5.00 PLEAS AND SENTENCING:
TAX DIVISION POLICY AND GUIDELINES

Updated July 2001

      Notice regarding significant tax-related amendments to Sentencing
      Guidelines, effective November 1, 2001
      
5.01 GENERALLY

5.02 GENERAL APPLICATION PRINCIPLES
      5.02[1] Select the Appropriate Guidelines Manual
      5.02[2] Guideline Calculation

5.03 CALCULATING THE BASE OFFENSE LEVEL IN TAX CASES
      5.03[1] The Base Offense Level
            5.03[1][a] Section 7201
            5.03[1][b] Section 7203
            5.03[1][c] Section 7206(1)
            5.03[1][d] Section 7206(2)
            5.03[1][e] Section 7212(a)
            5.03[1][f] Sections 286 and 287
            5.03[1][g] Section 371
      5.03[2] Specific Offense Characteristics
            5.03[2][a] Illegal Source Income
            5.03[2][b] Sophisticated Concealment
            5.03[2][c] Substantial Portion of Income Derived From Criminal Scheme
            5.03[2][d] Business of Preparing or Assisting in Preparation of Tax Returns
            5.03[2][e] Planned or Threatened Use of Violence
            5.03[2][f] Encouragement of Others to Violate Tax Code

5.04 RELEVANT CONDUCT

5.05 ROLE IN THE OFFENSE
      5.05[1] Aggravating Role in the Offense
      5.05[2] Mitigating Role in the Offense
      5.05[3] Abuse of Position of Trust or Use of a Special Skill

5.06 OBSTRUCTION OF JUSTICE

5.07 GROUPING

5.08 ACCEPTANCE OF RESPONSIBILITY
      5.08[1] Acceptance of Responsibility: In General
      5.08[2] Timely Government Assistance

5.09 DEPARTURES
      5.09[1] Departures for Aggravating or Mitigating Circumstances
      5.09[2] Departure Based on Substantial Assistance to Authorities

5.10  WAIVER OF APPEAL OF SENTENCE IN PLEA AGREEMENTS

5.11 TAX DIVISION POLICY

5.12  PLEA AGREEMENTS
      5.12[1] Plea Agreements and Major Count Policy for Offenses 
      Committed Before November 1, 1987
      5.12[2] Plea Agreements and Major Count Policy for Offenses  
      Committed After November 1, 1987
      5.12[3] Nolo Contendere Pleas.
      5.12[4] Alford Pleas
      5.12[5] Statements by Government Counsel at Sentencing; Agreeing to Probation
      5.12[6] Compromise of Criminal Liability/Civil Settlement

5.13 TRANSFER FROM DISTRICT FOR PLEA AND SENTENCE

5.14 INTERSTATE AGREEMENT ON DETAINERS

5.15 SENTENCING POLICIES
      5.15[1] Departures from the Guidelines
      5.15[2] Costs of Prosecution
      5.15[3]  Government Appeal of Sentences

5.16  RESOLUTION OF CIVIL LIABILITY DURING THE CRIMINAL CASE
      5.16[1]  As Part of a Plea Agreement
      5.16[2]  Payment of Taxes as Acceptance of Responsibility


N.B.  On May 1, 2001, the United States Sentencing Commission transmitted to 
Congress, as part of its Economic Crime Package, a series of enacted 
amendments to the United States Sentencing Guidelines Manual  that will have 
a profound impact on sentencing in criminal tax and other white collar 
cases.  Included in this Economic Crime Package are amendments consolidating 
the theft, property destruction and fraud guidelines into a new guideline, 
USSG § 2B1.1 (Theft, Property Destruction and Fraud) and providing a new 
loss table for the consolidated guideline and a new tax loss table.  These 
amendments become effective on November 1, 2001, absent prior, contrary 
congressional action. 

            
With respect to criminal tax sentencing, the amendments: (1) provide a new 
tax table (USSG § 2T4.1) with significantly higher offense levels at both 
the lower and upper ends of the table; (2) conform the "sophisticated 
concealment" specific offense characteristic of the tax guidelines (USSG §§ 
2T1.1(b)(2), 2T1.4(b)(2)) with the "sophisticated means" enhancement of the 
fraud (Part F) guidelines, including a floor offense level of 12; and (3) 
address several issues related to the determination of tax loss.   The 
changes to the determination of "tax loss" include a new  special 
instruction at USSG § 2T1.1(c)(1)(D) to resolve the so-called 
"Harvey/Cseplo" circuit conflict in favor of the Cseplo position regarding 
the determination of tax loss in a case in which the defendant under-reports 
income on both individual and corporate tax returns.  The clarifying change 
provides that, in these circumstances, the tax loss is the aggregate tax 
loss from the offenses taken together.  The Commission's resolution of the 
conflict reflects its conclusion that, in cases of corporate diversion, the 
Cseplo method more accurately reflects the seriousness of the total harm 
caused by these offenses.
   

The November 1, 2001 amendments also include new language to application 
note 1 to USSG § 2T1.1 providing an exception to the general rule excluding 
interest and penalties from the definition of "tax loss."  In willful 
evasion of payment cases under 26 U.S.C. § 7201 and willful failure to pay 
cases under 26 U.S.C. § 7203 only, interest and penalties will now 
specifically be included in the definition of "tax loss."  The Commission 
acknowledges that the nature of these cases is such that the interest and 
penalties often greatly exceed the assessed tax amount constituting the bulk 
of the harm associated with these offenses.  

                         5.01 GENERALLY

      The Sentencing Reform Act of 1984 (Title II of the Comprehensive Crime
Control Act of 1984) created the United States Sentencing Commission (Commission)
as an independent agency in the judicial branch.  The Commission's task was the
development of guidelines to further the basic purposes of criminal punishment: 
deterrence, incapacitation, just punishment, and rehabilitation.  Accordingly,
the Commission promulgated the United States Sentencing Guidelines (USSG) which
became effective on November 1, 1987, and apply to all offenses committed on or
after that date.  Courts have recognized that the guidelines also apply to any
offense involving a continuing course of conduct that began before November 1,
1987, but continues thereafter.  United States v. Dale, 991 F.2d
819, 853 (D.C. Cir. 1993) (citing cases);  United States v. Gaudet,
966 F.2d 959, 961-62 (5th Cir. 1992).

      In compliance with the mandate of the Act, the Commission created
categories of offense behavior and offender characteristics.  The Commission
prescribed guideline ranges that specify an appropriate sentence for each class
of convicted persons determined by coordinating the offense behavior categories
with the offender characteristic categories.  When the guidelines require
imprisonment, the range must be narrow, with the maximum range not exceeding the
minimum by more than the greater of 25 percent or six months.  28 U.S.C.
§ 994(b)(2). 

      The guidelines contain three types of text: (1) the actual guideline
provisions; (2) the policy statements; and (3) commentary.  The guidelines
themselves are binding on the sentencing court unless the court finds the
presence of an aggravating or mitigating factor of a kind or to a degree not
given adequate consideration by the Commission.  Mistretta v. United
States, 488 U.S. 361, 391 (1989).  Likewise, policy statements are
binding on federal courts.  Williams v. United States, 503 U.S.
193, 200-01 (1992).  The Supreme Court held that  "[c]ommentary in the Guidelines
Manual that interprets or explains a guideline is authoritative unless it
violates the Constitution, or a federal statute, or is inconsistent with, or a
plainly erroneous reading of, that guideline."  United States v.
Stinson, 508 U.S. 36, 38 (1993).  Thus, all three varieties of text are
binding on a sentencing court. 

      The Commission has the authority to submit guideline amendments each year
to Congress between the beginning of a regular Congressional session and May 1. 
Such amendments automatically take effect 180 days after submission unless
legislation is enacted to the contrary.  28 U.S.C. § 944(p).  The Commission
has amended the guidelines regularly since their initial promulgation.


               5.02 GENERAL APPLICATION PRINCIPLES

5.02[1]  Select the Appropriate Guidelines Manual

      Section 1B1.11(a) mandates that a court "shall use the Guidelines Manual
in effect on the date that the defendant is sentenced."  United States 
v. Fitzgerald, 232 F.3d 315, 318 (2d Cir. 2000);  
United States v. Zagari, 111 F.3d 307, 323 (2d Cir. 1997);  
See United States v. Bailey, 123 F.3d 1381, 1403-1406 (11th 
Cir. 1997). The same is true of policy statements.  United States v. 
Schram, 9 F.3d 741, 742 (9th Cir. 1993).  If the court determines, 
however, that the use of that Manual would viola te the ex post facto 
clause, the court "shall use the Guidelines Manual in effect on the date 
that the offense was committed. " USSG §1B1.11(b)(1).[FN1] Fitz gerald, 
232 F.3d at 318-19; Zagari, 111 F.3d at 323; United States v. Nelson, 
36 F.3d 1001, 1003 (10th Cir. 1994).  Thus, if the sentencing guideline in 
effect at the time the offense was committed is more favorable to the 
defendant than the guideline in effect at the time of sentencing, the court 
must apply the more favorable guideline.  United States v. Chasmer, 
952 F.2d 50, 52 (3d Cir. 1991).  Generally, for ex post facto 
purposes, the completion date of the offense controls the version of the 
Sentencing  Guidelines to be applied.  USSG §1.1.11, comment (n.2);  
Bailey, 123 F.3d at 1406; Zagari, 111 F.3d at 324; United 
States v. Cooper, 35 F.3d 1248, 1251 (8th Cir. 1994),  vacated, 
514 U.S. 1094 (1995), reinstated, 63 F.3d 761 (8th Cir. 1995).  When 
a revised edition of the guidelines is applied to offenses that predate and 
postdate the revision, the Fourth Circuit has determined that such use does 
not violate the ex post facto clause.  United States v. Lewis, 
235 F.3d 215, 217-18 (4th Cir. 2000), petition for cert. filed 69 USLW 3702 
(Apr 17, 2001)(No. 00-1605).  See also United States v. Sullivan, 
2001 WL 777000, *2-3 (10th Cir. July 11, 2001).

      Section 1B1.11 establishes the "one book" rule.  This rule provides that
the "Guidelines Manual in effect on a particular date shall be applied in its
entirety."  USSG §1B1.11(b)(2).  This rule provides that a court cannot pick
and choose or apply guidelines sections piecemeal.  See USSG
§§1B1.11(b)(2) and 1B1.11, comment. (backg'd). 
Fitzgerald, 232 F.3d at 319; United States v. Keller, 58
F.3d 884, 890 (2d Cir. 1995) ("A version of the sentencing guidelines is to be
applied in  its entirety.  A sentencing court has no authority to pick and
choose, taking one provision from an earlier version of the guidelines and
another from a later version."); Nelson, 36 F.3d at 1003-04;
United States v. Springer, 28 F.3d 236, 237 (1st Cir. 1994); 
United States v. Lance, 23 F.3d 343, 344 (11th Cir. 1994). 
However, some courts have disapproved of the one book rule.  See 
United States v. Ortland, 109 F.3d 539, 546 (9th Cir. 1997); 
United States v. Seligsohn, 981 F.2d 1418, 1424 (3d Cir. 1992).

      When a court applies an earlier edition of  the guidelines Manual, the
court also must apply subsequent amendments to the extent that such amendments
represent merely clarification rather than substantive changes. 
USSG §1B1.11(b)(2); United States v. Isabel, 980 F.2d 60, 62
(1st Cir. 1992); United States v. Caballero, 936 F.2d 1292, 1299
n.8 (D.C. Cir. 1991); United States v. Perdomo, 927 F.2d 111, 116-
17 (2d Cir. 1991);United States v. Howard, 923 F.2d 1500, 1504 n.4
(11th Cir. 1991).  Some offenses, such as conspiracy, escape, and
continuing criminal enterprise, are continuing offenses.  For continuing
offenses, the guidelines apply if the offense continues until after the effective
date of the guidelines.  Thus, in these so-called "straddle cases," there is no
ex post facto violation in applying guidelines which were
in effect when the last affirmative act occurred rather than an earlier version
which was in effect when the conspiracy began, even though the later version
specified a higher offense level for the same conduct.  United States v.
Hirschfeld, 964 F.2d 318, 325 (4th Cir. 1992); United States v.
Stanberry, 963 F.2d 1323 (10th Cir 1992); United States v. 
Walton, 908 F.2d 1289, 1299 (6th Cir.1990); United States v. 
Walker, 885 F.2d 1353, 1354 (8th Cir. 1989).  Note, however, that one 
court has found that acts occurring after November 1987 which merely cover 
up a conspiracy and, thus, are not done in furtherance of the conspiracy, do 
not extend the life of a conspiracy or make the guidelines applicable to the 
conspiracy.  United States v. Crozier, 987 F.2d 893, 902 (2d Cir. 
1993).


5.02[2]  Guideline Calculation

      After determining which guidelines Manual applies to the case, the attorney
should next follow the steps outlined in the Manual in order to calculate the
appropriate guideline range:

            (a)   Determine the applicable offense guideline section from
                  Chapter Two.  See § Section 1B1.2  (Applicable
                  Guidelines).  The Statutory Index (Appendix A) provides a
                  listing to assist in this determination.

            (b)   Determine the base offense level and apply any appropriate
                  specific offense characteristics contained in the particular
                  guideline in Chapter Two in the order listed.

            (c)   Apply the adjustments related to victim, role, and obstruction
                  of justice from Parts A, B, and C of Chapter Three.

            (d)   If there are multiple counts of conviction, repeat steps (a)
                  through (c) for each count.  Apply Part D of Chapter Three to
                  group the various counts and adjust the offense level
                  accordingly.

            (e)   Apply the adjustment as appropriate for the defendant's
                  acceptance of responsibility from Part E of Chapter Three.

            (f)   Determine the defendant's criminal history category as
                  specified in Part A of Chapter Four.  Determine from Part B of
                  Chapter Four any other applicable adjustments.

            (g)   Determine the guideline range in Part A of Chapter Five that
                  corresponds to the offense level and criminal history category
                  determined above.

