THE DECLINE OF AMERICA

 

 

              (This article was written 15 years ago, it is reprinted here to show its continuing validity). Our country is in debt at an incredible level. Uncle Sam has billions of dollars of contingent liabilities. The problem has grown and grown because the politicians are not willing to deal with it.  We have two choices to get out of trouble.  One choice is to create heavier taxes, the other is to repudiate the debt. If we repudiate the debt, that is the end of our credit system.  The creditworthiness of the Federal government is the foundation of the credit system in America.

 

              We are currently headed for a long and total depression.  This depression will be much worse than the one in the 1930s.  The American Government in the 30s was financially liquid.  We had hoards of gold.  Today we are buried in debt and we do not have gold backing.  This depression may happen before the year 2005 as the Feds find it increasingly more difficult.  How did we get in this mess, anyway?

 

              About 1500, when capitalism started, Western Europe was static.  There was no wealth to manipulate.  Public banking was unknown and private banks were in short supply.  There was not enough food to go around.  Then suddenly, Europe was buried in riches from the discovery of the New World.  Capitalism was made possible only by the discovery of rich lands, resources  and people for exploitation.

 

              The Europeans plundered these lands and they continued to do so until about 1960.  We were caught up in this flash flood of new wealth.  The white peoples of Europe created a good standard living by stealing the land and resources of the red people and exploiting the labor of the black people.  The United States through its covert operations in third world countries has attempted through political assassinations, and wars to keep the third world subjugated.  Over 20 million people have died in the covert wars of the CIA in countries like El Salvador, Panama, Viet Nam, Angola, Guatemala and others since the Second World War.

 

              However, the boom is over.  There is no more free land for millions of pioneers to homestead.  There are no more buffalo herds to slaughter. There are no more black people to bring from Africa on slave ships to work the cotton farms.  There is no more unclaimed wealth.  Yes, the boom is over, and we are living at the time that everything is coming to a head.  Capitalism is on the decline as it depended on the continual expansion of the economic system.  The prosperity enjoyed by the United States until 1960 was due entirely to the wealth gained by the plundering of the New World.   We are going to get poor, very poor.  Many people think that the government can do something, but it cannot.  The government has done everything it can to avoid facing the music. In the 60s we went off the gold standard completely in an effort to create wealth thorough the use of paper money. Everything is going to change soon.

 

              The next depression will be worse than any previous depression and it will deeply effect the middle class.  Many middle class people will become unemployed, and they will finally wake up and demand change. Sometime around 2005 or so, the unemployment will grow to an incredible level.   Our old solutions such as asking the government to create jobs will not work, because, this time around, the government is bankrupt.

 

              The situation will get so bad that our government will fall apart, people will not have faith in a government that has allowed such an incredible mess.  We may live through a period of anarchy.  The old Order will be in total chaos.  The scary thing is that a dictator may rule us and we may turn toward total fascism in an attempt to solve the problem. Let us hope that in the trying times to come, that democracy does not slip into the hands of a tyrant.

 

              Paper money is the government's solution to our problems.  The Chinese tried paper money over 1,000 years ago with disastrous results.  In the 20th century, the American Politicians rediscovered its use as the economic situation stated to decline.  Our politicians want to get re-elected, so they keep making money and in so doing they have created a period of false prosperity based on debt.  You see, the only real money that ever existed is gold and silver.  Governments cannot create real money.  Remember when the Continental Congress made Continental Notes.  Have you ever heard the expression: "Not worth a Continental!"?

 

              Our government, by using monetized debt to create wealth, has brought on the greatest Depression in history.  Hold on to your seats!

 

              Money is not wealth.  Wealth is the production of goods and services, money is the result of wealth. We have, however, defined money as wealth and since our money is made of paper, we are in for a very rude awakening in the near future.

 

              Our country does not create wealth through the creation of goods, it creates wealth by juggling money; the problem is that we are headed toward National Bankruptcy.  Corporate and individual bankruptcies are up.  The American standard of living is falling.  Currently over half of the income of each middle class family is consumed in mortgage and installment debts, the rest is eaten up in taxes.  America has been in a long decline that will soon result in a financial collapse and yet the people don't notice it.  They prefer to keep their heads in the sand, to do their jobs each day and let someone else run the world.  Our infrastructure is falling apart.  Soon a process of change will take place that will transform the entire world.  Our culture, our politics, our social structure and our forms of money must change, they will be forced to change.

 

              Our free resources since 1492 are almost exhausted, our industry is destroying the environment, the air and the water.  Our massive debts are larger than any public debts of any nation in recorded history. The interest is compounding at such a high rate that soon the entire amount of money collected by the federal government in taxes will not even pay the interest.

 

              The government cannot continue to raise taxes because the income loss from the middle class takes the money they need to pay their own $3 trillion in debts.  So Congress must continually expand the national debt base because national prosperity is based on debt expansion.  The government has no choice but to borrow. Even if the government reduces spending, its revenues must increase because of the interest rates it must pay on the debt.

 

              All domestic credit rests on the credit of the federal government.  The collateral for our current domestic money system is Treasury Bonds; therefore the collateral for our money is debt.  This spells major problems in the near future.  The more a borrower borrows, the less chance there is that the money will ever be repaid.  We now have growing federal deficits that can never be paid back. We are on the road to national bankruptcy.

 

              Once the world realizes that we are bankrupt, foreign holders of U.S. dollars will sell them. Eventually the debts will have to be settled by default. By the year 2000, there is no doubt that all the tax money collected by the Federal Government will be used just to pay the interest on the national debt.  The government can currently only continue to operate by borrowing money.

