Court Opinion

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Date Created: 2015-09-21 21:24:23.375629+00
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USCA1 Opinion

	

                            United States Court of Appeals

                                For the First Circuit
                                 ____________________

          Nos. 96-1021 & 1022

                              UNITED STATES OF AMERICA,
                                      Appellee,

                                          v.

                       ANTHONY G. OLBRES and SHIRLEY A. OLBRES,
                                     Appellants.

                                 ____________________

                                     ERRATA SHEET
                                     ERRATA SHEET

               The  opinion of  this Court  issued on  November 1,  1996 is
          corrected as follows:

               On page 5, line 20: end the paragraph after "appeal."  Begin
          new paragraph on line 21, with "Three"

               On page 17, line 6: change "appears" to "appeared"

               On page 17, line 10: delete apostrophe after "Guidelines"

                            United States Court of Appeals
                                For the First Circuit

                                 ____________________

          Nos. 96-1021
               96-1022

                              UNITED STATES OF AMERICA,

                                      Appellee,

                                          v.

                       ANTHONY G. OLBRES and SHIRLEY A. OLBRES,

                                     Appellants.

                                 ____________________

           APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
                                    NEW HAMPSHIRE

                    [Hon. Steven J. McAuliffe, U.S.District Judge]
                                               __________________

                                 ____________________

                                        Before

                         Selya, Cyr and Lynch, Circuit Judges,
                                               ______________

                                 ____________________

               Gregory G. Katsas, with whom John B. Nalbandian, Jones, Day,
               _________________            __________________  ___________
          Reavis  &  Pogue, Scott  P. Lopez,  Terry  Philip Segal,  Segal &
          ________________  _______________   ___________________   _______
          Feinberg,  Steven M. Gordon, and  Shaheen & Gordon  were on brief
          ________   ________________       ________________
          for appellants.
               Karen   Quesnel,  Attorney,  Tax   Division,  Department  of
               _______________
          Justice,    with  whom  Loretta C.  Argrett,  Assistant  Attorney
                                  ___________________
          General, and   Robert E.  Lindsay and Alan  Hechtkopf, Attorneys,
                         __________________     _______________
          Tax Division, Department of Justice, were on brief for appellee.

                                 ____________________

                                   November 1, 1996
                                 ____________________

                      LYNCH, Circuit Judge.  This tax evasion case raises
                      LYNCH, Circuit Judge
                             _____________

            two sentencing  issues, one of import to tax cases and one of

            larger import.  We hold that a sentence in a tax evasion case

            must  be  predicated  on  findings  as  to  amounts  that the

            government has  proven were willfully  evaded and that  it is

            unlikely the requisite findings were made here.  We also hold

            that there is no  categorical imperative prohibiting the very

            consideration of whether a case is so unusual as to warrant a

            downward departure  based on  the loss  of  jobs to  innocent

            employees  occasioned by  the  imprisonment of  the defendant

            owner of a  small business.  We reject the  argument that the

            United  States  Sentencing Commission's  comment discouraging

            departures based on the  "vocational skills" of the defendant

            categorically  prohibits consideration  of such  job loss  to

            third parties.  Accordingly, we  vacate defendants' sentences

            and remand.  

                                          I

                      Anthony and Shirley Olbres, husband and wife, run a

            business,  Design Consultants  ("DC"), which  creates exhibit

            booths for trade shows.  Design Consultants currently employs

            twelve people in addition to Anthony Olbres, who is president

            of  the company, and Shirley Olbres, who serves as DC's part-

            time bookkeeper.   In 1987,  Mr. and Mrs. Olbres  had a total

            income of $837,480.   In  June 1987, they  purchased a  Rolls

            Royce  Corniche convertible  for  $158,000.   They drove  the

                                         -2-
                                          2

            Rolls  to a  local restaurant  in Exeter,  New Hampshire.   A

            passing IRS employee saw the luxury car parked outside of the

            restaurant.  His curiosity engaged, he wrote down the license

            plate  number with  the  intention of  identifying the  car's

            owner  and examining  his  or  her  tax  returns.    The  IRS

            employee's  curiosity led to a 1989 audit of the Olbres' 1987

            joint  tax  returns and  eventually  resulted  in a  criminal

            investigation.    The  investigation  led the  government  to

            conclude that  Mr. and Mrs. Olbres had committed criminal tax

            evasion. 

                    Mr.  and Mrs. Olbres were indicted on three counts of

            criminal tax evasion  related to the income  tax returns they

            filed for  the years 1986, 1987,  and 1988.  See  26 U.S.C.  
                                                         ___

            7201.   The returns  understated the couple's  taxable income

            for  those  years by  approximately  $153,000,  $749,000, and

            $175,000,  respectively.  For 1987, the year with the bulk of

            the unreported income, Mr. and  Mrs. Olbres failed to  report

            income  from three  sources: 1) payments,  totaling $630,000,

            from business  customers that were deposited  directly into a

            business  savings  account  and  not  recorded  in  the  cash

            receipts  journal  provided  to the  Olbres'  accountant;  2)

            rental income, totaling $22,000, from  various properties the

            couple  owned;  and 3)  rebates,  totaling  $97,000, paid  by

            shipping  companies utilized  by  DC.   Mr.  and Mrs.  Olbres

            conceded all  the understatements  but defended on  the basis

                                         -3-
                                          3

            that  none were willful.   The couple insisted  that they had

            relied on  their accountant,  who had prepared  their returns

            since  1977.   That accountant  died before  the trial.   The

            couple  attributed  other errors,  including  the failure  to

            report the shipping rebates, to Mrs. Olbres, who was depicted

            as a well-meaning but untrained bookkeeper. 

