1. Evasion of Assessment. If the evasion conduct (which may include relevant conduct to the count of conviction) is to evade assessment of the tax, then only the tax is included in the tax loss calculation.
2. Evasion of Payment. If the evasion conduct (which may include relevant conduct to the count of conviction) is to evade collection, then tax, penalties and penalties sought to be evaded are included.In the linked blog entry, I said that the Seventh Circuit confused these rules for two reasons -- (i) where fraudulent checks were submitted to pay amounts that included tax, penalties and interest, the object of the offense included tax, penalties and interest and (ii) evasion of payment was relevant conduct to the crime of tax obstruction.
In United States v. John Cote (2d Cir. 2015) unpublished per curiam, here, Cote was convicted "after jury trial, of one count of conspiracy to commit tax evasion, in violation of 18 U.S.C. § 371, and four counts of tax evasion, in violation of 26 U.S.C. § 7201." As articulated in the quote, the conspiracy was an offense conspiracy rather than a defraud / Klein conspiracy. However, according to the DOJ Tax Press Release on the Conviction here, the conspiracy was a defraud / Klein conspiracy. There are important differences between an offense conspiracy and a defraud / Klein conspiracy, although they are punishable under the same statute, but those differences are not important for this blog entry. Focusing on the tax loss, the Court said
Cote raises a substantial question as to whether the district court erred in considering interest and penalties when calculating the "tax loss" amount resulting from his conviction for tax evasion conspiracy under 18 U.S.C. § 371, where the relevant commentary provides that "[t]he tax loss does not include interest or penalties, except in willful evasion of payment cases under 26 U.S.C. 7201 and willful failure to pay cases under 26 U.S.C. 7203." U.S.S.G. § 2T1.1, Application Note 1. However, because the district court unambiguously stated that it would have imposed the same sentence were Cote to prevail on his interpretation of the Guidelines, any error in calculating the Guidelines sentencing range was harmless. See United States v. Feldman, 647 F.3d 450, 459 (2d Cir. 2011).The opinion does not describe the facts to determine whether the defendant's object of tax evasion was evasion of assessment or evasion of payment. (But see par. 3 at the end of this blog.) The DOJ Tax press release here is cryptic but at least suggests that it might have included by types of evasion -- "Cote and his wife responded to IRS efforts to assess and collect taxes by concealing income and assets from the government and by submitting obstructive letters and other documents, including false criminal complaints against IRS employees." The Second Circuit apparently was convinced that a substantial argument was made the interest and penalties should not have been included, which would suggest that the evasion was evasion of assessment.
In any event, the sentencing court's clear statement that, whether interest and penalties were included or not, it would have reached the same sentencing decisions under its Booker discretion, avoided reversal. In the case discussed in the earlier blog, the sentencing judge had not made that type of determination because it went off on another point, but the concurring judge noted that, if indeed the sentencing judge's original sentence was based on its Booker discretion rather than the erroneous calculation of the Guidelines, on remand it might well reach the same sentence.
In addition to this tax loss calculation issue, the Court
1. The Court rejected Cote's argument that the trial court had not sua sponte given two instructions to the jury. At the risk of redundancy, the argument was that the defendant had not requested the instructions. Since the defendant had not requested the instructions, the review was for plain error, requiring reversal only if the alleged error "is egregious and obvious and if reversal is necessary to redress a miscarriage of justice," The first alleged error was the Court's failure to instruct the jury to consider an IRS booklet about tax protestors entered into evidence only for conduct after the publication date of the booklet. The second alleged error was the Court's failure to instruct the jury that there must be unanimous agreement as to at least one overt act of the conspiracy. The Court found no plain error in either case. As to the second, the Court noted:
In United States v. Kozeny, 667 F.3d 122 (2d Cir. 2011), we held that "although proof of at least one overt act is necessary to prove an element of [conspiracy], which overt act among multiple such acts supports proof of a conspiracy conviction is a brute fact and not itself [an] element of the crime. The jury need not reach unanimous agreement on which particular overt act was committed in furtherance of the conspiracy"
2. The Court held that the sentencing court makes factual findings " by adopting, as modified, the findings of fact in the presentence report in open court."
3. Cote also complained on appeal that the restitution also included penalties and interest. The Second Circuit discusses the argument as follows (bold face supplied by JAT):
On appeal, Cote primarily contends that the district court erred in including interest and penalties in setting the restitution amount. The Internal Revenue Code "expressly defines 'tax' to include penalties and interest." Carroll v. United States, 339 F.3d 61, 76 (2d Cir. 2003); 26 U.S.C. §§ 6665(a)(2), 6601(e)(1). Thus, in determining the loss caused to the government by the conspiracy to avoid the payment of Cote's outstanding tax liability, the district court properly considered these figures. See 18 U.S.C. § 3663A(b)(1)(B)(i) (defining the measure of "loss" for restitution purposes as "the value of the property" taken from the victim).
Readers should note that I have bold-faced language that might indicate that the object of the conspiracy was to evade payment, hence suggesting that the tax loss should include penalties and interest assessed as of the time of the evasive conduct / overt acts.