     Case: 12-20741   Document: 00512576965      Page: 1   Date Filed: 03/28/2014




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                                       United States Court of Appeals
                                                                                Fifth Circuit

                                                                              FILED
                                 No. 12-20741                           March 28, 2014
                                                                         Lyle W. Cayce
UNITED STATES OF AMERICA,                                                     Clerk


                                            Plaintiff - Appellee,
v.

DAVID A. MONTGOMERY; BRIDGET M. MONTGOMERY,

                                            Defendants - Appellants.



                Appeals from the United States District Court
                     for the Southern District of Texas


Before JONES, ELROD, and HAYNES, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
      Following a jury trial, defendants David and Bridget Montgomery,
husband and wife, were convicted of conspiracy to avoid federal income tax
and of filing false tax returns. The Montgomerys argue on appeal that the
district court incorrectly instructed the jury on the willfulness element of the
charged tax offenses and incorrectly calculated the total tax loss resulting
from the offenses. There being no reversible error, we AFFIRM.
                                       I.
      The Montgomerys owned and operated Montgomery’s Contracting
L.L.C., a sole proprietorship that earned revenue by building churches and
performing construction work for small businesses and residential properties.
They also formed a church called the Restoration Temple Church of God in
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                                      No. 12-20741
Christ (“Restoration Temple”), where Mr. Montgomery was the pastor.
       On December 20, 2010, a grand jury returned an indictment charging
the Montgomerys with one count of conspiracy to defraud the United States
by impeding, impairing, and obstructing the Internal Revenue Service (“IRS”)
in the ascertainment, computation, assessment, and collection of income
taxes, in violation of 18 U.S.C. § 371 (“Count One”). The indictment also
charged the Montgomerys with two counts of making and subscribing a false
federal income tax return, for calendar years 2004 and 2005, in violation of
26 U.S.C. § 7206(1) (“Counts Two and Three”). The Montgomerys pleaded
not guilty and the case proceeded to trial.
       A three-day jury trial commenced on August 7, 2012. 1 At trial, the
government       offered    evidence     showing     that    the    Montgomerys        had
underreported the gross receipts of Montgomery’s Contracting on Schedule C
of their joint federal income tax return by $1,066,012 for 2003, by $590,362
for 2004, and by $485,613 for 2005, or $2.1 million total. 2 The Montgomerys
did not challenge these figures. Instead, the Montgomerys argued at trial
that they had not willfully underreported the gross receipts of Montgomery’s
Contracting. That is, they argued that they did not know that their actions
violated tax law.
       The government attempted to show the jury that the Montgomerys,
who operated a successful business for several years, were sophisticated
taxpayers who knew how to manipulate their income in order to avoid paying
taxes. The government offered evidence that the Montgomerys had concealed

