See Kean income akin in a manner (9th shareholders missioner, individual The partnerships. treatment the tax 1972). Corporation.is advantage of an S tax Status Legal B. corporate taxation of Beneficial the double it avoids Shareholders ordinary shareholders to which earnings 26 U.S.C. subject. See are corporations axiom, applicable It a fundamental applicable the law Under context, §§ 1366-1368. that tax con- the criminal even in Corporation, S qualify rather the substance flow from sequences than have no more transaction, must: company and that aof form than the shareholders; only one class than docu- rather property, “control over rights to distribution “identical with stock owner the real marks mentary title” (3) distrib and proceeds;” v. liquidation States United purposes. federal sharehold Cir.1991) (col- losses to its profits (4th its ute Schmidt, F.2d 26 U.S.C. Atkins, See basis. pro on a rata ers cases); States see United lecting 1366(a)(1)(A). 1361(b)(1)(A); (2d Cir.1989); §§ 135, 140 F.2d Technology Corp., Ingredient its decision indicates A business small Cir.1983). My colleagues 88, 95 F.2d com filing a by Corporation an S become inapplicable axiom is suggest C.F.R. See 26 2553. Form IRS pleted their perception It seems to here. 1.1362-6(a)(2). be An initial election § obliged Pirro which is no statute there “only if all is valid Corporation come an S owner a beneficial Boyle as ... on the are shareholders who persons agree. cannot I returns. DPC’s is made consent such election day on which 26 U.S.C. overlooks majority election.” such 6037(a), very statute § “However, a valid elec 1362(a)(2). once in the first return file DPC’s Pirro to need not made, shareholders new tion is Boyle Everyone agrees that 90. ante al reason, is no the cavil that For this initial elec- DPC’s a shareholder became to become that'Boyle allegation "ever elected after tion. point. is beside DPC a shareholder” place. noted, 6037(a) As already impos- been valid initial election has been liti- es reporting obligations respect gated with times, many it has been resolved persons “all owning stock in the corpora- the courts consistently. Every court that tion,” a category it equates “share- has addressed the issue has concluded that 6037(a) holders.” itself, Neither nor the a beneficial shareholder of an S Corpora- accompanying regulations and in- IRS tion’s stock is indeed that Corporation’s structions, even suggest the terms shareholder. “persons owning stock in corporation,” opinion seminal v. Com Hoffman and “shareholders” are somehow confined missioner, 47 T.C. 1966 WL 1116 interests that officially are (1966), on basis tax court opinion, aff'd recorded on corporation’s books. And (5th Cir.1968). 391 F.2d 930 case, In that it is also

while true that these statutes a shareholder in an S Corporation sold her regulation did explicitly state in 1992 stock to the taxpayer but continued to hold those terms include the beneficial (ie., it in escrow she remained the share stock, owners of I fail to see why the record) holder of to ensure payment of the absence of such an explicit definition purchase price. The purchaser-taxpayer should confer a license for the willful con- consented to Subchapter election, cealment alleged here. the former owner and still shareholder of

The prohibition against vagueness in record did not. The Tax Court held that criminal tax proceedings has never been her consent was unnecessary. According read to prohibit prosecutions under stat- court, “beneficial ownership of the utes “which a reviewing court stock, believes as opposed to technical legal title could have been drafted with greater pre- thereto,” is the “critical” factor in deter cision.” Herrera, 584 mining who is a “shareholder.” Applying Cir.1978). “All the this principle, the court then concluded Due Process Clause requires is that that “regardless of who title, had naked give law sufficient warnings that men may the shares were really pur [the owned c conduct themselves so as to avoid that haser-taxpayer] merely were pledged forbidden, which is and thus not lull the as collateral.” so, This was because it was potential defendant into a false of sense the purchaser-taxpayer of the Corporation security, giving him no reason even to who enjoy was to “all the fruits of the suspect that his might conduct enterprise,” within whereas the shareholder of scope.” Ingredient Technology Corp., record “plainly could not have been taxed” 698 F.2d at 97 Herrera, (quoting 584 F.2d on the Corporation’s undistributed earn 1149). Here, Pirro had requisite Id., ings. 47 T.C. at 234. fair warning, not from the text of The cases following are legion. Hoffman § 6037(a), but from law, the case govern- e.g., Commissioner, Cabintaxi v. 63 ing ruling, revenue and applicable regula- 614, (7th F.3d Cir.1995) (individuals 616 tions. who are not record, shareholders of are “The issue of shareholder status in Sub nevertheless “shareholders” for purposes chapter corporations S is not newa one.” of Subchapter if they S are “beneficial Speca v. Commissioner, 554, 630 F.2d 556 owners” applicable under law); state Pahl (7th Cir.1980). As already noted, an initial v. Commissioner, 1124, 1228- election to become Corporation (9th S Cir.1998) is 1129 (lawyer joined who law valid, “only if all persons who are share firm organized as Corporation S with- but holders ... on day on which drew .such without paying for shares prop- election is made consent to such an erly elec treated as shareholder for S Corpora- tion.” 1362(a)(2). Although tion tax purposes and thus required to the issue of who is a “shareholder” for report pro rata share profits of because he purposes of determining whether there has “held a beneficial shareholder’s interest

