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Dec. 30, 2000 - Bill Cooper
14:04
Minutes II – Tax Cheats
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Taxism and the Internal Revenue Service have taken aim at a new group of tax protesters.
The target?
Dozens of small business owners who have stopped withholding taxes from their employees' paychecks.
They say there's no law that requires most Americans to pay income taxes and have publicly challenged the IRS to prove them wrong.
It is a tax revolt that is a direct challenge to the way our tax system runs.
70% of the taxes the IRS collects is turned in by the nation's employers.
But some of these protesting businessmen are not your garden variety tax cheats.
They think they're defending basic liberties threatened by big government and are willing to put not only themselves, but their companies and their employees in jeopardy to, as they see it, keep that government in its place.
This country was founded on principles of freedom.
Our founding fathers... If Karl Marx were to look upon the IRS, he would have been very proud.
It's despicable what the Internal Revenue Service allows to happen in this country.
We don't want to be tax cheats.
These are voices from inside something called the Tax Honesty Movement.
It's a loose band of lifelong tax warriors and their new recruits.
Average Americans, people who own companies, and incredibly, Even former IRS agents and auditors like Sherry Jackson.
They're calling us tax chiefs, they're calling us fanatics, they're calling us weirdos.
I don't care what you call me, but I have one question.
Where is the law?
Show me the law!
The law she's talking about is the tax code.
And the way they read it, it means average Americans shouldn't pay income taxes the way we do today.
Al Thompson is one of the small businessmen in the movement.
He's never broken the law, paid sales and property taxes.
He's been paying his income taxes since he was 16.
He's not paying them anymore.
we're paying a lot of money that we don't need to into a system that is basically extorting
money from its citizens.
And it's got to stop.
Somewhere it has to stop.
Thompson lives a comfortable middle class life in Northern California and owns a small
aviation supply company employing 25 people.
And here's what's unique about him.
He controls the payroll like others in the movement and he's not withholding taxes from
his employees.
We wanted to know why a man like this would do something so radical.
Why did you decide to stop paying taxes?
Well, I read the income tax code and the corresponding regulations.
Those huge volumes?
Yes.
Read the code?
Yes.
And it changed my mind completely.
Thompson says the way he reads the tax code, the term employee does not include people who work for private companies.
Now you have stopped withholding tax from your employees.
Yes.
Why?
The definition of employee only refers to federal workers.
Let me read this definition.
The term employee includes an official of the United States, a state, or any political subdivision thereof, or the District of Columbia, or any agency instrumentality, or any one or more of the foregoing.
The term employee also includes the officer of a corporation.
Yes.
What's wrong with that?
It doesn't include people that live and work in the 50 states.
Hogwash.
We asked Georgetown University professor Clarissa Potter, who has written tax law, what's wrong with Al Thompson's interpretation.
When the word includes is used in the tax code, it means that the list that follows is not exclusive, meaning that there may be other people that are within the definition of the word employee that aren't in the list that follows.
But that doesn't convince Al Thompson.
How can you say an employee is not the people who work for you?
Because that's what the code says.
You're willfully misleading.
No, I'm not.
You're willfully misinterpreting.
No, absolutely not.
If that were true, I would give it up tomorrow if I thought that that was true.
If it sounds like he's splitting hairs over wording in the tax code, he may be.
But the Internal Revenue Service is not taking it lightly, because growing numbers of small businessmen are doing the same.
IRS Commissioner Charles Rosati says they're going after all of them.
We are particularly vigilant about employment taxes since they're so important and they affect employees as well as taxpayers.
And when we find these folks, regardless of what their claims are, we do take enforcement action.
If necessary, we take them to court and they end up paying not only the taxes but fines, and as I mentioned, in some cases, going to jail.
So you are actively looking into these cases right now?
In any situation in which we determine that there may be businesses not paying their taxes, we are very vigilant about finding out about that and taking appropriate action.
How concerned are you now that this seems to be moving away from being just a fringe movement and into the mainstream?
Frankly, this kind of Activity has come and gone over the years, and it never has taken off.
And I think it's really a tribute to the common sense of the American taxpayer.
You know, most people really believe that if something's too good to be true, it really is.
And that's what you have here, because it really is a scam.
Rosati is cracking down.
The IRS is suing one of the business owners in the movement.
Others, some of whose names and companies are posted on different websites, have, in just the last three weeks, So these are some of the employees?
Al Thompson knows he could face back-breaking fines and even prison.
He's written to the Commissioner, hoping 40 years of paying taxes would warrant an answer to his questions, not
prosecution.
The answer he got? The IRS went after his bank records and put his employees on notice.
So these are some of the employees for whom you are no longer withholding?
Yes. They take home a full paycheck.
All of it.
Two employees quit over Thompson's decision.
The 25 he's held on to don't want their faces on camera.
But we found out that extra money in their paychecks doesn't ease their anxiety about being caught between the boss and the IRS.
My taxes aren't being taken out, but I plan on paying my taxes.
Which has been hard for me because I'm not good at saving money.
So this is a scary thing?
It's a scary thing, yes.
And some of the people, you know, here don't understand what's going on, like myself.
I understand some of it.
