The Downside of Booker Discretion to Vary -- Upward Variance in a Tax Perjury Case (1/14/17)

In United States v. Hayes, 2017 U.S. App. LEXIS 251 (6th Cir. 2017) (unpublished), here, the Sixth Circuit affirmed a sentence with an upward variance in a tax conviction under § 7206(1), tax perjury.  The upward variance sentence was to 15 months which was 2 1/2 times the upper range of the Guidelines calculation (that high end being 6 months based on the stipulated tax loss).  Readers will recall that United States v. Booker, 543 U.S. 220  (2005) caused a sea change in the role of the Guidelines -- changing them from mostly mandatory to advisory with the ability of the sentencing judge to exercise discretion to vary outside the Guidelines now advisory sentencing ranges.  In tax cases, variances are not uncommon and, by far the majority of the time, are downward variances making the sentence less than the low end of the Guidelines range.  Upward variances are rare.  Viewed one way, Hayes might be seen as just another rare upward variances which are driven by unique bad facts.  Viewed another way, the sentence may be viewed as practically achieving a proper sentence consistent with the Guidelines rather than varying from them.  Let me explain.  

First, as an introduction to the explanation below, I will refer to the opinion, to the parties' briefs and to the oral argument.  The opinion is linked above.  The parties' briefs and the oral argument are linked here:

Hayes, Appellant's Brief, here
United States Appellee's Brief, here
Hayes' Reply Brief, here
Oral Argument, here
Court of Appeals Docket Sheet, here.

Hayes' tax perjury charge arose from a false Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, filed under penalty of perjury with respect to an unpaid tax liability of $125,753.62.  I have not been able to determine exactly how that tax liability was assessed -- whether assessed by a tax return or returns without payment or after audit of a tax return or returns not reporting the liability.  All the facts I know was that he had the tax liability when he filed the false Form 433-A.  From the Court of Appeals opinion (emphasis supplied by JAT):

On the form, Hayes attested that he had not "transferred any assets for less than their full value" in the past ten years. That was untrue, for in 2007-08 Hayes had given his mother nearly $140,000 worth of antiques, artwork, and jewelry for no cost. Based in part on that misrepresentation, the IRS closed its collection case, concluding that, if Hayes were forced to pay his tax debt, he would be unable to afford basic living expenses. 

Months later, Hayes's misrepresentation came to light, and he pled guilty to making a false statement on his Form 433-A. As part of the plea agreement, the parties stipulated that "no tax loss resulted from [Hayes's] offense."

In addition to the parties' stipulation, the Probation Office concurred that there was no tax loss and so calculated the advisory guideline range recommended to the judge.  Based on the Guidelines calculation of 0-6 months driven by the tax loss calculation (as to which the Probation Office, although not bound by the plea agreement, did concur in it), the Probation Officer recommended probation.

The tax loss is the subject of this blog entry.  As readers of this blog know, the principal driver in the Guidelines calculations for tax crimes is the tax loss.  It determines the initial base offense level and then with acceptance of responsibility in the normal plea case, produces the offense level to which the Sentencing Table is applied to derive the advisory sentencing range.  With a tax loss of zero, the lowest possible offense level is achieved.  The calculations are base offense level of 6 and acceptance of responsibility reduction by 2 to produce an offense level of 4 and a range of 0-6 months.  See Sentencing Table here.

The Guidelines define tax loss as follows (SG §2T1.1., here):

(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).

The district court had a problem with there being no tax loss under these facts.  This is where it gets dicey.  For me, and for the district court, the bare facts indicate that the entire tax liability of $125,753.62 was the object of his offense -- the false 433-A about the gifts in the past 10 years.  If that is right, the Guidelines calculation would be:  Base Offense Level 16, less 3 for acceptance of responsibility, for an offense level of 13, producing a Guidelines range of 12-18 months.  Under this calculation, the actual sentence of within the Guidelines range if the tax liability the subject of the false Form 433-A is considered.  But that is not how the Court imposed the sentence because, while expressing discomfort as to why the tax liability was not the tax loss.

The Impeding v. Tax Loss Explanation

So, how did the parties and the PO determine that there was no tax loss?  As explained at oral argument, the Government initially agreed to that calculation in the plea agreement because of some confusion as to what the precise object of the false representation was.  I don't really understand the explanation at oral argument but I will try to repeat it as I heard it.  The notion is that the false representation merely impeded the collection of the tax but ultimately did not represent a tax loss because the tax was paid.  Assuming I captured the Government's oral argument explanation of why it agreed in the plea agreement that there was no tax loss, then I think that notion is wrong.  The Guidelines specifically state 2.T.1.1(c)(5): "(5)  The tax loss is not reduced by any payment of the tax subsequent to the commission of the offense."  Thus, the difference between merely impeding meaning no tax loss and trying to evade the tax which would produce a tax loss is, I think, not viable.  At the oral argument, the Court tried to get the Government attorney to explain the difference in a way meaningful to the Guidelines, but I did not get the impression that the Government could explain that meaningfully.  Indeed, I think the Government attorney suggested that the Government may not entertain that position in future cases.

