1994 Guidelines Manual
PART T - OFFENSES INVOLVING TAXATION
1. INCOME TAXES, EMPLOYMENT TAXES, ESTATE TAXES, GIFT TAXES, AND EXCISE TAXES (OTHER THAN ALCOHOL, TOBACCO, AND CUSTOMS TAXES)
Historical Note: Effective November 1, 1987. Amended effective November 1, 1993 (see Appendix C, amendment 491).
Introductory Commentary
The criminal tax laws are designed to protect the public interest in preserving the integrity of the nation's tax system. Criminal tax prosecutions serve to punish the violator and promote respect for the tax laws. Because of the limited number of criminal tax prosecutions relative to the estimated incidence of such violations, deterring others from violating the tax laws is a primary consideration underlying these guidelines. Recognition that the sentence for a criminal tax case will be commensurate with the gravity of the offense should act as a deterrent to would-be violators.
Historical Note: Effective November 1, 1987.
2T1.1. Tax Evasion; Willful Failure to File Return, Supply Information, or Pay Tax; Fraudulent or False Returns, Statements, or Other Documents
(a) Base Offense Level:
(1) Level from 2T4.1 (Tax Table) corresponding to the tax loss; or
(2) 6, if there is no tax loss.
(b) Specific Offense Characteristics
(1) If the defendant failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity, increase by 2 levels. If the resulting offense level is less than level 12, increase to level 12.
(2) If sophisticated means were used to impede discovery of the existence or extent of the offense, increase by 2 levels.
(c) Special Instructions
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 improperly 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.
(C) If the offense involved improperly claiming a deduction to provide a basis for tax evasion in the future, the tax loss shall be treated as equal to 28% of the amount of the improperly claimed deduction (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.
Note: 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.
(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.
(5) The tax loss is not reduced by any payment of the tax subsequent to the commission of the offense.
Commentary
Statutory Provisions: 26 U.S.C. 7201, 7203 (other than a violation based upon 26 U.S.C. 6050I), 7206 (other than a violation based upon 26 U.S.C. 6050I or 7206(2)), and 7207.
Application Notes:
1. "Tax loss" is defined in subsection (c). The tax loss does not include interest or penalties. Although the definition of tax loss corresponds to what is commonly called the "criminal figures," its amount is to be determined by the same rules applicable in determining any other sentencing factor. In some instances, such as when indirect methods of proof are used, the amount of the tax loss may be uncertain; the guidelines contemplate that the court will simply make a reasonable estimate based on the available facts.
Notes under subsections (c)(1) and (c)(2) address certain situations in income tax cases in which the tax loss may not be reasonably ascertainable. In these situations, the "presumptions" set forth are to be used unless the government or defense provides sufficient information for a more accurate assessment of the tax loss. In cases involving other types of taxes, the presumptions in the notes under subsections (c)(1) and (c)(2) do not apply.
Example 1: A defendant files a tax return reporting income of $40,000 when his income was actually $90,000. Under Note (A) to subsection (c)(1), the tax loss is treated as $14,000 ($90,000 of actual gross income minus $40,000 of reported gross income = $50,000 x 28%) unless sufficient information is available to make a more accurate assessment of the tax loss.
Example 2: A defendant files a tax return reporting income of $60,000 when his income was actually $130,000. In addition, the defendant claims $10,000 in false tax credits. Under Note (A) to subsection (c)(1), the tax loss is treated as $29,600 ($130,000 of actual gross income minus $60,000 of reported gross income = $70,000 x 28% = $19,600, plus $10,000 of false tax credits) unless sufficient information is available to make a more accurate assessment of the tax loss.
Example 3: A defendant fails to file a tax return for a year in which his salary was $24,000, and $2,600 in income tax was withheld by his employer. Under the note to subsection (c)(2), the tax loss is treated as $2,200 ($24,000 of gross income x 20% = $4,800, minus $2,600 of tax withheld) unless sufficient information is available to make a more accurate assessment of the tax loss.
In determining the tax loss attributable to the offense, the court should use as many methods set forth in subsection (c) and this commentary as are necessary given the circumstances of the particular case. If none of the methods of determining the tax loss set forth fit the circumstances of the particular case, the court should use any method of determining the tax loss that appears appropriate to reasonably calculate the loss that would have resulted had the offense been successfully completed.
