Tax Boycotter’s Records Seized by State in Raid

Moving against employers who refuse to withhold taxes from employee paychecks, state officials have raided the offices and home of an Orange County businessman who repeatedly has defied tax authorities.

George “Nick” Jesson, in broadcasts and newspaper interviews, even brags that federal tax authorities refunded $217,000 in personal taxes he paid in the past.

State Franchise Tax Board agents, accompanied by police officers, on Wednesday carted off financial and employment records, coins and tax-avoidance books from Jesson’s Fountain Valley home and from his Huntington Beach electronics business. State officials declined to comment on the raid.

No one was arrested.

In an interview Thursday, Jesson said he hopes the case makes it before a jury so he can “expose the corruption of the system.” He said he believes in “lawful taxes”--sales, property, export, import, alcohol, tobacco, firearms, utilities--but added: “There’s nothing, absolutely no law, that applies to your personal wages.”

Jesson and his No Time Delay Electronics are among about two dozen businesses nationwide that publicly have defied government requirements that taxes be “paid as you go” through withholding, Social Security and other employment taxes.

The names of the businesses, including Jesson’s, surfaced in news reports last year, and the Internal Revenue Service in February said it was investigating a “small number” of the cases. The agency said the businesses relied on an erroneous interpretation of the U.S. Tax Code that concluded that wages are not legally a “source” of income.

In the last three years, 127 people have been convicted on employment tax issues, said Mark Matthews, the IRS chief of criminal investigations. Nearly 86% were sentenced to prison, a halfway house or home detention for an average of 17 months each. They also were ordered to pay the taxes plus interest and hefty penalties.

The IRS was not part of the raid on Jesson’s home and business, and a spokeswoman said she couldn’t comment on individual cases.

The Franchise Tax Board’s search warrant said Jesson is suspected of failing to withhold taxes from paychecks in 1997, 1998 and 1999. Jesson and his wife, Trina, contend that they stopped withholding taxes only last year and that they never have received a letter from the state saying they owed any money.

Jesson said he received the $217,000 IRS refund after he reported zero adjustable income on his personal tax return in 1997, and has applied for a similar refund from the state.

The zero-income tax filing is promoted by Irwin A. Schiff, a Las Vegas publisher of books that advocate boycotting income taxes. Schiff was sent to federal prison for three years in 1986 for failing to pay taxes and was ordered by the U.S. Tax Court in 1992 to pay $44,200 in back taxes plus penalties of $48,948.

“I wasn’t filing because there was no law that required me to file,” Schiff said Thursday, calling himself a “political prisoner, framed by the government.”

Schiff differentiates wages from income and asserts that wages can’t be taxed. He also contends that income taxes are assessed voluntarily by individuals and not imposed like a property tax.

Jesson, who says he now refuses to pay his own income taxes, said about half of his 22 employees currently take him up on his offer not to deduct taxes from paychecks. The company withholds taxes for the remaining employees.

A handful of colleagues scurried around his offices Thursday, trying to make sense of the search warrant they say is unlawful because it is dated for the year 2000. Jesson also complained that while the warrant suggests he committed a felony, it lists no probable cause or criminal charges.

Jesson’s wife said she and her employees were terrorized by an “army of men with guns” who burst into No Time Delay’s offices just before 9 a.m.

“I was on the phone and suddenly I had three guns pointed at my head,” she said. “It was horrible.”

Employers who fail to withhold taxes and turn them over to tax authorities may be required to pay up to double the taxes, plus interest, and can be prosecuted for felony tax evasion under California law.

Still, Jesson said he is not worried. “If we don’t stand up for what’s right, what’s left?”

Several experts in tax law said the constitutional and other claims of those who contend income taxes need not be paid have been rejected repeatedly by the courts.

Businesses clearly have a legal obligation to withhold taxes, said USC law professor Thomas D. Griffith, co-author of “Problems in Federal Income Taxation.” If Jesson ends up in court, “It’s clear-cut. He’d lose,” Griffith said.

He said the only question is whether Jesson, in a possible criminal case, could show that he genuinely believed he didn’t have to pay taxes.

Paula Junghouse, a former top Justice Department tax official who now represents criminal defendants in tax cases, said most employment tax cases involve individuals who withhold money from workers and squander it on “Las Vegas or their girlfriends.”

But the IRS also goes to court against defendants like the Indianapolis Baptist Temple, which stopped withholding federal income and Social Security taxes from its employees’ paychecks in 1984, saying God would not allow it to act as the government’s agent.

The church was seized in February to satisfy a $6-million tax debt after the U.S. Supreme Court refused to overturn lower-court rulings allowing the seizure.

As for the protesting businesses, Junghouse said: “I don’t think there are any defenses to this. This just the same old protester rhetoric and protester logic in a different guise--applied to the employment tax instead of the income tax.

“This recent rash of people who want to be on the front page poking the IRS in the eye--you’ve got to wonder if they have a death wish,” Junghouse said.