United States v. Robert Kahre

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, No. 09-10471

Plaintiff-Appellee,

D.C. No.

v. 2:05-cr-00121-

DAE-RJJ-1

ROBERT DAVID KAHRE, AKA Robert

D. Kahre,

Defendant-Appellant.

UNITED STATES OF AMERICA, No. 09-10528

Plaintiff-Appellee,

D.C. No.

v. 2:05-cr-00121-

DAE-RJJ-11

LORI A. KAHRE, AKA Donna Hall,

Defendant-Appellant.

UNITED STATES OF AMERICA, No. 09-10529

Plaintiff-Appellee,

D.C. No.

v. 2:05-cr-00121-

DAE-RJJ-12

ALEXANDER C. LOGLIA,

Defendant-Appellant.

OPINION

2 UNITED STATES V. KAHRE

Appeal from the United States District Court

for the District of Nevada

David A. Ezra, District Judge, Presiding

Argued and Submitted

June 11, 2012—San Francisco, California

Filed December 5, 2013

Before: Proctor Hug, Jr., Johnnie B. Rawlinson,

and Sandra S. Ikuta, Circuit Judges.

Per Curiam Opinion

UNITED STATES V. KAHRE 3

SUMMARY*

Criminal Law

The panel affirmed three defendants’ convictions and one

defendant’s sentence for criminal tax offenses arising from

their use of gold and silver coins to pay wages and thus avoid

the reporting of payroll and income taxes.

Rejecting the defendants’ contention that dismissal of the

indictments was warranted, the panel held that the defendants

had sufficient notice of the illegality of relying on the face

value of coins to avoid paying taxes.

The panel held that the district court did not abuse its

discretion in denying the defendants’ motions to disqualify

the prosecutor due to his status as a defendant in a Bivens

lawsuit filed by defendants Robert and Lori Kahre. The panel

held that the defendants failed to present clear and convincing

evidence of a conflict.

The panel held that the district court properly denied as

moot Robert’s initial motion to suppress because none of the

seized evidence was introduced at trial. The panel held

alternatively that Robert’s arrest and the corresponding search

were legally conducted pursuant to a state bench warrant.

The panel held that the district court correctly denied

Robert’s subsequent suppression motion because the warrants

incorporated the accompanying affidavit, which possessed the

requisite specificity limiting the agents’ discretion.

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

4 UNITED STATES V. KAHRE

The panel held that the district court did not abuse its

discretion in excluding evidence challenging the legal import

of its ruling that gold and silver coins used to pay wages were

to be assessed at fair market value for tax purposes. The

panel held that the district court correctly recognized that the

coins were taxable as property based on their fair market

value.

The panel held that the district court did not commit

reversible error in excluding testimony of the defendants’

contemporaneous statements concerning their tax theories.

The panel explained that in each instance the exclusion was

neither an abuse of discretion nor prejudicial, and held that

the district court acted within its discretion when it excluded,

as irrelevant and prejudicial, evidence of the federal agents’

use of force during execution of the search warrants. The

panel held that the district court did not engage in any

misconduct warranting a new trial.

The panel held that the district court’s calculation of

Robert’s tax liability at sentencing and the corresponding

restitution amount was supported by the evidence presented

at trial and the jury’s findings, that an enhancement for

obstruction of justice and the denial of a downward

adjustment for acceptance of responsibility were consistent

with the historical record, and that Robert’s below-guidelines

sentence was reasonable and was not disproportionately

severe.

UNITED STATES V. KAHRE 5

COUNSEL

Michael K. Powell and Michael J. Kennedy (argued),

Assistant Federal Public Defenders, Reno, Nevada, for

Appellant Lori A. Kahre.

Lisa A. Rasmussen, Las Vegas, Nevada, for Appellant Robert

D. Kahre.

Joel F. Hansen, Hansen Rasmussen, Las Vegas, Nevada, for

Appellant Alexander C. Loglia.

Gregory Victor Davis, Mark S. Determan (argued),

Department of Justice, Washington, D.C., for Appellee

United States.

OPINION

PER CURIAM:

Appellants Robert Kahre (Kahre), Lori Kahre (Lori) and

Alexander Loglia (Loglia) challenge their convictions for

various criminal tax offenses arising from their use of gold

and silver coins to pay wages and thus avoid the reporting of

payroll and income taxes. Appellants contend that dismissal

of the indictments was warranted because Appellants lacked

the requisite notice that their conduct violated applicable tax

laws. Appellants also assert that a new trial was in order

because the prosecutor should have been disqualified due to

his status as a defendant in a Bivens1 lawsuit filed by the

1

Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics,

403 U.S. 388 (1971).

6 UNITED STATES V. KAHRE

Kahres, and because the district court’s prejudicial conduct

and erroneous evidentiary rulings deprived them of a fair

trial. In addition, Robert Kahre challenges the district court’s

denial of his motions to suppress and the sentence imposed.

We affirm Appellants’ convictions and Kahre’s sentence.

I. BACKGROUND

A. Third Superseding Indictment (Indictment)2

The Indictment alleged that Appellants engaged in a

conspiracy to avoid the payment of payroll and income taxes

by utilizing a payroll system pursuant to which employees

received their wages in gold and silver coins, which were

later exchanged for cash. According to the Indictment, “the

face amount of the coins was one-eighth of the amount of pay

that the employee actually earned and received in the

envelope of cash[.]” The Indictment alleged that Appellants

failed to withhold the required federal income taxes, medicaid

taxes, and social security taxes from the employees’ wages,

and that Appellants created false invoices to conceal the

payroll expenses. The Indictment also alleged that Kahre

marketed the payroll service to other contractors and charged

an administrative fee for use of the payroll service.

The Indictment charged all three defendants with one

count of conspiracy in violation of 18 U.S.C. § 371, and one

count of attempting to interfere with the administration of

internal revenue laws in violation of 26 U.S.C. § 7212(a).

Robert and Lori Kahre were charged with an additional count

2

The Third Superseding Indictment was the indictment in effect at the

time of trial at issue in this appeal.

UNITED STATES V. KAHRE 7

of attempting to interfere with the administration of internal

revenue laws in violation of 26 U.S.C. § 7212(a).

The Indictment charged Robert Kahre with forty-eight

counts of failure to pay employment taxes in violation of

26 U.S.C. § 7202; four counts of attempting to evade or

defeat taxes in violation of 26 U.S.C. § 7201; and one count

of wire fraud in violation of 18 U.S.C. § 1343.

The Indictment charged Lori Kahre with one count of

making false statements to a bank in violation of 18 U.S.C.

§ 1014, and eight counts of attempting to evade or defeat

taxes in violation of 26 U.S.C. § 7201.

Finally, the Indictment charged Loglia with one count of

filing false income tax returns in violation of 26 U.S.C.

§ 7206(1), and ten counts of attempting to evade or defeat

taxes in violation of 26 U.S.C. § 7201.

B. Pretrial Motions

1. Kahre’s Motions To Suppress

In his search warrant affidavit, Internal Revenue Service

(IRS) Special Agent Jared Halper observed that, although

Kahre’s businesses were generating significant revenues,

Kahre had not filed business tax returns or employment taxes

since the early 1990s. Kahre also had not filed individual tax

returns since 1991.

Agent Halper averred that Kahre leased employees to

various contractors, and withdrew cash from Bank of the

West for the payroll. According to Agent Halper, Kahre

withdrew $24,096,012 in cash between January 17, 2002, and

8 UNITED STATES V. KAHRE

October 31, 2002. Kahre’s employees collected their wages

at a warehouse located at 6270 Kimberly Avenue in Las

Vegas. The employees received nominal amounts of gold

certificates or gold chips, which they immediately exchanged

for envelopes of cash. Kahre allegedly withheld “sixty

percent of the employees’ payroll. . . .”

Based on Kahre’s conduct, Agent Halper stated that there

was probable cause to believe that Kahre was engaged in a

conspiracy to evade taxes and to interfere with the

administration of the tax laws by the IRS. Agent Halper’s

affidavit reflected that evidence of Kahre’s criminal activities

could be found at the 6270 Kimberly Avenue, 6295 Grand

Canyon, and 1555 Bledsoe Lane addresses (The Kimberly,

Grand Canyon, and Bledsoe properties).

In his declaration, Agent Halper related that IRS agents

reviewed the search warrant affidavit prior to the searches.

Kahre was subsequently arrested at Bank of the West

pursuant to a state bench warrant for failure to appear, and the

agents seized $230,913 in cash, which was provided to the

IRS to satisfy Kahre’s “unpaid federal income tax liabilities.”

According to Agent Halper, Kahre had unpaid tax

assessments of approximately $2,000,000.

The district court ruled that Kahre’s motion to suppress

evidence seized when Kahre was arrested at Bank of the West

was moot because the seized evidence would not be used at

trial. The district court also determined that the government

was not required to return the cash seized from Kahre because

it was used to offset Kahre’s tax liabilities.

The district court granted in part and denied in part

Kahre’s amended motions to suppress evidence seized from

UNITED STATES V. KAHRE 9

the Kimberly, Bledsoe, and Grand Canyon properties.

Because Kahre was not present during the execution of the

search warrants, the district court held that Kahre lacked

standing to challenge the manner in which the search

warrants were executed. The district court concluded that,

because the search warrant properly incorporated the search

warrant affidavit, the warrant was not overly broad. The

district court also held that the agents properly seized gold

and silver coins relating to Kahre’s payroll scheme.

However, the district court granted Kahre’s motion to

suppress information and documents that were unrelated to

the time periods specified in the warrants.

2. Appellants’ Motions To Disqualify the Prosecutor

For Conflict of Interest

On October 30, 2003, several plaintiffs, including the

Kahres, filed a Bivens action against the federal prosecutor,

as well as other federal defendants. The complaint alleged,

inter alia, that the federal defendants orchestrated an illegal

raid of Kahre’s properties, improperly arrested Kahre and

stole $230,913 in cash from him.

On October 4, 2004, the district court in the Bivens action

denied the prosecutor’s motion to dismiss premised on

absolute immunity. Treating the complaint’s allegations as

true, the court denied absolute immunity because of the

prosecutor’s alleged involvement in planning the raids.

The government subsequently filed two indictments

against Appellants, and the district court in the Bivens case

granted the government’s emergency motion to stay the

proceedings based on the pending criminal prosecutions.

During the first trial, the jury was unable to reach verdicts,

10 UNITED STATES V. KAHRE

and the government subsequently filed the Third Superseding

Indictment.

Prior to the second trial, Kahre renewed a prior motion to

disqualify the prosecutor because of a conflict of interest. In

an attached declaration, Kahre’s counsel related that the

prosecutor had remarked that Kahre’s counsel had

“threatened [his] job and [his] pension,” making the case

“personal.” Kahre filed a subsequent motion to disqualify the

prosecutor because of his pecuniary and emotional interests

in the Bivens action, and because the prosecutor had filed the

indictments as retaliation for being named in the Bivens

action.

