Summary
The United States Court of Appeals for the Fourth Circuit affirmed the convictions of Gregory Gentner and Richard Brasser for willfully failing to pay over employee trust-fund taxes in violation of 26 U.S.C. § 7202. The court rejected challenges concerning the jury’s access to the indictment, the jury instructions relating to the IRS Voluntary Disclosure Program and willfulness, and the denial of a motion for a new trial.
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Questions Presented
- Whether the district court abused its discretion by permitting the jury to review the indictment during deliberations.
- Whether the jury instructions were inconsistent with the IRS Voluntary Disclosure Program or improperly failed to account for rFactr's ability to pay its trust-fund taxes.
- Whether the jury instructions concerning willfulness, good faith, discretionary expenditures, and preferences for other creditors were confusing, misleading, or prejudicial.
- Whether the district court abused its discretion by denying the defendants' Rule 33 motion for a new trial based on the alleged failure to weigh their cooperation with the IRS and the weight of the evidence.
Holdings
- A district court may allow the jury to review an indictment during deliberations when the jury is unequivocally instructed that the indictment is not evidence and is provided only to aid the jury in following the court's instructions and counsel's arguments. The district court satisfied that standard, so permitting the indictment to go to the jury was not an abuse of discretion.
- The challenged instructions were not an abuse of discretion because they accurately permitted the jury to consider the defendants' ability to pay and an intentional preference for other creditors over the United States as evidence of willfulness, and the defendants were charged only for tax quarters after their Disclosure Program application.
- The jury instructions adequately and fairly stated the controlling law concerning willfulness and good faith and were not confusing, misleading, or prejudicial. A good-faith belief may negate willfulness, and the supplemental instruction made clear that the good-faith defense applied to all charges.
- The district court did not abuse its discretion in denying a new trial because the evidence of willfulness was overwhelming and the court adequately addressed the evidence and applied the proper Rule 33 standard.
Key quotations
“And those instructions conform to the law in this Circuit. See Turpin v. United States, 970 F.2d 1344, 1347 (4th Cir. 1992) (explaining that an “intentional preference of other creditors over the United States is sufficient to establish the element of willfulness” with respect to failure to pay required taxes (citation modified)).” (17)
“To sustain their five felony convictions thereunder, the prosecution was obliged to demonstrate (1) that the defendants had a duty to withhold and pay over trust- fund taxes; and (2) that the defendants “willfully failed to perform [those] tax-related duties.”” (20)
“Put simply, the mandate established by § 7202, and the authorities developed thereunder, are clear: If a taxpayer has intentionally funded other expenditures instead of his known tax obligations — even if he claims those expenditures were necessary for the survival of the business — he has acted willfully.” (20-21)
Factual background
Gentner and Brasser were the primary executives of rFactr, Inc., a Charlotte software company, and were responsible for filing employment-tax returns and paying over taxes withheld from employees' wages. Despite repeated IRS warnings, tax levies, and advice from company personnel, rFactr failed to pay over trust-fund taxes for multiple quarters, while receiving substantial revenue and paying the defendants large salaries and funding other expenditures. The defendants applied to and were accepted into an IRS Voluntary Disclosure Program, but the five quarters underlying their convictions post-dated that application, and they continued failing to pay current trust-fund taxes. The company later ceased operations, and the defendants ultimately paid the taxes, penalties, and interest before indictment, but were nevertheless prosecuted and convicted under § 7202.
Procedural history
A federal grand jury indicted Gentner and Brasser in January 2023 for offenses including willful failure to pay over employee trust-fund taxes. After a joint jury trial in March 2024, each defendant was convicted on five § 7202 counts and acquitted on the remaining false-return and tax-evasion charges. The district court denied their post-trial motions, sentenced each defendant to twelve months and one day in prison followed by supervised release, and the defendants appealed. The Fourth Circuit consolidated the appeals and affirmed.