The opinion of the court was delivered by: William M. Skretny Chief Judge United States District Court
Presently before this Court are Defendant Kenneth Kasper and Phyllis Kasper's Objections to United States Magistrate Judge Hugh B. Scott's recommendation that their motion to dismiss the indictment against them be denied. (See Docket Nos. 14, 35, and 41.) Defendants are charged with three counts of making false statements on their federal income tax returns, in violation of 26 U.S.C. § 7206(1). For the following reasons, this Court accepts Judge Scott's Report and Recommendation, denies Defendants' Objections, and denies Defendants' Motion to Dismiss the Indictment.
This is the government's second indictment charging Defendants with making false statements on their federal income tax returns. This Court dismissed the first indictment (09-CR-91S) on Speedy Trial grounds on September 3, 2010, which resulted in the return of the instant indictment on October 27, 2010. (Docket No. 1.)
The indictment charges Defendants with falsely reporting their total income for calendar years 1999 (Count 1), 2000 (Count 2), and 2001 (Count 3). In particular, the indictment charges that Defendants falsely reported a loss of $7,366 in 1999, instead of approximate total income of $104,300.38; a loss of $2,687 in 2000, instead of approximate total income of $104,301.71; and a loss of $628 in 2002, instead of approximate total income of $68,874.65. The government maintains that Defendants failed to report certain corporate distributions, including rental payments, that Kenneth Kasper received from corporations in which he was the sole shareholder.
Defendants maintain that these corporate distributions do not necessarily qualify as reportable income under sections 301 and 316 of the Internal Revenue Code, which pertain to the tax treatment of certain distributions of property, and that the grand jury should have considered certain payments made by Kenneth Kasper to an individual named Joseph Burgdorf to determine reportable income. See 28 U.S.C. §§ 301, 316.
Kenneth Kasper and Burgdorf were business associates who operated tourist operations in Niagara Falls, N.Y. In the late 1980s, Kenneth Kasper purchased a one-third share in a corporation called 1660 Grand Island Boulevard ("1660 GIB"), which operated a tourist information center at 1661 Grand Island Boulevard, Grand Island, N.Y. Burgdorf and another individual named Ben Tirabassi each owned the remaining one-third shares.
In the early 1990s, Kenneth Kasper agreed to sell his one-third stake in 1660 GIB to Burgdorf for $100,000. But Kenneth Kasper deferred Burgdorf's obligation to pay until such time as the information center became profitable. In the mid 1990s, not yet having received any payment from Burgdorf despite multiple requests, Kenneth Kasper sued 1660 GIB and Burgdorf. That litigation ended with Burgdorf agreeing to transfer all of his shares in 1660 GIB (as well as his brother's shares, which were obtained after Kenneth Kasper's sale) to Kenneth Kasper. The parties also agreed to execute a consulting/non-compete agreement whereby Burgdorf would provide consulting services to Kenneth Kasper and agree not to compete with him for 10 years. Kenneth Kasper subsequently paid Burgdorf $68,674.98 in 1999; $77,169.95 in 2000; and $61,948.07 in 2001. The government has contended that these payments were actually purchase payments for Burgdorf's shares of 1660 GIB.
Defendants moved to dismiss the indictment on the grounds that the government misled the grand jury, that each count failed to state an offense, that each count was impermissibly vague and indefinite, and that 26 U.S.C. § 7206 was unconstitutional on its face and as applied. Defendants also maintained that Counts 1 and 2 of the indictment were barred by the applicable statute of limitations. The government opposed the motion.
On June 20, 2011, Judge Scott issued a Report and Recommendation (Docket No. 35), recommending that Defendants' Motion to Dismiss be denied. In particular, Judge Scott determined that the government did not mislead the grand jury because a question of fact existed concerning the proper tax treatment of the corporate distributions. He also determined that Counts 1 and 2 are timely. In addition, Judge Scott rejected Defendants' remaining arguments for the reasons stated in his previous Report and Recommendation pertaining to the first indictment in 09-CR-91.
Defendants objected to Judge Scott's Report and Recommendation on July 22, 2011. After full briefing, and oral argument on October 26, 2011, this Court took Defendants' objections under advisement. Thereafter, this Court directed the government to provide it with the transcripts of the proceedings before the Grand Jury for its in camera review. This Court has fully considered those transcripts in reaching its decision.
A. Proceedings Before the ...