{
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  "name_abbreviation": "State v. Davis",
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    "judges": [
      "Chief Judge HEDRICK and Judge BECTON concur."
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    "parties": [
      "STATE OF NORTH CAROLINA v. JAMES RICHARD DAVIS"
    ],
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      {
        "text": "ARNOLD, Judge.\nThe facts important to this case will be examined as we discuss the issues involved.\n1. Selective Prosecution\nThe first three assignments of error involve the Superior Court judge\u2019s denial of appellant\u2019s motion to dismiss the case based upon the theory of selective prosecution. Appellant argues the court should not have required him to show as an element of selective prosecution that the State perpetrated \u201cinvidious discrimination\u201d against him. As a result of his failure to produce evidence of this element, the court denied appellant\u2019s motion to dismiss.\nThe Superior Court was correct in demanding a showing of invidious discrimination. The two-part test for discriminatory selective prosecution is:\n(1) the defendant must make a prima facie showing that he has been singled out for prosecution while others similarly situated and committing the same acts have not; and (2) upon satisfying (1) above, he must demonstrate that the discriminatory selection for prosecution was invidious and done in bad faith in that it rests upon such impermissible considerations as race, religion, or the desire to prevent his exercise of constitutional rights.\nState v. Howard, 78 N.C. App. 262, 266-67, 337 S.E.2d 598, 601-602 (1985), cert. denied, 316 N.C. 198, 341 S.E.2d 581 (1986).\nMr. Davis argues that he was singled out for prosecution because of his affiliation with the Patriot Network, an organization opposed to personal income tax laws. He points out that in 1988 five of eight charges for tax-related offenses initiated by the N.C. Department of Revenue\u2019s Special Investigations Unit were against persons affiliated with the Patriot Network. Mr. Davis states that by contrast in 1988, 600,000 out of 3.2 million North Carolinians did not file a tax return and could have been prosecuted by the Department of Revenue. Appellant contends this five-person class was singled out for selective prosecution by the State in violation of their guarantees of equal protection under the Federal and State Constitutions. Mr. Davis argues that when a claim of selective prosecution involves violations of equal protection rights a defendant is not required to show discriminatory intent if the claim is based on an \u201covertly discriminatory classification.\u201d Wayte v. U.S., 470 U.S. 598, 84 L.Ed. 2d 547 (1985).\nWayte, however, is not applicable here. Appellant has failed under the first prong of the Howard test to show his prosecution was based on his affiliation with a recognizable, distinct class that suffered discrimination while others similarly situated were ignored. Appellant\u2019s statistical evidence for supporting his claim of selective prosecution is too tenuous, and he is incorrect in comparing the rate of prosecutions against the Patriot Network tax protestors with the number of prosecutions against people who fail to file but are not tax protestors.\nAppellant\u2019s statistical evidence ignores the fact that preceding 1988 the Special Investigations Unit of the Department of Revenue initiated charges against numerous non-Patriot Network members. Mr. Davis fails to include in his \u201cstatistical survey\u201d the number of prosecutions initiated by the Department outside the Special Investigations Unit or the number of prosecutions that occurred under other statutes. Appellant makes no showing that the State purposefully ignored other individuals known to be routinely filing false exemption forms or not filing tax returns in the manner of Mr. Davis. Finally, Special Investigator Richard Holt of the Department of Revenue testified that when he began his investigation he was not aware of Mr. Davis\u2019 affiliation with the Patriot Network.\nMore importantly, appellant\u2019s method of comparing prosecutorial rates is flawed. He is incorrect in comparing the prosecutorial treatment he received against the treatment received by the 600,000 other North Carolinians who failed to pay their personal income taxes in 1988. These two groups are not \u201csimilarly situated.\u201d Unlike Mr. Davis, most people who failed to file an income tax return that year did so out of neglect. Tax protestors such as Mr. Davis, openly advocating noncompliance with tax laws, are not similarly situated with neglectful taxpayers, and it is erroneous to compare prosecution rates between these two groups.