U.S. v. Marston

• Decision Date: 10 March 2008
• Docket Number: No. 06-4191.,06-4191.
• Citation: 517 F.3d 996
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Clifford B. MARSTON, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

517 F.3d 996

UNITED STATES of America, Plaintiff-Appellee, v. Clifford B. MARSTON, Defendant-Appellant.

No. 06-4191.

United States Court of Appeals, Eighth Circuit.

Submitted: November 13, 2007.

Filed: March 10, 2008.

Joe Alfred Izen, Jr., argued, Ballaire, TX, for appellant.

Mark Sterling Determan, argued, Alan Hechtkopf, on the brief, Washington, DC, for appellee.

Before WOLLMAN, JOHN R. GIBSON, and BENTON, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

Following jury trial, Clifford B. Marston was convicted on May 19, 2006 in the district court¹ on nine counts of tax evasion, 26 U.S.C. § 7201,² twelve counts of filing false tax documents, 26 U.S.C. § 7206(1),³ and four counts of assisting in the preparation of false returns or other documents, 26 U.S.C. § 7206(2).⁴ In order to prove the scienter necessary to convict Marston under the three statutes, the government was required to show that he acted willfully in failing to report his own taxable income and the income distributed to his employees. During trial, Marston's chief argument was that he held a good faith belief that his domestically earned income was not taxable because it did not amount to a "source" of income under § 861 of the Internal Revenue Code, 26 U.S.C. § 861. Marston contended that § 861 authorizes taxes only upon foreign sources of income, not domestic income. The issue at trial was not whether Marston correctly interpreted the tax code, but whether he held a genuine belief that his interpretation was correct. He raises five issues on appeal: (1) that the government indicted him on a theory of the case that required proof of filing false tax returns, but the documents he filed with the IRS did not meet the legal definition of a "tax return;" (2) that the district court erred when it permitted the government to reference the documents as tax returns; (3) that the district court erred when it allowed the government to introduce testimony relating to the bad tax conduct of other persons; (4) that the district court erred in refusing to admit into evidence a videotape explaining Marston's beliefs; (5) that the district court erred in issuing a willful blindness jury instruction; (6) and lastly, that the district court erred by imposing a sentence derived from the use of judge-found facts in violation of Cunningham v. California, ___ U.S. ___, 127 S.Ct. 856, 166 L.Ed.2d 856 (2007), and by treating the advisory Sentencing Guidelines range as presumptively reasonable. We affirm.

Clifford Marston, a Doctor of Podiatry, practiced in Springfield, Missouri until 1996, when his practice began to decline as big hospitals bought up patient pools in the area. To combat the decline, Marston moved to Mountain Home, Arkansas, where he opened a practice under his existing Missouri corporation, Sunshine Foot Clinic. Sunshine experienced an initial boom period of robust growth before the arrival of a competing doctor slowed the practice's development. When the practice failed to grow as Marston expected, he began to experience considerable financial strain, causing Marston to accrue approximately $93,000 in credit card debt in addition to loan debt he incurred by taking salary advances from Sunshine.

In January of 1999, Marston's daughter's father-in-law exposed him to a website, which taught that an individual had no legal duty to pay taxes on domestically earned income. After reviewing the website and conducting his own review of the tax code, Marston, according to his testimony at trial, allegedly came to the conviction that Congress had not authorized the collection of taxes on domestic income. On December 6, Marston acted upon this alleged belief and filed several amended employer's quarterly tax return forms 941 with the I.R.S., revising to zero all previously reported wages paid by Sunshine for the 1996, 1997, and 1998 tax years, and requesting a refund of taxes previously paid in each corresponding year. Marston filed additional forms 941 on February 7, 2000 and March 23, 2000, revising to zero all of the employee wages paid by Sunshine for the 1999 tax year. The I.R.S. rejected each of Marston's requests for a refund and described his position as having no legal basis. For the 2000 tax year, Marston reported to the I.R.S., on original forms 941, zero wages for the first two quarters and left blank all wage fields for the later two quarters. For the first quarter of 2001, he again filed a form 941 without any markings in any of the wage fields.

