United States v. Thomas

United States Court of Appeals
For the First Circuit

No. 09-2581

UNITED STATES OF AMERICA,

Appellee,

v.

RICHARD J. THOMAS,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE

[Hon. John A. Woodcock, U.S. District Judge]

Before

Lipez, Selya, and Thompson, Circuit Judges.

Virginia G. Villa, Assistant Public Defender, for appellant.
Renée M. Bunker, Assistant United States Attorney, with whom
Paula D. Silsby, United States Attorney, was on brief, for
appellee.

February 16, 2011
 THOMPSON, Circuit Judge. Richard J. Thomas appeals from

his sentence on one count of tax evasion in violation of 26 U.S.C.

§ 7201. We hold that the district court correctly calculated the

applicable sentencing range and did not abuse its discretion in

imposing an obligation to file all unfiled tax returns and pay all

outstanding tax arrears as a condition of supervised release.

Accordingly, we affirm.

I. Background

In 1995, Thomas, a well-to-do chiropractor, simply

stopped paying his taxes. Apparently convinced that he was under

no obligation to do so – for a variety of frivolous reasons –

Thomas fought the Internal Revenue Service (IRS) tooth and nail for

twelve years, not conceding his obligation to pay taxes until 2007.

Not only did Thomas fail to file returns or pay his taxes during

this period, but he also engaged in several elaborate subterfuges

to conceal his income from the federal government, even going so

far as to set up a shell corporation in Nevada through which he

would funnel proceeds from his chiropractic practice.

After much fruitless back and forth, the IRS commenced an

investigation into Thomas's failure to pay taxes for the years

1995-2001. When it issued summonses in an attempt to acquire the

documents necessary to conduct this investigation, Thomas moved to

quash them in district court. Thomas v. United States, 254 F.

Supp. 2d 174 (D. Me. 2003). When the court rejected most of his

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motions, Thomas appealed to this court. Thomas v. United States,

93 Fed. App’x 238 (1st Cir. 2004) (per curiam) (unpublished). We

characterized Thomas's argument in that appeal as a "conten[tion]

that he could determine for himself whether he was subject to

federal tax laws," an argument so "frivolous" that it merited a

sanction of $2000. Id. at 239.

In January 2006, a federal grand jury returned an

indictment charging Thomas with six counts of tax evasion in

violation of 26 U.S.C. § 7201 for the years 1995, 1996, and 1998-

2001, respectively. After more than three years of what the

district court called the most "difficult" case it had ever

managed, Thomas entered into a plea agreement in which he pled

guilty to count six of the indictment in exchange for the dismissal

of the remaining counts. The court sentenced Thomas to 24 months'

imprisonment and ordered him to pay the mandatory assessment under

18 U.S.C. § 3013(a)(2)(A), the prosecution's costs, and restitution

in the amount of the specific tax assessment he failed to pay for

2001. The court also imposed several conditions of supervised

release, only two of which are relevant here: (1) that Thomas

"report to the IRS and file true and accurate returns for any

delinquent years . . . within 30 days of release [from]

incarceration, or as otherwise directed by the supervising

officer"; and (2) that Thomas "satisfy his tax liability to the IRS

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and comply with any tax repayment schedule." Thomas timely

appealed from the court's imposition of sentence.

II. Analysis

Though Thomas has had many skirmishes with the district

court, he raises only two arguments on appeal. He claims first,

that the court improperly calculated the sentencing range

associated with his crime, and second, that it abused its

discretion in ordering him, as a condition of supervised release,

to file income tax returns for all the years in which he failed to

do so and to pay all delinquent taxes. We address these claims in

turn.

A. Guidelines range calculation

In determining the government’s tax loss suffered for the

purpose of calculating Thomas's sentencing range under the

Guidelines, the district court included penalties and interest

stemming from his failure to pay income taxes in 1995 and 1996. On

appeal, Thomas claims that the Guidelines do not permit the

consideration of penalties and interest for this purpose. We

review the district court's Guidelines calculation de novo and any

factual findings associated with the sentencing process for clear

error. United States v. McCarty, 475 F.3d 39, 46 (1st Cir. 2007).

