The Sovereign Citizen Scam
Every once in a while, I come across something online that makes me stop and say, “Wait… people actually believe this?”
Then I start digging.
And the deeper I dig, the more interesting and sometimes scary it gets.
One of those things is the so-called “sovereign citizen” movement, especially the financial schemes being promoted around it.
You may have seen videos or posts claiming that you can declare yourself “sovereign,” separate yourself from your legal identity, access a secret government account, eliminate your mortgage, stop paying certain debts, or use special paperwork to make the government pay your bills.
Sounds pretty darn good, doesn't it?
There is just one little problem.
It isn't true.
What Is a Sovereign Citizen?
The term “sovereign citizen” generally refers to people who believe they can somehow separate themselves from the authority of federal, state, or local government.
Different people have different versions of the theory.
Some claim they don't need a driver's license.
Some believe they don't have to pay taxes.
Others claim courts don't have jurisdiction over them unless they “consent.”
And then we get to the really interesting one:
The secret government account.
Courts have repeatedly rejected arguments that someone can simply declare themselves outside federal authority or taxation. The IRS specifically identifies these kinds of arguments as frivolous.
Apparently, We're All Secret Millionaires
Wouldn't that be nice?
One version of the sovereign citizen theory claims that when you are born, the government creates a separate legal identity for you.
This is sometimes called your “strawman.”
According to the story, your birth certificate and Social Security number are supposedly connected to a secret account held by the U.S. Treasury.
Depending on who's telling the story, that account might supposedly contain hundreds of thousands or even millions of dollars.
All you have to do is learn how to access it.
Of course, the person explaining this secret may conveniently have a course, seminar, paperwork package, consultation or special process they can sell you.
Here's the problem.
The secret account doesn't exist.
The IRS directly addresses this claim. It says the Treasury Department does not maintain these secret individual accounts and that Form 1099-OID cannot be used to withdraw money from the Treasury or pay your personal debts. (IRS)
So unfortunately, you can't walk into the Treasury and say:
“Hi. I'm Lisa. I'd like my $3 million now.”
Darn.
I had plans for that money.
The 1099-OID Trick
This is where something that sounds ridiculous can become very serious.
Some versions of the scheme involve IRS Form 1099-OID, which is a legitimate tax form used to report certain original issue discount income.
But promoters have tried to convince people that the form can somehow be used to access their imaginary Treasury account.
They may tell people to treat mortgages, credit cards, student loans or other debts as though they were income with taxes withheld. That can then be used to create a claim for an enormous tax refund.
The IRS specifically warns that Form 1099-OID is not a financial instrument and isn't a legitimate way to pay public or private debts. Filing false information can lead to civil or criminal penalties.
That's quite a difference from what you might hear in a slick internet video.
People Have Actually Gone to Prison Over This
This isn't just some goofy internet conspiracy theory.
People have acted on it.
In one federal case, prosecutors said a woman promoted the false idea that the U.S. Treasury maintains secret accounts for every American that could be accessed through bogus documents.
According to the Justice Department, the scheme involved fraudulent 1099-OID forms involving mortgages, student loans, credit-card debts and court judgments.
The scheme sought millions of dollars in fraudulent refunds.
She was eventually sentenced to nine years in federal prison.
Suddenly that secret-money trick doesn't sound quite as appealing.
Another Version: Make Your Debt Disappear
There are also variations promising to eliminate legitimate debts.
Mortgage?
Gone.
Credit cards?
Gone.
Taxes?
Gone.
Just use the correct paperwork and magic legal language.
Except that's not how debt works.
The FBI has documented cases involving bogus checks and supposed “EFT” instruments that people were taught could discharge their debts even though no actual money changed hands. (FBI)
Another case involved approximately 400 struggling homeowners who paid around $15,000 each to a scheme that supposedly would eliminate their mortgages.
According to the FBI, the operation collected nearly $4 million from victims.
The sovereign-citizen paperwork did not eliminate a single mortgage.
Imagine being behind on your mortgage, desperately looking for help, scraping together thousands of dollars and discovering the “solution” you bought was worthless.
