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Frustrations With IRS and Department of Justice

Prior to being investigated for 8 to 10 years for unrelated matters, then being indicted and convicted of filing false statements on my tax return, I naively believed that our justice system, though not perfect, worked well. Now after being disbarred, convicted of filing false deductions on my law office tax returns, serving a year in prison and still not having my criminal appeal heard, I do not feel so confident. Prior to being indicted, tried and found guilty and serving the year in prison I was never audited by the IRS and no assessment of taxes due had been issued. After being released from prison I forced the IRS to issue an assessment before I would pay any taxes or offer any compromise. I refused offers to settle the “taxes due” for pennies on the dollar because I would have had to admit I owed taxes I did not owe. Ironically, if I had signed a statement “admitting” I owed taxes that I did not owe, I would have been guilty of signing a false statement.
The federal judge threatened to put me back in prison if I did not agree that I owed the taxes. The local IRS office bypassed all of the protective procedures of informal discussion, review by a supervisor and finally issued a proposed tax assessment based solely on the criminal conviction. The jury was not required to determine that I owed any tax and in fact did not do so. I asked to appeal to the IRS Civil Appeals Office. The local IRS office refused to forward my appeal for several months until finally I called and complained that I had an absolute right to the appeal. I submitted my checks, facts and arguments showing that the deductions were correct. For several months the IRS agents sought more time to refute my arguments. In late May or early June of 2003 the Civil Appeals officer and his supervisor issued a finding of that no tax was owed.

Unfortunately, instead of admitting their mistake someone in the system either the IRS or the Justice Department is stonewalling. The report finding that no tax was owed has not been released and nothing has happened to date.

For many years I represented farmers against the FmHA and the IRS. I had some significant success in imposing reason in the fight between farmers, the Federal Land Bank (“FCA”), the Farmers Home Administration (“FmHA”) and the IRS. In 1989 I represented the only criminal defendant of my career in a trial brought by the IRS that had dire consequences for my client. At the trial it was shown that the IRS agents’ stories were not possible and had been severely misrepresented. I was startled by the conduct of the Justice Department then, but after winning a quick acquittal for my client, I believed that the system still worked and truth won out. The trial prosecutor grumbled that I didn’t know whom I was messing with (a phrase I had heard before), but I thought this was simply sour grapes. Shortly after this verdict, it appears that an informal investigation of me by the Justice Department began. Its origins are questionable. Shortly thereafter, a formal investigation began with a title on the subpoenas noting that I was under investigation for all sorts of evil acts – theft, civil fraud, bankruptcy fraud, conspiracy, racketeering, tax evasion etc.. My doctors, my children’s school records both academic and financial, my clients, my bar application, business associates, friends and the mail of all of my family were invaded by a gumshoe type investigator who repeatedly told all of these parties that they must cooperate or be implicated in this terrible conspiracy.

The clandestine investigation was aided by the ranting of a deranged lawyer in a southern county of Ohio who alleged in multiple complaints to the bar association, in the newspaper and in civil suits, all sorts of evil acts by me against my clients. The ranting, the lawsuits and the huge investigation by the Justice Department and the IRS gave a certain sense of legitimacy to each other. In 1998 after nearly ten years of haranguing and several different state court judges, (I recall seven) a several day civil jury trial on the issues raised by the confused lawyer occurred. There was simply no evidence of wrongdoing because no wrongdoing had occurred. The jury not only refused to find in any way for the plaintiffs, but also determined that my clients still owed me approximately $10,000 for fees earned while assisting them. Much of this case should have been dismissed by any one of the several judges mentioned above years prior to the trial, but it appears the investigation gave the courts some concern about following the law and dismissing part if not all of the case. One time during an informal meeting with the judge in the civil case and the other lawyers, the IRS investigator referred to above came into the conference room, flashed his badge and announced that he was there to serve me a subpoena for all of my records. This was my first actual awareness that such an investigation was occurring. There had been no attempt to serve me at my office which was open every day. The agent later admitted to me that it was the practice to scare people as much as possible when conducting an investigation “to get their attention”. I was more angered than scared. The outrageous conduct caused many to believe I must have done something very bad.

