United States of America v. Nicholas Lucidonio

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_________________
No. 24-1285
_________________
UNITED STATES OF AMERICA
v.
NICHOLAS LUCIDONIO
Appellant
_________________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Criminal No. 2:20-cr-00211-002)
District Judge: Honorable Gerald A. McHugh
_________________
Argued: November 12, 2024
Before: RESTREPO, MONTGOMERY-REEVES, and
AMBRO, Circuit Judges.
(Opinion filed: May 16, 2025)
Ian M. Comisky [ARGUED]
Matthew D. Lee
Fox Rothschild
Two Commerce Square
2001 Market Street, Suite 1700
Philadelphia, PA 19103
Matthew N. Leerberg
Fox Rothschild
301 Hillsborough Street
Suite 1120
Raleigh, NC 27603
Counsel for Appellant Nicholas Lucidonio

-- 1 of 16 --

2
Katie Bagley
David A. Hubbert
Gregory S. Knapp [ARGUED]
Samuel R. Lyons
Joseph B. Syverson
United States Department of Justice
P.O. Box 972
Ben Franklin Station
Washington, DC 20004
Counsel for Appellee United States of America
_________________
OPINION OF THE COURT
_________________
MONTGOMERY-REEVES, Circuit Judge.
This case involves a conspiracy to defraud the Internal
Revenue Service (the “IRS”) under 18 U.S.C. § 371 (Klein
conspiracy). The Klein conspiracy resulted from a payroll tax
fraud scheme at a cheesesteak restaurant named Tony Luke’s.
Nicholas Lucidonio, an owner of Tony Luke’s, avoided
employment taxes by causing Tony Luke’s to issue paychecks
to employees for an amount of “on-the-books” wages,
requiring the employees to sign back their paychecks, and
giving the employees an amount in cash that reflected both
“on-the-books” and “off-the-books” wages. Lucidonio then
caused Tony Luke’s to file false employer tax returns to the
IRS that underreported the full amount of wages paid to
employees and underpaid employment taxes owed by Tony
Luke’s and the employees. The employees, who learned about
the scheme during onboarding, received Form W-2s from Tony
Luke’s listing only “on-the-books” wages for the year’s
income. As a result, employees underreported income on their
personal income tax returns. The conspiracy “spanned ten
years[,] . . . involved systemic underreporting of wages” by “an
average of 30 to 40 employees” at any given time, and
benefitted from “the destruction of most original records and
the maintenance of false ledgers.” App. 17.

-- 2 of 16 --

3
Lucidonio admitted to his involvement in this scheme
and pleaded guilty to one count of Klein conspiracy. So he
does not appeal his conviction. Instead, he challenges his
sentence. In particular, Lucidonio challenges the application
of a United States Sentencing Guideline that increased, or
“enhanced,” his total offense level by two points. The
enhancement applies when “conduct was intended to
encourage persons other than or in addition to co-conspirators
to violate the internal revenue laws or impede, impair, obstruct,
or defeat the ascertainment, computation, assessment, or
collection of revenue[.]” U.S. Sent’g Guidelines Manual
§ 2T1.9(b)(2) (U.S. Sent’g Comm’n 2023).1
Lucidonio argues that the District Court erred by
applying the enhancement for two reasons. First, he contends
that the phrase “conduct was intended to encourage” requires
explicitly directing another to violate the IRS Code or
otherwise impede the IRS’s collection of revenue. According
to Lucidonio, no such conduct exists here. Second, Lucidonio
asserts that, even if his conduct were intended to encourage
individuals to violate the IRS Code or otherwise impede the
IRS’s collection of revenue, he did not encourage anyone
“other than or in addition to co-conspirators” because Tony
Luke’s employees were aware of and participated in the
scheme.
We disagree with Lucidonio that the enhancement is
limited to those who explicitly direct another to violate the IRS
Code or otherwise impede the IRS’s collection of revenue.
Section 2T1.9(b)(2) unambiguously refutes his interpretation,
so the alleged absence of such conduct does not preclude
application of the enhancement. But the Government failed to
show by a preponderance of the evidence that Lucidonio
encouraged anyone “other than or in addition to co-
conspirators.” See United States v. Diallo, 710 F.3d 147, 151
(3d Cir. 2013) (“[T]he [G]overnment always bears the burden
of proving by a preponderance of the evidence that the facts
1 We refer to “internal revenue laws” for clarity as the “IRS
Code.” And we refer to “or impede, impair, obstruct, or defeat
the ascertainment, computation, assessment, or collection of
revenue” as “or otherwise impede the IRS’s collection of
revenue.”

