In the

United States Court of Appeals

For the Seventh Circuit

No. 11-3722

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

JOHN QUINN MCKINNEY,

Defendant-Appellant.

Appeal from the United States District Court

for the Southern District of Illinois.

No. 3:11-CR-30029-DRH—David R. Herndon, Chief Judge.

ARGUED JUNE 8, 2012—DECIDED JULY 13, 2012

Before POSNER, FLAUM, and WILLIAMS, Circuit Judges.

FLAUM, Circuit Judge. John McKinney, along with his

wife, brother, and sister-in-law, was charged in

an eleven-count indictment with conspiracy to defraud,

impede, impair, obstruct, and defeat the functions of

the IRS in the collection of income taxes, 18 U.S.C. § 371;

tax evasion, 26 U.S.C. § 7201; and false statements

to revenue agents, 26 U.S.C. § 1001. McKinney entered

a plea agreement and a factual stipulation with the govern-
2 No. 11-3722

ment. At sentencing, he received a two-level enhancement

to his base offense level for failing to report income exceeding $10,000 from criminal activity, U.S. SENTENCING

GUIDELINES MANUAL (“U.S.S.G.”) § 2T1.1(b)(1), as well as

a two-level enhancement for obstruction of justice, U.S.S.G.

§ 3C1.1. He appeals these enhancements.

We affirm the district court. 

I. Background

A. Tax Evasion

McKinney and his brother Robert own and operate

McKinney Hauling, a construction business. In early 2003,

the IRS filed a Notice of Federal Tax Liens

against McKinney for taxes owed. Thereafter, the IRS

pursued collection multiple times. McKinney avoided

paying taxes by transferring money earned from

his construction business into separate nominee accounts,

which McKinney and his brother used for personal and

household expenditures. He concurrently provided to IRS

Revenue Officers false statements about his ability to pay

the taxes he owed. He failed to pay taxes during 1999, 2000,

2002, 2003, 2004, 2005, and 2006. 

Because of the federal tax liens, McKinney was unable to

obtain a residential mortgage. Therefore, his

wife, Chamethele, independently applied for and obtained

a loan to purchase a home in Madison County, Illinois. On

her application, she falsely stated that she was a full-time

manager of McKinney Hauling with a gross monthly

income of $15,374.23. Her husband signed a false employ-
No. 11-3722 3

ment verification document to confirm her representations.

He, however, earned the income used to pay for the home.

Accordingly, the mortgage fraud diverted business income

earned by McKinney into an asset purchased by his

wife, enabling him to avoid the IRS tax assessment

and lien. Chamethele McKinney defaulted on the mortgage

on July 1, 2008.

McKinney’s sister-in-law, Belinda McKinney, similarly

applied for a loan to purchase a home in Madison County,

Illinois. She, too, falsely declared that she was a full-time

employee of McKinney Hauling, that she had been employed for ten years, and that she earned $9,500 per month.

The residential mortgage lender called McKinney to

confirm that Belinda was a full-time employee. McKinney

falsely represented that his sister-in-law was a full-time

employee. She did not report such employment on her tax

return. This financial transaction diverted business income

earned by Robert McKinney into an asset owned by

Belinda, thereby avoiding the IRS tax assessment and lien.

B. Obstruction of Justice

IRS Revenue Officers interviewed McKinney and

his brother regarding their failure to pay income taxes.

Both McKinney and his brother made false statements

regarding their actual income and assets. On March

23, 2007, McKinney falsely stated that he lived at 1528 Gaty

Avenue, East St. Louis, St. Clair County, Illinois, when, in

fact, he lived with his wife at their Madison County home.

On October 22, 2007, McKinney stated that he and his
4 No. 11-3722

brother were thinking about closing their business because

they had no work, which was untrue. On November 21,

2007, a Revenue Officer conducted a field visit with

McKinney and his brother during which both brothers

indicated that they lacked work and income. These statements were also false: they received income just before and

after that meeting from their construction business. The

false information provided by the brothers caused the IRS

to close its investigation on December 13, 2007.

C. Procedural Background

Federal authorities ultimately discovered the brothers’ tax evasion, and, on February 24, 2011, they charged

McKinney with one count of conspiracy, one count of tax

evasion, and three counts of making false statements.

McKinney pled guilty to each charge. 

