Taxes: Klee vs. the IRS


It's nice to feel you're on the "front lines" of the more important battles going on today, even if it does mean that the pressure and harassment come down harder. Recently, after a stint as western director of the National Taxpayers Union, I found myself back in the kind of work I like best: individual income tax preparation and counseling. What's more, I was able to begin working with an individual of long experience in fighting for the rights of taxpayers everywhere. His name is Oscar Klee, and although he's not well known nationally, he has quite a few scars—and victories—from past battles in "the IRS Wars."

A political maverick and thorn in the side of the IRS for 30 years, Klee has fought that dangerous bureaucracy to a standstill on a number of occasions. For instance, in 1954 the IRS had their infamous "Coast Campaign" in northern California, designed to harass and intimidate income tax consultants and their clients. A number of such consultants were threatened with jail through various stratagems, unless they quit doing business and handed over their files to the IRS! This was (and is) because tax-preparation experts save people money by exploiting the laws used mainly by the wealthy. The IRS doesn't like that, and a number of tax preparers at that time actually did turn over their files.

But Klee? Before the struggle was over in 1954, he had somehow come into possession of the briefcase, daily diary, and personal tax return of one of the investigating IRS agents. The information found indicated that the agent was taking the very same deductions on his own tax return that he was disallowing with Klee's clients. The information quickly found its way into the newspapers and onto the airwaves.

Stung badly, the nasties at the IRS responded by sending six auditors and a supervisor into Klee's territory every year for the next four years (their power to harass and intimidate the general public was much more unrestrained in those days). Their job: to audit every one of Klee's clients every year and drive him out of business.

The campaign almost succeeded, as Klee's clientele was relentlessly trimmed back to his most ardent supporters. In addition, the IRS was finally able to intimidate nine of Klee's clients into signing papers indicating that he had "advised and counseled" them to take "false deductions." The "false deductions" were at that very time being adjudicated in the federal court system: having studied some law himself, Klee very well understood that the IRS virtually always interprets gray areas against the taxpayers. So he turned around and started interpreting them in favor of the taxpayers.

Notwithstanding the fact that the dispute was slowly moving through the civil courts, the IRS pressed its criminal case immediately, charging Klee with 11 felony counts of "advising and counseling." Just before the trial, and facing years of prison, Klee was offered a "compromise" by the Treasury bureaucrats: hand over his clients' files, get out of the business, and they'd drop the charges. Klee turn them down flatly.

The jury trial took five weeks in the San Francisco federal district court. When the jury came back with a quick not-guilty verdict, Klee's lawyer remarked that it was the first time in 37 years that he'd seen an entire jury stand beside the door to shake hands personally with the defendant and wish him luck in his continuing activities.

In the meantime, Klee was fighting back in other areas. Not long after the federal trial in 1958, he ran for judge in his northern California area—and won. Then in 1959 a federal court decided that the deductions Klee had been criminally charged with taking were legitimate under the law after all. That same year, in connection with a multiyear audit of his own tax returns—over a disputed sum of $19, with a $50,000 liability hanging over his head—the feds again offered Klee the same compromise. No, came back the answer. They gave back the $19 and declared the other years' audits closed.

Klee's star as a people's champion kept rising. In 1960 he was elected to the county board of supervisors in his area. That same year the Federal Ninth Circuit Court of Appeals—the court just below the US Supreme Court—validated Klee's reading of the law (over the same deductions he'd been tried for) with another victory. And in 1962 the Ninth Circuit came down with yet another taxpayer victory when it sided with Klee in his reading of the law against the IRS.

Through the '60s Klee pursued his aim: to save the working taxpayer from the depredations of the federal tax bureaucracy. Battle followed battle, and he intensified the struggle by putting his own personal tax returns to various constitutional tests. The IRS kept after him. In 1971 they charged him with "willful failure to file tax returns." He didn't let up. In 1972 came the famous "fleece-in" where two hapless sheep were sheared on the steps of the Federal Building in San Francisco, while a helicopter circled overhead towing a banner that read "Audit the IRS." That action was in protest against the IRS practice of arbitrarily withholding refunds due taxpayers. After the fleece-in news hit the national wires, the checks were quickly sent out, and the tactic was used no more.

In 1973 Klee came to trial on three counts for willful failure to file his own tax returns, and the IRS was finally able to win one. Klee immediately appealed. In 1974 he followed up his conviction by running for the Democratic nomination for the congressional seat in his district and won in every county (although he lost to the Republican incumbent in the general election). Soon after the election, on December 6, federal marshals swooped down and carted him off to prison. That was at the very beginning of the tax season. But on his birthday, January 28, persons unknown caused not one but two helicopters to circle the federal prison—Terminal Island, near Los Angeles, which was to hold the famous Barbara Hutchinson and other tax protestors—with banners proclaiming "Happy Birthday Oscar Klee" and the familiar "Audit the IRS."

On April 22—just after the end of the tax season—Klee was let out of prison. He immediately pounced in 1976 by running for and winning the Democratic nomination yet again for the congressional seat in his district (but once again lost to the incumbent). Today the patterns continue, even as I work with him in his Santa Rosa offices. Within two weeks of my arrival, two IRS agents from the "criminal investigation division" came into our offices demanding information. The office manager, herself a veteran of the IRS Wars, naturally told them to get lost.

They responded in typical fashion: within a couple of weeks fearful clients started calling us, telling of a letter they'd received from the "Chief, Criminal Investigation Division" of the IRS office in San Francisco. The letter arrived with a questionnaire to be filled out by the taxpayers—and it appears to be going to every one of Klee's clients.

What does the IRS letter say? Among other things, that "the Federal income tax liability of Oscar H. Klee and Marlene E. Klee, doing business as the Oscar Klee Tax Service, is under investigation for the years 1975, 1976 and 1977. Please answer all the questions on the attached questionnaire as completely as possible."

Predictably, Klee immediately responded with a counter-blast, a letter to all his clients pointing out: "You do not have to provide the IRS with any information that they request in a letter, or otherwise, unless they comply with the law (see attached letter)." The letter Klee attached was a copy of one to the IRS that began: "Please be informed that your recent letters requesting information from our clients are deceptive, contrary to law, unnecessary, and as such constitute undue harassment of both our clients and ourselves. Your letter and request was sent in violation of the Privacy Act of 1974 which was passed by Congress to prevent such abuses and harassment.…I am informing my clients that they are not required to succumb to your illegal requests or participate in your unwarranted fishing expeditions.…It would seem that the IRS after nearly 30 years of harassment would clean up its act and comply with the law instead of continually using illegal tactics in attempts to defeat opposition to such harassment."

"Aren't you even worried?" I anxiously asked Oscar one day as he bustled through the office.

"Not really," he replied. "They've been doing this same kind of thing for years now, and this is just a weak attempt to scare our clients."

"Why not calm down a little, and not tick them off so much," I suggested, wondering what drives a person to take on the most vicious and dangerous bureaucracy in America.

"Someone's got to do it," he replied. "If we don't take a stand now, and they're allowed to run roughshod over the law and the Constitution, pretty soon there'll be absolutely no chance at all for the working man and woman in this country."

To which I just have to say, in spite of my own trepidation: Amen.