Wednesday, March 24, 2004

Mr. Big is looking at the Big House, again. Schiff, his girlfriend, and an employee are all facing a 33 count indictment. This is big news for the Tax Cheat Movement.


WASHINGTON D.C. - Eileen J. O’Connor, Assistant Attorney General for the Tax Division, United States Department of Justice; Daniel G. Bogden, U.S. Attorney for the District of Nevada; and Nancy Jardini, Chief, Internal Revenue Service Criminal Investigation Division announced today that in Las Vegas, Nevada, a federal grand jury returned a thirty-three (33) count indictment charging Irwin Schiff, Cynthia Neun, and Lawrence Cohen with conspiracy (18 U.S.C. §371), and aiding and assisting in the preparation and filing of fraudulent federal income tax returns (26 U.S.C. §7206(2)). Messrs. Schiff and Cohen are also charged with income tax evasion (26 U.S.C. §7201). Ms. Neun is also charged with willfully failing to file federal income tax returns (26 U.S.C. §7203), Social Security disability fraud (42 U.S.C. §408) and theft of government property (18 U.S.C. §641).

If convicted, Mr. Schiff faces maximum potential sentences totaling forty-three years in jail and $3.25 million in fines; Ms. Neun, fifty-one years in jail and $3.4 million in fines; and Mr. Cohen, twenty-seven years in jail and $1.5 million in fines.

“There is no magic way out of paying taxes,” said Assistant Attorney General Eileen J. O’Connor. “If you fall for a scheme to cheat the IRS, you may lose your money to a con artist. You may wind up in federal prison. In the end, you will still owe taxes, and you may also owe interest and penalties.”

“The indictment today reminds us that fulfilling individual tax obligations is a legal requirement and those who willfully evade that responsibility will be prosecuted,” stated Nancy Jardini, Chief, IRS Criminal Investigation. “We should not forget that the ultimate victims in tax fraud cases are the people of the United States. Those taxpayers who diligently file tax returns each year.”

Count one of the indictment alleges that the defendants conspired to file and cause other persons to file fraudulent tax returns, including more than 4,950 tax returns that fraudulently reported no income, a scheme the defendants referred to as a “zero return.” Counts two through sixteen of the indictment charge the three defendants with allegedly aiding and assisting in the preparation and filing of fraudulent “zero returns.” The indictment alleges that the fraudulent “zero returns” reported zeroes on every line of a federal income tax return related to income and expenses, and often claimed a full refund of all federal taxes withheld or paid over to the IRS. It also alleges the defendants promoted the “zero return” scheme through written materials and audiotapes sold through a business known as Freedom Books; and during seminars, radio shows such as “Freedom Now” (co-hosted by Mr. Schiff and Ms. Neun), and personal consultations with clients.

The indictment further alleges that after filing “zero returns,” many of the defendants’ clients faced IRS audits and collection of taxes due. Mr. Schiff, who has owned Freedom Books since at least 1995, together with his co-defendants, allegedly encouraged clients to pay for additional products that were supposed to help the clients handle their problems with the IRS. The indictment alleges that Mr. Schiff and Ms. Neun charged clients for writing responses to IRS correspondence, drafting court pleadings, and representing them at administrative hearings before the IRS or in judicial proceedings. Between 1997 and 2002, Freedom Books allegedly generated gross business receipts of approximately $3,726,000. Despite owning the lucrative business, the indictment alleges Mr. Schiff did not report any income on any federal income tax return filed with the Internal Revenue Service for calendar years 1987 through 2002.

The indictment also charges Mr. Schiff with allegedly evading the payment of $1,369,000 in federal taxes, interest, and penalties due for the years 1979 through 1985. It alleges that he hid income and assets in an offshore bank account, using wire transfers and debit cards to bring the money back as needed; opened bank accounts using fictitious tax identification numbers; tried to hide the true ownership of his car by placing it in the name of a Pennsylvania-based business; and conducted financial transactions through anonymous warehouse banking services offered by the Christian Patriot Association.

On June 7, 2002, after trial in the United States District Court in Oregon, leaders of the Christian Patriot Association, including Richard and Dorothy Flowers, were convicted of tax crimes in connection with a “warehouse bank” scheme designed to eliminate records customarily made in financial transactions.

The charges contained in the indictment are only allegations. In the American justice system, a person is presumed innocent unless and until he or she is proven guilty in a court of law.


Get the TRUTH about Paytriots and Tax Protestor Scams at http://quatloos.com


Saturday, March 13, 2004

Seems like hardly a week goes by that some paytriot doesn't get slammed for selling Pure Trusts. With the IRS's conviction rate at 100% for Pure Trust promoters, this seems like one of the sure ways to go to jail.

For the people who buy them, the bad thing is that their name shows up on the paytriot promoter's client list, meaning that they are easy picken's for the IRS to go after them on criminal charges and for back taxes, interest and HUGE penalties.

