370 Tax, Customs Offenses (§2T) | Welcome to Federal Sentencing Cases

200 – Offense Conduct, Generally (Chapter 2)

Back to main table of contents

§370 Tax, Customs Offenses

(U.S.S.G. §2T)

3d Circuit says ban on felons possessing firearms applies to tax offender. (330)(370) Defendant was convicted of tax fraud. She argued that it violated the Second Amendment to apply the ban in 18 U.S.C. § 922(g) barring felons from possessing firearms. The Third Circuit found that § 922(g) applies to all felons, and that, an any event, defendant committed a serious felony that justified the ban on possessing firearms. Folajtar v. Attorney General, __ F.3d __ (3d Cir. Nov. 24, 2020) No. 19-1687.

6th Circuit rejects defendant’s claim that tax loss should have been based on audit report. (370) Defendant was convicted of tax offenses based on his failure to pay to the IRS amounts withheld from his employees. Under § 2T1.1, the district court calculated the tax loss based on the presentence report. Defendant argued that the district court should have used an auditor’s report to calculate tax loss. The Sixth Circuit noted that the auditor’s report was prepared in a lawsuit against defendant’s company by a disaffected shareholder and calculated only what defendant should have been paid. Because the report was for a different purpose, it was proper for the district court not to rely on it. U.S. v. Rankin, __ F.3d __ (6th Cir. July 12, 2019) No. 18-3345.

6th Circuit allows consideration of uncharged tax losses. (120)(175)(370) Defendant was convicted of tax offenses. At sentencing, the district court used uncharged tax losses to calculate the tax loss and restitution. Defendant argued that the Supreme Court’s decision in Nelson v. Colorado, 137 S.Ct. 1249 (2017), rendered the use of uncharged conduct unconstitutional. The Sixth Circuit found that Nelson did not apply because it simply held that when a defendant’s conviction has been overturned, he “should not be saddled with any proof burden” in his efforts to reclaim fines or restitution associated with the overturned conviction. U.S. v. Rankin, __ F.3d __ (6th Cir. July 12, 2019) No. 18-3345.

8th Circuit upholds sophisticated means increase for smuggling Human Growth Hormone. (370) Defendant sent human growth hormone (HGH) into the U.S. and was convicted of conspiracy to distribute HGH, distribution of HGH, and smuggling goods into the U.S. Defendant shipped more than 95 packages containing HGH from Mexico to the U.S. for 40 patients over a year and a half; he used multiple email addresses and hid transactions by using bank transfers instead of credit card transactions. He sold the HGH by advertising it on English-language websites, and he used medical expertise to offer advice on HGH dosages. None of the packages containing HGH or the customs declarations stated that he was selling HGH. At sentencing, the court enhanced defendant’s offense level by two under § 2T3.1(b)(1) for using sophisticated means to commit the offense. The Eighth Circuit upheld this enhancement. U.S. v. Patino, __ F.3d __ (8th Cir. Jan. 8, 2019) No. 17-3199.

5th Circuit affirms loss amount in tax case based on acquitted conduct. (370) Defendants were convicted of tax evasion and filing false tax returns. At sentencing, the district court set the loss amount based on the tax owed as a result of the charged offenses and the estimated amount of tax that defendants failed to pay on food they stole from the county government for which they worked. The Fifth Circuit upheld the district court’s loss calculation, rejecting defendants’ challenges based on the sufficiency of the evidence. The court specifically found that in setting the loss amount, the district court did not err in relying on conduct that formed the basis for defendants’ acquittal. U.S. v. Bolton, __ F.3d __ (5th Cir. Oct. 23, 2018) No. 17-60502.

11th Circuit upholds loss calculation based on IRS review of documents from defendant’s home. (218)(370) Defendant and his wife stole identities from patients at various medical establishments to file fraudulent tax returns electronically. They used prepaid debit cards to access the refunds. Based on testimony from an IRS Special Agent who investigated the scheme, the district court found the intended loss was more than $2.5 million, and applied an 18-level enhancement under §2B1.1(b)(1)(J). The Eleventh Circuit upheld the loss enhancement. The IRS determined that 7,000 pieces of personal identifying information found during a search warrant at defendant’s residence were used to file 5,811 fraudulent tax returns during the three-year period between 2010 and 2012. Based on patterns in these patterns, the agent attributed 805 of the 5,811 tax returns to defendant. Based on this, the district court reasonably estimated the intended loss at $5,613,549. The court also properly relied on this information to find that the offense involved more than 250 victims. U.S. v. Cobb, 842 F.3d 1213 (11th Cir. 2016).

5th Circuit upholds estimate of tax loss where defendant did not offer alternative calculation. (370) Defendants were convicted of conspiracy to prepare false and fraudulent income tax returns, in violation of 18 U.S.C. §371. They argued on appeal that the district court miscalculated the amount of tax loss. An IRS case agent estimated tax loss by selecting a sample of 41 tax returns prepared during the 2006 to 2013 tax seasons to analyze the percentage of the claimed refund amount that was deemed to be fraudulent. Defendants argued that the sample was too small and not representative of the total corpus of tax returns prepared. The 41 returns were chosen from prepared IRS reports, and defendants claimed that the returns had already been audited, and therefore were less random than the selection approved in U.S. v. Simmons, 420 Fed.Appx. 414 (5th Cir. 2011). The Fifth Circuit found defendants arguments “reasonable and relevant” but not sufficient to warrant a reversal of the tax loss calculation. Defendants did not offer evidence or alternative calculations to contradict or rebut a finding that the alleged tax loss was anything but a “reasonable estimate based on the available facts.” Other cases have affirmed tax loss calculations based on less reliable information. U.S. v. Johnson, 841 F.3d 299 (5th Cir. 2016).

2nd Circuit upholds tax loss and restitution despite failure to obtain additional information. (370)(610) Defendant was convicted various tax-related offenses based on his failure to file income tax returns. The PSR calculated the tax loss by applying a percentage-based formula to his gross income from 2005 through 2008. Under §2T1.1(c)(2)(A), this formula should be used “unless a more accurate determination of the tax loss can be made.” Defendant argued that “a more accurate determination of tax loss” could be made based on the actual corporate and personal tax returns he filed, years after the fact, for tax years 2005 through 2008. The district court refused defendant’s alternative calculation in light of the various discrepancies the government identified in the proffered tax returns. On appeal defendant argued that the district court should have conducted a further inquiry by way of an evidentiary hearing or supplemental briefing. The Second Circuit disagreed. A district court “is not required, by either the Due Process Clause or the federal Sentencing Guidelines, to hold a full-blown evidentiary hearing in resolving sentencing disputes…. All that is required is that the court afford the defendant some opportunity to rebut the [g]overnment’s allegations.” Defendant did not respond to the many inaccuracies the government identified in the proffered tax returns. The district court did not abuse its discretion by not obtaining additional information regarding the issue. U.S. v. Marinello, 839 F.3d 209 (2d Cir. 2016).

2nd Circuit says post-conviction interviews with jurors did not warrant shorter sentence. (370) (742) Defendant, a CPA and tax attorney, was convicted of conspiracy to defraud the IRS, client tax evasion, IRS obstruction, and mail fraud. He argued on appeal that, at sentencing, the district court should have considered the interviews his attorneys had conducted with two jurors after the trial, in which the jurors said that they believed defendant was guilty only of backdating transactions, not of the entirety of the fraud. The Second Circuit rejected the argument, noting that the district judge did not ignore this information. He acknowledged the interviews but found that they did not justify a shorter sentence. Because the district court’s conclusion was reasonable, defendant’s procedural challenge failed. U.S. v. Daugerdas, __ F.3d __ (2d Cir. Sept. 21, 2016) No. 14-2437-cr.

7th Circuit upholds sophisticated means increase for fabricating supporting forms for false tax return. (218)(370) Defendants were convicted of tax fraud for submitting a false tax return. The district court imposed a sophisticated means enhancement under §2T1.1(b)(2) because defendants fabricated the 1099-OID forms they used to support their tax return. Both defendants challenged the enhancement for the first time on appeal, arguing that their conduct did not involve any concealment beyond that inherent in the tax fraud itself. The Seventh Circuit found no plain error. To prove tax fraud, the government need only show that a defendant knowingly presented a false claim. Consequently, defendants’ fabrication of the 1099-OID forms to corroborate their false return represented concealment beyond basic tax fraud. Defendants fabricated nine different 1099-OID forms to appear as if the forms came from various major financial institutions. They calculated false income and withholding amounts to maximize their tax return. They submitted the 1099-OID forms and then, separately, the false tax return, with amounts corresponding to those in the 1099-OID forms. One defendant told the IRS agent during his interview that the fraud took six months of planning and research. U.S. v. Bickart, __ F.3d __ (7th Cir. June 17, 2016) No. 15-2890.

8th Circuit finds deposits into defendant’s bank account were payments for sex. (370) Defendant, an adult performer who was often paid in cash, was convicted of four counts of making and subscribing a false income tax return for tax years 2005 through 2008. The district court found a tax-loss amount of $214,606, concluding that all of the amounts deposited into her account during the four-year period should be included as income. The Eighth Circuit held that the government proved the amount of tax loss by the preponderance of the evidence. The panel also upheld a two-level enhancement under §2T1.1 for a source of income exceeding $10,000 in any year from criminal activity. At trial, defendant testified that the large amounts of cash deposited into her account were mostly from a customer named Karlen. Defendant testified that she asked Karlen for various amounts for constructing her home, paying bills, getting breast implants, and paying college tuition, and that she considered it all a gift. Karlen, however, testified that all 37 checks were for sexual services. The district court was entitled to credit Karlen’s testimony and discredit defendant’s and another customer’s testimony as to whether defendant was paid for sex. U.S. v. Fairchild, __ F.3d __ (8th Cir. Mar. 17, 2016) No. 14-3517.

10th Circuit imputes all of corporation’s income to defendant for tax loss purposes. (370) Defendant was convicted of five counts of attempted tax evasion. She disputed the district court’s calculation of tax loss, contending that the district court erred in imputing to her 100% of the net income from Rockledge Medical Service. She argued that Rockledge was a valid Subchapter S corporation, and Sara Wentz, its sole shareholder and director, owed the tax on that income. However, the district court found that defendant established Rockledge as a means to conceal her income, and used her domestic partner, Wentz, as a nominee to appear to own and control Rockledge. The Tenth Circuit held that the district court did not err in treating all of Rockledge’s income as belonging to defendant. Defendant exercised absolute control over Rockledge and its assets in order to shield her income from the IRS. The fact that defendant allowed her domestic partner to use some of the income did not alter the fact that the income was earned by, and thus properly taxed to, defendant. U.S. v. Vernon, __ F.3d __ (10th Cir. Feb. 9, 2016) No. 14-3279.

11th Circuit uses total checks as tax loss, even though defendant never deposited some of the checks. (370) As part of a check-cashing scheme, defendant instructed Gentner to write company checks to “Charles Sohrabel,” an alias for defendant’s friend Schnabel. Schnabel then cashed the checks and gave the proceeds to defendant. In some cases Gentner cashed the checks on Schnabel’s behalf, and gave the money to defendant. Defendant never reported on his tax returns any of the Sohrabel checks, which totaled $2,566,981.60. Defendant argued that using the full amount of the Sohrabel checks to calculate tax loss was error because the government proved that he actually deposited only $820,513.75. The Eleventh Circuit found no error. The “object” of defendant’s check-cashing scheme was the full amount of the Sohrabel checks, not just the $820,513.75 that ended up in the bank accounts defendant owned or controlled. Nothing in the guidelines required the district court to consider only the checks that defendant actually deposited. It did not matter that some of the $2,566,981.60 might later have gone to co-conspirator Schnabel as a “commission” for his help in the scheme, since Gentner testified that she gave all the cash to defendant. See Note 2 to §2T1.1. U.S. v. Zitron, __ F.3d __ (11th Cir. Jan. 21, 2016) No. 14-10009.

11th Circuit remands to decide if foreign entities were partnerships or corporations for tax purposes. (370) Defendant and her husband operated two successful medical schools in the Caribbean. They used offshore accounts to hide profits from the IRS, and were convicted of filing false income tax returns and conspiracy to defraud the IRS. The district court included in its calculation of tax loss the following unreported income: (1) the medical schools’ annual profits from 2003 until April 2007; (2) the capital gains in the offshore accounts; and (3) the interest and dividends that went into the offshore accounts. The Eleventh Circuit held that district court did not clearly err by including in the loss amount the tax defendant owed on the interest, dividends, and capital gains in the offshore accounts. As for the medical schools’ profits, defendant argued that the parent entity of the schools were corporations, so she and her husband were not liable for taxes until they personally received the funds. The district court rejected this argument, finding that the parent entities were partnerships. However, the court failed to make certain findings, or consult any foreign laws or organizational documents, that would have allowed it to treat the foreign entities as partnerships. The panel ordered a limited remand to reexamine this issue. U.S. v. Hough, __ F.3d __ (11th Cir. Sept. 8, 2015) No. 14-3771.

7th Circuit reverses, limiting tax loss to amount of taxes defendant owed government. (370) Defendant repeatedly tried to pay off a $5 million tax debt with checks drawn on checking accounts that he knew were closed to prevent the Internal Revenue Service from collecting taxes from him. The district court calculated a tax loss of $14 million, reached by aggregating the face value of the fraudulent checks and the penalties and interest. The Seventh Circuit held that the district court misapplied the tax loss definition. Section 2T1.1(c)(1) defines tax loss as the total amount of loss that was the object of the offense. Here, the object of defendant’s offense was the amount of money that he attempted to avoid paying, which was the actual amount of taxes, penalties and interest that was due. This was about $5.3 million, rather than $14 million. The calculation might have been different under § 2B1.1, the fraud guideline, but the parties agreed that § 2T1.1 was the appropriate guideline. Moreover, the penalties and interest should not have been included in the tax loss calculation. U.S. v. Black, __ F.3d __ (7th Cir. Aug. 17, 2015) No. 13-3908.

7th Circuit holds that defendant was not entitled to reduce tax loss amount by alleged audit errors. (370) Defendant repeatedly tried to pay off a more than $5 million tax debt with checks drawn on checking accounts that he knew were closed. He challenged the district court’s tax loss calculation because it was derived from a 2000 audit which contained an overstatement of his income and failed to credit him with legitimate deductions. The district court found that defendant failed to follow the appropriate procedures to appeal the IRS’s audit determination, and thus waived his right to assert unclaimed deductions. It also determined that: (1) the deductions were unrelated to the relevant tax offenses, and (2) defendant’s failure to cooperate with the IRS during the audit process made it so that the accuracy of the deductions was not reasonably ascertainable at the time of sentencing. The Seventh Circuit held that the district court properly refused to consider the unclaimed deductions and other alleged errors in the 2000 audit. Once the government established the tax loss amount, defendant had the burden to show that he was entitled to credits or deductions. There was insufficient evidence to establish that at the time of defendant’s criminal conduct, he could have challenged the audit and reduced his tax liability. U.S. v. Black, __ F.3d __ (7th Cir. Aug. 17, 2015) No. 13-3908.

8th Circuit includes multiple tax filings from same tax year in intended loss calculation. (370) At trial, the government presented evidence that defendant submitted 11 false filings to the IRS claiming refunds for the tax years 2005 through 2008. He filed an original return and an amended return for 2005, an original return and two identical amended returns, sent to different IRS centers, for 2006, and an original return and two amended returns filed on different dates for 2008. The district court calculated intended loss by adding together the refund amounts for each of the 11 filings. Defendant objected to the inclusion of multiple returns for any given year, arguing that an individual who files an amended return is not intending to receive double refunds because the amended return is intended to take the place of the original return. The Eighth Circuit inferred from the record that the court found that defendant intended to receive the funds claimed in all 11 filings, and this finding was not clearly erroneous. Defendant intended to obtain fraudulent refunds from the government, and it was reasonable to infer that he intended to maximize the amount procured. That he sent different amended returns to different locations for tax year 2006 supported an inference that he hoped the government would mistakenly pay twice. U.S. v. Johnson, __ F.3d __ (8th Cir. July 31, 2015) No. 14-2460.

8th Circuit agrees that defendant’s tax fraud involved sophisticated means. (370) Defendant was convicted of making a false claim for a tax refund. The district court applied a § 2T1.1(b)(2) enhancement for an offense that involved “sophisticated means,” finding that defendant “participated in the scheme and the concealment of the offense, and that it was complex and intricate.” Defendant argued that the finding was clearly erroneous because he used his real name and address on his tax returns, and in no way attempted to shield his identity. He also argued that his acquittal on the conspiracy charge showed that the jury did not credit him with any sophistication or participation in the larger scheme of which his substantive offense was a part. The Eighth Circuit upheld the sophisticated means enhancement. Defendant submitted 11 false filings to the IRS. He submitted false background documents to the IRS to bolster his claims for tax refunds, and he warned Poynter, the leader of the tax fraud conspiracy, via e-mail to alert him that the Department of Justice was aware of their tax fraud scheme. Defendant’s conduct was repetitive and more intricate than that of a garden-variety tax offender. U.S. v. Johnson, __ F.3d __ (8th Cir. July 31, 2015) No. 14-2460.

11th Circuit upholds loss calculation in tax fraud case. (219)(370) Defendant, a tax professional, operated a complex fraud scheme in which she acquired personal information under false pretenses from victims who were homeless or disabled, and then used that information to file false tax returns and pocket the refunds. The Eleventh Circuit upheld the district court’s finding that the loss was greater than $400,000. An IRS agent testified at sentencing that he reviewed all of the tax returns. Because many of the victims could not be located and interviewed, the agent narrowed the list of returns to just those that included common addresses, i.e. those addresses that defendant listed repeatedly on different victims’ tax returns. The agent interviewed as many victims as he could locate and visited each address and confirmed that it was highly unlikely that these addresses housed the individuals who were identified as residing there. The victims whom the agent located confirmed that their returns were indeed fraudulent. The “common address” returns, plus those returns confirmed to be fraudulent from victim interviews, totaled $500,501 in losses. U.S. v. Ford, __ F.3d __ (11th Cir. Apr. 28, 2015) No. 14-10381.

Commission adjusts loss and fine tables for inflation. (218)(370)(630)(840) Recognizing the effects of inflation, the Commission amended the Guidelines’ seven monetary tables to increase the amounts using a specific multiplier derived from the Consumer Price Index (CPI). For example, the loss amount necessary for a two-level increase under §2B1.1 is increased from “more than $5,000” to “more than $6,500.” The effect is to reduce sentences for a given loss amount. On the other hand, for fines, the effect is to increase the amount of the fine for a given offense level. To avoid ex post facto issues for fines, the Commission added a special instruction to both §§5E1.2 and 8C2.4 requiring use of the 2014 guidelines for offenses committed prior to November 1, 2015. Proposed amendment 2, effective November 1, 2015.

8th Circuit rules “repetitive and coordinated scheme” to hide assets from IRS was “sophisticated means.” (370) During 2009 and 2010, defendant took numerous actions to avoid paying the several hundred thousand of dollars he owed in back taxes for the years 2006-2008. The Eighth Circuit held that “substantial evidence” supported the district court’s finding that the offense involved sophisticated means under §2T1.1(b)(2). Defendant submitted partially blacked-out bank statements to the IRS, used undisclosed bank accounts, commingled his personal and business accounts, and dealt in cash. He also stonewalled the IRS about his company’s accounts receivable, used multiple EINs for the company, secretly operated a separate company, and refused to bill customers. Defendant “may not have taken any one overly sophisticated action, but his conduct formed a repetitive and coordinated scheme to hide his assets from the IRS.” U.S. v. Jones, __ F.3d __ (8th Cir. Mar. 3, 2015) No. 14-1327.

1st Circuit upholds calculation of tax loss. (370) Defendant was convicted of having engaged in a scheme to conceal and avoid her company’s employment tax liability, concealing much of her company’s tax liability by maintaining two separate payrolls. She disputed the government’s loss estimation, challenging its assumption that all individuals who were paid through the unreported payroll should have been treated as W-2 employees. The First Circuit found no error. The IRS’s assumption that the payments from the unreported payroll were made to employees and not independent contractors was supported by evidence at trial indicating that: the decision to put an individual on the unreported payroll had nothing to do with the type of work that person performed; workers determined for themselves how they wanted to be paid; and workers regularly alternated between the reported and unreported payrolls. Defendant pointed to no evidence in the record of properly characterized 1099 employees. The IRS agent’s estimate was reasonable. U.S. v. DeLeon, 704 F.3d 189 (1st Cir. 2013).

1st Circuit includes unpaid state taxes in total tax loss. (370) Defendants were convicted on tax and fraud charges based on their operation of temporary employment agencies that supplied manual laborers to area businesses. They defrauded the government of more than $9.9 million in payroll taxes by paying their temporary workers in cash, and by failing to report those payments to the government or to the workers’ compensation insurance carriers. The First Circuit held that the district court did not err by including unpaid state taxes in the total tax loss at sentencing. The plain language of Application Note 2 to § 2T1.1 states that in determining the total tax loss, all conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrated that the conduct was clearly unrelated. Thus, state tax evasion, when proven to be sufficiently similar to the convicted crime, should be included in the § 2T1.1 calculation of “tax loss.” Here, the government established that defendants’ evasion of state taxes was part of the same “course of conduct” or “common scheme or plan” as their evasions of federal taxes. U.S. v. McElroy, 587 F.3d 73 (1st Cir. 2009).

1st Circuit finds guideline sentence for evading income taxes was reasonable. (370) Defendant was convicted of four counts of evading federal income taxes. The First Circuit rejected defendant’s claim that his 33-month sentence, which fell within his guideline range, was unreasonable. In considering and rejecting defendant’s request for a non-Guidelines sentence, the district court read from the Introductory Commentary to the relevant Guidelines section. This commentary emphasizes general deterrence and the importance of cultivating respect for our tax system. The district court also went through the sentencing factors enumerated in 18 U.S.C. §3553(a) and supportably explained the sentence in this case. No more was needed. U.S. v. Anthony, 545 F.3d 60 (1st Cir. 2008).

1st Circuit says penalty for early withdrawal of money from IRA was part of tax loss. (370) Defendant was convicted of multiple counts of evading federal income tax. In calculating tax loss, the district court ruled that the “penalty” for early withdrawal of funds from an IRA is a tax. As such, it should be considered part of the total tax loss. The First Circuit agreed. The statute itself, 26 U.S.C. §72(t), calls this amount an “additional tax.” U.S. v. Anthony, 545 F.3d 60 (1st Cir. 2008).

1st Circuit says environmental guideline applied to defendant who illegally shipped freon into U.S. (370) Defendant operated a Canadian company that shipped freon to U.S. customers without required consumption allowances. The district court sentenced defendant under the customs tax guideline, which bases the offense level on the amount of lost customs taxes. Because no duty was payable on the importation of freon, defendant’s base offense level would have been 4. Note 2 to § 2T3.1 says that where the duties evaded does not adequately reflect the harm, an upward departure may be warranted, using an “alternative measure of the ‘duty’ evaded.” The district court, viewing excise taxes as an “alternative measure,” applied an 13-level enhancement based on the amount of federal excise taxes that U.S. customers avoided by buying from defendant. The First Circuit held that under the grouping rules, the district court should have sentenced defendant under the environmental guideline, since it carried a higher offense level (6 versus 4 under the customs guideline). See § 3D1.3(a). Also, the commentary to § 2T3.1 says that if the offense involved a contraband item covered by another guideline, a court should apply that offense guideline if it would result in a greater offense level. The district court may have incorrectly thought that the enhanced offense level of 17, reached under its alternative measure approach, was the proper comparison. However, the alternative measure may only be implemented by a departure from the guideline. Thus, the controlling offense level after the grouping was 6 under the environmental offense guideline, assuming no specific offense adjustments. Although it is possible that the court could then depart upward to impose the same sentence, this was a decision for the district court to make in the first instance. U.S. v. LeBlanc, 169 F.3d 94 (1st Cir. 1999).

1st Circuit suggests intent to pay taxes might justify downward departure. (370) From 1986 to 1992, defendant followed a regular pattern of withholding taxes from his employees’ pay but delaying payment to the government. He also frequently withdrew money from his business by means that avoided bank reports to the IRS. After the IRS met with him to discuss his late payments, he removed large sums of money from the business. In addition, he began to file false quarterly withholding tax returns. He was convicted of failure to pay withheld taxes, structuring, and obstructing the IRS. The district court departed downward to a sentence of thirteen months, indicating that unlike the typical tax evader, defendant did not intend to permanently deprive the government of the money, and that there were multiple causes of the government’s losses. The First Circuit found that these reasons were inadequate to justify the substantial departure. The Circuit court said defendant’s alleged intent to eventually pay the withheld taxes might justify a downward departure. However, the decision to depart and the extent of the departure were not adequately explained. There were numerous factors weighing against departure that received inadequate attention, including the fact that it may not have been reasonable for defendant to believe that he could repay the taxes he owed. He was dishonest with the IRS in at least two ways, and his structuring offense alone could have produced a guideline sentence of 24-30 months. U.S. v. Brennick, 134 F.3d 10 (1st Cir. 1998).

1st Circuit holds that adopting PSR was not a sufficient finding of willfulness for tax loss. (370) Defendants were indicted for evading taxes on their 1986, 1987 and 1988 tax returns. They were acquitted of charges relating to the 1986 and 1988 returns, and convicted on the charge relating to the 1987 return. The district court found that the tax loss was $632,157, which included the loss from 1987 as well as from 1986 and 1988. Both parties agreed that for sentencing purposes the judge was required by Rule 32(c)(1) to find that defendants willfully attempted to evade all of the taxes used in determining their base offense level. The First Circuit held that the district court failed to make adequate findings of the amount of taxes that defendants willfully attempted to evade. The district court adopted the PSR, but the PSR did not resolve all of the disputed factual issues, so reliance on it was not sufficient. U.S. v. Olbres, 99 F.3d 28 (1st Cir. 1996).

2nd Circuit reverses tax sentence that exceeded statutory maximum. (370) Defendant was convicted of 16 counts of aiding and assisting in the preparation of false federal income tax returns, in violation of 26 U.S.C. § 7206(2). The court sentenced him to concurrent terms of 41 months’ incarceration and three years of supervised release. The Second Circuit reversed, ruling that the terms of imprisonment and supervised release imposed by the district court exceeded the maximum permitted by statute. The maximum term of imprisonment that may be imposed for a violation of 26 U.S.C. § 7206(2) is three years’ incarceration, and the maximum period of supervised release on each count of conviction is one year, 18 U.S.C. § 3585(b)(3) (2006). U.S. v. Cadet, 664 F.3d 27 (2d Cir. 2011).

2nd Circuit finds no ex post facto violation for continuing tax offenses that straddled dates of guidelines. (370) Defendant was convicted of numerous tax and healthcare fraud counts, includeing evasion of personal income taxes for the years 1977-1980 and 1983-1985, evasion of personal income taxes for the years 1997 and 1998, and willful failure to file timely personal income tax returns for the years 1999-2002. Defendant argued that his tax evasions offenses were completed by December 1998 (when he made disclosures in his wife’s bankruptcy proceeding), and that the district court’s use of the 2006 guidelines violated the ex post facto clause. The Second Circuit found no ex post facto violation, because there was a continuing offense that straddled the dates of the guidelines. After 1998, defendant elected not to file timely income tax returns for the years 1999-2002, in part because he was attempting to avoid taking a stance that would assist the government in prosecuting him for having claimed net operating losses through 1998. U.S. v. Josephberg, 562 F.3d 478 (2d Cir. 2009).

2nd Circuit holds that defendant was liable for tax loss caused by co-conspirators. (370) Defendant argued that the district court miscalculated the amount of tax loss attributable to him under § 2T4.1 by including the amount of taxes a co-conspirator had failed to pay on income the co-conspirator received on account of defendant’s efforts. The Second Circuit disagreed. Under § 1B1.3(a), in the case of a jointly undertaken criminal activity, a defendant is liable for all reasonably foreseeable acts and omissions of others in furtherance of that activity. When a defendant pleads guilty to conspiring with others to evade taxes, conspiracy-related tax loss is attributable to him unless he proves that the loss was not foreseeable by him. U.S. v. Firment, 296 F.3d 118 (2d Cir. 2002).

2nd Circuit holds that failure to consider potential unclaimed deductions was harmless error. (370) Defendant argued that the district court overestimated his tax loss because the unreported funds transferred by his company to him, had they been reported, would have been treated by the company as a deductible salary expense. Thus, he contended that the tax loss caused by his failure to report the transferred funds should have been offset by the corporate tax deduction the company would have taken. However, defendant did not offer any proof that company would have treated the money paid as salary, a deductible corporate expense, rather than as a dividend, a non-deductible corporate expenditure. Defendant’s argument that salary treatment was likely did not provide sufficient proof to establish an unclaimed deduction for consideration under § 2T1.1. Thus, the Second Circuit ruled that the district court’s failure to consider unclaimed deductions was harmless error. U.S. v. Gordon, 291 F.3d 181 (2d Cir. 2002).

2nd Circuit includes uncharged embezzlement income as relevant conduct in tax loss. (370) The government stipulated to an offense level of 9 for defendant’s tax count in the plea agreement. The presentence report, however, found that defendant received an additional $776,280 in 1998 from his wife’s embezzlement scheme, which along with other uncharged conduct resulted in an offense level of 19. On appeal, the Second Circuit upheld the inclusion of this uncharged conduct as relevant conduct under § 1B1.3 in calculating defendant’s tax loss under § 2T1.1. The court noted that numerous cases have held that uncharged conduct may be considered as relevant conduct under the guidelines. U.S. v. Feola, 275 F.3d 216 (2d Cir. 2001).

2nd Circuit rules Apprendi did not require relevant conduct to be determined beyond reasonable doubt. (370) Defendant operated a tax-return business that numerous fraudulent income tax returns for its customers. The IRS calculated the tax loss at about $7.5 million, which included $7.2 million determined by an IRS civil audit to be the tax loss for 2866 returns not involved in the counts of conviction. Defendant argued that under Apprendi v. New Jersey, 530 U.S. 466 (2000), the court could not include the tax loss resulting from the civil audit unless it found such loss existed beyond a reasonable doubt. However, Apprendi is inapplicable to guideline calculations that do not result in a sentence on a single count above the statutory maximum for that count. U.S. v. Garcia, 240 F.3d 180 (2d Cir. 2001). Also, the preponderance of the evidence standard applies to determinations of relevant conduct for purposes of determining the “total punishment,” USSG § 5G1.2(b), which may exceed the statutory maximum on a single count. See U.S. v. White, 240 F.3d 127 (2d Cir. 2000). Finally, Apprendi is inapplicable to a sentencing judge’s decision when required by the Guidelines (because the “total punishment” exceeds the highest statutory maximum on any count), to run sentences consecutively. Following this precedent, the Second Circuit upheld the use of the preponderance of the evidence standard to determine defendant’s relevant conduct. It was proper to include as relevant conduct the tax loss found in the civil audit. U.S. v. McLeod, 251 F.3d 78 (2d Cir. 2001).

2nd Circuit agrees that scheme to hide interest in company was sophisticated. (370) Section 2T1.1(b)(2) provides for a two-level increase if “sophisticated means were used to impede discovery of the existence or extent of the offense.” Defendant argued that the increase did not apply to him because (1) the issuance of JFK Diner stock in his wife’s maiden name was not a taxable event and was not directed to conceal taxable income; (2) he did not leave a false paper trail; and (3) he merely received undeclared cash and computed his taxes with false information. The Second Circuit found these arguments without merit. Defendants engaged in a sophisticated scheme to conceal their interest in JFK diner, created an extensive false paper trail of corporate documents, and accepted only cash payments to evade detection and taxation. U.S. v. Middlemiss, 217 F.3d 112 (2d Cir. 2000).

