U.S. VS.
SCOTT
[Tape 3, Side A]
MS. MEIERS: Machine into magnetic tape for recording.
FEMALE ATTORNEY: If I might stop you there. So, up to this point, you're depending on the judgment of the person taking the information off the returns and on the clerical accuracy of other persons, is that correct?
MS. MEIERS: There is a verification that is done on these things . We have areas wnich do nothing but verify and quality review.
FEMALE ATTORNEY: Because they go to what - West Virginia?
MS. MEIERS: Yes, ma'am.
FEMALE ATTORNEY: How many, if you might continue then the mails open batched numbered, how does it get onto the computer? Does a human being keys it on?
MS. MEIERS: Yes , ma'm, on everything but a 1040Z or 941, some of the 941's.
FEMALE ATTORNEY: And is that a computer in Ogden?
MS. MEIERS: It goes onto a tape on the computer in Ogden, yes, and then --
FEMALE ATTORNEY: I'm sorry.
MS. MEIERS: - then there is error checks, certain checks that map errors, transposition errors, this type of stuff is done by our computer. It is also verified within the unitwhen the person has transcribec it to ensure that the correct data has been transcribed.
FEMALE ATTORNEY: And then it goes into the Martin--, it gets transferred to Martinsburg?
MS. MEIERS: It goes on a reel of tape and these tapes are mailed or hand-carried, depending on the circumstances to Martinsburg, West Virginia, where it's consolidated with the other tapes from within the United States.
FEMALE ATTORNEY: And who puts it in the form that these exhibits are today
MS. MEIERS: This is done by an area in our accounting branch.
FEMALE ATTORNEY: In Ogden or Martinsburg?
MS. MEIERS: In Ogden.
FEMALE ATTORNEY: How does it back to Ogden or Martinsburg?
MS. MEIERS: All right. We go into the computer in Martinsburg. We would use Mr. Scott's Social Security number, and it would in turn bring us back a record of his transactions.
FEMALE ATTORNEY: You mentioned that it was in intelligible form. Is there a certain translation that happens?
MS. MEIERS: Yes, on a transcript a return will be recorded as 150. It will not show notation return filed. To a person who does not work for the government, when they looked at that transcript, they would have no idea what it was telling them.
FEMALE ATTORNEY: Okay. I would like you to look at lA. Is there any way to estimate, from your knowledge, how many human beings have handled that information before it came here to court?
MS. MEIERS: Well, let's see, one, two, three, four, once a kit, where it was transcribed, there would be a verifier, so that would five, and then it would go on the tape, unless there was a math error on it, then it go out into another area where there could be a possibility of six people touching that record.
FEMALE ATTORNEY: Six people in addition to the computer technicians?
MS. MEIERS: The computer technician doesn't touch it. He only takes the information that's on the reel of recording and let's it consolidate till the end of that reel, magnetic tape is done, then he just removes it from the machine, puts it in a carrier and gets ready to send to Martinsburg.
FEMALE ATTORNEY: Now isn't it true that there are taxpayers who complain that their certificates and assessments are inaccurate?
THE COURT: I'm only to sustain the objection. You may, of course, question concerning the process.
MALE #1: Your Honor, I would at this point object to this continued line of question. I think that your point has been made that this is --
THE COURT: Anything else, Ms.
FEMALE ATTORNEY: No, Sir. I just maintain my previous objection.
THE COURT: I find that this is a data compilation, under subpart of Table 3, as an exemption to the rule that you're saying to the point that sufficient authenticated in order that the series of Exhibits lA through E will be received as evi-dence (inaudible). Continue.
MALE #1: Thank you, Your Honor. - Now, Ms . Meiers we might turn to the substance of these Exhibits lA through lE. Starting with Exhibit lA, that's a series of certificates. What year do those certificates cover?
MS. MEIERS: They cover from 1969 to 1977.
MALE ATTORNEY: Do they indicate whether Mr. Scott's filed tax returns during those years?
MS. MEIERS: Yes, Sir, they do.
MALE ATTORNEY: Do they indicate whether he was subject to withholding those years?
MS. MEIERS: Yes, Sir, they do.
MALE ATTORNEY: Did he receive any refunds or make payments when the file was returned for all those years?
MS. MEIERS: He received refunds on those years.
MALE ATTORNEY: For each year?
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: MS. you ' ve had a chance to review these documents at length before coming into court today, is that correct?
MS. MEIERS: Yes, Sir, I have.
MALE ATTORNEY: Now, what during this period of time, was there any audit activity that's reflected on those records?
MS. MEIERS: On certain years, yes there were.
MALE ATTORNEY: Can you describe that audit activity to the members of the jury, please?
MS. MEIERS: In 1974, there was an audit ran on Mr. Scott and apparently from the record it shows that he agreed to the audit deficiency, and it was assessed. MALe
ATTORNEY: Had he received a refund in 1974? MS . MEIERS : Yes , Sir, he had .
MALE ATTORNEY: For how much?
MS. MEIERS: One thousand four hundred and one dollars.
MALE ATTORNEY: How much was the additional deficiency that he agreed to?
MS. MEIERS: Five hundred forty-seven dollars.
MALE ATTORNEY: And whea was that deficiency agreed to and assessed?
MS. MEIERS: In 1977.
MALE ATTORNEY: Does this evnibit reilect the precise date?
MS. MEIERS: August 29, 1977.
MALE ATTORNEY: Do those certificates of subsequent payments indicate how that deficienoy of, what roughly $2,000, was paid by Mr. Scott?
MS. MEIERS: Yes, Sir, there was a credit which came on1976 that was applied to his 1974 tax balance, and he ended up with $26 balance which IRS cleared and said he doesn't owe it.
MALE ATTORNEY: Okay. Can you explain how that came out of a credit because it had to do with '76 year?
MS. MEIERS: All right. If a taxpayer owes money, the computer will, before a refund is issued to a taxpayer, search to see if he does owe this money. It will then take that credit and apply it to the outstanding balance before it's refunded.
MALE ATTORNEY: So they took it out of the '76 refund?
MS. MEIERS: Correct.
MALE ATTORNEY: Looking at the '76 certificate, does that indicate when he filed his return that year?
MS. MEIERS: He filed it August 12, 1977.
MALE ATTORNEY: Okay, and he had filed for an extension of time, is that correct?
MS. MEIERS: Yes, Sir, he did.
MALE ATTORNEY: Even after his $2,000 was deducted from his refund, did he still get some money back from the IRS that year?
MS. MEIERS: Yes, Sir, he did.
MALE ATTORNEY: How much?
MS. MEIERS: Four thousand seven hundred and eighty-four dollars and nine cents.
MALE ATTORNEY: And finally, can you turn to the 1978, 1977 transcript? Did he file a timely return for 1977?
MS. MEIERS: Yes, Sir, he did.
MALE ATTORNEY: When was that filed?
MS. MEIERS: It was filed on April 15, 1978.
MALE ATTORNEY: Did he pay any tax that year or receive a refund?
MS. MEIERS: He received a refund of $1,230.
MALE ATTORNEY: Now turning to the remainder subsequent payments, do the records of the Internal Revenue Service indicate whether Mr. Scott has filed a return since 1977?
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: What do they indicate?
MS. MEIERS: They indicate that he apparently has not filed a return.
MALE ATTORNEY: There is no record of a return.
MS. MEIERS: No, Sir.
MALE ATTORNEY: Do the certificates indicate whether the Internal Revenue Service made any efforts to secure Mr. Scott's returns for these years?
MS. MEIERS: Yes, Sir, they do.
MALE ATTORNEY: What sort of efforts are reflected there?
MS. MEIERS: There is a computer generated notice which goes out to the taxpayer and requests that he file a return.
MALE ATTORNEY: Let's use the first one, the 1978 year as an example. You could take a look at the top of Exhibit lE. Can you explain what sort of a notices are posted on the certificate and what they reflect and maybe you would note the dates that those events happened?
MS. MEIERS: On 9-8-80, on 7812, a delinquency inquiry was sent to the taxpayer.
MALE ATTORNEY: Now by 7812 you mean the --
MS. MEIERS: December 31, 1978. On November 3, 1980, a second delinquency inquiry was mailed to the taxpayer. On January 19, 1981, a third delinquency inquiry was mailed to the taxpayer. In February 9, 1981, it was then referred to the Dis-trict Office on a taxpayer delinquency investigation.
MALE ATTORNEY: Now, let's go back to the first page, it indicates that in 1982 there was something called a substitute return prepared. Can you explain what that is?
MS. MEIERS: A substitute of return is prepared on a taxpayer because in order for examination to assess any taxes into the taxpayer account, they must have a return there first. If the taxpayer has not filed, then they prepare what we call a 150 zero. It has no taxes on it. It just has the name, the address. It's only used to set up that year.
MALE ATTORNEY: And do they then figure out how much taxes the IRS thinks a person would owe?
MS. MEIERS: Yes, Sir, they do.
MALE ATTORNEY: What Kind of information could they look at to determine that?
MS. MEIERS: They would look at the W2 information which is mailed to Internal Revenue Service, 1099's -
MALE ATTORNEY: Come from the employer then?
MS. MEIERS: Yes, Sir. 1099's and any interest which he had received from banks.
MALE ATTORNEY: After the substitute return is pre-pared, were there additional notices or (inaudible) sent out?
MS. MEIERS: After the return is prepared?
MALE ATTORNEY: Yes.
MS. MEIERS: Or after the tax is assessed?
MALE ATTORNEY: Why don't you explain the difference?
MS. MEIERS: All right. When the return is prepared there are no notices, but then when the taxes are assessed, these were assessed by examination or audit.
MALE ATTORNEY: When did that happen - '78 year?
MS. MEIERS: March 28, 1983. Then at that point on same day, a notice of balance due would be mailed to the payer. If he didn't pay it, then in May 2, 1983, he'd receive first delinquency notice. Then May 23, 1983, he got a tl delinquency notice. Then in June 13, 1983, it was referred the District Office for collection. On May 7, 1984, it again went to the District Office for collection. On May 21, 1984, it again went to the District Office for collection.
MALE ATTORNEY: Were there any additional notices sent to Mr. Scott?
MS. MEIERS: Not in between these, the -
MALE ATTORNEY: Before the 1978 years.
MS. MEIERS: There was a fourth delinquency notice went out to him on March 24, 1986.
MALE ATTORNEY: I 'd like to direct your attention to the 1F please. Please identify what those documents are.
MS. MEIERS: The first four, which are Form 4901, Form 4902, Form 4903, and Form 4904 are the notices which are mailed out to the taxpayer requesting a return.
MALE ATTORNEY: Now these come out to the prior to the assessment under a substitute return?
MS. MEIERS: Yes, Sir, they do.
MALE ATTORNEY: And do you know what the rest of these documents are?
MS. MEIERS: All right. The back documents after those four are the ones which are issued when the taxpayer owes money to the government and it requests payment for that money.
MALE ATTORNEY: And these are all standard forms that are generated by the IRS computer system?
MS. MEIERS: Yes, Sir, they are.
MALE ATTORNEY: And that these would be the forms, the certificate of assessment payments we would be referring to?
MS. MEIERS: Yes, Sir, they are.
MALE ATTORNEY: Could I direct your attention particularly to say the third delinquency inquiry, this Form 4903. Could you read first the caption in bold there and then if you could read for the jury the first paragraph?
MS. MEIERS: We have not received a reply to our request for information about your tax form. Excuse me. Although we previously asked you about your form and it would say individual income tax Form 1040 for the tax period ended and it would have that year listed, we have no record of receiving your reply or the form a fine, let's see, we have received no record of receiving your reply or the form. A fine, other criminal penalties or both may be charged persons who willfully fail to file a required tax form or to provide tax information. If you have not answered or filed the form within the last two weeks, we urge you to follow the instructions below and let us hear from you immediately.
MALE ATTORNEY: And if you could then turn to the next form 4904, which would be the final delinquency notice. Could you read for the jury what is in bold across the top of that?
MS. MEIERS: Your tax form is overdue. Let us hear from you now.
MALE ATTORNEY: And then does this notice summarize things the Internal Revenue Service might do if they don't hear from the person?
MS. MEIERS: Yes, Sir, it does.
MALE ATTORNEY: Can you read that list of things for the jury?
MS. MEIERS: 1. Summon you to come in with your books and records as provided by Section 7602 and 7603 of the Internal Revenue Code. 2. Fill in the tax form for you based on the information we have, Code Section 6020b, or 3. Consider criminal prosecution that includes a fine, imprisonment or both for persons who willfully fail to file a tax form or to provide tax informaticn, Code Section 7203.
MALE ATTORNEY: All right. Turning now back to the certificates of assessment of payment, we used the '78 year as an example . I ' d like to go through a couple questions with you . Were there delinquency notices and inquiries and substitute returns prepared in 1979 for the 1979 tax year?
MS. MEIERS: For the '79? Yes, Sir, there was.
MALE ATTORNEY: How about for the 1980 tax year?
MS. MEIERS: Yes, Sir, there was.
MALE ATTORNEY: 1981?
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: 1981?
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: 1982?
MS. MEIERS: It doesn't indicate that it's a substitute. There was a no liability return in that particular year.
MALE ATTORNEY: Oh. Were delinquency notices and inquiries sent out for 1982?
MS. MEIERS: Yes, Sir, they were.
MALE ATTORNEY: And was, as well as his previous years, referred to the district office for collections?
MS. MEIERS: Yes, Sir, they were.
MS. MEIERS: That was a substitute for return.
MALE ATTORNEY: Was there another series of delinquency inquiries and notices?
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: And a referral to the district office for collection?
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: (Inaudible) look at the transcripts for 1988, which is Exhibit iC. Did the same occur in that year?
MS. MEIERS: Yes, Sir, it did.
MALE ATTORNEY: Very well, could you proceed now to look at Exhibit 1J? Can you identify that document?
MS. MEIERS: That is a substitute for return that was prepared by examination.
MALE ATTORNEY: All right and could you slip pass the first two pages and identify the next document there?
MS. MEIERS: The next document is a letter dated November 16, 1999, 1990, to Gabriel W. Scott and it's in accordance with a deficiency of taxes. MALE ATTORNEY: And for what year?
MS. MEIERS: That was for December 31, 1988.
MALE ATTORNEY: I'd like to publish a copy of this in front of the jury.
THE COURT: Very well.
MALE ATTORNEY: Ms. Meiers, if you would, looking at the, first, the bottom of that letter there, signatures, names on one of the signatures lines, Fred Goldberg and Robert Wenzel . Who are those people?
MS. MEIERS: Fred T. Goldberg was the Commissioner of Internal Revenue Service and Robert E. Wenzel was at that period of time the Director of the Ogden Service Center.
MALE ATTORNEY: And this letter is addressed to whom?
MS. MEIERS: Gabriel W. Scott.
MALE ATTORNEY: And (inaudible) here in Fairbanks, Alaska.
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: And could you read for the jury the first paragraph and the first sentence or two in the second paragraph?
MS. MEIERS: We have determined that there is a deficiency increase in your income tax as shown above. The letter is a notice of deficiency sent to you as required by law. The enclosed statement shows how we figured the deficiency. If you want to contest this deficiency in court before making any payment, you have 90 days from the above mailing date of this letter, 150 days if addressed to you outside of the United States to file a petition with the United States Tax Court for a redetermination of deficiency. MALE ATTORNEY: Thank you. Turning back to the certificate one more time, are there, were there series of $500 penalties for some of these, can you explain what those are?
MS. MEIERS: All right. The $500 penalties are for filing W4's.
MALE ATTORNEY: What are you waiting for, for (inaudible) 74.
MS. MEIERS: I have to find it first.
MALE ATTORNEY: I believe the first one would be in the 1981.
MS. MEIERS: They are called miscellaneous penalties, and they were for $500.
MALE ATTORNEY: And can you tell what that miscellaneous penalty was for?
MS. MEIERS: Yes, Sir, they were for W4's which had 11 exemptions or said that they were exempt.
MALE ATTORNEY: Can you describe to the members of the jury the process that the IRS would go through before they assessed those penalties?
MS. MEIERS: They would mail a letter to the taxpayer asking him to substantiate the number of exemptions that he had on his W4.
MALE ATTORNEY: How would the IRS (inaudible)?
MS. MESERS: It would have been mailed in by the employer who is required by law that if he has a W4 which says exempt or over 11 exemptions, he must mail a copy of that to the Internal Revenue Service.
MALE ATTORNEY: Now what happens after the letter of inquiry goes out to the taxpayer?
MS. MEIERS: Then at the same time if he does not come in and substantiate those exemptions, they will change him to a marital status code 1 with no exemptions and then they will send a copy to his employer and to him. They also enclose a copy that the employer can give to him.
MALE ATTORNEY: When is the $500 penalty assessed.
MS. MEIERS: Five hundred dollar penalty is assessed when he does not reply and it can only be done one time for each employer during that particular year.
MALE ATTORNEY: So, if somebody gets one of these letters from the IRS that says you are not entitled to file exempt (inaudible) and they fix it, is there any penalty assessed? MS . MEIERS: Well not if they fix it. Andy, on that where it goes to taxpayer, they give him one exemption. I 'm sorry, they allow him one exemption.
MALE ATTORNEY: How many penalties were assessed for 1981?
MS. MEIERS: There were three of them.
MALE ATTORNEY: Were there any in '82 or '83?
MS. MEIERS: There were two in 1982 and two in 1983.
MALE ATTORNEY: And were there any for 1989?
MS. MEIERS: There was one in 1989.
MALE ATTORNEY: I'd like to turn now to the remainder of the exhibits which are before you. I may be taking this a little bit out of order. Can you identify generally what Exhibits 1K, 1L, 1M, 10, and then lU, lX and lI are?
MS. MEIERS: They are letters between Mr. Gabriel and the Ogden Service Center, a Mr. John Kotmair, who had his Power of Attorney in the Ogden Service Center, and the Ogden Service Center and Mr. Scott.
