United States v. Mikutowicz

United States Court of Appeals
For the First Circuit

Nos. 02-2469 and 02-2522

UNITED STATES OF AMERICA,

Appellee/Cross-Appellant,

v.

JOHN MIKUTOWICZ,

Defendant, Appellant/Cross-Appellee.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Rya W. Zobel, U.S. District Judge]

Before

Torruella, Lourie* and Howard,
Circuit Judges.

Michael J. Connolly with whom Kelley A. Jordan-Price and
Hinckley, Allen & Snyder LLP were on brief, for appellant.
Gregory Victor Davis, Attorney, Tax Division, Department of
Justice, with whom Eileen J. O'Connor, Assistant Attorney General,
Robert E. Lindsay, Alan Hechtkopf, Attorneys, Tax Division,
Department of Justice, and Michael Sullivan, United States
Attorney, were on brief, for appellee.

April 22, 2004

*
Of the Federal Circuit, sitting by designation.
 HOWARD, Circuit Judge. In these cross-appeals, we

consider John Mikutowicz's challenge to his convictions for tax

offenses and the government's challenge to the term of

incarceration. We affirm the convictions but vacate the judgment

and remand for resentencing.

I.

We set forth the facts in the light most favorable to the

verdict. See United States v. Diaz, 300 F.3d 66, 69 (1st Cir.

2002). Mikutowicz is the sole shareholder of AGM Marine

Contractors ("AGM"), a sub-chapter S corporation located in

Mashpee, Massachusetts.1 AGM is involved in marine construction

projects, including dredging and building bridges. In addition,

Mikutowicz is also the sole shareholder of Felix Management, Inc.

("Felix"), another sub-chapter S corporation, which manages

Mikutowicz's various real estate investments.

In 1991, Mikutowicz sought the assistance of psychologist

Neil Carter for a combination of business and personal problems.

After Mikutowicz described his financial difficulties, Carter

suggested that he contact an individual in Colorado named Paul

Harris who could help him establish an "asset protection program."

1
Under sub-chapter S of the Internal Revenue Code, all revenue
earned and expenses incurred by a qualifying corporation pass
through to the shareholders of the corporation and are reported on
the shareholders' tax returns. See 26 U.S.C. § 1366.

-2-
 Mikutowicz followed Carter's advice and contacted Harris.

Harris was one of the operators of Tower Executive Resources

("Tower"), a company that, inter alia, assisted its members in

shielding income from taxation. After meeting with Mikutowicz,

Harris proposed moving some of AGM's and Felix's profits to

offshore bank accounts in order to defer taxation on Mikutowicz's

income. Mikutowicz agreed.

Tower thereafter created Ellis Engineering ("Ellis"), a

Turks & Caicos corporation. Mikutowicz was Ellis's sole employee,

and Ellis shared a business address with AGM. It did not outwardly

appear that Ellis actually operated a separate business from this

address, although Ellis, acting through Mikutowicz, purportedly

provided AGM with consulting services and equipment rentals and

materials from 1992 to 1998.

During this period, AGM paid Ellis $1.3 million for these

"services." This money was deposited into Ellis's Massachusetts

bank accounts. Mikutowicz deducted these payments from AGM's taxes

as "ordinary and necessary business expenses." See 26 U.S.C. §

162. These deductions reduced AGM's profits and therefore reduced

Mikutowicz's personal taxable income. See supra n.1.

The money AGM paid to Ellis was eventually transferred to

a bank account in the Turks & Caicos Islands established by Tower

for Mikutowicz's benefit. This account was in the name of another

Tower created company, Harborsober Ltd. From the Harborsober

-3-
account, Mikutowicz eventually transferred most of the money into

a personal account in the Cayman Islands.

Mikutowicz similarly diverted profits from Felix to his

offshore account. In 1998, Felix paid Tower $26,357 for "franchise

and professional fees," although there was no evidence that Tower

actually gave or did anything of value for Felix. Mikutowicz

deducted these fees from Felix's taxes, and this money was also

transferred, through the Harborsober account, to Mikutowicz's

Cayman Island account.2 Mikutowicz and his companies never

declared any of the money deposited in the Harborsober account as

taxable income.

The government calculated that, through these

machinations, Mikutowicz reduced his tax burden by $570,005. On

September 6, 2001, a grand jury indicted Mikutowicz on ten tax

offenses: one count of conspiring to commit tax fraud, see 18

U.S.C. § 371; five counts of filing materially false tax returns

for the years 1995-1998, see 26 U.S.C. § 7206(1); and four counts

of tax evasion for the years 1995-1998, see 26 U.S.C. § 7201. On

June 28, 2002, after a fifteen-day trial, a jury convicted him on

all counts.

2
Mikutowicz also used another Tower affiliated company,
Finance Global, Ltd., to transfer $100,000 of taxable income from
a real estate transaction to the Harborsober account and eventually
into his Cayman Island account.

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 On September 20, 2002, the district court sentenced

Mikutowicz to one year and one day of imprisonment and two years of

supervised release; it also ordered him to pay a $50,000 fine, a

$1,000 special assessment, and restitution. The district court

arrived at Mikutowicz's sentence by granting him a two-level

reduction for acceptance of responsibility and a five-level

downward departure because his criminal conduct constituted

"aberrant behavior."

II.