That's what makes this more than something to laugh about.
Watch Out for the Magic Words
If someone is promising a secret legal loophole that supposedly makes your financial obligations disappear, start asking questions.
Be especially careful when you hear combinations of phrases like:
- Secret Treasury account
- Birth certificate account or bond
- Strawman
- Redemption theory
- Commercial redemption
- Accepted for value
- Secured party creditor
- 1099-OID
- Sovereign citizen
- Living man or living woman
- Claims that writing your name in a particular way changes your legal obligations
One important point: some terms used in these schemes are legitimate.
The Uniform Commercial Code (UCC) is real.
IRS forms are obviously real.
Promissory notes are real.
Liens are real.
The scam comes from taking legitimate legal and financial terminology and weaving it into a story that makes the whole thing sound official.
That's one reason people can fall for it.
“They Don't Want You to Know This…”
That's probably one of my biggest red flags.
Whenever someone tells me:
“The government doesn't want you to know about this secret…”
my next question is:
Then how did some guy on the internet find out about it?
Apparently the government managed to keep a multimillion-dollar account hidden from lawyers, accountants, bankers and millions of ordinary Americans…
…but Bob on YouTube cracked the code.
Okay.
Could there be government waste? Absolutely.
Could laws be complicated and sometimes ridiculous? Of course.
Can you legally reduce taxes, dispute debts, challenge government decisions and defend yourself in court?
Absolutely.
But there is a huge difference between using legitimate laws and believing that a collection of special words and paperwork makes laws disappear.
The Person Teaching It May Not Be the One Taking the Risk
This may be the most important part.
Suppose someone sells you a $500 course explaining how to access your “Treasury account.”
They give you the paperwork.
You file it.
They tell you how to eliminate your mortgage.
You send the documents.
They explain how to claim a giant refund.
Your name goes on the tax return.
See the problem?
The promoter collects your money.
You're the person signing and submitting the documents.
And if those documents contain fraudulent information, saying “someone on the internet told me it was legal” isn't the position I'd want to find myself defending.
Federal authorities have prosecuted people for schemes involving fraudulent tax documents, fictitious financial instruments and false liens connected with these theories. (U.S. Department of Justice)
Don't Confuse Self-Sufficiency With Sovereignty
This is an important distinction for me.
I'm a huge believer in becoming more self-sufficient.
Grow some food.
Preserve food.
Learn practical skills.
Keep emergency supplies.
Reduce debt.
Learn how to repair things.
Question things.
Research things for yourself.
Become less dependent on systems whenever you reasonably can.
But being self-sufficient doesn't mean laws magically stop applying to you.
You can dislike a law.
You can disagree with a tax.
You can think government has too much power.
Those are opinions we're all free to have.
But declaring yourself “sovereign” doesn't make your mortgage disappear or unlock a secret bank account.
Do Your Homework Before Signing Anything
The internet has given us access to more information than any generation before us.
Unfortunately, it has also given nonsense a professional-looking website, a Facebook group, and a YouTube channel.
Before you file unusual government paperwork, stop paying a legitimate debt, send strange documents to your mortgage company, or claim a giant tax refund based on something you learned online, verify it independently.
Talk to a qualified attorney, CPA or other appropriate professional.
Check actual government sources.
Don't rely solely on the person selling the program.
And definitely don't assume something is legitimate simply because the paperwork looks official.
Sometimes complicated words are just complicated words.
They don't turn nonsense into law.
Final Thoughts
I understand why these ideas attract people.
Who wouldn't love to discover that their mortgage isn't real, taxes are optional and the government has secretly been holding a few million dollars for them since birth?
I'd sign up for that deal myself.
Unfortunately, wishing something were true doesn't make it true.
There is no magical declaration that makes you immune from the law.
There isn't a secret Treasury account waiting for you to unlock it with the correct combination of IRS forms.
And no piece of paperwork automatically makes legitimate debt disappear.
So when someone tells you they've discovered the financial secret the government doesn't want you to know about, don't reach for your wallet.
Reach for your common sense.
And then do your own research.