            (h)   For the particular guideline range, determine from Parts B
                  through G of Chapter Five the sentencing requirements and
                  options related to probation, imprisonment, supervision
                  conditions, fines, and restitution.

            (I)   Refer to Parts H and K of Chapter Five, Specific Offender
                  Characteristics and Departures, and to any other policy
                  statements or commentary in the guidelines that might warrant
                  consideration in imposing sentence. 

            (j)   Check to make sure that the calculation complies with
                  Department of Justice policies.  For example, compute the
                  possible guideline range for each count of an indictment or
                  information prior to accepting a plea to a single count to
                  ensure that the plea is consistent with the Tax Division's
                  major count policy.[FN2]

See USSG §1B1.1.


      5.03 CALCULATING THE BASE OFFENSE LEVEL IN TAX CASES 

      Consistent with the overall plan of the sentencing guidelines, each tax
guideline begins with a base offense level.  The starting point for a tax crime
usually rests upon the dollar amount of the tax loss under the tax table at USSG
§2T4.1.  Most guidelines also contain "specific offense characteristics"
which allow the base offense level to be increased on the basis of certain
aggravating facts.  Further, the sentencing court determines the total offense
level by making any adjustments described in USSG §1B1.1.  See
Section 5.04, infra.  Following the determination of the total offense
level, the court refers to the corresponding zone in the sentencing table.  The
sentencing table has four zones, three of which, Zones A through C, permit the
court to render a variety of sentences, ranging from probation to split sentences
to simple incarceration.


5.03[1]  The Base Offense Level

       Part T of Chapter Two of the Sentencing Guidelines contains the provisions
governing most tax crimes.  In determining the starting point for the base
offense level, most guidelines in Part T of Chapter Two refer to the amount of
the "tax loss" attributable to the defendant.  Once the sentencing court
determines the total tax loss attributable to a defendant, the tax loss table
contained in §2T4.1 then provides the base offense level of the defendant. 
United States v. Powell, 124 F.3d 655, 663 n.7 (5th Cir.
1997).[FN3] 

      Under the guidelines as they existed prior to November 1, 1993, the
determination of the tax loss depended upon the definition in the particular
offense guideline.  For example, §2T1.1 defined tax loss for the purposes
of tax evasion, whereas §2T1.3 defined tax loss for the purposes of the
filing of a false return.  On November 1, 1993, however, the guidelines were
amended in order to consolidate several tax guidelines (sections 2T1.1, 2T1.2,
2T1.3 and 2T1.5) into §2T1.1.  Moreover, this amendment adopted a uniform
definition of tax loss, contained within §2T1.1(c).  The stated reason for
this amendment was to eliminate "the anomaly of using actual tax loss in some
cases and an amount that differs from actual tax loss in others."  USSG App. C,
Amend. 491, p. 338; see also United States v. Minneman, 143
F.3d 274, 282 (7th Cir. 1998)(noting that November 1, 1993 amendment sought "to
adopt a 'uniform definition of tax loss' where none had previously
existed")(quoting USSG App. C, Amend. 491).  Accordingly, now §2T1.1 alone
defines tax loss.  Further, §2T1.1 now applies to tax evasion, willful
failure to file returns, supply information or pay tax, and willful filing of
fraudulent or false returns, statements, or other documents.

      Section 2T1.1 currently provides that, if there is a tax loss, the base
offense level derives from §2T4.1, the tax table, according to the amount
of tax loss.  §2T1.1(a)(1).  Otherwise, the base offense level is 6. 
§2T1.1(a)(2).  "Although the definition of tax loss corresponds to what is
commonly called the 'criminal figures,' its amount is to be determined by the
same rules applicable in determining any other sentencing factor."  §2T1.1,
comment. (n.2).  Section 2T1.1 currently provides special instructions which, for
the purposes of offenses involving attempted income tax evasion and filing false
returns or statements, define tax loss as "the total amount of the loss that was
the object of the offense (i.e., the loss that would have resulted had the
offense been successfully completed)."  §2T1.1(c)(1).  "The sentencing
guidelines do not require proof of 'but-for' causation for calculating tax loss." 
United States v. Andra, 218 F.3d 1106, 1107-08 (9th Cir. 2000). 
Section 2T1.1 also defines tax loss for failure to file offenses,
§2T1.1(c)(2), failure to pay offenses, §2T1.1(c)(3), and offenses
involving an improperly claimed refund,  §2T1.1(c)(4).  Section 2T1.1
further describes "presumptions" which a court should employ when calculating the
tax loss in various situations involving tax evasion offenses, false return or
statement offenses, and failure to file a return offenses.  §2T1.1(c)(1)
Notes (A)-(C); §2T1.1(c)(2) Note.  Specifically, these presumptions provide
that the tax loss should equal a certain percentage of the unreported gross
income, false credits claimed against tax, or improperly claimed deductions or
exemptions at issue, "unless a more accurate determination of the tax loss can
be made."  §2T1.1(c)(1) Notes (A)-(C); §2T1.1(c)(2) Note.

      The commentary to §2T1.1 explains that these presumptions are not
binding, but rather serve as general formulas:

            In determining the tax loss attributable to the offense, the court
            should use as many methods as 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.

§2T1.1, comment. (n.1).  Likewise, the commentary states that a court should
use an applicable presumption, unless one of the parties "provides sufficient
information for a more accurate assessment of tax loss."  Id; see
also United States v. Barski, 968 F.2d 936, 937 (9th Cir.
1992)(rejecting due process challenge to tax loss presumption contained within
now-deleted §2T1.3; presumption did not establish irrebuttably that tax loss
was 28 percent of unreported taxable income, but merely established "the legally
operative fact as the amount of unreported income").  Ultimately, "[i]n
some instances, such as when indirect methods of proof are used, the amount of
the tax loss may be uncertain; the guidelines contemplate that the court will
simply make a reasonable estimate based on the available facts."  §2T1.1,
comment. (n.1); see also United States v. Bryant, 128 F.3d
74, 75-76 (2d Cir. 1997)(per curiam)(relying on §2T1.1 commentary to uphold
tax loss estimation for defendant convicted of assisting in the preparation of
numerous false returns; estimation included tax loss extrapolated from unaudited
returns).

      When the parties contest the amount of tax loss, the sentencing court must
hold an evidentiary hearing to resolve factual issues, unless the court presided
over a trial and may base its findings upon the trial record.  United
States v. Marshall, 92 F.3d 758, 760 (8th Cir. 1996).

      In determining the tax loss, a court may consider both charged and
uncharged conduct.  United States v. Bove, 155 F.3d 44, 47-48 (2d
Cir. 1998); United States v. Noske, 117 F.3d 1053, 1060 (8th Cir.
1997); United States v. Meek, 998 F.2d 776, 781 (10th Cir. 1993). 
A court also may account for acquitted conduct when calculating the tax loss. 
United States v. Kelly, 147 F.3d 172, 178 (2d Cir. 1998);
see generally United States v. Watts, 519 U.S. 148,
157 (1997)(per curiam)(guideline range may rest on uncharged conduct or conduct
underlying acquitted charges, if conduct is based upon preponderance of
evidence).  Further, a court may compute tax loss by including tax loss from
years barred by the statute of limitations.  United States v.
Valenti, 121 F.3d 327, 334 (7th Cir. 1997); United States v.
Pierce, 17 F.3d 146, 150 (6th Cir. 1994).  Moreover, a court may include
state tax losses in the tax loss computation, if the state tax loss constitutes
relevant conduct under §1B1.3.  United States v. Fitzgerald,
232 F.3d 315, 320-21 (2d Cir. 2000) (adding federal, state, and local tax losses
proper application of guidelines where all part of relevant conduct to offense
of conviction under § 1B1.3(a)(2)); Powell, 124 F.3d at 664-65 
(when computing tax loss arising from federal motor fuel excise tax scheme,
district court properly considered state excise tax loss).  (Note, Chapter
3 of this manual  contains a Tax Division Memorandum addressing the subject of 
inclusion of  state tax  loss in tax loss computation for federal tax offenses
under the Sentencing Guidelines.)

      Generally, the tax loss computation is not confined to the amount which the
government actually lost in taxes, United States v. Tandon, 111
F.3d 482, 490 (6th Cir. 1997); United States v. Kraig, 99 F.3d
1361, 1370-71 (6th Cir. 1996); United States v. Hunt, 25 F.3d 1092,
1095-96 (D.C. Cir. 1994); United States v. Lorenzo, 995 F.2d 1448,
1459-60 (9th Cir. 1993), or the amount of tax money which the IRS actually could
recover.  United States v. Clements, 73 F.3d 1330, 1339 (5th Cir.
1996); United States v. Brimberry, 961 F.2d 1286, 1292 (7th Cir.
1992).  Likewise, the tax loss is not reduced by payment of taxes after
notification of an investigation, Tandon, 111 F.3d at 490;
United States v. Gassaway, 81 F.3d 920, 921-22 (10th Cir. 1996),
or by payment before sentencing.  United States v. Mathis, 980 F.2d
496, 497 (8th Cir. 1992); United States v. Pollen, 978 F.2d 78, 90-
91 (3d Cir. 1992); see also §2T1.1(5) in Guidelines
versions subsequent to 1992 (stating that "[t]he tax loss is not reduced by any
payment of tax subsequent to the commission of the offense").  Ultimately, the
tax loss is based upon the loss intended by the defendant,
Clements, 73 F.3d at 1339, United States v. Moore,
997 F.2d 55, 59-62 (5th Cir. 1993), regardless of whether the intended loss
occurred or was realistic.  Moore, 997 F.2d at 61;
Lorenzo, 995 F.2d at 1459-60.  See § 2T1.1 (Nov. 2000).

      A court, however, may not base the tax loss for sentencing purposes upon
civil tax liability.  Pierce, 17 F.3d at 150; Meek,
998 F.2d at 783; see also United States v. Harvey, 996 F.2d 919,
922 (7th Cir. 1993)(interpreting United States  v. Daniel, 956 F.2d
540, 544 (6th Cir. 1992), as indicating that civil tax liability is not an
adequate substitute for "tax loss").  

      Likewise, a tax loss calculation cannot include penalties or interest,
§2T1.1, comment (n.1); Powell, 124 F.3d at 663,
although, prior to November 1, 1989,  tax loss did include interest. 
USSG App. C, Amend. 220; see also United States v.
McLaughlin, 126 F.3d 130, 139 (3d Cir. 1997)(Sentencing Commission did
not exceed its statutory authority by including interest on unpaid taxes in tax
loss computation under 1988 guidelines).  At least three courts have observed
that, by failing to include interest and penalties, the guidelines fail to
"reflect accurately the criminal behavior," but have held that the plain language
of the guidelines prohibit a sentencing court from including penalties and
interest in the  tax loss computation.  United States v.
Hunerlach, 197 F.3d  1059, 1069-70 (11th Cir. 1999); United
States v. Hopper, 177 F.3d 824, 831-32 (9th Cir. 1999), cert. denied
sub nom. McKendrick v. United States, 528 U.S. 1163 (2000);
United States v. Pollen, 978 F.2d 78, 91 n.29 (3d Cir. 1992).[FN4]

      The sentencing court may calculate the total tax loss by accounting for
conduct which occurred during both guideline and pre-guideline years. 
Pierce, 17 F.3d at 150; United States v. Kienenberg,
13 F.3d 1354, 1357 (9th Cir. 1994); United States v. Higgins, 2
F.3d 1094, 1097 (10th Cir. 1993).  If a defendant is convicted of both guideline
and pre-guideline offenses, the district court has discretion to sentence the
defendant to consecutive terms of imprisonment.  United  States v.
Scarano, 76 F.3d 1471, 1478 (9th Cir. 1996); United States v.
Preston, 28 F.3d 1098, 1099 (11th Cir. 1994); Pollen, 978
F.2d at 91-92; United States v. Hershberger, 962 F.2d 1548, 1550-52
(10th Cir. 1992); United States v. Ewings, 936 F.2d 903, 910 (7th
Cir. 1991); United States v. Lincoln, 925 F.2d 255, 257 (8th Cir.
1991); United States v. Garcia, 903 F.2d 1022, 1025 (5th Cir.
1990); United States v. Watford, 894 F.2d 665, 668-70 (4th Cir.
1990).

      A circuit split exists regarding how to compute the tax loss when the
offense or offenses at issue have caused an understatement of both corporate and
individual income.  In United States v. Cseplo, 42 F.3d 360 (6th
Cir. 1994), the defendant, who skimmed funds from his corporation and then failed
to declare that income on his personal returns, was convicted of filing false
corporate tax returns, in violation of § 7206(1), and of attempting to evade
his individual income taxes, in violation of § 7201.  Id. at
361.  Applying the pre-November 1, 1993 version of the guidelines, the
Cseplo court held that the sentencing court properly aggregated the
corporate and individual tax losses when computing total tax loss, and that the
proper method of determining total tax loss in such situations is to add 34% of
the understated corporate income to 28% of the understated individual income. 
Id. at 362-64.  The sentencing court had not reduced the amount of
the understated individual income by an amount equal to 34% of the understated
corporate income, a sum representing the amount which the corporation would have
paid in federal taxes, if it had filed accurate returns.  The Sixth Circuit
dismissed the concerns of the defendant that this method produced an artificially
high tax loss computation by observing:

      By choosing to falsify both returns, Cseplo made the deliberate 
      decision to produce separate harm to the government with respect to 
      both tax liabilities.  The fact that Cseplo might have been able to 
      claim a corporate salary deduction had he paid himself these moneys 
      honestly and openly does not relieve him from the responsibility for 
      creating the separate tax losses through the illegal course of conduct 
      he chose in this case.

Id. at 365.

