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November 9, 2002

A Busy Week for the U.S. in Its Pursuit of Tax Rebels

By DAVID CAY JOHNSTON

The Justice Department this week moved on several fronts against tax evasion and the promotion of evasion schemes. Such moves had become so rare in recent years that promoters boasted about not paying taxes and won clients with claims that the government's not coming after them proved that taxes are voluntary.

The most significant development came in Las Vegas, where an eight-year prison sentence was imposed on Max C. Tanner, 55, a former Internal Revenue Service lawyer who evaded $2 million in taxes on profits from a stock swindle. Mr. Tanner, who was taken directly to prison, was also fined $3.2 million and ordered to forfeit $1.2 million in assets. Mark Lytle, the federal prosecutor, called it "a significant sentence for a white-collar crime."

Mr. Tanner ran a scheme out of the Empire State Building to sell 1.8 million shares of stock, at up to $9.37 a share, in Maid Aide, which turned out to be a one-woman cleaning service in Las Vegas. He funneled the money through Canada to the Cayman Islands to evade all taxes.

Mr. Tanner asserted that despite his work for the I.R.S., he sincerely believed that he was not required to pay taxes. A jury rejected that defense a year ago, and Mr. Tanner told Judge Kent Dawson in Federal District Court yesterday that he suffered from an emotional disorder, mitigating his responsibility for the crimes.

The Justice Department also sought injunctions against promoters of tax evasion schemes in Tampa, Fla.; Newark and Nashville and moved closer to obtaining such injunctions in Cincinnati and Harrisburg, Pa. In Denver, a federal grand jury handed up indictments for selling tax evasion schemes against three men, one of whose clients has already been sentenced to prison for tax evasion.

Of the five civil injunction cases, the most significant was filed in Tampa against Carel A. (Chad) Prater of Nokomis, Fla.; an associate, Richard W. Cantwell; and his many businesses, including Goldcoast Enterprises, Tax Escape Service and Family Values International. Clients paid Mr. Prater as much as $20,000 for advice on how to not owe taxes, advice the Justice Department said was "worthless, even harmful" and had cost the government at least $18 million in taxes.

Mr. Prater, 64, has contracts with at least 956 clients to pay him $3.6 million, the suit filed in Federal District Court in Tampa said, citing documents obtained in a March 7 raid by I.R.S. agents. His contracts are based on the 861 position, named after a tax code section; the claim is that most Americans do not owe tax unless they work for foreign-owned companies.

Mr. Prater uses the title "doctor," but acknowledged under oath this year that he had not received a doctoral degree for his studies of the movements of golfers, as he had claimed. He has a long criminal history, according to The Ledger, a Lakeland, Fla., newspaper that said public records show convictions since 1983 for possession of cocaine for sale, insurance fraud, credit card fraud, violation of probation and domestic violence. An associate of Mr. Prater said he had no comment.

Mr. Prater has also worked closely with David Bosset of Clearwater, Fla., whom the same federal court has already ordered to stop promoting similar schemes. Mr. Bosset sought clients by displaying a $21,916 I.R.S. refund of taxes that he had withheld from his employee paychecks. In an interview, however, Mr. Bosset said that he did not return this money to his workers, but instead pocketed it. The I.R.S. said it issued the refund by mistake.

Part of the Prater scheme, the Justice Department said, was filing documents with county clerks that purportedly eliminate tax obligations. In Sarasota, Fla., at least 1,295 such affidavits have been filed.

Karen E. Rushing, the clerk of the state circuit court in Sarasota, said that she was aware that the filings were used to promote tax evasion, but said that "for the most part Florida clerks have no authority to refuse anything" presented for filing. Ms. Rushing said that she had not sought a legal opinion on whether she could refuse to file the Prater affidavits and that she did not intend to raise the issue with the Florida Legislature.

In Newark, the Justice Department sought a federal court injunction on Thursday against Richard Haraka, a Clifton, N.J., resident who owns the Taxgate.com Web site. The department contends Mr. Harakas has been interfering with enforcement of the federal tax laws and promoting the 861 position. Mr. Haraka did not respond to an e-mail message requesting comment.

The government filed suit earlier against Thurston P. Bell, who uses that Web site to promote his version of the 861 position. In Harrisburg, Pa., on Tuesday, a federal judge again delayed the government's request for an injunction to stop him and retrieve his client lists.

In Denver, a federal grand jury indicted three men on Tuesday on charges involving what the government says is an offshore tax evasion scheme that hid $9 million in taxable income. Paul D. Harris and Lester R. Retherford, both of Colorado, and Robert N. Bedford of Florida, operating through Tower Executive Resources, charged a $50,000 fee to small-business owners to set up shell companies in the Turks and Caicos Islands intended to evade taxes, the indictment said. Efforts to contact the three men were unsuccessful.

One client, John Mikutowicz, 51, of Mashpee, Mass., the owner of AGM Marine Inc., which builds piers and bridges in New England, has been convicted of tax evasion and false filing. In September, he was sentenced to a year and a day in prison, but is contesting the sentence.

In Cincinnati, a federal magistrate on Thursday recommended that a district judge issue an injunction barring Robert Welti, a certified public accountant in Ripley, Ohio, from preparing tax returns citing the 861 position or using abusive trust schemes. Mr. Welti charged $2,400 for each tax return using bogus trusts in Belize, at a total cost to the government of $3 million, the Justice Department said in court papers. Mr. Welti did not respond to a message left at his home.

In Nashville, the Justice Department sought an injunction to stop Thomas Edward Settles, a lawyer from Murfreesboro, Tenn., from "creating multiple sham entities" for clients to evade taxes. Mr. Settles did not respond to messages at his office.

The Justice Department has not made any move against four leading advocates of the 861 position who boast about not paying taxes. Larken Rose, a Philadelphia medical transcriptionist, has dared the Justice Department to indict him for not paying taxes since 1997. Two California businessmen — Al Thompson, owner of Cencal Aviation in Lake Shasta, and Nick Jesson, owner of N.T.D. Electronics in Huntington Beach — who do not withhold taxes from their workers' paychecks, say that the government does not act against them for fear of exposing the tax laws as a hoax. Dick Simkanin, owner of Arrow Customs Plastics in Bedford, Tex., who also does not withhold, sued Attorney General John Ashcroft last year and vowed to destroy with fire any government officials who move against him.