By Del Quentin Wilber
Washington Post Staff Writer
Wednesday, April 15, 2009
D.C. police Detective Michael C. Irving was looking for a way to keep more money in his pocket when he settled on a little-known "program" that he claimed exempted him from income taxes.
During a three-year period, while earning more than $450,000, he did not pay a dime to the U.S. Treasury or D.C. government. Irving had not stumbled upon an obscure tax loophole. Authorities say the respected homicide investigator was participating in an extreme form of tax cheating that they worry could be going mainstream.
As millions of Americans sweat out their tax returns due today, federal authorities say they are keeping a close eye on a relatively small group of residents who refuse to pay any income taxes.
Known as tax defiers, deniers or protesters, they cite myriad reasons for their stance that income tax is illegal. Some argue that the 16th Amendment, which allowed Congress to collect income taxes, was never ratified. Others believe paying taxes should be voluntary. A few argue that only D.C. residents or federal employees are subject to the tax laws.
The U.S. government says the theories are bogus, and the IRS recently updated a 77-page book on its Web site rebutting dozens of such arguments.
The movement had its roots in the 1960s and 1970s with angry farmers upset about losing their land, extreme libertarians and members of militia groups and white supremacist organizations, authorities and experts say. The ideas were spread in seminars and, lately, on the Internet to a nationwide audience of people interested in avoiding taxes.
In a bad economy, law enforcement officials worry that the arguments are more enticing than ever.
"This is a significant problem," said Thomas J. Perrelli, the Justice Department's associate attorney general. "This isn't the situation where people make a small error on their taxes. These are basically people objecting to the entire notion of the tax system."
Authorities say defiers either refuse to submit tax returns or file them with bogus information about their earnings. Many defiers list their income as zero, authorities say.
The IRS labels such returns as "frivolous." It received more than 10,000 of them last year and more than 90,000 pieces of related correspondence. Both numbers have held steady over the years. Usually, tax filers correct their returns after receiving a stern letter from the IRS, officials say.
The Justice Department has stepped up enforcement against tax defiers, and the IRS has referred more cases for criminal prosecution: 132 cases in fiscal 2008, up from 74 the previous year and 80 in 2006. The Justice Department also has filed about 100 civil lawsuits since 2001 asking judges to block defiers from promoting or selling related tax-preparation products.
Last month, the department filed a civil suit to stop a South Carolina tax preparer and his company, Reclaim Services, from filing frivolous tax returns on behalf of customers. Two machine shop owners, who pelted the government with letters extolling tax defier arguments, were convicted last month of tax evasion. On Thursday, a Mississippi man was convicted of filing false returns; he had argued that he was a citizen of his state, not the United States, prosecutors say.
Last year, the highest-profile defier, actor Wesley Snipes, was sentenced to three years in prison for failing to file tax returns for three years. He did not pay taxes on about $40 million he earned over six years, prosecutors said. Snipes claimed that he did not have to pay taxes because he was a nonresident alien, that tax collectors abuse citizens and that he had paid his taxes through "bills of exchange" drawn on a secret government bank account. Snipes is free pending appeal of his conviction.
The variety of citizens caught up in the no-taxes argument surprises some experts.
"It's shocking, really, how fast this is growing," said J.J. McNabb, an insurance analyst who has testified before Congress about tax defiers and is writing a book about the phenomenon. The economic crisis, she predicted, "is going to drive untold numbers of people into this movement."
Nathan Hochman, former head of the Justice Department's tax division, said in an e-mail that "there are people out there who are misguided tax zealots who, to the day they die, believe their bogus theories no matter how many times courts tell them they're wrong."
"But for the bulk of people, it's now about greed," he added. "They can't even explain the theories."
Irving, the D.C. police detective, testified that he learned about the "program" from a friend and fellow detective, Eugene Lonon, who later died in a car crash. Lonon told Irving that he heard about the tax loophole at seminars and that it had allowed him to keep more money in his paycheck, Irving said.
Irving got the D.C. police payroll office to stop withholding his taxes. He created a trust, believing it would wipe out his tax liability.
In early 2003, he told the IRS that he did not earn " 'wages' or 'gross income' as such terms are defined in the United States tax laws" and was seeking the return of $32,000 in tax withholdings from the previous year. Irving did not file federal or D.C. tax forms or pay taxes from 2003 through 2005.
In May 2003, the IRS began sending letters warning Irving not to file "frivolous" returns. Irving fired back in a long complaint threatening a lawsuit.
Federal prosecutors charged the detective in 2007 with tax evasion, fraud and filing a false claim for a refund. At trial, Irving said he thought the program was legitimate, because "I just can't imagine it being wrong if you process this paperwork."
Under cross-examination, however, Irving said he couldn't really explain how it worked. "If I could explain it, I would have told the world about it," he testified.
His defense team argued that Irving was naive, had committed a relatively minor offense and had been a good detective who served the public. He was working to fix his tax problems when he was charged, said his attorney, David Schertler.
But federal prosecutors said the 18-year law enforcement officer -- who earned $180,000 in 2005, most of it in overtime -- should have known better.
"It is particularly galling, knowing that this defendant's substantial wages were paid by other citizens' rightfully paid tax dollars," prosecutors Karen E. Kelly and Michael P. Ben'Ary wrote in court papers.
The jury convicted Irving of two counts of tax evasion but acquitted him or deadlocked on seven other charges. He was sentenced in January to 14 months in prison.