Federal judges go easy on tax cheats, pornographers and prostitutes

The latest numbers from the U.S. Sentencing Commission provide new evidence that at least some Federal judges don't like handing out stiff jail sentences to tax cheats. Since the Supreme Court ruled in U.S. v. Booker in 2005 that the Commission's tough-on-white-collar-crimes sentencing guidelines weren't binding, the Commission has tracked the frequency with which judges hand out lighter penalties than the guidelines call for.

In the first nine months of fiscal 2010, federal judges cited Booker to sentence 13.4% of all federal convicts to below guideline terms. Tax cheats? Thanks to Booker, they got below guideline sentences 29% of the time. One of the few things that seemed to offend the jurists more than putting tax cheats away: the very, very long guideline sentences for pornography and prostitution. There, judges used Booker to sentence below range 34% of the time.

But there's a big difference. In the tax cases where they used Booker to go low, judges handed out a median sentence of just five months—a year less than minimum. That amount of time can be served in home confinement. By contrast, the judges who sentenced below the minimum in pornography and prostitution cases still meted out a median prison term of five years– 37 months below the guideline minimum.

Before you decide to cheat on your taxes, however, be forewarned: Two Midwestern tax lawyers told me Wednesday that they haven't seen such leniency in their cases and believe sentencing varies greatly by region. Indeed, while below guideline figures aren't published by type of offense for each district, they are for all offenses. In the Southern District of New York (Manhattan) judges used Booker to sentence below range in 41% of all cases, whereas in Arizona, Nevada and the Eastern District of Texas, judges cut defendants a Booker break only 5% of the time.

Robert E. McKenzie, a partner with Arnstein & Lehr, emailed from Europe: "My observation is that Booker has not resulted in significant reduced sentences from our Chicago bench." Reports McKenzie: "We had a sentencing last week where 2 immigrant plumbing contractors pled to tax losses of $55,000 each. The judge could have given probation under the guideline. The government argued for 1-16 months. The judge sentenced each defendant to 5 months."

Similarly, tax lawyer and Forbes blogger Stephen Dunn says his clients in the Eastern District of Michigan haven't been catching sentencing breaks. Reports Dunn: "In one case, the court meted out a guideline sentence of 18 months to a man for filing a false tax return. He is serving it in a minimum security prison, with lawyers, doctors, and a senator."

Still, Dunn noted: "I am aware of cases in other districts in which people convicted of tax offenses are sentenced to probation or house arrest. Unfortunately, the sentencing guidelines are not applied evenly across the country. And allowing tax convicts to buy their freedom by paying the tax they evaded is very bad precedent."

Among those who famously received probation for a tax offense: billionaire California real estate developer Igor Olenicoff, who pleaded guilty to lying on his tax return about $200 million in assets he hid offshore, including at UBS, AG. In Olenicoff's case, however, the government agreed he should get probation as part of a deal that required him to pay $52 million in back federal taxes, interest and civil fraud penalties and bring his offshore money back to the U.S. Olenicoff's UBS banker, Bradley Birkenfeld, who is credited with exposing UBS' role in helping thousands of wealthy Americans hide money offshore, got a stiff 40 months. Go figure.

(Published by Forbes - September 8, 2010)