Please E-mail suggested additions, comments and/or corrections to Kent@MoreLaw.Com.
Help support the publication of case reports on MoreLaw
Date: 07-15-2021
Case Style:
United States of America v. JOHN H. NARDOZZI
Case Number: 20-1093
Judge: Gerard Edmund Lynch
Court: United States Court of Appeals
For the First Circuit
Plaintiff's Attorney: Mark S. Determan, Attorney, Tax Division, with whom Richard
E. Zuckerman, Principal Deputy Assistant Attorney General, S.
Robert Lyons, Chief, Criminal Appeals and Tax Enforcement Policy
Section, Katie Bagley, Attorney, Tax Division, Joseph B. Syverson,
Attorney, Tax Division, and Andrew Lelling, United States
Attorney, were on brief
Defendant's Attorney:
Description:
Boston, MA - Criminal defense lawyer represented defendant with conspiracy to defraud the
United States and eight counts of aiding or assisting in the filing of a false tax return charges.
Before his indictment in 2018, Nardozzi was a Certified
Public Accountant ("CPA") with over forty years' experience.
Beginning in 2008, he operated his own accounting firm. Nardozzi
provided tax preparation and tax return filing services to Brian
Joyce ("Joyce"), his wife Mary Joyce, and Joyce's law firm, Brian
A. Joyce, Attorney-at-Law, P.C. ("the Joyce law firm"). At the s
time, Brian Joyce was a Massachusetts state senator.
In December 2017, a federal grand jury indicted Joyce on
113 felony counts, including racketeering, extortion, fraud, money
laundering, and conspiracy to defraud the IRS. The indictment
alleged that Joyce solicited payments from businesses in exchange
for political favors, and then falsely characterized those - 3 -
payments as legitimate legal fees paid to the Joyce law firm.
Joyce died in September 2018, before his case went to trial.
One month after Joyce was indicted, on January 18, 2018,
a grand jury indicted Nardozzi for his role in preparing and filing
tax returns on behalf of Brian and Mary Joyce, and the Joyce law
firm. As described, the indictment charged him with conspiracy to
defraud the United States and eight counts of aiding or assisting
in filing false tax returns.
Conspiracy to defraud the United States by impeding the
IRS's assessment and collection of taxes is commonly known as a
Klein conspiracy. United States v. Mubayyid, 658 F.3d 35, 57 (1st
Cir. 2011); see also United States v. Klein, 247 F.2d 908 (2d Cir.
1957). "To prove a Klein conspiracy, the government is required
to establish both 'an agreement whose purpose was to impede the
IRS . . . ,' and the knowing participation of each defendant in
that conspiracy." Mubayyid, 658 F.3d at 37 (emphases omitted)
(quoting United States v. Adkinson, 158 F.3d 1147, 1154 (11th Cir.
1998)).
Aiding or assisting in the filing of a false tax return
requires proof that the defendant "[w]illfully aid[ed] or
assist[ed] in, or procure[d], counsel[ed], or advise[d] the
preparation or presentation under, or in connection with any matter
arising under, the internal revenue laws, of a return, affidavit, - 4 -
claim, or other document, which is fraudulent or is false as to
any material matter." 26 U.S.C. § 7206(2).
At trial, the evidence against Nardozzi was
overwhelming. The government presented evidence that Nardozzi had
prepared and filed tax returns on behalf of Joyce, Mary Joyce, and
the Joyce law firm which defrauded the United States by
misreporting income and mischaracterizing transactions, costing
the government $598,362.80 in tax revenue.
The government presented evidence that Joyce used his
law firm to pay personal expenses, such as tuition, credit card
bills, vacations, car purchases, and shopping expenses, and
Nardozzi then classified those payments as tax-deductible business
expenses, reducing the Joyce law firm's taxable income by
approximately $2.2 million over a four-year period. IRS revenue
agent James McCurdy testified that this defrauded the government
out of $793,982 in corporate taxes.1
1 IRS revenue agent McCurdy testified that this amount was
offset by an overpayment of $195,619.20 on Joyce's personal tax
returns between 2011 and 2014, resulting in the total net loss to
the government of $598,362.80 during that period. At trial, the
government's theory was that Nardozzi prepared and filed returns
for Joyce that characterized business income as personal income in
order to benefit from the lower effective individual tax rate.
