United States v. Kurt Scheuneman

In the

United States Court of Appeals

For the Seventh Circuit

No. 11-1554

U NITED S TATES OF A MERICA,

Plaintiff-Appellee,

v.

K URT S CHEUNEMAN,

Defendant-Appellant.

Appeal from the United States District Court

for the Central District of Illinois.

No. 2:09-cr-20061—Michael P. McCuskey, Judge.

A RGUED S EPTEMBER 26, 2012—D ECIDED A PRIL 5, 2013

Before E ASTERBROOK, Chief Judge, and W OOD and

W ILLIAMS, Circuit Judges.

W ILLIAMS, Circuit Judge. After years of disregarding

his obligation to pay income tax, Kurt Scheuneman

was convicted of three counts of tax evasion in viola-

tion of 26 U.S.C. § 7201 and one count of interference

with the Internal Revenue laws in violation of 26 U.S.C.

§ 7212(a). On appeal, Scheuneman argues that a clerical

error in the indictment’s description of the relevant

2 No. 11-1554

date for two of his tax evasion offenses rendered those

counts legally insufficient. He also contends that the

government constructively amended the indictment by

introducing proof regarding dates other than those de-

scribed in the indictment. Aside from his indictment-

related challenges, Scheuneman maintains that the dis-

trict court improperly ordered restitution for losses that

are unrelated to his tax evasion offenses. Scheuneman’s

indictment, while slightly confusing, was legally sufficient

and the government’s proof at trial conformed to the

charges in all material respects. Although the losses

Scheuneman challenges were not caused by the conduct

underlying his tax evasion offenses, they are properly

included as restitution because they were attributable

to his interference with the Internal Revenue laws.

For these reasons, we affirm.

I. BACKGROUND

After years of dutifully paying taxes on wages he re-

ceived for his work as a carpenter, Kurt Scheuneman

suddenly stopped paying federal income tax in 1998. In

1999, in an effort to prevent the IRS from discov-

ering his income, Scheuneman purchased a sham tax

avoidance system from an Arizona company, Innova-

tive Financial Consultants. With the help of these so-

called specialists, Scheuneman formed a limited liability

corporation, Larch Management LLC, and two illegitimate

trusts, Soned Group and Jokur Enterprise. Scheuneman

retained complete control of Larch Management, Soned

Group, and Jokur Enterprise.

No. 11-1554 3

Using these entities, Scheuneman reorganized his

construction business to shield his income from the

United States government. Scheuneman began operating

his business as Larch Management LLC, opened a bank

account in its name, and filed tax returns on the com-

pany’s behalf. In his submissions to the IRS, Scheuneman

represented that all of Larch Management’s income

was distributed to the company’s only partners, two

“foreign trusts” named Soned Group and Jokur Enter-

prise. In reality, however, Scheuneman funneled most

of Larch Management’s profits to himself. From 2001

through 2005, Scheuneman wrote over $300,000 in

checks made out to “cash” from the Larch Manage-

ment account. Although Scheuneman designated many

of these transactions as income distributions to Larch

Management’s partners, it was Scheuneman who en-

dorsed all of these checks. In the end, Scheuneman

used his sham trusts to avoid paying any federal income

tax between 2000 and 2005.

The IRS eventually became suspicious of Scheuneman

after investigating Innovative Financial Consultants and

identifying Scheuneman as one of its customers. In

January 2004, the IRS sent Scheuneman a letter infor-

ming him that he may have become involved in an abu-

sive tax scheme. The IRS instructed Scheuneman to file

an accurate 2003 tax return and to refrain from using

any trust arrangement designed to understate his taxable

income. The letter also notified Scheuneman that the

IRS would audit his 2003 return and warned him that

failure to file an accurate return would result in “the

application of accuracy-related or other appropriate

4 No. 11-1554

penalties.” In his response to the IRS, Scheuneman stated

that he was “not involved in this type of promotion, and

[he] now knows what to look for should [he] ever

be confronted by this type of abusive tax avoidance

transaction.”

After lying to the IRS about his tax avoidance scheme,

Scheuneman only made matters worse for himself.

Despite receiving a written warning from the IRS,

Scheuneman failed to file his federal income tax return

for 2003. He also failed to file his 2004 and 2005 tax

returns and refused to cooperate with an IRS audit of

his finances. From 2003 to 2007, Scheuneman repeatedly

sent frivolous correspondence to IRS personnel. In one

such letter, Scheuneman requested verification that the

IRS was a lawful agency of the United States government.

