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Film Producer Who Didn't Pay Employment Taxes Can't Avoid $43 Million
Restitution Order
(Parker Tax Publishing: November 03, 2013)

A film maker's conviction on charges of not paying employment taxes and interfering with the administration of the internal revenue laws that resulted in a 144-month prison sentence and a $43 million restitution order was upheld. U.S. v. Harrison, 2013 PTC 304 (4th Cir. 9/26/13).

Bruce Gregory Harrison, III, owned and operated several temporary staffing agencies from offices in Greensboro, North Carolina. Although Harrison employed a large workforce, he failed to file required IRS forms and failed to collect and withhold payroll taxes. Harrison also failed to file personal tax returns for 2004, 2005, and 2006. In late 2006, Harrison sold the staffing companies to two employees. While those employees operated the companies, the payroll taxes were paid and employment tax returns were filed.

In 2008, Bruce reacquired the companies and again stopped paying payroll taxes. He used these withheld payments to fund his lifestyle, including the purchase of a luxury beach house and the production of two motion pictures, National Lampoon's Pucked, featuring Jon Bon Jovi, and Home of the Giants.

For these actions, as well as efforts made to conceal his criminal activities, a federal grand jury indicted Bruce on one count of corruptly endeavoring to obstruct the administration of the internal revenue laws, in violation of Code Sec. 7212(a); 59 counts of failing to account for and pay payroll taxes, in violation of Code Sec. 7202; and three counts of willfully failing to file income tax returns, in violation of Code Sec. 7203. After a three-week trial, the jury convicted Bruce on all 63 counts. Following his conviction, a district court sentenced Bruce to 144 months in prison and three years of supervised release. The court also ordered Bruce to pay restitution of over $43 million as a condition of his release. Bruce appealed.

On appeal, Bruce argued that the government constructively amended his indictment by presenting evidence that he failed to pay federal unemployment tax (and which was not charged in the indictment). A constructive amendment, also known as a fatal variance, happens when the government, through its presentation of evidence or its argument, or the district court, through its instructions to the jury, or both, broadens the bases for conviction beyond those charged in an indictment. Additionally, Bruce said that offenses under the U.S. Tax Code (i.e., Title 26) do not authorize restitution and, even assuming otherwise, any restitution was capped at $15.9 million, the amount of unpaid taxes, rather than the $43 million in tax loss caused by his scheme.

The Fourth Circuit affirmed the district court's sentence. With respect to Bruce's argument that the government presented evidence that he also failed to pay an unemployment tax that was not charged in the indictment, the court noted that this evidence was admitted-without objection-simply to show that Bruce's staffing agencies were still in operation in the years he failed to submit payroll taxes. Further, the court observed, the instructions to the jury specified repeatedly that Bruce was charged with 59 counts of failing to pay over payroll taxes.

The Fourth Circuit also concluded that the restitution order was appropriate, noting that the district court was authorized under 18 U.S.C. Section 3583(d) to impose any condition of probation listed in 18 U.S.C. Section 3563(b). That section, the court noted, authorizes restitution to the victim of the offense. Thus, the court stated, it is well settled that federal courts are authorized to order restitution for any criminal offense, including one under the U.S. Tax Code. Harrison's alternative contention, that the restitution should be capped at $15.9 million, the identified tax loss, fared no better. While Bruce noted that restitution is limited to the offense of conviction and is not for other related offenses of which a defendant is not convicted, the court found that Bruce was overlooking his conviction for interference with the administration of the internal revenue laws, in violation of Code Sec. 7212(a). Bruce's conviction on this count, the court said, covered a broader swath of conduct and amply supported the full restitution award.

For a discussion of the rules relating to fines and penalties that may be assessed as a result of interfering with the administration of the internal revenue laws, see Parker Tax ¶265,148. Parker Tax Publishing Staff Writers

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