More History of the Freedom Movement 

 

      Another great freedom fighter who was instrumental in the beginning of the Anti-IRS fight is Floyd Wright.  Floyd went into real estate after college and he discovered the extent of the corruption in our economic system.  He started studying the law and discovered the problems with the federal income tax.  The government attacked Floyd criminally but eventually declined further prosecution in his case.  Floyd believes that the lack of the perjury line may have been instrumental in the Justice Department's decision since he had marked out the perjury line on the return that he filed.

 

      James Walter Scott was another early tax rebel.  In 1973, he was tried and convicted in Fresno, California for failure to report his income or to pay taxes.  He was president of the National Tax-Rebellion Committee and in the early 70s he was probably the most articulate tax rebel in the United States.  His main crime was that he organized a nation-wide tax resistance movement and he persuaded other people to follow his lead.  The feds considered him to be very dangerous and they didn't spare any expense in his conviction.  There were 35 federal agents in his court criminal trial.  Scott was found guilty of tax evasion and he was sentenced to prison.  He went underground and traveled through the United States using various aliases.  He was eventually apprehended and spent a year at the Lompoc Penitentiary in California. 

 

      Probably the most famous tax rebel of all time is Irwin Schiff. Irwin started out in the movement in 1974.  In 1982 he published a best seller: How Anyone Can Stop Paying Income Taxes.  The government eventually indicted Irwin and he spent several years in prison for tax evasion.  Since his release from prison, he has once again achieved a great deal of notoriety for his ideas regarding the tax system.

 

      Armen Condo was another early patriot who made a very big splash in the Freedom Movement in the early 1908s.  He pioneered the use of the exempt W-4 Form as a means of stopping income tax deductions.  He started an organization called the Your Heritage Protection Association, YHPA and by July 1979 he had 5,000 members in southern California.  By 1982, the membership exceeded 25,000.  He published a newsletter, Your Heritage News, to promote his tax philosophy.  In January of 1982 the YHPA held a conclave in Long Beach, California with an attendance of 6,000; but about that time Condo was indicted by the Feds and convicted on 41 counts of tax evasion and mail fraud and he was sentenced to eight years of prison. 

More on Family Limited Partnerships

 

      We have discussed family limited partnerships in previous newsletters because they are one of the more effective ways of protecting assets.  Family limited partnerships are expressly authorized by Internal Revenue Code Section 704.  There are several advantages of a FLP.  The IRS cannot take an asset out of a FLP, they have to get a charging order against the FLP and they cannot take the asset until the FLP sells the asset.  The limited partners are generally not held liable beyond their investment for the liabilities and obligations of the partnership.  The general partner(s) manage and direct the partnership and they make all the business decisions.  Section 704 of the Internal Revenue Code gives tax advantages.  Income is allocated among the limited partners in proportion to their percentage of ownership. 

 

      If you want to set up a FLP, you must check out the following: Is there a state statute that provides for the formation of a family limited partnership?  Can you be sure that your partnership complies with the statutory requirements?  If you can answer "yes" to both of the above questions, then you are in a good position to think about the formation of a family limited partnership.  In a FLP, the general partner has all the rights and powers of a partner in a general partnership.  He has full control with unlimited liability.  He is an agent of the partnership and he has a fiduciary duty to the partnership and the limited partners.  A limited partner has no right to take part in the control or management of the partnership and he has limited liability unless he takes part in the control or management.  He is not an agent of the partnership and he does not have a fiduciary duty to the partnership. The limited partnership concept provides asset protection and tax saving advantages.  It is worth consideration.

Transaction Codes on the Individual Master File

 

      It is very important to get a copy of your Individual Master File if you are contemplating bankrupting taxes.  There are various codes on the IMF.  The "150" code is generally the assessment date, but if a person has not filed a return or filed a late return the "150" may apply too the 6020(b) return which does not count for purposes of the bankruptcy court.  The code "610" stands for a remittance with a return but it may also stand for a return filed by the IRS.  Code 460 stands for an extension of time for filing and code 480 shows that an offer in compromise is pending.  A code 481 shows the offer in compromise was rejected and a code 482 shows that it was withdrawn.  A code 582 shows that a tax lien was filed.  The Individual Master File or IMF is also known as the MFT-30 transcript. 