       1 We view the evidence presented at trial “in the light most favorable to the jury’s
verdict,” as we must. Baisden v. I’m Ready Productions, Inc., 693 F.3d 491, 504 (5th Cir.
2012), cert. denied, 133 S. Ct. 1585 (2013).
       2 Schedule C is a federal income tax return form in which the owner of a sole
proprietorship must report the business’s gross receipts, deductible expenses, and the
resulting net profit or loss for the tax year. The Montgomerys’ underreported gross receipts
were essentially checks from their construction business clients.
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                                No. 12-20741
Montgomery’s Contracting business receipts by depositing them in personal
or Restoration Temple bank accounts and by transferring funds among their
fourteen separate bank accounts. IRS Special Agent Robert Brown (“Agent
Brown”) testified that the Montgomerys gave inconsistent answers when
questioned about their business income and expenses.
     Other evidence indicated that the Montgomerys had reported different
levels of income in other endeavors, such as in a loan application or in
paperwork submitted to car dealerships for automobile purchases, to suit
their needs. For example, Mrs. Montgomery reported $127,274 of business
income in a 2003 tax return that she submitted in a loan application. The
Montgomerys’ actual tax return that they submitted to the IRS reflected
$10,224 of business income. There were at least three other instances of
similar behavior.    The government also elicited testimony showing that
between 2003 and 2006 the Montgomerys and their family members
purchased and drove a number of cars, including a Lexus, Land Rover,
Mercedes, Nissan, Jeep, BMW, Bentley, and two Infiniti models.
     To show that the Montgomerys were well aware of their duty to report
the income, the government relied in part on the testimony of Clara
Carrington, an accountant who prepared the Montgomerys’ tax returns from
1997 to 2000.       Carrington testified that while there are complexities
associated with tax returns, “income” is not one of them. Carrington further
testified that she advised the Montgomerys that they were required by law to
report all of the income and expenses associated with Montgomery’s
Construction. Carrington stopped preparing the Montgomerys’ tax returns
after 2000 because she felt uncomfortable with the lack of information
supplied by the Montgomerys.          Thereafter, the Montgomerys used
Carrington’s signature without her authorization when submitting their 2003
and 2004 tax returns to the IRS.
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                                    No. 12-20741
      In his defense, Mr. Montgomery testified that he did not willfully
underreport the income from Montgomery’s Contracting or otherwise submit
false federal income tax returns.        Mr. Montgomery testified that he had
donated between 80% and 90% of his earnings to Restoration Temple and
that he believed that any money that he donated to Restoration Temple was
exempt from federal income taxes. 3 He also testified that he believed that
Restoration Temple could provide funds to its pastor for his general expenses.
      To define the element of willfulness, Mr. Montgomery’s counsel
proposed a jury instruction pursuant to Cheek v. United States, 498 U.S. 192
(1991), which provided in part:
      A defendant does not act willfully if he believes in good faith that
      his actions comply with the law. Therefore, if the Defendant
      believed that what he was doing was in accord with the tax
      statutes, he cannot be said to have acted with criminal intent.
      Therefore, if you find that the Defendant honestly believed that
      he was not violating the tax laws, even if that belief was
      unreasonable or irrational, then you should find him not guilty.
      However, you may consider whether the Defendant’s belief was
      actually reasonable as a factor in deciding whether he held that
      good faith belief.
      The government submitted a substantially similar jury instruction
pursuant to Cheek:
      A defendant does not act willfully if he believes in good faith that
      his actions comply with the law. If you find that the defendant
      honestly believed that he was not violating the tax laws, even if
      that belief was unreasonable or irrational, then you should find
      the defendant not guilty. However, you may consider whether
      the defendant’s belief was reasonable and rational as a factor in


      3 At trial, Agent Brown testified that, even if the Montgomerys had donated 90% of
their earnings from Montgomery’s Contracting to Restoration Temple, they would have
nevertheless been required to report those earnings on their federal income tax returns.
The government further argued at trial that if the Montgomerys had put most of their
money into Restoration Temple they would barely have enough money to pay the property
taxes on their property and would not have enough money to live on.
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                                 No. 12-20741
      determining whether the defendant actually held that belief in
      good faith.
      Then, over the Montgomerys’ objection, the district court instructed the
jury, in pertinent part:
            The Montgomerys must be found to have acted knowingly
      and willfully.    “Knowingly” means that an act was done
      voluntarily and not because of mistake or accident. “Willfully”
      means an act was done with a conscious purpose to violate the
      law. If you find that a defendant acted in good faith, you must
      acquit that defendant because his good faith is inconsistent with
      his having the intent to defraud or to violate the law.
            The Montgomerys, of course, do not have to prove their
      good faith, since they do not have to prove anything. If the
      government establishes beyond a reasonable doubt that a
      defendant acted with specific intent to defraud, then that
      defendant could not have had good faith. If a defendant believed,
      in good faith, that what he was doing followed the tax law, he
      would not have had criminal intent.
Thus, although the district court instructed the jury that it must acquit if the
Montgomerys acted in good faith, it did not say that Montgomerys’ beliefs
could be “unreasonable or irrational,” as both the government and Mr.
Montgomerys’ counsel requested. The district court reasoned that doing so
was unnecessary under Cheek and Fifth Circuit precedent.
      The jury returned a verdict of guilty on all counts as to each defendant.
The Montgomerys then filed a joint motion for a new trial based on the
district court’s jury instruction. They argued, as they do now on appeal, that
the jury instruction did not comport with Cheek. The district court denied
the motion and the case proceeded to sentencing.
      At a joint sentencing hearing, the Montgomerys objected to the tax loss
calculation in the pre-sentence investigation report (“PSR”). The PSR stated
that the total “tax loss,” or the amount of the Montgomerys’ unpaid taxes


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                                     No. 12-20741
resulting from their failure to report income, was $599,755. 4 To arrive at
that figure, the probation officer multiplied the underreported gross receipts
from Montgomery’s Contracting for each year by an estimated tax rate of
28%. Although the Montgomerys accepted the underreported gross receipts
figures themselves, they argued that they should have been offset by
Montgomery’s Contracting’s cost of goods sold, including the cost of
construction materials and labor, and that as a result the tax loss was
significantly overstated. Relying on a report prepared by Richard Jones, a
certified public accountant (the “Jones Report”), the Montgomerys asserted
that the true total tax loss suffered by the IRS was in fact either $137,990 or
$68,995, taking into account the cost of goods sold and other deductions. The
government objected to the Montgomerys’ tax loss calculation, contending
that it was speculative and not based on any actual business records. It
therefore urged the district court to rely on the tax loss calculation contained
in the PSR.
      The district court agreed with the government and accepted the tax loss
calculation contained in the PSR. Accordingly, the district court sentenced
each defendant to 41 months of imprisonment as to Count One and 36
months of imprisonment as to Counts Two and Three, each to run
concurrently and followed by three years of supervised release. The district
court also ordered restitution to the IRS in the amount of $550,000. The
Montgomerys appealed.
                                            II.
      The Montgomerys make two arguments on appeal. They argue that the
district court incorrectly instructed the jury on the willfulness element of the


