Good Case on Grouping for Tax Crimes for Sentencing Purposes (5/16/12)

In United States v. Register, 678 F.3d 1262 (11th Cir. 2012), here, the Eleventh Circuit held that grouping under SG § 3D1.2(d), here, is required for counts of conviction for failure to pay over,  §  7202 (13 counts), and tax perjury,  §  7212 (4 counts).  Generally, for a defendant, grouping is good and not grouping is bad.  Bottom line, the Court on the facts found sufficient nexus between the two crimes to group.  The opinion is very good and I highly recommend it to readers.

Because the opinion is so good and reasonably succinct, I don't try to summarize.  Rather, I refer readers interested in the grouping concept to read the opinion.  For persons not that familiar with the concept, I offer the following from my Federal Tax Crimes book (as revised for the Register case, but omitting the footnotes).

To Group or Not to Group - That is a Question.

I noted repeatedly in the crimes section that a pattern of criminal activity that is essentially a unified crime may violate more than one criminal statute and thus could give rise to several or even many criminal counts in an indictment drafted at the discretion / whim of the prosecutor.  For example, a pattern of conduct might constitute tax evasion and tax perjury – i.e., the taxpayer files a false return underreporting his or her tax liability.  Should the prosecutor be able to squeeze out a greater sentence by charging tax evasion and tax perjury for the same pattern of activity?

The Sentencing Guidelines adopt so-called “grouping” rules that eliminate such charge manipulation as a factor in sentencing.  The Introductory Comments to the grouping rules provide:

In order to limit the significance of the formal charging decision and to prevent multiple punishment for substantially identical offense conduct, this Part provides rules for grouping offenses together. Convictions on multiple counts do not result in a sentence enhancement unless they represent additional conduct that is not otherwise accounted for by the guidelines. In essence, counts that are grouped together are treated as constituting a single offense for purposes of the guidelines.  

* * * * 

Essentially, the rules in this Part can be summarized as follows: (1) If the offense guidelines in Chapter Two base the offense level primarily on the amount of money or quantity of substance involved (e.g., theft, fraud, drug trafficking, firearms dealing), or otherwise contain provisions dealing with repetitive or ongoing misconduct (e.g., many environmental offenses), add the numerical quantities and apply the pertinent offense guideline, including any specific offense characteristics for the conduct taken as a whole. (2) When offenses are closely interrelated, group them together for purposes of the multiple-count rules, and use only the offense level for the most serious offense in that group. (3) As to other offenses (e.g., independent instances of assault or robbery), start with the offense level for the most serious count and use the number and severity of additional counts to determine the amount by which to increase that offense level.

Grouping is required for closely related counts involving substantially the same harm.  Substantially the same harm may be found, inter alia, where “the offense level is determined largely on the basis of the total amount of harm or loss.”  This is the case with tax crimes and their frequent companion crimes where the underlying substantive crime is a tax crime.

The “cost” to the defendant of not grouping, as noted in the summary, is additional level increases depending upon the nature of the counts of conviction that are not grouped.  The process is illustrated in a recent case involving multiple counts of conviction for § 7202 (failure to pay over withheld taxes) and § 7206(1) tax perjury on the defendant’s own 1040.  Set aside for the moment whether these two types of crimes should be grouped (I will deal with that issue later), and just assume for present purposes that they should not be grouped.  Here is the explanation of the process based on that assumption:

[T]he probation officer calculated the amount of tax loss for the failure-to-pay-over group at $316,220, resulting in a base offense level of 18, and the amount of tax loss for the filing-false-returns group at $115,395.75, resulting in a base offense level of 16. Because there were multiple groups, the probation officer then applied § 3D1.4 to determine their combined offense level. Taking the group with the highest offense level, the failure-to-pay-over group at 18, and increasing that offense level by 2 based on § 3D1.4, the probation officer determined the combined offense level to be 20. Finally, the probation officer accounted for Register's acceptance of responsibility and cooperation in the investigation by applying a 3-level reduction pursuant to § 3E1.1 to arrive at a total offense level of 17. Because Register had no prior convictions, his criminal history category was I, and the resulting guideline range was 24 to 30 months.

