Booker Variances are More Common in Tax Crimes. Why? And Do They Disproportionately Benefit the Rich? (5/16/14)

Readers of this blog should be familiar with the name Ty Warner.  He is the billionaire who cheated on his U.S. taxes big time (the financially big can cheat big) and, in addition, willfully failed to file the FBARs.  He pled guilty to a reduced set of charges.  He was sentenced to no incarceration.  The Government is appealing the lenient sentence as an abuse of sentencing discretion by the sentencing judge.  See When is Booker Variance Too Much? Per DOJ, Certainly in the Ty Warner Case (Federal Tax Crimes Blog 5/12/14), here.

Forbes tax columnist, Janet Novack, has discussed the Warner sentencing in the context of the larger sentencing subset of tax crimes generally.  Janet Novack, Federal Judges Are Cutting Rich Tax Cheats Big Sentencing Breaks (Forbes 5/14/14), here.  As she presents the larger discussion, tax crimes generally get more lenient sentences -- in the jargon of the defense industry, a downward variance from the Sentencing Guidelines.  That phenomenon has occurred since Booker, although one could see its tendencies in the pre-Booker regime with departures in tax cases.  When there is a persistent variance as presented by Ms. Novack, one has to question whether the Guidelines are serving their purpose in the case of tax offenses.  And, even within the set of Guidelines-lenient sentence in tax cases, there may even be more leniency for the rich tax cheat than for the poor one.

The Guidelines were developed based on extensive studies of what judges were doing in real cases, subject to some adjustment for the societal gravity of the offenses.  Adjustments are made from time to time.  For tax offenses, the sentence is based principally on the amount of tax that was the object of the offense.  The Guidelines speak strongly that the sentence generally should go up with the amount of the tax evaded.  So, if the Guidelines are the key, Ty Warner should have received a significant incarceration period.  But he did not.

I urge readers to read and indeed study Ms. Novack's blog entry.  It is good background.  It prominently cites a new paper to be  published in the Villanova Law Review by Scott Schumacher, with whom (along with others) I co-author a case book on Tax Crimes, here.

The article says:

Schumacher says that given how much deference sentencing judges are now given, “I would not be surprised if Warner’s sentence is affirmed.”

However, as the article says, although reversals of a judge's sentencing discretion generally are rare and in tax cases even rarer, as the article notes, some courts will impose limits.  The article cites United States v. Engle, 592 F.3d 495 (4th Cir. 2010), here, discussed in one of my prior blogs, Fourth Circuit Cites S.G. Tax Sentencing Policy in Reversing Sentencing Variance (Federal Tax Crimes Blog 1/16/10), here, where the Court said:

Reduced to its essence, the district court’s approach means that rich tax-evaders will avoid prison, but poor tax-evader will almost certainly go to jail. Such an approach, where prison or probation depends on the defendant’s economic status, is impermissible.

So the open question is whether the Seventh Circuit will take a similar approach in Warner.

And, even the larger question, why do sentencing judges treat tax offenses less seriously than other offenses, which in turn causes then to exercise the Booker variance discretion more often in tax cases?

And, the further question must be asked by slicing the tax sentencing population a different way than rich and poor.  Slice it between offshore account tax crimes and other tax crimes.  Offshore account crimes seem to draw materially lighter sentences than other tax crimes.  Why?  Perhaps there is a correlation there.  Offshore tax offenders as a set seem to be richer than offenders of other tax crimes.