                    The jury acquitted Mr. and Mrs. Olbres on the charges

            relating  to the 1986 and  1988 returns and  convicted on the

            charge  related to  the 1987  return.   The jury  verdict was

            general; the district judge instructed the jury that it could

            convict on a count if  it found that Mr. and Mrs.  Olbres had

            willfully attempted to evade  a "substantial" amount of taxes

            for the relevant year.  There was no specific jury finding as

            to the amounts willfully evaded, or as to whether the willful

            evasion  encompassed some or all of  the categories of income

            involved. 

                    The  district court  granted  the Olbres'  motion for

            judgment of  acquittal on the conviction relating to the 1987

            tax return on  the basis  that the government  had failed  to

            prove   willfulness beyond a reasonable doubt.  United States
                                                            _____________

            v. Olbres,  881  F.  Supp. 703,  706  (D. N.H.  1994).    The
               ______

            government appealed, and  this court  reversed, holding  that

            there was  evidence of  willfulness sufficient to  uphold the

            conviction.   United States v.  Olbres, 61  F.3d 967,  970-73
                          _____________     ______

            (1st Cir.), cert. denied, 116 S.  Ct. 522 (1995).  This court
                        _____ ______

                                         -4-
                                          4

            did  not  parse  the  evidence  as to  the  specific  amounts

            willfully underreported for the year 1987.  See id.
                                                        ___ ___

                    On remand, the district court determined that the tax

            loss caused by Mr. and Mrs. Olbres totalled $632,158,  which,

            according to the Sentencing Guidelines' Tax Table, places the

            Olbres' base offense level at 15.  See U.S.S.G.   2T4.1.  The
                                               ___

            $632,158  amount included the $470,236  tax loss from 1987 as

            well  as the  tax  losses from  1986  and 1988,  despite  the

            defendants' challenge  to  the inclusion  of certain  amounts

            from 1987 and of the entire 1986 and 1988 amounts. 

                    The district  court  judge  sentenced  Mr.  and  Mrs.

            Olbres to 18  months in prison, the  lowest possible sentence

            within  the  level 15  sentencing  range  for their  Criminal

            History  Category of I.  That sentence is predicated upon the

            willfulness requirement  having been  met for the  entire sum

            underreported  for 1987.  It is also predicated on the entire

            sums  underreported for 1986 and  1988, as the  court felt it

            was required  to consider those amounts  as relevant conduct,

            despite the acquittals.  Stating that it was legally required

            to  do so, the court  rejected Mr. and  Mrs. Olbres' argument

            that there should  be a downward departure  from the sentence

            because sending them to prison would mean the demise of their

            small business  and loss of  employment for a  dozen innocent

            employees.  It is from these determinations that Mr. and Mrs.

            Olbres appeal.

                                         -5-
                                          5

                    Three issues are argued.   Mr. and Mrs.  Olbres argue

            that the district court erred in failing to determine whether

            they  willfully  evaded  all  of the  taxes  on  which  their

            sentence was  based.  They also argue  that the consideration

            of  the acquitted conduct stemming from the 1986 and 1988 tax

            years  violated  the Sentencing  Reform  Act  and the  Double

            Jeopardy  and  Due  Process   Clauses  of  the  Constitution.

            Finally,  Mr. and Mrs.  Olbres argue that  the district court

            erred  as a matter  of law in  adopting a per  se rule that a

            trial  court  may  never  consider a  downward  departure  to

            prevent termination of an ongoing business enterprise and the

            loss  of  employment to  innocent  persons.   We  vacate  the

            sentence and remand for further proceedings on the first  and

            third grounds and do not  reach the Olbres' acquitted conduct

            argument.

                                          II

                    The United States and defendants agree on this appeal

            that for  sentencing purposes the trial judge was required by

            Rule 32(c)(1), Fed. R.  Crim. P., to find  that Mr. and  Mrs.

            Olbres  willfully attempted to evade all of the taxes used in

            determining their  base offense level.   The dispute  is over

            whether the  court adequately,  or ever, made  such findings.

            The government contends that although the trial court made no

            specific findings, the trial judge, by expressly adopting the

            findings  of  the Presentence  Investigation  Report ("PSR"),

                                         -6-
                                          6

            implicitly  found  that Mr.  and  Mrs.  Olbres had  willfully

            evaded  taxes  on  income  of  approximately   $1.1  million,

            encompassing the tax  years 1986,  1987, and 1988.   Mr.  and

            Mrs. Olbres contend that  the trial court improperly declined

            to make  such findings  and instead erroneously  assumed that

            the  general jury  verdict  and this  court's opinion  in its

            sufficiency review  established that  the entire sum  of $1.1

            million was willfully evaded.  Because the  record is unclear

            as to what the district court actually found, and in light of

            our disposition  of the  downward departure issue,  we vacate

            the Olbres'  sentences and  remand  for further  proceedings.

