United States v. Blanchard

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 10a0271p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellee, -
UNITED STATES OF AMERICA,
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No. 09-1284
v.
,
>
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Defendant-Appellant. -
RICHARD BLANCHARD,
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Appeal from the United States District Court
for the Eastern District of Michigan at Flint.
No. 05-80355-001—Sean F. Cox, District Judge.
Argued: August 5, 2010
Decided and Filed: August 30, 2010
Before: COLE and CLAY, Circuit Judges; KATZ, District Judge.*

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COUNSEL
ARGUED: Joan Ellerbusch Morgan, Sylvan Lake, Michigan, for Appellant. S. Robert
Lyons, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellee. ON BRIEF: Joan Ellerbusch Morgan, Sylvan Lake, Michigan, for Appellant.
S. Robert Lyons, Alan Hechtkopf, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellee.
_________________

OPINION
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COLE, Circuit Judge. Appellant Richard Blanchard (“Blanchard”) was
convicted of fifteen counts of Failure to Account for and Pay Over Withholding and
FICA Taxes, in violation of 26 U.S.C. § 7202, and three counts of Making and Causing

*
The Honorable David A. Katz, United States District Judge for the Northern District of Ohio,
sitting by designation.

1
No. 09-1284 United States v. Blanchard Page 2

the Making of a False Claim for a Tax Refund, in violation of 18 U.S.C. § 287. He was
sentenced to a term of imprisonment of twenty-two months, plus thirty-six months of
supervised release, restitution of $195,852.60, and a special assessment of $1,800. He
now argues that (a) several of the § 7202 counts should have been dismissed because
they are barred by a three-year statute of limitations; (b) that the district court erred in
admitting evidence of his discretionary expenditures, which were unduly prejudicial; (c)
that the court erred in failing to instruct the jury that an ability to pay the taxes due is an
element of the offense under 8 U.S.C. § 7202; (d) that the court also erred in failing to
instruct the jury on the defense theory of the case; and (e) that his convictions for
violating § 287 must be vacated because they are not supported by sufficient evidence.
In the alternative, he argues that resentencing is required because the district court erred
in calculating the amount of restitution it imposed. For the reasons below, we AFFIRM
Blanchard’s conviction and sentence of imprisonment but VACATE the restitution order
and REMAND for further proceedings consistent with this opinion.

I. BACKGROUND

In early 2001, the Internal Revenue Service (“IRS”) began a civil audit of R.
Blanchard Construction Company (“the Company”); in 2002, the case became a criminal
investigation. The investigation revealed that from 1997 to 2003, the Company had
failed to pay $195,852.60 in employment taxes, but that the Blanchards had filed for and
received tax refunds totaling $11,639.00. In addition, the investigation determined that
Blanchard routinely had clients pay directly to him funds that were due the Company,
which he then would deposit in his personal account without reporting them as business
income. This resulted in an additional $23,533.00 in taxes owed but not paid over to the
IRS.

On April 12, 2005, a twenty-three-count indictment was returned against
Blanchard and his wife, Karen Blanchard. Counts one through five charged Income Tax
Evasion, in violation of 26 U.S.C. § 7201.1 Counts six through twenty charged Failure

1
“Any person who wilfully attempts in any manner to evade or defeat any tax imposed by this
title or the payment thereof shall . . . be guilty of a felony . . . .” 26 U.S.C. § 7201.
No. 09-1284 United States v. Blanchard Page 3

to Account for and Pay Over Withholding and FICA Taxes, in violation of 26 U.S.C.
§ 7202.2 Counts twenty-one through twenty-three charged Making and Causing the
Making of a False Claim for a Tax Refund, in violation of 18 U.S.C. § 287.3

Before trial, the Blanchards brought motions to dismiss counts six through
seventeen as time-barred by the limitations period set out in 26 U.S.C. § 6531, to sever
the trial, and to exclude evidence regarding their discretionary spending and details of
Blanchard’s application to become a voluntary police officer. The district court denied
the motions to dismiss and exclude the evidence regarding spending, but agreed to redact
the records pertaining to Blanchard’s application to become a police officer.

At trial, testimony was presented that Blanchard had begun an excavation
business as a sole proprietorship in 1992, which he later incorporated as the R.
Blanchard Construction Company. In March 1996, the Blanchards contracted with
Paychex Incorporated to prepare payroll checks for the Company. Paychex also
provided the Company with monthly tax notification-slips (detailing the amounts due
to the IRS for social security, Medicare, and federal tax withholding) and quarterly Form
941 tax returns (“941 Forms”) for the Company to file. Paychex’s primary contact at the
Company was Karen; Blanchard was the secondary contact. An employee of Paychex
testified that she was not aware if Blanchard had ever received or reviewed any of the
forms Paychex generated for the Company.

The Blanchards declined Paychex’s tax payment service, which makes required
payments to the IRS on behalf of clients. Accordingly, it was the Company’s
responsibility to make these payments. In the second, third, and fourth quarters of 1996,
the Company filed the required 941 Forms and paid over to the IRS taxes withheld from

2
“Any person required under this title to collect, account for, and pay over any tax imposed by
this title who willfully fails to collect or truthfully account for and pay over such tax shall . . . be guilty of
a felony . . . .” 26 U.S.C. § 7202.
3
“Whoever makes or presents to any person or officer in the civil, military, or naval service of
the United States, or to any department or agency thereof, any claim upon or against the United States, or
any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be
imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.”
18 U.S.C. § 287.
No. 09-1284 United States v. Blanchard Page 4

employees’ paychecks, but did not do so from the first quarter of 1997 until the third
quarter of 2002. That quarter, the Company filed a return and paid over withheld taxes,
but again failed to do so the next quarter.

