Benson is a tax protester. The district court enjoined him from promoting, organizing, or selling his “Reliance Defense Package” and “16th Amendment Reliance Package,” which were based on the false premise that customers could stop paying federal income taxes and escape prosecution by relying on the packages. The court of appeals affirmed, and also required Benson to divulge a customer list.
Benson wrote a book claiming that the Sixteenth Amendment was never properly ratified. He packaged the book with other materials to create his packages, which he sold for $3500. His theories were bunk.
Benson argued that he didn’t violate the tax laws—he was simply urging political action, not promoting any tax plans or affirmatively help his customers—and that the injunction violated his First Amendment rights. The court of appeals was unimpressed. Benson’s plan was a tax evasion plan that, instead of filing false returns, encouraged customers not to file at all. This “don’t-do-it-yourself” kit required nothing more to be an illegal method to avoid paying taxes.
Indeed, the materials were prepared to be sent to the IRS, including a customized “Reliance Letter.” And he made numerous statements about the tax benefits of buying his materials, boasting that he hadn’t been prosecuted for failing to pay taxes after his release from federal prison for tax evasion, and that the IRS hadn’t prosecuted any person who relied on his materials. He knew or had reason to know that his statements were false or fraudulent: his claims have been rejected by the Seventh Circuit in his own appeal, and his attempt to rely on his book in his own criminal case was ineffective, as it has been in numerous other cases. It’s also false to claim that the government can’t prosecute any person who fails to file a tax return based on a sincere belief in the income tax’s unconstitutionality. A defense of misunderstanding the tax code can raise a true state-of-mind defense, but one who believes that the tax code is unconstitutional is in a different position; one’s views of the validity of the tax statutes are irrelevant to willfulness.
Benson’s false statements were material. “There is no matter more material to the sale of a tax avoidance package than whether the package effectively allows customers to avoid taxes.” Benson’s program was promoted as a “golden ticket” to avoid tax liability and prosecution; his falsehoods would naturally have a substantial impact on a purchasing decision. “Even if some of Benson’s followers purchased the Packages for educational purposes or to take political action, as Benson claims, it is hard to believe they would have bought the materials knowing they were false.”
Benson claimed he was engaging in political speech. The government called it false commercial speech. The court of appeals agreed with the government. The injunction covered false statements made in connection with the sale of a product, not mere distribution of court opinions or expression of opinion. Benson can even sell his book with its mistaken claims. He just can’t promote its sale by claiming the ability to rely on it to avoid prosecution, or making any other false promises. Benson made many false statements about the benefits of buying his packages; he made them for the purpose of promoting sales, and therefore the statements were commercial speech. He said he was selling a way to avoid tax liability; he was really selling “a way to increase tax and criminal liability for failing to pay taxes.” That’s false advertising and it can simply be banned.
If the injunction bars Benson from actually selling the packages, not just falsely advertising their sale, that’s okay because the packages inherently involve false commercial speech. Their very names—Reliance Defense Package and 16th Amendment Reliance Package—imply falsely that a customer can rely on them. “Therefore, according to our great tradition of tolerating nutty opinions, the marketplace of ideas remains open to Benson; the commercial marketplace, however, is appropriately limited to speech that is not deceptive.”
The customer list also had to be surrendered. The government found 7 people who failed to file tax returns using Benson’s materials. Reliance on the materials will irreparably harm Benson’s customers, who are exposing themselves to civil and criminal penalties, and harm the government, causing it loss of taxes and expense in finding non-payors and collecting from them. Producing the customer list would also allow the government to monitor Benson’s compliance with the part of the injunction requiring him to mail a copy of the injunction to everyone to whom he sold the packages. This didn’t offend the First Amendment because “Benson operated an
Internet marketing scheme, not a membership organization.” A commercial enterprise doesn’t have the same rights of association as a political group or meeting.
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