In the

United States Court of Appeals

For the Seventh Circuit

No. 11-2683

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

JOHN PSIHOS,

Defendant-Appellant.

Appeal from the United States District Court 

for the Northern District of Illinois, Eastern Division.

No. 08 CR 1026—Blanche M. Manning, Judge.

ARGUED DECEMBER 8, 2011—DECIDED JUNE 15, 2012

Before MANION, ROVNER, and TINDER, Circuit Judges.

MANION, Circuit Judge. John Psihos pleaded guilty to

four counts of making false statements in a tax return.

The district court determined that the tax loss was

$837,724 and sentenced Psihos to 24 months’ imprisonment, which was the low end of the applicable guideline

range. The court also ordered Psihos to pay $837,724

in restitution. Psihos appeals, arguing that the tax loss

was only $22,292.27; that the restitution amount was
2 No. 11-2683

erroneous; and that the district court procedurally erred

in sentencing him within the guideline range without

addressing his argument for an outside-the-guidelines

sentence. We affirm.

I.

John Psihos immigrated to the United States from

Greece in his early twenties. He eventually opened his

own restaurant and later went on to own three

restaurants in the Chicago area: Flanagan’s (the most

successful of the three), Café Oceana, and Full Moon.

Flanagan’s and Full Moon were organized together as

one S-Corporation and Café Oceana was set up as a

separate S-Corporation. Psihos was apparently a good

employer, assisting employees in need; he was also very

generous to those in the community, helping with

various charitable causes.

While hard-working and generous, Psihos was also

operating illegally, at least when it came to his tax obligations. Psihos kept two sets of books for Flanagan’s,

and for (at least) the four tax years of 2001-2004, he substantially underreported his gross receipts. The government discovered the tax fraud when Psihos listed

Flanagan’s for sale through a real estate brokerage company. A fact sheet prepared by the broker calculated

Flanagan’s average monthly gross receipts at $170,000

and average annual gross receipts at $2,040,000. This

netted an average yearly operating profit of $554,840.

Based on the discrepancy between Psihos’s tax filings
No. 11-2683 3

and this information, the IRS dispatched undercover

agents to pose as potential buyers.

The undercover agents, posing as a husband and wife

interested in purchasing Flanagan’s, individually or

together met with Psihos three times in April and May of

2005. During these meetings, Psihos explained how he

kept track of the actual receipts at Flanagan’s. He explained that each night at closing, the managers would

bring him envelopes with all of the money, receipts,

register tapes, and payout information. He would then

provide this material to Wendy, one of his managers, who

would prepare a weekly summary report. Psihos showed

these summary reports to the undercover agents, along

with the envelopes from which these summaries were

prepared. Psihos stated that he had these records

showing what he was “actually getting” from the restaurant going back to 2001.

On May 31, 2005, agents executed a search warrant at

one of Psihos’s restaurants and seized, among other

items, the weekly summary sheets. Later they also seized

from a storage shed the envelopes detailing Flanagan’s

nightly sales and cash payouts. IRS revenue agents reviewed the weekly summary sheets and cross-referenced

those figures with the nightly figures listed on the envelopes. Based on these records, the revenue agents calculated the gross receipts actually collected at Flanagan’s

for the tax years 2001-2004. In calculating the gross receipts, the IRS made adjustments based on any cash

overages/shortages noted, as well as based on the

amounts noted on the envelopes as improperly entered
4 No. 11-2683

or listed as cash payouts. The government’s calculation

was as follows:

Year Net Receipts

Per IRS

Gross Receipts

Per Return

Unreported Receipts

Per IRS

 2001 $2,021,304.37 $1,420,405.00 $600,899.37

 2002 $2,003,204.59 $1,323,240.00 $679,964.59

 2003 $2,007,044.71 $1,298,778.00 $708,266.71

 2004 $1,867,214.82 $1,320,832.00 $546,382.82

The IRS then concluded that the additional taxes due

on Psihos’s personal tax returns, based on these unreported

receipts, were: $226,752 for 2001, $244,799 for 2002,

$213,186 for 2003, and $152,987 for 2004. These unreported

receipts resulted in a total tax loss to the IRS of $837,724

for the period of 2001 through 2004.

