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July 31, 2006
Taxes and Tinseltown
by Allen Kenney
Article originally published in
Tax Notes May 1, 2006.

Full Text Published by Tax Analysts®

A little more than 200 years ago, British colonists turned a campaign against oppressive taxes into a movement that gave rise to a new nation.

Today's tax protesters, claiming to be the modern-day equivalents of the Founding Fathers, haven't had the same success starting a revolution. Now, however, some are pinning their hopes on an Oscar-nominated filmmaker with his own history of fighting the IRS.

Hollywood producer Aaron Russo's new documentary, America: From Freedom to Fascism, purports to, among many other things, conclusively debunk the legitimacy of the federal individual income tax system and the IRS. Russo's film portrays the modern-day income tax system as an illegal regime that is one of the most effective ploys used by the federal government, beholden to a wealthy elite, to keep the citizenry under control.

"This country has turned into a police state, and the IRS and the tax on your labor is part of the police state," said Russo in an interview with Tax Analysts. "I think that the government has become completely abusive of the people, and I think we're heading very fast down the road into complete totalitarianism."

Russo's past production credits include The Rose, which earned a best actress Oscar nomination for star Bette Midler in 1980, and the Eddie Murphy-Dan Aykroyd comedy classic Trading Places. Russo has high hopes for America, which he showed in conjunction with this spring's Cannes Film Festival and released in select U.S. cities in late July. Russo likens the film to Michael Moore's bombastic critique of the Bush administration, Fahrenheit 9/11.

"I think the potential of the movie is enormous because I think there's a real unhappiness, a dissatisfaction, a discontent in this country today with both political parties. There's no one to vote for, because Republicans and Democrats are the same people on the major issues," said Russo. "This movie plays to everybody."

His film has set tax protesters abuzz, but Russo says his goal is greater than just taking down the federal tax system. Although he might have loftier aspirations, Russo seems to have at least one major thing in common with some of the most notable protest icons: At the same time that he is publicly challenging the IRS on the big screen, Russo appears to be practicing what he's preaching.

From Bikinis to Box Offices to Ballot Boxes

At 63 years old with long graying hair and dark clothes, the personable but plain-spoken Russo still seems more the music promoter and filmmaker of his roots than an antigovernment iconoclast. Yet his L.A.-cool exterior masks a decade-long history in mainstream and fringe politics.

Russo's eclectic background started with a sales job in New York in the early 1960s, where he claims to have designed the first women's bikini underwear. Years later he began his career in the entertainment industry as a nightclub owner and music promoter in Chicago. For most of the 1970s, Russo served as Midler's manager, producing The Rose in 1979. He scored another hit as producer of Trading Places in 1983, and in 1989 he even tried his hand at directing with Rude Awakening, a movie in which two hippies, played by Cheech Marin and Eric Roberts, emerge from 20 years of hiding from the FBI to find that their friends have all turned into yuppies.

After moving to Tahiti in the early 1990s, Russo returned to the United States in 1994. Although he didn't intend to become a political figure, Russo says he was motivated to enter the political realm by Ross Perot's success as a third-party presidential candidate. Russo briefly flirted with the idea of becoming a political talk show host before he ran for governor of Nevada as a Republican in 1998, losing in the party primary to the eventual winner, Kenny Guinn. A bout with cancer prevented him from running again in 2002. He set his sights higher during the 2004 elections, but failed to gain the Libertarian Party presidential nomination.

Since 2004 Russo has devoted himself solely to America. Russo says the success of Fahrenheit 9/11 that year gave him the idea to marry his political platform and his background in entertainment.

"I felt that if I made [a movie] about something that was really important then I could duplicate and even exceed what Michael Moore did," he said.

Commercial success, though, will be the result of making a movie that resonates with moviegoers of all political stripes, according to Russo. "The key thing for me is not the potential at the box office, but letting people know what is happening in this country. It has a bigger potential [than Fahrenheit ] to alter the consciousness of the people in America."

A Grander Scheme

Opponents of the income tax would probably be surprised to hear what Russo really thinks about the tax system.

"I'm not here to protest taxes. I don't give a shit about taxes," he said.

