Originally published on Forbes.com.
The Association For Honest Attorneys might sound like the punch line to a lawyer joke, but rest assured it is a real organization. It is just no longer a tax-exempt organization. The Tax Court ruled in favor of the IRS denial of exempt status on April 3.
I covered the original denial of exempt status PLR 201524206. Private letter rulings are, well, private. The organization is not identified, but I am sometimes able to use my superpowers to penetrate the redaction. Joan Farr, the founder, confirmed that it was the Association for Honest Attorneys and gave me an earful indicating that the denial was another instance of the IRS persecuting conservative Christian organizations. Here are the high points of the Tax Court’s recent decision.
About AHA And Joan Farr
The charitable purpose of AHA is to help people settle disputes without recourse to litigation and to identify attorneys who will help people rather than drag legal matters out for their own profit. In nearly fifteen years they haven’t found anybody to continue to include on their “nice list” – “ We have removed the names of attorneys that we had on this list because there are NO honest attorneys in America. Not one lawyer has joined our organization since we began in 2003, and this speaks volumes. ” The naughty list, on the other hand, is pretty long.
Mixed into all this is litigation that Ms. Farr has initiated against the Department of Defense concerning the death of her father Major Jack Farr, who was shot down over North Vietnam in 1965 on a mission to destroy SAM sites that may not have existed. The real purpose was to escalate the war according to Ms. Farr. Many people who lived through that era would find that pretty plausible – just saying.
There is also the prosecution of Ms. Farr for the unlicensed practice of law. I won’t get into either the prosecution or the Vietnam lawsuit that much, but it is important to mention them to get the full flavor of what is going on.
According To IRS And The Tax Court
The main issue that the IRS had in its audit of AHA was the use of corporate resources for personal purposes. All in for the years 2010, 2011, and 2012 there were just shy of $40,000 in expenses that appeared personal – Dillard’s, Walmart, Kwik Shop, Kohl’s, Walgreens, Dillons. etc. Larger items were $7,750 tuition for her son to attend St. John’s Military School and $2,200 for exhumation and DNA testing of Major Farr’s body.
Ms. Farr claimed that the payments were repayments of loans that she had made the organization. We should stop right here and acknowledge the violation or Reilly’s Fourth Law of Tax Planning – Execution isn’t everything but it’s a lot. IRS Revenue Agents are trained as accountants and it is good to relate to them as such. Apparently Ms. Farr did not get that.
Ms. Farr did not give the agent any such documentation but instead reconstructed for the years 2003 through 2006 (1) the loans that she claimed she had made to petitioner and (2) the hours that she claimed she had worked for petitioner. Thereafter, Ms. Farr gave the agent a list of those reconstructed claimed loans and a list of those recon-structed claimed hours. [*10] During the period 2003 through 2012, petitioner did not execute any promissory notes payable to Ms. Farr and did not make any payments of interest to her.
That was pretty much enough for the Tax Court as it emphasized the AHA had the burden of proof in overcoming the adverse determination.
Appeal Is Coming
I reached out to Ms. Farr and as sometimes happens ended up being the one who broke the bad news to her. Here is her response:
This is the first I have seen the decision in this case which is a complete denial of due process of law. Pages 6-7 state that letters were sent to me on March 15, 2013 and May 1, 2013 which is entirely false. We were never given any notice of their “examination” of our activities and never given any kind of hearing, just a letter in early 2015 saying our 501c3 status had been revoked in 2010 and stating no reason why. I was not able to acquire an attorney to represent my organization, so I did the best I could. I never engaged in any benefit transactions with my organization – we had contracts from the onset that I would be paid back for all start-up costs, out-of-pocket expenses and $20,000 in book royalties which I was never totally paid back but this evidence was ignored. At this trial held on September 20, 2017 in OKC, I presented four pieces of evidence: (1) notes I had kept from the 2013 audit in which the auditor said that in seeking “justice for all,” I am not one of the all and this doesn’t apply to me; (2) an internet news article from May 2013 about the IRS targeting tea-party groups such as ours ; (3) an A.H.A! newsletter we had from the same time period which mentioned the word “tea-party;” and (4) a note I had hand-written to myself on 1/9/16 from a man we had helped in Michigan with a lawsuit. He called to tell me that the law firm handling his case up the US Supreme Court offered him a settlement of $8.4 million (they would take half) if he would “testify against me at the IRS trial.” Judge Chiechi not only struck all my evidence, she kept all of the originals and gave me back copies. I will be appealing this case, since it is certainly outrageous government conduct at its best.
In the April 2018 newsletter there is a slightly different discussion.
How the IRS can remove your 501(c)3 non-profit status and make it appear legal… As a 501(c)3, you don’t have to file taxes if donations are less than $50K annually. So from 2003 – 2014, all we had to do was fill out a 990-N postcard saying we took in less than this. But in 2015, the IRS sent a letter saying our non-profit status was revoked in 2010 without even telling us or holding a hearing. At the same time, they changed the 990-N postcard so that you must fill it out on line, giving them the power to “reject” a submission. Then if you don’t fill it out 3 yrs in a row (and we tried), you automatically lose your non-profit status. Outrageous!
Ironically, Ms. Farr’s approach is similar to what happens with some attorneys when they end up in Tax Court. Rather than going through the tedious process of documenting transactions as an accountant would, they make arguments about process. That is what happened with the great F Lee Bailey Some good accounting and a better audit trail might have been the salvation of AHA. Rather than an honest lawyer, perhaps AHA could have been saved by a reasonably competent accountant.
I don’t doubt Ms. Farr’s word when she says she will appeal, so I will be on the lookout for the next decision in this saga.
Other Coverage
Lew Taishoff had covered one of the procedural steps in the case in 2015 with Why Didn’t She Ask Me?
But Association for Honest Attorneys AHA? And I wasn’t invited to join?! As my daughters would have said twenty years ago, “Oooh, what a diss!” I’m mortally offended
Mr. Taishoff covered the decision earlier this month with – I’m Glad She Didn’t Ask Me.
Joan and the Association For Honest Attorneys aren’t exempt from tax. Why am I not surprised?
Thanks to Steve Hamilton – Cincinnati Tax Guy – I find that Joan Farr was in Tax court early in the year over excise tax on the various transactions. That did not go well either. Mr. Taishoff also covered that one. I don’t know how I missed it. I was kind of absorbed in figuring out how to game the new tax law, but that is really not a good excuse.
Paul Streckfus of EO Tax Journal also followed both decisions. On the recent decision he wrote:
This was a very strange case when I and others first commented on it in January in email update 2018-9. See “Joan Farr and Her Association for Honest Attorneys.” I now find the Tax Court’s Memorandum Opinion even stranger. I assume some eager beaver Tax Court Clerk wrote the opinion and Judge Chiechi signed off on it. I’d go further but this long and meandering Opinion is not worth anyone’s time to read it. Sometimes a case becomes such a mess it is best to just ignore it and hope it never reappears although with the litigious petitioner, Ms. Farr, I’m sure an appeal is being planned.
Don Kramer has something on Nonprofit Issues, but I have not peeked behind the paywall.