Tax Loss - Object of the Offense - Intended v. Real Harm (10/16/13)

I just recently re-read United States v. Eye, 2013 U.S. App. LEXIS 10857 (11th Cir. 2013), here, an unpublished opinion.  It discusses an important point about the Sentencing Guidelines tax loss computation.  Readers will recall that tax loss is the principal component of tax crimes sentencing, incorporating proportionality and thus fairness to the sentencing process.  Eye presents the issue that I want to discuss here:

The opinion opens with its bottom-line:

Roanne Eye appeals her 60-month sentence for interference with the administration of Internal Revenue Services ("IRS") laws, in violation of 26 U.S.C. § 7212(a), and filing false and fictitious IRS claims, in violation of 18 U.S.C. § 287. She argues the court erred by (1) applying an enhancement for obstruction of justice under U.S.S.G. § 3C1.1, and (2) calculating the loss amount based on tax refunds she never received. We affirm.

Here is the relevant part of the discussion in the opinion:

Also, the district court did not clearly err in calculating the tax loss in this case at $1,127,559. Eye submitted claims for refunds to which she was not entitled totaling $1,127,559. According to the Sentencing Guidelines and this Court's precedent, $1,127,559 was precisely the loss amount in this case for sentencing purposes, because that is the loss Eye "intend[ed] to create when [she] falsifie[d] [her] tax returns." See United States v. Clarke, 562 F.3d 1158, 1164 (11th Cir. 2009); see also U.S.S.G. § 2T1.1(c)(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)."); id. § 2T1.1(c)(4) ("If the offense involved improperly claiming a refund to which the [defendant] was not entitled, the tax loss is the amount of the claimed refund."). That Eye never received those refunds is irrelevant; she intended to cause those losses when she filed her fraudulent returns. Therefore, the district court's loss amount determination is not clearly erroneous. See Clarke, 562 F.3d at 1164.

The key provision of the Guidelines quoted in the opinion is §2T1.1(c) which may be viewed in context here.

I have just revised the current draft of my Federal Tax Crimes book to address this issue addressed in the quoted part of the opinion and just cut and paste it here (footnotes omitted):

The tax loss is: “ 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).” U.S.S.G. § 2T1.1(c)(1).   In most tax cases, it is the principal tax savings the taxpayer intended to achieve by his or her conduct.  The taxpayer need only to have intended to achieve the tax savings; the method by which he intended to do so need not be realistic or probable. 

There is an perhaps counterintuitive nuance by the treatment of the tax loss pegged to the loss that was the “object of the offense.”  I contrast two situations to illustrate the nuance.  First, consider a taxpayer who willfully underreports his tax liability by $1,000,000.  The taxpayer has the benefit of the $1,000,000 that he neither reports nor pays and spends it all with no other assets left, so that, from a harm to the fisc, the IRS has lost $1,000,000 real money.  Second, consider the same taxpayer who has paid estimated tax of $1,000,000 but then files a similar return underreporting his tax liability by $1,000,000 requesting a refund the $1,000,000 estimated tax paid, but the IRS quickly spots the fraud and does not grant the refund.  The real money loss is $0.  Nevertheless, under this definition in the Guidelines, the two taxpayers have a tax loss of $1,000,000.  The particular example is farfetched because a taxpayer bent on evading tax would not have made the estimated tax payment in the first instance.  This phenomenon often occurs when bogus preparers file false claims for refund, sometimes involving large amounts.  The tax loss is the same whether the IRS issues the refund with bogus preparer spending it all or the IRS spots the fraud and never issues the refund.  Are these the same crimes in terms of culpability, which is the purpose of referring to the tax loss?  The tax loss computation treats them the same, and the Guidelines do not otherwise differentiate the two crimes.