Saturday, May 14, 2005

Head of tax evasion
scheme convicted

Four others are also guilty of
conspiring to hide true income

The head of a foundation that promoted and sold methods to avoid paying income taxes was convicted along with his wife in U.S. District Court yesterday of conspiring to defraud the Internal Revenue Service since 1985.

Royal LaMarr Hardy, executive director of the Cornerstones of Freedom Research Foundation, and Ursula A. Supnet, its executive administrator, were each found guilty of two counts of conspiring to promote tax evasion schemes and conspiring to hide their income.

Hardy was also convicted of three counts of failing to file income tax returns for tax years 1995, 1996 and 2001.

Michael L. Kailing of Honolulu, Fred M. Ortiz of the Big Island and Terry Cassidy of Yakima, Wash., also were convicted of conspiracy.

Lynn Panagakos, attorney for Hardy, said they are disappointed in the verdict and expect to appeal.

Assistant U.S. Attorney Clare Connors said the verdict is consistent with the evidence that the defendants intended not to file income tax returns or pay income taxes.

"That's the law. Courts have repeatedly found that's the law, and this verdict affirms that the law requires people to file income tax returns and pay their income taxes," Connors said.

Visiting U.S. District Judge Edward Rafeedie ordered each of the defendants to cease producing, marketing or selling any of the schemes, including fraudulent IRA rollovers and abuse of trusts, that they have continued to sell even after they were indicted in July 2002.

Hardy, who professes to not filing income taxes since 1977, has marketed the "reliance defense" since 1983 to at least 6,000 clients across the country and here as a legal way to avoid paying taxes. The foundation provided "reliance letters" from purported tax experts and attorneys willing to say, based on their expertise and their research of the IRS code, that there is no income tax and that filing taxes is voluntary.

Among those who prepared opinion letters were Kailing, a tax accountant, and Ortiz, who billed himself as a tax consultant. Cassidy marketed the programs in Washington state.

Of approximately 35 of the foundation's 6,000 clients, the calculated tax loss was $8.7 million based on testimony at trial.

According to prosecutors, Hardy received income of $491,000 in 1995; $397,000 in 1996 -- a conservative estimate that did not include the cash he received from the business -- and $257,000 in 2001 from an offshore investment and did not include income from the foundation.

Barry Edwards, attorney for Ortiz, declined comment. Richard Gronna, who represented Kailing, said his client had a deep-felt belief that there is no income tax and payment is voluntary.

Sentencing is scheduled for Aug. 29.

Hardy faces a maximum of 13 years in prison and fines totaling $800,000. Supnet faces 10 years in prison and $500,000 in fines. Kailing, Cassidy -- who represented himself at trial -- and Ortiz each face five years' imprisonment and $250,000 in fines.

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