U.S. v. Clayton

• Decision Date: 29 October 2007
• Docket Number: No. 07-50002.,07-50002.
• Citation: 506 F.3d 405
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Charles Thomas CLAYTON, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

506 F.3d 405

UNITED STATES of America, Plaintiff-Appellee, v. Charles Thomas CLAYTON, Defendant-Appellant.

No. 07-50002.

United States Court of Appeals, Fifth Circuit.

October 29, 2007.

Alan L. Hechtkopf, Samuel Robert Lyons (argued), Tax Div., Jeremy D. Engle, U.S. Dept. of Justice, Civ. Rights Div., Washington, DC, for U.S.

Lowell Harrison Becraft (argued), Huntsville, AL, for Clayton.

Appeal from the United States District Court for the Western District of Texas.

Before KING, GARZA and BENAVIDES, Circuit Judges.

PER CURIAM:

Defendant-appellant Charles Thomas Clayton appeals from a jury verdict finding him guilty of two counts of making and subscribing a false amended tax return in violation of 26 U.S.C. § 7206(1) and six counts of willful failure to file a tax return in violation of 26 U.S.C. § 7203. Clayton appeals his conviction on the six counts of willful failure to file a tax return, arguing that the Internal Revenue Code and tax regulations do not contain a valid exemption amount, and as such there is no legal requirement to file a tax return. He also appeals his conviction on the two counts of making and subscribing a false amended tax return, arguing that: (1) the district court erred in denying requested jury instructions pertaining to his defense and, (2) there is insufficient evidence to support his conviction. For the following reasons, we AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

Defendant-appellant Charles Thomas Clayton is a radiologist who resides and practices in Texas. Clayton regularly filed federal income tax returns until he associated with a tax protest organization in 1992. He did not file a 1992 tax return or pay tax on his 1992 income. In October 1996, he pleaded guilty to willful failure to file a federal income tax return for 1992 and was sentenced to one year probation. He subsequently filed his 1997 and 1998 tax returns.

The events giving rise to the present conviction center on Clayton's tax returns for 1997 through 2004. In 2000, Clayton began associating with Larken Rose, a tax protestor. Together they launched a website and produced a video promoting the "§ 861 argument," which asserted that the domestic income of American citizens is not taxed via the Internal Revenue Code ("IRC"). Around this time, Clayton also began writing letters to the Internal Revenue Service ("IRS") and government officials, demanding that they refute the § 861 argument, and meeting with accountants to ask questions about the federal income tax code. Clayton received numerous replies explaining the fallacy of the § 861 argument, which Clayton patently refused to accept.

Clayton did not file returns for calendar years 1999 through 2004, although he earned over $1.5 million during that period. He also filed amended tax returns for 1997 and 1998, via two "Form 1040X, Amended U.S. Individual Income Tax Return" forms, in which he reported his income as zero and requested a refund of $167,596 in previously-paid tax. Specifically, in April 2001, he filed a Form 1040X for 1997 reporting that his adjusted gross income was not $246,979, as he had originally reported, but $0. He claimed a refund of $82,296. In April 2002, he filed a Form 1040X for 1998 reporting that his adjusted gross income was not $243,919, as he had originally reported, but $0. He claimed a refund of $85,300. Clayton attached lengthy memoranda to each amended return based on the § 861 argument.

On April 4, 2006, Clayton was charged with two counts of making and subscribing a false Form 1040X Amended U.S. Individual Income Tax Return for calendar years 1997 and 1998 in violation of 26 U.S.C. § 7206(1). The indictment also charged him with six counts of willful failure to file a tax return for calendar years 1999 through 2004, in violation of 26 U.S.C. § 7203. With respect to the six counts of willful failure to file a tax return, Clayton filed a motion to dismiss the indictment, arguing that the government could not satisfy the first element of the offense, namely that he was required by law to file income tax returns for these years, because the IRC does not establish a valid exemption amount that triggers the duty to pay taxes. The district court denied this motion. Clayton also submitted two jury instructions concerning his theory of defense to the two counts of filing a false tax return. The district court rejected his instructions. The jury found Clayton guilty of all eight counts on August 29, 2006. On September 5, 2006, Clayton filed a Rule 29 motion for a judgment of acquittal on the two counts of filing a false tax return, which the district court denied. Clayton was sentenced to a total of sixty months incarceration. Subsequently, we denied Clayton's motion for release on bail pending appeal, concluding that Clayton had not shown that his appeal raises a substantial question of law or fact.