2nd Circuit includes non-charged conduct in tax loss calculation. (370) Defendant used a large number of his corporation’s checks to cover his personal expenses. The corporation improperly deducted those items as corporate expenses on its tax returns, and defendant did not declare that income on his 1992-1994 personal returns. The district court included some non-charged conduct–his failure to declare $14,800 in W-2 income in tax year 1992–in calculating the tax loss for guideline purposes. The Second Circuit held that the district court properly considered the non-charged conduct in calculating tax loss under § 2T1.1. Section 1B1.3 directs sentencing courts to consider all “relevant conduct” when calculating a defendant’s base offense level. Other circuits have upheld the inclusion of non-charged relevant criminal conduct in the tax loss calculation. U.S. v. Bove, 155 F.3d 44 (2d Cir. 1998).

2nd Circuit rejects aggregating tax loss for corporation and individual. (370) Defendant used a large number of his corporation’s checks to cover his personal expenses. The corporation improperly deducted those items as corporate expenses on its tax returns, and defendant did not declare that income on his personal returns. Relying on U.S. v. Cseplo, 42 F.3d 360 (6th Cir. 1994), the district court applied a corporate tax rate of 34% to the unreported corporate income and an individual tax rate of 28% to the full amount of unreported individual income, undiminished by the imputed corporate tax. The Second Circuit rejected this aggregation approach because it overstates the revenues lost to the Treasury and amounts to double taxation. In U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998), decided a week before oral argument, the court rejected Cseplo and adopted the sequential approach endorsed by U.S. v. Harvey, 996 F.3d 919 (7th Cir. 1993). Harvey provides that when a single crime causes both corporate and personal income to be understated, the tax loss should be computed sequentially¾that is, the amount that should have been paid as corporate tax should be deducted from the individual’s unreported income before the tax loss on the personal income side is calculated. U.S. v. Bove, 155 F.3d 44 (2d Cir. 1998).

2nd Circuit applies tax evasion guideline to conviction for obstructing tax laws. (370) To support his treatment of a consulting fee in his false tax return, defendant gave an IRS auditor copies of a consulting agreement and an assignment. A jury convicted defendant of obstructing the administration of the tax laws but acquitted him of filing a false return. The Second Circuit upheld the court’s decision to sentence him under § 2T1.1 rather than former § 2T1.5. At the time of sentencing, no specific guideline applied to defendant’s conviction. Thus, the court was required to use the guideline most applicable to defendant’s offense. The district court reasonably found that defendant’s conduct involved more than simply filing a fraudulent return. U.S. v. Kelly, 147 F.3d 172 (2d Cir. 1998).

2nd Circuit bases tax loss on amount defendant would have paid if he had reported income. (370) Defendant agreed to provide his old employer with consulting services for two years for a total fee of $244,200, to be paid in two equal installments. The company actually paid defendant his entire fee before the beginning of the prescribed period of service. The parties agreed that the fee was earned on the dates specified in the agreement. Defendant then assigned to a new company all of his rights and obligations under the consulting agreement. However, he never gave the company the fee he received. In his 1989 income tax return, defendant reported that he received $122,100 from his old employer, but stated that he had assigned this income to his new company. He then deducted the $122,100 and paid no tax on the income. The Second Circuit upheld a tax loss of $68,000, the amount defendant would have paid had he reported the entire $244,200 he received as income. Defendant, as the recipient of the income, was responsible for paying taxes on it. His failure to do so resulted in a tax loss for which he was properly held liable. U.S. v. Kelly, 147 F.3d 172 (2d Cir. 1998).

2nd Circuit rules defendant not entitled to deduction for unclaimed legitimate executive compensation. (370) Defendant challenged the court’s inclusion of 34 percent of his company’s income as part of his personal tax loss. He argued that if the company had reported its income truthfully, the company would have paid out all of its net income as a compensation bonus to defendant, and therefore would have incurred no corporate tax liability. Defendant’s accountant testified that small, closely held corporations commonly pay out all net income as additional executive compensation to prevent taxation at the higher corporate rates, and that these additional payments qualified as “reasonable” compensation under federal tax law. The Second Circuit held the 1991 guidelines base tax loss on gross unreported income, and do not permit the sentencing court to give the tax evader the benefit of unclaimed deductions. Thus, even if the executive compensation deduction would be legitimate under the tax code, defendant would not be entitled to any offsetting adjustment of corporate taxable income. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998).

2nd Circuit includes unreported interest in tax loss despite defendant’s belief he was not required to pay taxes. (370) Defendant and two others implemented a sophisticated tax evasion scheme involving their pen manufacturing companies. They were assisted by an officer of a bank in Puerto Rico, who set up two bank accounts in fictitious names. Defendant had his customers make their checks payable to these fictitious individuals, and then would deposit the checks in the Puerto Rico bank account. The bank officer would either return the funds to defendant or use the funds to purchase certificates of deposit. The Second Circuit held the district court properly included in the tax loss calculation the unreported interest on the Puerto Rican CDs. Although defendant claimed he believed he was not required to pay taxes on it, this “honest ignorance” defense was not credible. Defendant knew enough about the Internal Revenue Code to design a sophisticated tax evasion scheme. He purchased the CDs with funds withdrawn from an account designed to hide income from tax authorities. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998).

2nd Circuit includes in tax loss money paid to shell corporation to generate fictitious business expenses. (370) As part of a tax evasion scheme, defendant and two confederates wrote checks to a shell corporation (operated by defendant) to generate fictitious business expenses. Defendant deposited the checks and then returned the funds to his cohorts. The shell corporation generally reported the sums received as income, but never paid income taxes because it claimed various improper deductions that entirely offset its income. Defendant argued that because the shell corporation did not earn the $732,000 it received, it should not have been attributed to him. The Second Circuit disagreed. The district court found that defendant treated the funds paid to the shell corporation as belonging to him, and that this income was therefore properly counted in determining tax loss. If there was any error in the court’s treatment of the shell’s income, it was the district court’s reduction of the tax loss by $461,000 based on one of the pen company’s legitimate but unclaimed labor expenses. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998).

2nd Circuit holds individual is entitled to credit for corporate tax that corporation should have paid. (370) Defendant agreed that unreported corporate income should first be taxed at 34 %, but argued that the imputed dividend (to be taxed at 28%) should consist of unreported corporate income minus amounts calculated as corporate tax liabilities, for an effective rate of about 52% (34% plus 28% of 66%). The government argued that the entire sum of unreported corporate income should be taxed at both the 34% and 28% rates, for an effective tax rate of 62% (34% plus 28%). The Second Circuit, following U.S. v. Harvey, 996 F.2d 919 (7th Cir. 1993), agreed with defendant because it better approximated the tax revenue lost to the federal treasury. The guideline did not intend to exacerbate the double taxation phenomenon by computing shareholders’ tax losses without regard to the corporate tax that their corporations were obliged to pay, at least where the shareholders are being punished for their share of the unpaid corporate taxes. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998).

2nd Circuit holds defendant accountable for diverted income even if he never received the money. (370) Defendant wrote company checks to a shell corporation for fictitious business and labor expenses. A co-conspirator who controlled the shell corporation then returned the funds to defendant or his partner in the company. The co-conspirator owed defendant $227,436 at the time the scheme was uncovered. The Second Circuit rejected defendant’s claim the funds never returned to him should be subtracted from the income attributable to him in calculating tax loss. Defendant personally participated in diverting company income to the shell corporation to create bogus deductions. Defendant owned a 50% interest in the company, so was chargeable with 50% of the corporation’s unreported income. The 1991 guidelines do not make an allowance for a downward adjustment based on unreported imputed income that did not reach the tax evader’s pocket. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998).

2nd Circuit upholds double counting of same money in tax loss where it reflected two wrongs. (370) As part of a tax scheme, two companies wrote checks to a shell corporation (operated by defendant) to generate fictitious business expenses. Defendant deposited the checks and then returned the funds to his cohorts. The shell corporation generally reported the sums received as income, but never paid income taxes because it claimed various improper deductions that entirely offset its income. The district court attributed the money paid to the shell corporation to defendant because he owned 100 percent of the shares of the shell corporation. The court held defendant responsible for this same income a second time by counting it as income to the other pen company, which was attributable to defendant as relevant conduct. The Second Circuit held that this double counting was permissible under the 1991 guidelines. Defendant was responsible for two different wrongs: improper deductions taken by his shell corporation, and under-reporting of income by his co-conspirators. That the payments upon which the improper deductions were based originated with the same cash that the co-conspirators failed to report was merely a product of the unusual way the scheme was structured. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998).

2nd Circuit holds defendant accountable for co-conspirators’ tax losses. (370) The Second Circuit approved holding defendant accountable for a substantial portion of his co-conspirators’ tax losses. Defendant was unquestionably the mastermind of the scheme and had a “direct, personal involvement” in his co-conspirators’ tax evasion. Defendant directly participated in one co-conspirator’s home assembly business by providing advice as to how to set up the operation, by providing large sums of cash for payments to the co-conspirator’s home workers, and by providing his co-conspirators with invoices from his shell corporation so they could generate fictitious business expenses. He also allowed money from one co-conspirator to be commingled with his own in his special bank accounts he set up to hide income. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998).

2nd Circuit holds tax evader accountable for unpaid social security taxes for home workers. (370) As part of a tax evasion scheme, defendant organized an off-the-books pen assembly business using home labor, and paid the workers with cash diverted from his business. The Second Circuit approved including in the tax loss $162,944.40 in unpaid social security taxes based on the over $2 million he paid in cash to the home workers. The workers were not independent contractors, as defendant claimed. Although defendant claimed that the workers farmed the work out to family members and others, his records, which contained a detailed listing of his home workers, contradicted this claim. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998).

2nd Circuit holds 1991 definition of tax loss did not allow credit for legitimate but unclaimed deductions. (370) The district court purported to use the 1991 version of the guidelines based on the parties’ agreement that it was “generally more favorable to defendants” than the 1995 version of the guidelines in effect when defendants were sentenced. The Second Circuit held that the court’s decision to give credit, in calculating tax loss, for legitimate but unclaimed deductions was inconsistent with the 1991 guidelines. The 1991 version of § 2T1.3(a) bases tax loss on gross income and does not entitle the taxpayer to credit for legitimate but unclaimed deductions. The guideline establishes an alternative minimum standard for the tax loss which makes it irrelevant whether the taxpayer was entitled to offsetting adjustments that he failed to claim. In contrast, the 1995 guidelines do not foreclose consideration of legitimate but unclaimed deductions. Thus, the 1995 guidelines tend to produce smaller tax loss figures than the 1991 guidelines. However, this is offset by the 1995 Tax Table, which specifies offense levels that are generally harsher on defendants than the 1991 Tax Table. This is why the parties chose the 1991 guidelines. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998).

2nd Circuit uses tax loss from audited returns to estimate loss on unaudited returns. (370) For two years, defendant ran an income tax refund “mill” that falsified returns so his clients could obtain refunds. The district court included in the tax loss (1) the tax loss on the 22 returns defendant was convicted of falsifying, (2) loss on other tax returns prepared by defendant that had been audited by the IRS, and (3) about $600,000 in estimated tax losses on unaudited returns prepared by defendant. The Second Circuit affirmed using loss from the audited returns to estimate the loss from the unaudited returns. This might not reasonable if there were few instances of fraud, or if the audited returns were a small percentage of the total, but that was not the case here. Defendant prepared 8,521 returns, more than 90% of which resulted in refunds. More than 20% of these returns were audited. The 22 fraudulent returns averaged $2,435 in underreported taxes. Another 1,683 returns prepared by defendant and audited by the IRS revealed an average underreporting of $2,651 per return. To find only $600,000 in loss from the 7,000 unaudited returns (less than $100 per unaudited return) was highly generous to defendant. U.S. v. Bryant, 128 F.3d 74 (2d Cir. 1997).

2nd Circuit holds court lacked power to order restitution in tax case. (370) Defendant pled guilty to failing to file income tax returns for 1988 through 1991. His plea agreement provided that defendant would pay to the IRS past due taxes for the years 1986 through 1991 “on such terms and conditions as will be agreed upon” by defendant and the IRS. The district court ordered defendant to pay full restitution of $249,442. The Second Circuit held that the district court lacked the power to order restitution. Federal courts have no inherent power to order restitution; such authority must be conferred by Congress. The statute that empowers a sentencing court to order restitution, 18 U.S.C. § 3663, does not list the tax crimes of Title 26 as crimes for which a court may order restitution. The language of the plea agreement was not sufficient under § 3663(a)(3) to empower the court to order restitution. Defendant only agreed to pay back taxes according to a plan later to be negotiated between himself and the IRS—not as ordered by a court. The agreement reserved for defendant the right to negotiate a method of payment with the IRS. Court-ordered restitution, with a court-devised payment plan, was not part of the bargain. U.S. v. Gottesman, 122 F.3d 150 (2d Cir. 1997).

2nd Circuit says deducting checks paid to fictitious entities involved sophisticated means. (370) Defendant employed an accounting firm to prepare his tax returns. The firm instructed defendant to draw checks on his personal bank accounts payable to various fictitious entities. The firm deposited these checks into bank accounts opened in the names of the fictitious entities. The firm then transferred the funds from these accounts into a second set of accounts. The funds in the second set of accounts were used to pay defendant’s personal creditors. Defendant then claimed as tax deductions the checks he wrote to the fictitious entities. The Second Circuit held that “sophisticated means” under § 2T1.1(b)(2) were used to impede discovery of the tax evasion scheme. The scheme was more complex than the routine tax‑evasion case in which a taxpayer reports false information on his 1040 form to avoid paying income taxes. The use of fictitious entities is similar to the use of shell corporations referred to in the commentary. The fact that defendant himself did not devise the scheme did not matter. A defendant cannot escape punishment simply by contracting out to his accountants the dirty work of tax evasion. U.S. v. Lewis, 93 F.3d 1075 (2d Cir. 1996); U.S. v. Richman, 93 F.3d 1085 (2d Cir. 1996).

2nd Circuit requires advance notice of court’s intent to apply enhancement under different guideline. (370) Defendant pled guilty to assisting her partner in filing a false federal income tax return. The probation office found that § 2T1.4 was the appropriate guideline, and the government agreed. However, at sentencing, the district court found that defendant and her partner should be treated equally, and thus enhanced her offense level by two for failing to report the criminal source of her income. This enhancement did not fall under § 2T1.4, but § 2T1.9. The Second Circuit held that the district court erred in applying the enhancement without giving notice and an opportunity to be heard. Given the uncertainty shown by the court and the prosecutor concerning the applicable guideline, and the “too-frequent inadequacy of criminal defense lawyers,” it is unrealistic to hold that the guidelines themselves give a defendant all the notice required. Even on appeal, it was not clear what guideline the court relied on to warrant the enhancement. The partner’s failure to file a 1990 return had nothing to do with the offense to which defendant pled guilty. U.S. v. Zapatka, 44 F.3d 112 (2d Cir. 1994).

2nd Circuit holds defendant was in the business of preparing tax returns despite another full-time job. (370) Defendant was convicted of preparing and filing fraudulent income tax returns. He held a full time job unrelated to taxes. However, during the tax season, he also prepared numerous tax returns, for a fee of $90-200 per return. The 2nd Circuit held that defendant was “in the business” of preparing tax returns under section 2T1.4(b)(3), even though it was not defendant’s primary business. The enhancement may be applied to a person who regularly prepares income tax returns for profit, even though he does so only on a seasonal basis and even though that is not his primary business. During a five or six year period, defendant prepared at least 155 fraudulent tax returns. The district court properly concluded that defendant prepared income tax returns “regularly.” U.S. v. Phipps, 29 F.3d 54 (2nd Cir. 1994).

2nd Circuit upholds grouping perjury and tax evasion as separate offenses. (370) Defendant received secret cash payments which he did not report on his income tax return. Defendant then lied to a federal grand jury concerning his receipt of such funds. The 2nd Circuit held that the district court properly divided defendant’s offense conduct into two groups, since the laws prohibiting perjury and tax evasion protect wholly disparate interests and involve distinct harms to society. U.S. v. Barone, 913 F.2d 46 (2nd Cir. 1990).

3rd Circuit reverses abuse of trust increase for defendants who did not pay taxes withheld from employees’ salaries. (370) Defendants were the sole owners and managers of a company that failed to pay to the IRS more than half a million dollars in taxes that it had withheld from its employees’ paychecks. The district court applied a § 3B1.3 abuse of trust enhancement based on defendants’ positions as signatories of the trust fund account set up to benefit the IRS. The Third Circuit reversed, holding that defendants were not in a position of trust with respect to the IRS. First, the trust fund account did not put defendants in a position to commit a difficult-to-detect wrong. The IRS imposed the trust fund account so that it would be easier for the IRS monitor whether defendants were properly paying the trust fund taxes. Second, the trust fund account decreased any discretion and authority defendants had with respect to how to hold the money until it was time to pay it to the IRS. Third, the IRS was not relying on defendants’ integrity. The IRS imposed the trust fund account on defendants because it could not rely on their integrity. Defendant had repeatedly failed to pay their company’s taxes in full. U.S. v. DeMuro, 677 F.3d 550 (3d Cir. 2012).

3rd Circuit, en banc, upholds probationary sentence for tax evasion. (370) Defendant, a plumbing contractor, directed subcontractors to falsify billing invoices to reflect that work was done at a job site instead of defendant’s home. He then illegally deducted those payments as business expenses. Defendant’s advisory guideline range was 12-18 months, and the district court varied downward to a sentence of three years of probation (the first year in home detention), restitution and a $250,000 fine. The Third Circuit, en banc, affirmed the sentence. The sentence was not substantively unreasonable. The government’s claim that detention in the house that defendant partially funded with illegal tax proceeds focused too much on the location of the home detention. Although the “gilded cage” confinement had a “certain unseemliness to it,” this condition of sentence did not, by itself, constitute an abuse of discretion. The court did not permit defendant to buy his way out of prison by imposing the statutory maximum fine ($250,000). The record did not show any connection between the fine imposed and the failure to incarcerate. The government’s claim that this was a “mine-run” tax evasion case amounted to asking the court to apply the already-rejected “proportionality test.” U.S. v. Tomko, 562 F.3d 558 (3d Cir. 2009) (en banc).

3rd Circuit holds that defendant’s offense was “more aptly” covered by tax guideline than fraud guideline. (370) Defendant was convicted of filing false claims for refunds with the IRS and aiding and abetting presentations of false claims, in violation of 18 U.S.C. §§ 287 and 2. He argued on appeal that his attorney was ineffective at sentencing for failing to object to the court’s application of the tax guidelines found in §§ 2T1.4 and 2T4.1 instead of the fraud guideline, § 2F1.1. He noted that Appendix A to the sentencing guidelines lists only § 2F1.1 as applicable to a § 287 offense. The Third Circuit found no error because Note 14 to § 2F1.1 makes clear that a different guideline should be used if an “offense [is] more aptly covered by another guidelines.” Section 2T1.4 covers Aiding, Assisting, Procuring, Counseling, or Advising Tax Fraud, and thus described the offenses defendant committed. Thus, it was more apt for use in sentencing here than § 2F1.1. Thus, defendant’s attorney could not have been ineffective for failing to contend that § 2F1.1 should have been applied. U.S. v. Barnes, 324 F.3d 135 (3d Cir. 2003).

3rd Circuit affirms increase for failing to report more than $10,000 in income. (370) Defendant was involved in a scheme to steal parking fees from the airport, and then failed to report the income on his personal income tax return. The district court applied a two-level increase under § 2T1.1(b)(1) because defendant “failed to report or to correctly identity the source of income exceeding $10,000 in any year from criminal activity.” Defendant argued that the government did not prove that his unreported income exceeded $10,000 in any of the relevant years. The Third Circuit nonetheless affirmed the increase. Co-conspirators Flannery and Million testified to the amounts they received in each of the years from 1990 to 1994, and these annual amounts greatly exceeded $10,000. These amounts applied to defendant as well, since he and the three other leaders received equal cuts. Defendant reported a total taxable income of $30,195 in 1992, $22,955 in 1993, and $27,643 in 1994. Subtracting these reported figures from the amounts he gained from the theft scheme showed that he had more than $10,000 in unreported income each year. U.S. v. Gricco, 277 F.3d 339 (3d Cir. 2002).

3rd Circuit holds that government’s sentencing memo was inadequate to support tax loss calculation. (370) Defendants failed to report on their tax returns money they had stolen from airport parking facilities. Defendants’ PSR, adopted by the district court, calculated the tax loss by taking 28% of $3.4 million, the total sum of money that the government asserted was stolen from the airport. The PSRs adopted this $3.4 million figure from the government’s sentencing memorandum. The Third Circuit found that the sentencing memorandum was inadequate and inaccurate, and reversed the tax loss calculation. The total amount of funds stolen from the airport by all of the participants was properly attributable to defendants. However, the government’s estimate of that total was not reasonable. The testimony did not support the percentage growth figures on which the government relied, and the government did not provide a reasonable explanation for choosing an overall growth rate of 30%. Also, the sentencing memo arrived at a total theft loss of $3.4 million by adding together various figures that totaled “at least $2,559,600.” The memo then concluded that the loss “easily reached $3.4 million,” without explanation for the leap from $2,559,600 to $3.4 million. U.S. v. Gricco, 277 F.3d 339 (3d Cir. 2002).

3rd Circuit affirms sophisticated concealment increase. (370) Defendants were involved in a scheme to steal parking fees from the airport, and then failed to report the income on their personal income tax return. The Third Circuit found that the evidence supported a finding of “sophisticated concealment” under § 2T1.1(b)(2) through currency structuring, the use of cash to avoid reporting requirements, and the use of family members’ names to hide assets. One defendant loaned cash to others and asked for repayment in the form of money orders and checks made out to him or to a title company. He purchased real estate in his name and in the names of family members. He gave cash to family members and received checks in return to buy more property. This defendant’s real estate agent testified that defendant used large amounts of cash for his purchases and instructed the agent to “keep a low profile.” The agent converted the cash into money orders and then deposited it into an escrow account used for purchasing properties. In order to avoid filing currency transaction reports with the IRS, the agent purchased the money orders in small amounts and occasionally went to several different branches of the same bank to purchase the money orders. Between 1991 and 1994, defendant deposited $372,000 in cash into banks, but not a single deposit was for more than $10,000. U.S. v. Gricco, 277 F.3d 339 (3d Cir. 2002).

3rd Circuit reverses upward departure for defense contractors where no threat to national security. (370) Defendants supplied electronic components to the U.S. military. In direct violation of their agreement with the government, defendants contracted with foreign companies to build the components. Defendants pled guilty to various smuggling violations. The district court departed upward, finding the case atypical because defendants defrauded the government for their own financial gain, their actions compromised the national security of the U.S., and they violated the Arms Export Control Act (AECA) and the Buy American Act (BAA). The Third Circuit reversed. The dominant basis for the departure was the district court’s concern that defendants had threatened our national security. However, the government stipulated that defendants’ acts posed no threat to national security. In fact, some of the components represented a flow of technology into, rather than out of, the United States. Since fraud is a critical part of the crime of smuggling, the mere fact that the offense involved fraud did not make the case atypical. A violation of the AECA is arguable the archetypal smuggling offense. The violation of the BAA, a civil statute with minor penalties for violations, did not support a departure of the magnitude applied here. U.S. v. Nathan, 188 F.3d 190 (3d Cir. 1999).

3rd Circuit says stipulation barred challenge to sophisticated means increase. (370) Defendant, the general manager of a consumer electronics manufacturer, embezzled money and took kickbacks in a complicated scheme using a distribution company that defendant and his co-conspirators had secretly purchased. He pled guilty to failing to report the illicit income on his tax returns. He argued that a § 2T1.1(b)(2) sophisticated means enhancement was improperly based on the embezzlement scheme rather than the tax evasion offense of conviction. The Third Circuit held that defendant could not challenge the sophisticated means enhancement because he had stipulated to it in his plea agreement. Moreover, there was adequate support for the court’s finding that defendant used sophisticated means to conceal his tax evasion offense from the IRS. He established an elaborate scheme that involved the use of a shell corporation, falsified documents, and unrecorded cash payments. Although these methods concealed the embezzlement, they also facilitated concealment of the defendant’s income. U.S. v. Cianci, 154 F.3d 106 (3d Cir. 1998).

3rd Circuit includes accumulated interest in tax loss calculation. (370) Defendants were officers of a close corporation owned by them and their relatives. The corporation opened two bank accounts and deposited over $700,000 in corporate receipts in each. Neither the corporation nor defendants declared the roughly $1.4 million as income on federal tax returns. Defendant argued that the Sentencing Commission exceeded its statutory authority when it included interest in unpaid taxes in the computation of tax loss. The Third Circuit upheld the inclusion of accumulated interest in the tax loss calculation. Including interest merely recognizes the time value of money. It is a rational calculation of the real loss sustained as a consequence of a taxpayer’s illegally concealing his income from assessment. U.S. v. McLaughlin, 126 F.3d 130 (3d Cir. 1997).

3rd Circuit upholds finding that disputed account should be included in tax loss calculation. (370) Defendants were officers of a close corporation owned by them and their relatives. The corporation opened two bank accounts and deposited over $700,000 in corporate receipts in each. Neither the corporation nor defendants declared the roughly $1.4 million as income on federal tax returns. In determining tax loss, the district court took into account all funds deposited into both accounts, notwithstanding defendant’s claim that one account was a reserve against future claims and that its balance was being treated as accrued income over ten years. The Third Circuit upheld the district court’s treatment of both accounts for tax loss purposes. The government presented evidence that the funds in the disputed account were used to capitalize other ventures. The record was complex and the facts were hotly disputed. The court’s findings were not clearly erroneous. U.S. v. McLaughlin, 126 F.3d 130 (3d Cir. 1997).

3rd Circuit holds tax evasion scheme involving “daisy chains” used sophisticated means. (370) Over a two-year period, defendant was involved in a scheme to evade federal and state taxes on sales of a type of oil that can be used as either home heating oil or diesel fuel. At the time, neither the state nor the federal government imposed taxes on the sale of the oil for use as home heating oil, but they did impose a tax on the sale of the oil for use as diesel fuel. The scheme involved the use of “daisy chains,” a series of paper transactions through numerous companies, some of which were largely fictitious. The fictitious companies would purchase oil as tax-free heating oil and then sell it to another company as diesel fuel. The fictitious company would provide the purchaser with false invoices reflecting that the diesel fuel taxes had been paid and were reflected in the purchase price. The fictitious company would then disappear. The Third Circuit agreed that the “daisy chain” scheme used “sophisticated means” to impede discovery of the tax offense under § 2T1.1(b)(2). Note 4 states that the enhancement applies where the defendant used transactions through corporate shells or fictitious entities. U.S. v. Veksler, 62 F.3d 544 (3d Cir. 1995).

3rd Circuit rejects downward departure where tax loss was foreseeable to defendant. (370) Defendant participated in a tax evasion scheme involving the use of “daisy chains,” a series of paper transactions through numerous companies, some of which were largely fictitious. The district court attributed to defendant about $1.4 million in tax losses from transactions in which he participated. Defendant requested a downward departure, arguing that the tax loss overstated his culpability. The Third Circuit upheld the refusal to depart, since the tax loss was foreseeable to defendant, who participated in a “very integral part” of the daisy chain. Nothing in § 2T1.1 or its commentary suggests that a court has the discretion to depart from the offense level established through the calculation of the tax loss. Although a court may have authority to depart even in the absence of explicit authorization, this is limited to instances where a particular guideline linguistically applies but the conduct of the defendant significantly differs from the norm. U.S. v. Veksler, 62 F.3d 544 (3d Cir. 1995).

3rd Circuit includes tax loss from defendants’ employees in loss caused by tax fraud. (370) Defendants argued that the court erred in computing their sentences based upon the tax loss attributable the employees of their companies rather than using losses attributable to the defendants individually. The 3rd Circuit affirmed, concluding that the tax fraud conspiracy alleged in the indictment was clearly intended to encompass the tax losses attributable to the employees of the defendants’ companies as well as the losses from the defendants’ own personal tax evasion. Defendants’ cash skimming scheme defrauded the IRS out of the taxes owned by those employees receiving cash, as well as taxes owed by the defendants, superseded by guideline on other grounds as state in U.S. v. Corrado, 53 F.3d 620 (3d cir. 1995).

3rd Circuit upholds application of payments to total tax, penalties and interest owed. (370) Defendant was convicted of income tax evasion. The IRS recovered some of his hidden assets, which were applied by the receiver to the reduce the taxes, penalties and interest that defendant owed to the IRS, rather than reducing just the actual tax liability. Defendant’s offense level under section 2T1.1 was based on the actual amount of tax he owed, regardless of the interest and penalties also due to the IRS. Defendant argued that the court should have calculated the taxes as if the receiver’s payments had been allocated solely to the taxes. The 3rd Circuit rejected this argument. Under section 2T1.1, the sentence is to be based on the tax that the defendant attempted to evade. Thus it would have been proper to sentence defendant based on the full tax debt he attempted to evade, without any credit for the receiver’s payments. U.S. v. Pollen, 978 F.2d 78 (3rd Cir. 1992).

3rd Circuit upholds separately grouping fraud and tax evasion counts. (370) Defendant pled guilty to one count of wire fraud and one count of income tax evasion in connection with a fraudulent stock brokerage scheme. The 3rd Circuit found that the district court properly increased defendant’s offense level for his tax evasion conviction. The tax evasion and fraud counts did not involve the same victims and thus grouping under guideline § 3D1.2(a) was inappropriate. The fraud count did not embody the conduct treated as a specific offense characteristic under the tax evasion count, and thus grouping under guideline § 3D1.2(c) was inappropriate. U.S. v. Astorri, 923 F.2d 1052 (3rd Cir. 1991).

4th Circuit holds that defendant was bound by amount of tax loss stipulated in plea agreement. (370) Defendant pled guilty to five counts of tax evasion. He argued that the actual tax revenue loss caused by his failure to pay corporate income taxes was significantly less than the $2.4 million stated in the parties’ plea agreement, and that the court erred in refusing to consider this alleged discrepancy at sentencing. The Fourth Circuit ruled that the district court did not err in holding that defendant was bound by the tax revenue loss figure to which he stipulated in the plea agreement. Absent a successful withdrawal from a plea agreement or other very exceptional circumstances, a defendant remains bound by the factual stipulations in his plea agreement once the plea has been accepted by the district court. Defendant’s attempts to argue that the tax revenue loss was materially less than $2.4 million constituted a “unilateral reneging” on the basis of “uninduced mistake or change of mind,” and the district court was well within its discretionary authority to hold defendant to the loss amount stipulated in the plea agreement. U.S. v. Yooho Weon, 722 F.3d 583 (4th Cir. 2013).

4th Circuit agrees that tax evasion conspiracy used sophisticated means. (370) Defendants, former co-pastors of a church, were convicted of charges arising from a tax evasion scheme in which they omitted millions of dollars of taxable income from their jointly filed tax returns. The Fourth Circuit upheld a two-level increase under § 2T1.1(b)(2) for use of “sophisticated means.” Defendants’ scheme spanned many years and involved multiple organizations. The PSR, adopted by the court, identified a variety of sophisticated techniques used by defendants to conceal their tax evasion. They structured their compensation so as to prevent the inclusion of income on their W-2 forms, drawing payments from the church’s operating account, rather than payroll account. They disguised wages as allowances and reimbursements for which they instructed employees not to issue 1099 forms. They directed employees to manipulate church financial records to conceal their income and misrepresented their financial situation to the IRS in the church’s application for § 501(c)(3) tax-exempt status. Finally, a pastor’s consortium founded by defendants was actually a kickback scheme among consortium members. U.S. v. Jinwright, 683 F.3d 109 (4th Cir. 2012).

