Save-A-Patriot Did Not Save a Doctor

Yesterday, the Fifth Circuit decided a case, United States v. Miller, ___ F.3d ___ (5th Cir. 2009) sustaining a medical doctor's conviction for tax evasion, § 7201. The issues decided are not novel, but should reinforce what the practitioner or student probably already knows. The key points are:

1. A misdemeanor failure to file case became a felony evasion case because, in addition to failure to file, there were significant affirmative attempts to evade. The Court of Appeals said in addressing the lower court’s denial of the motion for acquittal:

The evidence at trial sufficiently demonstrates Miller's evasion. It is undisputed that he failed to file tax returns for tax years 2000 and 2001, as charged in the indictment. Further, Miller acted affirmatively when he converted payments made to the clinic to cash, money orders, and cashier's checks. Witnesses testified that Miller's practice of converting payments made to the clinic made it difficult for the IRS to determine his income. These affirmative acts had the "likely effect of mislead[ing]" the IRS, and precluded the agency from effectively assessing his tax liability. Spies, 317 U.S. at 399; Robinson, 974 F.2d at 577. Moreover, Wolff testified that the Medical Manager software on Miller's clinic's computers included double sets of billing records. Viewing the evidence in the light most favorable to the verdict, the affirmative acts of keeping double records and conversion, coupled with the failure to file, support a finding of evasion.

2. The doctor joined a tax protestor / defier movement, called "Save-A-Patriot" to give his evasion some semblance of legitimacy, at least in giving his evasion the opportunity to assert the Cheek defense. He was the sole defense witness, testifying

that in 1995, after being audited by the IRS, he joined Save-A-Patriot. He also studied materials provided by Save-A-Patriot. Based on his study of the materials and of the Internal Revenue Code, he believed that the income tax system was voluntary and that he was not required to pay taxes, though he had filed tax returns in the past.

The jury did not believe him and convicted him. (There was a deliberate ignorance instruction, so that the jury could have convicted him on that basis rather than finding that he had an affirmative expressly formulated intention to violate a known legal duty.) The key part of the deliberate ignorance instruction (from the Fifth Circuit pattern instructions) was:

You may find that a defendant had knowledge of a fact if you find that the defendant deliberately closed his eyes to what would otherwise have been obvious to him. While knowledge on the part of the defendant cannot be established merely by demonstrating that the defendant was negligent, careless, or foolish, knowledge can be inferred if the defendant deliberately blinded himself to the existence of a fact.

Note in this regard that the doctor's ex-wife who gave otherwise damaging testimony did testify that the doctor "decided not to file tax returns after joining Save-a-Patriot because he felt that filing was unnecessary and unconstitutional." Cheek does not permit the unconstitutional argument; indeed, by asserting nonliability based on unconstitutionality of the law, a defendant virtually admits that he knows the law and intentionally violated violate it. (There may perhaps be some logical lapses here, but I think they may be inherent in the Cheek case, Cheek v. United States, 498 U.S. 192 (1991) which is worth re-reading (with concurrence and dissent) from time to time.)

Further as to his knowledge of the duty to pay, the Court of Appeals said:

In addition, the evidence supports the jury's finding of willfulness under the Cheek standard. Miller testified that he withheld taxes after becoming a member of Save-A-Patriot and studying the tax laws in late 1995. Miller, however, permitted taxes to be withheld from his earnings prior to 1996, which demonstrates that he knew of the duty to pay appropriate income tax. Miller also did not consult with any tax professionals regarding his failure to file taxes for 2000 and 2001, though he had done so in the past. Based on this evidence, the jury could have reasonably determined that Miller knew he had a duty to pay taxes and knowingly violated that duty.

3. The doctor complained on appeal that evidence of a settlement negotiation had been improperly excluded. The court of appeals found that the excluded evidence (i) was not relevant, a threshold requirement in all events, and (ii) had minimum probative value that was offset by the potential to confuse the jury, citing FRE 403. Interestingly, the court of appeals noted in a footnote:

n9 The district court also ruled that the negotiations evidence was not admissible under FRE 408, which forbids the admission of offers of compromise or negotiations for compromise in certain civil cases, or its exceptions. FED.R.EVID.408. Though we have held that Rule 408 applies in criminal cases, see United States v. Hays, 872 F.2d 582, 588-89 (5th Cir. 1989), there is a split in authority in our sister circuits on this issue. See United States v. Bailey, 327 F.3d 1131, 1144-47 (10th Cir. 2003) (discussing circuit split). We decline to address the applicability of FRE 408 to this criminal case, however, because the evidence regarding settlement negotiations is excludable on the grounds of relevance.

