Taxpayer Loses Cheek Defense at Trial and, on Appeal, Fails in Argument of Prosecutor Misconduct (8/11/16)

United States v. McBride, 2016 U.S. App. LEXIS 13479 (10th Cir. 2016), unpublished, here, involves a relatively common scenario -- a U.S. taxpayer who adopts a claimed sincerely held belief that he does not owe tax in mask his tax evasion.  Cheek v. United States, 498 U.S. 192 (1991) holds that a sincerely held belief -- one actually held -- defeats the willfulness element of evasion and most tax crimes.  Generally, given the rigor with which the IRS and DOJ investigate tax crimes before charging, most cases where there appears to be a real sincerely held belief are not prosecuted.  DOJ Tax tries to authorize prosecution of only those cases where the claimed sincerely held belief is a ruse for tax evasion.  Generally, when prosecutions are authorized, the prosecutions result in conviction.  So it was in McBride.  The jury convicted after McBride took the stand to further his claim.  (The jury did acquit for one count of evasion, but as the Court notes in fn. 4 that may have been because they did not find the tax due and owing element for the crime.)  The opinion is not remarkable in that respect.

I think the opinion may be interesting to readers with regard to the prosecutor's rebuttal closing argument which was a subject that the taxpayer complained of on appeal.  Here is the relevant portion of the prosecutor's rebuttal closing argument:

Ladies and gentlemen, having earned millions of dollars, Mr. McBride decided to pick up the bogus philosophy to try to save what he had left. To him paying taxes, it seems, is for schmucks, working stiffs like you and me, who go to work everyday, earn our keep, and pay our taxes. He placed himself above that. It's the ultimate irony, ladies and gentlemen, that Mr. McBride, who speaks so passionately about his love for the Constitution, has taken a course that would present a great danger to the Constitution of the United States. The Constitution is based on a few bedrock principles that we hold dear. One of them is that we are a nation ruled by laws, not by men. There are very few countries that can say that. 

There are two things that remind me of this great principle. One is when the Office of the Presidency of the United States changes hands from one political party to another. That's inspiring. The other experience that reminds me of the rule of law is when I walk into this building, because it is here that the rule of law is acted out each and everyday. 

Mr. McBride stands in opposition to the rule of law. He stands for the proposition that each person may be a law unto himself. If we don't like the law, we just interpret it our way. If I don't like to pay taxes, I just adopt the belief that earnings are not income and hope to fool people into thinking I'm acting in good faith. Where would that lead, ladies and gentlemen? It would lead to anarchy and chaos. 

Perhaps none of us loves paying taxes, but we do it, don't we? We may grumble a bit, but we do it because we're in this together. This great country thrives because the vast majority of its people have accepted a priceless social contract, a common commitment to do our part to maintain this country's greatness. We pay our taxes because we want to contribute to the well-being of our communities and our nation, we pay them because we don't want to be a burden, our -- we don't want the burden of our taxes to fall on others. And if there are those who, through no fault of their own, can't pay, we gladly carry their load. If we didn't, who would pay for the freeways that Mr. McBride drives on everyday, who would pay for the airport security that protects him on his flights to China, if we didn't, who would pay his medical expenses when he gets old, and for that matter, who would pay ours? Those things cost money. Mr. McBride has been enjoying them for free for the past nine years or more. And whether he pays another dollar of taxes, we'll keep paying ours. But if he's getting a free pass, ladies and gentlemen, by committing the crimes charged in this Indictment, then it is time to hold him accountable in the interest of what we hold dear. Thank you.

The Court of Appeals said that this argument may have been improper but was not sufficiently prejudicial in the overall facts of the case to warrant reversal.  Here is the Court's reasoning:

D.C. Circuit Opinion in Sprawling NonTax Case (3/4/16)

My automated daily searches picked up this opinion, United States v. McGill, 2016 U.S. App. LEXIS 3734 (DC Cir. 2016), here.  It is not a tax crimes case.  Rather, it involved charges arising from an alleged conspiracy "to run a large-scale and violent narcotics-distribution" business. Here is the part pick up by the automated searches:

Finally, while the Alfreds, Simmons, and McGill object to evidence of their failure to pay taxes during the course of the conspiracy, "[i]t is well settled that in narcotics prosecutions, a defendant's possession and expenditure of large sums of money, as well as his or her failure to file tax returns, are relevant to establish that the defendant lacked a legitimate source of income and that, in all probability, the reason for the failure to report this income is due to the defendant's participation in illegal activities." United States v. Briscoe, 896 F.2d 1476, 1500 (7th Cir. 1990); see also United States v. Chandler, 326 F.3d 210, 215 (3d Cir. 2003) (same). 