\nMr. Davis makes a feckless argument that the statutes he was charged under are unconstitutional as applied to him because selection for his prosecution was impermissibly based on an attempt to suppress his first amendment right of free speech. He seeks a dismissal under N.C.G.S. \u00a7 15A-954(a)(l).\nThe evidence shows that appellant is an outspoken critic of the North Carolina personal income tax system. He has written and spoken often in support of his theory that the taxing of personal income is unconstitutional. Nevertheless, even assuming for a moment that the State in fact singled out Mr. Davis for prosecution because of his vocal stand against paying income taxes, no constitutional violation occurred in the application of these tax enforcement statutes. Federal courts, which have ruled on this issue as it has arisen under parallel federal statutes, have held that the prosecution of individuals who publicly assert privileges not to pay taxes does not necessarily constitute selection upon an impermissible basis. This is because such prosecutions, predicated in part upon a potential deterrent effect, serve a legitimate interest in promoting more general tax compliance. U.S. v. Rice, 659 F.2d 524 (5th Cir. 1981); U.S. v. Catlett, 584 F.2d 864 (8th Cir. 1978); U.S. v. Ojala, 544 F.2d 940 (8th Cir. 1976); U.S. v. Scott, 521 F.2d 1188 (9th Cir. 1975), cert. denied, 424 U.S. 955, 47 L.Ed. 2d 361 (1976); U.S. v. Peskin, 527 F.2d 71 (7th Cir. 1975), cert. denied, 429 U.S. 818, 50 L.Ed. 2d 79 (1976).\nThe federal cases have consistently rejected this claim by tax protestors, holding that selective enforcement of a law is not itself a constitutional violation in the absence of an invidious purpose. Rice, 659 F.2d at 526-27. In Catlett, a case similar to one before us now, the Court of Appeals for the Eighth Circuit noted that while the decision to prosecute an individual cannot be made in retaliation for the exercise of first amendment rights, the prosecution of an outspoken tax protestor is not a selection on an impermissible basis. Catlett, 584 F.2d at 867. A decision to prosecute is fine, even if the decision rests upon the amount of publicity one\u2019s protest receives. \u201c[Selection for prosecution based in part upon the potential deterrent effect on others serves a legitimate interest in promoting more general compliance with the tax laws.\u201d Id. at 868. The court noted that the government lacks the means to prosecute everyone suspected of violating a tax law, so it made sense to prosecute those likely to receive the most exposure. Id.\n2. Administrative Summons\nMr. Davis contends that N.C.G.S. \u00a7 105-258, an administrative summons statute, used by a Department of Revenue investigator to obtain information from the appellant\u2019s employee file, is unconstitutional under the fourth amendment to the U.S. Constitution and under Article I, \u00a7\u00a7 19 and 20 of the N.C. Constitution. Appellant argues the trial court erred in denying his motion to suppress the evidence obtained in this alleged illegal search.\nAs part of his investigation of Mr. Davis, Special Investigator Holt sought wage and exemption information from appellant\u2019s former employer. To gain access to Mr. Davis\u2019 employee file, Agent Holt showed the employment records custodian an Order issued by the Department of Revenue to make the records available. The custodian complied, and Agent Holt received Employee Withholding Exemption Certificates, NC-4s; Employee\u2019s Statement of No Income Tax Liability; and W-2s concerning appellant\u2019s wages and compensation for the years 1983 through 1986.\nWe uphold N.C.G.S. \u00a7 105-258 against Mr. Davis\u2019 constitutional attack and affirm the trial court\u2019s denial of appellant\u2019s motion to suppress the evidence obtained in that search. N.C.G.S. \u00a7 105-258 is modeled after 26 U.S.C. 7602, which enables the Internal Revenue Service to issue an administrative summons in aid of either civil or criminal tax investigations. This federal statute has been upheld as constitutional by the U.S. Supreme Court. Couch v. U.S., 409 U.S. 322, 326, 34 L.Ed. 2d 548, 552-53 (1973).\nFurthermore, N.C.G.S. \u00a7 105-258 does not violate constitutional search and seizure provisions because the statute is not self-enforcing. The Secretary of Revenue does not have the authority to compel compliance with a summons. As is explained in the statute:\n[i]f any person so summoned refuses to obey such summons or to give testimony when summoned, the Secretary may apply to the Superior Court of Wake County for an order requiring such person to comply with the summons of the Secretary, and failure to comply with such court order shall be punished as for contempt.\nN.C.G.S. \u00a7 105-258. At the time Investigator Holt requested the employee records, Mr. Davis\u2019 former employer did not have to comply with the Department of Revenue Order. If a revenue agent is forced to go to superior court to enforce compliance with an order, the court\u2019s scrutiny of the order will ensure that no abuse of process occurs.