4th Circuit upholds tax loss calculation, despite acquittal of some tax evasion charges. (370) Defendant and her husband, former co-pastors of a church, evaded taxes by omitting millions of dollars of taxable income from their jointly filed tax returns. The district court found that defendant was responsible for a combined tax loss of $1,174,921 for the years 1998-2008. However, the jury acquitted defendant of tax evasion for years preceding 2005. She argued that the pre-2005 amounts should not have been included in the tax loss. The Fourth Circuit disagreed. An acquittal does not establish a defendant’s lack of criminal culpability. The district court found a pattern of “long-term conduct” that went on for about a decade. Unlike the three tax evasion counts for which defendant was acquitted, both she and her husband were convicted of conspiracy. Count one of the indictment charged defendants with conspiring to defraud the U.S. between 2002 and 2008, and alleged overt acts in furtherance of the conspiracy committed as early as 1991 and 1998. There was ample evidence for the court to conclude that losses arising from acts committed before 2002 occurred as part of the same course of conduct or common scheme or plan. U.S. v. Jinwright, 683 F.3d 109 (4th Cir. 2012).

4th Circuit finds no double counting in increases for obstruction and sophisticated concealment. (370) Defendant and others designed a tax fraud scheme. The district court applied a § 3C1.1 obstruction of justice increase based on defendant’s production of fabricated or backdated documents to the grand jury. The Fourth Circuit rejected defendant’s argument that this increase duplicated the § 2T1.4(b)(2) sophisticated concealment enhancement defendant also received. Although the two enhancements overlapped, each addressed different behavior and concerns. The sophisticated concealment increase is for efforts of a complex criminal enterprise to conceal its wrongdoing during the criminal activity. It punishes a defendant’s past efforts to avoid detection, whereas the obstruction increase punishes conduct intended to frustrate an investigation. U.S. v. Thorson, 633 F.3d 312 (4th Cir. 2011).

4th Circuit includes in tax loss amount taxpayers agreed to pay after civil audit. (370) Defendant was convicted of multiple counts of aiding and assisting in the preparation of false tax returns and wire fraud. The IRS selected about 941 returns filed by defendant for civil audits. The IRS then provided those taxpayers with a computation of what their additional tax liability would be if they did not produce documentation. About 30% of the taxpayers, or 307 of defendant’s clients, signed IRS Form 4549 agreeing to pay the extra tax assessment. The Fourth Circuit held that the district court properly included in its loss calculation the tax liability of those audited returns. By signing Form 4549, the taxpayers did not substantively agree with the IRS assessment, but they agreed to pay the assessment and waived their right to contest the assessment without payment of the tax in the U.S. tax court. An IRS agent who reviewed the audited returns discovered that the fraudulent deductions taken on those returns fit the same pattern of fraud as those at trial. U.S. v. Mehta, 594 F.3d 277 (4th Cir. 2010).

4th Circuit rejects probation for tax evader based on ability to repay tax liability. (370) Defendant pled guilty to tax evasion. The government sought a sentence within his advisory sentencing range of 24-30 months. However, the district court was concerned with making defendant pay his tax debt, so it sentenced him to four months probation, and 18 months house arrest with work release. The Fourth Circuit reversed, finding the sentence both procedurally and substantively unreasonable. The district court failed to consider the relevant policy statements issued by the Sentencing Commission, which made it clear that the Commission viewed tax evasion as a serious crime and that too many probationary sentences were imposed for tax crimes. The Commission felt that general deterrence should be a primary consideration when sentencing in tax cases. Finally, the sentence was substantively unreasonable because the court improperly focused on defendant’s ability to pay restitution. The district court’s approach meant that rich tax-evaders would avoid prison, but poor tax-evaders would go to jail. Such an approach based on an offender’s economic status, is impermissible. U.S. v. Engle, 592 F.3d 495 (4th Cir. 2010).

4th Circuit refuses to reduce tax loss by amount of potential deductions. (370) Defendants were convicted of tax evasion based on their failure to file income tax returns for themselves and their trusts. They argued that the district court erred in calculating tax loss by not subtracting from the loss any deductions they could have claimed if they had filed returns. In U.S. v. Schmidt, 935 F.3d 1440 (4th Cir. 1991), the court held that it was error to disallow a deduction a defendant could have taken under USSG § 2T1.3 (a). The Fourth Circuit found that Schmidt was no longer binding, because the Sentencing Commission amended the Guidelines in 1993 to include to the “total amount of the loss that was the object of the offense (i.e. the loss that would have resulted had the offense been successfully completed)” The phrase “object of the offense” means the attempted or intended loss, rather than the actual loss to the government. If defendants’ scheme had been successful, the government would have been deprived of the tax on the amount by which they underreported (or failed to report) their taxable income. A court determining tax loss is not computing the individual’s tax liability as in a traditional audit. Rather, the court is assessing the tax loss from the manner in which the defendant completed his income tax returns. U.S. v. Delfino, 510 F.3d 468 (4th Cir. 2007).

4th Circuit says court cannot ignore relevant conduct in order to achieve sentence it deems proper. (370) Defendant was convicted of 24 counts of procuring the preparation of tax returns containing false statements. The PSR noted that the offenses of conviction involved losses of $75,814. It then estimated that the government suffered additional losses of $199,017 from 63 tax returns prepared by defendant that did not result in prosecution. Defendant objected to the inclusion of the non-indictment losses in the calculation of tax loss. The government disagreed with defendant’s objection, and offered to introduce evidence in support of its position. The district court agreed with defendant, finding that a tax loss of $75,814 resulted in a sufficient sentence. The Fourth Circuit reversed, since a court has no discretion to disregard relevant conduct in order to achieve the sentence it considers appropriate. The court made no inquiry into the adequacy of the government’s proffers. Instead, the ruling reflected the court’s personal assessment of what loss amount would result in an appropriate sentence, without regard to the sentencing guidelines. U.S. v. Hayes, 322 F.3d 792 (4th Cir. 2003).

4th Circuit uses alternative loss calculation where importation of Iranian carpets might aid terrorism. (370) Defendant was convicted of illegally importing carpets of Iranian origin, in violation of 18 U.S.C. §§ 542 and 545. Ordinarily, the loss from illegal importation is the tax loss suffered by the government. USSG § 2T3.1. However, in the case of “items for which entry is prohibited, limited, or restricted,” and “[e]specially when such items are harmful,” the evaded duty “may not adequately reflect the harm to society or protected industries.” Note 2 to § 2T3.1. In such cases, one suggested alternative method for calculating the loss is 25 percent of the items’ fair market value in the United States. The Fourth Circuit upheld the district court’s use of this alternative loss calculation. Defendant imported goods specifically banned by an Executive Order designed to “ensure that the United States imports of Iranian goods and services will not contribute financial support to terrorism or further aggressive actions against non-belligerent shipping.” Contribution to terrorism constitutes a greater harm to society than the harms usually associated with the illegal importation of goods. The Executive Order applied even though defendant’s carpets were imported from Germany, rather than directly from Iran. The district court properly considered 42 carpets made before 1935, the date Persia became the modern state of Iran. Goods made before 1935 in the area now known as Iran are goods of “Iranian origin.” U.S. v. Hassanzadeh, 271 F.3d 574 (4th Cir. 2001).

4th Circuit finds no ex post facto violation where defendant committed later acts of tax evasion. (370) Under USSG 1B1.11(b)(3), if the defendant is convicted of two offenses, the first committed before, and the second after, a revised edition of the Guidelines Manual becomes effective, the revised edition of the Guidelines Manual is to be applied to both offenses. Defendant’s first offense occurred on April 13, 1993, when she filed a false tax return for the year 1992. The other three offenses occurred on December 10, 1993, when she filed the false amended tax returns for the years 1990-1992. In the interim, on November 1, 1993, the guidelines were amended to increase the base offense level for filing a false tax return. See Amendment 491, amending the tax table in USSG § 2T4.1. The Fourth Circuit held that the use of the amended guideline did not violate the ex post facto clause. Section 1B1.11(b)(3) was added to the guidelines on November 1, 1993. Defendant therefore had ample warning, when she committed the later acts of tax evasions, that those acts would cause her sentence for the earlier crime to be determined in accordance with the Guidelines Manual applicable to the later offenses, and thus that the intervening amendment to the tax table would apply. U.S. v. Lewis, 235 F.3d 215 (4th Cir. 2000).

4th Circuit says Apprendi not applicable where tax loss did not increase statutory maximum. (370) Defendant, relying on Apprendi v. New Jersey, 530 U.S. 466, 120 S.Ct. 2348 (2000), argued that her sentence violated due process because the tax loss on which her guideline range was based was not charged in the indictment and found by the jury beyond a reasonable doubt. The Fourth Circuit held that Apprendi was not applicable, because it was limited to facts that increase punishment beyond the prescribed statutory maximum. Here, because no fact found by the district court resulted in a penalty greater than the applicable statutory maximum, defendant’s due process rights were not violated. U.S. v. Lewis, 235 F.3d 215 (4th Cir. 2000).

4th Circuit agrees that tax loss from business was relevant conduct to tax evasion scheme. (370) Defendant and two colleagues were convicted of conspiring to defraud the U.S. of income tax revenue based on their activities in a club that advised members not to file tax returns and to claim exaggerated allowances to prevent withholding from their paychecks. At the same time, defendant operated a business that compensated its workers in such a way as to avoid withholding taxes and issuing IRS W‑2 forms. The Fourth Circuit held that the tax loss from this business was relevant conduct for purposes of computing the tax loss. Although defendant’s actions were not necessarily associated with the club, the actions were consistent with the course of conduct and common scheme of the conspiracy. U.S. v. Fleschner, 98 F.3d 155 (4th Cir. 1996).

4th Circuit affirms determination of tax loss based on potential loss of future tax revenue. (370) Defendant falsely claimed a $2.1 million deduction on his 1984 income tax return. He argued that he should not have received an enhancement under section 2T1.3 on the basis of income understated because even without the false deduction, he had no gross income in 1984, and hence there was no “tax loss.” The 4th Circuit affirmed the enhancement, because although there was no tax loss for 1984, the evidence revealed defendant’s intent to carry forward the loss created by the deduction to reduce his taxable income in future years. The background commentary to section 2T1.3 points out that future tax loss is an appropriate consideration in evaluating the seriousness of an offense. Although the deduction did not produce a tax loss in the year that it was claimed, it set “the groundwork for evasion of a tax that was expected to become due in the future.” It was appropriate for the district court to consider the potential loss of future tax revenue determined by a percentage of the amount of income that would be sheltered by the false deduction. U.S. v. Hirschfeld, 964 F.2d 318 (4th Cir. 1992).

4th Circuit reverses determination of tax loss based on personal income which was improperly reported on trust return. (370) Defendants were convicted of various federal tax law violations in connection with a scheme to sell trusts to individuals. Participants in the scheme could assign personal income to the trusts, take otherwise unavailable deductions for purely personal expenses, and avoid further taxes on their income by making “distributions” of their income to a financial institution in the Marshall Islands. Guideline § 2T1.3 directs a court to use the offense level from the tax table in § 2T4.1 corresponding to the tax loss. Under this guideline “tax loss” is 28 percent of the amount by which the greater of gross income and taxable income was understated. The district court determined the tax loss as 28 percent of the total amount of income that the trust purchasers had improperly listed on their trust tax returns. The 4th Circuit rejected this method of computation. “The government simply is not suffering a ‘tax loss’ merely because the taxpayer reports his income on a trust return rather than an individual return.” The understated gross income was represented only by non-legitimate deductions and any income distributed to the off-shore financial institution. U.S. v. Schmidt, 935 F.2d 1440 (4th Cir. 1991).

5th Circuit refuses to reduce tax loss by business expenses not claimed on fraudulent tax return. (370) Defendants owned and operated a business that built churches and performed construction work. They were convicted of conspiracy to avoid federal income tax, and of filing false tax returns. They argued that the district court erred by adopting the PSR’s calculation of tax loss, because it did not take into account the business expenses – the cost of the bricks, mortar, labor, etc. – associated with the company’s underreported gross receipts. Defendants relied exclusively on the Jones Report, which estimated the costs and expenses that defendant’s company, or any other construction company, would incur in order to generate the gross receipts that defendants did not report as income. The Fifth Circuit rejected this argument. Although the Second and Tenth Circuits permit a sentencing court to consider unclaimed deductions that a defendant could have legitimately claimed, the Fifth Circuit, and several other circuits, do not. See U.S. v. Phelps, 478 F.3d 680 (5th Cir. 2007). Moreover, the Jones Report figures, which did not rely on defendants’ business records, were of doubtful reliability. U.S. v. Montgomery, 747 F.3d 303 (5th Cir. 2014).

5th Circuit approves increase for employment taxes collected but never paid to IRS. (370) Defendant, a former police officer who ran several private security businesses, was convicted of fraud and tax charges for failing to pay millions of dollars in employment taxes withheld by his security companies. The district court applied a two-level enhancement under § 2T1.1 (b)(1) for failing to “report or correctly identify the source of income exceeding $10,000 in any year from criminal activity.” Defendant argued that § 2T1.1(b)(1) only applies when the money was obtained by some illegal means, and the income here was legitimate income earned from security-guard services. The government argued that the enhancement was proper because defendant stole from the IRS by withholding in excess of $10,000 in employment taxes, and not paying the money to the IRS. The Fifth Circuit upheld the enhancement, agreeing with the government’s argument. The enhancement was not applied merely because the funds were not reported on his personal tax return. The illegality of the funds was demonstrated by defendant’s other tax convictions, which concerned interference with the IRS’s collection of these employment taxes. U.S. v. Heard, 709 F.3d 413 (5th Cir. 2013).

5th Circuit upholds sentencing for multiple counts based on statutory maximum for one count. (370) Defendant was convicted of fraud, bribery, and tax charges. The district court found that his guideline range was 151-188 months, and sentenced him to 151 months. He argued on appeal that his sentence was unreasonable because if he had been sentenced for bribery alone, the guidelines range would have been 15-21 months. He claimed that the district court effectively circumvented the statutory maximums on the tax counts by sentencing him to 151 months for the bribery offense. The Fifth Circuit found no error. The district court followed the procedure in § 5G1.2, which provides that when there are multiple counts of conviction, the sentence imposed on each count shall be equal to the total punishment, here 151 months, unless a count is subject to a statutory maximum or minimum sentence. If the sentence imposed on the count carrying the highest statutory maximum is adequate to achieve the total punishment, then the sentences on all counts shall run concurrently. That is what happened here because the statutory maximum for the bribery count was 180 months. The district court committed no error, let alone plain error. U.S. v. Heard, 709 F.3d 413 (5th Cir. 2013).

5th Circuit holds that defendant was not entitled to reduction in tax loss for payment of excess social security taxes. (370) Defendant caused corporate monies to be falsely reported as wages paid to his family members. He pled guilty to tax fraud, and the tax loss attributable to defendant was about $80,000. He argued that excess social security taxes paid through his family members’ fraudulent tax filings should be credited against the tax loss figure. The Fifth Circuit disagreed, holding that the amount of tax loss defendant intended to cause should not be reduced simply because his scheme inadvertently caused payment of excess social security taxes. Defendant did not show that the district court clearly erred in finding that he had the intent to cause more than $80,000 in tax loss. U.S. v. Phelps, 478 F.3d 680 (5th Cir. 2007).

5th Circuit says court improperly considered year-end value of stock. (370) Defendant received income in the form of stock for legal services he had previously performed. He was convicted of tax evasion after he failed to report his receipt of the stock on his tax return. Although his guideline range was 46-57 months, the district court imposed a 27-month sentence. The district court was uncomfortable with the guideline range because of the relative worthlessness of the stock at the end of the tax year, and based its calculation on defendant’s reported charitable deductions for gifts of the stock. The Fifth Circuit held that the sentence was unreasonable. The court gave significant weight to an irrelevant factor – there is no apparent connection between the year-end stock value and the seriousness of the offense. Because the court relied on an improper factor to determine what should be a fair basis for sentencing, (the stock’s year end value), the court substitution of the charitable contributions was similarly improper. U.S. v. Roush, 466 F.3d 380 (5th Cir. 2006).

5th Circuit bases tax loss on value of stock on date that taxpayer took constructive receipt. (370) In February 1998, defendant received income in the form of stock for legal services he had performed during 1997 and 1998. In September 1998, he caused the shares to be issued to six business entities, none of which filed tax returns in 1998. Defendant also did not report his receipt of the stock on his 1998 tax return. To determine tax loss, defendant argued that the stock should be valued at the close of the taxable year, and that the value of his stock at the end of 1998 was de minimus if not worthless, because of the stock’s cancellation. He also claimed that the restricted nature of the stock further suppressed the value of the shares. The Fifth Circuit held that the district court did not clearly err when it used the fair market value of the shares on February 5, 1998, the date that defendant was first able to request the issuance of the shares. Typically, stock is valued on the date the shares are issued. The fact that the stock was restricted at all times during 1998 did not make its fair market value either zero or de minimus for purposes of income calculations. Although the shares were restricted, he could in fact sell them. Although a restricted stock cannot be sold publicly, it can be sold in a private sale, and defendant reported a sale of 925,122 of the shares on December 6, 1998, valuing them at about $ .59 per share. U.S. v. Roush, 466 F.3d 380 (5th Cir. 2006).

5th Circuit applies sophisticated means increase for use of shell corporations. (370) In February 1998, defendant received income in the form of stock for legal services he had performed during 1997 and 1998. In September 1998, he caused the shares to be issued to six business entities, none of which filed tax returns in 1998. Defendant pled guilty to tax evasion, and received a two-level enhancement under § 2T1.1(b)(2) for use of “sophisticated means.” The PSR characterized the companies to which defendant issued the shares as “shell companies.” Note 6 to § 2T1.1 says that “hiding assets or transactions, or both, through the use of fictitious entities, corporate shells, or offshore financial accounts ordinarily indicates sophisticated means.” The Fifth Circuit upheld the enhancement. Defendant did not demonstrate that the district court was incorrect to follow the guideline commentary. U.S. v. Roush, 466 F.3d 380 (5th Cir. 2006).

5th Circuit upholds finding that stock resulted from criminal actions. (370) Defendant was convicted of tax evasion. He received a two-level enhancement for failure to report income over $10,000 that resulted from criminal activity. The Fifth Circuit affirmed, since defendant failed to rebut the PSR’s finding that the stock was derived from a criminal fraud conspiracy. The provision did not violate the Fifth Amendment right against self-incrimination. The point of the enhancement is to further deterrence, particularly in light of the chronic under-reporting of criminally derived income. The two-level enhancement does not itself force an individual to disclose the income, but merely takes into account the source of income when penalizing non-disclosure. U.S. v. Roush, 466 F.3d 380 (5th Cir. 2006).

5th Circuit holds that failure to keep records and paying funds to corporation did not constitute sophisticated means. (370) Defendant had commission checks he earned from Plaza Motors made payable to a corporation he operated. However, the corporation had no records relating to the commission, and defendant used the funds for his personal expenses. The district court applied a § 2T1.1(b)(2) sophisticated means enhancement, noting that defendant failed to keep even cursory records, and devised a scheme of having personal income paid to a corporation and then transferred to a private banker. The Fifth Circuit found that these facts did not constitute sophisticated means. The mere failure to keep records, standing alone, did not show sophisticated means. The fact that defendant directed the checks be made payable to his corporation, rather than himself personally, did not result in concealment of the offense. Defendant provided his corporations’ tax ID number to Plaza Motors, and Plaza Motors reported all of its commission payments to the government on Form 1099s. While defendant may have misclassified the nature of the payments when the payments were disclosed to the government, he took no steps to conceal the income. The fact that the commission checks were transferred to a private banker also did not result in concealment of the offense, given the government received the Form 1099s reporting all of the commission income. U.S. v. Hart, 324 F.3d 575 (8th Cir. 2003).

5th Circuit considers house purchased for defendant by family business in making tax loss calculation. (370) Defendant was convicted of multiple counts of making false statements on income tax returns and failing to file required reports of transactions involving over $10,000 in cash, all relating to the operation of a family business. The Fifth Circuit rejected various challenges to the district court’s calculation of the tax loss. The district court did not err in considering the company’s purchase of a home on defendant’s behalf as relevant conduct and including the “tax due” on that home in the tax loss calculation. The evidence revealed that defendant took a substantial pay cut to work for the family business, and the district court could have reasonably inferred that the house was intended to be additional compensation. The district court’s consideration of the home’s value did not amount to an Apprendi violation because it did not result in a sentence in excess of the statutory maximum. U.S. v. Loe, 262 F.3d 427 (5th Cir. 2001).

5th Circuit upholds tax loss where defendants offered no evidence to rebut IRS agent’s testimony. (370) Defendants operated an organization that created and sold an “untax package,” which purported to teach people how to remove themselves from the federal tax system. They were convicted of aiding and abetting the filing of fraudulent tax forms. The PSR stated that one defendant could reasonably foresee almost $15 million in tax loss, while the other defendant could reasonably foresee about $14 million in tax loss. Defendants objected to these amounts. In response to their objections, the government presented the testimony of an IRS agent to explain how the IRS calculated the estimated loss figures provided to the probation officer. Following extensive cross-examination by all defendants, the district court found that the testimony established the foreseeable tax harm by a preponderance of the evidence. The Fifth Circuit found no error in the court’s use of the PSR’s figures, since defendants did not introduce any evidence to contradict the IRS’s agent’s testimony or rebut the probation officer’s loss computation. U.S. v. Clark, 139 F.3d 485 (5th Cir. 1998).

5th Circuit holds that evasion of fuel excise taxes involved sophisticated means. (370) Defendant, the operator of a wholesale gasoline distributor, purchased gasoline at lower prices by misrepresenting that he was blending the gasoline with ethanol into gasohol. He was convicted of evading federal fuel excise taxes. The Fifth Circuit affirmed a § 2T1.1(b)(2) enhancement for using sophisticated means. Defendant did more than misrepresent his production of gasohol on a tax return. He went so far as to purchase an ethanol plant to facilitate his claim that he was blending the gasoline into gasohol. U.S. v. Powell, 124 F.3d 655 (5th Cir. 1997).

5th Circuit rules that “tax loss” is not limited to federal tax loss. (370) Defendant, the operator of a wholesale gasoline distributor, was convicted of evading federal fuel excise taxes. The district court calculated the tax loss under § 2T1.1 based on the combined total of federal and state taxes defendant evaded. Defendant argued that “tax loss” only included the amount of federal taxes the IRS would have been able to collect, exclusive of interest and penalties. The Fifth Circuit held that “tax loss” under § 2T1.1 is not limited to federal taxes; it includes state tax losses arising from relevant conduct. Defendant’s evasion of state and federal taxes involved the same modus operandi: using a tax certificate to buy fuel at a reduced rate, filing false tax returns, using false customer invoices, and supplying false information to taxing authorities. This suggested a common scheme or plan. Moreover, the offenses took place during the same period of time and were based on the same conduct. Although the court made no finding of regularity, defendant’s conduct was not isolated incidents, but was part of consistently repeated behavior. U.S. v. Powell, 124 F.3d 655 (5th Cir. 1997).

5th Circuit upholds tax loss where there was no evidence that PSR was inaccurate. (370) Defendant was convicted of conspiracy to impede the function of the IRS. He contended that there was no factual basis for the court’s calculation of the tax loss used to determine his offense level. The PSR’s calculation of tax loss was based on information received from IRS investigative agents. The Fifth Circuit held that defendant failed to meet his burden of demonstrating that the information in the PSR was inaccurate. A district court is entitled to rely on information in the PSR if it has some minimum indicia of reliability. The district court reasonably concluded that the information provided by the agents who investigated the case was reliable. Defendant did not point to any evidence that would have met his burden of demonstrating that the information in the PSR was inaccurate. U.S. v. Aubin, 87 F.3d 141 (5th Cir. 1996).

5th Circuit says using multiple cashier’s checks and wife’s account for hidden payments was “sophisticated means.” (370) After the IRS assessed a large tax deficiency against defendant, it notified him that it intended to file a lien against his architectural company, and to levy the firm’s bank accounts and its contract with a mall developer. Defendant then entered a personal contract with the developer for continuing architectural services, supplanting the contract on which the IRS had a levy. Under the new contract, defendant received over $270,000. Of the 23 checks, he converted almost all of them to multiple cashier’s checks, sometimes as many as 13. If the checks were not cashed, he deposited them into his wife’s separate bank account. The Fifth Circuit upheld a sophisticated means enhancement under § 2T1.1(b)(2). Defendant’s actions undeniably made it more difficult for the IRS to detect his evasion. U.S. v. Clements, 73 F.3d 1330 (5th Cir. 1996).

5th Circuit holds that “tax loss” means the tax deficiency assessed rather than amount IRS could actually recover. (370) Defendant directed his companies not to turn over to IRS the payroll taxes that had been withhold from the employees’ salaries. He was eventually assessed the payroll tax liabilities in his capacity as a “responsible person.” Defendant attempted to evade taxes by hiding his receipt of over $150,000. He argued that the tax loss should be limited to the value of the assets he attempted to hide from the IRS, rather than more than $258,000 total tax liability. The Fifth Circuit held that “tax loss” means the tax deficiency assessed, exclusive of interest and penalties, rather than the amount that the IRS could actually recover. For defendant’s false statement counts under § 2F1.1, the district court did not err by equating the “loss” with the sum of defendant’s tax liability. U.S. v. Clements, 73 F.3d 1330 (5th Cir. 1996).

5th Circuit upholds tax loss enhancement for extortion defendant. (370) Defendant was convicted of extortion charges and of making false tax returns. He argued that a tax loss enhancement under § 2T1.3(b)(1) was improper double counting of conduct already considered as part of the extortion charges. The Fifth Circuit held that even if there was double counting, it was not improper because the guidelines did not prohibit it. Double counting is improper only if a particular guideline forbids it. Moreover, the enhancement did not add to defendant’s sentence, since his sentence was computed using the grouping rules in §§ 3D1.4 and 3D1.2(d). U.S. v. Box, 50 F.3d 345 (5th Cir. 1995).

5th Circuit upholds tax loss based on failure to report sale of improperly received stock. (370) Defendant was convicted of conspiracy to violate 18 U.S.C. § 1954 (proscribing payments to persons who influence employee stock ownership plans) and various related charges, including failing to report the gain from sale of stock he improperly received. He challenged the calculation of tax loss, contending that the only explanation for his wife’s acquittal on the tax count and his acquittal for substantive violations of § 1954 was that the jury concluded that the 35,717 shares he received were a non-taxable gift. The 5th Circuit disagreed. The district court implicitly found that the 35,717 shares were not a gift. U.S. v. McCord, 33 F.3d 1434 (5th Cir. 1994).

5th Circuit says purported sports agent was in business of assisting preparation of tax returns. (370) Defendant owned and managed All Pro Sports, representing himself as a professional sports agent. He sought and received tax return information during 1990 and 1991 from four client-athletes to prepare their tax returns. Defendant submitted this information, along with additional false tax information, to an income tax preparer, who then prepared the returns. The information showed false losses, and thus the returns showed inflated refunds. The 5th Circuit upheld an enhancement under former § 2T1.4(b)(3) for a defendant in the business of preparing or assisting in the preparation of tax returns. The enhancement is not limited to those tax preparers who “hang out a shingle.” The court found that defendant’s true occupation was as an organizer and preparer of fraudulent tax returns for profit. He played a principal role in the drafting and filing of at least five individual fraudulent tax returns over a three-year period. U.S. v. Welch, 19 F.3d 192 (5th Cir. 1994).

5th Circuit uses 4B1.3 to decide whether “substantial portion” of income came from tax fraud. (370) Defendant was convicted of five counts of aiding in the preparation of false tax returns, and received an enhancement under § 2T1.4(b)(1) because his conduct was part of a scheme from which he derived a substantial portion of his income. The 5th Circuit upheld the use of § 4B1.3, the criminal livelihood provision, as a guide in applying § 2T1.4(b)(1). Section 4B1.3 is intended to supplement the various specific offenses in Chapter Two of the guidelines, including § 2T1.4(b)(1). The government lost at least $29,00 from defendant’s fraudulent scheme, which is enough to satisfy § 4B1.3’s minimum dollar requirement. In addition, defendant was unable to show evidence of any legitimate employment or source of income since 1986. U.S. v. Welch, 19 F.3d 192 (5th Cir. 1994).

5th Circuit upholds “sophisticated means” enhancement for “land flip” tax scheme. (370) Defendants were convicted of attempted tax evasion for their role in “land flips.” The 5th Circuit upheld a “sophisticated means” enhancement under guideline section 2T1.3(b)(2). Although defendants were not tax experts, they structured elaborate transactions to hide their revenues. They sought the advice of various tax professionals in order to lend the appearance of legitimacy to their dealings, while withholding from these professionals the information which would have permitted them to determine correctly the taxability of the land flip revenues. U.S. v. Charroux, 3 F.3d 827 (5th Cir. 1993).

5th Circuit holds defendant responsible for tax loss caused by co-conspirator. (370) Defendants argued that the district court erred by holding each of them responsible for the tax loss which the other caused. The 5th Circuit held that because each of the defendants’ conduct was reasonably foreseeable to the other defendant, the “relevant conduct” section of the guidelines, § 1B1.3, supported the district court’s decision to hold each defendant responsible not only for the tax loss which he caused, but also for the tax loss caused by his co-defendant. U.S. v. Charroux, 3 F.3d 827 (5th Cir. 1993).

5th Circuit rules that defendant did not use sophisticated means to impede discovery of tax offense. (370) Defendant used money embezzled from her employer to open two bank accounts under fictitious corporate names. She wrote checks on the accounts to herself and her husband. She purchased two $15,000 money orders with checks written to herself and bought some land and a car. She never reported the amounts from the checks as income. The 5th Circuit rejected a two level enhancement under section 2T1.3 for using sophisticated means to impede discovery of the nature or extent of her offense. The sophisticated means must be tied to the offense of conviction. Any sophisticated means that defendant employed to hide the money that she took from her employer occurred in her scheme to embezzle. It did not involve the evasion of taxes, the offense of conviction. There is nothing sophisticated about not disclosing income to your accountant. U.S. v. Stokes, 998 F.2d 279 (5th Cir. 1993).

5th Circuit bases tax loss on amount by which income was understated. (370) Defendants assisted taxpayers in filing amended income tax returns claiming false deductions, thus entitling the taxpayers to tax refunds. Defendants argued that the tax loss under section 2T1.4 should be zero, since the government recovered all of the fraudulently claimed refunds. The 5th Circuit held that the tax loss under section 2T1.4 should be based on the amount by which income was understated on the amended tax returns, rather than on the net amount actually paid out by the government. The amount defendants intended to illegally obtain controlled over their eventual failure to actually acquire and retain the illegal refunds. U.S. v. Moore, 997 F.2d 55 (5th Cir. 1993).

