Background
Not known.
Theories Advocated/Promoted
Hendrickson's believes that the federal government can tax, and has taxed, only the salaries of government employees and incomes from the exercise of "federal privileges." He is able to reach these conclusions because he believes that the words "employer," "employee," "wages," and other words used in the Internal Revenue Code and regulations do not have their common, ordinary meanings but only very narrow legal meanings, and the word "includes" is restrictive.
Books, Web Sites, Videos, and Organizations
Hendrickson wrote and sells a book titled Cracking the Code: The Fascinating Truth about Taxation in America which purports to "decipher" the "deliberately confusing and misleading construction" of the Internal Revenue Code.
He also owns and operates the "Lost Horizons" web site, http://www.losthorizons.com, which promotes his book and his theories.
Hendrickson was found guilty on ten felony counts by a federal court jury in Detroit, Michigan, on October 26, 2009, in connection with his use of his "Cracking the Code" scheme on his own tax returns. His sentencing is scheduled for February of 2010.
Court Actions
Hendrickson is a two-time loser in federal criminal tax cases. His first loss came in the early 1990s, when he pleaded guilty to one count of willfully failing to file an income tax return and one count of conspiracy to place an incendiary device in the United States mail. United States v. Peter Hendrickson, No. 2:1991cr80930 (U.S.D.C. E.D. Mich.). Hendrickson was sentenced to 21 months in prison, and was released on 8/25/1993 (register # 15406-039, Bureau of Prisons, U.S. Dep't of Justice).
The conspiracy charge was based on a firebomb put into the mail at the United States Post Office in Royal Oak, Michigan, on April 16, 1990, the last day for filing federal income tax returns that year. The bomb went off in the post office, injuring a postal worker and a bystander. Hendrickson was apparently able to get a favorable sentencing recommendation for himself (and get charges dropped against his then girlfriend, later wife) by secretly tape-recording one of his co-conspirators and testifying against him. The courts ruled that the tape-recording was Hendrickson's own idea, and not part of any agreement with the United States government, so the secret, warrantless taping did not violate the 4th Amendment. United States v. Scott Scarborough, 43 F.3d 1021 (6th Cir. 1994). See also United States v. Karen Scarborough, 30 F.3d 135 (6th Cir. 1994) (per curiam).
After his release from prison, Hendrickson apparently encountered financial problems. He and his wife filed Chapter 7 bankruptcy on November 4, 1996 (case no. 96-54793, U.S. Bankr. Ct. E.D. Mich.), and they received their bankruptcy discharge on February 18, 1997.
According to information filed by the Department of Justice in Hendrickson's latest criminal case (see below), Hendrickson's contentions regarding the federal income tax have changed over time. After he was released from prison, Hendrickson allegedly filed tax returns that accurately reported his wages and income, but he altered the jurat (the "under penalty of perjury" language near the signature space) on his tax return to show his disagreement with the income tax on wages. According to the Justice Department, the Internal Revenue Service began refusing to accept Hendrickson’s returns beginning with the year 2000 return, as a document with an altered jurat has been held by the courts not to be a valid federal income tax return.
Instead of complying, Hendrickson filed an amended Form 1040 for 2000, and Forms 1040 for 2002 through 2004, on which he claimed that he received "zero" wages, despite the fact that he had received Forms W-2 that accurately stated the wages that he had received.
Similarly, in open court in the early 1990s, Hendrickson stated that he believed that the Supreme Court had held "that wages, salaries, and commissions do not constitute income under the meaning [ … ] of the Sixteenth Amendment." (Neither the U.S. Supreme Court nor any other federal court has ever made any such ruling.) By contrast, on his web site in May of 2009, Hendrickson stated that the idea that "wages" are not income under the "revenue laws" was a "pitfall" and a "misunderstanding."
