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A pair of Los Angeles residents accused of perpetrating tax fraud say they feel vindicated even as a federal judge issued a permanent injunction against them.
The order, issued Thursday by U.S. District Judge Jacqueline Nguyen, bars Gwenn Wycoff and Frank Ozak from setting up trusts for clients, which prosecutors said were the "lynchpin of an elaborate scheme to evade the payment of federal income taxes." The defendants agreed to the order without admitting any liability.
Wycoff and Ozak said they had stopped setting up the trusts a few years ago and said the order was not as strong as prosecutors wanted.
"We have given them a run for their money," Wycoff said. "They didn’t take away anything that we weren’t going to give up anyway."
The business partners, who also are "professional astrologers," believe it is the federal government that is scamming the public.
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"They’re playing the game 'king of the mountain,' and they don’t want anybody gaining any power," Wycoff said. "They're really scared of what we know. Why would they go to so much trouble?"
The pair contributed to a book called "The Art of Passing the Buck," which, according to the lawsuit against them, provides a roadmap for the trust scheme and at one point says that the Internal Revenue Service is "a foreign organization, based in Puerto Rico, and not part of the U.S. Government." The injunction requires that they insert a notice in the book that read, "Under no circumstances should you rely on the content of (the book) in determining a trust's federal income tax liability."
The idea behind the trust scheme, according to the government, is that a person can appear to own nothing by transferring all assets to a trust, but still control all the money in the trust.
It allegedly goes like this: An individual's income and assets are deposited directly into the trust, which then pays back a salary and pays for expenses. The individual reports very little or no income at all to the IRS. The trust reports to the IRS that it has spent all its income in salary distributions and disbursements to other entities, avoiding any tax liability. Some of the distributions then turn out to be nonexistent or made to "sham" off-shore entities.
"Wycoff and Ozak falsely tell their customers that this arrangement is beneficial from a tax standpoint, because individuals do not have to pay tax on income they receive that is paid directly to a trust," the lawsuit states. "In actuality, individuals are responsible for income they earn."
Wycoff and Ozak were paid to set up the trusts, sometimes as ongoing trustees. In one case, a trust document allegedly held that if the trust were dissolved, Wycoff and Ozak would get 51 percent of the assets.
The pair is accused of having clients sign an "Oath of Privacy," with penalties of $100,000, as a way to " 'silence' their customers from disclosing information to entities like the IRS," according to the lawsuit.
But the business partners deny doing anything illegal.
"They never did prove that the trusts were fraudulent," Ozak said.
"The only thing they could get us to do was not to do any more of them," Wycoff said.
In one case mentioned in the lawsuit, Ozak and Wycoff were accused of helping set up three trusts for a Bakersfield couple, Rita and George Serban. An IRS audit later found that the trusts were shams, according to the lawsuit, and the Serbans agreed to pay $900,000 in unpaid taxes and penalties.
"We were just suckers," Rita Serban said. "We ended up being losers in the end. They needed to be stopped because what they were doing was wrong."
Serban said their accountant introduced the couple to Ozak and Wycoff, who provided lots of paperwork and their own interpretations of IRS rulings. She said Ozak and Wycoff seemed to believe in what they were doing.
"They really did feel that the country and the government is wrong," Serban said. "I’m not really sure they’re so hot either, but, you know, nobody’s perfect."
Ozak and Wycoff got interested in trusts as part of their involvement in the 1990s in the "state citizenship" movement, a fringe philosophy led by a Californian who "renounced" his U.S. citizenship because he believed that status applied only to freed slaves.
Ozak and Wycoff said they will continue selling "The Art of Passing the Buck" and will give lectures and work as consultants.
"Because of the First Amendment, they can’t get us," Wycoff said.
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