8.1) What is a “Pure Trust”?
I read in a book I paid $35 for on the internet that if I set up a
Pure Trust for a cost of $2,500 that I will eliminate all my taxes, legally and completely!
The pure trust scam has been around for decades, but with the internet
the pitch has become more wide-spread. The IRS has a few links which
verify that most pure trusts are scams: link #1 and link #2 (formerly link #2b)
and link #3. Many of the other trusts being promoted that are not actually
scams do not eliminate income taxes as the trustee is usually lead to
believe pdf file of IRS publication #2193 and pdf file of IRS publication #4310.
Well designed trusts can be very useful, especially for wealthy individuals,
but trusts do not eliminate taxes the way the pure trust promoters suggest they do.
For some reason, people feel compelled to send us e-mail to argue about
the legitimacy of these “pure trust” theories. Well don’t, because we just
don’t care. As shown at this link, IT DOESN’T MATTER whether you are
right or wrong because even if you are right (you’re not) these theories
aren’t going to help you anyhow, since no court will recognize these
theories and they will not stop the IRS from levying taxes, fines, and
sanctions, or from seizing your property. The only thing which
matters to us is whether or not stuff works, and these theories have
proven “in spades” that they don’t
8.2) What is a Pure Trust Organization (PTO)? These were marketed on the internet by a reputable financial organization, right?
In 2015 Jerold Sorenson, oral surgeon, went to court where it was decided if his use of a PTO system where he retitled his personal residence, dental practice and dental equipment into the names of various trusts was a scheme of willful income tax evasion or a scheme of corrupt income tax obstruction. After the appeal, the IRS prevailed with their charge of income tax obstruction.
Is this what one is to expect with a PTO? Arguing that it is “only” willful income tax evasion rather than income tax obstruction? That is some choice to be arguing about in the courtroom!
8.3) Well okay, I wasn’t sure about those pure trusts anyway How about forming Nevada Corporations? These have to be all they say, especially when used to avoid State of California taxes, right?
Nevada Corporations have many beneficial purposes, just like corporations
formed elsewhere can be beneficial. But as far as many claims of tax avoidance
that are often associated with corporations formed in Nevada, much of it
does not hold true for people who do not actually live in Nevada but who at the
same time want to use and control the assets held by the corporation.
8.4) Joseph R. (Joe) Banister, a former IRS Criminal Investigation Division Special Agent learned of serious constitutional questions relating to the federal income tax and the federal banking and monetary systems. Mr. Banister’s expertise in the fields of accounting, finance, taxation, and law enforcement enabled him to inform people about the legality of the US Income Tax System. Clearly Banister and others like him (Irwin Schiff comes to mind)
wouldn’t say these things if they were not true!
These guys are referred to as “Tax Protestors” by the government.
Whether they have valid arguments and whether people who interpret
what they have to say as meaning that they do not have to pay federal
income tax is besides the point.
Let’s re-read that one more time: Whether the federal income tax
system is legal or not is besides the point!
Let’s assume that these so called “Tax Protestors” are not a bunch
of charlatans looking to peddle their books, tapes and seminars for
their own profit. Rather, just for the sake of argument, let’s
assume that they are well-meaning patriots looking to help all of us
stop paying unnecessary or even illegal federal income taxes.
The fact is that no matter how accurate these Tax Protestor theories
are, if you do not pay your federal income taxes, by using any of the
arguments promoted by these guys, the government (and that includes
the IRS, the US Court system and our elected lawmakers in
Washington, D.C.) will not be swayed and your life will become a
If by using any of these Tax Protestor theories you don’t report your
federal income taxes on properly prepared tax forms, the IRS will
come in to assess taxes based on whatever information they can find.
They’ll add in penalties and interest and then they’ll garnish
your wages, take backup withholding from your securities sales
(that’s on the gross sales amount, not on the net gain), and
seize all your available assets to pay for it all. You can then go
into court to fight a battle thinking that you are 100% correct, and
there you will find that no matter how many years of your life you
devote to fighting, there is a 100% chance that the court will never
agree with you and you will lose everything you have.
THAT’S the point.
Grand Jury Indicts Anti-Tax Author
LAS VEGAS, March 24, 2004 – A federal grand jury indicted
an anti-tax author and two others Wednesday for helping thousands of
taxpayers file bogus returns.
Irwin Schiff, who wrote “The Federal Mafia: How It Illegally Imposes
and Unlawfully Collects Income Taxes,” argues there is no legal
requirement to pay income taxes. Government lawyers have been
pursuing civil actions to bar him from selling his book and holding
“There is no magic way out of paying taxes,” said Eileen O’Connor,
assistant U.S. attorney general for the tax division in Washington, D.C.
Prosecutors say the three were responsible for nearly 5,000 tax
returns that fraudulently reported no income. These “zero returns”
included zeros on every line related to income and expenses and
often claimed a full refund of all federal taxes withheld or paid.
