U.S. v. Heath

• Decision Date: 19 May 2008
• Docket Number: No. 07-1215.,07-1215.
• Citation: 525 F.3d 451
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Kenneth HEATH, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

525 F.3d 451

UNITED STATES of America, Plaintiff-Appellee, v. Kenneth HEATH, Defendant-Appellant.

No. 07-1215.

United States Court of Appeals, Sixth Circuit.

Argued: April 23, 2008.

Decided and Filed: May 19, 2008.

ARGUED: Sidney Kraizman, Kraizman & Kraizman, Detroit, Michigan, for Appellant.

Kathleen Moro Nesi, Assistant United States Attorney, Detroit, Michigan, for Appellee. ON BRIEF: Sidney Kraizman, Kraizman & Kraizman, Detroit, Michigan, for Appellant. Kathleen Moro Nesi, Assistant United States Attorney, Detroit, Michigan, for Appellee.

Before: CLAY and GILMAN, Circuit Judges; SCHWARZER, District Judge.^*

OPINION

RONALD LEE GILMAN, Circuit Judge.

Kenneth Heath was charged with four counts of attempting to evade the payment of federal income taxes between 1999 and 2002, and with two counts of presenting fictitious financial instruments. Heath argues on appeal that the district court committed reversible error by (1) refusing to instruct the jury that the government was required to prove that he owed a "substantial" amount of federal income tax, (2) failing to clarify for the jury that it could not find him guilty on a particular count unless his allegedly unlawful conduct was willful as to that count, and (3) erroneously stating in the jury instructions that a fictitious financial instrument must be "free of disqualifying remarks" as opposed to "disqualifying marks." He also asserts that the district court erred at sentencing by using the wrong standard when denying him a downward departure for diminished capacity under the United States Sentencing Guidelines (U.S.S.G.). For the reasons set forth below, we AFFIRM the judgment of the district court.

I. BACKGROUND

Heath is a design engineer and a graduate of California Polytechnic University. He was 69 years old at the time of his trial. In 1993, Heath became involved with tax-protester groups and stopped paying his federal income taxes. He was inspired to stop paying taxes after attending seminars conducted by Irwin Schiff, a convicted tax evader who wrote a book while in prison titled "Federal Mafia: How it Illegally Imposes and Unlawfully Collects Income Taxes." The book advises readers how to not pay taxes, but informs them that they run the risk of conviction if they follow the book's advice.

Although Heath lived in Imlay City, Michigan in 1993, he began filing federal income tax returns that showed him living in the "California Republic." In 1998, the Internal Revenue Service (IRS) deemed Heath's tax returns "frivolous" and informed him of that determination. The IRS told Heath in a letter that he could refile proper tax returns without paying a frivolous-return penalty. Heath instead proceeded to send the IRS more than 100 written communications asserting that he was not subject to federal income tax and refusing to refile in a legal manner. In one letter he explained his refusal by stating that as a "private sector wage earner ... he is not ... a corporation ... [;] we are sovereign natural born persons." He also filed more than 30 improper revised tax returns and received a $500 penalty for each return. In total, Heath was assessed penalties of more than $45,000 for improper and frivolous filings.

The government eventually charged Heath with tax evasion for the years 1999-2002. During that time period, Heath was employed by Aeroteck as an automotive engineer and by Continental Chivas, a manufacturer of automobile parts. Although Heath filed tax returns between 1999 and 2002 that disclosed his income, he paid no taxes because he claimed to be "exempt" on his W-4 tax forms. His employers therefore withheld no taxes from his paychecks. Heath also failed to pay taxes on money he received from a trust fund during that same time period. The IRS calculated that Heath owed the government $12,823 for 1999, $12,404 for 2000, $9,732 for 2001, and $2,231 for 2002. In total, the amount of unpaid tax due and owing the government between 1999 and 2002 came to $37,190.

The IRS responded to Heath's numerous communications during that time period by advising him that his arguments for not paying taxes were without legal merit and had never been successful in federal court. In addition, the letters informed Heath that he could be subject to criminal penalties for the willful failure to pay. The IRS eventually sent a tax levy for back taxes to Heath's employers and to the manager of his trust, Dennis Jacobs. Heath then engaged a group called "American Rights Litigators" to help him with his tax problems. Jacobs received a letter from an attorney for American Rights Litigators who claimed to be acting under a power of attorney from Heath. The letter informed Jacobs that he was not authorized to honor the IRS levy against Heath's trust because of alleged defects in "the process of the IRS." Jacobs, however, continued to pay trust funds to the IRS in accordance with the levy. Heath then transferred his interest in the trust to his sister.

