By Edward Snook
R. S. Errol
Grand Junction, CO – There is a cynical and probably accurate saying about the criminal justice system in this country that states: If you are a prosecutor and have a good case, argue the facts, if you have a weak case argue the law, and if you have no case attack the defendant’s character.
Apparently this is what occurred in Denver during the first week of August. Equal protection under the law is a legal tenet that derives itself from the Fourteenth Amendment that is touted time and time again to ensure that all the people are treated fairly under the laws of this country. This tenet was totally disregarded during the Federal District Court trial of Kris Smith a Grand Junction business woman and community volunteer. Smith was convicted by a jury on August 4, 2006; a jury that never heard most of her evidence or from her key witnesses. This story will reveal the unsavory side of our government officials and expose the malicious prosecution that certain vindictive functionaries perpetrated upon Smith with total disregard for her rights, in limiting her ability to mount a defense. Smith was rail-roaded for an alleged crime that was only vaguely addressed during the five day trial.
Seven years ago Smith was introduced to an investment program sponsored by Anderson Ark and Associates (AAA). When she learned that the nature of the business was a tax deferral program (Complex Business Organization (CBO) – pay less taxes in the first few years and pay more taxes in the future) she began her due diligence as to whether the investment was sound in nature and legal in application. Being a sharp business women she consulted the IRS tax codes, contacted the local IRS office for publications to verify how the code applied to the business plan she was contemplating and discussed the opportunity with her Certified Public Accountant Sam Baldwin of Cucchetti, Baldwin and Co., CPA’s based in Grand Junction, Colorado. The results of her search validated her intentions to move forward with the investment as there were no red flags that would have made a reasonable person shy from the opportunity.
Kris Smith was educated, as were other investors, by Certified Public Accountants and IRS enrolled agents (IRS sanctioned tax preparers) of AAA. One such person asserted that he was a former IRS agent and attested that everything in his presentation was tested and proven to be correct in all aspects. This cadre of experts answered all of her many questions and backed up their responses with citations from the IRS Code Manual. Having CPA’s, enrolled agents and ex-IRS agents propose a solid business transaction made it hard to resist and seemingly a legal and profitable thing to do. For two years Smith participated in the program, all the while receiving updates from AAA with prognostications of potential cash flow which would result in greater income.
In addition to the deferred tax program AAA also offered a high yield loan investment program that lured in many people. Smith invested all of her retirement funds and life savings, including the proceeds of the sale of her former business into the loan program and reported any and all income less expenses on her income tax returns. All was seemingly fine with the world since Smith had done her due diligence and examined the tax consequence of her actions.
In August 2000, Smith attended a CBO business opportunity meeting at the local Holiday Inn hosted by AAA management personnel. In attendance by her personal invitation was her CPA Sam Baldwin, the man who gave her the green light to invest in the AAA programs. Also invited was CID-IRS agent Michelle Hagemann of Glenwood Springs, Colorado at the behest of some potential investors. At this meeting Smith was introduced along with another Coloradoan Bill Hays as being new Information Officers for AAA. The job of the information officer was to assist others, curious about the program, with answers to their particular questions. Having been in the personal service business her whole life, it made perfect sense to Smith to assist others looking for a way to save taxes and/or create income. Kris especially felt she was doing the right thing by people because of her thorough research into the program.
In late February 2001, the Department of Justice Tax Division and elements of the Internal Revenue Service conducted a raid on multiple office locations of AAA in both this country and Costa Rica. Smith was questioned by two IRS agents who claimed to be ignorant about taxes thereby precluding Smith from talking to them. Baldwin, who apparently panicked by a similar visit hunted Smith down proclaiming he was scared to death. Smith instructed him to abide by the IRS information requests as she had nothing to hide. He did so while stating that he had to get along with the IRS agents who held his livelihood in their hands. Are these people his boss? (Taxpayers beware…your tax preparer is not always on your side)?
As a result of these raids many lives have been destroyed or forever altered. Many innocent investors, not unlike Kris Smith, lost their invested funds that they thought were safely working for future, supplemental retirement income. Over 2,400 people through out the country were involved in one way or another with AAA believing that they did no wrong. In a more perfect legal system they would be correct in their assumptions, however, when embroiled with Administrative Law such as the IRS code one must consider themselves guilty until proven innocent.
After the February 2001, IRS raids, all participants were suspended in a sea of uncertainty regarding their potential IRS dealings and the possibility of regaining their invested funds. This continued for three to four years. Well-to-do and well connected individuals such as government operatives and politicians invest offshore without any harassment or scrutiny. AAA clients didn’t fit this description and subsequently became the target of the full force and weight of the United States government.
