In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13‐3908
UNITED STATES OF AMERICA,
Plaintiff‐Appellee,
v.
REX BLACK,
Defendant‐Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 06 CR 00219 — James F. Holderman, Judge.
____________________
ARGUED FEBRUARY 11, 2015 — DECIDED AUGUST 17, 2015
AMENDED MARCH 7, 2016*
____________________
Before FLAUM, WILLIAMS, and HAMILTON, Circuit Judges.
* The opinion in this case was originally published on August 17,
2015. Thereafter, the government filed a petition for rehearing. The panel
grants the petition, and this revised opinion is substituted for the opinion
published on August 17, 2015.
2 No. 13‐3908
WILLIAMS, Circuit Judge. Rex Black repeatedly tried to pay
off a more than $5 million tax debt with checks drawn on
checking accounts that he knew were closed to prevent the
Internal Revenue Service (“IRS”) from collecting taxes from
him. A jury convicted Black of one count of obstructing and
impeding the IRS from collecting taxes and four counts of
passing and presenting fictitious financial instruments with
intent to defraud. The district court sentenced Black to 71
months in prison. Black now appeals arguing that the dis‐
trict court erred in determining his sentencing range under
the United States Sentencing Guidelines (“U.S.S.G.”) § 2T1.1,
improperly calculating the tax loss by aggregating the face
value of the fraudulent checks. We agree, the district court
misinterpreted and misapplied the tax loss definition to the
facts of this case. Additionally, we conclude, contrary to
Black’s assertions, that penalties and interest may be includ‐
ed in the tax loss calculation, and the district court did not
err by failing to consider audit errors and apply available
deductions because Black could not establish that he was en‐
titled to any reduction in taxes owed. Therefore, we vacate
Black’s sentence and remand for resentencing.
I. BACKGROUND
In 2000, the IRS conducted an audit of Black’s income for
tax years 1997 and 1998 (the “2000 Audit”). After the IRS
completed the audit, it assessed approximately $3.89 million
in taxes, penalties, and interest (approximately $2.2 million
in taxes alone). Black did not pay the amount due, and addi‐
tional penalties and interest accrued.
Beginning in October 2002, the IRS filed a series of liens
on various properties owned by Black to secure payment of
Black’s tax debt. In response to each lien, Black submitted to
No. 13‐3908 3
the IRS a fraudulent check or registered bill of exchange1 to
extinguish the lien and satisfy his tax debt. For example, in
October 2002, the IRS filed the first lien to satisfy the tax debt
in the amount of $4,856,895.49. That same month, Black
submitted a check drawn on a closed account in the full
amount to the IRS. This pattern continued.
Between November 2002 and August 2003, the IRS filed
liens for $1,467,168.33, $1,417,804.18, and $4,954,049.40, and
Black sent the IRS a fraudulent check or bill of exchange in
the lien amount. At some point, the IRS assessed $505,993.68
for additional penalties and interest, and Black sent the IRS a
bad check for that amount too.
The government charged Black with one count under 26
U.S.C. § 7212(a) for corruptly obstructing and impeding the
IRS in its collection of taxes, penalties, and interest (Count 1)
and three counts under 18 U.S.C. § 514(a)(3) for passing or
presenting the United States with fictitious instruments ap‐
pearing to be financial instruments with the intent to de‐
fraud (Counts 2, 4–5). Count 3 is not relevant to the appeal.
The jury found Black guilty of all counts.
Before Black’s sentencing hearing, the district court is‐
sued an order resolving issues related to Black’s sentencing
guideline range. First, it grouped Counts 1, 2, 4, and 5 for
guideline purposes (collectively, the “group 1 offenses”).
Next, it determined that the applicable guideline provision
was U.S.S.G. § 2T1.1 and found that the offense level under
this guideline “is determined on the basis of Black’s intend‐
1 The fraudulent bills of exchange in this case are financial instru‐
ments that appear to draw on an account at the U.S. Department of
Treasury in Black’s name.