The Bailey case is a worthy read for those encountering this issue.

4. The Court discusses the two marital privileges. I quote just the portion of the opinion that describes these privileges (citations omitted):

The marital privilege encompasses two distinct privileges. The first permits a married witness to refuse to testify adversely against his or her spouse. The witness may neither be compelled to testify nor foreclosed from testifying. The second bars one spouse from testifying as to the confidential marital communications between the spouses. The confidential communications privilege survives the marriage and may be asserted by either spouse with respect to communications that occurred during the marriage even after the marriage has terminated. The privilege applies only to communications; it does not apply to acts.

Under the facts, the parties were not married at the time, so the first privilege was not applicable. The second was applicable as to qualifying marital communications. However, as with many rules, there is an exception, and the exception in this case was for "conversations between husband and wife about crimes in which they are jointly participating." (Citation omitted.) The key testimony was his ex-wife's admission that her failure to file committed the crime of failure to file. Defendant's concern on appeal was that he was convicted of guilty by association to his ex-wife.

Tax Protestor or Tax Scholar - The Geithner Defense

I was reading yet another tax protestor criminal case (United States v. Hendrickson, 664 F. Supp. 2d 793 (ED MI 2009)), and found references to protestor or scholar, which reminded me of the old nursery rhyme:

Tinker, Tailor,
Soldier, Sailor,
Rich Man, Poor Man,
Beggar Man, Thief.

See Wikipedia entry here.

Tax protestors -- the bad amongst which DOJ now calls tax defiers -- are not normally noteworthy to mainstream tax practitioners or students, but in the nursery rhyme litany above, most would be characterized as thiefs, and certainly not protestors or scholars (OK, they are not in the litany, but perhaps we could insert them). These guys are just tax terrorists seeking to throw a monkey wrench or IED equivalent into the tax system. Still, I think a snippet from Hendricksen is interesting because it deals with the Geithner defense (you didn't prosecute Geithner, therefore you can't prosecute me). Hendricksen had published how to tax protest books made the standard arguments and even for himself had bought into and practised his assertions. In his criminal case, he asserted inter alia that the Government had selected him because of his prominence in the tax protestor community (through his book, Cracking the Code, and web site). On that issue, the defendant invoked a variation of the Geithner defense. Here's how the court dealt with the argument, nicely also handling his claims that he was a scholar rather than a protestor:

In any event, whether Defendant is more properly characterized as a "protestor" or a "scholar," the Government has precisely the same legitimate interest in prosecuting him. Regardless of whether Defendant has affirmatively sought notoriety, fame, or publicity, and regardless of whether he has urged others to follow his lead or has instead attempted to dissuade them from doing so, he acknowledges that "thousands" of people have read Cracking the Code, that a significant number of these readers have "filed tax forms consistent with" his analysis of the tax laws as elucidated in this book, and that this has resulted in the IRS issuing "millions in refund checks to filers who had claimed that money was improperly withheld." (Defendant's 1/15/2009 Motion to Dismiss, Br. in Support at 3 (footnote omitted).) Under these circumstances, the Government could permissibly conclude that the prosecution of Defendant would serve as an effective deterrent to those who might be inclined to apply his analysis to their own tax filings, and that this might staunch the flow of more widespread, but potentially harder to detect, submission of "zero wage" tax forms by readers of Cracking the Code. See Kelley, supra, 769 F.2d at 218. Indeed, the courts have recognized that prominence alone -- whether derived from protest activities or from political or social stature in the community -- is a permissible factor in selecting individuals for prosecution. See, e.g., United States v. Hastings, 126 F.3d 310, 314-15 (4th Cir. 1997) ("[A] person's public renown may be properly considered among other factors when deciding whether to pursue criminal sanctions for a violation of the law."). n16

n16 Notably, by citing Treasury Secretary Timothy Geithner and former Senate Majority Leader Tom Daschle as individuals who have "blatantly and admittedly violated the tax laws" but have nonetheless avoided criminal prosecution, Defendant's 5/22/2009 Suppl. Br. at 3), Defendant implicitly acknowledges the value of prosecuting prominent violators of the tax laws, regardless of whether such violations stem from any opposition to those laws. That the Government has failed to prosecute all such prominent violators surely does not detract from its legitimate interest in doing so in a particular case. [END OF FOOTNOTE]

