JENNIFER WALKER ELROD, Circuit Judge:
Following a jury trial, defendants David and Bridget Montgomery, husband and wife, were convicted of conspiracy to avoid federal income tax and of filing false tax returns. The Montgomerys argue on appeal that the district court incorrectly instructed the jury on the willfulness element of the charged tax offenses and incorrectly calculated the total tax loss resulting from the offenses. There being no reversible error, we AFFIRM.
The Montgomerys owned and operated Montgomery's Contracting L.L.C., a sole proprietorship that earned revenue by building churches and performing construction work for small businesses and residential properties. They also formed a church called the Restoration Temple Church of God in Christ ("Restoration Temple"), where Mr. Montgomery was the pastor.
On December 20, 2010, a grand jury returned an indictment charging the Montgomerys with one count of conspiracy to defraud the United States by impeding, impairing, and obstructing the Internal Revenue Service ("IRS") in the ascertainment, computation, assessment, and collection of income taxes, in violation of 18 U.S.C. § 371 ("Count One"). The indictment also charged the Montgomerys with two counts of making and subscribing a false federal income tax return, for calendar years 2004 and 2005, in violation of 26 U.S.C. § 7206(1) ("Counts Two and
A three-day jury trial commenced on August 7, 2012.
The government attempted to show the jury that the Montgomerys, who operated a successful business for several years, were sophisticated taxpayers who knew how to manipulate their income in order to avoid paying taxes. The government offered evidence that the Montgomerys had concealed Montgomery's Contracting business receipts by depositing them in personal or Restoration Temple bank accounts and by transferring funds among their fourteen separate bank accounts. IRS Special Agent Robert Brown ("Agent Brown") testified that the Montgomerys gave inconsistent answers when questioned about their business income and expenses.
Other evidence indicated that the Montgomerys had reported different levels of income in other endeavors, such as in a loan application or in paperwork submitted to car dealerships for automobile purchases, to suit their needs. For example, Mrs. Montgomery reported $127,274 of business income in a 2003 tax return that she submitted in a loan application. The Montgomerys' actual tax return that they submitted to the IRS reflected $10,224 of business income. There were at least three other instances of similar behavior. The government also elicited testimony showing that between 2003 and 2006 the Montgomerys and their family members purchased and drove a number of cars, including a Lexus, Land Rover, Mercedes, Nissan, Jeep, BMW, Bentley, and two Infiniti models.
To show that the Montgomerys were well aware of their duty to report the income, the government relied in part on the testimony of Clara Carrington, an accountant who prepared the Montgomerys' tax returns from 1997 to 2000. Carrington testified that while there are complexities associated with tax returns, "income" is not one of them. Carrington further testified that she advised the Montgomerys that they were required by law to report all of the income and expenses associated with Montgomery's Construction. Carrington stopped preparing the Montgomerys' tax returns after 2000 because she felt uncomfortable with the lack of information supplied by the Montgomerys. Thereafter, the Montgomerys used Carrington's signature without her authorization when submitting their 2003 and 2004 tax returns to the IRS.
To define the element of willfulness, Mr. Montgomery's counsel proposed a jury instruction pursuant to Cheek v. United States, 498 U.S. 192, 111 S.Ct. 604, 112 L.Ed.2d 617 (1991), which provided in part:
The government submitted a substantially similar jury instruction pursuant to Cheek:
Then, over the Montgomerys' objection, the district court instructed the jury, in pertinent part:
Thus, although the district court instructed the jury that it must acquit if the Montgomerys acted in good faith, it did not say that Montgomerys' beliefs could be "unreasonable or irrational," as both the government
The jury returned a verdict of guilty on all counts as to each defendant. The Montgomerys then filed a joint motion for a new trial based on the district court's jury instruction. They argued, as they do now on appeal, that the jury instruction did not comport with Cheek. The district court denied the motion and the case proceeded to sentencing.
At a joint sentencing hearing, the Montgomerys objected to the tax loss calculation in the pre-sentence investigation report ("PSR"). The PSR stated that the total "tax loss," or the amount of the Montgomerys' unpaid taxes resulting from their failure to report income, was $599,755.
The district court agreed with the government and accepted the tax loss calculation contained in the PSR. Accordingly, the district court sentenced each defendant to 41 months of imprisonment as to Count One and 36 months of imprisonment as to Counts Two and Three, each to run concurrently and followed by three years of supervised release. The district court also ordered restitution to the IRS in the amount of $550,000. The Montgomerys appealed.
The Montgomerys make two arguments on appeal. They argue that the district court incorrectly instructed the jury on the willfulness element of the charged tax offenses. They also argue that the district court's tax loss calculation was significantly overstated and that as a result they received higher sentences under the Sentencing Guidelines.