            See United States  v. Garafano,  36 F.3d 133,  135 (1st  Cir.
            ___ _____________     ________

            1994).

                    In order  to determine  the base offense  level under

            the  Sentencing  Guideline for  tax  evasion,  the sentencing

            court  must  determine  the  amount  of  "tax  loss"  to  the

            government.   U.S.S.G.    2T1.1(a)(1987).   In  the pertinent

            1987 Guidelines Manual, "tax  loss" is defined as "the  total

            amount of tax that the taxpayer evaded or attempted to evade,

            including interest to  the date of filing of  an indictment."

            Id. 
            ___

                    The primary difficulty presented by this case is that

            the  jury, in order to convict,  was not required to find the

            total  amount  of  the  tax  that  the  taxpayers  evaded  or

            attempted to  evade.   Indeed, the  jury was instructed  that

                                         -7-
                                          7

            "[t]he government does not have to prove the exact amount the

            defendants owed, nor  does the government have to  prove that

            all the tax charged in the indictment was evaded."  Thus, the

            sentencing judge is required to make a determination which is

            not necessarily made by the jury  and, in this case, was  not

            made.  

                    Further  enlarging the  sentencing judge's  task, the

            Guidelines also  state  that "[w]hen  more than  one year  is

            involved, the tax losses are to be added."  U.S.S.G.   2T1.1.

            The   Guidelines  Commentary  explains  this  instruction  as

            follows:

                    While the definition  of tax loss corresponds
                    to "criminal deficiency," its amount is to be
                    determined  by the  same rules  applicable in
                    determining any other  sentencing factor.  In
                    accordance   with   the  "relevant   conduct"
                    approach  adopted  by  the   guidelines,  tax
                    losses resulting from more than  one year are
                    to   be  added  regardless   of  whether  the
                    defendant is convicted of multiple counts.  

            U.S.S.G. Pt. T, comment. 1 (1987).

                    It is against this background that the district court

            stated  the  task  it  thought  it  faced  in  light  of  the

            government's position at that time:

                    With  regard to  the amounts  evaded, I  find
                    that  the  proper  means  of  calculating the
                    amount of tax loss or the amount evaded under
                    the Sentencing Guidelines requires  the Court
                    to look to the amounts not included as income
                    on the return that  should have been included
                    as income  and then to compute  the tax based
                    upon that  income plus interest based  on the
                    statutory rate from the date of return to the
                    date of indictment.

                                         -8-
                                          8

            This  is a  correct  statement  of  the  first  step  of  the

            analysis.   The next step, as the government now concedes, is

            to identify the  amount of  taxes willfully evaded.   We  are

            left with uncertainty as to whether that step was taken.   In

            determining what the  district court  did and did  not do  at

            sentencing, "[w]e are guided . .  . by the record -- a record

            that  flavors the  judge's  words  and concomitantly,  offers

            insights  into his thinking."   United  States v.  Tavano, 12
                                            ______________     ______

            F.3d 301, 304 (1st Cir. 1995).

                    In the  court's most express  statement of  findings,

            the   judge  stated   that  he   adopted  the   findings  and

            recommendations  set forth in the  PSR.  The  court then held

            that  Mr. and Mrs. Olbres could be sentenced for all "amounts

            not  included as  income that  should have  been included  as

            income."   Other than the adoption of the PSR's findings, the

            judge made  no explicit finding regarding  the willfulness of

            evasion on specific amounts. 

                    In many instances, a general statement that the judge

            has adopted all the  factual statements contained in  the PSR

            satisfies  the requirements of  Rule 32(c), Fed.  R. Crim. P.

            United  States v.  Skrodzki, 9  F.3d 198,  202 n.7  (1st Cir.
            ______________     ________

            1993) (express  adoption of  PSR defeats Rule  32 challenge);

            United  States  v.  Barnett,  989  F.2d  546,  551  n.5  (1st
            ______________      _______

            Cir.)(checking a  box on judgment form  indicating that court

            adopted all findings from PSR constituted specific finding as

                                         -9-
                                          9

            to  the  quantity of  drugs  for which  defendants  were held

            responsible),  cert.  denied,  510  U.S.  850 (1993);  United
                           _____  ______                           ______

            States v. Wells Metal  Finishing, Inc., 922 F.2d 54,  58 (1st
            ______    ____________________________

