                               In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 13-3908
UNITED STATES OF AMERICA,
                                                   Plaintiff-Appellee,

                                 v.
REX BLACK,
                                               Defendant-Appellant.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
           No. 06 CR 00219 — James F. Holderman, Judge
                     ____________________

   ARGUED FEBRUARY 11, 2015 — DECIDED AUGUST 17, 2015
                ____________________

   Before FLAUM, WILLIAMS and HAMILTON, Circuit Judges.
    WILLIAMS, Circuit Judge. Rex Black repeatedly tried to pay
off a more than $5 million tax debt with checks drawn on
checking accounts that he knew were closed to prevent the
Internal Revenue Service (“IRS”) from collecting taxes from
him. A jury convicted Black of one count of obstructing and
impeding the IRS from collecting taxes and four counts of
2                                                         No. 13-3908

passing and presenting fictitious financial instruments with
intent to defraud. The district court sentenced Black to 71
months in prison. Black now appeals arguing that the dis-
trict court erred in determining his sentencing range under
the United States Sentencing Guidelines (“U.S.S.G.”) § 2T1.1,
improperly calculating the tax loss by aggregating the face
value of the fraudulent checks and by including penalties
and interest in the calculation. We agree, the district court
misinterpreted and misapplied the tax loss definition to the
facts of this case. Finally, we conclude, contrary to Black’s
assertions, that the district court did not error by failing to
consider audit errors and apply available deductions be-
cause Black could not establish that he was entitled to any
reduction in taxes owed. Therefore, we vacate Black’s sen-
tence and remand for resentencing.
                       I. BACKGROUND
    In 2000, the IRS conducted an audit of Black’s income for
tax years 1997 and 1998 (the “2000 Audit”). After the IRS
completed the audit, it assessed approximately $3.89 million
in taxes, penalties and interest (approximately $2.2 million in
taxes alone). Black did not pay the amount due, and addi-
tional penalties and interest accrued.
    Beginning in October 2002, the IRS filed a series of liens
on various properties owned by Black to secure payment of
Black’s tax debt. In response to each lien, Black submitted to
the IRS a fraudulent check or registered bill of exchange1 to
extinguish the lien and satisfy his tax debt. For example, in

1 The fraudulent bills of exchange in this case are financial instruments
that appear to draw on an account at the U.S. Department of Treasury in
Black’s name.
No. 13-3908                                                     3

October 2002, the IRS filed the first lien to satisfy the tax debt
in the amount of $4,856,895.49. That same month, Black
submitted a check drawn on a closed account in the full
amount to the IRS. This pattern continued.
    Between November 2002 and August 2003, the IRS filed
liens for $1,467,168.33, $1,417,804.18, and $4,954,049.40, and
Black sent the IRS a fraudulent check or bill of exchange in
the lien amount. At some point, the IRS assessed $505,993.68
for additional penalties and interest, and Black sent the IRS a
bad check for that amount too.
   The government charged Black with one count under 26
U.S.C. § 7212(a) for corruptly obstructing and impeding the
IRS in its collection of taxes, penalties, and interest (Count 1)
and three counts under 18 U.S.C. § 514(a)(3) for passing or
presenting the United States with fictitious instruments ap-
pearing to be financial instruments with the intent to de-
fraud (Counts 2, 4–5). Count 3 is not relevant to the appeal.
The jury found Black guilty of all counts.
    Before Black’s sentencing hearing, the district court is-
sued an order resolving issues related to Black’s sentencing
guideline range. First, it grouped Counts 1, 2, 4, and 5 for
guideline purposes (collectively, the “group 1 offenses”).
Next, it determined that the applicable guideline provision
was U.S.S.G. § 2T1.1 and found that the offense level under
this guideline “is determined on the basis of Black’s intend-
ed amount of monetary loss to the IRS that was the object of
Black’s criminal conduct.” The district court also found that
the guidelines required him to aggregate the value of the
fraudulent documents, so it added the face value of each
check and bill of exchange Black submitted to the IRS. From
this calculation, the district court determined that the tax
4                                                   No. 13-3908

