From the September 2000 Idaho Observer:
An Odyssey of Fraud and Taxes
It began innocently enough, but as the following story will show, those who collect the revenue for the State are not so innocent. If it were an honest mistake it could have been corrected early on. But fraud seems to be a real issue in this case. As I began a simple effort to correct a simple mistake, I also began an odyssey into the land of fraud and taxes -- how our State government takes it living in the real world of commerce, law and the UCC. Among the interesting discoveries along the way, is how government uses commercial presentments under commercial code to manufacture tax liabilities, apparently with the hope that uninformed and unsuspecting taxpresentees will fall victim to their well-laid trap of commercial presentments.
By Hari Heath
In the beginning I thought it must have been a mistake on the part of the IDAHO STATE TAX COMMISSION. $50,000 a year in taxable income? It would have been nice, but we didn't make $50,000 a year in 1995 or 1996; far from it.
As a small independent logger I watched the era of the mega timber sales coming to an end, leaving the big timber outfits scrambling toward an uncertain future in the mid 90s. The dwindling federal timber supply sent their former employees forging out on their own. A growing swarm of small independent loggers were headed for the remaining available timber -- on private ground. The writing was on the wall. Compete in the thick of things or find a niche and fill it.
My efforts to enhance a small logging operation with a portable sawmill seemed like a good idea. Selling a finished product instead of raw logs would add value to my productive efforts and require less trees to provide a livelihood for my family at a time when resource availability was questionable.
The plan would have worked if the sawmill did. Nine months of promises from the sawmill manufacturer that it would be here in a week or two didn't help matters. It took another nine months of endless adjustments to the mill, phone calls to the factory and a visit by their technician before the mill would cut accurate lumber.
The final blow to the sawmill plan came when a simple fact revealed it self. No matter how hard I tried, even when the mill was cutting right, daily production would never exceed one-fourth of the manufacturer's advertised claims.
After two years of letting a logging operation idle while relying on the sawmill manufacturer's promises and claims of performance, things didn't look so good. Like too many Americans, I had built a business on credit and that business failed. After paying off creditors by selling my logging machine, my equity in the sawmill and some land, there was more debt than I could repay, so I went bankrupt in the winter of 1995-1996.
I still had about $26,000 in debt after liquidating my assets. Why does that matter for this story? - Because bankruptcy courts do not grant $26,000 in relief to people with a $50,000 a year income.
On October 8, 1997 The State Tax Commission issued a NOTICE OF DEFICIENCY claiming I had a gross income of $50,000 for the years 1995 and 1996. I responded timely to this commercial presentment with a written protest on November 11, 1997. The protest included notification to the Commission that the alleged income was a false, arbitrary and fraudulent construction.
The alleged tax debt was rebutted as not being owed and that no such information exists which could create such an Idaho Adjusted Gross Income. Notice was given to the Commission of the fraud and other errors in their conduct and they were given 20 days to rebut the statements and facts presented in the Notice and Protest. The Commission failed to respond or rebut the claims in my Notice and Protest, other than acknowledging the protest as timely.
The Commission invited me to appear at a hearing, or to submit further documents regarding this matter, in a letter dated February 6, 1998. Since the Commission had not answered previous questions, nor rebutted the claim that the alleged $50,000 a year income was false and fraudulent, I saw no reason to have a hearing. As a commercial presentment, my protest had standing and merit, timely rebutting their Notice of Deficiency and noticing them of their fraud in its rendering.
Without answering any of the issues raised in my Notice and Protest, the Commission issued a Decision on May 19th, which claimed:
The Bureau undertook an investigation using a number of sources to determine the taxpayers' income. Based on all the information available, the Bureau determined that the taxpayers had a gross income of $50,000 for both 1995 and 1996.
Further in the Decision it was claimed:
The taxpayers have not provided any information that would refute the Bureau's determination that their income is $50,000. And further: The Bureau has made a determination based on all information available that the taxpayers are liable for taxes, penalty and interest for the years 1995 and 1996. The taxpayers have failed to come forward with any information to rebut this claim.
The Decision was signed by Idaho State Tax Commission Commissioner, Coleen Grant.
How can this be, a reasonable person might ask? Clearly on its face, the Commission's decision is based on fraud. They were given notice that the claimed income of $50,000 a year was false and fraudulent. They failed to further investigate and provide any actual source of information that would evidence the alleged income of $50,000 for those years, even though they were noticed of their errors. They failed to rebut the claims in the Notice and Protest. And they claimed that I failed to come forward with any information to rebut this claim.
