Convicted Tax Protestor's Bid for Competency Hearing Fails on Appeal (2/10/20)

In United States v. DiMartino (2d Cir. No. 18-2053-cr 2/4/19), here, the Court of Appeals affirmed a tax protestor conviction described as follows:

Terry DiMartino appeals from a judgment of the United States District Court for the District of Connecticut (Thompson, J.) convicting him for his multi-year failure to pay taxes and for his deception and obstruction of the IRS—conduct inspired by the Sovereign Citizen movement, a loosely affiliated group who "`follow their own set of laws' and, accordingly, `do not recognize federal, state, or local laws, policies or regulations' as legitimate." United States v. McLaughlin, ___ F.3d ___, 2019 WL 7602324, at *1 n.1 (2d Cir. December 30, 2019) (quoting Sovereign Citizens: A growing Domestic Threat to Law Enforcement, FBI Law Enforcement Bulletin (2011)). 

DiMartino, a successful insurance agent, represented himself at trial and was convicted.
After trial and before sentencing, DiMartino retained counsel, who moved for a hearing to determine whether DiMartino had been competent to stand trial. Counsel argued that DiMartino's bizarre conduct before and during trial raised a series of red flags impugning his mental fitness, and submitted a psychological report from Dr. Andrew Meisler, who had interviewed DiMartino and examined part of the trial record.

Basically, on this point, the district court rejected the proffered expert testimony and sustained the denial of the request for a competency hearing based principally on a proffered expert report the district court found lacking.  The Second Circuit affirmed under an abuse of discretion standard.

Some interesting excepts (Slip Op. pp. 12-15):

[T]he district court reasonably inferred from DiMartino’s conduct at trial that he understood the proceedings against him and was capable of participating meaningfully in his defense. Among other things, DiMartino attempted to persuade the jury that he lacked the requisite criminal intent; he solicited the jury’s sympathy; and he made a bid for jury nullification. Lesser participation has sufficed to demonstrate competency. See U.S. v. Sovie, 122 F.3d 122, 128 (2d Cir. 1997) (noting that district court’s conclusion that defendant was a “knowing participant in his defense” was supported by the fact that the defendant “took notes, conversed with counsel, and reacted reasonably to the admission of evidence”). 

Crucially, nearly all the purported red flags concerning DiMartino’s competence relate in one way or another to his insistence on espousing or acting on views that are shared with other adherents to a political ideology, however marginal. At trial, the government presented evidence that the rhetoric DiMartino used in his correspondence with the IRS--and continued to espouse at trial--was typical of groups that resist the federal tax laws. Indeed, an undercover IRS agent observed DiMartino at a 2007 Sovereign Citizen convention in Las Vegas, where he expressed frustration at having to “pa[y] [his] ass up in taxes” and asked seminar participants for advice on how sovereign citizens “that have wealth . . . protect their wealth.” Ex. FBI-1A at 52-53, 86. 

Second Circuit Opines that Tax Protestor/Defier Arguments for Lack of Criminal Jurisdiction are Bogus (1/1/20)

In United States v. McLaughlin (2d Cir. Dkt 19-308-cr Opinion 12/30/19), here, McLaughlin was convicted of making false statements to IRS (presumably the charge was tax obstruction, § 7212(a)) by submitting false documents intended to have the IRS audit and assess penalties against a state judge.  McLaughlin appealed, claiming that the district court did not have jurisdiction, a genre of tax protestor/defier argument “consistent with a ‘Sovereign Citizen’ ideology.”

Courts are confronted with this genre of argument often and routinely bat them down.  So, why did the Second Circuit, which often issues summary orders in routine and frivolous cases, decide to issue a full opinion?  The Court says:

McLaughlin’s argument here goes to the very heart of our authority to hear Federal criminal cases. It raises an issue that warrants a clear statement from this Court, to deter future litigants from making similar claims.    

The bottom line, as readers of this blog would expect, that the Second Circuit holds that the district court had jurisdiction.

Short opinion.

JAT Comment:

Maybe the opinion will circulate in the communities of taxpayers to whom it is targeted.  But, I doubt that, if any are deterred by the opinion, it won’t be many and members of these communities will continue to undertake the underlying behavior resulting in their prosecution where their only or, at least, preferred "defense" is this genre of argument.

The opinion will give district court judges additional reason to summarily dispose of similar arguments.

Judge Posner Confronts a Crackpot in a Tax Crimes Case (3/12/15)

Those who have paid close attention to my writings know that I like to cite Judge Posner of the Seventh Circuit Court of Appeals, not because I always agree with him, but he is, shall we say, interesting and, when he speaks, he at least says it well.  The Federal Tax Crimes Blog entries mentioning Judge Posner are here; the Federal Tax Procedure Blog entries mentioning Judge Posner are here.

Judge Posner sometimes sits as a trial judge.  He is currently sitting as a trial judge in United States v. Hakeem El Bey (ND Ill. 14 CR 447).  The defendant was indicted for defrauding and attempting to defraud the Internal Revenue Service in violation of Title 18 of the federal code."  On February 15, 2015, Judge Posner entered a pre-trial order, here, admonishing the defendant to restrain himself from making a melange of worn out tax protestor/defier/denier-style arguments.

Above the Law has an entertaining blog, here, on the Judge Posner's Order, noting (as observers know):  "The point is, Judge Posner entertains."  Here are some excerpts from the Above the Law presentation (which add flavor to, if not enlightenment) the Order:

Judge Posner landed himself the trial of a pro se so-called “sovereign citizen.” You know, those bats**t looneys who think FEMA is going to build concentration camps as part of the War on Christmas or that the whole judicial system is an elaborately disguised admiralty court (because there’s fringe on American flags or something). Imagine Judge Posner having to deal with this guy. 

* * * * 

[In a previous order] El Bey got his slap on the wrist, but a good crackpot theory doesn’t go down that easy.  He fired right back with a couple of motions flouting the earlier order and Judge Posner is irked: 

He also asserts “Lack of Jurisdiction over the Person (contracted Artificial Subject vs Natural Borne)” — whatever that means. He also asserts that “Queen of England, entered into a Treaty with the Federal Government For the Taxing of Alcoholic beverages and cigarettes sold in America. The Treaty is called—The Stamp Act and in this Act, the Queen ordained that her Subject, the American people, are Exonerated of all other Federal Taxes. So the Federal Income Tax and the State Income Taxes Levied against all Americans is Contrary to an International Treaty and against the Sovereign Orders of the Queen.”

And so forth.

One comment, though.  In the order, Judge Posner says that the defendant "indicted by the federal government."  The grand jury brought the indictment.  I suppose that the grand jury is part of the federal government.  But the grand jury occupies a unique role in the system, so I prefer saying that the grand jury indicted.  See United States v. Williams, 504 U.S. 36, 47 (1992). here, for good discussion of the grand jury, including (citations omitted):

Rooted in long centuries of Anglo-American history, the grand jury is mentioned in the Bill of Rights, but not in the body of the Constitution. It has not been textually assigned, therefore, to any of the branches described in the first three Articles. It is a constitutional fixture in its own right. In fact the whole theory of its function is that it belongs to no branch of the institutional Government, serving as a kind of buffer or referee between the Government and the people.  Although the grand jury normally operates, of course, in the courthouse and under judicial auspices, its institutional relationship with the Judicial Branch has traditionally been, so to speak, at arm’s length. Judges’ direct involvement in the functioning of the grand jury has generally been confined to the constitutive one of calling the grand jurors together and administering their oaths of office.

Strange Behavior Even by Tax Protestor / Defier Standards - Mens Rea for the Crime and Competence for Trial (2/3/14)

In United States v. McQuarry, 2014  U.S. Dist. LEXIS 9529 (D MN 2014),  here, the defendant "was indicted for conspiracy to defraud the United States in violation of 18 U.S.C. § 286 and for making false, fictitious, or fraudulent claims upon or against the United States in violation of 18 U.S.C. § 287."  (I quote these criminal statutes below.) The defendant fell in the category that the court described as "tax protestor," but "even by tax-protester standards, McQuarry's arguments have been strange and seem to have become stranger."  The Court gives examples of strange behavior in the pretrial skirmishing.  Focusing on the strange behavior even by tax protestor standards, the Court says:

Moreover, unlike many tax protesters, McQuarry appears to actually believe the frivolous arguments that she is making — not only to believe them, but to have become quite emotionally invested in them. In the Court's experience, some tax protesters do not appear to believe many of the arguments that they make, but appear instead to be trying to find some kind of a "loophole" to escape being held responsible for not paying taxes. Other tax protesters appear to be quite sincere, but they can at least carry on a rational conversation about their beliefs. They make arguments in a respectful and understandable way and, when their arguments are rejected, they accept the fact that the court has ruled and move on. But McQuarry appears to be unusually devoted to her views. 

