United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
February 12, 2007
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
05-51279
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
CHARLES PHELPS, JR.,
also known as Mr. D,
also known as Dave Smith,
Defendant-Appellant.
Appeal from the United States District Court for the
Western District of Texas, Waco
Before REAVLEY, JOLLY, and BENAVIDES, Circuit Judges.
PER CURIAM:
Appellant’s principal argument is that the district court
erred in calculating the amount of tax loss, which determined the
base offense level under the Sentencing Guidelines. We affirm.
I. BACKGROUND
Charles Phelps, Jr. (Appellant) managed various adult
entertainment businesses for his codefendant, John Kenneth Coil.
Over a period of several years, Appellant caused corporate monies
to be falsely reported as wages paid to his family members.
Ultimately, Appellant pleaded guilty to one count of conspiracy to
defraud the United States by impeding the IRS in its collection of
revenue in violation of 18 U.S.C. § 371.1 The district court
sentenced him to 42 months of imprisonment. On appeal, this Court
remanded the case in light of United States v. Booker, 543 U.S. 220
(2005). On remand, after an evidentiary hearing, the district
court found that Appellant intended to cause more than $80,000 but
less than $200,000 in tax loss.2 The district court sentenced
Appellant to 36 months of imprisonment.
II. ANALYSIS
A. TAX LOSS CALCULATION
Appellant argues that the district court erred in calculating
the amount of tax loss, resulting in an incorrect base offense
level. This Court reviews a district court’s application of the
guidelines de novo and factual findings for clear error. United
States v. Roush, 466 F.3d 380, 385 (5th Cir. 2006).
The district court found that the tax loss attributable to
Appellant was more than $80,000 and less than $200,000, which
translates to a base offense level of 16 under the Tax Table
1
In exchange for his guilty plea, the remaining thirty-one
counts in the indictment were dismissed.
2
Appellant’s original sentence had been based on a finding
of a tax loss of more than $200,000 and less than $400,000.
2
located in U.S.S.G. § 2T4.1.3
At the hearing before the district court on remand, Appellant
presented the expert testimony of a financial investigator, Laura
Sanders. Sanders presented a calculation of the tax loss
attributable to Appellant as $80,463.64; however, she also
testified that the excess social security taxes paid through
Appellant’s family members’ fraudulent tax filings should be
credited against that figure.
If Appellant is not entitled to such a credit, then even the
defense expert’s calculation results in a base offense level of 16.
Thus, we must determine whether Appellant is entitled to credit any
excess payments of social security taxes against the tax loss. As
discussed below, that depends upon whether the payment is
considered intentional. This Court apparently has not addressed
this precise question but there is precedent that informs it. In
United States v. Moore, 997 F.2d 55 (5th Cir. 1993), the
defendants, like Appellant, were convicted of defrauding the United
States in violation of 18 U.S.C. section 371. On appeal, those
defendants argued that instead of using an “intended tax loss”
amount, the court should have used the actual tax loss (zero) to
the government. Id. at 60. The fraudulent refunds apparently had
been recovered from the taxpayers. This Court rejected their
3
The 2001 version of the Sentencing Guidelines Manual was
used for offense level computation.
3
argument. Although the Moore defendants were sentenced under
U.S.S.G. § 2T1.4,4 as opposed to § 2T1.1, we find it is
informative. This Court noted that the amount of tax loss
determines the base offense level for several offenses, including
tax evasion under § 2T1.1. Moore, 997 F.2d at 61. Indeed, we
further noted that “[t]he cross references in these sections and
the accompanying comments plainly indicate that the amount of the
‘tax loss’ is to be calculated in a similar manner in each
provision, and that the amount the parties attempted to illegally
obtain from the government controls over their eventual failure to
actually acquire and retain their illegal refunds.” Id. (emphasis
in opinion).
Subsequently, we have relied on Moore for the propositions
that “tax loss” is to be calculated in the same manner for sections
2T1.1, 2T1.3, and 2T1.4, and that tax loss is the intended loss,
not the government’s actual loss. United States v. Clements, 73
F.3d 1330 (5th Cir. 1996). Thus, we conclude that the analysis in
Moore is applicable to the instant case.
Here, the district court expressly recognized that the issue
was “the intended loss or potential loss, not necessarily the
actual loss.” The court further found as follows:
I find that the evidence is more than sufficient to use
as an amount of loss in calculating the base offense
4
§ 2T1.4 (Aiding, Assisting, Procuring, Counseling, or
Advising Tax Fraud).
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level the amounts attributable to him in the form of
additional taxes. And that’s basically embodied in
Government Exhibit 1 in this case. It’s less than
$200,000, but it’s more than $80,000.
. . . .
There’s just no question in my mind that Mr. Phelps,
regardless of any effort, today or otherwise, to put all
the blame on Mr. Coil, that he intentionally set out to
conceal the source of these funds, to conceal the true
recipient of the funds, to do everything possible he
could to hide what was going on, and with the obvious .
. . if not objective side effect of fooling the Internal
Revenue Service and trying to avoid the payment of taxes
that were justly due and owing.
(emphasis added).
Appellant points out that the Second Circuit has interpreted
§ 2T1.1 as giving a “defendant the benefit of legitimate but
unclaimed deductions” in calculating the tax loss. United States
v. Martinez-Rios, 143 F.3d 662, 671 (2d Cir. 1998). Appellant
candidly acknowledges the Tenth Circuit’s opinion rejecting such an
approach:
We do not interpret this provision 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.
United States v. Spencer, 178 F.3d 1365, 1368 (10th Cir. 1999).
Additionally, the Seventh Circuit has opined that “the current
definition of tax loss appears to exclude consideration of
unclaimed deductions.” United States v. Chavin, 316 F.3d 666, 678
5
(7th Cir. 2002). The Court persuasively explained that the object
of a defendant’s “offense was the amount by which he underreported
and fraudulently stated his tax liability on his return; reference
to other unrelated mistakes on the return such as unclaimed
deductions tells us nothing about the amount of loss to the
government that his scheme intended to create.” Id. at 677.
We believe our precedent is more aligned with that of the
Seventh and Tenth Circuits. We are not persuaded that the amount
of tax loss Appellant intended to cause should be reduced simply
because his scheme to defraud apparently inadvertently caused
payment of excess social security taxes. More importantly,
Appellant has not shown that the district court clearly erred in
finding that he had the intent to cause more than $80,000 in tax
loss. Appellant is not entitled to relief.
B. SIXTH AMENDMENT CHALLENGE
Appellant contends that the district court erred in enhancing
his sentence based on findings of fact made by a preponderance of
the evidence. He argues that the Sixth Amendment was violated
because the findings were not proven beyond a reasonable doubt.
Appellant recognizes that our precedent precludes this claim.
United States v. Mares, 402 F.3d 511 (5th Cir.), cert. denied, 126
S.Ct. 43 (2005); United States v. Johnson, 445 F.3d 793 (5th
Cir.), cert. denied, 126 S.Ct. 2884 (2006). He raises it simply to
preserve it for further review.
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AFFIRMED.
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