2. In determining the total tax loss attributable to the offense (see 1B1.3(a)(2)), all conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated. The following examples are illustrative of conduct that is part of the same course of conduct or common scheme or plan: (a) there is a continuing pattern of violations of the tax laws by the defendant; (b) the defendant uses a consistent method to evade or camouflage income, e.g., backdating documents or using off-shore accounts; (c) the violations involve the same or a related series of transactions; (d) the violation in each instance involves a false or inflated claim of a similar deduction or credit; and (e) the violation in each instance involves a failure to report or an understatement of a specific source of income, e.g., interest from savings accounts or income from a particular business activity. These examples are not intended to be exhaustive.
3. "Criminal activity" means any conduct constituting a criminal offense under federal, state, local, or foreign law.
4. "Sophisticated means," as used in subsection (b)(2), includes conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case. An enhancement would be applied, for example, where the defendant used offshore bank accounts, or transactions through corporate shells or fictitious entities.
5. A "credit claimed against tax" is an item that reduces the amount of tax directly. In contrast, a "deduction" is an item that reduces the amount of taxable income.
6. "Gross income," for the purposes of this section, has the same meaning as it has in 26 U.S.C. 61 and 26 C.F.R. 1.61.
7. If the offense involves both individual and corporate tax returns, the tax loss is the aggregate tax loss from the offenses taken together.
Background: This guideline relies most heavily on the amount of loss that was the object of the offense. Tax offenses, in and of themselves, are serious offenses; however, a greater tax loss is obviously more harmful to the treasury and more serious than a smaller one with otherwise similar characteristics. Furthermore, as the potential benefit from the offense increases, the sanction necessary to deter also increases.
Under pre-guidelines practice, roughly half of all tax evaders were sentenced to probation without imprisonment, while the other half received sentences that required them to serve an average prison term of twelve months. This guideline is intended to reduce disparity in sentencing for tax offenses and to somewhat increase average sentence length. As a result, the number of purely probationary sentences will be reduced. The Commission believes that any additional costs of imprisonment that may be incurred as a result of the increase in the average term of imprisonment for tax offenses are inconsequential in relation to the potential increase in revenue. According to estimates current at the time this guideline was originally developed (1987), income taxes are underpaid by approximately $90 billion annually. Guideline sentences should result in small increases in the average length of imprisonment for most tax cases that involve less than $100,000 in tax loss. The increase is expected to be somewhat larger for cases involving more taxes.
Failure to report criminally derived income is included as a factor for deterrence purposes. Criminally derived income is generally difficult to establish, so that the tax loss in such cases will tend to be substantially understated. An enhancement for offenders who violate the tax laws as part of a pattern of criminal activity from which they derive a substantial portion of their income also serves to implement the mandate of 28 U.S.C. 994(i)(2).
Although tax offenses always involve some planning, unusually sophisticated efforts to conceal the offense decrease the likelihood of detection and therefore warrant an additional sanction for deterrence purposes.
The guideline does not make a distinction for an employee who prepares fraudulent returns on behalf of his employer. The adjustments in Chapter Three, Part B (Role in the Offense) should be used to make appropriate distinctions.
Historical Note: Effective November 1, 1987. Amended effective November 1, 1989 (see Appendix C, amendments 219-223); November 1, 1990 (see Appendix C, amendment 343); November 1, 1992 (see Appendix C, amendment 468); November 1, 1993 (see Appendix C, amendment 491).
2T1.2. [Deleted]
Historical Note: Section 2T1.2 (Willful Failure To File Return, Supply Information, or Pay Tax), effective November 1, 1987, amended effective November 1, 1989 (see Appendix C, amendments 224-227), November 1, 1990 (see Appendix C, amendment 343), and November 1, 1991 (see Appendix C, amendment 408), was deleted by consolidation with 2T1.1 effective November 1, 1993 (see Appendix C, amendment 491).
2T1.3. [Deleted]
Historical Note: Section 2T1.3 (Fraud and False Statements Under Penalty of Perjury), effective November 1, 1987, amended effective November 1, 1989 (see Appendix C, amendments 228-230), November 1, 1990 (see Appendix C, amendment 343), and November 1, 1991 (see Appendix C, amendment 426), was deleted by consolidation with 2T1.1 effective November 1, 1993 (see Appendix C, amendment 491).
2T1.4. Aiding, Assisting, Procuring, Counseling, or Advising Tax Fraud
(a) Base Offense Level:
(1) Level from 2T4.1 (Tax Table) corresponding to the tax loss; or
(2) 6, if there is no tax loss.
For purposes of this guideline, the "tax loss" is the tax loss, as defined in 2T1.1, resulting from the defendant's aid, assistance, procurance or advice.
(b) Specific Offense Characteristics
(1) If (A) the defendant committed the offense as part of a pattern or scheme from which he derived a substantial portion of his income; or (B) the defendant was in the business of preparing or assisting in the preparation of tax returns, increase by 2 levels.
