Tuesday, March 10, 2015

Relevant Conduct Raised by the Probation Officer and Used by the Sentencing Judge in Calculating the Guidelines (3/10/15)

Readers of this blog -- and afficionados of the Sentencing Guidelines in tax cases -- will know how critical the tax loss to the final Guidelines sentencing range.  One of the most important drills for defense attorneys in tax crimes prosecutions is to get the tax loss number down.  A concern often addressed arises when an acceptable tax loss number is agreed upon with the prosecutor and incorporated into the plea agreement.  The concern is that it is generally thought that neither the Probation Office which prepares a PSR for the sentencing judge nor the sentencing judge is bound to the tax loss the parties stipulate in the plea agreement.

Of course, both the assigned probation officer nor the sentencing judge are very busy on other matters, usually not tax experts, and usually will not have information to go behind the parties' agreement as to the tax loss.  Hence, usually, the tax loss agreed upon the defendant and the prosecutor will not be questioned by the probation officer or the sentencing judge.  Sentencing will thus proceed based on the stipulated tax loss.

To highlight the risk, though, assume that the taxpayer had a pattern of conduct where she underpaid tax in years 01 through 10 by $100,000, an aggregate of $1,000,000.  In the IRS CI investigation, the IRS investigates only the years 07 through 10, not desiring to investigate the years for which the statute of limitations would expire by the time of prosecution.  The investigation therefore comes up with a criminal tax loss (the tax loss for an evasion count in the Government's case in chief to show a tax due and owing) of $400,000.   That is the amount that the Government believes that, in the case in chief, it can show to be the tax due and owing.

The risk lies in which is called relevant conduct for sentencing  purposes.  See S.G. §1B1.3, here, The earlier years underpayments would be relevant conduct and thus could be included in the tax loss for sentencing purposes even if not for the Government's case in chief on the evasion charge.  Of course, in the assumed fact pattern, the IRS and the Government may suspect that there was the same pattern of conduct in the earlier years but neither the IRS nor the prosecutor ever investigated it nor quantified it.  In this fact pattern, the probation officer probably would not investigate it either, although the probation officer could (e.g., the defendant is supposed to cooperate in the probation officer's examination and could be queried about the relevant conduct).  Counsel worry about this often but I have never observed it being done.

But, it is not uncommon for the IRS's CI investigation or an earlier civil investigation to cover years earlier than those for the years of prosecution.  Thus, using the above example, by the time the case is charged the IRS could have examined all of the years.  Say it is a fairly simple fact pattern and could be relatively easily investigated, so the IRS does that.  Now the prosecutor has the information for all relevant conduct years and knows that the tax loss is $1,000,000 rather than the $400,000 used for the case in chief.  What to do at the plea negotiation stage if the defendant, whose counsel has advised him of the higher Guideline resulting from the aggregate $1,000,000 being included, will plea only if a tax loss of $400,000 is used?  Can the parties nevertheless, in order to reach a plea agreement, stipulate that the tax loss is $400,000?  What happens if the probation officer learns about the larger tax loss, perhaps even is learns the larger number from documents submitted to the probation officer by the prosecutor (who is supposed to advise the probation officer of relevant sentencing factors)?

A recent case, United States v. Agard, 2015 U.S. App. LEXIS 3519 (9th Cir. 2015) (unpublished), here, addresses this issue, but does not provide the ultimate answer and I can't provide it either (there will be another chapter in the case after remand).  I quote the case in full because it is short (caption omitted):
In September 2012, Andrew Agard pled guilty to one count of Filing a False Income Tax Return. His plea agreement stipulated that the relevant conduct would be limited to tax years 2005-2007. Prior to sentencing, the government provided the probation officer with information for tax years 2002-2004, and the information for those years was incorporated as relevant conduct into the final presentence investigative report. At sentencing, the judge included 2002-2004 as relevant conduct for calculating Agard's sentence and restitution. Agard now appeals his sentence, arguing that the government breached the plea agreement by providing the information for 2002-2004 to the probation officer. 
Because, on the record before us, we are unable to determine whether the information for tax years 2002-2004 was volunteered by the government or requested by the probation officer (or another representative of the court), we remand to the district court for the limited purpose of making supplementary findings on this question. See United States v. Allen, 434 F.3d 1166, 1175-76 (9th Cir. 2006). 
In doing so, we recognize that Agard does not seek rescission of the plea agreement or specific performance as a remedy for the alleged breach. Instead, Agard asks us to decrease the amount of restitution the district court ordered and to strike the information for tax years 2002-2004 from the presentence investigation report. We cannot provide the relief that Agard seeks. The only remedies available if Agard shows that the government breached the plea agreement are rescission or specific performance of the plea agreement. Brown v. Poole, 337 F.3d 1155, 1161 (9th Cir. 2003) ("The two available remedies are rescission of the agreement and specific performance."). Were we to grant specific performance, we would be required to vacate Agard's sentence in its entirety and remand for a new sentencing hearing before a different district judge. See Santobello v. New York, 404 U.S. 257, 262-63 (1971). 
The parties shall promptly notify the Clerk of this Court when the district court has decided the remanded issue. Cf. Fed. R. App. P. 12.1(b). This panel retains jurisdiction of this case. 
I will post more when the sentencing court makes it decision and the Court of Appeals again considers the case.

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