United States v. Psihos

• Decision Date: 15 June 2012
• Docket Number: No. 11–2683.,11–2683.
• Citation: 109 A.F.T.R.2d 2012,683 F.3d 777
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. John PSIHOS, Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

683 F.3d 777

109 A.F.T.R.2d 2012-2542

UNITED STATES of America, Plaintiff–Appellee,

v.John PSIHOS, Defendant–Appellant.

No. 11–2683.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 8, 2011.

Decided June 15, 2012.

Rick D. Young (argued), Attorney, Office of the United States Attorney, Chicago, IL, for Plaintiff–Appellee.

Edward M. Genson, Attorney, Genson & Gillespie, Marc W. Martin (argued), Attorney, Marc Martin, Ltd., Chicago, IL, for Defendant–Appellant.

Before MANION, ROVNER, and TINDER, Circuit Judges.

MANION, Circuit Judge.

John Psihos pleaded guilty to four counts of making false statements in a tax return. The district court determined that the tax loss was $837,724 and sentenced Psihos to 24 months' imprisonment, which was the low end of the applicable guideline range. The court also ordered Psihos to pay $837,724 in restitution. Psihos appeals,arguing that the tax loss was only $22,292.27; that the restitution amount was erroneous; and that the district court procedurally erred in sentencing him within the guideline range without addressing his argument for an outside-the-guidelines sentence. We affirm.

I.

John Psihos immigrated to the United States from Greece in his early twenties. He eventually opened his own restaurant and later went on to own three restaurants in the Chicago area: Flanagan's (the most successful of the three), Café Oceana, and Full Moon. Flanagan's and Full Moon were organized together as one S–Corporation and Café Oceana was set up as a separate S–Corporation. Psihos was apparently a good employer, assisting employees in need; he was also very generous to those in the community, helping with various charitable causes.

While hard-working and generous, Psihos was also operating illegally, at least when it came to his tax obligations. Psihos kept two sets of books for Flanagan's, and for (at least) the four tax years of 2001–2004, he substantially underreported his gross receipts. The government discovered the tax fraud when Psihos listed Flanagan's for sale through a real estate brokerage company. A fact sheet prepared by the broker calculated Flanagan's average monthly gross receipts at $170,000 and average annual gross receipts at $2,040,000. This netted an average yearly operating profit of $554,840. Based on the discrepancy between Psihos's tax filings and this information, the IRS dispatched undercover agents to pose as potential buyers.

The undercover agents, posing as a husband and wife interested in purchasing Flanagan's, individually or together met with Psihos three times in April and May of 2005. During these meetings, Psihos explained how he kept track of the actual receipts at Flanagan's. He explained that each night at closing, the managers would bring him envelopes with all of the money, receipts, register tapes, and payout information. He would then provide this material to Wendy, one of his managers, who would prepare a weekly summary report. Psihos showed these summary reports to the undercover agents, along with the envelopes from which these summaries were prepared. Psihos stated that he had these records showing what he was “actually getting” from the restaurant going back to 2001.

On May 31, 2005, agents executed a search warrant at one of Psihos's restaurants and seized, among other items, the weekly summary sheets. Later they also seized from a storage shed the envelopes detailing Flanagan's nightly sales and cash payouts. IRS revenue agents reviewed the weekly summary sheets and cross-referenced those figures with the nightly figures listed on the envelopes. Based on these records, the revenue agents calculated the gross receipts actually collected at Flanagan's for the tax years 2001–2004. In calculating the gross receipts, the IRS made adjustments based on any cash overages/shortages noted, as well as based on the amounts noted on the envelopes as improperly entered or listed as cash payouts. The government's calculation was as follows:

+----------------------------------------------------------------------------+
                ¦          ¦                     ¦Gross                ¦Unreported Receipts  ¦
                ¦Year      ¦Net Receipts Per IRS ¦Receipts Per         ¦Per IRS              ¦
                ¦          ¦                     ¦Return               ¦                     ¦
                +----------+---------------------+---------------------+---------------------¦
                ¦2001      ¦$2,021,304.37        ¦$1,420,405.00        ¦$600,899.37          ¦
                +----------+---------------------+---------------------+---------------------¦
                ¦2002      ¦$2,003,204.59        ¦$1,323,240.00        ¦$679,964.59          ¦
                +----------+---------------------+---------------------+---------------------¦
                ¦2003      ¦$2,007,044.71        ¦$1,298,778.00        ¦$708,266.71          ¦
                +----------+---------------------+---------------------+---------------------¦
                ¦2004      ¦$1,867,214.82        ¦$1,320,832.00        ¦$546,382.82          ¦
                +----------------------------------------------------------------------------+
                