 

              As you can see, the situation has grown from bad to worse.  It will soon get to a point that will be the final explosion of our current economic system.  The final hour may come before the year 2000, but even if we make it that long, our system is doomed, for we cannot continue to live on monetized debt forever and that is exactly the situation we find ourselves in today.  if you are forewarned you can be forearmed to help you survive the situation. So think about it and get prepared for the future, if you are prepared, you can certainly do a better job than your neighbor of surviving the hard times.

 

CUSTOMERS OF THE IRS

 

 

            The IRS refers to individuals in this country as "customers."  For example, Lawrence Gibbs, in a past communication to the public stated:

 

                 I pledge my personal effort and that of the IRS to search for new and better ways to reduce the burden placed on you, our valued customers.  I also pledge that we at the IRS will continue to improve the quality of the service we are providing to you.

 

 

            It is rather strange that the IRS refers to individuals as "customers."  What does that mean?  Well, just take a look in the dictionary.  If you will look in your unabridged dictionary, you will see that a customer is a patron.

 

            A patron is defined as a person who supports with money, gifts, efforts or endorsement an artist, writer, museum, charity, institution, or the like: a patron of scholars; art patrons.

 

            Well, what do you think of that?  A patron supports an institution (The IRS).  Of course the implication in the words customer and patron is the concept that individuals who are characterized by these words partake voluntarily in their charitable efforts.  Of course, that is why the IRS says that individuals voluntarily file returns.  Filing must be voluntary when patrons are supporting an institution.

 

            See how honest the IRS is.  They are entirely consistent.  They consistently imply filing returns is voluntary and they characterize "taxpayers" as a class of individual that clearly volunteers his support of an institution.  Do you think the IRS is telling the truth or not?

A Quiet Title Case

      In Johnson, 990 F2d 41, 93-1 USTC; 5t0,201,71 AFTR2d 93-1456 (2d Cir. 1993), the court ruled that an assessment was invalid because it was made before the Tax Court decision became final.  The Tax Court determined that the taxpayer was liable for income tax deficiencies for the years 1980 through 1984.   Three days after the ruling, the IRS assessed the taxpayer for the deficiencies.  The taxpayer filed a quiet title action under Section 2410(a) of the Internal Revenue Code and he claimed that the assessment was invalid because it was made before the Tax Court decision became final.  The government lost their case. 

 

Privacy, Miranda and the IRS

 

      Many of you have heard of the famous Miranda case, which resulted, in the "Miranda warning" used by law enforcement agencies.  In the case of Beckith, 425 US 431, 96 S. Ct. 1612, 76-1 USTC: 9352, 37 AFTR2d 76-1232 (1976), the court ruled that Miranda warning does not have to be given unless the taxpayer is in custody.  That means that if a criminal investigation agent starts to ask you questions, he is not required to tell you that the information can be used against you.  Please don't  talk to the criminal investigation division!

     

      In the case of Baker, 451 F2d 352, 72-1 USTC; 9128,28 AFTR2d 71-6041 (6th Cir. 1971): the court ruled that a taxpayer waived his right to challenge the reexamination of books by voluntarily furnishing them. 

The Joint Filing Issue

 

      Joint filing is a huge problem.  Every time that you file a joint return, you make both you and your spouse liable for the taxes of each personally.  All of the assets of the couple can be attacked by the IRS for any alleged tax liability.  After divorce or separation, the IRS can pursue one or both spouses. Joint filing was adopted in 1948 as part of a large post-World War II peace dividend spending package designed to encourage women to return to their homes.  Before that, each American was taxed as an individual based on his or her earnings.  Joint filing gave traditional families a big tax break by giving the sole earner a "zero bracket" income.  Joint filing is not only not fair, it also creates huge problems for married couples with the collection division of the IRS.  Most of the other countries have dropped joint filing.  Italy dropped it in 1977 and England dropped it in 1990.  The marriage tax elimination movement has gotten nowhere.  The democrats think that the reform would lose the Treasury too much in taxes and the Republicans want to give more tax benefits to families with stay-at-home wives.  The two-earner families need to rebel against the tax system. 

 

Reliance on Counsel

 

      Here are some interesting cases on the reliance issue.          

 

      In Compton, 47 TCM 158, 83,647 P-H Memo, TC (1983) the court ruled that the taxpayer's reliance on his bookkeeper undermined the fraud charge determined by the IRS. In Williams, 35 TCM 919, 76,212 P-H Memo, TC (1976), the court determined that the taxpayers carelessness in relying on a bookkeeper did not amount to fraud.  In Camden Wall Paper Company, 26 TCM 254, 67,052 P-H Memo. TC (1967), the court ruled that the omissions were merely inadvertent oversights on the part of the CPA and were not intent on the taxpayer's part to defraud.  Since there was no fraud, the statute of limitations barred assessments for some of the earlier years.

 

      In Pelham, 66 TCM 820, RIA TC Memo: 93,441 (1993), the court took the position that reliance on an investment advisor excused negligence.  The taxpayers invested in a tax shelter that the IRS determined to be abusive several years later.  They claimed that they relied on the advice of their investment advisor who was a promoter of the shelter.  The court ruled that the taxpayers were not responsible for the penalty, as they were unsophisticated in financial matters. 

THE REAL ECONOMIC CRISIS

 

            The reason that the current crisis is so devastating is that it is superimposed on a very serious overall economic situation.  Twenty five percent of all tax moneys collected are now wasted on interest payments on loans the federal government owes the banks.  The debts of the states, cities and people are growing.  Last year over two million more people fell below the official poverty level.

 

            The standard of living of Americans has been on a steady decline since the beginning of the 1970's and there are millions of Americans that are homeless.  Americans are becoming immune to the sight of hungry children and their mothers on the freezing sidewalks of the cities.