The tax evasion statute, 26 U.S.C. § 7201, punishes

"[a]ny person who willfully attempts in any manner to evade or

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defeat any tax imposed by [the Internal Revenue Code] or the

payment thereof." We have interpreted this statute as creating

two distinct crimes: (1) the willful attempt to evade or
defeat the "assessment" of a tax, and (2) the willful
attempt to evade or defeat the "payment" of a tax. The
first crime includes evading the government's attempt to
ascertain a tax liability. The second crime addresses an
individual's evasion of the payment of that tax.

United States v. Hogan, 861 F.2d 312, 315 (1st Cir. 1988)

(citations omitted). Thomas pled guilty to count six of his

indictment, which alleged that he "willfully attempted to evade and

defeat the assessment of a tax" in 2001.

Under the Sentencing Guidelines, the base offense level

(BOL) for a conviction under § 7201 is determined by the "tax loss"

resulting from the tax evasion. U.S.S.G. § 2T1.1(a). If the tax

loss exceeds $400,000, the applicable BOL is 20, id. § 2T4.1(H),

while a determination of a loss between $80,000 and $200,000

results in a BOL of 16, id. § 2T4.1(F). This distinction is

important here because in determining the "tax loss" associated

with Thomas's tax evasion, the district court included penalties

and interest from 1995 and 1996, which increased Thomas’s BOL from

16 to 20.1 Ordinarily, as Thomas points out, penalties and

1
After finding that a BOL of 20 applied, the district court
subtracted three levels for acceptance of responsibility. Given
Thomas's lack of criminal record, an adjusted offense level of 17
translated into a sentencing range of 24 to 30 months. U.S.S.G.
ch. 5, pt. A (sentencing table). Thomas contends that the district
court should have applied an adjusted offense level of 13, which
would result in a range of 12 to 18 months. Id.

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interest should not be included in tax loss calculations for the

purpose of determining the BOL. Id. § 2T1.1 cmt. n.1. An

exception applies, however, for "willful evasion of payment cases."

Id. Thomas concedes this point. He argues that the district court

erred in including penalties and interest in computing the tax loss

from 1995 and 1996 because he did not evade the payment of a tax –

only the assessment.

It is true that Thomas pled guilty to evasion of tax

assessment – not evasion of a tax payment – for tax year 2001.

Contrary to Thomas's assertion, however, the precise nature of a

defendant's plea does not prevent the district court from

considering conduct committed in furtherance of the convicted

offense. See United States v. Cintrón-Echautegui, 604 F.3d 1, 5

(1st Cir. 2010). Our caselaw recognizes that "[u]nder the

guidelines, a defendant may be held responsible at sentencing for

relevant conduct, including 'all acts and omissions committed . .

. by the defendant.'" Id. (quoting U.S.S.G. § 1B1.3(a)(1)(A)).

This encompasses "conduct that is not formally charged or is not an

element of the offense of conviction." U.S.S.G. § 1B1.3 cmt.

background. Thus, the fact that Thomas specifically pled guilty to

evading the assessment of taxes did not preclude the district court

from including as relevant conduct any activities or omissions that

are more properly considered evasion of the payment of a tax

liability, such as those described in counts one and two of the

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indictment. See, e.g., United States v. McElroy, 587 F.3d 73, 88-

