Back in the early eighties, Phil Marsh from California got involved with the tax movement and one of his first works was a book entitled "The Compleat Patriot." I am told by others who have read this work that it not only discusses tax issues, but it apparently reveals that Marsh believes in aliens.
In 1990, Marsh and his wife, Marlene, decided to form The Pilot Connection Society ("TPCS"). They started recruiting followers and made some amazing, wild statements to get people to join. One position Marsh promoted was the argument that the IRS was an old Delaware corporation started in 1933. This idea first surfaced sometime in 1982 or 1983, and I, John Kotmair and others looked into that argument at the time and found it groundless. While there is a valid issue regarding whether Congress has ever actually created the IRS, the simple fact of the matter is that the old Delaware corporation was never the IRS, but just an accounting company which went out of business in 1936. Nonetheless, Marsh used this and several other flaky arguments packaged in glitter to attract crowds and mislead people.
By late 1990, Marsh was going full steam and collecting lots of funds. He started multi-level marketing his organization by creating franchises and selling them. The ordinary member in his organization had to pay about 2000 bux (the price varied) to join, and a franchise cost 10 grand. One of the big selling points used to recruit members into TPCS was the "victory letter" which Marsh told people would be received just by sending the IRS a series of letters drafted by TPCS. The "victory letter" was one from the IRS stating that a particular individual was no longer a taxpayer.
Marsh was raided twice by the IRS. Experience has shown me that it takes several years for that gargantuan organization known as the IRS to build a case against someone like Marsh, but Marsh claimed that since he had not been arrested by the IRS during the raids, that the IRS knew he was not violating the law. The end of Marsh and TPCS came when he was finally arrested in December, 1993. The charges against Marsh, his wife, step-daughter and several other TPCS leaders was conspiracy and a number of other charges. Bill Cohan represented Marsh at the first trial, which resulted in a hung jury; Cohan is a great lawyer. But the prosecution learned from its mistakes made during that first trial, brought Marsh to trial again and this time secured convictions. But again with Cohan representing Marsh in the appeal, in May, 1998, the Court of Appeals for the 9th Circuit reversed most of these convictions; see United States v. Phil Marsh. However, Marsh's tax crime convictions were upheld and he is now in jail.
During its rise, I observed TPCS from a distance. I heard from a wide variety of people who claimed that Marsh was the greatest thing since sliced bread; but silently I held my rage and just hoped that lots of people would not be hurt by the predictable and forthcoming assault by the IRS. But now, this bad habit of mine has been broken and whenever I spot a conman, I am going to loudly inform people. Predictably, Marsh was indicted, along with members of his family and several followers, and their lives have been ruined as a result. Many other prosecutions have followed in the wake of the Marsh case. A large group of Marsh followers in Texas (Rich Summers, et al) was indicted, and these defendants were convicted and given long prison sentences. A number of other TPCS members have also been indicted and convicted. This is the legacy of Marsh and TPCS.
But important lessons need to be learned from this tragedy. New tax protest organizations spring up all the time and justifiably so. But the people who get involved are usually very naive and to them, the tax battle is over because they have just learned "the best kept secret." Advice that these organizations need to prepare for law enforcement goes unheeded. Counsel that the battle needs to actually be fought is rejected because these novices KNOW there is really nothing to do but stop filing tax returns. As a result, our precious energies are constantly engaged in endless fights initiated by the IRS where the effort is just to protect a single individual from the IRS. To me, this is no method to fight the IRS.
Lots of stories have been circulated about Marsh and I have
heard them as well. But rather than relate rumors, I wish to
inform you of what I actually know and have in my possession. In
the summer of 1998 during a tax trial, Jeff Dickstein and I
issued a subpoena to the IRS special agent involved in the Marsh
case and we wanted the government to produce just the juror
booklets used during the Marsh trial. We received in response
two large books which contained lots of the evidence used in the
Marsh trial and I have copies in my possession. These documents
reveal that just shortly after Marsh started TPCS, people were
finding out that TPCS program simply did not work and were
claiming that Marsh was a fraud; I have the letters and some are
mentioned in the recent decision of the 9th Circuit. Marsh
ignored these complaints and went ahead, subsequently collecting
millions of bux. When more people learned of the lack of success
with TPCS program, Marsh decided to fabricate "victory letters."
When the IRS executed the search warrants for Marsh's home and
office, it seized several computer discs which contained these
fabricated letters. This is not to state that such letters do
not exist as they do and I have seen originals of such letters
and have copies. But, Marsh was faking it and cranking out lots
of fabricated letters to feed his followers. Marsh was a fraud
of the first order. But regrettably, others are today following
Marsh's actions and also fabricating a wide variety of letters
and other documents; Al
Carter also did this repeatedly.
Here
is the decision in Marsh's appeal of his convictions.
Phillip
Marsh and his five co-defendants appeal their convictions of
conspiring to defraud the United States by impeding the
collection of federal income taxes and their convictions of
related crimes. They also appeal their sentences, which, as to
Phillip Marsh total a term of imprisonment of 17 1/2 years, as
to his wife Marlene a term of 14 years, and as to the other
defendants lesser but still substantial periods of prison.
FACTS AND PROCEEDINGS
Phillip Marsh was the founder in 1990 of The Pilot Connection
Society, often self-identified by its acronym TPCS. Marsh's
enterprise offered its customers the elusive and enchanting
prospect of untaxing themselves. The verb "untax" entered the
language in political conflict in England over a formidable
tariff on foreign grain and denoted political action by the
government ("Who will untax our bread?" E. Elliott, Corn-Law
Rhymes, 1833). "Untax," as used in the present context, means
freeing oneself from any legal obligation to pay any income tax,
federal or state.
