Confessions of a Radical Tax Protestor : An Inside Expose of the Tax Resistance Movement [1 ed.] 9781118033852, 9780470915769

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CONFESSIONS OF A

RADICAL

TAX

PROTESTOR

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CONFESSIONS OF A

RADICAL

TAX PROTESTOR An Inside Expos´ e of the Tax Resistance Movement

LARRY WILLIAMS

John Wiley & Sons, Inc.

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Copyright © 2011 by Larry Williams. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Williams, Larry R. Confessions of a radical tax protestor : an inside expos´e of the tax resistance movement / Larry R. Williams. p. cm. Includes index. ISBN 978-0-470-91576-9 (hardback); ISBN 978-1-118-03385-2 (ebk.); ISBN 978-1-118-03386-9 (ebk.); ISBN 978-1-118-03387-6 (ebk.) 1. Tax evasion–United States. 2. Tax protests and appeals–United States. 3. Income tax–United States. 4. Taxation–United States. I. Title. HJ4653.E75W47 2011 336.20092–dc22 [B] 2010049288 ISBN 978-0-470-91576-9 Printed in the United States of America. 10

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Contents

Introduction Chapter 1

1 Don’t Tax Me, Tax the Man behind the Tree

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Chapter 2

Born a Tax Protestor

27

Chapter 3

Lost in the Desert

39

Chapter 4

Life on the Run Around

63

Chapter 5

Getting Out from Down Under

87

Chapter 6

The Tax Resistance Movement and Its Legal “Help”

107

Chapter 7

Taking the Plunge . . . over a Campfire

125

Chapter 8

When a Fair Share Is Not So Fair

137

Chapter 9

The Perfect Tax Solution

145

Chapter 10 If at First You Don’t Succeed . . .

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CONTENTS

Chapter 11 Turning the Wheels of Justice in Your Favor

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Chapter 12 Sharpening the Ax

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Chapter 13 At Last, Trial Time

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Chapter 14 A Workable Solution

201

Appendix: Right to Speedy Trial Filing Acknowledgments Index

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Introduction

Our lives begin to end the day we become silent about things that matter. —Martin Luther King

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t was the best of flights and the worst of flights. The outskirts of Sydney, Australia, loomed into view through my first-class window aboard a Qantas airliner. It had been a pleasant jaunt from Johannesburg, South Africa, and across the Indian Ocean. I was looking forward to catching up with my Aussie mates. Little did I know that in the next 35 minutes, I would be arrested, taken to jail, eventually tossed in prison, and my life would be turned upside down for the next five years. Before this happened, things couldn’t have been better. After all, I was in first class, living pretty much the jet-setter’s life. My personal success trading commodities had allowed me to roam the world as a teacher and lecturer on the art of trading. When I spoke, people took copious notes. Few feelings in life top that! I had just completed giving a series of seminars in South Africa and India, where, on another journey, I had proposed to my wife, Louise Stapleton, at the Taj Mahal. She was not aboard this flight as she had stayed behind in Franschoek, South Africa, conducting trades and enjoying the country. Franschhoek is one of the true gems of the

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I N T RO D U C T I O N

world. After one of my lectures, Louise and I went for a drive outside of Cape Town with our friend, Ian Breakspeak, a former Rhodesian. (I refuse to call people from what Rhodesia is called now because of the killing, maiming, and destruction that still goes one there.) Most everyone has heard of the prestigious Rhodes scholarship at Oxford University, but very few know it was established by John Rhodes, whose most important contribution was literally creating a country that he named after himself—Rhodesia. It is now illegal in Zimbabwe to call or refer to that country as Rhodesia. Ian had taken us to his vineyard property outside of Stellenbosch, where Louise and I both fell in love with the country and its vineyards, the snowcapped mountains in the background, and the clean air. I liked the value. You would be hard pressed to spend over $60 at a five-star restaurant while having dinner for two with impeccable food. This was as ideal as it got. It reminded me of John Steinbeck’s novel, The Pastures of Heaven, written about Carmel Valley, California, where I once lived. I had come to Australia for a two-week lecture tour. I thought of how fortunate I was: five wonderful children, Louise and her kitties, no debt, students and friends all over the world. The only annoyance on the flight was that the empty seat next to me was no longer empty. One of my students happened to be onboard the plane and came to ask me myriad questions about the market. Should he buy? Should he sell? Should he do nothing? I love the markets, and I enjoy talking about them, but I also like to be alone when I am flying. The chap next to me got my attention, though, when he started talking about taxes and said, “You know there’s really no law that requires you to file taxes in the United States. The Internal Revenue Service is just a bluff, a scare tactic, because taxes are voluntary; you are not required to file. Look at the 1040 form; it says right on the form that it is a voluntary system.” Turning to him as slowly and deliberately as I could, looking directly into his eyes, I said, “I have been down that path; trust me you don’t want to go there.” How fateful those words were to become.

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In 1987 I had met an attorney and graduate from the prestigious Hastings School of Law, Jim Knowles, who showed me exactly why I was not required to file taxes because the income that I earned was not taxable income. According to him, while I was a citizen of the United States, that does not automatically make one a taxpayer. “A taxpayer,” as Jim explained it, has a specific legal meaning and it excluded almost everybody. I explained to the fellow sitting next to me that going down Jim’s path caused me nothing but trouble. At every twist and turn, the government put up a very difficult battle. I had finally “lawyered up” to get out of the only problem in my life. As the plane landed in Sydney, I put my computer back into its bag, along with the novels I’d been reading, and my notebook, where I had been drafting the comments I wanted to make about the market during the course of my stay. Prepared for my first speaking engagement in Australia, I was ready to hit the ground running. Australia was also prepared—for me. One of the nice things about traveling first class, and almost as nice as having those seats that stretch out into beds, is to be able get off the plane first. As the door opened, we were told to stay in our seats. That was strange, but Australia has some strange customs (catsup is called “dead horse,” a meat pie a “dogs eye”). The stewardess brought three gentlemen to where I was sitting. They asked if I was Larry Williams. “Yes, I am,” I replied. “You’re under arrest, come with us.” I was quite perplexed by this because, while I knew I had IRS issues in the U.S., I had hired a big-time Chicago lawyer, Dave Stetler, to resolve them. He had been in contact with the Department of Justice and had said we would cooperate and do whatever needed to be done to become compliant. Above all, I was embarrassed being dragged off the plane in handcuffs. Trust me, it is not the most enjoyable way to enter a country. People in handcuffs get personal escorts and don’t have to wait in the customs lines. Quite perplexed about the whole thing, I watched as these three gentlemen took my baggage and began rifling through it, taking everything out, and then wanding my things with metal detectors. They even had a dog sniff over everything. Then it hit me; there is a commodity

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guy in Australia who really had it out for me. I figured he probably called the government to tell them I was a drug smuggler. After all, my trip to Down Under was widely promoted. Since I’m not a drug smuggler, I fully expected the matter to be over in minutes. When the Australian government agents were through searching my clothes and my pockets, two more agents approached me. I asked for an explanation and they told me a warrant had been issued in San Diego, California, for my arrest on three charges of tax evasion. Dave Stetler told the IRS that I was willing to cooperate in their investigation. He had been in constant contact with them. I guess he hadn’t accomplished anything. “Oh my gosh,” I said, “an indictment, what had happened?” I honestly wasn’t fleeing anything. My speaking engagement in Australia had been publicized. The times, the places, which hotels were no secret. I am a very public guy. It was all over the Internet. Ads had been placed in newspapers.

r r r Australia has a long history of criminals entering the country—that’s what got the place going. Australia started out as an English penal colony. If you talk to Australians who are direct descendents of those “criminals,” you’ll find that their ancestors were often “transported” to Australia for petty crimes, such as stealing a loaf of bread or for their politics. Most just could not pay their debts. It was an arduous trip. The ships left London, came down the coast of Portugal and Spain, hit the tip of Africa, then sailed across to Brazil, where they refueled on water, oranges, and fresh fruit. The criminals stayed on board in squalor, while the sailors lived it up in Rio de Janeiro. The hard part of the trip began; a straight shot to where I had just come from, Cape Town, South Africa, where supplies were replenished before going around the Horn and the easier sailing from there to Australia. As I was led into what appeared to be a lockup in the bowels of the airport, I could relate with those early prisoners. I’d left Cape Town, I was now in some kind of modern-day dungeon, no windows, fluorescent lights, and four or five guys with badges, bureaucratic white shirts, absence of smiles, telling me exactly what I could and could not

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do, to sit here or stand there. I was in the hands of modern-day transport ship captains. It took me a while to learn the lesson that my mother had instilled in me as a child growing up in Montana. She said, whatever happens to you, be kind and considerate to people. Don’t be offensive, don’t be abrasive, and people will treat you well. I had violated mother’s teachings on several occasions, and always it was to my detriment. This time I was determined to practice mothers’ preachings. The last time I was arrested was in Iran while searching for biblical antiquities. Before that, it had been in Saudi Arabia, which I describe in my book, The Mount Sinai Myth. In both instances, mother’s wisdom saved the day. I was as nice to these guys as I could possibly be. I was kind and considerate. Mom would’ve been proud, not for the jam I was in, but hopefully, at least, for how I was dealing with this little predicament. They eventually took me to a small cubicle, a holding area equipped with a gray desk, tape recording equipment, and even harsher lights. Then one of the agents handed me a sheet of paper, requesting that I read and sign it. Obviously, I thought, I’d better read this paper carefully. I did, and what I saw was that it was giving them permission to deport me. There were three conditions I would be agreeing to if I signed this paper: that I was a threat to society, that I had arrived in Australia without proper papers, and that I had some form of disease that would risk the lives of Australians and kangaroos. Since none of these were true, I said, “I can’t sign this.” That was hardly the answer the agents were looking for and they told me I had to sign. “Well I would, if I could,” I said, “but I can’t.” The agents then walked out of the holding tank and left me alone. After some time had passed, they returned with some bigger guys who told me the same thing—sign it. One of them, a real jerk, ordered me around and would not answer my questions. He was just flat out obnoxious. But I remembered what mother said—“Be nice.” At last the Australian authorities explained to me that the U.S. government wanted to extradite me from Australia back to the States. In short, I was going to a federal penitentiary and life would no longer be pretty for me. The paper the Australians wanted me to sign declared me to be an illegal entrant to Australia, so I could then be handed off to

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I N T RO D U C T I O N

the Americans with no contest for my correct legal rights. I refused to sign. Mother would not object to that. She believed in standing up for one’s rights as much as she believed in good manners. The Australians left the room and came back a few moments later, again to get my signature. After rereading the document, I had an idea. I proposed that I would sign it, but only after first crossing out all those boxes in which I declared my entry was illegal. Doing this seemed to appease their bureaucratic sensibilities—after all, they had a signed document—but now they left me once more alone in a holding cell, dangling in space.

r r r New agents, dressed in crisper suits, came to see me next. They explained more about the indictment back home and that I was about to be transported to a place called Surrey Hills. There is a trendy spot for Sydney’s young professionals with that name, chock full of great restaurants such as Billy Kwong’s. But I wasn’t going to that Surrey Hills. The one the Australian authorities had in mind for me was a jail for really bad people, many crazy or on drugs. Most were busted in the historically notorious Kings Cross area, the underbelly of the city, a magnet for drugs, prostitution, and criminals of all kinds. What the Sydney Opera House means to Australia’s culture, so Kings Cross is for its crime. I asked the obnoxious guy what I needed to do to see a lawyer. The jerk tossed me the Sydney Yellow Pages, which was about four inches thick. “Go find one,” he said. Australia is not America. Sure, they have McDonald’s, Kentucky Fried Chicken, and Pizza Hut, but the legal system is very different. In Australia you have three choices of lawyers: a barrister, a solicitor, or a silk. They all had advertisements in the Yellow Pages, but which one could handle my problem. What was the difference between a barrister, a solicitor, and a silk? Which one handled a criminal act in the United States? In Australia legal needs and services follow a kind of gradient. Solicitors are at the bottom of the pole. Barristers do most kinds of legal work, unless it’s a special case. For that, the barrister hires you a silk. By and large, however, silks don’t have contact with clients, just the barristers.

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The agents walked out of the room, leaving me to thumb through the book. I did not have a clue what to look for. So, I perused the firms that had the largest ads and the best photographs of aggressive-looking partners. Silk? Solicitor? What was this all about? It is hard enough to find a good lawyer on the outside, but in the basement holding tank of an airport, it looked impossible. Earlier, I had talked briefly with one of the agents because I noticed he had an accent. He sounded Swiss to me. He said that he was from Berne, so we talked a little about Switzerland. I had lived in Geneva in 1973, moving there from Beirut after civil war broke out. I liked Geneva; no one shot at you there. I had done a lot of business in Switzerland and still had some really good friends there. We struck up a decent conversation. Eventually, the Swiss agent came back into the room and whispered to me, “You know, we Swiss see taxes differently than the Australians. I’m just here on a temporary assignment. I don’t know much about Australia but . . .” And with that he reached for the Yellow Pages, flipped through the solicitors, barristers, silks, or whatever they called themselves, stopped, pointed and said, “This man, he usually beats us.” With that Hans gave me a big smile, a wink, and then walked out of the room. I dialed Chris Watson, who certainly turned out to be the best legal practitioner in Australia. What a wonderful lawyer he is, as well as being a delightfully charming man. For the time being, however, I only knew this guy had an ad in the Yellow Pages. What I gradually learned was that Chris is one of the kindest people and best solicitor/barrister advisers a Yank can find Down Under. He treated me with respect and, at every turn of an almost three-year battle, his advice was correct. At the Sydney airport, he told me over the phone, “Don’t worry. But be prepared to go to jail because it’s very difficult to get bail on an extradition issue. It will take a lot of money and we may not even be able to do it. But I will have them bring you to me at the police station in Surrey Hills and we will talk about all of this.” He did, of course, ask me if I would be able to pay his fee!

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I N T RO D U C T I O N

That’s how my two-week trek to Australia became a nearly three-year stay. What an interesting experience to be in. At times, certainly, not an enjoyable one, yet always a marvelous experience in the art of living. It became a true adventure in learning about Australia, now my “second home,” with a fascinating history, a unique legal system, and some great people. This was the beginning of the end of my journey as a tax rebel—after being what some call a tax protestor—to becoming the guy who files his taxes on the deadline every year. This is a story of how a relatively smart and well-educated person fell for and got involved in so-called “legal tax avoidance.”

r r r There are two purposes of this book. The most important purpose is to rile you up, to get you off your duff so you take part in the change that is coming to our system of taxation. I cannot make you angry; but the facts should. It is not enough to be agitated; agitation without action does not cause change. Change comes from drive and desire, which means taking an active part in the political process. Do we have a miserable lot representing us? You bet. I ask, though, who elected these bozos? We did. Good people like you and me sat on the sidelines. We did not contribute to causes. We did not get active, knocking on doors and campaigning for what we want. I’m not talking at just a national level here. Cumulatively, the states face budget shortfalls of nearly $140 billion next year, according to the Center on Budget and Policy Priorities. We are responsible, we gave them the power, and we fell asleep happy with our lives. It is time now to wake up and protest, to stand and fight, to denounce them and the massive mess they have created. If you want a fair tax system—whatever that means to you—you must take the battle and the message to your congressman and senators imploring them that now, finally, the time has come to reform a broken system. My second purpose in writing this book is to show the pitfalls and protest I encountered. I was an activist, but my action took a wrong turn; hoping for change, I accomplished nothing other than to greatly frustrate

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and stymie my own life. That was at great emotional and financial expense to all the people around me I love and care about. My mess was their burden, and there is no way that debt can be repaid. You might search online for ways to minimize your taxes, or talk to your CPA or attorney. You may seek advice from a major financial institution. My advice is to be careful. You will be tempted by the aggressive marketing cult that sells so-called tax-saving advice. r

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UBS and HSBC have been pursued by the IRS for setting up tax shelters for customers, with UBS turning over a list of 4,500 of their customers to the IRS.1 Deutsche Bank was fined $533 million for the bogus tax transactions they put their clients into.2 In January 2006, the Tax Justice Network nominated Citigroup for its Public Eye on Davos Award, which is for excelling in socially irresponsible behavior. In the case of Citigroup, it was for engaging in tax evasion and facilitating tax evasion for its clients.3

The difference between us little guys and them is that they evade hundreds of millions in taxes and get fined; we seek to avoid negligible amounts, but get tried criminally and often end up in prison for following so-called tax experts. Here it is, this is what I want to say to you: I knew where I wanted to go, but took the wrong path to get there. I’m going to openly and frankly reveal those painful paths to you, in the hopes that you do not follow in my footsteps. I am aware that many people will see this chapter of my life as a futile waste of time—attempting to change a system beyond repair and battling a behemoth. I do not accept that view. When change is needed, it is worth fighting for—the trick is how best to wage the battle to win. I would like to give you a real-time example showing that it is possible to change the way we are taxed. I am now a resident of the U.S. Virgin 1 Harro

Ten Wolde and Jason Rhodes, “Deutsche Bank U.S. tax fraud deal opens floodgates,” Reuters, December 22, 2010, http://www.reuters.com/article/idUSTRE6BL10820101222. 2 Ibid. 3 Lucy Komidar, “Citigroup: A Culture and History of Tax Evasion,” Tax Justice Network, January 2006, http://www.taxjustice.net/cms/upload/pdf/Citigroup_-_a_culture_and_history_of _tax_evasion.pdf.

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I N T RO D U C T I O N

Islands, a lovely Caribbean island where it never gets too hot or too cold. Yet there are problems; we have a high unemployment rate which, of course, produces a high crime rate. What can be done? Clearly, we need jobs, better education, and strong families. How do we accomplish this? Through better taxation. Fortunately, the U.S. Virgin Islands has an Economic Development Commission that gives substantial tax advantages to large companies that move here and employ at least 10 local workers. The net effective tax rate, federal and state, drops to about 4 percent. It is a great program that has created jobs and increased revenues for schools and police. But it’s not enough. The strength of America is not just large corporations, it is also Main Street, small business. It is for that reason that, working in conjunction with elected senators here, we have developed the idea of allowing small business the same type of tax advantages given to the big boys. The legislation is elegantly clean. All you need to do is move here, become a legal resident, and hire a certain number of employees for so many dollars of revenue (about one employee per $1,000,000 of net revenue), as well as contribute 1 percent of net profits to programs for crime prevention and education. As I completed this book, this novel legislation has been introduced and sponsored by senators Terrance “Positive” Nelson, Neville James, and Nereida O’Reilly. I expect the legislation will be approved by the entire senate and governor. I believe we will see a resurgence in small companies coming to the Virgin Islands, increases in employment and in the buying and building of homes, and a posititive contribution to our way of life. Looking back on my tax rebel days, I can see I did a great deal of fighting with not that much accomplished. Working within the system, change can be brought about—even in the tax code! I hope this book, my story, is an inspiration to you to get involved, whatever your issue is. Without hope and a vision that change is possible, the first step is never started. Isn’t it time you take your first step?

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CHAPTER 1

Don’t Tax Me, Tax the Man behind the Tree Don’t tax you and don’t tax me; tax the man behind the tree. —Senator Russell Long

ax protests have been part of the great American experience since the Boston Tea Party of December 6, 1773, when colonists protested a British tax on imported tea by throwing a ship’s cargo into Boston harbor. This event led to the American Revolution. The Tea Party movement, which fielded candidates and influenced the midterm elections of 2010, is named for that original tax protest. The recent gathering of over 10,000 members of the Tea Party Movement sweeping across this great country met in Boston to resurrect the historic protests of the American colonists. It doesn’t matter if you’re liberal, conservative, libertarian, or simply apathetic to politics, I’ll wager my tax refund against yours that at some point you have protested, bitched, or bellyached about either the amount of money you were forced to pay in income taxes or how the system itself functions. It doesn’t matter if you’re rich or poor; we have all experienced the frustrations, stress, and amazement of how income taxation in the

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C O N F E S S I O N S O F A R A D I C A L T A X P RO T E S T O R

United States works and doesn’t work. Many people pay no income taxes at all. In today’s pasteurized, homogenized, and franchised world, the word “radical” has been stolen and altered by the media. They have tried to redefine it sticking it on crazies who bomb buildings and flaunt crazy ideas. Those are not radicals. Here’s how Webster’s defines the term radical: relating to, or proceeding from a root: as a (1) : of or growing from the root of a plant (2) : growing from the base of a stem, from a rootlike stem, or from a stem that does not rise above the ground b : of, relating to, or constituting a linguistic root c : of or relating to a mathematical root d : designed to remove the root of a disease or all diseased and potentially diseased tissue .

Radical has to do with getting to the root of the problem and solving the equation at that point. A radical does not sugar coat or put a Band-Aid on a problem. A radical seeks a permanent solution. Webster’s adds: . . . of or relating to the origin : fundamental 3 a : marked by a considerable departure from the usual or traditional.

In other words, radicals upset the status quo. No wonder we are so vilified by the establishment and so critical to bringing about a better world. If you don’t like the current state of our so-called “tax system,” don’t you want to get to the root cause of the mess and solve it there? Don’t you want to go to the origin of the problem and shatter what is traditional in the tax quagmire that has sickened America? If you, like me, believe we do have a tax obligation, but want it fair, limited, and comprehensible, then like me you are a tax radical willing to shatter tradition and fix the problem, fix it once and for all, by going to the root of the problem and solving it there. The current system is neither fair nor easy to understand. Don’t citizens deserve at least that from their lawmakers? An editorial in the Wall Street Journal shows how rigged the system is against the little guy:

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The House version of the stimulus already includes a bonus depreciation that lets businesses immediately write off 50% of their 2009 capital expenditures. But the Senate bill expands the definition of “qualifying property”—specifically to include “certain motion picture film or videotape.”1

The motion picture business is big business and big time Hollywood moguls Steven Spielberg, David Geffen, George Lucas, and the like were big money guys behind President Obama’s candidacy. As you can see, the Democrats in Congress seemed to have found a way to return the favor. After all, this 50 percent write-off will benefit these large Hollywood donors. These are the same Democrats who object to cutting the U.S. corporate tax rate of 35 percent—which is higher than the Europe Union, undermines economic growth, and discourages job creation—for all companies on the grounds that it favors the rich and powerful. Yet Democrats carve out tax loopholes for businesses they like and that write them campaign checks. While a little guy like me—who may or may not have owed much in taxes—was seemingly destined for three to five years in prison, the big guys are not treated the same way. Deutsche Bank AG recently agreed to pay $553.6 million and admitted criminal wrongdoing to settle a longrunning probe over fraudulent tax shelters that allowed their clients to skate on billions of dollars in U.S. taxes. Under a nonprosecution agreement with the IRS, the bank will not be prosecuted for setting up about 15 tax shelters involving more than 2,100 customers between 1996 and 2002, including shelters marketed by accounting firm KPMG LLP and defunct law firm Jenkens & Gilchrist PC.2 The scheme generated more than $29 billion in bogus tax benefits, mainly losses, according to the agreement. Too big to fail, or just too big to put in jail? Hard to say, but it’s clear that the little guy protesting the tax laws is not treated the same as someone who admitted to defrauding the government of $29 billion dollars. This is far from an isolated example. Whether Republican or Democrat, conservative or liberal, the Internal Revenue Code seems to be 1 “Raiders

of the Lost Taxpayer (opinion),” Wall Street Journal, January 30, 2009, A12. Glovin, David Voreacos, and Bob Van Voris, “Deutsche Bank Agrees to Pay $553.6 Million to Settle U.S. Tax Shelter Case,” Bloomberg.com, 12/21/10 (http://www.bloomberg.com/news/ 2010-12-21/deutsche-bank-agrees-to-pay-553-6-million-to-settle-u-s-tax-shelter-case.html).

2 David

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written more with campaign contributions and political affiliations in mind than being fair. Just recently General Electric found a way to get around paying its taxes while you and I paid ours. CNN’s Jack Cafferty reported it this way: Although GE earned lots of money last year—they did it overseas and not in the U.S.: General Electric’s American operations lost about $400 million, while its international businesses netted nearly $11 billion in profit. After deductions and adjustments—GE reported a negative 10.5 percent federal income tax rate . . . and wound up with a “tax benefit” of almost $1 billion. When it comes to income tax payments on the overseas profits, they defer those “indefinitely.” Not bad. . . The rest of us need their accountants.3

Was that just smart accounting or a kind of protest? Should we applaud or be put off? While a jealous party might be upset that GE avoided taxes denied to most others, GE shareholders like myself should applaud the company’s offshoring its profitability because that means GE can pay me and those other stockholders a better dividend. It also may factor in any rise in GE’s stock price. Mark Twain had a marvelous insight to the tax system when he wrote his 1870 autobiographical short story “A Mysterious Visit,” about an encounter with an agent from the Internal Revenue Department. In that meeting, the revenue agent cajoled Twain to admit to the large amount of revenue he had made as an author and speaker. Realizing that he had shown too much of his hand to the agent, and that a substantial tax bill would follow, he decided to call on a friend for advice to handle the situation: I am acquainted with a very opulent man, whose house is a palace, whose table is regal, whose outlays are enormous, yet a man who has no income, as I have often noticed, by the revenue returns; and to him I went for advice in my distress. He took my dreadful exhibition of receipts, he put on his glasses, he took his pen, and presto!—I was a pauper! It was the neatest thing that ever was. He did it simply by deftly manipulating the bill of “DEDUCTIONS.” He set down 3 Jack

Cafferty, Cafferty File, CNN Politics, April 20, 2010, http://caffertyfile.blogs.cnn.com/2010/ 04/20/g-e-and-bank-of-america-paid-no-federal-income-taxes-last-year/.

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my “State, national, and municipal taxes” at so much; my “losses by shipwreck, fire, etc.” at so much; my “loss on sales of real estate”—on “live stock sold”—payments for rent of homestead”—on “repairs, improvements, interest”—on “previously taxed salary as an officer of the United States Army, Navy, Revenue Service, and other things. He got astonishing “deductions” out of each and every one of these matters—each and every one of them. And when he was done he handed me the paper, and I saw at a glance that during the year 1869 my income, in the way of profit, had been one thousand two hundred and fifty dollars and forty cents.4

A stroke of the pen is all it took, and for some that is how they protest—with deductions on their income tax forms. To me, that is the coward’s way. It is not direct. It is not confrontational. It is hiding behind some form of accounting and never gets to the issue of changing the status quo. Accountants preserve the status quo for a fee. If the tax system is to change, I don’t think it will come about by hiding behind deductions and fiddling with rules and regulations. A more in-your-face approach is needed when it comes to the U.S. government and that needs to be through political action. Returning to Twain’s story, one not familiar with the history of U.S. income taxation might be wondering what was going on back in 1870. The obvious question is: Didn’t income taxes go into effect on February 25, 1913, with the passage of the sixteenth amendment to the U.S. Constitution? Far from it. The income tax bite began much earlier. By an act of Congress on August 5, 1861, a tax of 3 percent on all incomes over $800 became law, initially to pay for the cost of waging the Civil War. Not only was the modern income tax born, so was the modern tax deduction, many of which are still operative 150 years later. This tax, which continued on after the Civil War ended, is what Mark Twain finds so onerous, as well as the tax collector. He described that man as “Barring that natural expression of villainy which we all have, the man looked honest enough.” Despite such honest looks and the supposedly low form of taxation, Americans were upset about a tax on income. The reason is simple; the Constitution had no provisions for a tax on income, only for a per capita 4 Mark

Twain, “A Mysterious Visit,” Collected Tales, Sketches, Speeches & Essays: 1852–1890 (New York: The Library of America, 1992), 343–344.

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form of taxation. The only way a tax could be levied on income would be for the federal government to tell each state you need to go collect X dollars from each state citizen. Then each state would have to pluck that directly from their citizens. The Federal government could not take a penny from your income. Citizens saw to it that the 1861 act was repealed in 1872. A subsequent income tax law was found unconstitutional by the Supreme Court in 1895. These struggles, which left their mark on Mark Twain and other American taxpayers, continued America’s longstanding issue with government taxation. And Americans were very vociferous about what they saw as the pilfering of their personal income. Excise taxes and import duties seemed to work just fine in the early building of America. Revenues from those forms of taxation provided enough for the federal government.

r r r Why has the American experience been one of tax revolts, tax protests, tax reform, and the like that make lower taxes a priority, be it the Boston Tea Party, California’s Proposition 13 of the 1970s, and Tea Party Movement that started in 2010? Why have people gone to jail over taxes, had their bank accounts levied, or committed suicide over taxes? I think I can answer that. One of the foremost concepts of individual rights is the freedom to hold assets and properties. What you earn in the form of money is your property just as much as your house, car, and other tangible forms of property are. Earnings are indeed the most basic form of property. In fact, without earnings you could have no property, which gives rise to this question: How can you or I be truly free when we are denied the freedom of ownership and, ultimately, control we should have over our personal earnings? The answer is, of course, we are not free. That is why the tax protest movement is more about freedom than specific dollar amounts. It’s the principle, and people have willingly died for this freedom to bring about a fair tax code. This battle, in my case, was never about saving money. It was about individual liberty and freedom—that is, changing the system. Was it in my personal interest to do so? You bet

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it was. But setting me free sets you free. What is good for the goose is good for the gander. What is taking place is that the fruits of our labor have come to be seen not as something we own. Part of it belongs to a common pool of public wealth. A societal obligation has evolved with the supposition that whatever the government needs to run itself can be taken from our personal wealth. Our bank accounts can be tapped as the government sees fit. That’s why people resist taxes. Freedom-loving citizens resist the idea that government is entitled to take what they have rightfully earned. It is their money. They earned it fair and square and if it is to be taxed, it should be just as fair and square. People are willing to pay taxes. I believe they are willing to pay handsomely for what government can offer them, as long as it is quid pro quo—something for something. It gets down to that argument of what is paying your “fair share.” And what is your fair share? Most think it’s more fair that others pay more so that they don’t have to pay as much. Therein lies the problem. It is the thinking behind that old adage: “Don’t tax you, don’t tax me, tax that man behind the tree.” It is finding someone else to tax that is the root cause of our chaotic tax system. It is why certain people lobby, influence, argue with, and even find ways to pay members of our government, to tilt the tax tables in their favor at the expense of that man behind the tree . . . who is you and me. In 1960, middle-income Americans paid less than 30 percent of their earnings in local, state, and federal taxes. Today that figure is up to 40 percent. Furthermore, many middle- and upper-income families living in the states that have the highest taxes, such as New York and California, pay nearly half their incomes in taxes. High taxes reflect the growth of government, at all levels, in the United States since World War II.5 Has the exponential growth in government given us exponential gains in government services that contribute to our own welfare?

5 George

1993.

Nastas, “A Consumer’s Guide to Taxes: How Much Do We Really Pay?,” USA Today, May

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Actually, taxes have made it more difficult to lead a pleasant life. Consider these facts from the Cato Institute: r

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In an average-tax state, a middle-income worker with earnings of $34,000 must earn an additional $17,038 to purchase a $10,000 car. That means the worker must earn $10,000 to pay for the car and $7,038 to pay the sales tax on the car and the income and payroll taxes on the earnings used to pay for the car. A worker with an income of $34,000 must work three and a half months of the year to pay for the car, and then two and a half additional months to pay the taxes on the income used to purchase the car. For a self-employed middle-income worker, the true cost of the $10,000 car is $18,320 because the self-employed worker pays a 14.1 percent self-employment tax to cover the employee and the employer shares of Social Security and Medicare (FICA) payroll taxes on their incomes. In a high-tax state, such as California, the pre-tax cost of the car is $18,776 for a wage earner and $20,186 for a self-employed worker. In a low-tax state, such as New Hampshire, the car costs a middleincome wage earner $15,540 in pre-tax income and a self-employed worker $16,708. In the five states with the highest taxes, wage earners have to make roughly $2,000 more to purchase a $10,000 car than they do in the five states with the lowest taxes.6 The system is absolutely not fair.

r r r There are really three reasons why we protest taxes today, especially the federal income tax: 1. What gives the IRS the power or right to tax all incomes 2. The amount of money being collected 3. The complexity of the system 6 George

Nastas and Stephen Moore, “A Consumer Guide to Taxes: How Much Do You Really Pay in Taxes?” Cato Institute, April 15, 1992.

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The complexity has spawned an entire industry of tax lawyers, certified public accountants, H&R Block and other storefront income tax services, and a cast of nefarious characters who would fit well in a Broadway play. Some of these fellows can be trusted and quite a few, as I found out, cannot. The U.S. Supreme Court found the Internal Revenue Code confusing and stated as much in various legal decisions. In Murdock, the majority of the court ruled: A good-faith misunderstanding of the law or a good-faith belief that one is not violating the law negates willfulness, whether or not the claimed belief or misunderstanding is objectively reasonable. Statutory willfulness, which protects the average citizen from prosecution for innocent mistakes made due to the complexity of the tax laws.7

In a later decision, the Supreme Court expanded on its previous ruling while citing other decisions in the matter of criminality and understanding the Internal Revenue Code: [I]n “our complex tax system, uncertainty often arises even among taxpayers who earnestly wish to follow the law” and “[i]t is not the purpose of the law to penalize frank difference of opinion or innocent errors made despite the exercise of reasonable care.”8

Essentially, the Supreme Court is saying that if a taxpayer thinks the moon is made of cheese, and truly believes it to be so given what the government says on the matter, the government, in turn, cannot find that person criminally liable if the government really meant the moon is made of something else. The moon and cheese, of course, is a figurative demonstration that shows that the court will take into consideration that a taxpayer can misinterpret the Internal Revenue Code contrary to what the IRS interprets it to mean. There is also the nature of the taxation system. Many individuals, including U.S. senators and presidential candidates, see the income tax as a confiscatory tax, that the Internal Revenue Code makes wealthy people poor and poor people wealthy—what individuals should do on their own. While we all have equal rights, which definitely need 7 United

States v. Murdock. States v. Bishop, 412 U.S. 346, 360–361 (1973) (quoting Spies v. United States, 317 U.S. 492, 496 [1943]).

8 United

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government protection, there is currently no equal protection of your earnings. Citizens get upset about the government taking money from them and giving it to another person who did not earn it. Redistribution of wealth is not a new idea or problem. Thomas Jefferson felt this way over 200 years ago, writing, “The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.” Both political parties have sought to pick our pockets. Republicans and Democrats have been deceptive in their comments versus their actual actions regarding taxation. In 1954 both President Eisenhower and Senator Taft spoke of a tax reduction that would create a budget of approximately $60 billion. Under Republican leadership, that $60 billion budget became an $80 billion budget, and if you added formal disbursements from trust funds and Social Security, the budget was closer to $100 billion. The population then was 165 million people. In 2009, the population was 305 million while the budget was $3.6 trillion—clearly government spending has outpaced the population. What makes this more interesting is that about 47 percent of Americans paid no federal income taxes for 2009. Either their incomes were too low or they qualified for enough credits, deductions, and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization.9

r r r Protesting taxes is not restricted to right-wing radicals or left-wing liberals. Joan Baez, for example, did not want her tax dollars being spent on the Vietnam War. In mid-April 1964, Baez sent the IRS a letter in which she refused to pay 60 percent of her taxes—the portion of the federal budget that was going to the Defense Department—because it violated her pacifist and Quaker principles “Weapons and wars,” she wrote, “have murdered, burned, distorted, crippled, and caused endless varieties of pain to men, women, and children for too long.” Her action 9 Vincent

Fernando, “Americans Love To Scream About Taxes Or Social Support, But Only Half Are Actually Paying Income Tax,” Business Insider, April 8, 2010, http://www.businessinsider.com/ only-half-americans-actually-pay-income-tax-2010-4#ixzz0ljOir3pO.

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shouldn’t have come as a surprise. She had refused to sing “The StarSpangled Banner” at a White House appearance and sang Bob Dylan’s “The Times They Are A-Changin” instead. The times may have been a-changing, but the IRS was not. It slapped a $50,000-plus lien on Baez’s house in Carmel Valley, California, and on her bank account. Unlike the military, which let some draft resisters claim the status of conscientious objector, the IRS offered no such option for tax protestors. In a way, Baez was following Jefferson’s words, which state that “To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.” Thus, for the next 10 years, Baez refused to pay a portion of her taxes that she saw going to making war. “Sometimes a representative from the IRS would appear at my concert venue and take cash from the register before it even reached the promoter,” she wrote in her autobiography, And a Voice to Sing With. “I was accused of being impractical, because, of course, the government got my money plus fines.” Asked today if she would do it again, Baez declined to comment. But her spokeswoman assured Entertainment Weekly that Baez does pay her taxes—just like the rest of us.10 The list of famous Americans who have protested taxes is a “Who’s Who” of the country, beginning with Henry David Thoreau, who refused to pay taxes during the Mexican-American War. Others simply had tax problems that haunted their lives, such as Ernest Hemingway, Buster Keaton, the boxer Joe Lewis, Willie Nelson. Judy Garland lost her fortune and home to the IRS in an extended legal battle, which my have given rise to her saying, “We cast away priceless time in dreams, born of imagination, fed upon illusion, and put to death by reality.”

r r r While the purpose of politics is to minimize conflict within a society and maintain an air of openness and equality, the opposite seems to be 10 Nancy

Ramsey, “When Baez Defied the IRS,” EW.com, April 12, 1991, http://www.ew.com/ew/ article/0,,313918,00.html.

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the reality regardless of party affiliation. Republicans clamor for tax cuts, but in fact the largest tax cut in history prior to President Reagan was initiated by President Kennedy as part of his effort to get government out of the way of people’s lives and business successes as well as stimulating the economy. While the Democratic Party has lionized JFK, there are many parts of his politics they now distance themselves from. Besides taxes, they seem to have forgotten his statement that the American flag should fly free forever over the Panama Canal. It was the Democrats who led the battle to give the Canal zone back to Panama. History has also shown that Republicans, too, have changed their tune. In his four terms as governor of New York, Nelson Rockefeller signed legislation for a state income tax and a sales tax, both of which have continuously increased under his and successive administrations. Ironically, the governor himself paid no income taxes. This came out during his 1974 congressional testimony for his confirmation as vice president. That’s correct; one of the wealthiest men in the world, a man who began an income tax system in his state, paid no income tax. It was all about taxing that man behind the tree. No wonder people are frustrated with the system. When they see leaders, from Rockefeller to Tom Daschle to Tim Geithner, legally sidestepping tax payments, why can’t they do the same? Of course, it is frustrating, to the point that one taxpayer flew a plane into an IRS office building to express his anger. Many people have taken their lives because of what the IRS did to their families and their businesses. I suppose it is the twisted logic these people use—a nightmarish way of taking Patrick Henry literally—“Give me liberty or give me death.” These people chose to die over the lack of liberty imposed upon them by the Internal Revenue Service. Wherever you turn, you find a great deal of frustration because the code is (1) too complex to follow (Albert Einstein said it best, “The hardest thing to understand in the entire world is the income tax”); (2) the taxes you pay support causes you disagree with (think Joan Baez); and (3) people resist the idea of the government taking their money (i.e., personal property) because they made more money than the next guy. How can it be fair to take more money—that is, a larger percentage of a person’s income—just because he or she is successful? It is no more fair than taking points away from a winning football or baseball team and

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giving them to the losing side to balance out the game. That doesn’t seem very fair, especially if it’s your favorite team giving up those points.

r r r The enormity of the tax burden has worn on people to the point that the Ron Paul revolution, the Tea Party movement, and what follows in their footsteps is the sparkling new face of American politics. It is not about to go away. Just look at your tax burden. Let’s assume you have a combined income of $100,000. How much of it do you really get to keep? Is there some fair share of the money you earned that is yours? Let’s take a look at the numbers. Assume for a moment, none of those wonderful deductions or magical accounting transactions, like those Mark Twain found to his relief in 1870, existed. On $100,000 of income, you would pay $28,000 to the federal government, leaving you with $72,000. In other words, you work just about one day out of every three to pay your federal taxes. And like they say in those infomercials on television, “But wait, there’s more!” You still have to pay state taxes. In California, the state tax on the $100,000 would be $7,278. That means your net income is now down to $64,712. (This is why people have moved to Nevada, Tennessee, and Florida, where there is effectively no tax on your income.) But wait, there’s more! Let’s assume you’re going to do something with the leftover money. If you save 10 percent of what you have left, about $6,471, that leaves you with a net spendable income of $58,241. Now, most people spend almost everything they earn. You know better, you put money aside for a rainy day. When you spend that money, in California, you have at least an 8.25 percent sales tax, which in many California cities will be 10 percent given the local sales tax. In fact, on many of the items you buy, regardless of what state you live in, there will also be a federal excise tax— essentially a sales tax—on jewelry, high-priced cars, boats, airplanes, gasoline, tobacco, even tanning salon treatments, intended to pay for a national health care system. Let’s not forget the war tax from 1940,

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which is still on your phone bill and myriad other taxes you pay when you purchase or use things—the government actually gets about 10 percent of what you spend whether that be local state or federal. Of course, you don’t even have to be a resident of the state to be a taxpayer. It is not unusual for someone staying in a hotel room in New York City to pay over $50 a night in taxes that go into the coffers of the Empire State for providing nothing of value to the nonresident taxpayer—a poor chap who has paid taxes without representation. So what does that mean to our hard-working citizen making $100,000 a year? It means another $5,824 must be deducted from disposable or net income before spending taxes on purchases. There is no freedom of choice; you must pay those taxes. Of course, you could go off the grid to escape taxes. You might get involved in the illegal smuggling of high-taxed items such as tobacco. Much criminal activity has been fostered by the government through punitive taxes on specific products. The bottom line is the net money earned on $100,000, which, in this example, is $52,417. In other words, the average citizen is actually paying almost half of what he earns to one government entity or another. All the money you make, every other day of the work week, goes into the kitty either as city, state, or federal taxes. This cannot last. Let’s not forget that when you die your family does not get what you worked so hard for in life. The government will take much of it through its inheritance tax scheme. Whoever thought up this idea, that the government owns a healthy chunk of what you earned during the course of your life, was one sicko. The same could be said of hundreds of congress members and senators who support this wacky notion. What planet do these people live on? Politicians of this kind either have never had children or never had parents. We have reached a critical mass point and that is the real reason for the Tea Party, the real reason so many people want to “throw the bums out.” It has nothing to do with talk radio, Rush Limbaugh, and like political agitators. They are a symptom of what is taking place. I believe that over the next few years we will see a true political change in campaign strategies as well as what legislation is passed in Congress. We have not seen a grassroots movement of this magnitude since the Civil Rights movement of the early 1960s. That movement

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was also based on personal liberty, equal treatment, and freedom. The bell of today’s tax resolution rings the same notes, which means it is just as valid, just as enduring and will not go away. I was proud to march with Dick Gregory and sing the Freedom Song in 1962, just as I am proud to call myself a tax protestor now. The goal is the same—equal treatment and personal freedom. However, and this is crucial, there are good ways and bad ways to protest. There are good leaders and bad leaders within any protest movement. The tax protest movement of recent history, unfortunately, has had a charred record of its leaders tossing people under the bus of the Department of Justice’s criminal prosecution unit. As you read my story, along with stories of other people who thought they were fighting to change the tax system, you will see I was led not by a band of modern-day Thomas Paynes or leaders seeking real change, but rather by leaders who fleeced their followers. Instead of working through the political process, they charged massive amounts of money to show the average person how to sidestep paying federal taxes like, say, a Nelson Rockefeller. In each instance, these promoters claimed that the programs they advocated were legal and would withstand the iron fist of the Internal Revenue Service. They backed up those claims with court cases, opinion letters from lawyers, certified public accountants, and even law enforcement officers. In reality, they were dead wrong and their followers were misled. Many of their followers ended up serving prison sentences. It is the purpose of this book to expose these false prophets, to educate you about the falsehood of their statements and services, and prepare you for the next wave of false prophets to come along. Many more are coming because of the frustrating federal system of taxation. They will be coming out of the woodwork. They will be getting many people in more trouble than you can imagine. That is my goal and purpose for writing this book. Sit back, listen to my story. Learn what it’s like being tossed in jail, fighting extradition, and going to trial. Learn, vicariously, what happened to me so it doesn’t happen to you. If I can save even one person from getting sucked into the scam of the tax resistance movement, all of the pain, pressures, and stress I went through were worth it.

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CHAPTER 2

Born a Tax Protestor It’s unfair. Not everyone in the Stones’ camp is a millionaire. —Rolling Stones roadie protesting tax increases that ended a Stones tour

hen people ask me how long I have protested taxes, I answer since birth. I think that’s where it really began because the basic nature of a tax protestor is different from that of other people. One thing I’ve learned about myself through this experience is that I tend to be more paranoid about government than other people. Early in my life I recognized I had this fatal flaw. It is like a gift, too, just as some people are born with a gift for math or art. A certain type of person is more likely to board the tax resistance bus. That person will have an excessively high demand for personal freedom. That person will, as a general rule, be more paranoid of all institutions and tend to focus on small elements of an argument and perhaps miss the bigger picture. Some might call that taking things out of context. The U.S. Treasury estimates that 16.3 percent of Americans are in noncompliance with tax laws and owe the government. These people aren’t fudging the numbers on their tax forms or using creative tax deductions. They simply evade paying taxes. While the anti-war movement is calling on people to not pay taxes to protest the war, the

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fact is that a growing number startles some.1 According to IRS estimates, uncollected taxes may total $345 billion per year or roughly 2.6 percent of the national GDP. Again, this is purely tax evasion. These estimates do not include corporations and the wealthy using tax shelters that “legally” protect them from paying taxes. In 2006, the IRS audited about 1.3 million tax returns out of 130 million filed for an audit rate of about 1 percent according to an IRS source. With over 16 percent overtly flouting the IRS, at best only 1 percent of the audited taxpayers will be challenged. Those are the odds, as long as you don’t stand up and shout about taxes and end up on the IRS—the “Internal Radar Screen”—grid.2

r r r I clearly remember my father explaining income taxes to me in the early 1950s. People, he said, who earned a great deal of money had to fork over a percentage of it to the government. I couldn’t get that out of my head. Even as a kid, I could see it was not right that someone who made a good deal of money would have to pay 70 to 90 percent of it to the federal government. Let me tell you about my family. We were not wealthy people. For most of his life, my dad worked in the Continental Oil Company repairing oil refinery equipment. He did not have a college education. For a time we lived in Lewistown, Montana, and when dad became foreman at Continental’s refinery in Billings, we moved there. Dad was a typical working guy: blue-collar, union member, a hard worker. He would be called up at two or three in the morning (when it was 20 below outside) to go fix something. That was not an unusual occurrence; it happened every winter. There had never been any wealth in his family or my mother’s. My mother’s father was a carpenter who fell off a ladder.

