In the
United States Court of Appeals
For the Seventh Circuit
No. 10-2720
U NITED STATES OF A MERICA,
Plaintiff-Appellee,
v.
K EVIN T. O’D OHERTY,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 09 cr 606—Harry D. Leinenweber, Judge.
A RGUED F EBRUARY 17, 2011—D ECIDED JUNE 14, 2011
Before E ASTERBROOK, Chief Judge, and R IPPLE and
T INDER, Circuit Judges.
R IPPLE, Circuit Judge. Kevin Thomas O’Doherty was
charged in a six-count indictment with various offenses
related to his failure to file income tax returns or to pay
taxes from 2001-2003. After entering into an agreement
with the Government, Mr. O’Doherty pleaded guilty to
one count of tax evasion, in violation of 26 U.S.C. § 7201.
At sentencing, the district court calculated an offense
2 No. 10-2720
level of 21, carrying a range of 37-46 months’ imprison-
ment under the sentencing guidelines. The district court
imposed a 24 months’ sentence, more than a year below
the advisory guidelines range. Mr. O’Doherty now raises
several challenges to the guidelines calculation. We
agree with the district court’s sentencing calculations
and therefore affirm the judgment of the district court.
I
BACKGROUND
A. Facts
Mr. O’Doherty was a commodities trader for thirty-
nine years. At some point during this period, he paid
for the services of a fraudulent tax consultant, and, under
that individual’s guidance, he did not file individual
income tax returns for the better part of a decade.
In the mid-to-late 1990s, Mr. O’Doherty used the firm
Refco as his clearing broker. Apparently, during this
period, Mr. O’Doherty traded in his own name, and
Refco reported his gross income from trades on 1099
forms filed with the Internal Revenue Service (“IRS”).
During 2001, Mr. O’Doherty “changed tactics” from
trading in his own name to “creat[ing] shell corporations”
to conduct his trading activities. R.34 at 8. Specifically,
he set up four accounts at two different financial insti-
tutions, each in the name of a separate entity. Those
accounts received his trading profits, partnership dis-
tributions, consulting fees and payments from traders for
No. 10-2720 3
seat leases during the charged period. He used the funds
in the accounts to pay his personal expenses. He also
used the entities to conceal what was essentially his
personal ownership of assets. Through these entities,
Mr. O’Doherty received gross income of $158,480, $617,809
and $337,848 in tax years 2001-2003, respectively.
In 2007, the Government instituted a civil action
against Mr. O’Doherty; it alleged that Mr. O’Doherty
had failed to file tax returns in 1994, 1995, 1997, 1998 and
2000, and that his total tax liability for those years was
$917,801. That tax liability was calculated on the basis of
Mr. O’Doherty’s 1099s prepared by Refco. The civil pro-
ceeding was not resolved at the time of Mr. O’Doherty’s
criminal prosecution, but instead was stayed, apparently
at Mr. O’Doherty’s request.
B. District Court Proceedings
In this criminal action, commenced in 2009, the Govern-
ment charged Mr. O’Doherty with three counts of tax
evasion, in violation of 26 U.S.C. § 7201, and three counts
of failing to file federal income tax returns, in violation
of 26 U.S.C. § 7203. The charged conduct related only
to tax years 2001, 2002 and 2003.
1. The Plea Agreement
Mr. O’Doherty entered into an agreement with the
Government in which he pleaded guilty to one count of
tax evasion for tax year 2001. The agreement included
4 No. 10-2720
specific information relating to the tax losses from the
charged conduct:
The parties agree that the base offense level for
tax evasion is determined by the amount of the tax
loss. The defendant acknowledges that the gov-
ernment can prove, by at least a preponderance
of the evidence, that the total tax loss resulting
from defendant’s conduct during the time period
discussed in paragraph 6 above, is $425,766. The
parties acknowledge that this tax loss figure, that
is more than $400,000 and less than $1 million,
results in a base offense level of 20.
R.18 at 6 (citing U.S.S.G. §§ 2T1.1(a)(1), 2T4.1(H), 1B1.3).
