Opinion ID: 2827835
Heading Depth: 2
Heading Rank: 1

Heading: Definition and Application of Tax Loss

Text: First, Black argues that the district court improperly calculated the tax loss amount by aggregating the amount of each fraudulent check and bill of exchange that he attempted to pass. The government argues that the guidelines required the district court to aggregate the tax loss amount. We agree with Black that the district court did not properly calculate the tax loss amount. However, the error arose in the first instance from the district court’s interpretation and misapplication of the tax loss definition to the facts of this case not from any aggregation principle. The district court determined that the tax loss amount was more than $7 million but less than $20 million, based on an intended loss amount of over $14 million, which is the cumulative amount of each fraudulent check and bill of exchange Black attempted to pass. This tax loss figure resulted in a base offense level of 26. To arrive at this figure, the district court determined that 2T1.1(c)(1) provided the applicable definition of tax loss. This guideline states: 6 No. 13-3908 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 complete). U.S.S.G. § 2T1.1(c)(1) (2013). But using this tax loss definition, the district court’s calculation was incorrect. In this circuit, “[w]e 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.” United States v. Chavin, 316 F.3d 666, 677 (7th Cir. 2002). Here, the object of Black’s offense was the amount of money that he attempted to avoid paying, which is the actual amount of taxes, penalties and interest that was due. Black owed the IRS unpaid taxes for 1997 and 1998 plus penalties and interest. The IRS filed a lien to satisfy the tax debt in the amount of $4,856,895.49. Black wrote a bad check in this amount. The IRS notified Black that he owed an additional $505,993.68 in penalties and interest, and Black wrote a bad check for this amount. At that point, Black owed the IRS $5,362,889.17. Diligent in its collection efforts, the IRS filed three additional liens for $1,467,168.33, $1,417,804.18, and $4,954,049.40—all to collect the same $5.3 million Black owed. Black responded by writing two bad checks and two fraudulent bills of exchange to satisfy the tax liens. The district court added the face value of each fraudulent instrument submitted to the IRS to determine the tax loss was over $14 million. Doing so was improper under § 2T1.1. From the record, it appears that the tax loss was only approximately $5.3 million. Section 2T1.1 defines tax loss in various ways, as detailed below. No. 13-3908 7 For the purposes of this guideline – (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). Notes: (A) If the offense involved filing a tax return in which gross income was underreported, the tax loss shall be treated as equal to 28% of the unreported gross income (34% if the taxpayer is a corporation) plus 100% of any false credits claimed against tax, unless a more accurate determination of the tax loss can be made. (B) If the offense involved improperly claiming a deduction or an exemption, the tax loss shall be treated as equal to 28% of the amount of the im- properly claimed deduction or exemption (34% if the taxpayer is a corporation) plus 100% of any false credits claimed against tax, unless a more accurate determination of the tax loss can be made. … (2) If the offense involved failure to file a tax return, the tax loss is the amount of tax that the taxpayer owed and did not pay. Notes: (A) If the offense involved failure to file a tax return, the tax loss shall be treated as equal to 20% of the gross income (25% if the taxpayer is a corporation) less any tax withheld or otherwise paid, unless a more accurate determination of the tax loss can be made. … 8 No. 13-3908 (3) If the offense involved willful failure to pay tax, the tax loss is the amount of tax that the taxpayer owed and did not pay. (4) If the offense involved improperly claiming a refund to which the claimant was not entitled, the tax loss is the amount of the claimed refund to which the claimant was not entitled. U.S.S.G. § 2T1.1. When reading § 2T1.1’s definitions of tax loss as a whole, we understand each definition of tax loss to reflect the tax revenue that the government was owed but did not receive due to a defendant’s criminal conduct. See § 2T1.1(c)(1)–(4); accord United States v. Gordon, 291 F.3d 181, 187 (2d Cir. 2002) (“Tax loss under § 2T1.1 is intended to reflect the revenue loss to the government from defendant’s behavior.”). The district court could have determined § 2B1.1, the general fraud guideline, applied to Black’s convictions. Section 2B1.1 deals with “loss,” which we will refer to as “general loss,” not “tax loss.” This section defines general loss in the following ways. (i) Actual Loss.—Actual loss means the reasonably foreseeable pecuniary harm that resulted from the offense. (ii) Intended Loss.—Intended loss (I) means the pecuniary harm that was intended to result from the offense; and (II) includes intended pecuniary harm that would have been impossible or unlikely to occur (e.g., as in a government sting operation, or an insurance fraud in which the claim exceeded the insured value). U.S.S.G. § 2B1.1 cmt. n.3(A). Unlike the tax fraud guideline, § 2T1.1, the general fraud guideline, § 2B1.1, defines “intended loss” to include monetary “harm that would have No. 13-3908 9 been impossible or unlikely to occur (e.g. … an insurance fraud in which the claim exceeded the insured value).” U.S.S.G. § 2B1.1 cmt. n.3(A)(ii). Three of Black’s relevant convictions were under 18 U.S.C. § 514 for presenting the U.S. government with a check or a bill of exchange with intent to defraud, and the guidelines state that § 2B1.1 is applicable to convictions under 18 U.S.C. § 514. Under § 2B1.1, in a typical case involving passing fraudulent checks, district courts routinely calculate a general loss amount by adding the value of each check. Here, however, the district court did not choose to proceed under § 2B1.1, which changed the parameters of its tax loss calculation. All parties agreed that § 2T1.1 was the appropriate guideline in this case. (No party challenged the propriety of using this guideline on appeal.) As a result, the district court proceeded under § 2T1.1. This guideline required the district court to calculate loss by the tax loss the IRS incurred or could have incurred, not the general loss, which the general fraud guideline defines as monetary harm that did result or could have resulted from attempts to pass bad checks. Compare U.S.S.G. § 2T1.1(c)(1) (defining tax loss in various ways corresponding to the amount of tax revenue the IRS was owed and did not receive) with § 2B1.1 cmt. n.3 (defining loss as the reasonably foreseeable pecuniary harm that resulted from the offense or “the pecuniary harm that was intended to result from the offense,” even if such harm would have been impossible or unlikely to occur). By reviewing the face value of the checks and aggregating these amounts, the district court considered the general loss—the monetary harm that the IRS could have faced—not the tax loss. As stated 10 No. 13-3908 above, tax loss reflects the tax revenue that the government was owed but did not receive due to a defendant’s criminal conduct. Therefore, under these facts, the tax loss cannot exceed the $5.3 million that the evidence shows Black owed the IRS.