On April 5, 2000, Marston and his wife filed a 1040-EZ form with the I.R.S., reporting that he received $6,620.77 in total wages. This amount did not reflect any income earned by Marston from Sunshine, but reflected income received by Marston's wife that was reported to the government and income received from an investment account and reported by Firstar Mutual Fund Services, LLC on a Form 1099-R. According to Marston's disclosure statement, he listed these sources as taxable income despite his conviction that they were not in order to "avoid difficulties with the IRS." On January 4, 2001, Marston reported to the I.R.S. on a 1998 Form 1040EZ that he had zero income in the tax year 1998. He attached a supplementary disclosure statement, Form 8275, justifying his filing by stating that he had received no income from any of the sources listed in 26 C.F.R. § 1.861-8(f)(1). The I.R.S. replied to Marston in a letter dated April 20, 2001, classifying his Form 1040EZ as "frivolous," describing his position as "having no basis in law," and encouraging him to seek the advice of an attorney. On October 2, 2001, Marston sent to the I.R.S. a 1040EZ tax return form for the 2000 tax year that listed zero income.

Sunshine also supplied two employees, Misty Davis and Loretta Jelinek, with federal W-2 forms showing zero wages paid for the tax years 1999 and 2000. Davis and Jelinek subsequently filed tax return forms 1040 for those years, reporting no wages earned from Sunshine. Davis and Jelinek, in consultation with the I.R.S would eventually report their wages and pay the taxes owed on those wages, along with amounts due on those wages for contribution to the Medicare and Social Security funds.

At trial, Marston argued that he held a good faith belief that domestic sources of income were not taxable. In essence, he argued that the government failed to prove that he acted willfully in making false statements to the I.R.S., in aiding or assisting Jelinek or Davis in filing false returns, or in evading the payment of income taxes. The jury convicted him of all twenty-five counts. Subsequently, the district court found that the applicable amount of potential tax loss attributable to Marston's conduct was $404,582.37. The district court sentenced Marston to 26 months' imprisonment on each count, to run concurrently.

I.

A.

Marston's first argument presupposes an incorrect reading of the indictment against him. According to Marston, the indictment describes him as having filed false tax returns and aiding and abetting other persons to file false tax returns. Marston argues that none of the documents filed with the I.R.S. meet the legal definition of the phrase "tax return."

We have given the phrase "tax return" a narrow and specific meaning when deciding whether a tax protester has violated 26 U.S.C. § 7203 of the Internal Revenue Code, willful failure to file a tax return. A defendant can be guilty of failure to file a tax return even if he actually files a form with the I.R.S. if that form does not contain "sufficient information [ ] from which the IRS can calculate tax liability." United States v. Grabinski, 727 F.2d 681, 686 (8th Cir.1984). Applying this standard, courts have held that a return that contains only zeroes and no information regarding gross income or deductions claimed or only protest information is not considered a valid "tax return," so that a person may be convicted for willfully failing to file a return. Id. at 686 (stating "the IRS should not have to accept on faith the taxpayer's assertions regarding taxable income or tax liability without knowledge of circumstances regarding, among other things, gross income received or deductions claimed."); United States v. Silkman, 543 F.2d 1218, 1219 (8th Cir.1976) (per curium) (holding that form containing only constitutional objections to taxation is not a return); United States v. Mosel, 738 F.2d 157, 158 (6th Cir.1984) (per curium) (same); United States v. Rickman, 638 F.2d 182, 184 (10th Cir. 1980) (holding that form listing income as zero was not an "adequate" return); United States v. Porth, 426 F.2d 519, 522-23 (10th Cir.1970) (holding that form listing income as zero and containing constitutional objection to the imposition of a tax, was not a return); see also United States v. Francisco, 614 F.2d 617, 619 (8th Cir.1980) (filing requirements were not satisfied by a return that contained "no income information from which tax liability [could] be calculated"). Marston argues that the indictment refers to the documents that are the basis of the criminal charges as "tax returns," although they do not provide sufficient information to calculate a tax liability, and therefore the government has necessarily failed to prove an essential element alleged.

Contrary to Marston's reading of it, the indictment does not allege, as elements of the crimes, that he filed "tax returns" as they are legally defined for § 7203 purposes. The indictment alleges that he filed a "Form 1040EZ an individual income tax return," an "Employer's Quarterly Federal Tax Return, Form 941," and advised his employees to file an "Individual Income Tax Return Form 1040" with the I.R.S., containing false information (reporting, in most instances, zero wages). By referring to the forms using their full descriptive titles, including the moniker "form," the indictment is merely indicating which documents it is relying upon to form the basis of the crimes alleged. Because these...