      The Second and Seventh Circuits, however, have adopted a tax loss
methodology different from that of the Sixth Circuit.  Those circuits have ruled
that the total tax loss resulting from individual and corporate returns should
be computed by 1) taxing the unreported corporate income at the 34% rate; 2)
deducting the amount of corporate tax liability from the total unreported income
received by the individual from the corporation; and 3) finally taxing the
remaining unreported individual income at the 28% rate.  See United
States v. Martinez-Rios, 143 F.3d 662, 672 (2d Cir. 1998); United
States v. Harvey, 996 F.2d 919, 921 (7th Cir 1993); see also
United States v. Bove, 155 F.3d 44, 47 (2d Cir. 1998)(in case
governed by post-November 1, 1993 guidelines, remanding defendant convicted under
§7206(1) for resentencing in light of tax loss methodology adopted by Second
Circuit in Martinez-Rios); United States v. Bhagavan,
116 F.3d 189, 192 (7th Cir. 1997)(affirming methodology announced by Seventh
Circuit in Harvey for cases involving understatement of both
corporate and individual tax); United States v. Wu, 81 F.3d 72, 74-
75 (7th Cir. 1996)(affirming methodology of Harvey).

      When the Second Circuit chose to follow the tax loss methodology first
announced by the Seventh Circuit in Harvey, rather than the
methodology of the Sixth Circuit in Cseplo, it described and
analyzed the different approaches of the two circuits by stating the following:

      The Guidelines are silent on this precise issue, and the two
courts of appeals that have considered it have reached opposite
conclusions.  In Harvey, supra, the Seventh Circuit adopted the 
approach urged by Martinez, reasoning that the other method "over states the 
revenue lost to the Treasury."  Harvey, 966 F.2d at 921.  In 
contrast, the Sixth Circuit in Cseplo, supra, employed the 
method used by the District Court here, based on its view that the 
Harvey method did not adequately account for the fact that two 
separate crimes--personal tax evasion and corporate tax evasion--were 
committed.  See Cseplo, 42 F.3d at 364.

            We agree with the Seventh Circuit's approach, primarily because 
      it bases the calculation on a better approximation of the tax revenue 
      lost to the federal treasury.  Although, as we have acknowledged, the 
      1991 Guidelines do not call for a tax loss calculation based 
      exclusively on the amount of tax liability that the defendant would 
      have incurred had he reported his income truthfully, we think that the 
      1991 Guidelines' punitive purposes are adequately served by denying 
      defendants the benefit of legitimate but unclaimed deductions.

Martinez-Rios, 143 F.3d at 672 (citations omitted).[FN5]

      The circuit split described above, however, involves only how to
aggregate corporate and individual tax loss.  Each of the opinions involved in
this circuit split still share the common recognition that corporate and
individual tax loss should be aggregated in some manner.  See,
e.g., United States v. Furkin, 119 F.3d 1276, 1281 n.1 (7th
Cir. 1997) (confirming that, under Harvey, tax loss
calculation must account for both corporate and individual tax loss created by
single transaction); Bhagavan, 116 F.3d at 192 (stating the same);
Wu, 81 F.3d at 74-75 (holding the same); cf. United States
v. Dale, 991 F.2d 819, 856 (D.C. Cir. 1993)(defendant who skimmed
corporate receipts is liable for understatement of personal as well as corporate
income).  Likewise, and pursuant to the November 1, 1993 amendments, the
commentary to §2T1.1 now specifies that, "[i]f the offense involves both
individual and corporate tax returns, the tax loss is the aggregate tax loss from
the offenses taken together."  §2T1.1, comment. (n.7).[FN6]

      As noted, the current version of §2T1.1 contains presumptions which
provide that the tax loss for an evasion, false claim, or failure to file offense
should equal a certain percentage of the unreported gross income, false credits
claimed against tax, or improperly claimed deductions or exemptions at issue,
"unless a more accurate determination of the tax loss can be made." 
§2T1.1(c)(1) Notes (A)-(C); §2T1.1(c)(2) Note.  There are few cases
which interpret or apply this "more accurate definition of the tax loss"
language.  When discussing the possible retroactive application of the post-
November 1, 1993 guidelines, the Second Circuit suggested in dicta that the "more
accurate definition of the tax loss" language requires a tax loss analysis which
gives the defendant the benefit of legitimate but unclaimed deductions. 
See Martinez-Rios, 143 F.3d at 671.  According to the Second Circuit, 
the post-November 1, 1993 guidelines therefore "tend[] to produce smaller 
tax loss figures" than the pre-November 1, 1993 guidelines, which do not 
permit consideration of legitimate but unclaimed deductions.  Id. 
Similarly, the Seventh Circuit has ruled that the current definition of 
tax loss contained within §2T1.1(c) represents a substantive change, 
rather than a clarifying amendment, in part because the effect of the 
definition "is a lowering of offense levels when proper proof is produced.  
Under the new definition, which allows the court to inquire into the actual 
tax burden, the authority of the court is expanded to accept proof showing a 
lesser amount of taxes owed."  United States v. Minneman, 143 F.3d 
274, 283 (7th Cir. 1998).       

      In contrast, the Sixth Circuit has stated in dicta that, "[a]ll the 
[more accurate determination of the tax loss] phrase does, as far as we can 
see, is tell the sentencing court not to calculate the tax loss on the basis 
of a 28 percent tax rate for individual taxpayers and a 34 percent tax rate 
for corporate tax payers if a more accurate determination can be made."  
See Cseplo, 42 F.3d at 364.  The Sixth Circuit has suggested 
that the "more accurate determination of the tax loss" language merely 
accounts for the possibility of differing tax brackets.  Id.  The 
Sixth Circuit also has expressed a general policy against allowing a 
defendant convicted of tax violations to receive every benefit of 
traditional tax assessment principles during sentencing, noting that "[i]f 
[a defendant's] unorthodox maneuvers resulted in a higher aggregate tax 
liability than would have existed otherwise, that is a risk [he] chose to 
run when he broke the law."  Id. at 365 n.6; cf. United 
States v. Ladum, 141 F.3d 1328, 1343 (9th Cir. 1998) (defendant claimed 
that illegal source income enhancement under §2T1.1(b)(1) was 
inapplicable because he had not realized more than $10,000 from illegal gun 
sales, once costs of goods and doing business were accounted for; court 
rejected claim by citing commentary to §2T1.1 regarding tax loss and 
declaring that "nothing in the Guidelines requires the government to 
determine and deduct the portion of overhead expenses fairly allocable to 
gun sales"); United States v. Mueller, 74 F.3d 1152, 1160 (11th Cir. 
1996)(under post-November 1, 1993 version of §2T1.1(c), reference to 
unreported gross income within special instructions regarding tax loss 
literally means unreported gross income, rather than unreported 
adjusted gross income).

      Regardless of the precise meaning of the phrase "more accurate
determination of the tax loss," the pre-November 1, 1993 guidelines generally
prevent defendants from reducing the tax loss by relying upon deductions which
they could have claimed if they had filed a legitimate return.  For example, in
United States v. Parrott, 148 F.3d 629, 631-32 (6th Cir. 1998), the
defendant pleaded guilty to filing a false 1990 tax return and stipulated in his
plea agreement to a tax loss exceeding $70,000.  At sentencing, the defendant
attempted to reduce this amount of tax loss by invoking certain farm losses which
he had not claimed in his original returns.  Id. at 632.  The
Parrott court upheld the refusal of the district court to reduce
the tax loss on the basis of the unclaimed deductions, ruling that, because the
tax loss calculation under §2T1.3 was not based necessarily upon the net of
concealed income less unclaimed deductions, there was a factual basis to support
the stipulated amount of tax loss.  Id. Further, in
Harvey, 996 F.2d at 920, the Seventh Circuit declared that the
method under the prior guidelines of simply multiplying the amount of gross
income at issue by either 28 percent or 34 percent provides a "rough and ready
calculation [which] applies the highest marginal rate to the amount of concealed
income, disregarding deductions that would have been available had the taxpayer
filed an honest return."  Likewise, in United States v. Valentino,
19 F.3d 463, 464-65 (9th Cir. 1994), the Ninth Circuit rejected the claim of a
defendant convicted of filing a false tax return that he was entitled to an
evidentiary hearing at sentencing in order to show that there was no tax loss
because unclaimed depreciation deductions would have exceeded the understated
income at issue.  Upholding the finding of the district court that the only fact
which mattered under the 1992 guidelines was how much income the defendant had
concealed, the Valentino court stressed that now-deleted commentary
to §2T1.1 explained that the methodology for calculating tax loss under
§2T1.3 was designed "to make irrelevant the issue of whether the taxpayer
was entitled to offsetting adjustments that he failed to claim." 
Id. at 465.  Moreover, in Wu, 81 F.3d at 74-75, the
tax loss calculation of $1.4 million was based upon both corporate and personal
tax loss resulting from funds which the defendant had skimmed from his closely-
held corporation.  The defendant argued that this tax loss was too high because,
in the "real world," owners of closely-held corporations distribute corporate
profits through salary and other methods which minimize or eliminate the
corporate tax liability.  Id. at 74.  Although the Seventh Circuit
agreed with the defendant's description of how owners of closely-held
corporations file legitimate returns, the court declined "to make it the
responsibility of the United States Courts to comb the books of convicted tax
evaders seeking ways in which they could have lowered their tax liability and
their sentences.  Unfortunately for [the defendant], it is simply not our role
to play 'Monday Morning Tax Advisor.'" Id.

      Finally, even if a sentencing court permits a defendant to attempt to
reduce the amount of tax loss attributable to his offense by introducing evidence
of unclaimed expenses or deductions, the court ultimately may reject the
assertions of the defendant based upon the particular facts.  See United
States v. Valenti, 121 F.3d 327, 333-34 (7th Cir. 1997)(upholding refusal
of sentencing court to give defendant convicted of tax evasion and failing to
file tax returns credit for asserted legitimate business expenses when sentencing
court determined that testimony of defendant was speculative and incredible);
see also United States v. Noske, 117 F.3d 1053, 1060 (8th
Cir. 1997)(defendants convicted of tax fraud conspiracy under 18 U.S.C. §371
were not entitled to charitable deductions for sham distributions to "nonprofit"
corporation); cf. Minneman, 143 F.3d at 279 (upholding
granting of government's motion in limine prohibiting defendant from introducing
at trial evidence of legitimate business expenses which he could have claimed,
unless defendant first established that he knew at time of filing that deductions
were available).


      5.03[1][a]  Section 7201

      Prior to the November 1, 1993, amendments, §2T1.1(a) indicated that
the base offense level in evasion cases corresponded to the offense level
provided by §2T4.1, the tax table, based upon the amount of tax loss.  This
former version of §2T1.1(a) further defined tax loss in evasion cases as
"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."   Now-deleted
§2T1.3(a) in turn defined tax loss as "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 taxpayers is
a corporation, use 34 percent in lieu of 28 percent."  Now-deleted commentary to
§2T1.1 explained the import of the reference to the tax loss definition
contained within §2T1.3:

      The guideline refers to §2T1.3 to provide an alternative minimum 
      standard for the tax loss, which is based upon 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.

§2T1.1, comment. (n.4)(November 1, 1992).  Similarly, commentary to now-
deleted §2T1.3 indicated that one goal of the tax loss methodology contained
within that guideline was to "avoid[] complex problems of proof."  §2T1.3,
comment. (backg'd)(November 1, 1992).

      As noted supra, however, §2T1.1 was amended on November 1,
1993.  Section 2T1.1 now provides that, if there is a tax loss, the base offense
level for tax evasion offenses derives from §2T4.1, the tax table, according
to the amount of tax loss.  §2T1.1(a)(1).  Otherwise, the base offense level
is 6.  §2T1.1(a)(2).  Rather than referring to the definition of tax loss
contained within now-deleted §2T1.3, the current version of §2T1.1
defines tax loss for the purposes of evasion offenses as "the total amount of the
loss that was the object of the offense (i.e., the loss that would have
resulted had the offense been successfully completed)."  §2T1.1(c)(1). 
Section 2T1.1 further describes presumptions which a court should employ when
calculating the tax loss in various situations involving tax evasion offenses. 
Generally, these presumptions provide that the tax loss should equal 28% of the
unreported gross income or improper deductions or exemptions at issue (unless the
taxpayer is a corporation, in which case the applicable percentage is 34%), plus
100% of any falsely claimed credits against tax.  §2T1.1(c)(1) Notes (A)-
(C).  These percentages apply "unless a more accurate determination of the tax
loss can be made."  Id.


      5.03[1][b]  Section 7203    

      Prior to an amendment which took effect on November 1, 1993, USSG
§2T1.2 governed the base offense level for cases involving willful failure
to file a return, supply information, or pay tax in violation of 26 U.S.C.
§7203.  Again, tax loss governed the base offense level: §2T1.2(a)
provided either a base offense level of 1 level less than the level from the tax
table, §2T4.1, corresponding to the tax loss or a base offense level of 5,
if there was no tax loss.  For purposes of violations of this section, tax loss
was defined as "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." 
§2T1.2(a).  Section 2T1.2 provided the alternative measure of the tax loss,
10 percent of gross income over $20,000, because of the potential difficulty in
determining the amount a taxpayer owed.  §2T1.2, comment. (backg'd.). 
Finally, §2T1.2(c) explicitly indicated that USSG §2S1.3 governed
violations of §7203 which involved failures to report monetary transactions.

      Pursuant to the November 1, 1993 amendment, however, §2T1.2 was
deleted.  Section 2T1.1, the guideline provision which applies to the majority
of tax crimes, now governs the base offense level for violations of §7203
which involve a willful failure to file a return, supply information, or pay tax. 
§2T1.1; USSG Appendix A.  Sections  2T1.1 (c)(2) and (3) define tax loss for
offenses involving the failure to file a return or pay tax as "the amount of tax
that the taxpayer owed and did not pay;" however, "[i]f 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."  §§2T1.1(c)(2), Note.  The guideline commentary indicates that
sentencing courts should employ the above tax loss formula in cases in which the
tax loss may not be "reasonably ascertainable," but should disregard the formula
if either party provides sufficient information for a more accurate assessment
of the tax loss.  §2T1.1, comment. (n.1).