For example, at a hearing on the morning of January 21, 2014, McQuarry displayed great emotion — indeed, started weeping — in frustration over the prosecutor's unwillingness to accept her offers to "settle" this case. These "settlement" offers appear to consist of McQuarry purporting to give the government permission to take money that does not really exist out of a trust account that does not really exist. Rather than take the advice of a respected and experienced defense attorney, McQuarry seems to troll the fever swamps of the Internet and to regard what she reads there not merely as presenting possible loopholes that she can exploit, but as presenting the Gospel truth — even in the absence of any evidence that these arguments have ever been accepted by a court or resulted in the acquittal of a defendant. 

McQuarry's comments at the January 21 hearing — and, more importantly, her many pro se filings — cause the Court to question whether she understands the nature of the proceedings against her. The Court has explained on multiple occasions that this is a criminal case, in which the government is accusing McQuarry of violating a criminal statute. Yet no matter how many times this is explained to McQuarry, she persists in treating this case as a private dispute over an alleged debt — a dispute that could be "settled" if the government would just take the make-believe money out of the make-believe trust account. And, indeed, someone reading McQuarry's papers — with their repeated invocations of the ancient maxims of equity and citations to archaic sources — might think that this case was being tried in 1814 in the Court of Chancery. 

McQuarry's demeanor before the Court has also become more erratic. As the Court has noted, McQuarry became highly emotional at the January 21 hearing, repeatedly interrupting the Court and weeping with frustration about the government's refusal to accept her offers to "settle." McQuarry has not before acted so emotionally during a hearing, but the government has informed the Court that McQuarry filed papers with the United States Supreme Court in which she threatened to commit suicide if she did not receive the relief she sought. Similarly, at the January 21 hearing, when the Court told McQuarry that it may have to order her detained because she rescinded her signatures on her appearance bond and on the order setting the conditions of her release [see ECF No. 144], McQuarry told the Court that it might as well "kill" her. These kind of statements are not typically made by competent litigants. 

The Court is also concerned that McQuarry gives her own highly idiosyncratic meaning to ordinary English words. For example, McQuarry told the Court at the January 21 hearing that she could not "represent" herself in this proceeding because it would require her to "re-present" herself as a human being, which, in turn, would somehow offend God. McQuarry's use of the English language is so idiosyncratic that it is difficult for the Court to carry on a conversation with her, because the Court is never certain what she is saying. 

Taken as a whole, McQuarry's behavior has raised sufficient doubt whether she lacks "a rational as well as factual understanding of the proceedings against [her] . . . ." Ghane, 593 F.3d at 780 (quotation omitted).

The Schiffs Think Their Dad is "Right" (12/20/13)

I have previously written on the quixotic -- even tragic -- adventures of Irwin Schiff.  See Irwin Schiff's 2255 Denial Affirmed on Appeal (Federal Tax Crimes Blog 11/14/13), here; and Schiff, a Tax Protestor, Loses 2255 Motion to Vacate Conviction (Federal Tax Crimes Blog 9/29/12), here.  Mr. Schiff has been for a number of years a prominent player in the tax protestor field.  He has been twice convicted for his conduct.  Peter Reilly who writes a blog on tax issues of individuals, businesses and more has written a couple of blogs on Mr. Schiff.  Peter's blogs focus on Mr. Schiff's sons who believe that, however quixotic, their father's basic constitutional claim is correct at some level.  See Andrew Schiff Does Not Recommend That You Imitate His Father Irwin (Forbes 12/20/13), here; and Euro Pacific Capital's Peter Schiff Defends His Tax Protesting Father Irwin Schiff (Forbes 12/15/13), here.  I highly recommend Peter's blogs to readers of this blog.

