United States Attorney
Northern District of Texas

1100 Commerce St., 3rd Fl.
Dallas, Texas 75242-1699

Telephone (214) 659-8600
Fax (214) 767-0978

LOCAL TAX PROTESTER INDICTED BY FEDERAL GRAND JURY -
FACES 87 YEARS IMPRISONMENT

United States Attorney Jane J. Boyle announced today that a 29-count federal indictment against Forney, Texas, resident, Royce Coleman McCarley, was returned by a federal grand jury in Dallas yesterday. The indictment charges McCarley with one count of corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue laws, in violation of Title 26, United States Code, Section 7212(a) and 28 counts of assisting in the preparation and presentation of false and fraudulent tax returns, in violation of Title 26, United States Code, Section 7206(2).

After his arrest yesterday, McCarley, age 57, appeared this afternoon before the Honorable United States Magistrate Judge Irma Ramirez and was ordered held without bond. A detention hearing was set for April 1, 2003 before the Honorable United States Magistrate Judge Jeff Kaplan.

According to the indictment Royce Coleman McCarley was a member of The Pilot Connection Society, an entity whose main purpose and objective was facilitating and promoting tax protests, circumventing filing federal income tax returns and not paying federal income taxes. The Pilot Connection Society's secondary objective was financial gain from seminars certain members conducted and the sale of The Pilot Connection franchises throughout the United States. The Pilot Connection Society ended its operations in 1994, however, while it was functioning, members of The Pilot Connection Society were referred to as Estate Preservation Consultants for "trust" services. Royce Coleman McCarley did business as Estate Preservation Consultants in Dallas.

In summary, the indictment alleges that from June 1992 through the latter part of 2001, Royce Coleman McCarley corruptly endeavored to obstruct and impede the due administration of the Internal Revenue laws by:

1. assisting and aiding taxpayers in unlawfully circumventing filing federal income tax returns and paying federal income taxes;

2. assisting and aiding taxpayers in unlawfully impeding compliance and collection efforts of the Internal Revenue Service;

3. selling "sham" trusts and instructions on how to use these "sham" trusts, through Estate Preservation Consultants, which the clients used to falsely reduce their reported taxable income; and

4. providing wage earning clients of Estate Preservation Consultants with false, fraudulent and fictitious losses attributed to said trusts.

Defendant Royce Coleman McCarley charged fees for these unlawful "services" and devised two separate schemes to assist individuals who wanted to avoid paying taxes.

The first scheme was targeted toward self-employed people. McCarley directed his self-employed clients to conduct their businesses as trusts, assign their income to the trusts, and report this income on an IRS Trust Return, Form 1041. All the income was reported by the clients using IRS Forms K-1, Beneficiary's Share of Income, Deductions, Credits, etc., in which the trusts falsely claimed income purportedly being distributed to beneficiary trusts controlled by McCarley, sometimes after fictitious transfers between other trusts set up by McCarley and controlled by his clients. Trusts controlled by McCarley, including Strongbridge Foundation, Romer Gallant Trust, Reserve Express Trust, and Jose Louis Rojos Trust, never paid taxes on the income allegedly transferred to them, and in most tax years did not even file tax returns. Additionally, no taxes were paid by the self-employed clients on the income they reported as being ultimately transferred to McCarley's trusts. This greatly and unlawfully reduced and/or totally eliminated the client's taxable income, thereby reducing or eliminating the client's personal tax liability.

The second trust scheme Royce Coleman McCarley devised was for wage earner clients and it purported to reduce taxable income by creating false, fraudulent and fictitious losses from sham trusts, naming the wage earner clients as beneficiaries of these trusts, and flowing the fictitious losses to the clients. The wage earner client reported these fictitious losses on an individual income tax return, Form 1040, which significantly and unlawfully reduced or eliminated their taxable income, thereby reducing or eliminating their personal tax liability.

McCarley set up numerous trusts for his clients and falsely assured his clients that the business structure he recommended was legal and that the IRS had audited several of his trust clients and that they had found nothing wrong.

An indictment is an accusation by a federal grand jury and a defendant is entitled to the presumption of innocence unless proven guilty. If convicted on all counts, however, McCarley faces a maximum sentence of 87 years imprisonment and a $7.25 million fine.

U. S. Attorney Boyle praised the investigative efforts of the Internal Revenue Service - Criminal Investigation (IRS-CI), Dallas Field Office. The case is being prosecuted by Assistant United States Attorney Joseph M. Revesz and U.S. Department of Justice Tax Division Trial Attorney Robert A. Kemins.

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