Wednesday, July 11, 2007

Tax Help: Good Faith Defense For Fraud
United States v. Ward Franklin Dean, U.S. Court of Appeals, 11th Circuit; 06-13946, May 25, 2007.

Code Sec. 7212

In 1996, Ward Dean, a medical doctor, published author, and retired naval flight surgeon, became a tax protester.

B. The Jury Instruction Regarding the Defendant's "Good Faith" Defense

As a general rule, ignorance of the law or a mistake of law is no defense to criminal prosecution in the United States. Cheek v. United States, 498 U.S. 192, 199 (1991). However, the Supreme Court has noted that there is a "good faith" exception under the federal criminal tax statutes. Id. at 199-202. According to this exception, if someone simply fails to understand that he has a duty to pay income taxes under the Internal Revenue Code, he cannot be guilty of "willfully" evading those taxes. Id. at 201-02. The term "willfulness" presupposes the existence of a legal duty and knowledge of that duty. Id. at 201. If, however, someone recognizes that he has a duty to pay taxes, but simply refuses to pay or to declare his income because he believes that the Code is unconstitutional, he is not acting in "good faith." Id. at 204-07.

A person who is charged with tax evasion is entitled to have the jury hear an instruction on this "good faith" defense. Id. at 202. And, the district court provided one that was used in a Seventh Circuit case, United States v. Hilgeford, 7 F.3d 1340, 1343 n.1 (7th Cir. 1993). Dean argues that the instruction misled the jury because it implied that they could reject his good faith defense if they found it to be objectively unreasonable. Dean contends that the Supreme Court rejected this sort of instruction in Cheek.

We find that the district court's instruction conforms quite well to the Supreme Court's holding in Cheek. The district court instructed Dean's jury that:

A defendant does not act willfully if he believes in good faith that he is acting within the law or that his actions comply with the law. This is so even if the defendant's belief was not objectively reasonable as long as he held the belief in food faith. Nevertheless, you may consider whether the defendant's belief about the tax statutes was actually reasonable as a factor in deciding whether he held that belief in good faith.

The court did not insert a caveat that a defendant's belief must be objectively reasonable to be in good faith. It simply reiterated a point that the Supreme Court made in Cheek:

In this case, if Cheek asserted that he truly believed that the Internal Revenue Code did not purport to treat wages as income, and the jury believed him, the Government would not have carried its burden to prove willfulness, however unreasonable a court might deem such a belief. ...

Of course, the more unreasonable the asserted beliefs or misunderstandings are, the more likely the jury will consider them to be nothing more than simple disagreement with known legal duties imposed by the tax laws and will find that the Government has carried its burden of proving knowledge.

Id. at 202-04. Accordingly, we find that the district court's good faith instruction accurately stated the law on this issue. If we are satisfied that the district court's instruction has not misstated the law or misled the jury, we give the district court "wide discretion as to the style and wording employed in the instructions." United States v. Bender, 290 F.3d 1279, 1284 (11th Cir. 2002). The district court did not abuse that discretion in this case.

Dean also argues that the district court erred in adding a willful blindness instruction at the end of its good faith instruction. There is no merit to this argument. A willfull blindness instruction is entirely appropriate where the evidence supports a finding that a defendant intentionally insulated himself from knowledge of his tax obligations. The record showed that Dean, much like the defendant in Cheek, had paid his taxes faithfully for a number of years before he became convinced that income taxes were unconstitutional. The record also showed that he, like the defendant in Cheek, had previously challenged the validity of the income tax requirement in court, and knew, as a result of the court's ruling that his arguments were frivolous. Yet, Dean failed to file a 2002 return although a court ruled against him on October 24, 2002 when he challenged a penalty that the IRS imposed on him for filing a frivolous return in 1997.

As the Supreme Court indicated in Cheek, albeit, not in so many words, the law would not countenance such blindness:

We do not believe that Congress contemplated that such a taxpayer, without risking criminal prosecution, could ignore the duties imposed upon him by the Internal Revenue Code and refuse to utilize the mechanisms provided by Congress to present his claims of invalidity to the courts and to abide by their decisions. There is no doubt that Cheek, from year to year, was free to pay the tax that the law purported to require, file for a refund and, if denied, present his claims of invalidity, constitutional or otherwise, to the courts. See 26 U. S. C. § 7422. Also, without paying the tax, he could have challenged claims of tax deficiencies in the Tax Court, § 6213, with the right to appeal to a higher court if unsuccessful. § 7482(a)(1). Cheek took neither course in some years, and when he did was unwilling to accept the outcome.

