United States v. Allen

United States Court of Appeals
For the First Circuit

Nos. 10-2160, 10-2161

UNITED STATES OF AMERICA,

Appellee,

v.

FREDERICK ALLEN and KIMBERLEE ALLEN,

Defendants, Appellants.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Joseph L. Tauro, U.S. District Judge]

Before
Boudin, Selya and Howard,
Circuit Judges.

Lowell H. Becraft, Jr. for appellants.
Joseph B. Syverson, Tax Division, Department of Justice, with
whom Carmen M. Ortiz, United States Attorney, Frank P. Cihlar,
Chief, Criminal Appeals & Tax Enforcement Policy Section, and
Gregory Victor Davis, Tax Division, Department of Justice, were on
brief for appellee.

January 6, 2012
 BOUDIN, Circuit Judge. Frederick and Kimberlee Allen--

husband and wife--appeal from their convictions for tax-related

offenses. For some years the Allens filed annual federal income

tax returns reporting their income. However, for tax years 1997

through 1999, despite reportable income, the Allens filed returns

reporting zero income. On the advice of their dentist, and their

own research, they concluded that no provision of the Internal

Revenue Code imposed "liability" on them for taxes, and attached

this explanation to their returns.

Beginning in 1998, the Allens succeeded in stopping their

mutual employer from withholding income taxes from their wages by

claiming exemptions from withholding. Later, in 2000, the Allens

convinced their employer to issue them paychecks directly instead

of through a payroll company, and to treat them as "independent

contractors" not subject to withholding of social security and

medicare taxes. In 2001, Frederick Allen managed to secure the

return of earlier-paid employment taxes withheld from the Allens'

wages before their claim of "independent contractor" designation.

Between 2000 and 2008, despite reportable income asserted

by the government to exceed $100,000 in each of the years, the

Allens filed no tax returns at all. During the same period, they

took a variety of steps that made it more difficult for the

government to track and levy their assets, such as requesting that

their paychecks be made payable to "cash" or payable directly to

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the Allens' creditors, closing all of their bank accounts, and

transferring ownership of their home to a trust. The Allens paid

all of their bills using cash and money orders, and cashed any

checks through a stratagem with a bank teller friend.

Between 1999 and 2007, the Internal Revenue Service

("IRS") repeatedly informed the Allens that their "no liability"

position was frivolous, and in 2007, the IRS specifically warned of

criminal sanctions. In 2009, the government charged the Allens

each with one count of conspiracy to defraud the United States, 18

U.S.C. § 371 (2006); one count of attempted evasion of payment of

tax (for tax year 1999), 26 U.S.C. § 7201; and four counts of

willful failure to file income tax returns (for tax years

2003-2006), id. § 7203.

The Allens were tried together by a jury in April 2010.

The government offered evidence as to the taxes owed in the years

at issue and evidence as to the warnings given to the Allens, the

zero returns filed in several years and the absence of returns in

the others, and various steps summarized above taken by the Allens

to frustrate tax collection. A detailed recitation is unnecessary

because the Allens do not claim that the evidence taken as a whole

was insufficient to support the verdicts.

The Allens' main defense at trial, where both testified,

was that they had a good faith belief that--as they understood the

tax laws--they owed no taxes. Cheek v. United States, 498 U.S. 192

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(1991).1 Frederick Allen testified that his research, prompted by

discussion with his dentist, persuaded him that taxpayers like him

and his wife were not specifically identified in the Internal

Revenue Code as liable for taxes. His searches included accessing

various websites purporting to analyze the tax laws, including that

of an organization called the We The People Foundation, which he

later joined.

Frederick Allen testified that some of the literature he

relied on was prepared by a man named Larken Rose, with whom Allen

ultimately worked on a "letter writing campaign . . . trying to get

answers from various people in the government." The prosecutor's

opening question in cross-examining Allen was: "Are you telling

this jury that you firmly hold these beliefs even after your good

friend Larken Rose went to jail for 15 fifteen [sic] months for not

filing tax returns for these same and similar beliefs?"--to which

Allen responded, "Absolutely."