Based on the above, a grand jury indicted Psihos

on eight counts. Counts 1-4 charged tax evasion and

counts 5-8 charged Psihos with four counts of making

false statements in a tax return. Psihos entered into a plea

agreement with the government and pleaded guilty to

the four counts of making false statements in a tax return. At sentencing, the government argued that the

loss was $837,724, while Psihos countered that the government’s figure did not account for numerous

deductible expenses. Specifically, Psihos argued that

the tax loss should be reduced by: amounts paid to

DJ/promoters from door charges; amounts paid in cash

wages; the cost of complimentary drinks and food; the

total he transferred to his other restaurant Café Oceana;
No. 11-2683 5

and cash payments made to Café Oceana for food

supplied by Café Oceana to Flanagan’s. Psihos submitted a chart summarizing his position on the amount of

the tax loss (attached to this opinion as Exhibit A).

Psihos then argued that based on his calculations, the

tax loss would be 28% of the total unreported gross

of $79,615.26, or $22,292.27.

The district court gave Psihos credit for the cash payouts listed on the envelopes—as had the government in

its loss calculation—but rejected his remaining claimed

reductions, concluding that the various offsets he

proposed amounted to “unclaimed deductions” and that

it could not consider such deductions based on this

court’s decision in United States v. Chavin, 316 F.3d 666

(7th Cir. 2002). The court added that Chavin was “particularly well-taken” in this case because Psihos did not

have any invoices supporting his purported cash payouts.

After the district court rejected Psihos’s arguments

concerning the loss calculation, Psihos argued that he

should nonetheless receive a sentence below the guideline range because the calculated loss overstated the

harm to the government. In sentencing Psihos, the district court did not specifically discuss this argument,

but concluded that a sentence of 24 months (the low end

of the guideline range, which was 24-30 months) was

appropriate in this case. The district court also ordered

Psihos to pay restitution in the amount of $837,724.

Psihos appeals.
6 No. 11-2683

II.

On appeal, Psihos argues that the district court erred

in determining the tax loss for sentencing purposes and

that the true loss was only $22,292.27. Relatedly, he

argues that the district court erred in ordering restitution of $837,724 because the actual loss was only

$22,292.27. Finally, Psihos claims that the district court

procedurally erred in sentencing him within the guideline range without considering his argument for a

lower sentence. We consider each issue in turn.

A. Tax Loss

Psihos argues on appeal that the district court erred

in calculating the tax loss for sentencing purposes at

$837,724. As detailed above, Psihos claims that the real

loss to the government was only $22,292.27 because the

government’s calculation failed to take into account

cash payments for excludable items and/or deductible

expenses, including cash payments to DJs and promoters

from door charges, cash wages, the cost of complimentary drinks and food, cash transfers to his other

restaurant Café Oceana, and cash payments to Café

Oceana for food supplied by Café Oceana to Flanagan’s.

As the district court found, Psihos’s argument is foreclosed by this court’s decision in United States v. Chavin,

316 F.3d 666 (7th Cir. 2002). In Chavin, the defendant had

argued that the tax loss for sentencing purposes should

take into account available deductions that he could

have taken. This court rejected that argument, first
No. 11-2683 7

noting that the “the government [had] contend[ed] that

‘tax loss’ refers to the amount of loss that the defendant

attempted or intended to create through his tax offense.

[And] [i]f we accept this interpretation, then unclaimed

deductions should not be taken into account because

they have no relevance to the amount of loss that the

scheme attempted to produce.” Id. at 677. This court then

held:

It is apparent from the definition of “tax loss” provided in the guidelines that the government has the

correct position. The guidelines state that “tax loss is

the total amount of loss that was the object of the

offense.” § 2T1.1(c)(1). We take the phrase “the

object of the offense” to mean that the attempted or

intended loss, rather than the actual loss to the government, is the proper basis of the tax-loss figure.

Here, the object of Chavin’s offense was the amount

by which he underreported and fraudulently stated

his tax liability on his return; reference to other unrelated mistakes on the return such as unclaimed deductions tells us nothing about the amount of loss

to the government that his scheme intended to create.

