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

McLAUGHLIN, Circuit Judge,

dissenting:

I respectfully dissent. In my view, the indictment in this case is not only constitutionally sufficient, it alleges a violation of a known legal duty. No more is required by 26 U.S.C. § 7206(1).

THE FACTS

I begin by recounting in full the factual theory offered by the government in support of the stricken allegations (which the parties refer to as “the Boyle Allegations”). It bears emphasis that for purposes of this appeal, “the facts alleged by the government must be taken as true.” United States v. Velastegui, 199 F.3d 590, 592 n. 2 (2d Cir.1999) (citing United States v. Rosengarten, 857 F.2d 76, 78 (2d Cir.1988)).

The government alleges that from 1991 to 1993, Robert Boyle was the chairman of Hudson Valley Hospital Center (“HVHC”), a small community hospital in Peekskill, New York. He was also a director of HVHC’s parent corporation, Westchester-Putnam Health Management Services, Inc. CWPHMS”). In early 1991, Boyle called an abandoned commercial office building (suitable for doctors’ offices) in Croton, New York to the attention of defendant attorney Albert Pirro. According to the government, Pirro and Boyle then hatched a scheme to use the abandoned Croton building as a vehicle through which they *96could exploit Boyle’s status as a director and chairman to misappropriate money from WPHMS and its subsidiaries. Pirro would buy the office building, and then with Boyle’s help would lease it to a subsidiary of WPHMS. WPHMS would then pay for the building’s renovation, and the pair would ultimately sell it for a substantial profit. Under the government’s theory, Pirro and Boyle agreed to share their profits from this scheme on a 50-50 basis.

As the first step in the plan, Pirro set up Distinctive Properties of Croton, Inc. (“DPC”) as an S Corporation. DPC’s original Shareholders’ Agreement lists Pirro as its 90% owner, with the other 10% being owned by his law partner, Paul Monsell. In February 1991, about two-and-a half months before DPC even bought the Cro-ton building, DPC leased the building to Hudson Valley Ventures, Inc. (“HW”), a subsidiary set up by Boyle’s employer WPHMS.

The pair had to figure out a way to pay Boyle without calling attention to the fleecing he was giving his employers. Two documents in the record add some mystery to the arrangements.

The first is an agreement dated April 3, 1991, in which DPC granted to one of Boyle’s wholly owned companies — West-chester Concrete, Inc. — an option to acquire 45% of DPC’s shares for $10. The Westchester Concrete company was no more than a cat’s-paw for Boyle: the $10 option would exist only as long as Boyle owned 100% of Westchester Concrete. In addition, the agreement proclaimed that DPC granted the option because “ROBERT BOYLE, on behalf of Westchester Concrete, Inc. did find and otherwise organize the overall transaction including the lease with Peekskill Community Hospital and its various entities.” The agreement provided that Boyle had to exercise the option within 30 days of DPC’s purchase of the Croton office building, otherwise the option would expire.

The second document is a revised DPC “Shareholders’ Agreement” dated March 1991. This new Shareholders’ Agreement lists Messrs. Pirro, Boyle and Monsell as DPC’s shareholders, and declares that Monsell would own 10% of DPC’s shares, and that Pirro and Boyle would each own 45%. The Agreement includes, however, a “condition precedent” requiring Boyle to obtain a written resolution of the Board of Directors of WPHMS consenting to his acquisition of the DPC shares. The Agreement is signed and executed by Boyle as well as by Pirro and Monsell.

On this undeveloped record, the purpose of these two documents remains obscure. Perhaps Pirro and Boyle actually thought at one point that WPHMS would consent to Boyle’s acquiring an ownership interest in DPC. Or perhaps the pair never intended to seek the requisite consent from WPHMS at all, but instead, as the government contends, created these documents as a mere sham to cloak their arrangement in some semblance of legitimacy. Whatever the case, it is undisputed that when DPC purchased the Croton building for $950,000 on April 19, 1991, Boyle did not exercise his putative $10 option to formally purchase a 45% ownership interest in DPC.