The district court denied Kahre’s motion, ruling that

automatic disqualification was not warranted due to the

pendency of a Bivens action, and that the prosecutor’s

comments did not require disqualification on the merits.

3. Appellants’ Motions To Dismiss the Indictments

Based on the Gold and Silver Coins’ Valuation

Appellants asserted that they lacked the requisite notice

that their payroll payments in gold and silver coins were

taxable at the coins’ fair market value and that their conduct

violated the tax laws. They contended that the lack of notice

in the statutory language compelled application of the rule of

lenity, resulting in a construction of the statute that was most

favorable to them. The district court rejected the Appellants’

argument, explaining that the applicable statutes were

unambiguous regarding the elements of conspiracy to defraud

the government and of willful failure to truthfully account for

taxes owed. The district court added that the statutes’

scienter requirements mitigated any vagueness and that the

UNITED STATES V. KAHRE 11

tax provisions patently articulated reporting and filing

requirements.

The district court eschewed Appellants’ argument that

they did not defraud the government because gold and silver

coins used to pay employees should have been assessed at

face value, rather than fair market value, for tax purposes. If,

for example, an employee was paid with ten silver dollar

coins, Appellants would argue that the employee received

only ten dollars in wages. However, if each silver dollar had

a fair market value of fifty dollars, the government assessed

the wages at 10 x $50 or $500.00. The district court was

persuaded that Ninth Circuit precedent, as well as that of

other courts including the Tax Court, required taxation of the

coins at fair market value. The district court observed that

the tax code and corresponding Treasury regulations treated

property, such as gold and silver coins used as compensation

for services rendered, as taxable at fair market value.

C. Trial Testimony and Verdicts

George Rodriguez (Rodriguez), who pled guilty to tax

evasion, served as a foreman and superintendent for Kahre’s

business, Wright Painting and Drywall. According to

Rodriguez, all employees were required to sign an

independent contract agreement in order to receive their pay.

The agreement was designed to shield Kahre and his

employees from tax obligations by establishing a system of

wage payments in gold and silver.

Although Kahre told Rodriguez that he was an

independent contractor, Rodriguez described himself as an

employee of Robert Kahre’s business. Kahre had the

authority to direct Rodriguez in the performance of Kahre’s

12 UNITED STATES V. KAHRE

duties, including what work to perform and when the work

was to be performed. Kahre also instructed Rodriguez

regarding the timing of hiring additional workers, and

regarding where to purchase supplies and tools. Kahre also

had the right to terminate Rodriguez’s employment.

According to Rodriguez, he and the other employees were

paid in gold and silver on a weekly basis based on a system

developed by Kahre and administered by Lori. Each week,

Rodriguez received a single gold coin which he immediately

exchanged for an envelope containing his $500 weekly salary

in cash. All employees were required to accept payment in

gold or silver coins, which coins were later exchanged for

cash. Rodriguez never received W-2 forms reflecting his

wages, and no deductions were made from his wages for

income tax purposes.

Rodriguez obtained tubes of gold and silver which he

exchanged for envelopes of cash to distribute to the other

employees. Rodriguez confirmed payroll payments after

consulting payroll sheets generated by Lori. Payrolls were

met with cash payments, and Rodriguez did not recall any

employee who actually retained the gold or silver coins as

wage payments.

Heidi Molesworth (Molesworth), who pled guilty to tax

evasion, was employed in Kahre’s payroll office for five

years. Kahre informed Molesworth that she was an

independent contractor and she signed an independent

contractor agreement. Nevertheless, Kahre paid

Molesworth’s wages in gold and silver coins that she

immediately exchanged for envelopes of cash. Molesworth

UNITED STATES V. KAHRE 13

did not receive W-2 or 1099 forms,3 and never filed a tax

return. Molesworth paid Kahre’s employees in gold and

silver coins. If an employee retained the gold or silver coins,

the coins’ fair market value was deducted from the cash

wages due.

Molesworth testified that she and Lori used false names

on the payroll sheets to avoid having to pay taxes, and that it

was standard procedure to use false names on employment

verification forms. Although most other employees were

paid using the gold and silver exchange, Molesworth and the

Kahres did not use that system for payment of their own

wages. Instead, envelopes of cash were prepared for payment

of their wages. Robert Kahre received fees for administering

the payrolls of other companies, for which he used the same

coin/cash payment system he utilized for his employees.

IRS Special Agent Ryan Rickey testified that, between

1999 and 2003, Kahre’s companies paid $22,382,760.42 in

wages. Between 1998 and 2003, the companies using Kahre

to administer their payrolls paid a total of $95,042,952.14 in

wages and Kahre received $14,100,087.10 in fees. Agent

Rickey also testified that return filing histories reflected that

Kahre did not file any tax returns between 1991 and 2006;

3

A W-2 form is “[t]he form that an employer must send to an employee

and the IRS at the end of the year. The W-2 form reports an employee’s

annual wages and the amount of taxes withheld from his or her paycheck.”

http://www.investopedia.com/terms/w/w2form.asp (last visited May 29,

2013).

A 1099 form is “[t]he IRS form for reporting payments to

independent contractors or interest earned on investments or bank

accounts . . .” http://financial-dictionary.thefreedictionary.com/Form+

1099 (last visited May 29, 2013).

14 UNITED STATES V. KAHRE

Lori filed false returns from 1996 to 1999, and did not file

any returns between 2000 and 2006; and Loglia did not file

returns from 1998 to 2006.

IRS Revenue Agent Sue Cutler estimated that, between

1999 and 2002, Kahre’s companies paid Kahre a total salary

of $1,956,738, and Kahre earned $14,100,087.10 in fees from

other companies using his payroll services. Agent Cutler

surmised that Kahre owed $2,049,172.97 in income taxes.

Because Kahre did not file any employment taxes for his

businesses from 1999 to 2003, Agent Cutler calculated an

additional tax liability of $7,082,138.54.

In his testimony, Robert Kahre explained that he

developed his payroll system after the IRS seized his property

and equipment from a failed business. Kahre met John

Nelson (Nelson), who authored books and taught classes

about the IRS and the monetary system, and Nelson’s ideas

influenced Kahre to develop the payment system at issue.

According to Kahre, he developed his gold payroll system

because the United States government had debauched the

national currency and utilized inflation to confiscate the

wealth of U.S. citizens. Kahre relied on court cases and the

Gold Bullion Coin Act of 1985 that approved gold coins as

legal tender. Kahre devised the independent contractor

agreements to reflect that the IRS was a foreign agent for the

World Bank and the International Monetary Fund (IMF). In

Kahre’s view, by collecting taxes for the IRS, employers

illegally served as foreign agents for the World Bank and

IMF. Kahre relied on several federal statutes, regulations,

and “Presidential Documents” in the process of developing

his payroll system to avoid the collection of taxes on behalf

of foreign agents.

UNITED STATES V. KAHRE 15

Loglia testified that, like Kahre, he was influenced by

Nelson’s ideas about monetary history and monetary policy.

Loglia believed that Congress approved the use of gold coins

as an alternative to paper currency. Because of his interest in

gold payments, Loglia agreed to work for Kahre, and stopped

filing tax returns in 1993, since his income, calculated in

accordance with the face value of the gold and silver coins,

was below the filing threshold. Loglia believed that there

was legal precedent supporting the gold payment system, and

he calculated his income based on the coins’ face value on the

ground that coins can be legally used to pay debt. Loglia was

of the view that federal statutes and the Gold Bullion Coin

Act of 1985 supported the gold payment system considering

that coins were approved legal tender, and that gold clause

contracts were legally authorized.

Lori Kahre testified that she started to work for her

brother, Robert, in 1988. In 1993, Kahre commenced paying

Lori her wages in silver dollars, and Lori thought the coins

were legal tender based on Congressional acts. Lori was

persuaded that the coins were legal tender because a coin

shop did not collect taxes when exchanging cash for the

coins, and the companies utilizing Kahre’s payroll system

never challenged the transactions.

Initially, Lori filed tax returns based on the face value of

the silver coins. In 2000, Lori determined that she received

between $63 and $125 wages per week, based on the face

value of the coins. Because her wages calculated on the face

value of the coins were below the threshold for filing taxes,

Lori did not file any tax returns between 2001 and 2006.

The jury found Kahre guilty on all counts. Loglia was

acquitted of conspiracy, but convicted on the remaining

16 UNITED STATES V. KAHRE

counts. The jury found Lori guilty on all counts with the

exception of one count of willfully attempting to evade or

defeat tax.

D. Sentencing

The presentence investigation report (PSR) calculated that

Kahre had paid $25,572,307.17 in cash wages to his

employees, and failed to withhold $10,891,791.72 in taxes.

The PSR also determined that Kahre paid $95,175,992.14 in

cash wages to the employees of thirty-five contracting

businesses and thereby obstructed the collection of

$40,847,545.80 in taxes. The PSR estimated the potential tax

loss of Kahre’s payroll scheme at $51,739,337.52. The PSR

estimated an additional $5,696,466.10 in tax liabilities due to

Kahre’s failure to file tax returns in 1992, 1993, 1999, 2000,

2001, and 2002. Combined with the tax losses from the

payroll scheme, the total potential tax loss was

$57,435,803.52. From these calculations, the PSR

recommended a total offense level of 39, with a guideline

sentencing range of 262 to 327 months’ imprisonment.4

The PSR calculated $16,060,104.72 in outstanding

restitution from Kahre’s personal tax liability of

$5,168,313.00, and $10,891,791.72 in tax losses from the

payroll scheme.

During the sentencing hearing, the district court

determined that a base offense level of 30 was supported by

the trial testimony and relevant conduct, and rejected Kahre’s

4

The PSR also recommended an upward adjustment for obstruction of

justice in light of Kahre’s false trial testimony, and denial of a downward

adjustment for acceptance of responsibility.

UNITED STATES V. KAHRE 17

objection that the applicable guideline range was 51 to 63

months. The district court held that there was ample support

for an obstruction of justice enhancement, and that a

downward adjustment for acceptance of responsibility was

unwarranted. The district court concluded that the

recommended restitution amount was supported by the jury’s

findings and the evidence at trial. After deciding that a

downward variance was warranted, the district court

sentenced Kahre to 190 months’ imprisonment and three

years of supervised release. The district court also ordered

$16,060,104.72 in restitution with $10,891,791.72 “to be

jointly and severally owed by co-defendants.”

The district court sentenced Lori to seventy-two months’

imprisonment, four years of supervised release, and $31,900

in restitution, and sentenced Loglia to twenty-six months’

imprisonment, three years of supervised release, and $83,000

in restitution.

Appellants timely appealed their convictions and Kahre

timely appealed his sentence.

