Justice Thomas' Misleading Statement in Solo Dissent about Maximum Exposure Considered in a Plea Agreement (6/20/26; 6/21/26)

In Hunter v. United States, 608 U. S. ____ (2026), SC here and GS  here [to come], the Court held (from syllabus):

An agreement [plea agreement] not to appeal a sentence is unenforceable when it would result in a miscarriage of justice—meaning, when it would leave in place the kind of egregious error that would bring the judicial system into disrepute.

That’s a broadly stated general rule that will be fleshed out in its application. However, I will not discuss the holding further. Rather, I focus on a misleading statement made by Justice Thomas in his solo dissent that states a common misconception about plea bargaining.

Justice Thomas states (Slip Op. 39 of pdf, indicating p. 1 of dissent here, emphasis supplied by JAT):

Thanks to the [plea] agreement, Hunter received a 51-month prison term, followed by three years of supervised release, less than 2% of the prison time to which the indictment exposed him.

Added 6/21/26 2:30pm: Justice Thomas makes the statement to explain what the benefit of the bargain was for Hunter in order to support his [Thomas'] claim that the agreement appeal waiver should be binding.

No competent lawyer negotiating the plea would have negotiated against the maximum suggested in Justice Thomas’ statement; rather they would have negotiated against the sentence ranges provided by the Guidelines. I demonstrate with a simple example:

Assume that a taxpayer is convicted of 3 counts of tax evasion, with each count carrying a 5-year maximum sentence. In theory, that might permit "stacking" to reach the maximum sentence of 15 years if convicted of all counts. In fact, the Guidelines Offense Level maximums range from 6 months for tax losses from $2,500 or less to 36 for more than $550 million. Assuming no other adjustments (such as criminal history, etc.), looking at the maximum Offense Level of 36, the Guidelines Sentencing Table maximum  range is 188-185 months (about 16 years). Most tax evasion convictions involve tax loss far less than $550 million, so the realistic range is far less than 25 years.

I illustrate with a more realistic tax loss example: Assume tax evasion loss of, say, $20 million (aggregate on 3 counts) producing a Guidelines Offense Level of 26 and Sentencing Table range of 63-78 months (about 5-6 years), again assuming no other adjustments.

Failure to Pay Employer's Share of FICA Is Not Included in Tax Loss for § 7202 Convictions for Failure to Withhold and Pay Over Employee's Share (5/27/26)

In United States v. Fecondo (3rd Cir. No. 24-1618 5/26/26) (NonPrecedential), CA3 here and GS here the court held that Fecondo’s crimes of conviction under § 7202 for failure to withhold and pay over the employee share (or portion) of FICA does not include the tax loss from the employer’s failure to pay the employer share.  (The employee share is sometimes called a "trust fund" tax because deemed to be held in trust to pay over to the IRS.) The employer share is not a tax collected from the employee (by deduction from wages) withheld within the scope of § 7202, the offenses of conviction. Thus, the unpaid employer share could not be included in the tax loss for the counts of conviction. Moreover, the Court held that the employer share is not “relevant conduct” for inclusion in the tax loss under the Sentencing Guidelines. The reasoning is that, although the two portions are related in the sense that they arise from the employer’s payment of wages, failure to pay a direct tax (employer’s share) is not related to the crime of failure to withhold and pay over the employee’s share for relevant conduct purposes. They are related but not relevant conduct to the counts of conviction.

I wonder if that works in reverse. Say the defendant was convicted of tax evasion, § 7201, for failure to pay the employer’s taxes (including the employer share of FICA). Could the failure to withhold and pay over the employee share of FICA be relevant conduct? 

10th Circuit Reverses on Defraud/Klein conspiracy instruction and Advice of Counsel Instruction, with Reminder on Limitations of Pattern Jury Instructions (9/4/25; 9/7/25)

See discussion added at end on 9/5/25 @ 11:30 am.

In United States v. Kearney, ___ F.4th ___ (10th Cir. 9/2/25), CA10 here and GS here [to come], the Court held that the trial court erred in two jury instructions: (i) the trial court instructed the jury on the uncharged offense conspiracy rather than the charged defraud conspiracy; and (ii) the trial court did not include the conspiracy charge in the advice-of-counsel defense instruction. Both errors required a remand for further proceedings.

Both holdings are not particularly exceptional. The first holding does offer an opportunity to remind readers of the difference between the two types of conspiracy criminalized by 18 USC § 371, here, helpfully titled “Conspiracy to commit offense or to defraud United States.” The two types of conspiracy are thus often identified as the offense conspiracy and the defraud conspiracy. The offense conspiracy is a conspiracy to commit a specific offense. The defraud conspiracy is a conspiracy “to defraud the United States, or any agency thereof in any manner or for any purpose.” But defraud, as interpreted, has a special meaning for the defraud conspiracy. The word “fraud” and its counterpart “defraud” normally requires an object to obtain money or property by fraudulent means. Fraud for purposes of the defraud conspiracy includes that object but also includes an object to impair or impede the lawful functioning of a government agency, here the IRS. (When charged with the latter object (impair or impede), the defraud conspiracy is often referred to as a Klein conspiracy, named after United States v. Klein, 247 F.2d 908 (2d Cir. 1957).) I have written on the defraud/Klein Conspiracy and its textual problem. The following is my most recent foray into the subject: Is It Too Much to Ask that the Defraud Conspiracy Crime Require Fraud? (Federal Tax Crimes Blog 8/3/24; 8/6/24), here (citing a prior article and blogs).

But, for this blog, accept the defraud conspiracy as it is now; it does not require what we normally think of as fraud with a monetary or property object but can include an object “to interfere with or obstruct one of its lawful governmental functions by deceit, craft[,] or trickery, or at least by means that are dishonest.” Hammerschmidt v. United States, 265 U.S. 182, 188 (1924), quoted in Kearney at Slip Op. 8.

The problem in Kearney was that, at the Government’s invitation at trial, the court instructed the jury based on the 10^th Circuit’s pattern jury instruction describing the offense conspiracy which was not charged. Kearney was charged with and convicted for the defraud conspiracy which, the 10^th Circuit panel holds should have included the limiting language from Hammerschmidt quoted above.

The Government requested the offense conspiracy instruction based on the 10^th Circuit’s Pattern Jury Instructions. The 2025 version of the pattern jury instructions is here (see Instruction 2.19 CONSPIRACY 18 U.S.C. § 371). That pattern instruction is for the offense conspiracy without any discussion of the defraud conspiracy, a discussion which, if included, might have timely alerted the parties and the judge as to the problem with the offense conspiracy instruction. (In fairness, Kearney’s attorney realized the problem and proposed a variation instruction.)

The Court offers this helpful discussion on the limitations of pattern jury instructions (Slip Op. 12-13):

          To be sure, the district court used this circuit’s pattern instruction on § 371 conspiracies, which typically “weighs against a finding of plain error.” United States v. Kepler, 74 F.4th 1292, 1315 (10th Cir. 2023). But pattern instructions are merely a guide. See Tenth Cir. Crim. Pattern Jury Instrs. Introductory Note (“The Committee’s approach was to generate generic minimalist instructions that would be tailored to individual cases.”); United States v. Freeman, 70 F.4th 1265, 1280 n.13 (10th Cir. 2023) (noting that “pattern instructions are merely intended to serve as a guide” and suggesting that, where Tenth Circuit has not issued pattern instruction for offense, parties may need “to select alternate formulations” of offense elements). And the pattern instruction in this instance not only fails to account for the two kinds of conspiracies in § 371, it doesn’t describe the charged offense at all. See Tenth Cir. Crim. Pattern Jury Instrs. § 2.19 at 98 (2025). Given the  statute’s plain language, the error in using the pattern instruction on conspiracy to violate the law for a charge of conspiracy to defraud was also plain.

