November 2010


Demanding Accountability






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Severe IRS Abuse
Lawyer Minns Protects
Pilot’s Rights
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By Edward Snook
Investigative Journalist

In 1973, John Sullivan, a commercial pilot for a major U.S. airline, was looking for ways to invest his money and shelter his income from high tax liabilities.

Another pilot he was flying with on assignment with Air Micronesia, based in Hawaii, told him about a good investment with the Henry Kersting companies. He investigated the company and founder, and with the assurance that it was a legal and bonafide way to defer income taxes, invested various sums of money in 1980, 1981, 1982, and 1984; in 1983 he was on strike against the airline and had no income. He received stock certificates in the Kersting commercial activities.

Mr. Sullivan signed a promissory note among other documents for investment write-offs on deductions for loans which substantiated they owned a small part of commercial buildings, car rental companies, etc. He received other documentation that he and his wife Alinka Sullivan signed while living in Florida. But in 1983, he received a newsletter from Mr. Kersting warning them to be prepared for an audit because the Internal Revenue Service had raided his office. They were looking for a list of names and addresses of his partner-investors. The Sullivans then received another letter from Mr. Kersting advising them to have sufficient money in a savings account in the event they had to pay the IRS should they disallow the tax write-offs for these business investments.

One day, while Mrs. Sullivan was at home, and her husband was flying, she looked out her patio window to find two IRS agents in her back yard looking at their boat. She asked what they were doing there trespassing, and they identified themselves as IRS agents, saying they were doing an investigation regarding the tax shelter situation. Mrs. Sullivan asked to see a search warrant and since they did not have one, she told them to leave or she would call the police since she did not believe them.

Because Henry Kersting was enraged at the brutality with which the IRS had treated him, he hired an aggressive law firm and vowed to defend his business practices together with the pilot-investors. The Sullivan’s now had legal representation and signed a document agreeing to take this matter to US Tax Court, and to be bound by a test case.

In the meantime, Mr. Sullivan was transferred with the airlines and moved to Texas. He then received a letter from his certified public accountant’s wife stating her husband could no longer represent his interests and to find another CPA, because the IRS had raided their office, without a search warrant, and had threatened to put her husband in jail. She hysterically stated that they had “threatened” her family and had forced her husband to close down his office, thus preventing her from being able to feed her children, because they had several pilots involved in the “Kersting matter,” and were to give the IRS the names and addresses of these pilots immediately to keep her husband out of jail.

In 1984, Mr. Sullivan’s neighbor, a pilot friend, who was emotionally upset about being on strike and without an income, was so depressed about a tax bill he had received in the Kersting matter, that he drove to the parking lot of his church and shot himself. The US~Observer has been informed that three pilots have committed suicide, due to IRS pressures in this case.

Mr. Sullivan wrote to Mr. Kersting informing him he no longer had a CPA, and that he had received a letter from the IRS stating he owed money in back taxes because they found the Kersting investments to be “a sham,” and therefore the tax write-offs for these businesses were “disallowed.” The IRS in Ogden, Utah, contacted the Sullivan’s, saying they would owe thousands of dollars in “back taxes.”

After several unsuccessful attempts to settle with the IRS regarding disallowing write-offs for the Kersting investments, the Sullivan’s and some other 1800 pilots, decided to be bound by an Agreement that would be a test case trial of some selected pilots, and they would honor the results of that court’s decisions. Since this tax litigation was in full force, the Sullivan’s decided they would be bound by a blanket ruling. The IRS was allowed to choose five cases out of the 1,800 and the Plaintiff’s were allowed to choose five, which would represent all of them in order to expedite matters and not clog the court calendar. It’s very interesting that when it came time to choose, the Plaintiff’s lawyers only chose three. A prudent person would think that one or more of the Plaintiff’s Attorneys had struck a deal with the IRS prior to any agreements with the pilots, regarding the test case trial (for more details, read: “Largest IRS Refund in U.S. History – Amazing 30 Year Old Tax Case” at www.usobserver.com)

Once again, transferred by the airlines, Mr. Sullivan was now living in Arizona. Two U.S. Marshalls arrived at his front door, with the excuse that they needed information about their “next door neighbor.” The Sullivan’s invited them in for a private conversation, and during the course of the talk they stated, “…oh, so you are one of those pilots involved in that famous tax shelter case.” Mrs. Sullivan asked to see some identification if that tone of the conversation was to continue, fearing they might be recording it. They promptly left.

It was after these cases were selected, the Hongsermiers, the Thompsons and the Cravens, that IRS agent-attorneys William A. Sims and Kenneth W. McWade, subverted the test case process by fraudulently getting the Thompsons and Cravens to cut a secret deal with them, unbeknownst to the Sullivans. With the IRS conspiracy in place, the unsuspecting trial attorney for the other pilots had lost the fight before it had begun.

Judge Goffe ruled against the remaining pilots on every count, and the Sullivans received a Settlement Agreement from the IRS signed by Kenneth W. McWade, stating they owed $27,000 from the outcome of this test case. Mr. and Mrs. Sullivan, bound by the test case, signed the Agreement to pay this amount in back taxes. The only problem was that they did not have that amount as their finances had been depleted when Continental Airlines had been on strike for two years and they were forced to live on their savings. Mr. Sullivan moved back to Florida to seek new employment.

