United States v. Hoskins

FILED
United States Court of Appeals
Tenth Circuit

August 12, 2011
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellee,
v. No. 10-4131
JODI HOSKINS,

Defendant-Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. NO. 08-CR-277-DB-2)

W. Andrew McCullough, McCullough & Associates, LLC, Midvale, Utah, 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, District of Columbia, 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 1 failed to pay taxes for income

they earned from Companions, a Salt Lake City escort service. The government

contended the Hoskinses failed to account for more than one million dollars in

income the escorts generated in cash payments and credit card receipts. At

sentencing, the government’s tax loss was relevant to potential jail time and

restitution under United States Sentencing Guidelines (USSG) § 2T1.1.

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.

1
Roy Hoskins pleaded guilty and separately appeals his sentence. See
United States v. Hoskins, No. 10-4092 (10th Cir. 2010)

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 I. Background

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 books. Hoskins’s

name was on Companions’ bank account, and with her husband, she oversaw the

company’s finances. According to a Companions employee, Hoskins “controlled

everything and ran the business.” R., Vol. II at 377.

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

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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

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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.

II. Discussion

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, because she claims she signed the 2002 return without knowing

or understanding the need for and legal consequences of reporting understated

income.

We review sufficiency of the evidence de novo. United States v. Parker,

553 F.3d 1309, 1316 (10th Cir. 2009). Under due process principles, evidence is

sufficient to support a conviction if, viewing the evidence and all reasonable

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inferences therefrom in the light most favorable to the government, a rational trier

of fact could find guilt beyond a reasonable doubt. Id.; see also Jackson v.

Virginia, 443 U.S. 307, 319 (1979). “We will not weigh conflicting evidence or

second-guess the fact-finding decisions of the [district court].” United States v.

Summers, 414 F.3d 1287, 1293 (10th Cir. 2005).

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, 518 F.3d 832, 850 (10th Cir.

2008) (quotation omitted). Hoskins argues, first, that there was insufficient

evidence of her willful intent to commit tax evasion, and second, that signing the

2002 tax return did not constitute an affirmative act of evasion. We are not

persuaded by either argument.

1. Willfulness

Under § 7201, “willfulness” means the “voluntary, intentional violation of

a known legal duty.” Cheek v. United States, 498 U.S. 192, 201 (1991) (quotation

omitted). “[I]f the Government proves actual knowledge of the pertinent legal

duty, the prosecution, without more, has satisfied the knowledge component of

the willfulness requirement.” Id.at 202. Actual knowledge is a strict

requirement. “[C]arrying this burden requires [the government to] negat[e] a

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defendant’s claim of ignorance of the law or a claim that because of a

misunderstanding of the law, he had a good-faith belief that he was not violating

any of the provisions of the tax laws.” Id. at 202; see also United States v.

Chisum, 502 F.3d 1237, 1241 (10th Cir. 2007). Hoskins argues she had a good

faith belief she was not breaking the tax laws when she signed and submitted the

false 2002 return.

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 credit-card 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

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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 that she had been informed of her obligation to file Form 1099s for

the escorts’ income. This evidence together shows Hoskins knew of her legal

duty to file an accurate tax return, and negates an inference that she acted in good

faith in signing and filing the return.

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

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Boulware v. United States, 552 U.S. 421, 424 n.2 (2008) (requiring “an

affirmative act constituting an evasion or attempted evasion of the tax” (emphasis

added)); Sansone v. United States, 380 U.S. 343, 351–52 (1965) (“[I]t is

undisputed that petitioner filed a tax return and that the petitioner’s filing of a

false tax return constituted a sufficient affirmative commission to satisfy that

requirement of § 7201.”); United States v. Gonzales, 58 F.3d 506, 509 (10th Cir.

1995) (explaining that “signing and filing . . . a false” document with the IRS is a

classic affirmative act of evasion); Wainwright v. United States, 448 F.2d 984,

986 (10th Cir. 1971) (“[W]henever the facts appear beyond a reasonable doubt

from the evidence in the case that the accused ha[s] signed his tax return, a jury

may draw the inference and find that the accused had knowledge of the contents

of the return.”). By knowingly signing the 2002 tax return, Hoskins took

responsibility for its inaccurate contents, and thus she cannot now escape criminal

liability.