5th Circuit upholds consecutive sentences for pre- and post-guideline convictions. (370) Defendant filed a false claim for an income tax return in 1986, prior to the guidelines’ effective date. On November 1, 1988 (after the guidelines effective date) defendant attempted to obstruct an investigation into the crime by bribing a witness. Following a guilty plea to the pre-guideline and post-guideline offenses, defendant was sentenced on the pre-guideline offense to the maximum term and also received a consecutive sentence for the post-guideline offense. The 5th Circuit affirmed, even though the court ruled that a sentencing court has “discretionary power to impose consecutive sentences contrary to the mandates of the guidelines where a defendant is convicted of both guideline and pre-guideline offenses.” U.S. v. Garcia, 903 F.2d 1022 (5th Cir. 1990).

6th Circuit upholds use of W-2 to help determine tax fraud loss. (370) Defendant was convicted of three counts of attempting to evade or defeat the payment of taxes for the 2000-2003 tax years. He argued that the court erred in relying on Forms W-2 from his employer for 2000-2003, as those amounts were reported to the IRS. The Sixth Circuit found no error in the court’s use of the W-2 forms. In order to determine defendant’s base offense level, the district court had to determine the tax loss under § 2T1.1(c)(1), which refers to the loss that would have resulted had the offense been successfully completed. In order to calculate this amount, it was necessary to determine the amount of tax that defendant owed, which required determining his gross income. The best and most reliable method of determining his gross income from employment would be to look at the W-2 forms for those years. U.S. v. Gross, 626 F.3d 289 (6th Cir. 2010).

6th Circuit applies sophisticated means increase for opening a new company to hide from IRS. (370) Defendant was the sole director and president of a financial advisory firm. Under his instruction, the firm withheld payroll taxes but never paid them to the IRS, and never filed an income tax return or an employment tax return. The Sixth Circuit upheld a § 2T1.1(b)(2) sophisticated means enhancement, finding that defendant did much more than merely fail to pay taxes. When the IRS began to investigate his firm’s activities, defendant closed the firm and opened a new financial advisory firm under a new name to hide his ownership interest. Defendant also established an S-Corporation and trust to funnel money to his wife in order to disguise the distribution of profits from both firms. U.S. v. May, 568 F.3d 597 (6th Cir. 2009).

6th Circuit says court erred in counting tax loss twice. (370) Defendant was the president of a financial advisory firm. As part of a tax evasion scheme, defendant failed to withhold taxes from his own paycheck, but stated on his personal tax form that such funds had been withheld and paid to the government. He argued that the district court improperly double counted the amount of tax loss by aggregating the tax losses caused by his evasion of his personal income tax liability and his failure to account for and pay over payroll taxes in his role as president of the firm. The Sixth Circuit held that the court erred in counting the tax loss twice. Note 7 to § 2T1.1 does provide that if the offense involved both individual and corporate tax returns, the tax loss is the aggregate tax loss from the offenses taken together. However, defendant only owed the amounts in question as tax once. He could either deduct the tax payments from his paycheck and pay them as payroll taxes or he could wait and pay them as a part of his personal income tax return. The plain text of the Sentencing Guidelines requires that only amounts actually owed should be aggregated. U.S. v. May, 568 F.3d 597 (6th Cir. 2009).

6th Circuit holds that tax preparer abused position of trust with client’s children. (370) Defendant engaged in a scheme to defraud the IRS by preparing false tax returns using stolen names and social security numbers. Some of the names and social security numbers used for the false tax returns were obtained from legitimate tax returns defendant prepared for friends and acquaintances. In one case, defendant filed false tax returns using the names and social security number of one client’s children, which he obtained when preparing the client’s tax return. The client was not a participant in the scheme. The district court applied a § 3B1.3 abuse of trust enhancement, specifically with respect to the client’s children. Defendant argued that he did not hold a position of trust with respect to the children. The Sixth Circuit affirmed the enhancement. It was undisputed that defendant held a position of trust with the client. In the course of preparing legitimate tax returns for the client, he obtained the children’s personal information and used that information to file false tax returns. Where a parent provides the personal information of his children for the purpose of tax preparation, it is reasonable that any trust relationship between the parent and the preparer extended to the children and the preparer. U.S. v. Sedore, 512 F.3d 819 (6th Cir. 2008).

6th Circuit includes state income and sales tax losses in tax loss. (370) Defendant failed to file federal and state income tax returns since 1993. He argued that the district court erred in considering state income and sales tax losses in its calculation of his federal tax evasion sentence. The Sixth Circuit found no error. State offenses may qualify as relevant conduct under § 1B1.3. Here, defendant’s state tax offenses and his federal tax offenses could be categorized both as a “common scheme or plan” and the same “course of conduct.” Defendant’s failure to file both federal and state tax returns constituted the same modus operandi—as a fervent tax protestor, defendant’s “method of pressing his challenges” was “to not file and not pay taxes.” Moreover, the temporal proximity, similarity, and regularity of defendant’s federal and state tax offenses indicated that they constituted the same course of conduct. U.S. v. Maken, 510 F.3d 654 (6th Cir. 2007).

6th Circuit holds that tax evasion scheme involved sophisticated concealment. (370) Defendant was part of an organization that instructed individuals on methods to avoid paying federal and state income taxes. For example, one couple, the Stewarts, closed all of their bank accounts, and created several trusts to which they transferred all of their assets. The trust paid their personal and business expenses, but the IRS never received any paperwork concerning the trusts. Defendant served as trustee for many of these trusts. The government appealed the district court’s failure to apply a § 2T1.1(b)(2) increase for using sophisticated means to conceal the conspiracy. Because of the complexity of the circumstances of this case, in which numerous banks and lenders were called to testify, and the fact that defendants used at least seven trusts to evade the payment of taxes, the Sixth Circuit held that the district court abused its discretion in failing to apply a sophisticated concealment enhancement to the Stewarts and to defendant. U.S. v. Sabino, 307 F.3d 446 (6th Cir. 2002).

6th Circuit upholds sophisticated means enhancement. (370) The district court found that defendant used sophisticated means to impede discovery of the nature or extent of his tax evasion offense, pursuant to § 2T1.1(b)(2). Defendant argued that he was simply involved in a complex scheme of tax evasions set up by his business partner. The Sixth Circuit disagreed, finding that the government’s evidence demonstrated that defendant’s personal involvement in the scheme constituted sophisticated means. First, defendant helped set up the shell companies, and he was president of another. Second, although defendant might not have set up the various different bank accounts or post office boxes, he used them in his day-to-day business. Third, according to one witness, defendant did use an alias. This was not a case of an individual who simply lied on a 1040 form. U.S. v. Butler, 297 F.3d 505 (6th Cir. 2002).

6th Circuit affirms “substantial portion of income” increase where no evidence of non-tax-fraud sources of income. (370) Defendant and his mother owned and operated a tax service that prepared and electronically filed fraudulent tax returns for their clients. The district court applied a two-level enhancement for participating in the tax fraud conspiracy as part of a pattern or scheme from which he derived a substantial portion of his income. See § 2T1.4(b)(1). The government showed that defendant earned $16,190 in gross income from the tax service over an 18-month period. Defendant argued that this figure, which averaged out to $900 per month in earnings, was insufficient to support the increase. The Sixth Circuit disagreed, noting that such a figure was conclusive evidence that he earned a substantial portion of his income from tax fraud if the record also disclosed negligible earnings from other sources. Defendant presented no credible information concerning his earnings for the period in question. Because he could not point to any non-tax-fraud sources of income, the district court did not clearly err in applying the increase. U.S. v. Searan, 259 F.3d 434 (6th Cir. 2001).

6th Circuit agrees that defendant with “cash lifestyle” engaged in sophisticated concealment of income. (370) Defendant failed to file income tax returns for 1992 to 1996. He challenged an increase under § 2T1.1(b)(2) increase for an offense involving “sophisticated concealment,” which is defined as “especially complex or especially intricate offense conduct in which deliberate steps are taken to make the offense, or its extent, difficult to detect.” See Note 4 to § 2T1.1. The Sixth Circuit affirmed the increase, based on undisputed evidence that defendant: (1) deposited his receipts only into non-interest bearing business accounts; (2) opened accounts at several different banks; (3) used several different company names to open these accounts, including one in which he had no ownership interest; (4) traveled to different branches of the same bank to make several structured withdrawals of amounts less than $10,000; and (5) paid all of his bills using cash, money orders, or endorsed business checks without ever retaining a receipt or other record of the transaction. The district court properly found that defendant resorted to these measures to avoid detection. U.S. v. Middleton, 246 F.3d 825 (6th Cir. 2001).

6th Circuit finds no ex post facto violation where false tax return filed after date of amendment. (370) Defendant, an accountant, transferred clients’ money into his personal and business accounts without their knowledge. He failed to report the money as income on his tax returns and pled guilty to filing a false tax return. The district court enhanced his sentence under § 2T1.3(b)(1) for failing to report more than $10,000 income from criminal activity. Defendant argued that the court should have applied the version of § 2T1.3 in effect when he committed his offense, because it limited criminal activity to certain racketeering offenses. In contrast, later versions define criminal activity as “conduct constituting a criminal offense under federal, state or local law.” The Sixth Circuit held that the district court’s use of the November 1990 version of § 2T1.3(b)(1) did not violate the ex post facto clause. Even if defendant misappropriated the money in question before November 1990, he filed the false tax return on October 15, 1991, after the date of the amendment. U.S. v. Parrott, 148 F.3d 629 (6th Cir. 1998).

6th Circuit upholds refusal to reduce stipulated tax loss. (370) Defendant, an accountant, transferred clients’ money into his personal and business accounts without their knowledge. He failed to report the money as income on his tax returns and pled guilty to filing a false tax return. Although he stipulated in his plea agreement that his conduct caused a loss exceeding $70,000, he argued on appeal that the actual loss was only $68,000. The argument was based on amended tax returns that claimed deductions for certain farm losses that defendant did not claim in his original returns. The Sixth Circuit upheld the judge’s refusal to reduce the stipulated tax loss by the amount of defendant’s alleged farm losses. There was a factual basis for the stipulated amount. Although the prosecution provided defendant with the documents it used to compute the tax loss more than seven months before sentencing, defendant waited until the day of sentencing to submit amended returns reflecting the alleged farm losses. Section 2T1.3 bases a sentence on the “magnitude of the false statements,” not necessarily the net of concealed income less unclaimed deductions. This guideline formula placed the tax loss in the $70,000-$120,000 range. U.S. v. Parrott, 148 F.3d 629 (6th Cir. 1998).

6th Circuit says court need not consider if taxpayers were employed in finding loss from tax refund scheme. (370) Defendant convinced low-income residents of particular neighborhoods to allow him to file fraudulent tax returns on their behalf. Although defendant prepared at least 57 returns in 1991, the government paid only $2,115 in refunds before the IRS discovered the scheme. The district court included in the tax loss $72,182 from the 25 returns supporting the conviction and $91,269 in refunds from the remaining 32 returns. The Sixth Circuit held that the district court did not err in failing to consider whether any of the taxpayers involved might have been entitled to a legitimate refund, even though 4 of the 23 taxpayers who testified at trial were employed in 1991. There was no evidence that defendant attempted to obtain legitimate refunds on behalf of those who worked in 1991. Any refunds that the employed taxpayers may have been due were separate and distinct from the fraudulent returns he filed on their behalf. It was simply fortuitous that some of those whom defendant preyed upon were employed in 1991. He could not use those facts now to narrow the scope of his fraud. U.S. v. Fleming, 128 F.3d 285 (6th Cir. 1997).

6th Circuit applies sophisticated means to multi-pronged effort to deceive IRS. (370) Defendant, a physician, was convicted of willfully filing false personal income tax returns for the years 1986, 1987 and 1988, and a false corporate return for 1988. The district court applied a sophisticated means enhancement because (1) unreported medical receipts were deposited into numerous bank accounts not directly attributable to defendant, (2) money was withdrawn in the form of cashier’s checks made out to his children, (3) there were “gyrations” in the management of the corporation, (4) the depreciation deduction for a Rolls Royce was made in a deceptive manner, and (5) the ownership of clinic property and rental income was manipulated so that they could be reported on defendant’s father’s return at a lower rate. The Sixth Circuit affirmed. Although in isolation these things may not have been enough to constitute sophisticated means, taken together, they demonstrated a “sophisticated and multi-pronged effort to deceive the IRS and evade paying taxes.” U.S. v. Tandon, 111 F.3d 482 (6th Cir. 1997).

6th Circuit refuses to reduce tax loss for payments after defendant learned of audit. (370) Defendant was convicted of willfully filing false personal income tax returns for the years 1986, 1987 and 1988, and a false corporate return for 1988. He argued that the “tax loss” should be reduced by the additional amounts he paid the IRS in 1989 and 1990. The Sixth Circuit held that the tax loss was properly based on the amount by which defendant’s income was understated on the false tax returns, not the amount the government ultimately lost. Defendant paid amounts in 1989 and 1990 after he learned of an IRS audit. Defendant’s theory would allow a criminal to nullify the burden of his crime by paying the tax liability once the IRS had begun to audit or investigate. The district court also properly included improper deductions defendant took in 1985, even though he was not indicted for that year. The district court specifically found that the 1985 tax loss arose from relevant criminal conduct. Moreover, any error in calculating the tax loss was harmless. Even if the tax loss were reduced by the 1985 tax loss, it would not have affected defendant’s offense level. U.S. v. Tandon, 111 F.3d 482 (6th Cir. 1997).

6th Circuit says defendant’s personal acts did not involve sophisticated means. (370) Defendant, a lawyer, was convicted of conspiring to conceal the assets of a client from the IRS. The 6th Circuit upheld the district court’s refusal to apply a § 2T1.1(b)(2) sophisticated means enhancement. This enhancement requires the sentencing court to look at the actions taken by the individual. A defendant involved in a complex or repetitive tax conspiracy is not automatically given a sophisticated means enhancement if his or her personal involvement did not constitute sophisticated means. Here, defendant did not personally open the Swiss bank accounts or set up the shell corporations, although he undoubtedly knew of their existence. U.S. v. Kraig, 99 F.3d 1361 (6th Cir. 1996).

6th Circuit applies § 2T1.9(a) despite no tax loss. (370) Defendant, a lawyer, was convicted of conspiring to conceal the assets of a client from the IRS. Section 2T1.9(a) provides for a base offense level of 10, unless the base offense level is higher under § 2T1.1 or § 2T1.3. Sections 2T1.1 and 2T1.3 direct the court to establish the “tax loss” caused by the conduct and to look to the table in § 2T1.4 to determine the base offense level. Defendant argued that because there was no tax loss and his offense was not similar to either of the tax offenses covered by § 2T1.1 or 2T1.3, the district court should have defaulted to § 2T1.9(a)(2) and imposed a base offense level of 10. The Sixth Circuit held that § 2T1.9(a)(1) applied. The plain language of § 2T1.9 says the applicable statutory provision is 18 U.S.C. § 371. Since the base offense level applicable here under either § 2T1.1 or § 2T1.3 is greater than 10, the plain language of the guideline directs that one of these two sections is to be used. U.S. v. Kraig, 99 F.3d 1361 (6th Cir. 1996).

6th Circuit upholds aggregating individual and corporate tax loss. (370) Defendant skimmed money from his wholly-owned corporation. He was convicted of underreporting income on the corporation’s tax return and attempting to evade taxes by failing to report the skimmed money on his individual tax return. The Sixth Circuit upheld the district court’s aggregation of the individual and corporate tax loss. The court was not required to allow the corporation a deduction for the amount that was skimmed from the corporation’s gross income. The court also rejected the Seventh Circuit’s approach in U.S. v. Harvey, 996 F.2d 919 (7th Cir. 1993), under which the corporate tax loss is deducted from the individual’s unreported income before the individual tax rate of 28 percent is applied. This approach assumes that the defendant committed a single crime that causes both corporate and individual income to be understated. Here, defendant pled guilty to committing two separate crimes, and the guidelines are very specific about the necessity of aggregating tax loss. U.S. v. Cseplo, 42 F.3d 360 (6th Cir. 1994).

6th Circuit approves upward departure based on harassment of victims and disruption to IRS. (370) Defendant filed 79 false forms with the IRS, reporting that he had paid various individuals and businesses miscellaneous income, and also claiming a refund of $3,000,000. The district court departed upward under § 5K2.0, finding the applicable guideline (§ 2T1.3) did not consider defendant’s malice toward, and systematic harassment of, his victims. The court also relied on § 5K2.7, based on the disruption to the IRS caused by the 79 false forms. The 6th Circuit affirmed. Defendant’s activity went far beyond that contemplated by § 2T1.3. He not only attempted to evade paying his own taxes and impeded the collection of others’ taxes, but he used his scheme to harass people who had the misfortune to come in contact with him. Defendant caused substantial disruption to the government. IRS employees expended enormous effort to identify and correct the false information resulting from defendant’s filings. U.S. v. Heckman, 30 F.3d 738 (6th Cir. 1994).

6th Circuit holds that defendant used sophisticated means to evade taxes. (370) Defendant avoided paying income taxes by claiming a large number of withholding allowances and exemptions and failing to file annual tax returns. The 6th Circuit upheld an enhancement under § 2T1.1(b)(2) for using sophisticated means to evade discovery. This was not a case where an individual simply lied on a 1040 form. Defendant went to his employer with false information, including presenting an inapplicable IRS publication dealing with nonresident aliens, in order to exempt himself from withholding; he used several mailing addresses from different IRS regional service centers to impede the IRS’s discovery of him; he changed his excessive number of withholding deductions in accordance with changes in IRS regulations so as not to alert the IRS; and he directed his wife to file misleading returns. U.S. v. Pierce, 17 F.3d 146 (6th Cir. 1994).

6th Circuit uses pre-guidelines and pre- statute of limitations conduct as relevant conduct. (370) Defendant was convicted of income tax evasion for the years 1985 through 1990. The district court used the amount of unpaid taxes for the years 1981 through 1990 to determine tax loss under § 2T1.1. The 6th Circuit upheld the use of the tax loss from the uncharged conduct. The criminal conduct here was clearly part of the same course of conduct and therefore could be counted under § 1B1.3. The use of pre-guidelines conduct as relevant conduct did not violate the ex post facto clause or the guidelines themselves. In addition, conduct that cannot be prosecuted under the applicable statute of limitations can be used to determine relevant conduct, since even “acquitted” conduct may be so used. U.S. v. Pierce, 17 F.3d 146 (6th Cir. 1994).

6th Circuit rules “tax loss” may not be based on unknown civil tax liabilities. (370) Defendant failed to file federal tax returns for the years 1982 to 1987, resulting in a criminal tax liability for the years 1985 through 1987 in the amount of $40,969. The 6th Circuit reverses a determination of “tax loss” under guideline section 2T1.1 based upon defendant’s criminal tax deficiency and his unknown liability for tax years 1982 to 1984. The court agreed that “all conduct violating the tax laws” refers to all relevant criminal conduct underlying the charged offense. However, defendant’s unknown liability for tax years 1982 to 1984 was a civil tax liability and was not part of the underlying criminal conviction. U.S. v. Daniel, 956 F.2d 540 (6th Cir. 1992).

7th Circuit holds that government was also victim of identity theft offense. (370) Defendant and his wife filed false tax returns for 2005, fraudulently using the identities of two of their neighbors. They also incorporated a tax service business to be run out of their apartment. Defendants then obtained the names, birth dates, and Social Security numbers of real individuals, and, via their tax service business, filed approximately 121 false tax returns for the tax year 2005, amounting to approximately $525,460 in false filings. Defendants pled guilty to tax fraud and fraud in connection with identity theft. The Seventh Circuit upheld a 14-level enhancement under § 2B1.1(b)(1)(H) based on an intended loss of $525,460, holding that the government was a victim of the identity theft count. The crime encompassed more than simple identity theft of an individual. Defendant’s scheme was to steal the names and Social Security numbers of individuals for the purpose of misleading and stealing money from the government. U.S. v. Hill, 683 F.3d 867 (7th Cir. 2012).

7th Circuit says tax loss calculation properly did not account for defendant’s alleged cash payments. (370) Defendant, who owned and operated three restaurants, pled guilty to making false statements in a tax return for underreporting his gross receipts. He argued on appeal that the district court erred in calculating the tax loss at $837,724, because the calculation failed to take into account cash payments for excludable items and/or deductible expenses, including cash payments to DJs and promoters from door charges, cash wages, the cost of complimentary drinks and food, and cash payments to one of his other restaurants for food supplied. The Seventh Circuit held that defendant’s argument was foreclosed by U.S. v. Chavin, 316 F.3d 666 (7th Cir. 2002), which makes clear that defendant’s alleged cash payments were irrelevant in determining the tax loss caused by his fraudulent statements. Tax loss is based on the object of the offense, and should not take into account “unrelated mistakes.” U.S. v. Psihos, 683 F.3d 777 (7th Cir. 2012).

7th Circuit affirms sentence at bottom of range where defendant failed to overcome presumption of reasonableness. (370) Defendant pled guilty to making false statements in a tax return for underreporting his gross receipts. He argued that the district court erred at sentencing by failing to consider his request for a below-guidelines sentence based on his claim that the tax loss overstated the seriousness of the offense. The Seventh Circuit held that the 24-month sentence, which fell at the bottom of defendant’s guideline range, was reasonable. It was within the guideline range, and there was no basis to overcome the presumption of reasonableness that attaches to a guideline sentence. Although the court did not expressly discuss defendant’s argument, in rejecting defendant’s arguments for a lower tax loss calculation, the district court made clear that a lower figure was not justified because defendant had not provided adequate documentation. Under these circumstances, there was no reason for the district court to discuss defendant’s argument in more detail when setting the sentence at 24 months. Moreover, in sentencing defendant, the district court stated that it had considered defendant’s arguments, but that the need to provide deterrence in the arena of self-reporting taxes justified the sentence. U.S. v. Psihos, 683 F.3d 777 (7th Cir. 2012).

7th Circuit bases tax loss on other tax returns that featured same pattern of deception. (370) Defendant, the owner and operator of a tax preparation business, was convicted of 14 counts of willfully aiding and assisting in the preparation of fraudulent tax returns. The evidence demonstrated a pattern of defendant conjuring up nonexistent charitable contributions, job expenses, and medical expenditures. Defendant argued that the district court should only hold her accountable for the $31,849 in tax loss proven at trial. The Seventh Circuit upheld the court’s finding of a tax loss between $400,000 and $1 million. The PSR identified 662 returns audited by the IRS and prepared by defendant that featured materially false and fraudulent information similar to the fourteen returns at trial. The district court did not clearly err in finding that this evidence supported a pattern of deception attributable to defendant. By excluding from the group of 662 returns all cases where the taxpayer contested their audit, or where no additional tax was due, the government proved by a preponderance of the evidence that the remaining returns reflected defendant’s relevant conduct. U.S. v. Littrice, 666 F.3d 1053 (7th Cir. 2012).

7th Circuit affirms sophisticated means increase for using corporations to hide income. (370) Defendant pled guilty to failure to file income tax returns or to pay taxes from 2001 to 2003. The Seventh Circuit upheld a two-level enhancement for use of “sophisticated means” under the tax evasion guideline, § 2T1.1(b)(2). Defendant failed to file tax returns from 1993 through 2003, a significant period of time. During the charged period of 2001-2003, he used corporations to avoid the direct reporting of income in his name, and he used the funds in those corporations as personal funds. Although corporations might be ubiquitous “in most modern business transactions,” using them to impede the discovery of personal income, as here, permitted the imposition of the enhancement. U.S. v. O’Doherty, 643 F.3d 209 (7th Cir. 2011).

7th Circuit says use of tax loss outside charged years did not breach plea agreement. (370) Defendant pled guilty to failure to file income tax returns or to pay taxes from 2001 to 2003. He argued that the government breached his plea agreement when it assented to the PSR’s tax loss calculations, which included as relevant conduct losses from the years 1993 through 2001. He claimed that the plea agreement bound the government to limit its recommendation to losses during the charged period only. The Seventh Circuit found no breach, ruling that defendant misconstrued the language of the agreement. The agreement acknowledged that the government could prove that the tax loss from the charged period was $425,766. There was no promise by the government to limit its relevant conduct recommendations to those amounts, nor was there anything about the uncharged years. Moreover, the government adequately proved the tax loss. The PSR identified a pending civil case by its case number and correctly recounted the amount of tax sought by the government for the earlier years. The information in the PSR was sufficiently reliable to support the government’s position at sentencing. U.S. v. O’Doherty, 643 F.3d 209 (7th Cir. 2011).

7th Circuit bases tax loss on intended loss rather than actual loss to Treasury. (370) Defendant was convicted of filing false income tax returns. The district court found that the false deduction claimed by defendant was $34,117. Using § 2T1.1(c) Note C, the court then determined that the intended loss was 28 percent (the applicable tax rate) of $34,117, or $9,552.67, Defendant complained that the actual loss to the Treasury was only $450, and that this much smaller amount should have been used to calculate his base offense level. The Seventh Circuit disagreed. The guidelines explicitly address this point, explaining that intended loss is used to determine base offense level, not actual loss. U.S.S.G. § 2T1.1(c)(1). U.S. v. Hills, 618 F.3d 619 (7th Cir. 2010).

7th Circuit upholds below-guideline sentence for tax fraud and money laundering. (370) Defendant was convicted of tax fraud and money laundering, resulting in an 87-108 month advisory sentencing range. The Seventh Circuit affirmed a 24-month sentence, finding that the sentencing judge articulated sufficient reasons for the downward variance. Although the district court cited several factors, the court relied primarily on its finding that (1) based on defendant’s age, she was unlikely to commit future crimes, and (2) the seriousness and characteristics of her offenses were not part of the heartland of money laundering offenses. The district court considered defendant’s age (61) to be a mitigating factor, not because she was infirm, but because her age set her apart from the average offender and made it less likely that she would commit these crimes again. The district court’s conclusion that defendant’s offense was less serious than other types of money laundering was supported by the Sentencing Commission’s 1997 report, which highlighted its particular concern with concealment of the proceeds of drug trafficking, promotion of criminal conduct, and use of sophisticated forms of money laundering. U.S. v. Carter, 538 F.3d 784 (7th Cir. 2008).

7th Circuit remands because court failed to hold government to burden of proof. (370) Defendant pled guilty to one count of tax preparer fraud. He appealed the district court’s finding that he was responsible for a total tax loss of $428,444, arguing that the court deprived him of his right to a fair sentencing hearing and did not hold the government to its burden of proof. The Seventh Circuit agreed. The court began the hearing by announcing its findings on the amount of loss before allowing defendant’s attorney to present any argument. When counsel argued that all of the loss was not attributable to defendant, the court found that the information provided by the government had sufficient indicia of reliability. Thus, the court appeared to confuse the standard for the admissibility of evidence at sentencing with that for proving relevant conduct. When defense counsel clarified that he was not questioning the reliability of the information, but rather whether the government had proven the conduct, the court suggested that the government had met its burden of proof merely by submitting admissible evidence. This confusion was worrisome given defendant’s persuasive challenge to the propriety of using a civil audit to attribute criminal liability. U.S. v. Schroeder, 536 F.3d 746 (7th Cir. 2008).

7th Circuit holds that use of shell corporations warranted “sophisticated means” increase. (370) Defendant, the special assistant to the mayor of East Chicago, Illinois, was convicted of making false income tax returns. He created four shell corporations, diverted large sums of city money to the corporations, and then failed to report the income on his tax returns. The Seventh Circuit held that an enhancement for the use of “sophisticated means” under § 2T1.1(b)(2) was not clearly erroneous. The guidelines specifically include the use of corporate shells in an exemplary list of sophisticated means. See Note 4 to § 2T1.1. The fact that the shell corporations had federal ID numbers, which put the IRS on notice that tax returns should be expected, did not mean the scheme was not sophisticated. “Sophisticated” does not mean “intelligent.” U.S. v. Fife, 471 F.3d 750 (7th Cir. 2006).

7th Circuit holds that money bishop took from church was derived from “illegal activities.” (370) Defendant, the bishop of a church, chose to supplement his salary from the church by taking money directly from the Sunday collection. He also failed to report this money on his income tax returns. The district court applied a § 2T1.1(b)(1) enhancement for failure to report more than $10,000 from an illegal source. Defendant argued that the church’s revived financial state after he became church bishop, and suggestions by some church officials that he could be given a raise (so that he would stop stealing from the collection) proved that the money was not from an illegal source. The Seventh Circuit found no clear error. Defendant stole from the Sunday offerings, taking thousands of dollars without permission from the church. He used the funds to pay his personal expenses, and racked up thousands more of personal expenses on church credit cards. The more than $500,000 he failed to report on his tax returns was derived from these illegal activities. U.S. v. Ellis, 440 F.3d 434 (7th Cir. 2006).

7th Circuit holds that jury verdict determined amount of bad debt loss. (370) Defendant and his attorney attempted to offset a $328,000 capital gain by manufacturing the sham sale of a clothing store owned by a company that owed defendant $900,000, thus creating a bad debt loss of $900,000. They argued that $339,000 of the claimed bad debt loss was in fact a legitimate deduction, and that while the jury convicted them of having created a fraudulent bad debt loss, the jury did not specify the amount of loss that was illegitimate. The Seventh Circuit ruled that the jury had already decided the issue, and the sentencing court could not sentence defendants based on an amount different from what the jury decided. All of the counts referenced $900,000 as the bad-debt loss figure, and made no mention of or distinction between the various elements that comprised the total debt. In any event, defendant was not entitled to the deduction for which he argued. The triggering event that made the debt worthless and thereby “entitled” defendant to the bad debt loss was the sham sale of the clothing store, which drained the debtor of all its assets and ensured its inability to repay defendant. Because the event that triggered the availability of the deduction was fraudulent, the deduction itself was illegitimate. U.S. v. Chavin, 316 F.3d 666 (7th Cir. 2002).

7th Circuit holds that current definition of “tax loss” excludes consideration of unclaimed deductions. (370) Defendant argued that the district court should have reduced his tax loss by all of the legitimate deductions that he mistakenly failed to claim on his return. In contrast, the government contended that “tax loss” refers to the amount of loss that the defendant attempted or intended to create through his tax loss. The Seventh Circuit agreed with the government, finding that the current definition of tax loss excludes consideration of unclaimed deductions. Provisions directing the court to treat tax loss as equal of 28% of the amount of unreported gross income “unless a more accurate determination of the tax loss can be made” do not require a court to recalculate the defendant’s tax return considering the unclaimed deductions. The phrase “a more accurate determination” simply allows the parties to argue for a rate that is “more accurate” than the 28% presumptive rate. See U.S. v. Spencer, 178 F.3d 1365 (10th Cir. 1999). But see U.S. v. Martinez-Rios, 143 F.3d 662, 671 (2d Cir. 1998). U.S. v. Chavin, 316 F.3d 666 (7th Cir. 2002).

7th Circuit holds that filing of fraudulent tax returns for others was relevant conduct. (370) In addition to submitting her own fraudulent claim for a tax refund in 1997, defendant assisted five others in preparing and submitting false federal income tax returns to obtain refunds to which they were not entitled for the years 1995, 1996 and 1997. Defendant pled guilty to filing a single false tax return. The Seventh Circuit held that the district court properly considered the tax frauds defendant committed on behalf of others as relevant conduct under § 1B1.3(a). All of the financial transactions in which defendant was involved established a “common scheme or plan,” as defined in Application Note 9(A). Each transaction involved the filing of false tax returns seeking a refund. The IRS was a common victim in every instance. Defendant’s modus operandi was the same for every transaction in that she attached an altered or falsified W-2 form showing false wages and withholdings to each return. In addition, defendant’s filing of her own 1997 false return and the preparation of false returns for others in previous years amounted to the same course of conduct pursuant to Application Note 9(B). U.S. v. Leonard, 289 F.3d 984 (7th Cir. 2002).

