United States v. Barakat , 130 F.3d 1448 ( 1997 )

United States Court of Appeals,
Eleventh Circuit.
No. 96-5013.
UNITED STATES of America, Plaintiff-Appellee,
v.
Russell G. BARAKAT, Defendant-Appellant.
Dec. 15, 1997.
Appeal from the United States District Court for the Southern District of Florida. (No. 95-60678-
CR-NCR, Norman C. Roettger, Jr., Judge.
Before ANDERSON, DUBINA and CARNES, Circuit Judges.
CARNES, Circuit Judge:
A jury acquitted Russell G. Barakat of mail fraud conspiracy involving a kickback scheme
but convicted him of filing a false income tax return in violation of 26 U.S.C. § 7206(1), i.e., tax
evasion. At his sentencing, the district court determined that Barakat had a base offense level of
eight and a criminal history category of I, which under the United States Sentencing Guidelines
resulted in a sentencing range of zero to six months. However, the district court gave Barakat
sentence enhancements for: (1) failing to report more than $10,000 in income from criminal activity
(four levels), see U.S.S.G. § 2T1.1(b)(1); (2) using sophisticated means to impede the discovery or
extent of his offense (two levels), see U.S.S.G. § 2T1.1(b)(2); and (3) abusing his position of public
trust in a manner which significantly facilitated the commission or concealment of his offense (two
levels), see U.S.S.G. § 3B1.3. Those three enhancements made Barakat's total offense level sixteen,
resulting in a sentencing range of 21 to 27 months. The district court sentenced him to 21 months
in prison.
Barakat's challenge to the tax evasion conviction is meritless and requires no discussion.
However, several of his contentions involving the sentence enhancements applied in this case
present novel issues. As discussed below, we conclude that the district court erred in applying two
of the three sentence enhancements in this case, and a remand is necessary for clarification of that
court's ruling concerning the third enhancement.
I. FACTS
Barakat was the head of the Broward County Housing Authority ("Authority") during the
late 1980's. His contract with the Authority barred him from working for clients other than the
Authority, and Florida law prohibited him from holding any employment or having any contractual
relationship with any entity that did business with his agency. In the event that Barakat had outside
income exceeding 5 percent of his annual Authority salary, he was required to file a public
disclosure statement.
During his tenure with the Authority, Barakat gained experience working with the United
States Department of Housing and Urban Development ("HUD") and the Federal Housing Authority
("FHA"). He also became acquainted with Frank Daniels, an executive of the Benton Mortgage
Company. Benton Mortgage financed $26,600,000 of the Authority's projects while Barakat headed
the Authority. At the same time, Benton Mortgage was seeking to finance several HUD and FHA
projects around the country, including projects in San Antonio and Los Angeles. In its application
to the San Antonio and Los Angeles housing authorities, Benton Mortgage listed Barakat as a
reference. When representatives of the Los Angeles and San Antonio authorities contacted Barakat,
he gave Daniels and Benton Mortgage favorable references. Both of those housing authorities
thereafter selected Benton Mortgage to help finance their projects.
Sometime after Barakat gave those favorable references for Benton Mortgage, Daniels
instructed a Benton Mortgage loan underwriter to pay E. Lewis Fields, an attorney, a $5,000
"referral fee." The underwriter who received those instructions had worked closely with Daniels
on the San Antonio project but he had never heard of Fields and, as far as he knew, Fields had not
performed any legal work on the project.
In 1990, a federal investigation began to focus on Fields' law firm. Investigators discovered
that Fields had received large fees on at least two bond issues and that those fees were deposited into
his firm's trust account instead of an operating account. In reviewing documents subpoenaed from
Fields' law firm, investigators came across five checks that had been drawn on Fields' trust account
and made payable to Barakat in 1989. The total amount of these five checks was $9,666.
The government interviewed Barakat in connection with its investigation of Fields. During
his interview, Barakat told the government that in 1989 he had done some consulting work for Fields
on projects "located in San Antonio ... and Los Angeles." He had been hired, he claimed, based on
his experience in dealing with HUD and FHA. After further questioning, he admitted that he had
done the consulting work for Benton Mortgage and Frank Daniels, for which he had received
$15,000. According to Barakat, Fields had initially received the $15,000 but the funds were
thereafter split, with two-thirds going to Barakat and one-third being kept by Fields.
