Saturday, September 20, 2014

Trial Management of the Cheek Good Faith Defense (9/20/14; 9/24/14)

I think all persons familiar with Cheek's requirements for asserting a good faith defense know that a good faith belief that the the tax law did not impose on defendant a duty to pay tax is properly presented to a jury but a good faith belief that the tax law is unconstitutional is not a good faith defense.  See Cheek v. United States, 498 U.S. 192 (1991), here. So, if the taxpayer makes a good faith defense that can easily be classified as one or the other, the gate keeping for avoiding improper consideration by the jury can be easily handled at trial by including or excluding the evidence, by proper cautions to the jury at the time improper evidence comes in, or in the final jury instructions.

The problem, of course, is that sometimes the distinctions are not so crisp.  When does a defense that the taxpayer in good faith believed he did not owe the tax blend into an argument that the tax in good faith believed that the tax was unconstitutional?

In United States v. McBride, 2014 U.S. Dist. LEXIS 126876 (D UT 2014), the Government filed a motion in limine to preclude the taxpayer from asserting a good faith defense that implicated the constitutionality of the tax.  The Court granted the motion, in a way, by advising the defendant in advance that it was going to seriously manage the evidence at trial to insure that the jury is not presented the claim that the defendant acted in good faith because he believed the tax was unconstitutional.  The defendant represented in the case that, even without the motion and order, he would make no such claim.

I am not sure the Court would have to do that by pre-trial order, but it did.  Here is the cut and paste of the order (one footnote omitted):
This matter is before the Court on the government's Motion in Limine to Preclude Defendant from Introducing Evidence of Disagreement with the Tax Laws of the United States.1 
The government seeks to exclude Defendant from presenting (1) evidence of the Defendant's views of the legality and proper interpretation of U.S. tax law, and (2) evidence that Defendant held a good-faith belief that the Internal Revenue Code did not apply to him and that his conduct was legal. 
The government asserts that Defendant has represented to the IRS various arguments about U.S. tax law. Specifically, the government contends that Defendant may seek to introduce at trial evidence of Defendant's view that money received from various limited liability companies and from private real estate transactions is not considered income for purposes of tax liability. Rather, in Defendant's view, only money received from federal government entities is taxable. The government contends that evidence demonstrating Defendant's views of U.S. tax law should be excluded under Federal Rule of Evidence 403, because presenting evidence containing improper statements of law would confuse and mislead the jury. 
Defendant explains that he intends to introduce evidence demonstrating his belief that his wages were not considered to be income and that he was not required to pay income tax under U.S. tax law. Defendant also explains that it does not plan to argue that provisions of the tax code are unconstitutional.
Federal Rule of Evidence 403 provides, "The court may exclude relevant evidence if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence."  
"'[I]t is well established that the good faith defense encompasses misunderstanding of the law,' [but] does not encompass 'disagreement with the law.'"n2 "[A] defendant's views about the validity of the tax statutes are irrelevant to the issue of willfulness and need not be heard by the jury, and if they are, an instruction to disregard them would be proper."n3 "[A] person who has a good faith belief that under the tax law he is not required to file any return, is to be distinguished from the person who knows that under the applicable tax law he is required to file a return, but believes, even in good faith, that the law is unconstitutional." n4 "[N]either a defendant's disagreement with the law, nor his belief that such law is unconstitutional no matter how earnestly held constitute a defense of good faith misunderstanding or mistake." n5
   n2 United States v. Lesoon, 190 F. App'x 622, 625 (10th Cir. 2006) (quoting United States v. Schiff, 801 F.2d 108, 112 (2d Cir. 1986)).
   n3 Cheek v. United States, 498 U.S. 190, 207 (1991).
   n4 United States v. Payne, 800 F.2d 227, 228 (10th Cir. 1991) (emphasis omitted).
   n5 United States v. Ware, 608 F.2d 400, 405 (10th Cir. 1979). 
To the extent that Defendant seeks to present a good-faith defense based upon his belief that certain U.S. tax laws are unconstitutional or based upon his disagreement with the tax law, well-established precedent prevents him from doing so. 
Evidence demonstrating that Defendant held a good-faith misunderstanding of the proper interpretation of the tax code, however, would be probative of a good-faith defense to the charged offenses. But if, at trial, Defendant presents evidence of his purported good-faith misunderstanding of the tax code that appears to stem from Defendant's disagreement with the law, the danger of confusing and misleading the jury would substantially outweigh the probative value of such evidence. Consequently, the Court finds that only evidence carefully limited to Defendant's good-faith misunderstanding of U.S. tax law is admissible, while evidence indicating Defendant's disagreement with U.S. tax law is inadmissible. Should Defendant bring such evidence to establish a good-faith defense, the Court notes that the government would be permitted to bring rebuttal evidence in an attempt to demonstrate Defendant's willfulness. 
It is therefore 
ORDERED that the government's Motion in Limine to Preclude Defendant from Introducing Evidence of Disagreement with the Tax Laws of the United States (Docket No. 56) is GRANTED IN PART AND DENIED IN PART. 
DATED this 9th day of September, 2014. 
/s/ Ted Stewart
Ted Stewart
United States District Judge
I guess what troubles me about the order is that it can subtly constrict the defendant's freedom to assert aggressively a proper Cheek good faith defense, because it could be read as a warning that testimony that does not clearly and unequivocally meet the Cheek requirement with be rejected and treated as a violation of the pre-trial order.  In my mind that does not recognize the subtlety that can be involved when the positions blend, and then the court should deal with the issue only at trial and not in some generic type of pre-trial order.

Addendum 9/24/14 8:44 am:

On September 23, 2014, DOJ Tax announced here that McBride was convicted of "three counts of tax evasion and one count of filing a false tax return."

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