103 technical than the stock rather ship v. Commission Wilson corporation”); it Accordingly, controlling. title Cir.1977) (“[T]he legal is (5th 687, er, 689 who- is taxpayer held that is who those mean must term 'shareholders’ not but own of record does stockholder elec consequences tax bear of stock a share beneficial beneficial Because . i.. tion is not corporation of a small business other ownership or record stock, mere pro- purposes for the shareholder those who bears indicia, determines formal Code.... S of the Subchapter visions beneficial consequences, tax 70-615, 1970-2 determining Ruling C.B. the standard IRS Revenue provides also Hoffman, Subchapter (relying S 20547 WL consent 1970 must who 1116). Commissioner, Cir 469 1966 WL election.”); 47 Kean v. T.C. (‘“share Cir.1972) (9th “entitled Ruling is cuit, this Revenue 1189 F.2d Subs, & Texasgulf, are not Inc. consent file deference.” great must who holders’ (2d 209, 217 Commissioner, F.3d of record’ 172 necessarily 'shareholders omitted). Indeed, Cir.1999) (citations who of shares owners rather beneficial “ legal pre income force ‘have the gross presumed include have would or inconsistent respect unless unreasonable with cedent distributed dividends Dist., Reve Lafayette of the Internal provisions with corporation”); stock ” States, 23 719, 724 States, F.Supp. Gillespie v. United 397 nue Code.’ Inc. v. United Cir.1994) (2d Salo (quoting have (“Traditionally, courts (W.D.La.1975) F.3d States, F.2d mon, in order owner Inc. v. United to the beneficial looked Cir.1992)) v. West (citing Dan Amato liability”); the tax has who ascertain Inc., 370, 390, International, Commissioner, T.C. ern Union enberg . Cir.1985)) (“It estab 1402, 1411 is well 1979 WL determining purposes lished of an owners beneficial The rule the provisions under is a shareholder who its shareholders stock are Corporation’s ownership of S, beneficial subchapter “in- nor “unreasonable” obviously neither title is technical than rather the stock provi- purposes consistent” v. Commission Ragghianti controlling.”); Indeed, I am while Code. of the Tax sions WL er, 71 T.C. the federal to concede the first record it is well settled (“By now “esoteric,” imagine I cannot often laws are alone, is not stock, standing ownership of really would people that reasonable answering question determinative rule that understanding the difficulty gross include to who is Corporation’s of an S owners the beneficial to such attributable dividends income owning stock “persons are in fact stock ownership is the Rather, beneficial 6037(a). stock. § corporation.” factor.”); v. Commis Co. CHM controlling are rule self- for that rationales (1977) 37, 1977 sioner, WL 68 T.C. level, it prevents a threshold At eiddent. for shareholder (“in is a deciding who rule that run around end an obvious to the benefi look we purposes, S subch. than 35 no more can have Corporation S stock.”); Hook v. cial fundamen- (now 75) More shareholders. 1972 WL Commissioner, T.C. requiring purpose it serves tally, op (“[B]eneficial ownership, as (1972) actual the IRS list Corporations title, is determina legal technical posed to income beneficial recipients of ...”). tive. re- this latter shares. Corporation’s itself IRS en- Hoffman, rule is relying Also on the beneficial spect, that: congres- far back as the basic advised “with tirely consistent S] Subchapter enacting [in purpose is a sional who determining purposes [F]or actually receive only those who tax” of Sub- provisions under shareholder corporation.” by the paid “dividends Code, owner- beneficial chapter S Kean, 469 F.2d at 1186 (quoting Hoffman, are applicable in determining whether a 233). 47 T.C. at duty has been breached in the criminal context, to me “it is