The government investigated Barakat's story. Bank records revealed that Benton Mortgage
had written two checks to Fields. The first, for $5,000, was deposited in Fields' trust account on
December 30, 1988. The second, for $10,000, was deposited in Fields' trust account on January 31,
1989. On January 10, 1989, a check drawn on Fields' trust account for $3,333 was made payable
to Barakat. On February 16, 1989, Barakat received a second check, for $5,000, drawn on that
account. Later in 1989, Barakat received three additional checks from the trust account in the
amounts of $700, $333, and $300. The government determined that Barakat had not reported any
of the money he received from Fields' trust account as income in 1989.
II. DISTRICT COURT PROCEEDINGS
Based on its investigation, the government obtained an indictment of Barakat for conspiracy
to commit mail fraud and income tax evasion. The government introduced the evidence of Barakat's
relationship with Benton Mortgage, the recommendations made by Barakat to the Los Angeles and
San Antonio housing authorities, the suspicious payments from Benton Mortgage to Fields' trust
account, and the payments from Fields' trust account to Barakat. Apparently, the government's
position was that these activities were part of an illegal "kickback" scheme, in which Barakat aided
Benton Mortgage in obtaining business by using his position at the Authority in return for money.
A jury acquitted Barakat on the mail fraud conspiracy charge, but convicted him on the income tax
evasion charge.
The United States Probation Office prepared a Presentence Investigation Report ("PSI") for
Barakat and, in accordance with the jury's verdict that the tax loss did not exceed $5,000, calculated
Barakat's base offense level at eight. See U.S.S.G. § 2T1.1. The PSI recommended that Barakat
receive a four-level sentence enhancement because he "failed to report or correctly identify the
source of income exceeding $10,000 in any year from criminal activity." See U.S.S.G. §
2T1.1(b)(1). For that enhancement to apply, as the PSI noted, the district court would have to
consider conduct pertaining to the mail fraud conspiracy charge, for which Barakat had been
acquitted. The PSI recommended three additional sentence enhancements: two levels because
Barakat used "sophisticated means" to impede the discovery of the existence or extent of the offense,
see U.S.S.G. § 2T1.1(b)(2); two levels because Barakat was the organizer, leader, manager or
supervisor of the criminal activity, see U.S.S.G. § 3B1.1(c); and two levels for Barakat's abuse of
his position of public trust; see U.S.S.G. § 3B1.3. Adding these enhancements to Barakat's base
offense level of eight, the PSI concluded that Barakat had a total offense level of eighteen, which
corresponded to a sentencing range of twenty-seven to thirty-three months.
At his sentencing hearing, Barakat objected to the PSI on several grounds: (1) that the
income he did not report was not derived from criminal activity; (2) that he did not receive more
than $10,000 in any year; (3) that the government failed to establish that he had abused a position
of trust; (4) that the government failed to establish that he had used sophisticated means to commit
the offense of income tax evasion; and (5) that he should not be given an enhancement for being
"an organizer or leader" of the criminal activity.
At the sentencing hearing, IRS Special Agent Steven Musgrave, who was stipulated to be
an expert on tax matters, testified that Barakat should have reported $15,000 in income rather than
$9,666. Musgrave testified that the entire $15,000 was income to Barakat and that the $5,334
Barakat "paid" to Fields could not be deducted as an "ordinary and necessary expense."
The district court found that the evidence concerning the tax count and the mail fraud
conspiracy count were "inextricably intertwined," because the court could not distinguish between
the acquitted conduct and the conduct underlying the tax evasion count. However, the court stated
that even if it did manage to separate the evidence concerning of tax evidence from the evidence of
mail fraud conspiracy, it would still determine that Barakat's base offense level was twelve, because
Barakat had received more than $10,000 in income from criminal activity in one year. The court
found that Fields was just a "conduit," and therefore rejected Barakat's suggestion that he should not
be held accountable for the full $15,000 in payments. The court also held that Barakat had used
"sophisticated means" in committing the offense, and therefore deserved a two-level enhancement.
However, the court rejected the PSI's recommendation that Barakat be given a two-level
enhancement for being an "organizer or leader" of criminal activity. Finally, the court found that
it was "rather obvious" that Barakat had abused the public trust. The court therefore determined that
Barakat's total offense level was sixteen and sentenced him to twenty-one months in prison.