To achieve this exceptional state, TPCS offered an "Untax
Package." The package included Phillip Marsh's The Compleat
Patriot, the Constitution of the United States, Psalm 91, and a
photograph of Phillip and his wife suitable for framing. It also
included "Very basic untax documents and their instructions."
Among them were a form letter to be sent to the District
Director of the Internal Revenue Service stating that the
quondam taxpayer had recently found out that the director had
been "attempting to extort money" from him and demanding that he
justify his jurisdiction by a certified copy of the director's
designation of authority from the Secretary of the Treasury. The
letter was not to be xeroxed and was to be handwritten because
"[i]t takes 3 to 5 times as long to read hand written material
as it does to read typed material — anything to slow the IRS
down!" Another form letter, to be similarly copied by hand,
informed the district director that the taxpayer was not a
person under the director's jurisdiction.
The Untax Package included another form by which the taxpayer
revoked income tax returns previously signed by him and
"cancelled" his signature on such returns. This form was to be
retyped by the taxpayer, eliminating the Pilot Connection
letterhead, and to be notarized. The theory of the revocation
and cancellation, as explained in the Untax Package, was that
the IRS would use earlier returns to prove that the taxpayer was
aware of his obligation to file and pay. The revocation and
cancellation would, so the Untax Package suggested, eliminate
this easy evidence of the taxpayer's willfulness in now refusing
to file and pay. The reason that the taxpayer could so readily
remove himself from the taxpaying rolls was, according to TPCS,
that "income tax is voluntary." (SER 32.) If you didn't want to
pay it, you didn't have to.
TPCS also advised its members to resort to "alternative
banking," that is, to pay everything by cash or postal money
order, or to join something called the National Commodity and
Barter Association and use "warehouse banking," or to have some
trusted associate open an account for one in the associate's
name, or to establish, with TPCS's help, an "offshore trust."
The reason for adopting one of these alternative styles of money
management was that if you opened a checking or savings account
you agreed "that the money belongs to the bank from that moment
on," with the implication that the bank would surrender the
money on levy by the IRS (SER 36.) Members were provided with
forms, to be recopied and notarized, of revocation of bank
signature cards. (SER 35.)
Another practical precaution the TPCS member was advised to
take, in order to assure that his emancipation from taxation was
effective, was to file W-4s with his employers claiming as many
exemptions as he had thousands of dollars of income. For
example, if he earned $30,000, he was to file a W-4 claiming 30
exemptions. The member was assured by TPCS that there was no
limit to the number of exemptions he could lawfully claim. (SER
342.) No mention was made of any duty to have a reason for
claiming an exemption.
Untax Packages, the contents sometimes different in unessential
detail, were sold by TPCS for a price that varied for the
occasion. At the start the price was over $6,000. (SER 8.) The
price announced in January 1993 was "$2,100 or 10% of your
existing tax problem (if any), whichever is higher." (SER 380.)
As of January 31, 1990, TPCS had only three purchasers of the
Untax Package. By December 31, 1993, TPCS recorded 3,848
purchasers and income from them of $7,638,625. (SER 19.)
TPCS had ordinary members who did not purchase the Untax Package
but who did pay $45 for membership. By the end of 1993 there
were 12,617 in this category. (SER 19.) They received TPCS's
magazine, The Connector. The magazine carried the subtitle "The
Voice of Freedom" and ran a facsimile of an American flag as its
logo. Its pages repeated at their foot the mantra of the
Society, "Income Tax Is Voluntary!" The Connector informed its
readers that there was no law making anyone liable for income
tax.
TPCS had a cadre superior to that of mere members, constituted
by those admitted to the status of Associate Member. An
Associate Member had the right to sell the publications of TPCS.
He paid $10,000 to acquire the franchise and the confidential
instructions on marketing that accompanied the franchise. By
December 31, 1993, there were 730 persons who had been admitted
to this advanced status. Apparently some associates got a
discount, for the total paid by them recorded in the Society's
book was $5,281,010. (SER 19.)
Phillip Marsh conceived the idea of TPCS. His wife Marlene
joined him in marketing it. Together they traveled the United
States soliciting the purchase of memberships and Untax Packages
and speaking at seminars and conferences intended to promote
TPCS. Marlene's daughter, Jill Spencer, was an Associate Member
and the office manager, in the latter capacity opening and
distributing mail sent to TPCS, logging cash received and
responding to some customer complaints. Her husband Darrell was
also an Associate Member. He became TPCS's General Manager,
overseeing staff and publications, revising the Untax Package,
and writing in his own name in The Connector, to explain why
paying income tax was optional.
A family operation, TPCS was aided by Joseph Coltrane, alias
John Campion, and by Douglas Carpa. Coltrane was the National
Coordinator of the TPCS sales force. Carpa was not a TPCS member
but from approximately May 1991 to June 1992 assisted the
marketing of memberships in TPCS by putting together trusts in
which TPCS members might hope to hide their assets from the IRS.
He offered his drafts of trust instruments only to those who
purchased the Untax Package. He assured members that his trusts
were "old and cold" and would work to cure even pre-existing
problems with the IRS because the trusts would be predated to a
time before an IRS lien.
In its publications TPCS asserted that it was not a tax
protester movement, that it did not deny the constitutionality
of the Internal Revenue Code, and that it did not maintain that
Congress lacked the power to tax income. TPCS simply taught that
Congress had not exerted that power and that the IRS was "a
private corporation" engaged in lawless efforts to extract money
from Americans not obliged to pay. TPCS characterized its own
teachings as educational and added that they were the exercise
of free speech, protected by the First Amendment from
prosecution.
