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United States v. Baxter

April 27, 2006

UNITED STATES OF AMERICA, PLAINTIFF,
v.
LAURA M. BAXTER, DEFENDANT.



The opinion of the court was delivered by: James F. Holderman, District Judge

MEMORANDUM OPINION AND ORDER

On May 19, 2005, defendant Laura M. Baxter ("Baxter"), entered a plea of guilty, pursuant to a written plea agreement, (Dkt. Nos. 39, 41), to a one-count superceding information. (Dkt. No. 33). A Presentence Investigation Report ("PSR"), was prepared by the probation officer and the case was set for sentencing on September 27, 2005. The government on August 29, 2005 filed an objection (Dkt. No. 36), to the probation officer's calculation in the PSR of Baxter's total offense level. The government in that filing asserted that Baxter is responsible for a tax loss to the United States in excess of $5.1 million*fn1 while the probation officer had opined, based upon the probation officer's investigation and analysis, that Baxter was responsible for a tax loss of $576,000. (Dkt. No. 36). On September 26, 2006, the court held a hearing on the government's objections at which the government had the burden to prove by a preponderance any disputed facts that the government sought to use to enhance Baxter's sentence based upon a tax loss greater than $576,000. United States v. Dean, 414 F.3d 725, 730 (7th Cir. 2005). Any sentence imposed, however, cannot exceed the maximum sentence allowed by the statute to which Baxter plead guilty which under 26 U.S.C. § 7212(a) is three years imprisonment and a $250,000 fine. For the reasons set forth below, this court finds that the government has failed to prove to a preponderance of the evidence that Baxter is responsible for a tax loss in excess of the $576,000 figure as set forth in the PSR. Nor did she use sophisticated means to conceal her criminal conduct. Lastly, the court finds Baxter is entitled to a three-level reduction for timely acceptance of responsibility.

BACKGROUND

The offense Baxter plead guilty to under the plea agreement is obstructing and impeding the administration of the federal tax laws in violation of 26 U.S.C. § 7212(a). (Dkt. No. 41 at ¶ 1). The facts that are not in dispute are set forth in the plea agreement and form the factual basis for Baxter's offense. The government and Baxter agree that the court should use the 1995 version of the United States Sentencing Commission Guidelines Manual (Dkt. No. 41, at pg. 6); (Sept. 27, 2005 Tr. at pg. 4), to determine the advisory United States Sentencing Guideline range in this case.

In making the recommendation in the PSR as to the sentencing range, the probation officer calculated Baxter's total offense level to be 17 and her criminal history category to be I. The probation officer arrived at a total offense level of 17 by first assigning a base offense level of 18 based on a tax loss of $576,000 pursuant to Guidelines § 2T4.1 and then adding a two-level enhancement under Guidelines § 3B1.3 because the defendant used her special skill as an accountant to facilitate the commission of the offense. The probation officer then deducted a total of three levels representing a two-level reduction for acceptance of responsibility and a one-level reduction for timely notification of the government of her intention to plead guilty pursuant to Guidelines § 3E1.1. Pursuant to the United States Guidelines Sentencing Table, a total offense level of 17, with a criminal history category of I, results in an advisory sentencing range of 24 to 30 months imprisonment.

As stated earlier, the government argues that Baxter is responsible for causing a tax loss in excess of $5.5 million through her participation in the Aegis system. A $5.5 million tax loss would result in a base offense level of 22 pursuant to Guidelines § 2T4.1. The government also argues that Baxter should receive a two-level enhancement for use of sophisticated means to conceal her crimes under Guidelines § 2T1.1(b)(2) in addition to the two-level enhancement under Guidelines §3B1.3 for her accounting skills that the probation officer previously assessed. The government further argues that Baxter should receive no reductions for acceptance of responsibility or timely notification. Based upon the government's assertion of the facts, Baxter's total offense level would be 26. With her criminal history category of I, the resulting sentencing guideline range would be 63 to 78 months which is substantially above the statutory maximum imprisonment of 36 months.