Cheek, 498 U.S. at 206. Thus, we conclude the district court did not err in adding a willfull blindness instruction.

C. The Jury Instruction on Income Tax Evasion and Attempted Obstruction

The district court used the Eleventh Circuit's Pattern Jury Instruction on income tax evasion, Criminal Offense Instruction 93.1, and attempting to interfere with the administration of internal revenue laws, Criminal Offense Instruction 97. Dean stated at trial that he did not object to the use of either of these instructions, so we review the court's decision to employ them under a plain error standard. See Puche, 350 F.3d at 1148.

Granted, district courts do not have to use our pattern jury instructions for they "are not precedent and cannot solely foreclose the construction of the necessary elements of a crime as stated in the statute." United States v. Ettinger, 344 F.3d 1149, 1158 (11th Cir. 2003). Nevertheless, our pattern jury instructions clearly state the elements of proof required for conviction under both 26 U.S.C. § 7201, See Sansone v. United States, 380 U.S. 343, 350-51 (1965); United States v. Stone, 702 F.2d 1333, 1338-39 (11th Cir. 1983), and under 26 U.S.C. 7212(a). See United States v. Popkin, 943 F.2d 1535, 1539-40 (11th Cir. 1991). Accordingly, the district court did not err, much less commit plain error, in using our pattern jury instruction on these offenses.

In a related vein, Dean also argues that the district court erred when it instructed the jury on the charges under count VII of the indictment, which deals with attempted interference in internal revenue actions. Dean contends that the district court should not have summarized the individual obstruction charges. This argument has no merit. Dean sent essentially the same letter to each of the entities that received summonses from IRS; namely, Dean's employer, the DFAS, and his banks. The individual letters stated the same falsehood --that the entities did not have to comply with the summons to produce Dean's financial records for an IRS investigation. Thus, the court could summarize the offensive conduct quite properly as "informing entities that they were under no obligation to comply with lawful summons documents from the IRS."

This Court will not reverse a conviction on the basis of a jury charge unless we find, after examining the entire charge, that "the issues of law were presented inaccurately, the charge included crimes not contained in the indictment, or the charge improperly guided the jury in such a substantial way as to violate due process." United States v. Arias, 984 F.2d 1139, 1143 (11th Cir. 1993) (citing United States v. Turner, 871 F.2d 1574, 1578 (11th Cir.), cert. denied, 493 U.S. 997 (1989)).We find no evidence that any of these errors occurred here.

D. Denial of Defendant's Proffered Jury Instructions, Numbers 41 and 42

Dean proffered jury instructions on the requirements of 26 U.S.C. §§ 6001 and 6011. These statutes mandate that anyone who is liable for income tax must keep records, submit returns and comply with the rules prescribed by the Secretary of the Treasury. Dean argues that these statutes could be read to apply only to persons who are "liable" for tax, rather than all persons, and suggests that this reading bolsters his "good faith" belief defense. Accordingly, he argues, the district court abused its discretion when it refused to read these additional instructions to the jury.

We do not agree. The Government charged Dean with two offenses --income tax evasion and attempted interference in the administration of internal revenue laws. The district court instructed the jury on these two offenses and on "good faith," which provides a defense to the charge of income tax evasion. See Cheek, 498 U.S. at 202-07. Dean has not shown how the court's failure to include these additional instructions impaired his ability to mount a defense. See United States v. Martinelli, 454 F.3d 1300, 1318 (11th Cir. 2006). Dean was free to, and did, introduce documents into evidence at trial that quoted from sections 6601 and 6011 of the Internal Revenue Code. He had every opportunity to explain his reading of those sections when he testified. Thus, the court did not abuse its discretion in refusing to instruct the jury on these other, not clearly relevant, sections of the Code.

E. The Sufficiency of the Evidence on the Attempted Obstruction Charge

The Government presented ample evidence that Dean attempted to interfere with the administration of the summonses issued by IRS Agent Wayne Jackson on January 10, 2004. The statute that criminalizes such interference specifically proscribes the use of corrupt or forceful methods of intimidation. 26 U.S.C. § 7212(a). Our Pattern Jury Instruction on this offense advises that a defendant acts "corruptly" if he acts "knowingly and dishonestly with the specific intent to secure an unlawful benefit either for himself or another." Eleventh Circuit Pattern Jury Instructions, Criminal P 97 (2003).