The general thrust of Peter's most recent blog is that the Schiff's claim that some early cases establish the unconstitutionality of the income tax as it is applied to most taxpayers.  Peter says:

I heard from Andrew Schiff, Peter’s younger brother who works at Euro Pacific Capital, the investment firm Peter founded.  He wanted to emphasize a point that his father raised in his appeal, but he agreed to answer a couple of my questions.  The most important one was whether he and his brother recommend that people imitate their father.  He said absolutely not.  ”Don’t do it.  It is a bad idea.” Andrew and Peter both think that their father’s interpretation is correct, with Peter being perhaps a bit more vehement about it.  Nonetheless, they both recognize that the whole weight of the judiciary is on the other side.  Many proponents of positions similar to Irwin Schiff’s neglect to provided this important caveat to those they preach to.

The federal courts have heard hundreds, probably thousands, of tax protestor arguments of variations of the same theme.  Those courts have rejected the arguments.  The Schiffs' position is that the courts are wrong.  Which, in turn, make those courts wrong in punishing Irwin Schiff.

The problem as I see it is that words are indeterminate.  I am not a big fan of the plain meaning of words.  Context and history and nuance contribute to the meaning of words.  Those of my generation learned in the first week of law school Justice Oliver Wendell Holmes famous quote (Towne v. Eisner, 245 U.S. 418, 425 (1918), here):

A word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used.

The meaning of words changes; meaning evolves, sometimes subtly sometimes dramatically.  It is all in interpretation.  Those who study the Bible know that it is all about interpretation which can make the words mean something that is not self-evident or even what the words might have originally meant (if we even know what they originally meant; too bad we don't have legislative history for the Bible).  The words that the courts have interpreted to mean that taxes are constitutional are their meaning today, regardless of what the constitution may have meant to earlier interpreters..

A Tax Defier Is Convicted (3/26/13)

While I have not represented so-called tax protestors or tax defiers -- persons wrapping their tax cheating in a cloak of feigned patriotic duty or constitutional right -- they are an important part of the tax landscape.  Some of the seminal cases in the criminal tax arena have involved such misguided taxpayers (or, more descriptively, nontaxpayers).  DOJ Tax announced yesterday the conviction of yet another tax defier, on James Timothy Turner, aka Tim Turner.  The press release is here.

Key Excerpts are:

Self-Proclaimed “President” of Sovereign Citizen Nation Convicted in Alabama of Federal Tax Crimes 

A federal jury in Montgomery, Ala., found James Timothy Turner, also known as Tim Turner, guilty late Friday of conspiracy to defraud the United States, attempting to pay taxes with fictitious financial instruments, attempting to obstruct and impede the Internal Revenue Service (IRS), failing to file a 2009 federal income tax return and falsely testifying under oath in a bankruptcy proceeding, the Justice Department, the IRS and the FBI announced today. 

Based on the evidence introduced at trial and court filings, Turner, the self-proclaimed “president” of the so-called sovereign citizen group “Republic for the United States of America” (RuSA), traveled the country in 2008 and 2009 conducting seminars teaching attendees how to defraud the IRS by preparing and submitting fictitious “bonds” to the United States government in payment of federal taxes. Although the evidence at trial revealed the bonds are fictitious and worthless, witnesses testified that Turner used special paper, financial terminology and elaborate borders in an effort to make them look “real” and more likely to succeed in defrauding the recipient. Turner was convicted of sending a $300 million “bond” in his own name and of aiding and abetting others in sending fifteen other “bonds” to the Treasury Department to pay taxes and other debts.

