IRS Says Nothing Certain but Death of Tax Protesting
Our Constitution is in actual operation; everything appears to promise that it will last; but in this world nothing is certain but death and taxes.
--Benjamin Franklin
Benjamin Franklin has been quoted, misquoted and paraphrased thousands of times since he wrote about the inevitability of death and taxes in a letter to one M. Leroy in 1789.
But nearly 200 years later, thousands of Americans across the country steadfastly refuse to believe the part about taxes--or at least income taxes.
To them, the income tax isn’t “certain”; rather it’s tyrannical, unconstitutional, voluntary or simply immoral. These are the tax protesters, people who claim a special affinity for Ben Franklin and his fellow Colonial rebels as they wage what they call the “Second American Revolution.” Income tax protest is nothing new; resistance has ranged from grumbling about filing forms each April to outright refusal to pay or file.
Nor is the movement gaining ground, government officials contend.
With the latest overhaul of the tax system about to be signed into law, combined with a recent slew of criminal convictions in California, government experts say the tax “revolution” is losing its appeal.
The tax rebel population has declined dramatically since its peak in 1984, when 11,516 people who have avoided payment of taxes were identified by IRS officials in California; there are about 4,500 today.
In addition, more than 100 California protesters have been convicted on criminal charges so far this year, according to government agencies.
And in Orange County, once a center for tax protest groups, tax agents claim they have broken the back of organized tax resistance.
Robert Pledger, chief of criminal investigations for the IRS district that covers Orange, Riverside, San Diego and Imperial counties, said that when the movement began to gain ground 10 years ago, most judges were lenient with protesters, treating them as “misdirected, semi-innocent people” duped into believing the claims of a group out to sell its books and literature.
“However,” he said, “in the last few years, it’s really gone the opposite way, and the courts are basically tired of all these arguments.”
A tax resister convicted in the 1970s would probably have received a sentence of no more than 90 days in jail, Pledger notes; today, the average sentence is 27 months.
Although some tax protesters have won isolated rulings, none has held up on appeal, experts say. (Some resisters have been acquitted on the basis of “good faith”--that is, juries ruled that they were guilty but had acted out of a sincere belief in their philosophy.)
The confrontation came to a head in June, 1982, when the IRS successfully prosecuted one of the movement’s generals, Armen Condo, the flamboyant founder and leader of the Garden Grove-based Your Heritage Protection Assn., at one time the largest tax protest group in the nation. Condo’s conviction on 41 counts of tax and mail fraud led to an eight-year term in an Arizona federal prison and $92,500 in criminal fines, and it also gave government agencies their first major victory in the war against tax resisters in California.
“He was the most glib person you’ve ever heard. This guy was great, “ recalls Fred C. Fischle, district manager of the California Franchise Tax Board office in Santa Ana, smiling with the sort of grudging respect that sheriffs must have shown for Butch Cassidy.
Unlike the bandits of the Old West, however, Condo and his fellow protesters fought their battles with books, literature, videotaped courses on “common law” and blank tax forms. Tactics used by these protesters often are not very complicated; they simply refuse to pay the income tax and wait for their day in court, convinced that they could win just by presenting their cases.
After Condo was convicted, the IRS brought nearly 600 association members to civil court and quickly prosecuted another 30 on criminal charges. The government then seized the group’s headquarters, which led to a confrontation with Condo’s successor, Pat Creech, who illegally reopened the offices for business and was sent to jail for that action earlier this year.
Today, the YHPA, which at its peak claimed 27,000 members nationwide, is barred by court order from promoting tax resistance under the association name.
And on Monday, federal prosecutors claimed another major victory with the sentencing of Dennis D. Riness, 42, of Seal Beach, one of the former directors of Tustin-based TEA, an Assn. of Twentieth Century Patriots, which once claimed 3,000 to 4,000 members, most of them from Orange County.
Riness was sentenced in federal court in Los Angeles to 13 months in prison, fined $5,000 and required to devote 1,000 hours in community service after pleading guilty to one count of conspiracy to defraud the government and one count of aiding and assisting in the preparation of false income-tax returns.
According to Assistant U.S. Attys. Gary Feess and Jeffrey Modisett, who investigated and prosecuted the case, Riness and his co-defendant, Michael S. McGinnis of Fullerton, formed TEA in 1978 as a tax protest organization, and both acted as directors of that group.
Next, they obtained a church charter from the Universal Life Church Inc. in Modesto and denominated their church as the Church of Universal Harmony. Through TEA and the church, prosecutors say, Riness and McGinnis operated a sales organization that promoted a tax shelter scheme in which they mass-marketed charters in the Universal Life Church to the public for a fee of $1,250 and $1,500 each.
Federal officials moved in on the Tustin group in 1983, and in 1984, the tax-exempt status for Universal Life Church was revoked.
Riness’ conviction was an important victory for the IRS, says Modisett, who also participated in the investigation into Condo’s group. “Once and for all, it showed that this particular tax shelter device (using church charters) . . . is clearly a violation of federal tax laws.” Modisett said that federal authorities are still seeking McGinnis, who is believed to be living in Paris.
“After Condo was convicted, a lot of wind went out of the organizations,” said Jim Townsend, publisher of a conservative national newspaper, the National Educator, based in Anaheim. The association is essentially defunct, he said. But even though the number of tax resister groups has declined nationwide, he said the number of interested individuals “seems to be growing all the time.” He said he receives at least 200 letters a week from individuals around the country asking him to publish more articles on tax resistance.
While movement members returning to “the system” are increasing, those who are left in the movement are more dedicated than ever, said Barbara Holtz, a volunteer with the Freedom League. The league, based in Orange, is now the largest of a quiet handful of tax resister organizations in Orange County, Townsend said.
