Anti-Tax Groups Convince Americans Not to Pay Taxes

Jan. 16, 2008 — -- While most Americans only dream about not having to pay taxes, there are others -- allegedly including Hollywood actor and millionaire Wesley Snipes -- who believe they are exempt from taxation because of the way they interpret the Internal Revenue Code.

But tax lawyers told ABCNEWS.com that the obscure "interpretation" is often nothing more than a technique used by organized groups to bilk people out of money through consulting fees and membership dues by convincing them they don't owe tax money to the government.

Snipes, whose criminal trial began this week in Florida, is charged with eight counts of tax fraud and conspiracy to defraud the government after allegedly filing fraudulent claims for income tax refunds worth millions. He is also accused of refusing to file tax returns at all, beginning in 1999, according to the federal indictment against Snipes, obtained by ABCNEWS.com.

The indictment alleges that Snipes became a member of an anti-tax group known as the American Rights Litigators, which tax analysts told ABCNEWS.com is known for scamming its clients into believing in the "861 Argument."

This so-called argument refers to Section 861 of the Internal Revenue Code, which groups like the ARL say imposes taxes only on income made outside the United States, therefore making income earned within the United States ineligible for taxation.

"It's a twisted reading of the federal tax code," said J.J. MacNab, a Maryland tax expert who has testified before Congress on anti-tax movements. "It's a cult belief."

The government argues that, under the direction of the ARL, Snipes used multiple illegal tactics to avoid paying taxes.

After first initiating contact with ARL and paying the organization a consulting fee in January 2000, Snipes filed an affidavit of incompetence, claiming, among other things, that he did not understand the tax laws and did not know how they applied to him, according to the indictment.

In 2000 Snipes also filed a fraudulent amended tax return for the 1996 tax year that claimed the government owed him a refund of more than $4 million, according to the indictment.

Also in 2000, the ARL began producing fake "bills of exchange," also known as phony checks, totaling $14 million, which Snipes delivered to the IRS in "alleged payment of his federal income tax obligations" for the years of 2000, 2001 and 2002, according to the court documents.

Beware: Hundreds of Groups like ARL

Tax dispute lawyers told ABCNEWS.com that, historically, the 861 argument has never held up in court. There have been a few cases in which defendants were acquitted of criminal charges and avoided jail time by essentially arguing they were brainwashed by groups like the ARL. But every one of the cases has resulted in defendants being forced to pay outstanding taxes and late penalties, the tax lawyers said.

"The American Rights Litigators is a small group -- maybe five or six people in their office -- that profit from marketing to tax protestors," said MacNab. "They claim that if you follow their forms, buy their books and abide by their guidelines they'll get you out of the tax system forever."

The ARL is just one of hundreds of similar existing groups known to both the IRS and other tax analysts that -- many of which have been successfully shut down by the government. MacNab added that the ARL is making headlines only because of its apparent association with Snipes.

"There are groups of people who desperately don't want to pay taxes and read into the [federal tax code] in a certain way," said MacNab. "The tax protest movement or the tax denier movement is extremely successful -- there is at least half a million people there, and thanks to the Internet, it's huge."

Snipes is an unusual candidate for an anti-tax group like ARL, said MacNab. The typical demographic for a tax evader who buys into scams like the "861 Argument" are poor, white men in their 50s -- all of which Snipes is not.

"You're not going to become a tax protestor unless you're really angry, a little bit paranoid -- you have to think someone is hiding words in the code that the rest of us don't see," said MacNab, who added that many disillusioned ex-servicemen get lured in by anti-tax groups. "They think there is secret meaning in the code and a conspiracy to hide that from the public."

"The young military guys fresh home from war are mad, really angry, and one of the things they're most unhappy about is the U.S. government," said MacNab. "They're pissed and so they want to find a way to harm the government."

Tax dispute lawyer McKenzie said his clients who have tried to evade taxes have run the gamut from wealthy doctors to a man who won the Illinois lottery.

"There was one doctor who made $750,000 a year and was seduced, and then there was the lottery winner who received a substantial amount of money for 20 years," said McKenzie. "He wasn't happy with how much he was paying in taxes and when a [anti-tax group] approached him he accepted it."

"It wasn't until two special agents from the IRS showed up with guns at his kid's school that he discovered what he was doing wasn't right," recalled McKenzie, who said that he imagines there are hundreds of wannabe tax evaders in the U.S., considering how many show up at his practice.

And if there was a legal, efficient way to evade taxes, reminds New York tax lawyer Scott Fenstermaker, chances are we'd already know about it.

"If this could be done there are highly paid and intelligent people who would have found a way to do it legitimately," said Fenstermaker. "And there are ways to minimize your taxes in lawful ways. But it's pretty clear these people are just trying to get out [of paying their taxes]."

Snipes' Innocence Hinges on Intent, Tax Lawyer Says

With the precedent of most tax fraud cases ending in jail time or penalties, Snipes will have an uphill battle in court, said Chicago tax dispute lawyer Bob McKenzie, who has represented more than 100 clients who have become entangled in tax protest groups.

"Snipes' more persuasive argument will be that he really believed [he wasn't doing anything wrong]," said McKenzie. "But it's rare that celebrities get seduced by these arguments -- usually they have some sort of private financial guidance."

So far, Snipes seems to be following McKenzie's blueprint for his best shot at acquittal. Snipes' lawyer, Robert Barnes, told The Associated Press, "He was completely innocent and he acted in good faith -- not with any bad purpose or criminal intent to deceive or defraud the [Internal Revenue Service] at all."

Barnes did not return phone calls from ABCNEWS.com to his law firm in Milwaukee requesting a comment on the case.

McKenzie told ABCNEWS.com that other Americans who believe they have been participants in fraudulent tax filings should contact a competent attorney -- and the sooner, the better.

"The IRS has a policy that if you correct your conduct and file your returns before they come to visit you and start an investigation, they won't prosecute you, and on top of that you won't face penalties other than late payments," explained McKenzie. "If you wait until the IRS approaches you -- even if you aren't prosecuted -- you can face a 75 percent fraud penalty."