Since the Commission obviously was not going to correct its own errors and was now attempting to take over $7,000 from me through administrative and commercial process, I thought a little lawsuit might shine some daylight on the dark dealings at the Tax Commission. The Commission allowed 91 days to appeal their Decision to the District Court. Since there were more than a few facts at issue, and matters of law, I filed a Declaratory Judgment action seeking to nullify the Decision by a judicial declaration exposing various administrative procedure and due process violations, as well as their fraud. I also sued to obtain damages from the Commission, it's Commissioners and the agents involved.
The Commission responded, not by answering the Complaint, but with the perennial Motion to Dismiss I have come to expect from government agents whose misdeeds were exposed. Simply, they had no defense to offer. They were caught, so they were attempting to get rid of the case through procedural trickery.
While an appeal is a method provided in the Tax Code to remedy any errors of the Commission, I chose to bring a suit under the Declaratory Judgment Act, which is a statutory remedy available to litigants when their rights, status or legal relations are involved in an actual controversy.
The Commission's Motion to Dismiss attempted to rewrite my Declaratory Judgment action as an appeal under the Tax Code so it could be dismissed pursuant to Idaho Code 63-3049 and Rule 84(s) as an appeal. Since I filed my suit 94 days after their Decision and three days after the appeal time ran out, under Civil Rule 84(s) appeals from agency decisions are dismissed which are not timely filed.
How many people read the Civil Court Rules all the way through Rule 84(s)? Drag the poor citizen through the minefields of law, while the guilty escape, with their jobs intact.
As a matter of law, their dismissal is only possible by construing my suit, brought as a Declaratory Judgment action, as an appeal. It is not within the power of the district court to act as my attorney and amend my Declaratory Judgment complaint, thereby restructuring it as an appeal.
With clear and uncontroverted allegations of fraud appearing in the Complaint the suit also should have stood on its own merits, in the form in which it was brought. I objected on these grounds to the dismissal motion and moved the trial court to give the Defendants more time to answer the Complaint. I knew they had no information available to them that would evidence their claim of my $50,000 a year income and I wanted to prove it. It was total fiction on their part. I knew it and they knew it.
In an effort to prove their fraud and defeat their Motion to Dismiss, I subpoenaed Commissioner Grant who signed the Decision to appear at the hearing and bring any documents or information which was used to determine the alleged $50,000 a year income.
The fraudulent foundation of the Commission's Decision would render it void and moot, leaving no document of substance to appeal from. This, in theory, would defeat their Motion to Dismiss and require the full trial of my issues. As the courts have decreed:
So how did the Commission's counsel, Deputy Attorney General Brian Nicholas, respond to that? When darkness is about to face the light of day, find some way to keep things in the dark. He squashed the subpoena with a telephonic hearing a week before our Motions hearing.
Since they were likely to win their Motion to Dismiss there would be no need for Commissioner Grant to appear, the Judge decided. She would not be compelled to evidence her lack of evidence of the Commission's claim of the alleged income. And since I wasn't allowed to evidence their fraud, and the judge took the liberty to amend and reform the statutory basis of my suit, the Motion to Dismiss was granted. Funny how things work out when the defendants and the judge have the same employer. The fraud and taxes odyssey continued, as we headed off to Appeals Court.
In the course of my attempts to fix this simple mistake, I have learned a few things about how our tax system operates. From my studies of Tax Commission Rules and statutes, there are only two methods to create an assessment of tax liability. One, the act of filing a tax return creates a self-assessment. That's right, you voluntarily assess your own taxes by filing a return.
Two, the Commission's only method of assessment is primarily by default. Using a commercial presentment process, more simply known as sending out a tax bill, the Commission attempts to assess a tax liability by either a failure to timely and sufficiently protest a Notice of Deficiency or appeal a Decision. This process has an inherent inclination for fraud, as my case evidences.
The Commission, knowing all the hurdles the citizen must jump, can make any claim they want, say an income of somewhere between zero and $100,000, in a Notice of Deficiency. The citizen then must timely and sufficiently respond or suffer a default under commercial law. As in my case, a timely and sufficient response can be willfully ignored and a decision rendered, in the absence of any facts.
Once a decision is rendered, a citizen must then pay a sizable bond of 20 percent on the tax liability claimed by the Commission, for taxes he may not owe, before they can jump through the appeal hurdles.
How many citizens cave in to false claims of the Commission and pay up, simply because they cannot either afford counsel to defend themselves, or expend the considerable effort to understand and effectively respond to the Commission's acts and their in house army of attorneys? The complexity of the process makes it likely to create assessment by default and a propensity for fraudulent claims by the Commission, who have the deck stacked in their favor. I suspect that the fraudulent acts of the Commission that I experienced are not the exception, but rather, the norm.