In 1998, Kathryn Fox, an external accountant the Blanchards had retained to
prepare the Company’s annual income-tax returns, became aware of the delinquency in
paying over to the IRS the withheld taxes and informed Karen that these amounts needed
to be paid. In Fox’s recollection, this issue “would come up every year. I mean, when
they brought the paperwork in. Say, you know, this needs to be paid. Then, you know,
I didn’t really get an explanation as to why they weren’t paid.” (R.157, Trial Tr. Aug.
15, 2007, at 526.) Karen was Fox’s primary contact, but Fox recalled discussing the
problem directly with Blanchard in April 2000. When Fox informed him that the
amount of payroll taxes owed the government was about $100,000, he responded that
“it was more like $200,000,” that “he hoped that they didn’t take his equipment because
he had a big job that he hoped would help towards paying the tax,” and that “he had
retained an attorney to help him deal[] with it.” (Id.) Accordingly, Fox assumed that
Blanchard was addressing the issue with the assistance of an attorney, and only became
aware in 2002 when approached by the IRS investigator that the Company was not only
delinquent in its taxes, but also had not been filing any 941 Forms. She also was not told
about the payments customers made directly to Blanchard, resulting in this income not
being reported on the tax returns she prepared on his behalf.

In 1999, Joseph Amon, a construction manager at another firm, was hired to help
the Blanchards keep better track of the internal accounting records of the Company. As
part of this work, which lasted for about a year, Amon trained Karen on how to use the
accounting software he installed. He testified that he and Blanchard discussed the
delinquent federal withholding taxes “a couple times,” as well as the 941 Forms,
although the latter was “more with Karen.” (R.154, Trial Tr. Aug. 10, 2007, at 125.)
Amon urged Blanchard to address the tax situation, but for Blanchard, paying the IRS
debt was “at the bottom of the list.” (Id. at 127-29.) Amon also suggested that
Blanchard “sell off some of the equipment to pay some of the bills such as the taxes,”
No. 09-1284 United States v. Blanchard Page 5

but these suggestions “weren’t always received well.” (Id. at 128.) Amon was not
aware of any withheld taxes being paid over to the IRS while he worked for the
company.

For his part, Blanchard testified that he left the financial end of the business to
Karen because he did not have any background in accounting and found the math
confusing. He claimed that he never dealt with Paychex and recalled meeting Fox only
once, at the time the company was incorporated. He also recalled speaking with her
once on the telephone, but denied reviewing any tax returns with her or discussing the
amount of taxes due the government; rather, “it was [his] understanding that between the
attorneys that [he] had at the time that things were being taken care of.” (R. 163, Trial
Tr. Aug. 17, 2007, at 779-80.) He denied at any point stating that he owed the IRS
$200,000 in withheld taxes.

Because he was not involved with the financial aspects of the business,
Blanchard testified, he did not realize “for a long time that taxes had to be paid by the
quarter.” (Id. at 801-02.) He acknowledged, however, that Karen eventually brought the
problem to his attention. In his words, “[s]he maybe mentioned at one time that we had
some taxes that needed to be paid . . . and it was with the understanding that when the
next check came in that it would be caught up.” (Id. at 802.) According to Blanchard,
Karen never mentioned the issue again, so he assumed that she had paid the delinquent
taxes. Blanchard also conceded that at one point he had seen a list of bills prepared by
Amon that he recognized had to be paid immediately. While he signed his own tax
returns each year, he denied ever reviewing them.

While the corporation often had insufficient funds to pay wages—such that he
often had to delay cashing his own paychecks and once had to use $30,000 of the equity
in his home to pay a corporate debt that was due—Blanchard continued to pay the same
wages to employees, his wife, and himself without paying over withheld payroll taxes
to the IRS. At the same time, the Blanchards used funds from their personal bank
account and the company’s corporate account to make discretionary purchases, including
taking a family vacation in Florida (which Blanchard testified he believed was paid for
No. 09-1284 United States v. Blanchard Page 6

by his mother-in-law); leasing two Cadillac automobiles (paid for by Karen); buying
jewelry, firearms, and a CD player; and engaging in recreational gambling that,
according to records produced at trial, resulted in annual losses ranging from
approximately $1,500 in 2000 to $20,000 in 2002.

On August 22, 2007, the jury returned a verdict of not guilty on counts one
through five (the charges under 26 U.S.C. § 7201) and guilty on counts six through
twenty-three (the charges under 26 U.S.C. § 7202 and 18 U.S.C. § 287). Blanchard
moved for a new trial and a judgment of acquittal pursuant to Federal Rules of Criminal
Procedure 29 and 33, arguing that insufficient evidence supported his convictions on
counts 21 through 23 (the violations of 18 U.S.C. § 287), that the court’s instructions to
the jury had been confusing and erroneous, and that the court had erred in denying his
motion to dismiss counts six through seventeen as time-barred. The court denied this
motion. On February 11, 2009, the court sentenced Blanchard to a term of imprisonment
of twenty-two months, plus thirty-six months of supervised release. Pursuant to
18 U.S.C. § 3663, the court also imposed restitution of $195,852.60, as well as a special
assessment of $1,800.

