Tax fraud not grouped

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The sentences for wire fraud and tax evasion are not to be grouped under the U.S. Sentencing Guidelines, the Seventh Circuit held on Jan. 12.

Susan M. Vucko was employed by the Northwest Building Mat-erials and Supply Company. In the mid-1990s, Vucko began stealing from the company, eventually pilfering more than $700,000. She also failed to pay taxes on the money she stole.

She was ultimately charged in federal court, and pleaded guilty to wire fraud in violation of 18 U.S.C. 1343 and making a false statement in a tax return in violation of 26 U.S.C. 7206(1).

The court imposed concurrent sentences of two years’ imprisonment for each offense and three years of supervised release and ordered restitution.

Vucko appealed the sentence, claiming that the district court erred by failing to group the charges under sec. 3D1.2(c) or (d) of the U.S. Sentencing Guide-lines. The Seventh Circuit affirmed in a decision by Judge Diane P. Wood.

The court acknowledged that the criminal conduct covered by the wire fraud was the same as the conduct that gave Vucko enough illegally derived income to commit tax fraud.

No Grouping Charges

Nevertheless, the court concluded that grouping was not appropriate, because there was no “double counting” from not grouping.

Application Note 5 to sec. 3D1.2 advises that, when conduct that represents a separate count is also a specific offense characteristic in or adjustment to another count, the counts are to be grouped to prevent “double counting.”

The note also states that, “this rule applies only if the offenses are closely related.”

The court acknowledged a split of authority among other circuits that have considered the issue.

In United States v. Haltom, 113 F.3d 43 (5th Cir. 1997), the Fifth Circuit held that grouping was compelled by the Guidelines on similar facts.

The First Circuit, however, held that grouping was not appropriate, because the crimes involve different harms, different victims, and different conduct. U.S. v. Martin, 363 F.3d 25 (1st Cir. 2004).

In Martin, the court observed that, if the offenses were grouped, there would be no punishment consequences for the tax evasion, because the fraud had a higher offense level. The Third, Tenth, and Sixth Circuits have also rejected grouping.

Punishment for Tax Evasion

The Seventh Circuit adopted this majority rule, agreeing with the First Circuit that the crimes involve different harms, victims, and conduct.

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The court also concluded, “wire fraud is just one of countless ways to obtain income from criminal activity. To suggest that any criminal offense that produces income is subsumed into the tax guideline calculation with a two-level enhancement is to create a category without limits.”

The court distinguished its holding in U.S. v. Wilson, 98 F.3d 281 (7th Cir. 1996), in which it held that fraud and money laundering were closely related and subject to grouping, because, “without the fraud there would have been no funds to launder.”

Although the same is true in the case at bar — without the wire fraud, there would be no taxes to avoid — the court held Wilson distinguishable, because there was no common scheme in Vucko’s case.

Finding that the effect of grouping the offenses would be to eliminate any marginal punishment for committing tax fraud on top of another offense, the court affirmed.

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David Ziemer can be reached by email.