Tax Protestor Convictions Affirmed (2/11/13)

In United States v. Hopkins, 2013 U.S. App. LEXIS 2488 (10 Cir. 2013), here, the defendants, husband and wife, were convicted of tax evasion and Klein conspiracy.  The Court offers a good summary of the facts leading to the indictments (footnote omitted):

After becoming increasingly involved in tax-protester groups, Defendants decided to stop "volunteering" to pay federal and state taxes. From 1996 to 2009, they paid no income tax. Instead, Defendants created several trust accounts, which they believed were tax proof, and designated family members and friends as trust beneficiaries and themselves as trust managers. The trusts were "sovereign trusts" sold to them by tax-protester seminar leaders who touted the trusts as tax exempt. Mark Hopkins, an emergency-room doctor, had his employers (medical institutions) pay his earnings to a trust, Shalom Enterprises, an entity incorporated under Oregon nonprofit law. According to Defendants Shalom Enterprises was a nonprofit ministry corporation, but in fact its funds were used to finance their living expenses. Defendants transferred funds and property among their numerous trusts to evade detection by the Internal Revenue Service (IRS). Predictably, Defendants faced mounting difficulties with the IRS, and on April 9, 2009, they were indicted on seven counts of tax evasion under 26 U.S.C. § 7201 and one count of conspiracy to defraud the United States under 18 U.S.C. § 371.

Most tax protestors are not charged criminally; the IRS deals with their cases on the civil side (if not always, perhaps, civilly).  But some are charged, and when charged they usually go down (are convicted).  For example, Cheek went down, ultimately.  The Hopkinses went down in this case.

On appeal, they complained about an IRS levy preventing them from obtaining certain proceeds that they had paid into the court registry in connection with their pretrial release.  Prior to trial, upon motion by them, the district court ordered that the funds be released to them.  Whereupon, having previous tax assessments against the defendants, the IRS levied on the clerk of court to deliver the funds to the IRS rather than the defendants.  The defendants did not appreciate that and complained.  Their complaints at the trial and appellate levels were for naught.

One facet of their complaints was the the levy interfered with their Sixth Amendment right to counsel.  When the district court sustained the levy, their first counsel moved to withdraw for nonpayment of fees.  The district court granted the motion.  The district court then granted Mrs. Hopkins ("Wife") appointed counsel, but she somehow quickly retained Tommy Cryer, a well know tax-protestor type lawyer (even has a Wikipedia entry describing his adventures, here).

Tax Protestor or Tax Scholar - The Geithner Defense

I was reading yet another tax protestor criminal case (United States v. Hendrickson, 664 F. Supp. 2d 793 (ED MI 2009)), and found references to protestor or scholar, which reminded me of the old nursery rhyme:

Tinker, Tailor,
Soldier, Sailor,
Rich Man, Poor Man,
Beggar Man, Thief.

See Wikipedia entry here.

Tax protestors -- the bad amongst which DOJ now calls tax defiers -- are not normally noteworthy to mainstream tax practitioners or students, but in the nursery rhyme litany above, most would be characterized as thiefs, and certainly not protestors or scholars (OK, they are not in the litany, but perhaps we could insert them). These guys are just tax terrorists seeking to throw a monkey wrench or IED equivalent into the tax system. Still, I think a snippet from Hendricksen is interesting because it deals with the Geithner defense (you didn't prosecute Geithner, therefore you can't prosecute me). Hendricksen had published how to tax protest books made the standard arguments and even for himself had bought into and practised his assertions. In his criminal case, he asserted inter alia that the Government had selected him because of his prominence in the tax protestor community (through his book, Cracking the Code, and web site). On that issue, the defendant invoked a variation of the Geithner defense. Here's how the court dealt with the argument, nicely also handling his claims that he was a scholar rather than a protestor:

In any event, whether Defendant is more properly characterized as a "protestor" or a "scholar," the Government has precisely the same legitimate interest in prosecuting him. Regardless of whether Defendant has affirmatively sought notoriety, fame, or publicity, and regardless of whether he has urged others to follow his lead or has instead attempted to dissuade them from doing so, he acknowledges that "thousands" of people have read Cracking the Code, that a significant number of these readers have "filed tax forms consistent with" his analysis of the tax laws as elucidated in this book, and that this has resulted in the IRS issuing "millions in refund checks to filers who had claimed that money was improperly withheld." (Defendant's 1/15/2009 Motion to Dismiss, Br. in Support at 3 (footnote omitted).) Under these circumstances, the Government could permissibly conclude that the prosecution of Defendant would serve as an effective deterrent to those who might be inclined to apply his analysis to their own tax filings, and that this might staunch the flow of more widespread, but potentially harder to detect, submission of "zero wage" tax forms by readers of Cracking the Code. See Kelley, supra, 769 F.2d at 218. Indeed, the courts have recognized that prominence alone -- whether derived from protest activities or from political or social stature in the community -- is a permissible factor in selecting individuals for prosecution. See, e.g., United States v. Hastings, 126 F.3d 310, 314-15 (4th Cir. 1997) ("[A] person's public renown may be properly considered among other factors when deciding whether to pursue criminal sanctions for a violation of the law."). n16

