The Supreme Court recently denied review of an Eighth Circuit employment tax case where a Minnesota man was convicted of failing to account for and pay employment taxes, sentenced to four years in prison, and fined $75,000. McLain v. United States, U.S., No. 11-937, 3/19/12.
Francis McClain managed a nurses staffing agency. From 2002 to 2005, McClain did not file Form 941 – Employer’s Quarterly Federal Tax Returns – or pay any federal employment taxes. McClain did file the appropriate form to and pay his Minnesota employment taxes.
In court, McClain argued that the staffing agency was not liable for employment taxes because the nurses were independent contractors, and if they weren’t he did not have the requisite intent (mens rea) to know to be liable for the delinquent employment taxes. The district court held that 26 U.S.C. § 7202 is violated only when an employer “willfully fails” to account for and pay employment taxes. That McClain paid a tax that Minnesota only deemed due if his nurses were employees portends that McClain not only knew his nurses were not independent contractors but also that he knew he was liable for employment taxes.
McClain was found guilty of nine counts of failing to account for and pay employment taxes. McClain appealed his sentence, arguing that considering his compliance with Minnesota tax law was an abuse of discretion.
The Eighth Circuit Court of Appeals upheld the district court’s holding. The Supreme Court denied review.
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