Often, the only defense to the standard Title 26 tax crimes (as well as a Title 18 USC offense conspiracy to commit a Title 26 tax crime will willfulness as an element) is whether the Government proved beyond a reasonable doubt that the defendant acted willfully. Title 26 tax crimes generally require that the defendant act willfully. The offense conspiracy to commit such a tax crime imports the mens rea element that the defendant act willfully. Generally, a subjective good faith belief, other than one based on constitutional claims, that the defendant does not owe the tax means that the defendant did not act willfully, which is defined as an intentional violation of a known legal duty. See Cheek v. United States, 498 U.S. 192, 203 (1991). A standard instruction in such cases is basically that the defendant may be convicted only if the Government proves beyond a reasonable doubt that the defendant acted willfully. A defendant whose sole defense to a tax crime is that he did not act willfully will often claim that he acted in the subjective good faith belief. Cheek held that the jury should not have been instructed that the good faith belief much be objectively reasonable. If the jury believes that the defendant had such a good faith belief or, more importantly, that the Government did not prove beyond a reasonable doubt that he did not have such a belief and thereby acted willfully, the instructions will require that the jury acquit.
The question that often arises is whether the defendant is entitled to a jury instruction in addition to a standard willfulness instruction. The defendant whose defense is good faith will want to rivet the jury's attention on that claim of good faith. Basically, the desired good faith instruction will be some variation of:
The defendant has raised the defense that he acted in the good faith belief that his conduct was legal. A good faith belief that the conduct was legal means that the defendant act willfully, for acting willfully requires that the defendant know that he is violating the law. Therefore, since the government must prove beyond a reasonable doubt that the defendant acted willfully, the government must prove beyond a reasonable doubt that the defendant did not have a good faith belief that his conduct was legal. If you find that the government did not so prove beyond a reasonable doubt, you must acquit.Note that I have stated the instruction in perhaps the best way for the defendant (although I would appreciate hearing from readers as to alternative formulations).
Is the trial court required to give such as instruction where the defendant has introduced evidence of good faith (usually, but always, requiring that the defendant testify to assert his good faith belief)? Where the defendant has not properly put the issue of his good faith belief in play, then such an instruction is not required. But where the defendant has put the issue of his good faith belief in play, is the court required to give a good faith belief instruction or, stated differently, will a court reverse if it does not?
The Sixth Circuit addressed that issue in United States v. Rae, 2016 U.S. App. LEXIS 6845 (6th Cir. 2016) (nonprecedential), here. The Court said no to the question but it is critical to note that, ultimately, the Court said that he had not properly raised the issue. Here is the relevant portions of the opinion (bold face supplied by JAT):
First, Rae alleges that the district court erred by failing to give a good faith jury instruction regarding the tax evasion charge in Count 1, based on his belief that he was not required under the Internal Revenue Code to pay income taxes. Rae contends that the record supported a good faith defense. Challenges to a district court's decision not to give a requested jury instruction are reviewed under an abuse of discretion standard rather than de novo. United States v. Blood, 435 F.3d 612, 623 (6th Cir. 2006). "An omission, or an incomplete instruction, is less likely to be prejudicial than a misstatement of the law." Henderson v. Kibbe, 431 U.S. 145, 155, 97 S. Ct. 1730, 52 L. Ed. 2d 203 (1977). When reviewing a district court's decision not to give a jury instruction, we must reverse only if we find that the proposed instruction is correct, not substantially covered by the actual jury charge, and "so important that failure to give it substantially impairs defendant's defense." United States v. Sassak, 881 F.2d 276, 279 (6th Cir. 1989).