Eventually, the IRS opened a criminal investigation

into Scheuneman’s activities. In late 2005, IRS agents

traveled to Scheuneman’s home, informed him that he

was the subject of a criminal investigation, and served

him with a summons to appear at a meeting with IRS

agents and to produce certain financial records. Even

when faced with criminal prosecution, Scheuneman con-

tinued to frustrate the IRS in its enforcement efforts. He

disregarded the lawfully issued summons by failing to

appear at the scheduled time and refusing to produce

the requested records.

In August 2009, a grand jury returned an indictment

against Scheuneman charging him with three counts of

tax evasion in violation of 26 U.S.C. § 7201 and one count

of interference with the administration of the Internal

No. 11-1554 5

Revenue laws in violation of 26 U.S.C. § 7212(a). Count 1

of the indictment read as follows:

From approximately early 2002 to on or about

April 15, 2003, in the Central District of Illinois,

the defendant, KURT E. SCHEUNEMAN, did

unlawfully and willfully evade and defeat, and

attempt to evade and defeat, his personal income

tax due and owing to the United States of America

for the 2003 calendar year, on taxable income

of approximately $48,572, none of which income

was declared on an income tax return to the IRS

for the 2003 tax year. All in violation of Title 26,

United States Code, Section 7201.

Count 2 contained a similar formulation of the tax evasion

charge against Scheuneman:

From approximately early 2003 to on or about

April 15, 2004, in the Central District of Illinois,

the defendant, KURT E. SCHEUNEMAN, did

unlawfully and willfully evade and defeat, and

attempt to evade and defeat, his personal income

tax due and owing to the United States of America

for the 2004 calendar year, on taxable income of

approximately $49,797, none of which income

was declared on an income tax return to the IRS

for the 2004 tax year. All in violation of Title 26,

United States Code, Section 7201.

In Count 3, Scheuneman was charged with tax evasion

for his failure to pay personal income tax for the 2005

calendar year. Finally, Count 4 of the indictment stated:

6 No. 11-1554

From about May 2004 or before, and continuing to

at least October 2007, in the Central District of

Illinois, and elsewhere, the defendant, KURT E.

SCHEUNEMAN, did corruptly obstruct and im-

pede and endeavor to obstruct and impede the

due administration of the Internal Revenue laws.

Scheuneman did not file a pre-trial motion alleging a

defect in the indictment nor did he raise such an objec-

tion with the district court either during trial or in post-

trial proceedings.

Scheuneman’s trial began in November 2010. In pre-

liminary instructions to the jurors, the district court

stated that the government, in order to secure Scheune-

man’s conviction for the charges listed in Counts 1

through 3, had to prove that “on April 15th of the year

following the tax years 2003, 2004, and 2005, federal

income tax was due and owing by the defendant.” The

district court also told jurors:

If you find beyond a reasonable doubt that the

defendant had a tax liability for a particular year,

then I instruct you as a matter of law that the tax

was due and owing on April 15 or another date set

by law or legal extension of the following year.

These instructions were also delivered to the jury before

closing arguments.

At trial, the government introduced evidence that

Scheuneman, despite receiving a written warning from

the IRS before the 2003 tax return filing deadline, did

not file federal income tax returns for the years 2003,

No. 11-1554 7

2004, and 2005. Prosecutors also supplied the jury with

ample proof that Scheuneman obstructed the IRS in its

enforcement of the Internal Revenue laws from 2000-2005.

Among other evidence, the government presented testi-

mony and documents regarding Scheuneman’s purchase

of a sham trust tax avoidance system from Innovative

Financial Consultants in 1999 and his use of these illegiti-

mate trusts to understate his income from 2000-2005.

Scheuneman filed Federal Rule of Criminal Proce-

dure 29(a) motions for acquittal at the close of the gov-

ernment’s evidence and at the close of all evidence. Both

motions were presented without argument and were

denied by the district court. On November 18, 2010,

following a four-day jury trial, Scheuneman was con-

victed of all counts in the indictment. On November 22,

2010, Scheuneman filed a motion for a new trial based

on insufficiency of the evidence, which the district

court denied.

The United States Probation Office prepared Scheune-

man’s presentence investigation report (“PSR”) in an-

ticipation of his sentencing. The report contained

detailed calculations of the tax losses resulting from

Scheuneman’s conduct. Specifically, the Probation Office

calculated a tax loss of $48,535 resulting from Scheune-

man’s tax evasion convictions for tax years 2003, 2004,

and 2005. The Probation Office calculated an additional

tax loss of $35,847 for tax years 2000, 2001, and

2002 and designated these losses as relevant conduct

for the court to take into account for purposes of deter-

mining Scheuneman’s guideline range.