Nardozzi then misused tax devices to minimize Joyce's and his
wife's individual tax obligations. Consequently, when IRS revenue
agent McCurdy calculated the Joyces' actual tax obligation between
2011 and 2014, he found that the Joyces had overpaid taxes on their
individual incomes but had avoided a much larger amount in
corporate taxes owed by the Joyce law firm. - 5 -
The government presented evidence Nardozzi prepared and
filed tax documents that assigned $390,000 of the Joyce law firm's
revenue to Mary Joyce -- even though she performed no work for the
firm -- to inflate her allowable tax-deductible SEP-IRA2
contributions. By increasing the maximum tax-deductible
contribution, the returns prepared and filed by Nardozzi allowed
the Joyces to claim an additional $267,807 in deductions on their
personal returns, impeding the IRS's accurate assessment of taxes
against them.
Nardozzi also prepared and filed a return on behalf of
Joyce which improperly classified a $427,000 stock purchase as an
IRA rollover. This fraudulently allowed Joyce to avoid paying any
taxes or early withdrawal penalties on $217,500 withdrawn from
Joyce's SEP-IRA and $105,125 withdrawn from Mary Joyce's SEP-IRA
(with the remaining funds for the stock purchase coming from other
sources).
Nardozzi failed to properly report on Joyce's 2014
return -- which he prepared and filed -- Joyce's use of
approximately $150,000 of business funds to pay off a personal
loan as taxable income. Nardozzi does not dispute on appeal that
2 SEP-IRA stands for "Simplified Employee Pension
Individual Retirement Arrangement." West's Tax Law Dictionary
§ S1175 (2021). A SEP-IRA allows a self-employed business owner
to provide retirement benefits to both the business owner and his
or her employees. Id. Individuals may make pre-tax contributions
to the SEP-IRA out of the income they earn from the business. - 6 -
each of these instances "impede[d] the IRS." Mubayyid, 658 F.3d
at 57 (emphasis omitted) (quoting Adkinson, 158 F.3d at 1154).
On counts two through eight, the government also
introduced evidence of at least eight separate incidents where
Nardozzi prepared and filed tax returns that omitted or
mischaracterized income for Joyce, his wife, or his law firm.
Nardozzi does not contest on appeal that the returns prepared and
filed by Nardozzi were false.
The government further introduced at trial evidence of
Nardozzi's awareness of the particular tax considerations for a
C-corporation, such as the Joyce law firm. Nardozzi had, for
example, discussed the problem of "double-taxation" between
personal and corporate taxes for a C-corporation in a journal
article and at seminars.
Nardozzi's trial counsel argued in defense that Nardozzi
relied on the information provided to him by Joyce's bookkeepers,
or by Joyce directly, and that Nardozzi was "out of the loop."
Nardozzi's counsel argued to the jury in closing that Nardozzi
"relied on what the bookkeepers told him" and he did not act with
"criminal intent."
On October 16, 2019, the jury returned a verdict of
guilty on all counts. On January 9, 2020, the district court held
a sentencing hearing. At his sentencing Nardozzi stated he had
read and understood the PSR prepared by Probation. The district - 7 -
court imposed a sentence of 18 months' imprisonment, and stated,
"[y]ou're subject, during the 3 years of supervised release, to
all of the mandatory conditions of supervision and the special
conditions set forth in Paragraphs 1 through 8 on Page 23 of the
[PSR]."3 Nardozzi did not object. The district court also ordered
Nardozzi to pay restitution in the amount of $598,362.80. It then
issued a written judgment which stated, among other things, that
Nardozzi would pay restitution according to a "court-ordered"
schedule. Nardozzi again did not object, either at sentencing or
in response to the written judgment. On January 15, 2020, Nardozzi
filed this timely appeal.