After he published Cracking the Code, Hendrickson began bragging on his web site, "Lost Horizons," about the refunds that his followers were able to obtain, even publishing copies of refund checks, some of which still had names or addresses still visible. In 2004, the IRS issued several summonses to Hendrickson and third-party payors, seeking information about Hendrickson's personal finances and financial transactions involving his Lost Horizons website. The United States initially sought to enforce the summonses against Hendrickson, but then withdrew the summonses and moved for voluntary dismissal of the enforcement petitions without prejudice. United States v. Peter Hendrickson, No. 2:04-mc-72323-VAR (U.S.D.C. E.D. Mich. 7/8/2004); United States v. Peter Hendrickson, No. 2:04-mc-73591-NGE (U.S.D.C. E.D. Mich. 3/11/2005). Hendrickson filed two petitions to quash summonses issued to PayPal, and the United States withdrew the summonses. Peter Hendrickson v. United States, No. 3:04-mc-00177-MMC (U.S.D.C. N.D. Cal. 3/11/2005); Peter Hendrickson v. United States, No. 5:04-MC-07023-MMC-JCS (U.S.D.C. N.D. Cal. 3/11/2005). Although Hendrickson has described these voluntary dismissals as victories, it appears the United States withdrew the summonses because it had decided to transfer the investigation of Hendrickson from a civil proceeding to a criminal proceeding, as shown in the 2008 indictment described below.
In 2006, the IRS served new summonses on a number of different banks seeking financial records of Hendrickson's accounts at those banks. Hendrickson filed petitions in federal court to quash the summonses, but every one of his petitions were denied. Peter E. Hendrickson v. United States, No. 3:2006mc00008 (U.S.D.C. E.D. Va. 5/8/2006) (petition denied; Capital One Bank ordered to comply with summons); Peter E. Hendrickson v. United States, No. 8:2006cv00345 (U.S.D.C. Neb. 10/4/2006) (petition denied); Peter E. Hendrickson v. United States, No. 2:2006x 50394 (U.S.D.C. E.D. Mich. 6/2/2006) (petition denied), affirmed, No. 06-1870 (6th Cir. 4/10/2007), rehearing denied, 8/8/2007, cert. denied, No. 07-624 (1/7/2008), rehearing den. (2/25/2008); Peter E. Hendrickson v. United States, No. 2:2006x 50396 (U.S.D.C. E.D. Mich. 6/29/2006) (petition denied), affirmed, No. 07-1144 (10/2/2007 6th Cir.), rehearing denied (11/30/2007); Peter E. Hendrickson v. United States, No. 5:2006mc80094 (U.S.D.C. N.D. Cal. 7/18/2006) (petition to quash summons directed at EBAY/PayPal denied), affirmed, No. 06-56129 (9th Cir. 8/13/2007).
In 2006, the government also filed a civil action against Hendrickson and his wife, requesting a judgment against them for the erroneous refunds issued to them and an injunction requiring them to file correct tax returns. The government's motion for summary judgment was granted, the court holding that there was no dispute as to any material fact, and the government was entitled to judgment as a matter of law. The court judgment stated: "Because Defendants reported that they had no income, the IRS, unaware that Defendants’ report was false, treated the withheld federal taxes as a tax overpayments and applied them on April 15, 2003 to (1) Defendant Doreen Hendrickson’s unpaid 2000 tax liability ($1,699.86); and (2) the outstanding tax balances owed by Defendant Peter Hendrickson for 2001 ($6,521.11) and 2000 ($1,931.99). [ … . ] The refunds or credits described above were erroneous within the meaning of IRC § 7405(b). Defendants were not entitled to refunds of federal income taxes for 2002 because their federal income tax liability for that year – $6,327.00 – exceeded the amount of the federal income taxes withheld from Defendant Peter Hendrickson’s wages by his employer ($5,642.20), which constituted the only tax payments made by Defendants in 2002. Furthermore, Defendants were not entitled to a refund, under any circumstances, of the social security and Medicare taxes that had been withheld from Defendant Peter Hendrickson’s wages during 2002." The court ruled that Hendrickson's contentions were "frivolous and false". The court also ordered "that Defendants are prohibited from filing any tax return, amended return, form (including, but not limited to Form 4852 (“Substitute for Form W-2 Wage and Tax Statement, etc.”)) or other writing or paper with the IRS that is based on the false and frivolous claims set forth in Cracking the Code that only federal, state or local government workers are liable for the payment of federal income tax or subject to the withholding of federal income, social security and Medicare taxes from their wages under the internal revenue laws [ … . ]" United States v. Peter Eric Hendrickson, No. 06-11753 (U.S.D.C. E.D. Mich. 2/26/2007, amended 5/2/2007), affirmed, No. 07-1510 (6th Cir. 6/11/2008) (sanctions of $4,000 imposed for frivolous appeal), rehearing en banc denied (12/16/2008). (This district court decision against Hendrickson is described in the 2/1/2009 update to the IRS publication "The Truth about Frivolous Tax Arguments".) Hendrickson petitioned the Supreme Court to review the case but, on June 15, 2009, the United States Supreme Court rejected Hendrickson's petition for a writ of certiorari (case no. 08-1399; rehearing denied 8/17/2009).