\nLike its federal counterpart, N.C.G.S. \u00a7 105-258 does not require that a tax investigator have probable cause before examining a taxpayer\u2019s records. See Ryan v. U.S., 379 U.S. 61, 13. L.Ed. 2d 122 (1964). This administrative summons power is more analogous to that held by a grand jury than to the search and seizure power of a police officer. It grants inquisitional powers, allowing investigations on the suspicions that a law is being violated or even because the Department wants assurances that it is not.\nA summons under N.C.G.S. \u00a7 105-258, however, would violate constitutional protections if it was overly broad, not issued in good faith for a legitimate purpose, or not relevant to that purpose. The information sought must not be in the possession of the Department at the time the summons is issued, and \u25a0 the proper administrative steps must be followed in issuing the summons. In the case before us, Investigator Holt complied with these requirements, rendering appellant\u2019s assignments of error concerning this statute to be without merit.\n3. Notice of Tax Assessment\nAppellant next assigns error to the trial court\u2019s denial of his motion to dismiss based upon the State\u2019s failure to comply with N.C.G.S. \u00a7 105-241.1. The statute in question states in pertinent part: \u201c[i]f the Secretary of Revenue discovers . . . that any tax or additional taxes are due from any taxpayer, he shall give notice to the taxpayer in writing of the kind and amount of tax which is due and of his intent to assess the same.. . .\u201d N.C.G.S. \u00a7 105-241.1. Appellant contends the State failed to give the required notice, violating his right to procedural due process.\nAppellant\u2019s position on this issue is not well taken. Our state tax laws, like the federal tax statutes, impose both civil and criminal-sanctions. N.C.G.S. \u00a7 105-241.1 addresses only the civil assessment of taxes and is fully independent of the criminal offenses set forth in N.C.G.S. \u00a7 105-236(7) and (9), under which Mr. Davis was charged. Appellant was entitled to and received all the due process protections of a person charged under a criminal statute. He was not entitled to any procedural protections offered under the civil assessment statute.\n4. Expert and Opinion Testimony\nAppellant contends that the trial court erred in failing to recognize Mr. Robert Clarkson as an expert witness in the field of income tax law and in failing to allow Mr. Clarkson to testify as a layman concerning a \u201cprimary meeting\u201d and the requirements to file a state personal income tax return.\nIt is a question of fact whether or not a witness is qualified as an expert. A trial judge\u2019s decision on this question is only reversed if his ruling is based on an abuse of discretion or an erroneous view of the law. State v. Bullard, 312 N.C. 129, 322 S.E.2d 370 (1984). Appellant has failed to manifest any abuse of discretion by the trial judge in his rulings concerning the expertise of Mr. Clarkson.\n5. Proof of Tax Liability\nAppellant argues that the trial court erroneously failed to dismiss the charges of attempting to evade and defeat a tax under N.C.G.S. \u00a7 105-236(7) because the State did not prove one element of that crime: that Mr. Davis owed taxes for the years in question. Similarly, appellant contends the trial court committed prejudicial error in failing to instruct the jury that as part of its charge the State must show a tax was in fact due.\nThe evidence is clear that the State did not prove Mr. Davis owed a tax for the three years he is accused of violating N.C.G.S. \u00a7 105-236(7). Investigator Holt testified he did not know the amount of Mr. Davis\u2019 tax liability for those years. Of course, the reason the State could not prove whether Mr. Davis owed taxes was because the appellant refused to file a state tax return for those years. Appellant\u2019s position on this issue places an almost impossible burden on the State \u2014 -one which we will not endorse. We hold that where a defendant is charged with attempting to evade or defeat the ascertainment of a tax, and that person also fails to file a return, the State must only show defendant was subject to being taxed under the law, and that he willfully attempted to evade or defeat imposition of the tax.\nOur holding on this point is buttressed by federal interpretation of a parallel section of the Internal Revenue Code, 26 U.S.C. \u00a7 7201. Section 7201 penalizes \u201c[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or payment thereof.