loss was over $14 million. It recognized that this amount in-
cluded the taxes, penalties, and interest Black owed. Using
the U.S.S.G. § 2T4.1 tax loss table that applies to § 2T1.1, the
district court determined that the tax loss applicable to
Black’s criminal conduct was more than $7 million but less
than $20 million, resulting in a base offense level of 26. Be-
cause Black was also convicted of Count 3, the guidelines
required the district court to increase the offense level by one
point. The resulting base offense level was 27, which pro-
vides for a sentencing range of 70 to 87 months. At the sen-
tencing hearing, the district court considered the advisory
guidelines range along with the factors set forth in 18 U.S.C.
§ 3553 and sentenced Black to 71 months imprisonment.
                        II. ANALYSIS
    On appeal, Black attacks the district court’s application of
U.S.S.G. § 2T1.1. Specifically, he argues that the district court
made three errors in calculating the amount of tax loss under
U.S.S.G. § 2T1.1: (1) aggregating the face value of the checks
and bills of exchange; (2) including penalties and interest;
and (3) failing to correct audit errors and apply available de-
ductions. He concludes that these errors resulted in an incor-
rect base offense level.
    When reviewing a sentence, we must first check to see if
the district court committed a significant procedural error,
such as improperly calculating the guidelines range, treating
the guidelines as mandatory, or selecting a sentence based
on clearly erroneous facts. United States v. Abbas, 560 F.3d
660, 666 (7th Cir. 2009) (quoting Gall v. United States, 552 U.S.
38, 51 (2007)). If we determine that no procedural errors oc-
curred, we consider whether the sentence is substantively
No. 13-3908                                                    5

reasonable. United States v. Garcia, 754 F.3d 460, 483 (7th Cir.
2014).
    We review the sentencing court’s legal interpretation and
application of the sentencing guidelines de novo. United
States v. Jackson, 410 F.3d 939, 941 (7th Cir. 2005). We review
the district court’s tax loss calculation for clear error. United
States v. Williams-Ogletree, 752 F.3d 658, 662 (7th Cir. 2014).
“To show clear error a defendant ‘must show that the district
court’s calculation was not only inaccurate but outside the
realm of permissible computations.’” Id. (quoting United
States v. Al-Shahin, 474 F.3d 941, 950 (7th Cir. 2007)).
   A. Definition and Application of Tax Loss
    First, Black argues that the district court improperly cal-
culated the tax loss amount by aggregating the amount of
each fraudulent check and bill of exchange that he attempted
to pass. The government argues that the guidelines required
the district court to aggregate the tax loss amount. We agree
with Black that the district court did not properly calculate
the tax loss amount. However, the error arose in the first in-
stance from the district court’s interpretation and misappli-
cation of the tax loss definition to the facts of this case not
from any aggregation principle.
    The district court determined that the tax loss amount
was more than $7 million but less than $20 million, based on
an intended loss amount of over $14 million, which is the
cumulative amount of each fraudulent check and bill of ex-
change Black attempted to pass. This tax loss figure resulted
in a base offense level of 26. To arrive at this figure, the dis-
trict court determined that 2T1.1(c)(1) provided the applica-
ble definition of tax loss. This guideline states:
6                                                          No. 13-3908

       If the offense involved tax evasion or a fraudulent or
       false return, statement or other document, the tax loss is
       the total amount of loss that was the object of the offense
       (i.e., the loss that would have resulted had the offense
       been successfully complete).

U.S.S.G. § 2T1.1(c)(1) (2013). But using this tax loss defini-
tion, the district court’s calculation was incorrect.
    In this circuit, “[w]e take the phrase ‘the object of the of-
fense’ to mean that the attempted or intended loss, rather
than the actual loss to the government, is the proper basis of
the tax-loss figure.” United States v. Chavin, 316 F.3d 666, 677
(7th Cir. 2002). Here, the object of Black’s offense was the
amount of money that he attempted to avoid paying, which
is the actual amount of taxes, penalties and interest that was
due. Black owed the IRS unpaid taxes for 1997 and 1998 plus
penalties and interest. The IRS filed a lien to satisfy the tax
debt in the amount of $4,856,895.49. Black wrote a bad check
in this amount. The IRS notified Black that he owed an addi-
tional $505,993.68 in penalties and interest, and Black wrote
a bad check for this amount. At that point, Black owed the
IRS $5,362,889.17. Diligent in its collection efforts, the IRS
filed three additional liens for $1,467,168.33, $1,417,804.18,
and $4,954,049.40—all to collect the same $5.3 million Black
owed. Black responded by writing two bad checks and two
fraudulent bills of exchange to satisfy the tax liens. The dis-
trict court added the face value of each fraudulent instru-
ment submitted to the IRS to determine the tax loss was over
$14 million. Doing so was improper under § 2T1.1. From the
record, it appears that the tax loss was only approximately
$5.3 million.
   Section 2T1.1 defines tax loss in various ways, as detailed
below.
No. 13-3908                                                           7

