U.S. Sentencing Commission Considers Revisions To Sentencing Guidelines On Intellectual Property Theft And Tax Evasion

Posted On Tuesday, January 22, 2013

The Friday edition of the Federal Register announced proposed changes by the U.S. Sentencing Commission to the federal sentencing guidelines on intellectual property theft and tax evasion.  Before they can take effect, proposed guideline revisions are published in the Federal Register to provide the public, practitioners, and judiciary an opportunity to offer comments or propose alternatives.  Like many guideline revisions, two of the most recent proposals were prompted by recent legislation and a split within the U.S. Courts of Appeals.

In 2012, Congress passed the Foreign and Economic Espionage Penalty Enhancement Act which directed that Section 2B5.3, titled “Criminal Infringement of Copyright or Trademark,” of the sentencing guidelines be amended. The Act directed the Sentencing Commission to ensure that the guidelines “reflect the seriousness of these offenses, account for the potential and actual harm caused by these offenses, and provide adequate deterrence against such offenses.”  As a result, the proposed changes include enhancements for transmitting stolen trade secrets outside of the United States or to a foreign government or agent.  Also, because the Act increased fines for economic espionage, the proposed guidelines provide a maximum fine of $5,000,000 for an individual and, for an organization,  the greater of $10,000,000 or three times the value of the stolen trade secret.

The Sentencing Commission is also weighing changes to Section 2T1.1 related to tax evasion due to a Circuit split regarding the use of unclaimed deductions to reduce tax loss.  The reduction of tax loss is important to criminal defendants because it can affect the length of a term of imprisonment.  The Second and Tenth Circuits have held that a district court can offset a defendant’s tax loss amount with legitimate but unclaimed deductions.  U.S. v. Hoskins, 654 F.3d 1086, 1094 (10th Cir. 2011); U.S. v. Gordon, 291 F.3d 181, 187 (2d Cir. 2002).  The Fourth, Fifth, Seventh, Eighth, and Eleventh Circuits, however, have held that a defendant may not present evidence of unclaimed deductions to reduce the tax loss.  See e.g., U.S. v. Delfino, 510 F.3d 468, 473 (4th Cir. 2007); U.S. v. Yip, 592 F.3d 1035, 1041 (9th Cir. 2010).  The proposed guideline change contemplates options which could resolve the Circuit split by explicitly permitting or proscribing an offset of the tax loss by the amount of unclaimed deductions.

All of the proposed revisions to the guidelines can be found here: http://www.ussc.gov/Legal/Federal_Register_Notices/20130115_FR_Proposed_Amendments.pdf

The Sentencing Commission also published a version showing how the proposed changes would appear within the actual sentencing guidelines if approved: