Opinion
Criminal No.: 05-249 (JLL).
September 8, 2008
ORDER
The instant matter comes before the court by way of Defendant Richard Stadtmauer's ("Defendant" or "Stadtmauer") motion [CM/ECF # 294] of June 11, 2008 for a judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29, which includes renewals of his May 22, 2008 motion for a judgment of acquittal and his January 16, 2007 motion to dismiss and strike the indictment. Also before the Court is Defendant's informal request of July 7, 2008, to speak to the jurors who rendered the verdict. For the reasons set forth in the accompanying Opinion, both Defendant's motion and his request to speak to the jurors are denied.
ORDERED that Defendant's motion for a judgment of acquittal and to dismiss the indictment is DENIED; and it is further ORDERED that Defendant's request to interview the jurors from this trial is DENIED.
OPINION
The instant matter comes before the court by way of Defendant Richard Stadtmauer's ("Defendant" or "Stadtmauer") motion of June 11, 2008 for a judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29, which includes renewals of his May 22, 2008 motion for a judgment of acquittal and his January 16, 2007 motion to dismiss and strike the indictment. Also before the Court is Defendant's informal request of July 7, 2008, to speak to the jurors who rendered the verdict. For the reasons set forth herein, both Defendant's motion and his request to speak to the jurors are denied.A. Motions for Judgment of Acquittal
Stadtmauer argues in his motion that he is entitled to a judgment of acquittal on Count 18 of the Redacted Indictment (CM/ECF #284) because the Government failed to prove beyond a reasonable doubt that the tax return underlying Count 18 was materially false or that Stadtmauer acted willfully with respect to the tax return in question. (Def. Br. at 9-12.) He also renews his May 22, 2008 Rule 29 motion with respect to the entire indictment. (Def. Br. at 13.)
1. Legal Standard for a Rule 29 Motion
Federal Rule of Criminal Procedure 29 provides that upon a defendant's motion, a court "must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction. The court may on its own consider whether the evidence is insufficient to sustain a conviction." Fed.R.Crim.P. 29(a). In considering a Rule 29 motion, "the relevant question is whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319 (1979);United States v. Introcaso, 506 F.3d 260, 264 n. 2 (3d Cir. 2007). "[A] court must be ever vigilant in the context of Fed.R.Crim.P. 29 not to usurp the role of the jury by weighing credibility and assigning weight to the evidence, or by substituting its judgment for that of the jury." United States v. Flores, 454 F.3d 149, 154 (3d Cir. 2006) (internal quotation omitted). Furthermore, a court should only grant a Rule 29 motion when the prosecution's failure is clear. United States v. Brodie, 403 F.3d 123, 133 (3d Cir. 2005).
2. Count 18 of the Redacted Indictment
Count 18 charged Stadtmauer with violating I.R.C. § 7206(2), aiding and assisting in the filing of a materially false tax return, with respect to the year 2000 return of Westminster Management, LLC ("Westminster"). "The essential elements of an offense under section 7206(2) are (1) that defendant aided, assisted, procured, counseled, advised or caused the preparation and presentation of a return; (2) that the return was fraudulent or false as to a material matter; and (3) that the act of the defendant was willful." United States v. Gambone, 314 F.3d 163, 174 (3d Cir. 2003). With respect to Count 18, Stadtmauer challenges the sufficiency of the evidence presented at trial on two elements of the offense: that he acted willfully and that Westminster's year 2000 return was materially false. (Def. Br. at 2.)
"Willfulness requires the voluntary, intentional violation of a known legal duty as a condition precedent to criminal liability."United States v. McKee, 506 F.3d 225, 236 (3d Cir. 2007) (citingCheek v. United States, 498 U.S. 192, 111 (1991)). "In general, a false statement is material if it has a natural tendency to influence, or is capable of influencing, the decision of the decisionmaking body to which it was addressed." Neder v. United States, 527 U.S. 1, 16 (1999); United States v. Borhini, 106 F. App'x 106, 108 (3d Cir. 2004) (unreported). An individual may violate I.R.C. § 7206(2) even if the entire amount of tax due is paid. United States v. Gricco, 277 F.3d 339, 350 (3d Cir. 2002) (distinguishing elements of § 7201 from § 7206). An impermissible deduction that has no effect on the amount of tax owed or paid by the taxpayer can still support a conviction under § 7206(2).United States v. Mandell, 722 F. Supp. 1208, 1211 n. 4 (E.D. Pa. Aug. 25, 1989).
a. Material Falsity of Westminster's Year 2000 Return
The applicable regulations under the Internal Revenue Code (the "Code") state that "[n]o deduction is allowable under section 162(a) for a contribution or gift by an individual or a corporation if any part thereof is deductible under section 170." Treas. Reg. § 1.162-15(a). Section 162 of the Code governs deductions for business expenses; § 170 of the Code governs deductions for charitable contributions.