7th Circuit holds that frivolous administrative claim against IRS should not have counted as tax loss. (370) Defendant was active in a tax protest group that advocated hiding assets and violating tax laws. He was convicted of tax fraud and seven counts of willfully failing to five tax returns. The district court included in the § 2T1.1 calculation of tax loss an administrative claim for $1,000,000. It was not a claim for a refund, but a totally ineffective claim under 26 U.S.C. § 7433(d)(1) for damages, containing tax protester gibberish attempting to deny liability for federal income tax and social security contributions. Section 7433 authorizes an action for damages against the United States if an officer of the IRS, in collection of tax, recklessly or intentionally disregards a provision of Title 26 or a regulation thereunder. Defendant’s claim did not assert that any officer or employee of the IRS had ever recklessly or intentionally disregarded any provision of the law or a regulation or that damage resulted. The Seventh Circuit concluded that defendant’s claim was a nullity even as a claim for damages, and therefore it was error to include the $1,000,000 as a claimed refund and therefore a tax loss. A claim on which recovery was legally impossible should not have been counted as tax loss. U.S. v. Oestreich, 286 F.3d 1026 (7th Cir. 2002).

7th Circuit includes improper refunds claimed by husband in defendant’s tax loss. (370) Defendant and her husband, married from June 1992 to February 1996, were active in a tax protest group that advocated hiding assets and violating tax laws. They were convicted of tax fraud charges, and her husband was also convicted of seven counts of willfully failing to file tax returns. The district court included in defendant’s tax loss refunds improperly claimed by her husband for 1989 and 1992. He filed the amended returns in February and September 1993. Defendant and her husband were then married, living together, and active in the tax protester organization. The filings were well within the purposes of the conspiracy, which began in about August 1992. There was no evidence suggesting defendant was unaware of the filings. Although her husband had been married to someone else in 1989 and 1990, the Seventh Circuit found it was not clearly erroneous to find that the 1993 filings were reasonably foreseeable to defendant. U.S. v. Oestreich, 286 F.3d 1026 (7th Cir. 2002).

7th Circuit approves increase based on husband’s failure to report illegal income. (370) Defendant and her husband were active in a tax protest group that advocated hiding assets and violating tax laws. They were convicted of tax fraud charges, and her husband was also convicted of seven counts of willfully failing to file tax returns. The Seventh Circuit upheld a § 2T1.1(b)(1) increase for failing to report income exceeding $10,000 from criminal activity based on the husband’s failure to report $14,200 in income he received from the sale of unregistered securities. Although defendant argued that her husband’s trading was not foreseeable to her or within the scope of the conspiracy, the significant question was whether her husband’s failure to report that income was foreseeable and within the scope of the conspiracy. The purpose of the conspiracy included impeding the IRS in the collection of income taxes, and the husband’s failure to report income was well within that purpose. His duty to report existed until tax time in 1994, while the two were married, living together, active in the tax protester organization, and the conspiracy continued. The Illinois Securities Department started a proceeding against the husband to stop the sales and on December 20, 1993, defendant delivered papers to the Department explaining why subpoenas would not be honored. The court’s finding that the husband’s failure to report this income furthered the conspiracy and was reasonably foreseeable was not clearly erroneous. U.S. v. Oestreich, 286 F.3d 1026 (7th Cir. 2002).

7th Circuit says prosecutor’s argument did not estop court from imposing sophisticated means increase. (370) Defendant funneled income from his corporation to a shell corporation that he formed in the Bahamas. Section 2T1.1(b)(2) provides for a sentencing increase if “sophisticated means were used to impede discovery of the existence or extent of the offense.” The commentary gives “hiding assets or transactions, or both, through the use of fictitious entities, corporate shells, or offshore banking accounts” as an example of sophisticated concealment. However, at closing argument, the government’s lawyer told the jury that defendant’s scheme was “not particularly sophisticated.” The Seventh Circuit rejected as frivolous defendant’s claim that the doctrine of judicial estoppel barred the sophisticated means enhancement. The doctrine of judicial estoppel says that after having obtained a judgment in a case on some ground, a litigant cannot turn around and in another case seek a judgment on an inconsistent ground. The argument that defendant’s tax dodge was unsophisticated was neither a ground for conviction nor inconsistent with the position taken by the government at sentencing. It was just a way of asking the jury not to be fooled by the corporate setting into thinking that what defendant had done was a “sophisticated” and therefore perhaps legal method of arranging his affairs. U.S. v. Newell, 239 F.3d 917 (7th Cir. 2001).

7th Circuit holds that unpaid self-employment taxes were properly included in tax loss. (370) Defendant’s individual tax returns underreported the receipts from his business by more than $1.3 million. The Seventh Circuit upheld the inclusion in the § 2T1.1 tax loss of over $30,000 in unpaid self-employment taxes. Nothing in § 2T1.1 indicates that self-employment taxes should be excluded from the tax loss calculation, and defendant admitted that his failure to pay the self-employment tax constituted “conduct violating the tax laws.” The self-employment tax is not a personal retirement account; the failure to pay the tax results in a tax loss to the government. The consideration of such taxes does not result in disparate treatment of those who are self-employed. Any different in the sentence is attributable to the difference in tax violations by the individuals. The self-employment tax, like other taxes, does not apply to all persons at all times, but it is not unequal treatment to hold persons accountable for failing to pay the taxes that are owed by them. U.S. v. Twieg, 238 F.3d 930 (7th Cir. 2001).

7th Circuit refuses to decide whether tax loss can be reduced by unclaimed deductions. (370) Defendant failed to report the revenues from illegal video poker games on his income tax returns. The district court calculated the tax loss as $120,769.09. At sentencing, defendant’s accountant testified that he would have depreciated the video poker machines had he known of them, resulting in a deduction of more than necessary to drop the tax loss to a lower offense level. See U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998). The Seventh Circuit found it unnecessary to decide whether unclaimed deductions may be considered in calculating tax loss, since it would not have changed defendant’s sentence. The sentencing court indicated that if it had accepted defendant’s argument and reduced his offense level by one, it would have sentenced him to the high end of the range for that level, which was 41 months. Because the maximum sentence for defendant’s offense was three years and the district court refused to impose consecutive sentences, the court would still have imposed a 36-month sentence. Moreover, the district court found as a matter of fact that defendant had not established that he would have taken the deductions. U.S. v. Utecht, 238 F.3d 882 (7th Cir. 2001).

7th Circuit holds that defendant used sophisticated means in tax evasion scheme. (370) Defendant failed to report the revenues from illegal video poker games on his income tax returns. The district court imposed a two-level increase under § 2T1.1(b)(2) for sophisticated concealment. The Seventh Circuit affirmed, since at least some of the conduct relied on by the district court was sufficiently above the standard tax fraud case to warrant the enhancement. These activities included hiding the existence of the video poker machines and proceeds from his accountants, fabricating receipts to account for the proceeds from the video poker machines and including these in the corporate records, generating false 1099s that did not include the payments to bar owners from the revenues of these machines, causing these owners to file false personal property tax returns, and generating false personal property tax returns. U.S. v. Utecht, 238 F.3d 882 (7th Cir. 2001).

7th Circuit holds that nonpayment of payroll taxes involved sophisticated concealment. (370) To defeat both overtime and tax laws, defendant paid their workers normal wages rather than time and a half for overtime work, but did not report the overtime wages to the government as taxable income, thus allowing the workers to not report this income on their tax returns. To conceal the fraud, defendants wrote separate checks to the employees, one for regular wages and one for overtime, and sometimes the overtime checks would include reimbursement for expense items to disguise the fact that the checks were for wages. Defendants programmed their computer so that the amount of the overtime checks was classified in non-wage expense categories. The Seventh Circuit affirmed a § 2T1.4(b)(2) increase for the “sophisticated concealment” of the scheme. In light of the enhancement’s purpose and context, the panel ruled that “sophistication” refers not the elegance or style of the defrauder, but to the presence of efforts at concealment that go beyond the concealment inherent in tax fraud. Although the commentary’s examples suggest a higher level of financial sophistication (e.g., hiding assets through the use of corporate shells or fictitious entities), these are merely examples. The essence of the definition is merely “deliberate steps take to make the offense … difficult to detect.” Under this standard, the sentencing judge did not commit clear error in applying this increase. U.S. v. Kontny, 238 F.3d 815 (7th Cir. 2001).

7th Circuit uses 28% of unreported gross income as tax loss. (370) Defendant was a dairy farmer convicted of three counts of filing false income tax returns. Where an offense involves underreporting gross income in a tax return, § 2T1.1(c)(1)(A) provides that “the tax loss shall be treated as equal to 28% of the unreported gross income … unless a more accurate determination of the tax loss can be made.” The Seventh Circuit upheld the district court’s use of the 28% rate, since defendant’s accounting expert did not provide “a more accurate determination.” The expert’s method required the court to offset assumed expenses and deductions against known unreported income, where the assumptions were required solely because defendant’s failed to keep records. In addition, the livestock production budget relied on by the expert was not a proper basis for comparison. The livestock budget was based on expenses incurred by an average dairy farmer. Defendant’s farm and its profits were significantly larger than the average dairy farm. Finally, the expert considered defendant’s cancelled checks from 1988 because defendant told the expert that 1988 was a representative year for the dairy farm. However, 1988 was a drought year, so presumably defendant has less income and more expenses than usual. U.S. v. Hoover, 175 F.3d 564 (7th Cir. 1999).

7th Circuit upholds sophisticated means enhancement that was related to offense of conviction. (370) Defendants partially owned and operated an aluminum smelting company. They entered into a scheme to use a co-conspirator’s company to submit false invoices, or invoices to cover personal work at defendants’ houses, to the smelting company. Defendants would write checks to cover these invoices, and defendants and the co-conspirator would split the proceeds. They were convicted of money laundering, fraud and filing false tax returns. They challenged a § 2T1.1(b)(2) enhancement for use of a sophisticated means in a tax case, claiming the enhancement was not sufficiently related to the offense of conviction. The Seventh Circuit held that the scheme involved a sophisticated means of tax fraud, even if that was not its primary purpose. The scheme had the dual effect of creating illicit gain and hiding that gain from the IRS. Whether or not defendants consciously intended it, the scheme itself would have thwarted the IRS from successfully auditing defendants and determining their real income. U.S. v. Mankarious, 151 F.3d 694 (7th Cir. 1998).

7th Circuit holds sophisticated means and special skills increases are not double counting. (370) Defendant, an attorney, helped a client hide over $700,000 from the IRS. The Eleventh Circuit agreed that the scheme, which involved the use of multiple corporate names and the placement of funds in a trust account, involved sophisticated means under § 2T1.1(b) (2). It also held that a special skill enhancement under § 3B1.3 and the sophisticated means enhancement did not constitute impermissible double counting of identical conduct. Although the factual basis for the two enhancements overlapped, so long as the court finds a sufficient factual basis for both adjustments it may impose both. Here, the special skill enhancement focused on defendant’s use of his legal training. The sophisticated means enhancement arose because of the use of multiple accounts and corporate names. Thus, both enhancements could be applied. U.S. v. Minneman, 143 F.3d 274 (7th Cir. 1998).

7th Circuit rules 1993 tax loss amendment was not “clarifying,” and thus not retroactive. (370) Defendant, an attorney, helped a client hide over $700,000 from the IRS. He argued that the court erred in requiring him to choose between the 1991 guidelines in effect at the time of the offenses and the 1996 guidelines in effect at sentencing. Defendant chose the 1991 guideline. The Seventh Circuit held that the district court properly applied the 1991 guidelines because the 1996 guidelines provided for a two -level increase in offense level, and therefore would have violated the ex post facto clause. The district court also properly refused to apply language added in 1993 by Amendment 491 that changed the calculation of tax loss because this would apply the guidelines in a piecemeal fashion. Section 1B1.11(b)(2) bars a court from applying one guideline section from one edition and another guideline section from a different edition. Amendment 491 was not a clarifying amendment. It provided a new definition of tax loss that was a significant change from the 1991 definition in § 2T1.3(a). U.S. v. Minneman, 143 F.3d 274 (7th Cir. 1998).

7th Circuit attributes entire amount in Cayman Islands account to defendant for tax loss purposes. (370) Defendant helped a telephone company obtain a government contract to install pay telephones in VA hospitals by bribing a friend at the VA. Between 1988 and 1990, defendant received over $800,000 from the company in exchange for this intercession, and he paid $27,859 in bribes to the VA employee. The money was deposited directly into bank accounts of three corporations controlled by defendant and his associates. About $513,484 of the funds ultimately found its way into one of two Cayman Islands bank accounts. Defendant contended that half of the $513,484 should be considered to be the VA employee’s income, rather than his, for tax loss purposes, because it had been promised to the employee. The Seventh Circuit found that the full $513,484 could be considered defendant’s unreported income for tax loss purposes. The VA employee testified that no funds beyond the original $27,850 had been paid or promised to him by defendant. Moreover, the government introduced a letter found on defendant’s home computer that was meant to be read in case of defendant’s death. In the letter, defendant directed his son to use the money in the Cayman Islands accounts to take care of defendant’s wife. The letter did not mention that any portion of the money was owed to the VA employee. U.S. v. Whitson, 125 F.3d 1071 (7th Cir. 1997).

7th Circuit finds bribes to shell corporations and transfer to offshore accounts involved sophisticated means. (370) Defendant helped a telephone company obtain a government contract by bribing a friend at the VA. Defendant received over $800,000 from the company and paid $27,859 in bribes to the VA employee. The money was deposited into bank accounts of three corporations controlled by defendant and his associates, and $513,484 found its way into defendant’s Cayman Islands bank accounts. The Seventh Circuit affirmed a sophisticated means enhancement. The example provided in note 6 concerning the use of offshore bank accounts, and transactions through shell corporations, was nearly identical to defendant’s scheme. U.S. v. Whitson, 125 F.3d 1071 (7th Cir. 1997).

7th Circuit includes tax loss from years that fell outside statute of limitations. (370) Defendant, a carpentry subcontractor, structured his finances and his business to prevent the IRS from learning about his income. He did not have a bank account and paid cash for everything, including his employees. He was convicted of tax evasion for the years 1988 to 1991. The Seventh Circuit upheld the district court’s consideration of defendant’s gross income for tax years 1986 and 1987 as relevant conduct, even though those years fell outside the statute of limitations. The Seventh Circuit, along with six other circuits, have held that the statute of limitations does not limit what a court may consider as relevant conduct. U.S. v. Valenti, 121 F.3d 327 (7th Cir. 1997).

7th Circuit upholds use of § 2T1.1(c)(2) to determine tax loss. (370) Defendant, a carpentry subcontractor, structured his finances and his business to prevent the IRS from learning about his income. He did not have a bank account and paid cash for everything, including his employees. To compute the tax loss for the years 1988 to 1991, the court relied on the amounts proved by the government at trial. However, for the years 1986, 1987, 1992 and 1993, the court used § 2T1.1(c)(2) to compute the tax loss at 20 percent of defendant’s gross income. On appeal, the Seventh Circuit affirmed the use of § 2T1.1(c)(2). The district court could properly reject defendant’s testimony and exhibits that purported to demonstrate certain business and personal deductions. The district court found that the government had tried to accurately measure defendant’s expenses, and that defendant had likely “got off easy” because additional unreported income probably existed. U.S. v. Valenti, 121 F.3d 327 (7th Cir. 1997).

7th Circuit affirms upward departure for extreme obstruction and concealment of millions in illegal income. (370) Defendant leased illegal gambling machines to bars and clubs. None of the income from the gambling machines was reported. When defendant and his co-conspirators learned of an IRS investigation, they lied to investigating authorities, pressured bar owners to lie about how much income was generated from the machines, and intimidated the bar owners into signing backdated leased which misrepresented the income generated by the machines. Defendant ultimately was convicted of conspiracy to defraud the IRS, witness tampering, obstruction of justice and dealing in unregistered gambling devices. The Seventh Circuit affirmed an upward departure based on the extent and egregiousness of defendant’s obstructive conduct and his concealment of millions of dollars of income from the illegal gambling business. The egregiousness of defendant’s conduct in obstructing justice and hiding millions of dollars in assets took this case outside the heartland cases involving conspiracy to defraud the IRS. U.S. v. Furkin, 119 F.3d 1276 (7th Cir. 1997).

7th Circuit upholds calculation of tax loss from diverted corporate income. (370) Defendant, a principal shareholder of a small business, diverted income from the corporation to himself, and did not report the income on either the corporation’s or his own individual tax return. The Seventh Circuit affirmed the calculation of tax loss under the methodology in U.S. v. Harvey, 996 F.2d 919 (7th Cir. 1993). This method begins with the premise that the full amount of the loss was an imputed dividend to the individual taxpayer. The court first applied the corporate rate of 34% to the unreported profit, which produced the amount of lost corporate taxes. Second, the court reduced the imputed dividend to the individual by the amount of imputed corporate taxes. Third, the court applied the personal rate of 28% to the reduced dividend to determine the amount of lost personal taxes. The sum of the two types of lost taxes is the tax loss. U.S. v. Bhagavan, 116 F.3d 189 (7th Cir. 1997).

7th Circuit rules tax evasion scheme used sophisticated means. (370) Defendant, a CPA, filed numerous false tax returns, each claiming a refund. The returns were based on forged W-2’s, phony itemized deductions, false employment records, and the Social Security numbers of accomplices, innocent clients and acquaintances. Defendant claimed he did not use “sophisticated means” under § 2T1.1(b)(2) because it was very easy for the government to detect his fraud—he used his own mailing addresses for almost all of the refund checks. The Seventh Circuit found the tax evasion scheme involved the use of sophisticated means. Defendant arranged to have the refund checks mailed to five different addresses. He managed to evade discovery for six years, which was a “fairly long run as these things go.” As a CPA, defendant was able to structure his refund scheme in a way unlikely to attract the IRS’s attention. U.S. v. Madoch, 108 F.3d 761 (7th Cir. 1997).

7th Circuit says tax preparer used sophisticated means to evade discovery of tax fraud. (370) Defendant was an accountant who prepared tax returns for a fee. He prepared false tax returns for clients claiming refunds to which the clients were not entitled. Defendant did not sign his name as a paid tax preparer to conceal his identity from the IRS. From time to time he asked a friend who worked for the IRS to access IRS computer records in order to determine the status of his fraudulent claims. The Seventh Circuit agreed that defendant used sophisticated means under § 2T1.4(b)(2) to perpetuate his tax fraud. The application note for § 2T1.4 is not an exclusive list of sophisticated means. The district court properly found that befriending, co‑opting and bribing a well positioned IRS employee to participate in the scheme, along with failing to sign his clients returns as their paid tax preparer, constituted sophisticated means. U.S. v. Friend, 104 F.3d 127 (7th Cir. 1997).

7th Circuit finds defendant used sophisticated means to evade taxes on money skimmed from corporation. (370) Defendant and his wife failed to pay federal income taxes on $1.4 million they skimmed from their closely‑held corporation. The Seventh Circuit agreed that they used sophisticated means to evade discovery of the scheme. For over seven years, defendant and his wife falsified the corporation’s business records, deposited receipts in bank accounts under their former names and those of relatives, provided fraudulent documents to the banks indicating that they were Canadian citizens to prevent the banks from notifying the IRS of the existence of the accounts or the interest generated from them, and provided incomplete and misleading information to their accountant so that he unknowingly prepared false returns. U.S. v. Wu, 81 F.3d 72 (7th Cir. 1996).

7th Circuit says tax loss equals total of unpaid corporate and personal taxes. (370) Under U.S. v. Harvey, 996 F.2d 919 (7th Cir. 1993), the tax loss equals the corporate tax of 34 percent on unreported corporate profit, then reducing the imputed dividend rate paid to the shareholder by the amount of imputed corporate taxes, and then adding the personal rate of 28 percent to the reduced dividend. Defendant contended that Harvey should be overruled because in the “real world” people who own closely held corporations seek competent tax advice and learn how to have the corporation distribute its profits to the owner through salary, bonuses and other methods that result in the corporation owing little or no taxes on its profits. The Seventh Circuit reaffirmed Harvey’s determination that tax loss equals the total of unpaid corporate and personal taxes. Defendant’s method would require courts to comb the books of convicted tax evaders seeking ways in which they could have lowered their tax liability and their sentences. This is not the court’s role. U.S. v. Wu, 81 F.3d 72 (7th Cir. 1996).

7th Circuit finds defendant used sophisticated means to conceal gambling operation and avoid taxes. (370) The 7th Circuit affirmed that defendant used sophisticated means under section 2T1.1(b)(2) to conceal his gambling activities and avoid excise taxes. Defendant used aliases and bettor code numbers; he moved his wire rooms from place to place; he destroyed records; he had substantial bank accounts in the Grand Cayman Islands, Switzerland, and the Mariana Islands; some of his accounts were under other names; and he did not report the interest on his accounts. U.S. v. Hammes, 3 F.3d 1081 (7th Cir. 1993).

7th Circuit includes prior tax evasion as “relevant conduct.” (370) Defendant objected to the district court’s including tax loss from tax evasion in 1985 in his sentence for a later tax evasion. The 7th Circuit concluded that the prior evasion was properly included in the present offense as “relevant conduct” under §1B1.3. A 6th Circuit case refusing to include civil tax liability as relevant conduct did not dictate a different result, because defendant’s earlier tax evasion was a crime even though he had not been convicted. U.S. v. Harvey, 996 F.2d 919 (7th Cir. 1993).

7th Circuit explains tax loss calculation for defendant who evaded both corporate and personal taxes. (370) Sentencing for tax evasion requires calculating the “tax loss,” by taking 28 percent of the understated income for personal taxes and 34 percent for corporate taxes. Defendant sold the corporation’s scrap aluminum and kept the proceeds for himself, reporting them as neither corporate or personal income although they should have been reported as both. The district court calculated defendant’s tax loss by adding 28 percent and 34 percent of the proceeds, but the defendant argued that the court should have merely used the 28 percent figure. The 7th Circuit held that neither approach was correct. The court should first have multiplied the proceeds by 34 percent. It should then reduce the proceeds by that amount and multiply the remainder by 28 percent, effectively treating a portion of the proceeds as a return of capital. U.S. v. Harvey, 996 F.2d 919 (7th Cir. 1993).

7th Circuit says court did not condition sentence reduction on paying back taxes. (370) Defendant argued that the district court erred by making payment of his tax liability a prerequisite to consideration of a future Rule 35 motion for reduction of his pre-guidelines sentence. The court had said that it “may, repeat may,” take efforts to satisfy tax liability into account. The 7th Circuit concluded that this statement did not support defendant’s claim, and that the court had not abused its discretion in sentencing defendant. U.S. v. Lerch, 996 F.2d 158 (7th Cir. 1993).

7th Circuit upholds enhancement for defendant who hid assets. (370) Defendant was convicted of tax evasion. The district court increased his base offense level under section 2T1.2(b)(2) because defendant employed “sophisticated means” to conceal his crimes. The 7th Circuit found no clear error in this finding in light of defendant’s use of a so-called “warehouse bank” to deposit his assets anonymously and defendant’s deposit of other assets into a son’s account. U.S. v. Becker, 965 F.2d 383 (7th Cir. 1992).

7th Circuit holds that tax loss should be based on tax deficiency and not value of hidden assets. (370) For the years 1975 through 1981 the IRS assessed deficiencies in income tax of over $7 million against defendant and her husband based on millions of dollars they fraudulently diverted for their own use. During an enforcement action, defendant misrepresented to the IRS that she had no assets when in fact, she possessed $77,000 worth of jewelry and property. Defendant was found guilty of making a false statement to the IRS concerning her assets and of income tax evasion. The 7th Circuit affirmed that the “tax loss” under guideline sections 2R1.1 and 2T1.3 should be based on the previously assessed tax deficiency of $7 million, rather than the $77,000. Defendant could not dispute that the attempted evasion of taxes for 1975 through 1981 was part of the same course of conduct and therefore relevant conduct in this case. U.S. v. Brimberry, 961 F.2d 1286 (7th Cir. 1992).

8th Circuit refuses to consider tax loss challenges that would not have affected offense level. (370) Defendant, a manager at a car assembly plant, was in charge of approving invoices for payment to various vendors. He was convicted of four counts of willful income tax evasion for failing to report and then concealing kickbacks he received from vendors. The district court calculated a total tax loss of $926,602. This produced a base offense level of 20 under § 2T4.1(H) for a tax loss of more than $400,000 and less than $1,000,000. He challenged the inclusion of a number of items in the court’s tax loss calculation. The Eighth Circuit found it unnecessary to consider the issues because defendant made no showing that these items, individually or in combination, would have lowered the net tax loss to less than $400,000. U.S. v. Perry, 714 F.3d 570 (8th Cir. 2013).

8th Circuit approves guideline sentence for tax evasion. (370) Defendant, a manager at an car assembly plant, was in charge of approving invoices for payment to various vendors. He was convicted of four counts of willful income tax evasion for failing to report and then concealing kickbacks he received from the vendors. His guideline range was 51-63 months. At sentencing, defendant moved for a downward departure under § 5K2.20 for aberrant behavior, or a variance to a term of probation. After carefully balancing mitigating factors such as defendant’s age and lack of a criminal record, with the seriousness of the offense, the many victims, and defendant’s steadfast refusal to accept responsibility for his actions, the court sentenced him to 51 months. The Eighth Circuit held that the guideline sentence was substantively reasonable. A sentence within the guidelines range is presumptively reasonable on appeal. Nothing in the record established that that the district court abused its considerable discretion in fashioning an appropriate sentence. U.S. v. Perry, 714 F.3d 570 (8th Cir. 2013).

8th Circuit permits considering sentences imposed on others in related scheme. (370) Defendant pled guilty to willfully filing a false joint tax return with his wife for calendar year 2007. The return listed defendant as the proprietor of a business that reported cost of goods that exceeded sales, resulting in a net loss that reduced defendant’s income tax liability for the year. The company’s income was derived from a fraud scheme by defendant’s wife and a government employee, Brown. His wife and Brown pled guilty to theft of public money and each was sentenced to 24 months. Defendant argued that at sentencing, the district court improperly considered the 24-month sentences imposed on his wife and Brown for the theft-of-public-money-conviction, an offense for which defendant was neither charged nor shown to be personally involved. The Eighth Circuit found no error. At sentencing, the district court noted that defendant did not dispute the PSR’s conclusion that he was equally culpable with his wife, and that he disproportionately benefited financially from the scheme. On these facts, it was not improper to consider the sentences imposed on his wife and Brown for their clearly related offenses in order to avoid potential sentence disparity. U.S. v. Shrum, 655 F.3d 782 (8th Cir. 2011).

8th Circuit includes uncharged tax returns in intended loss. (370) Defendant was convicted of filing numerous fraudulent tax returns. The Eighth Circuit upheld the district court’s decision to include as intended loss the refunds claimed in seven uncharged tax returns. The refunds claimed on each of the returns included in the court’s loss calculation – including the seven to which defendant objected – were to be deposited into a bank account belonging to either defendant or his accomplice. All but one of the returns was filed using either defendant’s or his accomplice’s email address. All the returns claimed similar large deductions for medical expenses, moving expenses, and unreimbursed employee expenses. Each of the returns listed employers for which the filer had never worked, and five of the seven challenged returns named false employers that also were listed on one or more of the other 23 returns. This evidence was sufficient to find that the seven challenged returns were part of the same course of conduct as the offenses of conviction. U.S. v. Quevedo, 654 F.3d 819 (8th Cir. 2011).

8th Circuit excludes improper tax deductions from tax loss unless false return was prepared. (370) Defendant was convicted of failing to account for and pay employment taxes, in violation of 26 U.S.C. § 7202. The district court included in the tax loss the amount of tax deductions that defendant had purported to “give” to two acquaintances. Defendant sent one man, Shetka, a document counseling Shetka to write off a $10,000 investment that Shetka had never made. Defendant also improperly gave a second man, Hall, $741,113.12 in mortgage interest deductions for mortgage interest payments and other expenditures that defendant, not Hall, had made. Defendant argued that because the district court did not find that either Hall or Shetka had filed a return claiming the false deductions, the district court should not have included the fraudulent deductions in its calculation of the tax loss from his offense. The Eighth Circuit held that the tax deductions that defendant improperly “gave” to the acquaintances could not be included in the tax loss calculation. Liability under § 7206(2) can attach even if a false return is never filed; however, it cannot be violated if a false return is never prepared. The district court made insufficient findings to conclude that defendant had violated § 7206(2). U.S. v. McLain, 646 F.3d 599 (8th Cir. 2011).

8th Circuit includes tax loss that was counted as relevant conduct in prior prosecution. (370) In 1999, defendant was convicted of four counts of filing false tax returns for the years 1991 through 1994 and sentenced to 18 months’ imprisonment. In the instant case, he was convicted of five counts of filing false tax documents for the years 1996 through 2000. He argued that the district court erred by failing to reduce its tax loss calculations to exclude tax losses already assessed against him in the sentence he received for his earlier conviction. In defendant’s 1999 conviction, the district court added to the 1991 through 1994 tax loss about $83,000 in estimated unpaid taxes for the years 1996 and 1997. The Eighth Circuit found no error. Relevant conduct that has been considered in a prior sentencing can be a basis for subsequent prosecution without violating the double jeopardy clause so long as the earlier sentence was within the statutory or legislatively authorized punishment range. Defendant’s prior 18-month sentence was well within this range. U.S. v. Morse, 613 F.3d 787 (8th Cir. 2010).

8th Circuit includes third-party tax losses as “relevant conduct.” (370) Defendant was a partner in a retail business that sold gold and silver coins and a trust system. Defendant advised purchasers that, by funneling funds through the trusts, they could eliminate their tax liability by deducting personal expenses from taxable income. Defendant and his wife personally used the trust system, and between 1999 and 2004, they filed Form 1040 returns that failed to report taxable income, causing a tax deficiency of over $600,000. The district court found that under § 2T1.1, defendant was responsible for a tax loss of $1,082.027, which included $427,770 in third-party tax deficiencies. Defendant did not object at sentencing, and on appeal, the Eighth Circuit found no plain error in including third-party tax losses in defendant’s offense level calculation. Defendant filed his taxes using the same trust/deduction system that he advised customers to use. Defendant’s advice to third-parties was “relevant conduct” as part of a related “common scheme or plan.” U.S. v. Aldridge, 561 F.3d 759 (8th Cir. 2009).

8th Circuit forbids offsetting tax loss with unclaimed tax benefits not related to tax offense. (370) Defendant prepared and filed 20 federal income tax returns for seven taxpayers that falsely claimed a variety of losses. The district court found that the tax loss was $100,029, the aggregate amount of underpaid income tax determined by an IRS examination of each fraudulent return. However, six of the taxpayers were investors in a foundering business run by defendant. A defense expert opined that taxpayers’ investments in defendant’s failed business were capital losses. The expert calculated that the investors were entitled to capital loss deductions totaling $32,177, which would reduce the aggregate tax loss to $68,074. The Eighth Circuit held that the district court properly refused to consider the unclaimed losses. Several factors were notable about this case. First, the offsetting capital losses were unrelated to the tax fraud defendant committed. Second, the unclaimed capital losses were tax benefits available to the investor-taxpayers, not to defendant. Those capital losses had not been claimed, and remained potentially available to the taxpayers in the future. U.S. v. Blevins, 542 F.3d 1200 (8th Cir. 2008).

