Originally published on Forbes.com.
Florida, multi-level marketing and an appeal of a criminal tax case. Seems like I’m back with Ernie Land and Kent Hovind, but no. I declared a close to L’affaire Kent Hovind in August and it stays closed at least on this platform. The decision this week from the Eleventh Circuit concerns Nova Montgomery. Ms. Montgomery as owner of Worldwide Brokerage of North America Inc seems to have gotten in on the ground floor of Market America in 1995 (the company was founded in 1992 by former Amway distributor JR Ridinger and his wife Loren).
In some ways this decision reflects well on Market America relative to Amway. Almost all the Amway cases in the body of tax authority are about Amway IBOs who lost money and had their losses disallowed. Ms. Montgomery, on the other hand, was singled out by the IRS for not reporting over $2.7 million. Here is the US Attorney’s report on her conviction in 2014.
According to testimony and evidence presented at trial, Montgomery was self-employed as a distributor for a multi-level marketing company that sold nutritional and other products. Between 2002 and 2012, she received commissions and other income exceeding $2.7 million. Montgomery set up a complex corporate structure that made it appear that she personally received virtually none of the income from the commissions and sales. Further, on February 12, 2009, in the midst of an Internal Revenue Service audit, Montgomery filed false and fraudulent federal income tax returns claiming that she had no income for 2002 through 2006. In addition, she failed to file personal income tax returns for 2008 through 2012.
About Market America
Market America does not characterize itself as a multi-level marketing company. It goes with “Product Brokerage and Internet Marketing Company”. This UnFranchise BusinessPresentation explains it in some detail.
I found an article in BloombergBusiness – Market America’s Amercian Dream Machine -that’s seems to be pretty balanced. Most of what you find on Market America and Shop.com tends to be either extremely positive or extremely negative like these reviews which are all either one star or five star.
Ms. Montgomery was advanced enough in the Market America world to be featured as a speaker in a national conference call dubbed “Women on Winning” where she was recognized as a Million Dollar Club achiever. She makes an appearance in How To Get To The Money as the mentor of the presenter. You can hear her chiming in around 22:32.
The Decision
Ms. Montgomery was appealing her conviction on five counts of tax evasion and five counts of failure to file. She was complaining about the judge excluding some of her exhibits and the jury instructions concerning reasonable doubt. The exhibits were meant to show the sincerity of her belief that she was not required to pay income taxes. That could show that she was not willful. This is commonly known as the “Cheek defense” in honor of John Cheek who had his failure to file conviction reversed by the Supreme Court. It was kind of a hollow victory for Cheek in that he was convicted on retrial.
The appeals court did not find that excluding the exhibits could likely have harmed Ms. Montgomery’s defense.
Yet, even if the district court erred by excluding this evidence, that error would have been harmless. As the record reveals, the district court permitted Montgomery to testify, in great detail, about her beliefs on income taxes, based on specific cases that she had read. This testimony spanned over 100 pages, and she was often allowed to go through the cases by name, one-by-one. The court also admitted a seven-page statement of her beliefs into evidence. Moreover, Montgomery chose to testify at trial, so any statements that the jury disbelieved could be considered as substantive evidence of her guilt, especially when the element to be proven was willfulness. See Brown, 53 F.3d at 314-15. In short, because the jury did not believe Montgomery’s testimony, the admission of the exhibits at issue and of her testimony about the substance of several of those exhibits would not have had a substantial influence on the case’s outcome. Accordingly, the error, if any, was harmless.
The objection to the reasonable doubt instruction – (that which a juror would be willing to rely or act upon without hesitation in the most important of their affairs) – also went nowhere.
The Big Picture
I don’t want to in any way give the idea that Market America or Shop.com is in any way promoting tax crime or the tax-protest or “tax honesty” movement. People from all walks of life including IRS Criminal Investigation (Joe Banister) are capable of drinking the tax protester K00l-Aid. On the other hand there seems to be some commonality in the mental space of multi-level marketing and the tax protest community – a desire to find the deep secret that is holding you back and at least in the view of outsiders a cult-like environment.
Quatloos devotes energy to debunking both the tax protest movement and multi-level marketing. They have a thread of commentary on the original trial. One commenter, who is philosophically sympathetic to the views of the tax protesters, takes promoters to task who are not open about the risks.
If you teach some theory of the law or Constitution that leaves earners believing they need not file returns or pay tax, you are a scoundrel if you do not also teach a proven method of beating the IRS and DOJ in federal court when they come after your earner for willful failure to file or for tax evasion, etc.
You who listen to the advice of the Pied Pipers should think long and hard before you up and quit filing returns or paying taxes. If you fail to heed my warning, and a Grand Jury indicts you as a result, do not plan on winning your case because you won’t have the opportunity to present your law theories in court.
You see, the courts have ruled against the tax protester arguments so assiduously that you have to deny reality to think you can get away with flouting the courts’ obvious interpretations of the laws. That means the notion that you do not owe a tax return or taxes for your work-a-day wages or commissions has become a POLITICAL ISSUE. You will NOT win it in federal court in today’s legal climate.
Trent Hamm in an article in Beware of “Alternative” Investments writes about the bad ideas he receives in the mail. He leads with tax protesters and follows with multi-level marketing.
The big difference is that if you get hooked on a multi-level marketing plan you will most likely pour time and resources into it and never get much out of it. On the other hand, if you get hooked on tax protester theories, you will get immediate rewards in that you will stop paying taxes. You will probably get away with it for a long time. As a matter of fact, as enforcement resources decline it might actually be likely that you will totally get away with it. When and if they finally catch up with you, hopefully you will have the sense to start taking more conventional advice, which will allow you to pay off your deficiencies over time and avoid forfeiting your liberty, but the really hard-core don’t do that. Hence the late Irwin Schiff dying in prison.
Note – Not The Quilt Lady
Particularly with decisions like this one, where the story behind the story is much more interesting, I often lament that I am just a tax blogger, not an investigative reporter. At any rate, this decision motivated me to poke around quite a bit on the internet. In the process, I found that there is another Nova Montgomery, whose internet profile seems a bit higher than our member of the Market America Million Dollar Club achiever. The other Nova Montgomery is an award-winning quilter and quilt historian and is in no way, I can discern, connected to this story.