United States v. Allen

• Decision Date: 06 January 2012
• Docket Number: 10–2161.,Nos. 10–2160,s. 10–2160
• Citation: 109 A.F.T.R.2d 2012,670 F.3d 12,2012 USTC P 50135
• Parties: UNITED STATES of America, Appellee, v. Frederick ALLEN and Kimberlee Allen, Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

109 A.F.T.R.2d 2012-407

2012-1 USTC P 50,135

670 F.3d 12

UNITED STATES of America, Appellee,

v.Frederick ALLEN and Kimberlee Allen, Defendants, Appellants.

Nos. 10–2160

10–2161.

United States Court of Appeals, First Circuit.

Heard Nov. 9, 2011.Decided Jan. 6, 2012.

Lowell H. Becraft, Jr. for appellants.

Joseph B. Syverson, Tax Division, Department of Justice, with whom Carmen M. Ortiz, United States Attorney, Frank P. Cihlar, Chief, Criminal Appeals & Tax Enforcement Policy Section, and Gregory Victor Davis, Tax Division, Department of Justice, were on brief for appellee.

Before BOUDIN, SELYA and HOWARD, Circuit Judges.

BOUDIN, Circuit Judge.

Frederick and Kimberlee Allen—husband and wife—appeal from their convictions for tax-related offenses. For some years the Allens filed annual federal income tax returns reporting their income. However, for tax years 1997 through 1999, despite reportable income, the Allens filed returns reporting zero income. On the advice of their dentist, and their own research, they concluded that no provision of the Internal Revenue Code imposed “liability” on them for taxes, and attached this explanation to their returns.

Beginning in 1998, the Allens succeeded in stopping their mutual employer from withholding income taxes from their wages by claiming exemptions from withholding. Later, in 2000, the Allens convinced their employer to issue them paychecks directly instead of through a payroll company, and to treat them as “independent contractors” not subject to withholding of social security and medicare taxes. In 2001, Frederick Allen managed to secure the return of earlier-paid employment taxes withheld from the Allens' wages before their claim of “independent contractor” designation.

Between 2000 and 2008, despite reportable income asserted by the government to exceed $100,000 in each of the years, the Allens filed no tax returns at all. During the same period, they took a variety of steps that made it more difficult for the government to track and levy their assets, such as requesting that their paychecks be made payable to “cash” or payable directly to the Allens' creditors, closing all of their bank accounts, and transferring ownership of their home to a trust. The Allens paid all of their bills using cash and money orders, and cashed any checks through a stratagem with a bank teller friend.

Between 1999 and 2007, the Internal Revenue Service (“IRS”) repeatedly informed the Allens that their “no liability” position was frivolous, and in 2007, the IRS specifically warned of criminal sanctions. In 2009, the government charged the Allens each with one count of conspiracy to defraud the United States, 18 U.S.C. § 371 (2006); one count of attempted evasion of payment of tax (for tax year 1999), 26 U.S.C. § 7201; and four counts of willful failure to file income tax returns (for tax years 2003–2006), id. § 7203.

The Allens were tried together by a jury in April 2010. The government offered evidence as to the taxes owed in the years at issue and evidence as to the warnings given to the Allens, the zero returns filed in several years and the absence of returns in the others, and various steps summarized above taken by the Allens to frustrate tax collection. A detailed recitation is unnecessary because the Allens do not claim that the evidence taken as a whole was insufficient to support the verdicts.

The Allens' main defense at trial, where both testified, was that they had a good faith belief that—as they understood the tax laws—they owed no taxes. Cheek v. United States, 498 U.S. 192, 111 S.Ct. 604, 112 L.Ed.2d 617 (1991).¹ Frederick Allen testified that his research, prompted by discussion with his dentist, persuaded him that taxpayers like him and his wife were not specifically identified in the Internal Revenue Code as liable for taxes. His searches included accessing various websites purporting to analyze the tax laws, including that of an organization called the We The People Foundation, which he later joined.

Frederick Allen testified that some of the literature he relied on was prepared by a man named Larken Rose, with whom Allen ultimately worked on a “letter writing campaign ... trying to get answers from various people in the government.” The prosecutor's opening question in cross-examining Allen was: “Are you telling this jury that you firmly hold these beliefs even after your good friend Larken Rose went to jail for 15 fifteen [sic] months for not filing tax returns for these same and similar beliefs?”—to which Allen responded, “Absolutely.”

