FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
KANSAS (D.C. No. 2:14-CR-20109-JAR-1)
K. Gelfand, Capes Sokol Goodman & Sarachan, P.C., St.
Louis, Missouri, appearing for Appellant.
Jeffrey Brian Bender, Attorney, Tax Division (David A.
Hubbert, Acting Assistant Attorney General, S. Robert Lyons,
Chief, Criminal Appeals & Tax Enforcement Policy Section,
and Gregory Victor Davis, Attorney, Tax Division, with him on
the brief), United States Department of Justice, Washington,
D.C., appearing for Appellee.
BRISCOE, EBEL, and MATHESON, Circuit Judges.
BRISCOE, CIRCUIT JUDGE.
Kathleen Stegman was convicted by a jury of two counts of
evading her personal taxes for the tax years 2007 and 2008,
in violation of 26 U.S.C. § 7201. Stegman was sentenced
to a term of imprisonment of 51 months, to be followed by a
three-year term of supervised release. The district court
also ordered Stegman to pay a $100, 000 fine, plus
restitution in the amount of $68, 733. Stegman now appeals.
Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we
affirm Stegman's convictions and sentence.
September 1997, Stegman formed a Kansas corporation called
Midwest Medical Aesthetics Center, Inc. (MMACI). The company
operated in an office in Leawood, Kansas, and provided a wide
range of medical aesthetic services including, but not
limited to, liposuction, microdermabrasion, and laser hair
January 16, 1998, a Certificate of Amendment was filed with
the Kansas Secretary of State to reflect a name change from
MMACI to Midwest Medical Aesthetics Center, P.A. (MMACPA or
Midwest), and, relatedly, to convert the business to a
professional association. Notwithstanding the name change,
the business continued to be owned and operated by Stegman,
and also continued to provide the same types of medical
of Midwest were permitted to pay for services with a credit
card, cash, or checks made out to Stegman personally. Of
these forms of payment, Stegman preferred and encouraged the
use of cash or checks. At the end of each business day,
Stegman would personally collect the cash and checks that
were paid by Midwest's clients.
established several limited liability corporations, including
Samson, LLC (Samson). Stegman in turn used these corporations
to effectively launder Midwest client payments. As part of
this process, Stegman would use the corporations to purchase
money orders, typically in denominations of $500 or less,
that she in turn used to purchase items for personal use. In
2007, Stegman purchased 162 money orders totaling $77,
181.92. In 2008, she purchased 252 money orders totaling
$121, 869.99. And in 2009, she purchased 157 money orders
totaling $73, 697.31. Notably, Stegman reported zero cash
income on her federal income tax returns during each of these
employed separate tax preparers for her corporate and
personal tax returns. Alex Jones prepared the corporate tax
returns. Don Lake prepared Stegman's personal tax
returns. Although Stegman provided Jones with Midwest bank
account information as proof of its corporate income, she did
not provide him with bank records for the other accounts into
which she deposited corporate income, including the Samson
account and a personal account at U.S. Bank. Similarly,
Stegman did not provide Lake with accurate records of the
Midwest client payments that she used to purchase personal
November 2009, the Internal Revenue Service (IRS) initiated a
civil audit of the 2007 and 2008 tax returns of both Stegman
and Midwest. During the civil audit, Stegman told the IRS
that Midwest never accepted cash payments and rarely accepted
checks. Stegman further told the IRS that she kept
approximately $300, 000 in cash at her home and reported that
the source of the cash was gifts from relatives or money that
she had saved from prior earnings. Stegman also provided the
IRS with conflicting information about Samson and its
purpose. Initially, Stegman told the IRS that "the
business purpose of Samson was to lease equipment to Midwest
. . ., and she paid them approximately $3, 000 a month."
Aplee. App. at 115. She later told the IRS that "Samson
had no business purpose" and "was only the name of
a bank account." Id. at 116.