Paragraph 6 set forth the factual basis for the charges
related to Mr. O’Doherty’s failure to file returns from 2001
through 2003. That paragraph also includes specific
language memorializing that the defendant admitted
the facts underlying the charges and that these facts
“constitute relevant conduct pursuant to Guideline
§ 1B1.3.” Id. at 2.
The agreement also included a lengthy section relating
to the parties’ positions on the appropriate guidelines
calculation:
d. Anticipated Advisory Sentencing Guide-
lines Range. Therefore, based on the facts now
known to the government, the government’s
position is that defendant’s anticipated offense
level is 19, which, when combined with the antici-
pated criminal history category of I, results in
an anticipated advisory Sentencing Guidelines
No. 10-2720 5
range of 30-37 months’ imprisonment, in addition
to any supervised release, fine, and restitution
the Court may impose. Defendant’s position is
that the anticipated offense level is 17, which,
when combined with the anticipated criminal his-
tory category of I, results in an anticipated advi-
sory Sentencing Guidelines range of 24-30 months.
e. Defendant and his attorney and the gov-
ernment acknowledge that the above Guide-
line calculations are preliminary in nature, and
are non-binding predictions upon which neither
party is entitled to rely. Defendant understands
that further review of the facts or applicable legal
principles may lead the government to conclude
that different or additional Guideline provisions
apply in this case. Defendant understands that
the Probation Office will conduct its own investi-
gation and that the Court ultimately determines
the facts and law relevant to sentencing, and
that the Court’s determinations govern the final
Guideline calculation. Accordingly, the validity
of this Agreement is not contingent upon the
probation officer’s or the Court’s concurrence
with the above calculations, and defendant shall
not have a right to withdraw his plea on the basis
of the Court’s rejection of these calculations.
f. Both parties expressly acknowledge that
this plea agreement is not governed by Fed. R.
Crim. P. 11(c)(1)(B), and that errors in applying
or interpreting any of the Sentencing Guide-
6 No. 10-2720
lines may be corrected by either party prior to sen-
tencing. The parties may correct these errors
either by stipulation or by a statement to the Proba-
tion Office or the Court, setting forth the disagree-
ment regarding the applicable provisions of the
Guidelines. The validity of this Plea Agreement
will not be affected by such corrections, and defen-
dant shall not have a right to withdraw his plea,
nor the government the right to vacate this Plea
Agreement, on the basis of such corrections.
Id. at 8-9. The agreement also set forth the parties’ op-
posing positions on the proper application of the sophis-
ticated means enhancement found in U.S.S.G. § 2T1.1(b)(2).
Finally, the agreement noted that “[e]ach party is free
to recommend whatever sentence it deems appropriate”
to the court. Id. at 9.
2. The Plea Hearing
At the plea hearing, the Government advised the
court that both parties understood that there might be
further adjustment in the total tax loss and pointed out
that the plea agreement specifically allowed for a change
in that figure. The court advised Mr. O’Doherty that
there could be no guarantee as to the sentence that he
would receive and specifically noted that the court was
not bound by the guidelines calculations but only by the
statutory maximum of five years. Mr. O’Doherty told
the district court that he understood that no promises
had been made to him and that the only understanding
that he had with the Government was the one set forth
in the plea agreement.
No. 10-2720 7
3. The Positions of the Parties at Sentencing
During the preparation of the presentence investiga-
tion report (“PSR”), the Government submitted a memo-
randum to the probation office. That memorandum
included the same calculation that the Government
had used in the plea agreement, including an estimation
that the appropriate base offense level was 20 (tax loss
of more than $400,000 and less than $1 million dollars). It
further took the position that the facts of the case sup-
ported an upward adjustment of two levels for the use
of a sophisticated means to mask the unpaid taxes and
a three-level downward adjustment for the acceptance
of responsibility. The resulting total offense level was
19. With a criminal history category of I, the resulting
advisory guidelines sentencing range was 30-37 months.
The Government recommended a sentence within that
range.
When it filed its presentence report, the Probation
Office took a different view. It reached a much larger
tax loss figure by adding tax losses from uncharged
conduct occurring from 1994-2000 together to the
charged conduct from 2001-2003. In estimating the loss
attributable to the uncharged conduct during the
earlier period, the PSR used the figure sought in the civil
action covering those earlier years, $917,801. When this
figure was combined with the tax losses admitted in
the plea agreement, the resulting total tax loss calcula-
tion was more than $1 million but less than $2.5 million.