III. STANDARD OF REVIEW
We review de novo the district court's interpretation and application of the United States
Sentencing Guidelines ("Sentencing Guidelines"). See United States v. Lewis, 115 F.3d 1531, 1536
(11th Cir.1997). In the context of applying enhancements to specific offense characteristics, this
Court has held that our review is de novo. See United States v. Taylor, 88 F.3d 938, 942 (11th
Cir.1996); cf. United States v. Scroggins, 880 F.2d 1204, 1206 n. 5 (11th Cir.1989)(holding that
the misapplication of guidelines to undisputed facts raises a question of law subject to de novo
review). However, we review the district court's factual findings related to the imposition of
sentencing enhancements only for clear error. See Lewis, 115 F.3d at 1536 (citing United States v.
Dukovich, 11 F.3d 140, 141 (11th Cir.1994)).
IV. DISCUSSION
Barakat challenges each of the three sentence enhancements that the district court applied,
and we will discuss each one in turn.
A. THE § 2T1.1(b)(1) ENHANCEMENT FOR FAILURE TO REPORT MORE THAN $10,000
FROM CRIMINAL ACTIVITY IN ONE YEAR.
The district court found that Barakat had failed to report more than $10,000 that he received
from criminal activity. Barakat contends that he did not receive the unreported income from
criminal activity. He argues that because he was acquitted of the mail fraud count, the money he
received from Fields' trust account and did not report on his tax return was not income from
"criminal activity." Moreover, he argues that the government failed to establish that the checks from
Fields' trust account represented the proceeds of criminal activity, with the result being that the
district court clearly erred in determining the money he received was obtained from criminal
activity. Furthermore, he says, it would be "unfair" and violative of his Fifth Amendment Double
Jeopardy and Due Process rights to consider conduct for which he was acquitted when enhancing
his sentence.
1. Whether the Court Erred In Considering the Mail Fraud Evidence
Relevant conduct of which a defendant was acquitted nonetheless may be taken into account
in sentencing for the offense of conviction, as long as the government proves the acquitted conduct
relied upon by a preponderance of the evidence. See United States v. Watts, 515 U.S. 389, ----, 117
S.Ct. 633, 636, 136 L.Ed.2d 554, reh'g denied, --- U.S. ----, 117 S.Ct. 1024, 136 L.Ed.2d 900 (1997);
United States v. Frazier, 89 F.3d 1501, 1506 (11th Cir.1996); United States v. Averi, 922 F.2d 765,
766 (11th Cir.1991). Courts have uniformly rejected the Double Jeopardy and Due Process
arguments Barakat makes, because "the defendant is punished only for the fact that the present
offense was carried out in a manner that warrants increased punishment." Watts, at ----, 117 S.Ct.
at 636. Moreover, the burden of proof the government carries in a sentencing hearing is the
preponderance of the evidence standard, not the "beyond a reasonable doubt" standard. See id. at
----, 117 S.Ct. at 637 (citing Witte v. United States, 515 U.S. 389, 401-02, 115 S.Ct. 2199, 2207-08,
132 L.Ed.2d 351 (1995)). Therefore, the district court was free to consider Barakat's conduct which
formed the basis of the mail fraud conspiracy charge as long as it was established by a
preponderance of the evidence.
2. Whether Barakat Received More Than $10,000 From Criminal Activity
The record before us indicates that the finding that Barakat had failed to report more than
$10,000 in income from criminal activity was not clearly erroneous, either. Much of the evidence
at trial was directed at proving that Barakat illegally received the income. The government
introduced evidence of a scheme in which Barakat helped Benton Mortgage get business, whether
by recommendation or by using his position with the Authority more directly, and in return he would
receive "kickbacks" for that service. Although the jury found that the government had not proven
the mail fraud conspiracy count beyond a reasonable doubt, the district court did not clearly err in
finding that a preponderance of the evidence proved Barakat had received the unreported income
from criminal activity.
Furthermore, the district court did not clearly err in finding that Barakat's unreported criminal
income exceeded $10,000. IRS Special Agent Steven Musgrave testified that the entire $15,000
paid by Benton Mortgage to Fields' trust account was attributable to Barakat. The district court
accepted that testimony, finding that Fields was merely a "conduit," so that the entire amount was
income to Barakat. The district court did not clearly err in finding that Barakat had received more
than $10,000 in income from his criminal activity. See Anderson v. City of Bessemer City, 470 U.S.