October 2010, the case was referred to the IRS's criminal
investigation division. The criminal referral report listed
the basis for suspected fraud as omitted income and false
expenses/deductions. The report noted that Midwest took in
large amounts of cash, yet made no cash deposits in 2007 or
2008. The report also noted Stegman's "lavish"
lifestyle, which included frequent travel, large asset
purchases of approximately $2, 000, 000 (unsupported by
associated loans), all despite her reporting personal income
of $50, 000 for 2007 and $57, 105 in 2008. Notably, the
report indicated that, contrary to her 2007 and 2008 tax
returns, Stegman had submitted loan applications reporting
personal income ranging from $10, 000 to $46, 000 per month.
example, in 2007, Stegman applied for loans related to the
purchase of two condominium units in Las Vegas. On her loan
applications, Stegman represented that her monthly income was
$30, 000, even though her 2007 federal tax return reported an
annual adjusted gross income of $79, 428. Stegman purchased
the condominium units for $543, 966.16 and $558, 652.86. In
2009, however, she disposed of both units by way of short
sale contracts, resulting in forgiven debt of $362, 209 and
$339, 722. In doing so, Stegman falsely reported to the
lending bank that she was broke.
of its criminal investigation, the IRS interviewed Midwest
employees and clients, reviewed bank records, money order
purchases, business and bank records, and tax records. The
investigation revealed that Stegman used Samson to create
false business expenses. For example, Stegman falsely claimed
that Samson provided "cleaning, "
"maintenance, " "equipment, " and
"supplies" to Midwest.
investigation also revealed that Stegman engaged in
obstructive conduct. In particular, she altered Midwest's
general ledgers and directed employees of Midwest to destroy
business records, including payment receipts, client folders,
and a sign that was used at the business stating that cash
was accepted. Stegman also altered business ledgers that she
provided to the IRS; the IRS was able, however, to obtain the
original, unaltered ledgers from her tax preparer. Lastly,
Stegman encouraged a former Midwest client, Dr. Evelyn Clark,
to tell the IRS that she didn't remember anything about
her dealings with Midwest.
October 29, 2014, a federal grand jury indicted Stegman on
five counts (Counts 1 through 5) of tax evasion, covering the
tax years 2007 through 2010, in violation of 26 U.S.C. §
7201, and one count (Count 6) of conspiring to defraud the
United States by obstructing the lawful governing functions
of the IRS, in violation of 18 U.S.C. §
Each of the five counts of tax evasion were tied to a
specific tax year. Counts 1 through 3 related to the tax
years 2008 through 2010 for the business. Counts 4 and 5
related to the tax years 2007 and 2008 for Stegman
personally. The conspiracy count (Count 6) charged both
Stegman and an individual named Christopher Smith with
conspiring to defraud the United States by obstructing the
IRS from ascertaining, computing, assessing and collecting
federal corporate and personal taxes.
February 24, 2015, Stegman moved "to dismiss th[e] case
due to the Government's destruction of exculpatory
evidence, " namely, "the IRS audit file regarding .
. . Stegman's 2000 and 2001 federal tax returns."
Aplt. App., Vol. 1 at 95. The district court denied that
case proceeded to trial beginning on March 8, 2016. During
the first week of trial, the district court granted the
government's motion to amend the indictment to change all
of the references to "Midwest Medical Aesthetics Center,
Inc." to instead read "Midwest Medical Aesthetics
Center." At the conclusion of the evidence, the jury
convicted Stegman of evading her personal taxes for the tax
years 2007 and 2008 (Counts 4 and 5), as well as evading
corporate taxes for the tax years 2008 and 2009 (Counts 1 and
2). The jury acquitted Stegman of evading corporate taxes for
the tax year 2010 (Count 3). The jury also acquitted Stegman
and Smith of the conspiracy charge (Count 6).
