AMENDMENT 491
Chapter Two, Part T, Subpart 1 is amended in the title by inserting ", EMPLOYMENT TAXES, ESTATE TAXES, GIFT TAXES, AND EXCISE TAXES (OTHER THAN ALCOHOL, TOBACCO, AND CUSTOMS TAXES)" at the end thereof.
Section 2T1.1 is amended in the title by inserting "; Willful Failure to File Return, Supply Information, or Pay Tax; Fraudulent or False Returns, Statements, or Other Documents" at the end thereof.
Section 2T1.1(a) is amended by deleting:
"Base Offense Level: Level from §2T4.1 (Tax Table) corresponding to the tax loss.
For purposes of this guideline, the ‘tax loss’ is the greater of: (A) the total amount of tax that the taxpayer evaded or attempted to evade; and (B) the ‘tax loss’ defined in §2T1.3.",
and inserting in lieu thereof:
"(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.".
Section 2T1.1(b)(2) is amended by deleting "nature" and inserting in lieu thereof "existence".
Section 2T1.1 is amended by inserting the following additional subsection:
"(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.".
The Commentary to §2T1.1 captioned "Statutory Provision" is amended by deleting "Provision: 26 U.S.C. § 7201" and inserting in lieu thereof "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".
The Commentary to §2T1.1 captioned "Application Notes" is amended by deleting Notes 1 and 4 as follows:
"1. False statements in furtherance of the evasion (see §§2T1.3, 2T1.5, and 2T1.8) are considered part of the offense for purposes of this guideline.",
"4. The guideline refers to §2T1.3 to provide an alternative minimum standard for the tax loss, which is based on a percentage of the dollar amounts of certain misstatements made in returns filed by the taxpayer. This alternative standard may be easier to determine, and should make irrelevant the issue of whether the taxpayer was entitled to offsetting adjustments that he failed to claim.";
and by renumbering the remaining notes accordingly.
The Commentary to §2T1.1 captioned "Application Notes" is amended in Note 1 (formerly Note 2) by deleting "For purposes of the guideline, the tax loss is the amount of tax that the taxpayer evaded or attempted to evade" and inserting in lieu thereof "‘Tax loss’ is defined in subsection (c)"; by deleting "deficiency" and inserting in lieu thereof "figures"; and by inserting the following additional paragraphs at the end:
"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.".
The Commentary to §2T1.1 captioned "Application Notes" is amended in Note 3 (formerly Note 5) by deleting "or local" and inserting in lieu thereof "local, or foreign".
The Commentary to §2T1.1 captioned "Application Notes" is amended in Note 4 (formerly Note 6) by deleting "§2T1.1(b)(2)" and inserting in lieu thereof "subsection (b)(2)"; by inserting a comma immediately following "applied"; and by inserting "or fictitious entities" immediately following "shells".
The Commentary to §2T1.1 captioned "Application Notes" is amended by inserting the following additional notes:
"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.".
The Commentary to §2T1.1 captioned "Background" is amended by deleting:
" This guideline relies most heavily on the amount of tax evaded because the chief interest protected by the statute is the collection of taxes. A greater evasion is obviously more harmful to the treasury, and more serious than a smaller one with otherwise similar characteristics. Furthermore, as the potential benefit from tax evasion increases, the sanction necessary to deter also increases.
The overlapping imprisonment ranges in the Sentencing Table are intended to minimize the significance of disputes. The consequence of an inexact estimate of the tax loss is never severe, even when the tax loss is near the boundary of a range. For example, although the difference between $39,999 and $40,001 results in a change from level 10 to level 11, any sentence of eight to twelve months would be within the guidelines regardless of the offense level determination made by the court. Indeed, any sentence between ten and twelve months would be within the guidelines for a tax loss ranging from $20,000 to $150,000. As a consequence, for all dollar amounts, the Sentencing Table affords the court considerable latitude in evaluating other factors, even when the amount of the tax loss is uncertain.
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 evasion 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 evasion 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.
Although under pre-guidelines practice some large-scale evaders served as much as five years in prison, the average sentence length for defendants sentenced to a term of imprisonment did not increase rapidly with the amount of tax evaded. Thus, the average time served by those sentenced to a term of imprisonment for evading less than $10,000 in taxes was about nine months, while the corresponding figure for those evading over $100,000 in taxes was about sixteen months. 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 evaded. 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). Estimates from pre-guidelines practice were that, on average, the presence of this factor increased time served by the equivalent of 2 levels.
Although tax evasion always involves some planning, unusually sophisticated efforts to conceal the evasion decrease the likelihood of detection and therefore warrant an additional sanction for deterrence purposes. Analyses of pre-guidelines data for other frauds and property crimes showed that careful planning or sophistication generally resulted in an average increase of at least 2 levels.",
and inserting in lieu thereof:
" 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.".