1 Brian

Deming, “How Much Tax Money Does the IRS Fail to Collect?” Suite101.com, March 21, 2010, http://www.suite101.com/content/how-much-tax-money-does-irs-fail-to-collect-a215381# ixzz0xk7kAvZo. 2 John C. A. Bambenek, “Around 1 in 6 Americans Do Not Pay Their Taxes,” Associated Content, July 5, 2007, http://www.associatedcontent.com/article/302668/around_1_in_6_americans_ do_not_pay.html?cat=62.

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He landed on his head and spent the rest of his life in a hospital while his wife, my grandmother, ran a corner grocery store to support herself. This is an important point, I think, because it shows that when I formed my beliefs about the unfairness of the income tax, I had no dog in the fight. Dad could barely make ends meet. The system seemed unjust to him—and to me—because it was wrong for the government to take that much money from anyone. That someone would have to hand over nearly everything they made smacked of a great loss of personal freedom and dignity. So like I said, in a way I was born a tax protestor. When I went to college, however, this view came into question. Like most college students, I was spoon fed a socialistic dogma about how everyone should pay their fair share, and we should help other people. I have no problem with this in principle. I’ve done more than my fair share of helping others, I’ve given scholarships and millions of dollars to charities to make life better, for issues I feel strongest about. I think that is an obligation, a voluntary obligation. In college, I was told the taxation system is fair. People should contribute “from each, according to his ability; to each, according to his needs.” Only later did I learn this concept came from Karl Marx, stated in the Critique of the Gotha Program (1875): In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life’s prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly—only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!

This was not the philosophy that allowed Americans to become the wealthiest people in the world prior to the income tax imposed by the Sixteenth Amendment. This was certainly not the philosophy that allowed a fledgling United States to go from being a ragtag band of frontiersmen to a world power following the Civil War. Socialism, however, was rampant as a political and social philosophy at the turn of the twentieth century. We are still paying the

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consequences of that despite the abject failures of socialism and communism throughout the world. Even China and the former Soviet Union are no longer true communist societies and economies. Countries that have tried it, like Cuba and Venezuela, have become economic disasters, as demonstrated by the large numbers of citizens fleeing the all-controlling communist iron fist. Yet in the United States, many operate under the delusion that the best way to advance as a nation is to penalize people who are successful. What a concept! With that as my foundation of how my mind operated, you can only imagine the paths I traveled, books I read, people I met and how I came to believe that my income was not subject to federal taxes, that the tax code the Internal Revenue Service has was not about me, or my income.

r r r Maybe it’s a Montana thing, maybe a cowboy mentality, but I grew up with that rugged individualism that makes it hard to respect outside authority. I grew up when the West, during the 1940s and 50s, was still being tamed. People had the freedom to do good things then—and some dumb things too. It’s actually not far removed from the mind-set of the hippies of the 1960s. Like them, we Montanans wanted the same thing—personal freedom—which we believed created a better world. Perhaps this was instilled in me by my grandfather, who grew up on an Indian reservation in Wisconsin before moving to Montana in a covered wagon. I vividly recall him telling that he paid cash for his first car. He took a brown paper bag full of $20, $50, and $100 bills and bought that car. He did not believe in credit. He paid in cash. He told me that story over and over again, and every time his eyes lit up. Today, however, buying a car with cash is viewed by the federal government with suspicion. You could be a drug dealer, or some other form of criminal. For example: r

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money exchange to deposit $2,500 in Penn’s account. The task force claimed the money was profits from illegal drug deals. After two months of negotiations and $13,000 in legal fees, Penn got its money back—except for $3,000. In 1998, Hernon Manufacturing of Orlando, Florida, an epoxy manufacturer, had $30,000 seized from its bank accounts after Impact again found a transaction with a lone Colombian client. The money, less $6,000 for Impact’s “legal fees,” was returned four months later. That same year, Omega Medical Instruments, a small medical equipment supplier in Wilmington, North Carolina, had its accounts seized as well. Impact had found a cash deposit from a Colombian client. Most, but not all of the funds, were returned.3

In fact, the government can now take your car, house, or cash as it might be guilty. Yes, an inanimate possession can be guilty! Drive into downtown Portland, Oregon, to solicit a prostitute and the car you are driving can be seized and sold as “guilty property.” Revenue flows to the government (or the vehicle is commandeered for use by its agencies), even if that car isn’t your property! Were a friend to lend you his car while out of town on vacation, and you got caught using it while propositioning a lady of the night, your friend loses his car. No recourse, no appeal. This is the official government position in advising other countries to do the same. Per the U.S. State Department: “The U.S. continues to urge that the GOA [Government of Aruba] amend its anti-money laundering legislation to shift the burden of proof from the prosecutor to the defense.” My grandfather didn’t see it that way; nor did his generation or even my father’s generation. It used to be “Cash is King” now it is “Cash is Criminal.” You think not? Consider the case of Stephen Bierfeldt. He was detained by four TSA employees while wearing a Ron Paul for President campaign button when going through an airport search. After the initial scan, the TSA people brought him to a detention room. He told them he was carrying $4,700 in cash. The law enforcement officials wanted to 3 StoptheDrugWar.org,

http://stopthedrugwar.org/.

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know why he was carrying so much cash before boarding a flight. They were campaign contributions. The cash needed to be proven innocent! What has changed? What has changed is the rules and regulations. As a businessman, I have run into my fair share of them. I began writing a newsletter for stock traders in 1966. Then the government came down on me. I received a letter from the Securities and Exchange Commission (SEC) stating that my promotional copy was flamboyant and emotional and “therefore misleading and fraudulent.” So, the feds deemed my words automatically misleading and fraudulent because they were emotional. The rub, however, was that I was not managing money. I was not making trades for people, not risking anyone’s money but my own. I was simply writing and distributing a little newsletter, one among many, about what I thought would happen in the market. That was it, there was no fiduciary responsibility. Simply put, I was a bona fide publisher. The government didn’t see it that way. The feds wanted people such as myself to register with them under the Investment Advisers Act of 1940. To make a long story short, this was eventually settled with the decision in the Lowe case, which made it all the way to the U.S. Supreme Court.4 Thanks to Glenn King Parker, who spearheaded and raised money from fellows such as myself and Bob Prechter, who supported the legal defense, we now have a positive decision.5 The highest court in the land came down loud and clear. It ruled that it didn’t matter what you published—stock market advice, daily news, or how to feed your cat—the writer and publisher is protected by the First Amendment, which is perfectly clear: Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

It took several years and several hundreds of thousands of dollars in litigation before the SEC gave up on the notion that it could control what was written about the stock market. 4 Lowe 5 Ibid.

v SEC, 472 U. S. 181 (1985).

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I took away several things from this battle with the federal government. Above all, the feds were often wrong. They were dead wrong in the Lowe case and any rational person could see that. I learned that government agencies exist to expand their turf, their bureaucratic grasp over our freedoms and liberties. What the Constitution says doesn’t matter; it wasn’t about individuals. It was about them getting more entrenched in society, which of course would only lead to larger funding from Congress. In much the same way that an amoeba grows and expands to survive, an organization—corporate, bureaucratic or worst of all, a governmental agency—must do the same. These guys simply cannot envision reducing their power. It is only, and will always be forever, about increasing the scope of their power and control. The Founding Fathers warned us about such things. Unfortunately, few people listen to those voices now. Few people have ever read Common Sense and The Conscience of a Conservative. Few are aware of the history of the income tax in this country. They don’t know what Thomas Jefferson said; they don’t know about the debate between Jefferson and Hamilton on the subject of taxation. And very few people know what Lysander Spooner said so well, “The only security men can have for their political liberty, consists in keeping their money in their own pockets.”6 This is an old Montana tradition—if you are challenged, you stand up for your rights. You will throw punches, and you may get beat up all to hell, but you fought for what you believed in. You stood your ground. That is the culture I grew up with, and the culture I still represent. Whenever I ran into governmental issues, I was not going to roll over. That simply wasn’t in my blood. I could see it might be easier to just pay and play along with the feds, but if we all did that the result would be an expansion of rules, regs, and power. After several skirmishes with these SEC guys, as well as seeing what was taking place with the federal deficit and budget, I decided to run for U.S. Senator from Montana in 1978. I made this decision with the assistance for my very dear friend Jim Vidal. I’d show ’em, by damn!

r r r 6 Lysander

Spooner, No Treason: The Constitution of No Authority. 1870. Section III.

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Talk about in over my head! I had never run for anything before—not homeroom president, not class president, nothing. I had no business being in politics. All I had was a strong sense that things were not right, that we were losing our liberties and that the government and deficit were ballooning out of control. I did the impossible. I ran against the hand-picked Republican Party candidate, Bill Osborne. Bill had been a very successful high school coach. He had friends throughout the state. When I read the press release that Bill was running, I thought the guy sounded so great that I should be helping him win. I called Bill. I wanted to be certain where he stood on the issues. President Carter wanted to transfer control of the Panama Canal to the Republic of Panama, a move I saw as perilous. I wanted to know where Bill stood on the federal deficit. I wanted a constitutional amendment to make it mandatory to have a federally balanced budget. After all, every state, by their Constitution, requires a balanced budget. Shouldn’t the federal government operate the same way? Bill replied, “I have a committee that will help me with these issues and explain to me what the best positions to take are.” I threw up my hands in despair. A committee to tell you what was right and wrong? What kind of political philosophy was that? I answered my own question: not much of one. With that, I set off around the state of Montana in Sancho Panza style, more fool than knave, to become the state’s next U.S. Senator. It was a great experience. I met people throughout the state, campaigned in every county, went to cities where no senatorial candidate had been to in years, little towns like Hot Springs and Alzeda. I gave it all I had and won the Republican primary and against the hand picked, big city guy who was supposed to win, who had the Republican Party behind him, as well as all the established money. We put together an energetic group of young people and beat the machine. (Several entered Montana politics themselves—Brad Johnson as Secretary of State, Denny Rehberg as U.S. Congressman, Conrad Burns as U.S. Senator, and Steve Daines, now running for the U.S. Senate.) That was the beginning of a pattern in my life. The SEC and senatorial victories were excellent fodder for me to get into battles over my head; a pattern worked well until I met the Internal Revenue Service. They were a power beyond description, I was to find out—but I’ll get into that later in the book.

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Things happened during my campaign for the Senate that I will remember forever, such as the pharmacist in Fort Benton telling me he received a bill from the Internal Revenue Service for $0.12—plus a penalty of $95. Other memories are far more touching, such as visiting a hospital that treated children with cleft palates. The cost of correcting this deformity is high and it takes a special kind of person to care for them, be with them. It is something I don’t think I could ever do. Heart wrenching doesn’t adequately describe what I saw. Above all, I will never forget what former Texas Governor John Connally told me when he came to Montana to lend his support. Connolly served as President Nixon’s Secretary of the Navy and Secretary of the Treasury. He was also governor of Texas in 1963, when he took that fateful ride with President Kennedy in that open-top Lincoln convertible in Dallas. “Don’t believe the Warren Report,” he told me in so many words. There was no way the bullet that went through President Kennedy could have been the same one that went through me as the report claimed (i.e., the single bullet theory). “Larry,” he said, “I have been a big game hunter all my life. I know what bullets do. I know what they can’t do, and there is no way that bullet could have gone through both of us. The Warren Report is wrong!” Those words struck to the core. The Warren Report was wrong, which can only mean one thing: The United States government did not always tell the truth. Things get covered up. I did not read this in some conspiracy book. This came to me first hand, from the governor of Texas, who sat in the car with President Kennedy. Here is Nellie Connally’s (John Connally’s wife) official statement: The first sound, the first shot, I heard, and turned and looked right into the President’s face. He was clutching his throat, and just slumped down. He just had a—a look of nothingness on his face. He didn’t say anything. But that was the first shot. The second shot, that hit John—well, of course, I could see him covered with—with blood, and his—his reaction to a second shot. The third shot, even though I didn’t see the President, I felt the matter all over me, and I could see it all over the car.7

John Connally agreed. “Beyond any question, and I’ll never change my opinion, the first bullet did not hit me. The second bullet did 7 “Nellie Connally,” Spartacus International, http://www.spartacus.schoolnet.co.uk/JFKconnallyN.htm.

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hit me. The third bullet did not hit me.” As the Warren Commission concluded there also was a bullet that missed the car entirely. Some conspiracy theorists argue that if three bullets struck the men, as the Connallys insisted, and a fourth missed, then there must have been a second gunman because no one person could have fired four rounds from Oswald’s bolt-action rifle so quickly. Now put yourself in my shoes. If you believed what I believe, would you be suspicious of our government?

r r r Besides my run-in with the SEC, running for U.S. Senator from Montana, and John Connolly’s frightening revelation about our government, another event made me even more suspicious of government authority and pushed me ever closer to the tax protest movement. This battle went all the way to the Supreme Court. When the late Jack Kemp ran for president in 1988, I was his Montana co-coordinator. Jack, as you might recall, had played quarterback for the Buffalo Bills and San Diego Chargers. Come Super Bowl time, Kemp was given 40 tickets, 20 of which he turned over to me to sell in order to raise funds for his campaign. It was a tough sell; buyers were leery the tickets might be bogus. I wasn’t sure how to price them, but I figured they must be good seats. (I was proven right, too. At game time I sat on the 50 yard line, 10 rows up from Tom Brokaw.) I was advised by the campaign that if people contributed $1,000 I could give them a ticket. I found buyers, some guys hanging around the stadium who I perhaps should have vetted better as well as several friends in Montana who could not attend. These friends sold their tickets back to me to resell at game time, which I did, but the Federal Election Commission said this was a violation of their rules and brought a suit against me and some of the buyers.8 The buyers agreed to not do it again and that was the end of it . . . for them.

8 FEC

v. Williams, No. CV 93-6321-ER(BX) (C.D. Cal. Jan. 31, 1995), rev’d 104 F.3d 237 (9th Cir. 1996), cert. denied 118 S. Ct. 600 (1997).

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That’s not the route I took. I argued these were legal sales. My money was never used for the purchases and not all tickets I sold were tendered back to me. There was no pattern of wrongdoing. The tickets were sold in early December. In January, some people decided the game between the Denver Broncos and Washington Redskins was not worth the trip. To maker another long story short, we kept losing until December 26, 1996, when the U.S. Court of Appeals for the Ninth Circuit reversed the district court ruling and dismissed the case. I thought it was over, but was wrong again! The FEC appealed the case to the United State Supreme Court. On December 8, 1997, the U.S. Supreme Court denied the U.S. Solicitor General’s petition asking the Court to review this case. Along the way, I had become more jaded by the federal bureaucrats. I had seen, too, that they could be overcome. But it was a long and costly battle. They had intimidated others to settle and badgered me to follow the same path. I resisted.

r r r Should we be circumspect of government? How about a little paranoia? How about a little personal paranoia given the fact you have seen them trying to usurp personal freedom? What would your response be? From this point, my response was to question almost anything the government said and directed me to do. While I lost that senatorial campaign to Max Baucus, who went on to chair the Senate Finance Committee, I learned a great lesson about politics. But obviously not enough because I went on to run against incumbent Senator John Melcher in 1982 and once more narrowly lost. That did not mean I was out of politics. I still was, and am, actively involved in trying to bring about change in the political process. I think that is a responsibility we all have. If you must protest the government, you must do so within the system, not outside it. Initially, I tried to work within the system. But when it came to income tax, I chose to protest on the outside hoping that what I did and thousands of others like me would correct the problem.

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After all, that is what brought the Vietnam War to an end. Collective action ended segregation in the South. When people confront the government, spit in its face, so to speak, it has brought about more immediate change than working within the system. I thought that’s what we could do with tax protests. You would be amazed at what happened on the campaign trail. People twist your ear on issues you’ve never heard of, issues and ideas you’ve never even thought about. I had thought of taxes and the unfairness of the graduated tax system, so along the campaign I did listen to people who protested in the belief that the system was illegal. Note I did not say unfair; I said illegal. These people have a firm belief that the tax code does not apply to them, that the Sixteenth Amendment was never ratified, on and on the arguments go. Some of them caught my ear. My thinking, at that time, was that this—just like all my other battles—was well worth fighting, that eventually we would win in court, not at the ballot box to expose the tax code. How wrong I was! Hopefully, though, you can see what lead up to stepping into the ring with the IRS.

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CHAPTER 3

Lost in the Desert

A man gets lost in the desert when he begins to follow the mirages. —Bedouin saying

he deeper one gets into the tax resistance movement, the more paranoid one becomes . . . largely this is based on mirages leading to the paranoia. In fact, the movement is largely one of mirages propped up for the unsuspecting to follow in search of relief that is not there. Paranoia can be extremely valuable, though, especially when dealing with the government and Internal Revenue Service. My sense of paranoia has helped me many times avoid dangerous consequences. The tax resistance movement lives and breathes on paranoia and mirages; it is the mother’s milk of the movement. Of course, this combination of paranoia and mirages is not limited to tax resisters; it is part of the human condition. When I think of this I’m often reminded of the time Malcolm Forbes and a few other wealthy billionaires bought what were supposed to be bottles of wine from Thomas Jefferson’s cellar. These bottles were inscribed with his initials and had been authenticated by the leading wine connoisseurs and appraisers in Europe as being the real deal. My memory is that Malcolm Forbes paid over half a million dollars for one bottle of wine. Other collectors paid more.

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One of the bottles inadvertently broke. Can you imagine? You’ve just paid over half a million dollars for a bottle of wine, which is now splashing on the floor. Of course, it turned out that the bottles had been forged and the wine had been doctored; none of it was real. The collector, upon tasting wine said, “I knew when I tasted it, the wine was not a scam because the wine tasted so bad.” But the fact it tasted bad was proof that it was a good deal!1 That’s pretty much the mind-set of people in the tax resistance movement. The more we are told we are wrong, the more certain we are that we are right! Our minds certainly take funny twists and turns when it comes to the logical process. Looking back at my involvement in the tax resistance movement, I see a poor soul, lost in the desert, seeking to evade sandstorms, looking for water without a map, just a strong desire to get out of a very bad situation. Having to fork over almost half of your money to the government is as bad, as bad as being stranded in the Sahara. I earned that money the same way you earned your money. We have first right to it, not the government. I’m not talking about laws. I’m talking about basic justice. High taxes are a kind of desert and people lost in this desert seek solutions to their survival. The solutions are the mirages on the horizon. In the tax protest community, virtually every organization has a solution, a promise to liberate you from the oppressive tax system; in other words, nothing more than a mirage. I have seen a real mirage in Saudi Arabia, a chapter of my life in Howard Blum’s book, The Gold of Exodus. Jim Irwin, the first astronaut to drive a car on the moon, got me interested in biblical archaeology, which led to several expeditions in search of the original site of Mount Sinai. Blum’s book chronicles an expedition Bob Cornuke and I went on in the desert of Saudia Arabia where we encountered many interesting and perplexing things, not the least of which were numerous mirages of water. Our documentation indicated that Jabal al-Lawz is the most likely candidate for the true Mt. Sinai. The story is full of intrigue, a trip to jail in the Kingdom and includes photos of what we found there. 1 For the full story of this interesting venture in the wine world, read The Billionaire’s Vinegar: The Mystery

of the World’s Most Expensive Bottle of Wine by Benjamin Wallace (New York: Crown, 2008).

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A mirage is the most deceptive thing you can imagine. You would swear that there is water directly ahead of you. The water looks totally real. You only know it’s a mirage because you are in the desert, that is, if you can still think clearly. But even thinking clearly will not help you when it comes to the Internal Revenue Code. Can anybody really figure out the Internal Revenue Code, some 2,000 pages of fine print? You may have seen those news specials where the reporter takes his or her tax forms to different accountants and tax services—and to the IRS. Then the reporter exposes how many ways these professionals, including the IRS, prepare your taxes. Here you get money back. There you owe money. Then come the onscreen graphics that show how many ways there are to complete a Form 1040 and get it “right” or “wrong.” There should be one right answer to how much tax you owe. However, because of the Internal Revenue Code’s complexity, because there are so many deductions and different clauses on which no two people can agree, that right answer is elusive. The problem is not you or me. The problem is the Internal Revenue Code and the system it engenders, which is incomprehensible and hardly systematic, respectively. Try reading the Internal Revenue Code as I have. It is not like reading a real book or a book that is based in reality. You will end up with a headache. You will be confused. Much of the code doesn’t make sense. Just when you think you understand it, you realize the author—and there is more than one author—is referencing something three or four chapters ahead. You’ll find a gold mine of deductions. However, they are for unique situations and businesses—very rarely will you find anything that applies to individuals, to your unique situation beyond the standard deductions. The Internal Revenue Code is so complex that no one can work through its twists and turns. A fair tax and a “fair” tax code should be one the average person can understand and comply with. The truth is we could devise such a tax code in a matter of hours. It could be as simple as a tax on your gross earnings based on all the money you took in from every source during the prior year. That, let’s say about 5 percent, would go to the government. It’s fair. Everyone pays an equal percentage of their income. If I make $10,000 a year, I pay $500. If you do better and make $2 million, you chip in $100,000. That’s it. No fancy accountants or lawyers needed. This ideal tax code would

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have no loopholes, no way to wiggle out, and no intrusive questions from a Big Brother government. The Internal Revenue Code we have, however, is full of mystery and intrigue. It is biased against the little guy who can’t afford loophole lawyers and accountants. The tax code we have now is a set of “cooked books” for special interests, but cooked in a way that is very much to their special tastes. The tax code has been cooked into an entitlement program for the well-heeled self interests who make sure the tax laws work in their favor. What would happen to H&R Block, which serves some 22 million customers, which makes over $4 billion a year and has a market capitalization of about $6 billion, if a fair tax were in place? Add to H&R Block all the other tax service companies, large and small. Add the countless numbers of accountants, certified public accountants, and tax lawyers who make tax preparation more than a cottage industry. This gargantuan business has a vested interest in keeping the system complex—and in keeping you from doing your own taxes in the way I described above. How vested? H&R Block spends about $500,000 every quarter on its corporate lobbyists and they are not lobbying to make paying your taxes simpler.

r r r Pro-tax advocates, who seem not to lack for a media presence, say we must pay “our fair share.” But what is our fair share? What is the government entitled to? For some time, the government has been trying to answer this question itself. The Sixteenth Amendment established a “legal” premise for an income tax. The federal government then levied a 2 percent income tax that initially applied to the very wealthy. Year after year, the amount increased and with it came direct and not so indirect federal control of our lives. According to the U.S. Treasury, by 1917 the federal budget was almost equal to the total budget for all the years between 1791 and 1916. Needing even more tax revenue, the War Revenue Act of 1917 lowered exemptions and greatly increased tax rates.2 2 U.S.

Department of the Treasury, “History of the U.S. Tax System,” Fact Sheets: Taxes, https// www.ustreas.gov/education/fact-sheets/taxes/usta.

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In 1916, a taxpayer needed $1.5 million in taxable income to face a 15 percent rate. By 1917, a taxpayer with only $40,000 faced a 16 percent rate, and that person with $1.5 million income now faced a tax rate of 67 percent. By 1918, the top tax rate was at 77 percent. During the Roaring Twenties, revenues from the income tax increased, enough to cause Congress to cut taxes five times, ultimately returning the bottom tax rate to 1 percent and the top to 25 percent. This reduced the Federal tax burden to 13 percent as a share of GDP. The lower tax rates translated into a booming economy. By 1954, a year after the old Bureau of Internal Revenue had been renamed the Internal Revenue Service to stress the “service” aspect of its work, the maximum tax rate was 87 percent. Then top rates began to go down gradually. In 1981, Representative Jack Kemp and Senator Bill Roth helped to author legislation that chopped taxes by 25 percent over a three-year span. The top rate decreased to 50 percent. Under Ronald Reagan, the Tax Reform Act of 1986 brought the top statutory tax rate down to 28 percent while the corporate tax rate was reduced from 50 to 35 percent. This leaves us where we are now. Top earners work 3.5 days out of 10 for the federal government. This is just for income taxes. It doesn’t include Social Security, Medicare, and other federal, state, and local taxes. This should be the point where citizens draw the line in the sand and say it’s enough, not a penny more, where they should insist that Congress live with what we give them. The solution is simple: balance the budget, stop government addiction to debt. The average taxpayer has already reached this point, where taxes and government are out of kilter with individual liberty. But what does a person do if he or she cannot wait for a balanced budget? They look for a solution and find a mirage. It takes the form of a CPA, a lawyer, a former sheriff, a police officer. They claim they have found a way to liberate you from the Internal Revenue Code. They offer a way out of the complexity. They describe a perfectly legal way for you to pay a reasonable amount in taxes—your fair share. Who wouldn’t walk toward this mirage, seek tax relief, and justice from the tax code? For wanting justice, due credit must be given to the Internal Revenue Service. For years, it has scared the pants off of taxpayers. The average

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citizen does not want to get into a fight with this governmental agency. This intimidation factor is very real, The IRS has the power to enforce the tax law—trust me, I know that only too well—and take away your possessions, bank account, homes, indeed, anything you own. Despite the IRS, some have felt strongly about personal freedom and liberty. Some have been willing to step up to the plate, not because they wanted to skate on their legal tax obligation, not because they were trying to beat the IRS, but because they saw an important issue to resolve. I became one of them. Call us Kool-Aid drinkers if you want, but people who join the tax resistance movement, at the core, want the Internal Revenue Code and tax rates to be fair, especially for the average person. People who get involved in the tax resistance movement are very willing to pay their taxes. But the tax must be fair and just. The law that enacts and enforces the tax must also be clear, such that the taxpayer knows what he or she is paying for. Tax law must be as clear as a snowfed mountain brook if the waters of the Internal Revenue Code are as muddy as the Mississippi River. Tax resisters usually are veterans of how you should try to resolve issues in a democratic society. We write our representatives in Congress. We write our senators. We write letters to the editor. We vote in a certain way. We even run for office. I did that. But then comes the courteous form letter with boilerplate responses to your concerns and signed by a machine. Many elected representatives like to duck responsibility. They don’t like to be pinned down on an issue and beat around the bush, even when it sounds like they agree with you. I wrote numerous letters to my congressional representatives. Each letter tactfully expressed my concerns. I did not rant or rave. I simply asked for help in dealing with the Internal Revenue Service. Each letter was answered by a form letter that basically said it was my problem. That was it. There was no follow-up. I concluded that my congressman and senator—and that can mean your congressman and senator—are too afraid to deal with the IRS. To expect help from members of Congress is to deny reality—they tend to help those who make sizable contributions and special interest groups. It doesn’t matter if your congressperson is a Republican or Democrat, he or she have one thing in common—they want to get reelected. How do they do that? They do that by appealing

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to groups that can vote for them in large numbers and those with money to back their reelection campaigns. Our representatives are unwilling to help constituents with tax problems and stand up to the Internal Revenue Service. Why? Is it because our representatives are on the same side of the ledger as the IRS? Both are paid from the public’s pocket, from what should be our “fair shares.” They should be working for us for that very reason. But that doesn’t seem to be the case.

r r r Although tax resistance is not a regional phenomenon, it seems almost natural to associate it with the wild West. Indeed, tax resistance movements often originate in Montana, Nevada, Idaho, Wyoming, California, Colorado, and Utah. Washington and Oregon have produced some “wild” tax protestors. And while Florida, Illinois Maryland, and other states have been home to tax resistance movements, most come from “out West.” Clearly the environment of western states has something to do with the tax resistance and my personal experience can testify to that. Growing up under the Big Sky of Montana creates a certain mind-set. To begin with, we live in wide-open country. We don’t see limits to anything. We are not squeezed in by skyscrapers. In a few minutes, we can get out of town and dream to our heart’s content. We own guns. We learned how to use them as kids. More importantly, when we are out there in the mountains, fishing hunting hiking, we feel a strong degree of sovereignty, of being individuals who are free, whose role in society is based on our abilities. We don’t need the government to show us how to enjoy a sunrise or sunset. The federal government did not stock the native trout we catch. By and large, we represent the Jeffersonian view of our democracy—that states are sovereign and have rights. We believe, too, that these rights have been trampled on by the federal government. In our hearts, we may long for the days of the cowboy, when you staked your own claim, raised cattle, panned for gold, did whatever you wanted unfettered by rules and regulations back East.

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The number one sport in my state and other western states is rodeo. The typical Fourth of July rodeo is a teachable moment for a kid growing up in Montana, a life parallel. The lesson is simple. You have to pay a fee to ride in the arena. There’s a good chance you will get hurt. If you fall off your mount before the eight-second buzzer sounds, you don’t get any money, not a penny. If you stay on your mount, you get paid. You might come out the winner. If you get hurt, that’s your problem. Your money is your opportunity. That is the mind-set of the West that many grow up with. You’re responsible for yourself, you only get paid if you succeed, and the money is yours. Environment creates mindsets, mind-sets create beliefs. We are a stubborn lot, proudly independent. And if you are not an “all hat and no cattle” cowboy, you’re going to stand up for your beliefs. You will fight. You will resist oppression wherever you find it. Wherever you see injustice, you step up to fix it. But even cowboys can walk into a mirage.

r r r The mother of the modern tax resistance is also Vivien Kellems. She is, in part, behind the Fifth Amendment defense, which I will get to shortly. Like me, Miss Kellems was a graduate of the University of Oregon. I first saw her name in an alumni magazine. Her tax battle began years ago and met with some success. In her 1952 book, Toil, Taxes, and Trouble, she posed the following questions: Is the Income Tax destroying the American way of life? Is the Withholding Tax violating the Constitutional guaranty against involuntary servitude?3

To Kellems, the very principle of taxing incomes is contrary to the provision in Section 9, article I of the Constitution, which reads: No capitation, or other direct tax, shall be laid, unless in proportion to the census or enumeration herein before directed to be taken. 3 Vivien

Kellems, Toil, Taxes, and Trouble (New York: Dutton, 1952).

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Kellems was like a real-life character from an Ayn Rand novel, a female Dagney Taggert. Her company made cable grips for putting up power lines and the like. Her battle began in August 1949, when the IRS claimed that she owed $6,100 in employee withholding tax payments. Her contention was that she, as an employer, was not a government agent. She wore no badge and was not paid by the government. Thus, she was not responsible for collecting money from her employees. Having already paid that amount to her employees—and having positive proof that they had paid this amount to the government—Kellems said the taxes had been paid. Never stopped by logic or facts, the IRS agents went to her bank and grabbed $6,100 of her hard-earned money. She demanded a refund, but was refused, so she sued filing her claim with the Federal District Court in New Haven. During her trial, she contested the constitutionality of the law and although she failed to impress the court on this point, she did win a refund of the money the government had pilfered from her bank account. Such efforts made Kellems a household name, and she won ardent supporters by her speeches and writings. Her showdown with the IRS gained so much attention that Meet the Press had her on as a guest. The audio tape of the show still exists, revealing Kellems to be witty, feisty, charming, and eloquent in her defense of individual freedom. In her comments, she puts the blame on men for causing wars and big government. Judges have been appointed because they would give decisions, not in accordance with the law, but as needed by political expediency. What President Roosevelt could not force from the American people, when he tried to pack the Supreme Court, time gave him . . . you can look at it today . . . his handiwork, with one or two notable contributions from Mr. Truman.4

Kellems’s rallying call was that the income tax is the strongest weapon ever placed in the hands of an unscrupulous government, and as long as that power is a part of our Constitution, our freedoms will be in jeopardy. Our right to privacy, ensured by the Fourth and Fifth Amendments, has vanished she claimed due to the powers granted to the IRS. 4 Devvy

Kidd, “Employer Stops Withholding—in 1948!” October 28, 2000, http://www.devvy.com/ vivien_20001031.html.

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Kellems may have been prescient given the powers the IRS has accumulated over the years. She did not mellow with age. In 1969, she spurned a court order to produce her financial records for a federal district court, arguing that it violated her rights under the Fifth Amendment. She also refused to file a tax return. Although the IRS hit back with an assessment, she continued her defiance. For the rest of her life, she never filed another return. Shortly before her death in 1975, she described American tax law as “a hydra-headed monster” and vowed “to attack, attack and attack until I have ironed out every flaw in it.” The tax resistance movement has especially embraced Kellems on the Fifth Amendment. It is not just that response—of not incriminating oneself—which gangsters say to avoid testifying. This is the language that Kellems meant, which is in that part of the Constitution known as the “Bill of Rights”: No person shall be [. . .] compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Kellems took the position that filling out a 1040 income tax form was testifying against yourself. If you were required by the Internal Revenue Code to fill out the form, you were being compelled and, if that form was used against you in a court of law, in this case for taxes owed, then Form 1040 was as much your testimony against yourself. This argument has been presented in courts time and time again. However, it has never won a court case. There is no blanket Fifth Amendment protection for what you enter—testify to—on the 1040 form. No court decision agrees with Miss Kellems—nor with any of those web sites that instruct you how to fill out your 1040 form, what to say, what not to say, based on your supposed Fifth Amendment rights. It’s a mirage. Cases confirm that if you go down the path of the tax protestors who use the Fifth Amendment angle, you will lose in court and probably get a jail sentence. In Garner v. United States (1975), “The government compels the filing of a return much as it compels, for example, the appearance of a ‘witness’ before a grand jury.” That is how the term “witness” is used in the Garner case. If an individual is brought before a grand jury, he is compelled to testify. However, if any

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of his answers might tend to incriminate him, he can claim his Fifth Amendment right on a question by question basis. But he cannot take a blanket claim to the Fifth Amendment and refuse to testify at all. In the Garner case, the court states that the Fifth Amendment does not provide a law-abiding taxpayer (regarding income tax returns) with a legal excuse for failing to file a tax return, citing a 1927 Supreme Court Case, United States v. Sullivan: If the form of return provided called for answers that the defendant was privileged from making he could have raised the objection in the return, but could not on that account refuse to make any return at all.5

Furthermore: The great majority of persons who file income tax returns do not incriminate themselves by disclosing their occupation. The requirement that such returns be completed and filed simply does not involve the compulsion to incriminate . . .6

Now, some true believers of using the Fifth Amendment will cite an earlier case, Sullivan v. United States, in which the Fourth District Court of Appeals opined, “There can be no question that one who files a return under oath is a witness within the meaning of the Amendment.”7 While this certainly sounds like there is a Fifth Amendment right for any tax form with criminal consequences, what you may not know is that the judgment of the Fourth Circuit in this case was reversed by United States vs. Sullivan.8 Let me sum it up for you, as I have come to understand the law. Essentially, an individual has a valid Fifth Amendment claim only if, by providing the answer to a particular question, he would tend to reveal some act or omission on his part that is a violation of a criminal law that could lead to his being prosecuted for that crime. If you still think the Fifth could be solid ground, read what the IRS says at its own web site: The Fifth Amendment provides that in a criminal case a person may not be compelled to be a witness against himself. U.S. CONST. amend. 5 United

States v. Sullivan, 274 U.S. 259 (1927).

6 Ibid. 7 Sullivan 8 United

v. United States, 15 F. 2nd 809 (1926). States v. Sullivan, 274 U.S. 259 (1927).

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V. This generally means that a person cannot be forced to answer a question if the answer will be used against that person in a criminal prosecution. Courts have routinely held, however, that the Fifth Amendment provides no basis for failing or refusing to file a tax return. United States v. Stillhammer, 706 F.2d 1072, 1076–77 (10th Cir.1983) (“[T]he Fifth Amendment does not serve as a defense for failing to make any tax return, and a return containing no information but a general objection based on the Fifth Amendment does not constitute a return as required by the Code.”)9

My first brush with the tax protest movement was in the early 1970s. A fellow named Bill Drexler came to Kalispell, Montana, where I lived then. Bill, supposedly a highly regarded lawyer from Minnesota, was really a disbarred lawyer selling a tax scam. It went something like this: Bill was willing, for a decent fee, to show people what their Fifth Amendment rights “really were” and in the process they would not have to file and would not have to pay taxes. My handball partner, Garrick Hanson, became one of Bill’s clients. Things were not as simple as Bill said they would be. Before Garrick knew it, he was in a court of law facing the possibility of going to prison. Garrick was in the same predicament that thousands of other people have been placed in. They relied on a so-called expert, someone with credentials that implied he knew what the law was and, for a nominal fee, would relieve them of not only their money, but also the complexities of our system of taxation. Fortunately Garrick was able to get an excellent lawyer to defend him and instead of directly confronting whether he had a Fifth Amendment right regarding the filing of taxes, he and his lawyer relied on a more direct argument and won the case. The jury found Garrick innocent. Some tax protestors saw this as a win and promoted Garrick’s case as a Fifth Amendment victory. But Garrick won because his lawyer had proved that Garrick, a plumber, lacking a sophisticated education, fell for a line fed to him by a conniving lawyer. On that basis, a not-guilty plea was entered and the jury, after hearing the case, decided for Garrick. Essentially, the jury saw no mens rea—that is, you must have knowledge 9 Internal

Revenue Service, “Rev. Rul. 2005-19,” Internal Revenue Bulletin: 2005-14, April 4, 2005, http://www.irs.gov/irb/2005-14_IRB/ar11.html.

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that what you are doing is wrong to commit a crime. Garrick had relied on what Drexler had told him, which was against the law, and his court victory had nothing to do with the Fifth Amendment as a legal mechanism to avoid filing an income tax form.

r r r What is the difference between tax evasion and tax avoidance? The best description I have ever heard is simply this: Imagine a bridge leading into Washington, D.C., and you must pay $5 to drive across the bridge to get into the capital. If you don’t pay because you just didn’t want to, you forgot, your money didn’t make it into the tollbooth, whatever, you have committed evasion. However, if you don’t want to pay the toll and you swim across the river, row a boat, fly an airplane, or find a bridge that doesn’t have a toll, that is avoidance. So there you have it. The first big step in the tax resistance movement was to claim you had a Fifth Amendment privilege—the right not to file. Since that didn’t work, promoters and marketers were forced to come up with other ways of telling people they could legally avoid taxes. Frankly, these promoters knew that they were not advocating tax avoidance, but tax evasion. People in the tax resistance movement genuinely believed that they did not have to pay taxes on a legal basis. In their heart of hearts, they thought they were acting legally. That is the mirage the promoters presented to them. Some of these tax protestors thought they could change the system, virtually lining up like the antiwar protestors did, calling attention to our cause and the out-of-control system. We led and no one followed. The media has painted us as radicals and whackos who just want to skate on paying taxes despite our true motivation. They demonize us, marginalize us with ridicule much the same way they do Sarah Palin, like when she misspelled repudiate and invented the now infamous neologism “refudiate” after she had tweeted that peaceful Muslims reject the so-called Ground Zero mosque. I have met hundreds of people just like me, tax resisters, and for the most part they cared about their country and were not against paying taxes in principle. There probably are elements in the movement

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who are against paying taxes, but they are not a major force. Where I differed from most of the people I encountered was that I was “well off.” Blue collar–types tended to predominate. They were more likely to be employed rather than self-employed. Not once did I meet a fellow traveler who was in the movement “just” to beat the tax man. What we had in common was an elevated sense of paranoia about government taking away all of our rights. The tax resistance movement lives and breathes on paranoia. It’s the mother’s milk of the movement, and the deeper you get into the tax resistance movement, the more paranoid you become. Paranoia can be extremely valuable, though, especially when dealing with the government and Internal Revenue Service. It can be a source of energy. There is something bred in each of us. It is part protestor, part fighter, part paranoia. By nature we are rebellious, as a group we are older. I never saw a 20 year old at the meetings. My guess was the average age was close to 40. Most were conservative. A few were liberal. Most had been apathetic until boarding the anti-tax train. I’m talking about the followers, not the leaders of the tax resistance movement. As you’ll see in my case, there is a good deal of chicanery going on from the marketing side of tax resistance. It is a business, where both buyer and seller can get into a lot of trouble.

r r r If you travel with the tax protesting community, you run into some very interesting people. A fellow Montanan, Red Beckman sees the Sixteenth Amendment was not correctly ratified. Therefore, the constitutional requirement to pay taxes does not legally exist. This is the most used—and abused—argument to avoid paying taxes. Beckman’s ideas are based on the diligent work of Bill Benson, who has gotten into trouble with the law because he has questioned the constitutional legitimacy of the federal income tax: On January 10, 2008, the Federal District Court in Chicago issued a permanent injunction against me on the grounds that I was falsely telling people the 16th Amendment was not ratified. The Court

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refused to look at the evidence of the non-ratification of the 16th Amendment.” Benson claimed the court decided the facts necessary to prove his allegations as true were “irrelevant,” thus could not be entered into the case. What has America come to when the government can accuse you of lying, then prohibit you from presenting a defense in a so called court of law?10

What Benson is saying is that the court had already invalidated his “allegations” and if he used them to any legal argument to lift the injunction, he had already lost that round. As discussed in the first chapter, the income tax has been evolving since the early years of the United States. Before the Sixteenth Amendment, other income taxes had been opposed. These, however, had been challenged in court. In 1894, the Supreme Court declared the federal income tax was unconstitutional because it was an unapportioned direct tax.11 In the years following that decision, Congress, in its insatiable desire to have more money to spend, proposed the Sixteenth Amendment to remove the requirement of apportionment. In 1909, the proposed amendment was sent to the states for ratification by three-fourths of the total number of states (36 of 48 states) before it could become law. What is the Sixteenth Amendment all about, anyway? Most people haven’t read it, and even when they do, they may not understand it: The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

The history of the Sixteenth Amendment is quite fascinating. The Founding Fathers were opposed to an income tax to fund the federal government. Traditionally, they raised funds by other means, such as tariffs, a head tax, and the like. The only kind of tax that was legal under the U.S. Constitution before the Sixteenth Amendment was an apportionment tax. What this means is that a direct tax on income must be apportioned, that is, divided equally among all people. Congress had the responsibility to determine how much the apportionment would be. Then it would essentially send a bill to each state, and each state 10 Bill

Benson, The Law that Never Was, http://www.thelawthatneverwas.com/new/home.asp. v. Farmers Loan and Trust.

11 Pollock

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would then collect the amount from its citizens. A state with a high population, such as New York, would pay more than a state with a lower population, such as North Carolina. That amount, however, cannot be divided at different rates (i.e., a progressive tax) because of the Fourteenth Amendment, which guarantees equal protection under the law. The Sixteenth Amendment, a mere 30 words, changed all that. First, it clearly allows for a tax on income. Equally clear is that there is no apportionment requirement. The Benson crowd, however, will tell you it doesn’t matter because the amendment was never ratified by all of the states to become law. To his credit, Bill Benson traveled to every state that ratified the Sixteenth Amendment to determine if they correctly ratified it. Benson’s claims are presented here by his lawyer Jeffrey Dickstein: The states sent back to the U.S. Secretary of State, Philander Knox, their “certificates of ratification” consisting of a certified copy of what each state ratified, the certified copy being signed by the appropriate official of each State’s senate and house. According to the United States Supreme Court, this document is known as an “enrolled bill,” and is conclusive upon the courts as to exactly what was passed. The “enrolled bill rule” is announced in Field v. Clark, Leser v. Garnet and Coleman v. Miller. The clerk at the Secretary of State’s Office advised Knox that the states ratified language different from that proposed by Congress. Knox asked the Office of the United States Solicitor for an opinion as to whether Knox could declare the proposed 16th Amendment ratified. The solicitor’s opinion acknowledged that states cannot change the language, and because they cannot do so, he “presumed” they did not, and “presumed” the enrolled bills contained typographical, spelling and punctuation errors which could be ignored. These presumptions violate the “enrolled bill rule. Article V of the Federal Constitution requires actual ratification by three-fourths of the states. The states that changed the language did not ratify, and when those states are subtracted, the number of states that voted to ratify is less than the required 36 states. Knox was under a duty to examine whether or not each state ratified the proposed Sixteenth Amendment. If they had, he was required to so proclaim, and that proclamation was to be conclusive upon the courts. This duty and conclusive presumption was the result of a statute passed by Congress, Revised Statute 205. Thus Knox was

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under a legislative duty, which duty is fully reviewable by the federal courts (Marbury v. Madison). Based upon the solicitor’s legal opinion, Knox declared the Sixteenth Amendment ratified. There is no record of Knox examining the legislative journals of the states to see if the various states intentionally amended the proposed language of the 16th Amendment. Bill Benson traveled to the capitols of all 48 states in 1984 and the National Archives in Washington, D.C., and obtained certified copies of the legislative journals regarding the States’ 16th Amendment ratification actions, and the documents of the Secretary of State. These documents conclusively prove that several states did, intentionally, amend the language of the proposed 16th Amendment, and the “presumption” relied upon by Knox and the Solicitor are false.

Bill presented this evidence to the court, thereby proving his statements were true, not false and fraudulent. The government cannot disprove the facts; therefore, the court moved to strike Bill’s proof from the record as immaterial and irrelevant on the grounds that the “enrolled bill rule” prevents the court from examining the record. There are several problems with this approach. First, the Supreme Court has ruled that the “enrolled bill rule” does not prevent the court from examining the record to see if enough votes were cast for passage (U.S. v. Balin, decided the same day as Field v. Clark). Second, to the extent Revised Statute 205 allows the U.S. Constitution to be amended by false presumption rather than actual ratification, it is an unconstitutional amendment by Congress of Article 5. Third, conclusive presumptions of facts to find guilt has long been declared by the Supreme Court to be a violation of due process of law (Sandstrom v. Montana and Stanley v. Illinois). In 1978, I was an active part of the National Taxpayers Union, a movement to get the passage of a constitutional amendment to make it mandatory that we have a balanced federal budget. While every state is required to have a balanced budget, Congress has no such limitation on its ability to tax and spend. The only way we could bring about a constitutional amendment was to have a bill passed in a majority of the states directing Congress to approve such an amendment. As I recall, we eventually got enough state legislatures to pass the proposed amendment presented to Congress. This tremendous effort was the work of the National Taxpayers Union and James Dale Davidson.

