PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. No. 06-4506
JAMES DOMINIC DELFINO,
Defendant-Appellant.
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. No. 06-4507
JEANIENE ANN DELFINO,
Defendant-Appellant.
Appeals from the United States District Court
for the Eastern District of Virginia, at Richmond.
Robert E. Payne, District Judge.
(3:05-cr-00202-REP)
Argued: November 2, 2007
Decided: December 18, 2007
Before TRAXLER, SHEDD, and DUNCAN, Circuit Judges.
Affirmed by published opinion. Judge Shedd wrote the opinion, in
which Judge Traxler and Judge Duncan joined.
2 UNITED STATES v. DELFINO
COUNSEL
ARGUED: William Mallory Kent, Jacksonville, Florida, for Appel-
lants. Gregory Victor Davis, Tax Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON
BRIEF: Chuck Rosenberg, United States Attorney, Alexandria, Vir-
ginia; Alan Hechtkopf, Tax Division, UNITED STATES DEPART-
MENT OF JUSTICE, Washington, D.C., for Appellee.
OPINION
SHEDD, Circuit Judge:
James and Jeaniene Delfino appeal their convictions for tax eva-
sion, mail fraud, and conspiracy to defraud the United States, alleging
trial and sentencing errors. Finding no error, we affirm.
I
A grand jury returned a four-count superseding indictment charg-
ing the Delfinos with one count of conspiracy to defraud the United
States in violation of 18 U.S.C. § 371; two counts of attempted eva-
sion of payment of income tax in violation of 26 U.S.C. § 7201 and
18 U.S.C. § 2; and one count of mail fraud in violation of 18 U.S.C.
§ 1341. The case was tried to a jury.
At trial, the evidence tended to show that during the 1990s and
2000s, the Delfinos owned and operated several computer consulting
firms which generated their personal income. However, for the years
1993 through 2004, the Delfinos did not file income tax returns.
Instead, the Delfinos established several trusts in which they placed
their incomes. These trusts likewise failed to file income tax returns
or pay income taxes, and the Government alleged that the trusts were
formed for the purpose of avoiding the payment of income taxes.
In 1997, the Internal Revenue Service ("IRS") began an audit of the
Delfinos and their trusts, but the Delfinos refused to cooperate. As a
result, the IRS calculated the Delfinos’ income from bank records and
UNITED STATES v. DELFINO 3
prepared the Delfinos’ tax returns for the years they had failed to do
so. The IRS then assessed tax on the Delfinos’ total income for those
years without allowing any deductions which they could have
claimed. This assessment formed the basis for the tax evasion and the
conspiracy-to-defraud counts against the Delfinos.
The Delfinos sought to prove that they had relied in good faith on
the advice of Royce McCarley, a trust promoter and self-described tax
consultant. The Delfinos presented evidence that McCarley advised
them how to structure their trusts, that their trusts could be used to
shift liability for income taxes, and that the use of these trusts was
legal. Based on this testimony, the district court instructed the jury
that it could consider the Delfinos’ good-faith defense.
The jury found the Delfinos guilty on all counts. At sentencing, the
Delfinos argued that the tax loss contained in the presentence report
was erroneous because it did not credit them with the deductions
which they could have claimed had they filed their tax returns. The
district court rejected this argument and sentenced the Delfinos based
on the tax loss calculated in the presentence report.
The Delfinos now appeal, arguing (1) the district court abused its
discretion by refusing to admit testimony from six of McCarley’s cli-
ents who participated in trust schemes similar to those at issue here;
(2) there is insufficient evidence to sustain their mail fraud convic-
tions; (3) venue was improper in the Eastern District of Virginia; and
(4) the district court incorrectly calculated their tax loss. We consider
each of these issues in turn.
