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Is the “First Step Act” Good News for Tax Crime and other White-Collar Defendants? By Evan J. Davis

Federal sentencing reform has been gathering steam over the past few years, as the chorus of voices critical of mandatory minimum sentences has reached a crescendo.  Congress first tackled the disparity between crack and powder cocaine sentences in the Fair Sentencing Act of 2010, which addressed a tiny, but important, sliver of oft-criticized drug sentences.  In November 2018, the Federal Sentencing Guidelines were modestly revised, encouraging judges to impose non-custodial sentences on nonviolent first offenders who are unlikely to reoffend.

On December 21, 2018, against the backdrop of a partial government shutdown looming due to a partisan divide over the Border Wall, President Trump signed the solidly bipartisan First Step Act.  Though criticized by some as too small a step, in today’s political environment any bipartisan step toward sentencing reform is praiseworthy.

What does the First Step Act do?

  • Makes retroactive the Fair Sentencing Act, thereby allowing defendants sentenced for crack cocaine crimes to apply for a reduction in their sentences. This will provide substantial work for the Department of Justice and U.S. Attorney’s Offices, as well as defense counsel who focus on such motions.
  • Allows certain incarcerated offenders – generally, low-risk – to obtain additional “good time” and “earned time” credits, after having been assessed by the Department of Justice for suitability for early release. As this assessment process doesn’t exist, DOJ is required to implement and periodically update a risk-assessment regime using evidence of what works and what doesn’t, and which offenders are likely to reoffend.
    • Good time credits already exist, as inmates can earn up to 15% good time credits, thereby only serving 85% of their imposed sentence. This simply increases their availability.
    • Earned time exists in a limited circumstance (the RDAP program for drug and alcohol abusers that can knock off up to 12 months from a sentence) and will now apply to inmates who participate in vocational, educational, substance abuse, mental health, anger-management, faith-based, and similar programs. These low-risk inmates will be allowed to move to halfway houses or home confinement more quickly than under prior law, thereby reducing the prison population in a way that should not materially increase the crime rate.
    • The list of those ineligible for such credits contains the usual suspects, such as murder, assassination, arson, kidnapping, terrorism, and child sexual abuse.
  • Expands the application of “safety valve” exception to mandatory minimum drug sentences.
  • Addresses a handful of “quality of life” issues affecting inmates. This includes prohibiting shackling inmates during pregnancy and shortly after delivery, eliminating solitary confinement for juveniles, releasing terminally ill and elderly offenders to home confinement, and prioritizing placing inmates near their families.

What’s in it for tax and white-collar defendants?

The First Step Act is the first tangible move by Congress toward what the United States Sentencing Commission has been urging for the past two years: using evidence-based decisions to place and rehabilitate inmates, instead of simply punishing and warehousing offenders.

The Act’s most-direct benefit for white collar offenders is the new mandate that the Bureau of Prisons maximize home confinement as allowed by law, which unfortunately is limited to the lesser of 10 percent of the imposed sentence or six months, whichever is less.  This should prove to be a small, but important, benefit to tax offenders, who along with other white-collar offenders overwhelmingly will fall into the low-risk designation, as they tend to be older, better-educated, non-violent, and have no criminal history.

Further, because many tax- and white-collar offenders are on the older end of the age spectrum, the liberalization of rules sending “elderly” offenders to home confinement, should also help.  The Act drops the age at which an offender is considered elderly, from 65 to 60 years old.  Other requirements favor fraud offenders, as to be eligible an offender must not have ever been convicted of a violent crime, never escaped from custody, and must be “at no substantial risk” of reoffending.  As noted in an article Steve Toscher and I wrote two years ago, available at Proposed_Amendments, the recidivism rate for tax offenders is, as a category, perhaps the lowest of any other type of offender.  Particularly regarding FBAR offenders, who tend to be both at a very low risk of reoffending as well as at the higher end of the age spectrum, this change is good news for both currently incarcerated offenders as well as for defendants awaiting sentencing and looking for arguments in favor of a non-custodial sentence.

The indirect benefits, however, may be even more substantial than the direct ones.  With the First Step Act, Congress is signaling that incarceration is not the right answer for persons who are at a low risk of recidivism.  It prioritizes recidivism and rehabilitation over deterrence and imposing a “just punishment.”  This dovetails with recent amendments to the federal Sentencing Guidelines, which took effect in November 2018, and state that courts should consider a non-imprisonment sentence for nonviolent, first offenders who fall in Zones A and B of the Sentencing Table. Guidelines,  Although many tax offenders fall in Zones C and D of the Table, the one-two punch of the First Step Act and the Guideline amendments provide powerful support for non-incarceration sentences for tax and other white-collar first offenders.

Because DOJ Tax and USAOs still seek the Guidelines sentence in most cases, we should expect to see the chasm between what defendants seek and what prosecutors recommend grow even wider.  If history is a good predictor, judges will move toward the defense recommendations more frequently than the prosecution recommendations in tax cases, as sentences have been dropping ever since the Supreme Court rendered the Guidelines advisory in United States v. Booker in 2005.

EVAN J. DAVIS – For more information please contact Evan Davis – davis@taxlitigator.com or 310.281.3288. Mr. Davis is a principal at Hochman Salkin Toscher Perez, P.C., a former AUSA of the Tax Division of the Office of the U.S. Attorney (C.D. Cal) handling civil and criminal tax cases and, subsequently, of the Major Frauds Section of the Criminal Division of the Office of the U.S. Attorney (C.D. Cal) handling white-collar, tax, and other fraud cases through jury trial and appeal.  He served as the Bankruptcy Fraud coordinator, Financial Institution Fraud Coordinator, and Securities Fraud coordinator for the USAO’s Criminal Division, and the U.S. Attorney General awarded him the Distinguished Service Award for his work on the $16 Billion RMBS settlement with Bank of America.

Mr. Davis represents individuals and closely held entities in criminal tax investigations and prosecutions, civil tax controversy and litigation, sensitive issue or complex civil tax examinations and administrative tax appeals, and federal and state white-collar criminal investigations including money laundering and health care fraud.  He is significantly involved in the representation of taxpayers throughout the world in matters involving the ongoing, extensive efforts of the U.S. government to identify undeclared interests in foreign financial accounts and assets and the coordination of effective and efficient voluntary disclosures (Streamlined Procedures and otherwise).

 

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