Gift and entertainment expenses that would otherwise be deductible under § 162 are further limited by § 274. As a general rule, business deductions for gifts are limited to $25. I.R.C. § 274(b). Other kinds of entertainment might be deductible in full, limited to 50% or less, or entirely disallowed. I.R.C. §§ 274(a) (disallowing deduction for entertainment unless directly related or temporally adjacent to business discussion or function); 274(e) (specific exceptions allowing full deductibility); 274(k) (limiting deductibility of business meals); 274(l) (limiting deductibility of entertainment tickets); 274(m) (capping meals and entertainment deduction at 50% of expense).
Westminster was the management corporation for various Kushner Company real estate entities, some of which were related to other counts of the indictment. (Def. Br. at 6.) In 2000, Westminster listed on its tax return $168,816 in office expenses. (Gov. Ex. 705(c)-TR at SCHN221724.) According to Westminster's general ledger, which was admitted into evidence, those office expenses included $112,250 in charitable contributions and $3,288.50 in gift and entertainment expenses. (Gov. Ex. 705(c)-GL at SCHN221823-24, SCHN221853.)
The jury heard testimony concerning Westminster's office expenses from IRS Agent Susan Grant. Agent Grant presented a summary chart indicating that Westminster's 2000 return contained $113,000 in charitable contributions and $1,645 in gift and entertainment expenses. (Def. Br. at 7-8; Tr. at 24.164.) Unlike Agent Grant's other summary charts presented to the jury, the summary for Westminster did not itemize the nature of the expenditures she characterized. (Def. Br. at 8.) Stadtmauer calls attention to the fact that the jury heard considerable testimony concerning many payments made by Westminster to charities or for other expenses that were ultimately not deducted by Westminster on its 2000 return. (Id. at 9-10.) Stadtmauer urges that given the evidence presented to the jury concerning these other payments, and the absence of any support by Agent Grant of her characterizations, the only inference a reasonable jury could draw was that Westminster's 2000 return was not materially false. (Id. at 10.)
The Government responds by stating that additional evidence tendered to the jury concerning the 2000 Westminster return supports the jury verdict on Count 18. (Gov't Br. at 8.) Specifically, the Government asserts that Stanley Bekritsky testified concerning the inclusion of charitable contributions as office expenses on the 2000 Westminster return, and that the jury could have verified the Government's calculation concerning the amount of charitable donations deducted by Westminster by comparing the Kushner Companies grouping schedule, Government Exhibit 950, with the Westminster general ledger. (Gov't Br. at 8; Tr. at 22.166.) These deductions were not listed as charitable contributions on Westminster's tax returns nor on the appropriate schedule. (Gov't Br. at 9.)
This Court finds that the jury heard testimony in this case that Westminster's 2000 return reported no charitable donations. (Tr. at 22.166.) The jury also heard testimony that charitable donations in the Westminster 2000 return were reported as office expenses. (Id.; Tr. at 24.164.) This testimony, examined in the light most favorable to the prosecution, is sufficient for a rational trier of fact to conclude beyond a reasonable doubt that the Westminster return for the year 2000 falsely reported charitable donations as office expenses. Jackson, 443 U.S. at 319; Treas. Reg. § 1.162-15(a). Simply because the Government elected to submit supporting documentation on Westminster to the jury without additional witness testimony, that Agent Grant treated Westminster differently in her summary charts, or that some evidence at trial may have been open to an interpretation that Westminster was reimbursed for any charitable contributions it made, does not provide this Court with the power to substitute its own judgment for that of the jury on a Rule 29 motion. Flores, 454 F.3d at 154; Def. Reply Br. at 2. Furthermore, if credited by the jury, the evidence presented on the treatment of charitable expenses on the Westminster 2000 return is sufficient for a rational trier of fact to find that the return was false as to a material matter.United States v. DiRico, 78 F.3d 732, 736 (1st Cir. 1996) (materiality a matter for determination by the jury). See also Mandell, 722 F. Supp. at 1211 (denying judgment of acquittal where return was shown to be false at trial for a smaller amount than the indictment claimed).
With respect to the gift and entertainment business expense deductions taken by Westminster, the jury heard testimony from Agent Grant that she found such deductions and, in her opinion, 50% of those expenses were disallowed. (Tr. 24.164.) If the jury credited Agent Grant's testimony, then the amount of the business expense deduction taken by Westminster in 2000 would be incorrect, and it is within the province of the fact finder, not the Court, to determine whether the amount of the disallowed deduction — here, half of $3,288.50 — was materially false.Jackson, 443 U.S. at 319. Defendant's motion is therefore denied with respect to any insufficiency of the evidence concerning the material falsity of Westminster's 2000 tax return.
b. Evidence of Willfulness
Stadtmauer argues that the Government also failed to proffer evidence sufficient for a jury to find the element of willfulness with respect to Count 18. (Def. Br. at 11.) Stadtmauer argues that the only evidence at trial concerning his state of mind regarding the 2000 Westminster return was that it was aberrant in its treatment of charitable contributions when examined in the light of the 1998, 1999, and 2001 Westminster returns, and that the only reasonable inference to be drawn therefrom was that any impropriety in 2000 was a mistake. (Def. Br. at 12.) The Government, on the other hand, argues (without citation to the record) that other testimony in the case permits an inference that Stadtmauer would not have overlooked an error of $110,000 on the 2000 Westminster return. (Gov't Br. at 11.)