Finally, immaterial that much of the history-of Sub- is no litigated chapter S, pattern fact the IRS’s precisely regulations ex- point.” United plicitly Kinzler, States v. explained that: Cir.1995) (internal quotation Ordinarily, person who would have omitted) cases). marks (citing in gross include income dividends dis- tributed with respect to the stock of the Indeed, this Circuit has allowed tax con corporation ... considered be the victions on the basis legal duties far less shareholder the corporation.... For clearly defined than the duty applicable example, ... [t]he person for whom here. In United States Ingredient stock of corporation is held a nomi- Technology Corp., 698 F.2d 88 nee, guardian, custodian, agent 1983), defendants —the SuCrest Corpora considered to be the shareholder of the tion and its president former —filed corporation. returns for the 1976 year claiming deduc 1.1361-l(e) 26 C.F.R. (1995). It- is true tions for a large amount sugar invento that this regulation was proposed ry. It out turned that while SuCrest re but did not actually get formally adopted tained title to the sugar inventories until 1995. It is equally true that pre- at all pertinent times, it had resold all 1(d) decessor statute-— contain- 1.1371— beneficial in those inventories ing almost exactly the same language— without reporting the resale on its 1976 pursuant withdrawn to the 1982 Sub- return. The defendants were convicted chapter S Act, Revision see 97-364, Pub.L. filing a false return in violation of (1982). 96 Stat. 1669 Nevertheless, I fail to see how suspension of a regulation, appeal, On they argued that their ac- which is obviously merely reflective of counting (rather treatment of the sugar was for) prop- than the source applicable law, er under Treasury Regulation grants somehow Section taxpayers license hug- 1.471-1, provided that: ger-mugger “goods about the real shareholders of sold” the “title to which passed their has companies. purchaser” should be excluded from inven- tory; “[mjerchandise should be In light of the wealth of statutory, deci included the inventory only if title there- sional and regulatory authority establish to is vested in the taxpayer.” Relying on ing that the beneficial owners of an S these provisions, defendants claimed that Corporation’s stock are its shareholders, I they had properly the sugar included am puzzled by my colleagues’ reliance inventory, because title yet had not v. Harris, 942 F.2d 1125 passed to purchaser, but had remained (7th Cir.1991). Harris arose from the with SuCrest. At very least, defen- government’s failed efforts prosecute dants argued, “the applicable tax law was mistress for not declaring as income per ... in such dispute that it provide [did not] gifts sonal paramour. her Unlike a clear and definite statement of the con- situation, ours is not a case where proscribed duct ... thereby negating the neither “regulations,” nor “appellate or element of willfulness.” Id. at 96. district court cases ... cover subject.” the Harris, 942 F.2d at 1132. I am also un This Court affirmed the convictions. sympathetic to the majority’s apparent The Court noted that another portion of concern that no known prosecu criminal Section 1.471-1 stated that inventories tion has premised been on the identical must be “income-producing factor.” theory underlying the Boyle Allegations. And, according to Court, the the facts While I agree that heightened standards showed that the sugar “was never intend- other neces- (as any well as shareholder factor.” income-producing “an to be ed” indicia). if the government course Of sary- revealed contrary, the facts To endeavor, the district fail in- were no beneficial “absolutely had SuCrest Boyle Allega- dismiss then solely court could used sugar],” and [in terest case. government’s of close solely at-the days tions a few inventory for “to inflate view, it my was 29. Relying on Fed.R.Civ.P. Id. at purposes.” for tax court the district premature “taxa- simply principle long established with trial. so before much do concerned not so tion is actual it is title as of refinements id., taxed,” property over command the defendants concluded

this Court committing a they were ...