TPCS was aware that the IRS challenged its view of the law, an
awareness reinforced by the rejection that TPCS's Untax Package
received when put into practice by members. The IRS by 1991 was
aware of TPCS and alert to its raison d'etre. In February 1992
an affidavit filed by IRS Special Agent Diane Messer
characterized TPCS as an "illegal tax protester organization"
and sought a search warrant authorizing the seizure of documents
pertaining to TPCS and to Phillip and Marlene Marsh. The search
was to be carried out at the Marshes' home, which they used as
the Society's headquarters. Pursuant to the warrant, a
comprehensive seizure was made of the correspondence, computers,
and file cabinets of the Society.
Apparently as a response to the search, on August 12, 1992, in
Stockton, California, Phillip and Marlene Marsh and Jill Spencer
signed two papers alleging that certain persons were indebted to
them in the amount of $350,000 each and seeking to place a
commercial lien on the property of the debtors. These persons
were Agent Messer and three other IRS agents involved in the
search; the United States Magistrates who had authorized the
search; three United States attorneys in the Eastern District of
California and one United States attorney in the Northern
District; Lawrence Karlton, Senior District Judge of the Eastern
District; and California Superior Court Judge Jeremy Fogel. The
liens were filed in Nevada and Washington.
A year later, in February 1993, a second affidavit executed by
Agent Messer asserted that TPCS was "so permeated with
involvement with illegal activities" that a comprehensive search
could not separate the few innocent items "from the vast amount
of material which will be relevant evidence of the criminal
violations." The Marshes then moved from California to Colorado
and from their home there continued their enterprise under the
name the Liberty Foundation. A third affidavit executed by
Messer led to the comprehensive search of the Colorado office in
December 1993.
A grand jury had already, on November 29, 1993, indicted the
defendants for conspiracy to defraud the United States. The
defendants moved unsuccessfully to suppress the material seized
by the government from their files. Phillip Marsh sought with
equal unsuccess to introduce a report by a psychiatrist who
evaluated him and found him to suffer from delusions; the
psychiatrist's proffered testimony was excluded in limine on the
government's motion. Trial followed in the district court for
Northern California running slightly over three months, from
August 29, 1994 to November 30, 1994. The jury was unable to
agree on the principal counts.
The United States obtained a superseding indictment charging all
six defendants with conspiracy to defraud the United States by
obstructing the lawful functions of the IRS, in particular by
their operation and promotion of TPCS and the Untax Package. The
two Marshes and the two Spencers were personally charged with
tax evasion and failure to file a return. The indictment also
charged all defendants except Carpa with numerous counts of mail
fraud in the sale of the Untax Package to over 3,000 persons.
The two Marshes and Jill Spencer were charged with endeavoring
to impede the administration of the tax laws by filing the
commercial liens in Nevada and Washington against the government
officials named in them.
The government announced in its Status Conference Statement that
it intended to introduce "as much of its evidence as possible
through `summary witnesses.'" The defendants filed a joint
motion in limine opposing this procedure: "it appears that the
government intends to avoid cross-examination of the alleged
mail fraud victims by hearsay summaries." The government had
proposed that IRS agents read excerpts from the TPCS files. The
defendants objected that the material from TPCS files —
complaint letters from persons saying that they had been
deceived by TPCS — fell within no exception to the hearsay rule.
The defendants asserted that the procedure would violate their
Sixth Amendment right to confront their accusers. Citing Coy v.
Iowa, 487 U.S. 1012 (1988), where the Supreme Court held it
unconstitutional to place a screen shielding the accusers from
the defendant, the defendants here said: "Agent Durrette would
be the screen between the defendants and their alleged victims."
A hearing was held the following week before the judge who had
presided at the first trial in order to schedule the time
allowed for trial. The court expressed dissatisfaction with the
amount of time "wasted" by both sides in the first trial. The
court stated that the jury had heard the details of the untaxing
scheme "ad nauseam." The government argued that the first jury
had been "affected by the government's inability to present the
case in a way that educated them as to what our theory of the
case was, what our evidence meant, during the presentation of
the evidence." The court asked, "What stopped you?" The
government replied that the court had stopped it from having a
witness read from the material seized in the searches. The
government went on to say that it had to prove the defendants'
state of mind as to both the mail fraud counts and the tax
evasion counts. The court:
"It seems to me that is proved by the quality of the evidence as
opposed to the quantity of the evidence." The court went on to
say: "I thought the victims were a disaster for the government .
. . .[T]he victims were particularly unsympathetic. They were
people who were already in serious trouble with the Internal
Revenue Service, were essentially tax cheats themselves; and
were put on the witness stand with the representation that they
were somehow victimized by the defendants . . . . And I'm
convinced that your case ran aground with that first group of
witnesses." The district court never formally ruled on the
defendants' in limine motion to exclude the complaint letters;
the government concluded that it had a green light.
On November 9, the government offered Agent Durrette to
summarize material taken from the files of TPCS. The defendants
stipulated that the material came from the files — the
government would not have to prove where each piece of
correspondence came from. The court described the stipulation.
It was "that these TPCS client file documents would simply be
stipulated as to their admission into evidence without the
necessity of putting a witness on the stand to lay any
foundation as to these documents. And the stipulation would be
that these documents were found in one or the other of the
facilities associated with the Pilot Connection Society." The
government answered, "Yes." Agreeing, the defendants again
vigorously objected to the government's presentation of the
files through testimony about their contents by Durrette. The
government replied that proof of the defendants' state of mind
was "the heart and soul" of its case.
Durrette took the stand. The government had prepared an
extensive file of material taken from TPCS with duplicates of a
number of letters to be given as handouts to the jury. The
material consisted substantially in statements of government
officials as to what the income tax law was, statements of other
persons including officers of the Church of Jesus Christ of
Latter Day Saints on the obligation to pay income taxes, and
letters from purchasers of the Untax Package complaining that
the Package did not work or, worse, that they had been
fraudulently induced to buy it.