The probation office filed with the court a Presentence

Investigation Report (“PSR”) recommending enhancements

for failing to report the source of income exceeding $10,000

in any year from criminal activity and for obstruction of

justice. McKinney objected to both recommended enhancements. First, he challenged the enhancement for failure to

report the source of income exceeding $10,000 in any year

from criminal activity as inapplicable to him because his

wife, not he, received the mortgage check. Second, he

argued that the adjustment for obstruction of justice for

providing false information to the IRS was improper

because (1) the IRS could have verified the information

sought, (2) the information regarding his business was

accurate, (3) his false statements did not rise to the level
No. 11-3722 5

contemplated by the Sentencing Guidelines, and (4) the IRS

field agent was not acting as a law enforcement agent when

he made the false statements. 

The district court entered a judgment against McKinney

and adopted the PSR’s recommendations, treating his

applicable Guideline range as 51-63 months of imprisonment. It sentenced McKinney to 57 months’ imprisonment

on each count, to be served concurrently. It also imposed

three years’ supervised release and ordered him to pay

restitution of $1,512,384.22.

II. Discussion

We review the district court’s application of

the Sentencing Guidelines de novo. See United States

v. Sheneman, No. 11–3161, 2012 WL 1959551, at *5 (7th Cir.

June 1, 2012). We review its findings of fact for clear error,

id., including its determination that McKinney’s uncharged

involvement in the mortgage fraud scheme constitutes

conduct relevant to his tax evasion, see United States v.

Acosta, 85 F.3d 275, 279 (7th Cir. 1996), and its factual

findings underlying the obstruction enhancement, United

States v. Vallar, 635 F.3d 271, 288 (7th Cir. 2011).

A. Enhancement for Failure to Report Income From the

Uncharged Mortgage Fraud Scheme

Under the Guidelines, the district court may increase

McKinney’s base offense level by two if he “failed to report

or to correctly identify the source of income exceeding
6 No. 11-3722

$10,000 in any year from criminal activity.” U.S.S.G.

§ 2T1.1(b)(1). The district court applied this enhancement,

finding that McKinney failed to report to the IRS $45,000

that his wife received from the mortgage loan. McKinney

challenges that this enhancement was improper because (1)

he had no duty to report income obtained by his wife from

a third party, and (2) he was not charged with the specific

criminal activity related to the mortgage fraud. We disagree.

1. Duty to Report Income

Section 2T1.1(b)(1) of the Sentencing Guidelines states

that the sentencing enhancement applies upon the defendant’s failure to report income over $10,000. Thus,

in McKinney’s view, Section 2T1.1(b)(1) is inapposite since

his wife, not he, pocketed the $45,000 home loan proceeds

and the loan was in her name.

We rejected McKinney’s argument in United States

v. Oestreich, holding that an individual whose spouse

obtained income through illegal means shares the duty to

report such income and may receive a sentence enhancement should that spouse fail to do so. 286 F.3d 1026,

1030-31 (7th Cir. 2002). In Oestreich, a husband and wife

conspired to defraud the United States for purposes of

impeding the IRS. The district court considered whether to

enhance the wife’s sentence under Section 2T1.1(b)(1), and

it concluded that, as a participant in the conspiracy to

impede the IRS’ collection of taxes, she shared her spouse’s

obligation to report the income and could reasonably

foresee that he would not report it. Id. at 1030-31. Ac-
No. 11-3722 7

cordingly, it found that her own failure to report the

income merited an enhancement under Section 2T1.1(b)(1).

As in Oestrich, McKinney and his wife conspired

to perpetrate a mortgage fraud scheme. Chamethele

McKinney falsely represented where she worked in order

to obtain the home loan, and her husband, through false

employment records, substantiated her representations.

They worked together to obtain the $45,000 loan, which

they both undisputedly had a duty to report to the IRS,

whether via a joint return or by one of them separately.

Chamethele McKinney did not report the income, a

result foreseeable to McKinney as participant in and

beneficiary of the mortgage fraud. He, therefore, had a

duty to report the income as well.

In Oestrich, we noted in dicta a possible tension between

the express use of the term “defendant” in U.S.S.G.

§ 2T1.1(b)(1) (“If the defendant failed to report or to

correctly identify the source of income exceeding $10,000

in any year from criminal activity, increase by 2 levels.”)