8th Circuit rejects 100% downward departure for tax offender. (370) Defendant pled guilty to willfully failing to account for and pay withholding taxes. Although his guideline range was 18-24 months, the district court varied downward and imposed a sentence of eight months of home confinement, five years’ probation and 1,000 hours of community service. The court found the following circumstances extraordinary, and justified a comparably extraordinary variance. Defendant (1) had a significant record of charitable activities; (2) accepted responsibility and made an exceptional effort to repay the money; (3) suffered damage to his business, reputation, and family relationships; and (4) was not motivated by a desire to defraud the government, but was instead attempting to resolve a financial crisis in his business. The Eighth Circuit ruled that the sentence was unreasonable, finding that the court failed to give significant weight to certain § 3553 (a) factors and failed to articulate sufficiently compelling circumstances to justify such a large variance. The circumstances were not sufficiently different from U.S. v. Ture, 450 F.3d 352 (8th Cir. 2006), where the court rejected a similar departure in a similar case. The court failed to adequately consider the seriousness of defendant’s offense, the goal of promoting respect for our federal tax laws, and the need for a just sentence. In addition, the court’s 100% variance failed to give significant weight to the need for sentences to deter future criminal conduct, and the need to avoid unwarranted sentencing disparities among similar defendant. Finally, the facts cited by defendant were not sufficiently compelling to justify a 100% variance. U.S. v. Carlson, 498 F.3d 761 (8th Cir. 2007).

8th Circuit says defendant was foreclosed from challenging tax loss by admissions in charging documents. (370) Defendant and his brother were involved in a scheme that recruited persons to file fraudulent federal and state income tax returns. He challenged the district court’s finding that he was jointly responsible with his brother for the entire tax loss involved in the conspiracy. He contended that the offense conduct was not a single conspiracy encompassing all of the conspirators and transactions, but a set of multiple conspiracies, some of which involved his brother but not him, and he was not responsible for the losses involved in those transactions. The Eighth Circuit held that defendant was foreclosed from raising this claim by his admission to the facts in the charging document. When a defendant pleads guilty, he admits all of the factual allegations made in the indictment, at least where he did not specifically state that he disagreed with certain facts recited in the charging document. Here, defendant agreed that during the years 2002 and 2003, he and his brother arranged for the filing of tax returns by other individuals, and defendant never disputed any of the specific factual allegations in the charges to which he pled guilty. Thus, he admitted that the false claims making up the $200,000 loss alleged in the conspiracy count were part of the conspiracy to which he pled guilty. U.S. v. Mickle, 464 F.3d 804 (8th Cir. 2006).

8th Circuit holds that downward variance to probation for tax evader was unreasonable. (370) Defendant was convicted of willfully failing to file federal income tax returns for the years 1997-1999, respectively. Although defendant’s guideline range was 12-18 months’ imprisonment, the district court sentenced defendant to two years of probation and 300 hours of community service. The court found no reason to sentence defendant to prison, finding that the sentence it imposed, and the anticipated cost of back taxes, interest and penalties, constituted a sufficient sentence. The court also mentioned that this was defendant’s first offense “after a long life,” defendant used “relatively unsophisticated means” to commit the crime, he cooperated fully with authorities, and expressed remorse. The Eighth Circuit held that the sentence was unreasonable. Defendant’s sentence amounted to a 100 percent variance from the guidelines. Such an extraordinary variance must be supported by extraordinary circumstances. Given the long duration of defendant’s criminal conduct, the tremendous amount of taxes evaded, and his enlistment of an employee to assist with the crime, the district court failed to adequately consider the seriousness of defendant’s offense. Under the circumstances, any sentence without a term of imprisonment would be unreasonable. U.S. v. Ture, 450 F.3d 352 (8th Cir. 2006).

8th Circuit holds that court correctly refused to group defendant’s mail fraud and tax fraud counts. (370) Defendant pled guilty to mail fraud, structuring cash transactions to evade reporting requirements, and filing false tax returns. He argued that the tax fraud counts should have been grouped together with the mail fraud offenses, but the Eighth Circuit upheld the separate grouping. Subsections (a), (b) and (c) of § 3D1.2 were not applicable because (1) defendant’s mail fraud and tax fraud had different victims (his creditors and niece and nephew for one group, and the U.S. Treasury for the other), and (2) defendant’s offense level for his tax fraud counts was not increased based upon his conduct that was punished as mail fraud. Section 3D1.2(d) requires the grouping of counts for which “the offense level is determined largely on the basis of the total amount of harm or loss.” The Second Circuit has held that grouping of tax fraud and mail fraud is proper under § 3D1.2(d), see U.S. v. Gordon, 291 F.3d 181 (2d Cir. 2002), but other circuits disagree. While the offense levels for defendant’s mail fraud and tax fraud offenses are both largely based on the amount of harm or loss, to be grouped under § 3D1.2(d), the offenses must also be “of the same general type.” Note 6 to § 3D1.2. When the loss tables for two offenses punish the same amount of loss differently, the offenses are not “of the same general type” for purposes of § 3D1.2(d). See U.S. v. Hildebrand, 152 F.3d 756 (8th Cir. 1998). U.S. v. Shevi, 345 F.3d 675 (8th Cir. 2003).

8th Circuit rules that commission checks were personal income to defendant. (370) Defendant sold used cars through a corporation which did business as Midtown Motors. He referred some car buyers interested in luxury to Plaza Motors, and received commission checks from Plaza for such referrals. The commission checks were made out to Midtown Motors instead of defendant personally, but defendant used the checks for his personal expenses. Defendant failed to file income tax returns on personal income he received in 1994 and 1995. The Eighth Circuit ruled that the district court properly included the Plaza Motors commission checks as personal income to defendant, and thus they were part of the tax loss. First, defendant stipulated in his plea agreement that the commission checks constituted personal income to him. Moreover, even without such a stipulation, the district court could have properly included the commission checks in the tax loss. Plaza Motors did not enter a commission agreement with Midtown Motors, Midtown had no corporate records of the commission checks, and defendant used money from the commission checks to pay for personal expenses unrelated to Midtown Motors. U.S. v. Hart, 324 F.3d 575 (8th Cir. 2003).

8th Circuit says defendant cannot challenge tax loss stipulated to in plea agreement. (370) Defendant argued that the court clearly erred in calculating his gross unreported income and tax due. He contended that the amount of tax loss should have been $18,662.69, as determined by the district court. However, defendant stipulated in the plea agreement that there was “a tax loss of $67,662 for the period of 1995-1998.” A defendant who voluntarily accepts the provision of a plea agreement cannot challenge on appeal the punishment to which he willingly exposed himself, because the defendant accepts both the benefit and the burden of the plea agreement. U.S. v. Piggie, 303 F.3d 923 (8th Cir. 2002).

8th Circuit relies on IRS agents’ testimony rather than amended return filed after indictment. (370) The district court found that the government had suffered a tax loss of between $200,000 and $325,000, which corresponded to a base offense level of 16. Defendant argued that the loss should have been less than $200,000, based on amended returns he filed just before trial, which would have reduced his offense level to 15. However, the court based its tax loss finding on evidence presented at trial by IRS agents. The court commented that defendant did not “seriously challenge” this testimony. Instead, he relied on tax forms filed after he was indicted. The Eighth Circuit ruled that the court’s decision to disregard defendant’s own calculation in favor of trial evidence was not clearly erroneous. U.S. v. Willis, 277 F.3d 1026 (8th Cir. 2002).

8th Circuit considers full scope of scheme in determining tax loss. (370) Defendant and his wife owned and operated CFS, a company that provided payroll services to employers. Defendants used impounded tax funds to cover CFS’s operating expenses, resulting in a shortfall when it was time for the clients to make their quarterly tax payments to the IRS. The district court determined that the tax loss was the same as the fraud loss, $5,747,478. Defendant claimed that the great majority of the $5.7 million fraud loss related to third quarter 1995 liabilities that were not yet due and for which tax forms had not yet been filed at the time CFS went out of business. The Eighth Circuit found no error, since “all conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated.” Note 2 to § 2T1.1. Even though CFS collapsed before the third quarter forms were actually filed and before any additional documents were falsified, the district court was well within its discretion to consider the overall scope of the scheme in assessing the tax loss. U.S. v. Ervasti, 201 F.3d 1029 (8th Cir. 2000).

8th Circuit agrees that use of trusts to hide ownership of property involved sophisticated means. (370) Defendant was convicted of tax evasion charges. Defendant had attempted to conceal his income and assets from the IRS as follows: he cashed his paychecks personally instead of relying on his employer’s direct deposit system; placed the warranty deed of his property, his homeowner’s insurance policy and his utilities in the name of one trust; established a bank account in the name of a second trust from which he paid the bills from the first trust; and set up a P.O. Box under the name of “Mail Call” to receive all mail relating to his properties, bank accounts and other financial affairs. In addition, the company hired to set up defendant’s trusts recorded the trusts in Arizona, not in Jackson County, Missouri, where the real property actually existed. The Eighth Circuit upheld a § 2T1.1(b)(2) sophisticated means enhancement. Although defendant could have taken even more intricate steps to avoid payment of his federal income taxes, the court could not ignore the sophisticated, evasive actions he did take. U.S. v. Brooks, 174 F.3d 950 (8th Cir. 1999).

8th Circuit includes loan in tax loss where repayment was deposited into personal account. (370) Defendant and his wife were convicted of tax evasion charges for diverting corporate income into accounts they controlled without reporting the income to the IRS. The district court included as relevant conduct a $5,000 loan, made by defendant to an old friend, and taken by the corporation as a deductible business expense. The friend repaid the loan the following year, but defendants deposited it into their own personal account. Defendant argued that the loan should not be included in the tax loss calculation because he was unaware that his accountant had characterized the loan as deductible business expenses. The Eighth Circuit held that the loan was properly included in the tax loss. The district court implicitly rejected defendant’s defense that he was unaware that the loan had been treated as a deductible business expense. This finding was not clearly erroneous. When the loan was repaid the next year, defendant knowingly kept his accountant in the dark when the repayment was not deposited into the corporate account. U.S. v. Georges, 146 F.3d 561 (8th Cir. 1998).

8th Circuit rules tax loss is 28% of untaxed distributions that should have been paid as personal income tax. (370) Defendants, financial planners, helped clients evade taxes by transferring assets to one of defendant’s “nonprofit” corporations in a “sale” for no consideration. The transfer made it appear as though the client no longer owned the property, preventing the IRS from levying on it to satisfy outstanding tax liabilities. The Eighth Circuit approved the district court’s calculation of tax loss for one count as 28% of the untaxed distributions to the non-profit corporation, which should have been paid as the distributors’ personal income tax. The government was not required to prove it actually lost that amount in taxes. The distributors were not entitled to charitable deductions for the sham distributions. The district court also properly included for uncharged relevant criminal conduct the amount of tax, computed from IRS files, evaded by clients other than those involved in the offense of conviction. The sophisticated means enhancement under § 2T1.1(b)(2) was also proper. U.S. v. Noske, 117 F.3d 1053 (8th Cir. 1997).

8th Circuit upholds trial court’s finding of tax loss without evidentiary hearing. (370) Defendant was convicted of preparing fraudulent income tax returns. He argued that the district court improperly relied on the PSR to determine the tax loss, and should have held an evidentiary hearing. The Eighth Circuit held that the court properly based its tax loss finding on the trial record. In resolving contested issues of fact, a sentencing court may not rely on statements in a PSR. The government must produce evidence to convince the court by a preponderance of the evidence. However, a sentencing court need not hold an evidentiary hearing where, as here, the sentencing judge presided over the trial. In such a case, the court may base its findings of fact on the trial record. Here, the trial record amply supported the court’s tax loss determination. Defendant admitted he prepared more than 1200 tax returns and that all of the employees in his tax preparation business were under his control. The trial record showed that the returns listed in the government exhibit all contained the same type of discrepancies as those returns that defendant prepared. U.S. v. Marshall, 92 F.3d 758 (8th Cir. 1996).

8th Circuit holds that benefit from bribe to IRS agent was amount of tax liability to be avoided. (370) Defendant conspired to bribe an IRS agent in order to avoid business and personal taxes. Under § 2C1.1(b)(2)(A), if the benefit to be received in return for the bribe exceeds $2,000, the offense level is to be increased according to the table in the fraud guideline, § 2F1.1. The 8th Circuit agreed that the benefit to be received exceeded $1.5 million, since the unpaid taxes for the companies alone exceeded $2.1. In a case involving bribery to cancel tax liability, the value of the benefit received from the bribe is the amount of tax liability that the defendant sought to eliminate. U.S. v. Dijan, 37 F.3d 398 (8th Cir. 1994).

8th Circuit affirms that tax loss includes amount defendants paid prior to sentencing. (370) Defendants pled guilty to tax evasion charges. For sentencing purposes, they agreed the tax loss determined under section 2T1.1(a) was about $104,000. Before sentencing, defendants paid the stipulated tax loss, civil penalties and interest. The 8th Circuit rejected the argument that the district court should have used an actual tax loss of zero because the stipulated tax loss was paid before sentencing. Tax loss is the total amount of tax that the taxpayer evaded or attempted to evade. Payment of the taxes defendants attempted to evade does not alter the tax loss or offense level under the guidelines. U.S. v. Mathis, 980 F.2d 496 (8th Cir. 1992).

8th Circuit affirms that defendant used “sophisticated means” to impede discovery of tax fraud. (370) Defendant was convicted of charges relating to his involvement in a fraudulent tax shelter scheme. The 8th Circuit affirmed an enhancement under section 2T1.4(b)(2) (Nov. 1990) for using “sophisticated means . . . to impede discovery of the nature or extent of the offense.” For such an enhancement to be appropriate, the scheme must be shown to be more elaborate or carefully planned “than a routine tax-evasion case.” The scheme here was extensively planned with careful attention to detail. First the tax shelter scheme was conceived and initiated; then the original conspirators brought other participants into the deal and false tax returns were prepared for and signed by many of them. U.S. v. Jagim, 978 F.2d 1032 (8th Cir. 1992).

8th Circuit affirms managerial role of president of financial corporation. (370) Defendant, the president of a financial corporation, entered into a scheme which permitted a client to transfer untaxed cash income through the corporation in return for untaxable loan proceeds. The 8th Circuit affirmed a two level managerial enhancement under section 3B1.1(c). Defendant was the president of the corporation. He formed the company. He admitted that a Canadian accountant who assisted in the money transfer worked for him. He conducted seminars promoting the corporation’s activities. Defendant also encouraged others to break the law under section 2T1.9(b)(2). The evidence established that defendant repeatedly encouraged his clients to hide income through his actions and words. He also admitted to similarly helping others. U.S. v. Sileven, 985 F.2d 962 (8th Cir. 1993).

8th Circuit affirms application of guidelines to defendant who organized tax conspiracy. (370) Defendant and other tax-protesters organized an elaborate scheme whereby a participant would file a fraudulent Form 1099 with the IRS falsely reporting the payment of income to a person who had “committed a wrong” against the participant, and then would file a tax return fraudulently claiming a refund for the money reported paid on the 1099. The victims of the conspiracy included a bankruptcy judge, a congressman, the Commissioner of the IRS, and numerous IRS agents and employees. The 8th Circuit affirmed that defendant was properly sentenced under guideline § 2T1.9, Conspiracy to Impair, Impede or Defeat Tax, rather than guideline § 2T1.3, Fraud and False Statements Under Penalty of Perjury. Given the victims of the fraud, it was also proper to increase her offense level under guideline § 3A1.3 for targeting official victims. The evidence also amply supported an enhancement for her role as manager or supervisor in the offense; defendant was one of the core members of the conspiracy and chiefly responsible for the manufacture and distribution of many of the fraudulent documents. U.S. v. Telemague, 934 F.2d 169 (8th Cir. 1991).

8th Circuit upholds upward departure based upon importing harmful drugs into the United States. (370) The commentary to guideline § 2T3.1 (Evading Import Duties or Restrictions) provides that an upward departure may be appropriate in cases where a defendant smuggles a harmful good into the United States, and the duties evaded on such good may not reflect the harm to society resulting from its importation. Defendant imported over $1 million worth of adulterated drugs, including 50 kilograms of an animal drug into the United States. The 8th Circuit found that defendant’s offense fell into the situation described in the commentary. Therefore the district court’s upward departure was justified, and the 24-month sentence was reasonable. U.S. v. Dall, 918 F.2d 52 (8th Cir. 1990).

8th Circuit upholds inclusion of FDA-approved drugs which had been adulterated in calculating offense level. (370) Defendant argued that there was no substantial evidence that over $1 million worth of drugs he imported into the United States were part of his conspiracy to violate customs laws and the Federal Food, Drug and Cosmetic Act because the drugs had been FDA-approved. The 8th Circuit rejected this argument, noting that although defendant paid duties on these drugs, they were adulterated, and therefore imported contrary to law. Thus, the drugs were properly included in the calculation of defendant’s base offense level. U.S. v. Dall, 918 F.2d 52 (8th Cir. 1990).

9th Circuit upholds determination that employees were not independent contractors for tax purposes. (370) Defendant failed to pay payroll taxes for his employees and was convicted of tax evasion. Although his employees were required to sign a document stating that they were independent contractors, trial testimony showed that defendant exercised significant control over the employees, and the jury found that the employees were not independent contractors. At sentencing, the district court calculated the tax loss based on its finding that defendant failed to pay taxes for employees and that his employees were not independent contractors. The Ninth Circuit held that the trial testimony amply supported the district court’s finding that the employees were not independent contractors. U.S. v. Kahre, 737 F.3d 554 (9th Cir. 2013).

9th Circuit finds failure to pay taxes for companies was relevant conduct. (370) At defendant’s sentencing for evading payroll taxes, the district court included as relevant conduct defendant’s failure to withhold taxes from the 35 companies for which defendant provided payroll services. The Ninth Circuit upheld this determination, finding that defendant devised the payroll systems and administered them in the same illicit manner as the payroll services for his own company, and therefore his failure to pay taxes for other companies constituted relevant conduct. U.S. v. Kahre, 737 F.3d 554 (9th Cir. 2013).

9th Circuit affirms loss calculation in tax case. (370) Under § 2T1.1(c)(1), the loss for filing a fraudulent tax refund is the total amount of loss that would have resulted if the offense had successfully been completed. At defendant’s sentencing for filing fraudulent tax returns, the district court calculated loss as the total amount of refunds claimed by defendant, even if the IRS did not pay the refunds. Defendant did not offer any evidence that she filed returns on behalf of individuals who were entitled to tax refunds. The Ninth Circuit held that the district court had not erred in calculating the loss caused by defendant’s tax fraud. U.S. v. Stargell, 738 F.3d 1018 (9th Cir. 2013).

9th Circuit reverses where court used wrong guideline for evading import duties. (370) Defendant pleaded guilty to importing goods without paying the proper duties. At sentencing, the district court used § 2C1.1, the guideline for bribery, extortion under color of official right, and interference with government functions. The Ninth Circuit held that the district court erred in using this Guideline and should have used § 2T3.1 entitled “Evading Import Duties or Restrictions (Smuggling); Receiving or Trafficking in Smuggled Property.” U.S. v. Huizar-Velazquez, 720 F.3d 1189 (9th Cir. 2013).

9th Circuit upholds sophisticated means enhancement for tax offense. (370) Defendants siphoned money for their personal use from a company they owned by setting up a bank account in a name similar to that of a legitimate vendor and sending money to that account. Based on their failure to pay taxes on that income, they were convicted of conspiracy to defraud the United States and tax offenses. At sentencing, the district court imposed a two-level enhancement under § 2T1.1 because the defendants used “sophisticated means” to accomplish the offense. The district court found that defendants’ disguising of income as company expenses made their offense more complex than a typical tax fraud. The Ninth Circuit affirmed, holding that the use of an account similar to the company’s principal vendor to siphon money from the company made the fraud less easy to detect and constituted a sufficiently complex means of committing the offense. U.S. v. Jennings, 711 F.3d 1144 (9th Cir. 2013).

9th Circuit finds error in applying drug guideline to smuggling offense. (370) Defendant pleaded guilty to entering the U.S. without declaring the hydrophosphorous acid that he was carrying, in violation of 18 U.S.C. § 545. At sentencing, the district court applied the cross-reference in § 2T3.1, the guideline for § 545, which states that if the offense involves a contraband item covered by another offense guideline, the court should apply the guideline for the other offense. Because hydrophosphorous acid is a precursor chemical for methamphetamine, the court applied § 2D1.11, the guideline for precursor offenses. The Ninth Circuit held that because defendant did not plead guilty to an offense which required him to admit that he knew the chemical he was carrying was a precursor, the district court erred in applying the cross-reference in § 2T3.1 and using § 2D1.11 to calculate defendant’s offense level. U.S. v. Garcia-Guerrero, 635 F.3d 435 (9th Cir. 2011).

9th Circuit allows restitution as condition of supervised release for tax offense. (370) Defendant pleaded guilty to assisting in the preparation of fraudulent tax returns, in violation of 26 U.S.C. § 7206(2). At sentencing, the district court ordered defendant to pay restitution to the IRS as a condition of supervised release. On appeal, defendant argued that the district court lacked authority to order restitution as a condition of supervised release for a defendant convicted of a tax offense defined in Title 26. The Ninth Circuit held that the district court properly ordered restitution as a condition of supervised release under 18 U.S.C. § 3583(d), which allows a court to order as a condition of supervised release any condition that may be ordered as a condition of probation. U.S. v. Batson, 608 F.3d 630 (9th Cir. 2010).

9th Circuit says state tax loss may be included in loss calculation for failure to report income. (370) Defendant was convicted of filing a false tax return and other tax offenses based on his failure to declare income that he received. At sentencing, the district court included in the tax loss both the federal taxes that defendant should have paid and the state taxes that defendant failed to pay on the unreported income. The Ninth Circuit held that the tax loss caused by a failure to report income may properly include unpaid state taxes. U.S. v. Yip, 592 F.3d 1035 (9th Cir. 2010).

9th Circuit rules that tax loss calculation should not include unclaimed deductions. (370) Defendant failed to report income on his federal tax returns. As a result, he was convicted of filing false tax returns and other tax offenses. In calculating the tax loss caused by defendant’s offense, the district court included both the federal taxes and the state taxes that defendant should have paid on the unreported income. Defendant argued that the total tax loss should be decreased because if he had paid the state taxes, he would have received a deduction on his federal taxes. The Ninth Circuit held that a tax loss calculation should not include legitimate unclaimed deductions. U.S. v. Yip, 592 F.3d 1035 (9th Cir. 2010).

9th Circuit says district court failed to justify variance in tax prosecution. (370) Defendant pleaded guilty to filing false tax returns. Under the Guidelines, he faced a minimum sentence of 27 months, and the presentence report calculated that he owed $1.2 million in restitution to the IRS. At sentencing, defendant stated that he could pay $600,000 in restitution immediately and that he could pay the remainder in the next 12 months by borrowing money from his father’s companies. The district court imposed a combination of probation and supervised release. The court reasoned that prison sentences do not deter tax offenders, defendant had promised to pay half the restitution immediately and the remainder in a year, and defendant’s offenses had occurred seven years earlier. On the government’s appeal, the Ninth Circuit held that the district court had failed to adequately explain its sentence. The court noted that the district court record was ambiguous on whether defendant’s ability to pay restitution would be affected by his incarceration, the offenses were “old” only because of the time it took to discover them, under the Guidelines a district court must consider the deterrent effect of a sentence, defendant had not agreed to pay the interest and penalties owed to the IRS, and defendant’s payment of restitution was required by law and should not be a basis to reduce his sentence. U.S. v. Bragg, 582 F.3d 965 (9th Cir. 2009).

9th Circuit finds 40-month sentence reasonable for tax evasion. (370) Defendant was convicted of tax evasion. At sentencing, the district court calculated his Guideline sentencing range as 27-33 months, but applied an upward Booker variance and imposed a 40-month sentence. The court relied on defendant’s long pattern of criminal history, the fact that he committed the current offense while on supervised release, his disrespect for the law, the seriousness of the crime, the need to protect the public, and the deterrent value of a longer sentence. The Ninth Circuit held that the 40-month sentence was not unreasonable. U.S. v. Orlando, 553 F.3d 1235 (9th Cir. 2009).

9th Circuit holds that fine may be imposed only for willful violation of bulk cash smuggling offense. (370) Under 31 U.S.C. § 5332(b), a court may impose only a term of imprisonment for the offense of smuggling more than $10,000 out of the U.S. with the intent to evade currency-reporting requirements. By contrast, 31 U.S.C. § 5332(a) allows for imposition of a fine and imprisonment for a willful violation of the bulk cash smuggling statute. At defendant’s trial, the district court did not instruct the jury that defendants had to have acted willfully in attempting to smuggle cash out of the country. For that reason, the Ninth Circuit held, the district court erred in imposing a fine as part of their sentence. U.S. v. Tatoyan, 474 F.3d 1174 (9th Cir. 2007).

9th Circuit upholds tax loss based on “married filing jointly” status. (370) Defendant argued that the district court erred in failing to use the “married filing separately” status in calculating his tax loss for 1993, and instead used “married filing jointly” status. The Ninth Circuit found no error, noting that either way, the tax loss would have been between $950,000 and $1,500,000. Moreover, if the tax loss were calculated using “married filing separately,” the tax loss would have necessarily have included the loss attributable to each spouse’s failure to report her share of her husband’s (defendant’s) income under California’s community property laws.” In addition, the panel said that under Application Note 2 to § 2T1.1, because the two defendants were convicted of conspiring to defraud the IRS, the total tax loss, including the loss through their spouses, was attributable to each defendant. U.S. v. Bishop, 291 F.3d 1100 (9th Cir. 2002).

9th Circuit finds no duty to establish defendant’s itemized deductions in calculating tax loss. (370) Defendant complained that the government failed to establish the itemized deductions to which he and his co-defendants were entitled, and instead used the standard deductions. The Ninth Circuit held that it was neither the government’s nor the court’s responsibility to establish the defendant’s itemized deductions. Because the “available facts” in this case did not include any information on itemized deductions, the sentencing court properly estimated the tax loss based on the standard deduction. U.S. v. Bishop, 291 F.3d 1100 (9th Cir. 2002).

9th Circuit upholds basing tax loss on testimony and chart of deposits. (370) Defendants were convicted of conspiring to import unapproved pharmaceuticals into the U.S., in violation of 18 U.S.C. § 545. The Customs tax loss was based on a chart of deposits made by defendant into the co-conspirators’ bank account. The co-conspirators testified that defendant would call them to notify them when he made a deposit into their account, and that all deposits over $300 were made by defendant. The government produced a chart correlating the dates of deposits and withdrawals with dates of telephone calls from defendant to the co-conspirators. Although there were discrepancies between the chart and the government’s description of defendant’s modus operandi, the Ninth Circuit held that based on the co-conspirator’s testimony, the district court’s reliance on the chart to calculate the loss was not clearly erroneous. U.S. v. Montano, 250 F.3d 709 (9th Cir. 2001) .

9th Circuit reverses “sophisticated concealment” for smuggling operation that was “very basic.” (370) Guideline § 2T3.1(b)(1) provides for a two-level increase if the smuggling involved sophisticated concealment. In this case, the Ninth Circuit reversed the enhancement because defendant’s smuggling of pharmaceutical drugs across the border was “crude and very basic.” The factors on which the district court relied were common, not especially sophisticated, and were employed, not to conceal, but simply to carry out the smuggling scheme. Using bank deposits, which could be traced, instead of direct hand-to-hand payments of cash, did not conceal the scheme, but enabled it to be detected and its scope documented. The district court’s application of the sophisticated concealment enhancement was “clearly erroneous.” U.S. v. Montano, 250 F.3d 709 (9th Cir. 2001) .

9th Circuit applies “tax preparer” increase for defendant prepared fictitious tax returns. (370) Agreeing with the Fifth Circuit’s decision in U.S. v. Welch, 19 F.3d 192, 195 (5th Cir. 1994), the Ninth Circuit held that the two-level increase for being in the “business” of preparing tax returns is not limited to officially licensed tax preparers. It also applies to a defendant who is in the business of preparing fictitious tax returns. Here, defendant owned at least one, if not two, tax preparation businesses. Thus, even if his tax preparation business consisted solely of preparing fictitious tax returns, the district court did not clearly err in applying the tax preparer enhancement. U.S. v. Aragbaye, 234 F.3d 1101 (9th Cir. 2000).

9th Circuit upholds sophisticated means increase where defendant’s scheme was more complex than routine tax evasion. (370) Guideline § 2T1.4(b)(2) provides for a two-level enhancement if “sophisticated means were used to impede discovery of the existence or the extent of the offense.” Here, defendant was convicted of filing more than 1,500 false tax returns, resulting in an intended loss of over $5 million, and tax refunds of at least $551,664. Defendant went to tax school and made use of tax credits that the average taxpayer would not be knowledgeable about. He applied for an electronic filing identification number with the IRS using a false name and social security number; set up tax preparation businesses through which he perpetrated his fraud; duped Precision Payroll into preparing W-2 forms for fictitious employees by providing names, social security numbers and hours worked; opened numerous post office boxes ultimately employing 141 different addresses at which to receive the fraudulently-obtained tax refunds; and opened a check cashing business in order to deposit the fraudulently obtained refunds. The Ninth Circuit found that this scheme was “sufficiently more complex” than routine tax evasion and therefore the enhancement was not clearly erroneous. U.S. v. Aragbaye, 234 F.3d 1101 (9th Cir. 2000).

9th Circuit chooses tax guidelines, rather than fraud guidelines, for false claims conviction. (370) Defendant was convicted of presenting false claims in violation of 18 U.S.C. § 287 after he filed 1,500 false tax returns seeking refunds. The Statutory Index in Appendix A to the Guidelines Manual recommends using the fraud guideline for a violation of 18 U.S.C. § 287. However, the Ninth Circuit noted that the guidelines referenced in the Statutory Index are not mandatory. U.S. v. Fulbright, 105 F.3d 443, 453 (9th Cir. 1997). The Index “merely points the court in the right direction. Its suggestions are advisory: what ultimately controls is the ‘most applicable guideline.’” U.S. v. Cambra, 933 F.2d 752, 755 (9th Cir. 1991). Here, the offense conduct was a scheme to file fraudulent tax returns and thus “could be considered on par with” tax fraud. Therefore, the district court did not err in employing the tax guidelines rather than the fraud guidelines. U.S. v. Aragbaye, 234 F.3d 1101 (9th Cir. 2000).

9th Circuit holds defendant accountable for tax losses of taxpayers he assisted in evading taxes. (370) Defendant admitted that he researched public records for IRS liens, contacted the taxpayers and offered to provide them the means to evade the collection of taxes through membership in The Pilot Connection Society. He sold an “untaxing package” to the taxpayers and advised them to unlawfully evade collection of their federal income taxes. Nevertheless, he argued that the government failed to prove that but for his advice, these taxes would have been successfully collected by the IRS. The Ninth Circuit rejected the argument, noting that the guidelines do not require proof of “but for” causation for calculating tax loss. Rather, under § 2T1.1(c)(1), the tax loss is “the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed).” Tax evasion includes evasion of assessment as well as evasion of payment of taxes. U.S. v. Mal, 942 F.2d 682, 687 (9th Cir. 1991). Defendant’s sentence correctly reflected his illegal efforts to evade the payment of these taxes. U.S. v. Andra, 218 F.3d 1106 (9th Cir. 2000).