It is also clear that Boyle never publicly signed on as a shareholder of record in DPC. The government alleges, however, that, despite the lack of a paper trail, Boyle in fact became the beneficial owner of 45% of DPC’s shares, and that Pirro, acting as his straw man nominee, distributed the corporation’s profits accordingly. For example, from 1991 to 1993, DPC received rental payments from HW for the lease of the Croton building. During the entire period of the leasehold, as these payments came in from HW, DPC made a series of payments to another of Pirro’s companies, PM Messenger, Inc. (“PMM”). PMM then made payments in precisely the same amounts to Rogene Industries, Inc., a company wholly owned by Boyle. The total amount funneled to Boyle in this fashion was $135,726.70. Then in 1993, *97two days after DPC sold the building outright to its tenant, HW, for $1.5 million, yet another of Pirro’s companies, AJP Management Group, Inc., paid Rogeiie $156,572.57. The government alleges that the total payments funneled by DPC to Boyle amounted to almost exactly 45% of the monies derived from the purchase, renovation, leasing and sale of the Croton building.

In early 1993, Pirro had to file DPC’s tax return for the 1992 year. The statute requiring Pirro to file a tax return for DPC as a Subchapter S Corporation was (and still is) 26 U.S.C. § 6037(a). That statute provides in pertinent part:

Every S Corporation shall make a return for each taxable year, stating specifically ... the names and addresses of all persons owning stock in the corporation at any time during the taxable year, the number of shares of stock owned by each shareholder at all times during the taxable year, [and] the amount of money and other property distributed by the corporation during the taxable year to each shareholder....

26 U.S.C. § 6037(a).

To comply with § 6037(a), an S Corporation must file its income tax return on Form 1120-S entitled “U.S. Income Tax Return for an S Corporation.” Among the obligatory attachments to Form 1120-S are various schedules calling for such information as the S Corporation’s net income, expenses and losses. In addition, the S Corporation must attach to its Form 1120-S a Schedule K-l for each shareholder setting forth the “Shareholders’ Shares of Income, Credits, Deductions, Etc.” On the first page of Form 1120-S is the IRS’s standard warning: “Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete.” An officer of the Corporation must sign the form.

As company president, Pirro signed DPC’s Form 1120-S for the 1992 year. Notwithstanding Boyle’s 45% ownership interest, Pirro filled out the return as if he, Pirro, owned 90% of DPC. No Schedule K-1 was attached for Boyle. And on fine 20 of Pirro’s Schedule K-l which calls for “Shareholder’s percentage of stock ownership for tax year,” Pirro entered “90%”. The return also set forth DPC’s financial results for 1992. In addition to such things as depreciation and assets, DPC’s net income from real estate activities is listed. Correspondingly, Pirro’s Schedule K-l also set forth his 90% share of DPC’s net income from real estate activities, as well as the gross income and net expense figures used to calculate that share.

The indictment charges Pirro with violating 26 U.S.C. § 7206(1), which makes it a felony for “any person ... [to][w]illfully make[ ] and subseribe[ ] any return ... which he does not believe to be true and correct as to every material matter.” The Boyle Allegations actually, charge three discrete bases for criminal liability under § 7206(1):

. .- . . . First, they allege that Pirro “failed to report [on DPC’s 1992 return, Boyle’s] ownership interest in DPC.”
. Second, that Pirro “misstated thereon [his own] ownership interest in DPC.”
. Third, that Pirro “failed to reflect thereon all of the payments DPC had made, through PMM, to [Boyle’s] wholly owned company.”1

*98DISCUSSION

I. Perceived Constitutional Flaws

Judge Gibson homes in on the indictment’s use of the term “ownership interest” to describe beneficial share ownership. He concludes that the indictment is constitutionally flawed because, by employing the term “ownership interest” it failed to: (1) put Pirro on notice of the charged crime as required by the Sixth Amendment; and (2) give the grand jury an understanding of what was necessary to establish the elements of that crime as required by the Fifth Amendment. See ante at 95. I disagree with both conclusions.

A. Sixth Amendment: Clarity of the Indictment

A defendant unquestionably enjoys the right to “be informed of the nature and cause of the accusation” against him. U.S. Const, amend. VI. All that is necessary to satisfy this constitutional mandate is that the indictment “inform[ ] the defendant of the offense charged with sufficient clarity so that he will not be misled while preparing his defense.” United States v. Brozyna, 571 F.2d 742, 746 (2d Cir.1978) (internal quotation marks omitted); see United States v. Alfonso, 143 F.3d 772, 776 (2d Cir.1998) (same). The Sixth Amendment’s notice protection is implemented by the requirement of Rule 7(c)(1) that an indictment contain “a plain, concise and definite written statement of the essential facts constituting the offense charged.” Fed.R.Crim. Pro. 7(c); see United States v. Walsh, 194 F.3d 37, 44 (2d Cir.1999).

