Opinion ID: 3065377
Heading Depth: 2
Heading Rank: 2

Heading: Obstruction of IRS Audit

Text: Defendant also disputes the district court’s two-level enhancement of his sentence for obstruction of justice. Among the acts that the district court cited as supporting application of the enhancement were Defendant’s provision of four false promissory notes and a false bank deposit analysis to Agent Liburd during the audit. Section 3C1.1 of the 2001 version of the Sentencing Guidelines authorized a district court to increase a defendant’s offense level by two levels if the defendant “willfully obstructed or impeded, or attempted to obstruct or impede, the administration of justice during the course of the investigation, prosecution, or sentencing of the instant offense of conviction” and if the conduct related to a qualifying offense. Here, Defendant asserts that the audit was not a criminal investigation of the offense of conviction and, thus, that the enhancement was improper. 3 We note, for instance, that a taxpayer is entitled to deduct either state income tax or state sales tax, but not both. 26 U.S.C. § 164(b)(5)(A). Some of the states in our circuit impose both an income tax and a sales tax. Reconstructing a hypothetical federal tax return for a resident of one of these states would require selecting between these potential deductions. 994 UNITED STATES v. YIP [7] A defendant’s conduct before an investigation begins does not constitute obstruction of justice under the version of § 3C1.1 that was in effect before 2006.4 For instance, in United States v. Rising Sun, 522 F.3d 989, 996-97 (9th Cir. 2008), we held that the enhancement could not be applied to a murder defendant who, on the night of the killings, had attempted to destroy evidence and had threatened his brother to keep him from talking to his girlfriend about the night’s events. The enhancement “could only apply if an investigation or prosecution was already in progress when the obstructive actions were taken.” Id. at 995. Similarly, in United States v. DeGeorge, 380 F.3d 1203, 1222 (9th Cir. 2004), we held that the enhancement did not apply to perjury committed during a civil suit between a defendant and his insurance company, where the criminal investigation of the defendant’s mail fraud did not begin until after the civil suit ended. Until today, we have never decided whether an IRS audit may constitute an investigation for the purposes of § 3C1.1. We now hold that it may. Section 3C1.1 itself does not define an “investigation.” But in United States v. Luca, 183 F.3d 1018, 1022 (9th Cir. 1999), we affirmed application of the enhancement to the submission of false documents to a state administrative agency that was investigating a defendant’s Ponzi scheme. We found it significant in Luca that the agency was investigating “the same offense” that led to the defendant’s federal conviction. Id. Two other circuits have likewise held that obstruction during a civil investigation of the same conduct that forms the basis of a conviction suffices for application of the enhancement. The First Circuit held that obstruction during administrative 4 In 2006, Amendment 693 to the Sentencing Guidelines replaced the phrase “during the course of the investigation” in § 3C1.1 with “with respect to the investigation” and added commentary explaining that conduct occurring before the start of an investigation may be covered “if [the conduct] was purposefully calculated, and likely, to thwart the investigation.” However, this amendment was a substantive change to the Guidelines and cannot be applied retroactively. Rising Sun, 522 F.3d at 997. UNITED STATES v. YIP 995 audits by Medicare and Medicaid may trigger the enhancement, “so long as the investigation which has been obstructed has a sufficient connection to the offense of conviction.” United States v. McGovern, 329 F.3d 247, 252 (1st Cir. 2003). And the Second Circuit, after noting the extensive overlap between civil and criminal investigations of securities fraud, affirmed application of the enhancement to perjury committed during a civil investigation by the Securities and Exchange Commission. United States v. Fiore, 381 F.3d 89, 94 (2d Cir. 2004). [8] An IRS audit is an official investigation that may be the first step leading to a criminal conviction for tax violations. United States v. Peters, 153 F.3d 445, 447 (7th Cir. 1998). The audit places a taxpayer on notice that the government is looking into the accuracy and propriety of his or her tax returns. Evidence gathered during such an audit properly may be transferred to prosecutors. United States v. McKee, 192 F.3d 535, 544 (6th Cir. 1999). The IRS may distinguish between the procedures to be followed during the civil and criminal phases of an audit, Peters, 153 F.3d at 447, but to a taxpayer under suspicion, the latter merely represents an escalating development in the same underlying investigation. Obstruction during an IRS audit justifies enhancing a defendant’s sentence for obstruction “during the course of the investigation.” U.S.S.G. § 3C1.1 (2001).