Tax protesters, the IRS is not amused

By MarketWatch

"I'm a big supporter of fixing potholes and erecting swing sets. . . . I am more than happy to pay those taxes," Maggie Gyllenhaal's character says in the 2006 movie "Stranger Than Fiction."

"I'm just not such a big fan of the percentage that the government uses for national defense, corporate bailouts and campaign discretionary funds. So I didn't pay those taxes. I think I sent a letter to that effect with my return," she says.

The audience can't help chuckle when Gyllenhaal charmingly utters those words. They laugh out loud when Will Ferrell replies: "Would it be the letter that begins 'Dear imperialist swine'?"

Of course, this is all in fun, just lines in a movie.

Somehow it's not nearly as funny when you learn that actor Wesley Snipes sent a $1 million fictitious "bill of exchange" to the Treasury secretary with his Internal Revenue Service payment voucher, less than four months after he was notified by the IRS that he was under investigation. It's as though he was asking to be prosecuted.

Snipes was acquitted Friday of tax-fraud and conspiracy charges, though he was convicted on misdemeanor counts for failing to file tax returns. From 2002 through October 2007, when he was indicted, he had persisted in taunting the IRS by not filing returns and asking for refunds of taxes he'd paid in the past.

That's exactly what Larken Rose, another protester, did, says Steven H. Kassel, a San Bruno, Calif., agent who represents taxpayers before the IRS. Rose wrote a letter challenging the Treasury secretary to prosecute him and maintained a Web site challenging Section 861 and the constitutionality of the income tax.

Finally, Rose got his day in court. On Aug. 12, 2005, 12 jurors took about 90 minutes to have lunch and to convict him on five counts of failure to file federal income tax returns. You can read the details of the court proceedings on the Quatloos.com Hall of Shame page. Quatloos.com is a nonprofit site devoted to posting information on financial scams.

Full of holes

Even Irwin Schiff, the top member of the Quatloos Hall of Shame and a voice of the tax protester movement, concedes the Section 861 argument is full of holes. This stubborn and optimistic man, with conviction after conviction, presently maintains a blog from prison, still convinced that income taxes are illegal. Schiff, serving a 12-year sentence, has filed an appeal with the Supreme Court, protesting the $2.6 million summary judgment against him.

You will find some amazing tales of resistance and civil disobedience in the cases repeatedly lost by people in the tax protester movement. Reading them, you will think the stories were written by screenwriters with fertile imaginations. They can't possibly be true. But not only are the cases true, they are the tip of the iceberg. Thousands of people, many who believe the tactics proposed have a basis in law, subscribe to the practices espoused by the promoters.

Kassel tells us of one client who bought into a scheme that promised to decode his IRS individual master file. Each person's IRS file contains entries with codes next to them instead of descriptions. This schemer promised to read the individual's master-file printout and reveal the secret code information.

You've got to scratch your head here and ask why. After all, if you call the IRS' toll-free number and ask them to explain the codes on your record, they will. Or you can look them up on the Web site of Patrick J. Lynch, an insurance agent, and decipher your own record.

Incidentally, if you look at a printout of your master file these days, the IRS is showing text next to the code. You can clearly understand what each line means.

Continued: The information is free

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