Illegal Tax Protestors Subject
to IRS Enforcement Action

WASHINGTON - The indictment of Phillip Marsh, founder of the tax protest group known as the Pilot Connection, should serve as a warning to taxpayers to stay away from illegal tax protest schemes. Indictments announced today by Michael J. Yamaguchi, U.S. Attorney for the Northern District of California, charge Marsh and seven other people with federal tax, conspiracy and related criminal offenses.

The Internal Revenue Service said it currently has criminal investigations underway involving 124 tax protestors who used unfounded constitutional arguments and phony schemes to avoid paying their federal income taxes. The investigations include 55 people involved in schemes offered by the Pilot Connection.

Illegal tax protest schemes have been around for years in a variety of forms. For example, in the 1970s a popular scheme was for protestors to assert they were a church and that income diverted to their church was tax exempt.

A more recent scheme of diverting income involves trusts. Diverting income to trusts does not relieve a taxpayer of the responsibility to pay income taxes. Taxation arises as the individual constructively receives the income, which is before it is placed in the trust.

Regardless of the form of the schemes, they all have two things in common-the participants face IRS enforcement action and the schemes are consistently rejected by the courts.

Some other tax protestor schemes and arguments:

• The U.S. tax system is based on voluntary compliance. Taxpayers are required to prepare their own tax returns and compute tax. Some protestors argue that "voluntary" means they can volunteer not to pay tax.
• A person cannot use a blanket claim that the tax law violates the 5th amendment protection against self-incrimination. Some protestors use a 5th amendment claim to justify committing tax fraud.
• To implement their tax avoidance schemes, many protestors file fraudulent tax withholding forms with their employers so that no tax is withheld from their pay.
• U.S. citizens cannot declare for tax purposes that they are not citizens subject to the tax law.
• Although many protestors claim that the tax law is unconstitutional, the Constitution was amended in 1913 to provide for the income tax.

Over the past ten years more than 2,000 tax protestors have been convicted of criminal tax charges, with over 60% receiving jail sentences. Whether a person is convicted or acquitted of criminal charges, all outstanding taxes and penalties still must be paid.

IRS said that people who participate in tax protest schemes based upon the advice of others, without intent to defraud, generally are not criminally prosecuted. IRS usually resolves these cases through tax return examinations, assessing the tax that should have been paid, plus interest and any civil penalties that may apply. Over the past four years about 60,000 civil assessments have been made against illegal tax protestors.

According to Yamaguchi, the eight persons charged today conspired to defraud more than 10,000 people nationwide.

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