MALE ATTORNEY: Do these all concern the 1988 tax year?
MS. MEIERS: Some of them do, yes.
MALE ATTORNEY: Now, take a look at Exhibit 1L, please, and again I would like to publish this to the jury, try to put it a little closer. Can you identify that document, please?
MS. MEIERS: It is a letter that the Director of the Ogden Service Center mailed to John B. Kotmair, Jr., in regards to the income tax for Gabriel W. Scott and the notice of deficiency he had received dated November 16, 1990.
MALE ATTORNEY: Could you please read for the jurors the second and then the fourth paragraph of that?
MS. MEIERS: Section 6012 of the Internal Revenue Code sets forth requirements for persons to make returns of income, Section 6011, Internal Revenue Code, states that every person required to make a return or statement shall include there in the information required by such forms or regulations. When payers report income on Forms W2, Forms 1099, etc., and the individual who received the income has not filed a valid return, a proposed assessment is prepared and a notice of deficiency is issued.
MALE ATTORNEY: And then the fourth paragraph.
MS. MEIERS: As a citizen of the United States, Mr. Scott is entitled to various constitutional rights afforded to all citizens. Likewise a citizen, he is subject to the laws and regulations that have been constituted by our government. Included in the constituted laws and regulation is the Internal Revenue Code.
MALE ATTORNEY: Thank you, Ms. Meiers. Finally, turning to these remaining exhibits, can you look at Exhibit lE and identify that please? MS. MEIERS: One P is a Notice of Intent to Levy which was mailed to Gabriel W. Scott.
MALE ATTORNEY: What tax year does that regard?
MS. MEIERS: And that regards December 31, 1983.
MALE ATTORNEY: For the '83 tax year?
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: When was that notice mailed?
MS. MEIERS: It was mailed July 2, 1990.
MALE ATTORNEY: And is something generated by the Ogden Service Center?
MS. MEIERS: Yes, Sir, it is.
MALE ATTORNEY: Is this a final Notice of Levy for that year?
MS. MEIERS: Apparently it looks like it is, This is the final notice, that is what it says.
MALE ATTORNEY: Looking at 1Q, can you identify that document?
MS. MEIERS: It is a 1etter from Gabriel W. Scott to the Chief of the Collections Branch in Ogden, Utah.
MALE ATTORNEY: And what tax years does that refer to?
MS. MEIERS: Well, he ' s referring to the letter dated June 26, 1990, but I --
MALE ATTORNEY: (inaudible) - oh, for the years 1981 and '82, 1982
MS. MEIERS: - and 1982.
MALE ATTORNEY: Continuing on Exhibit 1R, describe in general terms what that item is.
MS. MEIERS: It's concerning Gabriel W. Scott. It was mailed to John B. Kotmair, Jr. and on it, it went to the disclosure office.
MALE ATTORNEY: This is from Mr. Kotmair?
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: And is the Power of Attorney signed by Gabriel Scott attached to that?
MS. MEIERS: Yes, Sir, it is.
MALE ATTORNEY: And can you just read what the caption across the top, on the first page of that?
MS. MEIERS: Ah; which caption?
MALE ATTORNEY: On 1R, across the top.
MS. MEIERS: Information Request For Records.
MALE ATTORNEY: And finally, are Exhibit 1S and 1T responses from the Service Center to Mr. Scott?
MS. MEIERS: Yes, Sir.
MALE ATTORNEY: Draw your attention to 1T, could you just, it's rather, brief, could you read the text of that?
MS. MEIERS: Internal Revenue Code, Section 6203 authorizes Secretary of the Treasury to furnish you a copy of the record of your tax assessment. Because your records are maintained in our office your request was sent to us . A record of assessment for 1984 through 1988 cannot be determined until such time as you file your income tax returns and any subsequent examinations for the tax years are made . The amount of tax owed depends on the number of different items such as filing status, income, (inaudible) , etc. We do not plan any other responses concerning this matter any further requests should be made after you have filed your income tax returns or examinations have been completed.
MALE ATTORNEY: And what is the date of this letter?
MS. MEIERS: It is dated August 21, 1990.
MALE ATTORNEY: Your Honor, the government has no further questions at this time.
THE COURT: (inaudible).
FEMALE ATTORNEY: Ms. Meiers, you mentioned some of the categories on the certificates of assessment. Is it correct that the IRS assesses penalties against people who don't file?
MS. MEIERS: Yes, Ma'am, it is.
FEMALE ATTORNEY: And one of those is called a negligence penalty, isn't it?
MS. MEIERS: Yes, Sir, Ma'am.
FEMALE ATTORNEY: How much is that?
MS. MEIERS: Well, I'm not sure. I don't work in examinations so I can't explain that particular area.
FEMALE ATTORNEY: Is there also something called the late filing penalty?
MS. MEIERS: Yes, Ma'am, there is.
FEMALE ATTORNEY: And is there also something called an estimated tax penalty?
MS. MEIERS: Yes, Ma'am.
FEMALE ATTORNEY: Then does the Internal Revenue Service charge interest on the penalties?
MS. MEIERS: They charge interest on the whole sum.
FEMALE ATTORNEY: On the penalties as well as --
MS. MEIERS: -- the taxes -
FEMALE ATTORNEY: -- tax due and owing?
MS. MEIERS: Yes, Ma'am.
FEMALE ATTORNEY: And they also charge fees and collection costs, isn't that right?
MS. MEIERS: Yes, Ma'am.
FEMALE ATTORNEY: And they also charge fees and collection costs, isn't that right?
MS. MEIERS: Yes, Ma'am, it is.
FEMALE ATTORNEY: Now, when someone like Mr. Scott is working, the IRS has an option of levying, isn't that correct?
MS. MEIERS: I --
FEMALE ATTORNEY: I'll rephrase the question. Isn't one of the documents you introduced a Notice of Intent to Levy?
MS. MEIERS: Yes, Ma'am, it was.
FEMALE ATTORNEY: And the IRS did, in fact, levy on Mr. Scott's wages, didn't they?
MS. MEIERS: I don't know.
FEMALE ATTORNEY: Isn't that included in the interest, in the certificates of assessment and payment that you reviewed?
MS. MEIERS: I can't tell from those that he was levied on.
FEMALE ATTORNEY: So if he was levied on, the certificates of assessment and payment just doesn't show that, is that right?
MS. MEIERS: No, it wouldn't.
FEMALE ATTORNEY: Can you think of any reason why the record of the payments that he has made or not made to IRS would omit the Notice of Levy in the levy?
MS. MESERS: I don't know why they don't put it there, but they would record any time that he paid money into the government, but there is no place, no code which would indicate a levy on the taxpayer on these particular transcripts.
FEMALE ATTORNEY: You also mentioned there documents from a Mr. Kotmair, is that correct?
MS. MEIERS: Yes, Ma'am, I did.
FEMALE ATTORNEY: And he wrote to the Internal Revenue Service on Mr. Scott's behalf.
MS. MEIERS: Yes, Ma'am.
FEMALE ATTORNEY: Did he claim to have a Power of Attorney for Mr. Scott?
MS. MEIERS: Yes, Ma'am.
FEMALE ATTORNEY: Are these packaged documents, have you seen them before?
MS. MEIERS: What do you mean, packaged documents?
FEMALE ATTORNEY: Do they come from the Service or are they originally handwritten, if you can tell?
MS. MEIERS: On the Power of Attorney?
FEMALE ATTORNEY: No, the letters from Mr. Kotmair.
MS. MEIERS: No, most of them are typed.
FEMALE ATTORNEY: Are you familiar with other such letters written on behalf of other taxpayers?
MS. MEIERS: No, Ma'am.
FEMALE ATTORNEY: The Defendant himself wrote to the Internal Revenue Service letters in your custody, is that correct?
MS. MEIERS: There are some in here that have gone ,yes.
FEMALE ATTORNEY: And Mr. Kotmair also wrote on his behalf, correct?
MS. MEIERS: Yes, Ma'am.
FEMALE ATTORNEY: And these letters contain a general quarrel with the Internal Revenue Service about whether or not he's a taxpayer, is that correct?
MS. MEIERS: Doesn't indicate that in here?
FEMALE ATTORNEY: Does Mr. --
MS. MEIERS: He asks questions on one of them.
FEMALE ATTORNEY: He asks questions about the procedures and (inaudible) of the Internal Revenue Service, correct?
MS. MEIERS: Well, on this one particular letter that's dated July 26, 1990, he says, please cite the authority that you claim that you are acting in pursuant of. Is it IR Code Section 6020b procedures, IR Code Section 6211 procedures or some other procedure unknown to me. Also, please send me copies of all the delegation orders listed in the IR Manual 1230 Section 243.2(2)(a) through (i), relating to this --
FEMALE ATTORNEY: I'll have you stop right there. So, one of the things that Mr. Scott or Mr. Kotmair on his behalf did was write letters asking questions of the Internal Revenue Service?
MALE ATTORNEY: On some of them, yes, Ma'am.
FEMALE ATTORNEY: Could you look at 1K, please? And could you read the second paragraph of 1K?
MS. MEIERS: Please be advised that Mr. Scott has related to me that he is not a taxpayer as that term is defined within Section 7701(a) 14 of the Internal Revenue Code. Therefore, he has not submitted any type of tax return forms for those years in question to the Internal Revenue Service for a deficiency to occur in. It is absurd for you to claim that you have the authority to file returns for Mr. Scott, create a deficiency within those returns, and then give him a notice of that deficiency. See Exhibit A enclosed.
FEMALE ATTORNEY: I'll ask you to stop reading now. Is that a letter written in 1990 to the Internal Revenue Service on behalf of Mr. Scott by Mr. Kotmair.
MS. MEIERS: Yes, Sir, it is.
FEMALE ATTORNEY: Look at Exhibit M, please.
MS. MEIERS: M?
FEMALE ATTORNEY: Is that also a letter written to the IRS concerning Gabriel Scott by Mr. Kotmair?
MS. MEIERS: Yes, Sir, yes, Ma'Am, it is.
FEMALE ATTORNEY: And isn't Mr. Kotmair someone who claims to live in Westminster, Maryland.
MS. MEIERS: Yes, Ma'am.
FEMALE ATTORNEY: And in this letter, and I'm looking at paragraph two, paragraph one and two, doesn't Mr. Kotmair claim that he doesn't dispute the Internal Revenue Service laws being constitutional, he just disputes that there's a tax on individuals such as Mr. Scott.
MS. MEIERS: Well, I guess that's what you could interpret from that.
FEMALE ATTORNEY: So is it fair to say that there's been a correspondence in which Mr. Scott and his representative have been arguing with the IRS about the applicanility of tax laws?
MS. MEIERS: Yes, Ma'am.
FEMALE ATTORNEY: Do you yourself have any personal knowledge of Mr. Scott?
MS. MEIERS: No, Ma'am.
FEMALE ATTORNEY: So, you wouldn't be able to contribute anything on the issue of his mental state when he wrote these letters.
MS. MEIERS: No, Ma'am.
FEMALE ATTORNEY: I have no further questions.
THE COURT: Anything on your part, Mr. Gulf.
MALE ATTORNEY: Just briefly, regarding penalties (inaudible) to about, do you have anything to do with assessing those penalties?
MS. MEIERS: No, Sir, I don't.
MALE ATTORNEY: You indicated that Notice of Levy does not show up on the certificate of assessments of payments . If there are then payments made under a levy, would those payments be reflected on the certificate?
MS. MEIERS: Yes, Sir, they would.
MALE ATTORNEY: If you could look at the certificate of assessment and payment for 1981, are there a series of payments made on, against tax deficiency for that year?
MS. MEIERS: Yes, Sir, there are.
MALE ATTORNEY: When does that series of payments begin?
MS. MEIERS: All right, in October l5, 1990 there was a payment made. It came from the district office. Again, March 29, 1991; April 4, 1991 -- MALE ATTORNEY: And at the beginning at that point is there a series of payments every two or three weeks?
MS. MEIERS: It looks like about once a month.
MALE ATTORNEY: How far, what's the last date of those payments?
MS. MEIERS: September 4, 1991, no here's one, still going, October 29, 1991.
MALE ATTORNEY: Finally, take a look at that Notice of Deficiency again, it was in Exnibit 1J. Does that Notice of Deficiency indicate that Mr. Scott may challenge that Notice by going to Tax Court?
MS. MEIERS: Yes, Sir, it does.
MALE ATTORNEY: Thank you, no further questions, Your Honor.
THE COURT: (inaudible) We'll adjourn at this point. Take the next witness at 1:30. Members of the jury, bear in mind the case must be decided on the evidence taken here in open court. Suffer no person, allow no person to discuss (inaudible). Hold your judgment until you put all the evidence offered in this case and return here this afternoon at 1:30 when we expect to have the next witness called to testify. The jury is at this time excused. Adjourn court.
THE CLERK: This court now stands in recess until 1:30.
U.S. VS. SCOTT
[Tape 3, Side B]
THE CLERK: On the record.
THE COURT: Call your next witness.
MALE ATTORNEY: Your Honor, the government calls Susan Pavelko.
THE CLERK: If you would stand here to be sworn please. Raise your right hand. You do solemnly swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God.
MS. PAVELKO: I do.
THE CLERK: Please be seated in the witness stand, it's right there. Ma'am, for the record, would you please state your full name, your address, and spell your last name?
MS. PAVELKO: Susan Pavelko. P-A-V-E-L-K-O, 471 West 36th, Suite 201, Anchorage, 99509.
THE CLERK: Thank you.
THE COURT: Mr. Gulf.
MALE ATTORNEY: Ms. Pavelko, how are you employed?
MS. PAVELKO: I work for Cimarron Holdings, Inc.
MALE ATTORNEY: What is your position with Cimarron Holdings?
MS. PAVELKO: I am their Office Manager.
MALE ATTORNEY: And could you briefly describe your duties as Office Manager to the members of the jury?
MS. PAVELKO: I am responsible for basic accounting functions, payroll, personnel, worker's comp, that type of thing.
MALE ATTORNEY: Are your familiar with T. C. Price, Incorporated?
MS. PAVELKO: Yes, H. C. Price is a subsidiary of Cimarron Holdings.
MALE ATTORNEY: Do you have any responsibilities as Office Manager in that regard to H. C. Price?
MS. PAVELCO: Yes, the same ones that I do for Cimarron Holdings.
MALE ATTORNEY: And are you therefore the custodian of H. C. Price's personnel and payroll records?
MS. PAVELKO: Yes, I am.
MALE ATTORNEY: Did you, tell the members of the jury what type of company H. C. Price's?
MS. PAVELKO: H. C. Price Construction is a pipeline contractor, pipeline construction firm.
MALE ATTORNEY: Has Gabriel rd. Scott ever been employed by H. C. Price?
MS. PAVELKO: Yes, he has.
MALE ATTORNEY: Approximately when was he employed?
MS. PAVELKO: In 1989.
MALE ATTORNEY: How long did he work for H. C. Price?
MS. PAVELKO: A little less than a month.
MALE ATTORNEY: And in what capacity?
MS. PAVELKO: As a sheet metal worker.
MALE ATTORNEY: Where was he, where was the job site?
MS. PAVELKO: He worked in Prudhoe Bay.
MALE ATTORNEY: How did he come to be employed by H. C. Price?
MS. PAVELKO: As a sheetmetal worker he would have been dispatched by the Union Hall when we needed a worker and sent up to Prudhoe Bay.
MALE ATTORNEY: And have you reviewed Mr. Scott's personnel file prior to coming to court today?
MS. PAVELKO: Yes, I have.
MALE ATTORNEY: Maybe you could give us a general, excuse me, what happens when a new hire arrives at one of H. C. Price's job sites?
MS. PAVELKO: They're taken to the job site office and at that point they are instructed to fill out a personnel package with pertinent employee data that they then turn in to the office up there in the field.
MALE ATTORNEY: Does that packet include any materials related to taxes?
MS. PAVELKO: Yes, it does.
MALE ATTORNEY: What materials would those be?
MS. PAVELKO: The 4 form for instance is included there.
MALE ATTORNEY: Can you define what a W4 form is?
MS. PAVELKO: That's the document that employees fill out to instruct the employer how much tax to take based on exemptions and so on.
MALE ATTORNEY: Does H. C. Price have any particular policies as regards the filling out of W4 forms?
MS. PAVELKO: Yes, we do have a company policy.
MALE ATTORNEY: And is a copy of that policy provided in the new hire packet?
MS . PAVELKO: Yes , it's part of the package that's all stapled together that they get when they come up to the site, and they fill out all the documents.
MALE ATTORNEY: I ask you to take a look at what's been marked as Government's Exhibit 4C. Can you identify that document, please?
MS. PAVELKO: Yes, this is H. C. Price's company policy statement.
MALE ATTORNEY: Was a copy of that provided to Mr. Scott?
MS. PAVELKO: Yes, this was in his employee package.
MALE ATTORNEY: And was it then retained in his personnel files?
MS. PAVELKO: Yes.
MALE ATTORNEY: I wonder if I might display a copy of this to the jury? If you could describe what that policy is?
MS. PAVELKO: The policy statement explains that the W4 form should be correctly filled out by the employee, and it also states things like an employee if they fill it out with over 11 dependents or as an exempt status, then that has to be copied to the IR5, and it just states that the employee must correctly file that W4 form.
MALE ATTORNEY: Are any additional materials related to the filling out of W4 included ia the new hire packet?
MS. PAVELKO: There's an additional explanation memo.
MALE ATTORNEY: And can you describe what that is referring to Exhibit 4B?
MS. PAVELKO: This memo explains that the employee should be correctly filling out the W4 form and it also explains that if they are filing as a exenpt status, that they should have been exempt the prior year and axpect to be exempt this year as well and that they're responsible for that information and that it be correctly filed.