 

            The quality of life for the majority of the working families is slipping because of the big shift in the wealth.  The shift in income from the poorest 60 million to the richest five million has been $150 billion per year for the past 15 years. The richest five million have a combined income of one trillion dollars, In per capita income, the richest have 50 times the income of the poorest. Gross corporate profits reached almost two trillion dollars last year, which means that the average income for corporate executives is about $300,000.

 

            Because of the unfair loopholes in the tax laws, corporations pay 22 percent of the total taxes, while the working people pay over 52 percent of the taxes.  The tax rates for the low-income groups have gone up to more than 20 percent, while rates for the top 1 percent have declined by over 20 percent.

 

            The combined income of the top one percent now exceeds the combined income of all the production workers in the country who are the main creators of material value.

 

            Since 1973, real wages have declined.  The official unemployment count is over 8.5 million but there are about 5.5 million working part-time and another million who have given up. That means that the official unemployment right now is probably over 13 percent.  The wealth is shifting upwards to the top one percent and the middle class is

turning into the lower class. If the trend continues, there will be millions of poor, no middle class, and a few rich individuals.

 

            It is impossible to say how long this downward trend will last, but it is this author's opinion that things are going to get much worse in this country before they get better.  The rich corporations really have no incentive to pay very much attention to this situation; and they are the ones who have the power to change it; as long as they control the means of production.  Our current political system supports the demise and impoverishment of the middle and lower classes.  Until they wake up and achieve a degree of consciousness about the problem, the situation will go from bad to worse.  A new depression worse than the bust of 1929 could very easily take place.

 

More Bankruptcy Stuff

 

      It is very important to know the history of your tax situation if you are considering a bankruptcy of taxes.  The most useful tax transcripts to order from the IRS are the MFTRA-X and the MFT-30.  When you examine the MFTRA-X, you will need to be careful.  The IRS transaction Code 150 means that a tax return has been filed but it does not distinguish between a 6020(b) return filed by the government and a return filed voluntarily by the individual.  Generally a return filed by the IRS will not suffice to satisfy the two-year rule.  There is some case law that stands for the fact that returns must be filed at the appropriate service center.  If the returns are simply handed to a revenue officer or mailed to the wrong IRS office, they may not be deemed filed.  See In re Savage, 218 B.R. 126 (10th Cir. BAP 1998). 

 

      Some states require that an amended return be filed following an assessment by the IRS of additional tax.  The filing of the new return might trigger a new 2-year or 3-year rule.  See In re Blutter, 177 B.R. 209 (Bkrtcy. S.D.N.Y. 1995); but also see In re Jerault 208 B.R. 183 (9th Cir. BAP 1997 for a contrary position).  Remember also, that a prior bankruptcy or an offer in compromise might stay the time periods for the time that the BK or OIC  is pending plus an extra six months.  See In re West, 5 F3d 423 (9th Cir. 1993).  Also, an extension of time to file the return delays the start of the three year period for the time of the extension.

 

      In some states, an extension to file a federal return, extends the state period for the same or more months automatically.  In California, a three-month extension at the federal level extends the time for the state to six months.  Be very careful in a situation like this or you may not bankrupt state taxes even though your federal taxes are dischargeable.  Be aware also that sometimes the IRS files its lien in the wrong county.  If the IRS has not filed a lien in the county in which the individual owns property, then the IRS does not have a secured lien. 

 

      An important tidbit to remember is that if the IRS does not file a proof of claim in a Chapter 13 Bankruptcy in a no asset or unsecured situation, the IRS is out of luck.  They have 180 days from the date the bankruptcy was filed to file a proof of claim.  All time periods are tolled during the time that a bankruptcy is pending.  You cannot wait out the two and three year time periods in a Chapter 13.  If the IRS assessment is not valid, the 240-day time period from the date of assessment may not have run.

 

      The Bankruptcy Code requires that a tax return be filed for at least two years before the bankruptcy filing date. (11 U.S.C.Section 523(a)(1)(B).  The IRS may file returns for individuals who do not file; however, the courts are likely to rule that the IRS' return is not sufficient for purposes of the two year rule.  Courts have also ruled that "frivolous" tax returns are not valid for purposes of the bankruptcy statutes.  See In re Thompson 207 B.R. 7 (Bkrtcy.M.D.Fla. 1997): Campbell v. U.S. 140 B.R. 571 (W.D.Okla 1992). 

 

      Interpretations of Section 523 of the Bankruptcy Code have defined a return:  "A return must have sufficient data to calculate a tax liability.  The document must purport to be a return.  There must be an honest and reasonable attempt to satisfy the tax laws.  The individual must sign the return under the penalty of perjury.  See In re Hatton, 216 B.R. 278, 282 (9th Cir. BAP 1997).

     

      There are some cases, however, that do allow information provided by the individual to serve as a return for purposes of Section 523.  The court ruled in In re Hatton, 216 B.R. 278 (9th Cir. BAP 1997), that a SFR followed by a signed voluntary payment agreement and 433-D constitutes a return for purposes of the two year rule under Section 523.  A SFR prepared with the taxpayer's cooperation can constitute a return: See In re Parker 199 B.R. 792 (Bkrtcy.M.D.Fla 1996).  Also IRC Section 6020(a) says that a return signed by a taxpayer "may be received by the Secretary as a return of such person."  In Berard v. U.S. 181 B.R. 653 (Bkrtcy.M.D.Fla 1995), the court ruled that a Form 4549 relating to income tax examination changes may be considered a tax return for purposes of dischargeability.  Testifying in a court under the penalty of perjury may constitute the equivalent of a filed tax return.  See  In re Elmore 165 B.R. 35 (Bkrtcy S.D. Ind. 1994);  and an individual signing a form that contains the same information that is in a return may constitute a tax return for purposes of bankrupty: In re Lowrie 162 B.R. 864 (Bkrtcy.D.Nev. 1994).