As a general proposition, Stadtmauer is correct that "[i]n cases involving violations of federal tax laws such as tax evasion, [a] defendant's past taxpaying record is admissible to prove willfulness circumstantially." United States v. Daraio, 445 F.3d 253, 264 (3d Cir. 2006) (internal quotation omitted) (Rule 404(b) context). The argument that Westminster's filing history supports a finding of mistake as opposed to willful falsity, however, is only one of the inferences that the jury could have drawn from the evidence offered at trial. Bekritsky testified that he had nothing to do with the 2000 Westminster return, and that prior and subsequent tax returns of Westminster treated charitable contributions correctly. (Tr. at 22.166-69.) An equally supportable inference in the context of a Rule 29 motion, however, is that Bekritsky's absence from overseeing the Westminster 2000 return permitted the false characterization of charitable contributions as general office expenses, and the change in Westminster's return preparation was, in fact, consistent with the returns of other Kushner entities about which the jury heard testimony.
3. Renewal of the May 22, 2008 Rule 29 Motion
With respect to Stadtmauer's renewal of his Rule 29 motion with respect to all counts, both parties rely on their oral arguments before the Court on May 22. (Def. Br. at 13; Gov't Br. at 12.) This Court made an oral ruling on the record with respect to the earlier motion and arguments of the parties on May 23, 2008. (Tr. at 29.212-17.) Stadtmauer renews the motion at this time based on the arguments made orally prior to the Court's ruling; the Government, likewise, rests on its previous contentions. Having reviewed the parties arguments, the record at trial, and the appropriate legal authority, this Court finds no reason to disturb its prior decision, and denies Defendant's renewal of the Rule 29 motion.
B. Renewed Motion for Dismissal for Vagueness of the Applicable Tax Law
Defendant moved this Court on January 16, 2007, to dismiss all of the counts in the indictment against him for vagueness of the underlying tax law and because the government would be unable to prove willfulness as a matter of law. (Def. Br. of Jan. 16, 2007 at 5, 19.) After considering the parties' contentions on that motion, this Court found that in the absence of a stipulated record, it was unable to engage in a due process analysis or determine whether or not willfulness could be proven as a matter of law. (Mem. Op. of Aug, 29, 2007, at 28.) This Court then granted leave for the motion to be brought again when "sufficient undisputed facts exist." (Id.) Stadtmauer, in his most recent moving papers, brings his motion once again, relying on the briefing already before the Court. (Def. Br. at 12.)
1. Legal Standard for Dismissal Due to Vagueness
The vagueness doctrine recognizes that the law must provide fair notice of what activity it proscribes in order to meet the requirements of the Due Process clause of the Constitution. "A statute or regulation must fail for vagueness if it `forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning.'" Gibson v. Mayor of Wilmington, 355 F.3d 215, 225 (3d Cir. 2004) (citingConnally v. General Constr. Co., 269 U.S. 385, 391 (1926)). If the challenging party can demonstrate that the law is so inadequately drafted that ordinary people would have to guess at the conduct it prohibits, the law would be struck down as unconstitutionally vague under principles of due process. United States v. Tykarsky, 446 F.3d 458, 472 (3d Cir. 2006). A party may not, however, challenge a law for vagueness if the party's conduct falls squarely within the ambit of the prohibition. Parker v. Levy, 417 U.S. 733, 755-56, 757 (1977); Gibson, 355 F.3d at 225. "In determining the sufficiency of the notice a statute must of necessity be examined in the light of the conduct with which a defendant is charged."Parker, 417 U.S. at 757.
2. The Challenged Tax Law
As opposed to a more typical vagueness challenge, Stadtmauer asks this Court to find that due process principles prohibit criminal prosecution based on the federal tax law of capitalization, rather than attacking a single statute's validity. See Tykarsky, 446 F.3d at 473. Section 162 of the Internal Revenue Code provides that an item may be deductible if it "(1) was paid or incurred during the taxable year; (2) was for carrying on a trade or business; (3) was an expense; (4) was a necessary expense; and (5) was an ordinary expense." I.R.C. § 162(a); INDOPCO, Inc. v. Comm'r, 503 U.S. 79, 83 (1992);Neonatology Assocs., P.A. v. Comm'r, 299 F.3d 221, 228 (3d Cir. 2002) (source of quotation). This broad grant of deductibility, however, is limited by "[t]he notion that deductions are exceptions to the norm of capitalization," wherein capital expenditures must be depreciated or amortized, rather than deducted in full at the time of the expense. I.R.C. § 263(a);INDOPCO, Inc., 503 U.S. at 84. "Thus, in order to be deductible, the expense must both be `ordinary and necessary' within the meaning of section 162(a) and fall outside the group of capital expenditures envisioned by section 263(a)." PNC Bancorp, Inc. v. Comm'r, 212 F.3d 822, 827 (3d Cir. 2000). The Supreme Court has enunciated the rationale for capitalization as follows: "the Code endeavors to match expenses with the revenues of the taxable period to which they are properly attributable, thereby resulting in a more accurate calculation of net income for tax purposes." INDOPCO, Inc., 503 U.S. at 84.
