Owner of ad-hoc nursing agency charged with failing to pay taxes

Owner of ad-hoc nursing agency charged with failing to pay taxes.

By DAN BROWNING, Star Tribune

Last update: February 25, 2008 - 9:16 PM

The owner of an ad-hoc nursing agency in Minneapolis has been charged in a federal indictment with failing to pay nearly $600,000 in federal income and employee taxes.

An indictment handed up Jan. 8 and unsealed Monday says that Francis Leroy McLain, 59, of Livingston, Mont., has failed to pay employment taxes on employee wages off and on since 1987.

According to the indictment, McLain has operated a number of temporary nurse agencies over the years, including Lifelines Care Inc., Lifelines Cooperative Care Inc. and Cooperative Nurses Inc. From 2001 through 2004, he owned Kirpal Nurses LLC, which did business in Minneapolis under the name of Kind Hearts. The company provided supplemental staff to nursing homes and other health care facilities.

McLain was arrested Feb. 4 in Montana and released on bond. He made his first appearance Monday in Minneapolis.

From about 1987 to 1991, McLain failed to turn over employment taxes to the government on employee wages, despite demands from the Internal Revenue Service, the indictment says.

In 1995, McLain and his companies sued the government claiming the nurses were independent contractors. The IRS countersued. The case settled in 1998. The IRS got judgments levied against McLain and he agreed to withhold and pay employment taxes henceforth.

The indictment says McLain set up successor companies in 1999, 2001 and 2005 with Kirpal or Kind Hearts in their respective names. McLain allegedly tried to hide his ownership and role in the companies by using nominee organizers and operators, including his daughter, the government says.

From June 1991 through 2001, the indictment says, McLain arranged to pay only part of the taxes due for his employees.

In 2002, Minnesota notified all supplemental nursing agencies of a new state law that required them to treat their workers as employees rather than independent contractors. The law required them to notify the state where they deposited their employment taxes.

State officials reviewed Kind Hearts' records in 2002 and notified McLain that the company was violating state law by failing to provide evidence that it was withholding the proper amount of taxes. Kind Hearts made a $4,200 payment to the IRS in December 2002, but has failed to make additional payments, the indictment says.

In 2003, McLain's company issued wage and tax statements to at least some employees showing that taxes were withheld, but it failed to file the forms with the IRS as required by law, the indictment says. And from 2003 to 2005, it says, McLain failed to file quarterly tax returns for his company as required by law.

The indictment says McLain failed to account for and turn over $344,930 in federal income taxes from January 2003 through 2004, and $248,455 in the employees' share of their Federal Insurance Contribution Act (FICA) taxes.

The indictment resulted from an investigation by the IRS-Criminal Investigation Division and is being prosecuted by Assistant U.S. Attorney Nicole Engisch.

Dan Browning • 612-673-4493

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