II
The Delfinos first claim that the district court erred by excluding
testimony from witnesses who would have testified regarding their
participation in McCarley’s schemes. The district court excluded this
evidence because it found that certain of the witnesses did not partici-
pate in a scheme similar to that which the Delfinos claim to have par-
ticipated in, thus rendering the testimony of those witnesses
irrelevant. The district court excluded the remaining witnesses
because it found (1) that good-faith reliance is a purely subjective
defense and that the testimony of other participants in McCarley’s
4 UNITED STATES v. DELFINO
scheme was irrelevant to the Delfinos’ own subjective good-faith
beliefs and (2) that even if these witnesses were "marginally relevant"
to the Delfinos’ defense, their testimony would confuse the jury and
constitute a waste of time because it would require a detailed discus-
sion of each witness’s participation in McCarley’s schemes and there-
fore would essentially constitute a trial within a trial.
We review the district court’s evidentiary rulings for abuse of dis-
cretion. United States v. Hedgepeth, 418 F.3d 411, 419 (4th Cir.
2005). A district court abuses its discretion when it acts arbitrarily or
irrationally, fails to consider judicially recognized factors constraining
its exercise of discretion, relies on erroneous factual or legal premises,
or commits an error of law. Id.; United States v. Williams, 461 F.3d
441, 445 (4th Cir. 2006).
We hold that the district court acted within its discretion in exclud-
ing the participants in the McCarley scheme. A good-faith/reasonable
reliance defense to tax evasion is provable based on a defendant’s
subjective beliefs. Cheek v. United States, 498 U.S. 192, 202 (1991).
Accordingly, testimony from other participants in the McCarley
scheme could be relevant, at most, to bolster the Delfinos’ claim that
they acted in good-faith reliance on McCarley’s advice. Yet the wit-
nesses proffered by the Delfinos were not parties to the same McCar-
ley presentations as the Delfinos, and the Delfinos had no
contemporaneous knowledge that these other participants had acted
on McCarley’s advice. This being the case, the proffered testimony
is not directly relevant to McCarley’s provision of the advice to the
Delfinos and their reliance thereon. Therefore, the district court did
not abuse its discretion by excluding the evidence.
III
The Delfinos next argue that the Government failed to present suf-
ficient evidence to sustain their mail fraud conviction. Specifically,
the Delfinos contend that the Government did not adduce evidence
that they used an interstate commercial carrier. In reviewing the suffi-
ciency of the evidence, our role is limited to considering whether
there is substantial evidence, taking the view most favorable to the
Government, to support the conviction. United States v. Beidler, 110
F.3d 1064, 1067 (4th Cir. 1997). "[S]ubstantial evidence is evidence
UNITED STATES v. DELFINO 5
that a reasonable finder of fact could accept as adequate and sufficient
to support a conclusion of a defendant’s guilt beyond a reasonable
doubt." United States v. Burgos, 94 F.3d 849, 862 (4th Cir. 1996) (en
banc).
To obtain a conviction for mail fraud, the Government must prove
(1) the existence of a scheme to defraud and (2) the use of the mails
(or another interstate carrier) for the purpose of executing the scheme.
United States v. Loayza, 107 F.3d 257, 260 (4th Cir. 1997). The sec-
ond element may be satisfied when a defendant causes the mails to
be used by doing "an act with knowledge that the use of the mails will
follow in the ordinary course of business, or where such use can rea-
sonably be foreseen, even though not actually intended." Pereira v.
United States, 347 U.S. 1, 8-9 (1954). Further, the use of the mails
can be proven through evidence of business practice or office custom.
United States v. Scott, 730 F.2d 143, 146-47 (4th Cir. 1984).
The Government contended that the Delfinos committed mail fraud
when they received by mail a loan application from Countrywide
Home Loans ("Countrywide") in Plano, Texas; fraudulently com-
pleted the application; and returned the same by commercial carrier
to Countrywide. In support of its case, the Government called a Coun-
trywide loan officer who testified that he had no direct knowledge of
the receipt of the Delfinos’ loan application and that he did not have
direct knowledge as to whether it was received by mail or commercial
carrier. However, he stated that Countrywide’s normal business prac-
tice is to send the borrower a return United Parcel Service or Federal
Express envelope, which the borrower then typically uses to return
the application. He further testified that Countrywide likely has used
other methods to transmit or receive loan application information
including hand delivery or delivery by airplane or facsimile transmis-
sion.
