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COURT: PAYPAL HAS TO TURN OVER RECORDS OF 'TAX TERMINATION' KIT PURCHASES

September 13, 2007

Tax protest figure Robert Schulz lost another courtroom battle with the IRS today. The U.S. Court of Appeals for the Eighth Circuit ruled that the IRS may enforce a subpeona to PayPal as part of an investigation of his taxes.

Mr. Schulz leads We The People, a tax protest non-profit. Until recently stopped by a federal injunction, their website offered a "Tax Termination Package" for $39.99, with PayPal payments accepted. As part of a tax investigation of Mr. Schulz, the IRS subpeoned the PayPal records. The Nebraska U.S. District Court upheld the subpoena last year, dismissing Mr. Schulz's argument that enforcement would chill his freedom of speech:

Aside from a jumble of constitutional challenges, Schulz's specific arguments challenging the legitimacy of the third-party summons are that the IRS is retaliating against him for exercising his First Amendment rights by filing suit against the United States government, and that the summons is an effort to chill the associational rights of both himself and his customers. Schulz also argues that the third-party summons is improper based on the ruling in the Second Circuit case, Schulz v. IRS, 395 F.3d 463 (2d Cir. 2005).

The court does not find Schulz's arguments persuasive. First, the IRS statute specifically allows the government to seek financial information from third parties in cases such as this one where the tax payer is not cooperating with the government investigation. This is not retaliation or harassment; rather, it is a standard and effective investigative technique. Second, Schulz has failed to present any probative evidence that he and his customers associational rights would be chilled by the summons at issue. On the We The People Foundation website Schulz has already posted the names of around two thousand persons who joined him as plaintiffs in a lawsuit against the federal government. Furthermore, other than alleging that the disclosure of customer information from PayPal to the IRS would chill his customers right to petition the government or inhibit any other First Amendment speech, Schulz fails to provide any evidence of how the disclosure of the customer information will infringe on his First Amendment rights. Indeed, Schulz does not have a First Amendment right to withold money owed to the government and avoid governmental enforcement actions because he objects to government policy.

The appellate panel upheld the decision today, allowing enforcement of the subpoena to go forward. Mr. Schulz has a record of spinning victory from defeat, but today's decision may challenge his spinning skills. The disclosure poses a potential problem to not only Mr. Schulz, but to the customers who bought the bogus "Tax Termination" kit using PayPal. They can expect the IRS to give their returns a closer look.

Links:

Appeals court decision

District court decision

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