            Cir.  1991)(judge briefly  explained sentence at  hearing and

            then  completed  memorandum  indicating that  he  adopted all

            factual  statements in  PSR,  noting that  one fact  had been

            disputed).  Here,  however, because the  PSR did not  resolve

            all  of the disputed factual issues, simple reliance on it is

            not enough.1

                    The original PSR made no reference to willfulness and

            did  not consider the defendants' acquitted conduct.  After a

            government objection, the PSR was  amended to include the tax

            loss amounts attributed  to the acquitted  conduct.  The  PSR

            addendum  noted  that,  in  the district  court's  Order  for

            Acquittal  on the  1987  charge, the  judge  conceded that  a

            different  result would obtain  under the civil preponderance

                                
            ____________________

            1.  This Circuit has also repeatedly held that an implicit
            resolution of disputed facts is sufficient "when the court's
            statements and the sentence imposed showed that the facts
            were decided in a particular way."  United States v. Van, 87
                                                _____________    ___
            F.3d 1, 3 (1st Cir. 1996)(citing cases).  "As a general rule,
            a trial court lawfully may make implicit findings with regard
            to sentencing matters, incorporating by reference suitably
            detailed suggestions limned in the PSI Report or advanced by
            a party."  Tavano, 12 F.3d at 307; see also United States v.
                       ______                  ___ ____ _____________
            Ovalle-Marquez, 36 F.3d 212, 227-28 (1st Cir. 1994)(finding
            ______________
            that trial court's statement that offense level was "based .
            . . on the amount of cocaine involved in the offense" showed
            that the court adopted the PSR's recommendations and
            implicitly made the necessary findings as to drug quantity),
            cert. denied, 115 S. Ct 1322 (1995).  In this case, however,
            _____ ______
            the PSR was not "suitably detailed."

                                         -10-
                                          10

            standard.  See Olbres, 881 F. Supp. at 717.  The PSR addendum
                       ___ ______

            concluded:  

                    Although the Court's  remarks only  addressed
                    [1987],  there  is little  difference between
                    the  evidence submitted  as to  the acquitted
                    conduct. . . .   The question regarding their
                    intent is the same, regardless of whether one
                    is   focusing  on  [1987]  or  the  acquitted
                    conduct. 
             
                    This reference back to  the district court's order is

            ineffective;  whether  defendants  willfully  evaded  all, or

            specific portions of, the tax on their 1987 unreported income

            is  not clearly  established in  that order  or in  any other

            statement made  by the  district court.   As defense  counsel

            points out,  a willfulness finding  for each of  the disputed

            amounts  stemming from  factually distinct  sources for  each

            year  in question  (as to  each of  which different  lack-of-

            willfulness arguments are made) is necessary here in order to

            determine the correct base offense level.2

                    Lastly, at sentencing the district court also  stated

            that "willfulness isn't an issue . . . as to [19]87"  because

            this court, in its  sufficiency opinion, "found a  jury could

            find  beyond a  reasonable  doubt that  intent was  present."

            That  appellate opinion  did  not, and  could  not, make  any

                                
            ____________________

            2.  It is the defendants' position, for example, that the
            guilty verdict could have been based on as little as $22,000
            of unreported rental income in 1987.

                                         -11-
                                          11

            findings of willful evasion of any specific amount of taxes.3

            Rather,  the  opinion  addressed  whether  there was  legally

            sufficient evidence  to support a  verdict that Mr.  and Mrs.

            Olbres willfully  evaded a  "substantial" amount of  taxes on

            their 1987 income.  See generally Olbres, 61 F.3d 967. 
                                ___ _________ ______

                    As  we are unable to settle  the issue of willfulness

            findings  based  on the  jury's  general  verdict, the  trial

            judge's  statements,  or  the  documents he  incorporates  by

            reference,  see United States v. Tavares, 93 F.3d 10, 16 (1st
                        ___ _____________    _______

            Cir.), cert. denied, No. 96-6067 (Oct. 21, 1996), we leave it
                   _____ ______

            to the  sentencing court  on remand to  clarify the  specific

            amounts  on which  the sentence  is based  -- that  is, those

            amounts  as to which payment of taxes was willfully evaded as

            proven  by  the government  under  the  preponderance of  the

            evidence standard.  See Garafano, 36 F.3d at 136.  We express
                                ___ ________

            no opinion on the  appropriateness of the sentence previously

            imposed.   United States v.  Quinones, 26 F.3d  213, 220 (1st
                       _____________     ________

            Cir. 1994).

                                         III

                    The defendants  appeal the  denial of  their downward

            departure motion  based on their  argument that, if  they are

            imprisoned, their business will fail.  Should this occur, the

                                
            ____________________

            3.  Such factual determinations are either for the jury at
            trial, see, e.g., United States v. Gaudin, 115 S. Ct. 2310,
                   ___  ____  _____________    ______
            2313-14 (1995), or for the district court at sentencing, see,
                                                                     ___
            e.g., 18 U.S.C.   3742(d).  
            ____

                                         -12-
                                          12

            Olbres allege, twelve innocent employees will lose their jobs

            and suffer severe  hardship.  The government argues  that the

            Guidelines  discuss  "vocational  skills"  as  a  discouraged

            factor, not "ordinarily relevant,"  U.S.S.G.   5H1.2,4 and so

            there is no room for  the Olbres' "business failure" argument

            -- an argument that, it contends, is not unusual.  

                    The  Olbres' argument  is based  on the  premise that

            their circumstances take their case out of the "heartland" of

            the  Tax Guidelines.    "U.S.S.G.    5K2.0 allows  sentencing

            courts to depart  from the  guideline sentencing  range in  a

            given  case  if the  court  finds  aggravating or  mitigating

            circumstances that render  the case atypical and  take it out

            of  the 'heartland'  for which  the applicable  guideline was

            designed."   United States v. Carrion-Cruz, 92 F.3d 5, 6 (1st
                         _____________    ____________

            Cir. 1996).