3 These are: "1. You are prohibited from engaging in an
occupation, business, or profession that would require or enable
you to prepare taxes or provide consultation on tax issues. 2. You
are prohibited from consuming any alcoholic beverages. 3. You
must participate in a mental health treatment program as directed
by the Probation Office. 4. You must participate in a program for
substance abuse counseling as directed by the Probation Office,
which program may include testing, not to exceed 104 drug tests
per year to determine whether you have reverted to the use of
alcohol or drugs. 5. You must pay the balance of any fine or
restitution imposed according to a court-ordered repayment
schedule. 6. You are prohibited from incurring new credit charges
or opening additional lines of credit without the approval of the
Probation Office while any financial obligations remain
outstanding. 7. You must provide the Probation Office access to
any requested financial information, which may be shared with the
Financial Litigation Unit of the U.S. Attorney's Office. 8. You
shall be required to contribute to the costs of evaluation,
treatment, programming, and/or monitoring (see Special Condition
# 3 & 4), based on the ability to pay or availability of thirdparty payment." - 8 -
II.
This court reviews the sufficiency of the evidence de
novo, construing the evidence in the light most favorable to the
verdict. United States v. Stepanets, 989 F.3d 88, 95 (1st Cir.
2021). Reversal is appropriate only if "no rational jury could
have found that the government proved the [offense] element[s]
beyond a reasonable doubt." Id.
This court "review[s] conditions of supervised release
for abuse of discretion." United States v. DaSilva, 844 F.3d 8,
11 (1st Cir. 2016) (quoting United States v. Del Valle-Cruz, 785
F.3d 48, 58 (1st Cir. 2015)). We ordinarily review the district
court's restitution order under the same standard. See United
States v. Montalvo-Cruz, 745 F.3d 583, 585 (1st Cir. 2014).
Where a defendant fails to raise an issue to the district
court, this court reviews only for plain error. See United States
v. Serrano-Beauvaix, 400 F.3d 50, 53 (1st Cir. 2005). To establish
plain error, a defendant must show "(1) that an error occurred
(2) which was clear or obvious and which not only (3) affected the
defendant's substantial rights, but also (4) seriously impaired
the fairness, integrity, or public reputation of judicial
proceedings." United States v. Duarte, 246 F.3d 56, 60 (1st Cir.
2001) (citing Johnson v. United States, 520 U.S. 461, 466-67 (1997)
(additional citations omitted)). - 9 -
III.
Nardozzi first argues that the government failed to
introduce sufficient evidence that he knowingly conspired to
defraud the United States or that he willfully aided or assisted
Joyce in filing false tax returns. He next argues that the
district court erred by incorporating the conditions of supervised
release recommended by Probation in the PSR by reference, rather
than describing each of those conditions orally at sentencing.
Nardozzi also says the district court erred by failing to impose
at the time of sentencing a specific schedule for the payment of
restitution. None of these arguments has merit.
Nardozzi argues that "there was no evidence of [a]
conspiratorial agreement between Joyce and Nardozzi" and that as
to all counts there is insufficient evidence that Nardozzi acted
either knowingly or willfully.4 We disagree. There is ample
evidence in the record from which the jury could have concluded
there was a conspiratorial agreement between Joyce and Nardozzi.
4 Nardozzi also argues that Joyce and Nardozzi lacked any
financial motive for the misstatements on Joyce's returns. He
states "Nardozzi was convicted for what had to be one of the least
efficacious tax-fraud conspiracies in history" because Joyce made
overpayments on his personal taxes for three of the four years of
returns covered by Nardozzi's indictment. As we have described,
this ignores the fact that the Joyce law firm reduced its taxable
income by approximately $2.2 million over the same period, dwarfing
any overpayment on Joyce's personal returns. Nardozzi does not
challenge on appeal the district court's conclusion that the tax
returns which he prepared and filed on behalf of Joyce underpaid
the IRS by a net total of $598,362.80. - 10 -
"[I]t is a 'well-established legal principle that a conspiracy may
be based on a tacit agreement shown from an implicit working
relationship.'" Mubayyid, 658 F.3d at 57 (quoting United States
v. Patrick, 248 F.3d 11, 20 (1st Cir. 2001)). Nardozzi was an
experienced CPA, with particular knowledge of the tax consequences
of a C-corporation such as the Joyce law firm. Nardozzi repeatedly
mischaracterized personal expenses on Joyce's returns as business
expenses, allowing Joyce to claim millions of dollars in business
tax deductions. In at least two instances -- the early withdrawal
of SEP-IRA funds for Joyce's one-time $427,000 stock purchase and
the use of business funds to pay off a personal loan -- Nardozzi
expressly informed Joyce that the transaction would have negative
tax consequences. When Joyce objected to paying additional taxes,
Nardozzi, knowing it was illegal to do so, followed Joyce's wishes
and reported these transactions in a way that avoided any increased
taxes.