     

      The IRS is trying to argue in Bankruptcy Court that if a return is filed late, it is not a return for purposes of the Bankruptcy Code. However, the debtors are still winning quite a bit on this issue.  See In re Savage 218 BR 126 (10th Cir. BAP 1998).  Also see In re McGrath, 217 B.R. 389 (Bkrtcy. N.D.N.Y. 1997).  And see In re Pierchoski 220 B.R.20 (Bkrtcy W.D.Pa. 1998).

     

      Also note the following cases with important related issues:  The time during which an offer in compromise was on appeal tolled the running of the 240 day periods.  In re Genung 220 B.R. 505 (Bkrtcy.N.D.N.Y. 1998).  The IRS violated the automatic stay when it sold some of the debtor-equipment lessor's equipment in auction to pay other taxpayer's claims, Hanna Coal Co. Inc. v. IRS 218 B.R. 825 (W.D.Va. 1997).  A prior bankruptcy did not toll the 240-day period for purposes of discharge of tax in second bankruptcy. In re Little, 216 B.R. 769    (Bkrtcy E.D.N.C. 1997). 

A Great Summons Enforcement Case

 

      The case of Marvin D. Miller v United States of America, 97-3981, Decided July 23, 1998 in the Seventh Circuit Cout of Appeals.  It is incredible how arrogant the IRS can act.  The Miller case shows that the IRS can lose on a summons enforcement case. 

 

      Internal Revenue Code Section 26 USC 7602 grants the IRS broad power to issue summonses to investigate violations of the tax code.  To obtain enforcement of a tax summons, the government must show only that the IRS complied with the four requirements imposed by the Supreme Court in United States v. Powell, 379 US 48, (1964): that the investigation has a proper purpose, the information sought may be relevant to that purpose, the IRS does not already have the information and the IRS has followed the statutory requirement for issuing a summons. In Miller, supra, the government did not meet the Powell standards because it did not provide an affidavit in its petition for enforcement.  Since the government did not provide the affidavit, it lost.  The government can file new summonses and proceed correctly in the future, of course, but they sure spent a lot of time and money fighting this one. 

More Bankruptcy Stuff

 

      It is very important to know the history of your tax situation if you are considering a bankruptcy of taxes.  The most useful tax transcripts to order from the IRS are the MFTRA-X and the MFT-30.  When you examine the MFTRA-X, you will need to be careful.  The IRS transaction Code 150 means that a tax return has been filed but it does not distinguish between a 6020(b) return filed by the government and a return filed voluntarily by the individual.  Generally a return filed by the IRS will not suffice to satisfy the two-year rule.  There is some case law that stands for the fact that returns must be filed at the appropriate service center.  If the returns are simply handed to a revenue officer or mailed to the wrong IRS office, they may not be deemed filed.  See In re Savage, 218 B.R. 126 (10th Cir. BAP 1998). 

 

      Some states require that an amended return be filed following an assessment by the IRS of additional tax.  The filing of the new return might trigger a new 2-year or 3-year rule.  See In re Blutter, 177 B.R. 209 (Bkrtcy. S.D.N.Y. 1995); but also see In re Jerault 208 B.R. 183 (9th Cir. BAP 1997 for a contrary position).  Remember also, that a prior bankruptcy or an offer in compromise might stay the time periods for the time that the BK or OIC  is pending plus an extra six months.  See In re West, 5 F3d 423 (9th Cir. 1993).  Also, an extension of time to file the return delays the start of the three year period for the time of the extension.

 

      In some states, an extension to file a federal return, extends the state period for the same or more months automatically.  In California, a three-month extension at the federal level extends the time for the state to six months.  Be very careful in a situation like this or you may not bankrupt state taxes even though your federal taxes are dischargeable.  Be aware also that sometimes the IRS files its lien in the wrong county.  If the IRS has not filed a lien in the county in which the individual owns property, then the IRS does not have a secured lien. 

 

      An important tidbit to remember is that if the IRS does not file a proof of claim in a Chapter 13 Bankruptcy in a no asset or unsecured situation, the IRS is out of luck.  They have 180 days from the date the bankruptcy was filed to file a proof of claim.  All time periods are tolled during the time that a bankruptcy is pending.  You cannot wait out the two and three year time periods in a Chapter 13.  If the IRS assessment is not valid, the 240-day time period from the date of assessment may not have run.

 

      The Bankruptcy Code requires that a tax return be filed for at least two years before the bankruptcy filing date. (11 U.S.C.Section 523(a)(1)(B).  The IRS may file returns for individuals who do not file; however, the courts are likely to rule that the IRS' return is not sufficient for purposes of the two year rule.  Courts have also ruled that "frivolous" tax returns are not valid for purposes of the bankruptcy statutes.  See In re Thompson 207 B.R. 7 (Bkrtcy.M.D.Fla. 1997): Campbell v. U.S. 140 B.R. 571 (W.D.Okla 1992). 

 

      Interpretations of Section 523 of the Bankruptcy Code have defined a return:  "A return must have sufficient data to calculate a tax liability.  The document must purport to be a return.  There must be an honest and reasonable attempt to satisfy the tax laws.  The individual must sign the return under the penalty of perjury.  See In re Hatton, 216 B.R. 278, 282 (9th Cir. BAP 1997).