Robert Schulz, who headed the We The People Foundation that the Allens joined and from which Frederick Allen received information, appeared as a defense witness. Schulz testified that his foundation did espouse the no-liability positions on which the Allens relied and that he believed those views to be correct. On cross-examination by the prosecutor, Schulz conceded that he had testified on behalf of another defendant charged with tax crimes, Richard Simkanin, who was ultimately convicted.

The jury convicted the Allens on all counts in April 2010, and the court sentenced each defendant to identical terms of 36 months' imprisonment. On appeal, the Allens argue only that the district court erred in refusing to give four requested jury instructions (all reprinted along with other disputed charges in an addendum to this decision). They also suggest that the prosecutor exceeded the proper bounds of cross-examination, although no objection was lodged at trial nor is one seriously developed on appeal.

Review as to instructions is ordinarily de novo as to questions of substantive law, while issues of phrasing and emphasis are reviewed for abuse of discretion. United States v. Teemer, 394 F.3d 59, 63 n. 2 (1st Cir.), cert. denied, 544 U.S. 1009, 125 S.Ct. 1964, 161 L.Ed.2d 790 (2005). Refusal to give a particular instruction requires reversal only where the requested instruction was both substantively correct and not substantially covered elsewhere in the charge—and even then only when the error was not harmless. United States v. Gonzalez, 570 F.3d 16, 21 (1st Cir.2009).

The first failure to instruct claim is that the district court erred in rejecting a tendered instruction concerning “guilt by association.” Although the instructions given said that guilt must be based on the Allens' own intentions and actions, what the Allens requested was considerably more pointed: their proposed charge warned against “guilt by association” and against attributing guilt merely because the defendant was “associated with or friendly with anyone you may find to have acted in violation of the law.”

The Allens justify this charge as a response to the cross-examination already described. Although the Allens also suggest in their summary of argument that the questions were impermissible, they neither objected to them at trial nor seriously develop this contention on appeal. Nevertheless, it is helpful to make clear that the case law, selectively cited by the Allens, does not automatically restrict references to convictions of third parties: it all depends on the relevance of the references and the risk of any threatened unfair prejudice.

Here, the questions were relevant. When a defendant urges good faith in failing to pay taxes, what he understood to be his obligations matters. It was at least relevant to Frederick Allen's good faith not only that Allen had been repeatedly warned by the IRS but also that he knew that the views advocated by Larken Rose, similar to Allen's own, had lead to Rose's own conviction for not filing tax returns. He might nevertheless honestly entertain contrary views but that he had information contradicting his professed beliefs was still worth considering. See Cheek, 498 U.S. at 202, 111 S.Ct. 604.

As to Schulz, the cross-examination brought out that he had similarly testified as to tax obligations on behalf of another defendant charged with tax crimes who was ultimately convicted; indirectly, Schulz' testimony (to which the government had objected) could be regarded as supporting by example the reasonableness of the Allens' beliefs. So, the jury might consider, as impairing Schulz' own credibility as a professed believer, knowledge that his position had already been rejected by a federal court. It is, as with Allen, fairly modest impeachment but still relevant.

The Allens could have objected that the cross-examination—both of Frederick Allen and of Schulz—was substantially more prejudicial than helpful, Fed.R.Evid. 403; but, that judgment is primarily for the trial judge, and there was certainly no plain error. Showing that a tax protester does not believe what he says is a tricky task that requires that some latitude be allowed to the government.

As for the requested cautionary instruction, there is often some risk of prejudice in averting to convictions of others for the crime in question. ² The threat of guilt by association is perhaps greatest where the defendant has done little but is closely associated with others already known to have been convicted or, more often, who are co-defendants or alleged co-conspirators whose patent wrongdoing is brought out in detail in the trial.

Here, the Allens' own conduct and the basis for their beliefs were the centerpiece of the trial, and the references to the convictions of Rose and Simkanin were brief and undeveloped. Little risk existed that the latter would overwhelm, confuse or seriously taint the jury's understanding of the former. The instruction could reasonably have been given but, in matters like this not everything permissible is therefore compulsory: given the minimal risk of such prejudice in this case, refusing the instruction was not an abuse of discretion.

The other three instructions in dispute present less of a legal issue because, in our view, two were given in substance and the last requested instruction was a slanted statement of the law. The first...