Sections 2T1.2 and 2T1.3 are deleted in their entirety as follows:
"§2T1.2. Willful Failure To File Return, Supply Information, or Pay Tax
(a) Base Offense Level:
(1) 1 level less than the level from §2T4.1 (Tax Table) corresponding to the tax loss; or
(2) 5, if there is no tax loss.
For purposes of this guideline, ‘tax loss’ means the total amount of tax that the taxpayer owed and did not pay, but, in the event of a failure to file in any year, not less than 10 percent of the amount by which the taxpayer’s gross income for that year exceeded $20,000.
(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 nature or extent of the offense, increase by 2 levels.
(c) Cross Reference
(1) If the defendant is convicted of a willful violation of 26 U.S.C. § 6050I, apply §2S1.3 (Failure to Report Monetary Transactions) in lieu of this guideline.
Commentary
Statutory Provision: 26 U.S.C. § 7203 (other than a willful violation of 26 U.S.C. § 6050I).
Application Notes:
1. ‘Criminal activity’ means any conduct constituting a criminal offense under federal, state, or local law.
2. ‘Sophisticated means,’ as used in §2T1.2(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.
3. 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. See Application Note 3 of the Commentary to §2T1.1.
Background: Violations of 26 U.S.C. § 7203 are usually serious misdemeanors that are similar to tax evasion, except that there need be no affirmative act in support of the offense. They are rarely prosecuted unless the defendant also owed taxes that he failed to pay.
Because the conduct generally is tantamount to tax evasion, the guideline is similar to §2T1.1. Because the offense is a misdemeanor, the offense level has been set at one below the level corresponding to evasion of the same amount of taxes.
An alternative measure of the tax loss, 10 percent of gross income in excess of $20,000, has been provided because of the potential difficulty of determining the amount of tax the taxpayer owed. It is expected that this alternative measure generally will understate the amount of tax owed.
The intended impact of this guideline is to increase the average time served for this offense, and to increase significantly the number of violators who receive a term of imprisonment. Under pre-guidelines practice, the average time served for this offense was approximately 2.5 months, including those who were not sentenced to prison. Considering only those who did serve a term of imprisonment, the average term was about six to seven months.
§2T1.3. Fraud and False Statements Under Penalty of Perjury
(a) Base Offense Level:
(1) Level from §2T4.1 (Tax Table) corresponding to the tax loss, if the offense was committed in order to facilitate evasion of a tax; or
(2) 6, otherwise.
For purposes of this guideline, the ‘tax loss’ is 28 percent of the amount by which the greater of gross income and taxable income was understated, plus 100 percent of the total amount of any false credits claimed against tax. If the taxpayer is a corporation, use 34 percent in lieu of 28 percent.
(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 nature or extent of the offense, increase by 2 levels.
Commentary
Statutory Provision: 26 U.S.C. § 7206, except § 7206(2). For additional statutory provision(s), see Appendix A (Statutory Index).
Application Notes:
1. ‘Criminal activity’ means any conduct constituting a criminal offense under federal, state, or local law.
2. ‘Sophisticated means,’ as used in §2T1.3(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.
3. 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. See Application Note 3 of the Commentary to §2T1.1.
4. The amount by which the greater of gross income and taxable income was understated, plus 100 percent of the total amount of any false credits claimed against tax is calculated as follows: (1) determine the amount, if any, by which the gross income was understated; (2) determine the amount, if any, by which the taxable income was understated; and (3) determine the amount of any false credit(s) claimed (a tax ‘credit’ is an item that reduces the amount of tax directly; in contrast, a ‘deduction’ is an item that reduces the amount of taxable income). Use the amount determined under step (1) or (2), whichever is greater, plus any amount determined under step (3).
Background: This guideline covers conduct that usually is analogous to tax evasion, although the elements differ. Accordingly, the offense is treated much like tax evasion.
Existence of a tax loss is not an element of these offenses. Furthermore, in instances where the defendant is setting the groundwork for evasion of a tax that is expected to become due in the future, he may make false statements that underreport income that as of the time of conviction may not yet have resulted in a tax loss. In order to gauge the seriousness of these offenses, the guidelines establish a rule for determining a ‘tax loss’ based on the nature and magnitude of the false statements made. Use of this approach also avoids complex problems of proof and invasion of privacy when returns of persons other than the defendant and co-defendants are involved.".
Section 2T1.4(a)(1) is amended by deleting "resulting tax loss, if any" and inserting in lieu thereof "tax loss".
Section 2T1.4(a)(2) is amended by deleting "otherwise" and inserting in lieu thereof "if there is no tax loss".
Section 2T1.4(a) is amended by deleting "§2T1.3" and inserting in lieu thereof "§2T1.1".
Section 2T1.4(b)(1) is amended by inserting "(A)" immediately following "If"; and by inserting "; or (B) the defendant was in the business of preparing or assisting in the preparation of tax returns" immediately before ", increase".