That rationale holds true here. Simmons, McGill, and Ronald Alfred all suggested that they were operating a business or otherwise supporting themselves through legitimate means. Their failure to pay taxes thus was relevant to show that they were in fact getting income from illicit activities like drug trafficking that they assuredly did not want to report to the IRS. With respect to James Alfred, he failed to object to the tax-filing evidence in district court, and the court's failure to sua sponte exclude that evidence of his lack of a licit income source while in the drug conspiracy was not plain error. See United States v. Spriggs, 102 F.3d 1245, 1257 (D.C. Cir. 1996) ("Because appellants did not make a timely objection to [admitting evidence], we review its admission for plain error.").

I will let that reasoning stand for what it is.  Of course, if the inference sought is correct, the defendants could have been charged with a tax crime -- at least failure to file, § 7203.

Several other things about the case struck me.

1. The opinion is 178 pages long in the pdf format.  That is not your ordinary opinion.  The case was argued in February 2015, so there was a long time to produce the 178 pages (and of course, the judges and their clerks were working on other cases during the period).

2. Perhaps related to the first, the opinion is "per curiam."  Per curiam may mean a number of things, but one thing it does mean is that no single judge claimed authorship.  Perhaps it was a collaborative effort of the judges and the law clerks.

3. The opinion (at least parts of it) is an interesting read.  Readers who want to dig in might look at the following  which are the parts that particularly interested me (Paragraph numbers are the courts and page numbers supplied by me are to the pdf copy).

I. Removal of Juror  (pp. 4 - 28), regarding the removal of a rogue juror.

District Court Cryptically Rejects Defendant's Arguments on Instructions (5/25/15)

Trials are messy and the legal principles deployed are often imprecise.  In United States v. Messier, 2015 U.S. Dist. LEXIS 63741 (D. ME 2015), here, the defendant was tried on Section 7212(a) tax obstruction (Count One), 18 USC 371 Klein tax defraud conspiracy (Count Two), and apparently 5 counts of substantive tax crimes (Counts Three through Seven).  He was convicted on Counts One and Two and acquitted on Counts Three through Seven.  (Although not stated in the opinion, Counts Three through Seven were for Section 7203 failure to file; for reasons apparent from the opinion, although not expressed explicitly, the acquittal was apparently based upon a jury determination that the Government had not proved willfulness a la Cheek beyond a reasonable doubt.)  The following are the portions of the opinion that interested me:

1.  The Tax Obstruction Instruction Properly Excluded a Requirement That the Defendant Must Have Intended to Violate the Criminal Law.

The defendant argued that the Count One Section 7212 instruction should have included a requirement that the defendant have intended to violate the criminal law.  The defendant apparently sought to leverage from the acquittal for lack of willfulness on Counts Three through Seven.  Willfulness, the element of most Title 26 crimes, requires a specific intent to violate a known legal duty.  Section 7212(a) does not include a textual requirement of willfulness.  Accordingly, the district court instructed the jury that conviction required only "the intention of securing an unlawful benefit," citing United States v. Floyd, 740 F.3d 22, 31 (1st Cir. 2014).  In the Order, the Court said cryptically that that is all that is required.

The issue is perhaps more subtle than one would gather from the Order.  See Tenth Circuit Opinion on Mens Rea for Tax Obstruction - What Does Unlawful Mean? (7212(a)) (3/30/14), here.

2.  Counts One and Two Did Not Require the Cheek Instruction.

This argument may be a variation of the first, but is presented separately.  The Court's discussion is:

The instructions were not unclear, and properly charged the jury on corrupt endeavor (Count One) and conspiracy to defraud (Count Two) in accordance with First Circuit precedent. So far as Cheek is concerned, the defendant secured a not guilty verdict on Counts Three through Seven, the only counts where I gave a Cheek-related instruction. In other words, he prevailed on this issue. Nothing in the instructions suggests any Cheek issues on Counts One and Two. To the extent that the defendant now is arguing that a Cheek defense applied to those two counts, he failed to make that objection to the jury charge. Moreover, the Cheek defense derives from the specific "willfulness" language in certain provisions of the criminal tax laws, such as 26 U.S.C. § 7203. There is no such "willfulness" requirement in the corrupt endeavor crime, 26 U.S.C. § 7212(a), or in the conspiracy to defraud crime, 18 U.S.C. § 371. Several circuits have held specifically that Cheek is not an available defense to the corrupt endeavor or conspiracy to defraud crimes. United States v. Williamson, 746 F.3d 987, 991-92 (10th Cir. 2014) (regarding 26 U.S.C. § 7212(a)); United States v. Kelly, 147 F.3d 172, 176 (2d Cir. 1998) (same); United States v. Damra, 621 F.3d 474, 501 n. 7 (6th Cir. 2010) (regarding 18 U.S.C. § 371); United States v. Derezinski, 945 F.2d 1006, 1012 (8th Cir. 1991) (same).

I refer readers to the blog noted above for further discussion of this issue.   Note that the Kelly case cited by the Court seemed to equate the obstruction charge of intent to seek a lawful benefit with the willfulness requirement of intending to violate a known legal duty.  Kelly at p. 177 (the obstruction instruction was ""was as comprehensive and accurate as if the word 'willfully' was incorporated in the statute.")