Mikutowicz challenges his convictions on a number of

grounds, focused primarily on the jury's consideration of whether

the claimed deductions were "ordinary and necessary business

expenses." He argues first that: (1) the district court should not

have instructed the jury on the Internal Revenue Code's definition

of "ordinary and necessary business expenses" and (2) even if such

an instruction was appropriate, the district court erroneously

declined to provide a supplemental instruction on this issue.

Second, he argues that (1) the district court should have excluded

testimony by the government's tax computation expert that the

deductions AGM claimed for making payments to Ellis were not

"ordinary and necessary business expenses" and (2) the district

court improperly limited cross-examination of this expert.

Finally, he claims that the district court abused its discretion by

declining to investigate his allegation of juror misconduct.

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 A. Instruction on "Ordinary and Necessary Business
Expenses"

Mikutowicz first argues that the district court erred by

instructing the jury on the definition of "ordinary and necessary

business expenses" under the Internal Revenue Code. See 26 U.S.C.

§ 162. He contends that the court's instruction was unnecessary

because the government was required to prove only that the

deductions he claimed were "false"--not that they failed to qualify

as "ordinary and necessary business expenses." This unnecessary

instruction was also prejudicial, he asserts, because it introduced

an extraneous issue that might well have confused the jury and

diverted its attention from his primary defense: that he claimed

the deductions in "good faith."

The purpose of jury instructions "is to inform the jury

of its function, which is the independent determination of the

facts, and the application of the law, as given by the court, to

the facts found by the jury." 2A Charles A. Wright, Federal

Practice and Procedure: Criminal, § 485 (3d ed. 2000). The

instructions should "fairly and impartially state the issues and

applicable law in logical sequence . . . [so that] the jury [can]

understand the issues and intelligently apply the law." Id.

(quoting Elbe v. United States, 364 F.2d 127, 134 (10th Cir.

1966)). It is common in tax crime prosecutions for the court to

instruct the jury on the meaning of tax law terms implicated by the

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particular facts of a case. See, e.g., United States v. Wapnick,

60 F.3d 948, 955 (2d Cir. 1995) (in tax evasion case, jury

instruction on definition of "sham corporation" was proper); United

States v. Curtis, 782 F.2d 593, 596-98 (6th Cir. 1986) (in tax

evasion case, jury instruction on definition of "income" was

proper); United States v. Sorrentino, 726 F.2d 876, 881 (1st Cir.

1984) (in tax evasion case, jury instruction on definition of

"taxable income" was proper).

Here, knowing the definition of "ordinary and necessary

business expenses" was helpful to the jury in applying the law to

the evidence. The parties agree that conviction on each count

required the government to prove that the deductions claimed by

Mikutowicz on behalf of AGM and Felix were "false." See 26 U.S.C.

§ 7206(1) (filing false corporate tax return requires government to

prove that return was false as to material matter); 26 U.S.C. §

7201 (tax evasion requires government to prove that defendant owed

substantially more federal income tax than declared); 18 U.S.C. §

371 (conspiracy charge required government to prove that defendant

agreed with another to file false return and to evade taxes).

Based on the evidence presented, whether the deductions claimed by

AGM and Felix were "false" depended on whether they were properly

claimed as "ordinary and necessary business expenses." Thus, the

jury's ultimate conclusion that the deductions were "false" was

inexorably linked to whether they were "ordinary and necessary

-7-
business expenses." Therefore, a definition of "ordinary and

necessary business expenses" was useful information for the jury to

evaluate the evidence.

Mikutowicz's suggestion that the "ordinary and necessary

business expense" instruction shifted the jury's focus away from

his "good faith" defense is not persuasive. The district court's

instructions explained to the jury the separate requirement that

the government prove that Mikutowicz did not act in "good faith."

Indeed, the court was quite explicit in this regard. It

instructed:

[I]t isn't enough for the government to show
that [the deductions] were improper. The
government also has to prove that the
defendant knew that they were improper, or,
rather that the defendant did not believe
that the statements he made about the
deductions in these returns were true and
correct.

Rather than confuse the jury, the instructions highlighted for the

jury that the government had to prove, inter alia, that the

claimed deductions were false and that Mikutowicz did not claim

the deductions in "good faith."

As a fallback, Mikutowicz contends that, even if the

district court permissibly instructed the jury on the definition

of "ordinary and necessary business expenses," the court should

have included a supplemental instruction (which we shall describe

momentarily). "The trial court's refusal to give a particular

instruction constitutes reversible error only if the requested

-8-
instruction was (1) correct as a matter of substantive law, (2)

not substantially incorporated into the charge as rendered, and

(3) integral to an important point in the case." Sheek v. Asia

Badger, Inc., 235 F.3d 687, 697 (1st Cir. 2000) (quoting Elliot v.

S.D. Warren Co., 134 F.3d 1, 6 (1st Cir. 1998)).

The district court instructed the jury:

[O]rdinary and necessary business expenses
are such expenses as are directly connected
to the operation of the business. And the
government claims here that these deductions
were not ordinary and necessary because they
did not reflect any economic reality, were
not related to the operations and business
of either AGM or Felix, but were designed
merely to funnel funds into the defendant's
personal bank account offshore.

