Opinion ID: 223083
Heading Depth: 3
Heading Rank: 2

Heading: Calculation of Gross Receipts

Text: Hoskins also argues the government's calculation of more than $1.2 million of unreported income is too high because it incorporates the escorts' tip income and cash commissions as part of the company's gross receipts. Hoskins does not dispute that at least half of the escorts' services were paid in cash, but she contends the company never actually received the escorts' shares of cash transactions, which included commission payments and tip income. Thus, she says the tips and escort commissions should not be incorporated as part of Companions' receipts. To grasp this argument, one must understand Companions' business model. In exchange for a date with a Companions escort, customers were required to pay an hourly fee  which Companions and the escort would share  and in most cases customers paid the escort a tip as well. Hoskins provides an illustrative example of how this operated in practice. Assuming a one-hour date, the agency fee would be $150; of this, the escort was entitled to retain $70, and Companions kept the remaining $80. Assuming the escort also received a $100 tip, the escort would receive a total of $170, and Companions would receive only $80. Hoskins contends that for cash transactions, customers paid the escorts directly, and Companions never actually received anything but its share of the agency fee  $80 in Hoskins's example. Thus, Hoskins says she should only have been taxed for the amount Companions actually received  and not for the larger figure including the escorts' tips and commission payments. In total, the accountant retained by the Hoskinses testified that escorts kept 63.45% of the cash they took in, and that they took home 61% of credit-card income. The accountant used these figures to calculate unclaimed deductions, but Hoskins also deploys them to call into question the district court's gross-receipts calculation. Indeed, according to Hoskins, although the government was not wrong to estimate that cash transactions equaled credit-card receipts, it should not have doubled the $1,053,952 credit-card receipt figure to arrive at the additional taxable income arising from cash transactions. Rather, the argument follows, the credit-card figure should have been multiplied by 36.55%, yielding gross cash receipts of $385,182 and a total tax loss of less than $200,000. Because Hoskins advances this argument for the first time on appeal, we review only for plain error. See Fed. R.Crim.P. 52(b); United States v. Poe, 556 F.3d 1113, 1128 (10th Cir.2009). Under plain error review, we may not reverse unless we find (1) error, (2) that is plain, and (3) that affects substantial rights. If all three conditions are met, [we] may then exercise [] discretion to notice a forfeited error, but only if (4) the error seriously affects the fairness, integrity, or public reputation of the judicial proceedings. United States v. Balderama-Iribe, 490 F.3d 1199, 1203-04 (10th Cir.2007) (quotation omitted). Hoskins bears the burden of demonstrating plain error. Id. As an initial matter, we find the district court did not err when it included escorts' commission payments in Companions' gross income. By statute, gross income includes all income from whatever source derived. See 26 U.S.C. § 61(a). Recognizing this, we have explained that the `sweeping scope' of this [gross income] section ... has been repeatedly emphasized by the Supreme Court, and any gain constitutes gross income unless the taxpayer demonstrates that it falls within a specific exemption. Brabson v. United States, 73 F.3d 1040, 1042 (10th Cir.1996) (quotations omitted). Given this expansive definition, we have no reason to doubt the district court's conclusion that commission payments to escorts were part of Companions' gross income  regardless of the arrangement the company had with its escorts. Of course, Hoskins could have claimed deductions for cash commission payments to escorts, but as explained above, the district court did not err in refusing to account for her proposed unclaimed deductions in calculating the government's tax loss. Moreover, it is telling that Hoskins cites no authority stating that commissions that are collected and kept by a business's agents do not constitute gross income to the business. See United States v. Baum, 555 F.3d 1129, 1136 (10th Cir. 2009) (When no authority from the Supreme Court or this circuit would compel a determination that there was error and there is contrary authority in other circuits, the error can rarely be plain.) Whether the district court improperly accounted for tip receipts when calculating tax loss is a more challenging question. To the extent escorts received tips, this money was remuneration for employment and not gross income attributable to Companions. [11] See 26 U.S.C. § 3121(q) ([T]ips received by an employee in the course of his employment shall be considered remuneration for such employment.); see also id. § 3121(12) (tips are considered part of an employee's wages and not a company's income). Accordingly, because tips are not income, any portion of Companions' unreported receipts derived from tips should not have been included in the company's total gross income. The problem, however, is that Hoskins did not raise this argument before the district court, and thus there is a minimal factual record elucidating the amount of tips received by Companions' escorts. We know that tipping escorts was commonplace, but we know little else. For example, we do not know the average tip size, or how often customers paying with credit cards included the tips in their credit-card payments instead of tipping in cash. Without knowing these facts and others, we cannot estimate how much, if any, of the $1.2 million unreported-income figure was derived from tips. We can envision scenarios where little or none of the unreported income was tip-based. For example, if nearly all credit-card customers tipped in cash, then doubling the total credit-card receipts would yield a reasonable estimate of gross income from cash transactions. Further, as the government notes, the record does not indicate whether tips constituted a sufficiently large portion of Companions' unclaimed income such that the tax loss would be pushed below $400,000  a threshold figure under the Guidelines. We simply do not know. And because of that  and because the government had no impetus to develop the record on this point before the district court  we cannot say the district court plainly erred in accepting the government's tax-loss calculation. Moreover, even if she could demonstrate error that was plain, Hoskins cannot establish prejudice. Under the plain error standard, we reverse only when ... there is a reasonable probability that, but for the error claimed, the result of the proceeding would have been different. United States v. Mendoza, 543 F.3d 1186, 1194 (10th Cir.2008). Hoskins's sentencing range under the Guidelines was 51 to 63 months. Even if the court had calculated her tax loss to be less than $200,000, however, Hoskins's sentencing range would have been 33 to 41 months. Because the court's sentence of 36 months was within this lower range, we find no prejudice. In sum, Hoskins has not satisfied any of the prongs of plain error review.