In United States v. Stadtmauer, 2009 U.S. Dist. LEXIS 9945 (D. N.J. 2009), the timing issue was in the context of depreciation where a current deduction was claimed for items that could be depreciated over future years. The Government wanted to apply the 28% presumptive rate to the entire deduction claimed without any mitigation for the future tax revenue the Government did or would collect. The defendant cried foul and the Court listened. The Court opined:
Mr. Stadtmauer argues that since the issue is only one of timing there is no tax loss associated with these deductions. The Government disagrees, arguing that there is at a least a loss due to the time value of money. However, the Government does not argue that the loss is the time value of money, rather the Government argues that because there is some loss due to the time value of money the 28% presumptive rate should be used. This Court agrees with the Government that the time value of money should be considered as a tax loss, but disagrees that using the 28% rate is appropriate; the 28% rate does not "fit the circumstances" for these deductions. See USSG 2T1.1, Application Note 1.
The Court recognizes, and the Government conceded at the sentencing hearing, that as a general matter, tax loss under the Guidelines for the crimes at issue here does not include interest and penalties. Id. The Court also recognizes that interest calculations are meant to account for the time value of money, so arguably any interest based calculation [*46] should not be included under the Guidelines. But, the Court also finds that recognizing a time value of money effect for these deductions is completely different than the general case of calculating and adding interest, as addressed in Application Note 1. Under § 2T1.1(c), "the tax loss is the amount of loss that was the object of the offense." Here, the purpose of taking the deductions in full in the year incurred was to receive the time value of money benefit from paying less taxes now rather than spread over time; it was not merely some ancillary benefit to the primary object of avoiding taxes by taking a deduction that was not permissible at all, the time value of money benefit was the object of the offense.
The question, then, is what is a reasonable way to estimate this loss. As noted above, to accept the presumptive 28% rate as the Government argues would be unfair and drastically overstate the tax loss. The Court finds that the most reasonable way to account for this loss is by using the Government's own method for compensating itself for the time value of money related to underpayments of tax. Interest on underpayments is calculated by the IRS pursuant to 26 U.S.C. § 6621(a)(2). [*47] This rate is determined quarterly. Id. at § 6621(b). For the years 1997 to 2001, the IRS rate for non-corporate underpayments varied between 7% and 9%, with the rate declining in the years after 2001. See Rev. Rul. 2008-54. This Court finds that using a rate of 8%, a rate in the middle of the range, is reasonable. This approach is not perfect. It does not account for compounding, but it also does not account for the exact timing of the deductions. However, exact precision is not required. This Court finds that the other methods suggested either understate or overstate the intended loss and that this method is the most fair and reasonable estimate of the loss intended for these items. See Gricco, 277 F.3d at 356
Hat tip to Caroline Rule of Kostelanetz & Fink for calling this to my attention. Caroline and her partner, Bob Fink, were involved in the case.
Addition on 5/26/2009: See Alan Ellis' Article on Intended Loss here.