Here, the indictment satisfies these requirements. To be sure, the indictment does not use the label “beneficial shareholder” to describe Boyle, nor, for that matter, use the term “nominee” to describe Pirro. Nevertheless, the indictment: (1) describes in detail the evolution of Pirro’s and Boyle’s scheme, including the specific facts that led to Boyle’s acquisition of “a 45% ownership interest” in DPC; and (2) notifies Pirro that this conduct allegedly violated § 7206(1).

Under any man-in-the-street reading, the language “45% ownership interest” is sufficiently specific to apprise Pirro that he is being charged with a violation of § 7206(1) based on the concealment of Boyle’s 45% ownership of DPC. Indeed, the defendant implicitly concedes that he had sufficient notice of the crime charged to allow him to prepare a defense. His brief on this appeal advances no real complaint that he was deprived of constitutional notice. And his successful Rule 12 motion in the district court did not argue for dismissal based on failure of notice, but rather on the weightier objection that there is no legal duty to fill out a Schedule K-l for a person who enjoys only “quasi-shareholder status.” Finally, the district court did not even base its dismissal on failure of notice. Instead, as Judge Gibson concedes, the district court dismissed the Boyle Allegations because it concluded that a legal obligation to include an individual with an ownership interest on an S Corporation’s tax return is “debatable.” Ante at 88.

In these circumstances, Russell v. United States, 369 U.S. 749, 82 S.Ct. 1038, 8 L.Ed.2d 240 (1962), is totally unhelpful to Pirro. The Russell court did indeed hold that an indictment which “failed to sufficiently apprise the defendant [of the crime charged]” was inadequate. See 369 U.S. at 764, 82 S.Ct. 1038. But the Court did so in unique circumstances which have been distinguished numerous times by this and other courts, see, e.g., Walsh, 194 F.3d at 45; United States v. McClean, 528 F.2d 1250, 1257 (2d Cir.1976); United States v. Paulino, 935 F.2d 739, 750 n. 4 (6th Cir.1991) (collecting cases), and which bear little relationship to the issues confronting us today.

*99In Russell, the Court condemned indictments that alleged refusal to answer questions posed by the House Committee on Un-American Activities. This refusal, the indictment charged, violated 2 U.S.C. § 192 which made it a misdemeanor to “refuse[ ] to answer any question pertinent to the question under inquiry.” The Court held that the defendants could not be guilty under § 192 “unless the questions [they] refused to answer were in fact pertinent to a specific topic under [congressional] inquiry.” 369 U.S. at 768, 82 S.Ct. 1038. Crucially, however, the indictment failed to specify even the subject matter under congressional inquiry. Thus, the Russell defendants; faced trial with the “chief issue undefined.” Id. at 766, 82 S.Ct. 1038.

Here, there are no such problems. We all know what the issues are. As has already been made apparent, the Pirro indictment includes “such a statement of facts and circumstances” as to “descend to particulars.” Id. at 765, 82 S.Ct. 1038. Unlike the “cryptic” indictments in Russell, the indictment here charges that Pirro “failed to report [on the 1992 return] the hospital Chairman's ownership interest in DPC,” and “misstated thereon” his own “ownership interest in DPC, arid failed to reflect thereon all of the payments DPC had made, through PMM, to the hospital Chairman’s wholly owned company.” Iri my view, this Circuit’s case law simply does not require the government to “descend” into any greater particularity.2

In sum, by relying on the notice requirements of the Sixth Amendment, Judge Gibson rests on a theory that: (a) has never been argued by the defendant; (b) was not relied on by the district court; and (c) demands a level of specificity beyond what the Constitution requires.

B. The Fifth-Amendment: The Grand Jury Issue '

The grand jury clause of the Fifth Amendment is similarly irrelevant to this appeal. That clause prohibits prosecution for charges not presented to the grand jury. See Walsh, 194 F.3d at 44. All that is required to satisfy the clause is that the indictment contain “some amount of factual particularity to ensure that the prosecution will not fill in elements of its case with facts other than those considered by the grand jury.” Id. (citations omitted).

Judge Gibson notes that it was only after the indictment was returned, that the government specified that Boyle, as the holder of a “45% ownership interest,” was a “45% beneficial shareholder” of DPC. The suggestion is that the government’s post-indictment refusal to adhere slavishly to the “45% ownership interest” language "already appearing in the indictment somehow constitutes an impermissible modification of the essential elements of the § 7206(1) charge presented to the grand jury. I cannot agree.

