U.S.A v. Kellar
| Decision Date | 09 September 2010 |
| Docket Number | No. 09-41287,No. 4:08-cr-00145-RAS-DDB-2,09-41287,4:08-cr-00145-RAS-DDB-2 |
| Parties | UNITED STATES OF AMERICA, Plaintiff-Appellee v. MICHELE G. KELLAR; PHILIP G. KELLAR, Defendants—Appellants |
| Court | U.S. Court of Appeals — Fifth Circuit |
Appeal from the United States District Court for the Eastern District of Texas
Before STEWART, PRADO, and ELROD, Circuit Judges.
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Philip and Michele Kellar (collectively, the "Kellars") appeal their convictions and sentences for violations of the Internal Revenue Code ("IRC"). A jury found both Michele and Philip guilty of one count of failure to pay income taxes, in violation of 26 U.S.C. § 7201; and Philip guilty of four counts of failure to file income tax returns, in violation of 26 U.S.C. § 7203. The district court sentenced the Kellars each to forty-one months' imprisonment, the high end of the recommended Guidelines range.
On appeal, the Kellars make several common arguments, and several unique to one or the other. Both argue that the Government did not introduce sufficient evidence as to whether they willfully violated the IRC, and that the district court erred when it calculated the tax loss for purposes of sentencing. Philip argues that the district court abused its discretion when it prohibited him from offering into evidence opinion letters that Philip alleges created his good faith belief that he owed no income tax. Michele argues that the district court abused its discretion by not allowing her to testify as to the circumstances of her arrest, and by denying her request for a minor role reduction or downward departure at sentencing.
Because the district court allowed Philip to testify as to the contents of the opinion letters without admitting them into evidence, it did not abuse its discretion. Likewise, it did not abuse its discretion by refusing to allow Michele to testify as to the circumstances of their arrest, as those circumstances have no relevance as to whether Michele willfully failed to comply with the IRC. F urtherm ore, the G overnm ent introduced sufficient evidence for a rational jury to conclude that the Kellars willfully violated the IRC, and to conclude that Michele actively and willingly participated. Similarly, the Government did not abuse its discretion when it found that Michele was not entitled to a minor role reduction or downward departure at sentencing. Finally, the district court did not clearly err by adopting the Government's proffered tax loss calculation for the years that the Kellars failed to file income tax returns. For these reasons, we affirm the Kellars' convictions and sentences.
Prior to 1995, Philip paid his income taxes consistently. That year, however, Philip met Dr. Sweet, author of Good News for Form 1040 Filers, Bad News for the IRS, and subsequently failed to "voluntarily" file any tax returnsor pay any income taxes from 1996 to 2007. Four months after his first failure to file a tax return, Philip purchased "opinion letters, "1 and began to conduct his own research as to whether the federal income tax was mandatory. Philip alleges that he did not believe that his commission income was taxable, and formed his beliefs after researching "Supreme Court cases, books, the Internal Revenue Code, seminars, and professional advice from CPA[s], enrolled agents, tax attorneys," and anyone else who had "a real professional knowledge of the tax code."
In 1996, Philip married Michele, who testified that she would write, mail, notarize, or sign things for Philip because "he was her husband and she trusted him." Michele admitted that she failed to pay income taxes while married to Philip, and chose not to because Philip told her that the IRS could not tax their wages. She also stated that she and Philip "had a lengthy and communicative relationship" with the IRS, and that they responded to all IRS correspondence with the same request: "show me where it says my income/wages are taxable." The Kellars allege that they never received a response to those requests. Michele admitted that she also believed that she did not have to pay income taxes, and that those beliefs were not based solely on those of Philip.
The Government reports that the Kellars earned approximately $177,757 in 2000, $242,068 in 2001, $246,156 in 2002, $206,426 in 2003, $218,000 in 2004, $289,445 in 2005, $305,046 in 2006, and $163,661 in 2007. In 2005, after the IRS provided notice that it had initiated a criminal investigation into the Kellars' deficiencies, the Kellars filed untimely tax returns for 2001, 2002, 2003, and 2004, but failed to pay any amounts owed. Despite filing extensions in 2005, 2006, and 2007, the Kellars filed no tax returns at all for those years.
