United States Court of Appeals
For the First Circuit
No. 07-2437
UNITED STATES OF AMERICA,
Appellee,
v.
ANTHONY D. MAREK,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Boudin, Selya, and Dyk,*
Circuit Judges.
John J.E. Markham, II for the appellant.
Kelly Begg Lawrence Assistant United States Attorney, with
whom Michael J. Sullivan, United States Attorney, was on brief, for
the appellee.
November 26, 2008
*
Of the Federal Circuit, sitting by designation.
DYK, Circuit Judge. Anthony D. Marek (“Marek”) appeals
from his conviction, under 26 U.S.C. § 7212(a), for corruptly
endeavoring to obstruct or impede the due administration of the
Internal Revenue Code. Because we conclude that the evidence was
sufficient to support Marek’s conviction, we affirm.
I.
We recite the facts in the light most favorable to the
verdict. United States v. McFarland, 445 F.3d 29, 31 (1st Cir.
2006).1
A.
In the fall of 1994, the Internal Revenue Service (“IRS”)
began a routine audit of the corporate taxes of Stoneham Towing,
Inc. for tax year 1992. Stoneham Towing was an S-corporation owned
at the time by Stephen Mazzola, and operated by Stephen and his
siblings Joseph Mazzola and Christina Svendsen. The audit
ultimately was broadened to encompass the tax years 1992-1994 and
the personal income taxes of Stephen, Joseph, Christina, their
father Sebastian, and other employees and the related business of
1
At trial Marek chose not to introduce any evidence. In
his briefs on appeal, Marek refers to documents and other items
that were not introduced into evidence. After his conviction and
with the services of a new attorney, Marek moved for a new trial
and to introduce new evidence under Federal Rule of Criminal
Procedure 33(a). The district court denied this motion, and the
motion is not at issue on this appeal. Under these circumstances
we will not consider the affidavit Marek submitted to the district
court or any other material submitted in support of the Rule 33(a)
motion. We limit our review to the evidence in the record at
trial.
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Bodyworks Company, Inc. (“Bodyworks”). Stoneham Towing (a term
which we use to include Bodyworks) was a customer of Marek, a local
Snap-On Tools distributor; Marek was not among those audited, and
it is not clear from the record whether Marek’s business was
organized as a corporation, partnership, or sole proprietorship.
Stoneham Towing used an independent service called
“Paychex” to administer the payroll of the business. Paychex was
responsible for, among other things, issuing paychecks to employees
from the payroll account, creating W-2s, withholding employee
income tax, maintaining payroll records and preparing quarterly
employment tax returns (IRS Form 941) based on information provided
by Stoneham Towing.
At some time before March 1995, during the course of the
audit, the IRS auditor noticed that there were a number of Stoneham
Towing checks made out to employees that were not drawn from the
payroll account, with the result that Paychex did not treat them as
employee compensation for IRS reporting and withholding. The IRS
auditor submitted information document requests to Stoneham Towing
on March 7, 1995, June 20, 1995, and August 15, 1996, seeking
substantiation that these checks were business expenses. Some of
these checks had “contract labor” on the memo line of the check,
suggesting that the check reflected payments for contract labor
work. Under 26 U.S.C. §§ 6041, 6041A, any such payments over $600
for the year must be reported to the IRS on IRS Form 1099. See IRS
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Instruction to Form 1099.
In an interview with Stephen Mazzola in July 1996, the
IRS auditor asked why Stoneham Towing did not file the required IRS
Form 1099 for contract labor. Stephen Mazzola told the auditor
that the memo lines were incorrect; that the checks did not reflect
payments to his employees; and that the checks had been cashed by
the employees to make cash purchases of business items from vendors
who refused to accept checks from Stoneham Towing because of
Stoneham Towing’s poor credit.
In order to enable Stoneham Towing to respond to the IRS
information request, around June 1997 Stephen Mazzola requested
that Marek and other vendors prepare backdated invoices purporting
to record cash purchases for the tax years in question. It is
these invoices that lie at the heart of the criminal action against
Marek.
Stoneham Towing responded to the auditor’s information
document requests around July 1997 by submitting the backdated
vendor invoices. Neither the invoices themselves nor any other
written or oral communication with the auditor indicated that the
invoices were backdated re-creations, rather than contemporaneous
documents; the auditor testified that she would have sought
additional third-party verification of the invoices if she had
known they were recreations.
