Trust-Fund Withholdings as “Income from Criminal Activity” Under U.S.S.G. § 2T1.1(b)(1): Fourth Circuit (Unpublished) Affirms Enhancement and Orders Full Resentencing for Rogers Error

Introduction

This commentary analyzes the Fourth Circuit’s unpublished decision in United States v. James C. Jones, Jr., No. 24-4288 (4th Cir. Sept. 19, 2025). A jury in the Western District of Virginia convicted Jones on eight tax-related counts, including corruptly impeding the IRS (26 U.S.C. § 7212(a)), tax evasion (26 U.S.C. § 7201), and filing false individual income tax returns (26 U.S.C. § 7206(1)). The district court imposed a 78‑month sentence and three years of supervised release, along with a $250,000 fine and $394,508 in restitution. On appeal, Jones mounted sufficiency challenges to all counts, contested a two-level enhancement under U.S.S.G. § 2T1.1(b)(1), and the parties jointly identified a Rogers sentencing error concerning supervised release conditions.

The Fourth Circuit (Judge Maddox, joined by Judges Wilkinson and King) affirmed the convictions and upheld the challenged Guidelines enhancement, but vacated the sentence and remanded for resentencing to remedy the Rogers error. Although unpublished and thus non-binding in the Fourth Circuit, the opinion is consequential in two respects:

It endorses the application of U.S.S.G. § 2T1.1(b)(1) where an employer’s willful failure to pay over employment “trust fund” taxes (conduct condemned by 26 U.S.C. § 7202) is treated as unreported “income from criminal activity,” rejecting a double-counting argument.
It reiterates that a material discrepancy between orally pronounced discretionary conditions of supervised release and the written judgment (here, an added requirement to “warn other occupants” about searches) mandates full resentencing under Rogers and Mathis.

Summary of the Opinion

The court methodically addressed three buckets of issues:

Sufficiency of the evidence (Counts 3–8, § 7206(1)): The panel held that substantial evidence supported willfulness and material falsity in Jones’s tax returns for tax years 2013–2018, including his failure to report substantial St. Maarten rental income, use of offshore nominee structures and bearer shares, improper casualty/theft loss claims, and disregard of professional advice.
Sufficiency (Counts 1–2, §§ 7212(a) and 7201): Viewing the record in the light most favorable to the government, the court found ample evidence—within the six-year limitations period and supported by pre-limitations conduct—of corrupt efforts to impede IRS collections and affirmative acts of evasion, including false grand jury subpoena responses about foreign accounts, serial false returns, and deceptive asset maneuvers.
Sentencing (U.S.S.G. § 2T1.1(b)(1)): The Fourth Circuit affirmed a two-level increase for failure to report income exceeding $10,000 “from criminal activity.” It agreed with the district court that Jones’s willful failure to pay over trust fund taxes (a felony under 26 U.S.C. § 7202) yielded unreported “income” derived from criminal activity and rejected a double-counting challenge. The rule of lenity was inapplicable because the guideline text was unambiguous. The court cited the Fifth Circuit’s United States v. Heard as persuasive authority.

On the Rogers issue, the court identified a material discrepancy: at sentencing the court imposed a warrantless-search condition but did not orally require Jones to “warn other occupants” that premises could be searched; that requirement appeared only in the written judgment. Under Rogers, Singletary, and Mathis, this necessitated vacatur and a full resentencing.