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.

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Second, she asserts the court erroneously included commissions and tips kept by

escorts as part of Companions’ 2002 gross receipts. 2 Neither point is persuasive.

“[W]hen reviewing a district court’s application of the Sentencing

Guidelines, we review legal questions de novo and we review any factual findings

for clear error, giving due deference to the district court’s application of the

guidelines to the facts.” United States v. Chavez-Diaz, 444 F.3d 1223, 1225 (10th

Cir. 2006) (quotation omitted).

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. 3

2
Hoskins also argues that because she did not own Companions, she had
no obligation to pay its taxes. Thus, she says, by signing the inaccurate tax
return, she caused a tax loss of only $5,439.50—the tax break she received by
filing jointly with Roy Hoskins, rather than individually. We need not address
this argument here, given that once the district court established the § 7201
factors and convicted Hoskins, the question of tax loss addresses how much the
government lost as a result of the inaccurate tax return. When Hoskins signed the
2002 tax return, she took responsibility for its contents. Moreover, we note that
Hoskins was charged with attempting to evade Roy Hoskins’s taxes—an
allegation that takes into account the fact that she did not own Companions—and
further that Hoskins did not file a separate, individual return for tax year 2002.
3
In a criminal tax case, a defendant’s base offense level under the USSG is
16 (27 to 33 months, assuming a criminal history category of III) if the tax loss
(continued...)

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 We may overturn the district court’s tax-loss calculation only if it was

clearly erroneous. See United States v. Spencer, 178 F.3d 1365, 1367 (10th Cir.

1999). Under this deferential standard, “for us to disturb the district court’s

factual finding as clearly erroneous, we would have to conclude the finding lacks

factual support in the record, or, after reviewing all the evidence, we would need

the definite and firm conviction that a mistake has been made.” United States v.

Martinez, 512 F.3d 1268, 1276 (10th Cir. 2008) (quotations omitted). We defer

to interpretations of the Guidelines by the Sentencing Commission as important

instructions from an authoritative source. See United States v. Wise, 597 F.3d

1141, 1148 n.6 (10th Cir. 2010) (“Commentary interpreting the sentencing

guidelines is binding on the federal courts unless it violates the Constitution or a

federal statute, or is inconsistent with the guideline it interprets.”) (quotation

omitted).

The USSG defines “tax loss” for the purpose of sentencing defendants

convicted under § 7201:

If the offense involved tax evasion or a fraudulent or false return,
statement, or other document, 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).

3
(...continued)
was between $80,000 and $200,000, 18 (33 to 41 months) if it was between
$200,000 and $400,000, and 20 if it was between $400,000 and $1 million (41 to
51 months). USSG §§ 2T4.1(F)–(H).

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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, 255 F.3d 1256, 1263 (10th Cir.

2001) (quotation omitted). In other words, the Guidelines establish a simple-to-

calculate presumptive tax loss linked to gross income and a set tax rate; this

presumptive amount will be applied unless a more accurate determination can be

made by the court.

The question remains: what evidence can be marshaled to demonstrate a

“more accurate determination of the tax loss”? 4 USSG § 2T1.1(c)(1), Note (A).

Here, 28% of Hoskins’s more than $1.2 million of unreported gross income was

approximately $336,000, but both parties proposed more accurate determinations

of the tax loss. The government introduced evidence showing that Hoskins’s tax

4
We address the issue because the government argues the district court
erred in considering Hoskins’s unclaimed deductions. Conversely, Hoskins
contends the court erred in rejecting her proffered evidence of additional
deductions. Thus, both parties contest some aspect of the district court’s
judgment on this score. It is well within our proper judicial role to vindicate a
district court’s judgment as written.

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evasion resulted in an actual tax loss of $485,443. 5 It arrived at this number by

estimating that cash receipts were equal to credit-card receipts, and then

accounting only for the deductions included on the 2002 return filed by the

Hoskinses. This estimate was supported by testimony from Companions’

employees and governmental agents.