An expense is properly characterized as a capital expenditure when it creates or enhances a separate and distinct asset, or when a taxpayer realizes a benefit beyond the year in which the expense is incurred. Id. at 86-88. An expense is also subject to capitalization when it converts property to a new or different use. Treas. Reg. § 1.263(b). While the Code and applicable regulations envision many potential expenses that are explicitly recognized as capital expenditures, the regulations are not intended to be an exhaustive list. INDOPCO, Inc., 503 U.S. at 84. The regulation on repairs, Treasury Regulation § 1.162-4, specifies that "[t]he cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life, but keep it in an ordinarily efficient operating condition, may be deducted as an expense," but that "[r]epairs in the nature of replacements, to the extent that they arrest deterioration and appreciably prolong the life of the property," must be capitalized. See also Treas. Reg. § 1.263A-1(e)(ii)(3)(O) (excepting repair and maintenance costs from capitalization of indirect costs).
3. Whether the Law of Capitalization is Vague
Stadtmauer claims that by the time of the indicted tax years, the law of capitalization was a quagmire, confusing even the IRS, and provided little guidance. (Def. Br. of Jan. 16, 2007 at 5-10.) Stadtmauer argues that because the law of capitalization was unsettled as to so many of the deductions at issue in the Government's case — paving, flooring, painting, roofing, and appliances — a tax prosecution based on these deductions would not meet the standards of due process. (Def. Br. of Jan. 16, 2007 at 15-16.) The Government contends in opposition to Stadtmauer's motion that the indictment should not be dismissed because 1) capitalization was only one of the grounds for the charge on each tax return in question, 2) the law is clear as to capitalization concerning the items at issue in this case, and 3) no items alleged in the indictment were related to painting expenses. (Gov't Br. of Feb. 15, 2007 at 12-13, 16 n. 3.)
Both parties also make arguments based on proposed regulations and calls for comments by the IRS (Defendant) and nonbinding IRS publications (the Government). (Def. Br. of Jan. 16, 2007 at 5-10; Gov't Br. of Feb. 15, 2007 at 22-24.) While the Court has examined these arguments, it finds that they carry little weight on the instant motion. First, the proposed regulations and notices of rulemaking concern, for the most part, sui generis items for capitalization. 67 Fed. Reg. 3461 (2002) (discussing financial instruments, transaction costs, intangible assets, and software). Additionally, the request for comments concerning capitalization of tangible property occurred after the time period of the indictment. Compare Notice 2004-6, 2004-3 I.R.B. 308 (released December 23, 2003) with Redacted Indictment at 4 (describing conspiracy as ending in April 2003). See also United States v. Stein, 473 F. Supp 2d 597, 602-03 (S.D.N.Y. Feb. 9, 2007) (questioning relevance of internal IRS debate). Second, the document cited by the Government, Publication 527, is nonbinding on the IRS. Caterpillar Tractor Co. v. United States, 589 F.2d 1040, 1043 (Ct.Cl. 1978). This Court finds these arguments unconvincing in the current context, where the specific conduct of Defendant is at issue. Gibson, 355 F.3d at 225.
a. Repair or Replacement
It has been axiomatic for more than seventy years that distinguishing between an expense that is immediately deductible and one that must be capitalized is a fraught and fact-specific inquiry: "Here, indeed, as so often in other branches of the law, the decisive distinctions are those of degree and not of kind. One struggles in vain for any verbal formula that will supply a ready touchstone." Welch v. Helvering, 290 U.S. 111, 114-115 (1933) (Cardozo, J.). See also PNC Bancorp, Inc., 212 F.3d at 828 (emphasizing fact-specific nature of inquiry and quoting Welch).
