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The Justice Department and Internal Revenue Service announced today that a federal jury in Philadelphia convicted Larken Rose, of Hollywood, Pennsylvania of five counts of willful failure to file federal income tax returns.

Larken Rose, 37, was the joint owner of a medical transcription business operated outside of Philadelphia, Pennsylvania. As set forth in the Indictment and according to the evidence introduced at trial, Rose willfully failed to file personal federal income tax returns for calendar years 1998 through 2002, despite earning $500,000 during those years. Rose also filed false and frivolous amended income tax returns for 1994, 1995, and 1996. On those amended returns, he reported no tax due and requested a refund for all income taxes paid in those years. At trial, Rose claimed that he failed to file returns and sought refund claims based on his determination that his income received inside the United States was not taxable under Internal Revenue Code Section 861 and regulations. The judge instructed the jury that this Section 861 argument is incorrect as a matter of law.

“People who intentionally fail to file returns or pay taxes as required by law can expect to face criminal prosecution and conviction,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “And they will still be required to pay the taxes they tried to avoid, plus interest and penalties.”

“The conduct of Larken Rose,” said Patrick L. Meehan, United States Attorney for the Eastern District of Pennsylvania, “is an affront to all taxpayers who voluntarily pay the taxes required by law.”

Nancy Jardini, Chief, IRS Criminal Investigation, said, “Today’s conviction reminds us that fulfilling individual tax obligations is a legal requirement and those who willfully evade that responsibility will be prosecuted.”

The evidence at trial established that courts have consistently held that Section 861 does not provide authority for United States citizens to fail to file income tax returns on income earned in the United States. The trial evidence also showed that Rose received more than a dozen notices from the IRS that rejected his 861 argument. Further, there were more than ten letters from members of Congress, found at Rose’s residence during execution of a search warrant, that provided notice to him that his 861 argument was invalid. In addition, Rose was aware of two district court cases that had rejected the 861 argument. In one case, the district judge informed Rose directly that Rose’s view of the law was incorrect. There was also considerable evidence presented at trial, through email correspondence, that Rose intended to create a mass movement of non-compliance to obstruct the enforcement of the tax laws.

In convicting Rose, the jury rejected his claim that he held a good faith belief that the federal income tax laws do not apply to him. District Judge Michael M. Baylson ordered Rose to remain under home detention and set sentencing for November 15, 2005. Rose faces a possible sentence of 12 months on each of the five Counts of which he was found guilty.

Assistant Attorney General O’Connor and U.S. Attorney Meehan thanked Assistant United States Attorney, Floyd J. Miller, and United States Department of Justice Tax Division Attorney, Shawn T. Noud, who prosecuted the case. They also thanked the special agents of the Internal Revenue Service, Criminal Investigation, whose efforts were essential to the successful investigation and prosecution of the case.

Additional information about the Justice Department’s Tax Division and its enforcement efforts may be found at <>