Ex-Tax Protester Wins Suit Claiming IRS Lost Returns, Won't Have to Pay : Courts: Bankruptcy judge's ruling frees Richard A. Franklin and his wife of claims for more than $150,000 in back taxes, interest and penalties.

Ex-Tax Protester Wins Suit Claiming IRS Lost Returns, Won’t Have to Pay : Courts: Bankruptcy judge’s ruling frees Richard A. Franklin and his wife of claims for more than $150,000 in back taxes, interest and penalties.

By MICHAEL FLAGG

Oct. 1, 1992 12 AM PT

TIMES STAFF WRITER

SANTA ANA —

A former tax protester who took on the Internal Revenue Service has won: He and his wife won’t have to pay more than $150,000 in back taxes, penalties and interest for 1981, 1982 and 1983.

At issue in his lawsuit was whether the IRS lost his tax returns--as he claimed--or whether he simply hadn’t filed them, as the IRS alleged.

To bolster his case, Richard A. Franklin of Orange brought in a former IRS revenue officer who testified that she had seen returns misplaced, shredded and put in the wrong files at the Laguna Niguel regional office.

A bankruptcy judge in Santa Ana ruled Wednesday that it was more likely than not that Franklin and his wife had filed their returns in 1984.

Since the IRS must demand back taxes within three years after a return is filed--and it didn’t get around to dunning the Franklins until 1988--they are off the hook for the three years’ taxes, their lawyer says.

Richard Franklin, 60, was a tax protester in the late 1970s and early 1980s; he neither filed returns nor paid taxes between 1978 and 1984.

In 1978, Franklin joined the largest tax protest group in the nation, Your Heritage Protection Assn., which was based in Garden Grove.

But prosecutors went after tax protesters in the late 1970s and early 1980s, breaking up the movement.

The Franklins--he is a stockbroker, she sells insurance--began to worry about winding up in jail too.

In 1984, they filed all their late returns at once. A year later they got the IRS to agree to let them pay off their back taxes in installments.

Now they won’t have to.

They have already paid more than $100,000 in back taxes under the installment agreement, according to A. Lavar Taylor, their lawyer. But another $150,000 in back taxes, penalties and interest is now nothing more than a bad memory.

The Franklins didn’t have a comment except, said their lawyer, that they are “tremendously relieved.”

They will now ask the judge to let them out of bankruptcy court, where they filed for protection when the IRS came after them.