Mikutowicz sought to augment this instruction with

language focusing the jury's attention on whether Ellis was a

"legitimate corporation." The district court told the jury that

"there is no question that Ellis was a legitimately and validly

constituted corporation. The question here has only to do with

the payments made to it by AGM, and the purpose and treatment of

those payments by AGM . . . and ultimately Ellis as well."

Had the court provided the requested language, which

comprised a detailed (and confusing) list of factors used to

determine whether Ellis was a legitimate corporation, the jury

could have been erroneously induced to conclude that its task was

to determine Ellis's legitimacy instead of whether AGM made the

payments to Ellis for legitimate business purposes. The district

-9-
court's instruction kept the jury's attention focused on whether

the deductions were properly claimed by Mikutowicz's companies.

There was no error.

B. Expert Testimony on "Ordinary and Necessary Business
Expenses"

Mikutowicz next challenges the testimony of the

government's "tax computation" expert, Michael Pleshaw. Pleshaw,

an Internal Revenue Service ("IRS") agent, explained to the jury

the basis for the IRS's conclusion that deductions claimed by

Mikutowicz and his companies were improper. Mikutowicz challenges

the admission of Pleshaw's testimony concerning "the non-

deductibility of AGM's payments to Ellis Engineering." We review

the admission of Pleshaw's testimony for an abuse of discretion.

See United States v. Santana, 342 F.3d 60, 68 (1st Cir. 2003),

cert. denied, 2004 WL 323919 (U.S. Feb. 23, 2004).

Pleshaw provided the jury with a summary of why the IRS

determined that the deductions claimed by Mikutowicz and his

companies were improper. It is well established in several

circuits that "[e]xpert testimony by an IRS agent which expresses

an opinion as to the proper tax consequences of a transaction is

admissible evidence." United States v. Windfelder, 790 F.2d 576,

581 (7th Cir. 1986); see United States v. Sabino, 274 F.3d 1053,

1067 (6th Cir. 2001), amended on other grounds, 307 F.3d 446

(2002); United States v. Monus, 128 F.3d 376, 386 (6th Cir. 1997);

United States v. Townsend, 31 F.3d 262, 270 (5th Cir. 1994);

-10-
United States v. Toushin, 899 F.2d 617, 620 n.4 (7th Cir. 1990);

United States v. Gold, 743 F.2d 800, 817 (11th Cir. 1984); United

States v. Fogg, 652 F.2d 551, 557 (5th Cir. 1981). The primary

limitation on this type of evidence is that the agent may not

testify about the defendant's state of mind when the challenged

deductions were claimed. See Fed. R. Evid. 704(b) (expert may not

testify to mental state of defendant where mental state is element

of charged offense); Sabino, 274 F.3d at 1067 ("[I]n a tax case,

the summary witness is allowed to summarize and analyze the facts

indicating willful tax evasion so long as the witness does not

directly embrace the ultimate question of whether the defendant

did in fact intend to evade income taxes.") (internal quotations

and citations omitted); Windfelder, 790 F.2d at 582 (stating that

it was error, in tax fraud case, to admit IRS agent's testimony

that defendant "intentionally understated his income" because this

testimony "impermissibly state[d] an opinion as to the defendant's

knowledge or willfulness, a mental state which constitutes an

element of the crimes charged"); see also United States v. Valle,

72 F.3d 210, 216 (1st Cir. 1995) ("Rule 704(b) prohibits all

direct expert testimony concerning a criminal defendant's intent,

regardless of the witness's field of expertise, so long as intent

is an element of the crime charged.").

Pleshaw's testimony adhered to these standards. He

described the IRS's audit of Mikutowicz and his businesses and the

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results of the audit. In addition, he testified to the rationale

which led the IRS to reach its conclusions. Pleshaw offered no

testimony concerning Mikutowicz's state of mind when claiming the

challenged deductions. There was no abuse of discretion in the

admission of Pleshaw's testimony.

Mikutowicz also asserts that the district court violated

his rights under the Confrontation Clause of the Sixth Amendment

by limiting his cross-examination of Pleshaw. The court refused

to let Mikutowicz question Pleshaw about various judicial

opinions, which Mikutowicz claims would have established that the

deductions were properly taken.

A defendant is entitled to cross-examine a government

witness to test the truth of his testimony. See United States v.

González-Vázquez, 219 F.3d 37, 45 (1st Cir. 2000). But the court

"retains wide latitude to impose reasonable limits on cross-

examination in order to avoid confusion of the issues or extended

discussion of marginally relevant material." Id. (internal

quotations and citations omitted). "Defendants cannot run

roughshod, doing precisely as they please simply because cross-

examination is underway." United States v. Boylan, 898 F.2d 230,

254 (1st Cir. 1990). We review this challenge de novo to

determine whether defense counsel was afforded a reasonable

opportunity to impeach adverse witnesses. See United States v.

Balsam, 203 F.3d 72, 87 (1st Cir. 2000). Should that threshold be

-12-
reached, any restrictions that were placed on the extent and

manner of the cross-examination will be reviewed for abuse of

discretion. Id.

