U.S. v. Farr

• Decision Date: 19 August 2008
• Docket Number: No. 07-6187.,07-6187.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Skoshi Thedford FARR, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

536 F.3d 1174

UNITED STATES of America, Plaintiff-Appellee, v. Skoshi Thedford FARR, Defendant-Appellant.

No. 07-6187.

United States Court of Appeals, Tenth Circuit.

August 19, 2008.

Mack K. Martin (Kendall A. Sykes with him on the briefs) of Martin Law Office, Oklahoma City, OK, for Defendant-Appellant.

Susan Dickerson Cox, Assistant United States Attorney (John C. Richter, United States Attorney, with her on the briefs), Oklahoma City, OK, for Plaintiff-Appellee.

Before KELLY, HOLLOWAY, and GORSUCH, Circuit Judges.

GORSUCH, Circuit Judge.

Skoshi Thedford Farr appeals her conviction for tax fraud. She alleges that during trial the government constructively amended the indictment against her — trying her not just for the crime described in the indictment but also for a separate and additional offense. We agree. The grand jury indicted Ms. Farr for one crime (failure to pay quarterly employment taxes for a medical clinic) but at trial the government pursued her for another offense (failure to pay a trust fund recovery penalty assessed against her personally). Under the Constitution, the government may only proceed at trial against the accused "for ... [an] infamous crime ... on presentment or indictment of a Grand Jury." U.S. Const. amend. V. At the same time, we cannot agree with Ms. Farr's additional argument that there exists insufficient evidence in this record to sustain her conviction and thus that she cannot be subjected to retrial under a lawful indictment. Accordingly, we reverse but leave open the possibility of a new trial under a new indictment.

I

A

The Internal Revenue Code ("Code") requires "employer[s]" to deduct from their employees' wages the employees' share of FICA and individual income taxes. See 26 U.S.C. § 3102(a), 3402(a). The employer is liable for the withheld portion of the employees' payroll taxes and must pay over the full amount to the government each quarter. 26 U.S.C. § 3403.¹ These withheld amounts are considered to be held in a "special fund in trust for the United States" after collection each pay period until they are remitted to the government. 26 U.S.C. § 7501; see Slodov v. United States, 436 U.S. 238, 243, 98 S.Ct. 1778, 56 L.Ed.2d 251 (1978). After the employer pays net wages to its employees, the withheld taxes are credited to the employees "regardless of whether they are paid by the employer, so that the IRS has recourse only against the employer for their payment." Slodov, 436 U.S. at 243, 98 S.Ct. 1778 (emphasis added).

From 1984 through 1999, Ms. Farr served as the general manager or administrator of her husband's alternative medicine clinic in Oklahoma City, which he operated from 1978 until his death in December 1998. Apparently to avoid Internal Revenue Service ("IRS") scrutiny and collection efforts, the clinic used several names and associated tax identification numbers over the years, operating variously as "Genesis Medical Center," "Crossroads Unlimited Trust," and "ATHA-Genesis." Throughout its years of operation, the clinic filed quarterly federal tax returns (IRS Form 941) reporting wages paid and federal taxes withheld for employees, but failed conspicuously to pay those withheld quarterly employment taxes over to the federal government. The clinic's ever-changing name and tax identification number aided its efforts to avoid detection, making it difficult for IRS revenue officers to locate assets for the collection of the delinquent employment taxes.

The IRS is, of course, hardly without recourse in such circumstances. The Code provides a broad array of tools for the IRS to collect the withheld employment taxes from employers who neglect to pay as required by Section 3403. See Slodov, 436 U.S. at 243-44, 98 S.Ct. 1778. In addition, 26 U.S.C. § 6672 allows the IRS, in effect, to pierce the corporate veil and proceed against individual officers or employees responsible for collecting the offending company's quarterly employment taxes. Specifically, Section 6672 provides that the officers or employees who, on behalf of an employer, are responsible for collecting withholding taxes and paying them over to the government, and who willfully fail to do so, may be personally assessed a civil penalty equal to the amount of the delinquent taxes.² See Bradshaw v. United States, 83 F.3d 1175, 1178 (10th Cir.1995) ("The § 6672 penalty may be assessed against (1) any responsible person (2) who has willfully failed to collect, account for, or pay over federal employment taxes."). This is exactly how the IRS proceeded in this case, assessing a Section 6672 "trust fund recovery penalty" against Ms. Farr, as the person allegedly responsible for turning over the clinic's withheld quarterly employment taxes to the government.