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However, we did not succeed. Why? Because some of the states passed an amendment worded slightly different from the other states and, on that basis, we were rejected. In other words, the amendment passed by each state must be exactly, word for word, for the constitutional change to take place. So, in that respect, Benson is on track. If, as he reports, not all of the states ratified the Sixteenth Amendment with the same wording, then it was not passed. Yet the courts have consistently ruled against Benson. Surprise, surprise. He has lost every time he or anyone else has gone to court over the legitimacy of the Sixteenth Amendment. So did the people who bought and read his books and fell for his arguments.

r r r In the never-ending battle with the IRS, the tax resisters developed another argument that to them invalidates the Sixteenth Amendment. This argument concludes that Ohio was never a state. Prior to the sesquicentennial of Ohio’s admission to the Union in 1953, researchers examined the original statehood documents and discovered a small oversight. While Congress had approved Ohio’s boundaries and constitution, it had never passed a resolution formally admitting the Buckeye State. Based on this technicality, Ohio had never been a state. When this came to light, one senator drolly suggested that his colleagues from Ohio were drawing federal paychecks under false pretenses. But Ohio congressman George Bender thought it was no laughing matter. He introduced a bill in Congress to admit Ohio into the Union retroactive to March 1, 1803. At a special session in Chillicothe, Ohio, once the former state capital, the Ohio state legislature approved a new petition for statehood. It was quaintly delivered to Washington on horseback and Congress subsequently passed a joint resolution, and President Eisenhower, after a few more laughs about the 150-year-old oversight, signed it on August 7, 1953. Meanwhile, the tax resisters got to work. They argued that since Ohio wasn’t officially a state until 1953, its ratification of the Sixteenth Amendment in 1911 was invalid. Thus Congress had no authority to enact a constitutional amendment that opened the way for a federal income

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tax. To further show what an outrage this was, tax resisters pointed out that the president who proposed the income tax amendment to the Constitution had been born in Ohio. Therefore, carrying their logic to the next level, President William Howard Taft was not a U.S. citizen. Nor had any of the other presidents from his state (nicknamed the “Mother of Presidents”): Ulysses S. Grant, Rutherford B. Hayes, James A. Garfield, Benjamin Harrison, William McKinley, and Warren G. Harding. The matter of Ohio statehood attracted a wide following in the tax resistance movement. Unfortunately, legal scholars and courts considered the 1953 resolution as retroactive. Thus, Ohio, long a de facto state, was legally being admitted as of 1803. This made the ratification of the Sixteenth Amendment legal as well as all the aforementioned U.S. presidents born in Ohio. What the courts and scholars say, however, has not satisfied avid tax protestors. They still point to the Constitution, which says that the Congress shall make no ex post facto law, which would invalidate the legal nicety of retroactive admission, which allowed Ohio to be a U.S. state since 1803 as of 1953. One thing I can see more clearly after leaving the tax resistance movement is that these clever, complex arguments, like the one made about Ohio’s statehood, do not translate into courtroom victories. Judges and lawyers may love the complexity of a legal challenge, but at the end of the day, judges consistently rule in favor of the government on tax issues. And losing in court doesn’t stop the intrepid tax protestor. The IRS has issued this official statement to counter the protests about the legality Ohio vis-`a-vis the Sixteenth Amendment: The courts have . . . rejected claims that the Sixteenth Amendment was not properly ratified . . . In Porth v. Brodrick, 214 F.2d 925 (10th Circuit 1954), the court dismissed an attack on the Sixteenth Amendment as being “clearly unsubstantial and without merit,” as well as “far fetched and frivolous.”

While the IRS considers the matter settled, tax protestors went to work once more. They read Porth v. Brodrick and concluded that the IRS was wrong. The Porth decision didn’t specifically address the Ohio argument. That decision does not directly say the Ohio argument is wrong or incorrect. What it does say, more or less, is that the Sixteenth Amendment gives government the power to collect taxes on incomes.

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Taking exception to the Sixteenth Amendment is a kind of cottage industry for the tax resistance movement and there is a long list of cases to prove it. However, what you see here suggests to me an old African proverb—“Corn can’t expect justice from a court composed of chickens.” Assume, for the sake of argument, that the anti-tax argument is correct. Now, do you really think a federal judge is going to overthrow the tax system? r

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Socia v. Commissioner (1995). The court held that the defendant’s appeals, which challenged Sixteenth Amendment income tax legislation, were frivolous and warranted sanctions. Miller v. United States (1989). The court stated, “We find it hard to understand why the long and unbroken line of cases upholding the constitutionality of the Sixteenth Amendment generally, Brushaber v. Union Pacific Railroad Company . . . and those specifically rejecting the argument advanced in The Law That Never Was [by Bill Benson] have not persuaded Miller and his compatriots to seek a more effective forum for airing their attack on the federal income tax structure.” The court imposed sanctions on them for having advanced a “patently frivolous” position. United States v. Stahl (1987). Stating that “the Secretary of State’s certification under authority of Congress that the Sixteenth Amendment has been ratified by the requisite number of states and has become part of the Constitution is conclusive upon the courts,” the court upheld Stahl’s conviction for failure to file returns and for making a false statement. United States v. Foster (1986). The court affirmed Foster’s conviction for tax evasion, failing to file a return, and filing a false W-4 statement, rejecting his claim that the Sixteenth Amendment was never properly ratified. Knoblauch v. Commissioner (1984). The court rejected the contention that the Sixteenth Amendment was not constitutionally adopted as “totally without merit” and imposed monetary sanctions against Knoblauch based on the frivolousness of his appeal. “Every court that has considered this argument has rejected it,” the court observed.

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Stearman v. Commissioner, T.C. Memo (2006). The court imposed sanctions totaling $25,000 against the taxpayer for advancing arguments characteristic of tax protestor rhetoric that have been universally rejected by the courts, including arguments regarding the Sixteenth Amendment. In affirming the Tax Court’s holding, the Fifth Circuit granted the government’s request for further sanctions of $6,000 against the taxpayer for maintaining frivolous arguments on appeal, and the Fifth Circuit imposed an additional $6,000 sanctions on its own, for total additional sanctions of $12,000.

Given their experience in the courtroom, tax protestors who stand up against the government are like people standing in front of a locomotive. The only difference is it may be less painful to stand in front of the locomotive. Bobby Boyce, a great trial lawyer in San Diego, has a favorite joke that sums up the position tax protestors are in when they go to court. You will be like the fish swimming along, which suddenly hits something with his head. And what does he say? Damn! Despite this dismal record, the tax resistance experts—people such as Drexler, Benson, et al.—have prospered. Fortunately, a Web browser makes it easy now to study the different points of view, including that of the government. Anyone considering a tax protest can “shop and compare for the many points of view. Wikipedia has pages devoted to the history of U.S. tax protest and the history of the income tax. So, if you intend to buy into the received wisdom of the tax resistance movement, let the buyer beware. In the big scheme of things, however, none of this matters. The courts don’t want to open the door to substantive review of the Ohio argument lest they be inundated by trials challenging the very existence of the U.S. government over a clerical error. In the meantime, the legality of the Sixteenth Amendment remains an academic exercise. You can even win a prize of $300,000 if you can find any legal validation for the amendment, for filing a return, and to do so without waiving your Fifth Amendment–protected right to not give any information to the government that may be used to prosecute you.12 As you see, the 12 http://www.livefreenow.org/content/view/6/76/.

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argument continues and will as long as there is an income tax. A part of me can believe there is some truth about the Sixteenth Amendment and Ohio’s statehood. It does seem that the courts are in league with the government—they are part of it—in shooting down the arguments of tax protestors. And, if the latter are right, on that basis it makes ultimate sense to me that the amendment has no effect. But that is just me. What I have learned the hard way is that arguing over Ohio in 1803, 1953, ad infinitum, is walking into a mirage.

r r r What if the government had refuted—early on—the arguments of the tax protestors? It might have thrown some cold water on a lot of tax protestors before they were suckered in by the mirage. Like others, I never knew about the people being prosecuted. The government wasn’t exactly publicizing its victories in court while so-called tax experts sold their advice to the soldiers of the tax resistance movement, who are for the most part plain, ordinary citizens. Now the government has stepped up to the plate. They do more news releases when so-called tax protestors are defeated and provide information on its various web sites for you to decide for yourself whether you want to get into protesting your taxes by not filing them, by not paying them. But a quick Google search of “Fifth Amendment defense” or “Sixteenth Amendment protections” will show you there is an active and vast marketplace for tax resistance. The anti-tax guys are alive and well, doing business as usual. They rely on the gullibility of their followers and on the economic pain tax protestors attribute to the income tax, which to many people is their money being taken out of their pockets without a legal basis. Such people are receptive—and vulnerable—to the tax resistance movement and its purveyors. This sense of being wronged by the IRS—together with all the other deep feelings of frustration and distrust people have with their government—made it easy for a sales pitch, for books, for services, which cost a few dollars and, for the modest investment, you could cut your imagined losses to the U.S. government.

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Sadly, doing what they suggest or advise is nothing more than stepping inside a meat grinder that will chew people up and likely toss them into a prison cell. In this chapter, I have covered the most popular antitax arguments. Others that exist, put forth by the resistance community, are even more complex. We will get to these later in the book. But first let’s leave this desert and its mirages and return to my adventures Down Under.

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CHAPTER 4

Life on the Run Around He who digs too deep for a fish, may come out with a snake. —African Proverb

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fter being taken off the plane, escorted through the Sydney airport and held there, I was whisked away to the Surrey Hills Police Centre, a remand jail that held you in that limbo between court, freedom, or a real Australian prison. Initially, the officers wanted to handcuff me, but I told them I certainly wasn’t going to run anywhere, that I was far too old for that, and I would appreciate it if they did not cause me that humiliation. So with a gendarme on either side of me, we marched to the waiting car. There I was placed in handcuffs, but at least I got out of the airport with some respect for my personal dignity. Later I would not be treated so nicely. I worried about what would happen to my luggage, my laptops, and the market information I had with me. But my things were given back to me at Surrey Hills. There Chris Watson had been waiting for me. He was able to retrieve my personal effects with the exception of my passport, which I would not see for another four years. As I mentioned in the Introduction, Chris is an excellent lawyer. I felt comfortable with him at our first meeting. He asked the right questions and advised me on how to handle the situation for the present. In his

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heart of hearts, I think Chris could have been a writer or artist, but found his real calling in litigating. While Chris described what I should expect over the next few days, an officer asked if I was hungry and came back with a sandwich and drink. That would be the last decent food I would have for the next six or seven days. Chris continued, explaining that I would be placed back in handcuffs and booked into the Surrey Hills holding area, body frisked, and then placed in a cell. He would take my personal effects to ensure that the government did not take them. This was late Saturday night, so Chris said I would have a potential arraignment the next morning. No matter what anyone said to me, I was not to make a plea. I was only to request a hearing when counsel was present. The Sunday hearings in Australia pose a legal risk for a defendant. If I was to make an official appearance by making a not-guilty plea, I would likely go to prison immediately. It would be very difficult to have a hearing if Chris could not represent me. After explaining to Chris how I had attempted to legally avoid taxes by relying on the advice of lawyers and certified public accountants, that I had established so-called “pure trusts,” which I will describe later, I brought up a personal issue. I did not want to see my name in the newspaper. I did not want to see myself as the lead story on the evening news. I knew that I would be the subject of news reports in the United States. I had run for the U.S. Senate. I had written numerous books on stock and commodity trading and had a degree of celebrity in the investment community. I wasn’t worried about myself, far from it. My daughter Michelle was an actress. She had starred in the television series Dawson’s Creek. She had recently starred in a movie, Brokeback Mountain (2005), for which she had been nominated for an Academy Award as Best Supporting Actress. During the filming, she worked with one of Australia’s most famous actors, Heath Ledger. They were partners. They were also the parents of a baby girl, my granddaughter, Matilda. The last thing I wanted was their names to be associated with my problems. Chris understood that I did not want the media finding out about my relationship to Michelle. I wanted to keep both out of this as much as was humanly possible. He agreed and planned how we could best do that.

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Once Chris left, I was processed like any other inmate. I endured a complete body search. My shoelaces, belt, and anything else I might use to hang myself with—or an Aussie—were taken away. Fortunately, I had been wearing a long-sleeved turtleneck shirt on my flight, so I did have some proper clothing because Surrey Hills was incredibly cold and it had nothing to do with the Australian weather. Air-conditioning, running 24 hours a day, is an excellent way of keeping drunks, drug addicts, and other misfits under control. The light cotton jail blankets were just enough to ward off the cold. But you never felt warm. Cold jails make it hard for the inmates to do anything else but stay warm. It is too cold to argue and fight, which can always escalate into other forms of undesirable behavior. The processing officer noticed that I was born in Montana and said that he had been in Montana a few years back and thoroughly enjoyed his time there. So, we hit up a bit of a friendship, at least as much as one can have with a prison guard. As to these, all looked like members of the same club—all sported shaved heads and looked like they pumped weights at the same gym. They also had the same swagger-like gait, which had to have been taught somewhere. In short, they looked like bullies to me. So, keeping true to my mother’s words, I remained a gentleman and discovered that I was being treated like one. What amazed me was that other inmates were often disrespectful, yelling and screaming at the guards. “Don’t you get it?” I asked one. “You act like that and, of course, they’ll have it out for you.” There are maybe 15 to 20 major cells in the Surrey Hills facility. Some of them hold just one or two inmates. Several hold between 10 and 20 men. I was fortunate that night. I was placed in a cell with just one other inmate. He was a massive Samoan, about four times my size, who looked like he could’ve held the state of New South Wales in his right hand. The good news was he was asleep by the time I was placed in a cell. The bad news was that he snored, with huffs and puffs that would put any steam engine to shame. One thing about being in jail, there is not much to do at night. You can either choose to sit or lie on your bed, which is a very thin foam pad, covered in plastic, which rests on top of concrete. It was cold. The lights were on, which, I suppose, was another way of keeping the clientele under control. So there I thought about my situation and worried about

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my wife, children, and friends. I spent a restless night that taught me how to sleep in a well lit room. Night after night, we slept in that light. It made no sense to me but, what was the choice? Fight or accept it. I accepted it. About 6:00 the following morning, I introduced myself to my snoring Samoan sleeping partner. He was in a cheery mood and responded in kind with a grunt. I found more cheer from the fellow in the adjacent cell. He shouted out a, “G’day mate, you must be an American?” How he could tell that was beyond me. I had only said a few words to the Samoan, but he nailed it. I gave him a fairly good morning back and he said, “This your first time here?” “Yes,” I replied. “I’ve never had the joy of these accommodations before.” He filled me in on what to expect. Breakfast would arrive shortly. While not quite being what I was accustomed to, he assured me that it would be better than other jails he had been in. It consisted of two slices of toast, a cup of instant coffee in a Styrofoam cup, a box of dry cereal with a plastic spoon, and a little carton of milk. The coffee tasted good. Not being a milk drinker, I asked the Samoan if he would like the rest of my breakfast. He was thrilled since the jail didn’t provide enough food for a guy his size. This charity turned out to be one of the ropes I learned in prison. If you offer the food you don’t like to the biggest meanest son of a bitch in the place, you can make a friend—and a protector. A half hour later the guards cuffed us up for taking us to our arraignments. I’ve never been cuffed up in this fashion before. There was a small slot in the jail cell door where you stick your hands through. Not much else will fit. Then the handcuffs are placed on you. After that, the cell door opened up and you are shuttled into a hallway that led to another holding tank where four or five of us were sequestered. We just sat there. Most of the other fellows seemed to know one another. They took real pleasure in having me for a companion. Being an American, as well as being over 30, made me a kind of celebrity. The inmates kept asking me why I was there. I just told them that I had tax problems back home. They loved that. While it didn’t quite make me one of them, I seemed a decent bloke in trouble with John Law just like them. I had resisted the government. How cool!

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From the holding tank, we were taken to a large garage-like loading area where a small truck, like a camper, waited. Inside this modern-day paddy wagon, we sat down on facing benches. Once safely ensconced, a garage door rattled open and the truck hit the streets. I was confused. I didn’t know where we were. There were only slits for windows. It seemed far too early in the morning to be going to court. I did know what it was like to be arrested and detained before. I had similar experiences in Egypt, Iran, and Saudi Arabia while on my archeological quests. My buddy Bob Cornuke had been arrested by a Bedouin sheriff in the Arabian Desert. He brought us to the town of Tabuk, but we did not quite go to jail. I thought it was some kind of operational screw up. But it turned out to be prayer time, when everything shuts down, even the jails. We drove from Surrey Hills to another jail. The guards dropped off one inmate and added another. We seemed to be circling the beautiful city of Sydney doing that, dropping off one prisoner and picking up another. During this long ride, the same fellow from the cell next to mine talked and talked. He asked me if I could name all the U.S. states and their capitals. I said I couldn’t. He said he could and asked me if I would like hear him recite them off. He could do so starting from the West Coast, East Coast or from the North or South. “Start from New England,” I told him. And he did, beginning with Maine, working his way down to Florida, then back up and down and across the United States, naming every state and its capital. He was a haggard looking fellow, obviously some type of drifter who had smoked 1,000 cartons of cigarettes too many, creating a raspy voice that matched his appearance. I asked him what he did. I was surprised when he told me he was a jazz singer. Well, if he’s a jazz singer, I thought to myself, then I’m an IRS agent. As we were driving through the streets, he pointed through the paddy wagon’s slit window and said, “See that building? That was built in 1863. It cost approximately $1 million then. In today’s dollars, that would be $47.23 million. Two-hundred and fifty-three men built it and one of them died.” I looked at him again. He reminded me of that savant character that Dustin Hoffman played in the movie Rain Man. He seemed to have

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memorized anything and everything. All he did was talk on and on, reciting numbers and dates. He talked to himself. He talked to anyone who would listen. Imagine opening up a dictionary to any page and watching the words fly off, bombarding you with their spellings and meanings. That is what he was like. I asked him a few more questions about America and he correctly answered them all. I wondered if it was proper jailhouse etiquette to ask him what he had been charged with. But I asked him anyway. He said he was in a “real pickle.”

r r r Eventually, we arrived at the courthouse where we were to have our hearings. The way the process works was really quite fascinating. The truck pulls up to a large door that opens up, the truck goes in, the gate comes down. But still there is no place for the truck or us, still handcuffed, to go because in front of a truck is a large walled-off area complete with bars. In essence, we were locked in a large holding tank while still inside the truck. I admit that I was looking for ways to break out. I had no intention of trying to; it was just a mental exercise, to see how the system of checks and balances had evolved over time. Obviously, inmates had crossed over that line in the past. Various procedures, precautions, and barriers had been established to prevent escapes, of taking hostages, disarming guards, and so on. The back of the truck then opened up and we were led, one at a time, from the large sealed-off area into another holding tank along with other people who had been rounded up for the day’s hearing. There was some kind of formal processing taking place in this new holding tank. Then about 15 of us were called out by name and led through the basement of the courthouse into yet another, but larger, holding tank that, I was told, was closer to where the actual court was located. My fellow inmates explained to me what was happening. We would soon go in front of a judge and the best thing to do would be to plead not guilty and then our case would be heard later in the week.

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But I remembered that Chris told me not to do that, just say I wanted representation by counsel. So, despite the advice of my jailhouse lawyers, I decided to follow Chris’s advice. He had gone to law school. The holding tank consisted of a motley crew. Most of the younger kids had tattoos. No one was even close to my age. There were two fellows just coming off of some drug-induced high. They would go from laughing to crying and then to vomiting. The savant continued talking his head off and started to really get on the nerves of everyone in the cell. We just wanted to sit there and get the process over. We didn’t want to hear this guy babbling on and on. Eventually, one of the other fellows turned to him in the most threatening manner and said, “Shut the fuck up.” This had the right effect and we had some quiet at last, at least until the savant blasted the jail cell with one of the loudest farts I have ever heard. The response from the fellow sitting next to me brought out a chorus of laughter when he said, “Plug it at one end, it comes out the other.” After about 20 minutes of sitting there, we were greeted by a fellow from the Salvation Army who brought us coffee. He said he could make phone calls for any of us who had problems or wanted to tell friends or family members where we were. This amazes me. Here’s a guy who’s taking time out of his Sunday to come help a bunch of miscreants. I was shocked to see how he was treated. A few of us were courteous to him. Most showed nothing but disrespect. After seeing this, and given the kindness shown to me, I made a promise to myself that every Christmas I would make a significant donation to the Salvation Army. We then had a visitor, a lawyer, a young and very attractive woman, who caught the eye of everyone in the cell. That’s the last thing a bunch of young jailbirds need, a hot-looking lawyer. Some made obnoxious remarks. Some flirted with her. But she seemed to have been down this road before and she gave it right back to them. Once she established who was boss, she started to speak to each inmate, one at a time, asking what his situation was and seeing what she could do. When it was my turn, she asked why I was there. I gave her a brief description and she said, “Well, you will go in front of the judge and I suggest you plead innocent to him. That’s the best thing you can do for now.” I wondered, could Chris be wrong? But then I looked at this young girl. She could not have been out of law school for very long, maybe two or three years. I recalled the wisdom in Chris’s face.

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I recalled what Hans, the Swiss cop, said at the airport. I would tell the judge what Chris said. The first person called out for his arraignment was the savant. He had told us he was “in a pickle” and that was all. While rattling on about the other interesting things he had to say, he had never elaborated on this “pickle.” The more experienced inmates told me that this judge never let you make bail. We would all come right back to the holding tank and go back to jail for hearings later in the week. The savant had been gone no more than 15 minutes when he came down the hall, waving to us and saying, “See, you mates.” He could post bail! It must have been a very small pickle. No one else made bail that morning. At my arraignment, I simply said I wasn’t ready to make a plea. I had counsel and we wanted to make a plea as soon as possible. The judge asked if that was really what I wanted to do. I replied, “Yes, after talking to my lawyer, I believe this is the best thing for me to do. I will be entering a plea at that time.” I was hustled back to the holding tank and the whole paddy wagon thing was repeated except in reverse order. The guards dropped some fellows off at one jail, others at another. The only difference was that we did not have the savant/jazz singer spouting out facts and figures to us. It was back to Surrey Hills with no Samoan “roommate.” I don’t have a clue what happened to him. I was placed in the general population cell, the one that held 15 to 20 people in it. I thought perhaps there would be something to read, a deck of cards, anything to make the time pass. There was nothing. That meant there was nothing to do. I didn’t know anyone. I didn’t really speak Australian. It is English, but it’s not American English. And I really liked to be by myself. I grabbed my blanket, found what looked like a safe spot, and looked around to see who the biggest, meanest son of a bitch was. I knew that come lunchtime he needed to be a happy camper. Australians have several strange (to me) customs, especially when it comes to eating. One of their favorite condiments is Vegemite, which, to be honest, looks like axel grease and consists of leftover brewer’s yeast, salt, and various vegetable extracts. To non-Aussies, it tastes worse than it looks. But Australians, they love this stuff. There was a rumor they could not take Vegemite on international airline flights because it looked too

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much like explosive material. The entire country went crazy thinking that they would not be able to take this stuff with them to have as a snack on board their flights. The other big favorite of Australian cuisine is the meat pies, similar to our frozen turkey or beef pie. The meat pie, as I mentioned earlier, is what old Aussies call a “dog’s eye.” This they often slather with “dead horse,” also mentioned earlier, which we know as catsup. And for lunch at Surrey Hills, we had a kind of jailhouse meat pie that looked positively disgusting to me. Certainly the dry cereal and toast was not much of a breakfast. But I figured it couldn’t be too much longer before dinner. There was no way I was going to eat the dog’s eye–like thing wrapped inside a cellophane bag. So I gave it to the meanest, most tattooed guy in the cell. He liked the dog’s eye a lot and soon started telling me about himself. Soon, we were the best of friends, with the meanest, most tattooed guy in the room. I felt better. The rest of the afternoon was spent staring at the ceiling, reciting the alphabet backwards until I could do it consistently. There was nothing else to do with my mind but think about my tax problems, my legal problems, everything and anything until my mind went blank. My boredom dragged on like a bad movie with no popcorn. The Surrey Hills lockup had no clocks on the walls. So I had no idea what time it was. Surrey Hills has no radio, no television. The only sound you hear is the screaming of drug addicts, drunks, and crazy people shouting and pounding their heads and fists against the walls and bars of their cells. Dinner arrived. The guards pushed a little cart down the hallway and shoved an aluminum foil plate through a slot on the floor for us to pick up as well as some cutlery to eat it with—a plastic spoon and fork wrapped in a little plastic bag. They also shoved us a cup of coffee. I took my time peeling off the cardboard that sealed the foil plate to see what kind of delicacies were inside. Would it be Vegemite again? I stopped and stared at the label on the cardboard seal. The prison caterer used this venue to advertise that it also provided janitorial and plumbing supplies for Australia’s penal institutions. I lifted the cardboard off and had no idea what was underneath. I longed for the food I was served in first class, on that flight that seemed like a lifetime ago.

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This is how I spent my first Sunday in Sydney Australia, May 23, 2006.

r r r The next few days were a bit of a blur, which is funny because I do remember that I was acutely aware of everything that was going on around me. Maybe it’s a repressed memory, where the mind recalls various details and nothing more. On Monday, I went through the same paddy wagon routine circling around the city picking up and dropping off prisoners and then eventually making it to court. I remember meeting Chris in the basement. He had already been talking to “the Crown,” an Australian catchall for the government. What Chris meant was the Department of Justice, which would decide on the matter of my posting bail. Since I was perceived as a flight risk, Chris informed me that it was very unusual for someone in my position to be released from jail. Since the United States wanted me extradited, I was technically a fugitive. I thought a fugitive was someone on the run, like Richard Kimball in The Fugitive. Chris went on to explain that extradition is a matter of treaties between countries. There are some things you cannot be extradited for. But generally speaking, if you are charged with an act in your home country that could result in you serving a prison sentence of more than one year in the host country (Australia in my case), you will very likely be extradited. However, there are exceptions. If the charges against you are not a criminal charge in the country from which the extradition is sought, then the extradition request will not be honored. There was a lot to learn about the Australian legal system. You posted bail differently here. In the United States, you can post bail with your own money or property as bail or have a bail bondsman put up the money required for your freedom. This is not the case in Australia. There are no bail bondsmen Down Under, and you cannot yourself post your own money. Another party has to do this, and I might have learned this the day before at the Sunday arraignments. One of the inmates asked the Salvation Army guy to tell his girlfriend he had $200 stashed away in a closet, which she could use for his bail. Everyone jumped on the

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guy, “You can’t do that.” If there is any suspicion that you are posting bail with your money, your request will be denied. So how would I post bail? Talk about a sinking feeling. Now I was in a pickle. Chris also said it would be very unusual for a foreigner to be granted bail. It had only been granted two or three times in Australian history. A few years ago, he informed me, a banker from Mexico was in prison over four years battling extradition and was never granted bail. Then Chris told me to sit tight. He had some ideas. Finally, it was my turn to be led down the hall again, in handcuffs, of course. These were removed in the stairwell that took me to the courtroom. I was enclosed in a glass cubicle to prevent my escape. I looked around the room and recognized Australians who had taken my earlier seminars, some were my students. I saw the judge. I nodded to Chris Watson. The acoustics of my glass cage made it hard to hear what was being said about me. On my left, I could see journalists taking notes, which made me worry about Michelle and her career. But they seemed disinterested by what was going on, as though it were another routine day covering the court. Chris addressed the court. He explained why I should be released on bail, that I was not a flight risk, and that the charges against me in the United States would not be actionable for imprisonment in Australia. Then the lawyer for the Crown spoke. He gave every reason in the world why I should be kept in prison for the rest of my natural life, I suppose. There was some talk back and forth about how much the bail might be and I heard the staggering figure of $500,000. This sum got the reporters’ attention and I could see the pens scribbling away and texting on cell phones. Chris addressed the court again. He asked if the court could adjourn on the matter of bail and extradition. The Crown agreed. And the following was reported the next day in the Sydney Morning Herald: Larry Richard Williams, 64, had just arrived on a Qantas flight from South Africa on Saturday when he was escorted from Sydney Airport by Australian Federal Police.

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The US Internal Revenue Service is seeking his extradition for $US1.5 million ($A1.99 million) in alleged tax evasion between 1999 and 2001.1

The article reported that I appeared in Central Local Court and was on a month-long speaking tour of Australia and New Zealand. I was correctly described as a well-known business identity who drew audiences of thousands to his workshops. Chris Watson was mentioned too. He told them I had come to Australia to be interviewed by the Australian Financial Review and that my arrest in Sydney had come as a complete surprise. But it still made me look like I was on the lam. It said I was a resident of the Virgin Islands, but failed to acknowledge it was the U.S. Virgin Islands. The language that I “willfully and affirmatively” attempted to evade paying taxes was also included in the story. I also learned that the magistrate had denied bail as I was considered a flight risk. I’d requested bail so that I could meet my speaking commitments. But I only learned about this later since I had no access to newspapers at Surrey Hills, where I was returned after my first day of court. On the way, we picked up three young blokes who had just been sentenced for dealing drugs. All three were young. One looked no more than 19 and was in tears over his sentence of five years. His buddy sitting next to him thought of something to say, what passed as comfort and philosophy in a paddy wagon. “Hey mate, it’s a chance we took, we knew the risks and here we are. Let’s just see what happens next and enjoy ourselves.” That I needed a half-million dollars for my bail elicited nothing but laughter from my fellow inmates. They laughed at that number, which struck them as a princely ransom. They laughed even more when I told them my wife “had my back covered.” Louise was now flying in from South Africa. She had found someone to take care of her cats “Nemesis” and “Gershwin.” Meanwhile, laying on my foam rubber mat I worried about her. How difficult this must be for her. She’s never been to Australia. She didn’t know anyone here. Thanks to me and my wayward actions, I had thoroughly upset her life and now she had to find a way to raise bail. Louise had just sold her house in the Virgin 1 “Celebrity

market guru arrested,” Sydney Morning Herald, May 22, 2006, http://www.smh.com.au/ articles/2006/05/22/1148150168500.html.

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Islands. That and any money she could raise from other people would help with making bail. News traveled fast during this time. Chris said that family members in the United States were in touch with Louise as well as himself. They wished me well and offered support. Friends did, too, including Glen Larson, Tom DeMark, Kurt and Jimena Hallock, and Judy and Harvey Levine. They were willing to help with the bail money. But it might take too long to help because, according to Chris, such overseas funds would have to be vetted by various government agencies.

r r r At Surrey Hills, I had become something of a celebrity. There was something in the air. I was being treated with a degree of awe and respect. “You made the nightly news, mate,” one of the guards said. “What, in the world are you talking about?” I asked. “I guess it wasn’t you, as much as your daughter,” he replied. “Your daughter is famous! Have you met Heath Ledger? What’s he like? We’ve all seen your daughter in Brokeback Mountain.” My heart sank. How the media found out I don’t know. But soon enough, there were stories blaring “Hollywood dad busted” and “Ledger father-in-law jailed.” My worst fear had become a reality. I was willing to suffer the consequences of my tax problems, what I did and did not do. But my daughter was innocent. She should not have to suffer repercussions because of me. My fellow inmates already knew, too. They wanted Michelle’s autograph. They wanted to meet Heath. Chris explained that the news was out. Reporters had put two and two together and done some background checking. The $500,000 bail figure put them on the trail. This link between me and Michelle and Heath would eventually lead to me getting in the middle of a squabble with the Ledger family, the last thing I needed. But that’s another story entirely. The prison guards told me there were media people outside who wanted to interview me. If I wanted to meet them, the guards said they could arrange it in another part of the prison. I passed on this wonderful opportunity.

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The upshot of my notoriety was being allowed to call my lawyer. The day before, the guards had been hesitant to let me do anything—no magazines, no deck of cards, nothing. Now, I got to see the nurse, who was kind enough to give me a sleeping pill for the night, which makes sleeping on a concrete bed much easier. I also moved to a new jail cell. A guard, the one who had vacationed in Montana, took me out of the general population and put me in a more “private” cell, with just one guy. My new roommate had been to the United States a few years earlier and enjoyed his stay, so once more this made it easier to talk. He had been arrested for getting into a fight with a policeman—a “copper” as they are still called by Australians. He seemed like a pretty decent fellow—for a bank robber. I had never met a bank robber. So I asked him about his “business” after we had warmed up a bit. He had turned to robbing banks to support a very expensive drug habit. The more he talked, the more excited he got about his career. He had a system for robbing banks. I said that I had a system for trading commodities, we were kindred spirits. “What is your system?” I inquired. “There are really three parts to robbing a bank,” he said. “You have to have a driver in the getaway car, then a doorman, someone who controls the flow of people in and out of the bank, then there was me, the jumper. The doorman opens the door and I run and jump over the counter screaming it’s a robbery and start taking money out of the bank tellers’ tills. “I have exactly three minutes to do this because the response time to most any bank robbery in Sydney is four minutes. It doesn’t matter if I have a lot of money or no money at all, I’ve got to get out of there in three minutes.” “That’s just like me and day trading,” I told him. “In my business of trading commodities I can’t stay in a trade too long. If I’m not making money, the trade probably isn’t going to work and I’ve got to get the heck out. The only difference is I’m not going to be chased by the ‘coppers.’” He went on to divulge more about his bank robbing system. Part of what made it work well was that you need to wear a baseball hat. The security cameras in banks are stationed up high and if you’re wearing a baseball hat, all they get is a glimpse of the lower part of your chin. Now

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if they put the cameras down low, he suggested, they could photograph a full view of your face. Wearing a baseball cap was a breakthrough for his career. But had he ever been caught, I asked? “Mate, I was caught a few years ago. It was really strange. We were right on schedule, I ran into the bank jumped over the counter and started scooping up cash. As I looked up, I noticed my door guy was gone. So I made a break for it, got back over the counter, ran for the door, and what greeted me was a busload of coppers from Melbourne who were on a tour of Sydney. They were just getting off the tour bus, right there in front of the bank. “All I could think to do was run for where the car was supposed to be. The door guy was gone and when I got to the car, the car guy was gone, but the car was still there. So I got in the car started to drive away. But by then they had caught up with me.” He continued with the story talking about how the police shot him. I must have given him a curious look because he raised up his shirt to show me the scars. He was then arrested, taken to the hospital, treated for his bullet wound, and taken to prison where he languished for about six months awaiting trial. When trial time came, he had put on a great deal of weight from eating the starchy prison food catered by the plumbing supply firm. He was no longer the lean drug addict. At trial, the jury was not able to make a positive identification of him in part because of all the weight he’d gained and, in part, because the baseball hat blocked most of his face. “In other words, you’re telling me,” I asked, “you got off ? Despite all the evidence to the contrary, despite the gunshot and everything else, they weren’t able to convict you?” “That is exactly what happened,” he said. “They really couldn’t make certain that it was me, so I was not convicted. Also, the copper said he shot directly at me. But as you can see, the bullet went into my side. So the jury didn’t trust the copper.” What a story I thought. I could only think of one more thing to ask, probably the same thing you’re thinking now, “Do you still rob banks?” “No, no I don’t rob banks anymore. You see, I made a deal with God when I was in prison. I prayed every day that I was in there to be

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found innocent. I made a deal with God that I would never rob a bank again, regardless of what happened in my life. That was the deal struck with Him. I would no longer rob banks. I will rob a liquor or jewelry store. But no more banks!” All I could do was shake my head. Talk about situational ethics.

r r r The next morning the paddy wagon took me to the central courthouse. This time there was only one other cellmate with me in the holding tank. His case was first. That left just me in a cell approximately 20 feet by 20 feet. The time dragged on and on. I asked one of the guards what time it was. He just shrugged his shoulders. It was getting very, very cold. There were no heaters in the cell. The roof was open to the sky. It was late autumn in Australia. I asked for a blanket. The same guard shrugged again. I waited in this ice box for several hours. Then the guards brought in a new prisoner. He had been screaming and yelling down the hall. No shirt, no shoes, he wore nothing but pajama pants. He started screaming again and this went on for an hour. Then he suddenly stopped and promised one of the guards he would be good if he could just get out of this cold cell. Meanwhile, to keep warm, I walked in circles around the room. I had completed 74 marathons in my life by that time. (I would finish two more while living in Australia, one in Brisbane and one in Sydney.) As I paced, I would “re-run” certain marathons I had run with friends like Kurt Hallock and Harvey Levine, and my wife Louise. I ran the Marine Corps Marathon in New York City, again I ran the Boston Marathon, imagining how crowded it was at the start, how steep the ascent is the first couple miles. I imagined being at mile one, then two, and on to mile three. I ran it again all the way to the last mile marker, 26.2. The only thing to do to keep warm after finishing my cell-bound version of the Boston Marathon was to keep running marathons. So I ran the Rock ‘n’ Roll Marathon in San Diego, the St. George Marathon in Utah, followed by every marathon I could recall. I walked in that room for approximately four hours waiting for my hearing.

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One would think that people in custody should have rights since they may be innocent. That is, after all, the assumption of the law of most civilized societies. But that is not the way I was treated. The cold cell was one thing, the other was having no private toilet facilities. The holding tank had one aluminum toilet. It had no seat. There was no way of cleaning it from prior usage. Relieving yourself is humiliating, inhumane, and surely done not only to monitor your activities—you perform, in full view of the guards and inmates, both Number One and Number Two. Every judge and prosecuting attorney should spend two or three nights in these conditions to understand what they are doing to people by putting them, essentially, in cages. There is no differentiation when you are in custody, the good guys and bad guys . . . crazy people and decent people who’ve done something stupid. Degrade to control seems to be the order of the day in the Australian penal system and that goes for the U.S. system as well. At last I appeared in court. To my left, I could see Louise and several of my followers who had come to my previous lectures in Australia. I was comforted by the friendly faces. Then it began. Chris argued that I should be released on bail pending extradition hearings. I knew the stakes were high. If bail was not granted, I would literally waste away in an Australian prison for months. Then there was the matter of my half million in bail, which had not yet been granted. Chris explained to the judge that I was no risk to society. He mentioned that the promoter of my speaking engagements, David Hunt, had outlaid a substantial amount of money in hotel reservations, promotional costs, advertising, and the like to bring me to Australia. Chris continued, pointing out that this would be a personal loss to David, an Australian, as well as a personal loss to several hundred people who had registered and paid to hear me speak. Chris’s argument caught the Crown flat-footed; they had not expected this bid. They expected a traditional extradition argument, claiming that the extradition was invalid or the laws were not applicable, that I was not a flight risk, and so on. When Chris brilliantly argued that Australian investors would be out money, the government was a bit dumbfounded as to how to argue against that. The judge was taken by Chris’s argument and it was apparent he would most likely rule in our favor that I be granted some form of temporary bail.

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To make matters worse for the Crown, one of the government’s lawyers started arguing with the judge, who was not pleased. Then one of the government lawyers pointed out that the charges against me were for owing taxes on millions of dollars. The judge simply replied, “I have noticed the size of the United States federal budget, and the amount of money you are talking about for Mr. Williams is not even a blink of an eye.” That was music to my ears! But what was to follow was a far different tune. Chris and the Crown argued back and forth over how much bail would be required. I had been told by Chris that there was a general understanding with the judge that it would be $500,000. Now it was the Crown’s turn. Its lawyers argued for a higher bail and eventually won—if I could post bail $1 million I would be free! One million dollars? That’s a lot of money. A lot. I knew that would take some time for Louise to arrange. But at least the judge had granted bail. Now it was a question of whether Louise could raise that amount of money because, if she could, I would be out of jail. As I was walking back to the holding cell downstairs, one of the guards said, “So you made bail, mate? Here are some papers you will have to sign.” I gladly signed the papers and then, instead of being led back to the open-air ice box, where I had been walking in circles, I was led to a heated room next to it. Just a few feet away from where I had been for so long was a warm room. Why hadn’t I been placed there? I was angry and feeling sick from being exposed to the cold for seven hours. The guard then handed me the actual indictment that the U.S. government had issued in San Diego. I read it for the first time. I was surprised. The three charges, to my way of thinking, were innocuous.2 They were the same for each of three years, 1999, 2000, and 2001: r

2 You

The first charge was that I instructed payers not to send me a form 1099.

can see United States of America v. Larry Williams (January 2006) for yourself at http:// docs.google.com/viewer?a=v&q=cache:g0YTYDqMHf0J:www.wambooi.com/sog/Fraud_Tax_L_ Williams.pdf+larry+williams+indictment&hl=en&gl=us&pid=bl&srcid=ADGEESigBOYf2TezFX QjpTR3odHHw3ALXmgogkUzuL7TjuQtlV9ENlCSCBOu7micizwjkvxmxKiGBEAdUFJqfEoo RusEJ5OXeWnDiZFrSpfBXpOnOqTJcN4JERfE9q1bUUMjpxznsG-p&sig=AHIEtbTanWc9ug OJF51H34ja2nWQsg48UQ.

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The second charge was that I had created form W8 certificates of foreign status bearing false information. The third charge was that I had used multiple bank accounts, which were designed to mislead agents of the U.S. government.

There was no specific dollar amount alleged in the indictment. I read and reread the charges and thought, “This is almost a joke, just what type of charges are these?” Now that I knew what I was charged with, my spirits were lifted. The charges didn’t look so bad. I could certainly win these. In the paddy wagon trip back to Surrey Hills, we had a layover at some other jail for a couple hours. This was an interesting experience. There were seven or eight of us packed into a very small holding section. The fellow next to me was a massive weightlifter type. He must have weighed a good 280 pounds, solid as a rock, perhaps as intelligent, too, and was literally bouncing up and down as he sat next to me. You could see he just wanted to punch somebody. He was very agitated. I coolly said, “You look like a bodybuilder, or weightlifter. Am I right.” I wanted to strike up some type of conversation with this fellow to see if I couldn’t get him to chill out a little bit. A deep, resonant voice responded, “Yes, I own a gym and my wife is trying to steal it from me. That’s why I’m here. She and her new boyfriend have taken everything I have. Now they are going to take my club.” “That’s a tough one. You must feel really hurt by all of that,” I said consolingly. “Oh, mate, you have no idea how bad this is, worse now because I’m out of my medications. I am about to explode. I’ve got to get my medication and these people won’t even call my doctor. It is horrible. I will start ripping things apart in a moment, mate.” I certainly believed every word he said. He was still bouncing up and down. I continued talking with him, doing everything I could to get him to relax. Eventually, he was no longer so agitated. He even seemed a bit happier and focusing on things other than his personal problems. Then I asked him, “Just what medications are you taking?”

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I was curious as to just how violent this guy might be. What did he need to keep himself calm? His reply was just classic. “I am taking Decca and Winstrol, but I think what I really miss is my Zoloft.” Decca and Winstrol are among the more high-powered testosterone drugs used by athletes. People pumped up on this stuff get “Roid Rage.” The Zoloft, an antidepressant, is intended to take off some of the edge. What amazing pharmacology.

r r r When we got back to Surrey Hills, it was like winning a football game. Everyone—the guards, the inmates, even the nurse—knew that I had made bail and were as excited about it as I was. There still remained the little problem of raising $1 million. Could Louise really find that much? She’d only been in the country two days. Was it possible? Chris called and said that Louise was hard at work and that it might take her a few days. I needed to stay cool and make the most of Surrey Hills. The fellow who was promoting me, David Hunt, was also going to help raise money and assured Chris he could put up $100,000 of his own. When push came to shove, however, David came up with only about half that. I learned that I would be leaving Surrey Hills for an Australian federal prison. I would have to adapt to a new setting all over again. Meanwhile, I had to share my cell with a new inmate, a friend of my bank robber buddy. They explained the organization and inner workings of Australia’s criminal society. Most crime is based on drugs. Prostitution is legal in Australia. So is gambling with plenty of casinos. So drugs are the main form of illegal activity. As I understood it, to prevent gang wars and such, the different cultures have broken down the drug market into who handles what. The Thais seemed to handle heroin. Other Asians handled cocaine. The Australians dealt in marijuana. The drug dealers who hailed from various Muslim countries sold hashish. In that way, there was no infighting between one another. They all had their own product to sell and didn’t get into turf wars. I smelled bad.

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Despite my new celebrity and despite having asked for a shower, I had been denied. Having not bathed since South Africa, I now smelled gamy. Early on Thursday morning, however, I was told it was my turn to take a shower. Finally, I could get some of the stench and grit off my body. The shower was adequate, an enclosure that was pretty much the same as a jail cell except made of Plexiglas and reinforced with bars. The water was warm and felt good. But the bar of soap I had to use was about half the size of those tiny bars of soap you get in cheap motels. I wanted to stay in that shower for as long as possible. But after four minutes, the water went off automatically and a guard came and told me it was time to dry off and get dressed. So I did and slipped back into my grungy jail room attire and went from feeling clean to dirty in an instant. Later that same day, I was transferred with some other guys in a very cramped paddy wagon to Silverwater Correctional Centre. I imagined that this prison would be much worse than the Surrey Hills jail. In fact, it turned out to be much better. We were given some real food at first check-in that was better than anything Surrey Hills had to offer. Then we were given prison clothes to wear—a green T-shirt and a pair of sweat pants and tennis shoes. I was treated with dignity. One of the guards, an American strangely enough, suggested that I be separated from the regular chaps. He paired me with a safer cellmate who happened to be a young kid who had run a large ring of marijuana dealers. I had no complaints. To get along in prison, you go along. Some people think that all prisons are like the Club Feds we have stateside. I assure you it is not the case. We had two bunk beds, the toilet with no privacy, a small sink, and a black-and-white television set that got one channel that usually had nothing on it. I did like how we had to clean up our own cells each morning— sweep them out, mop them down. and all that. It made sense to me. Why should they have government employees doing it? After cleaning up our rooms, we were led into an exercise yard, where we could all walk outdoors in an area about half the size of a city block. There I met some of my buddies from Surrey Hills. We walked and talked. They mentioned to me the reason there was a cable net overhead was that a few years back a guy had his girlfriend hijack a tourist helicopter. With a gun pointed at the pilot, she made him land in Silverwater’s yard, where

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she picked up her boyfriend. But their escape attempt failed and they were quickly captured. Now there was this steel net. Cause and effect. I was perfectly happy after Surrey Hills. Emotionally, however, I was broken and spent. I felt safe at Silverwater and I didn’t think I was going to be beaten up—thanks to my daughter’s celebrity. What made me more of a celebrity was my battle with the U.S. government. There is an anti-American streak in Australians and they don’t like government in general. They had no problem with me near as I could tell. I was all smiles on the outside. Inside, though, I was in tears.

r r r There is nothing like being incarcerated. You have no control of your life; you eat when they tell you to, sleep when they say sleep. It is so forbidding because you know this is not going to change. If convicted, this is how your life will be for years upon years. Despair descended upon me in my second day in prison like a storm cloud creeping up over the Rocky Mountains—and this was just the calm before the storm. I had to avoid the torrent of emotions that were welling up in me. Cry? Yes I wanted to, but what good would that do? It was time to think about what needed to be done. Think, for just a moment, about living in a cage, like some chicken the Naked Chef Jamie Oliver is trying to free up, and you get a sense of the despair—the same food every day for five years, the same “associates,” the same view, the same bad bed, the same cramped cell walls shouting with sameness. I cried because of the despair. I cried because of the embarrassment. I asked myself: “Why should I be embarrassed?” My battle for economic liberty was no different than the liberty men had died for in battle, something like what Dr. King and Nelson Mandela went to prison for. The difference is that my battle was seen as one about my taxes; what I did or did not pay, not about the larger issue of an unjust tax system. My friends did not expect to see me in prison, nor did I. This was not how my life was supposed to turn out. Yet here I was, sharing a 12 ft. by 6 ft. cell with an Egyptian drug dealer younger than my own son.