Fifth Circuit Reversal of Count of Conviction Based on Statute of Limitations May Permit the Reversed Count Conduct as Relevant Conduct for Affirmed Count (7/28/24)

In United States v. Boswell, 109 F.4th 36 (5th Cir. 2024), CA5 here and GS here, the Court reversed Boswell’s conviction for bankruptcy-fraud conviction (Count One) and affirmed his conviction for tax evasion (Count Two).

The Court reversed the bankruptcy-fraud conviction based on the indictment being untimely under the 5-year statute of limitations. When Count One was originally indicted as a one-count indictment, the indictment was obtained within the 5-year period but the Government sought and obtained a sealing order for the indictment. Then, about 6 months after the 5-month period expired, the Government obtained a superseding indictment adding tax evasion (Count Two), and the indictment was unsealed. The tax evasion statute of limitations is 6-years, so that Count was clearly timely.

The Court reversed the bankruptcy-fraud conviction because the Government failed to adduce a satisfactory reason for the Government to obtain an order sealing the original indictment. The Court relied principally upon the reasoning United States v. Gigante, 436 F. Supp. 2d 647 (S.D.N.Y. 2006) which dismissed because the Government’s claims for need of a superseding indictment were rejected. Hence, the Court reversed the bankruptcy-fraud charge (Count One) for failure to satisfy the required statute of limitations.

The conviction on the tax evasion count (Count Two) was affirmed. The Court rejected Boswell’s various claims on Count Two, holding: (i) the two convictions were not inextricably intertwined so that improper conviction on Count One required reversal on Count Two, (ii) the trial court properly rejected Boswell’s request for a bill of particulars on Count Two; (iii) there was no variance between the evidence and the tax evasion crime charged in Count Two, so Boswell was not surprised by the evidence at trial; (iv) there was no constructive amendment of Count Two as charged; (v) the evidence was sufficient to support the jury verdict; and (vi) the errors, if any, did not support application of the “cumulative error” doctrine permitting reversal for individual nonreversible errors which in the aggregate impaired the right to a fair trial.

All of this is fairly routine. I post on the case to address a related issue regarding sentencing calculations.

Good Article On Open Pleas vs. Negotiated Plea Agreements (12/15/22)

Since charging in federal tax crimes, like other federal crimes, usually results in a plea agreement, I thought readers of this blog might be interested in Alan Ellis and Mark H. Allenbaugh, Plea Bargained vs. Open Pleas: What the Data Reveal (31 Westlaw Journal White-Collar Crime March 2017), here. Ellis and Allenbaugh are recognized experts in sentencing and have collected and analyzed sentencing data presented in the article. The authors say that 97% of all federal defendants plead guilty. Statistics are wobbly things but I am sure the real statistics as most of us would understand them indicate over 90% for federal crimes generally and for tax crimes. So, the question of whether to plea bargain or do an open plea is something lawyers should discuss with the clients.

The authors open with (footnote omitted):

Federal Rule of Criminal Procedure 11 governs guilty pleas for federal criminal defendants. This expert analysis examines the raw sentencing data published by the U.S. Sentencing Commission  regarding the types of pleas defendants enter and the sentences they receive. In particular, we examine the number and rate of pleas under agreements (whether written or oral, conditional or not) versus open pleas. The results are rather surprising, and we suggest there are increasing strategic reasons for defendants to consider pleading open, that is, pleading guilty without benefit of a plea agreement with the government.

JAT Comment:

1. As practitioners and other observers of sentencing know, a plea bargain to reduce the counts of conviction often does not affect the sentence, particularly in tax crimes cases because of the expansive use of “relevant conduct” in calculating the Guidelines sentencing range. The Probation Office PSR often will state that expressly. In most plea agreements, the parties will stipulate the relevant conduct. As the authors note, “Defendants who plead guilty without benefit of a plea agreement by pleading ‘open’ or ‘straight up,’ are not required to admit any relevant conduct.”  Those Defendants “preserved their right to challenge all relevant conduct in terms of sentencing factors.” As a result, the authors conclude that they “have received lower sentences on average,” at least “statistically speaking.”

Court of Appeals Finds No Harm Attorney's Failure to Assure Client Understood Relevant Conduct for Sentencing Loss Calculations (10/29/30)

In Jones v. United States, 2020 U.S. App. LEXIS 33857 (6th Cir. 2020), unpublished, here, the Court by Order denied Jones’ request for a certificate of appealability ("COA") from the district court’s denial of a motion under 28 USC § 2255 to vacate, set aside or correct his sentence.  The Order rejected Jones’ allegations of ineffective assistance of counsel, a common complaint in § 2255 motions.

The Court reasoned (cleaned up)

A COA may issue “only if the applicant has made a substantial showing of the denial of a constitutional right." 28 U.S.C. § 2253(c)(2). When the district court's denial is based on the merits, the petitioner must demonstrate that reasonable jurists would find the district court's assessment of the constitutional claims debatable or wrong.

Reasonable jurists would not debate the district court's determination that trial counsel did not render ineffective assistance. To establish ineffective assistance of counsel, a defendant must show deficient performance and resulting prejudice. Strickland v. Washington, 466 U.S. 668, 687 (1984). The performance inquiry requires the defendant to show that counsel's representation fell below an objective standard of reasonableness. In the context of a guilty plea, the prejudice inquiry requires the defendant to show that there is a reasonable probability that, but for counsel's errors, he would not have pleaded guilty and would have insisted on going to trial. The test is objective, not subjective; and thus, to obtain relief on this type of claim, a petitioner must convince the court that a decision to reject the plea bargain would have  been rational under the circumstances.  With respect to claims of ineffective assistance of counsel during sentencing, prejudice is established if the movant demonstrates that his sentence was increased by the deficient performance of his attorney.

Reasonable jurists could not debate the district court's ruling that Jones failed to establish prejudice from counsel's alleged failure to advise him that the loss amount would include loss from relevant conduct not charged in the counts to which he pleaded guilty. Jones claimed that he discovered only after reviewing the presentence report that, because of the relevant conduct he would receive a 16-point increase in his offense level under USSG § 2B1.1(b)(1)(I). Jones also notes that counsel acknowledged that a psychologist testified on his behalf during sentencing, and that the psychologist explained that Jones had difficulty understanding "how things worked and was often confused. . . about the positions that the government took, as well as some of the things that took place." Therefore, he contends that counsel “should have taken extra steps . . . to ensure that [he] understood [the plea agreement]" before signing it. He also argues that he made a substantial showing that he would not have accepted the plea offer had he been made aware that pleading guilty would increase the amount of restitution by 2 million dollars. Because Jones claims that he would have proceeded to trial had counsel accurately advised him of his sentence exposure, he was required to establish that a decision to reject the plea bargain would have been rational under the circumstances.