8 No. 11-1554

On March 3, 2011, the district court adopted the

findings of the PSR and sentenced Scheuneman to a 36-

month imprisonment term and a 3-year term of super-

vised release. As a condition of supervised release, the

district court also required Scheuneman to pay “restitu-

tion to the IRS in the amount of $84,382, which

represents the tax loss for the years 2000 through 2005.”

Scheuneman now appeals his convictions and sentence.

II. ANALYSIS

A. No Error Resulted from Clerical Mistakes in the

Indictment

Scheuneman presents two challenges based on certain

prefatory language in Counts 1 and 2 of the indictment

describing the dates in which he committed his income

tax offenses. In his first challenge, Scheuneman contends

that these counts were legally insufficient because they

did not state all of the elements of the charged offenses.

Scheuneman also argues that the government construc-

tively amended the indictment at trial by introducing

evidence related to a time period other than that laid

out in Counts 1 and 2.

1. Indictment Was Legally Sufficient

Scheuneman argues that Counts 1 and 2 of the indict-

ment were legally insufficient. Scheuneman did not

raise this objection with the district court, so the indict-

ment “is immune from attack unless it is so obviously

No. 11-1554 9

defective as not to charge the offense by any reasonable

construction.” United States v. Franklin, 547 F.3d 726, 730

(7th Cir. 2008). As a general matter, “tardily challenged

indictments should be construed in favor of validity.”

United States v. Harvey, 484 F.3d 453, 456 (7th Cir. 2007).

“The Fifth Amendment guarantee of the right to indict-

ment by a grand jury, its protection against double jeop-

ardy, and the Sixth Amendment guarantee that a defen-

dant be informed of the nature of the charges against

him establish the minimum requirements for an indict-

ment.” United States v. Fassnacht, 332 F.3d 440, 444 (7th

Cir. 2003). An indictment satisfies these minimum re-

quirements “if it (1) contains the elements of the offense

charged; (2) sufficiently apprises the accused of what he

must be prepared to meet; and (3) enables the accused to

plead a judgment under the indictment as a bar to any

subsequent prosecution for the same offense.” United

States v. McComb, 744 F.2d 555, 562 (7th Cir. 1984).

Scheuneman maintains that Counts 1 and 2 were con-

stitutionally deficient because they did not contain al-

legations necessary to state the elements of tax evasion.

To establish Scheuneman’s liability for tax evasion, the

government needed to prove: “(1) a tax deficiency

existed, (2) the defendant acted willfully, and (3) the

defendant took an affirmative step to elude or defeat

the payment of taxes.” United States v. Collins, 685 F.3d

651, 656 (7th Cir. 2012). In presenting his argument,

Scheuneman relies on two discrepancies in the allega-

tions related to the time period in which he evaded

his income tax obligations. Count 1 accurately stated

that Scheuneman committed tax evasion “for the 2003

10 No. 11-1554

calendar year, on taxable income of approximately

$48,572, none of which income was declared on an

income tax return to the IRS for the 2003 tax year.” How-

ever, the introductory language of Count 1 incorrectly

described the period of the offense as “[f]rom approxi-

mately early 2002 to on or about April 15, 2003” when

it should have said early 2003 to on or about April 15,

2004. Similarly, Count 2 alleged that Scheuneman

evaded his taxes “for the 2004 calendar year, on taxable

income of approximately $49,797, none of which income

was declared on an income tax return to the IRS for

the 2004 tax year.” Once again, however, Count 2 errone-

ously identified the relevant time period for the offense

as “[f]rom approximately early 2003 to on or about

April 15, 2004.”

Despite the potential confusion caused by the errone-

ous dates in the introduction, Counts 1 and 2 still state

all of the elements of tax evasion. In Count 1, the gov-

ernment alleged: (1) Scheuneman owed and did not pay

personal income tax on $48,572 of taxable income for

calendar year 2003; (2) Scheuneman acted willfully; and

(3) Scheuneman failed to declare any of his income on

his tax return to the IRS for the 2003 tax year. Similarly,

in Count 2, the government alleged: (1) Scheuneman

owed and did not pay personal income tax on $49,797

of taxable income for calendar year 2004; (2) Scheune-

man acted willfully; and (3) Scheuneman failed to

declare any of his income on his 2004 tax return. Each

charge alleged the necessary elements of tax evasion. Cf.