                    The  district  court found  that  if  Mr. Olbres  was

            jailed, DC would become defunct and its  employees would lose

            their jobs.   The district court ruled, nonetheless, that the

            Sentencing Commission must  have necessarily understood  that

            small  businesses will  often  fail if  their principals  are

            incarcerated and that job loss  to innocent third parties was

                                
            ____________________

            4.   Discouraged factors are those "not ordinarily relevant
            in determining whether a sentence should be outside the
            guidelines . . . ."  U.S.S.G.   5H1.2.

                                         -13-
                                          13

            therefore "not an  unusual situation" under the  Guidelines.5

            In so  doing,  the district  court  expressly stated  it  was

            following  the  Third Circuit  opinion  in  United States  v.
                                                        _____________

            Sharapan,  13 F.3d 781 (3d Cir. 1995), and declined to follow
            ________

            the Second Circuit opinion in United States v. Milikowsky, 65
                                          _____________    __________

            F.3d  4  (2d  Cir.  1995).    The  district court  understood

            Sharapan to hold that "as a matter of law this is not a basis
            ________

            for  departing   because   the  Sentencing   Commission   has

            considered the failure of business in  constructing heartland

            guidelines."6

                    Apparently  believing  that,  as  a  matter  of  law,

            business failure and third party  job loss, regardless of the

            magnitude  or the  severity  of the  consequences, could  not

            serve as the basis for a downward departure motion, the trial

            judge stated at the end of the sentencing hearing: 

                    I also want  the record to  be clear that  if
                    the  fact that  your  business  were to  fail
                    could serve legally as a basis for  departing
                    under the Sentencing Guidelines, then I would
                    depart,  and  I  would  depart  in  a  manner
                    sufficient to keep the business  from failing
                    and putting those people out of work.  But as
                    I say, I can't as I sit here find a principal
                    [sic] basis for departing from the guidelines
                    on those factual assumptions. 

                                
            ____________________

            5.  The issue is not moot because the district court granted
            defendants' motion for bail pending resolution of this
            appeal.  The government agreed that Mr. and Mrs. Olbres do
            not present a danger to the community or a flight risk. 

            6.  It is not necessary to resolve whether this is a correct
            reading of Sharapan.
                       ________

                                         -14-
                                          14

                    In Sharapan, the Third Circuit  reversed the district
                       ________

            court's grant  of a downward departure.  13 F.3d at 786.  The

            trial  court had  found that  incarceration of  the defendant

            would  cause his business to  fail, resulting in  the loss of

            approximately  thirty  jobs.    Id. at  782.    It  therefore
                                            ___

            departed  from the  Guidelines'  sentence  and sentenced  the

            defendant  to probation  with conditions.   Id.  at  783. The
                                                        ___

            Third  Circuit  reversed,  holding  that  the  departure  was

            inconsistent with U.S.S.G.   5H1.2, p.s., which provides that

            departures based on a defendant's "vocational skills" are not

            ordinarily  appropriate.  Id.  at 784-85.   The Third Circuit
                                      ___

            viewed  the  Commission's  policy  statement  on  "vocational

            skills" as being based on an underlying "principle . . . that

            a  sentencing  judge  may  grant   a  departure  based  on  a

            defendant's ability to  make a  work-related contribution  to

            society only  in extraordinary  circumstances."  Id.  at 785;
                                                             ___

            see also United States v. Reilly, 33 F.3d 1396, 1424 (3d Cir.
            ___ ____ _____________    ______

            1994); United  States v.  Mogel, 956  F.2d  1555, 1564  (11th
                   ______________     _____

            Cir.),  cert.  denied, 506  U.S.  857  (1992); accord  United
                    _____  ______                          ______  ______

            States  v. Rutana, 932 F.2d 1155 (6th Cir.) ("[E]ven assuming
            ______     ______

            that [defendant's] imprisonment would  lead to the failure of

            his business and the  loss of his employees' jobs,  this fact

            does not  distinguish  [defendant] from  other  offenders."),

            cert. denied, 502 U.S. 907 (1991). 
            _____ ______

                    In  contrast,  the   Second  Circuit  in   Milikowsky
                                                               __________

                                         -15-
                                          15

            affirmed  a downward  departure taken  by the  district court

            because  of the effect  that Milikowsky's  imprisonment would

            have on  his employees.   65 F.3d at  6.  The  Second Circuit

            noted "that business ownership alone, or even ownership of  a

            vulnerable small business, does  not make downward  departure

            appropriate,"  id. at 9, but held that the district court was
                           ___

            nonetheless  free to,  and indeed  required to,  consider the

            possibility of  downward or upward departure  "when there are

            compelling  considerations  that take  the  case  out of  the

            heartland  factors upon which the Guidelines rest."  Id. at 7
                                                                 ___

            (citations omitted).

