US v. Allen
Filing
OPINION issued by Michael Boudin, Appellate Judge; Bruce M. Selya, Appellate Judge and Jeffrey R. Howard, Appellate Judge. Published. [10-2160, 10-2161]
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Date Filed: 01/06/2012
Entry ID: 5608310
United States Court of Appeals
For the First Circuit
Nos. 10-2160, 10-2161
UNITED STATES OF AMERICA,
Appellee,
v.
FREDERICK ALLEN and KIMBERLEE ALLEN,
Defendants, Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Boudin, Selya and Howard,
Circuit Judges.
Lowell H. Becraft, Jr. for appellants.
Joseph B. Syverson, Tax Division, Department of Justice, with
whom Carmen M. Ortiz, United States Attorney, Frank P. Cihlar,
Chief, Criminal Appeals & Tax Enforcement Policy Section, and
Gregory Victor Davis, Tax Division, Department of Justice, were on
brief for appellee.
January 6, 2012
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BOUDIN, Circuit Judge.
Date Filed: 01/06/2012
Entry ID: 5608310
Frederick and Kimberlee Allen--
husband and wife--appeal from their convictions for tax-related
offenses.
For some years the Allens filed annual federal income
tax returns reporting their income.
However, for tax years 1997
through 1999, despite reportable income, the Allens filed returns
reporting zero income.
On the advice of their dentist, and their
own research, they concluded that no provision of the Internal
Revenue Code imposed "liability" on them for taxes, and attached
this explanation to their returns.
Beginning in 1998, the Allens succeeded in stopping their
mutual employer from withholding income taxes from their wages by
claiming exemptions from withholding.
Later, in 2000, the Allens
convinced their employer to issue them paychecks directly instead
of through a payroll company, and to treat them as "independent
contractors" not subject to withholding of social security and
medicare taxes.
In 2001, Frederick Allen managed to secure the
return of earlier-paid employment taxes withheld from the Allens'
wages before their claim of "independent contractor" designation.
Between 2000 and 2008, despite reportable income asserted
by the government to exceed $100,000 in each of the years, the
Allens filed no tax returns at all.
During the same period, they
took a variety of steps that made it more difficult for the
government to track and levy their assets, such as requesting that
their paychecks be made payable to "cash" or payable directly to
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the Allens' creditors, closing all of their bank accounts, and
transferring ownership of their home to a trust.
The Allens paid
all of their bills using cash and money orders, and cashed any
checks through a stratagem with a bank teller friend.
Between 1999 and 2007, the Internal Revenue Service
("IRS") repeatedly informed the Allens that their "no liability"
position was frivolous, and in 2007, the IRS specifically warned of
criminal sanctions.
In 2009, the government charged the Allens
each with one count of conspiracy to defraud the United States, 18
U.S.C. § 371 (2006); one count of attempted evasion of payment of
tax (for tax year 1999), 26 U.S.C. § 7201; and four counts of
willful
failure
to
file
income
tax
returns
(for
tax
years
2003-2006), id. § 7203.
The Allens were tried together by a jury in April 2010.
The government offered evidence as to the taxes owed in the years
at issue and evidence as to the warnings given to the Allens, the
zero returns filed in several years and the absence of returns in
the others, and various steps summarized above taken by the Allens
to frustrate tax collection.
A detailed recitation is unnecessary
because the Allens do not claim that the evidence taken as a whole
was insufficient to support the verdicts.
The Allens' main defense at trial, where both testified,
was that they had a good faith belief that--as they understood the
tax laws--they owed no taxes.
Cheek v. United States, 498 U.S. 192
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(1991).1
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Frederick Allen testified that his research, prompted by
discussion with his dentist, persuaded him that taxpayers like him
and his wife were not specifically identified in the Internal
Revenue Code as liable for taxes.
His searches included accessing
various websites purporting to analyze the tax laws, including that
of an organization called the We The People Foundation, which he
later joined.
Frederick Allen testified that some of the literature he
relied on was prepared by a man named Larken Rose, with whom Allen
ultimately worked on a "letter writing campaign . . . trying to get
answers from various people in the government."