The defendants objected repeatedly to the procedure — to
Durrette's reading of views on the law as argument by the
government, to Durrette's reading of selected passages from the
correspondence as not summarizing but highlighting, and to the
reading of the complaints as violative of the Confrontation
Clause. Every objection was overruled by the trial court.
The second trial was two months shorter than the first. On
December 13, 1995 the jury found all six defendants guilty of
violating 18 U.S.C. § 371 by conspiring to defraud the United
States in the collection of income taxes. Phillip and Marlene
Marsh and Jill Spencer were convicted of two counts of violation
of 26 U.S.C. § 7212(a) by corruptly endeavoring to obstruct the
administration of the income tax laws by filing the liens. Both
the Marshes and both the Spencers were convicted of violating 26
U.S.C. § 7201 by tax evasion and violating 26 U.S.C. § 7203 by
failing to file tax returns. Both Marshes were acquitted of ten
counts of mail fraud and convicted of ten counts of mail fraud
in violation of 18 U.S.C. § 1341. Both Spencers were similarly
acquitted, Darrell of five, Jill of nine counts, and similarly
convicted of nine mail fraud counts; and Coltrane was convicted
of six mail fraud counts. The court denied Rule 29 motions,
including motions by the Marshes and Jill Spencer to dismiss the
obstruction charges on the ground of lack of venue.
On June 26, 1996 the court pronounced sentence. Phillip Marsh
was sentenced to 5 years imprisonment for conspiracy to defraud
the United States; 5 years imprisonment for each of his ten mail
fraud convictions; 5 years imprisonment on each of two
convictions of tax evasion; 3 years imprisonment for each his
two endeavors to impede the administration of the tax laws; and
1 year imprisonment for each conviction of willful failure to
file tax returns. The sentences for conspiracy, tax evasion and
9 of the 10 mail fraud counts were to be served concurrently
with each other. The 3 year sentences for the endeavor to impede
were to be were to be served consecutively to the other counts
and to each other. The 1 year sentences for the two failures to
file counts served consecutively to each other and the other
counts. The sentence on the two tax evasion counts and two
failure to file counts totals 7 years. The 5 year sentence for
the tenth mail fraud charge was to be served consecutively to
the extent necessary to produce a total sentence of 17 1/2
years.
Marlene Marsh was sentenced to 5 years imprisonment for
conspiracy to defraud the United States; 5 years each for the 10
mail fraud counts, 5 years each for the two tax evasion counts,
3 years on each of the 2 counts of endeavor to impede, 1 year on
each of the 2 convictions of willful failure to file. The 3 year
sentences for endeavor to impede were to be served concurrently
with each other and consecutively to the other sentences, the 1
year sentences for failure to file were to be served
consecutively to each other and to the other sentences, and the
5 years for the two tax evasion counts and 10 mail counts were
to be served concurrently to each other and consecutively to the
other sentences to the extent necessary to produce a total
sentence of 14 years. The sentence on the two tax evasion counts
and two failure to file counts totals 7 years.
Darrell Spencer was sentenced to 5 years imprisonment for
conspiracy to defraud the United States, 5 years on each of 9
mail fraud convictions, 5 years on each of 2 tax evasion
convictions, and 1 year on each of 2 failure to file
convictions. The sentence for conspiracy, the 2 tax evasion
sentences, and 8 of the 9 mail fraud sentences were to be served
concurrently, as were the sentences for failure to file. The
sentence on the two tax evasion counts and two failure to file
counts totals 5 years. The ninth mail fraud sentence was to be
served consecutively to the other sentences to the extent
necessary to produce a total of 7 1/4 years.
Jill Spencer was sentenced to 5 years of imprisonment for
conspiracy to defraud the United States, 5 years on each of 9
mail fraud convictions, 5 years on each of 2 tax evasion
convictions, 1 year on each of 2 failure to file convictions,
and 3 years on each of 2 convictions to impede. The sentences
for conspiracy, tax evasion and the 9 mail fraud counts were to
be served concurrently, as were the sentences for failure to
file. The sentence on the two tax evasion counts and the two
failure to file counts totals 5 years. The two 3 year sentences
for corrupt endeavor to impede were to be served concurrently to
each other but consecutively to the other sentences to the
extent necessary to produce a total sentence of 7 1/4 years.
Coltrane was sentenced to 5 years for a conspiracy to defraud
the United States and 1/4 year imprisonment on one count of mail
fraud, the sentences on the other counts of mail fraud to be
served concurrently. Carpa was sentenced to 4 3/4 years on
conviction of conspiracy to defraud the United States.
The defendants appeal.
ANALYSIS
All defendants contend that they were denied the right to
confront the witnesses against them when Agent Durrette read to
the jury excerpts from material found in the defendants' files.
The following are from the excerpts read aloud to the jury by
Agent Durrette: (The excerpts are exact, but not given in full;
the authorships and dates are as read.)
1. "Some so-called tax protesters are making
speeches and
offering seminars around the country at which
serious
misrepresentations about the tax laws are
being presented to the
public as fact." Fact Sheet.
2. "Indeed, it is strange how the mind
justifies things. For
example, the way you justify `untaxing'
people by blatantly
misrepresenting the truth about your
so-called `untaxing' program
for the sole purpose of lining your pockets
with unsuspecting
victim's hard earned money while you sit idly
by and watch the
Franchise Tax Board and Internal Revenue
Service come in and
steal everything they have — knowing full
well that this will be
the outcome." Letter from Shawn O'Connor,
7/6/92.
3. "Why would I sent you a check for $8,745
when you have not got
the lien off my home?" Letter from Curtis
Howard 5/29/91.
4. "To date, the Pilot Connection System has
not given any relief
and has only compounded my tax problems. On
the basis of fraud, I
herewith demand the return of my $2,000 plus
$499." Letter,
6/3/91.