Blanchard now appeals.

II. ANALYSIS

A. Limitations period for offenses under 26 U.S.C. § 7202

Blanchard argues that counts 6 through 17 of the indictment, charging him with
violating § 7202 for failing to truthfully account for and pay over taxes from March 31,
1999 through January 31, 2002, must be dismissed because they are time-barred by the
three-year limitations period under 26 U.S.C. § 6531. The applicability of a statute of
limitations is a question of statutory interpretation that we review de novo. See SEC v.
Mohn, 465 F.3d 647, 650 (6th Cir. 2006).

Blanchard contends that we should look to versions of 26 U.S.C. §§ 6531 and
7202 enacted in 1939 in order to interpret the current version of the statutory text. While
the Government has argued persuasively that the evolution of the statutory scheme
No. 09-1284 United States v. Blanchard Page 7

supports the rejection of Blanchard’s interpretation, the language of the current statute
provides the starting point and the ending point of our analysis if the plain meaning of
that language is clear. See Chrysler Corp v. Comm’r of Internal Revenue, 436 F.3d 644,
654 (6th Cir. 2006). Only when the plain language results in ambiguity or leads to an
unreasonable result do we look to the statute’s legislative history. Id. Because we find
that the plain language of § 6531 supports the application of a six-year period of
limitations, we need not consider Blanchard’s arguments regarding prior iterations of the
statute.

Section 7202 provides that “any person required under this title to collect,
account for, and pay over any tax imposed by this title who willfully fails to collect or
truthfully account for and pay over such tax” shall be guilty of a felony. 26 U.S.C.
§ 7202. The periods of limitation for prosecuting a violation of the tax laws are set out
in § 6531, which provides in relevant part:

No person shall be prosecuted, tried, or punished for any of the various
offenses arising under the internal revenue laws unless the indictment is
found or the information instituted within 3 years next after the
commission of the offense, except that the period of limitation shall be
6 years--
...
(4) for the offense of willfully failing to pay any tax, or make any return
. . . at the time or times required by law or regulations . . . .

26 U.S.C. § 6531. Blanchard argues that a willful failure “to pay over” withheld tax is
different than a willful failure “to pay” tax, and therefore the six-year limitations period
under § 6531(4) does not apply to violations of § 7202.

Two district courts have found that offenses under § 7202 are not subject to
§ 6531(4)’s longer limitations period. See United States v. Brennick, 908 F. Supp. 1004
(D. Mass 1995); United States v. Block, 497 F. Supp. 629 (N.D. Ga. 1980). These courts
argue that each of the enumerated exceptions to the three-year limitations period in
§ 6531 tracks the language of a particular criminal offense set out in § 7201 and
following sections. See Brennick, 908 F. Supp. at 1018; Block, 497 F. Supp. at 632. For
No. 09-1284 United States v. Blanchard Page 8

instance, the court in Brennick argued, see 908 F. Supp. at 1018, that the language in
§ 6531(4) regarding “failing to pay any tax, or make any return” seems to correspond to
the language in § 7203 providing that it is a misdemeanor for “[a]ny person required
under this title to pay any estimated tax or tax, or required by this title or by regulations
made under authority thereof to make a return, keep any records, or supply any
information” to “willfully fail[] to pay such estimated tax or tax, make such return, keep
such records, or supply such information.” 26 U.S.C. § 7203. By contrast, “the key
words of [§] 7202, ‘collect, account for, and pay over’ are entirely absent from the
subsections of [§] 6531 which establish the longer six-year period of limitations.” Block,
497 F. Supp. at 632. Thus, “it seems unlikely . . . that Congress [would] omit use of the
key words of [§] 7202 if it had intended to make a failure to ‘pay over’ third-party taxes
subject to the six-year statute of limitations.” Id. Moreover, the two courts argue,
§ 6531(4) refers to an “offense,” not “offenses,” suggesting that Congress had in mind
a particular violation. See Brennick, 908 F. Supp. at 1019; Block, 497 F. Supp. at 632.

By contrast, all of the circuit courts to have considered this question have held
that the six-year limitations period applies. See United States v. Adam, 296 F.3d 327,
332 (5th Cir. 2002); United States v. Gilbert, 266 F.3d 1180, 1186 (9th Cir. 2001);
United States v. Gollapudi, 130 F.3d 66, 70 (3d Cir. 1997); United States v. Musacchia,
900 F.2d 493, 499-500 (2d Cir. 1990), vacated in part on other grounds, 955 F.2d 3
(1991), reaff’d, United States v. Evangelista, 122 F.3d 112, 119 (2d Cir. 1997); United
States v. Porth, 426 F.2d 519, 521-22 (10th Cir. 1970). Our sister circuits have looked
to the plain language of § 6531 in concluding that a willful failure “to pay” taxes
includes a willful failure “to pay over” withheld taxes. In the words of the Third Circuit,

[u]nder a plain reading of this statute, we find it clear that violations of
§ 7202 are subject to a six-year statute of limitations under § 6531(4).
Specifically, 26 U.S.C. § 7202 makes it an offense for an employer to
willfully fail to “account for and pay over” to the IRS taxes withheld
from employees. Given that § 6531 pertains to “failing to pay any tax,”
the District Court correctly found that the failure to pay third-party taxes
as covered by § 7202 constitutes failure to pay “any tax,” and thus, is
subject to the six-year statute of limitations under § 6531(4).
No. 09-1284 United States v. Blanchard Page 9

Gollapudi, 130 F.3d at 70. The Third Circuit also reasoned that “it would be
inconsistent for Congress to have prescribed a six-year limitation period for the
misdemeanor offense defined in 26 U.S.C. § 7203 . . . while providing only a three-year
limitation period for the felony offense defined in § 7202.” Id. at 71. But cf. id. at 75
(Cowen, J., dissenting) (arguing that a longer limitations period for § 7203 offenses may
be explained by the greater difficulty involved in uncovering them).