Based on similarities in the dates and amounts of the
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invoices and checks in question, the auditor concluded that the
non-payroll account checks were properly used to pay vendors,
rather than employees. The audits closed in late 1997 and early
1998.
The criminal investigation that ultimately resulted in
Marek’s conviction began in April 1998, shortly after the audit
closed, when Joseph Mazzola contacted IRS agents and alleged that
the invoices submitted during the audit were false, and part of an
effort to conceal a scheme to, inter alia, skim money from the
company and pay employees “under the table” to help the employees
evade income taxes and to enable the company to evade payroll and
other employment taxes.
Two counts were returned in the indictment against Marek:
a “Klein Conspiracy” to defraud the United States by obstructing
the IRS, see United States v. Klein, 247 F.2d 908 (2d Cir. 1957),
and a separate count of “corruptly . . . endeavor[ing] to obstruct
or impede[] the due administration of [the Internal Revenue Code],”
the so-called “omnibus provision,” 26 U.S.C. § 7212(a). The Klein
Conspiracy count focused on Marek’s alleged participation in the
scheme to manipulate and conceal payments to employees. The
omnibus count focused on the submission of the false invoices to
the IRS. Marek waived the right to a jury trial, and his case was
tried to the court together with five other defendants connected to
Stoneham Towing and charged with related offenses.
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B.
At trial Marek stipulated that he created the invoices in
question. The evidence established that Marek supplied these
invoices to Stephen Mazzola who in turn supplied them to the IRS
auditor. The evidence also showed that the invoices prepared by
Marek and submitted to the IRS were not originals created at the
time of the purported sales recorded therein, but were created by
Marek in response to Stephen Mazzola’s request. As discussed
below, evidence was presented bearing on the falsity of the
invoices and culpable intent.
After the presentation of the government’s evidence,
Marek moved for an acquittal under Federal Rule of Criminal
Procedure 29 asserting that the evidence was insufficient under
both counts. The district court granted the motion with respect to
the Klein Conspiracy count. However, the district court denied the
motion with respect to the count of corruptly endeavoring to
obstruct or impede the due administration of the Internal Revenue
Code. The district court ultimately found Marek guilty under this
omnibus count. The district court concluded both that the invoices
were false, and that Marek had the intent required by the statute.
With respect to intent, the district court found that Marek either
knew of or was willfully blind to the fact that the invoices would
be presented to the IRS as part of an audit of Stoneham Towing.
Marek was therefore guilty of the offense charged under § 7212.
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On August 17, 2007, the district court sentenced Marek to
one year of probation, the first six months of which would be under
home detention without electronic monitoring, and a $3,000 fine.
Marek timely appealed. We have jurisdiction pursuant to 28 U.S.C.
§ 1291.
II.
The sole issue on appeal is whether there is sufficient
evidence to support Marek’s conviction under 26 U.S.C. § 7212(a).
We evaluate the evidence in the light most favorable to the
government, accepting all reasonable inferences supporting the
verdict, and determine whether “‘any rational trier of fact could
have found the essential elements of the crime beyond a reasonable
doubt.’” McFarland, 445 F.3d at 31 (quoting United States v.
Grace, 367 F.3d 29, 34 (1st Cir. 2004)).
The interpretation of 26 U.S.C. § 7212(a) is a matter of
first impression for this court. See United States v. Brennick,
134 F.3d 10, 12-13 (1st Cir. 1998) (discussing sentencing
guidelines but not the elements of the crime). However, the plain
language of the statute supports an interpretation requiring proof
that the defendant 1) corruptly, 2) endeavored, 3) to obstruct or
impede the due administration of the Internal Revenue laws. See 26
U.S.C. § 7212(a); see, e.g., United States v. Wilson, 118 F.3d
228, 234 (4th Cir. 1997). Supplying false documents knowing that
the documents will be used to deceive the IRS during an audit is a
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quintessential violation of the statute. See Wilson, 118 F.3d at
234-36 (finding violation based on false backdated notes created by
an attorney to support a client’s efforts to evade paying tax owed
during an IRS audit); see also United States v. Bowman, 173 F.3d
595, 599-600 (6th Cir. 1999) (holding that awareness of an audit is
not required where false information returns about creditors were
submitted to the IRS to harass and annoy creditors); United States
v. Popkin, 943 F.2d 1535, 1540-41 (11th Cir. 1991)(finding
violation based on shell corporation created by an attorney to help
a client hide money from the IRS).