Analysis

Precedents Cited and Their Influence

Sufficiency review framework: The panel recited the familiar standard, emphasizing deference to the jury and the requirement to uphold verdicts supported by “substantial evidence.” See United States v. Robinson, Collins, Fisher, Huskey, Simpson, Banker, Young, and Spirito.
Willfulness in tax crimes: Willfulness is “the voluntary, intentional violation of a known legal duty.” Cheek v. United States. Intent may be inferred circumstantially. See Mathews (8th Cir.), Diamond (4th Cir.), and Burgos (defendant’s false exculpatory testimony can bolster guilt).
Obstruction (§ 7212(a)): The court relied on Fourth Circuit cases interpreting the “omnibus clause” to cover schemes impeding tax administration, even when component acts are not independently unlawful. See United States v. Mitchell and Bostian.
Tax evasion (§ 7201): Elements and circumstantial proof were drawn from Wilson, Goodyear, Sansone, and Spies, with illustrative factors from Thompson (10th Cir.) and Kim (5th Cir.).
Cross-count willfulness evidence: Conduct showing willful tax violations in one context can be probative of willfulness in another. See Abboud (6th Cir.) and Bok (2d Cir.).
Sentencing standards and burdens: The court cited Henderson, Allen, and Clay, noting de novo legal review, clear-error review for fact-finding, and the government’s preponderance burden for enhancements.
§ 2T1.1(b)(1) and “criminal activity”: The panel adopted the Fifth Circuit’s approach in Heard, treating retained trust-fund withholdings as unreported “income from criminal activity.” It also relied on general guideline principles permitting consideration of uncharged criminal conduct. See U.S.S.G. § 1B1.3; McKinney (7th Cir.); Barakat (11th Cir.).
Double counting: Not presumptively improper unless barred by the Guidelines. See Hampton (4th Cir.).
Rule of lenity: Applies only when, after standard interpretive tools, text remains grievously ambiguous. See Kasten, Shabani; applied to Guidelines via Blackburn (4th Cir.). The court found § 2T1.1(b)(1) unambiguous.
Rogers error and resentencing: The panel followed Rogers, Singletary, and Mathis in holding that non‑pronounced discretionary conditions cannot be added in the written judgment; a single material discrepancy requires full resentencing.

Legal Reasoning

1) False Return Counts (2013–2018): Willfulness and Material Falsity

The court identified multiple mutually reinforcing proof strands supporting willfulness under § 7206(1):

Substantial unreported foreign rental income: Jones admitted to six-figure annual rental income from St. Maarten properties in bank “statements of affairs,” yet omitted that income on his U.S. returns across multiple years. The magnitude and repetition supported knowing falsity.
Concealment architecture offshore: He employed a nominee managing director and bearer shares for holding companies tied to his St. Maarten assets. The nominee confirmed he followed Jones’s instructions and had no independent decision-making authority. Bearer shares obscure true ownership by vesting shareholder status in whoever possesses the physical certificate. These features supported an inference that Jones intentionally concealed beneficial ownership and related income.
False testimony and denials: The jury could treat Jones’s implausible trial testimony—denials of ownership and even of signatures contradicted by documents and multiple witnesses—as evidence of guilt.
Improper casualty/theft deductions: Jones claimed a $1.4 million “business casualty” tied to his divorce settlement on Form 4684, though he admitted he never paid it, and he booked alleged embezzlement losses years after the claim had been dismissed. His accountant warned that such losses were not deductible on the corporate return and confirmed Jones understood he could not claim them personally either. Nonetheless, Jones reported substantial “embezzlement” losses.
Pattern of evasive conduct: The court permitted the jury to consider earlier evasive acts as probative of willfulness for later false filings.

Viewed cumulatively and favorably to the government, this evidence provided a strong basis from which a rational juror could find willful falsity as to material matters.

2) Obstruction (§ 7212(a)) and Evasion (§ 7201): Within-Limitations Conduct, Supported by a Continuous Scheme

For the six-year limitations period (26 U.S.C. § 6531), the government adduced multiple affirmative acts likely to mislead or conceal:

False grand-jury subpoena responses (2017): Through counsel, Jones stated he had no responsive foreign account records, even after being told he was obligated to retrieve them from banks under his control. At the same time, he owned or controlled at least five foreign accounts. A jury could readily infer intentional falsehoods designed to impede IRS collections.
Serial false returns (2013–2018): The omitted foreign income and related concealment further frustrated IRS collection efforts.
Trial falsehoods: The jury could infer continued obstructive intent from Jones’s courtroom denials against overwhelming documentary and testimonial evidence.

Pre-limitations conduct was also admissible as part of a continuing scheme evidencing willful, corrupt intent to impede collection:

Immediate response to IRS collections (2009–2010): After the IRS assigned a revenue officer and assessed a trust fund penalty, Jones transferred Virginia commercial properties (Aspen Avenue and Bell Road), routed proceeds abroad, and supplied forged or fabricated documents (e.g., a fake $400,000 loan, a forged signature, a false corporate officer identity) to civil and criminal IRS personnel.
False financial disclosures: Jones’s IRS Form 433-A omitted multi-million-dollar assets (luxury properties, vehicles) and substantial foreign rental income, despite contradictory disclosures to a St. Maarten bank that same year.
Offshore ownership cloaking: The nominee/bearer-share structure and continuing control over assets and accounts supported a finding of deliberate concealment.