Reasonable jurists would agree with the district court's conclusion that, in light of the strong case against Jones and his failure to cite any evidence that he had a viable defense to the twenty-five counts brought against him, he failed to establish that it would have been rational for him to proceed to trial had he known of the potential increase in his offense level and restitution amount. A petitioner must produce contemporaneous evidence that suggests that, absent counsel's allegedly deficient performance, he would have elected to proceed to trial instead of accepting the plea agreement. Moreover, at the plea hearing, Jones admitted the accuracy of the statement of facts attached to his plea agreement, and he acknowledged that the applicable guidelines range was not a guarantee of his eventual sentence. In these circumstances, knowledge that his guidelines range might be higher than anticipated—a fact that would be true regardless of whether he pleaded guilty or was found guilty at trial—would not make it rational for a defendant to abandon his plea agreement and risk conviction on twenty-two additional counts. Reasonable jurists could not debate that Jones failed to establish prejudice.

JAT Comments:

Sixth Circuit Affirms Conviction, Upholding Relevant Conduct Tax Loss Attributable to Defendant's Conduct (7/8/20)

United States v. Igboba, 964 F.3d 501 (6th Cir. 2020), here, the Court affirmed Igboba’s conviction “on multiple criminal counts based on his participation in a conspiracy to defraud the United States Department of the Treasury by preparing and filing false federal income tax returns using others’ identities.”  The Court rejected his arguments that:

1. The tax loss, the principal driver for the sentencing calculation, improperly included tax loss of others for jointly undertaken criminal activity under S.G. 1B1.3(a)(1);
2. The sophisticated means enhancement did not apply; and
3. Two other arguments made in a pro se brief that the Court deemed insubstantial, so I don’t address them here.

I address here only the tax loss issue.

S.G. 1B1.3(a)(1), here, treats certain sentencing factors as “relevant conduct” that can be included in the tax loss calculation which determines the base offense level under S.G. §2T1.1(a), here, the tax base offense level.  In part here relevant, S.B. 1B1.3(a)(1)(B) includes:

(1)       (A)       all acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by the defendant; and
(B)      in the case of a jointly undertaken criminal activity (a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whether or not charged as a conspiracy), all acts and omissions of others that were—
(i)      within the scope of the jointly undertaken criminal activity,
(ii)      in furtherance of that criminal activity, and
(iii)      reasonably foreseeable in connection with that criminal activity;
that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense.

Roughly, (A) covers the sentencing factors from the defendants’ personal conduct and (B) covers the sentencing factors from the conduct of others.  The scope of (B) is not the same as and generally can be less than conduct within the scope of so-called Pinkerton liability for which a defendant can be convicted for crimes committed by others within the scope of the conspiracy.  See also Pinkerton and Sentencing for Jointly Undertaken Activity; Proposed Sentencing Guidelines Amendment (Federal Tax Crimes Blog 4/17/15), here; and 11th Circuit Holds Relevant Conduct Loss for Guideline Calculation Can Be Less Than Loss Within Scope of Criminal Conspiracy (Federal Tax Crimes Blog 2/27/19), here.

The Guideline’s Application Note 3(B) provides:

(B)       Scope.—Because a count may be worded broadly and include the conduct of many participants over a period of time, the scope of the "jointly undertaken criminal activity" is not necessarily the same as the scope of the entire conspiracy, and hence relevant conduct is not necessarily the same for every participant. In order to determine the defendant's accountability for the conduct of others under subsection (a)(1)(B), the court must first determine the scope of the criminal activity the particular defendant agreed to jointly undertake (i.e., the scope of the specific conduct and objectives embraced by the defendant's agreement). In doing so, the court may consider any explicit agreement or implicit agreement fairly inferred from the conduct of the defendant and others. Accordingly, the accountability of the defendant for the acts of others is limited by the scope of his or her agreement to jointly undertake the particular criminal activity. Acts of others that were not within the scope of the defendant's agreement, even if those acts were known or reasonably foreseeable to the defendant, are not relevant conduct under subsection (a)(1)(B). 

In cases involving contraband (including controlled substances), the scope of the jointly undertaken criminal activity (and thus the accountability of the defendant for the contraband that was the object of that jointly undertaken activity) may depend upon whether, in the particular circumstances, the nature of the offense is more appropriately viewed as one jointly undertaken criminal activity or as a number of separate criminal activities. 

A defendant's relevant conduct does not include the conduct of members of a conspiracy prior to the defendant joining the conspiracy, even if the defendant knows of that conduct (e.g., in the case of a defendant who joins an ongoing drug distribution conspiracy knowing that it had been selling two kilograms of cocaine per week, the cocaine sold prior to the defendant joining the conspiracy is not included as relevant conduct in determining the defendant's offense level). The Commission does not foreclose the possibility that there may be some unusual set of circumstances in which the exclusion of such conduct may not adequately reflect the defendant's culpability; in such a case, an upward departure may be warranted.

With that background in mind, the Court first said that Igboba did not properly preserve the argument, so the standard of review was plain error review.  The Court then moved to the merits (see Slip Op. pp. 7-12).  The Court noted that the district court "did not specifically address whether the relevant $4.1 million in losses was attributable to Defendant under subsection (A) or subsection (B)," but that "its analysis suggests that it found all $4.1 million attributable to Defendant’s own criminal activity, rather than others’ acts that were a part of 'jointly undertaken criminal activity.'"  Importantly, the district court excluded any loss "where Defendant could not be directly connected to a loss through reliable evidence."

Second Circuit Affirms Conviction; Includes Tax Interest and Penalties as Relevant Conduct (4/14/20; 4/21/20)

In United States v. Adams, ___ F.3d ___ (2d Cir. 2020), here, the Second affirmed the conviction and sentencing of Adams after he pled guilty to a six-count superseding indictment charging:

Counts One, Three, and Five charged Adams with making and subscribing to false tax returns for the years 2009, 2011, and 2012, in violation of 18 U.S.C. § 2 and 26 U.S.C. § 7206(1). Counts Two and Four charged Adams with tax evasion in 2011 and 2012, in violation of 18 U.S.C. § 2 and 26 U.S.C. § 7201. Count Six charged Adams with attempting to interfere with the administration of the internal revenue laws, in violation of 18 U.S.C. § 2 and 26 U.S.C. § 7212(a).

The key holdings are (as described in the Court captions are):

1.  Adams Is Not Entitled to Withdraw His Guilty Plea.
2.  The district court properly calculated the Tax Loss
3. The District Court Properly Concluded That Adams Obstructed Justice
4. Although the District Court Erred in Ordering the Payment of Immediate Restitution, the Court Had the Authority to Order Restitution as a Condition of Supervised Release
5. Adams's Double Jeopardy Claim Has Been Waived
6.  Adams Was Not Deprived of His Right to a Fair and Impartial Tribunal

The opinion is routine and, for purposes of this blog does not warrant discussion except I do address the Tax Loss Calculation because of its reminder of relevant conduct:

The tax loss calculation included penalties and interest.  Normally, the tax loss calculation would only include penalties and interest if the taxpayer were convicted of evasion of payment of the assessed amounts.  (The tax loss for evasion of assessment does not include interest and penalties.)  That taxpayer was not convicted of evasion of payment; hence he urged that the tax loss should not include those amounts.  The Court held, however, that evasion of payment was relevant conduct (cleaned up):

Since the statutory reference in § 2T1.1 n.1 does not require a charge or conviction to be applicable to a defendant's case, we hold that, under U.S.S.G. § 2T1.1 application note 1, the exception permitting interest and penalties to be included in the tax loss calculation for "willful evasion of payment cases" under 26 U.S.C. § 7201 and "willful failure to pay cases" under 26 U.S.C. § 7203 can be applied based on uncharged relevant conduct constituting violations of those statutes. Thus, even where a defendant has not been convicted of willful evasion of payment under § 7201 or willful failure to pay under § 7203, penalties and interest may still be included in the tax loss calculation if the object of the offense is to avoid the tax, penalties, and interest.