564, 575, 105 S.Ct. 1504, 1512, 84 L.Ed.2d 518 (1985)(recognizing that a trial court's finding based
on a decision to credit the testimony of one of two or more witnesses, which extrinsic evidence does
not contradict, can virtually never be clear error); Krys v. Lufthansa German Airlines, 119 F.3d
1515, 1523 (11th Cir.1997). Whether he received that amount in any one year is another matter.
3. Whether Or Not the More Than $10,000 In Income From Criminal Activity Was Received In
One Year
Barakat contends that the district court erred by concluding that he received the $15,000 in
"one year." He points to the undisputed evidence that a $5,000 check from Benton Mortgage was
deposited into Fields' trust account in December of 1988 and a $10,000 check was deposited in
January of 1989. Because Barakat used a calendar year as his tax reporting period and the checks
arrived in different calendar years, he argues he did not fail to report more than $10,000 in any one
year.
The government argues that the district court was correct, because Barakat received the
money during a time period of less than one year, i.e. less than twelve months, even though that time
period spanned parts of two calendar years. Counting from either Benton Mortgage's payments to
the trust account or from the checks to Barakat, Barakat did receive all of the money in a
twelve-month period spanning parts of 1988 and 1989. Therefore, the government asserts, he failed
to report more than $10,000 in income in one year.
The resolution of this issue depends on the definition of a "year" for the purposes of
U.S.S.G. § 2T1.1(b)(1). The language of the Sentencing Guidelines is to be given its plain and
ordinary meaning. See United States v. Tham, 118 F.3d 1501, 1506 (11th Cir.1997); United States
v. Pompey, 17 F.3d 351, 354 (11th Cir.1994); United States v. Wilson, 993 F.2d 214, 217 (11th
Cir.1993); United States v. Strachan, 968 F.2d 1161, 1163 (11th Cir.1992). The plain and ordinary
meaning of a word depends on its context. As Justice Holmes eloquently put it in another case
involving income tax, "a word is not a crystal, transparent and unchanged, it is the skin of a living
thought and may vary greatly in color and content according to the circumstances and the time in
which it is used." Towne v. Eisner, 245 U.S. 418, 425, 38 S.Ct. 158, 159, 62 L.Ed. 372 (1918).
The § 2T1.1(b)(1) enhancement only applies to offenses involving taxation. See U.S.S.G.
§ 2T (title and introductory comment). The measuring rod for tax offenses, especially reporting
offenses, is almost invariably the taxable year. The taxable year is defined by 26 U.S.C. § 441.
Because Barakat, like the overwhelming majority of personal income tax filers, did not keep
accounting records, § 441(g) applied and his "taxable year" was the calendar year, see 26 U.S.C. §
441(g), a point the government does not dispute. 26 U.S.C. § 6012 imposes an obligation to file a
tax return each taxable year, and the statute under which Barakat was convicted, 26 U.S.C. §
7206(1), criminalizes willfully making a false return. As these statutes applied in this case, Barakat
was convicted of making a false return for calendar year 1989. Therefore, for the purposes of
applying § 2T1.1(b)(1), "year" means taxable year, which in this case is the 1989 calendar year.
The government concedes that Barakat did not receive more than $10,000 from criminal
activity in 1989. Therefore, we hold he did not fail to report more than $10,000 from criminal
activity in calendar year 1989—the "one year" for the purposes of § 2T1.1(b)(1). The district court
erred by giving Barakat a four-level enhancement pursuant to that provision.
B. THE § 3B1.3 ENHANCEMENT FOR "ABUSE OF A POSITION OF TRUST"
The district court also gave Barakat a two-level enhancement pursuant to U.S.S.G. § 3B1.3
for the abuse of a position of trust, because he used his position at the Authority to help Benton
Mortgage get business. Barakat contends that the district court should not have imposed the abuse
of trust enhancement upon him, because any abuse of trust was unrelated to the offense for which
he was convicted, tax evasion. The government contends that the district court was correct, because
absent Barakat's abuse of his position of trust, he could not have committed the offense for which
he was convicted.
