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California Tried to Seize Millions of This Inventor’s Fortune. He Fought Back. And Won.

Gilbert Hyatt's 25-year legal battle is a story of greed, harassment, anti-semitism, and the abuse of power.

In the early 1990s, California tax authorities traveled to Las Vegas in pursuit of Gilbert Hyatt, an inventor who earned a fortune as the patent holder of the microcomputer. They staked out his home, dug through his trash, and hired a private eye to look into his background. He'd moved to Nevada in 1991, but California made a claim that the state was entitled to millions of his recent earnings.

What transpired over the next twenty-five years is a story of greed, harassment, anti-semitism, and the abuse of power. And it wasn't the first time that the California tax agency has strong-armed a former state resident. What's so unusual about Gilbert Hyatt is that he fought back—and won.

California's marginal income tax rates are the nation's highest, driving many wealthy residents to pack up and leave. Hyatt says he moved to Las Vegas because casino billionaire Sheldon Adelson, who had dreams of creating a version of Silicon Valley in Sin City, lured him there during a computer technology conference known as Comdex. No matter the reason, California didn't want to let him go.

The state is often desperate for revenue to cover its out-of-control spending. In 1993, when tax agents began auditing Hyatt, California faced a budget deficit of $3.8 billion, the largest in the nation. The Franchise Tax Board itself faced huge cuts and even possible elimination.

In 1992, Hyatt was contacted by the California Franchise Tax Board. A tax agent had read an article about the possibility of billions in royalties pouring in as electronics companies like Phillips and Sony started licensing Hyatt's technology. The agency launched an investigation.

Ity concluded that his move was a sham and that he owed them more than $13 million in taxes, fees, and interest penalties. Hyatt, who says his father taught him to "never make a deal with an extortionist," decided to fight back and appeal the decision. This was the beginning of a decades-long battle between the wealthy inventor and the largest state tax collection agency in America.

Shortly after the tax board opened the audit, an agent called Hyatt's lawyers and advised him that most people just settle because "wealthy or well-known taxpayers...do not want to risk having their personal financial information made public." Hyatt thinks the tax auditors believed him to be "paranoid" about his privacy because he was protective of the trade secrets contained in his home office. He believes the auditors exploited those privacy concerns to gain leverage.

The Franchise Tax Board hired a private eye to interview Hyatt's former California neighbors, 22 of whom later testified that he did indeed move away after selling his house. They also sent letters of demand to his friends, former colleagues, and even his rabbi—letters that divulged personal information—including his social security number—and made everyone in his social and professional networks aware that he was under investigation for tax fraud.

Two agents even road tripped to Las Vegas, staked out Hyatt's new house, rifled through his trash, and took what a whistleblower later described as a "trophy photo" of his home.

This same whistle blower testified that her colleague, an agent named Sheila Cox, vowed to "get that Jew bastard."

Hyatt ended up fighting a 25-year court battle and spending more than $10 million. The state of California spent more than $25 million in pursuit of Hyatt, according to the tax agency's spokesman.

It all came down to a hearing before the Board of Equalization in August of 2017. Although he has a professional legal team, Hyatt decided to speak for himself.

"I've waited 20 years for this [opportunity]," Hyatt told the board members before beginning his opening remarks at the 13-hour meeting in Sacramento.

The board ultimately ruled in Hyatt's favor on the primary issue of residency. The tax agency claimed that by this time, Hyatt owed roughly $55 million in taxes, fees, and interest penalties. The board ruled he owed the state $1.9 million for appearing to operate portions of his business out of California during the disputed 6 month period, but it confirmed that he was indeed a Nevada resident during this time and was not liable for state taxes on his income.

Hyatt also sued the Franchise Tax Board for fraud and harassment years ago, and a Nevada jury awarded him a $388 million judgment. That amount was later reduced to $50,000 because of a statutory cap on the amount state agencies can be held liable for their conduct.

"Somebody has got to stand up against them," says Hyatt. "As the cliché goes, the power to tax is the power to destroy."

Representatives from the Franchise Tax Board declined to participate in this documentary.

Produced by Zach Weissmueller. Additional Graphics by Brett Raney. Music by Kai Engel.

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  • albo||

    A hero!

  • Get To Da Chippah||

    "she was a racist who had targeted me for my religion."

    Oy vey!

  • Domestic Dissident||

    She is most definitely not a Shabbos goy.

  • BestUsedCarSales||

    Hyatt also sued the Franchise Tax Board for fraud and harassment years ago, and a Nevada jury awarded him a $388 million judgment. That amount was later reduced to $50,000 because of a statutory cap on the amount state agencies can be held liable for their conduct.