-- 3 of 16 --

4
support a sentencing enhancement, and ‘the defendant does not
have to prove the negative to avoid the enhanced sentence.’”
(quoting United States v. Evans, 155 F.3d 245, 253 (3d Cir.
1998)). Thus, we will vacate and remand for resentencing.2
I. BACKGROUND3
Lucidonio and his father Anthony Lucidonio, Sr.4 own
Tony Luke’s, a Philadelphia-based cheesesteak restaurant.5 In
this role, Lucidonio—alongside Anthony Sr.—ran Tony
Luke’s day-to-day operations by supervising and training
employees, managing financial aspects of the business, and
assisting with food preparation. But they also engaged in a
payroll tax fraud scheme at the restaurant.
Lucidonio and Anthony Sr. paid wages to Tony Luke’s
employees partially “on-the-books” and partially “off-the-
books” to avoid the payment of employment taxes. Lucidonio
and Anthony Sr. did so by issuing employees a paycheck for
some portion of their wages, requiring the employees to sign
back the paycheck to Tony Luke’s, and giving the employees
cash that comprised the amount listed on the paycheck and an
amount that went unreported. Lucidonio also directed
managers to explain to employees during onboarding that the
payment scheme allowed them to earn more money by
avoiding tax. The tax fraud scheme was common knowledge
among employees. For example, one employee asked for
2 Nothing in this opinion suggests the guilt or innocence of the
Tony Luke’s employees; the issue here is simply about whether
the Government has met its burden to prove facts necessary to
support a sentencing enhancement.
3 We take the Government’s factual assertions as true for
purposes of this appeal.
4 We refer to Nicholas Lucidonio as “Lucidonio” and Anthony
Lucidonio, Sr. as “Anthony Sr.” for clarity purposes only.
5 “Tony Luke’s,” now named “Tony and Nick’s Steaks,” refers
to a cheesesteak restaurant located at 39 East Oregon Avenue
in South Philadelphia.

-- 4 of 16 --

5
specific amounts of “on-the-books” wages to ensure eligibility
for state-assisted medical coverage. Moreover, because Tony
Luke’s only reported “on-the-books” income to the IRS,
employees then filed false personal income tax returns after
receiving false IRS Form W-2s from Tony Luke’s.
A grand jury indicted Lucidonio for various tax-based
crimes; Lucidonio pleaded guilty to a single count of Klein
conspiracy under 18 U.S.C. § 371;6 and the remaining counts
were dismissed. Lucidonio objected to the application of
Section 2T1.9(b)(2), but the District Court overruled his
objection.
Before sentencing, a United States Probation Officer
prepared a Presentence Investigation Report (“PSR”).
Adjusting Lucidonio’s base offense level upward by two levels
under Section 2T1.9(b)(2), the PSR calculated a total offense
level of 17. With a criminal history category of I, the PSR
calculated an applicable Guidelines range of 24 to 30 months.
The District Court sentenced Lucidonio to 20 months’
imprisonment. He timely appealed.
II. JURISDICTION AND STANDARDS OF REVIEW
The District Court had jurisdiction over this case under
18 U.S.C. § 3231. We have jurisdiction under 28 U.S.C. §
1291 and 18 U.S.C. § 3742(a).
We exercise plenary review over the interpretation of
the Guidelines. United States v. Nasir, 17 F.4th 459, 468 (3d
Cir. 2021) (en banc) (citing United States v. Wilson, 880 F.3d
80, 83 (3d Cir. 2018)). Our “standard of review for the District
Court’s application of the Guidelines to the facts ‘depends on
the nature of the question presented.’” United States v.
Caraballo, 88 F.4th 239, 243 (3d Cir. 2023) (quoting Buford v.
6 18 U.S.C. § 371 applies to, in part, a conspiracy “to defraud
the United States, or any agency thereof . . . .” The offense
known as Klein conspiracy simply refers to a conspiracy to
defraud the IRS. See United States v. McKee, 506 F.3d 225,
238 n.10 (3d Cir. 2007) (explaining how United States v. Klein,
257 F.2d 908 (2d Cir. 1957), became an eponym for this strain
of conspiracy against the IRS).

