Wednesday, June 22, 2011

Relaxed Evidentiary Requirements for Preponderance of Evidence at Sentencing (6/22/11)

I write today about a recent case, United States v. O'Doherty, 643 F.3d 209 (7th Cir. 2011), here, about a commodities trader who "paid for the services of a fraudulent tax consultant, and, under that individual's guidance, he did not file individual income tax returns for the better part of a decade." O'Doherty claimed that the Government violated the plea agreement by raising relevant conduct for noncharged years. The Court applied a straightforward contractual interpretation of the plea agreement to reject that claim. O'Doherty claimed also that his tax fraud did not involve sophisticated means.  The Court rejected that applying a standard interpretation of sophisticated means.  I think the more interesting issue on appeal was the issue of how the Probation Office determined the tax loss in the PSR.

The tax loss must be proved by a preponderance of the evidence. And, sentencing determinations are not bound by the rules of evidence that might otherwise apply. Thus, hearsay evidence that otherwise might be excluded may be used if persuasive by a preponderance of the evidence. The sentencing court determined the tax loss based upon the PSR. On appeal, O'Doherty urged that reliance the PSR alone was not evidence that the sentencing court could rely upon to support a finding by the required preponderance of the evidence. The court of appeals stated his argument (fn. 4) as follows:
n4 Mr. O'Doherty's reliance on United States v. Tucker, 217 F.3d 960, 961 (8th Cir. 2000), which states that "the PSR is not evidence, and the government has the burden at sentencing to prove fact-intensive issues such as tax loss by a preponderance of the evidence," is not persuasive. Our settled approach permits reliance on the PSR until evidence put forward by the defendant creates a question as to its reliability or accuracy. "A defendant cannot show that a PSR is inaccurate by simply denying the PSR's truth. Instead, beyond such a bare denial, he must produce some evidence that calls the reliability or correctness of the alleged facts into question." United States v. Mustread, 42 F.3d 1097, 1101-02 (7th Cir. 1994) (internal quotation marks omitted).
So, what did the PSR rely upon for its tax loss recommendations? The Court says:
Here, the PSR identified a pending civil case by its case number and correctly recounted the amount of tax sought by the Government for the earlier years. The PSR noted that the probation officer had conducted a telephonic interview with IRS Agent Marta Grijalva, who stated that the outstanding taxes sought in the civil case were calculated on the basis of available tax documents, including 1099s.

The information contained in the PSR is sufficiently reliable to support the Government's position at sentencing. The PSR sets forth the means by which it obtained the information, and, in turn, the means by which the IRS itself obtained the information. Mr. O'Doherty did not come forward with any evidence to suggest that the PSR's figures were incorrect. Indeed, he has maintained that he has no better evidence. Nevertheless, he believes that the Government is required to prove, using some means better than the 1099s relied upon by the IRS, his actual taxable income for these years. We already have rejected this view. See United States v. Chavin, 316 F.3d 666, 678 (7th Cir. 2002) (noting that a defendant is not entitled to create a "perfect" return to calculate tax loss in criminal proceedings); see also id. at 676-79 (rejecting the defendant's argument that tax loss should take into account legitimate, unclaimed deductions, which in that case would have reduced the defendant's tax liability to roughly twenty-five percent of that determined to be the tax loss at sentencing).

Mr. O'Doherty failed to meet his burden to draw the facts of the PSR sufficiently into question. The district court therefore was entitled to rely on the PSR in making its calculations. In any event, the sentencing transcript makes clear that the district court did consider the fact that the tax losses in the PSR potentially had been overstated and factored that consideration, along with family health and related matters, into the ultimate sentence under 18 U.S.C. § 3553(a). See R.18 at 30-31.
I think this is a slim reed to base tax loss findings.  Basically, the PSR just relied upon the IRS's claims in a pending, as yet unresolved, civil case and a telephone conversation with the agent who, not surprisingly, claimed she was right.  She claimed she had 1099s but apparently never showed them to the Probation Officer nor were they introduced into court. The slim reed was then used to shift a burden of production to O'Doherty.  I am troubled that the important consequence of sentencing duration can turn upon such a slim reed to force the defendant to do something to rebut bare Government claims.

I would appreciate readers' reactions.


  1. Jack

    Taken by itself, I would agree that simply relying on an IRS agent's claim is weak. But if the agent claimed to have 1099s to back the claim up, is the probation officer required to independently verify this claim ? Surely 1099s are pretty black and white in terms of gross receipts at least.

    And it should have been easy for O'Doherty to dispute income based on 1099s if the numbers were inaccurate.

    I take the court's position as saying that O'Doherty's inability to challenge the tax loss was key in deciding the PSR could be relied upon.

  2. Jonf,

    Your analysis is good, but it seems that the probation officer should have gone farther than the opinion says he or she went. The agent's telephonic claims are hearsay. Those claims are then based on hearsay (1099s are hearsay.) The PO could have asked for the 1099s or perhaps other information in the files or in the court proceedings. I haven't traced through whether some of that information might be subject to 6103, but I would think that the defendant's obligation to cooperate with the PO would require that the defendant waive 6103 or obtain the documents for the PO.

    At any rate, this just seems a bit thin to meet a preponderance of the evidence standard. But you are correct that, perhaps, at that point, the defendant was in the best position to create a real issue and he stood silent.




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