    I love when the government has laws that limit how much they can be punished for their misdeeds.

  • Libertarian||

    There's just no pleasing you libertarians. Think of the money this law saved the taxpayers.

  • CE||

    So pass the rest of the liability on to the officers of the Franchise Tax Board, not the taxpayers. Go after their homes.

  • CE||

    And pensions.

  • some guy||

    They'd probably still have enough left over to live comfortably anyway...

  • Longtobefree||

    Then take the weed too

  • Sevo||

    "So pass the rest of the liability on to the officers of the Franchise Tax Board, not the taxpayers. Go after their homes."

    MUCH better than sticking the taxpayers with the loss.

  • Tionico||

    that law needs to be changed to make the fines and damages come out of the pockets and earnings of the corrupt bureaucrats who had persued this guy for decades. Then, and likely ONLY then, will there be any real consequences for such wrongdoing, using the power of the State to harm. Had a private firm gone after this guy's wealth and reputation like this, the owners/prnicipals would be held personally liable.

    The Biblical punishment for bearing false witness (here, saying he did not move, and thus owes millions in taxes, proven false now in court) is for the liars making the false claims to suffer the penalty they sought to inflict upon their victim.. this time, the full amount of the tax burden falsely attributed to the now-proven innocent man. Yes, the individual operatives who persued him need to pay the State for the costs of the suit, AND the taxes they falsely claim he owes. Thow THAT would be justice. No wonder he moved away.......

  • Paul E||

    Agreed. Since there is no penalty for government workers misdeeds there is no reason for them to stop. Not until they start going to jail and losing their jobs, income, pensions, etc will you see this stop.

  • buddhastalin||

    Under the doctrine of sovereign immunity, you're lucky if any government allows you to sue it at all.

  • Chipper Morning Truthjammer||

    Yep, the very nature of a sovereign is such that the sovereign is the ultimate judge of itself. That is why true justice cannot exist under a sovereign. There must be separation between providers of security and providers of law and, ideally, there must be competition between the providers of law.

  • C. S. P. Schofield||

    And this is why we need to remind the State that in this country it is the Citizenry that is Sovereign. The State is a collection of hirelings, and should not have Sovereign Immunity of any kind.

  • Phos||

    If only the constitution had forbidden titles of nobility, like sovereign. Oh wait it did. Sovereign Immunity is at least triple unconstitutional.

    1) The titles of nobility prohibition of the constitution was not to prevent the King of Rock and Roll, or Queen Latifah. It's to prevent people giving themselves or others the powers that were traditionally held by nobility.

    2) Sovereign, qualified, prosecutorial, etc immunities violate the first amendment right of people to petition for a redress of wrongs. This does not merely refer to a bunch of names on unenforceable pieces of paper. A lawsuit is a form of legal petition for a redress of wrongs (i.e. compensation).

    3) The doctrine of sovereign immunity is not even law. The federal legislative power is solely vested in the U.S. Congress.

  • Hugh Akston||

    I'm sure there is an equivalent cap on the amount that the state can take from individuals.

  • some guy||

    It's capped at the total amount of money there is.

  • Get To Da Chippah||

    The cap is whatever the lawmaker say it is, peasant.

  • some guy||

    The process is the punishment. If you can make the government pay for its damages then how will it punish law-abiding citizens that it doesn't like?

  • Diane Reynolds (Paul.)||

    I had to read half the article before I even knew who the Jew was!

  • Rhywun||

    So what you're saying is it's not really a "story of anti-semitism" just because some frustrated bureaucrat dropped a J-bomb?

  • Diane Reynolds (Paul.)||

    I say I like to have my Jews identified early and often!

  • loveconstitution1789||

    You know who else wanted all Jews identified early and often?

  • Chipper Morning Truthjammer||

    Adam Sandler?

  • CE||

    Adolf Hitler?

  • Sevo||

    J. Stalin, especially if they were doctors.

  • Last of the Shitlords||

    Henry Ford?

  • Uncle Jay||

    "No reimbursement. He spent $10M to protect $13M. California spent $25M trying to steal $13M. The only winners were the lawyers. Oh, and the CA bureaucrats who started this mess and are currently pulling down six figure pensions."

    Jesus?

  • MoreFreedom||

    At least he can afford the $10 million - the anti-semite bureaucrat (there goes government again, engaging in bigotry without penalty at our expense) got nothing but exposed, and probably a slap on the wrist from her superior, unless of course her superior and 2nd level bosses are also anti-semites.