ANALYSIS

The statutory maximum sentence is established through consideration of facts either admitted by the defendant or found by a jury beyond a reasonable doubt. United States v. Paulus, 419 F.3d 693, 697 (7th Cir. 2005) (citations omitted). Baxter admitted in her plea agreement that she submitted a false document to the IRS in order to obstruct an IRS audit. (Dkt. No. 41 at pgs. 2-5). This court can "use all information that [it] possess[es] in order to properly compute [a] sentence." United States v. Kroledge, 201 F.3d 908, 908 (7th Cir. 2000) (citing 18 U.S.C. § 3661)). This court applies the preponderance of the evidence standard in evaluating the factual disputes between Baxter and the government that this court must decide before sentencing Baxter. See United States v. Dean, 414 F.3d 725, 730 (7th Cir. 2005) (noting that the formalities of a trial, such as trial by jury and proof beyond a reasonable doubt, do not apply when the district court makes its factual findings that do not increase a sentence beyond the statutory maximum); see also United States v. Hankton, 432 F.3d 779, 789-91 (7th Cir. 2005) (detailing the standards to be applied in a sentencing hearing).

A. Amount of the Tax Loss to the Government

The government has arrived at its argument of a $5.5 million tax loss by contending that Baxter is responsible for the tax losses caused by all of her clients using the Aegis tax scheme. Baxter counters that she is only responsible for the tax loss associated with the one client for which she submitted the false document to the IRS in order to obstruct the IRS audit.

The government asserts twelve*fn2 points of argument that the government contends demonstrate that Baxter was responsible for the losses caused by all of her clients. In summary, the government's points boil down to one key factual dispute: whether Baxter knew the Aegis system was unlawful, or at least, purposefully remained ignorant as to the legality of the Aegis system? The government contends that Baxter was too well educated, had too much access to tax research information, and had too many warnings about the unlawful nature of tax transactions used by Aegis, including statements by Aegis personnel about the Aegis system that were clearly wrong, not to have figured out that Aegis was unlawful.

The government's arguments, however, are belied by the testimony of the government's own case agent investigating this case, IRS Special Agent Denis Umali, ("Umali"). Special Agent Umali contradicted the inferences the government asks this court to draw about Baxter's knowledge. Umali, who has been an IRS Special Agent for the last 11 years, testified that Aegis "did a credible job creating the appearance of legitimacy." (Sept. 27, 2005 Tr. at pgs. 148-49). Umali agreed that the people at Aegis made "slight misrepresentations of the law and took things out of context to support that their system was legal." (Tr. at pg. 149). According to Special Agent Umali, the people at Aegis "were able to convince 600 or so clients to buy into" the alleged legitimacy of Aegis. (Tr. at 154). Special Agent Umali further testified that the Aegis did a "believable" job in promoting its system as legal. (Id.)

Umali's testimony supports Baxter's position that she believed that as long as she followed the Aegis system then the transactions implemented for her clients would be lawful. Baxter's trust in the Aegis system was also bolstered by her friendship with Shawn Dunn, a prior co-worker who was a promoter for Aegis. Baxter appears to have believed in the legality of the advice given by the Aegis instructors and in the legitimacy of the Aegis system, in part, because she trusted her friend Shawn Dunn. The evidence at the hearing held by the court establishes that Baxter was gullible like hundreds of other gullible people who were duped by Aegis and "who bought into the legitimacy of the Aegis system" according to the testimony of Special Agent Umali. (Tr. at pg. 154). It was Baxter's gullibility, not greed, that guided her actions as to the Aegis system.

There is no question Baxter is guilty of the offense to which she plead guilty, submitting a false document to the IRS to obstruct an IRS audit. But based on the evidence presented at the hearing and the court has reviewed, the court cannot say that the government has proven by a preponderance of the evidence that Baxter knew at the time of her offense the illegality of the Aegis system. The government has failed to meet its burden of showing by a preponderance of the evidence that Baxter sought to defraud the government through her use of the Aegis system so as to be accountable for the $5.5 million in tax loss as the ...


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