JAT Comment (added 4/16/20 11:00am):

1.  From what I recall over the years, the tax loss calculation for counts of conviction for tax crimes related to assessment (rather than collection), such as evasion of assessment and tax perjury, have not included penalties and interest in the tax loss calculation.   Perhaps my memory fails me, but I just don't recall that  the tax loss calculation included interest and penalties.  SG § 2T1.1 n. 1, here, says:  " The 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."  Conceptually, if a person intended to evade assessment, it is not much of a leap, if a leap at all, to say that the person intended to avoid the interest and penalties on the tax that he or she avoided assessment.  So, I wonder if this is an opening that the Government might exploit in some cases to sweep into the loss calculation penalties and interest.  Of course, given the ranges in the Tax Table in § 2T4.1, here, including the interest and penalties may not change the offense level so it may not be that big a deal.  But one should remember that the civil fraud penalty is 75% which draws interest from the due date of the return, so the tax loss would be substantially increased so as to, depending up the loss, move up one offense level.  (The same would be true of a fraudulent failure to file penalty that goes up to 75%.)

2.  Added 5/21/20 4:00 pm: Jeremy Temkin, a frequent writer on tax crimes subjects for the New York Law Journal, has this post on Adams:  Jeremy Temkin, Financial Considerations for Sentencing in Federal Tax Prosecutions, New York Law Journal 5/21/20), here.  Highly recommended.

11th Circuit Holds Relevant Conduct Loss for Guideline Calculation Can Be Less Than Loss Within Scope of Criminal Conspiracy (2/27/19)

In United States v. Anor, 2019 U.S. App. LEXIS 4858 (11th Cir. 2019), here, Anor was a relatively low level employee in a tax preparation office which prepared and filed hundreds of false and fraudulent tax returns.  She pled guilty to conspiracy to conspiracy to commit wire fraud, in violation of 18 U.S.C. §§ 1343 and 1349.  In calculating the loss for Sentencing Guidelines purposes, the district court included all the losses related to conspiracy -- being all the losses involved.  The Court of Appeals reversed because the Guidelines' discussion of relevant conduct would be less than the losses within the scope of the criminal conspiracy.  Here is the discussion:

However, "[t]he limits of sentencing accountability are not coextensive with the scope of criminal liability." United States v. Hunter, 323 F.3d 1314, 1319 (11th Cir. 2003). Under the guidelines, liability for the reasonably foreseeable acts of others is limited by the scope of the criminal activity the defendant agreed to jointly undertake. See U.S.S.G. § 1B1.3, cmt. n.2. Therefore, "to determine a defendant's liability for the acts of others, the district court must first make individualized findings concerning the scope of criminal activity undertaken by a particular defendant." Hunter, 323 F.3d at 1319 (quotation marks omitted). "In determining the scope of the criminal activity, the district court may consider any explicit agreement or implicit agreement fairly inferred from the conduct of the defendant and others." United States v. Petrie, 302 F.3d 1280, 1290 (11th Cir. 2002). Once that individualized finding is made, the court can proceed to determine reasonable foreseeability. Hunter, 323 F.3d at 1319. 

Our decision in Hunter illustrates the limits of sentencing accountability for low-level defendants who are convicted of participating in a broader conspiracy. The defendants in Hunter were participants in a counterfeit corporate check-cashing ring that operated in South Florida. Id. at 1316. The ring was composed of three "levels" of participants—two individuals at the top who were responsible for printing the counterfeit checks; three individuals who were responsible for recruiting and occasionally driving the check-cashers (called "runners") to cash the checks; and, at the bottom, nineteen runners. Id. At sentencing, the district court held the three defendants, who were runners, responsible for the total loss of the entire conspiracy, stating that the losses associated with the broader conspiracy were reasonably foreseeable to them. Id. at 1318. 

On appeal, we held that reasonable foreseeability alone was not enough and that the district court erred by failing to "first determine the scope of the criminal activity [the defendants] agreed to jointly undertake." Id. at 1320 (quotation marks omitted). We explained that "the Guidelines establish that the fact that the defendant knows about the larger operation, and has agreed to perform a particular act, does not amount to acquiescence in the acts of the criminal enterprise as a whole." Id. Thus, the fact that the defendants cashed multiple checks, which made them responsible for those checks, did not "automatically" or "necessarily" support a finding that they knew the scale of the conspiracy, "let alone that [they] agreed to the full extent of that criminal activity." Id. at 1320-21. Similarly, the mere fact that one of the defendants identified other runners working for a mid-level operative was "not enough to make her accountable for their conduct" without some other evidence "from which an agreement can be inferred." Id. at 1320. Cautioning that the defendants' "involvement and agreement in the conspiracy may be limited to the checks each actually cashed," we vacated the application of a loss enhancement and remanded for the court to make individualized findings as to the scope of criminal activity each defendant agreed to undertake. Id. at 1322. 

Hunter further elaborated on the types of evidence showing agreement in a larger criminal scheme. See id. at 1321-22. One "relevant factor in determining whether an activity is jointly undertaken is whether the defendant assisted in designing and executing the scheme." Id. at 1321; cf. United States v. McCrimmon, 362 F.3d 725, 732-33 (11th Cir. 2004) (holding a defendant responsible for the entire amount of loss where the defendant, though he did not "design" the scheme, actively recruited investors to further the scheme and had a role equivalent to a higher-level operative). Another is "evidence of sharing or mutuality from which an agreement in the larger criminal scheme can be inferred." Hunter, 323 F.3d at 1322. For example, in United States v. Hall, we affirmed a court's determination that the defendant's relevant conduct included fraud losses caused by others in a telemarketing-type conspiracy where each of the participants knew each other and was aware of the others' activities, and they aided and abetted one another by sharing lead sheets of potential victims and sharing telephones. 996 F.2d 284, 285-86 (11th Cir. 1993).

Update on Manafort Convictions Status (8/31/18)

I post today some links to Court documents from the docket entries on Pacer.  I remind readers that the Court Listener web site (here) offers cloned docket entries for cases (not sure whether it is all cases, but certainly most of the cases of importance).  Sometimes documents listed on the cloned docket entries are downloadable from the Court Listener web site.  The Court Listener docket entries for the Manafort case are here.  Sometimes it takes a day or two to update for the latest docket entries.  However, it does not appear that any of the Manafort documents are downloadable.  That seems strange to me because, the actual Pacer docket entries offers me the opportunity to obtain the documents free from Court Listener, which means that the documents are available on the Court Listener site (although not linked on the Court Listener docket entries).  In any event, since I can get the link to free documents, I offer that the links to key documents below for readers to see the documents if they wish.

Dkt Entry	Date	Description (JAT Brief Description)	Link
261	8/16/18	Jury Questions	Link
264	8/22/18	Mistrial Order	Link
280	8/21/18	Jury Verdict	Link
291	8/29/18	Gov't Motion to Extend Date re Retrial	Link
292	8/20/18	Order on Government Motion to Extend	Link

I have transcribed the jury's questions (Dkt 261) which are handwritten as follows (bullets added):

• Is one required to file an FBAR if they own less than 50% of the account, do not have signature authority but do have authority to direct disbursement of the funds?
• Can you define "shelf company" and filing requirements related to income?
• Can you please re-define "reasonable doubt?"
• Can the exhibit list be amended to include the indictment count to which they are related?