Section 2T1.4(b)(2) is amended by deleting "nature" and inserting in lieu thereof "existence".
Section 2T1.4(b) is amended by deleting:
"(3) If the defendant was in the business of preparing or assisting in the preparation of tax returns, increase by 2 levels.".
The Commentary to §2T1.4 captioned "Statutory Provision" is amended by inserting "(other than a violation based upon 26 U.S.C. § 6050I)" immediately following "§ 7206(2)".
The Commentary to §2T1.4 captioned "Application Notes" is amended by deleting Notes 1, 3, and 4 as follows:
"1. Subsection (b)(1) applies to persons who derive a substantial portion of their income through the promotion of tax fraud or tax evasion, e.g., through promoting fraudulent tax shelters.",
"3. Subsection (b)(3) applies to persons who regularly act as tax preparers or advisers for profit. Do not employ §3B1.3 (Abuse of Position of Trust or Use of Special Skill) if this adjustment applies. Subsection (b)(1) may also apply to such persons.
4. 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.’";
by renumbering Note 2 as Note 3; and by inserting the following as Notes 1 and 2:
"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).".
The Commentary to §2T1.4 captioned "Application Notes" is amended in Note 3 (formerly Note 2) by inserting "or fictitious entities" immediately following "corporate shells".
The Commentary to §2T1.4 captioned "Background" is amended by deleting "tax preparers and advisers" and inserting in lieu thereof "those in the business of preparing or assisting in the preparation of tax returns and those who make a business of promoting tax fraud"; and by deleting "§2T1.3" and inserting in lieu thereof "§2T1.1".
Section 2T1.5 is deleted in its entirety as follows:
"§2T1.5. Fraudulent Returns, Statements, or Other Documents
(a) Base Offense Level: 6
Commentary
Statutory Provision: 26 U.S.C. § 7207.
Background: The offense is a misdemeanor. It is to be distinguished from 26 U.S.C. § 7206(1) (§2T1.3), which is a felony involving a false statement under penalty of perjury. The offense level has been set at 6 in order to give the sentencing judge considerable latitude because the conduct could be similar to tax evasion.".
Section 2T1.9 is amended in the title by deleting "Impair, Impede" and inserting in lieu thereof "Impede, Impair, Obstruct,".
Section 2T1.9(a)(1) is amended by deleting "§2T1.3, as applicable" and inserting in lieu thereof "§2T1.4, as appropriate".
Section 2T1.9(b)(1) is amended by inserting "to impede, impair, obstruct, or defeat the ascertainment, computation, assessment, or collection of revenue" immediately following "violence".
Section 2T1.9(b)(2) is amended by deleting "impede or impair the Internal Revenue Service in the assessment and" and inserting in lieu thereof "impede, impair, obstruct, or defeat the ascertainment, computation, assessment, or"; and by inserting the following additional sentence at the end:
"Do not, however, apply this adjustment if an adjustment from §2T1.4(b)(1) is applied.".
The Commentary to §2T1.9 captioned "Application Notes" is amended in Note 2 by deleting "§2T1.3 (whichever is applicable to the underlying conduct)" and inserting in lieu thereof "§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)".
The Commentary to §2T1.9 captioned "Application Notes" is amended by inserting the following additional note:
"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).".
Section 2T4.1 is amended by deleting:
| "Tax Loss (Apply the Greatest) | Offense Level |
| (A) $2,000 or less | 6 |
| (B) More than $2,000 | 7 |
| (C) More than $5,000 | 8 |
| (D) More than $10,000 | 9 |
| (E) More than $20,000 | 10 |
| (F) More than $40,000 | 11 |
| (G) More than $70,000 | 12 |
| (H) More than $120,000 | 13 |
| (I) More than $200,000 | 14 |
| (J) More than $350,000 | 15 |
| (K) More than $500,000 | 16 |
| (L) More than $800,000 | 17 |
| (M) More than $1,500,000 | 18 |
| (N) More than $2,500,000 | 19 |
| (O) More than $5,000,000 | 20 |
| (P) More than $10,000,000 | 21 |
| (Q) More than $20,000,000 | 22 |
| (R) More than $40,000,000 | 23 |
| (S) More than $80,000,000 | 24", |
and inserting in lieu thereof:
| "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". |
Reason for Amendment: This amendment consolidates §§2T1.1, 2T1.2, 2T1.3, and 2T1.5, thereby eliminating the confusion that has arisen in some cases regarding which guideline applies. In addition, by adopting a uniform definition of tax loss, this amendment eliminates the anomaly of using actual tax loss in some cases and an amount that differs from actual tax loss in others. Furthermore, this amendment consolidates §2T1.4(b)(1) and (b)(3) to reflect the substantial overlap between these subsections. Finally, this amendment adopts a revised "tax loss" table to provide increased deterrence for tax offenses.
Effective Date: The effective date of this amendment is November 1, 1993.