Court Opinion

ID: 2995579
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:21:09.176069+00
Date Added: 2024-06-11T11:45:26.042299
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

Nos. 99-4209 & 99-4303

United States of America,

Plaintiff-Appellee,

v.

Bonnie Oestreich, also known as Bonnie Rees,
also known as Bonnie P. Duke and George A.
Oestreich,

Defendants-Appellants.

Appeals from the United States District Court
for the Southern District of Illinois.
Nos. 4:99CR40021-002 & 4:99CR40021-001--James L. Foreman, Judge.

Argued April 17, 2001--Decided April 18, 2002

  Before Fairchild, Cudahy, and Coffey,
Circuit Judges.

  Fairchild, Circuit Judge. George and
Bonnie Oestreich, married from June 1992
to February 1996 and active in a tax
protest group "We the People," which
advocated hiding assets and violating tax
laws, were convicted of conspiring to
defraud the United States for the purpose
of impeding the lawful functions of the
Internal Revenue Service in the
ascertainment, computation, assessment,
and collection of income and Social
Security taxes. 18 U.S.C. sec. 371.
George was also convicted of seven counts
of willfully failing to file tax returns.
26 U.S.C. sec. 7203.

  The Guideline applicable to the
conspiracy is U.S.S.G. sec. 2T1.9, which
directs the use of sec. 2T1.1 (or sec.
2T1.4).

  I.   George’s Appeal

  The probation officer computed a base
offense level of 19 under sec. 2T1.1 (tax
loss) and added 8 levels not contested on
appeal for a total offense level of 27.
Because George’s Criminal History
Category was I, the resulting range of
imprisonment was 70-87 months. The
sentence imposed was 70 months, a
combination of 60 months on the
conspiracy count and a consecutive 10
months on one of the counts for failure
to file.

  On appeal George disputes part of the
calculation of tax loss. He does not
challenge the tax loss figures of
$130,600 (based on estimated income 1991-
1998) nor $55,041 (unpaid self-employment
taxes 1991-1998) nor $69,791 (refunds im
properly claimed in 1993 for income tax
paid in 1989 and 1990.) He does object to
the inclusion of an administrative claim
for $1,000,000 filed in June 1996. If the
$1,000,000 is properly included, the base
offense level of 19 and the total of 27
are correct; if not, the base offense
level would be 16, the total 24, and the
resulting range 51-63 months. Table,
U.S.S.G. sec. 2T4.1.

  The probation officer included the
$1,000,000 claim on the premise that it
fell "within the meaning of U.S.S.G. sec.
2T1.1(c)(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.’)]."
It was not, however, a claim for refund,
but a totally ineffective claim for
damages.

  The claim was entitled "Administrative
claim for damages and return of all
property, 26 U.S.C. sec. 7433(d)(1)." It
and accompanying documents, referred to
as "codicils," contained much tax
protester gibberish attempting to deny
liability for federal income tax and
social security contributions. The sec.
7433 referred to, in its form when George
filed his claim on June 7, 1996,
authorized an action for damages against
the United States if an officer of the
Internal Revenue Service, in collection
of tax, recklessly or intentionally
disregards a provision of Title 26 or a
regulation thereunder. Recoverable
damages were the lesser of $100,000 or
actual damages and costs. The action may
be brought only within 2 years of the
accrual of the right. Pub. L. 100-647,
Title VI, sec. 6241(a), Nov. 10, 1988,
102 Stat. 3747. George presumably got his
$1,000,000 figure from an amendment which
had passed in the House on April 16,
1996, but was not enacted until July 30,
and then applicable only to subsequent
actions by officers or employees of the
IRS. Pub. L. 104-168, Title VIII, sec.
801, July 30, 1996. Subsection (d)(1)
denied judgment unless plaintiff had
exhausted administrative remedies within
the IRS. George’s claim stated that it
was an attempt to correspond with
administrative remedies and cited 26
C.F.R. sec. 301.7433(e)(i) through (v),
"Procedures for an administrative claim."
That regulation, then and now, limited
administrative recovery to the lesser of
$100,000 or actual damages plus costs.
The indictment, Count 1, par. 21, refers
to the claim as "correspondence . . . in
which Oestreich purported to make an
administrative claim," and on appeal the
government characterized the claim as "an
administrative claim for damages." (Br.
at 7.)

  A claim for refund would be governed by
26 U.S.C. sec. 7422 and 26 C.F.R.
sec.sec. 301.6402-2 and -3, neither of
which was invoked here.