With respect to paving, Defendant collects a series of disparate cases. Toledo Home Federal Savings Loan Ass'n v. United States permits the immediate deduction of paving costs to repair a parking lot that had subsided. 203 F. Supp. 491, 493-94 (D. Ohio Mar. 27, 1962). Coors v. Commissioner distinguished between paving repairs and application of a slurry seal on a parking lot; the non-structural slurry seal was immediately deductible, while work that replaced the paving material was held to be a capital expenditure. 60 T.C. 368, 384, 403-04 (Tax Ct. June 12, 1973). In Almac's, Inc. v. Commissioner, the Tax Court permitted immediate deduction of repairs to paving that eliminated a buckle in a sidewalk severe enough to shift loads in trucks, leveling of a pit that had formed in a parking lot, and resurfacing in the nature of preventing further deterioration. T.C. Memo. 1961-13, 1961 WL 335 (Tax Ct. Jan. 24, 1961). While these cases do indicate that under certain circumstances, paving is a repair not in the nature of a replacement and may be immediately deducted as an ordinary and necessary business expense, Stadtmauer has failed to demonstrate that under the facts of this case, the law was unclear in this regard. The cases brought forward demonstrate, on the contrary, that when subsidence or heaving causes pavement to become unserviceable, or when cosmetic improvements are made, the appropriate characterization of such an expense under Treasury Regulation § 1.162-4 would be as a repair. When a structural replacement of the asphalt takes place, however, this Court finds the analysis in Coors to apply, and that such expenses should be capitalized, as such an alteration would either be a repair in the nature of replacement or would substantially extend the useful life of the pavement. Treas. Reg. § 1.162-4; 60 T.C. at 403-04.
The cases upon which Stadtmauer relies for his contention of vagueness related to flooring costs are also inapposite on the issue of vagueness. Rose v. Haverty Furniture Co. discusses the issue of whether overlaying new flooring was deductible under the Revenue Act of 1918 in dicta, after the court found that the trial judge had correctly charged the jury. 15 F.2d 345, 346 (5th Cir. 1926). In Beck v. Commissioner, the court permitted deduction of the cost of a roll of carpet from which small pieces were used to repair worn sections of carpeting in apartment units. T.C. Memo. 1994-122, 1994 WL 100623, at *5-6 (Tax Ct. Mar. 28, 1994). Midland Empire Packing Co. v. Commissioner held that it was an immediately deductible business expense for a meatpacking company to oilproof its concrete floors against pollution seeping in from a nearby plant. 14 T.C. 635, 642-43 (Apr. 19, 1950). The case of Standard Fruit Product Co. v. Commissioner allowed immediate deductions of flooring work, some of which was extemporized, in the context of a wartime factory granted priorities to perform maintenance due to regulatory concerns. 8 T.C.M. (CCH) 733 (Tax Ct. Aug. 22, 1949). Finally,Schmid v. Commissioner permits safety-related partial floor replacement as an immediately deductible repair. 10 B.T.A. 1152 (Bd. Tax App. Mar. 2, 1928). What these cases, and others, demonstrate, is that partial floor replacement purely in the nature of a repair is deductible as an expense, and that concerns of safety and restoration to legally operable conditions may also cause a flooring replacement to be characterized as a repair. See also Norwest Corp. v. Comm'r, 108 T.C. 265, 282 n. 10 (Tax Ct. Apr. 28, 1997) (interpreting Schmid as a safety-related case);Polyak v. Comm'r, 94 T.C. 337, 348 (Tax Ct. Mar. 12, 1990) (limited replacement of damaged flooring only is repair, as it restores property to operational condition). In addition, these cases demonstrate that, far from being vague and incapable of comprehension, the same basic principles have guided the deductibility of flooring repairs for the entire history of the income tax system. Accord Schmid, 10 B.T.A. 1152 (discussing safety rationale for deductibility in 1928) with Norwest Corp., 108 T.C. at 282 n. 10 (interpretingSchmid as stating legitimate principle of deductibility consistent with current law).
Painting expenses are, as Stadtmauer contends, generally deductible in the year they occur. Moss v. Comm'r, 831 F.2d 833, 840 n. 13 (9th Cir. 1987); Newark Morning Ledger Co. v. United States, 416 F. Supp. 689, 696 (D.N.J. July 16, 1975) ("The expense of painting, repairing the cracks and putting new washers in the faucets would be repairs and as such would be ordinary and necessary expenses rather than capital expenditures."); Kirkland v. United States, 267 F. Supp. 259, 262 (Feb. 28, 1967);Schroeder v. Comm'r, T.C. Memo. 1996-336, 1996 WL 412011, at *5 (Tax Ct. July 24, 1996). Cases holding to the contrary analyze situations where walls were replaced or gutted buildings were refurbished. See, e.g., Jones v. Comm'r, 242 F.2d 616, 620 (5th Cir. 1957) (hotel refurbished rather than repaired). The Government did not dispute, in the brief on which it relies, that painting expenses are generally deductible as ordinary and necessary business expenses, but claims instead that their case did not allege failure to capitalize painting expenses. (Gov't Br. of Feb. 15, 2007 at 16 n. 3.) Furthermore, the Government admitted at trial that painting is an immediately deductible business expense, not a capital expenditure. (Tr. at 4.67-68.) This Court, therefore, finds the issue of capitalization of painting expenses does not present a controversy over which this Court may render a decision. Donovan v. Punxsatawney Area Sch. Bd., 336 F.3d 211, 216 (3d Cir. 2003). The Court pauses to note, however, that as none of the counts of the indictment upon which Stadtmauer was convicted relied solely on a capitalization theory, the absence of an issue with regard to the expensing of painting costs does not mandate dismissal of any counts of the indictment.
