USA v. James Fife and Karen Krahn, 06-2037, 06-2038 & 06-2175.  James Fife pled guilty to four counts of willfully making and subscribing a false income tax return in violation of 26 U.S.C. § 7206(1). Karen Krahn, Fife’s wife, pled guilty to one count of willfully aiding and assisting in the preparation and presentation of a false income tax return in violation of 26 U.S.C. § 7206(2).

In calculating the  both defendant’s advisory Sentencing Guidelines range, the district court imposed a two-point increase for the use of sophisticated means pursuant to U.S.S.G. § 2T1.1(b)(2) because the defendant’s used shell corporations and concealment from their accountants to carry out their scheme.

The Seventh Circuit starts by stating that sophisticated means are those which are more complex than those involved in the run-of-the-mill tax evasion case. United States v. Furkin, 119 F.3d 1276, 1284 (7th Cir. 1997). The Guidelines specifically include the use of corporate shells in it’s list of sophisticated means. U.S.S.G. § 2T1.1 cmt. n. 4.

Fife and Krahn contend that their scheme cannot possibly be considered “sophisticated”. Their argument goes that if Fife and Krahn intended to conceal taxable income, creating corporations with Federal ID numbers would be the “dumbest” thing they could do.

The Seventh Circuit states that this argument confuses “sophisticated” for “intelligent”. The sophisticated means enhancement does not require a brilliant scheme, just one that displays a greater level of planning or concealment than the usual tax evasion case. United States v. Kontny, 238 F.3d 815, 821 (7th Cir. 2001) (“In light of its purpose and context, we think ‘sophistication’ must refer not to the elegance, the ‘class,’ the ‘style’ of the defrauder-the degree to which he approximates Cary Grant-but to the presence of efforts at concealment that go beyond . . . the concealment inherent in tax fraud.”)

As such, the Seventh Circuit finds that the district court properly applied the Sentencing Guidelines and found that Fife and Krahn used sophisticated means in the commission and concealment of their offenses.

 

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