* Pursuant to 5 TH C IR. R. 47.5, the court has determined that this opinion

s hould not be published and is not precedent except under the limited

circumstances set forth in 5 TH C IR . R. 47.5.4.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

No. 98-10677

_______________

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

VERSUS

DANNY MOORE CURBO,

Defendant-Appellant.

_________________________

Appeal from the United States District Court

for the Northern District of Texas

(4:98-CR-31-1-Y)

_________________________

April 7, 1999

Before REAVLEY, POLITZ, and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge: *

Danny Curbo appeals his sentence. Finding no error in the

decision to increase his offense level by two, we affirm.

I.

Curbo was charged with willful failure to file an income tax

return for 1991, a violation of 26 U.S.C. § 7203, and with

fraudulent failure to disclose an event affecting his right to2

receive Social Security payments, a violation of 42 U .S.C.

§ 408(a)(4). He pleaded guilty.

II.

Curbo began receiving disability benefits in 19 77. At the

time he was declared disabled, the Social Security Administration

(“SSA”) advised that he must report any other income he received

while receiving disabi lity payments. The Social Security

regulations permitted him to receive income from self-employment as

long as his gross income remained below $200 per month and his

total net income in the tenth month of self-employment did not

exceed $500.

In about 1990, Curbo, who says he “had been laying around

doing nothing for ten, twelve years” and wanted to “make a little

spending money,” began operating Southwest Distributing Company,

which screen-printed and distributed caps, tee shirts, pens, and

other items bearing business logos. He made more than a little

spending money: In 1991, he deposited gross receipts of over

$450,000 and posted a net income of more than $62,000. Because he

neglected to mention his business success to the SSA, he also

received disability payments totaling over $12,000 in 1991.

Curbo stipulated that he “acted willfully and with the intent

fraudulently to conceal receiving payments from the [SSA] in a

greater amount then [sic] was due to him” and “willfully failed and

refused to file a[n] [income tax] return” for 1991, despite the

fact that he “knew that he had income of more than $450,000 in tax1 In sentencing Curbo, the district court grouped together the two counts

pursuant to U.S.S.G. § 3D1.2(b) (providing for the grouping of “closely related

counts”). Curbo made no objection, and the propriety of the grouping is thus not

before us.

Section 3D1.3(a) of the Sentencing Guidelines explains that when counts are

grouped together, the offense level for the group should be that for the most

serious of the counts comprising the group, i.e.

, the highest level of the counts

in the group. In Curbo's case, the base offense level for the Social Security

violation was six, see U.S.S.G. § 2F1.1(a), and the base offense level for the

failure to file an income tax return was 14. (The total loss of tax revenue to

the government resulting from Curbo's failure to file was $87,404, and the base

offense level for such a revenue loss is 14. S ee U.S.S.G. § 2T4.1.) Hence, the

district court properly referred to the guidelines provisions on tax evasion in

computing Curbo's sentence, and it correctly started with a base offense level

of 14. The court then considered the “Specific Offense Characteristics,” as the

guidelines provisions on tax evasion prescribe, determining th at a two-level

increase was appropriate under § 2T1.1(b)(1) because over $10,000 of Curbo's

unreported income had come from criminal activity SS Social Security fraud.

3 year 1991, an d was required by law to file a tax return.” The

district court increased by two the base offense level because of

Curbo's failure to report income obtained through criminal

activity. 1

III.

The provision applicable to the offense of failure to file tax

returns directs courts to increase the offense level by two “[i]f

the defendant failed to report or correctly identify the source of

income exceeding $10,000 in any year from criminal activity.”

U.S.S.G. § 2T1.1(b)(1). Interpreting this provision, we have

explained that “[a] defendant who fails to report more than $10,000

a year in criminal income is punished more harshly than one who

fails to report a comparable amount of legitimate income.” H altom

,

113 F.3d at 44.

Curbo contends that subsection (b)(1) is no t applicable

because his income was not g enerated from criminal activity and4

bec ause the criminal activity to which the subsection refers is

overt conduct, such as drug trafficking, prostituti on, illegal

gambling, “or some other nefarious activity.” We disagree.

While the money Curbo collected from his screen-printing

business may not have been derived “from criminal activity,” that

money was not the only income Curbo drew in 1991. By his own

admission, he collected over $12,000 from the SSA by fraudulently

concealing the fact that his net income exceeded $500 for a tenmonth period. He collected this money only because he committed a

crime SS he knowingly failed to disclose information affecting his

right to continued benefits. Such knowing concealment is a felony

under 42 U.S.C. § 408(a).

For purposes of § 2T1.1(b)(1), “'[c]riminal activity' means

any conduct constituting a criminal offense under federal, state,

local, or foreign law.” U.S.S.G. § 2T1.1(b)(1), application note

3. The fact that Curbo's offense was not an overt act is

i rrelevant. Failure to perform a legal duty may be a criminal

offense and may therefore constitute “criminal activi ty” for

purposes of § 2T1.1(b)(1).

Curbo maintains that “the income [he] failed to report was not

the Social Security payments . . . [but was] derived from the

perfectly legitimate activity of retailing baseball caps and other

items.” He apparently is arguing that the only income he had a

duty to report was that derived from his business; he had no duty

to report his Social Security benefits, so his sentence should not

be increased for failing to report income from the criminal2 See 26 C.F.R. § 1.61-14 (1990) (“Illegal gains constitute gross

income.”); James v. United States

, 366 U.S. 213, 219 (1961) (holdin g that

illegally obtained funds are included as gross income); United States v.

Guerrerio

, 670 F. Supp. 1215, 1225-26 (S.D.N.Y. 1987) (stating that Social

Security benefits obtained by fraud are fully taxable).

5 activity of Social Security fraud.

There are two problems with this argument. First,

§ 2T1.1(b)(1) says not that the defendant must have had an

independent duty to report the income derived fr om criminal

activity, but that “[i]f the defendant fail ed to report

. . . income exceeding $10,000 in any year from criminal activity,”

a two-level increase is required. Curbo made over $12,000 in 1991

from Social Security fraud SS a cri me SS and he failed to report that

income. The plain text of § 2T1.1(b)(1) thus requires a two-level

increase even if Curbo had no independent duty to report his Social

Security benefits.

Moreover, Curbo did have such a duty. Had the benefits been

legally obtained, they would have been included in his gross income

(and therefor e subject to the reporting requirement) only as

specified in 26 U.S.C. § 86 (stating the circumstances under which

a portion of Social Security benefits may be included in the

recipient's gross income). But Curbo f raudulently obtained the

Social Security payments. When such payments are received through

fraud, they constitute gross income and must therefore be

reported. 2 Hence, Curbo is wrong in claiming that the only income

he failed to report was income derived from legiti mate economic

activity, and the district court thus correct ly concluded that a

two-level upward adjustment was appropriate.6

AFFIRMED.