There they received a letter from the IRS asking them for $47,614. Mrs. Sullivan called them to explain they had signed an Agreement with Mr. McWade for only $27,000, void of interest and penalties; that their figures were not correct. They asked her to send in a letter detailing how much money they now had available. Mrs. Sullivan went to the expense of obtaining a CPA and asked him to prepare an Offer in Compromise. It was rejected.

One evening while her husband was flying and she was cooking dinner, she received a phone call from the IRS. “How were you able to buy a house when you owe the government money?” The voice with the southern drawl asked.

“We got a mortgage loan from the credit union to help the striking pilots.” Mrs. Sullivan politely replied.

“You had no business buying a house. Until we get paid you should be living in the back seat of your car!” Mrs. Sullivan promptly hung up on the female agent.

The next day, Mrs. Sullivan called Mr. McWade in Hawaii and asked him to please contact the Atlanta, Georgia, IRS office and explain to them that he had signed an Agreement with them for only $27,000; that no interest or penalties needed to be paid, and to correct their figures, as she was obviously not familiar with this Agreement; but if she was, she was ignoring it.

Mr. McWade told her that he could not do that because her case had now gone to collections so there was nothing he could do, that she should just work out a payment arrangement with them. No amount of pleading with him would get him to change his mind. He refused to call Atlanta. They would have to pay whatever bill the IRS in the Atlanta office had sent them.

Outraged that the IRS had reneged on their agreement, Mrs. Sullivan, tore up her American Citizenship papers in protest and sent them to the IRS with a note stating: “I no longer believe in this government. How can you lie to my husband, a Captain in the U.S. Air Force, Viet Nam veteran, and a decent human being? What kind of morals do you people have? We had an Agreement signed by one of your attorney-agents, who obviously has no integrity.”

The IRS put Mrs. Sullivan in the category of a tax protestor and proceeded to file a lien against them at the Broward County Courthouse for $47,614, as a reminder to any other would-be tax protestor of the power they held. They called Mrs. Sullivan at dinner time every couple of weeks asking for $800 per month, or else! She agreed to a payment plan to establish peace in her household, and began sending them $800 checks every month, not missing a deadline or payment, but even that did not satisfy them, and they proceeded to garnish Mr. Sullivan’s wages, putting his new job in jeopardy and ruining his credit.

Captain Sullivan tried to fly his airplanes with 150 passengers safely, never knowing whether or not he had a house to come home to, or even if his wife would still be there. She was obviously in a terrible emotional state fighting the IRS, and he felt he had a gorilla on his back.

Fed up with the treatment they were receiving at the hands of the IRS, Mrs. Sullivan called several banks to try to obtain a second mortgage on their house to pay off the $47,614. None of them would grant her the loan since there was an IRS lien on Mr. Sullivan’s social security number. They had purposely tied his hands. She asked them to release the lien for 24 hours so that a bank could place its lien in first place, thus enabling it to give her the money and she would pay them off immediately. But they declined, saying they liked the 17% interest.

Finally, in desperation, she told her story to a friend who owned a private medical clinic and had access to investment monies. Since these investors were sympathetic to her plight, having some tax issues themselves, they consented to lend her the $47,614, at a high interest rate. She agreed to their offer in order to get the IRS gorillas off her back.

Mrs. Sullivan obtained the loan and wrote a check for $47,614 to the IRS, even though she did not owe that amount, so she could get their lives back under control. The IRS was supposed to remove the lien in 30 days since they had been paid in full, but instead filed other liens leading the public to believe they now owed double the original amount. When Mr. Sullivan tried to buy a new automobile, he was denied the loan because “you have some very big liens against you.” No amount of explaining that the liens had been paid convinced the dealer, because “we have to go by what the Courthouse says.” He found his credit ruined.

Once again, the airlines transferred Captain Sullivan to Texas. Mrs. Sullivan felt the case was closed and asked for her American Citizenship papers back. They were returned to her in an IRS envelope without a cover letter. She taped the certificate together placing it in her safety deposit box, thinking the treatment received from the IRS was no different than how the Gestapo had treated her family in Poland. Her father had died fighting tyranny, but she had found it also with the IRS in the USA, and was terribly disappointed as she had believed in her constitutional rights.

Suddenly, in 2010, without warning, they received documents in the mail from the IRS stating that the court case they had agreed to be bound with had been overturned by an appeal in the Ninth Circuit Court of Appeals. The nightmare was finally over after 17 long and frustrating years.

They were entitled to a reimbursement of their monies. Now there was a guardian angel on board, his name was Lawyer Michael Minns, who firmly believed in the Constitution, and who like David and Goliath, had fought a monster and won!

The Sullivan’s were very lucky. They had solid citizens in their corner, and now with the IRS being punished for their dastardly deeds, they could finally buy their retirement home and settle into community affairs of also standing up for what is right, because they both believed in the greatness of this country.

But as they painfully learned, if you do not use your civil rights, you lose your civil rights. These pilots decided to fight for their rights and by doing so, yours!



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