(202) 514-2007
TDD (202) 514-1888


Promoter Ordered To Give Customer List To Justice Department

WASHINGTON, D.C. - The Justice Department today announced that a federal court has granted a preliminary injunction ordering Tacoma, Washington resident David Carroll Stephenson to stop promoting a tax scam in which customers paid $2,500 to $8,000 to use sham trusts and corporations to evade federal income taxes. The court found that Stephenson, to promote the scheme, falsely claimed to be a lawyer. Also barred by the court order are several businesses operated by Stephenson: American Business Estate & Tax Planning Service; Advocate and Associates, Inc.; Advocate NW & Co., Inc.; A-1 Credit & Co.; the American Business Law, Inc. and American Business & Estate Planning. Today’s court order states that Stephenson’s promotion has cost the federal treasury more than $43 million in lost tax revenue. The court order also states that Stephenson’s customers have suffered substantial harm, “as they too are in violation of internal revenue laws.”

“This spring, as millions of Americans engage in the annual ritual of complying with the tax laws, some people are cynically helping others to evade them,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “The Department of Justice is working to halt the promotion of tax fraud schemes and to help the IRS identify those who use them.”

The court found that the defendants have promoted an abusive tax scheme that assists customers in evading federal tax liabilities and IRS collection efforts through the fraudulent use of trusts and business entities. The court found that defendants instruct customers to transfer their personal assets into four different trusts, each intended to perform a unique function within the scheme, with the ultimate goal of evading taxes on income and wages and hiding assets from IRS collection efforts. The court also referred to numerous misrepresentations and false claims made by Stephenson in marketing his tax schemes, such as:

- Trust income is not subject to tax;

- Filing tax returns is voluntary;

- Only those individuals or businesses that voluntarily disclose personal information on a tax return are subject to tax;

- Participants’ trusts cannot be compelled to turn over books and records to the IRS or to file federal tax returns;

- Property held by contract trust is exempt from IRS seizure;

- Only licensed business organizations have employees for employment tax purposes, all other businesses have independent contractors; and

- Income to a trust can be used to purchase assets without first being subject to tax.

The court order said that as of March 2000, Stephenson had 472 customers in 22 states and in Canada. Stephenson was ordered to give the Justice Department, within ten days, the names, addresses, and social security numbers of all customers who purchased trusts or corporations from him, or to whom he gave any tax advice. The order also requires Stephenson to notify his customers of the injunction and to post a copy of it prominently in the front window of his office on 27th Street in Tacoma.

Information about this case is available at . Additionally, more information about the Justice Department’s efforts against tax-scam promoters can be found at . Further, information about the Justice Department’s Tax Division can be found at .

Get the TRUTH about Paytriots and Tax Protestor Scams at http://quatloos.com

And for those who claim that Larken Rose is not a paytriot and trying to profit from his tax scamming, here is a little ditty on Larken's new Multi-Level Marketing scheme to sell his disks that are based on his Theft-By-Deception tape that so far has landed dozens of people in tax court. None have left within anything close to victories, most have left with sanctions, and the judges have been in stitches at the stupidity of the 861 argument (such as it is).

Scam on, Larken, scam on.

-----Original Message-----
From: VRS [mailto:info@vrs.theft-by-deception.com]
Sent: Monday, March 08, 2004 5:19 PM
Subject: Life without IRS? You can help make it happen.

We've got 'em outnumbered; it's just as simple as that.

Just as the playground bully of our childhood could only do his dirty work when he got his victim alone and in the corner, so it is with us today. Only this time, we're winning.

You may have heard: A close-up look at the law reveals that most Americans don't owe federal income tax at all, and never have. Granted, government needs to fund its operations, but we insist it must do so within the constraints of the law as written.

As a nation of free people, this situation is our responsibility to correct—we must right this wrong. We're accomplishing this by carrying the news to every corner and doorstep of America. When enough people know about the deception, the deception will fall.

With this in mind, we've created a system you can use to help spread the word, and earn money while doing it.

Our educational video—called Theft By Deception; click here for more information—is a detailed analysis of federal income tax law, and it shows clearly how a small handful of government lawyers have cleverly conspired to have us believe we owe the tax, when in fact we really don't.

Already over 15,000 copies of the video are in circulation, and demand will soon be increasing even more—we're getting ready to announce yet another powerful tool for informing our fellow Americans. A more general overview of the issue, it'll feature engaging discussion by credentialed professionals, and it'll be packaged on a media format that'll be easy and inexpensive to pass around.

Visit our website at https://vrs.theft-by-deception.com/ and start making money right away, while at the same time exercising your First Amendment-protected rights of free speech and assembly.

It's time to bring the deception to an end. Won't it be nice when April 15th is just another warm sunny spring day?
Get the TRUTH about Paytriots and Tax Protestor Scams at http://quatloos.com

Speaking of Bob Schulz's growing series of failures, here's another of the idiots who allowed his name to be used in Bob's USA Today advertisements back in 2000 and 2001. Anybody who has followed Al Thompson knows that this guy's IQ is only barely about that of the average poodle, and he has asserted some of the most asinine arguments ever, such as that his name must be (or must not be) spelled in "ALL CAP" (as if that made a difference in the price of tea in China).

