A Ride With My Best Friend: The Fiscal Arbitrators Pseudolaw Tax Evasion Scheme, Recruitment, and Litigation

Abstract

Fiscal Arbitrators was a comparative short-lived Canadian pseudolaw tax avoidance scheme that operated between 2006-2012. Taxpayers made “Strawman Theory” claims to create large but fictitious business expenses. Taxpayers who employed Fiscal Arbitrators techniques had no legal basis for their claims. The Canada Revenue Agency assessed “gross negligence” penalties in addition to other automatic charges. At least 500 Fiscal Arbitrators customers appealed their taxation re-assessments at the Tax Court of Canada. There, these taxpayers usually claimed their actions, and blatantly false tax returns, had a reasonable basis. This unusual confluence of factors resulted in a substantial number of written court decisions that include first-hand, first-person, accounts of how and why Fiscal Arbitrators’ customers were recruited, and that describe this “Detax” scheme’s operation. Unexpectedly, Fiscal Arbitrators customers were primarily recruited via person-to person contacts and through family, social, and workplace networks. No Internet based recruitment was reported. Fiscal Arbitrators customers showed little to no interest in or understanding of the basis for their extraordinary claims. Their sole motivation was greed. These taxpayers were mainly non-ideological “mercenaries” who abandoned pseudolaw to conduct damage control steps as rational self interested actors. Most voluntarily terminated their appeals prior to a full appeal court hearing. The characteristics of this study’s Fiscal Arbitrators population do not correspond with how legal, media, and academic sources stereotypically portray and describe pseudolaw adherents. This investigation thus illustrates pseudolaw’s users are potentially more diverse than is commonly recognized.