      For the purposes of this guideline –
      (1) If the offense involved tax evasion or a fraudulent or
      false return, statement, or other document, the tax loss is
      the total amount of loss that was the object of the offense
      (i.e., the loss that would have resulted had the offense
      been successfully completed).
          Notes:
          (A) If the offense involved filing a tax return in
          which gross income was underreported, the tax loss
          shall be treated as equal to 28% of the unreported
          gross income (34% if the taxpayer is a corporation)
          plus 100% of any false credits claimed against tax,
          unless a more accurate determination of the tax loss
          can be made.
          (B) If the offense involved improperly claiming a
          deduction or an exemption, the tax loss shall be
          treated as equal to 28% of the amount of the im-
          properly claimed deduction or exemption (34% if
          the taxpayer is a corporation) plus 100% of any false
          credits claimed against tax, unless a more accurate
          determination of the tax loss can be made.
          …
      (2) If the offense involved failure to file a tax return, the
      tax loss is the amount of tax that the taxpayer owed and
      did not pay.
          Notes:
          (A) If the offense involved failure to file a tax return,
          the tax loss shall be treated as equal to 20% of the
          gross income (25% if the taxpayer is a corporation)
          less any tax withheld or otherwise paid, unless a
          more accurate determination of the tax loss can be
          made.
          …
8                                                          No. 13-3908

       (3) If the offense involved willful failure to pay tax, the
       tax loss is the amount of tax that the taxpayer owed and
       did not pay.
       (4) If the offense involved improperly claiming a refund
       to which the claimant was not entitled, the tax loss is the
       amount of the claimed refund to which the claimant was
       not entitled.

U.S.S.G. § 2T1.1. When reading § 2T1.1’s definitions of tax
loss as a whole, we understand each definition of tax loss to
reflect the tax revenue that the government was owed but
did not receive due to a defendant’s criminal conduct. See
§ 2T1.1(c)(1)–(4); accord United States v. Gordon, 291 F.3d 181,
187 (2d Cir. 2002) (“Tax loss under § 2T1.1 is intended to re-
flect the revenue loss to the government from defendant’s
behavior.”).
    The district court could have determined § 2B1.1, the
general fraud guideline, applied to Black’s convictions. Sec-
tion 2B1.1 deals with “loss,” which we will refer to as “gen-
eral loss,” not “tax loss.” This section defines general loss in
the following ways.
       (i) Actual Loss.—"Actual loss" means the reasonably
       foreseeable pecuniary harm that resulted from the of-
       fense.
       (ii) Intended Loss.—"Intended loss" (I) means the pecu-
       niary harm that was intended to result from the offense;
       and (II) includes intended pecuniary harm that would
       have been impossible or unlikely to occur (e.g., as in a
       government sting operation, or an insurance fraud in
       which the claim exceeded the insured value).

U.S.S.G. § 2B1.1 cmt. n.3(A). Unlike the tax fraud guideline,
§ 2T1.1, the general fraud guideline, § 2B1.1, defines “in-
tended loss” to include monetary “harm that would have
No. 13-3908                                                  9

been impossible or unlikely to occur (e.g. … an insurance
fraud in which the claim exceeded the insured value).”
U.S.S.G. § 2B1.1 cmt. n.3(A)(ii).
    Three of Black’s relevant convictions were under 18
U.S.C. § 514 for presenting the U.S. government with a check
or a bill of exchange with intent to defraud, and the guide-
lines state that § 2B1.1 is applicable to convictions under 18
U.S.C. § 514. Under § 2B1.1, in a typical case involving pass-
ing fraudulent checks, district courts routinely calculate a
general loss amount by adding the value of each check.
Here, however, the district court did not choose to proceed
under § 2B1.1, which changed the parameters of its tax loss
calculation.
    All parties agreed that § 2T1.1 was the appropriate guide-
line in this case. (No party challenged the propriety of using
this guideline on appeal.) As a result, the district court pro-
ceeded under § 2T1.1. This guideline required the district
court to calculate loss by the tax loss the IRS incurred or
could have incurred, not the general loss, which the general
fraud guideline defines as monetary harm that did result or
could have resulted from attempts to pass bad checks. Com-
pare U.S.S.G. § 2T1.1(c)(1) (defining tax loss in various ways
corresponding to the amount of tax revenue the IRS was
owed and did not receive) with § 2B1.1 cmt. n.3 (defining loss
as the reasonably foreseeable pecuniary harm that resulted
from the offense or “the pecuniary harm that was intended
to result from the offense,” even if such harm would have
been impossible or unlikely to occur). By reviewing the face
value of the checks and aggregating these amounts, the dis-
trict court considered the general loss—the monetary harm
that the IRS could have faced—not the tax loss. As stated
10                                                No. 13-3908