II. STANDARDS OF REVIEW

“We review de novo the district court’s ruling on a

motion to suppress.” United States v. Russell, 664 F.3d 1279,

1280 n.1 (9th Cir. 2012) (citation omitted). “The court’s

factual findings are reviewed for clear error . . .” Id. (citation

omitted).

“The district court’s determination that the predicate law

was clearly established is a question of law which we review

de novo.” United States v. George, 420 F.3d 991, 995 (9th

Cir. 2005) (citation omitted).

18 UNITED STATES V. KAHRE

“The district court’s refusal to disqualify the prosecutor

is reviewed for abuse of discretion.” United States v. Davis,

932 F.2d 752, 763 (9th Cir. 1991), as amended (citation

omitted).

“We review evidentiary rulings for abuse of discretion,

though we review de novo the district court’s interpretation

of the Federal Rules of Evidence. . . .” United States v.

Urena, 659 F.3d 903, 908 (9th Cir. 2011) (citation omitted).

“This Court reviews the district court’s interpretation of

the Sentencing Guidelines de novo, the district court’s

application of the Sentencing Guidelines to the facts of a case

for abuse of discretion, and the district court’s factual

findings for clear error.” United States v. Dann, 652 F.3d

1160, 1175 (9th Cir. 2011) (citation and internal quotation

marks omitted).

“A factual finding that a defendant obstructed justice is

reviewed for clear error. . . .” United States v. Garro,

517 F.3d 1163, 1171 (9th Cir. 2008) (citation omitted). “A

district court’s decision about whether a defendant has

accepted responsibility is a factual determination reviewed

for clear error. . . .” United States v. Rosas, 615 F.3d 1058,

1066 (9th Cir. 2010), as amended (citation omitted).

“A restitution order is reviewed for an abuse of discretion,

provided that it is within the bounds of the statutory

framework. Factual findings supporting an order of

restitution are reviewed for clear error. The legality of an

order of restitution is reviewed de novo.” Dann, 652 F.3d at

1175 (citation omitted).

UNITED STATES V. KAHRE 19

III. DISCUSSION

A. Denial of Kahre’s Motions To Suppress

Kahre contends that his arrest and the seizure of payroll

funds at Bank of the West were the products of an illegal,

pretextual search. The district court declined to address this

issue on the merits, concluding that the motion to suppress

was moot because the government was not introducing the

seized evidence at trial. The record confirms the district

court’s conclusion that the seized evidence was not

introduced at trial, thereby rendering the motion to suppress

moot. See United States v. Arias-Villanueva, 998 F.2d 1491,

1502 (9th Cir.1993), overruled on other grounds by United

States v. Jimenez-Ortega, 472 F.3d 1102, 1103-04 (9th

Cir.2007).

In any event, suppression was not required merely

because the arrest and corresponding search by federal agents

were premised on a state warrant. See United States v.

Hudson, 100 F.3d 1409, 1415–16 (9th Cir. 1996) (upholding

the validity of a federal agent’s arrest and search premised on

a state warrant). Because the agents acted pursuant to a valid

state arrest warrant, the payroll funds were properly seized in

the search incident to Kahre’s arrest. See United States v.

Tank, 200 F.3d 627, 631 (9th Cir. 2000).

20 UNITED STATES V. KAHRE

Relying on Fed. R. Crim. P. 41(g),5 Kahre contends that

the payroll funds seized during his arrest should have been

returned. However, Rule 41 is inapplicable, as the seized

funds were applied to Kahre’s tax liabilities pursuant to a

notice of levy. See United States v. Fitzen, 80 F.3d 387,

388–89 (9th Cir. 1996) (“[A]n IRS tax levy will defeat a Rule

41(e) motion. . . . Regardless of whether the defendant owes

federal taxes or state taxes, the existence of a tax levy

demonstrates a right to possession adverse to that of the

defendant.”) (citation omitted).6 The district court, therefore,

properly denied Kahre’s motion to suppress and his request

for the return of the seized funds pursuant to Rule 41.

Finally, Kahre asserts that the search warrants for the

Bledsoe, Kimberly, and Grand Canyon properties were

invalid general warrants because they did not specify any

criminal activity. To resolve this claim, we “must answer the

threshold question of whether the warrant[s] incorporated

Special Agent [Halper’s] affidavit.” United States v. SDI

Future Health, Inc., 568 F.3d 684, 699 (9th Cir. 2009), as

amended (citation omitted). “If it was incorporated, then we

5

Fed. R. Crim. P. 41(g) provides:

A person aggrieved by an unlawful search and seizure

of property or by the deprivation of property may move

for the property's return. The motion must be filed in

the district where the property was seized. The court

must receive evidence on any factual issue necessary to

decide the motion. If it grants the motion, the court

must return the property to the movant, but may impose

reasonable conditions to protect access to the property

and its use in later proceedings.

6

The 1996 version of Rule 41(e) corresponds to the current version of

Rule 41(g). See Fed. R. Crim. P. 41(e) (1996).

UNITED STATES V. KAHRE 21

evaluate the affidavit and the warrant as a whole, allowing the

affidavit to cure any deficiencies in the naked warrant.” Id.

(citation and internal quotation marks omitted). “We

consider an affidavit to be part of a warrant, and therefore

potentially curative of any defects, only if (1) the warrant

expressly incorporated the affidavit by reference and (2) the

affidavit either is attached physically to the warrant or at least

accompanies the warrant while agents execute the search.”

Id. (citations omitted). “A warrant expressly incorporates an

affidavit when it uses suitable words of reference. . . .” Id.

(citation and internal quotation marks omitted). The

challenged warrants in this case expressly incorporated the

affidavit, and a copy of the affidavit accompanied the

warrants. As discussed, the affidavits detailed criminal

activities committed in conjunction with Kahre’s operation –

failure to file tax returns, failure to withhold employment

taxes, and conspiracy to evade taxes and to interfere with

administration of the tax laws by the IRS. Because the search

warrants, read in tandem with the accompanying affidavits,

described specific crimes, the searches were not conducted

pursuant to an impermissible general warrant. See id. at

699–702.

Kahre further contends that, because the warrants lacked

any limitations, seizure of items was improperly left to the

agents’ discretion.

“The prohibition of general warrants imposes a

particularity limitation, requiring warrants to specify the

items to be seized and the locations to be searched. . . .”

United States v. Vasquez, 654 F.3d 880, 884 (9th Cir. 2011)

(citation and internal quotation marks omitted). “The

description must be specific enough to enable the person

conducting the search reasonably to identify the things

22 UNITED STATES V. KAHRE

authorized to be seized. . . .” United States v. Smith, 424 F.3d

992, 1004 (9th Cir. 2005) (citation and alteration omitted).

Attachment B to the warrants sufficiently limited the

agents’ discretion. Although Attachment B utilized the

phrase “all records,” the search was temporally limited to

records “[f]or the period January 1, 1992, until December 31,

1993; and January 1, 1997 to present date[.]”7 The

7

Attachment B specified the search parameters as:

For the period January 1, 1992, until December 31,

1993; and January 1,1997 to present date:

A. All records which deal with: Robert Kahre, Bobby

Kahre, or ALPS, Bobby K’s Carpet Service, Bobby K’s

Home Care Service, Inc., Gold Contracts and

Associates, HGK Products, Inc., Master Paints

Distributing, Master Paints, Production Electric,

Production Metal, Production Plumbing and Air

Conditioning, Punchout Industries, Sherman Carpets,

Sherman Tile and Marble, Sherman Granite and Tile,

Union Pacific, Union Pacific Construction, Wright

Painting and Drywall, Wright Painting, Wright

Products, Inc., and any other business entities

associated or related to Robert Kahre, including but not

limited to, ledgers, journals, proposals, estimates, bids,

contracts, correspondence to and from general

contractors/sub-contractors/clients/customers/state

agencies, labor records, employee records, time cards,

expense records, income records, tax documents, tax

returns, state records, payroll records, insurance

records, incorporation records, incorporation filings,

financial records, records showing the disposition of

funds and acquisition of assets, scales, weighing

device(s), records of the acquisition of gold or silver,

disposition of gold or silver, contracts and

correspondence that deal with the acquisition and

UNITED STATES V. KAHRE 23

disposition of gold or silver, literature describing the

use of gold or silver, envelopes which appear to be used

for payroll purposes, labels, employee listings,

employee identifying information and files, records of

off-site storage, records of security alarms or personnel.

B. All records which deal with Robert Kahre, or any

of the identified entities listed above, or any other

business entities associated or related to Robert Kahre

or Danille Cline, Richard Wellman, Myra Wellman

(a.k.a. Myra Buonomo/Myra Kahre), Gary Bowers,

Lori Rasmussen (a.k.a. Lori Kahre), including but not

limited to, employment records, financial records,

records showing the disposition of funds and/or

acquisition of assets, and any other documents or

records that includes a reference to the above named

entities and individuals.

C. All records which deal with Robert Kahre, or any

of the identified entities or individuals listed above, or

any other business entities associated or related to

Robert Kahre or: Pacific Tile and Marble, D & L

Framing, LLC, R J Company Framing, LLC (a.k.a. D

& L Framing), Mitchell Framing Contractors, Inc.,

Mitchell Drywall Systems, Inc., Mitchell General

Contractors, Inc., R J Company, National Builders,

Inc., National Builders, Olympic Framers, Inc., Bravo,

Inc., Rhodes Framing, Rhodes Design & Development

Corporation, Rocky Top Paint and Drywall, Bronco

Construction, First Premier Drywall and Paint, Brandon

LLC, Bricker Construction, Inc., ABC Roofing and

Siding, Robert Dillon Framing, Toro Concrete, Inc.,

Big Bear Concrete, Action Concrete, AM Concrete,

Bull Concrete, Concrete Systems, or any other business

entities or individuals associated with payroll,

employee leasing, cash payments, receipt of gold or

gold certificates, records to include but not limited to

contracts, agreements, proof of payments, financial

records, invoices, correspondence to or from any of the

24 UNITED STATES V. KAHRE

search was thus confined to records associated with Kahre’s

corporate entities and with the use of gold and silver

payments. The search warrant affidavits furnished probable

cause to search for the enumerated items. As a result, the

search warrants provided the requisite specificity to limit the

agents’ discretion. See Smith, 424 F.3d at 1004–06.8

We affirm the district court’s denial of Kahre’s motion to

suppress evidence seized from the Bledsoe, Kimberly, and

Grand Canyon properties.

B. The District Court’s Determination of Tax

Valuation Based on the Fair Market Value of the

Gold and Silver Coins

Appellants contend that the district court erred in denying

their motions to dismiss the indictments because they did not

know that their use of gold and silver coins for payroll

payments was illegal under the tax laws. Appellants

specifically maintain that the district court’s tax valuation

predicated on the fair market value of the gold and silver

above, and any other documents, records or evidence

related to employees and/or payroll.