89 (1st Cir. 2009) (holding that state tax loss from the evasion of

state taxes can be included as "relevant conduct" in calculating

total tax loss for federal sentencing purposes). What we must

determine is whether Thomas's evasive conduct for the years

1995–1996 can constitute "relevant conduct" for the purposes of

Thomas's sentencing.2

When calculating the tax loss attributable to the

offense, we liberally construe as relevant conduct "all conduct

violating the tax laws . . . unless the evidence demonstrates that

the conduct is clearly unrelated." U.S.S.G. § 2T1.1 cmt. n.2; see

also McElroy, 587 F.3d at 88 (approvingly citing other circuits'

practice of determining relevant conduct based on whether the

conduct in question was part of a "'common scheme or plan' and the

same 'course of conduct'" as the offense of conviction). There is

ample evidence in the record to support the court's finding that

Thomas willfully evaded the payment of his 1995 and 1996 taxes,

thereby justifying the inclusion of penalties and interest. For

example, when the IRS sent him completed Substitutes for Return

(SFRs)3 after he failed to pay his taxes for those years, he

2
The government's assertion that Thomas waived this argument
is not well-taken. Thomas specifically alerted the district court
to this objection, and the court recognized at sentencing that this
argument was preserved for appeal.
3
26 U.S.C. § 6020(b)(1) authorizes the Secretary of the
Treasury “to make a substitute tax return for any person who, for

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refused to pay the assessed taxes, sending the IRS numerous letters

stating that (1) he did not believe he had to pay income taxes and

(2) he could find no law validly imposing tax liability on him. In

addition to failing to file his 1995 and 1996 tax returns and

actively working to prevent the IRS from assessing his taxes, he

has also thus far failed to pay these taxes. In fact, before this

court, Thomas is still attempting to escape from his obligation to

pay these taxes, more than thirteen years after they came due. See

infra Part II.B.

Though these acts alone most likely suffice to support a

determination that Thomas willfully evaded tax payments, he engaged

in numerous other acts of evasion that further support the district

court's conclusion. For example, in 2000 he created a Nevada-based

holding company, Three Crows Corporation, for his chiropractic

business. He used that corporation to open a bank account in its

name in which he deposited business receipts in an effort to hide

that income. He also concealed his earnings by taking substantial

cash withdrawals from his business account and purchasing cashier's

checks. Even worse, Thomas's evasive conduct continued post-

indictment. In 2006, he sold a piece of property for $89,000.

Instead of using the proceeds to pay the taxes he owed, he put them

into a newly created bank account in the name of Ichabod Trust, of

whatever reason, fails to make one on his own." Geiselman v.
United States, 961 F.2d 1, 5 (1st Cir. 1992).

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which his brother – who ironically was in the business of giving

tax advice – served as the trustee. These actions clearly evidence

Thomas's longstanding attempts to avoid not only the assessment,

but also the payment, of his 1995 and 1996 tax liabilities.

Accordingly, because Thomas's evasion of the payment of

taxes for 1995 and 1996 marked the beginning of his twelve years'

odyssey of tax evasion, it is part of a common scheme and course of

conduct with the offense of which he was convicted. Thus, the

evasion of payment for 1995 and 1996 was relevant conduct in

furtherance of the evasion of assessment for 2001, and the district

court properly included the tax losses from those evasion-of-

payment offenses in calculating Thomas's sentence. Moreover, as

those offenses are payment offenses, the district court correctly

included penalties and interest in calculating the tax loss

resulting from them. U.S.S.G. § 2T1.1 cmt. n.1. The sentencing

range was therefore appropriate.

B. Conditions of supervised release

Thomas also believes that the district court should not

have ordered as a condition of supervised release that he file all

delinquent tax returns and pay all back taxes. He argues that the

former condition unnecessarily deprives him of liberty and that it

fails to serve any identifiable deterrent interests. He contends

that the latter condition constitutes a form of restitution and

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cannot be imposed as a condition of supervised release. As we

explain below, these arguments are unavailing.

1. Standard of review

We review the district court's imposition of supervised

release conditions for abuse of discretion. United States v.

