United States v. Pflum

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
October 7, 2005
TENTH CIRCUIT
Clerk of Court
UNITED STATES OF AMERICA,
Plaintiff - Appellee, No. 04-3508
v. (D. Kansas)
DAVID G. PFLUM, (D.C. No. 04-CR-40008-SAC)
Defendant - Appellant.
ORDER AND JUDGMENT *
Before HENRY, McKAY, and HARTZ, Circuit Judges.
Benjamin Franklin famously quipped that “in this world nothing can be said
to be certain, except death and taxes.” Letter from Benjamin Franklin to Jean-
Baptiste Le Roy (Nov. 13, 1789), in 10 The Writings of Benjamin Franklin 69 (A.
Smyth ed. 1907). While not contesting the inevitability of the former (as far as
we know), David G. Pflum believed he had found a loophole to escape the latter.
After an extensive study that included reading books such as “The Great Income
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Tax Hoax” and “How Anyone Can Stop Paying Income Taxes,” he stopped paying
taxes. 1
But Franklin was more prescient than Mr. Pflum realized. He was indicted
on eight counts of failure to pay quarterly employment taxes, in violation of 26
U.S.C. § 7202, and three counts of failure to file a federal income tax return, in
violation of 26 U.S.C. § 7203. By his own testimony he conceded that from 1997
to 1999 he failed to file federal income tax returns, and in 1998 and 1999 he
failed to withhold federal employment taxes. The jury found him guilty on all 11
counts. Because the trial was held after Blakely v. Washington, 524 U.S. 296(2004), but before United States v. Booker, 125 S. Ct. 738 (2005), when the
constitutionality of the Federal Sentencing Guidelines was uncertain, the trial
judge, recognizing that the amount of tax loss to the government would be a
major factor at sentencing, decided to submit the issue to the jury. It found the
tax loss to be $573,900.00, resulting in an offense level of 18 and a sentencing
range of 27-33 months. Mr. Pflum was sentenced to 30 months in prison. On
appeal he asserts that the district court erred in two respects: (1) in refusing to
1
We note that the author of these books, Irwin Schiff, has maintained for
more than 30 years that income taxes are voluntary, but, not surprisingly, “he has
never been successful with that theory in court.” Nov. 13, 1789, United States v.
Schiff, 379 F.3d 621, 623 (9th Cir. 2004) (citing cases in which Schiff’s
arguments have been rejected); Newman v. Schiff, 778 F.2d 460, 467 (8th Cir.
1985) (referring to the “blatant nonsense” promoted by Schiff).
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give the jury a proposed instruction on “willfulness,” and (2) in denying a motion
to strike the testimony of two IRS agents. We affirm the conviction and sentence.
I. WILLFULNESS INSTRUCTION
Mr. Pflum argues that the district court erred in refusing to give a proposed
instruction relating to the “willfulness” of his acts. We review the district court’s
refusal to give a requested jury instruction for an abuse of discretion. United
States v. Starnes, 109 F.3d 648, 650-51 (10th Cir. 1997). “A district court does
not abuse its discretion so long as the charge as a whole adequately states the
law.” Id. at 651 (internal quotation marks omitted).
The crimes with which Mr. Pflum was charged required the jury to find
beyond a reasonable doubt that he acted “willfully.” 26 U.S.C. §§ 7202, 7203.
The court not only instructed the jury that it must find that Mr. Pflum acted
willfully, but it also gave the following instructions:
INSTRUCTION NO. 18
As mentioned earlier, the third element for the § 7202 offenses
charged in Counts One through Eight of the Second Superseding
Indictment and the third element for the § 7203 offenses charged in
Counts Nine through Eleven of the Second Superseding Indictment
are the same insofar as the government must prove that the defendant
acted willfully.