MALE ATTORNEY: Now, looking at Exhibit 4B, is that actually signed by somebody?
MS. PAVELKO: Yes, Exhibit 4B is signed by Gabriel Scott.
MALE ATTORNEY: Okay and if I can again display a copy of 4B for the members of the jury and also I ask you to first read the statement above the sig^ature line.
MS. PAVELKO: I hereby acknowledge that I have read and understand the above.
MALE ATTORNEY: And wnat's the signature and date on that?
MS. PAVELKO: It's Gabriel W. Scott and the date is 4/11/89.
MALE ATTORNEY: And could you please read the second full paragraph?
MS. PAVELKO: The Internal Revenue Code provides that the willful failure to supply accurate information which would require H. C. Price to withhold income taxes from your wages could subject you to a fine or other criminal sanctions. Failure to supply us with such information could subject you to additional penalties.
MALE ATTORNEY: Now, looking at Exhibit 4A, can you please identify that?
MS. PAVEIKO: This is a W4 form, 1989.
MALE ATTORNEY: And who's W4 form is that?
MS. PAVELKO: For Gabriel W. Scott.
MALE ATTORNEY: What's the date?
MS. PAVELKO: Four - eleven - 1989.
MALE ATTORNEY: Which is the same date that the memo was signed, is that correct?
MS. PAVELKO: Yes.
MALE ATTORNEY: If I could just display this as well 1 the members of the jury. Looking at the top of that form, are there any instructions regarding how to fill it out?
MS. PAVELKO: Yes. The top part does have instructions.
MALE ATTORNEY: And could you please read the section of those instructions that talk about the exemption from with holding?
MS. PAVELKO: Exemption from withholding - read line of the certificate below to see if you can claim exempt status If exempt, only complete the certificate, but do not complete lines 4 and 5. No federal income tax will be withheld from your pay.
MALE ATTORNEY: And could you then look down and please read the requirements that are stated on line 6?
MS. PAVELKO: Line 6. I claim exemption from withholding and I certify that I meet all of the following conditions for exemption: Last year I had a right to a refund of all federal income tax withheld because I had no tax liability and this year I expect a refund of all federal income tax withheld because I expect to have no tax liability and this year if my income exceeds $600 and includes non-wage income another person cannot claim me as a dependent.
MALE ATTORNEY: How many exemptions are claims on this form?
MS. PAVELKO: The exemption block is not filled in.
MALE ATTORNEY: And what has been done instead?
MS. PAVELKO: In number six he has written exempt.
MALE ATTORNEY: By the way, does that indicate around the signature block that it has been signed under duress?
MS. PAVELKO: No.
MALE ATTORNEY: I'd like to turn now to Mr. Scott ' s payroll records. Can you look first at Exhibit 4D?
MS. PAVELKO: Yes.
MALE ATTORNEY: What information is contained on that form.
MS. PAVELKO: This form has the employee's address and Social Security number and then it also states the amount of income they earned and any federal income tax that was withheld as well as other taxes, if applicable.
MALE ATTORNEY: And would that have been sent to the employee at the end of the year?
MS. PAVELKO: Yes.
MALE ATTORNEY: How much earnings are reported on that W2 form?
MS. PAVELKO: Three thousand eight eighty-one thirteen.
MALE ATTORNEY: And how much federal income tax was withheld?
MS. PAVELKO: None.
MALE ATTORNEY: Turning now to Exhibit 4E, can you please identify that?
MS. PAVELKO: Four E is three payroll checks issued to Gabriel Scott.
MALE ATTORNEY: And are those endorsed and cancelled checks?
MS. PAVELKO: Yes, they are.
MALE ATTORNEY: And finally, can you look at Exhibit 4F.
MS. PAVELKO: Yes.
MALE ATTORNEY: What does is that exhibit?
MS. PAVELKO: This is an employee history for Gabriel Scott for three week endings.
MALE ATTORNEY: Is this payroll information which is retained and relied upon by H. C: Price?
MS. PAVELKO: Yes.
MALE ATTORNEY: Do each of these three pages correspond to one of the three payroll checks?
MS. PAVELCO: Yes, each one does.
MALE ATTORNEY: And what information is reflected on these three additional documents that is not on the paycheck?
MS. PAVELCO: The gross pay and net pay, any taxes that were held, it shows regular and overtime hours, and gross dollars and any Union deductions.
MALE ATTORNEY: And again, are there any deductions for federal taxes on these three forms?
MS. PAVELKO: No, there are not.
MALE ATTORNEY: No further questions of this witness.
THE COURT: Ms.
FEMALE ATTORNEY: May I approach the exhibits, Your Honor?
THE COURT: Yes.
FEMALE ATTORNEY: Ms . Pavelko, for how long have you worked for H. C. Price or Cimarron?
MS. PAVELKO: Since March of 1988.
FEMALE ATTORNEY: You testified that the company policy that is developed to describe proper conduct with respect to a W4, is that correct?
MS. PAVELKO: Yes.
FEMALE ATTORNEY: That policy is dated 1987, is it not?
MS. PAVELKO: Which exhibit are we looking at?
FEMALE ATTORNEY: I believe it is 4B.
MALE ATTORNEY: It's 4C.
MS. PAVELKO: 4C, yes.
FEMALE ATTORNEY: Company policy statement.
MS. PAVELKO: That is correct.
FEMALE ATTORNEY: And what is its date?
MS. PAVELKO: One, one, eighty-seven. There's a revision date there.
FEMALE ATTORNEY: Therefore, this W4 situation was a problem which the company needed to make a policy on, is that not right?
MS. PAVELKO: I don't know why this company policy statement was put in the employee package, I just know that it's there.
FEMALE ATTORNEY: Have you noticed a problem with people filing exempt W4s?
MS. PAVELKO: I don't notice any problems with anything because I'm really not familiar with each person's tax status.
FEMALE ATTORNEY: So you didn't have any discussions with Mr. Gabriel Scott about why he put exempt on a W4?
MS. PAVELKO: No discussions.
FEMALE ATTORNEY: Do you know whether or not he was doing this conscientiously or to get extra money?
MS. PAVELKO: I have no idea.
FEMALE ATTORNEY: If he had refused flatly to fill out the W4, what would have happened?
MS. PAVELKO: I don't know that we've ever had anyone refuse to fill out a W4 before.
FEMALE ATTORNEY: Isn't it a condition of employment that they fill out the documents in the packet?
MS. PAVELKO: Yes, we do ask them to fill out the documents in the packet.
FEMALE ATTORNEY: So, that's one of the requirements of the job, is it not?
MS. PAVELKO: We do have them fill those out at the job site?
FEMALE ATTORNEY: Thank you much.
MALE ATTORNEY: We have no further questions. We would ask the witness be excused.
THE COURT: You are excused.
MS. PAVELKO: Thank you.
THE COURT: Call the next witness, Mr.
MALE ATTORNEY: Thank you, Your Honor. The Government calls Sylvia Kolivosky to the stand.
THE CLERK: Ms. Kolivosky could you please stand here to be sworn in? Raise your right hand. You do solemnly swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so held you God?
MS. KOLIVOSKY: I do.
THE CLERK: Ma'am, please be seated in the witness stand, right over there. And for the record, would you please state your full name, your address, and spell your last name.
MS. KOLIVOSKY: Sylvia Maria Kolivosky.
THE CLERK: I'm sorry, would you speak up louder, please.
MS. KOLIVOSKY: Sylvia Marie Kolivosky. K-O-L-I-V-O-S-K-Y, 4378 Dartmouth Road, Fairbanks.
THE CLERK: Was the middle name Marie?
MS. KOLIVOSKY: Yes.
THE CLERK: Thank you.
THE COURT: Mr.
MALE ATTORNEY: Thank you. Ms. Kolivosky, where do you work?
MS. KOLIVOSKY: At ITT Fellick Services at Clear Air Force Station.
MALE ATTORNEY: How long have you worked for that company?
MS. KOLIVOSKY: Eighteen years, two of which have been at Clear.
MALE ATTORNEY: What's your job there at Clear?
MS. KOLIVOSKY: Manager of Personnel Administration.
MALE ATTORNEY: As part of that job, are your familiar with the books and records of the Personnel Department?
MS. KOLIVOSKY: Yes, I am.
MALE ATTORNEY: And the payroll records of the individuals?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: What does ITT Fellick do there at Clear?
MS. KOLIVOSKY: We're a DOD contractor with the Department of Defense. We operate and maintain, we operate and maintain Clear Air Force Station for the Air Force.
MALE ATTORNEY: So you're a civilian?
MS. KOLIVOSKY: Yes, I am.
MALE ATTORNEY: But you have to go on the Air Force Base?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: That's provided by the Air Force?
MS. KOLIVOSAY: Yes.
MALE ATTORNEY: Now, if I may approach the witness.
THE COURT: Yes.
MALE ATTORNEY: For the record, Your Honor, we have handed the witness Exhibits A through Q, which have been admitted into evidence. That's SA through Q. Now, if I may, publish SA to the jury.
THE COURT: Go ahead.
MALE ATTORNEY: Thank you. Now, looking at SA, Ms. Kolivosky, you're familiar with that form?
MS. KOLIVOSKY: Yes, I am.
MALE ATTORNEY: And that' s what the employees have to fill out when they come to work?
MS. KOLIVOSKY: Correct.
MALE ATTORNEY: And this was filled out by whom?
MS. KOLIVOSKY: By Gabriel Scott.
MALE ATTORNEY: And you know Mr. Scott?
MS. KOLIVOSKY: Yes, I do.
MALE ATTORNEY: In fact, you knew him from a job outside of Clear?
MS. KOLIVOSKY: That's correct.
MALE ATTORNEY: Where he worked on the Dew Line (inaudible)?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: And what's the date on this , this is for the 1989 year?
MS. KOLIVOSKY: Yes, he signed it on July 18, '89
MALE ATTORNEY: And again, each time he would come to ITT Fellick for a job for a few months, each time he would have to fill out one of these?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: As every employee would?
MS. KOLIVOSKY: Right.
MALE ATTORNEY: This one is not signed under duress or any notation?
FEMALE ATTORNEY: Objection; leading.
THE COURT: Go ahead and restate your question.
MALE ATTORNEY: Thank you, Your Honor. Is there anything written under Mr. Scott's name?
MS. KOLIVOSKY: No, there is not.
MALE ATTORNEY: There, on that W4 he has claimed exempt?
MS. KOLIVOSKY: Correct.
MALE ATTORNEY: And rhat, therefore no withholding would be taken out of his paycheck, correct?
MS. KOLIVOSKY: Correct.
MALE ATTORNEY: Would you turn to SH, please? What is Exhibit SH?
MS. KOLIVOSKY: It's a W2 Wage and Tax Statement for the year 1989 for Mr. Scott while employed with ITT Fellick Services.
MALE ATTORNEY: And that form would be for, where was he working, that form was put together for, when he was working where?
MS. KOLIVOSKY: At Clear.
MALE ATTORNEY: What were his wages in 1989 on that W2?
MS. KOLIVOSKY: Twenty-six thousand fifty-five dollars and twenty cents.
MALE ATTORNEY: And did he have any income tax withheld?
MS. KOLIVOSKY: No, he did not.
MALE ATTORNEY: Now, what would happen, when was the individual receive this documents?
MS. KOLIVOSKY: This is a 1989 statement. He would get it in January of '90.
MALE ATTORNEY: Reflecting what he made in the year before?
MS. KOLIVOSKY: Correct.
MALE ATTORNEY: Will you look at SC, please. And what is that?
MS. KOLIVOSKY: A W2 Wage and Tax Statement for 1989 for Mr. Scott.
MALE ATTORNEY: This was when he was working on the Dew Line?
MS. KOLIVOSKY: That's correct.
MALE ATTORNEY: And his wages?
MS. KOLIVOSKY: Five thousand eighty-four dollars and thirty-one cents.
MALE ATTORNEY: And his withholding?
MS. KOLIVOSKY: None.
MALE ATTORNEY: Could vou turn to Exhibit SD? And those are payroll checks from 1989?
MS. KOLIVOSKY: Yes, they are.
MALE ATTORNEY: And you reviewed these prior to coming in?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: If you could turn now to 5E, 1990 year. And in conjunction with this, could you also take out Exhibit 5Q, just have that next to you. That would be the last exhibit there. And what is Exhibit 5E?
MS. KOLIVOSKY: A W4 Withholding Certificate for 1990.
MALE ATTORNEY: Do you normally help the employees fill that form out?
MS. KOLIVOSKY: No, I do not.
MALE ATTORNEY: Did you, in fact, were you involved in having a discussion with Mr. Scott surrounding that form?
MS. KOLIVOSKY: Yes, I was.
MALE ATTORNEY: Could you just explain to the jury what happened?
MS. KOLIVOSKY: Mr. Scott was being in-processed for employment. The personnel specia1ist who was in-processing him came into my office and said Mr. Scott was declining to sign the W4 statement. She brought him into my office. I asked him what the problem. He said he didn't wish to sign this. He did not consider himself a taxpayer.
MALE ATTORNEY: What did you say? MS: KOLIVOSKY: I told him he had to sign it if he wished to work for us.
MALE ATTORNEY: And what happened?
MS. KOLIVOSKY: He eventually filled it out, signed it.
MALE ATTORNEY: Your Honor, if I may --
THE COURT: Go ahead.
MALE ATTORNEY: -- publish to the jury. And that was on what date?
MS. KOLIVOSKY: June 4, 1990.
MALE ATTORNEY: And this has below Mr. Scott' s name, has something written in it.
MS. KOLIVOSKY: Yes, it does.
MALE ATTORNEY: What's that?
MS. KOLIVOSKY: Under duress.
MALE ATTORNEY: Now. the same. take a look at SQ, if you would. What, is that a document that Mr. Scott submitted around the time of June 4, 1990?
MS. KOLIVOSKY: Yes, it is.
MALE ATTORNEY: And from your notations on there, did he, he wanted you to accept that form and not have him fill out the W4?
MS. KOLIVOSKY: That's correct.
MALE ATTORNEY: You said you did not accept that form that he gave you?
FEMALE ATTORNEY: Objection - leading.
MALE ATTORNEY: What do you think will, you made him fill out the W4 form, didn't you?
MS. KOLIVOSKY: That's correct.
MALE ATTORNEY: That 5Q, which is a document he submitted, could you take a look at the second page of it, just read the heading?
MS. KOLIVOSKY: The heading says Statement of Citizenship.
MALE ATTORNEY: And the body of that, citizen of --
MS. KOLIVOSKY: Of the United States of America.
MALE ATTORNEY: He wanted you to accept that form in lieu of a W4?
MS. KOLIVOSKY: That's correct.
MALE ATTORNEY: And you did not?
MS. KOLIVOSKY: That's right.
MALE ATTORNEY: And that's when you filled this form out which is 5E?
FEMALE ATTORNEY: Objection - leading.
THE COURT: That's a suggestive question. Misstated.
MALE ATTORNEY: What, if anything happened after your (inaudible)
MS. KOLIVOSKY: He signed the W4.
MALE ATTORNEY: And it is your company's policy to, isn't it your company's policy to require that form for new employees?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Would you just now turn to 5F? And that is 5F?
MS. KOLIVOSKY: A W4 for 1990, signed by Mr. Scott on November 14, of '90.
MALE ATTORNEY: And did he put a notation down at the bottom of the document?
MS. KOLIVOSKY: Yes, he did.
MALE ATTORNEY: Can you read that for us, if you can?
MS. KOLIVOSKY: Condition of hire UD.
MALE ATTORNEY: Again, you have to fill out a W4 each time you come back to work?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Were you involved, did you have a personal sit down with Mr. Scott on this second W4?
MS. KOLIVOSKY: No, I did not.
MALE ATTORNEY: It was just on the one on June 4?
MS. KOLIVOSKY: That's correct.
MALE ATTORNEY: Could you turn to 5G, please? And what is that?
MS. KOLIVOSKY: A W2 Wage and Tax Statement for 1990 for Mr. Scott.
MALE ATTORNEY: What were his wages in 1990 from ITT Fellick?
MS. KOLIVOSKY: Fifty-three thousand one hundred fiftfnine dollars and eighty-five cents.
MALE ATTORNEY: Any money withheld for federal income tax?
MS. KOLIVOSKY: No.
MALE ATTORNEY: And could you turn to SH, please? And those are the payroll checks for 1990?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: And could you turn to 5I, just turn to 5I, take one at a time? And what is 5I?
MS. KOLIVOSKY: A W4 for Mr. Scott signed February 26, 1991.
MALE ATTORNEY: That's his '91 W4?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Does he also sign that exempt?
MS. KOLIVOSKY: Yes, he does.
MALE ATTORNEY: Does he make some notation under duress?
MS. KOLIVOSKY: Yes, he did.
MALE ATTORNEY: Can you turn to 5J? And what is that?
MS. KOLIVOSKY: A W4 signed by Mr. Scott on 5/21/91.
MALE ATTORNEY: That's also for '91, also under duress, condition of employment?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Could you turn to 5K, please? That's a W2 form for 1988?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: And what were his wages for 1988 from, through that W2?
MS. KOLIVOSKY: Twenty-one thousand four hundred thirty-eight dollars and thirty-nine cents.
MALE ATTORNEY: Any withholding?
MS. KOLIVOSKY: No.
MALE ATTORNEY: And 5L are the payroll checks for 1988?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Could vou turn to 5M, please? Now are employees there at ITT Fellick, are they required to see some, have some training on ethics?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: And what is 5M?
MS. KOLIVOSKY: This is a statement signed by Mr. Scott that he has viewed a video tape on ITT government business ethics on July 18, '89 and also a copy of a statement acknowledging that he has received a booklet containing the Code of Government Business Ethics.
MALE ATTORNEY: And this is ITT policy?
MS. KOLIVOSKY: Yes, it is.
