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U.S. v. Schramm

January 30, 1996

UNITED STATES OF AMERICA

v.

RONALD SCHRAMM; ANTHONY DECELLO; OLEG VINOKUROV, A/K/A ALEX; MICHAEL ZUBINSKY, A/K/A STEVE; ASHOK TYAGI; AMINDERJEET S. AULAKH, A/K/A ANDY; AMARBIR SINGH, A/K/A SONNY; MICHAEL DUBINSKI, A/K/A STEVE ANTHONY DECELLO, APPELLANT.



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Criminal No. 93-cr-00188-02)

BEFORE: BECKER, ROTH and LEWIS, Circuit Judges.

LEWIS, Circuit Judge.

ARGUED DECEMBER 12, 1995

Filed January 30, 1996)

OPINION OF THE COURT

Anthony DeCello appeals from a conviction for conspiring to commit mail fraud for the purpose of avoiding Pennsylvania's Fuel Use Tax. In his appeal, DeCello raises four issues: (1) that there is insufficient evidence to support his conviction; (2) that the evidence adduced at trial established a prejudicial variance with the conspiracy charged in the indictment; (3) that his prosecution for conspiring to commit mail fraud violates principles of federalism; and (4) that the district court erred when it admitted a copy of his 1992 tax return at trial.

Because we agree with DeCello that there is insufficient evidence to support the jury's verdict, we need not address the remaining three issues. For the reasons which follow, we will reverse DeCello's conviction.

I.

DeCello was indicted along with six co-defendants for criminal conspiracy in violation of 18 U.S.C. Section(s) 371. The conspiracy count alleged a single conspiracy with two objects: (a) to defraud the United States regarding federal diesel fuel excise taxes, and (b) to use the United States mail in an effort to defraud the Commonwealth of Pennsylvania with respect to the state's Fuel Use Tax, a tax imposed on the sale of diesel motor fuel.

A. Factual Background

The conspiracy involved a scheme in which wholesalers and retailers attempted to avoid paying federal and state taxes imposed on what is known as "number two" fuel oil. Except for small variations in additives, "number two" fuel oil can be used as either home heating oil or diesel fuel. If used as diesel fuel, it is subject to a Federal Excise Tax of 20.1 cents per gallon. The Commonwealth of Pennsylvania imposes an additional 10.35 cents per gallon Oil Franchise Tax at the wholesale level, and an additional 12 cents per gallon Fuel Use Tax at the retail level. In contrast, when used as home heating oil, "number two" fuel oil is not subject to any taxes.

The fuel taxes are collected and reported by the respective sellers in the chain of commerce. Wholesale distributors of diesel fuel are required to collect the federal excise tax and the Commonwealth's Oil Franchise Tax, while retailers are required to pay a Highway Fuel Use Tax to the Commonwealth. Retailers must also file monthly fuel use tax reports which include, among other information, the name of all diesel fuel wholesale suppliers and the amount of diesel fuel purchased from each supplier during each reporting period.

Both federal and state law allow registered wholesale participants to buy and sell number two fuel oil in tax-free transactions. For example, wholesalers of diesel fuel are required to register with the Internal Revenue Service for Form 637 ("Registration For Tax Free Transactions"). This allows a registered wholesaler to sell diesel fuel to another registered wholesaler without paying the federal excise tax. Retailers and unregistered wholesalers, on the other hand, are not authorized to obtain Form 637. Consequently, any sale of diesel fuel to a retailer or to an unregistered wholesaler is subject to excise taxes.

The Commonwealth of Pennsylvania's excise tax law is subject to a similar registration system. All retail sales of diesel fuel are subject to Pennsylvania's Fuel Use Tax.

B. The Scheme

The conspiracy in this case allegedly involved fuel wholesalers and retail truck stops attempting to escape the federal and state taxes imposed on diesel fuel. According to the Government, the conspiracy accomplished this by having the wholesalers invoice deliveries of taxable diesel fuel as nontaxable sales of home heating oil. The retailers who accepted delivery of this fuel paid in cash, kept the transactions off their official books, adjusted the oil meters, mingled the untaxed oil with oil that had been taxed and acquired from other wholesalers, and filed false tax returns. In this way, both the wholesalers and retailers avoided paying their respective taxes. By avoiding these taxes, the wholesalers were able to undercut the prices charged by legitimate wholesale competitors. The retailers were then able to purchase diesel fuel at lower prices and keep the transactions entirely off their books.

This particular scheme was the brainchild of Leon Uzdin, who began his operations in the Philadelphia area, and expanded them westward to the Pittsburgh area. According to the indictment, Anthony DeCello participated in Uzdin's operation in several ways: first, by recruiting haulers to deliver the fuel to the participating truck stops; second, by picking up the payments from the truck stops; and third, by delivering the cash payments to the scheme's principals. In return, according to the indictment, DeCello received a commission and expenses. Finally, when Uzdin's relationship with a fuel supplier began to sour, DeCello helped recruit a new fuel source.

DeCello and Uzdin initially met with Terry Tyhonas, a hauler recruited by DeCello. At that meeting, DeCello asked Tyhonas to furnish "[s]ome fuel with a paper and some fuel without a paper." (i.e., with and without tax). After Tyhonas turned them down, DeCello found Ronald Schramm, president of Judy Oil Co. Schramm agreed to furnish the fuel oil and invoice the sales to Main Line as home heating oil. This relationship continued for almost a year, during which Judy Oil furnished Uzdin with approximately ...


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