Grand jury indicts 5
who touted ways to
avoid paying income tax

The isle-based founder of the
alleged scheme faces 3 federal charges

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By Debra Barayuga
dbarayuga@starbulletin.com

The Honolulu-based founder of an organization that promotes and sells methods to avoid paying income taxes has been indicted by a federal grand jury for alleged fraud.

The three-count indictment filed yesterday in U.S. District Court charged Royal Lamarr Hardy, also known as Royale Lamarr Sounet, with failure to file an income tax return for 1995 and two counts of conspiring with others to defraud the U.S. Department of Treasury, Internal Revenue Service since 1985.

Hardy allegedly used concealed income to buy fancy vehicles and to pay for cosmetic surgery and $9,000-a-month rent, according to the indictment.

Also named in the indictment were Ursula A. Supnet, 44, also known as Ursula Ann Sounet; Michael L. Kailing, 56; Fred M. Ortiz, 58; and Terry Leroy Cassidy, 50, also known as Shawn Michaels and Leroy Terry Hefley.

According to the indictment, Hardy, 46, ran the Cornerstones of Freedom Research Foundation as executive director with Supnet as executive administrator, most recently out of a Nuuanu Ridge home and a Metcalf Street address. It conducted seminars and sold anti-tax packets to people in Alaska, Washington, Oregon, California, Texas, Florida, South Carolina, Michigan and elsewhere, the indictment says.

Among its various schemes, the foundation touted the "reliance defense," a package of opinion letters, articles and other documents written by so-called legal and financial experts to assist individuals charged with tax evasion or willful failure to file, the indictment says.

The premise of the "reliance defense" is that if an individual does not file a return because he relied on legal professional advice, there is no willful intent and he cannot be held criminally liable.

A key component of the scheme, according to the indictment, were letters signed by Kailing, a tax accountant here, and Ortiz, a tax return preparer who formerly lived on the Big Island, and others fraudulently representing that U.S. citizens are not required to file income tax returns or pay taxes.

Both could not be reached for comment.

According to the Research Foundation's Web site, its mission is to help people who want to "legally reduce or avoid taxes that are not lawfully required by law, in a manner that warrants the highest degree of confidence in our integrity, honesty and efficiency."

The indictment accuses the five of selling annual statement packages that people can send to the state and federal tax departments instead of filing returns. They also promoted the sale of trusts and bank accounts associated with those trusts that were used to conceal income from state and federal tax agencies.

Hardy is accused of transferring funds from clients' individual retirement accounts to evade payment of taxes and early withdrawal penalties under the guise that the transfers were legitimate rollovers of retirement funds.

Cassidy, of Yakima, Wash., promoted and conducted seminars and sold the tax avoidance packages in and around Yakima.

He could not be reached for comment.

The indictment also alleges Hardy has not filed state or federal tax returns nor paid taxes since 1992 despite earning substantial income. The income included $257,850 in 2001 from the sale of tax evasion schemes and commissions and $200,000 for the first five months of 2002 that he earned by getting individuals to invest in an investment program in Naples, Fla., according to the indictment.

Hardy hid substantial income by requiring cash payments or directing others to make payments to third parties on behalf of Hardy and Supnet, the indictment said. He also is accused of hiding assets by placing them in the names of aliases and other individuals.

Hardy and Supnet allegedly spent the concealed income on personal expenses, including a $58,000 Mercedes, a $34,000 Honda SUV, a $32,000 Honda Odyssey van and cosmetic surgery costing nearly $20,000. Hardy and Supnet allegedly share a Nuuanu home, paying $9,000-a-month rent in cash.

Neither returned calls or messages for comment.

If convicted, Hardy and Supnet each face maximum penalties of up to 10 years in prison and a $500,000 fine for the two conspiracy counts.

Kailing, Ortiz and Cassidy each face a maximum five years in prison and a $250,000 fine.