      4  Based upon a $599,755 tax loss, the Montgomerys’ base offense level was 20.
Finding that the Montgomerys fell into criminal history category I, the PSR calculated that
the range of imprisonment under the Sentencing Guidelines was 33 to 41 months.
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                                  No. 12-20741
charged tax offenses.     They also argue that the district court’s tax loss
calculation was significantly overstated and that as a result they received
higher sentences under the Sentencing Guidelines.
                                       A.
      We first address the Montgomerys’ jury instruction argument.            We
review a properly preserved challenge to a jury instruction for abuse of
discretion and consider “whether the instruction, taken as a whole, ‘is a
correct statement of the law and whether it clearly instructs jurors as to the
principles of law applicable to the factual issues confronting them.’” United
States v. Aldawsari, 740 F.3d 1015, 1019 (5th Cir. 2014) (quoting United
States v. Richardson, 676 F.3d 491, 506 (5th Cir. 2012)). But even if the jury
instruction was erroneous, we will not reverse if, “in light of the entire record,
the challenged instruction could not have affected the outcome of the case.’”
United States v. Demmitt, 706 F.3d 665, 675 (5th Cir. 2013) (quoting Baisden,
693 F.3d at 504–05). We conclude that the district court’s jury instruction
was erroneous; however, we nevertheless affirm because we are convinced
that the error could not have affected the outcome of the case.
      Although ignorance of the law or a mistake of law generally does not
provide a defense to criminal prosecution, that is not so with regard to federal
tax offenses. Cheek, 498 U.S. at 199–200. “[D]ue to the complexity of the tax
laws,” certain federal criminal tax offenses require, as an element of the
offense, the establishment of a defendant’s willfulness. Id. at 200. In United
States v. Pomponio, 429 U.S. 10, 12 (1976), the Supreme Court defined
willfulness in this context as “a voluntary, intentional violation of a known
legal duty.”
      Fifteen years later, in Cheek, 498 U.S. at 201, the Court clarified
Pomponio’s definition of willfulness. There, the district court instructed the
jury that an “honest but unreasonable belief is not a defense and does not
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                                 No. 12-20741
negate willfulness.” Id. at 197. The Supreme Court held that the district
court’s instruction was incorrect.      Id. at 202.       It reasoned that the
government cannot carry its burden to prove willfulness in a criminal tax
prosecution if the jury believes that the defendant, in good faith, did not
understand the law. Id. That is true regardless of “however unreasonable a
court might deem such a belief.” Id.; see also United States v. Simkanin, 420
F.3d 397, 410 (5th Cir. 2005) (“[A] defendant’s good-faith belief that he is
acting within the law negates the willfulness element.”).
      Here, the Montgomerys argue that the district court’s jury instruction
did not comport with Cheek because it did not advise the jury that a
defendant’s good-faith misunderstanding of tax law may be objectively
unreasonable. In response, the government argues that, despite the fact that
its own proposed jury instruction included the unreasonableness language
from Cheek, it was unnecessary in light of the Supreme Court’s decision in
Pomponio, 429 U.S. 10, and our own decision in Simkanin, 420 F.3d 397.
They reason that, pursuant to those decisions, where a district court correctly
instructs the jury as to willfulness an additional instruction on the good-faith
defense is unnecessary. In any event, the government argues that the error
was harmless due to the overwhelming evidence of the Montgomerys’ guilt.
      We agree with the Montgomerys that the jury instruction was
erroneous.   The import of Cheek, as applied to this case, is clear: if the
Montgomerys truly believed that they were not obligated to report their
income, then the jury could acquit, however objectively unreasonable the
Montgomerys’ belief was. Both parties agreed to instruct the jury along those
lines by explaining that the Montgomerys’ beliefs regarding tax law could be
“unreasonable or irrational.” Yet the jury instruction, given sua sponte by the
district court, did not explain that point. Rather, it only included a portion of
Cheek’s good-faith defense:
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                                 No. 12-20741
      If you find that a defendant acted in good faith, you must acquit
      that defendant because his good faith is inconsistent with his
      having the intent to defraud or to violate the law. . . . If a
      defendant believed, in good faith, that what he was doing
      followed the tax law, he would not have had criminal intent.
      To be sure, defendants are not entitled to their exact choice of verbiage
in a jury instruction. See United States v. Simmons, 374 F.3d 313, 319 (5th
Cir. 2004). They are, however, entitled to a jury instruction that “correctly
reflect[s] the issues and the law.” See United States v. McKinney, 53 F.3d
664, 676 (5th Cir. 1995). The instruction here did not meet that standard—
the jury was left to decide the case bereft of a legal rule announced by the
Supreme Court in a case that altered the landscape of federal tax
prosecutions.
      Moreover, by including but failing to explain the full breadth of Cheek’s
good-faith defense, the district court’s jury instruction risked implying—in
direct conflict with Cheek—that the Montgomerys could not be acquitted on
the basis of good faith unless their views were objectively reasonable. See
United States v. Morris, 20 F.3d 1111, 1118 (11th Cir. 1994) (holding that a
jury instruction compromised the appellants’ good-faith argument because it
did not “make clear that a good-faith belief by the appellants that they were
complying with the tax laws, whether or not objectively reasonable, negates
the specific intent element”). That is because good faith is often equated with
reasonableness. See, e.g., Messerschmidt v. Millender, 132 S. Ct. 1235, 1245
(2012) (explaining that the Supreme Court has referred to actions taken in an
“objectively reasonable manner” as “objective good faith”); Newman v.
Guedry, 703 F.3d 757, 764 (5th Cir. 2012), cert. denied, 134 S. Ct. 162 (2013)
(“Because the officers’ use of force was not objectively reasonable, it was not
in good faith . . . .”); Mathis v. Exxon Corp., 302 F.3d 448, 455 (5th Cir. 2002)
(“Good faith includes observance of reasonable commercial standards of fair