8

Kahre’s reliance on United States v. Bridges, 344 F.3d 1010 (9th Cir.

2003) is misplaced. In Bridges, IRS agents searched a business premised

on a warrant that “delineate[d] no clear material limitation or boundary as

to its scope.” Id. at 1017. Unlike the warrants in this case, the warrant in

Bridges lacked any temporal parameters or limitations regarding the types

of documents associated with the alleged criminal activity. See id. (“The

list is a comprehensive laundry list of sundry goods and inventory that one

would readily expect to discover in any small or medium-sized business

in the United States. . . .”). The warrant in Bridges also failed to specify

any criminal activity and did not incorporate the affidavit. See id. at 1018.

UNITED STATES V. KAHRE 25

coins unfairly imputed criminal intent to their unknowing

actions.

“The element of wilfulness cannot obtain in a criminal tax

evasion case unless the law clearly prohibited the conduct

alleged in the indictment.” George, 420 F.3d at 995 (citations

and internal quotation marks omitted). “Without sufficient

clarity in the law, taxpayers lack the fair notice demanded by

due process so that they may conform their conduct to the

law.” Id. (citation and internal quotation marks omitted).

“However, a lack of prior appellate rulings on the topic does

not render the law vague, nor does a lack of previously

litigated fact patterns deprive taxpayers of fair notice.” Id. at

995–96 (citation and internal quotation marks omitted).

“Thus, criminal prosecution is permissible when it is clear

beyond any doubt that the conduct is illegal under established

principles of tax law.” Id. at 996 (citation, alterations, and

internal quotation marks omitted).

Appellants’ argument is unpersuasive, as we have

expressly held that coins are taxable as property when their

fair market value exceeds their face value. In Cordner v.

United States, 671 F.2d 367 (9th Cir. 1982), the appellants

received $20 Double Eagle gold coins as corporate dividends.

See id. at 368. After the appellants reported the dividends at

the coins’ face value, the IRS charged the appellants with a

taxable dividend equivalent to the coins’ fair market value.

See id. We held that the IRS correctly assessed the coins as

property based on their fair market value:

We have no difficulty in holding that the gold

coins here, though legal tender and hence

money for some purposes, are also property to

be taxed at fair market value because they

26 UNITED STATES V. KAHRE

have been withdrawn from circulation and

have numismatic worth. When legal tender,

by reason of its value to collectors or the

intrinsic worth of its contents, has a fair

market value in excess of its face value or

tender, then it should be deemed property

other than money . . .

Id. (citations and internal quotation marks omitted).

In Cal. Fed. Life Ins. Co. v. Comm’r, 680 F.2d 85 (9th

Cir. 1982), the appellant exchanged Swiss francs for $20 gold

coins, and claimed a capital loss premised on the coins’ face

value. See id. at 86. We affirmed the tax court’s

determination that the gold coins were taxable as property

based on their fair market value. See id. We held that usage

of the term “money” in I.R.C. § 1001(b) required a realistic

assessment of the coins as property:

Section 1001(b) is clearly intended to permit

a realistic assessment of the economic gain or

loss attending a sale or exchange. That

purpose would be frustrated by an

interpretation that compelled gold coins to be

treated at a fraction of their true value. We

therefore conclude that money in § 1001(b)

refers to the currently circulating medium of

exchange, while property includes coins that

have, by reason of their value to collectors or

the intrinsic worth of their contents, a fair

market value in excess of their face value.

Because the key element is the excess of

market over face value, it is immaterial that

UNITED STATES V. KAHRE 27

such coins may be legal tender at their face

value.

Id. (footnote reference and internal quotation marks omitted).

Appellants attempt to distinguish Cordner and Cal. Fed.

Life Ins. Co. because those cases involved coins that had been

withdrawn from circulation. However, in Cal. Fed. Life Ins.

Co., we declined to recognize this very distinction because

we “agree[ed] with the Tax Court’s conclusion that the

technical status of the coins as legal tender is immaterial . . .”

Cal. Fed. Life Ins. Co., 680 F.2d at 86 n.3 (citation and

internal quotation marks omitted). Rather, we emphasized

that “[b]ecause the key element is the excess of market over

face value, it is immaterial that such coins may be legal

tender at their face value. . . .” Id. at 86 (footnote reference

omitted).

Other courts have held that coins in circulation may be

assessed at their fair market value. In Joslin v. United States,

666 F.2d 1306 (10th Cir. 1981), the Tenth Circuit considered

whether the taxpayer should have reported payments in silver

dollars at their numismatic value. See id. In that case, an

attorney received 200 silver dollars for legal services, and

reported the income as $200, instead of the fair market value

of $1,000. See id. at 1306–07. The Tenth Circuit observed

that “[i]f a taxpayer receives property other than cash as

compensation, the taxpayer’s income is measured by the

property’s fair market value.” Id. at 1307 (citation omitted).

Based on general tax principles, the Tenth Circuit held:

Unquestionably, a silver dollar has both a face

value and a separate value reflecting the

coin’s numismatic worth. To this extent a

28 UNITED STATES V. KAHRE

silver dollar combines the characteristics of

cash and property. When a taxpayer bargains

for and benefits from the higher market value

of silver coins, he or she must include this

amount in income. That silver dollars are

designated legal tender with a nominal value

of one dollar acceptable at the United States

Treasury to discharge one dollar of debt, or

exchangeable for a one dollar Federal Reserve

note, does not require a different result. . . .

Id. (citations and footnote reference omitted).

In Stoecklin v. Comm’r, 865 F.2d 1221 (11th Cir. 1989),

the Eleventh Circuit reached a similar conclusion. In that

case, the appellant, who was the trustee of an equity trust,

formed a corporation for his accounting practice, of which he

was the only shareholder and employee. See id. at 1222–23.

The corporation paid the appellant’s trust 250 silver dollars

per month for the appellant’s services. See id. at 1223.

Although the corporation deducted the coins’ fair market

value as expenses, the appellant only reported the face value

of the coins as income. See id. The IRS subsequently sought

a deficiency premised on the fair market value of the coins.

See id. Applying the precepts developed in Cordner and

Joslin, the Eleventh Circuit rejected the appellant’s argument

that coins still in circulation were assessed at face value, and

held that the IRS properly sought a deficiency premised on

the fair market value of the coins. See id. at 1225; see also

Lary v. Comm’r, 842 F.2d 296, 299 (11th Cir. 1988) (“Where

coins have a fair market value in excess of their face value,

UNITED STATES V. KAHRE 29

their potential use as legal tender is irrelevant. . . .”) (citation

omitted).9,10

Based on these longstanding and consistent precedent, we

conclude that Appellants had ample notice that their payroll

scheme, premised on the exchange of gold and silver coins

for envelopes of cash, triggered the requirement to remit

payroll taxes to the IRS and to report the payments as income

based on the fair market value of the coins. See George,

420 F.3d at 995–96.11

9

Appellants contend that gold and silver coins are statutorily valued at

face value. However, this appeal does not really concern the statutory

value of gold and silver coins when utilized as legal tender. See Cordner,

671 F.2d at 368; Stoecklin, 865 F.2d at 1225. Instead, this appeal

addresses Appellants’ payment of wages in gold and silver coins in a

scheme to avoid payroll taxes, as evidenced by the facts that Kahre’s

employees were required to immediately return the coins for cash and, that

if an employee retained the coins, his wages were reduced by the fair

market value of the coins.

10

The Tax Court has also opined that coins are taxed as property at fair

market value when used as compensation for services or goods. See Smith

v. Comm’r, T.C.Memo. 1998-148, 1998 WL 191835, at *3 (U.S. Tax Ct.

1998) (“When the fair market value of legal tender exceeds its face value,

such legal tender is property other than money.”) (citations omitted).

11

In their request for judicial notice, Appellants proffer a memorandum

from IRS Senior Counsel Mark Howard as confirmation that the IRS

assesses coins at face value, and that Appellants’ payments in gold and

silver coins were consistent with IRS policy. However, the referenced

memorandum primarily analyzed whether a taxpayer could pay a tax bill

with gold and silver coins at face value. Citing Joslin, Cordner, and Cal.

Fed. Life Ins. Co., the memorandum opined that “the taxpayer may have

taken his pay out of the business in gold and silver coins and reported only

the face value of the coins as income. We note that others have tried such

an approach in the past. In each of these cases, the courts required the

taxpayers to recognize income based on the market value and not on the

30 UNITED STATES V. KAHRE

We are not persuaded by Appellants’ argument that the

Gold Bullion Coin Act of 1985, Pub. L. No. 99-185, 99 Stat.

1177, overruled prior legal precedent that coins are assessed

at fair market value. Although the Gold Bullion Coin Act

provides the Secretary of the Treasury with the authority to

mint gold and silver coins for circulation, see 31 U.S.C.

§ 5112(a)(7)–(11) (2010),12 there is no statutory language

reflecting Congressional intent to overrule prior legal

precedent or to establish the taxable value of the coins as their

face value. See id.; see also Sklar v. Comm’r, 549 F.3d 1252,

1262 (9th Cir. 2008) (observing that if Congress intended to

overrule judicial precedent concerning tax laws, “it would

have expressed its intention more clearly”) (citation omitted).

Further, the legislative history of the Act reflects, if anything,

Congressional intent that gold coins retain their fair market

value. See 131 Cong. Rec. H10528-05, 1985 WL 721189

(Cong. Rec. Dec. 2, 1985) (statement of Rep. Annunzio)

(“The gold coins will be sold at the market price of gold plus

a small charge for minting, marketing and distribution,

beginning October 1, 1986. . . .”); see also id. (statement of

Rep. Lewis) (“The actual denomination of these new coins

will be obvious to everyone-1 troy ounce, half-ounce,

quarter-ounce, and tenth-ounce. Their value will be

determined by the free market, just as the values of all other

face value of the coins. This case may provide evidence of some sort of

ongoing scheme . . .” The memorandum does not support Appellants’

argument that their payroll payments were consistent with IRS policy. See

Consolidated Appellants’ Request to Take Judicial Notice of Government

Records and Facts Contained Therein That Can Be Accurately and

Readily Determined, March 5, 2012, Exh. 1, at 2, 5, Case No. 09-10471,

Docket No. 70.

12

The Gold Bullion Coin Act of 1985 is currently codified at 31 U.S.C.

§ 5112 (2010).

UNITED STATES V. KAHRE 31

goods and services are determined.”). The legislative record

contains no linguistic or historical support for Appellants’

contention that the Gold Bullion Coin Act of 1985 overruled

prior legal precedent formulating tax assessments for gold

and silver coins.

Appellants’ reliance on 31 U.S.C. § 5118(a) and (d) in

support of their argument that the district court’s ruling

violated their right to contract is similarly misplaced.

According to Appellants, § 5118 legalizes contracts like

theirs, that contain “gold clauses.”