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Then came tears. I recalled one of my favorite Country-Western songs, “The Ride” by Sony Tillis and Sam Weedman, about a kid who falls off his horse. An old wrangler gives him some advice. No need to feel embarrassed, just stand tall in the saddle and hold your head up high, keep your eyes in the horizon. With a tip of the hat to Chris Ledoux, who best sings this song, I decided that’s what I must do—hold my head up high. I would not let suppressive government types thwart my positive outlook. I would survive this. I wiped my tears. While walking in the exercise yard, I heard my name called to report to the guard post. I was told that there might be problems with some of the guys because of my notoriety. The prison officials wanted to assign me to different cell, even take me out of the general prison population. I told them I had no problem with anyone. I felt safe and comfortable there. I appreciated the concern, but I felt it would be okay, not to worry. These guys cared. The next morning, following breakfast, there was a rap on our cell door. My name was called out, I was handcuffed and led downstairs to the original “booking” area where I entered the prison. There I was told that bail had been raised—Louise had done it!—and I would now be processed to leave the prison! I was so happy that I found myself in tears again. This prison ordeal, which began seven days ago, would finally come to an end. At the very least, I would be out of custody and could wage my battle with the Internal Revenue Service as well as I could. Processing went rather smoothly. I was led through a series of doors where I was greeted by Louise and, much to my shock and surprise, my son Dr. Jason Williams. Jason had taken time off from med school at George Washington to fly all the way across the world to be with Louise, help her, and do whatever he could for me. That was very touching. Jason and Louise explained the money matters to me; David Hunt ponied up $60,000, Louise had come up with $500,000 from the sale of her house, and the balance came from Graham and Adel Briggs who had attended several of my seminars and were traders. Graham and Adel had posted their house as my security. All four of these people came to bat, all knew I was not a flight risk and, I hoped, knew that I would not let them down. I would meet all conditions of my bail. I would report 24 times a day if that’s what it took to stay out of Surrey Hills and Silverwater!

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Louise was way ahead of the media game. She knew that reporters were all over the place, so she had a private car drive us back to Sydney to the Quay West Suites and our hotel room. She and Jason figured that the media knew she was staying there and devised a plan so that I could avoid cameras and microphones being shoved in my face. In addition to the $1 million for bail, there was one other requirement. I would have to report three times a day at the police station in an area known as, “The Rocks” adjacent to Circular Quay, which is right across from the Sydney Opera House.

r r r I now had some freedom back. In addition to checking in at the police station, my movements were limited to a 10-block area of Sydney. Chris and I could figure out how to handle the big battle of fighting extradition to the United States or finding some way to settle things with the Internal Revenue Service. I still felt something could be negotiated with the IRS. I’m always the optimist. Yet how could I think that since my lawyer stateside had been trying to resolve my tax problems for the last four years. Why would it be different now?

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CHAPTER 5

Getting Out from Down Under

We’ve got what it takes, to take what you’ve got. —Old IRS joke

he good news: I was out on bail. The bad: I had to fight extradition. However, if I was not extradited, could I live in Australia for the rest of my life? The answer was simple: yes. Australia is a lovely place to live. It has clean air, good people, good food, and a really diverse society. Australia is visually diverse, too, especially with breathtaking geological features from Ayers Rock in central Australia to the Great Barrier Reef to the mountains of Tasmania. I had been coming to Australia since 1970, when the Sydney Opera House was built with funds from Australia’s lottery, which makes this architectural wonder (designed, many think, to evoke the white sails of the tall sailing ships) quite a payoff. I had many friends in Australia, too. To live in Australia required that I win extradition and then be granted residency. This is a huge legal process that takes time and a substantial amount of money. Extradition is an extremely complicated area of the law. The legal expertise needed to fight extradition is a rare skill among lawyers.

T

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Chris and Louise focused me on the critical first step: win the extradition battle by proving the extradition request from the United States had something wrong with it vis-`a-vis Australian law and any extradition treaties between Australia and the United States. I wondered about the legality of such requests. To understand this, let’s use the example of Italy, where performing an abortion, as a matter of a woman’s choice, is illegal. Let’s say an Italian doctor visiting Australia is detained because Italy has a warrant for his arrest. Italy wants to try him for the illegal abortion and wants the doctor extradited from Australia. In Australia, abortion is legal and, since Australian law trumps that of Italian law on its soil, Italy’s request for extradition would not be honored. Other technicalities would also cause an Australian court to throw out any extradition request, especially given the nature of extradition treaties, which apply to more serious criminal activity. For example, if the crime were minor and entailed a jail sentence that did not exceed 12 months, in Australia, Australian law and extradition treaties would obviate an extradition, that is, if one had been issued at all. Chris made it clear to me that these situations did not so neatly describe mine. He believed the extradition request was not done correctly. He couldn’t argue whether I owed taxes as that could only be argued in a U.S. court. We were confined to arguing the extradition process. Was it done correctly? Was my conduct something worth extradition? Considering the charges—evasion of $1.2 to $2 million in U.S. income taxes—we knew we had our work cut out for us.

r r r By now you must be wondering why I didn’t just submit to extradition and go back to the United States to fight it out in a U.S. court. At the time, I did not think I could get a fair trial in the United States. The Internal Revenue Service wins over 90 percent of tax cases that go to trial. Usually, the IRS gets a plea deal out of the offending taxpayer before trial. The cases the IRS does want prosecuted are those that the agency thinks it can win, where it has spent a lot of time—and money—in preparation. Some say the IRS hand-picks cases it knows it can’t lose. Others say judges are biased against tax resisters and a

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defendant’s case is lost before it begins. Since federal judges are part of the Federal government and get paid from the same “pocket” as the prosecuting attorney, their vested interest is to continue and enlarge tax revenues. So, given the IRS’s track record, I reasoned that, if we beat extradition in Australia, then the U.S. government might sit down and try to negotiate the matter of owing back taxes. Win a battle, I thought, and maybe then I could win the war. I did not want to lose stateside because that came with the real possibility of spending five years in a federal penitentiary. The U.S. extradition request was valid, Chris said, but subsequent paperwork generated by Australian bureaucrats had an error of fact. That error affected the decision to honor the extradition request, which had been approved by the Minister for Justice, Chris Ellison. The mistake concerned the type of criminal act I had supposedly committed. My lawyer, my Chris, made it very clear that while there was a chance of winning, it was not a certainty. And before we could go this route, we needed to stop the extradition clock and prepare my case regarding the validity of the extradition process. So a stay was requested. Chris also believed we needed to have a “silk” on our defense team. He personally felt confident in his own professional skills, but more expertise was needed given my special case. This surprised me because Chris was doing a bang-up job. I felt no one could argue my case better than Chris. Nonetheless, I followed Chris’s lead. We added two lawyers. The silk, Robert Richter, would present the case in court from this point. The other lawyer, Richard Lancaster, would assist him in the legal research, fleshing out the issues and constructing arguments. Richter, I was to learn, was as tough—and smart—as a junkyard dog. Born in 1945 in Kyrgyzstan, once part of the former Soviet Union, Richter arrived in Australia in 1959 with his family. Here he learned how to battle for the underdog—and I was certainly the underdog! Chris clearly made the right call on getting his assistance. To give you an example of his style, read what he wrote to the Attorney-General of Australia regarding an Australian held at Guantanamo: Philip Ruddock [the Attorney-General] is a hypocrite when parading his Amnesty International membership. He pretends to give a toss for

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the organisation and the principles for which it stands: the rule of law, freedom from arbitrary arrest and punishment, freedom from torture, opposition to the perversion of accepted civilised notions of justice and the obligations he owes to those notionally under his protection. Instead, he has publicly and shamefully betrayed all of these precepts.1

Does that give you a taste of this battler? Chris and Richard began crafting our argument. Chris continued to organize everyone’s thoughts and dance through the hoops and hurdles of Australian law. He now focused on the Australian Extradition Act of 1988 and this section, 16(2)(a)(ii): “[I]f the offence does not carry a penalty under the law of the country—the conduct constituting which is, under an extradition treaty in relation to the country, required to be treated as an offence for which the surrender of persons is permitted by the country and Australia.” The treaty required the following specific steps: 1. 2. 3. 4.

Commencement Remand Determination by a magistrate of eligibility for surrender Executive determination that the person is to be surrendered

Our official position was that “the section 16 submission” in this case simply did not permit the careful scrutiny of the case for extradition, let alone put the justice minister in the position of contradictor of the claim for extradition. The papers we would file relied on two different ways of expressing why the legal consequence of that submission is the invalidity of the Notice: r r

the Minister could not reasonably have formed the requisite opinion under section 16(2)(a)(ii)—see Ground 3; and the decision was so unreasonable that no reasonable decisionmaker could have made the decision on the basis of the section 16 submission—see Ground 4.

1 Robert

Richter, “Hypocrites breaking our law at every turn,” The Age, February 18, 2007, http://www.theage.com.au/news/national/hypocrites-breaking-our-law-at-every-turn/2007/02/ 17/1171405502477.html?page=fullpage.

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The matter of three—“determination by a magistrate of eligibility to surrender” me to U.S. authorities—provided Chris with an inroad. The documentation for my extradition read in part, “Mr. Williams is alleged to have committed a range of drug related offences” (my italics). Chris pointed out what was an obvious error, what he eloquently termed “a function of the use of a pro forma without proper editing and review.” Which is to say, the Australian justice department had used boilerplate paperwork and the wrong boilerplate too. He further noted, with the same eloquence of an Australian barrister, that no one had read the extradition request closely, which made it “a badge of the cursory and legally insufficient consideration given by the Minister to the serious question that was before him.” We saw ourselves on the right track.

r r r Unfortunately, we were wrong. We presented our argument in November 2006, thinking we had a chance at winning, just not a great chance. This proved correct. We lost in the court. Richard Lancaster felt the decision made no sense at all and urged us to appeal. After all, his research showed that the Justice Minister Ellison just rubberstamped the request and didn’t perform an independent study of the facts or the law. Chris agreed, and that was enough for us to make our appeal to a higher court. There we presented the following points: r

r

The Minister could not lawfully rely on a departmental officer’s advice for the formation of the opinion required by section 16(2)(a)(ii) of the Act. The decision required careful and independent scrutiny by the Minister of the facts of the case to ascertain if dual criminality existed and such scrutiny did not occur. Even less could the Minister lawfully or reasonably rely on a departmental officer’s report of advice from an officer of a different Commonwealth authority such as the Office of the DPP, particularly where the facts taken into account by that Office are nowhere recorded. The Minister was not a rubber stamp to his own

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department’s work—he was a rubber stamp to the unexplained advice of an unidentified officer external to his department. The Carltona principle cannot save the Minister’s decision. Paragraph 5 of the Amended Application refers to the fact that the Minister failed to give reasons for the decision, despite the applicant’s specific request. That failure has not been explained, notwithstanding that in other cases the Attorney General has seen fit to give reasons for the significant decision under section 16.

Our first attempt to present this argument had been heard by one judge. Our appeal would be heard by three who, we hoped, would see the merit of our argument and with less bias. The long and short of it was Justice Minister Ellison had simply signed off on documents pertaining to my extradition for a drug charge without really looking at them or the U.S. government paperwork, which stated that my case was a tax problem. Australian law required more scrutiny than that. Robert Richter was questioned a great deal by the three-judge panel and responded directly to them when asked if the current law was wrong. He replied, “Yes, it is wrong, it is bad law.” Richter made no bones about it. He was unwilling to back down to the judges. He directly attacked the law and the action of Justice Minister Ellison as being incorrect—governments, Richter said, should not be run with rubberstamps. Following the hearing, we had a delightful lunch in the park across from Chris’s office discussing a wide variety of subjects, such as politics in America and Australia, and what my best course would be, win or lose. I heard a good deal of advice from the three lawyers, which was, essentially, to work within the system. In any event, I must get back to the United States to resolve the issue. They could buy me time. Then, perhaps, the U.S. Justice Department would be willing to discuss my case and work something out. Chris felt we had a good chance of winning but, of course, did not want to get my hopes too high. “All we can do now, Larry,” he advised, “is to wait for the decision to be handed down. That should take a month or two.” Louise and I returned to our “Down Under” holding pattern. We were not the only ones waiting. John Owens, the Justice Department

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lawyer in San Diego spearheading the charges against me, waited too. He was well qualified. A graduate of the prestigious Stanford School of Law, he had clerked for a Supreme Court justice. Owens was equally stalemated. Win or lose, at least for the next couple of months, I was out of his control. We waited and waited. At least I had more freedom to move about. I was not restricted to downtown Sydney. Louise and I took a trip to Ayers Rock in the middle of the country and had a wonderful time with our Australian friends, the Briggs and Petrolouses (couples I will describe in more detail later). Life could be far worse. I now only had to report to the police station once a week and had even made friends there. Chris finally called and told us we needed to go to court the next day because the decision would be announced. I was on pins and needles. We showed up with our little band of friends at 10 a.m. Walking into the courthouse, we could see the media people waiting for the verdict to be read as well. Cameras were ready to roll. For some strange reason, my extradition had become a “story.” After taking their seats, the judges began reading a lengthy report on their decision. Much of it did not make sense to me in my nervousness. I looked at Chris. He was beaming. So was Louise. We had won! All three justices agreed with our view that the magistrate had not followed the law in dealing with me! I could not have been happier. This must have been written all over my face because here’s what the newspaper said the next day: Hollywood father and futures trading guru Larry Williams was all smiles as he emerged from a Sydney court yesterday, after a bid to extradite him to the US on tax fraud charges was ruled invalid.2

I was free. I could have my passport back. I could move on to any country where I could not be extradited for a tax offense. Many countries do not make a violation of their tax codes a criminal offense; Switzerland is the first one to come to mind. I could move there—or 2 “Movie

star’s father beats extradition,” The Australian, March 22, 2007, http://www.theaustralian. com.au/news/movie-stars-father-beats-extradition/story-e6frg6o6-1111113204347.

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Japan, perhaps—and that would have been the end of it. I would not be extraditable. It was tempting to think of moving to an extradition-free country, where my life could start over. I don’t need a job. All I need is a computer in order to go online and trade. Chris, however, felt it would be best to stay in Australia to see what the next step would be. The United States government would likely not give up that easily. It would be a show of intentions to remain in Australia rather than appear to flee. Louise and I agreed. We decided to stay on and await the next move. Perhaps John Owens would have a change of heart and be more willing to discuss some resolution rather than go to trial. But I never heard from Owens or anyone from the Justice Department following my victory. My lawyer stateside, Dave Stetler, called Owens and pointed out that the Australian decision posed problems for his case. I couldn’t plead guilty to any of the federal charges because I believed I was acting within the law. He would be well-served to work with us to resolve the issue outside the courtroom. I heard back from Dave. He told me Owens wouldn’t budge. This sent a clear message to me: John Owens wanted my scalp.

r r r One of the most interesting tales from the extradition process has not been told until now, in this book. Because I have lectured throughout the world, I have friends throughout the world. One of these friends happens to be involved with the Venezuelan government. I received a phone call from him saying that he’d been in contact with Venezuelan officials about my case. I was a bit shocked by this. I had not discussed it with him and had never instructed him to do so. This all came out of the blue. When you are in trouble, it is amazing what a friend will do to help you. I had no involvement in what I’m about to tell you. I was simply a bystander who had a friend willing, as you will see, and able to end my situation. I had already received an e-mail on the second day I was out on bail. It was from a lawyer friend in Asia who works for large shipping firms. He cryptically told me it would be possible for a ship to pick me up in Australia, that is, if I needed to leave in a covert

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fashion. But that was the furthest thing from my mind. I did not want to become a fugitive. Like I said, it’s amazing what good friends will do for you. My Venezuelan friend said that Venezuela was more than willing to have me walk over to its embassy in Sydney, about four blocks from where I was staying, and the ambassador would give me asylum. I suppose it would be somewhat like a Cuban defecting to America. I was supposed to go to their embassy, tell them who I was, and they would then spirit me out of the country under diplomatic immunity. My response was to laugh. I thanked my Venezuelan friend very much for his efforts. But I really did not want to be used by the Venezuelan government and its president, Hugo Chavez, in a way that would embarrass my country. I will leave that for Sean Penn. We tax protestors are not the only ones who get in the face of the U.S. government. But there are certain boundaries we just won’t cross.

r r r My case had literally changed Australian law. The extradition process would no longer be loose and open to the whims of one individual. We changed the way things were done forever with my victory. I had a good feeling about that, too, and seemed to portend that freedom could not be far away. This feeling did not last long. The following week, the Australian government announced a new extradition request had been launched— and this time it was done correctly. It had become a chess game. We lost a round. Then the U.S. government lost round two at a higher court. Now round three had come. I did not like this, but I did admire the tenacity of John Owens. Chris informed me he had received papers from the Crown that it would be continuing the extradition. It could happen as soon as the weekend if the extradition process had been handled correctly. I no longer had much hope in sitting down with Owens and working this out. Obviously, the U.S. government was proceeding full speed ahead. I asked what Chris thought our chances were of continuing. There are many wonderful qualities to this man, perhaps the greatest is that he is a no-nonsense guy. He does not feed you full of hopes

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and dreams. Chris was very clear: We had a chance, but it was a slim one. There was another possible issue we could argue. Like our previous court victory, his strategy was based on proper protocol. He noted that extradition was a legal matter subject to federal purview. However, a local Australian magistrate from the state government had approved the second extradition request. Back to court we went to expose another sham in the extradition process. Imagine a justice of the peace, someone you get married before in city hall, deciding a federal, national, and even international issue. He has no training, no background in international law, yet he’s the kingpin in Aussie extradition process! Egad, surely this was wrong and—again—we would change Australian law once and for all. As it turned out, we flat out lost. The lower court took just a few days to rule against us. That was a shock. But Richard Lancaster didn’t see it that way. He said, “Last time you won on appeal. Let’s appeal this one as well.” Sounded good to me. I asked, “Who do we appeal it to, to what court?” “The high court,” he replied, adding, “That’s just about like your Supreme Court. You can’t go any higher. It is the court of last resort.” “Hold on” I said, “Our Supreme Court only hears about 1 percent of all cases presented to them. I hope we have a better chance of being heard than that.” I was assured my chances were much better, in fact 50 percent better because the Australian High Court hears about 2 percent of the cases presented before it. In other words, there had to be a very serious question of law before a hearing would be granted to go before such an august body. We filed our appeal and waited, hoping our case would be heard early. Fortunately, long odds have never bothered me. I trade commodities. Meanwhile, a new legal team was formed. Chris and Richard stayed on, but a new silk came aboard, Steven Gageler, who replaced Richter, who had another case. Gageler, a Harvard graduate, was an up-andcoming figure in Australian courtrooms and politics. Shortly after my case, he became Solicitor-General for the Commonwealth and Prime Minister Kevin Rudd’s top legal advisor.

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This, too, was a great team, but our case was now coupled with two other men fighting extradition: Charles Zentai, an alleged Nazi war criminal, and Vincent Thomas O’Donoghue, an Irish fraudster. The friends I keep! Zentai was accused of brutally murdering a Jewish teenager, Peter Balasz, in Budapest in 1944, when he served in the Hungarian Army. Zentai maintained his innocence and had been fighting extradition attempts for almost 10 years before I came along on the scene. His son, Ernie Steiner, carried on the battle for his 88-year-old bed-ridden father. I felt genuine compassion for the Zentai family. I was fortunate to talk to Steiner, who had spent a fortune to help his father. The allegations against his father had come from two men already convicted of the crime. They made Zentai a scapegoat. Zentai had left Budapest on November 7, 1944. He could not have been at the barracks on November 8, when the alleged murder took place. “The worst thing,” Steiner said, “is that we know he’s innocent and it’s frustrating to be given so few options to prove that innocence here in Australia.” That is the problem with extradition treaties; you are not given any opportunity to rebut the charges. A corrupt government could charge you with some vile crime that you never committed, when you were never at the scene of the crime. It would not matter. You are fair game for extradition. Any factual basis for the charges against you are not going to be argued in your defense at an extradition hearing. When my IRS adventure came to an end, Zentai was still fighting extradition. To be returned to Hungary would be, his lawyer said, “a death knell.” As of July 2010, however, it looks like Ernie Steiner will be able to keep his father in Australia. Good for him. O’Donoghue was a former barrister who billed himself as a property broker in 2001. He dabbled in Spanish property before turning his attention to Northern Ireland. There he was accused of obtaining property by false pretences. At one point in his life, he drove a Bentley and lived in the former mansion of the Archbishop of Dublin. O’Donoghue now lived in Perth, Heath Ledger’s hometown. We knew many of the same people and eventually O’Donoghue felt like he

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knew me well enough to hit me up for $10,000. He claimed it would be backed by real estate. I did not make him the loan. What a trio we made! We were the three musketeers of extradition with our cases before the High Court. We filed our briefs and again waited to see if the brightest legal minds in Australia saw validity to our appeal. To my surprise the High Court agreed to hear our case. Louise and I were almost in a state of shock. Our papers were lodged on November 22, 2007, but it would not be until April 2008 that we would go to Canberra, Australia’s capital, for our final resolution. We had been to Canberra before with our dear friends, John and Mercene Petrolous. I had met John at several of my seminars and saw how quick and adept he was at the business of trading. He and his wife adopted us. Along with Graham and Adel Briggs, this was just the support system we had for our own sanity as the extradition process dragged along. Like Louise and me, John was also a marathon runner. He would pick us up every Saturday morning to run in Sydney’s Centennial Park, a lovely large park with running trails and Australia’s native black swans. About two miles of the run is part of the Olympic marathon course used for the 2000 Summer Olympics. As I mentioned earlier, when I first made bail, I was limited to a 10-block area of Sydney. We ran in those 10 blocks, never once stepping a foot outside the boundary. Chris knew Louise and I were runners and told us about an upcoming race, “City to Surf,” in which 50,000 runners went from downtown Sydney to Bondi Beach. He offered to go to the court to ask the judge if I could run. Judge Moore agreed to let me run in the half marathon. But I had to be back and report to the local police station within two hours of finishing. We knew it would take us about two hours to run the 13 mile course, so, if worse came to worse, we would run back. Of course, this was tougher than we imagined as we fought our way through thousands of people. But we did it. Shortly thereafter my area to roam was increased and, eventually, I was given permission to go any place in Australia. After our Centennial Park run, John, Louise, and I enjoyed a leisurely breakfast. John was always sipping a cappuccino as we discussed life, politics, and the markets. He was always an inspiration to us, so much so

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that the three of us decided to get in shape for the Brisbane Marathon. Our other running mate, David Clark, a real speedster, contemplated running the Brisbane, too. Our training began in earnest. Some newspaper reporter saw us out running and did a big full-page, full-color photo about my running schedule. We had to do it now. Each Saturday we increased our mileage getting up to the point of running for three hours. That’s almost enough to run a decent race. The next weeks’ schedule called for an even longer run. But it did not call for the training session to be on a blistering Australian summer day, when all hell broke loose and something happened we had never seen before. John had a heart attack. With about two miles left in our run, John said he didn’t feel well, so we started to walk. He said he felt sick, weak. and his arms were tingling. I thought it was just that we were both dehydrated. We walked to the finish where we parked the car. By then it was clear John had real problems. Still thinking it was lack of fluids, I hustled up several bottles of water and Gatorade, which we just about force-fed him. Only he threw those up. Now the tingling in his arms was really bothering him. Louise and I knew we were out of our league, so I rounded up a park ranger and we called for an ambulance. Comforting John as best we could, we let him know that help was on the way. A few moments later, I heard a siren and assured John help was just about here only to hear the ambulance go right by us to who knows where. Finally, his ambulance arrived. By then there were four park rangers standing over our fallen running buddy. The paramedic did some basic tests and hooked him up to an IV. John was flat on the ground when she said, “Raise your arm now, John.” In unison, John and the park rangers raised their arms. There are lots of Aussies named John. We helped get John into the ambulance. I had to ask what hospital he was being taken to and where it was. If it wasn’t within my boundaries, I could not go along. As luck would have it, the hospital was in my sanctioned area. So we went with John. (Australians have a choice of going to a public or private health program. John selected private because it was better.)

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John had to miss the Brisbane, which Louise and I ran. But I am happy to say he was eventually released and in good health.

r r r Later, John and Mercene took us on a tour of the wine district near Canberra—where there is this remarkably good champagne, Doonkuna—and the High Court in the city proper. This would become the scene of my pending extradition case, which was hardly a wine country tour. My lawyers made the following argument to Australia’s supreme court: 1. Is it an implication from the federal structure of the constitution that the Commonwealth Parliament cannot impose an administrative duty on the holder of a State statutory office without State legislative approval? 2. Is the administrative duty imposed by section 19 of the Extradition Act 1988 imposed on a Magistrate as the holder of a State statutory office? 3. Is the imposition of that duty approved by any legislation of the Parliament of New South Wales? What this means is that the question was one of Australian federal and state law, so we had to also notify the Attorney General of each state and territory, as there was a constitutional issue involved and each state was entitled to appear and argue its respective position. They all showed up, why not? Canberra is a lovely city with waterways, tall fountains, and nice restaurants. Each state brought at least three lawyers plus, of course, the federal staff on hand. At our first appearance, I counted 38 lawyers on “their side,” while we had Chris, Richard, and Steven. We seemed a bit outnumbered. Steven deftly presented our case, after which the High Court justices quizzed him on several issues. Then the gang of 38 clattered away, followed by more questions from the justices. Our case was rested.

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Now all we could do was wait—some learn to drink beer in Australia, I learned how to wait—until the decision was handed down On April 18, 2008, we lost and they won. Only one of the exalted justices was able to see our wisdom and the logical inconsistency of the extradition we advanced. But it takes more than one High Court judge for victory.

r r r There was still another way to avoid extradition from Australia. The extradition process also includes a formal hearing in front of a judge. He or she decides if the alleged conduct and the laws allow for the extradition to take place. In Australia, this is called a section 16 hearing, where you go before the magistrate to argue why you should not be extradited. The problem, as Chris pointed out to me, was that no one had won a section 16 argument in recent memory. Again, it is pretty much a rubberstamp process inasmuch as you cannot argue any of the facts of your case. All I could argue was the legal process and if the words used by the U.S. government were the correct words to satisfy Australian law. There was no real chance that we would be successful at the section 16 hearing. We did have arguments we could make. But Chris felt they were weak, and the ever optimistic attitude I carry had to be real this time. One course of action remained: to bite the bullet and undergo extradition and return to the United States voluntarily. For that I would have to go into custody, prison, even if I were to go voluntarily. It all sounded Orwellian. However, the fact I would express a willingness to go back on my own dime was not something a fugitive would do. Before U.S. marshals will come from the United States to pick you up and take you back, you have to be incarcerated, behind bars, so that you will not flee. It’s a strange twist of the law. Luckily, Chris learned from Australian authorities that two Australian marshals would soon be flying to Los Angeles to pick up a drug dealer. The Australian authorities offered to negotiate with their American counterparts about flying over with me while acting as my escort. This meant I would not have to wait

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in jail for several months until the U.S. marshals came. It would also save the U.S. government the cost of coming to get me. Luckily, all of the involved parties agreed. I just had to go into custody, stay in Surrey Hills overnight, and then go to the airport with the Australian marshals. The following morning the Australian marshals would meet with me to take me to the states.

r r r Surrey Hills is not my favorite place to stay in Australia. But this time I was treated to a private cell. Obviously, it had no Internet, no television, no radio—just me, a blanket, a thin foam pad, and a concrete mattress. With nothing else to do, I relived other adventures in my life. I thought about what I would do when I got back to the states. Most of all, I thought about my legal representation in San Diego. I had gone through a jury box of lawyers and settled on Gene Iredale, a Harvard graduate criminal lawyer. Gene and I had several phone conversations about what our strategy would be and how I should handle the extradition return. Early in the morning, I was escorted out of my cell. I was turned over to several Australian federal agents. They would take me to the airport and turn me over to the marshals. It should have been a very simple trip. In reality, it was the worst treatment I was to receive in Australia. There was certainly no need to handcuff me in order to take me to the airport. I volunteered for this. Yet the agents forced my hands behind my back tightly and handcuffed them. Then they put me in the back of a cramped car. I was surprised. I told them so. This certainly wasn’t necessary. They knew who I was. I wasn’t dangerous. I wasn’t going to escape. I was willingly going to the airport. The reply was to tighten the handcuffs. It seemed so stupid, so juvenile. But I had learned the best response is to keep quiet. I had made my comments and these guys weren’t listening. The marshals were much nicer to me. They took the handcuffs off at once. Then we boarded the Qantas jet, my favorite airline in that part of the world. We were the first passengers to board and, of course, I had to have a marshal on both sides of me.

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They explained the rules: I could sleep. (They would not.) I could not have any alcoholic beverages. If I wanted to go to the bathroom, one of them would have to escort me. That seemed a little strange at 30,000 feet in the air. But rules are rules. Shortly after the plane took off, one of the stewards came back and offered me slippers, a sleeping mask, and some special snacks from the first-class section. The two marshals looked on in disbelief. I asked the steward if there might be something for my “associates.” “Yes,” he replied. The marshals asked what was going on. I explained to them that my running buddy, David Clarke, was a Qantas steward and knew which flight I was on. So he must’ve spoken to some of his workmates and they were just being friendly. I had some nice discussions with the marshals—a guy and gal—both intelligent and thoughtful people. But I slept most of the way to Los Angeles because I was afraid of what would happen there. Mostly, I was afraid that I would end up for a week or so in what is known as the Metropolitan Detention Center (the MDC, an abbreviation many of my trading students will get a chuckle out of ), where prisoners are ensconced until they have had their hearings. What a horrible place these holding facilities are. Miserable food, no books, 30 minutes of exercise every other day, and packed in like a tin of sardines. As you can well imagine, there are some decent people inside these places. But most are low-life scum, hardly the sort you want to mingle with for a month. Even worse yet, I had learned in Surrey Hills these places break your spirit and delay the ultimate day of reckoning. Upon arrival in Los Angeles, I was again placed in leg irons and handcuffs with a chain around my waist. I hobbled through the Los Angeles airport hoping to hell nobody I knew was there that day. I was escorted to a black SUV and driven to the MDC for processing and, hopefully, a quick arraignment and release on bail. Gene and John Owens had worked out what would happen. At arraignment, Gene would post a $500,000 bond for me, while the Los Angeles judge would transfer the case to San Diego. If all went well, I wouldn’t have to spend any more time in lockup at MDC. But time was short, there was a very small window to make this all happen.

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Thanks to John Owens and Gene’s adroit legal skills, they managed to pull it all off. Between driving from San Diego to Los Angeles, Gene worked with the authorities there and in Los Angeles, getting my bond approved by the judge, and then taking the bond money to wherever it went—someplace in downtown LA—while I waited in a cell block. At MDC, my holding cell consisted of myself and seven obviously seasoned drug dealers. As we talked, one admitted that he was in for murder. Another said he was there for extortion. They were actually pretty funny the way they laughed and talked. They sure got a kick out of me. Their average age was just to the other side of puberty, and here I was, the old man, the only white guy. But thanks to my experience in Australian jails, I could mingle with pretty much any character. We were all called to go in front of the judge. So public defenders came in and explained to my newfound mates their best options. One prisoner said the public defenders were all wrong. If anybody followed their advice, he’d end up in what was obviously a real hellhole prison. There were some pretty heated discussions back and forth with the public defenders. Eventually, my cellmates listened to their self-appointed jailhouse lawyer, not the public defenders. I was worried. Gene had not yet appeared, I didn’t even know what he looked like. I knew that if he didn’t make it soon, I would be spending at least the night, if not longer, with my drug dealers. The judge started calling us in. The whole process struck me as prejudicial. Here you are, standing in front of a judge, saying you are innocent of all charges, while wearing an orange jumpsuit with leg irons and handcuffs on. I wonder what type of impression that gives? After three or four of the other fellows had been processed, a new guy walked to the court and approached me directly—Gene. He explained what was happening. He thought things were under control and that I might be released that afternoon. This happened. Gene performed his magic. I was processed out of MDC late that evening. Gene picked me up outside the courthouse, explaining that he had booked rooms for us to spend the night in LA instead of driving right back to San Diego. That would give us the opportunity to talk a little about the case. Talk we did. We worked out a basic strategy, or so we thought. It was not the one we finally used. One thing was certain, however,

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I enjoyed Gene. He was obviously intelligent and, most importantly, there was some kinship. I felt that we had much in common. Outside of my personal legal situation, I would have liked the guy. I felt like I could trust him (and after some early run-ins with other lawyers, that was critical). I’m certain it helped a great deal to have friends in common, like Kurt and Harvey, as well as a few other people we knew in common, such as Mike Aguirre, another running buddy who had been San Diego’s city attorney. They all gave Gene two thumbs up. Gene was a left-wing liberal lawyer. I was the right-wing radical. What a tag team we would make! The trial couldn’t be too far away. Could it?

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CHAPTER 6

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The Tax Resistance Movement and Its Legal “Help”

Choices are the hinges of destiny.

I

—Pythagoras

f you make the choices I made, you will eventually need a lawyer. You will pay that lawyer more in fees than you ever would have paid in taxes. My off-the-cuff estimate is that I paid lawyers over 15 times more than the amount the IRS thought I owed to the U.S. government. I know a little about the law, but when it comes to interacting with the Internal Revenue Service, when it means meeting the IRS head-on in court, trust me: You’re in over your head. Call a lawyer. But there is some resistance to having a lawyer represent you if you are a member of the tax resistance movement. Lawyers are seen as agents of the federal government. Lawyers, you see, as members of the Bar Association, have to take an oath to represent the government before their

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clients. So, if a tax protestor needs legal assistance, he or she tries to find a lawyer within the tax resistance movement. This is akin to asking a drunk to help you sober up—and there are not many good lawyers in the movement in the first place. It is extremely difficult to find a lawyer outside the movement who will represent tax protestors. Most don’t have the experience and, more importantly, most think their client’s point of view about the tax system is totally bizarre, so much so that these outsider lawyers refuse to walk into the mess. They will wave away the tax protestor’s arguments and advise him or her to work a plea. There are exceptions, of course. Gene Iredale is such a person. This chapter surveys high- and low-profile tax protestors, purveyors of tax schemes, and their victims. Their legal problems are illustrative of what lies in store for others who go this route.

Robert Barnwell Clarkson. Robert Clarkson was an American tax protestor from South Carolina who tried to avoid taxes by arguing that there is no explicit Constitutional power to create a Federal tax on income. His “persuasive arguments” resulted in indictment on numerous counts of preparing fraudulent tax returns and presenting false claims to the U.S. Department of the Treasury, and despite his legal training Clarkson was twice convicted of federal tax-related violations. The old saw that “a lawyer who represents himself has a fool for a client” certainly seems to apply in this case, and it should be noted this is a recurring theme in the tax protest community: a lawyer tells lay people he has figured it out, and they are lead directly to court and most often to Federal Prison. The first time the judge went easy, giving him a suspended sentence and five years of probation, but temptation proved to be too great. Clarkson broke his probation promises and was finally sentenced to federal prison. He was paroled on the agreement that he stop his income tax schemes and advocacy and in less than 12 months again broke the terms of his parole, which earned him a return trip to the federal slammer. In 2005 the Department of Justice requested an injunction against Clarkson, asking that the court bar Clarkson from selling his tax schemes and holding classes. They also asked the court to compel Clarkson

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to hand over the names and addresses of his clients.1 A permanent injunction was issued in July 2007, and according to a news release by the U.S. Department of Justice, the court “found that Clarkson falsely instructed Patriot Network members that they need not file federal income tax returns. The court also held that Clarkson helped members obstruct IRS efforts to collect taxes.”2 Clarkson was also ordered “to give copies of the injunction to people who bought his products and to post the injunction on the Patriot Network Web site.”3 Oscar Amos Stilley. If you want Oscar Amos Stilley for your lawyer, you may have to wait. It’s not because he’s busy, but because he’s in federal custody for tax evasion and conspiring to defraud the United States. In 2001, the Arkansas Supreme Court Committee of Professional Conduct found that he had violated at least four different rules of professional conduct by failing to act with reasonable diligence and promptness in representing a client, asserting issues that were “devoid of any legal or factual basis,” failing to make reasonable efforts to expedite litigation, and engaging in conduct prejudicial to the administration of justice.4 Not that it mattered to Oscar. One month later, the same committee reprimanded him again for three more violations, finding that he had filed frivolous appeals, had knowingly disobeyed the Arkansas Rules of Appellate Procedure, and had engaged in conduct prejudicial to the administration of justice.5 The following month, the same committee suspended Stilley from the practice of law for 30 days, finding that he had failed to abide by his client’s decisions, continued to file an appeal after being discharged by the client, acted as a lawyer in a case in which he was a necessary witness, made misrepresentations to the court, and engaged in other conduct prejudicial to the administration of justice.6 Stilley, trained as a lawyer, continued to battle the system. In 2004 the U.S. District Court for the Western District of Michigan prohibited him 1 Southern

Poverty Law Center, “Justice Department Moving to Smash Tax Scams,” Intelligence Report, Winter 2005, Issue #120 (http://www.splcenter.org/get-informed/intelligence-report/ browse-all-issues/2005/winter/tax-protesters). 2 Department of Justice press release, 7/3/07 (http://www.justice.gov/tax/txdv07483.htm). 3 Ibid. 4 Arkansas Supreme Court Committee of Professional Conduct Docket No. http://ftp.resource.org/ courts.gov/c/F3/491/491.F3d.1109.06-10457.06-10447.html 2001-037 (8/14/2001). 5 Arkansas Supreme Court Committee of Professional Conduct Docket No. 2001-060 (9/17/2001). 6 Arkansas Supreme Court Committee of Professional Conduct Docket No. 2001-001 (10/1/2001).

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from practicing in the state.7 In the opinion, the Court cited these prior infractions and also found that the Arkansas Supreme Court certificate of good standing Stilley provided was bogus. In telling the court that there were no adverse disciplinary actions against him, he had made a statement that was known to be incorrect. The U.S. Attorney’s office stepped forth with a valid certificate bearing the seal of the Supreme Court, with the words “that he has not had any adverse disciplinary action whatsoever during the past three year period, and that his private and professional character appear to be good” struck through.8 In November 2009, Stilley was convicted of conspiring to defraud the United States and two counts of tax evasion. In April 2010, he was sentenced to 15 years in prison and three years of supervised release, and ordered to pay $700,000 in restitution.9 What I have come to learn, and what I hope you get out of this book (if nothing else), is that you cannot rely solely on a lawyer’s advice. If you pick the wrong lawyer, someone like Stilley, you’ll end up exactly where he is. Eduardo Rivera. Dr. Rivera is no longer a lawyer because he was “ordered inactive” in March 2006 and disbarred later that same year.10 Ed sold “reliance letters” that people could supposedly rely on to avoid criminal penalties for failing to file returns (which Rivera claimed that they were not required to file). I had one of those. It was professional legal advice to me but meant nothing to the Feds. The United States also sued him in federal court over the sales of his “tax reliance” package, and he was permanently enjoined in July 2003.11 He didn’t stop, however, and was found to be in criminal contempt in December 2006 and sentenced to 60 days in prison.12 A Justice Department press release put it this way: 7 http://ftp.resource.org/courts.gov/c/F3/491/491.F3d.1109.06-10457.06-10447.html. 8 Department

of Justice press release, 4/23/10.

9 (http://www.justice.gov/tax/txdv10476.htm).

http://www.swtimes.com/news/article_9af494fa-4fb0 -11df-a07f-001cc4c002e0.html 10 Ca. Supreme Ct. 7/18/2006, No. S143358. 11 United States v. Eduardo M. Rivera, No. 03-2520 (U.S.D.C. C.D. Cal. 7/21/2003). 12 United States v. Eduardo Marmolejo Rivera, No. 2:06-cr-00624 (C.D. Ca. 3/26/2007), rev’d No. 0750163 (9th Cir. 7/17/2008).

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Eduardo Rivera, a California lawyer, was permanently barred by a federal court from promoting several allegedly abusive tax schemes. The court also ordered Rivera to tell the government the names of his customers and to notify the customers about the court order. The court found that Rivera sold “opinion letters” containing frivolous arguments, including “that the federal income tax is voluntary, that Americans employed in the private sector are exempt from federal income tax and do not need to file federal returns, and that the IRS has no authority to assess or collect taxes.”

Although Rivera’s appeal to the Ninth Circuit Court of Appeals was successful, he was ordered to begin serving his sentence while his appeal was pending and was imprisoned from April 2007 to June 2007. Rivera bills himself as a “Professor of Law and Government,” but conveniently fails to mention the name of the school where he teaches. I met Ed several times at protest movement rallies in the Los Angeles area. Back then, he was running for Governor of California and honestly believed that he had a chance of winning. (That should have been my wakeup call!) His political views also tend toward the extreme. He has also called for the impeachment of presidents Bush and Obama and will likely want the same for anyone else elected to lead the United States. His racket appears to have been to teach you how to do all of this tax maneuvering yourself. But when you need serious legal help, like going to trial, well, that’s not what he does. That’s true with most of the people selling some form of tax relief strategy. It’s like someone selling new cars without having a service department. There is no warranty policy with guys like Rivera. You give them your money and you take your chances. When you need help, they will not be there. They will not provide a lawyer to bail you out of the problems they created for you. Larry Becraft. Larry Becraft, if nothing else, has been consistent. This lawyer has stayed with the movement, not forsaking it in any way whatsoever. He still stands for what he believes and spreads his word to his tax resister clients. I have to admire him. He has, however, suffered the consequences. He has been censored and fined by the courts for presenting these arguments. In representing one client, he was fined $2,500 for filing a petition that claimed Congress

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has no power outside of the District of Columbia and federal territories, which the court found to be so lacking in merit as to be “frivolous” and warranted sanctions.13 As you can see, Larry has been on the firing line and was once willing to put forth arguments that his tax protestor clients agreed with. Now Becraft has a web site that provides information about various tax protestor legal rationales that don’t work in court, Destroyed Arguments, at http://home.hiwaay.net/∼becraft/deadissues.htm. Jeffrey Dickstein. Jeffrey Dickstein was Bill Benson’s lawyer in the battle to prove that the Sixteenth Amendment was never properly ratified. But that is not the only case he lost. Jeff is no wilting lily. In United States v. Summet, he was formally censured for his contemptuous conduct during a criminal trial, and his pro hac vice admission was revoked. Thus falls another battling attorney with a strident belief of what the Internal Revenue Code is all about. The problem this guy and others have is this: Case law trumps beliefs. The courts have looked out for him; in Paul Nutter, Jr., et al. v. United States, the judge refused to admit Dickstein pro hac vice because of his reported conduct in other cases. Those tax protestor arguments you have heard were raised by Dickstein on appeal in Charles A. Roat, et al. v. Commissioner. The court did not award sanctions for a frivolous appeal, but stated that “we publish this opinion in part to warn future appellants that the arguments we have rejected here have no place in this court.” Get the message? One of Dickstein’s clients appealed from his conviction on three counts of tax evasion on the grounds that Dickstein had provided ineffective counsel. The trial court agreed stating that Dickstein “seemed to be proceeding in such a way as to secure a conviction” and the 5th Circuit agreed that his arguments “seem to be adverse to his client’s interests.” That did not help as the court ruled that Dickstein had been following his client’s wishes and that his conduct did not fall below the constitutional standard for effective counsel. (According to the court, Dickstein had argued at trial that U.S. citizens owe taxes only on income derived from sources outside the United States, 13 In

re Lowell H. Becraft (United States v. Nelson), 885 F.2d 547 (9th Cir. 1989).