The IRS then concluded that the additional taxes due on Psihos's personal tax returns, based on these unreported receipts,were: $226,752 for 2001, $244,799 for 2002, $213,186 for 2003, and $152,987 for 2004. These unreported receipts resulted in a total tax loss to the IRS of $837,724 for the period of 2001 through 2004.

Based on the above, a grand jury indicted Psihos on eight counts. Counts 1–4 charged tax evasion and counts 5–8 charged Psihos with four counts of making false statements in a tax return. Psihos entered into a plea agreement with the government and pleaded guilty to the four counts of making false statements in a tax return. At sentencing, the government argued that the loss was $837,724, while Psihos countered that the government's figure did not account for numerous deductible expenses. Specifically, Psihos argued that the tax loss should be reduced by: amounts paid to DJ/promoters from door charges; amounts paid in cash wages; the cost of complimentary drinks and food; the total he transferred to his other restaurant Café Oceana; and cash payments made to Café Oceana for food supplied by Café Oceana to Flanagan's. Psihos submitted a chart summarizing his position on the amount of the tax loss (attached to this opinion as Exhibit A). Psihos then argued that based on his calculations, the tax loss would be 28% of the total unreported gross of $79,615.26, or $22,292.27.

The district court gave Psihos credit for the cash payouts listed on the envelopes—as had the government in its loss calculation—but rejected his remaining claimed reductions, concluding that the various offsets he proposed amounted to “unclaimed deductions” and that it could not consider such deductions based on this court's decision in United States v. Chavin, 316 F.3d 666 (7th Cir.2002). The court added that Chavin was “particularly well-taken” in this case because Psihos did not have any invoices supporting his purported cash payouts.

After the district court rejected Psihos's arguments concerning the loss calculation, Psihos argued that he should nonetheless receive a sentence below the guideline range because the calculated loss overstated the harm to the government. In sentencing Psihos, the district court did not specifically discuss this argument, but concluded that a sentence of 24 months (the low end of the guideline range, which was 24–30 months) was appropriate in this case. The district court also ordered Psihos to pay restitution in the amount of $837,724. Psihos appeals.

II.

On appeal, Psihos argues that the district court erred in determining the tax loss for sentencing purposes and that the true loss was only $22,292.27. Relatedly, he argues that the district court erred in ordering restitution of $837,724 because the actual loss was only $22,292.27. Finally, Psihos claims that the district court procedurally erred in sentencing him within the guideline range without considering his argument for a lower sentence. We consider each issue in turn.

A. Tax Loss

Psihos argues on appeal that the district court erred in calculating the tax loss for sentencing purposes at $837,724. As detailed above, Psihos claims that the real loss to the government was only $22,292.27 because the government's calculation failed to take into account cash payments for excludable items and/or deductible expenses, including cash payments to DJs and promoters from door charges, cash wages, the cost of complimentary drinks and food, cash transfers to his other restaurant Café Oceana, and cash payments to Café Oceana for food supplied by Café Oceana to Flanagan's.

As the district court found, Psihos's argument is foreclosed by this court's decision in United States v. Chavin, 316 F.3d 666 (7th Cir.2002). In Chavin, the defendant had argued that the tax loss for sentencing purposes should take into account available deductions that he could have taken. This court rejected that argument, first noting that the “the government [had] contend[ed] that ‘tax loss' refers to the amount of loss that the defendant attempted or intended to create through his tax offense. [And] [i]f we accept this interpretation, then unclaimed deductions should not be taken into account because they have no relevance to the amount of loss that the scheme attempted to produce.” Id. at 677. This court then held:

It is apparent from the definition of “tax loss” provided in the guidelines that the government has the correct position. The guidelines state that “tax loss is the total amount of loss that was the object of the offense.” § 2T1.1(c)(1). We take the phrase “the object of the offense” 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. Here, the object of Chavin'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 u...