I don't have a transcription of the judge's answers.  All I have had is reporters' paraphrasings.  When and if I get the answers, I will post them and offer any comments I may have.  (If anyone has the transcription of the answers, please post them as a comment or email them; and, if anyone has the complete jury instructions, I would greatly appreciate receiving them.  My email is jack@tjtaxlaw.com.

Now on the possible retrial for the counts that were mistried because of the jury's inability to reach a unanimous verdict, I previously posted a discussion of why the sentencing for the counts of conviction could produce a sentencing range under the Sentencing Guidelines that is the same as if Manafort had been convicted of all counts submitted to the jury.  See Paul Manafort Verdict - On Relevant Conduct (8/21/18), here.  In calculating the Guidelines range the Judge is directed to consider "relevant conduct" -- similar criminal conduct other than the counts of conviction if the Government proves the conduct by a preponderance of the evidence.  Certainly, the mistried FBAR counts (Counts 11-14) are relevant conduct to the FBAR conviction (Count 11) and to the tax convictions (Counts 1-5). Likewise the mistried Bank Fraud and Conspiracy Counts (Counts 28-32) are relevant conduct to the convicted bank fraud count (Count 27).  So, assuming that the Government proves that unconvicted conduct by a preponderance of the evidence, the Guidelines calculations will be just as if Manafort were convicted on all counts.

Paul Manafort Verdict - On Relevant Conduct (8/21/18)

Paul Manafort has been found guilty of eight counts and could not reach a verdict on the remaining 10 counts.  The judge has declared a mistrial on those 10 counts.  The case will now proceed to sentencing on the 8 counts of conviction.  Before sentencing, there may be post-trial motions, including a motion for new trial on the counts of conviction.  The Government now has choice whether to re-try on the counts that were subject to mistrial.

Focusing on the count of conviction.  I understand that the counts of conviction and their maximum sentences (by "stacking" the sentences for the counts of conviction) are:

			Convicted
Code	Section	Mos.	Counts	Max. Mos.
26	7206(1)	36	5	180
31	5322	60	1	60
18	1344	360	2	362
Total			8	602

Most readers of this blog will know that the maximum sentence amount is maximum possible.  The actual sentence is determined under the Sentencing Guidelines and the sentencing court's Booker discretion.   The Guidelines calculations generally (certainly in most tax cases even with nontax crimes of conviction), produces an indicated sentencing range much less than the maximum.  Readers should also recall that the judge should consider "relevant conduct" -- conduct other than the counts of conviction -- in calculating the Sentencing Guidelines range.  Thus, the judge can consider relevant conduct even if the conduct is: (i) uncharged, (ii) charged and dismissed (usually by plea agreement), (iii) charged but acquitted, or (iv) charged but subject to mistrial.  All the Government has to do to establish relevant conduct is prove the conduct by a preponderance of the evidence.  Thus, specifically, if Judge Ellis is convinced by a preponderance of the evidence that Manafort was guilty of the charges for which he declared a mistrial, the Sentencing Guidelines range will be exactly the same as if Manafort had been convicted of all counts (i.e., no counts were subject to mistrial).  (Some readers may want more on this so, I cut and text below some discussion on this.)

For this reason, if the judge includes some or all of the mistried counts in the relevant conduct calculation, I can't see what the advantage would be for re-trying the mistried counts.

ADDENDUM ON RELEVANT CONDUCT

Reversal of Tax Obstruction Conviction Based on Marinello; A Win in a War Already Lost? (5/14/18; 5/15/18)

I assume all readers are already aware of the Supreme Court's decision in Marinello substantially paring back the Government's expansive reading of the tax obstruction crime.  See my blog, Supreme Court Holds that Omnibus Clause of the Tax Obstruction Crime (§ 7212(a)) Requires Awareness of Pending Tax-Related Proceeding (3/21/18; 3/22/18), here.  As I noted in that blog discussion, because of other counts of conviction that stand unreversed, it is not clear that Marinello's sentencing will be affected by the "victory." 

Marinello has resulted in other reversals of tax obstruction convictions.  I read another today, and briefly discuss it because it too may not win anything for the defendant.

In United States v. Gentle, 2018 U.S. App. LEXIS 12119 (2d Cir. 2018) (unpublished), here, the Second Circuit remanded a case to dismiss the conviction for tax obstruction and to re-sentence the defendant.  Unfortunately for the defendant, the remand left standing 38 counts of aiding and assisting under § 7206(2), each being a 3-year felony.  Although the Second Circuit did not say specifically what the court should do on re-sentencing, it did say (cleaned up):

  fn 1 The process of resentencing under these circumstances "need not be overly cumbersome" for the district court.  While the court may not automatically impose the same sentence on remand, it need not accept new evidence that could have been submitted at the original sentencing, and it may, in exercising its discretion anew, decide to impose the same sentence it did at the initial sentencing.

As Sentencing Guideline fans know, since the key Guidelines calculations are driven principally by the tax loss for the conduct of conviction and relevant conduct (conduct for other crimes whether charged, uncharged or acquitted), I would think it likely that the tax loss may be unaffected by the dismissal of the tax obstruction count of conviction or will not be affected in a meaningful way.  So, it well may be that the Guidelines calculation will be basically the same.  The key question is whether the sentencing judge will think that the dismissal of the tax obstruction count should meaningfully affect any decision whether to vary the sentence downward under Booker.

I further note that, in the event the tax loss originally calculated included loss from conduct other than to the unreversed counts of conviction, then that loss could probably be included anyway, albeit through relevant conduct for uncharged tax evasion or uncharged aiding and assisting counts.

Addendum 5/15/18 2:00pm:

Questions About New DOJ Tax Policy on FBAR Sentencing Guidelines (12/11/17)

I recently posted on the new DOJ Tax position as to the Sentencing Guidelines calculations for FBAR crimes.  See More on New DOJ Tax Position on FBAR Sentencing Guidelines (Federal Tax Crimes Blog 11/9/17), here; and Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (Federal Tax Crimes Blog 10/27/17), here.  I am preparing an  update for the next supplement of FBAR plea Guidelines in my chapter 12, titled Criminal Penalties and the Investigation Function, in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015).  I have hit upon some issues for which I don't know the answers.

Assume that the taxpayer had an FBAR violation for 4 years -- years 01 - 04 -- involving unreported account of $1,000,000 in each of the 4 years.  The taxpayer also had a tax loss in each of the 4 years related to the account of $13,333 per year resulting from the omission of $40,000 interest income per year (aggregating $53,333 tax loss for all 4 years).  The taxpayer pleads to a one year FBAR count for year 04.

Under SG § 2S1.3(a), the Base Offense Level is 6 plus the incrementing levels in the Theft Loss table in § 2B1.1.  The question is whether the 3 years to which the taxpayer did not plead (i.e., years 01 - 03 at amounts of $1,000,000 in each year) is relevant conduct that must be considered in applying the table in § 2B1.1?  If so, the number for the table is $4,000,000 (including 01 - 04) and the Base Offense Level is 24.  If not, the number for the table is $1,000,000 (only 01, the year of conviction) and the Base Offense level is 20.