On November 12, 2008, the United States Attorney for the Eastern District of Michigan announced that Hendrickson had been arraigned on an indictment charging him with 10 counts of filing false documents with the Internal Revenue Service. See generally United States v. Peter Hendrickson, No. 2:08-cr-20585-DML-DAS (U.S.D.C. E.D. Mich.). According to the indictment, Hendrickson filed false income tax returns (Forms 1040) and false substitutes for wage statements (Forms 4852) for the years 2000, 2002, 2003, 2004, 2005, and 2006 reporting that he had received no wages in those years even though he had in fact received wages in those years. See generally United States v. Peter Hendrickson, 2:08-cr-20585-DML-DAS (U.S.D.C. E.D. Mich.) Hendrickson filed motions to dismiss the indictment, arguing that the Government has impermissibly targeted him for prosecution in violation of his First Amendment right to publish his views on the Internal Revenue Code, that the theory of prosecution pursued in this case impermissibly compels him to either abandon his honest disagreement with the IRS's interpretation of the Internal Revenue Code or face prosecution for acting in accordance with his divergent view of the Code, that the indictment should be dismissed for failure to allege each element of the charged offenses, and that he is not a "person" within the meaning of the statute. The court denied all of those motions. United States v. Peter Hendrickson, 2009 TNT 195-16, No. 2:08-cr-20585-DML-DAS (U.S.D.C. E.D. Mich. 10/7/2009). After a three-day jury trial, Hendrickson was found guilty on all 10 counts, and sentencing is scheduled for 2/9/2010. Id., (10/26/2009).
Students/Disciples/Associates
When the government filed the civil action against Hendrickson and his wife for the erroneous refunds paid to them, the government also filed six similar suits against some of his followers. "United States Sues Nine in Nationwide Crackdown on Tax-Refund Scam," U.S. Dept. of Justice Press Release (4/13/2006). The other suits were against Sharon K. Artman of Largo, Fla.; Michael J. Dowling of San Diego; Joy M. Ferguson of Henderson, Nev.; Melvin L. Gerstenkorn of Topeka, Kan.; Larry B. Golson and Debra G. Golson of Montgomery, Ala.; and James A. Spitzer of Winter Park, Fla. The government was successful in every case. See, e.g., United States v. Ferguson, 2007-1 U.S. Tax Cas. (CCH) par. 50,461 (D. Nev. 2007).
The judgment against James A. Spitzer was affirmed by the 11th Circuit Court of Appeals, and sanctions were imposed for bringing a frivolous appeal. United States v. James A. Spitzer, 245 Fed.Appx. 908, 2007 WL 2376783, 2007 TNT 163-5, No. 07-11073 (11th Cir. 8/21/2007), aff'ng No. 06-00479-CV-ORL-22JGG (U.S.D.C. M.D. Fla. 2/13/2007) (erroneous refund of $16,614 ordered repaid). In a later order, the District Court also ordered Spitzer to pay double attorneys' fees to the United States, in the amount of $16,285.35, "as a sanction for his frivolous and bad faith defense of the entire case." Id., at Docket #49 (7/25/2007). Spitzer later filed a motion with the District Court to vacate its judgment, claiming that the lower court had lacked subject matter jurisdiction and had ignored his challenge to the constitutionality of the income tax as an unapportioned "direct tax." The District Court summarily denied the motion and the Circuit Court affirmed on appeal on the grounds that Spitzer was simply trying to re-litigate the case he had already lost. United States v. James A. Spitzer, 2009 TNT 128-7, No. 08-15824 (11th Cir. 7/7/2009). (A footnote in the opinion notes that the sanctions previously imposed had not yet been paid.)
In the case of Hendrickson acolyte Andrew D. Scott, the United States Tax Court noted that Scott had informed the IRS that he was a follower of Hendrickson's book, Cracking the Code. The Court also noted that Scott did not consult with a tax attorney when filing his tax return, and did not check with an attorney on the validity of Hendrickson’s arguments. The IRS had warned Scott in writing that Hendrickson’s arguments had been repeatedly rejected by the courts. The Tax Court found Scott’s arguments — that he was not an “employee,” and that he did not earn “wages” — to be “frivolous and false.” The Court found Andrew Scott liable for a $10,031 deficiency in tax. The Court also sustained the IRS determination that Scott was liable for the accuracy-related penalty of $2,941 under Internal Revenue Code section 6662(a), and imposed a $20,000 penalty under Internal Revenue Code section 6673 for presenting a frivolous argument. Andrew D. Scott v. Commissioner, Docket No. 26392-06, United States Tax Court, Bench Op. (June 4, 2008), aff'd 2009 TNT 213-10, No. 08-4766 (11/6/2009).