                    Milikowsky  arose  under  the   antitrust  guideline,
                    __________

            U.S.S.G.    2R1.1 (1990), and not the  tax guideline involved

            here.   Contrary  to  the government's  argument,  this is  a

            distinction  without  a  difference.     The  Second  Circuit

            considered  the same  argument the  government makes  here --

            that "the Commission could  hardly have overlooked the effect

            that imprisonment of offenders would have on small businesses

            that  are  likely  to  be  heavily dependent  on  those  very

            offenders for their continuing success."  Milikowsky, 65 F.3d
                                                      __________

            at 8.   That may be so, reasoned the  Second Circuit, but "in

            considering,  and  taking   into  account,   the  effect   of

            imprisonment  on antitrust  offenders' businesses  . .  . the

            Commission did not thereby take into account the  effect such

            imprisonment  would  have in  'extraordinary circumstances.'"

                                         -16-
                                          16

            Id.
            ___

                    The  structure of analysis  we follow  in considering

            sentencing  departures is  governed  by the  Supreme  Court's

            decision  in Koon v. United  States, 116 S.  Ct. 2035 (1996).
                         ____    ______________

            The  Supreme  Court  agreed  with  the  analytical  structure

            adopted  by this Circuit in United States v. Rivera, 994 F.2d
                                        _____________    ______

            942, 949 (1st Cir. 1993):

                    The  Commission's treatment of  departure factors led
                    then-Chief Judge  Breyer to explain that a sentencing
                    court   considering  a   departure  should   ask  the
                    following questions:

                           "1) What features of this case,
                           potentially,  take  it  outside
                           the Guidelines' 'heartland' and
                           make  of  it   a  special,   or
                           unusual, case?
                           2) Has the Commission forbidden
                           departures   based   on   those
                           features?
                           3) If not,  has the  Commission
                           encouraged departures  based on
                           those features?
                           4) If not,  has the  Commission
                           discouraged departures based on
                           those features?"  

                    We agree with this summary.

            Koon, 116 S. Ct.  2035, 2045 (quoting Rivera, 994  F.2d 942).
            ____                                  ______

            The Supreme Court continued:  

                    If  the  special   factor  is  a  discouraged
                    factor, or an encouraged factor already taken
                    into account by the applicable Guideline, the
                    court  should depart  only if  the  factor is
                    present  to an exceptional  degree or in some
                    other way  makes the case different  from the
                    ordinary  case where  the factor  is present.
                    If a factor is unmentioned in the Guidelines,
                    the   court   must,  after   considering  the
                    "structure  and  theory   of  both   relevant

                                         -17-
                                          17

                    guidelines  and the  Guidelines  taken  as  a
                    whole,"  decide whether  it is  sufficient to
                    take   the  case   out  of   the  Guideline's
                    heartland.   The court must bear  in mind the
                    Commission's   expectation  that   departures
                    based   on  grounds  not   mentioned  in  the
                    Guidelines will be "highly infrequent." 

            Id.
            ___

                    To adopt  the categorical  approach to job  loss from

            business failures  that the  district court appeared  to take

            would run afoul of one of the  important concerns articulated

            in  Koon.  The Supreme  Court has held  that generally courts
                ____

            should  not  categorically reject  a  factor as  a  basis for

            departure from a Guidelines sentence because: 

                    Congress   did   not  grant   federal  courts
                    authority to decide what sorts  of sentencing
                    considerations  are  inappropriate  in  every
                    circumstance.   Rather,  18 U.S.C.    3553(b)
                    instructs  a  court   that,  in   determining
                    whether  there  exists   an  aggravating   or
                    mitigating  circumstance  of a  kind or  to a
                    degree  not  adequately  considered   by  the
                    Commission,  it  should  consider  "only  the
                    sentencing guidelines, policy statements, and
                    official   commentary   of   the   Sentencing
                    Commission."  . .  .  .   The Commission  set
                    forth factors  courts may not  consider under
                    any  circumstances but  made clear  that with
                    those  exceptions, it  "does  not  intend  to
                    limit  the kinds of  factors, whether  or not
                    mentioned  anywhere  else in  the guidelines,
                    that could constitute  grounds for  departure
                    in an  unusual case."   1995 U.S.S.G.  ch. I,
                    pt. A,  intro. comment. 4(b).   Thus, for the
                                                    _____________
                    courts  to  conclude  a  factor must  not  be
                    _____________________________________________
                    considered under any  circumstances would  be
                    _____________________________________________
                    to  transgress   the  policymaking  authority
                    _____________________________________________
                    vested in the Commission.
                    _________________________
              
            Id. (emphasis  added).   Categorical  interpretations  "would
            ___

            nullify  the Commission's  treatment of  particular departure

                                         -18-
                                          18

            factors  and  its determination  that,  with  few exceptions,

            departure  factors should not  be ruled out  on a categorical

            basis."  Id. at 2051.7
                     ___

                    The  district  court's   categorical  approach   also

            presents a  question of  law, which, if  incorrectly decided,

            constitutes an  abuse of discretion.   As  the Supreme  Court

            noted:

                    The Government is quite correct  that whether
                    a factor is a permissible basis for departure
                    under any circumstances is a question of law,
                    and the  court of  appeals need not  defer to
                    the district court's resolution of the point.
                    . . .  A district court by  definition abuses
                    its discretion when it makes an error of law.