Pleshaw was not qualified as an expert on tax law. As

the IRS agent who audited Mikutowicz and his businesses, Pleshaw

provided detailed testimony on the process used to conduct the

audit, the conclusions reached, and the computations made to

arrive at Mikutowicz's tax deficiency. The government attempted

to elicit from Pleshaw neither an opinion on the precise meaning

of terms used in the Internal Revenue Code nor a discussion of

legal sources that could bear on such an interpretation, as well

it should not have. "[E]xpert testimony proffered solely to

establish the meaning of a law is presumptively improper." United

States v. Prigmore, 243 F.3d 1, 18 n.3 (1st Cir. 2001); see

Nieves-Villanueva v. Soto-Rivera, 133 F.3d 92, 99-101 (1st Cir.

1997) (ruling that it was error to admit expert testimony

explaining the holdings of various Puerto Rico Supreme Court

opinions).

Yet, this is precisely what Mikutowicz sought to do.

Even though Pleshaw is not a lawyer and did not mention the United

States Tax Court on direct examination, defense counsel attempted

to question Pleshaw about three Tax Court opinions from the early

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1980's.3 Even a tax lawyer would have found it difficult to

respond intelligently to questions about the precise facts and

holdings of several twenty-year old Tax Court cases and then apply

those holdings to the facts of the instant case, without having had

a prior opportunity to prepare. Had the cross-examination

proceeded as Mikutowicz proposed, it would have involved defense

counsel reading excerpts of the cases to the jury, without the jury

having a context for evaluating the import of the information that

it was receiving. See Curtis, 782 F.2d at 600 ("The jury is not

comprised of lawyers . . . To attempt to explain the myriad rules

of judicial construction, the complexity of legal principles, or

the function of precedent would hopelessly divert the jury from

their preeminent duty of assessing . . . guilt."). The district

court was well within its discretion in concluding that such an

"examination" would have exceeded the scope of the direct

examination and confused the jury. See United States v. Ingredient

Technology Corp., 698 F.2d 88, 97 (2d Cir. 1983); Benjamin A.

Vernia, Annotation, Admissibility of Expert Testimony Regarding

Questions of Domestic Law, 66 A.L.R. 5th 135 (1999) (noting that

3
Defense counsel also proposed to question Pleshaw concerning
a sixty-year old Supreme Court opinion. See Moline Properties v.
Comm'r of Internal Revenue, 319 U.S. 436 (1943).

-14-
the bases for the rule against an expert explaining the law to the

jury "relate to jury confusion").4

C. Juror Misconduct

Mikutowicz's final argument concerns the district court's

refusal to investigate his allegation that the jurors had engaged

in premature deliberations. The relevant facts are as follows.

On the thirteenth day of trial the jury began its

deliberations. On the third day of deliberations the jury

forewoman sent a note to the court asking that one of the jurors be

excused. As a result, the court met with the forewoman. During

the meeting, the forewoman explained the problem:

There's a young woman, the first, the second
day she was talking about her religious
beliefs and that it was not her job to judge
her fellow human beings. That was for God
in the next life. That was the second day.
We told her, you know we tried to buck her
up and say, okay . . . God put you here on
this jury for a reason, and you will be able
to make a decision. But it has gotten
worse. She's up there reading her Bible
right now. She has just kind of closed
down, and she's been the major impasse in
getting any work done.

The court proceeded to discuss the situation with the

distressed juror. The juror told the court that she was upset

4
Equally important, it would have usurped the judge's role.
"In our legal system, purely legal questions and instructions to
the jury on the law to be applied . . . [are] exclusively the
domain of the judge." Nieves-Villanueva, 133 F.3d at 99. Thus, it
was the judge's role alone to instruct the jury on the law
necessary for determining whether the challenged deductions were
properly claimed as "ordinary and necessary business expenses."

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by the intense nature of the deliberations. As she described

it:

[T]here's a lot of evidence up there, and
you're trying to prove your case [referring
to counsel for each party]. Well I need to
know by looking at these documents what's
right . . . And we sat in there, and we
heard your side, and we heard your side, but
I need to look at them for myself and see .
. . Nobody seems--everybody has their own .
. . There's just certain things that we're
arguing about.

At the conclusion of this discussion, defense counsel

advised the court that the forewoman's earlier reference to "the

second day" appeared to indicate that some of the jurors had

expressed their opinions about the case since the second day of

trial. Defense counsel asked for a "further inquiry . . . as to

whether in fact the jurors discussed the merits of the case during

the trial." The court declined the request, noting that it did

"not recall [the forewoman] saying anything about the matter before

deliberations."

We review the district court's response to an allegation

of juror misconduct for an abuse of discretion. See United States

v. Connolly, 341 F.3d 16, 33-34 (1st Cir. 2003). We have

recognized that the district court maintains significant

discretion in determining the type of investigation required by a

juror misconduct claim. See, e.g., United States v. Ortiz-

Arrigoitia, 996 F.2d 436, 443 (1st Cir. 1993); Boylan, 898 F.2d at

258. Moreover, the court's discretion is at its broadest when

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determining how to deal with an allegation of premature jury

deliberations. See United States v. Dominguez, 226 F.3d 1235, 1246

(11th Cir. 2000) (a "trial judge is vested with broad discretion in

responding to an allegation of jury misconduct, and that discretion

is at its broadest when the allegation involves internal misconduct

such as premature deliberations, instead of external misconduct

such as exposure to media publicity").

Where a claim of juror misconduct is raised, the court's

first task is to ascertain whether the allegation is colorable.