4 No. 13‐3908
ed amount of monetary loss to the IRS that was the object of
Black’s criminal conduct.” The district court also found that
the guidelines required him to aggregate the value of the
fraudulent documents, so it added the face value of each
check and bill of exchange Black submitted to the IRS. From
this calculation, the district court determined that the tax
loss was over $14 million. It recognized that this amount in‐
cluded the taxes, penalties, and interest Black owed. Using
the U.S.S.G. § 2T4.1 tax loss table that applies to § 2T1.1, the
district court determined that the tax loss applicable to
Black’s criminal conduct was more than $7 million but less
than $20 million, resulting in a base offense level of 26. Be‐
cause Black was also convicted of Count 3, the guidelines
required the district court to increase the offense level by one
point. The resulting base offense level was 27, which pro‐
vides for a sentencing range of 70 to 87 months. At the sen‐
tencing hearing, the district court considered the advisory
guidelines range along with the factors set forth in 18 U.S.C.
§ 3553 and sentenced Black to 71 months’ imprisonment.
II. ANALYSIS
On appeal, Black attacks the district court’s application of
U.S.S.G. § 2T1.1. Specifically, he argues that the district court
made three errors in calculating the amount of tax loss under
U.S.S.G. § 2T1.1: (1) aggregating the face value of the checks
and bills of exchange; (2) including penalties and interest;
and (3) failing to correct audit errors and apply available de‐
ductions. He concludes that these errors resulted in an incor‐
rect base offense level.
When reviewing a sentence, we must first check to see if
the district court committed a significant procedural error,
such as improperly calculating the guidelines range, treating
No. 13‐3908 5
the guidelines as mandatory, or selecting a sentence based
on clearly erroneous facts. United States v. Abbas, 560 F.3d
660, 666 (7th Cir. 2009) (quoting Gall v. United States, 552 U.S.
38, 51 (2007)). If we determine that no procedural errors oc‐
curred, we consider whether the sentence is substantively
reasonable. United States v. Garcia, 754 F.3d 460, 483 (7th Cir.
2014).
We review the sentencing court’s legal interpretation and
application of the sentencing guidelines de novo. United
States v. Jackson, 410 F.3d 939, 941 (7th Cir. 2005). We review
the district court’s tax loss calculation for clear error. United
States v. Williams‐Ogletree, 752 F.3d 658, 662 (7th Cir. 2014).
“To show clear error a defendant ‘must show that the district
court’s calculation was not only inaccurate but outside the
realm of permissible computations.’” Id. (quoting United
States v. Al‐Shahin, 474 F.3d 941, 950 (7th Cir. 2007)).
A. Definition and Application of Tax Loss
First, Black argues that the district court improperly cal‐
culated the tax loss amount by aggregating the amount of
each fraudulent check and bill of exchange that he attempted
to pass. The government argues that the guidelines required
the district court to aggregate the tax loss amount. We agree
with Black that the district court did not properly calculate
the tax loss amount. However, the error arose in the first in‐
stance from the district court’s interpretation and misappli‐
cation of the tax loss definition to the facts of this case, not
from any aggregation principle.
The district court determined that the tax loss amount
was more than $7 million but less than $20 million, based on
an intended loss amount of over $14 million, which is the
6 No. 13‐3908
cumulative amount of each fraudulent check and bill of ex‐
change Black attempted to pass. This tax loss figure resulted
in a base offense level of 26. To arrive at this figure, the dis‐
trict court determined that § 2T1.1(c)(1) provided the appli‐
cable definition of tax loss. This guideline states:
If the offense involved tax evasion or a fraudu‐
lent or false return, statement or other docu‐
ment, 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).
U.S.S.G. § 2T1.1(c)(1) (2013). But using this tax loss defini‐
tion, the district court’s calculation was incorrect.
