These special-editions Quatloos commemorates those who have made a name for
themselves in their particular business endeavors.
When a scam gets rolling, all sorts of human
cockroaches come out of the woodwork to try to cash in. This is the perfect
description of Larken Rose, a scammer come lately to the world of tax protesting
who runs tax scam website http://www.taxableincome.net.
Not being smart enough to come up with any unique
theory of his own, Larken has simply latched on to the “861” or
“Income Can’t Be Defined” arguments that end up with the conclusion
that only foreigners are required to pay income tax. Larkin’s argument
has been exploded more times than a pack of Blackcats at a 4th of July festival
(see below) but this hasn’t stopped Larken from marketing his video for
$20 on his other website http://www.theft-by-deception.com
Larken’s ally is
Thurston Bell, which means that his nemesis is Rick Haraka a/k/a Rick Bryan,
who criticizes both Larken and Thurston as to be too wet behind the ears to
be able to give advice on how to live a perpetually tax-free existence. Indeed,
Larken and Thurston represent the “new breed” of tax scam promoters,
i.e., high visibility, no shame, and wanting to make the “Big Splash”
to try establish themselves as the next Irwin Schiff.
Larken’s most recent marketing ploy has
been to announce his “Operation Glove in Face” via his websites
and articles in the militia nut media, where he publicly pleads for the
IRS to arrest him for non-payment of taxes since 1997. Crazy as this sounds,
the convictions of other tax scam artists, such as Irwin Schiff and Bill
Benson, only helped their careers.
Contact: U.S. Justice Department Public Affairs Office,
or 202-514-1888 (TDD);
WASHINGTON, Aug. 12 /U.S. Newswire/ -- The Justice Department and Internal
Revenue Service announced today that a federal jury in Philadelphia
convicted Larken Rose, of Hollywood, Pennsylvania of five counts of willful
to file federal income tax returns.
Larken Rose, 37, was the joint owner of a medical transcription business
operated outside of Philadelphia, Pennsylvania. As set forth in the
Indictment and according to the evidence introduced at trial, Rose
willfully failed to file personal federal income tax returns for calendar
years 1998 through 2002, despite earning $500,000 during those years.
Rose also filed false and frivolous amended income tax returns for
1994, 1995, and 1996. On those amended returns, he reported no tax
due and requested a refund for all income taxes paid in those years.
At trial, Rose claimed that he failed to file returns and sought refund
claims based on his determination that his income received inside the
United States was not taxable under Internal Revenue Code Section 861
and regulations. The judge instructed the jury that this Section 861
argument is incorrect as a matter of law.
People who intentionally fail to file returns or pay taxes as required
by law can expect to face criminal prosecution and conviction," said
Eileen J. O'Connor, Assistant Attorney General for the Justice Department's
Tax Division. "And they will still be required to pay the taxes
they tried to avoid, plus interest and penalties."
The conduct of Larken Rose," said Patrick L. Meehan, United States
Attorney for the Eastern District of Pennsylvania, "is an affront
to all taxpayers who voluntarily pay the taxes required by law."
Nancy Jardini, Chief, IRS Criminal Investigation,
conviction reminds us that fulfilling individual tax obligations is a
legal requirement and those who willfully evade that responsibility will
Courts have consistently held that Section 861 does not provide authority
for United States citizens to fail to file income tax returns on income
earned in the United States, as was highlighted by evidence at trial.
The trial evidence also showed that Rose received more than a dozen
notices from the IRS that rejected his 861 argument. Further, there
were more than ten letters from members of Congress, found at Rose's
residence during execution of a search warrant, that provided notice
to him that his 861 argument was invalid. In addition, Rose was aware
of two district court cases that had rejected the 861 argument. In
one case, the district judge informed Rose directly that Rose's view
of the law was incorrect. There was also considerable evidence presented
at trial, through email correspondence, that Rose intended to create
a mass movement of non-compliance to obstruct the enforcement of the
In convicting Rose, the jury rejected his claim that he held a good faith
belief that the federal income tax laws do not apply to him. District
Judge Michael M. Baylson ordered Rose to remain under home detention
and set sentencing for November 15, 2005. Rose faces a possible sentence
of 12 months on each of the five Counts of which he was found guilty.