I thought the nightmare was finally over because the allegations of racketeering, theft, fraud, bankruptcy fraud and tax evasion were clearly proven wrong at the trial. I learned that within a few days after the verdict, the Justice Department and the IRS gave my law office tax returns to a junior examiner with instructions to not ask for any explanations and refuse any offer to explain any questions that she may have had. I did not know she was working on my case, but I had offered on several occasions including in front of the Grand Jury to answer any questions and in fact urged that the questions be raised. No questions were ever asked.

After about six months I heard from others that I was being indicted for filing false tax returns. I had no idea what the basis of the indictment was. I was indicted shortly before Christmas 1998. I advised the Justice Department who would be representing me. They promptly subpoenaed him to testify. He had no knowledge and was never called, but the effect was that I had no representation. By this time I had no money – literally. I explored using a public defender or having a lawyer appointed and chose not to use them. I had enough money to hire an expert and decided to use the limited funds for that end.

The Justice Department issued a press release alleging that all sorts of my deductions were false. Sadly the Justice Department again refused to discuss the deductions, thus the press reported as if these deductions were improper and the reporter refused my offers to comment. Several articles came out, many of them during the trial. Before trial I filed a brief clearly showing that one of the deductions complained of was proper pursuant to black letter law. The Justice Department ignored the law and fought the motion all the way. During the hearing after being questioned repeatedly by the judge, the U. S. Attorney sheepishly admitted that he was not familiar with that section of the code. Never mind that he had been advised for several days that he was wrong. I repeatedly objected to the improper publicity, but the court would do nothing.

The trial began with subpoenas being issued to my daughter who was attending college in South Carolina forcing her to come to Columbus during the critical final stages of her college career. They did not call her and it appears there was never any intent to call her, simply to harass and annoy us. She had been Salutatorian at Hilliard Davidson High School and was set to graduate Summa Cum Laude and earn a Phi Beta Kappa key at Furman University in Greenville, SC. It is a testimony to her grit and courage that she recovered and achieved these honors despite the actions of the government. They also promised to reimburse her for her travel expense (several hundred dollars) but have not done so to this date. A large number of former clients and business associates were subpoenaed and did testify as to facts not in dispute. One was living in Florida, another was picked up somewhere in Arizona while traveling and another was brought in after receiving a kidney transplant. All in all, it was an enormous inconvenience to me – my family, friends and business associates. I suppose if I were on a jury and heard all of these witnesses testify after being called from all over the country I would be forced to think that there must be some substance to the charges and their testimony. There was none.

The IRS put on its junior examiner who lustily testified that the 25 remaining claims were clearly criminal, false and against the tax code. She agreed that all of her information came from the tax returns and my books, yet still claimed that there was willful deception or concealment, which is necessary to convict one of a criminal tax violation instead of a disagreement as to the law. Her testimony was clearly wrong. I have become familiar enough with the tax code to excuse her for her ignorance about the tax code. Unfortunately a careful examination of the record of her testimony at trial and before the Grand Jury reveals that she also directly lied about material items. The prosecutor also blatantly misrepresented facts to the jury and after my objection was admonished to cease the misrepresentation. He continued but the judge then felt the jury could make its own determination. This conduct is not excusable. Under the current state of affairs, nothing will happen to any of these miscreants, even if I am ever officially completely exonerated.

After the presentation of all the “evidence” to the jury the court agreed with me that 22 of the 26 allegations of false deductions were such that no reasonable person could conclude that they were wrong. He dismissed two of the four years of tax returns making up the indictment. Unfortunately he refused my request to instruct the jury on the tax laws in question and over my objections instructed the jury to disregard the 22 claims but not to speculate as to why they were to disregard them. I was convicted in early 1999 and reported to Ashland Federal Prison in September or 1999 where I served a 12 month sentence.

