Taxpayer Convicted of Conspiracy and Filing False Tax Returns Received a Sentencing Enhancement For Being an Organizer U.S. v. Thorton, 633 F.3d 312 (4th. Cir. 2011)


U.S. v. Thorton, 633 F.3d 312 (4th. Cir. 2011)

      A jury convicted defendant on one count of conspiring to defraud the United States of tax revenue, in violation of 18 U.S.C.S. § 371, and on three counts of aiding and assisting in the preparation and presentation of false income tax returns, in violation of 26 U.S.C.S. § 7206(2). The United States District Court sentenced defendant to 108 months of imprisonment. Defendant appealed his sentence.

      Defendant contended that the four-level enhancement under U.S. Sentencing Guidelines Manual § 3B1.1(a) based on his being an organizer or leader was not supported by the evidence. The court found that the record contained more than ample evidence to support the district court's finding that defendant was an organizer or leader because defendant prepared the paperwork, designed the legal mechanisms for claiming the fraudulent deductions, answered questions, issued directions in implementing the fraudulent scheme, and was critical to the recruitment of investors.

There was no error in the application of the enhancement under U.S. Sentencing Guidelines Manual § 3C1.1 for obstruction of justice, based on defendant's production of fabricated or backdated documents to the grand jury, because defendant did more than simply respond to a grand jury subpoena by producing previously falsified documents; rather, during the civil Internal Revenue Service investigation of his offense, he created documents to thwart the investigation.

    The district court considered the 18 U.S.C.S. § 3553(a) factors in extensive detail. The court found no error or abuse of discretion in the sentence imposed.
   
    The judgment of the district court was affirmed. However, in the dissent one member of the Court noted the following.

    The government relies on United States v. Fiore, 381 F.3d 89 (2d Cir. 2004), for the proposition that "the obstruction enhancement applies to efforts to obstruct not just criminal investigations, but also civil and administrative inquiries into the same conduct." In Fiore, the defendant was convicted of securities fraud, as well as perjury for lying to SEC officials during their civil investigation. 381 F.3d at 91. Thus, the Second Circuit found that  "where federal administrative and prosecutorial jurisdiction overlap, subsequent criminal investigations are often inseparable from prior civil  investigations, and perjury in the prior proceeding necessarily obstructs if successful, by preventing the subsequent investigation." Id. at 94.

    In the case before us, there is no evidence that Thorson made false statements to the IRS agents or created false documents to be produced to the IRS for the purpose of obstructing the civil audit. The official civil inquiry began in March 1998 when a revenue agent initiated a civil examination for the first fraudulent partnership. The government claimeds that the partnership's accountant provided to the revenue agent a contract for the partnership to purchase sites that was dated December 23, 1995. The government then cites to a section of the PSR claiming that "the district court found that the agreement was "fabricated", and provided to the agent to establish falsely that the sites were purchased by the partnership in December 1995 to obstruct the civil audit."

    While the court adopted the factual findings of the PSR in general, the court never cited to this section nor used it to justify the obstruction enhancement. The court relied solely on the grand jury investigation to support the adjustment. Moreover, the government cites no evidence that this backdated contract dated December 23, 1995, was drafted following the commencement of the audit. Additionally, the government misleadingly argues now that defendants prepared correspondence during the audit "to foster the false pretense that his use of the  funds in the AGH account were non-taxable loans."

    The correspondence the government cites was not produced to the IRS during the audit, but was instead produced in response to subsequent grand jury subpoenas. Accordingly, the government's argument fails on all accounts. Thus, I believe that the district court erred in adjusting Thorson's sentence for obstruction of justice.

    Because the district court clearly erred in finding that Thorson was a leader or an organizer and that Thorson obstructed justice, I would vacate his sentence and remand for re-sentencing. Thus, I respectfully dissent.

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