The roofing cases indicate the consistent application of fact-specific capitalization analysis rather than a vague morass of inconsistency. Certain cases, upon analysis of the facts at issue, emphasize the nature of the work performed as a repair to restore a roof to operational condition. Oberman Mfg. Co. v. Comm'r, 47 T.C. 471, 482 (Tax Ct. Feb. 8, 1967) (distinguishing between replacement and repair of roof); Munroe Land Co. v. Comm'r, 25 T.C.M. (CCH) 3 (Tax Ct. Jan. 4, 1966) (reskinning entire roof to correct "unforeseen and unusual condensation problem" deductible in full at time of expense); Stoller v. Comm'r, 12 T.C.M. (CCH) 1061 (Tax Ct. Sept. 18, 1953) (new liquid asbestos roofs did not extend useful life, therefore deductible as repairs). Those cases are in contrast to situations in which work is sufficiently extensive so as to indicate capitalization for a new or replaced roof or where a plan of rehabilitation exists, similar to the painting cases. Stoeltzing v. Comm'r, 266 F.2d 374, 376-77 (3d Cir. 1959) (disallowing deduction in full for renovations including roofing expenses meant "to put, rather than to `keep', the building in an `ordinarily efficient operating condition'"); Levy v. Comm'r, 212 F.2d 552, 554 (5th Cir. 1954) (finding capitalization appropriate where large portion of roof replaced); Tsakopoulos v. Comm'r, 83 T.C.M. (CCH) 1064 (Tax Ct. Jan. 09, 2002) (holding that replacement of one entire roof, and entire section of another roof, both must be capitalized); H.S. Crocker Co., Inc. v. Comm'r, 15 B.T.A. 175, 179, 182 (Bd. Tax App. Jan. 31, 1929) (holding capitalization appropriate for new roof that was required).
The cases Stadtmauer cites concerning appliances are generally inapposite to the context of this case. In American Show Entertainment Co. v. Commissioner, the IRS disallowed unspecified changes to the heating system in a "rundown" dance hall, which were allowed as non-capital expenses by the Board of Tax Appeals. 5 B.T.A. 954, 955-56 (Bd. Tax App. Dec. 30, 1926). American Show does not, however, contain any details concerning the heating system that would aid this Court in applying its logic to the necessarily fact-based inquiry at hand. 5 B.T.A. at 955-56. Croff v. Commissioner, on the other hand, does discuss in some detail the nature of the business expense deduction it permitted for repairs to the refrigeration unit of a commercial ice cream machine. 16 T.C.M. (CCH) 721 (Tax Ct. Aug. 27, 1957). The refrigeration unit in Croff was changed from "amonia" [sic] parts to freon parts, and the Tax Court specifically found that the change in parts was in the nature of a repair that would keep the machine operating normally. This analysis is consistent with the Government's general contention that the law recognizes the same repair versus replace dichotomy across various types of expense. Compare Connecticut Light Power Co. v. United States, 299 F.2d 259, 264-66 (Ct.Cl. 1962) (finding upgrades to customers' gas appliances to be in the nature of repairs, not capital expenditures) with Hotel Kingkade v. Comm'r, 180 F.2d 310, 312-13 (10th Cir. 1950) and Hill v. Comm'r, 45 T.C.M. (CCH) 821 (Tax Ct. Feb. 23, 1983) (useful life longer than one year determinative factor in finding that new water heater for rental property must be depreciated). This Court finds the analysis of Hotel Kingkade by the Tenth Circuit to be particularly apt when compared to the instant facts. In Hotel Kingkade, a hotel currently deducted a wide variety of expenses, including a refrigerator, a dishwasher, and cooking ranges, without capitalizing any such expenditures. 180 F.2d at 312. The deductions were disallowed as replacements of equipment having useful lives in excess of one year and the court held that capitalization of these items was appropriate. Id. at 313. The charges against Stadtmauer with respect to appliances were factually similar to the deficiencies found in Hotel Kingkade; the Government alleged that the various Kushner entities dispensed with capitalizing those expenses for which capitalization would have been appropriate. (Gov't. Br. of Feb. 15, 2007 at 15-16.)
