Seven individuals associated with a tax fraud group known as “We the People” were convicted today on various federal charges related to the promotion of bogus tax shelters that falsely promised to limit exposure to federal income taxes.
A federal jury in Los Angeles convicted the seven on charges that included conspiring to defraud the Internal Revenue Service, fraudulently using Social Security Numbers and failing to file income tax returns.
The California residents convicted today are:
* Lynne Meredith, 54, of Sunset Beach, the owner and operator of We the People;
* Gayle Bybee, 56, of Sunset Beach;
* Gregory Paul Karl, 54, of Solana Beach;
* Teresa Manharth Giordano, 41, of Murrieta;
* Willie Watts, 45, of Murrieta;
* Betty Erickson, 59, of Windsor; and
* Nora Moore, 55, of Huntington Beach.
* Following the guilty verdicts, Meredith and Bybee were remanded into custody by United States District Judge Dean D. Pregerson.
* The defendants are scheduled to be sentenced by Judge Pregerson on July 23.
* The evidence presented during a 13-week trial showed that beginning in 1991 and continuing until April 2002, Meredith conducted seminars at which she sold books and bogus “pure trusts” to people with the purpose of leading them to believe they could legally shield income and assets from taxation. Meredith and her co-defendants encouraged and assisted taxpayers by forming phony “pure trusts,” opening bank accounts with phony Taxpayer Identification Numbers, filing fraudulent income tax returns and encouraging taxpayers not to file income tax returns.
* We the People sold the “pure trusts” for approximately $500 to $1,000 at seminars that were held throughout the United States and internationally. To entice potential “trust” purchasers at seminars, Meredith said that each “trust” was customized for the particular customer, who would retain complete control over their businesses and assets placed in trust without incurring and tax liability.
* Meredith also encouraged taxpayers to file frivolous tax returns that falsely reported that taxpayers did not have any taxable income and fraudulently requested a refund of all income taxes paid. The defendants also encouraged taxpayers to send protest correspondence to the IRS with the purpose of impeding and obstructing the IRS from collecting these taxpayers’ taxes.
* Meredith wrote books, including How To Cook A Vulture and Vultures In Eagle’s Clothing, in which she falsely claimed that individuals could lawfully stop paying income taxes, stop their employer from withholding income taxes, and refuse to produce books and records to the IRS. The books contained examples of frivolous tax returns and protest letters.
* The defendants falsely told their customers that paying taxes is “voluntary,” and that they could file a W-4 or W-8 form with their employer claiming to be exempt from federal income tax withholdings. In fact, under federal law, anyone who earns income more than approximately $8,000 must file a tax return and pay taxes. There is no vehicle into which businesses or income may be placed to avoid the payment of income taxes. Those customers who purchased and used the “pure trusts” to hide income face serious financial penalties and interest for the income taxes they failed to pay.
* From 1991 until 2002, Meredith caused thousands of taxpayers to file fraudulent income tax returns with the IRS. Those fraudulent tax returns sought refunds for as much as $32,822.
* The jury heard evidence that Meredith earned more than $8.5 million as a result of the scheme. Meredith did not file a Federal income tax return during these years, and she did not pay any federal income taxes. Furthermore, none of the other six defendants filed or paid any income taxes on income they earned in the scheme.
* Meredith was convicted of conspiracy, four counts of mail fraud, two counts of using a false social security number, making a false statement in a passport application and five counts of failing to file a tax return.
* Bybee was convicted of conspiracy and three counts of failing to file a tax return.
* Karl, a former CPA, was convicted of conspiracy and four counts of mail fraud.
* Giordano was convicted of conspiracy, four counts of mail fraud and two counts of failing to file a tax return.
* Watts, also a former CPA, was convicted of conspiracy, three counts of mail fraud and three counts of failing to file a tax return.
* Erickson was convicted of three counts of failing to file a tax return.
* Moore was convicted of three counts of failing to file a tax return.
* The charges of conspiracy, mail fraud and false representation of a social security number each carry a maximum possible penalty of five years in federal priosn. The passport fraud charge carries a potential 10-year sentence. Failing to file a tax return carries a maximum penalty of one year in prison for each count.
* The prosecution of this case reflects the increased focus the IRS has on the anti-tax movement. Although courts have continuously rejected frivolous arguments such as those presented by Meredith, the use of false, misleading and unorthodox tax advice has gained followers, which has led many to financial ruin. The investigation of this case and others in the country, including the indictment of Irwin Schiff in Las Vegas last month, is part of the IRS’s strategy to stem the flow of misinformation produced by anti-tax promoters.
* The case against Meredith and the other promoters of We the People was the result of an investigation by IRS-Criminal Investigation.