5. "[The failure to succeed in not paying
taxes] makes our
statement, `stop paying taxes permanently and
legally' far from
being the truth." Letter from Hugh Bodey,
7/6/91.
6. "You did not `untax me legally and
permanently' as promised —
and, I am confident, that and if and when I
have to go to court,
you would drop me as you have others that I
am hearing about."
Letter from Hugh Bodey, 8/10/91.
7. "The program was sold to me under, what I
now consider false
pretenses. In fact, I would go so far as to
say it was out and
outright fraud." Letter from Roger Hawks,
8/12/91.
8. "Due to the facts provided to us by you,
some of which we now
know to be out and out lies, we signed on
with your
organization." Letter from Arthur and Donna
Fuller, 8/15/91.
9. "Bob Kane [a lawyer] told our company
attorney (see memo) that
I had a zero percent chance of ever
eventually winning against
the IRS." Letter 8/16/91.
10. "Despite all the Pilot Connection's and
Greg Galaski's
efforts, I was given two options by a federal
judge: I could
comply with the court's order in person or at
the IRS office, or
I could comply from the adult detention
center in downtown Los
Angeles."
"I am asking nothing of the Pilot Connection
now, Darrell,
because I don't believe in it anymore. The
only thing I have
asked is that Don Held make good on his
promise to give me back
the money I paid him if the untax program
didn't work." Letter
from Dan Barwick, 8/3/91.
11. "When I joined the Connection I thought
they had found that
simple key to avoid taxes and a `voluntary'
part of the IRS
system, if people qualified. As it appears
now it doesn't work so
I have decided to look for work elsewhere."
Letter from Ogden
Kraut, 8/15/91.
12. "When I joined the Pilot Connection, I
believed what I was
told and being naive about patriot issues
didn't have the
knowledge to spot defects and lies in your
program." Letter,
10/14/91.
13. "I am in a situation now that I have no
income and I had to
borrow the $4,000 that I paid to the Pilot
Connection and I've
received nothing but broken promises and
lies." Letter, 11/1/91.
14. "When I first became involved with your
group I believed what
you were saying was true and factual. But the
longer I used the
Pilot Connection's system the more it becomes
evident the system
does not work."
"You have been dishonest in your allegations
and letter process
and I feel that I cannot do business with
anyone or any company
or group that is deceitful."
"You have fraudulently taken money from me
and at this time I
wish to have all monies returned to me."
Letter, 11/29/91,
15. "I cannot sell a bill of goods to someone
that I can't even
deliver for myself and my wife. We did not
have a problem
when we started this program, but we seem to
be developing one
and my wife is really scared, because she is
afraid of going to
jail and losing her job where she has 26
years service and has
only 4 years to go before retirement." Letter
from Darrell Hoover,
12/18/91.
16. "We have found, in doing further
research, at the law
library, that your organization is teaching
incorrect principles
dealing with some very serious legal
matters." Letter from Robert
and Leah Aycock, 12/18/91.
17. "I don't think you realize the sad
situations a lot of us are
in. You talk a good line over the phone, but
where's the beef?"
Letter to Pilot Connection/Phil Marsh.
18. "We have done everything in the pamphlet
plus every step Jim
Caler said and still problems. Federal and
state has attached
both of our wages again, but this time the
interest and penalties
are even higher . . . Take us off the Pilot
Connection." Letter,
1/22/92.
19. "This is our letter of resignation due to
the fact that I
believe your material and system of removing
people from state
and federal taxes is fraudulent." Letter,
3/2/92.
20. "I paid you $15,000 to take care of my
liens and levies and I
expect to see this accomplished. I have
become very insecure with
the lack of performance." Letter, 2/5/92.
21. "Now I don't know what I have to do. I
still have a lien
against me. They still did not remove the
lien." Letter, 2/25/92.
22. "Everything we have been told has been
wrong and we no longer
have any confidence with you and your
organization." Letter
5/16/92.
23. "I learned that the rest of your stupid
arguments are
`frivolous' arguments. I call them `stupid'
because the courts
are getting pissed off. They told us
[patriots] over and over
that these are frivolous arguments that they
don't want to hear
any more. They take the attitude, and rightly
so, that we are
wasting their time, and the taxpayers' money,
with arguments that
have repeatedly lost. They have no patience
with people using
these stupid arguments." Letter from Roy
Buchanan.
24. "I am writing to express my
disappointment in your `untaxing'
program . . . . I also followed your lien and
levy procedures, but
to no avail. I still have a tax lien on file
and levy notices
still follow me." Letter from Les Johnson
8/11/92.
25. "[My attorney said] that the package was
not legally sound
for me." Letter from Michael Hutton 9/9/92.
26. "According to this final notice, I do not
believe that I have
been untaxed by the Pilot Connection." Letter
dated 9/28/92.
27. Your untax program costs me $1,100 and
was absolutely
worthless . . . . Thanks a lot for wasting my
hard-earned
retirement savings." Letter from David Mayo.
28. "Upon further investigation and study I
have found your
information to be incomplete and misleading.
The damage done as a
result of placing my hope and trust in you
has created a
complexity of criminal violations that could
cost me my family,
home, business and, most importantly, my
personal freedom."
Letter from Ina Gregory 10/1/92.
29. "He inferred that the IRS does not pay
attention to the
notice of revocation and other strategies
used by the Pilot
Connection. That I might end up paying the
IRS and the P.C., that
the Pilot Connection was a scam and Phil is
mainly out to get
people's money." Letter 10/28/92.
30. "What kind of people are you anyway? You
take my money and
your organization does not perform what you
promise and then
become abusive and threatening to me? . . . I
also want my $3,500
back A.S.A.P." Letter dated November 1992.