Robert Schulz, who headed the We The People Foundation

that the Allens joined and from which Frederick Allen received

information, appeared as a defense witness. Schulz testified that

his foundation did espouse the no-liability positions on which the

1
Cheek concluded that a defendant lacks the willfulness
necessary for tax evasion if he honestly believes, based on a
misreading of the tax laws, that he owes no taxes--the claim made
by both defendants in this case. Id. at 201-02. Cheek
distinguished, and did not allow as a defense, a belief that the
tax laws are unfair or are unconstitutional. Id. at 202 n.8, 204-
07.

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Allens relied and that he believed those views to be correct. On

cross-examination by the prosecutor, Schulz conceded that he had

testified on behalf of another defendant charged with tax crimes,

Richard Simkanin, who was ultimately convicted.

The jury convicted the Allens on all counts in April

2010, and the court sentenced each defendant to identical terms of

36 months' imprisonment. On appeal, the Allens argue only that the

district court erred in refusing to give four requested jury

instructions (all reprinted along with other disputed charges in an

addendum to this decision). They also suggest that the prosecutor

exceeded the proper bounds of cross-examination, although no

objection was lodged at trial nor is one seriously developed on

appeal.

Review as to instructions is ordinarily de novo as to

questions of substantive law, while issues of phrasing and emphasis

are reviewed for abuse of discretion. United States v. Teemer, 394

F.3d 59, 63 n.2 (1st Cir.), cert. denied, 544 U.S. 1009 (2005).

Refusal to give a particular instruction requires reversal only

where the requested instruction was both substantively correct and

not substantially covered elsewhere in the charge--and even then

only when the error was not harmless. United States v. Gonzalez,

570 F.3d 16, 21 (1st Cir. 2009).

The first failure to instruct claim is that the district

court erred in rejecting a tendered instruction concerning "guilt

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by association." Although the instructions given said that guilt

must be based on the Allens' own intentions and actions, what the

Allens requested was considerably more pointed: their proposed

charge warned against "guilt by association" and against

attributing guilt merely because the defendant was "associated with

or friendly with anyone you may find to have acted in violation of

the law."

The Allens justify this charge as a response to the

cross-examination already described. Although the Allens also

suggest in their summary of argument that the questions were

impermissible, they neither objected to them at trial nor seriously

develop this contention on appeal. Nevertheless, it is helpful to

make clear that the case law, selectively cited by the Allens, does

not automatically restrict references to convictions of third

parties: it all depends on the relevance of the references and the

risk of any threatened unfair prejudice.

Here, the questions were relevant. When a defendant

urges good faith in failing to pay taxes, what he understood to be

his obligations matters. It was at least relevant to Frederick

Allen's good faith not only that Allen had been repeatedly warned

by the IRS but also that he knew that the views advocated by Larken

Rose, similar to Allen's own, had lead to Rose's own conviction for

not filing tax returns. He might nevertheless honestly entertain

contrary views but that he had information contradicting his

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professed beliefs was still worth considering. See Cheek, 498 U.S.

at 202.

As to Schulz, the cross-examination brought out that he

had similarly testified as to tax obligations on behalf of another

defendant charged with tax crimes who was ultimately convicted;

indirectly, Schulz' testimony (to which the government had

objected) could be regarded as supporting by example the

reasonableness of the Allens' beliefs. So, the jury might

consider, as impairing Schulz' own credibility as a professed

believer, knowledge that his position had already been rejected by

a federal court. It is, as with Allen, fairly modest impeachment

but still relevant.

The Allens could have objected that the cross-examination

--both of Frederick Allen and of Schulz--was substantially more

prejudicial than helpful, Fed. R. Evid. 403; but, that judgment is

primarily for the trial judge, and there was certainly no plain

error. Showing that a tax protester does not believe what he says

is a tricky task that requires that some latitude be allowed to the

government.

As for the requested cautionary instruction, there is

often some risk of prejudice in averting to convictions of others

for the crime in question.2 The threat of guilt by association is

2
One risk is the general concern that the jury will rely on
"birds of a feather are flocked together" reasoning to conclude
that the defendant is more likely to have committed a criminal act

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perhaps greatest where the defendant has done little but is closely

associated with others already known to have been convicted or,

more often, who are co-defendants or alleged co-conspirators whose

patent wrongdoing is brought out in detail in the trial.