moved for judgment of acquittal or, in the alternative, a new
trial. The district court granted the motion as to the two
counts that related to the evasion of corporate taxes (Counts
1 and 2), but denied the remainder of the motion. In doing
so, the district court concluded that "there was a flaw
in the way the case was charged." Aplt. App., Vol. XII
at 3311. In other words, the district court explained, it
chose to acquit Stegman of the corporate tax evasion counts
not due to a lack of "proof beyond a reasonable doubt
that this corporation evaded taxes, " but rather because
"the indictment itself was flawed in attributing the
loss as due and owing by Ms. Stegman, when actually it was
due and owing by the corporation." Id. at 3314.
district court sentenced Stegman on October 18, 2016. Based
upon testimony from IRS Revenue Agent Janice Willard, the
district court found that Stegman's evasion of personal
and corporate taxes caused a federal tax loss in excess of
$550, 000. The district court also imposed enhancements for
use of sophisticated means and obstruction of justice. The
district court ultimately sentenced Stegman to a term of
imprisonment of 51 months, a sentence at the low end of the
advisory Guidelines range, to be followed by a three-year
term of supervised release. The district court also ordered
Stegman to pay a $100, 000 fine, plus restitution to the IRS
in the amount of $68, 733.
raises five issues on appeal, four of which pertain to her
convictions and one of which pertains to her sentence.
Although several of these issues require extensive discussion
due to their fact-intensive nature, we conclude that all of
these issues lack merit.
The amendment of the indictment during trial
first issue on appeal, Stegman contends that the district
court erred by granting the government's motion to amend
the indictment in the midst of trial. We review de novo a
district court's decision to grant or deny a motion to
amend an indictment. See United States v. Pina, 974
F.2d 1241, 1243 (10th Cir. 1992).
1997, Stegman filed articles of incorporation with the State
of Kansas for MMACI. The following year, 1998, Stegman filed
an amendment to the articles of incorporation that converted
the business to a professional association and altered
slightly its name (MMACPA).
filings with the IRS, however, did not make the nature or
name of her business clear. During the time period covered by
the superseding indictment, the tax returns that Stegman
filed with the IRS identified the business as "Midwest
Medical Aesthetics Center, " but did not otherwise
identify Midwest's particular corporate form. Further,
the forms effectively treated the business as a C
corporation. Not until February 2013 did Stegman file
documents with the IRS adding a "P.A." to the name
of her business.
indictment in this case alleged that Stegman "was the
owner/operator of Midwest Medical Aesthetics Center, Inc.
(MMACI), located in Leawood, Kansas." Dist. Ct. Docket
No. 1 at 1. The indictment proceeded to refer repeatedly to
MMACI. A superseding indictment was returned in January 2015
that included the same references to MMACI.
opening statements at trial, defense counsel mentioned that
the entity at issue was "more properly called Midwest
Medical Aesthetics Center, P.A. for professional
association." Aplt. App., Vol. VIII at 2251.
Subsequently, "in the course of cross examining more
than several [government] witnesses, " defense counsel
raised the issue "again as to the proper name [of the
entity] and, beyond that even, the existence of the entity
Midwest Medical Aesthetics Center, Inc." Id.
The government objected, and the district court heard
arguments and invited briefing on the issue. The government,
as part of its briefing on the issue, moved to amend the
superseding indictment to read "Midwest Medical
Aesthetics Center and not Midwest Medical Aesthetics Center,
Inc." Aplt. App., Vol. II at 444.
sixth day of trial, the district court granted the
government's motion to amend and ordered that the
superseding indictment refer to Stegman's business as
"Midwest Medical Aesthetics Center." Id.,
Vol. VIII at 2258-59. In doing so, the district court
concluded that Stegman was "fully on notice of which
entity [wa]s at issue" in the indictment. Id.
at 2254. The district court explained:
This isn't a situation where there actually is a Midwest
Medical Aesthetics Center, Inc., that filed a different set
of tax forms. This isn't a situation where there could
potentially be a jeopardy, double jeopardy problem because
there's an entity that filed tax returns under this name,
but the government has charged an entity under another name.