See Boylan, 898 F.2d at 258. If the claim meets this threshold,

the court must then conduct a further investigation to discern the

extent of the jury taint and the possible prejudice. See United

States v. Cruz, 156 F.3d 22, 28 (1st Cir. 1998). However,

misconduct allegations that "are frivolous . . . do not trigger any

duty of inquiry and do not require that a hearing be held." Neron

v. Tierney, 841 F.2d 1197, 1202 n.6 (1st Cir. 1988).

The district court did not abuse its discretion in

determining that Mikutowicz's claim of premature jury deliberations

was so weak that it did not require further action. Even assuming

that by the "second day" the forewoman meant the second day of the

trial as opposed to the second day of deliberations, the forewoman

did not state that any of the jurors had engaged in premature

deliberations. She stated only that one juror had expressed doubt

about her ability to participate in the task of determining whether

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another individual is guilty of a crime. A conversation between

jurors concerning the general anxiety associated with serving on a

criminal jury is a far cry from a conversation in which the jurors

discussed the merits of the parties' positions.

Our conclusion that no duty to investigate was triggered

is supported by the district court's conversation with the

distressed juror. In that conversation, the juror indicated that

the jurors had sat through both parties' cases and were then wading

through the evidence and arguing about the proper result. This

summary of the jury's actions strongly suggests that the jurors

were involved in active deliberations at the appropriate time and

had not prejudged the case.

The only evidence that Mikutowicz presented of juror

misconduct is his allegation that the forewoman disclosed to the

court that deliberations took place on "the second day" of trial.5

As discussed above, the forewoman made no such disclosure. The

burden of showing a colorable claim rests with the party raising

the issue. See United States v. Nazzaro, 889 F.2d 1158, 1167 (1st

Cir. 1989). As Mikutowicz has not met this burden, the district

court acted within its considerable discretion by declining to

5

In his factual summary of the juror misconduct claim, Mikutowicz
also makes reference to an incident where a juror collapsed from an
anxiety attack during testimony that was favorable to Mikutowicz.
But he has not put forward any developed argument explaining how
this incident ties into his claim.

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investigate the matter. See id. ("[T]he law wisely affords the

trier . . . substantial discretion in determining whether to

interrogate jurors.").

III.

In its cross-appeal, the government raises two challenges

to the sentence imposed on Mikutowicz. First, it challenges the

district court's grant of a two-level reduction for acceptance of

responsibility. Second, it challenges the district court's grant

of a five-level downward departure because Mikutowicz's criminal

conduct constituted "aberrant behavior."

A. Acceptance of Responsibility

Pursuant to U.S.S.G. § 3E1.1 (1998), the district court

granted Mikutowicz a two-level reduction for acceptance of

responsibility because (1) even though he went to trial, he

admitted, pretrial, "the conduct" underlying the charges, and (2)

prior to trial, he repaid the IRS approximately $55,000 in back

taxes.6 We review deferentially the district court's conclusion

that the defendant has accepted responsibility, see United States

v. Capelton, 350 F.3d 231, 245 (1st Cir. 2003), and will reverse

only on a showing of clear error, see United States v. Walker, 234

F.3d 780, 784 (1st Cir. 2000). Clear error exists where there is

6
The parties agree that the Sentencing Guidelines in effect
in 1998 apply to this case.

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no articulable grounds or foundation for the court's conclusion.

See United States v. Bennett, 37 F.3d 687, 696 (1st Cir. 1994).

The first ground for the reduction is that, prior to

trial, Mikutowicz admitted his unlawful conduct. See U.S.S.G. §

3E1.1 comment (n. 1(a)) (1998). In this regard, the district court

stated: "It is true that he went to trial, but going to trial

should not be penalized . . . . He admitted his conduct, and it

seems to me under these circumstances he is entitled to go down by

two levels."

While there is no question that a defendant should not be

punished for exercising his right to trial, the choices exercised

can affect sentencing exposure. The Sentencing Guidelines state

that, as a general matter, an acceptance of responsibility

reduction "is not intended to apply to a defendant who puts the

government to its burden of proof at trial by denying the essential

factual elements of guilt, is convicted, and only then admits guilt

and expresses remorse." U.S.S.G. § 3E1.1, comment (n.2) (1998);

see also United States v. Baltas, 236 F.3d 27, 37 (1st Cir. 2001).

The Guidelines recognize, however, that in some "rare situations"

a defendant may stand trial and still receive an acceptance of

responsibility reduction. U.S.S.G. § 3E1.1, comment (n.2) (1998);

see United States v. Ellis, 168 F.3d 558, 564 (1st Cir. 1999).

Application Note 2 gives as examples a defendant who admits factual

guilt but goes to trial to raise a constitutional challenge to the

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prosecution and a defendant who goes to trial to assert that the

statute under which he is charged does not apply to his conduct.

U.S.S.G. § 3E1.1, comment (n.2) (1998). We have recognized that

additional "rare situations" could exist that would permit a

defendant to receive an acceptance of responsibility reduction

after electing to go to trial. See Ellis, 168 F.3d at 564.

However, where a district court grants an acceptance of

responsibility reduction to a defendant, post trial, the acceptance

of responsibility determination must be based solely on "pre-trial

statements and conduct." Id. at 564 (emphasis in original).

The district court ruled that Mikutowicz admitted the

"essential factual elements of guilt" before trial, even though he

went to trial to claim that his conduct was not "willful" and

therefore not criminal. This determination was clearly erroneous.