The rationale offered in Brennick and Block might be more persuasive if the
language of § 6531(4) better matched that of § 7203. However, several actions
criminalized under § 7203—including the willful failure to keep required records or
supply required information—are not listed under § 6531(4). In the absence of a more
perfect correspondence between § 6531(4) and § 7203, we hesitate to create an inter-
circuit split on this issue. Moreover, we find the Third Circuit’s reasoning convincing.
The scope of “willfully failing to pay any tax” under § 6531(4) plainly encompasses the
offense of “willfully failing to pay over a tax” under § 7202, and it indeed would be odd
for Congress to have imposed a longer limitations period for misdemeanor offenses
under § 7203 than for felony offenses under § 7202. Accordingly, we hold that offenses
under § 7202 are covered by § 6531(4)’s six-year limitations period.

B. Admission of evidence regarding discretionary expenditures

Blanchard next argues that the district court erred in denying his motions in
limine to exclude evidence regarding his discretionary spending, including records of
leasing two Cadillac automobiles, gambling losses at the MGM Grand Casino in Detroit,
and the purchase of firearms and a CD player. We review the district court’s decision
to admit evidence for an abuse of discretion. See United States v. Dietz, 577 F.3d 672,
688 (6th Cir. 2009). The district court’s discretion in balancing the probative value of
evidence against its potential for unfair prejudice is very broad; indeed, we have
emphasized that, “‘[i]f judicial self-restraint is ever desirable, it is when a Rule 403
analysis of a trial court is reviewed by an appellate tribunal.’” Id. at 689 (quoting United
States v. Zipkin, 729 F.2d 384, 390 (6th Cir. 1984)). Consequently, when reviewing for
an abuse of discretion, we view “‘the evidence in the light most favorable to its
No. 09-1284 United States v. Blanchard Page 10

proponent, giving the evidence its maximum reasonable probative force and its minimum
reasonable prejudicial value.’” Id. at 688 (quoting United States v. Jackson, 473 F.3d
660, 668 (6th Cir. 2007)). The prejudice to be weighed “is the unfair prejudice caused
by admission of the evidence. Evidence that is prejudicial only in the sense that it paints
the defendant in a bad light is not unfairly prejudicial.” Id. (internal quotation marks
omitted).

Blanchard’s argument to the contrary notwithstanding, evidence regarding a
defendant’s ability to pay taxes is pertinent to whether an offense has been committed
under § 7202, since it bears on the willfulness of the defendant’s failure to pay over
withheld tax to the government. If a defendant has made discretionary purchases in lieu
of meeting his tax obligations, this is probative of his guilt.4 While Blanchard contends
that the evidence presented was of limited utility in this regard—since the gambling
records over-represented the amount of money he gambled and the other expenses
demonstrated that he had a “lower middle class standard of living”—these
considerations go to the weight of the evidence, not its admissibility.

Blanchard also argues that admission of the gambling evidence created a
“manifest danger of undue prejudice,” given its potential to confuse the jury and the risk
that members of the jury had negative views of the propriety and morality of gambling.
At trial, however, Blanchard’s counsel argued at length that the gambling records did not
accurately reflect the amount of money Blanchard had lost, alleviating the concern that
the jury might have been confused by the higher amount reflected in the casino records.
And while there is some possibility that jurors may have had negative opinions regarding
gambling, it is difficult to conclude that the district court abused its considerable
discretion in admitting this evidence. Dietz, 577 F.3d at 688. Giving the gambling
records their “maximum reasonable probative force” and “minimum reasonable
prejudicial value,” the relevance of Blanchard’s spending a comparatively large amount

4
Indeed, Blanchard’s argument that this evidence is not relevant is difficult to reconcile with his
contention that a defendant’s inability to pay taxes when they are due is an element of the offense under
§ 7202. See Section II.C, infra.
No. 09-1284 United States v. Blanchard Page 11

of money on his own entertainment in lieu of paying over taxes to the IRS substantially
outweighs the potential for prejudice arising from admission of this evidence.