The evidence presented at trial proved that Schiff evaded the
payment of more than $2 million in taxes he owed the IRS between
1979 and 1985. And that Schiff concealed income he earned from
Freedom Books, in part, by using offshore bank accounts and
conducting financial transactions through secret “warehouse” banking
services. The evidence also showed that Schiff used debit cards
issued by offshore banks to obtain funds he transferred offshore,
that he opened bank accounts using multiple tax identification
numbers and that he concealed his wealth by hiding his assets
through the use of nominees.
Schiff is currently serving a 12.5 year sentence for his October
2005 conviction of conspiring to defraud the United States and
aiding and assisting in the preparation of false income tax returns.
In September 2008 an additional 11 months was added for 15 counts of
criminal contempt relative to Schiff’s unruly behavior during the
trial. In October 2008 a federal court in Las Vegas issued a
permanent injunction barring Schiff and his former associate,
Cynthia Neun, from preparing federal income tax returns for others
and from promoting Schiff’s fraudulent “zero tax” plan or other
tax-fraud plans. The court order makes permanent a restraining order
and preliminary injunction entered against the two notorious tax
defiers in 2003.
Trial Date Set For Former IRS Criminal Investigator
Joseph Banister is a former IRS Criminal Investigation Division Special
Agent. After years of researching the income tax code, Banister came
to the conclusion that the government was misapplying the tax code to
the majority of Americans. This highly trained CPA and valued IRS
criminal investigator presented his findings to his superiors all the way
to Washington, DC and asked them to dispute his findings.
On November 18, 2004, Banister was arrested on a federal indictment
accusing him of tax crimes. He pleaded not guilty in U.S. District
Court, posted bond and was released. The indictment ties Banister to
a co-defendant, Walter A. Thompson of Redding, California who has
also been indicted regarding his stand on withholding taxes.
Thompson refused to surrender to federal authorities, but instead
fled and ended up with a high speed chase on Interstate 5 in
Northern California. Thompson is considered a flight risk and denied bail.
Both Banister and Thompson appeared in court on December 1, 2004, at
the U.S. District Court in Sacramento, California for a status
conference. Thompson was in an orange jump suit and shackled in
chains with his hands chained to his waist. Judge William B. Shubb
granted Thompson’s request to represent himself, but also appointed
a federal public defender for Thompson to assist in his defense.
US Department of Justice:
IRS Tax Seizure Auction website:
U.S. Marshals: Seizure Auction websites:
Joseph R. (Joe) Banister Interview
8.5) Is there anything to this new “Straw Man” theory that, for example, John Q. Smith does not need to pay taxes assessed by the IRS against JOHN Q SMITH because the words in all uppercase letters must be referring to some other legal entity and not to John Q. Smith?
Actually, I’ve never heard of this crazy idea before, but the IRS
is already attacking this as a frivolous tax evasion scheme:
8.6) What about Securities Traders, using a partnership and claiming a tax deduction involving “notational principal contracts”?
The IRS shut this scam down as well. IRS Notice 2002–35
The Internal Revenue Service and the Treasury Department
have become aware of a type of transaction, described
below, that is used by taxpayers to generate tax losses. This Notice
alerts taxpayers and their representatives that the tax benefits
purportedly generated by these transactions are not allowable for
federal income tax purposes.
In general, the transaction involves the use of a notional principal
contract (“NPC”) to claim current deductions for periodic payments
made by a taxpayer (“T”) while disregarding the accrual of a right
to receive offsetting payments in the future. The NPC has a term of
more than one year. Under the NPC, T is required to make periodic
payments to CP at regular intervals of one year or less based on a
fixed or floating rate index. In return, CP is required to make a
single payment at the end of the term of the NPC that consists of a
noncontingent component and a contingent component. The
noncontingent component, which is relatively large in comparison to
the contingent component, may be based upon a fixed or floating
interest rate. The contingent component may reflect changes in the
value of a stock index or currency. T may fund its obligation to
make periodic payments in whole or in part by borrowing funds from a
lender, who may be CP. In addition, T may engage in other
transactions, such as interest rate collars, for purposes of
limiting risk with respect to the NPC transaction. T may engage in
short-term trading activity in securities with a view to
establishing a trade or business. T may also engage in the
transaction through a partnership, in which case instead of T, the
partnership may engage in some or all of the activities described
above. T will likely enter into an agreement with CP to terminate
the NPC prior to the scheduled payment date of CP’s payment. T
deducts the ratable daily portion of each periodic payment for the
taxable year to which that portion relates. However, T does not
accrue income with respect to the nonperiodic payment until the year
the payment is received. T intends to report as capital any gain it
realizes upon the termination of the NPC.