Section 5118 provides in relevant part:

(a) In this section—(1) gold clause means a

provision in or related to an obligation

alleging to give the obligee a right to require

payment in—(A) gold; (B) a particular United

States coin or currency; or (C) United States

money measured in gold or a particular

United States coin or currency.

...

(d)(1) In this subsection, obligation means any

obligation (except United States currency)

payable in United States money. (2) An

obligation issued containing a gold clause or

governed by a gold clause is discharged on

payment (dollar for dollar) in United States

coin or currency that is legal tender at the time

of payment. This paragraph does not apply to

an obligation issued after October 27, 1977.

32 UNITED STATES V. KAHRE

Id. (internal quotation marks omitted).

Assuming arguendo that § 5118 does “legalize” contracts

containing gold clauses, it would be of no help to Appellants,

because Appellants’ schemes did not implicate gold clause

contracts as defined in § 5118. See § 5118(a)(1) (defining

“gold clause” as an obligation purporting to give the obligee

the right to demand payment in, among other things, gold);

see also 60 Am.Jur.2d Payments § 26 (2012) (“A gold clause

is a provision in or related to an obligation alleging to give

the obligee a right to require payment in gold, a particular

United States coin or currency, or United States money

measured in gold or a particular United States coin or

currency. An obligation issued containing a gold clause or

governed by a gold clause is discharged on payment (dollar

for dollar) in United States coin or currency that is legal

tender at the time of payment. . . .”) (footnote references and

internal quotation marks omitted). Rather than utilizing a

gold clause, i.e., a clause designed to give employees a right

to demand payment in gold, Appellants evaded income and

payroll tax obligations by requiring employees to exchange

gold and silver coins for cash in order to receive their weekly

wages. This practice turned the gold clause standard on its

head. Rather than the obligee (the employee) demanding

payment in gold from the obligor (Kahre), the obligor (Kahre)

required the obligee (the employee) to accept payment in gold

that would then be repaid with cash. Nothing in 31 U.S.C.

§ 5118 or cases interpreting that statute validates Kahre’s

practice.

Notably, if an employee retained a gold or silver coin in

lieu of cash, the fair market value of the coin, as opposed to

its face value, was deducted from the employee’s wages. The

evidence at trial also established that the Kahres did not

UNITED STATES V. KAHRE 33

participate in the gold and silver coin exchange required of

Kahre’s employees, a clear indication of the illegitimacy of

the practice. Given the inapplicability of § 5118 to Kahre’s

scheme, Appellants’ argument regarding their right to

contract pursuant to that section is unpersuasive.

In the alternative, Appellants maintain that the

Department of Justice and the IRS lack authority to value

coinage. In essence, Appellants erroneously assume that the

IRS thwarted Congress’ monetary powers, including the

valuation of money. The flaw in Appellants’ assumption is

that the IRS did not establish valuation of coinage as a matter

of monetary policy. Rather, the IRS interpreted and applied

the tax code defining the taxable value of gold and silver

coins as property when used as compensation for services

rendered. The IRS’s actions in no way violated the

separation of powers, as the IRS is “the authority on the

interpretation and application of the Internal Revenue Code

. . .” Tualatin Valley Builders Supply, Inc. v. United States,

522 F.3d 937, 942 (9th Cir. 2008); see also 26 U.S.C.

§ 7805(a) (delegating authority concerning the Internal

Revenue Code).

Appellants again urge application of the rule of lenity to

reverse their convictions, pointing to the “uncertainty” of

their tax obligations. “The rule of lenity only applies,

however, where there is a grievous ambiguity or uncertainty

in the language and structure of the statute, such that even

after a court has seized every thing from which aid can be

derived, it is still left with an ambiguous statute. . . .” United

States v. Carona, 660 F.3d 360, 369 (9th Cir. 2011), as

amended (citation, alterations, and internal quotation marks

omitted). “Because the meaning of language is inherently

contextual, we have declined to deem a statute ambiguous for

34 UNITED STATES V. KAHRE

purposes of lenity merely because it was possible to articulate

a construction more narrow than that urged by the

government. . . .” Id. (citation and alteration omitted)

(emphasis in the original).

As discussed, several federal courts, as well as the Tax

Court, have held that gold and silver coins are assessed at

their fair market value when used for compensation for

services rendered. The applicable tax laws and corresponding

regulations also establish that, when property is used as

compensation, it is assessed at fair market value. See

26 U.S.C. § 61(a)(1) (defining gross income as including

“[c]ompensation for services, including fees, commissions,

fringe benefits, and similar items . . .”); 26 C.F.R.

§ 1.61-2(d)(1) (“[I]f services are paid for in property, the fair

market value of the property taken in payment must be

included in income as compensation. . . .”). Additionally,

Appellants were charged with violating 26 U.S.C. § 7202,

with the operative Indictment alleging that Appellants

“willfully fail[ed] to collect or truthfully account for and pay

over such tax . . .” (emphasis added). Inclusion of a scienter

requirement “mitigates a law’s vagueness, especially with

respect to the adequacy of notice to the complainant that his

conduct is proscribed.” United States v. Guo, 634 F.3d 1119,

1123 (9th Cir. 2011) (citations, alteration, and internal

quotation marks omitted).13

13

Appellants posit that the government’s confusion concerning the

valuation of gold and silver coins demonstrates that the law is unsettled.

In support of the premise that the government is in fact confused, they

point to the indictment in United States v. von Nothaus, Case No. 5:09-27

(W.D. N.C.) (von NotHaous Indictment). Appellants assert that

governmental confusion is evidenced by the allegation in the von Nothaus

Indictment that coins constitute United States currency, rather than

property. However, von Nothaus involved the creation and promotion of

UNITED STATES V. KAHRE 35

We hold that the district court correctly determined that

gold and silver coins used to pay wages were properly

assessed at their fair market value, and that Appellants had

sufficient notice that their conduct was illegal under the tax

laws.

C. Disqualification of the Prosecutor

Although we have held that the mere threat of civil

litigation does not warrant a prosecutor’s disqualification, see

United States v. Wencke, 604 F.2d 607, 611 (9th Cir. 1979),

we have not extensively addressed disqualification premised

on an extant civil action against the prosecutor. In United

States v. Kember, 685 F.2d 451 (D.C. Cir. 1982), the D.C.

Circuit addressed an analogous claim. In Kember, the

defendants sought disqualification of two federal prosecutors

who were named as defendants in a lawsuit concerning a

search conducted in bad faith. See id. at 458. The D.C.

Circuit held that the lawsuit alone did not require

disqualification, explaining that:

The potential conflict of interest that might

result from a personal civil suit filed against

an Assistant United States Attorney (AUSA)

by a defendant in a criminal case for acts

undertaken by the AUSA in his official

capacity in the criminal matter would have to

be very strong before disqualification would

be justified. It could not be justified by mere

a private coin as competing currency, and not violations of the tax code

through the use of wage payments in gold and silver coins to avoid paying

payroll taxes. As in this case, the legal analysis turned on the manner in

which the coins were used.

36 UNITED STATES V. KAHRE

inference from the filing of the suit but would

require proof, by clear and convincing

evidence, of a prima facie case of misconduct

on the part of the AUSA. The defendants

failed to produce the proof required by this

standard.

Id. at 459 (citation omitted); see also United States v. Heldt,

668 F.2d 1238, 1275–77 (D.C. Cir. 1981) (per curiam), as

amended (clarifying that a lawsuit filed by a criminal

defendant against a prosecutor does not result in automatic

disqualification of that prosecutor).14

Appellants contend that the district court improperly

applied a clear and convincing standard of proof in resolving

the disqualification issue because the Supreme Court

overruled Kember in Young v. United States ex rel. Vuitton Et

Fils, 481 U.S. 787 (1987) (Vuitton). In Vuitton, the Supreme

Court considered whether a private attorney, who was the

14

Appellants contend that the denial of qualified immunity in the Bivens

action was a unique event that impermissibly motivated the criminal

prosecution. We disagree. The district court in the civil action was

required to assume that the allegations of impermissible motivation were

true. See Ctr. for Bio-Ethical Reform, Inc. v. Los Angeles Cnty. Sheriff

Dep’t, 533 F.3d 780, 798 (9th Cir. 2008) (assuming the truth of allegations

in the Complaint for the purpose of qualified immunity analysis). Given

the posture of the civil case, the district court’s denial of qualified

immunity does not reflect a “unique event” distinguishing this case from

Kembler. We also do not consider the prosecutor’s dismissal of the appeal

in the Bivens case as an admission of misconduct, or proof of an

impermissible conflict of interest. The record simply reflects that

Appellants and the prosecutor, as one of several defendants, dismissed the

appeal based on the parties’ stipulations. Moreover, the government had

an exceptionally strong case against Appellants irrespective of the

prosecutor’s involvement.

UNITED STATES V. KAHRE 37

beneficiary of an injunction regarding a trademark, could be

appointed to prosecute contempt charges for violations of the

injunction. See id. at 790–91. The Supreme Court observed

that “[p]rivate attorneys appointed to prosecute a criminal

contempt action represent the United States, not the party that

is the beneficiary of the court order allegedly violated. . . .”

Id. at 804. “A private attorney appointed to prosecute a

criminal contempt therefore certainly should be as

disinterested as a public prosecutor who undertakes such a

prosecution.” Id. (footnote reference omitted). The Supreme

Court held that “counsel for a party that is the beneficiary of

a court order may not be appointed as prosecutor in a

contempt action alleging a violation of that order.” Id. at 809

(footnote reference omitted). The Supreme Court also held

that harmless error review was inapplicable because the

appointment of an interested prosecutor constitutes structural

error. See id. at 809–10.

Although the Supreme Court held that, in certain

situations, appointment of a prosecutor with a conflict of

interest constitutes reversible error, the Court did not alter the

standard for determining whether a disqualifying conflict

exists, or even discuss Kember. Concluding that a conflict

existed in Vuitton was an easy call. The appointed prosecutor

was a private attorney who represented Louis Vuitton, the

beneficiary of the injunction being enforced. See id. at

791–92. The Supreme Court identified the pecuniary interest

of the retained counsel/prosecutor as an “inherent conflict.”

Id. at 807. In recognition of that inherent conflict, the

Supreme Court held that “counsel for a party that is the

beneficiary of a court order may not be appointed as

prosecutor in a contempt action alleging a violation of that

order.” Id. at 808 (footnote reference omitted). Because of

the stark difference in facts between Vuitton and this case, we

38 UNITED STATES V. KAHRE

are not persuaded that Vuitton is applicable here. We are,

however, persuaded by and adopt the reasoning of the D.C.

Circuit in Kember. We therefore hold that proof of a conflict

must be clear and convincing to justify removal of a

prosecutor from a case. Otherwise, as noted in Heldt,

prosecutors could be removed simply by the filing of an

action against them. See Heldt, 668 F.2d at 1276.