This calculation resulted in a base offense level of 22, two
levels higher than if the losses had remained at the level
8 No. 10-2720
suggested by the Government and noted in the plea
agreement.
Mr. O’Doherty responded to the PSR by filing a motion
to continue the sentencing hearing. He noted that, after
the plea agreement had been reached, he filed amended
returns for tax years 2001-2003 that showed a tax liability
of less than $400,000 during that charged period. He
pointed out that the PSR failed to account for this
reduced liability. He also contended that the PSR erred
in including as relevant conduct the tax losses alleged
in the civil suit relating to the earlier years from 1994-
2000. In his view, inclusion of those years as relevant
conduct was not contemplated by the plea agreement,
and, in any event, the tax losses alleged in the civil com-
plaint were too speculative to form the basis for sen-
tencing in the criminal case. His sentencing memoran-
dum reiterated these arguments and also discussed
mitigating factors at some length. As a result, he argued
for a lower guidelines calculation and a downward ad-
justment.
The Government also filed with the court a sentencing
memorandum. On the subject of tax loss, the Govern-
ment simply noted that, given the agreed-upon figures
for 2001-2003, “the PSR’s conclusion that the total
tax loss for the prosecution period and for all
relevant conduct is more than $1 million and less than
$2.5 million meets the Guidelines’ requirement of a rea-
sonable estimate based on the available evidence.”
R.25 at 6.
No. 10-2720 9
4. Sentencing Hearing
At the sentencing hearing, the district court began
with the issue of tax loss. The Government reiterated its
position that it “did not object to [the] calculation” in the
PSR. R.34 at 4. It also noted that state tax losses should
be included in the calculation. With those numbers, the
losses for the 2001-2003 period alone were in excess
of $400,000; combined with the additional earlier years
identified in the civil complaint and subsequent years
through 2009, total losses were estimated reasonably at
over $1 million. 1 R.34 at 4, 11. The Government therefore
agreed that, as a result of the additional tax loss
amounts, the PSR was correct in its estimation that the
appropriate base offense level was 22.
Mr. O’Doherty then argued for a base offense level of
18, two lower than that contemplated in the plea agreement
and four lower than that recommended in the PSR. He
restated his view that further corrected tax returns for
2001-2003 had lessened the tax liability for that period
to under $400,000. Because he believed the Government
1
The relevant Guideline for tax evasion, U.S.S.G. § 2T1.1,
refers to a tax loss table in section 2T4.1. Beginning with loss
amounts under $2,000, the table sets forth, at various in-
crements, associated base offense levels, ranging from 6 to 36.
Tax losses of more than $200,000 and up to $400,000 result in
a base offense level of 18; losses of more than $400,000 and up
to $1,000,000 result in a base offense level of 20; losses of
between $1,000,000 and $2,500,000 result in a base offense
level of 22. See U.S.S.G. § 2T4.1.
10 No. 10-2720
was bound contractually to limit its recommendation
regarding relevant conduct to those years referenced
explicitly in the plea agreement, he contended that a
loss of less than $400,000 represented the total loss that
could be used to arrive at his base offense level.2
2
Regarding the calculations, Mr. O’Doherty’s counsel stated the
following:
The plea agreement was based on a tax loss figure of
between $400,000 and $1 million. We all knew at the
time of the plea agreement that there were other years
outstanding, those other years are subject to litigation
that is currently pending and attempts to actually
reduce that number to a real number.
That number is very, very speculative, as was noted
in our sentencing memorandum. Mr. O’Doherty was
a commodities trader. In any given year he was in-
volved in tens of thousands of contracts. Ultimately at
the end of the year, he gets a 1099 from the clearing
broker for the gross figures, but that doesn’t include
costs, it doesn’t include commissions, it doesn’t in-
clude other sides of the trade.
....
Every time we get more records, the return informa-
tion is coming down. We believe that the plea agree-
ment at the time that it was entered into only consid-
ered 2001 to 2003, and that number is now $367,000.
