November 9, 2003 Sunday

HEADLINE: The Black Tax;
Of charlatans, crooks and victims and the reparations scam.

BODY:

Last month a federal court in Richmond finally took action against one of the country’s most virulent tax scams: the “black tax credits.” Crystal Foster, 25, and her father and tax preparer, Robert Lee Foster, 51, were sentenced for claiming — and receiving — tax refunds as reparations for slavery. Crystal Foster claimed a taxable income of only $3,429 but demanded $500,000 from the government in reparations — and got it. The IRS actually paid her $507,490.91 to cover the interest due to the delay in sending her a check.

Cases such as the Fosters’ have fueled a cottage industry of charlatans and crooks pushing the promise of a “black tax” in what might be the greatest tax fraud in American history. The Internal Revenue Service has campaigned against the myth of a black tax for years, warning citizens that such claims amount to fraud, yet tens of thousands of claims are filed annually.

The court ordered Crystal Foster to repay the money that the IRS mistakenly had paid her and sentenced her to 37 months in prison. She had spent most of the $500,000 on a Mercedes, loans and gifts within eight days of receiving the payment. Her father was given a 13-year sentence on four counts of conspiracy to defraud the government. Similarly, Gregory Bridges, a tax accountant in Woodbridge, was convicted in June of preparing more than 100 such fraudulent returns for D.C., Maryland and Virginia residents.

The origin of the black tax and the story of its many victims combines a misunderstanding of history, raw political opportunism and old-fashioned greed.

The myth began with the April 1993 issue of Essence magazine and a piece by “journalist and economics consultant” L.G. Sherrod. Sherrod informed readers that the United States owed them for the value of the 1866 promise of “40 acres and a mule.” Citing as an authority “The People’s Institute for Economics,” she said that the adjusted value of this broken promise was $43,209. Readers could claim this amount, she advised, by writing on line 59 of tax form 1040 — which asks the filer to list “other payments” — the $43,209 in black taxes.

At first blush, one might assume that this was a joke. After all, by the same logic, one could calculate the current value of “a chicken in every pot and a car in every garage” promised in 1928 by Herbert Hoover. However, the IRS was deluged by refund requests, often with a copy of the Essence article attached. A legend had been born. Incredibly, the IRS paid out tens of millions in such refunds before realizing its mistake.

The black-tax theory is based on a mix of bad historical and legal knowledge. The promise of 40 acres and a mule was never an enforceable obligation by the government. In 1865 Gen. William Tecumseh Sherman signed Special Field Order No. 15, which made the promise. The basis for the promises was dubious because the land was largely confiscated. Government officials at the time argued that the ex-slaves could live and work the land for three years and then buy it. The ex-slaves and others viewed the land as payment for their bondage.

Within months 40,000 ex-slaves occupied 300,000 acres from South Carolina to Florida. President Andrew Johnson then rescinded the order and allowed the original owners to reclaim their land — leaving a wound that remains open today. While there were attempts to pass a law returning the land to the ex-slaves, the law was barred by Johnson, and no formal bill was signed.

This would have remained an arcane academic debate if Essence hadn’t published what amounted to a “how to” on tax fraud, playing into the hands of unscrupulous tax preparers who promised windfall refunds. In just one church, a preparer persuaded more than 1,500 people to give him $200 each to secure the refund. A few weeks ago, two people were charged in Mississippi for allegedly promising rebates of $43,209. People allegedly paid them between $25 and $6,500 for such tax advice. Ultimately, 6,300 African Americans were defrauded of $1.1 million.

Yet despite articles exposing the fraud and citing penalties, the legend just won’t die. In 2001 the IRS received more than 80,000 returns demanding $2.7 billion in refunds — most asking for $43,000. Amazingly, the IRS mistakenly paid out at least 130 such refunds in 2000 and 2001 — equaling $30 million.

While people often receive a warning from the IRS and drop the issue, others have received $500 fines and some have been prosecuted. However, most promoters have faced only fines and orders barring them from doing future work on tax returns.

Highly suspect lawsuits have been filed for reparations with the public support of black leaders, who insist that African Americans are entitled to such payments as a legal matter. Moreover, few black leaders have publicly denounced the concept of a black tax or warned citizens against participating in such filings. Instead, some leaders at a D.C. reparations conference a few years ago encouraged African Americans not to file a tax return at all — under a claim of immunity as descendants of former slaves. This has created the perfect environment for those eager to profit from the lingering sense of injury among black Americans, particularly among those who mistake political rhetoric for legal entitlement.

As for Essence, it has never fully apologized for its role in the creation of this fraud. A few years after the scam took flight, the magazine ran a brief reference to the article and noted “although many historians” supported the claims, the IRS did not. Economics consultant L.G. Sherrod reappeared as Lena Sherrod, who now advises people on their “economics” as finance and careers editor at Essence.

As for the Fosters, the scam is over, but the myth of the black tax continues. Of course, the myth did not appear spontaneously in the District or any other place. It required a mix of reckless political activism, bad journalism and outright fraud. Tragically, the victims of this fraud are black Americans who have been and continue to be ripped off by those who seek popularity or plunder at any price.