      In United States v. Valenti, 121 F.3d 327, 333-34 (7th Cir.
1997), the district court employed this formula when sentencing a defendant for
having failed to file returns and concluded that the tax loss simply equaled
twenty percent of the defendant's unreported gross income.  The defendant
objected that this method failed to produce the most accurate assessment of the
tax loss, and that the district court had failed to account for his evidence of
his legitimate business expenses.  Id.  The Valenti
court rejected this claim and upheld the sentence imposed under
§2T1.1(c)(2), noting that the district court had found that the defendant's
evidence was speculative and incredible, that the government had tried to measure
the business expenses accurately, and that it was likely that the defendant had
gotten off easy because additional unreported income probably existed. 
Id. at 334.

      Finally, §2S1.3, the guideline governing a failure to report a
monetary transaction, continues to apply to §7203 violations involving such
conduct.  §2S1.3; USSG App. A.


      5.03[1][c]  Section 7206(1)

      Prior to the November 1, 1993 amendments, now-deleted §2T1.3 governed
the base offense level of §7206(1) violations.  Section 2T1.3 indicated that
the base offense level in such cases was the  level provided by §2T4.1, the
tax table, corresponding to the tax loss "if the offense was committed in order
to facilitate the evasion of a tax."  §2T1.3(a)(1).  Otherwise, the base
offense level was 6.  §2T1.3(a)(2).  Section 2T1.3 defined tax loss as "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 taxpayers is a corporation, use 34 percent in lieu of 28
percent."  §2T1.3(a).  Commentary to §2T1.3 explained why the provision
generally focused the base offense level for fraudulent or false return offenses
on the amount of  the false statement:

      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 codefendants are involved.

§2T1.3, comment. (backg'd).

      As noted supra, however, §2T1.1 now governs offenses involving
fraudulent or false returns because amendments effective November 1, 1993 deleted
§2T1.3.  Section 2T1.1 currently provides that the base offense level for
fraudulent or false return offenses is the level from §2T4.1, the tax table,
corresponding to the amount of tax loss.  §2T1.1(a)(1).  Otherwise, the base
offense level is 6.  §2T1.1(a)(2).  As with offenses involving tax evasion,
§2T1.1 now defines tax loss for the purposes of fraudulent or false return
offenses as "the total amount of the loss that was the object of the offense
(i.e., the loss that would have resulted had the offense been successfully
completed)."  §2T1.1(c)(1).  Section 2T1.1 further describes presumptions
which a court should employ when calculating the tax loss in various situations
involving fraudulent or false return offenses.  Generally, these presumptions
provide that the tax loss should equal 28% of the unreported gross income or
improperly claimed deductions or exemptions at issue (unless the taxpayer is a
corporation, in which case the applicable percentage is 34%), plus 100% of any
falsely claimed credits against tax.  §2T1.1(c)(1) Notes (A)-(C).  These
percentages apply "unless a more accurate determination of the tax loss can be
made."  Id.

      The section regarding the calculation of base offense levels for tax
offenses in general, see Section 5.03[1], supra, outlines in detail
the principles which currently govern the calculation of the base offense level
under §2T1.1 for violations of §7206(1).  As previously explained,
see supra, the tax loss calculation under now-deleted §2T1.3
disregarded deductions which would have been available had the taxpayer filed an
honest return.  United States v. Valentino, 19 F.3d 463, 465 (9th
Cir. 1994)(noting that now-deleted commentary to §2T1.1 provided that the
tax loss standard under §2T1.3 was designed "to make irrelevant the issue
of whether the taxpayer was entitled to offsetting adjustments that he failed to
claim"); United States v. Harvey, 996 F.2d 919, 920 (7th Cir.
1993)(§2T1.3 provides "rough and ready calculation" for tax loss which
disregards deductions which would have been available, had defendant filed an
honest return).


      5.03[1][d]  Section 7206(2)

      Section 2T1.4 governs the sentencing of defendants who have aided,
assisted, procured, counseled, or advised tax fraud.  Pursuant to a November 1,
1993 amendment, §2T1.4 provides that  the base offense level is the level
from §2T4.1, the tax table, corresponding to the amount of tax loss. 
§2T1.4(a)(1).  Otherwise, the base offense level is 6.  §2T1.4(a)(2). 
This provision defines tax loss as "the tax loss, as defined in §2T1.1,
resulting from the defendant's aid, assistance, procurance or advice." 
§2T1.4(a).[FN7]  If the defendant advises others to violate their tax
obligations by filing returns which have no support in the tax law (such as by
promoting a tax shelter scheme), and if such conduct results in the filing of
false returns, the misstatements in all such returns will contribute to one
aggregate tax loss.  §2T1.4, comment. (n.1).  This aggregation occurs
regardless of whether the principals realized that the returns were false. 
Id.

      A sentencing court does not necessarily have to calculate the amount of tax
loss attributable to a false return scheme with full certainty or precision. 
United States v. Bryant, 128 F.3d 74, 75-76 (2d Cir. 1997)(per
curiam).  In Bryant, the defendant ran an income tax "mill,"
assisting in the preparation of 8,521 individual tax returns from 1991 to 1993. 
Id. at 76.  The defendant was convicted of violating §7206(2)
by assisting in the preparation of twenty-two false tax returns, each of which
resulted in an average tax loss of $2,435.  Id.  Over 99% of all
returns prepared by the defendant resulted in refunds.  Id. The
IRS audited more than 20% of the returns prepared by the defendant, discovering
that 1,683 of them yielded an average tax loss of $2,651 each. 
Id..  During sentencing, the district court calculated the
tax loss under §§2T1.4 and 2T4.1 as equaling at least $5,115,203. 
Id at 75.  This sum was based upon $53,570 in loss from the twenty-two
returns underlying the counts of conviction, $4,461,633 in loss from the audited
returns, and at least $600,000 in estimated loss from returns prepared by the
defendant which the IRS did not audit.  Id.  The defendant
complained on appeal that the $600,000 in tax loss attributed to the unaudited
returns was speculative and unfair.  Noting that this sum rested upon an average
tax loss of less than $100 per unaudited return, the Bryant court
rejected this argument, explaining:

      The §2T1.1 commentary, which is applicable to a violation of 
      §7206(2), states that "the amount of the tax loss may be 
      uncertain," and it envisions that "indirect methods of proof [may be] 
      used.  It states expressly that "the guidelines contemplate that the 
      court will simply make a reasonable estimate based upon the available 
      facts."

      [Therefore,] it is permissible for the sentencing court, in 
      calculating a defendant's offense level, to estimate the loss 
      resulting from his offenses by extrapolating the average amount of tax 
      loss from known data and applying that average to transactions where 
      the exact amount of loss is unknown. . . .

      We see no reason why [estimation of total tax loss through 
      extrapolation] may not be used in a §7206(2) case in which, as 
      here, the defendant has been convicted of assisting in the preparation 
      of numerous fraudulent tax returns, and government records show many 
      more such instances.  Although extrapolation might not be reasonable 
      if . . . there were few instances of fraud, or if the returns audited 
      constituted a minuscule percentage of the total that the defendant 
      prepared or in whose preparation he assisted, we see no 
      unreasonableness here.

Bryant, 128 F.3d at 75-76; cf. United States v.
Marshall, 92 F.3d 758, 760-61 (8th Cir. 1996)(trial record supported
determination that tax loss equaled $2,004,961 because defendant admitted that
he had prepared more than 1,200 returns, admitted that he controlled all
employees in his return preparation business, and returns submitted during
sentencing contained the same improprieties as returns underlying §7206(2)
convictions).

      As with other tax crimes, the tax loss arising from a §7206(2)
violation includes the attempted or intended tax loss, rather than the tax loss
actually suffered by the government.  United States v. Hunt, 25
F.3d 1092, 1095-96 (D.C. Cir. 1994); United States v. Moore,
997 F.2d 55, 59-61 (5th Cir. 1993); United States v. Brimberry, 961
F.2d 1286, 1292 (7th Cir. 1992); but cf. United States v.
Schmidt, 935 F.2d 1440, 1451 (4th Cir. 1991) (stating that actual tax
loss was proper basis for computing tax loss), limited by United
States v. Hirschfeld, 964 F.2d 318, 324-25 (4th Cir. 1992)(holding that,
although false deduction did not create tax loss during year in which deduction
was claimed, deduction provided basis for anticipated tax loss).


      5.03[1][e]  Section 7212(a) 

      The omnibus clause of 26 U.S.C. §7212(a) prohibits an individual from
corruptly obstructing or impeding, or endeavoring to obstruct or impede, the due
administration of Title 26.  Pursuant to an amendment which took effect on
November 1, 1993, the statutory index to the guidelines, USSG Appendix A,
provides that either §2J1.2, the guideline applying to obstruction of
justice, or §2T1.1 normally govern §7212(a) violations involving the
omnibus clause.  The index also states that §2A2.4, which applies to
obstruction of officers, ordinarily governs §7212(a) violations not
involving the omnibus clause.  Prior to the November 1, 1993 amendment, the
statutory index regarding §7212(a) did not refer to either §§2J1.2
or 2T1.1.

      Applying a pre-November 1, 1993 version of the guidelines, the Second
Circuit upheld the application of §2T1.1 during the sentencing of a
defendant who had violated the omnibus clause of §7212(a) by filing a false
return, and by providing false documents to the IRS during an audit in order to
try to conceal the prior act of filing a false return.  United States v.
Kelly, 147 F.3d 172, 177-78 (2d Cir. 1998).  The fact that the defendant
had been acquitted of the charge of filing a false tax return did not prevent the
district court from applying §2T1.1 or enhancing the sentence on the basis
of the tax loss.  Id. at 178.  In another case governed by the pre-
November 1, 1993 guidelines, the parties did not contest the conclusion of the
district court that §2T1.1 was the most appropriate sentencing guideline for
the §7212(a) conviction at issue.  United States v. Brennick,
134 F.3d 10, 12-13 (1st Cir. 1998).  Further, the First Circuit  accepted the
application of §2T1.1 by the district court because the defendant's
§7212(a) conviction rested upon acts of concealment and upon the deliberate
underpayment of taxes.  Id.

      Interpreting a pre-November 1, 1993 version of the guidelines, the Ninth
Circuit upheld the application of the general obstruction of justice guideline,
§2J1.2, during the sentencing of a defendant convicted of violating the
omnibus clause of §7212(a).  United States v. Van Krieken, 39
F.3d 227, 230-31 (9th Cir. 1994).  Noting that the defendant had filed false
returns and sought to have the IRS levy on innocent taxpayers, the Van
Krieken court implied that the commentary accompanying §2J1.2
indicated that the guideline applied to such attempts to obstruct a civil or
administrative proceeding or evade legal process.  Id. at 231.  The
Van Krieken court also observed that the November 1, 1993
amendment, which states in part that §2J1.2 can apply to omnibus clause
convictions, was a clarifying amendment which applied to the defendant and
supported the use of §2J1.2 during his sentencing.  Id. at 231
n.2.  Similarly, and again interpreting the pre-November 1, 1993 guidelines, the
Eighth Circuit held that §2J1.2 is the most appropriate guideline for 
§7212(a) omnibus clause violations.  United States v. Dykstra,
991 F.2d 450, 453-54 (8th Cir. 1993).  Noting that "the language and structure
of §7212 track part of certain federal obstruction of justice statutes," and
that courts have used those statutes to interpret §7212(a), the
Dykstra court approved the use of §2J1.2 during the sentencing
of a §7212(a) omnibus clause violation.  Id. Relying upon
this holding in Dykstra, the Ninth Circuit found that a district
court did not commit plain error under the 1989 sentencing guidelines by applying
§2J1.2 to defendants who had violated the omnibus clause of §7212(a)
by targeting and attempting to intimidate IRS officials conducting collection
proceedings, and by attempting to use false claims for refunds to offset an
assessed tax liability.  See United States  v. Koff, 43 F.3d
417, 419 (9th Cir. 1994).

      Finally, some opinions which have reviewed sentencings under pre-November
1993 guidelines have approved the application of other guideline provisions to
convictions under the §7212(a) omnibus clause.  For example, the Eleventh
Circuit declined to apply the assault guidelines after finding that the
defendant's §7212(a) omnibus clause conviction was based on evidence of his
transferring real estate to his spouse, and of his filing an altered lien notice
in an attempt to cause the release of that lien.  United States v.
Shriver, 967 F.2d 572, 574 (11th Cir. 1992).  The court decided that the
guideline which most closely tracked the defendant's actions was §2F1.1,
which governs cases of fraud and deceit.  Id. at 573-74.  Likewise,
the Ninth Circuit declined to apply the assault guidelines to the §7212(a)
omnibus clause conviction of a defendant who had filed a false return seeking a
refund, as well as false 1096 and 1099 forms.  United States v.
Hanson, 2 F.3d 942, 947 (9th Cir. 1993).  The Hanson court
also reversed the district court's application of §2T1.9, which applies to
tax fraud conspiracies, because the defendant had acted alone.  Id. 
Instead, the Hanson court found that the guideline section most
analogous to the defendant's conduct was now-deleted §2T1.5, which governed
the sentencing of §7207 offenses involving fraudulent returns, statements,
or other documents.  Id. The Ninth Circuit subsequently
distinguished the conclusion in Hanson that §2T1.5 is the most
analogous guideline for a §7212(a) omnibus clause conviction by relying upon
the holding  in Dykstra, supra, and ruling that it was not
plain error to apply §2J1.2 in a case involving defendants who had targeted
and attempted to intimidate IRS officials, and had tried to use false claims for
refunds to offset an assessed tax liability.  See Koff, 43
F.3d at 419; see also Van Krieken, 39 F.3d at 230-31
(declining to follow Hanson and upholding use of §2J1.2 in
case involving defendant who had filed false returns and had sought tax levies
on innocent IRS employees).

