The opinion of the court was delivered by: LEONARD D. WEXLER
A. The Tarricone Indictment
The earlier prosecution of Balagula and Barberio stemmed from an indictment in this Court returned in January 1992, charging Balagula, Barberio and three co-defendants, Arthur Tarricone ("Tarricone"), Dominic A. Bombace and John Pabone ("Pabone") (the "Tarricone defendants"), with one count of conspiracy to evade the federal gasoline excise tax in violation of 18 U.S.C. §§ 371 and 3623, and two counts of attempted excise tax evasion in violation of 26 U.S.C. § 7201 and 18 U.S.C. §§ 2 and 3623. See United States v. Balagula, et al., CR 92-120 (the "Tarricone Indictment").
The Tarricone Indictment charged the Tarricone defendants with participating in the evasion of over $ 400,000 in federal gasoline excise taxes during the last quarter of 1985 and the first quarter of 1986. During that time, federal law imposed an excise tax of nine cents per gallon for each gallon of gasoline sold, unless the sale was between "registered wholesale companies," that is, companies holding a Registration for Tax-Free Transactions, a "Form 637" from the Internal Revenue Service ("IRS"). These Form 637 holders were known as "licensed" companies. Non-Form 637 holders, or unregistered companies, were known as "unlicensed" companies. Sales between licensed wholesalers, Form 637 holders, were tax-exempt. Such sales were considered "tax-free" because the seller was not required to pay the federal gasoline excise tax to the IRS. The excise tax generally was included in the sale price, and was commonly called a "tax included" or "tax paid" transaction. The responsibility for paying the excise tax fell upon the last registered company in the distribution chain that sold to an unregistered company. Generally, a registered wholesaler included the amount of the excise tax in the cost of the gasoline sold to an unregistered company. The registered wholesaler was required to report the federal excise tax owed as a result of the sale in a quarterly return, a so-called IRS Form 720, and to remit the excise taxes at that time.
The Tarricone defendants allegedly used false invoices to disguise taxable gasoline sales of a company called A. Tarricone, Inc. ("ATI"), a company owned by defendant Tarricone, as tax-exempt transactions between From 637 holders, thereby concealing the federal excise tax liability of ATI. In broad outline, the evidence produced at trial showed that the Tarricone defendants employed a so-called "daisy chain" scheme to avoid the payment of the federal gasoline excise tax. In a "daisy chain" scheme, gasoline taxes are evaded by the creation of a "burn company," generally owned under an alias, which issues invoices reflecting that the applicable excise tax had been paid. By the time government discovers the nonpayment of tax, the "burn company" will have been dissolved and unavailable to pay the tax.
The daisy chain scheme employed by the Tarricone defendants basically worked as follows: ATI, a Form 637 holder, purchased barge loads of gasoline tax-free from other Form 637 holders and then created invoices for fictitious sales to a "burn company" called Conlo, Inc. ("Conlo"), which also held a valid Form 637, but which operated only to allow ATI to document the fictitious transactions. Conlo was controlled by defendant Pabone and an unindicted coconspirator named John Quock ("Quock"). There were no actual sales to Conlo. Rather, ATI sold the gasoline to non-Form 637 holders, including companies in which Barberio and Balagula were involved. Thus, ATI should have paid the federal excise tax on these sales. However, it did not. The conspirators contemplated that Conlo would subsequently be dissolved and would be unavailable to pay the tax.
To complete the daisy chain, the Tarricone defendants used another "burn company" controlled by Pabone and Quock, called Beck Equities, Inc. ("Beck"), a non-Form 637 holder, to issue invoices for fictitious sales to the non-Form 637 holders which were actually buying the gasoline directly from ATI. The false invoices made it appear that all taxes had been paid by Beck to Conlo, which in turn was supposed to have paid the federal excise tax. Among the companies invoiced by Beck were Westchester Hudson Petroleum Corp. ("WHPC") and Hamilton Oil Brokers, Inc. ("HOB"), which was owned by an unindicted coconspirator named John Byrne, but which Byrne testified was actually controlled by Balagula. In turn, HOB sold the "bootlegged" gasoline to a number of unregistered gasoline wholesalers, including Energy Makers of America, Inc. ("EMA"), a company owned by Balagula and for which Balagula worked, and Shore Line Oil Co., Inc., a/k/a Shoreco. Barberio was employed by Shoreco and WHPC. HOB issued invoices to EMA and other purchasers falsely reflecting that all excise taxes had been paid and were being passed on as part of the purchase price.
At the completion of the daisy chain, it appeared on paper that ATI sold the gasoline tax-free to Conlo as a sale between registered wholesalers; Conlo, in turn, sold the gasoline to Beck, an unregistered wholesaler, thereby triggering Conlo's obligation to pay the federal gasoline excise tax; and Beck, in turn, sold to other unregistered companies. Although Conlo, as a Form 637 holder selling to non-Form 637 holder Beck, should have paid the federal excise tax, no taxes were ever paid.
Balagula was convicted on all three counts for purchasing gasoline tax-free from ATI for HOB and of enlisting ATI as the gasoline supplier for the tax evasion scheme. Barberio was convicted on the first and third counts for knowingly participating in the scheme by purchasing gasoline tax-free from ATI on behalf of Shoreco. Balagula and Barberio appealed their convictions to the Second Circuit. Balagula's conviction was affirmed, but Barberio's case was remanded for an evidentiary hearing to determine the issue of whether Barberio's trial counsel rendered effective assistance. See United States v. Tarricone, 996 F.2d 1414 (2d Cir. 1993). At the conclusion of an evidentiary hearing in August 1993 on the issue of effective assistance of counsel as to Barberio, this Court denied the claim. Barberio again appealed, and although the Second Circuit upheld this Court's decision denying Barberio's claim of effective assistance of counsel, it again remanded the case, this time based on certain prosecutorial misconduct, for a determination of whether there was any reasonable likelihood that a government witnesses' false testimony could have effected the judgment of the jury. See United States v. Tarricone, 11 F.3d 24 (2d Cir. 1993). Determination of that issue is pending before this Court.
B. The Macchia Indictment
In June 1993, in Count One of the Superseding Indictment, the grand jury charged Balagula, Barberio and six co-defendants, Joseph A. Macchia, his three sons Lawrence Macchia, George Macchia and Joseph L. Macchia, Viktor Batuner and Michael Varzar (the "Macchia defendants") with conspiracy to evade the federal gasoline excise tax in violation of 18 U.S.C. §§ 371 and 3623. See United States v. Macchia, et al., CR 92-1147 (S-1) (the "Macchia Indictment"). In six additional counts, the Macchia Indictment also charges various of the defendants with attempted excise tax evasion in violation of 26 U.S.C. § 7201 and 18 U.S.C. §§ 2 and 3623. Balagula is charged in four ...