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that only aliens have to pay taxes on income derived from within the United States, that the IRS had embezzled his client’s tax refund, that either the IRS or the Code was a hoax, and that the Fifth Amendment protected his client. Hang out with tax protestors for a week or two and you will be told why the court was dead wrong on this. The problem is the court is the court.) The list goes on. If I cannot talk you out of the crazy tax protest arguments, then Dickstein or Becraft are your best bets. Wesley Snipes. Robert Bernhoft began as a tax resister in law school, when he devised a program that he believed would allow legal tax avoidance. Bernhoft has probably been the most successful lawyer representing tax resisters, tax protestors, tax deniers, or whatever you choose to call us. This is because he learned from the failures of past litigation and avoids the “patriot” arguments of the movement. Bob’s court victories attracted people’s attention, such as mine, and he has represented me in the past. But his most notable client is the actor Wesley Snipes, the vampire hero in the Blade films. Snipes was snookered by a so-called tax expert, Eddie Ray Kahn. Kahn has claimed that the IRS was not created by Congress, that the IRS doesn’t have the power to collect taxes, that the U.S. jurisdiction doesn’t actually include the states but is limited to the District of Columbia, and that the federal government can’t tax you if you refuse government benefits (such as Social Security). He also promoted the use of the “corporation sole,” a kind of alter ego to avoid taxation. Kahn was eventually indicted in 2006, along with Wesley Snipes, of filing false claims against the United States and conspiring (with Snipes and Douglas Rosile) to defraud the United States. He fled to Panama, where he was eventually arrested and extradited back to the United States. During the trial, Kahn refused the assistance of counsel and refused to attend the trial, claiming that the court had no jurisdiction over him. The judge disagreed, and Kahn and Rosile were convicted and sentenced to 10 years in prison. They are scheduled for release on July 18, 2015. I have never met Wesley Snipes, but my sense is that he was hoodwinked by Kahn, then targeted by the IRS because he is a celebrity. These types of defendants garner a good deal of publicity and make

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good “poster children” for the Justice Department to remind the general public about the consequences of not filing taxes, or filing them incorrectly. They offer a cautionary tale, but it smacks of selective prosecution. Even a cursory review of the Snipes case raises questions. According to the indictment, Snipes had his taxes prepared by accountants with a history of filing false returns to reap payments for their clients. The firm, American Rights Litigators, would receive 20 percent of the refunds from clients, according to the indictment. I have added the emphasis, to show the government knew he relied on supposed experts. If Snipes did what is claimed, surely it was done on the reliance of Kahn. Thus there must be no willful guilt on Snipes’s part. Snipes is an actor, not an accountant; he relied on so-called experts. Based on the Cheek v. United States, I think he should not have faced criminal charges, only civil charges if there was tax due and owing. I am not the only one with this view. The jury in his trial found Snipes guilty not of fraud, misleading the government, and not paying taxes, just guilty of not filing his taxes on a timely basis—a misdemeanor. (There were no black people on the jury despite the fact the trial was held in Ocala, Florida, where 22 percent of the population is African American based on the last census.) Frank Tuttle, who served as a juror in Snipes’s trial, told CNN on the Larry King Show that several jurors had already made their minds up that the actor was guilty before the trial even began. There was one juror that said they knew Mr. Snipes was guilty when they saw him during jury selection. I told the juror that was not right, and it went against what the judge had told us before the trial was to begin. Two others then agreed, and said that they thought he was guilty when they first saw him, before the trial began.14

Some fair trial that was. And Wesley Snipes has to serve a three-year prison sentence for misdemeanors, which means he will probably serve about two years, and not at a “Club Fed” facility. 14 “Interview

With Wesley Snipes,” CNN Larry King Live, December 7, 2010, http:// transcripts.cnn.com/TRANSCRIPTS/1012/07/lkl.01.html.

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Tommy Cryer. Tax protestors cite Tommy Cryer’s case as a victory over the IRS. Really? Let’s look at the facts, beginning with what Cryer said: There are three points that are important. There’s no law making the average working man liable [for income taxes], there’s no law or regulation that allows the IRS to contend that earnings are 100 percent profit received in exchange for nothing, and the right to earn a living through any lawful occupation is a constitutionally protected fundamental right, and it is exempt from taxation. The income tax law, although it is carefully written to APPEAR otherwise, does not actually tax your wages, salaries and fees that you earn yourself because the Constitution does not allow the federal government to tax those earnings.15

Cryer also claims that the federal government, which is carefully drawn to stay inside the Constitution, does not actually tax personal earnings. However, IRS publications say the federal government does. For that reason, by collecting taxes on personal earnings, the government has violated several fundamental constitutional restrictions.16 Cryer says his encounter with tax law began more than a decade ago, when a friend told him the income tax was a sham. (Sound familiar?) He researched the Constitution and the legal history of the Internal Revenue Code and came to the exact conclusion. Cryer claims that throughout his battle with the IRS for tax evasion, he’s offered at every turn to pay taxes if the IRS could show him the authorization, and that never has happened. The Criminal Investigation Division and Department of Justice both responded only with “your position is frivolous.” I had never stated a position, so how could they know whether it was frivolous?” he said. “Imagine my sending you a bill for $1,000 and when you call me and ask what the bill was for I simply said, “that position is frivolous, just write the check and send it in.17 15 Bob

Unruh, “The Power to Destroy: IRS loses challenge to prove tax liability,” World Net Daily, July 26, 2007, http://www.wnd.com/?pageId=42749. 16 The Lie-Free Zone, http://www.gcstation.net/liefreezone/. This website has a spirited defense of Tom Cryer. 17 Ibid.

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His acquittal, he said, was a precedent because it means “people can see and recognize the truth. Getting the government off everyone’s back and out of their pockets is going to be expensive and, frankly, I don’t have the means,” Cryer said, “but somehow I am going to finish this. I am totally convinced that this is why I am here on this Earth, this is why I am a lawyer.”18 As this chapter has repeatedly demonstrated, lawyers often get in as much tax trouble as the layperson despite their training. In April 2009, Cryer filed a petition in the U.S. Tax Court which disagreed with the IRS determination that he owed $1,719,436.71 in taxes and penalties for the years 1993 through 2001. The IRS broke it down this way19 : r r r r

$848,806.00 in Federal income tax $615,384.37 in section 6651(f) penalties for fraudulent failure to file tax returns $212,201.50 in section 6651(a)(2) penalties for failure to timely pay the taxes $43,044.84 in section 6654 penalties for failure to timely pay estimated taxes

Cryer’s position was simple: “The amount of the claimed deficiency is disputed. The correct amount is $0.00.”20 The case is still pending as of this writing. Peter E. Hendrickson. Peter E. Hendrickson follows a line of reasoning much like Tommy Cryer’s. He claimed to have the Internal Revenue Code all figured out in his book, Cracking the Code: The Fascinating Truth about Taxation in America, which showed how “you too could kick sand in the face of the IRS and beat them at their own game.” I followed his career and claims that the specific type of income you earn is not subject to taxes by the federal government. He presented lots of case law and research, even showed refund checks from his followers. Some good it did. He was arraigned on an indictment that charged him with 10 counts of filing false documents with the IRS. He was 18 Ibid. 19 See

Statutory Notice of Deficiency dated January 5, 2009, as attachment to Petition, filed April 2, 2009, Tommy K. Cryer v. Commissioner of Internal Revenue, case no. 8118-09, United States Tax Court, Washington, D.C. 20 Cryer v. Commissioner, United States Tax Court, docket no. 008118-09.

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also charged with filing false income tax returns and false substitutes for wage statements for the years 2000, 2002, 2003, 2004, 2005, and 2006 in which he reported that he had received no wages in those years even though he had, in fact, received wages in those years. He filed motions to dismiss the indictment, arguing that the U.S. government targeted him for prosecution in violation of his First Amendment right to publish his views on the Internal Revenue Code. Pete took an unusual position arguing that the theory of prosecution pursued in his case would compel him to either abandon his honest disagreement with the IRS’s interpretation of the Internal Revenue Code or face prosecution for acting in accordance with his divergent view of the code. He had written in his newsletter that this would be his silver bullet to shoot down the government. Hendrickson put forth the traditional arguments, that the indictment should have been dismissed for failure to allege each element of the charged offenses and that he was not a “person” within the meaning of the statute. The court denied all those motions.21 It took only a three-day jury trial to find him guilty on all 10 counts. Poor Pete was sentenced to 33 months in prison, followed by one year of supervised release. He was also ordered to pay a $25,000 fine, and the costs of his prosecution. The trial judge later denied Hendrickson’s motion for acquittal or a new trial. The judge rejected Hendrickson’s challenges to the instructions given to the jury on the meanings of “wages” and “employee,” the court stating that Hendrickson “was not entitled to jury instructions reflecting his own views as to the purported meanings of the terms ‘wages’ and ‘employee’ under the Internal Revenue Code” because “the courts have uniformly held that the ordinary remuneration received by privately employed workers qualifies as taxable ‘wages’ under the Internal Revenue Code.” This is a critical point. All the tax rebel teachers I knew took this position; they still do, despite court rulings. We followers had no access to the rulings, no knowledge of the bogus claims. Hendrickson filed a motion to be allowed to remain free on bail pending his appeal, but the motion was denied by the district court. He then filed both an appeal of the denial of his motion and a separate motion for release with the 6th Circuit Court of Appeals, but both were 21 Cryer

v. Commissioner, United States Tax Court, docket no. 008118-09.

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denied. Nos. 10-1819 and 10-1726 (6th Cir. 6/28/2010). On June 29, 2010, Hendrickson began serving his current sentence at the Federal Correctional Institution at Milan, Michigan. Poor Pete, I received his e-mailings for several years and think I understand what his basic position was, and it was really nothing new. But I have to give him credit. Prison doesn’t seem to dissuade the leaders of the tax movement.

r r r Many are called, and not a few are chosen by the IRS, to paraphrase Matthew 22:14. To be one of them, you listened to people willing to show you how to legally avoid taxes. They have all kinds of arguments for you to use against the IRS, ranging from citizenship, types of earned income, where you earned the income, where you were born, what your relationship with the federal government is, and so on. The leaders of the tax resistance movement like to pick out obscure passages in the Tax Code. They enjoy getting lost in its maze, its minutiae. They take the things they find out of context. Even now, when I look back at the things I claimed about my citizenship, and the other reasons why I was not subject to taxation, my head spins. I can’t believe that I believed those things. But that’s what happens when you follow leaders. They make it look so easy, so clear, so crystal clear what you are doing is right. Unfortunately, they are wrong. If you follow them, you end up exactly where I ended up—in court. Every now and then, the tax protest community will see an apparent court victory. They are few and far between. They are temporary victories. In reality, most are not victories. The IRS and the Justice Department see to it that these cases are retried and that the defendant loses. The classic case is the Cheek case. Mr. Cheek ended up back in prison on other tax charges. Consider that 99.9 percent lose. And when they lose, the cost is extremely high and there is often a jail sentence that can be 5 to 10 years. Is that a risk you’re willing to take? In hindsight, it is a risk I took. I could have been convicted and gone to prison for probably three to five years. At the time I did what I did, I had actually no concept of the risk I was taking. I simply

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didn’t believe there was any risk to what I was doing. That’s a problem when you believe something. Knowing you are wrong when you think you are right is a difficult mental about-face. The people that drank the Kool-Aid in Jonestown all had a belief, and it killed them. Beliefs are a real problem. If you believe something, you tend to do it. You follow it to its completion. So you need to check the premise of the belief. Is the belief valid? Will the belief get you in trouble? Expose you to risk? Lots of us have very strange beliefs. Some people believe the world is flat. Some people believe the astronauts never went to the moon, that it was filmed at a motel in Bakersfield, California. I don’t believe people should go to prison for believing that the Internal Revenue Code is wrong, even when they are in the wrong. This doesn’t excuse the people who have preached tax avoidance to the congregation and led them astray. It must be extremely difficult for the Department of Justice and the IRS to separate the honest, true believers from those who merely want to evade taxes. I suppose that’s why they want to go to trial. However, there must be a more humane way of dealing with people who have been misled. One of my hopes in writing this book is that government officials will look a little deeper at the mind-set of people they choose to prosecute. And that people who have such beliefs will reexamine them, as I have mine. Prosecute the promoters that advocate illegal tax evasion, but don’t toss their clients into the clink.

r r r So who can you trust? In the wonderful world of tax advice: no one. Good solid American citizens have turned to professionals to help them legally minimize and correctly file their taxes. Most are not tax protestors, just regular working people trying to get through life. Yet, some of these so-called professionals gave them wrong advice. Their clients then go on to expose themselves to potential criminal charges, court costs, fines, and prison because of this wrong advice. Most often tax advice is given by professional certified public accountants. Can they be trusted? The following news release from the

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Justice Department suggests a great deal of caution when dealing with CPA’s: Three Accountants Sentenced to Prison in $20 Million Offshore Tax Fraud Conspiracy SALT LAKE CITY – Certified Public Accountant (CPA) Stephen F. Petersen of Coalville, Utah; accountant Brent Metcalf of Cottonwood, Utah; and CPA Reed H. Barker of Littleton, Colo., have been sentenced to prison for their roles in a tax fraud conspiracy, the Justice Department and Internal Revenue Service (IRS) announced. On Sept. 3, 2008, U.S. District Judge Tena Campbell sentenced Petersen to 35 months in prison and 36 months of supervised release, and Metcalf to 24 months in prison and 36 months of supervised release. The court also ordered that Petersen forfeit $1,166,884.46 and entered a money judgment in that amount. On Sept. 4, 2008, Chief Judge Campbell sentenced Barker to 18 months in prison and 36 months of supervised release. Chief Judge Campbell also ordered Barker to pay restitution in the amount of $167,608. In November 2005, Barker, Metcalf and Petersen, along with attorney Dennis B. Evanson, of Sandy, Utah, were indicted by a federal grand jury in Salt Lake City for promoting a tax fraud scheme that cost the federal treasury more than $20 million. The fraud scheme took multiple forms, including the use of false documentation for fictitious currency transaction losses, false insurance expense deductions and bogus capital losses, all for the purpose of fraudulently offsetting taxable income for clients. The scheme utilized, among other things, offshore companies, offshore bank accounts in the Cayman Islands and Nevis, the services of offshore nominees and opinion letters that purported to give legal authority to the fraudulent transactions. Barker, Metcalf and Petersen pleaded guilty for their roles in the scheme in January 2008. Each admitted that, from 1996 until April 2005, he conspired with Evanson and others to conceal portions of customers’ income from the IRS and to create false deductions for the purpose of reducing the income tax paid by customers. The defendants admitted that they knew that the deductions on the tax returns were false and fraudulent. Petersen also admitted that as part of the scheme, he and Evanson were paid a fee that was typically equal to 30 percent of the tax evaded by their customers as a result of false deductions created by Evanson and Petersen. Petersen admitted that he was individually paid

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$1,166,885.46 of the total fees collected by Evanson from customers he referred to participate in the scheme. Also as part of his plea, Petersen admitted to causing a false tax return to be filed with the IRS on behalf of one of his customers.22

If you can’t trust your friendly local CPA, how about your lawyer? This book describes the difficulties I had following legal advice, but I’m far from the only one. Here’s another news release from the Justice Department on the conviction of a lawyer, who unfortunately got his clients to take incorrect action regarding their taxes. Phoenix Attorney and Two Accountants Plead Guilty to Participation in Fraudulent Offshore Tax Shelter Scheme Attorney Steven W. Allen pleaded guilty in federal court in Arizona to taking part in a conspiracy to defraud the Internal Revenue Service (IRS) by promoting a fraudulent offshore trust scheme to hide his clients’ income, the Justice Department and IRS announced today. Allen P. Goodmansen, a certified public accountant, pleaded guilty to participating in the same conspiracy. Charles D. Kober, an accountant, pleaded guilty to aiding and assisting in the preparation of a false tax return for a client who used the trust scheme.23

Okay, we can’t trust certain tax lawyers. We can’t trust CPAs. Certainly we can trust former IRS agents, right? Wrong. In 2010, the Justice Department released the following news announcement concerning one of their former employees. FORMER IRS TAX SPECIALIST PLEADS GUILTY TO FAILING TO FILE INDIVIDUAL FEDERAL INCOME TAX RETURNS Owes $789,629 for Six Tax Years of Unpaid Taxes Baltimore, Maryland—John Venuti, age 62, of Harwood, Maryland, pleaded guilty today to three counts of failing to file a federal income tax return. The guilty plea was announced by U.S. Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge 22 U.S.

Department of Justice, “Three Accountants Sentenced to Prison in $20 Million Offshore Tax Fraud Conspiracy,” September 5, 2008, http://www.justice.gov/opa/pr/2008/September/ 08-tax-781.html. 23 U.S. Department of Justice, “Phoenix Attorney and Two Accountants Plead Guilty to Participation in Fraudulent Offshore Tax Shelter Scheme,” June 30, 2010, http://www.justice.gov/ opa/pr/2010/June/10-tax-763.html.

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122 C O N F E S S I O N S O F A R A D I C A L T A X P RO T E S T O R Rebecca Sparkman, Internal Revenue Service-Criminal Investigation, Washington D.C. Field Office. “Fulfilling individual tax obligations is a legal requirement and those who willfully evade that responsibility will be prosecuted,” stated Special Agent in Charge Rebecca Sparkman, Internal Revenue Service—Criminal Investigation. “The IRS-Criminal Investigation, together with the Department of Justice, will investigate and prosecute those who violate our tax system.” According to Venuti’s plea agreement, from 2002 until January 2010, Venuti was a tax consultant and principal at the accounting firm of KPMG, LLP. Venuti formerly worked for the IRS from 1974 to 1983, including a period of three years during which he served as a Division Chief of the Tax Treaty and Technical Services Division. For the tax years 2001 to 2006, Venuti’s total gross income was $3,625,133. Although Venuti timely filed and was granted six month extensions to file his federal tax return for each of these years, and made payments along with his extension requests totaling $97,060, Venuti did not file the tax returns. Accordingly, he owed $789,629 in back taxes.24

The most infamous of them all would be Jesse Cota, who is the former head of the Laguna Niguel IRIS district office. He was a big cheese, an extremely important director. Upon retirement, Jesse gave personal tax advice, developing a large following of people who followed his techniques of minimizing one’s tax payments. Unfortunately, the advice he gave was flat-out wrong. Here’s the news release on Jesse. Former IRS Official Sentenced for Tax Fraud as a Leader of Renaissance ‘Tax Dream Team’ TOPEKA, KAN. – Jesse Ayala Cota, 68, Vista, Calif., a former Internal Revenue Service District Director, has been sentenced to 24 months in federal prison, U.S. Attorney Lanny Welch said today. Cota pleaded guilty in April 2007 to one count of conspiracy to defraud the Internal Revenue Service. In his plea, he admitted advising taxpayers how to defraud the U.S. government using methods devised by a Topeka-based company called Renaissance, the Tax People, Inc. 24 U.S.

Department of Justice, “Former IRS Tax Specialist Pleads Guilty to Failing to File Individual Federal Income Tax Returns,” July 20, 2010, http://www.justice.gov/usao/md/Public-Affairs/ press_releases/press08/FormerIRSTaxSpecialistPleadsGuiltytoFailingtoFileIndividualFederalIncome TaxReturns.html.

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During 33 years as an employee of the Internal Revenue Service, Cota worked as a revenue agent, audit training coordinator, large case examination manager, assistant service center director, assistant district director and district director. After retiring, he went to work in July 1999 for Renaissance, a company that sold tax services. Through the filing of false tax returns by Renaissance members, Cota defrauded the U.S. government of more than $1.3 million and earned more than $300,000 while working for Renaissance. Owners of home-based businesses who paid to become members of Renaissance received services including tax preparation, tax advice and so-called “audit protection.” The so-called “Tax Advantage System” offered by Renaissance was based on fraudulent claims that business owners could legally reduce the taxes they paid by converting personal expenses to business deductions. Cota and other defendants falsely assured Renaissance clients the tax reduction methods were legal. In fact, tax returns filed using Renaissance’s methods were based on providing false and fraudulent information to the IRS.25

25 Internal

Revenue Service, “Former IRS Official Sentenced for Tax Fraud as a Leader of Renaissance ‘Tax Dream Team,’ ” Examples of General Tax Fraud Investigations—Fiscal Year 2009, http://www.irs.gov/compliance/enforcement/article/0,,id=187277,00.html.

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CHAPTER 7

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Taking the Plunge . . . over a Campfire Leaders are visionaries with a poorly developed sense of fear and no concept of the odds against them. —Howard Jarvis

he leaders of the tax resistance movement often behave like couples in a bad marriage constantly arguing over who is right, who created such and such an idea first, and so on. However, they do share a vision of a changed tax system. They have Howard Jarvis’s sense of fear. Above all, they are either bold-faced liars or have deluded themselves about what the tax laws really say. Over and over, leaders of the tax resistance movement say that, in one form or another, the Internal Revenue Code does not apply to you or the income you earn. They present a way out of the complexity of the code, a way out they have discovered, and if you follow them, which usually means paying them money, they will solve all your problems. While most members of the tax resistance community are brought into it by some charismatic figure, I was brought in by a close personal friend of mine, a Hastings law school graduate, W. James Knowles. It is an interesting story that began in 1986.

T

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I first met Jim around a campfire in the Caballo Mountains of New Mexico. Late one night, we were discussing politics and, of course, taxes. When I found out that he was a lawyer and probably a fellow intrepid—we were there on a gold prospecting adventure—I steered the conversation to something I had heard about: tax protest. Jim said, “Larry, those ideas are all wrong. You only get into trouble if you do those things.” Jim was a middle-of-the-road guy. In addition to being a lawyer active in his community back in Utah, he was a Mormon bishop, active in his church. I told Jim that my buddy, Garrick Hanson, had essentially won his case. I had also read about a guy named Chuck Reitz who also won an outright victory. I asked Jim if he would at least look at some of the literature I had. I was more than willing to pay him to investigate, to find out if what I had been discussing was really true. Jim told me it would be a waste of my money. But he agreed to look into it. Six weeks later, Jim called me and said he wanted to come see me in San Diego He wanted to spend some serious time with me. He said that he had found out some things about the “tax stuff ” we had discussed in the mountatins. I will never forget what Jim told me at that meeting. He explained that “everything” he had learned in law school about the IRS and the Internal Revenue Code was wrong. “Larry,” he said, “I have spent the last six weeks researching all of this and am truly amazed at what I discovered. The Internal Revenue Code is not what I thought it was.” “You mean these guys are right,” I replied, meaning the tax resistance literature I had given him. “There’s a way I can legally reduce my taxes?” Jim wasn’t certain on that point. He said he needed to do more research. But he felt valid arguments existed to minimize or reduce taxes a great deal. I asked him if he wanted more money for the additional research. He assured me he did not want more. He would do the research on his own. Once it was done, he would get back to me again and discuss what steps, if any, I might want to take. In the meantime, he asked if I were to be going to New York City on any business trips. I told him I had a trip scheduled. He asked if I could go to one of the law libraries in New York City and find a particular case called “Brushaber.”

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The Brushaber case, Jim believed, was incredibly important. It established what was taxable income and what was not. Unfortunately, while in the Big Apple, I could not locate this case. I went from one law library to another. I even visited some of the courts. No copy of the decision could be found. I called Jim to let him know. But he told me to keep trying. Brushaber was such an important case. It had been widely used by the tax resistance community. If they had correctly cited the case, he could find a way to substantially reduce my taxes. He wanted to see this case himself to prove what the tax resistance people were citing in it and the claims they were making He wanted due diligence. So I diligently pursued the Brushaber decision—all the way to a court annex facility in New Jersey. There I found what Jim wanted; not just any copy of the case, but a certified copy of the original Supreme Court decision from 1916, Brushaber vs. Union Pacific Railroad. This was in 1988 or so, long before computers allowed access to cases and our finding the original case opened a Pandora’s box. Frank Brushaber filed his lawsuit not because he was being taxed, but because, as a shareholder in a corporation, he saw the income tax as a burden on the corporation. It put the corporation in the position of being, essentially, a collector and banker for the U.S. government. His lawsuit was the first to challenge the federal income tax that had been levied after the passage of the Sixteenth Amendment. The Supreme Court assessed whether the tested legislation imposed a direct or indirect income tax and ruled: We are of opinion, however, that the confusion is not inherent, but rather arises from the conclusion that the 16th Amendment provides for a hitherto unknown power of taxation; that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes. And the far-reaching effect of this erroneous assumption will be made clear . . .1

Here the Supreme Court denied Brushaber’s assertion that the Sixteenth Amendment was invalid because of the constitutional apportionment requirement that had invalidated the federal government’s 1 Brushaber

v. Union Pacific R.R., 240 U.S. 1, 11 (1916).

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previous attempts to levy an income tax throughout the nineteenth century. The justices went on to make their promised clarification on Brushaber’s “erroneous assumption” about the Sixteenth Amendment. The justices pointed to Article I, Section 8, Clause 1, of the original Constitution as the legal basis for Congress to levy an income tax. They understood that to allow this legal challenge to a direct tax could trigger a constitutional crisis. If Brushaber’s “propositions” were “acceded to,” it would cause one provision of the Constitution to destroy another; that is, they would result in bringing the provisions of the Amendment exempting a direct tax from apportionment into irreconcilable conflict with the general requirement that all direct taxes be apportioned . . . This result . . . would create radical and destructive changes in our constitutional system and multiply confusion (my italics).2

The Brushaber decision was the Supreme Courts attempt to fix the perception of the Sixteenth Amendment, declaring the Revenue Act of 1913 to be an “indirect tax,” that is, a legal excise tax. This new insight into taxation changed Jim’s life. He went from being a trial attorney to a serious student of the Internal Revenue Code and ultimately contributed a book to the literature of the tax resistance movement. Jim documented over 275 individual case citations. He did his research. It took him eight months to write his book, How to Get the IRS Off Your Back, in which he showed citizens how they could regain their sovereign rights. We can see here what Jim took from reading the Brushaber decision: The original tax structure of the country was such that there was no plan or need for any income tax. During the Civil War there was a place and income tax imposition upon the rebelling states. Again, close to the turn-of-the-century, there was an attempt to attack certain forms of income. This was an attempt to tax the wealthy and was held to be unconstitutional, insofar as income tax was exacted from rents upon the use of property, our Supreme Court felt that it was tantamount to a tax on the ownership of property practices, (which was the direct tax forbidden by the Constitution, unless it would be 2 Ibid.

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apportioned among the states. That decision was not overturned until the adoption of amendment 16. Cases that are cited after amendment 16 explained that taxation of income is always lawful. It is merely a form of excise tax (an indirect tax). Amendment 16 merely corrected the earlier “improper” ruling of the Supreme Court . . . under these views. . . .3

To Jim, challenging the proper ratification of Sixteenth Amendment was “dealing with an irrelevant issue,” it was the wrong course to take by the tax resistance community. He continued: However, the taxing power of the national government over incomes is one of the enumerated powers; it comes exclusively from the original Constitution.4 That power is expressly given to provide for the general welfare, not for the redistribution of wealth, not for social welfare. Although the language of the amendment 16 permits taxation of incomes, it creates no new taxing power whatsoever, nor does it repeal any prior tax authority in the Constitution (the Constitution cannot be in conflict with itself). The amendment merely served to clarify what was already the law. Thus, it hardly matters whether or not, the amendment was ratified. So, we have yet to discover how the IRS manages to tax a sovereign citizen and get away with it.”5

Jim cited congressional record testimony from 1943: The income tax, is therefore, not a tax on incomes as such. It is an excise tax with respect to certain activities and privileges, which is measured by reference to the income which they produce. The income is not the subject of the tax; it is the basis for determining the amount of the tax.6

This was relevant because: [T]he Internal Revenue Service code does not define income. It refers to gross income, but that usage is not for purpose of definition. Income, itself, is never defined in the revenue code. For a definition of income, it is essential to look to the United States Supreme Court. It has already 3 Jim

Knowles, How to Get the IRS Off Your Back (Salt Lake City: Revelation Publishing Company, 1995, 52). 4 Here he cited Penn. Mutual Indem. Co v. C.I.R., 32 TC 659. 5 Knowles, 52. 6 Ibid., 54.

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This took Jim to the next step, where he cited case law that said, “It has been recognized that the capitalist is able to deduct his own labor as a cost, before facing a tax on any capital gain.”8 Finally, came the clincher: Cases establish that there really is no income tax at all unless the activity engaged in is privileged, not conducted as a matter of a right. Any activity which can be engaged in as a constitutionally recognized right cannot be revenue taxable” (my italics).9

On this compelling point he cited the case of Murdock v. Pennsylvania, followed by yet another clincher, Redfield v. Fisher, which stated in its decision: The right to live and own property are natural rights for the enjoyment of which an excise tax cannot be imposed.

Jim used this point to show that when the Tax Code refers to taxable income, it means the gain produced by a revenue taxable activity. It has been held that an activity is presumed to be untaxable if it is not specified in the Tax Code. Neither compensation for services nor wages are deemed taxable activities in the Internal Revenue Code. Compensation for services and wages arise from the activity of working for a living, which is a fundamental right. An inherent flaw in the imposition of the income tax is that it ignores that you have an unalienable right to work. Work is not a privileged activity because it is a fundamental right. One of the cases Jim found, Oliver v. Halstead, he said acknowledged that compensation for labor cannot be regarded as profit, thus it cannot be taxed as revenue.10 Well, that is the essence of Jim’s program and thinking. There were other twists and turns to it. While some court decisions went against his view, he felt those issues were based on arguments that did not correctly 7 Ibid, 8 Ibid,

55. 57.

9 Ibid. 10 Oliver

v. Halstead, 86 S.E. Rep 2nd 85e9 (1955).

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address, or correctly present, the arguments to the court. Thus, the court would “rule around” these arguments. I read Jim’s book several times. While I didn’t understand all of it—after all, I’m not a lawyer—Jim’s points seemed to me correct: that the law was on Jim’s side, while the Tax Code was on the side of blindly collecting taxes irrespective of the law. The solution Jim offered appealed to me, the way it actually applied to me: Some folks just want to lower their profile and to minimize the amount of tax for which they appear to be liable. Others want to fight the IRS, but without an open declaration of war. It is for this purpose the procedural defenses are described. These procedural defenses can leave the government empty-handed, if properly presented. For those of you who are bent upon principle, refuse to join the colony of modern American slaves, reclassification is your best process. There is no guarantee that any court or federal agency will honor your status. They are carefully schooled on how to ignore your claims, how to deny your rights. However, many citizens have eluded improper collection by this means. It certainly established a legal basis of your position, and it avoids a stigma of criminality in your conduct. You are invited to enter at whatever level you find comparable.11

The most telling part of Jim’s argument was that the collection procedures of the IRS were improper and violated your personal constitutional rights. My response was to say, “Then damn the torpedoes, full steam ahead, let’s take on the IRS.” No one can be a better knee jerk reactionary than me! I was not one who wanted to just lower my profile to minimize my taxes. If I’m in a fight, I’m in it all the way. I had Jim on my side. He told me what to do. He was a well-trained lawyer. He had done the research. Whatever Jim said I should do, I did. I went through the reclassification process and ensured my sovereign rights. That meant filing papers with the State of California to say I was a sovereign resident and citizen of the State of California. I was not a citizen of the United States. I was a U.S. citizen, but sovereign to California.

r r r 11 Knowles,

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Jim had another point that, while hard to follow, made sense to me at the time, but at my trial it proved disastrous. This had to do with Internal Revenue Code, the Thirteenth Amendment (1865), and the Fourteenth Amendment (1868) and how they could be used to interpret citizenship and whether a citizen was legally obligated to pay the U.S. government an income tax. The Thirteenth Amendment—surely you recall this—outlawed slavery and involuntary servitude, that is, the old Colonial practice of indentured bonded servants, who were forced to work for seven years for a sponsor who paid for their passage to America as well as other debts. Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States or any place subject to their jurisdiction. Congress shall have the power to enforce this article by appropriate legislation.

The Thirteenth Amendment, however, did not grant citizenship. Even after the Thirteenth Amendment made them “free” they remained subjects. They were ineligible for citizenship as the law was then interpreted.12 The Fourteenth Amendment, however, was passed during the Reconstruction period to make the newly freed slaves citizens of the United States—and to ensure that the former Confederate states, or any other state, did not deprive them of the rights granted by the U.S. Constitution and the Bill of Rights: All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

As Jim saw it, the language of the Fourteenth Amendment didn’t apply to a “sovereign citizen.” Not one single white person, he felt, owed his citizenship to this amendment. Nor did it give white people a new unalienable right. A condition for receiving citizenship under the 12 See

Van Valkenburg v. Brown, 43 Cal.

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amendment was first being subject to the jurisdiction of the United States. Thus, it created a new concept of residence—the subject (slave) who had been a nonresident alien now became a resident alien. In short, this was a man-made or crafted form of citizenship that owed allegiance to the creator of the amendment—the Federal government. Jim noted that obviously, the black man has been seriously defrauded by the entire process. Whatever might have been the motivations of men in the 1860s, in the 1990s no reasonable person would desire the kind of differentiation, which are perpetuated under the Civil War amendments. Such bigots were afraid to allow blacks full rights, and hence the language of the 14th amendment. America had an opportunity to validate the Declaration of Independence for all men. Instead the government views the 14th amendment to create a new type of citizenship.13

Let me try to boil this down to its essential points. Jim’s view was that a federal citizenship had been created and this only applied to African Americans. The best proof begins with these questions: Why would we need an amendment to create citizenship? Isn’t that something we all would have naturally? Thus, Jim took the position that your citizenship was to your state and, if so, then your tax obligation would be to your state. The government, accordingly, can only tax Washington, DC, military posts, government possessions, territories, and other entities under the federal government. (I will expand this topic later.) A Fourteenth Amendment “citizen,” that is, an African American, would owe taxes via his or her allegiance to the federal government. A white person who claimed state sovereignty would not. To Jim’s line of reasoning, it was important to understand what was under the jurisdiction of the federal government. He pointed to the definition of the “United States” found in Black’s Law Dictionary. The term “United States” has several meanings. (1) It may be merely the name of a sovereign occupying the position analogous to that of other sovereigns in a family of nations, (2) it may designate territory over which the sovereignty of the United States extends, or (3) it may be the collective name of the states which are united by and under the Constitution. 13 Knowles,

40.

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Furthermore, the United States was any lands reserved or acquired, for the use of the United States, and under the exclusive or concurrent jurisdiction thereof, or any place purchased or otherwise acquired by the United States by consent of the legislature of the State in which the same shall be, for the erection of a fort, magazine, arsenal, dock-yard, or other needful building (such as Social Security, Post Office, or Federal buildings).

This meant that if you made money from direct dealings with the United States, worked for the United States, or resided on properties the United States had control or jurisdiction over (military bases, Washington, DC, territories, etc.), then and only then was your income subject to be taxed by the U.S. government. At the time it sounded like Jim had made an important discovery. It made perfect sense to me—my state citizenship gave me certain rights vis-`a-vis my federal tax obligation. So, following his advice, I claimed and filed for my state citizenship.

r r r As I write this 23 years later, it looks like a peanut-butter-and-jelly sandwich tossed into a blender with every letter of the alphabet and a jar of mustard for color and then whisked at a high speed. Some of it makes no sense to me now. Some of it makes a lot of sense to me now—that Jim was factually incorrect. But back then I was enamored with Jim and his ideas. He often stayed at our house, had dinner with our family, and frequently used my office to see his clients when he was visiting Southern California. It is easy now to see that I fell prey to his ideas. But when you are in the midst of such things, you simply don’t realize what is happening. I wasn’t concerned. Jim was handling all of my legal stuff and doing an excellent job in other areas—contracts, government regulations, and such. Jim had the legal answers that allowed me to get on with work. What Jim said sounded right. He was prophetic in his warning that the national debt was out of control at $4 trillion in 1996. Fourteen years later, the national debt has more than tripled to $13 trillion, while GDP growth has not come close

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to keeping up with it. Surely there will be a day of accounting for this addiction to debt. Then there is the question of interest on that debt. Assume that it’s 5 percent. That means we pay $680 million a year to lenders—largely because of the overspending of the U.S. Congress. To pay the service on this debt, Congress needs to go to the taxpayers and ding them for that $680 million. Now there’s a tax savings for you! Then one Monday in 1996, Jim’s wife Mary called to tell me Jim died over the weekend. It was a shock. Not only was this the sudden, unexpected loss of a friend. I had also lost my tax warrior. Who would carry forth the battle? He was the general, I was a soldier. I didn’t understand the law. I didn’t know all of the issues as well as he did. Whenever the IRS wrote a letter, Jim always prepared the response, stating the law, stating our positions, citing cases, and so on. The man I was relying on was suddenly no longer by my side. I stood naked before the IRS. To this day, I still have fond memories of my friendship with Jim, his interesting ideas and approach to life. I can’t fault the man. He believed in what he was doing. I believed what Jim preached because he believed in himself. Jim never charged me much money for what he did. He didn’t charge much to anyone. He just had a great passion for his work. He thought he was on the correct path. He thought he could make a difference, that we could get this tax system turned around. If enough people took action, the kind of action we were taking, the government would respond with a more fair and just system. That was one of our major goals. But it didn’t work out that way. It turned out to be almost a quarter century of my life mostly tilting at windmills. As it turned out, Jim was wrong about what he espoused. Much of his research I now know was flawed. I now know none of Jim’s tax arguments will win in a court of law. None of them worked for me. None of them will work for you. My fight is the kind you don’t want to have a dog in.

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CHAPTER 8

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When a Fair Share Is Not So Fair

In general, the art of government consists in taking as much money as possible from one party of the citizens to give to the other. —Voltaire (1764)

eople who seek to minimize their tax obligations are often accused of not wanting to “pay their fair share.” This is an old canard that may seem to have the ring of truth about it, but it is far from it. It is very difficult to determine what is fair. Is it fair for a person who has not been productive and not contributed a penny to the U.S. Treasury to be supported by the government? To use government services? Use taxpayer-supported highways, libraries, universities, police protection, and the like? And is it fair for a corporation to legally dodge taxes by setting up sophisticated business structures, resulting in others having to pay more in taxes? Is it fair that the government can raise taxes at anytime and to any level? Whether it’s corporations, government, or people who pay no taxes, it is legal for them to dip into the public till. It is just not fair.

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There are two basic approaches to understanding taxes. The first is the “what you get” model, where those who use the most government services pay the most in taxes. Examples of this include tariffs, licenses, fees charged for using government services, and permits. The second approach is the “what you have” model, which ignores how much government service you consume and takes into account how much you make to determine your tax liability. The United States follows the second model. In 2010, a little over 47 percent of Americans did not pay a penny in taxes. But they received the following government services: medical care, transportation, “protection” from the Food and Drug Administration, our Armed Forces, even from the Commodity Futures Trading Commission and the Security Exchange Commission—protection. They were given free food, food stamps, free housing, and so on. Is that fair? Most of the people who do not pay taxes still have some form of income. However, Congress established an income level at which no taxes are paid. People and institutions who earn an income above that artificial level subsidize the government benefits of those making incomes below it. Captain John Smith and the Pilgrims, who lived by the motto that, “Those who will not work will not eat” would be shocked by today’s society. The American pioneers would have little in common with this crowd. Democracy is the scariest form of government for this reason. Consider what happens when 51 percent of the population don’t pay taxes. What does that mean? It means 51 percent of the people will continue voting for the same old “giveaway and spend” politicians because they control the majority, forcing the other 49 percent to subsidize whatever lifestyle they can get passed through Congress. This number is not outlandish. In the July 2009 issue of Fiscal Facts, published by the Tax Foundation, I see that 40 percent of the people didn’t pay taxes. In 1980, it was 30 percent. That hypothetical 51 percent doesn’t seem far away. This Tax Foundation study shows, too, that 60 percent of the population is getting more government benefits than what they pay in taxes. In other words, over half the population will be living off the labor of the other half of the population. The “fair share” argument disguises a different motive for our system of taxation: redistribution of wealth. It has attracted far too many

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prominent political figures. President Obama appointed Donald Berwick to be his administrator for Medicare and Medicaid services. What is his philosophy? He tells us in his own words: Any health-care funding plan that is just, equitable civilized and humane, must redistribute wealth from the richer among us to the poor and the less fortunate. Excellent health care is by definition redistributional.1

This should come as no surprise. In the same speech, Berwick is on record as being opposed to the free-market system. Obviously, he drank too deeply from the cup of Karl Marx and has yet to wake up from his hangover to notice that the People’s Republic of China and Russia have embraced the free-market system. He probably hasn’t heard that Castro has admitted that his economic measures were a failure in Cuba. Neither China nor Russia have a progressive tax system. Nor do they have an enforced policy of the redistribution of wealth. China is about the creation of wealth. So is Russia. What this all leads to is exactly what George Bernard Shaw spoke of when he wrote, “A government that robs Peter to pay Paul, can always depend on the support of Paul.”2 We have now reached the point where Paul is in the driver’s seat. Limousine liberals scream about helping the poor, and that point is well taken, but isn’t it only fair that they contribute something, even if it’s a small portion of their earnings? If you think free lunches are fair, then you must love the current system. And many people who do like the current system will stay just under the cutoff so that they do not have to pay taxes. Aren’t they just as much a tax cheat as someone on the upper end who cheats on his or her taxes? They are both playing the same fiddle, just a slightly different version of the same tune. What happens now is government looks at how much money it spends, then figures out how much money it has to take from the populace to support that budget. That is backwards. We need to determine what is a fair share for people to give up from their incomes and then spend 1 “Donald

Berwick on Redistributing Wealth” (a speech to UK politicians in 2008). On YouTube, you can hear Berwick himself at http://www.youtube.com/watch?v=r2Kevz_9lsw&feature=player_ embedded#!. 2 George Bernard Shaw, Everybody’s Political What’s What (Constable and Company, London: 1944).

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only up to that fair share and no more. Then we would have a fair tax system instead of a fat tax system. It is not a question of how much government can spend, it is a question of how much of our earnings it is entitled to. Everyone in government knows how to spend—and spend and spend some more. Then they have to raise taxes again and again to pay for the spending spree. Regardless of the tax brackets, Congress and the President overspend and then raise taxes to offset their abrogation of responsibility. This has become a vicious cycle: Spend, then raise taxes to that level, occasionally tossing out a bone of a temporary tax cut like seen at the end of 2010—but no real change takes place.

r r r For those who argue that the rich should pay more, IRS data clearly debunks the conventional Beltway rhetoric that the “rich” are not paying their fair share of taxes. In 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of their total income in federal income taxes. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the Tax Reform Act of 1986.3 Remarkably, the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden this bracket paid 20 years ago. To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they presently pay a larger share of the income tax burden than the bottom 134 million taxpayers. It is not a pretty picture, as Exhibit 8.1 shows. Some in Washington say the tax system is still not progressive enough. However, recent IRS data bolster the findings of the Organisation for Economic Co-operation and Development (OECD) study released last year showing that the United States—not France or Sweden—has the 3 Scott

Hodge, “Tax Burden of Top 1% Now Exceeds That of Bottom 95%,” Tax Foundation Tax Policy Blog, http://www.taxfoundation.org/blog/show/24944.html.

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Share of Total Income Taxes Paid 60%

55%

50%

Bottom 95% of Taxpayers

45%

40%

35% Top 1% of Taxpayers 30%

25%

20% 1987

Exhibit 8.1 95 Percent

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Tax Burden of the Top 1 Percent of Taxpayers versus the Bottom

Source: The Tax Foundation.

most progressive income tax system among OECD nations.”4 We rely more heavily on the top 10 percent of taxpayers than does any nation, and our poor people have the lowest tax burden of those in any nation. The reality is millionaires earn almost 100 times more money than people in the $30,000 tax bracket. Obviously then, people in these lower tax brackets think the millionaires should pay more money than themselves. And they do pay more, in fact, while they earn 100 times more money than the lower tax bracket groups. Millionaires pay about 300 times more in taxes than someone in the lower brackets. In other 4 Organisation

for Economic Co-operation and Development, Growing Unequal? Income Distribution and Poverty in OECD Countries,” (Paris: 2008), 112.

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words, they paid three times more in taxes, as a proportion of their income, than someone in a lower tax bracket.5

r r r How much is government worth? It depends on how many services they provide. I suspect the average American would not have a problem paying 10 percent of his or her income to the federal government for what government should provide. It would be easy to determine what the total annual personal income is, then take 10 percent of that and there you have it—the budget. It is unfair for the government to continue reaching into our pockets, thinking we have an unlimited supply of money for it to spend on some bizarre and crazy programs and ideas promoted by equally bizarre and arcane special interest groups. Big Labor, Big Corporations, Big Donors, Big Special Interest encourage an out-of-control Congress. Stop spending is the message here. There is a fair percentage of our incomes for government to tax for it to function. A penny beyond that is an unfair tax. Unfortunately, politicians, whether they are Republican or Democrat, don’t see it that way. They are addicted to debt and they are addicted to higher taxes and refuse to lower spending, which would in turn lower their take of our earnings. They see your earnings and possessions as an unlimited ATM card they can tap at will by just passing a law. Here’s how bad this has become. Speaking at the National Governors Convention in July 2010, Erskine Bowles, the head of the National Debt Commission appointed by President Obama, said, “This debt is like cancer. It is truly going to destroy the country from within.” Even the New York Times is projecting 2011 debt at over $14 trillion. The debt may not be bad, but that interest will kill you!

r r r 5 “Myth:

The Rich Don’t Pay Their Fair Share,” Constitutional Conservatism: A Return to Sanity, http://constitutionalconservative.wordpress.com/myth-the-rich-dont-pay-their-fair-share/.

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During his presidential campaign, Jack Kemp said to me, “All you have to know to understand economics is to substitute the word ‘incentives’ for ‘economics.’ Then you will understand how economics works.” This is in keeping with what economics professor Steven Landsburg said even better, “Most of economics can be summarized in four words: “People respond to incentives. The rest is commentary.”6 Economics is incentives. If you increase incentives, you’ll get more of whatever it is you reward. Decrease incentives and you will have less of that particular activity. Let’s put that into practice. If you want to increase jobs, it’s real simple. You don’t have to send out government money. You just need to give incentives to businesses to hire people and to expand their businesses. The incentives are new markets, less regulation, and more opportunity for larger profits. When businesses are currently paying a disproportionate percent of their revenues in taxes and regulations, it’s no wonder they cannot expand. It’s not that they don’t want to expand. They can’t. Any expansion does not give them back much return. Businesses are in a quagmire. They stay where they are and, of course, there is no job growth as a result. Unions do not create jobs. Poor people do not create jobs. Jobs come from capital and from people inspired by dreams in a climate that fosters growth. Our progressive tax system is far from fair. It is punitive in nature. As such, the system itself is one of the key elements of our economic downturn. The good news is that the system’s inherently wrong-headed thinking has brought change that most do not yet understand. The change is what has become known as the Tea Party. This is no small or fleeting movement. The Tea Party movement appears to be the beginning of the end of our unfair system of taxation. Flying the Gadsden Flag with the coiled snake and the words “Don’t Tread on Me,” the movement has staked its claim. Members of the Tea Party movement don’t want anything. They are not asking for more bridges or wars, more roads or jobs. They don’t want to be imposed on by individuals and government. They want freedom. What a concept!

6 Steven

Landsburg, Armchair Economist: Economics & Everyday Life, (New York: The Free Press, 1993).