Marek claims that 1) there was not sufficient evidence to
support finding beyond a reasonable doubt that the invoices were
false, and 2) even assuming the invoices were false, there was not
sufficient evidence to support finding beyond a reasonable doubt
that Marek knew that the invoices would be used to deceive the IRS
in an audit.
A.
The evidence strongly supports the district court’s
finding of falsity. As the district court found, the evidence was
uncontroverted that Marek “did . . . ‘recreate’ invoices that
allegedly represented cash purchases.” An expert witness testified
that none of the documents of either Snap-On Tools or Stoneham
Towing included any support for the alleged cash transactions
represented in the invoices submitted to the auditor. There were
as many as 70 boxes of documents from Stoneham Towing alone that
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were reviewed for corroboration of the alleged cash transactions.
Marek concedes that “in the records produced by Marek, there were
no ledgers showing cash receipts . . . .” (Appellant’s Reply Br.
13.) The district court found, and Marek does not dispute, that
none of the other copious business records in this case included
any mention of, or support for, the cash purchases. There was also
testimony by former employees that at least some of the items on
the invoices either were never purchased or were purchased before
1992.
Several of the invoices were made out to an individual
who was not even employed by Stoneham Towing at the time of the
dates on the invoices. Former employees who received cash payments
from Stoneham Towing testified that these cash payments represented
compensation for their regular work, and that these payments were
not reported on their Paychex paycheck stubs or on their W-2s.
Joseph Mazzola testified that the checks questioned by
the auditor were not used to purchase from vendors, but were
instead used to pay employees, and that the Snap-On Tools invoices
presented to the auditor were false. He also testified that
Stephen Mazzola regularly directed employees to cash checks for
cash payments to employees on weekly paydays each Friday. Joseph
Mazzola described his method for keeping a second set of books to
record those cash payments to the employees.
Also in evidence were a series of checks and testimony
showing that Marek did not always demand cash from Stoneham Towing,
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contrary to the explanation Stephen Mazzola offered to the auditor.
There is ample evidence to establish falsity.
B.
On the issue of intent, the evidence that the invoices
were false (and that Marek prepared them) in and of itself supports
the district court’s finding that Marek was aware of their falsity
and that they would be used for an improper purpose. Marek
argues, however, that, while the evidence might show that he was
aware that the invoices were to be used for an improper purpose,
the evidence did not support a finding that he was aware that they
were to be used to corruptly influence the IRS, a required element
of the offense.
We start with the premise that IRS audits of businesses
routinely seek invoices to support the existence of legitimate
business expenses. The IRS provides advice on recordkeeping to
small businesses, including keeping invoices of receipts,
purchases, and expenses. See, e.g., I.R.S. Publication 583,
“Starting a Business and Keeping Records” (Nov. 1995). The IRS
advises that “records must support the income, expenses, and
credits you report. . . . You must keep your business records
available at all times for inspection by the IRS. If the IRS
examines any of your tax returns, you may be asked to explain the
items reported.” Id. at 12; see also I.R.S. Publication 552,
“Recordkeeping for Individuals” (Nov. 1994).
It is also well known that taxpayers sometimes attempt to
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deceive the IRS by submitting false invoices or other supporting
documentation. The use of false invoices is so paradigmatic of tax
fraud that the Supreme Court listed it among the classic indicia
from which a willful intent to defeat or evade taxes might be
inferred. Spies v. United States, 317 U.S. 492, 499 (1943).2
The district court here noted the “innate suspiciousness
of the circumstances” involved with creating false invoices.
General knowledge in the community can be strong circumstantial
evidence of the defendant’s knowledge. See McGunnigal v. United
States, 151 F.2d 162, 166 (1st Cir. 1945)(general knowledge in the
community may support a finding of defendant’s knowledge). Thus,
an experienced businessman, such as Marek, would likely know that
false invoices are often used to deceive the IRS and have no
legitimate purpose, and suspect that they might be used in an IRS
audit.
We need not decide whether such evidence alone would be
sufficient to convict because the district court did not find that
the mere knowing creation of false invoices was itself sufficient
to satisfy the intent requirement. Rather the district court found
that the “innate suspiciousness” coupled with Marek’s knowledge of
2
For other examples of the use of false invoices in
avoiding taxes, see United States v. Shellef, 507 F.3d 82, 90 (2d
Cir. 2007); Zack v. Comm’r, 291 F.3d 407, 410 (6th Cir. 2002); In
re Grothues, 226 F.3d 334, 339 (5th Cir. 2000); United States v.
Chmielewski, 218 F.3d 840, 841-42 (8th Cir. 2000); United States v.