Perazza-Mercado, 553 F.3d 65, 69 (1st Cir. 2009). The court has

discretion to order "any . . . condition it considers to be

appropriate," 18 U.S.C. § 3583(d), provided it "involves no greater

deprivation of liberty than is reasonably necessary for the

purposes" of deterrence, protection of the public from the

defendant, and rehabilitation, id. § 3583(d)(2), and "is reasonably

related" to these factors, id. § 3583(d)(1), and to "the nature and

circumstances of the offense and the history and characteristics of

the defendant," id. § 3553(a)(1). We have explained that "[t]he

purposes of supervised release are the same as the purposes of

sentencing generally," and include, in addition to the factors

already mentioned, the need "'to reflect the seriousness of the

offense, to promote respect for the law, and to provide just

punishment for the offense.'" Perazza-Mercado, 553 F.3d at 69

(quoting 18 U.S.C. § 3553(a)(2)(A)).

2. Obligation to file delinquent tax returns

On appeal, Thomas challenges the first condition of

supervised release – that he "report to the IRS and file true and

accurate returns for any delinquent years, including tax years

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1995-2008, within 30 days of release [from] incarceration, or as

otherwise directed by the supervising officer."

a. No undue deprivation of liberty

Thomas argues that the order to file tax returns for 1995

and 1996 constitutes a greater deprivation of liberty than is

necessary because the exercise would be futile. In support of this

argument, Thomas notes that after he failed to file his tax returns

for 1995 and 1996, the IRS filed SFRs determining his tax

liability, which, if unpaid and unchallenged, the IRS would assess

and insist that he satisfy. Because Thomas failed to challenge the

notice of deficiency, the IRS assessed the taxes owed and

established his civil tax liability for those years. He argues

that because he cannot alter this settled determination, it would

be futile for him to file returns for 1995 and 1996. He also

claims that in order to file the returns effectively he would

unfairly have to obtain and review records that may no longer

exist. We disagree.

It is no deprivation of liberty to require that Thomas

file his delinquent tax returns. Indeed, Thomas, like most income-

earning citizens, has a statutory obligation to file his returns

and pay his taxes. See 26 U.S.C. §§ 1, 6012(a). We have

previously held that district courts act appropriately if they

"impos[e], as a condition of probation, that [defendants] file

delinquent and future tax returns, as well as pay any tax due,"

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because "this condition of probation mandates no more than the law

requires." United States v. Huguenin, 30 F.3d 127, 1994 WL 390112,

at *2 (1st Cir. 1994) (unpublished table decision). Those of our

sister circuits to have addressed the issue are in accord.4

Thomas may or may not be correct that any returns that he

files for 1995 and 1996 are rendered functionally irrelevant by the

IRS’s SFRs. See In re Colsen, 446 F.3d 836, 841 (8th Cir. 2006)

(noting that the IRS "has found post-[SFR] returns useful" because

they can result in a more accurate final assessment). Even

assuming any returns he files will not alter his assessment,

however, filing them would not be futile because his failure to do

so remains a violation of federal law. 26 U.S.C. §

6012(a)(1)(A)(ii); see also United States v. Lacy, 658 F.2d 396,

397 (5th Cir. 1981) ("The action of the [IRS] in filing [an SFR]

did not operate to relieve [the defendant] of responsibility for

his failure to . . . fil[e] his tax returns personally."); In re

Bergstrom, 949 F.2d 341, 343 (10th Cir. 1991) (same).

4
See United States v. Miller, 557 F.3d 919, 921-22 (8th Cir.
2009); United States v. Braxtonbrown-Smith, 278 F.3d 1348, 1356
(D.C. Cir. 2002); United States v. Iverson, 100 F.3d 968, 1996 WL
656578, at *2 (10th Cir. 1996)(unpublished table decision); United
States v. Hatchett, 918 F.2d 631, 644 (6th Cir. 1990); United
States v. Schiff, 876 F.2d 272, 275 (2d Cir. 1989).