The resolution of this issue depends on our delineation of the boundaries of what is an abuse
of trust for the purposes of § 3B1.3. That section of the Sentencing Guidelines provides:
If the defendant abused a position of public or private trust, or used a special skill, in a
manner that significantly facilitated the commission or concealment of the offense, increase
[the sentence] by two levels.
The commentary provides an elaboration about which abuses of trust are contemplated by the
guideline:
The position of trust must have contributed in some substantial way to facilitating the crime
and not merely have provided an opportunity that could easily have been afforded to other
persons....
U.S.S.G. § 3B1.3, comment. (n.1).
This Court's case law is lean on the issue of when an abuse of trust facilitates or contributes
in a significant way to the commission or concealment of an offense. In United States v. Mullens,
65 F.3d 1560, 1566 (11th Cir.1995), we noted that the Sentencing Guidelines require that the abuse
of trust "must have contributed in some significant way to facilitating the commission or
concealment of the offense," but, our holding in Mullens was based on another ground, that the
defendant's cultivation of ordinary social relationships did not place him in a "position of trust." See
id. By contrast, in this case it is clear that Barakat was in a position of trust and that he abused that
trust to obtain the income he did not report on his 1989 tax return.
Other circuits have addressed the issue now before us more directly. In United States v.
Broderson, 67 F.3d 452, 456 (2d Cir.1995), the Second Circuit held that an enhancement for an
abuse of trust requires that the discretion or trust abused must have been placed with the defendant
by the victim. Because the defendant in Broderson was placed in a position of trust by his employer
but not by the government, which was the entity victimized by his fraudulent statements, the § 3B1.3
enhancement was held not to apply. See id. at 455-56. Although we do not quarrel with the result
in Broderson, the rule stated in that opinion may be too broad. Under that statement of the rule, an
enhancement for abuse of trust might be precluded where a doctor uses his professional position and
medical license to violate the controlled substance law. Or perhaps the Second Circuit would hold
that that scenario falls within the Broderson rule, because the victim in such a case is society as a
whole, which has entrusted the doctor with his professional position and license. In any event, we
have held that a § 3B1.3 enhancement is appropriate in such circumstances. See United States v.
Hoffer, 129 F.3d 1196, ---- (11th Cir.1997).
The Seventh Circuit has applied the § 3B1.3 enhancement broadly. In United States v.
Bhagavan, 116 F.3d 189, 190 (7th Cir.1997), the defendant was convicted of income tax evasion
and given a § 3B1.3 sentencing enhancement. Bhagavan had stolen money from the corporation he
operated, thereby bilking his fellow shareholders out of a substantial amount of money. See id. He
failed to report the embezzled funds and was convicted of tax evasion. The Seventh Circuit,
rejecting Bhagavan's argument that the government was the only "victim" of tax evasion, held that
because Bhagavan's "overall scheme" was to cheat the shareholders and not report the income, he
could be given an enhancement for abusing his position of trust with the shareholders to acquire the
income. See id. at 193. The Court explained:
It is enough that identifiable victims of Bhagavan's overall scheme to evade his taxes put him
in a position of trust and that his position "contributed in some significant way to facilitating
the commission or concealment of the offense."
Id. (citation omitted).
However, Judge Cudahy dissented in Bhagavan, because he recognized that the majority had
failed to tie the abuse of trust closely enough to the offense of conviction. He explained:
[A]lthough minority stockholders may be victims of the diversion of revenue, they are not
victims of the crime of conviction—tax evasion—or any other crime, for that matter. Thus,
there is no nexus between the putative victims, the minority stockholders, and the crime of
conviction, tax evasion. No nexus, no enhancement....
Id. at 194 (Cudahy, J., dissenting).
We agree with Judge Cudahy's statement, however, we believe it is more accurate to phrase
the required connection as between the abuse of the position of trust and the offense of conviction.
That is how the Sentencing Guidelines themselves phrase it. They say that the defendant's abuse
of trust must "significantly facilitate the commission or concealment of the offense." U.S.S.G. §
3B1.3. In this context, "offense" must be read as "offense of conviction" in order to maintain
consistency with the definition of relevant conduct in U.S.S.G. § 1B1.3(a)(sentencing courts can
only consider "relevant conduct," which is conduct related to the offense of conviction).