-- 5 of 16 --

6
United States, 532 U.S. 59, 63 (2001)). This appeal “presents
a mixed question of law and fact, [so] ‘our standard of review
takes on greater scrutiny, approaching de novo as the issue
moves from one of strictly fact to one of strictly law.’” United
States v. Miller, 527 F.3d 54, 60 (3d Cir. 2008) (quoting United
States v. Felton, 55 F.3d 861, 864 (3d Cir. 1995)).
III. DISCUSSION
Lucidonio’s appeal turns on Section 2T1.9(b)(2). As
noted above, this Guideline provides that “[i]f the conduct was
intended to encourage persons other than or in addition to co-
conspirators to violate the internal revenue laws or impede,
impair, obstruct, or defeat the ascertainment, computation,
assessment, or collection of revenue, increase by 2 levels.”
U.S. Sent’g Guidelines Manual § 2T1.9(b)(2) (U.S. Sent’g
Comm’n 2023).
Lucidonio argues that the District Court improperly
applied Section 2T1.9(b)(2) for two reasons. First, he argues
that the phrase “conduct was intended to encourage” requires
explicitly directing another to violate the IRS Code or
otherwise impede the IRS’s collection of revenue, which
purportedly did not happen here. Second, he argues that he did
not encourage anyone “other than or in addition to co-
conspirators” because his employees were part of the tax
scheme. We take the arguments in turn.7
A. “Conduct Was Intended to Encourage”
In Lucidonio’s view, the phrase “conduct was intended
to encourage” applies only when a defendant explicitly directs
someone to violate the IRS Code or otherwise impede the
IRS’s collection of revenue. In other words, Lucidonio
believes that the enhancement would apply only if he told “an
7 Because we vacate the application of the enhancement and
remand for resentencing without it, we need not address
Lucidonio’s arguments about the legality of the Guidelines in
general or this enhancement in particular under Loper Bright
Enterprises v. Raimondo, 603 U.S. 369 (2024), and the
Administrative Procedure Act.

-- 6 of 16 --

7
employee, you’re getting cash; don’t report your taxes.” Oral
Arg. Tr. 15:13–15:14 (emphasis added). And under this
interpretation, Lucidonio contends that the enhancement
cannot apply because no such evidence exists.
In Nasir, this Court explained that when interpreting a
Guideline, courts must first exhaust traditional tools of
construction. 17 F.4th at 471. This requires considering the
“text, structure, history, and purpose” of the Guideline. Id.
(quoting Kisor v. Wilkie, 588 U.S. 558, 575 (2019)). And “if
the Guideline itself is unambiguous, our inquiry is at an end.”
United States v. Mercado, 81 F.4th 352, 356 (3d Cir. 2023);
see, e.g., Nasir, 17 F.4th at 472 (holding, based on
unambiguous text, that Section 4B1.2(b) excluded “inchoate
crimes” from “the definition of ‘controlled substance
offenses’”).
This issue begins and ends at the text. Like any question
of statutory interpretation, we “presume that words carry their
ordinary meaning[,]” and we often look “to standard reference
works such as legal and general dictionaries” to determine
ordinary meaning. Caraballo, 88 F.4th at 246 (cleaned up).8
Such standard reference works include but are not limited to
Black’s Law Dictionary, Oxford English Dictionary, and
Webster’s Dictionary. See id. (collecting cases). We also are
mindful that “[t]here is no canon against using common sense
in construing laws as saying what they obviously mean.”
Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50, 63
(2004) (quoting Roschen v. Ward, 279 U.S. 337, 339 (1929)).
No application of these principles to the phrase “conduct was
intended to encourage” supports Lucidonio’s argument.
Lucidonio focuses on the terms “intended” and
“encourage.”9 “Intend” means “[t]o design, resolve, propose[;
8 Because Section 2T1.9 became effective in 1987 (with
amendments in 1989 and 1993), we look to contemporaneous
dictionary definitions. United States v. Mercado, 81 F.4th 352,
356 n.3 (3d Cir. 2023).
9 We note for completeness how the meaning of “conduct”
affects the enhancement. The noun “conduct” refers to, among
other things, “[p]ersonal behavior; deportment; mode of

