Opinion
No. 04-40008-01-SAC.
December 7, 2004
SENTENCING FINDINGS
The jury in this case returned its verdict on August 30, 2004, finding the defendant guilty of counts one through eight, willful failure to collect and truthfully account for and pay over federal employment taxes in violation of 26 U.S.C. § 7202, and guilty of counts nine through eleven, willful failure to file income tax returns in violation of 26 U.S.C. § 7203. The verdict included the jury's answers to special interrogatories asking for the amount of due and owing federal employment taxes that were not collected or truthfully accounted for and paid over for each of the first eight counts and the amount of federal income taxes that were due and owing from the defendant for each tax year respectively charged in the last three counts.
Under the applicable sentencing guidelines, the base offense level depends on the tax loss using the tax table at U.S.S.G. § 2T4.1. The Presentence Report ("PSR") recommends finding a tax loss in the amount of $1,228,832.30 resulting in a base offense level of nineteen. The jury's finding of tax loss on the verdict form totals $573,953.00 that would correspond to a base offense level of eighteen. The difference in tax loss findings results from additional relevant conduct and evidence considered by the PSR writer.
The PSR also recommends a two-level increase for the specific offense characteristic at § 2T1.1(b)(2), that is, "the offense involved sophisticated concealment." Using a total offense level of 21 and a criminal history category of one, the PSR suggests a sentencing guideline range of 37 to 46 months. DEFENDANT'S OBJECTION: The defendant objects that the two-level "sophisticated concealment" enhancement is unconstitutional under Blakely v. Washington, 124 S. Ct. 2531 (2004), and also objects that the PSR's findings do not support the enhancement. Specifically, the defendant argues the trusts did not conceal the § 7203 offenses of which the defendant was convicted because business receipts were deposited into the business' bank account and then later into the trusts and the subsequent use of trusts to pay wages did not conceal or hinder the discovery of the § 7203 offenses.
Ruling: Under Guideline § 2T1.1(b)(2), a defendant convicted of failure to file tax returns should receive a two-level enhancement for "especially complex or especially intricate offense conduct in which deliberate steps are taken to make the offense, or its extent, difficult to detect. Conduct such as hiding assets or transactions, or both, through the use of fictitious entities, corporate shells, or offshore bank accounts ordinarily indicates sophisticated concealment." See U.S.S.G. § 2T1.1(b)(2) comment. (n. 4); see, e.g., United States v. Butler, 297 F.3d 505 (6th Cir. 2002) (enhancement for defendant setting up shell corporations, using post office drop boxes, aliases and various bank accounts to conceal tax evasion), cert. denied, 538 U.S. 1032 (2003); United States v. Middlemiss, 217 F.3d 112, 124 (2d Cir. 2000) (enhancement for defendant listing stocks in wife's maiden name, creating false paper trail, and accepting only cash payments); United States v. Guidry, 199 F.3d 1150 (10th Cir. 1990) (enhancement for structuring transaction to avoid Currency Transaction Reports and detection by the Internal Revenue Service); United States v. Lewis, 93 F.3d 1075 (2d Cir. 1996) (enhancement based on issuing personal checks to fictitious entities which then returned untaxed cash to defendant's personal expense account). This enhancement is reserved for conduct involving a plan more complex than filing a false tax return. United States v. Lewis, 93 F.3d at 1082; see United States v. Rice, 52 F.3d 843, 849 (10th Cir. 1995) (reversed sentence with concealment enhancement because fraud was simply claiming more deductions than actually paid and because "[i]f that scheme is sophisticated within the meaning of the guidelines, then every fraudulent tax return will fall within that enhancement's rubric.").
The jury trial here took place after the Supreme Court's decision in Blakely v. Washington. Both sides went to trial knowing that if the holding and rationale in Blakely was later found applicable to the federal sentencing guidelines, then this case would have sentencing issues of fact that only a jury could decide. Neither side, however, took any steps at trial to identify those sentencing issues or to present their positions to the jury. Over the parties' objections, the court included special interrogatories on the verdict form that asked the jury to find the tax loss associated with each count of conviction. The government did not introduce evidence of other relevant conduct or sentencing enhancements and did not reserve the opportunity for submitting such evidence to the jury prior to sentencing. Under these unique facts and with the Supreme Court's decision in Booker and FanFan expected any week, the court believes the more prudent course here is to sentence the defendant based on the loss figures found by the jury and to deny the sentencing enhancement that was not submitted to the jury. As a result of these rulings, the defendant's base offense level is 18 using the loss findings from the verdict form. Without a sophisticated concealment enhancement, the total offense level is 18 resulting in a guideline range of 27 to 33 months.
In the event that the Supreme Court concludes the holding in Blakely is inapplicable to sentences under the federal sentencing guidelines or inapplicable to a sentencing at this time, the court will impose an alternative sentence based on the relevant conduct findings on tax loss found in the PSR that correspond to a base offense level of 19. The court's alternative sentence, however, does not include the two-level enhancement under U.S.S.G. § 2T1.1, as this enhancement applies only to the § 7203 failure to file convictions in this case, and the findings in the PSR do not establish how the defendant's use of a checking account under a fictitious entity's name to pay employees' wages frustrated the investigation or concealed the defendant's business income for purposes of the § 7203 offenses. According to the defendant, all receipts from the defendant's business were first deposited in the business' bank account and then were deposited into the trust accounts, and the PSR does not include any facts contradicting this representation. Unless the government can prove that the defendant's use of the trusts concealed or frustrated the government's investigation of the § 7203 offenses, the court will sustain defendant's objection. Absent such proof, the court's alternative sentence will use the sentencing guideline range of 30 to 37 months.
IT IS THEREFORE ORDERED that the defendant's objection to the PSR is sustained, and the court will sentence the defendant using the guideline range of 27 to 33 months and will sentence the defendant in the alternative using a guideline range of 30 to 37 months.