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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