I've read some of it and some of it makes sense, the laws and stuff, but, you know, not totally.
And I believe that the IRS should give Al an answer one way or the other on this and settle this issue instead of dragging it on and on.
This is Al's argument, though.
Well, not when I receive letters here that's addressed to me.
This is not addressed to Al.
It's addressed to me.
And that's what worries you, is that the IRS is coming after you.
Yes.
Because I didn't voluntarily do this.
It's not just about withholding.
It's also, they say, about fairness.
Some inside the tax honesty movement think a national sales tax or a flat tax would be more fair than the income tax.
At the heart of this protest is a disagreement over what was intended when income taxes began.
It actually was the bombing of Pearl Harbor that brought the tax man into most American lives.
To raise a war chest, income taxes, once paid only by the rich, were extended to all Americans for the first time in history.
The expanded tax was supposed to be temporary, ending when we won the war.
The income tax was so new, the government commissioned a Disney film starring citizen Donald Duck.
He made filing returns look easy for the millions of new taxpayers, and promoted the benefit of withholding.
Roger Pilon, who studies tax policy at the Cato Institute, a Washington group that advocates smaller government, Isn't surprised this kind of protest has started, especially among small business owners.
These people, as businessmen, are being asked not only to pay the taxes for their employees and for themselves, but to collect the taxes.
In other words, they are in effect deputized as agents of government, and they're not being paid for that.
Isn't that the cost, though, of doing business?
Well, that may be the cost of doing business if you're looking at it from the government's perspective.
A lot of people still say these people are tax cheats.
Yes, technically speaking, but put yourself in the position of the employer.
They see the government raining down upon them one regulation after another, and one tax after another, making it ever more difficult for them to conduct their business.
Al Thompson says it wasn't just the cost of doing business that sent him searching the tax code.
It had a lot to do with this man.
Joe Bannister is now Thompson's accountant and is something of a hero in the tax honesty movement.
You were an enforcer?
Yes, I was a special agent or criminal investigator for the IRS.
Joe Bannister, equipped with badge and gun, investigated tax sheets until he started reading the tax code.
And you felt comfortable for five and a half years enforcing those laws?
I felt comfortable for the first three of the five and a half years that I was with the IRS.
But at the end of my third year, I began to investigate the claims that were made by people who said that the income tax was not mandatory for all Americans to pay.
Eventually, Bannister sent a report of his findings to his bosses, questioning even the constitutionality of the IRS itself.
They wrote back and suggested he resign.
You are still working as an accountant.
You have clients.
Are you advising them not to pay their taxes?
No.
But I also tell them that the IRS has ruined people's lives.
And that it's risky to do something other than what the IRS expects.
We asked the Commissioner about agents flipping sides and joining this movement.
We know about four IRS agents who have, let's say, gone over to the other side.
You know, it's a free country.
As far as free speech, you know, anybody can say anything that they want to, but when the matter is put to the test, which means in terms of court and enforcement action, there is a 100% success rate in shooting down these arguments.
Often courts dismiss the arguments without hearing them.
Al Thompson and the other businessmen want their day in court.
Of all the issues involved in this protest, Thompson is betting his business on the argument that the tax code simply does not include private business employees.
He thinks he could win that argument.
What about people who would say you two are just savvy tax cheats?
I spent five and a half years investigating tax cheats.
I know what a tax sheet is.
And Al Thompson is not a tax sheet.
What's the difference?
They hide.
They hide things.
Al Thompson has done the complete opposite of all those things.
It's true, Thompson has been incredibly public about his actions.
He and a few other business owners have appeared in full-page newspaper ads pushing their cause, almost taunting the IRS.
Joe Bannister has moved more cautiously.
Do you pay your taxes?
I've written checks to the government as my quote-unquote fair share.
Why do you pay it all?
The purpose of me writing a check to the government is to show them, show my fellow citizens that I'm not trying to cheat anyone.
This is your business.
Al Thompson says he's an honest man asking honest questions that a concerned government should answer.
Commissioner Rosati says there's a place for him to ask those questions.
You know, there's a lot of questions that people can raise about how the tax system in this country is structured, how the tax code is structured, and that's why we have a democracy and we have Congress and everybody has a right to go and talk to their congressman or their senator about what they like and they don't like about the tax code.
The government's going to question, right?
Oh yes, the government will eventually do so in this case.
I'm not suggesting this as a legal matter.
I'm suggesting this as a political matter.
Like a moral matter.
These people are, in a certain sense, foolish heroes.
They're foolish because they're reading the tax law in so strained a way and they will, in time, pay the price for it.
But they're heroes in the sense that they are bringing public attention to an issue that needs public attention.
Log on to cbs.com to check out your chances of being audited by the IRS.
I'd like this one and that one, Daddy.
You're paying the man for the rabbits now.
It's all right, it's all right.
I have to see some ID.
Okay.
I have to call this in.
Okay.
Excuse me a minute.
Daddy?
I have to see your second ID.
Oh, thanks.
This doesn't look like you.
Heya, buddy.
Terry, I've got a math question for you.
Okay, shoot.
What's the total cost of a satellite TV system?
Uh-huh.
Plus installation.
Okay, honey.
Plus a new RCA DVD player.
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