Opinion ID: 585638
Heading Depth: 2
Heading Rank: 2

Heading: Good Faith Belief Instructions

Text: 20 Fuentes contends that the court erred in refusing to give his proposed instruction concerning the good faith belief defense. The proposed instruction stated: 21 If Mr. Fuentes had a subjective good faith belief, no matter how unreasonable, that the money he received from Michael Parker or PNA Investment Inc., was not taxable, the government cannot establish that Mr. Fuentes acted willfully. 22 A defendant is entitled to jury instructions presenting his theory of defense as long as the instructions are supported by the law and have a basis in the evidence presented to the jury. United States v. Mason, 902 F.2d 1434, 1438 (9th Cir.1990). When the court rejects a defendant's proposed instruction, we review the instructions actually given de novo to determine if they adequately covered the defense theory. Joetzki, 952 F.2d at 1095. The court gave the following instructions concerning the good faith belief defense: 23 One exception in the Internal Revenue Code is that gross income does not include the amount of any damages received whether by suit or agreement ... on account of personal injury or sickness. 24 Therefore, if the defendant in good faith believed that all of the $200,000 cashier's check he received from Michael Parker was solely on account of personal injuries or sickness, whether or not that belief was objectively reasonable under the law, he cannot be guilty of [a] criminal offense to evade his taxes. 25 .... 26 ... A person who acts on ... an honest belief with the intent to perform all lawful obligations is not punishable under the statute merely because that honest belief turns out to be incorrect or wrong. 27 R.T. 6/20/91 at 115-16. Fuentes contends that he was entitled to an instruction stating that he only need have had a general good faith belief that the money was nontaxable. He argues that the given instructions' requirement that he believe the money was for personal injury improperly omitted his defense concerning the two checks totalling $33,000 and was inconsistent with Cheek v. United States, 111 S.Ct. 604 (1991). He also argues that the instruction gave insufficient guidance to the jury regarding the nontaxability of emotional distress compensation.
28 Because the given instructions refer only to the $200,000 check, Fuentes contends that the district court effectively omitted his defense that he believed the two additional checks totalling approximately $33,000 were nontaxable as loans on which Fuentes understood Parker would pay taxes. The instructions as given do not cover this defense contention. Our inquiry is thus whether Fuentes' purported belief as to the nontaxability of these monies had a basis in the evidence so as to require the giving of an appropriate instruction. 29 Fuentes testified that the $33,000 represented salary advances or loans, which he believed were nontaxable because Parker's company informed him by letter that it had written off the loans and would pay taxes on the money. The court then questioned Fuentes further on this subject. Fuentes said he had been confused about whether the taxes the company paid represented taxable income to him. He admitted, however, that he probably knew in 1986 that taxes paid by others on his behalf would represent taxable income to him, but that he never thought of it that way. Fuentes also admitted in response to the court's questions that in 1986 he knew that a loan when written off became income and that a loan excused in 1986 would be income for 1986. Fuentes concluded by saying that Basically it was a loan. Truly it was a loan. I did not think it was included [in taxable income]. 30 Fuentes argues that his answers to the district court's questions at trial did not negate his good faith belief defense and that he was entitled to an appropriate instruction that applied to his belief in the nontaxability of these monies. In declining to give his proffered instruction, he contends, the district court effectively required that the grounds for his good faith belief be reasonable in light of his understanding of the tax laws at the time of trial. We disagree. The court's questions and Fuentes' responses dealt explicitly with his understanding in 1986 concerning the taxability of loans and of taxes paid by others, not at the time of trial. Under Cheek, the focus is not on the knowledge of the reasonable person, but rather on the knowledge of the defendant. United States v. Powell, 955 F.2d 1206, 1211 (9th Cir.1992). Here Fuentes' admitted knowledge of the applicable tax laws contradicted his asserted beliefs of nontaxability. This effectively negated the good faith belief defense as to these monies, for one cannot be aware that the law imposes a duty upon him and yet be ignorant of it, misunderstand the law, or believe that the duty does not exist. Cheek, 111 S.Ct. at 611 (emphasis added). Fuentes cannot escape the effect of his admitted knowledge of the applicable tax laws by simply asserting that at the time he didn't think of it. The court did not err in declining to give a good faith belief instruction as to these monies.
31 The instructions given concerning the $200,000 were an appropriate formulation of the good faith belief defense as articulated in Cheek v. United States. Unlike Mr. Cheek, Fuentes did not claim a generalized belief that the income tax laws are unconstitutional and therefore any income was nontaxable. Rather, Fuentes claimed belief in the nontaxability of the $200,000 check based on a specific provision in the tax laws exempting payments for personal injury. He testified at trial that he believed the $200,000 check was nontaxable because it was compensation for emotional distress injuries. The given instructions adequately covered the defense theory, which was based on this specific reasoning. Moreover, in evaluating the honesty of Fuentes' belief, the jury was correctly directed to the reasons Fuentes proffered for his belief. We find no error in this regard. 32 Fuentes next contends that because the instruction referred only to personal injury or sickness it gave insufficient guidance to the jury that a settlement for emotional distress would be nontaxable. The relevant question for purposes of determining criminal liability, however, is not whether emotional distress settlements are included in this category of nontaxable income, but rather whether Fuentes honestly believed that they were. The court instructed that jury that even a belief that is incorrect or wrong, if honest, would absolve Fuentes of criminal liability. Fuentes testified that he believed that there was no difference in the taxability of damages for physical injury and for mental distress. Therefore, because the legal definition of personal injury or sickness was peripheral to the question of Fuentes' good faith belief, the court did not abuse its discretion in declining to define it for the jury.