and the passive phrasing of U.S.S.G. § 2T1.1(b)(2) (“If

the offense involved sophisticated means, increase by

2 levels.”). 286 F.3d at 1031. One could argue, we suggested, that the distinction between the sections’ language

meant that Section 2T1.1(b)(1) applied “only to the defendant who failed to report and not to a co-conspirator who

had no duty to report.” Id. McKinney relies on this dicta to

underscore that he, as an uncharged co-conspirator in the

mortgage fraud, is not responsible for his wife’s failure

to report. Assuming arguendo that McKinney’s reading of

Section 2T1.1(b)(1) is correct, he still cannot prevail on this
8 No. 11-3722

argument. Our dicta suggested that Section 2T1.1(b)(1)’s

defendant-specific language might immunize a co-conspirator from the enhancement when the co-conspirator had no

duty to report. First, McKinney is the defendant, not just a

co-conspirator, in the tax evasion scheme. The issue, then,

is whether, as the defendant, he had a duty to report the

income and failed to do so. McKinney, under general

principles of federal income tax law, was jointly and

severally liable for “any deficiencies, penalties and interest

assessed against [him and his wife] regarding [a joint]

return,” Kindred v. Comm’r of Internal Revenue, 454 F.3d

688, 693 n.10 (7th Cir. 2006), unless he was an “innocent

spouse.” Id. (citing IRC § 6015). He most certainly was

not an innocent spouse, and we are unconvinced by

his argument that, since he did not file taxes at all during

the subject period, it is “a stretch to find a duty to

report income . . . as if he were filing a joint tax return.” He

asks us to conclude that since he committed criminal tax

evasion and recruited his wife into his scheme, she alone,

not he, is responsible for declaring the income they obtained. We decline to treat his criminal tax evasion as a

boon. So long as the mortgage fraud scheme constitutes

conduct relevant to the conspiracy, tax evasion, and false

statements with which he was charged, see U.S.S.G. §

1B1.3(a)(2), the district court could find a duty to report the

income and consider his failure to fulfill that obligation. See

U.S.S.G. § 1B1.3(a)(1) (stating that a defendant’s guideline

range “shall be determined on the basis of . . . (A) all acts

and omissions committed, aided, abetted, counseled,

commanded, induced, procured, or willfully caused by the

defendant; and (B) in the case of a jointly undertaken
No. 11-3722 9

criminal activity (a criminal plan, scheme, endeavor, or

enterprise undertaken by the defendant in concert with

others, whether or not charged as a conspiracy), all reasonably foreseeable acts and omissions of other in furtherance

of the jointly undertaken criminal activity”).

2. Relevant Conduct Inquiry

We must, thus, evaluate whether the district court clearly

erred in finding that the mortgage fraud was conduct

relevant to McKinney’s conspiracy to defraud the IRS.

Relevant conduct is defined as acts that were “part of the

same course of conduct or common scheme or plan as the

offense of conviction.” U.S.S.G. § 1B1.3(a)(2). A common

scheme or plan includes two or more offenses that are

connected by a common factor, including common accomplices, common purpose, or common modus operandi.

U.S.S.G. § 1B1.3, cmt. n.9(A). Offenses that are not part of

a common scheme or plan may still constitute the

same course of conduct if they are connected or related to

a degree to suggest that they are a part of a “single episode,

spree or ongoing series of offenses.” Id. at cmt. n.9(B).

At sentencing, the district court found that McKinney’s

failure to report income from the mortgage fraud was “part

and parcel” to the tax evasion, advancing a common

scheme to hide money and avoid paying taxes. The court

found that, in furtherance of his tax evasion, McKinney’s

wife obtained the mortgage loan in her name and per false

employment information to hide her husband’s business

income and avoid the IRS tax assessment and lien.

McKinney’s own false statements about his wife’s employment enabled his wife to obtain the loan. Accordingly, it
10 No. 11-3722

held that the mortgage fraud was part of the common

scheme of tax evasion to which McKinney pled guilty,

making it relevant conduct under the Sentencing Guidelines.

We affirm the district court. See Shenemen, 2012 WL

1959551, at *5 (“Under the clear error standard, we

will affirm a district court unless we are left with

the definite and firm conviction that a mistake has been

committed.” (quoting United States v. Reese, 666 F.3d 1007,

1021 (7th Cir. 2012) (internal quotation marks omitted))).

The Stipulation of Facts, which McKinney does not dispute, states that he avoided the IRS tax assessment and lien

by diverting assets into this loan. He thereby concedes that

the mortgage fraud served the common scheme of tax

evasion, a connection also evidenced by the fact that

both schemes shared common accomplices and modus

operandi—all four McKinneys were complicit in both the

mortgage fraud and the tax evasion.

We hold, therefore, that the mortgage fraud was conduct

relevant to McKinney’s tax evasion, that he had a duty to

report the income from the fraudulently obtained mortgage

loan, and that the district court properly considered his

failure to report as it fashioned its sentence.

B. Enhancement for Obstruction of Justice

McKinney also appeals the district court’s two-level

enhancement for obstruction of justice. The district court

concluded that his false statements regarding his residence

and employment status warranted an adjustment for
No. 11-3722 11

obstruction of justice under Section 3C1.1, which states that

a defendant commits obstruction if:

(1) the defendant willfully obstructed or impeded,

or attempted to obstruct or impede, the administration

of justice with respect to the investigation, prosecution,

or sentencing of the instant offense of conviction, and

(2) the obstructive conduct related to (A) the defendant’s offense of conviction and any relevant conduct;

or (B) a closely related offense[.]

