732 F.3d 1234 (10th Cir. 2013), 10-2121, United States v. Melot

Docket Nº:10-2121, 11-2195.
Citation:732 F.3d 1234
Opinion Judge:MURPHY, Circuit Judge.
Party Name:UNITED STATES of America, Plaintiff-Appellee/Cross-Appellant, v. Billy R. MELOT, Defendant-Appellant/Cross-Appellee.
Attorney:Gregory M. Acton, Albuquerque, New Mexico, for Defendant-Appellant/Cross-Appellee. Mark S. Determan, Attorney, Department of Justice (Kenneth J. Gonzales, United States Attorney, Of Counsel; Kathryn Keneally, Assistant Attorney General; Frank P. Cihlar, Chief, Criminal Appeals & Tax Enforcement P...
Judge Panel:Before HOLMES, HOLLOWAY, and MURPHY, Circuit Judges.
Case Date:October 21, 2013
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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732 F.3d 1234 (10th Cir. 2013)

UNITED STATES of America, Plaintiff-Appellee/Cross-Appellant,


Billy R. MELOT, Defendant-Appellant/Cross-Appellee.

Nos. 10-2121, 11-2195.

United States Court of Appeals, Tenth Circuit.

October 21, 2013

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[Copyrighted Material Omitted]

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Gregory M. Acton, Albuquerque, New Mexico, for Defendant-Appellant/Cross-Appellee.

Mark S. Determan, Attorney, Department of Justice (Kenneth J. Gonzales, United States Attorney, Of Counsel; Kathryn Keneally, Assistant Attorney General; Frank P. Cihlar, Chief, Criminal Appeals & Tax Enforcement Policy Section; and Gregory Victor Davis, Attorney, Department of Justice, with him on the briefs), Washington, D.C., for Plaintiff-Appellee/Cross-Appellant.

Before HOLMES, HOLLOWAY, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

I. Introduction

After a jury trial, appellant Bill Melot was convicted of one count of corruptly endeavoring to impede the administration of the Internal Revenue Code, one count of attempting to evade or defeat tax, six counts of willful failure to file, and seven counts of making false statements to the Department of Agriculture. Melot was sentenced to a term of sixty months' imprisonment, a significant downward variance from the advisory guidelines range of 210-262 months. He was also ordered to pay $18,493,098.51 in restitution to the Internal Revenue Service.

In this appeal, Melot argues the Government presented insufficient evidence of willfulness to support his convictions and erred in the calculation of the tax loss and the amount of restitution. The Government cross-appeals, arguing the district court committed clear error by applying a two-level reduction to Melot's offense level for acceptance of responsibility. Exercising jurisdiction under 18 U.S.C. § 3742 and 28 U.S.C. § 1291, this court affirms Melot's convictions and reverses his sentence.

II. Background

On August 11, 2009, Melot was charged by indictment with one count of corruptly endeavoring to impede the administration of the Internal Revenue Code, in violation of 26 U.S.C. § 7212(a); one count of willfully attempting to evade the payment of taxes, in violation of 26 U.S.C. § 7201; six counts of willfully failing to file a tax return, in violation of 26 U.S.C. § 7203; and seven counts of making a false statement to the Department of Agriculture, in violation of 15 U.S.C. § 714m(a). Melot pleaded not guilty and a four-day trial was held in April 2010. The Government presented evidence that Melot received income from

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various businesses and rental properties but ceased filing income tax returns after 1986 1 and did not pay any federal income taxes since at least 1984.

At trial, an IRS revenue agent testified she was assigned Melot's case in 1992. During her first meeting with Melot and his accountant, she asked Melot why he had not filed a 1987 income tax return and he responded that " he didn't know how to do it." She testified Melot did not disclose all of his business entities during their meeting, but her subsequent investigation showed that, during the relevant time period, Melot operated between seven and ten gas stations under the moniker Melot Oil Company. He deposited the receipts from the businesses into multiple bank accounts he opened in the names of nominee entities.2 Melot established these entities and bank accounts using a false Social Security number or a false employer identification number. There was evidence Melot deposited over $9.5 million in gross business receipts into these bank accounts between 1999 and 2008. Each deposit was in an amount less than $10,000. The revenue agent testified this behavior is known as " structuring" and is done because a bank receiving a deposit of $10,000 or more is required to file a currency transaction report with the IRS.3