The prosecutor's
opening question in cross-examining Allen was: "Are you telling
this jury that you firmly hold these beliefs even after your good
friend Larken Rose went to jail for 15 fifteen [sic] months for not
filing tax returns for these same and similar beliefs?"--to which
Allen responded, "Absolutely."
Robert Schulz, who headed the We The People Foundation
that the Allens joined and from which Frederick Allen received
information, appeared as a defense witness.
Schulz testified that
his foundation did espouse the no-liability positions on which the
1
Cheek concluded that a defendant lacks the willfulness
necessary for tax evasion if he honestly believes, based on a
misreading of the tax laws, that he owes no taxes--the claim made
by both defendants in this case.
Id. at 201-02.
Cheek
distinguished, and did not allow as a defense, a belief that the
tax laws are unfair or are unconstitutional. Id. at 202 n.8, 20407.
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Allens relied and that he believed those views to be correct.
On
cross-examination by the prosecutor, Schulz conceded that he had
testified on behalf of another defendant charged with tax crimes,
Richard Simkanin, who was ultimately convicted.
The jury convicted the Allens on all counts in April
2010, and the court sentenced each defendant to identical terms of
36 months' imprisonment. On appeal, the Allens argue only that the
district court erred in refusing to give four requested jury
instructions (all reprinted along with other disputed charges in an
addendum to this decision).
exceeded
the
proper
bounds
They also suggest that the prosecutor
of
cross-examination,
although
no
objection was lodged at trial nor is one seriously developed on
appeal.
Review as to instructions is ordinarily de novo as to
questions of substantive law, while issues of phrasing and emphasis
are reviewed for abuse of discretion. United States v. Teemer, 394
F.3d 59, 63 n.2 (1st Cir.), cert. denied, 544 U.S. 1009 (2005).
Refusal to give a particular instruction requires reversal only
where the requested instruction was both substantively correct and
not substantially covered elsewhere in the charge--and even then
only when the error was not harmless.
United States v. Gonzalez,
570 F.3d 16, 21 (1st Cir. 2009).
The first failure to instruct claim is that the district
court erred in rejecting a tendered instruction concerning "guilt
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by association."
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Although the instructions given said that guilt
must be based on the Allens' own intentions and actions, what the
Allens requested was considerably more pointed: their proposed
charge
warned
against
"guilt
by
association"
and
against
attributing guilt merely because the defendant was "associated with
or friendly with anyone you may find to have acted in violation of
the law."
The Allens justify this charge as a response to the
cross-examination already described.
Although the Allens also
suggest in their summary of argument that the questions were
impermissible, they neither objected to them at trial nor seriously
develop this contention on appeal.
Nevertheless, it is helpful to
make clear that the case law, selectively cited by the Allens, does
not automatically restrict references to convictions of third
parties: it all depends on the relevance of the references and the
risk of any threatened unfair prejudice.
Here, the questions were relevant.
When a defendant
urges good faith in failing to pay taxes, what he understood to be
his obligations matters.
It was at least relevant to Frederick
Allen's good faith not only that Allen had been repeatedly warned
by the IRS but also that he knew that the views advocated by Larken
Rose, similar to Allen's own, had lead to Rose's own conviction for
not filing tax returns.
He might nevertheless honestly entertain
contrary views but that he had information contradicting his
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professed beliefs was still worth considering. See Cheek, 498 U.S.
at 202.
As to Schulz, the cross-examination brought out that he
had similarly testified as to tax obligations on behalf of another
defendant charged with tax crimes who was ultimately convicted;
indirectly,
objected)
Schulz'
could
reasonableness
be
of
testimony
(to
regarded
as
the
Allens'
which
the
supporting
beliefs.
So,
government
by
the
example
jury
had
the
might
consider, as impairing Schulz' own credibility as a professed
believer, knowledge that his position had already been rejected by
a federal court.
It is, as with Allen, fairly modest impeachment
but still relevant.
The Allens could have objected that the cross-examination
--both of Frederick Allen and of Schulz--was substantially more
prejudicial than helpful, Fed. R. Evid. 403; but, that judgment is
primarily for the trial judge, and there was certainly no plain
error.
Showing that a tax protester does not believe what he says
is a tricky task that requires that some latitude be allowed to the
government.