The Tax Loss Existing Prior to the Form 433-A Explanation

In the opinion, the Court explains the basis for the stipulation a little differently than I heard it in the oral argument.  The Court of Appeals' explanation comes in two phases related to the two hearings where this was the subject of the hearing.

At the first hearing, the court pointed out that Hayes's false statement had prevented the IRS from collecting his unpaid taxes. The parties conceded that was true, but insisted it was irrelevant for sentencing purposes. A defendant can cause a "tax loss" only once, the parties reasoned, and Hayes had caused this loss when he underpaid his taxes, not when he lied to the IRS.

In its brief, the Government gave a similar explanation:

The government also filed a sentencing memorandum (R. 12, Govt. Sent. Mem., 39-42), in which it did not argue that the court should impose any particular sentence. The government noted, however, that no tax loss (as the parties agreed to in the plea agreement) resulted from Hayes’ offense because the loss to the IRS pre-existed his offense. (Id., 40.) 

And then, from the Government's brief, the sentencing court expressed a similar basis for the no tax loss stipulation:

After the parties had an opportunity to question the IRS agent and the district court got further clarification on how the restitution figure was calculated (id., 395-405), the court announced that it was “not going to impose sentence today because I’ve got to do some more thinking on this.” (Id., 407.) It explained: I certainly understand the argument that the tax loss to the government was suffered by the government prior to the 433A Form being signed. But there is also no question that based on the facts set forth in the Statement of Facts that the action of signing the 433A impeded the collection of taxes[.]
* * *
I do believe . . . that I am entitled to consider the effect of the fraudulent 433A in  considering the Section 3553(a) factors. And unless counsel can convince me . . . that I can’t do that, then I intend to do so.

 This pre-existing tax loss explanation just makes no sense to me.  I don't think there ever any explanation of why there was a tax loss when he underpaid his taxes.  A tax loss is a loss that is the object of the charged offense.  There was no charged offense for the original underpayment, nor even a hint in the record that such  an offense could be charged for the original underpayment.  Based on how I understand the record, it was simply an underpayment which, on that bare fact, is not an offense unless it is intended to evade or defeat discovery or payment of the tax liability.  There is no indication in the record about any such intent at the time the tax liability arose.  Rather, all the record indicates is a false 433-A designed to impede the collection of the tax after the tax arose.  That would mean that the tax loss is the tax he intended to impede.

The Tax Loss Anyway is a 3553(a) Consideration

Then (from the opinion):

At the second pre-sentencing hearing, the court accepted that Hayes's false statement had not caused a "tax loss" as defined by the Guidelines, and that Hayes's sentencing range was therefore zero to six months. But "tax loss" or not, the court found, Hayes's false statement had undoubtedly caused real-world harm to the Government. Specifically, the court determined that, if Hayes had not lied on his Form 433-A, the IRS would have collected at least $125,753.62 from him, and potentially more given that he had also underpaid his 2008-09 taxes. The court said that it planned to consider that harm when it weighed the 18 U.S.C. § 3553(a) factors. The court warned Hayes that, to account for that harm, the court might need to impose a sentence above the Guidelines range. 

At sentencing, the district court reiterated the following: that Hayes's Guidelines range was zero to six months; that the range reflected a "tax loss" of zero; that, in actuality, Hayes had cost the Government more than $125,000; and that, to account for that harm, the court "ha[d] at its disposal an upward . . . variance." The court then addressed the remaining § 3553(a) factors. Hayes did not need to be rehabilitated, the court found, and any sentence the court imposed was unlikely to deter future offenders. 18 U.S.C. § 3553(a)(2)(B),(C),(D). Further, Hayes had been a "good son" to his elderly mother, and had served his community as both a "talented professional" and an active philanthropist. Id. at § 3553(a)(1). But Hayes had failed to pay his taxes despite having the means to do so, and had refused to admit (even at sentencing) that he had tried to deceive the IRS. Id. Finally, given that the court had imposed "heavy prison sentences" on defendants who had "stolen far less" than Hayes had, the court said that it could not grant Hayes's request for probation without diminishing public respect for the law. Id. at § 3553(a)(2)(A)

So, I feel that Hayes' attorney scored a major coup in getting the Government attorney to stipulate that there was no tax loss when it seems to me and apparently to the district court that there was a tax loss, at least for purposes of the 3553(a) factors.  That is good lawyering.

The sentencing court is not required to accept a Guidelines stipulation in a plea agreement or a recommendation from the PO, but the sentencing court usually does.  What troubled this sentencing judge is that Guidelines calculation driven by the tax loss proffered by the parties and the PO did not make sense.  The sentencing court could have gotten to the same sentence by treating the tax amount as a tax loss or some type of fraud loss and varying downward or by accepting the stipulation of tax loss and varying upward.  It seems clear from the oral argument that the sentencing judge thought there was a tax loss but finally just said that accepting that there was no tax loss, he would do the upward variance to get the right result to reflect the seriousness of the offense.

