The Indomitable Harry Margolis The Rest of the Story


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 Margolis.

The 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.

The 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.

April 13, 2007

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