Assistant Attorney General O'Connor and U.S. Attorney Meehan thanked
Assistant United States Attorney, Floyd J. Miller, and United States
Department of Justice Tax Division Attorney, Shawn T. Noud, who prosecuted
the case. They also thanked the special agents of the Internal Revenue
Service, Criminal Investigation, whose efforts were essential to the
successful investigation and prosecution of the case.
Additional information about the Justice Department's Tax Division and
its enforcement efforts may be found at http://www.usdoj.gov/tax.
In the crazy world of tax protesting,
Larken Rose’s Argument Exploded
As stated above, for federal income tax purposes,
"gross income" means all income from whatever source derived
and includes compensation for services. I.R.C. § 61. Further, Treasury
Regulation § 1.1- 1(b) provides, "[i]n general, all citizens
of the United States, wherever resident, and all resident alien individuals
are liable to the income taxes imposed by the Code whether the income
is received from sources within or without the United States."
I.R.C. sections 861 and 911 define the sources of income (U.S. versus
non-U.S. source income) for such purposes as the prevention of double
taxation of income that is subject to tax by more than one country.
These sections neither specify whether income is taxable, nor do they
determine or define gross income. Further, these frivolous assertions
are clearly contrary to well-established legal precedent.
Great-West Life Assur. Co. v. United States,
678 F.2d 180, 183 (Ct. Cl 1982) - the court stated that "[t]he
determination of where income is derived or 'sourced' is generally of
no moment to either United States citizens or United States corporations,
for such persons are subject to tax under I.R.C. § 1 and I.R.C.
§ 11, respectively, on their worldwide income.
Williams v. Commissioner, 114 T.C.
136, 138 (2000) - the court rejected the taxpayer's argument that his
income was not from any of the sources listed in Treas. Reg. §
1.861-8(a), characterizing it as "reminiscent of tax-protester
rhetoric that has been universally rejected by this and other courts.
Corcoran v. Commissioner, T.C. Memo.
2002-18, 83 T.C.M. (CCH) 1108, 1110 (2002) - the court rejected the
taxpayers' argument that his income was not from any of the sources
in Treas. Reg. § 1.861-8(f), stating that the "source rules
[of sections 861 through 865] do not exclude from U.S. taxation income
earned by U.S. citizens from sources within the United States."
The court further required the taxpayers to pay a $2,000 penalty under
section 6673(a)(1) because "they . . . wasted limited judicial
and administrative resources.
Aiello v. Commissioner, T.C. Memo.
1995-40, 69 T.C.M. (CCH) 1765 (1995) - the court rejected the taxpayer's
argument that the only sources of income for purposes of section 61
are listed in section 861.
Madge v. Commissioner, T.C. Memo. 2000-370,
80 T.C.M. (CCH) 804 (2000) - the court labeled as "frivolous"
the position that only foreign income is taxable.
Solomon v. Commissioner, T.C. Memo.
1993-509, 66 T.C.M. (CCH) 1201, 1202 (1993) - the court rejected the
taxpayer's argument that his income was exempt from tax by operation
of sections 861 and 911, noting that he had no foreign income and that
section 861 provides that "compensation for labor or personal services
performed in the United States . . . are items of gross income.
The 861 argument is a totally erroneous argument.
But what is amazing is the convoluted lengths to which its advocates
go in seeking to explain why this irrelevant Regulation was worded in
such an obscure manner.
In presenting the 861 argument as they do -
its advocates reveal that they haven't a clue concerning numerous characteristics
of the income tax. The advocates of the 861 argument present it as if
it were the very foundation of why people don't have to pay income taxes
- since they supposedly do not have income from those sources or items
that allegedly fall within the meaning of "gross income" as
that term is "defined" in Code Section 61 and as allegedly
listed in Treasury Regulation 861. .