The cases that Blanchard cites in support of his position are readily
distinguishable, as the evidence in those cases had no bearing on the elements of the
offense charged. See United States v. Masters, 450 F.2d 866, 867 (9th Cir. 1971)
(testimony that defendant occasionally smoked marijuana had no bearing on charge of
aiding and abetting a marijuana smuggling scheme); United States v. Dean, 435 F.2d 1,
2 (6th Cir. 1970) (defendant’s possession of $5,000 in genuine currency served only to
“give color” to the charge of possessing and passing counterfeit notes); South v. United
States, 368 F.2d 202, 205-06 (5th Cir. 1966) (admission of tax returns had no bearing
on the charge of using interstate commerce to promote or facilitate illegal gambling).
By contrast, in cases where evidence of gambling is probative of the commission of the
crime, courts routinely admit such evidence, albeit while evincing some concern as to
its prejudicial effect. See, e.g., United States v. Griffin, 524 F.3d 71, 82 (1st Cir. 2008)
(upholding admission of evidence of gambling and other spending as highly probative
as to whether the defendant’s tax returns were false and noting the district court issued
cautionary instructions regarding the gambling evidence, “which held the greatest
potential to prejudice the defendant unfairly”); United States v. Jackson-Randolph,
282 F.3d 369, 376-79 (6th Cir. 2002) (admitting evidence of extensive gambling and
other lavish spending as relevant to the defendant’s need to commit fraud but noting that
“appeals to class prejudice are highly improper and cannot be condoned”); United States
v. Abodeely, 801 F.2d 1020, 1026 (8th Cir. 1986) (upholding admission of gambling
activity in tax evasion case which, “while having less direct probative value” than
evidence regarding income from prostitution, also was “much less prejudicial,” since,
“having been shown that [the defendant] ran a bar and a brothel, even the most
straightlaced Iowa jury could hardly have been adversely affected by a showing of his
participation in the legal, though perhaps sinful and worldly in the eyes of a midwestern
jury, activity of gambling”).

Accordingly, we find the district court did not err in admitting this evidence.
No. 09-1284 United States v. Blanchard Page 12

C. Failure to instruct the jury that an ability to pay is an element of
8 U.S.C. § 7202
At trial, Blanchard’s counsel asked the court to instruct the jury that, in order to
establish that an offense had been committed under § 7202, the Government had to
demonstrate beyond a reasonable doubt that the defendant (1) had a duty to truthfully
account for and pay over federal income tax withheld from employees’ wages, (2) failed
to account for truthfully and to pay over these taxes, (3) acted willfully, and (4) at the
time the taxes were due either (i) possessed sufficient funds to meet this obligation or
(ii) lacked such funds because of a voluntary and intentional act without justification.
The district court accepted the Government’s argument that an inability to pay taxes on
the date they are due is pertinent to the third element of the offense, the willfulness of
the act, but is not itself an element of the offense that the Government must prove
beyond a reasonable doubt. Blanchard now challenges this decision. We review the
legal accuracy of jury instructions de novo. United States v. Simons, 150 F. App’x 428,
435 (6th Cir. 2005) (citing United States v. Maliszewski, 161 F.3d 992, 1014 (6th Cir.
1998)).

Blanchard principally relies on United States v. Poll, 521 F.2d 329 (9th Cir.
1975), in which the Ninth Circuit, reasoning that willfulness under § 7202 must include
“some element of evil motive and want of justification,” held that “to establish
willfulness the Government must establish beyond a reasonable doubt that at the time
payment was due the taxpayer possessed sufficient funds to enable him to meet his
obligations or that the lack of sufficient funds . . . was created by . . . a voluntary and
intentional act without justification.” Id. at 333. However, as the Ninth Circuit recently
recognized in a case rejecting the argument Blanchard makes here, the evil motive
requirement on which Poll rests is inconsistent with the Supreme Court’s later decision
in United States v. Pomponio, 429 U.S. 10 (1976). See United States v. Easterday, 564
F.3d 1004, 1008 (9th Cir. 2009) (noting that the “evil motive” formulation of willfulness
was “repudiated” in Pomponio). Accordingly, “insofar as Poll may be interpreted as
requiring the government . . . to prove that defendant had the money to pay taxes when
due . . . Poll is inconsistent with Pomponio.” Id. at 1010. Under the Supreme Court’s
No. 09-1284 United States v. Blanchard Page 13

decision, “willfulness” “simply means a voluntary, intentional violation of a known legal
duty.” Pomponio, 429 U.S. at 1012. Thus, in order to secure a conviction under § 7202,
the Government must demonstrate that such a violation occurred, but there is no
additional requirement that it show beyond a reasonable doubt that a defendant has
sufficient funds to meet his obligations.

The Ninth Circuit went on to argue that requiring the Government to prove this
element “is also inconsistent with common sense, for we think it unlikely that . . . a
defendant could succeed in arguing that he did not willfully fail to pay because he spent
the money on something else.” 564 F.3d at 1010; see also United States v. Evangelista,
122 F.3d 112, 119 (2d Cir. 1997) (rejecting argument that defendants were entitled to
a jury instruction that the Government had to prove they had sufficient funds to meet
their legal obligations when the defendants had spent their funds on luxury items). In
United States v. Ausmus, 774 F.2d 722, 724 (6th Cir. 1985), we adopted similar
reasoning in holding that it was not error for the district court to instruct the jury that a
defendant’s financial ability to pay federal income taxes was not a defense under 26
U.S.C. § 7203. The district court had instructed the jury:

The defendant asserts that his failure to pay his taxes . . . was not willful
because he did not have enough money to pay them. However, every
United States citizen has an obligation to pay his income tax when it
comes due. A taxpayer is obligated to conduct his financial affairs in
such a way that he has cash available to satisfy his tax obligations on
time. As a general rule, financial inability to pay the tax when it comes
due is not a defense to criminal liability for willfully failing to pay
income taxes.

Id. While Ausmus is distinguishable, both factually (the defendant there admitted to
intentionally spending his income in order to prevent the IRS from seizing it) and legally
(the defendant was charged with violating § 7203, not § 7202), our holding that an
inability to pay taxes when due generally is not a defense—let alone an affirmative
element the Government has to prove beyond a reasonable doubt—further weighs
against Blanchard’s claim.
No. 09-1284 United States v. Blanchard Page 14

Consequently, we find no error here. While a defendant’s inability to pay taxes
when due bears on the willfulness of his act, it is not an element of the offense under 26
U.S.C. § 7202.