Here, the Allens' own conduct and the basis for their

beliefs were the centerpiece of the trial, and the reference to the

convictions of Rose and Simkanin was brief and undeveloped. Little

risk existed that the latter would overwhelm, confuse or seriously

taint the jury's understanding of the former. The instruction

could reasonably have been given but, in matters like this not

everything permissible is therefore compulsory: given the minimal

risk of such prejudice in this case, refusing the instruction was

not an abuse of discretion.

The other three instructions in dispute present less of

a legal issue because, in our view, two were given in substance and

the last requested instruction was a slanted statement of the law.

The first of the two, labeled "conspiratorial intent," sought to

make clear that the prosecution must prove two intents on the

conspiracy charge: an intent to agree to participate in the

if he is associated with other criminals. E.g., United States v.
Rivera-Santiago, 872 F.2d 1073, 1083-84 (1st Cir.), cert. denied,
492 U.S. 910, and cert. denied, 493 U.S. 832 (1989). The
other--probably more relevant here--is that the jury could treat a
conviction of another for similar conduct as a guide to what it
should do in the case at hand. E.g., United States v.
Ofray-Campos, 534 F.3d 1, 22-23 (1st Cir.), cert. denied, 129 S.
Ct. 588 (2008), and cert. denied, 129 S. Ct. 999 (2009).

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conspiracy and an intent to commit the underlying substantive

offense--here defrauding the United States.

While accurate, e.g., United States v. Frankhauser, 80

F.3d 641, 653 (1st Cir. 1996), that statement of law was adequately

conveyed to the jury by the court's instruction that the

prosecution was required to prove "that the defendant whose case

you are considering willfully joined in th[e] agreement" and that

"[t]o act 'willfully' . . . means to act voluntarily and

intelligently and with the specific intent that the underlying

crime be committed."

In turn the instructions clearly defined the underlying

crime as "defraud[ing] the United States, or one of its agencies or

departments, by dishonest means," and went on to define the term

"defraud" in conventional phrasing that is not here contested.

While the jury had to connect the two instructions, the central

scienter issue--whether the Allens acted in good faith or instead

knew they were acting contrary to law--was the heart of the

evidence, the arguments and the instructions.

Indeed, the trial court instructed the jury:

Now, let me talk about the subject of
good faith. . . . The defendant does not act
willfully if he or she believes in good faith
that he or she is acting within the law, or
that his or her actions comply with the law.
A good faith belief is one which is honestly
and genuinely held. Therefore, if the
defendant you are considering subjectively
believed that what he or she was doing was in
compliance with the tax statutes, he or she

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 cannot be said to have had the criminal intent
required to engage in tax evasion or to fail
to file federal income returns. . . .

In proving willfulness, it is the
government's burden to prove beyond a
reasonable doubt that the defendant did not
act with a good faith belief as to what the
law required of him. If you find the
defendant believed in good faith he or she was
acting in compliance with the law as to any
count, you must find him or her not guilty as
to that count.

This instruction also demonstrates the flaw in the

Allens' third claim, namely, that the judge refused their request

to provide their "theory of defense" instruction. That instruction

was a lengthy and repetitive five-paragraph charge that essentially

stated separately, for each non-conspiracy count, that the jury

must acquit if it had a reasonable doubt about the defendant's

guilt given the defendant's profession of a good faith belief that

his or her income was not taxable.

The Allens say that they were disadvantaged because the

district court did not use the phrase "theory of defense" in

presenting the substantively correct good faith charge to the jury.

It is quite true that in some situations a court ought to focus the

jury's attention on just what the defendant disputes--whether it is

an affirmative defense or merely a specification of just what

element of the government's case is controverted and in a nutshell

just what the defendant's version of the matter might be. But this

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is mandatory only where there is some risk that the theory of the

defense might otherwise seem obscure.