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                                 No. 12-20741
dealing . . . .” (quoting Tex. Bus. & Com. Code § 2.305 cmt. 3)); Black’s Law
Dictionary (9th ed. 2009) (explaining that the phrase “good faith” excludes
conduct that contravenes “community standards of decency, fairness or
reasonableness” (emphasis added)). Like the jury instruction in Morris, 20
F.3d at 1118, the district court’s instruction here did not clarify that the
Montgomerys’ good-faith belief need not be objectively reasonable.
      Indeed, for this reason, the cases cited by the government are factually
distinct. In both Pomponio, 429 U.S. at 12, and Simkanin, 420 F.3d at 410,
the issue was whether the district court should have instructed the jury on
the good-faith defense in order to adequately explain the definition of
willfulness, not the content of the good-faith defense itself, which is at issue
here. When good faith is mentioned in a Cheek jury instruction, our sister
circuits routinely explain that a defendant’s good-faith belief need not be
objectively reasonable. See, e.g., United States v. Mostler, 411 F. App’x 521,
523 (3d Cir. 2011) (unpublished); United States v. Boyd, 378 F. App’x 841,
849–50 (10th Cir. 2010) (unpublished); United States v. Dean, 487 F.3d 840,
850 (11th Cir. 2007); United States v. Hilgeford, 7 F.3d 1340, 1343 (7th Cir.
1993); see also Seventh Circuit Pattern Criminal Jury Instructions § 6:11;
Pattern Criminal Jury Instructions for the District Courts of the First Circuit
§ 4.25; Third Circuit Model Criminal Jury Instructions § 6.26.7401-4 cmt.;
Manual of Model Criminal Jury Instructions for the District Courts of the
Ninth Circuit § 9.42. But see Morris, 20 F.3d at 1118.
      Nevertheless, the erroneous jury instruction in this case was harmless
because   the   evidence   showing    that   the   Montgomerys     intentionally
underreported their income was “so overwhelming that the error could not
have contributed to the jury’s decision to convict.” See Healy v. Maggio, 706
F.2d 698, 701 (5th Cir. 1983).        Over the course of three years, the
Montgomerys underreported over $2.1 million of gross receipts from their
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                                     No. 12-20741
business. Although they asserted at trial that they did not willfully do so,
they repeatedly reported less income—never more income—to the IRS than
they reported to other entities. Indeed, the Montgomerys did so using the
same tax forms, only with different numbers.
       Moreover, the Montgomerys’ accountant, Carrington, advised them
that they were required by law to report all of the income and expenses from
Montgomery’s Contracting. Then, after Carrington told the Montgomerys she
could no longer prepare their tax returns because they did not provide her
with sufficient information, they continued to apply her name their tax
returns without her authorization. They frequently transferred funds among
their numerous bank accounts, making it difficult to track their expenses,
and they gave inconsistent answers to Agent Brown when questioned about
their business’s income and expenses.
       Finally, the Montgomerys have not shown that the district court’s jury
instruction prevented them in any way from presenting the full breadth of
their good-faith defense to the jury. In fact, the Montgomerys’ good-faith
defense was central to defense counsel’s closing argument. 5                       Thus,
considering the entire record, we are convinced that the erroneous jury
instruction had no bearing on the jury’s decision. See Demmitt, 706 F.3d at
675.
                                           B.
       We now turn to the Montgomerys’ contention that the district court
erred by adopting the PSR, which contained a purportedly incorrect
calculation of the tax loss attributable to their actions, and that as a result


       5In closing argument, defense counsel argued that the prosecution had the burden
to prove that Mr. Montgomery did not act in good faith; that he relied on advice given to
him that the money he gave to the church was not taxable; that Mrs. Montgomery was
unsophisticated with regard to preparing tax returns; and that she did not intent to cheat
the government.
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                                      No. 12-20741
they received higher sentences under the Sentencing Guidelines. We review
a district court’s interpretation or application of the Sentencing Guidelines de
novo and its factual findings for clear error. See United States v. Cisneros–
Gutierrez, 517 F.3d 751, 764 (5th Cir. 2008); see also United States v. Phelps,
478 F.3d 680, 681 (5th Cir. 2007). “There is no clear error if the district
court’s [factual] finding is plausible in light of the record as a whole.”
Cisneros–Gutierrez, 517 F.3d at 764 (internal quotation marks omitted).
        The Sentencing Guidelines provide that where, as here, a defendant’s
offense involves the filing of a fraudulent or false tax return, “the tax loss is
the total amount of loss that was the object of the offense (i.e., the loss that
would have resulted had the offense been successfully completed).” U.S.S.G.
§ 2T1.1(c). “If the offense involved filing a tax return in which gross income
was underreported, the tax loss shall be treated as equal to 28% of the
unreported gross income . . . unless a more accurate determination of the tax
loss can be made.” U.S.S.G. § 2T1.1(c) cmt. n.(A).
        IRS Agent Brown testified at trial that the PSR reflected the correct
tax loss amount, $599,755. To arrive at that figure, Agent Brown multiplied
the underreported gross receipts from Montgomery’s Contracting for each
year by a tax rate of 28%. Agent Brown did not offset the underreported
gross       receipts   by   any   additional    expenses,   such     as   Montgomery’s
Contracting’s cost of construction materials and labor, that were not already
disclosed in the Montgomerys’ tax returns. 6           He did not do so for three
reasons: (1) the Montgomerys failed to provide him with their books and




