United States v. McLain
646 F.3d 599
| 8th Cir. | 2011Background
- McLain was convicted of willfully failing to account for and pay employment taxes under 26 U.S.C. § 7202 for Kirpal Nurses, LLC from 2002–2005.
- Kirpal Nurses, a nurse staffing agency, did not file Form 941 or pay federal employment taxes for the period.
- Defense argued nurses were independent contractors or that he held a good faith belief they were; the jury rejected these defenses.
- The Presentence Report used tax loss from Kirpal’s unpaid employment taxes; the district court added tax deductions given to Shetka and Hall, increasing loss and offense level.
- McLain was sentenced to 48 months’ imprisonment and a $75,000 fine; the government challenged the PSR’s loss calculation.
- On appeal, McLain challenged evidentiary rulings under Rule 404(b), jury instructions, sufficiency of proof on elements, and the loss/financial calculations, seeking resentencing if necessary.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of Minnesota tax compliance. | McLain argues 404(b) evidence of Minnesota compliance is irrelevant and prejudicial. | McLain contends the district court misused the evidence to prove willfulness. | Evidence was highly relevant to willfulness; no abuse of discretion. |
| Essential elements and jury instructions for § 7202. | McLain contends deficiency assessment and affirmative-act elements should be required. | McLain argues no assessment or affirmative act is required; government need not prove an assessment. | No assessment/affirmative-act prerequisite; district court correct to omit them. |
| Filing Form 941 and § 7202 liability of employer/officers. | McLain argues failure to file 941 cannot support § 7202 liability if Kirpal Nurses is not required to file. | McLain contends corporate officers may be liable under § 7202. | District court correctly allowed conviction for failing to file 941; officers may bear responsibility. |
| Willful blindness instruction. | McLain objects to willful blindness instruction confusing willfulness and his defense. | Government premised on willfulness; instruction appropriate in tax cases. | Instruction proper; not reversible error. |
| Tax loss calculation—§ 7206(2) gifts and remand. | McLain argues gifts of deductions to Hall/Shetka should not be included absent file of a false return. | Government contends § 7206(2) liability for assisting false returns can attach even without filed returns. | Court vacates loss calculation and remands for resentencing for § 7206(2) insufficiency findings. |
Key Cases Cited
- United States v. Yarrington, 634 F.3d 440 (8th Cir. 2011) (review of evidentiary rulings under abuse of discretion standard)
- United States v. Morse, 613 F.3d 787 (8th Cir. 2010) (application of Guidelines; de novo review of loss calculations)
- United States v. Ali, 616 F.3d 745 (8th Cir. 2010) (three elements for § 7206(2): aiding preparation, falsity, willfulness)
- United States v. Thayer, 201 F.3d 214 (3rd Cir. 1999) (employer-officer liability under § 7202)
- United States v. Gilbert, 266 F.3d 1180 (9th Cir. 2001) (employer-officer liability under § 7202)
- Slodov v. United States, 436 U.S. 238 (Supreme Court, 1978) (employer’s officials responsible for withholding penalties)
- United States v. Richards, 723 F.2d 646 (6th Cir. 1983) (no administrative assessment required to prosecute under §§ 7201-07)
- United States v. Neal, 93 F.3d 219 (6th Cir. 1996) (definition of form 941 filing requirement under § 6011(a))
- United States v. Marston, 517 F.3d 996 (8th Cir. 2008) (willfulness and instructions in tax cases)
- United States v. Gaddy, 532 F.3d 783 (8th Cir. 2008) (rule 404(b) balancing test for admissibility of other acts)
- United States v. Voorhies, 658 F.2d 710 (9th Cir. 1981) (no formal assessment required to prosecute under § 7203)