    Seems we should out her to all her neighbors (but unfortunately, likely also to be on the government payroll). And get some impertinent reporter to ask Jerry Brown about the waste of money her bigotry brought to taxpayers.

  • sarcasmic||

    It's in the byline.

  • Hugh Akston||

    Making Paul read the article before he comments is the worst crime of all.

  • Libertarian||

    Am I missing something? Was he at least reimbursed for attorney fees? $2000/year for 25 years of anxiety and ulcers and aggravation ain't enough for me, and I'm just a schlub.

  • Citizen X - #6||

    You don't have to worry about it, since, as a schlub, you'd have run out of money and been forced to kiss boot about 24 years and 11 months sooner.

  • some guy||

    No reimbursement. He spent $10M to protect $13M. California spent $25M trying to steal $13M. The only winners were the lawyers. Oh, and the CA bureaucrats who started this mess and are currently pulling down six figure pensions.

  • Citizen X - #6||

    That's a $35M increase in GDP!

  • loveconstitution1789||

    Think of all the income taxes those attorney's fee garnered too.

  • n00bdragon||

    Wait a sec... 10M+25M=35M in various fees and lawyer salaries. If we assume a 39% tax bracket on that income it's... 14M!

    Looks like the tax man wins again silly rich person. You'll fork over the money one way or another.

  • KBeckman||

    Still not a California Resident...

  • Cyto||

    Because the state acted fraudulently, they should be responsible for his legal bills, statute or no statute. The Feds should have jurisdiction because of the interstate nature of the dispute (Nevada court vs California govt.). A federal court should rule that the California legislature has no right to limit damages to a Nevada resident and award him legal fees and treble damages for acting in bad faith.

    Not gonna happen. But it should.

    I've run in to the same sentiment at the local DA level. I was told "I understand that you are not guilty, so if you agree to pay a civil penalty I will dismiss the charge." When I asked him what the penalty was for, the DA answered "I have to get something for my client."

    In other words, he was just extorting a hundred bucks from me, straight up, no pretending. This was a $13 million run at the same scheme. The mob has nothing on these guys.

  • Uncle Jay||

    No reimbursement. He spent $10M to protect $13M. California spent $25M trying to steal $13M. The only winners were the lawyers. Oh, and the CA bureaucrats who started this mess and are currently pulling down six figure pensions.

    Only Kalifornia would be stupid enough to lose money going after someone.
    Its no wonder that state is billions of dollars in debt.

  • loveconstitution1789||

    Thanks for covering this story. I have been following this story for years and it is educational to those wanting to fight the power of the government.

    I had a slightly similar experience with Taxifornia's Franchise Tax Board where they got slapped down by my home state too.

    California has a law that requires banks to inform Commifornia of customer's SSNs and TINs. This allows Taxifornia to try and seize bank accounts even though you don't live in Commifornia.

    Its fun to beat Commifornia and banks in court and then they owe you money.

  • Juice||

    I have been following this story for years and it is educational to those wanting to fight the power of the government.

    All you have to do is have millions of dollars to spend on lawyers.

  • loveconstitution1789||

    Or represent yourself. Its much cheaper.

    He chose to hire lawyers but it worked for him.

  • Enjoy Every Sandwich||

    "Board of Equalization"? Sounds like something out of Harrison Bergeron.

  • Magnitogorsk||

    I can't say I have a lot of sympathy for this scumbag patent troll. The money Taxifornia was after was extorted through bogus patents, so fuck him.

  • Citizen X - #6||

    Twist!

  • CE||

    It's still not California's money.

  • loveconstitution1789||

    In July, after a 20-year legal fight that generated an estimated 10,000 pages of paperwork, the U.S. Patent and Trademark Office gave Hyatt patent No. 4,942,516 for a "Single Chip Integrated Circuit Computer Architecture." The patent shocked the electronics world.
    He had been fighting the bloated government to recognize his patents duly filed. He would have got his patents recognized sooner, if not for government's incompetence.

    Then through Taxifornia's tyrannical greed, the state sought to steal income that was not theirs to tax.

    This guy is living proof that government needs to be neutered.

  • C. S. P. Schofield||

    "This guy is living proof that government needs to be neutered."

    With a blunt spoon.

  • loveconstitution1789||

    Blunt spoon slicing is too nice for bureaucratic tools.

  • croaker||

    Use a woodchipper and get rid of the entire body, not just the testicles.

  • gphx||

    Use a woodchipper and get rid of the entire body, but save the testicles.

  • Rod Flash||

    Why is there a second page to this story? You couldn't fit all the "Like Us" and "Follow Us" links on the first page? Or you just like jerking your readers around?

