Can a Judge Fine You Far Above the Guidelines for Tax Evasion?

Yes. A federal judge can impose a fine far above the Guidelines range, especially when the defendant is very wealthy. In United States v. Zukerman, 897 F.3d 423 (2d Cir. 2018), the Second Circuit upheld a $10 million fine for tax evasion. The Guidelines range topped out at $250,000.

According to the original article, people convicted of tax crimes often receive a downward variance (a sentence below the Guidelines range). Zukerman went the other way.

Sentencing and Fines for Tax Evasion

Tax evasion is a felony under 26 U.S.C. § 7201. Each count carries up to five years in prison. When someone faces both state and federal tax charges, the court decides whether the prison terms run consecutively or concurrently.

General federal fine law sets the maximum fine for a felony at $250,000 for a person and $500,000 for an organization. It can also allow a fine of up to twice the gain or loss from the crime (18 U.S.C. § 3571).

Under the Sentencing Guidelines, the court starts with the tax loss, meaning "the total amount of loss that was the object of the offense." This can be more than the tax the government actually failed to collect. It does not include interest or penalties. The court can also consider related conduct, even if it was not charged.

The Fine Imposed in United States v. Zukerman

Morris Zukerman pleaded guilty to tax evasion and to obstructing the IRS. The plea agreement set a Guidelines fine range of $25,000 to $250,000.

The district court sentenced him to 70 months in prison, $37 million in restitution, and a $10 million fine. This was an upward variance. The judge said the fine had to be large enough to take away any financial benefit from the crimes, to deter others from this kind of financial wrongdoing, and to punish someone who had profited for years.

Why the Procedural Challenge Failed

Zukerman argued the court never properly looked at his net worth. The district court never asked for, or received, an exact report of it. The Second Circuit still disagreed. He had a fair chance to tell the court about his finances and ability to pay, and he chose not to.

Why the Substantive Challenge Failed

He also argued the fine was simply too high. The appeals court held the fine was within the judge's discretion given how serious the crimes were.

The court also said it was proper for the judge to consider Zukerman's great wealth. A fine that would be crushing for most people was fair for someone with his resources. Because he was so unusually wealthy, the court suggested this kind of upward variance would not apply widely to most tax evasion defendants.

Challenging a Tax Evasion Fine

Zukerman shows that fines in tax cases can be very large, especially for wealthy defendants. A large fine can even cripple a person's chance at a productive life after prison. The original article warned that wealthy defendants should be especially alert to courts imposing much higher fines than needed to deter others. Even if a tax conviction cannot be overturned, it is still important to try to keep the fine as low as possible.

If you are facing sentencing, give the court accurate information about your finances and address the fine as carefully as prison time. In federal court, that information usually goes to the probation officer through a financial statement for the presentence report (PSR). Fill it out completely and truthfully with your lawyer's help; leaving things out can hurt you, as it did Zukerman, and a false statement can be a separate crime.

Facing a federal sentence? Book a consultation to talk it through with Brandon Sample.