Id. (emphasis added). Chavin thus makes clear that

Psihos’s alleged cash payments are irrelevant in determining the tax loss caused by his fraudulent statements.

Psihos counters that Chavin is distinguishable because

it concerned deductions and not “above-the-line” reductions from gross income. The government and Psihos

then duel over whether the various cash payments

would be considered deductions or above-the-line re-
8 No. 11-2683

ductions from gross income. The distinction, however, is

irrelevant—the point of Chavin is the same: tax loss is

based on the object of the offense and should not take

into account “unrelated mistakes.” Id. In fact, in noting

that “unrelated mistakes” were irrelevant to the loss

calculation, the court in Chavin said “such as unclaimed

deductions,” showing that “unclaimed deductions” were

merely illustrative of the types of mistakes or omissions

which should not be considered in calculating the loss.

Alternatively, Psihos requests that this court overrule

Chavin based on a recent Tenth Circuit decision,

United States v. Hoskins, 654 F.3d 1086 (10th Cir. 2011).

In Hoskins, the Tenth Circuit said that the sentencing

guidelines do “not categorically prevent a court from

considering unclaimed deductions in its sentencing

analysis.” Id. at 1094. The Hoskins court also noted, however, that the guidelines do not require a sentencing

court to engage in the “nebulous and potentially complex

exercise of speculating about unclaimed deductions”

where the defendant “offers weak support” for his tax-loss

estimate. Id. (internal quotation omitted). In this case,

even if we were to follow the reasoning of Hoskins,

Psihos would not benefit because, as the district court

concluded, there was an utter lack of support for Psihos’s

claimed cash payments. While he had kept meticulous

records of the cash receipts and also kept detailed

notes of some cash offsets, Psihos has absolutely no

documentation to support his other claimed cash payments. For the same reason, Psihos’s reliance on dicta

from the Second Circuit indicating that a tax loss under

the guidelines could be adjusted for “legitimate but
No. 11-2683 9

unclaimed deductions,” United States v. Martinez-Rios,

143 F.3d 662, 671 (2d Cir. 1998); United States v. Gordon,

291 F.3d 181, 187 (2d Cir. 2002), serves him no better.

In short, even if the sentencing guidelines did not “categorically prevent a court from considering unclaimed

deductions,” Hoskins, 654 F.3d at 1094, the absence of

any contemporaneous supporting documentation of the

purported cash outflows makes this case well suited to

the general rule established in Chavin—that other deductions are not considered in determining the tax loss.

Under these circumstances, we see no reason to reconsider our decision in Chavin.

B. Restitution

Psihos next argues that even if the $837,724 tax loss

calculation was permissible for guideline purposes,

the district court erred in ordering restitution in that

amount because that was not the true loss the government suffered. Psihos acknowledges that, before the

district court, he did not distinguish between tax loss and

restitution; rather, he told the district court that the tax

loss would be a guiding principle in determining the

restitution amount. Accordingly, this court’s review is

for plain error. See United States v. Salem, 597 F.3d 877, 884

(7th Cir. 2010). As we have oft repeated, “under the plain

error standard, the party asserting the error bears the

burden of persuasion on the following points: (1) that

there is error, (2) that the error is plain, and (3) that the

error ‘affects substantial rights.’ ” United States v. Jumah,

493 F.3d 868, 875 (7th Cir. 2007) (quoting United States v.
10 No. 11-2683

Olano, 507 U.S. 725, 732-34 (1993)). “If these three conditions are met, the court may exercise its discretion to

notice a forfeited error, but only if it (4) ‘seriously affects

the fairness, integrity, or public reputation of judicial

proceedings.’ ” United States v. Day, 418 F.3d 746, 750 (7th

Cir. 2005) (quoting Olano, 507 U.S. at 732).

Psihos is correct that the “intended loss” for guideline

purposes is broader than the loss for purposes of restitution; a restitution order, unlike a calculation of loss

under the guidelines, must be based on the amount of the

loss actually caused by the defendant. United States v.

Dokich, 614 F.3d 314, 319 (7th Cir. 2010). But the district

court did not plainly err in ordering restitution of

$837,724 because, as the district court found, Psihos’s

claimed cash outflows were not adequately supported.