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Why do I think this is a real-deal political movement? People are creating coalitions. They are organizing their troops. They are out to elect their people to office and run things. Many Republican officeholders and party officials have been horrible at grass roots organizing. While their base would rather make money than protest signs, it is in the forefront of the Tea Party movement. These people are operating a political war zone where Democrats, thanks to the unions, have normally carried the day. Both parties stand in fear of losing their powers to this rag-tag group of private citizens whose agenda is simple: less government. At last, freedom lovers are united. The New York Times, as well as traditional conservative writers, dismiss this new force as some spinoff of Glenn Beck and Rush Limbaugh (who are cheerleaders at best). The movement has proven itself with one political win after another, giving “entrenched” Republicans a whipping and a thrashing in elections. Both parties seem to forget that the constitution begins by saying, “We the People.” What they usually read is “We the political parties.” This is not flash in the pan or cerebral libertarian movement. The Tea Party has come together in a focused mission to throw the bums out and overhaul the system. It is not a true liberal versus conservative argument, it is this mass recognition that government solutions don’t work. Thus solutions must come from another source. The crux of the problem—the reason we have tax protestors—is not that people want to cheat the system, but that they want a fair system. Fix the system and there will be nothing to protest or rebel against.

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CHAPTER 9

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The Perfect Tax Solution The Pure Trust

You don’t pay taxes—they take taxes. —Chris Rock

e have all read stories about how wealthy people place their assets in trusts. These trusts protect their assets and prevent the IRS from reaching into their bank accounts. I heard—and believed—that the rich better arranged their affairs to avoid the nips and tucks of the tax man. I read everything I could find about how the rich did it and did it legally. One of them was Roy Cohn, a prosecutor in the espionage trial of Julius and Ethel Rosenberg and Joseph McCarthy’s assistant, whom the senator chose over Bobby Kennedy. I recall seeing Cohn on 60 Minutes saying, “It’s not ownership of an asset that counts, it’s the ability to use the asset.” Cohn often bragged that he had been pursued for 20 years by

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the IRS and had no bank account and owned little property. The IRS was unable to collect the reported $7 million he owed in back taxes.1 Robert Kennedy’s father, Joseph Kennedy established the Merchandise Mart, the Chicago-based real estate conglomerate, in 1935. In 1974, the elder Kennedy divided Merchandise Mart’s ownership among numerous family members—including his surviving son, Senator Ted Kennedy, in a trust domiciled on the Pacific island of Fiji. Because the trust was based in Fiji, it was not subject to the taxes normally imposed on trusts domiciled in the United States. In 2005, the tax rate on U.S.-based trusts was 49 percent on everything above the first $2 million. But as of 2005, the Kennedys, who had transferred at least $300 million in trust funds from one generation to another, had paid a mere $132,000 in estate taxes—a rate of .044 percent. Had they set up those trusts in the United States, they would have owed more than 7,000 times that amount in taxes. Ted Kennedy also received additional money—free of inheritance taxes—from a series of trusts that were established for him in 1926, 1936, 1978, 1987, and 1997.2 I am not faulting the senator. I see him as a kindred spirit regarding taxes. One of the advantages of wealth is the ability to purchase lawyers to protect yourself from the government. That’s what I wanted to do. I was a long way from being called wealthy. But I sure wanted to keep more of my money, just like Cohn, just like the Kennedys, just like everyone. Trusts—I kept hearing about trusts as the way to do this. You can trust in a trust. It sounded good to me. I set out to find out all I could about them.

r r r Trusts take many forms. A CPA, Greg Karl, introduced me to one that I had never heard of before, a “pure trust.” Greg, a graduate from the University of Michigan, had worked for PriceWaterhouse, one of the 1 “Roy 2 Peter

Cohn, Aide to McCarthy and Fiery Lawyer, Dies at 59,” New York Times, August 3, 1986. Schweizer, Do As I Say (Not As I Do): Profiles in Liberal Hypocrisy (New York: Doubleday, 2005).

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world’s largest and most respected accounting firms. I met him while making a deposit at my Bank of America in Solana Beach, California. The branch office manager, Joyce Bertelson, called me over and said, “Larry, there is a person here you should probably meet. He is a certified public accountant and represents lots of customers at this branch.” Joyce was my contact at the bank for several years. She paid attention to her customers’ needs. She was always helpful and friendly. With that, she introduced me to Greg. He suggested stopping by my office, where we could chat in more detail about what he did. That was fine by me. I welcomed him to stop by my office, which was about half a mile away. At our first meeting, Greg explained that he helped a lot of Joyce’s customers with their taxes. “I can do accounting services,” he said, if you’re interested in that. But I also can set up your business in a certain fashion to greatly minimize your taxes.” As he said that, I was studying Greg. He appeared to be in his early fifties, slender, a man who obviously took care of himself. His sharp features, light complexion, and blond hair did not suggest to me a CPA from Central Casting. Greg was more like one of those private accountants you find in Southern California, which is exactly what he was. He had the mannerisms you might expect from a number cruncher. He struck me as thorough, fastidious. He explained the little points, making certain I understood what he was talking about. As you can well imagine, I told him he was just the kind of guy I was looking for. “I’ve been using a lawyer, Jim Knowles,” I said, “for my taxes. I have a real ongoing battle with the IRS. They just don’t seem to listen to my lawyer.” “Larry, I’ve heard that before,” Greg said. “Your lawyer is probably right about everything he’s doing for you. However, the IRS refuses to listen to what the law really is. What I do is different from the legal process. Don’t get me wrong. What I do is legal. In fact, I’d like to show you something.” With that he brought out a letter he had written to the IRS in which he requested from an IRS official the income tax requirements for a pure trust organization (see Exhibit 9.1). This letter also asked the IRS for guidance on the proper procedure of obtaining Employee Identification Numbers for Greg’s clients who wished to establish a pure trust in compliance with the Internal

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Exhibit 9.1

Greg’s Letter to the IRS

Revenue Code. I could see the prudence of this. The IRS, if it responded, would provide Greg with something on IRS letterhead and that he had performed due diligence. “As you can see,” Greg pitched, “in this letter I asked the IRS how I might obtain a taxpayer identification number [i.e., an Employer Identification Number or EIN] for my clients. Now that is nothing out

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The IRS’s Response Letter

of the ordinary. What is out of the ordinary is the letter that I got back. Let me show that to you,” Greg showed me the letter. It looked like a form letter and may have been (see Exhibit 9.2). It said nothing about requirements or compliance since a pure trust “has no tax requirements.” A pure trust is a contract between two people, thus not an entity created by or through the government, such as a corporation. The right to contract is guaranteed in the Constitution, thus these trusts could not be regulated, just as the government cannot regulate private contracts.

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I read and reread the letter. So this is how the big boys legally avoid paying taxes, I thought. I asked Greg, “You are a CPA, what does this really mean? Does this mean that if I set my business up as one of these pure trust things, I don’t have to file? That would be great because I wouldn’t have to have an accountant either.” Greg explained. “Larry, I have uncovered this particular form of trust, a ‘pure trust.’ As you can see, the IRS says it has no filing requirement. That letter from the IRS says exactly what it says. That if you run your business as a pure trust, you will not have to file. You will not have to pay taxes on the income.” I was about to say, “Where do I sign up?”

r r r This looked like a great way to simply sidestep all the legal mumbojumbo that Jim was talking about. I’ve never understood the law as well as any of the lawyers I’ve retained. But I suppose they don’t understand the stock market as well as I do. I asked Greg many questions about how long had he been doing this, what was the IRS’s reaction, how many clients did he have, how much would it cost to set up my businesses in this fashion, had anyone done this I could talk with, and so on. Greg politely answered them all. He claimed to have opened up about 10,000 accounts. He suggested that there might be 20,000 people in California using pure trusts. I wasn’t even close to being the first one. There were thousands of people ahead of me. One of his clients owned a chain of beauty shops in the Los Angeles area and had placed each of his 20 stores into an individual pure trust that was then owned by a master pure trust. I was impressed. What sold me was this boast. “I’ve opened up several thousand accounts with Bank of America,” Greg said. “I had to get the bank’s approval as the account forms are filled out differently than if you just go open up a regular account because these pure trusts are treated differently under the law. You can ask Joyce. She will tell you it has been approved by B of A’s legal department and there are thousands of trust accounts there, right where you bank, bringing money, and legally avoiding taxes.”

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I thanked him for his time. I told him I was very interested. But I wanted to do more research. I got in touch with Joyce at the bank. She confirmed virtually everything Greg said. Joyce said the bank’s legal department was aware of what was taking place and had approved this form of trust. She guessed Greg had opened up over 2,000 accounts at the bank for people from around the country. “We’ve been doing it for several years now,” she assured me. Joyce also mentioned that the pure trusts were put together by someone named Lynne Meredith in the Los Angeles area. Greg was closely connected to her and Joyce suggested that I ask Greg more about her. The next time I saw Greg, I was more than willing to save on my taxes by placing my business interests into his pure trusts based on what he told me. Then I asked him who the heck was Lynn Meredith. Greg suggested I get a copy of Meredith’s book, How to Cook a Vulture! This book went right at the IRS and said many of the same thing Jim Knowles had taught me. Unlike Jim, she had established these pure trusts, which set up a fortress from the IRS. This worked, she explained, because, after all, we were working within the system. We were not spitting in the IRS’s face at every twist and turn like I had been doing. A quick call to Meredith’s office put me in touch with another CPA, Willie Watts. Like Greg, Willie had also worked for a Big 8 accounting firm. He had found out about pure trusts and was in charge of establishing pure trusts at the Meredith organization for people like me. He would gladly set one up. The fee was not much, maybe $300 or $400. I would need more than one. I might need one for each of my businesses, as well as one for our family and maybe for each of the cars we owned. I called Jim Knowles to find out about these pure trusts. I gave him the information from the Meredith group, Willie Watts, and Greg Karl for his legal opinion and advice. He loved what he saw, telling me, “Larry this is ideal for you. You see it right here in writing from the IRS. These trusts have no filing requirement, which means they cannot be taxed. You should do this.” So I did. Shortly thereafter, Jim died. While I was still at a loss as to how to carry on the legal battle that he had gotten us entangled in, I felt

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comfortable because I had the pure trusts that two certified public accountants, the Bank of America, and the late Jim Knowles told me were an excellent way of protecting my income. I read more of the Lynne Meredith material. Obviously, she was a tax protestor, or a tax resister to use the IRS’s preferred term. Greg helped me open up the bank accounts at the Bank of America in Solana Beach. We filled out the opening account form together, exactly according to his instructions. We filled in some lines and checked off other things. We provided the bank with what Greg called a “Trust Identification Number.” I asked Greg what that was, after all it looked very similar to an Employee Identification Number, to which he replied, “Well, yes, it’s similar, but here’s the big difference Larry. The bank accounts I am opening for you, just as I opened up for all of the other people, are non-interest-bearing accounts. The rule is that a non-interest-bearing account is not required to have a tax identification number, Social Security number, or an Employer Identification Number. What we are doing is creating a banking reference number (Trust Identification Number) for the bank’s records, not for the records of the IRS.” That made sense to me. I knew that a non-interest-bearing account did not have a reporting requirement simply because there wasn’t any income being earned on that account. That also explained why we changed some of the wording on the account card, which Greg said that we had to do as these trusts were non-domestic to the United States, meaning they did not do business with the United States government, nor were they domiciled on federal land. With Greg’s and Joyce’s help, I filled out all of the forms, transferred money, opened up the bank accounts, and began doing business through the pure trusts. Things went along swimmingly well. I was making money in my business, placing all of the money in the pure trusts, and I was not paying taxes legally. Since Greg’s office was in Solana Beach, he would frequently stop by my office. We discussed the IRS, the idea of pure trusts, and how well this was working. My life was about as good as it could get. That should have been my warning. Affluence is always dangerous.

r r r

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The first indication that something might be wrong was when I received a letter from Bank of America saying they were closing out all of the pure trusts accounts in all of their branches. I would have to close out my account or open up a more conventional business account. Of course, I called Greg immediately and asked him what was going on and what we should do. After all, I had paid Greg a decent amount of money to help me open up the bank account. I had even invested $10,000 in one of his companies, which he also ran through a pure trust. That made me feel good. He was practicing what he was preaching. He was running his businesses in the same fashion he suggested that I should. This was Greg’s reply: “Don’t worry, Larry, I thought this might be coming. I have found another bank that is very supportive of the pure trusts, and we will be moving all of the accounts there. The bank is First Mountain Bank in Big Bear, California. Admittedly, they’re not Bank of America, but that’s just what we want. These people will stand up to the IRS. I think Bank of America just rolled over to the IRS because the IRS got upset that so many people were legally avoiding taxes. So, they asked to close down the accounts. Notice that B of A didn’t say anything was wrong with the accounts. They didn’t say we were doing anything illegal or say we were involved in tax avoidance. So don’t worry about it. I will get back to you shortly.” I also called Willie Watts to express my concern to him. He basically said don’t worry about it as there was another more cooperative bank that we could use, and he was in the process of switching all the Meredith clients. True to his word, Greg did get back to me. He not only explained that we could open up the pure trusts accounts at the new bank, but also gave me a copy of a letter in which the president of First Mountain Bank had written in support of opening pure trusts (see Exhibit 9.3). The bank president did due diligence on the pure trusts accounts, ran them by their legal department and everything was fine. They were willing to take the accounts. But everything wasn’t fine. Underneath all of this there was turmoil that I was not to know about until a year later. What I did not know was the Lynne Meredith organization had been raided by the IRS. So had the offices of Willie and Greg. I now believe they knew full well

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Exhibit 9.3

First Mountain Bank’s Letter

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the IRS had problems with pure trusts and our days of using them were numbered. None of the purchasers of the pure trusts knew about any of these problems. Eventually Lynne Meredith, Greg Karl, Willie Watts, and several other Meredith employees were indicted for a variety of charges including tax evasion and mail fraud. They were all found guilty. Meredith, Watts, and Karl all went to prison. Dennis Scholenberg, the president of First Mountain Bank, also went to prison. At their trial, the government repeatedly said that the customers of Meredith et al., people like myself, have been victims of a well-organized plot that would be difficult for their customers to see as phony because of the use of certified public accountants, paralegals, and lawyers to help sell the tax scheme. In all, the Meredith organization took in over $12 million selling the bogus pure trust form of tax avoidance. While they claimed it was legal, in fact it was not. Meredith proved that if you snooker people about being able to legally avoid taxes you will end up in prison. And for her, crime no longer pays. She was described by a 2003 front-page article in the Los Angeles Times as “having a perpetual tan and a lavish home in Orange County, California, on Sunset Beach. She allowed her followers to support her lifestyle of luxury cruises and catered parties.”3 The article reported she spent most of her time on the beach or at her house surrounded by numerous expensive cars, an extensive collection of Coca-Cola memorabilia, and her pet parrot, appropriately named “Thomas Jefferson.” The cars included a Jaguar, Porsche, Bentley, and Range Rover. These “toys” might upset taxpayers, but what probably got the government’s attention was her vanity license plate, which read “TAXREBEL.” Many people testified at the Meredith trial about how they were misled into thinking that what they were doing was legal. I was even asked to testify at his trial on behalf of the government—imagine that—but my lawyer at the time advised me not to. In retrospect, that was some of the worst advice any lawyer could have given me. Lynne was sentenced to 121 months in prison. She is still there as of this writing. Guess what she is doing at the prison? 3 Monte

Morin, “IRS Aims to Make Rebel Pay,” Los Angeles Times, January 4, 2003.

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She gives classes on filing tax forms to other residents in the women’s prison!

r r r Here’s why the pure trusts, despite what anyone tells you, are wrong and cannot shelter your income. While it is legal to have a pure trust, I think even the IRS would agree there probably is no filing requirement. When money is dispersed from the trust to an individual, corporation, or even another trust, that entity is responsible for paying taxes on the income it received. I guess if you never touched the money and it just sat there, the money would be tax free. But why have it if you can’t spend it? The trust may not be taxable, but the instant even a penny goes to another person a tax liability may be established. Our brilliant certified public accountants, Greg and Willie, never figured that out. If they did, they never told us. In actuality, I owed money on that income after business expenses. If you go on the Internet and do a Google search for pure trust organization, I’m certain you will find someone willing to sell you a pure trust. They will tell you it has no taxing obligation or requirement. They will even show you a letter like the one Greg showed me from the IRS. I saw three letters from the government, all real (they were admitted into evidence at the Meredith Trial and confirmed by the IRS), which said essentially the same thing—“no filing requirement.” The letters fail to mention that to distribute the money or use it creates a taxable event in the eyes of the IRS. At best, this kind of trust—whether called an “unorganized business trust,” “unorganized business organization,” “common law association trust,” “pure trust,” and the like, names to watch out for—can only temporarily hold your money in the trust. They may have no reporting requirement, may not need to make a report, but once you take a single penny out, you are liable for your taxes on that money. In other words, there is no way any of these trusts can help you to legally avoid taxes.

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I know that now because I stupidly listened to so-called experts and did not do enough homework on my part. At the time, there was little easily available information pointing out the pitfalls of a pure trust. High-profile trials of such figures as Lynne Meredith had not made headlines. There was little or nothing in print back then; there was no Google or Web. There were no government news releases discussing this bogus attempt to legally avoid paying taxes. In my view, the culprits here were the promoter Meredith, her CPA accomplices, and other willing and duped parties. They were the pied pipers playing the music a whole bunch of people wanted to hear. They led us right over the cliff. At the bottom of that cliff, we encountered the IRS armed to the max. Make no mistake about it, we who bought into the pure trusts have responsibility here. We followed these pipers. It does not matter what you believed or who you followed. It does not matter if you were a kindred soul of mine, protesting taxes, being a tax resister. Nor does it matter if you had a pure heart. Don’t think that will get you off. You won’t. Oh, I know the Cheek decision says otherwise. And that is the law, and I agree with that law. It is good law, but it is not a law that is easily practiced in front of a jury. Juries just don’t seem to grasp that you did not realize what you were doing was illegal, that you simply believed what the leaders were telling you, that you really did believe what you were doing was legal. The fact the juries do grasp is the one the Department of Justice lawyers will beat into them until the drum is broken: “Members of the jury, your taxes are higher because tax rebels like him and her (and me!) did not pay their fair share.” The truth is, the reason jury members’ taxes are high is because Congress has been on a drunken spending spree for the last 60 years. The truth is, even if someone owes $5 million in taxes, that is not even a blink of an eye in terms of the national debt or collected revenues. What I learned is that there are ways to protest taxation that will get you into a great deal of trouble, just as there are ways to protest taxation that just might change the system. I will touch on those in the last chapter in this book. I now cooperate fully with the Internal Revenue Service because of my patriotic duty. Furthermore, I have a strong patriotic duty not to go to jail.

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If at First You Don’t Succeed . . . An unjust law is itself a species of violence. Arrest for its breach is more so. —Mahatma Gandhi

I

n 1833, debtors’ prisons were abolished in the United States. Imagine not paying your Nordstrom bill—at one time it was a crime not to pay it, and so Nordstrom could have you arrested. Now, think about this: If you’re tossed in jail for not paying taxes in these times, isn’t that being imprisoned for being a debtor? After all, owing taxes is owing a debt to the government. But the government gets around this by making it a criminal offense to not pay your taxes. I know it seems a little bizarre to say this, but that is what it looks like to me. Certain people in certain jail cells are in debtor’s prisons and this is America. Just ask any tax protestor in prison. There are plenty of them.

r r r When it comes to battling the IRS in court, you should know they win about 90 percent of its cases. Taxpayer advocate Nina Olson, in 159

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her annual report to Congress, listed the 10 tax issues most litigated in the federal courts. Of the 923 cases involving those issues, taxpayers prevailed, in whole or in part, in 132 cases, or roughly 14 percent of the time. Taxpayers who were represented by counsel did somewhat better when the numbers were broken down—they won 20 percent of the time, or 54 out of 265 cases. Taxpayers who represented themselves pro se prevailed in 12 percent, or 78 out of 658 cases.1 Those are not good odds. In my case, they were worse. My trial was not in civil or tax court. My trial was in criminal court. In tax court, your odds of losing are high. In criminal court, the odds are nearly impossible to beat. You have a 3 percent probability of beating the IRS and the Justice Department in a criminal tax case according to Paul DesFosses, a former IRS agent, CPA, and author of IRS—An Agency Out of Control and Self-Employed: Target of the IRS (with Stephen, R. Nestor). Boy, do I like those titles! In 2009, the IRS and DOJ did not do quite as well losing 5 percent of their cases. That is hardly a black mark on their otherwise exemplary record. Nevertheless, losing any case results in bad publicity, and someone getting out of a jail sentence is bad for their litigation business. Therefore, if it is possible to settle a case whose outcome is not a slam dunk for them, they will. The IRS and Justice Department like to win. And, in my case, they saw my case was winnable. I knew that we would have to put a team together to be victorious in this battle, that it would take more than fancy words from my lawyer, Gene Iredale, for us to be successful. At our first meeting in his San Diego office, Gene said that he had in mind former IRS agents who could help us. We had seen them in trial—on the IRS’s side—but they were now retired and could help make our case with their insider information on how the IRS operated and litigated. Gene next called a meeting for Louise and I to meet the two IRS agents he had enlisted, Randy Pissot and Lee Wright. They were able to give me the ins and outs of how trials work, what the government strategy would be, where our weaknesses were and what, if any, chances we might have.

1 Source:

http://www.irs.gov/advocate/article/0,,id=233846,00.html.

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I had quite a bit in common with both Randy and Lee. Lee was about my age, went to college with a great basketball player, Wayne Estes, who was from Anaconda, Montana. I had played football against Wayne in high school. Lee, who likes to refer to himself as “Mr. Wright, always right, never wrong,” had a great sense of humor. He could also sit back and take a long, hard look at things. Standing over six feet tall, white haired, and an avid golfer, he presented some very deep insights. Randy, also sporting a full head of white hair and a beard like Ernest Hemingway’s, had originally lived in Missoula, Montana. So here was an even closer Montana connection. The three of us really had a similar background. There was a natural affinity that developed and has even continued to this day. You can imagine my thoughts about meeting former IRS agents. “They’re from the dark side of the universe,” I thought. “How can I possibly get along with these people?” What I found was both Randy and Lee were perfectly normal people who understood people like myself. Both showed compassion and understanding, something I never thought IRS agents could possibly possess. They were real-world guys who had hearts as big as the outdoors. Better yet, they understood the Internal Revenue Code and its enforcement. The trepidation seemed to cut both ways. As former IRS agents, they had had their run-ins with so-called tax resisters and protestors. Did they think that tax protestors were trying to dodge their taxes? I think in my case, they saw that many tax protestors get hoodwinked by the leaders of the movement, that we thought we were doing the right thing, that the battle wasn’t just about money. The battle to us was about important issues with the very nature of the U.S. government, and to bring change. The “leaders” of the movement had simply taken advantage of our ideals, mouthing words while taking money from our pockets and putting it in theirs. The leaders clearly believed in redistributing wealth—to themselves.

r r r There are really three parts of a trial. The first part is the pretrial, when you develop your case, collect your evidence, witnesses, and the like. Then comes the trial itself, where you’re in the ring. That’s the stuff

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you see on TV. But the trial is won or lost based on pretrial work. Finally, there is the post-trial. This part of the trial can be very traumatic depending on whether you win or lose. If you lose, you may go directly to prison or you could be released on bail, awaiting sentencing. For how long is anybody’s guess, and for a tax protestor there is often no bail. You have probably heard about so-called “Club Fed” prison arrangements from celebrity cases such as Martha Stewart. My friends in the tax movement were never sent there, they went to real prisons. You are in prison, you are confined, people cannot send you food or money. You can only eat what they serve. When visitors come, they can treat you to vending machine food like microwave popcorn and ramen noodles. There is nothing to do other than the manual jobs you’re assigned. Twenty-four hours a day you are told what you can and cannot do—when to wake up, when to sleep, and you share a communal “exposed” toilet. All forms of personal privacy are stripped away. Obviously, I was deathly afraid that this would happen to me. I needed Randy and Lee, along with Gene, to help me put together the best possible strategy against the U.S. government and the charge of tax evasion.

r r r Had the IRS known about two things back when I went to trial before a grand jury, I am quite sure it would have led them to negotiate my case away. 1. Embezzlement. My former secretary, Jennifer Illam Wells, had embezzled anywhere from $500,000 to over $1 million from me during the course of her 10 years’ employment. She was one of the key witnesses for the government. She was intended to be a star performer before the grand jury. Yet she very likely lied to them and had all sorts of reasons to make certain that I went to prison to cover up her embezzlement. Of course, to me this was much more than a monetary loss; Jennifer had become part of our family. I had bonded with her son. Her wedding was held at our house. I consistently gave her bonuses far greater than the work she was doing as my way of trying to help a single mother get through life. We all went out of our way, on a substantial basis, to help her. My daughter Sara befriended her. At one point, Jennifer bought a

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brand-new BMW with a bonus I gave her. The IRS would later focus on that, not realizing that this was something done out of the kindness of my heart. To have her knowingly stealing money was a painful arrow through the hearts of all of us. This is what she was charged with: On or about February 28, 2006, within the Southern District of California, defendant JENNIFER ILLAM, in a matter within the jurisdiction of the Internal Revenue Service, a department and agency of the United States, did knowingly and willfully make false, fictitious and fraudulent statements and representations as to material facts, in that she did represent and state that (a) she had requested copies of canceled checks and deposited items from the banks at which her employer had accounts, and that only one bank had responded, and (b) that her employer knowingly paid her personal credit card bill on a few occasions from the employer’s business checking account, whereas in truth and fact, as defendant JENNIFER ILLAM then and there well knew, those statements and representations were materially false, fictitious and fraudulent when made.2

Eventually, Jennifer not only signed a confession admitting her embezzlement, but was also found guilty of perjury to federal officers. While I had back filed all of my taxes with a former accountant, Lewis Lee, all the information that was presented to Mr. Lee was given to him by Jennifer. To cover up her actions, she claimed certain bank account statements were not available, and she did not send a correct accounting or even accurate records or exact copies of checks. She did all that she could to cover up her actions. I had paid Lee close to $90,000 to make my records compliant, to correctly back file my taxes. This, I was told by my lawyers, would help appease the IRS. Then, perhaps, we could arrive at some form of settlement. The documents Lee filed, however, because they were based on Jennifer’s data, were erroneous. This upset the IRS all the more. Apparently the IRS thought I was playing some type of game with them. In actuality, I was doing everything humanly possible to back file taxes owed. They had a snapshot view, not the big picture of what has gone on. 2 Source:

United States of America vs. Jennifer Illam, Case #10CR1224-MMA.

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Why didn’t Lee find out that Jennifer was embezzling all that money? It was not until much later that Louise, in going through our records, noticed many things that just didn’t add up. None of this was caught by Lew Lee, which created an entirely new set of problems to deal with. Louise discovered Lee’s errors, documented Jennifer’s stealing, and literally saved my bacon. As our pretrial case developed, several lines of defense came forward. In addition to Jennifer’s embezzlement, both Randy Pissot and Lee Wright were able to come up with numerous deductions to which I had been entitled that would reduce the taxes I allegedly owed. I had made some investments during the years in question—1999, 2000, and 2001—that were unprofitable. 2. Bernie Madoff enters the picture. IRS rules state that you can only write off a certain amount of money from an unprofitable investment each year ($3,000), using up part of that investment loss until the entire loss has been written off. This may take several years because you cannot apply the entire loss to just the next year. This is a great example of how screwed up and unfair our tax system is. If you lose $50,000 on a bad investment during a particular year, then you cannot write that sum off during that year. You can write off only about $3,000 for that year, then $3,000 during the next tax year, $3,000 the next, and so on. Is that fair? Hardly. You should be able to write it off now, in real time. Congress doesn’t see it that way. They are not about to allow you to recoup all of an investment loss when it occurs. Perhaps you will forget about it next year; perhaps you will die before you write off the entire amount. Worse, say you lost $10,000 in 2002 dollars that in 2010 dollars are really worth much more. Hardly a fair shake. The “Madoff ” rule is different, however, if you lose money in a fraudulent transaction, rather than a bad investment that went sour. As “Mr. Wright, always right, never wrong” pointed out, you can write off the entire amount in the year which you realized you were defrauded. This was a law that had been on the books for a long time. But very few people were aware of it, even fewer ever claimed it until along came Bernie Madoff. I’m sure you remember Bernie, the investor who began a Ponzi scheme in 1980 to take people’s money, spend it on himself, his wife, and family, and give investors bogus statements. What a guy Bernie was, a cofounder and Executive Director of the Nasdaq,

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former chairman of the National Association of Securities Dealers, a selfregulating body, a big-time stockbroker, someone everyone respected. Then they found out he had stolen about $65 billion from investors, including his best friends, retired people, and charities. Then he blew it on his fancy lifestyle. Shortly after the Madoff debacle unfolded, lawyers representing clients with these gargantuan losses stumbled across the old law. Obviously, their customers had been defrauded, and were able to write off all of their losses. In my case, during the tax years in question, I had invested in something called “Valenvalls,” an investment idea brought to me by one of my former students at a seminar. It sounded like a good idea, and I had known the student for several years. I put money into the program, a good deal of money, $1 million. I had lost most of it (a little bit of it came back, about $100,000), which resulted in a $900,000 write-off to claim on my taxes for the years when the Internal Revenue Service said I owed money. (Remember, the basic premise of all tax law is that if you don’t owe money, there is no crime.) I also lost money in another business enterprise with a fellow named Leonard Rosen. Gene felt that we could also write off that entire amount for similar reasons. Finally, I had made an investment with a stockbroker I knew for many years, Bob Miller, through something called “IFR.” It turned out to be another scam. IFR’s promoter, Larry Wilcoxson, was found guilty of defrauding investors and went to prison. All in all, I was the unluckiest lucky guy in the world. I had legitimate fraud-loss write-offs of close to $2 million. In a very short time, I had lost a tremendous amount of money in fraudulent investments. That never happened before. It has never happened afterward. It only happened during the three years when the Internal Revenue Service said I had such a big income, which I did. But what they weren’t aware of was that I also had big losses too, which could be written off at that time—in full—against the income they claimed that I had earned. The numbers of all my income and expenses were worked up by Lee Wright and showed there was no tax due and owing. If we could prove that in trial, I would be a free man.

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That was our pretrial preparation. There was a tremendous amount of work, recordkeeping, and file organization done by Lee, Randy, and, most of all, by my wife Louise Stapleton. Louise put together approximately 150 three-ring binders that took up over 60 feet of space. Each thing was catalogued, organized, and outlined so that Gene could quickly access these documents in trial. Organization is not Gene’s strongest point. But it was his brilliant trial work and getting the right people to help us present our case quickly and correctly in court. Gene would make the case that I had been led astray by the Meredith people, Jim Knowles, and others of the tax resistance movement. There were also legal issues that I wanted addressed. I thought the judge should dismiss the charges simply because, in the Meredith trial, her pure trust clients’ victims—people like myself—were considered victims and victims should not go to prison. The goal of our first legal battle was judicial estoppel. This means that the government can’t take one position in one case, and the opposite position in another case. I felt that is exactly what took place in the Meredith trial. The government’s position was different from the position they took against. Gene and I felt there was a good chance the case would be dismissed on these grounds. It just seemed obvious that the government was taking opposite positions on the same set of facts. Gene filed for dismissal and I was sure we would win with this alone.3 However, Judge Huff did not dismiss the case. So we went on the attack again.

r r r As you may recall, the government indicted baseball player Barry Bonds in 2007 for steroid usage. The government had been investigating Bonds and in the course of this, it used a search warrant to search the computers at BALCO, the company that allegedly provided Bonds with steroids. The names of other athletes, as well as other information, was found. However, in a case entitled United States of America v. Comprehensive Drug Testing, the Ninth Circuit Court of Appeals ruled against using the additional information that did not apply to Barry Bonds. What this 3 If

you are interested in reading the filing yourself, you can find it at pacer.com. You be the judge.

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decision meant to me—and you—is that the government, in the course of carrying out a search warrant of your computer, can only take what it has specifically requested. The government can only look where it has requested to look when it takes your computer. This is the information that the government can use against you in court. Anything else not spelled out in the search warrant is inadmissible in a court. If the feds read letters, documents, spreadsheets, and the like beyond the scope of the legally granted search warrant, it cannot be used against you. With so much stored on your personal computer, the Ninth Circuit wisely sought to protect the privacy of citizens from overzealous federal agents when they confiscate your computer. They laid out some specific rules as to how computer searches should be conducted. The court ruled, drawing on the Tamura case, that the Fourth Amendment required that the seizure and off-site review of intermingled computer documents must be supervised by a neutral magistrate judge. Importantly, the court did not require that a magistrate step in to review the evidence as soon as the government learns that, say, a relevant database contains intermingled documents. The court established a trigger—a magistrate review would occur only upon a “proper post-seizure motion by the aggrieved parties.” The magistrate’s role would then be to “filter the evidence off-site,” determining which documents fall within the scope of the warrant. In going about this filtering process, the court directed that the magistrate “apply our precedent, including Beusch, which permits the seizure of single ledgers or files with intermingled data.”4 The court went on to suggest that most computer files can be “pared down considerably,” but “certain files—spreadsheets of only a few pages, for example—may be retained in whole.”5 The court elaborated, saying the magistrate may consider relevant, among other factors: (1) whether evidence mentioned in the search warrant can be separated from unrelated evidence by copying or moving files, but without creating new documents; (2) whether the file, if printed, would fill more than a typical paper ledger (of the sort in Beusch); (3) whether excision of the unrelated portions of the document would distort the character of the original document. This list is neither exhaustive nor mandatory, but offers relevant 4 United 5 Ibid.

States v. Comprehensive Drug Testing, Inc., 473 F.3d 915.

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considerations for a magistrate to determine what evidence the government can reasonably retain after a lawful seizure of intermingled digital data. Reading that decision fired Gene up. The search of my computers was not done in the correct fashion as the Ninth laid out. So we filed a motion to suppress the search warrant materials. What a great argument we presented to the court, spot on with what the Ninth Circuit Court of Appeals had said the law was. Clearly, the evidence should be suppressed. After reading the government attorney John Owens’s brief in opposition to ours, Judge Marilyn L. Huff ruled against us one more time. “Never give up.” That’s my motto. Losing a motion to suppress evidence was just one more loss. It would not thwart our efforts. Besides, if we were to lose in trial, this would be an excellent appealable issue—one the Ninth, to whom we would appeal, had a bee in their bonnet about for the very issue of computer searches.

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CHAPTER 11

Turning the Wheels of Justice in Your Favor Wheels of justice grind slow but grind fine. —Sun Tzu

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ccording to the Speedy Trial Act of 1974, if you are charged with a crime, the government has a specific number of days following indictment to bring you to trial. The number of days is exactly 70. In most of the trials I’ve investigated, the government has gone substantially beyond that. In other words, there is a violation of speedy trial rights in just about every case. Justice is neither swift nor inexpensive. In fact, the only time justice comes swiftly is when one does not have the bankroll to stand up to battle and protect their rights. Then justice, or the lack of it, can be extremely swift. Usually a plea agreement is established, which has nothing to do with an individual’s actual innocence. There are many people in prison who could not finance a defense and had to accept a plea agreement to something they had never done. Many innocent people are in prison for that reason. Without a proper defense, they can be convicted of just about anything. To protect themselves from losing in court, they took

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a lesser offense and a shorter prison sentence despite their innocence. Numerous cases of this atrocity can be found. I personally know of one case where the Justice Department pressured a person to take a threeyear prison term or they would bring all of their weight to bear on his daughter who had worked as a secretary. He probably would have won his case—or faced a nominal penalty. But given the risk to his daughter, he had no choice but to take the government’s deal. I am personally aware of two other cases people were charged with sexually molesting minors. Both involved school teachers who did touch a student—not in a sexual manner—just a touching akin to a pat on the back. In the first case, the conviction was finally overturned. In the second case, the student approached the teacher saying she had hurt her foot and would he massage it. He did. She was a plant. It was a setup or sting operation. There was nothing sexual about it, nor was there any evidence of untoward action on the part of the teacher. His life savings of $40,000 were quickly burned through in his defense. His case was shuttle passed to a public defender who clearly had neither the ability nor desire to make a proper defense. Knowing he was totally vulnerable, the government made an offer: take three years in prison or go to trial and risk a 12-year sentence. The poor guy, who had been teacher of the year, took the three years. Later the student recanted.

r r r I was first arrested in 2006 in Australia and, once back in the United States, did not go to trial until 2010. Some of this delay was caused by the extradition process. Yet, from the time I returned to the United States in 2008, it took about 16 months before the trial began. On top of that, we did nothing to delay the trial. Sometimes the strategy is to delay. Insurance companies do that all the time. Their motto is, “Delay, Deny, Don’t Pay.” Some lawyers seem to handle client cases in the same way. The longer they can delay, the more hours they can bill. That was not our strategy. Our strategy was to get to trial as soon as possible in order to get my tax evasion issues resolved, to get them out of my life. Even so, it took 16 months to finally get my day in court. Square that with the mandatory 70 days from your arraignment. You

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will now get an idea of the injustice that takes place in the U.S. court system. A good reason for this mandatory 70 days exists: It is in the public’s interest to get the case resolved so that a person’s innocence or guilt can be established and so the community can react accordingly to that individual’s status. If he or she is innocent, that person should be cleared as soon as possible. If guilty, it is only in society’s best interest to get that person into prison or some form of rehabilitation with equal speed. Finally, the court’s docket should be cleared of cases. It is hard to express in writing the agony, the pain, the restless nights one goes through waiting for trial to begin. Instead of getting it over with, it was almost a year and a half. If it was that way for me, you can bet that many other defendants suffer much the same way. Every person charged with a crime, whether innocent or not, goes through a tremendous amount of trauma. The trauma is having your life put on hold. After all, you really can’t make any future plans until these issues are resolved. Your life, your spouse’s, and your children’s lives are locked in time. Your supposed friends and business associates are nowhere to be found or they treat you differently. Nothing has been proven. You are supposedly innocent until proven otherwise—but that is not the way people react to you. This was true for me. I had been a very popular speaker on the investment circuit. This produced revenue for me, not much compared to my trading, but some. With my arrest, my speaking engagements were cut by 90 percent. Even now, after all the charges were dropped, I am no longer sought after as much to speak. (This is unfortunate, as I have a better message to present than ever before.) That’s just the way it works. It’s not fair. It’s not correct. It is the reality of the world. This is why the Speedy Trial Act was passed. There you are, your life on hold. Whatever financial resources you have are quickly disappearing in the legal battle—and that’s not just for lawyers. You have to pay for a tremendous amount of research from investigators and analysis from accountants and other experts. At the San Diego trial, just our printing bill to create exhibits was about $20,000. Fortunately, my lawyer was a great guy and we shared the cost of that. Most lawyers would have billed it directly. Day after day, the pressures build on your mental state and soul, as does the grind on your bank account. It is a pressure cooker that you

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want to escape. Some defendants resort to drugs or heavy drinking. Some roll over for any plea bargain. My decision was to not let the bastards get me down. I would stay positive and friendly. I could not internalize this. I have always believed in right and wrong and that ultimately what is good and God prevails. I was not about to alter my worldview. I advise this: If you ever get caught in the quagmire of a criminal case, have plenty of money, plenty of patience, and continually keep in the forefront of your mind that you will not let the other side stop your life. At times, I felt the Justice Department was just trying to thwart my existence. They were not—but that was the perception. In talking to other people who have gone through a trial like mine, they have all mentioned the same thing: It seems personal, deliberate, as though someone or something intends to ruin your life. All too often under such pressure, people crack. In fact, many lawyers encourage this. I have a friend named Kathryn Haines. She went to prison for something I don’t believe she should have. She had no knowledge that her actions were illegal. She followed the Meredith tax scam operation as I did. Her lawyer told her, “Don’t worry, 18 months will fly right by. It won’t be that bad. You’ll be out and it will be behind you.” Obviously, this lawyer had never gone to prison. Obviously, he didn’t care about equity or justice, right and wrong. Many lawyers handle clients in this fashion: “Get them in and get them out.” Their goal is to bill as much as possible and find another cow to milk. This is exactly why the Speedy Trial Act was passed. It was passed because trials that take too long undercut a fundamental right of the citizen and society that had been guaranteed to us by our Founding Fathers in the Speedy Trial Clause of the Fifth Amendment. This clause serves two purposes. First, it prevents defendants from languishing in jail for an indefinite period before trial. Second, it ensures a defendant’s right to a fair trial. The longer the commencement of trial is postponed, the more likely it is that witnesses disappear, memories fade, and evidence is lost or destroyed. However, the right to a speedy trial does not apply to every stage of a criminal case. It arises only after a person has been arrested, indicted,

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or otherwise formally accused of a crime by the government. Before the point of formal accusation, the government is under no obligation to investigate, accuse, or prosecute a defendant within a specific amount of time. Here is the essence of the law: (1) In any case in which a plea of not guilty is entered, the trial of a defendant charged in an information or indictment with the commission of an offense shall commence within seventy days from the filing date (and making public) of the information or indictment, or from the date the defendant has appeared before a judicial officer of the court in which such charge is pending, whichever date last occurs. If a defendant consents in writing to be tried before a magistrate judge on a complaint, the trial shall commence within seventy days from the date of such consent. (2) Unless the defendant consents in writing to the contrary, the trial shall not commence less than thirty days from the date on which the defendant first appears through counsel or expressly waives counsel and elects to proceed pro se indicted with respect to all charges therein contained within the meaning of section 3161, on the day the order permitting withdrawal of the plea becomes final.1

In the case of Bloate v. the United States, in which Taylor James Bloate was indicted for possession of a firearm, as well as cocaine with intent to distribute, the Supreme Court determined that: The indictment triggered the start of the 70-day pretrial period mandated under the Speedy Trial Act. On Sept. 7, 2006, Bloate moved for and was granted an extension of the deadline for filing pretrial motions. On Oct. 4, 2006, a magistrate judge granted petitioner leave to waive the right to file pretrial motions. On Feb.19, 2007, Bloate filed a motion to dismiss the indictment under the Speedy Trial Act. App. The U.S. District Court for the Eastern District of Missouri denied the motion. It held that the Speedy Trial Act had not been violated because several periods of time were properly excludable from the 70-day period prescribed by the Act. 1 18

U.S.C. § 3161.

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174 C O N F E S S I O N S O F A R A D I C A L T A X P RO T E S T O R The court held that the 28 days allocated to the preparation of pretrial motions—from Sept. 7, 2006, to Oct. 4, 2006—were automatically excludable. In March 2007, the district court sentenced him to 360 months’ imprisonment. Bloate appealed, asserting a Speedy Trial Act violation and other trial and sentencing errors In July 2008, a three-judge panel on the U.S. Court of Appeals for the Eighth Circuit affirmed but noted that the circuits are divided as to whether pretrial motion preparation time is excludable. On April 20, the Supreme Court accepted review. Oral arguments will be held during the fall term beginning Oct. 5, 2009. Question presented: Whether time granted at the request of a defendant to prepare pretrial motions qualifies as “delay resulting from other proceedings concerning the defendant” and is thus excludable from the time within which trial must commence under the Speedy Trial Act of 1974, 18 U.S.C. 3161 et seq.2

The Supreme Court reversed and remanded the lower court decision in a seven-to-two vote as follows on March 8, 2010. Justice Clarence Thomas wrote for the majority: This case requires us to decide the narrow question whether time granted to a party to prepare pretrial motions is automatically excludable from the Act’s 70-day limit under subsection (h)(1), or whether such time may be excluded only if a court makes case-specific findings under subsection (h)(7). The Court of Appeals for the Eighth Circuit held that pretrial motion preparation time is automatically excludable under subsection (h)(1). We granted certiorari and now reverse.3

While the higher courts have come down very strong on the 70 days as being a constitutional right that should be enforced and upheld, lower courts seem to pay very little attention to it. I was alerted to this issue by Bruce McWilliams, a paralegal on our defense team. Bruce is perhaps the leading advocate of one’s rights to a speedy trial and has a great deal of experience with these motions. He told me, in no uncertain terms, that lawyers did not like to file a Speedy Trial Act violation. The reason was simple: It puts them in 2 Bloate 3 Ibid.

v. United States.

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direct opposition to the judge. They are essentially walking into the judge’s chambers and saying “here, look, you screwed up.” The judges in most all instances will not grant the motion, which then has to be appealed to higher courts. After all, what a defendant is doing is asking the judge to rule the judge was wrong in not handling this case better and getting it to trial on time. A judge rule against himself, that’s a good one! Judges perceive themselves as absolute rulers in their court, and lawyers “go along to get along” most of the time. The judge sits pretty much in the driver’s seat when it comes to ensuring a speedy trial. He or she knows that unless the defendant is found guilty, and has enough money to make a speedy trial act violation appeal, nothing will ever come of quashing the initial filing. And there’s another problem. If a person’s sentence is, say, 16 to 18 months or longer, by the time motions are filed and make it to a higher court, the person has already served their time and is out of prison, which makes filing a motion for a speedy trial violate a moot point. Of course, the conviction could be overturned and that would help one’s record in the future. But it doesn’t alter the fact the person gave up a period of their life that they should never have spent in a cage. Given the preceding, Gene brought a violation of my rights to a speedy trial before Judge Huff. She certainly had a different view of the Speedy Trial Act and the facts of my case than we did. I thought we had made it “perfectly clear” that it was not enough for a judge to just wave a wand and say this is a complex case, so the Speedy Trial Act doesn’t apply. (The judge did not go on record to explain why mine was a complex case. That wasn’t done. Even when the defense, the prosecution, and the judge discussed going to trial, the sense of it was that it would last a week! How complex can that be?) The appendix at the end of this book shows our filing, which can be adapted to other cases.

r r r Judge Huff handed down her decision: My right to a speedy trial had not been violated. I am clear in my mind there had been a violation. Gene pointed out, however, that we had asked Judge Huff to rule in such a

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way that meant she had mishandled the timeline of my case. As already noted, judges are averse to doing that. It was yet another setback, but we now had a very strong issue for an appeal to the Ninth Circuit in the event we did not win at trial. A Speedy Trial Act violation can be a lifesaver in that respect. A violation of this right is almost always ruled in favor of the defendant if it gets to a higher court. We knew this. We knew that a loss here was not a major defeat. We could now go on to argue another issue in the event we were not successful before the jury. In terms of gamesmanship, we had gained the opportunity for victory at a later point. Being the world’s number one optimist, what was clear to me was that we would win. I could have taken Judge Huff ’s decision personally. Yet she always gave the impression of being professional and obviously saw the law differently than we did. She was protecting her vested interests, which had nothing to do with mine. I did not expect to be treated in any other way. She was carrying out the law as she perceived it—defending the status quo. After all, the judge works for the government and gets paid from the taxes you and I pay. They are going to represent a governmental view before they represent an individual’s view when it comes to taxation. No tax system, no pay—that’s pretty simple to understand, isn’t it? An interesting point is that many years ago, judges did not have to pay taxes on their salaries as a way to prevent them from serving government’s interest over the citizen’s. I have watched other tax trials and, I make no bones about it, many judges are nothing more than lackeys for the tax system. They do not allow tax protestors to use their arguments in their courtrooms. The courts censor and fine tax protestor lawyers. The tax resisters’ arguments are out in left field somewhere. The judges never take the time to explain things to the defendant. They just slap them down. Some judges, too, treat tax protestors differently. I have seen judges be incredibly kind and courteous to drug dealers, smugglers, and illegal aliens, while the same judges showed a totally different attitude toward tax resisters at trial. When it comes to sentencing, many of these judges have no reservations about throwing a tax resister in prison for a longer time than

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a pedophile, a drug dealer, and people who have committed violent crimes. I did not perceive Judge Huff as one of these judges and these comments are not directed at her. They are taken from other cases that I have monitored and read about over the years. I have concluded that the playing field is never very level for tax defendants.

r r r Despite the fact, we had great arguments, ones that should have ensured victory. I had lost on all of them. Gene still gave me inspiration and hope. Nevertheless, there is such a fine line in dealing with a lawyer. You don’t want them to give you a false sense of hope, but you hunger for hope. You want to be assured that your view is correct, that you are not going to be “sent upriver to the Big House.” There’s a great emptiness when one is charged for a criminal act. You wonder what your friends will think of you. Is he innocent or guilty? You wonder how your peers in your profession will see you. Will your lawyer represent your best interests? Certainly Gene did that. There was never a doubt about where his heart was. He was also consistent in telling me that we could win. He felt that we would at least see a hung jury.