So, anyhow, Al's finally going to the stone lonely and, oh, by the way, his wife finally got fed up with his stupidity and divorce him too, after his antics got her slammed with a $2,000 fine. We will miss Al's messages though for the free and gut-wrenching humor they provided daily.

Arrest Warrant Issued in Income Tax Case

March 8, 2004

A federal judge in Sacramento has issued an arrest warrant
for a California businessman who stopped withholding taxes
from his employees' paychecks four years ago. The man, Al Thompson, a prominent figure in a movement claiming the tax laws are a hoax, asserted yesterday that any arrest warrant would be invalid if his name was printed in capital letters.

Judge Frank C. Damrell Jr. of United States District Court issued the warrant on Friday when Mr. Thompson failed to appear at a hearing into why he has not paid $500,000 in back taxes from his Cencal Aviation Products in Shasta Lake, Calif. Mr. Thompson and his wife, Denise, were also fined $2,000 each for making frivolous arguments.

On his Web site, Mr. Thompson wrote, "any warrant, court document or order" must capitalize only the first letter and that putting his name all in capitals made any court order "null and void."

Names on federal court documents are ordinarily printed in capital letters. The claim that the typography makes such documents invalid, made by many tax protesters, has been uniformly rejected by judges as nonsense.

Mr. Thompson contends that Congress repealed the income tax laws in 1939. The statute he cites did repeal the previous income tax law, because Congress enacted a new tax code that year, as it also did in 1954 and 1986.
Get the TRUTH about Paytriots and Tax Protestor Scams at http://quatloos.com

Looks like We-The-People is falling apart more rapidly than we thought. First, their numbers are dwindling from drawing several thousand nuts at rallies around 2000 to where Bob Schulz is barely able to fill a small conference room today. Everybody knows that Bob is a just another Paytriot who is scamming for bucks, as even Devvy Kidd aludes to in her resignation message, where she points out that Bob's latest bogus lawsuit could be prepared and filed for a couple of hundred bucks, not the quarter-of-a-million that he is trying to raise.

Speaking of which: Bob announced his Right-To-Petition lawsuit
last September (2003) and promised that it would be filed within 30 days. Here we are six months later, and no lawsuit. That's Bob Schulz: He talks the talk but can't walk the walk.

Resignation from We the People Congress, Inc.

By: Devvy
March 4, 2004

On February 24, 2004, I resigned as Executive Director of Bob Schulz’ We the People Congress, Inc. As I resigned there is no financial compensation package. Despite the immediate financial burden of a lost paycheck and the expensive move back to California from Maryland, I had to do what my conscious dictates. Additionally, I am now faced with trying to find someone to take over this lease on the townhouse I rented or I'll end up with that additional financial burden, too.

I resigned for philosophical reasons. Please do not send me e-mail asking for all the “juicy” details. I am aware that my departure came as a surprise to many and there have been requests that I define what ‘philosophical reasons’ are in this case. Because these situations do happen in the business world, the affected individuals seek to keep the situation from deteriorating even further. There is one major issue I feel compelled in the strongest of terms to state my position about:

I fully support the effort to educate Americans on the right to petition, its important history and the obligation of government to respond. This is very important. However, in my opinion, the WTP Foundation for Constitutional Education’s “Right to Petition” lawsuit is the most colossal waste of money I have seen since I quit working for the Department of Defense.

There are several other avenues, including a fairly common court filing, which would achieve better results for a few hundred bucks, the usual briefs and a few court appearances. The expenditure of $285,000 on a lawsuit that still is not filed and will go no where, is not something I could support and was one of the reasons I simply could not stay on as Ex Dir for WTP Congress, a corporation affiliated with WTP Foundation.

No one should allow my resignation to affect their support of Bob or his organizations. People are free to join any organization they want to support and associate with whomever they please.

What next? I hope to leave for Sacramento by the first of April. I will continue my writing, doing radio shows and will go back on the lecture circuit. If you'd like to book me for your event in 2004, please contact my agent.

A few people who knew I resigned suggested I do talk radio. I doubt there's much likelihood of that since it appears most "conservative" am stations only want to hire blonde GOP mouthpieces like Laura Ingram to promote their socialist agenda. If a decent offer came along, I would certainly consider it.

That's it for now. God bless our Republic.

Resignation from We the People Congress, Inc.
Get the TRUTH about Paytriots and Tax Protestor Scams at http://quatloos.com


Friday, March 05, 2004

Another day, another bad day for tax protestors. In this case, Al Thompson's wife, Denise Thompson, gets zinged $2,000 for filing a stupid motion in court. Tax protestors file lots of junk in court, but it never, ever wins for them. One wonders why they waste the time and paper, especially since they have no clue what they are filing and are just regurgigating junk they found on one of the PAYtriot websites.


