United States v. Prelogar

996 F.3d 526

UNITED STATES of America, Plaintiff-Appellee,

v.Barrett PRELOGAR, Defendant-Appellant.

No. 19-3405

United States Court of Appeals, Eighth Circuit.

Submitted: January 12, 2021

Filed: April 30, 2021

Rehearing and Rehearing En Banc Denied June 4, 2021

Justin K. Gelfand, Margulis Gelfand, LLC, St. Louis, MO, argued, for defendant-appellant.

Philip M. Koppe, Asst. U.S. Atty., Kansas City, MO, argued (Timothy A. Garrison, U.S. Atty., on the brief), for plaintiff-appellee.

Before SMITH, Chief Judge, KELLY and ERICKSON, Circuit Judges.

ERICKSON, Circuit Judge.

Barrett Prelogar appeals following his conviction under 26 U.S.C. § 7212(a) for corruptly endeavoring to obstruct and impede the due administration of the tax laws. Prelogar argues the district court¹ erred by denying his motion to dismiss the indictment in light of Marinello v. United States, 584 U.S. ––––, 138 S.Ct. 1101, 200 L.Ed.2d 356 (2018), and by denying his motion seeking relief for an alleged violation of the attorney-client privilege. Prelogar further argues the evidence was insufficient to sustain his conviction, and the district court² constructively amended the indictment. We find no error and we affirm.

I. BACKGROUND

Prelogar was the owner and chief executive officer of Winntech Digital Systems, Inc. ("Winntech"), which made electronic displays for retail stores and trade shows. Winntech employed hundreds of people in the Kansas City area. Winntech failed to pay any employment taxes for the 2002 tax year and the first two quarters of 2003. The Internal Revenue Service ("IRS") determined that Prelogar and his business partner, Steve Matthews, were the "responsible persons," which meant they were personally liable for the tax debt and the Trust Fund Recovery Penalty ("TFRP") assessed by the IRS. In 2005, Winntech, Prelogar, and Matthews signed an installment agreement, which required Winntech to pay $10,000 per month toward the outstanding TFRP debt. In the installment agreement, the IRS deferred enforcement against Prelogar and Matthews while Winntech made the contemplated payments.

Prelogar filed his 2008 federal income tax return in October 2009. Although he owed a tax liability of $120,103.00, Prelogar made no tax payments with his 2008 return. Because Prelogar had outstanding personal tax debt, he was no longer in deferred action under the TFRP agreement, and a revenue agent was assigned to investigate his ability to pay both the TFRP debt and the 2008 personal income tax. The IRS determined that from November 2009 through April 2011, Prelogar paid over $362,000.00 from a personal bank account at Commerce Bank towards certain personal assets, including: a house at Lake of the Ozarks; a house in Kansas City; a house in Leawood, Kansas; a Porsche; a Jeep; and a boat. During the same time period, Prelogar made no payments toward his 2008 personal tax liability.

Beginning in May 2010, the IRS initiated tax liens and levies on various accounts and assets held by Prelogar. In February 2011, David Emerick, Prelogar's corporate and personal accountant, received an IRS notice of intent to levy against Prelogar and his property. On May 24, 2011, the IRS executed a levy on Prelogar's Commerce Bank account. After the Commerce Bank levy, cash payments were made toward Prelogar's assets with, in addition to payments by Prelogar's wife and Winntech, direct cash payments and cashier's checks from Prelogar himself. In addition, Prelogar and Matthews made large cash withdrawals totaling more than $177,000.00 from Winntech's account at United Missouri Bank. For example, on June 1, 2011, Prelogar and Matthews made five separate $5,000.00 withdrawals at five different branches of the bank. In November 2011, an IRS representative told Emerick of the IRS's intent to issue liens and levies against Prelogar's property, and Emerick communicated the IRS's plan to Prelogar.

In 2012, Prelogar began working for a new company founded by his wife called Bare Skull Innovation, LLC ("Bare Skull"). Between 2013 and 2016, Bare Skull paid Prelogar in the form of paychecks that Prelogar cashed rather than deposited into a personal bank account.

Prelogar ultimately paid his 2008 personal tax liability in full, including penalties and interest. But, because the statute only allows collection of TFRP debt for 10 years, the IRS wrote off the amount still outstanding against Prelogar for his TFRP debt in July 2015, which totaled $263,959.27.