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CHAPTER 12

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Sharpening the Ax Preparing for Trial

If I had six hours to chop down a tree, I’d spend the first hour sharpening the ax. —Abraham Lincoln

ith the trial date set and our pretrial homework done, there was one more important step to ensure victory: A mock jury that would be representative of the jury I would face. These people would hear the “prosecution” and our defense. Their feedback loop would give us an idea of how the real jury would perceive our case and the possible verdict of guilty or not guilty. I never expected my case would actually go to trial. I thought my little problems would be resolved through a settlement and that the prosecuting attorneys would see me as a victim much like the victims of Lynne Meredith. My stance—that I was legally avoiding, not illegally evading taxes—must be obvious. I asked myself, “Why couldn’t they see that? Why couldn’t they see that I was not out to destroy the government?” I sincerely believed in what I was doing. Deep down inside I felt it was a constructive thing to do, to bring about the change of a

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messed-up tax system. Either we had never gotten the point across of what I believed to the Justice Department, or, if we had, its lawyers were unwilling to accept it. They would prosecute, not negotiate. In fact, during this six-year battle, no one from the government ever talked to me about my motives. The government never asked for my reasons. It just assumed that I was a tax cheat. I am certain they arrived at that conclusion by looking at the paper trail, including my book, How to Outfox the Foxes (CTI, 1991), which dealt with dealing with the law and lawyers. The feds made this a trial exhibit to show that I knew full well what I was doing in an attempt to evade taxes. In reality, the book had very little to do with the IRS; rather, it was more a diatribe against lawyers and I consistently told readers not to lie to the government. But that title—the Justice Department lawyers just loved it—made me look like a fox to the jury, that I was outfoxing them and not paying my fair share, I was the fox that raided the chicken coop and might as well be shot. I had set myself up well with that one. They even had agents infiltrate my seminars on stock and commodity trading, recording about 30 hours of my conversations. The most damning thing they were able to get was when someone asked me, “How do you handle taxes?” I replied, “Taxes, what are those?” If I wanted to evade taxes, would I have written hundreds of protest letters in which I cited case after case to prove my point—regardless of how misguided that point might me? (See Exhibit 12.1.) I never hid anything in offshore bank accounts. I didn’t keep double sets of books. My approach was, “Here I am, this is what I am doing.” The Justice Department had spent a lot of money on this case. Chris Watson estimate the Australian battle cost them close of $1 million. It was the money . . . I finally got it through my thick Norwegian skull that this “battle royal” continued because it was about getting the Justice Department’s investment back on me and maybe even ego. In stock trading, my number one rule is “The sooner you take a loss, the better.” When you are wrong, you cut your losses. I guess the Justice Department had not heard of my rule. Maybe if it had, its lawyers might have seen the problems in their case that we did.

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Exhibit 12.1

Example of one (of many) protest letters

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Exhibit 12.1

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Justice is not cheap. Some say that money buys justice and to an extent they are correct. What money can do is prepare a better case. It cannot alter the facts, but it can acquire the best expert witnesses, in my case the best accountants, graphic displays, and much more. Money does not win cases, facts and preparation do, but that takes money. Harvey Levine is my marathon running buddy, a plaintiff ’s lawyer, and the author of the book on jury selection. I listened when he told me, “Williams, you have got to do either a mock trial or focus group to know the strengths and, most of all, the weaknesses of your case.” Given Harvey’s trial experience, he thinks that such feedback is critical to winning. He warned me that it would not be cheap and could cost over $50,000 to hire a firm to select 24 or 30 people that fit the jury profile you expect in your case. Then you have to show them an eight-hour presentation of the government’s case, as you understand it, and then your case. Once the presentation is complete, the mock jury breaks down into separate groups of about 12, similar to a real jury, and go through a selection process and review of evidence to come to a decision. He further warned me that I would be behind one-way windows in order to watch the mock jury. This can be a brutal experience, Harvey said. The mock jury may rip you to shreds and demolish your defense arguments you thought were good. From that grueling experience, however, the defense team can construct the most winnable presentation possible. Gene liked the idea as did my wife Louise. So we hired Carol Bauss of the National Jury Project (NJP) in San Francisco to make the arrangements. The service she offered is described on NJP’s web site: Commonly known as focus groups and trial simulations, this qualitative research tests key issues and explores jurors’ interpretations, reactions and attitudes, and how they combine to determine the verdict. We recruit a carefully screened panel of jury-eligible participants who match the characteristics of the actual jury pool. A case summary is presented to accurately convey the fact situation and central case issues. Feedback is obtained from the individual jurors either via written questionnaires, group discussion or both. We analyze the data and key findings and make recommendations for trial and jury selections. Based

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184 C O N F E S S I O N S O F A R A D I C A L T A X P RO T E S T O R on your budget and on the case complexity, the research may range from a focus group of a few hours to a multi-day trial simulation. We use social science techniques to help attorneys develop effective strategies for trial preparation, case presentation, and jury selection. For example, jury research—focus groups & trial simulations— community attitude surveys, or even a simple consultation with a National Jury Project trial consultant, will help to identify the “jury issues” in your case.1

In our mock trial, Laura Schaefer gave the opening speech we expected Owens would lead off with. We knew from his previous trial work in dealing with my friend Kathryn Haines that he would focus on “conspicuous wealth.” So, Laura described my large house in the suburb of Fairbanks Ranch outside of San Diego and my possessions. “Look at this house,” she began, “these cars, this pool, this artwork [prior to my IRS expenses, I had acquired one of the better collections of Native American antiquities]. While you barely scrape to get by, this guy lives a life of luxury because he did not pay his fair share of taxes.” I realized this was a class warfare argument and thought to myself, “Yes, I had all those things, but even if I had paid taxes, in the years in question, I would still have been able to buy them.” Following Laura’s brutal opening attack, Gene presented my defense. He showed pictures of where I actually lived, in a one-bedroom apartment with a bed, small TV, and single chair. My former wife and I were divorced. She was the one living the lifestyle that Laura, in the role of John Owens, described. Gene also pointed out I had been active in my community, donating well over $100,000 to schools and charities. None of this was germane to the case, just as much of Mr. Owens speech was not germane to the charges in the indictment. This is why your day in court feels like an eternity. Every error you have ever made in your life will be dragged before the jury. An effective prosecuting attorney makes his living doing this, showing the jury how you should have lived your life. Hank Williams said it best—“Unless you’ve made no mistakes in your life, careful of the stones you throw.” 1 National

Jury Project, “Our Services,” http://www.njp.com/.

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The government has access to everything you have ever done. It can and will use this “everything” against you, twisting it to whatever suits the argument or image of you it wishes to project. As Gene finished his closing argument, I listened in a state of shock. There was no way we could win this! Gene’s defense was beyond horrible and barely addressed the facts of the case. Following Gene and Laura’s presentation, there was a rebuttal by both sides, then lunch, and off to the “jury rooms.” There we watched the decision-making process at work. We had three groups to monitor and rotated among them to understand their perceptions of the government’s case and ours. I was still upset with Gene for the disastrous job of defending me. He just winked at me and told me to wait. The first group batted me around for about an hour and then voted—in my favor. They thought the fact I relied on lawyers and CPAs was proof I was not trying to do anything more than legally minimize my taxes. Group number two and three were not so kind. Several jurors expressed hostility and outrage at what I had done—and nothing the defense said mattered. I had not paid while they had to and that was enough. I was as guilty as Charles Manson to group two. Group three was split—the younger members voted not guilty. Older members for the most part saw me as guilty. Women seemed to find me more despicable than men, Hispanic women even more so. They were willing to shoot me first it seemed, and in San Diego, this demographic was often well represented in the jury pool. While I was seen before and after the mock trial and jury proceedings, none of the “jurors,” thank goodness, knew who I was. Had they known, I might not have made it home! Members of my defense team talked with the mock jury people to pull out more information, including the most hostile one, to see what could be learned for defense. We could see some patterns develop—what mattered to the jurors, what facts, anything that could hone my defense and punch holes in the government’s. During the course of this, I realized why Gene’s presentation was so weak. He was not interested in winning . . . yet. He wanted to present a weaker case to see where the

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Justice Department had a strong case. We knew ours—we just needed to know the best course of attack.

r r r It had been a very long and tiring day. I had been hung up like a pi˜nata with everyone taking turns hitting me. The focus group served two purposes. It tested our case and tested me on what I would face in court in just seven days. The focus groups prepared my psyche for the ordeal of my trial (and for that reason alone I recommend them). I also learned a very valuable jury strategy. Jurors want to see a person take responsibility for his or her actions and do all he or she can to correct any damage caused prior to litigation. That seemed to fit me well. Once I realized the full scope of what I had done, I had Lew Lee back file all my taxes. I had spent about $150,000 to set my house in order prior to being indicted. Surely, the jury would appreciate that. Carol and her group analyzed all the jurors’ responses, questionnaires, looked at the demographics, and gave us the bottom line. Based on her analysis, there was a decent chance of having a hung jury. There was not a strong chance of winning—a possibility, but not a certainty. A hung jury simply means that one of the jurors would not vote for conviction. However, hung juries are not so great. You are not found guilty—but nothing stops the government from trying the case again. A hung jury also shows the prosecution the hand you play—your best hand—during the trial. The next time around, the government would have prepared a new and stronger case. Gene and my lawyer friends told me the chances of winning on a retrial following a hung jury are slim when it comes to the criminal prosecution. Research proved this. Only 20 percent of criminal defendants win on retrial. A hung jury would be nothing more than a short-term victory. We had to do better than that. It was time to get it on.

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CHAPTER 13

At Last, Trial Time

Your day in court will take a lifetime. —Larry Williams

oing to trial has a mystique to it. Much of that comes from the setting itself. There is a judge, dressed in robes as though for a sacrificial rite. There is the courtroom itself, complete with insignia, seals, flags, and very expensive wood-paneled walls, like a modern-day temple. The person who is going to judge you has the highest seat in the house. The judge is flanked on both sides by administrative assistants and, of course, an armed bailiff for protection and enforcement. Then there’s the jury. They, too, sit higher than you, the person they will judge. The defendant always sits on the left. I’m not certain why. The prosecution sits on the right, closer to the jury. Why do they get that advantage? As well-prepared for trial as we were, there really wasn’t much excitement or anxiety about going to court. We had done everything possible. Thanks to the focus groups and mock trial, we had a good idea of what would work with the jury and, most importantly, we had a way

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of anticipating the government’s case and how jurors would respond. It would just be a matter of presenting our facts.

r r r One thing annoyed me about what had consumed six years of my life: I never got one word in for myself. I had been before the High Court of Australia. I had numerous hearings before Judge Huff. Yet not once was I allowed to say a damn thing other than my name and a yes or no now and then. I wanted to stand up, shout, scream, and make my point about what happened, what the real facts were, and who the real Larry Williams was. Imagine having someone else propose to your wife. It’s kind of like that. When someone else speaks for you, it’s just not you. They don’t make it as clear. They don’t say it as aggressively as you would. That’s frustrating. It would be different at my trial. My defense team and I agreed that I would testify at my trial. There would be problems with that. Certainly, the Justice Department would box my ears. I would be bloodied up for all of the letters I had written to the IRS and for How to Outfox the Fox. Yet Gene and I felt it would be important for me to tell the jury what had happened to offset the government’s accusations. I would not be alone in the courtroom. Besides Gene and Louise, I had a battalion of friends who were kind enough to take time out of their personal lives to be with me, to sit through the trial in support, not only for me, but for the jury to see I had support. There were such great friends as Bob Rebello, Topper Birdsall, Harvey and Judy Levine, Laura Schaefer, Mike Benoit, Kurt and Jimena Hallock, my sister Pam and her husband Frank Holowach, Louise’s brothers Bill and Lee as well as her sister Lil, and my children.

r r r The first thing that needs to be done in a trial is to select a jury. Approximately 60 people are called before the judge to see why they should or should not be qualified for jury duty. The process will remind you of that folk wisdom about being tried by people so dumb they couldn’t get off of a jury. In reality, however, a lot of people want to be

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on a jury. There are many reasons for this. You get paid some money for serving on a jury. For retired people, it’s a break from the ordinary—and a way for them to express a political viewpoint (which they keep to themselves during jury selection). For others, it’s a chance to legally miss work without losing income. As potential jurors came into the court, I looked at them trying to see if there were any common denominators. But I saw few. There were young adults with tattoos. Some potential jurors looked like they might have problems understanding English, let alone the tax code. Once all 60 people were seated in the courtroom, the defense and prosecution were given the opportunity to ask a brief series of questions to the potential jurors. In federal court, this questioning (voire dire) is not always possible. Judge Huff, however, had agreed it would be helpful for both sides to have limited voire dire. When it was Gene’s turn, he walked over to a potential juror and addressed the person by name and then asked his questions. He turned to the next potential juror and addressed that person by name. He spoke to at least 20 potential jurors in this way, addressing them by name. I am sure everyone in the courtroom was blown away. But how did he do this? He had only three minutes to learn up to 60 people’s names. They had been moved from one chair to another. They were not in any order. Yet Gene learned all these names. One potential juror even complimented him. “I’m very impressed with your ability to remember everyone’s names.” this person said. “That is simply amazing.” Gene shrugged his shoulders and continued his inquiry. Then John Owens started asking questions. He could not address people by their names and you could instantly see that Gene had already started to bond a bit with people who could be on the jury. (This same good recall of the case’s details would also work in our favor during the trial for it meant the jury would rely on his narrative of events.) Some people from the jury pool said they could not serve because of their job, health, and the like. The judge let these people leave. The best potential juror, from my viewpoint, was a fellow who expressed his dislike for the IRS. The IRS had come down hard on his father, causing him problems, and the son did not like the agency. I wanted this guy as a juror, but Mr. Owens didn’t feel the same way and

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the man was excused. I wish the guy would’ve kept his mouth shut. I could have used him. Once the 12 jurors with 2 alternates had been selected, the trial began exactly as expected. John Owens made his class warfare pitch about the fancy house, fancy cars, the Indian artwork—everything we had anticipated. In fact, I thought our mock trial opening statement was harsher than Owens’s was for the real thing. We were also certain they would use my tax protest letters and arguments to make me look bad. True to form, the prosecution did: [F]inally, he even went as far as to say he’s not Larry R. Williams. Here’s a document . . . he writes to the IRS. [It reads, referring to an IRS letter] “The enclosed letter is addressed to Larry R. Williams in Rancho Santa Fe.” That’s all caps. “This appears to be addressed to a corporate person in a corporate state as defined by the Buck Act of 1940. I am not that person. I am,” lower case, “Larry R. Williams in Rancho Santa Fe. As such, I am not a corporate citizen of a corporate state, but am a natural citizen of the organic State of Montana domiciled in the California republic.1

We had figured out their playbook. The jury heard what we thought they would. But it seemed effective. Gene had his work cut out for him. He began our opening statement by presenting a broad overview of who Larry Williams was and what had taken place. He began: The first issues the government must prove . . . are . . . If there is a tax that is owing, if there is no tax that is due in that particular year, that’s the end of the case. Secondly, that the Defendant knew that there was more tax due and owing. Third, that he committed some act to obstruct or to evade the assessment of the tax by the Government, by the Internal Revenue Service. And the fourth element, that he acted willfully. I need to discuss with you what that word means, “willfully,” because it’s very important with respect to this case. Because not only will you be looking at the acts, but also the state of mind. Willfully means with a bad intent to disobey or disregard the law, knowing that what you are doing is against the law and believing it to be against the law. 1 Source:

Transcript of excerpted portion of trial before the Honorable Marilyn L. Huff, United States District Judge, and a jury for Case No. 06CR0787-H (United States of America vs. Larry Williams). All extracts in this chapter are taken from this transcript.

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He then pointed out what the Supreme Court said in the Cheek case: You’ve heard the statement ignorance of the law is no excuse. That is the general rule. You can’t bop somebody on the head or kill them and say, I didn’t know. But because we are dealing with a special area, complicated, difficult tax laws, dealing with income and hundreds of transactions and the way those transactions are treated and characterized under the law, in tax cases, if a defendant believes that what he is doing is not against the law and believes it in good faith, even if his belief is crazy—I will say that again—even if his belief is crazy, if he believes it in good faith, he’s not guilty of the crime of tax evasion.

Then Gene said what I think he had been wanting and waiting to say since we first met: And now I will say something that I have been saying for many months. Larry Williams was crazy. Not crazy in the sense that he was insane, but crazy in the sense that he believed things that were simply wrong about the meaning of the Code, about the application of the tax laws, about how words are defined and what words mean in the Internal Revenue Code. And so that there are people who lecture throughout the country and give seminars and teach that there is a magic bullet, that if you structure your affairs in a certain way, you will not have to pay taxes. If you look closely at the language of the Internal Revenue Code, those 1,200 pages with 60,000 pages of regulations and you interpret this statute with this section and you understand what it means, then you don’t have to pay taxes. That’s the gist of it. And it’s coupled with language about the sovereignty of citizenship. It’s coupled with things like that.

Gene wrapped it all up with a frank explanation of the judicial estoppel argument, tossing it back onto the government—that it knew full well that I was a victim of, in this case, Lynne Meredith. He described her in this part of the trial transcript: During the time period that we’re talking about, Larry Williams had paid money and was acting under the belief that if he put his businesses in what is called a pure trust, there would be no taxable income. And I’d like to explain to you about that. One of her books that Larry Williams read, “How To Cook a Vulture.” And I’m afraid that she said

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192 C O N F E S S I O N S O F A R A D I C A L T A X P RO T E S T O R the IRS was the vulture. And the other is “Vultures in Eagles Clothing, Stop Paying Income Taxes.” “How to Cook the IRS with the Fire of the Law.” Well, I will tell you this. Lynne Meredith was a fraud. She knew she was a fraud. She lied to thousands of people. She took their money. She had a whole organization of people who defrauded taxpayers and got into a lot of trouble with the IRS. And by the way, those are not my words. Those were the words of the Assistant U.S. Attorney who prosecuted Lynn Meredith and two of the people that we are going to be calling as witnesses in this case, Greg Karl and Willy Watts, both of whom advised Mr. Williams and helped him set up the trusts and told him how to characterize them on the paperwork that was filed with the bank.

Gene made it clear in his opening that we would be directly attacking these points, saying that in fact, there was no money due and owing for the years in question. He did more than talk about it, he put up a large overhead projection using the government’s very own figures that had been used in the opening argument to show that, in fact, they were not allowing credit for traditional business losses and deductions I was legally entitled to. Had they given me credit for those deductions and losses, then there would be no taxes owing. No taxes owing, of course, would mean I had done nothing wrong. There could not be a criminal conviction. He made a very powerful presentation, whose effect was intensified by the government’s own figures. His manner was dispassionate; there was no anger or attack in his voice. He just went through figures and explained. Courtroom demeanor is incredibly important, and Gene had it. Years earlier I had served on a jury. I could see then how we liked one lawyer over another by how he handled himself in court. Gene’s opening statement ensured that the jurors kept an open mind. When our evidence came before them, I could see quizzical looks on their faces, changes in body posture, and a sudden interest. They saw the conflict, the ways of seeing the same set of facts. They could see it our way. Gene captured their interest. They listened to him.

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The first witness the government called was one of the agents who had raided my office, with a name—believe it or not—right out of the 1970s, Tony Orlando. But he was no relation to the pop singer. Mr. Orlando testified that he had been at my office with search warrants. He took possession of most of my books and records in the correct manner, documented what he took, and turned these over to a safe facility so the government could go through these materials to assess what tax was owed. That was about all there was to Tony Orlando’s “tune.” The government brought forward another nondescript witness. He had secretly taped me at my investment seminars. However, despite 20 hours of tape, he was unable to show any intent on my part to violate tax laws or to show others how to evade taxes. What a waste of the government’s money, I thought. All the Justice Department had to show was me telling people about investing, about stock and commodity trading, my indicators, things like that. The agents also recorded conversations at an afterparty for one of these seminars. I could hear attendees say things like, “That sure is a good dessert.” My former wife Carla was a witness for the prosecution. Carla did not want to be there. She dislikes being in front of people. So you can imagine what her feelings were as she walked into the courtroom. It was apparent this would be a very difficult process for her. She was physically shaking. The judge called a sidebar with the lawyers to instruct them not to upset her any more than she obviously was. One argument for my defense was that money Carla received from me should be a write-off because it was essentially alimony. Carla and I did not feel we needed an alimony agreement. I told her I would take care of her and I did. She emphatically stated on the witness stand that is exactly what happened. She told the court that she had been treated fairly, that we had not squabbled over money like other couples do when they divorce.. That did not happen with us. Carla also testified about the nature of my friendship with Jim Knowles, that he spent time at our house, and worked out of my office. Under cross-examination with Gene, she agreed she couldn’t recall all the dates I had paid for things, such as the swimming pool improvements at the house. However, when that house sold, only she had profited from those improvements, not me. She confirmed that at all times I had upheld my end of the handshake deal, that I would take care

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of her and that she would get the vast majority of our assets. She stated that she did not need it in writing because she trusted me. I think that also impressed the jury. They realized that while I might be a tax protestor, I was a decent guy too. I didn’t try to evade my responsibility vis-`a-vis my former wife.

r r r One of the Justice Department’s star witnesses was my former accountant, Lewis Lee. Lew is a most impressive-looking person. Imagine a Kenny Rogers lookalike with an accounting degree and you will get a pretty good idea. On the witness stand, he was deliberate and took his time answering questions. The jury could tell he was not talking off the top of his head. Questioning opened with the government establishing that Lew and I had known each other for a long time. He had been the treasurer for my senate campaign in Montana. They established that Lew was a professional and had advised me on how I should handle my tax situation. As it turned out, the government could not have picked a better witness—for our case—than Lew. He had also testified to the grand jury in 2006 that indicted me, as had my former secretary Jennifer Wells, and recalled his testimony in regard to Jennifer. The government asked Lew to testify that all the accounting and tax filings he did for me were based on records and information sent to him by Jennifer. The reason this was so much in our favor was that in the Justice Department’s opening statement, it made this point: [A]re they [i.e., the tax returns] accurate? Do they show all those gigantic checks we were just seeing from British American, the millions and millions of dollars? No. He doesn’t report millions and dollars on his tax returns. Every year he’s under-reporting by millions.

It was their witness, Lew, who explained the facts behind those filings. We did not bring up the fact Jennifer had embezzled money. That was brought up in the testimony from Lew, how she would make out a check to herself, deposit it to her account then would give Lew and I a Xerox copy of all the checks, after whiting out her name and

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then putting the name of a supplier or credit card such as American Express on the Xerox copy. This left the door open for Gene. He cross-examined Lew about the embezzlement, getting him to admit that he’d requested Jennifer get all the bank records for all the accounts. She was to list check numbers and amounts for payments. There were months of records missing, however. He testified that Jennifer always told him it was impossible to get those records because the banks didn’t have them any longer. Based on that, Lew did the best filing he possibly could. (When this took place I was lecturing and traveling. I was not there to personally direct this filing.) There were also substantial errors in Lew’s accounting. For instance, he showed a commodity trading loss as a profit—so the government also showed it as a profit. Gene was able to get Lew to agree that the loss should be deducted from potential income. Lew also used a tax loss carry-forward that the IRS had disallowed. Things like that hurt the government’s case. His testimony helped in other areas too. He testified about the money that went to Carla, which should have been deducted from my income. I had substantial trading losses, too, that he had not deducted. Gene asked him about my business—“What I want to ask you is, is this an important part of what Larry does, trading real-time, real money in front of people?” “Why, yes,” Lew replied, “That is a very important part of his business. No one else trades real-time like he does and I know he spends a great deal of time not only researching the market for trading potential systems but also developing to see if they work or not in real-time trading”. “Well then,” Gene asked, “Doesn’t that mean that is a cost of doing business for Mr. Williams?” It did not take Lew very long to reply, “Yes, of course that is a cost of doing business because he tells people he really trades, so when he really trades systems and develops [them] to see if they work or not, a loss from one would be a business expense and should be written off, just like research and development for any other business.” This was a huge admission coming from the government’s witness. There were other write-offs, too, namely the Madoff-style fraud losses that my retired IRS consultants had discovered during pretrial. If that,

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too, were treated as a traditional business loss, then there would be no income taxes owed to the Treasury—not a penny. This could be a game changer. I could show that I had no taxes due and owing for the years the trial was over. There was another writeoff, in addition to the fraud losses from the Bernie Madoff stuff, of investments about $450,000. If that was treated as a traditional business loss, which Lew just claimed on the stand, and my former IRS guys also said it should be, then there was no income tax due and owing—at all. Not a penny. Since the evidence came in from the government, not from us, the defense team felt a jury would consider that write-off as a deduction, thus bringing my taxes down to zero, as Gene showed in his opening presentation. It got even better as Gene continued to cross-examine Lew: “So here’s a check made out to Wells Fargo that you show as a personal expense for Larry, because it was a credit card payment. Is that correct?” “Yes, that is correct,” he replied. “Then explain this to me.” Gene continued. “Here is the actual back of the check and, as you can see, the endorsement is not Wells Fargo but is Jennifer Wells, and here is a copy of the front of the check and shows that Jennifer Wells was written on the original check. But, in a photocopy of the check given to you and the government, we see Wells Fargo. So didn’t the money really go to Jennifer Wells, which means this was not a personal expense to Larry Williams?” “That is also correct,” Lew replied. Gene went through each check, check after check, where the same procedure had taken place. Jennifer would make out a check to herself, then when the checks came back from the bank would make a photocopy of the check whiting out her name and putting in the name of either a credit card company or someone else so that the information that I used, the information Lew Lee used, and the information the IRS used might have appeared as my personal expenses, but were really embezzlement losses! You should’ve seen the jury look at Lew as his testimony was progressing. I actually felt that many of them were starting to see the light of day. While I might be an intelligent guy when it comes to knowing when to buy or sell pork bellies or soybeans, I certainly didn’t pay much

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attention to the business side. It was apparent that I let people run things for me because I trusted them. I trusted Jennifer. I trusted Lew to do what was right. The more Lew spoke in reply to their questions—or ours—the more apparent it was that Jennifer had been much of the problem. She had embezzled a good deal of money, and the reason Lew could not correctly do my filings was because of Jennifer’s acts of covering up her own misdeeds by sending partial data or none at all in many instances. That cost me a great deal of money in the long run, but the jury was starting to understand what made me tick and that what the IRS claimed I owed was flat out wrong. That did not excuse my radical tax positions, however, the stuff Jim had taught me, that my income was not connected to the United States, that citizenship was not from the Fourteenth Amendment, and so on. We did explain to the jury that I was not the instigator of these ideas, just another one of the millions of people who jumped aboard the tax resistance train only to be thrown under the wheels by taking the fraudulent and incorrect actions the “engineers” instructed us “passengers” to take. Things were looking very good for us.

r r r We noticed during Lewis Lee’s testimony that government lawyers were text messaging back and forth on their phones. They were in communication with somebody outside of the court. We did not know what this was about. Had they found a new witness? New facts that would catch us by surprise? Late that afternoon, Mr. Owens approached Gene with an offer. He wanted to make a deal—what I had been waiting for, for six years—a settlement. It wasn’t a very good deal. I would still have to plead guilty to criminal charges and, since the judge was not a party to the deal, I still risked having the book thrown at me and a prison sentence. So I didn’t like the deal. I told Gene that. I thought we were doing well at trial and that we should continue. We had not even stepped to the plate yet. More importantly I asked, “How could I plead guilty

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to knowingly breaking the law if, at that time, I did not think I was breaking the law?” Going back to the house that night, Louise, my son Jason, Graham and Adel (who had come all the way from Australia for the trial), all gave me a long and hard talk about what would likely happen tomorrow. In their view, if the government came back with a deal that was even close to good, I would be a fool not to take it. Not because we were not doing well at trial. Everyone felt we were. No, it was because, as we say in trading, the risk–reward ratio was very good. If the government would suggest an agreement to a misdemeanor, dropping all the felony charges, I should take the offer regardless of how I felt about the trial because I would eliminate the risk of continuing the trial and having to pay a substantial fine. There was also the risk to my personal freedom. I was uncertain about the Justice Department’s offer. Would it be good enough? Might it be wiser to go the distance? Louise and I talked a lot about it that night. Jason gave me his input. I still wanted this battle to go forward. We had them on the ropes it seemed. After all, they had come to us to make a deal. We didn’t go to them. And, more importantly, Gene hadn’t even begun our case. Clearly, once he began the case, the jury would see how all this took place. They would see all the facts and finally my innocence. The next morning, as the last federal witness was preparing to testify, there was more texting going on. Gene and John Owens had been in discussion. Finally, Gene came to me to with their offer. It came with this caveat: I had to make a decision then and there. I wasn’t even certain yet of the offer. I told Gene in a raised voice, “I’m not going to decide this right now. I’m under a lot of pressure. You’re asking me to make an instant decision. I’m not going to do that.” Gene suggested we go into a private room off the side of the courtroom to discuss the offer, what it would mean and the implications. In addition to my defense team, Louise, my son Jason, and the former IRS agents Randy and Lee attended this meeting. While they were a great deal of help, my head was spinning. I really could not think straight. The room seemed to go in and out of focus as I tried to concentrate on what was in front of me. It was such a difficult decision to make. It had taken so long to get to this point, and I had spent so much money, so much time, so many sleepless nights worrying and wondering about all

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of this. There were only a few minutes to decide. Judge Huff had given us 15 minutes to fish, cut bait, or get back to trial. Talk about pressure! Everyone in the room helped me to understand what the deal was: I would plead to a misdemeanor of failure to file income tax returns for two years but with no money due and owing, a misdemeanor. All other charges would be dropped. That was critical. A felony conviction would prevent travel to many countries. I would pay a fine and the Justice Department would recommend to the court there be nothing more than probation—no prison time. The government was dropping all charges listed in the indictment. In my mind, that was a clear vindication, something I had been working on and waiting for the last five years. It was a huge victory. As you recall, the indictment was for three years and three felony counts for each year. By agreeing to the misdemeanor, the government would give up on those charges. I would not have to worry about them ever again. We would also inform the court that it was unknown if there were even any taxes due, just that I had failed to file because, as I learned, a person is required to file if his or her gross income is above a certain level, even though there is no net income to pay taxes upon. This rule I had broken, no doubt about that. I took the deal.

r r r I will wonder for the rest of my life if I did the right thing in taking that deal. Late at night, I find myself waking up wondering what would have happened had we presented our case. Would we have won? Lost? I will never know and be haunted by this forever. Nevertheless, I had my life back again with no felony convictions. I had the assurance of John Owens, whom I had learned I could trust, that there would be a fine to pay and 12 months’ probation. After that I would be able to get on with my life. Gene expressed the same opinion. We felt the judge would go along with this deal. Gene assured me that John Owens would uphold his end of the bargain. As a criminal lawyer with many years of practice behind him, Gene said there are people at the Justice Department who will mislead you. But this was not John Owens. We could rely on his word. It was good.

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So the deal was done and so ends the tax trial of Larry Williams. I pled guilty to two misdemeanor charges of failing to file an income tax return when there was no money due and owing. If anyone tells you otherwise, they are not telling the truth. This does not end the book on my desire to bring about changes to the tax system. Hopefully, it’s just the beginning. Next, I would like to give you some ideas on what can be done on a more constructive basis than what I tried to create: a better IRS by creating a better tax structure—one with more compliance, less problems, that is fair to everyone—fair for citizens and their government.

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CHAPTER 14

A Workable Solution A Fair Tax System

The hardest thing in the world to understand is the income tax. —Albert Einstein

he road to reforming the U.S. tax system inevitably runs through Congress, and Democrats and Republicans inevitably have different ideas about how to do this. Both sides of the aisle talk about fairness. But what is fair? The 111th Congress, which ended in early January 2011, added more debt to the backs of citizens than the first 100 Congresses put together! Sound fair to you? The total debt is now $13.8 trillion, with $1.26 trillion in debt added in the last session, according to the Congressional News Service. All that debt with interest must be repaid and where will the repayment money come from? You, me, and future generations. Does that sound fair? A fair system of taxation is one the average person can understand and pay without having to hire professional people. Many of the latter, CPAs, tax lawyers, and related “experts” are often as much mystified by

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the Internal Revenue Code as their customers. How can they figure out the correct amount of taxes “due and owing” to quote from my grand jury indictment. The current Internal Revenue Code is beyond comprehension. Many of the people I met in the tax resistance movement joined because of the complexity of the code. If you want to cut back the number of tax resisters, the very first thing that must be done is to make a simple-to-follow system. This will increase compliance from the average taxpayer, while at the same time not allowing those with tax lawyers and CPAs to avoid their fair share. The complexity of the Internal Revenue Code has come at a great cost. The IRS and the Economic Policy Institute estimate the amount of taxes owed but not paid at $353 billion, equal to about 15 percent of the total taxes owed. According to the CPA Journal (March 2007), the complexity of the income tax has been reported as being responsible for more than $100 billion in tax cheating. There’s probably several billion dollars on top of that which would have been collected, but wasn’t, because the complexity was used as a shield for some people to avoid all forms of taxation. Federal income tax comes at a great cost in terms of the annual reporting that each taxpayer is required to complete. The average person spends more than a day and over $200 collecting, calculating, and compiling numbers, according to a report based on Internal Revenue Service figures. Congress, and not the Internal Revenue Service, is the leading culprit in this time and money increase, said the group, a nonpartisan organization that works for lower taxes and smaller government. “Congress is adding to the tax ‘laws’ complexity faster than the IRS can simplify its forms.1

In 2006, it cost $170 billion to just file our taxes. That’s like a tax on top of a tax. This is not the fault of the IRS. The blame goes to Congress, which has allowed such a bizarre form of raising revenue. Some of that revenue went to H&R Block, the world’s largest tax-filing firm, which reported 2008 revenues of over $4.4 billion for getting you through the maze of tax forms, rules, and regulations.2 1 Associated

Press, “Add this to tax bill: $207 and a day of work,” MSNBC, April 14, 2008, http://www.msnbc.msn.com/id/24112908/. 2 For these and other tax statistics, visit the National Taxpayers Union web site at http://www.ntu.org/.

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Because Congress seemingly cares more about revenue than citizens, the IRS sends out over 8 billion pages of forms and instructions each year. Placed end to end, the pages would reach almost 30 times around the earth. It takes almost 300,000 trees to produce enough pulp for that much paper—which makes me wonder why more environmentalists are not tax protestors.3 Let’s think of the IRS as a business for a moment, one that takes in money and has expenses. In 1950, the IRS estimated their cost of doing business—collecting money—was about 2.5 percent of revenues raised.4 A 1985 study by Arthur D. Little showed the cost of collection had increased to 24.4 percent of revenues.5 For that same year, James Payne in Costly Returns claimed the total cost of the tax system was 65 percent of what was brought in!6 The tax rate has two components: amount and difficulty. Fix those and you fix the system. For example, eliminate all legal tax loopholes and write-offs so that special interests and “special” people have to pay the same as everyone else. Then the U.S. Treasury will see more revenue come in (for Pell grants, worthwhile programs, and the like) and the overall tax rate will be lower—and loophole lookers will need look no more.

r r r We are not an inexhaustible ATM for the federal government. That is the root of the problem. Government sees us as an unlimited bank account they can tap whenever they want to and for whatever particular reason or political project being advocated by large unions, big business, special interest groups, political action committees, and so on. There should be a finite amount of our income, if income is to be taxed, that the government must operate with and within. So, before we start talking about income tax brackets, let’s ask this: What should that finite amount be?

3 Ibid. 4 Ibid. 5 Ibid. 6 James

Payne, Costly Returns (San Francisco: ICS Press, 1993).

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Until that question is answered, any form of taxation will carry a high level of unfairness because it is based on the consumption of the federal government as opposed to the supply from private citizens. The government has an insatiable desire to spend money. As Howard Jarvis told me, “They can’t spend what you don’t give them.” How we can go about arriving at what is fair? Let’s hear one answer that many have: Tax the rich! Well, that is like going out for dinner and getting pretty much the same meal, the same bar tab, and when the bill comes, passing it on to the richest guy at the table who pays for 90 percent of it (including the tip) while the rest chip in the other 10 percent and some don’t pay at all. Is that fair? In a word, no. That is why current taxes are a good deal for those not wealthy. Or is it? In reality, it is a very bad deal for every person at the table because eventually most at the table learn to live off of others instead of being responsible for their own dinners—that is, their own lives. Even more to the point, raising taxes on rich or poor does not generate more income to the Treasury, as shown in Exhibit 14.1. This point either escapes the tax-and-spend crowd or they are very much aware of it and, as Rhett Butler says in Gone With the Wind, “Frankly my dear, I don’t give a damn.” They just want punitive taxes regardless of the outcome.

Exhibit 14.1

Tax Rates vs. Tax Revenues

Source: Internal Revenue Service, U.S. Treasury, OMB, 2010 estimate.

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W. Kurt Hauser, chairman emeritus of the Hoover Institution at Stanford University, said in the Wall Street Journal, “None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues. Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19 percent regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92 percent (1952–1953) and as low as 28 percent (1988–1990). This observation was first reported in an op-ed I wrote for this newspaper in March 1993.”7 Can it be any more clear? In my lifetime, every tax cut has increased money coming into the treasury, while tax hikes have resulted in economic slowdowns. The same thing is true on a state level; in 2009 the State of Oregon boosted its income tax on the richest 2 percent of its residents to bring in more revenue. As reported in the Wall Street Journal, however, “The state treasury admits it collected nearly one-third less revenue than the bean counters projected.”8 Instead of $180 million collected last year from the new tax, the state received $130 million. In a democracy, the restaurant example of who-pays-what becomes an even worse or better deal depending on your point of view. We vote on what we’re going to have for dinner—that is, we can elect a Congress willing to reward us for those votes. Programs, extending my restaurant and rich guy analogy, can be seen as the most expensive bottle of champagne on the rich guy’s tab, maybe dancing girls, too! That’s what has gone on in society. Are you surprised that society has come to this? When you consider that 47 percent of the people in the United States don’t pay taxes, and that 47 percent essentially control the ballot box, it should not be a surprise. The Gallup poll survey in Exhibit 14.2 reveals where people in this society stand on paying taxes, whether tax paid is too high, low, or about right. Keeping in mind that 47 percent of the people pay no federal tax, the “about right” response is a sham. Interestingly enough, the more money one makes, by the brackets shown in the exhibit, does not increase the “Too high” response. Indeed, 7 W.

Kurt Hauser, “There’s No Escaping Hauser’s Law,” Wall Street Journal, November 26, 2010. http://online.wsj.com/article/SB10001424052748703514904575602943209741952.html. 8 “Ducking Higher Taxes,” Wall Street Journal, December 21, 2010. http://online.wsj.com/article/ SB10001424052748704034804576026233823935442.html.

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206 C O N F E S S I O N S O F A R A D I C A L T A X P RO T E S T O R Exhibit 14.2 Do You Consider the Amount of Federal Income Tax You Have to Pay as Too High, about Right, or Too Low? (April 8–11, 2010) All Americans 75,000+ $50,000 to 74,999 $30,000 to 49,999 $20,000 to 29,999 Less than $20,000 Republican Independent Democrat

Too High (%)

About Right (%)

Too Low (%)

48 48 51 50 41 44 54 52 36

45 49 46 46 49 39 43 41 53

3 3 2 3 3 5 2 2 6

Source: Gallup.

the most dissatisfaction—at 51 percent—is from middle-income people, those earning $50,000 to $74,999. Lastly, a minuscule 3 percent felt taxes were too low. These are certainly no one I know.

r r r Let’s step back in time. Remember how the federal government had been financed prior to the enactment of the Sixteenth Amendment. Back then, before the federal government decided to take our money out of our pockets, they funded themselves primarily by charging excise taxes on imports. If China was going to ship five tons of rice to the United States to sell in our market, the Chinese tea seller had to pay for the privilege of selling that rice in the United States. That is, the federal government would place a tax on the Chinese rice when it arrived at port. The revenue would go directly to the federal government. It is a simple and inexpensive system to implement—nothing gets unloaded until the fee is collected. None was taken out of the pockets of our fellow Americans directly. The tax would be passed on as part of the cost of imported rice. This tax system worked exceptionally well in the building of the United States. Would it still work today? Let’s look at some numbers. In 2006, individual taxpayers forked over $238.6 billion to the IRS of all funds collected—that is, 45 percent of

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Exhibit 14.3 Sources of Federal Tax Revenue for Fiscal Year 2008 Percentage of Contribution

Source

Individual Income Tax Payroll taxes Corporate income tax Excise taxes Other

45% 36% 12% 3% 4%

Source: Congressional Budget Office, A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook, March 2009, Table F-3.

revenue. As Exhibit 14.3 shows, payroll taxes were the next largest source. Excise taxes used to support the government are now just 3 percent! The economics of the United States has been turned upside down with disastrous consequences to workers and economic growth. This is what really turns my stomach. While we collected $238.6 billion in individual income taxes, the IRS claims about $350 billion goes uncollected, a phenomenon the IRS calls the “tax gap.”9 This tax gap is caused by the tax system. If it were closed, or simply narrowed, you might not have to pay what you pay now.

r r r Alexander Hamilton was the man responsible for getting our financial house in order during the 1790s and early 1800s to pay for the war with Mother England and ensure the economic growth. At Hamilton’s urging, Congress raised tariffs on imported finished manufactured products from 5 to 12.5 percent. The idea caught on. Three presidents and two decades later, Congress doubled them to fund the War of 1812. (Keep in mind there was no tax on income yet. That was the explicit intent and wisdom of the Founding Fathers.) That war drained the U.S. Treasury and import tariffs were increased from 12.5 percent to 9 Robert

Longley, “What is the Tax Gap and Why Does it Cost You Money?: Annual shortfall raises taxes for all,” n.d., About.com, http://usgovinfo.about.com/od/smallbusiness/a/taxgap.htm.

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25 percent. But there is a good outcome to this. Because these tariffs made foreign-manufactured goods more expensive, it increased demand for domestic-manufactured items and American industry began to take off. See the picture? Imported items cost more, so Americans made the same products, creating jobs here, not in France and England. Businesses sprung up across the new nation because of high tariffs. Not being idiots, Congress saw this cause-and-effect and raised tariffs two more times, in 1816 and 1820, to 25 percent and 40 percent respectively. It set the stage for one of the greatest industrializations in world history. During the Civil War, Abraham Lincoln continued the wisdom and raised tariffs to 50 percent. So, from the 1830s through World War II, the United States produced the world’s first truly large-scale middle class. The lack of a tax on income allowed working people to attain wealth, while tariffs created jobs at home. The economic growth that took place would be unrivaled by any country until China 150 years later. In 1913, the anti-tariff Democrats (today they would be Republicans) dropped rates to 25 percent. Then in 1921, after World War I, Republicans raised them to 37 percent. This may have resulted in not only the massive economic growth, but the personal liberty and new freedoms people enjoyed during the Roaring Twenties. Meanwhile, the Internal Revenue Act of 1913 gave us the federal income tax we have today. It has since increased in leaps and bounds while tariff rates have declined to where they are now at 3 percent of revenues. Our Founding Fathers would be dumbstruck to see this upside-down disaster. A tax on incomes in favor of low or no duties, would have them rolling over in their graves.

r r r No doubt about it, the economic revolution of China is staggering. What the country is doing with its trade and economy is in many ways what Hamilton advised and established for the United States in his 1791 “Report on Manufactures.” Hamilton recommended “Protective duties, or duties on those foreign articles which are the rivals of the domestic ones, intended to be encouraged.” He also recommended prohibitions on rival articles and

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duties “equivalent to prohibitions,” that is, “a monopoly of the domestic market to its own manufacturers as the reigning policy.” This and other recommendations that Hamilton recommended for a new nation at the end of the eighteenth century have virtually been updated for the present and practiced by another country—China. The Chinese government imposes high tariffs on just about all imports and American products top the list. In 2009, we imported $305 billion from China.10 What if we treated them like they treated us and tacked on a tariff rate of 36 percent on that $305 billion of imports from China? We could add $109.5 billion to our treasure, about 50 percent of what is collected as income tax from you and me. A tariff on imports from just China cuts your tax bill in half. If applied to all countries, there would be no need for a tax on income. You would be about 30 percent—per year—wealthier than you are today. If you make $50,000 a year now and increase you true income by 30 percent a year for 20 years, you have $300,000 more dollars to retire on, and that’s before compounding or investing them. That is what they are doing to us now. China does not let their currency float to a market value, thus it can produce low-priced goods for both the export and its internal market. Japan subsidizes most of its industries, while charging us money to sell to them. In fact, I believe most countries in the world have engaged in some form of trade retaliation against us. We are the only ones that have not thought about putting ourselves first. It is time we do. Returning to import duties to fund our federal government would mean not taking money out of the pockets of Americans. This tax system worked exceptionally well in the building of the United States. Would it work today? The political philosophy of free trade, which is pretty much the policy of both political parties in the United States, sees import duties as bad for our economy, as well as bad for world economies. I used to believe that. I now think the wisdom of the Founding Fathers still applies and here is why. Ralph Vince, a dear friend of 10 Howard

Richman, Raymond Richman, and Jesse Richman, “U.S. Growth Slows Due to Trade Deficit,” American Thinker, August 7, 2010 http://www.americanthinker.com/2010/08/ us_growth_slows_due_to_trade_d.html.