(2) If sophisticated means were used to impede discovery of the existence or extent of the offense, increase by 2 levels.
Commentary
Statutory Provision: 26 U.S.C. 7206(2) (other than a violation based upon 26 U.S.C. 6050I).
Application Notes:
1. For the general principles underlying the determination of tax loss, see 2T1.1(c) and Application Note 1 of the Commentary to 2T1.1 (Tax Evasion; Willful Failure to File Return, Supply Information, or Pay Tax; Fraudulent or False Returns, Statements, or Other Documents). In certain instances, such as promotion of a tax shelter scheme, the defendant may advise other persons to violate their tax obligations through filing returns that find no support in the tax laws. If this type of conduct can be shown to have resulted in the filing of false returns (regardless of whether the principals were aware of their falsity), the misstatements in all such returns will contribute to one aggregate "tax loss."
2. Subsection (b)(1) has two prongs. The first prong applies to persons who derive a substantial portion of their income through the promotion of tax schemes, e.g., through promoting fraudulent tax shelters. The second prong applies to persons who regularly prepare or assist in the preparation of tax returns for profit. If an enhancement from this subsection applies, do not apply 3B1.3 (Abuse of Position of Trust or Use of Special Skill).
3. "Sophisticated means," as used in 2T1.4(b)(2), includes conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case. An enhancement would be applied, for example, where the defendant used offshore bank accounts or transactions through corporate shells or fictitious entities.
Background: An increased offense level is specified for those in the business of preparing or assisting in the preparation of tax returns and those who make a business of promoting tax fraud because their misconduct poses a greater risk of revenue loss and is more clearly willful. Other considerations are similar to those in 2T1.1.
Historical Note: Effective November 1, 1987. Amended effective November 1, 1989 (see Appendix C, amendments 231 and 303); November 1, 1990 (see Appendix C, amendment 343); November 1, 1993 (see Appendix C, amendment 491).
2T1.5. [Deleted]
Historical Note: Section 2T1.5 (Fraudulent Returns, Statements, or Other Documents), effective November 1, 1987, was deleted by consolidation with 2T1.1 effective November 1, 1993 (see Appendix C, amendment 491).
2T1.6. Failing to Collect or Truthfully Account for and Pay Over Tax
(a) Base Offense Level: Level from 2T4.1 (Tax Table) corresponding to the tax not collected or accounted for and paid over.
(b) Cross Reference
(1) Where the offense involved embezzlement by withholding tax from an employee's earnings and willfully failing to account to the employee for it, apply 2B1.1 (Larceny, Embezzlement, and Other Forms of Theft) if the resulting offense level is greater than that determined above.
Commentary
Statutory Provision: 26 U.S.C. 7202.
Application Note:
1. In the event that the employer not only failed to account to the Internal Revenue Service and pay over the tax, but also collected the tax from employees and did not account to them for it, it is both tax evasion and a form of embezzlement. Subsection (b)(1) addresses such cases.
Background: The offense is a felony that is infrequently prosecuted. The failure to collect or truthfully account for the tax must be willful, as must the failure to pay. Where no effort is made to defraud the employee, the offense is a form of tax evasion, and is treated as such in the guidelines.
Historical Note: Effective November 1, 1987. Amended effective November 1, 1989 (see Appendix C, amendment 232); November 1, 1991 (see Appendix C, amendment 409).
2T1.7. Failing to Deposit Collected Taxes in Trust Account as Required After Notice
(a) Base Offense Level (Apply the greater):
(1) 4; or
(2) 5 less than the level from 2T4.1 (Tax Table) corresponding to the amount not deposited.
Commentary
Statutory Provisions: 26 U.S.C. 7215, 7512(b).
Application Notes:
1. If funds are deposited and withdrawn without being paid to the Internal Revenue Service, they should be treated as never having been deposited.
2. It is recommended that the fine be based on the total amount of funds not deposited.
Background: This offense is a misdemeanor that does not require any intent to evade taxes, nor even that taxes have not been paid. The more serious offense is 26 U.S.C. 7202 (see 2T1.6).
This offense should be relatively easy to detect and fines may be feasible. Accordingly, the offense level has been set considerably lower than for tax evasion, although some effort has been made to tie the offense level to the level of taxes that were not deposited.
Historical Note: Effective November 1, 1987.
2T1.8. Offenses Relating to Withholding Statements
(a) Base Offense Level: 4
Commentary
Statutory Provisions: 26 U.S.C. 7204, 7205.
