U.S. v. Anthony

• Decision Date: 22 October 2008
• Docket Number: No. 07-1670.,07-1670.
• Citation: 545 F.3d 60
• Parties: UNITED STATES, Appellee, v. John J. ANTHONY, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

545 F.3d 60

UNITED STATES, Appellee, v. John J. ANTHONY, Defendant, Appellant.

No. 07-1670.

United States Court of Appeals, First Circuit.

Heard March 5, 2008.

Decided October 22, 2008.

Robert E. Barnes, with whom The Bernhoft Law Firm, S.C., was on brief, for appellant.

Margaret D. McGaughey, Appellate Chief, with whom Paula D. Silsby, United States Attorney, was on brief, for appellee.

Before LIPEZ and HOWARD, Circuit Judges, and DiCLERICO, JR.,^* Senior District Judge.

HOWARD, Circuit Judge.

A jury convicted John Anthony of four counts of evading federal income tax, in violation of 26 U.S.C. § 7201.¹ He raises several challenges to his conviction and his sentence. We affirm.

I. Facts

John J. Anthony had twenty-one years of service in the United States Coast Guard. For many years he paid federal income tax without incident. Beginning in 1998, however, that changed. For the tax year 1998, Anthony and his spouse filed a joint return on which zeros had been entered for income and tax owed. The return also claimed a refund due of all tax withheld for that year.² Attached to the return was a three-page statement. The Anthonys wrote that they did not believe they had a duty to pay federal income tax or to file a return, but that they had filed the return only because others had been— wrongfully, in their eyes—punished for failure to do so. The statement also explained the basis for the Anthonys' belief that they did not have the duty to pay federal income tax.

Anthony subsequently filed, with his employer and with the Coast Guard, W-4 forms that claimed exemption from federal income tax withholding on the basis that he would not be liable for any federal income tax.³ The Anthonys also filed a zero return for 1999 and did not file returns at all for 2000, 2001 and 2002 until 2004, when they learned a criminal investigation had commenced.

During this time, Anthony met Wayne Rebuck, who worked for a company called Commonwealth Trust Company selling trusts and internationally based corporations.⁴ Anthony purchased trusts and corporations from Rebuck, and with his help opened a bank account for one of these entities at the Federal Bank of the Middle East in Cyprus. Over time, Anthony transferred most of his assets into these entities, including his primary residence and funds he withdrew early from his IRA. In all, $870,778 was wired to the bank in Cyprus.

In 2004, Anthony emailed Rebuck, informing him that the Anthonys were going to "take a compliance position approach" due to the criminal investigations. In November of that year, Anthony began to file his overdue returns and to pay what he owed.

Throughout this course of events, Anthony continued to represent to the IRS that he did not believe he had a duty to pay taxes. He asserted a belief, relying on language from Supreme Court opinions published many years ago, that wages were not taxable as income, since they represented an even exchange, rather than a gain. He also believed, based on his analysis of the tax code, that there was no statute levying a federal income tax on individuals, except those individuals under exclusive federal jurisdiction, which he took to mean those living in the District of Columbia and in the territories of the United States.

Despite Anthony's "compliance position approach," and despite his eventual payment of back taxes, he was indicted and brought to trial in the District of Maine. A jury convicted Anthony on all counts. He was sentenced to thirty-three months of imprisonment, with a period of supervised release to follow. This appeal from both the conviction and the sentence ensued.

II. Discussion

Anthony was vigorously defended at trial and zealously represented on appeal. He marshals a host of challenges to both his conviction and sentence. First, he challenges on three fronts the willful blindness instruction given to the jury. Second, Anthony claims that evidentiary errors prejudiced him. And third, he challenges his sentence.⁵ Unpersuaded by any of these claims, we affirm.

A. Willful Blindness

"A willful blindness instruction informs jurors that they may impose criminal liability on people who, recognizing the likelihood of wrongdoing, nonetheless consciously refuse to take basic investigatory steps." United States v. Griffin, 524 F.3d 71, 77 n. 4 (1st Cir.2008) (citation and internal quotation marks omitted). "`A willful blindness instruction is appropriate if (1) a defendant claims a lack of knowledge, (2) the facts suggest a conscious course of deliberate ignorance, and (3) the instruction, taken as a whole, cannot be misunderstood as mandating an inference of knowledge.'" Id. at 78 (quoting United States v. Coviello, 225 F.3d 54, 70 (1st Cir.2000)).