The defendant acted “willfully” if the law imposed a duty on
him, he knew of the duty, and he voluntarily and intentionally
violated the duty. A defendant’s conduct is not “willful” if it
resulted from negligence, inadvertence, accident, mistake or reckless
disregard for the requirements of the law, or resulted from a good
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faith misunderstanding that he was not violating a duty that the law
imposed on him. If you have a reasonable doubt as to whether the
defendant acted willfully, you must acquit the defendant.
R. at 45.
INSTRUCTION NO. 19
The defendant asserts he did not act willfully as charged in the
indictment, because he did not believe that the law imposed a duty on
him.
A defendant does not act “willfully” if he believes in good
faith that he is acting within the law or that his actions comply with
the law, even though the belief turns out to be incorrect or wrong.
Having the burden to prove the defendant acted willfully as charged,
the government must prove the defendant did not believe in good
faith that his actions were lawful. The burden of proving good faith
does not rest with the defendant because a defendant does not have
an obligation to prove anything in this case. Therefore, if you find
that the defendant actually believed what he was doing was in accord
with tax laws, then you must conclude that the defendant did not act
willfully.
In making this determination about the defendant’s good faith,
you must keep the following in mind. A defendant’s good-faith
belief or misunderstanding of the law need not be rational or even
reasonable, as long as he actually held the belief in good faith. A
defendant’s good faith misunderstanding of the law must be
distinguished from a defendant who understands the duty imposed on
him by law but disagrees with that law or views the law as
unconstitutional. There is no defense of good faith belief or
misunderstanding when a defendant knows his duty under the tax
laws but believes, sincerely or not, that the tax laws are
unconstitutional or invalid. A defendant’s belief that the tax laws
violate his constitutional rights does not constitute a good faith
misunderstanding of the requirements of the law. Furthermore, a
defendant’s disagreement with the government’s tax collection
system and policies does not constitute a good faith
misunderstanding of the law. You shall disregard any asserted good
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faith claims that the tax laws are unconstitutional or invalid or that
the tax collection system and policies are wrong.
In determining whether the defendant actually held the belief
or misunderstanding in good faith, you must consider all the evidence
in the case including the defendant’s effort to research and
understand the relevant tax laws and other authoritative judicial
decisions and materials, the reasonableness of the defendant’s
beliefs, and all of his actions taken before and after the events in
question that bear on the sincerity of the defendant’s state beliefs.
Id. at 46-47.
INSTRUCTION NO. 21
In proving that an act is done willfully, the government must
show that the defendant knew of his legal duty and violated it,
voluntarily and intentionally, and not because of mistake or
inadvertence or other innocent reason. The knowledge that a person
possesses at any given time may not ordinarily be proved directly
because there is no way of directly scrutinizing the workings of the
human mind. Knowledge may be proved by a person’s words, acts or
omissions, along with all the other evidence, in deciding whether a
person acted knowingly, that is voluntarily and intentionally.
In deciding whether a person has knowledge, you also may
consider inferences drawn from proof that a person deliberately
closed his eyes to what would otherwise have been obvious to him.
If you are convinced beyond a reasonable doubt that a person was
aware of the high probability of the existence of a fact and that he
deliberately avoided learning the truth, then you may infer knowledge
of the existence of this fact, but you may still find that the personal
actually believed the fact does not exist. It is entirely up to you as to
whether you find a person deliberately closes his eyes to the obvious
and as to what inferences should be drawn from such evidence. You
may not conclude that a person has knowledge, however, from proof
of mistake, negligence, carelessness, or a belief in an inaccurate
proposition.
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Id. at 50-51.
Not satisfied with the instructions, Mr. Pflum proposed additional
language: “In this case, the Defendant is not presumed to know the law.” Id. at
11 The district court decided that the substance of the proposed instruction was
adequately expressed in other instructions. We agree.
To be sure, to establish willfulness the government had to prove beyond a
reasonable doubt that Mr. Pflum had knowledge of the law. United States v.
