Willfulness and Good Faith Defense - an Oxymoron? (12/29/09)

This morning, the Sixth Circuit offers a good elementary refresher course on the relationship between the elements of a tax crime requiring willfulness, on the one hand, and good faith, on the other. Indeed, I have contrasted them as if they were different inquiries, they are not as this case reminds us.

In United States v. Aaron, 590 F.3d 405 (6th Cir. 2009), over a 4 year period, the defendant had casino gambling winnings on at least 965 occasions (no report on his losses) and submitted at least 965 false W-2G's to the casino. From this pattern, the defendant was charged with (i) a single § 7212(a) tax obstruction count, (ii) 17 counts § 7206(1) tax perjury, and (iii) 4 counts of causing a domestic financial institution to file a report containing a material misstatement of fact under 31 U.S.C. § 5324(a)(2). Defendant's defense was that he signed the false W-2Gs at the center of all counts in order to prevent identity theft rather than cheat or mislead the IRS. The Government dropped the last set of counts -- (iii) above. The jury acquitted on the tax obstruction count and convicted on all 17 § 7206(1) tax perjury counts.

Taxpayer appealed.

The Court of Appeals noted that the jury had been properly charged as to the elements of the offense of § 7206(1) tax perjury. That instruction as quoted by the court is simple indeed:

Any person who willfully makes and subscribes any return, statement, or other document which contains or is verified by a written declaration that is made under the penalties of perjury and which he does not believe to be true and correct as to every material matter shall be guilty of an offense.

So far, so good. Defendant really could not complain about the elements of the offense instruction. But, defendant did make two related arguments -- one a straightforward complaint that the jury had not been instructed that an intent to prevent identity theft could excuse tax perjury, and the other a fall back defense that, in any event, the trial court had not given a standard willfulness instruction. The Court of Appeals rejected each. The Court's reasoning is short (so I quote):

The Supreme Court has held that, in criminal tax cases, "the statutory willfulness requirement is the 'voluntary, intentional violation of a known duty.'" Cheek v. United States, 498 U.S. 192, 201 (1991) (quoting United States v. Pomponio, 429 U.S. 10, 12 (1976)). In order to prove willfulness, the Government must prove "that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Id. The showing of willfulness can be negated by "a defendant's claim of ignorance of the law or a claim that because of a misunderstanding of the law, he had a good-faith belief that he was not violating any of the provisions of the tax laws." Id. at 202 (emphasis added). The defendant's belief or misunderstanding need not be objectively reasonable, and whether it was held in good faith should be determined by the fact-finder. Id. at 202-03.

In contrast, a good-faith motive for willfully committing tax fraud has never constituted a proper defense. Pomponio, 429 U.S. at 12. In Pomponio, during a prosecution under the same statute at issue here, the district court instructed the jury that a willful act was one done "voluntarily and intentionally and with the specific intent to do something which the law forbids, that is to say with [the] bad purpose either to disobey or to disregard the law." Id. at 11 (alteration in original). The district court added that "[g]ood motive alone is never a defense where the act done or omitted is a crime." Id. The Fourth Circuit disagreed, holding that "the statute at hand requires a finding of bad purpose or evil motive." United States v. Pomponio, 528 F.2d 247, 249 (4th Cir. 1975). The Supreme Court explicitly rejected the Fourth Circuit's interpretation, holding instead that the element of willfulness does not require proof "of any motive other than intentional violation of a known legal duty." Pomponio, 429 U.S. at 12 (citing United States v. Bishop, 412 U.S. 346, 360 (1973)).

This clear precedent renders meritless Aaron's argument that a good-faith motive explaining why he violated the tax code should excuse the false statements he made on the W-2G forms. Cheek allows a person's good-faith belief or misunderstanding of what is required of him by the tax code to negate a claim that his violation of the law was willful. Aaron never argues that he did not know that his real Social Security number was required of him, nor that he believed in good faith that he need not be truthful. In fact, Aaron repeatedly admitted the opposite during direct and cross-examination when he testified that he warned the casino he would give them a false Social Security number and intended to do so to protect himself from identity theft. Therefore, not only was the government under no obligation to prove that Aaron had "evil motive" in providing a false Social Security number, but Aaron's purported "good faith" justification for his actions was irrelevant to the instructions regarding the elements of § 7206. Because Aaron never claimed a good-faith belief that his true Social Security number was not legally required of him, Cheek did not require that the district court give an instruction on good-faith belief.

Aaron also contends that, even if he is not entitled to an instruction on good faith, the district court erred by not instructing the jury on the definition of willfulness. Aaron correctly points out that the Supreme Court in Pomponio held that an additional instruction on good faith was not necessary when the trial judge had adequately instructed on willfulness. 429 U.S. at 13. From that limited holding, Aaron infers a requirement that district courts must instruct the jury on willfulness. This extrapolation is unfounded; that the district court's instruction on willfulness eliminated the need for it to define good faith does not imply that a definition of willfulness is always required. Typically, it is good practice to include a definition of willfulness when the word is included in the statute or elements of the offense. But even assuming that circumstances exist in which a trial court is required to define willfulness for the jury, a failure to give the instruction would only satisfy the first prong of the plain error test. Aaron does not explain why this purported error affected his fundamental rights, nor are any compelling reasons apparent. If anything, the district court's failure to define willfulness only helped Aaron because the instruction required by Cheek, as discussed above, would have foreclosed the interpretation of willfulness that Aaron suggests here.

JAT comments:

1.  I think this is all good stuff and worthy of the refresher.

2.  I am troubled by the trial court's failure to give a standard willfulness instruction. What was that court thinking, given that willfulness is a word of several meanings and has a particularized strict meaning for tax crimes? Of course, the parties have a duty to request appropriate instructions. Perhaps it was to the defendant's benefit not to request a standard willfulness instruction (or perhaps not), but why didn't the Government serve that up to the trial court in order to avoid precisely this type of problem? 

3.  The jury's acquittal on the tax obstruction offense does not have an express textual willfulness requirement but, as I have noted elsewhere, does have the equivalent of willfulness as interpreted.  See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough?, 9 Hous. Bus. & Tax L.J. 260 (2009).  Indeed, for this reason (i.e., the jury's acquittal on tax obstruction may have been based on the equivalent of lack of willfulness and, if so, might evidence jury confusion on the issue of willfulness and thus call into question its guilty verdict on tax perjury.  Or, the acquittal may have been just some form of jury compromise or grace.  Bottom-line, the Court of Appeals thought the defendant was clearly guilty on the facts of the trial and his own admissions, regardless of what a jury might have done with a proper willfulness instruction.

4.  Some civil penalties do have good faith as a defense that is separate from the "elements" of the penalty itself. § 6664(c) (coupled with reasonable cause).

5. As an aside, the Sixth Circuit panel included Retired Associate Supreme Court Justice Sandra Day O'Connor.