In this circuit, “[w]e take the phrase ‘the object of the of‐
fense’ to mean that the attempted or intended loss, rather
than the actual loss to the government, is the proper basis of
the tax‐loss figure.” United States v. Chavin, 316 F.3d 666, 677
(7th Cir. 2002). Here, the object of Black’s offense was the
amount of money that he attempted to avoid paying, which
is the actual amount of taxes, penalties, and interest that was
due. Black owed the IRS unpaid taxes for 1997 and 1998 plus
penalties and interest. The IRS filed a lien to satisfy the tax
debt in the amount of $4,856,895.49. Black wrote a bad check
in this amount. The IRS notified Black that he owed an addi‐
tional $505,993.68 in penalties and interest, and Black wrote
a bad check for this amount. At that point, Black owed the
IRS $5,362,889.17. Diligent in its collection efforts, the IRS
filed three additional liens for $1,467,168.33, $1,417,804.18,
and $4,954,049.40—all to collect the same $5.3 million Black
owed. Black responded by writing two bad checks and two
fraudulent bills of exchange to satisfy the tax liens. The dis‐
No. 13‐3908 7
trict court added the face value of each fraudulent instru‐
ment submitted to the IRS to determine the tax loss was over
$14 million. Doing so was improper under § 2T1.1. From the
record, it appears that the tax loss was only approximately
$5.3 million.
Section 2T1.1 defines tax loss in various ways, as detailed
below.
For the purposes of this guideline –
(1) 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).
Notes:
(A) If the offense involved filing a tax re‐
turn in which gross income was underre‐
ported, the tax loss shall be treated as equal
to 28% of the unreported gross income (34%
if the taxpayer is a corporation) plus 100%
of any false credits claimed against tax, un‐
less a more accurate determination of the
tax loss can be made.
(B) If the offense involved improperly
claiming a deduction or an exemption, the
tax loss shall be treated as equal to 28% of
the amount of the improperly claimed de‐
duction or exemption (34% if the taxpayer
is a corporation) plus 100% of any false
credits claimed against tax, unless a more
8 No. 13‐3908
accurate determination of the tax loss can
be made.
…
(2) If the offense involved failure to file a tax
return, the tax loss is the amount of tax that the
taxpayer owed and did not pay.
Notes:
(A) If the offense involved failure to file a
tax return, the tax loss shall be treated as
equal to 20% of the gross income (25% if the
taxpayer is a corporation) less any tax
withheld or otherwise paid, unless a more
accurate determination of the tax loss can
be made.
…
(3) If the offense involved willful failure to pay
tax, the tax loss is the amount of tax that the
taxpayer owed and did not pay.
(4) If the offense involved improperly claiming
a refund to which the claimant was not enti‐
tled, the tax loss is the amount of the claimed
refund to which the claimant was not entitled.
U.S.S.G. § 2T1.1. When reading § 2T1.1’s definitions of tax
loss as a whole, we understand each definition of tax loss to
reflect the tax revenue that the government was owed but
did not receive due to a defendant’s criminal conduct. See
§ 2T1.1(c)(1)–(4); accord United States v. Gordon, 291 F.3d 181,
187 (2d Cir. 2002) (“Tax loss under § 2T1.1 is intended to re‐
No. 13‐3908 9
flect the revenue loss to the government from defendant’s
behavior.”).
The district court could have determined § 2B1.1, the
general fraud guideline, applied to Black’s convictions. Sec‐
tion 2B1.1 deals with “loss,” which we will refer to as “gen‐
eral loss,” not “tax loss.” This section defines general loss in
the following ways.
(i) Actual Loss.—“Actual loss” means the rea‐
sonably foreseeable pecuniary harm that re‐
sulted from the offense.
(ii) Intended Loss.—“Intended loss” (I) means
the pecuniary harm that was intended to result
from the offense; and (II) includes intended pe‐
cuniary harm that would have been impossible
or unlikely to occur (e.g., as in a government
sting operation, or an insurance fraud in which
the claim exceeded the insured value).
U.S.S.G. § 2B1.1 cmt. n.3(A). Unlike the tax fraud guideline,
§ 2T1.1, the general fraud guideline, § 2B1.1, defines “in‐
tended loss” to include monetary “harm that would have
been impossible or unlikely to occur (e.g., … an insurance
fraud in which the claim exceeded the insured value).”
U.S.S.G. § 2B1.1 cmt. n.3(A)(ii).
Three of Black’s relevant convictions were under 18
U.S.C. § 514 for presenting the U.S. government with a check
or a bill of exchange with intent to defraud, and the guide‐
lines state that § 2B1.1 is applicable to convictions under 18
U.S.C. § 514. Under § 2B1.1, in a typical case involving pass‐
ing fraudulent checks, district courts routinely calculate a
general loss amount by adding the value of each check.