MALE ATTORNEY: Relating to, do you have a government contract?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Could you turn to 5N, please? And what is that?
MS. KOLIVOSKY: It's an employment eligibility verification form I9, which is required by the Immigration and Naturalization Service.
MALE ATTORNEY: Does he show some, gave some identification, was that also part of the requirement?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Thank vou. What verification did he give?
MS. KOLIVOSKY: He gave a Voter's Registration card and his original Social Security card
MALE ATTORNEY: Would you turn to S0, please? If someone's wages were being levied, would you be involved in that, would you know about that?
MS. KOLIVOSKY: I would know about it, yes.
MALE ATTORNEY: And 50 is what?
MS. KOLIVOSKY: It's a Notice of Levy on Wages.
MALE ATTORNEY: For what years, what tax years were called there?
MS. KOLIVOSKY: '81, '82, and '83.
MALE ATTORNEY: And when, what's the date of the letter once the collection, the activity?
MS. KOLIVOSKY: March 12, 1991.
MALE ATTORNEY: Could you turn to 5P? And that's also a Notice of Levy
MS. KOLIVOSKY: Yes, it is.
MALE ATTORNEY: Is there an notation on that document?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: And what's the notation read?
MS. KOLIVOSKY: Employee refuses to sign 3/28/91, signed by Lee Walbeck, Payroll Supervisor.
MALE ATTORNEY: And you know who that is?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: And you recognize the signature?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: The last document's 5Q, and we already discussed that. Ms. Kolivosky, do you have a security clearance yourself?
MS. KOLIVOSKY: Yes, I do.
MALE ATTORNEY: Do some of the civilians there on the base, do they apply for security clearances?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: What happens when you apply for security clearance?
FEMALE ATTORNEY: Objection, relevance.
THE COURT: What will be the relevance of this?
MALE ATTORNEY: Your Honor, Mr. Scott applied for security clearance and the responses in here we feel are relevant to the case.
THE COURT: You may inquiry in connection with his application.
MALE ATTORNEY: You know that Mr. Scott applied for security clearance?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: In the security clearance they ask about credit history?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Financial history?
FEMALE ATTORNEY: Objection to further reading?
THE COURT: (inaudible) Ask her what it is required or what's requested in connection with his application for security clearance.
MALE ATTORNEY: Yes, Your Honor. If I may take a different approach, Your Honor.
THE COURT: Absolutely.
MALE ATTORNEY: How does a security clearanee, how does it work when a person first, a person wants to apply, what happens?
MS. KOLIVOSKY: He's given an application form and told to get his responses together.
MALE ATTORNEY: Does the employee fill out the form?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Normally what happens next?
MS. KOLIVOSKY: Then we have a person in the Personnel and Administration Department go over the form with them to make sure that all the information is consistent.
MALE ATTORNEY: And if that administrative person, where do they get the information from?
MS. KOLIVOSKY: From the employee.
MALE ATTORNEY: What happens then?
MS. KOLIVOSKY: If all the information, if all the blocks of the form are filled in and all the information is in proper order, that is all the dates run consecutively and so forth, then the personnel specialist would input that into a computer.
MALE ATTORNEY: After that what would happen.
MS. KOLIVOSKY: When the printout is completed, the employee is asked to review the form to make sure that it's accurate and asked to sign it.
MALE ATTORNEY: Would the administrative person type something in there after the employee has signed it?
MS. KOLIVOSKY: No.
MALE ATTORNEY: Is there an advisement above the employee's signature?
MS. KOLIVOSKY: I believe there is.
MALE ATTORNEY: Do you recall what it says?
MS. KOLIVOSKY: Offhand I do not, no.
MALE ATTORNEY: Where does the application go then?
MS. KOLIVOSKY: It's transmitted electronically to our headquarters in Colorado Springs.
MALE ATTORNEY: Does ITT, do they do background check?
MS. KOLIVOSKY: No, they do not.
MALE ATTORNEY: Who does it?
MS. KOLIVOSKY: The Department of Defense Agency does the background investigation.
MALE ATTORNEY: Now this security clearance, it gives, what's the purpose if it?
MS. KOLIVOSKY: There are areas on Clear Air Force Station that are considered restricted areas. Some of the personnel in those areas have to work with classified information. Others only require access to the area, but they still need to be cleared in order to have that access.
MALE ATTORNEY: So, do full-time employees have clearances?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: And who else might have clearance or apply for security clearance?
MS. KOLIVOSKY: Employees who are there on a regular, on a fairly regular basis.
MALE ATTORNEY: Excuse me, Your Honor, if I may for a moment. Your Honor, if I may approach the witness, Your Honor. This is an exhibit which we had not expected to put in at this time. This exhibit is Plaintiff's Exhibit 5F, which is a blank application. Ms. Kolivosky, is that the application you provided to the government?
MS. KOLIVOSKY: It is the application form we provide to the employee to assist them.
MALE ATTORNEY: Could you turn to Section 19 of that form?
FEMALE ATTORNEY: Objection, Your Honor, I don't have a copy of this and so I can't follow along.
THE COURT: Why don't you show counsel the sections in that you intend to refer to.
MALE ATTORNEY: Yes, Your Honor.
FEMALE ATTORNEY: I apologize, Your Honor, I just found a copy and I can.
MALE ATTORNEY: Ms. Kolivosky, now did, is there a blank application as part of that package?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: And that's the section that you give the employee for them to fill out?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Now is there also an instruction booklet?
MS. KOLIVOSKY: Yes.
MALE ATTORNEY: Which gives them, what's the instruction booklet, helps them out with the application?
MALE ATTORNEY: Will you look at Section 19 of the blank application? What does that ask for?
MS. KOLIVOSKY: Credit history.
MALE ATTORNEY: And under there they ask them a few questions?
MS. KOLIVOSKY: Yes, they do.
MALE ATTORNEY: Could you just please read to the jury the questions that are asked?
MS. KOLIVOSKY: A. Have you ever filed a petition under any chapter of the bankruptcy code to include Chapter 13. B. Have you ever had your wages garnisheed or anything repossessed. C. Have you ever had a lien placed upon your property for failing to pay taxes? D. Do you have any judgments against you which you have not paid? E. Are you now or have you been significant delinquent on debts.
MALE ATTORNEY: Now if someone were to answer yes to any of these questions, what should they do?
FEMALE ATTORNEY: Objection, sorry, withdraw.
MS. KOLIVOSKY: There is a notation that yes answers must be explained in accordance with detailed instructions.
MALE ATTORNEY: And on the detailed instructions it gives more instructions?
MS. KOLIVOSKY: Yes, it does.
MALE ATTORNEY: Your Honor, at this time we would show the, Your Honor, at this time we would ask that Exhibit 5S be admitted into evidence.
THE COURT: 5S is (inaudible)
FEMALE ATTORNEY: Now, is just a blank form.
MALE ATTORNEY: At this time.
U.S. VS. SCOTT
[Tape 5, Side A]
MALE ATTORNEY #1: What were his sources of income that you included in his income for 1989.
MS. GOLDBLOCK: Okay, he received wages from ITT Fellick. He received wages from A. C. Price Construction. He received wages from Superior Plumbing and Heating. He received the Alaska Permanent Fund dividend, and he received unemployment compensation from the State of Alaska.
MALE ATTORNEY #1: And it came to the total income?
MS. GOLDBLOCK: Of $45,369.30.
MALE ATTORNEY #1: And what did you do next?
MS. GOLDBLOCK: We allowed Mr. Scott a standard deduction based on a married, filing joint tax rate of $5,200, and we allowed him two personal exemptions of $2,000 each or $4,000 . And those items are subtracted from the adjusted gross income to come to the taxable income.
MALE ATTORNEY #1: Okay. Turn to page three.
MS. GOLDBLOCK: Okay.
MALE ATTORNEY #1: Is that where you came to his tax due and owing?
MS. GOLDBLOCK: Yes.
MALE ATTORNEY #1: Have you given him credit for the 22 total?
MS. GOLDBLOCK: Yes, I have.
MALE ATTORNEY #1: Would you turn to the 1990 year, please. This is a more abbreviated form.
MS. GOLDBLOCK: Okay. In 1990, Mr. Scott had gross income of $56,534.19.
MALE ATTORNEY #1: And what were the sources there from page two?
MS. GOLDBLOCK: Those were the wages from ITT Fellick, - the State of Alaska Permanent Fund dividend, and his unemployment compensation.
MALE ATTORNEY #1: And you gave him the same for deduction and the exemption.
MS. GOLDBLOCK: Correct.
MALE ATTORNEY #1: For a taxable income of about $46,000.
MS. GOLDBLOCK: Nine hundred and forty-eight, nineteen, yes sir.
MALE ATTORNEY #1 : What ' s the bottom line tax due for 1990?
MS. GOLDBLOCK: Eight thousand seven hundred and forty-four dollars and forty-seven cents.
MALE ATTORNEY #1: Would you turn to page - you prepared one more schedule?
MS. GOLDBLOCK: Yes, I have.
MALE ATTORNEY #1: And could you please describe what that schedule is or if I may, (inaudible) about this schedule.
MS. GOLDBLOCK: This one is entitled, "Gabriel Scott's Filing Requirements" and what this shows is Mr. Scott's gross income for 1989 and 1990 and what are the amounts that he was required to file for 1989 and 1990.
FEMALE ATTORNEY: And in almost everyone of those letters, is there not a claim that Mr. Scott is not a taxpayer, because no section of the Code makes him liable?
MALE ATTORNEY #1: I object, Your Honor, that mistakes the evidence.
THE COURT: State your question again, Ms. ------------
FEMALE ATTORNEY: Are you familiar with the letters that have been submitted in evidence by the prosecution where Mr. Scott or someone on his behalf claims he is not liable for taxes.
MS. GOLDBLOCK: Yes.
FEMALE ATTORNEY: And isn't the claim that he isn't a taxpayer because no section of the code makes him liable?
MS. GOLDBLOCK: There are sections of the Code that state he's required to file returns.
FEMALE ATTORNEY: My first question is, isn't that his claim as has been presented in the exhibits, that no section of the Code makes him liable?
MALE ATTORNEY #1: I object, Your Honor. Ms. Goldblock has been qualified as an expert tax computation, that is adding up the numbers and not in this critiquing the defense, Your Honor.
THE COURT: I'm going to overrule the objection. You understand the question?
MS. GOLDBLOCK: No, Your Honor. Could she rephrase it?
THE COURT: Go ahead and rephrase your question again?
FEMALE ATTORNEY: You looked at the letters of Mr. Scott --
MS. GOLDBLOCK: Right.
FEMALE ATTORNEY: - or someone on his behalf and those letters claim, do they not, that he's not a taxpayer?
MS. GOLDBLOCK: That's his definition that he is not a taxpayer.
FEMALE ATTORNEY: That's the claim, isn't it?
MS. GOLDBLOCK: That's what his letters state.
FEMALE ATTORNEY: And he's made this claim persistently over and over, over a period of years, isn't that true?
MALE ATTORNEY #1: I object, Your Honor, again that misstates the evidence.
THE COURT: I'm going to sustain the objections, reform the question.
FEMALE ATTORNEY: You've reviewed the evidence in this case.
MS. GOLDBLOCK: Yes.
FEMALE ATTORNEY: And more than once , Mr . Scott has claimed not to be a taxpayer, isn't that correct?
MS. GOLDBLOCK: Yes.
FEMALE ATTORNEY: Now, you've reviewed applicable tax provisions in this case, correct?
MS. GOLDBLOCK: Yes, I have.
FEMALE ATTORNEY: What would you say to this continual dilemma that he presents to the Internal Revenue Service, what section of the Code makes me liable for taxes?
MALE ATTORNEY #1: I object, Your Honor, again -
THE COURT: I'm going to sustain the objection. May I ask what she has considered.
FEMALE ATTORNEY: Have you considered why Mr. Scott qualifies as a taxpayer?
MS. GOLDBLOCK: Yes, I have.
FEMALE ATTORNEY: And by the way, is he the only one who has this dispute with the Internal Revenue Service or do other people?
MALE ATTORNEY #1: I object, Your Honor, again.
THE COURT: Sustained, beyond the scope.
FEMALE ATTORNEY: What section of the Code makes him liable for taxes?
MS. GOLDBLOCK: Code Section 6020 b.
FEMALE ATTORNEY: And what does that say?
MS. GOLDBLOCK: Basically, it says, excuse me, it's Code Section 6012 , and basically, that's the code section that states he has specific filing requirements; that if he makes income which exceeds his standard deduction, plus in his case twice his exemption amount, he is required to file a tax return.
FEMALE ATTORNEY: So, the section that you're citing is the section that says a certain minimum income triggers a filing requirement?
MS. GOLDBLOCK: Yes, ma'am.
FEMALE ATTORNEY: His claim of not being liable because no section of the Code says a person who does X is liable for taxes. What is the answer to that question?
MALE ATTORNEY #1: I object, Your Honor.
FEMALE ATTORNEY: Your Honor, if I may be heard?
THE COURT: (inaudible)
FEMALE ATTORNEY: She's qualified as an expert in the Tax Code. The defendant claims that he's unaware of what provision makes him liable. She's -
THE COURT: She doesn't have to provide an answer to that because you're asking for her to speculate. It's beyond the scope of the direct examination and finally, I've allowed examination on the basis of how she made a determination concerning that his liability under the tax returns, statute of regulation, so I, an issue relating to tax laws is not an issue in this proceeding. So, for those reasons I've sustained your questioning.
FEMALE ATTORNEY: Now, Ms. Goldblock, what is the total amount tax due and owing as charged in the indictment against Mr. Gabriel Scott?
MS. GOLDBLOCK: In 1989 he owes $5,931.36 and in 1990 he owes $8,744.47.
FEMALE ATTORNEY: So that's a total of approximately $13,000?
MS. GOLDBLOCK: Mr. Scott owes $14,675.83.
FEMALE ATTORNEY: Thank you very much.
THE COURT: (inaudible)
MALE ATTORNEY #1: No questions.
THE COURT: (inaudible). Mr. Gulf.
MR. GULF: Your Honor, at this time the Government rests.
THE COURT: (inaudible). Members of the jury, I'm going to excuse you at this time. I must take matters up with the attorneys. So, we'll be remaining in session, but I'd like to have the jury back at nine o'clock, and I'd like to see counsel (inaudible). I'd like to have a brief discussion with counsel. It had to do with scheduling, and I wanted to inform the jury. It .looks like the evidence may be completed perhaps by noon tomorrow, at which case there will be final summations in the afternoon, along with the instructions. The case may be submitted to the jury late tomorrow afternoon. Now, I can't make that as a commitment, because things arise during the trial sometimes that do require attention and take time, but our present estimate is in accordance with what I've told you. Now, I'd like to make sure you leave all your materials here. Return tomorrow morning at nine o'clock. Bear in mind you should withhold your judgment until you hear all of the evidence in the case before attempting to decide the case. Have no conversations with anyone about the subject matter in the trial. At this time now the jury is excused. (inaudible) gather your application.
FEMALE ATTORNEY: I have a Motion pursuant to Rule 29, particularly on the issue of vocalness(?).
THE COURT: Go ahead.
FEMALE ATTORNEY: We move for a Judgment of Acquittal under Rule 29 on both counts of the indictment.
THE COURT: Very well. I must consider all the evidence at this point in the trial and (inaudible) favorable to the Government, considering the evidence, I conclude that (inaudible) sufficient evidence to warrant the (inaudible). The evidence is sufficient on which a reasonable jury can find the defendant guilty on both Counts I and II of the indictment. The application for a judgment of acquittal at the close of the government's evidence (inaudible). Anything else, counsel?
FEMALE ATTORNEY: Could I inquire for scheduling purposes if the Government anticipates rebuttal?
MALE ATTORNEY #1: That will depend entirely on what the defense's case is.
FEMALE ATTORNEY: Well, I'll make the exhibits available right now. We'll make the exhibits available right now. (inaudible)
MALE ATTORNEY #1: (inaudible) any rebuttal, it will be rather short.
THE COURT: I'll be available at 8:30 tomorrow. I'd like counsel to havea final review with those instructions at 8:30 tomorrow as well. Meet with counsel at 8:30. Is there anything further? If not, we'll adjourn at this time.
THE CLERK: Court now stands adjoined subject to call. This matter is in recess until 9 a.m. tomorrow morning.
THE CLERK: Honorable James R. Fritzgerald presiding. Please be seated.
MALE ATTORNEY #1: May we be heard at side bar momentarily.
THE COURT: Sure.
THE CLERK: Mr. C________ would you whisper into the microphone.
MALE ATTORNEY #1: Sure.
FEMALE ATTORNEY: Your Honor, the defense is ready and we call Mr. Ron Finnerty.
THE CLERK: Sir, would you please stand here to be sworn? Raise your right hand. You do solemnly swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so held you God.
MR. FINNERTY: I do.
THE CLERK: Sir, please be seated in the witness stand right over there. And Sir, for the record, would you please state your full name, your address, and spell your last name?
MR. FINNERTY: My name is Ron Finnerty, it's F-I-N-N-E-R-T-Y, and I reside at 12 Blanche Avenue, here in Fairbanks.
THE CLERK: Thank you.
FEMALE ATTORNEY: Mr. Finnerty, for how long have you lived in Fairbanks?
MR. FINNERTY: I've lived in Fairbanks approximately four and a half year.
FEMALE ATTORNEY: And where did you live before?
MR. FINNERTY: Anchorage.
FEMALE ATTORNEY: What is your occupation, Sir?
MR. FINNERTY: I am self-employed contractor, and I work on residential properties for the State of Alaska Energy Rated Homes Program.
FEMALE ATTORNEY: What kind of work do you do?
MR. FINNERTY: I do mostly retrofit work, grading the homes from one level of energy savings to another to improve cheir energy savings and to make them worth more property or more money on the property market value.
