Staffing Agent Failed to Pay Patroll Taxes for Employees U.S. v. MCLAIN, 646 F.3d 599 (8th Cir. 2011, cert denied, Mar. 19, 2012)

U.S. v. MCLAIN,  646 F.3d 599  (8th Cir. 2011, cert denied, Mar. 19, 2012)

 

Defendant was convicted in the United States District Court for the District of Minnesota under 26 U.S.C. 7202 of failing to account for and pay employment taxes. He was sentenced to 48 months' imprisonment and was fined $75,000. Defendant appealed.

Defendant, who managed a temporary staffing agency for nurses, was accused of failing to file employer's federal tax returns and failing to pay federal employment taxes. He claimed that the district court erred under Fed. R. Evid. 404(b) by admitting evidence relating to defendant's compliance with Minn. Stat. 144A.72., subd. 1(9), which required certification that nurses were treated as employees rather than independent contractors.

The court of appeals held that defendant's compliance with the state statute was highly relevant to the element of willfulness under 7202, as defendant argued that he believed that the agency was not required to pay employment taxes because the nurses were independent contractors.

The jury instructions were proper; 7202 did not require an assessment of a tax deficiency or an affirmative act, and defendant could be convicted for failing to file a Form 941 tax  return.

However, resentencing was required because tax deductions that defendant "gave" to two taxpayers were included as relevant conduct, but a  violation of 26 U.S.C. 7206(2) was not established because there was no finding that either taxpayer actually prepared a false return.

Defendant's conviction was affirmed. His sentence was vacated and remanded for resentencing.

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