No. S 03-1532 FCD GGH



This matter is before the court on motion by plaintiff, United State of America ("government") for Rule 11 sanctions against defendant Denise Thompson ("defendant") for allegedly filing frivolous papers with the court.[Note 1]


On November 18, 2003, defendant filed a Plea in Abatement with the court. This brief was virtually identical in substance to a Plea in Abatement filed by co-defendant Walter Thompson, the filing of which resulted in an order for Rule 11 sanctions against that defendant by this court on November 18, 2003. On December 10, 2003, the United States served on Anthony Thompson a motion for Rule 11 Sanctions with supporting brief, requested that he withdraw the Plea in Abatement by December 31, 2003, and warned that if he failed to do so the United States would file the Rule 11 motion with the court. Defendant did not withdraw the plea in abatement and the United States subsequently filed the motion for Rule 11 sanctions with the court.


Rule 11 provides that the district court may impose sanctions upon attorneys or parties "[i]f, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated. . . ." Fed. R. Civ. P. 11(c). As an initial inquiry, the district court must determine whether a violation of Rule 11(b) has occurred. See Warren v. Guelker, 29 F.3d 1386, 1388 (9th Cir. 1994) (reversing district court denial of Rule 11 sanctions against pro se litigant for failure to make initial determination that a violation of Rule 11 occurred.) If a violation is found, the court may in its discretion decide to impose sanctions. Fed. R. Civ. P. 11(c); Guelker, 29 F.3d at 1388 N.1 (9th Cir. 1994). See also 2 Wm. J. Moore, Federal Practice § 11.23(2) (3d ed. 2003). Sanctions are limited to what is "sufficient to deter repetition of such conduct or comparable conduct by others similarly situated." Fed. R. Civ, P. 11(b)(2)(A). The court has broad discretion to choose the appropriate type of sanction to achieve the Rule's goal of deterring future violations. Link v. Wabash R.R. Co., 370 U.S. 626, 633 (1962).

By its express terms, Rule 11 applies to pro se litigants. Fed. R. Civ. P. 11(b); Guelker, 29 F.3d at 1389. A court can consider the party's pro se status in determining whether to impose sanctions and the nature and severity of sanctions to be imposed. However, the court cannot exempt a party from Rule 11 sanctions merely because he appears pro se. Id.


I. Rule 11(b) Violation

Pursuant to Rule 11, every pleading, motion, and other paper presented to the court must be signed by the attorney or an unrepresented party. By presenting to the court a pleading, motion or other paper, an attorney or party represents that "the claims, defenses and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law[.]" Fed. R. Civ. P. 11(a)(b), (b)(2). The certification requirements of Rule 11 are violated "if the paper filed . . . is frivolous, legally unreasonable or without factual foundation, even though . . . not filed in subjective bad faith." Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th Cir. 1986), overruled on other grounds by, Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990). See also Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362-65 (9th Cir.1990)(en banc).

The language of 11(b) makes clear that pro se litigants are charged with a duty to make a reasonable inquiry of the facts and law before signing papers and submitting them to the court. Fed. R. Civ. P. 11(b). Courts apply an objective standard in determining whether a party or attorney's inquiry was reasonable. Unigard Security Ins. Co. v. Lakewood Inq'g & Mfg. Corp., 982 F.2d 363, 370 (9th Cir. 1992). In determining the reasonableness of an investigation by a pro se litigant, the court may consider the problems associated with appearing without counsel. Committee Note to 1983 Amendment to Rule 11(b).

The United States claims that defendant violated Rule 11(b) when she filed his Plea in abatement because this pleading is "objectively frivolous" and filed "for no other reason than to harass and to cause unnecessary delay to these proceedings."

In its November 18, 2003 order imposing sanctions on co-defendant Walter Thompson, the court analyzed the content of the Plea in Abatement, concluding that it raised wholly frivolous and legally unreasonable arguments. The substance of the arguments asserted in the Plea in Abatement filed by defendant is identical to that filed by her husband, co-defendant Walter Thompson. Accordingly, the court finds that defendant violated Rule 11(b) by signing and presenting to the court the Plea in Abatement.

II. Sanctions

Where the court finds that a party violated Rule 11(b), it may, in its discretion impose sanctions sufficient to deter a repeated violation by defendant or others similarly situated. Fed. R. Civ. P. 11 (c) .

Here, defendants have repeatedly wasted the time and resources of the United States and this court responding to pleadings that wholly lack merit. The court therefore finds monetary sanctions necessary to deter defendants from filing additional such frivolous papers with the court.


For the reasons stated above, the court makes the following orders:

1) The clerk of the court is directed to STRIKE from the record the Plea in Abatement, filed by defendant Denise Thompson on November 18, 2003.

(2) Defendant Denise Thompson shall pay sanctions in the amount of $2,000.00. Defendant shall submit payment to the clerk of the court not later than thirty (30) days from the filing of Order.

DATED: February 9, 2004



1 Because oral argument will not be of material assistance, the court orders this matter submitted on the briefs E.D. Cal. Local Rule 78-230.