The fundamental and glaring flaw in the 861
argument and overlooking all of its other flaws - is that it is based
on the assumption that the income tax is imposed on "sources"
or "items" of revenue that one might receive and therefore
it is important to determine where that revenue comes from, or who received
Also the advocates of the 861 argument attempt
to make a distinction between "sources" of revenue and"
items" of revenue as referred to in Code Section 61 - where no
(Code Section 61, of course, uses the term "income"
when it should more correctly use the terms "revenue" or "profit."
It falsely uses the term "income" to hide the true character
of the "income" tax and what Section 61 purports to tax).
Since the "income" referred to in
Code Section 61 means a corporate profit those "sources" or
"items" mentioned in Code Section 61 merely refer to those
"sources of revenue" or "items of revenue" which
go to make up a corporation's "Profit and Loss" statement
as constituting its gross revenue.
So any attempt to create a distinction between
"items" of revenue and "sources" of revenue as those
terms are used in listing a corporation's total (or gross) "income"
is "a distinction without a difference."
And it is ludicrous to see the extent to which
861 advocates go in trying to conjure up such a distinction. What Code
Section 61 purports to tax is "Income" (or revenue) FROM "whatever
source derived" which would include all manner of income (and revenue)
regardless of where it comes from- either from domestic or foreign sources.
However, note that Code Section 61 doesn't attempt
to put a tax "ON" anything (except profit) - and the legal
significance of the distinction between "ON" and "FROM"
as used in this Code Section seems to be totally lost on 861 advocates.
The alleged definition of "Gross income"
as used in Code Section 61 attempts to be all-inclusive, and that is
what the courts will rule. No court is going to rule that the phrase
"from whatever source derived" excludes some "sources"
If one accepts the fallacy that what Section
61 purports to tax are "sources" or "items" of revenue
(and not "profit"), then the revenue from all "sources"
would be taxable.
Read the law. That's what it says - if you accept
its basic fallacy. Once you understand that Section 61 only purports
to tax corporate profit (which advocates of the 861 argument appear
not to understand at all), you realize that it makes no difference where
your items of revenue come from, either foreign or domestic sources
- since the tax is only allegedly imposed on "profit," not
on the individual "items" or "sources" that produced
As long as you do not have a "profit"
(and individuals can not have a profit) you have received nothing that
can possibly fall within the meaning of "Gross income" as
that term is used in Code Section 61.
That is what the Brushaber Court (240 US 1)
said was the whole purpose of the 16th Amendment. (See page 198 of "The
Great Income Tax Hoax") The Supreme Court said in that decision,
"The whole purpose of the 16 Amendment" was to separate a
tax on income "from a consideration of the source" that produced
However the whole basis of the 861 argument
is to focus on, and consider the "sources," that allegedly
produced your revenue. Therefore the advocates of the 861 argument admit
to not knowing what the 16 Amendment and the Brushaber decision were
What is also incredible is that advocates of
the 861 argument believe that argument is more fundamental as to why
we don't have to pay income taxes, than the fact that no statute exists
that makes anyone (American citizens or resident aliens) even "liable"
for the payment of income taxes - regardless of where their revenue
And while the Code provides a different definition
of income for Americans living abroad than those living here, it is
my claim that even Americans living abroad don't have to pay federal
So advocates of the 861 argument close their
eyes entirely to the fundamental fact that there are no provisions making
Americans liable for income taxes regardless of where their revenue
In addition to everything else, 861 advocates
also overlook that the income tax is still - legally - based on "self
This means that if you don't assess yourself
with an income tax liability, under the law - you can't owe any income
taxes regardless of where your revenue comes from or what produced it.
So in addition to everything else, 861 advocates admit to not even knowing
about the "self-assessment" basis of the income tax.