9th Circuit finds estimate of tax loss was reasonable and not clearly erroneous. (370) Defendant argued that the district court erred in calculating the tax loss for his 1994 income based on the government’s evidence rather than his own sworn statement. The government’s estimate was calculated by subtracting the cost of books defendant sold in his book-selling business from the retail price of the books. The Ninth Circuit held that “the district court was not compelled to conclude that [defendant’s] estimate of his 1994 income was more accurate than the estimate provided by the government witness.” Under 18 U.S.C. § 3742(e), “[t]he court of appeals shall give due regard to the opportunity of the district court to judge the credibility of the witnesses, and shall accept the findings of fact of the district court unless they are clearly erroneous and shall give due deference to the district court’s application of the guidelines to the facts.” Under Application Note 1 to section 2T1.1, “the amount of tax loss may be uncertain; the guidelines contemplate that the court will simply make a reasonable estimate based upon the available facts.” U.S. v. Andra, 218 F.3d 1106 (9th Cir. 2000).

9th Circuit remands where judge failed to resolve dispute over tax loss. (370) Defendant, a personal injury lawyer, was convicted of subscribing to a false tax return based on deductions he took for $1.7 million he paid out for “referral fees.” Apparently much of this money was paid to persons from whom he solicited personal injury cases, which constituted illegal “capping” under California law. However, he argued at sentencing that some of the payments he deducted were for unsolicited referrals, which were not illegal in 1988 in California. The district judge failed to resolve the dispute, and used the entire $1.7 million deduction to calculate the tax loss. On appeal, the Ninth Circuit reversed, holding that under Fed. R. Crim. P. 32, the district court should have resolved the dispute and determined what part of the $1.7 million deductions were for unsolicited referrals and therefore proper. U.S. v. Standard, 207 F.3d 1136 (9th Cir. 2000).

9th Circuit holds interest and penalties may not be included in amount of tax loss. (370) Application Note 1 to guideline section 2T1.1 specifically says that “tax loss does not include interest or penalties.” Nevertheless the government argued that subtracting the penalties and fees from the amount of loss in this case would fail to adequately address the nature of the conspiracy, which sought to prevent the collection of over $400,000. The Ninth Circuit agreed, but held it was confined by the plain language of the guidelines. See U.S. v. Pollen, 978 F.2d 78, 91 n.29 (3d Cir. 1992) (affirming sentence based on tax amount without interest and penalties). Therefore, the district court erred in including penalties and fees, and the sentence was vacated. U.S. v. Hopper, 177 F.3d 824 (9th Cir. 1999).

9th Circuit requires “clear and convincing evidence” before increasing sentence by seven levels. (370) In U.S. v. Restrepo, 946 F.2d 654, 659 (9th Cir. 1991) (en banc), the Ninth Circuit held that “when a sentencing factor has an extremely disproportionate effect on the sentence relative to the offense of conviction,” the government may have to satisfy a “clear and convincing” standard. In the present case, the Ninth Circuit held that a four level increase in sentence was not an exceptional case requiring clear and convincing evidence. However, a second defendant’s sentence was increased by seven levels; three for official victim and four for violent conduct. This increased the sentencing range from 24-30 months to 63-78 months. The Ninth Circuit held that “[g]iven the relative shortness of [defendant’s] sentence, a potential increase of 48 months satisfies the Restrepo extremely disproportionate impact test.” Therefore, the district court erred in failing to apply the clear and convincing standard. U.S. v. Hopper, 177 F.3d 824 (9th Cir. 1999).

9th Circuit uses tax guideline, not obstruction guideline, for obstructing tax collection. (370) Defendants were convicted of conspiracy under 18 U.S.C. § 371 and obstruction of IRS proceedings under 18 U.S.C. § 1505. Guideline section 1B1.2 instructs the court to determine “the offense guideline section … most applicable to the offense of conviction.” The accompanying commentary refers to the guidelines’ statutory index in Appendix A. However, Appendix A permits the court in an atypical case to use “the guideline section most applicable to the nature of the offense conduct charged.” In the present case, the district court properly sentenced the defendants under § 2T1.9, which covers conspiracies to “impede, impair, obstruct or defeat tax.” See § 2X1.1(c)(1) (“When an attempt, solicitation, or conspiracy is expressly covered by a clear offense guideline section, apply that guideline section.”) The Ninth Circuit agreed that § 2J1.2 did not consider the amount of tax liability the defendants attempted to obstruct or the sometimes violent nature of the conspiracy. U.S. v. Hopper, 177 F.3d 824 (9th Cir. 1999).

9th Circuit holds co-defendant’s obstruction of taxes was relevant conduct and foreseeable. (370) Defendant argued that because his co-defendant’s tax liabilities had reached judgment before defendant joined the organization, he should not have been held responsible for the co-defendant’s tax amount. The Ninth Circuit rejected the argument, noting that obstruction of the collection of the co-defendant’s liabilities had not ended when defendant joined the organization. Moreover, defendant could foresee that the co-defendant would obstruct the IRS’s efforts to collect its judgment against the codefendant. Defendant knew that other persons were using the organization to filter money and prevent the collection of taxes. Because the co-defendant owned the land on which the organization was headquartered, it was foreseeable that the co-defendant was one of the people filtering money through the organization. U.S. v. Hopper, 177 F.3d 824 (9th Cir. 1999).

9th Circuit upholds increase based on violent activity of which defendants were acquitted. (370) In U.S. v. Watts, 519 U.S. 148, 157 (1997), the Supreme Court held that a “jury’s verdict of acquittal does not prevent the sentencing court from considering conduct underlying the acquitted charge, so long as that conduct has been proved by a preponderance of the evidence.” Thus, the district court could properly consider acquitted conduct in deciding to enhance the defendant’s sentence for violent conduct in this tax case, under § 2T1.9(b)(1). However, the Ninth Circuit held that the seven-level adjustment for one defendant required proof by “clear and convincing” evidence. U.S. v. Hopper, 177 F.3d 824 (9th Cir. 1999).

9th Circuit says additions to tax for fraud do not violate double jeopardy or Eighth Amendment. (370) After defendant was convicted and sentenced for tax fraud, the IRS imposed additions to tax for fraud pursuant to 26 U.S.C. § 6653(b). The Ninth Circuit rejected defendant’s arguments that this constituted double jeopardy, ruling that under Hudson v. U.S., 522 U.S. 93 (1997), additions to tax for fraud are a civil remedy, not a criminal punishment. The court also rejected defendant’s argument that the additional tax violated the excessive fines clause of the Eighth Amendment. Although § 6653(b)(3) provides an “innocent spouse exception” similar to the “innocent owner defense” in the forfeiture statute that was considered punitive in Austin v. U.S., 509 U.S. 602, 619 (1993), “the statutory language provides no other indication of punitive intent.” Therefore, additions to tax for fraud are properly characterized as remedial, and not subject to review under the excessive fines clause. Louis v. Commission of Internal Revenue, 170 F.3d 1232 (9th Cir. 1999).

9th Circuit affirms finding that no reasonable estimate of tax loss could be made. (370) The defendant, a compulsive gambler, was convicted of failing to report both his winnings and losses on his tax return. The district court attempted to determine the tax loss by relying on casino records and testimony about unchallenged gambling winnings. But after reviewing the evidence, it found no reasonable estimate could be made, and therefore found the offense level was level six. The government appealed, and the Ninth Circuit affirmed, finding no clear error. The evidence showed that defendant failed to report both gambling income and gambling losses. The district court did not err in finding that one witness’s testimony as to when one of the big wins occurred was speculative. With respect to the second win, other evidence indicated that losses in that same year exceeded the size of the win. Based on this record, the district court did not err in finding that no reasonable estimate could be made of the tax loss. U.S. v. Scholl, 166 F.3d 964 (9th Cir. 1999).

9th Circuit says “economic reality approach” applies only where intended loss is difficult to determine. (370) Defendant was convicted of conspiracy to commit tax fraud after he filed 206 false claims for tax refunds totaling over $249,000. He was able to cash nineteen refund checks resulting in an actual loss of $71,804. He was sentenced based on the total of the claimed tax refunds, $249,000. On appeal, he argued that some recent decisions have signaled a shift in fraud cases to the so called “economic reality approach” under which a court bases its sentence in part on the amount of actual loss. In support of this argument, he cited U.S. v. Harper, 32 F.3d 1387 (9th Cir. 1984). The panel in this case distinguished Harper on the ground that it and similar cases have used the “economic reality approach” simply as one means of arriving at a fair measure of the actual or intended loss. In this case, it was clear that the total amount of the refunds claimed by defendant was “the precise amount of loss [defendant] intended to inflict.” Thus, “there is no reason to use any more sophisticated method of determining the loss.” U.S. v. Riley, 142 F.3d 1254 (11th Cir. 1998).

9th Circuit remands to decide how much of total tax loss was “foreseeable” to conspirator. (370) The district court found that defendant Ford was responsible for the entire tax loss attributed to the conspiracy, under the relevant conduct guideline, §1B1.3. On appeal, the Ninth Circuit rejected his argument that the loss calculation was too speculative, but found that Ford “may well have been tagged with a higher amount of tax loss than could reasonably have been foreseen by him under the circumstances.” Thus, the court remanded “for a specific determination of the amount of tax loss that was reasonably foreseeable to him based on the criminal conduct he agreed to undertake.” U.S. v. Ladum, 141 F.3d 1328 (9th Cir. 1998).

9th Circuit affirms 2-level increase for failing to report over $10,000 from criminal activity. (370) Guideline § 2T1.1(b)(1) mandates a two-level increase if the defendant “failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity.” Defendants argued that this did not apply because the income that they concealed on their tax returns was from legitimately selling firearms. The district court found no merit in this argument and the Ninth Circuit agreed. By making false statements on the firearms license application, each defendant violated 18 U.S.C. § 924(a)(1)(A), and each was able to profit by more than $10,000 in a given year. This amount was calculated by deducting the cost of goods sold. There was no requirement to determine and deduct the portion of overhead expenses fairly attributable to gun sales. Judge Tashima dissented, arguing that the firearms sales did not constitute “criminal activity.” U.S. v. Ladum, 141 F.3d 1328 (9th Cir. 1998).

9th Circuit upholds use of “net worth” method to calculate tax loss at sentencing. (370) The net worth method of calculating income is proper where a taxpayer’s records do not accurately reflect income. “For example, if a taxpayer begins the year with a net worth (cost of property less liabilities) of $40,000, ends it with $50,000, and has spent $7,500 during the year on living expenses, his receipts must have been at least $17,500.” U.S. v. Colacurcio, 514 F.2d 1, 2 n.2 (9th Cir. 1975) (quoting McGarry v. U.S., 388 F.2d 862, 864 (1st Cir. 1967). In the present case, the defense did not object to the net worth method at trial, but claimed on appeal that the government should have made more of an effort to obtain the actual records showing defendant’s income. The Ninth Circuit found no error, ruling that the government made considerable efforts, and apparently the records did not exist. Moreover, defendant was only charged with subscribing to false tax returns, so technically the government was not required to show the exact amount of tax deficiency at trial. In addition, the defendant benefited from the use of the net worth method at sentencing because, as the district court noted, “the evidence was very likely the tip of the iceberg,” with the government presenting only the “easy to show and obvious items.” U.S. v. Shetty, 130 F.3d 1324 (9th Cir. 1997).

9th Circuit says depositing $280,000 in Swiss bank obstructed tax investigation. (370) On December 3, 1991, defendant was notified that the IRS’s civil audit was being converted to a criminal tax investigation. Less than three weeks later, defendant’s wife transferred $280,000 to a Swiss bank account. The district court increased defendant’s sentence by two levels under 3C1.1 for obstruction of justice. On appeal, the Ninth Circuit affirmed, ruling that the fact that the government eventually learned of the $280,000 did not change the fact that defendant’s transfer of the funds to a Swiss bank was a “classic attempt to “conceal evidence . . . material to an official investigation.” U.S.S.G. 3C1.1 comment. (n.3(d)) (emphasis by the court). U.S. v. Shetty, 130 F.3d 1324 (9th Cir. 1997).

9th Circuit refuses to speculate if tax loss might have been reduced in compromise process. (370) Defendants were convicted of bribing an IRS officer in an effort to erase their tax liability. Their sentences were based on the total taxes they sought to erase with their bribes. They claimed the court should have used the amount of taxes they likely would have paid if they had pursued the offer and compromise process to resolve their tax debts legally. The Ninth Circuit declined to create a separate rule for defendants who consider but do not pursue, the offer and compromise process. “Defendants could have resolved their tax debts legally, but chose instead an illegal means and are bound by that choice.” For the same reason it made no difference that the IRS might never have recovered all the taxes defendant’s owed because they were indigent. That question was relevant only to the amount of the fine or restitution, not to the offense level. U.S. v. Thickstun, 110 F.3d 1394 (9th Cir. 1997).

9th Circuit upholds increase for drug-related income in tax case despite acquittal. (370) The district court increased defendant’s sentence by two levels under § 2T1.3(b)(1) (Nov. 1992), finding that defendant received more than $10,000 in unreported income from narcotics trafficking. Defendant argued that this was error because the jury acquitted him on the drug counts, while convicting him on the tax counts. On appeal, the Ninth Circuit held that a conviction was not necessary for a “criminal activity” enhancement under the tax guideline. Although the sentence cannot be based upon facts “necessarily rejected” by the jury’s acquittal, the acquittal on the conspiracy charge did not mean that the jury “necessarily rejected” the conduct underlying that charge. The jury may simply have found insufficient evidence of an agreement. Applying the “preponderance of the evidence standard,” the court found ample evidence that defendant engaged in drug trafficking that could have generated over $10,000 of unreported income from “criminal activity” in a year. U.S. v. Karterman, 60 F.3d 576 (9th Cir. 1995).

9th Circuit applies obstruction guideline to tax conviction. (370) Defendants, husband and wife, sent 1099 forms to various IRS officials, claiming they paid hundreds of thousands of dollars to the officials. Then they filed 1096 transmittal forms and 1040 forms with the IRS, claiming these “payments” as accounts receivables, and seeking refunds based on the claim that the IRS had withheld the same amount as taxes. After a jury trial, they were convicted of filing false tax returns and obstructing the administration of the tax laws under 26 U.S.C. 7212(a). The guideline applicable to violations of § 7212(a) is the assault guideline, § 2A2.2. However, the district court found that guideline was not appropriate, and applied the guideline for obstruction of justice, § 2J1.2. On appeal, the Ninth Circuit affirmed, ruling that on the facts of this case, the obstruction guideline was correctly applied. The conduct here did not involve an assault, and went beyond the misdemeanor offense contemplated by the guideline for fraudulent tax returns, § 2T1.5. Defendants specifically targeted IRS officials and attempted to intimidate them. U.S. v. Koff, 43 F.3d 417 (9th Cir. 1994).

9th Circuit applies obstruction guideline where taxpayer’s filings interfered with IRS. (370) Defendant engaged in a “redemption” scheme, filing false tax returns and 1099 forms, and seeking tax levies on innocent taxpayers. He was convicted of corrupt interference with the administration of IRS laws, in violation of 26 U.S.C. § 7206(1). The district court applied the obstruction guideline, § 2J1.2(a), which is one of three possible guidelines listed in Appendix A of the Guidelines Manual. On appeal, the 9th Circuit affirmed, rejecting defendant’s argument that the court should have applied the guideline for fraudulent returns, § 2T1.5. Section 2B1.2 of the Guideline Manual says that the court should determine which guideline applies “based on the nature of the offense charged in the count of which the defendant was convicted,” and the district court correctly concluded that the most applicable guideline was obstruction of justice. U.S. v. Van Krieken, 39 F.3d 227 (9th Cir. 1994).

9th Circuit finds insufficient evidence that defendant intended murder when he planted bomb. (370) Defendant built and planted a bomb that severely injured the victim, hastening his death seven months later. The district court applied the murder cross-reference to guideline § 2K1.4, concluding that the object of the offense would have constituted murder in the first degree. In a 2-1 opinion, the 9th Circuit reversed, ruling that it was not clear “by even a preponderance of the evidence” that defendant “had the intent requisite to constitute first degree murder.” Judge Wiggins dissented. U.S. v. Mathews, 36 F.3d 821 (9th Cir. 1994).

9th Circuit finds amount of unclaimed depreciation deductions irrelevant in determining tax loss. (370) Defendant was convicted of willfully under-reporting his interest income and lying about his income in a loan application. The crime involved defendant’s use of false social security numbers and false names on accounts to hide the interest from the IRS. Defendant sought to prove that understated depreciation deductions would show that no additional tax would have been due if he had disclosed the hidden income. The Ninth Circuit affirmed, finding that under §2T1.3 (1992) the issue of whether the taxpayer was entitled to offsetting adjustments was irrelevant. The duration of the sentence under the 1992 tax guidelines is based on the “magnitude of the false statements” not the net of concealed income less unclaimed deductions. The court noted that the 1993 amendments changed the provisions construed in this opinion. U.S. v. Valentino, 19 F.3d 463 (9th Cir. 1994).

9th Circuit says pre-guideline tax loss can be considered if it is “relevant conduct.” (370) Defendant was convicted of tax evasion for the years 1985 through 1989. In calculating the offense level under §2T1.1, the district court took into account the tax loss from the 1987-1989 convictions and ruled that inclusion of the pre-guidelines conduct would violate the ex post facto clause. The government appealed and the 9th Circuit reversed. The guidelines were in effect when defendant evaded his 1987-1989 federal income taxes and thus the punishment for post-guidelines conduct was not imposed retroactively. The court joined numerous other circuits which have explicitly held that an increase of a sentence for post-guideline offenses based on pre-guideline “relevant conduct” does not violate the ex post facto clause. The case was remanded for the district court to determine whether the pre-guideline convictions were part of the same course of conduct or common scheme or plan as the post-guideline convictions. U.S. v. Kienenberger, 13 F.3d 1354 (9th Cir. 1994).

9th Circuit holds customs guideline was more “apt” than currency guideline for lying about exporting money. (370) Defendant lied to a customs agent in an effort to smuggle $51,000 cash out of the country. He pled guilty to 18 U.S.C. §1001, for which the applicable guideline is §2F1.1. Application note 13 authorizes the use of other guidelines instead, if they fit the facts of the case more closely. It gives as an example, “false statements to a customs officer, for which section 2T3.1 likely would be more apt.” Nevertheless, the district court sentenced defendant under the currency guideline, §2S1.4. On appeal, the 9th Circuit reversed, following its earlier decision in U.S. v. Carrillo-Hernandez, 963 F.2d 1316 (9th Cir. 1992), which reversed on almost identical facts. The court held that section 2T3.1 was the appropriate guideline to be applied. U.S. v. Mendoza-Fernandez, 4 F.3d 815 (9th Cir. 1993).

9th Circuit reverses analogy to tax conspiracy guideline where defendant acted alone. (370) Defendant was convicted of attempting to interfere with the administration of the IRS, in violation of 26 U.S.C. §7212(a). The statutory index to the Guidelines Manual says that the assault guideline ordinarily applies to a violation of section 7212(a). Since there was no evidence that defendant had ever assaulted anyone, the district court properly ruled that the assault guidelines did not apply. But it erred in relying by analogy on the guideline for conspiracy to defeat tax, §2T1.9, inasmuch as defendant acted alone. The 9th Circuit reversed the sentence, ruling that the guideline for fraudulent returns, §2T1.5, more closely fit defendant’s conduct. This reduced defendant’s guideline range from 6-12 months to a range of 0-6 months. U.S. v. Hanson, 2 F.3d 942 (9th Cir. 1993).

9th Circuit holds defendant responsible for coconspirators’ intended tax loss. (370) The district court added thirteen points to defendant’s base offense level because his coconspirator falsely claimed approximately $4.9 million in tax refunds. The 9th Circuit found no error, noting that under guideline section 1B1.3(a)(1)(B), defendant was responsible for the reasonably foreseeable conduct of his coconspirators. The court noted that the 9th Circuit has rejected the contention that “loss” under section 2F1.1 means only actual loss. The government need only show the intended loss, and the intended loss “does not have to be realistic.” Nor does the fact that the claimed refund “was obviously fraudulent” reduce the amount of loss. U.S. v. Lorenzo, 995 F.2d 1448 (9th Cir. 1993).

9th Circuit says failure to report income from Canadian criminal activity cannot support increase. (370) Guideline section 2T1.3(b)(1) provides for a two level increase if the defendant “failed to report . . . income exceeding $10,000 in any year from criminal activity.” Application Note 1 defines criminal activity as “any conduct constituting a criminal offense under federal, state, or local law.” In this case, the only criminal activity that generated income for the defendant were committed in Canada. The 9th Circuit rejected the government’s argument that the legislative history and policy underlying section 2T1.3 would support the two level enhancement, ruling that the guideline was clear on its face. Because defendant’s Canadian conduct could not be “criminal activity” under section 2T1.3, the sentence was reversed. However, the court indicated that on remand the district court may consider whether defendant’s Canadian activities justified an upward departure for criminal history under U.S.S.G. section 4A1.3(a). U.S. v. Ford, 989 F.2d 347 (9th Cir. 1993).

9th Circuit upholds guideline calculating tax loss as 28% of unreported income. (370) Defendant argued that U.S.S.G. 2T1.3(a)(1) violates due process because it creates an irrebutable presumption that tax loss is 28% of unreported taxable income. The 9th Circuit rejected the argument, ruling that the guideline does not establish a presumption but merely establishes the amount of unreported income as the “legally operative fact” for determining the guideline range. The court said that the guideline affects only sentencing and does not create an evidentiary presumption. Defendant was mistaken in relying on cases that involved the use of presumptions in proving elements of a crime at the guilt phase of trials. U.S. v. Barski, 968 F.2d 936 (9th Cir. 1992).

10th Circuit includes state and federal excise tax losses in total tax loss. (370) Defendant was convicted of charges stemming from his failure to file income tax returns after 1986, and his failure to pay any federal income taxes since at least 1984. His base offense level was based on an intended tax loss of approximately $33 million, which included federal income taxes of $18.5 million, federal fuel excise taxes of $6.6 million, and state fuel excise taxes of $7.7 million. The Tenth Circuit held that the state and federal excise tax offenses were properly included in the total tax loss. The excise taxes were properly grouped because the relevant guideline provides that tax offenses should be grouped. The offenses of conviction and the evasion of fuel excise taxes were part of a common scheme or plan because both had a common purpose – the defeat of taxes owed. Defendant’s failure to pay fuel excise taxes occurred during the same period of time he was evading federal income taxes, and the district court correctly characterized the steps he took to avoid paying taxes as demonstrating a “pattern of conduct … [that] endured in excess of twenty years.” U.S. v. Melot, 732 F.3d 1234 (10th Cir. 2013).

10th Circuit affirms use of tax evasion, rather than obstruction guideline, for interfering with IRS. (370) Defendant was convicted of interfering with the administration of the internal revenue laws, in violation of the omnibus clause of 26 U.S.C. § 7212(a). Violations of the omnibus clause may be sentenced under either § 2T1.1, the guideline for tax evasion, or § 2J1.2, the guideline for obstruction of justice. The Tenth Circuit upheld the district court’s finding that defendant’s conduct fell within the § 2T1.1 tax evasion provision, rather than § 2J1.2. Although some of defendant’s conduct may also have obstructed justice, his conduct overall had more to do with taxation. The actions he stipulated to – using third parties to transfer property to trusts, reporting different financial information to the IRS than he reported to lenders, mailing frivolous letters seeking to “redeem” the value of his birth certificate, declaring that he was not subject to the laws of the United States, harassing IRS employees, and seeking to satisfy his tax debts through “Bills of Exchange” rather than payment – were more akin to the other types of tax offenses covered by § 2T1.1 than to the other types of obstruction of justice covered by § 2J1.2. U.S. v. Neilson, 721 F.3d 1185 (10th Cir. 2013).

10th Circuit refuses to consider unclaimed deductions but leaves question open. (370) Defendant was convicted of tax evasion after she and her husband failed to pay taxes for income they earned from an escort service. She challenged the court’s tax loss finding, contending that the court improperly failed to account for unclaimed deductions. The Tenth Circuit refused to adopt a bright-line rule forbidding after-the-fact consideration of unclaimed deductions, since the plain language of § 2T1.1 does not categorically prevent a court from considering unclaimed deductions. Even if § 2T1.1 is directed at intended rather than actual tax loss, it does not mean that a defendant can never benefit from deductions that he could have claimed on the false tax returns. Consideration of unclaimed deductions may be appropriate where a defendant can persuade the court that a revised calculation more accurately states the underlying tax loss. Here, however, the district court properly found the government’s tax-loss calculation was credible and adopted it. The court had many reasons to be skeptical of defendant’s proposed deductions. U.S. v. Hoskins, 654 F.3d 1086 (10th Cir. 2011).

10th Circuit includes escort’s commissions in company’s gross income but not tips. (370) Defendant was convicted of tax evasion after she and her husband failed to pay taxes for income they earned from an escort service. The government estimated more than $1.2 million of unreported income for 2002. Defendant argued this figure was too high because it incorporated the escorts’ tip income and cash commissions as part of the company’s gross receipts. The Tenth Circuit ruled that the court did not err when it included escorts’ commission payments in the company’s gross income. However, to the extent the escorts received tips, this money was remuneration for employment and not gross income attributable to the company. Thus, any portion of the company’s unreported receipts derived from tips should not have been included in the company’s gross income. However, defendant did not raise this argument below, and there was minimal information in the record on the amount of tips received by escorts. Given this, the district court did not plainly err in accepting the government’s tax-loss calculation. U.S. v. Hoskins, 654 F.3d 1086 (10th Cir. 2011).

10th Circuit says owner of escort service had to know escorts engaged in prostitution. (370) Defendant was convicted of tax evasion after she and her husband failed to pay taxes for income they earned from an escort service. The Tenth Circuit upheld a § 2T1.1(b)(1) enhancement for failing to report sources of income derived from criminal activity. The court heard testimony that the escorts engaged in sex acts as a matter of common practice. One witness stated that the company referred to escorts as “liberal” who were known to engage in sex acts with clients, and that defendant would have been “naïve” not to know that the escorts engaged in prostitution. U.S. v. Hoskins, 654 F.3d 1086 (10th Cir. 2011).

10th Circuit rules that tax evasion is a continuing offense. (370) A jury found Barker guilty of four counts of tax evasion, in violation of 26 U.S.C. § 7201. The district court found that evasion of payment under § 7201 was not a continuing offense, and therefore sentenced defendant using the 1997 Guidelines, rather than the 2006 version. Using the 2006 version would have resulted in a higher guidelines range, and the court found that this would violate the ex post facto clause. The Tenth Circuit held that the district court erred in its legal conclusion that an evasion of payment under § 7201 is not a continuing offense. Because it is a continuing offense, the date of the last act of evasion is the date of the offense of conviction in determining the appropriate version of the Guidelines under § 1B1.11. The court’s error constituted significant procedural error because it led the court to use the wrong version of the Guidelines, thereby resulting in a lower advisory guideline range. U.S. v. Barker, 556 F.3d 682 (10th Cir. 2009).

10th Circuit upholds using presumption that tax loss was 20% of stipulated gross income. (370) Defendant was convicted of failing to file tax returns for a several-year period. Section 2T1.1(c)(2) provides that if the offense involved failure to file a tax return, “the tax loss shall be treated as equal to 20% of the gross income … less any tax withheld or otherwise paid, unless a more accurate determination of the tax loss can be made.” The Tenth Circuit upheld the district court’s use of the 20% figure. The 20% presumption applies “unless a more accurate determination of the tax loss can be made.” Here, after listening to arguments and reviewing exhibits and proposed exhibits on the matter, the court found that it could not determine a more accurate tax loss figure. U.S. v. Sullivan, 255 F.3d 1256 (10th Cir. 2001).

10th Circuit upholds guideline implementing “one-book rule.” (370) Defendant failed to file tax returns for the years 1991, 1992, and 1993. The guidelines were amended effective November 1993 to increase the base offense level for failure to file convictions. Under USSG § 1B1.11(b)(3), if “the defendant is convicted of two offenses, the first committed before, and the second after, a revised edition of the Guideline Manual became effective, the revised edition of the Guidelines Manual is to be applied to both offenses.” The revised edition is to be applied “even if the revised edition results in an increased penalty for the first offense.” See Background Commentary to § 1B1.11(b)(3). The Tenth Circuit joined six other circuits which have upheld the validity of § 1B1.11(b)(3) against ex post facto challenges. It was not the guideline amendment that disadvantaged defendant, it was his election to continue his criminal activity after the amendment became effective. Defendant was on notice even when he committed his first two tax offenses that the guidelines would determine his offense level for all years in which he failed to pay taxes. Moreover, the grouping rules gave him notice that his three consecutive failures to file would be considered part of the same course of conduct. While failure to file a tax return is not a continuing offense even if committed in successive years, a series of such failures to file is the “same course of conduct” under the guidelines. U.S. v. Sullivan, 255 F.3d 1256 (10th Cir. 2001).

10th Circuit holds that Apprendi does not apply to sentencing guidelines. (370) In Apprendi v. New Jersey, 530 U.S. 466 (2000), the Supreme Court held that “[o]ther than the fact of a prior conviction, any fact that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury, and proved beyond a reasonable doubt.” The Tenth Circuit, agreeing with other circuits to decide this issue, held that Apprendi does not apply to sentencing factors that increase a defendant’s guideline range but do not increase the statutory maximum. See, e.g., U.S. v. Hernandez-Guardado, 228 F.3d 1017 (9th Cir. 2000); U.S. v. Corrado, 227 F.3d 528 (6th Cir. 2000); U.S. v. Meshack, 225 F.3d 556 (5th Cir. 2000), amended, 244 F.3d 367 (5th Cir. 2001). Since the tax loss calculation and increase for sophisticated concealment did not increase defendant’s sentence beyond the statutory maximum of 12 months for each count of failure to file, his 30-month sentence did not violate Apprendi. U.S. v. Sullivan, 255 F.3d 1256 (10th Cir. 2001).

10th Circuit upholds use of presumption that tax loss was 20% of stipulated gross income. (370) Section 2T1.1(c)(2) provides that if the offense involved a failure to file a tax return, the tax loss is the amount of the tax that the taxpayer owed and did not pay. However, “tax loss shall be treated as equal to 20% of the gross income … less any tax withheld or otherwise paid, unless a more accurate determination of the tax loss can be made.” The “presumption” of § 2T1.1(c)(2) is “to be used unless the government or defense provides sufficient information for a more accurate assessment of the tax loss.” The Tenth Circuit upheld the district court’s use of the presumptive 20% figure, using defendant’s stipulated gross income. After listening to arguments and reviewing exhibits and proposed exhibits on the matter, the court found that it could not determine a more accurate tax loss figure. There was no clear error in the court’s computation of the tax loss. U.S. v. Sullivan, 255 F.3d 1256 (10th Cir. 2001).

10th Circuit holds that failure to report embezzled funds involved sophisticated means. (370) Over a several-year period, defendant embezzled $3 million from her employer. She was convicted of tax evasion based on her failure to report the embezzled money as income on her tax returns. The Tenth Circuit upheld a § 2T1.1(b)(2) “sophisticated means” enhancement. Defendant’s scheme allowed her to do more than conceal her embezzlement from her employers—it allowed her to conceal income from the IRS and made it difficult to determine the extent of the tax loss suffered by the federal government. The checks she used to embezzle funds were made payable to her employer’s bank, not defendant. She converted the checks to cash, which is harder to trace, then spent the vast majority of the money on personal items, again making if difficult for the IRS to discover the extent of the crime. Moreover, defendant never took more than $10,000 in a day to avoid the bank having to file a Currency Transaction Report. While defendant may not have used a sham corporation or offshore bank accounts to hide her cash, her stocking of multiple storage units with over a million dollars in clothes and costume jewelry had a similar effect—concealment of the embezzled cash. U.S. v. Guidry, 199 F.3d 1150 (10th Cir. 1999).