10 No. 13‐3908
Here, however, the district court did not choose to proceed
under § 2B1.1, which changed the parameters of its tax loss
calculation.
All parties agreed that § 2T1.1 was the appropriate guide‐
line in this case. (No party challenged the propriety of using
this guideline on appeal.) As a result, the district court pro‐
ceeded under § 2T1.1. This guideline required the district
court to calculate loss by the tax loss the IRS incurred or
could have incurred, not the general loss, which the general
fraud guideline defines as monetary harm that did result or
could have resulted from attempts to pass bad checks. Com‐
pare U.S.S.G. § 2T1.1(c)(1) (defining tax loss in various ways
corresponding to the amount of tax revenue the IRS was
owed and did not receive), with § 2B1.1 cmt. n.3 (defining
loss as the reasonably foreseeable pecuniary harm that re‐
sulted from the offense or “the pecuniary harm that was in‐
tended to result from the offense,” even if such harm would
have been impossible or unlikely to occur). By reviewing the
face value of the checks and aggregating these amounts, the
district court considered the general loss—the monetary
harm that the IRS could have faced—not the tax loss. As
stated above, tax loss reflects the tax revenue that the gov‐
ernment was owed but did not receive due to a defendant’s
criminal conduct. Therefore, under these facts, the tax loss
cannot exceed the $5.3 million that the evidence shows Black
owed the IRS.
B. Penalties and Interest Should Not Have Been In‐
cluded in the Tax Loss Calculation.
In its order, the district court stated “[t]he loss Black in‐
tended the IRS to suffer had Black’s offense been successful‐
ly completed included the loss of the penalties and interest
No. 13‐3908 11
Black owed the IRS, as well as the taxes he owed.” It includ‐
ed a footnote in its order that stated,
Even though Black’s criminal statute of convic‐
tion was 26 U.S.C. § 7212(a) not [§§] 7201 or
7203, the evidence at trial established beyond a
reasonable doubt that the object of Black’s
criminal conduct in committing the offenses …
was to defraud the IRS by willfully failing to
pay and willfully evading his payment of his
debt obligations to the IRS, which included the
penalties and interest, as well as the taxes that
Black owed to the IRS.
The district court included penalties and interest in the tax
loss calculation and did so because Black’s conduct was sim‐
ilar to conduct criminalized by § 7201 and § 7203.
Black argues that the tax loss calculation under U.S.S.G.
§ 2T1.1 should not include penalties and interest as part of
the tax loss calculation. He specifically argues that penalties
and interest should not be included in the tax loss calcula‐
tion because he was not charged or convicted of willful eva‐
sion under 26 U.S.C. § 7201 or willful failure to pay under
§ 7203.
The government argues that the issue of whether Black’s
tax loss calculation included penalties and interest is not
properly before the court because the district court based the
tax loss amount on the face value of the fraudulent checks,
not the amount of taxes Black owed. As stated above, the
face value of the checks was not the correct tax loss. Moreo‐
ver, the record establishes that the district court included
penalties and interest in its tax loss calculation.
12 No. 13‐3908
The general rule is that the tax loss calculation “does not
include interest or penalties.” U.S.S.G. § 2T1.1 cmt. n.1.
There is a narrow exception to this general rule for “willful
evasion of payment cases under 26 U.S.C. § 7201 and willful
failure to pay cases under 26 U.S.C. § 7203.” Id. To determine
whether penalties and interest should be included in the tax
loss calculation, we must determine to which types of cases
the exception applies.
Relying on U.S.S.G. § 1B1.3 cmt. n.6 and United States v.
Thomas, 635 F.3d 13 (1st Cir. 2011), the government argues
that U.S.S.G. § 2T1.1 cmt. n.1 does not limit the inclusion of
penalties and interest to defendants convicted of willful eva‐
sion of payment under § 7201 or willful failure to pay under
§ 7203. It further argues that penalties and interest should be
included in the tax loss calculation “in any case where de‐
fendant’s conduct—offense, relevant, or stipulated, as admit‐
ted in a plea agreement, proven at trial, or established by a
preponderance of the evidence at sentencing—constituted
willful evasion of payment, as defined by 26 U.S.C. § 7201, or
willful failure to pay, as defined by 26 U.S.C. § 7203.”