Ambort, 405 F.3d 1109, 1114 (10th Cir. 2005). But the instructions given
established the government’s burden without the additional language proposed by
Mr. Pflum. The jury was instructed that the government must prove each element
of the offense beyond a reasonable doubt, including willfulness. Instruction 18
defined willfulness: “The defendant acted ‘willfully’ if the law imposed a duty
on him, he knew of that duty, and he voluntarily and intentionally violated the
duty.” R. at 45 (emphasis added). Instruction 21 is even more clear: “In proving
that an act is done willfully, the government must show that the defendant knew
of his legal duty and violated it, voluntarily and intentionally, and not because of
mistake or inadvertence or other innocent reason.” Id. at 50. The jury was also
given a lengthy “good faith” instruction, which stated that an act is not done
willfully if the person “believes in good faith that he is acting within the law” and
that the defendant’s “good-faith belief or misunderstanding of the law need not be
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rational or even reasonable . . . .” Id. at 46-47. This instruction also reiterated
that the burden was on the government to prove that the defendant acted willfully
and that the defendant “does not have an obligation to prove anything in this
case.” Id. at 46.
The jury was more than adequately instructed that the government had to
prove beyond a reasonable doubt that Mr. Pflum was aware of the duties the law
imposed upon him and that he intentionally violated those duties. Accordingly,
we cannot say that the district court abused its discretion in refusing to give the
proposed instruction.
II. MOTION TO STRIKE TESTIMONY
Mr. Pflum’s second issue on appeal is whether the district court erred in
refusing to strike the testimony of two government witnesses. On cross-
examination IRS Special Agent Henry Herron testified that the rate of income tax
withholding was 28%, a figure that he said was in the federal Sentencing
Guidelines, but could be found in the United States Code as well. Agent Abbe
Stewart later testified on cross-examination that wage withholding is governed by
IRS publication Circular E. On redirect she testified that the 28% figure could be
found in 26 C.F.R. § 31.3402(g)(1). After the government rested, Mr. Pflum
moved to strike the testimony. His counsel argued that the regulation cited by
Agent Stewart related only to supplemental wages and did not mention a 28%
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figure. He also argued that Circular E had no legal effect because it was not
published in the regulations. The district court denied the motion, but gave
Mr. Pflum leave to raise it again. The motion was renewed at the close of
evidence and denied again without comment by the court.
Before addressing Mr. Pflum’s argument, we make two observations
regarding the procedural context of the issue. First, although Mr. Pflum
originally argued that the challenged testimony affected both his conviction and
sentence, he now concedes that the testimony affected only his sentence
calculation. The jury did not need to find a specific amount of tax loss to convict
Mr. Pflum on any of the counts. The amount of tax loss was submitted to the jury
solely to prevent any potential sentencing problems that might arise in light of
Blakely.
Second, Mr. Pflum has not objected to the mandatory application of the
Sentencing Guidelines to this case. Had he done so, we would be confronted with
nonconstitutional Booker error because the sentence was calculated solely on facts
found by the jury. See United States v. Gonzalez-Huerta, 403 F.3d 727, 731-32
(10th Cir. 2005). But because Mr. Pflum has not raised this issue, we need not
address it. See United States v. Sandia, 188 F.3d 1215, 1218 n.2 (10th Cir. 1999).
For purposes of this case we will treat the guidelines in a pre-Booker fashion.
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“We review the district court’s admission of evidence for an abuse of
discretion, not disturbing the court’s decision unless we have a definite and firm
conviction that the trial court made a clear error of judgment or exceeded the
bounds of permissible choice in the circumstances.” Richardson v. Mo. Pac. R.R.
Co., 186 F.3d 1273, 1276 (10th Cir. 1999) (internal quotation marks and brackets
omitted). We may affirm on any ground supported by the record. United States v.
Sandoval, 29 F.3d 537, 542 n.6 (10th Cir. 1994).