In addition to that, 861 advocates claim that
according to par. 8f of 861, I would have to file a return and pay income
taxes on revenue I might have received from the extraction of foreign
oil and gas; and certain other types of revenue the character of which
I can't even begin to understand.
The point is, I don't care where anybody's revenue
comes from, they don't have to file returns and pay income taxes on
any of it for a variety of reasons - which apparently the advocates
of the 861 argument know nothing about.
For example: Since all information on a tax
return can be used against you, how can the law require you to file
and pay income taxes even on sources of revenue allegedly reportable
under 861? The answer is no law requires you to do so - for that very
And lastly since all Americans have a constitutional
right not to pay a federal tax which is not imposed either pursuant
to the rule of apportionment or the rule of geographic uniformity (read
the Brown decision posted on my web site where this is explained in
detail), and since the income tax is not imposed pursuant to either
rule, its payment can not be made mandatory - regardless of where your
revenue comes from.
And an understanding of this simple concept
is far more valid and relevant than all the complicated gobbledygook
upon which the 861 argument is based.
It is also obvious that pursuant to the wording
of Code Section 61 only a corporate profit can fall within the meaning
of "Gross income" - and "wages" "salary"
and "compensation for personal services" simply do not fall
within that definition.
As a matter of fact, these items were specifically
removed from Code Section 61, even though they specifically appeared
in Code Section 22 (the forerunner of Code Section 61) of the 1939 Code
as shown in Exhibit G of "Schiff Report" 6-2.
And your understanding of this is far easier
to use in explaining why "wages" and "compensation for
personnel service" can not be taxable as income, rather than seeking
to explain why such items do not fall into the items of allegedly taxable
"sources" supposedly listed in Treasury Regulation 861.
However, there is yet another reason why the
861 argument is nonsense. Code Section 861 occupies 2 pages in the Code
- but its alleged Regulation runs to 92 pages. Frankly, I get lost trying
to understand it. But why do I have to understand it?
The law itself is very simple to understand
and it tells me that nothing I receive in the form of revenue falls
within the meaning of "Gross income" and is not taxable for
a variety of other reasons. So why do I have to bother digesting 92
pages of complicated legalese?
The Regulation itself does not have the force
and effect of law anyway. If you check, you will see that the support
for Treasury Reg. 861 is always shown to be T.Ds (Treasury Decisions),
not Code Section 861.
So the Regulation, not being legislative, is
not even binding on the public (Though it is binding on the IRS, but
In addition to everything else, the language
of 861 is so complicated that I don't even believe that it says what
its advocates say it says - that only 12 or so items fall within the
sources of income that can be taxable to Americans.
As I read the Regulation, there seems to be
a whole list of items in 861-1 that appear to be taxable to Americans
as "income from domestic sources."
But apart from 861 there is 862 and 863 and
864 all complicated gobbledygook, and all focusing on the alleged taxability
of various "sources" of revenue - when "sources"
of revenue are not even made subject to the tax in the first place and
no law requires anyone to pay income taxes in the second place - so
why bother trying to decipher all that legalese.
Try reading Reg. 861, 862, 863 & 864. So
if anybody seriously believes in the fundamental importance of Treas.
Reg. 861 they are admitting to being ignorant concerning a whole range
of issues involving income taxes.
Now having said that - I am aware that some
people who have made the effort to understand the 861 argument and present
it so it does makes some sense have been able to confuse IRS agents
with it. Fine.
Maybe, in some cases making an erroneous argument
can be more effective than making a valid one - based on the fact that
"income" means a corporate profit.
However, those who use my material don't bother
arguing "the law" to IRS agents anyway. Our approach is based
on merely asking the agents to show us the law that authorizes them
to do whatever it is they are trying to do, and we will pay the tax.
We are not going to waste our time explaining
or debating the meaning of "income" with IRS agents. For those
who want to do that, maybe the 861 argument is effective - but such
people shouldn't kid themselves into thinking that they are making a
legally valid argument. But if it works for you, fine - be my guest.
Now, while some may be able to confuse IRS agents
with the 861 argument, I believe it will not fly at all in any court.
The fact that it won't fly in court doesn't necessarily mean that the
argument is invalid.
The fact that the law doesn't authorize a tax
on wages also doesn't "fly" in our courts - as of today. But
it certainly will fly and prevail some day, since it is a correct statement
of the law, while the 861 argument is not.
I believe that those making the 861 argument
will find themselves in Tax Court (a make believe court, I know), either
in connection with challenging a "Deficiency Notice" or appealing
a Collection Due Process "determination" - and they will base
their position on the 861 argument.
And the Tax Court will hold the 861 argument,
in both cases, "frivolous," and may even impose sanctions
on those who raise it. I hope I am wrong in this, but this is what I
expect will happen.
In the end, the 861 argument will fade away,
as will those who have based their reputations on it.
More On the 861 Argument
by Irwin Schiff
When I first came across the 861 argument, I
didn’t pay much attention to it because its erroneous character
was immediately apparent – as covered above.
I also never sought to expose the fallacy of
the 861 argument, because I don’t have time to address all of
the erroneous arguments that are advanced in the anti-income tax movement.
I was only motivated to do so when I did the piece on Thurston Bell,
since his reliance on the 861 argument merely underscored how little
Thurston Bell actually knows about income taxes.
However, yesterday, in cleaning out my files
(in connection with our move to new offices), I came across an article
entitled “Taxable Income” by Larken Rose.
Since it was only 6 pages long, I though I’d
read it. I didn’t have to read very far to discover where Larken
Rose (who, I believe, was the originator of the 861 argument) went wrong.
Under the caption “13) Cover-Up of 1954,”
“In 1954, the Code underwent a major rearranging
and numbering (and to some extent, rewording). This change-over did
not substantially change the law itself, but simply rearranged. it.”
Larken Rose couldn’t be more wrong.
Congress, in going from the 1939 Code to the 1954 Code, fundamentally
and significantly changed the income tax “laws.”
For one thing, Section 11 of the 1939 Code provided
that income taxes had to be “paid. ” Such a provision was
removed from the 1954 Code, and nowhere in the 1954 Code does the law
require that income taxes have to “be paid.”
If this one fact alone does not constitute a
“substantial change” in the law, then I don’t know
In addition, all of the numerous references
to the IRS (actually the Commissioner) that were in the 1939 Code were
removed from the 1954 Code, and consequently the IRS was given no authority
or power to enforce the provisions of the 1954 Code as it had been given
such authority in the 1939 Code.
In addition, Section 22 of the 1939 Code listed
“sources” or “items” which presumably were to
be taxed as “income.” No claim was made in the 1939 Code
that it sought to “define” the meaning of “Gross income.”
By contrast, Section 61 of the 1954 makes no
attempt to list items that were to be taxable as “income.”
Instead, Code Section 61 of the 1994 Code claimed to “define”
the meaning of “Gross income,” (but failed to do so, for
reasons I need not get into here, but which are fully explained in my
books and tapes) and gave examples of items that presumably fell within
But remember, the tax was to be imposed ON “income”
(whatever that meant), but not on the listed items themselves. If the
tax were to be imposed directly on those listed items, the tax would
have to be apportioned – in order not to run afoul of the apportionment
provisions of the Constitution and the Pollock decision, which, remember,
was not repealed by the 16th Amendment.
Another big change between the 1939 Code and
the 1954 Code is how they treated the meaning of a “deficiency.”
The 1939 Code allowed the Commissioner of Internal Revenue to determine
a “deficiency” even when no return was filed and no tax
due was shown on any return.
No such authority is given to the IRS in the
1954 Code. Pursuant to the provisions of 6211 of the 1954 Code, only
the Secretary of the Treasury (or his delegate, and not the Commissioner)
can prepare a “deficiency” and only “if a return was
made by the taxpayer and an amount was shown as the tax by the taxpayer
And since 6211 is not supported by a legislative
regulation, Section 6211 is really a benign statute. According to the
actual provisions of the 1954 Code, if you do not file a tax return
or if you file a return and show no tax due, you actually fall outside
the provisions of the 1954 Code, and the income tax “laws”
can not apply to you. Not so according to the provisions of the 1939
The 1939 Code allowed the IRS to subject you
to the provisions of the 1939 Code, even if you didn’t file a
return or show a an income tax due.
Basically in changing the Code as it did, Congress
sought to bring the Code into conformity with a number of early, Supreme
Court decisions that had held, among other things, that: 1) the 16th
Amendment did not “amend” the Constitution, nor give the
government any new taxing power, and 2) the effect of the Amendment
was merely to allow the government to put an excise tax on corporate
profit – a power Congress always had.
In changing the “law” as it did,
Congress sought to make the 1954 Code constitutional, whereas the 1939
Code was unconstitutional on a variety of grounds.
And Larkin Rose bases much of his 861 argument
on the provisions (and regulations) that apply to the 1939 Code –
laws that Congress repealed when it went to the 1954 Code.
It is understandable how Larken Rose missed
these changes. Neither Congress nor the billion-dollar tax industry
that feeds on the preparation of income tax returns and the payment
of income taxes wanted these changes publicized.
In summation, the 861 argument rests on Larken
Rose’s mistaken belief that there was no “substantial change
in the law” as between the 1939 and 1954 Codes. How wrong could
an assumption be? If this doesn’t put the final nail in the coffin
of the 861 argument, then I don’t know what would.
Tax Scammer Hit with Injunction
for Failed 861 Argument
U.S. Judge Christopher C. Conner has issued a
preliminary injunction against Thurston Paul Bell of Hanover, Pennsylvania,
prohibiting him from marketing a tax scam known as the "861 scam"
that takes the absurd position that only foreign workers owe income taxes.
Mr. Bell has also been ordered to post a copy
of the injunction on the website of his bogus tax organization, the National
Institutute for Taxpayer Education, at http://www.nite.org
NITE is popularly known by those who investigate scams as the "National
Institute for Tax Evasion", and is known for promoting bogus tax
theories that have been proven to be failures.
In addition to advising his clients that they
have been the victim of a tax scam and that they are liable for back taxes
and penalties to the IRS, Mr. Bell is also required to turn over information
relating to his clients to the U.S. Justice Department, which presumably
will now track down Mr. Bell's clients and prosecute them individually
for tax evasion.
The 861 argument is a theory that has been consistently
rejected by the courts. In a recent case, Mr. Brian Takaba argued the
861 theory in his defense, but the tax court ruled that the argument was
frivolous, and hit Mr. Takaba with not only the tax but also a $15,000
fine which Mr. Takaba must now pay.
The 861 argument has been the tax scam of choice
by not only Thurston Bell, but also tax scammers Larken Rose and Rick
Haraka a/k/a/ Rick Bryan.
Read more about the injunction against Thurston
Bell at http://www.nytimes.com/2003/01/12/politics/12BELL.html
Similar Justice Department actions have included:
| FOR IMMEDIATE RELEASE
FRIDAY, JUNE 28, 2002
TDD (202) 514-1888
JUSTICE DEPARTMENT FILES
LAWSUIT IN TAX FRAUD SCHEME
WASHINGTON, D.C. – The
Justice Department filed suit today in Denver against Colorado Mufflers
Unlimited, Inc., of Northglenn, Colo. According to the suit, the company,
which does business as Exhaust Pros, filed false claims for refund with
the Internal Revenue Service for 1997 and 1998.
Colorado Mufflers sought a refund of payroll taxes
it had paid by asserting the so-called 861 argument. That argument says
that only income from foreign sources is subject to U.S. tax, and not
amounts U.S. employers pay to U.S. citizens. The Internal Revenue Service
mistakenly paid the refund, and the suit filed today seeks to recover
that refund plus interest, nearly $90,000 in all.
"The 861 argument is nonsense. People who
file false claims for refund are breaking the law and will be held accountable
for their actions," said Eileen J. O'Connor, Assistant Attorney General
for the Justice Department's Tax Division.
In a related case, the Department previously filed
suit in federal court in Harrisburg, Pa. against Thurston Bell. Bell is
the founder of the National Institute for Taxation Education (NITE). According
to the papers filed in that case, Bell uses NITE's Web site to promote
his corrupt 861 scheme to potential clients. The Web site claims that
the tax refunds Colorado Mufflers received were the result of "information,
data and training" that is made available exclusively through NITE
membership. Contrary to that assertion, however, the refunds were merely
the result of an administrative error which today's lawsuit seeks to reverse.
According to the government's filings against
Bell, he charges customers $195 for membership in NITE. The suit against
Bell seeks to bar him from promoting his corrupt 861 scheme and to require
him to remove from the NITE website all materials promoting tax evasion.
Bell's case is one of four cases the Justice Department
has filed recently to stop the promotion of the foreign-source income
scheme. Earlier this month, a federal court in Tampa banned Douglas P.
Rosile, Sr., a Venice, Fla.-based former accountant, from preparing tax
returns and from promoting the foreign-source income argument. Last month
the federal court in Tampa ordered David Bosset to stop preparing tax
returns and promoting fraudulent tax schemes based on the Section 861
argument, which it called "absurd on its face." In January,
the Department obtained an injunction against Harold E. "Hal"
Hearn, an Atlanta-based CPA, prohibiting him from preparing returns based
on, or promoting, the foreign-source income argument.
Tax evasion schemes cost United States taxpayers
billions of dollars a year. According to a report the General Accounting
Office issued in May 2002, however, IRS and Justice Department efforts
have led to increasing numbers of convictions for promoters and individuals
involved in tax fraud schemes.
| FOR IMMEDIATE RELEASE
THURSDAY, SEPTEMBER 26, 2002
TDD (202) 514-1888
JUSTICE DEPARTMENT SUES
FLORIDA MAN TO HALT TAX SCAM
St. Petersburg Man Alleged to Promote Frivolous "Section 861"
WASHINGTON, D.C. - The Department
of Justice today filed a lawsuit against Everte C. Farnell of St. Petersburg,
Fla., alleging that he is promoting an illegal tax scheme. The lawsuit,
filed in federal court in Tampa, is part of the Justice Department's continuing
crackdown against a nationwide tax scam in which promoters falsely claim
that income from sources in the United States is not subject to federal
income tax. The scam is known as the "Section 861 argument,"
after the tax code provision it misinterprets.
"The courts have uniformly rejected the Section
861 argument, penalized those who assert it, and enjoined those who promote
it," said Eileen J. O'Connor, Assistant Attorney General for the
Justice Department's Tax Division. "Promoters of this scam line their
pockets, while getting their customers in serious trouble."
The government's complaint states that Farnell
touts himself as the "Chief Tax Consultant" of the "Problem
Resolution Group" of the so-called "National Institute for Taxation
Education" or "NITE." According to court papers filed in
a government suit against NITE's owner, Thurston Bell, NITE and Bell operate
a website promoting the Section 861 argument. The complaint also states
that Farnell prepares tax returns for clients who declare their income
is zero, regardless of how much money they earned.
The Justice Department has already obtained injunctions
against three other promoters of the bogus "Section 861 argument"
- Harold Hearn of Atlanta, David Bosset of Spring Hill, Fla., and Douglas
Rosile of Venice, Fla.
NEW! - Affidavit
for Search Warrant for Rose Residence -- Part 1
NEW! - Affidavit
for Search Warrant for Rose Residence -- Part 2
to Quatlosers Exhibit