Author Is Convicted in Tax Scheme

An author of books on how to avoid paying income taxes and four associates were convicted by a federal jury Monday of conspiring to obstruct the Internal Revenue Service through the promotion and sale of bogus trusts that prosecutors said netted the defendants more than $8.5 million.

Lynne Meredith, 54, who ran an organization called We the People, and her chief assistant, Gayle Bybee, 56, both of Sunset Beach, were taken away in handcuffs after the verdict was returned. Prosecutors contended they were serious flight risks.

Meredith, a flamboyant figure who owns a 1972 Corvette convertible bearing the license plate TAX REBL, launched We the People in 1991 after becoming convinced, she said, that Congress did not have the power to levy taxes on private citizens.

Also convicted of felony charges but allowed to remain free pending sentencing were Gregory Karl, 54, of Solana Beach and Willie Watts, 45, of Murrieta, both of whom are former certified public accountants; and Teresa Manharth Giordano, 39, also of Murrieta, operator of a paralegal service.

U.S. District Judge Dean Pregerson set a June 3 hearing to consider defense motions to throw out the convictions on various procedural and constitutional grounds. Sentencing is scheduled July 23.

Two other defendants in the case, Nora Moore, 55, of Huntington Beach and Betty Erickson, 59, of Windsor were acquitted of felony charges, but were convicted on misdemeanor counts of failing to file income tax returns.

From 1991 to 2002, Meredith traveled the country giving seminars and self-published three books, including “Vultures in Eagles’ Clothing,” which explained how to avoid paying taxes by placing assets in what she called “pure trusts.”

Meredith and her associates sold “pure trusts” for as much as $1,000 each, according to prosecutors, falsely telling purchasers that each one was customized by a team of lawyers, CPAs and paralegals.

In arguments at the close of the 13-week trial, Assistant U.S. Attys. Alicia Villarreal and Brian Hershman charged that Meredith and her associates knew the trusts were useless, but peddled them to line their pockets.

Meredith and her staff also directed thousands of customers to file frivolous tax returns claiming no reportable income. Many who did so were subject to penalties, liens and wage garnishments by the IRS. They also advised clients to file for refunds on previous tax payments.

When those being dunned by the IRS returned to We the People for advice, they were sold letters at $50 or more to send back to the tax collector. The letters were supposed to get them off the hook, but did not work, the prosecution charged.

In a promotion for another book, titled “How to Cook a Vulture,” Meredith promised readers she could show them how to get the IRS to write a letter stating “We agree that you are not liable for filing a 1040 form”; how to get the IRS to stop collection activities; and how to sue the IRS and win.

“These people were selling a miracle that did not exist,” Villarreal said in her final argument. “They were selling a pack of lies.”

None of the defendants took the stand during the trial. Meredith’s attorney, Joe Izen Jr., argued that his client was being unfairly prosecuted for her “good faith” beliefs.

“What we have here is, in essence, a government book-burning,” he told the jury. At issue, he contended, were Meredith’s 1st Amendment rights.

Meredith was convicted on one count of conspiracy to obstruct the IRS; four counts of mail fraud in connection with the sale of “pure trusts”; two counts of using a false Social Security number; one count of making a false statement when applying for a passport; and five misdemeanor counts of failing to file a federal tax return.

Bybee was convicted of conspiracy and failing to file tax returns. Karl was convicted of conspiracy and mail fraud. Watts and Giordano were each found guilty of conspiracy, mail fraud and failure to file tax returns.

A statement issued by the U.S. attorney’s office Monday described the case as part of an increased focus by federal prosecutors on the antitax movement in the United States.

In March, a federal grand jury in Las Vegas indicted Irwin Schiff, the country’s most widely known tax rebel, and two of his associates. Schiff, author of “The Federal Mafia: How it Illegally Imposes and Unlawfully Collects Income Taxes,” was charged with conspiracy to defraud the United States by helping others file false income tax returns. Last year, however, federal prosecutors were handed a defeat in their war on tax protesters when a jury in Memphis acquitted Vernice Kuglin, a commercial pilot and tax protester charged with tax evasion and willful failure to file tax returns. Kuglin testified that she had written numerous letters to the IRS asking the agency to specify the law requiring her to pay income taxes.

She never received a reply, a crucial fact that jurors cited in explaining their acquittal verdict.