The agent obtained, among other things, records showing transfers ranging between $25,000 and $50,000 from Melot's domestic bank accounts to a Swiss bank in the Bahamas. She also uncovered large checks written to family members or to cash. Based on the books and records she obtained from Melot, bank deposit records, and other sources, the revenue agent determined Melot owed $253,260 in taxes for the tax year 1987; $430,464 for the tax year 1988; $867,595 for the tax year 1989; $521,638 for the tax year 1990; $353,667 for the tax year 1991; $462,657 for the tax year 1992; and $633,667 for the tax year 1993.4

Once the audit was complete, Melot was notified of the proposed assessment and given an opportunity to respond. Melot sent a letter to the IRS on March 30, 1999, stating:

Please be advised that I am a non-resident alien, American, of the United States, never having lived, worked, nor having income from any source within

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the District of Columbia, Puerto Rico, Virgin Islands, Guam, American Samoa, or any other territory within the United States which entity has its origin and jurisdiction from Article 1, Section 8, Clause 17 of the U.S. Constitution. Therefore I am a non-taxpayer outside of the venue and jurisdiction of the 26 USC. Please forward me a letter stating that I am not liable for these tax returns or provide me with a copy of the section numbers in 26 USC and 26 CFR requiring me to file the Form 1040.

The revenue agent testified that Melot's letter presented a frivolous tax argument that was consistent with arguments made by so-called tax protestors. In response, the IRS sent Melot a formal thirty-day notice, informing him of his right to a conference with a regional office of appeals. Melot responded by sending a second letter, stating:

I do not owe the IRS any income taxes. I have incurred no tax liability for the Form 1040 individual income tax under Title 26, Subtitle A, during those years. Furthermore, I am not under your jurisdiction since I fall under the classification, quote, non-resident alien, unquote, under Title 26 CFR 111. I do not reside in Washington, DC, or in any other federal enclave in which the IRS has jurisdiction. I am not subject to the jurisdiction of the United States. It is a well established principle of law that all federal legislation applies only within the territorial jurisdiction of the United States unless a contrary intent appears. Unquote. Foley Brothers versus Filardo, 336 U.S. 281 [69 S.Ct. 575, 93 L.Ed. 680], in 1948.... Please clear up your records for me.

Melot and the IRS exchanged additional correspondence but Melot did not follow the process for lodging a formal written protest to the assessment, file properly prepared tax returns for the years in question, or pay the assessed amount.

The Government also presented the testimony of an IRS field revenue officer whose job is to collect delinquent taxes remaining unpaid after a substitute-for-return assessment is made. She testified the IRS sent a notice to Melot in September 2000 informing him that a federal tax lien would be filed one year later in October 2001. She also stated the IRS seizes a taxpayer's property only as a last resort, " [a]fter all reasonable attempts have been made to try and work with the taxpayer." She testified the IRS does not have the power to seize property unless it is in the taxpayer's name 5 and, therefore, a taxpayer can impede the collection of a tax liability by transferring property, titling property or opening banks accounts in the name of a nominee, opening foreign bank accounts, or recording false mortgages. Melot's former employee testified that Melot told her he transferred assets to trusts and corporations " so it couldn't get tracked" by the government. Another former employee testified Melot purchased some real property and had it titled in her name even though she provided none of the purchase price. Although the property was subsequently mortgaged for $525,000, she did not receive any money from the transaction. When this employee purchased a retail store from Melot, she made monthly payments to individuals named Porterfield and Watson, not to Melot.

There was also testimony Melot frequently used cash to operate his businesses. A government witness who worked for a company that supplied tobacco products, candy, and sundries to Melot's businesses described him as a " big customer" who made " large purchases." She also testified Melot, at one point, attempted to pay for the merchandise with cash instead

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of electronic funds transfer payments because he " didn't want the money going through his [bank] account." A former employee testified Melot paid his employees with a combination of cash and checks and advised them they were not required to pay taxes on the portion of their wages paid in cash. She also testified she never received a W-2. Melot admitted he paid his employees with cash but testified it was at their request. He asserted he filed W-2 forms for his employees.

The Government also presented testimony related to Melot's receipt of agricultural subsidies from the United States Department of Agriculture. Melot applied for, and received, subsidies in his individual name and in the name of the KLM Trust from 1996 through 2009. The payments totaled $226,526. As a prerequisite to receiving these funds, Melot was required to complete eligibility and contract documents. The Government presented the documents completed by Melot indicating, in response to one question, that he is a United States citizen. On the forms, Melot also certified that the income information he provided was " consistent with the tax returns filed with the Internal Revenue Service." The application defined " adjusted gross income" as " the individual's or legal entity's IRS reported adjusted gross income." During the years at issue, however, Melot did not file a tax return or report any adjusted gross income to the IRS. He also provided the Department of Agriculture with a false Social Security number.

At trial, Melot did not...

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