 

 

Important Bankruptcy Issue

 

      It is very important to note that even though a debt is non-dischargeable under the Bankruptcy Code, if it is listed as dischargeable in the bankruptcy and the creditor fails to file an action to determine dischargeability within the time allowed, the debt might be discharged anyway.   See In rePrice, 871 F.2d 97 (9th Cir. 1989).  The court stated at p. 98 "Thus, while certain debts are not dischargeable in bankruptcy, it is incumbent on the creditor to institute an action to have the debt declared exempt from the bankruptcy proceedings, provided that he has notice or actual knowledge that the debtor is in bankruptcy.  If the creditor fails to act, the debt is discharged.

 

Tolling Events and the Bankruptcy of Taxes

 

      There are various events that can stop the clock on the prerequisites for the filing of a bankruptcy against taxes.  The three year period is tolled during any time that an extension to file was in effect. (In re Gidley, 138 B.R. 298 (M.D. Fla. 1992), (11 U.S.C. Section 507(a)(8)(A)(i).  The three-year period is also tolled during the time that another bankruptcy is pending or during the time that a taxpayer assistance order is in effect.  See In re Brickley, 70 B.R. 113 (9th Cir.BAP 1986); In re Molina 99 B.R. 792 (Ohio, 1988)); In re Florence, 115 B.R. 109 (Ohio, 1990); In re Bryant, 120 B.R. 983 (E.D. Ark 1990); Solito v. United States 172 .R. 837 (W.D.La 1994).  Some courts also hold that the statute is tolled during the time the debtor was in bankruptcy pus six months.  See Matter of Ross, 130 B.R. 312 (Neb 1991); In re Worthen, 137 B.R. 1016 (DC Ore. 1992); In re West 137 B.R. 1012 (D.Or. 1992); In re Wise, 127 B.R. 20 (E.D.Ark. 1991). 

 

      The two year period for the filing of returns has also been held tolled during the time the debtor was in bankruptcy.  See Matter of Stoll, 132 B.R. 782 (N.D.Ga. 1990).

 

      The 240-day period doesn't start during the time that the debtor is in tax court.  The 240-day rule is also stayed during the time a prior bankruptcy is filed plus six months.  If an offer in compromise is filed, the 240- day rule is extended during the time the offer is considered plus six months. 

 

APPOINTED COUNSEL AND CIVIL CONTEMPT

 

 

 

It is a clearly established fact that the government cannot hold an individual in prison without counsel in a criminal case.  The situation arises, however, when an individual is jailed for civil contempt; is the court required to appoint counsel for him?

 

In the Tenth Circuit case of Walker v. McLain, 768 F.2d 1181 (10th Cir. 1985; the court ruled that an individual is entitled to appointed counsel in a civil contempt proceeding that could result in his incarceration:

 

The government asserts that petitioner was not entitled to appointed counsel because the contempt proceeding that resulted in his incarceration was a civil rather than a criminal proceeding.  We cannot accept such a proposition.

 

It is the defendant's interest in personal freedom, and not simply the special sixth and fourteenth amendment right to counsel in criminal cases, which trigger the right to appointed counsel." It would be absurd to distinguish criminal and civil incarceration the right to counsel, as an aspect of due process, turns not on whether a proceeding may be characterized as "criminal" or  "civil," but on whether the proceeding may result in a deprivation of liberty.

 

The risk of erroneous deprivation of liberty created by refusing to appoint counsel for the indigent petitioner is high.  The courts have long recognized the importance of a lawyer in protecting the right to liberty. Due process does require, at a minimum, that an indigent defendant threatened with incarceration for civil contempt, who can establish indigence under the normal standards for appointment of counsel in a criminal case, be appointed counsel to assist him in his defense.

 

Id. at 1184-1185.

