Eleventh Circuit vacates sentence in criminal tax case based on impermissible grouping under the U.S. Sentencing Guidelines

May 22, 2012   

On May 4, 2012, the U.S. Court of Appeals for the Eleventh Circuit vacated a sentence handed down by the U.S. District Court for the Middle District of Florida in United States of America, v. Register, case no. 11-12773.

The facts of the case are as follows:

The Defendant was the owner and operator of Criminal Research Bureau, Inc. (“CRB”), a provider of background-check services for employers. To manage the CRB payroll, the Defendant used a payroll processing company, PrimePay, that prepared employee paychecks and submitted the necessary quarterly paperwork to the IRS. The Defendant, in turn, was responsible for paying the withheld taxes over to the IRS. From the first quarter of 2003 through the fourth quarter of 2007, federal income taxes and Federal Insurance Contributions Act (“FICA”) taxes totaling $316,220 were withheld from the wages of CRB employees, yet the Defendant never remitted the

vast majority of those funds to the IRS.

In addition, the Defendant falsified his individual federal income tax returns during this period for tax years 2003 to 2006. In 2003 and 2004, the Defendant was not on the CRB payroll; instead, he paid his personal expenses directly from the company bank account. Initially, the Defendant filed no federal returns at all for these years. However, in order to qualify for a mortgage, the Defendant ultimately filed his 2003 and 2004 returns late. In doing so, the Defendant generated Form W-2s that falsely indicated that the Defendant had been paid wages and that federal taxes had been withheld. The Defendant then used those figures to complete his Form 1040s for both years, enabling him to fraudulently collect refunds of $4,444.50 for tax year 2003 and $7,479.13 for tax year 2004. In 2005 and 2006, the Defendant added himself to the CRB payroll as an employee with an annual salary of $234,000. Again, however, the Defendant falsified his Form 1040s to indicate that federal taxes had been withheld from his salary when in fact none had been withheld. As a result, the Defendant collected refunds of $6,689.12 for tax year 2005 and $10,780 for tax year 2006 when, in reality, he owed $45,098 and $40,905 for those tax years respectively.

On December 8, 2010, Mr. Register was indicted on thirteen counts of willful failure to pay over taxes in violation of 26 U.S.C. § 7202, available here. Each count charged that federal income taxes and FICA taxes had been withheld from the wages of CRB employees during a particular quarter but were never paid over to the IRS.  The thirteen failure-to-pay-over counts in the indictment covered the period from the fourth quarter of 2004 through the fourth quarter of 2007.

The Defendant was also indicted on four counts of filing false individual federal income tax returns in violation of 26 U.S.C. § 7206(1), available here. Each count charged that the Defendant had falsely stated on his return for a particular year that federal income tax had been withheld when, in fact, he knew that it had not. The four filing-false-returns counts in the indictment covered the 2003 through 2006 tax years.

The Defendant pleaded guilty to seventeen counts of tax-related offenses. The first thirteen concerned his failure to pay over to the IRS federal taxes that had been withheld from the wages of his companys employees. The remaining four concerned the falsification of his individual federal income tax returns. After accepting his plea and holding a sentencing hearing, the district court sentenced him to twenty-seven months in prison. On appeal, the Defendant challenged the district courts calculation of the applicable guideline range under the United States Sentencing Guidelines Manual (“Guidelines” or “U.S.S.G.”).  Specifically, he argued that the district court erred by refusing to group all of his counts into a single group pursuant to U.S.S.G. § 3D1.2(b) or (d), available here,  as “counts involving substantially the same harm.”

At the sentencing hearing on May 31, 2011, the Defendant and the United States again agreed that all of the counts should be grouped for sentencing. The district court, however, disagreed with both parties and sided with the probation officer. The district court rejected the argument that the counts should all be grouped together under U.S.S.G. § 3D1.2(b), because they did not involve the same criminal objective or the same victim. And the district court rejected the alternative argument that the counts should all be grouped together under  U.S.S.G. § 3D1.2(d), because it “seem[ed] unusual” to aggregate the losses for two different offenses merely because the offense level for each is determined largely on the basis of the total amount of loss.