Application Note 6 to U.S.S.G. § 1B1.3 provides guidance
on how to interpret a section of the guidelines that, like
§ 2T1.1 cmt. n.1, directs that a principle be applied to con‐
duct in light of a specific statute. Specifically, it instructs:
A particular guideline (in the base offense level
or in a specific offense characteristic) may ex‐
pressly direct that a particular factor be applied
only if the defendant was convicted of a par‐
ticular statute. For example, in § 2S1.1 (Laun‐
dering of Monetary Instruments; Engaging in
Monetary Transactions in Property Derived
No. 13‐3908 13
from Unlawful Activity), subsection (b)(2)(B)
applies if the defendant “was convicted under
18 U.S.C. § 1956”. Unless such an express direc‐
tion is included, conviction under the statute is
not required. Thus, use of a statutory reference
to describe a particular set of circumstances
does not require a conviction under the refer‐
enced statute. An example of this usage is
found in §2 A3.4(a)(2) (“if the offense involved
conduct described in 18 U.S.C. § 2242”).
U.S.S.G. 1B1.3 cmt. n.6. Because U.S.S.G. § 2T1.1 cmt. n.1
does not expressly direct the court to exclude penalties and
interest if the defendant was convicted under 26 U.S.C.
§§ 7201 or 7203, a conviction under one of these statutes is
not required for the court to include penalties and interest.
While a conviction is not required, what makes a case a case
“under” 26 U.S.C. §§ 7201 and 7203?
In Thomas, the grand jury returned a six‐count indictment
against the defendant. Counts 1 and 2 charged the defendant
with willfully attempting to evade the payment of taxes, in
1995 and 1996, respectively, under 26 U.S.C. § 7201 and
Counts 3 through 6 charged the defendant with willfully at‐
tempting to evade the assessment of taxes also under 26
U.S.C. § 7201. Indictment, United States v. Thomas, No. 06 CR
00004, ECF No. 1 (D. Me. Jan. 11, 2006). The defendant
pleaded guilty to one count of willful attempt to evade as‐
sessment of taxes. Thomas, 635 F.3d at 16. The district court
included penalties and interest in the tax loss calculation
used to determine his offense level. Id. On appeal the de‐
fendant argued that the district court should not have in‐
cluded penalties and interest because he evaded assessment,
14 No. 13‐3908
not payment of the tax, and that note 1 to U.S.S.G. § 2T1.1
concerns only willful evasion of payment cases under § 7201.
Id. at 17. The First Circuit found that the fact the defendant
pleaded guilty only to willful evasion of the assessment of
taxes did not preclude the district court from considering as
relevant conduct actions the defendant took that were eva‐
sion of the payment of taxes. Id. Finding that the defendant
willfully evaded payment of taxes in 1995 and 1996 (Counts
1 and 2) in furtherance of his evasion of the assessment of
taxes, the First Circuit concluded that the district court
properly included penalties and interest. Id. at 17–18.
We find Thomas persuasive and conclude that the statuto‐
ry reference in U.S.S.G. § 2T1.1 n.1 does not require a charge
or conviction to be applicable to a defendant’s case. Admit‐
tedly, it is not clear whether the “cases under 26 U.S.C. §
7201 or § 7203” requires at least a charge, but the absence of
a statement in the guidelines asserting that the indictment
must contain a charge under either statute supports our in‐
terpretation. Moreover, the tax loss definition instructs the
court to look to the object of the offense. U.S.S.G.
§ 2T1.1(c)(1). If the object of the offense is to avoid the tax,
penalties, and interest, then penalties and interest should be
included in the tax loss. The district court found that the ev‐
idence established beyond a reasonable doubt that Black in‐
tended to defraud the IRS by willfully failing to pay and
willfully evading payment of the taxes he owed the IRS, a
conclusion Black does not challenge. Since the conduct was
tantamount to 26 U.S.C. § 7201 and § 7203 conduct, the dis‐
trict court may include penalties and interest in the tax loss
calculation.
No. 13‐3908 15
C. Black Failed to Meet His Burden to Establish He
Was Entitled to a Tax Loss Reduction Due to Audit Er‐
rors and Available Deductions.