31. "I have talked at length with people in
my town about all
that I read in your book. And most of the
response I have gotten
is — `sure, I know someone honest tried this
and they are
serving time in Leavenworth.'" Letter 11/1/92
32. "Pilot Connection Society has made false
claims to its
untaxed members, which has misled them and
also places them and
their families in jeopardy of being convicted
of tax evasion."
Letter dated 11/18/92.
33. "They levied my wages anyway. What kind
of bull is this? I
would like my $1,500 refunded. How can you
folks in good
conscience keep on with this crap? Like I
said, I do want a
refund. Because you did nothing at all to
earn the $1,500. It
seems to be a big joke." Letter from Chris
Yost.
34. "This letter will serve as my formal
resignation from the
Pilot Connection Society; effective upon
receipt. My decision to
enter into an agreement with your
organization was based on
misrepresentations made by you and your
employees. The assistance
and services I was led to believe I would
receive was never
provided. I have witnesses and proof of this
fraud." Letter from
Ed Maxime.
35. "In today's trial, the judge looked at
the P.C. material I
had included in my brief. . . . The judge
ridiculed it; said that
all of those types of approaches had long
since been tried and
rejected." Letter from Albert Baxter 12/8/92.
36. "You have claimed to have `untaxed' in
excess of 17,000
people of which surely 1 percent would have
received the letters
from the IRS . . . . I am not asking for even
1 percent of
documented proof of these letters but only of
1/2 percent of
documented proof which would be 85 letters.
(I don't even believe
that you can provide 10 percent of that)."
Letter 1/13/93.
37. "We trusted Liberty Foundation (Pilot
Connection) only to
realize that our 3 and a half year battle
with the IRS was all
for nothing. It disrupted our lives. During
wage garnishments we
had no money. Try explaining to the children
why there won't be
any Christmas. Sob stories to you, real life
to us. We lost a lot
of money by trusting in the Liberty
Foundation. Worse than that,
we lost our liberty, the very thing your
company offers." Letter
11/3/93.
The government argues vigorously that this mass of accusations
was admissible because the jury was instructed that the
accusations were admitted not for the truth of the statements
but to show the state of mind of the defendants. That was
certainly the government's rationale. The difficulty with the
government's position is that the jury was not instructed to
limit its consideration to the defendants' state of mind. In its
brief on appeal the government points to a statement of the
court made on November 20 in reference to a document then read
to the jury. This instruction has no apparent relevance to the
documents read to the jury on November 9. An examination of the
record on November 9 shows that, after being reminded of the
defendants' in limine motion, the trial court told the
government to proceed. At this time, at the start of Durrette's
reading, the jury was given no instruction whatsoever as to its
purpose or limits.
Both the prosecution and defense counsel stated that they had
"cautionary instructions" to offer. The government said its was
the instruction that the court had given during the initial jury
instructions. The court, in fact, gave no instruction, so we are
uncertain what was offered on November 9. However, we have
reviewed the preliminary jury instructions to see if they did
contain relevant cautionary words. The most relevant of these
instructions are as follows:
Evidence may be introduced for the limited
purpose of
establishing that the defendants were aware
of materials that
expressed opinions in conflict with those
expressed by the Pilot
Connection Society regarding the success of a
tax-related program
marketed by the tax — by the Pilot Connection
Society. Before you
may consider any such evidence against a
particular defendant,
you must find that the defendant knew of the
existence of these
materials or their contents. (Tr. 11/2/95,
vol. 2, at 143.)
An intent to defraud may be demonstrated by
the scheme itself.
Similarly, the defendant's knowledge of a
false statement or his
or her reckless indifference to the truth or
falsity of that
statement can demonstrate an intent to
defraud. (Id. at 149.)
In determining whether or not the government
proves that a
defendant acted with an intent to defraud and
to obtain money or
property by means of false promises or
statements or whether
defendant acted in good faith, you must
consider all of the
evidence in the case bearing on defendant's
statement. (Id. at
150.)
None of these instructions limit the jury's consideration of
material from the files for the truth of what is contained in
them.
The first time that the court told the jury why the documents
were being read — sometime into the reading — the court said,
"And it's clear from the court's instructions to the jury — and,
ladies and gentlemen, if any of you have any questions, please
let me know. But it's clear that the documents themselves are
the evidence. And they are being introduced to show what
documents were at the various locations at the various times
that the witness testified about." A little later in response to
another objection from the defendants, the court said: "This is
a document in the files of the Pilot Connection Society found on
the date indicated, and that's what the document is being
offered for. Again, is there any question that any juror has
that that is the evidence which is being offered?" Neither of
these instructions tells the jury not to consider the truth of
the matters read.
The first time an instruction on the defendants' state of mind
was given was in reference not to accusations against TPCS but
to an objection to Durrette reading from an IRS tax manual found
in the files: "The court is permitting the government to argue
cases that have been overruled as a matter of law and citing
legal principles that are no longer valid as if that's notice of
anything, and to that I most strenuously object and move to
strike." The court responded: "Well, the objection is overruled.
This is clear this is an IRS tax manual. The exact current
status of the propositions of law referred to in the manual are
not issues for the jury to decide. They are not necessarily part
of the instructions. What this is being offered for is a
document that was in the files at the place and at the time
indicated by Mr. Durrette. And that bears on it being offered
with respect to the intent issues in this case vis-a-vis the
present defendants. But we are not here to argue the law." (Tr.
11/9/95 at 78-79.) This instruction only indicates the purpose
of the reading of material on the tax laws.
To the next objection by defendants the court said: "Counsel, I
have been very patient this morning. Perhaps that's a change in
my attitude, but I am beginning to lose patience. You have made
a number of objections to this evidence. I have ruled on these.
