United States District Court, W.D. Pennsylvania
FINDINGS OF FACT AND CONCLUSIONS OF LAW CONCERNING
AMOUNT OF RESTITUTION
Flowers Conti Chief United States District Judge
these findings and conclusions, the court will rule upon the
disputes concerning the amount of restitution, which affects
both defendants Nicholas Trombetta (“Trombetta”)
and Neal Prence (“Prence”) (collectively,
“defendants”). The court will make separate
tentative findings and rulings concerning Trombetta's
objections to his presentence investigation report and
advisory guideline range.
August 24, 2016, Trombetta pleaded guilty to Count 6 of the
indictment at criminal action number 13-227, which charged
him with a Klein conspiracy in violation of 18 U.S.C.
§ 371. On September 28, 2017, Prence pleaded guilty to
the same Klein conspiracy at count 6 of the
indictment at criminal action number 13-227. Each defendant
entered his guilty plea pursuant to a plea agreement with the
Klein conspiracy in violation of 18 U.S.C. §
371 involves defrauding the Internal Revenue Service
(“IRS”) of its property (i.e., tax dollars) and
constitutes an “offense against property” that is
covered by the Mandatory Victims Restitution Act
(“MVRA”), 18 U.S.C. §§ 3663, 3663A,
3664. United States v. Turner, 718 F.3d 226, 236 (3d
Cir. 2013). Restitution in the full amount of the
victim's loss, as determined by the court, shall be
ordered in this case. 18 U.S.C. §§ 3663A,
parties made numerous filings regarding the amount of
restitution. (ECF Nos. 290, 294, 299, 354). On March 28,
2018, the court held a hearing on the amount of restitution.
(Transcript, ECF No. 364). The parties filed post-hearing
proposed findings of fact and conclusions of law (ECF Nos.
365, 366, 367). The determination of the amount of
restitution in this case is ripe for decision.
case of an identifiable victim (such as the IRS), the court
shall enter a restitution order for the full amount of the
victim's actual loss without consideration of a
defendant's ability to pay. See Turner, 718 F.3d
at 236. The defendant's finances can be considered,
however, in specifying the manner in which restitution is
paid. 18 U.S.C. § 3664(f)(2). Unlike the “amount
of loss” for the offense level calculation, the amount
of restitution cannot exceed the actual, provable loss of the
victim. United States v. Wirth, 719 F.3d 911, 915
(8th Cir. 2013).
To obtain restitution for tax losses, the government must
prove by a preponderance of evidence that the defendant
caused the United States to suffer an actual loss. See
United States v. Ellefsen, 655 F.3d 769, 782 (8th Cir.
2011); Hirmer, 767 F.Supp.2d at 1311-14. The actual
loss would be the revenue loss to the United States-in other
words, the amount the defendant should have paid in taxes to
the United States. See Ellefsen, 655 F.3d at 782;
Hirmer, 767 F.Supp.2d at 1311-14. Given that the
loss is the tax liability of the defendant, determining the
amount of restitution requires consideration of the
applicable deductions, exemptions, penalties, and others
intricacies of the tax code. See Ellefsen, 655 F.3d
at 782 (noting that the government presented a
“detailed explanation of the amount of taxes,
penalties, interest, and additional payments, for each year,
” and used the testimony and reports of IRS agents to
establish the amount of restitution).
United States v. Garza, No. EP-11-CR-3021, 2012 WL
2027025, at *11 (W.D. Tex. June 5, 2012). Although Trombetta
and Prence stipulated to the “amount of loss” for
the purpose of the offense level in U.S.S.G. § 2T4.1,
they may challenge the “actual loss” suffered by
the IRS for the purpose of restitution.
procedure for issuance of a restitution order is governed by
18 U.S.C. § 3664. Disputes are resolved by the court by
the preponderance of the evidence. The government has the
initial burden to demonstrate the amount of the IRS'
actual loss. 18 U.S.C. § 3664(e). Defendants have the
burden to demonstrate their financial resources and needs.