        6In the Schedule C accompanying each of the Montgomerys’ federal income tax
returns, the Montgomerys reported business expenses of $371,064 in 2003, $134,677 in
2004, and $28,466 in 2005. Agent Brown did not challenge these figures, despite the
Montgomerys’ failure to provide him with their books and records.
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                                     No. 12-20741
records despite multiple requests; 7 (2) the Montgomerys commingled and
transferred funds among their various bank accounts; and (3) the
Montgomerys had maintained in their interviews with him that they had
reported all of their expenses in their federal income tax returns.
      As they did before the district court, the Montgomerys argue on appeal
that the district court could have calculated a more accurate tax loss amount.
See U.S.S.G. § 2T1.1(c) cmt. n.(A). They reason that the tax loss reflected in
the PSR bore no resemblance to the actual tax loss because it did not take
into account the business expenses—the cost of the bricks, mortar, labor,
etc.—associated with Montgomery’s Contracting’s underreported gross
receipts.
      To substantiate their argument, the Montgomerys rely exclusively on
the Jones Report. The Jones Report estimated the costs and expenses that
Montgomery’s Contracting, or any other construction company, would incur
in order to generate the gross receipts that the Montgomerys did not report
as income. It relied on Jones’s industry experience and statistics obtained
from BizStats, an online provider of business statistics.              Applying these
figures, the Jones Report estimated that Montgomery’s Contracting’s income,
after accounting for all of its expenses, should approximate 19.29% of gross
receipts. As a result, the Jones Report concluded that the actual tax loss due
to the Montgomerys’ failure to report income was either $137,990 or
$68,995. 8


      7  Agent Brown testified that the Montgomerys told him that their books and records
had been destroyed during a hurricane.           Defense counsel for Mr. Montgomery
acknowledged to the district court at sentencing that he did not have the Montgomerys’
books and records either.
       8 The $137,990 figure factored in solely Montgomery’s Contracting’s cost of goods

sold. The $68,995 figure factored in both the cost of goods sold and the Montgomerys’
purportedly deductible charitable contributions. At sentencing, Mr. Montgomery’s counsel
conceded that accounting for the contributions was “problematic” and therefore focused the
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                                      No. 12-20741
       The Montgomerys’ tax loss argument is unavailing.                   Although the
Second and Tenth Circuits permit a sentencing court to consider, when
calculating tax loss, unclaimed deductions that a defendant could have
legitimately claimed, we—and several other circuits—do not. 9 In Phelps, we
held that the defendant was not entitled to reduce his tax loss by taking a tax
credit that he did not claim on his fraudulent tax return. 478 F.3d at 682.
We reasoned that “tax loss” is the loss the defendant intends when he files
the fraudulent tax return, not the government’s actual loss. Id. “[R]eference
to other unrelated mistakes on the return such as unclaimed deductions tells
us nothing about the amount of loss to the government that his scheme
intended to create.” Id. (quoting Chavin, 316 F.3d at 678) (internal quotation
marks omitted). Thus, under Phelps, the Montgomerys may not rely on their
asserted, yet unclaimed, business expenses from Montgomery’s Contracting
to reduce the appropriate tax loss in this case.
       In seeking to rebut Phelps, the Montgomerys cite the Tenth Circuit’s