As for the requested cautionary instruction, there is
often some risk of prejudice in averting to convictions of others
for the crime in question.2
The threat of guilt by association is
2
One risk is the general concern that the jury will rely on
"birds of a feather are flocked together" reasoning to conclude
that the defendant is more likely to have committed a criminal act
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perhaps greatest where the defendant has done little but is closely
associated with others already known to have been convicted or,
more often, who are co-defendants or alleged co-conspirators whose
patent wrongdoing is brought out in detail in the trial.
Here, the Allens' own conduct and the basis for their
beliefs were the centerpiece of the trial, and the reference to the
convictions of Rose and Simkanin was brief and undeveloped. Little
risk existed that the latter would overwhelm, confuse or seriously
taint the jury's understanding of the former.
The instruction
could reasonably have been given but, in matters like this not
everything permissible is therefore compulsory: given the minimal
risk of such prejudice in this case, refusing the instruction was
not an abuse of discretion.
The other three instructions in dispute present less of
a legal issue because, in our view, two were given in substance and
the last requested instruction was a slanted statement of the law.
The first of the two, labeled "conspiratorial intent," sought to
make clear that the prosecution must prove two intents on the
conspiracy
charge:
an
intent to
agree
to
participate
in
the
if he is associated with other criminals. E.g., United States v.
Rivera-Santiago, 872 F.2d 1073, 1083-84 (1st Cir.), cert. denied,
492 U.S. 910, and cert. denied, 493 U.S. 832 (1989).
The
other--probably more relevant here--is that the jury could treat a
conviction of another for similar conduct as a guide to what it
should do in the case at hand.
E.g., United States v.
Ofray-Campos, 534 F.3d 1, 22-23 (1st Cir.), cert. denied, 129 S.
Ct. 588 (2008), and cert. denied, 129 S. Ct. 999 (2009).
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conspiracy and an intent to commit the underlying substantive
offense--here defrauding the United States.
While accurate, e.g., United States v. Frankhauser, 80
F.3d 641, 653 (1st Cir. 1996), that statement of law was adequately
conveyed
to
the
jury
by
the
court's
instruction
that
the
prosecution was required to prove "that the defendant whose case
you are considering willfully joined in th[e] agreement" and that
"[t]o
act
'willfully'
.
.
.
means
to
act
voluntarily
and
intelligently and with the specific intent that the underlying
crime be committed."
In turn the instructions clearly defined the underlying
crime as "defraud[ing] the United States, or one of its agencies or
departments, by dishonest means," and went on to define the term
"defraud" in conventional phrasing that is not here contested.
While the jury had to connect the two instructions, the central
scienter issue--whether the Allens acted in good faith or instead
knew they were acting contrary to law--was the heart of the
evidence, the arguments and the instructions.
Indeed, the trial court instructed the jury:
Now, let me talk about the subject of
good faith. . . . The defendant does not act
willfully if he or she believes in good faith
that he or she is acting within the law, or
that his or her actions comply with the law.
A good faith belief is one which is honestly
and genuinely held.
Therefore, if the
defendant you are considering subjectively
believed that what he or she was doing was in
compliance with the tax statutes, he or she
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cannot be said to have had the criminal intent
required to engage in tax evasion or to fail
to file federal income returns. . . .
In proving willfulness, it is the
government's
burden
to
prove
beyond
a
reasonable doubt that the defendant did not
act with a good faith belief as to what the
law required of him.
If you find the
defendant believed in good faith he or she was
acting in compliance with the law as to any
count, you must find him or her not guilty as
to that count.
This
instruction
also
demonstrates
the
flaw
in
the
Allens' third claim, namely, that the judge refused their request
to provide their "theory of defense" instruction. That instruction
was a lengthy and repetitive five-paragraph charge that essentially
stated separately, for each non-conspiracy count, that the jury
must acquit if it had a reasonable doubt about the defendant's
guilt given the defendant's profession of a good faith belief that
his or her income was not taxable.
The Allens say that they were disadvantaged because the
district court did not use the phrase "theory of defense" in
presenting the substantively correct good faith charge to the jury.