We affirm because Mr. Pflum’s objection to the challenged testimony was
not timely. See generally 1 Jack B. Weinstein & Margaret A. Berger, Weinstein’s
Federal Evidence, § 103.11 (Joseph M. McLaughlin, ed., Matthew Bender 2d ed.
1997) (“An objection to the admission of evidence must be ‘timely’ or else any
error in admission may not be asserted on appeal. An objection is ‘timely’ if it is
made as soon as the opponent knows, or should know, that the objection is
applicable.” (footnotes omitted)). The basis for the objection—that the 28%
figure used to calculate the tax loss is not in the United States Code or the
regulations—was known to Mr. Pflum, or should have been known, long before
the objection was made. Specifically, even before Agent Herron took the stand
Mr. Pflum had stipulated to the admission of Government Exhibits 6 and 7, which
consisted of spreadsheets showing the names of Mr. Pflum’s employees, the
wages they were paid, and the amount of taxes that should have been withheld.
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The exhibits relied on the 28% figure in calculating the required withholding.
The cross-examination of Agent Herron also demonstrates that Mr. Pflum’s
counsel was aware of the 28% figure before Agent Herron took the stand. Indeed,
Mr. Pflum’s counsel questioned Agent Herron extensively about the 28% figure,
and even suggested that the figure was from the Sentencing Guidelines, and not
the Tax Code. At one point Mr. Pflum’s counsel asked Agent Herron: “Is it not
true that that 28 percent that you are using is not something that’s dictated or
required by the federal income tax laws, the 28 percent figure comes from another
set of laws. Is that correct?” Aplee. Supp. App. at 161.
The cross-examination of Agent Stewart also reveals that Mr. Pflum was
aware of the basis for his objection long before the government rested its case.
Agent Stewart did not testify on direct examination about the tax loss or the 28%
figure. Her testimony was limited to describing a W-4 form and the difference
between employees and independent contractors. On cross-examination
Mr. Pflum’s counsel questioned Agent Stewart about the withholding rate for
federal income taxes and how that rate would be calculated. Agent Stewart
responded: “You would have to look at the payroll tax tables that the Internal
Revenue Service puts out each year . . . .” Id. at 194.
Q. Now, this table, is that circular E?
A. That would be circular E.
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Q. Okay. Good enough. That’s what I want. So you’re familiar with the
fact that under Section 3402 of—just the section itself says withholding
shall be done according to some table, right?
A. That’s one of the ways, yes.
....
Q. And the typical way to withhold would be you’d look at the regulations
and it would say consult circular E, correct?
A. Give or take, yeah.
Q. And so you’d have to dig out circular E . . . to determine how much is
to be withheld?
A. That’s correct.
....
Q. And the only way you could determine that would be by looking at
circular E?
A. That’s correct.
Id. at 194-195.
Under Fed. R. Evid. 103 evidentiary objections generally must be made at
the time the evidence is offered. See Sorensen v. City of Aurora, 984 F.2d 349,
355 (10th Cir. 1993); see also Vallejos v. C.E. Glass Co., 583 F.2d 507, 511 (10th
Cir. 1978) (motion to exclude raised as part of motion for directed verdict was not
timely; “the proper time to object to the admission of evidence . . . was at the time
it was offered”). In this case Mr. Pflum did not object until after four additional
witnesses had been called and the government had rested its case. United States
v. Gibbs, 739 F.2d 838, 849 (3d Cir. 1984) (en banc) (objection untimely when
made “not when the evidence was offered, but during a motion to strike made
after the government had rested”); United States v. Kanovsky, 618 F.2d 229, 231
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(2d Cir. 1980) (“[T]he record reveals that appellant’s objection below was not
timely since it was not made until after the witness was excused and the jury
dismissed from the courtroom.”). The belated objection deprived the government
of the opportunity to cure any potential defects in the testimony. Because the
objection was untimely, it was properly overruled.
We AFFIRM Mr. Pflum’s conviction and sentence.
ENTERED FOR THE COURT
Harris L Hartz
Circuit Judge
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