Psihos kept detailed records for Flanagan’s and those

records included a daily listing of cash payouts, but

there was no contemporaneous documentation of the

purported payouts to bouncers, promoters, for purported complimentary food and drink given to customers, or for transfers or payments to Café Oceana. The

government need only prove the amount of restitution

by a preponderance of the evidence and where there

are detailed records showing the actual loss, it is entirely

reasonable for a court to conclude that allegations of

undocumented expenses do not overcome the government’s proof.

While it would have been helpful had the district

court expressly stated that it found that the $837,724

represented both the intended loss for guideline
No. 11-2683 11

purposes and the actual loss for restitution purposes,

given that Psihos did not argue that there was a distinction between the two, it is understandable that the

district court was not more explicit in its holding. But,

after noting that “the government had given Psihos credit

for payouts reflected in seized records,” the court stated

that it rejected “the defendant’s assertion that he should

be given credit for hundreds of thousands of dollars of

additional but completely undocumented cash payouts

and transfers between his restaurants.” While Psihos

points to affidavits from employees indicating that the

claimed payouts were made, because the record also

supports the conclusion that $837,724 is the actual loss,

Psihos cannot show that there was an error which

affected his substantial rights. See United States v. Arroyo,

406 F.3d 881, 890 (7th Cir. 2005) (stating that “although

the district court did not make explicit findings tying

defendant’s cocaine distribution to his heroin offense,

the record could support the conclusion that the two

offenses were part of the same course of conduct” and

therefore defendant could not show an error which affected his substantial rights). 

Moreover, even if we were to find plain error, under

the circumstances of this case, we would decline to

exercise our discretion to notice that forfeited error for

several reasons. First, there is absolutely no basis to

determine the amount of purported cash payments because, even under Psihos’s version of events, he did not

keep track of the various claimed outlays. Second, and

relatedly, if Psihos had truly shifted cash to Café

Oceana—the largest reduction he seeks—then he would
12 No. 11-2683

be entitled to a reduction in restitution only if Café

Oceana had reported those cash inflows as revenues;

yet Psihos lacks the corresponding records from Café

Oceana showing its receipt of those funds, and in turn its

reporting the money as revenue to the IRS. Third, Psihos

kept no record of the cash payments to bouncers and

promoters, which in turn creates a near certainty that

the government suffered a loss of taxes owed by those

recipients. Under all of these circumstances, we would

not exercise our discretion to notice the claimed error.

C. Challenge to Sentencing 

Finally, Psihos argues that the district court erred

procedurally in sentencing him because it did not

consider his request for a sentence below the guideline

range based on his claim that the tax loss overstated the

seriousness of the offense. It is true that the district

court did not expressly discuss this argument in sentencing Psihos to 24 months’ imprisonment—the low end

of the range. But in rejecting Psihos’s arguments for a

lower tax loss calculation, the district court made clear

that a lower figure was not justified because Psihos

had not provided adequate documentation. Under these

circumstances, there was no reason for the district court

to discuss Psihos’s argument in more detail when

setting the sentence at 24 months. And in sentencing

Psihos, the district court stated that it had considered

Psihos’s arguments, but that the need to provide deterrence in the arena of self-reporting taxes justified the

sentence. The district court’s 24-month sentence was
No. 11-2683 13

presumptively reasonable because it was within the

guideline range and there is no basis for us to overcome

that presumption. United States v. Moreno-Padilla, 602

F.3d 802, 810 (7th Cir. 2010). Accordingly, the district

court’s sentence stands. 

III.

The district court did not err in determining that the

tax loss caused by Psihos’s offense was $837,724. Other

cash payments that Psihos could have used to reduce

his taxable income cannot be considered based on this

court’s decision in Chavin—a decision we decline to

overturn. And even if the tax loss could be reduced by

such cash payments, Psihos, as the district court found,

has not established that he actually made the claimed

payments. For this reason, the district court did not

commit plain error in ordering restitution of $837,724.

Finally, the district court did not err procedurally in

sentencing Psihos within the guideline range without

discussing his argument for a lower sentence based on

a lower actual loss. The 24-month sentence, which was

at the low end of the guideline range, was reasonable.

We AFFIRM.
14 No. 11-2683

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