U.S. v. HOSKINSNo. 10-4131.
654 F.3d 1086 (2011)
UNITED STATES of America, Plaintiff-Appellee,
Jodi HOSKINS, Defendant-Appellant.
Jodi HOSKINS, Defendant-Appellant.
United States Court of Appeals, Tenth Circuit.
August 12, 2011.
W. Andrew McCullough, McCullough & Associates, LLC, Midvale, UT, for Appellant. Alexander P. Robbins ( John A. DiCicco, Acting Assistant Attorney General, Frank P. Cihlar and Gregory Victor Davis, Attorneys, and Carlie Christensen, Acting United States Attorney, Of Counsel, with him on the brief) Tax Division, Department of Justice, Washington, D.C., for Appellee.
Before BRISCOE, Chief Judge, TYMKOVICH, and GORSUCH, Circuit Judges.
TYMKOVICH, Circuit Judge.
This case requires us to consider a sentencing judge's discretion in establishing tax loss resulting from a tax evasion scheme. Jodi Hoskins was convicted of tax evasion after she and her husband
To minimize the tax loss for these purposes, the Hoskinses offered to the court hypothetical tax returns (it was too late to submit amended returns to the IRS) that accounted for the unreported income and attempted to take deductions they claimed they would have been entitled to but for the tax evasion. The district court rejected the tax returns and accepted the government's tax-loss estimate. As we explain below, the district court did not err in rejecting the hypothetical return. We also dismiss Jodi Hoskins's challenges to the sufficiency of the evidence supporting her conviction, and the reasonableness of her sentence.
Having jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C. § 3742, we therefore AFFIRM.
Beginning in 2000, Jodi Hoskins (Hoskins) managed and operated Companions, a Salt Lake City escort service founded and owned by her then-boyfriend and future husband, Roy Hoskins, who she married in April 2003. Hoskins managed Companions' office, supervised employees, coordinated escort reservations, and maintained Companions' credit card receipt
Although they did not marry until 2003, the Hoskinses filed a joint U.S. Individual Income Tax Return, Form 1040, for tax year 2002. As a Schedule C business, Companions did not file its own tax return; rather, the Hoskinses accounted for Companions' income on their personal returns. Thus, the joint 2002 return filed by the Hoskinses, which was prepared by an accountant, reported Companions' income and expenses. Although Roy Hoskins owned Companions and provided most of the information supporting the 2002 return, Jodi Hoskins signed the return as well.
The 2002 return reported $902,750 in gross receipts from Companions. After an investigation, the government discovered that Companions received at least $1,053,552 in credit-card payments alone in 2002. Further, because Companions escorts explained that the company received 50-70% of its payments in cash, the government projected the cash intake for 2002 was equal to the credit-card receipts. Thus, the government estimated that Companions' 2002 gross receipts were $2,107,104 — more than $1.2 million in excess of the income claimed by the Hoskinses. The government also contended that some of the escorts were engaged in prostitution, and that Hoskins knew about the criminal activity.
In 2008, a federal grand jury charged Jodi Hoskins with willfully attempting to evade or defeat Roy Hoskins's 2002 federal income taxes, in violation of 26 U.S.C. § 7201. Hoskins was convicted after a three-day bench trial. At sentencing, the district court credited the government's estimates and found that for 2002, the joint tax return filed by the Hoskinses failed to report approximately $1.2 million in gross receipts, which resulted in a tax loss to the government of more than $485,000. The district court rejected Hoskins's alternative accounting of the tax loss based on a hypothetical tax return that indicated a tax loss of $160,202.
Under the USSG, Hoskins was subject to a base offense level of 20 and a criminal history category of III. The district court pointed to the prostitution activities of Companions' escorts and applied a two-level enhancement because it found Hoskins "failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity." USSG § 2T1.1(b)(1). Accordingly, the presentence report's (PSR) recommended sentencing range was 51 to 63 months. The lower tax-loss estimate offered by Hoskins would have moved the guideline range to 33 to 41 months. The district court used the higher range but applied a downward variance and sentenced Hoskins to 36 months' imprisonment.