-- 7 of 16 --

8
t]o plan for and expect a certain result.” Intend, Black’s Law
Dictionary (6th ed. 1990); see also Intend, Merriam-Webster’s
Ninth New Collegiate Dictionary (1988) (“to have in mind as
a purpose or goal”; “to direct the mind on”); Intend, Oxford
English Dictionary (2d ed. 1989) (“[t]o apply oneself to do
something; to endeavor, to strive”). And “encourage” means
to “instigate,” “incite to action,” “give courage to,” “inspirit,”
“embolden,” “raise confidence,” “make confident,” “help,”
“forward,” and “advise.” Encourage, Black’s Law Dictionary
(6th ed. 1990); see also Encourage, Merriam-Webster’s Ninth
New Collegiate Dictionary (1988) (“to inspire with courage,
spirit, or hope”; “to spur on”; “to give help or patronage to”);
Encourage, Oxford English Dictionary (2d ed. 1989) (“to
inspire with courage sufficient for any undertaking; to
embolden, make confident”).
None shows why intending to encourage is limited to
explicitly directing another to act a certain way. A person can
“instigate” or “incite” another to act, with the expectation of a
certain result, without explicit direction. The District Court
explained how that principle applies here: “creating and
administering a cash payroll system that withholds less than
federal law and requires and issues fraudulent W-2 forms to
employees” was conduct “‘intended to encourage’ those
employees to violate tax laws.” App. 16. This conclusion is
“self-evident” because “the scheme depends on it, as honest
treatment of tax obligations would rapidly expose the fraud.”
Id. So the enhancement’s unambiguous text does not include
any requirement that a defendant’s conduct explicitly direct
another to violate the IRS Code or otherwise impede the IRS’s
collection of revenue.10
action; any positive or negative act.” Conduct, Black’s Law
Dictionary (6th ed. 1990); see also Conduct, Merriam-
Webster’s Ninth New Collegiate Dictionary (1988) (“the act,
manner, or process of carrying on”); Conduct, Oxford English
Dictionary (2d ed. 1989) (“[a] piece of behaviour”; “a course
of conduct”; “[t]he action or manner of conducting, directing,
managing, or carrying on”). These definitions show how
“conduct”—that is, any positive or negative act—can comprise
more than explicitly directing another to act.
10 Section 2T1.9(b)(2)’s structure, purpose, and history
confirm this conclusion. First, the structure of the
enhancement—comprised of four types of conduct (impeding,