above, tax loss reflects the tax revenue that the government
was owed but did not receive due to a defendant’s criminal
conduct. Therefore, under these facts, the tax loss cannot ex-
ceed the $5.3 million that the evidence shows Black owed the
IRS.
     B. Penalties and Interest Should Not Have Been In-
     cluded in the Tax Loss Calculation.
   Black argues that the district court erred by including
penalties and interest as part of the tax loss calculation. We
agree.
    The general rule is that the tax loss calculation “does not
include interest or penalties.” U.S.S.G. § 2T1.1 cmt. n.1.
There is a narrow exception to this general rule for willful
evasion cases under 26 U.S.C. § 7201 and willful failure to
pay cases under 26 U.S.C. § 7203. Id. Black’s case does not
fall within this exception. The jury did not convict him of
any offense under § 7201 or § 7203.
   The government argues that the issue of whether Black’s
tax loss calculation included penalties and interest is not
properly before the court because the district court based the
tax loss amount on the face value of the fraudulent checks,
not the amount of taxes Black owed. As stated above, the
face value of the checks was not the correct tax loss. Moreo-
ver, the record establishes that the district court included
penalties and interest in its tax loss calculation.
    The district court stated “[t]he loss Black intended the
IRS to suffer had Black’s offense been successfully complet-
ed included the loss of the penalties and interest Black owed
the IRS, as well as the taxes he owed.” It included a footnote
in its order that stated that:
No. 13-3908                                                        11

      Even though Black’s criminal statute of conviction was
      26 U.S.C. § 7212(a) not [§§] 7201 or 7203, the evidence at
      trial established beyond a reasonable doubt that the ob-
      ject of Black’s criminal conduct in committing the of-
      fenses … was to defraud the IRS by willfully failing to
      pay and willfully evading his payment of his debt obli-
      gations to the IRS, which included the penalties and in-
      terest, as well as the taxes that Black owed to the IRS.

The district court included penalties and interest in the tax
loss calculation and did so because Black’s conduct was sim-
ilar to conduct criminalized by §7201 and § 7203. However,
since the statute of conviction was not §7201 or § 7203, the
plain language of the guideline commentary compels a find-
ing that the district court erred by including penalties and
interest in the tax loss amount.
   C. Black Failed to Meet His Burden to Establish He
   Was Entitled to a Tax Loss Reduction Due to Audit Er-
   rors and Available Deductions.
    Black also argues that the tax loss calculation was errone-
ous because it was derived from the 2000 Audit which con-
tained an overstatement of Black’s income and failed to cred-
it Black for legitimate deductions. He further argues that it
was the government’s burden to prove the loss amount.
    The district court determined that Black failed to follow
the appropriate procedures to appeal the IRS’s audit deter-
mination and thus waived his right to assert unclaimed de-
ductions, relying on Chavin, 316 F.3d at 677–78. It also de-
termined that: (1) the deductions were unrelated to the tax
offenses of which the jury found Black guilty, and (2) Black’s
failure to cooperate with the IRS during the audit process
made it so that the accuracy of the deductions was not rea-
sonably ascertainable at the time of Black’s sentencing.
12                                                         No. 13-3908

    In Chavin, we held that district courts should not consider
unclaimed, legitimate deductions when calculating tax loss
under § 2T1.1. 316 F.3d at 677–79. The U.S. Sentencing
Commission disagreed and issued an amendment to §2T1.1
to “reflect the Commission’s view that consideration of legit-
imate unclaimed credits, deductions, or objections, subject to
certain limitations and exclusions,” is proper. U.S.S.G. Man-
ual app. C, amend. 774 at 41–42. The amendment states:
      [T]he court should account for any unclaimed credit,
      deduction, or exemption that is needed to ensure a rea-
      sonable estimate of tax loss, but only to the extent that
      (A) the credit, deduction, or exemption was related to
      the tax offense and could have been claimed at the time
      the tax offense was committed; (B) the credit, deduction,
      or exemption is reasonably and practicably ascertaina-
      ble; and (C) the defendant presents information to sup-
      port the credit, deduction, or exemption sufficiently in
      advance of sentence to provide an adequate opportunity
      to evaluate whether it has sufficient indicia of reliability
      to support its probable accuracy.
      …
      The burden is on the defendant to establish any such
      credit, deduction, or exemption by the preponderance of
      the evidence.