Contesting the district court's factual findings, analysis, and sentencing calculation, Hoskins appeals her conviction and sentence.
Hoskins raises three challenges on appeal: (1) the evidence was insufficient to support her conviction, (2) the district court's calculation of the government's tax loss was clearly erroneous, and (3) the district court erred in applying a sentencing enhancement for failing to report or identify sources of income derived from criminal activity. We discuss each in turn.
A. Sufficiency of the Evidence
Hoskins first contends insufficient evidence supports her conviction. She argues the government failed to establish that she willfully intended to submit false tax returns,
We review sufficiency of the evidence de novo. United States v. Parker,
Hoskins was convicted under 26 U.S.C. § 7201, which makes it a felony for "[a]ny person [to] willfully attempt in any manner to evade or defeat any tax." To prove evasion under § 7201, "the government must show (1) a substantial tax liability, (2) willfulness, and (3) an affirmative act constituting evasion or attempted evasion." United States v. Thompson,
Under § 7201, "willfulness" means the "voluntary, intentional violation of a known legal duty." Cheek v. United States,
Despite § 7201's exacting intent requirement, the record supports the district court's finding that Hoskins willfully evaded her income taxes. At trial, the government demonstrated numerous facts implicating Hoskins in a scheme to evade taxes. First, the record is clear that although in 2002 Roy Hoskins owned Companions, Jodi Hoskins actively managed the company's affairs and held herself out as a co-owner. According to a Companions employee, Jodi Hoskins "was the manager and owner, basically the person in charge of the company." R., Vol. I at 139. The district court heard evidence that in connection with her managerial role, Hoskins supervised employees, enforced office rules, maintained the company's creditcard receipt book, dealt with the IRS in connection with 2003 tax returns, and had signatory authority over Companions' bank account. Indeed, the accountant retained by the Hoskinses believed Jodi and Roy were equally knowledgeable about the business's finances.
In short, the government established Hoskins (1) was familiar with Companions' finances, (2) knew of the obligation to report all business income on the company's return, (3) in the past, had reminded Companions' escorts of their obligation to report tip income on their personal tax returns, and (4) told an IRS Special Agent
Thus, the district court had ample evidence to conclude Hoskins knew of her legal duty to file accurate tax returns and knew the state of Companions' finances. And it is plain that despite this knowledge, Hoskins voluntarily signed a tax return that underreported more than $1.2 million in gross receipts.
Accordingly, we will not disturb the district court's finding of willfulness, which was reasonable and supported by the record.
2. Affirmative Act
To be liable under § 7201, a defendant must do more than passively fail to file a tax return; the statute also "requires a positive act of commission designed to mislead or conceal." Thompson, 518 F.3d at 852 (quotation omitted). Importantly, however, "[t]he government only need[s] to show one affirmative act of evasion for each count of tax evasion." Id. (emphasis added).
Hoskins admitted at trial that she signed the false 2002 return. This alone was sufficient to establish an affirmative act under § 7201, and even more so given the factfinder's conclusion she knew the contents were inaccurate. See Boulware v. United States, 552 U.S. 421, 424 n. 2,
Sufficient evidence supported the court's finding that Hoskins acted affirmatively to mislead and conceal.
B. Tax-Loss Calculation
Next, Hoskins proposes two reasons why the district court erred in calculating the tax loss suffered by the government, which in turn affected the applicable sentencing range. First, she says the court improperly refused to adjust the government's tax loss based on unclaimed tax deductions she offered. Second, she asserts the court erroneously included commissions and tips kept by escorts as part of Companions' 2002 gross receipts.
1. Unclaimed Deductions
Jodi Hoskins's 51-to-63 month sentencing guideline range was tied to the court's calculation that the government suffered a tax loss of more than $485,000. Hoskins disputes this figure and contends the court improperly failed to account for unclaimed deductions when estimating the government's tax loss. She argues the government's actual tax loss was less than $200,000.