-- 8 of 16 --

9
Despite the plain language of the text, Lucidonio argues
that we should exercise interpretive restraint and construe the
enhancement in his favor. According to him, Dubin v. United
States, 599 U.S. 110 (2023), and Marinello v. United States,
584 U.S. 1 (2018), show that the Sentencing Commission
“cannot” have “intended a two-level enhancement to apply in
every run-of-the-mill tax fraud case simply because a
defendant’s conduct may have contributed in some way to
someone else’s violation.” Opening Br. 16.11 But this is no
run-of-the-mill tax fraud case involving a remote connection
with someone else’s violation. So we disagree that Dubin and
Marinello demand interpretive restraint here.
In Marinello, the Supreme Court held that 26 U.S.C. §
7212(a), which makes “it a felony ‘corruptly or by force’ to
‘endeavo[r] to obstruct or imped[e] the due administration’” of
the IRS Code, “does not cover routine administrative
procedures that are near-universally applied to all taxpayers,
such as the ordinary processing of income tax returns.” 584
impairing, obstructing, or defeating) aimed at four distinct
government acts (ascertainment, computation, assessment, or
collection)—captures a wide range of behavior. Second, the
purpose of the enhancement relates to how Klein conspiracies
are typically “complex” and “subvert the revenue system.”
U.S. Sent’g Guidelines Manual § 2T1.9 cmt. background (U.S.
Sent’g Comm’n 2023); see also Caraballo, 88 F.4th at 247 n.5
(“We can consider the background commentary from the
Guidelines without going through the Kisor process.” (citing
Adair, 38 F.4th at 347–48)). Third, the Sentencing
Commission expanded the enhancement in 1993 to include the
four other types of conduct and government harm discussed
above. Amendments to the Sentencing Guidelines for United
States Courts, 58 Fed. Reg. 27148, 27159 (May 6, 1993). All
three confirm our reading of the text; nothing about Section
2T1.9(b)(2) supports reading a hidden limitation into an
otherwise encompassing enhancement.
11 Lucidonio also mentions the rule of lenity, but for the
reasons above, the Guideline is not ambiguous, and thus the
rule of lenity has no application. Nasir, 17 F.4th at 474 (Bibas,
J., concurring) (“[W]e should use lenity to interpret ambiguous
Guidelines.”).

-- 9 of 16 --

10
U.S. at 4 (alterations in original) (quoting 26 U.S.C. § 7212(a)).
As relevant here, the Supreme Court noted that a broad
interpretation of the crime could apply it to a person who, for
example, “pays a babysitter $41 per week in cash without
withholding taxes.” Id. at 10. The Supreme Court “sincerely
doubt[ed]” that Congress “intended that outcome” and used
that example to support its more limited reading of the statute.
Id.
Dubin focused on similar interpretive concerns. There,
the Supreme Court interpreted the scope of 18 U.S.C. §
1028A(a)(1)—which prohibits aggravated identity theft—as
applied to a Medicaid-overbilling scheme. The Supreme Court
rejected the notion that Medicaid overbilling, on the facts in
Dubin, supported an aggravated identity theft conviction when
“the defendant’s misuse of another person’s means of
identification” was “merely an ancillary feature of the billing
method.” 599 U.S. at 114. In so holding, the Supreme Court
noted how the opposite view would cover anyone “who
fraudulently inflate[s] the price of a service or good” such as
“[a] lawyer who rounds up her hours from 2.9 to 3.” Id. Thus,
after analyzing the statute “from text to context, from content
to common sense,” the Supreme Court concluded that “§
1028A(a)(1) is not amenable to the Government’s attempt to
push the statutory envelope.” Id. at 131.
But nothing about the enhancement’s application to a
payroll tax fraud scheme like Lucidonio’s requires us to push
the envelope or “read[] incongruous breadth into opaque
language.” Id. at 130. Lucidonio pleaded guilty to Klein
conspiracy, and the applicable enhancement for Klein
conspiracy at issue rests on facts inapposite to those discussed
in Marinello and Dubin: Lucidonio was part of a conspiracy to
avoid the payment of taxes that spanned a decade, involved
dozens of employees, and remained hidden by Lucidonio
destroying accurate business records and recording false
information. So while there may be a case that calls for
exercising interpretive restraint in applying the Guidelines, this
is not that case; instead, it falls squarely within what a
reasonable person would consider “conduct . . . intended to
encourage” another to violate the IRS Code or otherwise
impede the IRS’s collection of revenue.