 

If you have been classified as an illegal tax protestor, of course, a financial affidavit from you could be used against you in a criminal tax case.  It is going to be difficult for the judge to force you to fill out a financial affidavit without an attorney once you show your IMF and the IRS 6209 Manual and other memoranda from the IRS explaining the illegal tax protestor code to the court.  It will be evident to the court that the affidavit can be used against you.  So explain your fears and your position and then tell the judge that you need an attorney before you can fill out the affidavit.  If the court is threatening you with jail-time for civil contempt, don't waive your right to counsel, demand counsel, quote the Walker case and explain why you have a reason to worry about giving the government financial information.  Good luck; and if you play your cards right, you will probably never have a court threaten you with civil contempt.  There are many ways to skin a cat.

 

High Crimes in Perspective

 

Why is it that the high government officials who torture people based on erroneous legal advice are not prosecuted, but a middle class taxpayer who signs a tax return based on the erroneous legal advice of his attorney is sent off to prison along with his attorney?  Think about it and think about the situation in this country when the rich and powerful do not go to jail for horrendous crimes but the poor go to jail for phony crimes created by the government to scare the population into submission.

CONSTITUTIONAL RIGHTS AND "CIVIL" TAX INVESTIGATIONS

 

            Probably the strongest issue that exists in the Freedom Movement regarding the non-requirement to file returns is the issue of the Fifth Amendment and a waiver of Constitutional Rights.  However the issue is very confusing.  For example, in some First Party Summons Cases, the IRS backs down in the face of the Fifth Amendment.  In other cases, the IRS goes for enforcement.  In some cases, the judges rule that the defendants don't have to answer questions, and in other cases the judges force the individual defendants to answer questions or go to jail for contempt.

 

            The reason for this mass confusion is that the courts, the IRS and the bureaucrats must create confusion so that there is never a serious challenge to the alleged requirement to file a 1040 return.  Of course, the government cannot require the filing of a return, use the information in a criminal case and consequently require the waiver of Constitutional Rights under the Fifth Amendment.  The government takes that position that the income tax is a "voluntary compliance" type of system.  They, in my opinion, use the term "voluntary" because they know that you can only "voluntarily" waive your Fifth Amendment Rights and you have to waive those rights to file a 1040 Return.

 

            The situation, legally, is very confusing, but let's try to make a path through its murky waters.  IRS agents are required to get the Criminal Investigation Division involved if they suspect fraud.  If a special agent informs the individual that he is under criminal investigation, and the individual cooperates, there is a strong possibility that the individual will turn over information that can be used against him.

 

            The Supreme Court Case of Gouled v. United States, 255 U.S. 298  (1921) is instructive in this matter.  In Gouled, a suspect let an agent enter his office because he had no idea that the agent was getting evidence to be used against him in criminal prosecution.  The Court held that the use of "stealth" to gain admittance into the office and secure privileged evidence was a violation of the Fourth and Fifth Amendments.  The Gouled case has been raised in Tax cases but without much success.  One Court even ruled that whenever a civil audit begins, an ordinary individual "surely knows" that it may lead to a criminal investigation (United States v.Sclafani, 265 F.2d 408 (2d. Cir.) cert. denied, 360 U.S. 918 (1959).

 

            Another issue is that a holding that there is no deceit when an individual is not informed that a civil audit has changed into a criminal investigation is contrary to established principles of tort law dealing with non- disclosure as fraud.

 

            One who has made a statement and subsequently acquires new information which makes it untrue or misleading, must disclose such information to any one whom he knows to be still acting on the basis of the original statement...(W. Prosser, Law of Torts 711 (3d ed. 1964).

 

            Therefore, if a civil agent suspects fraud and doesn't tell the target, he very may be violating tort law.

 

            A case that takes the opposite point of view is Kohatsu v. United States, 351 F.2d 898 (9th Cir. 1965).  In Kohatsu, two special agents were called in and the target was not informed of that fact.  He turned over his records to the agents. The court agreed with the government in its argument that the accusatory stage had not been reached because the special agents were only gathering material bearing on the correctness of the individual's income statement.

 

            The actual problem involved in tax cases, once the investigation starts, is the issue of the point at which constitutional rights attach.  The current procedure used by the IRS creates a situation of three points at which constitutional rights may attach.  Traditionally it is thought that the earliest place is the beginning of the audit; however, one can argue that Constitutional rights attach to the alleged filing requirement; I will discuss more on that later.  If all individuals knew that they could tell the IRS to lay off and ignore an audit; the tax system would probably break down.  For that reason, it will be difficult to get courts to admit that Constitutional Rights apply at the civil audit level.