Black also argues that the tax loss calculation was errone‐
ous because it was derived from the 2000 Audit which con‐
tained an overstatement of Black’s income and failed to cred‐
it Black for legitimate deductions. He further argues that it
was the government’s burden to prove the loss amount.
The district court determined that Black failed to follow
the appropriate procedures to appeal the IRS’s audit deter‐
mination and thus waived his right to assert unclaimed de‐
ductions, relying on Chavin, 316 F.3d at 677–78. It also de‐
termined that: (1) the deductions were unrelated to the tax
offenses of which the jury found Black guilty, and (2) Black’s
failure to cooperate with the IRS during the audit process
made it so that the accuracy of the deductions was not rea‐
sonably ascertainable at the time of Black’s sentencing.
In Chavin, we held that district courts should not consider
unclaimed, legitimate deductions when calculating tax loss
under § 2T1.1. 316 F.3d at 677–79. The U.S. Sentencing
Commission disagreed and issued an amendment to § 2T1.1
to “reflect the Commission’s view that consideration of legit‐
imate unclaimed credits, deductions, or objections, subject to
certain limitations and exclusions,” is proper. U.S.S.G. Man‐
ual app. C, amend. 774 at 41–42. The amendment states:
[T]he court should account for any unclaimed
credit, deduction, or exemption that is needed
to ensure a reasonable estimate of tax loss, but
only to the extent that (A) the credit, deduc‐
tion, or exemption was related to the tax of‐
16 No. 13‐3908
fense and could have been claimed at the time
the tax offense was committed; (B) the credit,
deduction, or exemption is reasonably and
practicably ascertainable; and (C) the defend‐
ant presents information to support the credit,
deduction, or exemption sufficiently in ad‐
vance of sentence to provide an adequate op‐
portunity to evaluate whether it has sufficient
indicia of reliability to support its probable ac‐
curacy.
…
The burden is on the defendant to establish
any such credit, deduction, or exemption by
the preponderance of the evidence.
Id. at § 2T1.1 cmt. n.3. As a result, Chavin no longer controls
the issue of whether the district court should consider un‐
claimed deductions. If the circumstances of the case meet the
criteria outlined above, district courts should consider un‐
claimed deductions.
Here, the district court correctly determined that it
should not have considered unclaimed deductions and other
alleged errors in the 2000 Audit. Once the government estab‐
lished the tax loss amount, Black had the burden to show
that he was entitled to credits or deductions. Id. There is in‐
sufficient evidence on the record to establish that at the time
of Black’s criminal conduct, he could have challenged the
audit and reduced his tax liability. Therefore, Black did not
meet his burden. So, there was no error by the district court
with respect to this issue.
No. 13‐3908 17
In sum, the district court misapplied § 2T1.1 to Black’s
sentence. Specifically, it erred by finding that the tax loss was
more than $7 million but less than $20 million, when the tax
loss, before any deductions for penalties and interest, was
approximately $5.3 million. Because of the district court’s er‐
rors in calculating the tax loss, it selected the wrong base of‐
fense level and improperly calculated the sentencing range.
D. Harmless Error Analysis
An error in calculating the sentencing guideline range is
a procedural error that requires remand unless the govern‐
ment can show that the error is harmless. United States v.
Thompson, 599 F.3d 595, 602 (7th Cir. 2010). To establish
harmless error, the government must be able to show that
the sentence would have been the same absent the error. Ab‐
bas, 560 F.3d at 667. At oral argument the government
acknowledged that the district court’s decision was driven
by the guideline calculation. A review of the record reveals
the same. As a result, the government cannot show that the
sentence would have been the same absent the error, and the
miscalculation of the tax loss amount is not harmless error.
Therefore, we must remand for reconsideration of the tax
loss amount.
Black also argues that his sentence was substantively un‐
reasonable. Because we remand for resentencing, we need
not address this argument. See United States v. Halliday, 672
F.3d 462, 475 (7th Cir. 2012).
III. CONCLUSION
For the reasons stated, we VACATE Black’s sentence and
REMAND for full resentencing after correcting the tax loss in
the guideline calculation using U.S.S.G. § 2T1.1.