Since that time, and in the government’s sentencing
memorandum—well, one, we will accept the probation
officer’s figures that it is at least $1 million because
(continued...)
No. 10-2720 11
2
(...continued)
of these other tax years, even though they have not
been reduced to final numbers.
And 2, even if that is not the case, just using the
State Tax figures, that pushes it back up to $409,000, or
just over the break point.
So, when you filter that in, all together we are
4 levels apart.
R.34 at 6-7. Later, he added:
In large part, the civil case has been pending since
2007, we all know it is floating around out there, and
we are all—it is not [the Government’s attorney’s] case,
it is also my case, and we have been trying to come
up with a real number in that case. Is the number a
million? No. Is it—who knows what the number is.
Some of those years are actually losses, but until we
can get the records from the receiver, which has been a
very frustrating process, it is hard to get that number.
I would argue, Number 1, that the other years are
very, very speculative. Number 2, notwithstanding
[the probation officer’s] ability to bring up that infor-
mation to the Court, I still believe that the government
is bound by the 4 corners of the plea agreement.
No one would have any faith in the plea process, or
in the plea agreement process, if we could suddenly
bring up information that was known to the govern-
ment in civil cases being prosecuted by the U.S. Attor-
ney’s Office. This isn’t a secret. This isn’t newly discov-
ered information. This is something that we all knew
(continued...)
12 No. 10-2720
The district court ruled the failure to file returns
during the entire 1994-2003 period was relevant conduct,
although it would not consider conduct occurring
after 2003. Further, the court elected to use the figures
charged in the civil complaint as the estimate for tax
liability for years 1994-2000, because “those are the final
figures, at least the ones we have to work with, and they
total $917,000.” Id. at 14. Combined with the losses for the
charged period of 2001-2003, the court noted that the
total loss was “$1.2 million plus,” and the base offense
level was appropriately 22. Id.
The hearing’s focus then turned to whether Mr.
O’Doherty had employed sophisticated means. The
Government submitted that the application note to the
relevant Guideline specifically referenced the use of shell
corporations as justifying application of the enhance-
ment. The Government argued that the purpose of the
various entity accounts was nothing “other than to
channel Mr. O’Doherty’s actual personal income through
2
(...continued)
about, but nobody could put a number on it, and at the
time of the plea agreement, frankly, I don’t believe that
we would have agreed to the plea agreement if we
knew that the government was going to argue a million
dollar tax figure.
We all knew that the Probation Officer had the
ability to do that, and there is a big difference between
the government arguing it and the Probation Officer
bringing it to your Honor’s attention.
Id. at 9-10.
No. 10-2720 13
a business entity to conceal the fact that it was income
to him.” Id. at 15. Mr. O’Doherty contended, however,
that the accounts had legitimate business purposes and
were not solely to hide income; one was in the name of
a brokerage firm that comprised some 25 affiliated small
traders. The court ruled:
The short of the matter is, however, that he used
corporations, whether they were specifically
designed solely for evading taxes or not, but if
you—it seems to me if you use a corporation to
evade taxes, even if you didn’t set it up neces-
sarily for that specific purpose, but used it for
that purpose, it sounds to me that that is more
sophisticated than the typical guy who just
doesn’t file returns.
Id. at 16. The court applied the two-level enhancement
under § 2T1.1(b)(2) and a three-level reduction for accep-
tance of responsibility to arrive at an offense level of 21.
When combined with Mr. O’Doherty’s criminal history
category of I, the resultant sentencing range under the
Guidelines was 37 to 46 months.
The court then heard argument on the § 3553(a) factors.
Mr. O’Doherty argued for a below-guidelines sen-
tence, focusing primarily on Mr. O’Doherty’s family; his
daughter was battling cancer at the time of sentencing, and
Mr. O’Doherty was the primary caretaker to his grand-
daughter. He further noted that, outside of these tax
offenses, he had led an honorable life and that, as a result
of his conviction, he already had been stripped of his
trader’s license and was without a profession. He con-
tended that a below-guidelines sentence was appro-
14 No. 10-2720
priate given his family circumstances, under Guideline
5H1.6.3 The Government maintained its request for
a within-guidelines sentence. It contended that Mr.