Because § 7201 permits evasion to be proved through “any conduct having the likely effect of misleading or concealing,” and § 7212(a) reaches corrupt schemes impeding tax administration, the panel concluded that a rational jury could find both offenses proved beyond a reasonable doubt within the limitations period, with pre-limitations acts contextualizing the ongoing obstructive scheme.

3) Sentencing: Applying U.S.S.G. § 2T1.1(b)(1) to Trust-Fund Withholdings

The district court grouped the counts and started at base offense level 22 (tax loss >$1.5M and ≤$3.5M), then added +2 for sophisticated means (§ 2T1.1(b)(2)), +2 for obstruction (§ 3C1.1), and applied −2 under § 4C1.1 for zero-point offender status, yielding total offense level 26 (CHC I; range 63–78 months). On appeal, Jones challenged only the +2 under § 2T1.1(b)(1).

Section 2T1.1(b)(1) imposes a two-level increase if the defendant “failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity.” The commentary defines “criminal activity” as any conduct constituting a criminal offense under federal, state, local, or foreign law. The district court found—and the panel agreed—that:

Criminal activity: Jones’s willful failure to pay over trust-fund employment taxes violated 26 U.S.C. § 7202 (a felony). As Lifeline’s president/owner, he was a “person” obligated to collect, hold in trust, and remit withholding taxes. His retention of those funds for himself was criminal.
Income and non-reporting: The retained funds—well over $10,000 in a year—constituted “income” to Jones that he failed to report.
Uncharged conduct permissible: The enhancement may rest on criminal activity even if uncharged or unconvicted, consistent with § 1B1.3 and decisions like McKinney and Barakat.

The panel explicitly treated the Fifth Circuit’s Heard as persuasive: there, unremitted employment taxes were likewise deemed unreported “income from criminal activity” under § 2T1.1(b)(1). Addressing Jones’s principal counterarguments:

No impermissible double-counting: The Guidelines do not prohibit counting the same dollar amounts as both “tax loss” (for the base offense level) and criminally derived “income” (for the § 2T1.1(b)(1) enhancement). As the court emphasized, the enhancement serves a distinct deterrent purpose: it targets the special culpability associated with deriving income from criminal activity, not merely the magnitude of tax loss. See Hampton.
Rule of lenity inapplicable: The text is clear: unreported income exceeding $10,000 from “criminal activity” triggers the enhancement. Because § 7202 makes willful failure to pay over trust-fund taxes a felony, Jones’s conduct fits the guideline’s plain terms. See Kasten, Shabani, Blackburn.

The court also distinguished cases where a taxpayer merely fails to pay his own taxes on lawfully earned income. Here, the “income” was itself criminally derived—taken from employee withholdings that were required to be held in trust for the United States.

4) Rogers Error: A Single Discrepancy Requires Full Resentencing

Federal Rule of Criminal Procedure 43 guarantees a defendant’s presence at sentencing, which includes the right to hear and object to every discretionary supervised release condition. Under Rogers and Singletary, discretionary conditions must be orally pronounced; adding material conditions only in the written judgment is reversible error. In Mathis, the Fourth Circuit held that adding in writing a requirement to “warn other occupants” of warrantless-search conditions—when not pronounced orally—is a material discrepancy necessitating a full resentencing.

Here, the district court pronounced a warrantless-search condition but did not orally require Jones to “warn any other occupants” that premises may be searched; that warning appeared only in the written judgment. This single discrepancy compelled the Fourth Circuit to vacate the sentence and remand for a new sentencing hearing.

Impact and Implications

For Tax Sentencing Under § 2T1.1(b)(1)

Trust-fund theft fits “income from criminal activity”: Even though unpublished, the opinion aligns the Fourth Circuit with the Fifth Circuit’s approach in Heard. Prosecutors can cite this as persuasive authority supporting § 2T1.1(b)(1) where a defendant willfully fails to pay over employment taxes and retains those funds.
No categorical bar based on double counting: The court’s reasoning underscores that the Guidelines allow simultaneous consideration of (i) tax loss for the base offense level and (ii) criminal derivation of income for the § 2T1.1(b)(1) enhancement.
Charging not required: The enhancement can rest on uncharged criminal activity if proved by a preponderance of the evidence, reinforcing the government’s flexibility in sentencing proof.