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Tuesday, March 02, 2004

When the $5,000 frivolous filing penalty gets passed into law, the IRS will be required to post a list of frivolous positions to which that $5,000 penalty will be applied. What do you think will be on it? An IRS Notice released today might give some clues. If it takes the IRS 2 or 3 years to catch us with you, that adds up to $10,000 or $15,000 in addition to taxes, interest, and penalties.

Frivolous Arguments to Avoid

Notice 2004-22


As April 15 approaches, taxpayers are reminded to steer clear of tax-avoidance schemes that purportedly reduce or eliminate taxes. If an idea to save on taxes seems too good to be true, it probably is.

Tax-avoidance schemes are based on frivolous arguments that the Service and the federal courts have repeatedly rejected. These schemes typically are sold by promoters for a substantial fee, and may be sold over the Internet, through advertisements in newspapers and magazines, at conferences and seminars (including conferences for professional groups such as doctors or dentists), and through recommendations of friends or acquaintances who have learned about these schemes.

Section 2 of this Notice sets out many of the most common frivolous arguments used by these tax-avoidance schemes. The Service is committed to identifying taxpayers who attempt to avoid their tax obligations by using schemes based on these and other frivolous arguments. Frivolous returns and other similar documents submitted to the Service are processed through its Frivolous Return Program. The Service also reviews other non-return documents making frivolous arguments submitted by taxpayers, such as correspondence, to determine whether these individuals have filed required tax returns and paid all taxes due for previous years.

Section 3 of this Notice identifies potential civil and criminal penalties. Taxpayers who engage in tax-avoidance schemes will be liable for unpaid taxes and interest. In addition, the Service will impose civil and criminal penalties against taxpayers where appropriate. The Service also will determine appropriate penalties against persons who promote these schemes and who prepare frivolous returns based these schemes.


This section sets out many common frivolous arguments used by taxpayers to avoid or evade tax.

• “The 16th Amendment is invalid because it contradicts the original Constitution, and it was not properly ratified.” The 16th Amendment, which authorizes the income tax, was properly ratified and is valid.

• “A taxpayer can make a ‘claim of right’ to exclude the cost of his labor from income.” There is no “claim of right” doctrine under any federal law, including the Internal Revenue Code, that permits a taxpayer to deduct or exclude the value of his labor.

• “Only income from a foreign source is taxable under section 861.” Sections 861-865 do not exclude income from tax. In particular, nothing in these sections or the Treasury regulations provides that only income earned from certain foreign sources is subject to U.S. tax.

• “I am not a ‘citizen’ or a ‘person’ within the meaning of the Internal Revenue Code.” A citizen of each of the 50 States (e.g., New York or California) of the United States and the District of Columbia is also a citizen of the United States.

• “Citizens of States, such as New York, are citizens of a foreign country and therefore not subject to tax.” Section 911 permits a taxpayer to elect to exclude income from U.S. income tax only when the taxpayer earns income and resides outside the United States under the conditions and limitations set forth in that section. For purposes of section 911, States (e.g., New York or California), Commonwealths, and Territories (e.g., Johnston Atoll) of the United States are not foreign countries.

• “A taxpayer can escape income tax by putting assets in an offshore bank account.” A citizen or resident of the United States cannot use an offshore arrangement (such as a foreign bank or brokerage account, or a credit card issued by a foreign bank) to avoid his tax obligations. In addition, taxpayers are required to disclose foreign financial accounts to the Treasury Department and may face civil and criminal penalties if they fail to do so.

• “A taxpayer can eliminate tax by establishing a ‘corporation sole.’” A taxpayer cannot avoid income tax by establishing a corporation sole for the purpose of avoiding tax on the taxpayer’s income. A corporation sole may be used only by a bona fide religious leader for specific, limited purposes relating to the religious leader’s office.

• “A taxpayer can place all of his assets in a trust to escape income tax while still retaining control over those assets." A taxpayer who places assets in a trust but retains certain powers or interests over the assets, including the power to control the beneficial enjoyment of the assets, is treated as the owner of the assets and is subject to tax on the income from those assets.

• “A taxpayer can deduct any amount paid to maintain his household by establishing a home business.” Business expenses, including expenses related to a home-based business, are not deductible unless the expenses relate to a bona fide, profit-seeking business. Promoters of home-based business schemes improperly encourage taxpayers to claim household expenses as business deductions although the purported home-business used in these schemes is not a bona fide trade or business.

• “Nothing in the Internal Revenue Code section imposes a requirement to file a return.” Section 6011 expressly authorizes the Service to require, by Treasury regulation, the filing of returns. Section 6012 identifies persons who are required to file income tax returns. Under Treasury regulations, taxpayers who receive more than the statutory minimum amount of gross income must file returns. Taxpayers also are required to pay any tax owed.

• “Filing a tax return is ‘voluntary.’” Some people mistake the word "voluntary" for 'optional" -- but filing a tax return is not optional for those who meet the law's requirements. The word "voluntary," as used in IRS publications, refers to the fact that the U.S. tax system is a voluntary compliance system, which means that taxpayers themselves determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax for them. For those who do not comply with their tax obligations, the tax law authorizes various compliance measures.

