Unpublished Disposition, 874 F.2d 817 (9th Cir. 1989)

MEMORANDUM^** 

James C. Russell was convicted, following a jury trial, of mail fraud, the interstate transportation of monies obtained by fraud, and numerous violations of the Internal Revenue Code. Russell, who appears pro se, claims to raise nineteen issues on appeal. In fact, many of his contentions overlap and return to the same themes. Therefore, the contentions have been grouped and considered together under four headings. We find no merit in any of the contentions and affirm his conviction.

FACTS

Russell represented a trust company, Professional and Technical Services (PTS), which claimed to provide its clients with a way to avoid paying any income taxes. Under the company's "payroll discount" scheme, a client "sold" lifetime services for one dollar to PTS, which in turn sold the services to International Dynamics, Inc. (IDI), allegedly a Panamanian trust. Upon receiving a paycheck, the client endorsed it over to IDI, which transferred the funds, minus an 8-10% processing fee, to its beneficiary, IDI Credit Union, another Panamanian trust. Credit Union then sent the client a "gift" equal to 90-92% of the original paycheck. The client was assured that this "gift" need not be reported as income.

Russell and PTS also marketed a "9:1 tax shelter," by which clients purchased "consulting services" from IDI. Clients paid an allegedly deductible consulting fee to IDI and immediately received an allegedly tax-free reimbursement of about 90% of the fee. No consulting services were ever performed.

Russell began promoting and selling these programs in 1979 and received as much as 60% of the processing fees assessed by IDI.

ANALYSIS

Russell argues that the judge who presided at his trial was not a proper Article III judge, because he pays income taxes. Russell reasons that taxes diminish the judge's salary in contravention of Article III, section 1 of the United States Constitution and that the payment of taxes inhibits the independence of the judiciary by placing judges under the influence of the IRS.

Russell's contentions are specious. It has long been recognized that the payment of income taxes does not diminish a judge's salary within the meaning of Article III or inhibit the independence of the judiciary. O'Malley v. Woodrough, 307 U.S. 277, 281-82 (1939); Harris v. United Sttes, 758 F.2d 456, 458 (9th Cir. 1985).

Russell claims that he is not required to pay income taxes on his wages and therefore he is not subject to IRS or the court's jurisdiction, because he received his wages in equal exchange for services rendered. By Russell's reasoning, the income tax code applies only to gain derived from labor, and in an equal exchange, there is no gain to be taxed. Russell's argument is incorrect: wages are income upon which taxes must be paid. Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988).

Russell argues that the trial court incorrectly instructed the jury, pursuant to Lucas v. Earl, 281 U.S. 111 (1930), that an anticipatory assignment of income is ineffective for income tax purposes. The court stated in relevant part:

The defendants contend that, upon signing a personal services contract, an individual became the agent of Professional and Technical Services; that his future earnings belonged to Professional and Technical Services, and therefore were not taxable to him. The government contends that individuals who signed personal services contracts attempted to illegally assign their income because they, in fact, continued to work for and be paid by their previous employers.

... An employee may not escape taxes on his wages by assigning, transferring, selling, or giving away some, or all, of his future earnings to another individual or entity. Such anticipatory assignments of income have been recognized as ineffective to shift income for tax purposes for over 50 years.

RT 9:45-46. That ruling is an accurate statement of the holding of Lucas. See Lucas, 281 U.S. at 114-15; United States v. Russell, 804 F.2d 571, 574 (9th Cir. 1986).

Russell charges his pre-trial counsel with incompetence because the attorney failed to challenge the indictment on three grounds: that it did not name the Postal Service as a real party in interest; that it did not define "money of account" of the United States; and that it incorrectly alleged that defendants were liable to pay income taxes on their wages. Russell also claims that his attorney failed to investigate evidence which would have disproved the existence of a conspiracy. This evidence, collected in Russell's Excerpts of Record, consists of correspondence signed by or addressed to Forrester and relating to a Revenue Ruling issued by the IRS.

The effectiveness of counsel is a mixed question of law and fact which is reviewed de novo. Reiger v. Christensen, 789 F.2d 1425, 1427-28 (9th Cir. 1986). To support his claim, Russell must show both that his counsel's performance was deficient and that the deficiency prejudiced his defense. Strickland v. Washington, 466 U.S. 668, 687 (1984). A deficient performance is one that does not "fall [ ] within the wide range of reasonable professional assistance." Id. at 689. Counsel must make "errors so serious that she was not functioning as the counsel guaranteed by the Sixth Amendment." Iaea v. Sunn, 800 F.2d 861, 864 (9th Cir. 1986). Russell cannot support his claim.

Because the indictment against Russell was not defective on any of the grounds he cites, his attorney was not incompetent in failing to attack it. The indictment contained the elements of the offenses charged in sufficient detail to inform Russell and the court of the charges against him. United States v. Miller, 771 F.2d 1219, 1226 (9th Cir. 1985). None of the offenses required, as an element of the offense, that the government name the Postal Service or define "money of account." In addition, it has long been recognized that individuals are liable to pay income tax on their wages. See section II, supra. Therefore, Russell's attorney did not act improperly in not challenging the indictment on these bases.

Likewise, Russell's claim that his counsel failed to investigate the claim properly must fail. Russell basically argues that the material was necessary to allow him to plead a lack of "fair notice" defense. However, this court specifically denied him that defense. Russell, 804 F.2d at 575. It therefore was not error for his counsel not to pursue that approach.

Accordingly, Russell's conviction is hereby AFFIRMED.