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, 6 was premised on

Hoskins’s estimation that more than 60% of Companions’ gross receipts,

including those from unreported cash, were deductible commission payments

given to the escorts. The district court appropriately considered, but ultimately

rejected, Hoskins’s claim that her gross income should be adjusted downward.

Before the district court and on appeal, the government objects to the use of

unclaimed deductions for purposes of the tax-loss calculation. It points to dicta

from our decision in United States v. Spencer, 178 F.3d at 1368, where we

5
The difference between the $336,000 and $485,443 figures is
consequential, because if the district court used the lower figure, Hoskins’s base
offense level would have been 18. Since the court credited the government’s
evidence, however, her base offense level was 20.
6
Hoskins sets forth this amount in her briefs before us. She proposed a
different amount—$179,466—in her written objections to the PSR. The record
and briefs do not reveal the source of the discrepancy. But it is ultimately of no
consequence, given that any tax loss between $80,000 and $200,000 has the same
effect under the USSG.

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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. 7 Ultimately, however, we were persuaded that the

defendant failed to establish an entitlement to any of the unclaimed deductions. 8

7
Spencer’s logic has been adopted by a number of other circuits. See, e.g.,
United States v. Yip, 592 F.3d 1035, 1041 (9th Cir. 2010); United States v.
Clarke, 562 F.3d 1158, 1164 (11th Cir. 2009); United States v. Delfino, 510 F.3d
468, 473 (4th Cir. 2007); United States v. Phelps, 478 F.3d 680, 682 (5th Cir.
2007); United States v. Chavin, 316 F.3d 666, 679 (7th Cir. 2002); United States
v. Sherman, 372 F. App’x 668, 676–77 (8th Cir. 2010); see also United States v.
Blevins, 542 F.3d 1200, 1203 (8th Cir. 2008) (declining to decide “whether an
unclaimed tax benefit may ever offset tax loss” but finding the district court
properly declined to reduce tax loss based on taxpayers’ unclaimed deductions
(emphasis added)). But see United States v. Gordon, 291 F.3d 181, 187 (2d Cir.
2002) (“[T]he district court erred when it refused to consider any potential
unclaimed deductions in its sentencing analysis.”); Comment, Tax Loss
Calculation Under United States Sentencing Guidelines Section 2T1.1: Should
Courts Account for Legitimate But Unclaimed Deductions When Calculating a
Defendant’s Sentence?, 34 Sw. U. L. Rev. 527 (2005) (discussing merits of
allowing consideration of legitimate unclaimed deductions).
8
Even though we discussed in Spencer whether district courts may account
for unclaimed deductions when calculating tax loss, we ultimately rejected the
defendant’s tax-loss estimate because it was not supported by a “scintilla of
(continued...)

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We therefore did not hold squarely that unclaimed deductions can never be

considered by the district court.

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, 316 F.3d 666, 677 (7th Cir. 2002). Interpreting this

language, some other circuits have held § 2T1.1’s language requires courts to

calculate only the tax loss the defendant intended when he or she filed the

fraudulent return—and not the actual tax loss suffered by the government. See,

e.g., id. (explaining that “object of the offense” means “the attempted or intended

loss rather than the actual loss to the government”); United States v. Delfino, 510

F.3d 468, 473 (4th Cir. 2007) (holding “tax loss” refers to the “intended loss to

8
(...continued)
competent evidence.” 178 F.3d at 1369. We explained the defendant’s “post hoc
self-serving characterization” of the purported deductions was insufficient. Id.
Thus, Hoskins is correct that Spencer did not prevent the district court from
accepting a tax-loss estimate that accounted for unclaimed deductions. At oral
argument, the government conceded the language in Spencer was dicta, but it
nevertheless asks us to adopt Spencer’s reasoning.

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the Government”). These circuits take this logic a step further and conclude that

the concept of intended tax loss categorically does not allow for consideration of

unclaimed deductions. We disagree.