In my view, this is hardly a case where “[a]t every stage ... the defendant [is] met with a different theory.” Russell, 369 U.S. at 768, 82 S.Ct. 1038. To the contrary, it strikes me that the government’s theory here has remained absolutely constant. Simply put, the Boyle Allegations charge that Pirro violated § 7206(1) by lying on his tax returns about Boyle’s ownership of 45% of DPC. To. the extent that the government’s change in nomenclature from “45% ownership interest” to “45% beneficial shareholder” has any significance, “it simply adds detail,” and indeed *100“narrows rather than broadens” the original charges. United States v. Zvi, 168 F.3d 49, 54 (2d Cir.1999). As such, it was entirely permissible. See e.g., United States v. Miller, 471 U.S. 130, 145, 105 S.Ct. 1811, 85 L.Ed.2d 99 (1985); see also United States v. Castro, 776 F.2d 1118, 1123 (3d Cir.1985) (no violation of Fifth Amendment where “variation did not broaden the bases for conviction, but instead narrowed the scope of the evidence to prove an offense included in the indictment”).

Although this Circuit long ago abandoned “technical rigidity in reviewing indictments,” United States v. Wydermyer, 51 F.3d 319, 324 (2d Cir.1995), Judge Gibson also seeks to support his Fifth Amendment theory by engrafting an additional layer of complexity onto our indictment jurisprudence. He concludes that the indictment was defective because it fails to explicitly specify the legal duty which made Pirro’s lies about Boyle a crime under § 7206(1). See ante at 92-93. Such specificity was required, Judge Gibson maintains, because of the “principle” that “where an indictment charges a crime that depends in turn on violation of another statute, the indictment must identify the underlying offense.” Id.

This has never been the law in this Circuit. To the contrary, “we have consistently upheld indictments that ‘do little more than to track the language of the statute charged and state the time and place (in approximate terms) of the alleged crime.’ ” Walsh, 194 F.3d at 44 (quoting United States v. Tramunti, 513 F.2d 1087, 1113 (2d Cir.1975)); see United States v. Alfonso, 143 F.3d 772, 776 (2d Cir.1998); United States v. Stavroulakis, 952 F.2d 686, 693 (2d Cir.1992).

These requirements were more than satisfied by Pirro’s indictment. Indeed, this is not a case like United States v. Berlin, 472 F.2d 1002, 1006 (2d Cir.1973) in which the government actually omitted a requisite element of the charged offense from the indictment presented to the grand jury. No such omission occurred here. To the contrary, the indictment alleges each essential element of a § 7206(1) violation — charging that Pirro “willfully and knowingly” filed a “false” tax return that “he did not believe to be true and correct as to every material matter.” See United States v. Peters, 153 F.3d 445, 461 (7th Cir.1998) (listing elements of a § 7206(1) violation). More than that, the indictment specifies that Pirro violated § 7206(1) by concealing Boyle’s “45% ownership interest” in DPC. Under our case law, this was all that was necessary. See Walsh, 194 F.3d at 44; Alfonso, 143 F.3d at 776; Stavroulakis, 952 F.2d at 693.

In sum, both my colleagues may legitimately question whether Pirro’s failure to mention in DPC’s tax return Boyle’s real ownership of DPC constitutes a crime. This is a fair question that turns on whether Pirro had a known legal duty to disclose Boyle’s beneficial shareholding in DPC. The question of whether there is a known legal duty, however, is one of law for the court, not the grand jury, to resolve. See United States v. Ingredient Technology Corp., 698 F.2d 88, 97 (2d Cir.1983). Whatever the answer to that question, there can be no doubt that the § 7206(1) charge itself was fairly presented to the grand jury.

II. Is It a Crime?

I turn, at last, to what I regard as the only colorable issue- in this case. The Boyle Allegations purport to charge a violation of § 7206(1). That statute requires the government to prove that the defendant acted “willfully” in filing materially false tax returns. Relying on the due process clause, “the Supreme Court has made clear that in order to avoid snaring people in the tangled net of the tax code solely due to their incompetence, willfulness under the tax laws requires ‘a voluntary, intentional violation of a known legal duty.’ ” United States v. Bok, 156 F.3d 157, 165 (2d Cir.1998) (quoting Cheek v. *101United States, 498 U.S. 192, 200-01, 111 S.Ct. 604, 112 L.Ed.2d 617 (1991)).