  • Ben of Houston||

    It's probably automatic.

  • Domestic Dissident||

    This same whistle blower testified that her colleague, an agent named Sheila Cox, vowed to "get that Jew bastard."

    Didn't Hildog call her ersatz husband's campaign manager that same thing a long time ago?

  • Hugh Akston||

    For a minute there I was worried that Mikey wouldn't be able to relate this to Hillary somehow. I should learn to have more faith in his simple-minded obsession.

  • C. S. P. Schofield||

    It's will be a good idea to keep a close eye on Shrillary until she is dead AND buried. Preferably head down, like a turnip. Wooden stake optional but possibly a good precaution.

    And it's the Democrats who should be most worried. If they aren't careful of the silly bitch, she's going to run again in 2020, which won't do them a lick of good.

  • Anomalous||

    Hillary called the campaign manager a "fucking Jew bastard."

  • Domestic Dissident||

    You're right! Thank you for the correction.

  • Uncle Jay||

    She also called Obama the N word.
    Ask me again why I didn't vote for her (or Trump).

  • Unemployed Armenian Tranny||

    California once tried to charge me 2 years of back-taxes, plus interest and fees, after i moved back to Texas, for years I wasnt a even a resident of California.They figured, "Hey we have 2 years of tax records on you, so you must not have paid you taxes before that." - Like the idea that I never lived there before that never occurred to them. Inccidentaly, I had to prove to them that was the case by tracking down a 4 year ols lease and untility bills before they left me the fuck alone.

    Fuck California.

  • gphx||

    Nowadays you have to prove you're not the illegal alien using your id.

  • John C. Randolph||

    her colleague, an agent named Sheila Cox, vowed to "get that Jew bastard."

    Who the fuck does she think she is, Hillary Clinton?

    -jcr

  • DrZ||

    Ah, California, the place where we pay outrageous taxes, both sales and income, and get bad roads and are told what kind of energy we need to use and the most outrageous gun control laws in the country. Well at least the high taxes pay for the retirements of millions of state employees. What a deal...they got.

  • Sevo||

    See here:
    https://reason.com/blog /2017/10/23/californias -six-figure-pension-club-2016
    Where a commenter with the handle 'retiredfire' tries his best to bullshit the rest of us about how he deserves it.
    And fuck Reason.com for both requiring shortened URLs and not auto-shortening their own.
    Matt, you used to get 4-figure contributions from us. You now get exactly what your management deserves: Zero.

  • Longtobefree||

    The final proof that we cannot afford to wait for California to secede.
    Throw the bums out!
    Make them form the country of Pacifica, to include Hawaii and Washington, with Oregon as a territory.
    Then refuse to enter any treaties, and do not issue visas.
    (Permit one time entry to the US for a period of one year after the seperation to those refugees fleeing oppression.)

  • BlueStarDragon||

    Wrong approach throw the people responsible out and keep the land, it is valuable. We did the same thing when we won the revolution.

  • Uncle Jay||

    "The final proof that we cannot afford to wait for California to secede."

    I couldn't agree more.
    Kalifornia has become the land of the brain dead for decades now, and I don't foresee the state getting any better. The state is billions of dollar in debt, run by clueless anti-business butt brains and the producing class has left a long time ago. The only ones left are the ultra-rich and the ultra-insane, and sometimes you can't tell one from the other without a program.

  • RoyMo||

    As irritating as Oregon and Washington are they don't deserve that and they will fight to the death to stop it.

  • Hank Phillips||

    I miss California Dreamin' but the place turned into a vampire kleptocracy. It's asset-forfeiture looting likely triggered the 2007 crash. It's odd that in the 1930s many states rejected income tax proposals and alcohol prohibition root and branch together. Yet nowadays, when nothing could be more obvious than that asset-forfeiture looting has again crashed the economy, the states acting quickest to relegalize plants banned in the '20s and '30s are still hesitating to secede from the Soviet Union created by plank 2 of the Communist Manifesto.

  • True Scottsman||

    Agile Cyborg said it better.

  • Uncle Jay||

    RE: California Tried to Seize Millions of This Inventor's Fortune. He Fought Back. And Won.
    Gilbert Hyatt's 25-year legal battle is a story of greed, harassment, anti-semitism, and the abuse of power.

    Ask me again why I left the People's Republic of Kalifornia a quarter a century ago.

  • C01iN||

    Hyatt patented the microprocessor, not the microcomputer.

  • Martin Huang||

    A strong battle

    Regards,
    dr martin huang

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