Anthony argues that the district court's willful blindness instruction was erroneous for three reasons. First, he claims that after United States v. Cheek, 498 U.S. 192, 111 S.Ct. 604, 112 L.Ed.2d 617 (1991), the heightened knowledge requirement in tax cases renders this instruction all but forbidden in such cases. Second, he argues that no such instruction should have been given because the facts did not suggest a conscious course of deliberate ignorance, as the government's evidence tended to show actual knowledge of the duty rather than deliberate ignorance of it. And third, he attacks the specific instruction given at his trial, claiming that it would lead a jury to convict based on "reckless" ignorance rather than deliberate ignorance. He is mistaken.

We have not definitively resolved what standard of review we apply to the district court's decision to give a willful blindness instruction. United States v. Lizardo, 445 F.3d 73, 85 (1st Cir.2006) ("[O]ur precedent is unclear."); see also United States v. Heredia, 483 F.3d 913, 921 n. 11 (9th Cir.2007) (en banc) (discussing circuit split on standard of review). This question need not detain us. As was true in Lizardo, "[o]ur outcome is the same whether we apply a de novo or deferential standard of review, so we do not decide this issue today." Lizardo, 445 F.3d at 85.

First, Anthony attacks the general propriety of willful blindness instructions in the context of tax evasion. We have recently upheld the use of a willful blindness instruction in a tax case. Griffin, 524 F.3d at 78-79 (1st Cir.2008). That instruction concerned not whether the defendant was willfully blind to a duty, but whether she was willfully blind to the falsity of the statements on her tax returns. Nonetheless, the case is instructive. Griffin argued inter alia, "that willful blindness instructions are per se unconstitutional in cases involving a specific intent crime." Id. at 79. We dismissed this argument as "merit[ing] little discussion." Id. at 79 n. 6.

In tax cases, "the standard for the statutory willfulness requirement is the voluntary, intentional violation of a known legal duty." Cheek, 498 U.S. at 201, 111 S.Ct. 604 (internal quotation marks and citation omitted). The government must prove "that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Id. In Cheek, the Court held that the district court had committed error when it instructed the jury that Cheek's beliefs about the non-taxability of his wages were objectively unreasonable. "[I]f Cheek asserted that he truly believed that the Internal Revenue Code did not purport to treat wages as income, and the jury believed him, the Government would not have carried its burden to prove willfulness, however unreasonable a court might deem such a belief." Id. at 202, 111 S.Ct. 604.

The Court, however, was careful to note that the jury would still have to find that Cheek held a "good-faith belief" that he had no duty to pay taxes.⁶ Id. at 203, 111 S.Ct. 604. While such a belief need not be objectively reasonable, it must be one that is held in good faith. Thus, the defense that the accused did not know of his duty fails if he came by his ignorance through deliberate avoidance of materials that would have apprised him of his duty, as such avoidance undermines the claim of good faith. Other circuits share our conclusion that Cheek does not foreclose the use of a willful blindness instruction in tax-avoidance cases in general. See United States v. Dean, 487 F.3d 840, 851 (11th Cir.2007) (per curiam) (willful blindness appropriate in post-Cheek tax evasion case); United States v. Bussey, 942 F.2d 1241, 1249 (8th Cir.1991) (same); United States v. Bissell, 954 F.Supp. 903, 927 (D.N.J.1997) ("[D]eliberate ignorance is a subjective state of mind that may satisfy the element of willfulness." (internal quotation marks and citation omitted)). Accordingly, because deliberate ignorance of a duty to pay taxes is contrary to a good-faith belief, the willful blindness instruction may be given in appropriate tax evasion cases.

Anthony also claims the willful blindness instruction was unwarranted in his particular case because the government did not introduce evidence that would support a finding that he was willfully blind to his duty. We have said that "[a]s long as separate and distinct evidence supports a defendant's deliberate avoidance of knowledge and the possibility exists that the jury does not credit the evidence of direct knowledge, a willful blindness instruction may be appropriate." United States v. Bilis, 170 F.3d 88, 93 (1st Cir.1999) (quoting United States v. Brandon, 17 F.3d 409, 452 n. 74 (1st Cir.1994)). Anthony asserts on appeal that there was no "separate and distinct" evidence that supported the claim he had willfully blinded himself to his duty to pay his taxes. We do not agree.⁷

The government attempted to prove that Anthony actually knew of his duty to pay taxes. It pointed to his previous payment of taxes, his use of elaborate financial entities to conceal his assets, his refusal to use other channels to challenge the IRS's demands for payment, and his eventual payment when he...