     

      There are some cases, however, that do allow information provided by the individual to serve as a return for purposes of Section 523.  The court ruled in In re Hatton, 216 B.R. 278 (9th Cir. BAP 1997), that a SFR followed by a signed voluntary payment agreement and 433-D constitutes a return for purposes of the two year rule under Section 523.  A SFR prepared with the taxpayer's cooperation can constitute a return: See In re Parker 199 B.R. 792 (Bkrtcy.M.D.Fla 1996).  Also IRC Section 6020(a) says that a return signed by a taxpayer "may be received by the Secretary as a return of such person."  In Berard v. U.S. 181 B.R. 653 (Bkrtcy.M.D.Fla 1995), the court ruled that a Form 4549 relating to income tax examination changes may be considered a tax return for purposes of dischargeability.  Testifying in a court under the penalty of perjury may constitute the equivalent of a filed tax return.  See  In re Elmore 165 B.R. 35 (Bkrtcy S.D. Ind. 1994);  and an individual signing a form that contains the same information that is in a return may constitute a tax return for purposes of bankrupty: In re Lowrie 162 B.R. 864 (Bkrtcy.D.Nev. 1994).

     

      The IRS is trying to argue in Bankruptcy Court that if a return is filed late, it is not a return for purposes of the Bankruptcy Code. However, the debtors are still winning quite a bit on this issue.  See In re Savage 218 BR 126 (10th Cir. BAP 1998).  Also see In re McGrath, 217 B.R. 389 (Bkrtcy. N.D.N.Y. 1997).  And see In re Pierchoski 220 B.R.20 (Bkrtcy W.D.Pa. 1998).

     

      Also note the following cases with important related issues:  The time during which an offer in compromise was on appeal tolled the running of the 240 day periods.  In re Genung 220 B.R. 505 (Bkrtcy.N.D.N.Y. 1998).  The IRS violated the automatic stay when it sold some of the debtor-equipment lessor's equipment in auction to pay other taxpayer's claims, Hanna Coal Co. Inc. v. IRS 218 B.R. 825 (W.D.Va. 1997).  A prior bankruptcy did not toll the 240-day period for purposes of discharge of tax in second bankruptcy. In re Little, 216 B.R. 769    (Bkrtcy E.D.N.C. 1997). 

THE BASIC ELEMENTS OF CRIMINAL PROCEDURE

 

 

          The laws of criminal procedure must be in accord with the United States Constitution.  The sources of this law are the state statutes and the federal criminal statutes (including the rules of criminal procedure). The criminal procedure of the states and of the federal government does differ.

 

 

          State Criminal Procedure:

 

1.  Arrest

2.  Defendant booked at police station.

3.  Defendant charged with crime.

4.  Proceedings before judge

5.  Preliminary hearing

6.  Filing of indictment or information.

7.  Arraignment.

8.  Motions and plea.

9.  Discovery.

10. Extraordinary writs.

11. Trial.

12. Sentencing.

13. Motions after trial

14. Appeal

 

          Federal Criminal Procedure

 

1.  Arrest, search, and seizure--the gathering of evidence.

2.  Appearance before judge.

3.  Preliminary hearing

4.  Grand jury indictment.

5.  Filing of indictment by government.

6.  Arraignment

7.  Motions and pleas.

8.  Discovery.

9.  Extraordinary writs.

10. The trial

11. Sentencing.

12. Motions after trial.

13. Appeal.

 

Every case is different but the above steps are the basic process of a criminal case.

 

THE CRIMINAL INVESTIGATION

 

The criminal case begins when the CID decides to accept a case that has been referred to them. Remember that the IRS gathers information civilly that can be used criminally and if an agent gets enough information civilly, he will have a prime referral to the CID.  Once the referral from the civil division to the criminal division has been made, the civil division will suspend its activity and there will be a pause of several months (A large delay in hearing from the IRS maybe the result of the initiation of a criminal investigation).

 

Actually, the only way to really be ready for a criminal investigation is to always be ready for it from the beginning.  Know that you can be the object of CID harassment and educate yourself to the procedures of the IRS and your line of defense.  Then you will be ready if the CID accepts your case.

 

Once a tax-fraud case is accepted by the CID, there is a good chance that the Revenue Agent and the Special Agent will show up at your home or place of business on a surprise visit to read to you your Miranda Rights and collect all the information they can get from you regarding your situation. It is my opinion that the target of the investigation should not answer any questions.  You should ask the agents to put their questions in writing and you will contact counsel to respond to their requests for information.  I have seen Special Agents testify time and time again against the innocent individual who thinks that because he truly believes in his position that he can talk some sense into the CID.  Forget it, you can't do it and anything you say WILL be used against you.

 

Once the investigation begins, it will be reviewed every three months.  Remember that the IRS takes the position (and the courts support them) that the CID Agent may only be investigating a civil liability so they will take advantage of the issuance of third party summonses for records.  Since a third party summons is theoretically allowed only in civil matters, it seems to me to be a clear abuse of process to allow the CID to run rampant with the use of third party summonses, but they continue to do it.

 

The purpose of the quarterly conference is to make sure that if there is not enough criminal potential that the IRS doesn't get cheated on the three year statute of limitations for the civil end of the bite.  However, in the case of non-filers, a category that fits many of the individuals in the Freedom Movement, there is no statute of limitations on civil assessment; so the CID might just work on the case for a very long time.

 

Once the Special Agent thinks that he has made a case, he writes up a report and recommends criminal prosecution.  His report goes to the IRS District Counsel.  (Those are the guys who handle all the Tax Court cases.)  If you get an invitation to go to the District Counsel conference, don't bother, you might mess up and let them know all about your line of defense.