D. Failure to instruct the jury on the defense’s theory of the case

Blanchard’s counsel also proposed several other instructions, detailing the
defense’s theory of the case. For the violations of 26 U.S.C. § 7202, the proposed
instruction read:

That concludes the part of my instructions explaining the elements of the
crimes alleged in Counts 6 through 20. Next I will explain the
defendant’s position.
The defendant states that he did not act willfully but acted and
believed in good faith. Defendant asserts that he was unaware that
employment tax returns were not filed and that employment tax returns
had not been fully paid. Defendant disclosed the failures to his
accountant / return preparer and believed that they had been dealt with.
He asserts that the filing and payment of Michigan withholding on the
same wages demonstrates his good faith and lack of willfulness.

Similarly, counsel’s proposed instruction for the violations of 18 U.S.C. § 287 also
stated Blanchard’s position that he had acted in good faith:

That concludes the part of my instructions explaining the elements of the
false claim crime. Next I will explain the defendant’s position.
The defendant states that he did not act willfully and did not
knowingly submit false claims. He asserts that he relied upon his
accountant / return preparer, who knew that employment taxes had not
been paid over to the Internal Revenue Service on behalf of R. Blanchard
Construction Company and who prepared each individual income tax
return claiming a refund, using information provided, following
instructions provided by the Internal Revenue Service and using Forms
W-2 which the payroll service had prepared.

The district court declined to offer these instructions, reasoning that they did not instruct
the jury on a legal theory distinct from its instruction on willfulness, but rather
represented Blanchard’s view of the facts of the case. Blanchard now claims this
decision was in error.
No. 09-1284 United States v. Blanchard Page 15

We review the district court’s refusal to give a proposed jury instruction for an
abuse of discretion. United States v. Adams, 583 F.3d 457, 468-69 (6th Cir. 2009).
Refusal is considered reversible error only if the instruction “is (1) correct, (2) not
substantially covered by the actual jury charge, and (3) so important that failure to give
it substantially impairs defendant’s defense.” United States v. Heath, 525 F.3d 451, 456
(6th Cir. 2008) (internal quotation marks omitted). We therefore will reverse a judgment
based on a claim of error “only if the instructions, viewed as a whole, were confusing,
misleading and prejudicial.” Id. (internal quotation marks omitted).

We find that the proposed instructions were substantially covered by the actual
jury charge. The legal theory animating Blanchard’s proposed instructions is that he did
not knowingly or willfully violate 18 U.S.C. § 287 or 26 U.S.C. § 7202, but rather acted
in good faith. The court’s instructions on mens rea were clear:

The word willfully means a voluntary, intentional violation of a known
legal duty. In other words, the Defendant must have acted voluntarily
and intentionally and with a specific intent to do something the law
forbids. That is to say with a purpose either to disobey or to disregard
the law. And omission or a failure to act is willfully done if it’s done
voluntarily and intentionally and with the specific intent to fail to do
something the law requires to be done. That is to say with a purpose
either to disobey or disregard the law. In determining the issue of
willfulness you are entitled to consider anything done or admitted to be
done by the Defendant and all facts and circumstances in evidence that
may aid in the determination of his state of mind.

(R. 160, Trial Tr. Aug. 21, 2007, at 1114-15 (§ 7202 instruction); see also id. at 1121
(“The term knowing means voluntary [sic] and intentionally and not because of mistake
or some other reason.”) (§ 287 instruction).) The same is true of the court’s instruction
on good faith:

The good faith of the defendant is a complete defense to the tax
charges in the indictment because good faith is inconsistent with willfully
failing to account for and pay over employment taxes. While the term
good faith has no precise definition it means among other things an
honest belief that is subjectively held, a lack of malice, and the intent to
perform all lawful obligations. A person who acts on a belief or on an
opinion honestly held is not punishable under this statute merely because
No. 09-1284 United States v. Blanchard Page 16

that honest belief turns out to be incorrect or wrong. The tax laws are
subject to criminal punishment only for those people who willfully fail
to account for and pay over employment taxes. . . . In determining
whether or not the Government has proved that the defendant willfully
failed to account for and pay over employment taxes or whether the
Defendant acted in good faith the jury must consider all of the evidence
received in the case bearing on the Defendant’s state of mind. The
burden of proving good faith . . . does not rest with the Defendant
because the Defendant has no obligation to prove anything to you. The
Government has the burden of proving to you beyond a reasonable doubt
that the Defendant acted willfully.

(Id. at 1115-17 (§ 7202 instruction); id. at 1121-22 (§ 287 instruction).)

The court also emphasized that, under § 7202, “[i]n considering the Defendant’s
intent and whether or not he acted in good faith negating willfulness, you may consider
Defendant’s action in filling [sic] state withholding tax returns with full payment.” (Id.
at 1115-16.) Even though it found that an ability to pay taxes when due was not a
separate element of a § 7202 offense, the court further instructed the jury that “[t]he
good faith belief subjectively held by the Defendant that at the time payment was due
that he lacked sufficient funds to enable him to meet his obligation to pay employment
taxes may be considered by you in determining if the Defendant acted willfully.” (Id.
at 1117.) Similarly, in the § 287 instruction on good faith, the court emphasized that
“[p]roof of intent is negated where it is established that a Defendant relied in good faith
upon the advice and actions of a qualified tax preparer or professional after disclosure
of all information in submitting a tax return or tax returns claiming a refund or refunds.”
(Id. at 1122.)