  George’s claim did not assert that any
officer or employee of the IRS had ever
recklessly or intentionally disregarded
any provision of the law or a regulation
or that damage resulted. The only
accusation of anyone was that Congress
had perpetrated fraud, coercion and fear.
It was a nullity even as a claim for
damages. We conclude that it was error to
include the $1,000,000 as a claimed
refund and therefore a tax loss.

  George Oestreich had objected in
district court to including the claim for
damages as tax loss, and the government
concedes that the standard of review as
to him is whether the inclusion was
clearly erroneous.

  The probation officer had included a
statement that "if the Court determines
that the $1,000,000 claim filed against
the Internal Revenue Service was so
frivolous as not to be taken seriously by
that agency, the Court may depart
[downward under U.S.S.G. sec. 5K2.0]."
Both Oestreichs argue on appeal that the
district court erred in failing to
consider or grant a downward departure.
The failure is not reviewable by this
court unless it resulted from an alleged
ly erroneous conclusion of law. United
States v. Williams, 198 F.3d 988, 994-95
(7th Cir. 1999). Here the probation
officer’s statement concerning departure
was in the record before the court, and
there is nothing in the record of
George’s sentencing, unlike Bonnie’s, to
show that the district judge thought he
did not have discretion to depart
downward.

  Counsel for the Oestreichs also argued
that they were not really seeking
$1,000,000, but only the amount of their
tax contributions, a much smaller figure,
which the government had the burden to
prove. He did not argue the analysis we
have made, but we do not deem it
appropriate to treat his failure to make
that argument as a waiver or forfeiture.
Counsel on both sides seem to have
overlooked the fact that when the claim
was filed the statute under which it pur
portedly was filed limited recovery to
$100,000, and the regulation had the same
limit.

  Both parties discuss a line of Seventh
Circuit cases holding that in applying
the Guidelines to fraud cases the
intended loss should be counted and the
improbability of success of the fraud
should be considered if at all as a basis
for downward departure. Those cases,
however, all involve crimes of fraud in
which punishment is to be determined by
applying U.S.S.G. sec. 2F1.1. See, e.g.,
United States v. Lorefice, 192 F.3d 647
(7th Cir. 1999) (mail and wire fraud);
United States v. Coffman, 94 F.3d 330
(7th Cir. 1996) (wire fraud). Here the
Guidelines are U.S.S.G. sec.sec. 2T1.9
and 2T1.1(c)(4), and our question is
whether George was improperly claiming a
refund. George’s claim was for damages
and even on the assumption that damages
would be equivalent to the taxes he had
paid in the previous two years and that
he had paid some, the claim asserted no
facts on which there could be recovery,
and recovery was impossible, not merely
improbable. A claim on which recovery was
legally impossible should not have been
counted as tax loss. See United States v.
Khan, 969 F.2d 218, 220 (6th Cir. 1992)
(applying fraud guideline to sentence for
mail fraud "an offense level may not be
increased on the basis of an estimated
fraud loss when no actual loss is
possible"). See also comment on Khan and
other cases, Coffman, supra, 94 F.3d at
336-37.

  II.   Bonnie’s Appeal

  The probation officer computed a base
offense level (tax loss) of 19. In
reaching a total offense level of 27, the
officer assigned 4 levels under sec.
2T1.1(b), Specific Offense
Characteristics, and 4 other levels. Only
the sec. 2T1.1(b) levels are challenged
on appeal. Bonnie’s Criminal History
Category was I, and the resulting range
of imprisonment would be 70-87 months,
but the statutory maximum for the
conspiracy was 60 months and that was her
sentence.

  On appeal Bonnie joins George in arguing
that a claim for damages, filed by her on
June 10, 1996, and closely similar to
George’s, was improperly included in
calculation of tax loss. What we have
said with respect to this claim in
George’s appeal applies to Bonnie as
well. Tax loss for her was computed as
$1,172,717, and reducing that by
$1,000,000 would produce a base offense
level of 15, a total of 23, and a range
of 46-57 months imprisonment. Bonnie had
not objected before the district court,
but the inclusion of the $1,000,000
affected her substantial rights by
causing her to be sentenced at an
excessive Guideline range, see United
States v. Hall, 212 F.3d 1016, 1022 (7th
Cir. 2000), and in other respects
satisfied our requirements for correcting
plain error.