“surely knew Id. at 96. act.”

wrongful directly analo- Technology

Ingredient as the Just case. the instant

gous to in- no beneficial. had defendants SuCrest America, of UNITED STATES had inventory, Pirro in their claimed terest Appellant, the 90% of half of no beneficial his on he claimed shares the DPC “legal sham Irrespective

return. AUTUORI, Defendant- M. Edmund command” “actual Boyle title,” gave Pirro Appellee. plain If shares. DPC over 45% 98-1547. Docket No. prov- can allegations committing a en, surely knew he Pirro Appeals, Court United States on his that fact concealed wrong when he Second Circuit. 1992return. 24, 1999 Argued June view: beneficial my up, To sum stock are Corporation’s an S owners May Decided cor- owning shares “persons indeed purposes or “shareholders” poration” requirements reporting a beneficial

6037(a); Boyle if violated stock, then of DPC

owner him by failing to duty

known 1992return. that under recognize I

Again, to tax applicable standards

heightened presented question

prosecutions, close one. exceedingly is an

this case moreover, question,

difficulty of that undeveloped by the exacerbated

greatly col- Perhaps my this record.

state govern- if the persuaded would be

leagues se- Boyle stashed proof

ment offered 45% evidencing his stock certificates

cret under his DPC

beneficial has un- While

mattress. evidence, it offered such

derstandably not Boyle had prove willing to

does stand of a beneficial obligations rights

all the notes Judge Gibson at Id. undefined.” issue “chief returned, that the indictment after the was 1038. S.Ct. the Boyle, as specified that government interest,” was ownership a “45% holder of problems. We Here, are no such DPC. of shareholder” a “45% beneficial are. As has the issues know all what government’s the is that The suggestion Pirro apparent, the made already been slavishly to adhere refusal post-indictment of a statement “such indictment includes language interest” ownership to the “45% “descend toas and circumstances” facts some- in the indictment appearing "already 1038. 82 S.Ct. Id. at particulars.” modifica- impermissible how constitutes in Rus “cryptic” indictments the Unlike elements essential tion of the that Pir charges sell, here the indictment 7206(1) grand charge presented § return] [on ro “failed agree. cannot jury. I ownership hospital Chairman's where view, hardly a case this In my his own DPC,” “misstated thereon” and [is] the defendant every stage ... “[a]t DPC, failed to arid “ownership interest Russell, 369 theory.” a different met with DPC payments all of thereon reflect To the con- 1038. 82 S.Ct. at U.S. PMM, hospital made, through had government’s me that trary, strikes Iri company.” wholly owned Chairman’s absolutely con- remained theory here has simply law view, Circuit’s case my Boyle Allegations Simply put, the stant. government “de not require does 7206(1) by § Pirro violated charge that any greater particularity.2 into scend” own- Boyle’s about his tax returns lying on the extent of DPC. To. require- 45% sum, ership notice by relying on the in nomenclature Amendment, change Judge government’s Sixth ments to “45% (a) interest” has from “45% theory that: on a Gibson rests any signifi- (b) has defendant; shareholder” beneficial argued by the never been detail,” indeed cance, “it adds court; simply byon the district not relied ” an S by the ‘‘shareholders out are filled heightened stan- Judge Gibson's even 2. But if Nevertheless, Judge complied Gibson government Corporation. are applied, dards request responding "choospng] Pirro's them faults response, the particulars. a bill of [Boyle’s] [owner for government the nature specify that "a Schedule specified K-l response Pir- DPC in its ship] interest” entirety" for in its filled out have been should particulars. Ante request for bill ro’s this disclosure significance Boyle. Schedule K-ls self-evident: must been “narrows rather than jury. broadens” the No origi- such omission occurred here. Zvi, charges. nal United States v. 168 To contrary, alleges Cir.1999). such, As it was 7206(1) each essential element viola- entirely permissible. e.g., charging that “willfully tion— Miller, 130, 145, States v. 471 U.S. 105 knowingly” filed a “false” tax return (1985); S.Ct. 85 L.Ed.2d 99 see also “he did not believe to true and correct Castro, every as to material matter.” See United (3d Cir.1985) (no violation of Fifth Peters, (7th States v. Amendment where “variation did not Cir.1998) 7206(1) (listing elements of a conviction, broaden the bases for but in- violation). that, More than the indictment stead scope narrowed the of the evidence 7206(1) specifies Pirro violated prove an offense included the indict- concealing Boyle’s “45% inter- ment”). law, est” in DPC. our Under case this was Walsh, all that necessary.

Case Details

Case Name: United States v. Albert J. Pirro, Jr., Anthony G. Pirro

Court Name: Court of Appeals for the Second Circuit

Date Published: May 5, 2000

Citation: 212 F.3d 86

Docket Number: 1999

Court Abbreviation: 2d Cir.