            Id. at 2047. 
            ___

                    Koon, we believe, reinforces this Circuit's view that
                    ____

            "[p]lenary review is appropriate where the question in review

            is simply whether the allegedly  special circumstances (i.e.,

                                
            ____________________

            7.  The Government's argument here relies on a general
            distinction between harm to society, which, it says, may be
            an extraordinary factor, and business failure, which, it
            says, may not.  The Supreme Court rejected this type of
            argument in Koon:
                        ____

                    The Government seeks to avoid the factual
                    nature of the departure inquiry by describing
                    it at a higher level of generality linked
                    closely to questions of law.  The relevant
                    question, however, is not, as the Government
                    says, "whether a particular factor is within
                    the 'heartland'" as a general proposition,
                    but whether the particular factor is within
                    the heartland given all the facts of the 
                    case. . . .  These considerations are factual
                    matters.

            Koon, 116 S. Ct. at 2047 (citations omitted). 
            ____

                                         -19-
                                          19

            the reasons for  the departure)  are of the  'kind' that  the

            Guidelines, in  principle,  permit the  sentencing  court  to

            consider  at all."   Rivera,  994 F.2d  at 951.   This  is so
                                 ______

            because  this  court,  "in  deciding  whether  the  allegedly

            special circumstances are of a 'kind' that permits departure,

            will have  to perform the 'quintessentially   legal' function

            of interpreting  a  set  of words,  those  of  an  individual

            guideline, in light of their intention or purpose."  Id. 
                                                                 ___

                    It  is clear  that the  Guidelines do  not explicitly

            list   the factor at  issue here among  the forbidden or  the

            discouraged   factors.     The   question   is  whether   the

            Commission's   "vocational    skills"   comment8   implicitly

            discourages consideration of job  loss to innocent employees.

            We note first  that "vocational skills" themselves  are not a

            forbidden factor, but a discouraged factor.  Compare U.S.S.G.
                                                         _______

               5H1.10  (race,  sex,  national  origin  et  al.  "are  not

            relevant" in determination of sentence) with U.S.S.G.   5H1.2
                                                    ____

            ("vocational   skills   are   not    ordinarily   relevant").

            Therefore,  even  if  the   present  case  merely   concerned

            vocational skills,  a per se approach  would be inappropriate

                                
            ____________________

            8.  The Commission statement results from the instructions of
            Congress that the Commission's guidelines and policy
            statements "reflect the general inappropriateness of
            considering the . . . vocational skills, employment record, .
            . . and community ties of the defendant."  28 U.S.C.  
            994(e); see Mogel, 956 F.2d at 1564.
                    ___ _____

                                         -20-
                                          20

            and the district court  would still have to  consider whether

            the  case was in some  way "different from  the ordinary case

            where the  factor is  present."   Koon, 116  S. Ct.  at 2045.
                                              ____

            "[A] federal court's examination of whether a factor can ever

            be  an   appropriate  basis  for  departure   is  limited  to

            determining  whether  the  Commission has  proscribed,  as  a

            categorical  matter, consideration  of  the factor.   If  the

            answer to  the question is no . . . the sentencing court must

            determine whether the factor,  as occurring in the particular

            circumstances, takes  the case  outside the heartland  of the

            applicable Guideline."  Id. at 2051. 
                                    ___

                    We do not agree with the Government's contention that

            the  loss of  employment  to  innocent employees  necessarily

            falls within the term "vocational skills."9  That a defendant

            may  have vocational skills of great value or rarity does not

            necessarily tell one whether incarceration of  that defendant

            will entail  job  loss to  others totally  uninvolved in  the

            defendant's crimes.   Vocational  skills may  or  may not  be

            related to job loss to others.

                    Our  belief  that courts  should  be  careful not  to

            construe the  categories covered  by the  Guidelines' factors

            too  broadly finds support in Koon.  There, the Supreme Court
                                          ____

                                
            ____________________

            9.  The dictionary definitions of "vocational skills" do not
            import notions of business failures.  See Sharapan, 13 F.3d
                                                  ___ ________
            at 784 (describing a dictionary definition of "vocational
            skills").

                                         -21-
                                          21

            recognized   that  while   "socio-economic  status"   of  the

            defendant  is an  impermissible ground  for departure  and "a

            defendant's career  may relate  to his or  her socio-economic

            status,  .  . .  the  link  is not  so  close  as to  justify

            categorical  exclusion  of  the  effect of  conviction  on  a

            career.  Although an impermissible factor need not be invoked

            by name to  be rejected, socio-economic  status and job  loss

            are not the semantic or practical equivalents of each other."

            Koon, 116 S. Ct. at 2051.10  
            ____

                    As  Koon  holds  that   job  loss  by  the  defendant
                        ____

            resulting  from  his  incarceration  cannot  be categorically

            excluded  from consideration,  we think  it follows  that job

            loss to innocent employees  resulting from incarceration of a

            defendant   may   not   be   categorically    excluded   from

            consideration.  Further, the rejected link between the socio-

            economic status of a defendant and a defendant's personal job

            loss is,  we  think, stronger  than the  link the  Government

            posits between "vocational skills" of a defendant and certain

            loss  of employment to innocent employees.  To add a judicial

            gloss  equating  job  loss  by innocent  third  parties  with

            "vocational skills"  is to run  headlong into the  problem of

            judicial  trespass on  legislative prerogative  against which

                                
            ____________________

            10.  Koon similarly rejected the government's argument that
                 ____
            because "physical appearance" is a discouraged factor, the
            broader category of physical abuse in prison, including that
            resulting from physical appearance, could not be considered. 
            116 S. Ct. at 2051.

