IRS Aims to Make Rebel Pay

Times Staff Writer

Cruising Pacific Coast Highway in a Corvette convertible, wearing high heels, metallic eye shadow and leather pants, Lynne Meredith doesn't look much like a threat to the federal tax system.

But that's how IRS officials describe her, and once she starts talking, it's easy to understand their concern.

Meredith has made millions marketing the gospel of tax avoidance, the IRS says. Her message: You don't have to pay federal income taxes, ever. She preaches not to anti-government extremists but to suburbanites struggling to balance their household budgets.

Meredith, 52, who has a perpetual tan and a lavish home in the Orange County community of Sunset Beach, lectures her followers on luxury cruises, at catered parties and in hotel conference rooms. Her best-selling book, "Vultures in Eagles' Clothing," has sold more than 100,000 copies.

For years, Meredith boasted that she had never paid income taxes and hadn't received so much as a letter or phone call from the Internal Revenue Service. That changed last April 15, when federal authorities arrested her and six colleagues on charges of operating a worldwide tax scam.

Prosecutors said Meredith convinced tens of thousands of people to evade federal income taxes, mostly by selling them "pure trusts" -- instruments that Meredith says shield property and income from tax collectors, court judgments and former spouses.

The IRS reports a sharp rise in such tax-avoidance schemes. Last year, a record 740,000 tax filers used illegal trusts and other subterfuges to dodge income taxes, according to agency estimates.

Authorities say Meredith is particularly troublesome because she has helped move tax evasion from the fringe to the mainstream. In contrast with other tax rebels, her manner is more real estate agent than revolutionary.

She delivers her subversive message -- that under the Constitution payment of income taxes is strictly voluntary -- in a nonthreatening way. She is passionate and persuasive, with a flair for marketing.

"Lynne Meredith is a well-known promoter in what we see as a growing movement," said Michael S. Kochmanski, the Treasury Department's top agent in Los Angeles. "She's made a lot of money off what she's been preaching and selling. If you're at all gullible, you will be convinced."

Meredith, who has pleaded not guilty to the charges, says that her trusts are legal and that the government is persecuting her for exposing the basic unfairness of the tax system.

She is scheduled to stand trial in June in federal court in Los Angeles. If convicted of all counts, she could face up to 85 years in prison. In the meantime, she spends most of her time at her beachside home, surrounded by a fleet of classic cars, an extensive collection of Coca-Cola memorabilia and a parrot named Thomas Jefferson.

She wears an electronic monitor on her ankle and carries a global positioning device on orders of a federal judge, who also told her to halt her tax seminars until after the trial.

"My arrest was just part of my mission to put an end to what I believe is a reign of IRS tyranny," said Meredith, who cannot leave Orange County without court permission. "I will use this opportunity to set judicial precedence.... I want to abolish the IRS."

A Rapt Audience

The scene is a conference room at a Long Beach hotel. Meredith smiles broadly and grips a miked podium. She inhales deeply as members of the audience -- who have paid $50 each to attend -- find their seats.

As attendees watch in rapt silence or scribble furiously on notepads, Meredith says they have been conned by the government. The mandatory federal income tax, she says, applies only to corporations and employees of the federal government. For everyone else, it's voluntary.

The seminar, videotaped in 1997, is one of hundreds she has held across the nation.

"The IRS has no authority for what they do," Meredith tells the audience. "The IRS works by intimidating you. It's your own fear that makes you comply. If we refuse to be fearful, they will have lost all power over us."

The true purpose of the income tax, Meredith says, is to fund the Federal Reserve Bank -- a front for "eight primarily foreign, private bankers who intend to establish a monopolistic, global economy under their control."

Meredith sells a two-prong strategy to avoid income taxes. First, she urges people to "unvolunteer" from the tax system by renouncing their U.S. citizenship and declaring themselves citizens of their home states.

Second, she encourages them to create "sovereign pure trusts" -- contracts and bank accounts she says are tax-exempt.

The trusts are legal contracts that transfer ownership of assets -- real estate, bank accounts and other property -- to a third party. This third party can be a friend, though one of Meredith's employees often plays the role.

The taxpayer maintains control of the assets, but need not pay taxes on them, Meredith says, because they are no longer listed in his or her name. The third party doesn't control the assets and thus cannot be taxed, either, according to Meredith. The trusts are "pure" in that they reflect the uncorrupted intent of the framers of the Constitution, Meredith says.

Her business, We the People, employs six assistants who draft the trusts for $500 each. They work in a crisp, glass-partitioned office overlooking PCH in Sunset Beach -- a low-rise professional building she calls Liberty Freedom Plaza.

At her seminars, skeptical audience members often ask whether the trusts are legal. She responds that, by her interpretation at least, the Constitution exempts individuals from income taxes, even though federal laws require that they be paid.

She cites Article 1, Section 9, which outlines various limitations on the power of Congress. One provision says that "direct" taxes, such as those on personal income, must be collected in proportion to the population of each state, as determined by the census. This language formed the basis of numerous challenges to the legality of federal taxes in the 18th and 19th centuries.

