Had Mental Block Against Filing

By: A.J. Cook

Ernest R. Lilley, Jr. said he had a mental block against filing returns.

Don't we all?

He was serious when he told the Internal Revenue Service that's why he didn't file.

Lilley, of Glen Riddle, Pa., graduated from Yale University and then received advanced degrees in psychology and theology. While working for the Franklin Mint, he recognized a business opportunity in precious metals. Using his life savings, he launched Mintmaster, Inc., which minted and sold gold, silver and bronze medallions.

Suspecting the company violated counterfeiting laws and gold regulations, the Secret Service seized its assets. Six months later, it realized -- oops, it made a mistake. So it returned the assets, but it was too late. Within a short time, the business collapsed.

Of course, Lilley was upset. The Secret Service had destroyed his business. He wanted restitution, but was told he couldn't sue the government.

As any citizen would, he wrote his Senator requesting help. He remarked that because of his frustration he hadn't filed tax returns since the seizure. His senator turned the letter over to the Treasury Department. That branch said no compensation was available and suggested he contact the IRS about his tax problem.

After being flung from the frying pan into the fire, he tried to get his life together. Lilley went to work as a guard and then as a security director. At both companies he filed withholding forms showing he would owe no taxes. He explained that the deduction for his business destruction exceeded income.

When the IRS came calling, he said he couldn't conscientiously file returns until he received restitution. He asked the agents for assistance in straightening out the predicament. Instead of helping, they reported him to their superiors. The government then prosecuted him for not filing for 11 years.

Lilley's attorney recommended he plead mental illness. He refused and was convicted and sentenced to one year in prison. As a condition of parole, he filed past due returns. Contrary to his attorney's advice, he deducted the business loss.

Provoked, the IRS imposed civil penalties. As for the minting business loss, it stamped that out, to coin a phrase.

Lilley took the agency to court. Two doctors testified for him. They said he had a mental block immobilizing him only in tax matters. His belief that the government persecuted him rendered him unable to file returns.

The Tax Court refused to accept this and assessed numerous penalties. The problem was attributable to his grievance against the government. Anyway, the court doubted that he suffered the illness for 11 years -- continuously. Surely he had some sane periods.

The Moral: A mental block may cost you a mint.

A.J. Cook is a lawyer and CPA. His tax column appears weekly in numerous newspapers. Why isn't it published in your hometown newspaper? Ask its Business Editor to subscribe.

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