The nonconviction years (Years 01 - 03) seem to fit the requirements for relevant conduct in § 1B1.3.  Relevant conduct includes:

(2)       solely with respect to offenses of a character for which §3D1.2(d) would require grouping of multiple counts, all acts and omissions described in subdivisions (1)(A) and (1)(B) above that were part of the same course of conduct or common scheme or plan as the offense of conviction.

I won't work through the grouping rules, but I am sure that they would require grouping.  (For example, if the count of the plea had been to tax evasion, the tax loss in the nonconviction years 01 - 03 would be included as relevant conduct.)

So, it looks like the nonconviction years would be relevant conduct for the conviction year and the FBAR amounts would be included in the § 2B1.1 calculation.

This raises the second question.  Are the tax loss amounts relevant conduct for the FBAR violation?

And the third question.  If the plea had been to a tax violation (e.g., single year tax evasion), would the Base Offense Level under § 2T1.1 include the FBAR violations?  If so, how would they be considered (the tables increment on different bases, thus like comparing apples to oranges).

I would appreciate hearing from anyone knows the answers or has any thoughts as to these questions.  Please let me know either  by comment or by email to jack@tjtaxlaw.com.

In this regard, the JD Supra article said that DOJ Tax would be issuing some type of guidance soon, so we may have to await that.

Daugerdas Grasps for the Supreme Court (6/26/17)

Paul Daugerdas, a prominent topic of this blog since he was the king of bullshit tax shelters, was convicted and his conviction affirmed on appeal.  I reported on the much of his trial and appeal.  The blogs mentioning Daugerdas are here and the blog on the appeal is Daugerdas Conviction and Sentencing Affirmed by Second Circuit Court of Appeals (Federal Tax Crimes Blog 9/21/16), here.

On 3/20/17 Daugerdas filed a petition for writ of certiorari.  The petition for the writ is here.  According to the docket entries, here:

Mar 20 2017 Petition for a writ of certiorari filed. (Response due April 21, 2017)
Mar 31 2017 Waiver of right of respondent United States to respond filed.
Apr 5 2017 DISTRIBUTED for Conference of April 21, 2017.
Apr 17 2017 Response Requested . (Due May 17, 2017)
* * * *
Jun 23 2017 Brief of respondent United States in opposition filed.

The Government's brief in opposition is here.

Now, what to make of all this?  The starting point is the issue presented.

Daugerdas prefaces his statement of the issue with a summary of facts apparently believed necessary to understand the issue.  The Government does not agree with some of the nuances in the facts, so just keep that in mind.  So, I cut and paste the preface and the issue Daugerdas presents:

Petitioner Paul Daugerdas, a tax attorney, was tried by a jury for a “scheme to defraud” and obstruct the Internal Revenue Service (“IRS”) for the design, marketing and implementation of fraudulent financial tax shelters. At trial and during summations, the government presented two separate “schemes”: the first alleged that Daugerdas intentionally orchestrated a massive tax shelter fraud causing losses in excess of $1.6 billion by advising hundreds of clients to report tax losses based on financial transactions that lacked “economic substance”; the second scheme alleged that he conspired with other members of his law firm to intentionally backdate financial transactions on three or four client tax returns to fraudulently reduce their taxes owed, causing losses of approximately $2.2 million. During summations, the government urged the jury to convict Daugerdas of conspiracy, mail fraud, obstruction and relevant tax evasion counts based on the $2.2 million scheme. The jury agreed, acquitting him on six other tax evasion counts unrelated to the $2.2 million scheme. The government then asked the district court to sentence Daugerdas based on the greater $1.6 billion tax shelter scheme. As a result, the district court sentenced him to 180 months, as opposed to the 41–51 month Guidelines range for the backdating scheme, despite the government’s contrary argument to the jury and the jury’s ultimate verdict. 

The question presented is: 

Whether Petitioner’s sentence violated his rights under the Sixth Amendment and the Due Process Clause of the Fifth Amendment when a judge imposed a sentence based on an alleged greater “offense” than the government urged the jury to convict at trial, and after the jury convicted based on the lesser “offense” presented to them during the government’s summation?

In its brief in opposition, the Government goes straight to the issue (without engaging on predicate facts or even believing a statement of facts is necessary to the issue as it presents the issue):

Whether petitioner’s sentence was substantively unreasonable on the ground that the district court imposed a sentence based on judicial fact-finding regarding conduct of which petitioner was acquitted by the jury.

Basically, the issue is whether conduct in counts for which the jury acquitted can be considered in the tax loss calculation (or can be considered at all) in sentencing.  I thought that issue was long since settled and not particularly controversial which, I presume, is why the Government initially waived its right to respond.

Interested readers of this blog can pore over the submissions as their time and interests permit.  I just make the following quick comments about the Government's brief (after far less than a detailed study):

Tax Attorney Convicted of Employment Tax Fraud (9/8/16; 9/10/16)

This DOJ Tax press release, here, caught my eye because the title was:  Pittsburgh Tax Attorney and Owner of Iceoplex Convicted of Employment Tax Fraud.  The 16 counts are for convictions under § 7202, here, titled "Willful failure to collect or pay over tax."  Don't know the details or,  really anything else noteworthy, except the following excerpted from the press release:

According to the evidence presented at trial, between 2004 and 2015, Steven Lynch, a tax attorney, co-owned and operated the Iceoplex at Southpointe, a recreational sports facility located in Washington County, Pennsylvania.  The Iceoplex included a fitness center, ice rink, soccer court, restaurant and bar.  Lynch controlled the finances for these businesses and was responsible for collecting income and employment taxes withheld from employee wages, accounting for these taxes and filing Forms 941, payroll tax returns, and paying these taxes over to the Internal Revenue Service (IRS).  The jury found that between 2012 through 2015, Lynch failed to timely pay over to the IRS more than $790,000 in taxes withheld from the wages of the employees for these businesses. 

JAT Comments:

1.  For some years, the IRS and DOJ Tax have been stepping up their criminal enforcement efforts in the employment tax area.  The point the IRS and DOJ Tax wants to make that those who think that this is just a civil tax issue may be mistaken, and may be criminally investigated, charged, convicted, sentenced and spend some time in jail, all the while remaining liable for the taxes evaded (and  a host of related costs, including other penalties and fines).  And, even if they are lucky enough to avoid all those criminal related costs, they are still subject to potential trust fund recovery penalty liability under § 6672, here, titled "Failure to collect and pay over tax, or attempt to evade or defeat tax."  (Readers should note that, although the titles of the criminal and civil provisions are slightly different, the substantive language is virtually the same, with the criminal statute simply requiring proof for conviction beyond a reasonable doubt.  Not a comforting thought for those who play this game, as the IRS and DOJ Tax increase their criminal enforcement efforts.

2.  Based solely on the sentencing factors noted  in the press release (indicated tax loss over $790,000, no acceptance of responsibility downward adjustment, and presuming the pre-2015 Guidelines), the indicated Guidelines level is 20 (according to my Guidelines spreadsheet) and the indicated sentencing range is 33-41 months.  (By contrast, had Lynch pled guilty to achieve an acceptance of responsibility downward adjustment (or, in the rare even he might otherwise qualify for acceptance of responsibility) the sentencing level would have been 17 with an indicated range of 24-30 months, so that he could have achieved a 9 month lesser sentence at the bottom of each Guidelines range.) Of course, the judge can always do a Booker variance, which, in tax cases, is almost always downward.  But that will depend upon factors not evident from the press release.  Those additional factors are produced for the court in the Pre-Sentence Report ("PSR") and the parties sentencing submissions after review the PSR.  When the sentence is announced, I will dig around what is the in public report (usually not the PSR, but perhaps some contested portions of it) and report back.

