This article reports a discussion at the ABA Tax Section Meeting in mid-May 2012 regarding the relationship between tax loss numbers, restitution, and civil tax numbers. For example, some courts hold that unclaimed deductions are not included in the sentencing tax loss so that, conceivably at least, the Court will calculate sentencing on a tax loss that exceeds the real tax due whereas for restitution purposes, it is the real tax loss and for civil tax purposes it is the real tax loss. The notion is that the Sentencing Guidelines defines the tax loss as the tax loss that was intended -- the object of the offense (USSG § 2T1.1(c)(1)); where the taxpayer does not claim the deductions he or she would have been otherwise entitled to, his object or intent, presumably, is to save the tax due without the benefit of the deductions. I certainly see the textual basis for that notion, but I personally think it is stupid.
I understand the sentencing courts and appellate courts do not want to get slowed down over tax computations. I suppose that, since most taxpayers claim deductions that they are entitled to, the odds are that, in the bulk of the cases, there are not really credible unclaimed deductions. But, a taxpayer desperate to lower the tax loss for the sentencing benefit will be tempted to throw marginal claims on the table and force the courts to deal with them. So, for courts buying into this notion, it is better just not to have to deal with them. But they thereby create the anomaly noted where the tax loss can materially exceed the restitution amount.
Even worse, at least conceptually, the tax loss can exceed the criminal tax number that the Government would have to prove in the first case in a tax evasion trial. Let me use an example: Say the real civil tax deficiency is $50 after all components entering the calculation (including unclaimed deductions) are considered, but that, if the unclaimed deductions are not considered, the sentencing tax loss is $100. At the guilt or innocence phase of the trial, the Government would have to allow real unclaimed deductions (and would probably tilt in doubt in favor of the taxpayer in making the tax calculation). The use of the real tax due is the Spies element of the offense. So the taxpayer would be found guilty on a tax loss of $50, but will be sentenced on a tax loss of $100 and, if restitution is imposed (usually not without consent in tax crimes), at $50.
The truth is that the taxpayer's intent is to evade all or some portion of the amount of tax that he or she actually owed, not an intent to evade a portion of a greater amount that he or she fictionally owed (by not claiming deductions). If he or she miscalculated, he or she certainly cannot be said to intend -- or have an object to -- to evade tax that he or she did not owe (even if he or she thought he or she owed it). So, if one must tie the object to the text of the Sentencing Guidelines, that is the object that seems the most fair.
And, finally, as hinted in the article, for those vast majority of tax crimes cases that plead, I suspect that the the line prosecutor and his IRS assistant will not be niggardly in allowing unclaimed deductions in the tax loss calculation that is put into the plea agreement. I would expect that they would insist the proof of the unclaimed deductions must be fair and reasonable and not fanciful or stretched. If so, at least in my experience, the parties can agree upon a tax loss number than then sails through the process without further ado. Probation Officers and Courts usually do not spend a whole lot of time recalculating the tax loss numbers that the parties have agreed upon. There is always the possibility that a zealous Probation Officer who insists upon the technicality of the law (through the lens of the court of appeals on this issue) rather than mercy or fairness and the agreement of the parties will go behind the numbers and deny the use of unclaimed deductions, but I doubt it will happen often.
Addendum 5/23/12 at 8:45pm: I revised the test of the blog to insert the word from the text -- object -- which is the equivalent in this context of intent. See USSG § 2T1.1(c)(1)):
If the offense involved tax evasion or a fraudulent or false return, statement, or other document, 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).
As I noted also in an earlier blog, the Tenth Circuit split the baby by allowing related unclaimed deductions. See Tenth Circuit Decision on Unclaimed Deductions for Sentencing Tax Loss Calculations (8/16/11), here.