Powell, 124 F.3d 655, 657-660 (5th Cir. 1997); United States V .
West, 58 F.3d 133, 137 (5th Cir. 1995); United States v. Gurary,
860 F.2d 521, 523 (2d Cir. 1988).
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the IRS audit was sufficient.
There was, to be sure, no direct testimony that Marek was
aware of the audit; however, “purely circumstantial evidence can
support an inference of knowledge.” United States v. Lachman, 521
F.3d 12, 17 (1st Cir. 2008); see United States v. Mousli, 511 F.3d
7, 16 (1st Cir. 2007); see also Desert Palace, Inc. v. Costa, 539
U.S. 90, 100 (2003) (“[W]e have never questioned the sufficiency of
circumstantial evidence in support of a criminal conviction . . .
.”).
The district court found that Marek knew about the IRS
audit at the time he created the false invoices based on testimony
by Flood. Flood, another vendor involved in creating false
invoices, testified that the audit was widely known among the
circle of friends that included Marek; that Marek was friendly with
Stephen Mazzola; and that Stephen Mazzola had told Flood about the
audit when he asked him to make false invoices. The district court
inferred that Stephen Mazzola and likely others had also told Marek
about the audit.
Contrary to Marek’s contention, the testimony supports
the district court’s findings. When asked when he had heard about
the IRS audit, Flood stated that he couldn't recall but that “[i]t
was all over town. I mean, Stephen [Mazzola] had said it
himself.”3 The district court “credit[ed] [Flood’s] testimony that
3
The full testimony is as follows:
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the fact that the Mazzolas were being audited was widely known, if
not in the community at large, as Mr. Flood testified, certainly it
was known among the circle of friends of Stephen Mazzola of which
Mr. Marek and [another vendor/defendant] were a part.”
The evidence shows that Stephen Mazzola and Marek were
close associates. Flood testified that he and Marek were not only
business associates with Stephen Mazzola, but that Flood, Marek,
and Stephen went on road trips to car shows together and spent time
together on vacation with their families in Florida.4
Q: Prior to that time that evening, had you heard
about the IRS audit?
A: Yes.
Q: When?
A: I can’t recall the time.
Q: Do you recall how you heard about the audit?
A: It was all over town. I mean, Stephen [Mazzola]
had said it himself.
Q: Stephen had said it to whom?
A: To me.
Q: Do you recall when?
A: No, I don’t recall.
Q: Do you recall where?
A: In his office.
4
Flood testified that he and Stephen Mazzola went with
groups on road trips to a number of car shows. Flood testified
that “Marek went to a few of them with us.” Flood also testified
about spending time in Florida with Stephen Mazzola and Marek while
on vacation:
A: We were down in Florida, and Stephen [Mazzola] and
I --
Q: Can you tell us who was down in Florida when you
say “we”?
A: The group of us that went to Florida on vacation.
We met with . . . Marek, his wife and family, and
my wife, my brother-in-law Richard and his wife,
Stephen [Mazzola] and his wife.
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Flood additionally testified that Stephen Mazzola told
Flood that the purpose of creating the false invoices was for an
IRS audit,5 and that Marek had also agreed to help create invoices,
supporting an inference that Marek was also told.6
5
Flood testified:
Q: What did you understand was the purpose for your
making up those fake slips that night?
A: To help him [Stephen Mazzola] with an IRS audit.
Q: How did you get that understanding?
A: Because that’s what he [Stephen Mazzola] said.
On cross examination, Flood instead testified that
Stephen Mazzola only said he needed the invoices “for his
accountant”; Flood specifically testified that Stephen Mazzola did
not mention that the false invoices were for use in the IRS audit.
However, on review we must view the evidence in the light most
favorable to the government; the district court was within its
discretion to resolve conflicting testimony on the contents of this
conversation in favor of the government.
6
Flood testified:
Q: When you arrived over there at Stephen’s office,
did Stephen talk to you?
A: (Witness nods.)
Q: What did he say to you?
A: He asked me what I wanted for pizza, and then we
sat down, and he started telling me what to write
on these slips.
* * *
Q: Did he discuss with you whether other people were
writing slips?
A: Yes.
* * *
Q: What did he tell you?
A: He told me that a few of the other guys were
writing out slips also.
* * *
Q: What do you recall him saying? Who else did he
tell you?
A: . . . Marek and James Konaxis.
Q: And what did he tell you about their making slips?