The Service may impose penalties on participants in these
transactions or, as applicable, on persons who participate in the
promotion or reporting of these transactions, including the
accuracy-related penalty under section 6662, the return preparer
penalty under section 6694, the promoter penalty under section 6700,
and the aiding and abetting penalty under section 6701. Transactions
that are the same as, or substantially similar to, the transaction
described in this Notice 2002–35 are identified as “listed
transactions” for purposes of § 1.6011–4T(b)(2) of the Temporary
Income Tax Regulations and § 301.6111–2T(b)(2) of the Temporary
Procedure and Administrative Regulations. See also § 301.6112–1T,
A–4. It should be noted that, independent of their classification as
“listed transactions” for purposes of §§ 1.6011–4T(b)(2) and
301.6111–2T(b)(2), such transactions may already be subject to the
tax shelter registration and list maintenance requirements of §§
6111 and 6112 under the regulations issued in February 2000 (§§
301.6111–2T and 301.6112–1T, A–4), as well as the regulations issued
in 1984 and amended in 1986 (§§ 301.6111–1T and 301.6112–1T, A–3).
Persons required to register these tax shelters who have failed to
register the shelters may be subject to the penalty under section
6707(a), and to the penalty under section 6708(a) if the
8.7) Is there a difference between Tax Avoidance and Tax Evasion any longer?
The answer has been getting muddier recently:
8.8) What is BOSS?
Bond and Option Sales Strategy (“BOSS”). Transactions involving the
distribution of encumbered property in which taxpayers claim tax losses
for capital outlays that have, in fact, been repaid to the taxpayer. Notice
99-59, 1999-2 C.B. 761 (Dec. 10, 1999); Notice 2003-76, 2003-49
I.R.B. 1 (Nov. 7, 2003).
Bond and Option Sales Strategy is a tax shelter that the IRS banned
in December 1999 saying that the tax treatment created artificial losses
to offset legitimate gains. In this scheme, taxpayers and promoters use
a series of contrived steps in an attempt to generate tax losses to offset
income from other transactions.
8.9) What is Son of BOSS?
Son of BOSS. Transactions in which losses are generated as a result of
artificially inflating the basis of partnership interests. Notice 2000-44,
2000-2 C.B. 255 (Aug. 14, 2000).
Son of Boss is a spinoff of an earlier shelter known as BOSS, for
bond and option sales strategy. Under Son of Boss, buyers used
financial products such as currency options to create bogus losses
that offset their gains from selling stock options or business assets.
The IRS announced that use of a grantor trust in conjunction with
the so-called son-of-BOSS shelter (a shady reincarnation of the
original Bond and Option Sales Strategy deal, itself a shelter
transaction of questionable merit) would be treated as evidence of
8.10) What about Ed Brown vs. IRS?
May 24, 2006. Did the Browns get into big trouble when they
stopped making payments on their home mortgage (because the balance
owed was down to zero)?
Ed Brown v. IRS Interview
Lesson learned – don’t mess with the IRS because if you do,
eventually they will make your life miserable.
Ed Brown v. IRS Standoff
Ed Brown v. IRS News Conference June 18, 2007
The Browns say are willing to pay whatever they are bound by law to pay,
they ask only that they are shown the law. In fact, they have offered
$1,000,000 in commercial property if anyone could “Show Ed the Law”.
Instead The Law came on Thursday, June 7, 2007, claiming this million
dollar property as their own, not exactly what Ed had in mind. The Browns
have been inside their home for the past few months, they say they will stay
in their home, and will fight to the death if they have to.
In 1994 The couple began writing the IRS asking to see the Law that
obligates them to pay a Federal Income tax, and for two years they
received no answers. In 1996 they informed the IRS that they would
no longer be paying their taxes. They are willing to die, and the
government would rather kill them then show them the law.
October 18, 2007 – Teams of federal law enforcement officers,
including members of the United States Marshals Service (USMS),
the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF),
and the IRS Criminal Investigation Division, concluded their search
of the Plainfield, NH, property formerly owned by Edward and
Elaine Brown. The search and collection of evidence — including
the rendering safe of a large number of improvised explosive
devices (IEDs) — was a painstaking process that lasted almost two weeks.
The Brown’s home and dental building have been seized, secured,
posted, and are in the custody of the Treasury Department. The
property will proceed through the usual asset forfeiture process and
may ultimately be sold to satisfy the judgment imposed by the Court.
8.11) What is a Fraud Technical Advisor (FTA)?
IRS revenue officers look to an FTA if they suspect that tax fraud exists
in a case being worked on. It is then determined if there is a “Firm
Indication of Fraud” and if so the civil proceedings must end and a
criminal investigation may begin. The law such that a criminal proceeding
may not covertly investigate the taxpayer.
District Fraud Coordinator (DCF); National Fraud Program (NFP);
Fraud Referral Specialist (FRS); Criminal Investigation Division
(CID); IRS Fraud Manual.