                                         -22-
                                          22

            the Supreme  Court warned in  Koon.   We do  not travel  this
                                          ____

            path.

                    Because we  are remanding on  the tax loss  issue and

            the district court will make further findings on that  point,

            we believe the  wisest course is to  remand on this  issue as

            well.    In  addition,  it  is  unclear  to  us  whether  the

            government and defendants  have had the opportunity to put on

            the  evidence they  would have  wished had  a non-categorical

            approach  been  taken.11    In  rejecting   the  government's

            categorical imperative approach,12 we do not suggest that the

            defendants'  argument establishes  that they fall  outside of

            the heartland.   It is  a rare case which  does fall outside.

            As  courts  have  recognized, incarceration  of  a  defendant

            inevitably  means  that  the  defendant  will  no  longer  be

            employed in  his previous  position and that  fact inevitably

            will  have consequences.  See, e.g., Milikowsky, 65 F.3d at 8
                                      ___  ____  __________

            ("[T]he Commission  could hardly have  overlooked the  effect

                                
            ____________________

            11.  Though the defense treated Mr. and Mrs. Olbres
            identically for sentencing purposes, evidence was presented
            only on Mr. Olbres' importance to DC.  Each defendant must be
            considered individually.  We note that there was no evidence
            to suggest that the business would fail were Mrs. Olbres
            incarcerated.

            12.  We note that the opinions from our sister circuits on
            which the government has relied, Sharapan, Rutana, and Mogel,
                                             ________  ______      _____
            were all decided without the benefit of Koon.  In
                                                    ____
            distinguishing those cases, we decide only that there is no
            categorical barrier to the district court's consideration of
            a departure -- not that a departure would be proper on these
            facts.

                                         -23-
                                          23

            that imprisonment of offenders would have on small businesses

            that are  likely  to  be  heavily  dependant  on  those  very

            offenders  for their  continuing success.").   The  mere fact

            that innocent others will  themselves be disadvantaged by the

            defendants' imprisonment is  not alone enough to  take a case

            out  of the heartland.   These issues are  matters of degree,

            involving qualitative  and quantitative judgments.   Bruce M.

            Selya &  Matthew Kipp,  An Examination of  Emerging Departure
                                    _____________________________________

            Jurisprudence  Under the  Federal  Sentencing Guidelines,  67
            ________________________________________________________

            Notre  Dame L.  Rev. 1, 7-8  (1991).   As this  court said in

            Rivera:
            ______

                    It may  not be unusual, for  example, to find
                    that  a convicted drug  offender is  a single
                    mother with family responsibilities,  but, at
                    some  point,  the  nature  and  magnitude  of
                    family responsibilities  (many children? with
                    handicaps? no money? no place for children to
                    go?)  may transform  the  "ordinary case"  of
                    such circumstances into a case that is not at
                    all ordinary. 

            United States  v.  Rivera, 994  F.2d  at 948;  accord  United
            _____________      ______                      ______  ______

            States  v. Sclamo,  997 F.2d  970 (1st  Cir. 1993);  see also
            ________   ______                                    ___ ____

            Koon,  116  S. Ct.  at 2051  (it  is not  unusual  for public
            ____

            officials  convicted  of violating  18  U.S.C.     242 to  be

            subject to career related consequences, so these consequences

            alone do not make a case unusual). 

                    Given our decision to  vacate the sentence and remand

            for  further proceedings,  consideration  of the  defendants'

            acquitted conduct arguments would be premature.  

                                         -24-
                                          24

                    We close with  words from  Koon on which  all of  the
                                               ____

            Justices agreed: 

                    The goal of the Sentencing Guidelines is,  of
                    course, to reduce unjustified disparities and
                    so  reach  towards  the   evenhandedness  and
                    neutrality that are the  distinguishing marks
                    of any principled system of justice.  In this
                    respect,  the Guidelines  provide uniformity,
                    predictability,  and  a degree  of detachment
                    lacking in our earlier system.  This too must
                    be remembered, however.   It has been uniform
                    and   constant   in   the  federal   judicial
                    tradition   for   the  sentencing   judge  to
                    consider   every   convicted  person   as  an
                    individual  and every case  as a unique study
                    in   the   human   failings  that   sometimes
                    mitigate,  sometimes  magnify, the  crime and
                    the  punishment   to  ensue.     We   do  not
                    understand it to have been  the congressional
                    purpose to withdraw all sentencing discretion
                    from  the  United   States  District   Judge.
                    Discretion is reserved within  the Sentencing
                    Guidelines.

            Id. at 2053.  Even were we not obliged to agree, we would. 
            ___

                    We vacate the sentence and remand.  United  States v.
                                                        ______________

            Carvell, 74 F.3d 8 (1st Cir.  1996).   
            _______

                                         -25-
                                          25