by Brian Mahany
Welcome to the fascinating world of Sharon Kukhahn of Tacoma, Washington. As of today, Kukhahn’s address will be in care of the U.S. Bureau of Prisons. On November 16th, she was sentenced to 7 years of prison for tax evasion and conspiracy to defraud the US Treasury. Her story is an interesting one.
Kukhahn is what the IRS calls a “tax defier” (the term tax protestor no longer being favored). Prosecutors say she was warned numerous times during the last decade that her schemes were illegal. In 2006, her partner David Stephenson was sent to prison for 8 years for promoting the same type of trust scheme. Apparently she did not learn.
Two years later the IRS obtained an injunction against her. Ever unrepentant, Kukhahn sent a bill to the government for $75,000 and asked the court to declare that it had no jurisdiction as the federal court house in Tacoma, Washington was outside the “lawful federal area of the territorial jurisdiction of a member state of the union.” She also claimed that the court that issued the injunction against her was an “outlaw” court.
While this sounds laughable, the feds say she convinced many Americans to believe her and that hundreds paid for her services. Ultimately, the government says her actions defrauded the IRS of $4 million. Her former clients are the ultimate losers – they still owe taxes and will now face significant interest and penalties. Some could even face jail.
While no one likes paying taxes, most jurors like those don’t pay their fair share even less. Earlier this year, Kukhahn was back in court and tried for multiple felony counts of tax evasion and conspiracy. She was convicted in May.
So what did she do to earn herself a 7 year prison sentence?
First, prosecutors say she ran a service called IMF Decoders. For a fee of $1750 to $3195, Kukhahn would “decode” a client’s IRS master file. The master file is essentially a transcript of all documents pertaining to a taxpayer – returns, W2’s, 1099’s, etc. She then prepares “rebuttal” letters claiming to the IRS to force them to correct mistakes.
Essentially, she says the IRS can only tax federal employees or people living in a federal territory like the District of Columbia and that the government can’t tax “natural born citizens.” While those theories have long been popular, Kukhahn failed to tell her clients that similar arguments had been rejected by the courts. We are all entitled to make our own interpretations of the law but only the interpretation by the court counts. Thus far, the courts have universally held that we all must pay taxes.
Prosecutors also say that Kukhahn created false bonds that could be used for people to pay taxes. The bonds, of course, had no value and were nothing more than funny money.
Most people don’t get 3 strikes before they head to prison. Kukhahn was very lucky but her luck finally ran out. In fairness to her, she evidently believes in her own theories. Courts have a term for that – it’s called willful blindness. If your theories rise to the level of pure fantasy, it doesn’t matter whether you believed in them or not.
Although she may believe the federal judge who sentenced her isn’t a real judge, the walls in her current cell are certainly real concrete.
At sentencing Kukhahn maintained that she was “molested, subjected to domestic abuse, and [was] unable to stop herself from being influenced by stronger, smarter men, even possibly against her better judgment.” She claims she had no criminal intent. Suprisingly, Kukhahn did express remorse at sentencing and promised to begin a new career writing children’s books once released. Prosecutors paint a different picture. They say she was the mastermind of a sophisticated scheme to defraud the government.
The court was not swayed by Kukhahn’s arguments. In sentencing her to 84 months in prison and almost $1 million in restitution, Judge Settle is reported to have said that he had not seen many cases with such “greed, obfuscation, delusion and treachery.”
If you have been signed up for one of these phony tax shelter packages, contact an experienced criminal tax attorney immediately. The IRS and Justice Department have a scorched earth policy when it comes to those they believe are tax defiers. Luckily, the IRS does adhere to a first contact policy meaning you can generally avoid prosecution IF you contact the IRS and come into compliance before they contact you. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) 0r by email at All calls are of course confidential.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan: Portland, Maine & San Francisco, California. Tax services available nationwide.