United States v. Eley, 314 F.2d 127, 129 (7th Cir. 1963)

(finding no error resulted from variance between indict-

No. 11-1554 11

ment and bill of particulars regarding amount of tax

deficiency).

Although Scheuneman maintains only that Counts 1

and 2 failed to state the necessary elements of tax eva-

sion, we note that they also satisfy the remaining criteria

for a legally sufficient indictment. Counts 1 and 2 in-

formed Scheuneman of what he had to be prepared to

meet by expressly identifying the statute Scheuneman

was accused of violating, the years associated with the

tax obligations Scheuneman evaded, the amount of

taxable income Scheuneman earned in each of those

years, and the affirmative act of evasion he committed

by failing to state his income on his tax return for the

relevant tax year. These allegations were sufficient to

apprise Scheuneman of the nature of the charges against

him. See United States v. Sloan, 939 F.2d 499, 501-02

(7th Cir. 1991). Furthermore, these allegations presented

enough detail to allow Scheuneman to plead double

jeopardy to avoid future prosecution based on the

same conduct alleged in Counts 1 and 2. See id. at

502 (finding that defendant could avoid subsequent

prosecution for conduct listed in tax evasion counts

when “the indictment sufficiently designated the tax,

the tax year, and the specific . . . forms” that were the

instrument of evasion).

Despite the erroneous dates listed in the introductory

language of the indictment, we find that the allegations

of Counts 1 and 2 were legally sufficient.

12 No. 11-1554

2. Date Discrepancy Between Indictment and Proof

Did Not Constitute Plain Error

Aside from his sufficiency challenge, Scheuneman also

claims that the government constructively amended

the indictment by arguing and proving at trial that he

evaded his income tax obligations for 2003 and 2004

even though the prefatory language of the Counts 1 and 2

described dates in 2002 and 2003. Although Scheuneman

couches his argument as a constructive indictment, his

issue is better understood as a variance, an event that

arises “when the facts proved at trial differ from those

alleged in the indictment.” United States v. Longstreet,

567 F.3d 911, 918 (7th Cir. 2009). Because Scheuneman

did not raise his variance claim in the district court, we

review for plain error only. United States v. Haynes, 582

F.3d 686, 698 (7th Cir. 2009).

As an initial matter, Scheuneman has not demon-

strated a material variance between the relevant dates

associated with the charges in the indictment and the

government’s proof at trial. Counts 1 and 2 accurately

identified 2003 and 2004 as the years in which

Scheuneman incurred tax obligations, specified the

amount of his taxable income in each of these years, and

alleged that he evaded the tax by failing to report his

income on his tax return for 2003 and 2004. At trial, the

government presented its case in a manner entirely con-

sistent with these critical temporal allegations and pre-

sented an overwhelming volume of evidence to estab-

lish his guilt on these bases. These consistencies prevent

Scheuneman from succeeding on his variance claim.

No. 11-1554 13

But even if a variance occurred, it was harmless

and certainly did not constitute plain error. In general, a

variance will not constitute reversible error unless it

“change[s] an essential or material element of the charge

so as to cause prejudice to the defendant.” United States

v. Cina, 699 F.2d 853, 857 (7th Cir. 1983) (internal quota-

tion marks omitted). An essential element of a crime “is

one whose specification with precise accuracy is neces-

sary to establish the very illegality of the behavior and

thus the court’s jurisdiction.” United States v. Auerbach,

913 F.2d 407, 411 (7th Cir. 1990). No such precision is

required to establish a violation of the tax evasion

statute; the government need not necessarily prove that

a certain underlying act took place on a specific date to

secure a conviction for tax evasion. See Collins, 685 F.3d

at 656 (reciting elements of tax evasion). Where, as here,

a specific date does not form a crucial component of

the offense, a variance in the dates charged in the in-

dictment and those proved at trial will generally be

harmless if the government “prove[s] that the offense

was committed on any day before the indictment and

within the statute of limitations.” United States v.

Leibowitz, 857 F.2d 373, 378 (7th Cir. 1988). The govern-

ment’s overwhelming evidence that Scheuneman

evaded his income tax obligations by failing to report his

income on his tax returns for the 2003 and 2004 tax

years precludes us from finding that a plain error occurred.