By contesting willfulness, Mikutowicz did not admit "the essential

factual elements of guilt." U.S.S.G. § 3E1.1 comment (n.2) (1998);

Bennett, 37 F.3d at 697.

It is true that Mikutowicz admitted the actus reus of his

crimes prior to trial. He admitted establishing offshore bank

accounts, taking deductions from AGM for "services" provided by

Ellis, diverting the deducted monies to the offshore accounts, and

not paying taxes on the diverted funds. However, Mikutowicz

remained steadfast that his conduct was not "willful", i.e., in

violation of a known legal duty. See United States v. Cheek, 498

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U.S. 192, 201 (1991). Thus, Mikutowicz denied the mens rea of the

crimes. That the defendant possesses the requisite mens rea is one

of the "essential factual elements of guilt." See United States v.

Crass, 50 F.3d 81, 84 (1st Cir. 1995) ("intent, like any other

essential element of the crime charged, may not be contested

without jeopardizing a downward adjustment for acceptance of

responsibility"); United States v. Burrows, 36 F.3d 875, 883 (9th

Cir. 1994) (stating that defendant was not entitled to acceptance

of responsibility deduction because "the fact that [the defendant]

freely admitted the actus reus of the crime does not change the

fact that he maintained . . . a complete defense based on his

purported lack of mens rea").

Mikutowicz's "willfulness defense" said, in effect, "I

did not know that what I was doing was illegal so I should not be

punished for my actions." This defense is exactly the opposite of

the expression of remorse that the acceptance of responsibility

guideline contemplates. See United States v. Royer, 895 F.2d 28,

30 (1st Cir. 1990) ("acceptance of responsibility necessitates . .

. authentic remorse"). Therefore, Mikutowicz did not accept

responsibility by admitting his underlying conduct while

simultaneously denying that he possessed the criminal intent to

commit the charged offenses. See Bennett, 37 F.3d at 696-98

(reversing acceptance of responsibility reduction for defendant who

went to trial to challenge intent prong of bank fraud charge

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because defendant had not admitted "factual guilt"); see also

United States v. Dyck, 334 F.3d 736, 744 (8th Cir. 2003) (reversing

acceptance of responsibility reduction for defendant who went to

trial to claim that his conduct was not "willful" because this "was

a denial of factual guilt that put the government to its proof");

United States v. Chastin, 84 F.3d 321, 324 (9th Cir. 1996)

(reversing acceptance of responsibility reduction, in tax fraud

case, because the defendant's "failure to accept responsibility for

his crime was manifest in his decision to take the case to trial,

where he vigorously denied the 'willful' element of the offense");

United States v. Jaynes, 75 F.3d 1493, 1508 (10th Cir. 1996)

("Where a defendant admits his conduct but claims he did nothing

illegal and had no unlawful intent . . . his denial is inconsistent

with an acceptance of responsibility.")(internal quotations and

citations omitted); United States v. Castner, 50 F.3d 1267, 1279-80

(4th Cir. 1995) ("[B]y denying intent to defraud [the defendant]

did not completely accept responsibility for all his criminal

conduct.").

In granting an acceptance of responsibility adjustment,

the district court also relied on Mikutowicz's pretrial payment of

back taxes. In April 2002, two months before trial, Mikutowicz

filed an amended 1998 tax return in which he reimbursed the IRS

$55,633. While the precise total of Mikutowicz's tax liability is

unclear, see United States v. Mikutowicz, No. 01-10321-RWZ, (D.

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Mass. Nov. 13, 2002), there is no dispute that this was only a

fraction of what he owed.

The Guidelines provide that one method by which a

defendant can demonstrate acceptance of responsibility is to

voluntarily pay restitution prior to the adjudication of guilt.

See U.S.S.G. § 3E1.1 comment (1(c)) (1998); Bennett, 37 F.3d at

698. The Seventh Circuit has described the requirement as

"pretrial payment of full restitution." See United States v.

Bonanno, 146 F.3d 502, 513 (7th Cir. 1998) (quoting United States

v. Morgano, 39 F.3d 1358, 1377-78 (7th Cir. 1994)). Most cases in

which courts have found that pretrial restitution favors granting

acceptance of responsibility involve situations where the defendant

has also pled guilty to the charged offenses. See, e.g., United

States v. Grasser, 312 F.3d 336, 338-39 (7th Cir. 2002); United

States v. O'Kane, 155 F.3d 969, 971 (8th Cir. 1998). We know of

only one case in which a defendant, after exercising his trial

right, received an acceptance of responsibility reduction based on

pretrial restitution. See United States v. Bean, 18 F.3d 1367 (7th

Cir. 1994). In Bean, the defendant was charged with a check-kiting

scheme. Id. at 1368. The defendant paid full, pretrial

restitution but chose to go to trial to argue that he did not

intend to defraud the bank. Id. Even though the defendant went to

trial to challenge intent, the court stated that he could receive

an acceptance of responsibility reduction because he had

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voluntarily paid full, pretrial restitution. Id.

Under the logic of Bean, the district court could grant

Mikutowicz an acceptance of responsibility reduction based on his

payment of pretrial restitution, even though he went to trial. The

government has not argued that Bean was incorrectly decided and we

do not think it so manifestly wrong that we are willing to reject

it without briefing and argument. Nonetheless, even assuming the

viability of the Bean rule for present purposes, we cannot sustain

the acceptance of responsibility adjustment on this record.