These instructions substantially covered the legal arguments set out in
Blanchard’s proposed jury instructions. While the district court did not cover a few
details that were contained in the instructions—for instance, in the § 7202 instruction,
that the defendant had disclosed his late returns to his accountant—these details
represent Blanchard’s view of the facts, which the court was under no obligation to
present to the jury. See United States v. Vassar, 346 F. App’x 17, 26 (6th Cir. 2009)
No. 09-1284 United States v. Blanchard Page 17

(citing United States v. Chowdhury, 169 F.3d 402, 407 (6th Cir. 1999)). In sum, there
was no error here.5

E. Sufficiency of the evidence under 18 U.S.C. § 287

Blanchard next claims that there was insufficient evidence to support his
convictions under § 287. After his trial, he sought a judgment of acquittal on this
ground, which the district court denied. We review de novo the denial of a motion for
acquittal based on sufficiency of the evidence. United States v. Acierno, 579 F.3d 694,
698 (6th Cir. 2009). The district court’s decision must be affirmed “if the evidence,
viewed in the light most favorable to the government, would allow a rational trier of fact
to find the defendant guilty beyond a reasonable doubt.” Id. (internal quotation marks
omitted). “The appellate court must view all evidence and resolve all reasonable
inferences in favor of the government,” but may not “independently weigh the evidence
nor substitute its judgment for that of the jury.” Id. at 699 (internal quotation marks
omitted) (citing Jackson v. Virginia, 443 U.S. 307, 319 (1979)). “This standard is a
great obstacle to overcome, and presents the appellant in a criminal case with a very
heavy burden.” Id. (internal quotation marks omitted).

Blanchard argues that evidence presented at trial demonstrated that the Company
paid him only net wages. As a result, he claims, he was entitled to claim a tax credit on
his tax return whether or not he knew that the Company never paid over the withheld
taxes to the IRS, since, “[o]nce net wages are paid to the employee, the taxes withheld
are credited to the employee regardless of whether they are paid by the employer, so that
the IRS has recourse only against their employer for their payment.” Slodov v. United
States, 436 U.S. 238, 243 (1978). By consequence, he argues, the district court should
have granted a judgment of acquittal because it was “a legal impossibility” for him to
have made a false claim regarding the withheld tax.

5
Blanchard also claims that the district court erred in refusing to give his proposed instructions
for the charges in counts one to five under § 7201. Since he was acquitted of these charges, any such error
is harmless.
No. 09-1284 United States v. Blanchard Page 18

Blanchard draws support for this argument from United States v. Creamer, 370
F. Supp. 2d 715 (N.D. Ill. 2005), vacated in part on other grounds, No. 04 CR 281-1,
2006 WL 2037326 (N.D. Ill. Apr. 4, 2006). The defendant in that case—who was the
employee, the employer, and the person responsible for paying over withheld taxes to
the IRS—was charged under 26 U.S.C. § 7206 with submitting false personal tax
returns. Id. at 733. Even though evidence was introduced that the defendant knew the
returns he filed in his personal capacity were incorrect, since he had never paid over the
withheld funds to the IRS in his official capacity, the court found that he could not be
convicted under § 7206. Id. at 734. In the court’s eyes, such a result would “confuse[]
the different capacities in which defendant allegedly acted. . . . The failure to pay over
is by the employer. The employee, without any reference to his knowledge, is entitled
to the credit if the tax has been withheld.” Id.

The Third Circuit reached the opposite conclusion in Gollapudi. The defendant,
charged under § 7206 with filing a false personal tax return, argued inter alia that the
return was technically correct, even though he (in his official capacity as president of his
company) had never paid over the funds to the IRS. See 130 F.3d at 68, 72. Rejecting
the argument that the technical accuracy of the information on a tax return is a complete
defense, the Third Circuit concluded that there was “ample” evidence to find that the
defendant had filed a false return, including testimony that the defendant admitted that
the forms were false and that the alleged withholding was never submitted to the IRS,
but rather was left in the corporate checking account. Id. at 72. Thus, the court held, the
defendant had violated § 7206, “in that he misstated the amount of his withholdings.
Despite the fact that he understood his obligations, he submitted a form which he did not
believe was true and accurate as to every material matter.” Id.

Similarly, in United States v. May, 174 F. App’x 877 (6th Cir. 2006), we held
that there was sufficient evidence to convict the defendant for tax evasion under § 7201.
In May, the defendant operated and controlled the finances of Maranatha, a company in
which he was the majority shareholder and president. Id. at 878. Although he filed
individual income tax returns, May failed to pay over the taxes he reported withholding
No. 09-1284 United States v. Blanchard Page 19

from his own salary and that of his employees; instead, the funds remained in the
corporate bank account. Id. Nonetheless, he argued that the evidence at trial was
insufficient for a conviction for tax evasion, pointing to pay stubs (produced by Paychex)
that showed taxes had been deducted from his wages. Id. at 879.