The 16th Amendment, adopted in 1913, authorized Congress to tax Americans' incomes "without regard to any census or enumeration." The measure cleared the way for enactment of the federal income tax, which has withstood repeated court challenges.

Meredith, however, argues that the amendment is flawed and contains no "enabling clause" granting Congress the broad taxing authority it now exercises.

Federal officials say her argument is nonsense. An IRS fact sheet titled "False Arguments for Noncompliance With the Tax Laws" cites several tax-evasion schemes based on supposed flaws in the 16th Amendment and on trusts similar to those marketed by Meredith.

Promoters of such plans "often present their arguments in a pseudo-legal format, luring unsuspecting people into participating," the fact sheet states.

Although Meredith's presentations are tinged with talk of conspiracy, friend and foe alike say she is able to convince people who don't hate the government that they don't have to pay taxes.

Drawn by Her Zeal

Donna Pozdro, owner of an Orange County architecture company, met Meredith at a party and later attended one of her seminars.

Pozdro said she has no particular animus against the government and is not one to break the law. But gradually, she said, she became convinced by Meredith's arguments.

"At first, you think she's a crackpot," said Pozdro. "Then you get interested in it because of greed. Then, when you start looking into it more, you get real sick in the stomach. It's like the carpet of innocence has been pulled out from under you."

"People are drawn to her because of the passion she feels for this," Pozdro said.

Florida trucker John Barter, 54, said he was in constant disputes with the IRS over back taxes when he attended one of Meredith's seminars. He eventually purchased one of her trusts. "She's the smartest woman I know," he said.

The IRS contends that Meredith has made at least $6 million from her anti-tax activities. Meredith declined to discuss her income but said her business was successful.

The gated garage of her home holds a fleet of vintage cars -- a Jaguar, a Porsche, a Bentley, a 1937 Gatsby roadster, a Range Rover and a 1973 Corvette Stingray with the vanity plate "TAXREBL."

"The IRS gets really upset about all my cars," she said.

From Job to Job

A single mother of three who divorced in the mid-1970s, Meredith spent years bouncing from job to job, working as a waitress, in a factory and selling vending machines and telephone service.

By the 1980s, she had started several businesses. One made devices that crushed recyclable cans. The company eventually went bankrupt, and Meredith was sued for fraud by people who contended that the machines were defective.

Next, Meredith started a motivational newsletter for single mothers called The Money Tree. Subscribers were paid for getting other people to take the newsletter. Meredith shut it down after attorneys general in two states accused her of running a pyramid scheme.

Meredith didn't pay taxes during much of the 1980s. Worried about going to jail, she hired an accountant to sort out her finances.

Soon she was immersing herself in the federal tax code. She likes to say that the more she learned, the angrier she got.

She opened We the People, her pure-trust business, in 1991.

"When I think of all the people who have been destroyed or committed suicide because of this tax, it makes me want to cry," she said.

Within a few years, she found the business success that had eluded her. She became a celebrity in the anti-tax movement. She put up a billboard on her new beach house telling motorists along PCH how to "save taxes."

Ignoring relatives who urged her to lower her profile or risk the wrath of the IRS, Meredith reveled in her new life. She began collecting exotic cars and traveled the world spreading her message.

To the IRS, Meredith represented a departure from past tax rebels, who often mixed tax evasion with conspiracy theories, anti-Semitic rants and militia activities.

In October 1997, the IRS began an investigation, dispatching agents to watch Meredith's home and search her trash cans. Undercover agents videotaped Meredith's seminars and attended open-house events at her offices.

In June 1998, more than 40 agents bearing guns and sledgehammers searched her offices and a second home she owned in Huntington Beach.

Employees at Liberty Freedom Plaza were handcuffed and interviewed. When Meredith refused to give agents the combination to a large safe, investigators drilled the lock and removed almost $200,000 in cash, gold and silver coins, and cashier's checks. (The money, collected as evidence, was later returned to Meredith.)

The investigation crept along for several years before she and her employees were arrested April 15, 2002, and charged with conspiracy, mail fraud, failure to file income tax returns and other offenses. (Federal officials say the timing was a coincidence. They say they planned to make the arrests a few days earlier but held off after Meredith's mother died.)

Federal prosecutors have not filed charges against any buyers of Meredith's "pure trusts." Some are scheduled to testify for the prosecution.

'Economic Threat'

Calling her an "economic threat" to the government, prosecutors persuaded U.S. Magistrate Judge Patrick J. Walsh last spring to issue an order requiring Meredith to shut her Web site and stop selling books on the tax code. The judge also barred her from associating with We the People employees and ordered that her movements be tracked by satellite.

"The worst thing is I can't go to the beach. They told me saltwater is bad for it," Meredith said of the ankle bracelet. "I used to go to the beach all the time."

To outsiders, it might seem as if Meredith has met her match. But die-hard followers like Barter, the Florida trucker, advise against counting her out.

"Let me tell you, the government's going to be sorry they messed with her," he said.

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