When Ms. Farr did not pay the penalty assessed against her, a civil proceeding evolved into a criminal one. The government sought and received an indictment in August 2006 against Ms. Farr. Specifically, the grand jury charged Ms. Farr under 26 U.S.C. § 7201, a generic tax evasion provision providing that

[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.

Significantly for our purposes, however, the government chose in this case not to seek a broad indictment simply reciting the generic language of Section 7201, but instead deliberately added additional detail to its charge. As adopted by the grand jury, the indictment alleged, in pertinent measure,

[t]hat beginning on or about the 12th day of November, 2001, and continuing until the present, in the Western District of Oklahoma and elsewhere, SKOSHI THEDFORD FARR, the defendant herein, a resident of Oklahoma City, Oklahoma, and Grants Pass, Oregon, did willfully attempt to evade and defeat the payment of the quarterly employment tax for ATHA-Genesis Chapter due and owing by her to the United States of America for the quarters 6-99, 9-99, and 12-99 in the amount of $72,076.21 by concealing and attempting to conceal from the Internal Revenue Service the nature and extent of her assets and the location thereof and placing funds and property in the names of nominees. All in violation of Title 26, United States Code, Section 7201.

Aplt.App. # 2 at 2-3 (emphasis added).³

B

At trial, Ms. Farr's counsel repeatedly called attention to the fact that the grand jury's indictment charged her with evading payment of the "quarterly employment tax for [the clinic] due and owing by her." Counsel urged that an acquittal was required because, under Section 3403, quarterly employment taxes are the sole responsibility of the "employer," specifically identified in the indictment as the ATHA-Genesis Clinic. Counsel noted that Ms. Farr was not the "employer" and quarterly employment taxes thus were not and could never have been, as alleged, "due and owing from her." Rather, counsel argued, Ms. Farr was only ever personally assessed, and failed to pay, a "trust fund recovery penalty" under Section 6672, a matter that counsel argued was not encompassed within the indictment. Counsel introduced this theory to the jury as early as his opening statement:

The evidence will be that she hasn't been indicted for failure to pay, the testimony of witnesses will be trust fund recovery penalty assessments, but quarterly employment taxes. And I submit to you that the witnesses in this case will testify that she did not evade the payment of these quarterly employment taxes for Crossroads [or] ATHA-Genesis, as alleged by the government.

Aplt.App. # 6.

As counsel predicted, the government pursued at trial the theory that Ms. Farr should be found guilty by virtue of her failure to pay the trust fund recovery penalty assessed against her personally. Indeed, the government's first witness, IRS officer Mr. Ambuehl, testified that the IRS had assessed the Section 6672 trust fund recovery penalty against Ms. Farr for the clinic's failure to pay its quarterly employment taxes, and that she had not paid the outstanding penalty. On cross examination, Ms. Farr's counsel elicited testimony from Mr. Ambuehl that the "quarterly employment taxes" charged in the indictment were the responsibility solely of the clinic as the "employer"; that Ms. Farr was never the employer; that the unpaid quarterly employment taxes were not her taxes, but those of the clinic; that Ms. Farr's failure to pay the trust fund recovery penalty when it was assessed against her was not charged in the indictment; and that quarterly employment taxes and trust fund recovery penalties are separate liabilities, due from different parties. Aplt.App. # 7.

This (promising for the defense) line of questioning continued throughout trial. Eventually, the district court intervened to address "the issue raised by the indictment." Aplt.App. # 11 at 112-13. Noting that the government had "four years [prior to trial] to get it right in the indictment," the district court expressed concern that the indictment was legally deficient by charging Ms. Farr for a crime that its own witnesses suggested only the clinic could commit. Aplt.App. # 16. After contemplating a motion for judgment of acquittal, however, the court eventually sought to save the trial by preparing a jury instruction requiring the jury to treat the trust fund recovery penalty discussed at trial and the quarterly employment tax referenced in the indictment as interchangeable terms:

You are instructed that, as a matter of law, for all purposes relevant to this case, the Trust Fund Recovery Penalty assessed against the defendant is to be treated as the equivalent of the quarterly employment tax referred to in Count 1 and Count 2 of the indictment.

Aplt.App. at 7. The court...