The term tax protester might, for some, conjure up images of a survivalist hermit hiding in the mountains, a dropout from society. In reality, most are well-dressed, well-educated people who are adept at articulating their beliefs.
They can cite Supreme Court cases and sections of the hefty IRS tax code by number, and they can present an outsider with compelling arguments.
“We’re really kind of a mild-mannered group,” said Pat Detches, a leading member of the Freedom League. “It’s not one of those underground clandestine things. We’re very open about it and very professional.”
The Freedom League’s plush suite is a tastefully decorated business office that hardly fits the stereotype of a revolutionary outpost. Along one wall is a collection of books the group sells to raise funds. They bear titles such as “The Internal Revenue Service: An Agency Out of Control,” “Beat the IRS? I Did!” and “The Great Income Tax Hoax.”
These books outline the numerous arguments that modern-day tax rebels profess:
The 16th Amendment, which authorized Congress to tax income, was never properly ratified because several states passed versions with slight changes in wording or punctuation.
Because it is no longer backed by gold or silver, paper money is worthless and thus not subject to taxation.
Wages are not taxable income because they represent an equal exchange for labor; neither party makes a profit.
Individuals are not subject to taxes because filling out the detailed 1040 form constitutes self-incrimination and is therefore a violation of the Fifth Amendment.
Recently, protesters have seized on a new argument, the “fringe-on-the-flag strategy,” which argues that they are free and sovereign individuals who have no contract with the state.
Actually, the popularity of the various arguments changes with the times. “Certain arguments are in vogue,” Fischle noted. “When I first started 14 years ago, it was the gold and silver. . . . Now it’s that wages aren’t taxable because it’s a free exchange. That’s a big one right now, that and the 16th Amendment one. . . . The trouble with those arguments is they’ve already been decided at court level.”
“We want to live our lives as we see fit,” says Freedom League member Holtz, explaining her philosophy. “We don’t want to be the controllers or the controllees. . . . We just want to be left alone.”
“It really isn’t the taxes,” said Detches, who lives in Huntington Beach. “I mean, if the IRS really wanted money all they have to do is go to the Bureau of Printing and Engraving and say ‘Crank up the presses, boys.’ They don’t want that. All they want is information on you, to control the amount of goods and services that you’re going to consume so they can control the population like government always does.”
(Freedom League members object to pervasive government power. If they had their way, all government funds would come from tariffs or corporate taxes.)
The personal income tax in the United States dates back to the Civil War, when Abraham Lincoln pushed through an emergency income tax with a maximum rate of 5% that lasted until 1872. But when President Grover Cleveland tried to impose another such tax in 1894, the Supreme Court struck it down as unconstitutional.
The tax’s backers, mainly Southern and Western farmers hurt by high tariffs, tried again with the 16th Amendment, ratified in 1913, which gave Congress the power to “lay and collect taxes on incomes.” Before that, federal and state governments had relied primarily on indirect levies such as sales, property and excise taxes. Income tax rates were low at first, ranging from 1% to 7%, but they began to parallel the growth of the federal government around World War II, when the minimum rate rose to 23% and the maximum to 94%.
Under the new law, which will be phased in over the next three years, the highest tax rate would be no more than 33%.
IRS officials have few kind words for tax protesters.
“Usually they’re motivated by greed and opportunity,” said Fischle of the state tax board. “Honestly, my first impression was, ‘Boy, these guys are really serious and into it.’ But after a while, I don’t know what changed my mind, but I really got back to thinking these guys are only looking at, ‘How can I get away with not paying my income taxes?’ ”
Fischle said he is particularly bothered by the argument that Federal Reserve notes (bills not backed by gold or silver) are just “funny money.”
“I asked a guy about that one time: ‘You’re not willing to pay your income taxes with this stuff, but you go to the grocery store and use it,’ ” Fischle said. “And he said something like, ‘Well, if they’re dumb enough to take it. . . .’
“So I said, ‘Well, I’m dumb enough to take it. . . .’ ”
Because the appeals process often stretches into years, government officials say, many innocent people can be duped into believing that they can get away with not paying their taxes.
“It’s something you want to believe, obviously,” said Janie Cordray, a spokeswoman for the state tax board. “That’s the thing that’s kind of sad about this movement. They get some of these people who are not financially sophisticated suckered into it, and suddenly they don’t have any tax. . . . They think they’re winning, but it may take more than three years before someone is criminally charged . . . and then it suddenly hits you: You could lose your home.”
Those convicted of criminal tax evasion or of failure to file can face stiff consequences.
A protester convicted of willful failure to file federal income tax forms can be sentenced to a year in jail and fines of $25,000 for each count. One convicted of willful tax evasion may be sentenced to five years in prison and be required to pay fines of $100,000 for each count.
With the civil penalties and the interest on the back taxes, the cost of not paying the taxes can be higher than the taxes the protester was trying to avoid paying.
The penalties can result in garnishments on paychecks and liens on property, sometimes culminating in seizures of homes and cars.
Tax protesters maintain that they are not in it for the money. After the organizational costs and attorney fees, they argue, they don’t make a profit. And they portray government agents as Nazi-like “brown shirts” using “Gestapo tactics.”
Last October, IRS agents seized records and membership lists from the Denver headquarters and Orange County chapter offices of the National Commodity Exchange, a national alternative bank for tax rebels that deals in precious metals. A federal judge ruled recently that the search warrant in Denver was “too vague” and ordered the IRS to return some of the confiscated materials. In the Orange County case, a judge upheld the raid.
The protesters are elated by the Denver decision. But the IRS does not view the ruling as a major setback, just another lost battle in a war it is winning overwhelmingly.
“The idea that we’ll give up and go away is a pipe dream,” said Pledger of the IRS. “We’ve got all the time and the money to go after these people, and we’ll continue to do it until we’ve got them all.”