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, 592

F.3d 1035, 1041 (9th Cir. 2010). But where defendant offers convincing

proof—where the court’s exercise is neither nebulous nor complex—nothing in

the Guidelines prohibits a sentencing court from considering evidence of

unclaimed deductions in analyzing a defendant’s estimate of the tax loss suffered

by the government. 9 Indeed, a defendant (as well as the government, as happened

9
We must emphasize, however, that § 2T1.1 does not permit a defendant
to benefit from deductions unrelated to the offense at issue. For example, in this
case, the district court would have been permitted to consider Hoskins’s evidence
of commission payments to escorts, but the Guidelines would not allow her to
account for unclaimed deductions for peripheral expenditures unrelated to
Companions. See Yip, 592 F.3d at 1040 (“[D]eductions are not permissible if
they are unintentionally created or are unrelated to the tax violation, because such
deductions are not part of the ‘object of the offense’ or intended loss.”). Thus,
unclaimed deductions for student loan interest or solar energy credits, for
example, are not considered because they do not relate to the “object of the
(continued...)

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here) may be able to persuade a court that a revised calculation more accurately

states the underlying tax loss that should be applicable to a defendant’s conduct.

In those cases, a court may exercise its discretion to consider additional evidence

that could guide its findings on the losses to the government relevant to

sentencing. 10

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 cash-only 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

9
(...continued)
offense” and are not relevant to restitution or guideline calculations for
sentencing purposes.
10
The Application Notes to § 2T1.1 provide further support. They require
“tax loss” to be “determined by the same rules applicable in determining any
other sentencing factor.” USSG § 2T1.1, Application Note 1. Accordingly, in
circumstances where the “amount of tax loss may be uncertain,” a court may
“simply make a reasonable estimate based on the available facts.” Id. (emphasis
added). Moreover, in “determining the tax loss attributable to the offense, the
court should use as many methods set forth in subsection (c) and this commentary
as are necessary given the circumstances of the particular case.” Id.

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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, 291 F.3d 181, 187 (2d Cir. 2002)

(“Tax loss under § 2T1.1 is intended to reflect the revenue loss to the government

from the defendant’s behavior.”); USSG § 2T1.1 Application Notes (“[A] greater

tax loss is obviously more harmful to the treasury . . . .”). Indeed, the

government cannot claim to have lost revenue it never would have collected had

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the defendant not evaded his taxes. For the purposes of calculating sentencing

and restitution, courts consider “the loss that would have resulted had the offense

been successfully completed.” USSG § 2T1.1. Had our hypothetical defendant’s

offense been completed successfully, he would have avoided $6,000 in taxes, and

the government would have suffered a $6,000 tax loss. The government would of

course be permitted to present evidence showing that it in fact suffered a greater

tax loss. Under § 2T1.1, it is firmly within the court’s discretion to decide which

party is correct. But the Guidelines do not require courts to base their sentencing

analysis on unadjusted gross receipts figures untethered to actual taxes to which

the government was entitled, but did not receive as a result of tax evasion.

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.

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 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, 996

F.2d 919, 920 (7th Cir. 1993). When the Sentencing Commission amended the

Guidelines in 1993, however, it deleted its rule explicitly foreclosing

consideration of unclaimed offsetting adjustments. Accordingly, as the Second

Circuit has explained, “[b]ecause the [Amended] Guideline permits consideration

of legitimate but unclaimed deductions, it tends to produce smaller figures than

the 1991 guidelines,” which does not permit such consideration. United States v.

Martinez-Rios, 143 F.3d 662, 671 (2d Cir. 1998) (“In contrast [to the 1991

Guidelines], the 1995 Guidelines . . . do not foreclose consideration of legitimate

but unclaimed deductions.”). Finally, it is worth noting that if the Commission

intended a categorical ban on unclaimed deductions, it chose odd language to

accomplish that task.

-20-
 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 only

less than half of their gross receipts. Hoskins gave the court no good reason to

retroactively credit other unclaimed deductions. Indeed, the projected deductions

Hoskins proposed were based on marginally relevant information tied to a two-

month period in 2007 and 2008. The record contains no evidence suggesting the

-21-
2007–2008 period was closely representative of the situation in 2002, or that the

two-month period was chosen randomly. In addition, the proposed return was self

serving, given that Jodi and Roy Hoskins personally supplied the data their

accountant used to make their tax-loss estimate. Finally, because not all the

sources supporting the proposed return were in the record and, in any event, did

not specify individual 2002 transactions, it was impossible for the court or the

government to independently verify the proposed figures.