A: He didn’t say they actually had. He said he was
going to get them to make slips.
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There was also testimony that Flood, Marek and others
were seen preparing documents. Richard McDonough, a friend of
Stephen Mazzola’s, testified that he came by Stephen Mazzola’s
place of business one afternoon after business hours and saw Marek,
Flood, and another co-conspirator who submitted false invoices
sitting together with Stephen in Stephen’s office, each with “bills
of sales or a book that you would write parts up for” in front of
them. This itself suggested the likelihood of discussion about the
purpose of the exercise.
At a minimum, the close association of Marek and Stephen
Mazzola; the fact that Stephen Mazzola recruited Marek to prepare
invoices; and Stephen Mazolla’s disclosures to Flood about the
audit and the planned use of the invoices support an inference that
Stephen Mazolla provided similar information to Marek.7 United
States v. Azubike, 504 F.3d 30, 37 (1st Cir. 2007)(holding that a
jury could infer that the defendant knew that a briefcase contained
narcotics because of the close association between the defendant
and others who likely did know the contents of the briefcase);
7
The district court found it unlikely that “what Stephen
Mazzola confided in a lesser friend [Flood] he would not have also
told his better friends [Marek].” Although the peripheral finding
that Flood was the lesser friend and Marek the better friend is, at
best, sparsely supported on the record, any such factual error
would be harmless, as the evidence that both Flood and Marek had a
close relationship with Stephen Mazzola is substantial, and such
evidence supports the district court’s inference of Marek’s
knowledge of the audit.
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United States v. Ortiz, 966 F.2d 707, 712-14 (1st Cir. 1992).8
Appellant argues that “there are a myriad of other
explanations” for why Marek would create false invoices, citing as
an example a hypothetical effort to deceive the Mazzola company
accountant about whether “someone like Joseph Mazzola had been
stealing from the company.” But the district court found that such
alternative explanations were not credible, and there is no basis
for rejecting this finding. The absence of a credible alternative
possible explanation for Marek’s creation of the false invoices
also supports the district court’s guilty verdict.9
Marek argues that “[Stephen] Mazzola had left Marek with
8
See also United States v. Huezo, No. 107-0031-CR, 2008
WL 4553150 (2d Cir. 2008)(knowledge of a money laundering scheme
can be inferred despite complete absence of direct evidence the
defendant was told about the scheme because the close relationship
between defendant and the money launderers and defendant’s
participation in the scheme are circumstantial evidence of
knowledge); see also United States v. Kaplan, 490 F.3d 110, 120 (2d
Cir. 2007)(“[E]vidence regarding the knowledge of individuals other
than the defendant should be admitted only if there is some other
evidence in the record—concerning, for example, the nature of the
fraud or the relationship of the parties—from which to conclude
that the defendant would have the same knowledge.”)
9
The district court also mentioned that “whatever doubt
I may have had regarding the defendants’ knowledge of the ultimate
purpose of the invoices was dispelled by the very nature of the
defense and the preposterous effort to prove that these invoices,
in fact, reflected some aspect of reality.” Of course, it is
improper to consider mere argument, no matter how good or bad, as
evidence in support of a conviction. See United States v. Riccio,
529 F.3d 40, 43-45 (1st Cir. 2008); see also 1st Cir. No. 3.08
Pattern Crim. Jury Instr.(1998)(“Arguments and statements by
lawyers are not evidence.”) As the issue is not raised on appeal,
we simply decline to consider this as “evidence” in the context of
this challenge to the sufficiency of the evidence.
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the impression that Mazzola and his accountant were trying to
determine which of the Mazzolas, who were having family problems,
had purchased which items. This is why, when Marek recreated the
invoices in the manner described below, they were made in the name
of the actual Mazzola who Marek remembered selling the particular
item to, rather than the name of either of the companies [Stoneham
Towing, Inc. or Bodyworks] as would have been more logical had
Marek known that they were to support an audit of the company.”
(Appellant’s Br. at 2-3.) However, the premise of this argument is
incorrect. While some of the invoices were made out in the name of
an officer or employee, many were made out expressly to Bodyworks,
and many others included reference to “Stoneham” in parentheses
together with the name of an employee.
We conclude that the inference that Marek knew about the
audit was supported by the record. Thus, viewed in the light most
favorable to the government and drawing all reasonable inferences
in favor of the government, Marek’s conviction is supported by
sufficient evidence to support a finding that Marek was guilty of
the offense.
III.
Marek’s conviction is affirmed.
Affirmed.
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