Caseflicks

Supreme Court of the United States • 1991

Cheek v. United States

498 U.S. 192 | 111 S. Ct. 604 | 112 L. Ed. 2d 617 | 1991 U.S. LEXIS 348

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Takeaway

In short, this case holds that an honestly held—even unreasonable—misunderstanding of what the tax law requires can negate criminal willfulness, but a belief that known tax laws are unconstitutional or invalid cannot.

Background

John Cheek, an American Airlines pilot, filed federal income-tax returns through 1979 but stopped filing thereafter. From 1980 through 1986, despite earnings well above the filing threshold, he claimed numerous withholding allowances, eventually claimed exempt status on his W-4 forms, and sought refunds of taxes withheld from his wages. He maintained that wages were not taxable income, that he was not a taxpayer required to file, and that the federal income-tax system was unconstitutional.

Cheek based these views on tax-protester seminars, his own study, and advice from persons—including lawyers—who challenged the income-tax system. But he had also been told repeatedly in civil litigation, at criminal tax trials, and by an attorney that arguments such as “wages are not income” had been rejected as frivolous.

A federal grand jury charged Cheek with six counts of willfully failing to file returns under 26 U.S.C. § 7203 and three counts of willfully attempting to evade income taxes under § 7201. At trial, the district court instructed that a good-faith misunderstanding of the tax law negated willfulness only if the misunderstanding was objectively reasonable. It also told the jury that beliefs that wages were not income or that the tax laws were unconstitutional could not support a good-faith defense. The jury convicted Cheek on all counts.

The Seventh Circuit affirmed, adhering to its rule that a defendant’s claimed misunderstanding or ignorance of tax law defeats willfulness only when objectively reasonable. The Supreme Court granted certiorari to resolve a conflict among the circuits over the meaning of “willfully” in the criminal tax statutes.

Issues

Issue #1

Whether a defendant charged under 26 U.S.C. §§ 7201 and 7203 must have voluntarily and intentionally violated a known legal duty to have acted “willfully.”

Holding

Yes. In the criminal tax statutes, willfulness means the voluntary, intentional violation of a known legal duty.

Reasoning

The usual criminal-law rule is that ignorance or mistake of law does not excuse an offense. But Congress used “willfully” in the criminal tax statutes against the background of a complex tax system, where even taxpayers attempting to comply may misunderstand their legal obligations.

The Court’s precedents establish the governing definition. United States v. Bishop described willfulness as a voluntary and intentional violation of a known legal duty, and United States v. Pomponio confirmed that this definition, rather than proof of some additional evil motive, supplies the required mental state.

Issue #2

Whether a claimed good-faith misunderstanding of the Internal Revenue Code must be objectively reasonable before it may negate willfulness.

Holding

No. A genuinely held good-faith misunderstanding of the tax law may negate willfulness even if the belief is objectively unreasonable.

Reasoning

The Government must prove not only that the tax law imposed a duty, but also that the defendant knew that duty and intentionally violated it. If a defendant actually and in good faith misunderstood the law—for example, if he truly believed that wages were not income under the Code—then the jury could find that he lacked knowledge of the duty.

Whether Cheek actually held such a belief is a factual question for the jury. Requiring objective reasonableness would improperly convert that question into a legal one and prevent the jury from considering evidence that could negate the knowledge component of willfulness.

The irrationality of a claimed belief remains highly relevant evidence. The more implausible the asserted misunderstanding, the more likely a jury will conclude that it was not sincerely held and instead reflected disagreement with a duty the defendant knew the law imposed.

The jury could consider all admissible evidence bearing on Cheek’s knowledge, including his prior tax filings, statutory and regulatory materials, tax-return instructions, court decisions rejecting his position, IRS rulings, legal advice, and his involvement in litigation where his arguments had been deemed frivolous. But the district court could not instruct the jury to disregard his claimed misunderstanding merely because it was unreasonable.

Issue #3

Whether a defendant’s good-faith belief that the income-tax laws are unconstitutional or otherwise invalid negates willfulness.

Holding

No. A belief that the tax statutes are unconstitutional or invalid does not negate willfulness and need not be submitted to the jury.

Reasoning

A misunderstanding about what the tax law requires differs from a belief that a known tax requirement is invalid. The former can show that the defendant did not know of the legal duty; the latter ordinarily reflects knowledge of the duty coupled with a decision that the duty is unenforceable.

The special willfulness rule in criminal tax cases protects taxpayers who make innocent errors caused by the complexity of the tax laws. It does not permit a taxpayer who knows what the Code requires to disregard those requirements based on a personal conclusion that they violate the Constitution.

Congress provided avenues for contesting tax liability and the validity of tax laws, including paying the tax and pursuing a refund action or challenging an asserted deficiency in Tax Court. A taxpayer cannot bypass those mechanisms, refuse compliance, and then use his own belief in the law’s invalidity as a defense to criminal prosecution.

Accordingly, the district court properly instructed the jury not to treat Cheek’s constitutional objections as negating willfulness. But it erred by also withholding from the jury his claimed factual misunderstandings that wages were not income and that he was not a taxpayer under the Internal Revenue Code. The Court vacated the judgment and remanded.

Concurrences

Justice Scalia

Reasoning

Justice Scalia concurred in the judgment because prior cases recognize that a taxpayer who in good faith believes a tax is not legally owed has not acted willfully. He disagreed, however, with the majority’s distinction between a mistaken belief that a tax law does not impose a duty and a mistaken belief that the law imposing the duty is unconstitutional or otherwise invalid.

In his view, someone who sincerely believes a statute is unconstitutional cannot be said to know that it creates a binding legal duty. The majority’s contrary rule, he argued, departs from the Court’s longstanding understanding that willfulness requires conscious violation of a known legal duty.

Justice Scalia warned that the majority’s reasoning could extend beyond constitutional claims. It could criminalize a taxpayer’s good-faith conclusion that a regulation conflicts with a statute, that an agency ruling conflicts with a regulation, or that an IRS pronouncement conflicts with higher legal authority. He found no textual basis in the word “willfully” for that expanded criminal exposure, particularly in the complex field of tax law.

Dissents

Justice Blackmun

Reasoning

Justice Blackmun, joined by Justice Marshall, would have affirmed. He accepted that willfulness means a voluntary and intentional violation of a known legal duty, but concluded that the district court’s objectively reasonable good-faith standard was proper in this setting.

He viewed the relevant tax principles as elementary rather than complex: a wage earner is a taxpayer, and wages are income. Given the long-established federal income-tax system and Cheek’s evident competence, Justice Blackmun found it implausible that Cheek could genuinely rely on the contrary claims advanced by tax-protester groups.

Justice Blackmun believed the Court’s rule would encourage taxpayers to retain frivolous tax-protester beliefs in hopes of persuading a jury that they were sincere. In his view, conditioning the defense on an objectively reasonable misunderstanding appropriately prevented that result while still affording defendants substantial protection.