We find this evidence sufficient to support the Delfinos’ mail fraud
conviction. The jury was entitled to believe and to rely on the testi-
mony that Countrywide typically sends out a commercial carrier’s
return envelope, which the borrower typically uses to return the loan
application. In relying on this testimony, the jury was entitled to con-
clude that the Delfinos likely returned their loan application by com-
mercial carrier rather than the less likely, though possible, media of
6 UNITED STATES v. DELFINO
airplane, personal delivery, or facsimile transmission. United States v.
Hannigan, 27 F.3d 890, 892-93 (3d Cir. 1994) ("Once evidence con-
cerning office custom of mailing is presented, the prosecution need
not affirmatively disprove every conceivable alternative theory as to
how the specific correspondence was delivered."). We therefore
affirm the Delfinos’ conviction for mail fraud.
IV
Finally, the Delfinos assert that the district court erred in calculat-
ing their tax loss for purposes of sentencing by not subtracting from
the amount of the loss any deductions they could have claimed for the
years in question but did not claim due to their failure to file returns.
We review de novo the legal question of whether the tax loss includes
deductions. United States v. Moreland, 437 F.3d 424, 433 (4th Cir.
2006).
The sentencing guidelines define "tax loss" as: "the total amount of
loss that was the object of the offense (i.e., the loss that would have
resulted had the offense been successfully completed)." U.S.S.G.
§ 2T1.1(c)(1). In arguing that the district court erred in its interpreta-
tion of this provision, the Delfinos rely on United States v. Schmidt,
935 F.2d 1440 (4th Cir. 1991), where we held that it was error to dis-
allow deductions a defendant could have taken under U.S.S.G.
§ 2T1.3(a) (1989), the then-applicable guideline for conspiracy to
impair, impede, or defeat tax defined tax loss. We concluded that "a
fair reading of § 2T1.3(a) supports . . . punishing a crime whose grav-
ity is represented by the actual loss of tax revenue to the IRS." 935
F.2d at 1451 (emphasis added).
We believe we can no longer rely on Schmidt’s interpretation of
"tax loss" under the sentencing guidelines. When we decided Schmidt,
the guidelines defined tax loss as "the greater of: (A) the total amount
of tax that the taxpayer evaded or attempted to evade; and (B) the ‘tax
loss’ defined in § 2T1.3." U.S.S.G. § 2T1.1(a) (1989). Section 2T1.3,
in turn, defined tax loss as "28% of the amount by which the greater
of gross income and taxable income was understated, plus 100% of
the total amount of any false credits claimed." U.S.S.G. § 2T1.3(a)
(1989). However, the Sentencing Commission amended the guide-
lines in 1993 by replacing the definition of "tax loss" on which we
UNITED STATES v. DELFINO 7
relied in Schmidt with the current definition found in § 2T1.1(c)(1).
The current guideline refers to the "total amount of the loss that was
the object of the offense (i.e., the loss that would have resulted had
the offense been successfully completed)" rather than "the total
amount of the tax that the taxpayer evaded or attempted to evade."
The Sentencing Commission explained that it adopted this amend-
ment so that a uniform definition of tax loss would "eliminate[ ] the
anomaly of using actual tax loss in some cases and an amount that
differs from actual tax loss in others." U.S.S.G. App. C, Amend. 491
(1993). By altering the language which Schmidt interpreted and on
which it rested, this change in the sentencing guidelines supersedes
our holding in Schmidt.
With Schmidt no longer binding on this point, we conclude that the
phrase "object of the offense" means "the attempted, or intended loss,
rather than the actual loss to the [G]overnment." United States v.