      Because the statutory index now identifies both §§2J1.2 and 2T1.1
as appropriate guideline provisions for §7212(a) omnibus clause violations,
and because the statutory index does not establish an exclusive list of the
guideline provisions which are potentially applicable to any offense, a
sentencing court still must determine which guideline is the most appropriate
provision for the particular omnibus clause violation at issue.  Van
Krieken, 39 F.3d at 231 n.2.  Section 2J1.2 establishes a base offense
level of 12, subject to certain enhancements for specific offense
characteristics.  Section 2T1.1, however, establishes a base offense level of
either 6, if there is no tax loss, or a higher base offense level, corresponding
to the specific tax loss under the tax table.  Under the current tax loss table,
a tax loss of more than $23,500, but no more than $40,000, results in a base
offense level of 12.  §2T4.1.  Accordingly, §2J1.2 ordinarily will
yield a higher base offense level than §2T1.1 if the tax loss is $23,500 or
less, whereas §2T1.1 ordinarily will yield a higher base offense level than
§2J1.2 if the tax loss exceeds $40,000.


      5.03[1][f]  Sections 286 and 287

      Section 287 of Title 18 prohibits the knowing presentation of false,
fictitious, or fraudulent claims to the government.  Similarly, 18 U.S.C.
§286 prohibits conspiracies to defraud the government by obtaining or aiding
to obtain the payment of any false, fictitious or fraudulent claim.  In the
criminal tax context, these statutes generally apply to individuals who file
income tax returns claiming false or fraudulent refunds of income tax.  The
general sentencing guideline pertaining to fraud, §2F1.1, governs
sentencings for §§286 and 287 violations, including false claims for
tax refunds.[FN8]  USSG Appendix A; United States v. Fleming, 128
F.3d 285, 287 (6th Cir. 1997).   Section 2F1.1 establishes a base offense level
of 6 for crimes involving fraud or deceit, §2F1.1(a), and provides for an
increase in the base offense level corresponding to the amount of loss exceeding
$2,000, as calculated by the sentencing court.  §§2F1.1(b)(1)(A)-(S). 
"The commentary directs the sentencing court to calculate the 'intended loss that
the defendant was attempting to inflict . . . if it is greater than the actual
loss'"  Fleming, 128 F.3d at 287 (quoting §2F1.1, comment.
(n.7)).  Further, loss under §2F1.1 includes the intended loss attributable
to a common scheme or course of conduct by the defendant, regardless of the
number of counts of conviction in a multiple-count indictment, and regardless of
the actual loss.  Id.

      Defendants who pursue false claim for refund schemes may be responsible at
sentencing for the total sum of refunds claimed, even if the taxpayers in whose
names the false returns were filed might have been able to claim legitimate
refunds.  In Fleming, the defendant was convicted of twenty-five
counts of violating §287, based upon his preparation of tax returns
containing false claims for refunds in the names of third-party taxpayers. 
Id. at 286.  The district court sentenced the defendant according
to the total dollar amount of refunds claimed in the twenty-five returns
underlying his convictions, as well as refunds claimed in thirty-two additional
false returns introduced at sentencing.  Id.  The defendant challenged
this tax loss calculation, arguing that the district court had enhanced his
sentence improperly because the government had not established the employment or
income status of the thirty-two taxpayers associated with the returns introduced
at sentencing.  Id.  Likewise, he argued that up to five of the
taxpayers associated with the returns underlying his counts of convictions
actually had earned legitimate income.  Id.  The
Fleming court rejected his claims, finding that any portion of the
total loss that the third-party taxpayers might have been entitled to claim
legally was irrelevant to the loss computation because the defendant had
fabricated every W-2 form, dependent, and employer associated with the returns
which he had prepared.  Id at 288-89.  As the Sixth Circuit observed,
"[i]t was simply fortuitous that some of those whom Mr. Fleming preyed upon were
employed . . . . Their actual income and employment status did not influence his
choice when he recruited them; he cannot use those facts now to narrow the scope
of the fraud he designed."  Id.

      Likewise, a defendant involved in a conspiracy to file numerous false
claims for tax refunds will be held accountable at sentencing for the entire
amount of loss which was reasonably foreseeable to the defendant.  United
States v. Okoronkwo, 46 F.3d 426, 438 (5th Cir. 1995)(holding that
evidence supported finding that defendant was responsible for 75% of all false
claims filed through certain tax preparation office, including false claims filed
by other co-conspirators, because defendant joined conspiracy early and had a
central role); United States v. Atkins, 25 F.3d 1401, 1403-04 (8th
Cir. 1994)(rejecting claim that defendant was responsible for only four of thirty
false claims for refund filed; involvement of defendant in every level of the
conspiracy, coupled with her close working relationship with co-conspirator,
indicated that loss arising from all thirty false returns was reasonably
foreseeable).  The government, however, carries the burden of supporting through
sufficient evidence any contested sentencing increase based upon the amount of
loss.  United States v. Rice, 52 F.3d 843, 848 (10th Cir. 1995).


      5.03[1][g]  Section 371

      Section 2T1.9 of the sentencing guidelines governs conspiracies to "defraud
the United States by impeding, impairing, obstructing and defeating . . . the
collection of revenue."  §2T1.9, comment. (n.1)(quoting United States
v. Carruth, 699 F.2d 1017, 1021 (9th Cir. 1983).  This guideline applies
to what is commonly called a "Klein conspiracy," as described in United
States v. Klein, 247 F.2d 908 (2d Cir. 1957).  This guideline does not
apply to taxpayers, such as husband and wife, who jointly evade taxes or file a
fraudulent return.  §2T1.9, comment. (n.1).  Pursuant to a November 1, 1993
amendment, §2T1.9 directs the court to use the base offense level determined
by §2T1.1 or §2T1.4, according to which guideline most closely
addresses the underlying conduct, if that offense level is greater than 10. 
§2T1.9, comment. (n.2).[FN9]   If §2T1.1 or §2T1.4 do not provide
an offense level greater than 10, the base offense level under §2T1.9 is 10. 
Id.; but cf. United States v. Goldberg, 105 F.3d 770, 777 (1st 
Cir. 1997)(commenting in dicta that government "sensibly" chose not to 
appeal downward departure based upon view of district court that base 
offense level of 8 under §2T1.4 was "more reflective" of defendant's 
conduct than base offense level of 10 under §2T1.9 because tax loss was 
only $3,000 to $5,000).

      When calculating the tax loss attributable to a defendant convicted of a
Klein conspiracy offense, the court should hold the defendant responsible
for "all reasonably foreseeable acts and omissions . . .  in furtherance of the
jointly undertaken criminal activity."  United States v. Ladum, 141
F.3d 1328, 1346 (9th Cir. 1998)(quoting USSG §1B1.3(a)(1)(B)).  "This
requires a determination of 'the scope of the criminal activity the particular
defendant agreed to jointly undertake (i.e., the scope of the specific conduct
and objectives embraced by the defendant's agreement)."  Id.
(quoting §1B1.3, comment. (n.2)).  Accordingly, a court should sentence a
defendant according to the tax loss which he directly caused, as well as the tax
loss which his coconspirator caused, if that tax loss was reasonably foreseeable
to the defendant.  United States v. Clark, 139 F.3d 485, 490 (5th
Cir.)(citing United States v. Charroux, 3 F.3d 827, 838 (5th Cir.
1993)), cert. denied, 525 U.S. 899 (1998); see also United
States v. Fleschner, 98 F.3d 155, 160 (4th Cir. 1996)(tax loss finding
was not confined to assessing only conduct which occurred when coconspirators
were physically together or acting in unison at Patriot meetings).  Further,
"[i]n assessing the amount of tax loss, the district court is to make a
'reasonable estimate' of the amount of the loss that the defendant intended to
inflict, not the actual amount of the government's loss."  United States
v. Kraig, 99 F.3d 1361, 1370-71 (6th Cir. 1996).  Whether the
conspirators actually completed the offense is irrelevant to calculating the
offense level.  United States v. Dale, 991 F.2d 819, 855 (D.C. Cir.
1993).  A district court applies the preponderance of the evidence standard when
determining the duration of a conspiracy at sentencing.  United States v.
Furkin, 119 F.3d 1276, 1281 (7th Cir. 1997).

      If a defendant is convicted of a count charging a conspiracy to commit more
than one offense, a sentencing court should treat that conviction "as if the
defendant had been convicted on a separate count of conspiracy for each offense
that the defendant conspired to commit."  Dale, 991 F.2d at 854 
(quoting §1B1.2(d)).  After calculating the offense level for each such 
"separate" conspiracy, the court then must group the various offenses, "such 
that instead of sentencing the defendant for each object offense, the court 
would sentence the defendants on the basis of only one of the offenses."  
Id. (citing §3D1.2).  The court then must sentence according to 
the offense level for the most serious counts comprising the group.  
Id. (citing §3D1.3).

      Consistent with general sentencing guideline law, loss computations
regarding Klein conspiracies may rest upon conduct which was uncharged,
or for which the defendant was acquitted.  For example, in United States
v. Seligsohn, 981 F.2d 1418 (3d Cir. 1992), the defendants paid cash as
part of wages earned by employees, under reported their total payroll, filed
false reports with the IRS regarding withholding taxes, and deprived a union
welfare plan of its entitlement.  Although the indictments charged only a 
conspiracy with respect to the personal returns, the defendants' sentences were
based upon a tax loss attributable to the defendants' companies, rather than only
the amount of individual tax loss.  Id. at 1427.  The court found
that the tax fraud conspiracy was "clearly intended to encompass the tax losses
attributable to the employees of the defendants' companies as well as the losses
from the defendants' own personal tax evasion."  Id.  The Fifth
Circuit has held that a defendant who has been acquitted of conspiracy may be
held liable as a co-conspirator for sentencing purposes.  United States v.
Hull, 160 F.3d 265, 269-70 (5th Cir. 1998).

      Finally, a sentencing court should make specific findings regarding the
amount of reasonably foreseeable tax loss.  In Ladum, supra,
the sentencing court found that one defendant participated for ten years in a
thirteen-year tax fraud scheme which involved the under-reporting of gross
business receipts from several stores.  Ladum, 141 F.3d at 1346-47. 
The sentencing court further found that this defendant was responsible for the
entire tax loss attributable to the conspiracy, which exceeded $550,000. 
Id.  The district court, however, failed to make a specific factual
finding regarding whether the tax loss which occurred when the defendant was not
participating in the conspiracy was reasonably foreseeable to him. 
Id. at 1347.  Stating that it was not "self-evident" that the
defendant would have foreseen the tax loss arising from stores which did not
exist when he ceased participating in the conspiracy, or from the stores which
had existed when he left the conspiracy, the Ninth Circuit remanded so that the
district court could make specific factual findings regarding the reasonably
foreseeable tax loss.  Id.


5.03[2] Specific Offense Characteristics

      In addition to determining the base offense level from the tax table at
§2T4.1, the sentencing court must adjust the offense level according to the
dictates of the specific offense characteristics of each subsection.


      5.03[2][a]  Illegal Source Income

      The guideline governing violations of 26 U.S.C. §§ 7201, 7203,
7206 (with the exception of §7206(2)), and 7207 requires an increase in the
base offense level if the defendant failed either to report or correctly identify
the source of income of over $10,000 in any year resulting from criminal
activity.  §2T1.1(b)(1).  The phrase "criminal activity" means "any conduct
constituting a criminal offense under federal, state, local, or foreign law." 
§2T1.1, comment. (n.3).[FN10]

      Court have upheld illegal source income enhancements in a variety of 
circumstances.  See United States v. Fitzgerald, 232 F.3d 315, 
321 (2d Cir. 2000) (enhancement proper where defendant intentionally 
converted more than $107,000 from union welfare fund and defrauded medical 
specialists of such funds); United States v. Parrott, 148 F.3d 629, 
633-34 (6th Cir. 1998)(enhancement proper when defendant misappropriated 
$282,000 of clients' funds, thereby committing theft under state law); 
United States v. Ladum, 141 F.3d 1328, 1343 (9th Cir. 1998) (enhancement 
proper when defendants obtained facially valid firearms license by making 
false statements on license application and license enabled defendants to 
sell more than $10,000 in guns); United States v. Karterman, 60 F.3d 
576, 582-83 (9th Cir. 1995)(enhancement proper when defendant distributed 
several pounds of cocaine per month, earned limited income from legitimate 
business, and lived expensive life style); cf. United States v. 
Griggs, 47 F.3d 827, 829 (6th Cir. 1995)(noting uncontested finding by 
sentencing court that enhancement applied because defendant had failed to 
identify source of approximately $475,000 in embezzled funds).

      The illegal source income enhancement requires the defendant to have
received more than $10,000 from criminal activity within a given year.  In
United States v. Barakat, 130 F.3d 1448, 1453-54 (11th Cir. 1997),
the sentencing court had imposed a §2T1.1(b)(1) enhancement upon the
defendant, who had received and deposited in December, 1988 a $5,000 check
derived from criminal activity, and had received and deposited in January, 1989
another check for $10,000 check also derived from criminal activity.  Observing
that the propriety of the enhancement depended upon the definition of a "year"
under §2T1.1(b)(1), the Barakat court employed the definition
of "taxable year" contained within 26 U.S.C. §441, which, in the case of
this defendant, a personal income tax filer who did not keep accounting records,
meant "taxable year."  Id. at 1453 (citing §441(g)).  Because
the defendant was convicted of filing a false tax return for the calendar year
1989, and because he had not received more than $10,000 from criminal activity
in 1989, the Barakat court reversed the §2T1.1(b)(1)
enhancement.  Id. at 1454; see also United States v.
Schmidt, 935 F.2d 1440, 1451-2 (4th Cir. 1991), appeal after
remand, 983 F.2d 1058 (4th Cir. 1992)(reversing enhancement when defendant
received no more than $8,000 in income from criminal activity in 1987 and
received no more than $2,000 in such income in 1988).

