Tax stuff I think is interesting. It is either copied from my primary blog on forbes.com http://www.forbes.com/sites/peterjreilly/ or stuff that I did not put there because being on forbes is a good gig and they have, you know, standards. Also some guest posts.
Friday, August 15, 2014
Harry S. Stonehill is Dead but Tax Litigation on 1962 Raid Lives On
Originally Published on forbes.com on October 9th,2011
So you think reading tax cases is boring. Check out these excerpts from the recent ninth circuit decision US v Stonehill :
According to Chandler’s memorandum, Spielman said he believed he was “in considerable danger of being murdered.” Chandler wrote, “[W]e are inclined to agree that this is a very real possibility.” Spielman, a Czech Jew and a Holocaust survivor whose parents were killed in concentration camps, said he was not afraid of Stonehill. He took “the position that he faced death many times during the war years in Europe, spent much time in concentration camps and lived constantly in fear of death. He became an American citizen in the hope and expectation that he would thereafter be a free man and he cannot now see himself subject to the threats of the Stonehill group.” He said he would thus stay in the Philippines despite the risk.
According to Hawley’s memorandum, Spielman said that Stonehill “pulled a couple of pistols from his desk, ostentatiously played with them and mentioned what would happen to people who did not play ball.” They then beat Spielman and knocked him unconscious. At the first interview with Hawley, Spielman had a very severe black eye, a swollen left cheek and side of his face, a bad cut inside his mouth, and a number of bruises on his chest and arms
On April 22, 1962, Menhart Spielman disappeared. Spielman had apparently been dissatisfied with his treatment by the NBI and had approached Stonehill’s lawyers in search of some sort of deal. Spielman then attempted to flee the Philippines, assisted by men associated with Stonehill. Philippine authorities eventually obtained confessions from the crewmen of a boat called the “Kingdom.” The crewmen claimed they attacked Spielman on the boat while he was asleep and threw him semi-conscious into the shark-infested waters of the Sulu Sea. The U.S. government was somewhat skeptical of this story. It is, however, certain that Spielman disappeared.
So who is the ominous Stonehill in this murder mystery / missing person story ? Harry S. Stonehill was a member of the Greatest Generation of Americans who faced a world ruled in large part by fascist regimes that exterminated large groups of people as a matter of policy. His role in that great drama was as a lieutenant in the United States Army. He was stationed in the Philippines where he was in charge of supplies. Like most of the officers in the United States Army in that period Mr. Stonehill was not a West Point graduate. He did not have four years on the Hudson River having it drilled into him that “A cadet does not lie, cheat or steal or tolerate those who do.” So Lieutenant Stonehill profited from his supply position beyond his Army pay. He also saw tremendous opportunity in the Philippines to apply principles that he had presumably learned in his hometown of Chicago. As he looked back on the islands from the ship carrying him home he said to himself “I shall return.”
Mr. Stonehill tried unsuccessfully to convince his wife to come to the Phillipines. He also asked his Army buddy Stan Lee of Marvel Comics fame to come with him. Mr. Lee gives a good summary of what happened next inthis interview:
Actually, he’s a guy I knew when I was in the Army. After the war, he said to me, “Hey Stan Come to the Philippines with me.” I said, “Why?” And he said, “I found out that they don’t have Christmas cards there. I’m going to buy a batch of Christmas cards and start a business.” I said, “I love ya, Harry, but you’re a lunatic.” And I went back to my comics and he went off to the Philippines. To make a long story short, a few years later, he was the wealthiest man in the Philippines. He was a billionaire. He started with the cards, but that was just nonsense. He ended up owning an import/export line with god knows how many steam ships, I think he had the American Tobacco franchise, he started glass factories – he was the biggest thing in the Philippines. At some point, the government fell because of him – there were accusations of graft and corruption – and he claims that the CIA or the FBI or some government agency wanted to get him out of there because he had become more powerful and influential than the United States government. And he started suing the United States government, and the lawsuit – as far as I know – is still going on. They had to get him out of the Philippines by submarine – he thought they were going to kill him – and he ended up Switzerland and England and all over.
The Stan Lee interview was shortly after Mr. Stonehill’s death in 2002. Mr. Stonehill had by then lived as something of a man without a country for 40 years. His native country the United States did not welcome him with open arms after his adopted home the Philippines expelled him in 1962. Mr. Stonehill had been in the habit of buying up the political leadership of the Philippines keeping the details in a book. He claimed he could buy anybody and once said that he was the government. He did not manage to buy everybody though. Jose Diokno, the Justice secretary, unleashed the agents of the National Bureau of Investigation in a raid on Stonehill’s properties in March 1962. The raid yielded thousands of documents and a “blue book” showing the names of many government officials who had been taking bribes. The resolution was not to the liking of Secretary Diokno. “How can the government now prosecute the corrupted when it has allowed the corrupter to go?” Stonehill was deported and no further action taken - in the Philippines.
Enter the IRS – if they weren’t already in.
The Philippines shared its treasure trove of documents with US law enforcement including IRS CID. I suppose you won’t be shocked to find that Mr. Stonehill was less than thorough in his US tax reporting. In 1965 the IRS made jeopardy assessments of over $13,000,000 in taxes, interest and penalities for the years 1958 to 1961.
That’s Interesting but What Could the Ninth Circuit be Talking about in 2011 ?
The Ninth Circuit is talking about the raid in 1962. The raid turned out to be an illegal raid under the Philippine’s equivalent of the fourth amendment. I’m just a tax blogger not much of a fourth amendment guy, but apparently there is a “silver platter” doctrine. What it means is that if people, who are not agents of the United States government do something illegal that uncovers evidence, which they turn over to the United States on a “silver platter”, there is no fourth amendment problem. Stonehill’s representatives claimed to have found new evidence from FOIA requests that US agents were deeply involved in the raids and that evidence of this was withheld in prior versions of the same litigation. That would mean there had been “fraud on the court” which would allow the reversal of numerous decisions where the assessments based on the raid documents have been upheld.
The New Record Holder
I did a guest post on Annette Nellen’s 21st Century Taxation titled Maybe There’s Too Much Process where I discussed several taxpayers who managed to stretch the collection process out interminably. The furthest I found was the Thomasson case decided this year and concerning assessments as early as 1964. The assessment against Stonehill based on the 1962 raid documents went back to 1958. It was upheld in decisions in1967, 1968, and 1983. There are a sprinkling of related decisions through the decades about matters such as attorneys fees. The Ninth circuit has ruled against the late Mr. Stonehill again:
Any misrepresentations or false statements made by government witnesses or attorneys were on largely tangential issues and did not substantially undermine the judicial process by preventing the district court or this court from analyzing the case. We therefore reject Taxpayers’ fraud-on-the-court claim.
The raid’s fiftieth anniversary is coming up soon. Maybe we’ll have another decision next year to celebrate.