In
United States v. Carter, 2015 U.S. App. LEXIS 20240 (5th Cir. 11/19/15), unpublished,
here, the defendant, Carter, was a tax preparer convicted of "five counts of willfully aiding and assisting in the preparation of fraudulent tax returns in violation of 26 U.S.C. § 7206(2) [
here]." As alleged and the Court of Appeals believed proved at trial, Carter offered certain of his clients deductions for African art supposedly purchased after the year the deduction was claimed, with the required appraisals backdated. Carter was indicted for conspiracy to aid and assist and for the substantive offense of aiding and assisting. Carter had requested the following instruction:
The government must prove beyond a reasonable doubt that the Defendant acted willfully. A defendant does not act willfully if he believes in good faith that his actions comply with the law. Therefore, if the Defendant believed that what he was doing was in accord with the tax statutes, he cannot be said to have acted with criminal intent. Therefore, if you find that the Defendant honestly believed that he was not violating the tax laws, even if that belief was unreasonable or irrational, then you should find him not guilty. However, you may consider whether the Defendant's belief was actually reasonable as a factor in deciding whether he held that good faith belief.
The burden of establishing lack of good faith and criminal intent rests upon the prosecution. A defendant is under no burden to prove his good faith; rather, the prosecution must prove bad faith beyond a reasonable doubt.
According to the Fifth Circuit opinion:
The Government objected to the instruction on the grounds that the second paragraph was an incorrect statement of law. During a pretrial conference, defense counsel admitted that the Government's objection was meritorious but maintained that the remainder of the instruction [the first paragraph] was correct.
Immediately before instructing the jury, Carter's "Counsel averred that, under
Cheek, 'if the defendant ultimately believed that he was not violating any tax laws, even if that belief is unreasonable or irrational, then you should find him not guilty.'"
The trial court gave the following instruction instead of the one requested:
Carter's acts in connection with income tax returns are not willful if they are done through inadvertence, carelessness, justified excuse, or honest misunderstanding of the law.
The defendant is not guilty of willfully preparing a false or fraudulent return if he in good faith believes that the return, as he prepared it, truthfully reports the client's income-tax information. Even if the income was understated or the deductions or credits were overstated, he is not guilty unless he knew the return to be false and authorized its filing with the intent to violate the law.
On appeal, the Government conceded that the Court erred in not giving the
Cheek instruction that a belief of legality, even if unreasonable, defeats the willfulness required to convict for tax crimes requiring that the defendant act willfully.
Despite the error, the Court of Appeals affirmed the convictions:
Carter's sole argument on appeal is that the district court committed reversible error by failing to include in its willfulness instruction to the jury "that a good faith belief may be objectively unreasonable if sincerely held." In view of the Government's concession that the district court committed error, we simply review for harmless error. Thus, the salient question before us is whether, "in light of the entire record, the challenged instruction could not have affected the outcome of the case." United States v. Demmitt, 706 F.3d 665, 675 (5th Cir. 2013) (internal quotation marks omitted); see also United States v. Nguyen, 493 F.3d 613, 623 (5th Cir. 2007) (same).
The Court of Appeals recounts in great detail the evidence at trial in concluding that the jury would have determined willfulness if properly instructed and affirms on that basis.
JAT Comment: I am surprised that the attorneys, particularly the Government attorney, would not have attempted at trial to correct the judge so that the jury was properly instructed. Obviously Carter's counsel did, but the opinion is silent as to whether Government counsel made the attempt to correct the judge. The
Cheek holding is the bedrock of the Title 26 tax crimes and known -- or should be known -- to every attorney practicing in the area.
Cheek v. United States, 498 U.S. 192 (1990).