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mine and money manager extraordinaire, visited a Brazilian steel mill. There he was told that the electricity was provided by the Brazilian government for free. The plant’s laborers had been recruited in the jungle and made a few dollars a day, which to them was wealth beyond belief. Ralph described all this to me at dinner one evening and then he asked, “How in the world could we possibly compete with this type of an economic system?” We cannot. So, the best incentive to make our businesses competitive is to charge other countries when they import their products to the United States. Yes, that means things at Wal-Mart will cost more. However, if the prices are higher, that means businesspeople and entrepreneurs have the incentive to make a product here that can sell at Wal-Mart for less. That means American jobs. Lots of American jobs. The reason we can’t produce now is because the artificial low prices of subsidized imports make it impossible for our companies to turn a profit. They cannot compete against low-priced imports because there is not enough profit margin—and no reason to hire American workers. At higher prices, and not that much higher, we could grow our way back to a healthy economy. I recognize Adam Smith and Milton Friedman had a different view, that tariffs were wrong. I agree with them—if we are talking about a truly free marketplace. Sadly, however, the only place you find such a marketplace is in their books. In the real world, import tariffs would be a viable alternative to free trade and seem the best way to support our federal government. There are costs to tariffs, of course. Economists usually say something along the lines that an increase in tariffs forces consumers to buy less of a particular good and this is, in effect, a reduction in consumer income. However, what is not being considered here is that tariffs—like we used to have—and the removal of the current income tax system would more than compensate for this loss of discretionary income. Potentially, we can choose to buy other goods or pay the tariff. Taxes on import duties would give us two advantages. First, domestic businesses could compete, which creates American jobs. Secondly, tariffs would lower the amount of money the government would have to take from our incomes, the money we earn, the money that is rightfully ours. The federal government would get its money from excise taxes.

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We currently import approximately $1.5 trillion a year in imports. If we were to charge tariff duties of 20 percent on imports, then revenues to the treasury would be about $300 billion. In the last year for which we have good data, 2006, individual taxpayers paid $238.6 billion to the U.S. treasury. There would be no need for a tax on your income with a 20 percent tariff on all or most all imports. Who would that help? Americans. “America First!” is my motto. The Founding Fathers were right all along.

r r r Tariffs are associated with periods of economic growth in this country. Times have not changed. The Obama administration imposed steep tariffs on tire imports from China in September 2009, which had wholesalers saying this would prompt near-immediate price increases at repair shops and tire retailers due to the higher costs on imports. However, on Wall Street, shares of U.S. tire makers rallied sharply as investors reacted to an expected increase in profit margins from domestic production that would benefit from the tariff. For example, Cooper Tires, the largest U.S. tire maker, had a 55 percent gain in price following the tariff. While the Dow Jones Industrial Average of 30 stocks took a hammering in the first part of 2010, Cooper tires advanced sharply and posted a gain for the year, despite the bad market. Companies making money can and will hire new workers, tariffs simply mean our businesses will be competitive and profitable. Yes, make no mistake about it, tariffs increase prices. When we buy imports (usually from our enemies) we export jobs. Keep this up long enough, there will be no jobs here and we are destitute and then cannot even buy low-priced imports, which, in turn, weakens the economies of export nations such as China. Will this make your life better or worse? Better. Here’s why. Let’s say I am a tire maker in China and have a 20 percent markup. That means my cost is $80,000, so I can sell $100,000 of tires on the American market and make $20,000 for profits to cover new equipment, research, and the like. If a tariff is enacted of, say, 20 percent on my tires, my costs increase to $100,000, $80,000 plus

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the tariff of 20 percent. That extra $20,000 is essentially a cash investment that did not require labor or equipment; therefore, it carried little risk. And if I still want a $20,000 profit for my tires after the tariff is imposed, the cost of my tire will need to increase by about the same amount: 20 percent. (I may settle for less, too, because domestic tire makers can now compete with me.) We spend our money on domestic goods of various kinds (clothes, food, electricity, etc.) to the tune of 56.4 percent. Let’s say the remaining 43.6 percent is spent on imports. If that is boosted by 20 percent (43.6 × .20), you would be paying an additional $8.72 a year (8.72 percent) thanks to a 20 percent tariff. Of course, that would mean more jobs here as opposed to wherever “there” is. But if the current system of income tax has been abolished and replaced by a tariff system to fund the federal government, it would also mean no income tax—just like the good old days. No income tax means you save about 30 percent a year, with a net savings of about 22 percent after deducting the 8 percent tariff impact on your costs. It also means no IRS annual hassle. Donald Trump joined the Hamiltonian way of thinking, saying, “If we ever taxed Chinese products coming into this country, we would pay off the debt so fast. More importantly, we would start creating jobs in our country.” My friends from China said to me just recently—they didn’t know that I might be thinking about running for president—we cannot believe how stupid your politicians are to allow us to get away with what we’re getting away with.11 You don’t like this idea? Then let’s look at another solution.

r r r As a kid growing up in the early years of the Cold War, I knew about the threat of the Soviet Union and Communism. Fortunately, wise men prevailed; there was no mutual destruction. Thanks to the statesmen such as presidents Eisenhower, Kennedy, Nixon, and “Dutch” Reagan, the Iron Curtain collapsed. 11 Source:

Jim Meyers and Kathleen Walter, “Trump: Mideast Explosion Could Destroy OPEC, Lower Oil Prices” January 30, 2011 (http://www.newsmax.com/Headline/trump-opec-oil-egypt/ 2011/01/30/id/384427?s=al&promo_code=B91B-1).

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The irony of all ironies is that now Russia has an up-to-date tax system. They have abandoned the communist-era progressive tax program in favor of a flat tax. In 2001, Russian president Vladimir Putin, a former KGB agent, implemented a flat tax at a 13 percent rate, four percentage points lower than the supposedly “radical” plan espoused by publisher and U.S. presidential candidate Steve Forbes. Karl Marx, roll over in your grave! A year after the reform, the Russian economy grew at almost 5 percent in real terms, while revenues to the treasury from the flat tax increased by over 25 percent in real terms. Recently, Russia did away with a tax on capital gains, too. Putin’s popularity in Russia is, in part, due to the huge success of the flat tax—and it has contributed to making Russia a world power again. While Nikita Khrushchev’s pounding a table and threatening “We will bury you”—the United States—economically with communism is Cold War history, capitalism and tax reform are saving Russia. Meanwhile, the United States clings to a progressive tax system designed to fail like the old communist system. Can the United States follow the Russian example? Let’s look at the Baltic country of Estonia. After liberating itself from the Soviet Union and a communist economy in 1991, Estonia established a republican form of government. In 1994, it really threw off the shackles and enacted a flat tax! It began with a 26 percent flat tax on income, which gradually dropped down to 19 percent. Estonia also has something we don’t have in the United States—a balanced budget. The other Baltic states of Latvia and Lithuania quickly followed with flat taxes of their own. Then other European countries did as well. Serbia enacted a 14 percent flat tax on personal and corporate income. Ukraine replaced its progressive income tax system with a 13 percent flat tax. Slovakia now has a 19 percent flat tax. Georgia has a 12 percent flat tax. Romania has a 16 percent flat tax, and its finance minister announced that the flat tax generated revenues substantially higher than expectations, allowing a surplus. In 2006, a 10 percent flat tax was enacted in Kyrgyzstan. The people of Macedonia voted overwhelmingly for a flat tax of 12 percent, which was so successful it was later reduced to 10 percent in 2008. A flat tax may be what we are looking for in the United States—a simple solution to paying taxes. If the amount is reasonable, say 10 to

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15 percent, we will have as close to full compliance as possible. If you pay 10 percent of your income in taxes, you have an additional 20 percent of your income to spend as you choose. If you have an additional 20 percent of cash in your pocket, you could buy the medical insurance you wanted. You could more easily afford a car. You could pay college tuition for your children. These purchases would, of course, be made with pretax dollars. Is that too confusing? Can you understand that? I think so. Congress might want to grant a deduction for retirement benefits or personal allowances, including dependents that are under the age of 18 not in college. But you would not need a large laundry list of credits to be written up against your sources of income. In the case of a business, taxes would be done the same way—simply list true operating costs and then pay 10 percent on the net bottom line. That’s it. It’s done. We have a simple tax system. It’s fair because everyone contributes. Everyone has a voice in the government because they’ve all chipped into the pot. Wealthy people will continue to pay more than lower-income people. All will have more money in their pockets after paying taxes than they do now. Those dollars will be spent or saved, and in that process the economy will grow just as it has in other countries that have instigated a flat tax system. Imagine, if you can, a tax form that simply asks what your income for last year was, minus your medical costs, and instructs you to send to the U.S. Treasury 10 percent of that number. It would be fair. Everybody would contribute—wealthy people, middle income people, and even people presently paying no taxes because their income falls below the line of taxable income. A person earning $20,000 a year would pay $2,000 for the same services that a person earning $1 million a year would pay $100,000 for. If you think wealthy people should pay more, then you should embrace such a program. Clearly, the rich will be paying more while getting the same services. When the current income tax began in 1913, it was at about 2 percent. Less than 50 percent of the population paid it. The tax take then was about 2.5 percent of our gross national product (GNP). The Heritage Foundation now estimates tax revenue at 28.2 percent of GNP. The current tax system consists of taxes on top of taxes, or double taxation. As an example, a company has to pay taxes on its profits. When it sends a dividend from these earnings to its shareholders, those

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shareholders must pay taxes on the dividend. The tax man has skimmed twice, first with a corporate income tax on profits and then a second time on the dividend to shareholders. Obviously, a flat tax would receive a great deal of opposition from the loop-hole crowd because they want their deductions in order to pay as little as possible or nothing at all. The system is replete with problems that can be resolved if it were not for special interest groups, such as insurance companies, banks, realtors, even homeowners who get a sizable deduction for the depreciation and interest payments on their house. This would be altered quite a bit by a flat tax. What you lose in writing off deductions and depreciations on your house or business purchases, you get back with the ease and fairness of the flat tax. Instead of paying almost half of your income to the government, you will be paying 10 percent. That’s it. If you’re looking for a tax that is not a fat tax, but a fair tax, the flat tax comes closest in an imperfect world to providing a near perfect solution.

r r r It has been a long journey for me to go from resisting taxes, to protesting the system in a way I felt would bring change, to realizing that many of my ideas about the system were wrong. The only way we’re going to change the system is by protesting, active and in-their-face protesting, but not at the courthouse, not in the streets. The protest I mean is “tossing the bums out” of Congress—Republicans and Democrats. Vote out those who have consistently refused to do anything about this monstrosity called the Internal Revenue Code. The politicians have created, benefited, participated, and acquiesced to an impossible system. Battling the IRS was wrong on my part. My battle should have been directed toward Congress. The IRS just implements what Congress tells them to do. Yes, sometimes the IRS doesn’t do its job well. In my case, I don’t think they had all of the facts when they investigated and arrested me. They didn’t have the full picture until we went to court. That’s the system. It has its ups and downs, its good and bad. I do have to give the Justice Department attorney John Owens full credit for realizing that the evidence he had did not jibe with the facts as they developed during

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the course of my trial. Instead of charging full steam ahead, trying to prove what he could not, Mr. Owens studied the facts and we reached an outcome that worked for both sides. He probably has a very different spin on this than I do. I just call ’em like I see ’em. For a long time, I had a great deal of anger. That’s only natural. In retrospect, the anger I had should have been redirected at Congress. They are the ones responsible. So what does this mean for you? I hope you consider the solutions presented here—import tariffs, a flat tax, or some combination of the two. These ideas can eliminate the tax gap and end our frustration with an impossible system of taxation. Get politically active. I hope what I have written in this book has registered and resonated with you. If you have been as frustrated as I have with the system, stay focused on this point: The system was created by Congress. They are the target. Consider what the Tea Party movement is doing. You might even consider running for office or encourage someone to do so with the same vision of a fair tax system. Sit down with your current elected officials. Explain your views. Get them on our side of the table to create a tax system that is fair to taxpayers. They need to see the tax system as not a blank check for Congress to take more money. Above all, elected officials need to understand how taxes are tied to economic failure and success. Government cannot spend more than it takes in. There should be a finite amount of money that Congress cannot spend past. After all, each state is required to have a balanced budget. The federal government’s isn’t. If we cannot get a constitutional amendment for a balanced budget, we should at least get Congress to change the tax system that limits the federal government to taking only X percent of corporate and individual incomes. There is a fair share of our income for government—but it is our property. We own it, not them. Do that and we will get America moving forward again. We will turn the economy around. We will create more freedom and opportunities. Above all, we will have citizens who are more responsive and supportive of their government. You and I have probably never met. Yet we have one thing in common: We need to elect people who treat and tax us fairly. Do that and the future of America is again unlimited.

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APPENDIX

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hope you never see the inside of a courthouse except as a juror, but if life does not turn out that way for you, or someone you know, you need to be aware of your right to a speedy trial. This right is most often violated. Hopefully the pleading we made, given here, will help your lawyer draft a motion to insure your rights.

Legal Argument

A. Violation and Remedy The Speedy Trial Act requires that a defendant be brought to trial within 70 “non-excludable” days from the filing of the indictment or the defendant’s first appearance before a judicial officer, whichever occurs last. “If a defendant is not brought to trial within the time limit required by section 3161 (c) as extended by section 3161 (h), the information or indictment shall be dismissed on motion of the defendant.” Dismissal of the indictment is mandatory, not discretionary. 217

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Here, the 70-day “trial clock” technically began running on November 19, 2008 when Mr. Williams was arraigned. Mr. Williams does not rely on the time between November 19, 2008 and June 8, 2009 as the basis for this motion. The trial clock did not begin running until June 8, 2009. But once the trial clock began to run, the Government was required to bring Mr. Williams to trial within 70 days or by August 17, 2009 before allowing for so-called “excludable” days. As discussed below, “excludable” days are not counted against the 70 days and result from pretrial motions and certain continuances.

B. Ends of Justice Continuances Unlike pretrial motions, not all continuances automatically exclude time. Only so-called “ends of justice” continuances which satisfy very specific, statutory criteria can exclude time from the trial clock. To date, the docket reflects the following continuances: Minute Entry Entered Continued Until Dkt. 22 1/05/09 3/30/09 Dkt. 31 3/30/09 6/08/09 Dkt. 38 6/08/09 8/10/09 Dkt. 44 8/10/09 8/31/09 Dkt. 49 8/31/09 Set Trial for 2/02/10 Mr. Williams agrees that the continuances entered on January 5 and March 30, 2009 involved properly excluded time until June 8, 2009. However, the continuances entered on June 8 and August 10, 2009 did not. Before a continuance can exclude any time under the Act, the Act requires consideration of four statutory factors: (i) Whether the failure to grant such a continuance in the proceeding would be likely to make a continuation of such proceeding impossible, or result in a miscarriage of justice. (ii) Whether the case is so unusual or so complex, due to the number of defendants, the nature of the prosecution, or the existence of novel questions of fact or law, that it is unreasonable to expect adequate

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preparation for pretrial proceedings or for the trial itself within the time limits established by this section. (iii) Whether, in a case in which arrest precedes indictment, delay in the filing of the indictment is caused because the arrest occurs at a time such that it is unreasonable to expect return and filing of the indictment within the period specified in section 3161 (b), or because the facts upon which the grand jury must base its determination are unusual or complex. (iv) Whether the failure to grant such a continuance in a case which, taken as a whole, is not so unusual or so complex as to fall within clause (ii), would deny the defendant reasonable time to obtain counsel, would unreasonably deny the defendant or the Government continuity of counsel, or would deny counsel for the defendant or the attorney for the Government the reasonable time necessary for effective preparation, taking into account the exercise of due diligence. See 18 U.S.C. § 3161(h)(8)(B). Unless the record clearly shows consideration of these factors, any delay caused by continuance will not be excluded from the trial clock. Next, there is a requirement of a statement as to “the reasons why it believes that granting the continuance strikes the proper balance between the ends of justice on the one hand and the interest of society in a speedy trial and the interest of the defendant in a speedy trial on the other.” (Emphasis added). On this point, the statute provides: No such period of delay resulting from a continuance granted by the court . . . shall be excludable . . . unless the court sets forth, in the record . . . , either orally or in writing, its reasons for finding that the ends of justice served by the granting of such continuance outweigh the best interests of the public and the defendant in a speedy trial. See 18 U.S.C. § 3161(h)(8)(A). (Emphasis added).

The requirements of the Speedy Trial Act are specific and Congress intended exact compliance with them. Should there be a lack of findings on the record, any delay caused by a continuance will not be excluded from the trial clock. Although findings do not need to be entered at the same time a continuance is granted, still the record must show

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contemporaneous consideration that balanced the ends of justice factors before granting it. “[F]indings must be made . . . before granting [an ends-of-justice] continuance” and there must be a statement of findings on the record before a ruling on a defendant’s motion to dismiss. They must be “specifically limited in time” and be “justified [on the record] with reference to the facts as of the time the delay is ordered.” Retroactive findings are not permissible. A thorough examination of docket entries and transcripts of the hearings held on June 8th and August 10th indicate that the requisite “ends of justice” factors” were not raised by the government nor brought to the court’s consideration prior to the granting of each continuance. The record is barren of the statutory factors, save for a brief reference to continued complexity. During the hearing on August 10, there was a simple mention that the case had been declared complex. Consequently, neither continuance excluded any time under the Act.

C. Complex Cases This case is a straightforward tax evasion case implicating one statute and one defendant. “Although the complexity of [a] case is a permissible factor under section 3161(h)(8)(B)(ii), the mere conclusion that [a] case is complex is insufficient.” (Emphasis added). Under the Act, there is no provision whatsoever that indefinitely suspends the trial clock if a district court determines a case “complex.” In the event a court should grant a continuance because a case is actually unusual or complex, the record must show the court found that it was due to one of three reasons: [1] the number of defendants [2] the nature of the prosecution, or [3] the existence of novel questions of fact or law making it unreasonable to expect adequate preparation for pretrial proceedings or for the trial itself within the time limits established by this section.”

Otherwise, time will not be excluded. Subsection (ii) is not a blanket or open-ended provision to exclude time.

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D. Pretrial Motions Excluding Time Since none of the continuances entered between January 5th and August 10th 2009 excluded any time, only pretrial motions filed after June 8th could exclude time. Here three such motions account for a total of 31 excludable days: Motion Filed Ruling. Entered Days Excluded Dkt. 37 6/09/09 Dkt. 39 6/09/09 1 Dkt. 41 7/27/09 Pending 8/27/09 30 Dkt. 42 7/27/09 Dkt. 44 8/10/09 0 The 70-day trial clock is automatically suspended temporarily from the date almost any pretrial motion is filed until the date the court rules on it, usually up to a maximum of 30 days. Specifically, the Act excludes “delay reasonably attributable to any period, not to exceed thirty days, during which any proceeding concerning the defendant is actually under advisement by the court.” (Emphasis added). The 30-day maximum exclusion begins once the court receives all the submissions it needs concerning a motion. At that point, the matter is considered to be “under advisement.” For motions that do require a hearing, there is another provision. It excludes time for “delay resulting from any pretrial motion, from the filing of the motion through the conclusion of the hearing or other prompt disposition of such motion.” (Emphasis added). Both provisions “dovetail . . . the former ends when the latter begins.”

E. Continuances Should Be Used with Discretion “The granting of a continuance under subsection (h)(8)(A) is not to be done lightly or routinely.” Congress intended “ends of justice” continuances to be “a rarely used tool” used only for cases demanding more flexible treatment. Congress was concerned that overuse of such broad discretion could undermine the strict time limits of the Act. “[T]he discretion granted to the trial court to invoke the ends of justice exception is narrow.” They . . . “should be given only in unusual cases such as antitrust cases and complicated organized crime conspiracy cases.” (Emphasis added.) Because it anticipated possible abuses, Congress required explicit findings on the record before granting continuances.

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This serves two functions critical to the proper use of this exception: First, it insures careful consideration of the relevant factors. Second, it provides the appellate court with an adequate record on which to review the findings. Congress wanted to ensure careful consideration when balancing the need for delay against the interest of the defendant and of society in achieving speedy trial. Failure to address these issues on the record creates the unnecessary risk of granting continuances for the wrong purposes, and encourages overuse of this narrow exception. The government is responsible for ensuring that requests for continuances which threaten delays beyond the 70-day trial deadline fall within one of the Act’s statutory exceptions. Congress requires that the dictates of the Speedy Trial Act are taken seriously. The purposes of the Act would be in the absence of compliance with these requirements. The prosecution should not be allowed to argue for exceptions which swallow the rule.

Dismissal Sanction for Violation A. Dismissal Is Mandatory Congress intended dismissal to serve as a deterrent for the failure of the U.S. Attorney or the court to comply with the Act. “Congress designed the Speedy Trial Act in part to protect the public’s interest in the speedy administration of justice, and it imposed the sanction of dismissal under Section 3162 to compel furtherance of that goal.” Whenever the “government . . . for whatever reasons . . . falls short of meeting the Act’s requirements, the administration of justice is adversely affected.” “Congress enacted the speedy Trial Act to give effect to the Sixth Amendment right to a speedy trial by setting specified time limits after arraignment or indictment within which criminal trials must be commenced.” The purpose is to not only protect a defendant’s constitutional right to a speedy trial, but also to serve the public’s interest in bringing prompt criminal proceedings. The Act mandates an orderly and expeditious procedure for federal criminal prosecutions by

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fixing specific, mechanical time limits within which a prosecution must occur. Here, the Government was tasked with the responsibility for compliance and enforcement of the Speedy Trial Act. In fact, General Order No. 168-E entered July 2, 1980 by then Chief Judge Edward Schwartz specifically requires U.S. Attorneys to give “written notice of the circumstances and his position with respect to the computation of the [Speedy Trial Act’s] time limits.” Additionally, it requires the clerk “enter in the docket information with respect to excludable periods of time for each criminal defendant.” The burden is not on the defendant to take affirmative steps to keep the speedy-trial clock running. Defendants have “no obligation to take affirmative steps to insure that they would be tried in a timely manner.” “If a defendant is not brought to trial within the time limit required by section 3161(c) as extended by section 3161(h), the information or indictment shall be dismissed on motion of the defendant.” (Emphasis added). Should a district court determine a violation occurred, under the Act it must then determine whether to dismiss the indictment with or without prejudice. Recently, the 9th Circuit reversed a conviction due to violations of the Speedy Trial Act with facts very similar to this case. The court found, inter alia, that: [1] the district court had failed to “conduct an appropriate inquiry to determine whether the various parties actually want and need a continuance, how long a delay is actually required, what adjustments can be made with respect to the trial calendars or other plans of counsel, and whether granting the requested continuance would outweigh the best interest of the public and the defendant[s] in a speedy trial”; [2] the district court had used check-off boxes on pre-printed forms to indicate that time would be excluded but failed to make findings as to the statutory factors underlying that conclusion; and [3] the record was devoid of any basis for concluding that “the failure to grant [the] continuance would be likely to make a continuation of such proceeding impossible, or result in a miscarriage of justice” per 18 U.S.C. § 3161(h)(8)(B)(i).

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B. Why Dismissal with Prejudice Is Warranted In determining whether to dismiss a case with or without prejudice, the court shall consider, among others, each of the following factors: [A] the seriousness of the offense, [B] the facts and circumstances which led to the dismissal, and [C] the impact of a re-prosecution on the administration of this chapter [i.e. Ch. 208, Title 18, U.S.C.] and on the administration of justice. The limitation period for all the offenses in the indictment is six years.

Conclusion As of June 8th, the Government initially had until August 17, 2009 to bring him to trial. But that deadline was extended until September 17, 2009 because three pretrial motions had excluded 31 days from the trial clock. When the Government missed this new deadline, it violated the Speedy Trial Act. The violation is clear and incontrovertible and the only remedy is dismissal as mandated by statute. Respectfully submitted, DATED: December 21, 2009 LAW OFFICES OF EUGENE G. IREDALE

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Acknowledgments

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have been blessed by these people. It is time to personally thank the many people who were part of this adventure in my life. First, as you read this book, think of Graham and Adel Briggs. Without their financial support, I might still be in jail in Australia. It is virtually impossible to adequately thank them for what they did. Usually, when I think of lawyers, it’s about paying them. But I want to thank my lawyers, namely Chris Watson in Sydney, Australia, and Gene Iredale in San Diego. Both offered excellent advice and the best defense possible. Gene really put his heart and soul into winning and making it possible for me to be a free man. We are an interesting pair, on opposite political spectrums. However, we have an affinity that overcomes our least favorite subject—taxes. I thank my running buddies, Kurt Hallock and Harvey Levine, who are also lawyers, for their friendship, support, and counsel. Kurt led me to Gene, while Harvey made sure I stayed with him. Bobby Boyce and Laura Schaefer, also lawyers, provided immense help in our jury focus sessions. Lastly, a tip of the hat goes to John Owens, who I came to respect for his integrity and understanding, and Judge Marilyn L. Huff, who treated me fairly.

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A C K N OW L E D G M E N T S

Randy Pissot served as an excellent investigator. He gathered the facts while Lee Wright put them to the best possible use. I also want to thank Jason, Paige, Sara, and Kelly for the love and support they provided me and willingness to be there at trial time. How many children can still support their father after going through the things I have gone through? Not many. They have, and with a great deal of love and understanding. Also Sara’s husband, Matt, has been just great to Sara as well as myself. My sister Pam and her delightful husband Frank Holowach were there when few were. Tom DeMark, Glen Larson, Richard Joseph, Bob Warr, Ed Dunne were there when few other people were willing to stand up for me. I would also like to thank Bob Rebello, Topper Birdsall, Phil LaValle, Gene Ellis, Richard Carpenter, and Brian Cloutier who were willing to testify for me. So did the Stapleton gang, Lil, Lee, Bill, Barb, and with prayers to mother Phoebe. My “second mother,” Jimena Hallock, was so wonderful through all this. Jimena, we admire you so much. I have been blessed to have such great friends and parents to help me through life. I deeply appreciated all of you who came to my hearings and trial. I’m certain I’m leaving others out, but to those of you who were there when I was at my lowest, please know that I am thinking of you here. In closing I want to personally thank my many trading students and followers of my work who never once wavered in their commitment. Finally, there is no one who deserves more gratitude than my wife Louise Stapleton. If it had not been for Louise, the outcome would have been different and this book would never have been written. Nor would this book have ever seen the light of day without the people at John Wiley & Sons, my editor Pamela van Giessen, so ably assisted by Emilie Herman, who did the day-to-day detail work.

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Index

Accountants, 15, 19, 41, 42, 119–122, 171 Activism, importance of, 9, 215 Aguirre, Mike, 105 Allen, Steven W., 121 Anti-money laundering legislation, 31 Apportionment, 53, 54, 127–129 Arrests in Australia, 3–6, 63–86 in Iran, 5 in Saudi Arabia, 5 Attorneys, types of in Australia, 7, 8 Audits, 28 Australian Extradition Act of 1988 section 16 hearing, 101 section 16 provisions, 90–92 Australia background as penal colony, 4, 5 bail, 72–75, 79, 80, 82, 85–87 extradition proceedings, 5–8, 72–73, 79, 86–98, 100–103, 170 residency, 87

Silverwater Correctional Centre, 83–85 Surrey Hills detention, 6, 8, 63–75, 81–85, 102–103 Australian Extradition Act of 1988, 90 Baez, Joan, 20–22 Bail, in Australia, 72–75, 79, 80, 82, 85–87 Bail, in United States, 103, 104, 162 Balanced budget, 34, 43, 55, 213, 216. See also Federal budget BALCO, 166, 167 Bank of America, 150–153 Barker, Reed H., 119, 120 Barristers, 7, 8, 91 Baucus, Max, 37 Bauss, Carol, 183, 186 Beck, Glenn, 144 Beckman, Red, 52 Becraft, Larry, 111–113 Beliefs and risk taking, 118, 157

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INDEX

Bender, George, 56 Benoit, Mike, 188 Benson, Bill, 52–56, 58, 59, 112 Bernhoft, Robert, 113 Bertelson, Joyce, 147, 150, 151 Berwick, Donald, 139 Bierfeldt, Stephen, 31, 32 Birdsall, Topper, 188 Bloate v. United States, 173 Blum, Howard, 40 Bonds, Barry, 166 Boston Tea Party, 11, 16 Bowles, Erskine, 142 Boyce, Bobby, 59 Breakspeak, Ian, 2 Briggs, Adel, 85, 93, 98, 198 Briggs, Graham, 85, 93, 98, 198 Brushaber, Frank, 127, 128 Brushaber v. Union Pacific Railroad (1916), 126–129 Bureau of Internal Revenue, 43 Burns, Conrad, 34 Business and job growth, 143 Campaign contributions, 13, 14 Cash payments and criminal activity, 30–32 Chavez, Hugo, 95 Cheek case, 19, 114, 118, 157, 191 China, 208, 209 Citigroup, 10 Citizenship, 3, 118, 128, 129, 131–134, 180, 181, 191, 197 Civil tax cases, 160 Civil War, 15 Clark, David, 99, 103 Clarkson, Robert Barnwell, 108, 109 “Club Fed,” 83, 114, 162 Cohn, Roy, 145, 146 Collection procedures, 131 Common Sense (Paine), 33 Communism, 30 Complexity of tax system, 18, 19, 22, 41

Computer searches, 167, 168 Congress, responsibility of, 215, 216 Connally, John, 35, 36 Connally, Nellie, 35 The Conscience of a Conservative (Goldwater), 33 Consumer spending, 212 Cooper Tires, 211 Cornuke, Bob, 40, 67 Cota, Jesse A., 122, 123 Cracking the Code: The Fascinating Truth about Taxation in America (Cryer), 116 Criminal activity cash payments and, 30–32 tax avoidance and, 24 Criminal tax cases, 160–162 Critique of the Gotha Program (Marx), 29 Cryer, Tommy, 114–116 Daines, Steve, 34 Daschle, Tom, 22 Davidson, James Dale, 55 Debtors’ prison, 159 Deductions complexity of tax code and, 41 corporations, 14 fairness and, 14, 20, 23 fraudulent, 120, 123 history of, 15 simplified tax system and, 213–215 use of versus changing tax law, 15 Williams’ case, 164, 192, 196 DeMark, Tom, 75 Democratic party tax cuts and spending, 20, 22, 142 tax loopholes, 13 DesFosses, Paul, 160 Destroyed Arguments (web site), 112 Deutsche Bank, 10, 13 Dickstein, Jeffrey, 54, 112–113 Diplomatic immunity, 95 Direct tax, 46, 53, 127, 128

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Index Dividends, 214 Double taxation, 214 Drexler, Bill, 50, 51, 59 Economic growth, 13, 134, 135, 143, 207, 208, 211 Einstein, Albert, 22, 201 Eisenhower, Dwight, 20, 56, 212 Ellison, Chris, 89, 91, 92 Embezzlement, 162, 163, 194–197 Equal protection, 19, 20, 54. See also Fourteenth Amendment Estes, Wayne, 161 Estonia, 213 Evanson, Dennis B., 120 Ex post facto laws, 57 Excise taxes, 206, 207, 210. See also Tariffs Experts, reliance on, 10, 50, 64, 110, 111, 113, 114, 118–123, 155–157, 166 Extradition proceedings, 5–8, 72, 73, 79, 86–98, 100–103, 170 Fairness approaches to, 138 fair share, 17, 23, 29, 42–45, 137–142, 157, 202, 216 flat tax, 212–216 government services in return for taxes, 17, 18, 137, 138, 142, 214 import tariffs, 207–212, 216 percentage of population paying no federal taxes, 20, 138, 139 progressive tax system and, 140, 141, 143. See also Progressive tax system redistribution of wealth and, 19, 20, 22, 23, 138, 139 tax system, 12, 13 tax system reform and, 201, 204 taxation and, 40, 137 “what you get” model of taxation, 138

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“what you have” model of taxation, 138 willingness to pay taxes and, 17, 44, 51, 52 Federal budget, 9, 20, 33, 34, 42, 43, 55, 80, 134, 135, 139, 140, 142, 184, 207, 213, 216 Federal citizenship, 133, 180, 181, 197 Federal debt, 134, 135, 142, 157, 201 Federal excise tax, 16, 23, 128–130, 206, 207, 210. See also Tariffs Federal jurisdiction, 133, 134 Fifth Amendment, 46–49, 51, 59, 60, 113, 172 Fiji, 146 First Amendment, 32 First Mountain Bank, 153, 154 Flat tax, 212–216 Forbes, Malcolm, 39 Forbes, Steve, 212 Form 1040, 3, 48 Fourteenth Amendment, 54, 132, 133, 197 Fourth Amendment, 47, 167 Fraud, losses due to, 164, 165, 191, 192, 195, 196 Free trade, 209, 210 Freedom Civil Rights movement and, 24, 25 personal freedom, 25, 27, 29, 30, 32, 33, 37, 44, 47 property rights and, 16, 17 Tea Party Movement and, 143, 144 Free-market system, 139 Friedman, Milton, 210 Gageler, Steven, 96, 100 Gandhi, Mahatma, 159 Garland, Judy, 21 Garner v. United States (1975), 48, 49 Geffen, David, 13 Geithner, Tim, 22 General Electric, 14

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Georgia, 213 The Gold of Exodus (Blum), 40 Goodmansen, Allen P., 121 Government, growth of and tax rates, 17, 18 Government services, 17, 18, 137, 138, 142, 214 Government spending, 142. See also Federal budget; Federal debt Grass roots organizing, 144 Gregory, Dick, 25 Haines, Kathryn, 172, 184 Hallock, Jimena, 75, 188 Hallock, Kurt, 75, 78, 105, 188 Hamilton, Alexander, 33, 207–209 Hanson, Garrick, 50, 51, 126 Hauser, W. Kurt, 205 Hemingway, Ernest, 21 Hendrickson, Peter E., 116, 117 Hernon Manufacturing, 31 Holowach, Frank, 188 Holowach, Pam, 188 How to Cook a Vulture (Meredith), 151 How to Get the IRS Off Your Back (Knowles), 128 How to Outfox the Foxes (Williams), 182, 188 H&R Block, 19, 42, 202 HSBC, 9 Huff, Marilyn (Judge), 166, 168, 175–177, 188, 189, 199 Hung jury, 186 Hunt, David, 79, 82, 85 IFR, 165 Import duties. See Tariffs Incentives, 143, 210 Income taxation constitutionality of, 53 corporations, 207, 214 history of, 15, 16, 53, 206–208

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percentage of population paying no federal taxes, 20, 138, 139, 205 reporting, cost of, 202, 203 Supreme Court rulings, 16, 19, 49, 53–55, 127–129, 191 tax revenue and, 204, 205, 207 Indictment, 4, 6, 80, 81, 173, 199, 202 Indirect tax, 127–129. See also Federal excise tax Inheritance taxes, 24, 146 Internal Revenue Act of 1913, 208 Internal Revenue Code (IRC) complexity of, 41, 201, 202 legality of, 38 loopholes, 13, 42, 203 Internal Revenue Service (IRS) collection procedures, 131 cost of collecting taxes, 202, 203 Fifth Amendment, position on, 49, 50 intimidation by, 43, 44 litigation record, 88, 89, 159, 160 protest against versus change in Congress, 215 Investment Advisers Act of 1940, 32 Investment losses, 164, 165, 192, 195, 196 Iredale, Gene, 102–105, 108, 160, 162, 165, 166, 168, 175, 177, 183–186, 188–193, 196–199 IRS—An Agency Out of Control (DesFosses), 160 Irwin, Jim, 40 Japan, 209 Jarvis, Howard, 125, 204 Jefferson, Thomas, 20, 21, 33, 39 Jenkens & Gilchrist PC, 13 Johnson, Brad, 34 Judicial estoppel, 166, 191 Kahn, Eddie Ray, 113, 114 Karl, Greg, 146–153, 155, 156 Keaton, Buster, 21

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Kellems, Vivien, 46–48 Kemp, Jack, 36, 43, 143 Kennedy, John F., 22, 35, 212 Kennedy, Joseph, 146 Kennedy, Robert, 146 Kennedy, Ted, 146 Khrushchev, Nikita, 213 King, Martin Luther, 1 Knoblauch v. Commissioner (1984), 58 Knowles, W. James (Jim), 3, 125–135, 147, 151, 152, 166, 193, 197 Kober, Charles D., 121 KPMG LLP, 13, 122 Kyrgyzstan, 213

Metcalf, Brent, 119, 120 Metropolitan Detention Center (MDC), 103, 104 Miller, Bob, 165 Miller v. United States (1989), 58 Mirages, 39–41, 43, 46, 48, 51, 60, 61 Mock trial, 179, 183–186, 190 Motion to dismiss on grounds of speedy trial violation, sample, 217–224 Mount Sinai, 5, 40 The Mount Sinai Myth (Williams), 5 Mugabe, John, 2 Murdock v. Pennsylvania, 130 “A Mysterious Visit” (Twain), 14, 15

Lancaster, Richard, 89–91, 96, 100 Landsburg, Steven, 143 Larson, Glen, 75 Latvia, 213 Ledger, Heath, 64, 75 Lee, Lewis, 163, 164, 186, 194–197 Legal fees, 107, 171, 183 Levine, Harvey, 75, 78, 105, 183, 188 Levine, Judy, 75, 188 Lewis, Joe, 21 Limbaugh, Rush, 24, 144 Lincoln, Abraham, 179, 208 Lithuania, 213 Long, Russell, 11 Loopholes, 13, 42, 203, 214 Losses, 164, 165, 192, 195, 196 Lowe v. SEC, 32, 33 Lucas, George, 13

National debt, 33, 34, 134–135, 142, 157, 201 National Debt Commission, 142 National Jury Project (NJP), 183, 184 National Taxpayers Union, 55 Nelson, Willie, 21 Nixon, Richard, 212

Macedonia, 213 Madoff, Bernie, 164, 165, 196 “Madoff rule,” 164, 195, 196 Marx, Karl, 29, 139, 212 McWilliams, Bruce, 174 Medicare taxes, 18 Melcher, John, 37 Meredith, Lynne, 151–153, 155–157, 166, 172, 179, 191

Obama, Barack, 13, 139, 142 O’Donoghue, Vincent Thomas, 97 Ohio, 56, 57, 59, 60 Olson, Nina, 159 Omega Medical Instruments, 31 Organisation for Economic Co-operation and Development (OECD), 140, 141 Orlando, Tony, 193 Osborne, Bill, 34 Owens, John, 92–95, 103, 104, 168, 184, 189, 190, 197–199, 215 Palin, Sarah, 51 Panama Canal, 22, 34 Paranoia, 27, 37, 39, 52 Parker, Glenn King, 32 The Pastures of Heaven (Steinbeck), 2 Paul, Ron, 23 Payroll taxes, 18, 207

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Penn Industries, 30, 31 Petersen, Stephen F., 119, 120 Petrolous, John, 93, 98–100 Petrolous, Mercene, 93, 98, 100 Pissot, Randy, 160, 161, 164, 166, 198 Plea agreements, 169, 170, 172, 197, 198 Porth v. Brodrick, 57 Prechter, Bob, 32 Pretrial, 161–168 Progressive tax system, 54, 139–141, 143, 212–213 Property, confiscation of, 31 Public Eye on Davos Award, 10 “Pure trusts,” 64, 146–157, 166, 191, 192 Putin, Vladimir, 212, 213 Radicals, 12 Reagan, Ronald, 22, 43, 212 Rebello, Bob, 188 Reclassification of citizenship, 131, 180, 181 Redfield v. Fisher, 130 Redistribution of wealth, 19, 20, 22, 23, 138, 139 Rehberg, Denny, 34 Reitz, Chuck, 126 “Reliance letters,” 110, 111 Republican party grass roots organizing, 144 tax cuts and, 20, 22, 142 Tea Party Movement and, 144. See also Tea Party Movement Revenue Act of 1913, 128, 208 Rhodes, John, 2 Rhodesia, 2 Richter, Robert, 89, 92, 96 Rivera, Eduardo, 110, 111 Rock, Chris, 145 Rockefeller, Nelson, 22, 25 Romania, 213 Rosen, Leonard, 165 Rosile, Douglas, 113

Roth, Bill, 43 Rudd, Kevin, 96 Russia, 212, 213 Sales taxes, 18, 22–24 Schaefer, Laura, 184, 188 Scholenberg, Dennis, 155 Search warrants, 167, 168, 193. See also Fourth Amendment Securities and Exchange Commission (SEC), 32–34, 36 Self-Employed: Target of the IRS (DesFosses), 160 Self-employment taxes, 18 Senatorial race, Montana (1978), 33–35, 37 Senatorial race, Montana (1982), 37 Servia, 213 Shaw, George Bernard, 139 Silks, 7, 89, 96 Silverwater Correctional Centre, 83–85 Sixteenth Amendment, 15, 29, 42, 52–60, 112, 127–129, 206 Slavery, 132, 133 Slovakia, 213 Smith, Adam, 210 Snipes, Wesley, 113, 114 Socia v. Commissioner (1995), 58 Social Security taxes, 18, 43 Socialism, 29, 30 Solicitors, 7, 8 Special interests, 42, 44, 142, 203, 214 Speedy trial, constitutional right to, 172 Speedy Trial Act of 1974, 169, 171–176, 217–224 Spielberg, Steven, 13 Spooner, Lysander, 33 Stapleton, Bill, 188 Stapleton, Lee, 188 Stapleton, Lil, 188 Stapleton, Louise, 1, 2, 74, 75, 78–80, 82, 85, 86, 88, 92–94, 98–100, 160, 164, 166, 183, 188, 198

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Index State sovereign citizenship, 128, 129, 131–134, 180, 181, 191 State taxes, 18, 23, 24 Stearman v. Commissioner, T. C. Memo (2006), 59 Steinbeck, John, 2 Steiner, Ernie, 97 Stetler, Dave, 2–4, 94 Stewart, Martha, 162 Stilley, Oscar Amos, 109, 110 Sullivan v. United States, 49 Taft, Senator, 20 Tariffs, 207–212, 216 Tax avoidance, 8, 51, 52, 113, 119, 153, 155 Tax cuts versus tax hikes, 205 Tax evasion, 4, 10, 27, 28, 88, 109, 110, 112, 115, 119, 155, 162, 170, 191 Tax gap, 207 Tax industry, 41, 42 Tax Justice Network, The, 10 Tax minimizing, 9, 10, 119, 122, 126, 131, 137, 147, 185 Tax protests Baez, Joan, 20, 21 fairness of tax laws, 44. See also Fairness famous protestors, 21 historical background, 11 inside versus outside the system, 37, 38 judicial attitudes toward, 176 methods of, 25 protestors, examples of, 108–117 reasons for, 16–19 war, protesting against, 20–22, 27 western states, 45, 46 Tax rates components of, 203 corporate taxes, 13, 14, 43 fairness, 23, 44 history of, 42, 43, 53, 54, 208 increase in, 17 simplifying, 203

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tax revenues and, 204, 205 trusts, 146 wealthy taxpayers, 140–142 Tax Reform Act of 1986, 43, 140 Tax resistance movement background of, 46 complexity of tax code and, 202 fairness of tax system as goal of, 44. See also Fairness leaders of, 52, 59, 125, 161, 162 legal issues, 46–59, 127–134 legal representation and, 107–117 people involved in, characteristics of, 27, 39, 40, 52 western states, 45 willingness to pay taxes, 17, 44, 51, 52 Tax resistance scams, 25, 40, 52, 59–61, 107–118 Tax revenue, sources of, 204, 205, 207 Tax shelters, 28 Tax system reform, 201–216 Taxpayer identification number, 148, 149 Tea Party Movement, 11, 16, 23, 24, 143, 144, 216 Thirteenth Amendment, 132 Thoreau, Henry David, 21 Toil, Taxes, and Trouble (Kellems), 46 Trial courtroom setting, 187 decision to testify, 188 delays, 170 guilty plea to misdemeanor charges, 199, 200 impact of waiting for trial, 171, 172, 177 jury selection, 188–190 opening statements, 190–192 settlement offer, 197–199 speedy trial, right to, 169–171 witnesses, 193–197 Trust identification number, 152 Trusts, 145, 146. See also “Pure trusts”

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Tuttle, Frank, 114 Twain, Mark, 14–16, 23

Vince, Ralph, 209, 210 And a Voice to Sing With (Baez), 21

UBS, 9 Ukraine, 213 Unfairness of income tax, 28, 29. See also Fairness United States v. Comprehensive Drug Testing, 166, 167 United States v. Foster (1986), 58 United States v. Stahl (1987), 58 United States v. Sullivan, 49 United States v. Larry Williams, 80 U.S. Constitution. See also individual amendments article I, section 9, 46 per capita taxation versus income taxation, 15, 16

War of 1812, 207 War Revenue Act of 1917, 42, 43 Warren Report, 35, 36 Watson, Chris, 8, 63, 64, 69, 70, 72–75, 79, 80, 82, 86, 88–93, 95, 96, 98, 100, 101, 182 Watts, Willie, 151, 153, 155, 156 Wealth, creation of, 139 Wells, Jennifer Illam, 162–164, 194–197 “What you get” model of taxation, 138 “What you have” model of taxation, 138 Wilcoxson, Larry, 165 Williams, Carla, 193, 195 Williams, Jason, 85, 86, 198 Williams, Michelle, 64, 73, 75 Williams, Sara, 162 Willingness to pay taxes, 17, 44, 51, 52 Wright, Lee, 160, 161, 164–166, 198

Valenvalls, 165 Vegemite, 70, 71 Venezuela, 95 Venuti, John, 121, 122 Vidal, Jim, 33

Zentai, Charles, 97 Zimbabwe, 2