U.S.S.G. § 3C1.1. McKinney argues that because the

false statements were made prior to the initiation of

a criminal investigation, the adjustment should apply

only if his conduct was “purposely calculated, and likely

to thwart the investigation or prosecution of the offense

of conviction.” Id. at cmt. n.1. He posits that lies to federal

officers, without more, cannot rise to the level of obstruction for purposes of a sentencing enhancement.

As an initial matter, it is of no moment that a criminal

investigation had not been initiated at the time McKinney

lied to IRS agents. Section 3C1.1 penalizes “obstructing or

impeding the administration of justice.” Though the

criminal investigation had not yet begun, the IRS was

investigating McKinney’s tax activities, which eventually

and inevitably merited further investigation as criminal tax

evasion. The fact that the investigation originated as civil,

not criminal, does not legitimize McKinney’s lies and

attempts to frustrate the government’s inquiries. 

Nevertheless, providing false statements or incomplete

or misleading information to law enforcement, if not under

oath, does not constitute obstruction if the investigation is
12 No. 11-3722

not actually obstructed or impeded. See id. at cmt. n.5(B);

United States v. Selvie, ___ F.3d ____, 2012 WL 2477835, at *3

(7th Cir. June 29, 2012). The government must establish

that the defendant’s disinformation was material and

obstructed or impeded the official investigation or prosecution of the instant offense. See U.S.S.G. § 3C1.1 cmt.

n.4(G). The information is material if, were it believed, it

“would tend to influence or affect the issue under determination.” Id. at cmt. n.6. The misinformation obstructs

or impedes the investigation if it “burden[s] law enforcement and precipitate[s] ‘expended resources to track

down its false leads.’ ” See Selvie, 2012 WL 2477835, at *3

(quoting United States v. Griffin, 310 F.3d 1017, 1023 (7th

Cir. 2002)).” McKinney’s lies to the IRS satisfy both criteria.

McKinney made false statements to an IRS Revenue

Officer on three occasions. On March 23, 2007, he falsely

stated that he lived at a home in St. Clair County, Illinois,

when he actually lived in Madison County, Illinois with his

wife. On October 22, 2007, he stated that he and his brother

were thinking about closing the doors of their business

because they did not have any current work. In truth, they

did have work, including a demolition for which they

issued an invoice on October 27, 2007. On November 21,

2007, the brothers told an IRS agent during a field interview that they did not have any income or work. In fact,

on the same day they made a deposit of $7,500 from Keeley

& Sons and received and additional $240,377 from Keeley

& Sons during 2007. These lies were material because they

“influence[d] or affect[ed] the issue under determination,”

U.S.S.G. § 3C1.1 cmt. n.6, whether the McKinneys could

afford to pay their taxes owed. Moreover, they caused the
No. 11-3722 13

IRS to close its investigation by representing the

McKinneys’ inability to pay on the basis of financial

hardship, thwarting the IRS’ discovery of the criminality of

the tax evasion—at least temporarily—and demanding

additional government resources to uncover the fraud.

See U.S.S.G. § 3C1.1 cmt. n.4(G); Selvie, 2012 WL 2477835,

at *3-4. His actions merited an obstruction enhancement. 

We are not persuaded by McKinney’s assertions to

the contrary. He refers us to United States v. Urbanek,

930 F.2d 1512, 1515 (10th Cir. 1991), in which the Tenth

Circuit found the defendant’s false statements to

IRS agents denying the existence of bank accounts

or taxable income to be “nothing more than a denial

of guilt or an ‘exculpatory no.’ ” Id. Under the Guidelines,

the court held, refusing to admit guilt or volunteer information cannot underlie an obstruction enhancement.

Unlike the defendant in Urbanek, McKinney did

not merely deny wrongdoing, but affirmatively lied

to the IRS. He lied about his past finances, he made

false representations about the current and future state

of his business, and he lied about where he lived

to conceal the value of his home. Moreover, unlike

in Urbanek, where the defendant immediately recanted

his lie when confronted with the truth, McKinney’s

false statements hindered the IRS investigation and

caused the expending of additional time and

manpower to uncover and prosecute the tax

evasion scheme. Therefore, we conclude that McKinney

obstructed justice, and the district court properly

enhanced his base offense level accordingly.
14 No. 11-3722

III. Conclusion

For the foregoing reasons, we AFFIRM.

7-13-12