II. DISCUSSION

A. Whether Inclusion of the Consumer Price Index Negates the Duty to File a Tax Return

Clayton argues that the district court erred in denying his motion to dismiss the six counts of willful failure to file a federal tax return because the court erroneously determined that the government satisfied the first element of a 26 U.S.C. § 7203 violation—that Clayton was required to file a federal tax return. See United States v. Buckley, 586 F.2d 498, 503-04 (5th Cir. 1978) (providing that in order to establish a violation of 26 U.S.C. § 7203, the government must prove (1) that the defendant was required to file a return; (2) that the defendant failed to file a return; and (3) that the failure to file a return was willful); see also United States v. Matosky, 421 F.2d 410, 413 (7th Cir.1970) (same); Sansone v. United States, 380 U.S. 343, 351, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965).

Clayton contends that no "law" requires the filing of a federal income tax return because, in establishing the exemption amount in 26 U.S.C. § 6012,¹ the government failed to comply with the procedural requirements of the Administrative Procedure Act ("APA"). 5 U.S.C. §§ 551-558. Clayton contends that the statute's reliance on the Consumer Price Index ("CPI") to calculate the exemption amount² strips the exemption amount of legal force because the CPI is compiled by the Department of Labor ("DOL") and has not been promulgated pursuant to the APA.³

We review questions of statutory interpretation de novo. United States v. Adam, 296 F.3d 327, 330 (5th Cir.2002).

Clayton's argument that an exemption amount based on the CPI cannot trigger tax liability is unpersuasive. Clayton's obligation to file a federal income tax return is derived from 26 U.S.C. § 6012. Section 6012, being a congressionally enacted federal statute, is not the rule of an "agency" as the term agency is defined by the APA. See Franklin v. Massachusetts, 505 U.S. 788, 800, 112 S.Ct. 2767, 120 L.Ed.2d 636 (1992) (explaining that "[t]he APA defines `agency' as `each authority of the Government of the United States, whether or not it is within or subject to review by another agency'," but explicitly does not include the Congress) (citing 5 U.S.C. §§ 701(b)(1), 551(1)). The fact that § 6012 incorporates by reference the CPI, which is compiled and published by an agency of the DOL, does not cause the APA to be invoked. In this context, the CPI is simply an ascertainable numerical standard, and there is no requirement that such a standard incorporated into a statute be itself an enforceable rule of law. Cf. Ashcroft v. ACLU, 535 U.S. 564, 585, 122 S.Ct. 1700, 152 L.Ed.2d 771 (2002) (holding that the incorporation of "community standards," by itself, did not make the Child Online Protection Act unconstitutionally overbroad).

Furthermore, a statute providing the basis for criminal prosecution may incorporate other provisions by reference. See United States v. Iverson, 162 F.3d 1015, 1021 (9th Cir.1998). In United States v. Iverson, the Ninth Circuit held that a state statute and municipal code that incorporated by reference federal standards for the term "pollutants" did not fail for unconstitutional vagueness. Id. The court reasoned that "a statute is not unconstitutionally vague merely because it incorporates other provisions by reference; a reasonable person of ordinary intelligence would consult the incorporated provisions." Id.

The Ninth Circuit's rationale is persuasive here. The CPI is an objective standard that has been approved by Congress, via the IRC, to adjust the bare minimum exemption amount of $2,000 for inflation. A reasonable person of ordinary intelligence, if he did not want to avail himself of the IRS documents and notices publishing the applicable exemption amounts, would consult the CPI and make the necessary calculations to determine his gross income for tax purposes. See Pond v. Comm'r, 211 Fed.Appx. 749, 752 (10th Cir.2007) (unpublished) (explaining that the IRC's provision of a specific number, $2000, and a statutory formula for adjusting that number, adequately defines the exemption amount and permits a taxpayer to be penalized for noncompliance); see also United States v. Priest, Nos. 06-10438, 06-10447, 06-10448, 2007 WL 1961885, at *2 (9th Cir. July 5, 2007) (unpublished mem.) (holding that "the alleged imprecision [caused by incorporating the CPI] in determining a statutorily provided exemption does not void, as a matter of law, the obligation to file a tax return").

B. Whether the Denial of the Defense's Jury Instructions Was an Abuse of Discretion

Clayton argues that the district court abused its discretion in denying the jury instructions he requested on his theory of defense to the two counts of filing a false income tax return.

We review a properly preserved challenge to jury instructions for an abuse of discretion. United States v. Finley, 477 F.3d 250, 261 (5th Cir.2007). "A district court has broad discretion in framing the instructions to the jury and this [c]ourt will not reverse unless the instructions taken as a whole do not correctly...