Smith’s turn came one day while she was in the emergency room of her community hospital with her deathly ill son. IRS agent Hagemann dragged her away from her son’s bedside, reflecting the level of compassion possessed by IRS types. Smith was subpoenaed for her tax records for several past years and documents pertaining to her involvement with AAA. Within five months the subpoena was denied by a Federal District Court in Seattle; however Smith, along with other investors, was still targeted in an investigation. The list of suspects consisted of medical professionals and successful business people from around the country. AAA had stated to clients after the raid in 2001 that they were working to clear up the gross misunderstanding that perpetrated the raid in the first place. Smith waited like all the rest of AAA investors while the wheels of the federal bureaucracy continued to slowly grind.
Word spread far and wide that some AAA investors were undergoing audits as the IRS was attempting to determine the validity of the CBO related business loans. Each CBO participant expected such an audit in conjunction with some civil inquiry regarding reversal of tax credits received as a result of their participation. Smith waited for over four years for such an audit without hearing from the IRS. When word came it wasn’t what she had expected. The DOJ decided that some tax filers were more culpable than others and relegated these persons to criminal prosecution as opposed to civil actions.
The concept of equal protection under the law takes a round house punch to the jaw with this edict from the District of Columbia. Various people involved in the same tax shelter are divided into four groups without regard to due process under the law. One group was given a cursory review of their participation, another was subjected to an audit and possible civil penalties, the third group was dragged through the criminal justice system without regard for the similarity of their alleged participation in AAA. Due to fear and intimidation the fourth group told the government everything they wanted to hear. Baldwin testified that Smith wanted him to change his testimony when all she said to him was “Tell the truth.” Would Baldwin telling the truth be tantamount to changing his story?
Smith wasn’t questioned by competent IRS agents, never received an audit to determine the legality of her business deductions, nor was she initially interviewed with counsel present. In her case, as with a few others, she was informed that she was being investigated by a grand jury under the auspices of Assistant United States Attorney (AUSA) Krista Tongring who was a major force in the Seattle trial of the AAA principals in 2004. Tongring and Hagemann made it a vendetta to destroy AAA investors, disregarding the fact that the IRS had settled with similar investors through audits and in some cases declared that there was no tax due. In fact two attorneys from Missouri, Shine Lin and Thomas C. Pliske who represented other CBO participants of AAA in tax court submitted a sworn affidavit in Kris Smith’s trial stating, “In the case against Kris Smith, the DOJ argues that the loans…were invalid during the years the loans were issued… and the deductions claimed by participants…were invalid. The IRS argues that the loans were completely valid during the years the loans were issued…and the deductions claimed by participants…during the prior years when the loans were issued, are wholly valid.” It must be noted that this critical evidence was suppressed, in other words the jury never heard a word of it. Looks like a case of what is good for the gander is not good for the goose. Is this equal protection under the law? Is this an action based on possible personal gains of functionaries of the DOJ and Criminal Investigative Division agents (CID) of the IRS? What bonuses and incentives are given these fine upholders of justice that trample on the existence of honest people? Is this Justice or Blood Sport? This question will become self explanatory as this story unfolds.
While Smith waited for the proverbial shoe to drop she continued to file her tax returns as she had done all of her adult life. There was one exception to her normal filing routine however, in that she was so confused by the actions of the IRS and DOJ regarding her returns from 1999 and 2000 that she followed the advice of a friend to sign the returns “under duress.” It is suggested that all readers take the time to read the jurat that is just above the signature line on the IRS form 1040. Be advised that you are giving up your Fifth Amendment right not to self-incriminate as to the accuracy of the form under penalty of perjury. She had previously affirmed the accuracy of her tax returns in question and now she was being subjected to investigations and indictments. Smith reported all of her revenues and expenses and was ready to prove her return if need be but she was reluctant to subject herself to perjury charges if she was in error. This she did for the years 2002, 2003 and 2004. The returns were never rejected and all tax payments processed as usual. The prosecution used the “under duress” catch phrase as its main weapon in deceiving the jury and subsequently gaining their false conviction of Kris Smith.
In September 2005, IRS agent Hagemann served Smith with a subpoena for a hand writing exemplar (an example of one’s handwriting). Smith refused by exercising her Fifth and Sixth Amendment protections guarding against self-incrimination and for not being informed of the nature and cause of the accusation. She did eventually submit the exemplar but possible charges and her particular status were still unknown to her. In anticipation of an indictment Smith began to build her defense. Being an outstanding business woman in her community and active member and Treasurer in the Lions Club she attempted to gather letters from friends and business associates vouching for her character. This effort apparently turned out to be a very bad idea in the eyes of Lynn Hood (CID agent for the State of Colorado) as he reportedly proceeded to threaten those people that were amenable to helping Smith. Is this yet another example of equal protection under the law?
