United States v. Melton ( 1996 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
No. 94-5535
LARRY R. MELTON; MARSHALL R.
MELTON; RANDALL W. MELTON,
Defendants-Appellants.
Appeal from the United States District Court
for the Western District of North Carolina, at Shelby.
Graham C. Mullen, District Judge.
(CR-93-34)
Argued: March 8, 1996
Decided: May 22, 1996
Before MURNAGHAN and MOTZ, Circuit Judges, and
BUTZNER, Senior Circuit Judge.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Lowell Harrison Becraft, Jr., Huntsville, Alabama, for
Appellants. Gregory Victor Davis, Tax Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON
BRIEF: Loretta C. Argrett, Assistant Attorney General, Robert E.
Lindsay, Alan Hechtkopf, Scott A. Schumacher, Mark T. Calloway,
United States Attorney, Tax Division, UNITED STATES DEPART-
MENT OF JUSTICE, Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Appellants Larry R., Randall W. and Marshall R. Melton were con-
victed of conspiracy to defraud the federal government by concealing
assets from the Internal Revenue Service, failure to pay federal
income taxes and failure to file federal income tax returns. Maintain-
ing that United States Supreme Court case law and the federal tax
code led them to believe that they were exempt from paying federal
income taxes, they have argued that they lacked the requisite criminal
intent to violate the law. They have also contended that their convic-
tions cannot be sustained due to uncertainty in the law surrounding
the federal income tax. Because we find that their claims lack merit,
we affirm the judgment of the district court.
I.
In September 1993, the Meltons were tried before a jury in the
United States District Court for the Western District of North Caro-
lina on twenty-three charges of tax-related criminal activity. The
United States alleged that, during the years 1986 through 1989, the
three brothers had engaged in a conspiracy to impede the Internal
Revenue Service in the performance of its functions of "ascertain-
ment, computation, assessment and collection of" their federal income
taxes in violation of 18 U.S.C. § 371, had evaded taxes in violation
of 26 U.S.C. § 7201, and had failed to file returns in violation of 26
U.S.C. § 7203. The United States presented evidence that the Meltons
used their painting partnership, Melton Brothers Painting, and a for-
eign corporation they controlled, Kimbro Quality Investments, to con-
duct business in ways designed to hide assets from the IRS. The
United States argued that the brothers purchased Kimbro in 1987 and
structured their ownership so that their names were not connected
with the corporation, that they conducted nearly all of their business
in cash and that they purchased gold, silver and rare coins--all with
2
the purpose of concealing the amounts and sources of their income
from the IRS.1 IRS agents testified that the Meltons had structured
their transactions in ways that would bypass banks, leave no paper
trails and prevent the IRS from computing their taxable income.
Records introduced at trial indicated that each brother had filed
income tax returns and paid income taxes through 1983. Larry and
Marshall did not file returns for any year thereafter.2 Randall contin-
ued to file returns through 1987, but not for any year thereafter. In
addition, Randall failed to report all of his income for the years 1985,
1986 and 1987. The United States demonstrated that each Melton
brother earned more than the minimum amount of income required
for the filing of a return in each of the years at issue. In all, the gov-
ernment proved that Larry owed $35,787 in taxes, Marshall owed
$36,062, and Randall owed $39,333. There was proof that the Mel-
tons were aware of their income and of their tax liability.3
The Meltons apparently learned how to operate "outside the sys-
tem" at tax protestor meetings and lectures they attended in the 1980s.
At those meetings, a man named Dean Allen often spoke about the
federal income tax, advising that it was an excise tax that could not
lawfully be imposed on common law occupations. The Meltons testi-
fied at trial that, based on Allen's lectures and their independent
research, they concluded that, as painters engaged in a common law
occupation, they could not be subjected to an excise tax denominated
as an income tax. Following the United States's presentation of evi-
dence, the brothers moved for acquittal because of conflicts in the
law, but the judge denied their motion.
The jury returned guilty verdicts on twenty-one counts alleged in
the indictment.4 The district court sentenced Larry to 33 months in
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1 Larry also was accused of hiding his ownership of real property by
placing it in his relatives' names.
2 They also owed additional taxes, penalties and interest for 1982 and
1983.
3 At least two brothers represented their income as $2,500 per month
on a loan application, and all of the Meltons received considerable corre-
spondence from the IRS.
4 The jury found the Meltons guilty of all counts except two charging
Randall with tax evasion for the years 1986 and 1987.
3
prison, Marshall to 18 months in prison, and Randall to 15 months in
prison, with supervised release afterward for each. The brothers
timely appealed their convictions and sentences.
II.
The Meltons have contended that the law requiring them to pay
taxes and file returns is unclear. They have argued that they were mis-
led into believing that they owed no federal income tax and that they
were convicted in violation of due process, all because of the vague-
ness and uncertainty over the nature of the federal income tax and the
statutory duty to file returns. Neither the district judge nor the jury
accepted the Meltons' arguments. Nor do we.
We consider de novo, as a question of law, whether the law is suffi-
ciently certain to permit a conviction. United States v. Mallas, 762
F.2d 361, 364 n.4 (4th Cir. 1985); accord United States v. Schulman,
817 F.2d 1355, 1358 (9th Cir. 1987), cert. denied, 498 U.S. 813(1990). In reviewing the district court's denial of a motion for judg-
ment of acquittal, we must determine "whether there is substantial
evidence (direct or circumstantial) which, taken in the light most
favorable to the government, would warrant a jury finding that the
defendant was guilty beyond a reasonable doubt." United States v.