Chavin, 316 F.3d 666, 677 (7th Cir. 2002) (emphasis in original). In
other words, "the object of the offense" means the loss that would
have resulted had a defendant been successful in his scheme to evade
payment of tax. Thus, if the Delfinos’ scheme had succeeded, the
Government would have been deprived of the tax on the amount by
which they underreported (or failed to report) their taxable income.
This unpaid tax represents the intended loss to the Government. It was
this amount which the district court properly used to calculate the tax
loss for purposes of sentencing.
The Delfinos next look to U.S.S.G. § 2T1.1(c)(2)(A) for relief.1
Section 2T1.1(c)(2)(A) provides:
If the offense involved failure to file a tax return, the tax
loss shall be treated as equal to 20% of the gross income . . .
1
The Government asserts that the Delfinos’ reliance on
§ 2T1.1(c)(2)(A) is misplaced because the Delfinos were sentenced
under § 2T1.1(c)(1) (tax evasion) rather than § 2T1.1(c)(2)(A) (failure to
file a tax return). While that the Delfinos were, indeed, convicted of tax
evasion, § 2T1.1(c)(2)(A) at least arguably applies because the Delfinos’
conduct did include "failure to file a tax return." We therefore consider
the Delfinos’ argument that § 2T1.1(c)(2)(A) entitles them to resentenc-
ing.
8 UNITED STATES v. DELFINO
less any tax withheld or otherwise paid, unless a more accu-
rate determination of the tax loss can be made.
The Delfinos claim that the phrase "a more accurate determination of
the tax loss" mandates the calculation of deductions before tax loss
is determined. The three courts of appeals which have considered this
issue have split, with a majority rejecting the position advanced by the
Delfinos. Compare Chavin, 316 F.3d at 679 (rejecting the inclusion
of deductions) and United States v. Spencer, 178 F.3d 1365, 1368
(10th Cir. 1999) (same) with United States v. Gordon, 291 F.3d 181,
187 (2d Cir. 2002) (concluding that § 2T1.1(c)(1)(A) requires the cal-
culation of deductions). We agree with and adopt the majority view.
In Spencer, the Tenth Circuit stated:
The sentencing guidelines simply authorize a court to avoid
the presumptive tax rates if a "more accurate determination
of the tax loss can be made." We do not interpret this provi-
sion as giving taxpayers a second opportunity to claim
deductions after having been convicted of tax fraud. It must
be remembered that, in tax loss calculations under the sen-
tencing guidelines, we are not computing an individual’s tax
liability as is done in a traditional audit. Rather, we are
merely assessing the tax loss resulting from the manner in
which the defendant chose to complete his income tax
returns.
178 F.3d at 1368 (emphasis added) (internal citations omitted). We
find this reasoning persuasive. The Delfinos chose not to file their
income tax returns. They also chose not to cooperate with the initial
IRS audit, at which time they could have claimed deductions to which
they were entitled. By doing so, they forfeited the opportunity to
claim these deductions. Were the district court now to attempt to
reconstruct the Delfinos’ income tax returns post hoc, it would be
forced to speculate as to what deductions they would have claimed
and what deductions would have been allowed. This would place the
court in a position of considering the many "hypothetical ways" that
the Delfinos could have completed their tax returns. Chavin, 316 F.3d
at 678. The law simply does not require the district court to engage
in this speculation, nor does it entitle the Delfinos to the benefit of
UNITED STATES v. DELFINO 9
deductions they might have claimed now that they stand convicted of
tax evasion.
V
Based on the foregoing, we affirm the Delfinos’ convictions and sen-
tences.2
AFFIRMED
2
The Delfinos also contend that the Government failed to establish
venue in the Eastern District of Virginia. Because the Delfinos’ improper
venue claim was raised in their post-trial motion for judgment of acquit-
tal and/or new trial, we conclude that it was untimely and that the claim
is waived. See United States v. Ebersole, 411 F.3d 517, 528 (4th Cir.
2005); United States v. Collins, 372 F.3d 629, 633 (4th Cir. 2004).