“Increasingly, federal judges are going easy on tax cheats, or at least easier than the U.S. Sentencing Commission’s guidelines say they should.”

     That’s the opening sentence in an article on federal criminal tax prosecutions recently published in Forbes Magazine.  The article, and others like it, note that Federal Judges are imposing more below-guidelines sentences in criminal tax cases than in other types of criminal cases.  While this may be true, these articles miss the mark in attempting to explain why.

     Most of these articles surmise that lower sentences in federal tax prosecutions can be attributed to one of two causes.  First, they suggest that Judges tend to view tax evasion as a “victimless” crime that is less deserving of active imprisonment than other white-collar frauds.  Second, they argue that wealthy tax evaders receive bigger breaks at sentencing because they can afford to repay the IRS what they previously evaded, and they paint themselves as having been punished already by the public humiliation of a criminal prosecution and guilty plea.

     While these points may have some validity, they fall well short of the real reason for larger departures in criminal tax cases: the U.S. Sentencing Guidelines themselves.

     The problem with the criminal tax Guidelines begins with the fact that the single biggest driver in determining a criminal tax defendant’s Guideline is the dollar amount of tax evaded.  While this approach seems logical at first blush, its shortcomings become quickly apparent when applied to other crimes.  Imagine two armed bank robbers entering separate banks simultaneously.  The bank bag handed to the first robber by the teller contains $100, which is all she has in her drawer.  The bank bag handed to the second robber contains $100,000.  If the amount of the loss was the single biggest determiner of the Guideline sentence, the first robber would receive a much lower sentence than the second robber for the exact same conduct.  This and other problems with the role of loss calculation in federal sentencing are nicely exposed in a recent article published in the Duke Law Journal¹. 

     The second problem with the criminal tax Guidelines is that the Sentencing Commission purposefully made the Guidelines in criminal tax cases higher than the conduct itself deserves with the intent to put fear in the hearts of other would-be tax offenders.

     To this end, the Sentencing Commission explained:

     The criminal tax laws are designed to protect the public interest in preserving the integrity of the nation’s tax system.  Criminal tax prosecutions serve to punish the violator and promote respect for the tax laws.  Because of the limited number of criminal tax prosecutions relative to the estimated incidence of such violations relative to the estimated incidence of such violations, deterring others from violating the tax laws is a primary consideration underlying these guidelines.  Recognition that the sentence for a criminal tax case will be commensurate with the gravity of the offense should act as a deterrent to would-be violators.

U.S.S.G. Ch. 2, Pt. T, introductory cmt.  (1998).

     The problem with this approach is that it puts undue weight on attempting to scare other would-be offenders, and therefore too little weight on other factors that are more germane to the development of a fair sentence for the individual defendant.

     The result is often a Guideline sentence that is too harsh given the specific characteristics and history of the defendant and the circumstances of his offense.  When this happens, fair-minded Judges see little alternative to departing downward from the Guidelines.

¹ Derick R. Vollrath, Losing the Loss Calculation: Toward a More Just Sentencing Regime in White Collar Criminal Cases, 59 Duke Law Journal 1011-1036 (2010).