That is pretty much the essence of what I want to convey in this blog.  I will include certain excerpts from the documents linked above that may offer something to readers.

• From the Appellant's Brief:

The United States, the probation officer in the PSI, and the defense agreed that Hayes’ case involved no tax loss because his crime—the nondisclosure of the gifted assets—occurred after his tax liability was incurred. (Plea Hearing Tr., R. 30, Page ID # 354). In fact, the parties stipulated that there was no tax loss in the plea agreement itself. (Id.). The resulting guideline calculation was zero to six months, and the United States did not object to the PSI’s recommendation of probation for Hayes. (United States’ Sentencing Memorandum, R. 12, Page ID # 39). 

Despite the stipulation of the parties, the district court “wrestled with the fact that the offense did not cause a tax loss.” (Sentencing Tr. R. 37, Page ID # 460). Multiple hearings and conferences were held and additional briefing was submitted so the district court could “better understand the nature of the plea agreement.” (July 27, 2015 Hearing Tr. R. 31, Page ID # 378). Ultimately, the district court accepted “that the signing of the form did not cause the tax loss that had theoretically already occurred.” (Sentencing Tr., R. 37, Page ID # 462). The district court further concluded that while the “signing of the form didn’t cause the tax loss, it certainly impeded its collection. I will accept that for purposes of moving forward.” (Id. at Page ID # 13).

Quoting from the hearing transcript:

The Supreme Court Building says Equal Justice Under the Law. And again I’m not saying that Dr. Hayes is a bad person. I think on balance you would have to conclude otherwise. One’s life is judged by the full body of work, not by a single blip of this nature. But I don’t see how in the world I can talk in terms of Equal Justice Under The Law when I have over the years given heavy prison sentences to persons such as I normally see or saw when I was in state court who quite frankly have stolen and that’s what this is, stolen far less money than this. Now, I personally don’t care – well, that’s too extreme. I do care about public opinion. Not about me personally, not about what the public may think about a given decision or not. But I do care very, very much what the public thinks of our system of justice. And to give this man probation would in my opinion help, help accelerate the growing lack of respect that people in this country for reasons too numerous to mention have for our system of law. I don’t see how this Court or any judge of this Court, or frankly any attorney who has devoted his or her life to the system of justice and to the goal of equality under the law, every person is equal under the law, I don’t see how anyone involved with the justice system could hear of the facts of this case – and I’m not including counsel of record in this matter, but I don’t see how anybody could consider the issues involving the criminal justice system today when considered against a sentence of probation for this Defendant as anything less than unequal justice under the law. (Id. at Page ID # 471-73). 

• Government Brief:

The district court nevertheless advised the parties that it would accept the PSR’s calculation that Hayes’ advisory Guidelines range was 0 to 6 months based on the argument that his offense did not “cause” any tax loss to the IRS. (Id., 414.) 

* * * * 

The court concluded the hearing by inviting the parties to brief the issue of how the court may consider the fraudulent Form 433A with respect to the § 3553(a) factors, whether filing the false form impeded  collection of taxes in later years, and whether any variance is appropriate in this case. (Id., 413-415.)  

* * * * 

The court began by noting that it had “wrestled” with the issue of whether Hayes’ offense caused a tax loss. (Id., 460.) While it ultimately accepted the parties’ arguments that the offense did not cause a loss, the court dismissed this as “semantics” because “there [was] no question in the Court’s mind that the signing of [the] 433A Form impeded the collection of the tax due and owing.” (Id.; see also id., 463 (“the signing of the form impeded the collection of the taxes . . . such as to cause the IRS to close its . . . collection”).) Largely based on the fact that the “tax loss had theoretically occurred” (id., 462) before Hayes prepared the false form, the court concluded that his advisory Guidelines range was 0 to 6 months. (Id., 465.)  

* * * * 

If the $125,000 of unpaid taxes the IRS was attempting to collect had been used as the tax loss, the resulting base offense level pursuant to USSG § 2T1.1 and § 2T4.1 would have been level 16. After a three-level decrease for acceptance of responsibility and timely notification of  intent to plead, the advisory range would have been 12 to 18 months. Similarly, if the amount of taxes Hayes impeded the IRS from collecting was at issue in a theft – and the court likened the offense to a theft – the base offense level under U.S.S.G. § 2B1.1 based on a loss amount of $125,000 would be level 14. Subtracting 2 points for acceptance of responsibility, see U.S.S.G. § 3E1.1, would result in a Guideline range of 10-16 months.

The 15 months imposed by the district court is within both of these guideline ranges for financial crimes involving comparable amounts. Consequently, despite Hayes’ allegation, there is no evidence the district court gave unreasonable weight to punishment. Although the court placed significant weight on the need for the sentence to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense pursuant to 18 U.S.C. § 3553(a)(2)(A), the court did not weigh those factors so heavily as to constitute an abuse of discretion making the sentence substantively unreasonable.

• Oral Argument:  

I have not transcribed the oral argument.  I do strongly recommend that readers interested in this  issue listen to the oral argument.