In another case, Joseph Alan Fennell's arguments — that the compensation he received in exchange for non-federally privileged private sector labor was not taxable, and that non-federally privileged private sector labor is not the subject of an excise (the U.S. federal income tax) — were rejected by the United States Tax Court. See Joseph Alan Fennell v. Commissioner, Docket No. 26285-07L, United States Tax Court, Order of Dismissal and Decision (June 17, 2008). Fennell appealed his Tax Court loss, but the United States Court of Appeals for the District of Columbia Circuit ruled that the Tax Court correctly determined that Fennell was barred from challenging the existence or amount of his tax liability, and that Fennell's challenges were "frivolous on the merits in any event." Joseph Alan Fennell v. Commissioner, no. 08-1314, March 12, 2009, United States Court of Appeals for the District of Columbia Circuit (per curiam).
A penalty of $1,000 under section 6673 was imposed by the Tax Court on Hendrickson supporter Patrick Michael Mooney for presenting frivolous arguments. The court rejected his argument that his wages earned from a private employer were not taxable and his argument that the term "employee" was limited to "someone performing the functions of a public office." Patrick Michael Mooney v. Commissioner, Docket No. 21647-06, United States Tax Court, Order of Dismissal and Decision (May 5, 2008), aff'd per curiam, No. 08-1899 (4th Cir. 1/21/2009).
In another case, an individual filed his 2005 federal income tax return reporting "zero" for wages, claiming a refund of the taxes withheld from his pay. A section 6702 frivolous penalty of $500 was imposed by the IRS. In the resulting litigation in the United States Tax Court, the individual argued that he was due the refund because his compensation constituted "earnings for private-sector, non-federally-privileged work" that the individual had performed as an engineer for his employer. The Tax Court ruled that the argument was "frivolous and groundless," and imposed a separate penalty of $5,000 under section 6673 for engaging in frivolous litigation. Ragan v. Commissioner, Docket No. 11966-08L, United States Tax Court, Order and Decision (Feb. 19, 2009).
On his lost horizons web site, Hendrickson has touted the case of Eugene George Warner of Alaska as an example of an individual who has been victorious using Hendrickson’s Cracking the Code, in particular with respect to Form 1040 tax returns for various years, including 1991 and 2001. Warner, an ex-con who has previously served time in federal prison, was indicted by a federal grand jury on twelve counts of mail fraud, two counts of bankruptcy fraud, one count of tax evasion (involving the tax year 1991, among others), one count of attempting to interfere with the administration of the internal revenue laws, and four counts of filing false tax returns (including the returns for years 1991 and 2001, per counts 3 and 5 of the First Superseding Indictment). See United States v. Eugene George Warner, case no. 3:07-cr-00123-RRB-JDR, U.S. District Court for the District of Alaska (Anchorage Division). Curiously, while Hendrickson has displayed various IRS notices issued to Warner as examples of evidence of Cracking the Code victories for Warner for 1991 and 2001, it is not clear that Warner actually used Hendrickson’s method for those years. Warner pleaded guilty to one count in the indictment in exchange for dismissal of the other charges, and was sentenced to 37 months in prison.
At least three tax return preparers who relied on Cracking the Code have been enjoined from preparing tax returns, the courts holding that the returns were false and frivolous. United States v. Donald A. Gray, 2007 U.S. Dist. LEXIS 19833; 99 A.F.T.R.2d (RIA) 1695, 2007 TNT 56-10, No. 1:07-CV-42 (U.S.D.C. W.D. Mich. March 19, 2007); United States et al. v. Beverly J. Hill et vir. et al., 2005 U.S. Dist. LEXIS 38086; 97 A.F.T.R.2d (RIA) 548, 2006 TNT 27-13, No. CV-05-877-PHX (U.S.D.C. Ariz. Dec. 22, 2005); and United States v. Jeffrey R. Hunn, No. CV06-1458-PCT-FJM (U.S. Dist. Ct. for the District of Arizona, Aug. 18, 2006).
