Comments Concerning Proposed Amendments to the United States Sentencing Guidelines
March 27, 2001

Introduction | Contents | 20.1 | 20.2 | 12.B | 12.F | 12.G | 12.G.1 | 12.G.2 | 12.G.3

Proposed Amendment 12: Offenses Involving Taxation

Part F: Prescribing a Methodology for Computing Tax Loss Where the Defendant’s Misconduct Causes Tax Loss at the Corporate and Individual Levels & Clarifying That Tax Loss Does Not Include State or Local Tax Loss

Two approaches have emerged from the circuit courts of appeals for computing tax loss when a defendant’s conduct causes both corporate income tax loss and individual income tax loss. To take an example, under both approaches, the defendant who skims $100,000 of corporate income causes a tax loss of $34,000 at the corporate level. The issue is whether the individual income tax loss should be figured on the entire $100,000 the defendant received, or on the net amount of $66,000 to take into account the amount of tax deemed to arise at the corporate level. One approach, articulated in United States v. Cseplo, 42 F.3d 360 (6 ^th Cir. 1994), calculates the tax loss at the corporate level, then adds the tax loss at the individual level without reduction for the amount of tax deemed to arise at the corporate level. The other approach, expressed in United States v. Harvey, 996 F.2d 919 (7th Cir. 1993), reduces the amount of tax loss at the individual level by the amount of tax deemed to arise at the corporate level, before adding the two amounts to calculate the entire tax loss. We believe the commission’s proposal to adopt the Harvey methodology is well considered.

Reducing the amount of tax loss at the individual level by the amount of tax deemed to arise at the corporate level is faithful to the structure of the Internal Revenue Code, which recognizes the corporation as a separate taxpayer. It also avoids a significant double counting problem. In addition, the computational mechanism is easily understood and implemented.

The addition to Application Note 1 which clarifies that a tax loss does not include state or local tax loss is also a well considered change by the Commission. Often, the same misconduct involved in the federal offense results in deficiencies in state or local income taxes. Internal Revenue Agents, the first (and often only) informed resource for tax loss computations, are generally not acquainted with the technicalities of state and local tax matters. Probation officers certainly are not. This clarification provides welcome guidance and eliminates one area of potential complication in tax case sentencings.

Introduction | Contents | 20.1 | 20.2 | 12.B | 12.F | 12.G | 12.G.1 | 12.G.2 | 12.G.3