The capital expenditures contested in this motion were consistently of a sort requiring careful factual analysis in each instance. For the expenditures at issue, however, the law was not so unclear as to be vague under principles of due process. Parker v. Levy, 417 U.S. 733, 755-56, 757 (1977); Gibson, 355 F.3d at 225. On the record now before this Court, therefore, the law of capitalization was not sufficiently vague so as to require dismissal of the indictment, and Defendant's motion for dismissal is denied.
b. Unit of Property
Stadtmauer argues, in addition, that uncertainty in the law of capitalization has arisen in other contexts, and this uncertainty infects the kind of expenses at issue in this case. (Def. Br. of Jan. 16, 2007 at 17-18.) Specifically, Stadtmauer's argument is that uncertainty in the unit of property analysis for capitalization demonstrates that the tax law is too vague to support a criminal prosecution. (Id.)
The "unit of property," when applied in the analysis of capitalization, is the determination of the proper frame of reference for a particular expense: whether the context of the expense is some larger piece of property or the component in question. FedEx Corp. v. United States, 291 F. Supp 2d 699, 708 (W.D. Tenn. Aug. 27, 2003), adopted in full on appeal, 412 F.3d 617 (6th Cir. 2005). Certain cases have recently addressed the unit of property issue in contexts other than real estate and come down on different sides of the divide between the unit of property as the larger whole as opposed to the individual component. Compare FedEx Corp., 291 F. Supp 2d at 711 (holding that airplane as a whole is the appropriate unit of property) with Smith v. Comm'r, 300 F.3d 1023, 1030 (9th Cir. 2002) (finding cell, not entire smelting line composed of cells, to be appropriate unit of property).
This Court agrees with Stadtmauer that with respect to complex manufacturing equipment, as in Smith, or highly regulated machines involved in continuous maintenance programs, as in FedEx Corp., the unit of property may be difficult to ascertain. After reviewing the caselaw concerning paving, flooring, painting, roofing, and appliances, however, this Court finds that the unit of property is not a fraught and slippery concept when applied to the expenses at issue in this case. Courts have generally not had a difficult time finding the appropriate unit of property when the property in question is a building or an appliance or fixture located within it. Hotel Kingkade, 180 F.2d at 312, Croff, 16 T.C.M. (CCH) 721. For example, roofing is routinely considered part of the building which it protects from the elements; refrigerators are considered on their own, being moveable from the buildings in which they are placed. Munroe Land Co., 25 T.C.M. (CCH) 3 (finding that roof did not extend usable life of the building); Hotel Kingkade, 180 F.2d at 312 (distinguishing between repairs to hotel itself and furnishings or equipment). While Stadtmauer contends that applying the rules of capitalization in this manner would present insurmountable administrative burdens, this Court finds that making good-faith determinations concerning whether an expenditure is a carpet repair, or a carpet replacement, is not beyond the capabilities of modern real estate managers, even in operations similar in scope to the Kushner entities. (Def. Reply Br. of Mar. 9, 2007 at 9.) Defendant's motion to dismiss the indictment is, therefore, denied with respect to his argument based on the unit of property.
c. De Minimus Rule
Stadtmauer also presents an argument in the alternative in a footnote to his January 16, 2007 brief concerning the application of a de minimus rule to appliance purchases for the real estate entities. (Def. Br. of Jan. 16, 2007 at 17.) This argument is based on the rule applied in Cincinnatti, New Orleans and Texas Pacific Railway Co. v. United States, where the taxpayer was permitted to deduct, rather than capitalize, expenses of less than $500 where such expenses did not distort reported income. 424 F.2d 563, 570-73 (Ct.Cl. 1970). While it is true that such a de minimus exception could apply in case such as Cincinnatti, New Orleans, where the expenses in question represent minuscule fractions of both the yearly operating income and the depreciation deduction reported by a taxpayer, this case is substantially different. 424 F.2d at 571. The Tax Court has distinguished the principle announced in Cincinnatti, New Orleans in the case of Alacare Home Health Services Inc. v. Commissioner, limiting its application of the de minimus rule to circumstances in which de minimus expenses do not distort the reported income of the taxpayer. 81 T.C.M. (CCH) 1794 (Tax Ct. June 22, 2001). InAlacare, the Tax Court distinguished between deductions too small to distort the reported income of a taxpayer, such as a calculator costing $52.45, and the hundreds of thousands of dollars in deductions claimed by the taxpayer in that case, and found that the de minimus exception did not apply where it did not result in an accurate reflection of income. Id. This case presents similar issues to Alacare. The Government alleged (and obtained some guilty verdicts concerning) a systematic plan by Stadtmauer and his co-conspirators to, inter alia, abuse the capitalization rules and file returns that were materially false as to deductions that should have been capitalized. (Red. Indictment at 5, 6, 13-16, 18-33, 35-36; Tr. at 24.83-86, 24.102, 24.115.) The jury heard evidence on one Oakwood Gardens return, for instance, that placed the amount of illegal deductions for capital expenditures (including, but not limited to, appliances) at $203,659. (Tr. at 24.115.) Additionally, after the recalculation of the returns of Kushner entities by the Government's expert witness, the net effect of all of the disallowed deductions (including such categories as gifts, entertainment, and charitable contributions), Oakwood Gardens' returns were demonstrated to change from showing substantial losses to showing substantial income. (Tr. at 24.156-61.) While the proposed de minimus deductions here may do not in themselves rise to the level of those in Alacare, the wholesale nature of the deductions and the means in which they were planned indicates that they would clearly be in the nature of deductions that distort the income of the taxpayer, and thus beyond the scope of the de minimus rationale of Cincinnatti, New Orleans. 424 F.2d at 570-73.
