Case o' Week: Good as Gold - Kahre and Defense Evidence in Tax Cases

   If your salary is paid with a fifty dollar U.S. coin, you federal owe tax on how many dollars?

   (Hint: the answer ain’t “fifty . . . .)

United States v. Kahre, 2013 WL 6284419 (9th Cir. Dec. 5, 2013), decision available here.

Players: Per curiam decision by Judges Hug, Rawlinson and Ikuta. Hard-fought appeal by D. Nev. AFPDs Michael Powell and Michael Kennedy.  

Facts: Robert Kahre and his co-defendants were charged with federal tax crimes. Id. at *1. Kahre ran a business where employees were paid in gold or silver coins. Employees then exchanged these coins for cash from Kahre’s company – with no W2’s and no payroll taxes paid. Id. at *4-*5. Co-defendant Lori testified at trial that she thought the gold and silver coins were legal tender based on the “Gold Bullion Coin Act of 1985,” that she calculated her wages based on the face value of the coins (instead of their worth as precious metals), and that she thus thought she made too little to trigger tax obligations. Id. at *6. Robert Kahre testified at trial that he believed that gold was legal tender, and that the IRS was an illegal agent of the World Bank and IMF. Id. at *5. The district court allowed the defendants to testify about these views that bore on their theory that they believed their “coin” payroll scheme legal (and therefore this wasn’t willful evasion). The court, however, excluded other evidence concerning the legality of “gold clause contracts.” Id. at *17. The defendants were convicted on tax counts; Robert Kahre was sentenced to 190 months. Id. at *6.

Issue(s): “Appellants challenge the district court’s exclusion of evidence concerning the legality of gold clause contracts.” Id.

Held: “Legal materials upon which the defendant does not claim to have relied . . . can be excluded as irrelevant and unnecessarily confusing because only the defendant’s subjective belief is at issue: the court remains the jury’s sole source of law . . . . The district court, therefore, properly excluded evidence, including proffered expert testimony, that conflicted with its correct legal ruling that coins were assessed at fair market value for tax purposes irrespective of their use as legal tender.” Id. (internal quotations and citation omitted).

Of Note: This per curiam opinion is as dry as old toast, but read between the lines and its clear there was a brutal battle in the district court. Kahre got obstruction after testifying, challenged the judge’s partiality on appeal, id. at *19, and brought a Bivens action against the AUSA. (The AUSA complained to defense counsel that the Bivens action threatened his job and his pension, and the case was now, “personal.” Id. at *3, *16). On appeal, Kahre argued that the AUSA should have been removed because he was a defendant in the Bivens civil rights action. The Ninth was unpersuaded, and in a decision of first impression in the Circuit explains: “We . . . hold that proof of a conflict must be clear and convincing to justify removal of a prosecutor from a case.” Id. at *15 (emphasis added). 

  As the adage goes, if planning to shoot an elephant, it is prudent to bring an elephant gun -- here, the Ninth found neither the challenge to the judge or to the AUSA, of sufficient firepower on appeal. Id. at *16, *19.

How to Use: Kahre is depressingly familiar to anyone who defends clients convinced of the righteousness of their -- creative -- gold theories, or their “Corporation Sole” status, or other ideas of the “fringe on the flag” ilk. It is thus a good teaching tool: everything we worry about when advising these clients about trial (severe limitations on the “proof” of their theories, significant obstruction of justice penalties, and a Circuit that doesn’t share the defendant’s strong views of the prosecutor and judge) happened, and was affirmed. A thin silver lining was the Ninth’s acknowledgement that there is a willfulness element in these tax cases -- it’s the government’s burden to negate a good faith belief. Id. at *18. That’s small solace to Kahre; he’s serving fifteen.

                                               

For Further Reading: News flash: AUSAs unfairly impede trial rights by threatening mandatory minimums for clients who don’t plead. For a thoughtful report on one of the worst systemic bars to justice in the federal system, visit the Human Rights Watch site available here.

Image of gold coin from http://ad-orientem.blogspot.com/2010/06/77-years-ago-today.html Image of Roosevelt with elephant from http://upload.wikimedia.org/wikipedia/commons/6/66/Roosevelt_safari_elephant2.jpg

Steven Kalar, Federal Public Defender N.D. Cal. Website at www.ndcalfpd.org

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