I appealed to the Sixth Circuit and asked to remain free under bond until the appeal could be heard (similar to what Martha Stewart asked for and received). The Sixth Circuit was then the only circuit, which literally denied all requests to remain out of prison during appeal. I then found that our circuit also holds that one who proceeds pro se (represents himself) is not entitled to a reasonable library. I filed briefs and after I was denied the opportunity to file a typical brief such as I had filed for numerous appeals on behalf of clients I advised the court to consider my briefs as pro se (which by a letter sent from the court is much more informal) and let the appeal go forward. The clerk dismissed the case for failure to file my brief. I filed a motion to have the appeal proceed. I was advised that the motion would not be referred to the judges until I filed a formal brief. Shortly thereafter I was released from prison and I filed a formal brief. In May of 2002, I visited the court and determined that my motion had not been heard and that the file was in the basement dead files. I was advised that the matter would be forwarded to the judges. I have heard nothing since. In light of the Michigan affirmative action case flap (see attached), which the court determined to have been manipulated by the Chief Justice, it is easy to see how confidence in the court system could be eroded. I feel the erosion of confidence by society in our justice system is every bit as critical as the war on terrorism.

One of the provisions of my supervised release (the federal equivalence of probation) was that I make arrangements to pay all taxes due and owing. The trial judge was very annoyed and threatened to send me back to prison unless I made arrangements to pay the taxes he had determined when sentencing me. In fact no taxes had ever been determined by the IRS which is the only way taxes can be determined. Thus I refused to agree to any tax and risked immediate imprisonment. After the filing of a brief which showed the court and the prosecution that no taxes had been determined, an agreement was reached where I had to make monthly payments to the IRS subject to being returned to me if in fact no tax was determined to be due. My supervised release was extended for another year.

It has now been over five years since I was indicted, four years since I was released from prison and over a year and a half since the IRS Appeals Office determined that there was no tax due. Still we wait.


{ 2 comments… add one }
  • CarlaJHabeas August 26, 2012, 9:22 pm

    Sounds like someone used your account via fraud and you suffered the consequences.
    There are stories out in varying states of “aggravated identity theft” where it appears you owe money but IRS appeals does not. You defend yourself and spend time and money to correct the solution with CPAs and lawyers to no avail. When it’s mentioned TIGTA reported that IRS supervisors deterred agents from reporting cases that did not match up and smelled of fraud. Now that senators in US ie. PA Toomey and others on a bipartisan commitee are asking IRS Shulman what he plans on doing about it.
    I reported (after reviewing transcripts and doing research) and three IRS appeals hearings that a $56 million foreign account was put on my tax ID number.
    I’m sure yours was used showing on one end you owe nothing but I bet someone using your account shows otherwise. Report this to US AG in your area

  • Jim Davis May 2, 2020, 4:44 pm

    Chuck, First of all, this is a brilliant post that I will be sharing with my Facebook friends because it is a story of how dangerous our justice system can be, and the unchecked power they can impose on any of us, at any time. Your summary of what happened to you is a sobering and disturbing example of “justice” gone wrong, and it needs to be heard by many. So for whatever small contribution I can make to that pursuit by sharing this I am happy to do so.

    On a personal note, I’d like to apologize for being a complete asshole and angrily berating you and your secretary for not meeting a deadline on some minor legal work you were doing for me at the time. I had no idea about the stress you must have been under back then, and how utterly insignificant my needs were in comparison. For that I’m sincerely sorry. My actions were crass and ignorant at the time, but in hindsight – after learning what you were going through – I’m even more ashamed and remorseful for my actions. So again, I apologize.

    The will and backbone it took for you to survive your ordeal is truly beyond impressive. And I salute you for that, and wish you all the best in the future.

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