FEMALE ATTORNEY: Would you tell the jury how you know the Defendant Gabriel Scott?
MR. FINNERTY: Yes, I know Mr. Scott through the Veterans of Foreign Wars Association here in town. The Veterans of Foreign Wars has a group of officers who run the place, and Scott happens to be one of them. I'm the Quartermaster, which trans1ated into civilianese is the Post Finance Officer. Excuse me. Mr. Scott, ever since I have been the Post Finance Officer for approximately two years now, has been a committeeman on one of our house ( inaudible) , what we call a house committee , which essentially runs the canteen operation of the Veterans of Foreign Wars Post.
FEMALE ATTORNEY: And as such, does he have responsibility for money or supplies that belong to the Veterans organization?
MR. FINNERTY: Yes, he does. He chairs that particular committee, and they are entrusted with the day-to-day operation of the club functions and as the chairperson, he is the direct supervisor of the lead bartenders and the club manager.
FEMALE ATTORNEY: Do you have an opinion about his reputation for truth, honesty, and fair-dealing in the community?
MR. FINNERTY: Yes, I do.
FEMALE ATTORNEY: And could you tell the jury what that opinion is?
MR. FINNERTY: Well, my opinion, he' s a very honest person. I've observed him handling money and property of other neople for several years now, and it's never been any question in my mind that he will go out of his way to make sure that things are done openly and above board and correctly.
FEMALE ATTORNEY: Is he a man of his word?
MR. FINNERTY: Yes, he is, very much so.
FEMALE ATTORNEY: Now, you realize you are here on a tax evasion trial, don't you?
MR. FINNERTY: Yes, I do.
FEMALE ATTORNEY: Do you know that he has not filed or paid taxes for quite a few years?
MR. FINNERTY: Well, I only know what I read in the newspaper.
FEMALE ATTORNEY: Does the fact that he's here on trial for not paying his taxes, does that change your opinion of his truth and honesty?
MR. FINNERTY: Not at all, not in the least.
FEMALE ATTORNEY: I have no further questions, Sir, the prosecutor may ask.
MALE ATTORNEY #1: Mr. Finnerty, how long have you known Mr. Scott? MR.
FINNERTY: I guess it must be close to two years now.
MALE ATTORNEY #1: Two years . Did you know him in 1978?
MR. FINNERTY: No, I did not.
MALE ATTORNEY #1: First time probably, did you know him in 1989 or 1990?
MR. FINNERTY: 1990 is when I first met him.
MALE ATTORNEY #1: Do you know anything about Mr. Scott's personal finances?
MR. FINNERTY: No, I do not.
MALE ATTORNEY #1: Did he ever discuss his problems with the Internal Revenue Service with you?
MR. FINNERTY: No, he really has not done that. The only thing I know is what I have read in the newspaper.
MALE ATTORNEY #1: He seems to behave in a rational, responsible manner in dealing with the VFW finances, is that correct?
MR. FINNERTY: That is correct, Sir.
MALE ATTORNEY #1: Would it change your opinion as to Mr. Scott's honesty and veracity if you knew that he had made false statements regarding his finances on an application for security clearance?
MR. FINNERTY: No, I don't believe it would, because my opinion is based on what I know of him, and I think that his problem with you folks is probably almost like politics and religion, it's something that I haven't really discussed. People have their own thought, their own way of doing things. I wouldn't change my opinion, no.
MALE ATTORNEY #1: No further questions, Your Honor.
FEMALE ATTORNEY: May he be excused?
THE COURT: He may be excused.
FEMALE ATTORNEY: I'll get my next witness.
THE CLERK: Would you please stand here to be sworn? Raise your right hand. You do solemnly swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God?
MS. CHAGNON: I do.
THE CLERK: Ma'am, please be seated in the witness stand right over there. For the record, would you please state your full name, your address, and spell your last name?
MS. CHAGNON: My name is Rickarla Chagnon. Most people call me Rickie. I live at 2005 Carr. My last name is spelled C-H-A-G-N-O-N.
THE CLERK: Could you please spell your first name?
MS. CHAGNON: R-I-C-K-A-R-L-A.
THE CLERK: And you reside in Fairbanks.
MS. CHAGNON: Yes I do.
THE CLERK: Thank you.
THE COURT: (inaudible)
FEMALE ATTORNEY: Ms. Chagnon, what is your current occupation? MS . CHAGNON: At this time I am the manager of the Regency Hotel and the Townhouse Motel and Apartments.
FEMALE ATTORNEY: How long have you held that job?
MS. CHAGNON: I've worked for Stewart Enterprises, which owns both properties, for 13 years . I 've been at the Regency since before we dug the hole.
FEMALE ATTORNEY: Okay, and how long have you lived in Fairbanks?
MS. CHAGNON: Approximately 22 years.
FEMALE ATTORNEY: Now, do you know Mr. Scott, the Defendant in this case? M5.
CHAGNON: Yes, I do.
FEMALE ATTORNEY: Could you tell the jury in what capacity you know him?
MS. CHAGNON: I know Gabe Scott as a friend, but I met Gabe actually through our mutual endeavors for this community. We've worked together on committees for the VFW, for the American Legion. We've worked on fundraising efforts to help families that have been burnt out, all this kind of thing. Gabe is very much a community minded citizen, very much so. I admire him for that.
FEMALE ATTORNEY: In your dealings with Mr. Scott, have you formed an opinion about his truth and honesty?
MS. CHAGNON: Yes, I have.
FEMALE ATTORNEY: Would you tell the jury what that opinion is?
MS. CHAGNON: I respect him. I respect his work. I respect his honesty. Gabe has helped me, like I said, I respect his honesty. Gabe has helped me, fundraising events. I also happen to be President of the Board of Alaska Cripple Children --
FEMALE ATTORNEY: Just a minute, Ms. Chagnon. There's an objection.
THE COURT: You know what the question was?
MS. CHAGNON: I'm sorry, Your Honor.
THE COURT: Do you have an opinion as to his truth and honesty? Can you answer that?
MS. CHAGNON: Yes.
FEMALE ATTORNEY: And what is that opinion?
MS. CHAGNON: That I believe in his honesty.
FEMALE ATTORNEY: Now, he's here on trial on a tax evasion case and you're a business person. Do you pay your taxes?
MS. CHAGNON: Yes, I do.
FEMALE ATTORNEY: Does the fact that he's on trial in a tax case, does that change your opinion of his truthfulness and honesty?
MS. CHAGNON: No, it does not. I feel he has a right to his own opinions.
FEMALE ATTORNEY: Now, I'd like to ask you one other question. Have you observed the lifestyle of Mr. Scott and his life?
MS. CHAGNON: Yes, I have.
MALE ATTORNEY #1: (inaudible)
THE COURT: What is it (inaudible)?
FEMALE ATTORNEY: It's to a modest lifestyle, negating a profit motive for a deceitful, bad faith, reason.
THE COURT: Sustained.
FEMALE ATTORNEY: No matter what happens here, would you trust Mr. Scott with money, resources, supplies in the future?
MS. CHAGNON: I would trust Mr. Scott with my own personal money, with business money, with funds from any endeavor that I was involved in.
FEMALE ATTORNEY: In your involvement with him, has he been a man of his word?
MS. CHAGNON: Always.
FEMALE ATTORNEY: I have no further questions. The prosecutor may ask you some.
MALE ATTORNEY #1: Ma'am, how long have you known Mr. Scott?
MS. CHAGNON: Oh, I'd say about six years.
MALE ATTORNEY #1: So, you didn't know him in the 1970's?
MS. CHAGNON: No, I did not.
MALE ATTORNEY #1: Has Mr. Scott discussed his views on taxes with you?
MS. CHAGNON: No, he has not.
MALE ATTORNEY #1: No further questions, Your Honor.
FEMALE ATTORNEY: May she be excused?
THE COURT: She may be excused.
FEMALE ATTORNEY: I'll get my next witness. The defense calls Richard Lynch.
THE CLERK: Sir, would you please stand here to be sworn. Raise your right hand. You do solemnly swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God.
MR. LYNCH: I do.
THE CLERK: Sir, please be seated in the witness stand. It's right over there. Sir, for the record, would you please state your full name, your address, and spell your last name?
MR. LYNCH: My name is Richard Lynch . L-Y-N-C-H . I 1ive at 210 Fairwell here in Fairbanks.
THE CLERK: Thank you.
FEMALE ATTORNEY: Mr. Lynch, what is your current occupation?
MR. LYNCH: My current occupation is a Special Education School Teacher here in the Fairbanks North Star Borcugh School District.
FEMALE ATTORNEY: Are you employed by the school district?
MR. LYNCH: Yes, I am.
FEMALE ATTORNEY: And what kind of special education do you do?
MR. LYNCH: Well, currently, as of the last four years, I have been a full-time tester, one of two in the district, and I have been testing from school to school, and I test children from kindergarten through 12th grade for learning disabilities and qualification into the Special Education Program.
FEMALE ATTORNEY: Okay Sir, I'm going to ask you to keep your voice up so the jury can hear.
MR. LYNCH: Okay.
FEMALE ATTORNEY: Do you know -
THE CLERK: You can pull the microphone -
FEMALE ATTORNEY: Do you know the Defendant -
MR. LYNCH: Yeah, okay.
FEMALE ATTORNEY: Do ycu know the Defendant Gabriel Scott in this case?
MR. LYNCH: Yes, Ma'am, I do.
FEMALE ATTORNEY: Could you tell the jury how you know him?
MR. LYNCH: Well, I first became acquainted with Gabe approximately three years ago through the Veterans of Foreign Wars organization, and I met his wife at that time and we share some common experiences. We're both combat infantry men in the military.I served in Vietnam, and Gabe served in Korea, so it was through this medium and the organization I first became acquainted with Gabe.
FEMALE ATTORNEY: Are you also person friends of his family, him and his wife?
MR. LYNCH: Yes, I would say so, socially, we're friends, yes.
FEMALE ATTORNEY: Do you have an opinion about Mr. Scott's truthfulness and fair dealing in the community?
MR. LYNCH: Well, --
FEMALE ATTORNEY: You just need to say yes or no first.
MR. LYNCH: Yes, yes.
FEMALE ATTORNEY: Would you tell the jury what that opinion is?
MR. LYNCH: Well, I have a good opinion, a strong opinion of Gabe as far as his trustfulness and his trustworthiness. He's been honest with me in any dealings that I've had with him, and I would trust him.
FEMALE ATTORNEY: Has he been involved in volunteer organizations where he has responsibility?
MALE ATTORNEY #1: Specific acts, Your Honor.
THE COURT: Sustained the objection.
FEMALE ATTORNEY: Are you aware that Mr. Scott is here on trial for tax evasion?
MR. LYNCH: Yes, I was advised of that.
FEMALE ATTORNEY: Has he ever discussed his views on the tax system with you.
MR. LYNCH: No, Ma'am, he hasn't.
FEMALE ATTORNEY: Would the fact that he has a problem with the Internal Revenue Service change your opinion about his truthfulness and fair dealing
MR. LYNCH: I don't think so.I'm not aware of what the specific nature of the problem is to begin with, so I couldn't comment on that.
FEMALE ATTORNEY: In financial matters at the VFW, has he been honest and straightforward?
MR. LYNCH: Yes, to the best of my knowledge he has , and I feel he' s been instrumental in a lot of good things that have happened with the VFW and how they've been able to help Veterans here in the Fairbanks area.
FEMALE ATTORNEY: I have no further questions, Sir. The prosecutor may ask you some.
THE COURT: (inaudible)
MALE ATTORNEY #1: The government has no questions.
THE COURT: (inaudible)
FEMALE ATTORNEY: May he be excused?
THE COURT: He may be excused.
THE CLERK: Sir, would you stand here to be sworn? Please raise your right hand. You do solemnly swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God.
MR. FURLOW: I do.
THE CLERK: Sir, please be seated in the witness stand, right over there. For the record, would you please state your full name, your address, spell your last name?
MR. FURLOW: My name is Marsden Furlow. My last name is spelled F-U-R-L-O-W and my address is 12 Carol Street, Westminster, Maryland 21157.
THE CLERK: Thank you. Sir, could you spell your first name?
MR. FURLOW: Marsden is M-A-R-S-D-E-N.
THE CLERK: Thank you.
FEMALE ATTORNEY: Mr. Furlow, I might ask that you keep your voice up so the jury can hear you, the sound disburses in this courtroom. Could you tell us briefly your education and background?
MR. FURLOW: I have a Degree in Natural Sciences from the University of Arkansas. I attended two years of medical school at the University of Arkansas in Little Rock, and I have a number of various college credits, post, post degree college credits.
FEMALE ATTORNEY: What do you do now?
MR. FURLOW: Right now I work as a paralegal and writer and editor for Save-A-Patriot organization in Westminster, Maryland.
FEMALE ATTORNEY: Does that put out a newsletter called "Reasonable Action."
MR. FURLOW: Yes, it does.
FEMALE ATTORNEY: Does it also put out various packets that are available to persons in disputes with the Internal Revenue Service?
MR. FURLOW: Yes, it does.
FEMALE ATTORNEY: And without getting into general philosophy, what kind of an organization is it?
MR. FURLOW: We're a first amendment organization that believes in the return of the constitutional form of government. We believe that the, there's many tenants in our group, but we believe in a constitutional form of government. We believe that the government should be for the people and by the people and that we feel that our government no longer is in the control of the people, but in the control of a very select few and that we're out of control of the government. We advocate many different issues.
MALE ATTORNEY #1: I object, Your Honor.
FEMALE ATTORNEY: All right. I'll move on, Your Honor. Mr. Furlow, do you know the Defendant Gabe Scott?
MR. FURLOW: Yes, I do.
FEMALE ATTORNEY: Could you tell the jury how Mr. Scott came to your attention?
MR. FURLOW: Mr. Scott is a member of Save-A-Patriot organization, and he, I can't tell you how long he's been a member, but I know he's been a member over a year and a half, because I've dealt with him over a year and a half, over the telephone, between, many, numerous times between Westminster and his home here in Alaska.
FEMALE ATTORNEY: And were you dealing with him on April 15, 1990, on or about Aprii 15, 1991, the times that he's alleged in the indictment to have failed to file tax returns?
MR. FURLOW: I've dealt with him prior to April 15, 1991.
FEMALE ATTORNEY: Did you deal with him in 1990?
MR. FURLOW: I do not believe, no, I did not. I 've been with Save-A-Patriot now for almost two years myself.
FEMALE ATTORNEY: When you came to Save-A-Patriot, was he already a member?
MR. FURLOW: I'm sure he was.
FEMALE ATTORNEY: Did he pay anything, to your knowledge, to that organization or pay any subscriber fees?
MR. FURLOW: To, that, we require a membership. It's $35 to join our organization, and it's, and, of course, that can even be waived if a lot of our members sometimes can't, you know, can't even afford that because.
THE COURT: I can't remember what the question was.
FEMALE ATTORNEY: Does he pay anything?
MR FURLOW: Yes, I'm sure he did. I'm sure it was $35.
MALE ATTORNEY #1: Object, Your Honor, this is hearsay. He doesn't have the, and also he doesn't seem to have the knowledge as to whether Mr. Scott paid or didn't.
MR. FURLOW: But I know we only help members. Mr. Scott is a member because I did help him.
FEMALE ATTORNEY: Now, --
MR. FURLOW: That is our policy.
MALE ATTORNEY #1: (inaudible) objection and ask that his remarks be stricken, and if not, his responses.
THE COURT: Disregard, the remark concerning whether or not he paid. You may consider the remark concerning the help to members. Go ahead.
FEMALE ATTORNEY: Is there a person named Mr. Kotmair associated with Save-A-Patriot?
MR. FURLOW: Yes, Mr. Kotmair is one of the original founders of Save-A-Patriot.
FEMALE ATTORNEY: And does he prepare documents for the use of members like Mr. Scott?
MR FURLOW: Yes, he does.
FEMALE ATTORNEY: And what kind of documents are these?
MR FURLOW: What he does is he -
MALE ATTORNEY #1: I object, your Honor. Again, it's the same objection. He's testifying as to what someone else does.
FEMALE ATTORNEY: I'm asking about transactional matters, what Mr. Kotmair does for Mr. Scott.
THE COURT: This is status basis and personal knowladge. You may go ahead.
FEMALE ATTORNEY: Are you familiar with Mr. Kotmair?
MR. FURLOW: I'm quite familiar with Mr. Kotmair. I work with him on a daily basis.
FEMALE ATTORNEY: And are you familiar with Mr. Scott's dealings with your organization?
MR. FURLOW: I'm thoroughly familiar with Mr. Scott's with our organization.
FEMALE ATTORNEY: Does Mr. Kotmair provide services to Mr. Scott?
MR. FURLOW: Yes, Mr. Kotmair does.
FEMALE ATTORNEY: And do they include letters that he writes on Mr. Scott's behalf to the Internal Revenue Service?
MR. FURLOW: Yes, they do.
FEMALE ATTORNEY: Is Mr. Kotmair an attorney, by the way?
MR. FURLOW: No, he's not.
FEMALE ATTORNEY: Is he an accountant or any, what is his occupation?
MR. FURLOW: He is a former builder, but he right now, as one of the founders of Save-A-Patriot and one of the members who works in the organization there. He does work with the Internal Revenue Service, works for various people on their behalf of writing letters and conferring with the Internal Revenue Service.
FEMALE ATTORNEY: Now, I'd like to discuss, ask you whether you discussed certain topics with Mr. Scott, the Defendant, starting in early 1990? Did you discuss whether or not he was a taxpayer.
MALE ATTORNEY#1: I object, Your Honor. These are leading questions.
THE COURT: I'm allow this as a leading and preliminary question, but then follow up with leading questions.
FEMALE ATTORNEY: Did you discuss whether or not he was a taxpayer?
MR. FURLOW: Yes, I have.