n16 Notably, by citing Treasury Secretary Timothy Geithner and former Senate Majority Leader Tom Daschle as individuals who have "blatantly and admittedly violated the tax laws" but have nonetheless avoided criminal prosecution, Defendant's 5/22/2009 Suppl. Br. at 3), Defendant implicitly acknowledges the value of prosecuting prominent violators of the tax laws, regardless of whether such violations stem from any opposition to those laws. That the Government has failed to prosecute all such prominent violators surely does not detract from its legitimate interest in doing so in a particular case. [END OF FOOTNOTE]

Finally, the Court fails to see how Defendant could possibly strengthen his appeal to First Amendment principles, and thereby distinguish the rulings in Hazel and the other above-cited cases, by denying that he has engaged in any sort of protest against the Government, its laws, or its tax policies. These decisions, after all, do not recognize the Government's right to prosecute a defendant because of his or her protected First Amendment activity, but in spite of this protected activity. The First Amendment embodies "a profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open, and that it may well include vehement, caustic, and sometimes unpleasantly sharp attacks on government and public officials." New York Times Co. v. Sullivan, 376 U.S. 254, 270, 84 S. Ct. 710, 721 (1964). Moreover, the Supreme Court has emphasized that "[t]o punish a person because he has done what the law plainly allows him to do is a due process violation of the most basic sort." Bordenkircher v. Hayes, 434 U.S. 357, 363, 98 S. Ct. 663, 668 (1978). The law of selective prosecution rests upon precisely these principles, permitting limited judicial inquiry into a matter that ordinarily "rests entirely in [the prosecutor's] discretion" -- namely, "the decision whether or not to prosecute," Bordenkircher, 434 U.S. at 364, 98 S. Ct. at 668 -- in order to ensure that the exercise of this discretion remains within "constitutional constraints," Wayte, 470 U.S. at 608, 105 S. Ct. at 1531 (internal quotation marks and citation omitted). Under this law, a prosecutor has no greater (or lesser) latitude, and the relevant constitutional constraints are no weaker (or stronger), when the subject of prosecutorial discretion is a vehement protestor against the government than when he or she is engaged in scholarly discourse. To hold otherwise would be to permit what the law of selective prosecution is designed to prohibit -- namely, prosecutorial decisions based upon the nature or content of an individual's protected First Amendment expression.

Plainly, then, it is of no aid to Defendant to establish that he is a scholar engaged in a neutral study of the tax code, rather than a critic of or protestor against federal tax law or policy. Both "abstract discussion" and "vigorous advocacy" qualify as protected forms of expression under the First Amendment, see N.A.A.C.P. v. Button, 371 U.S. 415, 429, 83 S. Ct. 328, 336 (1963), so the proper disposition of Defendant's claim of selective prosecution cannot turn upon the characterization of Cracking the Code as one or the other. In either event, Defendant's burden is precisely the same -- to show that he was selected for prosecution on the impermissible basis of his protected speech, and not on grounds (such as prominence) that the Government may legitimately consider. As explained, Defendant has not made a sufficient showing on this point to warrant discovery on his claim of selective prosecution, much less dismissal of the charges against him on this ground.

Interestingly but perhaps not surprisingly, Hendricksen is represented in this judicial crusade by Mark Lane, an attorney and noted conspiracy theorist who wrote Rush to Judgement among other books. Mr. Lane's Wikipedia entry is here. Mr. Lane has also represented another well known tax protestor, Robert Schultz. See United States v. Schultz, 517 F.3d 606 (2d Cir. 2008) (Lane on brief for Schulz appearing pro se), and We the People Foundation, Inc. v. United States, 485 F.3d 140 (D.C. Cir. 2007) (with Schulz on brief).