district court’s attention on the $137,990 figure. Because the Montgomerys failed to brief
whether the district court should have accounted for any deductible charitable
contributions that the Montgomerys could have claimed, they have waived this issue. See
Rodriguez v. ConAgra Grocery Prods. Co., 436 F.3d 468, 474 n.21 (5th Cir. 2006) (holding
that party waived argument by failing to brief it on appeal).
       9  Compare United States v. Hoskins, 654 F.3d 1086, 1094 (10th Cir. 2011); United
States v. Gordon, 291 F.3d 181, 187 (2d Cir. 2002) with United States v. Yip, 592 F.3d 1035,
1041 (9th Cir. 2010); United States v. Clarke, 562 F.3d 1158, 1164–65 (11th Cir. 2009);
United States v. Delfino, 510 F.3d 468, 473 (4th Cir. 2007); United States v. Chavin, 316
F.3d 666, 678 (7th Cir. 2002). Sentencing Guideline Amendment 774, which was not
effective until after the Montgomerys’ sentencing, resolves this circuit split. It explains
that a sentencing court may consider unclaimed deductions to arrive at a reasonable
estimate of tax loss. Counsel for the Montgomerys conceded at oral argument that
Amendment 774 is a substantive, rather than clarifying, amendment and is therefore not
retroactively applicable to the Montgomerys. See United States v. Solis, 675 F.3d 795, 797–
98 (5th Cir. 2012) (“A statement that an amendment addresses a circuit conflict indicates
that it is substantive.”). In any event, Amendment 774 still requires the deduction to be
“reasonably and practicably ascertainable” and supported by sufficient information to
determine its reliability. The Montgomerys have not met that burden here, as explained
below.
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                                     No. 12-20741
decision in Hoskins, 654 F.3d 1086. Putting aside the fact that it conflicts
with Phelps, our binding precedent, the court in Hoskins merely held that
“the plain language of § 2T1.1 does not categorically prevent a court from
considering unclaimed deductions in its sentencing analysis.” Id. at 1094
(emphasis added). Where the defendant “offers weak support for a tax-loss
estimate,” the sentencing court is not required speculate as to what
deductions the defendant may have claimed.              See id.    Likewise here, the
Montgomerys offer little and unreliable support for their proposed tax-loss
estimate, as we explain next.
      Even assuming arguendo that Phelps does not categorically prevent us
from considering the Montgomerys’ unclaimed business expenses, the district
court “had many reasons to be skeptical of [the] proposed deductions.” See id.
at 1097. To begin with, the Montgomerys repeatedly told Agent Brown that
they had reported all of their business expenses, in direct conflict with what
they now assert. Moreover, the figures contained in the Jones Report did not
rely on the Montgomerys’ business records, 10 and Jones did not review these
figures with the Montgomerys to ensure their accuracy. See United States v.
Kellar, 394 F. App’x 158, 169–70 (5th Cir. 2010) (unpublished but persuasive)
(affirming the district court’s decision to disallow the defendants’ tax loss
calculation because, among other reasons, their “accountant never reviewed
his tax computations with the [the defendants] themselves to ensure their
accuracy.”).    Rather, the Jones Report relied on statistics obtained from
BizStats, which disclaims any representation as to the accuracy of its
statistics.    Of course, as the Montgomerys argue, most businesses do not
obtain their materials and labor for free.          But the Jones Report failed to


      10  Indeed, at sentencing the district court explained that “[b]ecause the
Montgomerys . . . did not keep accurate records, did not make accurate returns . . . it is
impossible to know with any precision” their income or potential deductions or expenses.
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                                No. 12-20741
account for the fact that certain subcontractors for Montgomery’s Contracting
were not paid for the work they performed, which Mr. Montgomery’s counsel
conceded at sentencing.
      In sum, the Jones Report figures were of doubtful reliability and the
district court did not err in declining to accept the Montgomerys’ calculation
as “a more accurate determination of the tax loss.” See U.S.S.G. § 2T1.1(c)
cmt. n.(A).
      For the foregoing reasons, we AFFIRM.