\u201d 26 U.S.C. \u00a7 7201. U.S. v. Dack, 747 F.2d 1172 (7th Cir. 1984), interpreted \u00a7 7201 and is helpful to understanding N.C.G.S. \u00a7 105-236(7). In Dack, the court recognized that \u00a7 7201 defines two distinct crimes: (1) the willful attempt \u201cto evade or defeat any tax\u201d and (2) the willful attempt to evade or defeat the \u201cpayment\u201d of any tax. Dack, at 1174. N.C.G.S. \u00a7 105-236(7) also recognizes two crimes. It penalizes (1) \u201c[a]ny person who willfully attempts ... to evade or defeat any tax imposed by this Subchapter,\u201d ... (2) \u201cor the payment thereof.\u201d (Emphasis added.) N.C.G.S. \u00a7 105-236(7).\nWhile it is true that the existence of a tax deficiency is an element of both crimes defined in these statutes, Dack recognized that in certain situations the element of a tax deficiency can be satisfied without a formal tax assessment. Dack, at 1174. \u201cWhen, as here, the taxpayer fails to file \u00e1 return, and the Government can show a tax liability pursuant to the provisions of the tax code, then a tax deficiency within the meaning of Section 7201 is deemed to arise by operation of law on the date the return is due.\u201d Id. In the case at bar, as in Dack, the tax liability arose by operation of the law when the appellant failed to file a timely return.\nThe State offered evidence beyond a reasonable doubt that Mr. Davis willfully attempted to defeat the ascertainment of his taxes in 1984, 1985, and 1986. Appellant admitted that he considered it unconstitutional to pay taxes. Most notably, on at least four occasions during this period, Mr. Davis claimed on his employee withholding exemption certificates personal and dependent exemptions totaling at least $16,800 to which he was not entitled. Also, Mr. Davis did not file a state personal income tax return between 1980 and 1986. Taken together, this evidence is adequate to show a willful attempt to evade a tax.\n6. Willfulness and a Subjective Belief\nFinally, appellant argues that the trial judge erroneously instructed the jury concerning the element of willfulness in both charges against him. Mr. Davis believes he is not liable to pay state income taxes on his wages because wages are not \u201cincome,\u201d but rather are compensation for services rendered. He argues his subjective, good faith belief that he did not owe these taxes is a defense to willfulness, and the trial judge erred in failing to instruct the jury of this matter.\nAgain, while this is a new issue for our Court, federal courts have addressed this question as it has arisen in the context of parallel federal tax statutes. See U.S. v. Aitken, 755 F.2d 188 (1985); U.S. v. Kraeger, 711 F.2d 6 (1983). Essentially, the trial court is required to inform the jury that while a good-faith misunderstanding of the law may negate willfulness, a good-faith disagreement with the law does not. Kraeger, 711 F.2d at 7. The trial judge conveyed this instruction; therefore, appellant\u2019s request for a reversal on this issue is denied.\nFor the foregoing reasons, the order of the trial court is\nAffirmed.\nChief Judge HEDRICK and Judge BECTON concur.",
        "type": "majority",
        "author": "ARNOLD, Judge."
      }
    ],
    "attorneys": [
      "Attorney General Lacy H. Thornburg, by Special Deputy Attorney General George W. Boylan, for the State.",
      "Assistant Public Defender William D. Auman for defendant appellant."
    ],
    "corrections": "",
    "head_matter": "STATE OF NORTH CAROLINA v. JAMES RICHARD DAVIS\nNo. 8928SC373\n(Filed 19 December 1989)\n1. Constitutional Law \u00a7 28 (NCI3d| \u2014 prosecution of tax protestor \u2014 not selective prosecution\nThe trial court did not err by denying defendant\u2019s motion to dismiss tax related charges on the ground of selective prosecution. Defendant failed to show that prosecution was based on his affiliation with a recognizable, distinct class that suffered discrimination while others similarly situated were ignored in that his statistical evidence was too tenuous and he was incorrect in comparing the rate of prosecutions against the Patriot Network tax protestors with the number of people who fail to file but are not tax protestors. Defendant ignores the fact that preceding 1988 the Special Investigation Unit of the Department of Revenue initiated charges against numerous non-Patriot Network members.\nAm Jur 2d, Criminal Law \u00a7\u00a7 833, 834.\n2. Constitutional Law \u00a7\u00a7 28,18 (NCI3d) \u2014 tax protestor \u2014 selective enforcement \u2014 no violation of free speech\nA tax protestor\u2019s contention that the statutes under which he was charged, N.C.G.S. \u00a7 105-236(9) (failure to file a return) and N.C.G.S. \u00a7 105-236(7) (tax evasion), were unconstitutional as applied to him and that they represented attempts to suppress his right to free speech was feckless, even assuming that the State singled defendant out for prosecution because of his vocal stand against paying income taxes, because such prosecutions are predicated in part on a potential deterrent effect and serve a legitimate interest in promoting more general tax compliance.