Saturday, November 21, 2009

Save-A-Patriot Did Not Save a Doctor

Yesterday, the Fifth Circuit decided a case, United States v. Miller, 588 F.3d 897 (5th Cir. 2009), here, sustaining a medical doctor's conviction for tax evasion, § 7201. The issues decided are not novel, but should reinforce what the practitioner or student probably already knows. The key points are:

1. A misdemeanor failure to file case became a felony evasion case because, in addition to failure to file, there were significant affirmative attempts to evade. The Court of Appeals said in addressing the lower court’s denial of the motion for acquittal:
The evidence at trial sufficiently demonstrates Miller's evasion. It is undisputed that he failed to file tax returns for tax years 2000 and 2001, as charged in the indictment. Further, Miller acted affirmatively when he converted payments made to the clinic to cash, money orders, and cashier's checks. Witnesses testified that Miller's practice of converting payments made to the clinic made it difficult for the IRS to determine his income. These affirmative acts had the "likely effect of mislead[ing]" the IRS, and precluded the agency from effectively assessing his tax liability. Spies, 317 U.S. at 399; Robinson, 974 F.2d at 577. Moreover, Wolff testified that the Medical Manager software on Miller's clinic's computers included double sets of billing records. Viewing the evidence in the light most favorable to the verdict, the affirmative acts of keeping double records and conversion, coupled with the failure to file, support a finding of evasion.
2. The doctor joined a tax protestor / defier movement, called "Save-A-Patriot" to give his evasion some semblance of legitimacy, at least in giving his evasion the opportunity to assert the Cheek defense. He was the sole defense witness, testifying
that in 1995, after being audited by the IRS, he joined Save-A-Patriot. He also studied materials provided by Save-A-Patriot. Based on his study of the materials and of the Internal Revenue Code, he believed that the income tax system was voluntary and that he was not required to pay taxes, though he had filed tax returns in the past.
The jury did not believe him and convicted him. (There was a deliberate ignorance instruction, so that the jury could have convicted him on that basis rather than finding that he had an affirmative expressly formulated intention to violate a known legal duty.) The key part of the deliberate ignorance instruction (from the Fifth Circuit pattern instructions) was:
You may find that a defendant had knowledge of a fact if you find that the defendant deliberately closed his eyes to what would otherwise have been obvious to him. While knowledge on the part of the defendant cannot be established merely by demonstrating that the defendant was negligent, careless, or foolish, knowledge can be inferred if the defendant deliberately blinded himself to the existence of a fact.
Note in this regard that the doctor's ex-wife who gave otherwise damaging testimony did testify that the doctor "decided not to file tax returns after joining Save-a-Patriot because he felt that filing was unnecessary and unconstitutional." Cheek does not permit the unconstitutional argument; indeed, by asserting nonliability based on unconstitutionality of the law, a defendant virtually admits that he knows the law and intentionally violated violate it. (There may perhaps be some logical lapses here, but I think they may be inherent in the Cheek case, Cheek v. United States, 498 U.S. 192 (1991) which is worth re-reading (with concurrence and dissent) from time to time.)

Further as to his knowledge of the duty to pay, the Court of Appeals said:
In addition, the evidence supports the jury's finding of willfulness under the Cheek standard. Miller testified that he withheld taxes after becoming a member of Save-A-Patriot and studying the tax laws in late 1995. Miller, however, permitted taxes to be withheld from his earnings prior to 1996, which demonstrates that he knew of the duty to pay appropriate income tax. Miller also did not consult with any tax professionals regarding his failure to file taxes for 2000 and 2001, though he had done so in the past. Based on this evidence, the jury could have reasonably determined that Miller knew he had a duty to pay taxes and knowingly violated that duty.
3. The doctor complained on appeal that evidence of a settlement negotiation had been improperly excluded. The court of appeals found that the excluded evidence (i) was not relevant, a threshold requirement in all events, and (ii) had minimum probative value that was offset by the potential to confuse the jury, citing FRE 403. Interestingly, the court of appeals noted in a footnote:
n9 The district court also ruled that the negotiations evidence was not admissible under FRE 408, which forbids the admission of offers of compromise or negotiations for compromise in certain civil cases, or its exceptions. FED.R.EVID.408. Though we have held that Rule 408 applies in criminal cases, see United States v. Hays, 872 F.2d 582, 588-89 (5th Cir. 1989), there is a split in authority in our sister circuits on this issue. See United States v. Bailey, 327 F.3d 1131, 1144-47 (10th Cir. 2003) (discussing circuit split). We decline to address the applicability of FRE 408 to this criminal case, however, because the evidence regarding settlement negotiations is excludable on the grounds of relevance.
The Bailey case is a worthy read for those encountering this issue.

4. The Court discusses the two marital privileges. I quote just the portion of the opinion that describes these privileges (citations omitted):
The marital privilege encompasses two distinct privileges. The first permits a married witness to refuse to testify adversely against his or her spouse. The witness may neither be compelled to testify nor foreclosed from testifying. The second bars one spouse from testifying as to the confidential marital communications between the spouses. The confidential communications privilege survives the marriage and may be asserted by either spouse with respect to communications that occurred during the marriage even after the marriage has terminated. The privilege applies only to communications; it does not apply to acts.
Under the facts, the parties were not married at the time, so the first privilege was not applicable. The second was applicable as to qualifying marital communications. However, as with many rules, there is an exception, and the exception in this case was for "conversations between husband and wife about crimes in which they are jointly participating." (Citation omitted.) The key testimony was his ex-wife's admission that her failure to file committed the crime of failure to file. Defendant's concern on appeal was that he was convicted of guilty by association to his ex-wife.

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