We may overturn the district court's tax-loss calculation only if it was clearly erroneous. See United States v. Spencer,
The USSG defines "tax loss" for the purpose of sentencing defendants convicted under § 7201:
USSG § 2T1.1(c)(1). The notes to § 2T1.1 instruct courts that tax loss "shall be treated as equal to 28% of the unreported gross income ..., unless a more accurate determination of the tax loss can be made." Id. § 2T1.1(c)(1), Note (A) (emphasis added). "[A]lthough the government bears the burden at sentencing of proving the amount of tax loss flowing from the defendant's illegal acts, neither the government nor the court has an obligation to calculate the tax loss with certainty or precision." United States v. Sullivan,
The question remains: what evidence can be marshaled to demonstrate a "more accurate determination of the tax loss"?
To counter this evidence, Hoskins prepared a tax return including unclaimed deductions she could have claimed on the 2002 return, but did not. This return, which indicated a tax loss of only $160,202,
Before the district court and on appeal, the government objects to the use of unclaimed deductions for purposes of the taxloss calculation. It points to dicta from our decision in United States v. Spencer, 178 F.3d at 1368, where we discussed the scope of USSG § 2T1.1. In that case, we stated that § 2T1.1 Note (A)'s "more accurate determination" provision does not allow taxpayers "a second opportunity to claim deductions after having been convicted of tax fraud." Id. We explained that in calculating tax loss for the purpose of sentencing, "we are not computing an individual's tax liability as is done in a traditional audit[, but r]ather we are merely assessing the tax loss resulting from the manner in which the defendant chose to complete his income tax returns." Id. Under this logic, the defendant is stuck with all the upside income, but can claim none of the downside adjustments.
We likewise refuse to do so here. Although a bright-line rule forbidding after-the-fact consideration of unclaimed deductions is appealing and easily administrable, the plain language of § 2T1.1 does not categorically prevent a court from considering unclaimed deductions in its sentencing analysis. Instead, § 2T1.1 directs courts to calculate the tax loss that was the "object of the offense" — "the loss that would have resulted had the offense been successfully completed." Thus, the "object of the offense" refers to the "amount by which [a defendant] underreported and fraudulently stated his tax liability on his return." United States v. Chavin,
Even if we accept that § 2T1.1 is directed at intended rather than actual tax loss, it does not follow that in proposing a more accurate determination, a defendant may never benefit from deductions that he could have claimed on the false tax returns. We, of course, agree with Spencer and other circuits that where a defendant offers weak support for a tax-loss estimate, nothing in the Guidelines requires a sentencing court to engage in the "nebulous and potentially complex exercise of speculating about unclaimed deductions." United States v. Yip,
A hypothetical helps explain why consideration of unclaimed deductions may be appropriate, even if § 2T1.1 addresses only intended tax loss. Assume a restaurant owner is convicted of criminal tax evasion for failing to report or pay taxes on $100,000 income earned from his cashonly business. Let us also assume the restaurant paid $80,000 in tax-deductible business expenses, all in cash. And finally, let us assume the restaurant owner, despite evading his tax-filing responsibilities, maintained immaculate business records documenting every business expense. Assuming a 30% tax rate, if a court refused to consider the deductions under § 2T1.1, the restaurant owner would have caused a $30,000 tax loss. If the court did consider the deductions, the government's tax loss would have been only $6,000. We then ask, which of these two tax losses did the defendant intend?
The most logical conclusion is that the defendant sought to avoid paying what he legally owed in taxes: $6,000. It would never have occurred to the hypothetical defendant or his accountant that he would be cheating the government out of $30,000. Indeed, it is somewhat odd to frame the § 2T1.1 analysis in terms of intended tax loss — when in reality, a tax-evading individual seeks only to avoid paying taxes, not cause any specific loss to the government. Thus, if our hypothetical defendant presented his meticulously kept business records to the sentencing court, we believe the court could conclude reasonably that he "intended" a tax loss of only $6,000. This conclusion is bolstered by the notes to § 2T1.1, which explain that when the offense involves "failure to file a tax return, the tax loss is the amount of tax that the taxpayer owed and did not pay." USSG § 2T1.1 Note (2).