 

IRS District Counsel, by the way, rejects about 25 percent of those cases that are received from Special Agents; but if District Counsel likes the case, they pop it off to the Department of Justice which has special Criminal Attorneys to deal with the issues.

 

Of course, if the case involves a patriot, there is more likelihood that it will go to trial.   If the good ole' DOJ likes your case, they will approve it and they may either approve of an information or put the issue before a Grand Jury.  I have seen many honest individuals in the Freedom Movement who think that they can tell their story to a Grand Jury and the IRS Beast will slither back into its hole.  However, life unfortunately does not work that way.  The Grand Jury will simply use the information to help defeat the defendant.  (Once again, I highly advise against speaking with the Grand Jury).

 

        The basic problem with patriots is that they really are not "willful."  They cannot understand how the IRS employees, the Grand Jury and the twelve individuals on the juries cannot understand what they understand.  But lets face it America, the populace doesn't understand and they are going to convict you for being "willful" even though you are not.  After all, what kind of a looney tune would quit filing tax returns and write letters off to the IRS about all the things we write about if we were REALLY WILLFUL?  I hope that I am not rambling on too much, actually I am writing this article on my portable computer as I fly home from watching some Star Special Agents in a trial in Florida, so I currently have a rather jaded view of the IRS.  The point I really want to make is this:

 

You are not going to talk a special agent out of prosecuting you and you aren't going to talk the grand jury out of indicting you so shut your mouth and don't say stuff that you will regret!!!

 

Anyway, let's summarize the IRS levels of prosecution activity: First there is the Special Agent, then there follows the Special Agent/Group Manager Conference; the District Counsel Conference and the Department of Justice Conference.  After that will follow the information or the Grand Jury Investigation.  And what is the best advice for the target of a criminal investigation? (Haven't you heard of the Fifth Amendment?):  Once again, everyone:  BE QUIET, SHUT UP AND KEEP YOUR MOUTH SHUT.

 

WHAT HAPPENS AT A CRIMINAL TAX TRIAL?

 

           

            A criminal tax trial follows a specific format.  The jury trial begins with the selection of the jury.  Lawyers refer to this part of the trial as the "voir dire" which comes from the French and it means "to speak the truth." Once the jury is picked, the court will give a charge to the jury.

 

            The next principal feature of the trial is the opening statement of the prosecution.  The defense may then make an opening statement or they may waive their statement till later.

 

            The Department of Justice will then attempt to prove their case.  They will call witnesses and put their evidence before the jury.  The IRS witnesses are the most boring part of the trial.  They introduce lots of paperwork to show the jury that the defendant had income and that he willfully didn't pay his taxes.

 

            After the prosecution rests, the defense will generally file a motion to dismiss.  Once the court has denied the motion to dismiss, the defendant may present his case, although he is not required to present a case.

 

            After the defendant's case, the prosecution may call witnesses for rebuttal evidence. The prosecution may only put into evidence testimony that rebuts the direct evidence by the defense. The defense can also present rebuttal evidence.

 

            After the rebuttal case, the defendant can again present a motion to dismiss.

 

            The final stage of the trial consists of the closing arguments.  The prosecution and defense review the evidence in their case and argue the reasonable inferences that the jury can make from the evidence. The prosecution argues first, the defense attorney second, and then the prosecution gets another chance.

 

             The court will then instruct the jury; and the jury will be removed to consider the case.

 

            Finally the jury will come back with the verdict:

"Not Guilty," We hope!

 

CRIMINAL PROCDEDURES:  IRS STYLE

 

            As a general rule tax crimes are covered by a three-year statute of limitations. (IRC Section 6531); however, in the two most common offenses alleged of individuals in the Freedom Movement: failure to file and tax evasion; the statute of limitations is six years from the date the return was due or the date the return was filed, whichever is later. (U.S. v. Habig, 390 U.S. 222).

 

            The IRS may nail you by either an indictment or an information.  An information is a written statement of the essential facts, which constitute the offense against the "taxpayer."  A misdemeanor may by charged by information and willful failure to file is a misdemeanor.

 

            However, a felony must be charged with an indictment. Tax Evasion is a felony.  Remember that an indictment is an accusation from the Grand Jury.

 

            If you are attacked criminally by the IRS, you have a right to get information from them.  The Jencks Act (18 USC Section 3500) allows you to inspect and examine statements of the Government.  You are permitted to use these documents to impeach the government witnesses' credibility without the necessity of laying preliminary foundation.

 

            The IRS will use search and seizure methods many times in gathering information.  Remember that the Fourth Amendment of the Constitution prohibits unreasonable searches and seizures and that no warrant can be issued without reasonable cause.  Rule 41 of the Federal Rules of Criminal Procedure will help you attack the IRS' Search Warrant if it comes after you.

 

            Remember that the IRS has the burden of proof in a criminal case; and if the CID contacts you, you don't have to speak with them.

How Does the Bankruptcy Court Define Tax Return?