FEMALE ATTORNEY: Did you discuss other topics with him about the tax system or about things you might consider patriotic matters?
MR. FURLOW: Ah, well, I've discussed various matters. One of the greatest concern that I was, that I worked with was, is, and Mr. Kotmair, was an IRS lien and levy action that the IRS has been doing, taking Mr. Scott's money - We did an administrative, I say we as an organization, we did an administrative investigation through Freedom of Information Act request on behalf of Mr. Scott to acquire documents from the IRS to show and to prove that their administrative collections against him were illegal.
FEMALE ATTORNEY: And did you tell Mr. Scott that, that the administrative collections were illegal?
MR. FURLOW: Oh, absolutely.
FEMALE ATTORNEY: And did you do that?
MR. FURLOW: What?
FEMALE ATTORNEY: Strike that. Did you tell him that those levies were illegal because he wasn't a taxpayer?
MR. FURLOW: That issue, we didn't get into that issue. The illegality of the levies was based upon procedural matters. The IRS failed to send Mr. Scott --
MALE ATTORNEY #1: I object, Your Honor.
THE COURT: (inaudible).
FEMALE ATTORNEY: All right. What I'm going to ask you is, back up and ask you if you ever discussed with Mr. Scott that he was not a taxpayer?
MR. FURLOW: Yes, I --
MALE ATTORNEY #1: I object, Your Honor.
THE COURT: I'll overrule the objection on (inaudible).
FEMALE ATTORNEY: What did you tell him, if anything, about whether or not he was a taxpayer?
MR. FURLOW: We've discussed the Code many times over the phone. We talked about the Code. What the Code means to him. I've talked about li --
MALE ATTORNEY #1: Objection, Your Honor.
MR. FURLOW: -- objections to the Code.
MALE ATTORNEY #1: It's beyond the scope of the question and his opinions.
THE COURT: The objection (inaudible) really belongs to part of the question do you believe it is prejudicial, you need to strike it.
FEMALE ATTORNEY: No. Mr. Kotmair, I'm sorry.
MALE ATTORNEY #1: In this line of question, so don't continue to interrupt. This was Furlow's beliefs in the law. It's irrelevant and that would be the court to --
THE COURT: Members of the jury, this evidence relating to conversations that this witness may have had with Mr. Scott is admitted for a limited purpose. It's admitted as it may verify Mr. Scott's knowledge, beliefs or opinions. It's not admitted for the truth of the matter, and you may not consider for the truth of the matter, only to the extent that if considered by Mr. Scott and may have, bear upon his opinions, beliefs, and conduct. You may continue.
FEMALE ATTORNEY: Mr. Furlow, remember I'd asked you about whether or not you discussed if he was a taxpayer? Please tell the jury what you and he discussed concerning his taxpayer status?
MR. FURLOW: Well, I know that what we send to all our members and --
FEMALE ATTORNEY: I --
MALE ATTORNEY #1: I object, Your Honor.
FEMALE ATTORNEY: I'm going to ask you to answer - I'll try to reask the question. Just answer the question about Mr. Scott. What you and he discussed?
MALE ATTORNEY #1: Excuse me, Your Honor, I apologize for the interruption again,but I believe Mr. Furlow has some documents in front of him that I believe he may be reading or referring to. We haven't seen these. We're not sure --
THE COURT: You may inspect any documents that he has.
FEMALE ATTORNEY: I have no objection if counsel wants to go and look.
MR. FURLOW: I have a copy of the Constitution here if you've ever read that before and then I have a copy of the Bible right here and I have a copy of a flyer that we send out that is --
MALE ATTORNEY #1: I don't need Mr. Furlow to give me a recitation on, I just want to see the --
THE COURT: (inaudible).
MR. FURLOW: This is a fellowship agreement for SAP.
MALE ATTORNEY #1: Excuse me, Your Honor. (inaudible).
THE COURT: Mr. Furlow, just answer the question. As a witness you are required to only answer the question.
FEMALE ATTORNEY: Now, Mr. Furlow, I'm not asking about --
MALE ATTORNEY #1: If I may, just for a second. (whispered conversations between counsel).
FEMALE ATTORNEY: Mr. Furlow, do you need this document to testify -
MR. FURLOW: No, I don't.
FEMALE ATTORNEY: -- taxes. Is it all right if I give it to the prosecution?
MR. FURLOW: It's his to keep,
FEMALE ATTORNEY: Please go back to the topic, which is your discussions with Mr Scott on the issue of whether he's a taxpayer. Tell the jury what kind of things you, what exactly you discussed, to the best of your memory
MR. FURLOW: Well, one of the things I've talked to Mr. Scott about is liability provisions in the Code, which we talk to all members about, and I talked to Mr. Scott --
FEMALE ATTORNEY: We can't find out about other members other than Mr. Scott. What did talk to Mr. Scott about the liability provisions of the Code.
MR. FURLOW: The only liability provision in the Internal Revenue Code is 1461 --
MALE ATTORNEY #1: I object, Your Honor. He's not answering the question.
MR. FURLOW: - which I have discussed with Mr. Scott.
MALE ATTORNEY #1: Excuse me, Your Honor. If he doesn't remember exactly what he said to Mr. Scott, he should say so and that's a foundational question that we would ask.
THE COURT: (inaudible). Do you believe the answer was non-responsive?
MALE ATTORNEY #1: Yes.
THE COURT: And prejudicial to the --
MALE ATTORNEY #1: Yes, Your Honor and --
THE COURT: Disregard the answer. What's your question?
FEMALE ATTORNEY: My question is, please tell the jury what you discussed with Mr. Scott about whether or not he was a taxpayer and I direct your attention specifically to any cases you cited, any Code provisions, anything you talked to him about that suggests he wasn't a taxpayer?
MR. FURLOW: I have talked to Mr. Scott on numerous occasions about the Tax Code, and I have mentioned to him that as we say to all our members -
THE COURT: You mention, just tell --
MR. FURLOW: I mentioned to him that the only provision of the Code that makes anyone liable for a tax is 1461 and 1461 of the Code is a withholding agent for a non-resident alien. I've also mentioned to Mr. Scott that there has to be a statute for liability that invokes a liability on someone. For instance, there is a tax on alcohol, which I have mentioned to Mr. Scott, 5001, which imposes a tax on alcohol, but alcohol doesn't pay the tax. The section of the Code that invokes liability is 5005, which makes the distiller and the importer of alcohol liable for the tax, and I have discussed this with Mr. Scott.
FEMALE ATTORNEY: And did you tell him that there was no section --
THE COURT: Mr. C___________
MALE ATTORNEY #1: (inaudible)
THE COURT: Go ahead.
FEMALE ATTORNEY: Did you tell him there was nothing that made him liable to pay tax on wages, income tax and wages?
MR. FURLOW: Yes, I have.
FEMALE ATTORNEY: And what did you tell him?
MR. FURLOW: I told him that there is no provision in the Code under Sub Title A --
FEMALE ATTORNEY: Which is on income?
MR. FURLOW: Which is tax on income, correct, which is the income tax, that imposes a liability, except 1461 of the Ccde and that's the truth.
MALE ATTORNEY #1: I object, Your Honor.
THE COURT: Disregard the last comment by the witness. What's your next question?
FEMALE ATTORNEY: Did you discuss whether or not Mr. Scott was exempt from filing income statements on W4s?
MALE ATTORNEY #1: I object, leading, Your Honor,
FEMALE ATTORNEY: All right. Did you discuss W4s?
MR. FURLOW: I don't remember that.
FEMALE ATTORNEY: Did you discuss whether or not he was exempt from filing taxes?
MR. FURLOW: Well, as I said, since there's no liability provisions, I have discussed with him since there's no liability provision, he is exempt from the Code.
FEMALE ATTORNEY: Did you discuss whether he owed the Internal Revenue Service any money? Whether he had a debt to the Internal Revenue Service?
MR. FURLOW: Of course, I have discussed that. He does not have, you know, I have told him, I said he doesn't have a debt because he's not liable for the tax.
FEMALE ATTORNEY: Now, let's get into some of the things that you cited to him. You mentioned one section of the Code. Are there other reference works or bodies of law that you cited to Mr. Scott as a member of your organization that relieved him from liability of paying his taxes?
MR. FURLOW: Yes, I have. I talked --
FEMALE ATTORNEY: What are those citations?
MR. FURLOW: Okay, I'll, one of the first ones is Brushaber vs. Union Pacific Railroad.
FEMALE ATTORNEY: And what does that case, what did you tell Mr. Scott that case said?
MR. FURLOW: Well, the Supreme Court in 1916 said that the, and I also discussed Stanton vs. Baltic Mining, which the two cases that came out back in 1916.
FEMALE ATTORNEY: Are these U.S. Supreme Court cases?
MR. FURLOW: These are Supreme Court cases, correct.
FEMALE ATTORNEY: What did you tell Mr. Scott those cases stood for?
MR. FURLOW: I told Mr. Scott that those cases said that the income tax, first of all, I said that, to hin that the Supreme Court said that the 16th Amendment gave no new power, 16th Amendment is the amendment that supposedly allow an income tax, but the Supreme Court said that the 16th Amendment gave no new powers and if the court that the income tax was an excise tax, which was a tax on a privilege and if it's a tax on a privilege, Congress could pass a tax, an excise tax if it wanted to and the income tax is a tax on a privilege measured by income and for instance, that's why the Code, which explained to Mr. Scott, that the only --
MALE ATTORNEY #1: I obiect, Your Honor, that's done on a narrative on one of his speeches. Your Honor, --
MR. FURLOW: That's exactly --
MALE ATTORNEY #1: Is he testifying from memory that this is what he actually said to Mr. Scott or is he giving a speech?
THE COURT: He answered the question that was given this is what he actually said to Mr. Scott or is he giving a speech?
THE COURT: He answered the question that was given that Ms._______ asked, what materials he cited to and use that as an (inaudible) question. What's your next question?
FEMALE ATTORNEY: Did you cite any other materials besides the Brushaber case and what was the other case, Stanton?
MR. FURLOW: Stanton, right.
FEMALE ATTORNEY: Did you cite any other materials to -
MR. FURLOW: Well, I told him to refer to our, what we put out in our organization to our $10,000, you know, our organization will pay $10,000 to --
MALE ATTORNEY #1: I object, Your Honor. He seems to be using some pamphlet or something there at the witness -- for the record he seems to have held something up.
FEMALE ATTORNEY: What is that objection?
MR. FURLOW: Well, this is a pamphlet that we -
THE COURT: Just a minute. Listen to the question, and answer the question only. Less chatter, please. Specific question. You answer the question. If she wants more, she'll ask. I don't want any more interruption. What's your question again?
FEMALE ATTORNEY: Now, you mention the Brushaber case and the Union Pacific case.
MR. FURLOW: That's correct.
FEMALE ATTORNEY: Did you cite to Mr. Scott any other particular cases, Code provisions, newsletter, anything that supported your discussion with him that he was not a taxpayer?
MR. FURLOW: I've talked to him about the --
THE COURT: What were the materials, answer the question?
MR. FURLOW: I told him to read our materials that SAP puts out , and I can't remember any other particular, but I did talk to him about Brushaber and I did talk to him about the different provisions of the Code and how the Code works. That's what our, that's what I do.
FEMALE ATTORNEY: Now this Reasonable Action, is that the newsletter that you referred him to?
MR. FURLOW: Yes, it is.
FEMALE ATTORNEY: And how often does your organization put this paper out?
MR. FURLOW: We put it out bimonthly.
FEMALE ATTORNEY: You mean every other month?
MR. FURLOW: Every other month, yes.
FEMALE ATTORNEY: Do you help write it?
MR. FURLOW: Yes, I do.
FEMALE ATTORNEY: Did you and Mr. Scott discuss this newsletter?
MR. FURLOW: Yes.
FEMALE ATTORNEY: Is one of the topics in the newsletter whether or not wage earners are taxpayers?
MR. FURLOW: Yes.
FEMALE ATTORNEY: Now, moving to another area. Did you discuss whether or not the taxes were unconstitutional or unfair?
MR. FURLOW: Oh, I've only talked about the --
FEMALE ATTORNEY: -- with Mr. Scott.
MR. FURLOW: -- with Mr. Scott I talked to him that the taxes are constitutional.
FEMALE ATTORNEY: Now, could you tell the jury what the Jake Snake or Jake the Snake program is?
MR. FURLOW: Yeah, that's the program that we have in SAP called "Jake Snake" and basically, what that is when people under criminal investigations we recommend to all our members, we assist our members when they are under criminal investigaticn by the IRS, to write letters to the IRS asking them for their authority, ask them what section of the Code makes them liable, and so that our members will have factual elements to put in court, you know, to people and that's what our Jake Snake program is.
FEMALE ATTORNEY: Why do you call it Jake Snake?
MR. FURLOW: That's, it's a funny name that I ask because we're trying to snake the IRS back, just like they're trying to do.
FEMALE ATTORNEY: What is the purnose of these materials and in fact, did Mr. Scott get some of these Jake Snake?
MR. FURLOW: Yes, he did.
FEMALE ATTORNEY: And what's the purpose of them?
MR. FURLOW: The purpose is to, when you find out that you're under criminal investigation to send to, the purpose is to show your intent and your willfulness and say, hey, I'm, please show me a part in the Code that makes me liable for the tax.
FEMALE ATTORNEY: Did Mr. Scott send these materials to the IRS throuqh your organization?
MR. FURLOW: Yes, he did.
FEMALE ATTORNEY: Now, I'm going to ask you in a different area if you ever had any of your members go to jail for following your advice?
MR. FURLOW: I don't think they've gone to jail for following our advice, but we have members of our, we've had our members go to jail and that's the reason for, that's one of the reasons for our organization which I haven't discussed yet.
FEMALE ATTORNEY: When you gave Mr. Scott advice, didn't you know that the logical consequence of his taking that advice would be this kind of a prosecution?
MR. FURLOW: That's the, everybody knows in our organization that that's, that in the battle that we have, that's part of the battle, to fight the, to fight our unjust system.
FEMALE ATTORNEY: And did you give him advice that was likely to lead to a criminal prosecution?
MR. FURLOW: I don't think I gave advice to, that would lead to a criminal prosecution. I gave him advice that hopefully if it got to a criminal prosecution, that the jury would understand where his mind is.
FEMALE ATTORNEY: To your knowledge did he follow your advise?
MR. FURLOW: I believe he did. He --
FEMALE ATTORNEY: In your discussions with him, was he a fluent educated person or was he confused?
MALE ATTORNEY #1: I object, Your Honor.
THE COURT: I'm going to sustain your objection (inaudible).
FEMALE ATTORNEY: Was Mr. Scott fluent with the materials you provided?
MR. FURLOW: No, he's not.
FEMALE ATTORNEY: Did he exhibit confusion?
MALE ATTORNEY #1: I object, Your Honor.
THE COURT: I'm going to sustain that objection.
FEMALE ATTORNEY: Mr. Furlow, I have no further questions. The prosecutor may ask you some.
MALE ATTORNEY #1: Thank you, Your Honor. Mr. Furlow, you did not sign any Powers of Attorney for Mr. Scott, did you?
MR. FURLOW: No, I didn't.
MALE ATTORNEY #1: You did not sign any documents for Mr. Scott, did you?
MR. FURLOW: No, I didn't.
MALE ATTORNEY #1: Mr. Kotmair, is he, one of the founders of Save-A-Patriot?
MR. FURLOW: Yes, he is.
MALE ATTORNEY #1: Mr. Kotmair has spent time in prison.
MR. FURLOW: Yes, he did.
MALE ATTORNEY #1: For what?
MR. FURLOW: For willful failure to file.
MALE ATTORNEY #1: Now, when you look at your, in your newsletters, you don't hide that thing, do you?
MR. FURLOW: No.
MALE ATTORNEY #1: He's kind of proud of that.
MR. FURLOW: Excuse me.
MALE ATTORNEY #1: He's kind of proud of that.
MR. FURLOW: I think he feels that he, from discussing with Mr. Kotmair --
MALE ATTORNEY #1: (inaudible).
MR. FURLOW: Mr. Kotmair was proud, he proudly served his country in jail.
MALE ATTORNEY #1: And Earlie Shipp is also referenced in your newsletter, correct?
MR. FURLOW: That's correct.
MALE ATTORNEY #1: And he referenced in here, probably in a more recent edition, he takes most of the newsletter, correct?
MR. FURLOW: In one of those editions, Yes.
MALE ATTCRNEY #1: He's also convicted of tax preps, correct?
MR. FURLOW: That's correct.
MALE ATTORNEY #1: And you make no bones about that, do you?
MR. FURLOW: No.
MALE ATTORNEY #1: And laid up for anyone who looks at the newsletter?
MR. FURLOW: We want people to learn from their --
MALE ATTORNEY #1: Do you see fit --
MR. FURLOW: We want people to learn from their mistakes, that's what --
MALE ATTORNEY #1: The answer, if you can, answer my question, yes or no. Do you hide that from your membership that Mr. Shipp was convicted of tax preps.
MR. FURLOW: I don't hide it. I --
MALE ATTORNEY #1: Yes or no.
MR. FURLOW: No, we don't hide that.
MALE ATTORNEY #1: Mr. Kotmair, do you hide the fact that he was convicted of tax preps?
MR. FURLOW: No.
MALE ATTORNEY #1: You mentioned a case that a, a court case, that you discussed with Mr. Scott.
MR. FURLOW: Correct.
MALE ATTORNEY #1: A particular case, Brushave.
MR. FURLOW: Brushaber.
MALE ATTORNEY #1: Brushaver.
MR. FURLOW: Brushaber is probably the correct pronounciation.
MALE ATTORNEY #1: I like, if I may, Your Honor, approach the witness.
THE COURT: Yes, (inaudible). Would you dispose the documents to your (inaudible)
MALE ATTORNEY #1: Yes, Your Honor, this was provided to us.
