To determine a defendant’s offense level, a court will find the initial offense level recommended by the Sentencing Guidelines and then add or deduct points for any adjustments the defendant qualifies for. There are currently 43 offense levels.
For tax crimes, a defendant’s initial offense level is based on the total tax loss. Tax Loss is calculated as 28% of an individual’s total underreported income plus 28% of all incorrect deductions, unless “a more reasonable determination of tax loss can be made.”
This clause gives federal courts a broad discretion in deviating from the prescribed offense level and will often become a major topic of litigation.
A defendant deemed responsible for a tax loss of $2,000 or less will receive the lowest initial offense level, level 6. A defendant who has amounted a tax loss of more than $400,000,000 is classified at the maximum offense level for tax crimes, level 36.
After the initial level is determined, adjustments may be made to increase or decrease the offense level based on the defendant’s conduct up to the point of sentencing.