Moreover, the government is not supposed to reap windfall gains as a result of tax evasion. See United States v. Gordon,
In reaching this conclusion, we recognize that tax deductions are neither matters of right nor equity but rather of legislative grace. Individuals must report all income in their tax filings, but nothing requires them to claim deductions to which they are legally entitled. At the same time, however, this is not a sufficient reason to foreclose defendants from ever benefitting from unclaimed deductions. A defendant may well be able to persuade a court that, given his tax-filing practices, he would have claimed deductions on the unreported income; and of course, the government could counter by raising doubts. But these are evidentiary inquiries, and nothing in the Guidelines prevents courts from entertaining arguments on both sides.
We also note that our interpretation comports with the evolution of § 2T1.1's language. The 1991 version of § 2T1.1, which was superseded by the provision at issue here, required courts to calculate tax loss based on gross income and prohibited consideration of legitimate but unclaimed deductions. The 1991 Guidelines thus established an "alternative minimum standard for the tax loss" which made "irrelevant the issue of whether the taxpayer was entitled to offsetting adjustments that he failed to claim." USSG § 2T1.1 Note (4) (1991). "This rough-and-ready calculation applie[d] the highest marginal rate to the amount of concealed income, disregarding deductions that would have been available had the taxpayer filed an honest return." United States v. Harvey,
Applying these principles to the present case, we find the district court reasonably determined the government's upward tax-loss calculation was credible and adopted it. Testimony supported the government's contention that at least 50% of Companions' gross receipts were from cash transactions; in fact, one Companions employee estimated that "65 to 70 percent [of customers] would pay cash." R., Vol. I at 146. Accordingly, we cannot take issue with the district court's finding that Hoskins underreported Companions' gross receipts by more than $1.2 million. Additionally, the government argued persuasively at sentencing that the 2002 tax return filed by the Hoskinses may have incorporated all deductions to which they were entitled — not just those associated with Companions' credit-card receipts. Thus, the district court's finding that the government suffered a $485,443 tax loss was not clearly erroneous.
Finally, the district court had many reasons to be skeptical of Hoskins's proposed deductions. Most importantly, because Jodi Hoskins introduced no credible evidence from 2002 showing that any deductions were unclaimed, it is possible that on their 2002 return, Roy and Jodi Hoskins reported all deductions — stemming from cash and credit-card receipts — while reporting
In sum, the district court did not err in considering additional evidence regarding the accuracy of the tax loss calculation. Nor did it err in accepting the government's tax-loss estimate and declining to consider Hoskins's proposed tax calculations.
2. Calculation of Gross Receipts
Hoskins also argues the government's calculation of more than $1.2 million of unreported income is too high because it incorporates the escorts' tip income and cash commissions as part of the company's gross receipts. Hoskins does not dispute that at least half of the escorts' services were paid in cash, but she contends the company never actually received the escorts' shares of cash transactions, which included commission payments and tip income. Thus, she says the tips and escort commissions should not be incorporated as part of Companions' receipts.
To grasp this argument, one must understand Companions' business model. In exchange for a date with a Companions escort, customers were required to pay an hourly fee — which Companions and the escort would share — and in most cases customers paid the escort a tip as well. Hoskins provides an illustrative example of how this operated in practice. Assuming a one-hour date, the agency fee would be $150; of this, the escort was entitled to retain $70, and Companions kept the remaining $80. Assuming the escort also received a $100 tip, the escort would receive a total of $170, and Companions would receive only $80. Hoskins contends that for cash transactions, customers paid the escorts directly, and Companions never actually received anything but its share of the agency fee — $80 in Hoskins's example. Thus, Hoskins says she should only have been taxed for the amount Companions actually received — and not for the larger figure including the escorts' tips and commission payments.
In total, the accountant retained by the Hoskinses testified that escorts kept 63.45% of the cash they took in, and that they took home 61% of credit-card income. The accountant used these figures to calculate unclaimed deductions, but Hoskins also deploys them to call into question the district court's gross-receipts calculation. Indeed, according to Hoskins, although the government was not wrong to estimate that cash transactions equaled credit-card receipts, it should not have doubled the $1,053,952 credit-card receipt figure to arrive at the additional taxable income arising from cash transactions. Rather, the argument follows, the credit-card figure should have been multiplied by 36.55%, yielding gross cash receipts of $385,182 and a total tax loss of less than $200,000.