10th Circuit approves use of presumptive tax rates to calculate tax loss. (370) Note A to § 2T1.1 says that if the defendant filed a tax return that underreported gross income, “the tax loss shall be treated as equal to 28% of the unreported gross income (34% if the taxpayer is a corporation) … unless a more accurate determination of the tax loss can be made.” The Tenth Circuit upheld the district court’s use of the guidelines’ presumptive tax rate. Defendant did not identify any specific record from which a more accurate tax loss determination could have been made. Although defendant’s expert testified that the average tax rate for defendant’s corporations was 10.97%, this was not consistent with other evidence. The government has the burden at sentencing of proving the amount of tax loss, but neither the government nor the court has an obligation to calculate the tax loss with certainty or precision. Requiring precise calculations which require the gathering of documents that are difficult to obtain would reward a defendant whose tax fraud was particularly complex. U.S. v. Spencer, 178 F.3d 1365 (10th Cir. 1999).

10th Circuit refuses to permit taxpayer to use unclaimed deductions in calculating tax loss. (370) Defendant diverted checks payable to his corporation to secret bank accounts under his control. The diverted income was not reported by defendant or the corporation. Defendant claimed that if the corporation had properly reported the income, the company could have paid him the money legitimately as executive compensation or bonuses, which it then could have deducted from its gross income. The Tenth Circuit expressed doubt that a taxpayer convicted of tax fraud should be given a second opportunity to claim deductions. Cf. U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998) (Amendment 491 allows defendant to use “legitimate but unclaimed deductions”). However, even assuming such deductions are proper, the Tenth Circuit rejected a deduction here, since there was “not a scintilla of competent evidence in the record that [the company] intended the diverted funds to be treated as compensation or bonuses to [defendant].” The court also rejected defendant’s claim that the diverted funds could have been deducted by the corporation as an embezzlement loss. No theft deduction may be taken when the embezzled proceeds were never reported as income in the first place. U.S. v. Spencer, 178 F.3d 1365 (10th Cir. 1999).

10th Circuit says success or failure of tax scheme does not influence tax loss calculation. (370) Defendant improperly claimed a tax refund of $6,091 on taxable income of $20,969, rather than a balance owed of $17,565 on taxable income of $92,776. He argued that there was no tax loss from his false tax return because after being notified of an IRS audit, but before being charged criminally, he paid the proper amount of tax. The Tenth Circuit held that the success or failure of a tax evasion scheme does not govern the calculation of tax loss. The district court properly calculated the tax loss under § 2T3.1(a)(1) by adding the tax credit that defendant received to the amount of tax liability he sought to evade. U.S. v. Gassaway, 81 F.3d 920 (10th Cir. 1996).

10th Circuit holds tax fraud involved more than minimal planning, but not sophisticated means. (370) For three tax years, defendant claimed on his Form 1040 that more money had been withheld by his employer than he owed in taxes. The district court sentenced defendant alternatively under § 2F1.1 and § 2T1.3. The Tenth Circuit rejected a sophisticated means enhancement under § 2T1.3(b)(2), but upheld a more than minimal planning enhancement under § 2F1.1(b)(2)(A). The tax evasion scheme was not sophisticated. Defendant merely claimed to have paid withholding taxes he did not pay. The fraud was the functional equivalent to claiming more itemized deductions than actually paid. However, the scheme did involve more than minimal planning. Defendant’s actions, which took place over a three-year period, were more calculated than simply failing to report income. U.S. v. Rice, 52 F.3d 843 (10th Cir. 1995).

10th Circuit reverses where burden was placed on defendant to contest tax loss figure. (370) Defendant was convicted of various tax fraud charges. The Tenth Circuit held that the district court incorrectly placed the burden of proof on defendant to disprove the government’s figure on the amount of tax loss. The government bears the burden of proving a sentencing enhancement based on tax loss. At trial, the government proved that defendant received three refunds totaling $29,922. It did not, however, introduce any evidence concerning the tax loss suffered by the government. As a result, the sentencing court could not rely on testimony it heard at trial to determine this issue. In response to defendant’s challenge to the figure in the presentence report, the court stated that defendant was required to establish the report’s inaccuracy. U.S. v. Rice, 52 F.3d 843 (10th Cir. 1995).

10th Circuit says government did not prove unreported income came from criminal activity. (370) Defendant was involved in a fraudulent loan scheme. The charges were dismissed and he pled guilty to failing to file a corporate tax return. The district court applied former § 2T1.2(b)(1), which applies to defendants who fail to report income exceeding $10,000 from criminal activity. The 10th Circuit rejected the use of § 2T1.2(b)(1), finding the government did not prove that defendant possessed the requisite mental state to commit the alleged fraud and racketeering acts. He participated in the crimes by obtaining advance fees for the loans, and forwarding the applications to others in the organization. But participation does not automatically include knowledge of the scheme. Although defendant admitted the allegations in the Information, he did not admit committing the offenses contained in the Indictment. U.S. v. Hagedorn, 38 F.3d 520 (10th Cir. 1994).

10th Circuit upholds use of pre-guidelines tax loss to determine loss under section 2T1.1. (370) Defendant was convicted of three counts of tax evasion for the years 1985, 1986, and 1987. The first two counts were pre-guidelines offenses, the last count was a guideline offense. The 10th Circuit upheld a calculation of tax loss under section 2T1.1 for the guideline offense that included the loss involved in the pre-guidelines offenses. If defendant had been sentenced separately for the 1985 and 1986 offenses, his potential sentence would have been much greater. He could have received a five year sentence on each guideline count, rather than the 14-month maximum he received under the guidelines. U.S. v. Higgins, 2 F.3d 1094 (10th Cir. 1993).

10th Circuit includes uncharged tax evasion as relevant conduct. (370) Relying on U.S. v. Daniel, 956 F.2d 540 (6th Cir. 1992), defendant argued that the district court improperly included tax evasion from years not covered in the offense of conviction, in calculating the tax loss under 2T1.1. The 10th Circuit distinguished Daniel as a case in which the evidence revealed only civil liability for uncharged conduct. Because defendant’s uncharged conduct was shown to be criminal, the uncharged conduct was properly considered relevant in calculating tax loss. U.S. v. Meek, 998 F.2d 776 (10th Cir. 1993).

11th Circuit holds that tax offenses should have been grouped together. (370) Defendant pled guilty to 17 counts of tax-related offenses. The first 13 concerned his failure to pay to the IRS federal taxes that had been withheld from the wages of his company’s employees. The remaining four concerned the falsification of his individual federal income tax returns. On appeal, he argued that the district court erred by refusing to group all of his counts into a single group under § 3D1.2(b) or (d) as “counts involving substantially the same harm.” The Eleventh Circuit agreed, ruling that all 17 counts should have been grouped under § 3D1.2(d) because their offense level was determined largely on the basis of the amount of loss, the underlying offenses were of the same general type, and, in this case, grouping served § 3D1.2’s principal purpose of grouping closely related counts. Section 3D1.2(d) provides, in pertinent part, that counts involve substantially the same harm “[w]hen the offense level is determined largely on the basis of the total amount of harm or loss…” The guideline includes a list of guidelines covering offenses predetermined to meet its requirements and which “are to be grouped.” The applicable guidelines for defendant’s offenses, § 2T1.6 and § 2T1.1, are both included in the “are to be grouped” list. U.S. v. Register, 678 F.3d 1262 (11th Cir. 2012).

11th Circuit rejects challenge to use of tax guideline for misdemeanor tax offenses. (370) Defendant was convicted of three misdemeanor counts of willful failure to file income tax returns, and was sentenced to 36 months’ imprisonment. He argued that the tax guideline, § 2T1.1, was invalid because it (1) violated 28 U.S.C. § 994(j)’s prescription that a misdemeanor be treated as a less serious offense; (2) created unwarranted disparity in contravention of 28 U.S.C. § 991(b)(1) (B); and (3) was not the product of careful empirical evidence. The Eleventh Circuit rejected all of these arguments and upheld the district court’s reliance on § 2T1.1 to sentence defendant. U.S. v. Snipes, 611 F.3d 855 (11th Cir. 2010).

11th Circuit says unclaimed deductions unrelated to offense cannot offset tax loss. (370) Defendant was convicted of tax fraud. He argued that the court should have calculated his tax loss based not upon his tax liability under the original return, which he filed as married, filing separately, but upon what his tax liability would have been had he amended his return to reflect a filing status of married, filing jointly. He asserted this would have reduced the tax loss from $35,811 to $28,186, and reduced his offense level from 14 to 12. The Eleventh Circuit held that “tax loss” under § 2T1.1(c)(1) is the amount of loss the defendant intends to create when he falsifies his tax return. Therefore, it must be calculated based upon the fraudulent return. Unclaimed deductions or other reductions in tax liability that are unrelated to the offense of conviction may not be used to offset the tax loss amount. U.S. v. Clarke, 562 F.3d 1158 (11th Cir. 2009).

11th Circuit upholds sophisticated means increase. (370) Defendant was the pastor of a church, superintendent of the church’s school, and manager of the church credit union. He was convicted of tax fraud for failing to report numerous payments made by the church and the school to various sources for defendant’s benefit. Defendant challenged a § 2T1.1(b)(2) sophisticated means enhancement, claiming he never directed anyone to hide the payments that were made on his behalf and the existence of an audit trail belied any purposeful concealment. The Eleventh Circuit affirmed the enhancement. Defendant concealed the true extent of his income by (1) depositing his salary from the church and the credit union into accounts that weren’t registered in his own name; (2) instructing the church to make payments out of these accounts directly to his personal creditors; and (3) having the school and the church pay his life and disability insurance premiums directly to the insurance carriers. The district court did not clearly err in finding that defendant’s activity, which covered a three-year period and required intricate planning, involved the use of sophisticated means. U.S. v. Clarke, 562 F.3d 1158 (11th Cir. 2009).

11th Circuit upholds aggregation of corporate and personal tax loss. (370) Defendant pled guilty to filing a false tax return and related charges. In calculating tax loss, the district court aggregated the corporate and personal tax losses. The circuits are split on whether such aggregation is proper. Compare U.S. v. Martinez-Rios, 143 F.3d 662 (2d Cir. 1998) and U.S. v. Harvey, 996 F.2d 919 (7th Cir. 1993) (rejecting aggregation) with U.S. v. Cseplo, 42 F.2d 360 (6th Cir. 1994) (approving aggregation). The Eleventh Circuit found that the aggregation of personal and corporate tax loss is called for under the guidelines. See Note 7 to § 2T1.1 (if the offense involves both individual and corporate tax returns, the tax loss is the aggregate tax loss from the offenses taken together). Further, when the guidelines were amended in 2001, the Sentencing Commission adopted this view. U.S. v. Patti, 337 F.3d 1317 (11th Cir. 2003).

11th Circuit refuses to apply doctrine of laches to prevent government from collecting bond and reducing tax loss. (370) Defendant engaged in an “alcohol diversion” scheme whose purpose was to evade federal liquor taxes. The district court found that the amount of tax loss was $681,519.15, the unpaid taxes on the 15 liquor shipments involved in the scheme. Since the government had not attempted to collect the bond money posted for the 15 liquor shipments, defendant contended that the doctrine of laches should bar the government from collecting the bond money and that the amount of loss should be reduced accordingly. The Eleventh Circuit affirmed the tax loss calculation, refusing to apply the doctrine of laches to the government. The United States is not bound by state statutes of limitations or subject to the defense of laches in enforcing its rights. U.S. v. Summerlin, 310 U.S. 414 (1940). There have been rare exceptions in certain civil cases, but the exception has never been applied in a criminal context. There was no good reason to apply it here. U.S. v. Delgado, 321 F.3d 1338 (11th Cir. 2003).

11th Circuit holds that “tax loss” does not include interest and penalties. (370) Under § 2T1.1(a), the base offense level for tax evasion is based on the “tax loss.” Defendant challenged the inclusion of interest and penalties in his overall tax loss. Section 2T1.1(c)(1) defines tax loss as “the total amount of loss that was the subject of the offense (i.e., the loss that would have resulted had the offense been successfully completed).” The Eleventh Circuit, relying on note 1 to § 2T1.1, held that tax loss does not include interest and penalties. The language of the guideline itself is ambiguous. However, the language in note 1 is clear: interest and penalties are excluded from the definition of “tax loss.” U.S. v. Hunerlach, 197 F.3d 1059 (11th Cir. 1999).

11th Circuit holds that “year” in § 2T1.1(b)(1) refers to taxable year, not any 12-month period. (370) Defendant, the head of a local housing authority, gave favorable references to a mortgage company that financed several of the authority’s projects. The mortgage company paid a law firm “referral fees” totaling $15,000, and in 1989, the law firm paid defendant five checks totaling $9,666. Defendant did not report any of this money as income. The government charged defendant with mail fraud and income tax evasion, on the theory that the money was part of a “kickback” scheme. A jury acquitted defendant of mail fraud but convicted him of income tax evasion. The district court applied § 2T1.1(b)(1) for failing to report more than $10,000 from criminal activity in one year. The Eleventh Circuit reversed, because over $10,000 was not received by the law firm in the same taxable year. The entire $15,000 paid to the law firm was attributable to defendant—the law firm was merely a “conduit.” However, defendant did not receive $15,000 in “one year.” For purposes of § 2T1.1(b)(1), “year” means taxable year, which in this case was the 1989 calendar year. The law firm received a $5,000 check in December of 1988 and a $10,000 check in January of 1989. U.S. v. Barakat, 130 F.3d 1448 (11th Cir. 1997).

11th Circuit bases sophisticated means enhancement only on offense of conviction. (370) Defendant, the head of a local housing authority, received money from a mortgage company that the government alleged was a kickback. The money had been paid to a law firm’s trust account before being paid to defendant. A jury acquitted defendant of mail fraud charges, but convicted him of tax evasion for failing to report the money as income. The district court applied a § 2T1.1(b)(2) “sophisticated means” enhancement based on the channeling of the payments through the law firm’s trust account. The court stated that, had it considered only the evidence relating to the tax count, it would not have given defendant the enhancement. The Eleventh Circuit held that only evidence relating to the offense of conviction, the tax evasion count, may be considered in making the § 2T1.1(b)(2) enhancement. The court remanded for reconsideration of this issue. U.S. v. Barakat, 130 F.3d 1448 (11th Cir. 1997).

11th Circuit agrees that using shell corporations to transfer money was “sophisticated means.” (370) Defendant, a city council member, used his influence to reduce the rent of certain airport concessionaires by substantial amounts, in return for payments from the concessionaires. He was convicted of tax fraud. The Eleventh Circuit agreed that defendant used “sophisticated means” under § 2T1.1(b)(2) to impede discovery of the tax offense. Defendant routinely transferred money through shell corporations in an attempt to conceal it U.S. v. Paradies, 98 F.3d 1266 (11th Cir. 1996).

11th Circuit says “unreported gross income” does not mean “adjusted gross income.” (370) Defendant was convicted of tax evasion for failing to report and pay tax on funds he acquired by failing to distribute a liquidating dividend of a corporation he controlled. He argued that the court erred in sentencing him under the 1988 guidelines in effect when his offense was completed, rather than the 1994 guidelines in effect when he was sentenced. He contended that due to changes in the computation of tax loss, his sentence was higher under the 1988 guidelines than it would have been under the 1994 guidelines. The Eleventh Circuit found that since resentencing was required on another matter, the parties could recalculate the figures on remand. However, it rejected defendant’s claim that the term “unreported gross income” in § 2T1.1(c)(1)(A) refers to “adjusted gross income.” U.S. v. Mueller, 74 F.3d 1152 (11th Cir. 1996).

11th Circuit applies fraud guideline to defendant who attempted to evade collection of tax lien. (370) Defendant obtained a certified copy of a federal tax lien filed by the IRS against property which he had transferred to his wife. He stamped the words “VOIDED BY FLORIDA STATUTES” on the lien, forged a signature, and filed the altered lien notice. He was convicted of attempt to obstruct the IRS, in violation of 26 U.S.C section 7212(a). He challenged the application of section 2F1.1, the fraud guideline, to his offense, arguing that the applicable guidelines were those listed in the statutory index, section 2A2.2 (Aggravated Assault) and section 2A2.3 (Minor Assault). The 11th Circuit upheld the application of section 2F1.1 to the offense. The introduction to the statutory index states that if in an atypical case, the guideline section indicated for the statute of conviction is inappropriate, the court is to use the guideline most applicable to the nature of the offense. Nothing in the facts suggested that defendant ever assaulted anyone in trying to meet his objective of defrauding the IRS. The district court’s decision to apply the fraud guideline was appropriate. U.S. v. Shriver, 967 F.2d 572 (11th Cir. 1992).

11th Circuit upholds four level upward adjustment for threatened use of violence. (370) The district court found that defendant and a codefendant in this tax case had threatened another with a gun, and that defendant had planned to have a witness killed, but called off the plan. Therefore, under guideline § 2T1.9(b), the district court added four points to defendant’s base offense level. The 11th Circuit found that the evidence was sufficient to support this finding, and upheld the four level adjustment. U.S. v. Pritchett, 908 F.2d 816 (11th Cir. 1990).

D.C. Circuit says court properly included in tax loss cash seized by IRS. (370) In 2009, defendant was convicted of multiple tax evasions counts arising from his operation of two nightclubs from 1999 to 2003. In 2003, the IRS had executed a search warrant on his house and seized about $1.9 million in cash. Defendant later swore in an affidavit that the $1.9 million was the property of the corporations which, pursuant to a closing agreement with the IRS, then used the money to satisfy outstanding tax liability of their own. He argued that the $1.9 million seized from his safe should have been excluded from the government’s evidence of tax loss, contending that his “return” of the funds nullified any liability on his part for the income tax on those funds. The D.C. Circuit ruled that the district court made sufficient factual findings at sentencing to support the inclusion of the $1.9 million in determining defendant’s sentence, notwithstanding defendant’s “repayment” of those funds to his corporations. See § 2T1.1(c)(1) (the tax loss is the total amount of loss that was the object of the offense, and is not reduced by any payment of the tax subsequent to the commission of the offense.) U.S. v. Khanu, 662 F.3d 1226 (D.C. Cir. 2011).

D.C. Circuit says Air Force contractor who embezzled funds significantly disrupted government function. (370) Defendant was a contract specialist for the U.S. Air Force in Kuwait. During an investigation into corruption in the contracting offices, the government learned that defendant had wired $3.6 million to bank accounts around the world, at least $2.6 million of which went to non-U.S. accounts defendant owned or controlled. From 2003 through 2006, defendant spent $2.4 million more than he received from known sources of income, which prompted a review of every contract defendant administered, and caused some of them to be reissued. Defendant pled guilty to five counts of filing a false tax return. The D.C. Circuit held that the district court did not err by departing upward by four levels under § 5K2.7 for significantly disrupting a governmental function. Defendant’s failure to report his income caused the government to investigate contracts involving “millions and millions” of dollars. The task was so complex that the investigative team required the assistance of two senior officials at the Kuwaiti contracting office, who had to be diverted from their ordinary duties. U.S. v. Saani, 650 F.3d 761 (D.C. Cir. 2011).

D.C. Circuit allows downward variance to probation for filing false tax return. (370) Defendant pled guilty to filing a false income tax return, which resulted in an advisory guideline range of 10-16 months. In sentencing defendant to five years’ probation and a fine, the district court cited four points: (1) defendant cooperated with authorities and accepted responsibility; (2) defendant posed only a minimal risk of recidivism; (3) defendant had already “suffered substantially” due to his prosecution; and (4) tax evaders are deterred by “the efforts of prosecutors … in vigorously enforcing the laws.” The D.C. Circuit held that the sentence was substantively reasonable. The court’s findings were directly relevant to the § 3553(a) analysis. The teaching of Gall v. U.S. is that the Guidelines are truly advisory. Therefore, different courts can and will sentence differently. Appellate courts may not reverse a district court simply because the Sentencing Commission, a reviewing appellate court, or another district court “might reasonably have concluded that a different sentence was appropriate.” U.S. v. Gardellini, 545 F.3d 1089 (D.C. Cir. 2008).

D.C. Circuit affirms upward variance for tax evasion and fraud. (370) Defendant pled guilty to federal income tax evasion and fraud. As part of the plea agreement, defendant and the government agreed to a maximum term of 10 years’ imprisonment. The district court imposed a nine-year sentence (which constituted an upward variance from the guideline range). The D.C. Circuit held that the sentence was reasonable. Defendant cited several mitigating factors that he claimed the district court did not properly consider, including his pre-sentencing incarceration and a sealed matter. However, the district court expressly recognized the conditions and length of defendant’s pre-sentence incarceration and the sealed matter, in sentencing defendant to one year less than the 10-year maximum provided in the plea agreement. The court emphasized the extent and seriousness of defendant’s conduct and the need to promote respect for the law and deter others from similar conduct. Considering the magnitude of defendant’s crimes and the need for deterrence, the district court’s upward variance from the advisory guideline range was reasonable. U.S. v. Anderson, 545 F.3d 1072 (D.C. Cir. 2008).

D.C. Circuit agrees that defendant used sophisticated means in tax fraud. (370) Defendant was convicted of tax fraud and received a two-point enhancement for using “sophisticated means” to avoid detection under § 2T1.4(b)(2). He argued that the court improperly relied on his use of sophisticated means in the underlying scheme to find that he used sophisticated means “to impede discovery.” The D.C. Circuit upheld the enhancement. Sophisticated means within a scheme can constitute sophisticated means to impede its discovery. The sophisticated means enhancement and the enhancement under § 2T1.4(b)(3) for being in the business of assisting in preparation of tax returns were not double counting. A tax preparer can conduct a simple scheme and a non-preparer can conduct a complex one. U.S. v. Hunt, 25 F.3d 1092 (D.C. 1994).

D.C. Circuit refuses to limit tax loss to amounts actually lost by government. (370) Defendant was convicted of tax and mail fraud. The district court included in tax loss under § 2T1.3 requested refunds that were never made, and investment tax credits that were claimed but never allowed. The D.C. Circuit rejected defendant’s argument that tax loss under § 2T1.3 should reflect only the amount of money actually lost by the government in the form of fraudulently obtained refunds or reductions in taxes paid. The weight of authority, including the nearest analogous decision in the D.C. Circuit, was against defendant. U.S. v. Hunt, 25 F.3d 1092 (D.C. 1994).

D.C. Circuit affirms that tax evasion was object of conspiracy. (370) Defendants were convicted of various counts relating to a conspiracy to commit tax fraud. The district court assigned a base offense level under section 2T1.1 and 2T4.1 for conspiracy to evade taxes, with a tax loss of between $1 and $2 million. Defendants argued that because the jury verdict did not identify the conspiratorial object, it was error for the district court to use the tax evasion offense level without first determining that, if it were sitting as a trier of fact, it would convict defendants of that offense. The D.C. Circuit affirmed, since the record indicated that the district court did make the required determination of the object of the conspiracy. Moreover, the court adopted the PSR, and therefore adopted its conclusion that defendants attempted to evade taxes. Finally, since the jury convicted defendants of the substantive tax evasion charges, the court could reasonably assume that the jury also believed that tax evasion was an object of the conspiracy. U.S. v. Dale, 991 F.2d 819 (D.C. Cir. 1993).

D.C. Circuit includes diverted corporate funds in personal tax loss, as constructive dividends. (370) Defendants conspired to evade personal and corporate income taxes by failing to report certain income. In calculating their personal tax loss under section 2T1.1, the district court included certain corporate funds that were diverted to other corporations controlled by defendants. The D.C. Circuit affirmed that the diverted corporate funds were constructive dividends to defendants, since they exercised control over the diverted funds. The foreign companies to which the money was diverted were “paper” companies, having no employees, only a bank account and a mailing address. Defendants controlled these companies as directors, 75 percent shareholders, and as signatories of the corporate accounts. U.S. v. Dale, 991 F.2d 819 (D.C. Cir. 1993).

D.C. Circuit includes in tax loss amounts reported in later tax returns. (370) Defendants conspired to evade personal and corporate income taxes by failing to report certain income. When one of the conspirators resigned and refused to turn over incriminating tapes and documents he possessed, defendants either filed amended returns which accounted for these amounts or included the amounts in later tax returns. The D.C. Circuit affirmed that it was proper to include in the calculation of tax loss under section 2T1.1 the unreported income, even though it was properly accounted for in later returns. Tax loss under section 2T1.1 includes the amounts the taxpayer evaded or attempted to evade. The fact that the tax evasion object was not completed did not entitle defendants to a reduction under section 2X1.1(b)(2). The offense would have been completed but for the co-conspirator’s resignation and refusal to turn over the incriminating tapes and documents he possessed. U.S. v. Dale, 991 F.2d 819 (D.C. Cir. 1993).

Commission permits previously unclaimed credits to be deducted from tax loss. (370) Resolving a circuit split, the Commission agreed with the Tenth and Second Circuits that, in calculating tax loss under §2T1.1, a sentencing court may give the defendant credit for legitimate but unclaimed deductions. See U.S. v. Hoskins, 654 F.3d 1086, 1094 (10th Cir. 2011); U.S. v. Martinez-Rios, 143 F.3d 662, 671 (2d Cir. 1998); U.S. v. Gordon, 291 F.3d 181, 187 (2d Cir. 2002). This amendment abrogates rulings in six other circuits that have held that a court may not consider unclaimed deductions to reduce the tax loss. See U.S. v. Delfino, 510 F.3d 468, 473 (4th Cir. 2007); U.S. v. Phelps, 478 F.3d 680, 682 (5th Cir. 2007); U.S. v. Chavin, 316 F.3d 666, 677 (7th Cir. 2002); U.S. v. Psihos, 683 F.3d 777, 781-82 (7th Cir. 2012); U.S. v. Sherman, 372 F.Appx 668, 676-77 (8th Cir. 2010); U.S. v. Blevins, 542 F.3d 1200, 1203 (8th Cir. 2008); U.S. v. Yip, 592 F.3d 1035, 1041 (9th Cir. 2010); U.S. v. Clarke, 562 F.3d 1158, 1165 (11th Cir. 2009). Amendment 774, effective Nov. 1, 2013.

Commission amends guidelines for veterans’ memorials, plants, diamonds, injury to an unborn child and misdemeanors. (370) First, in response to a new offense at 18 U.S.C. § 1369 prohibiting destruction of veterans’ memorials, the Commission referred the offense to both §§ 2B1.1 and 2B1.5 and broadened the two-level increase under both §§ 2B1.1(b)(6) and 2B1.5 (b)(2) to include veterans’ memorials. Second, in response to the new offense under 7 U.S.C. § 7734 for knowingly importing or exporting plants, plant products, biological control organisms, and like products for distribution or sale, the Commission modified Application Note 3 of § 2N2.1 to allow an upward departure for convictions under 7 U.S.C. § 7734. Third, to address the Clean Diamond Trade Act and Executive Order 13312, the Commission referred the new offense at 19 U.S.C. § 3907 to § 2T3.1, and added language referencing “contraband diamonds” to the introductory commentary. Fourth, to respond to the new offense at 18 U.S.C. § 1841 for causing death or serious bodily injury to a child in utero while engaging in conduct that violates any of over 60 offenses, the Commission referred the new offense to the homicide guidelines, §§ 2A1.1, 2A1.2, 2A1.3, and 2A1.4. Fifth, the amendment created a new guideline at § 2X5.2 to cover all Class A misdemeanors not otherwise referenced to a more specific Chapter Two guideline. The base offense level is 6. Amendment 685, effective November 1, 2006.

Commission revises Tax Table and clarifies tax guidelines (370) As part of its major revision of the theft, fraud and property destruction guidelines, the Commission also made changes to the Tax Table in § 2T1.4 to increase penalties for moderate and high tax loss, but declined to reduce penalties at the low end of the Table. The Commission also resolved circuit conflicts over how tax loss is computed in cases where the defendant under-reports income on both individual and corporate tax returns. Changes were also made to the definition of “tax loss” in evasion-of-payment cases to include interest and penalties. In addition, the definition of “sophisticated means” was revised to conform to the revised definition in 2B1.1. Amendment 617, effective November 1, 2001.

Commission adopts guidelines for unlawful disclosure of tax-related information by public employees. (370) The Internal Revenue Service Restructuring and Reform Act of 1998 created new tax offenses for the unlawful disclosure by public employees of tax-related information contained on computer software and for unlawful requests for tax audits. In addition, the Taxpayer Browsing Protection Act of 1997 created another offense for the unlawful inspection of tax information. These provisions are in 26 U.S.C. §§ 7213 and 7213A. The Commission found that the guideline most analogous for these offenses is § 2H3.1, which concerns offenses against privacy. The amendment adds a three-level decrease in the base offense level for the least serious types of offense behavior, in which there was no intent to harm or obtain pecuniary gain. Amendment 628, effective November 1, 2001.

Commission proposes to resolve conflict over tax loss in tax evasion cases. (370) The proposed amendment would address a circuit conflict over how tax loss under § 2T1.1 (tax evasion) is computed in cases where a defendant under-reports income on both individual and corporate tax returns. The amendment adopts the approach of U.S. v. Harvey, 996 F.2d 919 (7th Cir. 1993), clarifying the existing rule in Application Note 7 of § 2T1.1 that “if the offense involves both individual and corporate tax returns, the tax loss is the aggregate tax loss from the offenses taken together.” 2001 Proposed Amendment 12F.

Commission proposes options for combining theft, fraud and tax tables. (370) This amendment proposes three options for a loss table for the proposed consolidated theft and fraud guideline and two options for a tax loss table. If a decision is made to use the same table for theft, fraud, and tax, the effect would be to sentence the offenses under both guidelines in a similar manner. According to the Commission, this would represent a change from the current relationship in which tax offenses generally face slightly higher offense levels for a given loss amount than fraud and theft offenses. 2001 Proposed Amendment 12B.

Commission provides a two level increase for “sophisticated concealment” of tax offense. (370) In its 1998 proposed amendments, the Sentencing Commission conformed the language of the current enhancement for “sophisticated means” in § 2T1.1(b) to the essentially equivalent language of the new sophisticated concealment enhancement in the fraud guidelines. In addition, the amendment resolved a circuit conflict regarding whether the enhancement applies based on the personal conduct of the defendant or the overall offense conduct for which the defendant is accountable. Consistent with the usual relevant conduct rules, this new enhancement for sophisticated concealment is based on the overall offense conduct for which the defendant is accountable. Amendment 577, effective November 1, 1998.

Commission amends tax guidelines. (370) In a proposed amendment effective November 1, 1993, the Sentencing Commission consolidated tax guideline sections 1T1.1, 2T1.2, 2T1.3 and 2T1.5 in an attempt to eliminate confusion over which guideline applied. In addition, a uniform definition of “tax loss” was adopted, and the tax loss table was revised “to provide increased deterrence for tax offenses.”

Query	Gets the documents with
stock market	‘stock’ or ‘market’ or both
“stock market”	the phrase ‘stock market’
+stock +market	‘stock’ and ‘market’
+stock -market	‘stock’ but not ‘market’
+president -“United States”	‘president’ but not ‘United States’
(stock OR market) AND NOT president	‘stock’ or ‘market’, and without ‘president’