It's clear what the evidence is being offered for. The jury has
been repeatedly instructed on this. The jury has been told that
what they are receiving are excerpts of documents that are being
admitted into evidence, and for illustrative purposes Ms. Teters
and the witness are going through and pointing out certain
things that the government contends are of significance. Now,
it's quite clear what is going on, and it need not be a process
that is periodically punctuated by speechifying by lawyers. Your
objections are preserved, and so there isn't any need for undue
interruption and prolongation of this process."
The first time any instruction regarding complaint letters or
similar materials was given was much later in Durrette's
testimony when he read from a Clarion Ledger, Jackson,
Mississippi, editorial dated March 28, 1990, which stated: "Tax
protesters become a part of the con job that is played on the
American people." Counsel for the defendants objected: "I am at
a loss as to exactly what these editorial comments are providing
notice of except the opinion of someone who wrote an editorial."
The court responded: "This is simply being offered for the state
of mind of the defendants." (Id. at 111-12.) Much later in
Durette's reading, a letter of Rudy and Gloria Medina resigning
from TPCS was read followed by a complaint letter dated
September 3, 1991. The defense again objected to these letters
as hearsay. The court stated again: "Well, as we discussed in
the past, this is being offered for the state of mind of the
defendants." (Id. at 185.)
It is apparent from this review that on three occasions the jury
was told that particular documents being read related to the
defendants' "intent" or the defendants' "state of mind." At no
time was the jury instructed that they were not to consider the
accusations as conveying truth about the facts alleged in them.
At no point was the jury told that these were limiting
instructions which confined the way they must look at the
evidence.
In the first of the rulings that responded to defense
objections, twice repeated, the court told the jury merely that
the documents being read had been found at TPCS headquarters.
The court assumed that instructing the jury that what was being
established by the reading was that the documents were found at
TPCS headquarters operated as a restraint on the jury's use of
the documents. But for all the jury was instructed, it could do
whatever it wanted with what was found at TPCS headquarters.
If these accusations were to be admitted, it was incumbent on
the court to give clear instruction to the jury distinguishing
what they could treat as showing the knowledge of defendants and
what they could not treat as evidence of crime. Aside from the
three brief and particular references cited above, no
instructions at all were given on this vital point. The three
brief references were entirely insufficient to clarify a concept
that even for lawyers is not an easy one — the difference
between taking a statement for its truth value and limiting it
simply to the effect of the statement on the mind of the person
exposed to it. Even to a person trained in the law it takes a
mental effort of some magnitude to hear a letter strongly
manifesting the mind of the letter-writer as to the truth of
events the letter-writer says have happened and to distinguish
between the asserted truth and the effect of the communication
on the mind of the recipient of the letter. There are cases in
which such letters have been admitted to show the knowledge of
the recipient, See e.g. United States v. Lasky, 600 F.2d 765,
769 (9th Cir. 1979); United States v. Farkas, 935 F.2d 962, 965
(8th Cir. 1991), but always with a clear instruction that the
letters should not be considered for the truth of the matters
contained therein. Without such limitation the accusations act
as testimony against the defendants.
The instructions ultimately given the jury as it retired did not
cure the omission. The jury was told that only defendants who
knew or "should have known" of the documents should be charged
with notice of their contents. This instruction in no way
limited the jury in considering the truth of the contents. The
jury was also told that it should observe any limiting
instructions that had been given in the course of the trial. No
instructions had been given telling the jury that it could not
take the truth of the 37 accusations enumerated above into
account.
The government does not argue that the defendants waived their
Confrontation Clause objection by not raising it again when the
final instructions were prepared. The defendants were not
obliged to object again when they had made their in limine
motion and formally presented it to the court which disregarded
it and which rebuked the defendants with some asperity when they
raised the objection again during Durrette's testimony. The
defendants did not have to perform a vain act.
As Durrette read material into the record unlimited in its
bearing, abundant hearsay was presented to the jury. The right
secured to the defendants by the Sixth Amendment was violated.
The right to cross-examine one's accusers is fundamental in our
system of justice. Olden v. Kentucky, 488 U.S. 227, 231 (1988).
Cross-examination is "the principal means by which the
believability of a witness and the truth of his testimony are
tested." Davis v. Alaska, 415 U.S. 308, 316 (1974).
When a constitutional right is violated by trial rulings, we are
bound to determine whether the error was harmless beyond a
reasonable doubt. Chapman v. California, 386 U.S. 18, 24 (1967).
The government here had a strong case based on the contents of
the Untax Packages that the defendants put together and
promoted. The defendants had a not very plausible defense that
TPCS was an educational enterprise exercising its right to free
speech. If that defense was to have any chance of creating a
reasonable doubt in the jurors' minds, the jurors had to credit
the defendants with honesty. The hearsay accusations destroyed
that chance. Taken as true, as the jury was allowed to take
them, the accusations established that the defendants were
hypocrites, liars, callous exploiters of their victims,
operators of a major scam.
The 37 accusations were overwhelming evidence of the scheme of
mail fraud charged in the indictment and exemplified in the
particular mail fraud counts. The three live witnesses to mail
fraud that the government produced were David Anderson, who
admitted to having embezzled taxes he withheld from his
employees before he had any contact with TPCS; Debbie Long,
whose disillusionment with TPCS came when the State of
California levied on her wages; and Clifford Koeper, who
believed that Untax Package did not work but became an Associate
Member of TPCS and sold the Untax Package to two others. The
burden of the government's mail fraud case was carried largely
by the accusations read into the record. When the government on
appeal states there was "ample evidence the TPCS members did not
get what they paid for," (Appellee Br. at 46.) (italics in
original), and that "there is no better proof of the fact that
TPCS members did not get what they paid for than the testimony
of the victims," (Id. at 47), the government does not cite the
testimony of Anderson, Longer, and Koeper, but appears to invoke
all the accusations that become part of what the jury had before
it.