We first address the Montgomerys' jury instruction argument. We review a properly preserved challenge to a jury instruction for abuse of discretion and consider "whether the instruction, taken as a whole, `is a correct statement of the law and whether it clearly instructs jurors as to the principles of law applicable to the factual issues confronting them.'" United States v. Aldawsari, 740 F.3d 1015, 1019 (5th Cir.2014) (quoting United States v. Richardson, 676 F.3d 491, 506 (5th Cir. 2012)). But even if the jury instruction was erroneous, we will not reverse if, "in light of the entire record, the challenged
Although ignorance of the law or a mistake of law generally does not provide a defense to criminal prosecution, that is not so with regard to federal tax offenses. Cheek, 498 U.S. at 199-200, 111 S.Ct. 604. "[D]ue to the complexity of the tax laws," certain federal criminal tax offenses require, as an element of the offense, the establishment of a defendant's willfulness. Id. at 200, 111 S.Ct. 604. In United States v. Pomponio, 429 U.S. 10, 12, 97 S.Ct. 22, 50 L.Ed.2d 12 (1976), the Supreme Court defined willfulness in this context as "a voluntary, intentional violation of a known legal duty."
Fifteen years later, in Cheek, 498 U.S. at 201, 111 S.Ct. 604, the Court clarified Pomponio's definition of willfulness. There, the district court instructed the jury that an "honest but unreasonable belief is not a defense and does not negate willfulness." Id. at 197, 111 S.Ct. 604. The Supreme Court held that the district court's instruction was incorrect. Id. at 202, 111 S.Ct. 604. It reasoned that the government cannot carry its burden to prove willfulness in a criminal tax prosecution if the jury believes that the defendant, in good faith, did not understand the law. Id. That is true regardless of "however unreasonable a court might deem such a belief." Id.; see also United States v. Simkanin, 420 F.3d 397, 410 (5th Cir.2005) ("[A] defendant's good-faith belief that he is acting within the law negates the willfulness element.").
Here, the Montgomerys argue that the district court's jury instruction did not comport with Cheek because it did not advise the jury that a defendant's good-faith misunderstanding of tax law may be objectively unreasonable. In response, the government argues that, despite the fact that its own proposed jury instruction included the unreasonableness language from Cheek, it was unnecessary in light of the Supreme Court's decision in Pomponio, 429 U.S. 10, 97 S.Ct. 22, and our own decision in Simkanin, 420 F.3d 397. They reason that, pursuant to those decisions, where a district court correctly instructs the jury as to willfulness an additional instruction on the good-faith defense is unnecessary. In any event, the government argues that the error was harmless due to the overwhelming evidence of the Montgomerys' guilt.
We agree with the Montgomerys that the jury instruction was erroneous. The import of Cheek, as applied to this case, is clear: if the Montgomerys truly believed that they were not obligated to report their income, then the jury could acquit, however objectively unreasonable the Montgomerys' belief was. Both parties agreed to instruct the jury along those lines by explaining that the Montgomerys' beliefs regarding tax law could be "unreasonable or irrational." Yet the jury instruction, given sua sponte by the district court, did not explain that point. Rather, it only included a portion of Cheek's good-faith defense:
Moreover, by including but failing to explain the full breadth of Cheek's good-faith defense, the district court's jury instruction risked implying — in direct conflict with Cheek — that the Montgomerys could not be acquitted on the basis of good faith unless their views were objectively reasonable. See United States v. Morris, 20 F.3d 1111, 1118 (11th Cir.1994) (holding that a jury instruction compromised the appellants' good-faith argument because it did not "make clear that a good-faith belief by the appellants that they were complying with the tax laws, whether or not objectively reasonable, negates the specific intent element"). That is because good faith is often equated with reasonableness. See, e.g., Messerschmidt v. Millender, ___ U.S. ___, 132 S.Ct. 1235, 1245, 182 L.Ed.2d 47 (2012) (explaining that the Supreme Court has referred to actions taken in an "objectively reasonable manner" as "objective good faith"); Newman v. Guedry, 703 F.3d 757, 764 (5th Cir.2012), cert. denied, ___ U.S. ___, 134 S.Ct. 162, 187 L.Ed.2d 40 (2013) ("Because the officers' use of force was not objectively reasonable, it was not in good faith...."); Mathis v. Exxon Corp., 302 F.3d 448, 455 (5th Cir. 2002) ("Good faith includes observance of reasonable commercial standards of fair dealing...." (quoting Tex. Bus. & Com. Code § 2.305 cmt. 3)); Black's Law Dictionary (9th ed.2009) (explaining that the phrase "good faith" excludes conduct that contravenes "community standards of decency, fairness or reasonableness" (emphasis added)). Like the jury instruction in Morris, 20 F.3d at 1118, the district court's instruction here did not clarify that the Montgomerys' good-faith belief need not be objectively reasonable.