THE COURT: All right, (inaudible).
MALE ATTORNEY #1: Mr. Furlow, do you recognize that document?
MR. FURLOW: Yes, I do.
MALE ATTORNEY #1: And that's one of your Reasonable Action newsletters?
MR. FURLOW: Yes, it is.
MALE ATTORNEY #1: Okay. And this is, in fact, an extra edition that's put out?
MR. FURLOW: From my understanding it was, yes.
MALE ATTORNEY #1: Could you, and this would have been sent to Mr. Scott if he were a member of this time, correct?
MR. FURLOW: Yes, it would have been.
MALE ATTORNEY #1: Your Honor, we would ask that this exhibit be entered into records.
THE COURT: (inaudible).
FEMALE ATTORNEY: The designation?
MALE ATTORNEY #1: I'm sorry, Your Honor, I didn't --
THE COURT: How is it identified?
MALE ATTORNEY #1: It's a --
THE COURT: I just need to know what identification you intend.
MALE ATTORNEY #1: We would give it 14 for identification.
THE COURT: Fourteen is offered, Ms. ___________?
FEMALE ATTORNEY: I have no objection to its identification or admission.
THE COURT: Fourteen will be received into evidence (inaudible). Go ahead.
MALE ATTORNEY #1: Thank you. At this time we would ask it be published to the jury.
THE COURT: It may be published to the jury.
MALE ATTORNEY #1: Mr. Furlow, could you look at the first page of this newsletter, p1ease?
MR. FURLOW: Yes.
MALE ATTORNEY #1: Could you look at the last full paragraph?
MR. FURLOW: The last full paragraph, right?
MALE ATTORNEY #1: Yes. Could I publish this section to the jury?
FEMALE ATTORNEY: If I could have a copy.
THE COURT: (inaudible).
MALE ATTORNEY #1: Directing your attention to that last page, could I just read this, Your Honor?
THE COURT: Yes.
MALE ATTORNEY #1: For over 75 years the Supreme Court and the lower Federal Courts have both implicitly and explicitly recognized the 16th Amendment's authorization of an unapportioned direct income tax by the United States citizens residing in the United States and thus the validity of the federal income tax laws as applied to such citizens . And then they cite the case that you just mentioned, don't they, Mr. Furlow?
MR. FURLOW: Correct.
MALE ATTORNEY #1: And the court that came up with conclusion of law was which court?
MR. FURLOW: I believe it's one of the Court of Appeals.
MALE ATTORNEY #1: United States Court of Appeals -
MR. FURLOW: For the Ninth Circuit.
MALE ATTORNEY #1: And that covers Alaska?
MR. FURLOW: That's correct.
MALE ATTORNEY #1: Now, this issue, this discussion of the 16th Amendment, in fact, the Ninth Circuit said it was frivolous to even raise it.
MR. FURLOW: That's what they said and that's the reason for the edition.
MALE ATTORNEY #1: (inaudible), correct? They said it was frivolous. (inaudible) absurd and you, your organization sent this to your members, correct?
MR. FURLOW: We sent it to our members -
MALE ATTORNEY #1: You sent it to your members, correct?
MR. FURLOW: And others. We sent it to all the federal judiciary too, which I am sure Judge Fritzgerald received a copy and to every member of Congress and to every --
MALE ATTORNEY #1: Excuse me.
MR. FURLOW: Okay.
MALE ATTORNEY #1: You sent it to your members, didn't you?
MR. FURLOW: That's correct.
MALE ATTORNEY #1: To Scott's (inaudible) , you sent it to Mr. Scott?
MR. FURLOW: Sure did. Though I can't testify to that ----
MALE ATTORNEY #1: Do you disagree with the law as stated here?
MR. FURLOW: That was the reason why we made -
MALE ATTORNEY #1: Do you disagree with the law?
FEMALE ATTORNEY: Objection, specificity, there's two laws referred. The law that --
MALE ATTORNEY #1: excuse me, Your Honor -
FEMALE ATTORNEY: law objects to and the law that the Ninth Circuit.
THE COURT: Do you understand the question?
MR. FURLOW: I really don't understand the question? Do I disagree with this section here that's quoted -
THE COURT: (inaudible).
MALE ATTORNEY #1: Let me rephrase the question for you, okay? Do you think the judges on the U.S. Court of Appeals were liars?
MR. FURLOW: Yes, I do.
MALE ATTORNEY #1: Do you think they should face a five year felony for enforcing the federal income tax laws?
MR. FURLOW: I think the judges should -
MALE ATTORNEY #1: Answer yes or no.
MR. FURLOW: For lying, I think they should.
MALE ATTORNEY #1: Do you think these three judges on the U.S. Court of Appeals should face a five year felony for enforcing the federal income tax laws?
FEMALE ATTORNEY: Objection, asked and answered.
THE COURT: (inaudible). Objection of repetition.
MR. FURLOW: I think the document speaks for itself.
MALE ATTORNEY #1: I'm asking you what --
MR. FURLOW: I didn't write this, and it was before joined the organization, but I do agree with the document and hope the jury reads the whole thing.
MALE ATTORNEY #1: In fact, the later newsletters sent out to the members this five year law supporting five year felonies for judges that support the income tax laws, You realize that, correct?
MR. FURLOW: That's right.
MALE ATTORNEY #1: One of your members even suggested the death penalty for judges that support the federal income tax laws.
MR. FURLOW: I've never heard that before.
MALE ATTORNEY #1: You want to see the section, front page news.
FEMALE ATTORNEY: Objection, argumentative.
THE COURT: Disregard the comment by counsel.
MALE ATTORNEY #1: You did not know that, that one of your members suggested the death penalty?
MR. FURLOW: No, I didn't, that's preposterous.
MALE ATTORNEY #1: Before you joined this organization, you checked it out, correct?
MR. FURLOW: I sat through a lot of the seminars and did a lot of reading on my own and --
MALE ATTORNEY #1: But you would think that it would be preposterous if someone recommended the death penalty for federal judge to uphold the federal income tax?
MR. FURLOW: Well, whatever that person wants to do, I mean that's his belief. It's not my belief. Yes, I would think it's preposterous.
MALE ATTORNEY #1: People that send money to this Save-A-Patriot organization depending on what letters you want to send out for them, is that correct?
MR. FURLOW: We ask for contributions. We ask them, yes, we do ask them for contributions on this. Some people don't send us any money, if they can't afford it. If they can afford it --
MALE ATTORNEY #1: I mean the newsletter, does it ask for 15 frn's to be sent?
MR. FURLOW: That's right. That's federal reserve notes, because as -
MALE ATTORNEY #1: Excuse me.
MR. FURLOW: That's a Federal reserve note which is the correct term for what we use as money.
MALE ATTORNEY #1: Do you ask them to send cash through the mail?
MR. FURLOW: Either that or a postal money order.
MALE ATTORNEY #1: So it can't be traced?
MR. FURLOW: No, that's to protect it, in case it's lost, so they won't lose it. I don't know what your implying by so it can't be traced.
MALE ATTORNEY #1: You said these letters you put together, the Jake Snake letters, are in anticipation of a criminal case.
MR. FURLOW: Well, when we find -
MALE ATTORNEY #1: Yes or no, you put the Jake Snake letters together. Isn't it correct to put the Jake Snake letters in anticipation of a criminal case?
MR. FURLOW: That's correct.
MALE ATTORNEY # 1: So, you make, you don't hide the fact from your members that a criminal case is anticipated, possibility, correct?
MR. FURLOW: That's part of our fellowship, which I did not explain as part of our organization.
MALE ATTORNEY #1: So if a person for instance they can just sign one of these letters, these Jake Snake letters, and have it go into the Internal Revenue Service, into the government, correct?
MR. FURLOW: That's correct.
MALE ATTORNEY #1: They don't have to understand it, correct?
MR. FURLOW: We recommend to all our members to read the letters and to understand and to look up the cases and the Codes. We recommend, we also sell Code books to our members. We recommend they try to understand everything -
MALE ATTORNEY #1: You make money off of this, don't you?
MR. FURLOW: I don't make any money out of it.
MALE ATTORNEY #1: Money goes into this organization, correct?
MR. FURLOW: We have to pay for phones.
MALE ATTORNEY #1: What do you do for a living?
MR. FURLOW: I'm a paralegal.
MALE ATTORNEY #1: For this organization?
MR. FURLOW: That's correct.
MALE ATTORNEY #1: Do you get money from this organization?
MR. FURLOW: No, I get money from members I help.
MALE ATTORNEY #1: Gifts?
MR. FURLOW: Whatever you want to call it. Some members don't pay me anything.
MALE ATTORNEY #1: Excuse me, Mr. Furlow. Now it would be a big boost to your organization if Mr. Scott were acquitted, wouldn't it?
MR. FURLOW: It would be a big boost to Mr. Scott.
MALE ATTORNEY #1: It help your, it would help your membership, wouldn't it?
MR. FURLOW: I don't know what you mean by that.
MALE ATTORNEY #1: You've an economic interest in this case, don't you, Mr. Furlow?
MR. FURLOW: If Mr. Scott were con --
MALE ATTORNEY #1: Yes or no. Do you, did your organization, this SAP, does that have an economic interest in the outcome of this case?
MR. FURLOW: What do you mean by that? What do you mean by an economic interest?
MALE ATTORNEY #1: The more you put, if Mr. Scott were to be acquitted, it would be in the front page of your newsletter, wouldn't it?
MR. FURLOW: I don't know, that's up, actually it would be a detriment to the organization.
MALE ATTORNEY #1: Excuse me, excuse me, excuse me --
MR. FURLOW: You asked me if it would be an economic and I'll tell you, that's a detriment to the organization.
MALE ATTORNEY #1: He's just --
THE COURT: Disregard the comment between counsel and witness.
MALE ATTORNEY #1: Have you gone around the country before to testify?
MR. FURLOW: No, I haven't. It's the first time.
MALE ATTORNEY #1: First time?
MR. FURLOW: First time.
MALE ATTORNEY #1: Going back to that issue before, that we discussed the U.S. Court of Appeals decision.
MR. FURLOW: Right.
MALE ATTORNEY #1: Do you disagree with the law of the Court of Appeals came down with?
MR. FURLOW: Do I personally disagree, do I personally, yes I think the Court of Appeals was wrong and if you read this, you'd understand the reasoning, because I agree totally with this article. The income tax is not --
MALE ATTORNEY #1: (inaudible).
MR. FURLOW: -- the income tax is not a direct tax --
MALE ATTORNEY #1: You disagree with the law?
MR. FURLOW: I agree with the Supreme Court. It's an indirect tax and they're the final depositors of the law.
MALE ATTORNEY #1: Even as a (inaudible), you cited that (inaudible) case in one of your articles, didn't you, didn't you?
MR. FURLOW: Yes.
MALE ATTORNEY #1: The Supreme Court case upheld the validity of the federal income tax laws once again, didn't it?
MR. FURLOW: No, it didn't. It just talked about --
MALE ATTORNEY #1: (inaudible), have no questions, Your Honor.
MR. FURLOW: That's not what that case said at all.
MAIL ATTORNEY #1: Excuse me, Your Honor.
MR. FURLOW: You asked me about it.
MALE ATTORNEY #1: Mr. Furlow, do you have a battle with the government, don't you?
MR. FURLOW: I don't have a battle with the government.
MALE ATTORNEY #1: Did you sit over there this morning and call me a scumbag to start the morning's proceedings?
MR. FURLOW: I said your behavior was that way, yes.
MALE ATTORNEY #1: Use the word scumbag.
MR. FURLOW: I used that word. I think you are. Picking on a guy like this. I think --
MALE ATTORNEY #1: Excuse me, Your Honor, we have no further questions of the witness.
MR. FURLOW: It think its reprehensible.
THE COURT: (inaudible).
MAIL ATTORNEY #1: Could we striken his off the cuff remarks, (inaudible).
THE COURT: (inaudible)
FEMALE ATTORNEY: Mr. Furlow, what did you mean when the prosecutor asked you about whether or not you would get an economic, could you answer the question fully? Would you get an economic benefit if Mr. Scott were to be acquitted?
MR. FURLOW: No, we wouldn't get an economic benefit at all.
FEMALE ATTORNEY: What did you mean by saying it would be some kind of detriment to your organization?
MR. FURLOW: Well, he would say, he was implying that it would, what I meant by detriment if he was convicted he was saying if he was actually convicted it would be a detriment to the organization because one of the things I didn't talk about the organization was the fellowship agreement that we send out to all our members if anybody's convicted and goes to jail or their money is taken illegally, we assess our members and to help them out when the IRS Illegally takes their money or illegally puts them in jail.
FEMALE ATTORNEY: Now getting back to this extra edition that the prosecutor passed out, where it refers to the court, doesn't it what it do is disagree with the Ninth Circuit Court of Appeals decision?
MR. FURLOW: No, I think we have the First Amendment right to disagree with the court decision, yes.
FEMALE ATTORNEY: Is that what it does?
MR. FURLOW: I --
FEMALE ATTORNEY: Does this article disagree with the Ninth Circuit opinion?
MR. FURLOW: I would think it does, yes.
FEMALE ATTORNEY: And does it say it's inconsistent with some other decision?
MR. FURLOW: It's inconsistent, the article speaks for itself. It's inconsistent with Supreme Court case and with the Zerritsit report that we cited in here, that the income tax is an indirect tax. It's an excise tax, and indirect tax that's not a direct tax, without apportionment.
FEMALE ATTORNEY: Did you discuss with Mr. Scott whether the U.S. , the Ninth Circuit Court of Appeals upholding the validity of the tax laws was --
MR. FURLOW: I've never discussed this with him.
FEMALE ATTORNEY: May I have a minute, Your Honor?
THE COURT: Yes, of course.
FEMALE ATTORNEY: Mr. Furlow, I have no further questions.
MR. FURLOW: Okay.
THE COURT: Excuse me, Mr. __________ do you have one question or two, (inaudible).
MALE ATTORNEY #1: Thank you, Your Honor . Just in response to this, you mentioned that you, on redirect that you put it that you would give money to individuals if they were incarcerated?
MR. FURLOW: That's part of our fellowship of our organization.
MALE ATTORNEY #1: Yes or no.
MR. FURLOW: Yes.
MALE ATTORNEY #1: That's a part of your purpose of your fellowship?
MR. FURLOW: That's correct.
MALE ATTORNEY #1: Is someone you know, that files their taxes and pays their taxes, that they are not at risk or a criminal to be prosecuted on criminal tax case, you know that don't you?
MR. FURLOW: Tell that to Leona Helmsley and Pete Rose.
MALE ATTORNEY #1: If they filed incorrect tax returns?
MR. FURLOW: Oh, okay.
MALE ATTORNEY #1: But you know that if a person does not file a tax return, does not pay his tax, he may end up with a criminal case, you know that?
MR. FURLOW: That's a possi --
MALE ATTORNEY #1: Yes or no, you know that?
MR. FURLOW: It's not true all the time.
MALE ATTORNEY #1: He could end up in a criminal case , correct?
MR. FURLOW: That's a possibility.
MALE ATTORNEY #1: That's why he wrote those letters.
MR. FURLOW: That's a possibility.
MALE ATTORNEY #1: We have no further questions.
FEMALE ATTORNEY: Nothing further, Your Honor.
THE COURT: Now, Jury, we're going to take a break now. Again I want to instruct you concerning the application of the evidence, the issue is not the validity of the tax law at all, the evidence relating to the materials which have been provided by Mr. Scott and the communications made to Mr. Scott are for the limited purpose of how it may have been considered by Mr. Scott and in connection with what his beliefs may have been. So, there will be further instructions at the close of the case. We will now take the morning recess. Ten minutes, please.
THE CLERK: Court now stands in recess for 10 minutes.
THE CLERK: On the record now.
THE COURT: Ms. _______, please.
FEMALE ATTORNEY: We call the Defendant Gabe Scott.
THE CLERK: Raise your right hand. You do solemnly swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God.
MR. SCOTT: I do.
THE CLERK: Sir, please be seated in the witness stand. and Sir, for the record, would you please state your full name, your address, and spell your last name.
MR. SCOTT: My name is Gabriel Walter Scott. I live at 107 Bridget Avenue, Fairbanks, Alaska. My last name is spelled S-C-O-T-T.
THE CLERK: Sir, and your middle name was?
MR. SCOTT: Walter.
THE CLERK: Okay, thank you.
THE COURT: Ms. __________.
FEMALE ATTORNEY: Mr. Scott, can you keep your voice up and tell the jury briefly where you were born and what's your early education and occupations were?
MR. SCOTT: Well , I was born in 19 3 2 in Lafayette , Indiana, and I finished eighth grade of school there. Went to Idaho. Went in the service in 1950 to December 1953. Worked in an aluminum plant for a little while. Went to, take an apprenticeship sheetmetal trade, then various things after that, but still belong to the Sheetmetal Workers Union.
FEMALE ATTORNEY: And what kind of work do you do as a sheetmetal worker?
MR. SCOTT: Well, it's (inaudible) field in here, part of our work, duct work, and we do very many things.
FEMALE ATTORNEY: Like duct work, what do you mean?
MR. SCOTT: Brings air in.
FEMALE ATTORNEY: What does that do?
MR. SCOTT: What?
FEMALE ATTORNEY: What do you physically do as a sheetmetal worker?
MR. SCOTT: Well, we make it, install it. We just --
FEMALE ATTORNEY: Does it involve any paperwork?
MR. SCOTT: Oh a little, not too much other than if you're making drawings of the duct work that you need to put in. You have to make different fittings. There's some math involved in it.
FEMALE ATTORNEY: What other kinds of jobs have you had, other than being a sheetmetal worker?
MR. SCOTT: Well, I've, when I was younger I fought forest fire, I worked in the fields, I've owned a bar at one time, worked in a machine shop for awhile.