 

      Those of you who are planning to bankrupt taxes in the future need to be very careful that you have correctly filed a tax return.  If you do not file a tax return, your taxes will never be dischargeable in a Chapter 7 Bankruptcy.  The law varies on this issue, but is safest to file returns and sign them.  In Carapella v. U.S., 84 B.R. 779 (Fla) 1988, the court ruled that information in a tax court proceeding may be deemed the equivalent of filing a return.  In Arenson v I.R.S. 145 B.R. 310 (D. Neb 1992); the court ruled that filing an amended return without having filied the original return, does not constitute the filing of a return.  In Levinson v. U.S. 969 F2d 260 (7th Cir. 1992), the court ruled that an unsigned return does not constitute a valid return. In the case of In re Lowrie, 162 B.R. 864 (Bkrtcy.D.Nev.1994), the court ruled that the signing of a Form 1902-B admitting the existence of income and the resulting tax liability was sufficient to constitute a return.  But a court has also ruled that a document is a tax return only if it purports to be a return is sworn to as such, and gives an honest and genuine attempt to satisfy the return filing requirement.  See In re Eastwood, 164 B.R. 989   (Bkrtcy.E.D u.Ark. 1994).  In the case of Schmitt v. U.S., 140 B.R. 571 (W.D. Okla 1992), the court ruled that a tax protestor's addition of objectionable words to his tax return rendered the return invalid and unfiled.  Since the law is so complex on this issue, it is a good idea to be sure that you file returns either in person or by certified mail, return receipt.  If you mail returns, be sure to put each return in a separate envelope.  If you hand deliver a copy of the return to a local revenue officer, the return may not be deemed filed.  Therefore, even if the revenue officer helps you fill out the returns, you should send an original copy to the service center or file one with the District Director's office. 

 

IRS Attacks California

 

      The IRS audits individuals at different rates in different parts of the country.  The State of California is getting increased attention from the IRS.  This is probably because of the increasing tax protest activity in the state.  The IRS is looking harder in California for people who do not file returns and the audit rate is four times higher in California than in the rest of the country.  In New York City, the highest-income district in the United States, the fraud audit rate fell to 208 in 1996 from 628 in 1992.  In Connecticut the suspected fraud audits dropped to 57 from 848.  Meanwhile, back taxes and penalties are increasing for the poor and declining for the rich.  This is because Congress directed the IRS to monitor the tax returns of the working poor more thoroughly in 1995.

 

      The attack against the working poor was to make sure that people eligible to get earned income credit do not get more than they are supposed to.  Between 1992 and 1996, the average increase in the tax bill that IRS auditors recommended for those making less than $25,000 more than doubled, to almost $5,700 from $2,500, while for those making more than $100,000, it fell 14.5 percent to $19,700 from $23,000.  This year about 170 million Americans will file approximately 120 million tax returns.  About one person in every 150 will be audited. In 1996, for example, the IRS audited approximately a 800,000 tax returns.  The IRS bases about a third of its audits on dif scores which are based on a statistical formula known only to the IRS: taxpayers who deviate the most from the norms are the ones that get an audit.

 

            The IRS is also under a budget and they have about fifteen percent less auditors than they did ten years ago.  The number of tax returns has increased about twelve percent in the last ten years. 

Check Out These Facts

 

1. The average family today pays more in taxes than it spends on food, clothing, and shelter combined.

2.  Over the past several decades, a majority of the growth in family income has gone to pay taxes.

3.  The average working Americans work 2 hours and 49 minutes of every eight-hour working day to pay taxes.  Most of that time, 1 hour and 53 minutes, will be spent working to pay federal taxes.

4.  Each year Americans devote 5.4 billion hours complying with the tax code, which is more time than it takes to produce every car, truck, and van made in the U.S.

5.  Americans spend over $200 billion each year on tax lawyers, accountants and other costs associated with tax compliance.

6.  The IRS sends out 8 billion pages of forms and instructions each year, which if laid end to end, would stretch 28 times the circumference of the earth.  Nearly 300,000 trees are cut down each year to produce the paper on which these IRS forms and instructions are printed.

7.  The IRS's tax rules and regulations have increased from less than 200 pages in 1913 to more than 7,000 pages in 1995.

8.  In 1993, taxpayers were overcharged $5 billion in penalties.

9.  The November 1996 issue of Money magazine asked 45 tax professionals to prepare a return for a fictional family.  No two prepares came up with the same tax total and not one preparer calculated what Money believed to be the correct federal income figure.  Fewer than one in four came within $1,000 of that figure.

10. 60 percent of taxpayers hire a professional tax preparer to complete their return when only a third of taxpayers itemize their deductions.

11.  The IRS provided 8.5 billion incorrect or incomplete answers to taxpayers in 1993.

12.  High marginal tax rates combined with multiple taxation of work, savings and investment are a drain on economic growth.  The income level of the U.S. could be 15 to 20 percent higher than today if these biases did not exist.  This translates to lost income of as much as $4,000 to $6,000 for the typical middle class family.  (This data is 10 years old, it is presented here to show you that the situation has gotten much worse and it continues to get worse.  When will it change?)

 

 

 

      The Offer in Compromise and the Statute of Limitations

 

      The statute of limitations on collections is 10 years from the date of assessment.  If you file an offer in compromise, the time is extended for one year plus the time that the offer was considered.  The running of the statute of limitations does not begin until the IRS formally rejects the offer in compromise.  In Cooper-Smith, 439 F2d 1095, the court held that the statute of limitations for bringing an action for collection of taxes after assessment was suspended while an offer in compromise was outstanding and for one year thereafter. 

 

      A very important case is Rohde, 415 F2d 695.  The court ruled that both the IRS and the taxpayer must sign the offer in compromise for the statute to be waived.  Regulation Section 301.6502(a)(2)(i) provides in part: "The extension of the statute of limitations shall become effective upon execution of the agreement by both the taxpayer and the district director."  Therefore, unless the district director executes the waiver, it is invalid.

 

      In Parenteau, 33 AFTR2d 74-841, the court held that an offer in compromise tolls the statute of limitations until the IRS declares an offer to be in default.  In Decker, 18 AFTR2d 5365 (D. Utah 1966); the court ruled that the statute of limitations is not suspended when the offer in compromise is rejected by the IRS.