Applying these heightened standards, the question presented by this case is a close one — namely, whether there was a known legal duty in 1992 to reflect Boyle as a beneficial owner of DPC’s shares on the tax returns required by Subchapter S. My colleagues’ answer is no. In my view, the answer to that question should be yes.

A. S Corporations

Subchapter S of the Internal Revenue Code was enacted in 1958 to encourage small businesses to adopt the corporate form. See Bufferd v. Commissioner, 506 U.S. 523, 525, 113 S.Ct. 927, 122 L.Ed.2d 306 (1993). The statute accomplishes this goal by means of a pass-through system under which corporate income, losses, deductions, and credits are attributed to the individual shareholders in a manner akin to the tax treatment of partnerships. The tax advantage of an S Corporation.is that it avoids the double taxation of corporate earnings to which shareholders of ordinary corporations are subject. See 26 U.S.C. §§ 1366-1368. Under the law applicable in 1992, to qualify as an S Corporation, a company must: (1) have no more than 35 shareholders; (2) have only one class of stock with “identical rights to distribution and liquidation proceeds;” and (3) distribute its profits and losses to its shareholders on a pro rata basis. See 26 U.S.C. §§ 1361(b)(1)(A); 1366(a)(1)(A).

A small business indicates its decision to become an S Corporation by filing a completed IRS Form 2553. See 26 C.F.R. § 1.1362-6(a)(2). An initial election to become an S Corporation is valid “only if all persons who are shareholders ... on the day on which such election is made consent to such an election.” 26 U.S.C. § 1362(a)(2). “However, once a valid election is made, new shareholders need not consent to that election.” 26 C.F.R. § 1.1362-6(a)(2).3

Every year, an S Corporation must file an informational return, reporting, inter alia, its gross income and deductiorts etc. See 26 U.S.C. 6037(a). Those who are the beneficiaries of income from the corporation must then pay taxes on that income on a personal basis, see 26 U.S.C. § 1366(c), regardless of whether the income is actually distributed. See id.; Hume v. Commissioner, 56 T.C.M. (CCH) 290, 293 (1988), aff'd. 899 F.2d 1225 (9th Cir.1990); see also Knott v. Commissioner, 62 T.C.M. (CCH) 287 (1991). The fact that undistributed income may be taxed explains the rule requiring unanimous initial consent to an S Corporation election. That rule ensures that no person who is the beneficial recipient of an S Corporation’s undistributed income will be forced to report that income involuntarily. See Kean v. Commissioner, 469 F.2d 1183, 1186 (9th Cir.1972).

B. The Legal Status of Beneficial Shareholders

It is a fundamental axiom, applicable even in the criminal context, that tax consequences flow from the substance rather than the form of a transaction, and that “control over property, rather than documentary title” marks the real owner for federal tax purposes. United States v. Schmidt, 935 F.2d 1440 (4th Cir.1991) (collecting cases); see United States v. Atkins, 869 F.2d 135, 140 (2d Cir.1989); United States v. Ingredient Technology Corp., 698 F.2d 88, 95 (2d Cir.1983). My colleagues suggest that this axiom is inapplicable here. It seems to be their perception that there is no statute which obliged Pirro to report Boyle as a beneficial owner on DPC’s returns. I cannot agree.

The majority overlooks 26 U.S.C. § 6037(a), the very statute which required Pirro to file DPC’s return in the first *102place. As already noted, § 6037(a) imposes its reporting obligations with respect to “all persons owning stock in the corporation,” a category it equates with “shareholders.” Neither § 6037(a) itself, nor the accompanying regulations and IRS instructions, even suggest that the terms “persons owning stock in the corporation,” and “shareholders” are somehow confined to ownership interests that are officially recorded on the corporation’s books. And while it is also true that these statutes and regulation did not explicitly state in 1992 that those terms include the beneficial owners of stock, I fail to see why the absence of such an explicit definition should confer a license for the willful concealment alleged here.

The prohibition against vagueness in criminal tax proceedings has never been read to prohibit prosecutions under statutes “which a reviewing court believes could have been drafted with greater precision.” United States v. Herrera, 584 F.2d 1137, 1149 (2d Cir.1978). “All the Due Process Clause requires is that the law give sufficient warnings that men may conduct themselves so as to avoid that which is forbidden, and thus not lull the potential defendant into a false sense of security, giving him no reason even to suspect that his conduct might be within its scope.” Ingredient Technology Corp., 698 F.2d at 97 (quoting Herrera, 584 F.2d at 1149). Here, Pirro had the requisite fair warning, not only from the text of § 6037(a), but from the case law, a governing revenue ruling, and applicable regulations.