The criminal justice system closely resembles a ballet in that there are many contortions, perilous leaps and spins, coupled with methodical processes that obscure justice through legal language, procedures and lies that are meant to silence the cast of defendants. Recite your favorite line from “Swan Lake” but I digress.
One of the principal means of contortion is the legal dagger known as the Motion in Limine. According to Black’s Law 6th Edition, “it is a pretrial motion requesting a court to prohibit opposing counsel from referring to or offering evidence on matters so highly prejudicial to the moving party that curative instructions cannot prevent a predispositional effect on the jury. Purpose of such motion is to avoid injection into trial of matters which are irrelevant…” If a defendant was desirous to keep incriminating evidence from the jury or witnesses from testifying this legal maneuver would certainly prove useful. On the other hand if the prosecution filed this motion, is it conceivable that they would use it to prevent the defendant from establishing their innocence? The public is unaware of one fact and that is Federal District Courts are equity courts and defendants are guilty until proven innocent. There are no common law juries as stipulated in the Constitution…
The charges in the indictment state that Smith willfully and knowingly filed false tax returns. That she willfully and knowingly committed the alleged crime would be next to impossible for the government to prove. In this scenario the government asserted she deliberately committed this crime then set out to make it impossible for her to refute their assertions. How was this done, a reasonable person might ask? Yes sir, they filed a motion in Limine to prevent Smith from proving that her state of mind was not bent on felonious actions. The prosecutors, Gregory Bockin and Larry Wszalek argued that Smith be precluded from presenting evidence that was irrelevant (yet actually relevant) to defendant’s good faith belief as it could cause confusion for the jury. Maybe the jury would think that she was innocent but they will never know if the evidence is suppressed.
Evidence necessary to prove her innocence was included in the testimony from the Seattle trial that convicted the promoters and principals of AAA. The prosecutors’ statements regarding how these defendants defrauded hundreds of AAA clients including Kris Smith were somehow irrelevant “because the potential risk of unfair prejudice substantially outweighs its probative value.” It would confuse the jury and maybe allow them to acquit Smith. Most importantly the prosecutors stressed in their motion that the nature of the charges in the Seattle trial was not germane to Smiths involvement in the tax shelter plan as charges against the promoters consisted of: tax conspiracy; mail/wire fraud conspiracy; substantive tax offenses; and money laundering offenses. However, they neglected to state that some of the principals were convicted for aiding and assisting in the preparation of fraudulent tax returns.
Her attorney argued that not only did the government declare her a victim of fraud so did independent fraud investigators. Consequently, other identical victims could attest to their reliance on the sales pitch used to lull investors into the program. Although not testifying to Smiths state of mind at the time she signed her IRS 1040 they could attest to the believability of the inducements and Smith’s motivation to participate. Again a motion in Limine citing various rules of evidence prohibited these witnesses from appearing. The government felt that the jury could determine the defendant’s state of mind for themselves without the testimony of these other victims. This may be true on its face but highly unlikely if the jury is given biased testimony during the trial.
At least two years ago a victims list was published by the government listing the amounts of restitution that was due each victim. Smiths name was on one of two victims list. The government argued that her inclusion on the list was not relevant to her filing a false tax return and that it only applied to her investment in what was called “Loan 4” which was a voluntary investment. Therefore the fact that she invested a very large sum of money had no bearing on her filing false tax returns. Let’s take a moment to reflect on this logic. An individual is sold an investment idea that includes two elements. The first element is a business venture that offers immediate tax savings and according to prosecutors reeks of tax evasion, while the second element is advertised as a wealth creating vehicle. Would a reasonable person invest their hard earned money-life savings in the second element knowing full well that they are risking the investment by becoming involved with the first? In fact the government has desperately avoided arguing the legality of the CBO in a court of law. Is this because the tax courts are treating the program as valid? Why the dichotomy? If one department of the executive branch condones the activities similar to that of Smith why does another condemn it? Let us not forget the sworn affidavits from attorneys Lin and Pliske. They had been working with CBO clients in their private wars with the IRS and possessed exculpatory evidence that maintains the investment program is valid. Kris Smith was tried by the Department of Justice for participating in an investment program that the IRS has ruled to be valid. Again, why wasn’t this information allowed into the court? The prosecutors simply filed a Motion in Limine, which is point, set and match in the day to day sport of destroying innocent people’s lives.