More on Contempt

 

 

              The issue of criminal and civil contempt can get complicated.  The case of Spindelfabrik Suessen-Schurr v. Schubert and Salzer, 903 F.2d 1568 (Fed. Cir. 1990), clarifies the issue.  In Spindelfabrik, the Court decided that a flat sum of money unconditionally awarded to the opposing party as a "civil contempt" sanction "to ensure future compliance" is a criminal penalty that must be reversed if the procedures required for a criminal contempt conviction were not followed.

 

          Judges have both criminal and civil contempt powers and they can punish an individual with either civil or criminal contempt or both; but they must follow the correct procedures.

 

          The Federal Circuit stated that a civil contempt sanction is remedial and for the benefit of the complainant while a criminal contempt sentence is punitive and is to vindicate the authority of the court.  See Gompers v. Bucks Stove and Range Co., 221 U.S. 418, 31 S.Ct. 492 (1911). Civil proceedings may be used to coerce the defendant into compliance with the court's order or to compensate the complainant for losses.  When the court intends to make compensation, a fine which is payable to the complainant must be based upon the evidence of the complainant's actual loss.  See United States v. United Mine Workers, 330 US 258, 67 S.Ct.  677 (1947).

 

          In this case, the court determined that civil fines are conditional because they can be terminated once the contemnor purges himself of the contempt.  Criminal penalties cannot be purged; they penalize "yesterday's defiance rather than seeking to coerce tomorrow's compliance." Shillitani v. United States, 384 U.S. 364, 86 S. Ct. 1531 (1966).

 

          The fine in this case was unconditional and was to deter the defendants from future additional violations. The court concluded that the fine was criminal even though the district court described it as civil.  See United States v. Powers, 629 F.2d 619 (9th Cir. 1980).

 

              If you are subject to a contempt sanction, be sure the court has followed the proper procedures.

 

 

CIVIL AND CRIMINAL CONTEMPT

 

 

            If you are in a battle against the IRS, you need to know something about the issue of civil and criminal contempt. You can be held in contempt by a judge if you refuse to give testimony or records in response to a summons.  However, if you raise a defense that is viable, the court probably will not hold you in contempt.  If you get a summons for personal records; you have the right to stand on your Fifth Amendment Rights.  However, not all the judges in this country understand the law and some may not permit you to take the Fifth. 

 

            Contempt powers started with English Common Law where disobedience of writ under the King's seal was treated as contempt. Under the 1789 Act, the federal courts were given those powers that the English Courts had under common law. (Green v. U.S. NY 1958, 78 S. Ct 632).

 

            By 1831 Congress began to define the contempt powers of federal courts:

 

                 Under the Judiciary Act of 1789, the federal courts were vested with power to punish by fine or imprisonment, at the discretion of said court, all contempts of authority.  Congress did not define what acts constituted contempts, but left this, as well as the amount of punishment, to the judicial discretion of the courts.  Prior to 1831, the judges in several cases had punished criticisms of themselves or their decisions published in the press, as contempts of their authority, and to such an extent had this action been considered a usurpation by the public that impeachments had been instituted on account of such acts against several of the judges.  The impeachments failed, but resulted in the passage of the act of March 2, 1831, by Congress, which limited the acts for which the courts might thereafter punish for contempts of their authority to defined classes, U.S. v. Huff, D.C. Ga. 1913, 206 F 700.

 

            The power of a federal court to imprison a recalcitrant witness for contempt in an effort to make the witness testify is an inherent power which was possessed from the beginning by the federal courts in exercise of their equity jurisdiction, which parallels that exercised by the English Court of Chancery at the time the Constitution was formed. U.S. v.  Yates, D.C.Cal. 1952, 107 F.Supp. 412.

 

            The courts have defined contempt as an "intentional act" which is committed in defiance of authority and dignity of court. U.S. v. Panico, C.A.N.Y. 1962 308 F.2d 125; or contempt "is shown by forgetfulness, neglect, or failure of or indifference to duty. U.S. v. Ford, D.C. Mont. 1925, 9 F.2d 990.

 

            Contempt is classified as either "direct" or "indirect."  If contempt is committed in the presence of the court, it is direct O'Malley v. U.S., C.C.A.Mo. 1942, 138 F.2d 676.

 

            Contempt can be civil or criminal or both.  Civil contempt is a sanction to enforce compliance with an order of the court to compensate for losses or damages sustained by reason of noncompliance and may be imposed for prohibited acts irrespective of intent. McComb v. Jacksonville Paper Co., Fla. 1949, 69 S.Ct. 497, 336 U.S. 187. Contempt is civil when it is remedial and serves only the purposes of the complainant. Nye v. U.S., 61 S.Ct. 810.  The purpose of the punishment, rather than the character of the act punished, determines whether contempt is civil or criminal. Lamb v.Cramer, 62 S. Ct. 315. Criminal and civil proceedings for contempt are not mutually exclusive and the court can institute separate and independent proceedings for criminal contempt on a new citation. Parker v. U.S., 153 F.2d 66.

 

            Punishment in a civil contempt situation is given where the court wants to make a witness do something which he has been directed to do and has refused to do, whereas in criminal contempt, punishment is imposed for doing that which has been forbidden or for the violation of an order of the court, and it cannot undo or remedy the thing which has been done,  Leitstein v. Capital Co., 96 F.2d 23.

 

            Remember that the Court can hold you in contempt, either civilly or criminally before you attempt to stand up against the Court and claim that it does not "have jurisdiction over you."  If you take that position, you will likely waive your Constitutional Rights and you may be arrested and incarcerated until such time as you agree to testify. Be careful about following the advice of some of the outspoken individuals in the Freedom Movement who don't understand these principles.  Good luck and please be aware of the awesome contempt power of the Courts.