Equally troubling is that the Court may have taken over the province of the jury in holding that the jury would have returned the same verdict with the proper instruction. I think that conclusion is
likely on the evidence recounted by the Court of Appeals, but being likely does not mean that the jury's role in making the find should be short-circuited. In establishing the
Cheek standard , the Supreme Court made no examination of the record to conclude whether the jury would have convicted Cheek even with the proper instruction. To be sure, the cases articulate the proposition that improper instructions will not require reversal of a conviction is the evidence is so overwhelming that conviction would be a certainty. The Court cites
United States v. Montgomery, 747 F.3d 303, 310 (5th Cir. 2014); see
Good Opinion on Error in Not Giving Requested Good Faith Belief Instructions (Federal Tax Crimes Blog 3/29/14),
here. But, I think that it
should be the
unusual case where the issue is willfulness. Otherwise, this is an open invitation for trial courts just to give the standard willfulness instruction without the good faith belief nuance. See my blog just cited where I note that a defendant should be entitled to the instruction if he reasonably put good faith in play. See also Michael Saltzman and Leslie Book,
IRS Practice and Procedure (Thomsen Reuters 2015),
here, at ¶ 12.05[2][b] Willfulness and Good Faith, noting (footnote omitted):
The next question is whether, when there is a record predicate for the good-faith defense, the trial court's refusal to give the separate good-faith instruction is reversible error. Courts of Appeals are reluctant to reverse because, they reason, the Cheek willfulness instructions will advise the jury that the defendant must violate a known legal duty and if the defendant acted in good faith (certainly as to whether or not he or she had a known legal duty), then the jury would know willfulness could not exist. Hence, these courts reason, it is not reversible error for the trial judge to decline to give a separate good faith defense instruction. This holding is not that the good-faith defense instruction may not be given if a proper foundation is laid; it is just that there is no reversible error if a proper good-faith defense instruction is not given. But we believe most judges will give the instruction with the proper foundation.
[Note: I was the principal draftsman of the Chapter from which this is quoted.]
I am not convinced on the evidence recounted by the Court of Appeals that the jury would have convicted, particularly since the jury did acquit the defendant of tax offense conspiracy under 18 U.S.C. § 371,
here, to aid in the preparation of false tax returns. As described by the Court of Appeals, the conspiracy charged was an offense conspiracy which requires the same level of willfulness as the offense that was the object of the conspiracy. See my article John A. Townsend,
Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255, 262 n.40 & 264 n52 (2009),
here, citing
Ingram v. United States, 360 U.S. 672 (1959). On the basis of the erroneous instruction without the
Cheek nuance, the jury acquitted of the offense conspiracy. While there is no requirement that the verdicts be consistent, there seems to be enough here as there was in
Cheek to warrant a new trial to let the jury speak based on proper instructions. Of course, in a new trial with proper instructions, the defendant likely would be convicted as was Cheek. That seems to be the Court's conclusion, so why bother imposing the systemic costs of a new trial?
Also, Carter's counsel apparently abandoned the request for the second paragraph in the instruction originally requested. That paragraph would have added:
The burden of establishing lack of good faith and criminal intent rests upon the prosecution. A defendant is under no burden to prove his good faith; rather, the prosecution must prove bad faith beyond a reasonable doubt.
The prosecutor objected that this paragraph was not a good statement of the law and apparently Carter's counsel conceded the point. It is not clear to me why Carter's counsel abandoned the second paragraph and did not raise it later. Perhaps as written, the paragraph is not the most articulate for the concept. But I think the law is that, if the defendant fairly puts his good faith in play (he testified here), the Government has to prove willfulness beyond a reasonable doubt, which requires that it negate good faith beyond a reasonable doubt. In
Cheek v. United States, 498 U.S. 192, 202 (1991), the Court said (emphasis supplied):
In such a case, if the Government proves actual knowledge of the pertinent legal duty, the prosecution, without more, has satisfied the knowledge component of the willfulness requirement. But carrying this burden requires negating a defendant's claim of ignorance of the law or a claim that because of a misunderstanding of the law, he had a good-faith belief that he was not violating any of the provisions of the tax laws. This is so because one cannot be aware that the law imposes a duty upon him and yet be ignorant of it, misunderstand the law, or believe that the duty does not exist. In the end, the issue is whether, based on all the evidence, the Government has proved that the defendant was aware of the duty at issue, which cannot be true if the jury credits a good-faith misunderstanding and belief submission, whether or not the claimed belief or misunderstanding is objectively reasonable.
In other words, it is necessary that, in proving willfulness, if good faith is reasonably in play on the evidence, the Government must prove beyond a reasonable doubt that the defendant did not act with good faith.
The above is as revised on 12/22/15.