Indeed, for this reason, the cases cited by the government are factually distinct. In both Pomponio, 429 U.S. at 12, 97 S.Ct. 22, and Simkanin, 420 F.3d at 410, the issue was whether the district court should have instructed the jury on the good-faith defense in order to adequately explain the definition of willfulness, not the content of the good-faith defense itself, which is at issue here. When good faith is mentioned in a Cheek jury instruction, our sister circuits routinely explain that a defendant's good-faith belief need not be objectively reasonable. See, e.g., United States v. Mostler, 411 Fed.Appx. 521, 523 (3d Cir. 2011) (unpublished); United States v. Boyd, 378 Fed.Appx. 841, 849-50 (10th Cir.2010) (unpublished); United States v. Dean, 487 F.3d 840, 850 (11th Cir.2007); United States v. Hilgeford, 7 F.3d 1340, 1343 (7th Cir.1993); see also Seventh Circuit Pattern Criminal Jury Instructions § 6:11; Pattern Criminal Jury Instructions for the District Courts of the First Circuit § 4.25; Third Circuit Model Criminal Jury Instructions § 6.26.7401-4 cmt.; Manual of Model Criminal Jury Instructions for the District Courts of the Ninth Circuit § 9.42. But see Morris, 20 F.3d at 1118.
Nevertheless, the erroneous jury instruction in this case was harmless because the evidence showing that the Montgomerys intentionally underreported their income was "so overwhelming that the error could not have contributed to the jury's decision to convict." See Healy v. Maggio,
Moreover, the Montgomerys' accountant, Carrington, advised them that they were required by law to report all of the income and expenses from Montgomery's Contracting. Then, after Carrington told the Montgomerys she could no longer prepare their tax returns because they did not provide her with sufficient information, they continued to apply her name their tax returns without her authorization. They frequently transferred funds among their numerous bank accounts, making it difficult to track their expenses, and they gave inconsistent answers to Agent Brown when questioned about their business's income and expenses.
Finally, the Montgomerys have not shown that the district court's jury instruction prevented them in any way from presenting the full breadth of their good-faith defense to the jury. In fact, the Montgomerys' good-faith defense was central to defense counsel's closing argument.
We now turn to the Montgomerys' contention that the district court erred by adopting the PSR, which contained a purportedly incorrect calculation of the tax loss attributable to their actions, and that as a result they received higher sentences under the Sentencing Guidelines. We review a district court's interpretation or application of the Sentencing Guidelines de novo and its factual findings for clear error. See United States v. Cisneros-Gutierrez, 517 F.3d 751, 764 (5th Cir.2008); see also United States v. Phelps, 478 F.3d 680, 681 (5th Cir.2007). "There is no clear error if the district court's [factual] finding is plausible in light of the record as a whole." Cisneros-Gutierrez, 517 F.3d at 764 (internal quotation marks omitted).
The Sentencing Guidelines provide that where, as here, a defendant's offense involves the filing of a fraudulent or false tax return, "the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed)." U.S.S.G. § 2T1.1(c). "If the offense involved filing a tax return in which gross income was underreported, the tax loss shall be treated as equal to 28% of the unreported gross income ... unless a more accurate determination of the tax loss can be made." U.S.S.G. § 2T1.1(c) cmt. n.(A).
IRS Agent Brown testified at trial that the PSR reflected the correct tax loss amount, $599,755. To arrive at that figure, Agent Brown multiplied the underreported gross receipts from Montgomery's Contracting for each year by a tax rate of 28%. Agent Brown did not offset the underreported gross receipts by any additional expenses, such as Montgomery's
As they did before the district court, the Montgomerys argue on appeal that the district court could have calculated a more accurate tax loss amount. See U.S.S.G. § 2T1.1(c) cmt. n.(A). They reason that the tax loss reflected in the PSR bore no resemblance to the actual tax loss because it did not take into account the business expenses — the cost of the bricks, mortar, labor, etc. — associated with Montgomery's Contracting's underreported gross receipts.
To substantiate their argument, the Montgomerys rely exclusively on the Jones Report. The Jones Report estimated the costs and expenses that Montgomery's Contracting, or any other construction company, would incur in order to generate the gross receipts that the Montgomerys did not report as income. It relied on Jones's industry experience and statistics obtained from BizStats, an online provider of business statistics. Applying these figures, the Jones Report estimated that Montgomery's Contracting's income, after accounting for all of its expenses, should approximate 19.29% of gross receipts. As a result, the Jones Report concluded that the actual tax loss due to the Montgomerys' failure to report income was either $137,990 or $68,995.