 Now, let’s look at some examples to address the issue of whether multiple counts of conviction for different offenses should be grouped:

Example 1: If the taxpayer were convicted of both tax evasion and tax perjury for the same year and the tax loss were $100,000, the sentencing guidelines would apply to set the sentence in the manner noted above just as if the taxpayer had been convicted of only the tax evasion count.  As you can see in this simple example, grouping takes away the incentive to load up counts for essentially the same conduct.  (Note, however, that if the tax loss were sufficiently high that the resulting incarceration period exceeded the maximum for a single count (say evasion in this case), then the Government might want to use multiple counts overlapping the same conduct in order to permit stacking, although I have never seen an evasion and tax perjury count for the same year arising from the same false return.) 

Example 2:  Assume a taxpayer is convicted of evading $50,000 tax in year 1 and $50,000 tax in year 2.  The two counts are grouped and the aggregate tax loss is used to derive the Base Offense Level without further adjustment for the number of counts.  The same is true even if the conviction is for tax evasion for year 1 and tax perjury for year 2.  This means that the taxpayer evading $100,000 in one year is sentenced basically the same as the taxpayer evading $100,000 in the aggregate for two or more years.  In a tax case, of course, the Government will likely have counts for each year because showing a pattern, even if only a two year pattern, assists in proving willfulness, which is often difficult in a single year evasion case.  But, the addition of counts does not increase the sentence.  (You will remember from the relevant conduct discussion that, if the Government chose to indict only for one of the years in the example, it still might include the tax loss number for an unindicted year in order to affect the sentencing.) 

Example 3.  Taxpayer is convicted of 4 counts of willful failure to collect and pay over employment taxes under § 7202 and three counts of tax perjury under § 7206(1).  This is a closer call because the § 7202 offense which arises from the harm of not paying over trust fund taxes (i.e., the employees’ funds withheld to pay their tax liabilities may not be viewed as the same general type of harm from merely avoiding the defendant’s personal income.  The former harm is more in the nature of embezzlement than the latter.  And, the Guidelines are different.  The § 7202 Base Offense Level is in § 2T1.6, whereas the § 7206(1) Base Offense Level is in § 2T1.1.  Both are subject to the same tax table for determining the Base Offense Level based on the tax loss.  Recently, the Eleventh Circuit [in Register] held that, depending upon the facts, the decision whether to group or not could go either way, but that, in the case on the facts, there was sufficient nexus between the two offenses because a critical element of the tax perjury charge was that the defendant had falsely claimed that the tax had been withheld and paid over.  What this means is that the skilled advocate may have to strive to convince a sentencing court of sufficient nexus.  In the case cited, the district court had not been persuaded (or did not understand the close call that could go either way), but the court of appeals reversed.

But, even where the offense is determined by total amount of loss, grouping may not be allowed unless substantially the same harm is involved.  Thus, although tax crimes of conviction against the federal fisc involve the same harm, where the crimes of conviction are tax and money laundering, substantially the same harm is not involved.  The societal interest – and thus the harm – addressed by tax crimes is not the same as the harm addressed by money laundering crimes.  Nontax fraud crimes where there is a real victim (e.g., embezzlement, etc.) will likely not be viewed as involving substantially the same harm and thus will not be grouped with any tax crimes for omitting the income from the fraud.

Where counts are not grouped into a single group, they are grouped into two or more groups according to the grouping rules and the appropriate sentence determined for each group as follows: The combined offense level is determined by taking the highest offense level in the individual groupings and adding levels by a formula determined by the seriousness of the other group(s).  So, as you can see, depending upon the facts, denial of grouping may increase the levels.

There are many complexities that inhere in the grouping rules, but they require more effort for me to write and my intended readership group to understand (particularly given my writing limitations), so I just say here that you should seek further help when faced with grouping issues.