The Sentencing Guidelines provide examples of what constitutes "significant facilitation":
This adjustment, for example, would apply in the case of an embezzlement of a client's funds
by an attorney serving as a guardian, a bank executive's fraudulent loan scheme, or the
criminal sexual abuse of a patient by a physician under the guise of an examination.
U.S.S.G. § 3B1.3 comment. (n.1). In the three Sentencing Guidelines scenarios, the person in the
position of trust has an advantage in committing the crime because of that trust and uses that
advantage in order to commit the crime. It is much easier for an attorney who has been entrusted
with a client's money to steal that money than for an ordinary criminal to do so.
Applying the concept drawn from those examples to this case, it is clear that Barakat did not
use an advantage he, as distinguished from an ordinary criminal, had in order to commit the crime
of tax evasion. The government's contention that Barakat abused his position of trust to obtain the
income he did not report would broaden the crime of tax evasion to include the manner in which the
income was obtained. However, the law prohibiting tax evasion is neutral as to the method by which
the defendant obtained the income, caring not whether it was ill-gotten or richly deserved. The
crime of tax evasion is simply the willful filing of a return known to be false. See 26 U.S.C. §
7206(a). Anyone with any kind of taxable income can do that. Barakat did not use his particular
position of trust to give him an advantage in the commission or concealment of the offense of tax
evasion. Therefore, we conclude that the district court should not have given Barakat a sentencing
enhancement for abuse of a position of trust.
C. THE § 2T1.1(b)(2) ENHANCEMENT FOR USE OF SOPHISTICATED MEANS
The district court also gave Barakat a two-level enhancement pursuant to U.S.S.G. §
2T1.1(b)(2) for using "sophisticated means," channeling the payments from Benton Mortgage
through Fields' trust account, in order to impede discovery of the existence or extent of the offense.
Barakat challenges this enhancement, arguing that: (1) the use of an attorney's trust account could
not be "sophisticated means" as a matter of law; and (2) because the use of the trust account was
related to the mail fraud count, it was outside the scope of the "relevant conduct" which could be
considered in sentencing him for his tax evasion conviction.
1. Standard of Review
This Court has addressed the issue of what "sophisticated means" are once before, and then
only briefly. In United States v. Paradies, 98 F.3d 1266, 1292 (11th Cir.1996), we held that the
district court did not clearly err in enhancing the defendant's conviction for tax evasion where the
evidence showed that the defendant routinely transferred money through shell corporations.
Although reaching that conclusion in Paradies, we did not discuss in any detail the standard by
which this Court would review the district court's application of the sophisticated means
enhancement.
The Sentencing Guidelines explain that "sophisticated means ... includes conduct that is more
complex or demonstrates greater intricacy or planning than a routine tax-evasion case." U.S.S.G.
§ 2T1.1 comment. (n.4). This inquiry necessarily involves a comparison between the present case
and the "routine" tax evasion case, a comparison identical in nature to the inquiry a district court
makes in determining whether a mitigating or aggravating factor takes a case out of the heartland
thereby justifying a sentencing departure. Compare U.S.S.G. § 2T1.1 comment.(n.4) with U.S.S.G.
§ 5K2.0 ("An offender characteristic or other circumstance that is not ordinarily relevant in
determining whether a sentence should be outside the applicable guideline range may [be used if it]
distinguishes the case from the "heartland' cases covered by the guidelines...."). Therefore, we will
take the standard of review prescribed by the Supreme Court in Koon v. United States, --- U.S. ----,
116 S.Ct. 2035, 135 L.Ed.2d 392 (1996), for reviewing § 5K2.0 departures and use it in reviewing
a sophisticated means enhancement.
In Koon, the Supreme Court noted that findings of fact relevant to sentencing decisions are
to be accepted unless clearly erroneous. See id. at ----, 116 S.Ct. at 2046. That is essentially what
this Court did in Paradies. See 98 F.3d at 1291 (accepting the district court's finding that the
defendant had used shell corporations to conceal his income because it was not clearly erroneous).
The Supreme Court did note in Koon that if the district court makes a ruling of law in its sentencing
decisions, the court of appeals "need not defer to the district court's resolution of the point." at ----,
116 S. Ct. at 2047. Therefore, we will review any rulings of law made by the district court in
conjunction with the sophisticated means enhancement de novo.