All were on notice that it was Midwest Medical Aesthetics
Center that was the subject of Counts 2, 3, and 4.
And therefore, I find that it is a minor change and a
variance. It doesn't prejudice the defendants. The
defendants were on notice. And that in all respects, this is
a variance that can be amended, as the government moves to
amend, by going forward with the name being Midwest Medical
Aesthetics Center. That matches the name on the tax returns.
It matches the name on most of the business records that
I've seen thus far. * * *
A variance, as opposed to an amendment, occurs when the
evidence at trial proves facts other than those alleged in
the indictment, but the charging terms and elements stated in
the indictment remain unaltered. And that is the case here.
This is the type of variance that does not affect the
substantial rights of the defendants in this case because the
variance does not prevent the defendants from presenting
their defense properly, it does not unfairly surprise them,
or surprise them at all. It does not expose them to double
This variance is not fatal because the defendants, again,
could've anticipated from the indictment and the evidence
what evidence would be presented at trial. Could've
anticipated just from the face of the indictment itself what
evidence would be presented at trial, again, the corporate
tax returns for this entity.
Id. at 2254-2256.
conclusion of all the evidence, the jury found Stegman guilty
of two counts of corporate tax evasion and two counts of
personal tax evasion, and acquitted her on one count of
corporate tax evasion and the conspiracy charge. Stegman
subsequently moved for judgment of acquittal, and the
district court granted her motion in part, dismissing the two
convictions for corporate tax evasion. In doing so, the
district court noted, as argued by Stegman, that "the
Superseding Indictment specifie[d] that the corporate taxes
were due and owing by Stegman, and the Government did not
prove that Stegman herself owed the taxes."
Id., Vol. VI at 1740. More specifically, the
district court noted that the government "did not offer
evidence that would have supported a theory that [Midwest]
was a sham corporation or a disregarded entity, nor did it
attempt to pierce [Midwest]'s corporate veil."
Id. at 1740-1741. Thus, the district court
concluded, "the income tax at issue . . . was due and
owing by [Midwest], not Ms. Stegman." Id. at
Presentment Clause of the Fifth Amendment states, in
pertinent part, that "[n]o person shall be held to
answer for a capital, or otherwise infamous crime, unless on
a presentment or indictment of a Grand Jury." U.S.
Const. amend. V. The Supreme Court has interpreted this
provision to mean that an indictment may not be "amended
except by resubmission to the grand jury." Russell
v. United States, 369 U.S. 749, 770 (1962); see also
Stirone v. United States, 361 U.S. 212, 215-16 (1960).
prohibition does not, however, "extend to alterations
that are 'merely a matter of form.'" United
States v. Dowdell, 595 F.3d 50, 67 (1st Cir. 2010)
(quoting Russell, 369 U.S. at 770). Thus, we
"ha[ve] distinguished between a district court's
amending an indictment as to form, which is permissible, and
as to substance, which is an impermissible usurpation of the
grand jury's prerogative." United States v.
Pina, 974 F.2d 1241, 1243 (10th Cir. 1992). Further, we
have "defined an amendment of form as a change that does
not mislead the defendant in any sense, does not subject the
defendant to any added burdens, and does not otherwise
prejudice the defendant." Id. Likewise, other
circuits "have allowed ministerial corrections of
clerical errors in names, dates, and citations, so long as
the change would not deprive the defendant of notice of the
charges against him." Dowdell, 595 F.3d at 68.
"In short, when a change 'le[aves] the substance of
the charge unaffected, the switch d[oes] not usurp the
prerogative of the grand jury." Id. (quoting
United States v. Eirby, 262 F.3d 31, 38 (1st Cir.
2001)) (alteration in original).
argues that "[t]he amendment substantively changed the
entity from which individual and corporate income tax
obligations allegedly flowed and the affirmative acts of tax
evasion the Government had to prove." Aplt. Br. at 13.