It is quite true that in some situations a court ought to focus the
jury's attention on just what the defendant disputes--whether it is
an affirmative defense or merely a specification of just what
element of the government's case is controverted and in a nutshell
just what the defendant's version of the matter might be. But this
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is mandatory only where there is some risk that the theory of the
defense might otherwise seem obscure.
In this case, the Allens did not deny that they had
failed to report income or failed to file taxes at all, nor was
there any real dispute about what they had been told by the IRS or
about the steps they had taken to escape withholding or conceal
their own transactions.
The only serious dispute was about their
assertion of good faith and professed belief that no taxes were due
on their income and therefore it was not reportable.
That this was
their "theory of defense" hardly needed any reinforcement by the
judge, let alone a separate restatement addressed to each of the
counts dealing with different years.
Finally, the Allens attack the district court's refusal
to
give
their
requested
charge
stating:
"In
defendant is not presumed to know the law.
this
case,
the
For any law the
government asserts the defendant knew, the government must prove
beyond a reasonable doubt that the defendant knew it."
The first
sentence is more or less right but was covered in substance and
more cogently by the district judge's charge; the second sentence
is misleading and was properly refused.
Many are familiar with the saying that "a defendant is
presumed to know the law," which is rarely intended as a factual
presumption.
Rather, it is ordinarily used as a shorthand for the
"general rule that ignorance of the law or a mistake of law is no
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defense to criminal prosecution[, a proposition that] is deeply
rooted in the American legal system."
Cheek, 498 U.S. at 199.
This is fair enough for conduct that is widely understood to be
wrong, whether or not illegal, as is true of most familiar criminal
violations.
However, for crimes that depend on legal rules that are
by no means widely understood, Congress has in a number of cases
imposed
a
requirement,
usually
phrased
as
a
requirement
of
"willfulness," that requires as an element of the offense knowledge
by the defendant that the conduct is illegal or at least wrongful.
In this case, for slightly different reasons, all three of the
offenses charged required knowledge on the part of the defendants
that they did indeed owe taxes that they were required to declare
and to pay.3
But this was fully explained to the jury in the two good
faith paragraphs quoted above.
This explanation was stated in the
affirmative and, in using the good faith and belief language, was
far more useful than entering into a discussion about presumptions.
Apart from the familiar "presumed innocent" phrase--usually matched
with an explanation that the government carries the burden of
3
The conspiracy to defraud count requires wrongful intent,
Frankhauser, 80 F.3d at 653, as was explained to the jury by the
instructions in this case; the tax evasion counts and the failure
to file counts name crimes that explicitly require willfulness. 26
U.S.C. §§ 7201, 7203.
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proof--presumptions usually require some care in explanation.
Their use is sometimes necessary but certainly not here.
The second sentence in the requested instruction--"For
any law the government asserts the defendant knew, the government
must prove beyond a reasonable doubt that the defendant knew it"-is misleading and was properly refused.
It implies that the
government's burden was to prove that the defendants knew of the
particular statutes and regulations obligating them to pay income
taxes and file returns.
But "[k]nowledge of the law's demands
does not depend on knowing the citation any more than ability to
watch a program on TV depends on knowing the frequency on which the
signal is broadcast.4"
In this case, the Allens claimed that, in general,
ordinary wage earners were not subject to tax on their income
because the Internal Revenue Code did not say they were liable.
Improbable though their profession of belief may seem, the jury was
instructed up, down and sideways that they were entitled to be
acquitted if they held this belief in good faith.
4
The jury did not
United States v. Patridge, 507 F.3d 1092, 1094 (7th Cir.
2007) (Easterbrook, J.), cert. denied, 552 U.S. 1280 (2008), and
cert. denied, 555 U.S. 909 (2008); see also United States v.
Cavins, 543 F.3d 456, 458-59 (8th Cir. 2008). Nor did the Supreme
Court suggest otherwise in Bryan v. United States, 524 U.S. 184,
194-95 (1998). Rather, it is "aware[ness] of the duty at issue"
that is required in tax prosecutions like the Allens'. Id. at 195
n.22.
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credit them on what is an issue of fact, namely, the sincerity of
their professed beliefs.
Affirmed.