\nAm Jur 2d, Criminal Law \u00a7\u00a7 833, 834.\n3. Searches and Seizures \u00a7 1 (NCI3d)\u2014 tax protestor \u2014 administrative summons \u2014 wage and exemption records \u2014 not an illegal search\nThe trial court did not err in the prosecution of a tax protestor by denying his motion to suppress evidence obtained pursuant to N.C.G.S. \u00a7 105-258, an administrative summons statute used by the Department of Revenue to obtain wage and exemption information from defendant\u2019s former employer. A summons under N.C.G.S. \u00a7 105-258 would violate constitutional protections if it was overly broad, not issued in good faith for a legitimate purpose, or not relevant to that purpose. The information sought must not be in the possession of the Department at the time the summons is issued, and the proper administrative steps must be followed in issuing the summons. The Department of Revenue complied with those requirements in this case, rendering defendant\u2019s assignments of error without merit.\nAm Jur 2d, Searches and Seizures \u00a7 28.\n4. Taxation \u00a7 28.5 (NCI3d| \u2014 tax evasion \u2014 failure to give notice of assessment of taxes \u2014 not related to criminal offenses\nThe trial court did not err by denying defendant\u2019s motions to dismiss tax related charges based upon the State\u2019s failure to comply with N.C.G.S. \u00a7 105-241.1, which requires the State to give notice of assessment of taxes. This statute addresses only the civil assessment of taxes and is fully independent of the criminal offenses with which defendant was charged.\nAm Jur 2d, State and Local Taxation \u00a7 7.\n5. Criminal Law \u00a7 50 (NCI3d)\u2014 tax evasion \u2014refusal to recognize witness as expert \u2014 no abuse of discretion\nThe trial court did not abuse its discretion in a prosecution for tax related charges by failing to recognize a witness as an expert and in failing to allow him to testify as a layman concerning certain matters.\nAm Jur 2d, State and Local Taxation \u00a7 7.\n6. Taxation \u00a7 28 (NCI3d)\u2014 tax evasion \u2014 proof required \u2014 subject to being taxed and willful evasion\nThe trial court did not err by failing to dismiss charges of tax evasion on the ground that the State did not prove that defendant owed taxes for the years in question, or by failing to instruct the jury that the State must show that a tax is due. Where a defendant is charged with attempting to evade or defeat the ascertainment of a tax, and that person fails to file a return, the State must only show that defendant was subject to being taxed under the law and that he willfully attempted to evade or defeat the imposition of the tax.\nAm Jur 2d, State and Local Taxation \u00a7 7.\n7. Taxation \u00a7 28 (NCI3d)\u2014 tax evasion \u2014 good faith belief that tax is not owed \u2014no defense\nThe trial court did not err in the prosecution of a tax protestor by not instructing the jury that defendant\u2019s subjective good faith belief that he did not owe the taxes was a defense. The trial court conveyed the required instruction that, while a good faith misunderstanding of the law may negate willfulness, a good faith disagreement with the law does not.\nAm Jur 2d, State and Local Taxation \u00a7 7.\nAPPEAL by defendant from judgments entered 17 November 1988 by Judge W. Terry Sherrill in BUNCOMBE County Superior Court. Heard in the Court of Appeals 11 October 1989.\nThis is a criminal action, heard de novo in the Superior Court of Buncombe County on appeal from convictions of several tax-related misdemeanors in district court. Appellant was arrested on nine warrants, six that charged him with Wilful Failure to File a North Carolina Tax Return in violation of N.C.G.S. \u00a7 105-236(9), and three warrants that charged him with Attempting to Evade or Defeat a Tax in violation of N.C.G.S. \u00a7 105-236(7). At the close of the State\u2019s case in Superior Court, the counts charging willful failure to file a return for 1981 and 1982 were dropped. A jury found appellant guilty on all other counts, and he was sentenced to a total of seven months. Appellant, Mr. James Davis, received a consolidated term of six months on the three counts of attempting to evade or defeat a tax, followed by a consolidated thirty-day sentence for the four counts of failing to file. Mr. Davis appealed to this Court. We affirm.\nAttorney General Lacy H. Thornburg, by Special Deputy Attorney General George W. Boylan, for the State.\nAssistant Public Defender William D. Auman for defendant appellant."
  },
  "file_name": "0545-01",
  "first_page_order": 577,
  "last_page_order": 587
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