United States v. Kelley

769 F.2d 215 (4th Cir. 1985)

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Nature of the Case

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Facts

D organized and lead a group claiming that the federal income tax is unconstitutional as applied to wages. D reasoned that wages are received for labor in an exchange of equal value; since no party to the exchange realizes a profit, the exchange is not a taxable event, or there is no gain to be recognized. D solicited dues-paying members. In exchange for their payments, D explained how the members might avoid all income tax withholding on their wages and obtain refunds of previously withheld wages. D provided forms and detailed instructions for the preparation of the W-4 and refund claim forms, while the members were instructed to report zero wages on their 1040A income tax return forms. D also instructed the members to destroy their credit cards and to deal only in cash so that they would leave no paper trails to be followed by the IRS agents. In the spring of 1981, D filed his own income tax return in which he properly reported the wages he had received in 1980. He admitted that he had talked to a number of lawyers about his legal proposition and that none of them agreed with him. D was convicted of conspiring to defraud the federal government and of aiding and assisting in the preparation of false W-4 forms.