Acknowledging that an employee properly may credit taxes when they are
actually withheld from his wages, even if the company does not subsequently pay them
over to the IRS, we held that sufficient evidence had been presented that the wages were
not “actually withheld” from the defendant:

Evidence at trial . . . established that neither Paychex nor May, acting on
behalf of Maranatha, actually withheld the taxes from May’s wages.
May gave Paychex funds covering only the employees’ wages; Paychex
never received or possessed the gross pay sums. May, moreover,
retained those corporate funds (the difference between the gross and net
pay due employees) in Maranatha’s corporate bank account, an account
May personally controlled and accessed for personal expenditures.
Because the evidence supports a finding that May did not actually
withhold the taxes from his wages as reflected on his Paychex pay stub,
May cannot claim a credit for those taxes.

Id. Accordingly, we affirmed the district court’s denial of the defendant’s motion for a
judgment of acquittal. Id.

Although May is an unpublished decision and involves a conviction for tax
evasion under § 7201, not a conviction for making a false claim for a tax refund under
§ 287, we find its reasoning persuasive. Rather than creating an overly formalistic
division between the personal and official capacities of an individual operating as both
employer and employee, which would permit the corporate form to serve as a shield to
individual liability, we find it more consonant with the purposes of § 287 to conduct a
functional inquiry into whether funds due the government left the defendant’s control
and so may be deemed “actually withheld” from his wages. See id. Here, like in May,
considerable evidence was presented to indicate that the funds remained in Blanchard’s
control. As the district court reasoned in denying Blanchard’s motion for a judgment of
acquittal:
No. 09-1284 United States v. Blanchard Page 20

Like May, Defendant Richard Blanchard controlled and operated the
company that was his employer, R. Blanchard Construction, Inc.
Defendant Blanchard, like May, also utilized Paychex, a payroll
processing company, to prepare the company’s employees’ paychecks.
Also like May, Blanchard affirmatively refused to allow Paychex to
handle the payment of taxes and provided Paychex with only the net pay
of his employees. As a result of this payroll processing arrangement, the
corporate funds allegedly representing the withholdings remained in the
corporate accounts that were controlled by defendants May and
Blanchard, respectively. Also just like in May, Defendant then used
these funds for personal expenditures.

(R. 132, Order Den. Mot. for New Trial and Mot. for J. of Acquittal After Return of Jury
Verdict.) By consequence, we find that the funds due the IRS were not “actually
withheld” from Blanchard’s wages, and so he cannot escape liability on this basis.

While Blanchard argues that his testimony that he had no involvement with the
financial side of the business demonstrates that he did not knowingly file a false claim,
the jury was free to reject this testimony as incredible and instead credit the testimony
of Fox and Amon that he was well aware of the delinquent taxes when he filed his tax
returns. Similarly, although Blanchard argues that the jury could not reasonably have
found that he knowingly claimed false claims because he relied on Fox’s professional
advice as his accountant, this argument is undermined by the testimony indicating that
the Blanchards misled and withheld pertinent information from Fox. Since a reasonable
trier of fact could have concluded beyond a reasonable doubt that Blanchard knowingly
filed false claims for tax refunds, we hold that sufficient evidence supported his
convictions under § 287.

F. Amount of restitution

As part of Blanchard’s sentence, the district court imposed restitution in the
amount of $195,852.60, pursuant to 18 U.S.C. §§ 3663 and 3663A, which stipulate that
restitution is required for victims of offenses under Title 18 of the United States Code.
See 18 U.S.C. §§ 3663, 3663A(c)(1)(A)(ii) (providing for mandatory restitution to
victims of any offense against property under Title 18, including any offense committed
by fraud or deceit). Blanchard argues that the amount of restitution imposed erroneously
No. 09-1284 United States v. Blanchard Page 21

includes both the Federal Insurance Contributions Act (FICA) taxes for which he is
personally liable under 26 U.S.C. § 3101(a) and the FICA taxes for which the Company
is liable under 26 U.S.C. § 3111(a). The Government agrees that the restitution figure
includes taxes that the Company owes the IRS, for which Blanchard is not liable, and
argues that the total amount of restitution that can be ordered is $91,669.

However, while §§ 3663 and 3663A require that restitution be made to victims
of offenses against property under Title 18, these provisions do not authorize restitution
for offenses under Title 26. Blanchard was convicted of three counts of making false
claims in violation of 18 U.S.C. § 287, for which restitution of $11,639 was due. But the
remainder of the proposed restitution amount, $80,030, is attributable to Blanchard’s
failure to account for and pay over taxes under 26 U.S.C. § 7072, so is not authorized
by §§ 3663 and 3663A.

As the Government correctly notes, the district court also may impose restitution
as a condition of supervised release. See 18 U.S.C. § 3583(d) (providing that a court
may order as a condition of supervised release “any condition set forth as a discretionary
condition of probation in section 3563(b)”); id. § 3563(b) (providing that a court may
require as a condition of probation that the defendant “make restitution to a victim of the
offense under section 3556 (but not subject to the limitation of section 3663(a) or
3663A(c)(i)(A))”). Nonetheless, we do not find it appropriate to uphold the imposition
of the additional $80,030 without knowing whether the district court would have done
so had it not thought itself bound by §§ 3663 and 3663A. On remand, the district court
should determine whether some or all of the $80,030 previously imposed pursuant to
these provisions should be reimposed as a condition of Blanchard’s supervised release.

III. CONCLUSION

For the reasons presented above, we AFFIRM the conviction and sentence of
imprisonment but VACATE the restitution order and REMAND for further proceedings
consistent with this opinion.