      The $10,000 threshold of the illegal source income enhancement does not
refer to profit; rather, the terms of §2T1.1(b)(1) refer broadly to
"income."  In Ladum, supra, the defendant claimed that the
enhancement was inapplicable because there was no evidence that he had realized
more than $10,000 from his illegal firearms trade once the district court had
accounted for overhead and the costs of goods.  Ladum, 141 F.3d at
1343.  The Ninth Circuit rejected this argument by first noting that the illegal
source income figure at issue was derived by subtracting the cost of goods sold
from the sales prices.  Id. [FN11]  The Ladum court
also declared that, for the purposes of  §2T1.1(b)(1), "nothing in the
Guidelines requires the government to determine and deduct the portion of
overhead expenses fairly allocable to gun sales."  Id.

      As with any enhancement, the government must provide the court with a
factual basis on which to find by a preponderance of the evidence that a
contested enhancement for illegal source income applies.  United States v.
Hagedorn, 38 F.3d 520, 522-23 (10th Cir. 1994)(remanding for factual
inquiry regarding applicability of illegal source income enhancement when
charging document to which the defendant pleaded guilty did not establish intent
for racketeering offense and sentencing court relied solely upon contents of
charging document).  In at least one case, however, the error of the district
court in relying solely upon the presentence report as the factual basis for a
contested illegal source income enhancement was harmless: by pleading guilty to
one count of filing a false tax return, the defendant thereby admitted that money
which he secretly took from his clients and did not report on his tax return was
income to himself.  Parrott, 148 F.3d at 633-34.  Accordingly, the
defendant implicitly and necessarily admitted that he had committed theft of
property under state law, and that the money did not constitute a loan. 
Id.

      Ninth Circuit  precedent  holds that, although a conviction regarding the
income-producing criminal offense is not necessary for an illegal source income
enhancement, such an enhancement may not rest upon conduct of which the defendant
was acquitted, or upon facts which the jury necessarily rejected.  See
Karterman, 60 F.3d at 580-81.  Because the Supreme Court
subsequently has ruled, however, that a sentencing court may take into account
relevant conduct of which a defendant was acquitted, so long as the government
has proven the acquitted conduct by a preponderance of the evidence, see
United States v. Watts, 519 US. 148, 157 (1997)(per curiam), this
holding in Karterman is no longer good law.  See also
Barakat, 130 F.3d at 1442 (under Watts, §2T1.1(b)(1) 
enhancement may rest upon income-producing criminal conduct of which the 
defendant was acquitted); United States v. Sherpa, 97 F.3d 1239, 1245 
(9th Cir.), amended, 110 F.3d 656 (9th Cir. 1996)(noting that Supreme 
Court overruled in part Karterman and other Ninth Circuit opinions by 
holding in Koon v. United States, 518 U.S. 81, 106-08 (1996), that 
sentencing court could consider facts which jury necessarily rejected).


      5.03[2][b] Sophisticated Concealment[FN12]

      Pursuant to an amendment effective November 1, 1998, the tax guidelines for
violations of 26 U.S.C. §§ 7201, 7203, 7206, and 7207 provide for a
two-level enhancement of the base offense level if "the offense involved
sophisticated concealment." §§2T1.1(b)(2); 2T1.4(b)(2).  

      "[S]ophisticated concealment" means especially complex or especially 
      intricate offense conduct in which deliberate steps are taken to make 
      the offense, or its extent, difficult to detect.  Conduct such as 
      hiding assets or transactions, or both, through the use of fictitious 
      entities, corporate shells, or offshore bank accounts ordinarily 
      indicates sophisticated concealment.

§§2T1.1, comment. (n.4); 2T1.4, comment. (n.3).  Prior to the November
1, 1998 amendment, this enhancement provided for a two-level increase of the base
level offense "[i]f sophisticated means were used to impede discovery of the
existence or extent of the offense."  §§2T1.1(b)(2);
2T1.4(b)(2)(November 1, 1997).  The pre-November 1, 1998 sentencing guidelines
provide that "sophisticated means . . . 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 or fictitious entities." 
§§2T1.1, comment. (n.4); 2T1.4, comment. (n.3)(November 1, 1997). 
Commentary regarding both the pre- and post-November 1, 1998 versions of this
enhancement provides that, "[a]lthough 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."  §2T1.1, comment. (backg'd). 

      The Sentencing Commission has indicated that it views the November 1, 1998
amendment regarding this enhancement as a clarification, rather than as a
substantive change.  USSG App. C, Amend. 577.  The Sentencing Commission further
has explained:

      The primary purpose of this amendment is to conform the language of 
      the current enhancement for "sophisticated means" in the tax 
      guidelines to the essentially equivalent language of the new 
      sophisticated concealment enhancement provided in the fraud 
      guideline[, §2F1.1].  Additionally, the amendment resolves a 
      circuit conflict regarding whether the enhancement applies based upon 
      the personal conduct of the defendant or the overall conduct for which 
      the defendant is accountable.  Consistent with the usual relevant 
      conduct rules, application of this new enhancement for sophisticated 
      concealment accordingly is based on the overall offense conduct for 
      which the defendant is accountable.[FN13]

Id. Because no published cases have yet interpreted the amended
version of this enhancement, the following discussion will rely solely upon cases
applying the "sophisticated means" language.  These cases should inform, if not
control, the interpretation of the new "sophisticated concealment" language,
especially given the view of the Sentencing Commission that the November 1, 1998,
amendment constitutes only a clarification of previously existing law.

      Conduct need not  involve banking or financial methods in order to
constitute sophisticated means.  United States v. Friend, 104 F.3d
127, 130 (7th Cir. 1997).  Even if certain acts would not constitute
sophisticated means when considered in isolation, they can constitute
sophisticated means when viewed in the aggregate.  United States v.
Tandon, 111 F.3d 482, 491 (6th Cir. 1997).  Further, the sophisticated
conduct at issue may occur during the actual commission of the tax offense,
because "the guideline contemplates enhancement based on the degree of
sophistication, not necessarily whether it came after the conclusion of the
operative portion of the tax scheme."  United States v. Hunt, 25
F.3d 1092, 1097 (D.C. Cir. 1994).

      Courts have upheld the application of this enhancement for a variety of
reasons.  Specifically, courts have found that indicia of sophisticated means
include the following:

1.    Use of shell corporations.  §§2T1.1, comment. (n.4);
      2T1.4, comment.   (n.3); United States v.
      Cianci, 154 F.3d 106, 110 (3d Cir. 1998); United
      States v. Whitson, 125 F.3d 1071, 1075 (7th Cir.
      1997); United States v. Kraig, 99 F.3d 1361,
      1371 (6th Cir. 1996); United States v. Paradies,
      98 F.3d 1266, 1292 (11th Cir. 1996).   

2.    Use of cash transactions.  United States v.
      Middleton, 246 F.3d 825, 848 (6th Cir. 2001);
      Cianci, 154 F.3d at 110; United States v.
      Furkin, 119 F.3d 1276, 1285 (7th Cir. 1997).

3.    Failure to record income or inventory.  Cianci,
      154 F.3d at 110; Furkin,    119 F.3d at 1285.

4.    Destruction of records.  Furkin, 119 F.3d at 1285; United 
      States v.  Hammes, 3 F.3d 1081, 1083 (7th Cir. 1993).

5.    Deposit of funds in a trust account.  United States v. 
      Minneman, 143   F.3d 274, 283 (7th Cir. 1998); but cf. 
      United States v. Barakat, 130 F.3d 1448, 1457-58 (11th Cir. 
      1997)(remanding for reconsideration of whether use of trust account 
      justified enhancement, and directing district court to consider 
      only evidence which related to tax offense conviction).

6.    Deposit of funds in a bank account not directly attributable
      to the defendant.  Tandon, 111 F.3d at 490;
      United States v. Lewis, 93 F.3d 1075, 1081-83
      (2d Cir. 1996); United States v. Clements, 73
      F.3d 1330, 1340 (5th Cir. 1996); United States v.
      Wu, 81 F.3d 72, 74 (7th Cir. 1996);
      Hammes, 3 F.3d at 1083; United States v.
      Becker, 965 F.2d 383, 390 (7th Cir. 1992).

7.    Use of offshore bank accounts.  §§2T1.1, comment.
      (n.4); 2T1.4, comment. (n.3); Whitson, 125 F.3d
      at 1075; Kraig, 99 F.3d at 1371;
      Hammes, 3 F.3d at 1083.

8.    Use of false documents.  Cianci, 154 F.3d at
      110; United States v. Madoch, 108 F.3d 761, 766
      (7th Cir. 1997); Lewis, 93 F.3d at 1081;
      Wu, 81 F.3d at 74; United States v.
      Jagim, 978 F.2d 1032, 1042 (8th Cir. 1992).

9.    Use of fictitious names, Tandon, 111 F.3d at 491; 
      Madoch, 108 F.3d at 766; Wu, 81 F.3d at 74; 
      Hammes, 3 F.3d at 1083, or fictitious entities.   Lewis, 
      93 F.3d at 1082; United States v. Veksler, 62 F.3d 544, 550-51 
      (3d Cir. 1995).

10.   Use of multiple corporate names.  Minneman, 143
      F.3d at 283.

11.   Manipulation of ownership of income-producing assets. 
      Tandon, 111 F.3d at 491.

12.   Arranging for the IRS to mail multiple refund checks to several 
      different addresses.  Madoch, 108 F.3d at 766.

13.   Befriending and bribing an IRS employee in order to provide insurance 
      against detection of tax scheme.  Friend, 104 F.3d at 130.

14.   Depositing receipts in non-interest bearing business bank
      accounts.  Middleton, 246 F.3d at 848.

15.   Using unauthorized social security numbers, filing false tax
      returns, and having tax refund checks mailed to mail drop. 
      United States v. Aragbaye, 234 F.3d 1101, 1107-
      08 (9th Cir. 2000).

      The above list is not an exhaustive description of acts which may justify
an enhancement for sophisticated means.  Courts also have upheld the application
of this enhancement on the basis of other circumstances.  See,
e.g., United States v. Guidry, 199 F.3d 1150, 1158-59 (10th
Cir. 1999)(defendant's embezzled money came from checks made payable to bank that
she then converted to cash to purchase personal items and defendant never took
more than $10,000 in one day to avoid filing of Currency Transaction Reports);
United States v. Powell, 124 F.3d 655, 666 (5th Cir.
1997)(defendant purchased ethanol plant to facilitate scheme in order to avoid
fuel excise taxes; United States v. Pierce, 17 F.3d 146, 151
(6th Cir. 1994)(defendant provided inapplicable IRS publication to employer to
exempt himself from withholding taxes, used several different mailing addresses
in different IRS regions, changed excessive number of withholding deductions in
accordance with changes in IRS regulations, and directed wife to file misleading
returns); United States v. Ford, 989 F.2d 347, 351 (9th Cir.
1993)(defendant used foreign corporation to generate corporate foreign tax
payments in order to claim foreign tax credits on domestic personal income tax
returns).

      Merely making misrepresentations on a tax return likely does not justify
an enhancement for sophisticated means.  Powell, 124 F.3d at 666;
United States v. Rice, 52 F.3d 843, 849 (10th Cir.
1995)(enhancement inapplicable because defendant only claimed that he had paid
taxes which he had not); see also United States v. Stokes,
998 F.2d 279, 282 (5th Cir. 1993)(stating that "[t]here is nothing sophisticated
about simply not disclosing income to your accountant").

      Although this enhancement should not apply if the defendant uses
sophisticated means solely to commit a crime in order to obtain the income at
issue in the tax offense conviction, this enhancement can rest upon sophisticated
conduct which served both as means to obtain income and to further the tax crime
relating to that income.  "The mere fact that the scheme might have been more
sophisticated or may have had some uncomplicated elements does not preclude the
enhancement."  United States v. Utecht, 238 F.3d 882, 889 (7th Cir.
2001).  While it is apparent that some degree of concealment is inherent in every
tax fraud case, sophistication of concealment refers not to the elegance, class,
or style of the defrauder but to the presence of efforts at concealment that go
beyond this inherent concealment.  United States v. Kontny, 238
F.3d 815, 820-21 (7th Cir.), cert. denied, 121 S.Ct. 1964 (U.S. May 14,
2001).  For example, in United States v. Mankarious, 151 F.3d 694,
710-11 (7th Cir. 1998), the Seventh Circuit held that the enhancement applied
because the scheme at issue had the dual effect of creating illicit gain and
hiding that gain from the IRS.  Likewise, in Cianci, supra,
the Third Circuit held that the enhancement applied because, although the
sophisticated methods of the defendant impeded the discovery of his embezzlement
offense, those methods also facilitated the concealment of the income which he
derived from the embezzlement.  Cianci, 154 F.3d at 109.

      In Stokes, supra, however, the defendant deposited
money which she had embezzled from her employer into two separate bank accounts. 
She then wrote checks to herself and transferred the money into money orders. 
Stokes, 998 F.2d at 280.  The Fifth Circuit reversed the district
court's application of the sophisticated means enhancement, finding that the
defendant had used sophisticated methods to commit the crime of embezzlement, but
not the crime of tax evasion.  Id. at 282.  The Fifth Circuit
stated that the defendant had hid the money which she had embezzled because she
did not want her employer to discover her embezzlement, not because she wanted
to avoid paying her taxes.  Id.  

      Despite the implication by the Fifth Circuit in Stokes that
this enhancement is inapplicable unless the sophisticated conduct pertains solely
to the tax offense of conviction, or unless the defendant employs sophisticated
methods for the specific and sole purpose of concealing her tax status, the
Seventh Circuit has held that this enhancement may apply even if the defendant
did not intend specifically to hinder the ability of the IRS to discover the tax
offense at issue.  In Mankarious, 151 F.3d at 711, the Seventh
Circuit upheld an application of this enhancement because, "[w]hether or not the
defendants consciously intended it, the [underlying fraud] scheme would have
thwarted IRS from successfully auditing the defendants and determining their real
income."  Accordingly, "the scheme constituted a sophisticated means of tax
fraud, even if that was not its primary purpose."  Id.; see
also Barakat, 130 F.3d at 1457 (distinguishing
Stokes  by characterizing opinion  as holding only that mere
concealment of income from accountant cannot constitute sophisticated means).