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 Moreover, the requirement that Thomas file his delinquent

tax returns is consistent with 18 U.S.C. § 3583(d), which provides

for the imposition of supervised released conditions that are,

inter alia, reasonably related to the offense and the history of

the defendant. We note that any difficulties that may arise from

the age of the necessary documents or the passage of time are

entirely self-inflicted; had he complied with his duty to file the

returns when they were initially due, there would be no such

troubles. His contention on appeal that this state of affairs

amounts to a "burden" imposed by the district court is absurd, like

killing your parents and complaining of being an orphan. It is

worth recalling that "[v]irtually all conditions of supervised

release restrict a defendant's liberty." United States v. Brown,

235 F.3d 2, 7 (1st Cir. 2000). We are convinced that the record

here, "viewed as a whole, limns an adequate relationship between

the nature and circumstances of the offense, the demonstrated

propensities of the offender, and the special condition attached to

the offender's release." Id. No more is necessary.

b. Legitimate sentencing purposes furthered

Thomas also argues that the requirement that he file tax

returns for the years 1997-2003 serves no identifiable deterrent

interest because he cannot be prosecuted for this omission due to

the offense's six-year statute of limitations. See 26 U.S.C. §

6531(4). True, Thomas's guilty plea and the plea agreement in this

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case bar any further criminal punishment for tax years 1995–2001.

See U.S. Const. amend. V. However, we cannot agree with Thomas's

conclusion that the lack of "further criminal liability or

punishment" precludes any legitimate sentencing purpose in imposing

a filing requirement for the years 1997-2003. The deterrent effect

envisioned by Congress is both specific and general; that is, the

conditions imposed may seek to deter either the individual

defendant against whom they apply or all prospective offenders – in

this case, tax scofflaws. See generally 18 U.S.C. § 3583(c)

(pointing to general and specific deterrence as factors that a

court "shall consider" in imposing conditions of supervised

release). It may be preferable to accomplish both objectives

simultaneously, but it is not obligatory. In any case, we find the

requirement that Thomas file his delinquent returns to be

consistent with the applicable statutes. See id. §§ 3553(a)(2),

3583(d); see also U.S.S.G. § 5D1.3(b).

c. Not overly burdensome

Finally, Thomas asserts that the district court abused

its discretion in requiring him to file delinquent tax returns for

the years prior to 2006 because other, less burdensome conditions

were available. He contends that his continued obligation to

provide all financial information to his probation officer while on

supervised release is one such condition. He claims that this duty

ensures that a probation officer can monitor both his assets and

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his compliance with his financial obligations. According to

Thomas, this obligation leaves the issue of his civil tax liability

to the "normal channels" of tax assessment and collection practices

without causing any undue burden on him. He also believes that the

condition that he not violate any federal, state, or local law

precludes him from engaging in any future acts of tax evasion,

including the evasion of payment, rendering this condition

unnecessarily duplicative. Of course, this argument proves too

much. To the extent the conditions are duplicative, they impose no

additional burden. And to the extent, if any, they do impose an

extra burden, that burden is necessary to ensure that Thomas

finally pays the taxes he evaded.

Moreover, contrary to Thomas's implication, the

challenged condition does not frustrate future policy decisions

relating to the assessment and collection of taxes, which are

properly left to the IRS. This conclusion is buttressed by the

fact that the district court did not dictate the amount Thomas owed

or set up a payment plan, which remain issues to be resolved

between Thomas and the IRS. The court did not co-opt or supersede

an administrative proceeding; it simply ordered Thomas to comply

with any future administrative determinations. Furthermore,

although the government does not consider it likely that Thomas

will evade taxes in the future, the record is replete with evidence

supporting the district court's determination that this condition

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adequately addresses the varying considerations – of which specific

deterrence is only one – that inform the propriety of supervised

release conditions. See supra Part II.B.2.b.5 There was no abuse

of discretion.

3. Satisfaction of delinquent tax liability

The second condition of supervised release that Thomas

challenges requires him to "satisfy his tax liability to the IRS

and comply with any tax repayment schedule established by the IRS."