MacCloskey, 682 F.2d 468, 473 (4th Cir. 1982); see also Glasser v.
United States, 315 U.S. 60, 80 (1942).
The Meltons maintain that they relied on federal case law and other
materials to determine that they were not required to file federal
income tax returns. They claim that they read a notice issued by the
IRS5 which led them to the Internal Revenue Code, 26 U.S.C. § 1 et
seq. There, sections 6001 and 6011 explained that only "persons lia-
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5 IRS Notice 609 states in pertinent part:
Our legal right to ask for information is Internal Revenue Code
sections 6001 and 6011 and their regulations. They say that you
must file a return or statement with us for any tax you are liable
for. . . . If you do not file a return, do not provide the information
we ask for, or provide fraudulent information, the law provides
that you may be charged penalties and, in certain cases, you may
be subject to criminal prosecution.
4
ble" must pay income taxes. The Meltons claim that, from Supreme
Court cases and other documents, they learned that the income tax is
an excise tax for which, as housepainters, they could not be held lia-
ble.
While courts may have offered differing views of the income tax
over time, the United States Supreme Court has consistently inter-
preted the federal income tax for 80 years. Since 1916, the Court has
construed the tax as an indirect tax authorized under Article I, Section
8, Clause I of the U.S. Constitution, as amended by the Sixteenth
Amendment. See Brushaber v. Union Pacific R.R. Co., 240 U.S. 1,
11, 16-19 (1916). Federal courts have all agreed that wages or com-
pensation for services constitute income and that individuals receiving
income are subject to the federal income tax--regardless of its nature.
See, e.g., Brushaber, 240 U.S. at 17; United States v. Sloan, 939 F.2d
499, 500-01 (7th Cir. 1991), cert. denied, 502 U.S. 1060 (1992);
Simmons v. United States, 308 F.2d 160, 167-68 (4th Cir. 1962). In
short, the debate over whether the income tax is an excise tax or a
direct tax is irrelevant to the obligation of citizens to pay taxes and
file returns. Simmons, 308 F.2d at 166 n.21 (stating that "it has been
clearly established that the labels used do not determine the extent of
the taxing power").
Furthermore, the duty to file returns and pay income taxes is clear.
Section 1 of the Internal Revenue Code imposes a federal tax on the
taxable income of every individual. 26 U.S.C. § 1. Section 63 defines
"taxable income" as gross income minus allowable deductions. 26
U.S.C. § 63. Section 61 states that "gross income means all income
from whatever source derived," including compensation for services.
26 U.S.C. § 61. Sections 6001 and 6011 provide that a person must
keep records and file a tax return for any tax for which he is liable.
26 U.S.C. §§ 6001 & 6011. Finally, section 6012 provides that every
individual having gross income that equals or exceeds the exemption
amount in a taxable year shall file an income tax return. 26 U.S.C.
§ 6012. The duty to pay federal income taxes therefore is "manifest
on the face of the statutes, without any resort to IRS rules, forms or
regulations." United States v. Bowers, 920 F.2d 220, 222 (4th Cir.
1990). The rarely recognized proposition that, "where the law is
vague or highly debatable, a defendant--actually or imputedly--lacks
the requisite intent to violate it," Mallas , 762 F.2d at 363 (quoting
5
United States v. Critzer, 498 F.2d 1160, 1162 (4th Cir. 1974)), simply
does not apply here.
Because federal income tax laws are clear, the case against the
Meltons was properly presented to the jury. Cheek v. United States,
498 U.S. 192, 203 (1991). The jury heard not only the United States's
evidence against the Meltons, but also the brothers' defense that they
believed they were not "persons liable" for federal income tax. The
jury rejected the excuse, however, and convicted them on nearly all
counts. The record contains sufficient evidence to support the jury's
finding that the Meltons were aware of their duties under the income
tax laws and wilfully chose to disobey those laws in an attempt to
evade their taxes.6
III.
The Meltons also challenge the district court's refusal to give vari-
ous jury instructions that they had proposed. We review the decisions
for abuse of discretion. United States v. Russell, 971 F.2d 1098, 1107
(4th Cir. 1992), cert. denied, 506 U.S. 1066 (1993); United States v.
Lozano, 839 F.2d 1020, 1024 (4th Cir. 1988). A district court has dis-
cretion to choose among proposed instructions and to determine the
content of its charge to the jury, Russell, 971 F.2d at 1107, as long
as, when "viewed as a whole in the context of the trial, the charge was
not misleading and contained an adequate statement of the law to
guide the jury's determination," United States v. Park, 421 U.S. 658,
675 (1975).
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6 There is no evidence that the Meltons received misinformation from
the federal government regarding their obligation to pay income taxes.
The Internal Revenue Code clearly defines who is liable to pay income
tax and required to file returns. Each Melton brother had gross income
in excess of the amount requiring the filing of a return in each of the
years at issue. Therefore, each was a "person liable." Furthermore, each
brother had filed income tax returns in the past. At best, the evidence
shows that the Meltons "may have been misguided, but they were cer-
tainly not unwary." Bowers, 920 F.2d at 223.
6
Viewing the jury instructions in the context of the entire trial, we
conclude that they were proper in all respects. We therefore find no
abuse of discretion.
IV.
For the foregoing reasons, the convictions and sentences are
AFFIRMED.
7