• “Because taxes are voluntary, as an employer, I don’t have to withhold income or employment taxes from my employees.” Every taxpayer is responsible for completing and filing required returns and paying the correct amount of tax. An employer is required by law to withhold income and employment taxes from salary and wages paid to employees. Employers also must deposit the amounts withheld with the IRS.

• “A taxpayer can refuse to pay taxes if the taxpayer disagrees with the government’s use of the taxes it collects.” No law, including the Internal Revenue Code, permits a taxpayer to avoid or evade tax obligations on grounds that the taxpayer does not agree with the Government’s past or possible future use of the taxes collected.

• “A taxpayer can avoid tax by filing a return that reports zero income and zero tax liability.” All taxpayers who receive more than the statutory minimum amount of gross income must file returns and pay tax. No law, including the Internal Revenue Code, permits a taxpayer who has received wage and other income to file a return with zero income and zero tax liability.

• “A taxpayer can escape income taxes or the tax system by filing a set of documents in lieu of a tax return.” Taxpayers must file income tax returns using the forms prescribed by the Service. No law, including the Internal Revenue Code, permits a taxpayer to file a document or series of documents to remove himself from the income tax system.

• “A taxpayer can avoid tax by filing a return with an attachment that disclaims tax liability.” A return with an attached disclaimer of tax liability is not a valid tax return under the law. Filing a disclaimer of tax may result in penalties for failure to file in addition to other applicable civil and criminal penalties.

• “A taxpayer can file a return with an altered penalties of perjury statement to generate a tax refund.” Alterations to an income tax return or to the penalties of perjury statement may nullify a return. Filing an altered document may result in penalties for failure to file in addition to other applicable civil and criminal penalties.

• “Certain taxpayers can claim a ‘reparations tax credit’ to right wrongs done in the past.” No law, including the Internal Revenue Code, permits a “reparations tax credit.”

• “By purchasing equipment and services for an inflated price, a taxpayer can use the Disabled Access Credit to reduce tax or generate a refund.” The Disabled Access Credit, which is limited to specific medical equipment, may only be claimed for amounts actually paid by a taxpayer. Promoters of this scheme improperly offer to sell equipment or services at highly inflated prices in order to generate a large credit. Taxpayers participating in this scheme, however, ultimately are not required to pay, and do not pay, the entire price stated in the sales contract.

• “A taxpayer can deduct the amount of Social Security taxes under section 3121 that he paid and get a refund of those taxes.” Section 3121 does not exclude wages from taxation and does not authorize a refund of Social Security taxes paid.

• “A taxpayer may sell (or purchase) the right to use dependents in order to increase the amount of EIC claimed.” A taxpayer may not purchase or sell the right to use additional dependents for purposes of the Earned Income Credit. To be claimed as a dependant, a child must be a qualifying child under the Earned Income Credit rules.

The Service and the federal courts also have repeatedly rejected variations of these arguments as well as numerous other tax avoidance schemes and frivolous arguments used by taxpayers to avoid or evade taxes.


Civil and criminal penalties may apply to taxpayers who make frivolous arguments. Potentially applicable civil penalties include: (1) the section 6651 additions to tax for failure to file a return, failure to pay the tax owed, and fraudulent failure to file a return; (2) the section 6662 accuracy-related penalty, which is equal to 20 percent of the amount of taxes the taxpayer should have paid; (3) the section 6663 penalty for civil fraud, which is equal to 75 percent of the amount of taxes the taxpayer should have paid; (4) a $500 penalty under section 6702 for filing a frivolous return; and (5) a penalty of up to $25,000 under section 6673 if the taxpayer makes frivolous arguments in the United States Tax Court.

Taxpayers who engage in tax-avoidance schemes also may face criminal prosecution for: (1) attempting to evade or defeat tax under section 7201 for which the penalty is a fine of up to $100,000 and imprisonment for up to 5 years; and (2) willful failure to file a return under section 7203 for which the penalty is a fine of up to $25,000 and imprisonment of up to one year; and (3) making false statements on a return under section 7206 for which the penalty is a fine of up to $100,000 and imprisonment for up to 3 years.

Persons who promote tax-avoidance schemes and those who assist taxpayers in claiming tax benefits based on a tax-avoidance scheme also may face penalties. Potential penalties include: (1) a $250 penalty for each return prepared by an income tax return preparer who knew or should have known that the taxpayer’s argument was frivolous (or $1,000 for each return where the return preparer’s actions were willful, intentional or reckless); (2) a $1,000 penalty under section 6701 for aiding and abetting the understatement of tax; and (3) criminal prosecution under section 7206 for which the penalty is a fine of up to $100,000 and imprisonment for up to 3 years for assisting or advising about the preparation of a false return or other document under the internal revenue laws. Promoters and others who assist taxpayers in engaging in these schemes also may be enjoined from doing so under section 7408.


Other information about frivolous tax positions is available on the Service website at www.irs.gov.

