IRS Abuse

If you go on the Internet and search "IRS Abuse" you will discover a long list of sites document cases of IRS abuse of individuals and companies. From abuse of individuals, the IRS has now graduated to the abuse of 5,637 citizens at the same time and in one case. This is how it happenend:

 In 1991, three individuals in the Chicago area were selling Living Trusts through a corporation named "Heritage America". A Living Trust allows a deceased person to have their estates settled without going through state Probate Court. When an estate is settled in Probate Court the assets of the estate are reduced by court fees, executor fees, appraisals, and attorneys fees, and it is a long time-consuming procedure. The cost of a Living Trust is $1,000 to $2,000 regardless of the size of the assets being transferred. This cost is minimal compared to the cost of Probate.

Although the use of a Living Trust has been legal for decades, lawyers have been reluctant to advise clients to use a Living Trust because they will not receive the fees awarded in a Probate proceeding, which can amount to anywhere from about 5% to 20% of the assets of the estate. Heritage America was committed to helping citizens preserve assets for their heirs and avoid a long, costly and complicated court procedure.

When Heritage America hired an in-house staff attorney in 1991, he dissolved the corporation and restructured Heritage America into a private membership organization (with the same legal structure as AARP, NAACP, Illinois Bar Association, etc.) The advantage being that these private associates could provide legal advice to its members and not be exposed to the charge of practicing law without a license, The U.S Supreme Court has so ruled.

Heritage grew rapidly and in a few years had signed 5,000 members in 20+ states resulting in millions in savings for its members and millions in lost attorneys fees for the legal profession.

The Heritage attorney was aware of another trust called a "Business Trust" that he provided for many of his private clients. Many of these trusts were audited by the IRS and the audits were closed without objection to the structure or legality of the trusts. The business trust is created by the parties by a private contract that creates a legal entity such as "ABC Company" that is authorized to operate a business. It is an alternative to using a state or federal corporation or a sole proprietorship. The Business Trust has several tax advantages. It can defer capital gains tax for a period of time, save income taxes and eliminate estate taxes. It also provides asset protection and privacy since it does not have to be registered with the state or federal government. The Business Trust is legal in every state and is used by many large corporations to operate parts of their business-- such as Nouveen, WalMart, etc. The Sears Tower in Chicago was put in a Business Trust before its' sale to Japan to defer capital gains taxes. The first Business Trust was legalized in English Common Law, when our government was formed, the Business Trust became legal in American states. IRS regulations recognize the validity of the common law. IRS Regulations specifically exclude the Business Trust from any of the provisions of the Internal Revenue Code....therefore it is not a taxable entity. Since no other federal law applies to a Business Trust, its legality and taxability is determined only by the state law where the Business Trust contract is executed. In 1993 the principals of Heritage and the attorney decided to set up a new private membership association- The Aegis Company--to promote the use of a Business Trust for members to operate their businesses. Aegis contracted with agents in several states to solicit members. It also promoted business trusts by using seminars. The Aegis seminar progran was eventually approved by the Ohio and Pennsylvania Supreme Courts. All members were advised to present the program to their attorney or CPA before they accepted the Aegis program. Aegis was very successful and grew to 637 members in several years. The growth resulted in saving members millions in Federal taxes.

Saving members of Heritage and Aegis millions in attorneys fees and federal taxes attracted the attention of several state bar associations, especially in Illinois, and the IRS. The first assault came form the Illinois Attorney General. They passed a statute designed to put Heritage out of business, but it was subsequently declared unconstitutional. They (IRS) had been working with the Attorney Registration Commission of Illinois (ARDC). When the Attorney General failed, they wrote to the ARDC suggesting that the best attack on Heritage was to discredit their attorneys.

While this ws developing, one of the principals of Heritage and Aegis was exposed as embezzling $200K+ from Heritage. He was dismissed from both companies and sued in state court which confirmed the embezzlement. His response was to take Aegis and Heritage documents and start his own company doing exactly the same as Aegis and Heritage. He eventually went to prison for defrauding his members of millions.

Before prison, to spite Aegis and Heritage principals and their in-house attorney, he filed a complaint against them with ARDC in Illinois and Ohio, alleging Aegis and Heritage documents and programs were illegal. He also filed a complaint with the IRS with the same allegations. Ohio dismissed the claim, but this opened the door for a conspiracy between the ARDC and the IRS to put Aegis and Heritage out of business and discredit their attorney and succeeding attorney who replaced the in-house attorney when he retired in 1996.

ARDC, with the backing of the IRS, filed a complaint to disbar the in-house attorney and his successor, based on the allegations of the embezzler. The IRS sent agents to Aegis and Heritage representatives and verbalized the allegations, saying that they would put Aegis and Heritage out of business. Even though the trusts of Heritage and Aegis did not come under the jurisdiction of Federal Law and were only under the jurisdiction of state law, the IRS agents alleged the trust documents were illegal. Since they had no Federal law to back them up, they fabricated their own law by saying the trust documents were "abusive" or a "sham". The process of IRS abuse and intimidation expanded.

IRS sent hundreds of summons' to Aegis members, without authorization of a court order, demanding financial records. They also seized members bank records without court order. When they met with a member they said that their trusts were illegal (shams). They should tear them up and pay back taxes (the tax savings the trusts secured) plus penalties. They were extorting money they had no legal basis to demand.

The next IRS assault was a series of wiretaps on Aegis and Heritage office phones and the phones of the principals and the in-house attorneys. Undercover agents appeared at Aegis and Heritage seminars. This harrassment went on for years.

It all culiminated in an indictment of Aegis and Heritage principals on April 8, 2004. To secure evidence, prior to the indictment, the IRS raided the offices of Aegis and Heritage at gunpoint on March 30, 2001, and took all the records of both companies. They also took the personal and financial records of 5,637 members. The application for the search warrant and the probable cause affidavit supporting the raid were not signed under oath as required by law. The principals filed suit in Federal District Court in Chicago in 2002 to set aside the search warrant used in the raid. The judge took the case under advisement and to date has refused to rule.

In the indictment case a motion to supress all evidence secured by the search warrant was made. The judge ignored the unsigned application and affidavit of probable cause and ruled against the motion and refused to allow defendants access to the unsigned documents. He (the judge) put them under seal!