This rule is consistent with our precedent, which has

treated the Supreme Court’s ruling in Vuitton as a narrow

one. See F.T.C. v. Am. Nat’l Cellular, 868 F.2d 315, 319 (9th

Cir. 1989) (“The Vuitton opinion focused quite narrowly on

the conflicts of interest faced by private attorneys trying to

represent simultaneously both their private clients’ interests

and the public interest in prosecuting contemnors.

Specifically, the Court in Vuitton appears largely to have been

concerned with conflicting financial interests. . . .”) (citation

omitted) (emphasis in the original). In Am. Nat. Cellular, we

compared the conflict in Vuitton to the financial interests that

would foreclose the participation of a government prosecutor.

See id. (referencing 18 U.S.C. § 208(a), which prohibits

government employees from participating in matters in which

they have a financial interest). It is undisputed that the

prosecutor’s alleged conflict of interest in this case arose after

he was already involved in the case as a government attorney,

and in no way involved a financial interest on the part of the

prosecutor. The dichotomy between the private attorney’s

appointment in Vuitton and non-prejudicial potential conflicts

of interest arising in other contexts is exemplified by the facts

of United States v. Lorenzo, 995 F.2d 1448 (9th Cir. 1993).

In that post-Vuitton case, we considered whether the United

States Attorney’s Office in Hawaii should have been

disqualified because some of its employees were victims of

a tax protest scheme. See id. at 1451–52. Relying on Heldt,

UNITED STATES V. KAHRE 39

we held that disqualification was not warranted because the

defendants failed to demonstrate prejudice. See id. at 1453.

Lorenzo establishes that, at a minimum, defendants must

demonstrate prejudice from the prosecutor’s potential conflict

of interest. See id. Under Kember, which was not overruled

by Vuitton, clear and convincing evidence of prosecutorial

misconduct must be presented. See Kember, 685 F.2d at 459.

This requirement is logical, otherwise any defendant could

disqualify a prosecutor by simply filing a Bivens action

without presenting clear and convincing evidence of

prosecutorial misconduct, but only “complain[ing] of some

action taken by the prosecutor outside of his quasi-judicial

capacity . . .” Heldt, 668 F.2d at 1276.

Appellants contend that the prosecutor’s comments

regarding threats to his pension from the Bivens action and

his statement that the case was “personal” demonstrate the

requisite misconduct. We do not agree. As the district court

observed, the prosecutor’s remarks occurred in 2008, almost

three years after the filing of the initial indictments in 2005,

and thereby could not have been the impetus for filing the

criminal charges. Moreover, even inflammatory comments

made during a trial do not necessarily warrant reversal. See

Hein v. Sullivan, 601 F.3d 897, 913, 916 (9th Cir. 2010)

(holding that a prosecutor’s derogatory comments in closing

argument regarding defendants and defense counsel were not

prejudicial). The prosecutor’s isolated remarks do not

constitute clear and convincing evidence of misconduct

stemming from an impermissible conflict of interest. See id.

at 916.

In a similar vein, Appellants maintain that disqualification

was justified because of the heightened prosecutorial

discretion in tax cases, i.e., tax deficiencies may be pursued

40 UNITED STATES V. KAHRE

criminally or civilly. However, this argument overlooks the

reality that an Assistant United States Attorney does not

possess unbridled discretion to pursue prosecution in tax

cases. Rather, the Department of Justice’s Tax Division must

approve all criminal tax prosecutions. See U.S.A.M. § 6-

4:010 (“To achieve uniform, broad, and balanced criminal tax

enforcement, the Attorney General has authorized the Tax

Division to oversee all federal criminal tax enforcement and

to authorize or decline investigations and prosecutions in tax

matters. . . .”) (citation omitted). Appellants do not

persuasively contend that the Department of Justice’s Tax

Division operated under any conflict or that its supervisory

role was ineffective in this case.

Appellants next argue that the prosecutor’s trial conduct

manifested his conflict of interest. For example, Appellants

assert that the prosecutor, due to his conflict of interest, failed

to elicit from Molesworth that her testimony in the first trial

was perjured. However, Appellants fail to identify any aspect

of Moleworth’s testimony that was false. See United States

v. Bingham, 653 F.3d 983, 995 (9th Cir. 2011) (“We cannot

presume that the prosecutor knew that the prior inconsistent

statement was true but elicited perjured testimony anyway,

and [Appellants] point[ ] to nothing in the record that shows

the intentional use of perjured testimony. . . .”) (citation,

alteration, and internal quotation marks omitted). Appellants

in no way challenge the district court’s ruling that the

government properly disclosed to Appellants prior to trial

Molesworth’s statement that she had previously perjured

herself and that Appellants’ counsel effectively cross-

examined Molesworth on that point. The district court’s

unchallenged ruling rebuts Appellants’ allegations of

prosecutorial misconduct.

UNITED STATES V. KAHRE 41

Finally, Appellants contend that the prosecutor suborned

perjury because one witness’ testimony was contradicted by

other witnesses. However, Appellants fail again to

effectively challenge the district court’s ruling that the

contradictory testimony presented a credibility issue, not

perjury. Therefore, the district court did not abuse its

discretion in ruling that the prosecutor should not be

dismissed on this basis. See Davis, 932 F.2d at 761–62.15

Because Appellants failed to present clear and convincing

evidence of an impermissible conflict of interest or of

prejudice, we conclude that the district court properly denied

Appellants’ motion to disqualify the prosecutor. See Lorenzo,

995 F.2d at 1453; see also Kember, 685 F.2d at 459.

15

Appellants posit a litany of alleged discovery violations reflecting the

prosecutor’s conflict of interest. However, the district court did not find

any such violations, and its rulings with respect to disqualification on

these bases did not constitute an abuse of discretion. See United States v.

Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc) (holding that

reversal for “abuse of discretion” is permissible only when the ruling or

finding being reviewed “is illogical, implausible, or without support in

inferences that may be drawn from the facts in the record”).

Appellants also accuse the prosecutor of misrepresenting the factual

basis for a summary chart that was received into evidence. The district

court ruled that the summary chart was admissible, and that it did not

“hurt the defendant in any way, shape, or form.” Here too, the district

court did not abuse its discretion by declining to disqualify the prosecutor.

42 UNITED STATES V. KAHRE

D. Evidentiary Rulings

1. Evidence Concerning the Legality of Gold

Clause Contracts

Appellants challenge the district court’s exclusion of

evidence concerning the legality of gold clause contracts.

As discussed, the district court properly determined that

gold and silver coins should be assessed at fair market value

when used as compensation for services. Based on this

correct legal conclusion, the district court held that proffered

evidence attempting to otherwise establish the requirements

of governing tax law was irrelevant to the issue of

willfulness. However, Appellants were permitted to

introduce statutes, IRS pamphlets, tax provisions and other

sources upon which Appellants relied in good faith during the

duration of their wage payment system.

The district court’s ruling fully comported with our

precedent. In United States v. Powell, 955 F.2d 1206 (9th

Cir. 1992), as amended, we observed that, in a criminal tax

case, “a district court may exclude evidence of what the law

is or should be . . .” Id. at 1214 (citation omitted) (emphasis

in the original). In contrast, the district court “ordinarily

cannot exclude evidence relevant to the jury’s determination

of what a defendant thought the law was . . . because

willfulness is an element of the offense.” Id. (emphasis in the

original). “[S]tatutes or case law upon which the defendant

claims to have actually relied are admissible to disprove that

element if the defendant lays a proper foundation which

demonstrates such reliance.” Id. (citations and emphasis

omitted). “Legal materials upon which the defendant does

not claim to have relied, however, can be excluded as

UNITED STATES V. KAHRE 43

irrelevant and unnecessarily confusing because only the

defendant’s subjective belief is at issue: the court remains the

jury’s sole source of the law.” Id. “In addition, the court may

instruct the jury that the legal material admitted at trial is

relevant only to the defendant’s state of mind and not to the

requirements of the law, and may give other proper

cautionary and limiting instructions as well.” Id.

The district court, therefore, properly excluded evidence,

including proffered expert testimony, that conflicted with its

correct legal ruling that coins were assessed at fair market

value for tax purposes irrespective of their use as legal tender.

See id.16

Appellants’ contention that the district court’s evidentiary

rulings improperly diluted the burden of proof and precluded

a complete defense is unpersuasive. Although the district

court excluded evidence that contradicted its correct legal

ruling regarding valuation of gold and silver coins for tax

purposes, the court properly instructed the jury that:

A defendant’s conduct is not willful if that person

acts due to a good faith misunderstanding of the

law. Because the government has the burden of

16

Appellants’ assertion that the district court erred in excluding evidence

that its ruling was the first in the nation is unavailing. The district court’s

exclusion of the proffered evidence did not impact the presentation of

evidence of Appellants’ good faith beliefs, as the court’s ruling on

valuation of the coins occurred subsequent to the charged conduct and

could not have been relied upon by Appellants in implementing their wage

payment system. See Powell, 955 F.2d at 1214 (instructing that evidence

is admissible only if relied upon by defendants). In any event, as a factual

matter, the district court’s ruling was not the first in the nation. Rather, it

was premised on prior legal precedent.

44 UNITED STATES V. KAHRE

proving a defendant acted willfully, the

government also has the burden of negating a

defendant’s claim that because of a

misunderstanding of the law, the defendant had a

good faith belief that he was not violating the

relevant provisions of the tax code.

The district court’s ruling and corresponding instructions

encompassed Appellants’ good faith defense. See Powell,

955 F.2d at 1214 (“In addition, the court may instruct the jury

that the legal material admitted at trial is relevant only to the

defendant’s state of mind and not to the requirements of the

law, and may give other proper cautionary and limiting

instructions as well.”).

2. Other Evidence Concerning Appellants’ Good

Faith Belief That The Wage Payments Were

Not Taxable

Appellants contend that the district court erred under Fed.

R. Evid. 803(3)17 when it excluded testimony of the Kahres’

17

Pursuant to Fed. R. Evid. 803(3), as it existed at the time of the trials

at issue in this case:

The following are not excluded by the hearsay rule,

even though the declarant is available as a witness:

(3) A statement of the declarant’s then-existing state of

mind, emotion, sensation, or physical condition (such as

intent, plan, motive, design, mental feeling, pain, and bodily

health), but not including a statement of memory or belief to

prove the fact remembered or believed unless it relates to

the execution, revocation, identification, or terms of the

declarant’s will.

UNITED STATES V. KAHRE 45

contemporaneous statements regarding their good faith belief

that the payments were legal and non-taxable.