“The issue of shareholder status in Subchapter S corporations is not a new one.” Speca v. Commissioner, 630 F.2d 554, 556 (7th Cir.1980). As already noted, an initial election to become an S Corporation is valid, “only if all persons who are shareholders ... on the day on which .such election is made consent to such an election.” 26 U.S.C. § 1362(a)(2). Although the issue of who is a “shareholder” for purposes of determining whether there has been a valid initial election has been litigated many times, it has been resolved by the courts consistently. Every court that has addressed the issue has concluded that a beneficial shareholder of an S Corporation’s stock is indeed that Corporation’s shareholder.

The seminal opinion is Hoffman v. Commissioner, 47 T.C. 218, 1966 WL 1116 (1966), aff'd on basis of tax court opinion, 391 F.2d 930 (5th Cir.1968). In that case, a shareholder in an S Corporation sold her stock to the taxpayer but continued to hold it in escrow (ie., she remained the shareholder of record) to ensure payment of the purchase price. The purchaser-taxpayer consented to a Subchapter S election, but the former owner and still shareholder of record did not. The Tax Court held that her consent was unnecessary. According to the court, “beneficial ownership of the stock, as opposed to technical legal title thereto,” is the “critical” factor in determining who is a “shareholder.” Applying this principle, the court then concluded that “regardless of who had naked title, the shares were really owned by [the purchaser-taxpayer] and were merely pledged as collateral.” This was so, because it was the purchaser-taxpayer of the Corporation who was to enjoy “all the fruits of the enterprise,” whereas the shareholder of record “plainly could not have been taxed” on the Corporation’s undistributed earnings. Id., 47 T.C. at 234.

The cases following Hoffman are legion. See e.g., Cabintaxi v. Commissioner, 63 F.3d 614, 616 (7th Cir.1995) (individuals who are not shareholders of record, are nevertheless “shareholders” for purposes of Subchapter S if they are “beneficial owners” under applicable state law); Pahl v. Commissioner, 150 F.3d 1124, 1228-1129 (9th Cir.1998) (lawyer who joined law firm organized as S Corporation but withdrew without paying for shares was properly treated as shareholder for S Corporation tax purposes and thus required to report pro rata share of profits because he “held a beneficial shareholder’s interest in *103the corporation”); Wilson v. Commissioner, 560 F.2d 687, 689 (5th Cir.1977) (“[T]he term 'shareholders’ must mean those who bear the tax consequences of the election . i.. Because beneficial ownership of stock, not mere record ownership or other formal indicia, determines who bears those tax consequences, beneficial ownership also provides the standard for determining who must consent to the Subchapter S election.”); Kean v. Commissioner, 469 F.2d 1188, 1189 (9th Cir.1972) (‘“shareholders’ who must file a consent are not necessarily 'shareholders of record’ but rather beneficial owners of shares who would have to include in gross income dividends distributed with respect to the stock of the corporation”); Lafayette Dist., Inc. v. United States, 397 F.Supp. 719, 724 (W.D.La.1975) (“Traditionally, courts have looked to the beneficial owner in order to ascertain who has the tax liability”); Danenberg v. Commissioner, 73 T.C. 370, 390, 1979 WL 3864 (1979) (“It is well established that for purposes of determining who is a shareholder under the provisions of subchapter S, beneficial ownership of the stock rather than technical legal title is controlling.”); Ragghianti v. Commissioner, 71 T.C. 346, 349, 1978 WL 3361 (1978) (“By now it is well settled that record ownership of stock, standing alone, is not determinative in answering the question as to who is required to include in gross income any dividends attributable to such stock. Rather, beneficial ownership is the controlling factor.”); CHM Co. v. Commissioner, 68 T.C. 31, 37, 1977 WL 3734 (1977) (“in deciding who is a shareholder for subch. S purposes, we look to the beneficial ownership of the stock.”); Hook v. Commissioner, 58 T.C. 267, 273, 1972 WL 2439 (1972) (“[B]eneficial ownership, as opposed to technical legal title, is determinative. ...”).