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.

-22-
 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

-23-
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, 556

F.3d 1113, 1128 (10th Cir. 2009). Under plain error review, we may not reverse

unless we find “(1) error, (2) that is plain, and (3) that affects substantial rights.

If all three conditions are met, [we] may then exercise [] discretion to notice a

forfeited error, but only if (4) the error seriously affects the fairness, integrity, or

public reputation of the judicial proceedings.” United States v. Balderama-Iribe,

490 F.3d 1199, 1203–04 (10th Cir. 2007) (quotation omitted). Hoskins bears the

burden of demonstrating plain error. Id.

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, 73 F.3d 1040,

1042 (10th Cir. 1996) (quotations omitted). Given this expansive definition, we

have no reason to doubt the district court’s conclusion that commission payments

to escorts were part of Companions’ gross income—regardless of the arrangement

-24-
the company had with its escorts. Of course, Hoskins could have claimed

deductions for cash commission payments to escorts, but as explained above, the

district court did not err in refusing to account for her proposed unclaimed

deductions in calculating the government’s tax loss. Moreover, it is telling that

Hoskins cites no authority stating that commissions that are collected and kept by

a business’s agents do not constitute gross income to the business. See United

States v. Baum, 555 F.3d 1129, 1136 (10th Cir. 2009) (“When no authority from

the Supreme Court or this circuit would compel a determination that there was

error and there is contrary authority in other circuits, the error can rarely be

plain.”)

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. 11 See 26 U.S.C. § 3121(q) (“[T]ips received by an

employee in the course of his employment shall be considered remuneration for

such employment.”); see also id. § 3121(12) (tips are considered part of an

employee’s wages and not a company’s income). Accordingly, because tips are

not income, any portion of Companions’ unreported receipts derived from tips

should not have been included in the company’s total gross income.

11
We note, however, that Companions was required to withhold employee
income and Social Security tax from tip income reported, and it was required to
pay payroll taxes on its escorts’ tip income. See 26 U.S.C. §§ 3121(a) and 6053.

-25-
 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 estimate of gross income from cash

transactions. Further, as the government notes, the record does not indicate

whether tips constituted a sufficiently large portion of Companions’ unclaimed

income such that the tax loss would be pushed below $400,000—a threshold

figure under the Guidelines. We simply do not know. And because of that—and

because the government had no impetus to develop the record on this point before

the district court—we cannot say the district court plainly erred in accepting the

government’s tax-loss calculation.

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

-26-
the proceeding would have been different.” United States v. Mendoza, 543 F.3d

1186, 1194 (10th Cir. 2008). Hoskins’s sentencing range under the Guidelines

was 51 to 63 months. Even if the court had calculated her tax loss to be less than

$200,000, however, Hoskins’s sentencing range would have been 33 to 41

months. Because the court’s sentence of 36 months was within this lower range,

we find no prejudice.

In sum, Hoskins has not satisfied any of the prongs of plain error review.

C. Sentencing

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.],

-27-
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.

IV. Conclusion

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.

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10-4131, United States v. Jodi Hoskins

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). We are not called upon

in this case to reach this issue and, as a consequence, I would not reach it.

Further, if required to reach it, I would side with our own prior precedent and the

vast majority of our sister circuits who have addressed the issue.