Id. at § 2T1.1 cmt. n.3. As a result, Chavin no longer controls
the issue of whether the district court should consider un-
claimed deductions. If the circumstances of the case meet the
criteria outlined above, district courts should consider un-
claimed deductions.
    Here, the district court correctly determined that it
should not have considered unclaimed deductions and other
alleged errors in the 2000 Audit. Once the government estab-
lished the tax loss amount, Black had the burden to show
No. 13-3908                                                   13

that he was entitled to credits or deductions. Id. There is in-
sufficient evidence on the record to establish that at the time
of Black’s criminal conduct, he could have challenged the
audit and reduced his tax liability. Therefore, Black did not
meet his burden. So, there was no error by the district court
with respect to this issue.
    In sum, the district court misapplied § 2T1.1 to Black’s
sentence. Specifically, it erred by finding that the tax loss was
more than $7 million but less than $20 million, when the tax
loss, before any deductions for penalties and interest, was
approximately $5.3 million. Because of the district court’s er-
rors in calculating the tax loss, it selected the wrong base of-
fense level and improperly calculated the sentencing range.
   D. Harmless Error Analysis
    An error in calculating the sentencing guideline range is
a procedural error that requires remand unless the govern-
ment can show that the error is harmless. United States v.
Thompson, 599 F.3d 595, 602 (7th Cir. 2010). To establish
harmless error, the government must be able to show that
the sentence would have been the same absent the error. Ab-
bas, 560 F.3d at 667. At oral argument the government
acknowledged that the district court’s decision was driven
by the guideline calculation. A review of the record reveals
the same. As a result, the government cannot show that the
sentence would have been the same absent the error, and the
miscalculation of the tax loss amount is not harmless error.
Therefore, we must remand for reconsideration of the tax
loss amount.
   Black also argues that his sentence was substantively un-
reasonable. Because we remand for resentencing, we need
14                                               No. 13-3908

not address this argument. See United States v. Halliday, 672
F.3d 462, 475 (7th Cir. 2012).
                    III. CONCLUSION
   For the reasons stated, we VACATE Black’s sentence and
REMAND for full resentencing after correcting the tax loss in
the guideline calculation using U.S.S.G. § 2T1.1.
No. 13-3908                                                  15

    HAMILTON, Circuit Judge, concurring. I join fully in Judge
Williams’ opinion for the court. I add only that the district
judge’s sentencing instincts were sound under 18 U.S.C.
§ 3553(a). The problem here is that the district judge tied the
sentencing decision a little too closely to the sentencing
guidelines, so that the errors in applying U.S.S.G. § 2T1.1,
which applies to certain tax crimes, cannot be deemed harm-
less.
    The parties and the district court all focused on § 2T1.1.
The court could also have found useful guidance in the more
general sentencing guideline for fraud, § 2B1.1, which ap-
plies to Black’s convictions under 18 U.S.C. § 514(a). If it had
done so, it would have been permitted to aggregate the face
value of the multiple phony checks and bills of exchange,
though aggregation is not permitted under § 2T1.1.
    The underlying problem is that neither § 2T1.1 nor
§ 2B1.1 is a perfect fit for Black’s combination of crimes. Sec-
tion 2T1.1 has no mechanism to take account of Black’s re-
peated efforts to pay the government with phony checks and
bills of exchange. Section 2B1.1 has no mechanism to take
account of the tax dimensions of his fraud. That imperfect fit
and the rather arbitrary differences between § 2B1.1 and
§ 2T1.1 as applied to this case demonstrate the value of treat-
ing the sentencing guidelines as advisory under United States
v. Booker, 543 U.S. 220 (2005). On remand, the district court
should step back from the details of the guidelines and look
at the entirety of Black’s crimes. In doing so, the court may
take advice from any relevant guideline and must exercise
judgment under 18 U.S.C. § 3553(a). In my view, the district
court exercising its judgment under § 3553(a) on remand
16                                            No. 13-3908

might well be able to impose a reasonable sentence as high
as the original sentence.
