RE: "THE PILOT CONNECTION" - USA v MARSH 9610287
Tue Aug 12 19:20:00 2003
"THE PILOT CONNECTION" - USA v MARSH 9610287
NOONAN, Circuit Judge:
Phillip Marsh and his five co-defendants appeal their convictions of conspiring
to defraud the United States by impeding the collection of federal income taxes
and their convictions of related crimes. They also appeal their sentences,
which, as to Phillip Marsh total a term of imprisonment of 17 1/2 years, as to
his wife Marlene a term of 14 years, and as to the other defendants lesser but
still substantial periods of prison.
FACTS AND PROCEEDINGS
Phillip Marsh was the founder in 1990 of The Pilot Connection Society, often
self-identified by its acronym TPCS. Marsh's enterprise offered its customers
the elusive and enchanting prospect of untaxing themselves. The verb "untax"
entered the language in political conflict in England over a formidable tariff
on foreign grain and denoted political action by the government ("Who will untax
our bread? " E. Elliott, Corn-Law Rhymes, 1833). "Untax," as used in the present
context, means freeing oneself from any legal obligation to pay any income tax,
federal or state.
To achieve this exceptional state, TPCS offered an "Untax Package." The package
included Phillip Marsh's The Compleat Patriot, the Constitution of the United
States, Psalm 91, and a photograph of Phillip and his wife suitable for framing.
It also included "Very basic untax documents and their instructions." Among them
were a form letter to be sent to the District Director of the Internal Revenue
Service stating that the quondam taxpayer had recently found out that the
director had been "attempting to extort money" from him and demanding that he
justify his jurisdiction by a certified copy of the director's designation of
authority from the Secretary of the Treasury. The letter was not to be xeroxed
and was to be handwritten because "[i]t takes 3 to 5 times as long to read hand
written material as it does to read typed material -- anything to slow the IRS
down!" Another form letter, to be similarly copied by hand, informed the
district director that the taxpayer was not a person under the director's
The Untax Package included another form by which the taxpayer revoked income tax
returns previously signed by him and "cancelled" his signature on such returns.
This form was to be retyped by the taxpayer, eliminating the Pilot Connection
letterhead, and to be notarized. The theory of the revocation and cancellation,
as explained in the Untax Package, was that the IRS would use earlier returns to
prove that the taxpayer was aware of his obligation to file and pay. The
revocation and cancellation would, so the Untax Package suggested, eliminate
this easy evidence of the taxpayer's wilfulness in now refusing to file and pay.
The reason that the taxpayer could so readily remove himself from the taxpaying
rolls was, according to TPCS, that "income tax is voluntary. " (SER 32.) If you
didn't want to pay it, you didn't have to.
TPCS also advised its members to resort to "alternative banking," that is, to
pay everything by cash or postal money order, or to join something called the
National Commodity and Barter Association and use "warehouse banking," or to
have some trusted associate open an account for one in the associate's name, or
to establish, with TPCS's help, an "offshore trust." The reason for adopting one
of these alternative styles of money management was that if you opened a
checking or savings account you agreed "that the money belongs to the bank from
that moment on," with the implication that the bank would surrender the money on
levy by the IRS (SER 36.) Members were provided with forms, to be recopied and
notarized, of revocation of bank signature cards. (SER 35.)
Another practical precaution the TPCS member was advised to take, in order to
assure that his emancipation from taxation was effective, was to file W-4s with
his employers claiming as many exemptions as he had thousands of dollars of
income. For example, if he earned $30,000, he was to file a W-4 claiming 30
exemptions. The member was assured by TPCS that there was no limit to the number
of exemptions he could lawfully claim. (SER 342.) No mention was made of any
duty to have a reason for claiming an exemption.
Untax Packages, the contents sometimes different in unessential detail, were
sold by TPCS for a price that varied for the occasion. At the start the price
was over $6,000. (SER 8.) The price announced in January 1993 was "$2,100 or 10%
of your existing tax problem (if any), whichever is higher." (SER 380.) As of
January 31, 1990, TPCS had only three purchasers of the Untax Package. By
December 31, 1993, TPCS recorded 3,848 purchasers and income from them of
$7,638,625. (SER 19.)
TPCS had ordinary members who did not purchase the Untax Package but who did pay
$45 for membership. By the end of 1993 there were 12,617 in this category. (SER
19.) They received TPCS's magazine, The Connector. The magazine carried the
subtitle "The Voice of Freedom " and ran a facsimile of an American flag as its
logo. Its pages repeated at their foot the mantra of the Society, "Income Tax Is
Voluntary!" The Connector informed its readers that there was no law making
anyone liable for income tax.