FEMALE ATTORNEY: What did you do in Korea?
MR. SCOTT: I was a soldier.
FEMALE ATTORNEY: What kind of soldier?
MR. SCOTT: Infantry. I was in (inaudible) combat team. It was an airborne outfit.
FEMALE ATTORNEY: And when you were in Korea, was there combat?
MR. SCOTT: Yes, there was.
FEMALE ATTORNEY: You mentioned you went through eighth grade. Did you have any other formal education?
MR. SCOTT: No.
FEMALE ATTORNEY: Did you ever get your GED?
MR. SCOTT: Yes, I did.
FEMALE ATTORNEY: And how you'd do that?
MR. SCOTT: I just went and took a test.
FEMALE ATTORNEY: So, you didn't go to any part of high school?
MR. SCOTT: No.
FEMALE ATTORNEY: How long have you been in Fairbanks?
MR. SCOTT: Well, I come up here in 1974. I went out for a few years and I come back. I've been back, probably since '81. I was gone a year or so in between there, but basically for the last 17 years my main residence has beenin Fairbanks, Alaska.
FEMALE ATTORNEY: Have you received any training formally in tax law or accounting?
MR. SCOTT: No.
FEMALE ATTORNEY: Do you belong to any religious or philosophical organizations, other than Save-A-Patriot?
MR. SCOTT: Well, I belong to World Wide Church of God. They don't have any affiliate churches up here. It's an organization. Well, it's a big church organization, what can I say.
FEMALE ATTORNEY: And what are the beliefs of this organization?
MR. SCOTT: I believe in God and Bible, same as any other.
FEMALE ATTORNEY: Do you contribute to this church?
MR. SCOTT: Yes, I do.
FEMALE ATTORNEY: By the way, are you comfortable speaking?
MR. SCOTT: No.
FEMALE ATTORNEY: Do you have any training or experience in public speaking?
MR. SCOTT: No, I don't.
FEMALE ATTORNEY: Now, turning your attention to the middle 70's, what kind of occupations did you have then?
MR. SCOTT: I'm a sheetmetal worker.
FEMALE ATTORNEY: Did there come a time when you became interested in the tax system of the United States?
MR. SCOTT: Very much so, yes.
FEMALE ATTORNEY: Tell the jury how that happened.
MR. SCOTT: Well, in various things. I knew other people that were into this. I, for some time I didn't pay a lot of attention to it, but the more I looked into it and started to listen to some of them, I began to believe the same way they believed.
FEMALE ATTORNEY: And what were the first concepts that you heard about in the mid-70's about the tax system?
MR. SCOTT: Well, that the taxes that they take out of our wages, I'm not saying income tax, because even according to the Constitution, income tax is legal, but the way, you know, it says you're liable for income tax and so far as I can see I have never seen anything that made me liable.
FEMALE ATTORNEY: Now when did you stop filing and paying taxes?
MR. SCOTT: Oh, I believe it was 1978.
FEMALE ATTORNEY: Seventy eight?
MR. SCOTT: I think so.
FEMALE ATTORNEY: Now, were the years when you decided to stop filing and paying taxes, did you do that because you had a bigger income and you wanted nothing withheld?
MR. SCOTT: No, I was working in California at that time. I had a smaller income to be very truthful about it.
FEMALE ATTORNEY: And why did you stop filing your taxes?
MR. SCOTT: Well, like I say, everything I had read on the subject and all the information I could get on the subject, I just believed that they were not right.
FEMALE ATTORNEY: Now, you've heard evidence about W4's, isn't that true?
MR. SCOTT: Yes.
FEMALE ATTORNEY: And what is there, in 1989 you filed W4's that said you were exempt, didn't you?
MR. SCOTT: That's correct.
FEMALE ATTORNEY: And you did that again in 1990?
MR. SCOTT: That's correct.
FEMALE ATTORNEY: Why did you do that?
MR. SCOTT: Well, I didn't feel like I needed, I didn't feel like I had to file them, you know, but like I, well, the reason why I done it is because I didn't feel like I owed the tax.
FEMALE ATTORNEY: Did you start reading income tax materials from different organizations?
MR. SCOTT: Oh as early as probably '79, '78 - '79.
FEMALE ATTORNEY: What organization did you first listen to?
MR. SCOTT: Well, the first organization I listened to was the YHPA.
FEMALE ATTORNEY: And what does YHPA stand for?
MR. SCOTT: It means Your Protective Heritage Association.
FEMALE ATTORNEY: What's the belief of this organization?
MR. SCOTT: Oh, the same as mine. That these taxes were not regulated. I favor unfair taxes.
FEMALE ATTORNEY: You mean they were unfairly applied or what?
MR. SCOTT: Unfairly apportioned.
FEMALE ATTORNEY: Did you join another organization?
MR. SCOTT: Yes, I did later on, but I didn't stay with them very long. It was called Low Me Society.
FEMALE ATTORNEY: And what was that organization leaning to, who was it for?
MR. SCOTT: Basically the same thing. It's a -
FEMALE ATTORNEY: Why did you leave that organization?
MR. SCOTT: Well, it was basically for small business people. It didn't apply to a man who went out and earned his wages by the hour.
FEMALE ATTORNEY: So it was for business people and not working, not wage earners, is that your belief?
MR. SCOTT: That's correct.
FEMALE ATTORNEY: Did you ever get affiliated with Patriots in Action?
MR. SCOTT: No, I went to a couple of their meetings. I didn't think too much of them so I didn't participate.
FEMALE ATTORNEY: Did you get interested in this group called Save-A-Patriot or SAP?
MR. SCOTT: Well, I heard about the organization and I seen a Spotlight paper.
FEMALE ATTORNEY: What is Spotlight, tell the jurors.
MR. SCOTT: It's a newspaper, comes out weekly from Washington, D.C., reports a lot of the news that you don't see in your local papers.
FEMALE ATTORNEY: Like what?
MR. SCOTT: Oh, various political things and Martin Larson in particular in there. He's been fighting the IRS for something like 5O or 60 years. He's a man 96 years old. He still writes articles --
[Tape ended]
U.S. VS. SCOTT
[Tape 7 of 7]
Mr. Gab Scott was not willful. This is not a calculated attempt to cheat. He's a sheet metal worker. He works with his hands. He's hard of hearing. He went to eighth grade. His whole life he's been a hard worker. He goes to West Minster Maryland through the mails and he buys a package. And just like Mr. (inaudible) says, he signs the letters and doesn't necessarily read them. He may not understand all the things they say. He may not understand the tax system but he believes them. He bought the package and he believes it. And that is the inquiry for you today. If you believe that he in good faith thinks the law does now apply to him even if it came from someone else. Even if it came through mis-information you must acquit him.
In the olden days in the West there were shows that travelled around from place the place and they were called medicine shows. And many a cowboy or, or frontiers person went to these medicine shows. And at these shows people advertise something. And it was often a cure-all. It was something in a bottle. And you could buy it. And a lot of times it was just apple cider and some times it was just apple cider with a lot of alcohol in it. And you could buy and it might make you feel better. People commonly call this snake oil. You buy it and it makes you feel better. But six or eight months later you're still the same person. It doesn't really work, it's not really medicine. It's a package that you buy that doesn't work. And that's what happened to Mr. Scott. He bought a package and ironically it was from Jake the Snake, or Jake Snake, it was snake oil and it didn't work and he's here today. He was not willful. He bought a product that gave him misinformation about what the current state of the law was. But he believes it and however irrational or foolish you believe. Unless you think he's ling about that belief he must be acquitted.
Now I don't want to carry this snake oil analogy too far because there's all kinds of medicine in the world. It's a free country. People can try what they want. Some people believe apricot pits cure cancer. And they go to Mexico, and instead of going to Fairbanks memorial hospital and they go to Mexico to eat apricot pits. Maybe some of those people get cured. And maybe some of those in Fairbanks memorial die. And maybe the AMA doesn't know everything. The same is true in the tax code. This is a free country. Just because the IRS cites HR Block doesn't mean you have to go see them. You're allowed to think and seek out advice as you see fit. And that's what happened here.
Now I, I don't think anything about the evidence. You think about the evidence. But one inference from the evidence is that what Mr. Scott bought was not correct. But maybe in a hundred years that won't look this way. Maybe snake oil isn't the right analogy because maybe in fifty or 100 years people will say, "look at the country we have now, completely computerized." Remember the lady, I think her name was Kay _____________, that took the stand first and she talked about this incredible computer system. Computer after computer that has intimate data on ordinary law abiding citizens. Hundreds of employees. Lawyers and agents and charts and files to keep track of ordinary citizens. And maybe in fifty or one hundred years all of us will say, maybe those people had an idea. Maybe they were right, at least to some degree. But right now with the current state of the law as the Judge will instruct you, the advice that Mr. Gab Scott paid for and got, was wrong. But he believes it and that's the important thing. People believe these cure alls, they believe in snake oil, they believe in apricot pits. You know somebody whose children went off to join the Moonies. Or other sect. Some people believe in very bizarre. Maybe they are quasi religious groups. And you may disagree with this. You may have friends like this. But they really believe it. They get a glaze over their eyes. They don't want to hear anything that detracts from that. They believe it. Now you might say, religion is a whole different thing than the right to be free from taxes. Or the wish to be free from taxes.
You know a religion is a principle, honor bound thing between you and the creator. It's not your money. But these organizations are very principled in their belief in the sanctity of property in America. And that's not crass when you think about what happened in the Soviet Union, East Germany and Poland. The rights people had to get free of the Soviet Union system. You'd like to believe it was free speech or something like that, but what did they come to East Germany in trainloads for -- rather out of East Germany and into West Germany for? It was the right to own property. Just thirsting for a home of their own. For jeans of their own. For tape recorders. They couldn't have anything. And maybe that was the downfall of the Soviet Empire. Not freedom of religion. Not privacy, but the right to own property. People believe in this. The antagonism to big government. The antagonism to the IRS. It's a truly held belief. Some of that is not a defense. It's not a defense to say the Bush's pay 14% and they want to take 28% from me. A disagreement to how it's applied, isn't ... we all disagree to how it's applied. But that's not what Mr. Scott is mainly talking about. He was mainly talking about how he read he wasn't a taxpayer. He read it in this book. And he read it in all these things. There's no provision of the code that applies to me, that makes me liable. You can read some of these analyses and see how they might appeal to someone in Mr. Scott's position.
Many of these cure-alls, these doctrines, the Moonies are alternative medicine. They appeal to vulnerable people. Mr. Scott is a hard worker. Not well educated. He's disaffected with the government. He believes his property rights are involved. He does disagree with the government. But in addition to that he went to this group and he learned and believed that he was not a taxpayer. There was no section that made him liable and the laws didn't apply to him. It may be irrational just like some of the other sects, some of the other cure-alls, but he holds it truthfully.
Why does it matter if he has this belief? Why shouldn't we worry about this in a robbery case and listen to all this testimony what the guy thinks? It matters here because it's the law. It's required that the government prove it's willful. It's not willful if he has a good faith belief that the tax laws don't apply to him either because of some provision of the code exempts him or because he's exempt because no provision of the code makes him pay.
Paradoxically in a tax case where the defendant is charged with violating the laws of the United States it's most important that the jurors obey the law. And it's a paradox that I say to you on behalf of Mr. Scott, like it or not, the law of this country is now that the jurors must find if he has a subjective, that might be irrational, that may be unreasonable but if it's a good faith belief that the laws don't apply to him, then your oath that you take as a juror requires you not to ignore that law. You may think it's not sensible. It's the law. And so in a tax case the law the judge will read you, you're honor bound to apply the law even if you think him foolish, you may think him unreasonable, but unless you find he's lieing, he must be acquitted.
Now how can you tell if he's willful or giving you a story as the prosecution suggests? Well first look at his life. He's been in a total immersion program with this for about 15 years. Document after document. Argument after argument with the Internal Revenue Service. He lost a job. Argues with his employer. His income disappears. He ends up fighting in court. It takes over his life. It's got all the ear-marks of an absorption. A total immersion in this program. There's not much life left.
Second, it's gradual. Now you may know some people who in the early 80's, in the big money years, were making a lot of money on the pipeline or some other time and instead of having four or five thousand dollars withheld, maybe they got good wages. Pretty soon they had forty thousand dollars withheld. And all of a sudden they decided to file exempt. There were a lot of people up here like that. Maybe ten years ago. But those people stopped doing that because they realized the IRS gets more money than you make with that kind of a thing. Those were not principled people. In Mr. Scott's case, there was no income trail to his failure to file. What happens is that he gradually, over a long period of years got more and more interested in and finally found what he was looking for in Save-A-Patriot. So the gradual aspect of it is important. It's not something that he suddenly made more money and suddenly decided he didn't want withholding. This is a gradual process.
Another indicator, the third one, of lack of willfulness is he's really not profited. He doesn't have more income. He's chased around. He's levied. His movements are constricted. His life is absorbed with bleakness with a squabble over everything, bankruptcy, security forms, employers. There's not profit here. If the government thought he was living high off the hog. If he had tax shelters in Belieze, if he drove a fancy car, they would have told you. They would have shown you the evidence of a profit. There's no evidence of an elaborate life style here that shows a motive to fabricate. And this is in an age when he most needs to work. He's loosing his income because he won't file W4's. And now he needs to work as he's nearing retirement when people won't hire sheetmetal worker anymore. He'll be too old to work. And when he most needs an income, he's lost it over this conflict.
Another indicator that's it's not willful here that you can consider is his confusion. The prosecutor alluded to this. When he was on the stand he wasn't specific. He doesn't know chapter and verse. Either of the Internal Revenue Service code or the Save-A-Patriot material. He is profoundly confused. He is so confused that when the prosecutor asked him if he paid income tax, Mr. Scott said well I paid tax on cigarettes. And everybody knows that's an excise tax and even the first guy at H&R Block would tell you that. He's confused even about what's income and what's excise. He's hard of hearing. He doesn't remember everything. He couldn't answer the questions. He doesn't have the line down. He's confused. And a person who's that confused is going to be vulnerable to somebody elses package. A willful shyster as the government would have you believe would be a lot more practiced than Mr. Scott.
A fifth reason he wasn't willful is that he's actually received advice. Many defendants could come in and say well I've read this or I've read that. This man actually wrote and actually got back materials, signed them and even the person who gave him advice came and testified. And he said yes we told him this, we told him that. We discussed this topic. We discussed how he wasn't required to file. This isn't a myth or something he made up. He really did this and he got the advice. And if you went to a lawyer and you got wrong advice in a case like this you would have a defense of a good faith belief that what you were doing was right. He got advice, it wasn't from H&R Block , it wasn't from a lawyer, but it was advice about the tax system and he relied on it. He even had a paralegal, and they even had forms and they're selling him all these forms. He believes in this. He signs them and files them.
Interestingly enough there's no evidence of his actual statements. Agent ________ testified , everybody else who testified from the IRS didn't say, oh Mr. Scott said this or Mr. Scott said that. And in fact they've shown you no evidence or documents he prepared himself. And that's because he's not articulate. He's confused. He's easily lead by these people. And that's what happened. There's no evidence that he formulated materials and statements on his own.
You may also consider his actual demeanor. This man was not practiced or glib on the stand. He talked back to me and I'm his own attorney. If he were coming here trying to obfuscate things, to make you think he was really a true believer when he was actually just trying to play a game as they concluded, you would think that he'd at least have the line down. He didn't have it down. He got confused on my questions. He got confused on their questions he told me I already asked a question. He quarreled with the people. It was not a smooth slick presentation. If he was trying to sell you some con game don't you think he would have at least got together with his lawyer and gotten a good presentation together. He was here as he really is. A confused, struggling man with an eighth grade education who bought a product and believes in it.
Finally you can consider the evidence of willfulness his character witnesses. In other spheres of his life, even the government's witness said he was a good worker. He helps people out. He helped his country out in the 50's in Korea. He's not somebody who's a gimme guy who got a bunch of money from the IRS and bought an airplane. He's somebody who is active in the community. That is honest in his daily affairs and has people whose been around, who are business people and respect him. He's not a liar. And he's not a cheat. He a hard working man. Who now has a cause. You may not agree with it but it's a truly held cause. A peso is willful if they know of a legal duty and they understand it and they intend to violate it. The good faith belief that you're not a taxpayer no matter how irrational is a defense to the willfulness element. He testified on the stand albeit it haltingly that he could find no provision in the code that made him liable. He also disagreed with other aspects of the Internal Revenue Service like the authority of Mr. ________ and other things that we all may disagree with different parts of the IRS or other government workings. But what makes Mr. Scott's belief important in this trial is his belief that their laws didn't apply to him. That he wasn't a taxpayer. That's what this group told him. And you'll read all these things. There's even a section in here about taxpayers versus non-taxpayers in these books in which Mr. Skinner and it's picked up again in this newsletter that says, here's how you're not a taxpayer.
Mr. Scott was not willful. At the very best he's a patriot. A person who sticks his neck out and under goes privation because he believes the Internal Revenue Service is wrong in considering wage earners tax payers. Who initially had a view that there's something wrong with government. There's something wrong with the way they're taking people's property. There's something wrong with the way it operates. And then it crystallized to a firm belief that's I'm not a taxpayer and I'm going to stick my neck out and say that whatever the cost and whatever the pribation. Loose a job, freedom, whatever.
At the very worst he's a confused and befuddled purchaser of these products. And he's mislead by these products as to the current state of the law. It is required that you file and pay taxes as the judge will instruct you. But he is not a willful violator. He should file and pay his taxes and we know from seeing the evidence that the IRS has great powers to chase and levy. Great equipment and machinery to do so. But he should not be found guilty of the crime of willful failure to file or willful tax evasion. If you believe he truthfully holds these good faith beliefs, that he is not a taxpayer, even if you disagree with that we ask you find him not guilty.
And we thank you for your attention.
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