The lack of prejudice to Scheuneman resulting from

the clerical error only reinforces our conclusion. Al-

though Scheuneman contends that the date discrepancy

prevents us from knowing the basis for the jury’s con-

14 No. 11-1554

viction, the arguments, evidence, and jury instructions

presented at trial demonstrate otherwise. In presenting

its case, the government steadfastly maintained that

Scheuneman should be found guilty of Counts 1 and 2

for evading his tax obligations for 2003 and 2004. This

proposition was further reinforced by the district court’s

preliminary and final instructions to the jury. These

instructions clearly stated that the jurors needed to find

that Scheuneman had a tax deficiency outstanding on

April 15 of the year following 2003 and 2004 in order

to convict him on Counts 1 and 2. Taken together, the

consistency of the government’s case and the clarity of

the court’s instructions demonstrate that Scheuneman

suffered no prejudice. We also note that Scheuneman

did not quarrel with the time frame for the govern-

ment’s evidence of tax evasion at trial. No plain error

occurred.

B. No Plain Error in Imposing Restitution

Scheuneman contends that the district court improp-

erly ordered him to pay restitution for losses sustained

by the United States that were unrelated to his offense

conduct. Because Scheuneman failed to object to the

restitution obligation at sentencing, we review for plain

error only. See Fed. R. Crim. P. 52(b); United States v. Noel,

581 F.3d 490, 501 (7th Cir. 2009). To prevail under plain

error review, Scheuneman must demonstrate that (1) the

district court erred in imposing the restitution obliga-

tion; (2) the error was obvious or clear; (3) the error af-

fected Scheuneman’s substantial rights; and (4) the error

No. 11-1554 15

“seriously affected the fairness, integrity, or public rep-

utation of the judicial proceedings.” United States v.

Locke, 643 F.3d 235, 246 (7th Cir. 2011).

In challenging the restitution condition, Scheuneman

argues that the district court improperly required him

to pay restitution for tax losses associated with his “rele-

vant conduct” that were unrelated to the conduct under-

lying his convictions. A district court has “the authority

to impose restitution for tax offenses as a condition

of supervised release.” United States v. Hassebrock, 663

F.3d 906, 923-24 (7th Cir. 2011). As with other forms

of restitution orders, the district court can only impose a

restitution condition for certain categories of losses:

“(1) losses caused by the specific conduct that is the

basis of the offense[s] of conviction; (2) losses caused

by conduct committed during an offense that involves

as an element a scheme, conspiracy, or pattern; and

(3) restitution agreed to in a plea agreement.” United States

v. Frith, 461 F.3d 914, 919-20 (7th Cir. 2006) (internal

quotation marks and citations omitted). Scheuneman

maintains that the district court had no authority to

impose an additional $35,847 in restitution for unpaid

taxes from 2000, 2001, and 2002 because these losses

were “relevant conduct” and had no connection to his

tax evasion convictions.

Despite being labeled as resulting from “relevant con-

duct,” the 2000-2002 tax losses were properly included

within Scheuneman’s restitution obligation because

they were directly attributable to his conviction on

Count 4 for interference with administration of the

16 No. 11-1554

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

Count 4 of the indictment charged Scheuneman with

violating the “omnibus clause” of section 7212(a), which

prohibits all manner of “activities which may obstruct

or impede the administration of the code.” United States

v. Pansier, 576 F.3d 726, 734 (7th Cir. 2009). Among the

conduct prohibited under this statute: any effort to

“imped[e] the collection of one’s taxes, the taxes of

another, or the auditing of one’s or another’s tax re-

cords.” United States v. Reeves, 752 F.2d 995, 998 (5th Cir.

1985).

In this case, the government established a direct nexus

between Scheuneman’s years of obstruction and the

losses it sustained as a result of Scheuneman’s failure to

pay taxes from 2000-2002. In the indictment, the gov-

ernment charged Scheuneman with interfering with

the due administration of the tax code “from about

May 2004 or before, and continuing to at least October

2007” (emphasis added). Throughout trial, the govern-

ment maintained that Scheuneman knowingly inter-

fered with tax code enforcement for his own benefit

by purchasing the sham trust system in 1999, reorgan-

izing his construction business using these illegitimate

trusts to hide his income from the IRS during 2000-

2005, and misrepresenting the nature of his business in

tax filings to deceive the United States as to his true

tax liability. The government presented an over-

whelming amount of evidence establishing Scheune-

man’s obstruction during the period from 2000 to 2002

and showing that his conduct prevented the IRS from

collecting the income tax from him during these years.

No. 11-1554 17

Under the circumstances, the imposition of restitution

for the United States’s tax losses from 2000-2002 was not

erroneous in light of the conviction on Count 4. In any

event, Scheuneman has not established that a plain

error occurred.

III. CONCLUSION

For the reasons stated above, we A FFIRM Scheuneman’s

conviction and sentence.

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