 

            The second possible beginning is when the civil agent discovers the evidence of a crime and reports this fact to his superiors.  The last stage is the point at which the criminal investigation agent enters the case.

 

            It is this author's opinion that realistically, the issue of Constitutional Rights goes all the way back to the filing of the tax return.  If you look at the Privacy Act Notice that comes with the 1040 Instruction Booklet, you will notice that the IRS notifies the public that any information on a tax return can be given to Department of Justice and other government agencies; presumably for use in criminal cases.  Furthermore, the IRS refers to the income tax law as enforcement by "voluntary compliance."  If you file a tax return and give the government information, they can use that information against you because you gave it to them voluntarily and you were warned in advance by the Privacy Act Notice that they had a right to use the information criminally.

 

            Apparently, the courts are attempting to separate civil use and criminal use in order to protect the tax system. Return filing is voluntary and it is also required.  The IRS may collect information and give it to DOJ.  They can do it all because the issues are civil, or so they claim.

 

            What about a variation on the theme, however.  An individual, who is classified as an illegal tax protestor, presumably has a reason to be concerned about waiving his Fifth Amendment Rights. The classification of illegal tax protestor is a project of the criminal investigation division.

 

            It is in my opinion, clearly an advantage to have the label "illegal tax protestor" attached to your files with the IRS. Any information you give the IRS can definitely be used against you; and the CID is already involved. It is something to think about!

 

Tea Party Time:

 

Over two hundred years ago, our ancestors threw tea in the harbor to protest taxation without representation.  Today we have a problem that is much worse.  Our government is giving away hundreds of billions of dollars, taken from the middle class, to the rich guys who got us in this mess.  These guys should be going off to prison, but instead, they are getting handouts from the government.  Meanwhile, we have no health care, we have no safety net for people who lose their jobs, we have millions of people losing their homes.

 

The guys who are running things are some of the same guys who got us in this mess.  Our representatives have destroyed bankruptcy court relief for the middle classes.  Our senators and our congress people have a wonderful health care system and a wonderful retirement system that is paid for by the middle class. The IRS continues its war against the people.

 

For over thirty years I have been pointing out these issues to anyone who would listen.  The situation is getting worse.

 

Are you ready yet for a tea party?

 

 

More History of the Income Tax Fight:

Marvin Cooley

 

            One of the early heroes of the Income Tax fight was a fellow from Arizona named Marvin Cooley.  Marvin discovered in the mid-1960s that there was a severe problem with the income tax and he started to hold seminars to teach people about the problems.  He maintained that:

 

1.  IRS procedures are illegal

2.  Threats, lies, bluff and intimidation are its normal means of operation.

3.  The vest pocket summons is illegal.

4.  The Agency fabricates charges against innocent citizens.

5.  IRS agents are unlawfully protected by sovereign immunity when they commit criminal acts.

6.  The Withholding tax is illegal.

7.  The Agency violates every protection to which citizens are entitled under due process of law.

8.  Many of the Internal Revenue Statutes violate the law.

9.  Tax monies are used for illegal purposes.

10. The IRS cannot legally force a citizen to answer questions, produce records, or obey its summonses.

11.  The IRS' illegal acts should be challenged in court.

12.  It is the right an duty of all patriots to challenge the IRS.

13.  Sworn testimony before congressional committees proves that the procedures, methods and rules employed by the IRS are arbitrary, dictatorial, and illegal.

14.  The Agency constantly uses its threat of punishment under statutes that have been declared illegal and void in prior court decisions.

 

            Starting in 1968, Cooley filed "improper" returns in which he did not supply the data for the tax to be computed.  In 1972, he published a book entitled, The Big Bluff.  The book contained documents to be used in litigation with sample letters, citations and copies of his 1040 returns.  The IRS indicted Cooley and arrested him on June 27, 1972.  He was convicted and spent two years in prison at Safford, Arizona.  When he was released a banquet was held in his honor with hundreds of followers present.  Later, Marvin developed a Fifth Amendment approach in which he took the Fifth Amendment on the return.  Marvin Cooley was one of the original inspirations whose early stand led to the current  Freedom Movement in this country.