      Finally, a sentencing court may impose simultaneous enhancements for use
of sophisticated means and for being in the business of preparing or assisting
in the preparation of tax returns, under §2T1.4(b)(1)(B). 
Hunt, 25 F.3d at 1098.  Similarly, a sentencing court may impose
simultaneous enhancements for use of sophisticated means and for obstruction of
justice, under §3C1.1, Friend, 104 F.3d at 130-31;
Furkin, 119 F.3d at 1284-85, so long as separate conduct forms the
factual basis for each enhancement.  Friend, 104 F.3d at 131. 
Also, a sentencing court may impose enhancements as provided for by
§2F1.1(b)(2)(A) (more-than-minimal planning) and §2F1.1(b)(5)(C) (use
of sophisticated means) cumulatively.  United States v. Humber,
2001 WL 754469, *5 (11th Cir. July 5, 2001) ("[s]ophisticated means involves more
than minimal planning.  More than minimal planning, however, does not necessarily
involve sophisticated means. A defendant who uses sophisticated means will always
receive, in addition, an enhancement for more than minimal planning.") (citations
omitted).

      A defendant may not use the doctrine of judicial estoppel to bar
application of the sophisticated means enhancement when a prosecutor argues in
closing that a defendant's scheme was "not particularly sophisticated" because
such argument was neither a ground for conviction nor inconsistent with the
position taken by the prosecutor at sentencing.  United States v.
Newell, 239 F.3d 917, 922 (7th Cir. 2001).


      5.03[2][c] Substantial Portion of Income Derived From Criminal Scheme

      The sentencing guideline governing the aiding, assisting, procuring,
counseling, or advising of tax fraud, in violation of 26 U.S.C. §7206(2),
provides for a two-level enhancement of the offense level if "the defendant
committed the offense as part of a pattern or scheme from which he derived a
substantial portion of his income." §2T1.4(b)(1)(A).  This enhancement
applies, for example, to defendants who derive a substantial portion of their
income through the promotion of fraudulent tax shelters.  §2T1.4, comment.
(n.2).

      The Fifth Circuit has upheld a sentencing court's use of the quasi-formula
regarding whether a defendant's criminal activity constituted his livelihood,
contained within USSG §4B1.3, when determining whether to impose an
enhancement under §2T1.4(b)(1)(A).  United States v. Welch,
19 F.3d 192, 194-95 (5th Cir. 1994).  Under §4B1.3, a defendant has
committed an offense as part of a pattern of criminal conduct "engaged in as a
livelihood" when

      (1) the defendant derived income from the pattern of criminal conduct 
      that in any twelve-month period exceeded 2,000 times the then existing 
      hourly minimum wage under federal law; and (2) the totality of 
      circumstances shows that such criminal conduct was the defendant's 
      primary occupation in that twelve-month period (e.g., the 
      defendant engaged in criminal conduct rather than regular, legitimate 
      employment; or the defendant's legitimate employment was merely a 
      front for his criminal conduct).

§4B1.3, comment. (n.2).   In Welch, the defendant argued that
use of §4B1.3 was improper because §2T1.4 does not explicitly authorize
the sentencing court to refer to §4B1.3 when determining whether to enhance
under §2T1.4(b)(1)(A).  Id. at 194. Rejecting this claim, the
court noted that the guidelines do not specify what constitutes a "substantial
portion" of one's income, and that the Fifth Circuit previously upheld
application of §4B1.3 to other specific offenses, even though the guidelines
governing those specific offenses did not refer to §4B1.3. 
Id. at 194-95.  The court further observed that the wordings of
§2T1.4(b)(1)(A) and §4B1.3 are nearly identical.  Id. at
195 n.6.  Applying the §4B1.3 formula to the facts of the case, the
Welch court upheld the §2T1.4(b)(1)(A) enhancement imposed by
the sentencing court because the fraudulent return scheme created a tax loss of
at least $29,000, and because the defendant was unable to show any evidence of
any legitimate employment or source of income.  Id. at 195. 
See also United States v. Searan, 2001 WL 832744, *12
(6th Cir. July 25, 2001) ($16,970 in gross income from tax service qualifies for
enhancement where record reflect no non-tax fraud sources of income).


      5.03[2][d] Business of Preparing or Assisting in the Preparation of
Tax Returns

      The sentencing guideline governing the aiding, assisting, procuring,
counseling, or advising of tax fraud also provides for a two-level enhancement
of the offense level if "the defendant was in the business of preparing or
assisting in the preparation of tax returns." §2T1.4(b)(1)(B).  Prior to
November 1, 1993, now-deleted §2T1.4(b)(3) contained this enhancement.  USSG
App. C, Amend. 491.  This enhancement applies to defendants "who regularly
prepare or assist in the preparation of tax returns for profit."  §2T1.4,
comment. (n.2).

      This enhancement "does not, by language or logic, purport to focus only on
persons for whom tax-return preparation is a primary business."  United
States v. Phipps, 29 F.3d 54, 56 (2d Cir. 1994).  Likewise, this
enhancement is not limited to defendants who "hang out a shingle" as professional
tax return preparers.  United States v. Welch, 19 F.3d 192, 196
(5th Cir. 1994)(upholding imposition of enhancement when defendant, who argued
that his primary occupation was as a sports agent, showed no other gainful
employment, filed five fraudulent tax returns for four clients over span of three
years, and once misrepresented himself as a CPA).  Nor is the enhancement limited
to only those tax preparers with a legitimate tax preparation business who commit
tax fraud.  United States v. Aragbaye, 234 F.3d 1101, 1106-07 (9th
Cir. 2000) (upheld application of 2T1.4(b)(1)(B) enhancement to defendant whose
tax preparation business consisted solely of preparing fictitious tax returns). 
Rather, the focus of this enhancement is on whether the defendant "regularly"
prepared or assisted in the preparation of tax returns for profit. 
Phipps, 29 F.3d at 56.  Accordingly, the sentencing court may
impose this enhancement if the defendant's tax-return preparation activity was
not occasional or sporadic, and if the defendant received payment for his
services.  Id.; but cf. Welch, 19 F.3d at 196
n.8 (observing that enhancement under §2B1.2(b)(3)(A), applicable to
defendants in the business of receiving and selling stolen property, may apply
even if conduct at issue was not prolonged or sustained, depending upon size and
sophistication of operation).  Further, and because this provision "was intended,
in part, to reach paid preparers whose activities are sufficiently extensive to
expose the government to the risk of loss of significant revenues," the term
"regularly" does not mean necessarily "year-round, especially when dealing with
a business so clearly seasonal as the filing of personal income tax returns." 
Phipps, 29 F.3d at 56 (upholding imposition of enhancement when
defendant prepared at least 155 fraudulent tax returns over period of five or six
consecutive years for fee of $90 to $200 per return).

      Finally, this enhancement may apply even though the sentencing court also
applies an enhancement under §2T1.4(b)(2) for use of sophisticated means. 
United States v. Hunt, 25 F.3d 1092, 1098 (D.C. Cir. 1994).  This
enhancement cannot apply, however, if the sentencing court applies an enhancement
under §3B1.3 for abuse of position of trust or use of special skill. 
§2T1.4, comment. (n.2); United States v. Young, 932 F.2d 1510,
1514 n.4 (D.C. Cir. 1991).


      5.03[2][e] Planned or Threatened Use of Violence

      The sentencing guideline governing conspiracies to impede, impair, obstruct
or defeat a tax, in violation of 18 U.S.C. §371, provides for a four-level
enhancement of the offense level "[i]f the offense involved the planned or
threatened use of violence to impede, impair, obstruct or defeat the
ascertainment, computation, assessment, or collection of revenue." 
§2T1.9(b)(1).  Section 2T1.9 includes this enhancement because of the
potential danger which tax fraud conspiracies may pose to law enforcement agents
and the public.  §2T1.9, comment. (backg'd).  Although there appears to be
extremely limited case law regarding this provision, the Eleventh Circuit has
upheld an enhancement under §2T1.9(b)(1) in a case in which the defendant
and his brother threatened a witness with a gun during the course of a conspiracy
to evade income taxes.  See United States v. Pritchett, 908
F.2d 816, 824 (11th Cir. 1990).


      5.03[2][f] Encouragement of Others to Violate Tax Code

      The guideline governing conspiracies to impede, impair, obstruct or defeat
a tax, in violation of 18 U.S.C. §371, also provides for a two-level
enhancement of the offense level "[i]f the conduct was intended to encourage
persons other than or in addition to co-conspirators to violate the internal
revenue laws or impede, impair, obstruct, or defeat the ascertainment,
computation, assessment, or collection of revenue."  §2T1.9(b)(2).  The
application notes to §2T1.9 explain that this provision "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)."  §2T1.9, comment. (n.4).  The sentencing court should
not apply this enhancement, however, if an adjustment is applied under
§2T1.4(b)(1), which provides an enhancement for a defendant who derived a
substantial portion of his income from a tax fraud scheme, or for a defendant who
was in the business of preparing or assisting in the preparation of tax returns. 
§2T1.9(b)(2).

      This provision apparently applies even if the persons encouraged to break
the tax code by the defendant are government agents.  In United States v.
Sileven, 995 F.2d 962 (8th Cir. 1993), the Eighth Circuit held that the
district court did not clearly err by enhancing the defendant's sentence under
§2T1.9(b)(2) because the evidence indicated that the defendant through his
actions and words  repeatedly encouraged two other individuals to hide income. 
Id. at 970.  Although the status of the other individuals whom the
defendant had encouraged was not an issue on appeal, the facts of the case
indicate that these individuals (one individual and one IRS agent) were acting
at the direction of the IRS.  Id. at 964.  Further, this provision
applies when the defendant simply encourages others to disguise the defendant's
own tax status.  United States v. Rabin, 986 F.Supp. 887, 890-91
(D.N.J. 1997)(defendant encouraged girlfriend and attorney to hide defendant's
income).


                      5.04 RELEVANT CONDUCT

      The provisions of USSG §1B1.3 permit a sentencing court to consider
all of  a defendant's relevant conduct in determining the base offense level,
specific offense characteristics and Chapter Three  adjustments.  That provision
specifically authorizes a court to consider "all acts and omissions committed,
aided, abetted, counseled, commanded, induced, procured, or willfully caused by
the defendant."  USSG §1B1.3(a)(1)(A).  The court may additionally consider
"in the case of a jointly undertaken criminal activity . . . all reasonably
foreseeable acts  and omissions of others in furtherance of the jointly
undertaken criminal activity."  USSG §1B1.3(a)(1)(B).  These acts may have
"occurred during the commission of the offense of conviction, in preparation for
that offense, or in the course of attempting to avoid detection or responsibility
for that offense."  USSG §1B1.3(a)(1).  Moreover, solely with respect to
offenses of a character for which § 3D1.2(d) would require grouping of
multiple counts (tax offenses among others), all acts and omissions of the sort
described in (a)(1) that were part of the same course of conduct or common scheme
or plan as the offense of conviction should be grouped.  USSG § 1B1.3(a)(2). 
See also USSG §§ 1B1.3(a)(3) and (4).  

      Generally, the government bears the burden of persuasion on the issue of
relevant conduct by a  preponderance of the evidence. USSG §6A1.3 comment.; 
United States v. Watts, 519 U.S. 148, 156 (1997);   United
States v. De La Rosa, 922 F.2d 675, 679 (11th Cir. 1991).  Note, however,
that the Supreme Court has specifically left open the issue of whether under
exceptional circumstances, in which the sentencing enhancement was "a tail which
wags the dog of the substantive offense," due process might require the relevant
conduct to be proven by clear and convincing evidence.  Watts, 519
U.S. at 156-57.         

     The Guidelines' relevant conduct provisions are consistent with the 
long-standing principle that "both before and since the American colonies 
became a nation, courts in this country and in England practiced a policy 
under which a sentencing judge could exercise a wide discretion in the 
sources and types of evidence used to assist him in determining the kind and 
extent of punishment to be imposed within limits fixed by law." Williams 
v. New York, 337 U.S. 241, 246 (1949); accord Witte v. United 
States, 515 U.S. 389, 402 (1995)("very roughly speaking, [relevant 
conduct] corresponds to those actions and circumstances that courts 
typically took into account when sentencing prior to the Guidelines' 
enactment'"), quoting United States v. Wright, 873 F.2d 437, 
441 (1st Cir. 1989)(Breyer, J.).

      This principle was codified at 18 U.S.C. § 3661 which provided:

      No limitation shall be placed on the information concerning the 
      background, character, and conduct of a person convicted of an offense 
      which a court of the United States may receive and consider for the 
      purpose of imposing an appropriate sentence.

 18 U.S.C. § 3661; Watts, 519 U.S. at 152.  Thus, "[a]s a
general proposition a sentencing judge may appropriately conduct an inquiry broad
in scope, largely unlimited either as to the kind of information he may consider,
or the source from which it may come." Id.  The commentary to
Section 1B1.3 specifically provides that "[c]onduct that is not formally charged
or is not an element of the offense of conviction may enter into the
determination of the applicable guideline sentencing range."  USSG §3B1.3
comment. (backg'd.);  Id.

      A sentencing court may consider acquitted conduct without running afoul of
the Double Jeopardy Clause, which  "prohibits merely punishing twice, or
attempting a second time to  punish criminally, for the same offense." 
Witte, 515 U.S. at 389, quoting Helvering v.
Mitchell, 303 U.S. 391, 399 (1938).  The Supreme Court found that
sentencing enhancements "do not punish a defendant for crimes of which he was not
convicted, but rather increase his sentence because of the manner in which he
committed the crime."  Watts, 519 U.S. at 154; Witte,
515 U.S. at 402-03.  The Court based its decision on the premise that "an
acquittal in a criminal case does not preclude the Government from relitigating
an issue when it is presented in a subsequent action governed by a lower standard
of proof."  Watts, 519 U.S. at 156, citing Dowling v. United
States, 493 U.S. 342, 349 (1990).  See also United States
v. Averi, 922 F.2d 765, 766 (11th Cir. 1991).