O’Doherty’s life circumstances were similar to those
faced by many defendants, that his criminal conduct
spanned many years, which demonstrated disregard
for the law, and that his offense was a serious one.
After reviewing the circumstances, including the
family health issues, the court stated:
I am trying to figure out ways to mitigate your
case, and one of the ways it appears to me is that
this uncharged conduct, apparently there has
3
Guideline 5H1.6 provides that “family ties and responsi-
bilities are not ordinarily relevant in determining whether a
departure may be warranted.” U.S.S.G. § 5H1.6. However, the
relevant application note adds that a judge may consider “[a]
departure under this policy statement based on the loss of
caretaking or financial support of the defendant’s family” in
certain circumstances. Id., app. 1(B). Those circumstances are
limited and specific under the relevant note, applying only
where a sentence within the range will “cause a substantial,
direct, and specific loss of essential caretaking” and where “[t]he
loss of caretaking or financial support substantially exceeds
the harm ordinarily incident to incarceration for a similarly
situated defendant,” as well as in other circumstances not
relevant here. Id.; see also United States v. Schroeder, 536 F.3d
746, 756 (7th Cir. 2008) (“Although [t]he concept of departures
has been rendered obsolete in post-Booker sentencing . . . the
district court may apply those departure guidelines by way
of analogy in analyzing the section 3553(a) factors.” (modifica-
tions in original) (internal quotation marks omitted)).
No. 10-2720 15
been some reduction, and by the time the records
come forth, there are reductions in the amount
due, and it would seem to me, based on what the
government’s figures here, that they are claiming
that you didn’t pay $31,000, $41,000, $51,000,
all of a sudden, $700,000, and so I think it is
some—I can, I think, reasonably conclude that
the figure that the government has is higher than
it probably will end up being.
And so I am prepared to, on a 3553 factor, the
nature of the crime here, to say that it probably
will end up not involving more than a million
dollars, so that I can see my way clear to—I am not
moving to—I am just saying I will consider that
under 3553, and I will sentence, but based upon
the fact that that probably overstates the serious-
ness of the crime, and therefore, have some re-
duction there.
R.34 at 30-31. After again noting his cooperation and
his family medical issues, the court concluded that “a
sentence within the guidelines, which is 37 to 46 months,
is considerably higher than probably need be.” Id. at 31.
Accordingly, the court sentenced Mr. O’Doherty to 24
months’ imprisonment, followed by a three-year term
of supervised release.
II
DISCUSSION
Mr. O’Doherty submits that he is entitled to resen-
tencing for three reasons. First, he claims that the Gov-
16 No. 10-2720
ernment materially breached the plea agreement when
it assented to the PSR’s tax loss calculations, which in-
cluded additional years of relevant conduct. Second, he
claims that the total amount of tax loss found by the
district court at sentencing was not proven by sufficient
evidence. Finally, he claims that the district court erred
in applying the sophisticated means enhancement of
Guideline 2T1.1(b)(2). We shall address each contention
in turn.
A. Interpretation of the Plea Agreement on Relevant
Conduct
We first address the appropriate time period from
which to calculate relevant conduct for sentencing. Ac-
cording to Mr. O’Doherty, the plea agreement bound
the Government to limit its recommendation to losses
accrued during the charged period only. In his view,
although the Probation Office was free to recommend
that conduct other than that covered by the plea agree-
ment be included in the calculation, the Government
was precluded, by virtue of its contractual undertaking
in the plea agreement, not to assent to any such recom-
mendation. Therefore, we must examine the nature of
the promises made on the subject of relevant conduct in
the agreement.
We review plea agreements using ordinary rules of
contract interpretation, but we are mindful of “the
special public-interest concerns that arise in the plea
agreement context.” United States v. Monroe, 580 F.3d 552,
556 (7th Cir. 2009). Accordingly,
No. 10-2720 17
[w]e review the language of the plea agreement
objectively and hold the government to the literal
terms of the plea agreement. Therefore, when a
plea agreement is unambiguous on its face, this
court generally interprets the agreement ac-
cording to its plain meaning. When the language
of an agreement is ambiguous, however, the es-
sence of the particular agreement and the Gov-
ernment’s conduct relating to its obligations in
that case are determinative.
