United States v. David Montgomery
2014 U.S. App. LEXIS 5790
5th Cir.2014Background
- David and Bridget Montgomery owned Montgomery’s Contracting (sole proprietorship) and operated Restoration Temple church; they deposited business receipts into multiple personal/church accounts and underreported gross receipts on joint tax returns for 2003–2005 (≈ $2.1M total), which they did not contest at trial.
- Indicted for conspiracy to defraud the United States (18 U.S.C. § 371) and making/subscribing false federal income tax returns (26 U.S.C. § 7206(1)) for 2004 and 2005; they pleaded not guilty and proceeded to jury trial.
- At trial the Montgomerys’ defense was lack of willfulness: Mr. Montgomery claimed he believed donations to the church made funds nontaxable or usable by the pastor for expenses. Government presented evidence of sophistication, inconsistent reporting to various entities, use of accountant’s name without authorization, transfers among 14 accounts, and lavish vehicle purchases.
- The district court instructed the jury that a defendant must be acquitted if he acted in good faith, but did not include language (proposed by both parties) clarifying that a good-faith belief may be unreasonable or irrational per Cheek. Jury convicted on all counts; district court denied new-trial motion.
- For sentencing, PSR calculated tax loss as 28% of underreported gross receipts (total tax loss $599,755); Montgomerys offered an alternative CPA report estimating much lower tax loss by deducting likely cost of goods sold and contributions. District court adopted the PSR tax-loss figure and sentenced each to concurrent prison terms and restitution; Montgomerys appealed.
Issues
| Issue | Montgomerys' Argument | Government's Argument | Held |
|---|---|---|---|
| Jury instruction on willfulness/good-faith (Cheek) | Instruction omitted Cheek language that a good-faith belief need not be objectively reasonable; omission prejudiced defense | Inclusion of "unreasonable" language unnecessary; any error was harmless due to overwhelming evidence | Instruction was erroneous for failing to state that an objectively unreasonable but honest belief negates willfulness, but error was harmless and conviction affirmed |
| Tax-loss calculation for sentencing (U.S.S.G. §2T1.1) | PSR overstated tax loss by using 28% of gross receipts without offsetting legitimate business COGS/deductions; offered Jones Report as a more accurate estimate | Jones Report was speculative, not based on defendant records; Guidelines permit 28% default absent a more accurate, reliable determination | District court did not err adopting PSR amount; Jones Report unreliable and court acted within discretion; sentence affirmed |
Key Cases Cited
- Cheek v. United States, 498 U.S. 192 (Sup. Ct.) (an honest but unreasonable belief that one is not violating tax law negates willfulness)
- Pomponio v. United States, 429 U.S. 10 (Sup. Ct.) (willfulness defined as voluntary, intentional violation of a known legal duty)
- United States v. Simkanin, 420 F.3d 397 (5th Cir. 2005) (good-faith belief negates willfulness; district court not always required to give separate good-faith instruction if willfulness adequately explained)
- United States v. Phelps, 478 F.3d 680 (5th Cir. 2007) (tax-loss measured by loss the defendant intended when filing fraudulent return; unclaimed deductions on the return generally do not reduce intended tax loss)
- United States v. Demmitt, 706 F.3d 665 (5th Cir. 2013) (harmless-error standard for jury-instruction errors)