In this case, the Allens did not deny that they had

failed to report income or failed to file taxes at all, nor was

there any real dispute about what they had been told by the IRS or

about the steps they had taken to escape withholding or conceal

their own transactions. The only serious dispute was about their

assertion of good faith and professed belief that no taxes were due

on their income and therefore it was not reportable. That this was

their "theory of defense" hardly needed any reinforcement by the

judge, let alone a separate restatement addressed to each of the

counts dealing with different years.

Finally, the Allens attack the district court's refusal

to give their requested charge stating: "In this case, the

defendant is not presumed to know the law. For any law the

government asserts the defendant knew, the government must prove

beyond a reasonable doubt that the defendant knew it." The first

sentence is more or less right but was covered in substance and

more cogently by the district judge's charge; the second sentence

is misleading and was properly refused.

Many are familiar with the saying that "a defendant is

presumed to know the law," which is rarely intended as a factual

presumption. Rather, it is ordinarily used as a shorthand for the

"general rule that ignorance of the law or a mistake of law is no

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defense to criminal prosecution[, a proposition that] is deeply

rooted in the American legal system." Cheek, 498 U.S. at 199.

This is fair enough for conduct that is widely understood to be

wrong, whether or not illegal, as is true of most familiar criminal

violations.

However, for crimes that depend on legal rules that are

by no means widely understood, Congress has in a number of cases

imposed a requirement, usually phrased as a requirement of

"willfulness," that requires as an element of the offense knowledge

by the defendant that the conduct is illegal or at least wrongful.

In this case, for slightly different reasons, all three of the

offenses charged required knowledge on the part of the defendants

that they did indeed owe taxes that they were required to declare

and to pay.3

But this was fully explained to the jury in the two good

faith paragraphs quoted above. This explanation was stated in the

affirmative and, in using the good faith and belief language, was

far more useful than entering into a discussion about presumptions.

Apart from the familiar "presumed innocent" phrase--usually matched

with an explanation that the government carries the burden of

3
The conspiracy to defraud count requires wrongful intent,
Frankhauser, 80 F.3d at 653, as was explained to the jury by the
instructions in this case; the tax evasion counts and the failure
to file counts name crimes that explicitly require willfulness. 26
U.S.C. §§ 7201, 7203.

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proof--presumptions usually require some care in explanation.

Their use is sometimes necessary but certainly not here.

The second sentence in the requested instruction--"For

any law the government asserts the defendant knew, the government

must prove beyond a reasonable doubt that the defendant knew it"--

is misleading and was properly refused. It implies that the

government's burden was to prove that the defendants knew of the

particular statutes and regulations obligating them to pay income

taxes and file returns. But "[k]nowledge of the law's demands

does not depend on knowing the citation any more than ability to

watch a program on TV depends on knowing the frequency on which the

signal is broadcast.4"

In this case, the Allens claimed that, in general,

ordinary wage earners were not subject to tax on their income

because the Internal Revenue Code did not say they were liable.

Improbable though their profession of belief may seem, the jury was

instructed up, down and sideways that they were entitled to be

acquitted if they held this belief in good faith. The jury did not

4
United States v. Patridge, 507 F.3d 1092, 1094 (7th Cir.
2007) (Easterbrook, J.), cert. denied, 552 U.S. 1280 (2008), and
cert. denied, 555 U.S. 909 (2008); see also United States v.
Cavins, 543 F.3d 456, 458-59 (8th Cir. 2008). Nor did the Supreme
Court suggest otherwise in Bryan v. United States, 524 U.S. 184,
194-95 (1998). Rather, it is "aware[ness] of the duty at issue"
that is required in tax prosecutions like the Allens'. Id. at 195
n.22.

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credit them on what is an issue of fact, namely, the sincerity of

their professed beliefs.

Affirmed.

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 ADDENDUM

The Allens' requested "Guilt by Association" instruction5:

There is a long-standing rule against
"guilt by association." A defendant may not
be convicted merely because people who worked
or associated with him or her committed
criminal conduct. In this case, a defendant
cannot be convicted simply because he or she
was associated with or friendly with anyone
you may find to have acted in violation of
the law. Each element of each offense must
be proved independently against a defendant
individually on the basis of his or her own
conduct and state of mind.