The extent of restitution paid by Mikutowicz is not

clear. Mikutowicz argued that, because of certain IRS rules, he

could only reimburse the 1998 tax deficiency, and therefore he paid

as much as was legally possible. The district court did not make

a finding to this effect.7 Moreover, it is not clear that

Mikutowicz's payment was truly voluntary. Since Mikutowicz's

primary defense to the criminal charges related to his intent (and

not his failure to pay taxes), he presumably owed back taxes

regardless of the results of the criminal proceedings. Because

Mikutowicz may have owed the same debt even if acquitted, the

restitution may not have been "voluntary" and therefore not

indicative of his acceptance of responsibility for his crimes. See

7
The district court stated that Mikutowicz paid back "as much
of the tax as he could." It is not clear whether this means that
he paid back as much as the law permitted or that he paid back as
much as he could afford at the time.

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Bennett, 37 F.3d at 698 (holding that paying restitution as part of

a civil settlement does not indicate acceptance of responsibility).

Moreover, even if the district court determined that

Mikutowicz's restitution was the maximum allowed by law and was

truly voluntary, it could still be argued that his decision to

challenge his factual guilt outweighs this act of contrition. See

United States v. Yoon, 128 F.3d 515, 529 (7th Cir. 1997); United

States v. Field, 110 F.3d 592, 594 (8th Cir. 1997). Considering

that acceptance of responsibility determinations are best made by

the district court, see Capelton, 350 F.3d at 245, and that there

is a possibility that Mikutowicz could still qualify for an

acceptance of responsibility reduction, we vacate the two-level

reduction and remand to the district court to reconsider the matter

in light of the above discussion.

B. Aberrant Behavior

The final issue that we tackle is whether the district

court erred by granting Mikutowicz a five-level downward departure

because his conduct constituted "aberrant behavior." We begin by

outlining the standard of review.

On April 30, 2003, section 401 of the Prosecutorial

Remedies and Other Tools to End the Exploitation of Children Today

Act ("PROTECT Act") became effective. See 18 U.S.C. 3742(e). The

PROTECT Act, which applies to all appeals pending on and after its

effective date, establishes a new regime for reviewing district

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court rulings granting departures from the Sentencing Guidelines.

See United States v. Thurston, 358 F.3d 51, 70-72 (1st Cir. 2004);

United States v. Frazier, 340 F.3d 5, 14 (1st Cir. 2003). We now

review de novo whether the "sentence departs from the guideline

range based on a factor that (i) does not advance the objectives

set forth in [18 U.S.C.] § 3553 (a)(2); or (ii) is not authorized

under [18 U.S.C.] 3553(b); or (iii) is not justified by the facts

of the case." 18 U.S.C. § 3742(e); see United States v. Maldonado-

Montalvo, 356 F.3d 65, 68-69 (1st Cir. 2003).8 In cases where the

departure is based on a factor that the Sentencing Commission has

already approved, we proceed directly to consider whether the

departure is "justified by the facts of the case." Thurston, 358

F.3d at 76. In performing this analysis, we accept the district

court's factual findings unless they are clearly erroneous. See 18

U.S.C. § 3742(e)(3)(C).

The Guidelines, in their current form, recognize

"aberrant behavior" as a legitimate ground for a downward

departure. See U.S.S.G. § 5K2.20 (2003). However, as noted above

at n.6, the Guidelines effective in 1998 govern this case. See

United States v. Dewire, 271 F.3d 333, 335 n.2 (1st Cir. 2001).

These Guidelines did not take a position on whether "aberrant

8
Prior to the enactment of the PROTECT Act, we reviewed the
determination that the facts of a case justified a departure only
for an abuse of discretion. See United States v. Lujan, 324 F.3d
27, 31 n.5 (1st Cir. 2003).

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behavior" was an appropriate ground for a downward departure. See

U.S.S.G. Ch. 1 Pt. A(4)(d) (1998) ("The Commission . . . has not

dealt with the single acts of aberrant behavior that still may

justify probation at higher offense levels through departures.").

Because the 1998 Guidelines are silent on whether

"aberrant behavior" is a permissible departure factor, our first

task is to determine de novo whether this factor conflicts with the

objectives set forth in 18 U.S.C. § 3553(a)(2) or is not authorized

by 18 U.S.C. § 3553(b).9 This task is straightforward. Under the

1998 Guidelines, every circuit court of appeals accepted "aberrant

behavior" as a legitimate basis for a downward departure. See

Elizabeth Williams, Annotation, Downward Departure from United

States Sentencing Guidelines Based on Aberrant Behavior, 164 A.L.R.

Fed. 61 (2000) (collecting cases approving "aberrant behavior" as

basis for departure). In November 2000, the Sentencing Commission

confirmed the correctness of this view by adopting a guideline

explicitly recognizing "aberrant behavior" as a legitimate basis

for a departure. See U.S.S.G. § 5K2.20 (2003). Thus, we conclude

that, under the 1998 Guidelines, "aberrant behavior" is a factor on

which the district court could base a departure.