The evidence proving the existence of a scheme to commit mail
fraud was linked to the evidence proving the conspiracy to
defraud the United States. Count One of the indictment listed
the fraudulent recruitment of taxpayers by TPCS as overt acts
carrying out the conspiracy. Addressing the jury in closing
arguments, the government specifically urged that the
defendants' deceitful recruiting of TPCS members was proof of
the conspiracy to defraud the United States ("they lie as to how
many people have been successfully untaxed, they lie as to the
numbers of people in the organization, and the effectiveness of
their methods"). The government immediately added: "The
instructions that the judge has given you are that you need only
find that one overt act, as listed in the indictment, was
committed in furtherance of the conspiracy that's alleged
there."
The accusations of fraud on the TPCS members proved, or could
have been taken by the jury as proving, both the mail fraud
counts and the conspiracy count. It is difficult for us to
determine beyond a reasonable doubt that they did not function
in this way. When you hear that defendants have told out-and-out
lies, run a scam, and used false pretenses, and you are not
limited how you can use this evidence, it would be entirely
natural to credit the accusations so vigorously advanced as
true. In confirmation of this conclusion is the difference in
the outcome of the two trials. When the government had to
produce a number of live witnesses who were themselves tax
cheats, the jury hung. With these inconvenient witnesses
eliminated, the jury convicted. The palpable difference in
result makes likely that the change of evidence to the
presentation of hearsay tipped the scales. We cannot say beyond
a reasonable doubt that the violations of the Confrontation
Clause did not produce result. The convictions of the Marshes,
the Spencers and Coltrane of mail fraud and of conspiracy to
defraud the United States must be set aside.
Carpa presents a different case. The jury was explicitly
instructed not to consider against him the letters read from the
files. The jury is presumed to have obeyed this instruction.
However, the letters went very far to show that TPCS was a
criminal conspiracy, and the existence of this conspiracy had to
be proved in order to make Carpa a conspirator. The reversal of
the convictions of the Marshes, Spencers, and Coltrane for
conspiracy leaves Carpa without other convicted conspirators and
with proof of his part in a conspiracy dependent on the evidence
showing TPCS to be a conspiracy. Under these circumstances,
Carpa's conviction of conspiracy must also be reversed.
The Commercial Liens. The filing of baseless liens to harass
government officials has become a standard tax protestor ploy.
The liens are easy to file and not easy to remove. No judge or
other officer of the government would like to have them filed on
his or her property. They bear the mark of malice, as they do in
the case where they appear as a mean response to a lawfully
authorized search. Nonetheless, the crime can be punished only
in accordance with law.
The indictment charged that the Marshes "did corruptly endeavor
to intimidate and impede" certain officers of the United States
by the filing of the liens in Nevada and Washington. The
officers were located in the Eastern and Northern Districts of
California. None were in Nevada or Washington. The liens were
mailed for filing from the Eastern District of California. The
question was put to the jury whether venue for the crime could
be found in the Northern District. The jury's verdict of guilty
so found. The affected defendants challenge the finding.
The government's argument is that an effect of the filing of the
liens was an impact on the IRS officers in San Jose, California,
who were conducting a criminal investigation of the defendants.
The government invokes United States v. Angotti, 105 F.3d 539
(9th Cir. 1997) (venue for the prosecution of the crime of
making a false statement in violation of 18 U.S.C. § 1014 lies
where the crime is completed by the statement having effect).
The problem with Angotti as analogy is that the crime of
endeavoring to impede the IRS is complete when the endeavor is
made. The government did not have to show that its agents
abandoned their investigation or even that the agents were
anxious about the effect of the liens on their credit. No effect
need be proved. The filing of the lien is the crime. The
government itself presented this exact description of the crime
to the jury in its closing argument:
"All you have to find is that there was an
attempt. Because that's what a corrupt endeavor is." (Tr.
12/8/95 at 11)
The
jury could not find that any step to complete the crime was
taken in the Northern District of California when the criminal
deeds had already been committed. Venue as required by the Sixth
Amendment was lacking. The convictions on these counts must be
set aside.
Waivers. Two issues now raised by the defendants were waived at
trial. On the face of the indictments the venue of the tax
counts was wrong: the Marshes and Spencers had been residents of
the Eastern District of California, but they were being tried in
the Northern District. The defendants said not a word about the
venue until they were convicted. They now contend that the
government might have proved some act in the Northern District
that would have related to the tax courts and justified the
venue; they could not know till the trial was over. The
defendants waited too long. They cannot sandbag the government
after the verdict is in. United States v. Powell, 498 F.2d 890,
891-92 (9th Cir. 1974).
Phillip Marsh earnestly urges that the exclusion of the evidence
of his psychological state was error in the light of our en banc
decision in United States v. Morales, 108 F.3d 1031 (9th Cir.
1997), which he characterizes as establishing a new
constitutional rule that should be applied retroactively.
Griffith v. Kentucky, 479 U.S. 314 (1987). Morales did not
announce new constitutional doctrine but applied the Federal
Rules of Evidence. Marsh cannot benefit from the case
retroactively. He waived his right to introduce the
psychiatrist's testimony by not seeking to introduce it in the
second trial. We find no plain error.
Other issues raised by the defendants need not be considered in
view of our ruling on the principal counts.
SUMMARY
The convictions of all six defendants of violation of 18 U.S.C.
§ 371 are REVERSED. The convictions of the Marshes and Jill
Spencer of endeavoring to obstruct the administration of the tax
laws are REVERSED. The convictions of the Marshes and the
Spencers and Coltrane of mail fraud are REVERSED. The
convictions of the Marshes and the Spencers of failure to file
and to tax evasion and the sentences for these offenses are
AFFIRMED.