Avowed Tax Protester on Trial With Six Others In Fraud Case

Staff Reporter

Few Americans are ever put on trial for failing to pay their taxes.

But an outspoken tax protester and six co-defendants are being tried in a downtown federal courtroom for conspiring to defraud the government by helping people avoid paying taxes.

Lynne Meredith (photo), author of three self-published books, including "Vultures in Eagles' Clothing," is the lead defendant in a criminal trial that prosecutors hope will be a deterrent to so-called tax protesters.

Meredith, a critic of the tax system who has appeared on several network news programs, allegedly earned $6 million between 1994 and 2000 by conducting seminars and selling false trusts that helped hundreds of individuals evade income taxes, according to prosecutors.

She faces 35 federal charges, including conspiring to defraud the government, mail fraud, false representation of a social security number, passport fraud and failing to file a tax return.

The trial is expected to last eight weeks. If convicted, Meredith could spend up to 80 years in prison.

"Meredith and her cohorts ran a series of companies in which they claimed that they could train people on how to avoid paying income taxes," said Thom Mrozek, spokesman for the U.S. Attorney's office.

Meredith, who is out on bail, asserts that she has broken no laws and maintains that pure trusts have no filing requirements and are non-taxable organizations. She has also filed a $100 million lawsuit against the Internal Revenue Service for what she claims was a 1998 raid by 40 agents who entered her home and office with guns, axes and battering rams.

Her attorney, Joe Alfred Izen, of Houston, said the government will have a hard time proving that Meredith, by writing books and holding seminars, forced individuals to defraud the government. He also claims letters from the IRS prove the trusts had no tax requirements.

"No fool can read something in a book and days later file a tax return and then blame it on the person who wrote the book," he said. "It's a pretty bizarre case, trying to criminalize books."

Asked how his client is doing, he responded: "She's holding up and she's a strong woman, but this is scary as hell."

Dominic Cantalupo, an attorney for Willie Watts, who faces up to 10 years in prison, said his client was performing his duties as a trustee with the belief that he was complying with the law.

"Our government is trying to send a message that everyone has to fall in line and not ask too many questions," Cantalupo said. "A lot of the people on trial here are average people who were just getting up in the morning and doing their jobs."

Beating the system

Though criminal prosecution of tax cheats is rare, the Justice Department has brought more cases of late because of an increase in the use of trusts and tax shelters, lawyers said.

Even Congress has tried to crack down on tax avoidance by questioning companies based in the U.S. but incorporated in Bermuda and other offshore havens.

Still, the government appears to make a distinction between tax protesters like Meredith and high-end tax attorneys and wealth managers who believe tax laws are open to interpretation and have found creative ways to shelter money for their wealthy clients.

The IRS claims Meredith and her co-defendants created trusts for $500 each and then falsely represented to taxpayers that they could be used to shield property and income from tax collectors as well as from court judgments and even spouses.

According to the government, Meredith encouraged people who attended her seminars to file two types of returns: one that accurately reported income but fraudulently requested a refund of all income taxes paid, and a second that claimed no income was earned and no taxes were due.

Buyers of the trusts would get a bank account at either Bank of America or First Mountain Bank in Big Bear, under a fictitious taxpayer identification number to make it impossible for the IRS to track the true owner of assets or income assigned to the trust.

Another employee would draft protest correspondence for taxpayers who ran into problems with the IRS.

The government also alleges that Meredith used false names, false Social Security numbers, false driver's license numbers and claimed she was not a U.S. citizen.

"She has proselytized her approach to taxation, which is another reason for the government to bring criminal charges," said a tax attorney involved in the case. "If the government is successful in convicting her, it will have achieved its goal which is to have a deterrent effect on taxpayers cheating on their taxes."

Besides Meredith and Watts, the other defendants are Gayle Bybee, Teresa Manharth Giordana, Betty Erickson and Nora Moore. Phone calls to their attorneys were not returned. One defendant, Gregory Paul Karl, is representing himself.

Interpretation of 'willful'

It is rare for tax protesters to win in court but one landmark case involved an airline pilot who successfully fought the government for 12 years.

John Cheek of Elk Grove Village, Ill. stopped paying taxes in 1980 after attending an anti-tax seminar. Ultimately the U.S. Supreme Court ruled that a person must have criminal intent to violate the law and that Cheek sincerely believed tax laws did not apply to him. He served about a year in jail.

In the Meredith case, the jury will be instructed that the defendants could go free if they acted in good faith and had no willful intent to commit a crime.

As a result, prosecutors have a higher burden of proof. They must prove that the trusts not only were false documents but that the defendants willfully intended to defraud the government.

Under conspiracy statutes, individuals can be charged with conspiring to defraud the government if there is an agreement between two or more individuals to obstruct the law, if there is an overt act to further that agreement and there was intent involved.

Such agreements often are referred to as "Klein" conspiracies, based on a 1957 case that involved manipulating funds to conceal the true nature of a financial transaction from the IRS.

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