Thursday, February 17, 2011

First Circuit Case on Relevant Conduct and Conditions of Supervised Release.

In United States v. Thomas, 653 F.3d 13 (1st Cir. 2011), here, the defendant had a long history of failure to file, failure to pay, and various acts of tax obstruction during the period. For years, the Government tried to work with him to get him into compliance, but finally gave up and brought criminal charges for six counts of evasion of assessment. That led to a lengthy saga in the district court, which the district court characterized as the most "difficult" case it had ever managed. The defendant finally pled guilty to a single count of evasion of assessment and the other counts were dismissed. The district court imposed a sentence of 24 months' imprisonment. The court also imposed restitution for the plea year (presumably pursuant to the plea agreement, since restitution is not allowed for tax crimes). On appeal, the defendant complained only about the district court's inclusion in the tax loss calculation of penalties and interest for nonplea years which drove his Base Offense Level up substantially and the district court's requirement that the defendant file delinquent returns and pay back taxes as a condition of his eventual supervised release. I cover those items briefly.

1. The Court of Appeals held that, while penalties and interest are not included in the tax loss calculation for evasion of assessment which is the count to which the defendant pled, they may included for evasion of payment. In this case, the defendant's conduct amounted to both evasion of assessment and evasion of payment and the latter was "relevant conduct," thus justifying inclusion in the calculation of the tax loss. The defendant had a pattern of bad behavior during all of these years, but the Court did note one in particular:

Even worse, Thomas's evasive conduct continued post-indictment. In 2006, he sold a piece of property for $89,000. Instead of using the proceeds to pay the taxes he owed, he put them into a newly created bank account in the name of Ichabod Trust, of which his brother -- who ironically was in the business of giving tax advice -- served as the trustee. These actions clearly evidence Thomas's longstanding attempts to avoid not only the assessment, but also the payment, of his 1995 and 1996 tax liabilities.
2. The Court of Appeals held that the district court had the authority and did not abuse its discretion in ordering the defendant to file returns and pay back taxes as a condition of supervised release. The defendant's various arguments were pretty much meritless. I do note the Court of Appeal's disposition of one of his arguments -- that the order was the equivalent of restitution which is not permitted for years other than the years of conviction. The Court said and concluded its discussion of all the arguments (footnote omitted):

Thomas has already satisfied a $15,082.97 restitution order relating to his 2001 offense imposed by the district court. But this order was separate from the condition of supervised release imposing an obligation to pay back taxes. As we have already said, it is settled that district courts may order defendants to pay back taxes as a condition of supervised release. See, e.g., Miller, 557 F.3d at 921-22 (collecting cases). Requiring Thomas to fulfill his statutory obligation to pay taxes is not tantamount to "restitution." Restitution is, essentially, compensation for losses suffered as a result of a crime. Black's Law Dictionary 1428 (9th ed. 2009); see also Hughey v. United States, 495 U.S. 411, 416 (1990) ("[T]he ordinary meaning of 'restitution' is restoring someone to a position he occupied before a particular event . . . ."); Charter Commc'ns Entertainment I, DST v. Burdulis, 460 F.3d 168, 182-83 (1st Cir. 2006) (explaining that one meaning of "restitution" refers to the "recover[y] from the defendants for all the damage they caused as a result of their [illegal act]"); Chernin v. United States, 149 F.3d 805, 816 (8th Cir. 1998) ("Black's Law Dictionary . . . defines restitution to mean the act [of] making good or giving an equivalent for or restoring something to the rightful owner.")(alteration and internal quotation marks omitted). The district court was not ordering Thomas to compensate the government for a loss suffered as a result of his criminal actions, though this is a salutary side-effect of its order. As Thomas himself repeatedly notes with apparent concern, the district court did not specify the amount that Thomas was to pay to the government. The court did not determine the exact amount he owed because it was ordering him to fulfill a duty, not to compensate the government. Indeed, as for all law-abiding taxpayers, Thomas's statutory obligation to file returns and pay taxes is completely independent of his guilty plea in this case.

Lastly, we emphasize that the requirement that Thomas actually pay the taxes he evaded is reasonably related to his crime of tax evasion. See Miller, 557 F.3d at 921. In addition to the deterrent effect which we discussed above, the payments ordered by the district court will prevent Thomas from deriving any benefit from his past tax evasion and will protect the public fisc. The district court's decision to order Thomas to comply with the Internal Revenue Code's requirement that he pay his taxes was commensurate with his offense, did not constitute restitution, was not unjustly burdensome, and was therefore not an abuse of discretion. Accordingly, we decline to disturb the challenged condition of supervised release.
Addendum on 2/18/11:

The Thomas court noted that restitution was not the same as an order to meet past unmet tax obligations (filing and payment), but noted: "“The district court was not ordering Thomas to compensate the government for a loss suffered as a result of his criminal actions, though this is a salutary side-effect of its order.” So, there are parallels between the two types of sentencing orders. But, a general obligation to meet past unmet tax obligations is not quantified, whereas an order of restitution is. And, as I noted in an earlier blog, New Statute for Civil Effect of Restitution in Tax Cases (at Least Title 26 Crimes of Conviction), if it is restitution in a tax case (at least Title 26 crime(s) of conviction), the IRS can assess immediately and begin collection proceedings. This new statutory collection tool is not available for an order of the type affirmed in Thomas.

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