The Allens' requested "Conspiratorial Intent" instruction:

In this case, the government must
prove two different types of intent beyond a
reasonable doubt before a defendant can be
considered part of a conspiracy to defraud
the United states. It must prove both an
intent to agree to participate in a
conspiracy to defraud the United States, and
an intent to defraud the United States.

Furthermore, I instruct you that a
person cannot have the specific intent to
defraud the United States unless he knows he
has a federal tax liability.

If the government has not proven that
a defendant both intended to defraud the
United States and intended to agree with
another person to defraud the United States,
you must acquit that defendant.

The Allens' requested "Not Know Law" instruction:

In this case, the defendant is not
presumed to know the law. For any law the
government asserts the defendant knew, the

5
Supporting citations that were included in the Allens'
submission to the district court have been omitted.

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 government must prove beyond a reasonable
doubt that the defendant knew it.

The Allens' requested "Theory of Defense" instruction:

If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 1999 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 2 of the indictment.

If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 2003 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 3 of the indictment.

If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 2004 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 4 of the indictment.

If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 2005 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 5 of the indictment.

If upon consideration of all the
evidence you are left with a reasonable doubt
whether a defendant believed in good faith
that for the year 2006 his or her income was
not taxable, it shall be your duty to acquit
him or her for count 6 of the indictment.

Excerpts from jury instructions given to jury:

The burden is always on the
prosecution to prove guilt beyond a
reasonable doubt as to every essential
element of the crime charged. And this
burden never shifts to a defendant because
the law never imposed on the defendant in a

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criminal case the burden or duty of calling
any witnesses or producing any evidence.

. . . .

For you to find the defendants guilty
of the conspiracy charged, you must be
convinced that the government has proved each
of the following things beyond a reasonable
doubt . . . .

First, that the agreement specified in
the indictment, and not some other agreement
or agreements, existed between at least two
people to defraud the United States, or one
of its agencies or departments, by dishonest
means. The word "defraud" is not limited to
its ordinary meaning of cheating the
government out of money or property.
"Defraud" also means impairing, obstructing
or defeating the lawful functions of any
government agency or department by dishonest
means.

Second, that the defendant whose case
you are considering willfully joined in that
agreement.

. . . .

To act "willfully" in the context of
the conspiracy charge means to act
voluntarily and intelligently and with the
specific intent that the underlying crime be
committed . . . .

Proof that the defendant willfully
joined in the agreement must be based upon
evidence of his or her own words and/or
actions.

. . . .

To act willfully means to
intentionally violate a known legal duty to
file, not to act as a result of accident,
mistake, or negligence.

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 Now, let me talk about the subject of
good faith. . . . The defendant does not act
willfully if he or she believes in good faith
that he or she is acting within the law, or
that his or her actions comply with the law.
A good faith belief is one which is honestly
and genuinely held. Therefore, if the
defendant you are considering subjectively
believed that what he or she was doing was in
compliance with the tax statutes, he or she
cannot be said to have had the criminal
intent required to engage in tax evasion or
to fail to file federal income returns. But
if the defendant disagrees with the tax law
or believes the tax laws violate his or her
constitutional rights, such beliefs are not a
good faith misunderstanding of the law.

In proving willfulness, it is the
government's burden to prove beyond a
reasonable doubt that the defendant did not
act with a good faith belief as to what the
law required of him. If you find the
defendant believed in good faith he or she
was acting in compliance with the law as to
any count, you must find him or her not
guilty as to that count.

A belief need not be objectively
reasonable to be held in good faith.
Nevertheless, you may consider whether the
defendant's stated belief about the tax
statutes was reasonable as a factor in
deciding whether the belief was honestly or
genuinely held. In considering the
defendant's good faith misunderstanding of
the law, you must make your decision based on
what the defendant believed in his own mind
and not upon what you or someone else
believes or thinks the defendant ought to
have believed. Whether the defendant's
beliefs about the legality of his actions
were right or wrong, reasonable or
unreasonable, is irrelevant to the issue of
willfulness. The only issue is whether those
beliefs were, in fact, held by the defendant
whose case you are considering.

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