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United States v. Welch

Court: Court of Appeals for the Fifth Circuit
Date filed: 1994-04-07
Citations: 19 F.3d 192
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Combined Opinion
                  UNITED STATES COURT OF APPEALS
                       For the Fifth Circuit



                              No. 93-1174


                    UNITED STATES OF AMERICA,

                                                 Plaintiff-Appellee,


                                VERSUS


                          ANTHONY QUINN WELCH,
                         a/k/a Tony Welch,

                                                 Defendant-Appellant.




           Appeal from the United States District Court
                for the Northern District of Texas
                            (April 7, 1994)


Before GOLDBERG, DAVIS, and DEMOSS, Circuit Judges.

DEMOSS, Circuit Judge:

     Anthony Quinn Welch pled guilty to five counts of aiding in

the preparation of false tax returns. He now appeals his sentence.

We affirm the sentence with an adjustment to the term of supervised

release.

                                  I.

     Welch owned and managed All Pro Sports, representing himself

as a professional sports agent.        Welch sought and received tax

return information during 1990 and 1991 from four client-athletes
to prepare their tax returns.         In five separate instances,1 Welch

submitted this tax return information, along with additional false

tax information, to a certified public accountant or other income

tax preparer,    who   then   used    the   information    to   prepare   each

client's individual tax return.           The false information included

losses from businesses never owned by the clients and deductions

that the clients were not entitled to receive.            As a result of the

false information Welch provided, the athletes' tax returns showed

inflated refunds.

     Welch then obtained the prepared tax returns and had them

electronically filed with the Internal Revenue Service by an

electronic    transmitter.      The    returns   contained      instructions

directing the refunds to be deposited directly into various bank

accounts controlled by Welch.2       As a result of the false tax return

information, five refund claims totaling $105,817 were made against

the IRS, and the government lost $29,045.17.

     In April 1992, Welch was indicted on five counts of aiding in

the preparation of false tax returns.         26 U.S.C. § 7206(2).        Welch

pled guilty to all five counts of the indictment.                In February


          1
        Welch filed a total of five false claims for the four
athletes. He filed two claims for one of the athletes and filed
one claim each for the others.
      2
      The athletes gave Welch what they believed to be true and
correct information for the purpose of having their tax returns
prepared.    They had no knowledge of the additional false
information submitted to the tax return preparers by Welch.
Furthermore, Welch's attempt to have the refunds deposited into
accounts that he controlled took place without the clients'
knowledge or consent.


                                      2
1993, the district court sentenced Welch in accordance with the

pre-sentence investigation (PSI) to 33 months in prison on each

count to     be   served   concurrently,      followed   by   three   years   of

supervised release.        The district court also imposed a mandatory

$250 special assessment.        Welch now appeals his sentence.

                                       II.

                                       A.

     Welch first argues, and the government concedes, that the

district court improperly classified Welch's violation of 26 U.S.C.

§ 7206(2) as a Class D felony, authorizing a three-year term of

supervised release under 18 U.S.C. § 3583(b)(2).              We agree.   Each

violation of § 7206(2) carries a maximum penalty of three years

imprisonment and therefore is classified as a Class E felony under

18 U.S.C. § 3559(a)(5).        Welch should have been sentenced to a one-

year rather than three-year term of supervised release after

imprisonment.     18 U.S.C. § 3583(b)(3).        Accordingly, this portion

of Welch's sentence is vacated, and the term of supervised release

is amended to one year.        See United States v. Stokes, 998 F.2d 279,

282 (5th Cir. 1993).

                                       B.

     Welch    next    argues    that    the   district    court   incorrectly

increased his base offense level by two levels under U.S.S.G. §

2T1.4(b)(1) (Nov. 1992).3         That provision authorizes a two-level

    3
     Absent contrary instructions from the Sentencing Commission,
amendments to the Guidelines are prospective. See United States v.
Windham, 991 F.2d 181, 183 (5th Cir. 1993).       Thus, the Fifth
Circuit should apply the Guidelines in effect at the time of
Welch's sentencing, i.e., the November 1992 Guidelines.

                                        3
increase for tax fraud "[i]f the defendant committed the offense as

part of a pattern or scheme from which he derived a substantial

portion of his income."      U.S.S.G. § 2T1.4(b)(1).

