Saturday, January 16, 2010

Fourth Circuit Cites S.G. Tax Sentencing Policy in Reversing Sentencing Variance (1/16/10)

In United States v. Engle, 592 F.3d 495 (4th Cir. 2010), here, decided 1/13/10, cert. den. 131 S. Ct. 165 (2010), the Fourth Circuit remanded an exceptional sentencing variance emphasizing the Sentencing Commission's introductory comment in S.G. Ch. 2, Pt. T:
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.
The Court also noted the following policy statement that the Guidelines
classify as serious many offenses for which probation was frequently given and provide for at least a short period of imprisonment in such cases. The Commission concluded that the definite prospect of prison, even though the term may be short, will serve as a significant deterrent, particularly when compared with pre-guidelines practice where probation, not prison, was the norm.
The factual background was this (at least the parts I feel most material):
The criminal information charged Engle with tax evasion for the 1998 tax year only, although the information alleged that Engle had evaded taxes for sixteen years between 1984 and 2002 and owed taxes of more than $600,000. With interest and penalties included, Engle's total tax liability exceeded $2 million. Engle's actions to avoid taxes included providing false information to the Internal Revenue Service, placing assets in others' names, and funneling income through shell corporations that he controlled.

Engle pleaded guilty to the information in 2004 and proceeded to sentencing almost two years later, in February 2006. Based on a total offense level of 17 and a category II criminal history, the presentence report calculated Engle's advisory sentencing range as 27-33 months. The district court concluded that Engle's criminal history was overstated and therefore reduced Engle's criminal history to category I, yielding an advisory sentencing range of 24-30 months.
The sentencing court clearly wanted a variance -- granting it not once but twice and chastising the Government attorney for wanting blood rather than money. The second time the sentencing court said:
It . . . seems to me to be appropriate to come up with a variance that would reflect this man's ability to pay this money. And I think that considering all of that -- I don't see any unwarranted sentencing disparities. Look at the Gall case. This isn't a particularly terrible . . . variance. It seems to be, then, that the sentence I originally thought about[, w]hich was fours years probation, 18 months house arrest on electronic monitoring with work release, and he will be permitted to make trips to China as demanded by his employer.
In reversing, after emphasizing the policy grounds noted above, the Court of Appeals said:
This case is a "mine-run" tax-evasion case only in the most generous (to Engle) understanding of that phrase. Engle evaded his tax responsibilities for sixteen years, altered tax returns prepared by his accountants, directed that income to him be paid to shell corporations in an effort to avoid withholding and reporting requirements, and lied to the IRS about the existence of these corporate accounts. Yet, with facts that could perhaps be viewed as warranting an above-Guidelines sentence, the district court imposed a significantly below-Guidelines sentence, based on views that are at odds with the clearly expressed policy views of the Sentencing Commission. The district court did not acknowledge the policy statements, and there is nothing in the statements made by the court during sentencing that offer any insight into why the court believed that a prison term was not required. There is no explanation of why the court believed that allowing Engle to continue to work and travel was consistent with the seriousness of his offense or that it would provide adequate deterrence for other would-be tax evaders. Moreover, as noted above, for more than four years after pleading guilty to tax evasion, Engle continued to work and travel, yet he paid nothing towards his tax debt. It was not until two weeks before the second sentencing hearing that Engle made the first payment (of less than $500), and even that nominal payment was spurred on by an inquiry from the IRS. The absence of any payments during a time when there is the greatest incentive for a defendant to be on his best behavior raises questions about the district court's belief that restitution would provide sufficient deterrence to Engle himself.
Finally, the Court of Appeals also chastised the sentencing court for giving too much emphasis to foregoing incarceration in order to permit the defendant to pay his taxes.  The Court of Appeals said (some case and some record citations omitted for readability):
The district court made it clear that, but for Engle's earning capacity, it would have imposed a within-Guidelines sentence of imprisonment: "[A]bsent the apparent ability to generate the income, I would simply impose a Guideline sentence and be done with it." In fact, other statements suggested that the district court believed not simply that Engle's payment of his tax debt was desirable, but that it was improper for the government to seek anything other than restitution. See J.A. 60 (asking the government whether the government wanted "blood or money"); J.A. 63 ("I'm concerned that I'm not hearing any effort to try to balance this out other than let's put him in jail and take away his livelihood, which will destroy the ability of the government to collect the money. I don't see how that necessarily promotes respect for the law.").

Reduced to its essence, the district court's approach means that rich tax-evaders will avoid prison, but poor tax-evaders will almost certainly go to jail. Such an approach, where prison or probation depends on the defendant's economic status, is impermissible. That was the consistent view of courts before Booker and its progeny.

While Booker and Gall have worked a substantial change in the manner in which sentencings are conducted and have vested district courts with substantially broader discretion than they possessed under the former sentencing regime, we do not believe the change wrought by Booker was so great that it permits district courts to rest a sentencing decision exclusively on such constitutionally suspect grounds. See Bearden v. Georgia, 461 U.S. 660, 661 (1983) (noting the "impermissibility of imprisoning a defendant solely because of his lack of financial resources"); United States v. Seacott, 15 F.3d 1380, 1389 (7th Cir. 1994) ("Allowing sentencing courts to depart downward based on a defendant's ability to make restitution would thwart the intent of the guidelines to punish financial crimes through terms of imprisonment by allowing those who could pay to escape prison. It would also create an unconstitutional system where the rich could in effect buy their way out of prison sentences."); cf. United States v. Tomko, 562 F.3d 558, 570 (3d Cir. 2009) (en banc) (post-Gall case affirming probationary sentence in tax evasion case; rejecting the government's claim that the district court permitted the defendant "to buy his way out of prison" because "the record exhibits no connection between the fine imposed and the failure to incarcerate").

We do not mean to suggest that the economic status of a defendant is never relevant in sentencing. It is certainly relevant when setting the amount of a fine or establishing a payment schedule, and it may well have relevance in other ways in other cases. And while we recognize the broad discretion possessed by district courts with regard to sentencing matters, we have no difficulty concluding that in this case, the district court abused that discretion. Accordingly, we conclude that the sentence imposed by the district court was substantively unreasonable because the sentencing decision was driven solely by Engle's ability to pay restitution.
[JAT Note: for a similar application of the Sentencing Guidelines' policy with respect to tax offenses, see United States v. Ture, 450 F.3d 352, 357-359 (8th Cir. 2006).]

Finally, of course, the real subtheme here is that Court of Appeals apparently believed that the particular district judge just did not have the stomach for criminal sentencing as indicated in the following footnote to its concluding mandate that a different district judge hear the case on remand (the linked decision, although a nonprecedential decision, might be worth a read).
n4 The district judge in this case also presided over the tax-evasion trials and sentencings in United States v. Baucom, No. 08-4493, and United States v. Davis, No. 08-4512, cases that, though not formally consolidated with this case, were argued before this court seriatim with this appeal. In the sentencing hearing for Davis, the district judge, who has taken senior status, stated that he no longer intended to handle criminal matters.

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