U.S. v. McLaughlin, 79-1637

• Decision Date: 14 December 1981
• Docket Number: No. 79-1637,79-1637
• Citation: 663 F.2d 949
• Parties: 82-1 USTC P 9105, 9 Fed. R. Evid. Serv. 924 UNITED STATES of America, Plaintiff-Appellee, v. William E. McLAUGHLIN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 949

663 F.2d 949

82-1 USTC P 9105, 9 Fed. R. Evid. Serv. 924

UNITED STATES of America, Plaintiff-Appellee, v. William E. McLAUGHLIN, Defendant-Appellant.

No. 79-1637.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 10, 1981.

Decided Dec. 14, 1981.

William D. Keller, Los Angeles, Cal., for defendant-appellant.

Lourdes G. Baird, Asst. U. S. Atty., Los Angeles, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Central District of California.

Before KENNEDY, FERGUSON and NORRIS, Circuit Judges.

NORRIS, Circuit Judge:

William McLaughlin appeals his conviction, after trial by jury, of eight counts of making and subscribing a false federal tax return in violation of 26 U.S.C. § 7206(1). McLaughlin was sentenced to one year's imprisonment and a $5,000 fine on each count. The custodial sentences were to run concurrently. We reverse.

I.

In 1971, McLaughlin, a licensed residential framing contractor in California since 1959, set up a new residential framing company in Orange County, California. He became a signatory to a collective bargaining agreement between the Carpenter's Union and the area framing contractors. The contract established a payment scale which placed a ceiling on the hourly compensation paid to carpenters. The Union wanted the ceiling as a means of preventing piecework by more highly skilled carpenters. In a booming housing market, however, a shortage of available carpenters developed, and skilled carpenters could command pay at higher than scale. Some area contractors initiated a system by which an additional amount above scale, agreed upon by the parties, was paid to carpenters through a second check. The second check system served to disguise the piecework arrangement between contractor and carpenter. Naturally, union benefits were not paid by the contractors on the second check payments.

Appellant employed several different accountants to provide general accounting services, including the preparation of 941 Forms, the business' quarterly reports to the IRS. No federal taxes were withheld from the second check payments made by McLaughlin's company, nor were the amounts included in the quarterly reports signed and filed by McLaughlin.

II.

McLaughlin contends that the district court erred in failing to dismiss the indictment for prosecutorial misconduct. He asserts various bases for his claim that his constitutional right to due process was violated by the prosecutor's capricious conduct. Specifically, he alleges that (1) the government acted in bad faith by failing to provide an earlier pre-indictment conference, and deceived appellant's counsel into believing that the indictment would be presented at a later date; (2) the government failed to present exculpatory evidence to the grand jury, thus "stampeding" the grand jury into returning an indictment; and (3) the government prejudiced the grand jury by indicating McLaughlin's intention to assert his Fifth Amendment privilege against self-incrimination.

None of McLaughlin's contentions is persuasive. The record reflects that the government notified McLaughlin's attorney's office two weeks prior to the presentation of the indictment. One week later the government informed counsel that the grand jury investigation was in process, and estimated the date on which the indictment would be presented. Appellant offers no authority whatsoever in support of his claim that he was entitled to more.

Appellant's claim that the government was obligated to present his witnesses to the grand jury is similarly unsupported. The record indicates that McLaughlin's counsel requested that the defense witnesses appear before the grand jury only one day prior to the expected indictment date.

We conclude that the government made a sufficient effort to provide the grand jury with all available evidence, particularly in light of defense counsel's belated request that the witnesses appear. The government attorney read to the grand jury defense counsel's letter to the prosecutor, in which counsel summarized the anticipated testimony of the five defense witnesses. In order that the letter be more easily understood, the prosecutor explained to the grand jury the defense of reliance on the advice of one's accountant. Moreover, the grand jury was informed that the witnesses were available to testify, that the magistrate was prepared to stay late, and that the grand jury could reconvene the next day if it so desired. That the jury decided, in private, to return an indictment without hearing the witnesses is not grounds for complaint.

Finally, we reject outright McLaughlin's claim that the grand jury was prejudiced by learning that McLaughlin intended to invoke his Fifth Amendment privilege if asked to testify before the grand jury. The fact that a grand jury learns of one's intention not to testify does not prejudice it. Indeed, a prosecutor may call before a grand jury someone whom he knows will assert his Fifth Amendment privilege. United States v. Samango, 450 F.Supp. 1097, 1106 (D. Hawaii 1978), aff'd, 607 F.2d 877 (9th Cir. 1979). Moreover, there is no indication in this case that the prosecutor was acting in bad faith. Rather, the prosecutor, in reading portions of defense counsel's letter to the grand jury as agreed upon by counsel, inadvertently read a sentence which indicated that McLaughlin intended to assert his Fifth Amendment privilege if called to appear. On these facts, we cannot say that there has been fundamental unfairness or a threat to the integrity of the judicial process. Accordingly, it was not error for the district court to deny the motion to dismiss the indictment. See United States v. Chanen, 549 F.2d 1306 (9th Cir.) cert. denied, 434 U.S. 825, 98 S.Ct. 72, 54 L.Ed.2d 83 (1977).

III.

Appellant asserts that § 530 the Revenue Act of 1978, Pub.L. No. 95-600, 92 Stat. 2763 (1978), is a defense to the crime alleged. That section provides that:

"if, for purposes of employment taxes, the taxpayer did not treat an individual as an employee for any period ending before January 1, 1980, ... then, for purposes of applying such taxes for such period with respect to the taxpayer, the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis for not treating such individual as an employee."

McLaughlin contends that § 530 prohibits the government from asserting that the carpenters were employees for the purposes of the second checks. In so doing, he misconstrues the nature of the statute. In enacting § 530, Congress clearly looked to the taxpayer's treatment of the individual, not to particular payments to an individual. The legislative history of the section confirms this.

Individuals ... who may not be reclassified are those whom the taxpayer consistently has treated in good faith as independent contractors for employment tax purposes. The taxpayer shall be deemed to have acted in good faith only if all Federal tax returns (including information returns) required to be filed by the taxpayer were filed on a basis consistent with a taxpayer's treatment of such individuals as independent contractors ...."

S.Rep.No.95-1263, 95th Cong., 2d Sess. 210 (1978), reprinted in (1978) U.S.Code Cong. & Ad.News 6761, 6973. (emphasis added).

The evidence in the record overwhelmingly indicates that McLaughlin, to the contrary, consistently treated his carpenters as employees for employment tax purposes. He filed IRS 941 Forms for the eight quarters in 1973 and 1974, and included thereon the names, Social Security numbers, and earnings subject to Social Security taxes of each of his employees, including the carpenters. The 941 Forms also included all wages to carpenters recorded in appellant's payroll. Moreover, McLaughlin sent out W-2 forms-forms...