4. Willfulness
Stadtmauer further argues that a defendant may not be legally found to have the requisite mens rea for filing false tax returns under § 7206(2) where the legal framework surrounding the falsity is so muddled that "even co-ordinate branches of the United States Government plausibly reach directly opposing conclusions."United States v. Critzer, 498 F.2d 1160, 1162 (4th Cir. 1974). But see United States v. Stein, 473 F. Supp 2d 597, 602-03 (S.D.N.Y. Feb. 9, 2007) (questioning whether Critzer conflated two doctrines in its discussion). The Government argues, in opposition, that the legal uncertainty required to prevent it from proving willfulness as a matter of law was not present in this case. (Gov't Br. of Feb. 15, 2007 at 28-30.)
Assuming arguendo that the principle of Critzer is logically supportable separate from the doctrine of vagueness, this Court agrees that, with regard to taxation, "a criminal prosecution is not the place to decide pioneering interpretations of the law."United States v. D'Alessio, 822 F. Supp. 1134, 1144 (D.N.J. June 2, 1993) (citing Critzer). However, as analyzed in depth supra, the law of capitalization is not muddled so that Stadtmauer as the cases in which willfulness has been found absent as a matter of law. This court was not presented with a case where coordinate agencies disagreed about the taxability of certain earnings on Indian lands, as in Critzer, or a situation an embezzler relied on Supreme Court precedent stating that embezzled funds were not income to the embezzler. James v. United States, 366 U.S. 213, 221-22 (1961) (dismissing indictment where prior Supreme Court case permitted defendant's failure to report income); Critzer, 498 F.2d at 1162 (holding willfulness unprovable where Interior Department and Treasury disagreed on whether income from a Cherokee possessory holding was gross income). This case presents a situation where courts have consistently applied essentially the same set of principles to capitalization of the expenses at issue for a long period of time. See, e.g. Levy, 212 F.2d at 554 (finding capitalization appropriate for substantial roof replacement); Tsakopoulos, 83 T.C.M. (CCH) 1064 (same). While courts have routinely repeated Justice Cardozo's artful phrase emphasizing the finely detailed factual inquiry necessary to come to a capitalization determination, those words themselves do not make the law of capitalization so deficient in clarity as to make a finding of willfulness impossible. Welch, 290 U.S. at 114-115. Willfulness may be inferred by a jury from circumstantial evidence, United States v. Ashfield, 735 F.2d 101, 105 (3d Cir. 1984), and this Court finds that the law of capitalization is not so uncertain as to find that the jury should have been prevented from considering the willfulness issue regarding capitalization.See United States ex rel. Almeida v. Rundle, 383 F.2d 421, 426 (3d Cir. 1967) (holding, with respect to murder statute, that imprecision in proscribed act not determinative in vagueness challenge where common law sufficiently defined act).
C. Request to Speak to Jurors
Stadtmauer also requests that this Court grant him the opportunity to speak with the jurors who heard his case and rendered the verdict thereon. He frames his request under Local Civil Rule 47.1 and bases on two arguments: first, that the verdict is difficult to reconcile with respect to the substantive counts, and second, that it would be informative to learn which expenses the verdict relied upon for sentencing calculation purposes.
Local Civil Rule 47.1 does not apply to criminal cases, as it has not been incorporated into the Local Criminal Rules. Local Crim. R. 1.1 (omitting R. 47.1). Instead, this Court applies Local Criminal Rule 24.1(g) to such requests, which bars parties from contacting jurors absent "leave of the Court granted upon good cause shown." Local Crim. R. 24.1(g). "[T]he requirement of good cause shown is a necessary screen to the granting of such leave since the matter of questioning jurors about their deliberations is a sensitive one." United States v. Militello, 673 F. Supp. 141, 144 (D.N.J. Nov. 17, 1987). Such interviews are generally only granted where there are allegations of illegal or improper behavior. Militello, 673 F. Supp. at 144. In any event, post-verdict interviews should rarely be granted. United States v. Gilsenan, 949 F.2d 90, 98 (3d Cir. 1991).
On the instant request of Defendant, there is no allegation of improprieties or illegal action by any party. (Def. Letter of July 7, 2008.) On the current showing, while such interviews could sate the curiosity of the Court and parties, it would not be proper to once again subject the jurors to judicially-imposed requirements such as the interviews proposed. Gilsenan, 949 F.2d at 98. This Court, therefore, denies Defendant's request to interview the trial jurors from this case.