Monday, May 14, 2018

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 LEXIS 12119 (2d Cir. 2018) (unpublished), here, the Second Circuit remanded a case to dismiss the conviction for tax obstruction and to re-sentence the defendant.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:

In further understanding the Guidelines calculations, I offer the following from my article:  John A. Townsend, Tax Evaded in the Federal Tax Crimes Sentencing Process and Beyond, 59 Vill. L. Rev. 599, 607-608 (2014), here (footnotes omitted from excerpt)
3. Sentencing Tax Loss 
The Sentencing Guidelines use "tax loss" as the principal component in the advisory guideline sentencing range for a defendant convicted of one or more tax or tax related crimes. The Sentencing Guidelines define tax loss as "the total amount of loss that was the object of the offense...."  It is the same as the tax the taxpayer intended to evade - "tax evaded" as I use the term.  There are some key nuances in the tax loss concept in the Guidelines that may cause the tax loss to exceed the tax evaded number used in the guilt determination phase. First, because sentencing findings (including tax loss) are determined by a preponderance of the evidence rather than beyond a reasonable doubt, the evaded tax for Sentencing Guidelines purposes may include more components than tax evaded for guilt of the crime of tax evasion.  Second, the tax loss can include tax loss for "relevant conduct" - other related crimes for which  [*607]  the defendant was not convicted. The relevant conduct concept is described as the cornerstone of the Guidelines (although consistent with pre-Guidelines sentencing practice) and plays a major role in tax cases where multiple years or events may be involved.  
Consider this example: The indictment alleges that the taxpayer evaded $ 100,000. That means that the prosecutors believe they can prove beyond a reasonable doubt that the taxpayer evaded $ 100,000. The taxpayer is convicted on that basis. Suppose, however, that, for sentencing purposes, the Government can prove by a preponderance of the evidence that the taxpayer really evaded $ 200,000, but did not allege the additional $ 100,000 in the indictment because it did not believe that it could prove that additional amount beyond a reasonable doubt. Further, suppose that the taxpayer's real unpaid civil tax liability for the year is $ 300,000, with the additional $ 100,000 representing items for which the Government cannot prove the taxpayer intended to evade under any standard of proof. There are three concepts related to the overall unpaid civil tax liability. In the order presented, they are: (i) the evaded tax - the "criminal number" - of $ 100,000 used for purposes of charging and convicting for evasion; (ii) the evaded tax for sentencing purposes - the tax loss - of $ 200,000, consisting of the evaded tax of $ 100,000, proved beyond a reasonable doubt, and the evaded tax of $ 100,000 proved by a preponderance of the evidence; and (iii) the residual tax of $ 100,000 not related to tax evasion for any criminal purpose (i.e., it solely affects civil tax liability). 30 The three components in the aggregate represent the civil tax liability  [*608]  (or deficiency), whereas only the first two are evaded taxes relevant to the criminal process.

This is a simplified example. As I will note later, there are other concepts that can cause the sentencing tax loss to vary from the tax evaded used in the guilt determination phase. The principal concept is the relevant conduct Guidelines concept that requires, or at least permits, the sentencing court to include in the base offense calculations criminal conduct for unconvicted crimes. In a criminal tax setting involving income taxes, the relevant conduct is the tax loss from similar evasive conduct in years other than the year(s) in the count(s) of conviction. I used a single year in the example above, but assume that the taxpayer had similar evasive conduct in three other years and tax loss in the same amount - $ 200,000 - for each of the years (the one convicted year and the three unconvicted years). The tax loss for those unconvicted years can be included in the tax loss computation regardless of whether (i) the defendant was acquitted of criminal conduct for the unconvicted years; 31 (ii) criminal conduct was charged for the unconvicted years but dismissed pursuant to the plea agreement; or (iii) criminal conduct was never charged for the unconvicted years for whatever reason, including expiration of the statute of limitations. 32 Hence, if the three other years involved the same type of conduct, the defendant's tax loss number would be $ 800,000 rather than $ 200,000. That makes for a significantly higher sentencing range under the Guidelines. 33 Relevant conduct tax losses to drive up sentencing are frequently encountered in tax cases.
The key points are:
  1. The tax loss really is the tax evaded component of a tax evasion charge, but with a lesser burden of proof for the Guidelines calculations sentencing.  
  2. The tax loss applies even if the count(s) of conviction are not tax evasion.
  3. Hence, the tax loss already calculated for the defendant before reversal of the tax obstruction count based on Marinello will likely be the same, particularly with the inclusion of relevant conduct. 

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