Id. (modification in original) (internal citations and quota-
tion marks omitted). “We interpret the terms of the agree-
ment according to the parties’ reasonable expectations
and construe any ambiguities against the drafter—the
government—and in favor of the defendant.” United States
v. Woods, 581 F.3d 531, 534 (7th Cir. 2009). “The govern-
ment must fulfill any promise that it expressly or
impliedly makes in exchange for a defendant’s guilty
plea.” United States v. Ingram, 979 F.2d 1179, 1184 (7th Cir.
1992). The remedy for breach of a plea agreement is
specific performance and a remand for resentencing
before a different judge, or a remand to permit the de-
fendant to withdraw his plea. United States v. Diaz-Jimenez,
622 F.3d 692, 694 (7th Cir. 2010). Mr. O’Doherty seeks
resentencing.
Mr. O’Doherty emphasizes that the plea agreement’s
recitation of the facts is limited to only the charged period
of 2001-2003. He notes that the agreement’s section
on relevant conduct states that “based on the facts now
known to the government,” the “anticipated offense
18 No. 10-2720
level is 19.” R.18 at 8. In his view, because the Govern-
ment was aware of his full course of conduct at the time
it entered into the agreement, its decision not to incorpo-
rate the earlier period into the written contract is tanta-
mount to a promise not to raise it at sentencing. He ac-
knowledges that the section continued with language
that the calculations are “preliminary in nature, and are
non-binding predictions upon which neither party is
entitled to rely” and that the Government may “conclude
that different or additional Guideline provisions apply.”
Id. In his view, however, these “boilerplate” provisions
cannot vitiate the more specific language of the agree-
ment. Appellant’s Br. 24.
Our principal difficulty with Mr. O’Doherty’s argu-
ment is that it misconstrues the language of the pertinent
section of the agreement, and “a party’s rights under a
plea agreement are limited by what the parties in fact
agreed to,” United States v. Schilling, 142 F.3d 388, 395
(7th Cir. 1998). As we already have noted, the section
concerning relevant conduct provides that “[t]he de-
fendant acknowledges that the government can prove”
that the tax loss from the charged period is $425,766. R.18
at 6. It says nothing about any promise by the Govern-
ment to limit its relevant conduct recommendation to
those amounts with respect to the charged years, nor
does it say anything whatsoever about any obligations
with respect to the uncharged years. Moreover, the sub-
sequent language—that the calculations are non-binding
predictions, not entitled to reliance by any party—further
clarifies the parties’ understanding on this issue.
No. 10-2720 19
United States v. Schilling, 142 F.3d 388 (7th Cir. 1998), is
instructive. There, the defendant entered into a plea
agreement in which he acknowledged the purchase and
sale of 300,000 gallons of fuel for which he failed to pay
excise taxes. The Government made no reciprocal
promise to limit its recommendation and retained “ ‘the
right to fully apprise the Court of the nature of the
criminal conduct.’ ” Id. at 393 (quoting the plea agree-
ment). When the Government stepped forward at sen-
tencing with evidence showing a much more significant
figure for the fraud, the defendant claimed a breach. The
district court found none, and we affirmed. Among the
factors guiding our interpretation, we noted both the
Government’s reserved right and the one-sided nature
of the acknowledgment of criminal conduct. See id. at 396-
98. Those factors are mirrored in the agreement now
before us.
Furthermore, beyond the literal language of the plea,
Mr. O’Doherty’s own conduct surrounding the plea
supports the view that both parties understood and
intended that the losses stated in the agreement re-
mained uncertain. During the plea colloquy, for example,
Mr. O’Doherty’s attorney indicated to the court that
there was a “fairly good chance” that the tax losses
would be less than the figure—in excess of $400,000—
admitted in the plea agreement and that the expected
reduction “would then affect the guideline sentence.” R.44
at 12. When the court expressed some confusion about
whether the parties had agreed to a tax loss number,
the Government attorney noted, “[B]oth parties acknowl-
edge there may be further calculations, and the plea
20 No. 10-2720
agreement allows for that, that if there are additional
calculations that the tax amount may change.” Id. The
court then clarified, “So, if he argues that it is less than
$400,000, that would not void the agreement is what you
are telling me?” Id. The Government responded in the
affirmative. Id. at 13. Mr. O’Doherty’s attorney did not
dispute this interpretation. In fact, Mr. O’Doherty did
argue for a tax loss figure of less than $400,000—and
continues to do so before this court. We see no
principled basis for concluding that the agreement
bound the Government to the initial tax loss figure but
permitted Mr. O’Doherty to challenge it.