Addendum on 9/10/16 12:30pm:

3. Robert Horwitz, a seasoned criminal tax attorney, here, called my attention to a typo on the blog and to a more substantive issue.  I have corrected the typo.  More important is the substantive question he raised.  Paraphrased, he asked whether, as specifically stated in the press release, the jury found that Lynch failed to timely pay over $790,000.  Readers will recall that, in tax evasion cases, the jury finds only that the defendant committed tax evasion, but does not find a specific amount.  (This was the issue addressed in the blog entries on the Senyszen case discussed in 3 blogs, here.)  The conviction here was for willful failure to collect and pay over, § 7202, here.  The amount involved is not an element of this crime, so Robert's question was whether the DOJ press release was correct that the jury made a finding on amount of over $790,000.

So, I went to Pacer and pulled down the jury verdict form, here.  From the jury verdict, the following went to the jury:

• Tax obstruction, § 7212(a) (one count, presented as Count 1): Jury verdict:  NOT GUILTY.
• 2. Failure to collect and pay over, § 7202 (28 counts, one per employer per quarter, presented as Counts ___ - ___, with one in  that series dismissed):  NOT GUILTY ON 11 COUNTS, GUILTY ON 16 COUNTS. 

Most importantly for the present discussion, the jury verdict does not find any amount of tax involved.  But, the jury verdict does find the defendant guilty of 16 counts and the counts, as alleged in the superseding indictment, here, does contain the approximate numbers for each quarter.  So, the jury verdict although not explicit as to amounts might make the finding by incorporation from the superseding indictment.  Since, however, the amount of tax involved is not an element of the crime, I presume that the authority for § 7201 might be applicable here as well/

My calculations from the superseding indictment shows the following:  tax amount for 16 counts of conviction  $725,728; tax amount for 11 not guilty counts $694,044, tax amount dismissed count (count 12) $24,998, aggregate tax amount $1,444,260.  I am not sure where the reported $790,000 amount comes from, but I do note that the amounts could have been refined in the presentations at trial.  In any event, the key break point for the sentencing calculations is $1,000,000.

As readers know, the intended tax loss ("tax loss") is determined at the sentencing phase for the first, most critical, step in the sentencing guidelines calculation.  Importantly, in terms of the guidelines calculations, though, the tax loss for the guidelines calculations also includes the tax loss for "relevant conduct."  See §1B1.3.  Relevant Conduct (Factors that Determine the Guideline Range), here.  The tax loss involved in not guilty counts may well be in play in calculating the guidelines range because the standard of proof is preponderance of the evidence rather than beyond a reasonable doubt.  Using the indicated tax loss for the counts of not guilty verdicts, the aggregate loss will move the calculation to the next bracket (which covers the range from $1,000,000 to $2,500,000, so that is a comfortable conclusion for the not guilty counts).  That will move the sentencing table calculation to offense level 22 and an indicated sentencing range of 41-51 months.

Finally, with 16 counts of conviction for the 5 year § 7202 felony, the maximum sentence could be 80 years.  As indicated, even with relevant conduct, the guidelines calculations will produce a sentence of far less than that.

D.C. Circuit Affirms Preparer Convictions Over Ineffective Assistance Claims (7/30/15)

In United States v. Udo, 795 F.3d 24 (DC Cir. 2015), here, the defendant, a CPA, was a return preparer.  He prepared many false returns falling into a pattern.  The IRS was suspicious and conducted a sting operation.  He prepared a false return for the undercover agent.  He was convicted at trial.  He raised several issues on appeal.  I address only a couple here.

Ineffective Assistance From Promise that Defendant Would Testify and Then Not Testifying

Here are the relevant facts from the opinion:

We recount only the events at Udo's trial relevant to this appeal. During his opening statement at trial, Udo's counsel told the jury that the case "comes down to . . . he said, she said." Trial Tr. 168 (Aug. 1, 2012). Counsel went on to promise that the jury would "hear from Mr. Udo," who would explain that he acted in good faith based on what his clients had told him about their expenses. Id. at 173. But Udo never testified. 

Instead, when the government's case came to a close, Udo's counsel asked the court for a ruling limiting any cross-examination of Udo to those issues about which he would testify: his background, his education, and his knowledge of the law and his professional duties. Relying on Brown v. United States, defense counsel argued that a defendant who testifies in his own defense does not waive the Fifth Amendment's protection from self-incrimination to matters unrelated to his testimony. Cf. Brown v. United States, 356 U.S. 148, 154-55 (1958). In response, the government argued that, at the very least, Federal Rule of Evidence 608(b) permitted questioning Udo about his character for truthfulness. n1 Skeptical of Udo's request, the court stated that it would be "very, very, very surprised" if counsel was correct. Trial Tr. 67 (Aug. 3, 2012). After a short break to consider the question, the court announced that it would not limit cross-examination before Udo testified, and that his credibility was fair game for the government to examine. n2 Udo's counsel decided not to call him to testify.
   n1 Rule 608(b) allows a party to inquire on cross-examination into specific instances of a witness's conduct if those instances are probative of the witness's character for truthfulness. See FED. R. EVID. 608(b).
   n2 Udo does not appeal the court's determination that the government would likely be able to cross-examine him about his character for truthfulness. Cf. Brown, 356 U.S. at 154-55 ("If [a defendant] takes the stand and testifies in his own defense his credibility may be impeached and his testimony assailed like that of any other witness, and the breadth of his waiver is determined by the scope of relevant cross-examination.").

The Court started by saying the, normally, ineffective assistance of counsel is not raised on direct appeal because a hearing may be required.  Nevertheless, the Court determined that on the record it could adequately address the claim.  In doing so, the Court said that "the government's case against him was, in a word, overwhelming."  There was cumulative evidence, and "Udo -- a licensed CPA -- never introduced a shred of evidence suggesting that he thought that making up these expenses out of whole cloth was somehow permissible."  That created a high bar for Udo to show prejudice.

Then turning to the claim and resolution.

Pinkerton and Sentencing for Jointly Undertaken Activity; Proposed Sentencing Guidelines Amendment (4/17/15)

Note to readers:  I posted this entry at the end of a long blog yesterday.  (That blog entry is here.)  I thought that the subject might not get the appropriate attention there and decided to lift it up to a separate blog entry.  In its summary order in United States v. Platt, 2015 U.S. App. LEXIS 6157 (2d Cir. 2015), here, the Court addressed the application of relevant conduct to jointly undertaken activity using the relevant conduct concept of the Sentencing Guidelines.

The trial court sentenced the defendants based on the activities of other persons who implemented the scheme.  The trial court relied on a spreadsheet prepared by the Government and did not make particularized findings to support the inclusions in the spreadsheet.  The Court of Appeals remanded for those findings, but had some interesting comments regarding the process.