Also relying on Hoffman, the IRS itself advised as far back as 1970 that:

[F]or purposes of determining who is a shareholder under the provisions of Sub-chapter S of the Code, beneficial ownership of the stock rather than technical legal title is controlling. Accordingly, it is held that the taxpayer who- is the stockholder of record but does not own the beneficial interest in a share of stock of a small business corporation is not a shareholder for the purposes of the provisions of Subchapter S of the Code....

IRS Revenue Ruling 70-615, 1970-2 C.B. 169, 1970 WL 20547 (relying on Hoffman, 47 T.C. 218, 1966 WL 1116). In this Circuit, this Revenue Ruling is “entitled to great deference.” Texasgulf, Inc. & Subs, v. Commissioner, 172 F.3d 209, 217 (2d Cir.1999) (citations omitted). Indeed, it is presumed to “ ‘have the force of legal precedent unless unreasonable or inconsistent with the provisions of the Internal Revenue Code.’ ” Gillespie v. United States, 23 F.3d 36, 39 (2d Cir.1994) (quoting Salomon, Inc. v. United States, 976 F.2d 837, 841 (2d Cir.1992)) (citing Amato v. Western Union International, Inc., 773 F.2d 1402, 1411 (2d Cir.1985)).

The rule that beneficial owners of an S Corporation’s stock are its shareholders is obviously neither “unreasonable” nor “inconsistent” with the purposes and provisions of the Tax Code. Indeed, while I am the first to concede that the federal tax laws are often “esoteric,” I cannot imagine that reasonable people would really have any difficulty understanding the rule that the beneficial owners of an S Corporation’s stock are in fact “persons owning stock in the corporation.” 26 U.S.C. § 6037(a).

The rationales for that rule are self-eiddent. At a threshold level, it prevents an obvious end run around the rule that an S Corporation can have no more than 35 (now 75) shareholders. More fundamentally, it serves the purpose of requiring S Corporations to list for the IRS the actual recipients of beneficial income from the Corporation’s shares. In this latter respect, the beneficial ownership rule is entirely consistent “with the basic congressional purpose [in enacting Subchapter S] to tax” only those who actually receive “dividends paid by the corporation.” *104Kean, 469 F.2d at 1186 (quoting Hoffman, 47 T.C. at 233).

Finally, for much of the history-of Sub-chapter S, the IRS’s regulations have explicitly explained that:

Ordinarily, the person who would have to include in gross income dividends distributed with respect to the stock of the corporation ... is considered to be the shareholder of the corporation.... For example, ... [t]he person for whom stock of a corporation is held by a nominee, guardian, custodian, or an agent is considered to be the shareholder of the corporation.

26 C.F.R. § 1.1361-l(e) (1995). It- is true that this regulation was proposed in 1986, but did not actually get formally adopted until 1995. It is equally true that its predecessor statute-— § 1.1371 — 1(d) containing almost exactly the same language— was withdrawn pursuant to the 1982 Sub-chapter S Revision Act, see Pub.L. 97-364, 96 Stat. 1669 (1982). Nevertheless, I fail to see how the suspension of a regulation, which is obviously merely reflective of (rather than the source for) applicable law, somehow grants taxpayers license to hug-ger-mugger about the real shareholders of their companies.

In light of the wealth of statutory, decisional and regulatory authority establishing that the beneficial owners of an S Corporation’s stock are its shareholders, I am puzzled by my colleagues’ reliance on United States v. Harris, 942 F.2d 1125 (7th Cir.1991). Harris arose from the government’s failed efforts to prosecute a mistress for not declaring as income personal gifts from her paramour. Unlike that situation, ours is not a case where neither “regulations,” nor “appellate or district court cases ... cover the subject.” Harris, 942 F.2d at 1132. I am also unsympathetic to the majority’s apparent concern that no known criminal prosecution has been premised on the identical theory underlying the Boyle Allegations. While I agree that heightened standards are applicable in determining whether a duty has been breached in the criminal context, to me “it is immaterial that there is no litigated fact pattern precisely in point.” United States v. Kinzler, 55 F.3d 70, 74 (2d Cir.1995) (internal quotation marks omitted) (citing cases).

Indeed, this Circuit has allowed tax convictions on the basis of legal duties far less clearly defined than the duty applicable here. In United States v. Ingredient Technology Corp., 698 F.2d 88 (2d Cir.1983), defendants — the SuCrest Corporation and its former president — filed tax returns for the 1976 year claiming deductions for a large amount of sugar inventory. It turned out that while SuCrest retained legal title to the sugar inventories at all pertinent times, it had resold all beneficial interest in those inventories without reporting the resale on its 1976 return. The defendants were convicted of filing a false return in violation of § 7206(1).

