The Indomitable Harry Margolis The Rest of the Story

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Some readers
have asked for more information on Margolis
since I knew him well having worked with him for some years. The
written articles about him sent to me by interested readers refer
to him as a "shyster lawyer" and say that the IRS dropped
its criminal case against him. They did nothing of the sort. They
lost all their cases against him by verdicts of Not Guilty. I am
sure they would have wished they had dropped their cases rather
than suffered humiliating defeats. He may have been a bit of a megalomaniac,
but not a crook.

Margolis ran
up many major victories against the IRS in the 1950s and 1960s.
He had a great reputation which I looked into before I used him.
But he was too successful for the IRS and they set out to get rid
of him. His name became a red flag on any tax matters that came
to the IRS's attention, and was immediately sent to a special task
force set up specifically for Margolis. They told me as many as
50 agents were involved in dealing with Margolis. The top brass
had everything turned over to the special agents of the criminal
division. All civil matters were suspended while the criminal charges
were pending. Their primary function, then and now, is to scare
the hell out of taxpayers. They apparently are taught how to ask
ones name in an intimidating way. The Special Agent will bring out
a black pad and ask in a surly way, "May I have your name Sir?
" That usually does it. One agent told me the attorney-client
relation does not apply to the IRS. I asked for authority for such
an absurd remark. His supervisor told him lawyers give them what
they want if pressure is put on them. That is why some writers call
the IRS an American Gestapo, even IRS agents. See the delightful
book called The
April Game
written by a former agent.

Harry said
he was considered a "crack pot" in his tax planning ways,
so unconventional and strange in his ways. He would send out "secret
planning memos" just for the fun of it. When the IRS got these
memos they thought they really got the goods on Margolis especially
when he ended with "destroy this memo." He backdated so
many documents and again when the IRS discovered this from the "secret
planning memos" they again thought they had him cold. But they
failed to observe that the backdating was not fraudulent as the
dates were real. He has been called the "father of tax planning."
He went so far as to claim he could reduce any persons taxes to
0 if they wanted to pay the price. He gathered around him "Yes
Men" who would not question his ways. That is why he fired
me as I had gone to USC's Institute of Advanced Studies taking foreign
taxation and started to question his ways. Once when I made him
listen to me, he remarked if the IRS made that challenge he would
be in trouble, and yet he went on to ignore what I said. As it turned
out the IRS did as I had warned him. My criticisms were too much
and on a Friday night before my birthday he called and fired me.
He wanted "Yes Men" not critics. I had worked for him
for a year, giving up a 12-year law practice and now out of a job
with a family to take care of. Now what? He called on Monday and
wanted to hire me back, but I had the weekend to think about it
and with my wife's council I realized he was impossible to work
with unless you were a Yes Man, so I said no thanks. Three days
later when the word was out that Harry had fired me, there were
calls from unhappy clients wanting me to take over their cases.
Harry never forgave me, and thus ended any friendly relation.

The government's
attack on Margolis intensified. With the criminal division taking
charge they indicted him on 32 counts of tax evasions and tax felonies,
enough to put him away for a thousand years. They brought in special
prosecutors from New York, made the front pages of major newspapers
like the Wall Street Journal, claiming "a great breakthrough"
with their 32 indictments after so much investigation work. They
gave those who worked for him the option of being "a witness
or a defendant." One lawyer named Quinten Breen chose not to
cooperate and ended up being indicted as they threatened they would
do. They contacted a CPA who became a turncoat after working for
Margolis and wanted to have me help them out, as I was not in the
country at that time. I declined especially because I told them
I thought Harry would win. At that time I recalled the statement,
"You never play a man at his game." This was Harry's game.

After weeks
of trial in San Francisco the government rested its case. The case
against Mr. Breen was dismissed. Many of the indictments against
Margolis were dismissed, that is the government did no make out
a prima facie case. The remaining charges went to the jury whose
verdict was "not guilty." The defeat was humiliating in
the extreme considering the enormous effort and publicity to convict

IRS was not through. They went after Harry's overseas records in
a Caribbean country, and persuaded that country to turn the records
over to the US government. I think the country was the BVI. The
records were shipped back to the States for the IRS next case against
Margolis. With his overseas records in the IRS hands they thought
a conviction was a sure thing. With this new coup the IRS came out
with 12 new indictments and Margolis was again in court facing a
new batch of indictments, again acting as his own attorney. After
some weeks the government rested. The government's case was again
dismissed for not making out even one prima face case. Now it was
Harry's turn to crow once again. This frail sickly little man with
a high-pitched voice had once again defeated the awesome power of
the US tax man. Probably never in their history have they been so
humiliated. Shortly thereafter Margolis died of brain cancer known
at the time of his last trial, probably known by the IRS.

Margolis case does not have a happy ending. The wreckage of his
planning is strewn up and down California. In later years he had
lost many civil cases, committing many blunders. Margolis had a
grandiose opinion of his tax planning, sometimes brilliant sometimes
a disaster. The IRS wanted desperately to get rid of him and Nature
did that for them. With his death so much came apart and so many
suffered serious losses. Thus ended the story of one of the most
unforgettable persons I ever knew. On the positive side, here was
a frail man who faced all the power and fury the IRS could muster
and single handedly bring them to their knees in a humiliating defeat.
In doing that he deserves the title of the indomitable Margolis.

13, 2007

Charles Adams (send him mail)
the author of When
in the Course of Human Events: Arguing the Case for Southern Secession
and Those
Dirty Rotten Taxes: The Tax Revolts That Built America
. Much
of this material and more on this subject can be found in his book,
Good and Evil: The Impact of Taxes on the Course of Civilization

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