Mr. O’Doherty makes the related argument that, even
if the Government were entitled to argue different
figures for the years charged, it was not permitted to
include new years altogether. Again, we see nothing in
the language or structure of the agreement that sup-
ports this interpretation.
B. Proof of Tax Loss
Mr. O’Doherty next argues that the Government failed
to meet its burden of proof with respect to the tax loss
amounts upon which his sentence was based. He
contends that the Government “submitted no proof to
substantiate the claimed tax loss for” the additional years.
Reply Br. 4. Further, he explains that there is a “legal
difficulty with using 1099[]s to determine tax loss.” Id.
The Government must prove tax loss figures at sen-
tencing by a preponderance of the evidence. United States
No. 10-2720 21
v. Schroeder, 536 F.3d 746, 752 (7th Cir. 2008). However,
the Guidelines themselves acknowledge that identifying
a perfect figure often will be impossible: “In some in-
stances, such as when indirect methods of proof are
used, the amount of the tax loss may be uncertain; the
guidelines contemplate that the court will simply make
a reasonable estimate based on the available facts.”
U.S.S.G. § 2T1.1, app. 1.
Furthermore, we long have held that
[a] district court may rely on the PSR in ruling
on factual issues in the sentencing context as long
as the PSR is based upon sufficiently reliable
information. When the court relies on information
contained in the PSR at sentencing, it is the de-
fendant’s burden to show that the PSR is inaccu-
rate or unreliable. When a defendant has failed
to produce any evidence calling the report’s accu-
racy into question, a district court may rely
entirely on the PSR.
United States v. Artley, 489 F.3d 813, 821 (7th Cir. 2007)
(internal quotation marks and citations omitted) (affirming
a sentence as based upon sufficient evidence, even
though the statements establishing the drug quantity
amounts in the PSR were hearsay); see also United States
v. Coonce, 961 F.2d 1268, 1280 (7th Cir. 1992) (setting
forth the shifting burdens).4
4
Mr. O’Doherty’s reliance on United States v. Tucker, 217 F.3d
960, 961 (8th Cir. 2000), which states that “the PSR is not
(continued...)
22 No. 10-2720
Here, the PSR identified a pending civil case by its case
number and correctly recounted the amount of tax
sought by the Government for the earlier years. The
PSR noted that the probation officer had conducted a
telephonic interview with IRS Agent Marta Grijalva, who
stated that the outstanding taxes sought in the civil case
were calculated on the basis of available tax documents,
including 1099s.
The information contained in the PSR is sufficiently
reliable to support the Government’s position at sen-
tencing. The PSR sets forth the means by which it
obtained the information, and, in turn, the means
by which the IRS itself obtained the information.
Mr. O’Doherty did not come forward with any evidence
to suggest that the PSR’s figures were incorrect. Indeed,
he has maintained that he has no better evidence. Never-
theless, he believes that the Government is required to
prove, using some means better than the 1099s relied
4
(...continued)
evidence, and the government has the burden at sentencing
to prove fact-intensive issues such as tax loss by a preponder-
ance of the evidence,” is not persuasive. Our settled approach
permits reliance on the PSR until evidence put forward by
the defendant creates a question as to its reliability or accuracy.
“A defendant cannot show that a PSR is inaccurate by simply
denying the PSR’s truth. Instead, beyond such a bare denial,
he must produce some evidence that calls the reliability or
correctness of the alleged facts into question.” United States
v. Mustread, 42 F.3d 1097, 1101-02 (7th Cir. 1994) (internal
quotation marks omitted).