The background for the comments is Pinkerton co-conspirator liability.  United States v. Pinkerton, 328 U.S. 640 (1946), here.  (This blog has discussed Pinkerton liability often; for the blog entries sorted by relevance, see here.) For purposes of criminal conviction, one conspirator can be prosecuted for the reasonably foreseeable criminal conduct of co-conspirators within the scope of the conspiracy.  For purposes of sentencing, though, the inclusion of financial loss from other persons' conduct is more restricted (I digress on that issue below, but first offer the analysis if the Second Circuit in the Platt opinion on which this blog entry is based):

Under Section 1B1.3(a)(1)(B) "[a] district court may sentence a defendant based on the reasonably foreseeable acts and omissions of his co-conspirators that were taken in relation to a conspiracy." United States v. Getto, 729 F.3d 221, 234 (2d Cir. 2013). However, to hold a defendant accountable for jointly undertaken criminal activity, a district court must first "make a particularized finding of the scope of the criminal activity agreed upon by the defendant" and, in addition, make a particularized finding that relevant co-conspirator conduct was foreseeable to the defendant. Studley, 47 F.3d at 574. 

At sentencing, the district court committed procedural error by failing to make particularized findings concerning whether the conduct of other gifting table participants fell within the scope of defendants' agreement, and whether this conduct was foreseeable to defendants. The district court relied on a spreadsheet prepared by the government that listed gains to other table participants, but excluded individuals who lacked an "established association"—or "material connection" in the district court's understanding—with defendants. The court further excluded gains to individuals where "it was unclear whether they were operating substantially independently" of defendants, and [17]  only partially including gains where "it was unclear whether part of the[] foreseeable gains [of other table participants] should be excluded." The court thereby eliminated from the loss amount calculation gains to some participants with apparently tenuous connections to defendants but neither explained what constituted a material connection nor clearly indicated whether the gains attributed to defendants were foreseeable. Accordingly, we conclude that the district court's findings did not comply with the requirement of Studley to make particularized findings relating to "the scope of the specific conduct and objectives embraced by the defendant[s'] agreement," Studley, 47 F.3d at 574 (quoting U.S.S.G. § 1B1.3, cmt. n. 2) (emphasis omitted), and "as to whether the activity was foreseeable to the defendant[s]," id.

Ninth Circuit Requires Relevant Conduct Financial Loss Determinations in NonTax Case to be Made by Clear and Convincing Evidence (3/30/15)

Last night, in our Tax Fraud and Money Laundering Class at University of Houston Law School, we covered the U.S. Sentencing Guidelines.  The U.S. Sentencing Guidelines Manual may be viewed here.  We covered the following points:

• The financial loss for financial crimes is the principal driver for the Guidelines.  In the tax Guidelines, the financial loss is called the tax loss.  See S.G. 2T1.1, here (for the major tax crimes); see S.G. 2T4.1 (Tax Table), here.  
• The tax loss from the count(s) of conviction and the tax loss from related unconvicted conduct -- called "relevant conduct" -- can be included the the tax loss for purpose of the determinations.  For the  concept of relevant conduct, see SG 1B1.3, here.  
• These sentencing determinations are generally made by a preponderance of the evidence.  We did note that the Ninth Circuit may require some sentencing determinations to be made by clear and convincing evidence.

This morning, while going through my list of recent cases that I had not yet read, I came across United States v. Hymas, ___ F.3d ___, 2015 U.S. App. LEXIS 4822, 1-21 (9th Cir. Idaho 2015), here.  In Hymas, the Ninth Circuit held that, in the facts of the case, relevant conduct financial loss determinations for nontax financial crimes must be made under by clear and convincing evidence.  Although sentencing determinations are normally made by a preponderance of the evidence, the Ninth Circuit requires those determinations to be made by clear and convincing evidence "when a sentencing factor has an extremely disproportionate effect on the sentence relative to the offense of conviction." United States v. Mezas de Jesus, 217 F.3d 638, 642 (9th Cir. 2000) (citing United States v. Restrepo, 946 F.2d 654, 659 (9th Cir. 1991) (en banc)).  The NInth Circuit has established no "bright-line rule for the disproportionate impact test," but requires it to be made in the context of the totality of the facts under guidance first given in United States v. Valensia, 222 F.3d 1173 (9th Cir. 2000).  The Ninth Circuit said.

Under the Valensia totality of the circumstances test, six factors, none of which is dispositive, guide the determination of whether a sentencing factor has a disproportionate impact on the sentence:(1) whether the enhanced sentence falls within the maximum sentence for the crime alleged in the indictment; (2) whether the enhanced sentence negates the presumption of innocence or the prosecution's burden of proof for the crime alleged in the indictment; (3) whether the facts offered in support of the enhancement create new offenses requiring separate punishment; (4) whether the increase in sentence is based on the extent of a conspiracy; (5) whether an increase in the number of offense levels is less than or equal to four; and (6) whether the length of the enhanced sentence more than doubles the length of the sentence authorized by the initial sentencing guideline range in a case where the defendant would otherwise have received a relatively short sentence.Treadwell, 593 F.3d at 1000.

In Hymas, the Ninth Circuit reviewed the relevant facts as follows:

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)?

Court of Appeals Reverses Acceptance of Responsibility Downward Adjustment After Trial (10/23/13)

In United States v. Melot, 732 F.3d 1234 (10th Cir. 2013), here:

After a jury trial, appellant Bill Melot was convicted of one count of corruptly endeavoring to impede the administration of the Internal Revenue Code, one count of attempting to evade or defeat tax, six counts of willful failure to file, and seven counts of making false statements to the Department of Agriculture. Melot was sentenced to a term of sixty months' imprisonment, a significant downward variance from the advisory guidelines range of 210-262 months. He was also ordered to pay $18,493,098.51 in restitution to the Internal Revenue  Service.

His underlying misconduct, he claimed, arose from his belief in various tax protestor positions that he was not subject to tax.  The jury did not believe him and convicted.  On appeal:

His appellate argument is confined to an assertion the Government failed to prove he did so willfully. He argues he had a good-faith belief he was not violating the law. See Cheek v. United States, 498 U.S. 192, 201-02 (1991).

The Court of Appeals rejected the argument summarizing:

In sum, the Government's evidence showed Melot routinely concealed income and assets from the IRS; used cash extensively, informing others that this was a means to avoid the payment of income taxes; and acted in a manner inconsistent with his asserted belief he is not subject to federal income taxes because he is not a citizen of the United States. All of the Government's evidence, together with the reasonable inferences that can be drawn from it, is amply sufficient to support the jury's finding that Melot was aware of his obligation to file returns and pay federal taxes and negates any inference Melot acted in good faith. n9
   n9 Melot points to his own testimony that (1) he genuinely believed the information presented in the "tax protestor snake oil" documents he read, (2) did not read the disclaimers associated with that literature, and (3) did not understand the Internal Revenue Code because it was "too complex" for him, as support for his assertion he held a good-faith belief that he was not violating the law. Based on its verdict, however, the jury clearly disbelieved Melot's testimony. To the extent Melot also relies on the testimony of Dr. Samuel Roll, that reliance is misplaced. Dr. Roll, a psychologist, testified  at the sentencing hearing, not the trial.

The defendant also argued that his sentencing Guidelines calculation was incorrect because the tax loss should not have included federal and state fuel excise taxes.  Those taxes were included as relevant conduct.  The Court of Appeals affirmed their inclusion.  From my perspective, the opinion offers nothing really new on relevant conduct, so I do not discuss that aspect of the Tenth Circuit opinion.

The Government cross-appealed the sentencing calculation.  That cross-appeal is the focus of this blog on acceptance of responsibility.  I quote this portion of the opinion in full: