A new issue of NWTRCC’s newsletter, More Than a Paycheck, is out.

Among the interesting articles is one by NWTRCC coordinator Ruth Benn in which she recounts a meeting she recently had with an officer from the IRS’s “Abusive Tax Avoidance Transactions” branch.

From the sound of things, the IRS seems to be interpreting the war tax resistance advocacy of NWTRCC as though it were “promoting tax schemes” — putting that group in the same category as the kind of folks who peddle offshore tax shelters and bizarre Constitutionalist “sovereign citizen” untaxing kits.

In the course of explaining why ATAT was involved in my case, Officer E—— said “You are a threat to the compliance of the income tax system. If everyone did what you do, then the government could not do what they need to do.” Right. So we will continue to do what we feel we must do and see how things develop with the IRS.

Lincoln Rice reports on how the IRS cracked down on one such Constitutionalist group — We The People — 

The court’s injunction was based on the conclusion that WTP had created an illegal tax shelter and tax fraud scheme. The injunction prohibits WTP from selling and/or distributing what the IRS considers false and fraudulent information, requires them to remove all this material from their website, requires them to post the injunction on their website, givemeliberty.org, and demands that they give to the government the list of names, addresses, emails, Social Security numbers, etc. of all the individuals and entities to whom they provided materials. The latter directive is perhaps the most disturbing from a constitutional point of view. The appeals court had temporarily blocked enforcement of that paragraph, but eventually sustained it, reasoning that forcing WTP to provide the names of its “customers” would allow the IRS to monitor whether those individuals were, in turn, failing to comply with the tax laws.

So if the IRS is now starting to treat NWTRCC as if it were an organization like We The People hawking fraudulent tax evasion schemes, could the IRS seek a similar injunction against NWTRCC?

Rice says, “probably not.”

The opinion is very precise on why WTP received this injunction, which indicates many substantial and significant differences between WTP and NWTRCC. First, WTP states that the federal government does not have the authority to tax U.S. citizens. As such, they offer materials that show interested parties how to “legally” stop W-4 withholding and provide individuals with paperwork to give their employer, which states that the employer can legally stop issuing W-2 and 1099 forms. This, in addition to their 16^th Amendment arguments, is viewed as fraudulent and misleading by the court. Second, the government’s interest in the case pertains to the loss of income caused by what they see as fraud. The government states that WTP is responsible for at least 997 individuals not filing tax returns for at least the past three years. And because it costs the IRS $1,607 to produce a substitute return, this has cost the government at least $4.8 million the last three years alone.

Third, WTP sold their “package” like a commercial product, charging admission to training sessions, and even offering customized “legal opinions” justifying these tax violations. While NWTRCC is of course trying to hurt the military budget’s bottom line, we are not distributing false information and are not operating on a commercial basis. NWTRCC always presents accurate information about legal and illegal ways of resisting taxes that pay for war, and candidly describes those which would constitute a form of civil disobedience. All of our materials represent, to best of our knowledge, the laws that some are choosing to break when they withhold taxes, while fully disclosing the penalties, fines, etc., that we may face.

More worrisome to me was this recent injunction that shut down a “warehouse bank.”

The court said the warehouse bank was used by customers “who owe substantial tax debts or have failed to file federal tax returns.” Evidence in the court record showed that Arant commingled nearly $28 million in customer deposits made over a four-year period and held these funds at a number of commercial banks. Customers had Arant use their deposited funds to pay customers’ bills, which made it difficult or impossible for the IRS to identify customers’ expenditures.

…Judge Robert Lasnik of the U.S. District Court for the Western District of Washington found that Arant falsely told customers they could legally hide their income, assets, expenditures and identities from the Internal Revenue Service (IRS) through the warehouse bank. The court said that Arant “knew or had reason to know” that his promises were false because “courts have repeatedly held that warehouse banks are tax evasion schemes.”

In a separate order, Judge Lasnik held that federal tax liens, totaling more than $250,000, which relate to penalties the IRS assessed against Arant for operating his scheme have priority over the claims of warehouse bank depositors to funds currently held by the operation. Those funds, held at a number of commercial banks, have been frozen since last year’s preliminary injunction. The court ordered that they remain frozen.

The court also ordered Arant to give the Justice Department a list of all customers who used the warehouse bank — with customers’ addresses, Social Security numbers and telephone numbers.

“Courts have repeatedly held that this so-called ‘warehouse bank’ tax defier scheme is illegal,” said Nathan J. Hochman, Assistant Attorney General for the Justice Department’s Tax Division. “Anyone tempted to put their money in such an operation should know that, in addition to getting themselves in serious legal trouble, they could also lose all their money.”

This “warehouse bank” bears a superficial resemblance to the alternative funds into which some war tax resisters redirect their taxes. For instance, one such fund calls itself an escrow account…

…that, since 1979, has allowed War Tax Resisters to set aside refused military taxes. Depositors can retrieve their money at any time (for example, to replace assets seized by the IRS). In the meantime, it is invested in community projects around the country, and interest from the account is used to promote War Tax Resistance and to support peace and social justice activism. The [escrow account] is the largest and most geographically diverse Alternative Fund in the U.S., holding hundreds of thousands of dollars from hundreds of depositors.

And the literature promoting the fund states:

The account is quite useful for those willing to go to great lengths to prevent the IRS from collecting. “Hiding” all of one’s assets in the account (and/or in similar Alternative Funds or foreign banks), being self-employed or willing to change jobs at a moment’s notice, not owning major assets such as houses or cars, and being willing to forego interest from one’s assets can make it exceedingly difficult, if not impossible, for the IRS to collect.

Will The IRS Know About My Deposits Into [the escrow account]?

Deposits into the Account are confidential. The pooled funds are held in [the sponsoring organization’s] name, rather than in the names of individual depositors. Some do choose to tell the IRS that they have deposited their withheld taxes in the [escrow account] (making a levy on those funds more likely). If you don’t tell the IRS about your deposits, it will not know about them. The IRS could, theoretically, trace the deposits through one’s bank — but this would be costly to the IRS, and isn’t very likely (and wouldn’t be possible at all for deposits made with personal money orders). It’s also possible that the IRS could physically seize [the group’s] records (and/or those of other Alternative Funds), and thereby learn the details of the Account’s depositors. But here again, this would be an expensive undertaking, and likely generate an enormous amount of negative publicity, probably making it more trouble that it would be worth. It may be worth noting that such actions were never undertaken during the Reagan era — a time of similar paranoia.

I worry that to the IRS, a honeypot like this will one day prove irresistible.

A few short bits from here-and-there:

• Jed Lipinski has a war tax resistance article in The Brooklyn Rail featuring Ruth Benn, Ed Hedemann, Lily Dalke, and Jesse Davis.
• Peace Pundit shares some take-away from a recent war tax resistance conference.
• The Ojai Post ruminates on the bloated military budget and what taxpayers can do about it.
• John Dear, speaking at a recent Pax Christi conference, urged his listeners: “If we are serious, we have to move into tax resistance.”