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                                No. 12-20741


HAYNES, Circuit Judge, concurring in the judgment:


      Undoubtedly, the better part of valor for a district court faced with
proposed jury instructions that are not inaccurate and that are requested by
both sides is to give those instructions.    But the failure to do so is not
automatically an abuse of discretion.      The district court was entitled to
“broad discretion in framing the instructions to the jury,” United States v.
McKinney, 53 F.3d 664, 676 (5th Cir. 1995), and we are not supposed to
conclude that the district court has abused that discretion unless the
instructions, as a whole, create “substantial and ineradicable doubt whether
the jury has been properly guided in its deliberations,” United States v.
Demmitt, 706 F.3d 665, 675 (5th Cir. 2013). Because I conclude this high
hurdle has not been jumped by the Montgomerys, I cannot join in the entirety
of the majority opinion.
      The majority opinion concludes that the district court erred because it
did not advise the jury that a defendant’s good-faith misunderstanding of tax
law may be objectively unreasonable. See Cheek v. United States, 498 U.S.
192, 202 (1991). Cheek, however, did not mandate any particular language
for conveying the general concept of good faith to the jury, and the district
court did so convey that here, instructing the jury that it must acquit a
defendant who believed in good faith that he was acting lawfully.           The
instructions stated: “If you find that a defendant acted in good faith, you
must acquit that defendant because his good faith is inconsistent with his
having the intent to defraud or to violate the law.” The instructions therefore
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                                 No. 12-20741


generally address any good-faith belief, even an unreasonable one, held by a
defendant and, taken as a whole, do not misstate the issues or the law. See
McKinney, 53 F.3d at 676.
      Moreover, we have previously held that a district court is not even
required to include a specific instruction on good faith, where, as here, “it
adequately instructed the jury on the meaning of willfulness.” United States
v. Simkanin, 420 F.3d 397, 411 (5th Cir. 2005); see also United States v.
Pomponio, 429 U.S. 10, 13 (1976). Under Simkanin, the district court could
therefore have declined to instruct the jury on a defendant’s good-faith belief
altogether and that decision would have been within its discretion. 420 F.3d
at 411. I fail then to see how the district court’s decision to instruct the jury
on a defendant’s good-faith belief generally, but not expressly address the
“unreasonable” good-faith belief, could constitute an abuse of discretion.
      Relying in part on United States v. Morris, 20 F.3d 1111, 1118 (11th
Cir. 1994), the majority opinion concludes that the district court’s jury
instructions “risked implying that the Montgomerys could not be acquitted on
the basis of good faith unless their views were objectively reasonable.”
However, Morris simply addressed the same circumstances as those
presented in Simkanin, where a district court instructed a jury on willfulness
but not on good faith. Id. at 1117. Although the Eleventh Circuit in Morris
held that the district court’s instructions were inadequate because they did
not “make clear that a good-faith belief . . . negates the specific intent
element of the crime,” id. at 1118, we are bound by our holding in Simkanin,
420 F.3d at 411.
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                                      No. 12-20741

       Moreover, the Eleventh Circuit in Morris acknowledged that “there is
no requirement in this circuit that jury instructions specifically note that a
good-faith defense need not be objectively reasonable.” 20 F.3d at 1118. Yet,
that is precisely what the majority opinion concludes is required here. The
majority opinion’s speculation on what the jury might have thought “good
faith” means has no anchor in any relevant case law or the record here. 1
Whatever the “risks,” our task is to determine whether the district court’s
jury instructions, taken as a whole, incorrectly reflected the issues and the
law. See McKinney, 53 F.3d at 676. They did not. Given that our review is
for abuse of discretion, I cannot conclude that the district court’s jury
instructions constituted such an abuse. See United States v. Roussel, 705
F.3d 184, 190 (5th Cir. 2013). 2




       1  The cases cited by the majority opinion for the proposition that “good faith is
equated with reasonableness” are neither tax cases nor jury instruction cases. They also do
not support the conclusion that this jury might be confused about what “good faith”
encompasses here. It is unlikely that a jury is regularly perusing Black’s Law Dictionary or
cases analyzing unrelated federal and Texas statutes, the only references cited by the
majority opinion for this point.

       2  I agree with the majority opinion that if there is any error, it is harmless
considering the evidence in this case.
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