-- 10 of 16 --

11
With a proper understanding in mind of “conduct was
intended to encourage,” we summarily reject Lucidonio’s
argument that the District Court clearly erred by applying this
aspect of the enhancement. See United States v. Ashe, 130
F.4th 50, 54 (3d Cir. 2025) (explaining that clear error exists
“when although there is evidence to support [a factual finding],
the reviewing body . . . is left with the definite and firm
conviction that a mistake has been committed” (quoting United
States v. Montalvo-Flores, 81 F.4th 339, 342 (3d Cir. 2023)).
Here, the District Court explained Lucidonio’s administration
of the payroll tax fraud scheme and production of fraudulent
W-2 forms to employees was integral to the conspiracy; it
found that Lucidonio depended on the employees to follow his
lead because an honest treatment of tax reporting by the
employees would unveil the scheme; and it supported its
finding that Lucidonio expected his employees to abide by the
scheme based on how long it went undetected.
B. “Persons Other than or in Addition to Co-
Conspirators”
Next, we must determine whether Lucidonio’s conduct
was intended to encourage “persons other than or in addition
to co-conspirators” to violate the IRS Code or otherwise
impede the IRS’s collection of revenue. U.S. Sent’g
Guidelines Manual § 2T1.9(b)(2) (U.S. Sent’g Comm’n 2023).
A co-conspirator is “[o]ne who engages in an illegal
confederacy with others.” Co-Conspirator, Black’s Law
Dictionary (6th ed. 1990)). And the Guidelines confirm that
“co-conspirators” in the enhancement must refer to “co-
conspirators” to the charged Klein conspiracy.12 All agree that
12 See U.S. Sent’g Guidelines Manual app. A (U.S. Sent’g
Comm’n 2023) (identifying applicable Guidelines to
substantive offenses). Compare U.S. Sent’g Guidelines
Manual § 2A1.5 (U.S. Sent’g Comm’n 2023) (conspiracy or
solicitation to commit murder), and U.S. Sent’g Guidelines
Manual § 2C1.1 (U.S. Sent’g Comm’n 2023) (conspiracy to
defraud by interference with governmental functions), and
U.S. Sent’g Guidelines Manual § 2K2.1 (U.S. Sent’g Comm’n
2023) (conspiracy to violate 18 U.S.C. § 924(c)), and U.S.
Sent’g Guidelines Manual § 2T1.9(b)(2) (U.S. Sent’g Comm’n

-- 11 of 16 --

12
Lucidonio and Anthony, Sr. were co-conspirators in the
charged Klein conspiracy. And all agree that the charged Klein
conspiracy is that Lucidonio and Anthony Sr., “with others
known and unknown to the Grand Jury,” conspired to defraud
the IRS by “paying employees in cash ‘off the books’ to evade
payroll taxes.” Supp. App. 47, 51. The only question here is
whether the Government met its burden to prove by a
preponderance of the evidence that Tony Luke’s employees
were not “co-conspirators” in the Klein conspiracy described
by the indictment.
Klein conspiracy requires three elements: (1) “the
existence of an agreement,” United States v. Gambone, 314
F.3d 163, 176 (3d Cir. 2003) (citing United States v. Rankin,
870 F.2d 109, 113 (3d Cir. 1989)), “to impede the IRS” from
“assessing and collecting federal income taxes,” United States
v. Gricco, 277 F.3d 339, 348 (3d Cir. 2002) (citations omitted),
overruled on other grounds as stated in United States v.
Cesare, 581 F.3d 206, 208 n.3 (3d Cir. 2009); (2) “an overt act
by one of the conspirators in furtherance of the objective,”
Gambone, 314 F.3d at 176 (citing Rankin, 870 F.2d at 113);
and (3) “an intent on the part of the conspirators to agree as
well as to defraud the United States,” id. (citing Rankin, 870
F.2d at 113), which requires showing that the alleged
conspirators (a) “knew of the agreement” and (b) “intended
both to join it and to accomplish its illegal objects,” United
States v. McKee, 506 F.3d 225, 241 (3d Cir. 2007).
No one disputes “the existence of an agreement” or “an
overt act by one of the conspirators in furtherance of the
objective.” Gambone, 314 F.3d at 176. That is because
Lucidonio and Anthony Sr. both pleaded guilty to Klein
conspiracy arising from an agreement to defraud the IRS by
avoiding the payment of payroll taxes. And in so doing,
Lucidonio committed overt acts in furtherance of the
conspiracy by, for example, causing the false filing of tax
forms. E.g., McKee, 506 F.3d at 243 (“[T]he Partnership’s
2023) (conspiracy to impede, impair, obstruct, or defeat tax),
with U.S. Sent’g Guidelines Manual § 2X1.1 (U.S. Sent’g
Comm’n 2023) (attempt, solicitation, or conspiracy not
covered by a specific offense Guideline).