In reality, according to Russo, the IRS and the individual income tax system embody one of the biggest symptoms of a greater injustice being inflicted on the American people during the last century: the devolution of individual rights by a coercive and increasingly authoritarian federal government. Running roughly two hours, America is a sprawling indictment of today's federal government, which Russo says kowtows to a cartel of private bankers who run the Federal Reserve System. The film tackles what Russo perceives to be a multitude of creeping infringements on our freedoms, including national ID cards and police brutality.

"The IRS is just a tool," said Russo. Still, he gives more time to his arguments against the legality of the IRS's authority and the income tax than his other grievances, and it's easy to see why the film has met with such acclaim from protesters.

"We don't see opinions; we see facts," said noted protester Bob Schulz, who is best known for going on a hunger strike in 2001 in an effort to force government officials to debate the validity of the tax code with him. "We see it as an educational film."

America doesn't exactly break new ground when it comes to challenging the income tax. In a segment titled "Meet the Tax Experts," Russo interviews a number of well-known protesters, such as convicted tax evaders Irwin Schiff and Larken Rose. Russo denies that the 16th Amendment — which was never even ratified, he says — gave the federal government any new taxing powers, a favorite line of many in the tax resistance movement. Russo points to information from the Congressional Research Service that he says backs his argument. He also cites eight Supreme Court decisions from the early 20th century to support his reading of the 16th Amendment.

"The IRS cannot go around Supreme Court decisions," he said. "If they're basing their argument on the 16th Amendment, they lose. Checkmate."

Consequently, Russo insists that there is no statute authorizing the federal government to tax labor income. "If you show me that statute, I'll kiss your butt," he said. "There is no statute written by Congress that allows the government to apply a direct, unapportioned tax on people's labor. That's the bullshit that they've been throwing out for years."

Russo said the IRS ignored his requests to discuss the legality of the tax code with Commissioner Mark Everson — futher evidence, he says, that the federal income tax is a sham. (The IRS declined to discuss the film, except to direct Tax Analysts to an IRS publication titled The Truth About Frivolous Tax Arguments.)

"The real problem here is that the IRS refuses to address the problem that people want to know where the law is" that requires them to pay income taxes, Russo said. "In my investigation, I can't find any law."

Instead, the IRS relies on physical force and intimidation to implement its own set of rules based on unconstitutional tax laws, said Russo.

Russo even implies in his film that the IRS actively tries to keep people like him from publicizing the "truth" about the income tax. America includes footage of a confrontation between Russo and security personnel at IRS headquarters in Washington. Russo is ordered to stop as he films outside the IRS building.

"Why would they put Irwin Schiff in jail for 13 years?" he asked. "He never lied, he never did anything violent. He told the truth, and they go after you for telling you the truth."

True Believer

Russo may not care about taxes, but the IRS has apparently taken an interest in him.

Russo declined to discuss whether he currently pays taxes. He admits, however, to having had a dispute with the IRS in the late 1980s.

An investigation by Tax Analysts found that Russo's tax troubles might not just be in his past. Tax Analysts uncovered numerous open state andfederal tax liens tied to Russo from as far back as over a decade ago. They include: (Text continued on p. 531.)

  • 2005 IRS liens against a California address for $1.1 million and $685,000;
  • a 1995 IRS lien filed against an address in French Polynesia for $1.4 million;
  • a 2005 IRS lien against a Nevada address for nearly $360,000;
  • 1994 liens by the state of California for $128,000 and $132,000; and
  • a 1992 lien by the state of New York for $116,000.

If Russo is indeed in hot water with the tax collector, he doesn't seem too concerned.

When told about Tax Analysts' findings, Russo was relatively blasé. He claimed to have no knowledge of the IRS liens. He also denied ever having had any difficulties with any state tax authorities.

Whatever the reality of his personal situation might be, Russo fails to see how it relates to the message of America.

"Whether there's a lien on me or not, that doesn't change that there is no law," he said. "There is no law, and that's what the movie proves."

'Zealots' in a 'Neverworld'

In lieu of talking to acting IRS officials, Russo settled for an on-camera interview with Sheldon Cohen, who served as IRS commissioner under President Lyndon B. Johnson. In a segment that protesters especially enjoy, Russo skewers Cohen, pestering him to prove that U.S. citizens are required to pay an income tax. An exasperated Cohen eventually walks out of the interview.

In an interview with Tax Analysts, Cohen dismissed Russo's arguments as "cockamamie." Also, Russo's interpretations of the law and court decisions are taken completely out of context, according to Cohen.

