Editorial Comment US Sentencing Commission Amendments

[Originally Published in the California Journal of Tax Litigation (May 2013 Ed.)]

By Joseph P. Wilson

On April 10, 2013, the United States Sentencing Commission voted on its 2013 amendments. The proposed amendment to the sentencing guidelines (as promulgated) addresses the circuit conflict over whether a sentencing court, in calculating the tax loss in a tax case, may subtract the unclaimed deductions that the defendant legitimately could have claimed if he or she had filed an accurate tax return. The rule in the Ninth Circuit (and six others) was that a defendant may not present evidence of unclaimed deductions to reduce the tax loss. See United States v. Yip, 592 F.3d 1035, 1041 (9th Cir. 2010) (“We hold that § 2T1.1 does not entitle a defendant to reduce the tax loss charged to him by the amount of potentially legitimate, but unclaimed, deductions even if those deductions are related to the offense”).’

The proposed amendment resolves the conflict and provides a new application in the commentary in §2T1.1 to read as follows:

Unclaimed Credits, Deductions, and Exemptions.–In determining the tax loss, the court should account for the standard deduction and personal and dependent exemptions to which the defendant was entitled. In addition, the court should account for any unclaimed credit, deduction, or exemption that is needed to ensure a reasonable estimate of the tax loss, but only to the extent that (A) the credit, deduction, or exemption was related to the tax offense and could have been claimed at the time the tax offense was committed; (B) the credit, deduction, or exemption is reasonably and practicably ascertainable; and (C) the defendant presents information to support the credit, deduction, or exemption sufficiently in advance of sentencing to provide an adequate opportunity to evaluate whether it has sufficient indicia of reliability to support its probable accuracy (see §6A1.3 (Resolution of Disputed Factors) (Policy Statement)).

However, the court shall not account for payments to third parties made in a manner that encouraged or facilitated a separate violation of law (e.g., “under the table” payments to employees or expenses incurred to obstruct justice).

The burden is on the defendant to establish any such credit, deduction, or exemption by a preponderance of the evidence. See §6A1.3, comment.

The Sentencing Commission agrees that if the U.S. Department of Justice wants to put someone in Federal prison for a tax crime that the sentence imposed must be commensurate with the true harm that the defendant actually did cause. Thus, the U.S. Department of Justice can no longer obtain inflated sentences by barring a defendant from submitting the correct figures of tax loss during the sentencing phase of the case. A great result for someone charged with a tax crime in the Ninth Circuit.

The amendments can be found at http://www.ussc.gov/Legislative_and_Public_ Affairs/Newsroom/Press_Releases/20130410_ UNOFFICIAL_RFP_Amendments.pdf. The tax amendments can be found on page 61 of the proposed amendments to the sentencing guidelines (as promulgated).

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