-- 12 of 16 --

13
failure to report income of its RIY member employees
established the overt act . . . .”).
Thus, the third element, “intent,” which we sometimes
call “participation,” is the crux of this issue. In McKee, we
explored this subject in the context of a multi-defendant Klein
conspiracy centered on personal tax and employment tax fraud.
506 F.3d at 228. There, we explained that “intent may be
inferred from conduct that furthered the purpose of the
conspiracy.” Id. at 241 (citing Direct Sales Co. v. United
States, 319 U.S. 703, 711 (1943)). With that principle in mind,
we held that defendants’ signature on paychecks and
“signature on the payroll records and tax returns” evinced the
requisite intent. Id. Another defendant’s intent “was less
direct” because he did not carry out the “relevant tasks” of the
conspiracy. Id. But we explained that while “a conspirator’s
stake in the venture is not an essential element of the crime of
conspiracy, the existence of such a stake is relevant to the
question of deliberate participation.” Id. at 242. The defendant
had “both a financial and a philosophical motive” to take part
in the Klein conspiracy because—as someone who opposed the
tax system—he could collect income while undermining the
government. Id. Combined with evidence that “the fraudulent
withholding was common knowledge amongst the . . .
employees,” which a reasonable jury could use to conclude that
a partner both knew and participated in the scheme, we held
that the evidence was sufficient to support a conviction for
Klein conspiracy. Id.
Here, the Government argues that Tony Luke’s
employees had nothing to do with “the charged conspiracy to
evade Tony Luke’s tax obligations.” Answering Br. 23. And
the Government describes any involvement by Tony Luke’s
employees as “acquiescence” not “participation.” Answering
Br. 24. But the facts emphasized by the Government to show
the applicability of the first part of the enhancement—that
Lucidonio encouraged his employees to violate the IRS Code
or otherwise impede the IRS’s collection of revenue—rebut
that conclusion.13
13 Blackletter tax law helps understand why the payroll tax
fraud scheme involving Lucidonio’s operation of Tony Luke’s
also involves employees. The indictment explains that Tony

-- 13 of 16 --

14
According to the Government, Lucidonio encouraged
“his employees to violate the law by explaining to employees
Luke’s filed a false Form 941. Employers use the Form 941 to
report, among other things, the wages paid to
employees. Based on the wages paid to employees, employers
must then calculate and pay their share of certain taxes borne
jointly by employers and employees under the Federal
Insurance Contributions Act (“FICA”). See generally 26
U.S.C. § 3101 et seq. FICA created “a tax on wages (up to an
annual limit) that comprises a 12.4% Social Security tax and a
2.9% Medicare tax.” Glass Blocks Unlimited v.
Commissioner, T.C. Memo. 2013-180, 2013 WL 4016519, at
*2 (T.C. Aug. 7, 2013). Unlike many taxes, FICA splits
payment between employer and employee; both employer and
employee each owe a 6.2% Social Security tax and 1.45%
Medicare tax. See 26 U.S.C. § 3101(a), (b) (specifying
employee’s share); 26 U.S.C. § 3111(a), (b) (specifying
employer’s share). Employers must “withhold from wages the
amount of the tax imposed on its employee, and the employer
is liable for paying the tax it is required to so withhold.” Glass
Blocks Unlimited, 2013 WL 4016519, at *2 (citing 26 U.S.C.
§ 3102(a), (b)). By understating the amount of wages paid to
employees, Tony Luke’s and the employees avoided the
payment of their respective shares of FICA taxes.
Also important is Lucidonio and Anthony Sr.’s relationship
with Tony Luke’s nonpayment of FICA taxes. Tony Luke’s is
a small business corporation under Subchapter S in the IRS
Code. Phillips v. Commissioner, T.C. Memo 2017-61, 2017
WL 1324203, at *3 (T.C. Apr. 10, 2017). Corporations elect
for tax treatment under Subchapter S because it allows “many
small business owners to enjoy the limited liability of the
corporate structure without, for the most part, being subject to
taxation at the corporate level.” Pugh v. Commissioner, 213
F.3d 1324, 1326 (11th Cir. 2000). That is because an S
Corporation’s income flows through to its shareholders, see 26
U.S.C. § 1366(a)(1) (explaining that an S Corporation’s
income is assigned by “pro rata share” to the corporation’s
shareholders). So Lucidonio and Anthony Sr. had personal
interests in Tony Luke’s payroll tax fraud conspiracy because
when Tony Luke’s saved money, Lucidonio and Anthony Sr.
did too.