On appeal, Thomas argues that this requirement actually constitutes

an order to pay restitution instead of a condition of supervised

release, and that the district court thus did not have the

authority to impose the condition for years other than 2001 - the

5
Among other things, the record contains evidence that Thomas
did not pay his taxes for twelve years; that he took affirmative
steps to conceal his income, such as deliberately failing to
deposit all of his business payments, setting up a shell
corporation in Nevada, and withdrawing large amounts of cash from
his business operating account; and that he engaged in a lengthy
procedural battle before the courts in which he advanced a variety
of frivolous claims, including claims that the IRS had violated its
own regulations and acted beyond its authority, and that he was not
subject to federal tax laws. As explained above, this is more than
enough to support the district court’s decision to impose these
conditions.

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evasion count for which he pled guilty.6 For reasons we explain

shortly, this argument is unavailing.

Thomas has already satisfied a $15,082.97 restitution

order relating to his 2001 offense imposed by the district court.

But this order was separate from the condition of supervised

release imposing an obligation to pay back taxes. As we have

already said, it is settled that district courts may order

defendants to pay back taxes as a condition of supervised release.

See, e.g., Miller, 557 F.3d at 921-22 (collecting cases).

Requiring Thomas to fulfill his statutory obligation to pay taxes

is not tantamount to "restitution." Restitution is, essentially,

compensation for losses suffered as a result of a crime. Black's

Law Dictionary 1428 (9th ed. 2009); see also Hughey v. United

States, 495 U.S. 411, 416 (1990) ("[T]he ordinary meaning of

'restitution' is restoring someone to a position he occupied before

a particular event . . . ."); Charter Commc’ns Entertainment I, DST

v. Burdulis, 460 F.3d 168, 182-83 (1st Cir. 2006) (explaining that

one meaning of "restitution" refers to the "recover[y] from the

defendants for all the damage they caused as a result of their

6
In support of this argument, Thomas relies on Hughey v.
United States, 495 U.S. 411 (1990), for the proposition that
restitution may only be ordered "for the loss caused by the
specific conduct that is the basis of the offense of conviction."
Id. at 413. This reliance is misplaced. In Hughey, the Supreme
Court only addressed restitution, which, as we explain below, is
distinct from the payment of an outstanding financial obligation.

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[illegal act]"); Chernin v. United States, 149 F.3d 805, 816 (8th

Cir. 1998) ("Black's Law Dictionary . . . defines restitution to

mean the act [of] making good or giving an equivalent for or

restoring something to the rightful owner.")(alteration and

internal quotation marks omitted). The district court was not

ordering Thomas to compensate the government for a loss suffered as

a result of his criminal actions, though this is a salutary side-

effect of its order. As Thomas himself repeatedly notes with

apparent concern, the district court did not specify the amount

that Thomas was to pay to the government. The court did not

determine the exact amount he owed because it was ordering him to

fulfill a duty, not to compensate the government.7 Indeed, as for

all law-abiding taxpayers, Thomas's statutory obligation to file

returns and pay taxes is completely independent of his guilty plea

in this case.

Lastly, we emphasize that the requirement that Thomas

actually pay the taxes he evaded is reasonably related to his crime

of tax evasion. See Miller, 557 F.3d at 921. In addition to the

deterrent effect which we discussed above, the payments ordered by

the district court will prevent Thomas from deriving any benefit

from his past tax evasion and will protect the public fisc. The

district court's decision to order Thomas to comply with the

7
Thomas's counsel appears to have admitted this point at the
sentencing hearing, saying that paying back taxes is "not paying
restitution, because he's done that."

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Internal Revenue Code's requirement that he pay his taxes was

commensurate with his offense, did not constitute restitution, was

not unjustly burdensome, and was therefore not an abuse of

discretion. Accordingly, we decline to disturb the challenged

condition of supervised release.

III. Conclusion

For the reasons set forth we affirm Thomas's sentence.

SO ORDERED.

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