  Bonnie also joins George in his argument
that we should remand for consideration
of a downward departure. We note that in
her case the jurisdictional problem does
not exist. The transcript of her
sentencing shows that the judge advised
Bonnie that the Guidelines had taken away
his discretion and that he was bound by
the Guideline range. Momentarily, at
least, he overlooked the portion of the
presentence report which informed that
the court might depart downward if it
determined that the claim was
sufficiently frivolous. Even if we were
satisfied that the amount of the claim
was properly included, we would have
jurisdiction to remand for consideration
of downward departure. Because, however,
we decide that it was error to include
the $1,000,000 claim in the tax loss, and
remand for resentencing in a lower range,
we need not pursue this argument.

  Aside from the $1,000,000 claim, the
probation officer charged Bonnie with tax
loss of $172,717. This was made up of
George’s unpaid income and self-
employment taxes for specified years--
$102,926, not at issue, and $69,791, now
objected to. The latter represents
refunds improperly claimed by George for
1989 and 1992. He filed the amended
returns in February and September, 1993.
George and Bonnie were then married,
living together, and active in the tax
protester organization which advocated
violation of law. The filings were well
within the purposes of the conspiracy
which began in about August 1992. There
was no evidence suggesting that Bonnie
was unaware of the filings. Although
George had been married to someone else
in 1989 and 1990, and his then wife and
he had filed joint returns, it was not
clearly erroneous to find that the
filings in 1993 were reasonably
foreseeable to her. See U.S.S.G. sec.
1B1.3(a)(1)(B) (defendant accountable for
"all reasonably foreseeable acts and
omissions of others" in furtherance of
"jointly undertaken criminal activity").

  Bonnie objects to two levels added under
sec. 2T1.1(b)(1) ("If the defendant
failed to report . . . income exceeding
$10,000 in any year from criminal
activity, increase by 2 levels.") George
had failed to report $14,200 in income
received in 1993 from the sale of
unregistered securities in violation of
Illinois law. Bonnie argues that George’s
trading of unregistered securities was
unforeseeable to her and outside the
scope of the conspiracy. Both
propositions may well be true, but the
significant questions are whether
George’s failure to report the income is
within the scope of the conspiracy and
whether the failure to report was
reasonably foreseeable to her. The
purposes of the conspiracy included
impeding the IRS in the collection of
income taxes, and George’s failure to
report income was well within that
purpose. His duty to report existed until
tax time in 1994, while the two were
married, living together, active in the
tax protester organization referred to,
and the conspiracy continued. The record
shows that the Illinois Securities
Department started a proceeding against
George to stop the sales and on December
20, 1993 Bonnie delivered papers to the
Department explaining why subpoenas would
not be honored. A finding that George’s
failure to report this income furthered
the conspiracy and was reasonably
foreseeable to her was not clearly
erroneous.

  We note that one case has drawn a
distinction between the use of "the
defendant" in U.S.S.G. sec. 2T1.1(b)(1)
and the use of the passive voice in sec.
2T1.1(b)(2), possibly suggesting an
argument that (1) is applicable only to
the defendant who failed to report and
not to a co-conspirator who had no duty
to report. United States v. Lewis, 93
F.3d 1075, 1084 (2d Cir. 1996). Cf.
United States v. Harris, 230 F.3d 1054,
1061-62 (7th Cir. 2000) (Ripple, J.,
dissenting); United States v. Sullivan,
75 F.3d 297, 303 (7th Cir. 1996); United
States v. Tagore, 158 F.3d 1124, 1129
(10th Cir. 1998). Bonnie has not made
this argument and we do not consider it.

  Bonnie further contends that it was
plain error not to decrease her offense
level as a minimal or minor participant
in the conspiracy. U.S.S.G. sec. 3B1.2.
Such a reduction was warranted only if
she was "substantially less culpable"
than George. See United States v.
Montenegro, 231 F.3d 389, 395 (7th Cir.
2000) (reductions granted in conspiracy
only if defendant is substantially less
culpable than conspiracy’s other
participants). Bonnie’s extensive
involvement in We the People included
taking attendance and collecting money at
meetings, and she also filed false
documents with banks and the IRS, made
obstructionist responses to IRS
inquiries, and attempted to hide assets
by paying for them with cash or third-
party checks and titling them under her
maiden name. We find no error in the
district court’s determination that she
was neither a minor nor a minimal
participant.

  We vacate both sentences and remand for
resentencing consistent with this
opinion. George’s sentence of
imprisonment is to be within the range of
51-63 months and Bonnie’s within the
range of 46-57 months unless the court
finds some proper basis for downward
departure pursuant to U.S.S.G. sec.
5K2.0.