Evidence presented at trial showed that Dean sent strongly-worded letters to his employer, the DFAS, and his banks, after he learned they had received IRS summonses to produce copies of his financial records. The letters stated in no uncertain terms that these summonses were not court orders and they had no obligation to comply with them. The letters further stated that the summonses were "phony" and "fraudulent," and that the IRS Agent had no legal authority to issue summonses. The letters closed by threatening legal action against anyone who complied with them.

Although Dean may have wanted to challenge the constitutionality of the statutes that gave IRS agents the authority to issue summons, he knew that the summonses were not phony. The IRS sent him copies of each of the summonses it issued, and he knew from his prior court challenge that IRS had clear legal authority to investigate his earnings. Nevertheless, he alleged that the summonses were phony and fraudulent in an attempt to dissuade his employer, the DFAS, and his banks from complying with the IRS and disclosing his earnings. Accordingly, we find that a rational trier of fact could have concluded that Dean was guilty beyond reasonable doubt of violating 26 U.S.C. § 7212(a) because he acted corruptly when he made these false allegations.

F. Defendant's Challenge to His Sentencing

Dean argues that the district court erred when it based his sentence upon facts that were not conceded at trial nor proved to a jury beyond a reasonable doubt, citing Apprendi v. New Jersey, 530 U.S. 466, 490 (2000). This is not the first time that he raised this objection; he asserted it at his sentencing hearing as well. Dean's Pre-Sentencing Investigation Report ("PSI") calculated his base offense level at 18 because the tax loss to the Government was $290,997.44. Dean argues that the Government did not charge the amount of tax loss in its indictment, nor prove it to the jury beyond reasonable doubt, and that he certainly did not concede this amount of loss at trial. Therefore, Dean contends it was error for the court to use this figure in calculating his Guidelines range, and that his base level should have been calculated at 6 since the amount of loss was indeterminable.

Moreover, the court compounded this error, Dean argues, when it sentenced him in keeping with the so-called remedial portion or second majority opinion in United States v. Booker, 543 U.S. 220, 259-260 (2005). Booker held that the section of the Sentencing Reform Act which made the Guidelines mandatory was unconstitutional. Id. Rather than invalidate the entire Act, the Court excised that section, making the Guidelines effectively advisory. 3 Id. Under the mandatory sentencing scheme that prevailed at the time Dean committed his offenses, 1997- 2003, Dean's maximum sentence would have been capped by the upper end of the Guidelines range.

After Booker, however, district courts were free to increase sentences beyond the Guidelines range. 4 This is what the district court did in Dean's case. He argues that the court violated the due process and ex post facto clauses of the Fifth Amendment because the offenses for which he was being sentenced occurred before Booker.

We have repeatedly rejected the argument that the application of the remedial portion of Booker to conduct that occurred prior to Booker violates ex post facto principles or due process. United States v. Thomas, 446 F.3d 1348, 1353-55 (11th Cir. 2006); United States v. Duncan, 400 F.3d 1297, 1306-08 (11th Cir.), cert. denied, 126 S. Ct. 432 (2005); United States v. Hunt, 459 F.3d 1180, 1181 n.1 (11th Cir. 2006).

We have also held that a district court may make additional factual findings under a preponderance of the evidence standard, that go beyond the facts found by the jury, so long as the court recognizes the Guidelines are advisory. United States v. Pope, 461 F.3d 1331, 1335 (11th Cir. 2006). And, we have held that a district court may enhance a sentence based upon judicial fact-finding provided that its findings do not increase the sentence beyond the statutory maximum authorized by facts determined in a guilty plea or jury verdict. Hunt, 459 F.3d at 1182. We have also stated that the maximum sentence is the sentence prescribed under United States Code. See Duncan, 400 F.3d at 1308 (citing United States v. Sanchez, 269 F.3d 1250, 1268 (11th Cir. 2001)).

