2 Men Charged in Church Scam May Escape Prosecution

Two men who helped operate an Orange County “church” that allegedly grossed $6 million by marketing “congregation charters” as a purported tax shelter have left the country, and extradition may be impossible, a federal prosecutor said Wednesday.

Michael S. McGinnis, 39, co-founder of the so-called Church of Universal Harmony, and Stanley Wayne Cruson, 47, a regional sales director for the organization, are scheduled to be arraigned with three other defendants March 24 in U.S. District Court in Los Angeles on charges of conspiracy and tax evasion.

But McGinnis, facing a possible 61-year prison term if convicted, is living in France, and Cruson, facing a possible 17-year term, has moved to Costa Rica, said Assistant U.S. Atty. Gary A. Feess.

Gone for Months

“Both have been gone for quite some time--at least a period of some months,” Feess said. Neither France nor Costa Rica consider tax violations to be an extraditable offense, he said.

McGinnis, a former Tustin resident, and Cruson, who lived in Riverside, were named in a 25-count federal grand jury indictment made public this week. Also named as defendants are Dennis D. Riness, a co-founder of the “church”; Winston Scott Mesch, a sales director, and James A. Hoffman, a salesman.

The indictment was returned Dec. 3 by the grand jury but immediately ordered sealed as federal agents tried to locate McGinnis and Cruson.

Feess declined to say whether U.S. authorities have made contact with McGinnis and Cruson. “I can tell you no deals have been made,” he said. Feess said he does not know whether they will choose to return to the United States to face charges.

The indictment alleges that McGinnis and Riness, 43, of Seal Beach concocted the Church of Universal Harmony to sell supposedly tax-exempt chartered congregations for $1,200 to $1,500. Then, according to the indictment, buyers were instructed how to funnel their income through the “congregation” to dramatically reduce personal taxes.

Members would use supposedly tax-exempt accounts to pay for their mortgage, car, utilities and medical bills “and for so-called missionary trips to such places as Las Vegas,” the U.S attorney’s office said in a press release.

Prosecutors point out that the Church of Universal Harmony was chartered under, and marketed charters to, the controversial Universal Life Church. The indictment notes that the Modesto-based Universal Life Church, the largest mail-order church in the nation, had been granted individual tax-exempt status by the IRS in 1976 after litigation in federal court--an exemption that was not transferable to other purported wings. The IRS revoked that church’s tax-exempt status in 1984.

The McGinnis-Riness organization operated from 1978 to 1984, with a sales network that covered California, Oregon, Nevada and Arizona, prosecutors say. Operating from headquarters in McGinnis’ home, it attracted more than 3,000 members and grossed more than $6 million in six years. In some years, McGinnis and Riness each derived personal incomes well in excess of $100,000, according to the indictment.

Before establishing the Church of Universal Harmony, McGinnis and Riness founded “TEA, an Assn. of 20th-Century Patriots,” as a tax protest and resistance organization, Feess said. TEA--which derived its name from the famous tax protest the Boston Tea Party--later served as the marketing arm of the Church of Universal Harmony, the prosecutor alleged.

“I don’t believe any crime was committed,” Riness said Wednesday in a phone interview. Riness, who could face a maximum prison sentence of 51 years if convicted on all counts, said he probably will plead not guilty. “I have to speak to legal counsel.”

Riness maintained that the Church of Universal Harmony was a legitimate religious organization. There is “a small group of people who still meet--the true believers,” he said.

Riness said he has lost contact with most of his fellow defendants, including McGinnis and Cruson.

One count of the indictment alleges that Riness reported a 1981 taxable income of $23,496, with a tax due of $4,198, when, in fact, his taxable income was $141,573 and the tax due was $54,317.

When the operation disbanded in 1984, “it was useless to go ahead because the IRS was beating on us so badly,” Riness said. Since then, he said, he has been working in commercial sales--”nothing to do with the church.”

The tax claims of many the organization’s subscribers have been subjected to close auditing by the IRS and many tax court cases. “There’s still a lot of litigation going on,” Feess said.

Besides conspiracy and tax evasion charges, the defendants face various counts of assisting the preparation of false income tax returns.

If convicted on all counts, Mesch, 38, of San Jose, faces a possible prison term of 14 years. Hoffman, 45, of Sunnyvale, faces a possible term of 11 years.