Most Americans flippantly believe that only the guilty are indicted. This couldn’t be further from the truth. An indictment is a charge resulting from a one-sided presentation by government agents concerning alleged conduct of the suspect to a grand jury, thereby ensuring the indictment of the “ham sandwich/defendant.” People also assume incorrectly the ham sandwich/defendant will have a chance to present their side of the story during trial. In a U.S. Federal District Court it is imperative for the government to win. What better way to ensure victory than by controlling the admittance of evidence by using their so-called rules of law.
In government organizations the prerequisite for promotion, perks and recognition is outstanding performance evaluations. I am sure within these cabals the in-fighting can be fierce. AUSA’s must have convictions if they are to be taken seriously as a player. The residue of people’s lives is of no concern to them if it lowers their batting average. In reference to the opening line of this article it stands to reason if the prosecutorial evidence is weak the government will use the rules of evidence to hamstring the defense.
Why would anyone truly concerned with justice want to withhold anything from a jury?
The last resort is for the prosecutor to disparage the defendant thereby poisoning the minds of the jurors ergo predetermining the outcome of the trial. Smith’s good and noble character was defamed when prosecutors told the jury she considered herself to be a sovereign citizen. They maintained that sovereigns remove themselves from the tax rolls and hold themselves above their fellow Americans. To the jury this inference incites resentment and promotes a guilty verdict based on revenge or misinterpretation. The tag team of prosecutors brought in Bill Hays a former member of AAA to testify that Smith and he talked about becoming sovereign. They also let the jury listen to select portions of AAA tapes that outlined injustices and obscure practices of the United States government. The prosecutors wanted the jury to hate Smith and they painted a picture of her that would ensure their distain. Defense’s attempts to let the jury hear parts of the same tapes that refuted these scurrilous claims were denied. Surprisingly, according to investigative reports, Bill Hays is the very individual who recruited her into AAA. He’s not being prosecuted. Why (most assuredly a corrupted immunity deal)? Is this yet another example of government’s justice? It must be as Hays was a mover and shaker in AAA according to numerous victims. Do a Google search on sovereignty and you will find this definition: “Sovereignty is the exclusive right to exercise supreme political (e.g. legislative, judicial, and/or executive) authority over a geographic region, group of people, or oneself.” In fact there are extracts found in U.S. Supreme Court decisions, legal definitions and state code sections that will prove there is no connection to one’s willingness to pay taxes and upholding their sovereign rights. Here are a few extracts.
“The state cannot diminish rights of the people.” Hertado v. California, 100 US 516.
“Republican government. One in which the powers of sovereignty are vested in the people and are exercised by the people, either directly, or through representatives chosen by the people, to whom those powers are specially delegated. In re Duncan, 139 U.S. 449, 11 S.Ct. 573, 35 L.Ed. 219; Minor v. Happersett, 88 U.S. (21 Wall.) 162, 22 L.Ed. 627.” Black’s Law Dictionary, Fifth Edition, p. 626.
“In enacting this chapter, the Legislature finds and declares that the public commissions, boards and councils and the other public agencies in this State exist to aid in the conduct of the people’s business….The people of this State do not yield their sovereignty to the agencies which serve them.” California Government Code Section 54950.
The prosecution maintained that anyone who says they are sovereign is automatically a tax protestor. This was a deliberate smear against the defendant that is without merit. U.S. citizens are obligated to pay taxes through contract and averring sovereignty cannot change that. The prosecutors knew this fact full well but in order to get their win they had to fool the jury into believing that the defendant believed herself superior to the jurors. Furthermore, if someone was planning to not pay taxes by declaring their sovereignty it would be impossible to operate in commerce. How would a business person make a living if they couldn’t open checking accounts, have investments or own real estate. This tactic was a fabrication meant to confuse the jury as Kris Smith is a business woman who always filed her tax returns and operated in commerce.
As this article is being prepared for our next edition it is a sure bet that the prosecutor, government investigators and officers of the court are feeling smug about their unanimous victory against Smith. They have only a “self ordained” right to feel this way due to their unbridled success against a defendant that was blindfolded, bound and gagged during her trial. Sadly, this is a normal occurrence in court rooms across this country and the trail of broken lives is appalling. There are thousands of personal stories, not unlike Kris Smith’s, who have been the prey in the federal blood sport of equity “justice.” It was reported that the government employees were so overjoyed with their “Trojan Horse” victory in Denver that they were hugging each other and giving the thumbs-up sign. Sounds like a sporting reaction to me. What does it sound like to you?
According to court room witnesses and a check of the docket it is apparent that a defense “motion to dismiss” is still on the table for Judge Phillip S. Figa to consider. The judge dismissed the motion without prejudice twice but stated he would re-entertain it if Smith was convicted. Our background on Judge Figa shows him to have ruled on the side of true justice numerous times. We would prompt the Honorable Judge to continue this practice.