American Rights Litigators also advised Heath that he could pay his tax debt with a registered "Bill of Exchange." A Bill of Exchange is a written order by one person to another, signed by the person giving the order, requiring a third party (the drawee) to pay a stated amount on demand. Black's Law Dictionary 164 (6th ed.1990). The most common type of Bill of Exchange is a personal check associated with a bank checking account. Heath went to another organization, "Guiding Light of God Ministries," for assistance with the paperwork required for securing a Bill of Exchange to pay the IRS. At trial, Heath explained that he understood that a Bill of Exchange was a "set off" where "you can ask the Secretary of the Treasury to set up an account for you for the IRS, send this bill to the accountant and the bill off to the bankruptcy in the United States, and they promise to pay the debt, and it is all in the master plan, whatever is in the 1933 bankers act...."

A paragraph at the bottom of the sample Bill of Exchange that Heath received from Guiding Light of God Ministries stated that

assisting our patrons with the preparation of UCC filing, Bills of Exchange, and other papers may not always be appreciated by those in government agencies ... due to a lack of understanding or otherwise. Though we do not advocate or prepare documentation that is unlawful, use of Bills of Exchange may result in a phone call or a visit from the IRS and/or treasury personnel alleging that the Bills of Exchange are fraudulent instruments, even though current Bills of Exchange specifically state on them `void where prohibited by law.' Several patrons have experienced this recently.

In August or September of 2003, Heath sent to the IRS what appeared to be a certified check in the form of a "Registered Bill of Exchange" in the amount of $88,997.38. The document contained a statement in the fine print that it was "Void where prohibited by law." Heath sent a second Bill of Exchange in December of that year for $20,297.82. It had the words "not negotiable" printed on the document. Both of the Bills of Exchange offered by Heath identified the drawee as "John W. Snow, Trustee," and showed his address at the Department of the Treasury. William Kerr, an employee with the bank-fraud division of the Office of the Comptroller of the Currency, explained at trial that the Bills of Exchange offered by Heath were fictitious instruments because they "d[id] not exist in the legitimate financial record." In other words, there was no real account for payment of the documents. Kerr also explained that the supposedly Registered Bills of Exchange offered by Heath looked like genuine financial instruments but were in fact fictitious.

A grand jury indicted Heath in December of 2005, charging him with four counts of attempting to evade and defeat the payment of federal income tax, in violation of 26 U.S.C. § 7201, and with two counts of presenting fictitious financial instruments, in violation of 18 U.S.C. § 514(a)(2). At the conclusion of the trial, the district court granted Heath's motion, filed pursuant to Rule 29 of the Federal Rules of Criminal Procedure, to dismiss the charge relating to the December 2003 Bill of Exchange. The court concluded that the document did not qualify as a fictitious financial instrument within the meaning of the statute because the face of the document stated that it was "not negotiable." A jury convicted Heath on the other five counts.

After the jury verdict, Heath's counsel filed an ex parte motion for authorization to obtain the services of a psychologist, Dr. Michael Abramsky, to examine Heath for the purpose of determining if he had "diminished capacity" as defined under § 5K2.13 of the 2002 Sentencing Guidelines. The district court granted the motion. After Dr. Abramsky interviewed Heath in October of 2006, he issued a report concluding that Heath did not suffer from major psychosis. But Dr. Abramsky found that Heath did have "cognitive slippage, which is likely a sign of a pre-demented state," and that Heath was chronically depressed.

Under the "legal conclusion" section of his report, Dr. Abramsky stated that although Heath was not insane and that his "reality testing" was adequate, there were "elements of diminished capacity." Dr. Abramsky concluded by stating: "I believe a downward departure is justified. This man is deteriorating, he is likely to get worse since such dementia is generally progressive and it appears that his mental state did make a significant contribution to the decisions he made, which ultimately led to his conviction and incarceration." The doctor's report was submitted to Heath's probation officer and to the district court. At sentencing, Heath's counsel requested a U.S.S.G. § 5K2.13 downward departure for diminished capacity.

Although the district court discussed Dr. Abramsky's report, it found that Heath did not have diminished capacity at the time of the offense or at sentencing. The court...