This notice was authored by the Office of Associate Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division. For further information regarding this notice, contact that office on (202) 622-7800 (not a toll-free call).
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Monday, March 01, 2004

Another day, another bad day for tax protestors. This day, however, is particularly bad since -- as Demo has posted below -- the IRS has gone nuclear on a couple of popular tax protestor strategies, including Irwin Schiff's "Zero Income Return" and the "861 Argument" which used to be pitched by Thurston Bell and Rick Haraka/Bryan before they were enjoined by the Justice Department, and now has as its sole remaining champion Larken Rose, who by the way disclaims at every opportunity that he is giving advice.

Why is this so important? Because we these notices it will be vitually impossible for a tax protestor to assert the so-called
Cheek Defense, i.e., "I didn't know that what I was doing was wrong." To deflate that defense, the U.S. Atorney will only have to prove that the IRS specifically warned that the strategy was bogus, and that will be that: Club Fed is now a SURE THING for those stupid enough to follow these strategies.

Get the TRUTH about Paytriots and Tax Protestor Scams at http://quatloos.com

The IRS has released some details about the bigger scams on the dirty dozen. Ignore at your own peril!

Corporation Sole Scheme:

Section 911 Scheme:

Section 1341 Claim of Right Scheme:

Section 861 Scheme:

Debt Removal / Redemption Schemes:

Phony home based business deductions:

Reparations Tax Credit Scheme:

Schiff’s Zero Return:

Get the TRUTH about Paytriots and Tax Protestor Scams at http://quatloos.com


The Tax Protest crowd should recognize quite a few of these scams...

IRS Updates the "Dirty Dozen" for 2004:
Agency Warns of New Scams

WASHINGTON - In an update of an annual consumer alert, the Internal Revenue Service urged taxpayers to avoid falling victim to one of the "Dirty Dozen" tax scams and a variety of other schemes. In the new 2004 ranking, several new scams have reached the top of the consumer watch list, including abusive trusts and the "claim of right" doctrine.

In addition, the IRS has taken a new step this year and issued 10 new pieces of legal guidance involving scams in the "Dirty Dozen" and other tax schemes. The new guidance debunks the schemes and provides new legal details to help tax practitioners and taxpayers.

"At the IRS, we're augmenting our enforcement resources to attack schemes and scams. While we're actively targeting promoters, taxpayers themselves should be wary of anyone who promises to eliminate their taxes," said IRS Commissioner Mark W. Everson. "Don't be fooled by these outrageous claims. There is no secret way to escape paying taxes."

The IRS and other federal agencies are aggressively pursuing and successfully prosecuting promoters of these schemes and many of their clients for fraud and tax evasion. Participation in these schemes can result in imprisonment, fines and repayment of taxes owed with interest and penalties. Even innocent taxpayers involved in these schemes can face a staggering amount of back interest and penalties.

Taxpayers who suspect tax fraud can report it to the IRS at 1-800-829-0433. More information on tax scams and schemes is available by visiting "The Newsroom" section of IRS.gov.

The IRS urges people to avoid these common schemes:

1. MISUSE OF TRUSTS. Promoters of abusive tax transactions are increasingly urging taxpayers to transfer assets into trusts. The promoters promise a variety of benefits, such as the reduction of income subject to tax, deductions for personal expenses paid by the trust and reduction of gift or estate taxes. Taxpayers should be aware that abusive trust arrangements will not produce the tax benefits advertised by their promoters and that the IRS is actively examining these types of trust arrangements. More than a dozen injunctions have been obtained against promoters, and numerous promoters and their clients have been criminally prosecuted. Before entering any trust arrangements, taxpayers should seek the advice of a trusted tax professional.

2. "CLAIM OF RIGHT" DOCTRINE. In this emerging scheme, people file returns and attempt to take a deduction equal to the entire amount of their wages. The promoters advise them to label the deduction as "a necessary expense for the production of income" or "compensation for personal services actually rendered". The deduction is based on a complete misinterpretation of the Internal Revenue Code and has no basis in law.

3. CORPORATION SOLE. Participants in this scam apply for incorporation under the pretext of being a "bishop" or "overseer" of a one-person, phony religious organization or society. The idea is that the arrangement entitles the individual to exemption from federal income taxes as a nonprofit, religious organization as described in tax laws. When used as intended, Corporation Sole statutes enable religious leaders - typically bishops or parsons - to become incorporated as individuals as a way of separating themselves legally from the control and ownership of church assets. But the rules have been twisted at seminars where promoters charge fees of up to $1,000 or more per person. Would-be participants are mistakenly told that Corporation Sole laws provide a "legal" way to escape paying federal income taxes, child support and other personal debts.

4. OFFSHORE TRANSACTIONS. Some people use offshore transactions to avoid paying United States taxes. Use of an offshore bank account, brokerage account, credit card, wire transfer, trust, offshore employee leasing or other arrangement to hide or underreport income or to claim false deductions on a federal tax return is illegal. A taxpayer involved in these schemes could be subject to payment of taxes, interest, penalties and potential criminal prosecution. This was the top scam in the 2003 "Dirty Dozen." A special program last year has yielded more than $170 million in taxes, interest and penalties, and the IRS and the states continue to aggressively pursue taxpayers and promoters in this area.