Therefore, the district court concluded that the total offense level was 16, which yielded a guideline range of 21 to 27 months. (If the district court had actually grouped together all seventeen counts, Registers total offense level would have been 15 instead of 16, yielding a guideline range of 18 to 24 months.) The Defendant and the United States each sought a sentence at the low end of the guideline range. The district court, however, sentenced Register to 27 months, the top of the range, on each of the seventeen counts, all to run concurrently.

The 11th Circuit observed that under the Sentencing Guidelines, counts are to be grouped together for purposes of calculating the appropriate guideline range whenever they involve “substantially the same harm.” U.S.S.G. § 3D1.2. Section 3D1.2(d) provides, in pertinent part, that counts involve substantially the same harm “[w]hen the offense level is determined largely on the basis of the total amount of harm or loss, the quantity of a substance involved, or some other measure of aggregate harm.” 

The 11th Circuit further noted that subsection (d) includes a list of guidelines covering offenses predetermined to meet its requirements and provides that they “are to be grouped.”U.S.S.G. § 3D1.2(d). Nevertheless, when the counts involve offenses to which different guidelines apply, grouping is not automatic even if all of the applicable guidelines are included in this list. United States v. Harper, 972 F.2d 321, 322 (11th Cir. 1992) (per curiam), available

here. Rather, “[c]ounts involving offenses to which different offense guidelines apply are grouped together under subsection (d) if the offenses are of the same general type and otherwise meet the criteria for grouping under this subsection.” U.S.S.G. § 3D1.2(d) cmt. n.6. “The Ëœsame general type of offense is to be construed broadly.” Id. In addition, cases have required that the offenses not only be similar in a general sense but also “closely related” on the facts of the particular case.

In determining that the Defendants tax related counts should have been grouped together, the 11th Circuit stated as follows:

As an initial matter, we have no difficulty concluding that Registers offenses otherwise meet the criteria for grouping under [subsection (d)]. The applicable guideline for the failure-to-pay-over counts is § 2T1.6, entitled “Failing to Collect or Truthfully Account for and Pay Over Tax,” and the applicable guideline for the filing-false-returns counts is § 2T1.1, entitled “Tax Evasion; Willful Failure to File Return, Supply Information, or Pay Tax; Fraudulent or False Returns, Statements, or Other Documents.” Inasmuch as both guidelines are expressly included in the “are to be grouped” together list, they clearly “otherwise meet the criteria” for grouping under subsection (d). See U.S.S.G. § 3D1.2(d).

The 11th Circuit further held that:  “Although Registers failure-to-pay-over counts under § 7202 and filing-false-returns counts under § 7206(1) are governed by different guidelines, we conclude that the underlying offenses are Ëœof the same general type.” Both are tax offenses governed by the Internal Revenue Code and Part T of the Sentencing Guidelines. The “measure of aggregate harm” is the same in both, since each involves a monetary objective. See U.S.S.G. § 3D1.2 cmt. n.6 ex. 3 (“The defendant is convicted of five counts of mail fraud and ten counts of wire fraud. Although the counts arise from various schemes, each involves a monetary objective. All fifteen counts are to be grouped together.”). And while the guidelines themselves may be different, notably, the base offense level for both is determined by looking up the amount of tax loss in the same Tax Table located at § 2T4.1. Moreover, on the facts of this case, grouping the offenses serves § 3D1.2s principal purpose of combin[ing] offenses involving closely related counts.”

Based on this analysis, the 11th Circuit determined that all 17 of the Defendants counts should have been grouped together, resulting in a lower sentencing guideline range.  As a result, the 11th Circuit vacated the Defendants sentence  and remanded the case to the district court for resentencing.

The attorneys at Fuerst Ittleman, PL have extensive criminal and civil tax litigation experience at both the trial and the appellate levels.  You can contact an attorney by calling us at 305.350.5690 or by emailing us at contact@fidjlaw.com.