Saturday, July 28, 2018

$10 Million Fine in Tax Crimes Case Affirmed on Appeal (7/28/18)

In United States v. Zukerman, ___ F.3d ___, 2018 U.S. App. LEXIS 20890 (2d Cir. 7/27/18) (per curiam), here, the Second Circuit rejected Zukerman's claim that the fine imposed after he pled guilty to significant tax evasion and tax obstruction was unreasonable.  Zukerman had been sentenced to 70 months in prison and fined $10 million.  Only the fine was in issue on the appeal.  Based on the Sentencing Guidelines calculations, the indicated sentencing range was $25,000 to $250,000.  But, courts can vary from the Guidelines ranges.  The district court did so here.  The Court of Appeals affirmed.

The opinion is relatively short so I will not try address all of its  points here.  I recommend it as a good read for the procedural aspects of sentencing.  I do offer the following excerpts (cleaned up).
First, the district court put significant weight on the nature and circumstances of Zukerman's crimes pursuant to 18 U.S.C. § 3553(a)(1), explaining that tax crimes represent an especially damaging category of criminal offenses, which strike at the foundation of a functioning government. Enjoyment of the privileges of residence in the state and the attendant right to invoke the protection of its laws are inseparable from responsibility for sharing the costs of government. Taxes are what we pay for civilized society. Accordingly, the district court expressed deserved opprobrium for Zukerman's calculated scheme to defraud the government of tens of millions of dollars for the sole purpose of increasing his personal wealth, executed through efforts that spanned fifteen years and involved submitting more than 50 falsified tax forms for at least ten different individuals
[Note that, although I have cleaned up the above quote to exclude case citations, I left in the quotes from the cases; readers will no doubt recognized the quote about taxes being what we pay for a civilized society.  I omitted the case, but thought readers would like to have that case citations: Compania Gen. de Tabacos de Filipinas v. Collector of Internal Revenue, 275 U.S. 87, 100 (1927) (Holmes, J., dissenting).]
Zukerman counters that these factors do not support an upward variance from the recommended fine range because they were already addressed as part of his offense level under the Sentencing Guidelines. But the district court was not bound to conclude that the offense level adequately accounted for the complexity and scope of Zukerman's actions. To the contrary, the historic role of sentencing judges, which continues to be exercised, is to consider he judge's own sense of what is a fair and just sentence under all the circumstances. Moreover, a district court's decision to vary from the Guidelines may attract the greatest respect when the sentencing judge finds a particular case outside the heartland to which the Commission intends individual Guidelines to apply. In particular, the Guidelines related to tax offenses drastically vary as to the recommended sentence based simply on the amount of money involved, such that a district court may find that even after giving weight to the large or small financial impact, there is a wide variety of culpability amongst defendants and, as a result, impose different sentences. Thus sentences varying from the Guidelines in tax matters, if adequately explained, should be reviewed especially deferentially. We therefore accede to the finding that an above-Guidelines fine was necessary to reflect the complexity, scope, and extreme nature of Zukerman's criminal activity. Cf. Scott A. Schumacher, Sentencing in Tax Cases After Booker: Striking the Right Balance Between Uniformity and Discretion, 59 VILL. L. REV. 563, 594 (2014) (noting that the Guidelines provide only a two-point increase for a sophisticated means adjustment, which can be cancelled out by an acceptance of responsibility adjustment, making the defendant's culpability and the manner in which the tax loss was generated virtually irrelevant).
[Note that I did leave in the citation to Professor Schumacher's article,  here, to give him credit.  He is a co-author with Larry Campagna, Steve Johnson and me on our Tax Crimes book, here.]

* * * * 
Third, the district court put the most weight on the need for deterrence, pursuant to 18 U.S.C. § 3553(a)(2)(B)-(C). As regards general deterrence, Zukerman asserts that his Guidelines-minimum term of imprisonment is enough to make an example of him to others, but the sentencing judge was by no means bound by such an argument. Instead,  the district court determined that general deterrence has a particularly important role here due to the significant resources required to monitor and prosecute tax crimes, which cost the government hundreds of billions of dollars annually. Moreover, the district court explained that enforcement of tax laws has a significant and positive deterrent effect on would-be tax violators because, as compared to most criminals, tax criminals are more likely to account for the size of a fine and the likelihood that it will be imposed and are therefore more likely to eschew criminal conduct if it will be unprofitable. That rationale is eminently reasonable. Where the profits to be made from violating a law are higher, the penalty needs to be correspondingly higher to achieve the same amount of deterrence.  Considerations of (general) deterrence argue for punishing more heavily those offenses that either are lucrative or are difficult to detect and punish, since both attributes go to increase the expected benefits of a crime and hence the punishment required to deter it.).
Prior Blog entries on the Zukerman case are (reverse chronological order):

  • Second Circuit Makes Limited Remand for Sentencing Court to Explain Tax Crime Fine Variance to $10 Million from High Guideline Amount of $250,000 (Federal Tax Crimes Blog 2/7/18), here.
  • Attorneys as Witnesses Against Clients (Federal Tax Crimes Blog 6/15/16), here.
  • Update on the Zukerman Indictment - Potential Waivable Conflicts of Interest of Advocate as Witness (Federal Tax Crimes Blog 5/28/16; 6/21/16), here.
  • Prominent and Very Rich Investor Indicted in SDNY (Federal Tax Crimes Blog 5/24/16), here.

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