The Tax Protest Movement Since 9/11
Posted: May 13, 2003
Activists in the extreme right-wing tax protest movement had a lot to be happy about as the autumn of 2001 approached. The movement, resurgent ever since the Internal Revenue Service's enforcement budget was slashed in 1997, was still growing-and growing bolder, as well. In fact, it had even secured the promise of a Maryland Congressman, Roscoe Bartlett, to hold two days of "Citizen's hearings" on Capitol Hill on September 25, 2001. This apparent success was due to the efforts of Bob Schulz, head of the leading tax protest organization in the U.S., the New York-based We the People Foundation for Constitutional Education. Schulz even organized a planning session in Las Vegas the month before that consisted of, in Schulz's words, the "who's who" of the movement. At the hearing, tax protesters would present a list of 299 challenges and questions to the government, to which Schulz intended the government to be required to respond.
However, the 9/11 terrorist attacks threw a monkey-wrench into Schulz's plans, as Bartlett's hearings had to be cancelled and rescheduled for February 2002. It wasn't very long before the planned meeting fell apart altogether. First, the Justice Department notified Bartlett that neither it nor the Internal Revenue Service would take part in the hearings, then Bartlett himself had second thoughts and notified Schulz that he was canceling his participation because Schulz had launched a marketing campaign, "Wait to File Until the Trial," in which he had allegedly encouraged taxpayers to refrain from filing income tax returns until after the hearings.
Schulz's failure to get the meeting off the ground was followed by other developments that threatened to slow down or even reverse the momentum the tax protest movement had gained in recent years. First among these was the federal government's annual spring series of civil lawsuits and criminal arrests and indictments. Every year, in late March and early April, the federal government takes advantage of the publicity surrounding April 15-income tax day-to seek injunctions, file indictments or make arrests of individuals and groups associated with illegal tactics often used by the tax protest movement.
The most prominent of the tax protesters caught in the 2002 April actions was certainly Lynne Meredith, head of the southern California-based tax protest group "We the People" (distinct from the similarly named organization headed by Bob Schulz). A Los Angeles federal grand jury released a 35-count indictment against Meredith and six other individuals, charging them with conspiring to defraud the IRS and fraudulently using Social Security numbers and passports. In addition to Meredith, also charged were Gayle Bybee, Gregory Paul Karl, Teresa Manharth Giordano, Willie Watts, Betty Erickson, and Nora Moore. The charges in the indictment targeted the group's marketing of sham trust materials for the purpose of evading income taxes. The indictment claimed that Meredith earned more than $6.2 million from 1994-1999 through these activities, but did not pay any income taxes herself, either.
Also targeted was Tampa, Florida, tax preparer, Douglas Rosile, Sr., who was sued by the Justice Department to stop him from promoting an alleged scheme to underreport more than $36 million in federal income taxes. Rosile's scheme, according to the government, used the tax protest argument that only income from foreign sources can be taxed by the income tax laws, an argument that has been rejected many times by the courts. Rosile's most prominent client was Hollywood actor Wesley Snipes, whose return asked for a $7,360,755 income tax refund (for the year 1997) based on an adjusted gross income of zero.
Despite these setbacks, leaders in the tax protest movement had lost none of their boldness. In June 2002, Bob Schulz even announced, in a letter to the IRS, that the income tax was the "greatest hoax ever perpetrated by government," and that he would no longer pay the income tax. Schulz also said he would lead a "national campaign" to urge others to stop filing income tax returns. His campaign took form as "Freedom Drive 2002" and culminated in a rally in Washington, D.C., in November 2002. Schulz was not the only bold activist. Larken Rose, a Philadelphia tax protester, sent the IRS a letter demanding that it prosecute him for refusing to file income tax returns, which he admitted he had not filed after 1996. Rose claimed that the government feared that a trial would reveal the income tax laws are invalid.
The IRS did not rush to comply with Rose, but it did give indications it was taking the tax protest movement more seriously. In the fall of 2002, it formed more than a dozen special task forces, dubbed "Flow-Through and Abusive Schemes Teams," designed in particular to counter sham trusts, offshore accounts, and other abusive tax schemes. In November, the Justice Department sued the leaders of one Florida-based program, which ran under a variety of names, including "Family Values International," which it claimed helped hide $18 million in unpaid taxes. The following month, it also sued a second Florida operator, Everte C. Farnell, the "Chief Tax Consultant" of the "National Institute for Taxation Education (NITE)," claiming that he was promoting an illegal tax scheme. In Pennsylvania, a federal judge ordered another NITE proponent, Thurston Paul Bell, to stop promoting his scheme, known as the "861 position" after the section of the tax code on which it is based.
In December 2002, the U.S. government extradited Keith Anderson from Costa Rica and charged him with founding one of the nation's largest offshore money-laundering and tax evasion organizations, known as Anderson's Ark & Associates. In the previous two years, nine people, including Anderson's brother Wayne, had been convicted in connection with Anderson's Ark. According to prosecutors, over 2,000 people had used Anderson's Ark since 1978. Anderson claimed that the government was persecuting him for showing Christians that income tax laws were a hoax.
Many small time tax protesters also finally received attention; one example among many was Pennsylvania tax protester Karl Frank Kleinpaste, convicted in late November 2002 on 10 counts of failure to pay income taxes, tax evasion, and making false loan applications. Kleinpaste, who not only defended himself but asked himself questions in the witness box, claimed to have studied U.S. tax law for nearly a decade and to know more about tax law than the judge or prosecutor in the case, but this did not save him.
In the worst news for tax protesters, the Bush administration announced in early 2003 that its proposed IRS budget would include significant increases in several different areas of tax law enforcement, including the prosecution of "tax denial" schemes and the misuse of trusts and offshore accounts. While, adjusting for inflation, the IRS budget would still be lower than it was five years ago, it would nevertheless give the IRS an additional ability to investigate and prosecute tax protesters who committed illegal acts.
This announcement was followed by the government's 2003 annual spring series of actions against tax protesters. First to feel the heat was prominent tax protest advocate Irwin Schiff of Las Vegas. Federal authorities executed a search warrant on Schiff's office in February, seizing books and documents, then in March filed a brief in federal court saying that Schiff and two associates were involved in a major tax scheme designed to help customers evade federal income taxes. In response, the judge issued a temporary order to stop Schiff from selling his book, "The Federal Mafia," and from holding seminars to teach his methods. No charges have yet been filed against Schiff. Not long after, federal authorities in Arizona arrested former county judge John Rizzo and his wife Carol, prominent figures in the tax protest movement, charging them with running a tax protest scheme known as the "Millenium 2000 Reliance Defense" that cost the government more than $70 million in lost taxes.
Other developments illustrated once again that the tax protest movement is not simply about evading taxes but can often be violent. In April 2003, a north Idaho businessman, David Roland Hinkson, was arrested for trying to hire an assassin to kill a federal judge, a prosecutor, and an IRS agent. Hinkson had been facing federal charges related to an alleged $938,000 in unpaid federal income taxes. In Denver the same month, Jack Dowell of Pensacola, Florida, was convicted of starting a fire that destroyed a Colorado Springs IRS office in 1997.