For Proving Willfulness and Obstruction/Evasion

Offshore structures as willfulness evidence: Use of nominee directors and bearer shares—especially where the nominee merely follows the taxpayer’s instructions—can be powerful circumstantial proof of intent to conceal ownership and income.
False financial disclosures and forged documents: Discrepancies between IRS collection forms and contemporaneous bank disclosures, combined with forged or fabricated transaction documents, strongly support willfulness and obstructive intent.
Pre‑limitations conduct contextualizes post‑limitations acts: Earlier acts can illuminate a continuous scheme impeding IRS collection, provided there are qualifying acts within the limitations window.
False responses to grand jury subpoenas: Refusing to retrieve foreign account records while controlling those accounts may be treated as a corrupt, obstructive act supporting § 7212(a) and an affirmative act under § 7201.

For Sentencing Practice and Supervised Release

Oral pronouncement is mandatory for all discretionary conditions: District courts should carefully read every intended discretionary condition at the hearing. If a “warn other occupants” clause is desired as part of a search condition, it must be said aloud.
One discrepancy voids the whole sentence: Under Mathis, “one rotten apple spoils the whole barrel”—a single material mismatch between oral pronouncement and written judgment requires full resentencing, not merely a clerical fix.

Complex Concepts Simplified

Trust-fund taxes: When employers withhold income and payroll taxes from employees, those funds are held “in trust” for the United States and must be paid over to the IRS. Willfully failing to do so is a felony (26 U.S.C. § 7202).
TFRP (Trust Fund Recovery Penalty): A civil assessment that can make “responsible persons” personally liable for trust-fund taxes not paid by the business.
Willfulness (tax crimes): A voluntary, intentional violation of a known legal duty; it can be inferred from conduct (e.g., concealment, inconsistent reporting, ignoring professional advice).
§ 7212(a) omnibus clause: Prohibits corrupt schemes that impede or obstruct administration of the tax laws. Corrupt intent can be shown by deceptive acts that interfere with IRS processes, such as collections.
§ 7201 (tax evasion): Requires willfulness, a substantial tax deficiency, and an affirmative act of evasion. “Affirmative acts” include any conduct likely to mislead or conceal (e.g., false filings, sham transactions).
Nominee director and bearer shares: A nominee director acts on instructions, masking the true decision-maker. Bearer shares confer ownership on whoever physically holds the share certificate, obscuring beneficial ownership.
IRS Forms 433-A/433-B: Collection information statements used by the IRS to assess a taxpayer’s assets and ability to pay. False omissions can be probative of concealment and willfulness.
U.S.S.G. § 2T1.1(b)(1): Adds +2 offense levels if the defendant failed to report income >$10,000 in a year from criminal activity (any conduct that is a criminal offense). The aim is deterrence of tax crimes intertwined with other criminality.
Rogers error: Discretionary supervised release conditions must be spoken in court. If a material condition appears only in the written judgment (e.g., “warn other occupants” about searches) and wasn’t orally pronounced, the sentence must be vacated and the case resentenced.

Conclusion

United States v. Jones, Jr. delivers two notable guidance points for tax prosecutions and sentencing within the Fourth Circuit (albeit in an unpublished decision). First, the panel endorsed treating retained trust-fund withholdings as unreported “income from criminal activity” for purposes of § 2T1.1(b)(1), aligning with the Fifth Circuit, and rejected arguments that such use improperly double counts or triggers lenity. This strengthens the government’s hand in seeking enhanced penalties where tax evasion is intertwined with criminally derived funds, particularly in employment tax cases.

Second, the opinion reinforces the rigor of the Rogers oral pronouncement requirement for supervised release: a single, material mismatch between the oral sentence and the written judgment compels vacatur and a full resentencing. Practitioners should ensure that every discretionary condition they intend to impose is precisely articulated at the sentencing hearing.

On the merits, the court’s sufficiency analysis underscores how juries may infer willfulness and obstructive intent from patterns of concealment—especially where offshore structures (nominee directors, bearer shares), inconsistent financial disclosures, forged documents, and false testimony converge. As a practical matter, Jones is a comprehensive, fact-driven blueprint: it shows how multi-year, multi-faceted concealment can sustain convictions for false returns, tax evasion, and obstruction, while simultaneously supporting robust tax-sentencing enhancements.

Note: The opinion is unpublished and “not binding precedent in this circuit,” but it is an informative and persuasive reference for future cases addressing these recurrent issues in tax enforcement and sentencing.