Tenth Circuit Case on Sentencing Guidelines Tax Loss as Object of the Offense (7/3/16)

In United States v. Sing, 2016 U.S. App. LEXIS 12110 (10th Cir. 2016), unpublished, here, the Tenth Circuit affirmed an appeal questioning the calculation of the tax loss, the principal driver of the Sentencing Guidelines for tax crimes.  SG § 2.1.1(c)(1), here, provides:

(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).

The Background provides:

Background:  This guideline relies most heavily on the amount of loss that was the object of the offense. Tax offenses, in and of themselves, are serious offenses; however, a greater tax loss is obviously more harmful to the treasury and more serious than a smaller one with otherwise similar characteristics. Furthermore, as the potential benefit from the offense increases, the sanction necessary to deter also increases.

The key concept in the foregoing is the "object of the offense."  The guidelines use the term "object of the offense" in other nontax provisions.  E.g., § 2P1.2 ("If the object of the offense was the distribution of a controlled substance")  Further, the Guidelines use the term object in apparent reference to object of the offense.  E.g., 2S1.1 Commentary ¶ 3(c) ("sole object of that conspiracy).  (It is interesting, in this regard, that the other major financial crime provision, §2B1.1, here, dealing with larceny, embezzlement, other forms of theft, etc., uses the simpler concept of "loss" rather "loss that was the object of the offense.")

In any event, the Tenth Circuit seemed to be troubled enough to comment on its view that the formulation in the tax guideline -- "loss that was the object of the offense" -- did not fit neatly into the Model Penal Code ("MPC") provisions of mens rea.  The Tenth Circuit said:

Ms. Sing and Mr. Timmerman argue that the district court's tax loss estimate is fatally flawed and that this error infected the whole of the sentencing process. It's not entirely clear from the text of § 2T1.1(c)(1) what mens rea the government must prove with respect to a tax loss. Rather than employing [4]  the standard and rigorous mens rea categories discussed in the Model Penal Code or much of contemporary criminal law, the guidelines say the government must show the loss amount was the "object of the [defendants'] offense (i.e., the loss that would have resulted had the offense been successfully completed)." And you might well wonder whether, translated into the more helpful heuristics of the Model Penal Code, this means the government must show the defendant intended, knew of, or perhaps was recklessly indifferent to or negligent about the amount of loss the government would have suffered "had the offense been successfully completed." But, as the defendants concede, they, the government, and the district court in this case have all proceeded on the assumption that to qualify as the "object of the offense" the loss in question must have been intended. See United States v. Manatau, 647 F.3d 1048, 1048 (10th Cir. 2011). And that much, they say, the government failed to prove in this case.

So, the Tenth Circuit raised the concern but did not develop the issue or resolve it.  Although the comment is somewhat cryptic, I have tried to develop it as best I could.  Bottom-line, thought, I agree that the intended loss is the concept.

The Court does not cite the provision in the MPC to which it refers.  I will provide here some background  to the MPC and the apparent provision to which the Tenth Circuit referred.

The MPC is a model code developed by the American Law Institute "to stimulate and assist legislatures in making an effort to update and standardize the penal law of the United States of America."  See Wikipedia entry on Model Penal Code, here.  The MPC offers some fundamental concepts, including, in § 2.02, the General Requirements of Culpability.  See the reprinting by Professor Vernelia R. Randall, here.  In relevant part, the "Minimum Requirements of Culpability" for a criminal offense is that the person "acted purposely, knowingly, recklessly or negligently, as the law may require, with respect to each material element of the offense."  MPC § 2.02(1).  Each of the types of culpability are further defined in MPC § 202(1).  The Sentencing Guidelines term "object of the offense" seems to be an intent concept, as the parties agreed in Sing and thus fit within the concepts of "purposely" and "knowingly" in the MPC.  Hence, the sentencing court and the parties agreement that intent was required for the tax loss in the object of the conspiracy resolved any issue as to the concept in the Sentencing Guidelines.

In this regard, since the reference is to the object of the offense, like the offense conspiracy, it probably imports the mens rea element of the offense (including relevant conduct).  Tax crimes are specific intent crimes.  See Cheek v. United States, 498 U.S. 192 (1991) (the statutory element of willfulness in most Title 26 tax crimes requires specific intent to violate a known legal duty).  Hence, the mens rea element seems to be the same as the underlying offense -- the Cheek willfulness.

Another concept defined in the MPC for some types of culpability is "recklessly."  See MPC § 2.02(c).  A question presented by the Cheek willfulness element is whether willful blindness (or a related concept of reckless conduct) is a nonstatutory expansion of the specific intent concept in the "willfully" element for tax crimes or, instead, merely permits a jury to infer the specific intent from finding conduct that might be characterized as reckless.  I will just link below some of the blogs in which I discuss the issue.

• Willful Blindness / Conscious Avoidance and Crimes Requiring Intent to Violate a Known Legal Duty (Federal Tax Crimes Blog 7/21/14), here, discussing the concepts in the criminal context.
• More on Recklessness as Cheek Willfulness (Including for FBAR Civil Penalty) or Willful Blindness (Federal Tax Crimes Blog 7/22/14), here, discussing the concepts in the civil willfulness context.