On August 8, 2017, Prelogar was charged in a two-count indictment. Count One charged Prelogar with tax evasion related to the TFRP payment and his 2008 personal tax liability, in violation of 26 U.S.C. § 7201 ; Count Two charged him with corruptly endeavoring to obstruct and impede the due administration of the tax laws, in violation of 26 U.S.C. § 7212(a). Count Two included allegations that Prelogar committed the following corrupt acts: (1) using corporate funds to pay his personal expenses; (2) structuring cash withdrawals from Winntech's accounts; and (3) cashing his Bare Skull paychecks, rather than depositing the funds into a personal account.

Prelogar filed a motion to dismiss both counts on various grounds, including that the indictment failed to state an offense in light of Marinello. The district court denied the motion. Prelogar filed a separate motion seeking a hearing to determine whether the government obtained privileged information from Prelogar's former attorney, Jim Wirken. The magistrate judge recommended that the motion be denied, and the district court adopted that recommendation.

At the close of evidence and prior to deliberations, Prelogar submitted a proposed jury instruction on structuring. The district court declined to give the instruction, choosing instead to give an alternative instruction submitted by Prelogar, which essentially defined structuring. The jury acquitted Prelogar on Count One and convicted him on Count Two. The district court sentenced Prelogar to an 18-month term of imprisonment followed by one year of supervised release. Prelogar was ordered to pay restitution in the amount of $263,959.27. Prelogar timely appeals.

II. DISCUSSION

We review the sufficiency of an indictment de novo .

United States v. Wearing, 837 F.3d 905, 910 (8th Cir. 2016). "The test of the sufficiency of an indictment is not whether it could not have been made more definite and certain, but whether it contains the elements of the offense charged, and sufficiently apprises the defendant of what he must be prepared to meet ...." United States v. Tebeau, 713 F.3d 955, 962 (8th Cir. 2013) (quotation omitted). "An indictment which ‘tracks the statutory language’ is ordinarily sufficient." Id. (quoting United States v. Sewell, 513 F.3d 820, 821 (8th Cir. 2008) ).

Prelogar first argues the district court erred by denying his motion to dismiss Count Two because, after Marinello, the indictment failed to allege two essential elements of 26 U.S.C. § 7212(a) ’s "Omnibus Clause." The Omnibus Clause prohibits "corruptly or by force or threats of force ... obstruct[ing] or imped[ing], or endeavor[ing] to obstruct or impede, the due administration of" the tax laws. 26 U.S.C. § 7212(a). In Marinello, the Supreme Court considered the scope of the Omnibus Clause and determined that "the clause as a whole refers to specific interference with targeted governmental tax-related proceedings, such as a particular investigation or audit," rather than routine tax procedures such as the processing of returns. 138 S.Ct. at 1104. The Supreme Court thus held: "[T]o secure a conviction under the Omnibus Clause, the Government must show (among other things) that there is a ‘nexus’ between the defendant's conduct and a particular administrative proceeding, such as an investigation, an audit, or other targeted administrative action. That nexus requires a ‘relationship in time, causation, or logic with the [administrative] proceeding.’ " Id. at 1109 (quoting United States v. Aguilar, 515 U.S. 593, 599, 115 S.Ct. 2357, 132 L.Ed.2d 520 (1995) ). The government also must show the particular proceeding was "pending at the time the defendant engaged in the obstructive conduct or, at the least, was then reasonably foreseeable by the defendant." Id. at 1110. Because the trial judge did not instruct the jury that it must find Marinello knew he was under investigation, and that he intended to corruptly interfere with that investigation, the Supreme Court reversed Marinello's conviction.

Our court has applied Marinello in a case in which the defendant was charged with various tax crimes, including a violation of 26 U.S.C. § 7212(a). United States v. Beckham, 917 F.3d 1059 (8th Cir. 2019). After certiorari was granted in Marinello, Beckham filed a motion to stay his trial pending the Supreme Court's decision. The district court denied the motion on the basis that the issue could be addressed through a special verdict form asking the jury whether Beckham committed a corrupt act after becoming aware the IRS was performing an audit and, if so, to identify unanimously what that corrupt act was. Beckham appealed his conviction, renewing his argument that the special verdict form did not cure the faulty jury instructions. In considering the jury instructions in light of § 7212(a) and Marinello, this court explained that while Marinello added two elements—a nexus and knowledge of a currently-pending or reasonably foreseeable proceeding—any error in instructing the jury was harmless because the overwhelming evidence in the case established both the nexus and knowledge requirements. Id. at 1064.

While Marinello identified what the government must "show" to "secure a conviction" under section 7212(a), see 138 S.Ct. at 1109, neither Marinello nor Beckham addressed whether the nexus and knowledge requirements must be charged in the indictment, nor did those decisions invite scrutiny of the elements charged. Marinello greatly relied on Aguilar, which proclaimed a "nexus" requirement for a...