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. 1 The majority then discusses the hypothetical case in which a defendant

1
The majority addresses the issue because the government argues that the
district court erred in considering Hoskins’s unclaimed deductions. See Op. at 12
n.4. The fact that a party raises an alternative argument does not mean we are
bound to address it. In this case, the government argued both that a defendant
cannot point to unclaimed deductions and that “even if it were legally possible,
under some circumstances, for a criminal defendant to take advantage of
hypothetical, unclaimed deductions at sentencing, the district court in this case
(continued...)
somehow offers “convincing proof” of the tax return she would have filed had she

known that she would later be caught and prosecuted for tax evasion. See Op. at

16. Because the answer to the more abstract question presented “makes no

difference to the outcome of the case before us . . . we need not and [should] not

decide it.” Valley Forge Ins. Co. v. Health Care Mgmt. Partners, Ltd., 616 F.3d

1086, 1095 (10th Cir. 2010). “Judicial restraint, after all, usually means

answering only the questions we must, not those we can.” Id. at 1094. However,

because the majority chooses to discuss it, I write to express my disagreement

with a rule that will, in my view, greatly and improperly complicate sentencing in

tax cases. I would adhere to our prior statements in United States v. Spencer, 178

F.3d 1365 (10th Cir. 1999), and reiterate that a defendant may not attempt to

adjust the amount of the tax loss by proposing deductions that she did not actually

claim at the time the fraudulent tax return was filed.

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

1
(...continued)
did not err—much less clearly err—when it evaluated the evidence and found that
Hoskins’s tax loss was more than $400,000.” Aple. Br. at 15; see also Aple. Br.
at 20-23.

-2-
tax loss,” but “[w]e question[ed] this conclusion.” Id. at 1368 (quoting United

States v. Martinez-Rios, 143 F.3d 662, 671 (2d Cir. 1998)). We then specifically

rejected the interpretation of the phrase “a more accurate determination of the tax

loss” which is now adopted by the majority:

The sentencing guidelines simply authorize a court to avoid the
presumptive tax rates if a “more accurate determination of the tax
loss can be made.” We do not interpret [U.S.S.G § 2T1.1(c) Note
(A)] as giving taxpayers a second opportunity to claim deductions
after having been convicted of tax fraud. It must be remembered
that, in tax loss calculations under the sentencing guidelines, we are
not computing an individual’s tax liability as is done in a traditional
audit. Rather, we are merely assessing the tax loss resulting from the
manner in which the defendant chose to complete his income tax
returns.

Id. (citation omitted). Although this statement was an alternative basis upon

which to affirm the district court’s ruling because there was no evidence to

support the defendant’s proposed deductions, id. at 1369, the statement is a clear

rejection of the rule the majority now advances. 2 “Alternative rationales such as

2
The majority relies on the government’s concession at oral argument in
Roy Hoskins’s case. See Op. at 15 n.8 (discussing the government’s concession
that the language in Spencer was dicta). First, I note that a party’s interpretation
of our prior rulings is not determinative. Cf. U.S. Nat’l Bank of Or. v. Indep. Ins.
Agents of Am., Inc., 508 U.S. 439, 447 (1993) (“[T]he Court of Appeals acted
without any impropriety in refusing to accept what in effect was a stipulation on a
question of law.”); United States v. Charles, 576 F.3d 1060, 1066 (10th Cir. 2009)
(“[T]he government’s concession is not dispositive because a party’s position in a
case . . . does not dictate the meaning of a federal law.” (internal quotation
omitted)). Second, I think the majority misstates the government’s position. The
government in its brief repeatedly cites Spencer and treats our rejection of the
very tax-loss argument Hoskins is now making, not as dictum, but as a holding of
(continued...)

-3-
this, providing as they do further grounds for the Court’s disposition, ordinarily

cannot be written off as dicta.” Surefoot LC v. Sure Foot Corp., 531 F.3d 1236,

1243 (10th Cir. 2008).

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 18, 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. § 2T.1.1(c)(5). Surely if § 2T1.1 tax loss cannot be reduced

2
(...continued)
the case. See Aple. Br. at 8, 16 (“In United States v. Spencer, this Court
expressly rejected the argument Hoksins now makes.”), 17 (“Hoskins attempts to
escape Spencer’s holding . . . .”), 17-18 (“Spencer holds that ‘the total amount
that was the object of the offense’ must be calculated based on what the defendant
. . . actually did, not what they could have done or might have done.”), 18
(“[T]his Court’s holding in Spencer was not limited to its statement that there was
no ‘competent evidence’ in the record that would allow a ‘more accurate
determination of the tax loss to be made.’”).