Application Note:
1. If the defendant was attempting to evade, rather than merely delay, payment of taxes, a sentence above the guidelines may be warranted.
Background: The offenses are misdemeanors. Under pre-guidelines practice, imprisonment was unusual.
Historical Note: Effective November 1, 1987.
2T1.9. Conspiracy to Impede, Impair, Obstruct, or Defeat Tax
(a) Base Offense Level (Apply the greater):
(1) Offense level determined from 2T1.1 or 2T1.4, as appropriate; or
(2) 10.
(b) Specific Offense Characteristics
If more than one applies, use the greater:
(1) If the offense involved the planned or threatened use of violence to impede, impair, obstruct, or defeat the ascertainment, computation, assessment, or collection of revenue, increase by 4 levels.
(2) If the conduct was intended to encourage persons other than or in addition to co-conspirators to violate the internal revenue laws or impede, impair, obstruct, or defeat the ascertainment, computation, assessment, or collection of revenue, increase by 2 levels. Do not, however, apply this adjustment if an adjustment from 2T1.4(b)(1) is applied.
Commentary
Statutory Provision: 18 U.S.C. 371.
Application Notes:
1. This section applies to conspiracies to "defraud the United States by impeding, impairing, obstructing and defeating . . . the collection of revenue." United States v. Carruth, 699 F.2d 1017, 1021 (9th Cir. 1983), cert. denied, 464 U.S. 1038 (1984). See also United States v. Browning, 723 F.2d 1544 (11th Cir. 1984); United States v. Klein, 247 F.2d 908, 915 (2d Cir. 1957), cert. denied, 355 U.S. 924 (1958). It does not apply to taxpayers, such as a husband and wife, who merely evade taxes jointly or file a fraudulent return.
2. The base offense level is the offense level (base offense level plus any applicable specific offense characteristics) from 2T1.1 or 2T1.4 (whichever guideline most closely addresses the harm that would have resulted had the conspirators succeeded in impeding, impairing, obstructing, or defeating the Internal Revenue Service) if that offense level is greater than 10. Otherwise, the base offense level is 10.
3. Specific offense characteristics from 2T1.9(b) are to be applied to the base offense level determined under 2T1.9(a)(1) or (2).
4. Subsection (b)(2) provides an enhancement where the conduct was intended to encourage persons, other than the participants directly involved in the offense, to violate the tax laws (e.g., an offense involving a "tax protest" group that encourages persons to violate the tax laws, or an offense involving the marketing of fraudulent tax shelters or schemes).
Background: This type of conspiracy generally involves substantial sums of money. It also typically is complex and may be far-reaching, making it quite difficult to evaluate the extent of the revenue loss caused. Additional specific offense characteristics are included because of the potential for these tax conspiracies to subvert the revenue system and the danger to law enforcement agents and the public.
Historical Note: Effective November 1, 1987. Amended effective November 1, 1989 (see Appendix C, amendments 233 and 234); November 1, 1993 (see Appendix C, amendment 491).
2. ALCOHOL AND TOBACCO TAXES
Introductory Commentary
This section deals with offenses contained in Parts I-IV of Subchapter J of Title 26, chiefly 26 U.S.C. 5601-5605, 5607, 5608, 5661, 5671, 5691, and 5762, where the essence of the conduct is tax evasion or a regulatory violation. Because these offenses are no longer a major enforcement priority, no effort has been made to provide a section-by-section set of guidelines. Rather, the conduct is dealt with by dividing offenses into two broad categories: tax evasion offenses and regulatory offenses.
Historical Note: Effective November 1, 1987.
2T2.1. Non-Payment of Taxes
(a) Base Offense Level: Level from 2T4.1 (Tax Table) corresponding to the tax loss.
For purposes of this guideline, the "tax loss" is the amount of taxes that the taxpayer failed to pay or attempted not to pay.
Commentary
Statutory Provisions: 26 U.S.C. 5601-5605, 5607, 5608, 5661, 5671, 5691, 5762, provided the conduct constitutes non-payment, evasion or attempted evasion of taxes. For additional statutory provision(s), see Appendix A (Statutory Index).
Application Notes:
1. The tax loss is the total amount of unpaid taxes that were due on the alcohol and/or tobacco, or that the defendant was attempting to evade.
2. Offense conduct directed at more than tax evasion (e.g., theft or fraud) may warrant an upward departure.
Background: The most frequently prosecuted conduct violating this section is operating an illegal still. 26 U.S.C. 5601(a)(1).
Historical Note: Effective November 1, 1987.