D uring the years in question, Philip repeatedly filed forms with and sent letters to his employers claiming "99 withholding allowances," or that "no federal withholding is authorized," and signed each document "U.T.C.D.," which stands for "under threat, coercion, and duress." Michele acted similarly, filing W-4 forms which falsely claimed various withholding allowances with her employers. These actions prevented the Kellars' employers from withholding any of their income for federal taxes.
Additionally, the Kellars sent the IRS correspondence, including challenges to jurisdiction, threats to file criminal complaints, objections to bills, "administrative notices," and "administrative interrogatories." Michele threatened third parties with lawsuits if the third parties complied with IRS summonses or levies. Additionally, Philip attempted to hide his income by having his paychecks disbursed to an entity called the "Order of Gershom," and then having the payments routed back to him. The Kellars also held other bank accounts under "nominee names," such as "PMK Trust, Unlimited," and "MGK Trust, Unlimited."
In 2004, the IRS instituted a tax lien to offset its deficiency. In response to the IRS's correspondence with the Kellars, the Government states that the Kellars attempted to further conceal their income and obstruct IRS collection efforts. As an example, the Government describes how Philip opened a bank account, depositing only $25 and withdrawing that sum seven days later. Philip then submitted checks to the IRS totaling more than $500,000 as "Tender of payment in Adjustment and Set-Off." After the bank returned the checks for insufficient funds, Philip sent letters to the IRS stating that his checks "were not 'bankable items'" and insisting that the IRS cancel his debt. Around this time, Michele attempted a similar maneuver, sending checks totaling over $20,000 to the IRS on an account opened with a $10 deposit and closed nine days after opening.
In July 2008, law enforcement officials, including an IRS agent, rang the doorbell at the Kellars' residence, and then kicked in the door to execute arrest warrants for the Kellars on tax evasion charges. Michele alleges that the officers dragged her, Philip, and their teenage daughter out of bed and handcuffed them for officer safety. Although Michele requested to use the restroom, officers would only permit her to do so if they accompanied her. Without elaboration, Michele also alleges that the officers touched her in a "sexually inappropriate manner." Pursuant to an order from the court, a psychologist evaluated Michele, and concluded that Michele exhibited signs of Post Traumatic Stress Disorder ("PTSD"), Major Depressive Disorder ("MDD"), and "had no trust in the federal system."
A grand jury issued a superseding indictment charging both Michele and Philip with one count of willful evasion of the payment of taxes, in violation of 26 U.S.C. § 7201, and Philip with four additional counts of willful failure to file income tax returns, in violation of 26 U.S.C. § 7203. At trial, the Kellars argued that they did not act "willfully." Philip attempted to introduce into evidence the opinion letters that he alleged caused him to believe in good faith that the Government could not tax his income. The district court, however, only permitted Philip to testify as to their contents, read a few excerpts, electronically project excerpts from the opinion letters to the jury, and offer biographical information and professional qualifications of the authors. The district court also provided a limiting instruction to the jury, ordering that they only consider the letters to the extent that they may have affected Philip's willfulness. Philip testified that the proffered information influenced his understanding of the federal income tax, such as his beliefs that only activities requiring a license from the Government are taxable and that where the IRC referred to "persons," it meant only artificial persons such as corporations.
In addition to Philip's proffer, Michele attempted to testify about the circumstances of their arrest. The Government objected on relevance grounds, and Michele responded that the circumstances would help the jury understand her perspective that "you cannot trust the government, the IRS does not want you to know that your wages are not taxable; they will come after you if you try to fight them," and that "[t]he Government's actions that morning only solidified her beliefs that she and her husband were right and the IRS was trying to scare them into being quiet." The district court sustained the Government's objection.
At the close of the Government's case, the district court denied the Kellars' motion for acquittal under Federal Rule of Criminal Procedure 29, the jury convicted the Kellars of all counts for which they had been charged, and the Kellars proceeded to sentencing. Both the Kellars and the Government made objections to the pre-sentence report ("PSR") and filed sentencing memoranda. Michele requested a minor role adjustment, which the district court denied.
The Kellars' base offense level turned largely on the amount of tax loss associated with their criminal...
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