The district court instructed the jury that as to Count 1, tax evasion in violation of § 7201, the government was required to prove that: (1) Rae owed the income tax, (2) Rae committed an affirmative act constituting an evasion or an attempt to evade or defeat his tax obligation, and (3) that in evading or attempting to evade or defeat his tax obligation, Rae acted willfully. The district court defined "willfully" as follows:
An act or failure to act is willful. For purposes of tax evasion . . . it is voluntary, intentional violation of a known legal duty rather than the result of an accident, mistake or negligence. (Emphasis added.) [JAT Note: bold-face is supplied by me; italics were supplied by the Court.]
The district court effectively and correctly instructed the jury as to willfulness, which "in this context simply means a voluntary, intentional violation of a known legal duty." United States v. Pomponio, 429 U.S. 10, 12, 97 S. Ct. 22, 50 L. Ed. 2d 12 (1976) (per curiam) (explaining the statutory definition of willfulness in the Internal Revenue Code); see also United States v. Damra, 621 F.3d 474, 502 (6th Cir. 2010) (holding  that the district court "effectively and correctly" instructed the jury on willfulness element by matching the language used in Pomponio). Because "the good faith-requirement is effectively bundled into the willfulness instruction," no separate instruction regarding good faith is required. Damra, 621 F.3d at 502; see also Sassak, 881 F.2d at 280 (holding that substance of proposed good faith belief instruction was fully covered by willfulness instruction given). Thus, a jury's finding of willfulness under this definition "'would necessarily negate any possibility' that the defendant acted in good faith." Damra, 621 F.3d at 502-03 (quoting United States v. Tarwater, 308 F.3d 494, 510 (6th Cir. 2002)). As the Supreme Court explained in Cheek, "one cannot be aware that the law imposes a duty upon him and yet be ignorant of it, misunderstand the law, or believe the duty does not exist." Cheek, 498 U.S. at 201; see also id., at 205 (rejecting constitutional as-applied challenge under the Pomponio line of cases because such claims "reveal full knowledge of the provisions at issue and a studied conclusion, however, wrong," and not from "innocent mistakes caused by the complexity of the Internal Revenue Code").
Contrary to Rae's assertion, Cheek does not require a separate good faith instruction. Rather, Cheek merely held that the trial court in that case erred in instructing the jury that good faith was measured by an objective rather than a subjective standard, and that an unreasonable belief did not negate willfulness. See Cheek, 498 U.S. at 202 ("Characterizing a particular belief as not objectively reasonable transforms the inquiry into a legal one and would prevent the jury from considering it.") In short, the district court did not abuse its discretion by declining to provide an additional good faith instruction.
Rae alleges that his "various correspondence through the years" to the IRS and State of Michigan as well as his failure to respond to district court order directing him to comply with the IRS summons "show that he had a history of disbelief as to what he was told by government officials and agencies, supporting the position of his good faith belief that he did not have to pay the taxes." Reply Br. at 1. He claims that the jury instruction given was "not sufficient for the jury to adequately consider Dr. Rae's intent as displayed through his good faith defense in this case." Reply Br. at 3. But, as noted, the Supreme Court and this court have held that an instruction like the one given by the district court in this case is sufficient because it incorporates the concept of subjective good faith belief.
Furthermore, as the district court held, an additional instruction was not warranted on this record. Rae did not testify, and he did not offer any evidence at trial. And, in both opening statements and closing arguments, Rae's attorney told the jury that Rae's "theory of defense" was that he researched the law and "drew conclusions" that he was not subject to taxes, and that "even if eccentric, he held the belief in good faith." In short, Rae's argument is without merit, because the proposed good faith instruction was substantially covered by the instruction given and its omission did not substantially impair the defense. See Sassak, 881 F.2d at 279.At the outset, the "standard" good faith instruction as quoted by the court has something that appears to me aberrational. Note the first sentence bold-faced above. It is a short declarative sentence complete into itself: "An act or failure to act is willful." That statement for a crime requiring that the defendant act willfully is blatantly incorrect. It is true that the sentence immediately following does give a standard willfulness instruction, but that is no excuse for including the first sentence in the instruction as a positive affirmative statement of the law. For example, the DOJ Tax CTM provides the proper instruction as follows (GOVERNMENT PROPOSED JURY INST. NO. 26.7206(2)-7), here:
An act or failure to act is “willful” if it is a voluntary and intentional violation of a known legal duty.I don't know whether the presentation of this instruction was an error of the trial judge or of the court reporter or of the Court of Appeals. But if that instruction was given as quoted, it is wrong.