5. EMPLOYMENT TAX EVASION. The IRS has seen a number of illegal schemes that instruct employers not to withhold federal income tax or other employment taxes from wages paid to their employees. These schemes are based on an incorrect interpretation of "Section 861" and other parts of the tax law and have been refuted in court. Recent court cases have resulted in criminal convictions of promoters. Employer participants could also be held responsible for back payments of employment taxes, plus penalties and interest. Employees who have no withholdings are still responsible for payment of their personal taxes.

6. RETURN PREPARER FRAUD. Unscrupulous return preparers can cause a lot of problems for taxpayers who use their services. Abusive return preparers derive financial gain by diverting a portion of the taxpayer's refund for their own benefit, charging inflated fees for the return preparation services, and increasing their clientele by advertising guaranteed larger refunds. Taxpayers should choose carefully when hiring a tax preparer - no matter who prepares the return, the taxpayer is ultimately responsible for all of the information on that return.

7. AMERICANS WITH DISABILITIES ACT. Another scheme seen for several years involves the purchase of equipment and services that the promoter alleges meets the strict criteria of the Disabled Access Credit, which was created with the passage of the "Americans with Disabilities Act". A minimal payment is made and a non-recourse note signed. The investor then provides insignificant services to complete the purchase agreement. This scheme is based on an incorrect interpretation of law and an over-inflated value of the services rendered.

8. AFRICAN-AMERICANS GET A SPECIAL TAX REFUND. Thousands of African Americans have been misled by people offering to file for tax credits or refunds related to reparations for slavery. There is no such provision in the tax law. Some unscrupulous promoters have encouraged clients to pay them to prepare a claim for this refund. But the claims are a waste of money. Promoters of reparations tax schemes have been convicted and imprisoned. And taxpayers could face a $500 penalty for filing such claims if they do not withdraw the claim. Related scams include claiming an illegal tax credit by misusing Form 2439, "Notice to Shareholder of Undistributed Long-Term Capital Gains." The slavery reparations scam was at the top of the 2002 "Dirty Dozen," and, although claims have fallen considerably, the IRS continues to see activity in this area.

9. IMPROPER HOME-BASED BUSINESS. This scheme purports to offer tax "relief" but in reality is illegal tax avoidance. The promoters of this scheme claim that individual taxpayers can deduct most, or all, of their personal expenses as business expenses by setting up a bogus home-based business. But the tax code firmly establishes that a clear business purpose and profit motive must exist in order to generate and claim allowable business expenses. This scam has been around for years, but the IRS continues to see activity in this area.

10. FRIVOLOUS ARGUMENTS. Frivolous arguments are false arguments that are unsupported by law. When a scheme promoter says "I don't pay taxes - why should you" or urges you to "untax yourself for $49.95," beware. The ads may claim that the promoter knows the "secret" for never paying taxes again, but that's just plain wrong. The U.S. courts have continuously rejected this and other frivolous arguments. Unfortunately, people across the country have paid for the "secret" of not paying taxes or have bought "untax packages." Then they find out that following the advice contained in them can result in civil and/or criminal penalties. Numerous sellers of the bogus schemes have been convicted on criminal tax charges. More than a dozen injunctions have been issued.

11. IDENTITY THEFT. Identity thieves use someone's personal data to steal his or her financial accounts, run up charges on the victim's existing credit cards, apply for new loans, credit cards, services or benefits in the victim's name and even file fraudulent tax returns. The IRS is aware of several identity theft scams involving taxes or the IRS.

In one example, fraudsters sent bank customers fictitious bank correspondence and IRS forms in an attempt to trick them into disclosing their personal and banking data. In another, abusive tax preparers have used clients' Social Security numbers and other information to file false tax returns without the clients' knowledge. For taxpayers, it pays to be choosy about disclosing personal and financial information. And the IRS encourages taxpayers to carefully select a reputable tax professional.

12. SHARE/BORROW EITC DEPENDENTS. Unscrupulous tax preparers "share" one client's qualifying children with another client in order to allow both clients to claim the Earned Income Tax Credit. For example, one client may have four children but only needs to list two to get the maximum EITC. The preparer will list two children on the first client's return and the other two on another client's tax return. The preparer and the client "selling" the dependents split a fee. The IRS prosecutes the preparers of such fraudulent claims, and participating taxpayers could be subject to civil penalties.

Beyond the "Dirty Dozen," the IRS sees many more tax schemes. In one, a telephone caller says you've won a prize, and all you have to do to get it is to pay the income tax due - to the caller. Other scams can play off recent news events, such as one last year targeting members of the military.

"Taxpayers should think carefully before paying for services or signing important documents," Everson said. "Don't be a victim of these scams or others that promise the moon. They carry a high price."
Get the TRUTH about Paytriots and Tax Protestor Scams at http://quatloos.com


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