Russo "takes a paragraph or a concept out of a case out of context and reads it literally," said Cohen. "He is ripping it out of context and applying it generally, taking it as no court has ever read it."

The 16th Amendment, Cohen said, clearly grants the federal government authority to collect an income tax: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration," it reads.

"What are the people supposed to adhere to, Supreme Court decisions or IRS code?" Russo asked. "Who's in charge?"

The federal income tax laws "have been held valid any number of times by the courts," Cohen noted. "After a while it gets silly."

(Don't get Russo started on the courts. Russo has said that he hopes his film can help sway jurors in tax cases. America delves into a cavalcade of grievances with the judicial system's handling of tax cases, as Russo accuses lower court judges of railroading defendants and ignoring Supreme Court decisions. The film also includes an interview with a juror for a case in which a protester was acquitted on charges of willfully failing to file a tax return. "If I'm wrong, I will humbly apologize with my hat in hand. But if they're wrong and there is no law, then anybody in jail for not filing should be released immediately," Russo said.)

Cohen, who had yet to see the film, accused Russo of intentionally twisting his words and misrepresenting his arguments. He also said Russo disregarded his request that the interview footage not be used in the film. Russo said that he doesn't recall Cohen making such a request and that Cohen signed a release authorizing him to use the footage.

"It was clear as we started getting into the questions that he had a slant, and he was going to put in that slant no matter what you said," Cohen said. "Nothing you could say could convince him against what he thought in the first place."

Cohen labeled Russo and his brethren "zealots" who ignore reality to suit their own whims.

"They make up a neverworld in which only what they believe is true," he said. "I don't have the power to will any law that I don't like null and void."

Forward Thinking

As he readied America for its Cannes screening, Russo called the early response to the film "overwhelming." According to Russo, the trailer on the film's Web site has been viewed more than 350,000 times.

Some influential fans have taken up Russo's cause. Schulz's "tax education" organization, We the People, has sponsored and promoted a series of screenings across the country this year. Joe Banister, a former IRS criminal investigator turned tax protester who is featured in the film, has encouraged his followers to donate to Russo in a recent newsletter.

"The bottom line is — 'approved' subject matter gets funded and distributed whereas 'disfavored' subject matter does not. Obviously, the subject matter of Aaron's film (income tax fraud, Federal Reserve, government surveillance on its own citizens) is 'disfavored' subject matter and therefore Aaron will encounter tremendous hurdles in getting this film into theaters to wake up our fellow Americans," Banister wrote.

Although Russo declined to discuss specifics of the film's costs, some of his comments at the screening suggested that he is on the hook for a significant portion of a seven-figure price tag for the project.

At a free Sunday-morning screening of America in Las Vegas this spring, the theater nearly reached its 400-seat capacity. As the credits rolled, Russo was met with thunderous applause from attendees. He spent more than an hour fielding questions and congratulations from a sympathetic audience.

"My general reaction to this movie is that it is very powerful," said Dorothy Turner, a Las Vegas resident who attended the screening in a shirt reading "Make Love, Not War." Turner said she hopes the film will discourage the "groupthink" that she finds so common today.

Russo implored his audience to spread the word about his film — "I want massive lines that nobody can ignore!" — with the fervor of a demonstration leader at a campus rally. As he solicited the audience for donations to support the film's financing, though, he brought to mind more notorious types of charismatic icons. Audience members rushed Russo and his partners with pledges and doled out cash contributions.

"I know this movie is a great tool to change what's happening in this country," Russo told the moviegoers. "The deal is real simple: The bankers have the money, and we have the numbers. And the politicians — they're no goddamn good."

Given the liens on Russo's property, it would be easy to dismiss his ranting about the tax system as a desperate deadbeat's attempt to shirk millions of dollars in debt. But in person, as he vociferously condemns the personal income tax, his dedication seems genuine. And his frustrations with this country go well beyond just taxes. In the end he wants people to see the IRS and the individual income tax as smaller frames in a bigger picture.

Still, could Russo become the next notch in the government's protester belt? In an audience full of IRS conspiracy theorists, the question on everyone's mind inevitably arises: Does Russo fear reprisal from the powers that be?

"I don't walk around looking behind my back," he replied. "I look forward."

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