-- 14 of 16 --

15
how the cash payroll scheme would help them evade taxes.”
Answering Br. 9; see also Answering Br. 27 (“[Lucidonio]
made it abundantly clear to employees that Tony Luke’s was
maintaining a second, fraudulent set of records for the purpose
of underreporting wages to the IRS.”). This repeated behavior
“emboldened employees to underreport their wage income
consistent with the business’s fraudulent accounting.”
Answering Br. 27. For example, one employee made an
“arrangement” with Lucidonio to cap “on-the-books” hours at
25 per week, as “any hours exceeding 25 would affect [the
employee’s] state-assisted medical coverage.” Answering Br.
26. And as the Government describes, this was not a one-way
street comprised of Lucidonio and Anthony Sr. singlehandedly
engaging in the criminal-tax conspiracy; “the continued
success of [Lucidonio’s] payroll fraud depended on employees
underreporting their income because ‘honest treatment of tax
obligations by employees would rapidly expose the fraud.’”
Answering Br. 28 (quoting the District Court). Put another
way, again by the Government, Lucidonio “intended both to
evade his business’s payroll taxes and to encourage employees
to evade their own taxes, as each of those frauds facilitated the
other.” Answering Br. 28.
The Government paints a picture of this case that is
incompatible with holding that it proved by a preponderance of
the evidence that the employees did not know of Lucidonio and
Anthony Sr.’s Klein conspiracy and did not intend both to join
it and accomplish its illegal objects. The employees (1) learned
about the conspiracy during onboarding—in fact, it was
common knowledge; (2) knew that the conspiracy would help
them evade taxes; (3) understood that Lucidonio kept false sets
of records; (4) signed back paychecks to Tony Luke’s for on-
the-books income in exchange for off-the-books cash; (5) filed
false personal tax returns; (6) asked for certain off-the-books
arrangements to remain qualified for state benefits; (7) helped
facilitate the conspiracy by not honestly reporting their tax
obligations to the IRS; and (8) like Lucidonio, evaded both
income tax and employment tax as a result of the scheme. See
McKee, 506 F.3d at 241–42.
The District Court mentioned this part of the
enhancement only once, “reject[ing] the argument that [the
employees’] ‘acquiescence’ render[ed] § 2T1.9(b)(2)

-- 15 of 16 --

16
inapplicable[.]” App. 17. But even were this a factual finding
that employees at Tony Luke’s did not participate in the
charged Klein conspiracy and we reviewed that determination
for clear error, we would still vacate and remand. The
Government’s own assertions prove why it “failed to introduce
any evidence” that Tony Luke’s employees were not co-
conspirators to the charged Klein conspiracy. United States v.
Belletiere, 971 F.2d 961, 966 (3d Cir. 1992). And the District
Court did not make any specific findings to support its
conclusion that employees merely acquiesced. “[M]ore is
required, even under the preponderance-of-the-evidence
standard,” for this enhancement to apply. Ashe, 130 F.4th at
56.
Thus, based on the Government’s representations, we
hold that it failed to show by a preponderance of the evidence
that Lucidonio intended to encourage persons “other than or in
addition to co-conspirators” to violate the IRS Code or
otherwise impede the IRS’s collection of revenue. U.S. Sent’g
Guidelines Manual § 2T1.9(b)(2) (U.S. Sent’g Comm’n 2023).
We will therefore vacate the judgment and remand for
resentencing without the enhancement applied. United States
v. Raia, 993 F.3d 185, 195 (3d Cir. 2021).
IV. CONCLUSION
For the reasons discussed above, we will vacate the
sentence and remand this case to the District Court for
resentencing without any enhancement under Section
2T1.9(b)(2).

-- 16 of 16 --