FEDERAL COURT ORDERS HALT TO INTERNET-BASED TAX-FRAUD SCHEME

Maryland Man Operated Frivolous Letter-Generating “Complex”

WASHINGTON, D.C. - A federal court in Baltimore has permanently barred John Baptist Kotmair, Jr., of Westminster, Md., and his organization, “Save-a-Patriot Fellowship,” from selling a tax-fraud scheme, the Justice Department announced today. The court described Kotmair as a “seasoned tax protestor,” stated it was without question that he is “violating the tax laws,” and described his representations about the tax laws as “clearly fraudulent.”

The court’s opinion states that Kotmair and his organization knowingly made false and fraudulent statements to their customers about the tax benefits of their schemes. According to Senior Judge William Nickerson’s opinion, Kotmair, in 1984, shortly after serving two years in prison for failure to file income tax returns, began promoting the position that U.S. citizens need not pay any taxes on income earned within the 50 states – a view, according to the court, that has come to be known as the Section 861 argument. The Internal Revenue Service (IRS) refers to this section in its “Dirty Dozen” list of most notorious tax scams: http://www.irs.gov/newsroom/article/0,,id=154293,00.html.

“People who sell and participate in tax fraud schemes harm all law-abiding Americans,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “The Justice Department and Internal Revenue Service are working vigorously to stop the promotion of tax-fraud.”

According to the opinion, the defendants boasted that their operation “has grown into a complex” of property with the equipment necessary to generate large numbers of frivolous documents to file with the IRS. The court found it was “abundantly clear” that the defendants were violating the Internal Revenue Code, that they would continue to do so, and that an injunction was necessary to stop their activities.

Besides falsely advising customers that they need not pay tax or file income tax returns for income earned in the United States, the opinion states that Kotmair and his organization falsely told clients they can legally quit the Social Security system.

The judge noted that Kotmair’s organization continued to file frivolous protest letters on behalf of more than 800 customers during the litigation and showed “no inclination . . . to cease their activities.” He also stated that many of Kotmair’s adherents are likely to have unmet federal income tax obligations, adding to the adverse impact of the defendants activities.

The court also found that Kotmair’s organization sold fraudulent programs in an attempt to help customers avoid taxes and that their illegal efforts were ongoing. The opinion said that Kotmair and his organization knew or had reason to know their statements to customers were false, because the arguments have been thoroughly rebuffed by other courts—including a Pennsylvania federal court’s 2004 decision barring Thurston Bell, one of Kotmair’s former employees, from selling the same scheme on a rival Web site. (For information about that case, go to http://www.usdoj.gov/tax/txdv04061.htm.) Judge Nickerson wrote that the defendants “stubbornly choose to ignore the rulings of numerous courts.”

The court’s order permanently bars Kotmair and his organization from representing or assisting any person in preparing correspondence to the IRS or assisting any other person in preparing court filings relating to income taxes; requires the defendants to notify those associated with promoting this tax fraud scheme and all individuals who participated in it of the entry of this injunction; and requires that the Justice Department be provided their customers’ names, mailing and e-mail addresses, and telephone and Social Security numbers. Additionally, the order requires notification of their customers of the permanent injunction; and requires Kotmair and his organization to post the injunction prominently on their Web sites for one year, and to remove from their Web sites their tax fraud promotional materials.

Since 2001, the Justice Department has obtained more than 200 injunctions to stop the promotion of tax fraud schemes and the preparation of fraudulent returns. Information about these cases is available at http://www.usdoj.gov/tax/taxpress2006.htm. Information about the Justice Department’s Tax Division can be found at http://www.usdoj.gov/tax/index.html.