By George M. Fox, Attorney
The answer: the Tooth Fairy, a Pure Trust, Santa Claus and a Common Trust Organization.
The question: name four fictitious things.
Next question: Which two of these fictions can land you in jail? Maybe even make you famous on IRS’ webpage, Examples of Abusive Tax Schemes, updated annually for the newest and best convictions. Maybe, like actor Wesley Snipes, you can be on the news – and on Google, too – for doing things under tax law which just don’t work.
There’s no reward for creativity here. The IRS and law enforcement are well aware that nobody likes paying income taxes.
Yet some people claim to have a great solution: don’t pay any income taxes at all. Their pitch: You don’t have to.
They’ve created things that sound legal, with fancy lawyer-jargony names like the Common Law Trust, the Unincorporated Business Trust Organization, the Pure Trust and the Common Trust Organization. (My favorite is an entity called the Corporation Sole, which I first thought was a fish recipe).
And they’ll sell you the details in ersatz documents, books and forms.
Their books have titles like “Tax Free! How the Super Rich Do It!” Their companies have names like “First American Research” and “Acacia Corporate Management and First Amendment Publishers.”
The sales pitch is based on your making money through non-existent entities built on faulty legal premises. To wit: “Common law trusts are not bound by ‘public policy’ decisions of the legislature that are masquerading as ‘law’.” And “Add to that a government that is hungry for any excuse (lawful or otherwise) to seize one’s property[.]”
This is akin to Peter Pan’s “Think of the happiest things and you can fly.” Believing that gets you to “If you can fly, you must be a bird. Birds don’t pay income taxes. So if you think of the happiest things, ignore IRS.”
Huh? I fly, therefore, I don’t.
The magic tool in most of these schemes is a veil of secrecy: “[A] common law trust is traditionally held in the strictest privacy with no one but the settlor and the trustee knowing all the details of the trust and the identities of those involved.”
Obviously whoever believes this hasn’t thought about the power of subpoenas and being held in contempt of court.
How far-ranging is this? Consider the New Jersey men who formed a company called Mid-Atlantic Trustees and Administrators. It marketed Pure Trust Organizations (and another entity called “Beneficiaries in Common”).
To quote IRS: “The defendants established several hundred PTOs for their customers, the express design of which was to conceal income and other assets from the IRS. . . . In creating, marketing and selling PTOs, the defendants made concerted efforts to make it appear that PTO customers had no control over the assets in the account. . . The customers, however, always maintained unfettered access to their assets.”
Back to Wesley Snipes, You remember him from the “Blade” movies? “Demolition Man” with Sylvester Stallone? Lots of other roles, too. He really liked Pure Trusts. At trial the government evidence showed that Snipes hosted seminars for companies selling Pure Trusts and then tried to sell others to become their clients and stop paying taxes.
A jury found him guilty of failing to pay income taxes. He was sentenced to 36 months in jail and had to pay restitution of $17 million.
Snipes’ mentor operated what federal prosecutors called “the Walmart of tax fraud.” Court records revealed it operated in all 50 states and had more than 4,800 paying customers.
Now some people are do-it-yourselfers. This year’s Abusive Tax Schemes included one Ricky Dean Hardee who was fined and went to jail. He didn’t file income tax returns for five years. He tried hiding his income in a series of entities, sham trusts and both domestic and foreign bank accounts, including a bank account in Panama and 10 different bank accounts within the U.S.
So if you aspire to the freedom of not paying income taxes because you can be an independent country or because of authority in the U.S. Constitution, or because of other ideas which don’t ring right, stay clear. As the old saying goes, “If something looks too good to be true, it’s not.”
Maybe this one is better: “Fly with the crows, get shot with the crows.”