One interesting feature of our State tax scheme is that it pivots entirely on a taxpayers federal tax liability. Under Idaho Code 63-3030(a)(1), those who do not have a federal tax reporting requirement do not have a state reporting requirement either. With the many challenges to the validity of the IRS, the provable non-ratification of the 16th Amendment, and many other federal tax issues, our state tax scheme is resting on thin ice.
Leaving these other issues aside, for the simple reason of a limited income, I did not owe any federal tax for the years in question and not owing any tax I have no obligation to report or self assess to the State Tax Commission. While the Commission may desire that I report, thereby making a self assessment and granting them the power, under statute, to reassess as they see fit, I have no beneficial interest or obligation to do so.
Yes, once you file a return and self assess, you have just empowered the Commission to reassess your income as they see fit.
And what happened when the Idaho Court of Appeals had all the facts laid before them, the fraud exposed, and the light of day shining on the misdeeds of the Tax Commission?
The Appeals Court ignored the issue of fraud except to mention in their opinion that I alleged fraud. They found an artful way to dismiss the case on a peripheral issue and leave the substance of the case undecided.
Although it is well known to the Commission's Counsel Nicholas that there is no evidence of the alleged $50,000 a year income, and the bankruptcy during the years in question proves the lack of the alleged income, Counsel Nicholas continued to perpetrate the Commission's fraud and had the audacity to seek attorney fees by claiming my efforts to prevent this fraud against me and my family was frivolous and without foundation.
At least the Court of Appeals didn't grant his requested sanctions.
After we lost in the Court of Appeals, my wife contacted the governor to try and get the governor's office to straighten out this simple mistake.
The governor's aide, Allison McClintick listened to our story and contacted the Commission. The governor's aide said all the Commission wants is for us to file our taxes for those years and this whole thing will be over. We explained we do not have any obligation to file because our income was below the filing guidelines and if we did file then we are self assessing and the Commission is then empowered under statute, to reassess as it sees fit. Given our experience we have no desire to empower the Commission to do anything. If this whole thing can be over just by our filing a return it could just as easily be over by the Commission fixing the mistake it made in the first place.
The governor's aide said the Commission admitted to her that there was no evidence of the alleged $50,000 a year income and she didn't believe the Commission would try and collect from us. So what shows up in our mailbox a few months after we lost at the Court of Appeals? A NOTICE OF COLLECTION from the Tax Commission seeking to take over $7,000 from us.
Further conversations with the governor's office put us in touch with Field Office Manager Joe Schortz at the Coeur d'Alene Tax Commission office. He stated he didn't want to talk about our rights and he didn't want to hear anything about the Constitution. We just needed to file a return.
When asked how we could owe anything that was totally fabricated from a fraud, he said it was a legally collectable debt.
We asked what law requires us to file a State return and he directed us to Idaho Code 63-3030. That is the Code section that pivots the entire state tax scheme on a federal reporting requirement. Since we made less than the federal filing guidelines we have neither a state nor federal filing obligation. We are still waiting for him to show us the law that says we have to file a return.
Several important concerns have been raised as we have attempted, in honesty and good faith, to negotiate this odyssey of fraud and taxes with the state:
* Can a lawless agency fabricate claims at will, with impunity, while seeking to extort revenue from citizens?
* When caught engaging in such fraud, can those agents then employ counsel who knowingly perpetuates their fraud?
* Is a judge allowed to re-write a plaintiff's complaint, fundamentally altering its form so as to protect the guilty, while the innocent suffer hardship?
* Can a State salaried deputy attorney general add insult to injury by seeking attorney's fees on the grounds of frivolous suit?
* Why does a Tax Commission agent go into a rage against our rights and the Constitution, yet be unable to show us the law requiring us to file taxes, while also claiming that a debt fabricated from fraud is legally collectable?
* Why has the Tax Commission used the UCC to manufacture an alleged tax liability by presentments under commercial process (see Idaho Code 28-3-501)?
* Is this evidence that our government is nothing more than a business?
* If government uses the UCC against us, why can't we Citizens use it in reverse?
Stay tuned as this odyssey of fraud and taxes continues.
Mr. Heath has spent the last several years in court as a perpetual pro se litigant. You could say he has dedicated every spare ounce of energy, every spare penny and every IQ point in his Highlander brain in an attempt to find a method whereby ordinary people can find justice in the courtroom. As he stated earlier in the above article, what happened in this case of state-conspired tax fraud is not the exception. Unfortunately, fraud and conspiracy in our courts is the rule.
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