I didn’t see any headlines heralding the anniversary, but I noted it nonetheless. Feb. 3 was the 100th anniversary of ratification of the 16th Amendment to Constitution. It enshrined the income tax in federal law.
It’s not the sort of date I would normally notice. But I was neck-deep in a tax trial in federal court. The United States was prosecuting my client, Donna Bello, and another defendant, Jill Platt, for their role in something called “gifting tables.” The government charged them, among other things, with impeding the ability of the government to ascertain taxes owed.
That struck me as a an odd sort of criminal charge. The law is that you can be guilty of obstructing IRS efforts to determine taxable income even if you owe no taxes. Just how in the world did I become one of the crops on this tax plantation?
I recall my surprise in law school decades ago. All income is within the government’s reach. To put it in the words of the Supreme Court, any accession to wealth is taxable. That means that you owe taxes on a portion of every dollar hitting your hands, unless Congress says otherwise. We’ve developed a complex tax code. At last count, it and associated regulations and rulings fill almost 80,000 pages.
I suspect most folks think that once they earn a dollar and pay tax on it, they are free to do with their money what they want. But consider the following: Your decision to give money to another person creates income for them. Money circulating in the economy is one big revenue stream to the tax man.
Doesn’t that stand on its head the notion that the federal government has limited powers? Isn’t the power to tax the power to destroy?
In the gifting table cases, hundreds, if not thousands, of women across the state gambled on a provision of the tax code they thought might keep money out of the hands of the tax man. Federal law permits a person give a gift of up to $14,000 per year to another. The recipient need not report it as income, so long as the giver intends it as a gift, with no strings attached. In the turgid language of our courts, a gift springs from a disinterested and detached generosity.
To get on one of the tables, a person gave a gift of $5,000 to a person at the head of the table. Participants advance to a rank of four, then two, and finally arrived at the top position. Once a person at the top received eight gifts, the table dissolved, with the women in the rank of two now occupying the top position of new and separate tables. The person exiting the top then was free to join another table by starting all over with a $5,000 gift on a new table.
Scores of women testified in court in the past month about the tables. Many described it as a wonderful experience, meeting with other women for purposes of mutual support and sisterhood. A handful testified that they were unhappy with the tables. No one testified that they thought they would gain a return by giving money to another. Every participant joined a table and knew that in order to get a return, they had to participate.
Unlike Bernie Madoff’s empire, no one stayed at the top collecting money from folks unaware of what was going on.
The government smelled revenue in the gifting tables and it set its sights on several of the senior members.The government says the tables are pyramid schemes. Participants say otherwise. Wednesday, a jury of 12 sided with the government.
My client now faces a prison sentence, and back tax payments.
We tried to defend on the basis of good-faith belief that the tax code wasn’t violated, and that participation of lawyers and at least one federal law-enforcement agent would make a reasonable person believe everything was legitimate. We also tried to put on evidence of sometimes confusing and muddled advice the women received from lawyers.
The jury never heard from several witnesses, who appeared with lawyers of their own. The witnesses pleaded the Fifth Amendment right against self-incrimination and we were unable to present to testimony about lawyers’ winking at their participation on the tables.
Only the government can grant immunity to witnesses. In this case, the government offered immunity to one witness, who testified against our clients. We complained that it was unfair for the government to have the right to grant immunity to the witnesses it liked, while withholding immunity from witnesses it did not like. This got us nothing but a potential issue on appeal.
The jury made short work of our defense. The verdict depresses me. I might not join a gifting table, but those who joined were informed about what they were doing, and participated, often for years, while enjoying the fellowship of the group.
I had hoped the jury in the gifting tables case might be troubled by a government using double standards and animated by the principle that it is entitled to a piece of every dollar that finds its way into our pockets. We’ve come a long way since the founding of the republic. Trust and obey is the new national anthem.