"Furthermore, " she argues, "the district
court constructively amended the indictment by, inter
alia, broadening the possible bases for
conviction." Id. Stegman argues that "[t]o
allow an indictment to be amended in a tax evasion case to
substitute the name of one business entity allegedly
impacting tax liability for the name of another business
entity frustrates 130 years of jurisprudence prohibiting
district courts from amending indictments." Id.
reject these arguments. Contrary to her assertion, and
consistent with what the district court concluded, the
amendment was merely a matter of form, dropping the
"Inc." to accurately reflect the change that
Stegman made to the structure of her business (and a change,
we note, that she did not alert the IRS to when she filed the
business's federal tax returns). Further, as clearly
stated by the district court, the amendment did not mislead
Stegman in any sense, did not subject her to any added
burdens, and did not otherwise prejudice her in any way.
See Pina, 974 F.2d at 1243. Moreover, the amendment
did not deprive Stegman of notice of the charges against her.
In short, the obvious and consistent focus of the criminal
proceedings, both before and after the amendment, was on
whether Stegman evaded federal taxes by diverting money from
the only business she owned that generated an income, using
that money for personal expenses, and failing to properly
report these transactions to the IRS. Consequently, because
the amendment was one of form only, the district court did
not err in granting the government's motion to amend the
also asserts that the district court's allowance of the
amendment violated her due process rights. Specifically, she
argues that "[t]he jury was never told there was an
amendment or that [she] was entitled to rely on the
indictment" and, "[a]s a result, the jury may have
been left with the impression that [she] misled them on the
issue of the existence of MMACI." Aplt. Br. at 29.
argument fails for several reasons. First, Stegman's
counsel conceded at oral argument that Stegman never asked
the district court for such an instruction. Second, and
relatedly, she failed to properly alert the district court to
this constitutional challenge. Third, the argument lacks
merit given our conclusion that the amendment was one of form
only. Finally, the evidence of Stegman's guilt was
overwhelming and thus we are not persuaded that the district
court's decision to allow the amendment deprived her of
the right to a fair trial.
The purported Braswell violation
second issue on appeal, Stegman contends that the government
violated the Supreme Court's decision in Braswell v.
United States, 487 U.S. 99 (1988), by using against her
corporate records, specifically company ledgers, that it
obtained by compulsory summons issued to her, and that this
violation requires reversal of her convictions. Because this
issue concerns Stegman's Fifth Amendment privilege
against self-incrimination, we review the issue de novo.
See United States v. Banks, 761 F.3d 1163, 1184
(10th Cir. 2014) ("Whether a defendant's Fifth
Amendment privilege against self-incrimination has been
violated is a legal question we review de novo.").
The holding in Braswell
Supreme Court granted certiorari in Braswell to
address "the question whether the custodian of corporate
records may resist a subpoena for such records on the ground
that the act of production would incriminate him in violation
of the Fifth Amendment." 487 U.S. at 100. The Supreme
Court "conclude[d] that he may not." Id.
In reaching this conclusion, the Court began by noting that
corporations "are not protected by the Fifth
Amendment." Id. at 102. More specifically, the
Court noted that it "ha[d] long recognized that, for
purposes of the Fifth Amendment, corporations and other
collective entities are treated differently from
individuals." Id. at 104. This collective
entity rule, the Court noted, mandated "that without
regard to whether [a] subpoena is addressed to the
corporation" or "to the individual in his capacity
as a custodian, a corporate custodian . . . may not resist a
subpoena for corporate records on Fifth Amendment
grounds." Id. at 108-09 (citations omitted).
The Court then contrasted this with sole proprietorships and
noted that sole proprietors are entitled to "show that
[an] act of production [of proprietorship documents] would
entail testimonial self-incrimination." Id. at
passage relevant to the case at hand, the Court explained the
proper and improper uses of corporate ...