By: Rocco DiCicco

In early November, the United States Court of Appeals for the Third Circuit affirmed a harsh prison sentence for Bernard Bagdis, a Philadelphia tax attorney convicted of several white-collar crimes in 2012. Bagdis was the organizer of a complex tax-obstruction and tax evasion scheme that used shell corporations, a phony Irish bank, and a basement-waterproofing company to help himself and his clients hide $24 million in income from the IRS.[1] Between 1996 and 2008, Bagdis and eleven of his clients circumvented more than $4.5 million in taxes.[2] According to federal authorities, Bagdis even instructed undercover IRS agents on how they could structure their financial affairs so that the agents could stop filing federal tax returns.[3] Bagdis allegedly boasted to an undercover IRS informant that he “was writing a user’s guide to federal tax fraud.”[4]

Bagdis’ original indictment was filed on November 27, 2007, charging him and his co-conspirators with a total of seventy-four counts of criminal tax offenses.[5] A superseding indictment contained ninety-six counts of criminal tax offenses in total and added new tax-related charges against Bagdis and two co-conspirators. One of these additional charges included Bagdis making false statements to IRS special agents who were investigating the alleged tax fraud offenses.[6]

A jury in the Eastern District of Pennsylvania found Bagdis guilty of nearly all the charges, and the District Court sentenced him to a total term of 120 months’ imprisonment for Count 1 (obstructing the administration of the Internal Revenue Code), Count 45 (conspiracy to defraud the United States), and Count 47 (aiding and assisting in the preparation of a false tax return) to run consecutively; and Counts 65-67 (failure to file) to run concurrently.[7] On Bagdis’ first appeal, the Third Circuit affirmed the District Court’s judgment but found that the District Court erred when it: (1) imposed forty-two months’ imprisonment on Count 47 when the statutory maximum was thirty-six months; (2) imposed thirty months’ imprisonment on each failure to file count (Counts 65-67) when the statutory maximum was twelve months; and (3) imposed a fine of $84,000 and a special assessment of $2,900 based on twenty-nine violations, when Bagdis was only found guilty of twenty-seven violations.[8]

On remand, the District Court corrected its sentence and abided by the maximum statutory limits for the charges, but the court again imposed a sentence of 120 months’ total imprisonment.[9] The District Court also reduced the fine to $75,000 and the special assessment to $2,475 to comport with the fact that Bagdis had been found guilty of twenty-seven, not twenty-nine, violations. On his second appeal, Bagdis asked the Third Circuit to find that the District Court, “violated his Fifth Amendment protection against Double Jeopardy by imposing sentences on counts for which he had already served the originally imposed sentences.”[10]

Bagdis argued, inter alia, that the District Court, “formulated a sentence that was procedurally and substantively improper, because it was based on clearly erroneous facts and an improper guidelines calculation.”[11] Further, Bagdis argued that the District Court failed to provide an adequate explanation of the sentence imposed and that the court failed to address his motion arguing that the District Court should not apply certain enhancements to his sentence.[12]

The Third Circuit did not address Bagdis’ arguments on his second appeal and instead relied on the instructions it gave the District Court on remand. The Third Circuit instructed the District Court that it was, “free . . . to reconstruct the sentencing architecture” to comply with its instructions, so therefore the District Court did not err by readjusting the sentences on all counts while imposing a near identical sentence.[13] The Third Circuit also took issue with the fact that Bagdis raised new arguments on appeal. Bagdis indeed raised different arguments at the Circuit Court level than he did at the District Court level, since his new arguments centered around the allegedly unconstitutional sentence the District Court gave to him on remand. However, the Third Circuit followed its own precedent by holding that Bagdis waived his rights to make the new arguments on appeal, since he failed to raise these arguments to the District Court.[14]

To tie its reasoning together, the Third Circuit determined that even if Bagdis had raised these new arguments to the District Court, it would have been improper for the District Court to address the issues because they were outside the limited scope of the remand order the Third Circuit gave to the District Court.[15] This determination is consistent with precedent in the Third Circuit.[16] Therefore, the Third Circuit concluded that no double jeopardy violation occurred.

This case is significant because of the harsh prison sentence imposed on Bagdis, the leader of a complex tax-obstruction and tax evasion scheme, and the strict adherence to the Sentencing Guidelines by the District Court and Third Circuit. In recent years, there has been a general trend by federal courts to depart from the Sentencing Guidelines and provide lenient sentences for white collar criminals convicted of tax crimes.[17] The Third Circuit provided a prime example of its own leniency in 2009 when it upheld a district court judge’s decision to sentence a plumbing contractor to home confinement and community service rather than the twelve to eighteen months of jail time provided by the guidelines.[18] The court reasoned that jailing him would jeopardize the employment of the 300 workers at his company.[19] In the case of Bagdis, however, the District Court initially imposed a sentence with more prison time than the statutory maximum provided by the Sentencing Guidelines, which was subsequently reduced to the statutory maximum by the Third Circuit. It is clear that Bagdis’ role as the ringleader of the crimes, his willfulness to deceive the IRS, and the amount of money involved in the tax evasion scheme were the reasons the Eastern District of Pennsylvania and the Third Circuit imposed a particularly harsh prison sentence.[20]

[1] Michael Hinkelman, Lawyer Gets 10 Years In Prison For Role In Hiding $24M from IRS, Philly.com, (June 17, 2010), available at https://articles.philly.com/2010-06-17/news/24967594_1_federal-tax-tax-system-income-tax.

[2] See id.

[3] See id.

[4] Id.

[5] Press Release, U.S. Attorney’s Office E.D. Pa., Attorney, Radiologist, and Engineer Convicted in Criminal Tax Fraud Case, (Apr. 22, 2009), available at https://www.fbi.gov/philadelphia/press-releases/2009/ph042209.htm.

[6] Id.

[7] See United States v. Bagdis, No. 13–4438, 2014 WL 5762840, at *1 (3d Cir. Nov. 6, 2014).

[8] Id.

[9] Id. at *2 n. 4 (imposing 36 months on Count 1 (obstructing the administration of the Internal Revenue Code); concurrent terms of 36 months on Counts 10, 47, and 49 (aiding and assisting in the preparation of a false tax return), to run consecutively with the term imposed on Count 1; a term of 12 months each on Counts 65–67 (failure to file tax returns), to run consecutively to each other and to the terms on Counts 1, 10, 47, and 49; a term of 12 months on Count 68 (failing to file a currency transaction report), to run consecutively to the terms on Counts 1, 10, 45, 47, 65–67; and a concurrent term of 12 months on all remaining counts).

[10] Id.

[11] Id.

[12] See id.

[13] Id.

[14] See id at *2 (citing United States v. Pultrone, 241 F.3d 306, 307 (3d Cir. 2001) (holding that defendant who “failed to pursue allegations of error … when he first filed a direct appeal” could not raise them in appeal following limited remand).

[15] See id. at *2.

[16] See United States v. Smith, 751 F.3d 107, 122 (3d Cir. 2014) (holding that a party may not litigate on remand issues that were not remanded for further proceedings).

[17] See Janet Novak, Federal Judges Are Cutting Rich Tax Cheats Big Sentencing Breaks, Forbes (May 14, 2014), available at https://www.forbes.com/sites/janetnovack/2014/05/14/federal-judges-are-cutting-rich-tax-cheats-big-sentencing-breaks/.

[18] Id.

[19] Id.

[20] See United States v. Bagdis, 488 F. App’x 593, 599 (3d Cir. 2012), aff’d on appeal after remand by Bagdis, supra note 7; accord Novak, supra note 18.