      The Guidelines do not specify what constitutes a "substantial

portion" of one's income.       The sentencing court must make that

finding on its own.    In this case, the sentencing court borrowed

the   quasi-formula   from    the   Guidelines'      criminal    livelihood

provision.   Specifically, the provision defines "engaged in as a

livelihood" as: "(1) the defendant derived income from the pattern

of criminal conduct that in any twelve-month period exceeded 2,000

times the then existing hourly minimum wage under federal law; and

(2) the totality of circumstances shows that such criminal conduct

was the defendant's primary occupation in that twelve-month period

(e.g., the defendant engaged in criminal conduct rather than

regular, legitimate    employment;      or   the   defendant's   legitimate

employment was merely a front for his criminal conduct)." U.S.S.G.

§ 4B1.3 comment. (n.2).

      Welch argues that § 4B1.3 should not have been used because

the Guidelines do not explicitly authorize the sentencing court to

refer to this section when determining whether a defendant has

earned a substantial portion of his income from tax fraud.              He

claims that because the language of § 2T1.4(b)(1) itself and its

accompanying commentary do not mention § 4B1.3, the Sentencing

Commission did not intend for it to be applied to § 2T1.4(b)(1).

      We first note that the sentencing court's finding that Welch

derived a substantial portion of his income from tax fraud was a


                                    4
factual one and, therefore, was reviewable only for clear error.

United States v. Mejia-Orosco, 867 F.2d 216, 221 (5th Cir. 1989).4

 We find no such error.                 The sentencing court's reference to §

4B1.3 to determine that Welch derived a substantial portion of his

income under § 2T1.4(b)(1) was proper because § 4B1.3 is intended

to supplement the various specific offenses in Chapter 2 of the

Guidelines, including § 2T1.4(b)(1).                 Congress originally directed

the    Sentencing         Commission        to   specify   a   substantial        term      of

imprisonment for individuals who derive a substantial portion of

their         income    through     illegal      activities.      See       28   U.S.C.      §

994(i)(2).5            Section 4B1.3 merely fulfills Congress's directive.

See       §    4B1.3     comment.    (backg'd)       (reiterating       §    944(i)(2)'s

directive).            In particular, § 4B1.3 provides a quasi-formula to

determine whether the defendant's criminal activity constituted his

or    her      livelihood.        See   §    4B1.3   comment.    (n.2).          If   so,    a




      4
     Welch argues that the court's finding was a legal one because
the court applied a separate Guideline provision in reaching its
conclusion. Welch's argument is not without merit; the difference
between factual and legal findings is not always clearly
recognized. Still, we point out that "findings which require both
assessment of complex evidence as well as sensitivity to legal
purposes may nevertheless be factual." Id. (citing Wainwright v.
Witt, 469 U.S. 412 (1985)). The sentencing court's finding here
was factual because it used § 4B1.3 only as a guide in reaching its
factual finding under § 2T1.4.
       5
     Section 994(i)(2) states "[t]he Commission shall assure that
the guidelines specify a sentence to a substantial term of
imprisonment for categories of defendants in which the defendant
committed the offense as part of a pattern of criminal conduct from
which he derived a substantial portion of his income."

                                                 5
substantial portion of the defendant's income, in fact, comes from

the proscribed conduct.6

     Furthermore, in recent years we have upheld the application of

§ 4B1.3 to other specific offenses, even though the specific

offenses make no reference to the criminal livelihood provision.

See, e.g., U.S. v. Quertermous, 946 F.2d 375, 377 (5th Cir. 1991)

(applying § 4B1.3 to § 2B1.1); U.S. v. Cryer, 925 F.2d 828, 829

(5th Cir. 1991) (same).    While the issue in Quertermous and Cryer

was whether the criminal conduct satisfied § 4B1.3's minimum dollar

amount, both cases nonetheless applied the provision to specific

offenses.    We see no material distinction between § 2T1.4 and the

specific offense provisions that were at issue in Quertermous and

Cryer.

