Advocates of this idea believe that an "untaxing" package
or trust provides a way of legally and permanently "untaxing"
oneself so that a person would no longer be required to file federal
income tax returns and pay federal income taxes. Promoters who
sell such tax evasion plans and supposedly teach individuals how
to remove themselves from the federal tax system rely on many
of the above-described frivolous arguments, such as the claim
that payment of federal income taxes is voluntary, that there
is no requirement for a person to file federal income tax returns,
and that there are legal ways not to pay federal income taxes.
The underlying claims for these "untaxing" packages
are frivolous, as specified above. Promoters of these "untaxing"
schemes as well as willful taxpayers have been subjected to criminal
penalties for their actions. Taxpayers who have purchased and
followed these "untaxing" plans have also been subjected
to civil penalties for failure to timely file a federal income
tax return and failure to pay federal income taxes.
Furthermore, section 7408 provides a cause of action for injunctive
relief to the United States against a party suspected of violating
the tax laws. On November 15, 2001, the United States filed complaints
for permanent injunctions pursuant to section 7408 against three
individuals (David Bosset, Thurston Bell, and Harold Hearn) for
failing to sign tax returns, promoting schemes that they knew
were false or fraudulent, and engaging in the preparation of documents
that understate tax liability.
United States v. Bosset, No. 8:01-cv-2154-T-26TBM (M.D. Fla.
2001); United States v. Bell, No. 1:CV-01-2159 (M.D. Penn. 2001);
United States v. Hearn, No. 1:01-CV-3058 (N.D. Ga. 2001).
On January 29, 2002, a consent order was entered in United States
v. Hearn in favor of the United States that permanently enjoined
Mr. Hearn and his representatives from, among other things, promoting
or selling tax shelter plans (including but not limited to the
§ 861 argument).
In the order, Mr.Hearn agreed that he relied upon the frivolous
§ 861 argument in making false or fraudulent statements on
federal income tax returns regarding the excludibility of wages
and other items from income.
Relevant Case Law:
United States v. Andra, 218 F.3d 1106 (9 th Cir. 2000)
- in affirming the conviction of a promoter of an untaxing scheme
for tax evasion and conspiracy, the court found that it was proper
to include the tax liabilities of persons Andra recruited into
a tax fraud conspiracy when calculating the effect of his actions
United States v. Clark, 139 F.3d 485 (5 th Cir.), cert.
denied, 525 U.S. 899 (1998) - the court upheld convictions of
defendants involved with The Pilot Connection Society for conspiracy
to defraud the United States and aiding and abetting the filing
of fraudulent Forms W-4.
Robinson v. Commissioner, T.C. Memo. 1995-102, 69 T.C.M.
(CCH) 2061, 2062 (1995) - the court quoted language from Hanson
v. Commissioner, 696 F.2d 1232, 1234 (9 th Cir. 1983) that "[n]o
reasonable person would have trusted this scheme to work.
King v. Commissioner, T.C. Memo. 1995-524, 70 T.C.M. (CCH)
1152 (1995) - the court found King, who had followed the Pilot
Connection's "untaxing" techniques, liable for penalties
for failure to file returns and for failing to make sufficient
estimated tax payments.
United States v. Raymond, 228 F.3d 804, 812 (7 th Cir.
2000), cert. denied, 121 S. Ct. 2242 (2001) - the court affirmed
a permanent injunction against taxpayers who promoted a "De-Taxing
America Program," forbidding them from engaging in certain
activities that incited others to violate tax laws. The court
said, "[W]e conclude that the statements the appellants made
in the Just Say No advertisement were representations concerning
the tax benefits of purchasing and following the De-Taxing America
Program that the appellants reasonably should have known were
United States v. Kaun, 827 F.2d 1144 (7 th Cir. 1987)
- the court affirmed the district court's injunction prohibiting
the taxpayer from inciting others to submit tax returns based
on false income tax theories.
United States v. Krall, 835 F.2d 711 (8 th Cir. 1987)
- the court held that the trusts used were shams. The defendant,
an optometrist, exercised the same dominion and control over the
corpus and income of the trusts as he had before the trusts were
executed. The court further found the defendant illegally attempted
to assign his earned income to the various trusts.
United States v. Scott, 37 F.3d 1564 (10th Cir. 1994)
- the court concluded the true grantor of the trusts was in substance
the purchaser, who was also the trustee, as well as the beneficiary.
It was as if there were no transfers at all. Therefore the purchaser
was subject to tax on all the income of the various trusts. The
defendants were the promoters of a multi-tiered trust package
marketed to purchasers as a device to eliminate tax liability
without losing control over their assets or income.