Use of Accounting Board Order in Criminal Tax Case

If an accountant is disciplined by the accounting board, can the discipline be used to increase his criminal sentence for tax fraud when the accounting board’s discipline did not prohibit or address fraud? The court addressed this in United States v. Iley, No. 17-1269 (10th Cir. 2019).

Facts & Procedural History

The defendant was a CPA licensed in Colorado. He had a sizable tax and accounting practice.

The court case focused on an administrative disciplinary hearing by the Colorado Board of Accountancy (“CBOA”). The CBOA reached an agreement with the defendant wherein he admitted his actions were criminal, agreed to a probationary period, and agreed to pay a $10,000 fine.

The conduct underlying the agreement involved the payment of payroll taxes for the defendant’s clients. The defendant would prepare correct payroll tax forms, provide those to his clients and advise the clients that he would take the funds from the clients’ bank accounts to pay the payroll taxes. The defendant would then remit false payroll tax returns to the IRS reflecting less in payroll taxes being due, and pocket the difference.

The defendant continued these practices for several years after the agreement, even during the CBOA probationary period.

This conduct was eventually reported to law enforcement. The defendant was indicated by a Federal grand jury for twelve counts of wire fraud, 18 U.S.C. § 1343, two counts of mail fraud, 18 U.S.C. § 1341, and eighteen counts of aiding in the preparation of false tax returns, 26 U.S.C. § 7206(2).

The defendant pleaded guilty to one count of wire fraud and one count of aiding in the preparation of a false tax return, in exchange for the government agreeing, inter alia, to dismiss the remaining charges.

In applying the Federal sentencing guidelines, the government came up with a sentencing range as 97-121 months imprisonment. This used a total adjusted offense level of thirty, which included a two-level enhancement under § 2B1.1(b)(9)(C) for the defendant’s alleged violation of this agreement with the CBOA.

The dispute in this case involved whether the two-level enhancement was warranted.

The Federal Sentencing Guidelines

The Federal sentencing guidelines are intended to help provide consistency in the sentences imposed for Federal crimes.

The Federal sentencing guidelines produce a guideline range. This range is expressed in terms of a minimum and maximum number of months for the sentence. The judge has discretion to impose a sentence within this range or, if special circumstances warrant, the judge may depart above or below the range.

The guideline range can be increased by several enhancements, such as the sophisticated means enhancement. This case involved an enhancement for “a violation of any prior, specific judicial or administrative order, injunction, decree, or process not addressed elsewhere in the guidelines.”

The CBOA Agreement

The defendant argued that the sentencing enhancement should not apply as the COBA agreement did not prohibit him from committing fraud. As such, the defendant argued that he did not violate the CBOA agreement by committing fraud and the sentencing enhancement was not proper.

The court  concluded that the sentencing enhancement applies even though the CBOA agreement did not expressly enjoin the defendant from committing the same or similar fraudulent conduct for which he ultimately was convicted when the prior order:

1. 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;
2. 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
3. nevertheless the defendant perpetrated that prohibited conduct while the order was still in effect.

Warning About Being Sloppy vs. Stealing Money

The defendant argued that “a warning against being sloppy” does “not amount to a warning not to steal clients’ money.”

The court held that the higher intent requirement for fraud subsumed the less culpable intent for being sloppy:

 a defendant who commits certain conduct with a high level of culpable intent afterbeing formally warned against committing the same underlying conduct, while possessing a lower level of culpable intent, would seem to be even more worthy of the enhancement than a defendant who simply engages in the same prohibited conduct again, while possessing the same, lower level of culpable intent. 

The court concluded that the sentencing enhancement was proper.