Posted 9/30/2013 12:00 am
Updated 7 months ago
Fred Neal Jr. thought he found a loophole in the law so that he and his wife wouldn’t have to pay their $1.3 million tax bill.
But his misunderstanding of the law and his faith in an Internet conspiracy theory set off a chain of events that ended in June when he pleaded guilty in federal court in Little Rock to interfering with Internal Revenue Service laws and filing false claims.
By taking the plea deal, the 81-year-old Neal — who had homes in Marshall, Texas, and Harrison — became one of the oldest first-time felons in Arkansas.
The conspiracy theory that Neal subscribed to also prompted him to file fraudulent liens against IRS and government officials that totaled more than $1 billion, according to various records in U.S. District Court and U.S. Bankruptcy Court.
The plea deal came at the end of three years of strife for Neal. Since 2010, the IRS had seized hundreds of acres of Neal’s property in Texas and Arkansas and received $825,000 from the sale of the properties. And on March 28, his wife, Doris, died at age 84.
Neal is awaiting sentencing from U.S. District Judge Billy Roy Wilson.
“I’m not going to give you a story because I’m not supposed to be talking about it,” Neal said last week when Arkansas Business reached him at his Texas home. “I don’t want to jeopardize anything.”
Neal’s criminal cases and related lawsuits and bankruptcy filings provided a peek into the strange world known as the “redemption movement.” Movement subscribers believe that in 1933 the U.S. government left the gold standard and used its citizens for collateral. The theory claims that citizens can tap a hidden account.
Neal’s attorney, Blake Hendrix of Little Rock, declined to comment on the case.
Born in Oklahoma on Aug. 31, 1932, Neal received a mechanical engineering degree from Texas A&M University, according to a person close to Neal who asked not to be named. Texas A&M couldn’t immediately verify his degree.
He reportedly started a plastics recycling business in 1973 that grew to nine plants across the country. Court documents don’t name the company, and searches of filings at the Arkansas Secretary of State’s Office and in Texas didn’t show a company connected to Neal.
Neal sold the company sometime in the 1980s, created several trusts and moved his assets into them.
“These trusts were used by [Fred Neal] to shelter or hide [his] assets and income from [his] creditors, including the United States,” according to court documents filed by the U.S. Attorney’s Office.
But the person close to Neal said Neal established the trusts himself and made the mistake of not properly creating them in order to limit tax liability. “He believed that post-retirement income wasn’t taxable,” the supporter said.
So Neal didn’t pay federal income taxes between 1987 and 1994, according to court documents.
Tax Troubles Surface
At the end of 2007, the IRS sued Fred and Doris Neal in the Harrison division of U.S. District Court in an attempt to collect more than $1 million in back taxes. The IRS also wanted to foreclose on 662 acres that the Neals owned in Boone County.
Fred Neal told Arkansas Business in early 2008 that he was retired and didn’t know anything about the lawsuit. He said he thought he had made arrangements to settle the tax bill in September 2006.
He also wondered how the IRS came up with the bill for his wife because she didn’t work. The IRS said Doris Neal owed $541,000.
In what would become a disastrous pattern, Neal decided to represent himself and his wife.
In one filing on Jan. 1, 2008, Neal wrote, “There is no dispute of the facts of this proceeding.” That statement helped the IRS win a summary judgment on Dec. 30, 2008. By that time, the IRS bill had swelled to about $1.6 million.
U.S. District Judge Robert Dawson also ruled the Neals’ property in Boone County could be sold.
But Fred Neal wasn’t giving up his property without a fight.
Trip to Bankruptcy
Neal promptly filed for Chapter 13 bankruptcy protection on Jan. 5, 2009.
He again acted as his own attorney, and the bankruptcy case was thrown out less than three months later.
Unbowed, Neal filed for Chapter 11 bankruptcy reorganization in June 2009. He listed monthly income of $1,774, but reported $820 million in assets and the $1.6 million in debt from the IRS, which he said was disputed.
Those hundreds of millions in assets he claimed were liens he had filed against government officials.
“The Neals had no intent to pay the judgment or to reorganize their debt or to pay the IRS claim,” Stephanie Page of Washington, D.C., an attorney for the IRS, said during a February 2010 court proceeding, the transcript of which was included in the case file. “The bankruptcy was filed only to delay the seizure and sale of the property. … The Neals have a long history of evading the collection of federal income taxes, and this bankruptcy is a continuance of this activity.”
Neal had placed a $50 million lien against Page.
The hearing gave Neal a chance to explain the redemption theory to U.S. Bankruptcy Judge Ben Barry.
“It’s public knowledge, and so you can get on the computer and do a … Google search and come up with just scads of information,” Neal said at the hearing. “When you get back to House Joint Resolution 192 in 1933 and start moving forward with this, there’s a tremendous, tremendous amount of information there.”
According to Neal’s theory, the United States went bankrupt in 1933, making citizens debtors in a bankruptcy. There was, he said, a way to become a creditor with the Secretary of Treasury, and he claimed to have an account with the Treasury Department.
“I don’t write checks on it, but I can write bonded promissory notes,” Neal said.
He said he could use those notes to settle and discharge debts, which is what he did with the IRS.
To his disappointment, the IRS rejected his notes. “Why, I don’t know,” Neal said.
Judge Barry tossed the Neals’ bankruptcy case, finding it to be an attempt to delay enforcement of the IRS judgment.
In his May 2010 order, Barry said the Neals failed to establish a reorganization plan because their primary source of funding was through “self-filed ‘maritime liens.’ Debtors filed eleven maritime liens that are fake, fraudulent liens.”
Barry also blasted Neal’s theory. “It’s all based on legal gobbledygook and gibberish,” he said during the February 2010 hearing. “It’s legal fantasy; it’s stuff on the Internet.
“It’s just a bizarre, outlandish set of theories that, unfortunately, a lot of people have come to believe because they want to believe it because they don’t want to pay their taxes.”
Barry added that a maritime lien can only be based on a service provided to a vessel, such as a ship. “A person is not a vessel,” Barry said.
He also gave Neal a warning: “If this continues to be promoted — and it may be too late — there could be criminal prosecution for continuing to take these actions.”
It was already too late.
On Feb. 2, 2011, Neal was indicted in U.S. District Court in Little Rock for interference with the IRS laws and filing false liens.
Neal had also filed false IRS 1099 tax forms, misrepresenting that IRS and court officials and others had each received personal incomes ranging from $7 million to $210 million.
Matters worsened for Neal when he appeared for plea and arraignment on March 2, 2011. He asked for a public defender because his only income, he said in filings, was a monthly Social Security check for $1,250.
But Neal was actually self-employed as the owner-president of Lang Laboratories Inc. of Marshall, Texas. Officials from Lang, which sells pesticides, didn’t return a call for comment, but prosecutors said the company paid Neal at least $150,000 in silver and cash between March 2010 and March 2011. He also owned several automobiles and an airplane.
He was charged last September with perjury. On June 4, he finally caught a break: A jury found him not guilty of the perjury charge.
Two weeks later, Neal waived his right to a trial and pleaded guilty to the interference and false lien charges.
When sentenced later this week, Neal faces up to three years in prison and a fine of $250,000 for interfering with the IRS and up to 10 years in prison and a $250,000 fine on the filing false liens charge.