      A sentencing court may also rely on conduct which occurred outside the
statute of limitations.  United States v. Williams, 217 F.3d 751,
754 (9th Cir.), cert. denied, 121 S.Ct. 503 (2000); United States
v. Valenti, 121 F.3d 327, 334 (7th Cir. 1997); United States v.
Behr, 93 F.3d 764 (11th Cir. 1996); United States v.
Silkowski, 32 F.3d 682, 687 (2d Cir. 1994); United States v.
Neighbors, 23 F.3d 306, 310-11 (10th Cir. 1994); United States v.
Pierce, 17 F.3d 146, 150 (6th Cir. 1994); United States v.
Wishnefsky, 7 F.3d 254, 256-57 (D.C. Cir. 1993); United States v.
Lokey, 945 F.2d 825, 840 (5th Cir. 1991).

      Additionally, a sentencing court may rely on uncharged conduct  or charges
which have been dismissed.  United States v. Bove, 155 F.3d 44, 48
(2d Cir. 1998)(relevant conduct "clearly encompasses both charged and non-charged
conduct"); United States v. Georges, 146 F.3d 561, 562 (8th Cir.
1998)(court included as relevant conduct deposit of loan repayment  to a personal
account and deduction of  loan as these acts were inextricably tied to long
pattern of conduct to conceal income); Valenti, 121 F.3d at
334; United States v. Noske, 117 F.3d 1053, 1060 (8th Cir.
1997);  United States v. Fine, 975 F.2d 596, 602-03 (9th Cir.
1992)(en banc); United States v. Johnson, 971 F.2d 562, 576
n.10 (10th Cir. 1992)(funds associated with uncharged instances of money
laundering can be added in to determine the offense level under  §2S1.1 if
those acts are within the scope of relevant conduct under §1B1.3(a)(2)). 
It is also  well-established that pre-Guideline conduct may be considered in
arriving at the offense level.  United States v. Collins, 972 F.2d
1385, 1414 (5th Cir. 1992). 

      The Guidelines also permit a defendant to be sentenced for acts committed
by others during the course of jointly undertaken criminal activities when those
acts were in furtherance of  the activity and reasonably foreseeable.  USSG
§1B1.3(a)(1)(B).  United States v. Guerra, 113 F.3d 809, 819
(8th Cir. 1997); United States  v. House, 110 F.3d 1281, 1284-85
(7th Cir. 1997) (all reasonably foreseeable acts and omissions of others in
furtherance of the jointly undertaken criminal activity attributable to defendant
found to have reasonably foreseen the scope of the conspiracy);  
United States v. Lorenzo, 995 F.2d 1448, 1460 (9th Cir. 1993);
Johnson, 971 F.2d at 574-75;  In United States v.
Logan, the Sixth Circuit found that fraudulent claims submitted by co-
conspirators are correctly included as relevant conduct when determining the
total loss even if the claims were not charged in the indictment.  250 F.3d 350,
371-72 (6th Cir. 2001).

      The Guidelines themselves note that "[b]ecause a count may be broadly
worded and include the conduct of many participants over a substantial period of
time, the scope of the jointly-undertaken criminal activity is not necessarily
the same for every participant."  USSG §1B1.3 comment n.1 (1991).  This
application note has since been incorporated into later versions of the
Guidelines.  The relevant inquiry focuses upon the scope of criminal activity
agreed upon by the defendant. United States v. Ladum, 141 F.3d
1328, 1346 (9th Cir. 1998) (inquiry requires determination of the scope of the
specific conduct and objects embraced by the defendant's agreement).  The
Ladum court  noted that the principles and limits of criminal
liability are not always the same as the principles and limits of sentencing
accountability.  Therefore, the focus is on specific acts and omissions for which
defendant is accountable in determining the applicable guideline range, which
requires "a determination of the scope of the criminal activity the particular
defendant agreed to undertake."  Id. (citation and punctuation
omitted).   The Second Circuit found that under Section 1B1.3(a)(1), a defendant 
"may be held accountable for (i) any tax evasion in which he had a direct
personal involvement, and (ii) as to jointly undertaken criminal activity, any
reasonably foreseeable tax losses."  United States v. Martinez-
Rios, 143 F.3d 662, 674 (2d Cir. 1998)(punctuation and citation omitted). 
The "reasonable foreseeability" requirement "applies only to the conduct of
others."  Id.  


                    5.05 ROLE IN THE OFFENSE

      The guidelines authorize  the sentencing court to adjust a defendant's
offense level based upon its assessment of each offender's actions and relative
culpability in the offense.  The court may enhance the offense level by up to
four levels upon a finding that the defendant played a leadership role.  USSG
§3B1.1.  Upon a finding that a defendant was a "minimal" or "minor"
participant in the offense, the court may reduce a defendant's offense level by
up to four levels.  USSG §3B1.2.  If the court finds that the defendant
abused a position of public or private trust, or used a special skill, in order
to significantly facilitate the commission or concealment of the offense, the
court may enhance the defendant's offense level by two levels.  USSG
§3B1.3.      

      Reflecting a November 1, 1990 amendment, the introductory commentary to
Chapter 3, Part B declares that "[t]he determination of a defendant's role in the
offense is to be made on the basis of all conduct within the scope of §1B1.3
(Relevant Conduct), i.e., all conduct included under  §1B1.3(a)(1)-
(4), and not solely on the basis of elements and acts cited in the count of
conviction."  A sentencing court therefore may consider uncharged relevant
conduct, or even relevant conduct underlying an acquitted charge, when
determining whether to an adjust a defendant's offense level on the basis of his
role in the offense.  See United States v. Watts, 519 U.S.
148, 151-57 (1997)(per curiam)(Section 1B1.3 permits sentencing court to
determine applicable guideline range by relying upon uncharged conduct or conduct
underlying acquitted charges, so long as conduct has been proven by preponderance
of the evidence); see also United States v. Ramos-
Oseguera, 120 F.3d 1028, 1039 (9th Cir. 1997) (under Watts,
court may enhance base offense level for aggravated role in the offense by
relying upon conduct underlying count for which jury acquitted defendant);
United States v. Thomas, 114 F.3d 228, 261-62 (D.C. Cir.
1997)(holding the same).  Note, however, that at least one opinion issued
subsequent to the decision of the Supreme Court in Watts has ruled,
in apparent defiance of the dictates of Watts, that an abuse of
trust enhancement may rely only upon conduct involved in an offense of
conviction.  See United States v. Barakat, 130 F.3d 1448,
1455 (11th Cir. 1997); but see United States v. Cianci, 154
F.3d 106, 111 (3d Cir. 1998)(declining to follow Barakat and
holding that an abuse of trust enhancement may rest upon facts outside the
offense of conviction). 

      The Third and Tenth Circuits have found that the amended
introductory commentary to Subchapter 3, Part B constituted a substantive change,
thus permitting a sentencing court to consider relevant behavior beyond the
offense of conviction only in crimes committed after the date of the November 1,
1990 amendment. United States v. Pollen, 978 F.2d 78, 89 (3d Cir.
1992); United States v. Johnson, 971 F.2d 562, 577 (10th Cir.
1992).  Other circuits, however, have found that courts may consider relevant
conduct which occurred before passage of the amendment because the amended
commentary represents only a clarification of preexisting law.  United
States v. Lanese, 937 F.2d 54, 57 (2d Cir. 1991); United States v.
Lillard, 929 F.2d 500, 503 (9th Cir. 1991); United States v.
Rodriguez, 925 F.2d 107, 111 (5th Cir. 1991). 


5.05[1] Aggravating Role in the Offense

      Section 3B1.1 permits an increase in the offense level as follows: (a) an
increase of 4 levels if the defendant was an organizer or leader of a criminal
activity that involved five or more participants or was otherwise extensive;
(b) an increase of 3 levels if the defendant was a manager or supervisor of such
a criminal activity; or (c) an increase of 2 levels if the defendant was an
organizer, leader, manager or supervisor in any criminal activity other than that
described in (a) or (b).  The term "participant" refers to a person who is
criminally responsible for the commission of the offense; the term includes
persons not convicted of an offense, but excludes undercover law enforcement
officers.  USSG §3B1.1, comment. (n.1).  When assessing whether an
organization is "otherwise extensive," courts should consider all persons
involved during the course of the entire offense, including unwitting outsiders
used by the criminal participants.  USSG §3B1.1, comment. (n.3);
United States v. Randy, 81 F.3d 65, 68-69 (7th Cir. 1996).  The
particular title of a defendant does not determine whether he acted as an
organizer or leader, as opposed to a mere manager or supervisor.  USSG
§3B1.1, comment. (n.4).  Rather, courts should consider the following
factors when deciding whether a defendant was an organizer or leader:

      [T]he exercise of decision making authority, the nature of 
      participation in the commission of the offense, the recruitment of 
      accomplices, the claimed right to a larger share of the fruits of the 
      crime, the degree of participation in planning or organizing the 
      offense, the nature and scope of the illegal activity, and the degree 
      of control and authority exercised over others.

Id.  The purpose of §3B1.1 is to account for the relative
responsibilities of the participants in a scheme, and to deter those persons who
are most likely to present a greater danger to the public and/or recidivate. 
USSG §3B1.1, comment. (backg'd).  An appellate court will review factual
findings regarding the applicability of this enhancement for clear error only. 
United States v. Powell, 124 F.3d 655, 667 (5th Cir. 1997).

      Section 3B1.1 defines "organizer or leader" broadly, and a defendant may
have acted as an organizer even if he did not control others in the organization
directly.  United States v. Morris, 18 F.3d 562, 569 (8th Cir.
1994).  See also United States v. Ervasti, 201 F.3d 1029,
1041 (8th Cir. 2000) ("While control of other participants is an important
factor, section 3B1.1 focuses on the 'relative responsibility within a criminal
organization.'") (citations omitted).  Further, there can be more than one
organizer in a criminal operation.  USSG §3B1.1, comment. (n.4);
Morphew v. United States, 909 F.2d 1143, 1145 (8th Cir. 1990). 
Likewise, a defendant may be a manager or supervisor even if he is not at the top
of a criminal scheme.  United States v. Goldberg, 105 F.3d 770, 777
(1st Cir. 1997).  Moreover, a defendant may qualify for a §3B1.1(b)
enhancement so long as he had a managerial or supervisory role in illegal conduct
which involved five or more persons; the defendant does not have to manage or
supervise five other persons directly.  United States v. Kraig, 99
F.3d 1361, 1369-70 (6th Cir. 1996).  Even if the defendant did not have an
aggravating role during the commission of the offense, he still may qualify for
an enhancement if he assumed a dominant role during a later cover-up. 
United States v. Mankarious, 151 F.3d 694, 710 (7th Cir. 1998).

      Courts often have upheld the application of an aggravating role enhancement
in cases involving tax crimes.  See Ervasti, 201 F.3d at
1041-42 (upholding 3B1.1(c) enhancement for husband defendant who "was not just
[company's] CEO in title, he was its leader in all respects");
Mankarious, 151 F.3d at 710 (upholding §3B1.1(c) enhancement
for defendant who directed and paid underling to conceal scheme to commit money
laundering, wire fraud, and filing of false tax returns); Powell,
124 F.3d at 667 (distributor of gasoline and diesel fuel, convicted of evading
federal fuel excise taxes, qualified for §3B1.1(c) enhancement because he
supervised in-house accountant's work on false tax returns regarding fuel
sales); United States v. Madoch, 108 F.3d 761, 767 (7th Cir.
1997)(CPA, convicted of corruptly endeavoring to obstruct government from
collecting taxes, qualified for §3B1.1(a) enhancement because five other
individuals helped him further scheme, according to his directions);
Goldberg, 105 F.3d at 777 (defendant, convicted of conspiring to
defraud the IRS and aiding the filing of false tax returns, qualified for
§3B1.1(c) enhancement; although bookkeeper whom defendant supervised was not
a culpable participant, defendant also managed receipt of false tax documents by
straw employees); Kraig, 99 F.3d at 1370 (lawyer, convicted of
conspiring to defraud the IRS, qualified for §3B1.1(b) enhancement because
he recruited lawyers and accountants to participate in scheme to conceal assets
of client); United States v. Brinkworth, 68 F.3d 633, 641-42 (2d
Cir. 1995)(defendant, convicted of filing false return, qualified for
§3B1.1(c) enhancement because he directed and provided records to criminally
responsible accountant); United States v. Dijan, 37 F.3d 398, 403-
04 (8th Cir. 1994)(defendants, convicted of conspiring to bribe IRS agent,
qualified for §3B1.1(a) enhancement because criminal activity involved more
than five people, including indicted and unindicted coconspirators, and because
decision to attempt bribe rested with defendants); United States v.
Leonard, 37 F.3d 32, 37-39 (2d Cir. 1994)(corporate vice-president,
convicted of conspiring to defraud the IRS, qualified for §3B1.1(b)
enhancement because he organized and managed efforts of other employees to skim
cash from corporation, even though he did so at the behest of another
individual).

      Finally, the guidelines explicitly state that a sentencing court may apply
an aggravated role enhancement in addition to a §2F1.1(b)(2) enhancement for
more than minimal planning.  USSG §1B1.1, comment. (n. 4).  Although the
Sixth Circuit has ruled that cumulative enhancements for an aggravated role and
more than minimal planning are impermissible, United States v.
Romano, 970 F.2d 164, 167 (6th Cir. 1992), the Sixth Circuit was
interpreting a version of the guidelines which did not contain the current
provision, effective as of November 1, 1993, that the two enhancements are not
mutually exclusive.  Further, at least seven other federal circuits have
recognized that sentencing courts may apply both enhancements simultaneously. 
United States v. Michalek, 54 F.3d 325, 334 n.14 (7th Cir.
1995)(collecting cases).


5.05[2] Mitigating Role in the Offense

      Section 3B1.2(a) provides that a court may reduce by four