No. 10-2720 23
upon by the IRS, his actual taxable income for these years.
We already have rejected this view. See United States
v. Chavin, 316 F.3d 666, 678 (7th Cir. 2002) (noting that a
defendant is not entitled to create a “perfect” return
to calculate tax loss in criminal proceedings); see also id.
at 676-79 (rejecting the defendant’s argument that tax
loss should take into account legitimate, unclaimed
deductions, which in that case would have reduced the
defendant’s tax liability to roughly twenty-five percent
of that determined to be the tax loss at sentencing).
Mr. O’Doherty failed to meet his burden to draw the
facts of the PSR sufficiently into question. The district
court therefore was entitled to rely on the PSR in making
its calculations. In any event, the sentencing transcript
makes clear that the district court did consider the fact
that the tax losses in the PSR potentially had been over-
stated and factored that consideration, along with
family health and related matters, into the ultimate sen-
tence under 18 U.S.C. § 3553(a). See R.18 at 30-31.
C. Sophisticated Means
Finally, Mr. O’Doherty challenges the application
of the two-level enhancement for use of a “sophisti-
cated means” under the tax evasion guideline, U.S.S.G.
§ 2T1.1(b)(2). We review the district court’s finding that
the defendant used sophisticated means for clear error.
United States v. Becker, 965 F.2d 383, 390 (7th Cir. 1992).
Application Note 4 to this guideline provides,
For purposes of subsection (b)(2), “sophisticated
means” means especially complex or especially
24 No. 10-2720
intricate offense conduct pertaining to the execu-
tion or concealment of an offense. Conduct such as
hiding assets or transactions, or both, through
the use of fictitious entities, corporate shells, or
offshore financial accounts ordinarily indicates
sophisticated means.
U.S.S.G. § 2T1.1, app. 4. Mr. O’Doherty contends that his
use of a corporate structure was not “especially complex
or especially intricate.” Id. Further, he maintains that the
corporations served legitimate purposes and were not
constructed exclusively to hide tax liability.
Our cases interpreting this enhancement have held that
it “does not require a brilliant scheme, just one that dis-
plays a greater level of planning or concealment than the
usual tax evasion case.” United States v. Fife, 471 F.3d
750, 754 (7th Cir. 2006) (concluding that the use of
four corporations without physical offices or accounting
journals to shield income justified the enhancement). We
also have acknowledged that conduct less sophisticated
than the exemplary list provided in the application note
may still warrant application of the enhancement. See
United States v. Kontny, 238 F.3d 815, 820-21 (7th Cir. 2001)
(holding that the enhancement was warranted where
the defendants avoided employment taxes by writing
separate checks to conceal overtime wages to employees
and accounting for those additional amounts as non-wage
expenses); Becker, 965 F.2d at 390 (depositing receipts
in son’s bank account and in a “warehouse bank” with
accounts designated only by number justified enhance-
ment). Indeed, “the essence of the definition is merely
No. 10-2720 25
deliberate steps taken to make the offense . . . difficult
to detect.” Kontny, 238 F.3d at 821 (modification in origi-
nal) (internal quotation marks omitted).
Mr. O’Doherty failed to file tax returns over a sig-
nificant period of time. Still, during the charged period,
he used corporations to avoid the direct reporting of
income in his name, and he used the funds in those
corporations as personal funds. See R.18 at 4 (plea agree-
ment’s recitation of facts). Although he protests that
corporations are ubiquitous “in most modern business
transactions,” Appellant’s Br. 36, their use to impede the
discovery of personal income, as they were used here,
permits the imposition of the enhancement.
Conclusion
The Government did not breach the plea agreement
when it concurred with the recommendations of the PSR
regarding relevant conduct. Further, the scope of that
conduct was explained in the PSR, and Mr. O’Doherty
failed to present evidence that sufficiently challenged
its reliability or accuracy. Accordingly, the district court
was entitled to rely on the PSR in making its factual
determinations. Finally, Mr. O’Doherty’s chosen method
to perpetrate his fraud was sufficiently sophisticated to
justify application of the sophisticated means enhance-
ment. The judgment of the district court is affirmed.
A FFIRMED
6-14-11