Because Hoskins advances this argument for the first time on appeal, we review only for plain error. See Fed. R.Crim.P. 52(b); United States v. Poe,
As an initial matter, we find the district court did not err when it included escorts' commission payments in Companions' gross income. By statute, "gross income" includes "all income from whatever source derived." See 26 U.S.C. § 61(a). Recognizing this, we have explained that "the `sweeping scope' of this [gross income] section ... has been repeatedly emphasized by the Supreme Court," and "any gain constitutes gross income unless the taxpayer demonstrates that it falls within a specific exemption." Brabson v. United States,
Whether the district court improperly accounted for tip receipts when calculating tax loss is a more challenging question. To the extent escorts received tips, this money was remuneration for employment and not gross income attributable to Companions.
The problem, however, is that Hoskins did not raise this argument before the district court, and thus there is a minimal factual record elucidating the amount of tips received by Companions' escorts. We know that tipping escorts was commonplace, but we know little else. For example, we do not know the average tip size, or how often customers paying with credit cards included the tips in their credit-card payments instead of tipping in cash. Without knowing these facts and others, we cannot estimate how much, if any, of the $1.2 million unreported-income figure was derived from tips. We can envision scenarios where little or none of the unreported income was tip-based. For example, if nearly all credit-card customers tipped in cash, then doubling the total credit-card receipts would yield a reasonable
Moreover, even if she could demonstrate error that was plain, Hoskins cannot establish prejudice. "Under the plain error standard, we reverse only when ... there is a reasonable probability that, but for the error claimed, the result of the proceeding would have been different." United States v. Mendoza,
In sum, Hoskins has not satisfied any of the prongs of plain error review.
Finally, Hoskins challenges the district court's sentencing enhancement for failing to report sources of income derived from criminal activity. Under USSG § 2T1.1(b)(1), "[i]f the defendant failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity, [the offense level is] increase[d] by 2 levels." The district court made a factual finding that more than $10,000 of Hoskins's unreported income (less than 1%) arose from illegal activity — specifically, prostitution. We review this finding for clear error. Chavez-Diaz, 444 F.3d at 1225.
Contrary to Hoskins's assertion, the court's factual finding was based on ample evidence in the record. Indeed, the court heard testimony that Companions' escorts engaged in sex acts as a matter of common practice. In this regard, a witness stated that Companions referred to escorts as "liberal" who were known to engage in sex acts with clients [See id.; see also R., Vol. II, at 683.], and that Hoskins would have been "naive" not to know the escorts engaged in prostitution. R., Vol. I at 329.
The district court appropriately found these facts and others established by a preponderance of the evidence that more than $10,000 of Hoskins's unreported income derived from criminal activity. This finding was not clearly erroneous.
For the reasons discussed above, we AFFIRM Hoskins's conviction and sentence. In reaching this conclusion, we find that under USSG § 2T1.1, a sentencing court analyzing the tax loss suffered by the government may consider evidence of a defendant's unclaimed deductions.
BRISCOE, Chief Judge, concurring in part and dissenting in part.
I join the portions of the majority's opinion affirming Hoskins's conviction, the district court's ultimate finding regarding the amount of the tax loss, and the district court's application of the U.S.S.G. § 2T1.1(b)(1) enhancement. I respectfully dissent from the portion of the opinion in which the majority takes the unnecessary step in announcing a rule permitting defendants in future cases to offer deductions they did not actually claim in order to establish "a more accurate determination of the tax loss" under U.S.S.G. § 2T1.1(a).
I agree with the majority's conclusion that the district court did not err when it accepted the government's evidence regarding tax loss, and that this determination is sufficient to uphold the calculation of Hoskins's base offense level.