The Montgomerys' tax loss argument is unavailing. Although the Second and Tenth Circuits permit a sentencing court to consider, when calculating tax loss, unclaimed deductions that a defendant could have legitimately claimed, we — and several other circuits — do not.
In seeking to rebut Phelps, the Montgomerys cite the Tenth Circuit's decision in Hoskins, 654 F.3d 1086. Putting aside the fact that it conflicts with Phelps, our binding precedent, the court in Hoskins merely held that "the plain language of § 2T1.1 does not categorically prevent a court from considering unclaimed deductions in its sentencing analysis." Id. at 1094 (emphasis added). Where the defendant "offers weak support for a tax-loss estimate," the sentencing court is not required speculate as to what deductions the defendant may have claimed. See id. Likewise here, the Montgomerys offer little and unreliable support for their proposed tax-loss estimate, as we explain next.
Even assuming arguendo that Phelps does not categorically prevent us from considering the Montgomerys' unclaimed business expenses, the district court "had many reasons to be skeptical of [the] proposed deductions." See id. at 1097. To begin with, the Montgomerys repeatedly told Agent Brown that they had reported all of their business expenses, in direct conflict with what they now assert. Moreover, the figures contained in the Jones Report did not rely on the Montgomerys' business records,
In sum, the Jones Report figures were of doubtful reliability and the district court
For the foregoing reasons, we AFFIRM.
HAYNES, Circuit Judge, concurring in the judgment:
Undoubtedly, the better part of valor for a district court faced with proposed jury instructions that are not inaccurate and that are requested by both sides is to give those instructions. But the failure to do so is not automatically an abuse of discretion. The district court was entitled to "broad discretion in framing the instructions to the jury," United States v. McKinney, 53 F.3d 664, 676 (5th Cir.1995), and we are not supposed to conclude that the district court has abused that discretion unless the instructions, as a whole, create "substantial and ineradicable doubt whether the jury has been properly guided in its deliberations," United States v. Demmitt, 706 F.3d 665, 675 (5th Cir.2013). Because I conclude this high hurdle has not been jumped by the Montgomerys, I cannot join in the entirety of the majority opinion.
The majority opinion concludes that the district court erred because it did not advise the jury that a defendant's good-faith misunderstanding of tax law may be objectively unreasonable. See Cheek v. United States, 498 U.S. 192, 202, 111 S.Ct. 604, 112 L.Ed.2d 617 (1991). Cheek, however, did not mandate any particular language for conveying the general concept of good faith to the jury, and the district court did so convey that here, instructing the jury that it must acquit a defendant who believed in good faith that he was acting lawfully. The instructions stated: "If you find that a defendant acted in good faith, you must acquit that defendant because his good faith is inconsistent with his having the intent to defraud or to violate the law." The instructions therefore generally address any good-faith belief, even an unreasonable one, held by a defendant and, taken as a whole, do not misstate the issues or the law. See McKinney, 53 F.3d at 676.
Moreover, we have previously held that a district court is not even required to include a specific instruction on good faith, where, as here, "it adequately instructed the jury on the meaning of willfulness." United States v. Simkanin, 420 F.3d 397, 411 (5th Cir.2005); see also United States v. Pomponio, 429 U.S. 10, 13, 97 S.Ct. 22, 50 L.Ed.2d 12 (1976). Under Simkanin, the district court could therefore have declined to instruct the jury on a defendant's good-faith belief altogether and that decision would have been within its discretion. 420 F.3d at 411. I fail then to see how the district court's decision to instruct the jury on a defendant's good-faith belief generally, but not expressly address the "unreasonable" good-faith belief, could constitute an abuse of discretion.
Relying in part on United States v. Morris, 20 F.3d 1111, 1118 (11th Cir.1994), the majority opinion concludes that the district court's jury instructions "risked implying that the Montgomerys could not be acquitted on the basis of good faith unless their views were objectively reasonable." However, Morris simply addressed the same circumstances as those presented in Simkanin, where a district court instructed a jury on willfulness but not on good faith. Id. at 1117. Although the Eleventh Circuit in Morris held that the district court's instructions were inadequate because they did not "make clear that a good-faith belief... negates the specific intent element of the crime," id. at 1118, we are bound by our holding in Simkanin, 420 F.3d at 411.
Moreover, the Eleventh Circuit in Morris acknowledged that "there is no requirement in this circuit that jury instructions