2T2.2. Regulatory Offenses
(a) Base Offense Level: 4
Commentary
Statutory Provisions: 26 U.S.C. 5601, 5603-5605, 5661, 5671, 5762, provided the conduct is tantamount to a record-keeping violation rather than an effort to evade payment of taxes. For additional statutory provision(s), see Appendix A (Statutory Index).
Background: Prosecutions of this type are infrequent.
Historical Note: Effective November 1, 1987. Amended effective November 1, 1990 (see Appendix C, amendment 359).
3. CUSTOMS TAXES
Introductory Commentary
This Subpart deals with violations of 18 U.S.C. 496, 541-545, 547, 548, 550, 551, 1915 and 19 U.S.C. 283, 1436, 1464, 1465, 1586(e), 1708(b), and is designed to address violations involving revenue collection or trade regulation. It is not intended to deal with the importation of contraband, such as drugs, or other items such as obscene material, firearms or pelts of endangered species, the importation of which is prohibited or restricted for non-economic reasons. Other, more specific criminal statutes apply to most of these offenses. Importation of contraband or stolen goods would be a reason for referring to another, more specific guideline, if applicable, or for imposing a sentence above that specified in the guideline in this Subpart.
Historical Note: Effective November 1, 1987. Amended effective November 1, 1992 (see Appendix C, amendment 453).
2T3.1. Evading Import Duties or Restrictions (Smuggling); Receiving or Trafficking in Smuggled Property
(a) Base Offense Level:
(1) The level from 2T4.1 (Tax Table) corresponding to the tax loss, if the tax loss exceeded $1,000; or
(2) 5, if the tax loss exceeded $100 but did not exceed $1,000; or
(3) 4, if the tax loss did not exceed $100.
For purposes of this guideline, the "tax loss" is the amount of the duty.
(b) Specific Offense Characteristic
(1) If sophisticated means were used to impede discovery of the nature or existence of the offense, increase by 2 levels.
(c) Cross Reference
(1) If the offense involves a contraband item covered by another offense guideline, apply that offense guideline if the resulting offense level is greater than that determined above.
Commentary
Statutory Provisions: 18 U.S.C. 496, 541-545, 547, 548, 550, 551, 1915; 19 U.S.C. 283, 1436, 1464, 1465, 1586(e), 1708(b). For additional statutory provision(s), see Appendix A (Statutory Index).
Application Notes:
1. A sentence at or near the minimum of the guideline range typically would be appropriate for cases involving tourists who bring in items for their own use. Such conduct generally poses a lesser threat to revenue collection.
2. Particular attention should be given to those items for which entry is prohibited, limited, or restricted. Especially when such items are harmful or protective quotas are in effect, the duties evaded on such items may not adequately reflect the harm to society or protected industries resulting from their importation. In such instances, an upward departure may be warranted. A sentence based upon an alternative measure of the "duty" evaded, such as the increase in market value due to importation, or 25 percent of the items' fair market value in the United States if the increase in market value due to importation is not readily ascertainable, might be considered.
Historical Note: Effective November 1, 1987. Amended effective November 1, 1989 (see Appendix C, amendment 235); November 1, 1991 (see Appendix C, amendment 410); November 1, 1992 (see Appendix C, amendment 453).
2T3.2. [Deleted]
Historical Note: Section 2T3.2 (Receiving or Trafficking in Smuggled Property), effective November 1, 1987, amended effective November 1, 1989 (see Appendix C, amendment 236) and November 1, 1991 (see Appendix C, amendment 410), was deleted by consolidation with 2T3.1 effective November 1, 1992 (see Appendix C, amendment 453).
* * * * *
4. TAX TABLE
2T4.1. Tax Table
Tax Loss (Apply the Greatest) Offense Level
(A) $1,700 or less 6
(B) More than $1,700 7
(C) More than $3,000 8
(D) More than $5,000 9
(E) More than $8,000 10
(F) More than $13,500 11
(G) More than $23,500 12
(H) More than $40,000 13
(I) More than $70,000 14
(J) More than $120,000 15
(K) More than $200,000 16
(L) More than $325,000 17
(M) More than $550,000 18
(N) More than $950,000 19
(O) More than $1,500,000 20
(P) More than $2,500,000 21
(Q) More than $5,000,000 22
(R) More than $10,000,000 23
(S) More than $20,000,000 24
(T) More than $40,000,000 25
(U) More than $80,000,000 26.
Historical Note: Effective November 1, 1987. Amended effective November 1, 1989 (see Appendix C, amendment 237); November 1, 1993 (see Appendix C, amendment 491).
United States Sentencing Commission