Restitution, Relevant Conduct, Counts of Conviction (4/11/13)

In United States v. Scheuneman,  712 F.3d 372 (7th Cir. 2013), here, the Seventh Circuit the trial court's sentencing for restitution of tax losses.  The defendant, a tax defier, was convicted of three counts of tax evasion, Section 7201, here, for the years 2003-2005 and one count of tax obstruction, 7212(a), here.  The tax obstruction count was (emphasis supplied):

From about May 2004 or before, and continuing to at least October 2007, in the Central District of Illinois, and elsewhere, the defendant, KURT E. SCHEUNEMAN, did corruptly obstruct and impede and endeavor to obstruct and impede the due administration of the Internal Revenue laws.

The sentencing court, "As a condition of supervised release, the district court also required Scheuneman to pay 'restitution to the IRS in the amount of $84,382, which represents the tax loss for the years 2000 through 2005.'"  The restitution clearly was properly included the years 2003-2005, for which the defendant was convicted of tax evasion.  Defendant complained on appeal that the years 2000-2002 had been improperly included in restitution.  To be sure, the years 2000-2002 could be relevant conduct for purposes of calculating the base offense level.  But restitution is not the same as relevant conduct (although it might often the same number).

Defendant's complaint was that restitution is limited to the years related to counts of conviction.  As he read the indictment, he had been convicted of evasion only for 2003-2005 and the tax obstruction count also did not go back to earlier years.  But focus on the wording of the tax obstruction count ("From May 2004 or before * * *").  Since it was the same pattern of conduct underlying both the evasion counts and the tax obstruction count, then that evasive conduct could and did go to pre-2003 years and, most importantly, since it was relevant conduct related to the same pattern of conduct, it could be years covered by the tax obstruction count of conviction.  The Court held (emphasis supplied):

In challenging the restitution condition, Scheuneman argues that the district court improperly required him to pay restitution for tax losses associated with his "relevant conduct" that were unrelated to the conduct underlying his convictions. A district court has "the authority to impose restitution for tax offenses as a condition of supervised release." United States v. Hassebrock, 663 F.3d 906, 923-24 (7th Cir. 2011). As with other forms of restitution orders, the district court can only impose a restitution condition for certain categories of losses: "(1) losses caused by the specific conduct that is the basis of the offense[s] of conviction; (2) losses caused by conduct committed during an offense that involves as an element a scheme, conspiracy, or pattern; and (3) restitution agreed to in a plea agreement." United States v. Frith, 461 F.3d 914, 919-20 (7th Cir. 2006) (internal quotation marks and citations omitted). Scheuneman maintains that the district court had no authority to impose an additional $35,847 in restitution for unpaid taxes from 2000, 2001, and 2002 because these losses were "relevant conduct" and had no connection to his tax evasion convictions. 

Despite being labeled as resulting from "relevant conduct," the 2000-2002 tax losses were properly included within Scheuneman's restitution obligation because they were directly attributable to his conviction on Count 4 for interference with administration of the Internal Revenue laws in violation of 26 U.S.C. § 7212(a). Count 4 of the indictment charged Scheuneman with violating the "omnibus clause" of section 7212(a), which prohibits all manner of "activities which may obstruct or impede the administration of the code." United States v. Pansier, 576 F.3d 726, 734 (7th Cir. 2009). Among the conduct prohibited under this statute: any effort to "imped[e] the collection of one's taxes, the taxes of another, or the auditing of one's or another's tax records." United States v. Reeves, 752 F.2d 995, 998 (5th Cir. 1985).\ 

In this case, the government established a direct nexus between Scheuneman's years of obstruction and the losses it sustained as a result of Scheuneman's failure to pay taxes from 2000-2002. In the indictment, the government charged Scheuneman with interfering with the due administration of the tax code "from about May 2004 or before, and continuing to at least October 2007" (emphasis added). Throughout trial, the government maintained that Scheuneman knowingly interfered with tax code enforcement for his own benefit by purchasing the sham trust system in 1999, reorganizing his construction business using these illegitimate trusts to hide his income from the IRS during 2000-2005, and misrepresenting the nature of his business in tax filings to deceive the United States as to his true tax liability. The government presented an overwhelming amount of evidence establishing Scheuneman's obstruction during the period from 2000 to 2002 and showing that his conduct prevented the IRS from collecting the income tax from him during these years. Under the circumstances, the imposition of restitution for the United States's tax losses from 2000-2002 was not erroneous in light of the conviction on Count 4. In any event, Scheuneman has not established that a plain error occurred.

Finally, it is unclear what the fight was all about.  Even if the court had not ordered restitution for those years, the IRS could use its normal deficiency and collection procedures to collect those taxes, penalties on those taxes and interest on the taxes and penalties.  So, even if the defendant had won the restitution battle, he would have lost the war; he is still going to have to pay the taxes, penalties and interest.  Indeed, the restitution amount probably did not include penalties and interest and, even with restitution, the IRS will still assess the  amount of the restitution immediately and proceed on the penalties and interest as well.