Appellants challenge only two rulings by the district

court. In the first challenged ruling, the district court

sustained the government’s objection to testimony in which

the witness explained that Kahre told him coins were taxed at

their face value. In the second challenged ruling, the district

court excluded testimony that Lori Kahre instructed another

witness to pay her own taxes.18 This proffered testimony, if

admitted, “would have been hearsay . . . about defendants’

state of mind at the time, a subject about which they could be

examined and cross-examined if they took the stand. But as

a second-hand statement of memory or belief to prove the fact

remembered . . . it is not only hearsay, but irrelevant

hearsay.” United States v. Bishop, 291 F.3d 1100, 1110–11

(9th Cir. 2002) (internal quotation marks omitted).19

Therefore, the district court did not plainly err in excluding it.

Regardless, any error in excluding the testimony was

harmless. See id. at 1108 (“Not every hearsay error amounts

to a constitutional violation. At a minimum, a defendant

18

Because Appellants did not argue before the district court that the

testimony was admissible pursuant to Fed. R. Evid. 803(3), we review for

plain error. See United States v. Orm Hieng, 679 F.3d 1131, 1135 (9th

Cir. 2012) (“We review evidentiary rulings to which no objection was

made for plain error.”) (citation omitted).

19

Appellants make the additional argument that the district court

violated their due process rights by admitting evidence of their good faith

beliefs only if Appellants testified. However, the district court actually

permitted Appellants to offer proof of their good faith beliefs through

other sources. Appellants also testified during trial, providing the best

evidence of their good faith beliefs. See Bishop, 291 F.3d at 1110 (“The

best evidence would be the defendant’s own testimony. . . .”).

46 UNITED STATES V. KAHRE

must demonstrate that the excluded evidence was important

to his defense. . . .”) (citation and alteration omitted). Not

only was the government’s case exceptionally strong, but

Kahre, Lori, and Loglia each testified extensively about the

good faith that underlay their belief that the gold payment

system was legal. See Bishop, 291 F.3d at 1110 (“Such

[third-party] testimony may fall under the state of mind

exception to the rule against hearsay, but it would still be

self-serving, and duplicative of the defendants’ own

testimony about their state of mind, if they chose to

testify. . . .”) (internal quotation marks omitted).20

E. The District Court’s Partiality

Appellants contend that a new trial is warranted because

of the district court’s partiality, as evidenced by its improper

comments and conduct.

“We will reverse a trial court for excessive judicial

intervention only in cases of actual bias . . . or if the judge’s

remarks and questioning of witnesses projected to the jury an

appearance of advocacy or partiality, and the alleged

20

Appellants further contend that the district court erred in excluding an

IRS agent’s report that a prior investigation had been closed for lack of

criminal intent. However, Appellants were not prejudiced, as the IRS

agent testified and confirmed his conclusions regarding the lack of proof

of criminal intent.

Appellants also argue that the district court erred in excluding

evidence concerning the amount of force used against Lori Kahre during

the search. Although Appellants cited no specific ruling, it appears that

the district court excluded evidence related to the searches as irrelevant

and potentially prejudicial. Here too, the exclusion at issue was not

prejudicial, because Lori’s testimony completely elucidated every aspect

of her defense.

UNITED STATES V. KAHRE 47

misconduct had a prejudicial effect on the trial.” United

States v. Scott, 642 F.3d 791, 799 (9th Cir. 2011) (citation and

internal quotation marks omitted). “Before a jury’s verdict

will be overturned because of the conduct of a trial judge in

rebuking or punishing an attorney or otherwise intervening in

the proceedings, it must appear that the conduct measured by

the facts of the case presented together with the result of the

trial, was clearly prejudicial to the rights of the party.” Id.

(citation omitted). “The assessment is to be made, moreover,

in light of the evidence of guilt.” Id. (citation omitted).

Appellants urge the conclusion that the district court

utilized prejudicial analogies when explaining its evidentiary

rulings to the jury. For example, the district court explained

that the silver coins could be placed into evidence, but could

not be sent back with the jury for jurors to examine, just as

narcotics can be placed in evidence, but not sent back with

the jury. The district court analogized the chain of custody

utilized in narcotics cases to the introduction of records

seized from a residence. The district court also utilized what

it characterized as the “ridiculous example” of an organized

crime figure having a business purpose in the process of

addressing whether a witness could testify regarding a

possible business purpose underlying Kahre’s payroll system.

Although the district court utilized analogies, its

comments did not undermine Appellants’ defense. It is

presumed that the jury followed the district court’s

instructions that it was not to give any weight to the court’s

explanatory comments. See Scott, 642 F.3d at 800. These

comments do not justify a new trial, particularly in view of

the strong evidence of guilt. See id. at 799.

48 UNITED STATES V. KAHRE

Although Appellants complain that the district court

improperly objected to the defense’s cross-examination and

denigrated counsel, the record does not reflect that the district

court interfered with or impeded the defense’s cross-

examination at all. Contrary to Appellants’ assertion that the

district court denigrated counsel by impermissibly objecting

to the defense’s cross-examination, the record reflects that the

district court interrupted those questions that were deemed

irrelevant or inappropriate. For example, the district court

interrupted defense counsel when he asked a witness if

escrow could close if “the person may not have remembered

signing it because they were intoxicated when they signed

it[.]” The district court also interrupted a witness who was

reading from documents although the witness lacked any

personal knowledge of the transaction related to the

documents. When defense counsel argued that government

witnesses had been allowed to read from documents, the

district court replied that “[t]o the extent the Government did

it and nobody objected, they shouldn’t have. . . .” The other

asserted instances in which the district court interrupted

cross-examination similarly reflect that the district court

properly intervened to frame the questioning. Appellants

made no showing that the district court’s rulings in

controlling the proceedings were incorrect, or that they were

unable to mount an effective defense. In sum, the district

court did not improperly impede Appellants’ presentation of

their case. See United States v. Gurolla, 333 F.3d 944, 958

(9th Cir. 2003) (explaining that the district court’s rulings

regarding cross-examination constitute reversible error only

in the event the rulings resulted in the denial of a fair trial).

Appellants’ assertion that the district court interrupted

Loglia’s testimony and denigrated Loglia’s good faith belief

in the wage payment system is similarly unavailing. During

UNITED STATES V. KAHRE 49

his testimony, Loglia stated that he relied in part on Civil War

era cases for his use of gold and silver coins for wage

payments. The district court did not denigrate Loglia’s

reliance on the case law. Rather, the district court accurately

clarified that the weight the jury gave to a legal opinion

admitted into evidence may be affected by changes in legal

precedent. By way of example, the district court simply

remarked that an individual could not rely in good faith on

“Plessy v. Ferguson that used to say separate but equal was

okay in schooling. . . .” The district court also did not commit

reversible error when it merely observed that prior case law

did not “represent the law that applies to this case, nor did it

ever, by the way. It’s the effect on Mr. Loglia that counts.”

Contrary to Appellants’ assertions, neither did the district

court denigrate Loglia’s reliance on an IRS letter that

purportedly supported the wage payment system. The

government objected to admission of the letter based on its

lack of authentication, and the district court innocuously

remarked that it was not uncommon for government letters to

be fabricated. However, the district court admitted the letter

into evidence because “if [Loglia] actually got the document

and relied on it, thinking it was real, that’s what counts. It’s

not whether in fact it was real.”

Appellants further contend that the district court

impermissibly explained the government’s theory of the case

when making its evidentiary rulings. Appellants fault the

district court for commenting on the government’s theory that

Lori Kahre acted as a straw buyer for the silver coins; that the

government’s charges were based on a conspiracy; that the

government’s argument was that the gold clause contracts

were a sham; and that the government’s challenge to a

witness was premised on the witness’s bad acts. However,

50 UNITED STATES V. KAHRE

the record reflects that the district court did not impermissibly

explain the government’s theory. Instead, the district court

merely remarked that “[o]ne of the contentions of the

Government in this case is that Ms. Kahre was simply a straw

buyer and that the real owner was Mr. Kahre . . . So that’s for

the jury to decide,” and that “it is the Government’s

contention these people were all in conspiracy together. So

I don’t know what your objection is.” In permitting

testimony concerning an unindicted coconspirator, the district

court simply observed that waiver of the hearsay rule was

warranted “[b]ecause it’s the whole government theory the

reason [the unindicted coconspirator] was doing all these

chicaneries was because he was in league with

[Appellants]. . . .” The district court also passively noted the

government’s position that a gold clause contract utilized by

Appellants was “a sham because it’s a device by which they

are alleging Mr. Kahre used to avoid paying taxes. That is

what they’re claiming.”

In each case, the district court referred to the

government’s theory as it related to evidentiary issues and

clarified that it was within the province of the jury to

determine the validity of the government’s theory. Thus, we

conclude that Appellants are not entitled to a new trial based

on the district court’s comments or conduct. Our conclusion

is further supported by the strength of the government’s case,

and the court’s curative instructions. See Scott, 642 F.3d at

800.

F. Robert Kahre’s Sentence

Kahre challenges the district court’s calculation of his

adjusted offense level and of the applicable guideline range,

UNITED STATES V. KAHRE 51

both of which were largely attributable to the tax loss

associated with his crimes of conviction.

“The government bears the burden of establishing the

base offense level, and, hence, here, the amount of tax loss,

by a preponderance of the evidence.” United States v.

Montano, 250 F.3d 709, 713 (9th Cir. 2001) (citation

omitted). “Under the preponderance of the evidence

standard, the relevant facts must be shown to be more likely

true than not.” Id. (citations and internal quotation marks

omitted). “In determining the total tax loss attributable to the

offense, all conduct violating the tax laws should be

considered as part of the same course of conduct or common

scheme or plan unless the evidence demonstrates that the

conduct is clearly unrelated.” Bishop, 291 F.3d at 1115

(citation and alteration omitted). “Tax loss is determined

from the reasonably foreseeable conduct of all co-actors, not

just the defendant’s own conduct. . . .” Id. (citation and

alteration omitted).

Kahre asserts that, because his workers were independent

contractors, the district court erred in calculating a tax loss

premised on payroll taxes for employees.

The IRS has established a twenty-factor test to

differentiate an employee from an independent contractor for

tax purposes. See IRS Rev. Rul. 87-41 (1987).21

21

The factors include: (1) the employer’s right to require the worker’s

compliance with instructions; (2) the employer’s training requirements;

(3) the integration of the worker’s services into the employer’s business;

(4) the worker’s personal rendering of services; (5) the employer’s hiring,

supervision, and payment of assistants; (6) a continuing relationship

between the employer and the worker; (7) the employer’s setting of hours;

(8) the employer’s requirement of full-time service; (9) performance of

52 UNITED STATES V. KAHRE

“[G]enerally the relationship of employer and employee

exists when the person or persons for whom the services are

performed have the right to control and direct the individual

who performs the services, not only as to the result to be

accomplished by the work but also as to the details and means

by which that result is accomplished. . . .” Id. “Thus, if such

a relationship exists, it is of no consequence that the

employee is designated as a partner, coadventurer, agent,

independent contractor, or the like.” Id.

