Taxing Situation

A tax-protesting CEO enlists his employees in the cause

Dick Simkanin lights a cigarette, leans back in his chair behind the desk in his office, and casually speaks the words that could ruin his business and land himself and his employees in jail."We at Arrow Custom Plastics choose not to withhold any federal income taxes from our employees," he says.

Nor will he collect Social Security taxes from his employees' wages. A press release states that his nearly 50 employees "receive 100 percent of the fruits of their labor." All traces of his employees' Social Security numbers have been deleted from company files. His name is now a common sight on some anti-government fringe media outlets; he's regarded as a brave man. Simkanin's new tax policy has been in effect since the first of January and things are going fine.

For now.

Arrow Custom Plastics CEO Dick Simkanin says he doesn't have to withhold federal taxes from his employees' paychecks.
Arrow Custom Plastics CEO Dick Simkanin says he doesn't have to withhold federal taxes from his employees' paychecks.

As founder and chief executive officer of Arrow Custom Plastics, Simkanin has a lot of influence on the atmosphere of the place. A quick tour of the facilities reveals what could be the quintessential picture of the small American business -- workers in street clothes hefting supplies with forklifts, the oily smell of heavy plastic molding equipment, women hunched over machines that add holes or notches to bits of plastic. Those bits will ultimately be attached to the medical and technological devices of Arrow's clients. The business grosses $4 million annually.

Simkanin's office is a combination of corporate office, law library, conspiracy material archive, and aviation memorabilia museum. College degrees hang on the wall; Simkanin's a trained engineer. He's also an avid flier, having earned his license in 1975. Detailed paintings of glorified flights and violent encounters between Nazi and U.S. aircraft hang on the building walls. In one room of the 23,000-square-foot facility sits a partially constructed Lance Air IV, a project Simkanin hopes to finish by the end of the year.

It's just after noon and a handful of employees gather in the break room for lunch. On a table is a stack of Patriot movement booklets (Citizen's Rule Book -- A Palladium of Liberty) and a one-page flier on newsprint produced by the We the People Foundation for Constitutional Education. The flier describes the harrowing adventure of an Immigration and Naturalization Service officer who refused to pay taxes and was subsequently indicted by a federal prosecutor. Simkanin's unique touch pervades the atmosphere of the place. Now his defiant, legally dubious views may be putting his business and his employees in jeopardy.

"I am not a tax protester," Simkanin says. "I acknowledge that we must have taxes. I will pay all lawful taxes. The income tax is constitutional, but you and I are not made liable to pay it."

The brilliance of Simkanin's theory, as he sees it, is that he is within the law by not withholding taxes. He considers a W-4, the Internal Revenue Service's withholding form, an optional contract enforced by the IRS. The way Simkanin reads the tax code, he is not obliged to pay federal income taxes unless engaged in a taxable excise activity. (Excise activities, like distilling alcohol, are taxed specifically by name.) He also finds fault with tax code language that uses the terms "United States," "citizen," and "state." In his view, the United States refers to Washington, D.C.

"I'm just trying to follow the law, as written," he says. "I think people should be paid for the work they do."

You want him to get away with it. You want a loophole to exist, one so deep-rooted and fundamental that it would keep the government's mitts off your paycheck for good. You want Simkanin's plan to work.

But it won't.

The argument should have been dealt a deathblow by a 1984 case called Ficalora vs. Commissioner. In it, the Second Circuit Court of Appeals shot down the "income tax is voluntary" argument by saying that the federal tax code "provides in plain, clear and precise language that a tax is imposed on the taxable income of every individual."

Government tax agents say they can begin to file charges at any time.

"The employer is required to withhold taxes for income, Social Security and for Medicare," says Dallas-based IRS communications officer Phil Beasley. "When the employer stops and refuses to withhold, that's when the violation occurs. And when they're doing it willfully that's when the penalties are different."

By "different" Beasley means "possibly criminal," as in tax fraud. IRS penalties for willfully failing to file vary. Misdemeanor offenses have penalties of up to $25,000 in fines and one year in prison. Felony offenses are punishable by up to five years in prison and a $100,000 fine. With disturbing federal thoroughness, according to independent tax experts, the IRS has also drafted more than 150 different civil and criminal penalties to counter various actions and failures to file.

Even tax reformers and IRS critics say the code clearly states who needs to pay taxes, and when.

"There is no wiggle room here," says Pete Sepp, vice president of communications for the National Taxpayer's Union, a mainstream taxpayer's rights group. "These scams turn out to be no more than poison pills that divert attention away from the real abuses of the IRS and the burdens of the tax codes."

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