The district court applied the Guidelines as advisory. It sentenced Dean to a total of 84 months: three concurrent jail terms of 60 months on Counts I - III and three concurrent jail terms of 24 months on Counts IV - VII. The sentences for Counts I -III and Counts IV - VII were to run consecutively. Under the United States Code, the statutory maximum for tax evasion (Counts I - VI) is 60 months and the maximum for attempting to interfere with the administration of internal revenue laws (Count VII) is 36 months. See 26 U.S.C. § 7201 and 26 U.S.C. § 7212(a). The district court did not increase Dean's sentence beyond this statutory maximum. Additionally, we find that the amount of tax loss stated in Dean's PSI conforms to the evidence on record from the IRS. Accordingly, the district court's factual finding on the amount of loss was not clearly erroneous.


The district court properly denied Dean's motion to stay proceedings because of a substantial failure to comply with the Jury Selection and Service Act. Dean's motion was untimely and it did not contain a sworn affidavit stating facts in support of his allegation. Thus, we find that his motion is barred on procedural grounds.

We also find that there was sufficient evidence to convict Dean of attempting to interfere with the administration of internal revenue laws under 26 U.S.C. § 7212(a). The record showed that Dean wrote his employer, the DFAS, and various financial institutions to notify them that the IRS had issued "phony" and "fraudulent" summonses for information from his financial records, and to advise them that he would take legal action if they released his records to the IRS. The statute criminalizes corrupt or forceful attempts to impede the administration of internal revenue laws, including the use of "threatening letters."

We also find that the district court's jury instructions were proper. The district court did not err when it used our pattern jury instructions to inform the jury on what the charges of tax evasion and attempting to interfere with the administration of internal revenue laws entailed. Nor did it err when it instructed the jury on the "good faith" belief defense that applies to charges of income tax evasion. The district court's instruction on "good faith" conformed to the standards that the Supreme Court recognized for this defense in Cheek.

We also find that the district court did not abuse its discretion when it refused to give the jury the additional instructions proffered by Dean. The proffered instructions concerned sections of the Internal Revenue Code that were not specifically relevant to the sections cited in the Government's charges against Dean. And, Dean did not show that the failure to give these additional instructions impacted his ability to assert a good faith defense.

Finally, we find that the district court's determination on the amount of tax loss was supported by the record and not clearly erroneous. Thus, the district court properly relied upon this finding in calculating the Guidelines range for Dean's sentence. The district court treated the Guidelines as advisory and chose to increase Dean's sentence beyond the advisory Guidelines range. This decision did not violate Booker, nor did it offend due process or subject him to ex post facto punishment.


* Honorable Richard D. Cudahy, United States Circuit Judge for the Seventh Circuit, sitting by designation.

1 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), this Court adopted as binding precedent all of the decisions that the former Fifth Circuit issued prior to October 1, 1981.

2 The district court denied Dean's motion to stay proceedings for both of the procedural reasons cited above, but it also denied Dean's motion on the merits. See Transcript of Motions Hearing, December 5, 2005, at 14. The motion identified three potentially troublesome concerns with respect to jury qualification questionnaires: (1) some prospective jurors did not state where they were born, while others clearly stated they were born outside the country; (2) some prospective jurors did not state how long they had resided within the northern district of Florida, and lastly, (3) none of the questionnaires asked prospective jurors whether they had English language skills.

The fact that a juror indicated he or she was foreign born did not prove that the juror lacked U.S. citizenship, the court noted. Moreover, the defendant's counsel acknowledged at the motion hearing that he had not studied the District Jury Plan to know whether the court did any follow-up questioning when jurors reported for grand jury selection. Indeed, the court always asked these questions before it seated jurors reporting for grand jury duty, the court noted. Accordingly, the court concluded, the defendant had failed to meet his burden as a moving party and demonstrate that there was a "substantial failure to comply" with the Jury Selection and Service Act. Additionally, we note that Dean failed to ask any questions on these issues during voir dire, even though his counsel conceded during motion hearing that he could probably resolve the doubts about juror citizenship, residency or English language proficiency during voir dire.

3 The Supreme Court actually excised two sections: 18 U.S.C. § 3553(b)(1), which mandated that courts impose sentences within the Guidelines range, and a related section, 18 U.S.C. § 3742(e), which addressed the standards of review that would govern appeals. United States v. Booker, 543 U.S. 220 (2005).

4 A district court must consult the Guidelines range and consider 18 U.S.C. § 3553 sentencing factors, but once it has done so, it "may impose a more sever or lenient sentence as long as it is reasonable." United States v. Pope, 461 F.3d 1331, 1335 (11th Cir. 2006). Dean is not challenging the ultimate reasonableness of his sentence, however.

Alvin S. Brown
Tax Attorney
703 425-1400

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