The trial testimony amply supports the district court’s

finding that Kahre’s employees were not independent

contractors. Rodriguez testified at length regarding the

control Kahre exercised over his employees’ work, and

expressly acknowledged that the employees were not

independent contractors. The district court instructed the jury

that it was required to apply the twenty-factor test and

determine whether Kahre’s workers were employees or

independent contractors. Having followed that instruction,

the jury found Kahre guilty on all counts. Given the evidence

and the jury’s findings from that evidence, the district court

did not err in finding that Kahre failed to pay the requisite

payroll taxes for his employees, or in calculating the amount

work on the employer’s premises; (10) the worker’s performance of

services in a sequence set by the employer; (11) the employer’s

requirement that the worker submit oral or written reports; (12) payments

on an hourly, weekly, or monthly basis; (13) the employer’s payment of

business or travel expenses; (14) the employer’s furnishing of materials

or tools; (15) lack of significant investment in the facilities by the worker;

(16) lack of realization of loss or profit by the worker; (17) lack of work

for multiple firms by the worker; (18) lack of availability of the worker’s

services to the general public; (19) the employer’s right to discharge the

worker; and (20) the worker’s right to terminate her or his services. See

IRS Rev. Rul. 87-41.

UNITED STATES V. KAHRE 53

of loss from the tax scheme. See Bishop, 291 F.3d at 1115

(reasoning that tax loss is to be calculated in view of the

totality of the tax evasion scheme).22

Kahre maintains that he was not responsible for

withholding taxes from wages paid to employees of the

thirty-five businesses that utilized his payroll services.

However, “[i]n determining the total tax loss attributable to

the offense, all conduct violating the tax laws should be

considered as part of the same course of conduct or common

scheme or plan unless the evidence demonstrates that the

conduct is clearly unrelated. . . .” Id. (citation and alteration

omitted) (emphasis added). Kahre was responsible for “the

reasonably foreseeable conduct of all co-actors, not just [his]

own conduct. . . .” Id. This means that Kahre was indeed

responsible for the conduct of the businesses that utilized his

payroll services, particularly since trial testimony revealed

that Kahre devised these payroll services, and administered

them in the same illicit manner as his own. The district court,

therefore, did not err in determining it was more likely than

not that the tax loss incurred from these utilizing companies

was attributable to Kahre.

22

Kahre maintains that two of his several hundred employees were

independent contractors as noted in their plea agreements. However,

classification of two individuals as independent contractors would not

undermine the district court’s findings regarding the status of the

overwhelming majority of the employees. See Montano, 250 F.3d at 713

(“Under the preponderance of the evidence standard, the relevant facts

must be shown to be more likely true than not.”) (citations and internal

quotation marks omitted). Given the trial testimony reflecting the

extensive nature of Kahre’s payroll scheme involving several hundred

employees, Kahre’s argument is unavailing.

54 UNITED STATES V. KAHRE

Contrary to Kahre’s assertions, the evidence elicited

during trial also supports the district court’s adoption of the

calculation in the PSR of a total tax liability of

$57,435,803.52. The total tax liability included

$51,739,337.52 in unpaid payroll taxes and $5,696,466.10

Kahre owed in income taxes from 1992 to 2008. Agent

Rickey testified that Kahre earned unreported income of

$10,758,167.32 in fees from his payroll services, and Agent

Cutler calculated that Kahre earned unreported income of

$1,956,739 from his companies. These figures more than

sufficiently support the district court’s tax liability

determination.23

Kahre next takes issue with the obstruction of justice

enhancement, arguing that he did not attempt to conceal his

gold and silver payroll system from the IRS, testified

honestly about his failure to pay his personal income taxes,

and had a good faith belief that his activities were legal.

However, the obstruction of justice enhancement was

premised on Kahre’s false trial testimony. The indictment

alleged that Kahre engaged in a conspiracy to defraud the IRS

by placing “real property, which he in fact owned, controlled

23

Kahre also appears to challenge the amount of restitution stemming

from the calculation of his total tax liability. Although Kahre asserts that

there was no factual basis for the restitution amount, the PSR explained

that the $16,000,000 restitution amount was calculated from $5,168,313

due in income taxes and $10,891,791.72 due in payroll taxes. Because the

district court properly determined Kahre’s tax liability using these figures,

Kahre cannot establish clear error in similarly calculating the restitution

amount. See United States v. Yeung, 672 F.3d 594, 600 (9th Cir. 2012)

(“We review factual findings supporting an order of restitution for clear

error.”) (citation omitted); see also United States v. Jenkins, 884 F.2d 433,

440 (9th Cir. 1989) (observing that restitution is based on the total tax

liability).

UNITED STATES V. KAHRE 55

and otherwise benefitted from, located at 6295 Grand Canyon

Drive, Las Vegas, Nevada, in the name of a nominee,

specifically defendant Danille D. Cline.” During trial, Kahre

testified that he could not have signed a false loan application

on behalf of Cline in Las Vegas on September 11, 2011,

because he was in Oregon on that date. Kahre’s testimony

was belied by currency transaction reports reflecting that

Kahre cashed checks for $65,000, $143,918, and $26,031

around that date in Las Vegas. The PSR recommended an

obstruction enhancement because Kahre “provided materially

false information while testifying at trial.” In support of the

PSR’s recommendation, the government argued that “[t]he

enhancement relates to the false testimony that . . . Kahre

made at trial concerning his whereabouts on September 11,

2001, the day when he and defendant Cline met with Tom

Browne to sign a false home loan application for the purchase

of 6295 N. Grand Canyon Drive.” The district court adopted

the PSR’s recommendation and held that the obstruction of

justice enhancement was supported “by more than a

preponderance of the evidence, in fact, by clear and

convincing evidence . . .” Kahre does not effectively rebut

the district court’s finding that he committed perjury when he

testified. See United States v. Armstrong, 620 F.3d 1172,

1176 (9th Cir. 2010) (“A witness commits perjury if he gives

false testimony under oath or affirmation, concerning a

material matter, with the willful intent to provide false

testimony, rather than as a result of confusion, mistake, or

faulty memory. The sentencing judge need only find by a

preponderance of the evidence that the defendant committed

perjury.”) (citations, footnote reference, and internal

quotation marks omitted).

The district court’s obstruction of justice enhancement is

not negated because Kahre terminated his payroll system after

56 UNITED STATES V. KAHRE

the district court ruled that it was illegal. As discussed, there

was ample legal precedent establishing the illegality of

Kahre’s conduct prior to the district court’s ruling to that

effect. Unsurprisingly, the district court relied on that

existing legal precedent to formulate its conclusion that

Kahre’s conduct was illegal. Kahre continued to use the gold

and silver coins after the search warrants were executed, and

apparently only ceased use of his scheme after being indicted.

We affirm the district court’s calculation of the guidelines

range and its related determination of the restitution amount.24

Kahre’s argument that his sentence is disproportionate is

not persuasive. “The district court was not required to

conform the sentence to those imposed in similar cases . . .

Although comparability is a legitimate sentencing factor,

divergence from sentences imposed in similar cases is

permissible so long as the court is attentive to relevant

sentencing factors, as the district court was here.” United

States v. Burgum, 633 F.3d 810, 813–14 (9th Cir. 2011)

(citation omitted). “A district court need not, and, as a

practical matter, cannot compare a proposed sentence to the

sentence of every criminal defendant who has ever been

sentenced before. Too many factors dictate the exercise of

sound sentencing discretion in a particular case to make the

inquiry [Kahre] urges helpful or even feasible. . . .” United

States v. Treadwell, 593 F.3d 990, 1012 (9th Cir. 2010)

(citation omitted). Kahre’s below-guidelines sentence

24

Because the district court did not clearly err when it enhanced Kahre’s

sentence for obstruction of justice, Kahre cannot establish clear error in

the court’s rejection of a downward adjustment for acceptance of

responsibility. See Rosas, 615 F.3d at 1066–67 (explaining that an

obstruction of justice enhancement “ordinarily indicates” that the

defendant has failed to accept responsibility).

UNITED STATES V. KAHRE 57

imposed for the extensive illegal payroll scheme with its

associated tax loss, was comparable to sentences for similar

crimes, and was reasonable. See United States v. Bendtzen,

542 F.3d 722, 729 (9th Cir. 2008) (“Because a Guidelines

sentence will usually be reasonable, [Kahre’s] below-

Guidelines sentence, supported by the district court’s specific

reasoning, is reasonable.”) (citation and internal quotation

marks omitted).

IV. CONCLUSION

We affirm Appellants’ convictions and Robert Kahre’s

sentence. Dismissal of the indictments was not warranted.

Appellants had sufficient notice of the illegality of relying on

the face value of coins to avoid paying taxes. Longstanding

and consistent statutory, regulatory, and court precedent

informed the public that gold and silver coins are assessed at

fair market value for tax purposes when used to pay wages.

We hold that prosecutors must be removed from a case

only if “clear and convincing evidence of a conflict is

presented.” Kember, 685 F.2d at 459. Appellants failed to

present such “clear and convincing evidence.” It follows that

the district court did not abuse its discretion in denying

Appellants’ motions to disqualify the prosecutor.

The district court properly denied as moot Kahre’s initial

motion to suppress because none of the seized evidence was

introduced at trial. Alternatively, Kahre’s arrest and the

corresponding search were legally conducted pursuant to a

state bench warrant. The district court correctly denied

Kahre’s subsequent motion to suppress because the warrants

incorporated the accompanying affidavit, which possessed the

requisite specificity limiting the agents’ discretion.

58 UNITED STATES V. KAHRE

The district court did not abuse its discretion in excluding

evidence challenging the legal import of its ruling that gold

and silver coins used to pay wages were to be assessed at fair

market value for tax purposes. The district court correctly

recognized that the coins were taxable as property based on

their fair market value. See Cal. Fed. Life Ins. Co., 680 F.2d

at 86. Neither did the district court commit reversible error

in excluding testimony of Appellants’ contemporaneous

statements concerning their tax theories. In each instance the

exclusion was neither an abuse of discretion, see Hinkson,

585 F.3d at 1263, nor prejudicial. The district court also

acted within its discretion when it excluded, as irrelevant and

prejudicial, evidence of the federal agents’ use of force during

execution of the search warrants. In sum, the district court

did not engage in any misconduct warranting a new trial.

Finally, the district court did not err when sentencing

Robert Kahre. The district court’s calculation of Kahre’s tax

liability and the corresponding restitution amount was

supported by the evidence presented at trial and by the jury’s

findings. The district court’s enhancement of Kahre’s

sentence for obstruction of justice and denial of a downward

adjustment for acceptance of responsibility were consistent

with the historical record. Kahre’s below-guidelines sentence

was reasonable and was not disproportionately severe when

compared to analogous sentences.

AFFIRMED.