-4-
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,

592 F.3d 1035, 1041 (9th Cir. 2010) (“We hold that § 2T1.1 does not entitle a

defendant to reduce the tax loss charged to him by the amount of potentially

legitimate, but unclaimed, deductions even if those deductions are related to the

offense.”); United States v. Phelps, 478 F.3d 680, 682 (5th Cir. 2007) (per

curiam) (holding that the defendant could not reduce the tax loss by taking a

social security tax deduction that he did not claim on the false return); United

States v. Delfino, 510 F.3d 468, 473 (4th Cir. 2007) (“The law simply does not

require the district court to engage in [speculation as to what deductions would

have been allowed], nor does it entitle the Delfinos to the benefit of deductions

they might have claimed now that they stand convicted of tax evasion.”); United

States v. Chavin, 316 F.3d 666, 678 (7th Cir. 2002) (holding that the definition of

tax loss “excludes consideration of unclaimed deductions”); see also United

States v. Clarke, 562 F.3d 1158, 1164 (11th Cir. 2009) (holding that the defendant

was not entitled to have the tax loss calculated based on a filing status other than

the one he actually used and that “[t]he district court did not err in computing the

tax loss based on the fraudulent return Clarke actually filed, and not on the tax

return Clarke could have filed but did not”).

-5-
 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. 3 Thus, the unclaimed deductions were not part of “the manner in which

the defendant chose to complete [her] tax returns.” Spencer, 178 F.3d at 1368;

see also Chavin, 316 F.3d at 678 (“[T]he defendants’ intention is embodied in the

tax return that was filed with the IRS.”). When affirming Hoskins’s conviction

for tax evasion in violation of 26 U.S.C. § 7201, the majority concludes that

Hoskins’s signature on the false return was the affirmative act of tax evasion for

which “she cannot now escape criminal liability.” Op. at 9. However, when

reviewing the sentence imposed for this criminal act, the majority shifts gears and

permits an after-the-fact “do over,” by concluding we should consider for

sentencing purposes a hypothetical tax return that did not serve as the basis for

3
Further, the majority’s approach would permit a defendant to claim
deductions to which she is no longer entitled because the time period for
amending her tax return has expired. The majority states that Hoskins offered
hypothetical tax returns in this case because “it was too late to submit amended
returns to the IRS.” Op. at 2. It was too late because the Hoskinses did not
choose to file timely amended or truthful returns.

-6-
her criminal conviction. The majority’s new rule would allow a defendant to

escape the full consequences of the return the defendant chose to file.

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.”

-7-
The gross income-based calculation was an alternative method of calculating tax

loss. The application notes to this previous version of §2T1.1 stated: “The

guideline refers to § 2T1.3 to provide an alternative minimum standard for the tax

loss, which is based on 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.”

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

20. 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

-8-
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 16 n.9. I fail to see why it

should matter whether the unclaimed deductions are related to the offense or not. 4

In fact, it might make more sense to permit unrelated deductions precisely

because they are unrelated to the offense and, thus, not part of the tax evasion

scheme to be addressed at sentencing. Cf. Clark v. United States, 211 F.2d 100,

103 (8th Cir. 1954) (“Some times the failure to claim deductions in a return may

well be part of the taxpayer’s scheme to cover up his unreported income as a

matter of not creating suspicion on the face of his return.”). Once a district court

begins entertaining hypothetical unclaimed deductions, it must inevitably attempt

4
Further, if the offense is willfully filing a false tax return, I fail to see
how some unclaimed deductions would be related to the offense and some
deductions would not be. All the deductions relate to the tax return.

-9-
to calculate the government’s actual revenue loss. Why stop at unclaimed

deductions relating to the specific offense? If the goal is to determine what an

honest, tax-minimizing taxpayer would have done to determine what tax was

legally owed (which becomes the goal when the court entertains unclaimed

deductions), I would think that courts would be compelled to consider all possible

exemptions, deductions and tax credits.

For these reasons, I cannot join in the portion of the majority’s opinion

that permits defendants to proffer unclaimed deductions in order to reduce tax

loss under U.S.S.G. § 2T1.1.

-10-