        Having determined that the sentencing court correctly used §

4B1.3 as a guide in applying § 2T1.4(b)(1) in this case, we now

review the result the court reached.      We find no error in the

court's finding that Welch received "a substantial portion" of his

income by filing fraudulent returns.   The government lost at least

$29,000 from Welch's fraudulent scheme, which is enough to satisfy

§ 4B1.3's minimum dollar requirement.       In addition, Welch was

    6
     The government persuasively notes that, although § 2T1.4 does
not specifically refer to § 4B1.3, the wording of each is nearly
identical. Section 2T1.4 provides for a two level increase "[i]f
the defendant committed the offense as part of a pattern or scheme
from which he derived a substantial portion of his income."
     Section 4B1.3's commentary background states "[s]ection 4B1.3
implements 28 U.S.C. § 944(i)(2), which directs the Commission to
ensure that the guidelines specify a 'substantial term of
imprisonment' for a defendant who committed an offense as part of
a pattern of criminal conduct from which he derived a substantial
portion of his income."

                                  6
unable to show evidence of any legitimate employment or source of

income since 1986. In sum, the sentencing court found that Welch's

primary occupation was the filing of fraudulent tax returns,

through which he gained a substantial portion of his income.

Because the district court "enjoys wide latitude in implementing

the Sentencing       Guidelines,   particularly   regarding   findings   of

fact," U.S. v. Quertermous, 946 F.2d 375, 377 (5th Cir. 1991), we

will not disturb its finding here.

                                     C.

        Welch's last argument is that the district court erred in

increasing his base offense level by two levels pursuant to former

§ 2T1.4(b)(3).       That provision provides that "[i]f the defendant

was in the business of preparing or assisting in the preparation of

tax returns, increase by 2 levels."       U.S.S.G. § 2T1.4(b)(3) (Nov.

1992).7      Welch argues that his primary occupation was as a sports

agent and that he offered to prepare tax returns for clients only

as an added service.         He claims that he did not regularly file

returns for or provide tax advice to the general public.         Instead,

he claims, he merely employed a tax preparer or CPA to prepare the

tax returns of his clients and, therefore, former § 2T1.4(b)(3)

does not apply.

        We conclude that the sentencing court's finding was a factual

one.8       We therefore review it only for clear error, Mejia-Orosco,

        7
         See supra note 3.
    8
     Until now, we had not addressed former § 2T1.4(b)(3) and what
constitutes being "in the business" of filing fraudulent tax
returns. We have addressed, however, a similar provision: former

                                      7
867 F.2d at 221, and again find no such error.             We first dismiss

Welch's notion that § 2T1.4(b)(3) is limited to those tax preparers

who "hang out a shingle."        Section 2T1.4(b)(3) is not limited to

officially licensed tax preparers; the provision covers those who

are "in the business of . . . assisting in the preparation of tax

returns."     §    2T1.4(b)(3)   (emphasis       added).    The     commentary

additionally provides that "[s]ubsection (b)(3) applies to persons

who regularly act as tax preparers or advisers for profit."                 §

2T1.4, comment. (n.3).

     The sentencing court in this case found that Welch's true

occupation was not as a sports agent but as an organizer and

preparer of fraudulent tax returns for profit.                Welch was not

licensed or recognized as a sports agent and was unable to provide

evidence of legitimate profits as a sports agent.              Furthermore,

Welch    failed   to   demonstrate   that   he    was   otherwise   gainfully

employed, and he played the principal role in the drafting and

filing of at least five individual fraudulent tax returns over a

three-year period. He also misrepresented himself at least once as

a CPA.    We find no error in the sentencing court's finding that

Welch was "in the business" of filing fraudulent tax returns.




§ 2B1.2(b)(3)(A), which provided a four-point enhancement if the
defendant was "in the business of receiving and selling stolen
property." U.S.S.G. § 2B1.(b)(3)(A) (Nov. 1989). In United States
v. Esquivel, 919 F.2d 957 (5th Cir. 1990), we affirmed the
enhancement of a defendant's sentence for stolen property, though
the conduct at issue was not prolonged or sustained. The Court
relied on the size and sophistication of the defendant's operation
in order to justify the increase. Id. at 960-961.

                                      8
                                          III.

        Because        the   sentencing   court   findings   were   not   clearly

erroneous, we AFFIRM Welch's sentence AS AMENDED.




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