Hardy gets 13 years
in tax fraud

He says his strategy to avoid taxes
was in accordance with law

The head of a research foundation headed to federal prison for 13 years says he hasn't done anything wrong in teaching people ways of avoiding income taxes.

"I truly believe that what I'm doing is correct. I know what the law says and I've demonstrated that over a period of time; and I'm not changing my beliefs now," said Royal LaMarr Hardy, former executive director of the Cornerstones of Freedom Research Foundation in Honolulu.

Visiting U.S. District Judge Edward Rafeedie sentenced Hardy to the statutory maximum yesterday and denied his request to remain free pending appeal.

A federal jury convicted Hardy, his wife Ursula Supnet and three others in May of conspiring to defraud the Internal Revenue Service since 1985.

Hardy and Supnet also were found guilty of conspiring to hide their income for tax years 1995, 1996 and 2001, with Hardy willfully failing to file individual income tax returns for those years.

Evidence showed Hardy received income of $888,000 in 1995 and 1996 for selling the illegal schemes, not including cash he received from the business, and $257,000 in 2001 from an offshore investment.

Hardy, through his foundation, has marketed various schemes, including the "reliance defense," since 1983 to at least 6,000 clients across the country and Hawaii as a legal way to avoid paying taxes. The program is based on "reliance letters" from so-called tax experts and attorneys who maintain that based on their expertise and research of the IRS code, that there is no income tax and filing taxes is voluntary.

According to the government, Hardy's tax-avoidance schemes resulted in a tax loss of $8.6 million for 35 out of the thousands of his customers.

Defense attorney Lynn Panagakos said Hardy has only a ninth-grade education and therefore was less culpable than his codefendants Michael Kailing, a tax accountant, and Fred Ortiz, a tax consultant, who prepared the opinion letters.

Kailing and Ortiz each were sentenced Monday to three years' imprisonment. Supnet was sentenced yesterday to five years in prison.

Hardy maintains he relied on the advice of many professionals, including accountants and IRS agents, who backed his belief and research that income taxes were voluntary according to the IRS code book. In 1989, he changed his position because the IRS code book said individuals must file a return or statement for any tax liable for. Since then, he said he's filed a statement as mandated by law.

Hardy maintained that the statement complied with the law, but it did not include information about his income and liabilities. The statement, which included letters from purported experts, said he didn't believe he was liable for any taxes.

"I truly believe I followed the law at every step, followed the advice of counsel and I do my research," he said. "This was not a scheme."

Rafeedie said he found it hard to believe that thousands who subscribed to Hardy's programs "could possibly believe there is any truth to it" -- that they don't have to pay taxes. "That's nonsense," Rafeedie said.

Rafeedie ordered Hardy to pay a $59,000 fine for the cost of prosecuting him and $197,555 restitution to the IRS. Hardy must also serve three years of supervised release after completing his prison term.

Hardy must turn himself in to the U.S. Bureau of Prisons on Oct. 12.