The holding that the good faith belief defense is subsumed in a standard willfulness instruction is often repeated by the courts in order avoid having to reverse the case for retrial.
I believe that defendants who go to trial in these cases should make the record that the defense has been put in play. This may require the defendant to testify -- often viewed as a no, no by defense counsel. But, if it is the only defense one has, if the defense is not otherwise prominently presented in the record, the defendant just may have to testify. Of course, if the defendant lacks credibility, then you just may have to take the risk that the court will determine that the issue has not been put in play sufficiently to warrant a separate instruction. And, because of holdings like Rae, the time to win this issue is at the trial level.
Addendum on the good faith instruction issue 4/20/16 3:30pm:
I also direct readers to this case to United States v. Kottwitz, 614 F.3d 1241 (11th Cir. 2010), here, opinion revised and expanded on accountant reliance jury instruction, 627 F.3d 1383 (11th Cir. 2010), here, which I discuss in this blog entry: Kottwitz -- a Long Rambling Tax Opinion Covering Most of the Major Tax Crimes (Federal Tax Crimes 8/28/10), here. I cut and paste the relevant part of my blog entry::
4. Failure to Give the Requested Good Faith Instruction.
Now we come to something a bit more meaty. The defense asserted a good faith reliance defense and the record had sufficient evidence to establish that it was a defense to be submitted to the jury. The defense thus properly requested a good faith jury instruction drawn from the Eleventh Circuit's pattern jury instructions. The Per Curiam held that the defense was entitled to that instruction and failure to give it upon proper request was reversible error.
In the course of its glittering generalities and string quotes, the Per Curiam says some curious things. It says, for example, "The requested good faith reliance jury instruction was based on our pattern jury instructions and was, therefore, a correct statement of the law." The Per Curiam cannot be serious in that statement read on its face. Congress never passed the pattern jury instructions nor has the Supreme Court put its imprimature on it, so if the pattern jury instructions misinterpret the law, the pattern jury instructions do not become the law. Cf. United States v. Svete, 521 F.3d 1302, 1310(11th Cir. 2008), reversed en banc 556 F.3d 1157 (11th Cir. 2009) (although reversed because the pattern was found correct, the key point is that pattern jury instructions are not the law).
Once you work past the fluff, the bottom line is that there was sufficient evidence to support the requested jury instruction.
The opinion, including the short dissent, is 70 pages long. Reminds me of the quote attributed to Blaise Pascal (and others), "I would have written a shorter letter, but I did not have the time."
In the subsequent opinion on petition for rehearing in Kottwitz, 627 F.3d 1383 (11th Cir. 2010), here, the Court expanded its discussion on the reliance on good faith and expanded it to the conspiracy charge. The opinion on rehearing is short, so I quote it in full: I have bold-faced certain portions of the opinion to draw the readers attention in light of the earlier discussion in this blog.
Defendants/Appellants have petitioned for rehearing. We have considered Defendants' arguments and the Government's reply. And we have looked at the record again. We stand by our decision, United States v. Kottwitz, 614 F.3d 1241 (11th Cir. 2010), except on the issue of the accountant-reliance jury instruction for Count One.
Defendants contend that the district court erred in refusing to give Defendants their requested jury instruction about reliance on an accountant's advice. In our original decision, we concluded that this refusal constituted reversible error on Counts Three, Four, and Five. Then, we remanded the case to the district court for retrial with the requested instruction on those counts only. Now, we conclude that the district court was also similarly incorrect to deny Defendants' accountant-reliance jury instruction on the Count One conspiracy charges.