Having concluded that "aberrant behavior" can justify a

9
18 U.S.C. § 3553(a)(2) sets forth the federal policy
objectives for sentencing and 18 U.S.C. § 3553(b) sets forth the
circumstances in which a court could depart from the applicable
sentencing guideline range.

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departure, we turn next to consider de novo whether the facts of

this case justify granting Mikutowicz a departure on this basis.

Under the 1998 Guidelines, we applied a "totality of the

circumstances" approach to requests for "aberrant behavior"

departures. See United States v. Grandmaison, 77 F.3d 555, 563

(1st Cir. 1996).10 Under this test

[d]istrict court judges may consider, inter
alia, factors such as pecuniary gain to the
defendant, charitable activities, prior good
deeds, and efforts to mitigate the effects
of the crime in deciding whether a
defendant's conduct is aberrant in terms of
other crimes . . . . Spontaneity and
thoughtlessness may also be among the
factors considered, though they are not
prerequisites for departures.

Id. In addition, the district court could consider "first-offender

status as a factor" and could grant a departure to a defendant

"whose criminal conduct involve[d] more than one criminal act."

Id. at 563-64.11

The district court applied Grandmaison's "totality of the

circumstances" approach to grant Mikutowicz a five-level downward

departure because (1) the convictions comprised a single six-year

10
Several other circuits opted for a narrower approach that
required the defendant's conduct to be "spontaneous or
thoughtless." Grandmaison, 77 F.3d at 562 (citing cases from the
Third, Fourth, Fifth, Seventh, and Eighth Circuits adopting this
approach).
11
The current Sentencing Guidelines do not adopt "the totality
of the circumstances" test. See U.S.S.G. § 5K2.20 (2003). However,
because this case is governed by the 1998 Guidelines, the
Grandmaison standard applies. See Dewire, 271 F.3d at 335 n.2.

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course of conduct; (2) Mikutowicz employs several individuals; (3)

he has strong community ties; (4) he has been instrumental in the

care of his family; and (5) he did not intend to deprive the

government of the tax permanently. Applying de novo review, our

precedent requires that we vacate this "aberrant behavior"

departure.

In United States v. Bradstreet, 135 F.3d 46, 56-58 (1st

Cir. 1998), we vacated a downward departure for "aberrant behavior"

in a situation that is materially indistinguishable from this one.

The defendant in Bradstreet was convicted of several offenses

arising from a two-year scheme to falsify corporate records. See

id. at 48. The defendant testified at trial that he did not act

with an intent to defraud. See id. at 57. The jury was

instructed that, to find the defendant guilty, it had to conclude

that he acted with such an intent. See id. Thus, the jury's

guilty verdict indicated that the defendant had testified

dishonestly by claiming that he did not act with a fraudulent

intent. See id.

This dishonest testimony disqualified the defendant from

receiving an "aberrant behavior" departure. We explained that an

"aberrant behavior" departure "is appropriate only where the

conduct was isolated and is unlikely to recur." Id. A defendant

cannot claim that his conduct was isolated and not likely to recur

when "he testifies dishonestly after engaging in felonious

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dishonesty." Id. Thus, "one convicted of criminal dishonesty is

. . . not entitled to an aberrant conduct departure if he has

testified dishonestly about his criminal conduct." Id. We

recognized that a defendant could still receive a downward

departure after giving false testimony if the testimony was the

product of confusion, mistake, or faulty memory. See id. at 58.

However, we concluded that, by its nature, false testimony

concerning criminal intent could not be the product of such

confusion or mistake. See id. at 57. Therefore, the jury's

verdict necessarily established that the defendant's testimony was

dishonest and disqualified him from receiving an "aberrant

behavior" departure. See id. at 58.

A similar analysis applies here. Mikutowicz claimed at

trial that his conduct was not "willful." He testified on direct

examination:

I never once thought that I was breaking any
laws. I'm not a law-breaker. I thought
that this plan was completely lawful as to
the way it was explained to me. There is no
amount of money that would cause me to break
the law of this country. That's plain and
simple.

The district court instructed the jury that, to find Mikutowicz

guilty, it had to determine that his conduct was willful, i.e., (in

the context of this case) done "with a specific intent to violate

the law." The jury convicted Mikutowicz on all counts. This

finding compels us to conclude that Mikutowicz testified

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dishonestly by claiming that he did not know that he was breaking

the law by engaging in these tax schemes. Like the testimony

concerning "intent" in Bradstreet, Mikutowicz's testimony

concerning "willfulness" cannot plausibly be explained as the

result of confusion or faulty memory. See id. at 57 (stating that

defendant's testimony that he did not intend to defraud "strikes us

as inherently not subject to characterization as unintentional").

Indeed, at the sentencing hearing, the defense continued to assert

that Mikutowicz did not know that his conduct violated the law. He

is thus ineligible for an "aberrant behavior" departure.

Accordingly, we vacate the five-level downward departure.12

IV.

For the reasons stated, we affirm Mikutowicz's

convictions but vacate the judgment and remand for resentencing.

12
Relying on United States v. Brennick, 134 F.3d 10, 15-17
(1st Cir. 1998), Mikutowicz argues that we could affirm the
departure on the basis of the district court's finding that he
intended to repay the taxes owed at some later date. But in
granting the departure, the court invoked the "totality of the
circumstances" which strongly suggests to us that the court
included this fact as part of its "aberrant behavior" analysis and
not as an independent basis for departing.

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