On appeal, they argued that their accounting treatment of the sugar was proper under Treasury Regulation Section 1.471-1, which provided that: (1) “goods sold” the “title to which has passed to the purchaser” should be excluded from inventory; and (2) “[mjerchandise should be included in the inventory only if title thereto is vested in the taxpayer.” Relying on these provisions, defendants claimed that they had properly included the sugar in inventory, because title to it had not yet passed to the purchaser, but had remained with SuCrest. At the very least, defendants argued, “the applicable tax law was ... in such dispute that it [did not] provide a clear and definite statement of the conduct proscribed ... thereby negating the element of willfulness.” Id. at 96.

This Court affirmed the convictions. The Court noted that another portion of Section 1.471-1 stated that inventories must be an “income-producing factor.” And, according to the Court, the facts showed that the sugar “was never intend*105ed” to be “an income-producing factor.” To the contrary, the facts revealed that SuCrest had “absolutely no beneficial interest [in the sugar],” and used it solely “to inflate inventory for a few days solely for tax purposes.” Id. at 95. Relying on the long established principle that “taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed,” id., this Court concluded that the defendants “surely ... knew they were committing a wrongful act.” Id. at 96.

Ingredient Technology is directly analogous to the instant case. Just as the SuCrest defendants had no beneficial. interest in their claimed inventory, Pirro had no beneficial interest in half of the 90% of the DPC shares he claimed on his 1992 return. Irrespective of any sham “legal title,” Pirro gave Boyle “actual command” over 45% of the DPC shares. If the plain allegations of the indictment can be proven, Pirro surely knew he was committing a wrong when he concealed that fact on his 1992 return.

To sum up, in my view: (1) beneficial owners of an S Corporation’s stock are indeed “persons owning shares in the corporation” or “shareholders” for purposes of the reporting requirements of 26 U.S.C. 6037(a); and (2) if Boyle was a beneficial owner of DPC stock, then Pirro violated a known legal duty by failing to report him on the 1992 return.

Again, I recognize that under the heightened standards applicable to tax prosecutions, the question presented by this case is an exceedingly close one. The difficulty of that question, moreover, is greatly exacerbated by the undeveloped state of this record. Perhaps my colleagues would be persuaded if the government offered proof that Boyle stashed secret stock certificates evidencing his 45% beneficial ownership of DPC under his mattress. While the government has understandably not offered such evidence, it does stand willing to prove that Boyle had all the rights and obligations of a beneficial shareholder (as well as any other necessary- indicia). Of course if the government were to fail in its endeavor, the district court could then dismiss the Boyle Allegations at-the close of the government’s case. See Fed.R.Civ.P. 29. In my view, it was simply premature for the district court to do so before trial.

. This third Boyle Allegation appears to have nothing to do with whether Pirro’s concealment of Boyle’s ownership interest in DPC constitutes a crime. Instead, the third charge can be read to allege that various of the financial numbers set forth on DPC's 1992 return (such as net income from real estate activities) are misstated, simply because they omit the payments DPC made to Boyle through PMM. As such, the third charge pleads an independent basis for criminal liability. See, e.g., United States v. Bok, 156 F.3d 157, 166 (2d Cir.1998) (affirming § 7206(1) conviction for understating gross receipts). I *98agree with Judge Gibson, however, that the government has failed to preserve this issue for appeal. See ante at 88 n. 5. Accordingly, I join footnote 5 of Judge Gibson’s opinion.

. But even if Judge Gibson's heightened standards are applied, the government complied with them by responding to Pirro's request for a bill of particulars. In that response, the government specified that "a Schedule K-l should have been filled out in its entirety" for Boyle. The significance of this disclosure must have been self-evident: Schedule K-ls are filled out by the ‘‘shareholders ” of an S Corporation. Nevertheless, Judge Gibson faults the government for "choospng] not to specify the nature of [Boyle’s] alleged [ownership] interest” in DPC in its response to Pir-ro’s request for a bill of particulars. Ante at 94.

. For this reason, the cavil that there is no allegation that'Boyle "ever elected to become a shareholder” of DPC is beside the point. See ante al 90. Everyone agrees that Boyle became a shareholder after DPC’s initial election.