Defendant maintains anti-income tax stance

David Kihara

Wednesday, Sept. 14, 2005 | 9:52 a.m.

The defendant in a tax evasion trial that began on Tuesday said he is innocent of the charges against him because there is essentially no law that requires people to pay income tax.

In a rambling opening statement that brought at least seven objections from a Justice Department lawyer and just as many admonitions from U.S. District Judge Kent Dawson, Irwin Schiff also tried to discount his alleged influence, saying that doctors, lawyers and others wouldn't stop paying income taxes just because he told them to.

"In my view, there is no law requiring people to pay income tax," said Schiff, who is representing himself in the criminal case against him.

The trial is expected to last five weeks.

Schiff and fellow defendants Cynthia Neun and Lawrence Cohen are facing multiple criminal charges in U.S. District Court, including aiding and assisting others in filing false income tax returns, attempting to evade paying taxes and failing to file false returns, according to a March indictment.

The indictment charges that Schiff filed "zero return" tax forms, in which he would enter zeros in every line for expenses and income. Schiff, Neun and Cohen allegedly filed or helped file for people almost 5,000 "zero return" tax forms.

People would then make claims for a full refund of all federal taxes withheld or paid, the indictment stated.

During his opening statement, Schiff denied that he was involved in breaking any laws because he was unaware that any laws existed requiring people to pay income tax.

Unlike "universal laws" such as robbery, stealing or rape -- which someone from Taiwan would intrinsically understand -- taxes in the United States are different because someone would need to know they have an obligation to pay taxes, he said.

He also said that he never attempted to hide what he was doing, and that he is a high profile lecturer who had a local radio show and authored numerous books, including "The Great Income Tax Hoax" and "The Federal Mafia: How the Government Imposes and Unlawfully Collects Income Tax."

"The government knew what I was doing -- I didn't make it a secret," he said.

The Justice Department, however, said Schiff and the other defendants were involved in what amounted to a scam.

Jeffrey Neiman, attorney with the Justice Department's Tax Division, said the defendants would advertise the "zero return" tax returns as a way to not pay taxes and would sell people a $38 book explaining how to do it.

Neiman also conceded that the Internal Revenue Service also did not catch some of the "zero returns," and that Schiff held them up as proof that his method worked.

However, after clients or followers of the practice would get into trouble with the authorities, Schiff and others would continue to offer help by selling more merchandise from Schiff's business, Freedom Books, Neiman said.

Schiff could sell anything from $2 bumper stickers to $415 video and cassette seminars that offered ways for the people to get out of further tax troubles, he said.

From 1997 to 2002, Freedom Books generated gross business receipts of $3,726,000, the indictment stated.

"He encouraged thousands to file the zero returns," Neiman said.

The first witness called, Antoinette Mitchell, a former employee of Freedom Books, testified that she filed "zero return" taxes for about three years after hearing Schiff on a paid radio broadcast on AM 1230.

She eventually volunteered for Schiff because she wanted to be "close to what was going on, basically for the cause," she said.

Schiff paid her $10 an hour in cash, and she said she never received a W-2 or 1099 tax form.

The IRS eventually penalized her, she said, and she is facing a $17,000 lien on her home.

Neiman also accused Neun, Schiff's former girlfriend, of not reporting income she received from working at Freedom Books because she would have lost about $600 a month in Social Security benefits.

Nuen's attorney, Michael Cristalli, told jurors that the essence of his case is whether Neun believed whether Schiff's "teachings" were legitimate.

"Cindy sincerely does not believe that the government has legal authority to collect personal income tax," he said.

Cristalli framed Schiff's tax beliefs in almost religious terms and described some who followed Schiff, such as Neun, as willing to give up many things to practice his ideas.

"Her belief system ruined her" financially, emotionally and even hurt family relationships, he said.

"She sacrificed her life for this belief," he said, adding that Neun didn't seem like someone who was profiting from her belief system because she had so little.

Chad Bowers, attorney for Lawrence Cohen, also stated that his client believed in the "zero return" tax idea, that it was an expression of his beliefs.

However, Bowers also also tried to put a little distance between Cohen and Schiff and Nuen, saying that Cohen is not alleged to have shared in any of the profit from the Freedom Books venture.

"This plan was designed to overwhelm the IRS and make money," Bowers said. "That isn't going to be presented for Larry Cohen. Larry genuinely believes this."