TPCS had a cadre superior to that of mere members, constituted by those admitted
to the status of Associate Member. An Associate Member had the right to sell the
publications of TPCS. He paid $10,000 to acquire the franchise and the
confidential instructions on marketing that accompanied the franchise. By
December 31, 1993, there were 730 persons who had been admitted to this advanced
status. Apparently some associates got a discount, for the total paid by them
recorded in the Society's book was $5,281,010. (SER 19.)
Phillip Marsh conceived the idea of TPCS. His wife Marlene joined him in
marketing it. Together they traveled the United States soliciting the purchase
of memberships and Untax Packages and speaking at seminars and conferences
intended to promote TPCS. Marlene's daughter, Jill Spencer, was an Associate
Member and the office manager, in the latter capacity opening and distributing
mail sent to TPCS, logging cash received and responding to some customer
complaints. Her husband Darrell was also an Associate Mem-ber. He became TPCS's
General Manager, overseeing staff and publications, revising the Untax Package,
and writing in his own name in The Connector, to explain why paying income tax
A family operation, TPCS was aided by Joseph Coltrane, alias John Campion, and
by Douglas Carpa. Coltrane was the National Coordinator of the TPCS sales force.
Carpa was not a TPCS member but from approximately May 1991 to June 1992
assisted the marketing of memberships in TPCS by putting together trusts in
which TPCS members might hope to hide their assets from the IRS. He offered his
drafts of trust instruments only to those who purchased the Untax Package. He
assured members that his trusts were "old and cold" and would work to cure even
preexisting problems with the IRS because the trusts would be predated to a time
before an IRS lien.
In its publications TPCS asserted that it was not a tax pro- tester movement,
that it did not deny the constitutionality of the Internal Revenue Code, and
that it did not maintain that Congress lacked the power to tax income. TPCS
simply taught that Congress had not exerted that power and that the IRS was "a
private corporation" engaged in lawless efforts to extract money from Americans
not obliged to pay. TPCS characterized its own teachings as educational and
added that they were the exercise of free speech, protected by the First
Amendment from prosecution.
TPCS was aware that the IRS challenged its view of the law, an awareness
reinforced by the rejection that TPCS's Untax Package received when put into
practice by members. The IRS by 1991 was aware of TPCS and alert to its raison
d'etre. In February 1992 an affidavit filed by IRS Special Agent Diane Messer
characterized TPCS as an "illegal tax protester organization" and sought a
search warrant authorizing the seizure of documents pertaining to TPCS and to
Phillip and Marlene Marsh. The search was to be carried out at the Marshes'
home, which they used as the Society's headquarters. Pursuant to the warrant, a
comprehensive seizure was made of the correspondence, computers, and file
cabinets of the Society.
Apparently as a response to the search, on August 12, 1992, in Stockton,
California, Phillip and Marlene Marsh and Jill Spencer signed two papers
alleging that certain persons were indebted to them in the amount of $350,000
each and seeking to place a commercial lien on the property of the debtors.
These persons were Agent Messer and three other IRS agents involved in the
search; the United States Magistrates who had authorized the search; three
United States attorneys in the Eastern District of California and one United
States attorney in the Northern District; Lawrence Karlton, Senior District
Judge of the Eastern District; and California Superior Court Judge Jeremy Fogel.
The liens were filed in Nevada and Washington.
A year later, in February 1993, a second affidavit executed by Agent Messer
asserted that TPCS was "so permeated with involvement with illegal activities"
that a comprehensive search could not separate the few innocent items "from the
vast amount of material which will be relevant evidence of the criminal
violations." The Marshes then moved from California to Colorado and from their
home there continued their enterprise under the name the Liberty Foundation. A
third affidavit executed by Messer led to the comprehensive search of the
Colorado office in December 1993.
A grand jury had already, on November 29, 1993, indicted the defendants for
conspiracy to defraud the United States. The defendants moved unsuccessfully to
suppress the material seized by the government from their files. Phillip Marsh
sought with equal unsuccess to introduce a report by a psychiatrist who
evaluated him and found him to suffer from delusions; the psychiatrist's
proffered testimony was excluded in limine on the government's motion. Trial
followed in the district court for Northern California running slightly over
three months, from August 29, 1994 to November 30, 1994. The jury was unable to
agree on the principal counts.
"THE PILOT CONNECTION" - USA v MARSH 9610287
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