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NOTICE: Fourth Circuit Local Rule 36(c) states that citation of unpublished
dispositions is disfavored except for establishing res judicata, estoppel,
or the law of the case and requires service of copies of cited unpublished
dispositions of the Fourth Circuit.
UNITED STATES of America, Plaintiff-Appellee,
Larry R. MELTON; Marshall R. Melton; Randall W. Melton, Defendants-
United States Court of Appeals, Fourth Circuit.
Argued March 8, 1996.
Decided May 22, 1996.
Appeal from the United States District Court for the Western
District of North Carolina, at Shelby. Graham C. Mullen, District Judge.
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 DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
Before MURNAGHAN and MOTZ, Circuit Judges, and BUTZNER, Senior Circuit Judge.
Appellants Larry R., Randall W. and Marshall R. Melton were convicted of
conspiracy to defraud the federal government by concealing assets from the
Revenue Service, failure to pay federal income taxes and failure to file
federal income tax returns. Maintaining 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
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.
In September 1993, the Meltons were tried before a jury in the United States
District Court for the Western District of North Carolina 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 "ascertainment,
computation, assessment and collection of" their federal income taxes
in violation of 18 U.S.C. s 371, had evaded taxes in violation of 26 U.S.C.
s 7201, and had failed to file returns in violation of 26 U.S.C. s 7203. The
United States presented evidence that the Meltons used their painting partnership,
Melton Brothers Painting, and a foreign corporation they controlled, Kimbro
Quality Investments, to conduct 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 the purpose of concealing
the amounts and sources of their income from the IRS. [FN1] 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
FN1. Larry also was accused of hiding his ownership of real property by placing
it in his relatives' names.
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. [FN2] Randall continued 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 government
proved that Larry owed $35,787 in taxes, Marshall owed $36,062, and Randall
owed $39,333. There was proof that the Meltons were aware of their income and
of their tax liability. [FN3]
FN2. They also owed additional taxes, penalties and interest for 1982 and
FN3. At least two brothers represented their income as $2,500 per month on
a loan application, and all of the Meltons received considerable correspondence
from the IRS.
The Meltons apparently learned how to operate "outside the system" 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 testified 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 evidence, 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.
[FN4] The district court sentenced Larry to 33 months in 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.
FN4. The jury found the Meltons guilty of all counts except two charging Randall
with tax evasion for the years 1986 and 1987.
The Meltons have contended that the law requiring them to pay taxes and file
returns is unclear. They have argued that they were misled into believing that
they owed no federal income tax and that they were convicted in violation of
due process, all because of the vagueness 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 sufficiently
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 judgment 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 IRS [FN5] which led them to
the Internal Revenue Code, 26 U.S.C. s 1 et seq. There, sections 6001 and 6011
explained that only "persons liable" 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 liable.
FN5. 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.
While courts may have offered differing views of the income tax over time,
the United States Supreme Court has consistently interpreted 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 compensation 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. s 1. Section 63 defines "taxable income" as
gross income minus allowable deductions. 26 U.S.C. s 63. Section 61 states
that "gross income means all income from whatever source derived," including
compensation for services. 26 U.S.C. s 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. ss 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. s 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 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
FN6. There is no evidence that the Meltons received misinformation from
the federal government regarding their obligation to pay income taxes. The
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 certainly not unwary." Bowers,
920 F.2d at 223.
The Meltons also challenge the district court's refusal to give various 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 discretion 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).
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.
For the foregoing reasons, the convictions and sentences are AFFIRMED.
to Tax Protestor Exhibit