To receive a requested jury instruction in this Circuit, a defendant's burden is light: "any foundation in the evidence" is sufficient. United States v. Opdahl, 930 F.2d 1530, 1535 (11th Cir. 1991). On reflection, we accept that Defendants met this burden. Sufficient evidence was introduced to allow the conviction of Defendants on Count One on the basis of several alternative interpretations of the facts.
Even though no evidence directly showed that Defendants' accountant was involved in initially entering/hiding transactions on the corporate books (for example, the personal-expense transactions), Defendants introduced enough circumstantial evidence to warrant an instruction that -- at some pertinent point -- Defendants may have relied on the accountant's advice.
Virtually all of the suspect transactions occurred after Defendants' accountant was hired in mid-1999; and the accountant had authority to (and in fact did) review and reclassify some entries in the corporate books. In addition, the accountant prepared the tax returns that resulted in underpayment of taxes. Even if it was not the only and not the most likely explanation of events leading to the guilty verdicts on Count One, an evidentiary basis existed for conviction under Count One that could have involved Defendants, in fact, relying on the advice of their accountant. For example, the jury might have believed that Defendants acted with the accountant's tacit approval of Defendants' accounting methods. n2
| n2 The correct test in this Circuit for the "act" element in an 18 U.S.C. section 371 conspiracy (including the subset of Section 371 conspiracies against the Internal Revenue Service known as Klein conspiracies) is "the commission of an act in furtherance of the agreement." United States v. Adkinson, 158 F.3d 1147, 1153 (11th Cir. 1998). A "failure to properly report income," id. at 1154, is one example of conduct that could satisfy the act element of a Klein conspiracy. But it is not the only possible act that could do so: for example, intentionally making false entries in corporate books could be an act in furtherance of the agreement. Because we cannot know the precise act(s) on which the jury relied for the Count One conspiracy convictions, we cannot rule out that the jury relied on an act that involved -- in a material way -- advice from Defendants' accountant.
For these reasons, we vacate Kottwitz's, Junior's, and Senior's convictions for conspiracy to defraud the IRS (Count One) and remand the case to the district court for a new trial with an accountant-reliance jury instruction. We withdraw all language in our opinion, United States v. Kottwitz, 614 F.3d 1241 (11th Cir. 2010), inconsistent with this present order. n3
n3 To be clear, as a result of our original decision and this present order, we have vacated or reversed each of Defendants' convictions and sentences at issue on appeal.
Otherwise, Defendants' petitions for rehearing are DENIED. And, no judge of the Court having requested a poll, Defendant Kottwitz's suggestion for rehearing en banc is DENIED.
Petitions DENIED, except Defendants' convictions and sentences on Count One are VACATED; the case is REMANDED.
The point is that a reliance on accountant instruction is essentially a good faith instruction. By relying on the accountant in good faith, they did not have the requisite Check willfulness intent to violate the law. Where the record permits that inference of reliance / good faith, they are entitled to the instruction.Here are some other blog entries that have dealt with this issue before
- Fifth Circuit Sustains Convictions Despite Trial Judge's Refusal to Give Proper Cheek Willfulness Instruction (Federal Tax Crimes Blog 11/21/15; 11/22/15), here.
- After Guilty Verdict, District Court Denies Motions for Dismissal and New Trial in Tax Crimes Case (Federal Tax Crimes Blog 11/13 /15; 11/15/15), here, at point 3
- D.C. Circuit Affirms Preparer Convictions Over Ineffective Assistance Claims (Federal Tax Crimes Blog 7/30/15), here.
- Making a Cheek Good Faith "Defense" Without Testifying (Federal Tax Crimes Blog 11/24/11), here.
- Fourth Circuit Reverses Tax Obstruction Conviction Because of Bad Instruction and Affirms Denial of Good Faith Instruction for False Claim Conviction (Federal Tax Crimes Blog 11/20/13), here.