Thursday, October 24, 2013

On Restitution, Count of Conviction and Tax Loss (10/24/13)

In United States v. Berkowitz, 732 F.3d 850 (7th Cir. 2013), here, the Seventh Circuit affirmed an award of restitution that the sentencing judge had based on the tax loss amount.  Tax loss and restitution are related but different concepts.  At its most basic, tax loss can include all tax loss that was the object of the crime whether or not the actual tax loss was less.  Restitution can only include the actual loss to the person harmed (here the IRS). As the Seventh Circuit noted (fn 3, citations omitted):
District courts can get into trouble if they rely unquestioningly on these figures [the equation of tax loss and restitution], however, because the loss amount for sentencing considers not just the conduct underlying the conviction but "relevant conduct"  accompanying it. Calculations for restitution are not so permissive. They are rigidly compartmentalized to the actual losses resulting from the conduct of the convicted offenses.  
The defendant in Berkowitz made an interesting textual argument base on the Mandatory Victims Restitution Act of 1996 ("MVRA"). 18 USC § 3663A, here.  Section 3663A(a)(2) provides:
[A] person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern.
The defendant's argument on appeal was based upon the bold-faced language.  The defendant argued that the harm that could be subject to restitution was only the harm resulting from his own conduct and not the conduct of co-conspirators.

Just a little necessary to develop the context for the argument.  The defendant on this appeal was Yair Berkowitz.  The Court refers to him as Yair.  The defendant "together with a host of others, participated in a massive tax fraud scheme with the object of filing false tax returns in the names of over 3,000 unknowing, incarcerated, or deceased people."  The scheme -- or some aspects of it -- stretched from 2003 to 2007.  The defendant and others were charged in a 51 count indictment.  The defendant "was named in several counts, but pleaded guilty only to Count 51, wire fraud."  The wire fraud statute is 18 USC 1343, here.  The specific act of wire fraud was a transfer between accounts.  Despite this limited plea to a single count based on a single act, in the plea agreement, the defendant admitted and accepted responsibility for "his part in the conspiracy."  The defendant did not admit to a count charging conspiracy, however.  The Court of Appeals described the sentencing process as follows:
The district court calculated the restitution award using loss figures provided in the PSR. The Government argued that the intended losses from the overall scheme were roughly $65 million and that the actual losses were around $10 million. But the PSR recommended—and the government agreed—to narrow these amounts for Yair [the defendant]. The PSR concluded that  when the universe of losses was limited to the dozen or so people that Yair interacted with or directed regularly in the course of the scheme, the intended loss amount was around $19 million and the actual loss $4,069,091.06.
It is not clear from the opinion whether the sentencing court determined the tax loss on the intended loss or the actual loss, but it is clear that the PSR mentioned both figures and the sentencing judge considered both figures for some purpose(s).  Apparently, without further evidence, the sentencing judge then ordered restitution of $4,069,091.06, the actual loss which included losses attributable to the persons within the conspiracy with whom the defendant "interacted."

The Seventh Circuit dispensed with the defendant's argument as follows:
Yair contends that the restitution order is excessive. First, he argues that it charges him for the conduct of others, instead of limiting the award to losses attributable to his specific conduct in furtherance of the scheme. But notable in the statutory language is the expansiveness of restitution authorized for crimes involving a "scheme, conspiracy, or pattern." An individual convicted of such a crime is jointly and severally liable for the losses caused by his or her co-conspirators. See, e.g., United States v. Dokich, 614 F.3d 314, 318 (7th Cir. 2010).  [*8] For this reason, we have squarely rejected the theory that co-conspirator restitution liability under the MVRA is as limited as Yair contends. Moreover, the PSR and the district court limited Yair's liability to losses resulting from his actions and from the actions of those he controlled or worked with regularly. Thus, the restitution order here is linked to his specific participation in the scheme, even if we were to accept Yair's limited view of co-conspirator restitution liability. 
Yair next argues that the district court's restitution award lacked statutory authority because the judge did not make sufficient factual findings to support it. We disagree. It is true that the court engaged in no protracted discussion of restitution at sentencing and that it adopted the findings of the PSR. But Yair overlooks the court's earlier discussion of the same figures when it was calculating Yair's offense level. 
In compiling a PSR for crimes causing a loss, the probation office calculates both the intended loss and the actual loss caused by the scheme, and offenders are sentenced to imprisonment based on the greater of these amounts. n3 The district court pulled the restitution amount from the PSR's actual loss calculation. There is nothing untoward about doing so, and it was Yair's burden to demonstrate the PSR's unreliability. United States v. Artley, 489 F.3d 813, 821 (7th Cir. 2007). Nor is it uncommon for the amount of the restitution award to mirror actual loss. Dokich, 614 F.3d at 319-20 (noting that where a defendant intends a large amount of loss he should be sentenced according to that amount but ordered to pay restitution according to the actual loss). The district court did not engage in a lengthy discussion of the restitution order, but it was not required to do so, especially when Yair did not raise any specific objections to the restitution calculation at the time of sentencing. See United States v. Hassebrock, 663 F.3d 906, 925 (7th Cir. 2011). We decline Yair's invitation to impose a requirement on district courts to rehash their offense level findings at the restitution phase where no new objections are raised and a simple "ditto" explains the award.
JAT Comment:  The opinion is cryptic, but I think there is a threshold problem.  Restitution is only permitted for the count(s) of conviction.  I am not sure that, as narrated by the Seventh Circuit, the sole count of conviction included within its scope all of the conduct included in the actual loss calculation.  As narrated by the court, the sole count of conviction was Count 51, wire fraud, with the sole conduct alleged to be a $250 transfer from one account to another.  It is unclear what the actual tax loss attributable to that specific conduct was, but it would seem that it could not exceed $250.  I suppose that, if the count had been for a conspiracy covering the years (or the conduct giving rise to the tax loss involved in the restitution) it would have been OK.  Or even, if the wire fraud count included the sweep of all years with the one transaction being just an example of conduct within the period, restitution could include that conduct.  See United States v. Scheuneman, 712 F.3d 372 (7th Cir. 2013) (allowing restitution for multiple years within the scope of the § 7212(a) tax obstruction conviction, because the pattern of conduct subject to the charge and conviction covered multiple years, so related to count of conviction and not relevant conduct).  But, as the Court narrates the count of conviction in Berkowitz, it is not such an inclusive count.  Is the restitution then proper?  The Seventh Circuit does not address that issue, perhaps because the defendant did not argue it.

I would appreciate comments from readers on this issue.

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