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IRS Targets Estate Planning

Man fined $8.5 million, eight years in prison for anti-tax trusts

By John Tiffany

Can you really, as you may have heard, avoid income taxes by placing your
assets in a “pure trust,” “equity trust” or “constitutional trust”? Unfortunately, the answer is “no.” In recent years, the IRS has repeatedly fought these in court and won rulings against the use of these as legitimate tax-planning vehicles. Now another tax reform advocate, who was involved in trusts, has fallen victim to the IRS’s enforcement machine.

On May 18, David Carroll Stephenson of Tacoma, Wash., was sentenced to eight years in prison for promoting trusts as a way to protect Americans against the income tax.


Stephenson was convicted and sentenced to eight years in prison, the statutory maximum, for fraudulent promotions that, according to government lawyers, have cost the federal government millions of dollars.

Stephenson advised customers to pay from $2,500 to $8,000 to use trusts and corporations to evade federal income taxes due. The federal court ruled that Stephenson falsely claimed to be a lawyer to promote the scheme.

The court said Stephenson’s customers have suffered substantial harm, “as they too

are in violation of internal revenue laws,” thanks to listening to his advice. The judge, saying that the tax loss to the federal treasury was more than $8.5 million, ordered Stephenson to pay that sum in restitution to the IRS.

According to the indictment, between 1994 and 2000 Stephenson “helped” hundreds of taxpayers to form and operate “pure equity trusts.” Stephenson and a colleague received over $2 million in revenue from the sales of more than 400 of these trust packages. Stephenson’s sentence stands as a warning that patriots should be wary of tax planners who claim to be able to drastically reduce or eliminate their tax liability while still allowing them full access to their money. The IRS is certainly on the lookout for them.

In 1996, the government had no convictions in the area of constitutional trusts and pure trusts. By 1999, the agency had scored 35 convictions, and by 2000, it had racked up another 52. Courts treat these cases seriously. Boasted Dale Hart, an IRS deputy commissioner: “We don’t lose these cases. The legal history is that these are shams. This is a slam-dunk when we get to court.”

(Issue #23, June 5, 2006)

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Updated May 27, 2006


(Issue #4, January 23, 2006)

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