These facts also support the jury's conclusion that
Nardozzi's conduct was knowing and willful. See United States v.
Marek, 548 F.3d 147, 152 (1st Cir. 2008) ("[P]urely circumstantial
evidence can support an inference of knowledge." (quoting United
States v. Lachman, 521 F.3d 12, 17 (1st Cir. 2008))). A jury could
easily conclude that Nardozzi knew that personal expenses could
not be claimed as business deductions and knew the tax implications
of Joyce's financial dealings. A jury could also conclude that - 11 -
Nardozzi understood the consequences of Joyce's dealings based on
Nardozzi's proposal to create backdated corporate minutes
declaring a dividend that could be used to reduce or eliminate
Joyce's personal loan. The government's case is made even stronger
by the fact that Nardozzi expressly advised Joyce that certain
transactions would have adverse tax consequences, but the return
misrepresented those transactions to avoid increased tax
liabilities. In these circumstances, the jury verdict is well
supported by the record at trial.
Nardozzi next argues that the district court erred by
stating that Nardozzi was "subject, during the [three] years of
supervised release, to all of the mandatory conditions of
supervision and the special conditions set forth in Paragraphs 1
through 8 on Page 23 of the [PSR]" without repeating each of those
conditions orally at sentencing.
Under any standard of review, this argument fails.
Mandatory or recommended conditions of release may be incorporated
by reference in the district court's written judgment after
sentencing. See United States v. Tulloch, 380 F.3d 8, 10 (1st
Cir. 2004) (per curiam), as amended (Sept. 17, 2004). In Tulloch
this court stated, "a mandatory . . . condition [of supervised
release] may be included in the written sentencing judgment without
having been mentioned at sentencing" and "the standard supervised
release conditions set out in the United States Sentencing - 12 -
Guidelines may be adopted by reference at the sentencing hearing."
Id. The district court must raise non-standard conditions of
supervised release at sentencing. United States v. SepúlvedaContreras, 466 F.3d 166, 169-70 (1st Cir. 2006). The district
court need not orally describe each of the non-standard conditions
at the sentencing hearing, however. As the Fifth Circuit stated
in United States v. Diggles, 957 F.3d 551, 560 (5th Cir.), cert.
denied, 141 S. Ct. 825 (2020), on which Nardozzi relies, "adoption
of a written list of proposed conditions provides the necessary
notice." Id. "A sentencing court pronounces supervision
conditions when it orally adopts a document recommending those
conditions." Id. at 563. The district court's express oral
adoption of the conditions of supervised release set out in the
PSR satisfies the standards in Tulloch, Sepúlveda-Contreras, and
Diggles. There was no error in the district court's adoption of
the terms of supervised release in the PSR by reference.
Finally, Nardozzi argues that the district court erred
by failing to impose a specific schedule for payment of restitution
at the time of sentencing. This was not error.5 In United States
5 In any event, because Nardozzi failed to object to the
imposition of restitution, our review is only for plain error.
Serrano-Beauvaix, 400 F.3d at 53. Nardozzi has not even attempted
to show how the district court's failure to set out a specific
restitution payment schedule at sentencing affected his
substantial rights, so he has failed to demonstrate plain error.
Cf. United States v. Sawyer, 521 F.3d 792, 796-97 (7th Cir. 2008). - 13 -
v. Morán-Calderón, 780 F.3d 50 (1st Cir. 2015), this court held
that if the district court does not set a schedule for restitution
at sentencing it must make its "reservation of authority explicit."
Id. at 52 (quoting United States v. Merric, 166 F.3d 406, 409 (1st
Cir. 1999)). Here, the district court did so. It stated that any
future payment schedule would be "court-ordered." Nardozzi points
to no authority stating that such a reservation of authority is
inadequate.
Outcome: The judgment of the district court is affirmed
Plaintiff's Experts:
Defendant's Experts:
Comments: