he Internal Revenue Service committed fraud by brokering secret deals with two airline pilots to let them escape taxes in return for testifying against 1,300 other pilots who bought into the same tax shelters, a federal appeals court ruled Friday.Posted on 01/19/2003 3:15:23 PM PST by RCW2001
By DAVID CAY JOHNSTON
he Internal Revenue Service committed fraud by brokering secret deals with two airline pilots to let them escape taxes in return for testifying against 1,300 other pilots who bought into the same tax shelters, a federal appeals court ruled Friday.
The Ninth Circuit Court of Appeals in San Francisco said that the remedy for this "extreme misconduct" by the I.R.S. was to give all of the pilots the same corrupt deal that one of the pilots got.
That pilot, John R. Thompson, settled his taxes from the shelter for a dime on the dollar, but actually paid nothing, court papers show. Instead, Mr. Thompson received a $60,000 refund through falsified tax returns prepared with the help of the I.R.S. That money paid his legal fees. He also pocketed $20,000 in interest, court papers show.
The ruling will require the I.R.S. to pay tens of millions of dollars in tax refunds, interest and legal fees, said Michael Louis Minns, a Houston tax lawyer who represented some of the pilots. One pilot, who paid the disputed taxes more than two decades ago and then took the I.R.S. to tax court, is due about $6 million, Mr. Minns said.
Some pilots, who did not pay the taxes, will receive nothing, but will have tax liens removed from their homes, Mr. Minns said.
An I.R.S. spokesman, Terry L. Lemons, said yesterday that the agency had no comment.
The case involves tax shelters sold in the 1970's and early 1980's by Henry Kersting, who was a German U-boat commander in World War II. He sold tax shelters from his Honolulu office until he died three years ago.
The I.R.S. uncovered this Kersting scheme, which involved fabricating debt that clients could deduct on their tax returns. In 1981 it disallowed the deductions and sent bills to 1,300 pilots for additional taxes and penalties.
The appeals court said that rather than try the case honestly, two I.R.S. lawyers made a secret deal with Mr. Thompson and a second pilot that let them escape taxes in return for giving testimony favorable to the I.R.S.
"The taxpayers have clearly and convincingly demonstrated fraud on the court and are entitled to relief," the judges wrote, noting that the fraud continued through two separate trials in tax court. "The I.R.S. had an opportunity to present its case fairly and properly."
Judge Michael Daly Hawkins criticized the I.R.S. for not taking serious action against its lawyers, Kenneth W. McWade, who tried the case, and his supervisor, William A. Sims. The court said the two lawyers "defiled the sanctity of the court and the confidence of all future litigants."
The I.R.S. "has done little to punish the misconduct and even less to dissuade future abuse," Judge Hawkins wrote.
He noted that both lawyers received $1,000 bonuses from the I.R.S. for their work in the case. They also received two week suspensions, after which Mr. McWade retired. Mr. Sims continues as an I.R.S. lawyer.
Mr. McWade and Mr. Sims, in testimony, insisted that they had behaved properly at all times.
Mr. Minns says that he wants both men disbarred, but cannot find a record of their law licenses. He said he wrote to the I.R.S., which replied that it was unaware of where they are licensed either, but noting that it only looked in a public directory of lawyers and not in its own files.
The court said it would be unfair to let the pilots escape the taxes they owed just because of the fraud by the I.R.S. So, instead, it directed the Tax Court to give each pilot a settlement "on terms equivalent to those provided in the settlement agreement" with Mr. Thompson.
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So9
The coverup continues.
Alright! Now that's justice. Too bad we gotta pick up the tab for the corruption in the IRS, though. It's time to scrap the code and retire 90% of the IRS employees.
It is unlikely any liens still exist, as they have a maximum collection time of 10 years.
All the more reason to replace the income tax with a National Retail Sales Tax and abolish the IRS!
“I have sworn upon the altar of God eternal hostility against every form of tyranny over the mind of man.” [Thomas Jefferson, letter to Benjamin Rush, 1800.]
We will never be a truly FRee people so long as we have the income tax and the IRS.
Click here to help us scrap the Code, scrap the IRS and abolish the VLWC!
We will never be a truly FRee people so long as we have the income tax and the IRS.
You can also click here to sign a petition in support of Fundamental Tax Replacement.
We will never be a truly FRee people so long as we have the income tax and the IRS.
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