2. Discussion
Barakat argues that in committing the offense of tax evasion, his only act was to
misrepresent his 1989 income on his tax return. He asserts that because everyone fills out a tax
form, his means of committing tax evasion are no different than the means used by anyone else, and
therefore he cannot be said to have used "sophisticated means" to commit the offense of tax evasion.
That contention misses the mark, because it focuses on the use of sophisticated means to commit a
tax offense, while the enhancement focuses on the use of sophisticated means to conceal the tax
offense. See U.S.S.G. § 2T1.1(b)(2) ("If sophisticated means were used to impede the discovery of
the existence or extent of the offense, increase by 2 levels.").
Barakat also relies on United States v. Stokes, 998 F.2d 279 (5th Cir.1993), to argue that he
did not use "sophisticated means" to conceal his tax evasion. In Stokes, the Fifth Circuit held that
the defendant's concealment of income from her accountant could not be "sophisticated means" for
the purposes of § 2T1.1(b)(2). See id. at 282. With the Stokes holding in hand, Barakat argues that
the use of attorney Fields' trust account was no more complex than concealing income from an
accountant. We do not think that the holding of Stokes is applicable in this case. First, it is not clear
that the Stokes court, which made its decision before Koon was decided, used the same standard of
review that we use today. Because our review is for clear error, we give greater deference to the
district court's finding that Barakat used sophisticated means than the Stokes court appears to have
given the district court's finding in that case.
Second, we do not think that merely failing to report income to an accountant, which is all
that was involved in Stokes, is analogous to using an attorney's trust account. As the government
points out, because Benton Mortgage paid the $15,000 to Fields' trust account, no IRS Form 1099
(used to report payments to non-employees) was generated. As a result, Barakat could fail to
disclose the Benton Mortgage payments knowing that, in the absence of a Form 1099, it was
unlikely the IRS would ever become aware of that income. Therefore, based on the evidence, we
could not say that the district court clearly erred in finding that Barakat had used "sophisticated
means" to conceal his tax evasion if we were convinced the district court's reasoning was untainted
by any error of law.
However, more analysis is required. While this is essentially a factual issue, which is
entrusted primarily to the district court, see Koon, at ----, 116 S.Ct. at 2047, Barakat asserts that the
court committed legal error by taking into consideration conduct pertaining to the mail fraud
conspiracy count when deciding whether to apply the § 2T1.1(b)(2) enhancement. If the district
court took into consideration conduct which does not directly relate to the offense of conviction, it
made an error of law. As noted above, see supra at 947-48, a district court is limited by § 1B1.3 to
considering only conduct pertaining to the offense of conviction. Unless the use of sophisticated
means significantly facilitates the defendant's concealment of his tax evasion from the IRS, it is not
relevant conduct for the purposes of § 2T1.1(b)(2). See Stokes, 998 F.2d at 282.
The district court stated that, had it considered only the evidence relating to the tax count,
it would not have given Barakat an enhancement for either an abuse of trust or use of sophisticated
means. We read that statement to mean the district court found that Barakat had used sophisticated
means to conceal his mail fraud conspiracy, but not his tax evasion. If that is the district court's
holding, it is error. However, it is unclear how the district court could consider only evidence
relating to the tax count when it noted that the evidence relating to the mail fraud conspiracy and tax
evasion charges was "inextricably intertwined." Given this uncertainty, and because the issue of
whether the use of a trust account in these circumstances is a "sophisticated means" of concealing
tax evasion is a close question,1 we vacate the district court's imposition of this enhancement and
remand for a reconsideration in light of our holding that only evidence relating to the tax evasion
count may be considered in making the § 2T1.1(b)(2) decision.
V. CONCLUSION
Barakat's conviction for tax evasion is AFFIRMED. We VACATE his sentence and
REMAND to the district court for further proceedings consistent with this opinion.
1
Compare United States v. Rice, 52 F.3d 843, 849 (10th Cir.1995)(sophisticated means
enhancement inappropriate); Stokes, 998 F.2d at 282 (same), with United States v. Whitson, 125
F.3d 1071, 1075 (7th Cir.1997)(sophisticated means enhancement appropriate); United States v.
Furkin, 119 F.3d 1276, 1285 (7th Cir.1997)(same); United States v. Lewis, 93 F.3d 1075, 1083
(2d Cir.1996)(same).