U.S.A. v. Twieg

• Decision Date: 01 February 2001
• Docket Number: Nos. 00-1451,s. 00-1451
• Citation: 238 F.3d 930
• Parties: (7th Cir. 2001) UNITED STATES OF AMERICA, Plaintiff-Appellee, v. THOMAS W. TWIEG and CONSTANCE A. TWIEG, Defendants-Appellants. & 00-1452
• Court: U.S. Court of Appeals — Seventh Circuit

Page 930

238 F.3d 930 (7th Cir. 2001)

UNITED STATES OF AMERICA, Plaintiff-Appellee, v. THOMAS W. TWIEG and CONSTANCE A. TWIEG, Defendants-Appellants.

Nos. 00-1451 & 00-1452

In the United States Court of Appeals For the Seventh Circuit

Argued September 26, 2000

Decided February 1, 2001

Appeals from the United States District Court for the Eastern District of Wisconsin. No. 99 CR 109--J.P. Stadtmueller, Chief Judge.

Before COFFEY, RIPPLE, and ROVNER, Circuit Judges.

ROVNER, Circuit Judge.

Thomas and Constance Twieg pled guilty to three counts of filing false federal income tax returns in violation of 26 U.S.C. sec. 7206(1), based upon their failure to report all of the business receipts from the carpet sales and installation business which they operated from 1990 through 1996. The individual tax returns filed by the Twiegs for 1991 through 1995 underreported the receipts from the business by more than $1.3 million. In addition, a return filed by Thomas Twieg for 1990 failed to report over $98,000 in business receipts. Because there was no indication that Constance Twieg was aware of the underreporting on the 1990 return, she was not held accountable for the tax losses associated with the 1990 return.

At sentencing, the court was required to calculate the tax loss resulting from the offense pursuant to U.S.S.G. sec. 2T1.1 (1998). The court determined that Thomas Twieg was responsible for tax losses totaling $141,170 for the years 1990 through 1995, of which $107,586 represented his liability for normal income taxes and $33,584 was attributable to unpaid self-employment taxes. With respect to Constance Twieg, the court found tax losses amounting to $127,716, of which $100,700 stemmed from unpaid normal income taxes and $27,016 related to self-employment taxes. The court rejected the Twiegs' argument that self- employment taxes should be excluded from the "tax loss" under sec. 2T1.1, and the Twiegs appeal that determination. The inclusion of the self- employment taxes increased the base offense level for each defendant by one level.

The sole issue on appeal is whether the district court erred in including self-employment taxes in the calculation of the "tax loss" under the Sentencing Guidelines. We begin with the plain language of the Guidelines provision at issue. United States v. Andreas, 216 F.3d 645, 676 (7th Cir. 2000) ("When construing the Guidelines, we look first to the plain language, and where that is unambiguous we need look no further.") Section 2T1.1(c)(1) of the Guidelines provides that "if the offense involved tax evasion or a fraudulent or false return . . . 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 Notes following the section state that for offenses involving the filing of a tax return in which gross income was underreported, the tax loss shall equal 28% of the unreported gross income plus 100% of any false credits claimed, "unless a more accurate determination of the tax loss can be made." sec. 2T1.1(c)(1), Note (A). (The parties here proceeded under the theory that a more accurate determination was possible, and apparently a higher tax loss figure would have resulted from application of the 28% presumption.) Finally, the Application Note to that provision clarifies, in relevant part, that all violations of the tax laws should be considered in calculating tax loss:

In determining the total tax loss attributable to the offense (see sec. 1B1.3(a)(2)), all conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated.

U.S.S.G. sec. 2T1.1, Application Note 2.

Nothing in that language indicates that self- employment taxes should be excluded from the calculation of tax loss. The Twiegs do not deny that the failure to pay the self-employment taxes constituted "conduct violating the tax laws." Thus, by the plain language of the Guidelines it should be considered in calculating tax loss. They nevertheless raise a number of arguments for excluding self-employment taxes, which we will briefly address.

The Twiegs point out that sec. 2T1.1 was amended in 1993, and assert that a comparison of the pre- and post-1993 language reveals an intent to exclude self-employment taxes. The amendment consolidated a number of tax violations into one guideline, whereas they previously had been addressed in multiple guidelines provisions. As a result, the title of Subpart 1 describing the type of taxes included within sec. 2T1.1 was amended from "Income Taxes" to "Income Taxes, Employment Taxes, Estate Taxes, Gift Taxes, and Excise Taxes (Other Than Alcohol, Tobacco, and Custom Taxes)." According to the Twiegs, all of the listed classes of taxes are included seriatim in separate chapters of the Internal Revenue Code, and self-employment taxes are included in a separate chapter not specifically listed. They conclude that the failure to list the self- employment taxes indicates an intent to exclude them.

An examination of the structure of the Internal Revenue Code, however, turns their argument on its head. The ...