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ADDENDUM
The Allens' requested "Guilt by Association" instruction5:
There is a long-standing rule against
"guilt by association." A defendant may not
be convicted merely because people who worked
or associated with him or her committed
criminal conduct. In this case, a defendant
cannot be convicted simply because he or she
was associated with or friendly with anyone
you may find to have acted in violation of
the law. Each element of each offense must
be proved independently against a defendant
individually on the basis of his or her own
conduct and state of mind.
The Allens' requested "Conspiratorial Intent" instruction:
In this case, the government must
prove two different types of intent beyond a
reasonable doubt before a defendant can be
considered part of a conspiracy to defraud
the United states. It must prove both an
intent to agree to participate in a
conspiracy to defraud the United States, and
an intent to defraud the United States.
Furthermore, I instruct you that a
person cannot have the specific intent to
defraud the United States unless he knows he
has a federal tax liability.
If the government has not proven that
a defendant both intended to defraud the
United States and intended to agree with
another person to defraud the United States,
you must acquit that defendant.
The Allens' requested "Not Know Law" instruction:
In this case, the defendant is not
presumed to know the law. For any law the
government asserts the defendant knew, the
5
Supporting citations that were included in
submission to the district court have been omitted.
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the
Allens'
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government must prove beyond a reasonable
doubt that the defendant knew it.
The Allens' requested "Theory of Defense" instruction:
If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 1999 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 2 of the indictment.
If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 2003 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 3 of the indictment.
If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 2004 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 4 of the indictment.
If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 2005 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 5 of the indictment.
If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 2006 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 6 of the indictment.
Excerpts from jury instructions given to jury:
The burden is always on the
prosecution to prove guilt beyond a
reasonable doubt as to every essential
element of the crime charged. And this
burden never shifts to a defendant because
the law never imposed on the defendant in a
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criminal case the burden or duty of calling
any witnesses or producing any evidence.
. . . .
For you to find the defendants guilty
of the conspiracy charged, you must be
convinced that the government has proved each
of the following things beyond a reasonable
doubt . . . .
First, that the agreement specified in
the indictment, and not some other agreement
or agreements, existed between at least two
people to defraud the United States, or one
of its agencies or departments, by dishonest
means. The word "defraud" is not limited to
its ordinary meaning of cheating the
government out of money or property.
"Defraud" also means impairing, obstructing
or defeating the lawful functions of any
government agency or department by dishonest
means.
Second, that the defendant whose case
you are considering willfully joined in that
agreement.
. . . .
To act "willfully" in the context of
the conspiracy charge means to act
voluntarily and intelligently and with the
specific intent that the underlying crime be
committed . . . .
Proof that the defendant willfully
joined in the agreement must be based upon
evidence of his or her own words and/or
actions.
. . . .
To act willfully means to
intentionally violate a known legal duty to
file, not to act as a result of accident,
mistake, or negligence.
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Now, let me talk about the subject of
good faith. . . . The defendant does not act
willfully if he or she believes in good faith
that he or she is acting within the law, or
that his or her actions comply with the law.
A good faith belief is one which is honestly
and genuinely held. Therefore, if the
defendant you are considering subjectively
believed that what he or she was doing was in
compliance with the tax statutes, he or she
cannot be said to have had the criminal
intent required to engage in tax evasion or
to fail to file federal income returns. But
if the defendant disagrees with the tax law
or believes the tax laws violate his or her
constitutional rights, such beliefs are not a
good faith misunderstanding of the law.
In proving willfulness, it is the
government's burden to prove beyond a
reasonable doubt that the defendant did not
act with a good faith belief as to what the
law required of him. If you find the
defendant believed in good faith he or she
was acting in compliance with the law as to
any count, you must find him or her not
guilty as to that count.
A belief need not be objectively
reasonable to be held in good faith.
Nevertheless, you may consider whether the
defendant's stated belief about the tax
statutes was reasonable as a factor in
deciding whether the belief was honestly or
genuinely held. In considering the
defendant's good faith misunderstanding of
the law, you must make your decision based on
what the defendant believed in his own mind
and not upon what you or someone else
believes or thinks the defendant ought to
have believed. Whether the defendant's
beliefs about the legality of his actions
were right or wrong, reasonable or
unreasonable, is irrelevant to the issue of
willfulness. The only issue is whether those
beliefs were, in fact, held by the defendant
whose case you are considering.
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