Finally, the Court fails to see how Defendant could possibly strengthen his appeal to First Amendment principles, and thereby distinguish the rulings in Hazel and the other above-cited cases, by denying that he has engaged in any sort of protest against the Government, its laws, or its tax policies. These decisions, after all, do not recognize the Government's right to prosecute a defendant because of his or her protected First Amendment activity, but in spite of this protected activity. The First Amendment embodies "a profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open, and that it may well include vehement, caustic, and sometimes unpleasantly sharp attacks on government and public officials." New York Times Co. v. Sullivan, 376 U.S. 254, 270, 84 S. Ct. 710, 721 (1964). Moreover, the Supreme Court has emphasized that "[t]o punish a person because he has done what the law plainly allows him to do is a due process violation of the most basic sort." Bordenkircher v. Hayes, 434 U.S. 357, 363, 98 S. Ct. 663, 668 (1978). The law of selective prosecution rests upon precisely these principles, permitting limited judicial inquiry into a matter that ordinarily "rests entirely in [the prosecutor's] discretion" -- namely, "the decision whether or not to prosecute," Bordenkircher, 434 U.S. at 364, 98 S. Ct. at 668 -- in order to ensure that the exercise of this discretion remains within "constitutional constraints," Wayte, 470 U.S. at 608, 105 S. Ct. at 1531 (internal quotation marks and citation omitted). Under this law, a prosecutor has no greater (or lesser) latitude, and the relevant constitutional constraints are no weaker (or stronger), when the subject of prosecutorial discretion is a vehement protestor against the government than when he or she is engaged in scholarly discourse. To hold otherwise would be to permit what the law of selective prosecution is designed to prohibit -- namely, prosecutorial decisions based upon the nature or content of an individual's protected First Amendment expression.

Plainly, then, it is of no aid to Defendant to establish that he is a scholar engaged in a neutral study of the tax code, rather than a critic of or protestor against federal tax law or policy. Both "abstract discussion" and "vigorous advocacy" qualify as protected forms of expression under the First Amendment, see N.A.A.C.P. v. Button, 371 U.S. 415, 429, 83 S. Ct. 328, 336 (1963), so the proper disposition of Defendant's claim of selective prosecution cannot turn upon the characterization of Cracking the Code as one or the other. In either event, Defendant's burden is precisely the same -- to show that he was selected for prosecution on the impermissible basis of his protected speech, and not on grounds (such as prominence) that the Government may legitimately consider. As explained, Defendant has not made a sufficient showing on this point to warrant discovery on his claim of selective prosecution, much less dismissal of the charges against him on this ground.

Interestingly but perhaps not surprisingly, Hendricksen is represented in this judicial crusade by Mark Lane, an attorney and noted conspiracy theorist who wrote Rush to Judgement among other books. Mr. Lane's Wikipedia entry is here. Mr. Lane has also represented another well known tax protestor, Robert Schultz. See United States v. Schultz, 517 F.3d 606 (2d Cir. 2008) (Lane on brief for Schulz appearing pro se), and We the People Foundation, Inc. v. United States, 485 F.3d 140 (D.C. Cir. 2007) (with Schulz on brief).

Tax Defiers - Is Texas Governor Perry One?

Jonathan Turley this morning posted here a very interesting piece on Texas Governor Perry's rantings about Texas' right to secede from the union. Governor Perry of course hopes to fan the flames of discontent of the rabid conservative base to propel him into a potent national force in the Republican Party. Of course, you might guess that a major discontent among this group is the belief that they are being abused by taxes, which, as Justice Holmes said, are the cost of the a civilized society (apparently, their belief is that the United States' society is not civilized so they do not or should not have to pay the cost). Governor Perry is just pandering to a tax defier base (hopefully just a fringe subset -- albeit vocal subset -- of his party). Isn't this just another form of tax defiance which has given the IRS and DOJ so much angst and drawn civil and criminal cases? Certainly, these genre of ranting is just as societally objectionable as the mainstream, non-governor tax defiance claims. Should the IRS / DOJ bring out its anti-tax defier weapons here or should they just let the Governor rant into irrelevance?