The majority views our discussion in Spencer, where we reject a defendant's entitlement to retroactive deductions when computing § 2T1.1(a) tax loss, as dictum. I do not think the discussion in Spencer can be so readily ignored. In Spencer, we noted that the Second Circuit had recently held that defendants could "employ `legitimate but unclaimed deductions' in calculating tax loss," but "[w]e question[ed] this conclusion." Id. at 1368 (quoting United States v. Martinez-Rios,
Id. (citation omitted). Although this statement was an alternative basis upon which
The goal of a tax loss calculation is to assess the tax loss "resulting from the manner in which the defendant chose to complete his tax returns." Spencer, 178 F.3d at 1368. The scope of a defendant's tax evasion is determined at the point at which the return is filed, not after the defendant is charged and convicted. The majority's statement that "the government is not supposed to reap windfall gains as a result of tax evasion," Op. at 1095, has no bearing on the instant issue, where we are asked to determine tax loss based on the tax return the defendant actually filed. The tax loss embodied in the fraudulent return is not necessarily the amount that the government actually lost in revenue or the amount that the defendant could ultimately be ordered to pay, because "[t]he tax loss is not reduced by any payment of the tax subsequent to the commission of the offense." U.S.S.G. § 2T1.1.1(c)(5). Surely if § 2T1.1 tax loss cannot be reduced by the defendant's subsequent payment of taxes, § 2T1.1 tax loss cannot be reduced by unclaimed deductions proffered in an unfiled return after conviction.
Five other circuits have also concluded that a defendant cannot reduce the U.S.S.G. § 2T1.1 tax loss with unclaimed deductions. See United States v. Yip,
The reasoning of these cases from our sister circuits is sound. The majority's ruling essentially allows the defendant a "do over" by permitting the defendant, after conviction, to prepare a hypothetical, substitute return which minimizes the defendant's hypothetical tax liability. The fact that the defendant might have done things differently had she known she would be caught does not alter what she actually did, which was file a return without the deductions now proposed.
The majority's decision is based in part on the idea that, at the time the false return was filed, the defendant legally owed a certain amount of taxes which included unclaimed deductions. This is a fiction; deductions do not reduce one's tax liability unless they are actually claimed. Equally as troubling, the majority's rule invites defendants to turn a sentencing hearing into a tax audit and the district court into a tax court tasked with determining whether the deductions proposed at sentencing would have been viable when the defendant's return was actually filed. See Martinez-Rios, 143 F.3d at 670 (criticizing a regime requiring courts to consider unclaimed deductions because it would oblige "a sentencing judge ... to make a precise determination of tax liabilities, resolving issues normally determined in administrative proceedings of the Internal Revenue Service, sometimes subject to civil litigation").
The majority also bases its ruling on the evolution of § 2T1.1's language. My reading of that evolution does not comport with the majority's. The previous version of the guideline defined tax loss 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." In turn, § 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." The gross income-based calculation was an alternative method
In 1993, the Sentencing Commission changed the definition of tax loss to "the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed)." The Commission also deleted the application note discussed above. The note was deleted because it was no longer relevant, not in order to "delete[the] rule explicitly foreclosing consideration of unclaimed offsetting adjustments," Op. at 1096. See Yip, 592 F.3d at 1041. I would conclude that the change in language supports a determination that the tax loss that was the "object of the offense" is something other than the minimum amount of tax that the defendant possibly could have owed at the time. The old language, "[t]he total amount of tax that the taxpayer evaded or attempted to evade," sounds more like actual government revenue loss than "the amount of loss that was the object of the offense." See Chavin, 316 F.3d at 678 (finding it plausible that the application note was deleted "because the new tax-loss definition specifically excludes consideration of unclaimed deductions on its face by defining tax loss as `the object of the offense.'"). Further, I note that in the 1993 amendments the Commission also adopted a revised tax loss table "to provide increased deterrence for tax offenses." U.S.S.G.App. C, Amendment 492. The majority's interpretation cuts against the goal of greater deterrence for tax offenses because it will greatly reduce the sentencing range for defendants who could have taken deductions if they had filed truthful tax returns.
Finally, I am puzzled by footnote nine of the majority's opinion, which "emphasize[s]... that § 2T1.1 does not permit a defendant to benefit from deductions unrelated to the offense at issue." Op. at 1094 n. 9. I fail to see why it should matter whether the unclaimed deductions are related to the offense or not.
For these reasons, I cannot join in the portion of the majority's opinion that permits defendants to proffer unclaimed deductions
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