2 in Tax Shelter Case Living Outside U.S.

Two men who helped operate an Orange County-based “church” that allegedly grossed $6 million in six years by marketing “congregation charters” as a purported tax shelter have left the country, and extradition may be impossible, a federal prosecutor said Wednesday.

Michael S. McGinnis, 39-year-old co-founder of the Church of Universal Harmony, and Stanley Wayne Cruson, 47, a regional sales director for the organization, are scheduled to be arraigned with three other defendants March 24 in U.S. District Court in Los Angeles on charges of conspiracy and tax evasion.

But McGinnis, facing a possible 61-year prison term if convicted, is living in France, and Cruson, facing a possible 17-year term, has moved to Costa Rica, said Assistant U.S. Atty. Gary A. Feess .

“Both have been gone for quite some time--at least a period of some months,” Feess said. Neither France nor Costa Rica considers tax violations to be an extraditable offense, he said.

McGinnis, a former Tustin resident, and Cruson, a former Riverside resident, were named in a 25-count federal grand jury made public this week. Also named as defendants were Dennis D. Riness, a co-founder of the church; Winston Scott Mesch, a sales director, and James A. Hoffman, a salesman.

The indictment was returned Dec. 3 by the grand jury, but it was immediately ordered sealed as federal agents tried to locate McGinnis and Cruson.

Feess declined to say whether U.S. authorities have made contact with McGinnis and Cruson. “I can tell you no deals have been made,” he said. Feess said he does not know whether they will choose to return to the United States to face charges.

The indictment alleged that McGinnis and Riness, a 43-year-old Seal Beach resident, concocted the Church of Universal Harmony as a scheme to sell supposedly tax-exempt chartered congregations for $1,200 to $1,500. Then, according to the indictment, buyers were instructed how to funnel their income through the “congregation” to dramatically reduce personal taxes.

Members would use supposedly tax-exempt accounts to pay for their mortgages, cars, utilities and doctors bills “and for so-called missionary trips to such places as Las Vegas,” the U.S. attorney’s office said in a press release.

Prosecutors pointed out that the Church of Universal Harmony was chartered under, and marketed charters to, the controversial Universal Life Church. The indictment noted that the Modesto-based Universal Life Church, the largest mail-order church in the nation, had been granted individual tax-exempt status by the IRS in 1976 following litigation in federal court --an exemption that was not transferable to other purported wings. The IRS revoked that church’s tax-exempt status in 1984.

The McGinnis-Riness organization operated from 1978 to 1984, with a sales network that covered California, Oregon, Nevada and Arizona, prosecutors said. Operating from headquarters in McGinnis’ home, it attracted more than 3,000 members and grossed more than $6 million. In some years, McGinnis and Riness each derived personal incomes well in excess of $100,000, according to the indictment.

Before establishing the Church of Universal Harmony, McGinnis and Riness founded TEA, An Assn. of 20th-Century Patriots, as a tax protest and resistance organization, Feess said. TEA--which derived its name from a famous tax protest, the Boston Tea Party--later served as the marketing arm of the Church of Universal Harmony, the prosecutor alleged.

“I don’t believe any crime was committed,” Riness said Wednesday in a phone interview. Riness, who could face a maximum prison sentence of 51 years if convicted on all counts, said he will probably plead innocent. “I have to speak to legal counsel.”

Riness maintained that the Church of Universal Harmony was a legitimate religious organization. There is “a small group of people who still meet . . . the true believers,” he said.

One count of the indictment alleged that Riness reported a 1981 taxable income of $23,496, with a tax due of $4,198, when in fact his taxable income was $141,573 and the tax due was $54,317.

When the operation disbanded in 1984, “it was useless to go ahead because the IRS was beating on us so badly,” Riness said. Since then, Riness said, he has been working in commercial sales--”nothing to do with the church.”

Besides conspiracy and tax evasion, the defendants face various counts of subscribing to false income tax returns and aiding and assisting the preparation of false income tax returns.

If convicted on all counts, Mesch, 38, of San Jose faces a possible prison term of 14 years. Hoffman, 45, of Sunnyvale faces a possible term of 11 years.