Posted by: sbbrown64 | February 7, 2019

Sentencing Enhancement Upheld for Accountant Convicted of Fraudulent Scheme Executed while on Probation for an Administrative Order Prohibiting Similar Conduct by Sandra R. Brown

Sentencing for all serious federal noncapital crimes begins with the United States Sentencing Guidelines (“USSG” or “Guidelines”). The Guidelines establish a series of escalating sentencing ranges based on the circumstances of the offense, e.g., the crimes for which the defendant has been convicted, and the criminal record of the defendant.[1]

For sentencing of federal crimes involving fraud and deceit, one of the circumstances of the offense that can subject a defendant to an increase in his or her Guideline offense level involves where the defendant’s criminal conduct violated “any prior, specific judicial or administrative order.” USSG § 2B1.1(b)(9)(C).[2]  Earlier this week, the Tenth Circuit in United States v. Iley,[3] affirmed the District Court’s application of this enhancement to the sentencing imposed on an accountant, who was the subject of an administrative order for negligent conduct involving his accounting practice, in relation to his conviction for charges involving wire fraud and aiding and abetting in the preparation of a false return.

Donald Iley who, until 2015, was licensed by the Colorado Board of Accountancy (“Board”), performed services for clients that included the calculation of payroll taxes and the preparation of tax forms, as well as the collection and remittance of money to pay these payroll taxes. The Board, having received multiple complaints about Iley’s tax-preparation practices, began an administrative investigation. In resolution of that matter, Iley admitted to engaging in professionally negligent conduct and, pursuant to an administrative order, was placed on a five-year probationary period. Among the acts for which Iley was disciplined was his taking of a client’s money rather than paying it, as intended, over to the IRS to pay the client’s payroll taxes.

While on probation and subject to the administrative order, Iley defrauded his clients of more than $11 million by telling them that he was paying the funds to the IRS for payroll taxes, when, instead, he was using such funds for personal purposes. Ultimately, Iley pleaded guilty to one count of wire fraud and one count of aiding in the preparation of a false tax returns.

Prior to sentencing, the U.S. Probation Office (“USPO”) prepared a Probation Sentence Report (“PSR”) and computed Iley’s advisory Guideline range as 97 to 121 months’ imprisonment. This calculation included a two-level enhancement under § 2B1.1(b)(9)(C) for Iley’s alleged violation of the administrative order. Absent this two-level enhancement, Iley’s advisory Guidelines sentencing range would have been calculated at 77 to 97 months’ imprisonment.

It should also be noted here that a federal judge is not mandated to sentence a defendant within the advisory Guideline range, but instead is limited only by Congressionally established statutory maximum penalties and the minimum penalty, if any, applicable to the federal crime(s) of conviction. In this case, the sentencing court, finding good cause, deviated from the advisory Guideline range and sentenced Iley to 151 months incarceration.[4]  This deviation was a 30-month upward departure from the high-end of the advisory Guideline range of 97-121 months.

Iley ultimately appealed his sentence. His appeal, however, only challenged the two-level enhancement set forth in § 2B1.1(b)(9)(C), asserting two arguments as to why the District Court erred in its application of this enhancement as follows: (1) § 2B1.1(b)(9)(C) only applies when a defendant does something that an agency had expressly forbidden him from doing, and since the administrative order did not expressly enjoy him from committing the same or similar fraudulent conduct for which he was ultimately convicted, he didn’t violate the order; specifically, “the administrative order clearly delineates the conditions of Mr. Iley’s probation, and none of those conditions includes an order not to commit fraud”; and, (2) the administrative order punished him for negligence, not fraud, thus, his fraudulent conduct did not violate the order because negligence and fraud are different.

The Government disagreed with Iley’s arguments and, in support of the District Court’s application of the enhancement argued on appeal that: (1) although the administrative order did not explicitly enjoin Iley from committing the fraudulent conduct underlying the conviction, such conduct was an unmistakable implication of the order; and, (2) it is irrelevant that the administrative order disciplined Iley for negligent conduct, where his subsequent conviction was for fraudulent acts, as by punishing even negligent conduct, the order necessarily prohibited Iley from engaging in the same conduct fraudulently as well.

The Tenth Circuit, finding this issue to be a legal question subject to a de novo standard of review, affirmed the District Court’s application of the two-level enhancement, and set forth the following conclusions: (1) § 2B1.1(b)(9)(C) may apply without an explicit injunction when, as here, the prior order (i) imposed a concrete punishment, such as a fine, on the defendant for the same or similar conduct at issue in the defendant’s subsequent offense; (ii) imposed prospective, remedial conditions or obligations, like practice monitoring and the filing of quarterly reports – through a probationary term or otherwise – that were reasonably calculated to curtail future instances of the conduct at issue; and (iii) nevertheless the defendant perpetrated that prohibited conduct while the order was still in effect; and, (2) there is no reason to read a symmetry-of-mental-state requirement into § 2B1.1(b)(9)(C), where the defendant engages in the same or similar prohibited conduct with a higher level of “aggravated criminal intent” or, put another way, not only would the two-level enhancement apply where the defendant’s subsequent criminal conduct was done with the same level of culpable intent prohibited by the order, but it also applied where the defendant, undeterred from “brazenly upping his game” engaged in the conduct with a higher level of criminal intent.

 

As a result, Iley’s sentence of 151 months was upheld.

 

Sandra R. Brown  ~ is a principal at Hochman Salkin, Toscher & Perez P.C., and specializes in representing individuals and organizations who are involved in criminal tax investigations, including related grand jury matters, court litigation and appeals, as well as representing and advising taxpayers involved in complex and sophisticated civil tax controversies, including representing and advising taxpayers in sensitive-issue audits and administrative appeals, as well as civil litigation in federal, state and tax court.  Prior to joining the firm, she served as the Acting United States Attorney, the First Assistant United States Attorney and the Chief of the Tax Division of the Office of the U.S. Attorney (C.D. Cal).  Ms. Brown may be reached at brown@taxlitigator.com or 310.281.3217.

[1]  How the Federal Sentencing Guidelines Work: An Abridged Overview (2015) https://fas.org/sgp/crs/misc/R41697.pdf

[2] United States Sentencing Commission Guidelines Manual.

[3] United States v. Donald Iley, ___F.3d ___, 2019 WL 418502 (10th Cir. 2/4/19)

[4] https://www.justice.gov/usao-co/pr/parker-cpa-sentenced-125-years-prison-wire-fraud-and-aiding-and-assisting-preparation


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