Id. The burden to demonstrate other matters is
allocated by the court as justice requires. Id. In
United States v. Seligsman, 981 F.2d 1418, 1421 (3d
Cir. 1992), the court of appeals instructed that in
determining restitution, the sentencing court should make
findings on the record about: (1) the amount of loss actually
sustained by the victim; (2) how the loss is connected to the
offense of conviction; and (3) the defendant's financial
needs and resources. The court explained that
“difficulties of measurement” do not preclude the
court from ordering restitution. If the exact amount owed is
difficult to determine, the court should “reach an
expeditious, reasonable determination of appropriate
restitution by resolving uncertainties with a view toward
achieving fairness to the victim.” Id.
(citations omitted). The findings of fact here relate only to
the first and second matters, i.e., the actual loss and its
relation to the offense of conviction. The third matter,
defendants' respective financial needs and resources,
will be addressed at the sentencing hearings.
government relies largely on the factual allegations set
forth in the indictment. In his plea agreement, Trombetta
stipulated that the facts set forth in count 6 were true and
correct, with two minor modifications. Prence did not enter a
stipulation of facts in his plea agreement, but did admit his
guilt to count 6. At the restitution hearing, the government
introduced a recorded statement in which Prence admitted that
he prepared tax returns reflecting allocations of income in
the names of straw owners of Avanti Management Group
(“AMG”) while knowing that Trombetta was the true
owner of that income. Gov't Exh. 14. Prence fully
participated as a co-conspirator by knowingly preparing false
tax returns to conceal Trombetta's income from the IRS.
The amount of the IRS' actual loss is the same for both
Trombetta and Prence.
Trombetta was the founder and chief executive officer of the
Pennsylvania Cyber Charter School (“PA Cyber”).
(Indictment ¶ 1, incorporated by ¶ 45).
Trombetta founded AMG in 2008. (Indictment ¶ 5,
incorporated by ¶ 46). AMG is a limited liability
company that filed its taxes on Form 1120S. AMG's income
and deductions flowed through to the individual members'
returns. (ECF No. 364 at 10, 18; Government Exh. 2). AMG
provided the funds to pay the straw owners' taxes each
year. (ECF No. 364 at 24; Indictment ¶ 64).
Nearly all of AMG's revenue came from a management
services contract with the National Network of Digital
Schools Management Foundation
(“NNDS”). Id. Trombetta was the controlling
party on both sides of the transactions involving PA Cyber
and NNDS, and then in turn, was the controlling party on both
sides of the transactions between NNDS and AMG. (Indictment
Trombetta selected four straw owners of AMG to be put in
place to hold and manage assets for him until an unspecified
future time when Trombetta would overtly assume ownership of
AMG. Indictment ¶ 55.
One2One Enterprises (“One2One”) was founded by
Trombetta and his sister, Elaine Trombetta Neill
(“Neill”). (Indictment ¶ 9, incorporated by
¶ 49; ¶ 53).
One2One is a Schedule C business, which is similar to a sole
proprietorship. Its taxes were reported and paid by Neill and
her husband on Schedule C to their Form 1040 individual tax
returns. (ECF No. 364 at 11-12).
One2One was never treated as a partnership and never filed a
Form 1065 to report partnership income. Id.
“One2One served as a vehicle to allow Defendant
Nicholas Trombetta to use his position of influence over PA
Cyber, NNDS, AMG, BOSS, Wingspan and other entities in the
private sector to covertly channel money to himself, to
Elaine Trombetta Neill, to other family members and to other
object of the conspiracy was to conceal the true nature,
source and amount of Trombetta's income “by
diverting such income to AMG, where it accumulated for his
future use, and to One2One, where it was available as current
income” in order to defraud the IRS. (Indictment ¶
so doing, Trombetta “concealed his position as the
direct beneficiary and recipient of funds generated by PA
Cyber, the school wherein he held the position of CEO.”
Trombetta “also attempted to avoid public discovery and
scrutiny of his conflict of interest as the controlling
party” on both sides of the relevant ...